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Brown-Forman Sales Growth Continues; On Track For Full Year Outlook

Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) today reported financial results for its first quarter of fiscal 2014. The company grew reported net sales by 2% to $896 million in the quarter 1, an increase of 5% on an underlying basis 2. As expected, both reported and underlying net sales growth was negatively impacted by the difficult comparison with the prior year period when sales growth benefited from significant distributor and retail buy-ins related to price increases. Net sales growth was also negatively impacted by adverse foreign exchange. Reported operating income decreased 2% to $217 million, but increased 4% on an underlying basis. Diluted earnings per share in the first quarter decreased 3% to $0.66 compared to $0.69 in the prior year period.

Paul Varga, the company’s chief executive officer, said, “Our first quarter unfolded largely as anticipated, and we believe Brown-Forman remains on track to deliver the fiscal 2014 full year outlook we shared with you last quarter. We expect a stronger second quarter against last year’s soft comparables, when trade inventories came back into balance after the first quarter price increase buy-ins. We are confirming our full year growth outlook and remain encouraged by the global consumer’s continuing interest in premium whiskey.”

First Quarter 2014 Highlights
  • Underlying net sales increased 5%:
    • Price/mix contributed 4% points to underlying sales growth in the quarter, and led to a 40bps expansion in reported gross margins
    • Jack Daniel’s trademark grew underlying sales 7%
    • Super- and ultra-premium whiskey brands grew underlying sales 20%, including 25% growth from Woodford Reserve
    • Canadian Mist family of brands grew underlying sales 5%
    • Finlandia grew underlying sales 1%
    • Korbel grew underlying sales 27%
  • Underlying operating income increased 4%

First Quarter 2014 Performance

The company’s underlying sales growth of 5% was driven by solid underlying brand performance offset by the previously mentioned difficult comparison to last year’s buy-ins. The company estimates that last year’s buy-ins contributed two points of incremental growth to the 10% underlying sales increase registered during the year ago period. On a two-year basis, first quarter underlying sales have grown 16%, or almost 8% per year. Price/mix contributed approximately four points to sales growth in the quarter, and helped drive 40bps of gross margin expansion and a 6% increase in underlying gross profits.

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