Brown-Forman Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended October 31, 2023 (fiscal 2024 second quarter and year to date). Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Financial performance
| Metric | Three months ended Oct. 31, 2023 | Year to date | Comparable prior period |
|---|---|---|---|
| Net sales | $1,107; up 1% reported | $2,145; up 2% reported and 1% organic | $1,094 and $2,101, respectively |
| Gross profit / margin | $671 / 60.6% | $1,322 / 61.6% | $613 / 56.0%; $1,235 / 58.8% |
| Operating income / margin | $339 / 30.6% | $666 / 31.0% | $313 / 28.7%; $656 / 31.2% |
| Net income | $242 | $473 | $227; $476 |
| Diluted EPS | $0.50 | $0.98 | $0.47; $0.99 |
Quarterly net sales rose 1% despite a 9% volume decline, as favorable price/mix and acquisitions offset lower volume. Year-to-date sales growth reflected pricing and the acquired Gin Mare and Diplomático brands, partly offset by lower volumes and distributor inventory reductions. Gross-margin gains reflected price/mix and lower supply-chain disruption and tariff costs, partly offset by input-cost inflation and foreign exchange. Higher advertising and SG&A limited year-to-date operating-income growth. Six-month interest expense increased to $60 from $37, contributing to the decline in diluted EPS.
Cash flow, balance sheet, and capital allocation
- Six-month operating cash flow was $97, down from $316, primarily because of inventory investment. Inventories increased to $2,585 at October 31 from $2,283 at April 30.
- Investing cash outflow was $61, including $79 of capital expenditures. Financing cash outflow was $23; dividends paid were $197 and treasury-stock purchases were $42.
- Cash and cash equivalents were $373 at October 31, versus $374 at fiscal year-end. Short-term borrowings were $456 and long-term debt was $2,654, for total reported borrowings of approximately $3.11 billion.
- Current assets were $4,273 and current liabilities were $1,297. The company reported investment-grade ratings of A1 from Moody’s and A- from S&P, and a $900 million commercial-paper program supported by a $900 million bank facility.
- The board raised the quarterly dividend from $0.2055 to $0.2178 per share in November 2023. A share-repurchase authorization of up to $400 million runs through October 1, 2024; $42 million was repurchased in October, with approximately $181 million remaining as of November 30.
Outlook, developments, and risks
- Updated fiscal 2024 outlook: organic net sales growth of 3%–5%, organic operating-income growth of 4%–6%, an effective tax rate of approximately 21%–23%, and capital expenditures of $250–$270 million. Management cited a challenging and evolving global macroeconomic environment and continuing input-cost pressure.
- Brown-Forman completed the sale of Finlandia on November 1, 2023, for $194 million in cash, subject to customary adjustments. In November it agreed to sell Sonoma-Cutrer for $50 million cash and an approximately 21.5% ownership interest in The Duckhorn Portfolio; closing was expected in fiscal 2024’s fourth quarter.
- Key operating risks include distributor inventory fluctuations, competition, consumer and category shifts, supply-chain and input-cost pressures, foreign-exchange movements, regulation and tariffs, and dependence on the Jack Daniel’s family of brands. The company said there were no material changes to its previously disclosed risk factors and no pending legal proceedings expected to have a material adverse effect.
- No material accrued loss contingencies were recorded at October 31. The Diplomático purchase-price allocation remained preliminary; Gin Mare’s allocation was finalized during the quarter. The company also disclosed significant currency-translation losses in other comprehensive income.
Important facts for investors to verify
- Whether reported sales trends improve as distributor inventories normalize, particularly in the United States and Japan, and how shipments compare with consumer demand.
- Delivery of the 3%–5% organic sales and 4%–6% organic operating-income outlook amid input costs, currency effects, and higher brand investment.
- Cash conversion and inventory levels, given the sharp year-over-year reduction in operating cash flow.
- Completion and financial effects of the Sonoma-Cutrer disposition, and the final Diplomático purchase-price allocation and related contingent obligations.
- Borrowing levels, interest expense, and the pace of repurchases and dividend payments relative to cash generation.