Brown-Forman — First Quarter Fiscal 2027 Earnings Summary

Financial Performance

• Reported net sales decreased 1% to $911 million (-1% on an organic basis) compared to the prior-year period.
• Reported operating income decreased 3% to $252 million (+4% on an organic basis).
• Diluted earnings per share increased 6% to $0.38.
• Gross margin expanded 40 basis points to 60.2% (from 59.8%), driven by lower costs and the end of the Korbel relationship, partially offset by foreign exchange and unfavorable price/mix.
• Operating margin decreased 50 basis points to 27.7%.
• Cash flows from operations grew $13 million to $173 million.
• Free cash flow increased $32 million to $161 million.
• Advertising expenses decreased 5% to $114 million (-4% organic).
• Selling, general, and administrative (SG&A) expenses increased 4% to $185 million (+5% organic).
• Income taxes were $53 million, resulting in an effective tax rate of 23.0% for the quarter.
• Non-operating postretirement expense decreased significantly from $19 million to $1 million.

Guidance and Future Outlook

• The company anticipates the fiscal 2027 operating environment to remain challenging due to macroeconomic pressures and geopolitical instability impacting consumer behavior, particularly in developed markets.
• Fiscal 2027 organic net sales are expected to be approximately flat.
• Fiscal 2027 organic operating income is expected to decline in the 3% to 5% range.
• The effective tax rate for fiscal 2027 is projected to be between 20% and 22%.
• Capital expenditures for fiscal 2027 are planned to be in the range of $60 to $70 million.
• The company expects to benefit from a previously announced restructuring initiative, U.S. distributor changes, and continued new product innovation, specifically the expansion of Jack Daniel's Tennessee Blackberry.

Business Segments and Product Lines

• Whiskey: Net sales were flat (flat organic); the international launch of Jack Daniel's Tennessee Blackberry offset declines in Jack Daniel's Tennessee Honey and Gentleman Jack, while Jack Daniel's Tennessee Whiskey remained flat.
• Ready-to-Drink: Net sales increased 20% (+11% organic), driven by New Mix which grew 48% (+36% organic) fueled by strong demand in Mexico, foreign exchange, and the U.S. launch.
• Tequila: Net sales decreased 12% (-13% organic); Herradura declined 17% (-18% organic) and el Jimador declined 10% (-11% organic) due to lower volumes and pricing.
• Rest of Portfolio: Net sales declined 35% (-12% organic), driven by the end of the Korbel relationship.
• Non-branded and Bulk: Net sales decreased 61% (-61% organic) driven by lower used barrel sales.
• Geographic Performance: Developed International markets declined 6% (-8% organic); Emerging markets increased 11% (+9% organic), led by Mexico; Travel Retail declined 1% (-1% organic) due to Middle East geopolitical headwinds; United States sales declined 3% (flat organic).

Market and Competitive Landscape

• Macroeconomic pressures and geopolitical instability are negatively impacting consumer behavior and beverage alcohol consumption, particularly within developed markets.
• The spirits industry is subject to a "three-tier system" in the U.S., where distributor inventory fluctuations can impact reported sales trends.
• Travel Retail was specifically impacted by geopolitical headwinds in the Middle East.

Risks and Challenges

• The company faces risks from macroeconomic conditions, geopolitical instability, and changes in consumer preferences or consumption patterns.
• Challenges include potential disruptions to the distribution network, inventory fluctuations, and trade policy changes or tariffs.
• The business is substantially dependent on the continued growth of the Jack Daniel's family of brands.
• Risks include production facility disruptions, supply chain issues, and fluctuations in foreign currency exchange rates.
• The company notes risks related to health epidemics, pandemics, and regulatory changes affecting production, marketing, or consumption of beverage alcohol.

Management Commentary and Tone

• President and CEO Lawson Whiting stated that first-quarter results were "largely in line with our expectations and reinforce our confidence in the year ahead."
• Management highlighted that innovation remains an important growth driver, with momentum from the New Mix portfolio and Jack Daniel's Tennessee Blackberry offsetting pressures elsewhere.
• The tone reflects confidence in the company's ability to create new growth opportunities despite a challenging operating environment.

Other Key Points

• On July 23, 2026, the Board declared a regular quarterly cash dividend of $0.2310 per share, payable October 1, 2026.
• Brown-Forman has paid regular quarterly cash dividends for 82 consecutive years and increased the dividend for 42 consecutive years, maintaining its status as an S&P 500 Dividend Aristocrat.
• The company repaid $343 million (€300 million) principal amount of its 1.20% senior notes on July 7, 2026.
• The Korbel relationship ended on June 30, 2025, impacting current period comparability.
• The company transitioned the management of Jack Daniel's Country Cocktails (JDCC) supply, sales, marketing, and distribution in the first quarter of fiscal 2027.
• Cash and cash equivalents at period end were $301 million.
• Total assets were $7,825 million as of July 31, 2026.