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BROWN-FORMAN CORPORATION

(BF.B)
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Brown Forman : Delivers Strong First Quarter 2022 Results

09/07/2021 | 08:49am EST

Louisville, KY- Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its first quarter of fiscal 2022 with net sales of $906 million increasing 20%1 (+18% on an underlying basis2) compared to the same prior-year period. In the quarter, operating income decreased 25% to $289 million (+15% on an underlying basis) and diluted earnings per share declined 41% to $0.40 due to the gain from the sale of the Canadian Mist, Early Times, and Collingwood brands in the prior year.

Brown-Forman's President and Chief Executive Officer Lawson Whiting stated, 'Brown-Forman delivered a strong start to fiscal 2022. These results were driven by the strength of our portfolio, which benefited from the re-opening of the on-premise, sustained at-home consumption, and continued premiumization trends.' He added, 'While we are optimistic the operating environment will continue to improve, we are closely monitoring the potential volatility associated with the evolving pandemic and continued supply chain disruptions. Backed by the strength of our brands and our people, we are confident in our ability to manage our business for the long term.'

First Quarter of Fiscal 2022 Highlights

Net sales grew 20% (+18% underlying)

Strong growth across all geographic clusters and the Travel Retail3 channel

Jack Daniel's family of brands net sales grew 20% (+16% underlying)

Premium bourbons grew net sales 34% (+36% underlying)

The tequila portfolio grew net sales 32% (+23% underlying)

Advertising increased 46% (+44% underlying) as the company supported brand momentum

The company generated strong free cash flow2 of $171 million

First Quarter of Fiscal 2022 Brand Reported Results

Jack Daniel's family of brands net sales growth was propelled by Jack Daniel's Tennessee Whiskey which benefited from higher volumes globally and favorable channel mix in the United States related to the on-premise reopening.

Jack Daniel's Tennessee Apple's net sales growth was fueled by the ongoing international launch.

Premium bourbons, led by Woodford Reserve and Old Forester, maintained double-digit net sales growth driven by strong volumetric gains in the United States.

The tequila portfolio was led by double-digit net sales growth for Herradura and el Jimador. In particular, Herradura benefited from resurgent demand in Mexico following disruption in the prior-year period. These gains were partially offset by lower volumes of New Mix in Mexico reflecting a difficult comparison to the same prior-year period when volume and shelf space benefited from a temporary supply chain disruption in the beer industry.

First Quarter of Fiscal 2022 Market Reported Results

Strong net sales growth in the United States3 was primarily driven by double-digit growth from Jack Daniel's Tennessee Whiskey, premium bourbons, and tequilas. Jack Daniel's Tennessee Whiskey benefited from higher volumes and favorable channel mix shift to the on-premise channel.

Developed international3 markets maintained double-digit net sales growth driven by broad-based growth led by Germany, France, Korea, and Spain.

Emerging markets3 returned to double-digit net sales growth propelled by volume gains across most markets, partially offset by declines throughout most countries in Southeast Asia.

Net sales in Travel Retail3 increased primarily due to a favorable comparison to the same prior-year period, which was impacted by significant disruption due to COVID-19 travel bans and restrictions.

First Quarter of Fiscal 2022 Other P&L Items

Company-wide price/mix increased 19% reflecting the favorable impact of faster growth from our higher-priced brands and favorable mix shift to the on-premise channel. Volumetric growth across the portfolio was offset by the decline in New Mix, resulting in a 1% volume decline in total.

Gross profit increased 19% (+17% underlying), while gross margin contracted 70 basis points to 61% driven by higher input costs related to agave and the impact of supply chain constraints, partially offset by the favorable shift in portfolio mix towards higher-margin brands and channels.

The company's investment in advertising increased 46% (+44% underlying) driven by higher spend to support the international launch of Jack Daniel's Tennessee Apple, increased spend for Woodford Reserve compared to the same prior-year period partially due to the timing of the Kentucky Derby, and cycling a substantial reduction in promotional activity during the same period last year due to COVID-19.

Selling, general and administrative expenses increased 14% (+11% underlying) reflecting the timing of higher compensation-related expenses, an increase in non-income tax reserves, and cycling against lower discretionary spend in the prior-year period.

Operating income decreased 25% (+15% underlying), while diluted earnings per share decreased 41% to $0.40.

Prior-year earnings per share included a $0.19 per share benefit from the gain on the sale of the Early Times, Canadian Mist, and Collingwood brands.

First Quarter of Fiscal 2022 Financial Stewardship

On July 22, 2021, the Brown-Forman Board of Directors declared a regular quarterly cash dividend of $0.1795 per share on the Class A and Class B common stock. The quarterly cash dividend is payable on October 1, 2021, to stockholders of record on September 3, 2021. Brown-Forman has paid regular quarterly cash dividends for 77 consecutive years and has increased the regular dividend for 37 consecutive years.

Fiscal 2022 Outlook

Due to the volatility and uncertainty that continues to exist in the operating environment, including recent COVID-19 trends and global supply chain disruptions, we have revised some of our expectations for fiscal 2022. Currently, we are managing through the impact of global supply chain disruptions, including glass supply, and have deployed a number of risk mitigation strategies to address the various constraints on our business. While we expect these disruptions to persist throughout the fiscal year, we believe the impact will become less significant in the second half of the year.

We expect a more significant unfavorable impact from supply chain disruptions and higher input costs related to agave, transportation costs, and commodity prices to negatively impact our gross margin. As a result of these factors, we expect gross margin to be flat, or slightly down, for the full year versus the slight improvement originally expected.

Despite these challenges, we still anticipate mid-single digit growth in underlying net sales, underlying operating expenses, and underlying operating income for fiscal 2022.

As a result of these factors coupled with unusual comparisons to last year, we expect the seasonality of our results to be volatile during the year.

We expect our effective tax rate to be in the range of about 22-23%.

Conference Call Details

Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (EDT) today. All interested parties in the United States are invited to join the conference call by dialing 833-962-1472 and asking for the Brown-Forman call. International callers should dial +1-442-268-1255. The company suggests that participants dial in ten minutes in advance of the 10:00 a.m. (EDT) start of the conference call. A live audio broadcast of the conference call, and the accompanying presentation slides, will also be available via Brown-Forman's Internet website, https://www.brown-forman.com/, through a link to 'Investors/Events & Presentations.' A digital audio recording of the conference call and the presentation slides will also be posted on the website and will be available for at least 30 days following the conference call.

For over 150 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel's Tennessee Whiskey, Jack Daniel's Tennessee RTDs, Jack Daniel's Tennessee Honey, Jack Daniel's Tennessee Fire, Jack Daniel's Tennessee Apple, Gentleman Jack, Jack Daniel's Single Barrel, Woodford Reserve, Old Forester, Coopers' Craft, GlenDronach, Benriach, Glenglassaugh, Slane, Herradura, el Jimador, New Mix, Korbel, Sonoma-Cutrer, Finlandia, Chambord, and Fords Gin. Brown-Forman's brands are supported by approximately 4,700 employees and sold in more than 170 countries worldwide. For more information about the company, please visit https://www.brown-forman.com/.

Important Information on Forward-Looking Statements:

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

Our substantial dependence upon the continued growth of the Jack Daniel's family of brands

Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks

Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs

Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers

Changes in consumer preferences, consumption, or purchase patterns - particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of marijuana; shifts in consumer purchase practices; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation

Production facility, aging warehouse, or supply chain disruption

Imprecision in supply/demand forecasting

Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor

Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impact and related governmental actions

Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations

Product recalls or other product liability claims, product tampering, contamination, or quality issues

Negative publicity related to our company, products, brands, marketing, executive leadership, employees, board of directors, family stockholders, operations, business performance, or prospects

Failure to attract or retain key executive or employee talent

Risks associated with acquisitions, dispositions, business partnerships, or investments - such as acquisition integration, termination difficulties or costs, or impairment in recorded value

Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including additional retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism; and health pandemics

Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations

Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar

Changes in laws, regulatory measures, or governmental policies - especially those that affect the production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products

Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur

Decline in the social acceptability of beverage alcohol in significant markets

Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products

Counterfeiting and inadequate protection of our intellectual property rights

Significant legal disputes and proceedings, or government investigations

Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws

Our status as a family 'controlled company' under New York Stock Exchange rules, and our dual-class share structure

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

Click here for Financial Results: See more at:

https://investors.brown-forman.com/news-releases/press-release/2021/Brown-Forman-Delivers-Strong-First-Quarter-2022-Results/default.aspx

(C) 2021 Electronic News Publishing, source ENP Newswire

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Financials (USD)
Sales 2022 3 745 M - -
Net income 2022 817 M - -
Net Debt 2022 1 278 M - -
P/E ratio 2022 41,3x
Yield 2022 1,04%
Capitalization 32 899 M 32 899 M -
EV / Sales 2022 9,13x
EV / Sales 2023 8,62x
Nbr of Employees 4 700
Free-Float 71,1%
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Mean consensus HOLD
Number of Analysts 16
Last Close Price 70,36 $
Average target price 72,37 $
Spread / Average Target 2,85%
EPS Revisions
Managers and Directors
Lawson E. Whiting President, Chief Executive Officer & Director
Leanne Dean Cunningham Chief Financial Officer
Campbell P. Brown Chairman
Tim Nall SVP, Chief Information & Advanced Analytics Office
Patrick Bousquet-Chavanne Independent Director
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