Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its fourth quarter and fiscal year ended April 30, 2023. For the fourth quarter, reported net sales increased 5% to $1.0 billion (+4% on an organic basis). In the quarter, reported operating income increased 21% to $298 million (+3% on an organic basis) and diluted earnings per share increased 36% to $0.43 in the quarter.

For the full year, reported net sales increased 8% to $4.2 billion (+10% on an organic basis). Reported operating income decreased 6% to $1.1 billion (+8% on an organic basis) in fiscal 2023 reflecting lower gross margin, higher non-cash impairment charges (largely related to the Finlandia brand name), and higher operating expenses, including certain post-closing expenses in connection with the acquisitions of Diplomático and Gin Mare. Diluted earnings per share decreased 7% to $1.63 due to the decrease in reported operating income and higher pension settlement charges, partially offset by the benefit of a lower effective tax rate.

“In fiscal 2023, Brown-Forman continued its tradition of delivering strong organic top and bottom line growth,” Lawson Whiting, Brown-Forman’s President and Chief Executive Officer, said in a news release. “We were able to build on last year’s double-digit organic net sales growth by continuing the premiumization of our portfolio, investing boldly in our brands, building new strategic relationships, developing and supporting our talented people, and honoring our values. As we turn our focus to fiscal 2024, I believe we can grow on this elevated foundation and continue to deliver Nothing Better in the Market.”

Fiscal 2023 Highlights

•        Delivered broad-based reported net sales growth across all geographic clusters and the Travel Retail channel driven by strong consumer demand and favorable price/mix, partially offset by the negative effect of foreign exchange.

•        Portfolio growth was led by:

◦        Continued very strong double-digit growth of Woodford Reserve as reported net sales increased 26% (+27% organic).

◦        Jack Daniel’s Tennessee Whiskey with reported net sales growth of 3% (+8% organic).

◦        Jack Daniel’s Ready-to-Drink (RTD)/Ready-to-Pour (RTP)³ with double-digit reported net sales growth of 11% (+16% organic) fueled by the launch of the Jack Daniel’s & Coca-Cola RTD in the United States.

•        Reported gross margin contracted 180 basis points driven by inflation, supply chain disruption costs, and foreign exchange, partially offset by favorable price/mix and the removal of the European Union and United Kingdom tariffs on American whiskey.

•        Strongly invested behind our brands to support long-term growth with an increase in reported advertising expense of 15% (+18% organic).

•        Acquired the number one ultra-premium gin, Gin Mare, and the number one super- and ultra- premium rum, Diplomático (IWSR 2022).

•        Returned $378 million to stockholders through the regular quarterly dividend.

Fiscal 2023 Brand Results

•        The Jack Daniel’s family of brands’ reportednet sales growth of 4% (+9% organic) was led by Jack Daniel’s Tennessee Whiskey in international markets and the Travel Retail channel. Higher pricing and an estimated net increase in distributor inventories in certain emerging and developed international markets positively impacted reported net sales. Jack Daniel’s RTD/RTP grew reported net sales 11% (+16% organic) driven by the introduction of the Jack Daniel’s & Coca-Cola RTD. In addition, reported net sales also benefited from innovation with the launch of Jack Daniel’s Bonded Tennessee Whiskey.

•        Premium bourbons, propelled by strong double-digit net sales growth from Woodford Reserve and Old Forester, delivered 23% reported net sales growth (+24% organic) driven by stronger consumer demand in the United States. Gains for Woodford Reserve were partially due to the estimated net increase in distributor inventories, while Old Forester’s growth was driven by higher volumes and pricing.

•        Ready-to-Drinks (RTDs) growth continued to be driven by consumer preference for convenience and flavor. New Mix gained market share in Mexico as reported net sales grew 53% (+45% organic), fueled by higher volumes and prices.

•        Reported net sales for the tequila portfolio increased 10% (+10% organic) with el Jimador and Herradura both delivering double-digit reported net sales growth. el Jimador grew reported net sales 13% (+14% organic) with broad-based growth across all geographic clusters, led by the Emerging markets and the United States. Herradura increased reported net sales 11% (+10% organic) driven by higher prices and volumes in Mexico and volumetric growth in the United States, partially due to an estimated net increase in distributor inventories.

Fiscal 2023 Market Results

•        Reported net sales growth was broad-based across all geographic clusters and the Travel Retail channel reflecting the strength of the company’s premium portfolio of brands and strong consumer demand.                                                                                                         

•        Emerging³ markets’grew reported net sales 18% (+24% organic) driven by the growth of Jack Daniel’s Tennessee Whiskey, led by the United Arab Emirates and Brazil, and continued very strong double-digit growth in Mexico fueled by New Mix RTD.

•        As trends began to normalize, reported net sales in the United States grew 3% (+3% organic). This growth was driven by higher volumes of Woodford Reserve partially reflecting an estimated net increase in distributor inventories, higher prices across the portfolio led by the Jack Daniel’s family of brands, and the launch of the Jack Daniel’s & Coca-Cola RTD. Lower volumes of Jack Daniel’s Tennessee Whiskey and Korbel California Champagne partially offset the growth due to an estimated net decrease in distributor inventories.

•        Developed International³ markets’ reported net sales increased 4% (+10% organic) due to volumetric growth and higher prices of Jack Daniel’s Tennessee Whiskey, and higher volumes of Jack Daniel’s RTD. Reported net sales growth in Developed International markets was led by Germany, Japan, Italy, and Belgium.

•        The Travel Retailchannel sustained strong growth with a reported net sales increase of 41% (+43% organic) driven by higher volumes across much of the portfolio, led by Jack Daniel’s Tennessee Whiskey, as travel continued to rebound.

Fiscal 2023 Other P&L Items

•        Reported gross profit increased 4% (+9% organic). Gross margin contracted 180 basis points to 59.0%, driven by the impact of inflation on input costs, costs related to supply chain disruptions, and the negative effect of foreign exchange. These declines were partially offset by favorable price/mix and the removal of the E.U. and U.K. tariffs on American whiskey.

•        Reported advertising expense grew 15% (+18% organic) driven by increased investment to support Jack Daniel’s Tennessee Whiskey, Woodford Reserve, Herradura, the launch of Jack Daniel’s Bonded and the Jack Daniel’s & Coca-Cola RTD in the United States. Reported selling, general, and administrative expenses increased 8% (+9% organic), largely driven by higher compensation-related expenses, higher discretionary spend, and costs related to the acquisition and integration of the Gin Mare and Diplomático brands.

•        In fiscal 2023, a non-cash impairment charge of $96 million was recognized for the Finlandia brand name. A $52 million non-cash impairment charge for the Finlandia brand name was also recognized in fiscal 2022. The company also incurred expenses of $43 million related to the termination of certain distribution contracts in connection with the acquisition of Diplomático and Gin Mare.

•        The company’s reported operating income decreased by 6% (+8% organic).

•        Diluted earnings per share in fiscal 2023 declined by $0.12 largely driven by the effect of the acquisitions of Diplomático and Gin Mare (estimated $0.08 per share), higher non-cash impairment charges, largely related to the Finlandia brand name (estimated $0.06 per share), and higher pension settlement charges (estimated $0.02 per share).

Fiscal 2023 Financial Stewardship

During fiscal 2023, the company returned nearly $378 million to stockholders through its regular quarterly dividend. Brown-Forman, a member of the prestigious S&P 500 Dividend Aristocrats index, has paid regular quarterly cash dividends for 79 consecutive years and has increased the regular dividend for 39 consecutive years.

Fiscal 2024 Outlook

We are optimistic about our prospects for growth of organic net sales and organic operating income in fiscal 2024. We believe trends will normalize after two consecutive years of double-digit organic net sales growth. Accordingly, we expect the following in fiscal 2024:

•        Reflecting the strength of our portfolio of brands, our pricing strategy, and strong consumer demand, we expect organic net sales growth in the 5% to 7% range.

•        Based on the above organic net sales growth outlook, and our expectation that continued input cost pressures will be partially offset by lower supply chain disruption costs, we anticipate organic operating income growth in the 6% to 8% range.

•        We expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23%.

•        Capital expenditures are planned to be in the range of $250 to $270 million.

For more information about Brown-Forman, visit brown-forman.com.