Brown-Forman: Why the 11% Rebound After Q2 FY25 Results?

Company Update (BF.B US) (Buy): We remain bullish on U.S. Spirits, but the results were less rosy than the headlines and tariffs are a risk.

Highlights

• Organic net sales growth accelerated to +3% from -4% last quarter.

• Shares still down 20% in a year and at ~22x FY24 EPS (adj., ex-inventory).

• But U.S. still in 3-4% declines and there were positive one-offs elsewhere.

• European tariffs may resume in March and significantly impact earnings.

• With shares at $45.22, we see a 30% total return (10.0% IRR) by Apr-28.

Introduction

Brown-Forman released Q2 FY25 (August-October) results last Thursday (December 5); shares rose 10.7% that day, and are currently near the same level, thus remaining 20.0% down in the past year:

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

Source: Google Finance (09-Dec-24).

(All references to Brown-Forman share prices here are based on the more liquid non-voting Class B shares.)

We upgraded our rating on Brown-Forman to Buy in June and added it to our “Select 15” model portfolio as a small position in the same month. Shares have gained 4.0% since our upgrade (including dividends).

While we continue to believe Brown-Forman shares to be attractive, Q2 FY25 results were less positive than headlines suggested. There is no evidence yet of a rebound in the U.S. market, and tariffs represent a particular risk in 2025.

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