LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation (NYSE:BFB) (NYSE:BFA) reported diluted earnings
per share grew 5% to $0.99 and operating income grew 2% to $226
million for its fiscal 2010 second quarter ended October 31, 2009. For
the first six months of the fiscal year, diluted earnings per share
increased 18% to $1.79 and operating income increased 15% to $418
million. Adjusting for the items in Schedule A of this press release,
underlying1 operating income grew 9% for the second quarter
and 15% for the first half of fiscal 2010.
Paul Varga, the company's chief executive officer stated, "We are
pleased to report such excellent first half results, particularly given
the difficult operating environment and the tough comparables in the
prior year. By seeking greater efficiency, improving productivity, and
innovating to better meet the needs of today's trade and consumer, we
believe we have weathered the past 12 months very well and have
continued to position our company and brands for success in the years
ahead."
Brown-Forman's reported net sales for the six months ended October 31,
2009 were $1.6 billion, a decrease of 5% compared with the same prior
year period. Underlying net sales were flat for the first six months of
fiscal 2010. The company believes this underlying net sales performance
ranks at or near the top of its public spirits company competitive set.
Strong underlying net sales gains for ready-to-drink brands, as well as
growth for Gentleman Jack, el Jimador, and Jack Daniel's, were offset
primarily by underlying net sales declines of Finlandia and Southern
Comfort. Geographically, underlying net sales gains in Australia,
Germany, and France were offset by declines in Poland, the U.S., and
South Africa. Total depletions2 grew in the low single digits
for the company's current brand portfolio. Underlying net sales growth
benefitted from increased pricing but lagged depletion growth due to a
shift in sales mix. Schedule B contains more detailed depletion and net
sales information by brand.
Brown-Forman's fiscal 2010 first half gross profit declined 3% on a
reported basis and decreased 1% on an underlying basis. For the second
quarter, reported gross profit dropped 5% and underlying gross profit
was down 3%. A shift in sales mix and increases in value-added packaging
contributed to underlying gross profit trends lagging underlying sales
trends. Gross margins remained at nearly 50% for the three and six month
periods and relatively stable when compared to the same periods in the
prior year. Underlying operating income outperformed underlying gross
profit trends as the company continued to benefit from operating expense
leverage. Brown-Forman's lower underlying advertising spend was a result
of seasonal shifts in advertising and promotional investment, as well as
a continued reallocation of brand investment to activities which are
accounted for elsewhere on the income statement. Also contributing to
the reduction in advertising outlays were deflation in media and other
marketing costs. Varga commented, "Our people continued to do an
excellent job allocating the company's resources and seeking out
marketing efficiencies both in media and through the use of
ready-to-drink brands. We continued to adapt to the consumers' shift
from on-premise to off-premise by making incremental investments in
packaging, merchandising, and targeted promotional pricing."
The company's underlying selling, general, and administrative expense
benefitted from a reduced cost base as a result of the company's fiscal
2009 early retirement program and reduction in workforce, and from
continued tight management of discretionary expenses along with
timing-related shifts.
Cash provided by operating activities for the first six months of fiscal
2010 was approximately $206 million, a 77% increase over the same prior
year period. During the quarter the company repurchased a combined total
of nearly $88 million Class A and Class B shares as part of its share
repurchase program, which expired December 3, 2009. Total repurchases
during the year-long program were $196 million. Also in November 2009,
Brown-Forman increased its regular quarterly dividend 4.3% to $0.30 per
share on Class A and Class B common stock. Stockholders of record on
December 7, 2009, will receive the cash dividend on January 4, 2010.
With this dividend, Brown-Forman will have paid regular quarterly cash
dividends for 64 consecutive years and increased them for the last 26
years.
Full-Year Outlook
The company is increasing and narrowing the range of its fiscal 2010
full-year earnings outlook to $2.95 to $3.15 per share. Depletion trends
for many of the company's key brands improved slightly in the second
quarter when compared to the first quarter and the company expects more
favorable comparisons as the year progresses. However, Brown-Forman
remains concerned about the impact on consumption from a soft on-premise
channel, consumer trading-down, and heightened competitive activity.
While the company anticipates operating expense leverage for fiscal year
2010, year-to-date trends are expected to moderate and potentially
reverse for the next six months as advertising and promotion activities
are more heavily weighted to the second half of the year. Additionally,
declines in selling, general, and administrative expenses in the first
half of this fiscal year are not expected to recur in the second half of
the year due primarily to the timing of cost reductions realized in the
prior year. Brown-Forman intends to remain flexible with operating
expense plans and to continue to be in a position to increase
investments if conditions warrant. The outlook also reflects expected
costs related to increased investments in brand packaging, other brand
innovations, and production enhancements. Brown-Forman now expects a
slight improvement in underlying operating income growth when compared
to the company's original guidance. The current expectation is for
underlying operating income to grow in the low-to-mid-single digits for
fiscal 2010.
Brown-Forman will host a conference call to discuss the results at 10:00
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 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 "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
39694199. 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, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador,
Tequila Herradura, Sonoma-Cutrer, Chambord, Tuaca, Woodford Reserve, and
Bonterra.
Important Information on Forward-Looking Statements:
This report contains statements, estimates, and projections that are
"forward-looking statements" as defined under U.S. federal securities
laws. Words such as "expect," "believe," "intend," "estimate," "will,"
"may," "anticipate," "project," and similar words identify
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 other factors include, but are not limited to:
-- Prolonged or deepening global economic downturn or renewed turmoil in
financial and equity markets (and related credit and capital market
instability and illiquidity; decreased consumer and trade spending;
higher unemployment; supplier, customer or consumer credit or other
financial problems; inventory fluctuations at distributors, wholesalers,
or retailers; bank failures or governmental nationalizations; etc.)
-- competitors' pricing actions (including price reductions, promotions,
discounting, couponing or free goods), marketing, product introductions,
or other competitive activities aimed at our brands
-- trade or consumer reaction to our product line extensions or new
marketing initiatives
-- prolonged or deeper declines in consumer confidence or spending, whether
related to global economic conditions, wars, natural disasters,
pandemics (such as swine flu), terrorist attacks or other factors
-- changes in tax rates (including excise, sales, corporate, individual
income, dividends, capital gains) or in related reserves, changes in tax
rules (e.g., LIFO, foreign income deferral, U.S. manufacturing
deduction) or accounting standards, tariffs, or other restrictions
affecting beverage alcohol, and the unpredictability and suddenness with
which they can occur
-- trade or consumer resistance to price increases in our products
-- tighter governmental restrictions on our ability to produce, sell, or
market our products, including advertising and promotion
-- business disruption, decline or costs related to reductions in workforce
or other cost-cutting measures
-- lower returns on pension assets, higher interest rates on debt, or
significant changes in recent inflation rates (whether up or down)
-- fluctuations in the U.S. dollar against foreign currencies, especially
the euro, British pound, Australian dollar, or Polish zloty
-- changes in consumer behavior including further reduction of bar,
restaurant, hotel and other on-premise business; shifts to discount
store purchases or shifts away from premium-priced products; other
price-sensitive consumer behavior; or further reductions in travel
-- changes in consumer preferences, societal attitudes or cultural trends
that result in reduced consumption of our products
-- distribution arrangement decisions that affect the timing of our sales,
temporarily disrupt the marketing or sale of our products, or that
result in implementation-related costs
-- adverse impacts resulting from our acquisitions, dispositions, joint
ventures, business partnerships, or portfolio strategies
-- lower profits, due to factors such as fewer used barrel sales, lower
production volumes (either for our own brands or those of third
parties), sales mix shift toward lower priced or lower margin skus, or
cost increases in energy or raw materials, such as grapes, grain, agave,
wood, glass, plastic, or closures
-- climatic changes, agricultural uncertainties, our suppliers' financial
hardships or other factors that affect the availability or quality of
grapes, agave, grain, glass, closures, plastic, or wood
-- negative publicity related to our company, brands, personnel,
operations, business performance or prospects
-- product counterfeiting, tampering, or contamination and resulting
negative effects on our sales, brand equity, or corporate reputation
-- adverse developments stemming from state, federal or other governmental
investigations of beverage alcohol industry business, trade, or
marketing practices by us, our distributors, or retailers
-- impairment in the recorded value of any assets, including receivables,
inventory, fixed assets, goodwill or other intangibles
1 Underlying change represents the percentage increase or
decrease in reported financial results in accordance with generally
accepted accounting principles (GAAP) in the United States, adjusted for
certain items. A reconciliation from reported to underlying net sales,
gross profit, advertising expense, SG&A, and operating income (non-GAAP
measures) increases or decreases for the second quarter and first half
of fiscal 2010, 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.
2 Depletions are shipments direct to retail or from
distributors to wholesale and 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,
2008 2009 Change
Net sales $ 934.7 $ 892.9 (4 %)
Excise taxes 196.8 194.1 (1 %)
Cost of sales 271.2 255.8 (6 %)
Gross profit 466.7 443.0 (5 %)
Advertising expenses 110.0 92.1 (16 %)
Selling, general, and administrative 139.9 125.1 (11 %)
expenses
Amortization expense 1.3 1.3
Other (income), net (6.2 ) (1.1 )
Operating income 221.7 225.6 2 %
Interest expense, net 7.9 7.4
Income before income taxes 213.8 218.2 2 %
Income taxes 70.6 70.9
Net income $ 143.2 $ 147.3 3 %
Earnings per share:
Basic $ 0.95 $ 0.99 5 %
Diluted $ 0.94 $ 0.99 5 %
Gross margin 49.9 % 49.6 %
Operating margin 23.7 % 25.3 %
Effective tax rate 33.0 % 32.5 %
Cash dividends paid per common share $ 0.2720 $ 0.2875
Shares (in thousands) used in the
calculation of earnings per share
Basic 150,661 147,992
Diluted 151,691 148,694
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Six Months Ended
October 31,
2008 2009 Change
Net sales $ 1,724.7 $ 1,630.8 (5 %)
Excise taxes 373.0 361.2 (3 %)
Cost of sales 504.2 446.5 (11 %)
Gross profit 847.5 823.1 (3 %)
Advertising expenses 207.0 168.2 (19 %)
Selling, general, and administrative 284.2 242.2 (15 %)
expenses
Amortization expense 2.6 2.6
Other (income), net (8.6 ) (7.5 )
Operating income 362.3 417.6 15 %
Interest expense, net 15.4 14.6
Income before income taxes 346.9 403.0 16 %
Income taxes 115.5 134.4
Net income $ 231.4 $ 268.6 16 %
Earnings per share:
Basic $ 1.53 $ 1.80 18 %
Diluted $ 1.52 $ 1.79 18 %
Gross margin 49.1 % 50.5 %
Operating margin 21.0 % 25.6 %
Effective tax rate 33.3 % 33.4 %
Cash dividends paid per common share $ 0.5440 $ 0.5750
Shares (in thousands) used in the
calculation of earnings per share
Basic 150,630 148,797
Diluted 151,745 149,481
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, October 31,
2009 2009
Assets:
Cash and cash equivalents $ 340.1 $ 289.3
Accounts receivable, net 367.1 519.1
Inventories 652.0 690.2
Other current assets 214.6 185.8
Total current assets 1,573.8 1,684.4
Property, plant, and equipment, net 482.8 473.9
Goodwill 675.0 682.5
Other intangible assets 686.1 688.6
Other assets 57.0 55.6
Total assets $ 3,474.7 $ 3,585.0
Liabilities:
Accounts payable and accrued expenses $ 326.4 $ 392.2
Short-term borrowings 336.6 301.9
Current portion of long-term debt 152.9 152.8
Other current liabilities 19.7 22.9
Total current liabilities 835.6 869.8
Long-term debt 509.3 508.5
Deferred income taxes 79.6 105.2
Accrued postretirement benefits 175.6 169.2
Other liabilities 58.8 58.1
Total liabilities 1,658.9 1,710.8
Stockholders' equity 1,815.8 1,874.2
Total liabilities and stockholders' equity $ 3,474.7 $ 3,585.0
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Six Months Ended
October 31,
2008 2009
Cash provided by operating activities $ 116.2 $ 205.7
Cash flows from investing activities:
Additions to property, plant, and equipment (26.3 ) (12.4 )
Other (1.9 ) (1.8 )
Cash used for investing activities (28.2 ) (14.2 )
Cash flows from financing activities:
Net issuance (repayment) of debt 218.2 (36.3 )
Acquisition of treasury stock (0.3 ) (139.0 )
Dividends paid (82.2 ) (85.8 )
Other (0.8 ) 0.5
Cash used for financing activities 134.9 (260.6 )
Effect of exchange rate changes on cash and cash (15.0 ) 18.3
equivalents
Net increase (decrease) in cash and cash equivalents 207.9 (50.8 )
Cash and cash equivalents, beginning of period 118.9 340.1
Cash and cash equivalents, end of period $ 326.8 $ 289.3
These figures have been prepared in accordance with the company's customary
accounting practices.
Schedule A
Brown-Forman Corporation
Supplemental Information (Unaudited)
Three Months Ended Six Months Ended
October 31, 2009 October 31, 2009
Reported change in net sales (4 %) (5 %)
Excise tax increases - (1 %)
Impact of foreign currencies - 3 %
Impact of discontinued brands 1 % 2 %
Estimated net change in trade 2 % 1 %
inventories
Underlying change in net sales (1 %) 0 %
Reported change in gross profit (5 %) (3 %)
Impact of foreign currencies (1 %) 2 %
Non-cash agave charge (FY2009) - (3 %)
Gross profit from discontinued brands - 1 %
Estimated net change in trade 3 % 2 %
inventories
Underlying change in gross profit (3 %) (1 %)
Reported change in advertising (16 %) (19 %)
Impact of foreign currencies - 3 %
Advertising from discontinued brands 1 % 1 %
Underlying change in advertising (15 %) (15 %)
Reported change in SG&A (11 %) (15 %)
Impact of foreign currencies 2 % 4 %
Underlying change in SG&A (9 %) (11 %)
Reported change in operating income 2 % 15 %
Impact of foreign currencies (1 %) -
Non-cash agave charge (FY2009) - (7 %)
Impact of discontinued brands 1 % 2 %
Estimated net change in trade 7 % 5 %
inventories
Underlying change in operating income 9 % 15 %
Notes:
Excise tax increases - Refers to the impact of the additional revenues
related to excise tax increases implemented during the period, primarily
in Australia, Poland, and the U.K. Since net sales are recorded
including revenues associated with excise taxes, we believe it is
important to make this adjustment to better understand our underlying
sales trends.
Discontinued brands - Refers both to the company's December 2008 sale of
its Bolla and Fontana Candida Italian wine brands to Gruppo Italiano
Vini (GIV) and to the impact of certain agency brands distributed in
various geographies that exited Brown-Forman's portfolio during the
comparable fiscal year. We believe that excluding the prior incremental
contribution from these brands, as well as the net gain on the sale of
the Italian wine brands, 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.
Non-cash agave charge (FY2009) - Refers to an abnormal number of agave
plants identified during the first quarter of fiscal 2009 as dead or
dying. Although agricultural uncertainties are inherent in our tequila
or any other business that includes 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 $22.4 million pre-tax non-cash charge allows for a better
understanding of profit trends.
Estimated net change in distributor inventories - Refers to the
estimated financial impact of changes in distributor 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 distributor 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 distributor
inventories.
The company cautions that non-GAAP measures should be considered in
addition to, but not as a substitute for, the company's reported GAAP
results.
Schedule B
Brown-Forman Corporation
Supplemental Information (Unaudited)
Six Months Ended October 31, 2009
Depletion % Change Net Sales % Change vs. YTD FY2009
Brand vs. YTD FY2009 Reported Constant Currency3
Jack Daniel's Family of 12% 2% 3%
Brands
Jack Daniel's Family of (1%) (2%) (1%)
Whiskey Brands4
Jack Daniel's RTD5 50% 42% 48%
Finlandia (4%) (23%) (10%)
Southern Comfort Family (1%) (5%) (5%)
of Brands
Southern Comfort (8%) (9%) (9%)
Southern Comfort RTD6 52% 74% 78%
Fetzer Valley Oaks (5%) (5%) (4%)
Canadian Mist (3%) (0%) (0%)
Korbel Champagne (1%) 0% 0%
el Jimador 7% (7%) 8%
New Mix RTD7 (5%) (24%) (2%)
Super-Premium Other8 (5%) (5%) (1%)
3 Constant currency represents reported net sales with the
effects of fluctuating foreign exchange rates 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 Includes Jack Daniel's Tennessee Whiskey, Gentleman Jack,
and Jack Daniel's Single Barrel
5 Refers to all ready-to-drink line extensions of Jack
Daniel's such as Jack Daniel's & Cola, Jack Daniel's & Ginger, and Jack
Daniel's Country Cocktails
6 Refers to all ready-to-drink and ready-to-pour line
extensions of Southern Comfort including Southern Comfort & Cola,
Southern Comfort Lime & Lemonade, Southern Comfort Hurricane, and
Southern Comfort Sweet Tea
7 Ready-to-drink brand produced with el Jimador tequila.
8 Includes Bonterra, Chambord, Herradura, Sonoma-Cutrer,
Tuaca, and Woodford Reserve
Additional Commentary:
-- For the Jack Daniel's Family of Whiskey Brands, fiscal 2010 first six
month depletion gains in France, Australia, and Germany were offset by
declines in South Africa, the travel retail channel, and slight declines
in the U.S. For the second quarter, depletions for the Jack Daniel's
Family of Whiskey brands were flat as gains in France, Germany, the U.K.
and Australia were offset by declines in South Africa and Ireland.
-- U.S. depletions for Jack Daniel's Tennessee Whiskey declined 1% for the
three and six month periods. Internationally, depletions were slightly
positive for the three month period and down 1% for the six month
period.
-- Gentleman Jack's reported and constant currency net sales increased at a
double digit rate during the six month period.
Schedule B Continued
Brown-Forman Corporation
Supplemental Information (Unaudited)
Six Months Ended October 31, 2009
Additional Commentary Continued:
-- Jack Daniel's & Cola continued to experience significant growth as the
brand experienced depressed results in the comparable period last year
which followed the April 2008 unexpected increase of the ready-to-drink
tax rate in Australia. The brand also benefited from strong gains in
Germany as well as geographic expansion in Mexico and the U.K.
-- Finlandia's performance was affected by soft trends in Eastern Europe
including trading down within the brand to smaller sizes, softer sales
of the higher-margin flavored vodkas, and inventory reductions at the
retail level in the first quarter.
-- Southern Comfort depletion declines slowed as the brand continued to be
affected by weakness in the on-premise channel around the world.
Southern Comfort ready-to-pour expressions continued to perform well as
consumers purchased on-premise-type cocktails for off-premise
consumption.
-- el Jimador continued its positive trends driven by significant depletion
growth in the U.S. and outperformance of the tequila category in Mexico.
-- New Mix's trends returned to positive in the second quarter but six
month results remained down, we believe primarily due to the effect of
the H1N1 flu scare in Mexico City during the first quarter.
-- For many of the company's super-premium brands, second quarter reported
and constant currency net sales trends were positive due to a
combination of higher pricing and improved depletion trends. However,
reported and constant currency net sales remained down for the six month
period as the aggregate second quarter increases did not fully offset
the overall first quarter declines.
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