Brown-Forman CEO Discusses F2Q2011 Results – Earnings Call Transcript
Brown-Forman Corporation (BF.B)
F2Q2011 Earnings Call Transcript
December 9, 2010 10:00 am ET
Executives
Ben Marmor – EVP and CFO
Paul Varga – Chairman and CEO
Don Berg – SVP, Director of Finance, Accounting and Technology
Jane Morreau – Assistant VP and Director, IR
Analysts
Dara Mohsenian – Morgan Stanley
Kaumil Gajrawala – UBS
Vivien Azer – Citigroup
Lauren Torres – HSBC
Judy Hong – Goldman Sachs
Tim Ramey – D. A. Davidson
Kevin Dreyer – Gabelli & Company
Thomas Russo – Gardner Russo & Gardner
Dara Mohsenian – Morgan Stanley
Edward Mundy – Nomura
Presentation
Operator
Good morning. My name is Keila and I will be your conference operator today.
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At this time, I would like to welcome everyone to the Brown-Forman's Second Quarter Fiscal 2011 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) I will now turn the call over to Ben Marmor.
Ben Marmor
Good morning, and thank you for joining us for Brown-Forman's fiscal 2011 second quarter earnings call. This is Ben Marmor, the Director of Investor Relations at Brown-Forman. Joining me today are Paul Varga, our President and Chief Executive Officer; Don Berg, Executive Vice President and Chief Financial Officer; and Jane Morreau, Senior Vice President, Finance.
I will begin our call this morning with a few remarks about our quarter and Don will provide additional commentary about our guidance and recent business performance.
As always, this morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements and the company undertakes no obligation to update any of these statements, whether due to new information, future events or otherwise.
This morning we issued a press release containing our results for the fiscal 2011 second quarter. The release can be found on our website under the section titled Investor Relations. We have listed in the press release a number of risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K, Form 8-K, and Form 10-Q reports filed with the Securities and Exchange Commission.
During this call, we also will discuss certain non-GAAP financial measures. These measures and the reasons management believes provide useful information to investors regarding the company's financial conditions and results of operations are contained in the press release.
With that, I will turn the call over to Paul.
Paul Varga
Thank you Ben and good morning everyone. I’ll just say a few comments before turning it over to Don. Overall, we’re pleased with the quarter we reported this morning and the first half of our fiscal year on a handful of fronts. I’ll sight three. The first is our overall performance; we feel that we had good gross profit growth on the heels of our international growth in the first half and as you may have seen, as a result of that and our current views on foreign exchange, we’ve raised our guidance for the full year.
On a second front, we’re really pleased in the first half to have been able to make strategic investments behind the business and I will sight two areas, one, in this first half investments we made behind our developing route to market around the world, and most notably in markets such as Germany, Russia, Brazil and Canada, and then secondly strategic investments we've made behind the brands, primarily in the areas of packaging and line extensions. We've been feeling that these investments position the company for growth going forward.
Then finally, I would just want to mention that we’re pleased with the continued strength of our balance sheet and our overall financial flexibility. This would be evidenced by the recent increase in our regular dividend and then last week’s announcement related to special dividend. So in general, we have really good feelings about the first half of the year.
With that to talk about a little more specifically I will turn it over to Don.
Don Berg
Thanks Paul. Good morning, everyone. I also plan to keep my comments brief this morning since later today we will spend some time discussing our global strategy at our Analyst Conference. As you all know this morning we issued our fiscal 2011 second quarter earnings release and we raised our guidance for the year. Our performance during the second quarter and for year-to-date is essentially a continuation of the story that we've experienced over the prior six months. Given that performance are several important takeaways.
The first takeaway is that we believe we're on track to deliver solid results for the year. We've raised our EPS guidance and narrowed the range to $3.18 to $3.42. This movement as Paul said is primarily driven by foreign exchange along with our gross profit expectations that are associated with our international growth and production efficiencies. For our underlying operating income, we are maintaining our guidance for mid-single digit growth.
Another takeaway is that during our second quarter, our gross profit growth remains solid at 3% on an underlying basis, an improvement over fiscal year 2010 gross profit growth of 1%. The current 12-month run rate for gross profit has also improved to 3%. Once again, the development of our business internationally, continue to drive our growth with underlying international sales of 6%. Underlying sales in the U.S. remained soft, but improved from our first quarter. While we're working to improve our U.S. trends, we are pleased with our success internationally in both developed and emerging markets.
Our third key takeaway is that our operating expenses were in line with our expectations. On an underlying basis, advertising expenses were up about 1%, underlying SG&A was up 6% during the quarter reflecting the planned strategic investments we mentioned in the first quarter primarily related to route to market changes, as well as the incremental pension expense that we noted in June and that we'll continue to see throughout the rest of the fiscal year.
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