Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported
financial results for its third quarter and nine months ended
January 31, 2020. For the third quarter, the company’s reported net
sales1 were essentially flat at $899 million (+3% on an underlying
basis2) compared to the same prior-year period. Reported operating
income decreased 5% to $304 million (+5% on an underlying basis)
and diluted earnings per share rose 2% to $0.48.
For the first nine months of the fiscal year, the company’s
reported net sales increased 3% to $2.7 billion (+3% on an
underlying basis). Reported operating income decreased 1% to $904
million (-1% on an underlying basis) and diluted earnings per share
increased 4% to $1.45.
Lawson Whiting, the company’s President and Chief Executive
Officer said, "Today, we revised our full-year outlook to reflect
tempered expectations in some of our international markets as well
as the increasingly uncertain global economic and geopolitical
environment. While we are cautious regarding our near-term outlook,
we continue to build our business, as we always have, for the long
term. We believe the strength of our brands and the health of our
balance sheet places Brown-Forman in a strong position both today
and for the long term."
Year-to-Date Fiscal 2020
Highlights
- Underlying net sales grew 3% (+3% reported), maintaining growth
consistent with the first half of fiscal 2020
- The United States and emerging markets each grew underlying net
sales 6% (+7% and +4% reported, respectively), while our developed
international markets grew underlying net sales 2% (flat
reported)
- Jack Daniel’s family of brands grew underlying net sales 3%
(+2% reported) driven by Jack Daniel’s Tennessee Apple in the
United States, Jack Daniel’s RTDs in Germany and the United States,
and broad-based growth of Jack Daniel’s Tennessee Honey
- Premium bourbons grew underlying net sales 22% (+25% reported)
led by Woodford Reserve’s 19% underlying net sales growth (+22%
reported) and propelled by even stronger net sales growth from Old
Forester, our founding brand celebrating its 150th year
- Our tequila portfolio grew underlying net sales 10% (+9%
reported), led by Herradura’s 20% underlying net sales growth (+20%
reported) and el Jimador’s 11% underlying net sales growth (+8%
reported)
- Non-branded and bulk underlying net sales declined 27% (-28%
reported) reflecting lower used barrel demand and a reduction in
bulk whiskey sales
- Diluted earnings per share increased 4% to $1.45
Year-to-Date Fiscal 2020 Results By
Market - Net Sales Growth Led by the United States
Year-to-date underlying net sales in the United States grew 6%
(+7% reported). Top-line gains were driven by continued
double-digit growth from our premium bourbons, Woodford Reserve and
Old Forester, the launch of Jack Daniel’s Tennessee Apple, and
double-digit underlying net sales growth in aggregate from
Herradura and el Jimador. Sustained double-digit growth of Jack
Daniel’s RTDs3 also contributed to our largest market’s growth with
solid underlying net sales.
Underlying net sales in the company’s emerging markets grew 6%
(+4% reported) accelerating slightly in the quarter reflecting
volume gains for the Jack Daniel’s family of brands. Russia
delivered strong underlying net sales growth up 15% (+14% reported)
driven by expanding consumer demand for Jack Daniel’s Tennessee
Whiskey. Poland’s underlying net sales improved in the quarter
lifting underlying net sales growth year-to-date to 6% (+3%
reported) driven by strong growth for the Jack Daniel’s family of
brands. Brazil grew underlying net sales 6% (+12% reported) fueled
by higher volumes of Jack Daniel’s Tennessee Whiskey and Jack
Daniel’s Tennessee Fire. In a weakening economy, Mexico’s
underlying net sales growth moderated to 2% (+1% reported).
Our developed international markets grew underlying net sales 2%
(flat reported). Germany’s underlying net sales grew 5% (+6%
reported) fueled by volume growth for Jack Daniel’s RTDs. France
grew underlying net sales 3% (+3% reported) reflecting higher
volumes of Jack Daniel’s Tennessee Honey and the launch of Jack
Daniel’s RTDs, which were partially offset by declines of Jack
Daniel’s Tennessee Whiskey. Australia’s underlying net sales grew
1% (-2% reported) as gains from the super-premium American whiskey
portfolio offset declines of Jack Daniel’s RTDs. In the United
Kingdom, underlying net sales declined 7% (-9% reported) driven by
softness in the cash and carry channel and short-term disruptions
from changes to our promotional strategy and upcoming
route-to-market transition.
Travel Retail’s underlying net sales declined 3% (-4% reported)
as lower volumes for Jack Daniel’s Tennessee Whiskey offset volume
gains from Woodford Reserve.
Underlying net sales for the company’s non-branded business,
largely comprised of used barrels, bulk whiskey, and contract
bottling, declined 27% (-28% reported) year-to-date. This reduction
was largely driven by lower volumes and prices for used barrels and
a reduction in bulk whiskey sales.
Year-to-Date Fiscal 2020 Results By
Brand
The company’s underlying net sales growth was led by the Jack
Daniel’s family of brands, up 3% (+2% reported). The launch of Jack
Daniel’s Tennessee Apple in the United States, sustained growth of
Jack Daniel’s RTDs led by Germany, the United States, and France,
and solid international growth of Jack Daniel’s Tennessee Honey and
Gentleman Jack drove the family of brand’s growth. Underlying net
sales of Jack Daniel’s Tennessee Whiskey were flat (-2% reported)
as growth in emerging markets was offset by declines in the United
Kingdom and Travel Retail. Jack Daniel’s Tennessee Honey reported
7% (+4% reported) underlying net sales growth reflecting
broad-based volumetric gains led by France, Czechia, Poland and the
United States, while Gentleman Jack grew underlying net sales 7%
(+3% reported) driven by Poland, Germany, and the United
Kingdom.
Brown-Forman’s portfolio of premium bourbon brands, including
Woodford Reserve and Old Forester, continued their double-digit
underlying net sales growth of 22% (+25% reported). Woodford
Reserve, the leader in the super-premium bourbon category,
surpassed the one million 9L case mark during the quarter growing
underlying net sales 19% (+22% reported) during the nine months
ended January 31, 2020. Woodford Reserve’s growth was led by the
United States, where consumer takeaway trends remain strong, along
with broad-based volume growth internationally. Old Forester,
celebrating its 150th year, maintained an even faster rate of
underlying net sales growth powered by volumetric gains and
favorable mix from the brand’s high-end expressions.
Brown-Forman’s tequila brands sustained double-digit underlying
net sales growth led by Herradura 20% (+20% reported) and el
Jimador 11% (+8% reported). Herradura’s underlying net sales growth
was driven by higher volumes, favorable product mix, and higher
pricing in the United States and Mexico. el Jimador’s underlying
net sales growth was driven by higher volumes in the United States
as consumer takeaway trends remain strong.
Year-to-Date Fiscal 2020 Other P&L
Items
Company-wide price/mix improvements contributed approximately 1%
to the increase in underlying net sales reflecting faster growth
from higher-priced brands led by the Jack Daniel’s family of brands
and Woodford Reserve coupled with 2% volume growth. Underlying
gross profit was flat (-1% reported) and reported gross margin
contracted 220 bps to 63.1% driven by higher input costs and
tariff-related costs. Higher input costs reflect the continued cost
pressures from agave and wood.
Underlying advertising expense grew 3% (+1% reported) reflecting
increased investment to support the launch of Jack Daniel’s
Tennessee Apple as well as increased spending on Woodford Reserve.
Underlying SG&A was flat year-to-date (-1% reported) driven by
lower compensation-related expenses. Underlying operating income
declined 1% (-1% reported).
Financial Stewardship
On January 28, 2020, the Brown-Forman Board of Directors
declared a regular quarterly cash dividend of $0.1743 per share on
the Class A and Class B common stock, resulting in an annualized
cash dividend of $0.6972 per share. The quarterly cash dividend is
payable on April 1, 2020, to stockholders of record on March 9,
2020. Brown-Forman has paid regular quarterly cash dividends for 74
consecutive years and has increased the dividend for 36 consecutive
years.
Fiscal Year 2020 Outlook
The company revised the full-year outlook to reflect tempered
expectations in some of its international markets reflecting both
short-term disruptions and an increasingly uncertain global
economic and geopolitical environment. This outlook also includes
an estimated impact of COVID-19 (coronavirus).
- Low-single digit underlying net sales growth
- Flat to modest decline in underlying operating income
- Diluted earnings per share of $1.75 to $1.80
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 the Jack Daniel’s Family of Brands,
Finlandia, Korbel, el Jimador, Woodford Reserve, Old Forester,
Coopers’ Craft, Canadian Mist, Herradura, New Mix, Sonoma-Cutrer,
Early Times, Chambord, BenRiach, GlenDronach, Slane, and Fords Gin.
Brown-Forman’s brands are supported by approximately 4,700
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 margins, sales, and
distributors; compliance with local trade practices and other
regulations, including anti-corruption laws; terrorism; and health
pandemics (such as the COVID-19 (coronavirus) outbreak)
- 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 January 31, 2019 and 2020 (Dollars in millions, except
per share amounts)
2019
2020
Change
Net sales
$
904
$
899
0%
Cost of sales
333
342
3%
Gross profit
571
557
(2%)
Advertising expenses
103
104
0%
Selling, general, and administrative
expenses
149
153
2%
Other expense (income), net
(1
)
(4
)
Operating income
320
304
(5%)
Non-operating postretirement expense
15
1
Interest expense, net
21
19
Income before income taxes
284
284
0%
Income taxes
57
53
Net income
$
227
$
231
2%
Earnings per share:
Basic
$
0.47
$
0.48
2%
Diluted
$
0.47
$
0.48
2%
Gross margin
63.1
%
61.9
%
Operating margin
35.3
%
33.8
%
Effective tax rate
20.3
%
18.6
%
Cash dividends paid per common share
$
0.1660
$
0.1743
Shares (in thousands) used in the
calculation of earnings per share
Basic
477,301
477,898
Diluted
480,099
480,757
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations For the Nine Months
Ended January 31, 2019 and 2020 (Dollars in millions, except per
share amounts)
2019
2020
Change
Net sales
$
2,580
$
2,654
3%
Cost of sales
896
980
9%
Gross profit
1,684
1,674
(1%)
Advertising expenses
303
308
1%
Selling, general, and administrative
expenses
478
475
(1%)
Other expense (income), net
(13
)
(13
)
Operating income
916
904
(1%)
Non-operating postretirement expense
19
3
Interest expense, net
61
58
Income before income taxes
836
843
1%
Income taxes
160
144
Net income
$
676
$
699
3%
Earnings per share:
Basic
$
1.41
$
1.46
4%
Diluted
$
1.40
$
1.45
4%
Gross margin
65.3
%
63.1
%
Operating margin
35.5
%
34.1
%
Effective tax rate
19.2
%
17.1
%
Cash dividends per common share:
Declared
$
0.6480
$
0.6806
Paid
$
0.4820
$
0.5063
Shares (in thousands) used in the
calculation of earnings per share
Basic
479,522
477,643
Diluted
482,665
480,436
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets (Dollars in
millions)
April 30,
2019
January 31,
2020
Assets:
Cash and cash equivalents
$
307
$
276
Accounts receivable, net
609
732
Inventories
1,520
1,668
Other current assets
283
318
Total current assets
2,719
2,994
Property, plant, and equipment, net
816
840
Goodwill
753
765
Other intangible assets
645
654
Other assets
206
265
Total assets
$
5,139
$
5,518
Liabilities:
Accounts payable and accrued expenses
$
544
$
558
Dividends payable
—
83
Accrued income taxes
9
19
Short-term borrowings
150
4
Total current liabilities
703
664
Long-term debt
2,290
2,293
Deferred income taxes
145
187
Accrued postretirement benefits
197
198
Other liabilities
157
171
Total liabilities
3,492
3,513
Stockholders’ equity
1,647
2,005
Total liabilities and stockholders’
equity
$
5,139
$
5,518
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows For the
Nine Months Ended January 31, 2019 and 2020 (Dollars in
millions)
2019
2020
Cash provided by operating activities
$
577
$
509
Cash flows from investing activities:
Additions to property, plant, and
equipment
(84
)
(84
)
Acquisition of business, net of cash
acquired
—
(22
)
Other
(2
)
(5
)
Cash used for investing activities
(86
)
(111
)
Cash flows from financing activities:
Net change in short-term borrowings
(13
)
(150
)
Acquisition of treasury stock
(206
)
(1
)
Dividends paid
(231
)
(242
)
Other
(8
)
(33
)
Cash used for financing activities
(458
)
(426
)
Effect of exchange rate changes on cash
and cash equivalents
(12
)
(3
)
Net increase (decrease) in cash and cash
equivalents
21
(31
)
Cash and cash equivalents, beginning of
period
239
307
Cash and cash equivalents, end of
period
$
260
$
276
Schedule A
Brown-Forman
Corporation
Supplemental Information
(Unaudited)
As Reported
Three Months Ended
Nine Months Ended
Fiscal Year Ended
January 31, 2020
January 31, 2020
April 30, 2019
Reported change in net sales
—%
3%
2%
Acquisitions and divestitures
—%
—%
—%
New accounting standard
—%
—%
1%
Foreign exchange
1%
—%
2%
Estimated net change in distributor
inventories
3%
—%
—%
Underlying change in net sales
3%
3%
5%
Reported change in gross profit
(2)%
(1)%
(2)%
Acquisitions and divestitures
—%
—%
—%
New accounting standard
—%
—%
1%
Foreign exchange
1%
—%
2%
Estimated net change in distributor
inventories
4%
—%
—%
Underlying change in gross
profit
3%
—%
2%
Reported change in advertising
expenses
—%
1%
(2)%
Acquisitions and divestitures
—%
—%
—%
New accounting standard
—%
—%
4%
Foreign exchange
—%
1%
2%
Underlying change in advertising
expenses
—%
3%
3%
Reported change in SG&A
2%
(1)%
(16)%
Acquisitions and divestitures
(1)%
(1)%
—%
New accounting standard
—%
—%
1%
Foundation
—%
—%
8%
Foreign exchange
—%
1%
2%
Underlying change in SG&A
2%
—%
(5)%
Reported change in operating
income
(5)%
(1)%
9%
Acquisitions and divestitures
—%
—%
—%
Foundation
—%
—%
(7)%
Foreign exchange
3%
—%
3%
Estimated net change in distributor
inventories
7%
—%
—%
Underlying change in operating
income
5%
(1)%
5%
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.
Schedule B
Brown-Forman Corporation
Supplemental Brand Information (Unaudited) Nine Months Ended
January 31, 2020
% Change vs. Prior Year
Period
Brand3
Depletions3
Net Sales2
9-Liter
Drinks
Equivalent3
Reported
Acquisitions
and
Divestitures
Foreign
Exchange
Estimated
Net
Change
in
Distributor
Inventories
Underlying
Whiskey
4%
3%
4%
—%
—%
—%
5%
Jack Daniel’s family of brands
3%
3%
2%
—%
—%
—%
3%
Jack Daniel’s Tennessee Whiskey
—%
—%
(2)%
—%
—%
1%
—%
Jack Daniel’s RTD and RTP
4%
4%
6%
—%
1%
(1)%
7%
Jack Daniel’s Tennessee Honey
7%
7%
4%
—%
1%
2%
7%
Gentleman Jack
7%
7%
3%
—%
—%
3%
7%
Jack Daniel’s Tennessee Fire
2%
2%
(2)%
—%
1%
2%
1%
Other Jack Daniel’s Whiskey Brands
67%
67%
65%
—%
—%
(24)%
41%
Woodford Reserve
21%
21%
22%
—%
—%
(3)%
19%
Rest of Whiskey
2%
2%
14%
—%
1%
—%
15%
Tequila
(6)%
—%
9%
—%
—%
1%
10%
el Jimador
2%
2%
8%
—%
—%
3%
11%
Herradura
10%
10%
20%
—%
—%
(1)%
20%
Rest of Tequila
(9)%
(9)%
(2)%
—%
—%
1%
(1)%
Vodka
(6)%
(6)%
(8)%
—%
—%
1%
(7)%
Wine
—%
—%
4%
—%
—%
(3)%
1%
Rest of Portfolio
—%
—%
5%
(4)%
(1)%
(3)%
(3)%
Subtotal
1%
2%
4%
—%
—%
—%
4%
Non-Branded and Bulk
NM
NM
(28)%
—%
—%
—%
(27)%
Total Portfolio
1%
2%
3%
—%
—%
—%
3%
Other Brand
Aggregations
American whiskey
4%
4%
4%
—%
—%
—%
4%
Premium bourbons
24%
24%
25%
—%
—%
(3)%
22%
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 Corporation
Supplemental Geographic Information (Unaudited) Nine Months Ended
January 31, 2020
Geographic
Area3
Net Sales2
Reported
Acquisitions
and
Divestitures
Foreign
Exchange
Estimated
Net
Change
in
Distributor
Inventories
Underlying
United States
7%
—%
—%
(2)%
6%
Developed International
—%
—%
1%
1%
2%
United Kingdom
(9)%
—%
1%
—%
(7)%
Australia
(2)%
—%
3%
—%
1%
Germany
6%
—%
(1)%
—%
5%
France
3%
—%
—%
—%
3%
Japan
3%
—%
(2)%
—%
1%
Rest of Developed International
2%
—%
2%
5%
8%
Emerging
4%
—%
—%
2%
6%
Mexico
1%
—%
(1)%
1%
2%
Poland
3%
—%
3%
—%
6%
Russia
14%
—%
3%
(1)%
15%
Brazil
12%
—%
6%
(11)%
6%
Rest of Emerging
2%
—%
(2)%
7%
7%
Travel Retail
(4)%
—%
1%
1%
(3)%
Non-Branded and Bulk
(28)%
—%
—%
—%
(27)%
Total
3%
—%
—%
—%
3%
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
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 measures of
statements of operations. We present changes in certain
measures, or line items, of the statements of operations that are
adjusted to an “underlying” basis. We use “underlying change” for
the following measures of the statements of operations: (a)
underlying net sales; (b) underlying gross profit; (c) underlying
advertising expenses; (d) underlying selling, general, and
administrative (SG&A) expenses; (e) underlying other expense
(income) net; and (f) underlying operating income. To calculate
these measures, we adjust, as applicable, for (a) acquisitions and
divestitures, (b) a new accounting standard, (c) foreign exchange,
(d) estimated net change in distributor inventories, and (e) the
establishment of our charitable foundation. We explain these
adjustments below.
- “Acquisitions and divestitures.” This adjustment removes (a)
any non-recurring effects related to our acquisitions and
divestitures (e.g., transaction costs and integration costs), and
(b) the effects of operating activity related to acquired and
divested brands for periods not comparable year over year
(non-comparable periods). By excluding non-comparable periods, we
therefore include the effects of acquired and divested brands only
to the extent that results are comparable year over year. On July
3, 2019, we acquired 100% of the voting interests in The 86
Company, which owns Fords Gin, for $22 million in cash. This
adjustment removes (a) transaction and integration costs related to
the acquisition and (b) operating activity for the acquired
business for the non-comparable period, which is fiscal 2020
activity for The 86 Company. We believe that these adjustments
allow for us to better understand our underlying results on a
comparable basis.
- “New accounting standard.” Under Accounting Standards
Codification (ASC) 606, “Revenue from Contracts with Customers,” we
recognize the cost of certain customer incentives earlier than we
did before adopting ASC 606. Although this change in timing did not
have a significant impact on a full-year basis, there was some
change in the timing of recognition across periods. 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 change on a comparable basis.
- “Foreign exchange.” We calculate the percentage change in
certain line items of the statements of operations 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 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 transactional
and hedging 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 certain line items of the
statements of operations. For each period compared, we use volume
information from our distributors to estimate the effect of
distributor inventory changes in certain line items of the
statements of operations. We believe that this adjustment reduces
the effect of varying levels of distributor inventories on changes
in certain line items of the statements of operations and allows us
to understand better our underlying results and trends.
- “Foundation.” In 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” to: (a)
understand our performance from period to period on a consistent
basis; (b) compare our performance to that of our competitors; (c)
calculate components of management incentive compensation; (d) plan
and forecast; and (e) communicate our financial performance to the
board of directors, stockholders, and the investment community. 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
measures of the statements of operations 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 2019 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,
Germany, France, and Japan. This aggregation represents our net
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,
Poland, Russia, and Brazil. This aggregation represents our net
sales of branded products to these markets.
- “Travel Retail” represents our net sales of branded products to
global duty-free customers, other travel retail customers, and the
U.S. military regardless of customer location.
- “Non-branded and bulk” includes our net 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 2019 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 (defined below), super-premium American whiskey
(defined below), 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 (JDSB), Jack Daniel’s Tennessee Rye Whiskey (JDTR), Jack
Daniel’s Sinatra Select, Jack Daniel’s No. 27 Gold Tennessee
Whiskey, Jack Daniel’s Bottled-in-Bond, and Jack Daniel’s Tennessee
Apple.
- “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, 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 net 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. “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 consumers 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. We believe consumer takeaway is a
leading indicator of how consumer demand is trending.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200304005398/en/
Rob Frederick Vice President Corporate Brand &
Communications 502-774-7707 Leanne Cunningham Senior Vice President
Shareholder Relations Officer 502-774-7287
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