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Brown-Forman Year-to-Date Performance Remains On Track – Confirms And Narrows Full Year Guidance

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 website, 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 855-859-2056 (U.S.) or 404-537-3406 (international). The identification code is 55232232. A digital audio recording of the conference call will also be available on the website approximately one hour after the conclusion of the conference call. The replay will be available for at least 30 days following the conference call.

For more than 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Korbel, Gentleman Jack, el Jimador, Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, and Woodford Reserve. Brown-Forman’s brands are supported by nearly 3,900 employees and sold in approximately 135 countries worldwide. For more information about the company, please visit http://www.brown-forman.com/.

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 “aim,” “anticipate,” “aspire,” “believe,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,” “will,” “will continue,” 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:

  • declining or depressed global or regional economic conditions; political, financial, or credit or capital market instability; supplier, customer or consumer credit or other financial problems; bank failures or governmental debt defaults
  • failure to develop or implement effective business and brand strategies and innovations, including route-to-consumer, and marketing and promotional activity
  • unfavorable trade or consumer reaction to our new products, product line extensions, or changes in formulation, packaging or pricing
  • inventory fluctuations in our products by distributors, wholesalers, or retailers
  • competitors’ pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets, or other competitive activities
  • declines in consumer confidence or spending, whether related to the economy (such as austerity measures, tax increases, high fuel costs, or higher unemployment), wars, natural or other disasters, weather, pandemics, security concerns, terrorist attacks or other factors
  • changes in tax rates (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, or other restrictions affecting beverage alcohol, and the unpredictability and suddenness with which they can occur
  • governmental or other restrictions on our ability to produce, import, sell, price, or market our products, including advertising and promotion in either traditional or new media; regulatory compliance costs
  • business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting measures
  • lower returns or discount rates related to pension assets, interest rate fluctuations, inflation or deflation
  • fluctuations in the U.S. dollar against foreign currencies, especially the euro, British pound, Australian dollar, or Polish zloty
  • changes in consumer behavior or preferences and our ability to anticipate and respond to them, including societal attitudes or cultural trends that result in reduced consumption of our products; reduction of bar, restaurant, hotel or other on-premise business or travel
  • consumer shifts away from spirits or premium-priced spirits products; shifts to discount store purchases or other price-sensitive consumer behavior
  • distribution and other route-to-consumer decisions or changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related costs
  • effects of acquisitions, dispositions, joint ventures, business partnerships or investments, or portfolio strategies, including integration costs, disruption or other difficulties, or impairment in the recorded value of assets (e.g. receivables, inventory, fixed assets, goodwill, trademarks and other intangibles)
  • lower profits, due to factors such as fewer or less profitable used barrel sales, lower production volumes, decreased demand for products we sell, sales mix shift toward lower priced or lower margin SKUs, or cost increases in energy or raw materials, such as grain, agave, wood, glass, plastic, or closures
  • natural disasters, climate change, agricultural uncertainties, environmental or other catastrophes, our suppliers’ financial hardships or other factors that affect the availability, price, or quality of agave, grain, glass, energy, closures, plastic, water, wood, or finished goods
  • negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
  • product counterfeiting, tampering, contamination, or recalls and resulting negative effects on our sales, brand equity, or corporate reputation
  • significant costs or other adverse developments stemming from class action, intellectual property, governmental, or other major litigation; or governmental investigations of beverage alcohol industry business, trade, or marketing practices by us, our importers, distributors, or retailers

1 The Hopland based wine business was sold in April, 2011, and remained an agency brand through December 31, 2011. The net negative effect of this business on third quarter earnings growth was $0.04 per diluted share and $0.14 for the first nine months of the fiscal year.

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 third quarter and first nine months of fiscal 2012, and the reasons why management believes these adjustments to be useful to the reader, are included in Schedule A and the note 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

4 Advertising expenses plus selling, general, and administrative expenses

5 Return on invested capital is defined as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by average invested capital. Invested capital equals assets less liabilities, excluding interest-bearing debt for the trailing twelve months ended January 31, 2012 and excluding the impact of the Hopland based wine business

       
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Three Months Ended January 31, 2011 and 2012

(Dollars in millions, except per share amounts)

 

2011

2012

Change

 
Net sales $ 962.4 $ 959.0 0 %
Excise taxes 254.4 257.4 1 %
Cost of sales   244.5     250.7   3 %
Gross profit 463.5 450.9 (3 %)
Advertising expenses 96.8 98.8 2 %
Selling, general, and administrative expenses 142.3 148.0 4 %
Amortization expense 1.3 0.8
Other (income), net   (2.4 )   (2.9 )
Operating income 225.5 206.2 (9 %)
Interest expense, net   6.9     7.3  
Income before income taxes 218.6 198.9 (9 %)
Income taxes   77.9     65.8  
Net income $ 140.7   $ 133.1   (5 %)
 
Earnings per share:
Basic $ 0.97 $ 0.94 (3 %)
Diluted $ 0.96 $ 0.93 (3 %)
 
Gross margin 48.2 % 47.0 %
Operating margin 23.4 % 21.5 %
 
Effective tax rate 35.6 % 33.1 %
 
Cash dividends paid per common share:
Regular quarterly cash dividend $ 0.32 $ 0.35
Special cash dividend   1.00     --  
Total $ 1.32   $ 0.35  
 

Shares (in thousands) used in the calculation of earnings per share:

Basic 145,061 141,928
Diluted 146,040 143,000
 
       
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Nine Months Ended January 31, 2011 and 2012

(Dollars in millions, except per share amounts)

 

2011

2012

Change

 
Net sales $ 2,613.0 $ 2,813.1 8 %
Excise taxes 637.2 692.5 9 %
Cost of sales   674.7     747.4   11 %
Gross profit 1,301.1 1,373.2 6 %
Advertising expenses 266.7 296.3 11 %
Selling, general, and administrative expenses 407.2 433.9 7 %
Amortization expense 3.8 3.4
Other (income) expense, net   (9.7 )   1.3  
Operating income 633.1 638.3 1 %
Interest expense, net   19.2     21.5  
Income before income taxes 613.9 616.8 0 %
Income taxes   207.8     208.1  
Net income $ 406.1   $ 408.7   1 %
 
Earnings per share:
Basic $ 2.78 $ 2.85 2 %
Diluted $ 2.77 $ 2.83 2 %
 
Gross margin 49.8 % 48.8 %
Operating margin 24.2 % 22.7 %
 
Effective tax rate 33.8 % 33.7 %
 
Cash dividends paid per common share:
Regular quarterly cash dividends $ 0.92 $ 0.99
Special cash dividend   1.00     --  
Total $ 1.92   $ 0.99  
 

Shares (in thousands) used in the calculation of earnings per share:

Basic 145,787 143,317
Diluted 146,670 144,346
 
       
Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

(Dollars in millions)

 
April 30, January 31,
2011 2012
Assets:
Cash and cash equivalents $ 567.1 $ 494.9
Accounts receivable, net 495.9 568.7
Inventories 646.7 684.2
Other current assets   266.1   205.3
Total current assets 1,975.8 1,953.1
 
Property, plant, and equipment, net 393.4 385.3
Goodwill 625.4 616.6
Other intangible assets 670.1 667.7
Other assets   47.4   53.7
Total assets $ 3,712.1 $ 3,676.4
 
Liabilities:
Accounts payable and accrued expenses $ 411.5 $ 390.8
Dividends payable -- 49.7
Current portion of long-term debt 254.9 253.0
Other current liabilities   40.4   32.1
Total current liabilities 706.8 725.6
 
Long-term debt 504.5 503.5
Deferred income taxes 149.6 173.4
Accrued postretirement benefits 203.3 173.5
Other liabilities   87.5   65.7
Total liabilities 1,651.7 1,641.7
 
Stockholders’ equity   2,060.4   2,034.7
 
Total liabilities and stockholders’ equity $ 3,712.1 $ 3,676.4
 
         
Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended January 31, 2011 and 2012

(Dollars in millions)

 
2011 2012
 
Cash provided by operating activities $ 399.5 $ 341.7
 
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment 12.1 --
Additions to property, plant, and equipment (26.5 ) (31.1 )
Acquisitions of brand names and trademarks -- (7.2 )
Other   (2.4 )   (2.6 )
Cash used for investing activities (16.8 ) (40.9 )
 
Cash flows from financing activities:
Net issuance of debt 59.0 2.9
Acquisition of treasury stock (118.3 ) (219.1 )
Dividends paid (279.5 ) (142.0 )
Other   0.4     0.8  
Cash used for financing activities (338.4 ) (357.4 )
 

Effect of exchange rate changes on cash and cash equivalents

  2.7     (15.6 )
 
Net increase (decrease) in cash and cash equivalents 47.0 (72.2 )
 
Cash and cash equivalents, beginning of period   231.6     567.1  
 
Cash and cash equivalents, end of period $ 278.6   $ 494.9  
 
             

Schedule A

Brown-Forman Corporation
Supplemental Information (Unaudited)
 
 
Three Months Ended Nine Months Ended Fiscal Year Ended
January 31, 2012 January 31, 2012 April 30, 2011
 
 
 
Reported change in net sales 0 % 8 % 6 %
Estimated net change in distributor inventories 3 % - -
Impact of Hopland-based wine business sale 2 % 1 % -
Impact of foreign currencies 2 % (1 %) (2 %)
 
Underlying change in net sales 7 % 8 % 4 %
 
 
Reported change in gross profit (3 %) 6 % 7 %
Estimated net change in distributor inventories 4 % - -
Impact of Hopland-based wine business sale 3 % 3 % -
Impact of foreign currencies 2 % (1 %) (2 %)
 
Underlying change in gross profit 6 % 8 % 5 %
 
Reported change in advertising 2 % 11 % 5 %
Impact of foreign currencies 3 % (1 %) (1 %)
Impact of Hopland-based wine business sale 2 % 1 % -
 
Underlying change in advertising 7 % 11 % 4 %
 
Reported change in SG&A 4 % 7 % 6 %
Impact of foreign currencies 1 % (1 %) (1 %)
Other (2 %) (1 %) -
Impact of Hopland-based wine business sale - - (1 %)
Dispute settlement - - 1 %
 
Underlying change in SG&A 3 % 5 % 5 %
 
Reported change in operating income (9 %) 1 % 20 %
Estimated net change in distributor inventories 9 % - (1 %)
Impact of Hopland-based wine business sale 6 % 5 % (7 %)
Other 1 % - -
Impact of foreign currencies - 2 % (3 %)
Dispute settlement - - (1 %)
Impairment charge - - (2 %)
 
Underlying change in operating income 7 % 8 % 6 %
 

Notes:

Estimated net change in distributor inventories – Refers to the estimated financial impact of changes in distributor inventories for the company’s brands. Brown-Forman computes this effect using estimated depletion trends and separately identifying trade inventory changes in the variance analysis for key measures. Based on the estimated depletions and the fluctuations in distributor inventory levels, the company then adjusts the percentage variances from prior to current periods for our key measures. Brown-Forman believes it is important to make this adjustment in order for management and investors to understand the results of the business without distortions that can arise from varying levels of distributor inventories.

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