Brown-Forman Reports Strong Start to Fiscal 2019
Louisville, KY, August 29, 2018 – Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its first quarter of fiscal 2019, ended July 31, 2018. For the first quarter, the company’s reported net sales1 increased 6% to $766 million (+9% on an underlying2 basis) compared to the same prior-year period. In the quarter, reported operating income increased 7% to $264 million (+10% on an underlying basis) and diluted earnings per share grew 12% to $0.41.
Paul Varga, the company’s Chief Executive Officer said, “Brown-Forman’s business momentum continued during the first quarter of fiscal 2019, with strong net sales growth as consumer demand for our premium American whiskey brands remained robust. After considering the estimated impact of order phasing related to tariffs, our first quarter growth was in-line with last year’s underlying net sales growth and keeps us on track to deliver another strong year of top-line growth in the 6-7% range.”
Lawson Whiting, the company’s Chief Operating Officer and incoming CEO added, “There remains significant uncertainty around the duration of recently enacted tariffs, but we have been encouraged by the resilience of our business model as we are working to minimize short-term disruption and maintain our top-line momentum. We believe that our consistent reinvestment back into our brands and people positions us well over the long term to continue generating leading returns for our shareholders.”
First Quarter Fiscal 2019 Highlights
• Underlying net sales grew 9% (+6% reported), with broad-based geographic3 and balanced portfolio contribution:
◦ Developed international markets grew underlying net sales by 16% (+12% reported), emerging markets grew underlying net sales by 11% (+7% reported), and the United States grew underlying net sales by 2% (0% reported)
◦ The Jack Daniel’s family of brands grew underlying net sales 10% (+7% reported), including 8% underlying net sales growth (+5% reported) for Jack Daniel’s Tennessee Whiskey
◦ The company’s super-premium American whiskey brands grew underlying net sales +25% (+24% reported), including 29% underlying net sales growth from Woodford Reserve (+30% reported)
◦ Herradura and el Jimador grew underlying net sales 10% and 11%, respectively (+11% and +10%, reported)
• Underlying operating income grew 10% (+7% reported)
First Quarter of Fiscal 2019 Results By Market – Broad-Based Growth
The company delivered solid, broad-based growth around the world, with the strongest results coming from markets outside of the United States. The company estimates that an increase in retail and wholesale inventory levels, largely related to tariffs, contributed approximately two to three points of underlying net sales growth to company-wide top-line results.
The United States grew underlying net sales +2% (0% reported), against last year’s 5% comparison. According to syndicated data, Brown-Forman’s value based takeaway trends remain consistently in the mid-single digits rate of growth. The Jack Daniel’s family of brands excluding Tennessee Whiskey grew underlying net sales high-single digits, with gains from Tennessee Honey, Tennessee Fire, and RTDs/RTP (RTDs3), as well as the continued launch of Jack Daniel’s Tennessee Rye. The company’s premium bourbons continued to grow rapidly in the United States, including strong double-digit underlying net sales gains from Woodford Reserve and Old Forester. Herradura and el Jimador tequila grew aggregate underlying net sales in the mid-teens.
Underlying net sales in the company’s developed markets outside of the United States were very strong, up 16% (+12% reported). Results in the European Union benefited from easy comparisons versus the same year ago period and the timing of orders as our trade partners worked to navigate an uncertain period given recently enacted tariffs. Germany and the United Kingdom grew underlying net sales by 38% (+28% reported) and 33% (+19% reported), respectively, while France’s underlying net sales increased 3% (-1% reported). Spain continued to grow well into the double-digits on the heels of last year’s transition to owned distribution in that market. Australia’s underlying net sales increased 6% (+2% reported) and Canada’s underlying net sales were flat (-2% reported).
Emerging markets continued to strengthen on a two-year basis despite increasingly difficult comparisons, with underlying net sales growth of 11% (+7% reported). Mexico grew underlying net sales by 5% (-6% reported), fueled by strong growth across the portfolio of RTDs as well as American whiskey. Poland delivered underlying net sales growth of 4% (+8% reported) as strength in whiskey was offset somewhat by soft results for Finlandia as the company begins to transition to new packaging for the brand. Brazil grew underlying net sales 30% (+20% reported) due to strong demand for Jack Daniel’s Tennessee Whiskey. Russia experienced a 12% decline (+57% reported) due to challenging comparisons related to the changes in distributor and related buying patterns. Most other emerging markets, such as Turkey, China, Romania, India, and Ukraine delivered underlying net sales well into the double-digits in the quarter.
Travel Retail delivered solid growth in the quarter, with underlying net sales up 22% (+24% reported). The company’s premium American whiskey brands, including the Jack Daniel’s family of brands and Woodford Reserve, enjoyed strong consumer demand, and Travel Retail benefited from new product launches, higher passenger volumes, and timing related to trade buying.
First Quarter of Fiscal 2019 Results By Brand – Strong Growth in American Whiskey and Tequila
The company’s underlying net sales growth was led by the Jack Daniel’s family of brands, up 10% (+7% reported). Jack Daniel’s Tennessee Whiskey experienced 8% underlying net sales growth globally (+5% reported), with strong volume gains in markets outside of the United States. Jack Daniel’s Tennessee Honey’s underlying net sales grew 12% (+21% reported) as the brand continued its global growth trajectory. Jack Daniel’s RTD business maintained its strong momentum from fiscal 2018, delivering underlying net sales growth of 10% (+6% reported). Gentleman Jack grew underlying net sales 7% (+4% reported). Jack Daniel’s Tennessee Fire increased underlying net sales 13% (+10% reported), led by continued global growth for the brand.
Brown-Forman’s portfolio of super-premium American whiskey brands, including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack, delivered 25% underlying net sales growth (+24% reported). Woodford Reserve grew underlying net sales 29% (+30% reported). Old Forester grew at an even faster rate, powered by the combination of volumetric gains and favorable mix.
Finlandia vodka’s underlying net sales declined 10% (-18% reported). The decrease in underlying net sales was primarily driven by some disruption related to packaging changes for the brand in Poland, as well as a competitive environment for premium vodka.
el Jimador grew underlying net sales by 11% (+10% reported), fueled by strong takeaway trends in the United States as the company continued to invest in building brand awareness. Herradura grew underlying net sales by 10% (+11% reported). The brand registered double-digit gains in the United States and the continued growth of Herradura Ultra benefited Mexico’s results. New Mix’s underlying net sales grew mid-single digits despite the competitive environment for RTDs.
Other P&L Items
Company-wide price/mix contributed four percentage points to the 9% underlying net sales growth (+6% reported). Underlying gross profit also grew 9% in the quarter (+6% reported).
Underlying advertising spend increased 17% (+14% reported) during the first quarter, as the company continued to invest across the portfolio of brands, including the new Woodford Reserve Kentucky Derby sponsorship. Underlying SG&A grew 5% for the quarter (+4% reported), driven primarily by higher personnel costs. The company delivered underlying operating income growth of 10% (+7% reported).
On July 13, the board approved a share repurchase authorization of $200 million, effective through July 12, 2019, subject to market and other conditions. On July 26, 2018, Brown-Forman declared a regular quarterly cash dividend of $0.158 per share on the split-adjusted Class A and Class B common stock, equating to an annualized cash dividend of $0.632 per share. The quarterly cash dividend is payable on October 1, 2018 to stockholders of record on September 6, 2018. Brown-Forman has paid regular quarterly cash dividends for 73 consecutive years and has increased the dividend for 34 consecutive years.
Fiscal Year 2019 Outlook
The global economy has continued to improve over the last year. However, the competitive landscape in the developed world remains intense, and recently enacted retaliatory tariffs on American whiskey have created additional uncertainty around the company’s near-term outlook, making it difficult to accurately predict future results. The company currently anticipates:
1. Underlying net sales growth of 6% to 7%.
2. A slight increase in underlying SG&A, and underlying A&P up in-line with underlying net sales growth.
3. Underlying operating income growth of 4% to 6%.
4. Diluted earnings per share of $1.65 to $1.75. This range includes the net estimated change to operating income growth due primarily to tariffs, which we assume remain in place for the full fiscal year, as well as expectations for additional foreign exchange headwinds at current spot rates.
Prior FY19 EPS Outlook $1.75 – $1.85
Net Change to OI Growth (0.06)
Additional FX Headwinds and Other (0.04)
FY19 Reported EPS Outlook $1.65 – $1.75
YOY Reported EPS Growth 11% – 18%
Conference Call Details
Brown-Forman will host a conference call to discuss the 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://localhost/, through a link to “Investors/Events & Presentations.” For those unable to participate in the live call, information regarding the digital audio recording of the conference call and the presentation slides will also be on the website. The replay 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 & Cola, 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 4,800 employees and sold in more than 170 countries worldwide. For more information about the company, please visit http://localhost/.
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 potential retaliatory tariffs on American spirits and the effectiveness of our actions to mitigate the potential negative impact on our sales 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 the recently enacted U.S. tax reform legislation, including as a result of future regulations 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, or 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.
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