- Brown-Forman Corporation, owner of Jack Daniels, reported its Q3 and nine-month fiscal year 2023 financial results. Jack Daniel’s Tennessee Whiskey began in 1865 when Jack Daniel purchased Cave Spring Hollow. The following year, he registered the Jack Daniel Distillery, which is today America’s oldest registered distillery.
- For Q3, net sales increased by 4% to $1.1 billion and organic sales increased by 5%. Operating income decreased by 50%, and diluted earnings per share decreased by 61%.
- For the nine-month period, reported net sales increased by 8% to $3.2 billion, and organic sales increased by 12%. The company’s gross margin contracted by 170 basis points to a still-impressive 58.4% due to inflation, supply chain disruption costs, and foreign exchange translations.
- The Jack Daniel’s Tennessee Whiskey brand (+12% organically), and the Ready-to-Drink segment (+15% organically) showed strong growth, as did Woodford Reserve (+35% organically). The company delivered broad-based reported net sales growth across all geographic clusters and the Travel Retail channel.
- The company believes that its business will remain robust given the premiumization of its portfolio, and the health of its brands. For FY 2023, BF expects organic net sales growth in the 8% to 10% range, and for gross margins to be consistent with the first half of fiscal 2023.
Brown-Formans’ famous brands yield significant pricing power. And it has a highly profitable business, with low manufacturing and distribution costs, because of its global scale. These qualities help Brown-Forman generate consistently high returns on invested capital.
Brown-Forman is also very resistant to recessions. This is typical among alcohol stocks, as their products tend to be consumed in greater volume when economic times are tough. - Brown-Forman is a good example of a great business trading at an exceptionally high valuation (PE of >40x). Despite a solid dividend and very strong business, shares are expensive on a relative basis. Brown Forman is a member of the prestigious S&P 500 Dividend Aristocrats index, and has paid a regular quarterly cash dividend for 79 years and has increased the cash dividend for 39 consecutive years.
Lee Kern
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