Brown-Forman Reports Solid Fiscal 2019 Results; Provides Sustained Sales Growth Outlook for Fiscal 2020

LOUISVILLE, Ky.–(BUSINESS WIRE)–Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported results for the
fourth quarter and fiscal year ended April 30, 2019. For the fourth
quarter, the company’s reported net sales1 increased 1% to
$744 million (+5% on an underlying basis2) compared to the
same prior-year period. In the quarter, reported operating income grew
55% to $228 million (+9% on an underlying basis) and diluted earnings
per share grew 47% to $0.33.

For the full year, the company’s reported net sales increased 2% to
$3,324 million (+5% on an underlying basis). Reported net sales growth
was negatively impacted by two percentage points from foreign exchange.
The company estimates that net sales growth in the fourth quarter and
full year were also negatively impacted by one percentage point due to
tariff-related lower net prices to distributors in certain markets. Full
year reported operating income grew 9% to $1,144 million (+5% on an
underlying basis) and diluted earnings per share of $1.73 increased 17%.

Lawson Whiting, the company’s President and Chief Executive Officer,
said, “We delivered solid underlying net sales growth of 6% after
considering the one point drag due to tariff-related price reductions.
This growth rate is in-line with fiscal 2018, as well as our
expectations for fiscal 2020, demonstrating the consistency of our
revenue delivery. We believe that delivering sustained, compounding
growth is the best way to create value for shareholders over the long
term.”

Whiting added, “Although tariffs and higher input costs will negatively
impact our gross margins again this year, we believe we are on track to
return to high single digit operating income growth as we move beyond
fiscal 2020. Our growth prospects remain bright as we develop our
premium spirits portfolio around the world, led by the Jack Daniel’s
family of brands and Woodford Reserve.”

Fiscal 2019 Highlights

  • Underlying net sales grew 5% (+2% reported), with broad-based
    geographic3 and portfolio contribution:

    • Underlying net sales in the emerging markets grew 11% (+4%
      reported), the United States 3% (+2% reported) and developed
      international markets 4% (+1% reported)
    • The Jack Daniel’s family of brands grew underlying net sales 4%
      (+1% reported), including 2% underlying net sales growth (flat
      reported) for Jack Daniel’s Tennessee Whiskey
    • Premium bourbons grew underlying net sales 23% (+19% reported),
      including 22% underlying net sales growth from Woodford Reserve
      (+17% reported)
    • Herradura and el Jimador both grew underlying net sales 13% (+8%
      reported)
  • Underlying operating income grew 5% (+9% reported) and diluted
    earnings per share grew 17% to $1.73
  • The company paid $310 million of dividends and repurchased $200
    million of common stock in fiscal 2019

Fiscal 2019 Results By Market – Balanced
Geographic Growth, Led by Emerging Markets

The company delivered solid, broad-based growth around the world, with
the strongest results coming from the emerging markets, as well as
continued mid-single digit growth in the international developed world.
Each of the company’s top ten largest markets registered underlying net
sales growth in fiscal 2019.

     
Brown-Forman Corporation – Top Ten Markets by Net Sales
Supplemental Information (Unaudited)
Twelve Months Ended April 30, 2019
 
% of % Growth in % Growth in
Reported Net Reported Net Underlying Net
Country   Sales   Sales   Sales
United States   47%   2%   3%
United Kingdom   6%   (4)%   3%
Mexico   5%   3%   11%
Australia   5%   —%   6%
Germany   5%   8%   10%
France   4%   (1)%   2%
Poland   3%   9%   10%
Russia   2%   16%   17%
Japan   1%   15%   2%
Brazil   1%   (13)%   25%
Top Ten Total   79%   2%   5%
Other Markets   21%   3%   5%
Total Worldwide   100%   2%   5%

Note: See Schedule C for reconciliation of non-GAAP underlying to
reported net sales growth, which includes the impact from the new
accounting standard, changes in foreign exchange, and estimated net
change in distributor inventories. Totals may differ due to rounding.

Underlying net sales in the company’s emerging markets grew 11% (+4%
reported) on top of last year’s underlying net sales growth of 13% (+18%
reported). Mexico was the largest growth driver outside of the United
States, with underlying net sales up 11% (+3% reported), fueled by
strong gains across the portfolio of tequila brands, including
Herradura, New Mix and el Jimador, as well as continued growth from the
Jack Daniel’s family of brands. Brazil grew underlying net sales 25%
(-13% reported) due to strong demand for Jack Daniel’s Tennessee
Whiskey. Poland delivered underlying net sales growth of 10% (+9%
reported) as double-digit gains for Jack Daniel’s Tennessee Whiskey more
than offset soft results for Finlandia vodka. Russia experienced a 17%
increase in underlying net sales (+16% reported) partially driven by
soft comparisons with the prior year’s route-to-consumer change. China’s
reported and underlying net sales grew strong double-digits driven by
the strength in e-commerce, where sales doubled and now account for over
30% of Jack Daniel’s Tennessee Whiskey’s sales in China. Several other
emerging markets, including sub-Saharan Africa and the Ukraine delivered
double-digit underlying net sales growth in fiscal 2019, while India and
Southeast Asia grew high single digits.

Underlying net sales in the United States grew 3% (+2% reported).
Although not yet reflected in the company’s rate of sales growth, recent
increases in media spend and promotional activity are beginning to
accelerate the takeaway growth rates in the United States, which the
company believes are a leading indicator of future performance. Six and
twelve month syndicated data for Brown-Forman’s value-based consumer
takeaway3 trends are in the mid-single digit range, with
three month trends now towards the high end of that range.

Underlying net sales growth for the Jack Daniel’s family of brands grew
low-single digits in the United States. The company’s premium bourbons,
Woodford Reserve and Old Forester, remained standout performers
delivering aggregate double-digit underlying net sales growth. Herradura
and el Jimador tequilas grew total underlying net sales double-digits
due to continued investments in the brands, distribution gains, and
favorable category momentum.

Underlying net sales in the company’s developed international markets
grew 4% (+1% reported). This growth was suppressed by over one point due
to tariffs. Germany and Australia delivered underlying net sales growth
of 10% (+8% reported) and 6% (flat reported), respectively. Spain’s
reported and underlying net sales grew strong double-digits as results
continued to benefit from the fiscal 2018 transition to owned
distribution. The United Kingdom, France and Japan were up modestly,
delivering low single digit underlying net sales growth.

Travel Retail delivered solid results for fiscal 2019, with underlying
net sales up 6% (+1% reported) on top of last year’s underlying net
sales growth of 8% (+13% reported). Growth was led by increased demand
for Woodford Reserve, expansion of GlenDronach and BenRiach, as well as
new product launches, including Jack Daniel’s Bottled-in-Bond and Jack
Daniel’s Tennessee Rye.

Fiscal 2019 Results By Brand – Strong,
Sustained Growth in American Whiskey and Tequila

The company’s underlying net sales gains were driven by growing global
demand for American whiskey. The Jack Daniel’s family of brands grew
underlying net sales 4% (+1% reported) globally, and was negatively
impacted by approximately one percentage point due to tariffs. Jack
Daniel’s Tennessee Whiskey experienced 2% underlying net sales growth
(flat reported), driven by volume gains in markets outside of the United
States. Gentleman Jack grew underlying net sales 8% (+6% reported)
including strong growth in the United States and double-digit gains in
the United Kingdom and Poland. Jack Daniel’s Tennessee Honey’s
underlying net sales grew 7% (+5% reported) and Jack Daniel’s Tennessee
Fire increased underlying net sales 4% (+3% reported), fueled by demand
for both brands in markets such as the United Kingdom, Brazil and
Czechia. Jack Daniel’s RTD/RTP business delivered broad-based underlying
net sales growth of 8% (+4% reported).

Brown-Forman’s portfolio of premium bourbon brands, including Woodford
Reserve and Old Forester delivered 23% underlying net sales growth (+19%
reported), as category trends remain favorable and the company’s brands
continue to gain share. Woodford Reserve, the leader in the
super-premium bourbon category, grew underlying net sales 22% (+17%
reported) and contributed a point to the company’s underlying net sales
growth. Old Forester grew net sales double-digits due to volumetric
gains and favorable price/mix. The company also opened the new
Louisville distillery and homeplace for the brand on Whiskey Row in
fiscal 2019.

el Jimador grew underlying net sales by 13% (+8% reported), propelled by
volume growth and higher prices in the United States as well as strong
takeaway trends in Mexico despite sizable price increases. Herradura
grew underlying net sales by 13% (+8% reported), with double-digit gains
in the United States and Mexico fueled in part by continued consumer
interest in Herradura Ultra, the brand’s cristalino product. New Mix’s
underlying net sales grew high-single digits, helped by innovation
including the launch of New Mix Mineral.

Finlandia vodka’s underlying net sales declined 1% (-4% reported). The
decrease in underlying net sales was driven by a competitive retail
environment for vodka in Poland, offset somewhat by growth in Russia and
the Ukraine.

Other P&L Items

Company-wide price/mix contributed two percentage points to the 5%
underlying net sales growth (+2% reported) during the fiscal year.
Price/mix was negatively impacted by one point due to tariff-related
lower net prices. Underlying gross profit grew 2% (-2% reported), and
was negatively impacted by tariff costs and higher input costs.
Full-year reported gross margins declined 260bps to 65.2%, with
approximately 160bps of the decline due to tariffs, and the majority of
the remainder from higher input costs, including agave and wood.

Underlying advertising spend increased 3% (-2% reported) for the fiscal
year as the company made investments across the brand portfolio,
including Jack Daniel’s Tennessee Whiskey, the Woodford Reserve Kentucky
Derby sponsorship, and this past summer’s opening of the Old Forester
distillery and home-place. Underlying SG&A declined 5% (-16% reported),
driven by a reduction in compensation-related expenses as well as the
company’s continued focus on cost discipline and efficiency gains. The
company delivered underlying operating income growth of 5% (+9%
reported). Reported operating income growth benefited by seven
percentage points due to the absence of the fiscal 2018 payment to
establish a charitable foundation, partially offset by foreign exchange
which negatively impacted results by three percentage points.

Financial Stewardship

On May 23, 2019, Brown-Forman declared a regular quarterly cash dividend
of $0.166 per share on the Class A and Class B common stock, equating to
an annualized cash dividend of $0.664 per share. The quarterly cash
dividend is payable on July 1, 2019 to stockholders of record on June 6,
2019. Brown-Forman has paid regular quarterly cash dividends for 73
consecutive years and has increased the dividend for 35 consecutive
years.

During fiscal 2019, the company repurchased a total of 4.2 million Class
A and Class B shares for $200 million, at an average price of $47 per
share. The company’s total debt declined from $2,556 million as of April
30, 2018 to $2,440 million as of April 30, 2019.

Fiscal Year 2020 Outlook

The competitive landscape in the developed world remains intense, and
retaliatory tariffs on American whiskey have created additional
uncertainty around the company’s near-term outlook. The company is
assuming tariffs remain in place for all of fiscal 2020, and currently
anticipates:

1. Underlying net sales growth of 5% to 7%.

2. Underlying operating income growth of 3% to 5%.

3. Diluted earnings per share of $1.75 to $1.85.

Conference Call Details

Brown-Forman will host a conference call to discuss these 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.” A digital audio
recording of the conference call and the presentation slides will also
be posted on the website and 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 RTDs,
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 4,900 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 additional retaliatory tariffs
    on American spirits and the effectiveness of our actions to mitigate
    the negative impact on our sales, on our margins, 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 U.S. tax reform legislation, including as a result of
    future clarifications 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, 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 April 30,
2018 and 2019
(Dollars in millions, except per share amounts)

 
        2018     2019     Change
 
Net sales $ 733 $ 744 1%
Cost of sales 221   262   19%
Gross profit 512 482 (6%)
Advertising expenses 97 93 (5%)
Selling, general, and administrative expenses 269 163 (39%)
Other expense (income), net (1 ) (2 )
Operating income 147 228 55%
Non-operating postretirement expense 2 3
Interest expense, net 17   19  
Income before income taxes 128 206 61%
Income taxes 18   47  
Net income $ 110   $ 159   45%
 
Earnings per share:
Basic $ 0.23 $ 0.33 46%
Diluted $ 0.23 $ 0.33 47%
 
Gross margin 70.0 % 64.8 %
Operating margin 20.1 % 30.7 %
 
Effective tax rate 13.9 % 22.5 %
 
Cash dividends paid per common share $ 1.158 $ 0.166
 

Shares (in thousands) used in the calculation of earnings per share

Basic 480,718 477,034
Diluted 486,482 480,047
 
 
 
 

Brown-Forman Corporation
Unaudited Consolidated
Statements of Operations
For the Twelve Months Ended
April 30, 2018 and 2019
(Dollars in millions, except per
share amounts)

 
        2018     2019     Change
 
Net sales $ 3,248 $ 3,324 2%
Cost of sales 1,046   1,158   11%
Gross profit 2,202 2,166 (2%)
Advertising expenses 405 396 (2%)
Selling, general, and administrative expenses 765 641 (16%)
Other expense (income), net (16 ) (15 )
Operating income 1,048 1,144 9%
Non-operating postretirement expense 9 22
Interest expense, net 62   80  
Income before income taxes 977 1,042 7%
Income taxes 260   207  
Net income $ 717   $ 835   17%
 
Earnings per share:
Basic $ 1.49 $ 1.74 17%
Diluted $ 1.48 $ 1.73 17%
 
Gross margin 67.8 % 65.2 %
Operating margin 32.3 % 34.4 %
 
Effective tax rate 26.6 % 19.8 %
 
Cash dividends paid per common share $ 1.608 $ 0.648
 

Shares (in thousands) used in the calculation of earnings per share

Basic 480,319 478,956
Diluted 484,248 482,067
 
 
 
 

Brown-Forman Corporation
Unaudited Condensed
Consolidated Balance Sheets
(Dollars in millions)

 
       

April 30,

2018

   

April 30,

2019

Assets:
Cash and cash equivalents $ 239 $ 307
Accounts receivable, net 639 609
Inventories 1,379 1,520
Other current assets 298 283
Total current assets 2,555 2,719
 
Property, plant, and equipment, net 780 816
Goodwill 763 753
Other intangible assets 670 645
Other assets 208 206
Total assets $ 4,976 $ 5,139
 
Liabilities:
Accounts payable and accrued expenses $ 581 $ 544
Accrued income taxes 25 9
Short-term borrowings 215 150
Total current liabilities 821 703
 
Long-term debt 2,341 2,290
Deferred income taxes 85 145
Accrued postretirement benefits 191 197
Other liabilities 222 157
Total liabilities 3,660 3,492
 
Stockholders’ equity 1,316 1,647
 
Total liabilities and stockholders’ equity $ 4,976 $ 5,139
 
 
 
 

Brown-Forman Corporation
Unaudited Condensed
Consolidated Statements of Cash Flows
For the Twelve Months
Ended April 30, 2018 and 2019
(Dollars in millions)

 
        2018     2019
 
Cash provided by operating activities $ 653 $ 800
 
Cash flows from investing activities:
Additions to property, plant, and equipment (127 ) (119 )
Other (22 )  
Cash used for investing activities (149 ) (119 )
 
Cash flows from financing activities:
Net change in short-term borrowings (3 ) (71 )
Repayment of long-term debt (250 )
Proceeds from long-term debt 595
Debt issuance costs (6 )
Acquisition of treasury stock (1 ) (207 )
Dividends paid (773 ) (310 )
Other (28 ) (11 )
Cash used for financing activities (466 ) (599 )
 
Effect of exchange rate changes on cash and cash equivalents 19   (14 )
 
Net increase (decrease) in cash and cash equivalents 57 68
 
Cash and cash equivalents, beginning of period 182   239  
 
Cash and cash equivalents, end of period $ 239   $ 307  
 
 
 
 

Schedule A

 
Brown-Forman Corporation
Supplemental Information (Unaudited)
 
        As Reported   Adjusted4

Three Months

Ended

 

Twelve Months

Ended

Fiscal Year

Ended

Fiscal Year

Ended

April 30, 2019   April 30, 2019 April 30, 2018 April 30, 2018
 
 
 
Reported change in net sales 1% 2% 8% 8%
New accounting standard 1% 1% —% —%
Foreign exchange 1% 2% (1)% (1)%
Estimated net change in distributor inventories 1% —% (1)% (1)%
 
Underlying change in net sales 5%   5% 6% 6%
 
 
Reported change in gross profit (6)% (2)% 9% 9%
New accounting standard 2% 1% —% —%
Foreign exchange 2% 2% (2)% (2)%
Estimated net change in distributor inventories 1% —% (1)% (1)%
 
Underlying change in gross profit (1)%   2% 6% 6%
 
Reported change in advertising expenses (5)% (2)% 8% 9%
New accounting standard 4% 4% —% —%
Foreign exchange 4% 2% (3)% (3)%
 
Underlying change in advertising expenses 3%   3% 6% 6%
 
Reported change in SG&A (39)% (16)% 15% 16%
New accounting standard 2% 1% —% —%
Foundation 21% 8% (11)% (11)%
Foreign exchange 3% 2% (2)% (2)%
 
Underlying change in SG&A (13)%   (5)% 3% 4%
 
Reported change in operating income 55% 9% 5% 4%
New accounting standard —% —% —% —%
Foundation (50)% (7)% 7% 7%
Foreign exchange 1% 3% (2)% (2)%
Estimated net change in distributor inventories 4% —% (2)% (2)%
 
Underlying change in operating income 9% 5% 8% 6%
         
Note: Totals may differ due to rounding
 

4 The growth rates for fiscal 2018 were retrospectively
adjusted to reflect the impact from the adoption of the ASU
2017-07 accounting standard (related to pension), which we adopted
effective May 1, 2018, and other reclassified expenses related to
certain marketing research and promotional agency costs. The
impact of these changes, which had no effect on net income, was
not material. In fiscal 2017 the net impact of these adjustments
was as follows: advertising expenses reduced $11 million, SG&A
expenses reduced $10 million, and operating income increased $21
million. In fiscal 2018 the net impact of these adjustments was as
follows: advertising expenses reduced $9 million and operating
income increased $9 million.

 

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.

Contacts

Rob Frederick
Vice President
Corporate Communications
502-774-7707

Jay Koval
Vice President
Investor Relations
502-774-6903

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