Executive Summary

Q2 FY2025 net sales were $1.10B, down 1% year over year, while diluted EPS rose 9% to $0.55; operating income increased 1% to $341M, with operating margin at 31.1% .
Management reaffirmed FY2025 guidance for organic net sales and operating income growth of 2–4%, effective tax rate of ~21–23%, and lowered capex guidance to $180–$190M from $195–$205M .
Sequential improvement versus Q1 FY2025: net sales recovered from $951M to $1.095B and operating margin expanded from 29.6% to 31.1% as spend leverage and favorable price/mix offset FX and input cost timing headwinds .
Dividend increased 4% to $0.2265 per share (Jan 2, 2025 payable), extending 41 consecutive years of raises—supportive for total return and signaling confidence in cash generation .

What Went Well and What Went Wrong

What Went Well

EPS growth and margin resilience: diluted EPS rose to $0.55 (+9% YoY) and operating margin improved to 31.1% (+50 bps YoY), supported by advertising and SG&A leverage, favorable price/mix, the franchise tax refund, and Alabama cooperage sale gains .
Sequential recovery across markets: Developed International and Travel Retail trends improved sequentially, with Jack Daniel’s Tennessee Whiskey strength in Japan aiding volume normalization as owned distribution transitioned in April 2024 .
Premium bourbon performance: Woodford Reserve (+8% six-month reported net sales) and Old Forester (+11%) continued to outperform in the U.S., helping offset softness in other parts of the portfolio .
CEO tone: “We continue to expect our performance to accelerate through the second half of the year,” underscoring confidence in strategy, portfolio breadth, and geographic diversity .

What Went Wrong

Gross margin contraction: Q2 gross margin declined to 59.1% (from 60.6% LY) due to timing of input cost fluctuations, high inventory levels, negative FX, and transition services agreements (TSAs) tied to divestitures .
U.S. softness and tequila pressure: U.S. net sales fell 7% (-3% organic) in the first half; tequila portfolio net sales declined 17% (-17% organic) amid challenging Mexico macro and lower volumes in the U.S. and Mexico .
FX and business model changes: Negative FX (notably Turkish lira) and the Jack Daniel’s Country Cocktails (JDCC) business model transition weighed on reported results, complicating YoY comparability .

Financial Results

Metric	Q4 FY2024	Q1 FY2025	Q2 FY2025
Revenue ($USD Billions)	$0.964	$0.951	$1.095
Diluted EPS ($USD)	$0.56	$0.41	$0.55
Gross Margin (%)	59.0%	59.4%	59.1%
Operating Margin (%)	38.9%	29.6%	31.1%
Operating Income ($USD Millions)	$375	$281	$341
Effective Tax Rate (%)	23.5%	23.1%	17.6%

Segment and Market Context (First Half FY2025):

Brand Portfolio Net Sales % Change vs prior year (Reported/Organic): Whiskey (-1%/flat); Ready-to-Drink (-6%/+2%); Tequila (-17%/-17%); Rest of Portfolio (-26%/flat); Non-branded and bulk (+39%/+41%) .

Brand Category	Reported Net Sales Δ	Organic Net Sales Δ
Whiskey	-1%	0%
Ready-to-Drink	-6%	+2%
Tequila	-17%	-17%
Rest of Portfolio	-26%	0%
Non-branded and bulk	+39%	+41%

KPIs (First Half FY2025 – Estimated Net Change in Distributor Inventories):

KPI	Value
United States Net Sales	+3%
Developed International Net Sales	+4%
Emerging Net Sales	+2%
Travel Retail Net Sales	-1%
Operating Income	+6%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Organic Net Sales Growth	FY2025	2–4%	2–4%	Maintained
Organic Operating Income Growth	FY2025	2–4%	2–4%	Maintained
Effective Tax Rate	FY2025	~21–23%	~21–23%	Maintained
Capital Expenditures	FY2025	$195–$205M	$180–$190M	Lowered
Dividend (Quarterly)	Q3 FY2025 payable Jan 2, 2025	$0.2178	$0.2265	Raised

Earnings Call Themes & Trends

Note: A Q2 FY2025 earnings call transcript was not available in our document set; call details and slides were posted, but the transcript could not be retrieved .

Topic	Previous Mentions (Q4 FY2024, Q1 FY2025)	Current Period (Q2 FY2025)	Trend
Inventory normalization	FY2024: industry-wide reductions; expected FY2025 normalization	Sequential improvement; estimated net distributor inventory increase aided net sales	Improving
Input costs and gross margin	Q1 FY2025: gross margin down 330 bps on input timing, high inventory, TSAs	Q2 gross margin still pressured at 59.1% vs 60.6% LY; same drivers cited	Soft but stabilizing
FX headwinds	Q1: Turkish lira noted; FX weighed on Emerging markets	Continued FX headwind in first half	Ongoing
Portfolio mix	FY2024: Diplomático/Gin Mare accretive; JD RTD ramp; premium bourbon growth	Woodford/Old Forester strong; tequila portfolio weak; JDCC transition impacts RTD	Mixed
Regional performance	Q1: U.S. soft; Developed Intl softening (UK), Emerging lapping strong comp	Developed Intl and Travel Retail improving; U.S. still challenged	Gradual recovery ex-U.S.
Corporate stewardship	FY2024: dividend discipline, buybacks (FY2024)	Dividend increased 4%; FY2025 capex lowered	Shareholder-friendly

Management Commentary

“Despite challenging economic conditions, our results for the first half of the fiscal year were in line with our expectations, and we anticipate a return to growth in fiscal 2025. We continue to expect our performance to accelerate through the second half of the year, driven by the strength of our strategy, our portfolio, our geographic breadth, and, of course, our talented people.” — Lawson Whiting, President & CEO .
“We believe we have the right strategy, brands, and geographic breadth in place to effectively manage through the challenging consumer and cost environment…” — Lawson Whiting on Q1 FY2025 .

Q&A Highlights

Transcript not available in our document set; call details and slides were posted, but we were unable to access a full Q&A transcript for Q2 FY2025 .

Estimates Context

Wall Street consensus (S&P Global) estimates for Q2 FY2025 EPS and revenue were unavailable at the time of retrieval due to an SPGI rate limit error. As a result, comparisons to consensus cannot be provided and may need to be updated when access is restored [SPGI retrieval error].

Key Takeaways for Investors

Mix shift supports resilience: premium bourbon growth (Woodford Reserve, Old Forester) and RTD strength (organic) are offsetting tequila and certain Jack Daniel’s super-premium softness; watch ongoing RTD business model normalization (JDCC) .
Sequential improvement is material: Q2 net sales and margin expanded versus Q1, aligning with management’s second-half acceleration narrative and FY2025 organic growth reaffirmation .
Margin dynamics: gross margin remains compressed by input cost timing, elevated inventories, FX, and divestiture-related TSAs; advertising/SG&A leverage and price/mix are partial offsets—key to second-half trajectory .
U.S. remains the swing factor: continued U.S. softness (-7% reported, -3% organic in 1H) warrants caution; sustained strength in Japan and parts of Developed International/Emerging markets supports diversification .
Capex discipline and dividend signal confidence: capex trimmed to $180–$190M; dividend raised 4%—supporting free cash flow prioritization and shareholder returns .
Inventory lens: estimated net distributor inventory increases in the first half (US +3%; Developed International +4%) suggest potential moderation in shipments ahead; monitor depletion trends for demand validation .
Update needed on consensus: Re-run S&P Global estimates once available to gauge beat/miss risk; lack of consensus visibility limits near-term trading setup clarity [SPGI retrieval error].

BROWN FORMAN CORP (BF-A)·Q2 2025 Earnings Summary