Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported
financial results for its first quarter of fiscal 2019, ended July
31, 2018. For the first quarter, the company’s reported net sales1
increased 6% to $766 million (+9% on an underlying2 basis) compared
to the same prior-year period. In the quarter, reported operating
income increased 7% to $264 million (+10% on an underlying basis)
and diluted earnings per share grew 12% to $0.41.
Paul Varga, the company's Chief Executive Officer, said,
“Brown-Forman’s business momentum continued during the first
quarter of fiscal 2019, with strong net sales growth as consumer
demand for our premium American whiskey brands remained robust.
After considering the estimated impact of order phasing related to
tariffs, our first quarter growth was in-line with last year’s
underlying net sales growth and keeps us on track to deliver
another strong year of top-line growth in the 6-7% range.”
Lawson Whiting, the company’s Chief Operating Officer and
incoming CEO, added, “There remains significant uncertainty around
the duration of recently enacted tariffs, but we have been
encouraged by the resilience of our business model as we are
working to minimize short-term disruption and maintain our top-line
momentum. We believe that our consistent reinvestment back into our
brands and people positions us well over the long term to continue
generating leading returns for our shareholders.”
First Quarter Fiscal 2019
Highlights
- Underlying net sales grew 9% (+6%
reported), with broad-based geographic3 and balanced portfolio
contribution:
- Developed international markets grew
underlying net sales by 16% (+12% reported), emerging markets grew
underlying net sales by 11% (+7% reported), and the United States
grew underlying net sales by 2% (0% reported)
- The Jack Daniel’s family of brands grew
underlying net sales 10% (+7% reported), including 8% underlying
net sales growth (+5% reported) for Jack Daniel’s Tennessee
Whiskey
- The company’s super-premium American
whiskey brands grew underlying net sales +25% (+24% reported),
including 29% underlying net sales growth from Woodford Reserve
(+30% reported)
- Herradura and el Jimador grew
underlying net sales 10% and 11%, respectively (+11% and +10%,
reported)
- Underlying operating income grew 10%
(+7% reported)
First Quarter of Fiscal 2019 Results By
Market - Broad-Based Growth
The company delivered solid, broad-based growth around the
world, with the strongest results coming from markets outside of
the United States. The company estimates that an increase in retail
and wholesale inventory levels, largely related to tariffs,
contributed approximately two to three points of underlying net
sales growth to company-wide top-line results.
The United States grew underlying net sales +2% (0% reported),
against last year’s 5% comparison. According to syndicated data,
Brown-Forman’s value based takeaway trends remain consistently in
the mid-single digits rate of growth. The Jack Daniel’s family of
brands excluding Tennessee Whiskey grew underlying net sales
high-single digits, with gains from Tennessee Honey, Tennessee
Fire, and RTDs/RTP (RTDs3), as well as the continued launch of Jack
Daniel’s Tennessee Rye. The company’s premium bourbons 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 grew aggregate underlying net
sales in the mid-teens.
Underlying net sales in the company’s developed markets outside
of the United States were very strong, up 16% (+12% reported).
Results in the European Union benefited from easy comparisons
versus the same year ago period and the timing of orders as our
trade partners worked to navigate an uncertain period given
recently enacted tariffs. Germany and the United Kingdom grew
underlying net sales by 38% (+28% reported) and 33% (+19%
reported), respectively, while France’s underlying net sales
increased 3% (-1% reported). Spain continued to grow well into the
double-digits on the heels of last year’s transition to owned
distribution in that market. Australia’s underlying net sales
increased 6% (+2% reported) and Canada’s underlying net sales were
flat (-2% reported).
Emerging markets continued to strengthen on a two-year basis
despite increasingly difficult comparisons, with underlying net
sales growth of 11% (+7% reported). Mexico grew underlying net
sales by 5% (-6% reported), fueled by strong growth across the
portfolio of RTDs as well as American whiskey. Poland delivered
underlying net sales growth of 4% (+8% reported) as strength in
whiskey was offset somewhat by soft results for Finlandia as the
company begins to transition to new packaging for the brand. Brazil
grew underlying net sales 30% (+20% reported) due to strong demand
for Jack Daniel’s Tennessee Whiskey. Russia experienced a 12%
decline (+57% reported) due to challenging comparisons related to
the changes in distributor and related buying patterns. Most other
emerging markets, such as Turkey, China, Romania, India, and
Ukraine delivered underlying net sales well into the double-digits
in the quarter.
Travel Retail delivered solid growth in the quarter, with
underlying net sales up 22% (+24% reported). The company’s premium
American whiskey brands, including the Jack Daniel's family of
brands and Woodford Reserve, enjoyed strong consumer demand, and
Travel Retail benefited from new product launches, higher passenger
volumes, and timing related to trade buying.
First Quarter of Fiscal 2019 Results By
Brand - Strong Growth in American Whiskey and
Tequila
The company’s underlying net sales growth was led by the Jack
Daniel’s family of brands, up 10% (+7% reported). Jack Daniel’s
Tennessee Whiskey experienced 8% underlying net sales growth
globally (+5% reported), with strong volume gains in markets
outside of the United States. Jack Daniel’s Tennessee Honey’s
underlying net sales grew 12% (+21% reported) as the brand
continued its global growth trajectory. Jack Daniel’s RTD business
maintained its strong momentum from fiscal 2018, delivering
underlying net sales growth of 10% (+6% reported). Gentleman Jack
grew underlying net sales 7% (+4% reported). Jack Daniel’s
Tennessee Fire increased underlying net sales 13% (+10% reported),
led by continued global growth for the brand.
Brown-Forman’s portfolio of super-premium American whiskey
brands, including Woodford Reserve, Jack Daniel’s Single Barrel and
Gentleman Jack, delivered 25% underlying net sales growth (+24%
reported). Woodford Reserve grew underlying net sales 29% (+30%
reported). Old Forester grew at an even faster rate, powered by the
combination of volumetric gains and favorable mix.
Finlandia vodka’s underlying net sales declined 10% (-18%
reported). The decrease in underlying net sales was primarily
driven by some disruption related to packaging changes for the
brand in Poland, as well as a competitive environment for premium
vodka.
el Jimador grew underlying net sales by 11% (+10% reported),
fueled by strong takeaway trends in the United States as the
company continued to invest in building brand awareness. Herradura
grew underlying net sales by 10% (+11% reported). The brand
registered double-digit gains in the United States and the
continued growth of Herradura Ultra benefited Mexico’s results. New
Mix’s underlying net sales grew mid-single digits despite the
competitive environment for RTDs.
Other P&L Items
Company-wide price/mix contributed four percentage points to the
9% underlying net sales growth (+6% reported). Underlying gross
profit also grew 9% in the quarter (+6% reported).
Underlying advertising spend increased 17% (+14% reported)
during the first quarter, as the company continued to invest across
the portfolio of brands, including the new Woodford Reserve
Kentucky Derby sponsorship. Underlying SG&A grew 5% for the
quarter (+4% reported), driven primarily by higher personnel costs.
The company delivered underlying operating income growth of 10%
(+7% reported).
Financial
Stewardship
On July 13, the board approved a share repurchase authorization
of $200 million, effective through July 12, 2019, subject to market
and other conditions. On July 26, 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 October 1, 2018 to stockholders of record on
September 6, 2018. Brown-Forman has paid regular quarterly cash
dividends for 73 consecutive years and has increased the dividend
for 34 consecutive years.
Fiscal Year 2019 Outlook
The global economy has continued to improve over the last year.
However, the competitive landscape in the developed world remains
intense, and recently enacted retaliatory tariffs on American
whiskey have created additional uncertainty around the company’s
near-term outlook, making it difficult to accurately predict future
results. The company currently anticipates:
- Underlying net sales growth of 6% to
7%.
- A slight increase in underlying
SG&A, and underlying A&P up in-line with underlying net
sales growth.
- Underlying operating income growth of
4% to 6%.
- Diluted earnings per share of $1.65 to
$1.75. This range includes the net estimated change to operating
income growth due primarily to tariffs, which we assume remain in
place for the full fiscal year, as well as expectations for
additional foreign exchange headwinds at current spot rates.
EPS Prior FY19 EPS Outlook $1.75 - $1.85 Net Change to OI
Growth (0.06 )
Additional FX Headwinds and Other
(0.04 ) FY19 Reported EPS Outlook
$1.65 - $1.75 YOY Reported EPS
Growth 11% - 18%
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,” “can,” “continue,” “could,” “envision,”
“estimate,” “expect,” “expectation,” “intend,” “may,” “might,”
“plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,”
“will,” “would,” and similar words indicate 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 and the effectiveness of our actions to mitigate the
potential negative impact on our sales and distributors; 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, or capital gains) or changes in related reserves,
changes in tax rules or accounting standards, and the
unpredictability and suddenness with which they can occur
- The impact of the recently enacted U.S.
tax reform legislation, including as a result of future regulations
and guidance interpreting the statute
- 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 small distilleries or local producers, or
away from brown spirits, our premium products, or spirits
generally, and our ability to anticipate or react to them;
legalization of marijuana use on a more widespread basis; shifts in
consumer purchase practices from traditional to e-commerce
retailers; bar, restaurant, travel, or other on-premise declines;
shifts in demographic or health and wellness 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 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 fixed costs
- Inventory fluctuations in our products
by distributors, wholesalers, or retailers
- Competitors’ and retailers’
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, or product counterfeiting, tampering,
contamination, or quality issues
- Significant legal disputes and
proceedings, or government investigations
- 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, and our dual class
share structure
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 July 31, 2017
and 2018
(Dollars in millions, except per share
amounts)
2017 2018 Change Net sales $ 723 $ 766 6 % Cost of
sales 230 243 6 % Gross profit 493 523 6 %
Advertising expenses 87 98 14 % Selling, general, and
administrative expenses 161 168 4 % Other expense (income), net (1
) (7 ) Operating income 246 264 7 % Non-operating postretirement
expense 2 2 Interest expense, net 15 20 Income before
income taxes 229 242 6 % Income taxes 51 42 Net
income $ 178 $ 200 12 % Earnings per share:
Basic $ 0.37 $ 0.42 12 % Diluted $ 0.37 $ 0.41 12 % Gross
margin 68.1 % 68.2 % Operating margin 34.0 % 34.5 %
Effective tax rate 22.1 % 17.4 % Cash dividends per common
share: Declared $ 0.292 $ 0.316 Paid $ 0.146 $ 0.158
Shares (in thousands) used in the
calculation of earnings per share
Basic 480,048 480,964 Diluted 482,984 484,441
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance
Sheets
(Dollars in millions)
April 30, July 31, 2018 2018 Assets: Cash and cash
equivalents $ 239 $ 211 Accounts receivable, net 639 658
Inventories 1,379 1,449 Other current assets 298 305 Total
current assets 2,555 2,623 Property, plant, and equipment,
net 780 778 Goodwill 763 755 Other intangible assets 670 658 Other
assets 208 211 Total assets $ 4,976 $ 5,025
Liabilities: Accounts payable and accrued expenses $ 581 $ 564
Dividends payable — 76 Accrued income taxes 25 52 Short-term
borrowings 215 176 Total current liabilities 821 868
Long-term debt 2,341 2,310 Deferred income taxes 85 119 Accrued
postretirement benefits 191 192 Other liabilities 222 168
Total liabilities 3,660 3,657 Stockholders’ equity 1,316
1,368 Total liabilities and stockholders’ equity $
4,976 $ 5,025
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Three Months Ended July 31, 2017
and 2018
(Dollars in millions)
2017 2018 Cash provided by operating activities $ 105
$ 126 Cash flows from investing activities: Additions to
property, plant, and equipment (28 ) (23 ) Other (3 ) (2 ) Cash
used for investing activities (31 ) (25 ) Cash flows from
financing activities: Net change in short-term borrowings 45 (41 )
Acquisition of treasury stock (1 ) (1 ) Dividends paid (70 ) (76 )
Other (5 ) (4 ) Cash used for financing activities (31 ) (122 )
Effect of exchange rate changes on cash and cash equivalents
13 (7 ) Net increase (decrease) in cash and cash
equivalents 56 (28 ) Cash and cash equivalents, beginning of
period 182 239 Cash and cash equivalents, end
of period $ 238 $ 211
Schedule A
Brown-Forman Corporation Supplemental Information
(Unaudited) Three Months
Ended Fiscal Year Ended July 31, 2018 April
30, 2018 Reported change in net
sales 6% 8% New accounting standard 1% —% Foreign
exchange 2% (1)% Estimated net change in distributor inventories
(1)% (1)%
Underlying change in net sales 9%
6% Reported change in gross profit
6% 9% New accounting standard 2% —% Foreign exchange
2% (2)% Estimated net change in distributor inventories (1)% (1)%
Underlying change in gross profit 9% 6%
Reported change in advertising expenses 14%
8% New accounting standard 4% —% Foreign exchange —% (3)%
Underlying change in advertising expenses 17%
6% Reported change in SG&A 4%
15% Foundation —% (11)% Foreign exchange —% (2)%
Underlying change in SG&A 5% 3%
Reported change in operating income 7% 5% New
accounting standard 2% —% Foundation —% 7% Foreign exchange 2% (2)%
Estimated net change in distributor inventories (2)% (2)%
Underlying change in operating income 10% 8%
Note: Totals may differ due to
rounding
See "Note 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)
Three Months Ended July 31, 2018 % Change vs.
Prior Year Period
Brand3
Depletions3 Net Sales2
9-Liter
Drinks
Equivalent3
Reported
New
Accounting
Standard
Foreign
Exchange
Estimated Net
Change in
Distributor
Inventories
Underlying
Whiskey 7% 8% 8% 1% 2%
(1)% 11% Jack Daniel’s Family of Brands 8% 9%
7% 1% 3% (2)% 10% Jack Daniel’s
Tennessee Whiskey 9% 9% 5% 2% 2%
(1)% 8% Jack Daniel’s RTD’s/ RTP 5% 5%
6% —% 5% —% 10% Jack Daniel’s
Tennessee Honey 10% 10% 21% 2%
2% (12)% 12% Gentleman Jack 6% 6%
4% 1% 1% —% 7% Jack Daniel’s
Tennessee Fire 11% 11% 10% 1% 1%
1% 13% Other Jack Daniel’s Whiskey Brands 77%
77% 43% 1% 2% 1% 47%
Woodford Reserve 26% 26% 30% 2%
1% (4)% 29% Rest of Whiskey (5)% (5)%
—% 1% —% 7% 8% Tequila —%
4% 7% 3% 4% (5)% 9% el
Jimador 4% 4% 10% 5% 3%
(6)% 11% Herradura 6% 6% 11% 4%
3% (8)% 10% Rest of Tequila (2)%
3% (1)% —% 7% —% 6% Vodka
(6)% (6)% (18)% 1% 6% —%
(10)% Wine (3)% (3)% (6)% 1% —%
2% (3)% Rest of Portfolio (3)% (3)%
(11)% —% 5% 1% (4)% Subtotal
4% 5% 6% 1% 3% (1)%
8% Other Non-Branded and Bulk NM NM 19%
0% (1)% —% 18% Total Portfolio
4% 5% 6% 1% 2% (1)% 9%
Other Brand
Aggregations
American whiskey 8%
9% 8% 1% 2% (1)% 11%
Super-premium American whiskey 24% 24% 24%
1% 1% (1)% 25% Old Forester &
Woodford Reserve 24% 24% 27% 2%
—% 1% 29% el Jimador, Herradura, & New Mix
(1)% 3% 6% 3% 4% (5)% 9%
See "Note 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) Three Months Ended July 31, 2018
Geographic
Area3
Net Sales2
Reported
New
Accounting
Standard
Foreign
Exchange
Estimated Net
Change in
Distributor
Inventories
Underlying
United States —% 1% —% 1%
2%
Developed International 12% 2% 6%
(3)% 16% United Kingdom 19% —%
14% —% 33% Australia 2% —% 4%
—% 6% Germany 28% —% 10%
—% 38% France (1)% —% 5% —%
3% Canada (2)% 4% 2% (4)%
—% Rest of Developed International 13% 7% 1%
(12)% 9%
Emerging 7% 3%
7% (4)% 11% Mexico (6)% 2% 9%
—% 5% Poland 8% —% (4)%
—% 4% Russia 57% —% (14)% (55)%
(12)% Brazil 20% 2% 20% (11)%
30% Rest of Emerging 7% 4% 9% 1%
20%
Travel Retail
24% —% (2)% —% 22%
Other
non-branded and bulk 19% —% (1)% —%
18%
Total 6% 1% 2% (1)%
9%
Other Geographic
Aggregations
Developed - including United States 4% 1%
2% —% 7%
See "Note 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. Other companies may not define or
calculate these non-GAAP measures in the same way. Reconciliations
of these Non-GAAP measures to the most closely comparable GAAP
measures are presented on Schedules A, B, and C of 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), (g)
underlying operating expenses, and (h) underlying operating income.
To calculate these measures, we adjust, as applicable, for (a) new
accounting standard, (b) foreign exchange, and (c) estimated net
changes in distributor inventories. We explain these adjustments
below.
- “New accounting standard.” Under ASC
606 (Revenue from Contracts with Customers), we recognize the cost
of certain customer incentives earlier than we did before adopting
ASC 606. Although we do not expect this change in timing to have a
significant impact on a full-year basis, we do anticipate some
change in the pattern of recognition among fiscal quarters.
Additionally, some payments to customers that we classified as
expenses before adopting the new standard are classified as
reductions of net sales under our new policy. This adjustment
allows us to look at underlying change on a comparable basis.
- “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 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 from our distributors to estimate the effect of
distributor inventory changes on our income statement line items.
We believe that this adjustment reduces the effect of varying
levels of distributor inventories on changes in our measures and
allows us to understand better our underlying results and
trends.
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 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.
Note 3 - Definitions
From time to time, 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 (IMF) and we aggregate
brands by spirits category. Below, we define aggregations used in
this press release.
Geographic Aggregations.
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:
- “Developed International” markets are
“advanced economies” as defined by the IMF excluding the United
States. Our largest developed international markets are the United
Kingdom, Australia, and Germany. This aggregation represents our
sales of branded products to these markets.
- “Emerging” markets are “emerging and
developing economies” as defined by the IMF. Our largest emerging
markets are Mexico and Poland. This aggregation represents our
sales of branded products to these markets.
- “Travel Retail” represents our sales of
branded products to global duty-free customers, travel retail
customers, and the U.S. military regardless of customer
location.
- “Non-branded and bulk” includes our
sales of used barrels, bulk whiskey and wine, and contract bottling
regardless of customer location.
Brand Aggregations.
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:
- “Whiskey” products include all whiskey
spirits and whiskey-based flavored liqueurs, ready-to-drink, and
ready-to-serve products. The brands included in this category are
the Jack Daniel's family of brands, Woodford Reserve, Canadian
Mist, GlenDronach, BenRiach, Glenglassaugh, Old Forester, Early
Times, Slane Irish Whiskey, and Coopers' Craft.
- “American whiskey” products include the
Jack Daniel’s family of brands, premium bourbons, and Early Times.
- “Jack Daniel’s family of brands”
includes Jack Daniel’s Tennessee Whiskey (JDTW), Jack Daniel’s RTD
and RTP products (JD RTDs/RTP), Jack Daniel’s Tennessee Honey
(JDTH), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF), Jack
Daniel’s Single Barrel Collection, Jack Daniel’s Tennessee Rye
Whiskey (JDTR), Jack Daniel’s Sinatra Select, Jack Daniel’s No. 27
Gold Tennessee Whiskey, and Jack Daniel’s Bottled-in-Bond.
- “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.
- “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
Woodford Reserve, Old Forester, and Coopers’ Craft.
- “Tequila” products include el Jimador,
Herradura, New Mix, Pepe Lopez, and Antiguo.
- “Vodka” products include
Finlandia.
- “Wine” products include the Korbel
Champagne and Sonoma-Cutrer wines.
- “Non-branded and bulk” includes our
sales of used barrels, bulk whiskey and wine, and contract bottling
regardless of customer location.
Other Metrics.
- “Depletions.” We generally record
revenues when we ship our products to our customers. Depending on
our route-to-consumer (RTC), we ship products to either (a) retail
or wholesale customers in owned distribution markets or (b) our
distributor customers in other markets. “Depletions” is a term
commonly used in the beverage alcohol industry to describe volume.
Depending on the context, “depletions” means either (a) our
shipments directly to retail or wholesale customers for owned
distribution markets or (b) shipments from our distributor
customers to retailers and wholesalers in other markets. We believe
that depletions measure volume in a way that more closely reflects
consumer demand than our shipments to distributor customers do. In
this document, unless otherwise specified, we refer to “depletions”
when discussing volume.
- “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 a 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180829005364/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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