United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File No. 001-00123 Brown-Forman Corporation (Exact name of Registrant as specified in its Charter) Delaware 61-0143150 (Stat ...

First Half of Fiscal 2026 Market NEWS RELEASE BROWN-FORMAN REPORTS FIRST HALF FISCAL 2026 RESULTS; REAFFIRMS FULL YEAR OUTLOOK December 4, 2025, LOUISVILLE, KY — Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its second quarter and first half of fiscal 2026, ended October 31, 2025. Second quarter reported net sales decreased 5% to $1.0 billion (-2% on an organic basis ) compared to the same prior-year period. In the quarter, reported operating income decreased 10% to $305 million ( ...

Financial Performance - For the first quarter of fiscal 2026, the company recognized a gain of $12 million from the sale of the Alabama cooperage, which was adjusted from operating income[84]. - A net benefit of $18 million was recognized related to the collection of substitution drawback claims filed with the U.S. Government between fiscal 2016 and 2019[88]. - The company reported a franchise tax refund of $13 million during the first quarter of fiscal 2025 due to a change in tax calculation methodology in Tennessee[85]. - Net sales for the three months ended July 31, 2025, were $924 million, a decrease of 3% compared to the same period last year, driven by the negative effects of acquisitions and divestitures and foreign exchange[104]. - Gross profit for the same period was $552 million, a decrease of 2%, while gross margin increased by 0.4 percentage points to 59.8%[104]. - Operating income decreased by 7% to $260 million, impacted by foreign exchange, absence of prior-year franchise tax refund, and restructuring initiative[104]. - Diluted earnings per share for the three months ended July 31, 2025, were $0.36, a decrease of 13% from $0.41 in the same period last year[104]. - For the three months ended July 31, 2025, net sales totaled $924 million, a decrease of $27 million, or 3% year-over-year, primarily due to unfavorable price/mix, partially offset by a 3% increase in volume[120]. - Organic net sales are expected to decline in the low-single digit range for fiscal 2026, alongside a similar decline in organic operating income[129]. - Gross profit for the period was $552 million, a decrease of $12 million, or 2%, with gross margin increasing to 59.8% from 59.4% year-over-year[123]. - Operating income totaled $260 million, a decrease of $21 million, or 7%, with operating margin declining to 28.2% from 29.6% in the same period last year[125]. - Diluted earnings per share decreased 13% to $0.36 from $0.41 year-over-year, driven by a decrease in operating income and an increase in non-operating postretirement expense[127]. - The effective tax rate for the period was 22.5%, down from 23.1% in the prior year, influenced by lower state tax impacts[126]. Restructuring and Charges - The company incurred $12 million in restructuring and other charges during the first quarter of fiscal 2026 as part of a plan to reduce the structural cost base by approximately 12%[86]. - The restructuring initiative included a 12% workforce reduction and the closure of the Louisville-based Brown-Forman Cooperage, negatively impacting operating expenses[102]. Market Performance - The United States market experienced an 8% decline in net sales, primarily due to the absence of the Sonoma-Cutrer prior-year TSA and lower volumes of JDTW and Herradura[107]. - Emerging markets saw a 20% increase in net sales, with Brazil leading at a 31% increase driven by growth in JDTW and JDTA[107]. - The top developed international markets for the company included Germany, Australia, the United Kingdom, France, and Canada, contributing significantly to net sales[91]. - The company emphasizes consumer takeaway as a leading indicator of consumer demand trends, which is derived from retail sales value data[93]. Acquisitions and Divestitures - The company acquired Gin Mare Brand, S.L.U. during fiscal 2023, which impacted the financial results for the first quarter of fiscal 2026[82]. - The company divested its Finlandia vodka and Sonoma-Cutrer wine businesses in fiscal 2024, affecting net sales and operating expenses for the non-comparable period[83]. - The company sold the Sonoma-Cutrer wine business, which negatively impacted net sales and operating income but positively affected gross margin[100]. - The company ended its sales, marketing, and distribution relationship with Korbel Champagne Cellars effective June 30, 2025, which included transaction costs related to this termination[93]. Cash Flow and Liquidity - Cash and cash equivalents were $471 million as of July 31, 2025, with approximately 54% held by foreign subsidiaries[132]. - Cash provided by operations was $160 million for the three months ended July 31, 2025, an increase of $143 million from the same period last year[137]. - Cash used for financing activities increased to $138 million during the three months ended July 31, 2025, compared to $51 million in the prior-year period, primarily due to an $84 million increase in net repayments of short-term borrowings[139]. - Cash provided by investing activities decreased to $2 million during the three months ended July 31, 2025, down from $10 million in the same period last year, largely due to an $18 million decrease in proceeds from cooperage asset sales[138]. - The company expects to meet its short-term liquidity needs through cash generated from operations and borrowings under its commercial paper program[135]. - The company believes its current liquidity position and ability to generate positive cash flows will be sufficient to meet all expected future financial commitments[136]. Risk Management - The company faces market risks from changes in foreign currency exchange rates, commodity prices, and interest rates, and manages these risks through procurement strategies and financial instruments[141]. Capital Expenditures - The company anticipates capital expenditures in the range of $125 to $135 million for fiscal 2026[129].

Financial Performance - Net sales for the first quarter of fiscal 2026 decreased 3% to $924 million, with a 1% increase on an organic basis compared to the prior-year period[1] - Operating income declined 7% to $260 million, with a 2% increase on an organic basis[1] - Diluted earnings per share decreased 13% to $0.36[1] - Reported net sales decreased by 3% compared to the prior-year period, with organic change in net sales showing a modest increase of 1%[26] - The company reported a 7% decline in operating income, while organic change in operating income was positive at 2%[26] - The total portfolio saw a reported net sales increase of 3% and a shipment increase of 6% compared to the prior-year period[27] - In the United States, reported net sales decreased by 8%, with an organic decline of 2%[29] - Emerging markets experienced a robust growth of 20% in reported net sales, with an organic increase of 25%[29] Gross Margin and Costs - Gross margin expanded by 40 basis points to 59.8%, driven by positive effects from divestitures, partially offset by higher costs and unfavorable price/mix[4] Cash Flow and Assets - Cash provided by operating activities rose significantly from $17 million in 2024 to $160 million in 2025, marking an increase of 841%[23] - The company’s cash and cash equivalents at the end of the period increased from $416 million to $471 million, a rise of 13.2%[23] - Total assets increased from $8,086 million on April 30, 2025, to $8,171 million on July 31, 2025, reflecting a growth of 1.05%[21] Liabilities and Debt - The total current liabilities increased from $1,080 million to $1,497 million, reflecting a rise of 38.6%[21] - The company’s long-term debt decreased from $2,421 million to $2,075 million, a reduction of 14.3%[21] Future Outlook and Challenges - The company anticipates a challenging operating environment for fiscal 2026, with low visibility due to macroeconomic and geopolitical volatility[10] - Capital expenditures are planned to be in the range of $125 to $135 million for fiscal 2026[14] - The effective tax rate is expected to be in the range of approximately 21% to 23% for fiscal 2026[14] Dividends and Shareholder Returns - The company declared a quarterly cash dividend of $0.2265 per share, payable on October 1, 2025[9] Restructuring and Other Charges - The company incurred $12 million in restructuring and other charges in the first quarter of fiscal 2026 related to a restructuring initiative that included a 12% workforce reduction[42] - A gain of $12 million was recognized on the sale of the Alabama cooperage in the first quarter of fiscal 2025, which was removed from operating income[39] - A $13 million franchise tax refund was recognized in the first quarter of fiscal 2025 due to a change in tax calculation methodology in Tennessee, impacting operating income[40] Sales and Market Changes - The company sold its Finlandia vodka and Sonoma-Cutrer wine businesses during fiscal 2024, impacting net sales and operating expenses for the first quarter of fiscal 2025[38] - The company ended its sales, marketing, and distribution relationship with Korbel Champagne Cellars effective June 30, 2025, which will affect future operating activities[40] Performance Metrics - The company emphasizes the importance of non-GAAP measures like "organic change" to assess performance consistently across periods, excluding foreign exchange impacts[43] - Changes in distributor inventories are considered significant for understanding performance trends, particularly in the U.S. market[44] - The company provides supplemental information on geographic and brand aggregations to highlight net sales performance in various markets[49] - The company defines "consumer takeaway" as a leading indicator of consumer demand trends, derived from retail sales value metrics[51]

Sales and Market Performance - In fiscal 2025, the United States accounted for 44% of Brown-Forman's net sales, with the remaining 56% from international markets[19]. - The company reported that approximately 27%, 28%, and 29% of its net sales for fiscal 2023, 2024, and 2025, respectively, occurred in the fourth calendar quarter, indicating seasonality in sales[26]. - Brown-Forman's two largest customers represented approximately 13% and 11% of consolidated net sales in fiscal 2025, with no other customer exceeding 10%[25]. - The Jack Daniel's brand remains the 1 selling American whiskey globally, with super-premium offerings receiving prestigious awards in 2025[13]. - The company operates in over 170 countries, with Mexico, Germany, Australia, and the United Kingdom being significant markets alongside the U.S.[19]. - The tequila portfolio, led by Herradura and el Jimador, is committed to growth in the U.S. and globally[44]. - The U.S. market experienced a 7% decline in net sales, primarily due to the divestiture of Sonoma-Cutrer and lower volumes in a challenging consumer environment[183]. - Emerging markets showed resilience, with Türkiye's net sales increasing by 30% driven by higher prices, while Brazil's net sales grew by 12% due to expanded distribution and consumer demand[188]. Distribution and Strategy - Brown-Forman's distribution strategy includes owned distribution in several countries and reliance on third-party distributors in others, adapting to market conditions[24]. - The company has launched its own distribution company in Italy effective May 1, 2025, expanding its direct market presence[24]. - As of May 1, 2025, the company owned and operated 17 distribution companies in 18 countries, indicating a shift towards owned distribution models[74]. - The company established its owned-distribution organization in Italy in May 2025 to enhance competitiveness[48]. Financial Performance - In fiscal 2025, the company reported net sales of $4.0 billion, a decrease of 5% compared to fiscal 2024, with organic net sales increasing by 1%[179]. - Gross profit for fiscal 2025 was $2.3 billion, down 7% from fiscal 2024, resulting in a gross margin of 58.9%, a decline of 1.5 percentage points[179]. - Operating income decreased by 22% to $1.1 billion in fiscal 2025, primarily due to the absence of gains from the sale of Sonoma-Cutrer and Finlandia, as well as a $47 million impairment charge for the Gin Mare brand[179][173]. - Diluted earnings per share fell to $1.84, a decrease of 14% compared to fiscal 2024, influenced by lower operating income and a gain on the sale of the investment in Duckhorn[179]. - The cumulative total shareholder return for Class B common stock decreased from $100 in 2020 to $61 in 2025, underperforming compared to the S&P 500 Index which increased from $100 to $207 in the same period[146]. Investment and Capital Expenditures - Capital expenditures totaled $395 million in fiscal 2024 and 2025, focusing on expanding whiskey, tequila, and rum production capabilities[177]. - The company anticipates a low-single digit decline in organic net sales and organic operating income for fiscal 2026[205]. - Capital expenditures for fiscal 2026 are planned to be between $125 million and $135 million[205]. Risks and Challenges - The company faces risks from changes in trade policies and tariffs, which could increase product costs and affect financial performance[77]. - The potential escalation of trade disputes poses significant risks to the company's business operations and profitability[78]. - The company is subject to competitive pressures from consolidation among spirits producers and distributors, which could impact market share and margins[76]. - The company faces risks from changing consumer preferences, which may lead to a decline in demand for premium and super-premium products[79]. - Increased competition from new entrants and diversification by existing suppliers could negatively impact market share and pricing strategies[80]. - Disruptions at production facilities could significantly affect supply and ability to meet consumer demand for major brands like Jack Daniel's[84]. - Economic downturns could lead to decreased consumer spending and increased taxes on beverage alcohol, negatively impacting sales[92]. - Health epidemics or pandemics could disrupt operations, supply chains, and consumer demand, leading to significant financial impacts[98]. Sustainability and Corporate Responsibility - Brown-Forman's commitment to sustainability and responsible marketing is integral to its long-term growth strategy[39]. - The 2030 Sustainability Strategy was revised to align with industry best practices and current climate science, focusing on supply chain impacts[54]. - A 10-year, $50 million commitment was made to five organizations in west Louisville to support community initiatives[57]. - The company continues to invest in renewable energy projects, including a solar system at the Newbridge bottling plant and an anaerobic digester project at the Jack Daniel Distillery[59]. - The 2030 Alcohol Responsibility strategy was launched to promote mindful choices around beverage alcohol[46]. Cybersecurity and Compliance - Cybersecurity threats pose a risk to the company's IT systems, potentially leading to material disruptions and adverse effects on business operations[117]. - The company has made significant investments in cybersecurity, utilizing the National Institute of Standards and Technology Cybersecurity Framework and advancing towards a "Zero-Trust" architecture[129]. - The Board of Directors oversees the company's cybersecurity risk management processes, with the Audit Committee regularly reporting on cybersecurity threats[134]. - Compliance with anti-corruption laws and trade sanctions is critical, as violations could lead to investigations, fines, and increased operating costs[102]. Corporate Structure and Governance - The company has a dual-class share structure, with the Brown family controlling a majority of the voting stock, which may affect the attractiveness of the company as a takeover target[123]. - The company does not have a sunset provision for its dual-class share structure, which may lead to misalignment of interests between the Brown family and other stockholders[124]. - The company has established a tiered risk management strategy to evaluate its ability to protect assets, reporting results to the Audit Committee of the Board of Directors[131].

Financial Performance - Fourth quarter net sales decreased 7% to $894 million, with a 3% decline on an organic basis[3] - Full year reported net sales decreased 5% to $4.0 billion, but increased 1% on an organic basis[3] - Operating income for the fourth quarter decreased 45% to $205 million, while diluted earnings per share fell 45% to $0.31[3] - Gross profit declined 7% (-2% organic), with gross margin contracting 150 basis points to 58.9% due to higher input costs and unfavorable fixed cost absorption[8] - Net sales for the Tequila portfolio declined 14% (-12% organic), impacted by macroeconomic conditions in Mexico and competition in the U.S.[8] - Net sales decreased by 7% from $964 million in 2024 to $894 million in 2025[22] - Gross profit declined by 10% from $569 million in 2024 to $513 million in 2025[22] - Operating income fell by 45% from $375 million in 2024 to $205 million in 2025[22] - Net income decreased by 45% from $266 million in 2024 to $146 million in 2025[22] - Basic earnings per share dropped by 45% from $0.56 in 2024 to $0.31 in 2025[22] - Total portfolio net sales decreased by 5% compared to the prior year, with organic growth at 1%[33] - United States net sales decreased by 7%, with organic growth at -2%[33] - Emerging markets reported a 2% decline in net sales but a 9% organic growth[33] Restructuring and Cost Management - A restructuring initiative resulted in $63 million in charges, expected to deliver $70 to $80 million in annualized savings[11] - The company approved a restructuring initiative to reduce its structural cost base, including a 12% workforce reduction and the closure of the Louisville-based Brown-Forman Cooperage, resulting in a $63 million impact on cost of sales and operating income for Q3 and Q4 of fiscal 2025[48] - The restructuring and other charges included $60 million in costs and $3 million in inventory charges related to restructuring[50] Future Outlook - The company anticipates organic net sales and operating income to decline in the low-single digit range for fiscal 2026[15] - The company expects continued headwinds in fiscal 2026 due to macroeconomic and geopolitical volatility[4] - Capital expenditures are planned to be in the range of $125 to $135 million for fiscal 2026[15] Market Trends and Performance Metrics - Whiskey category depletions declined by 3%, while shipments increased by 1%[31] - Jack Daniel's Family reported a 4% decrease in depletions and no change in shipments[31] - Ready-to-Drink segment saw a 3% increase in depletions and a 4% increase in shipments[31] - Tequila category experienced an 11% decline in both depletions and shipments[31] - Non-branded and bulk sales increased by 18% compared to the prior year[34] - The company recognized a $13 million franchise tax refund, impacting overall financial performance positively[47] Revenue Recognition and Inventory Management - The company recognizes revenue upon shipment, with "depletions" reflecting consumer demand more accurately than shipments to distributors[56] - Changes in distributor inventories are calculated to provide insights into organic trends, with positive differences indicating potential decreases in organic trends as distributors reduce inventories[56] - Estimated fluctuations in distributor inventories are provided to understand performance trends, particularly in the U.S. market, which operates under a regulated three-tier system[49] Brand and Market Strategy - The company aggregates markets and brands according to economic development stages and beverage alcohol categories to explain operational results and highlight trends[51] - Top developed international markets include Germany, Australia, the UK, France, and Canada, while top emerging markets include Mexico, Poland, Brazil, and Türkiye[54] - The company has divested brands such as Sonoma-Cutrer and Finlandia Vodka, impacting the aggregation of product categories[53] - The company announced the end of its sales, marketing, and distribution relationship with Korbel California Cellars effective June 30, 2025[56]

Financial Performance - Net sales for the nine months ended January 31, 2025, were $3.1 billion, a decrease of 4% compared to the same period last year, primarily due to the negative effects of acquisitions and divestitures, foreign exchange, and JDCC[108]. - Gross profit for the same period was $1.8 billion, a decrease of 6%, with gross margin declining by 1.5 percentage points to 59.4%[108]. - Operating income for the nine months ended January 31, 2025, was $902 million, a decrease of 13%, largely driven by higher costs and the absence of the gain on the sale of the Finlandia vodka business[108]. - Diluted earnings per share for the nine months ended January 31, 2025, were $1.53, a decrease of 4% from $1.58 in the prior year[108]. - For the nine months ended January 31, 2025, operating income totaled $902 million, a decrease of 13% compared to the same period last year, with an operating margin decrease of 3.0 percentage points to 29.3%[139]. - Operating income for the three months ended January 31, 2025, totaled $280 million, a decrease of 25% compared to the same period last year, with an operating margin decrease of 7.8 percentage points to 27.1%[138]. - Gross profit for the nine months ended January 31, 2025, was $1.8 billion, a decrease of $127 million, or 6%[132]. - Operating expenses totaled $928 million for the nine months ended January 31, 2025, a decrease of $80 million, or 8%[136]. - The gross margin for the nine months ended January 31, 2025, decreased to 59.4% from 60.9% compared to the same period last year[132]. - Diluted earnings per share for the three months ended January 31, 2025, was $0.57, a decrease of 5% from $0.60 reported for the same period last year[142]. Sales and Market Performance - In the U.S. market, net sales declined by 5%, driven by the divestiture of Sonoma-Cutrer and lower volumes of certain brands[111]. - Spain's net sales declined 9%, driven by lower volumes of JDTW, partially offset by positive contributions from Diplomático and Gin Mare[117]. - Net sales in the Rest of Developed International declined 6%, impacted by the divestiture of Finlandia and lower volumes of the Jack Daniel's family of brands in South Korea[117]. - Mexico's net sales decreased 9%, primarily due to lower volumes of the Tequila portfolio and negative foreign exchange effects[117]. - Brazil's net sales increased 6%, led by higher volumes of JDTW and JDTA, despite negative foreign exchange impacts[117]. - Woodford Reserve's net sales increased 10%, driven by higher volumes and favorable price/mix in the United States[121]. - Net sales for JD RTD/RTP brands declined 7%, impacted by lower volumes in Germany and negative foreign exchange effects[125]. - Non-branded and bulk business saw a significant increase in net sales by 38%, primarily due to higher prices for used barrels[112]. Acquisitions and Divestitures - In fiscal 2024, the company sold its Finlandia vodka business, resulting in a pre-tax gain of $92 million[82]. - The sale of the Sonoma-Cutrer wine business generated a pre-tax gain of $175 million, along with a 21.4% ownership stake in The Duckhorn Portfolio Inc.[83]. - The company sold the Finlandia vodka business for $196 million and the Sonoma-Cutrer wine business for $50 million cash, impacting net sales and operating income negatively[104][105]. - The company acquired Gin Mare Brand, S.L.U. during fiscal 2023, which will affect future organic sales comparisons[81]. - The company recognized a $78 million gain on the sale of its investment in Duckhorn during the three months ended January 31, 2025[105]. Restructuring and Cost Management - A restructuring plan approved in the third quarter of fiscal 2025 aims to reduce the structural cost base by approximately 12%, impacting operating expenses by $33 million[88]. - The restructuring plan included a workforce reduction of approximately 12%, negatively impacting operating expenses and income for the nine months ended January 31, 2025[106]. - Advertising expense decreased by 13% for the three months ended January 31, 2025, driven by lower JDTW and JDTA spend, foreign exchange effects, and divested brands[34]. - SG&A expense decreased by 13% for the three months ended January 31, 2025, due to lower compensation-related expenses and the absence of transaction-related expenses from recent divestitures[34]. Tax and Cash Flow - The company recognized a $13 million franchise tax refund in the first quarter of fiscal 2025 due to a change in tax calculation methodology[87]. - The effective tax rate for the three months ended January 31, 2025, was 18.7%, an increase from 16.5% in the same period last year[140]. - The forecasted effective tax rate range for fiscal 2025 has been updated to approximately 20% to 22%[144]. - Cash provided by operations for the nine months ended January 31, 2025, was $446 million, an increase of $84 million from the same period last year[151]. - Cash used for financing activities during the nine months ended January 31, 2025, was $546 million, compared to $212 million in the prior-year period[153]. Future Outlook - Organic net sales growth is expected to be in the range of 2% to 4% for fiscal 2025[144]. - Estimated net change in distributor inventories is calculated to assess the impact of inventory changes on organic trends[99]. - The company uses non-GAAP measures to provide a clearer understanding of organic performance, excluding effects of acquisitions, divestitures, and foreign exchange[80]. - The top developed international markets for the company include Germany, Australia, the United Kingdom, France, Canada, and Spain[90].

Financial Performance - Third quarter reported net sales decreased 3% to $1.0 billion, with a 6% increase on an organic basis compared to the prior-year period[1] - Year-to-date reported net sales decreased 4% to $3.1 billion, with a 2% increase on an organic basis compared to the prior-year period[1] - Operating income for the nine months decreased 13% to $902 million, with a 5% increase on an organic basis[1] - Net sales for the nine months ended January 31, 2025, decreased by 4% to $3,081 million compared to $3,214 million in the prior year[21] - Operating income for the same period fell by 13% to $902 million, down from $1,039 million[21] - Net income decreased by 5% to $723 million, compared to $758 million in the previous year[21] - Earnings per share (diluted) for the nine months ended January 31, 2025, decreased by 4% to $1.53 from $1.58[21] - Gross margin for the nine months ended January 31, 2025, was 59.4%, down from 60.9% in the prior year[21] Cost and Profitability - Gross profit declined 6% (-1% organic), with gross margin contracting 150 basis points to 59.4% due to higher costs and negative foreign exchange effects[3] - The company recognized a $78 million gain on the sale of its investment in Duckhorn, impacting diluted earnings per share by $0.14[3] - Operating income increased by 7% year-over-year, reflecting improved cost management[36] - The company approved a plan to reduce its structural cost base, resulting in a workforce reduction of approximately 12% and a $33 million impact on operating expenses and income[47] Future Outlook - Organic net sales growth is forecasted in the range of 2% to 4% for fiscal 2025[14] - Organic operating income growth is also expected in the range of 2% to 4% for fiscal 2025[14] - The company anticipates a return to organic net sales and operating income growth for fiscal 2025 despite ongoing external uncertainties[11] Cash Flow and Assets - Cash provided by operating activities increased to $446 million, up from $362 million[25] - Total current assets increased to $4,279 million from $4,036 million[23] - Total liabilities decreased to $4,248 million from $4,649 million[23] - Cash dividends paid per common share increased to $0.6621 from $0.6288[21] Market Performance - Total portfolio net sales decreased by 4% compared to the prior-year period, with organic growth at 2%[33] - Whiskey category depletions declined by 3%, while shipments increased by 1%[30] - Woodford Reserve saw a significant increase in shipments, up 6% year-over-year, with a 2% organic growth[30] - Ready-to-Drink segment reported a 2% increase in depletions and a 4% increase in shipments[30] - Tequila category experienced a 14% decline in both depletions and shipments[30] - The United States market reported a 5% decrease in net sales, with a 1% organic growth[33] - Emerging markets showed a 4% decline in net sales but achieved an 8% organic growth[33] Inventory and Demand Metrics - The company uses non-GAAP measures like "organic change" to assess performance consistently, excluding foreign exchange fluctuations, which can significantly affect GAAP income statement measures[47] - Estimated fluctuations in distributor inventories are provided to understand performance trends, particularly in the U.S. market, which operates under a regulated three-tier system[48] - The company defines "depletions" as a key metric reflecting consumer demand, which may differ from shipments to distributors[57] - A positive difference in estimated net change in distributor inventories suggests a potential decrease in organic trends as distributors reduce inventories[57] - The company emphasizes the importance of consumer takeaway data as a leading indicator of demand trends, derived from external sources like Nielsen[57] Market Segmentation - The company aggregates markets by economic development stage as defined by the IMF, with top developed international markets including Germany, Australia, and the UK[50] - The company’s top emerging markets include Mexico, Poland, and Brazil, contributing to net sales of branded products[54] - The company has adjusted its product category definitions, aggregating "Wine" and "Vodka" with "Rest of Portfolio" due to recent divestitures[52] - The company recognizes revenue upon shipment, which may not align with actual consumer demand reflected in distributor depletions[57]

Divestitures and Gains - In fiscal 2024, the company sold the Sonoma-Cutrer wine business for a pre-tax gain of $175 million, receiving $50 million in cash and a 21.4% ownership in The Duckhorn Portfolio Inc.[86] - The divestiture of the Finlandia vodka business resulted in a pre-tax gain of $92 million during fiscal 2024[87]. - The company sold the Finlandia vodka business for $196 million and the Sonoma-Cutrer wine business for $50 million cash, impacting net sales and operating income negatively[121][122]. Financial Performance - Net sales for the six months ended October 31, 2024, were $2.0 billion, a decrease of 5% compared to the same period last year, driven by divestitures, lower volumes, and foreign exchange impacts[123]. - Gross profit for the same period was $1.2 billion, reflecting an 8% decrease, with gross margin declining by 2.4 percentage points to 59.2%[123]. - Operating income decreased by 7% to $622 million for the six months ended October 31, 2024, primarily due to input cost fluctuations and the negative effects of acquisitions and divestitures[123]. - Diluted earnings per share for the six months ended October 31, 2024, were $0.96, a decrease of 3% from $0.98 in the same period last year[123]. - The overall organic change in net sales for the six months was flat, reflecting a challenging market environment[153]. - For the three months ended October 31, 2024, net sales were $1.1 billion, a decrease of $13 million, or 1%, impacted by acquisitions and divestitures[152]. - Operating income for the three months ended October 31, 2024, totaled $341 million, an increase of $2 million, or 1%, with an operating margin of 31.1%[169]. - Diluted earnings per share for the three months ended October 31, 2024, increased by 9% to $0.55, compared to $0.50 in the same period last year[173]. Market Trends and Challenges - The company faced challenges from substantial competition, changes in consumer preferences, and disruptions in the distribution network[120][118]. - The company measures consumer takeaway as a leading indicator of demand trends, using data from external sources like Nielsen[112]. - The company experienced declines in net sales across geographic aggregations, with specific brands like Finlandia and Sonoma-Cutrer contributing to the downturn[123]. Tax and Refunds - The company recognized a $13 million franchise tax refund in the first quarter of fiscal 2025 due to a change in tax calculation methodology[93]. - The effective tax rate for the six months ended October 31, 2024, was 20.1%, down from 22.4% in the same period last year[125]. - The effective tax rate for the three months ended October 31, 2024, was 17.6%, down from 22.0% in the prior year[171]. Cash Flow and Liquidity - Cash and cash equivalents were $446 million at April 30, 2024, and $416 million at October 31, 2024, with approximately 48% held by foreign subsidiaries[178]. - Cash provided by operations was $129 million for the six months ended October 31, 2024, an increase of $32 million from the same period last year[183]. - The company expects to meet short-term liquidity needs through cash generated from operations and borrowings under its commercial paper program[181]. - The company has a strong liquidity position supported by positive cash flows from operations and ample debt capacity[182]. Future Outlook - The company anticipates organic net sales growth in the range of 2% to 4% for fiscal 2025, along with organic operating income growth in the same range[175]. - The estimated capital expenditure range for fiscal 2025 has been updated to $180 to $190 million from a previous range of $195 to $205 million[175]. Advertising and Expenses - Advertising expenses decreased by 7% to $252 million for the six months ended October 31, 2024[125]. - Operating expenses for the three months ended October 31, 2024, totaled $305 million, a decrease of $27 million, or 8%, driven by lower advertising and SG&A expenses[164]. Inventory and Sales Trends - Estimated net changes in distributor inventories are calculated to understand the impact on organic trends, indicating potential increases or decreases in distributor inventories[115]. - The company aggregates its product categories, with "Rest of Portfolio" now including brands like Gin Mare and Korbel California Champagnes following recent divestitures[102]. - Brazil's net sales increased 31%, driven by higher volumes across the portfolio, particularly JDTW, JDTA, and JDTH[133]. - The United States' net sales declined 7%, primarily due to lower volumes of JDTW and Korbel California Champagnes, partially offset by higher volumes of Woodford Reserve and Old Forester[128]. - The United Kingdom's net sales declined 8%, led by lower volumes of JDTW, partially offset by the positive effect of foreign exchange[129]. - Mexico's net sales declined 11%, driven by lower volumes of the Tequila portfolio and the negative effect of foreign exchange[133]. - Canada's net sales declined 2%, driven by the divestitures of Finlandia and Sonoma-Cutrer, as well as the negative effect of foreign exchange[129]. - Spain's net sales declined 12%, primarily due to lower volumes of JDTW, partially offset by the positive contribution from Diplomático[131]. Market Risks - The company faces market risks from foreign currency exchange rates, commodity prices, and interest rates, managed through procurement strategies and financial instruments[188].

Financial Performance - Second quarter reported net sales decreased 1% to $1.1 billion, with a 3% increase on an organic basis compared to the prior-year period[1] - For the first half of fiscal 2025, reported net sales decreased 5% to $2.0 billion, remaining flat on an organic basis[2] - First half reported operating income decreased 7% to $622 million, with a 3% decrease on an organic basis[2] - Diluted earnings per share for the first half decreased 3% to $0.96[2] - Gross profit declined 8% to $1.2 billion, with a gross margin contraction of 240 basis points to 59.2%[5][14] - Net sales for the Tequila portfolio declined 17% on an organic basis, primarily due to lower volumes in the United States and Mexico[7] - Net sales for 2023 were $1,107 million, a decrease of 1% compared to 2024's projected $1,095 million[28] - Gross profit for 2023 was $671 million, down 4% from 2024's projected $646 million[28] - Net income increased by 7% from $242 million in 2023 to $258 million in 2024[28] - Earnings per share (diluted) rose by 9% from $0.50 in 2023 to $0.55 in 2024[28] - The company reported a 5% decline in net sales for the six months ended October 31, 2024, compared to the same period in 2023[30] - Total portfolio depletions decreased by 5% and shipments decreased by 2% compared to the prior year period[39] - Whiskey category depletions were 10.4 million, down 4%, with net sales down 1%[39] - Ready-to-drink segment depletions were 10.3 million, down 4%, with net sales down 6%[39] Future Outlook - The company anticipates organic net sales growth in the range of 2% to 4% for fiscal 2025[20] - The company expects a return to growth in fiscal 2025, driven by gains in international markets and normalizing inventory trends[20] - The effective tax rate is expected to be in the range of approximately 21% to 23%[21] Dividends and Tax - The Board of Directors approved a 4% increase in the quarterly cash dividend to $0.2265 per share[18] - The effective tax rate for 2023 was 22.0%, projected to decrease to 17.6% in 2024[28] - A $13 million franchise tax refund was recognized in the first quarter of fiscal 2025 due to a change in franchise tax calculation methodology in Tennessee, retroactively applied to fiscal 2020 through fiscal 2023[57] Market Trends and Strategies - Emerging markets saw a 6% organic net sales increase, while developed international markets experienced a 5% decline[41] - The company reported a 39% increase in non-branded and bulk sales, with a 2% organic growth[41] - The company plans to continue focusing on market expansion and new product development strategies[39] - Top developed international markets include Germany, Australia, the UK, France, Canada, and Spain, while top emerging markets are Mexico, Poland, and Brazil[63] Inventory and Sales Metrics - Estimated net change in distributor inventories for the United States was 3%, while travel retail saw a decrease of 1%[43] - The company recognized a pre-tax gain of $175 million from the sale of the Sonoma-Cutrer wine business[51] - The company reported a 3% increase in net sales, cost of sales, and gross profit due to inventory changes[43] - Organic net sales decreased by 3% in the United States, with a 2% increase from acquisitions and divestitures[41] - Depletions are used to measure volume more closely reflecting consumer demand than shipments to distributors[75] - Consumer takeaway data, provided by external parties, serves as a leading indicator of consumer demand trends[77] - The estimated net change in distributor inventories is calculated to understand the impact of inventory changes on organic trends[79] Advertising and Expenses - Advertising expenses decreased by 9% from $140 million in 2023 to $126 million in 2024[28] Non-GAAP Measures - The company uses non-GAAP measures like "organic change" to assess performance consistently, compare with competitors, and communicate financial performance, excluding items like foreign exchange fluctuations[59] - Estimated fluctuations in distributor inventories are provided to understand performance trends, particularly in the U.S. market, which operates under a three-tier distribution system[60] - The company aggregates markets by economic development stage and brands by beverage alcohol category to explain operational results and highlight trends[61] Production Changes - In fiscal 2024, production of Jack Daniel's Country Cocktails fully transitioned to Pabst Brewing Company, removing non-comparable operating activity from the first and second quarters of fiscal 2024 and fiscal 2025[55]