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LOUISVILLE, Ky.--(BUSINESS WIRE)--Mar 8, 2023--
Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its third quarter and nine months ended January 31, 2023. For the third quarter, reported net sales 1 increased 4% to $1.1 billion (+5% on an organic basis 2 ) compared to the same prior-year period. Reported operating income decreased 50% to $173 million (-11% on an organic basis) reflecting lower gross margin, a non-cash impairment charge of $96 million for the Finlandia brand name, and higher operating expenses including certain post-closing costs and expenses in connection with the acquisitions of Diplomático and Gin Mare. Diluted earnings per share decreased 61% to $0.21 in the quarter, driven primarily by the decrease in reported operating income and a $27 million pension settlement charge.
For the first nine months of the fiscal year, reported net sales increased 8% to $3.2 billion (+12% on an organic basis) compared to the same prior-year period. In the first nine months, reported operating income decreased 13% to $829 million (+9% on an organic basis) due to the items mentioned above. Diluted earnings per share decreased 16% to $1.20 due to the decrease in reported operating income and a $27 million pension settlement charge.
Lawson Whiting, Brown-Forman’s President and Chief Executive Officer stated, “Brown-Forman continues to deliver strong net sales growth year-to-date, as we executed our strategic priorities and invested boldly behind our brands and our people.” He added, “Even as trends begin to normalize, we believe our business will remain robust given the premiumization of our portfolio, the health of our brands, and the resolve of our people. We also believe our long-term perspective enables us to navigate the changes of our world and drive consistent, reliable growth year after year.”
Year-to-Date Fiscal 2023 Brand Results
Year-to-Date Fiscal 2023 Market Results
Year-to-Date Fiscal 2023 Other P&L Items
Year-to-Date Fiscal 2023 Financial Stewardship
On January 24, 2023, the Brown-Forman Board of Directors declared a regular quarterly cash dividend of $0.2055 per share on its Class A and Class B common stock. The dividend is payable on April 3, 2023, to stockholders of record on March 8, 2023. Brown-Forman has paid regular quarterly cash dividends for 79 consecutive years and has increased the regular cash dividend for 39 consecutive years.
Fiscal 2023 Outlook
The company anticipates strong growth in fiscal 2023 despite global macroeconomic volatility and geopolitical uncertainties. The rebuilding of finished goods inventories, due to the easing of supply chain constraints, positively impacted results during the first nine months of fiscal 2023. For the full year, the effect of the estimated net change in distributor inventories could range from no impact to a moderate unfavorable impact on results as the company laps significant inventory rebuilding during the fourth quarter of fiscal 2022. Accordingly, the company updates guidance for fiscal 2023 and expects the following, assuming that there will be no impact from an estimated net change in distributor inventories for the full year:
Conference Call Details
Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (ET) today. A live audio broadcast of the conference call, and the accompanying presentation slides, will be available via Brown-Forman’s website, 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 more than 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 Ready-to-Drinks, 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, The GlenDronach, Benriach, Glenglassaugh, Slane, Herradura, el Jimador, New Mix, Korbel, Sonoma-Cutrer, Finlandia, Chambord, Fords Gin, Gin Mare, and Diplomático Rum. Brown-Forman’s brands are supported by approximately 5,200 employees globally and sold in more than 170 countries worldwide. For more information about the company, please visit brown-forman.com. Follow us on LinkedIn, Instagram and Twitter.
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,” “outlook,” “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:
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 January 31, 2022 and 2023
(Dollars in millions, except per share amounts)
2022
2023
Change
Net sales
$
1,037
$
1,081
4
%
Cost of sales
415
457
10
%
Gross profit
622
624
0
%
Advertising expenses
117
141
21
%
Selling, general, and administrative expenses
162
186
14
%
Other expense (income), net
(4
)
124
Operating income
347
173
(50
)%
Non-operating postretirement expense
—
27
Interest expense, net
19
22
Income before income taxes
328
124
(62
)%
Income taxes
69
24
Net income
$
259
$
100
(61
)%
Earnings per share:
Basic
$
0.54
$
0.21
(61
)%
Diluted
$
0.54
$
0.21
(61
)%
Gross margin
60.0
%
57.7
%
Operating margin
33.5
%
15.9
%
Effective tax rate
21.0
%
19.5
%
Cash dividends paid per common share
$
1.1885
$
0.2055
Shares (in thousands) used in the calculation of earnings per share
Basic
478,887
479,152
Diluted
480,567
480,460
Brown-Forman Corporation
Unaudited Consolidated Statements of Operations
For the Nine Months Ended January 31, 2022 and 2023
(Dollars in millions, except per share amounts)
2022
2023
Change
Net sales
$
2,937
$
3,182
8
%
Cost of sales
1,172
1,323
13
%
Gross profit
1,765
1,859
5
%
Advertising expenses
311
372
20
%
Selling, general, and administrative expenses
495
541
9
%
Other expense (income), net
1
117
Operating income
958
829
(13
)%
Non-operating postretirement expense
2
27
Interest expense, net
58
54
Income before income taxes
898
748
(17
)%
Income taxes
211
172
Net income
$
687
$
576
(16
)%
Earnings per share:
Basic
$
1.43
$
1.20
(16
)%
Diluted
$
1.43
$
1.20
(16
)%
Gross margin
60.1
%
58.4
%
Operating margin
32.6
%
26.0
%
Effective tax rate
23.4
%
23.0
%
Cash dividends paid per common share
$
1.5475
$
0.5825
Shares (in thousands) used in the calculation of earnings per share
Basic
478,844
479,121
Diluted
480,599
480,482
Brown-Forman Corporation
Unaudited Condensed Consolidated Balance Sheets
(Dollars in millions)
April 30,
January 31,
2022
2023
Assets:
Cash and cash equivalents
$
868
$
428
Accounts receivable, net
813
944
Inventories
1,818
2,160
Other current assets
277
311
Total current assets
3,776
3,843
Property, plant, and equipment, net
875
955
Goodwill
761
1,455
Other intangible assets
586
1,145
Other assets
375
356
Total assets
$
6,373
$
7,754
Liabilities:
Accounts payable and accrued expenses
$
703
$
787
Dividends payable
—
98
Accrued income taxes
81
44
Short-term borrowings
—
1,004
Current portion of long-term debt
250
—
Total current liabilities
1,034
1,933
Long-term debt
2,019
2,024
Deferred income taxes
219
341
Accrued postretirement benefits
183
171
Other liabilities
181
247
Total liabilities
3,636
4,716
Stockholders’ equity
2,737
3,038
Total liabilities and stockholders’ equity
$
6,373
$
7,754
Brown-Forman Corporation
Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended January 31, 2022 and 2023
(Dollars in millions)
2022
2023
Cash provided by operating activities
$
683
$
410
Cash flows from investing activities:
Acquisition of business, net of cash acquired
—
(1,195
)
Additions to property, plant, and equipment
(62
)
(116
)
Other
(1
)
11
Cash provided by (used for) investing activities
(63
)
(1,300
)
Cash flows from financing activities:
Proceeds from short-term borrowings, maturities greater than 90 days
—
600
Net change in other short-term borrowings
(181
)
402
Repayment of long-term debt
—
(250
)
Dividends paid
(741
)
(279
)
Other
(8
)
(5
)
Cash provided by (used for) financing activities
(930
)
468
Effect of exchange rate changes
(28
)
(15
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(338
)
(437
)
Cash, cash equivalents, and restricted cash at beginning of period
1,150
874
Cash, cash equivalents, and restricted cash at end of period
812
437
Less: Restricted cash at end of period
—
(9
)
Cash and cash equivalents at end of period
$
812
$
428
Schedule A
Brown-Forman Corporation
Supplemental Statement of Operations Information (Unaudited)
Three Months Ended
Nine Months Ended
Fiscal Year Ended
January 31, 2023
January 31, 2023
April 30, 2022
Reported change in net sales
4%
8%
14%
Acquisitions and divestitures
(1)%
—%
2%
Foreign exchange
1%
4%
2%
Organic change in net sales 2
5%
12%
17%
Reported change in gross profit
—%
5%
14%
Acquisitions and divestitures
(1)%
—%
1%
Foreign exchange
2%
6%
3%
Organic change in gross profit 2
2%
11%
17%
Reported change in advertising expenses
21%
20%
10%
Acquisitions and divestitures
(1)%
—%
—%
Impairment Charges
—%
—%
—%
Foreign exchange
2%
5%
2%
Organic change in advertising expenses 2
23%
24%
11%
Reported change in SG&A
14%
9%
3%
Acquisitions and divestitures
(2)%
(2)%
—%
Impairment Charges
—%
—%
—%
Foundation
—%
—%
3%
Foreign exchange
2%
4%
1%
Organic change in SG&A 2
14%
11%
7%
Reported change in operating income
(50)%
(13)%
3%
Acquisitions and divestitures
12%
5%
14%
Foundation
—%
—%
(2)%
Impairment Charges
28%
9%
6%
Foreign exchange
—%
9%
6%
Organic change in operating income 2
(11)%
9%
27%
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 B
Brown-Forman Corporation
Supplemental Brand Information (Unaudited)
Nine Months Ended January 31, 2023
Brand 3
Supplemental Information -
Depletions 3
Shipments
Net Sales % Change vs. Prior Year Period
9-Liter
(Millions)
% Change
vs. Prior
Year
Period
9-Liter
(Millions)
% Change
vs. Prior
Year
Period
Reported
Acquisitions
and
Divestitures
Foreign
Exchange
Organic 2
Whiskey
16.9
6%
17.4
10%
9%
—%
5%
14%
JDTW
11.4
6%
11.8
9%
6%
—%
6%
12%
JDTH
1.7
—%
1.6
3%
2%
—%
4%
6%
Gentleman Jack
0.7
12%
0.7
14%
8%
—%
6%
14%
JDTF
0.5
6%
0.5
6%
6%
—%
3%
9%
JDTA
0.5
(1)%
0.5
(8)%
(11)%
—%
5%
(6)%
Woodford Reserve
1.2
15%
1.3
33%
34%
—%
1%
35%
Old Forester
0.4
14%
0.4
27%
30%
—%
—%
30%
Rest of Whiskey
0.5
15%
0.5
21%
12%
—%
6%
18%
Ready-to-Drink
16.4
17%
18.7
13%
12%
—%
3%
15%
JD RTD/RTP
9.1
11%
11.4
7%
6%
—%
5%
10%
New Mix
7.2
26%
7.2
26%
45%
—%
(4)%
41%
Tequila
1.9
7%
1.9
6%
12%
—%
—%
11%
Herradura
0.5
(4)%
0.6
2%
10%
—%
(1)%
9%
el Jimador
1.3
10%
1.3
13%
18%
—%
1%
19%
Wine
1.6
(9)%
1.5
(14)%
(7)%
—%
—%
(7)%
Vodka (Finlandia)
2.1
1%
2.1
—%
(13)%
—%
9%
(5)%
Rest of Portfolio
0.5
3%
0.5
2%
19%
(16)%
5%
9%
Non-branded and bulk
NM
NM
NM
NM
34%
10%
2%
46%
Total Portfolio
39.4
9%
42.1
9%
8%
—%
4%
12%
Other Brand Aggregations
Jack Daniel's Family of Brands
24.3
8%
26.9
8%
5%
—%
6%
11%
American Whiskey
16.8
6%
17.2
10%
9%
—%
5%
14%
Premium Bourbons
1.6
15%
1.7
32%
33%
—%
1%
34%
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, 2023
% Change vs. Prior-Year Period
Geographic Area 3
Net Sales
Reported
Acquisitions and Divestitures
Foreign Exchange
Organic 2
United States
4%
—%
—%
4%
Developed International
5%
(1)%
9%
13%
Germany
3%
—%
10%
13%
Australia
3%
—%
4%
7%
United Kingdom
(5)%
—%
8%
2%
France
(18)%
—%
8%
(10)%
Canada
28%
—%
6%
33%
Rest of Developed International
26%
(2)%
13%
37%
Emerging
18%
—%
8%
26%
Mexico
30%
—%
(4)%
26%
Poland
2%
—%
16%
18%
Brazil
61%
—%
—%
61%
Chile
(41)%
—%
—%
(41)%
Rest of Emerging
15%
—%
14%
29%
Travel Retail
48%
(2)%
5%
52%
Non-branded and bulk
34%
10%
2%
46%
Total
8%
—%
4%
12%
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 Geographic, Product, and Operations Information (Unaudited)
Nine Months Ended January 31, 2023
Estimated Net Change in Distributor Inventories 3
Geographic Area 3 - Net Sales
United States
(1)%
Developed International
2%
Emerging
7%
Travel Retail
7%
Non-Branded and Bulk
—%
Brand 3 - Net Sales
Whiskey
3%
JDTW
2%
JDTH
3%
Gentleman Jack
1%
JDTF
1%
JDTA
(8)%
Woodford Reserve
15%
Old Forester
11%
Rest of Whiskey
6%
Ready-to-Drink
(1)%
JD RTD/RTP
(2)%
New Mix
—%
Tequila
(1)%
Herradura
4%
el Jimador
1%
Wine
(6)%
Vodka (Finlandia)
—%
Rest of Portfolio
(4)%
Non-branded and bulk
—%
Statement of Operations Line Items
Net Sales
2%
Cost of Sales
1%
Gross Profit
2%
Operating Income
4%
A positive difference is interpreted as a net increase in distributors’ inventories; whereas, a negative difference is interpreted as a net decrease in distributors’ inventories.
Note: Totals may differ due to rounding.
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 some 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.
“Organic 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 “organic” basis. We use “organic change” for the following measures: (a) organic net sales; (b) organic cost of sales; (c) organic gross profit; (d) organic advertising expenses; (e) organic selling, general, and administrative (SG&A) expenses; (f) organic other expense (income) net; (g) organic operating expenses*; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, (3) impairment changes and (4) a commitment to our charitable foundation. We explain these adjustments below.
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. This adjustment removes (a) transaction and integration costs related to the divestitures, (b) the gain on sale of Early Times, Canadian Mist, and Collingwood and related assets, (c) operating activity for the non-comparable periods for Early Times, Canadian Mist, and Collingwood, and (d) the net sales and operating expenses recognized pursuant to the TSA related to (i) contract bottling services and (ii) distribution services in certain markets. With respect to comparisons of fiscal 2022 and fiscal 2021, the non-comparable period is the first quarter of fiscal 2021. With respect to comparisons of the nine months ended January 31, 2023 and the nine months ended January 31, 2022, the non-comparable period is the first quarter of fiscal 2022.
During the third quarter of fiscal 2021, we acquired Part Time Rangers Holdings Limited, which owns Part Time Rangers RTDs. 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. With respect to comparisons of fiscal 2022 to fiscal 2021, the non-comparable period is primarily activity in the first and second quarters of fiscal 2022.
During the third quarter of fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which own the Gin Mare brand (Gin Mare). Also, during the third quarter of fiscal 2023, we acquired (a) International Rum and Spirits Distributors Unipessoal, Lda., (b) Diplomático Branding Unipessoal Lda., (c) International Bottling Services, S.A., (d) International Rum & Spirits Marketing Solutions, S.L., and (e) certain assets of Destilerias Unidas Corp., which collectively own the Diplomático Rum brand and related assets (Diplomático). This adjustment removes, (a) transaction, transition, and integration costs related to the acquisitions, (b) operating activity for Gin Mare for the non-comparable period, which is activity in the third quarter of fiscal 2023, and (c) operating activity for Diplomático for the non-comparable period, which is activity in the third quarter of fiscal 2023. We believe that these adjustments allow for us to better understand our organic results on a comparable basis.
We use the non-GAAP measure “organic change,” along with other metrics, 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 investment community. We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance and comparability between periods. When we provide guidance for organic change in 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, such as foreign exchange, which could have a significant impact on our GAAP income statement measures.
As of the third quarter ended January 31, 2022, we changed certain non-GAAP financial measures that we have historically used. We no longer report “underlying changes” in certain measures of the statements of operations; instead, we now report “organic change” for certain measures of the statements of operations. “Organic change” includes all of the non-GAAP adjustments that we have historically made in adjusting GAAP to “underlying change” results, except that “organic change” does not include an adjustment for “estimated net change in distributor inventories,” which reflected the estimated net effect of changes in distributor inventories on changes in certain line items of the statements of operations. This change to our non-GAAP financial measures was in response to comments from and discussions with the Staff of the Securities and Exchange Commission.
Although we no longer provide non-GAAP financial measures that adjust for “estimated net change in distributor inventories,” we still believe that our results are affected by changes in distributor inventories, particularly in our largest market, the United States, where the spirits industry is subject to regulations that essentially mandate a so-called “three-tier system,” with a value chain that includes suppliers, distributors, and retailers. Accordingly, we continue to provide information concerning estimated fluctuations in distributor inventories. We believe such information is useful in understanding our performance and trends as it provides relevant information regarding customers’ demand for our products.
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 the geographic and brand aggregations used in this release.
In Schedule C and Schedule D, we provide supplemental information for our largest markets ranked by percentage of total fiscal 2022 reported net sales. Due to our decision to suspend commercial operations in Russia, it is no longer considered one of our largest markets. In addition to markets that are listed by country name, we include the following aggregations:
Brand Aggregations.
In Schedule B and Schedule D, we provide supplemental information for our largest brands ranked by percentage of total fiscal 2022 reported net sales. In addition to brands that are listed by name, we include the following aggregations outlined below.
Beginning in fiscal 2023, we began presenting “Ready-to-Drink” products as a separate aggregation due to its more significant contribution to our growth in recent years and industry-wide category growth trends. “Whiskey” no longer contains Jack Daniel’s ready-to-drink (RTD) and ready-to-pour (RTP), and “Tequila” no longer includes New Mix. These brands are now included in the “Ready-to-Drink” brand aggregation.
Other Metrics.
We perform the following calculation to determine the “estimated net change in distributor inventories”:
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CONTACT: Rob Frederick
Vice President
Corporate Communications
rob_frederick@b-f.com
502-774-7707Sue Perram
Vice President
Investor Relations
sue_perram@b-f.com
502-774-6862
KEYWORD: UNITED STATES NORTH AMERICA KENTUCKY
INDUSTRY KEYWORD: RETAIL SPECIALTY RESTAURANT/BAR WINE & SPIRITS
SOURCE: Brown-Forman Corporation
Copyright Business Wire 2023.
PUB: 03/08/2023 08:17 AM/DISC: 03/08/2023 08:17 AM
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