Brown-Forman(BF_B) - 2025 Q3 - Quarterly Results

Financial Performance - Third quarter reported net sales decreased 3% to $1.0 billion, with a 6% increase on an organic basis compared to the prior-year period[1]. - Year-to-date reported net sales decreased 4% to$ 3.1 billion, with a 2% increase on an organic basis compared to the prior-year period[1]. - Operating income for the nine months decreased 13% to $902 million (+5% organic), with an operating margin decrease of 300 basis points to 29.3%[9]. - Net sales for the nine months ended January 31, 2025, decreased by 4% to$ 3,081 million compared to $3,214 million in the prior year[21]. - Operating income for the same period fell by 13% to$ 902 million, down from $1,039 million[21]. - Net income decreased by 5% to$ 723 million, compared to $758 million in the previous year[21]. - Basic earnings per share for the nine months ended January 31, 2025, were$ 1.53, a 4% decline from $1.59[21]. - Total net sales decreased by 4% compared to the prior-year period, with organic growth at 2%[33]. Gross Profit and Margins - Gross profit declined 6% (-1% organic), with gross margin contracting 150 basis points to 59.4% due to higher costs and negative foreign exchange effects[3]. - Gross margin decreased to 59.4% from 60.9% year-over-year[21]. Dividends and Shareholder Returns - The company has paid regular quarterly cash dividends for 81 consecutive years and increased the regular dividend for 41 consecutive years[10]. - Cash dividends paid per common share increased to$ 0.6621 from $0.6288[21]. Market Performance - The Tequila portfolio net sales declined 15% (-13% organic), impacted by a competitive environment in the U.S. and challenging macroeconomic conditions in Mexico[7]. - The United States market reported a 5% decline in net sales, while emerging markets showed a 4% decline[33]. - Non-branded and bulk sales surged by 38%, contributing to a 39% organic growth[33]. - Whiskey category depletions declined by 3%, while shipments increased by 1%[30]. - Woodford Reserve saw a significant increase in shipments, up 6% year-over-year[30]. - Ready-to-Drink segment experienced a 4% increase in shipments, with New Mix growing by 11%[30]. - The overall portfolio's total volume was 35.7 million 9-liter cases, a slight decrease of 1%[30]. Cost Management and Operational Changes - Operating income increased by 7%, reflecting improved cost management[36]. - The company approved a plan to reduce its structural cost base, resulting in a workforce reduction of approximately 12% and a$ 33 million impact on operating expenses and income[47]. Tax and Financial Guidance - The forecasted effective tax rate range has been updated to approximately 20% to 22% from 21% to 23%[11]. - Organic net sales growth is expected in the 2% to 4% range for fiscal 2025[14]. - Capital expenditures are planned to be in the range of $180 to$ 190 million[14]. Cash Flow and Assets - Cash provided by operating activities increased to $446 million from$ 362 million[25]. - Total current assets rose to $4,279 million, up from$ 4,036 million[23]. - Total liabilities decreased to $4,248 million from$ 4,649 million[23]. Inventory and Market Analysis - Estimated net change in distributor inventories increased by 4% in both the United States and Developed International markets[34]. - The company calculates "estimated net change in distributor inventories" to understand the relationship between shipments and actual consumer demand[57]. - A positive difference in estimated net change indicates a net increase in distributor inventories, potentially leading to decreased organic trends[57]. - The company emphasizes the importance of understanding changes in distributor inventories in the context of operating results[57]. Strategic Insights - The company uses non-GAAP measures like "organic change" to assess performance, excluding foreign exchange fluctuations to provide a clearer view of business trends[47]. - The company aggregates markets by economic development stage, with top developed international markets including Germany, Australia, and the UK[50]. - The company's top emerging markets include Mexico, Poland, and Brazil, reflecting its net sales strategy[54]. - Consumer takeaway data, sourced from Nielsen and NABCA, is used to estimate market share and consumer demand trends[57]. - The "Rest of Portfolio" category now includes Wine and Vodka due to recent divestitures, affecting fiscal 2024 comparisons[52].