Brown-Forman Reports Solid Fiscal 2019 Results; Provides Sustained Sales Growth Outlook for Fiscal 2020

Mittwoch, 05.06.19 13:45
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LOUISVILLE, Ky. –

Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported results for the fourth quarter and fiscal year ended April 30, 2019. For the fourth quarter, the company’s reported net sales1 increased 1% to $744 million (+5% on an underlying basis2) compared to the same prior-year period. In the quarter, reported operating income grew 55% to $228 million (+9% on an underlying basis) and diluted earnings per share grew 47% to $0.33.

For the full year, the company’s reported net sales increased 2% to $3,324 million (+5% on an underlying basis). Reported net sales growth was negatively impacted by two percentage points from foreign exchange. The company estimates that net sales growth in the fourth quarter and full year were also negatively impacted by one percentage point due to tariff-related lower net prices to distributors in certain markets. Full year reported operating income grew 9% to $1,144 million (+5% on an underlying basis) and diluted earnings per share of $1.73 increased 17%.

Lawson Whiting, the company's President and Chief Executive Officer, said, “We delivered solid underlying net sales growth of 6% after considering the one point drag due to tariff-related price reductions. This growth rate is in-line with fiscal 2018, as well as our expectations for fiscal 2020, demonstrating the consistency of our revenue delivery. We believe that delivering sustained, compounding growth is the best way to create value for shareholders over the long term.”

Whiting added, “Although tariffs and higher input costs will negatively impact our gross margins again this year, we believe we are on track to return to high single digit operating income growth as we move beyond fiscal 2020. Our growth prospects remain bright as we develop our premium spirits portfolio around the world, led by the Jack Daniel’s family of brands and Woodford Reserve.”

Fiscal 2019 Highlights

  • Underlying net sales grew 5% (+2% reported), with broad-based geographic3 and portfolio contribution:
    • Underlying net sales in the emerging markets grew 11% (+4% reported), the United States 3% (+2% reported) and developed international markets 4% (+1% reported)
    • The Jack Daniel’s family of brands grew underlying net sales 4% (+1% reported), including 2% underlying net sales growth (flat reported) for Jack Daniel’s Tennessee Whiskey
    • Premium bourbons grew underlying net sales 23% (+19% reported), including 22% underlying net sales growth from Woodford Reserve (+17% reported)
    • Herradura and el Jimador both grew underlying net sales 13% (+8% reported)
  • Underlying operating income grew 5% (+9% reported) and diluted earnings per share grew 17% to $1.73
  • The company paid $310 million of dividends and repurchased $200 million of common stock in fiscal 2019

Fiscal 2019 Results By Market - Balanced Geographic Growth, Led by Emerging Markets

The company delivered solid, broad-based growth around the world, with the strongest results coming from the emerging markets, as well as continued mid-single digit growth in the international developed world. Each of the company’s top ten largest markets registered underlying net sales growth in fiscal 2019.

     
Brown-Forman Corporation - Top Ten Markets by Net Sales
Supplemental Information (Unaudited)
Twelve Months Ended April 30, 2019
 
% of % Growth in % Growth in
Reported Net Reported Net Underlying Net
Country   Sales   Sales   Sales
United States   47%   2%   3%
United Kingdom   6%   (4)%   3%
Mexico   5%   3%   11%
Australia   5%   —%   6%
Germany   5%   8%   10%
France   4%   (1)%   2%
Poland   3%   9%   10%
Russia   2%   16%   17%
Japan   1%   15%   2%
Brazil   1%   (13)%   25%
Top Ten Total   79%   2%   5%
Other Markets   21%   3%   5%
Total Worldwide   100%   2%   5%

Note: See Schedule C for reconciliation of non-GAAP underlying to reported net sales growth, which includes the impact from the new accounting standard, changes in foreign exchange, and estimated net change in distributor inventories. Totals may differ due to rounding.

Underlying net sales in the company’s emerging markets grew 11% (+4% reported) on top of last year’s underlying net sales growth of 13% (+18% reported). Mexico was the largest growth driver outside of the United States, with underlying net sales up 11% (+3% reported), fueled by strong gains across the portfolio of tequila brands, including Herradura, New Mix and el Jimador, as well as continued growth from the Jack Daniel’s family of brands. Brazil grew underlying net sales 25% (-13% reported) due to strong demand for Jack Daniel’s Tennessee Whiskey. Poland delivered underlying net sales growth of 10% (+9% reported) as double-digit gains for Jack Daniel’s Tennessee Whiskey more than offset soft results for Finlandia vodka. Russia experienced a 17% increase in underlying net sales (+16% reported) partially driven by soft comparisons with the prior year’s route-to-consumer change. China’s reported and underlying net sales grew strong double-digits driven by the strength in e-commerce, where sales doubled and now account for over 30% of Jack Daniel’s Tennessee Whiskey’s sales in China. Several other emerging markets, including sub-Saharan Africa and the Ukraine delivered double-digit underlying net sales growth in fiscal 2019, while India and Southeast Asia grew high single digits.

Underlying net sales in the United States grew 3% (+2% reported). Although not yet reflected in the company’s rate of sales growth, recent increases in media spend and promotional activity are beginning to accelerate the takeaway growth rates in the United States, which the company believes are a leading indicator of future performance. Six and twelve month syndicated data for Brown-Forman’s value-based consumer takeaway3 trends are in the mid-single digit range, with three month trends now towards the high end of that range.

Underlying net sales growth for the Jack Daniel’s family of brands grew low-single digits in the United States. The company’s premium bourbons, Woodford Reserve and Old Forester, remained standout performers delivering aggregate double-digit underlying net sales growth. Herradura and el Jimador tequilas grew total underlying net sales double-digits due to continued investments in the brands, distribution gains, and favorable category momentum.

Underlying net sales in the company’s developed international markets grew 4% (+1% reported). This growth was suppressed by over one point due to tariffs. Germany and Australia delivered underlying net sales growth of 10% (+8% reported) and 6% (flat reported), respectively. Spain’s reported and underlying net sales grew strong double-digits as results continued to benefit from the fiscal 2018 transition to owned distribution. The United Kingdom, France and Japan were up modestly, delivering low single digit underlying net sales growth.

Travel Retail delivered solid results for fiscal 2019, with underlying net sales up 6% (+1% reported) on top of last year’s underlying net sales growth of 8% (+13% reported). Growth was led by increased demand for Woodford Reserve, expansion of GlenDronach and BenRiach, as well as new product launches, including Jack Daniel’s Bottled-in-Bond and Jack Daniel’s Tennessee Rye.

Fiscal 2019 Results By Brand - Strong, Sustained Growth in American Whiskey and Tequila

The company’s underlying net sales gains were driven by growing global demand for American whiskey. The Jack Daniel’s family of brands grew underlying net sales 4% (+1% reported) globally, and was negatively impacted by approximately one percentage point due to tariffs. Jack Daniel’s Tennessee Whiskey experienced 2% underlying net sales growth (flat reported), driven by volume gains in markets outside of the United States. Gentleman Jack grew underlying net sales 8% (+6% reported) including strong growth in the United States and double-digit gains in the United Kingdom and Poland. Jack Daniel’s Tennessee Honey’s underlying net sales grew 7% (+5% reported) and Jack Daniel’s Tennessee Fire increased underlying net sales 4% (+3% reported), fueled by demand for both brands in markets such as the United Kingdom, Brazil and Czechia. Jack Daniel’s RTD/RTP business delivered broad-based underlying net sales growth of 8% (+4% reported).

Brown-Forman’s portfolio of premium bourbon brands, including Woodford Reserve and Old Forester delivered 23% underlying net sales growth (+19% reported), as category trends remain favorable and the company’s brands continue to gain share. Woodford Reserve, the leader in the super-premium bourbon category, grew underlying net sales 22% (+17% reported) and contributed a point to the company’s underlying net sales growth. Old Forester grew net sales double-digits due to volumetric gains and favorable price/mix. The company also opened the new Louisville distillery and homeplace for the brand on Whiskey Row in fiscal 2019.

el Jimador grew underlying net sales by 13% (+8% reported), propelled by volume growth and higher prices in the United States as well as strong takeaway trends in Mexico despite sizable price increases. Herradura grew underlying net sales by 13% (+8% reported), with double-digit gains in the United States and Mexico fueled in part by continued consumer interest in Herradura Ultra, the brand’s cristalino product. New Mix’s underlying net sales grew high-single digits, helped by innovation including the launch of New Mix Mineral.

Finlandia vodka’s underlying net sales declined 1% (-4% reported). The decrease in underlying net sales was driven by a competitive retail environment for vodka in Poland, offset somewhat by growth in Russia and the Ukraine.

Other P&L Items

Company-wide price/mix contributed two percentage points to the 5% underlying net sales growth (+2% reported) during the fiscal year. Price/mix was negatively impacted by one point due to tariff-related lower net prices. Underlying gross profit grew 2% (-2% reported), and was negatively impacted by tariff costs and higher input costs. Full-year reported gross margins declined 260bps to 65.2%, with approximately 160bps of the decline due to tariffs, and the majority of the remainder from higher input costs, including agave and wood.

Underlying advertising spend increased 3% (-2% reported) for the fiscal year as the company made investments across the brand portfolio, including Jack Daniel’s Tennessee Whiskey, the Woodford Reserve Kentucky Derby sponsorship, and this past summer’s opening of the Old Forester distillery and home-place. Underlying SG&A declined 5% (-16% reported), driven by a reduction in compensation-related expenses as well as the company’s continued focus on cost discipline and efficiency gains. The company delivered underlying operating income growth of 5% (+9% reported). Reported operating income growth benefited by seven percentage points due to the absence of the fiscal 2018 payment to establish a charitable foundation, partially offset by foreign exchange which negatively impacted results by three percentage points.

Financial Stewardship

On May 23, 2019, Brown-Forman declared a regular quarterly cash dividend of $0.166 per share on the Class A and Class B common stock, equating to an annualized cash dividend of $0.664 per share. The quarterly cash dividend is payable on July 1, 2019 to stockholders of record on June 6, 2019. Brown-Forman has paid regular quarterly cash dividends for 73 consecutive years and has increased the dividend for 35 consecutive years.

During fiscal 2019, the company repurchased a total of 4.2 million Class A and Class B shares for $200 million, at an average price of $47 per share. The company’s total debt declined from $2,556 million as of April 30, 2018 to $2,440 million as of April 30, 2019.

Fiscal Year 2020 Outlook

The competitive landscape in the developed world remains intense, and retaliatory tariffs on American whiskey have created additional uncertainty around the company’s near-term outlook. The company is assuming tariffs remain in place for all of fiscal 2020, and currently anticipates:

1. Underlying net sales growth of 5% to 7%.

2. Underlying operating income growth of 3% to 5%.

3. Diluted earnings per share of $1.75 to $1.85.

Conference Call Details

Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (EDT) today. All interested parties in the United States are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call. International callers should dial +1-706-679-3410. The company suggests that participants dial in ten minutes in advance of the 10:00 a.m. (EDT) start of the conference call. A live audio broadcast of the conference call, and the accompanying presentation slides, will also be available via Brown-Forman’s Internet website, http://www.brown-forman.com/, through a link to “Investors/Events & Presentations.” A digital audio recording of the conference call and the presentation slides will also be posted on the website and will be available for at least 30 days following the conference call.

For nearly 150 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Jack Daniel’s RTDs, Jack Daniel’s Tennessee Honey, Jack Daniel’s Tennessee Fire, Gentleman Jack, Jack Daniel’s Single Barrel, Finlandia, Korbel, el Jimador, Woodford Reserve, Old Forester, Canadian Mist, Herradura, New Mix, Sonoma-Cutrer, Early Times, Chambord, BenRiach, GlenDronach, and Slane. Brown-Forman’s brands are supported by over 4,900 employees and sold in more than 170 countries worldwide. For more information about the company, please visit http://www.brown-forman.com/.

Important Information on Forward-Looking Statements:

This press release contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “might,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” “would,” and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and uncertainties include, but are not limited to:

  • Unfavorable global or regional economic conditions and related low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
  • Risks associated with being a U.S.-based company with global operations, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including additional retaliatory tariffs on American spirits and the effectiveness of our actions to mitigate the negative impact on our sales, on our margins, and distributors; compliance with local trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics
  • Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar
  • Changes in laws, regulations, or policies – especially those that affect the production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products
  • Tax rate changes (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, or capital gains) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
  • The impact of U.S. tax reform legislation, including as a result of future clarifications and guidance interpreting the statute
  • Dependence upon the continued growth of the Jack Daniel’s family of brands
  • Changes in consumer preferences, consumption, or purchase patterns – particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; legalization of marijuana use on a more widespread basis; shifts in consumer purchase practices from traditional to e-commerce retailers; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
  • Decline in the social acceptability of beverage alcohol in significant markets
  • Production facility, aging warehouse, or supply chain disruption
  • Imprecision in supply/demand forecasting
  • Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, labor, or finished goods
  • Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs
  • Inventory fluctuations in our products by distributors, wholesalers, or retailers
  • Competitors’ and retailers’ consolidation or other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks
  • Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
  • Inadequate protection of our intellectual property rights
  • Product recalls or other product liability claims, product counterfeiting, tampering, contamination, or quality issues
  • Significant legal disputes and proceedings, or government investigations
  • Failure or breach of key information technology systems
  • Negative publicity related to our company, brands, marketing, personnel, operations, business performance, or prospects
  • Failure to attract or retain key executive or employee talent
  • Our status as a family “controlled company” under New York Stock Exchange rules, and our dual class share structure

For further information on these and other risks, please refer to the “Risk Factors” section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

 
 
 
 

Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
For the Three Months Ended April 30, 2018 and 2019
(Dollars in millions, except per share amounts)

 
        2018     2019     Change
 
Net sales $ 733 $ 744 1%
Cost of sales 221   262   19%
Gross profit 512 482 (6%)
Advertising expenses 97 93 (5%)
Selling, general, and administrative expenses 269 163 (39%)
Other expense (income), net (1 ) (2 )
Operating income 147 228 55%
Non-operating postretirement expense 2 3
Interest expense, net 17   19  
Income before income taxes 128 206 61%
Income taxes 18   47  
Net income $ 110   $ 159   45%
 
Earnings per share:
Basic $ 0.23 $ 0.33 46%
Diluted $ 0.23 $ 0.33 47%
 
Gross margin 70.0 % 64.8 %
Operating margin 20.1 % 30.7 %
 
Effective tax rate 13.9 % 22.5 %
 
Cash dividends paid per common share $ 1.158 $ 0.166
 

Shares (in thousands) used in the calculation of earnings per share

Basic 480,718 477,034
Diluted 486,482 480,047
 
 
 
 

Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
For the Twelve Months Ended April 30, 2018 and 2019
(Dollars in millions, except per share amounts)

 
        2018     2019     Change
 
Net sales $ 3,248 $ 3,324 2%
Cost of sales 1,046   1,158   11%
Gross profit 2,202 2,166 (2%)
Advertising expenses 405 396 (2%)
Selling, general, and administrative expenses 765 641 (16%)
Other expense (income), net (16 ) (15 )
Operating income 1,048 1,144 9%
Non-operating postretirement expense 9 22
Interest expense, net 62   80  
Income before income taxes 977 1,042 7%
Income taxes 260   207  
Net income $ 717
Quelle: Business Wire



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