Brown-Forman(BF_A) - 2025 Q2 - Quarterly Report

Divestitures and Gains - In fiscal 2024, the company sold the Sonoma-Cutrer wine business for a pre-tax gain of $175 million, receiving$50 million in cash and a 21.4% ownership in The Duckhorn Portfolio Inc.[86] - The divestiture of the Finlandia vodka business resulted in a pre-tax gain of $92 million during fiscal 2024[87]. - The company sold the Finlandia vodka business for$196 million and the Sonoma-Cutrer wine business for $50 million cash, impacting net sales and operating income negatively[121][122]. Financial Performance - Net sales for the six months ended October 31, 2024, were$2.0 billion, a decrease of 5% compared to the same period last year, driven by divestitures, lower volumes, and foreign exchange impacts[123]. - Gross profit for the same period was $1.2 billion, reflecting an 8$622 million for the six months ended October 31, 2024, primarily due to input cost fluctuations and the negative effects of acquisitions and divestitures[123]. - Diluted earnings per share for the six months ended October 31, 2024, were $0.96, a decrease of 3$0.98 in the same period last year[123]. - The overall organic change in net sales for the six months was flat, reflecting a challenging market environment[153]. - For the three months ended October 31, 2024, net sales were $1.1 billion, a decrease of$13 million, or 1%, impacted by acquisitions and divestitures[152]. - Operating income for the three months ended October 31, 2024, totaled $341 million, an increase of$2 million, or 1%, with an operating margin of 31.1%[169]. - Diluted earnings per share for the three months ended October 31, 2024, increased by 9% to $0.55, compared to$0.50 in the same period last year[173]. Market Trends and Challenges - The company faced challenges from substantial competition, changes in consumer preferences, and disruptions in the distribution network[120][118]. - The company measures consumer takeaway as a leading indicator of demand trends, using data from external sources like Nielsen[112]. - The company experienced declines in net sales across geographic aggregations, with specific brands like Finlandia and Sonoma-Cutrer contributing to the downturn[123]. Tax and Refunds - The company recognized a $13 million franchise tax refund in the first quarter of fiscal 2025 due to a change in tax calculation methodology[93]. - The effective tax rate for the six months ended October 31, 2024, was 20.1$446 million at April 30, 2024, and $416 million at October 31, 2024, with approximately 48$129 million for the six months ended October 31, 2024, an increase of $32 million from the same period last year[183]. - The company expects to meet short-term liquidity needs through cash generated from operations and borrowings under its commercial paper program[181]. - The company has a strong liquidity position supported by positive cash flows from operations and ample debt capacity[182]. Future Outlook - The company anticipates organic net sales growth in the range of 2$180 to $190 million from a previous range of$195 to $205 million[175]. Advertising and Expenses - Advertising expenses decreased by 7$252 million for the six months ended October 31, 2024[125]. - Operating expenses for the three months ended October 31, 2024, totaled $305 million, a decrease of$27 million, or 8%, driven by lower advertising and SG&A expenses[164]. Inventory and Sales Trends - Estimated net changes in distributor inventories are calculated to understand the impact on organic trends, indicating potential increases or decreases in distributor inventories[115]. - The company aggregates its product categories, with "Rest of Portfolio" now including brands like Gin Mare and Korbel California Champagnes following recent divestitures[102]. - Brazil's net sales increased 31%, driven by higher volumes across the portfolio, particularly JDTW, JDTA, and JDTH[133]. - The United States' net sales declined 7%, primarily due to lower volumes of JDTW and Korbel California Champagnes, partially offset by higher volumes of Woodford Reserve and Old Forester[128]. - The United Kingdom's net sales declined 8%, led by lower volumes of JDTW, partially offset by the positive effect of foreign exchange[129]. - Mexico's net sales declined 11%, driven by lower volumes of the Tequila portfolio and the negative effect of foreign exchange[133]. - Canada's net sales declined 2%, driven by the divestitures of Finlandia and Sonoma-Cutrer, as well as the negative effect of foreign exchange[129]. - Spain's net sales declined 12%, primarily due to lower volumes of JDTW, partially offset by the positive contribution from Diplomático[131]. Market Risks - The company faces market risks from foreign currency exchange rates, commodity prices, and interest rates, managed through procurement strategies and financial instruments[188].