Brown-Forman's Q3 Earnings Beat Mark, Organic Sales Rise 1% Y/Y

Brown-Forman Corporation BF.B has reported third-quarter fiscal 2026 results, wherein the bottom and top lines beat the Zacks Consensus Estimate and grew year over year. In the fiscal third quarter, earnings per share (EPS) of 58 cents inched up 1% year over year and surpassed the Zacks Consensus Estimate of 48 cents.

Net sales of $1.056 billion jumped 2% on a reported basis and beat the Zacks Consensus Estimate of $1.000 billion. On an organic basis, net sales edged up 1% from the prior-year period. 

This Zacks Rank #4 (Sell) company’s shares have lost 12.9% in the past three months against the industry’s 11.9% growth.

Brown-Forman’s Margins & Expenses

In the fiscal third quarter, BF.B’s gross profit of $640 million jumped 4% year over year on a reported but decreased 1% on an organic basis. Also, the gross margin expanded 80 basis points (bps) to 60.6%, aided by the effect of acquisitions and divestitures. This gain was partly offset by higher costs.

Selling, general and administrative (SG&A) expenses of $184 million were up 3% year over year.

Brown-Forman Corporation Price, Consensus and EPS Surprise

Brown-Forman Corporation price-consensus-eps-surprise-chart | Brown-Forman Corporation Quote

Operating income jumped 21% year over year to $340 million on a reported basis and fell 9% on an organic basis. The operating margin of 32.2% increased 510 bps from the year-ago quarter.

Understanding Brown-Forman’s Market Performance

In the first nine months of fiscal 2026, net sales in the United States decreased 8% year over year on a reported basis and 1% on an organic basis, reflecting the end of the Korbel relationship and the absence of the Sonoma-Cutrer prior-year TSA, and weak volumes of Jack Daniel’s Tennessee Whiskey. Such declines were partly offset by innovations, led by Jack Daniel’s Tennessee Blackberry, increased net pricing across the portfolio on changes to its distributor relationship terms and solid volumes of Woodford Reserve owing to the timing of distributor ordering patterns in the company’s transition markets.

In a challenging economic landscape, net sales in the Developed International markets dipped 2% on a reported basis and 6% on an organic basis, despite a sequential improvement. The decrease was mainly led by the absence of American-made beverage alcohol from retail shelves in the majority of the Canadian provinces, and declines in Germany and the United Kingdom. The decline was partly offset by the positive effect of foreign exchange and gains from the transition to owned distribution in Italy.

Net sales in Emerging markets increased 16% on a reported basis and 15% on an organic basis, backed by solid double-digit growth of New Mix, increased volumes across the Jack Daniel’s family of brands in Brazil and Türkiye, and an expected net increase in distributor inventories.

The Travel Retail channel’s net sales jumped 9% on a reported basis and 7% on an organic basis, owing to increased passenger traffic leading to solid volumes of Jack Daniel’s Tennessee Whiskey and the positive impact of foreign exchange.

A Peek at BF.B’s Brand Performance

In the nine months of the fiscal year, net sales for Whiskey products were up 2% year over year on a reported basis and 1% on an organic basis, backed by innovation. The launch of Jack Daniel’s Tennessee Blackberry, gains from foreign exchange and growth of Jack Daniel’s Tennessee Apple in Brazil were somewhat offset by decreases of Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey.

Net sales for the Tequila portfolio dipped 6% on a reported and 7% on an organic basis. Herradura’s net sales dipped 11% on a reported basis and 12% on an organic basis, led by soft volumes in the United States, as the tequila category has been competitive. el Jimador’s net sales inched down 3% on a reported basis and 4% on an organic basis, backed by decreases in the United States and Mexico, partly offset by increased volumes in Colombia.

Net sales for the Ready-to-Drink (RTD) portfolio rose 8% on a reported basis and 6% on an organic basis. Net sales of New Mix surged 37% on a reported and 34% on an organic basis, bolstered by market share gains in Mexico in an accelerating category and the product’s launch in the United States. Jack Daniel’s RTD/RTP portfolio dipped 3% on a reported basis and 5% on an organic basis, thanks to the absence of American-made beverage alcohol from retail shelves across the majority provinces in Canada, soft volumes in the United States and a decline in net pricing in Germany.

Rest of Portfolio's net sales plunged 34% on a reported basis but jumped 16% on an organic basis, thanks to the unfavorable impact of acquisitions and divestitures, somewhat offset by the distribution of new agency brands in Japan and Mexico, and double-digit growth of Gin Mare and Diplomático.

Net sales for non-branded and bulk fell 64% on a reported and 64% on an organic basis, driven by soft used barrel sales.

BF.B’s Financial Health Snapshot

The company ended third-quarter fiscal 2026 with cash and cash equivalents of $383 million and long-term debt of $2.1 billion. Its total shareholders’ equity was $4.1 billion. As of Jan. 31, 2026, BF.B had $709 million in cash from operating activities and free cash flow of $628 million.

On Feb. 18, 2026, the company’s board declared a regular cash dividend of $0.2310 per share on its class A and class B common stock, payable April 1, 2026, to stockholders of record as on March 9, 2026. Brown-Forman paid regular quarterly cash dividends for 82 straight years while hiking the regular dividend for 42 consecutive years.

The company’s board has authorized the repurchase of $400 million, exclusive of brokerage fees and excise taxes, of outstanding shares of class A and class B common stock from Oct. 1, 2025, through Oct. 1, 2026, subject to market and other conditions. As of Oct. 31, 2025, $301 million was available under the program.

What’s Ahead For BF.B in FY26?

Management continues to anticipate the operating backdrop to remain challenging in fiscal 2026, with a weak visibility on macroeconomic and geopolitical volatility, as it witnessed headwinds from consumer volatility and soft non-branded sales of used barrels. Nevertheless, the company remains committed to building its business in the long term, mitigating the existing environment at pace with strategic actions in fiscal 2026. The meaningful evolution of its U.S. distribution, the restructuring effort and product innovation will power growth.

Management reiterates expectations for the fiscal year. For fiscal 2026, Brown-Forman still projects an organic net sales decrease in the low-single digit range. Organic operating income is likely to decline in the low single-digit range. Capital expenditures are still projected to be $110-$120 million for the current fiscal year. It has revised the effective tax rate to be 19-21% compared with 21-23% expected earlier.

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This article originally published on Zacks Investment Research (zacks.com).

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