Brown-Forman: FY25 Results & FY26 Outlook Didn’t Warrant ~18% Fall

Company Update (BF.B US) (Buy): Bad macro from Trump policies looks worse with distortion from used barrel sales and distributor changes.

Highlights

• BF fell 18% after Thursday’s results, an over-reaction in our view.

• Sales growth turned negative in Q4 FY25, but Trump is to blame.

• FY26 outlook points to a small decline, but partly due to one-offs.

• Shares have a ~16x P/E and a 3.2% Dividend Yield

• At ~$28, we see a 58% total return (17.8% p.a.) by Apr-28. Buy.

Introduction

Brown-Forman released Q4 FY25 (ending April 31) results yesterday (June 5), and shares finished the day down ~18%. They have rebounded by ~2% today at the time of writing, but are still near their new 52-week low:

Brown-Forman Class B Share Price (Last 1 Year)

Source: Google Finance (06-Jun-25).

Prices of American Depository Receipts of peers Diageo and Pernod Ricard also both fell by ~5% yesterday. The market seems to have taken Brown-Forman’s results as a significant negative for the U.S. spirits market.

We disagree, and added modestly to our Brown-Forman holding after results yesterday, partly funded by exit proceeds from Rémy Cointreau, which we liquidated in the morning before Brown-Forman’s results were released.

We believe investors have over-reacted to Brown-Forman’s results. The key question remains whether weak spirits demand in recent quarters is structural or cyclical, and yesterday’s results did not point conclusively to either. Both bull and bear arguments remain unchanged, but Brown-Forman shares are now ~18% cheaper with a ~16x P/E.

We upgraded our rating on Brown-Forman to Buy in June 2024 and added it to our “Select 15” model portfolio as a small position in the same month. At ~$28, shares are currently down ~34% since our initiation (after dividends). (All references to Brown-Forman share prices here are based on the more liquid non-voting Class B shares.)

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