Brown-Forman Earnings: Resilient Premium Spirits Demand and Jack & Coke Release Buoy Growth Outlook

We expect to maintain our $67 fair value estimate for wide-moat Brown-Forman BF.B after absorbing the firm’s fiscal 2023 (ended in April) results that edged our projections on the top line (7.5% versus 7.1%) thanks to the firm’s strong performance across the whiskey, tequila, and ready-to-drink beverage categories. While demand held up well, results came in a touch soft on the EPS line ($1.63 versus $1.72) given ongoing input cost pressure. Our 10-year forecasts for mid-single-digit annual revenue growth and mid-30s average operating margins remain in place. Shares trade in a range we’d consider fairly valued.

Solid top-line expansion in fiscal 2023 (despite lapping robust 13.6% growth in 2022 and a 200-basis-point negative impact from the Ukraine war) has reaffirmed our favorable view on the premium distiller’s growth trajectory powered by brand strength, ongoing product innovation, and expanding international distribution. By category, premium whiskeys (two thirds of sales) posted respectable 6% sales growth (10% organic) thanks to resilient demand and better management of pricing and channel mix. Tequila (10% of sales) and ready-to-drink beverages (12%) grew 10% and 18%, respectively (10% and 20% organic), which we attribute to a solid product lineup and timely new launches to capitalize on secular tailwinds. Major new products in the past year included the super-premium Jack Daniel Bonded series and the Jack & Coke ready-to-drink products (jointly with wide-moat Coca-Cola). We find ourselves particularly encouraged by favorable reactions to Jack & Coke, with double-digit demand growth in the U.S. and internationally (including Mexico, the United Kingdom, and Japan) driving higher-than-expected reorders from distributors and retailers. We expect the rollout of Jack & Coke to accelerate in more countries over the coming years, elevating Jack Daniel’s brand visibility globally and expanding the addressable market for the brand family.