It has been about a month since the last earnings report for Brown-Forman B (BF.B Quick QuoteBF.B - Free Report) . Shares have added about 3.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Brown-Forman B due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Brown-Forman Q4 Earnings & Sales Beat

Brown-Forman has reported robust fourth-quarter fiscal 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Sales and earnings increased year over year, backed by increased demand for its brands, mainly the resurgence of Jack Daniel’s Tennessee Whiskey.

For the fiscal fourth quarter, earnings per share of 31 cents advanced 26% year over year and surpassed the Zacks Consensus Estimate of 24 cents. The rise can be attributed to robust operating margin growth, which offset higher costs. In fiscal 2022, earnings per share declined 7% year over year to $1.74, mainly driven by higher income tax rates, offset by operating income growth.

Net sales of $996 million beat the Zacks Consensus Estimate of $846.9 million. The top line increased 23% year over year on a reported basis. On an organic basis, net sales were up 27% from the prior-year level.

For fourth-quarter fiscal 2022, Brown-Forman’s gross profit amounted to $626 million, improving 26% year over year, and the gross margin expanded 140 basis points (bps) to 62.8%. Operating income improved 46% year over year to $246 million on a reported basis. Organic operating income increased 62%. The operating margin expanded 400 bps to 24.7% in the fiscal fourth quarter.

Selling, general and administrative (SG&A) expenses declined 8% year over year, while advertising expenses increased 6% for the fiscal fourth quarter.

Fiscal 2022 Performance

Brown-Forman also unveiled the results for fiscal 2022. Earnings for fiscal 2022 declined 7% year over year to $1.74, mainly driven by higher income tax rates, offset by operating income growth. Results included a gain of 20 cents per share from the sale of the Canadian Mist, Early Times and Collingwood brands and related assets.

Net sales of $3,933 million rose 14% from the year-ago period. Sales benefited from solid growth across all geographies and the Travel Retail Channel despite the adverse effects of supply-chain headwinds. Sales also improved, driven by strength in Jack Daniel’s Tennessee Whiskey due to the reopening of the on-premise channel. On an organic basis, net sales were up 17%.

Net sales for the Jack Daniel’s family of brands were up 15% on a reported basis and 17% on an organic basis. The upside was mainly driven by the resurgence of Jack Daniel’s Tennessee Whiskey. The Jack Daniel’s Tennessee Whiskey reported sales growth of 20%, with 23% organic growth mainly aided by volume growth and favorable channel mix shift to the on-premise channel. Sales were also aided by the ongoing international launch of the Jack Daniel’s Tennessee Apple and robust consumer demand for Jack Daniel’s RTDs. However, supply-chain disruptions acted as deterrents.

Premium bourbon brands reported sales growth of 17% on both reported and organic basis in fiscal 2022, driven by growth in Woodford Reserve and Old Forester. The gains for the Woodford Reserve were supported by higher volume and pricing in the United States and an increase in volumes at Travel Retail. In the period, sales for Woodford Reserve slightly moderated due to the ongoing supply-chain headwinds. Old Forester continued to report double-digit net sales growth and surpassed 400,000 nine-liter cases in fiscal 2022.

The company’s tequila brands witnessed 22% net sales growth on a reported basis and 20% on an organic basis. The category benefited from broad-based growth from Herradura and el Jimado, led by the United States.

The company’s overall sales in the United States advanced 10% on a reported basis and 12% on an organic basis. The rise was driven by strength in Jack Daniel’s Tennessee Whiskey, higher volumes and pricing for premium bourbons, and volume growth in tequilas, mainly Herradura and el Jimado. An increase in distributor inventories also aided sales growth in fiscal 2022. Sales growth was somewhat offset by the impacts of acquisitions and divestitures in the prior year, as well as lower volumes for Jack Daniel’s Tennessee Honey due to supply-chain disruptions.

Meanwhile, the developed international market reported sales growth of 12%, with organic sales rising 16%. The rise was driven by volume gains from Jack Daniel’s Tennessee Whiskey, along with higher volume and prices of Jack Daniel’s RTDs. The emerging markets registered 24% net sales growth, while organic sales improved 29%. This was backed by growth of Jack Daniel’s Tennessee Whiskey and the ongoing international launch of Jack Daniel’s Tennessee Apple, partially offset by negative currency exchange rates.

Net sales in the Travel Retail channel advanced 65% on a reported basis and 67% on an organic basis on the back of favorable year-over-year comparisons due to the cycling of last year’s significant declines.

In fiscal 2022, Brown-Forman’s gross profit amounted to $2,391 million, up 14% year over year on a reported basis and 17% on an organic basis. The reported gross margin expanded 30 bps to 60.8% due to favorable price/mix and the gains from acquisitions and divestitures, partly negated by higher costs.

Advertising expenses for fiscal 2022 rose 10% on a reported basis and 11% on an organic basis. The increase can be attributed to continued investments in its brands. SG&A expenses increased 3% on a reported basis and 7% on an organic basis in fiscal 2022. The higher SG&A expenses stemmed from elevated discretionary spend and one-time items like a special employee bonus and costs related to the impacts of Russia’s invasion of Ukraine.

Operating income improved 3% to $1,204 million on a reported basis and 27% on an organic basis. The operating margin declined 210 bps to 30.6% in fiscal 2022.

Balance Sheet & Cash Flow

The company ended fourth-quarter fiscal 2022 with cash and cash equivalents of $868 million, and long-term debt of $2,019 million. Its total shareholders’ equity was $2,737 million. As of Apr 30, 2022, BF.B generated $936 million in cash from operating activities, while free cash flow amounted to $798 million.

Outlook

Despite the ongoing macroeconomic and geopolitical challenges, management anticipates continued growth in fiscal 2023. The company expects the strength in its brands and strong consumer demand to continue aiding the top line. It anticipates organic sales growth in the mid-single digits for fiscal 2023. The company expects a slight gross margin expansion in fiscal 2023, owing to the effects of inflation and the removal of EU and UK tariffs on American whiskey.

Based on the aforementioned assumptions, the company expects organic operating margin to increase in the mid-single digits. The effective tax rate is expected to be 22-23% for fiscal 2023. Capital expenditure is anticipated to be $190-$210 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -10.2% due to these changes.

VGM Scores

At this time, Brown-Forman B has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Brown-Forman B has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.