Brown-Forman's (BF.B) Premium Brands' Portfolio Places It Well

Brown-Forman Corporation (BF.B) has been benefiting from the success of its portfolio premiumization strategy and robust brand investments. Gains across its premium and super-premium brands have been contributing to the company's performance. Strength in the Jack Daniel’s family of brands and momentum in the Ready-to-Drink (RTD) category have been key drivers.

BF.B is also on track with its long-term pricing strategy, which aims to increase prices year over year to grow sales as part of its sales growth management initiatives.

The Zacks Consensus Estimate for BF.B’s current financial-year sales and earnings suggests improvements of 0.3% and 4.8%, respectively, from the year-ago reported numbers.

Factors Driving Growth

Brown-Forman’s premiumization strategy is playing out well, as evident from growth of its premium and super-premium brands. The company has been strategically reshaping its portfolio over the past couple of decades to focus on premium and super-premium brands. Its portfolio of premium and super-premium brands mainly includes the iconic Jack Daniel's and Woodford Reserve.

Higher volumes for Woodford Reserve and super-premium American whiskey portfolio, led by growth in Woodford Reserve; the launch of Jack Daniel’s American Single Malta and Jack Daniel’s Single Barrel; and the acquisitions of Gin Mare and Diplomático contributed to sales growth in the Travel Retail channel in the first nine months of fiscal 2024. Net sales in the Travel Retail channel advanced 3% on a reported basis and 1% on an organic basis.

The recently launched Jack Daniel's and Coca-Cola RTD has been a strong addition to the portfolio, which reflects progress on its commitment to the premiumization of its portfolio. Also, the company is on track to integrate the two new super-premium brands — Gin Mare and Diplomático — in the Rest of the Portfolio category. These brands increased reported sales in the first nine months of fiscal 2024 by 11% year over year on an organic basis. Further, the company expects these brands to be meaningful contributors to its long-term growth.

Brown-Forman’s Jack Daniels family of brands has been the cornerstone of the company’s financial success, given its legacy of craftsmanship, innovation and enduring consumer loyalty. Jack Daniel’s diverse product line, including various expressions and limited editions, allows Brown-Forman to cater to a wide range of consumer preferences and markets. The global footprint of Jack Daniel’s is a testament to its universal appeal. It consistently accounts for a significant portion of the company’s revenues and is a driving force behind its sustained growth. The brand’s ability to adapt to changing market dynamics, while maintaining its core identity, has contributed to its enduring popularity and profitability.

Brown-Forman has demonstrated its adaptability and innovation through the development of a RTD portfolio. The company has seen remarkable success in the RTD category, which reported 17% organic sales growth in the first nine months of fiscal 2024 due to consumer preference for convenience and flavor. With a blend of iconic brands and innovative flavors, Brown-Forman’s RTD offerings have carved a niche in a dynamic market.

The success of its RTD portfolio is evident in its consistent growth. The RTD category in Mexico, for instance, has experienced significant expansion, driven by the popularity of New Mix. Sales for New Mix improved 34% on a reported basis and 17% on an organic basis, driven by higher volumes and prices. Jack Daniel’s RTDs/Ready-to-Pours reported 1% sales growth each on a reported and organic basis, driven by the launch of the Jack Daniel’s & Coca-Cola RTD.

Headwinds on the Path

Shares of Brown-Forman reflect a slowdown over the past three months, mainly as elevated input costs and tough distributor inventory comparisons hurt the third-quarter fiscal 2024 results to some extent. The company is likely to witness higher SG&A expenses in fiscal 2024 on expectations of higher compensation-related expenses.

Shares of this Zacks Rank #3 (Hold) company have lost 5.9% in the past three months compared with the industry’s decline of 2.4%. The stock also lagged the sector’s decline of 0.2% and the S&P 500’s growth of 9.1% in the same time frame.

 

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Image Source: Zacks Investment Research

 

Key Picks

We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Vita Coco Company COCO, Molson Coors TAP and Diageo DEO.

Vita Coco, which develops, markets and distributes coconut water products in the United States, Canada, Europe, the Middle East and the Asia Pacific, currently sports a Zacks Rank #1 (Strong Buy). COCO shares have gained 1.4% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Vita Coco’s current financial year’s sales and earnings per share suggests growth of 1.8% and 24.3%, respectively, from the year-ago reported figures. COCO has a trailing four-quarter earnings surprise of 31.3%, on average.

Molson Coors is a global manufacturer and seller of beer and other beverage products, with an impressive diverse portfolio of owned and partner brands. It has a trailing four-quarter negative earnings surprise of 37.2%, on average. It currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Molson Coors’ current financial-year sales and earnings suggests growth of 1.4% and 4.2%, respectively, from the prior-year reported levels. TAP shares have risen 10.8% in the past three months.

Diageo is involved in producing, distilling, brewing, bottling, packaging, and distributing spirits, wine and beer. It currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for DEO’s current financial-year sales suggests growth of 5.6% from the year-earlier actuals. DEO shares have risen 4.4% in the past three months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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