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Brown-Forman Reports Strong Third Quarter Results And Raises Full Year Growth Outlook

Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) today reported financial results for its third quarter and the first nine months of fiscal 2014 ended January 31, 2014. The company’s reported net sales grew 5% to $1,078 million in the quarter 1 (+8% on an underlying basis 2). Reported operating income grew 7% to $255 million in the quarter (+16% underlying). Diluted earnings per share in the third quarter increased 13% to $0.82 compared to $0.73 in the prior year period. For the first nine months of fiscal 2014, reported net sales increased 5% (+7% underlying), reported operating income increased 9% (+14% underlying), and diluted earnings per share increased 10% to $2.45 compared to $2.22 in the prior year period.

Paul Varga, the company’s chief executive officer, said, “We delivered great top- and bottom-line results in the third quarter, continuing the momentum from the first half. We believe our top-tier performance was due primarily to the global strength of the Jack Daniel’s trademark, disciplined innovation, our favorable skew to outperforming categories and price points, and our limited exposure to some of the emerging markets that have decelerated.”

Varga continued, “Given the continued strength and resilience of our business, we are raising our full year outlook for fiscal 2014 and now expect low double-digit growth in underlying operating income and diluted earnings per share of $2.95-$3.05.”

Year-to-Date Fiscal 2014 Highlights

  • Underlying net sales increased 7% year-to-date:
    • Jack Daniel’s trademark grew underlying sales 10%, including double-digit gains for Tennessee Honey
    • Emerging markets underlying sales grew 12% (10% reported, 11% constant currency)
    • Price/mix contributed over 3% points to underlying sales growth, and led to a 70bps expansion in reported gross margins
    • The company’s super-premium whiskey brands grew underlying sales by 16%, including 27% growth from the Woodford Reserve family
    • Finlandia’s family of brands grew underlying sales by 9%
  • Underlying operating income increased 14%, driven by top-line growth, gross margin expansion, and operating leverage

Year-to-Date Fiscal 2014 Performance

The company’s underlying net sales growth of 7% during the first nine months of fiscal 2014 was driven by strong and balanced geographic growth. Emerging markets delivered year-to-date underlying net sales growth of 12% (+10% reported), powered by continued strength across a wide range of countries. This includes double-digit gains in China, Brazil, Russia, Thailand, Turkey, India and the CIS countries. Poland also grew underlying net sales at a double-digit rate, but benefited from significant buy-in activity in advance of the January 1, 2014 excise tax and price increase in that country. Mexico’s underlying net sales declined mid single-digits in the first nine months, negatively impacted by high inventory levels in the first quarter of the year as well as a competitive marketplace for the tequila category.

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