Brown-Forman's profits dip despite beating earnings expectations

In the United States, Brown Forman Inc. announced its second-quarter financial results on December 5, 2024, showing performance that exceeded expectations. The company achieved earnings per share of 55 cents, which was above the analysts' forecast of 51 cents. Revenue for the quarter totaled $1.095 billion, reflecting a slight decline of 1% year-over-year but surpassing the anticipated $1.076 billion. The increase in sales was reported at 3% on an organic basis. Nevertheless, the financial health of the company was impacted negatively by the divestitures of Finlandia and Sonoma-Cutrer, which played a significant role in the year-on-year sales decline. In terms of operating income, Brown Forman experienced a modest growth of 1%, bringing it to $341 million for the second quarter. Contrarily, the gross profit saw a significant downturn of 4% compared to the previous year, settling at $646 million. Notably, the first half of the year resulted in an overall 8% decline in gross profit, attributed mainly to the aforementioned divestitures. Gross margin also contracted by 240 basis points, primarily attributed to fluctuations in input costs and high inventory levels, although this was partially offset by more favorable pricing and product mix strategies. Additionally, the company's Board of Directors approved a 4% increase in the cash dividend rate, raising it to $0.2265 per share for both Class A and Class B common stock. This increment is expected to be paid out on January 2, 2025, to stockholders listed as record holders on December 6. In its FY25 outlook, Brown Forman projects organic net sales and operating income growth in the range of 2% to 4%. Furthermore, the management anticipates the effective tax rate to be between 21% and 23%, with revised estimates for capital expenditures now set between $180 million and $190 million, a slight decrease from earlier estimates. Overall, despite the challenges experienced due to divestitures and tight margins, the solid earnings and the raised dividend signal a recovery trajectory for Brown Forman, maintaining investor confidence as they navigate through industry dynamics and operational hurdles.