In a note to clients, Barenberg Beverages noted that Brown-Forman has “suffered from severe external headwinds over the past four years.” But things are looking up for the Louisville distiller, Barenberg said, citing distributors sitting on historically low inventory levels and the withdrawal of EU tariffs, which should boost gross margins.
Brown-Forman’s management believes the EU tariffs had a combined impact of $70 million on gross margin. “The termination of these tariffs, together with a stabilization of agave and wood inflation, and a replenishment of distributor stocks, will kickstart a strong gross margin recovery in 2022,” Barenberg said.
The combination of tariffs, agave, and wood inflation (all affecting gross margins) and a more difficult growth trajectory for its domestic U.S. whiskey business (Jack Daniel’s in the US) has eroded much of Brown-Forman’s traditional premium valuation, creating an attractive entry point, Barenberg said.