Brown-Forman Corporation (NYSE:BFA)(NYSE: BFB) today reported
financial results for its first quarter of fiscal 2013. The company
grew reported net sales by 4% to $878.1 million in the quarter1, a
10% increase on an underlying basis2. Reported net sales growth
benefited from buy-ins related to price increases that were
implemented in the quarter, offset by the negative impact from
foreign exchange and the absence of Hopland-based wines. Reported
operating income increased 19% to $221.7 million, up 17% on an
underlying basis. After adjusting for the three-for-two stock split
that occurred on August 10, diluted earnings per share for the
first quarter increased 27% to $0.69 compared to $0.54 in the prior
year period.
Paul Varga, the company’s chief executive officer said,
“Building from our strong fiscal 2012 results, Brown-Forman is off
to a great start in fiscal 2013. Underlying net sales growth of 10%
in the first quarter was driven by the continued strength of our
Jack Daniel’s trademark as well as improving results from other
brands in our premium portfolio.”
First Quarter 2013
Highlights
- Underlying net sales increased 10%,
driven by broad-based geographic gains, with constant currency net
sales3 up 14%:
- Price/mix contributed 1% to underlying
sales growth in the quarter
- Jack Daniel’s trademark grew net sales
15%, including double-digit growth from Tennessee Honey, resulting
from its geographic expansion outside of the U.S.
- Southern Comfort’s family of brands’
net sales declined 1%, while U.S. net sales grew in the
quarter
- Finlandia’s family of brands grew net
sales 20%
- El Jimador family of brands grew net
sales 11%
- Underlying operating income increased
17%, driven primarily by revenue growth, gross margin expansion,
and some leverage with operating expenses.
The 15% net sales growth for Jack Daniel’s family of brands was
driven by a combination of strong underlying demand across the
family of brands as well as buy-ins in advance of price increases.
Innovation also continued to fuel the trademark’s growth as Jack
Daniel’s Tennessee Honey grew global net sales by double digits
through the introduction of Honey to select markets outside of the
U.S.
Most other Brown-Forman brands experienced solid underlying
growth trends in addition to the benefit from buy-ins taken in
advance of price increases.
Finlandia’s 20% net sales growth was fueled by strong results in
Poland and Russia. El Jimador’s net sales were up double digits and
Herradura grew net sales over 30%, driven by solid performance in
the U.S. and Mexico.
Southern Comfort’s family of brands improved from a 7% net sales
decline in Fiscal 2012 to a 1% net sales decline in the quarter.
The brand grew in the U.S. on the heels of a stronger and more
consistent media presence, more effective promotional efforts with
the trade, and continued flavor innovation. This positive momentum
in the U.S. was offset by a slow start in some key international
markets, negatively impacting the brand’s global results in the
quarter.
Sonoma-Cutrer grew net sales in the high single digits, as U.S.
results remained robust despite weak on-premise industry trends.
Brown-Forman’s super and ultra-premium whiskey brands, including
Gentleman Jack, Woodford Reserve, Jack Daniel’s Single Barrel, and
Collingwood, grew net sales almost 30% in the quarter.
Geographically, underlying net sales outside of the U.S. grew
10%, in-line with domestic rates of growth. Underlying net sales
growth was particularly strong in the emerging markets, up 13%,
driven by Poland, Mexico, Russia, and Turkey. While the company
believes that price increases taken earlier in the calendar year in
Germany, the United Kingdom, and France have slowed our Western
European rates of underlying net sales growth to the low single
digits, Brown-Forman continued to outperform the market and grow
sales, with strong results in France and the Benelux countries. The
company expects the broader business environment in Western Europe
to remain challenging for the foreseeable future. Net sales in
Australia grew by double digits, driven by continued strength in
Jack Daniel’s Tennessee Whiskey and the launch of Jack Daniel’s
Tennessee Honey in June.
During the quarter, the company’s shareholders approved an
increase in the number of authorized shares, which enabled the
company to implement the previously approved three-for-two stock
split for both its Class A and Class B common stock, paid in the
form of a stock dividend on August 10, 2012. Brown-Forman also
declared a regular quarterly cash dividend of $0.233 per share on
Class A and Class B common stock. The cash dividend is payable on
October 1, 2012 to stockholders of record on September 7, 2012.
Fiscal Year 2013 Outlook
At this early stage in the fiscal year, the Company is
confirming its fiscal 2013 earnings outlook of $2.40 to $2.67,
adjusted for the three-for-two stock split. First quarter reported
results benefited significantly from buy-ins in advance of price
increases. Accordingly, this outlook assumes second quarter results
will likely reflect the impact of the marketplace working through
the first quarter buy-ins. This outlook also includes anticipated
negative impacts from foreign exchange of $0.05 per share and
commodity price increases of $0.03 per share. At this point, for
fiscal 2013 the company continues to expect high single-digit
growth in underlying sales and operating income.
Brown-Forman will host a conference call to discuss the results
at 10:00 a.m. (EDT) this morning. All interested parties in the
U.S. are invited to join the conference call by dialing
888-624-9285 and asking for the Brown-Forman call. International
callers should dial 706-679-3410. The Company suggests that
participants dial in approximately ten minutes in advance of the
10:00 a.m. start of the conference call.
A live audio broadcast of the conference call will also be
available via Brown-Forman’s Internet website,
http://www.brown-forman.com/, through a link to "Investor
Relations." For those unable to participate in the live call, a
replay will be available by calling 855-859-2056 (U.S.) or
404-537-3406 (international). The identification code is 18180528.
A digital audio recording of the conference call will also be
available on the website approximately one hour after the
conclusion of the conference call. The replay will be available for
at least 30 days following the conference call.
For more than 140 years, Brown-Forman Corporation has enriched
the experience of life by responsibly building fine quality
beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey,
Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian
Mist, Korbel, Gentleman Jack, el Jimador, Herradura, Sonoma-Cutrer,
Chambord, New Mix, Tuaca, and Woodford Reserve. Brown-Forman’s
brands are supported by nearly 4,000 employees and sold in
approximately 160 countries worldwide. For more information about
the Company, please visit http://www.brown-forman.com/.
Footnotes:
1 Percentage growth rates are compared to prior year periods,
unless otherwise noted
2 Underlying change represents the percentage increase or
decrease in reported financial results in accordance with generally
accepted accounting principles (GAAP) in the United States,
adjusted for certain items. A reconciliation from reported to
underlying net sales, gross profit, advertising expense, SG&A,
and operating income (non-GAAP measures) increases or decreases for
the first quarter of fiscal 2013, and the reasons why management
believes these adjustments to be useful to the reader, are included
in Schedule A and the note to this press release.
3 Net sales references are on a constant currency basis, unless
otherwise noted. Constant currency represents reported net sales
with the cost/benefit of currency movements removed. Management
uses the measure to understand the growth of the business on a
constant dollar basis, as fluctuations in exchange rates can
distort the underlying growth of the business both positively and
negatively.
Important Information on Forward-Looking Statements:
This report contains statements, estimates, and projections that
are "forward-looking statements" as defined under U.S. federal
securities laws. Words such as “aim,” “anticipate,” “aspire,”
“believe,” “envision,” “estimate,” “expect,” “expectation,”
“intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,”
“will,” “will continue,” and similar words identify 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 statements, 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 our historical experience or from our current
expectations or projections. These risks and other factors include,
but are not limited to:
- declining or depressed global or
regional economic conditions, particularly in the Euro zone;
political, financial, or credit or capital market instability;
supplier, customer or consumer credit or other financial problems;
bank failures or governmental debt defaults
- failure to develop or implement
effective business, portfolio and brand strategies, including the
increased U.S. penetration and international expansion of Jack
Daniel’s Tennessee Honey, innovation, marketing and promotional
activity, and route-to-consumer
- unfavorable trade or consumer reaction
to our new products, product line extensions, price changes,
marketing, or changes in formulation, flavor or packaging
- inventory fluctuations in our products
by distributors, wholesalers, or retailers
- competitors’ consolidation or other
competitive activities such as pricing actions (including price
reductions, promotions, discounting, couponing or free goods),
marketing, category expansion, product introductions, entry or
expansion in our geographic markets
- declines in consumer confidence or
spending, whether related to the economy (such as austerity
measures, tax increases, high fuel costs, or higher unemployment),
wars, natural or other disasters, weather, pandemics, security
concerns, terrorist attacks or other factors
- changes in tax rates (including excise,
sales, VAT, tariffs, duties, corporate, individual income,
dividends, capital gains) or in related reserves, changes in tax
rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and
other deductions) or accounting standards, and the unpredictability
and suddenness with which they can occur
- governmental or other restrictions on
our ability to produce, import, sell, price, or market our
products, including advertising and promotion in either traditional
or new media; regulatory compliance costs
- business disruption, decline or costs
related to organizational changes, reductions in workforce or other
cost-cutting measures
- lower returns or discount rates related
to pension assets, interest rate fluctuations, inflation or
deflation
- fluctuations in the U.S. dollar against
foreign currencies, especially the euro, British pound, Australian
dollar, Polish zloty or Mexican peso
- changes in consumer behavior or
preferences and our ability to anticipate and respond to them,
including societal attitudes or cultural trends that result in
reduced consumption of our products; reduction of bar, restaurant,
hotel or other on-premise business or travel
- consumer shifts away from spirits or
premium-priced spirits products; shifts to discount store purchases
or other price-sensitive consumer behavior
- distribution and other
route-to-consumer decisions or changes that affect the timing of
our sales, temporarily disrupt the marketing or sale of our
products, or result in implementation-related or higher fixed
costs
- effects of acquisitions, dispositions,
joint ventures, business partnerships or investments, or their
termination, including acquisition, integration or termination
costs, disruption or other difficulties, or impairment in the
recorded value of assets (e.g. receivables, inventory, fixed
assets, goodwill, trademarks and other intangibles)
- lower profits, due to factors such as
fewer or less profitable used barrel sales, lower production
volumes, decreased demand or inability to meet consumer demand for
products we sell, sales mix shift toward lower priced or lower
margin SKUs, or cost increases in energy or raw materials, such as
grain, agave, wood, glass, plastic, or closures
- natural disasters, climate change,
agricultural uncertainties, environmental or other catastrophes, or
other factors that affect the availability, price, or quality of
agave, grain, glass, energy, closures, plastic, water, or wood, or
that cause supply chain disruption or disruption at our production
facilities or aging warehouses
- negative publicity related to our
company, brands, marketing, personnel, operations, business
performance or prospects
- product counterfeiting, tampering,
contamination, or recalls and resulting negative effects on our
sales, brand equity, or corporate reputation
- significant costs or other adverse
developments stemming from class action, intellectual property,
governmental, or other major litigation; or governmental
investigations of beverage alcohol industry business, trade, or
marketing practices by us, our importers, distributors, or
retailers
For further information regarding these risks, please refer to
the “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” sections of our
annual report on Form 10-K and quarterly reports on Form 10-Q filed
with the SEC.
Brown-Forman Corporation
Unaudited Consolidated Statements of
Operations
For the Three Months Ended July 31, 2011
and 2012
(Dollars in millions, except per share
amounts)
2011
2012
Change
Net sales $ 840.3 $ 878.1 4 % Excise taxes 202.5 212.3 5 %
Cost of sales
217.5
201.7 (7 %) Gross profit 420.3 464.1 10 %
Advertising expenses 90.8 92.1 1 % Selling, general, and
administrative expenses 139.0 148.5 7 % Amortization expense 1.3 --
Other (income) expense, net
3.3
1.8 Operating income 185.9 221.7 19 % Interest
expense, net
7.1 4.6
Income before income taxes 178.8 217.1 21 % Income taxes
60.7 69.6 Net
income
$ 118.1 $
147.5 25 % Earnings per share: Basic $
0.54 $ 0.69 27 % Diluted $ 0.54 $ 0.69 27 % Gross margin
50.0 % 52.9 % Operating margin 22.1 % 25.2 % Effective tax
rate 34.0 % 32.1 % Cash dividends paid per common share $
0.213 $ 0.233
Shares (in thousands) used in the
calculation of earnings per share
Basic 217,242 213,168 Diluted 218,801 214,798
Note: All previously reported
share and per share amounts have been restated to reflect the
3-for-2 stock split effected in August 2012.
Brown-Forman
Corporation
Unaudited Condensed Consolidated Balance
Sheets
(Dollars in millions)
April 30, July 31,
2012
2012
Assets: Cash and cash equivalents $ 338.3 $ 361.5 Accounts
receivable, net 475.3 524.9 Inventories 712.1 764.4 Other current
assets
223.6 198.7 Total
current assets 1,749.3 1,849.5 Property, plant, and
equipment, net 398.7 404.6 Goodwill 617.2 612.1 Other intangible
assets 668.3 664.8 Other assets
43.9
52.0 Total assets
$ 3,477.4
$ 3,583.0 Liabilities: Accounts
payable and accrued expenses $ 385.7 $ 375.7 Dividends payable --
49.8 Other current liabilities
17.7
50.8 Total current liabilities 403.4 476.3
Long-term debt 502.8 502.1 Deferred income taxes 157.9 172.6
Accrued postretirement benefits 278.1 256.6 Other liabilities
65.8 53.4 Total liabilities
1,408.0 1,461.0 Stockholders’ equity
2,069.4 2,122.0 Total
liabilities and stockholders’ equity
$
3,477.4 $ 3,583.0
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Three Months Ended July 31, 2011
and 2012
(Dollars in millions)
2011
2012
Cash provided by operating activities $64.0 $87.6
Cash flows from investing activities: Additions to property, plant,
and equipment (6.2 ) (17.4 ) Acquisitions of brand names and
trademarks (7.0 ) -- Other
(0.5 )
(0.1 ) Cash used for provided by
investing activities (13.7 ) (17.5 ) Cash flows from
financing activities: Net issuance (repayment) of debt 1.1 1.6
Acquisition of treasury stock (18.4 ) -- Dividends paid (46.4 )
(49.8 ) Other
2.6 3.6 Cash
used for financing activities (61.1 ) (44.6 )
Effect of exchange rate changes on cash
and cash equivalents
(3.8 ) (2.3 )
Net (decrease) increase in cash and cash equivalents (14.6 )
23.2 Cash and cash equivalents, beginning of period
567.1 338.3 Cash and
cash equivalents, end of period
$552.5
$361.5
Schedule A
Brown-Forman Corporation Supplemental Information
(Unaudited) Three Months Ended Fiscal Year Ended
July 31, 2012 April 30, 2012
Reported change in net sales 4% 6% Impact of
foreign currencies 6% - Impact of Hopland-based wine business sale
4% 2% Estimated net change in distributor inventories (4%) 1%
Underlying change in net sales 10% 9%
Reported change in gross profit 10%
4% Impact of foreign currencies 7% 1% Impact of
Hopland-based wine business sale 1% 3% Estimated net change in
distributor inventories (5%) -
Underlying change in gross
profit 13% 8% Reported change in
advertising 1% 8% Impact of Hopland-based wine
business sale 6% 1% Impact of foreign currencies 2% -
Underlying change in advertising 9% 9%
Reported change in SG&A 7% 6% Impact of
foreign currencies 3% 1% Dispute settlement - (1%)
Underlying change in SG&A 10% 6%
Reported change in operating income 19% (8%)
Impact of foreign currencies 9% 3% Impact of Hopland-based wine
business sale 1% 12% Estimated net change in distributor
inventories (12%) 1% Dispute settlement - 1%
Underlying
change in operating income 17% 9%
Notes:
Foreign currencies – Refers to net gains and losses incurred by
the Company relating to sales and purchases in currencies other
than the U.S. Dollar. Brown-Forman uses the measure to understand
the growth of the business on a constant dollar basis as
fluctuations in exchange rates can distort the underlying growth of
the business (both positively and negatively). To neutralize the
effect of foreign exchange fluctuations, the Company has translated
current year results at prior year rates. While Brown-Forman
recognizes that foreign exchange volatility is a reality for a
global company, it routinely reviews its performance on a constant
dollar basis. The Company believes this allows both management and
investors to understand better Brown-Forman’s growth trends.
Hopland-based wine business sale – Refers to the company’s April
2011 sale of its Hopland, California-based wine business to Viña
Concha y Toro S.A., and remained as agency brands through December
31, 2011. This agency relationships resulted in fiscal 2012
reported net sales of $79 million and $0.03 per diluted share.
Included in this sale were the Fetzer winery, bottling facility,
and vineyards, as well as the Fetzer brand and other Hopland,
California-based wines, including Bonterra, Little Black Dress,
Jekel, Five Rivers, Bel Arbor, Coldwater Creek, and Sanctuary. Also
included in the sale was a facility in Paso Robles, California.
Estimated net change in distributor inventories – Refers to the
estimated financial impact of changes in distributor inventories
for the Company’s brands. Brown-Forman computes this effect using
estimated depletion trends and separately identifying trade
inventory changes in the variance analysis for key measures. Based
on the estimated depletions and the fluctuations in distributor
inventory levels, the Company then adjusts the percentage variances
from prior to current periods for our key measures. Brown-Forman
believes it is important to make this adjustment in order for
management and investors to understand the results of the business
without distortions that can arise from varying levels of
distributor inventories.
Dispute settlement – Refers to the favorable resolution of a
dispute in an international market relating to the importation of
our products. Management believes that excluding this benefit
provides helpful information in forecasting and planning the growth
expectations of the Company.
The Company cautions that non-GAAP measures should be considered
in addition to, but not as a substitute for, the Company’s reported
GAAP results.
Schedule B
Brown-Forman Corporation Supplemental Information
(Unaudited) Three Months Ended July 31, 2012 % Change
vs. YTD FY12
Depletions1
Net Sales2
Brand
9-Liter
EquivalentConversion
Reported
ConstantCurrency
Jack Daniel’s Family 9% 12% 8% 15%
Jack Daniel’s Family of Whiskey
Brands3
12% 12% 11% 18%
Jack Daniel’s RTD/RTP4
5% 5% (6%) 1% el Jimador Family
(4%) (1%) 1% 11% el Jimador 1%
1% 16% 24%
New Mix RTD5
(5%) (5%) (5%) (19%) Finlandia Family
10% 9% 4% 20% Finlandia 8%
8% 3% 18% Finlandia RTD 50% 50%
43% 72% Southern Comfort Family (3%) 0%
(5%) (1%)
Southern Comfort6
0% (4%) (4%) 0% Southern Comfort
RTD/RTP (16%) (16%) (18%) (14%)
Canadian Mist (3%) (3%) (2%) (1%)
Korbel Champagne 7% 7% 14% 14%
Super-Premium Other7
12% 12% 17% 20% Rest of Brand Portfolio
(excl. Discontinued Brands)
31% 31% 21% 33%
Total Portfolio8
9% 5% 8%
14%
Note: Totals may differ due to
rounding
______________________
1 Depletions are shipments direct to
retail or from distributors to wholesale and retail customers, and
are commonly regarded in the industry as an approximate measure of
consumer demand.
2 Net sales is a shipment based metric;
shipments and depletions can be different due to timing
3 Jack Daniel’s brand family excluding
RTD/RTP line extensions
4 Refers to all RTD and ready-to-pour
(RTP) line extensions of Jack Daniel’s
5 RTD brand produced with el Jimador
tequila
6 Includes Southern Comfort, Southern
Comfort Reserve, and Southern Comfort flavors
7 Includes Herradura, Woodford Reserve,
Tuaca and Chambord liqueur and flavored vodka
8 Total Portfolio includes all existing
active brands
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