Financial Performance - Second quarter net sales decreased 5% to $1.0 billion, with a 2% decline on an organic basis compared to the prior-year period[2] - First half net sales decreased 4% to $2.0 billion, remaining flat on an organic basis compared to the same prior-year period[2] - Operating income for the second quarter decreased 10% to $305 million, with a 9% decline on an organic basis[2] - Operating income decreased by 9% to $565 million from $622 million in the previous year[26] - Net income for the six months was $394 million, reflecting a 13% decline from $453 million in 2024[26] - Earnings per share (diluted) were $0.83, a decrease of 13% compared to $0.96 in the prior year[26] - The company anticipates organic net sales and operating income to decline in the low-single digit range for fiscal 2026[16] Gross Margin and Profitability - Gross margin expanded by 30 basis points to 59.5%, driven by acquisitions and divestitures, despite higher costs[4] - Gross profit for the same period was $1,167 million, down 4% from $1,211 million in 2024[26] - The company’s gross profit increased by 1%, indicating stable profitability despite sales challenges[40] Cash Flow and Capital Expenditures - Cash flows from operations grew by $163 million to $292 million, while free cash flow increased by $179 million to $236 million[4] - Free cash flow for the six months ended October 31, 2025, was $236 million, up from $57 million in the same period last year[41] - The estimated capital expenditures range for fiscal 2026 has been updated to $110 to $120 million[15] Market Performance - Net sales in Emerging markets increased by 10% (+12% organic), led by strong growth in the Jack Daniel's family of brands[8] - In the United States, net sales fell by 9%, while emerging markets saw a 10% increase in net sales[36] - The company experienced a 62% decline in net sales in Canada, while Brazil reported a 22% increase[36] - The emerging market of Mexico reported a 17% increase in net sales, contributing positively to overall performance[36] Inventory and Sales Trends - Estimated net change in distributor inventories in the United States was up by 2%, while developed international markets saw a decrease of 1%[38] - "Depletions" measure volume reflecting consumer demand more accurately than shipments to distributors[62] - Consumer takeaway is a leading indicator of consumer demand trends, derived from retail sales value metrics[62] - Estimated net change in distributor inventories is calculated to understand the impact on organic trends[62] - A positive difference in estimated net change indicates a net increase in distributors' inventories, potentially leading to decreased organic trends[62] - A negative difference suggests a net decrease in distributors' inventories, which could result in increased organic trends as inventories are rebuilt[62] Restructuring and Charges - The company incurred $16 million in restructuring charges related to a workforce reduction of approximately 12%[52] - The operating margin decreased by 150 basis points to 28.9%, primarily due to a decline in gross profit and restructuring initiative impacts[10] Shareholder Returns - The company authorized a $400 million share repurchase program and increased the quarterly cash dividend by 2% to $0.2310 per share[11][12] Assets and Liabilities - Total assets increased to $8,221 million as of October 31, 2025, up from $8,086 million in April 2025[28] - Total liabilities decreased slightly to $4,087 million from $4,093 million in April 2025[28] - The effective tax rate improved to 20.1% from 21.2% in the previous year[26] Other Notable Changes - The Korbel relationship ended effective June 30, 2025[62] - "Rest of Portfolio" includes brands such as Korbel California Champagnes and Finlandia Vodka, which was divested on November 1, 2023[62] - Shipment volumes are used to calculate depletion-based amounts for better inventory management insights[62] - The company recognizes revenue upon shipment or delivery of products to customers[62]
Brown-Forman(BF_B) - 2026 Q2 - Quarterly Results