A month has gone by since the last earnings report for Brown-Forman B (BF.B Quick QuoteBF.B - Free Report) . Shares have lost about 5.8% in that time frame, underperforming the S&P 500.

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

Brown-Forman’s Q3 Earnings Beat, Sales Miss

Brown-Forman reported mixed third-quarter fiscal 2024 results. The company’s earnings beat the Zacks Consensus Estimate and improved year over year. Meanwhile, sales missed the Zacks Consensus Estimate and declined year over year.

In the fiscal third quarter, earnings per share (EPS) of 60 cents rose 186% year over year and beat the Zacks Consensus Estimate of 56 cents.

Net sales of $1.069 billion missed the Zacks Consensus Estimate of $1.126 billion. The top line declined 1% year over year on a reported basis. On an organic basis, net sales were down 2% from the prior-year level.

Q3 in Detail

In third-quarter fiscal 2024, Brown-Forman’s gross profit of $635 million increased 2% year over year on both reported basis and 5% on an organic basis. The gross margin expanded 170 basis points to 59.4%. The gross margin was aided by an improved price/mix and reduced supply-chain disruption costs. This was partly negated by higher input costs, adverse currency rates and negative impact of acquisitions and divestitures.

SG&A expenses of $203 million rose 9% year over year and 7% on an organic basis. The increase stemmed from higher compensation and benefit-related expenses. Advertising expenses increased 1% year over year to $143 million for the fiscal third quarter. On an organic basis, advertising expenses declined 1%. Elevated advertising costs mainly resulted from the launch of Jack Daniel’s and Coca-Cola RTDs, increased investments in Jack Daniel’s Tennessee Whiskey, and the acquisition of Gin Mare and Diplomatico.

Market-Wise Performance

In the first nine months of fiscal 2024, net sales rose 1% on a reported basis and were flat on an organic basis. The improvement was mainly driven by growth in emerging and the Travel Retail channel. However, sales growth was partly negated by declines in the United States and developed international markets.

The emerging markets registered 9% net sales growth and 11% organic sales growth. This was backed by the strong growth of New Mix in Mexico and Jack Daniel’s Tennessee Apple in Brazil and Chile.

Net sales in the Travel Retail channel advanced 3% on a reported basis and 1% on an organic basis. The increase was the result of gains in the super-premium American whiskey portfolio, led by growth in Woodford Reserve and Jack Daniel’s Single Barrel, as well as the launch of Jack Daniel’s American Single Malt. This was partly negated by soft volume in Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey.

The company’s overall sales in the United States declined 1% on a reported basis and 2% on an organic basis. The decline resulted from lower volumes due to a net decrease in distributor inventories, offset by increased prices across the portfolio, led by Jack Daniel’s Tennessee Whiskey and el Jimador, the acquisition of Diplomático and growth of super-premium Jack Daniel's expressions.

Sales for the developed international market declined 2% on a reported basis and 6% on an organic basis. The decline stemmed from lower volumes of Jack Daniel’s Tennessee Whiskey in Japan. This was slightly offset by sales growth for the recently acquired Gin Mare and Diplomático brands and the launch of Jack Daniel’s Tennessee Apple in South Korea.

Balance Sheet & Cash Flow

The company ended its third-quarter fiscal 2024 with cash and cash equivalents of $589 million and long-term debt of $2,678 million. Its total shareholders’ equity was $3,245 million. As of Jan 31, 2024, BF.B had $63 million in cash from operating activities.

In the first nine months of fiscal 2024, the company returned nearly $300 million to stockholders via dividends. It recently announced a quarterly dividend of 21.78 cents per share on its Class A and Class B shares.

Outlook

Brown-Forman anticipates organic sales for fiscal 2024 to be flat year over year compared with growth of 3-5%, as stated earlier. It expects the organic operating income to be between flat to up 2%, mainly based on its revised expectations for organic sales and improved gross margin. Earlier, the company predicted an increase of 4-6% in organic operating income. The effective tax rate is expected to be 20-22% for fiscal 2024. Capital expenditure is anticipated to be $230-$240 million.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -13.25% due to these changes.

VGM Scores

At this time, Brown-Forman B has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 these revisions 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.