Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported
financial results for its fourth quarter and fiscal year ended
April 30, 2018. For the fourth quarter, the company’s reported net
sales1 increased 6% to $733 million (+5% on an underlying2 basis)
compared to the same prior-year period. In the quarter, reported
operating income declined 32% to $145 million (-4% on an underlying
basis) and diluted earnings per share of $0.23 declined 24%. Fourth
quarter reported operating income and earnings per share were both
negatively impacted by the previously announced creation of a $70
million charitable foundation, as well as the phasing of operating
expenses.
For the full year, the company’s reported net sales increased 8%
to $3,248 million (+6% on an underlying basis) compared to the
prior-year period. Reported net sales growth benefited by one
percentage point from foreign exchange and one percentage point
from estimated net changes in distributor inventories. In the year,
reported operating income increased 5% to $1,039 million (+8% on an
underlying basis) and diluted earnings per share of $1.48 increased
8%. Tax reform items in the third quarter and the creation of the
foundation in the fourth quarter negatively impacted fiscal 2018
earnings per share by $0.19.
Paul Varga, the company's Chief Executive Officer, said,
“Brown-Forman delivered excellent results in fiscal 2018, driven by
underlying net sales growth of 6.5%, which more than doubled fiscal
2017’s rate of growth. Our results demonstrated an excellent
balance across both geography and portfolio, while being driven
once again by the Jack Daniel's trademark and our premium American
whiskey portfolio. Thoughtful resource allocation, high impact
brand investments, and a heightened attention to cost efficiency
yielded an operating margin of 32%, an ROIC2,4 of 20%, and a total
shareholder return (TSR)5 of 53% in fiscal 2018.”
Fiscal 2018 Highlights
- Underlying net sales grew 6% (+8%
reported), with balanced geographic and portfolio contribution3:
- Emerging markets grew underlying net
sales by 13% (+18% reported), the United States grew underlying net
sales by 5% (+7% reported) and developed markets outside of the
United States also grew underlying net sales by 5% (+6%
reported)
- The Jack Daniel’s family of brands grew
underlying net sales 6% (+8% reported), including 4% growth (+6%
reported) for Jack Daniel’s Tennessee Whiskey
- The company’s super-premium American
whiskey brands grew underlying net sales +15% (+20% reported),
including 22% growth from Woodford Reserve (+26% reported)
- Herradura and el Jimador grew
underlying net sales 19% and 9%, respectively (+17% and +14%,
reported)
- Underlying operating income grew 8%
(+5% reported)
- Returned $773 million to shareholders
in the year, including a $1/share special dividend
- Generated a 17% annual TSR over the
last ten years
Fiscal 2018 Results By Market -
Broad-Based Growth in Each Top Ten Market
The company delivered strong, and broad-based growth around the
world, with balanced contribution from the main geographic
clusters, including the United States, developed markets outside of
the United States, and the emerging markets. Every one of the
company’s top ten markets grew net sales and Travel Retail
delivered 8% underlying net sales growth (+13% reported) for the
year.
Brown-Forman Corporation - Top Ten
Markets by Net Sales
Supplemental Information (Unaudited) Twelve Months Ended
April 30, 2018 Country
% ofReported
NetSales
% Growth inReported
NetSales
% Growth inUnderlying
NetSales
United States 47% 7% 5%
United Kingdom 6% 4% 3%
Australia 5% 8% 8% Mexico
5% 15% 12% Germany
5% 14% 10% France
4% 11% 6% Poland 3%
15% 7% Russia 1%
52% 19% Brazil 1%
34% 28% Canada 1% 2%
3% Top Ten Total 79% 9%
6% Other Markets 21% 8%
8% Total Worldwide 100%
8% 6%
Note: See schedule C for reconciliation of
reported net sales growth, which includes the impact from
acquisitions and divestitures, changes in foreign exchange, and
estimated net change in distributor inventories.
Totals may differ due to rounding
The underlying net sales growth in the United States was driven
by broad-based gains from the Jack Daniel’s family of brands,
including Tennessee Whiskey, Tennessee Honey, Tennessee Fire,
Gentleman Jack and the portfolio of RTDs/RTP (RTDs3), as well as a
solid mid-year launch of Jack Daniel’s Tennessee Rye. The company’s
super-premium American whiskey portfolio continued to grow rapidly
in the United States, including strong double-digit underlying net
sales gains from Woodford Reserve and Old Forester. Herradura and
el Jimador tequila also grew aggregate underlying net sales
double-digits as both brands enjoyed strong growth in the on- and
off-premise.
Underlying net sales in the company’s developed markets outside
of the United States were solid. Germany and the United Kingdom
grew underlying net sales by 10% (+14% reported) and 3% (+4%
reported), respectively, while France’s underlying net sales
increased 6% (+11% reported). Australia’s underlying net sales
increased 8% (+8% reported) and Canada’s underlying net sales
increased 3% (+2% reported). The company’s recent launch of owned
distribution in Spain has resulted in double-digit underlying net
sales gains.
Emerging markets continued to strengthen despite increasingly
difficult comparisons. Mexico grew underlying net sales by 12%
(+15% reported), fueled by strong growth in the tequila portfolio
and continued demand for the Jack Daniel’s family of brands. Poland
also delivered strong results with underlying net sales growth of
7% (+15% reported). Russia and Brazil grew underlying net sales 19%
(+52% reported) and 28% (+34% reported), respectively, as both
markets experienced improved economic conditions as well as reduced
currency volatility. Other emerging markets, such as Turkey, China,
Thailand, India, and Ukraine delivered double-digit growth in
underlying net sales.
Travel Retail delivered another solid year of growth, with
underlying net sales up 8% (+13% reported) following the 7% (+3%
reported) underlying net sales growth registered in fiscal 2017.
Jack Daniel's Tennessee Whiskey grew well across Travel Retail, and
other brands, such as Gentleman Jack and Woodford Reserve also
enjoyed growth as consumers globally search for super-premium
bourbons with heritage and authenticity. Travel Retail also
benefited from higher passenger volumes throughout the year.
Fiscal 2018 Results By Brand - Strong
Growth in Premium American Whiskey and Tequila
The company’s underlying net sales growth was led by the Jack
Daniel’s family, up 6% (+8% reported). Jack Daniel’s Tennessee
Whiskey experienced 4% underlying net sales growth globally (+6%
reported), with strong volume gains in markets outside of the
United States. Jack Daniel’s Tennessee Honey’s underlying net sales
grew 9% (+10% reported), led by growth in the United States and
France. Jack Daniel’s RTD business has delivered strong underlying
net sales growth throughout the year, up 14% (+15% reported).
Growth has been fueled by innovation, including Jack Daniel’s Cider
in the United Kingdom, Jack Daniel’s American Serve in Australia,
Jack Daniel’s Lynchburg Lemonade in Germany and Southern Peach
Country Cocktails in the United States. Gentleman Jack grew
underlying net sales 7% (+9% reported), as consumers responded
favorably to the new advertising campaign and additional media
spend. Jack Daniel’s Tennessee Fire increased underlying net sales
15% (+20% reported), led by continued growth in the United States
and expansion into Brazil and Chile.
Brown-Forman’s portfolio of super-premium American whiskey
brands, including Woodford Reserve, Jack Daniel’s Single Barrel and
Gentleman Jack, delivered 15% underlying net sales growth (+20%
reported). Woodford Reserve grew underlying net sales 22% (+26%
reported). Old Forester grew at an even faster rate, powered by
favorable mix shift to more premium offerings in addition to strong
volumetric gains.
Finlandia vodka grew underlying net sales 5% (+10% reported).
The increase in underlying net sales was primarily driven by higher
realized prices in Russia due to our route-to-consumer change.
These gains were partially offset by continued pressure in Poland
due to the extremely competitive marketplace.
el Jimador grew underlying net sales by 9% (+14% reported),
fueled by strong takeaway trends in the United States as the
company continued to invest in building brand awareness through the
combination of on- and off-premise activation. Herradura grew
underlying net sales by 19% (+17% reported). Both the United States
and Mexico experienced double-digit gains, and Mexico benefited
from continued growth of Herradura Ultra. New Mix’s underlying net
sales growth increased double-digits, helped by strong distribution
gains and innovation.
Other P&L Items
Company-wide price/mix contributed nearly two percentage points
to the 6% underlying net sales growth (+8% reported). Underlying
gross profit also grew 6% in fiscal 2018 (+9% reported). As
expected, the company experienced higher cost of goods in the
second half of the year. Full-year reported gross margins increased
30bps due to favorable portfolio mix and foreign exchange
tailwinds.
Underlying advertising spend increased 6% (+8% reported) for the
full year, as the company continued to invest in the Jack Daniel’s
family of brands, the fast growing bourbon and tequila brands, as
well as brands such as Slane Irish whiskey, GlenDronach and
BenRiach. Underlying SG&A grew 3% for the full year (+15%
reported), driven by a 9% underlying increase (+50% reported) in
SG&A in the fourth quarter. SG&A in the fourth quarter was
negatively impacted by one-time items including special employee
bonuses, while reported SG&A also included the $70 million
contribution to the newly created Brown-Forman charitable
foundation.
The company delivered underlying operating income growth of 8%
(+5% reported). Operating leverage was driven by the company’s
continued focus on tightly managing costs, including leveraging its
assets and prior investments. Reported operating margin, which
included funding the foundation, was 32%.
Financial Stewardship
As of April 30, 2018, total debt was $2,556 million, up from
$2,149 million as of April 30, 2017. Through April 30, 2018, the
company delivered a trailing twelve month ROIC of 20%.
On January 23, 2018, Brown-Forman declared a five for four stock
split, paid on February 28, 2018. Also on January 23, 2018,
Brown-Forman declared a special dividend of $1.00 on the
split-adjusted Class A and Class B common stock. The special cash
dividend was paid on April 23, 2018 to stockholders of record on
April 2, 2018. On May 24, 2018, Brown-Forman declared a regular
quarterly cash dividend of $0.158 per share on the split-adjusted
Class A and Class B common stock, equating to an annualized cash
dividend of $0.632 per share. The quarterly cash dividend is
payable on June 6, 2018 to stockholders of record on July 3,
2018.
Brown-Forman has paid regular quarterly cash dividends for 72
consecutive years and has increased the dividend for 34 consecutive
years.
Regarding the outlook for fiscal 2019, Varga added, “We are in
the early days of capitalizing on our American Whiskey strategy,
and believe we are extremely well-positioned to maintain the
renewed momentum in our business. We have been investing over the
last several years in our portfolio of brands, our route-to-market
and our people, and our confidence is further bolstered by the
significant actions and investments we chose to make in fiscal
2018, most notably during the fourth quarter. We expect fiscal 2019
to be another great year at Brown-Forman, with reported earnings
per share gains of 18-25% fueled by strong growth in our business
and the benefits of tax reform.”
Fiscal Year 2019 Outlook
The global economy has improved modestly over the last year,
including improving conditions in many emerging markets. However,
the competitive landscape in the developed world remains intense,
not to mention concerns over potential retaliatory tariffs on
American spirits. These factors make it difficult to accurately
predict future results. Assuming current trends continue, the
company expects:
- Underlying net sales growth of 6% to
7%.
- Flat underlying SG&A and underlying
A&P up in line with underlying net sales growth.
- Underlying operating income growth of
7% to 9%.
- Diluted earnings per share of $1.75 to
$1.85 incorporates a tax rate of 21% as well as approximately five
cents of negative impact from higher interest expense, foreign
exchange and anticipated changes in net inventories.
EPS FY18
Reported EPS $ 1.48 Tax Reform Items and
Foundation $ 0.19 Baseline FY18 EPS $ 1.67 Underlying Growth of
7-9% $0.11 - $0.16 Lower Tax Rate $0.04 - $0.05 Interest Expense,
Foreign Exchange & Inventory ($0.07) -
($0.03) FY19 Reported EPS Outlook $1.75 -
$1.85 YOY Reported EPS Growth 18% - 25%
Conference Call Details
Brown-Forman will host a conference call to discuss the results
at 10:00 a.m. (EDT) today. All interested parties in the United
States are invited to join the conference call by dialing
888-624-9285 and asking for the Brown-Forman call. International
callers should dial +1-706-679-3410. The company suggests that
participants dial in ten minutes in advance of the 10:00 a.m. (EDT)
start of the conference call. A live audio broadcast of the
conference call, and the accompanying presentation slides, will
also be available via Brown-Forman’s Internet website, http://www.brown-forman.com/, through a link to
“Investors/Events & Presentations.” For those unable to
participate in the live call, information regarding the digital
audio recording of the conference call and the presentation slides
will also be on the website. The replay will be available for at
least 30 days following the conference call.
For nearly 150 years, Brown-Forman Corporation has enriched the
experience of life by responsibly building fine quality beverage
alcohol brands, including Jack Daniel’s Tennessee Whiskey, Jack
Daniel’s & Cola, Jack Daniel’s Tennessee Honey, Jack Daniel’s
Tennessee Fire, Gentleman Jack, Jack Daniel’s Single Barrel,
Finlandia, Korbel, el Jimador, Woodford Reserve, Old Forester,
Canadian Mist, Herradura, New Mix, Sonoma-Cutrer, Early Times,
Chambord, BenRiach, GlenDronach and Slane. Brown-Forman’s brands
are supported by over 4,800 employees and sold in more than 170
countries worldwide. For more information about the company, please
visit http://www.brown-forman.com/.
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,” “anticipate,”
“aspire,” “believe,” “continue,” “could,” “envision,” “estimate,”
“expect,” “expectation,” “intend,” “may,” “plan,” “potential,”
“project,” “pursue,” “see,” “seek,” “should,” “will,” 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 uncertainties include, but are not
limited to:
- Unfavorable global or regional economic
conditions, and related 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
- Risks associated with being a
U.S.-based company with global operations, including commercial,
political, and financial risks; local labor policies and
conditions; protectionist trade policies or economic or trade
sanctions, including potential retaliatory tariffs on American
spirits; compliance with local trade practices and other
regulations, including anti-corruption laws; terrorism; and health
pandemics
- Fluctuations in foreign currency
exchange rates, particularly a stronger U.S. dollar
- Changes in laws, regulations, or
policies – especially those that affect the production,
importation, marketing, labeling, pricing, distribution, sale, or
consumption of our beverage alcohol products
- Tax rate changes (including excise,
sales, VAT, tariffs, duties, corporate, individual income,
dividends, capital gains) or changes in related reserves, changes
in tax rules or accounting standards, and the unpredictability and
suddenness with which they can occur
- Dependence upon the continued growth of
the Jack Daniel’s family of brands
- Changes in consumer preferences,
consumption, or purchase patterns – particularly away from larger
producers in favor of smaller distilleries or local producers, or
away from brown spirits, our premium products, or spirits
generally, and our ability to anticipate or react to them; bar,
restaurant, travel, or other on-premise declines; shifts in
demographic trends; or unfavorable consumer reaction to new
products, line extensions, package changes, product reformulations,
or other product innovation
- Decline in the social acceptability of
beverage alcohol products in significant markets
- 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, labor, or finished goods
- Route-to-consumer changes that affect
the timing of our sales, temporarily disrupt the marketing or sale
of our products, or result in higher implementation-related or
fixed costs
- 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, or entry or
expansion in our geographic markets or distribution networks
- Risks associated with acquisitions,
dispositions, business partnerships or investments – such as
acquisition integration, termination difficulties or costs, or
impairment in recorded value
- Inadequate protection of our
intellectual property rights
- Product recalls or other product
liability claims; product counterfeiting, tampering, contamination,
or product quality issues
- Significant legal disputes and
proceedings; government investigations (particularly of industry or
company business, trade, or marketing practices)
- Failure or breach of key information
technology systems
- Negative publicity related to our
company, brands, marketing, personnel, operations, business
performance, or prospects
- Failure to attract or retain key
executive or employee talent
- Our status as a family “controlled
company” under New York Stock Exchange rules
For further information on these and other risks, please refer
to the “Risk Factors” section of our annual report on Form 10-K and
quarterly reports on Form 10-Q filed with the Securities and
Exchange Commission.
Brown-Forman Corporation
Unaudited Consolidated Statements of
Operations
For the Three Months Ended April 30, 2017
and 2018
(Dollars in millions, except per share
amounts)
2017 2018
Change Net sales $ 694 $ 733 6 % Cost of sales 214
221 3 % Gross profit 480 512 7 % Advertising expenses 91 100
10 % Selling, general, and administrative expenses 179 268 50 %
Other expense (income), net (2 ) (1 ) Operating income 212 145 (32
%) Interest expense, net 15 17 Income before income
taxes 197 128 (35 %) Income taxes 53 18 Net income $
144 $ 110 (23 %) Earnings per share: Basic $
0.30 $ 0.23 (24 %) Diluted $ 0.30 $ 0.23 (24 %) Gross margin
69.1 % 70.0 % Operating margin 30.5 % 19.8 % Effective tax
rate 26.9 % 13.9 % Cash dividends paid per common share $
0.146 $ 1.158
Shares (in thousands) used in the
calculation of earnings per share
Basic 479,700 480,718 Diluted 482,923 486,482
Brown-Forman Corporation
Unaudited Consolidated Statements of
Operations
For the Twelve Months Ended April 30, 2017
and 2018
(Dollars in millions, except per share
amounts)
2017 2018
Change Net sales $ 2,994 $ 3,248 8 % Cost of sales 973
1,046 7 % Gross profit 2,021 2,202 9 % Advertising
expenses 383 414 8 % Selling, general, and administrative expenses
667 765 15 % Other expense (income), net (18 ) (16 ) Operating
income 989 1,039 5 % Interest expense, net 56 62
Income before income taxes 933 977 5 % Income taxes 264 260
Net income $ 669 $ 717 7 % Earnings per
share: Basic $ 1.38 $ 1.49 8 % Diluted $ 1.37 $ 1.48 8 %
Gross margin 67.5 % 67.8 % Operating margin 33.0 % 32.0 %
Effective tax rate 28.3 % 26.6 % Cash dividends paid per
common share $ 0.564 $ 1.608
Shares (in thousands) used in the
calculation of earnings per share
Basic 484,635 480,319 Diluted 488,077 484,248
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance
Sheets
(Dollars in millions)
April 30,2017
April 30,2018
Assets: Cash and cash equivalents $ 182 $ 239 Accounts receivable,
net 557 639 Inventories 1,270 1,379 Other current assets 342 298
Total current assets 2,351 2,555 Property, plant, and
equipment, net 713 780 Goodwill 753 763 Other intangible assets 641
670 Other assets 167 208 Total assets $ 4,625 $ 4,976
Liabilities: Accounts payable and accrued expenses $ 501 $ 581
Accrued income taxes 9 25 Short-term borrowings 211 215 Current
portion of long-term debt 249 — Total current liabilities 970 821
Long-term debt 1,689 2,341 Deferred income taxes 152 85
Accrued postretirement benefits 314 191 Other liabilities 130 222
Total liabilities 3,255 3,660 Stockholders’ equity 1,370
1,316 Total liabilities and stockholders’ equity $ 4,625 $
4,976
Brown-Forman Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Twelve Months Ended April 30, 2017
and 2018
(Dollars in millions)
2017 2018 Cash
provided by operating activities $ 639 $ 632 Cash flows from
investing activities: Acquisition of business, net of cash acquired
(307 ) — Additions to property, plant, and equipment (112 ) (127 )
Other (3 ) (1 ) Cash used for investing activities (422 ) (128 )
Cash flows from financing activities: Net change in
short-term borrowings (122 ) (3 ) Repayment of long-term debt —
(250 ) Proceeds from long-term debt 717 595 Debt issuance costs (5
) (6 ) Acquisition of treasury stock (561 ) (1 ) Dividends paid
(274 ) (773 ) Other (40 ) (28 ) Cash used for financing activities
(285 ) (466 ) Effect of exchange rate changes on cash and
cash equivalents (13 ) 19 Net increase (decrease) in
cash and cash equivalents (81 ) 57 Cash and cash
equivalents, beginning of period 263 182 Cash
and cash equivalents, end of period $ 182 $ 239
Schedule A
Brown-Forman Corporation Supplemental Information
(Unaudited)
Three Months Ended
Twelve Months Ended Fiscal Year Ended April 30,
2018 April 30, 2018 April 30, 2017
Reported change in net sales 6
% 8 % (3 )% Acquisitions &
divestitures — % — % 3 % Foreign exchange — % (1 )% 2 % Estimated
net change in distributor inventories (1 )% (1 )% 1 %
Underlying change in net sales 5 %
6 % 3 %
Reported change in gross profit 7 % 9
% (6 )% Acquisitions & divestitures — % —
% 4 % Foreign exchange (2 )% (2 )% 3 %
Estimated net change in distributor
inventories
(1 )% (1 )% 1 %
Underlying change in gross profit
4 % 6 % 3 %
Reported change in advertising expenses 10
% 8 % (8 )% Acquisitions &
divestitures — % — % 8 % Foreign exchange (3 )% (3 )% 2 %
Underlying change in advertising expenses 7 %
6 % 2 %
Reported change in SG&A 50 % 15
% (3 )% Acquisitions & divestitures 1 % —
% — % Foundation (39 )% (11 )% — % Foreign exchange (3 )% (2 )% 1 %
Underlying change in SG&A 9 %
3 % (2 )%
Reported change in operating income (32 )%
5 % (35 )% Acquisitions &
divestitures — % — % 35 % Foundation 33 % 7 % — % Foreign exchange
(3 )% (2 )% 4 % Estimated net change in distributor inventories (2
)% (2 )% 3 %
Underlying change in operating income
(4 )% 8 % 7
% Note: Totals may differ due to rounding
See endnote 2 - “Non-GAAP Financial
Measures" for details on our use of Non-GAAP financial measures,
how these measures are calculated and the reasons why we believe
this information is useful to readers.
Schedule B
Brown-Forman Corporation Supplemental Brand
Information (Unaudited) Twelve Months Ended April 30,
2018 %
Change vs. Prior Year Period
Brand3
Depletions (Millions)
Depletions3 Net Sales2
9-Liter
Drinks
Equivalent3
9-Liter
Drinks
Equivalent3
Reported
Acquisitions and Divestitures
Foreign Exchange
Estimated Net Change in Distributor
Inventories
Underlying
Jack Daniel’s Family 24.9 17.1
7% 6% 8% —%
(1)% (1)% 6% Jack
Daniel’s Tennessee Whiskey 13.0
13.0 5% 5% 6%
—% (1)% —% 4% Jack
Daniel’s Tennessee Honey 1.7 1.7
8% 8% 10%
—% (2)% 1% 9% Jack
Daniel’s RTD’s/ RTP 8.7 0.9
9% 9% 15%
—% (1)% —% 14% Gentleman
Jack 0.6 0.6 7%
7% 9% —% —%
(1)% 7% Jack Daniel’s Tennessee Fire
0.6 0.6 14%
14% 20% —% (1)%
(4)% 15% Woodford Reserve
0.7 0.7 23% 23%
26% —% —%
(4)% 22% Finlandia 3.0
3.0 2% 2% 10%
—% (2)% (3)%
5% el Jimador 1.3 1.3
8% 8% 14%
—% (1)% (4)% 9% Herradura
0.5 0.5 15%
15% 17% —% (1)%
3% 19% All Other Brands
11.8 5.7 3% (1)%
5% —% (2)%
(1)% 2% Subtotal 42.2
28.3 6% 5% 9%
—% (1)% (1)%
6% Other Non-Branded NM
NM NM NM (2)%
11% (1)% —% 9%
Total Portfolio 42.2 28.3
6% 5% 8% 0%
(1)% (1)% 6%
Other
BrandAggregations
American whiskey 26.5
18.7 7% 6% 9%
—% (1)% (1)% 7%
Super-premium American whiskey 1.6
1.6 18% 18% 20%
—% (1)% (5)%
15% Old Forester & Woodford Reserve
0.9 0.9 22% 22%
27% —% —% (4)%
23% el Jimador, Herradura, & New Mix
8.5 2.5 8%
9% 16% —% (2)%
(1)% 13%
See endnote 2 - “Non-GAAP Financial
Measures" for details on our use of Non-GAAP financial measures,
how these measures are calculated and the reasons why we believe
this information is useful to readers.
Note: Totals may differ due to
rounding
Schedule C
Brown-Forman Corporation Supplemental Geographic
Information (Unaudited) Twelve Months Ended April 30,
2018
Geographic
Area3
Net Sales2
Reported
AcquisitionsandDivestitures
ForeignExchange
Estimated NetChange
inDistributorInventories
Underlying
United States 7 % — %
— % (2 )% 5 %
Europe 12 % — %
(4 )% — % 8 % United Kingdom
4 % — % (1 )%
— % 3 % Germany 14
% — % (4 )% — %
10 % France 11 % — %
(5 )% — % 6 % Poland
15 % — % (7 )%
— % 7 % Russia 52
% — % (3 )% (30 )%
19 % Rest of Europe 12 %
— % (5 )% 2 % 9 %
Australia 8 % 1 %
(1 )% — % 8 %
Other
geographies 10 % — %
(2 )% 1 % 9 % Mexico
15 % — % (3 )%
— % 12 % Brazil 34 %
— % 3 % (8 )%
28 % Canada 2 % — %
(1 )% 2 % 3 % Remaining
geographies 3 % — %
(1 )% 3 % 5 %
Travel
Retail3 13 % — %
— % (5 )% 8 %
Other
non-branded3 (2 )% 11
% (1 )% — % 9 %
Total 8 % — %
(1 )% (1 )% 6 %
Other Geographic
Aggregations
Developed -
including United States 7 % — %
(1 )% (1 )% 5 % Developed
- excluding United States 6 % —
% (3 )% 1 % 5 % Emerging
18 % — % (3 )%
(2 )% 13 %
See "Endnote 2 - Non-GAAP Financial
Measures" for details on our use of Non-GAAP financial measures,
how these measures are calculated and the reasons why we believe
this information is useful to readers.
Note: Totals may differ due to
rounding
Note 1 - Percentage growth rates are compared to
prior-year periods, unless otherwise noted.
Note 2 - Non-GAAP Financial Measures
Use of Non-GAAP Financial
Information. We use certain financial measures in this press
release that are not measures of financial performance under U.S.
generally accepted accounting principles (GAAP). These
non-GAAP measures, defined below, should be viewed as supplements
to (not substitutes for) our results of operations and other
measures reported under GAAP. The non-GAAP measures we use in this
press release may not be defined and calculated by other companies
in the same manner. Reconciliations of these non-GAAP measures to
the most closely comparable GAAP measures are presented on
Schedules A, B and C to this press release.
“Underlying change” in income statement
measures. We present changes in certain income statement
measures, or line items, that are adjusted to an “underlying”
basis. We use “underlying change” for the following income
statement measures: (a) underlying net sales, (b) underlying cost
of sales, (c) underlying gross profit, (d) underlying advertising
expenses, (e) underlying selling, general and administrative
(SG&A) expenses, (f) underlying other expense (income) and (g)
underlying operating income. To calculate these measures, we
adjust, as applicable, for (a) acquisitions and divestitures, (b)
foreign exchange, (c) estimated net changes in distributor
inventories and (d) the establishment of, and contribution to, our
charitable foundation. We explain these adjustments below.
- “Acquisitions and divestitures.” This
adjustment removes (a) any non-recurring effects related to our
acquisitions and divestitures (e.g., transaction gains or losses,
transaction costs and integration costs) and (b) the effects of
operating activity related to acquired and divested brands for
periods that are not comparable on a year-over-year basis
(non-comparable periods). By excluding non-comparable periods, we
therefore include the effects of acquired and divested brands only
to the extent that results are comparable on a year-over-year
basis.In fiscal 2016, we sold our Southern Comfort and Tuaca brands
and related assets to Sazerac Company, Inc. and entered into a
related transition services agreement (TSA). During fiscal 2017, we
completed our obligations under the TSA. This adjustment removes
the net sales and operating expenses recognized in fiscal 2017
pursuant to the TSA related to (a) contract bottling services and
(b) distribution services in certain markets.On June 1, 2016, we
acquired The BenRiach Distillery Company Limited (BenRiach). This
adjustment removes (a) transaction and integration costs related to
the acquisition and (b) operating activity for the acquired
business for the non-comparable period. For both fiscal 2017 and
2018, the non-comparable period is the month of May.
- “Foreign exchange.” We calculate the
percentage change in our income statement line items in accordance
with GAAP and adjust to exclude the cost or benefit of currency
fluctuations. Adjusting for foreign exchange allows us to
understand our business on a constant-dollar basis, as fluctuations
in exchange rates can distort the underlying trend both positively
and negatively. (In this press release, “dollar” always means the
U.S. dollar unless stated otherwise). To eliminate the effect of
foreign exchange fluctuations when comparing across periods, we
translate current year results at prior-year rates and remove
foreign exchange gains and losses from the current and prior-year
periods.
- “Estimated net change in distributor
inventories.” This adjustment refers to the estimated net effect of
changes in distributor inventories on changes in our income
statement line items. For each period compared, we use volume
information provided by our distributors to estimate the effect of
distributor inventory changes on our income statement line
items.
- “Foundation.” In the fourth quarter of
2018, we established, and contributed to, a $70 million foundation
to support the company’s charitable giving program in the
communities where our employees live and work. This adjustment
removes the effect of the initial $70 million funding of the
foundation from our underlying SG&A expenses and operating
income to present our underlying results on a comparable
basis.
We use the non-GAAP measures “underlying change” for the
following reasons: (a) to understand our performance from period to
period on a consistent basis; (b) to compare our performance to
that of our competitors; (c) in connection with management
incentive compensation calculations; (d) in our planning and
forecasting processes; and (e) in communications concerning our
financial performance with the board of directors, stockholders,
and investment analysts. We have consistently applied the
adjustments within our reconciliations in arriving at each non-GAAP
measure.
“ROIC.” (Return on average invested capital) This measure refers
to the sum of net income and after-tax interest expense, divided by
average invested capital. Average invested capital equals assets
less liabilities, excluding interest-bearing debt, and is
calculated using the average of the most recent 13 month-end
balances. After-tax interest expense equals interest expense
multiplied by one minus our effective tax rate. We use this
non-GAAP measure because we consider return on average invested
capital to be a meaningful indicator of how effectively and
efficiently we use capital invested in our business.
Note 3 - Definitions
From time to time, in order to explain our results of operations
or to highlight trends and uncertainties affecting our business, we
aggregate markets according to stage of economic development as
defined by the International Monetary Fund and we aggregate brands
by spirits category. Below are definitions of the aggregations used
in this press release.
Geographic Aggregations.
- “Developed” markets are “advanced
economies” as defined by the International Monetary Fund, with the
largest for Brown-Forman being the United States, the United
Kingdom and Australia. Developed international markets are
developed markets excluding the United States.
- “Emerging” markets are “emerging and
developing economies” as defined by the International Monetary
Fund, with the largest for Brown-Forman being Mexico and
Poland.
In Schedule C, we provide supplemental information for our
largest markets ranked by percentage of total fiscal 2018 net
sales. In addition to markets that are listed by country name, we
include the following aggregations:
- “Rest of Europe” includes all markets
in the continent of Europe and the Commonwealth of Independent
States countries other than those specifically listed.
- “Remaining geographies” All other
markets (approximately 110), other than those specifically listed
or included in “Rest of Europe”, with the largest being Brazil,
South Africa and China.
- “Travel Retail” represents our sales to
global duty free customers, travel retail customers and the U.S.
military.
- “Other non-branded” includes used
barrel, bulk whiskey and wine and contract bottling sales.
Brand Aggregations.
- “American whiskey” products include the
Jack Daniel’s family of brands, premium bourbons, and Early
Times.
- “Super-premium American whiskey brands”
include Woodford Reserve, Jack Daniel’s Single Barrel, Gentleman
Jack, Sinatra Select and Jack Daniel’s No. 27 Gold Tennessee
Whiskey.
- “Premium bourbon” products include Old
Forester, Cooper’s Craft, and Woodford Reserve.
- “Tequila” products include el Jimador,
Herradura, and New Mix.
In Schedule B, we provide supplemental information for our
largest brands ranked by percentage of total fiscal 2018 net sales.
In addition to brands that are listed by name, we include the
following aggregations:
- “Jack Daniel’s family of brands”
includes Jack Daniel’s Tennessee Whiskey (JDTW), Jack Daniel’s
Tennessee Honey (JDTH), Jack Daniel’s RTD and RTP products (JD
RTDs/RTP), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF),
Jack Daniel’s Single Barrel Collection, Jack Daniel’s Tennessee Rye
Whiskey, Jack Daniel’s Sinatra Select and Jack Daniel’s No. 27 Gold
Tennessee Whiskey.
- “Jack Daniel’s RTD and RTP” products
include all RTD line extensions of Jack Daniel’s, such as
Jack Daniel’s & Cola, Jack Daniel’s & Diet
Cola, Jack & Ginger, Jack Daniel’s Country Cocktails,
Gentleman Jack & Cola, Jack Daniel’s Double Jack, Jack Daniel’s
American Serve, Jack Daniel’s Tennessee Honey RTD, Jack Daniel’s
Cider (JD Cider), Jack Daniel’s Lynchburg Lemonade (JD Lynchburg
Lemonade) and the seasonal Jack Daniel’s Winter Jack RTP.
Other Metrics.
- “Depletions.” When discussing volume,
unless otherwise specified, we refer to “depletions,” a term
commonly used in the beverage alcohol industry. Depending on the
context, “depletions” means either (a) our shipments directly to
retailers or wholesalers, or (b) shipments from our distributor
customers to retailers and wholesalers. We generally record
revenues when we ship our products to our customers, so our
reported sales for a period do not reflect actual consumer
purchases during that period. We believe that our depletions
measure volume in a way that more closely reflects consumer demand
than our shipments to distributor customers do.
- “Drinks-equivalent.” Volume is
discussed on a nine-liter equivalent unit basis (nine-liter cases)
unless otherwise specified. At times, we use a “drinks-equivalent”
measure for volume when comparing single-serve ready-to-drink (RTD)
or ready-to-pour (RTP) brands to a parent spirits brand.
“Drinks-equivalent” depletions are RTD and RTP nine-liter cases
converted to nine-liter cases of a parent brand on the basis of the
number of drinks in one nine-liter case of the parent brand. To
convert RTD volumes from a nine-liter case basis to a
drinks-equivalent nine-liter case basis, RTD nine-liter case
volumes are divided by 10, while RTP nine-liter case volumes are
divided by 5.
- “Consumer takeaway.” When discussing
trends in the market, we refer to “consumer takeaway,” a term
commonly used in the beverage alcohol industry. “Consumer takeaway”
refers to the purchase of product by the consumer from the retail
outlet as measured by volume or retail sales value. This
information is provided by third-parties, such as Nielsen and the
National Alcohol Beverage Control Association (NABCA). Our
estimates of market share or changes in market share are derived
from consumer takeaway data using the retail sales value
metric.
Note 4 - Reconciliation
of Non-GAAP ROIC
Non-GAAP ROIC Calculation $ millions
Twelve monthsendedApril 30, 2018
Reported net income
{a} $ 717 Reported after-tax interest
expense1
{b} 49 Reported net income and after-tax
interest expense $ 766 Average invested capital 3,832 ROIC
20.0 %
1 After-tax interest expense equals
interest expense from the consolidated income statement multiplied
by one minus our effective tax rate also from the consolidated
income statement
{a} Consolidated income statement
{b} Consolidated income statement and
accompanying notes
Note 5 - TSR: Total Shareholder Return is shown as
a compound annual growth rate assuming dividends reinvested, and is
measured over the ten-year period ending April 30, 2018.
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version on businesswire.com: https://www.businesswire.com/news/home/20180606005619/en/
Brown-Forman CorporationPhil Lynch, 502-774-7928Vice
PresidentCorporate Communications and Public RelationsorJay Koval,
502-774-6903Vice PresidentInvestor Relations and Community
Relations
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