Brown-Forman(BF_B) - 2024 Q3 - Quarterly Results

Financial Performance - Third quarter reported net sales decreased 1% to $1.1 billion (-2$373 million (+5% organic) and diluted earnings per share increased 189% to $0.60[1] - Year-to-date reported net sales increased 1$3.2 billion (flat on an organic basis) compared to the same prior-year period[7] - Year-to-date reported operating income increased 25% to $1.0 billion (+2$1.58[7] - Reported net sales for the nine months ended January 31, 2024, were $3,214 million, reflecting a 1$3,182 million in the prior year[37] - Operating income rose by 25% to $1,039 million, compared to$829 million in the same period last year[37] - Net income for the nine months ended January 31, 2024, was $758 million, a 32$576 million[37] - Earnings per share (diluted) increased by 32% to $1.58 for the nine months ended January 31, 2024, compared to$1.20 in the prior year[37] Sales Growth - The recently acquired brands, Gin Mare and Diplomático, drove Rest of Portfolio's reported net sales growth of 79% (+11% organic)[2] - Jack Daniel's Tennessee Apple delivered double-digit reported net sales growth of 44% (+45% organic)[3] - New Mix brand reported a strong net sales growth of 34%, with 17% organic growth[40] - The company experienced reported net sales growth in Emerging markets and the Travel Retail channel, offset by declines in Developed International markets and the United States[42] - The emerging markets, particularly Mexico, Poland, and Brazil, showed strong growth with net sales increasing by 22%, 24%, and 12% respectively[64] Cost and Profitability - Reported gross profit increased 5% (+6% organic) with gross margin expansion of 250 basis points to 60.9%[27] - Gross profit increased by 5% to $1,957 million for the nine months ended January 31, 2024, up from$1,859 million[37] - The company reported a 4% decrease in the cost of sales, contributing to a gross profit decline of 5%[82] Market Trends - The Jack Daniel's family of brands reported depletions of 23.4 million, reflecting a 4% decrease compared to the prior-year period[78] - The company’s "Tequila" category, including brands like Herradura and el Jimador, experienced a 9% decrease in depletions[78] - Consumer takeaway data indicates trends in market demand, with estimates derived from retail sales value metrics[103] Strategic Actions - The sale of the Finlandia vodka brand generated a pre-tax gain of $90 million[4] - The$400 million share repurchase program was completed as of December 31, 2023[4] - The company reached an agreement to sell its Sonoma-Cutrer wine business, expected to close in the fourth quarter of fiscal 2024, with transaction costs related to this disposition being adjusted out[71] - The company acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U. during the third quarter of fiscal 2023, impacting financial results[84] Tax and Financial Adjustments - The effective tax rate decreased to 20.3% for the nine months ended January 31, 2024, down from 23.0% in the prior year[37] - Organic net sales adjustments are made to account for acquisitions, divestitures, foreign exchange, and impairment charges[83] - A non-cash impairment charge of $96 million for the Finlandia brand name was recognized during the third quarter of fiscal 2023, which was adjusted for organic results[74] - A gain of$7 million was recognized on the sale of certain fixed assets during the second quarter of fiscal 2024, which was also adjusted for organic results[72] Future Outlook - The company expects organic net sales to be flat for fiscal 2024, with organic operating income growth anticipated in the 0% to 2% range[15] - Capital expenditures are now planned to be in the range of $230 to$240 million[44] - The company recognized that changes in distributor inventories can affect organic trends, with a positive difference indicating a net increase in inventories[95]