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].
Brown-Forman(BF_A) - 2025 Q4 - Annual Report