In our latest group results commentary, from the summer, we wondered why Brown-Forman had not carried out any share buybacks while its valuation multiples were back to their historical lows.
The board has finally authorized a first wave of buybacks, but through a modest program of only $400m. It has also raised the dividend for the 42nd consecutive year, a sign that it is hard to shed its "dividend aristocrat" label when the outlook is tough.
Analysts at MarketScreener estimate that while the dividend remains well covered by free cash flow, share buybacks will need to be financed by higher leverage. Nothing alarming here: the stock is, in principle, attractively valued, and the group's balance sheet remains very comfortable.
Nevertheless, despite signs of stabilization, no recovery is yet visible on the horizon. Sales are still down 4% y-o-y at the same period, and operating profit down 9%. Very marginal price increases have not sufficed to curb inflation.
In mature markets, sales are flat in the United States and are declining everywhere except in France, where they rose 2%. The situation is, fortunately, better in emerging markets, notably Mexico and Brazil, as well as in travel retail.
Whisky producers are all panicking at the idea of traversing a long desert-crossing after a cycle of overinvestment in capacity, all in a market now at saturation. With the strength of its Jack Daniel's franchise, Brown-Forman is nonetheless well equipped to weather the test.
