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BF

BROWN FORMAN CORP (BF-A)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 2025 revenue was $894M and diluted EPS was $0.31, both down 7% and 45% year over year respectively, reflecting the absence of prior-year divestiture gains; gross margin contracted to 57.3% and operating margin to 22.9% .
  • Versus S&P Global consensus, Q4 revenue missed ($894M vs $965.4M*) and EPS missed ($0.31 vs $0.344*); for FY2025, EPS slightly beat ($1.84 vs $1.814*), while revenue missed ($3.98B vs $4.05B*) .
  • FY2026 outlook calls for low-single-digit declines in organic net sales and organic operating income; tax rate 21–23% and capex $125–$135M, highlighting macro headwinds and tariff risk .
  • Strategic catalysts: cost restructuring expected to deliver $70–$80M annualized savings, evolution to owned distribution (Italy launched May 1) and U.S. distributor realignment across 13 markets (effective Aug 1, 2025) .
  • Management emphasized resilient core whiskey brands (Woodford +8% FY organic net sales; Jack Daniel’s Tennessee Whiskey +1% FY organic) amid tequila softness and FX pressures, supporting medium-term brand equity despite near-term topline/margin pressure .

What Went Well and What Went Wrong

What Went Well

  • Woodford Reserve was the largest driver of FY organic net sales growth (+8%), supported by volume and price/mix; JDTW grew +1% organically for FY2025, evidencing brand resilience .
  • Operating expenses disciplined: advertising -6% organic and SG&A -5% organic for FY2025, helping offset margin headwinds .
  • Strategic initiatives: Italy owned distribution launch (May 1, 2025) to deepen market collaboration and accelerate super-premium brand growth ; U.S. distributor network evolution across 13 markets to position for future growth .

What Went Wrong

  • Q4 2025 revenue -7% YoY to $894M and EPS -45% to $0.31, reflecting absence of prior-year Sonoma-Cutrer gain and lower gross margin; operating income down 45% .
  • Tequila portfolio underperformed FY: el Jimador -11% organic and Herradura -10% organic net sales amid competitive U.S. dynamics and Mexico macro weakness .
  • Gross margin contracted 150 bps in FY2025 to 58.9% due to higher input costs, unfavorable fixed cost absorption, FX, and non-cash impairment (Gin Mare $47M) taken in Q4 .

Financial Results

MetricQ2 2025Q3 2025Q4 2025
Revenue ($USD Millions)$1,095 $1,035 $894
Diluted EPS ($USD)$0.55 $0.57 $0.31
Gross Margin (%)59.1% 59.8% 57.3%
Operating Margin (%)31.1% 27.1% 22.9%
Operating Income ($USD Millions)$341 $280 $205
Effective Tax Rate (%)17.6% 18.7% 20.2%
Q4 2025 vs EstimatesRevenue ($USD Millions)EPS ($USD)
S&P Global Consensus*965.4*0.344*
Actual Reported$894 $0.31

Values retrieved from S&P Global.

Segment/Brand KPIs (FY2025):

Category/BrandReported Net Sales % ChangeOrganic Net Sales % Change
Whiskey0% +1%
Jack Daniel’s Tennessee Whiskey (JDTW)+1% +1%
Woodford Reserve+8% +8%
Ready-to-Drink (Total)-6% +5%
New Mix-1% +13%
Tequila (Total)-14% -12%
Herradura-13% -10%
el Jimador-13% -11%
Rest of Portfolio-33% -2%

Geography (FY2025 net sales % change):

GeographyReportedOrganic
United States-7% -2%
Developed International-6% -3%
Emerging-2% +9%
Travel Retail-7% -5%

Distributor Inventories (FY2025, estimated net change vs prior year):

Line/AreaEstimated Net Change
Net Sales+3%
Operating Income+7%
United States+3%
Developed International+3%
Emerging+3%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Net SalesFY2026N/A (new)Low-single-digit decline New
Organic Operating IncomeFY2026N/A (new)Low-single-digit decline New
Effective Tax RateFY2026N/A (new)~21%–23% New
Capital ExpendituresFY2026N/A (new)$125–$135M New
Quarterly Dividend per ShareQ4 2025$0.2265 (Feb 20, 2025 declaration) $0.2265 (May 22, 2025 declaration) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q3)Current Period (Q4)Trend
Route-to-Consumer/DistributionContinued shift to owned distribution; Japan transition noted; sequential improvements in international markets Italy owned distribution launched May 1; U.S. distributor realignment across 13 markets announced, effective Aug 1, 2025 Increasing direct control; expected to support brand growth
Tariffs/Macro VolatilityNoted risk of retaliatory tariffs on American whiskeys; macro/geopolitical uncertainties FY2026 outlook explicitly flags potential impact from currently unknown tariffs and consumer uncertainty Sustained external headwinds
Product PerformanceSequential improvement: JDTW decline moderated; Woodford strength in U.S. FY: JDTW +1% organic, Woodford +8%; RTD organic +5%; Tequila organic -12% Mixed: core whiskey resilient; tequila challenged
Regional MixU.S. -7% reported; Developed International softness; Emerging organic +9% Similar pattern persists; inventory builds supported trends U.S./Developed soft; Emerging improving
Restructuring/Cost ActionsQ3: $33M charges approved for workforce reduction/cooperage closure FY: $63M charges; savings expected $70–$80M annually Cost actions intensified
Korbel Exit—Relationship with Korbel ends June 30, 2025; CFO quantified removal from reported P&L (~$94M sales and ~$12M op income post-July 1) Headwind to reported topline/OP in FY2026

Management Commentary

  • “Our ability to deliver organic growth on both the top and bottom line in a year of softening consumer demand is a testament to the strength and resilience of our team… Looking ahead to fiscal 2026, we expect continued headwinds… we are well positioned to navigate uncertainty and unlock new opportunities for sustainable long-term growth.” — Lawson Whiting, President & CEO .
  • FY2026 execution pillars: significant evolution of U.S. distribution, restructuring initiative, and new product innovation, with expected organic net sales and operating income declines (low-single digits), and tax rate 21–23% .
  • Cost program: 12% workforce reduction, cooperage closure, early retirement program; $63M FY charges to drive $70–$80M annualized savings .
  • Italy market: owned distribution designed to accelerate growth in super-premium brands and strengthen American whiskey presence .

Q&A Highlights

  • Korbel exit impact: Management clarified organic accounting treatment and reported removal from P&L post July 1, estimating ~$94M top line and ~$12M operating income reduction on a reported basis .
  • European softness: Management acknowledged challenges and outlined plans to turn around Europe with changes and expectations for improvement over next year .
  • Owned distribution benefits: Italy launch and U.S. RFP outcomes expected to deepen trade collaboration and accelerate growth in key brands .
  • A&P spend: CFO indicated alignment of advertising and promotion investment with depletion-based growth expectations .

Estimates Context

  • Q4 2025: Revenue $894M vs $965.4M* consensus; EPS $0.31 vs $0.344* consensus — both misses .
  • FY2025: Revenue $3.98B vs $4.05B* consensus (miss); EPS $1.84 vs $1.814* consensus (beat) .
  • FY2026 consensus baseline: Revenue $3.84B*; EPS $1.638*; management outlook implies organic declines, which may drive downward revisions to revenue and operating income assumptions if macro/tariff risks materialize.
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term pressure: Q4 revenue/EPS missed consensus amid margin compression and lapping prior-year divestiture gains; FY2026 outlook for organic declines underscores macro/tariff uncertainty .
  • Brand equity intact: Core whiskey brands (Woodford, JDTW) grew organically in FY2025, supporting medium-term resilience despite tequila softness and FX headwinds .
  • Cost actions are material: $63M charges to deliver $70–$80M annualized savings, providing flexibility to invest and cushion margins over time .
  • Route-to-market strategy: Italy owned distribution and U.S. distributor realignment should enhance execution and mix, though transition timing may cause short-term disruption .
  • Reported FY2026 headwinds: Korbel exit will reduce reported net sales and operating income post-July 1, creating a mechanical drag on FY2026 reported metrics even as organic trends are managed .
  • Inventory dynamics matter: Estimated net increase in distributor inventories (+3% FY) suggests potential normalization could weigh on future organic trends as inventories are worked down .
  • Trading implications: With FY2026 organic declines and tariff risk flagged, estimate revisions likely skew down for revenue/OI; watch for execution on U.S./Italy distribution transitions and pace of cost savings realization as catalysts for sentiment and multiple support .