LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation (NYSE:BFB) (NYSE:BFA) reported record net
sales for fiscal 2008, totaling nearly $3.3 billion, with
international markets contributing more than 50% of total net sales
for the first time in the company's 138-year history. Reported diluted
earnings per share from continuing operations(2) rose 10% to $3.55 and
operating income grew 14% to $685 million for the fiscal year.
Higher consumer demand for Jack Daniel's Tennessee Whiskey, Jack
Daniel's & Cola, and Finlandia Vodka, particularly outside the U.S.,
and excellent growth in the U.S. for Gentleman Jack drove operating
income increases. Additionally, benefits from a weaker U.S. dollar and
the incremental profits from the Casa Herradura(3) and Chambord
acquisitions completed in the prior fiscal year contributed to
year-over-year profit growth. Higher raw material costs and increased
operating investments partially offset these gains. Adjusting for
added profits associated with Casa Herradura and Chambord, the
benefits of a weaker U.S. dollar, and last year's net gain on the sale
of winery assets, underlying operating income was up 8% for the fiscal
year.
Fiscal 2008 net sales grew $476 million, or 17%, over fiscal 2007
while gross profit increased $214 million, or 14%. Net sales and gross
profit benefited from double-digit gains for the Jack Daniel's family
of brands and Finlandia, in addition to mid-single digit gains for
Southern Comfort. Net sales growth reflects volume and pricing
increases along with favorable foreign exchange gains. Higher costs,
including grain, grapes, and fuel, partially offset these gains. The
fiscal 2007 acquisitions of the Casa Herradura brands and Chambord
also contributed to the increases in revenues and gross profit.
Adjusting for foreign exchange and acquisitions, the fiscal 2008
underlying gross profit growth was 6%.
Advertising and promotion investments increased 15% for the year
due to spending behind the company's premium global brands, developing
brands, and recently acquired brands, and due to a weaker U.S. dollar.
Adjusting for foreign exchange and spending behind recently acquired
brands, advertising and promotion was up 6% for the year. Selling,
general, and administrative expenses increased 10% over 2007 due
largely to the acquisition of the Casa Herradura brands, and a weaker
U.S. dollar. Excluding these items, underlying SG&A increased 3% for
the year.
Global depletions(4) for Jack Daniel's were up 4% over the prior
year. In the U.S., depletions increased in the low-single digit range,
while international depletions grew at a high-single digit rate.
Robust double-digit depletion growth rates were recorded throughout
many markets in Europe and Latin America.
Finlandia depletions were up 16% globally over fiscal 2007, driven
by strong double-digit growth in many parts of Europe, particularly
Poland and Russia. Southern Comfort global depletions were flat for
the full-year as solid gains in the U.K., South Africa, and Australia
were partially offset by low-single digit declines in the U.S.
Depletions for several brands, including Bonterra, Gentleman Jack,
and Woodford Reserve, grew at healthy double-digit rates for the year
while Sonoma-Cutrer advanced in the high-single digits. Fetzer Valley
Oaks and Korbel registered low-single digit depletion growth while
Canadian Mist, Bolla, and Early Times recorded modest declines for the
year.
The following chart summarizes the fiscal 2008 worldwide
depletions, depletion growth, reported net sales growth, and foreign
exchange adjusted net sales growth, for Brown-Forman's largest volume
brands:
Net Sales % Change
vs.
Depletion Fiscal 2007
Nine-Liter % Change ---------------------
Cases vs Constant
Brand (000's) Fiscal 2007 Reported Currency(5)
------------------------- ---------- ----------- -------- ------------
Jack Daniel's TW 9,450 4% 9% 6%
New Mix RTD(6) 4,340 NA NA NA
Finlandia 2,835 16% 33% 19%
Southern Comfort 2,460 - 6% 3%
Fetzer Valley Oaks 2,355 2% 2% 1%
Jack Daniel's & Cola RTD 2,260 18% 33% 19%
Canadian Mist 1,895 (3%) - -
Fourth Quarter
Fourth quarter reported diluted earnings per share increased 45%
over the same quarter last year to $0.81 while operating income grew
25% to $135 million. Net sales and gross profit grew 12% and 11%,
respectively. Reported operating earnings were driven by continued
growth in consumer demand for the Jack Daniel's family of brands and
Finlandia, particularly outside the U.S., the acquisition of the Casa
Herradura brands, moderate increases in operating investments in the
quarter and the weaker U.S. dollar. Additionally, net income for the
quarter was positively impacted by a lower effective tax rate
resulting from the effective settlement of various tax uncertainties.
These settlements resulted in the reversal of previously established
tax reserves, providing an incremental $0.04 in earnings per diluted
share compared to the same period last year.
Fourth quarter underlying operating income was up 12% over the
prior year period. These excellent underlying results reflect stable
Jack Daniel's depletion trends in the U.S. and continued solid demand
in many markets outside the U.S., exceptional growth for Finlandia in
Eastern Europe, strong growth for Gentleman Jack, and moderate
increases in brand investments, as well as a slight decline in SG&A
expense in the quarter when compared to the prior-year-period.
Fiscal 2009 Outlook
Paul Varga, the company's chief executive officer, stated, "Fiscal
2008 was another excellent year for our company, particularly
considering the difficult macro-economic conditions under which these
results were achieved, as our underlying earnings growth approximated
our company's long-term growth rate." Building on this strong
foundation, in fiscal 2009 the company projects diluted earnings per
share to fall within a range of $3.73 to $3.98, representing growth of
5% to 12% and operating income to grow in the range of 3% to 10% for
the year.
The company's outlook incorporates expectations for continued
solid international growth, improving trends for both Jack Daniel's
and Southern Comfort and healthy growth from the Casa Herradura brands
in the U.S., expectations for a higher effective tax rate, anticipated
increases in fuel and raw material costs, the benefits of the fiscal
2008 share repurchase, and lower interest expense.
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, www.brown-forman.com,
through a link to "Investors/Information." 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 9424319. 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 with economies
linked to the U.S., including higher energy prices, declining
home prices, deterioration of the sub-prime lending market,
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
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, and the
South African Rand;
-- reduced bar, restaurant, hotel and travel business, including
travel retail;
-- 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 or quality 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
prospects;
-- counterfeit production of our products and any resulting
negative effect on our intellectual property rights or brand
equity; and
-- adverse developments stemming from state or federal
investigations of beverage alcohol industry marketing or trade
practices of suppliers, distributors or retailers.
(1) Underlying operating income represents operating income
reported in accordance with GAAP, adjusted for certain items. A
reconciliation from reported growth to underlying operating income
growth (a non-GAAP measure) for the fourth quarter and full year, and
the reasons why management believes these adjustments to be useful to
the reader, are included in Schedule A.
(2) All financial and statistical information contained in this
press release relates to the continuing operations of the company
unless otherwise stated.
(3) Major brands included in the January 2007 Casa Herradura
acquisition were Tequila Herradura, el Jimador tequila, and the New
Mix ready to drink product.
(4) Depletions are shipments from wholesaler distributors to
retail customers, and are commonly regarded in the industry as an
approximate measure of consumer demand.
(5) Constant currency represents reported net sales with the
benefit of a weaker U.S. dollar 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.
(6) Tequila ready-to-drink brand acquired in January 2007 as part
of Casa Herradura and sold exclusively in Mexico
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Three Months Ended
April 30,
2007 2008 Change
--------- -------- ------
Continuing Operations
Net sales $ 690.8 $ 772.3 12%
Gross profit 361.9 401.0 11%
Advertising expenses 93.9 101.0 8%
Selling, general, and administrative
expenses 157.6 158.4 1%
Amortization expense 1.3 1.2
Other expense, net 0.5 5.0
Operating income 108.6 135.4 25%
Interest expense, net 10.9 9.0
Income before income taxes 97.7 126.4 29%
Income taxes 28.4 27.7
Net income 69.3 98.7 42%
Earnings per share:
Basic 0.56 0.82 45%
Diluted 0.56 0.81 45%
Discontinued Operations
Net (loss) income $ (2.5) $ 0.4
Loss per share:
Basic (0.02) -
Diluted (0.02) -
Total Company
Net income $ 66.8 $ 99.1 48%
Earnings per share:
Basic 0.54 0.82 51%
Diluted 0.54 0.81 51%
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Year Ended
April 30,
2007 2008 Change
--------- --------- ------
Continuing Operations
Net sales $2,806.1 $3,282.2 17%
Gross profit 1,480.8 1,694.6 14%
Advertising expenses 361.1 415.2 15%
Selling, general, and administrative
expenses 535.6 591.5 10%
Amortization expense 1.4 5.1
Other (income), net (19.6) (2.2)
Operating income 602.3 685.0 14%
Interest expense, net 16.3 41.4
Income before income taxes 586.0 643.6 10%
Income taxes 185.9 204.2
Net income 400.1 439.4 10%
Earnings per share:
Basic 3.26 3.59 10%
Diluted 3.22 3.55 10%
Discontinued Operations
Net (loss) income $ (10.6) $ 0.4
Loss per share:
Basic (0.09) -
Diluted (0.09) -
Total Company
Net income $ 389.5 $ 439.8 13%
Earnings per share:
Basic 3.17 3.59 13%
Diluted 3.14 3.56 13%
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30,
2007 2008
------ ------
Assets:
Cash and cash equivalents $283 $119
Short-term investments 86 0
Accounts receivable, net 404 453
Inventories 694 685
Other current assets 168 199
------ ------
Total current assets 1,635 1,456
Property, plant, and equipment, net 506 501
Goodwill 670 688
Other intangible assets 684 699
Prepaid pension cost 23 23
Other assets 33 38
------ ------
Total assets $3,551 $3,405
====== ======
Liabilities:
Accounts payable and accrued expenses $361 $380
Accrued income taxes 27 15
Payable to stockholders 204 0
Short-term borrowings 401 585
Current portion of long-term debt 354 4
------ ------
Total current liabilities 1,347 984
Long-term debt 422 417
Deferred income taxes 56 89
Accrued postretirement benefits 123 121
Other liabilities 30 69
------ ------
Total liabilities 1,978 1,680
Stockholders' equity 1,573 1,725
------ ------
------ ------
Total liabilities and stockholders' equity $3,551 $3,405
====== ======
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Year Ended
April 30,
2007 2008
------- -----
Cash flows from operating activities:
Continuing operations $349 $534
Discontinued operations 6 0
------- -----
Cash provided by operating activities 355 534
Cash flows from investing activities:
Acquisition of businesses (1,045) 2
Acquisition of distribution rights (25) 0
Acquisition of brand names and trademarks 0 (13)
Net decrease in short-term investments 74 86
Additions to property, plant, and equipment (58) (41)
Other 16 (6)
------- -----
Cash (used for) provided by investing activities (1,038) 28
Cash flows from financing activities:
Net increase (decrease) in debt 597 (172)
Acquisition of treasury stock 0 (223)
Special distribution to stockholders 0 (204)
Dividends paid (143) (158)
Other 33 21
------- -----
Cash provided by (used for) financing activities 487 (736)
Effect of exchange rate changes on cash and cash
equivalents 4 10
------- -----
Net decrease in cash and cash equivalents (192) (164)
Cash and cash equivalents, beginning of period 475 283
------- -----
Cash and cash equivalents, end of period $283 $119
======= =====
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
April 30,
2007 2008
--------- --------
Net sales $ 690.8 $ 772.3
Excise taxes $ 142.4 $ 165.9
Net sales (stripped of excise taxes) $ 548.4 $ 606.4
Gross profit (as reported) $ 361.9 $ 401.0
Gross margin (as reported) 52.4% 51.9%
Gross margin (stripped net sales basis)(a) 66.0% 66.1%
Effective tax rate 29.1% 22.0%
Cash dividends paid per common share $ 0.3025 $ 0.3400
Shares (in thousands) used in the calculation of
earnings per share
Basic 123,044 120,770
Diluted 124,236 121,769
(a) Management believes excluding excise tax from the gross margin
calculation provides a more meaningful comparison because of changes
in the company's distribution structures in several markets. These
changes result in the company collecting and remitting excise taxes
which are reported in net sales and cost of sales, preventing
effective comparison across periods where the same distribution
structures were not employed.
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Year Ended
April 30,
2007 2008
-------- --------
Net sales $2,806.1 $3,282.2
Excise taxes $ 588.5 $ 700.7
Net sales (stripped of excise taxes) $2,217.6 $2,581.5
Gross profit (as reported) $1,480.8 $1,694.6
Gross margin (as reported) 52.8% 51.6%
Gross margin (stripped net sales basis)(a) 66.8% 65.6%
Effective tax rate 31.7% 31.7%
Cash dividends paid per common share $ 1.1650 $ 1.2850
Shares (in thousands) used in the calculation of
earnings per share
Basic 122,868 122,464
Diluted 124,201 123,609
(a) Management believes excluding excise tax from the gross margin
calculation provides a more meaningful comparison because of changes
in the company's distribution structures in several markets. These
changes result in the company collecting and remitting excise taxes
which are reported in net sales and cost of sales, preventing
effective comparison across periods where the same distribution
structures were not employed.
Schedule A
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
Three Months Ended Twelve Months Ended
April 30, 2008 April 30, 2008
Reported net sales growth 12% 17%
Net sales from acquisitions 0% (7%)
Impact of foreign currencies (5%) (4%)
Net sales from agency brands 2% 0%
Estimated net change in trade
inventories (2%) 0%
Underlying net sales growth 7% 6%
Reported gross profit growth 11% 14%
Gross profit from acquisitions (1%) (4%)
Impact of foreign currencies (5%) (4%)
Estimated net change in trade
inventories (1%) 0%
Underlying gross profit growth 4% 6%
Reported advertising growth 8% 15%
Advertising from acquisitions 0% (5%)
Impact of foreign currencies (5%) (4%)
Underlying advertising growth 3% 6%
Reported SG&A growth 1% 10%
SG&A from acquisitions 0% (6%)
Impact of foreign currencies (2%) (1%)
Underlying SG&A growth (1%) 3%
Reported operating income
growth 25% 14%
Operating income from
acquisitions (5%) (3%)
Impact of foreign currencies (4%) (5%)
Operating income from agency
brands 1% 0%
Estimated net change in trade
inventories (5%) 0%
Absence of gain on winery
assets 0% 2%
Underlying operating income
growth 12% 8%
Notes:
Acquisitions - Refers to the acquisition of the Casa Herradura
brands in January 2007 and Chambord in May 2006, thus making
comparisons difficult to understand. In addition, we believe that
excluding the results, and associated transition expenses, of these
acquisitions provides helpful information in forecasting and planning
the growth expectations of the company.
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 Red Bull, which exited the Mexican distribution operation
during fiscal 2007.
Estimated net change in trade inventories - Refers to the
estimated financial impact of changes in wholesale trade inventories
for the company's brands in markets where we use third-party
distributors. 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.
Absence of gain on winery assets - Refers to the net gain recorded
during fiscal 2007 associated with the sale of an Italian winery used
in the production of Bolla wines. We believe this item creates a
disproportionate effect on underlying business results, making
comparisons difficult for the reader. In addition, we believe that
excluding this gain 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