Louisville, Ky, 28 Aug - Brown-Forman Corporation reported earnings per share decreased 5% to $0.73 and operating income decreased 10% to $141 million for the company's first quarter of fiscal 2009.
This decline was due to a $22 million pre-tax ($16 million after-tax) non-cash charge related to an abnormal number of agave plants identified during the quarter as dead or dying. Excluding this $0.13 per share non-cash charge, earnings per share rose 12% to $0.86 and operating income grew 5% to $163 million as earnings per share benefited from reduced net interest expense, a lower effective tax rate, and a lower number of shares outstanding following the fiscal 2008 share repurchase.
Reported net sales for the first quarter ended July 31, 2008 were $790 million, an increase of 7% from the prior-year period. Adjusting for the items listed on Schedule A of this press release, underlying net sales grew 4%, and underlying operating income grew 3% versus the same period last fiscal year.
* Jack Daniel’s Tennessee Whiskey first quarter reported net sales increased in the mid-single digits, or in the low single digits on a constant currency3 basis, reflecting the benefit of price increases. Global depletions4 declined 1% for the period as gains in Eastern Europe and flat U.S. volumes were offset by declines in markets with softening economies, particularly Germany, the U.K., and South Africa.
* Gentleman Jack net sales increased by double digits on both a reported and a constant currency basis for the period. Jack Daniel’s Single Barrel delivered solid net sales growth. While the Jack Daniel’s & Cola brand experienced significant volume declines due to a substantial increase in ready-to-drink excise taxes in Australia, global reported net sales grew in the mid-single digits, but declined in the high single digits on a constant currency basis.
* Finlandia net sales increased by double digits on both a reported and a constant currency basis in the period, reflecting higher volumes and pricing gains. Global depletions grew in the high single digits, led by continued double-digit growth in Eastern Europe.
* Southern Comfort net sales, both reported and in constant currency, declined in the mid-single digits during the quarter. Volume declines, due in part to softness of the on-premise channel in the brand’s major markets, were offset partially by price increases.
* Reported and constant currency net sales for Sonoma-Cutrer, Bonterra, Chambord, Tuaca, and Woodford Reserve grew at double-digit rates for the quarter. The Casa Herradura portfolio’s net sales grew by double digits on a reported basis and in the mid-single digits on a constant currency basis.
Reported gross profit declined 3%, while underlying gross profit gained 1% after adjusting for the non-cash charge related to agave inventory, the benefit of a weaker U.S. dollar, discontinued agency relationships, and estimated changes in global trade inventories. Underlying gross profit growth lagged underlying net sales trends, as grain and energy cost pressures outpaced the rate of price increases.
Reported advertising investments increased 3% over the prior year first quarter. Adjusting for the weaker U.S. dollar and the absence of spending behind exited agency brands, underlying advertising investments were flat for the quarter. This reflects a reallocation of spending to those brands, markets, and channels where we believe the consumer and trade are more responsive to the investments, as well as some shifting of seasonal investments. Selling, general, and administrative (SG&A) expenses increased 1% over the first quarter last year. Adjusting for the weaker U.S. dollar and transition costs related to the fiscal 2007 Casa Herradura acquisition, SG&A decreased 1%, demonstrating the continuation of tight management of expenses and the leveraging of investments made in prior years.
Full-Year Outlook
Due to the non-cash agave charge in the quarter, the company is reducing its fiscal 2009 full year earnings per share guidance to a range of $3.60 to $3.85, representing growth of 1% to 7% over prior-year earnings. Excluding the charge, fiscal 2009 guidance remains unchanged. The guidance incorporates expectations of improving volumetric global trends for Jack Daniel’s, benefits of price increases, continued cost pressures, continued tight control of discretionary operating expenses, lower net interest expense, and additional benefits from the fiscal 2008 share repurchase.
Commenting on the quarter, Paul Varga, chief executive officer said, “The loss of agave plants has reduced our inventory, but we do not believe this will constrain our ability to build our tequila brands to their full potential. While these are certainly challenging economic times, we remain confident about the long-term growth opportunity for our excellent portfolio of premium and super-premium brands.”
Brown-Forman Corporation is a producer and marketer of fine quality beverage alcohol brands, including Jack Daniel’s, Southern Comfort, Finlandia Vodka, Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer and Bolla Wines, and Korbel California Champagnes.
| Brown-Forman Corporation |
| Unaudited Consolidated Statements of Operations |
| (Dollars in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
July 31, |
|
|
|
|
2007 |
|
2008 |
|
Change |
| Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net sales |
|
$ |
739.1 |
|
|
$ |
790.0 |
|
|
7 |
% |
| Excise taxes |
|
|
152.0 |
|
|
|
176.2 |
|
|
16 |
% |
| Cost of sales |
|
|
196.1 |
|
|
|
233.0 |
|
|
19 |
% |
| Gross profit |
|
|
391.0 |
|
|
|
380.8 |
|
|
(3 |
%) |
| Advertising expenses |
|
|
94.0 |
|
|
|
97.0 |
|
|
3 |
% |
| Selling, general, and administrative expenses |
|
|
143.1 |
|
|
|
144.3 |
|
|
1 |
% |
| Amortization expense |
|
|
1.3 |
|
|
|
1.3 |
|
|
|
| Other (income), net |
|
|
(2.8 |
) |
|
|
(2.4 |
) |
|
|
| Operating income |
|
|
155.4 |
|
|
|
140.6 |
|
|
(10 |
%) |
| Interest expense, net |
|
|
11.1 |
|
|
|
7.5 |
|
|
|
| Income before income taxes |
|
|
144.3 |
|
|
|
133.1 |
|
|
(8 |
%) |
| Income taxes |
|
|
48.9 |
|
|
|
44.9 |
|
|
|
| Net income |
|
$ |
95.4 |
|
|
$ |
88.2 |
|
|
(8 |
%) |
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
| Basic |
|
|
0.77 |
|
|
|
0.73 |
|
|
(5 |
%) |
| Diluted |
|
|
0.77 |
|
|
|
0.73 |
|
|
(5 |
%) |
|
|
|
|
|
|
|
| Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(0.1 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
| Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
$ |
95.3 |
|
|
$ |
88.2 |
|
|
(7 |
%) |
|
|
|
|
|
|
|
| Earnings per share: |
|
|
|
|
|
|
| Basic |
|
|
0.77 |
|
|
|
0.73 |
|
|
(5 |
%) |
| Diluted |
|
|
0.77 |
|
|
|
0.73 |
|
|
(5 |
%) |
| Brown-Forman Corporation |
| Unaudited Condensed Consolidated Balance Sheets |
| (Dollars in millions) |
|
|
|
|
|
|
|
April 30, |
|
July 31, |
|
|
2008 |
|
2008 |
| Assets: |
|
|
|
|
| Cash and cash equivalents |
|
$118.9 |
|
$160.2 |
| Accounts receivable, net |
|
453.2 |
|
428.8 |
| Inventories |
|
684.5 |
|
709.0 |
| Other current assets |
|
199.4 |
|
196.4 |
| Total current assets |
|
1,456.0 |
|
1,494.4 |
|
|
|
|
|
| Property, plant, and equipment, net |
|
501.4 |
|
505.7 |
| Goodwill |
|
688.0 |
|
688.1 |
| Other intangible assets |
|
698.8 |
|
697.6 |
| Prepaid pension cost |
|
22.8 |
|
25.2 |
| Other assets |
|
38.0 |
|
37.9 |
| Total assets |
|
$3,405.0 |
|
$3,448.9 |
|
|
|
|
|
| Liabilities: |
|
|
|
|
| Accounts payable and accrued expenses |
|
$379.7 |
|
$343.0 |
| Accrued income taxes |
|
14.7 |
|
61.1 |
| Dividends payable |
|
- |
|
41.0 |
| Short-term borrowings |
|
585.3 |
|
576.4 |
| Current portion of long-term debt |
|
4.3 |
|
4.3 |
| Total current liabilities |
|
984.0 |
|
1,025.8 |
|
|
|
|
|
| Long-term debt |
|
417.0 |
|
416.7 |
| Deferred income taxes |
|
88.8 |
|
81.9 |
| Accrued postretirement benefits |
|
121.2 |
|
115.5 |
| Other liabilities |
|
68.8 |
|
58.0 |
| Total liabilities |
|
1,679.8 |
|
1,697.9 |
|
|
|
|
|
| Stockholders' equity |
|
1,725.2 |
|
1,751.0 |
|
|
|
|
|
| Total liabilities and stockholders' equity |
|
$3,405.0 |
|
$3,448.9 |
| Brown-Forman Corporation |
| Unaudited Condensed Consolidated Statements of Cash Flows |
| (Dollars in millions) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 31, |
|
|
2007 |
|
2008 |
|
|
|
|
|
| Cash provided by operating activities |
|
$ |
128.4 |
|
|
$ |
104.7 |
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
| Acquisition of brand names and trademarks |
|
|
(12.0 |
) |
|
|
- |
|
| Sale of short-term investments |
|
|
85.6 |
|
|
|
- |
|
| Additions to property, plant, and equipment |
|
|
(11.4 |
) |
|
|
(13.2 |
) |
| Other |
|
|
(1.8 |
) |
|
|
(1.0 |
) |
| Cash provided by (used for) investing activities |
|
|
60.4 |
|
|
|
(14.2 |
) |
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
| Net repayment of debt |
|
|
(58.9 |
) |
|
|
(10.3 |
) |
| Acquisition of treasury stock |
|
|
(7.0 |
) |
|
|
(0.3 |
) |
| Special distribution to stockholders |
|
|
(203.7 |
) |
|
|
- |
|
| Dividends paid |
|
|
(37.3 |
) |
|
|
(41.1 |
) |
| Other |
|
|
14.6 |
|
|
|
(0.7 |
) |
| Cash used for financing activities |
|
|
(292.3 |
) |
|
|
(52.4 |
) |
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
0.5 |
|
|
|
3.2 |
|
|
|
|
|
|
| Net (decrease) increase in cash and cash equivalents |
|
|
(103.0 |
) |
|
|
41.3 |
|
|
|
|
|
|
| Cash and cash equivalents, beginning of period |
|
|
282.8 |
|
|
|
118.9 |
|
|
|
|
|
|
| Cash and cash equivalents, end of period |
|
$ |
179.8 |
|
|
$ |
160.2 |
|
| Brown-Forman Corporation |
| Supplemental Information (Unaudited) |
| (Dollars in millions, except per share amounts) |
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 31, |
|
|
2007 |
|
2008 |
|
|
|
|
|
| Net sales |
|
$ |
739.1 |
|
$ |
790.0 |
| Excise taxes |
|
$ |
152.0 |
|
$ |
176.2 |
|
|
|
|
|
| Net sales (stripped of excise taxes) |
|
$ |
587.1 |
|
$ |
613.8 |
| Gross profit (as reported) |
|
$ |
391.0 |
|
$ |
380.8 |
|
|
|
|
|
| Gross margin (as reported) |
|
|
52.9% |
|
|
48.2% |
|
Gross margin (stripped net sales basis)(a) |
|
|
66.6% |
|
|
62.0% |
|
|
|
|
|
| Effective tax rate |
|
|
33.9% |
|
|
33.8% |
|
|
|
|
|
| Cash dividends paid per common share |
|
$ |
0.3025 |
|
$ |
0.3400 |
|
|
|
|
|
|
Shares (in thousands) used in the calculation of earnings per share |
|
|
|
|
| Basic |
|
|
123,217 |
|
|
120,483 |
| Diluted |
|
|
124,434 |
|
|
121,549 |
|
|
|
|
|
|
|
|
|
|
|
(a) Management believes that excluding excise taxes from the gross margin calculation provides a more meaningful comparison because of periodic changes in the company's distribution structures or excise tax rates that can result in the company collecting and remitting varying levels of excise taxes (which are reported as both a component of net sales and as a cost of sales) across periods in which different distribution structures or excise tax rates were in effect. |
|
Schedule A |
|
Brown-Forman Corporation |
| Continuing Operations Only |
| Supplemental Information (Unaudited) |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
July 31, 2008 |
|
|
|
|
|
|
|
|
|
| Reported net sales growth |
|
7% |
| Impact of foreign currencies |
|
(5%) |
| Net sales from agency brands |
|
1% |
| Estimated net change in trade inventories |
|
1% |
|
|
|
| Underlying net sales growth |
|
4% |
|
|
|
|
|
|
| Reported gross profit growth |
|
(3%) |
| Impact of foreign currencies |
|
(4%) |
| Gross profit from agency brands |
|
1% |
| Estimated net change in trade inventories |
|
1% |
| Non-cash agave charge |
|
6% |
|
|
|
| Underlying gross profit growth |
|
1% |
|
|
|
| Reported advertising growth |
|
3% |
| Impact of foreign currencies |
|
(5%) |
| Advertising from agency brands |
|
2% |
|
|
|
| Underlying advertising growth |
|
0% |
|
|
|
| Reported SG&A growth |
|
1% |
| Impact of foreign currencies |
|
(3%) |
| SG&A from acquisitions |
|
1% |
|
|
|
| Underlying SG&A growth |
|
(1%) |
|
|
|
| Reported operating income growth |
|
(10%) |
| Impact of foreign currencies |
|
(4%) |
| Transition expenses from acquisitions |
|
(2%) |
| Operating income from agency brands |
|
1% |
| Estimated net change in trade inventories |
|
3% |
| Non-cash agave charge |
|
15% |
|
|
|
| Underlying operating income growth |
|
3% |