Morning Note: Market News and an Update from Brown-Forman.

Market News

Risk assets rose after President Trump played down the prospect of a prolonged conflict with Iran, saying renewed attacks on Iran would likely be short-lived. However, the US is extending troop deployments in its campaign, signalling the conflict may drag into next year, the Wall Street Journal reported. The US military escorted 40 commercial vessels carrying 18m barrels of oil through the Strait of Hormuz, CNN reported, marking a wartime high. Brent Crude trades at $95 a barrel, pausing after a three-day rally.

The comments eased concerns over inflation, helping to push the gold price back above $4,420 an ounce, while the yield on the 10-year US Treasury drifted down to 4.77%.

US equities closed higher last night, ending not far off their best levels: S&P 500 (+0.5%); Nasdaq (+0.5%). Big Tech was mostly higher, with Nvidia (+3%) and Meta (+2%) performing well. Broadcom slipped as its results failed to meet high hopes, although the company predicted a boom in AI chip sales over the next two years.

In Asia this morning, stocks fluctuated in volatile trading as South Korean technology shares abruptly reversed direction: Nikkei 225 (-0.2%); Hang Seng (-0.3%); Shanghai Composite (+0.2%); Kospi (+0.3%). The yen strengthened to 156.5 per dollar as traders fully priced in a 25 basis points Bank of Japan rate hike, while speculation of an FX rate check put markets on intervention alert.

The FTSE 100 is currently little changed at 10,765, while Sterling trades at $1.3495 and €1.1625. Companies trading ex-dividend this morning include Admiral Group (1.79%), Antofagasta (0.58%), and Aviva (1.91%). Elliott has built a stake in Deutsche Telekom and indicated opposition to a merger with T-Mobile, people familiar said.

Europe is ending summer with low natural gas reserves, threatening to intensify a fight for supply. The region still needs over 100 terawatt-hours valued at more than €7bn to hit its lowest storage target of 75%, risking winter prices above €100 a megawatt-hour.

Source: Bloomberg

Company News

Yesterday lunchtime Brown-Forman released results for the three months to 30 June 2026, the first quarter of its fiscal year to end-April 2027. Against a challenging operating environment, earnings came in slightly above market expectations as momentum from the ready-to-drink portfolio and Jack Daniel’s Tennessee Blackberry helped offset pressures elsewhere in business. The dividend was raised by 2% and the company reiterated its guidance for the full year. In response, the shares were marked up by 4%.

Brown-Forman is a US-listed spirits producer, which owns a portfolio of more than 40 premium brands including Jack Daniel’s. In the last financial year, the company generated sales of $3.9bn and an operating margin of 25.5%.

To take advantage of the premiumisation trend, the group has upgraded its portfolio over time towards the American whiskey and tequila categories and sold off non-core brands (such as Finlandia and Sonoma-Cutrer). The company also has an attractive Ready-to-Drink product line-up led by New Mix, the tequila canned cocktail, that is the number one brand in Mexico.

In July, the Board rejected an unsolicited proposal from Sazerac to acquire Brown-Forman. The company remains focused on its strategy and should benefit from its restructuring initiative, US distributor changes, and continued new product innovation. In the same month, the company announced that Lawson Whiting had decided to retire from his role as President and Chief Executive Officer, effective upon the appointment of a successor.

In the latest quarter, net sales, excluding excise taxes, fell by 1% to $911m, a touch below the market forecast of $914m. On an organic basis, sales were also down by 1%, held back by the end of the distribution relationship for Korbel Californian sparkling wine.

From a geographic perspective, net sales growth in Emerging markets (+9% in organic terms) was offset by a flat organic result in the US and declines in Developed International markets (-8%) and the Travel Retail channel (-1%).

By product, net sales for whiskey products were flat on an organic basis as the continued international launch of Jack Daniel’s Tennessee Blackberry was offset by declines of Jack Daniel’s Tennessee Honey and Gentleman Jack, while Jack Daniel’s Tennessee Whiskey was flat.

Net sales for the Tequila portfolio fell by 13% in organic terms, with Herradura down 18% driven by lower volumes in the US as the tequila category remains competitive and lower pricing in Mexico. El Jimador’s net sales fell 11%, driven by lower pricing in the US.

Net sales from the group’s Ready-to-Drink portfolio increased by 11% in organic terms, driven by New Mix (+36% organic) fueled by strong consumer demand in Mexico and the product’s launch in the US.

The rest of the group’s portfolio, which includes Diplomático, Gin Mare, and Chambord, fell by 12%, driven by the end of the Korbel relationship and a steep drop in used-barrel sales.

The gross margin remains high and expanded by 40 basis points in the quarter to 60.2%, driven by lower costs and the end of the Korbel relationship. Operating income rose by 4% in organic terms in the quarter to $252m. Diluted EPS increased by 6% in the quarter to 38c, slightly better than the market forecast of 37c.

Free cash flow rose from $129m to $161m, driven by operating cash flow generation and lower capital expenditure needs. The company has a strong balance sheet, with net debt of $2.1bn. A regular quarterly cash dividend has been paid for 82 consecutive years and has increased for 42 consecutive years. For the latest quarter, a payout of 23.1c was up 2% on last year. The group’s $400m share repurchase programme was completed in December 2025.

Looking forward, the company continues to anticipate the operating environment for fiscal 2027 will be challenging, with low visibility due to macroeconomic and geopolitical volatility as the business faces headwinds from consumer uncertainty. The company reiterated its guidance for the full year for organic net sales to be approximately flat and operating income to decline by between 3% and 5%.

Source: Bloomberg