Brown–Forman

Moat components and weights: Intangible assets 45% (score 95): a century-plus of brand equity across Jack Daniel’s, Woodford Reserve and Old Forester, with trademarks, heritage, and premium positioning sustaining pricing and shelf access globally. Jack Daniel’s remains the #1 American whiskey worldwide.

Switching costs 20% (score 70): end consumers face low switching costs, but trade partners/distributors value traffic-driving brands and marketing support, creating moderate practical frictions to displacement. Network effects 5% (score 55): limited direct network effects, though co-branded RTDs (Jack & Coke) add mild distribution synergies.

Cost advantages 15% (score 80): scale in production, aging stocks, and procurement, plus a large installed base of barreled whiskey, create timing and working-capital advantages versus smaller entrants.

Efficient scale 15% (score 85): leading share in American whiskey and strong positions in select categories/markets deter rational entrants at scale. Weighted outcome supports a high moat rating, tempered for potential erosion from shifting consumer preferences (moderation/GLP‑1), premiumization fatigue, and regulatory/tariff overhang.

Evidence base: FY25 10‑K brand positioning; FY26 Q1 commentary; EU tariff timing.

Gross and operating margins are structurally high for staples, reflecting brand power. FY25 reported net sales declined 5% but organic grew 1%, with operating margin at 27.9%. Price/mix contributed positively, yet elasticity appeared in developed markets (U.S., Germany) as consumers traded down and tequila softened.

Over a cycle, the company has demonstrated the ability to pass through inflation and premiumize line extensions (e.g., Woodford family, super-premium Jack expressions), and RTDs broaden reach.

We see latent pricing power remaining, but we mark down for near-term elasticity signals and tequila category normalization, as well as FX and local tax/tariff pass-through limits.

The business enjoys recurring, globally diversified demand with long-lived brands, limited obsolescence risk, and a track record of steady cash generation across cycles.

TTM cash from operations into Q1 FY26 was about $741 million and capex about $157 million, for roughly $584 million of FCF, indicating strong cash conversion despite softer volumes. Key headwinds to predictability include discretionary behavior in developed markets, FX, and episodic trade actions.

Tariff risk on American whiskey was deferred to at least February 2026, reducing near-term volatility, and management reaffirmed full-year FY26 outlook with modest organic growth expectations. Overall, visibility is good for a staples-like brand house, albeit not at the level of payment networks.

Liquidity and leverage are conservative for a branded staples issuer. As of July 31, 2025, cash and equivalents were about $471 million, short-term borrowings ~$282 million, and long-term debt (including current portion) about $2.42 billion, for net debt near $2.23 billion.

Investment-grade access to capital markets and a $900 million CP/credit facility underpin flexibility. Interest expense is manageable against operating income and FCF, and the dividend record (81 years paid, 41 consecutive annual raises) evidences discipline and balance sheet prudence through shocks.

We haircut for current-cycle working-capital variability and category softness.

Positives: disciplined brand investment, steady organic spend, and capacity capex that compounds brand-led economics; portfolio pruning with the sale of Sonoma‑Cutrer in exchange for a Duckhorn stake later monetized for ~$350 million; and a multi-year dividend growth record.

The 2025 restructuring (12% workforce reduction, cooperage closure) targets $70–80 million in annual savings, a sensible move given demand normalization.

Areas of caution: mixed M&A track record in smaller premium spirits (e.g., a non-cash impairment related to Gin Mare), limited opportunistic buybacks in FY25 following a larger FY24 repurchase, and some execution risk as U.S. distribution is realigned effective August 1, 2025. Overall, capital deployment is prudent, with room to improve ROIC on newer brands and timing of repurchases.

CEO Lawson Whiting and CFO Leanne Cunningham have steered the company through supply chain, inflation, and demand swings while preserving balance sheet strength and dividend continuity.

The Brown family’s majority voting control (dual‑class structure) supports long-term orientation in a category with multi‑year aging cycles and large brand investments. Governance is a controlled‑company variant but historically balanced with independent oversight.

We view management as rational stewards who are simplifying the portfolio, tightening costs, and evolving route‑to‑market, albeit with typical execution risk in a transition year.