Market Overview

Brown-Forman Reports Strong Fiscal 2018 Results; Expects Momentum to Continue in Fiscal 2019

Share:

Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) reported financial
results for its fourth quarter and fiscal year ended April 30, 2018. For
the fourth quarter, the company's reported net sales1
increased 6% to $733 million (+5% on an underlying2 basis)
compared to the same prior-year period. In the quarter, reported
operating income declined 32% to $145 million (-4% on an underlying
basis) and diluted earnings per share of $0.23 declined 24%. Fourth
quarter reported operating income and earnings per share were both
negatively impacted by the previously announced creation of a $70
million charitable foundation, as well as the phasing of operating
expenses.

For the full year, the company's reported net sales increased 8% to
$3,248 million (+6% on an underlying basis) compared to the prior-year
period. Reported net sales growth benefited by one percentage point from
foreign exchange and one percentage point from estimated net changes in
distributor inventories. In the year, reported operating income
increased 5% to $1,039 million (+8% on an underlying basis) and diluted
earnings per share of $1.48 increased 8%. Tax reform items in the third
quarter and the creation of the foundation in the fourth quarter
negatively impacted fiscal 2018 earnings per share by $0.19.

Paul Varga, the company's Chief Executive Officer, said, "Brown-Forman
delivered excellent results in fiscal 2018, driven by underlying net
sales growth of 6.5%, which more than doubled fiscal 2017's rate of
growth. Our results demonstrated an excellent balance across both
geography and portfolio, while being driven once again by the Jack
Daniel's trademark and our premium American whiskey portfolio.
Thoughtful resource allocation, high impact brand investments, and a
heightened attention to cost efficiency yielded an operating margin of
32%, an ROIC2,4 of 20%, and a total shareholder return (TSR)5
of 53% in fiscal 2018."

Fiscal 2018 Highlights

  • Underlying net sales grew 6% (+8% reported), with balanced geographic
    and portfolio contribution3:
    • Emerging markets grew underlying net sales by 13% (+18% reported),
      the United States grew underlying net sales by 5% (+7% reported)
      and developed markets outside of the United States also grew
      underlying net sales by 5% (+6% reported)
    • The Jack Daniel's family of brands grew underlying net sales 6%
      (+8% reported), including 4% growth (+6% reported) for Jack
      Daniel's Tennessee Whiskey
    • The company's super-premium American whiskey brands grew
      underlying net sales +15% (+20% reported), including 22% growth
      from Woodford Reserve (+26% reported)
    • Herradura and el Jimador grew underlying net sales 19% and 9%,
      respectively (+17% and +14%, reported)
  • Underlying operating income grew 8% (+5% reported)
  • Returned $773 million to shareholders in the year, including a
    $1/share special dividend
  • Generated a 17% annual TSR over the last ten years

Fiscal 2018 Results By Market - Broad-Based
Growth in Each Top Ten Market

The company delivered strong, and broad-based growth around the world,
with balanced contribution from the main geographic clusters, including
the United States, developed markets outside of the United States, and
the emerging markets. Every one of the company's top ten markets grew
net sales and Travel Retail delivered 8% underlying net sales growth
(+13% reported) for the year.

 

Brown-Forman Corporation - Top Ten Markets by Net Sales

Supplemental Information (Unaudited)
Twelve Months Ended April 30, 2018
 
Country    

% of
Reported Net
Sales

   

% Growth in
Reported Net
Sales

   

% Growth in
Underlying Net
Sales

United States     47%     7%     5%
United Kingdom     6%     4%     3%
Australia     5%     8%     8%
Mexico     5%     15%     12%
Germany     5%     14%     10%
France     4%     11%     6%
Poland     3%     15%     7%
Russia     1%     52%     19%
Brazil     1%     34%     28%
Canada     1%     2%     3%
Top Ten Total     79%     9%     6%
Other Markets     21%     8%     8%
Total Worldwide     100%     8%     6%

Note: See schedule C for reconciliation of reported net sales
growth, which includes the impact from acquisitions and
divestitures, changes in foreign exchange, and estimated net
change in distributor inventories.

Totals may differ due to rounding

 

The underlying net sales growth in the United States was driven by
broad-based gains from the Jack Daniel's family of brands, including
Tennessee Whiskey, Tennessee Honey, Tennessee Fire, Gentleman Jack and
the portfolio of RTDs/RTP (RTDs3), as well as a solid
mid-year launch of Jack Daniel's Tennessee Rye. The company's
super-premium American whiskey portfolio continued to grow rapidly in
the United States, including strong double-digit underlying net sales
gains from Woodford Reserve and Old Forester. Herradura and el Jimador
tequila also grew aggregate underlying net sales double-digits as both
brands enjoyed strong growth in the on- and off-premise.

Underlying net sales in the company's developed markets outside of the
United States were solid. Germany and the United Kingdom grew underlying
net sales by 10% (+14% reported) and 3% (+4% reported), respectively,
while France's underlying net sales increased 6% (+11% reported).
Australia's underlying net sales increased 8% (+8% reported) and
Canada's underlying net sales increased 3% (+2% reported). The company's
recent launch of owned distribution in Spain has resulted in
double-digit underlying net sales gains.

Emerging markets continued to strengthen despite increasingly difficult
comparisons. Mexico grew underlying net sales by 12% (+15% reported),
fueled by strong growth in the tequila portfolio and continued demand
for the Jack Daniel's family of brands. Poland also delivered strong
results with underlying net sales growth of 7% (+15% reported). Russia
and Brazil grew underlying net sales 19% (+52% reported) and 28% (+34%
reported), respectively, as both markets experienced improved economic
conditions as well as reduced currency volatility. Other emerging
markets, such as Turkey, China, Thailand, India, and Ukraine delivered
double-digit growth in underlying net sales.

Travel Retail delivered another solid year of growth, with underlying
net sales up 8% (+13% reported) following the 7% (+3% reported)
underlying net sales growth registered in fiscal 2017. Jack Daniel's
Tennessee Whiskey grew well across Travel Retail, and other brands, such
as Gentleman Jack and Woodford Reserve also enjoyed growth as consumers
globally search for super-premium bourbons with heritage and
authenticity. Travel Retail also benefited from higher passenger volumes
throughout the year.

Fiscal 2018 Results By Brand - Strong Growth in
Premium American Whiskey and Tequila

The company's underlying net sales growth was led by the Jack Daniel's
family, up 6% (+8% reported). Jack Daniel's Tennessee Whiskey
experienced 4% underlying net sales growth globally (+6% reported), with
strong volume gains in markets outside of the United States. Jack
Daniel's Tennessee Honey's underlying net sales grew 9% (+10% reported),
led by growth in the United States and France. Jack Daniel's RTD
business has delivered strong underlying net sales growth throughout the
year, up 14% (+15% reported). Growth has been fueled by innovation,
including Jack Daniel's Cider in the United Kingdom, Jack Daniel's
American Serve in Australia, Jack Daniel's Lynchburg Lemonade in Germany
and Southern Peach Country Cocktails in the United States. Gentleman
Jack grew underlying net sales 7% (+9% reported), as consumers responded
favorably to the new advertising campaign and additional media spend.
Jack Daniel's Tennessee Fire increased underlying net sales 15% (+20%
reported), led by continued growth in the United States and expansion
into Brazil and Chile.

Brown-Forman's portfolio of super-premium American whiskey brands,
including Woodford Reserve, Jack Daniel's Single Barrel and Gentleman
Jack, delivered 15% underlying net sales growth (+20% reported).
Woodford Reserve grew underlying net sales 22% (+26% reported). Old
Forester grew at an even faster rate, powered by favorable mix shift to
more premium offerings in addition to strong volumetric gains.

Finlandia vodka grew underlying net sales 5% (+10% reported). The
increase in underlying net sales was primarily driven by higher realized
prices in Russia due to our route-to-consumer change. These gains were
partially offset by continued pressure in Poland due to the extremely
competitive marketplace.

el Jimador grew underlying net sales by 9% (+14% reported), fueled by
strong takeaway trends in the United States as the company continued to
invest in building brand awareness through the combination of on- and
off-premise activation. Herradura grew underlying net sales by 19% (+17%
reported). Both the United States and Mexico experienced double-digit
gains, and Mexico benefited from continued growth of Herradura Ultra.
New Mix's underlying net sales growth increased double-digits, helped by
strong distribution gains and innovation.

Other P&L Items

Company-wide price/mix contributed nearly two percentage points to the
6% underlying net sales growth (+8% reported). Underlying gross profit
also grew 6% in fiscal 2018 (+9% reported). As expected, the company
experienced higher cost of goods in the second half of the year.
Full-year reported gross margins increased 30bps due to favorable
portfolio mix and foreign exchange tailwinds.

Underlying advertising spend increased 6% (+8% reported) for the full
year, as the company continued to invest in the Jack Daniel's family of
brands, the fast growing bourbon and tequila brands, as well as brands
such as Slane Irish whiskey, GlenDronach and BenRiach. Underlying SG&A
grew 3% for the full year (+15% reported), driven by a 9% underlying
increase (+50% reported) in SG&A in the fourth quarter. SG&A in the
fourth quarter was negatively impacted by one-time items including
special employee bonuses, while reported SG&A also included the $70
million contribution to the newly created Brown-Forman charitable
foundation.

The company delivered underlying operating income growth of 8% (+5%
reported). Operating leverage was driven by the company's continued
focus on tightly managing costs, including leveraging its assets and
prior investments. Reported operating margin, which included funding the
foundation, was 32%.

Financial Stewardship

As of April 30, 2018, total debt was $2,556 million, up from $2,149
million as of April 30, 2017. Through April 30, 2018, the company
delivered a trailing twelve month ROIC of 20%.

On January 23, 2018, Brown-Forman declared a five for four stock split,
paid on February 28, 2018. Also on January 23, 2018, Brown-Forman
declared a special dividend of $1.00 on the split-adjusted Class A and
Class B common stock. The special cash dividend was paid on April 23,
2018 to stockholders of record on April 2, 2018. On May 24, 2018,
Brown-Forman declared a regular quarterly cash dividend of $0.158 per
share on the split-adjusted Class A and Class B common stock, equating
to an annualized cash dividend of $0.632 per share. The quarterly cash
dividend is payable on June 6, 2018 to stockholders of record on July 3,
2018.

Brown-Forman has paid regular quarterly cash dividends for 72
consecutive years and has increased the dividend for 34 consecutive
years.

Regarding the outlook for fiscal 2019, Varga added, "We are in the early
days of capitalizing on our American Whiskey strategy, and believe we
are extremely well-positioned to maintain the renewed momentum in our
business. We have been investing over the last several years in our
portfolio of brands, our route-to-market and our people, and our
confidence is further bolstered by the significant actions and
investments we chose to make in fiscal 2018, most notably during the
fourth quarter. We expect fiscal 2019 to be another great year at
Brown-Forman, with reported earnings per share gains of 18-25% fueled by
strong growth in our business and the benefits of tax reform."

Fiscal Year 2019 Outlook

The global economy has improved modestly over the last year, including
improving conditions in many emerging markets. However, the competitive
landscape in the developed world remains intense, not to mention
concerns over potential retaliatory tariffs on American spirits. These
factors make it difficult to accurately predict future results. Assuming
current trends continue, the company expects:

  1. Underlying net sales growth of 6% to 7%.
  2. Flat underlying SG&A and underlying A&P up in line with underlying net
    sales growth.
  3. Underlying operating income growth of 7% to 9%.
  4. Diluted earnings per share of $1.75 to $1.85 incorporates a tax rate
    of 21% as well as approximately five cents of negative impact from
    higher interest expense, foreign exchange and anticipated changes in
    net inventories.
     
        EPS
FY18 Reported EPS       $ 1.48
Tax Reform Items and Foundation $ 0.19
Baseline FY18 EPS $ 1.67
Underlying Growth of 7-9% $0.11 - $0.16
Lower Tax Rate $0.04 - $0.05
Interest Expense, Foreign Exchange & Inventory       ($0.07) - ($0.03)
FY19 Reported EPS Outlook       $1.75 - $1.85
YOY Reported EPS Growth 18% - 25%
 

Conference Call Details

Brown-Forman will host a conference call to discuss the results at 10:00
a.m. (EDT) today. All interested parties in the United States are
invited to join the conference call by dialing 888-624-9285 and asking
for the Brown-Forman call. International callers should dial
+1-706-679-3410. The company suggests that participants dial in ten
minutes in advance of the 10:00 a.m. (EDT) start of the conference call.
A live audio broadcast of the conference call, and the accompanying
presentation slides, will also be available via Brown-Forman's Internet
website, http://www.brown-forman.com/,
through a link to "Investors/Events & Presentations." For those unable
to participate in the live call, information regarding the digital audio
recording of the conference call and the presentation slides will also
be on the website. The replay will be available for at least 30 days
following the conference call.

For nearly 150 years, Brown-Forman Corporation has enriched the
experience of life by responsibly building fine quality beverage alcohol
brands, including Jack Daniel's Tennessee Whiskey, Jack Daniel's & Cola,
Jack Daniel's Tennessee Honey, Jack Daniel's Tennessee Fire, Gentleman
Jack, Jack Daniel's Single Barrel, Finlandia, Korbel, el Jimador,
Woodford Reserve, Old Forester, Canadian Mist, Herradura, New Mix,
Sonoma-Cutrer, Early Times, Chambord, BenRiach, GlenDronach and Slane.
Brown-Forman's brands are supported by over 4,800 employees and sold in
more than 170 countries worldwide. For more information about the
company, please visit http://www.brown-forman.com/.

Important Information on Forward-Looking Statements:

This press release contains statements, estimates, and projections that
are "forward-looking statements" as defined under U.S. federal
securities laws. Words such as "aim," "anticipate," "aspire," "believe,"
"continue," "could," "envision," "estimate," "expect," "expectation,"
"intend," "may," "plan," "potential," "project," "pursue," "see,"
"seek," "should," "will," and similar words identify forward-looking
statements, which speak only as of the date we make them. Except as
required by law, we do not intend to update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise. By their nature, forward-looking statements
involve risks, uncertainties, and other factors (many beyond our
control) that could cause our actual results to differ materially from
our historical experience or from our current expectations or
projections. These risks and uncertainties include, but are not limited
to:

  • Unfavorable global or regional economic conditions, and related low
    consumer confidence, high unemployment, weak credit or capital
    markets, budget deficits, burdensome government debt, austerity
    measures, higher interest rates, higher taxes, political instability,
    higher inflation, deflation, lower returns on pension assets, or lower
    discount rates for pension obligations
  • Risks associated with being a U.S.-based company with global
    operations, including commercial, political, and financial risks;
    local labor policies and conditions; protectionist trade policies or
    economic or trade sanctions, including potential retaliatory tariffs
    on American spirits; compliance with local trade practices and other
    regulations, including anti-corruption laws; terrorism; and health
    pandemics
  • Fluctuations in foreign currency exchange rates, particularly a
    stronger U.S. dollar
  • Changes in laws, regulations, or policies – especially those that
    affect the production, importation, marketing, labeling, pricing,
    distribution, sale, or consumption of our beverage alcohol products
  • Tax rate changes (including excise, sales, VAT, tariffs, duties,
    corporate, individual income, dividends, capital gains) or changes in
    related reserves, changes in tax rules or accounting standards, and
    the unpredictability and suddenness with which they can occur
  • 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 smaller
    distilleries or local producers, or away from brown spirits, our
    premium products, or spirits generally, and our ability to anticipate
    or react to them; bar, restaurant, travel, or other on-premise
    declines; shifts in demographic 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 products in
    significant markets
  • Production facility, aging warehouse, or supply chain disruption
  • Imprecision in supply/demand forecasting
  • Higher costs, lower quality, or unavailability of energy, water, raw
    materials, product ingredients, labor, or finished goods
  • Route-to-consumer changes that affect the timing of our sales,
    temporarily disrupt the marketing or sale of our products, or result
    in higher implementation-related or fixed costs
  • Inventory fluctuations in our products by distributors, wholesalers,
    or retailers
  • Competitors' consolidation or other competitive activities, such as
    pricing actions (including price reductions, promotions, discounting,
    couponing, or free goods), marketing, category expansion, product
    introductions, or entry or expansion in our geographic markets or
    distribution networks
  • Risks associated with acquisitions, dispositions, business
    partnerships or investments – such as acquisition integration,
    termination difficulties or costs, or impairment in recorded value
  • Inadequate protection of our intellectual property rights
  • Product recalls or other product liability claims; product
    counterfeiting, tampering, contamination, or product quality issues
  • Significant legal disputes and proceedings; government investigations
    (particularly of industry or company business, trade, or marketing
    practices)
  • Failure or breach of key information technology systems
  • Negative publicity related to our company, brands, marketing,
    personnel, operations, business performance, or prospects
  • Failure to attract or retain key executive or employee talent
  • Our status as a family "controlled company" under New York Stock
    Exchange rules

For further information on these and other risks, please refer to the
"Risk Factors" section of our annual report on Form 10-K and quarterly
reports on Form 10-Q filed with the Securities and Exchange Commission.

 
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Three Months Ended April 30, 2017 and 2018

(Dollars in millions, except per share amounts)

 
             
2017 2018 Change
 
Net sales $ 694 $ 733 6 %
Cost of sales 214   221   3 %
Gross profit 480 512 7 %
Advertising expenses 91 100 10 %
Selling, general, and administrative expenses 179 268 50 %
Other expense (income), net (2 ) (1 )
Operating income 212 145 (32 %)
Interest expense, net 15   17  
Income before income taxes 197 128 (35 %)
Income taxes 53   18  
Net income $ 144   $ 110   (23 %)
 
Earnings per share:
Basic $ 0.30 $ 0.23 (24 %)
Diluted $ 0.30 $ 0.23 (24 %)
 
Gross margin 69.1 % 70.0 %
Operating margin 30.5 % 19.8 %
 
Effective tax rate 26.9 % 13.9 %
 
Cash dividends paid per common share $ 0.146 $ 1.158
 

Shares (in thousands) used in the calculation of earnings per share

Basic 479,700 480,718
Diluted 482,923 486,482
 
 
Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Twelve Months Ended April 30, 2017 and 2018

(Dollars in millions, except per share amounts)

             
 
2017 2018 Change
 
Net sales $ 2,994 $ 3,248 8 %
Cost of sales 973   1,046   7 %
Gross profit 2,021 2,202 9 %
Advertising expenses 383 414 8 %
Selling, general, and administrative expenses 667 765 15 %
Other expense (income), net (18 ) (16 )
Operating income 989 1,039 5 %
Interest expense, net 56   62  
Income before income taxes 933 977 5 %
Income taxes 264   260  
Net income $ 669   $ 717   7 %
 
Earnings per share:
Basic $ 1.38 $ 1.49 8 %
Diluted $ 1.37 $ 1.48 8 %
 
Gross margin 67.5 % 67.8 %
Operating margin 33.0 % 32.0 %
 
Effective tax rate 28.3 % 26.6 %
 
Cash dividends paid per common share $ 0.564 $ 1.608
 

Shares (in thousands) used in the calculation of earnings per share

Basic 484,635 480,319
Diluted 488,077 484,248
 
 
Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

(Dollars in millions)

         
 

April 30,
2017

April 30,
2018

Assets:
Cash and cash equivalents $ 182 $ 239
Accounts receivable, net 557 639
Inventories 1,270 1,379
Other current assets 342 298
Total current assets 2,351 2,555
 
Property, plant, and equipment, net 713 780
Goodwill 753 763
Other intangible assets 641 670
Other assets 167 208
Total assets $ 4,625 $ 4,976
 
Liabilities:
Accounts payable and accrued expenses $ 501 $ 581
Accrued income taxes 9 25
Short-term borrowings 211 215
Current portion of long-term debt 249
Total current liabilities 970 821
 
Long-term debt 1,689 2,341
Deferred income taxes 152 85
Accrued postretirement benefits 314 191
Other liabilities 130 222
Total liabilities 3,255 3,660
 
Stockholders' equity 1,370 1,316
 
Total liabilities and stockholders' equity $ 4,625 $ 4,976
 
 
Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Twelve Months Ended April 30, 2017 and 2018

(Dollars in millions)

         
 
2017 2018
 
Cash provided by operating activities $ 639 $ 632
 
Cash flows from investing activities:
Acquisition of business, net of cash acquired (307 )
Additions to property, plant, and equipment (112 ) (127 )
Other (3 ) (1 )
Cash used for investing activities (422 ) (128 )
 
Cash flows from financing activities:
Net change in short-term borrowings (122 ) (3 )
Repayment of long-term debt (250 )
Proceeds from long-term debt 717 595
Debt issuance costs (5 ) (6 )
Acquisition of treasury stock (561 ) (1 )
Dividends paid (274 ) (773 )
Other (40 ) (28 )
Cash used for financing activities (285 ) (466 )
 
Effect of exchange rate changes on cash and cash equivalents (13 ) 19  
 
Net increase (decrease) in cash and cash equivalents (81 ) 57
 
Cash and cash equivalents, beginning of period 263   182  
 
Cash and cash equivalents, end of period $ 182   $ 239  
 
 

Schedule A

 
Brown-Forman Corporation
Supplemental Information (Unaudited)
                     
Three Months Ended     Twelve Months Ended Fiscal Year Ended
April 30, 2018     April 30, 2018 April 30, 2017
 
 
 
Reported change in net sales 6 % 8 % (3 )%
Acquisitions & divestitures % % 3 %
Foreign exchange % (1 )% 2 %
Estimated net change in distributor inventories (1 )% (1 )% 1 %
 
Underlying change in net sales 5 %     6 % 3 %
 
 
Reported change in gross profit 7 % 9 % (6 )%
Acquisitions & divestitures % % 4 %
Foreign exchange (2 )% (2 )% 3 %

Estimated net change in distributor inventories

(1 )% (1 )% 1 %
 
Underlying change in gross profit 4 %     6 % 3 %
 
Reported change in advertising expenses 10 % 8 % (8 )%
Acquisitions & divestitures % % 8 %
Foreign exchange (3 )% (3 )% 2 %
 
Underlying change in advertising expenses 7 %     6 % 2 %
 
Reported change in SG&A 50 % 15 % (3 )%
Acquisitions & divestitures 1 % % %
Foundation (39 )% (11 )% %
Foreign exchange (3 )% (2 )% 1 %
 
Underlying change in SG&A 9 %     3 % (2 )%
 
Reported change in operating income (32 )% 5 % (35 )%
Acquisitions & divestitures % % 35 %
Foundation 33 % 7 % %
Foreign exchange (3 )% (2 )% 4 %
Estimated net change in distributor inventories (2 )% (2 )% 3 %
 
Underlying change in operating income (4 )%     8 % 7 %
 
Note: Totals may differ due to rounding
 

See endnote 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)
Twelve Months Ended April 30, 2018
 
            % Change vs. Prior Year Period

Brand3

Depletions (Millions)     Depletions3     Net Sales2
     

9-
Liter

   

Drinks
Equivalent3

   

9-
Liter

   

Drinks
Equivalent3

   

Reported

   

Acquisitions
and
Divestitures

   

Foreign
Exchange

   

Estimated
Net Change
in
Distributor

Inventories

   

Underlying

Jack Daniel's Family       24.9     17.1     7%     6%     8%     —%     (1)%     (1)%     6%
Jack Daniel's Tennessee Whiskey       13.0     13.0     5%     5%     6%     —%     (1)%     —%     4%
Jack Daniel's Tennessee Honey       1.7     1.7     8%     8%     10%     —%     (2)%     1%     9%
Jack Daniel's RTD's/ RTP       8.7     0.9     9%     9%     15%     —%     (1)%     —%     14%
Gentleman Jack       0.6     0.6     7%     7%     9%     —%     —%     (1)%     7%
Jack Daniel's Tennessee Fire       0.6     0.6     14%     14%     20%     —%     (1)%     (4)%     15%
Woodford Reserve       0.7     0.7     23%     23%     26%     —%     —%     (4)%     22%
Finlandia       3.0     3.0     2%     2%     10%     —%     (2)%     (3)%     5%
el Jimador       1.3     1.3     8%     8%     14%     —%     (1)%     (4)%     9%
Herradura       0.5     0.5     15%     15%     17%     —%     (1)%     3%     19%
All Other Brands       11.8     5.7     3%     (1)%     5%     —%     (2)%     (1)%     2%
Subtotal       42.2     28.3     6%     5%     9%     —%     (1)%     (1)%     6%
Other Non-Branded       NM     NM     NM     NM     (2)%     11%     (1)%     —%     9%
Total Portfolio       42.2     28.3     6%     5%     8%     0%     (1)%     (1)%     6%

Other Brand
Aggregations

                                                       
American whiskey       26.5     18.7     7%     6%     9%     —%     (1)%     (1)%     7%
Super-premium American whiskey       1.6     1.6     18%     18%     20%     —%     (1)%     (5)%     15%
Old Forester & Woodford Reserve       0.9     0.9     22%     22%     27%     —%     —%     (4)%     23%
el Jimador, Herradura, & New Mix       8.5     2.5     8%     9%     16%     —%     (2)%     (1)%     13%
                       

See endnote 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)
Twelve Months Ended April 30, 2018
 
       

Geographic Area3

Net Sales2
     

Reported

   

Acquisitions
and
Divestitures

   

Foreign
Exchange

   

Estimated Net
Change in
Distributor
Inventories

   

Underlying

United States       7 %     %     %     (2 )%     5 %
Europe       12 %     %     (4 )%     %     8 %
United Kingdom       4 %     %     (1 )%     %     3 %
Germany       14 %     %     (4 )%     %     10 %
France       11 %     %     (5 )%     %     6 %
Poland       15 %     %     (7 )%     %     7 %
Russia       52 %     %     (3 )%     (30 )%     19 %
Rest of Europe       12 %     %     (5 )%     2 %     9 %
Australia       8 %     1 %     (1 )%     %     8 %
Other geographies       10 %     %     (2 )%     1 %     9 %
Mexico       15 %     %     (3 )%     %     12 %
Brazil       34 %     %     3 %     (8 )%     28 %
Canada       2 %     %     (1 )%     2 %     3 %
Remaining geographies       3 %     %     (1 )%     3 %     5 %
Travel Retail3       13 %     %     %     (5 )%     8 %
Other non-branded3       (2 )%     11 %     (1 )%     %     9 %
Total       8 %     %     (1 )%     (1 )%     6 %

Other Geographic Aggregations

                               
Developed - including United States       7 %     %     (1 )%     (1 )%     5 %
Developed - excluding United States       6 %     %     (3 )%     1 %     5 %
Emerging       18 %     %     (3 )%     (2 )%     13 %
               

See "Endnote 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. The non-GAAP measures
we use in this press release may not be defined and calculated by other
companies in the same manner. Reconciliations of these non-GAAP measures
to the most closely comparable GAAP measures are presented on Schedules
A, B and C to this press release.

"Underlying change" in income statement measures.
We present changes in certain income statement measures, or line items,
that are adjusted to an "underlying" basis. We use "underlying change"
for the following income statement measures: (a) underlying net sales,
(b) underlying 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)
and (g) 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) the establishment of, and contribution to, our charitable
foundation. We explain these adjustments below.

  • "Acquisitions and divestitures." This adjustment removes (a)
    any non-recurring effects related to our acquisitions and divestitures
    (e.g., transaction gains or losses, transaction costs and integration
    costs) and (b) the effects of operating activity related to acquired
    and divested brands for periods that are not comparable on a
    year-over-year basis (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 on
    a year-over-year basis.

    In fiscal 2016, we sold our
    Southern Comfort and Tuaca brands and related assets to Sazerac
    Company, Inc. and entered into a related transition services agreement
    (TSA). During fiscal 2017, we completed our obligations under the TSA.
    This adjustment removes the net sales and operating expenses
    recognized in fiscal 2017 pursuant to the TSA related to (a) contract
    bottling services and (b) distribution services in certain markets.

    On
    June 1, 2016, we acquired The BenRiach Distillery Company Limited
    (BenRiach). 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. For both fiscal 2017
    and 2018, the non-comparable period is the month of May.
  • "Foreign exchange." We calculate the percentage change in our
    income statement line items in accordance with GAAP and adjust to
    exclude the cost or benefit of currency fluctuations. Adjusting for
    foreign exchange allows us to understand our business on a
    constant-dollar basis, as fluctuations in exchange rates can distort
    the underlying trend both positively and negatively. (In this press
    release, "dollar" always means the U.S. dollar unless stated
    otherwise). To eliminate the effect of foreign exchange fluctuations
    when comparing across periods, we translate current year results at
    prior-year rates and remove foreign exchange gains and losses from the
    current and prior-year periods.
  • "Estimated net change in distributor inventories." This
    adjustment refers to the estimated net effect of changes in
    distributor inventories on changes in our income statement line items.
    For each period compared, we use volume information provided by our
    distributors to estimate the effect of distributor inventory changes
    on our income statement line items.
  • "Foundation." In the fourth quarter of 2018, we established,
    and contributed to, a $70 million foundation to support the company's
    charitable giving program in the communities where our employees live
    and work. This adjustment removes the effect of the initial $70
    million funding of the foundation from our underlying SG&A expenses
    and operating income to present our underlying results on a comparable
    basis.

We use the non-GAAP measures "underlying change" for the following
reasons: (a) to understand our performance from period to period on a
consistent basis; (b) to compare our performance to that of our
competitors; (c) in connection with management incentive compensation
calculations; (d) in our planning and forecasting processes; and (e) in
communications concerning our financial performance with the board of
directors, stockholders, and investment analysts. We have consistently
applied the adjustments within our reconciliations in arriving at each
non-GAAP measure.

"ROIC." (Return on average invested capital) This measure refers
to the sum of net income and after-tax interest expense, divided by
average invested capital. Average invested capital equals assets less
liabilities, excluding interest-bearing debt, and is calculated using
the average of the most recent 13 month-end balances. After-tax interest
expense equals interest expense multiplied by one minus our effective
tax rate. We use this non-GAAP measure because we consider return on
average invested capital to be a meaningful indicator of how effectively
and efficiently we use capital invested in our business.

Note 3 - Definitions

From time to time, in order 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 and we aggregate brands by spirits category.
Below are definitions of the aggregations used in this press release.

Geographic Aggregations.

  • "Developed" markets are "advanced economies" as defined by the
    International Monetary Fund, with the largest for Brown-Forman being
    the United States, the United Kingdom and Australia. Developed
    international markets are developed markets excluding the United
    States.
  • "Emerging" markets are "emerging and developing economies" as
    defined by the International Monetary Fund, with the largest for
    Brown-Forman being Mexico and Poland.

In Schedule C, we provide supplemental information for our largest
markets ranked by percentage of total fiscal 2018 net sales. In addition
to markets that are listed by country name, we include the following
aggregations:

  • "Rest of Europe" includes all markets in the continent of
    Europe and the Commonwealth of Independent States countries other than
    those specifically listed.
  • "Remaining geographies" All other markets (approximately 110),
    other than those specifically listed or included in "Rest of Europe",
    with the largest being Brazil, South Africa and China.
  • "Travel Retail" represents our sales to global duty free
    customers, travel retail customers and the U.S. military.
  • "Other non-branded" includes used barrel, bulk whiskey and wine
    and contract bottling sales.

Brand Aggregations.

  • "American whiskey" products include the Jack Daniel's family of
    brands, premium bourbons, and Early Times.
  • "Super-premium American whiskey brands" include Woodford
    Reserve, Jack Daniel's Single Barrel, Gentleman Jack, Sinatra Select
    and Jack Daniel's No. 27 Gold Tennessee Whiskey.
  • "Premium bourbon" products include Old Forester, Cooper's
    Craft, and Woodford Reserve.
  • "Tequila" products include el Jimador, Herradura, and New Mix.

In Schedule B, we provide supplemental information for our largest
brands ranked by percentage of total fiscal 2018 net sales. In addition
to brands that are listed by name, we include the following aggregations:

  • "Jack Daniel's family of brands" includes Jack Daniel's
    Tennessee Whiskey (JDTW), Jack Daniel's Tennessee Honey (JDTH), Jack
    Daniel's RTD and RTP products (JD RTDs/RTP), Gentleman Jack, Jack
    Daniel's Tennessee Fire (JDTF), Jack Daniel's Single Barrel
    Collection, Jack Daniel's Tennessee Rye Whiskey, Jack Daniel's Sinatra
    Select and Jack Daniel's No. 27 Gold Tennessee Whiskey.
  • "Jack Daniel's RTD and RTP" products include all RTD line
    extensions of Jack Daniel's, such as Jack Daniel's & Cola, Jack
    Daniel's & Diet Cola, Jack & Ginger, Jack Daniel's Country Cocktails,
    Gentleman Jack & Cola, Jack Daniel's Double Jack, Jack Daniel's
    American Serve, Jack Daniel's Tennessee Honey RTD, Jack Daniel's Cider
    (JD Cider), Jack Daniel's Lynchburg Lemonade (JD Lynchburg Lemonade)
    and the seasonal Jack Daniel's Winter Jack RTP.

Other Metrics.

  • "Depletions." When discussing volume, unless otherwise
    specified, we refer to "depletions," a term commonly used in the
    beverage alcohol industry. Depending on the context, "depletions"
    means either (a) our shipments directly to retailers or wholesalers,
    or (b) shipments from our distributor customers to retailers and
    wholesalers. We generally record revenues when we ship our products to
    our customers, so our reported sales for a period do not reflect
    actual consumer purchases during that period. We believe that our
    depletions measure volume in a way that more closely reflects consumer
    demand than our shipments to distributor customers do.
  • "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 (RTD) or ready-to-pour (RTP)
    brands to a parent spirits brand. "Drinks-equivalent" depletions are
    RTD and RTP nine-liter cases converted to nine-liter cases of a parent
    brand on the basis of the number of drinks in one nine-liter case of
    the parent brand. To convert RTD volumes from a nine-liter case basis
    to a drinks-equivalent nine-liter case basis, RTD nine-liter case
    volumes are divided by 10, while RTP nine-liter case volumes are
    divided by 5.
  • "Consumer takeaway." When discussing trends in the market, we
    refer to "consumer takeaway," a term commonly used in the beverage
    alcohol industry. "Consumer takeaway" refers to the purchase of
    product by the consumer from the retail outlet 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.
 

Note 4 - Reconciliation of Non-GAAP ROIC

 
Non-GAAP ROIC Calculation
$ millions      

Twelve months
ended
April 30, 2018

Reported net income {a} $ 717
Reported after-tax interest expense1 {b} 49  
Reported net income and after-tax interest expense $ 766
 
Average invested capital 3,832
ROIC 20.0 %
 

1 After-tax interest expense equals interest expense
from the consolidated income statement multiplied by one minus our
effective tax rate also from the consolidated income statement

{a} Consolidated income statement

{b} Consolidated income statement and accompanying notes

 

Note 5 - TSR: Total Shareholder Return is shown as a
compound annual growth rate assuming dividends reinvested, and is
measured over the ten-year period ending April 30, 2018.

View Comments and Join the Discussion!