LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation (NYSE:BFB)(NYSE:BFA) reported that diluted
earnings per share from continuing operations1 increased 13%
to $0.94 and operating income increased 4% to $222 million for
its fiscal 2009 second quarter. For the first six months of the fiscal
year, diluted earnings per share increased 5% to $1.52, while operating
income decreased 2% to $362 million. Adjusting for items in Schedule A
of this press release, underlying2 operating income grew 5%
for the second quarter and 4% for the first half of fiscal 2009.
Commenting on the first half, Paul Varga, chief executive officer said,
"We are pleased with our results, particularly in the second quarter
where we saw improvement during a challenging economic environment. We
believe our first half performance is a testimony to the stability of
our company, the strength and resiliency of our brands and people, and
the quality of our cash flows and balance sheet."
Reported net sales for the six months ended October 31, 2008 were $1.7
billion, an increase of 6% when compared with the first half of last
year. Adjusting for estimated changes in global trade inventories, the
Australian ready-to-drink excise tax increase, discontinued agency
relationships, and changes in foreign exchange rates, underlying net
sales grew 5% versus the same prior year period. For the second quarter,
reported net sales grew 5% and underlying net sales grew 6%.
-- The Jack Daniel's Family of Whiskey Brands, excluding the ready-to-drink
products, increased both reported and constant currency3 net sales in
the mid-single digits for the first half of the fiscal year, primarily
reflecting shipment growth. Global depletions4 increased in the
mid-single digits for the first six months of fiscal 2009 as gains in
the U.S., Eastern Europe, Australia, and Latin America were partially
offset by declines in some Western European markets, including Germany,
the U.K., and Spain. Jack Daniel's Tennessee Whiskey reported net sales
increased at mid-single digit rates and constant currency net sales grew
at low single digit rates for the first half of fiscal 2009. Gentleman
Jack's net sales grew at a strong double-digit rate on both a reported
and a constant currency basis for the six month period.
-- Jack Daniel's & Cola reported and constant currency global net sales
grew in the mid-single digits through October. While depletions
increased slightly in the second quarter, they were down for the first
half due to a substantial increase in ready-to-drink excise taxes in
Australia that became effective in April 2008. Double-digit depletion
gains in Germany partially offset losses in Australia.
-- Finlandia net sales increased by double digits on both a reported and a
constant currency basis for the six month period, reflecting higher
shipments and pricing gains. Global depletions grew in the high single
digits, led by continued double-digit growth in Eastern Europe.
-- Southern Comfort net sales declined in the low single digits on a
reported basis and in the mid-single digits on a constant currency basis
during the first half of fiscal 2009. Depletion trends showed modest
improvement during the second quarter, particularly in the U.S., where
they increased in the low single digits.
-- Second quarter growth rates for the company's faster growing,
super-premium brands remained strong but their growth rates slowed
somewhat since the first quarter and last fiscal year. Reported and
constant currency net sales for Sonoma-Cutrer, Bonterra, Woodford
Reserve, and the Casa Herradura portfolio grew at double-digit rates for
the six month period; reported and constant currency net sales grew in
the high single digits for Chambord and in the mid-single digits for
Tuaca.
For the first six months of the year, reported gross profit declined 2%,
while underlying gross profit increased 2% after adjusting for the
non-cash agave inventory charge and foreign exchange rate movements.
Underlying gross profit growth lagged underlying net sales trends, due
in part to increased value-added packaging costs and higher grain and
fuel costs when compared to the same period last year. For the second
quarter, reported gross profit declined 1% and underlying gross profit
increased 3%.
Reported advertising investments were flat for the first half of the
year compared to the same period last year. Adjusting for spending
behind discontinued agency brands last year and foreign exchange
movements, underlying advertising investments increased 1% for the first
six months of fiscal 2009. The company continued to reallocate spending
to those brands, markets, and channels where it believes the consumer
and trade are most responsive to the investments, which included
increased spending for value-added packaging that is reflected in cost
of goods. Selling, general, and administrative (SG&A) expenses decreased
2% when compared with the first half of last year as the company
continued to benefit from cost savings initiatives. Adjusting for
transition costs related to the fiscal 2007 Casa Herradura acquisition,
SG&A decreased 1%.
Brown-Forman's balance sheet remained strong and the company continued
to operate during the six month period with an "A2" rating from Moody's
and an "A" rating from Standard & Poor's.
Share Repurchase Program
As announced yesterday, the company's Board of Directors has authorized
the repurchase of up to $250 million of its outstanding Class A and
Class B common shares over the next 12 months, subject to market
conditions. Under this plan, the company can repurchase shares from time
to time for cash in open market purchases, block transactions, and
privately negotiated transactions in accordance with applicable federal
securities laws.
Full-Year Outlook
Due to an estimated $0.12 per share net gain on the expected sale of
Bolla and Fontana Candida, the company is increasing its fiscal 2009
full year earnings per share guidance to a range of $3.00 to $3.20,
representing growth of 6% to 13% over prior-year earnings per share of
$2.84. The guidance also includes the expectation of maintaining
year-to-date trends for Jack Daniel's, Southern Comfort, and Finlandia.
A weaker than anticipated consumer and trade environment, due to the
current global economic conditions, could have a significant impact on
the company's ability to maintain these trends. This outlook also
incorporates expectations for continued tight management of
discretionary operating expenses, a lower effective tax rate in the
second half of the year as compared to the first half, and the
assumption that today's stronger dollar relative to the company's major
foreign currencies will continue for the balance of the year.
Brown-Forman will host a conference call to discuss the results at 9:30
a.m. (EST) 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 9:30 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, www.brown-forman.com,
through a link to "Investor Relations." For those unable to participate
in the live call, a replay will be available by calling 800-642-1687
(U.S.) or 706-645-9291 (international). The identification code is
73923858.
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.
In addition to the earnings release and conference call, Brown-Forman
will also hold an analyst meeting starting at 1:00 p.m. on December 5
and a live audio Web cast of the company presentations and question and
answer session with analysts will be available via www.brown-forman.com,
through a link to Investor Relations/Events and Presentations. Copies of
the slides presented at the analyst meeting will also be available via
the Web site.
Brown-Forman Corporation is a producer and marketer of fine quality
beverage alcohol brands, including Jack Daniel's, Southern Comfort,
Finlandia, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador,
Tequila Herradura, Sonoma-Cutrer, Chambord, Tuaca, Woodford Reserve, and
Bonterra.
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 U.S. or global economic downturn or ongoing turmoil
in world financial markets (and related credit and capital market
instability and illiquidity; decreased consumer and trade spending;
higher unemployment; supplier, customer and consumer credit problems,
etc.);
-- pricing, marketing and other competitive activity focused against our
major brands;
-- continued or further decline in consumer confidence or spending, whether
related to U.S. and global economic conditions, war, natural disasters,
terrorist attacks or other factors;
-- tax increases, changes in tax rules (e.g., LIFO treatment for
inventory), tariff barriers and/or other restrictions affecting beverage
alcohol, whether at the U.S. federal or state level or in other major
markets around the world, and the unpredictability or suddenness with
which they can occur;
-- 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;
-- distribution arrangement changes in major markets that limit our ability
to market or sell our products;
-- adverse impacts as a consequence of our acquisitions, acquisition
strategies, integration of acquired businesses, or 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, such as grapes, grain,
agave, wood, glass, and plastic;
-- changes in climate conditions, agricultural uncertainties, our
suppliers' financial hardships or other supply limitations that
adversely affect supply, price, availability, quality, or health of
grapes, agave, grain, glass, closures or wood;
-- negative public media related to our company, brands, personnel,
operations, business performance or prospects;
-- 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 All per share amounts have been adjusted to reflect the
October 27, 2008 Class B common stock distribution. For every four
shares of Class A or Class B common stock, one Class B share was issued.
All financial and statistical information contained in this press
release relates to the continuing operations of the company unless
otherwise stated.
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 first six months of the fiscal
year, 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
October 31,
2007 2008 Change
Continuing Operations
Net sales $ 893.4 $ 934.7 5 %
Excise taxes 177.8 196.8 11 %
Cost of sales 245.6 271.2 10 %
Gross profit 470.0 466.7 (1 %)
Advertising expenses 112.6 110.0 (2 %)
Selling, general, and administrative expenses 146.7 139.9 (5 %)
Amortization expense 1.3 1.3
Other (income), net (3.2 ) (6.2 )
Operating income 212.6 221.7 4 %
Interest expense, net 12.2 7.9
Income before income taxes 200.4 213.8 7 %
Income taxes 70.9 70.6
Net income $ 129.5 $ 143.2 11 %
Earnings per share:
Basic 0.84 0.95 13 %
Diluted 0.83 0.94 13 %
Discontinued Operations
Net loss $ (0.1 ) $ -
Loss per share:
Basic - -
Diluted - -
Total Company
Net income $ 129.4 $ 143.2 11 %
Earnings per share:
Basic 0.84 0.95 13 %
Diluted 0.83 0.94 13 %
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2007 2008 Change
Continuing Operations
Net sales $ 1,632.5 $ 1,724.7 6 %
Excise taxes 329.8 373.0 13 %
Cost of sales 441.7 504.2 14 %
Gross profit 861.0 847.5 (2 %)
Advertising expenses 206.5 207.0 0 %
Selling, general, and administrative expenses 289.7 284.2 (2 %)
Amortization expense 2.6 2.6
Other (income), net (5.9 ) (8.6 )
Operating income 368.1 362.3 (2 %)
Interest expense, net 23.4 15.4
Income before income taxes 344.7 346.9 1 %
Income taxes 119.9 115.5
Net income $ 224.8 $ 231.4 3 %
Earnings per share:
Basic 1.46 1.54 5 %
Diluted 1.44 1.52 5 %
Discontinued Operations
Net loss $ (0.2 ) $ -
Loss per share:
Basic - -
Diluted - -
Total Company
Net income $ 224.6 $ 231.4 3 %
Earnings per share:
Basic 1.46 1.54 5 %
Diluted 1.44 1.52 6 %
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, October 31,
2008 2008
Assets:
Cash and cash equivalents $118.9 $326.8
Accounts receivable, net 453.2 534.4
Inventories 684.5 683.0
Other current assets 199.4 228.8
Total current assets 1,456.0 1,773.0
Property, plant, and equipment, net 501.4 486.1
Goodwill 688.0 671.7
Other intangible assets 698.8 687.6
Prepaid pension cost 22.8 25.7
Other assets 38.0 36.5
Total assets $3,405.0 $3,680.6
Liabilities:
Accounts payable and accrued expenses $379.7 $370.9
Accrued income taxes 14.7 8.3
Short-term borrowings 585.3 783.9
Current portion of long-term debt 4.3 3.2
Total current liabilities 984.0 1,166.3
Long-term debt 417.0 412.3
Deferred income taxes 88.8 105.6
Accrued postretirement benefits 121.2 117.9
Other liabilities 68.8 66.3
Total liabilities 1,679.8 1,868.4
Stockholders' equity 1,725.2 1,812.2
Total liabilities and stockholders' equity $3,405.0 $3,680.6
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Six Months Ended
October 31,
2007 2008
Cash provided by operating activities $ 198.0 $ 116.2
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 (24.2 ) (26.3 )
Other (1.4 ) (1.9 )
Cash provided by (used for) investing activities 48.0 (28.2 )
Cash flows from financing activities:
Net (repayment) issuance of debt (61.3 ) 218.2
Acquisition of treasury stock (22.6 ) (0.3 )
Special distribution to stockholders (203.7 ) -
Dividends paid (74.7 ) (82.2 )
Other 20.3 (0.8 )
Cash used for financing activities (342.0 ) 134.9
Effect of exchange rate changes on cash and cash 5.9 (15.0 )
equivalents
Net (decrease) increase in cash and cash equivalents (90.1 ) 207.9
Cash and cash equivalents, beginning of period 282.8 118.9
Cash and cash equivalents, end of period $ 192.7 $ 326.8
Brown-Forman Corporation
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
October 31,
2007 2008
Gross margin 52.6 % 49.9 %
Operating margin 23.8 % 23.7 %
Effective tax rate 35.4 % 33.0 %
Cash dividends paid per common share $ 0.242 $ 0.272
Shares (in thousands) used in the calculation of earnings
per share
Basic 154,138 150,661
Diluted 155,668 151,828
Six Months Ended
October 31,
2007 2008
Gross margin 52.7 % 49.1 %
Operating margin 22.5 % 21.0 %
Effective tax rate 34.8 % 33.3 %
Cash dividends paid per common share $ 0.484 $ 0.544
Shares (in thousands) used in the calculation of earnings
per share
Basic 154,068 150,630
Diluted 155,594 151,880
These figures have been prepared in accordance with
the company's customary accounting practices.
Schedule A
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
Three Months Ended Six Months Ended
October 31, 2008 October 31, 2008
Reported net sales growth 5 % 6 %
Estimated net change in trade inventories (2 %) (1 %)
Australian excise tax (1 %) (1 %)
Net sales from agency brands 1 % 1 %
Impact of foreign currencies 3 % -
Underlying net sales growth 6 % 5 %
Reported gross profit growth (1 %) (2 %)
Estimated net change in trade inventories (2 %) -
Non-cash agave charge - 3 %
Gross profit from agency brands 1 % -
Impact of foreign currencies 5 % 1 %
Underlying gross profit growth 3 % 2 %
Reported advertising growth (2 %) 0 %
Advertising from agency brands 1 % 2 %
Impact of foreign currencies 2 % (1 %)
Underlying advertising growth 1 % 1 %
Reported SG&A growth (5 %) (2 %)
Impact of foreign currencies 1 % -
SG&A from acquisitions 2 % 1 %
Underlying SG&A growth (2 %) (1 %)
Reported operating income growth 4 % (2 %)
Estimated net change in trade inventories (3 %) (1 %)
Transition expenses from acquisitions (2 %) (1 %)
Operating income from agency brands 1 % 1 %
Impact of foreign currencies 5 % 1 %
Non-cash agave charge - 6 %
Underlying operating income growth 5 % 4 %
Notes:
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.
Australian excise tax - Refers to the impact of the 70% increase in
excise tax of ready-to-drink products in Australia, implemented on April
27, 2008. Since net sales are recorded including excise tax, we believe
it is important to make this adjustment to better understand our
underlying sales trends.
Agency brands - Refers to the impact of certain agency brands
distributed in various geographies, primarily Appleton, Amarula,
Durbanville Hills, and Red Bull, which exited Brown-Forman's portfolio
during fiscal 2008.
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.
Non-cash agave charge - Refers to an abnormal number of agave plants
identified during the first 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 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
brown-forman@b-f.com
www.brown-forman.com