On Monday, Bernstein reiterated its Outperform rating and $61.00 price target for Brown Forman (NYSE:BFb) (NYSE:BF-B) following the company's second-quarter fiscal year 2025 earnings report. The spirits manufacturer's stock surged by over 11% after the earnings release, which showcased a diluted earnings per share (EPS) that exceeded Bernstein's expectations by 7.5% and the consensus by 12%. The company also confirmed its fiscal year 2025 guidance.
Brown Forman's group organic net sales growth of 3.0% surpassed Bernstein's estimates by approximately 150 basis points, aided by a 490 basis points boost from distributor inventory restocking. The restocking reflected a normalization of shipment patterns in anticipation of holiday demand and a favorable comparison to a previous weak period. Despite an overall underlying net sales decline of 1.9%, this marked a significant improvement from the 5.0% decline reported in the first quarter of fiscal year 2025.
Emerging markets showed signs of strength with a 7.9% growth in underlying net sales for the quarter, a notable rebound from flat growth in the previous quarter. The U.S. market experienced a 5.2% decline in underlying net sales, which, while still negative, showed sequential improvement from the 7.0% decline in the first quarter. The Developed International segment also saw a contraction of 3.8%, but this too was a sequential improvement.
The company anticipates a slight contraction in fiscal year 2025 gross margin, influenced by several factors. These include slower-than-expected benefits from declining agave prices due to weaker tequila sales, headwinds from other input costs, and reduced production levels.
Bernstein has updated its financial model to reflect the latest earnings and foreign exchange numbers, resulting in negligible changes to its diluted EPS forecasts for fiscal years 2025 and 2026. The firm maintains its target next twelve months plus one (NTM+1) price-to-earnings (P/E) multiple of 30 times and its price target of $61.00 for Brown Forman's stock.
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