Author: admin

Summary

Focus

We present a novel model comparison to examine the challenges that changes in carbon-intensive energy prices pose for monetary policy. Our study focuses on the macroeconomic effects and monetary policy implications of both temporary and permanent carbon-intensive energy shocks. We use a set of institutional macroeconomic models, each of which is a comprehensive, multi-sector monetary framework.

Contribution

The model comparison includes several large-scale macroeconomic models developed by several central banks and international organisations. These models are the SEEM model by the Central Bank of Chile, the EMuSe model by the Deutsche Bundesbank, the NAWM-E model by the European Central Bank, the C-EAGLE model by the Eurosystem, the E-QUEST model by the European Commission and the BIS-MS model by the Bank for International Settlements. Widely employed for policy analysis, these models incorporate a range of sectoral, nominal and real rigidities to assess the interactions between prices, sectoral dynamics and economic outcomes. A key commonality among them is their detailed representation of sectoral linkages, with particular emphasis on the energy sector.

Findings

Our examination of both temporary and permanent energy price increases uncovers significant insights into their economic impacts. We find that both types of shocks reduce output. The temporary price increase is inflationary, whereas the sign of the inflation response of a permanent price change depends on the underlying model assumptions and on the monetary policy response. Our study also reveals substantial commonalities across the models in terms of both quantitative and qualitative outcomes, while highlighting notable cross-country differences.

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Abstract

This paper presents a novel model comparison to examine the challenges posed by changes in carbon-intensive energy prices for monetary policy. The employed environmental monetary models have a detailed multi-sector structure. The comparison assesses the effects of both a temporary and a permanent energy price increase with a particular focus on the euro area and the United States. Temporary and permanent price shocks are both inflationary. However, the inflationary impact of the permanent shock depends on the underlying model assumptions and monetary policy response. The analysis also establishes that these models share large commonalities in their quantitative and qualitative results, while also pointing out cross-country differences.

JEL classification: C54, E52, H23, Q43

Keywords: climate change, monetary policy, multi-sector models, model comparison, DSGE models

LOUISVILLE, KY — Brown‑Forman Corporation (NYSE: BFA, BFB) reported financial results for its second quarter and first half of fiscal 2026, ended October 31, 2025. Second quarter reported net sales decreased 5%¹ to $1.0 billion (-2% on an organic basis²) compared to the same prior-year period. In the quarter, reported operating income decreased 10% to $305 million (-9% on an organic basis) and diluted earnings per share decreased 14% to $0.47.

For the first six months of the fiscal year, the company’s reported net sales decreased 4% to $2.0 billion (flat on an organic basis) compared to the same prior-year period. First half reported operating income decreased 9% to $565 million (-4% on an organic basis) and diluted earnings per share decreased 13% to $0.83.

Lawson Whiting, Brown‑Forman’s President and Chief Executive Officer shared, “Our second quarter results reflect a continuation of the themes we saw in the first quarter, and the first half of the year unfolded largely as we expected. While the operating environment continues to be challenging, our team remains resilient and focused on executing our plans. Based on this performance and our visibility into the remainder of the year, we are pleased to reaffirm our fiscal year guidance.”

First Half of Fiscal 2026 Highlights

• Net sales decline largely driven by the end of the Korbel Champagne Cellars relationship (Korbel relationship) and the absence of the Sonoma‑Cutrer prior-year transition services agreement (TSA).
• From a geographic perspective, net sales growth in Emerging³ markets and the Travel Retail3 channel was more than offset by declines in the United States and Developed International³ markets.
• Gross margin expanded 30 basis points driven by the positive effect of acquisitions and divestitures, partially offset by higher costs and unfavorable price/mix.
• The Brown‑Forman Board of Directors authorized a $400 million share repurchase program and increased the quarterly cash dividend for the 42nd consecutive year.
• Cash flows from operations grew by $163 million to $292 million and free cash flow² increased by $179 million to $236 million.

First Half of Fiscal 2026 Brand Results

• Net sales for Whiskey³ products were flat (flat organic). The launch of Jack Daniel’s Tennessee Blackberry and higher net sales of Woodford Reserve, driven by distributor inventories and transitions in the United States, were offset by lower volumes of Jack Daniel’s Tennessee Whiskey and Jack Daniel’s Tennessee Honey.
• Net sales for the Tequila³ portfolio declined 3% (-3% organic). Herradura’s net sales declined 11% (-11% organic) led by lower volumes in the United States as the tequila category remains competitive. el Jimador’s net sales increased 1% (+2% organic) driven by higher volumes in Colombia and an estimated net increase in distributor inventories in the United States.
• Net sales for the Ready-to-Drink³ (RTD) portfolio increased 5% (+5% organic). Net sales of New Mix increased 28% (+30% organic) fueled by growth in Mexico with market share gains in an accelerating category. Jack Daniel’s RTD/RTP portfolio declined 4% (-4% organic) largely due to the absence of American-made beverage alcohol from retail shelves across most provinces in Canada.
• Rest of Portfolio’s³ net sales declined 35% (+22% organic) driven by the conclusion of the Korbel relationship and the absence of the Sonoma‑Cutrer and Finlandia prior-year TSAs. The decline was partially offset by the distribution of new agency brands in Japan and Mexico, along with broad-based growth of Gin Mare.
• Net sales for non-branded and bulk decreased 61% driven by lower used barrel sales.

First Half of Fiscal 2026 Market Results

• Net sales in the United States decreased 9% (flat organic) driven by the end of the Korbel relationship and the absence of the Sonoma‑Cutrer prior-year TSA, as well as lower volumes of Jack Daniel’s Tennessee Whiskey, Herradura, and Jack Daniel’s Tennessee Honey. These declines were partially offset by the launch of Jack Daniel’s Tennessee Blackberry and higher net sales across the portfolio as a result of changes to our distributor relationship terms.
• In a challenging economic environment, net sales in the Developed International markets declined 4% (-6% organic), though improved sequentially. The decline was driven by the absence of American-made beverage alcohol from retail shelves in most of the Canadian provinces and lower volumes of Jack Daniel’s Tennessee Whiskey in Germany and the United Kingdom. The decline was partially offset by the positive effect of foreign exchange, new agency brands in Japan, and the benefit from transition to owned distribution in Italy.
• Net sales in Emerging markets increased 10% (+12% organic) led by strong double digit growth of New Mix, higher volumes across the Jack Daniel’s family of brands in Brazil and Türkiye, and an estimated net increase in distributor inventories.
• The Travel Retail channel’s net sales increased 7% (+6% organic) due to higher volumes of Jack Daniel’s Tennessee Whiskey, the phasing of ordering patterns, and the positive effect of foreign exchange.

First Half of Fiscal 2026 Other P&L Items

• Gross profit decreased 4% (-3% organic). Gross margin expanded 30 basis points to 59.5% driven by the positive effect of acquisitions and divestitures, partially offset by higher costs and unfavorable price/mix.
• Advertising expense decreased 2% (-1% organic) as a more focused investment for the new “That’s What Makes Jack, JACK” global campaign, the launch of Jack Daniel’s Tennessee Blackberry, and the negative effect of foreign exchange was more than offset by lower spend across the rest of our portfolio and the absence of the Korbel brands.
• Selling, general, and administrative (SG&A) expenses decreased 3% (-4% organic) largely driven by lower compensation-and-benefit-related expenses.
• The company incurred $16 million in charges related to the strategic restructuring initiative announced in January 2025.
• Operating income declined 9% (-4% organic) with an operating margin decrease of 150 basis points to 28.9%. The operating margin decrease was primarily driven by the decline in gross profit, the impact of the restructuring initiative, and the absence of the prior-year franchise tax refund. These declines were partially offset by the benefit of the substitution drawback claims2.
• The company recognized a non-operating pension settlement charge of $22 million, largely related to the early retirement benefit offered in fiscal 2025.
• Diluted earnings per share decreased $0.13 driven by the decrease in operating income and an increase in non-operating postretirement expense.

First Half of Fiscal 2026 Financial Stewardship

On November 19, 2025, the Brown‑Forman Board of Directors approved an increase of 2% to the quarterly cash dividend from $0.2265 per share to $0.2310 per share on its Class A and Class B Common Stock. The dividend is payable on January 2, 2026, to stockholders of record on December 5, 2025. Brown‑Forman, a member of the S&P 500 Dividend Aristocrats Index, has paid regular quarterly cash dividends for 82 consecutive years and has increased the regular dividend for 42 consecutive years.

As announced on October 2, 2025, the Brown‑Forman Board of Directors authorized the repurchase of$400 million (exclusive of brokerage fees and excise taxes) of outstanding shares of Class A and Class B common stock from October 1, 2025, through October 1, 2026, subject to market and other conditions. As of October 31, 2025, $301 million remained available under the program.

In addition, cash flows from operations grew $163 million to $292 million, primarily reflecting disciplined working capital management. Free cash flow increased $179 million to $236 million, reflecting strong operating cash flow generation and lower capital expenditure needs.

Fiscal 2026 Outlook

We continue to anticipate the operating environment for fiscal 2026 to be challenging, with low visibility due to macroeconomic and geopolitical volatility as we face headwinds from consumer uncertainty and lower non-branded sales of used barrels. We remain focused on building our business for the long term and navigating the current environment at pace with strategic initiatives in fiscal 2026 that we believe will unlock future growth led by the significant evolution of our U.S. distribution, the restructuring initiative, and meaningful new product innovation.

Accordingly, we reiterate the following expectation for fiscal 2026:

• Organic net sales decline in the low-single digit range.
• Organic operating income decline in the low-single digit range.
• Our effective tax rate to be in the range of approximately 21% to 23%.

The estimated capital expenditures range has been updated to $110 to $120 million from $125 to $135 million.

​Click here for the full financial results.

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Conference Call Details

Brown‑Forman will host a conference call to discuss these results at 10:00 a.m. (ET) today. A live audio broadcast of the conference call, and the accompanying presentation slides, will be available via Brown‑Forman’s website, brown-forman.com, through a link to “Investors/Events & Presentations.” A digital audio recording of the conference call and the presentation slides will also be posted on the website and will be available for at least 30 days following the conference call.

Brown‑Forman Corporation is a global leader in the spirits industry, responsibly building exceptional beverage alcohol brands for more than 155 years. Headquartered in Louisville, Kentucky, we are guided by our founding promise, “Nothing Better in the Market.” Our premium portfolio includes the Jack Daniel’s Family of Brands, Woodford Reserve, Old Forester, New Mix, el Jimador, Herradura, The Glendronach, Glenglassaugh, Benriach, Diplomático Rum, Gin Mare, Fords Gin, Chambord, and Slane. With approximately 5,000 employees worldwide, we proudly share our passion for fine-quality spirits in more than 170 countries. Learn more at brown-forman.com and stay connected with us on LinkedIn, Instagram, and X.

Contacts:

Elizabeth Conway, Director, External Communications
Sue Perram, Vice President, Director, Investor Relations

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Important Information on Forward-Looking Statements:

This press release contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “ambition,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “might,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” “would,” and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from those expressed in or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to:

• Our substantial dependence upon the continued growth of the Jack Daniel’s family of brands
• Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks
• Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers
• Risks from changes to the trade policies, tariffs and import and export regulations of the U.S. or foreign governments and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and/or distributors
• Changes in consumer preferences, consumption, or purchase patterns – particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of cannabis, hemp-derived products or other similar products; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
• Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs
• Production facility, aging warehouse, or supply chain disruption
• Imprecision in supply/demand forecasting
• Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor
• Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
• Unfavorable global or regional economic conditions and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
• Impact of health epidemics and pandemics, and the risk of the resulting negative economic impacts and related governmental actions
• Product recalls or other product liability claims, product tampering, contamination, or quality issues
• Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects
• Failure to attract or retain key executive or employee talent
• Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; compliance with local trade practices and other regulations; terrorism, kidnapping, extortion, or other types of violence; and health pandemics
• Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations
• Fluctuations in foreign currency exchange rates, particularly due to a stronger U.S. dollar
• Changes in laws, regulatory measures, or governmental policies, especially those affecting production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products
• Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
• Decline in the social acceptability of beverage alcohol in significant markets
• Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products
• Counterfeiting and inadequate protection of our intellectual property rights
• Significant legal disputes and proceedings, or government investigations
• Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws
• Our status as a family “controlled company” under New York Stock Exchange rules, and our dual-class share structure

For further information on these and other risks, please see the risks and uncertainties described in Part I, Item 1A. Risk Factors of our 2025 Form 10-K, and those described from time to time in our reports on Form 10-Q filed with the SEC.