Group 1 - Four Corners Property Trust (FCPT) has acquired a NAPA Auto Parts property for $2.0 million, emphasizing its portfolio expansion to maximize shareholder wealth [1] - The newly acquired property is located in a high-traffic area in New York, is corporate-operated, and secured under triple-net leases with an average remaining term of five years [1] - The acquisition was executed at a capitalization rate of 7.2% on rent net of transaction costs [1] Group 2 - FCPT has been actively acquiring properties, including Raising Cane's, Dollar General's, and Jiffy Lube's properties for $6.6 million in Texas and Florida, secured under long-term triple-net leases with an average remaining term of eight years [2] - In November, FCPT acquired a Miller's Ale House property in Georgia for $3.8 million, which is corporate-operated under a long-term net lease with approximately 11 years remaining [3] Group 3 - From the beginning of 2024 through October 30, FCPT has acquired 42 properties worth $132 million at a capitalization rate of 7.2% on rents, broadening its footprint and ensuring portfolio diversification [5] - These strategic acquisitions allow FCPT to gain exposure to growing industries and establish long-term lease agreements with strong tenants [5] Group 4 - Over the past six months, FCPT's shares have increased by 16.0%, outperforming the industry's growth of 15.3% [6]

Core Insights - Genuine Parts Co. (GPC) experienced a significant decline in its stock price, becoming the biggest decliner in the S&P 500 after its third-quarter profit missed analyst estimates [1][3] - The company faced macroeconomic challenges in several international markets, particularly in Europe and Australia, which negatively impacted its sales and is expected to continue through 2024 [2][3] - GPC has revised its full-year profit projections, now expecting earnings per share (EPS) between $6.60 to $6.80, down from a previous range of $8.55 to $8.75 [2] Financial Performance - GPC reported third-quarter revenue of $5.97 billion, narrowly beating consensus estimates, but its net income of $226.6 million fell short of the expected $338.4 million [1] - The company has lowered its total sales growth forecast to a maximum of 2% from a previous estimate of 3%, and now anticipates industrial sales to decline by 1% to 2% compared to earlier expectations of flat to 2% growth [2] Market Conditions - CEO Will Stengel indicated that the company is facing "market headwinds" in Europe and Australia, which have adversely affected sales and are likely to persist [3] - GPC shares dropped 20% to $114.30, marking their lowest point since March 2021, reflecting investor concerns over the company's outlook [3]

Financial Performance - Net sales for Fiscal 2024 were $405,481,000, a slight increase of 0.6% compared to $402,996,000 in Fiscal 2023[266] - Gross profit for Fiscal 2024 was $214,926,000, down from $215,689,000 in Fiscal 2023[266] - Net income attributable to The Duckhorn Portfolio, Inc. decreased to $56,013,000 in Fiscal 2024 from $69,298,000 in Fiscal 2023[266] - Adjusted EBITDA increased to $155,084,000 in Fiscal 2024, compared to $144,509,000 in Fiscal 2023[266] - Selling, general and administrative expenses increased to $120.1 million in Fiscal 2024, representing 29.6% of net sales, compared to 27.2% in Fiscal 2023[302] - Total selling, general and administrative expenses increased by $10.4 million, or 9.5%, for Fiscal 2024 compared to Fiscal 2023, reaching $120.1 million[306] - Interest expense increased by $6.4 million, or 54.4%, for Fiscal 2024, totaling $18.1 million, primarily due to higher average outstanding debt balances[307] - Income tax expense decreased by $4.4 million, or 17.4%, for Fiscal 2024, amounting to $20.8 million, mainly due to a decrease in income before taxes[308] - Basic earnings per share decreased to $0.45 in fiscal 2024 from $0.60 in fiscal 2023, a drop of 25%[384] - Net income for fiscal year 2024 was $56,021,000, a decrease from $69,286,000 in fiscal year 2023[388] Sales and Market Presence - The wholesale channel accounted for 69.8% of net sales in Fiscal 2024, up from 67.9% in Fiscal 2023[272] - Net sales growth contribution for Fiscal 2024 was primarily driven by a volume contribution of 3.1%, despite a negative price/mix contribution of (2.5)%[277] - The company expects Duckhorn Vineyards, Decoy, and Sonoma-Cutrer to drive the majority of net sales growth in future periods[274] - The five largest customers represented approximately 45% of net sales in Fiscal 2024, with Customer A contributing 14%, Customer B 12%, and Customer C 10%[440] - Duckhorn Vineyards & Decoy brands contributed 76.1% of total net sales in Fiscal 2024, down from 79.2% in Fiscal 2023[447] Acquisitions and Investments - The acquisition of Sonoma-Cutrer on April 30, 2024, is expected to enhance market presence and contribute to net sales growth[263] - The company completed the acquisition of Sonoma-Cutrer for approximately $267.1 million, consisting of 31,531,532 shares of common stock and $50 million in cash[291] - The acquisition of Geyserville Winery was completed for $54.6 million, funded by $15 million from the Credit Facility and available cash, enhancing processing and storage capabilities[293] - The company incurred $49,614,000 for the acquisition of a business in fiscal year 2024[388] - The acquisition of Sonoma-Cutrer is expected to enhance the Company's portfolio of luxury Chardonnay wines[449] Cash Flow and Liquidity - Net cash provided by operating activities was $4.2 million for Fiscal 2024, a significant decrease of $65.9 million compared to $70.1 million in Fiscal 2023[325] - As of July 31, 2024, the company had $10.9 million in cash and $324.0 million in undrawn capacity on its revolving line of credit[316] - The company expects cash flows generated from operations and its Credit Facility to be adequate for future business growth plans and contractual obligations[318] - Net cash provided by financing activities in Fiscal 2024 was $77.6 million, significantly up from $5.7 million in Fiscal 2023, primarily due to borrowings under the line of credit of $135.0 million[328] Assets and Liabilities - Total current assets increased to $537.5 million in fiscal 2024 from $387.5 million in fiscal 2023, representing a 38.6% growth[382] - Total liabilities increased to $544.6 million in fiscal 2024 from $405.3 million in fiscal 2023, representing a 34.3% increase[382] - The company's total assets reached $1.8 billion in fiscal 2024, up from $1.3 billion in fiscal 2023, indicating a growth of 34.8%[382] - The company's goodwill balance was $483.9 million as of July 31, 2024, with an annual impairment test conducted as of June 30[377] Operational Insights - Approximately 10% of the grapes are sourced from the company's Estate properties, with 90% sourced from third-party growers, allowing for flexibility in production[283] - The company maintains a diversified sourcing model, with the ability to adjust grape sourcing based on market conditions, optimizing gross profit[283] - The cost of grapes purchased for wine production was $85.7 million in Fiscal 2024, compared to $71.0 million in Fiscal 2023[432] - The company does not engage in commodity hedging for grape purchases, which are subject to market conditions and can impact future results[363] Tax and Compliance - The effective tax rate for Fiscal 2024 was 27.1%, up from 26.7% in Fiscal 2023, primarily due to nondeductible transaction costs[309] - The Company’s effective tax rate may be affected by the realization of deferred tax assets, which are evaluated based on future taxable income forecasts[428] - The company is in compliance with all covenants under its Credit Agreement as of July 31, 2024[333] Other Financial Metrics - Total other expenses, net, increased by $6.5 million, or 56.6%, for Fiscal 2024, totaling $18.0 million[307] - Depreciation and amortization expenses rose to $37,168,000 in fiscal year 2024, up from $27,768,000 in fiscal year 2023[388] - Equity-based compensation increased to $7,319,000 in fiscal year 2024 from $6,290,000 in fiscal year 2023[388] - The Company recognized consideration given to customers totaling $52.7 million, $57.5 million, and $66.3 million for Fiscal 2024, 2023, and 2022, respectively, as a reduction to net sales[407] Brand and Market Strategy - The company operates a portfolio of winery brands, including Duckhorn Vineyards and Sonoma-Cutrer, focusing on luxury and ultra-luxury wine production[389] - The launch of Decoy Featherweight Sauvignon Blanc in January 2024 targets the lower-in-calorie/lower-in-alcohol wine category[261] - The company plans to continue investing in direct-to-consumer (DTC) capabilities to enhance consumer engagement and brand loyalty[262]

Core Viewpoint - Johnson Fistel, LLP is investigating potential breaches of fiduciary duties by Duckhorn Portfolio Inc's board related to its proposed sale to Butterfly Equity, raising concerns about whether the board adequately pursued alternatives and secured the best price for shareholders [1][3]. Group 1: Acquisition Details - Duckhorn has accepted an acquisition proposal from Butterfly Equity, offering shareholders $11.10 per share in an all-cash transaction, after which Duckhorn will become a privately held entity [2]. Group 2: Investigation Focus - The investigation by Johnson Fistel centers on whether Duckhorn's board fulfilled its responsibilities to shareholders, particularly regarding the pursuit of alternative options and the pricing of the acquisition [3]. - Analyst projections for Duckhorn's earnings and revenue growth are highlighted, noting that the company's shares have historically traded at higher prices than the proposed acquisition offer [3].

Performance Overview and Challenges - The Duckhorn Portfolio Inc reported fourth-quarter net sales of $107.4 million, exceeding analyst estimates of $106.55 million, representing a 7.3% increase year-over-year driven by a 23.7% growth in volume due to the acquisition of Sonoma-Cutrer [1][3] - Gross profit decreased by 7.2% to $51.3 million, resulting in a gross profit margin of 47.8%, down from 55.2% the previous year, influenced by timing shifts of higher-margin products and normalized trade spending [1][3] Financial Achievements and Industry Implications - Adjusted EBITDA for the fourth quarter was $39.9 million, marking a 16.7% increase from the prior year, with an adjusted EBITDA margin improvement of approximately 300 basis points to 37.2% [2] - This growth underscores the company's ability to maintain profitability and operational efficiency in the luxury wine industry amidst market fluctuations [2] Key Financial Metrics - For fiscal year 2024, net sales were reported at $405.5 million, slightly above the annual estimate of $402.05 million, while net income was $56.0 million, or $0.45 per diluted share, falling short of the estimated $0.50 per share [3] - Adjusted net income for the year was $74.8 million, or $0.60 per diluted share [3] - Key metrics for Q4 2024 compared to Q4 2023 include: - Net Sales: $107.4M vs $100.1M - Gross Profit: $51.3M vs $55.3M - Adjusted EBITDA: $39.9M vs $34.2M - Net Income: $11.3M vs $17.8M [3] Analysis and Commentary - The company demonstrated resilience in a challenging market, leveraging strategic acquisitions like Sonoma-Cutrer for volume growth, while the impact of timing shifts and product mix changes on gross margins indicates a need for careful management of product releases and pricing strategies [4] - The successful integration of Sonoma-Cutrer and execution of strategic initiatives positions the company for growth and profitability into fiscal 2025 and beyond [4]

[Financial Results Overview](index=1&type=section&id=Financial%20Results%20Overview) This section provides an overview of the company's financial performance for both the fourth quarter and the full fiscal year 2024, including key metrics and management's perspective [Fourth Quarter 2024 Performance](index=1&type=section&id=Fourth%20Quarter%202024%20Highlights) The company reported a 7.3% increase in Q4 net sales to $107.4 million, primarily driven by the Sonoma-Cutrer acquisition, with adjusted EBITDA growing 16.7% to $39.9 million Fourth Quarter 2024 Key Financial Metrics | Metric | Q4 2024 | Change vs. Q4 2023 | | :--- | :--- | :--- | | Net Sales | $107.4 million | +7.3% | | Net Income | $11.3 million | -36.5% | | Adjusted Net Income | $20.4 million | +22.2% | | Adjusted EBITDA | $39.9 million | +16.7% | | Diluted EPS | $0.08 | -46.7% | | Adjusted Diluted EPS | $0.14 | -6.7% | - The net sales decline of **13.9%** (excluding Sonoma-Cutrer) was primarily due to the shift in the Kosta Browne Appellation Series release from Q4 in fiscal 2023 to Q3 in fiscal 2024[2](index=2&type=chunk) [Fiscal Year 2024 Performance](index=1&type=section&id=Fiscal%20Year%202024%20Highlights) For fiscal year 2024, net sales grew modestly by 0.7% to $405.5 million, while adjusted EBITDA increased by 7.3% to $155.1 million, improving the margin to 38.2% Fiscal Year 2024 Key Financial Metrics | Metric | FY 2024 | Change vs. FY 2023 | | :--- | :--- | :--- | | Net Sales | $405.5 million | +0.7% | | Net Income | $56.0 million | -19.2% | | Adjusted Net Income | $74.8 million | -3.2% | | Adjusted EBITDA | $155.1 million | +7.3% | | Diluted EPS | $0.45 | -25.0% | | Adjusted Diluted EPS | $0.60 | -10.4% | - Excluding the impact of the Sonoma-Cutrer acquisition, net sales for the fiscal year declined by **$18.4 million** or **4.6%** compared to the prior year[3](index=3&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management expressed satisfaction with Q4 performance and strategic progress in fiscal 2024, highlighting the Sonoma-Cutrer acquisition as a key driver for future growth - The company meaningfully advanced its strategic agenda in fiscal 2024, highlighted by the strategic acquisition of Sonoma-Cutrer[4](index=4&type=chunk) - Management believes the successful integration of Sonoma-Cutrer and execution of strategic initiatives position the business for solid growth and profitability into fiscal 2025 and beyond[4](index=4&type=chunk) [Detailed Financial Analysis](index=2&type=section&id=Detailed%20Financial%20Analysis) This section provides an in-depth look at the company's financial performance, including sales drivers, margin analysis, and channel mix for the fiscal year [Fourth Quarter 2024 Financial Details](index=2&type=section&id=Fourth%20Quarter%202024%20Financial%20Information) Q4 net sales growth was driven by a 23.7% volume increase from Sonoma-Cutrer, partially offset by a 16.4% negative price/mix impact, while SG&A as a percentage of sales declined by 190 basis points - The increase in Q4 net sales was driven by a **23.7% volume growth** from the Sonoma-Cutrer acquisition, while price/mix had a **negative contribution of 16.4%**[6](index=6&type=chunk) - Adjusted gross profit margin declined **390 basis points**, partly due to the timing shift of the higher-margin Kosta Browne release to Q3[7](index=7&type=chunk) - Selling, general and administrative (SG&A) expenses as a percentage of net sales declined by **190 basis points**, reflecting active operating expense management[7](index=7&type=chunk) [Sales Channel Mix](index=2&type=section&id=Sales%20Channel%20Mix) For fiscal year 2024, the Wholesale - Distributors channel increased its share of net sales to 69.8%, while other channels experienced a reduction in their respective shares Net Sales by Channel (% of Total) | Channel | Fiscal Year 2024 | Fiscal Year 2023 | | :--- | :--- | :--- | | Wholesale – Distributors | 69.8% | 67.9% | | Wholesale – California direct to trade | 16.3% | 17.1% | | DTC | 13.9% | 15.0% | [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated balance sheets, statements of operations, and cash flows for the reported periods, detailing asset, liability, equity, revenue, expense, and cash movement [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of July 31, 2024, total assets grew to $1.82 billion from $1.35 billion, largely due to the Sonoma-Cutrer acquisition, with total liabilities increasing to $544.6 million and equity rising to $1.27 billion Key Balance Sheet Items (in thousands) | Account | July 31, 2024 | July 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$1,817,028** | **$1,347,682** | | Total current assets | $537,540 | $387,530 | | Goodwill | $483,879 | $425,209 | | **Total Liabilities** | **$544,573** | **$405,274** | | Long-term debt, net | $200,734 | $210,619 | | **Total Stockholders' Equity** | **$1,272,455** | **$942,408** | [Consolidated Statements of Operations](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) For fiscal year 2024, net sales were $405.5 million, but higher costs led to a decrease in income from operations to $94.8 million and net income to $56.0 million Fiscal Year Statement of Operations (in thousands, except per share data) | Account | Fiscal Year 2024 | Fiscal Year 2023 | | :--- | :--- | :--- | | Net sales | $405,481 | $402,996 | | Gross profit | $214,926 | $215,689 | | Income from operations | $94,843 | $105,978 | | Net income | $56,021 | $69,286 | | Diluted EPS | $0.45 | $0.60 | [Consolidated Statements of Cash Flows](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) In fiscal 2024, net cash from operating activities significantly decreased to $4.2 million, primarily due to increased inventories, while financing activities provided $77.6 million, resulting in a net cash increase of $4.5 million Fiscal Year Cash Flow Summary (in thousands) | Activity | Fiscal Year 2024 | Fiscal Year 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,160 | $70,092 | | Net cash used in investing activities | ($77,274) | ($72,572) | | Net cash provided by financing activities | $77,633 | $5,666 | | **Net increase in cash** | **$4,519** | **$3,186** | [Non-GAAP Financial Measures and Reconciliations](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section explains the company's use of non-GAAP financial measures and provides detailed reconciliations from GAAP to non-GAAP figures for both the fourth quarter and the full fiscal year [Explanation of Non-GAAP Measures](index=9&type=section&id=Explanation%20of%20Non-GAAP%20Measures) The company uses non-GAAP measures like Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Income, and Adjusted EPS to provide a clearer view of core operating performance by excluding specific non-recurring or non-cash items - The company uses non-GAAP measures to enhance the reader's understanding of past financial performance and future prospects by excluding items not related to core operating performance[12](index=12&type=chunk)[23](index=23&type=chunk) - Adjusted EBITDA is calculated as net income before interest, taxes, depreciation, amortization, and other specific adjustments to help management monitor core operating performance and make strategic decisions[25](index=25&type=chunk) - Adjusted Net Income and Adjusted EPS exclude items like non-cash equity compensation, purchase accounting adjustments, and transaction expenses to improve comparability of results between periods[30](index=30&type=chunk)[32](index=32&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=11&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) Detailed tables reconcile GAAP figures to their non-GAAP counterparts for both the fourth quarter and the full fiscal year, itemizing adjustments for various non-operating factors [Fourth Quarter Reconciliation](index=11&type=section&id=Fourth%20Quarter%20Reconciliation) For Q4 2024, GAAP Net Income of $11.3 million was adjusted to a non-GAAP Adjusted Net Income of $20.4 million, with key adjustments including purchase accounting, derivative fair value changes, and equity-based compensation Q4 2024 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $51,312 | $3,690 | $55,001 | | SG&A | $30,614 | ($6,752) | $23,862 | | Net Income | $11,296 | $9,122 | $20,418 | | EBITDA | $29,081 | $10,829 | $39,910 (Adj. EBITDA) | [Fiscal Year Reconciliation](index=12&type=section&id=Fiscal%20Year%20Reconciliation) For fiscal year 2024, GAAP Net Income of $56.0 million was reconciled to a non-GAAP Adjusted Net Income of $74.8 million, with significant adjustments for transaction expenses, equity-based compensation, and purchase accounting FY 2024 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $214,926 | $2,478 | $217,404 | | SG&A | $120,083 | ($30,735) | $89,348 | | Net Income | $56,013 | $18,783 | $74,796 | | EBITDA | $132,087 | $22,997 | $155,084 (Adj. EBITDA) | [Other Information](index=3&type=section&id=Other%20Information) This section provides background on The Duckhorn Portfolio, Inc. as a leading luxury wine company and includes important disclaimers regarding forward-looking statements and associated risks [About The Duckhorn Portfolio, Inc.](index=3&type=section&id=About%20The%20Duckhorn%20Portfolio%2C%20Inc.) The Duckhorn Portfolio is North America's premier luxury wine company, managing eleven wineries and over 2,200 acres of vineyards, distributing wines globally across a wide price range - The company is positioned as North America's premier luxury wine company with **eleven wineries** and over **2,200 acres of vineyards**[11](index=11&type=chunk) - The portfolio includes revered wineries like Duckhorn Vineyards, Decoy, Sonoma-Cutrer, and Kosta Browne[11](index=11&type=chunk) - Wines are sold throughout the United States, on five continents, and in more than **50 countries**[11](index=11&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section warns that forward-looking statements are subject to risks such as economic downturns, inflation, competition, supply chain disruptions, and acquisition integration challenges, which could cause actual results to differ materially - The press release contains forward-looking statements regarding future financial performance and growth initiatives, which are not guarantees of future results[13](index=13&type=chunk)[14](index=14&type=chunk) - Applicable risks include economic conditions, consumer demand, supply chain disruptions, successful execution of growth strategy, and risks associated with the acquisition of Sonoma-Cutrer[14](index=14&type=chunk)

Core Insights - The Duckhorn Portfolio Inc is scheduled to release its Q4 2024 earnings on October 7, 2024, with expected revenue of $106.55 million and earnings of $0.09 per share [1] - For the full year 2024, revenue is projected at $402.05 million, with earnings expected to be $0.50 per share [1] Revenue Estimates - Over the past 90 days, revenue estimates for the full year 2024 have increased from $401.68 million to $402.05 million, while 2025 estimates rose from $484.53 million to $487.20 million [2] Earnings Estimates - Earnings estimates for the full year 2024 have remained steady at $0.50 per share, with 2025 estimates at $0.61 per share [2] Historical Performance - In the previous quarter ending April 30, 2024, actual revenue was $92.53 million, missing expectations of $93.60 million by -1.14%. Actual earnings were $0.12 per share, missing expectations of $0.14 per share by -14.29% [3] Price Targets - The average one-year price target for The Duckhorn Portfolio Inc is $9.67, indicating an upside of 78.02% from the current price of $5.43. The high estimate is $12, and the low estimate is $7 [4] - GuruFocus estimates the GF Value for the company at $20.17, suggesting an upside of 271.45% from the current price [4] - The average brokerage recommendation is currently 2.6, indicating a "Hold" status [4]

Core Viewpoint - NAPA's 3Q24 earnings report indicates a challenging outlook due to weakening consumer demand for luxury wines, with management's optimism appearing misplaced [1][8][9]. Financial Performance - NAPA reported adjusted revenues of $92.5 million, adjusted EBITDA of $37.7 million, and adjusted EPS of $0.14 for 3Q24 [1]. - Revenue growth of 1.4% was primarily driven by pricing and mix, contributing 6%, while volume declined by 4.6% [1]. - Sales decreased by 11% in Wholesale to Distributors and 7.6% in Wholesale to CA Direct-to-Retail, but increased by 71.6% in Direct-to-Consumer (DTC) [1]. - Gross margins were at 55.5%, a decline of 15 basis points year-over-year, but adjusted EBITDA margin expanded by approximately 100 basis points to 40.9% [1]. Market Conditions - The luxury wine category saw a 1% decline in 3Q24, contrary to management's expectations of low-single-digit growth [1]. - Demand for ultra-luxury wines is decreasing, as evidenced by lower-than-expected response rates to high-priced offerings [1]. - Increased days of inventory on hand at distributors indicate weaker industry and consumer demand, suggesting fewer sell-in opportunities in the near term [1]. Future Guidance - NAPA's revised guidance for FY24 organic revenue is now expected to be between $382 million and $392 million, reflecting a decline of 5.2% to 2.7% [6]. - The outlook for 4Q24 is particularly concerning, with an implied decline of approximately 11% compared to previous expectations of flat growth [6]. - The macroeconomic environment, characterized by high inflation and potential interest rate hikes, is likely to further impact consumer demand for luxury wines [8][9]. Investment Outlook - The recommendation remains a sell due to the uncertain outlook and high likelihood of missing FY25 revenue growth expectations [8][9]. - Historical data shows that when NAPA missed consensus estimates, the share price experienced significant declines, indicating potential downside risk [7][8].

Company Overview - The Duckhorn Portfolio, Inc. reported quarterly earnings of $0.14 per share, matching the Zacks Consensus Estimate, but down from $0.16 per share a year ago [7] - The company posted revenues of $92.53 million for the quarter ended April 2024, exceeding the Zacks Consensus Estimate by 0.37% and up from $91.24 million year-over-year [8] - Over the last four quarters, the company has surpassed consensus EPS estimates only once [8] Earnings Outlook - The consensus EPS estimate for the upcoming quarter is $0.13 on revenues of $105.83 million, and for the current fiscal year, it is $0.59 on revenues of $401.82 million [11] - The earnings outlook for the company is mixed, with current estimate revisions translating into a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [4] Industry Context - The Beverages - Alcohol industry, to which The Duckhorn Portfolio belongs, is currently ranked in the bottom 46% of over 250 Zacks industries, which may impact stock performance [5] - Empirical research indicates that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1 [5] Stock Performance - The Duckhorn Portfolio shares have declined approximately 21.2% since the beginning of the year, contrasting with the S&P 500's gain of 12.3% [9] - The company's performance has raised questions among investors regarding future stock movements, particularly in relation to earnings estimate revisions [10]

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the period ended April 30, 2024, detailing financial position, operations, equity, and cash flows, with notes on the Sonoma-Cutrer acquisition and its financial impacts [Condensed Consolidated Statements of Financial Position](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Position) This statement details the company's financial position, showing significant increases in total assets, liabilities, and stockholders' equity primarily due to the Sonoma-Cutrer acquisition Condensed Consolidated Statements of Financial Position (in thousands) | | April 30, 2024 | July 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | $521,994 | $387,530 | | **Property and equipment, net** | $565,806 | $323,530 | | **Goodwill** | $483,818 | $425,209 | | **Total assets** | **$1,793,464** | **$1,347,682** | | **Total current liabilities** | $64,502 | $74,460 | | **Revolving line of credit** | $102,000 | $13,000 | | **Long-term debt, net** | $203,206 | $210,619 | | **Total liabilities** | **$534,928** | **$405,274** | | **Total stockholders' equity** | **$1,258,536** | **$942,408** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement presents the company's operating results, showing a slight increase in net sales for the three-month period but a decrease for the nine-month period, alongside a decline in net income due to higher expenses Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three months ended April 30, 2024 | Three months ended April 30, 2023 | Nine months ended April 30, 2024 | Nine months ended April 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $92,532 | $91,242 | $298,086 | $302,901 | | **Gross profit** | $51,443 | $50,511 | $163,614 | $160,407 | | **Income from operations** | $21,704 | $26,522 | $74,145 | $81,100 | | **Net income attributable to The Duckhorn Portfolio, Inc.** | $13,323 | $16,797 | $44,717 | $51,529 | | **Diluted EPS** | $0.12 | $0.15 | $0.39 | $0.45 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details cash flows, showing net cash used in operating activities for the nine months ended April 30, 2024, a significant decrease from the prior year, primarily due to increased inventories and the Sonoma-Cutrer acquisition Condensed Consolidated Statements of Cash Flows (in thousands) | | Nine months ended April 30, 2024 | Nine months ended April 30, 2023 | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | $(409) | $51,753 | | **Net cash used in investing activities** | $(71,080) | $(14,111) | | **Net cash provided by (used in) financing activities** | $80,871 | $(4,732) | | **Net increase in cash** | $9,382 | $32,910 | | **Cash - End of period** | $15,735 | $36,077 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the financial statements, highlighting the Sonoma-Cutrer acquisition, shifts in sales channels, a new class-action lawsuit, increased debt, and a higher effective tax rate - On April 30, 2024, the Company acquired Sonoma-Cutrer for consideration valued at **$317.5 million**, consisting of **$49.6 million** in cash and **31.5 million** shares of common stock valued at **$267.1 million**[48](index=48&type=chunk) - The acquisition added approximately **$61.4 million** in inventories, **$244.8 million** in net property and equipment, a **$17.0 million** indefinite-lived trade name, and **$58.6 million** in goodwill[52](index=52&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) Net Sales by Channel | Channel | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Wholesale — Distributors | 60.4% | 68.6% | | Wholesale — California direct to trade | 16.0% | 17.5% | | DTC | 23.6% | 13.9% | - A putative class action lawsuit was filed on March 22, 2024, alleging wage and hour violations, with the potential loss not yet reasonably estimable[94](index=94&type=chunk) - The effective tax rate for the nine months ended April 30, 2024, was **29.3%**, up from **26.3%** in the prior year, primarily due to non-deductible transaction costs from the Sonoma-Cutrer acquisition[113](index=113&type=chunk)[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting net sales trends, improved gross profit margin, increased SG&A expenses due to the Sonoma-Cutrer acquisition, and growth in Adjusted EBITDA, alongside liquidity and capital resources Key Financial Metrics (in thousands) | | Three months ended April 30, 2024 | Three months ended April 30, 2023 | Nine months ended April 30, 2024 | Nine months ended April 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $92,532 | $91,242 | $298,086 | $302,901 | | **Gross profit** | $51,443 | $50,511 | $163,614 | $160,407 | | **Adjusted EBITDA** | $37,726 | $35,820 | $115,174 | $110,298 | - The Sonoma-Cutrer acquisition, completed on April 30, 2024, for approximately **$317.5 million**, is expected to be accretive in the first full fiscal year with up to **$10.0 million** in run-rate synergies[144](index=144&type=chunk)[145](index=145&type=chunk) - Gross profit margin increased to **54.9%** for the nine months ended April 30, 2024, up from **53.0%**, driven by lower discounts and favorable DTC offering timing[164](index=164&type=chunk) - Selling, general and administrative expenses increased by **12.8%** for the nine months ended April 30, 2024, primarily due to higher transaction and integration costs from the Sonoma-Cutrer acquisition[169](index=169&type=chunk)[170](index=170&type=chunk) - Net cash used in operating activities was **$0.4 million** for the nine months ended April 30, 2024, a **$52.2 million** decrease from the prior year, mainly due to increased inventory purchases and payment timing[196](index=196&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks including interest rate risk on variable-rate debt, foreign currency risk from Euro-denominated purchases, and commodity price risk for raw materials, which are managed through various strategies - The company faces interest rate risk on **$315.3 million** of variable-rate debt as of April 30, 2024, with a **100 basis point** increase potentially raising annual interest expense by **$3.1 million**, partially mitigated by an interest rate swap[215](index=215&type=chunk) - Foreign currency risk, primarily from Euro-denominated barrel purchases, is mitigated using foreign exchange forward contracts[217](index=217&type=chunk) - Commodity price risk for grapes and raw materials is managed through diversified sourcing, varied supply contracts, and annual price negotiations, without commodity hedging[219](index=219&type=chunk)[221](index=221&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of April 30, 2024, with new controls implemented for the Sonoma-Cutrer acquisition and no other material changes to internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of April 30, 2024[223](index=223&type=chunk) - New controls related to accounting policies and procedures were implemented during the quarter for the Sonoma-Cutrer acquisition[224](index=224&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a putative class action lawsuit filed on March 22, 2024, alleging wage and hour violations, with the potential loss not yet reasonably estimable - On March 22, 2024, a former employee filed a putative class action lawsuit alleging wage and hour violations under the California Labor Code[228](index=228&type=chunk) - The claims primarily relate to alleged unpaid wages and missed meal and rest breaks, with the amount of any potential loss not yet reasonably estimable[228](index=228&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, focusing on substantial non-recurring costs, integration challenges, and the potential unrealized benefits from the Sonoma-Cutrer acquisition, alongside the significant influence of major stockholders - The company has incurred and expects substantial non-recurring costs, including legal, advisory, and integration fees, associated with the Sonoma-Cutrer merger[231](index=231&type=chunk) - Integrating Sonoma-Cutrer may be more difficult, costly, or time-consuming than expected, risking that anticipated benefits and synergies may not be fully realized[233](index=233&type=chunk) - As of April 30, 2024, TSG and Brown-Forman affiliates owned approximately **41.8%** and **21.4%** of outstanding common stock, respectively, granting them significant influence over company decisions[236](index=236&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This section discloses the adoption of Rule 10b5-1 trading plans by two executive officers on April 9, 2024, for share sales between July and December 2024 Rule 10b5-1 Trading Plans Adopted in Q3 FY2024 | Name | Position | Adoption Date | Duration of Trading Agreement | Aggregate Number of Securities to be Sold | | :--- | :--- | :--- | :--- | :--- | | Pete Przybylinski | EVP, Chief Sales Officer | April 9, 2024 | July 9, 2024 - Dec 31, 2024 | 100,000 | | Zachary Rasmuson | EVP, Chief Operating Officer | April 9, 2024 | July 9, 2024 - Dec 31, 2024 | 70,000 | [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Sonoma-Cutrer merger agreement, amended bylaws, an employment agreement, and CEO/CFO certifications