Analysts said the downgrade follows new details in the company’s recent earnings report indicating that the cost of barreled whiskey will weigh on profitability for longer than previously expected. The firm now forecasts about 105 basis points of gross margin compression annually in fiscal 2027 and 2028 as higher-cost barrels move through the inventory cycle.
That outlook led Bernstein to cut its earnings forecasts. The brokerage lowered its fiscal 2027 and 2028 earnings estimates by about 4.3% and 8.7%, respectively, and now expects little to no earnings growth in fiscal 2027 and about 4.5% growth in fiscal 2028.
The lower earnings outlook and higher uncertainty also prompted Bernstein to reduce its valuation multiple, lowering its target price by about 23%.
The brokerage said the downgrade is not tied to concerns about demand or industry pricing. Bernstein maintained its view that the debate over structural versus cyclical weakness in U.S. alcohol demand is not the main issue for the company.
Analysts said Jack Daniel’s, Brown-Forman’s flagship whiskey, and rival Jim Beam continue to post positive pricing in the U.S., while overall U.S. whiskey production has fallen roughly 27% from a year earlier, suggesting producers are adjusting supply.
source https://www.investing.com/news/stock-market-news/bernstein-downgrades-brownforman-on-margin-pressure-from-higher-whiskey-costs-4550326
