LOUISVILLE, Ky.--(BUSINESS WIRE)--
Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported diluted earnings
per share1 increased 9% to $0.81 for its fiscal 2009
third quarter ending January 31, 2009. For the first nine months of the
fiscal year, diluted earnings per share increased 7% to $2.34. Reported
operating income decreased 2% to $177 million for the quarter and
decreased 2% to $540 million fiscal year-to-date. Adjusting for items in
Schedule A of this press release, most notably the impact of foreign
exchange, underlying2 operating income grew 8% for the third
quarter and 5% for the first nine months of fiscal 2009. In addition,
reported operating margin (operating income as a percent of net sales)
remained relatively consistent at nearly 22% when comparing the first
nine months of fiscal 2009 to the same prior year period.
Paul Varga, the company's chief executive officer, stated, "We are
pleased to report solid underlying growth in net sales and operating
income through the first nine months of our fiscal 2009. While the
global economic slowdown affected our sales in the third quarter, we
continued to run the company in a manner we believe is appropriate for
this environment. Like most companies today, we are cautious regarding
the short-term outlook given the extreme difficulty and uncertainty in
the global economy. At the same time, however, we believe the strength
of our brands and the health of our balance sheet places Brown-Forman in
a strong position both today and as conditions improve."
The company's reported net sales of $2.5 billion for the nine months
ended January 31, 2009, were flat when compared with the first nine
months of last year. Adjusting for movements in foreign exchange rates,
estimated changes in global distributor inventories, discontinued agency
relationships, and the Australian ready-to-drink excise tax increase,
underlying net sales grew 4% versus the same prior year period. For the
third quarter, reported net sales decreased 11% due primarily to the
impact of foreign exchange, while underlying net sales grew 1%.
-- Net sales for the Jack Daniel's Family of Whiskey Brands, excluding
ready-to-drink products, were flat on a reported basis but grew in the
mid-single digits on a constant currency3 basis for the first nine
months of the fiscal year. Global depletions4 grew in the low single
digits for the first nine months of fiscal 2009 as gains in the U.S.,
Eastern Europe, Australia, and Latin America were partially offset by
declines in Germany, Spain, South Africa, Italy, and Turkey. Third
quarter depletion results were down in the low single digits due
primarily to significant inventory reductions around the world. For the
first nine months of fiscal 2009, reported net sales for Jack Daniel's
Tennessee Whiskey decreased at a low single digit rate, while on a
constant currency basis the brand's net sales grew at a low single digit
rate. Gentleman Jack's net sales grew at a double-digit rate on both a
reported and a constant currency basis for the nine month period.
-- Reported net sales for the Jack Daniel's & Cola ready-to-drink brand
declined in the low single digits while constant currency net sales
increased in the high single digits for the nine months ended January
31, 2009. Depletions increased at a healthy double-digit rate in the
third quarter, nearly erasing the declines experienced in the first half
of the year associated with the substantial increase of ready-to-drink
excise taxes in Australia.
-- Finlandia Vodka's net sales continued to grow at double-digit rates on
both a reported and a constant currency basis for the nine month period,
reflecting higher shipments and pricing gains. Led by Eastern Europe,
global depletions advanced at double-digit rates for both the three and
nine month periods. During the third quarter, Finlandia's depletions
passed the 3 million case mark on a rolling twelve month basis.
-- Southern Comfort's net sales decreased at a high single-digit rate on a
reported basis and contracted at a low single-digit rate on a constant
currency basis during the first nine months of fiscal 2009. The brand
continued to be negatively affected by the consumer switch to
off-premise channels, particularly in the U.S., as well as reductions in
inventory levels. Third quarter depletion gains in Australia and Germany
were more than offset by declines in the U.S. and the U.K.
-- Reported and constant currency net sales grew at double-digit rates for
Sonoma-Cutrer, in the high single digits for Bonterra and Woodford
Reserve, and in the low single digits for Tuaca for the nine month
period. Reported net sales for the Casa Herradura portfolio declined in
the low single digits for the nine month period while constant currency
sales grew in the low single digits. Chambord's reported net sales
decreased in low single digits and remained flat on a constant currency
basis for the nine month period through January 2009. During the third
quarter, the company's super-premium brands experienced softer depletion
trends when compared to the first half as they were increasingly
impacted by the global economic downturn and resulting inventory
reductions.
For the first nine months of the year, reported gross profit declined
6%, while underlying gross profit increased 1% after adjusting for
foreign exchange rate movements, changes in global distributor
inventories, discontinued agency relationships, and the non-cash agave
inventory charge recognized earlier this fiscal year. 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 first nine months of last year. For the third
quarter, reported gross profit decreased 14% and underlying gross profit
declined 2%. The significant strengthening of the U.S. dollar and
inventory reductions for our brands in many markets around the world
were the major factors contributing to these declines.
Reported advertising investments contracted 6% for the first nine months
of the year compared to the same period last year. Adjusting for foreign
exchange movements and spending behind discontinued agency brands,
underlying advertising investments decreased 2% for the first nine
months of fiscal 2009. The company continued to reallocate spending and
adjust its promotional mix 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 and selective discounting programs,
which affects net sales.
Selling, general, and administrative (SG&A) expenses were down 8% for
the first nine months when compared with the same period of last year as
the company benefited from continued tight management of discretionary
spending as well as lower performance-related costs, such as incentive
compensation. Adjusting for changes in foreign exchange rates,
transition costs related to the fiscal 2007 Casa Herradura acquisition,
and the expenses incurred related to our Italian wines divestiture, SG&A
decreased 6% for the nine months ended January 31, 2009.
Brown-Forman's balance sheet remained strong and the company continued
to operate during the nine month period with an "A2" rating from Moody's
and an "A" rating from Standard & Poor's. On January 9, 2009, the
company completed the sale of $250 million in aggregate principal amount
of 5% Notes due February 1, 2014. The company enjoyed continued access
to commercial paper markets throughout the quarter. The strength of the
balance sheet was supported through strong positive operating cash flows
of $343 million for the first nine months of fiscal 2009.
During the third quarter, Brown-Forman paid a cash dividend of $0.2875
per share on its Class A and Class B Common Stock, a 6% increase over
the dividend paid the prior quarter.
Full-Year Outlook
Due to the impact of foreign exchange and global inventory reductions,
and our assumption that these factors will impact our reported results
further in the fourth quarter, we are revising our fiscal year 2009 full
year earnings per share guidance downward to a range of $2.70 to $2.90.
This new range represents a potential reported decline of 5% to possible
growth of 2% over prior year earnings per share of $2.84. The updated
range reflects our cautious outlook about the global economic
environment and its continued effect on our business throughout the
remainder of our fiscal year. Additionally, our guidance includes the
impact of the noncash agave write off and the gain on the sale of
Italian wines announced earlier this fiscal year. This outlook also
incorporates expectations for continued tight management of
discretionary expenses, lower performance-related costs, and a lower
effective tax rate in the fourth quarter when compared to the first nine
months of the fiscal year.
Commenting on the updated guidance, Varga said, "The condition of the
global economy today and the mood of people over the last fifteen
months, particularly the last six months, are obvious causes for
concern. And while this may temper shorter-term growth rates for
everyone, including Brown-Forman, we do not believe it diminishes the
wonderful long-term opportunities which still exist to build our brands
over time for the immense benefit of our shareholders."
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
87273422. 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 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 global economic downturn or turmoil in world
financial and equity markets (and related credit and capital market
instability and illiquidity; decreased consumer and trade spending;
higher unemployment; supplier, customer and consumer credit or other
financial problems, inventory reductions by distributors, wholesalers,
and retailers, bank failures or governmental nationalizations, etc.);
-- pricing, marketing, products, and other competitive activity focused
against our major brands;
-- continued or further decline in consumer confidence or spending, whether
related to global economic conditions, war, natural disasters, terrorist
attacks or other factors;
-- tax increases, changes in tax rules or accounting standards (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;
-- changes in and obligations for employees, former employees and retirees
cost of benefits, and lower returns on pension assets;
-- fluctuations in the U.S. Dollar against foreign currencies, especially
the British Pound, Euro, Australian Dollar, Polish Zloty, South African
Rand, Japanese Yen, Russian Ruble and Mexican Peso;
-- reduced bar, restaurant, hotel and other on-premise business, consumer
shifts to discount stores and other price sensitive purchases and
venues;
-- longer-term, changes in consumer preferences, societal attitudes or
cultural trends that result in reduced consumption of our premium
spirits brands or ready-to-drink products;
-- distribution arrangement changes in major markets that affect the timing
of our sales or limit our ability to market or sell our products
successfully;
-- adverse impacts as a consequence of our acquisitions, joint ventures,
business partnerships, 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;
-- consumer and trade acceptance of product line extensions and new
marketing initiatives;
-- 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.
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 nine 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 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
January 31,
2008 2009 Change
Continuing Operations
Net sales $ 877.4 $ 784.1 (11 %)
Excise taxes 205.0 191.7 (6 %)
Cost of sales 239.8 221.8 (7 %)
Gross profit 432.6 370.6 (14 %)
Advertising expenses 107.6 87.0 (19 %)
Selling, general, and administrative expenses 143.3 113.1 (21 %)
Amortization expense 1.3 1.3
Other (income), net (1.2 ) (8.0 )
Operating income 181.6 177.2 (2 %)
Interest expense, net 9.1 8.1
Income before income taxes 172.5 169.1 (2 %)
Income taxes 56.6 45.7
Net income $ 115.9 $ 123.4 6 %
Earnings per share:
Basic 0.76 0.82 9 %
Diluted 0.75 0.81 9 %
Discontinued Operations
Net income $ 0.1 $ -
Earnings per share:
Basic - -
Diluted - -
Total Company
Net income $ 116.0 $ 123.4 6 %
Earnings per share:
Basic 0.76 0.82 8 %
Diluted 0.75 0.81 9 %
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
(Dollars in millions, except per share amounts)
Nine Months Ended
January 31,
2008 2009 Change
Continuing Operations
Net sales $ 2,509.9 $ 2,508.9 0 %
Excise taxes 534.8 564.7 6 %
Cost of sales 681.5 726.1 7 %
Gross profit 1,293.6 1,218.1 (6 %)
Advertising expenses 314.2 294.1 (6 %)
Selling, general, and administrative expenses 433.1 397.2 (8 %)
Amortization expense 3.8 3.8
Other (income), net (7.2 ) (16.6 )
Operating income 549.7 539.6 (2 %)
Interest expense, net 32.5 23.5
Income before income taxes 517.2 516.1 0 %
Income taxes 176.5 161.3
Net income $ 340.7 $ 354.8 4 %
Earnings per share:
Basic 2.21 2.36 6 %
Diluted 2.19 2.34 7 %
Discontinued Operations
Net income $ - $ -
Earnings per share:
Basic - -
Diluted - -
Total Company
Net income $ 340.7 $ 354.8 4 %
Earnings per share:
Basic 2.21 2.36 6 %
Diluted 2.19 2.34 7 %
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30, January 31,
2008 2009
Assets:
Cash and cash equivalents $ 118.9 $ 334.7
Accounts receivable, net 453.2 413.5
Inventories 684.5 643.2
Other current assets 199.4 203.1
Total current assets 1,456.0 1,594.5
Property, plant, and equipment, net 501.4 479.5
Goodwill 688.0 673.2
Other intangible assets 698.8 686.4
Prepaid pension cost 22.8 26.3
Other assets 38.0 39.9
Total assets $ 3,405.0 $ 3,499.8
Liabilities:
Accounts payable and accrued expenses $ 379.7 $ 299.5
Accrued income taxes 14.7 6.0
Dividends payable - 43.3
Short-term borrowings 589.6 397.2
Total current liabilities 984.0 746.0
Long-term debt 417.0 660.6
Deferred income taxes 88.8 108.4
Accrued postretirement benefits 121.2 115.9
Other liabilities 68.8 57.3
Total liabilities 1,679.8 1,688.2
Stockholders' equity 1,725.2 1,811.6
Total liabilities and stockholders' equity $ 3,405.0 $ 3,499.8
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars in millions)
Nine Months Ended
January 31,
2008 2009
Cash provided by operating activities $ 397.3 $ 342.9
Cash flows from investing activities:
Acquisition of brand names and trademarks (12.0 ) -
Sale of brand names and trademarks - 16.8
Sale of short-term investments 85.6 -
Additions to property, plant, and equipment (31.6 ) (37.1 )
Other (3.6 ) (2.5 )
Cash provided by (used for) investing activities 38.4 (22.8 )
Cash flows from financing activities:
Net (repayment) issuance of debt (164.4 ) 66.5
Acquisition of treasury stock (122.0 ) (22.8 )
Special distribution to stockholders (203.7 ) -
Dividends paid (116.6 ) (125.6 )
Other 19.7 (3.1 )
Cash used for financing activities (587.0 ) (85.0 )
Effect of exchange rate changes on cash and cash 5.1 (19.3 )
equivalents
Net (decrease) increase in cash and cash equivalents (146.2 ) 215.8
Cash and cash equivalents, beginning of period 282.8 118.9
Cash and cash equivalents, end of period $ 136.6 $ 334.7
Brown-Forman Corporation
Supplemental Information (Unaudited)
(Dollars in millions, except per share amounts)
Three Months Ended
January 31,
2008 2009
Gross margin 49.3 % 47.3 %
Operating margin 20.7 % 22.6 %
Effective tax rate 32.8 % 27.0 %
Cash dividends paid per common share $ 0.2720 $ 0.2875
Shares (in thousands) used in the calculation of
earnings per share
Basic 153,545 150,544
Diluted 154,968 151,486
Nine Months Ended
January 31,
2008 2009
Gross margin 51.5 % 48.6 %
Operating margin 21.9 % 21.5 %
Effective tax rate 34.1 % 31.2 %
Cash dividends paid per common share $ 0.7560 $ 0.8315
Shares (in thousands) used in the calculation of
earnings per share
Basic 153,856 150,592
Diluted 155,348 151,739
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, 2009 January 31, 2009
Reported change in net sales (11 %) 0 %
Australian excise tax (1 %) (1 %)
Net sales from agency brands 1 % 1 %
Estimated net change in distributor 2 % 1 %
inventories
Impact of foreign currencies 10 % 3 %
Underlying change in net sales 1 % 4 %
Reported change in gross profit (14 %) (6 %)
Non-cash agave charge - 1 %
Gross profit from agency brands 1 % 1 %
Estimated net change in distributor 3 % 1 %
inventories
Impact of foreign currencies 8 % 4 %
Underlying change in gross profit (2 %) 1 %
Reported change in advertising (19 %) (6 %)
Advertising from agency brands 2 % 2 %
Impact of foreign currencies 9 % 2 %
Underlying change in advertising (8 %) (2 %)
Reported change in SG&A (21 %) (8 %)
Impact from Italian wines divestiture (1 %) -
Transition expenses from acquisitions 1 % 1 %
Impact of foreign currencies 6 % 1 %
Underlying change in SG&A (15 %) (6 %)
Reported change in operating income (2 %) (2 %)
Operating income from agency brands - 1 %
Non-cash agave charge - 4 %
Impact from Italian wines divestiture (11 %) (4 %)
Transition expenses from acquisitions (1 %) (1 %)
Estimated net change in distributor 6 % 1 %
inventories
Impact of foreign currencies 16 % 6 %
Underlying change in operating income 8 % 5 %
Notes:
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.
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.
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 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 non-cash
charge allows for a better understanding of operating income growth
trends.
Italian wines divestiture - Refers to the company's December 2008 sale
of its Bolla and Fontana Candida Italian wine brands to Gruppo Italiano
Vini (GIV). We believe that excluding the net gain on the sales of these
Italian wine brands provides helpful information in forecasting and
planning the growth expectations of the company.
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