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Shares of the company were down as much as 6%, touching a two-month low, as its net sales in the first quarter also fell marginally short of analysts’ expectations.
Higher input costs, including for agave, grains and wood, took a toll on the spirits maker, even as shipment volumes declined in the United States after wholesalers worked to trim inventories.
Excluding items, Brown-Forman earned 48 cents per share, compared with a profit estimate of 53 cents per share, as per Refinitiv data.
Advertising expenses in the quarter rose 19%, while overall expenses were up 14% as it also battled a tough labor market.
The company increased the prices of its spirits between 2% and 3% year-on-year, as it grappled with supply-chain and input-cost issues that peaked in the last fiscal.
A 90-basis-point expansion in gross margin in the quarter was driven by a 250-basis-point benefit from higher pricing as well as a let up in supply-chain costs, Brown-Forman said on a post-earnings call.
Distributor inventories – or the stock that wholesalers hold – declined 11% in the U.S. in the reported quarter, contributing to an 8% fall in the company’s net sales in the country.
Its quarterly net sales rose 3%, to $1.04 billion, compared with analysts’ average estimate of $1.05 billion.
Still, Brown-Forman reaffirmed its annual target of organic net sales growth between 5% and 7% and said it expects demand trends to normalize after two years of strong growth.
