Brown-Forman's Q2 Earnings Miss Estimates, Gross Margin Expands Y/Y

Core Insights - Brown-Forman Corporation (BF.B) reported mixed second-quarter fiscal 2026 results, with net sales exceeding estimates but earnings per share (EPS) falling short, reflecting a challenging business environment [1][2][8] Financial Performance - EPS for the second quarter was 47 cents, down 14% year over year, missing the Zacks Consensus Estimate of 48 cents [2] - Net sales reached $1.036 billion, a decline of 5% year over year but above the Zacks Consensus Estimate of $1.027 billion; on an organic basis, net sales dipped 2% [2] - Gross profit was $615 million, down 5% year over year, while gross margin expanded by 20 basis points to 59.3% due to acquisitions and divestitures [3] - Operating income decreased 10% year over year to $305 million, with an operating margin contraction of 170 basis points to 29.4% [4] Market Performance - In the first half of fiscal 2026, U.S. net sales decreased 9% year over year, reflecting the end of certain relationships and lower volumes of key products [5] - Developed International markets saw a 4% decline in net sales, impacted by reduced volumes in key regions [6] - Emerging markets experienced a 10% increase in net sales, driven by strong growth in specific brands [7] Brand Performance - Whiskey product net sales were flat year over year, with new product launches offsetting declines in some established brands [9] - Tequila portfolio net sales dipped 3%, with Herradura experiencing an 11% decline [10] - Ready-to-Drink (RTD) portfolio net sales increased by 5%, with New Mix showing significant growth [11] Financial Health - As of the end of the second quarter, the company had cash and cash equivalents of $319 million and long-term debt of $2.1 billion [13] - The board approved a 2% increase in the quarterly cash dividend to $0.2310 per share, continuing a long history of dividend payments [14] Future Outlook - Management anticipates continued challenges in fiscal 2026, projecting low-single digit declines in organic net sales and operating income [16][17] - Capital expenditure guidance has been revised down to $110-$120 million from previous estimates [17]