Brown-Forman Corporation (NYSE: BFA, BFB) reported financial
results for its first quarter of fiscal 2022 with net sales of $906
million increasing 20%1 (+18% on an underlying basis2) compared to
the same prior-year period. In the quarter, operating income
decreased 25% to $289 million (+15% on an underlying basis) and
diluted earnings per share declined 41% to $0.40 due to the gain
from the sale of the Canadian Mist, Early Times, and Collingwood
brands in the prior year.
Brown-Forman’s President and Chief Executive Officer Lawson
Whiting stated, “Brown-Forman delivered a strong start to fiscal
2022. These results were driven by the strength of our portfolio,
which benefited from the re-opening of the on-premise, sustained
at-home consumption, and continued premiumization trends.” He
added, “While we are optimistic the operating environment will
continue to improve, we are closely monitoring the potential
volatility associated with the evolving pandemic and continued
supply chain disruptions. Backed by the strength of our brands and
our people, we are confident in our ability to manage our business
for the long term.”
First Quarter of Fiscal 2022
Highlights
- Net sales grew 20% (+18% underlying)
- Strong growth across all geographic clusters and the Travel
Retail3 channel
- Jack Daniel’s family of brands net sales grew 20% (+16%
underlying)
- Premium bourbons grew net sales 34% (+36% underlying)
- The tequila portfolio grew net sales 32% (+23% underlying)
- Advertising increased 46% (+44% underlying) as the company
supported brand momentum
- The company generated strong free cash flow2 of $171
million
First Quarter of Fiscal 2022 Brand
Reported Results
- Jack Daniel’s family of brands net sales growth was propelled
by Jack Daniel’s Tennessee Whiskey which benefited from higher
volumes globally and favorable channel mix in the United States
related to the on-premise reopening.
- Jack Daniel’s Tennessee Apple’s net sales growth was fueled by
the ongoing international launch.
- Premium bourbons, led by Woodford Reserve and Old Forester,
maintained double-digit net sales growth driven by strong
volumetric gains in the United States.
- The tequila portfolio was led by double-digit net sales growth
for Herradura and el Jimador. In particular, Herradura benefited
from resurgent demand in Mexico following disruption in the
prior-year period. These gains were partially offset by lower
volumes of New Mix in Mexico reflecting a difficult comparison to
the same prior-year period when volume and shelf space benefited
from a temporary supply chain disruption in the beer industry.
First Quarter of Fiscal 2022 Market
Reported Results
- Strong net sales growth in the United States3 was primarily
driven by double-digit growth from Jack Daniel’s Tennessee Whiskey,
premium bourbons, and tequilas. Jack Daniel’s Tennessee Whiskey
benefited from higher volumes and favorable channel mix shift to
the on-premise channel.
- Developed international3 markets maintained double-digit net
sales growth driven by broad-based growth led by Germany, France,
Korea, and Spain.
- Emerging markets3 returned to double-digit net sales growth
propelled by volume gains across most markets, partially offset by
declines throughout most countries in Southeast Asia.
- Net sales in Travel Retail3 increased primarily due to a
favorable comparison to the same prior-year period, which was
impacted by significant disruption due to COVID-19 travel bans and
restrictions.
First Quarter of Fiscal 2022 Other
P&L Items
- Company-wide price/mix increased 19% reflecting the favorable
impact of faster growth from our higher-priced brands and favorable
mix shift to the on-premise channel. Volumetric growth across the
portfolio was offset by the decline in New Mix, resulting in a 1%
volume decline in total.
- Gross profit increased 19% (+17% underlying), while gross
margin contracted 70 basis points to 61% driven by higher input
costs related to agave and the impact of supply chain constraints,
partially offset by the favorable shift in portfolio mix towards
higher-margin brands and channels.
- The company’s investment in advertising increased 46% (+44%
underlying) driven by higher spend to support the international
launch of Jack Daniel’s Tennessee Apple, increased spend for
Woodford Reserve compared to the same prior-year period partially
due to the timing of the Kentucky Derby, and cycling a substantial
reduction in promotional activity during the same period last year
due to COVID-19.
- Selling, general and administrative expenses increased 14%
(+11% underlying) reflecting the timing of higher
compensation-related expenses, an increase in non-income tax
reserves, and cycling against lower discretionary spend in the
prior-year period.
- Operating income decreased 25% (+15% underlying), while diluted
earnings per share decreased 41% to $0.40.
- Prior-year earnings per share included a $0.19 per share
benefit from the gain on the sale of the Early Times, Canadian
Mist, and Collingwood brands.
First Quarter of Fiscal 2022 Financial
Stewardship
- On July 22, 2021, the Brown-Forman Board of Directors declared
a regular quarterly cash dividend of $0.1795 per share on the Class
A and Class B common stock. The quarterly cash dividend is payable
on October 1, 2021, to stockholders of record on September 3, 2021.
Brown-Forman has paid regular quarterly cash dividends for 77
consecutive years and has increased the regular dividend for 37
consecutive years.
Fiscal 2022 Outlook
- Due to the volatility and uncertainty that continues to exist
in the operating environment, including recent COVID-19 trends and
global supply chain disruptions, we have revised some of our
expectations for fiscal 2022. Currently, we are managing through
the impact of global supply chain disruptions, including glass
supply, and have deployed a number of risk mitigation strategies to
address the various constraints on our business. While we expect
these disruptions to persist throughout the fiscal year, we believe
the impact will become less significant in the second half of the
year.
- We expect a more significant unfavorable impact from supply
chain disruptions and higher input costs related to agave,
transportation costs, and commodity prices to negatively impact our
gross margin. As a result of these factors, we expect gross margin
to be flat, or slightly down, for the full year versus the slight
improvement originally expected.
- Despite these challenges, we still anticipate mid-single digit
growth in underlying net sales, underlying operating expenses, and
underlying operating income for fiscal 2022.
- As a result of these factors coupled with unusual comparisons
to last year, we expect the seasonality of our results to be
volatile during the year.
- We expect our effective tax rate to be in the range of about
22-23%.
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
833-962-1472 and asking for the Brown-Forman call. International
callers should dial +1-442-268-1255. 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 over 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 Tennessee RTDs, Jack Daniel’s Tennessee Honey, Jack
Daniel’s Tennessee Fire, Jack Daniel’s Tennessee Apple, Gentleman
Jack, Jack Daniel’s Single Barrel, Woodford Reserve, Old Forester,
Coopers’ Craft, GlenDronach, Benriach, Glenglassaugh, Slane,
Herradura, el Jimador, New Mix, Korbel, Sonoma-Cutrer, Finlandia,
Chambord, 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:
- Our substantial dependence upon the continued growth of the
Jack Daniel’s family of brands
- Substantial competition from new entrants, consolidations by
competitors and retailers, and 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
- Disruption of our distribution network or inventory
fluctuations in our products by distributors, wholesalers, or
retailers
- 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; further legalization of marijuana;
shifts in consumer purchase practices; 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
- 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, or labor
- Impact of health epidemics and pandemics, including the
COVID-19 pandemic, and the risk of the resulting negative economic
impact and related governmental actions
- 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
- Product recalls or other product liability claims, product
tampering, contamination, or quality issues
- 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
- Risks associated with acquisitions, dispositions, business
partnerships, or investments – such as acquisition integration,
termination difficulties or costs, or impairment in recorded
value
- Risks associated with being a U.S.-based company with a global
business, 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 whiskeys 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, corporate, sales or
value-added taxes, property taxes, payroll taxes, import and export
duties, and tariffs) or changes in related reserves, changes in tax
rules or accounting standards, and the unpredictability and
suddenness with which they can occur
- Decline in the social acceptability of beverage alcohol in
significant markets
- Significant additional labeling or warning requirements or
limitations on availability of our beverage alcohol products
- Counterfeiting and inadequate protection of our intellectual
property rights
- Significant legal disputes and proceedings, or government
investigations
- Cyber breach or failure or corruption of our key information
technology systems or those of our suppliers, customers, or direct
and indirect business partners, or failure to comply with personal
data protection laws
- 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 July
31, 2020 and 2021
(Dollars in millions, except per
share amounts)
2020
2021
Change
Net sales
$
753
$
906
20%
Cost of sales
288
353
23%
Gross profit
465
553
19%
Advertising expenses
62
90
46%
Selling, general, and administrative
expenses
148
168
14%
Gain on sale of business
(127
)
—
Other expense (income), net
(5
)
6
Operating income
387
289
(25%)
Non-operating postretirement expense
1
—
Interest expense, net
20
20
Income before income taxes
366
269
(27%)
Income taxes
42
77
Net income
$
324
$
192
(41%)
Earnings per share:
Basic
$
0.68
$
0.40
(41%)
Diluted
$
0.67
$
0.40
(41%)
Gross margin
61.7
%
61.0
%
Operating margin
51.4
%
31.9
%
Effective tax rate
11.6
%
28.5
%
Cash dividends paid per common share
$
0.1743
$
0.1795
Shares (in thousands) used in the
calculation of earnings per share
Basic
478,327
478,793
Diluted
480,429
480,718
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Balance Sheets
(Dollars in millions)
April 30, 2021
July 31, 2021
Assets:
Cash and cash equivalents
$
1,150
$
1,172
Accounts receivable, net
753
803
Inventories
1,751
1,771
Other current assets
263
246
Total current assets
3,917
3,992
Property, plant, and equipment, net
832
816
Goodwill
779
778
Other intangible assets
676
670
Other assets
318
323
Total assets
$
6,522
$
6,579
Liabilities:
Accounts payable and accrued expenses
$
679
$
631
Dividends payable
—
86
Accrued income taxes
34
71
Short-term borrowings
205
155
Total current liabilities
918
943
Long-term debt
2,354
2,346
Deferred income taxes
169
191
Accrued postretirement benefits
219
218
Other liabilities
206
198
Total liabilities
3,866
3,896
Stockholders’ equity
2,656
2,683
Total liabilities and stockholders’
equity
$
6,522
$
6,579
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Three Months Ended July
31, 2020 and 2021
(Dollars in millions)
2020
2021
Cash provided by operating activities
$
91
$
185
Cash flows from investing activities:
Proceeds from sale of business
177
—
Additions to property, plant, and
equipment
(15
)
(14
)
Other
—
(1
)
Cash provided by (used for) investing
activities
162
(15
)
Cash flows from financing activities:
Net change in short-term borrowings
55
(50
)
Dividends paid
(83
)
(86
)
Other
(9
)
(5
)
Cash used for financing activities
(37
)
(141
)
Effect of exchange rate changes on cash
and cash equivalents
17
(7
)
Net increase (decrease) in cash and cash
equivalents
233
22
Cash and cash equivalents, beginning of
period
675
1,150
Cash and cash equivalents, end of
period
$
908
$
1,172
Schedule A
Brown-Forman
Corporation
Supplemental Statement of
Operations Information (Unaudited)
Three Months Ended
Fiscal Year Ended
July 31, 2021
April 30, 2021
Reported change in net sales
20%
3%
Acquisitions and divestitures
2%
—%
Foreign exchange
—%
(1)%
Estimated net change in distributor
inventories
(4)%
4%
Underlying change in net sales2
18%
6%
Reported change in gross profit
19%
(2)%
Acquisitions and divestitures
1%
1%
Foreign exchange
—%
(1)%
Estimated net change in distributor
inventories
(4)%
4%
Underlying change in gross
profit2
17%
3%
Reported change in advertising
expenses
46%
4%
Acquisitions and divestitures
1%
—%
Foreign exchange
(2)%
(2)%
Underlying change in advertising
expenses2
44%
2%
Reported change in SG&A
14%
4%
Acquisitions and divestitures
—%
—%
Foundation
—%
(3)%
Foreign exchange
(3)%
(1)%
Underlying change in SG&A2
11%
—%
Reported change in operating
income
(25)%
7%
Acquisitions and divestitures
39%
(10)%
Foundation
—%
2%
Impairment Charges
2%
(1)%
Foreign exchange
6%
(2)%
Estimated net change in distributor
inventories
(6)%
9%
4
Underlying change in operating
income2
15%
4%
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)
Three Months Ended July 31,
2021
% Change vs. Prior Year
Period
Brand3
Depletions3
Net Sales
9-Liter4
Drinks Equivalent3
Reported
Acquisitions and Divestitures
Foreign
Exchange
Estimated
Net Change in Distributor Inventories
Underlying2
Whiskey
11%
16%
19%
3%
—%
(3)%
18%
Jack Daniel’s family of brands
10%
15%
20%
—%
—%
(3)%
16%
Jack Daniel’s Tennessee Whiskey
17%
17%
28%
—%
1%
(7)%
21%
Jack Daniel’s RTD and RTP
1%
1%
6%
—%
(3)%
—%
3%
Jack Daniel’s Tennessee Honey
11%
11%
(3)%
—%
(1)%
14%
10%
Gentleman Jack
3%
3%
(2)%
—%
—%
4%
2%
Jack Daniel’s Tennessee Fire
5%
5%
2%
—%
(1)%
3%
4%
Jack Daniel’s Tennessee Apple
44%
44%
68%
—%
4%
(37)%
35%
Other Jack Daniel’s Whiskey Brands
12%
12%
31%
—%
(1)%
(5)%
24%
Woodford Reserve
30%
30%
31%
—%
—%
4%
35%
Rest of Whiskey
34%
34%
(12)%
63%
(2)%
(10)%
39%
Tequila
(28)%
4%
32%
—%
(5)%
(4)%
23%
el Jimador
14%
14%
34%
—%
(2)%
(7)%
25%
Herradura
76%
76%
94%
—%
(4)%
(9)%
81%
Rest of Tequila
(37)%
(27)%
(15)%
—%
(8)%
1%
(22)%
Wine
9%
9%
30%
—%
—%
(22)%
8%
Vodka
7%
7%
34%
—%
(4)%
(14)%
17%
Rest of Portfolio
18%
18%
(1)%
(3)%
22%
7%
24%
Non-Branded and Bulk
NM
NM
5%
(5)%
—%
—%
—%
Total Portfolio
(1)%
14%
20%
2%
—%
(4)%
18%
Other Brand
Aggregations
American whiskey
11%
16%
21%
1%
—%
(3)%
18%
Premium bourbons
30%
30%
34%
—%
—%
2%
36%
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)
Three Months Ended July 31,
2021
Geographic
Area3
Net Sales
Reported
Acquisitions and Divestitures
Foreign
Exchange
Estimated
Net Change in Distributor Inventories
Underlying2
United States
16%
3%
—%
(4)%
16%
Developed International
17%
1%
(1)%
(5)%
12%
Australia
4%
—%
(1)%
—%
3%
Germany
24%
—%
(2)%
—%
22%
United Kingdom
(3)%
—%
7%
(1)%
2%
France
14%
—%
(3)%
—%
11%
Canada
(4)%
1%
(9)%
11%
—%
Rest of Developed International
57%
5%
(6)%
(32)%
24%
Emerging
40%
—%
(1)%
(5)%
34%
Mexico
12%
—%
(10)%
—%
2%
Poland
18%
—%
(7)%
—%
11%
Brazil
46%
—%
3%
16%
64%
Russia
37%
—%
(3)%
(39)%
(6)%
Rest of Emerging
80%
1%
14%
(24)%
72%
Travel Retail
61%
2%
(5)%
17%
74%
Non-Branded and Bulk
5%
(5)%
—%
—%
—%
Total
20%
2%
—%
(4)%
18%
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
Corporation
Supplemental Free Cash Flow
Information (Unaudited)
(Dollars in millions)
Twelve Months Ended
July 31, 2020
July 31, 2021
Cash provided by operating
activities
$
91
$
185
Additions to property, plant, and
equipment
(15
)
(14
)
Free Cash Flow2
$
76
$
171
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 1 - Percentage growth rates are compared to the same
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, C, and D 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 cost of sales; (c) underlying
gross profit; (d) underlying advertising expenses; (e) underlying
selling, general, and administrative (SG&A) expenses; (f)
underlying other expense (income) net; (g) underlying operating
expenses*; and (h) underlying operating income. To calculate these
measures, we adjust, as applicable, for (1) acquisitions and
divestitures, (2) foreign exchange, (3) estimated net changes in
distributor inventories, and (4) impairment charges. 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, transition, 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). Excluding non-comparable periods allows us to include the
effects of acquired and divested brands only to the extent that
results are comparable year over year. During 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, and
entered into a related transition services agreement (TSA) for
these brands. Also, during fiscal 2021, we acquired Part Time
Rangers Limited, which owns Part Time Rangers RTDs. This adjustment
removes (a) transaction and integration costs related to the
acquisitions and divestitures, (b) the gain on sale of Early Times,
Canadian Mist, and Collingwood and related assets, (c) operating
activity for the non-comparable period for Early Times, Canadian
Mist, and Collingwood, which is activity in the first quarter of
fiscal 2021, (d) the net sales and operating expenses recognized in
fiscal 2021 pursuant to the TSA related to (i) contract bottling
services and (ii) distribution services in certain markets, and (e)
operating activity for Part Time Rangers Holdings Limited for the
non-comparable period, which is activity in the first quarter of
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
(see Note 3 - Definitions - Other Metrics below) 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.
- “Impairment charges.” This adjustment removes the impact of
impairment charges from our results of operations. During the first
quarter of fiscal 2022, we recognized a non-cash impairment charge
of $6 million for certain fixed assets. We believe that this
adjustment allows for us to better understand 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.
Free cash flow. This measure refers
to the cash provided by operating activities less additions to
property, plant, and equipment on the Unaudited Condensed
Consolidated Statements of Cash Flows above. In Schedule D, we
provide this calculation for the relevant time periods. We use this
non-GAAP measure in evaluating the Company’s financial performance,
which measures our ability to generate additional cash from our
business operations. Free cash flow should be considered in
addition to, rather than as a substitute for, net income as a
measure of our performance and net cash provided by operating
activities as a measure of our liquidity.
*Operating expenses include advertising expense, SG&A
expense, and other expense (income), net.
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 beverage alcohol 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 2021 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 Australia, Germany, the United
Kingdom, France, and Canada. 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, Brazil, 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 2021 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, the Woodford Reserve family of brands (Woodford
Reserve), the Old Forester family of brands (Old Forester),
GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and
Coopers’ Craft.
- “American whiskey” includes the Jack Daniel’s family of brands,
premium bourbons (defined below), and super-premium American
whiskey (defined below).
- “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 No. 27 Gold
Tennessee Whiskey, Jack Daniel’s Sinatra Select, 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 Country Cocktails, Jack Daniel’s & Diet Cola, Jack
& Ginger, Jack Daniel’s Double Jack, Gentleman Jack & Cola,
Jack Daniel’s American Serve, Jack Daniel’s Tennessee Honey RTD,
Jack Daniel’s Berry, Jack Daniel’s Lynchburg Lemonade, 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,
Gentleman Jack, JDSB, JDTR, Jack Daniel’s No. 27 Gold Tennessee
Whiskey, and Jack Daniel’s Sinatra Select.
- “Tequila” includes the Herradura family of brands (Herradura),
el Jimador, New Mix, Pepe Lopez, and Antiguo.
- “Wine” includes Korbel Champagnes and Sonoma-Cutrer wines.
- “Vodka” includes Finlandia.
- “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” usually 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.
Note 4 - Jack Daniel’s Country Cocktails 9L
Depletions
Effective April 1, 2021, we entered into a partnership with
Pabst Brewing Company for the supply, sales, and distribution of
Jack Daniel’s Country Cocktails in the United States. Consequently,
our fiscal 2022 results include net sales, but do not include 9L
depletions for this brand. To share results on a comparable basis
for fiscal 2022, we excluded fiscal 2021 9L depletions for Jack
Daniel’s Country Cocktails in the United States.
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version on businesswire.com: https://www.businesswire.com/news/home/20210901005547/en/
Rob Frederick Vice President Brown-Forman Brand &
Communications 502-774-7707
BrownForman (NYSE:BFA)
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