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Investing.com -- Moody’s Ratings has downgraded Brown-Forman Corporation’s senior unsecured ratings to A2 from A1 while affirming its Prime-1 commercial paper rating, the agency announced Wednesday.
The rating outlook has been revised to stable from negative following the downgrade, which Moody’s said reflects expectations that Brown-Forman’s operating earnings and capital allocation will result in weaker credit metrics than previously anticipated.
Following the partially debt-funded acquisition of Diplomático in January 2023, the company’s debt to EBITDA leverage peaked at 2.7x. While Brown-Forman has since reduced leverage to 2.2x as of July 31, 2025, through debt repayment, earnings have also declined.
Moody’s does not expect leverage to decrease further, citing the company’s recent focus on share buybacks, including a new $400 million share repurchase program announced in October 2025.
The rating agency projects EBITDA growth will be muted over the next 12-18 months, with Brown-Forman guiding to a low single-digit operating income decline in the fiscal year ending April 2026. Lower consumer consumption and cautious inventory levels at distributors and retailers are expected to drive flat results over the next year.
Moody’s believes the U.S. alcoholic beverage industry faces both secular and cyclical challenges, with recovery likely to be muted as health and wellness remains a focus and consumer spending remains cautious. The premium spirits category in key markets continues to face challenges as consumers adjust to previous high inflation and elevated inventory levels.
Despite these headwinds, the expansion of the Jack Daniel’s brand with the introduction of Jack Daniel’s Blackberry, modest pricing actions, and a favorable mix shift toward higher-margin products are expected to support stable earnings.
Moody’s projects debt-to-EBITDA leverage to increase slightly to 2.5x by fiscal 2026 and remain there in 2027, assuming $400 million of share repurchases over the next year. Free cash flow was $160 million over the last 12 months, with some improvement expected to above $200 million, though share repurchases are likely to consume all of that cash.
The A2 rating is supported by Brown-Forman’s strong profitability, good geographic diversification, and ownership of the Jack Daniel’s brand, the world’s largest American whiskey. The business generates healthy margins and steady operating cash flows while maintaining very good liquidity.
Rating constraints include the company’s relatively small scale, limited product diversification, and significant concentration of sales and profits from the Jack Daniel’s brand family. The ratings also reflect some margin deterioration over the past 3-5 years and increasing financial leverage resulting from acquisitions and planned share repurchases.
An upgrade could be considered if Brown-Forman demonstrates consistent organic revenue growth, market share stability, and good cost management that improves earnings, while sustaining debt to EBITDA leverage below 2.0x and committing to more conservative financial policies.
The ratings could be downgraded if debt to EBITDA leverage is sustained above 2.5x, operating earnings decline due to market share losses, pricing pressure, or increased costs, or if liquidity weakens. A more aggressive financial policy could also lead to a downgrade.
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