LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation reported a 4% increase in diluted
earnings per share and an 8% increase in operating income for its
third quarter ended January 31, 2008.(1) The addition of profits from
the Casa Herradura(2) brands acquired in January 2007, benefits from
favorable foreign exchange fluctuations, higher global consumer demand
for Jack Daniel's Tennessee Whiskey and Finlandia Vodka, an
exceptional increase in U.S. demand for Gentleman Jack, and continued
excellent growth for the Jack Daniel's & Cola ready-to-drink in
Australia contributed to profit growth for the quarter. Partially
offsetting these gains were softness for Southern Comfort and higher
raw material costs. Adjusting for the benefits of a weaker U.S.
dollar, the impact of changes in global trade inventories, and profits
from Casa Herradura, underlying operating income improved 7%(3) for
the third quarter.
Third quarter net sales grew 16% to $877 million while gross
profit increased 12% to $433 million. Net sales and gross profit gains
benefited from the addition of Casa Herradura, a weaker U.S. dollar,
and changes in global trade inventories. Excluding these factors,
underlying net sales and gross profit both improved 4% in the quarter.
Advertising expenses increased 14% to $108 million in the quarter,
primarily reflecting investments behind Casa Herradura, a weaker U.S.
dollar, and additional activities to support both Jack Daniel's and
Finlandia. SG&A expenses increased 11% to $143 million, due largely to
additional expenses associated with the acquisition of the Casa
Herradura brands and a weaker U.S. dollar. Adjusting for the spending
in support of Casa Herradura and foreign currency fluctuations,
advertising expenses and SG&A grew 3% and 2%, respectively, for the
three month period.
Jack Daniel's global depletions(4) grew at a low-single digit rate
in the quarter, with volume growth improving in the low-single digits
in the U.S. and increasing in the mid-single digits internationally.
Strong double-digit volume gains were recorded in the quarter for both
Gentleman Jack and Jack Daniel's & Cola. Finlandia volumes grew at a
double-digit rate, driven by continued robust growth in Eastern
Europe. Global depletions for Southern Comfort declined for the three
month period with weakness in both the U.S. and international markets.
Several other brands experienced solid growth in the quarter,
including Bonterra, Woodford Reserve, Sonoma-Cutrer, Tuaca, and Fetzer
Valley Oaks.
For the first nine months of the fiscal year, reported diluted
earnings per share were $2.74, up 3% over the prior-year period.
Operating income was $550 million, up 11% from $494 million earned in
the same period last year. Adjusting reported results for the weaker
U.S. dollar, recent acquisitions, global trade inventory changes, and
last year's net gain on the sale of winery assets, underlying
operating income was up 7%. The organic growth in operating income was
driven by solid international consumer demand for Jack Daniel's and
Finlandia, and improved volumes and profits from several other brands
including Jack Daniel's & Cola, Gentleman Jack, Woodford Reserve,
Bonterra, Korbel Champagne, and Tuaca.
The company's gross margin on a stripped net sales basis (gross
profit as a percentage of net sales excluding excise tax) for the
first nine months of the fiscal year was 65.5%, down from 67.0% in the
prior-year period. This 150 basis point gross margin decline reflects
the addition of the relatively lower-margin Mexican business, while
higher cost of sales due to increased grain and energy costs were
offset by benefits from favorable foreign exchange, a favorable shift
in mix to higher margin international markets, and price increases.
Full-Year Outlook
The company is narrowing the range of its full-year earnings
outlook for fiscal 2008 to $3.42 to $3.50 per diluted share,
representing forecasted growth of 9% to 11% over comparable prior year
earnings of $3.14 per share. Our earnings expectations for the fourth
quarter include continued global growth for the company's brands, an
expected lower tax rate, and modest additional benefits from foreign
exchange. This outlook is tempered by a challenging economic
environment and expectations of higher energy and grain costs.
Brown-Forman will host a conference call to discuss third quarter
results at 10:00 a.m. (EST) today. All interested parties in the U.S.
are invited to join the conference 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 the 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,
and then click on the link to "Investor Relations."
For those unable to participate in the live call, a digital replay
will be available by calling 800-642-1687 (U.S.) or 706-645-9291
(international). The identification code is 34932602. A digital audio
recording of the conference call will also be available on the web
page approximately one hour after the conclusion of the conference
call. The replays will be available for at least 30 days.
Brown-Forman Corporation is a diversified producer and marketer of
fine quality consumer products, 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, including higher energy prices,
declining home prices, deterioration of the sub-prime lending
market, 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, whether at the federal or state level or in
major international markets and/or tariff barriers or other
restrictions affecting beverage alcohol;
-- 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 international 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, social trends
or cultural trends that results in the reduced consumption of
our premium spirits brands;
-- 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 and agricultural uncertainties
that adversely affect the supply of grapes, agave, grain 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) All financial and statistical information contained in this
press release relates to the continuing operations of the company
unless otherwise stated. Earnings per share refers to diluted earnings
per share.
(2) References to Casa Herradura include all brands (el Jimador,
Herradura, New Mix, Antiguo, Suave 35 and other brands) and operations
acquired in January 2007.
(3) Underlying growth represents 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) for the
quarter and year-to-date, 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.
(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
January 31,
2007 2008 Change
--------- --------- --------
Continuing Operations
Net sales $754.8 $877.4 16%
Gross profit 387.3 432.6 12%
Advertising expenses 94.2 107.6 14%
Selling, general, and administrative
expenses 129.2 143.3 11%
Amortization expense - 1.3
Other (income), net (4.9) (1.2)
Operating income 168.8 181.6 8%
Interest expense, net 2.5 9.1
Income before income taxes 166.3 172.5 4%
Income taxes 54.7 56.6
Net income 111.6 115.9 4%
Earnings per share:
Basic 0.91 0.94 4%
Diluted 0.90 0.93 4%
Discontinued Operations
Net (loss) income $(6.5) $0.1
Loss per share:
Basic (0.05) -
Diluted (0.05) -
Total Company
Net income $105.1 $116.0 10%
Earnings per share:
Basic 0.86 0.94 10%
Diluted 0.85 0.94 11%
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Nine Months Ended
January 31,
2007 2008 Change
--------- --------- --------
Continuing Operations
Net sales $2,115.4 $2,509.9 19%
Gross profit 1,118.9 1,293.6 16%
Advertising expenses 267.2 314.2 18%
Selling, general, and administrative
expenses 378.1 433.1 15%
Amortization expense - 3.8
Other (income), net (20.1) (7.2)
Operating income 493.7 549.7 11%
Interest expense, net 5.4 32.5
Income before income taxes 488.3 517.2 6%
Income taxes 157.4 176.5
Net income 330.9 340.7 3%
Earnings per share:
Basic 2.69 2.77 3%
Diluted 2.66 2.74 3%
Discontinued Operations
Net loss $(8.2) $-
Loss per share:
Basic (0.07) -
Diluted (0.07) -
Total Company
Net income $322.7 $340.7 6%
Earnings per share:
Basic 2.63 2.77 5%
Diluted 2.60 2.74 6%
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, January 31,
2007 2008
----------- -----------
Assets:
Cash and cash equivalents $282.8 $136.6
Short-term investments 85.6 -
Accounts receivable, net 403.7 473.1
Inventories 694.4 682.5
Other current assets 168.7 140.0
----------- -----------
Total current assets 1,635.2 1,432.2
Property, plant, and equipment, net 506.3 502.1
Goodwill 670.2 680.7
Other intangible assets 683.9 698.5
Prepaid pension cost 23.0 24.7
Other assets 32.8 38.3
----------- -----------
Total assets $3,551.4 $3,376.5
=========== ===========
Liabilities:
Accounts payable and accrued expenses $361.1 $361.4
Accrued income taxes 27.0 -
Payable to stockholders 203.7 41.5
Short-term borrowings 401.1 243.0
Current portion of long-term debt 354.0 354.0
----------- -----------
Total current liabilities 1,346.9 999.9
Long-term debt 421.9 417.3
Deferred income taxes 56.6 69.4
Accrued postretirement benefits 122.8 130.1
Other liabilities 29.8 72.4
----------- -----------
Total liabilities 1,978.0 1,689.1
Stockholders' equity 1,573.4 1,687.4
----------- -----------
Total liabilities and stockholders' equity $3,551.4 $3,376.5
=========== ===========
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Nine Months Ended
January 31,
2007 2008
--------- ---------
Cash flows from operating activities:
Continuing operations $268.9 $397.3
Discontinued operations 8.7 -
--------- ---------
Cash provided by operating activities 277.6 397.3
Cash flows from investing activities:
Acquisition of businesses (1,045.5) 1.6
Acquisition of brand name - (12.0)
Net decrease in short-term investments 10.1 85.6
Additions to property, plant, and equipment (39.1) (31.6)
Other (17.3) (5.2)
--------- ---------
Cash (used for) provided by investing activities (1,091.8) 38.4
Cash flows from financing activities:
Net increase (decrease) in debt 666.1 (164.4)
Acquisition of treasury stock - (122.0)
Special distribution to stockholders - (203.7)
Dividends paid (106.1) (116.6)
Other 31.8 19.7
--------- ---------
Cash provided by (used for) financing activities 591.8 (587.0)
Effect of exchange rate changes on cash and cash
equivalents 1.5 5.1
--------- ---------
Net decrease in cash and cash equivalents (220.9) (146.2)
Cash and cash equivalents, beginning of period 474.8 282.8
--------- ---------
Cash and cash equivalents, end of period $253.9 $136.6
========= =========
Brown-Forman Corporation
Continuing Operations Only
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
January 31,
2007 2008
--------- ---------
Net sales $754.8 $877.4
Excise taxes $172.7 $205.0
Net sales (stripped of excise taxes) $582.1 $672.4
Gross profit (as reported) $387.3 $432.6
Gross margin (as reported) 51.3% 49.3%
Gross margin (stripped net sales basis)(a) 66.5% 64.3%
Effective tax rate 32.9% 32.8%
Cash dividends paid per common share $0.3025 $0.3400
Shares (in thousands) used in the calculation of
earnings per share
Basic 122,964 122,836
Diluted 124,230 123,974
(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)
Nine Months Ended
January 31,
2007 2008
--------- ---------
Net sales $2,115.4 $2,509.9
Excise taxes $446.1 $534.8
Net sales (stripped of excise taxes) $1,669.3 $1,975.1
Gross profit (as reported) $1,118.9 $1,293.6
Gross margin (as reported) 52.9% 51.5%
Gross margin (stripped net sales basis)(a) 67.0% 65.5%
Effective tax rate 32.2% 34.1%
Cash dividends paid per common share $0.8625 $0.9450
Shares (in thousands) used in the calculation of
earnings per share
Basic 122,810 123,085
Diluted 124,189 124,278
(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.
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 Nine Months Ended
January 31, 2008 January 31, 2008
Underlying net sales growth 4% 6%
Net sales from acquisitions 10% 9%
Foreign currency fluctuations 4% 4%
Estimated net change in trade
inventories (2%)
Reported net sales growth 16% 19%
Underlying gross profit growth 4% 6%
Gross profit from acquisitions 6% 6%
Foreign currency fluctuations 3% 4%
Estimated net change in trade
inventories (1%)
Reported gross profit growth 12% 16%
Underlying advertising growth 3% 7%
Advertising from acquisitions 8% 7%
Foreign currency fluctuations 3% 4%
Reported advertising growth 14% 18%
Underlying SG&A growth 2% 5%
SG&A from acquisitions 8% 9%
Foreign currency fluctuations 1% 1%
Reported SG&A growth 11% 15%
Underlying operating income
growth 7% 7%
Operating income from
acquisitions 3% 2%
Foreign currency fluctuations 2% 5%
Estimated net change in trade
inventories (4%) (1%)
Absence of gain on winery assets (2%)
Reported operating income growth 8% 11%
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 of these acquisitions provides helpful
information in forecasting and planning the growth expectations of the
company.
Foreign currency fluctuations - 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.
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
T.J. Graven, 502-774-7442
Vice President, Director Investor Relations