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Brown-Forman Reports Strong First Half Results And Raises Full Year Outlook

Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) today reported financial results for its second quarter and the first half of fiscal 2013 ended October 31, 2012. Reported net sales were flat 1 in the quarter at $1,013 million, and increased 6% on an underlying basis 2. As expected, reported net sales growth in the quarter was negatively impacted from the giveback associated with first quarter trade buy-ins in advance of price increases, as well as the impact from foreign exchange and the absence of Hopland-based wines. Reported operating income in the quarter increased 7% to $262 million, up 9% on an underlying basis. Diluted earnings per share for the second quarter increased 11% to $0.80 compared to $0.73 in the prior year period. For the first six months of the year, underlying sales increased 8%, underlying operating income increased 12% (+2% and +12%, respectively on a reported basis), and diluted earnings per share increased 18% to $1.49.

Paul Varga, the company’s chief executive officer said, “Our brands continue to deliver strong and balanced underlying growth in an uncertain global environment. We are pleased with the balance in both geographic and portfolio mix, as well as the fact that our gross margin expansion has benefited from volume gains, higher prices and lower costs.”

Year-to-Date 2013 Highlights

  • Underlying net sales increased 8%, driven by broad-based geographic gains and brand performance, with constant currency net sales 3 up 9%:
    • Jack Daniel’s family of brands grew net sales 9%
    • The company’s super and ultra-premium whiskey brands grew net sales 21%
    • Herradura grew net sales 22%
    • Finlandia’s family of brands grew net sales 9%
  • Underlying operating income increased 12%, driven by revenue growth, gross margin expansion, and operating expense leverage.

Year-to-Date 2013 Performance

Brown-Forman’s brand portfolio enjoyed broad-based gains with the majority of the company’s brands delivering solid net sales growth on a year-to-date basis. The company has been focused on driving better balanced revenue contribution by brand and increasing the contribution from price/mix, and recent results suggest that these efforts are working. While the Jack Daniel’s trademark continues to grow in the high single digits, the company’s other brands experienced improving trends, delivering 6% growth compared to 3% in the same period last year. The company’s revenue growth was also better balanced, with price/mix up over two points, helping drive year-to-date gross margin expansion of 260 basis points. Gross margins also benefited from the absence of Hopland-based wines and a reduction in costs associated with lower use of value-added packaging.

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