Brown-Forman, the leading exporter of U.S. spirits to the world, beat analysts’ expectations in its latest quarterly earnings report, thanks to a jump in demand from its more premium whiskies. But the president and CEO of the Jack Daniels Whiskey maker cautioned that with potential tariffs looming it was facing “so many potential scenarios and unknowns.”
Here’s the overview:
- The whiskey giant reported a sales dip of 1% (+3% organic) to $1.11 billion, topping analysts’ expectation of $1.07 billion in Q2 FY 2025.
- For the first half of the fiscal year, reported net sales decreased 5% and gross profit declined 8%, mainly due to the sale of its Sonoma-Cutrer and Finlandia brands, according to the company. The divestment of the wine and vodka brands are part of an ongoing offloading of lower-performing brands by major spirit companies.
- As for holiday sales, Lawson Whiting, Brown-Forman president and CEO, said the company has relatively muted expectations and will “continue to make the argument that it is driven by a pinched consumer.”
- Banking on the full-year benefit of owning Gin Mare and Diplomatico brands, growth in Japan, and sales of Tennessee Whiskey abroad, the company reiterated expectations for organic net sales growth in the 2% to 4% range in FY 2025.
New RTD Flavors, Marketing Spend Focused On Recruitment of Younger Drinkers
Whiskey sales softened down to 1% in the first half of the fiscal year but two of its high-end whiskey brands, Woodford Reserve and Old Forester, helped the company reverse downward trends in the category.
Tequila sales for El Jimador and Herradura continued to face challenges, falling -17%. Whiting faulted increased competition in the U.S. market and Mexico’s economy facing a “challenging macro-environment.”
Ready-to-drink (RTD) sales also declined 6% led by the impact of the Jack Daniel’s Country Cocktails business model change, according to the company. In 2020, Brown-Forman entered into a partnership with the Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel’s Country Cocktails in the U.S. while Brown-Forman continued to produce certain products. In 2023, the production fully transitioned to Pabst Brewing Company.
The company’s other signature RTD debuted its first innovation, Jack & Coke Cherry, around the timing of the company’s last earnings call in August. According to Whiting, the limited time offering performed well “with initial shopper data from a national grocer showing that Jack & Coke Cherry added incremental shoppers to the Jack & Coke RTD family.” The brand family’s sales were up 8% in NIQ off-premise tracked channels in the two weeks prior to November 2. A variety pack featuring the original product alongside Cherry and Vanilla flavors is expected to be widely available in the U.S. beginning March 2025.
“We believe our continued geographic expansion and innovation opportunities will generate interest and attention for Jack Daniels RTDs, as well as the full strength family of brands,” Whiting said.
The RTDs, as well as flavored whiskies, have been part of a multi-year strategy to bring more young drinkers into the flagship brand’s fold. While Jack Daniel’s benefited from sequential improvement to a decline of 1% (flat organic), the company has been aiming to increase buzz by upping its mix of spend on a campaign with British Formula One racing team McLaren as well as music activations with rapper names like Shaboozey.
“These are not things that change overnight, but we closely monitor it, and things are starting to move in the right direction,” Whiting said.
Tariffs “A Very Painful Situation”
Like other international spirits groups, Brown-Forman faces possible tariffs on multiple fronts: a potential 25% tariff on imports from Mexico or elsewhere, as well as potential return of a retaliatory European Union tariff imposed on American whiskeys, which will snap back to 50% if there is no agreement between the U.S. and EU in an ongoing steel and aluminum tariff dispute by March 31, 2025.
As for the latter, Whiting recalled 2018’s retaliatory tariffs as “a very painful and challenging time.”
“It’s still a few months out, and there’s a whole lot that can happen over that time. The range is big, so it could further be suspended – which we think there’s a decent chance for that, they can be removed altogether, or the most drastic scenario will be coming back at 50% and I’m sure there’s other scenarios in the middle that we could come up with,” he said.
He also expressed on two occasions that any growth in sales or production on distinctive products made outside of the U.S. “helps us to grow and brings more investment and capital here.”
The CEO said the company has learned from prior experience with tariffs and has been preparing for multiple potential scenarios and implementing risk mitigation strategies. He was tight-lipped on whether or not the company was pre-shipping into Europe as it is a “competitively sensitive” topic.
“We are making some decisions and some tough decisions, but it’s a very difficult situation,” he said. “No matter what we do, it’s still going to be a very painful situation and a painful outcome.”