Brown-Forman: Still Expensive Despite Retreating Sales

seekingalpha10-12

Brown-Forman's growth has halted with a weak market, divestments, and a considerably weak performance in multiple segments. The prior Coca-Cola launch's growth seems to have slowed down.Further short-...

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The prior Coca-Cola launch's growth seems to have slowed down.Further short-...</p>\n\n<a href=\"https://seekingalpha.com/article/4726364-brown-forman-still-expensive-despite-retreating-sales\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Brown-Forman: Still Expensive Despite Retreating Sales</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBrown-Forman: Still Expensive Despite Retreating Sales\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-12 18:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4726364-brown-forman-still-expensive-despite-retreating-sales><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Brown-Forman's growth has halted with a weak market, divestments, and a considerably weak performance in multiple segments. The prior Coca-Cola launch's growth seems to have slowed down.Further short-...</p>\n\n<a href=\"https://seekingalpha.com/article/4726364-brown-forman-still-expensive-despite-retreating-sales\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BF.B","symbol_name":"布朗霍文","start_time":0,"source_url":"https://seekingalpha.com/article/4726364-brown-forman-still-expensive-despite-retreating-sales","article_id":"2474383866","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/458566137/image_458566137.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2474383866","pubTimestamp":1728727348,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Brown-Forman's growth has halted with a weak market, divestments, and a considerably weak performance in multiple segments. The prior Coca-Cola launch's growth seems to have slowed down.Further short-","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"BF.B":"布朗霍文","BF.A":"布朗霍文集团"},"translate_title":"Brown-Forman：尽管销量下降，但价格仍然昂贵","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BF.A":0.9,"BF.B":0.9},"content_text":"Brown-Forman's growth has halted with a weak market, divestments, and a considerably weak performance in multiple segments. The prior Coca-Cola launch's growth seems to have slowed down.Further short-term troubles could be brewing, as Nielsen's data shows a continued retail underperformance by Brown-Forman's brands.Brown-Forman's stock remains incredibly expensive, still pricing in very strong growth that the company's recent performance doesn't support.   Goldfaery/iStock Editorial via Getty ImagesBrown-Forman Corporation (NYSE:BF.B, NYSE:BF.A), the alcoholic drink manufacturer known for its spirit brands such as Jack Daniel's, Woodford Reserve, Diplomatico, and Fords Gin, has reported revenue & margin weakness related to market weakness, divestitures, and a weak performance across several categories. As the ready-to-drink segment is also facing falling sales in spite of the prior Coca-Cola collaboration, Brown-Forman’s growth outlook stands cloudier than before. In my previous article on the stock, “Brown-Forman: Spirit Company Priced Like A High-End Cocktail”, I initiated Brown-Forman at a Sell rating due to the company’s extremely high valuation. After the article was published on the 2nd of December in 2023, the stock has now returned a negative -18% compared to S&P 500’s return of 27%. My Rating History on Brown-Forman (Seeking Alpha)Brown-Forman’s Revenues Have Retreated After my previous article on Brown-Forman, the company’s earnings have taken a considerable hit after a long history of good growth – sales started declining in Q3/FY2024, and have deepened into a -8.4% decline in the most recently reported quarter, Q1/FY2025. Organically, sales declined around -4% in the quarter as the Finlandia divestment, exchange rate fluctuations, and other effects had a negative impact on the reported revenue comparison. Author's Calculation Using TIKR DataThe organic weakness in Q1 was seen throughout Brown-Forman’s brand portfolio, and especially seen in tequila sales, which declined by a dramatic -23% organically. Other segments have also shown sales weakness, especially the important Jack Daniel's segment, with a -6% organic decline. Also, notably, the ready-to-drink segment showed a -4% Q1 decline – the 2023 Jack Daniel's ready-to-drink collaboration launch with Coca-Cola (KO), that I previously noted as a good source of growth, seems to have slowed down. While Brown-Forman mentioned the collaboration in the Q1 earnings call, and related to a new limited Jack Daniel's & Coke Cherry collaboration, the launch’s excitement seems to have died down.   Brown-Forman's Q1 Organic Growth by Category (Brown-Forman Q1/FY2025 Investor Presentation)A part of the decline is clearly market-related – other spirit manufacturers have shown considerable weakness as well amid clearly weaker consumption after 2021 in several categories. Constellation Brands (STZ) reported a -12% sales decline in the company’s fiscal Q3 in the wine & spirits segment, LVMH (OTCPK:LVMHF) showed a -10% organic decline in H1/2024 cognac & spirit sales, and Pernod Ricard (OTCPK:PRNDY) showed a -2.1% revenue decline in its fiscal Q4 in USD. On the other hand, the smaller MGP Ingredients’ (MGPI) spirit sales grew 11% in the company’s latest quarter, and Nielsen’s data has shown that Brown-Forman is losing to the US spirit market’s total growth as consumers opt for alternative brands. Overall, while a part of the decline is due to a temporary market slowdown, the different categories’ weaker performance clouds Brown-Forman’s growth prospects over the long term as well. Brown-Forman’s margins have also taken a hit due to weak cost timing for especially Q1, and the Finlandia brand divestment’s and Sonoma-Cutler’s divestment to Duckhorn (NAPA) with related operational transition agreements. Yet, as the 3.3 percentage point gross margin decline seems at least in part transitory with slowing inflation and the divestments’ effects, and Brown-Forman’s still incredibly high 27.1% trailing operating margin makes the decline’s overall effect on earnings moderate, I believe that margins aren’t as big of a concern as growth. Further Short-Term Troubles Could Be Brewing Brown-Forman reaffirmed the company’s FY2025 guidance with the Q1 report, still expecting 2-4% organic revenue growth and a stable operating margin, but it seems that the company is still likely to see further turbulence ahead: according to Nielsen’s US retail data as reported by Seeking Alpha in early September, Brown-Forman has continued underperforming the broad spirits market’s growth by a very clear 5.0 percentage point margin. Wall Street expects revenues of $1.08 billion in Q2 at a -2.9% decline year-on-year, expecting a good sequential jump from the -8.4% decline in Q1 – Brown-Forman is expected to gradually improve its sales performance throughout FY2025 to climb to the guided growth level. With more recent data still showing declining sales, though, I believe that investors should remain cautious of the current 2-4% organic growth guidance as retail data doesn’t yet point to a recovery. Ultimately, I believe the growth struggles to likely be of short-term nature with Brown-Forman’s very well-known brand portfolio, but the lacking growth and category underperformance does raise concerns especially with the stock’s steep valuation. Brown-Forman’s Stock Remains Too Expensive I updated my discounted cash flow [DCF] model to estimate an updated fair value for Brown-Forman’s stock. In the DCF model, I estimate Brown-Forman to return to revenue growth in FY2026 after a -2% FY2025 decline, caused in part by divestments. I now estimate the total revenue CAGR at 3.7% from FY2025 to FY2034 and 2.5% perpetual growth. The estimated CAGR is the same as Brown-Forman’s long-term revenue CAGR from FY2003 to FY2023. With the recent margin weakness, I now estimate clearly weaker margins in FY2025 at a 24.7% EBIT margin, and a gross margin recovery afterwards that pushes the EBIT margin back up to 27.5% as Brown-Forman’s cost inflation slows down. I previously estimated the EBIT margin to reach 30.6%. While the growth requires some capital expenditures and ties up working capital in especially old whiskey & other spirit inventories, I estimate Brown-Forman’s cash flow conversion to be quite good going forward. DCF Model (Author's Calculation)The estimates put Brown-Forman’s fair value estimate at $26.61, 45% below the stock price at the time of writing – the stock remains overvalued by a very clear margin with my financial estimates, and I believe that the stock is still priced for an unreasonable performance especially considering Brown-Forman’s recently weak growth. The fair value estimate is down slightly from $27.34 previously due to lower estimated revenues and margins, as well as Brown-Forman’s slightly higher debt. CAPM The DCF model uses a weighted average cost of capital of 8.36%, down from 9.74% previously. The used WACC is derived from a capital asset pricing model:   CAPM (Author's Calculation)In Q1, Brown-Forman had $32 million in interest expenses, making the company’s interest rate 4.04% with the current amount of interest-bearing debt. I again estimate a 10% long-term debt-to-equity ratio. To estimate the cost of equity, I use the 10-year bond yield of 4.09% as the risk-free rate. The equity risk premium of 4.11% is Professor Aswath Damodaran’s estimate for the US, updated in July. I have kept the beta estimate at 0.73. With an ESG add-on of 1.5% and a liquidity premium of 0.3%, the cost of equity stands at 8.89% and the WACC at 8.36%. Takeaway Brown-Forman’s growth has taken a step down in recent quarters, caused by divestments, a weak market, and a weak performance in several categories as tequila sales plummeted in Q1 and as ready-to-drink sales are shrinking despite the great collaboration launch with Coca-Cola in 2023. Margins have also taken a hit, but remain at an incredibly good level even with some transitory issues. Nielsen’s data points towards a continued underperformance in the US spirit market, casting some doubt on Brown-Forman’s FY2025 growth outlook – while likely mostly short-term in nature, Brown-Forman’s growth outlook stands increasingly cloudy.  Despite a lower stock price, the stock still prices in unreasonable earnings growth. As such, I remain with a Sell rating for Brown-Forman.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2474383866"}