Brown-Forman Reports 6% Earnings Per Share Growth for its Fiscal 2011 Second Quarter; Raises Guidance for Fiscal 2011
Louisville, KY, December 9, 2010 – Continuing its strong international growth, Brown-Forman grew diluted earnings per share 6% to $1.05 and reported operating income 4% to $235 million for its fiscal 2011 second quarter ended October 31, 2010. For the first six months of the fiscal year, diluted earnings per share increased 1% to $1.80 while reported operating income decreased 2% to $408 million. Underlying operating income grew 2% in the second quarter and increased 1% for the first six months of fiscal 2011. The company raised its fiscal 2011 earnings per share guidance range to $3.18 to $3.42.
Paul Varga, the company’s chief executive officer stated, “We are pleased with the continued growth of the company through the first half of the fiscal year, particularly the growth in underlying gross profit attributable to our international growth. Based on our first half success, we have more confidence in our outlook for the remainder of the year and reflected that in our guidance.”
Brown-Forman continued to grow underlying and reported net sales in the low single digits during the quarter by 2% and 1% respectively. The company continued its underlying gross profit trends, posting 3% growth for the fourth consecutive quarter. Reported gross profit increased 4%. Brown-Forman’s growth of net sales and gross profit was led by strong performance in various markets around the world, including Australia, Mexico, Spain, the U.K., Germany, and Turkey, which more than offset a soft performance in the U.S. and Russia, the latter of which experienced expected disruption due to a route-to-market change. The company continued its rollout of brand and marketing innovations during the quarter, which contributed modestly to net sales and gross profit growth for the three-month period. The Jack Daniel’s Family of Brands grew net sales 5% for the six-month period. For the balance of fiscal 2011, Brown-Forman expects to continue its solid underlying gross profit growth of the last few quarters and to benefit from broad-based sales growth through its portfolio development and geographic expansion.
Although planned and timing related increases in operating expenses offset the growth in net sales and gross profit for the first six months on a reported basis, underlying operating income returned to growth in the second quarter and for the first half of the year. The company continued to strive to optimize its mix of total brand investment by reallocating resources among brands, geographies, and channels to effectively and efficiently reach consumers around the world. Brown-Forman expects to remain flexible in directing brand spending and other resources to activities that support the business in the current environment while continuing to position the company for long-term growth.
Reported selling, general, and administrative expense for both the quarter and year-to-date was affected by costs associated with changes to the company’s route-to-market in Germany, Brazil, Canada, and Russia. Varga stated, “These strategic investments in our route-to-market should further enhance our company’s ability to deliver long-term growth.” Also during the quarter, Brown-Forman recognized an incremental $5 million of pension expense (an incremental $10 million for the first six months of fiscal 2011) compared to the same period last year, driven by a reduction in the discount rate. This incremental pension expense is expected to recur each of the remaining two quarters of the fiscal year. For the balance of the fiscal year, Brown-Forman continues to expect selling, general, and administrative expenses to moderate significantly and underlying operating income to grow in the mid-single digits for the full fiscal year.
During the quarter, the company repurchased a combined total of $58 million of Class A and Class B shares as part of its authorization which expired on December 1, 2010. Total program repurchases were $117 million, at an average price of approximately $60 per share. On November 18, 2010, Brown-Forman declared a regular quarterly cash dividend of $0.32 per share on Class A and Class B common stock; a 6.7% increase over the prior dividend. For 27 consecutive years, Brown-Forman has increased its dividends per share. The cash dividend is payable on December 27, 2010 to stockholders of record on December 7, 2010. On December 1, 2010 the company announced an additional special cash dividend of $1.00 per share on Class A and Class B common stock. This special cash dividend is payable on December 28, 2010 to stockholders of record on December 10, 2010. Given the uncertainty surrounding the renewal of the current dividend tax rates which expire on December 31, 2010, the company chose to make each of these payments in calendar 2010.
Brown-Forman raised its fiscal 2011 full-year earnings outlook to a range of $3.18 to $3.42 per share, due to foreign exchange along with gross profit expectations associated with international growth and production efficiencies. Several uncertainties remain, including the global economic and consumer environments, especially in the Euro zone. Additional factors that may affect full-year earnings include foreign exchange volatility, the company’s performance in the important holiday period, and the pace of improvement in the U.S. market as well as with the Southern Comfort brand. Brown-Forman continues to anticipate underlying operating income growth in the mid-single digits for its fiscal 2011.
Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EDT) this morning. All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call. International callers should dial 706-679-3410 and ask for the Brown-Forman call. No password is required. The company suggests that participants dial in approximately ten minutes in advance of the 10:00 a.m. start of the conference call.
A live audio broadcast of the conference call will also be available via
Brown-Forman’s Internet Web site, www.brown-forman.com, through a link to “Investor Relations.” For those unable to participate in the live call, a replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291 (international). The identification code is 23789959. A digital audio recording of the conference call will also be available on the Web site approximately one hour after the conclusion of the conference call. The replay will be available for at least 30 days following the conference call.
For 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Fetzer, Korbel, Gentleman Jack, el Jimador, Tequila Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, Woodford Reserve, and Bonterra. Brown-Forman’s brands are supported by nearly 4,000 employees and sold in approximately 135 countries worldwide. For more information about the company, please visit http://localhost/.
Important Information on Forward-Looking Statements:
This report 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,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “potential,” “project,” “pursue,” “see,” “will,” “will continue,” and similar words identify 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 other factors include, but are not limited to:
• continuing or additional pressure on economic conditions in major markets or political, financial, or equity market turmoil (and related credit and capital market instability and illiquidity); high unemployment; supplier, customer or consumer credit or other financial problems; inventory fluctuations at distributors, wholesalers, or retailers; bank failures or governmental nationalizations; etc.
• successful development and implementation of effective business and brand strategies and innovations, including distribution, marketing, promotional activity, favorable trade and consumer reaction to our product line extensions, formulation, and packaging changes
• competitors’ pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, product introductions, or other competitive activities
• prolonged continuation or acceleration of the declines in consumer confidence or spending, whether related to economic conditions (such as austerity measures or tax increases), wars, natural or other disasters, weather, pandemics, security concerns, terrorist attacks or other factors
• changes in tax rates (including excise, sales, VAT, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, tariffs, or other restrictions affecting beverage alcohol, and the unpredictability and suddenness with which they can occur
• trade or consumer resistance to price increases in our products
• tighter governmental restrictions on our ability to produce, import, sell, price, or market our products, including advertising and promotion; regulatory compliance costs
• business disruption, decline or costs related to reductions in workforce or other cost-cutting measures
• lower returns and discount rates related to pension assets, higher interest rates, or significant fluctuations in inflation rates; deflation
• fluctuations in the U.S. dollar against foreign currencies, especially the euro, British pound, Australian dollar, or Polish zloty
• changes in consumer behavior and our ability to anticipate and respond to them, including reduction of bar, restaurant, hotel or other on-premise business; shifts to discount store purchases or shifts away from premium-priced products; other price-sensitive consumer behavior; or reductions in travel
• changes in consumer preferences, societal attitudes or cultural trends that result in reduced consumption of our products
• distribution arrangement and other route-to-consumer decisions or changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related costs
• adverse impacts resulting from our acquisitions, dispositions, joint ventures, business partnerships, or portfolio strategies
• lower profits, due to factors such as fewer used barrel sales, lower production volumes (either for our own brands or for those of third parties), sales mix shift toward lower priced or lower margin skus, or cost increases in energy or raw materials, such as grapes, grain, agave, wood, glass, plastic, or closures
• climate changes, agricultural uncertainties, environmental calamities, our suppliers’ financial hardships or other factors that affect the availability, price, or quality of grapes, agave, grain, glass, energy, closures, plastic, or wood
• negative publicity related to our company, brands, personnel, operations, business performance or prospects
• product counterfeiting, tampering, contamination, or recalls and resulting negative effects on our sales, brand equity, or corporate reputation
• significant costs or other adverse developments stemming from litigation or governmental investigations of beverage alcohol industry business, trade, or marketing practices by us, our importers, distributors, or retailers
• impairment in the recorded value of any assets, including receivables, inventory, fixed assets, goodwill or other intangibles
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