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Brown-Forman Reports Full Year 2012 Results – Anticipates Another Strong Year Of High Single-Digit Underlying Operating Income Growth In Fiscal 2013

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 website, http://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 79064300. 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 4,000 employees and sold in approximately 135 countries worldwide. For more information about the Company, please visit http://www.brown-forman.com/.

Footnotes:

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 fourth quarter and 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. 2 The Hopland-based wine business was sold in April of 2011, and remained as agency brands through December 31, 2011. The net negative effect of this business on fourth quarter earnings growth was $0.29 per diluted share and $0.43 for the full year. These agency relationships resulted in fiscal 2012 reported net sales of $79 million and $0.04 per diluted share. 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 TSR (Total Shareholder Return) assumes dividends reinvested, and measured over the one-year period ending April 30, 2012. 5 ROIC, or 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 one-year period ended April 30, 2012.

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, particularly in the Euro zone; 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, portfolio and brand strategies, including the increased U.S. penetration and international expansion of Jack Daniel’s Tennessee Honey, innovation, marketing and promotional activity, and route-to-consumer
  • unfavorable trade or consumer reaction to our new products, product line extensions, price changes, marketing, or changes in formulation, flavor or packaging
  • inventory fluctuations in our products by distributors, wholesalers, or retailers
  • competitors’ consolidation or other competitive activities such as pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets
  • 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, 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, Polish zloty or Mexican peso
  • 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 or higher fixed costs
  • effects of acquisitions, dispositions, joint ventures, business partnerships or investments, or their termination, including acquisition, integration or termination 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 or inability to meet consumer 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, or other factors that affect the availability, price, or quality of agave, grain, glass, energy, closures, plastic, water, or wood, or that cause supply chain disruption or disruption at our production facilities or aging warehouses
  • 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
       
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Three Months Ended April 30, 2011 and 2012

(Dollars in millions, except per share amounts)

 

2011

2012

Change

 
Net sales $ 791.3 $ 801.3 1 %
Excise taxes 180.6 198.4 10 %
Cost of sales   187.4     181.1   (3 %)
Gross profit 423.3 421.8 0 %
Advertising expenses 99.7 98.6 (1 %)
Selling, general, and administrative expenses 166.9 175.2 5 %
Amortization expense 1.3 0.1
Other (income), net   (66.5 )   (2.2 )
Operating income 221.9 150.1 (32 %)
Interest expense, net   7.3     6.8  
Income before income taxes 214.6 143.3 (33 %)
Income taxes   49.2     38.8  
Net income $ 165.4   $ 104.5   (37 %)
 
Earnings per share:
Basic $ 1.14 $ 0.74 (35 %)
Diluted $ 1.13 $ 0.73 (35 %)
 
Gross margin 53.5 % 52.6 %
Operating margin 28.0 % 18.7 %
 
Effective tax rate 22.9 % 27.1 %
 

Cash dividends paid per common share

$ 0.32 $ 0.35
 

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

Basic 145,005 142,016
Diluted 145,997 143,073
       
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Years Ended April 30, 2011 and 2012

(Dollars in millions, except per share amounts)

 

2011

2012

Change

 
Net sales $ 3,404.3 $ 3,614.4 6 %
Excise taxes 817.8 891.0 9 %
Cost of sales   862.1     928.4   8 %
Gross profit 1,724.4 1,795.0 4 %
Advertising expenses 366.5 395.0 8 %
Selling, general, and administrative expenses 574.0 609.1 6 %
Amortization expense 5.1 3.5
Other (income), net   (76.2 )   (1.0 )
Operating income 855.0 788.4 (8 %)
Interest expense, net   26.4     28.3  
Income before income taxes 828.6 760.1 (8 %)
Income taxes   257.0     246.9  
Net income $ 571.6   $ 513.2   (10 %)
 
Earnings per share:
Basic $ 3.92 $ 3.59 (9 %)
Diluted $ 3.90 $ 3.56 (9 %)
 
Gross margin 50.7 % 49.7 %
Operating margin 25.1 % 21.8 %
 
Effective tax rate 31.0 % 32.5 %
 
Cash dividends paid per common share:
Regular quarterly cash dividends $ 1.24 $ 1.34
Special cash dividend   1.00      
Total $ 2.24   $ 1.34  
 

 

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

Basic 145,603 143,019
Diluted 146,514 144,055
     
Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

As of April 30, 2011 and 2012

(Dollars in millions)

 

2011

2012

Assets:
Cash and cash equivalents $ 567 $ 338
Accounts receivable, net 496 475
Inventories 647 712
Other current assets   266   224
Total current assets 1,976 1,749
 
Property, plant, and equipment, net 393 399
Goodwill 625 617
Other intangible assets 670 668
Other assets   48   44
Total assets $ 3,712 $ 3,477
 
Liabilities:
Accounts payable and accrued expenses $ 412 $ 386
Current portion of long-term debt 255 3
Other current liabilities   40   15
Total current liabilities 707 404
 
Long-term debt 504 503
Deferred income taxes 150 158
Accrued postretirement benefits 203 278
Other liabilities   88   65
Total liabilities 1,652 1,408
 
Stockholders’ equity   2,060   2,069
 
Total liabilities and stockholders’ equity $ 3,712 $ 3,477
     
Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Years Ended April 30, 2011 and 2012

(Dollars in millions)

 

2011

2012

 
Cash provided by operating activities $ 527 $ 516
 
Cash flows from investing activities:
Proceeds from sale of business 234
Additions to property, plant, and equipment (39 ) (58 )
Other   8     (10 )
Cash provided by (used for) investing activities 203 (68 )
 
Cash flows from financing activities:
Net issuance (repayment) of debt 57 (248 )
Acquisition of treasury stock (136 ) (220 )
Dividends paid (326 ) (192 )
Other   (1 )   (2 )
Cash used for financing activities (406 ) (662 )
 

Effect of exchange rate changes on cash and cash equivalents

  11     (15 )
 
Net increase (decrease) in cash and cash equivalents 335 (229 )
 
Cash and cash equivalents, beginning of period   232     567  
 
Cash and cash equivalents, end of period $ 567   $ 338  
             

Schedule A

 
Brown-Forman Corporation
Supplemental Information (Unaudited)
 
 
Three Months Ended Fiscal Year Ended Fiscal Year Ended
April 30, 2012 April 30, 2012 April 30, 2011
 
 
 
Reported change in net sales 1 % 6 % 6 %
Estimated net change in distributor inventories 2 % 1 % -
Impact of foreign currencies 3 % - (2 %)
Impact of Hopland-based wine business sale 4 % 2 % -
 
Underlying change in net sales 10 % 9 % 4 %
 
 
Reported change in gross profit 0 % 4 % 7 %
Estimated net change in distributor inventories 2 % - -
Impact of Hopland-based wine business sale 2 % 3 % -
Impact of foreign currencies 4 % 1 % (2 %)
 
Underlying change in gross profit 8 % 8 % 5 %
 
Reported change in advertising (1 %) 8 % 5 %
Impact of foreign currencies 1 % - (1 %)
Impact of Hopland-based wine business sale 2 % 1 % -
 
Underlying change in advertising 2 % 9 % 4 %
 
Reported change in SG&A 6 % 6 % 6 %
Dispute settlement (4 %) (1 %) 1 %
Impact of foreign currencies 2 % 1 % (1 %)
Impact of Hopland-based wine business sale 4 % - (1 %)
 
Underlying change in SG&A 8 % 6 % 5 %
 
Reported change in operating income (32 %) (8 %) 20 %
Estimated net change in distributor inventories 3 % 1 % (1 %)
Dispute settlement 6 % 1 % (1 %)
Impact of foreign currencies 10 % 3 % (3 %)
Impact of Hopland-based wine business sale 26 % 12 % (7 %)
Impairment charge - - (2 %)
 
Underlying change in operating income 13 % 9 % 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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