Innovation Shields Brown-Forman as CEO Transition Looms
Q1 beat expectations on portfolio momentum, but barrel and tequila drags persist while management prepares for a leadership handoff.
BF-B · Earnings Call · 2026-09-02
Quarter Summary
Brown-Forman's first quarter fiscal 2027 results were largely as management anticipated. CEO Lawson Whiting framed it as a story of innovation offsetting industry headwinds: “Innovation is creating meaningful growth opportunities across our portfolio. Strong momentum from New Mix, our RTD portfolio, and Jack Daniel's Tennessee Blackberry helped offset several headwinds.” — Lawson Whiting, President and Chief Executive Officer · 2026-09-02 The RTD portfolio was a standout, contributing about 1 point of value growth in the U.S., while New Mix delivered strong double-digit growth in Mexico and is now expanding across the U.S. Tennessee Blackberry has become one of the company's most successful innovations, available in over 30 international markets. However, the quarter was noisy, with used barrel sales down more than 60% and full-strength tequila declining in the low teens.Barrel Sales: A Lingering Drag
Used barrels were a recurring theme. Lawson noted the sharp decline from elevated pandemic-era levels: “Over the past two years, our sales have declined from more than $100 million to approximately $30 million.” — Lawson Whiting, President and Chief Executive Officer · 2026-09-02 The decline, driven by softer demand from Scotch and Irish producers, carries an outsized impact given the high margins on barrels. CFO Jim Peters added that the year-over-year dollar impact would moderate as the year progresses. Tequila also remains under pressure, though El Jimador is showing signs of life, moving to the number four brand in the $15–$30 price tier from number nine a year ago. Gross margin expanded 40 basis points to 60.2%, but Jim cautioned it would likely be the high point for the year: “We do expect this probably to be more of what I'll say is the high point of our gross margin for the year.” — Jim Peters, Executive Vice President and Chief Financial Officer · 2026-09-02 That expectation reflects pressure from higher-cost whiskey inventories and rising commodity costs. Gross margin reached 60.2% on an organic basis, but management expects it to contract as expensive barreled whiskey flows through.Leadership Transition and Strategic Pause
Lawson Whiting announced his planned retirement once a successor is named, a process that adds an element of uncertainty but also continuity. Reflecting on the aborted Pernod Ricard talks, he said:This stance is consistent with the company's long-held capital allocation philosophy, though the stock's valuation has reset—Price to Revenue has fallen from a peak of 7.9x in 2021 to roughly 1.4x today. Operationally, the U.S. distributor transition lapped in the quarter, but shipments trailed depletions by 4 points, a gap management expects to narrow.Our ultimate goal is to create long-term value for all of our shareholders, and we're going to do that by focusing on our own strategic and operational priorities... We feel good about our business. We feel more confident about our business today, and we're going to continue to grow and do it on our own and create the most value that we can.