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Brown-Forman Reports Excellent Results In Fiscal 2014; Expects Another Year Of Strong Growth In Fiscal 2015

Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported financial results for its fourth quarter and fiscal year ended April 30, 2014. For the full year, reported net sales 1 increased 4% to $3,946 million (+6% on an underlying basis 2), reported operating income increased 8% to $971 million (+11% on an underlying basis), and diluted earnings per share increased 11% to $3.06 compared to $2.75 in the prior year period. Reported earnings per share were negatively impacted by a reduction in inventory levels primarily due to the route-to-consumer change in France that occurred on January 1, 2014, but benefited from a lower effective tax rate.

For the fourth quarter, reported net sales increased 3% to $893 million (+3% on an underlying basis) and reported operating income increased 7% to $189 million (-2% on an underlying basis). Diluted earnings per share in the quarter increased 17% to $0.62, compared to $0.52 in the prior year period.

Paul Varga, the company’s Chief Executive Officer, said, “We are pleased to report another fiscal year of excellent organic growth, particularly in light of the moderating growth rates of our global competitors. I believe that our leadership position in premium American whiskey, led by the one and only Jack Daniel’s trademark, and a very balanced geographic contribution, underpin the company’s differentiated performance. We remain optimistic about the organic growth prospects for Brown-Forman, and our investment posture and fiscal 2015 earnings outlook reflect that optimism.”

Fiscal 2014 Highlights

  • Underlying net sales increased more than 6% on the strength of the company’s premium whiskey portfolio, as well as broad-based geographic gains
    • Price/mix contributed three points to net sales growth and gross margin expanded 100bps
    • Jack Daniel’s family of brands grew underlying net sales 8%
    • Jack Daniel’s Tennessee Honey depleted one million cases; 20th largest brand over $25/bottle 3
    • The company’s super and ultra-premium whiskey brands grew underlying net sales 19%
    • Finlandia’s family of brands grew underlying net sales 4%
  • Underlying operating income increased 11%, driven by top-line growth, gross margin expansion, and operating expense leverage through SG&A
  • Returned $280 million to shareholders ($233 million in dividends, $47 million in share repurchases)
  • As of April 30, 2014, Brown-Forman generated an ROIC 4 of 22%, and delivered a ten-year TSR 5 of 17% per year, more than double the S&P 500’s TSR of 8% per year

Fiscal 2014 Performance By Market - Balanced Geographic Growth

The company enjoyed solid gains in both the emerging markets and the developed world. Underlying net sales grew 4% (+4% reported) in the United States, 6% (+1% reported) in developed markets outside of the United States, and 9% (+8% reported) in the emerging markets. Other markets outside of the top ten representing 16% of net sales delivered an impressive 12% underlying net sales growth rate (+10% reported), and are becoming increasingly important contributors to the company’s growth.

                         

Brown-Forman Corporation - Top Ten Countries

Supplemental Information (Unaudited)

Twelve Months Ended April 30, 2014

 
Country    

% of

Reported Net Sales

     

% Growth in

Reported Net Sales

     

% Growth in

Constant Currency Net Sales

      % Growth in

Underlying Net Sales

United States     41%       4%       4%       4%
Australia     12%       (8)%       2%       2%
United Kingdom     10%       9%       8%       8%
Mexico     6%       (5)%       (4)%       (4)%
Germany     5%       13%       8%       8%
Poland     4%       5%       2%       2%
Russia     2%       19%       21%       23%
France     2%       (12)%       (16)%       18%
Turkey     1%       24%       32%       32%
Canada     1%       2%       6%       4%
Top Ten Total     84%       3%       4%       5%
Other Markets     16%       13%      

14%

     

15%

Total Worldwide     100%       4%       6%      

6%

 

Emerging markets underlying net sales growth of 9% was noteworthy in light of the slowdown experienced by several industry competitors. The company believes that its large and relatively diverse portfolio of emerging markets has helped insulate its results from a slowdown in any one particular market. Turkey’s underlying net sales jumped 32% as the company continued to gain share after investing in an owned distribution model three years ago. Brazil also delivered strong rates of growth after making similar route-to-market investments, growing underlying net sales by 44% (+28% reported). Russia also enjoyed strong year-over-year growth, with underlying net sales up 23%. While China remains a small market for the company today, initiatives launched in fiscal 2014 helped deliver underlying net sales growth of 35% (+64% reported) in the year.

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