Brown-Forman Corporation (NYSE: BFA, BFB) announced financial
results for its second quarter and first half of fiscal 2021. For
the second quarter, the company’s reported net sales1 of $985
million were essentially flat (+4% on an underlying basis2)
compared to the same prior-year period. In the quarter, reported
operating income decreased 6% to $330 million (+6% on an underlying
basis) and diluted earnings per share declined 15% to $0.50.
For the first six months of the fiscal year, the company’s
reported net sales decreased 1% to $1,738 million (+4% on an
underlying basis) compared to the same prior-year period.
Year-to-date reported operating income increased 19% to $717
million (+11% on an underlying basis) and diluted earnings per
share grew 20% to $1.17.
Brown-Forman’s President and Chief Executive Officer Lawson
Whiting stated, “We continue to be pleased with our underlying
top-line growth in the first half. Notably, our business
accelerated in the second quarter amidst an unprecedented
environment. These results are a testament to the resilience of our
people, the strength of our brands, and the agility that so many
before us today have demonstrated over the company’s last 150
years. As the pandemic continues, our focus remains on prioritizing
the safety of our employees, meeting the needs of our consumers and
business partners, and pursuing our long-term strategy.”
First Half of Fiscal 2021
Highlights
- Underlying net sales grew 4% (-1% reported)
- The United States grew underlying net sales 9% (+3% reported)
while our developed international3 markets grew underlying net
sales 10% (+10% reported). Underlying net sales in our emerging
markets were flat (-13% reported).
- Jack Daniel’s family of brands underlying net sales grew 2%
(-3% reported). Underlying net sales growth from Jack Daniel’s
RTDs3, Jack Daniel’s Tennessee Apple, Jack Daniel’s Tennessee
Honey, and Gentleman Jack was partially offset by an unfavorable
channel mix shift in Jack Daniel’s Tennessee Whiskey.
- Premium bourbons grew underlying net sales 22% (+18% reported)
driven by sustained double-digit growth across Woodford Reserve and
Old Forester.
- The tequila portfolio grew underlying net sales 13% (+5%
reported) led by strong volume-driven increases from New Mix in
Mexico and el Jimador in the United States, which additionally
benefited from higher prices. Herradura’s underlying net sales
declined 2% (-4% reported) as lower volumes, primarily in Mexico,
more than offset double-digit growth in the United States.
- Non-branded and bulk underlying net sales declined 33% (-34%
reported) primarily reflecting lower demand and pricing for used
barrels.
- Underlying operating income increased 11% (+19% reported)
driven primarily by operating expense leverage.
First Half of Fiscal 2021 Brand
Results
The Jack Daniel’s family of brands underlying net sales growth
was driven by Jack Daniel’s RTDs, the ongoing launch of Jack
Daniel’s Tennessee Apple, and broad-based volume growth from Jack
Daniel’s Tennessee Honey and Gentleman Jack. Underlying net sales
decline for Jack Daniel’s Tennessee Whiskey was driven by lower
volumes in certain emerging markets and our Travel Retail channel
reflecting travel bans and other restrictions related to COVID-19,
along with unfavorable channel mix effect in the United States and
developed international markets related to significant restrictions
in the on-premise channel.
Brown-Forman’s portfolio of premium bourbon brands sustained
their double-digit underlying net sales growth. Woodford Reserve’s
gains were fueled by strong consumer takeaway trends in the United
States, slightly offset by volume declines in Travel Retail. Old
Forester’s robust double-digit underlying net sales growth was
powered by ongoing volumetric gains and favorable mix from the
brand’s high-end expressions.
The company’s tequila brands contributed to underlying net sales
growth through the first half led by higher volumes of New Mix in
Mexico. el Jimador’s underlying net sales growth was driven by
volumetric growth and higher pricing in the United States, while
Herradura’s underlying net sales declines reflected lower volumes,
primarily in Mexico, more than offsetting higher volumes, prices,
and favorable product mix in the United States.
First Half of Fiscal 2021 Market
Results
From a geographic perspective, underlying net sales growth in
the United States and developed international markets was partially
offset by declines in Travel Retail and used barrels.
In the United States, strong underlying net sales growth was led
primarily by volumetric gains for our premium bourbons, Woodford
Reserve and Old Forester, Jack Daniel’s RTDs, Jack Daniel’s
Tennessee Honey, Gentleman Jack, Herradura, and el Jimador. These
gains were partially offset by declines in Jack Daniel’s Tennessee
Whiskey reflecting an unfavorable channel mix effect resulting from
COVID-19 restrictions in the on-premise channel.
Double-digit underlying net sales growth in developed
international markets was fueled by Jack Daniel’s RTDs, the launch
of Jack Daniel’s Tennessee Apple in a number of countries, Jack
Daniel’s Tennessee Honey, and Gentleman Jack.
The company’s emerging markets registered sequential improvement
in the second quarter resulting in flat underlying net sales growth
(-13% reported) for the first half of fiscal 2021 led by Brazil,
Mexico, and Poland but offset by broad-based declines in Southeast
Asia, Russia, India, and several Latin American markets as COVID-19
adversely affected these markets.
Underlying net sales in Travel Retail continued to be
significantly impacted by the continuation of travel bans and
restrictions.
First Half of Fiscal 2021 Other P&L
Items
Volumes grew 15% led primarily by Jack Daniel’s RTDs and New
Mix. Company-wide price/mix decreased 12% reflecting the portfolio
mix shift with growth from lower-priced brands (Jack Daniel’s RTDs
and New Mix) and unfavorable channel mix effect resulting from the
COVID-19 related restrictions in the on-premise channel.
Underlying gross profit declined 1% (-6% reported) and reported
gross margin contracted 350 basis points to 60.2% driven by higher
input costs, lower fixed cost absorption, and the negative effect
of both the portfolio and channel mix shift discussed above.
The company’s investment in underlying advertising declined 23%
(-23% reported) reflecting the phasing of spend, a reduction in
on-premise activations, and the cancellation of consumer events and
sponsorships given the current environment. The company anticipates
advertising investments to accelerate significantly over the
balance of the fiscal year. Underlying SG&A declined 6% (-6%
reported) driven by the tight management of discretionary
spend.
Underlying operating income increased 11% (+19% reported) driven
primarily by operating expense leverage, which we expect will
reverse in the second half of the fiscal year.
Diluted earnings per share increased 20% to $1.17 including an
estimated $0.19 per share gain from the sale of the Canadian Mist,
Early Times, and Collingwood brands.
Financial Stewardship - 37th Year of
Consecutive Increase in Regular Dividend
On November 19, 2020, the Brown-Forman Board of Directors
announced a 3% increase in the regular quarterly cash dividend to
$0.1795 per share on the Class A and Class B common stock. This
marks the company’s 76th consecutive year of paying a dividend and
37th year of uninterrupted increases in their regular quarterly
cash dividend. The quarterly cash dividend is payable on January 4,
2021, to stockholders of record on December 4, 2020.
Fiscal Year 2021 Outlook
The company continues to face substantial uncertainty in the
rapidly evolving environment due to COVID-19 and its effect on the
global economy. As a result of this ongoing uncertainty and
expected volatility, the company is not providing quantitative
guidance for fiscal year 2021. Jane Morreau, Executive Vice
President and Chief Financial Officer, noted “We believe our
financial and business fundamentals remain strong, allowing us to
navigate this highly dynamic environment while remaining focused on
our long-term strategic priorities.” Morreau added, “In our 150
year history, we have experienced many unforeseen turbulent events
and have emerged stronger. We believe this time will be no
different.”
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.” 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 150 years, Brown-Forman Corporation has enriched the
experience of life by responsibly building fine quality beverage
alcohol brands, including the Jack Daniel’s Tennessee Whiskey, Jack
Daniel’s Tennessee RTDs, Jack Daniel’s Tennessee Honey, Jack
Daniel’s Tennessee Apple, Jack Daniel’s Tennessee Fire, Gentleman
Jack, Jack Daniel’s Single Barrel, Finlandia, Korbel, el Jimador,
Woodford Reserve, Old Forester, Coopers’ Craft, Herradura, New Mix,
Sonoma-Cutrer, Chambord, BenRiach, GlenDronach, Slane, and Fords
Gin. Brown-Forman’s brands are supported by approximately 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:
- Impact of health epidemics and pandemics, including the
COVID-19 pandemic, and the resulting negative economic impact and
related governmental actions
- 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; terrorism; and health pandemics
- Failure to comply with anti-corruption laws, trade sanctions
and restrictions, or similar laws or regulations
- Fluctuations in foreign currency exchange rates, particularly a
stronger U.S. dollar
- Changes in laws, regulatory measures, or governmental 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
- Unfavorable global or regional economic conditions,
particularly related to the COVID-19 pandemic, and related economic
slowdowns or recessions, 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
- 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
- Significant additional labeling or warning requirements or
limitations on availability of our beverage alcohol products
- 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
- 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
- Risks associated with acquisitions, dispositions, business
partnerships, or investments – such as acquisition integration,
termination difficulties or costs, or impairment in recorded
value
- Counterfeiting and inadequate protection of our intellectual
property rights
- Product recalls or other product liability claims, product
tampering, contamination, or quality issues
- Significant legal disputes and proceedings, or government
investigations
- Cyber breach or failure or corruption of key information
technology systems, or failure to comply with personal data
protection laws
- Negative publicity related to our company, products, brands,
marketing, executive leadership, employees, board of directors,
family stockholders, 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 our public filings, including 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
October 31, 2019 and 2020
(Dollars in millions, except per
share amounts)
2019
2020
Change
Net sales
$
989
$
985
0
%
Cost of sales
370
404
10
%
Gross profit
619
581
(6
%)
Advertising expenses
112
95
(15
%)
Selling, general, and administrative
expenses
158
155
(2
%)
Other expense (income), net
(3
)
1
Operating income
352
330
(6
%)
Non-operating postretirement expense
1
2
Interest expense, net
20
19
Income before income taxes
331
309
(7
%)
Income taxes
49
69
Net income
$
282
$
240
(15
%)
Earnings per share:
Basic
$
0.59
$
0.50
(15
%)
Diluted
$
0.59
$
0.50
(15
%)
Gross margin
62.7
%
59.0
%
Operating margin
35.6
%
33.5
%
Effective tax rate
15.0
%
22.1
%
Cash dividends paid per common share
$
0.1660
$
0.1743
Shares (in thousands) used in the
calculation of earnings per share
Basic
477,680
478,506
Diluted
480,481
480,748
Brown-Forman
Corporation
Unaudited Consolidated Statements
of Operations
For the Six Months Ended October
31, 2019 and 2020
(Dollars in millions, except per
share amounts)
2019
2020
Change
Net sales
$
1,755
$
1,738
(1%)
Cost of sales
638
692
9%
Gross profit
1,117
1,046
(6%)
Advertising expenses
204
157
(23%)
Selling, general, and administrative
expenses
322
303
(6%)
Gain on sale of business
—
(127)
Other expense (income), net
(9)
(4)
Operating income
600
717
19%
Non-operating postretirement expense
2
3
Interest expense, net
39
39
Income before income taxes
559
675
21%
Income taxes
91
111
Net income
$
468
$
564
21%
Earnings per share:
Basic
$
0.98
$
1.18
20%
Diluted
$
0.97
$
1.17
20%
Gross margin
63.7
%
60.2
%
Operating margin
34.2
%
41.2
%
Effective tax rate
16.3
%
16.4
%
Cash dividends paid per common share
$
0.3220
$
0.3486
Shares (in thousands) used in the
calculation of earnings per share
Basic
477,522
478,413
Diluted
480,282
480,585
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Balance Sheets
(Dollars in millions)
April 30, 2020
October 31, 2020
Assets:
Cash and cash equivalents
$
675
$
964
Accounts receivable, net
570
879
Inventories
1,685
1,715
Other current assets
335
257
Total current assets
3,265
3,815
Property, plant, and equipment, net
848
828
Goodwill
756
759
Other intangible assets
635
654
Other assets
262
294
Total assets
$
5,766
$
6,350
Liabilities:
Accounts payable and accrued expenses
$
517
$
601
Accrued income taxes
30
63
Short-term borrowings
333
358
Total current liabilities
880
1,022
Long-term debt
2,269
2,309
Deferred income taxes
177
146
Accrued postretirement benefits
297
297
Other liabilities
168
173
Total liabilities
3,791
3,947
Stockholders’ equity
1,975
2,403
Total liabilities and stockholders’
equity
$
5,766
$
6,350
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Six Months Ended October
31, 2019 and 2020
(Dollars in millions)
2019
2020
Cash provided by operating activities
$
187
$
283
Cash flows from investing activities:
Proceeds from sale of business
—
177
Acquisition of business, net of cash
acquired
(22)
—
Additions to property, plant, and
equipment
(48)
(29)
Other
(5)
(1)
Cash provided by (used for) investing
activities
(75)
147
Cash flows from financing activities:
Net change in short-term borrowings
2
26
Acquisition of treasury stock
(1)
—
Dividends paid
(158)
(167)
Other
(26)
(14)
Cash used for financing activities
(183)
(155)
Effect of exchange rate changes on cash
and cash equivalents
(1)
14
Net increase (decrease) in cash and cash
equivalents
(72)
289
Cash and cash equivalents, beginning of
period
307
675
Cash and cash equivalents, end of
period
$
235
$
964
Schedule A
Brown-Forman
Corporation
Supplemental Information
(Unaudited)
Three Months Ended
Six Months Ended
Fiscal Year Ended
October 31, 2020
October 31, 2020
April 30, 2020
Reported change in net sales
—%
(1)%
1%
Foreign exchange
1%
1%
1%
Estimated net change in distributor
inventories
3%
4%
(2)%
Underlying change in net sales
4%
4%
—%
Reported change in gross profit
(6)%
(6)%
(2)%
Foreign exchange
1%
1%
—%
Estimated net change in distributor
inventories
4%
5%
(2)%
Underlying change in gross
profit
—%
(1)%
(3)%
Reported change in advertising
expenses
(15)%
(23)%
(3)%
Acquisitions and divestitures
1%
—%
—%
Foreign exchange
—%
—%
1%
Underlying change in advertising
expenses
(15)%
(23)%
(2)%
Reported change in SG&A
(2)%
(6)%
—%
Acquisitions and divestitures
—%
—%
(1)%
Foreign exchange
—%
—%
2%
Underlying change in SG&A
(2)%
(6)%
1%
Reported change in operating
income
(6)%
19%
(5)%
Acquisitions and divestitures
1%
(20)%
—%
Chambord Impairment
—%
—%
1%
Foreign exchange
4%
2%
—%
Estimated net change in distributor
inventories
8%
10%
(3)%
Underlying change in operating
income
6%
11%
(6)%
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)
Six Months Ended October 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
13%
2%
(1)%
—%
—%
5%
4%
Jack Daniel’s family of brands
13%
1%
(3)%
—%
—%
5%
2%
Jack Daniel’s Tennessee Whiskey
(6)%
(6)%
(12)%
—%
1%
5%
(7)%
Jack Daniel’s RTD and RTP
36%
36%
37%
—%
—%
(4)%
34%
Jack Daniel’s Tennessee Honey
10%
10%
11%
—%
—%
—%
11%
Gentleman Jack
16%
16%
13%
—%
—%
2%
16%
Jack Daniel’s Tennessee Fire
(1)%
(1)%
(5)%
—%
1%
2%
(2)%
Jack Daniel’s Tennessee Apple
143%
143%
(17)%
—%
(2)%
115%
96%
Other Jack Daniel’s Whiskey Brands
(6)%
(6)%
(8)%
—%
(1)%
12%
3%
Woodford Reserve
17%
17%
14%
—%
—%
5%
19%
Rest of Whiskey
7%
7%
14%
2%
(1)%
4%
20%
Tequila
36%
3%
5%
—%
6%
1%
13%
el Jimador
(2)%
(2)%
4%
—%
2%
2%
9%
Herradura
(15)%
(15)%
(4)%
—%
3%
—%
(2)%
Rest of Tequila
49%
23%
19%
—%
16%
1%
36%
Wine
8%
8%
15%
—%
—%
(3)%
11%
Vodka
(19)%
(19)%
(21)%
—%
2%
(2)%
(20)%
Rest of Portfolio
(3)%
(3)%
14%
(2)%
(12)%
(3)%
(2)%
Non-Branded and Bulk
NM
NM
(34)%
1%
(1)%
—%
(33)%
Total Portfolio
15%
1%
(1)%
—%
1%
4%
4%
Other Brand Aggregations
American whiskey
13%
2%
(1)%
—%
—%
5%
4%
Premium bourbons
18%
18%
18%
—%
—%
4%
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)
Six Months Ended October 31,
2020
Geographic Area3
Net Sales2
Reported
Acquisitions and Divestitures
Foreign
Exchange
Estimated
Net Change in Distributor Inventories
Underlying
United States
3%
—%
—%
6%
9%
Developed International
10%
—%
(4)%
4%
10%
United Kingdom
11%
—%
(8)%
2%
4%
Germany
26%
—%
(4)%
—%
23%
Australia
27%
—%
(2)%
—%
25%
France
17%
—%
(4)%
—%
13%
Rest of Developed International
(14)%
—%
(1)%
9%
(6)%
Emerging
(13)%
—%
9%
4%
—%
Mexico
(3)%
—%
14%
—%
11%
Poland
13%
—%
(2)%
—%
11%
Russia
(25)%
1%
10%
(1)%
(15)%
Rest of Emerging
(22)%
—%
9%
8%
(6)%
Travel Retail
(49)%
(1)%
—%
(10)%
(59)%
Non-Branded and Bulk
(34)%
1%
(1)%
—%
(33)%
Total
(1)%
—%
1%
4%
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
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; and (e) underlying operating
income. To calculate these measures, we adjust, as applicable, for
(a) acquisitions and divestitures, (b) foreign exchange, (c)
estimated net changes in distributor inventories, and (d) a
non-cash write-down of the Chambord brand name. We explain these
adjustments below.
- “Acquisitions and divestitures.” This adjustment removes (a)
the gain or loss recognized on sale of divested brands, (b) any
non-recurring effects related to our acquisitions and divestitures
(e.g., transaction costs and integration costs), and (c) 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.
In fiscal 2020, we acquired 100% of the
voting interests in The 86 Company, which owns Fords Gin. During
the first quarter of fiscal 2021, we sold our Early Times, Canadian
Mist, and Collingwood brands and related assets, which resulted in
a pre-tax gain of $127 million. See Note 14 to the Condensed
Consolidated Financial Statements for details. This adjustment
removes (a) transaction and integration costs related to the
acquisition and divestiture, (b) operating activity for The 86
Company for the non-comparable period, which is activity in the
first quarter of fiscal 2021, (c) the gain on sale of Early Times,
Canadian Mist, and Collingwood, and (d) operating activity for the
non-comparable period for Early Times, Canadian Mist, and
Collingwood, which is activity in the second quarter for both
fiscal 2020 and fiscal 2021. We believe that these adjustments
allow for us to better understand our underlying results 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 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
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.
- “Chambord impairment.” During fiscal 2020, we recognized a
non-cash impairment charge of $13 million for our Chambord brand
name.
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 2020 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, Germany,
Australia, and France. 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, and Russia. 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 2020 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 family of brands (Woodford
Reserve), GlenDronach, BenRiach, Glenglassaugh, Old Forester
(family of brands), Slane Irish Whiskey, and Coopers’ Craft. Also
includes the Early Times, Canadian Mist, and Collingwood brands,
which we divested on July 31, 2020.
- “American whiskey” includes the Jack Daniel’s family of brands,
premium bourbons (defined below), super-premium American whiskey
(defined below), and Early Times, which we divested on July 31,
2020.
- “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 Tennessee Apple
(JDTA), 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, and Jack
Daniel’s Bottled-in-Bond.
- “Jack Daniel’s RTD and RTP” products include Jack Daniel’s
& Cola, Jack Daniel’s Country Cocktails, Jack Daniel’s &
Diet Cola, Jack & Ginger, Jack Daniel’s Double Jack, Gentleman
Jack & Cola, Jack Daniel’s Lynchburg Lemonade, Jack Daniel’s
American Serve, Jack Daniel’s Tennessee Honey RTD, Jack Daniel’s
Berry, Jack Daniel’s Cider, Jack Daniel’s Whiskey & Seltzer,
and the seasonal Jack Daniel’s Winter Jack RTP.
- “Premium bourbons” includes Woodford Reserve, Old Forester, and
Coopers’ Craft.
- “Super-premium American whiskey” includes Woodford Reserve,
JDSB, Gentleman Jack, JDTR, Jack Daniel’s Sinatra Select, and Jack
Daniel’s No. 27 Gold Tennessee Whiskey.
- “Tequila” includes el Jimador, Herradura family of brands
(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, including products
purchased through e-premise channels, 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/20201208005649/en/
Rob Frederick Vice President Brown-Forman Brand &
Communications 502-774-7707 Leanne Cunningham Senior Vice President
Shareholder Relations Officer 502-774-7287
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