Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported
results for the third quarter and nine months of fiscal 2019, ended
January 31, 2019. For the third quarter, the company’s reported net
sales1 increased 3% to $904 million (+4% on an underlying basis2)
compared to the same prior-year period. The company estimates that
underlying net sales growth in the third quarter was negatively
impacted by one percentage point due to lower net prices to
distributors in certain markets to offset the incremental cost of
tariffs. In the quarter, reported operating income grew 4% to $320
million (+4% on an underlying basis) and diluted earnings per share
grew 20% to $0.47.
For the first nine months of the fiscal year, the company’s
reported net sales increased 3% to $2,580 million (+5% on an
underlying basis). Reported net sales growth was negatively
impacted by three percentage points from foreign exchange. The
company estimates that year-to-date underlying net sales growth was
negatively impacted by almost one percentage point due to
tariff-related lower net prices. Year-to-date reported operating
income grew 2% to $916 million (+4% on an underlying basis) and
diluted earnings per share of $1.40 increased 12%.
Lawson Whiting, the company's Chief Executive Officer, said,
“Our portfolio of premium spirits brands delivered solid rates of
sustained sales growth, led by the strength of our bourbon and
tequila brands, as well as the international expansion of the Jack
Daniel’s trademark. We remain on track to deliver another strong
year of results as cost discipline helped offset some of the large
burden we are absorbing due to the retaliatory tariffs on American
whiskey.” Whiting added, “The growth opportunity for our brand
portfolio remains significant, and our teams around the world are
executing on our long-term growth strategy.”
Year-to-date Fiscal 2019
Highlights
- Underlying net sales grew 5% (+3%
reported), with broad-based geographic3 and portfolio contribution:
- Underlying net sales in the emerging
markets grew by 10% (+3% reported), developed international markets
by 4% (flat reported), and the United States by 4% (+3%
reported)
- The Jack Daniel’s family of brands grew
underlying net sales 4% (+2% reported), including 2% underlying net
sales growth (flat reported) for Jack Daniel’s Tennessee
Whiskey
- Super-premium American whiskey brands
grew underlying net sales 24% (+21% reported), including 24%
underlying net sales growth from Woodford Reserve (+21%
reported)
- Herradura and el Jimador grew
underlying net sales 14% and 15%, respectively (+9% and +11%
reported)
- Underlying operating income grew 4%
(+2% reported) and earnings per share increased 12% to $1.40
- The company repurchased $78 million of
common stock during the three months ended January 31, 2019
Year-to-date Fiscal 2019 Results By
Market - Balanced Geographic Delivery of Growth
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 developed
world.
Year-to-date underlying net sales in the United States grew 4%
(+3% reported). Sales growth continued to accelerate quarter over
quarter in fiscal 2019, resulting in 5% underlying net sales growth
in the third quarter (7% reported), as back half weighted
activities began to take hold in the marketplace. According to six
and twelve month syndicated data, Brown-Forman’s value-based
consumer takeaway3 trends are in the mid-single digit range. The
company’s premium bourbons, Woodford Reserve and Old Forester,
remained standout performers in the United States delivering strong
double-digit underlying net sales growth. Sales growth for the Jack
Daniel’s family of brands including Jack Daniel’s Tennessee
Whiskey, Gentleman Jack, Jack Daniel’s RTD/RTP products, Jack
Daniel’s Tennessee Fire and Jack Daniel’s Tennessee Honey also
accelerated sequentially. Herradura and el Jimador tequilas
grew aggregate underlying net sales double-digits due to continued
investments in the brands and favorable category momentum.
Underlying net sales in the company’s developed international
markets grew 4% (flat reported), driven primarily by volume gains.
This growth was suppressed by approximately two points from the
previously mentioned tariff-related lower net prices, primarily in
Europe. Germany and Australia delivered very strong underlying net
sales growth of 13% (+9% reported) and 7% (flat reported),
respectively. Spain’s year-to-date underlying net sales grew
double-digits as results continued to benefit from the fiscal 2018
transition to owned distribution. The United Kingdom and France
were up modestly, delivering underlying net sales growth of 3% (-5%
reported) and 1% (-1% reported), respectively. Canada’s underlying
net sales declined 5% (-10% reported) due to a change in our
selling and marketing structure.
Underlying net sales in the company’s emerging markets grew 10%
(+3% reported) on top of last year’s underlying net sales growth of
15% (+19% reported). Mexico remained the largest growth driver,
with underlying net sales up 15% (+5% 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 27%
(-6% reported) due to strong demand for Jack Daniel’s Tennessee
Whiskey. Poland delivered underlying net sales growth of 1% (+2%
reported) as double-digit gains for Jack Daniel’s Tennessee Whiskey
were largely offset by soft results for Finlandia. Russia
experienced a 4% increase in underlying net sales (+24% reported).
Turkey’s underlying net sales declined low single-digits, while
reported net sales were down significantly due to adverse foreign
exchange. Several other emerging markets, including Southeast Asia,
China, Ukraine and India delivered double-digit underlying net
sales growth during the first nine months of fiscal 2019.
Travel Retail delivered solid year-to-date results, with
underlying net sales up 6% (+1% 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.
Year-to-date Fiscal 2019 Results By
Brand - Strong Growth in American Whiskey and
Tequila
The company’s underlying net sales growth was driven by strong
global demand for American whiskey. The Jack Daniel’s family of
brands grew underlying net sales 4% (+2% reported) globally, and
was negatively impacted by approximately one percentage point due
to tariff-related lower net prices. Jack Daniel’s Tennessee Whiskey
experienced 2% underlying net sales growth (flat reported), driven
by volume gains. Gentleman Jack grew underlying net sales 8% (+8%
reported). Jack Daniel’s Tennessee Honey’s underlying net sales
gained 6% (+6% reported) and Jack Daniel’s Tennessee Fire increased
underlying net sales 6% (+5% reported), fueled by continued global
growth for both brands. Jack Daniel’s RTD/RTP business delivered
underlying net sales growth of 8% (+3% reported) despite difficult
comparisons against last year’s high rates of growth.
Brown-Forman’s portfolio of super-premium American whiskey
brands, including Woodford Reserve, Jack Daniel’s Single Barrel and
Gentleman Jack, delivered 24% underlying net sales growth (+21%
reported), as category trends remain favorable. Woodford Reserve
grew underlying net sales 24% (+21% reported) and is enjoying
out-sized growth as the leader in the super-premium bourbon
category. Old Forester grew net sales double-digits due to
volumetric gains and favorable price/mix.
el Jimador grew underlying net sales by 15% (+11% reported),
propelled by volume growth and higher prices in the United States
as well as strong takeaway trends in Mexico after repositioning the
brand in the premium space over the last few years. Herradura grew
underlying net sales by 14% (+9% reported), with double-digit gains
in the United States and Mexico fueled by continued consumer demand
for Herradura Ultra. New Mix’s underlying net sales grew
double-digits, helped by new SKUs and innovation including the
launch of New Mix Mineral.
Finlandia vodka’s underlying net sales declined 7% (-9%
reported). The decrease in underlying net sales was driven by a
competitive retail environment for vodka in Poland and the tough
prior year comparison when we changed to a new distributor in
Russia.
Other P&L Items
Company-wide price/mix contributed two percentage points to the
5% underlying net sales growth (+3% reported) during the first nine
months of the year. Underlying gross profit grew 3% (flat
reported), and was held back by the cost of absorbing tariffs and
higher input costs. Year-to-date reported gross margins declined
190bps to 65.3%, with approximately 130bps of the decline due to
tariffs.
Underlying advertising spend increased 3% (-2% reported)
year-to-date as the company made investments across the brand
portfolio, including Jack Daniel’s Tennessee Whiskey, the first
year of the Woodford Reserve Kentucky Derby sponsorship, and this
past summer’s opening of the Old Forester distillery and homeplace.
Underlying SG&A declined 2% (-4% reported), driven by a
continued focus on cost discipline and efficiency gains, as well as
declines in compensation-related costs. The company delivered
underlying operating income growth of 4% (+2% reported). Foreign
exchange negatively impacted reported operating income growth by
three percentage points.
Financial Stewardship
On January 29, 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 April 1, 2019 to
stockholders of record on March 4, 2019. Brown-Forman has paid
regular quarterly cash dividends for 73 consecutive years and has
increased the dividend for 35 consecutive years.
During the third quarter of fiscal 2019, the company repurchased
a total of 1.6 million Class A and Class B shares for $78 million,
at an average price of $48 per share. These repurchases completed
the company’s $200 million share repurchase program.
As of January 31, 2019, total debt was $2,508 million compared
to $2,556 million as of April 30, 2018.
Fiscal Year 2019 Outlook
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. Assuming tariffs remain in place for the full fiscal year,
the company currently anticipates:
- Underlying net sales growth of 6% to
7%.
- Modest declines in underlying SG&A
and underlying A&P growth roughly in-line with net sales
gains.
- Underlying operating income growth of
4% to 6%.
- Diluted earnings per share of $1.65 to
$1.75.
Conference Call Details
Brown-Forman will host a conference call to discuss these
results at 10:00 a.m. (EST) 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. (EST)
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.” For those unable to
participate in the live call, the digital audio recording of the
conference call and the presentation slides will also be posted 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 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 4,800 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 potential retaliatory tariffs on American
spirits and the effectiveness of our actions to mitigate the
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 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.
Brown-Forman CorporationUnaudited
Consolidated Statements of OperationsFor the Three Months Ended
January 31, 2018 and 2019(Dollars in millions, except per
share amounts)
2018 2019
Change Net sales $ 878 $ 904 3 % Cost of sales 291
333 14 % Gross profit 587 571 (3 %) Advertising expenses 112
103 (8 %) Selling, general, and administrative expenses 173 149 (13
%) Other expense (income), net (4 ) (1 ) Operating income 306 320 4
% Non-operating postretirement expense 2 15 Interest expense, net
15 21 Income before income taxes 289 284 (2 %) Income
taxes 99 57 Net income $ 190 $ 227 19 %
Earnings per share: Basic $ 0.39 $ 0.47 20 % Diluted $ 0.39
$ 0.47 20 % Gross margin 66.8 % 63.1 % Operating margin 34.9
% 35.3 % Effective tax rate 34.4 % 20.3 % Cash
dividends paid per common share $ 0.158 $ 0.166
Shares (in thousands) used in the
calculation of earnings per share
Basic 480,361 477,301 Diluted 484,244 480,099
Brown-Forman CorporationUnaudited
Consolidated Statements of OperationsFor the Nine Months Ended
January 31, 2018 and 2019(Dollars in millions, except per
share amounts)
2018 2019
Change Net sales $ 2,515 $ 2,580 3 % Cost of sales 825
896 9 % Gross profit 1,690 1,684 0 % Advertising
expenses 308 303 (2 %) Selling, general, and administrative
expenses 496 478 (4 %) Other expense (income), net (15 ) (13 )
Operating income 901 916 2 % Non-operating postretirement expense 7
19 Interest expense, net 45 61 Income before income
taxes 849 836 (2 %) Income taxes 242 160 Net income $
607 $ 676 11 % Earnings per share: Basic $
1.26 $ 1.41 12 % Diluted $ 1.25 $ 1.40 12 % Gross margin
67.2 % 65.3 % Operating margin 35.8 % 35.5 % Effective tax
rate 28.5 % 19.2 % Cash dividends per common share: Declared
$ 1.608 $ 0.648 Paid $ 0.450 $ 0.482
Shares (in thousands) used in the
calculation of earnings per share
Basic 480,193 479,522 Diluted 483,511 482,665
Brown-Forman CorporationUnaudited
Condensed Consolidated Balance Sheets(Dollars in millions)
April 30,
2018
January 31,
2019
Assets: Cash and cash equivalents $ 239 $ 260 Accounts receivable,
net 639 737 Inventories 1,379 1,471 Other current assets 298 287
Total current assets 2,555 2,755 Property, plant, and
equipment, net 780 801 Goodwill 763 754 Other intangible assets 670
651 Other assets 208 202 Total assets $ 4,976 $ 5,163
Liabilities: Accounts payable and accrued expenses $ 581 $ 587
Dividends payable — 79 Accrued income taxes 25 22 Short-term
borrowings 215 207 Total current liabilities 821 895
Long-term debt 2,341 2,301 Deferred income taxes 85 119 Accrued
postretirement benefits 191 198 Other liabilities 222 157 Total
liabilities 3,660 3,670 Stockholders’ equity 1,316 1,493
Total liabilities and stockholders’ equity $ 4,976 $ 5,163
Brown-Forman CorporationUnaudited
Condensed Consolidated Statements of Cash FlowsFor the Nine Months
Ended January 31, 2018 and 2019(Dollars in millions)
2018 2019 Cash
provided by operating activities $ 582 $ 577 Cash flows from
investing activities: Additions to property, plant, and equipment
(100 ) (84 ) Other (21 ) (2 ) Cash used for investing activities
(121 ) (86 ) Cash flows from financing activities: Net
change in short-term borrowings 111 (13 ) Repayment of long-term
debt (250 ) — Acquisition of treasury stock (1 ) (206 ) Dividends
paid (216 ) (231 ) Other (24 ) (8 ) Cash used for financing
activities (380 ) (458 ) Effect of exchange rate changes on
cash and cash equivalents 24 (12 ) Net increase
(decrease) in cash and cash equivalents 105 21 Cash and cash
equivalents, beginning of period 182 239 Cash
and cash equivalents, end of period $ 287 $ 260
Schedule A
Brown-Forman Corporation Supplemental Information
(Unaudited) Three Months
Ended Nine Months Ended Fiscal Year Ended
January 31, 2019 January 31, 2019 April 30,
2018 Reported change in net sales
3% 3% 8% New accounting standard —% 1% —%
Foreign exchange 3% 3% (1)% Estimated net change in distributor
inventories (2)% (1)% (1)%
Underlying change in net
sales 4% 5% 6%
Reported change in gross profit (3)% —%
9% New accounting standard —% 1% —% Foreign exchange 3% 3%
(2)% Estimated net change in distributor inventories (1)% (1)% (1)%
Underlying change in gross profit (1)%
3% 6% Reported change in advertising
expenses (8)% (2)% 8% New accounting
standard 2% 3% —% Foreign exchange 2% 2% (3)%
Underlying
change in advertising expenses (4)% 3%
6% Reported change in SG&A (13)%
(4)% 15% New accounting standard 1% 1% —% Foundation
—% —% (11)% Foreign exchange 2% 1% (2)%
Underlying change
in SG&A (11)% (2)% 3%
Reported change in operating income 4% 2%
5% New accounting standard (2)% —% —% Foundation —% —% 7%
Foreign exchange 5% 3% (2)% Estimated net change in distributor
inventories (4)% (1)% (2)%
Underlying change in operating
income 4% 4% 8% Note: Totals
may differ due to rounding
See "Note 2 - Non-GAAP Financial Measures"
for details on our use of Non-GAAP financial measures, how these
measures are calculated and the reasons why we believe this
information is useful to readers.
Note - The growth rates for fiscal 2018
above agree to our fiscal 2018 Form 10-K and do not reflect the
impact from the adoption of the ASU 2017-07 accounting standard
(related to pension), which we adopted effective May 1,
2018. The retrospective adjustment for ASU 2017-07 will
increase our fiscal 2018 SG&A growth to +17% reported (+5%
underlying) and will decrease our operating income growth to +4%
reported (+6% underlying).
Schedule B
Brown-Forman
CorporationSupplemental Brand Information
(Unaudited)Nine Months Ended January 31, 2019
% Change vs. Prior Year Period
Brand3
Depletions3 Net Sales2
9-Liter
Drinks
Equivalent3
Reported
New
Accounting
Standard
Foreign
Exchange
Estimated Net
Change in
Distributor
Inventories
Underlying
Whiskey 4% 4% 3% —% 2%
(1)% 5% Jack Daniel’s Family of Brands
4% 4% 2% —% 3% (1)% 4%
Jack Daniel’s Tennessee Whiskey 3% 3%
—% —% 3% (1)% 2% Jack Daniel’s RTD/ RTP
5% 5% 3% —% 5% —%
8% Jack Daniel’s Tennessee Honey 6% 6%
6% 1% 3% (2)% 6% Gentleman Jack
8% 8% 8% 1% 2%
(2)% 8% Jack Daniel’s Tennessee Fire 7%
7% 5% 1% 1% (1)% 6% Other Jack
Daniel’s Whiskey Brands 28% 28% 6%
—% 2% 8% 16% Woodford Reserve
22% 22% 21% 1% 1% 2%
24% Rest of Whiskey (5)% (5)% 4%
1% —% 2% 8% Tequila 6%
9% 8% 2% 4% (1)% 13% el
Jimador 9% 9% 11% 2% 3%
(1)% 15% Herradura 12% 12%
9% 3% 3% (1)% 14% Rest of
Tequila 5% 7% 5% 1% 6%
—% 11% Vodka (1)% (1)%
(9)% —% 4% (3)% (7)% Wine
—% —% (1)% 1% —% —% —%
Rest of Portfolio (8)% (8)% (16)%
—% 12% 1% (3)% Subtotal
4% 3% 2% 1% 3% (1)% 5%
Non-Branded and Bulk NM NM 14%
—% —% —% 14% Total Portfolio 4%
3% 3% 1% 3% (1)% 5%
Other Brand
Aggregations
American whiskey
4% 4% 3% —% 3% (1)%
5% Super-premium American whiskey 23%
23% 21% 1% 1% 2% 24% Old
Forester & Woodford Reserve 20% 20%
20% 1% —% 2% 24% el Jimador, Herradura,
& New Mix 6% 9% 8% 2%
4% (1)% 13%
See "Note 2 - Non-GAAP Financial Measures"
for details on our use of Non-GAAP financial measures, how these
measures are calculated and the reasons why we believe this
information is useful to readers.
Note: Totals may differ due to
rounding
Schedule C
Brown-Forman
CorporationSupplemental Geographic Information
(Unaudited)Nine Months Ended January 31, 2019
Geographic
Area3
Net Sales2
Reported
New
Accounting
Standard
Foreign
Exchange
Estimated Net
Change in
Distributor
Inventories
Underlying
United States 3% 1% —% —%
4%
Developed International —% —%
4% (1)% 4% United Kingdom (5)%
—% 9% —% 3% Australia —%
—% 7% —% 7% Germany 9%
—% 3% —% 13% France (1)%
—% 3% —% 1% Canada (10)%
—% 3% 2% (5)% Rest of Developed
International 3% 1% 1% (5)%
(1)%
Emerging 3% 1% 7%
(2)% 10% Mexico 5% 3% 7%
—% 15% Poland 2% —% (1)%
—% 1% Russia 24% —% 1%
(21)% 4% Brazil (6)% 2%
16% 15% 27% Rest of Emerging 1%
1% 10% (3)% 8%
Travel Retail
1% —% —% 5% 6%
Non-Branded
and Bulk 14% —% —% —%
14%
Total 3% 1% 3% (1)%
5%
Other Geographic
Aggregations
Developed - including United States 2%
1% 2% (1)% 4%
See "Note 2 - Non-GAAP Financial Measures"
for details on our use of Non-GAAP financial measures, how these
measures are calculated and the reasons why we believe this
information is useful to readers.
Note: Totals may differ due to
rounding
Schedule D
Brown-Forman
CorporationSupplemental Geographic Information (Unaudited)
for the Quarters Ending:July 31, 2018 - 1Q19October
31, 2018 - 2Q19January 31, 2019 - 3Q19
United
States
Net Sales2
Reported
New
Accounting
Standard
Foreign
Exchange
Estimated Net
Change in
Distributor
Inventories
Underlying
1Q19 —% 1%
—% 1% 2% 2Q19
2% 1% —% —%
3% 3Q19 7% —%
—% (2)% 5%
Note 1 - Percentage growth rates are compared to
prior-year periods, unless otherwise noted.
Note 2 - Non-GAAP Financial Measures
Use of Non-GAAP Financial
Information. We use certain financial measures in this press
release that are not measures of financial performance under U.S.
generally accepted accounting principles (GAAP). These
non-GAAP measures, defined below, should be viewed as supplements
to (not substitutes for) our results of operations and other
measures reported under GAAP. Other companies may not define or
calculate these non-GAAP measures in the same way. Reconciliations
of these non-GAAP measures to the most closely comparable GAAP
measures are presented on Schedules A, B, and C of this press
release.
“Underlying change” in income statement
measures. We present changes in certain income statement
measures, or line items, that are adjusted to an “underlying”
basis. We use “underlying change” for the following income
statement measures: (a) underlying net sales, (b) underlying gross
profit, (c) underlying advertising expenses, (d) underlying
selling, general, and administrative (SG&A) expenses, and (e)
underlying operating income. To calculate these measures, we
adjust, as applicable, for (a) a new accounting standard, (b)
foreign exchange, (c) estimated net change in distributor
inventories, and (d) the establishment of our charitable
foundation. We explain these adjustments below.
- “New accounting standard.” Under
Accounting Standards Codification Topic 606 (ASC 606 - Revenue from
Contracts with Customers), we recognize the cost of certain
customer incentives earlier than we did before adopting ASC 606.
Although we do not expect this change in timing to have a
significant impact on a full-year basis, we do anticipate some
change in the pattern of recognition among fiscal quarters.
Additionally, some payments to customers that we classified as
expenses before adopting the new standard are classified as
reductions of net sales under our new policy. This adjustment
allows us to look at underlying changes on a comparable basis.
- “Foreign exchange.” We calculate the
percentage change in our income statement line items in accordance
with GAAP and adjust to exclude the cost or benefit of currency
fluctuations. Adjusting for foreign exchange allows us to
understand our business on a constant-dollar basis, as fluctuations
in exchange rates can distort the underlying trend both positively
and negatively. (In this press release, “dollar” always means the
U.S. dollar unless stated otherwise.) To eliminate the effect of
foreign exchange fluctuations when comparing across periods, we
translate current-year results at prior-year rates and remove
foreign exchange gains and losses from current- and prior-year
periods.
- “Estimated net change in distributor
inventories.” This adjustment refers to the estimated net effect of
changes in distributor inventories on changes in our income
statement line items. For each period compared, we use volume
information from our distributors to estimate the effect of
distributor inventory changes on our income statement line items.
We believe that this adjustment reduces the effect of varying
levels of distributor inventories on changes in our income
statement measures and allows us to understand better our
underlying results and trends.
- “Foundation.” In the fourth quarter of
fiscal 2018, we established the Brown-Forman Foundation (the
Foundation) with an initial $70 million contribution to support the
company’s charitable giving program in the communities where our
employees live and work. This adjustment removes the initial $70
million contribution to the Foundation from our underlying SG&A
expenses and underlying operating income to present our underlying
results on a comparable basis.
We use the non-GAAP measures “underlying change” for the
following reasons: (a) to understand our performance from period to
period on a consistent basis; (b) to compare our performance to
that of our competitors; (c) to determine management incentive
compensation calculations; (d) to plan and forecast; and (e) to
communicate our financial performance to the board of directors,
stockholders, and investment analysts. We have consistently applied
the adjustments within our reconciliations in arriving at each
non-GAAP measure.
When we provide guidance for underlying change for certain
income statement measures we do not provide guidance for the
corresponding GAAP change because the GAAP measure will include
items that are difficult to quantify or predict with reasonable
certainty, including the estimated net change in distributor
inventories and foreign exchange, each of which could have a
significant impact to our GAAP income statement measures.
Note 3 - Definitions
From time to time, to explain our results of operations or to
highlight trends and uncertainties affecting our business, we
aggregate markets according to stage of economic development as
defined by the International Monetary Fund (IMF), and we aggregate
brands by spirits category. Below, we define aggregations used in
this press release.
Geographic Aggregations.
In Schedule C, we provide supplemental information for our
largest markets ranked by percentage of total fiscal 2018 net
sales. In addition to markets that are listed by country name, we
include the following aggregations:
- “Developed International” markets are
“advanced economies” as defined by the IMF, excluding the United
States. Our largest developed international markets are the United
Kingdom, Australia, and Germany. This aggregation represents our
sales of branded products to these markets.
- “Emerging” markets are “emerging and
developing economies” as defined by the IMF. Our largest emerging
markets are Mexico and Poland. This aggregation represents our
sales of branded products to these markets.
- “Travel Retail” represents our sales of
branded products to global duty-free customers, travel retail
customers, and the U.S. military regardless of customer
location.
- “Non-branded and bulk” includes our
sales of used barrels, bulk whiskey and wine, and contract bottling
regardless of customer location.
Brand Aggregations.
In Schedule B, we provide supplemental information for our
largest brands ranked by percentage of total fiscal 2018 net sales.
In addition to brands that are listed by name, we include the
following aggregations:
- “Whiskey” includes all whiskey spirits
and whiskey-based flavored liqueurs, ready-to-drink (RTD), and
ready-to-pour products (RTP). The brands included in this category
are the Jack Daniel's family of brands, Woodford Reserve, Canadian
Mist, GlenDronach, BenRiach, Glenglassaugh, Old Forester, Early
Times, Slane Irish Whiskey, and Coopers’ Craft.
- “American whiskey” includes the Jack
Daniel’s family of brands, premium bourbons, and Early Times.
- “Jack Daniel’s family of brands”
includes Jack Daniel’s Tennessee Whiskey (JDTW), Jack Daniel’s RTD
and RTP products (JD RTD/RTP), Jack Daniel’s Tennessee Honey
(JDTH), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF), Jack
Daniel’s Single Barrel Collection, Jack Daniel’s Tennessee Rye
Whiskey (JDTR), Jack Daniel’s Sinatra Select, Jack Daniel’s No. 27
Gold Tennessee Whiskey, and Jack Daniel’s Bottled-in-Bond.
- “Jack Daniel’s RTD and RTP” products
include all RTD line extensions of Jack Daniel’s, such as
Jack Daniel’s & Cola, Jack Daniel’s & Diet
Cola, Jack & Ginger, Jack Daniel’s Country Cocktails,
Gentleman Jack & Cola, Jack Daniel’s Double Jack, Jack Daniel’s
American Serve, Jack Daniel’s Tennessee Honey RTD, Jack Daniel’s
Cider (JD Cider), Jack Daniel’s Lynchburg Lemonade (JD Lynchburg
Lemonade), and the seasonal Jack Daniel’s Winter Jack RTP.
- “Super-premium American whiskey”
includes Woodford Reserve, Jack Daniel’s Single Barrel, Gentleman
Jack, Jack Daniel’s Sinatra Select, and Jack Daniel’s No. 27 Gold
Tennessee Whiskey.
- “Premium bourbons” includes Woodford
Reserve, Old Forester, and Coopers’ Craft.
- “Tequila” includes el Jimador,
Herradura, New Mix, Pepe Lopez, and Antiguo.
- “Vodka” includes Finlandia.
- “Wine” includes Korbel Champagne and
Sonoma-Cutrer wines.
- “Non-branded and bulk” includes our
sales of used barrels, bulk whiskey and wine, and contract bottling
regardless of customer location.
Other Metrics.
- “Depletions.” We generally record
revenues when we ship our products to our customers. Depending on
our route-to-consumer (RTC), we ship products to either (a) retail
or wholesale customers in owned distribution markets or (b) our
distributor customers in other markets. “Depletions” is a term
commonly used in the beverage alcohol industry to describe volume.
Depending on the context, “depletions” means either (a) our
shipments directly to retail or wholesale customers for owned
distribution markets or (b) shipments from our distributor
customers to retailers and wholesalers in other markets. We believe
that depletions measure volume in a way that more closely reflects
consumer demand than our shipments to distributor customers do. In
this document, unless otherwise specified, we refer to “depletions”
when discussing volume.
- “Drinks-equivalent.” Volume is
discussed on a nine-liter equivalent unit basis (nine-liter cases)
unless otherwise specified. At times, we use a “drinks-equivalent”
measure for volume when comparing single-serve ready-to-drink or
ready-to-pour brands to a parent spirits brand. “Drinks-equivalent”
depletions are RTD and RTP nine-liter cases converted to nine-liter
cases of a parent brand on the basis of the number of drinks in one
nine-liter case of the parent brand. To convert RTD volumes from a
nine-liter case basis to a drinks-equivalent nine-liter case basis,
RTD nine-liter case volumes are divided by 10, while RTP nine-liter
case volumes are divided by 5.
- “Consumer takeaway.” When discussing
trends in the market, we refer to “consumer takeaway,” a term
commonly used in the beverage alcohol industry. “Consumer takeaway”
refers to the purchase of product by the consumer from retail
outlets as measured by volume or retail sales value. This
information is provided by third parties, such as Nielsen and the
National Alcohol Beverage Control Association (NABCA). Our
estimates of market share or changes in market share are derived
from consumer takeaway data using the retail sales value
metric.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190306005391/en/
Rob FrederickVice PresidentCorporate
Communications502-774-7707Jay KovalVice PresidentInvestor
Relations502-774-6903
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