Analyst Note| Sean Dunlop |
Wide-moat Brown-Forman posted strong quarterly results, raising its annual guidance for both organic net sales (to 11%-13% from high single digits) and organic operating income (12%-16%, from high single digits) on the back of strong performance in the whiskey and tequila segments. While the firm continues to navigate raw material cost inflation and supply chain disruptions, which together represented a 110-basis-point drag on gross margins during the fiscal year to date, normalization in agave prices and glass bottle supply should see pressure meaningfully abate over the next few quarters. Notably, though guidance suggests a 1% decline in operating profit for fiscal 2022 (attributable to a 2021 divestiture), it still represents high-teens growth on a two-year stack, with premiumization, at-home mixology, and global brand-building underpinning strength. We expect to raise our $73 fair value estimate by a low-single-digit percentage after digesting results.