Delaware | 001-00123 | 61-0143150 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
850 Dixie Highway, Louisville, Kentucky | 40210 | |
(Address of Principal Executive Offices) | (Zip Code) |
Exhibit No. | Description | |
Brown-Forman Corporation Press Release dated June 6, 2018. |
BROWN-FORMAN CORPORATION | |
(Registrant) | |
Date: June 6, 2018 | /s/ Michael E. Carr, Jr. |
Michael E. Carr, Jr. | |
Vice President, Managing Attorney and Assistant Corporate Secretary |
NEWS RELEASE | ||||
PHIL LYNCH | JAY KOVAL | |||
VICE PRESIDENT | VICE PRESIDENT | |||
CORPORATE COMMUNICATIONS | INVESTOR RELATIONS | |||
AND PUBLIC RELATIONS | AND COMMUNITY RELATIONS | |||
502-774-7928 | 502-774-6903 |
• | 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 |
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% |
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% |
• | 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 |
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 |
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 | |||||||
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 | |||
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 | |||
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 |
% 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% |
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% |
• | “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. |
• | “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 |
• | “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. |
• | “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. |
• | “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. |
• | “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. |
• | “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. |
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 |
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