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Press Release

Brown-Forman First Quarter Earnings Per Share Down 5%; Excluding Non-Cash Agave Charge, Earnings Per Share Grows 12%

Company Release - 8/28/2008 7:43 AM ET


Brown-Forman Corporation (NYSE:BFB) (NYSE:BFA) reported earnings per share decreased 5% to $0.73 and operating income decreased 10% to $141 million for the company's first quarter of fiscal 2009. This decline was due to a $22 million pre-tax ($16 million after-tax) non-cash charge related to an abnormal number of agave(1) plants identified during the quarter as dead or dying. Excluding this $0.13 per share non-cash charge, earnings per share rose 12% to $0.86 and operating income grew 5% to $163 million as earnings per share benefited from reduced net interest expense, a lower effective tax rate, and a lower number of shares outstanding following the fiscal 2008 share repurchase.

Reported net sales for the first quarter ended July 31, 2008 were $790 million, an increase of 7% from the prior-year period. Adjusting for the items listed on Schedule A of this press release, underlying(2) net sales grew 4%, and underlying operating income grew 3% versus the same period last fiscal year.

    --  Jack Daniel's Tennessee Whiskey first quarter reported net
        sales increased in the mid-single digits, or in the low single
        digits on a constant currency(3) basis, reflecting the benefit
        of price increases. Global depletions(4) declined 1% for the
        period as gains in Eastern Europe and flat U.S. volumes were
        offset by declines in markets with softening economies,
        particularly Germany, the U.K., and South Africa.

    --  Gentleman Jack net sales increased by double digits on both a
        reported and a constant currency basis for the period. Jack
        Daniel's Single Barrel delivered solid net sales growth. While
        the Jack Daniel's & Cola brand experienced significant volume
        declines due to a substantial increase in ready-to-drink
        excise taxes in Australia, global reported net sales grew in
        the mid-single digits, but declined in the high single digits
        on a constant currency basis.

    --  Finlandia net sales increased by double digits on both a
        reported and a constant currency basis in the period,
        reflecting higher volumes and pricing gains. Global depletions
        grew in the high single digits, led by continued double-digit
        growth in Eastern Europe.

    --  Southern Comfort net sales, both reported and in constant
        currency, declined in the mid-single digits during the
        quarter. Volume declines, due in part to softness of the
        on-premise channel in the brand's major markets, were offset
        partially by price increases.

    --  Reported and constant currency net sales for Sonoma-Cutrer,
        Bonterra, Chambord, Tuaca, and Woodford Reserve grew at
        double-digit rates for the quarter. The Casa Herradura
        portfolio's net sales grew by double digits on a reported
        basis and in the mid-single digits on a constant currency

Reported gross profit declined 3%, while underlying gross profit gained 1% after adjusting for the non-cash charge related to agave inventory, the benefit of a weaker U.S. dollar, discontinued agency relationships, and estimated changes in global trade inventories. Underlying gross profit growth lagged underlying net sales trends, as grain and energy cost pressures outpaced the rate of price increases.

Reported advertising investments increased 3% over the prior year first quarter. Adjusting for the weaker U.S. dollar and the absence of spending behind exited agency brands, underlying advertising investments were flat for the quarter. This reflects a reallocation of spending to those brands, markets, and channels where we believe the consumer and trade are more responsive to the investments, as well as some shifting of seasonal investments. Selling, general, and administrative (SG&A) expenses increased 1% over the first quarter last year. Adjusting for the weaker U.S. dollar and transition costs related to the fiscal 2007 Casa Herradura acquisition, SG&A decreased 1%, demonstrating the continuation of tight management of expenses and the leveraging of investments made in prior years.

Full-Year Outlook

Due to the non-cash agave charge in the quarter, the company is reducing its fiscal 2009 full year earnings per share guidance to a range of $3.60 to $3.85, representing growth of 1% to 7% over prior-year earnings. Excluding the charge, fiscal 2009 guidance remains unchanged. The guidance incorporates expectations of improving volumetric global trends for Jack Daniel's, benefits of price increases, continued cost pressures, continued tight control of discretionary operating expenses, lower net interest expense, and additional benefits from the fiscal 2008 share repurchase.

Commenting on the quarter, Paul Varga, chief executive officer said, "The loss of agave plants has reduced our inventory, but we do not believe this will constrain our ability to build our tequila brands to their full potential. While these are certainly challenging economic times, we remain confident about the long-term growth opportunity for our excellent portfolio of premium and super-premium brands."

Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EDT) this morning. All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call. International callers should dial 706-679-3410 and ask for the Brown-Forman call. No password is required. The company suggests that participants dial in approximately ten minutes in advance of the 10:00 a.m. start of the conference call.

A live audio broadcast of the conference call will also be available via Brown-Forman's Internet Web site,, through a link to "Investors Relations." For those unable to participate in the live call, a replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291 (international). The identification code is 60515742. A digital audio recording of the conference call will also be available on the Web site approximately one hour after the conclusion of the conference call. The replay will be available for at least 30 days following the conference call.

Brown-Forman Corporation is a producer and marketer of fine quality beverage alcohol brands, including Jack Daniel's, Southern Comfort, Finlandia Vodka, Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer and Bolla Wines, and Korbel California Champagnes.

Important Note on Forward-Looking Statements:

This release contains statements, estimates, or projections that constitute "forward-looking statements" as defined under U.S. federal securities laws. Generally, the words "expect," "believe," "intend," "estimate," "will," "anticipate," and "project," and similar expressions identify a forward-looking statement, which speaks only as of the date the statement is made. 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. We believe that the expectations and assumptions with respect to our forward-looking statements are reasonable. But by their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that in some cases are out of our control. These factors could cause our actual results to differ materially from Brown-Forman's historical experience or our present expectations or projections. Here is a non-exclusive list of such risks and uncertainties:

    --  continuation of the deterioration in general economic
        conditions (particularly in the United States where we earn
        about half of our profits, and other markets where we do
        significant business), including higher energy prices,
        declining home prices, deterioration of the sub-prime lending
        market, interest rate fluctuations, inflation, decreased
        discretionary income or other factors;

    --  pricing, marketing and other competitive activity focused
        against our major brands;

    --  lower consumer confidence or purchasing related to economic
        conditions, major natural disasters, terrorist attacks or
        widespread outbreak of infectious diseases;

    --  tax increases and/or tariff barriers or other restrictions
        affecting beverage alcohol, whether at the federal or state
        level in the U.S. or in other major markets around the world,
        and the unpredictability or suddenness with which they can

    --  limitations and restrictions on distribution of products and
        alcohol marketing, including advertising and promotion, as a
        result of stricter governmental policies adopted either in the
        United States or in our other major markets;

    --  fluctuations in the U.S. Dollar against foreign currencies,
        especially the British Pound, Euro, Australian Dollar, Polish
        Zloty and the South African Rand;

    --  reduced bar, restaurant, hotel and other on-premise business,
        including consumer shifts to discount stores and other price
        sensitive purchases and venues;

    --  longer-term, a change in consumer preferences, societal
        attitudes or cultural trends that results in the reduced
        consumption of our premium spirits brands or our
        ready-to-drink products;

    --  changes in distribution arrangements in major markets that
        limit our ability to market or sell our products;

    --  adverse impacts relating to our acquisition strategies or our
        integration of acquired businesses and conforming them to the
        company's trade practice standards, financial controls
        environment and U.S. public company requirements;

    --  price increases in energy or raw materials, including grapes,
        grain, agave, wood, glass, and plastic;

    --  changes in climate conditions, agricultural uncertainties or
        other supply limitations that adversely affect the price,
        availability, quality, or health of grapes, agave, grain,
        glass, closures or wood;

    --  termination of our rights to distribute and market agency
        brands in our portfolio;

    --  press articles or other public media related to our company,
        brands, personnel, operations, business performance or

    --  counterfeit production, tampering, or contamination of our
        products and any resulting negative effect on our sales,
        intellectual property rights, or brand equity;

    --  adverse developments stemming from state or federal
        investigations of beverage alcohol industry marketing or trade
        practices of suppliers, distributors or retailers; and

    --  impairment in the recorded value of inventory, fixed assets,
        goodwill or other acquired intangibles.

(1) Agave is the primary raw material used in the company's tequila production.

(2) Underlying growth represents the percentage growth in reported financial results in accordance with GAAP, adjusted for certain items. A reconciliation from reported to underlying net sales, gross profit, advertising expense, SG&A, and operating income (non-GAAP measures) growth for the quarter, and the reasons why management believes these adjustments to be useful to the reader, are included in Schedule A and the notes to this press release.

(3) Constant currency represents reported net sales with the cost/benefit of currency movements removed. Management uses the measure to understand the growth of the business on a constant dollar basis, as fluctuations in exchange rates can distort the underlying growth of the business both positively and negatively.

(4) Depletions are shipments from wholesaler distributors to retail customers, and are commonly regarded in the industry as an approximate measure of consumer demand.

                       Brown-Forman Corporation
           Unaudited Consolidated Statements of Operations
           (Dollars in millions, except per share amounts)

                                             Three Months Ended
                                                  July 31,
                                                2007     2008   Change
                                             ---------- ------- ------
Continuing Operations

   Net sales                                    $739.1  $790.0     7%
   Excise taxes                                  152.0   176.2    16%
   Cost of sales                                 196.1   233.0    19%
                                             ---------- -------
   Gross profit                                  391.0   380.8    (3%)
   Advertising expenses                           94.0    97.0     3%
   Selling, general, and administrative
    expenses                                     143.1   144.3     1%
   Amortization expense                            1.3     1.3
   Other (income), net                            (2.8)   (2.4)
                                             ---------- -------
      Operating income                           155.4   140.6   (10%)
   Interest expense, net                          11.1     7.5
                                             ---------- -------
      Income before income taxes                 144.3   133.1    (8%)
   Income taxes                                   48.9    44.9
                                             ---------- -------
      Net income                                $ 95.4  $ 88.2    (8%)
                                             ========== =======

   Earnings per share:
      Basic                                       0.77    0.73    (5%)
      Diluted                                     0.77    0.73    (5%)

Discontinued Operations

   Net loss                                     $ (0.1) $    -

Total Company

   Net income                                   $ 95.3  $ 88.2    (7%)

   Earnings per share:
      Basic                                       0.77    0.73    (5%)
      Diluted                                     0.77    0.73    (5%)
                       Brown-Forman Corporation
           Unaudited Condensed Consolidated Balance Sheets
                        (Dollars in millions)

                                                    April 30, July 31,
                                                      2008      2008
                                                    --------- --------
Cash and cash equivalents                              $118.9   $160.2
Accounts receivable, net                                453.2    428.8
Inventories                                             684.5    709.0
Other current assets                                    199.4    196.4
                                                    --------- --------
    Total current assets                              1,456.0  1,494.4

Property, plant, and equipment, net                     501.4    505.7
Goodwill                                                688.0    688.1
Other intangible assets                                 698.8    697.6
Prepaid pension cost                                     22.8     25.2
Other assets                                             38.0     37.9
                                                    --------- --------
    Total assets                                     $3,405.0 $3,448.9
                                                    ========= ========

Accounts payable and accrued expenses                  $379.7   $343.0
Accrued income taxes                                     14.7     61.1
Dividends payable                                           -     41.0
Short-term borrowings                                   585.3    576.4
Current portion of long-term debt                         4.3      4.3
                                                    --------- --------
    Total current liabilities                           984.0  1,025.8

Long-term debt                                          417.0    416.7
Deferred income taxes                                    88.8     81.9
Accrued postretirement benefits                         121.2    115.5
Other liabilities                                        68.8     58.0
                                                    --------- --------
    Total liabilities                                 1,679.8  1,697.9

Stockholders' equity                                  1,725.2  1,751.0
                                                    --------- --------

Total liabilities and stockholders' equity           $3,405.0 $3,448.9
                                                    ========= ========
                       Brown-Forman Corporation
      Unaudited Condensed Consolidated Statements of Cash Flows
                        (Dollars in millions)

                                                    Three Months Ended
                                                         July 31,
                                                       2007     2008
                                                    ---------- -------

Cash provided by operating activities                 $ 128.4  $104.7

Cash flows from investing activities:
   Acquisition of brand names and trademarks            (12.0)      -
   Sale of short-term investments                        85.6       -
   Additions to property, plant, and equipment          (11.4)  (13.2)
   Other                                                 (1.8)   (1.0)
                                                    ---------- -------
       Cash provided by (used for) investing
        activities                                       60.4   (14.2)

Cash flows from financing activities:
   Net repayment of debt                                (58.9)  (10.3)
   Acquisition of treasury stock                         (7.0)   (0.3)
   Special distribution to stockholders                (203.7)      -
   Dividends paid                                       (37.3)  (41.1)
   Other                                                 14.6    (0.7)
                                                    ---------- -------
       Cash used for financing activities              (292.3)  (52.4)

Effect of exchange rate changes on cash and cash
 equivalents                                              0.5     3.2
                                                    ---------- -------

Net (decrease) increase in cash and cash
 equivalents                                           (103.0)   41.3

Cash and cash equivalents, beginning of period          282.8   118.9
                                                    ---------- -------

Cash and cash equivalents, end of period              $ 179.8  $160.2
                                                    ========== =======
                       Brown-Forman Corporation
                 Supplemental Information (Unaudited)
           (Dollars in millions, except per share amounts)

                                                    Three Months Ended
                                                         July 31,
                                                      2007      2008
                                                    --------- --------

Net sales                                            $  739.1 $  790.0
Excise taxes                                         $  152.0 $  176.2

Net sales (stripped of excise taxes)                 $  587.1 $  613.8
Gross profit (as reported)                           $  391.0 $  380.8

Gross margin (as reported)                              52.9%    48.2%
Gross margin (stripped net sales basis)(a)              66.6%    62.0%

Effective tax rate                                      33.9%    33.8%

Cash dividends paid per common share                 $ 0.3025 $ 0.3400

Shares (in thousands) used in the calculation of
 earnings per share
     Basic                                            123,217  120,483
     Diluted                                          124,434  121,549

(a) Management believes that excluding excise taxes from the gross
 margin calculation provides a more meaningful comparison because of
 periodic changes in the company's distribution structures or excise
 tax rates that can result in the company collecting and remitting
 varying levels of excise taxes (which are reported as both a
 component of net sales and as a cost of sales) across periods in
 which different distribution structures or excise tax rates were in
                              Schedule A
                       Brown-Forman Corporation
                      Continuing Operations Only
                 Supplemental Information (Unaudited)

                                                    Three Months Ended
                                                    July 31, 2008

Reported net sales growth                                   7%
Impact of foreign currencies                               (5%)
Net sales from agency brands                                1%
Estimated net change in trade inventories                   1%

Underlying net sales growth                                 4%

Reported gross profit growth                               (3%)
Impact of foreign currencies                               (4%)
Gross profit from agency brands                             1%
Estimated net change in trade inventories                   1%
Non-cash agave charge                                       6%

Underlying gross profit growth                              1%

Reported advertising growth                                 3%
Impact of foreign currencies                               (5%)
Advertising from agency brands                              2%

Underlying advertising growth                               0%

Reported SG&A growth                                        1%
Impact of foreign currencies                               (3%)
SG&A from acquisitions                                      1%

Underlying SG&A growth                                     (1%)

Reported operating income growth                          (10%)
Impact of foreign currencies                               (4%)
Transition expenses from acquisitions                      (2%)
Operating income from agency brands                         1%
Estimated net change in trade inventories                   3%
Non-cash agave charge                                      15%

Underlying operating income growth                          3%


Impact of foreign currencies - Refers to net gains and losses incurred by the company relating to sales and purchases in currencies other than the U.S. Dollar. We use the measure to understand the growth of the business on a constant dollar basis as fluctuations in exchange rates can distort the underlying growth of our business (both positively and negatively). To neutralize the effect of foreign exchange fluctuations, we have historically translated current year results at prior year rates. While we recognize that foreign exchange volatility is a reality for a global company, we routinely review our company performance on a constant dollar basis. We believe this allows both management and our investors to understand better our company's growth trends.

Agency brands - Refers to the impact of certain agency brands, primarily Appleton, Amarula, Durbanville Hills, and Red Bull, which exited Brown-Forman's portfolio during fiscal 2008.

Estimated net change in trade inventories - Refers to the estimated financial impact of changes in wholesale trade inventories for the company's brands. We compute this effect using our estimated depletion trends and separately identify trade inventory changes in the variance analysis for our key measures. Based on the estimated depletions and the fluctuations in trade inventory levels, we then adjust the percentage variances from prior to current periods for our key measures. We believe it is important to make this adjustment in order for management and investors to understand the results of our business without distortions that can arise from varying levels of wholesale inventories.

Non-cash agave charge - Refers to an abnormal number of agave plants identified during the quarter as dead or dying. Although agricultural uncertainties are inherent in our tequila or any other business including the growth and harvesting of raw materials, we believe that the magnitude of this item in the quarter distorts the underlying trends of our business. Therefore, we believe that excluding this non-cash charge allows for a better understanding of operating income growth trends.

Acquisitions - Refers to transition related expenses from the acquisition of the Casa Herradura brands in January 2007, thus making comparisons difficult to understand. We believe that excluding transition expenses related to the acquisition provides helpful information in forecasting and planning the growth expectations of the company.

The company cautions that non-GAAP measures may be considered in addition to, but not as a substitute for, the company's reported GAAP results.

Source: Brown-Forman Corporation

Contact: Brown-Forman Corporation Phil Lynch, 502-774-7928 Vice President Director Corporate Communications and Public Relations or Ben Marmor, 502-774-6691 Assistant Vice President Director Investor Relations