Brown-Forman(BF_B) - 2025 Q2 - Quarterly Results

Financial Performance - Second quarter reported net sales decreased 1% to $1.1 billion, with a 3% increase on an organic basis compared to the prior-year period[1]. - For the first half of fiscal 2025, reported net sales decreased 5% to$ 2.0 billion, remaining flat on an organic basis[2]. - First half reported operating income decreased 7% to $622 million, with a 3% decline on an organic basis[2]. - Gross profit declined 8% (-4% organic) primarily due to divestitures, with gross margin contracting 240 basis points to 59.2%[5][14]. - Net sales for the Tequila portfolio declined 17% (-17% organic), with el Jimador's net sales down 16% and Herradura's down 14%[7]. - The Travel Retail channel's net sales declined 5% (-3% organic), impacted by lower volumes and divestitures[13]. - Net sales for 2023 were$ 1,107 million, a decrease of 1% compared to $1,095 million in 2024[28]. - Gross profit decreased by 4% from$ 671 million in 2023 to $646 million in 2024[28]. - Net income increased by 7% from$ 242 million in 2023 to $258 million in 2024[28]. - Earnings per share (diluted) rose by 9% from$ 0.50 in 2023 to $0.55 in 2024[28]. - Total portfolio depletions decreased by 5% and shipments decreased by 2% compared to the prior year period[39]. - Whiskey category depletions were 10.4 million, down 4%, with net sales down 1%[39]. - Ready-to-drink segment depletions were 10.3 million, down 4%, with net sales down 6%[39]. - Organic net sales decreased by 3% due to foreign exchange impacts and acquisitions[41]. Dividends and Taxation - The quarterly cash dividend was increased by 4% to$ 0.2265 per share, marking the 41st consecutive year of dividend increases[18][19]. - The effective tax rate is expected to be in the range of approximately 21% to 23%[21]. - The effective tax rate increased from 22.0% in 2023 to 17.6% in 2024[28]. - Cash dividends paid per common share increased from $0.2055 in 2023 to$ 0.2178 in 2024[28]. - A $13 million franchise tax refund was recognized in the first quarter of fiscal 2025 due to a change in franchise tax calculation methodology in Tennessee, retroactively applied to fiscal 2020 through fiscal 2023[57]. Future Outlook - The company anticipates organic net sales growth in the range of 2% to 4% for fiscal 2025[20]. - The company expects a return to growth in fiscal 2025, driven by international market gains and normalizing inventory trends[20]. - The company plans to continue focusing on market expansion and new product development strategies[39]. Market Performance - Emerging markets saw a 6% organic sales increase, while developed international markets experienced a 5% decline[41]. - The company reported a 39% increase in non-branded and bulk sales, with a 2% organic growth[41]. - Estimated net change in distributor inventories for the United States was 3%, while travel retail saw a decrease of 1%[43]. - Top developed international markets include Germany, Australia, the UK, France, Canada, and Spain, while top emerging markets are Mexico, Poland, and Brazil[63]. Business Transactions - The company recognized a pre-tax gain of$ 175 million from the sale of the Sonoma-Cutrer wine business[51]. - The divestiture of the Finlandia vodka business resulted in a pre-tax gain of $92 million[50]. - In fiscal 2024, production of Jack Daniel's Country Cocktails fully transitioned to Pabst Brewing Company, removing non-comparable operating activity from the first and second quarters of fiscal 2024 and fiscal 2025[55]. Inventory and Consumer Insights - Estimated fluctuations in distributor inventories are provided to understand performance trends, particularly in the U.S. market, which operates under a three-tier distribution system[60]. - The estimated net change in distributor inventories is calculated to understand the impact of inventory changes on organic trends, with positive differences indicating potential decreases in organic trends[79]. - Consumer takeaway data, provided by external parties, is used to estimate market share and trends, reflecting actual consumer demand[77]. - The company aggregates markets by economic development stage and brands by beverage alcohol category to explain operational results and highlight trends[61].