Brown-Forman Corporation (BF.B Quick QuoteBF.B - Free Report) has been gaining from the premiumization of its portfolio and aggressive brand investments. Continued strength in its brands, mainly the Jack Daniel’s Tennessee Whiskey, bodes well.

This led to a solid year-over-year performance in fourth-quarter fiscal 2023. Earnings per share (EPS) of 43 cents advanced 36% year over year. Net sales of $1,046 million increased 5% year over year on a reported basis and 4% on an organic basis.

Consequently, shares of this Zacks Rank #3 (Hold) company have gained 4.8% in the past three months compared with the industry’s growth of 3.7%.

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That said, let’s delve deeper into the factors that make BF.B a promising stock.

A Brief Introspection

Brown-Forman’s underlying sales for fiscal 2023 were aided by the company’s portfolio strength and growth across all geographic regions. The company’s overall sales in the United States advanced 3% on a reported and organic basis. The rise was driven by volume gains for Woodford Reserve, owing to the rise in distributor inventories, and higher pricing across the Jack Daniel’s portfolio, as well as the launch of the Jack Daniel’s and Coca-Cola Ready-to-Drink (RTD).

The developed international market reported sales growth of 4%, with organic sales rising 10%. The improvement can be attributed to volume gains for Jack Daniel’s Tennessee Whiskey and Jack Daniel’s RTDs. Additionally, higher pricing for Jack Daniel’s Tennessee Whiskey has aided the results.

The emerging markets registered 18% net sales growth, whereas organic sales improved 24%, backed by the growth of Jack Daniel’s Tennessee Whiskey in the United Arab Emirates and Brazil, as well as continued double-digit growth of New Mix in Mexico. Net sales in the Travel Retail channel advanced 41% on a reported basis and 43% on an organic basis due to higher volumes for the majority of the portfolio, as travel trends continued to rebound.

In fiscal 2023, net sales for Jack Daniel’s family of brands were up 4% on a reported basis and 9% on an organic basis. The brand’s sales were driven by solid demand, higher pricing and the estimated increase in distributor inventories. Strength in Jack Daniel’s Tennessee Whiskey in the international markets and the Travel Retail channel acted as major growth drivers.

Notably, Jack Daniel’s Tennessee Whiskey reported sales growth of 3% and organic growth of 8%. Sales benefited from strong consumer demand and higher pricing. The continued consumer interest in flavor and convenience boosted the performance of Jack Daniel’s RTD, Jack Daniel’s Tennessee Honey and Jack Daniel’s Tennessee Fire.

Premium bourbon brands reported sales growth of 23% and organic sales growth of 24% in fiscal 2023, driven by double-digit growth in Woodford Reserve and Old Forester. An estimated rise in distributor inventories, along with higher volumes and pricing, boosted sales for Woodford Reserve and Old Forester. Jack Daniel’s RTDs/Ready-to-Pours benefited from the introduction of the Jack Daniel’s and Coca-Cola RTD, as well as the launch of Jack Daniel’s Bonded Tennessee Whiskey, resulting in year-over-year sales growth of 11% and 16% on an organic basis. New Mix reported sales growth of 53% and organic sales growth of 45%, driven by market share gains in Mexico, as well as higher volumes and prices.

Brown-Forman’s tequila portfolio witnessed year-over-year sales growth of 10% each on a reported basis and an organic basis. This was driven by double-digit sales growth for the el Jimador and Herradura brands. Sales increased 11% on a reported and 10% on an organic basis for the Herradura brand, driven by higher prices and volumes in Mexico, and volume growth in the United States partly due to an estimated increase in distributor inventories. el Jimador reported year-over-year sales growth of 13% on a reported basis and 14% on an organic basis, driven by growth across all geographic regions, particularly in emerging markets and the United States.

It has also been on track with its long-term pricing strategy, which aims to increase prices year over year to grow sales as part of its revenue growth management initiatives. Consequently, management issued an upbeat fiscal 2024 view. It anticipates organic sales growth of 5-7% for fiscal 2024. The company is optimistic about organic sales and organic operating income growth.

BF.B anticipates trends to normalize after two consecutive years of double-digit organic sales growth. Based on the aforementioned assumptions, Brown-Forman expects the organic operating income to increase 6-8% year over year, driven by lower supply-chain disruption costs, partly offset by continued input cost pressures.

Headwinds to Overcome

Brown-Forman has witnessed several hurdles in fiscal 2023, including supply-chain challenges, higher input costs due to inflation, significant impacts of negative foreign exchange and the impacts of the Russian invasion of Ukraine. In fiscal 2024, inflation is likely to continue to negatively impact input costs.

Despite cost management initiatives, Brown-Forman has been witnessing higher advertising expenses due to continued investments in its brands. Advertising expenses increased 5% year over year to $134 million for the fiscal fourth quarter. On an organic basis, advertising expenses advanced 3%. The increase was driven by elevated marketing spending in the United States to back growth of Jack Daniel’s Tennessee Whiskey, Herradura, Woodford Reserve and the launch of the Jack Daniel’s Bonded series.

SG&A expenses of $201 million rose 4% year over year and 3% on an organic basis mainly on higher compensation-related expenses, rising discretionary spending and the acquisition, and integration costs for the Gin Mare and Diplomatico brands.

Conclusion

All said, we believe that strength in Jack Daniel’s Tennessee Whiskey, portfolio premiumization and pricing strategy are likely to offset inflation and cost woes.

Stocks to Consider

We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Conagra Brands (CAG Quick QuoteCAG - Free Report) , Celsius Holdings (CELH Quick QuoteCELH - Free Report) and Procter & Gamble (PG Quick QuotePG - Free Report) .

Conagra Brands, operating as a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 13.2%, on average. It has a long-term earnings growth rate of 6.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests improvements of 7.1% and 16.5%, respectively, from the year-ago reported numbers. The consensus mark for CAG’s earnings per share has moved up 3.4% in the past 30 days.

Celsius Holdings currently carries a Zacks Rank #2 (Buy). CELH specializes in commercializing healthier, nutritional functional foods, beverages and dietary supplements.

The Zacks Consensus Estimate for CELH’s current financial-year sales suggests 67.9% growth, and the same for earnings per share is expected to rise 154% from the year-ago reported figures. The company had an earnings surprise of 81.8% in the last reported quarter.

Procter & Gamble currently carries a Zacks Rank #2. PG has a trailing four-quarter earnings surprise of 1.02%, on average. It has a long-term earnings growth rate of 6.1%.

The Zacks Consensus Estimate for Procter & Gamble’s current financial-year sales and earnings per share suggests growth of 1.3% and 0.9%, respectively, from the year-ago reported numbers. The consensus mark for PG’s earnings per share has moved up by a penny in the past seven days.