LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation (NYSE:BFB) (NYSE:BFA) reported diluted earnings
per share1 increased 39%, to $0.81, for its fiscal
2010 first quarter ended July 31, 2009. Adjusting for the $0.11 per
share non-cash agave charge recorded in the first quarter of fiscal
2009, diluted earnings per share grew 17% during the three-month period.
Reported operating income for the quarter increased 37%, to $192
million. Adjusting for the items in Schedule A of this press release,
underlying2 operating income increased 23% for the company's
fiscal 2010 first quarter as compared to the same prior-year period.
Paul Varga, the company's chief executive officer stated, "The first
quarter's underlying results were driven by underlying sales growth and
a decline in underlying operating expenses. Selling, general, and
administrative reductions were the largest dollar contributor to lower
operating expenses, due to the timing of spending, a reduced cost base,
and continued tight management of discretionary expenses. Additionally,
our underlying results benefited from seasonal shifts of advertising and
promotional investment, as well as a reallocation of brand investment
both within advertising and promotion and to elsewhere on the income
statement, such as targeted consumer price promotions, which are
captured in net sales."
Varga continued, "We believe our underlying net sales growth and strong
underlying operating income growth in the quarter continued to be in the
top tier of the industry. We will continue to strive for an appropriate
balance of supporting our brands' growth and equity while also
delivering operating expense efficiencies in this challenging economic
environment."
Brown-Forman's reported net sales of $738 million for the quarter ended
July 31, 2009 declined 7% when compared with the same prior year period.
Underlying net sales increased 2% for the quarter due to higher prices
and mix, partially offset by increased consumer price promotions as
underlying case volumes were flat. The brands that drove the 2%
underlying net sales growth were primarily Jack Daniel's & Cola, Jack
Daniel's Tennessee Whiskey, el Jimador, Korbel Champagne, Gentleman
Jack, and Woodford Reserve. Australia, France, and Germany were the most
significant geographical contributors to underlying net sales growth for
the quarter. Results were mixed in Central and Eastern Europe as Jack
Daniel's continued to experience good depletion3 growth
across the region, while Finlandia's depletions grew in some countries
but declined in others. Brown-Forman's results were affected by global
on-premise declines and trading down by consumers. The company's brands
experienced significant retail inventory reductions in Eastern Europe,
while retail inventory levels in U.S. and Southern European markets
appear to have stabilized during the first quarter for many Brown-Forman
brands when compared to the previous six months. However, some of the
company's wine and higher-margin spirit brands experienced retail
inventory reductions in the U.S. during the quarter. Sales through the
travel retail channel were significantly affected by reduced consumer
traffic. Schedule B contains more detailed depletion and net sales
information by brand for the quarter.
Brown-Forman's fiscal 2010 first quarter gross profit was flat on both a
reported and an underlying basis. A shift in sales mix was the primary
reason underlying gross profit trends lagged underlying net sales
growth. The company reduced its underlying advertising and promotion
expense as well as its underlying selling, general, and administrative
expense during the quarter. Brown-Forman's lower underlying advertising
spend was due to seasonal shifts of advertising and promotional
investment, as well as a reallocation of brand investment both within
advertising expense and to activities that are reflected elsewhere on
the income statement. The company's underlying selling, general, and
administrative expense benefited from a reduced cost base as a result of
the company's fiscal 2009 early retirement program and reduction in
workforce, as well as continued tight management of discretionary
expenses and the timing of some investments.
Brown-Forman maintained its strong balance sheet, reducing net debt
during the quarter by $30 million, to $629 million. Cash provided by
operating activities for the first quarter of fiscal 2010 was
approximately $118 million, a 13% increase over the same prior year
period. During the quarter the company repurchased a combined total of
$50 million Class A and Class B shares as part of its share repurchase
program. Through August 31, 2009, total program repurchases were nearly
$115 million of the $250 million authorized until December 4, 2009. Also
during the quarter, Brown-Forman approved a regular quarterly cash
dividend of $0.2875 per share on Class A and Class B common stock. The
cash dividend is payable on October 1, 2009 to stockholders of record on
September 8, 2009. With this dividend, Brown-Forman will have paid
regular quarterly cash dividends for 64 consecutive years.
Full-Year Outlook
The company's fiscal 2010 full-year earnings outlook remains unchanged
at $2.60 to $3.00 per share. While some improvement in global economic
indicators has occurred, concerns about the uncertain environment
remain, including further weakness in the on-premise channel, continued
trading-down by consumers, softening spirits consumption trends,
potential fluctuations in both inventory levels and foreign exchange
rates, and aggressive competitive activities. Brown-Forman expects less
operating expense leverage and more difficult comparables for the
remainder of the year.
Commenting on the first quarter, Varga concluded, "We are pleased with
our good start to the year but we believe the environment will remain
uncertain and challenging. We will continue with our efforts to strike
the right balance of being competitive today while developing our
business for long-term growth. We expect to deliver modest underlying
growth in operating income this fiscal year and we look forward to when
the environment improves and we have the opportunity to return to our
longer-term trends."
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 "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
26140274. 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:
-- deepening or expansion of the global economic downturn or 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 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 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 and 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
-- continued reduction of bar, restaurant, hotel and other on-premise
business; consumer shifts to discount stores to buy our products;
consumer shifts away from premium-priced products; decreased travel; or
other price-sensitive consumer behavior
-- 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
or limit our ability to market or sell our products
-- 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), 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 reduce 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 inventory, fixed assets, goodwill or
other intangibles
1 All prior period 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.
2 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 first 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 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
July 31,
2008 2009 Change
Net sales $ 790.0 $ 737.9 (7 %)
Excise taxes 176.2 167.1 (5 %)
Cost of sales 233.0 190.7 (18 %)
Gross profit 380.8 380.1 0 %
Advertising expenses 97.0 76.0 (22 %)
Selling, general, and administrative expenses 144.3 117.2 (19 %)
Amortization expense 1.3 1.3
Other (income), net (2.4 ) (6.4 )
Operating income 140.6 192.0 37 %
Interest expense, net 7.5 7.1
Income before income taxes 133.1 184.9 39 %
Income taxes 44.9 63.5
Net income $ 88.2 $ 121.4 38 %
Earnings per share:
Basic $ 0.59 $ 0.81 38 %
Diluted $ 0.58 $ 0.81 39 %
Gross margin 48.2 % 51.5 %
Operating margin 17.8 % 26.0 %
Effective tax rate 33.8 % 34.4 %
Cash dividends paid per common share $ 0.2720 $ 0.2875
Shares (in thousands) used in the
calculation of earnings per share
Basic 150,604 149,604
Diluted 151,804 150,271
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, July 31,
2009 2009
Assets:
Cash and cash equivalents $ 340.1 $ 286.5
Accounts receivable, net 367.1 392.6
Inventories 652.0 685.4
Other current assets 214.6 175.5
Total current assets 1,573.8 1,540.0
Property, plant, and equipment, net 482.8 479.7
Goodwill 675.0 678.2
Other intangible assets 686.1 687.3
Other assets 57.0 59.0
Total assets $ 3,474.7 $ 3,444.2
Liabilities:
Accounts payable and accrued expenses $ 326.4 $ 323.0
Dividends payable - 42.8
Short-term borrowings 336.6 253.3
Current portion of long-term debt 152.9 152.9
Other current liabilities 19.7 39.1
Total current liabilities 835.6 811.1
Long-term debt 509.3 509.1
Deferred income taxes 79.6 95.0
Accrued postretirement benefits 175.6 173.5
Other liabilities 58.8 52.5
Total liabilities 1,658.9 1,641.2
Stockholders' equity 1,815.8 1,803.0
Total liabilities and stockholders' equity $ 3,474.7 $ 3,444.2
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Three Months Ended
July 31,
2008 2009
Cash provided by operating activities $ 104.7 $ 117.8
Cash flows from investing activities:
Additions to property, plant, and equipment (13.2 ) (6.8 )
Other (1.0 ) (1.2 )
Cash used for investing activities (14.2 ) (8.0 )
Cash flows from financing activities:
Net repayment of short-term borrowings (10.3 ) (84.1 )
Acquisition of treasury stock (0.3 ) (51.1 )
Dividends paid (41.1 ) (43.2 )
Other (0.7 ) 0.7
Cash used for financing activities (52.4 ) (177.7 )
Effect of exchange rate changes
on cash and cash equivalents 3.2 14.3
Net increase (decrease) in cash and cash equivalents 41.3 (53.6 )
Cash and cash equivalents, beginning of period 118.9 340.1
Cash and cash equivalents, end of period $ 160.2 $ 286.5
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
July 31, 2009
Reported change in net sales (7%)
Excise tax increases (1%)
Impact of discontinued brands 2%
Impact of foreign currencies 8%
Underlying change in net sales 2%
Reported change in gross profit 0%
Non-cash agave charge (FY2009) (6%)
Gross profit from discontinued brands 0%
Impact of foreign currencies 6%
Underlying change in gross profit 0%
Reported change in advertising (22%)
Advertising from discontinued brands 1%
Impact of foreign currencies 6%
Underlying change in advertising (15%)
Reported change in SG&A (19%)
Impact of foreign currencies 5%
Underlying change in SG&A (14%)
Reported change in operating income 37%
Non-cash agave charge (FY2009) (19%)
Impact of discontinued brands 1%
Impact of foreign currencies 4%
Underlying change in operating income 23%
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 may 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)
Three Months Ended July 31, 2009 (Q1 FY2010)
Depletion % Change Net Sales % Change vs. Q1 FY2009
Brand vs. Q1 FY2009 Reported Constant Currency4
Jack Daniel's Family of 15% 1% 8%
Brands
Jack Daniel's Family of (1%) (3%) 2%
Whiskey Brands5
Jack Daniel's RTD6 60% 41% 64%
Finlandia (6%) (24%) (6%)
Southern Comfort Family of (1%) (8%) (3%)
Brands
Southern Comfort (9%) (14%) (10%)
Southern Comfort RTD7 74% 111% 131%
Fetzer Valley Oaks (5%) (8%) (6%)
Canadian Mist (1%) 5% 5%
Korbel Champagne 6% 19% 19%
el Jimador 18% 6% 26%
New Mix RTD8 (19%) (37%) (19%)
Super-Premium Other9 (9%) (13%) (8%)
Additional Commentary:
-- For the Jack Daniel's Family of Whiskey Brands, first quarter depletion
gains in Australia, France and Poland were offset by declines in the
travel retail channel, the U.K., and the U.S.
-- U.S. and International depletions for Jack Daniel's Tennessee Whiskey
declined in the low single digits for the quarter; globally, reported
net sales declined in the mid-single digits while constant currency net
sales increased in the low single digits.
-- Gentleman Jack's reported and constant currency net sales grew in excess
of 25% during the period.
Schedule B Continued
Brown-Forman Corporation
Supplemental Information
(Unaudited)
Three Months Ended July 31, 2009 (Q1 FY2010)
Additional Commentary Continued:
-- Finlandia's performance was affected by trade inventory reductions in
much of Eastern Europe; the brand continued to experience double digit
depletion growth in Russia.
-- Southern Comfort and many of the company's super-premium brands' softer
or negative trends were influenced, in part, by the declining on-premise
channel in the U.S. and elsewhere around the world.
-- el Jimador experienced strong growth over the period as positive
consumer and trade response to the brand's reformulation and repackaging
continued in both Mexico and the U.S. New Mix's first quarter
performance was significantly impacted by the swine flu scare,
particularly in Mexico City, one of the brand's largest markets.
-- Many of the company's mid-priced regional brands realized improved sales
trends as consumers traded down from more premium price points.
4 Constant currency represents reported net sales with the
affect of a stronger 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.
5 Includes Jack Daniel's Tennessee Whiskey, Gentleman Jack,
and Jack Daniel's Single Barrel
6 Refers to all ready-to-drink line extensions of Jack
Daniel's such as Jack Daniel's & Cola and Jack Daniel's Country Cocktails
7 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
8 Tequila ready-to-drink brand acquired in January 2007 as
part of Casa Herradura
9 Includes Bonterra, Chambord, Herradura, Sonoma-Cutrer,
Tuaca, and Woodford Reserve
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