Brown-Forman Corporation (NYSE: BFA, BFB) reported financial
results for its third quarter and nine months ended January 31,
2022. For the third quarter, the company’s reported net sales1 of
$1,037 million increased 14% (+22% on an organic* basis2) compared
to the same prior-year period. In the quarter, reported operating
income increased 24% to $347 million (+43% on an organic basis) and
diluted earnings per share increased 19% to $0.54.
For the first nine months of the fiscal year, the company’s
reported net sales increased 11% to $2,937 million (+14% on an
organic basis) compared to the same prior-year period. Year-to-date
reported operating income decreased 4% to $958 million (+19% on an
organic basis) and diluted earnings per share declined 12% to
$1.43, primarily due to the gain from the sale of the Canadian
Mist, Early Times, and Collingwood brands in the prior fiscal
year.
Lawson Whiting, Brown-Forman’s President and Chief Executive
Officer said, “Brown-Forman’s business remained strong as we
delivered double-digit net sales growth year-to-date, even amid
significant supply chain constraints, most notably glass supply.”
He added, “The agility and resilience of our people, backed by the
increased demand for our brands, allowed us to build on the
momentum from the first half of the year to deliver a strong third
quarter. We believe our accelerated rate of growth keeps us on
track to deliver high quality results for fiscal 2022.”
*As of the third quarter ended January 31, 2022, we changed
certain non-GAAP financial measures that we have historically used.
We will no longer report “underlying changes” in certain measures
of the statements of operations; instead, we will now report
“organic change” in certain measures of the statements of
operations. As more fully described in “Non-GAAP Financial
Measures” in Note 2, “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.”
Year-to-Date Fiscal 2022
Highlights
- Reported net sales grew 11% (+14% organic).
- Driven by strong double-digit reported net sales growth led by
our emerging and developed international markets, with solid growth
in the United States and a rebound in our Travel Retail
channel.
- The Jack Daniel’s family of brands grew reported net sales 12%
(+14% organic) powered by 17% reported net sales growth (+20%
organic) from Jack Daniel’s Tennessee Whiskey.
- Premium bourbons, led by Woodford Reserve and Old Forester,
grew reported net sales 10% (+10% organic).
- The tequila portfolio grew reported net sales 19% (+17%
organic) driven by double-digit growth from Herradura and el
Jimador.
Year-to-Date Fiscal 2022 Brand
Results
- The Jack Daniel’s family of brands delivered double-digit
reported net sales growth of 12% (+14% organic) fueled by Jack
Daniel’s Tennessee Whiskey, which benefited from volume growth
globally and favorable channel mix supported by the ongoing
reopening of the on-premise channel. Additionally, the continued
international launch of Jack Daniel’s Tennessee Apple and strong
consumer demand for Jack Daniel’s RTDs were significant
contributors to growth. Supply chain disruptions adversely impacted
the results for Jack Daniel’s Tennessee Whiskey, Jack Daniel’s
Tennessee Honey, Jack Daniel’s Tennessee Fire, and Gentleman Jack
during the first nine months of the fiscal year. Reported net sales
were positively impacted by an estimated net increase in
distributor inventories.
- Premium bourbons, led by Woodford Reserve and Old Forester,
maintained double-digit reported net sales growth of 10% (+10%
organic) led by gains in the United States, Travel Retail, and the
United Kingdom. Woodford Reserve’s reported net sales moderated
driven by supply chain disruptions resulting in a net decrease in
distributor inventories.
- The tequila portfolio’s double-digit reported net sales growth
of 19% (+17% organic) was propelled by Herradura and el Jimador.
Herradura grew volumes in the United States and Mexico due to
strong consumer demand while Mexico also benefited as it cycled
against a favorable prior-year comparison. el Jimador’s reported
net sales growth was driven by broad-based volume gains in the
United States, Colombia, and the United Kingdom.
Year-to-Date Fiscal 2022 Market
Results
- Reported net sales in the United States3 grew 5% (+8% organic).
Gains were driven by Jack Daniel’s Tennessee Whiskey, which
benefited from volume growth and the continued reopening of the
on-premise channel, along with strong consumer demand for our
tequilas and premium bourbons. An estimated net increase in
distributor inventories positively impacted reported net sales.
This growth was partially offset by the effect of acquisitions and
divestitures in the prior year along with lower volumes for Jack
Daniel’s Tennessee Honey and Gentleman Jack. Reported net sales
were adversely impacted by supply chain disruptions.
- Developed international3 markets grew reported net sales 12%
(+15% organic) fueled by broad-based growth largely due to the
continued reopening of the on-premise channel as well as a rebound
of travel and tourism in some markets. Gains were led by Jack
Daniel’s Tennessee Whiskey and Jack Daniel’s RTDs. This growth was
partially offset by the negative effect of foreign exchange. An
estimated net increase in distributor inventories positively
impacted reported net sales.
- Emerging markets3 maintained double-digit reported net sales
growth of 22% (+27% organic) propelled by volume gains across most
markets largely due to a favorable prior-year comparisons. An
estimated net increase in distributor inventories positively
impacted reported net sales. Results were powered by Jack Daniel’s
Tennessee Whiskey and Jack Daniel’s Tennessee Apple. This growth
was partially offset by the negative effect of foreign
exchange.
- Reported net sales in the Travel Retail3 channel increased 57%
(+58% organic) primarily due to a favorable prior-year comparison
as the business continues to recover from pandemic-related travel
bans and restrictions.
Year-to-Date Fiscal 2022 Other P&L
Items
- Reported gross profit increased 11% (+14% organic). As
expected, year-to-date gross margins contracted slightly, driven
primarily by supply chain disruptions and input costs, largely
related to agave and grain, as well as the negative effect of
foreign exchange. This impact was primarily offset by favorable
price/mix, driven by the continued reopening of the on-premise, and
the divestiture of the Canadian Mist, Early Times, and Collingwood
brands in the prior fiscal year.
- Reported advertising expense increased 12% (+12% organic) as
the company continued to invest behind its brands and cycled last
year’s COVID-19 related phasing of spend which was more heavily
weighted to the second half of the year. Reported selling, general,
and administrative expenses increased 8% (+8% organic) led by
compensation related expenses.
- The company’s reported operating income decreased by 4% (+19%
organic) and diluted earnings per share decreased 12% to $1.43,
largely driven by the $0.19 per share impact from the gain on the
sale of the Canadian Mist, Early Times, and Collingwood
brands.
Year-to-Date Fiscal 2022 Financial
Stewardship
- On January 25, 2022, Brown-Forman’s Board of Directors declared
a regular quarterly cash dividend of $0.1885 per share on the Class
A and Class B common stock. The quarterly cash dividend is payable
on April 1, 2022 to stockholders of record on March 8, 2022.
Brown-Forman, a member of the prestigious S&P 500 Dividend
Aristocrats index, has paid regular quarterly cash dividends for 78
consecutive years and has increased the regular dividend for 38
consecutive years.
Fiscal Year 2022 Outlook
The fiscal 2022 outlook is presented on an “organic” basis,
therefore, it is not directly comparable to the previously
presented outlook.
The current global economic and geopolitical uncertainties
continue to create a challenging operating environment. Amid these
uncertainties, we are optimistic in our ability to deliver strong
full year results.
The outlook is as follows:
- With our strong year-to-date performance and consumer demand
along with supply chain constraints continuing to ease enabling
some rebuild of inventory, we expect organic net sales growth of
11% to 13% for the full year.
- We project the costs associated with supply chain disruptions
and inflationary cost headwinds will continue to have a negative
impact on our gross margin, largely offset by a modest positive
impact from the removal of tariffs in the EU. Therefore, we
continue to expect reported gross margin to be flat or slightly
down for the full year compared to fiscal 2021.
- We expect our organic operating expenses, which include
advertising and SG&A, to increase in the 7% to 9% range. We
anticipate organic advertising expense to be slightly below our
organic net sales growth.
- Based on the above expectations, we anticipate organic income
growth of 12% to 16% for the full year.
- We continue to expect our fiscal 2022 effective tax rate to be
in the range of approximately 22% to 23%.
Conference Call Details
Brown-Forman will host a conference call to discuss these
results at 10:00 a.m. (ET) 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 10 minutes in advance of the 10:00 a.m. (ET)
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.” 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
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,” “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
disruptions
- 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.
Brown-Forman
Corporation
Unaudited Consolidated Statements
of Operations
For the Three Months Ended
January 31, 2021 and 2022
(Dollars in millions, except per
share amounts)
2021
2022
Change
Net sales
$
911
$
1,037
14%
Cost of sales
361
415
15%
Gross profit
550
622
13%
Advertising expenses
121
117
(4%)
Selling, general, and administrative
expenses
157
162
4%
Other expense (income), net
(9
)
(4
)
Operating income
281
347
24%
Non-operating postretirement expense
1
—
Interest expense, net
21
19
Income before income taxes
259
328
26%
Income taxes
40
69
Net income
$
219
$
259
18%
Earnings per share:
Basic
$
0.46
$
0.54
18%
Diluted
$
0.45
$
0.54
19%
Gross margin
60.4
%
60.0
%
Operating margin
30.9
%
33.5
%
Effective tax rate
15.7
%
21.0
%
Cash dividends paid per common share
$
0.1795
$
1.1885
Shares (in thousands) used in the
calculation of earnings per share
Basic
478,599
478,887
Diluted
480,836
480,567
Brown-Forman
Corporation
Unaudited Consolidated Statements
of Operations
For the Nine Months Ended January
31, 2021 and 2022
(Dollars in millions, except per
share amounts)
2021
2022
Change
Net sales
$
2,649
$
2,937
11%
Cost of sales
1,053
1,172
11%
Gross profit
1,596
1,765
11%
Advertising expenses
278
311
12%
Selling, general, and administrative
expenses
460
495
8%
Gain on sale of business
(127
)
—
Other expense (income), net
(13
)
1
Operating income
998
958
(4%)
Non-operating postretirement expense
4
2
Interest expense, net
60
58
Income before income taxes
934
898
(4%)
Income taxes
151
211
Net income
$
783
$
687
(12%)
Earnings per share:
Basic
$
1.64
$
1.43
(12%)
Diluted
$
1.63
$
1.43
(12%)
Gross margin
60.3
%
60.1
%
Operating margin
37.7
%
32.6
%
Effective tax rate
16.2
%
23.4
%
Cash dividends paid per common share
$
0.5281
$
1.5475
Shares (in thousands) used in the
calculation of earnings per share
Basic
478,471
478,844
Diluted
480,665
480,599
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Balance Sheets
(Dollars in millions)
April 30, 2021
January 31, 2022
Assets:
Cash and cash equivalents
$
1,150
$
812
Accounts receivable, net
753
796
Inventories
1,751
1,769
Other current assets
263
276
Total current assets
3,917
3,653
Property, plant, and equipment, net
832
818
Goodwill
779
771
Other intangible assets
676
652
Other assets
318
332
Total assets
$
6,522
$
6,226
Liabilities:
Accounts payable and accrued expenses
$
679
$
629
Dividends payable
—
90
Accrued income taxes
34
64
Short-term borrowings
205
16
Current portion of long-term debt
—
250
Total current liabilities
918
1,049
Long-term debt
2,354
2,061
Deferred income taxes
169
190
Accrued postretirement benefits
219
216
Other liabilities
206
191
Total liabilities
3,866
3,707
Stockholders’ equity
2,656
2,519
Total liabilities and stockholders’
equity
$
6,522
$
6,226
Brown-Forman
Corporation
Unaudited Condensed Consolidated
Statements of Cash Flows
For the Nine Months Ended January
31, 2021 and 2022
(Dollars in millions)
2021
2022
Cash provided by operating activities
$
572
$
683
Cash flows from investing activities:
Proceeds from sale of business
177
—
Acquisition of business, net of cash
acquired
(14
)
—
Additions to property, plant, and
equipment
(41
)
(62
)
Other
(2
)
(1
)
Cash provided by (used for) investing
activities
120
(63
)
Cash flows from financing activities:
Net change in short-term borrowings
(23
)
(181
)
Dividends paid
(253
)
(741
)
Other
(18
)
(8
)
Cash used for financing activities
(294
)
(930
)
Effect of exchange rate changes on cash
and cash equivalents
33
(28
)
Net increase (decrease) in cash and cash
equivalents
431
(338
)
Cash and cash equivalents, beginning of
period
675
1,150
Cash and cash equivalents, end of
period
$
1,106
$
812
Schedule A
Brown-Forman
Corporation
Supplemental Statement of
Operations Information (Unaudited)
Three Months Ended
Nine Months Ended
Fiscal Year Ended
January 31, 2022
January 31, 2022
April 30, 2021
Reported change in net sales
14%
11%
3%
Acquisitions and divestitures
2%
2%
—%
Foreign exchange
6%
2%
(1)%
Organic change in net sales2
22%
14%
2%
Reported change in gross profit
13%
11%
(2)%
Acquisitions and divestitures
1%
1%
1%
Foreign exchange
8%
2%
(1)%
Organic change in gross profit2
22%
14%
(2)%
Reported change in advertising
expenses
(4)%
12%
4%
Foreign exchange
2%
—%
(2)%
Organic change in advertising
expenses2
(2)%
12%
2%
Reported change in SG&A
4%
8%
4%
Foundation
—%
—%
(3)%
Foreign exchange
2%
—%
(1)%
Organic change in SG&A2
6%
8%
—%
Reported change in operating
income
24%
(4)%
7%
Acquisitions and divestitures
2%
16%
(10)%
Foundation
—%
—%
2%
Impairment Charges
—%
1%
(1)%
Foreign exchange
18%
6%
(2)%
Organic change in operating
income2
43%
19%
(5)%
Note: Totals may differ due to
rounding
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.
Schedule B
Brown-Forman
Corporation
Supplemental Brand Information
(Unaudited)
Nine Months Ended January 31,
2022
% Change vs. Prior Year
Period
Brand3
Depletions3
Net Sales
9-Liter4
Drinks
Equivalent3
Reported
Acquisitions and Divestitures
Foreign
Exchange
Organic2
Whiskey
10%
10%
10%
2%
2%
14%
Jack Daniel’s family of brands
9%
10%
12%
—%
2%
14%
Jack Daniel’s Tennessee Whiskey
12%
12%
17%
—%
3%
20%
Jack Daniel’s RTD and RTP
8%
8%
6%
—%
—%
6%
Jack Daniel’s Tennessee Honey
3%
3%
(1)%
—%
2%
1%
Gentleman Jack
(8)%
(8)%
(9)%
—%
2%
(7)%
Jack Daniel’s Tennessee Fire
2%
2%
9%
—%
1%
11%
Jack Daniel’s Tennessee Apple
31%
31%
41%
—%
4%
45%
Other Jack Daniel’s Whiskey Brands
2%
2%
5%
—%
1%
7%
Woodford Reserve
14%
14%
9%
—%
—%
9%
Rest of Whiskey
17%
17%
(21)%
43%
—%
22%
Tequila
(5)%
11%
19%
—%
(2)%
17%
el Jimador
21%
21%
21%
—%
(1)%
20%
Herradura
29%
29%
31%
—%
(2)%
29%
Rest of Tequila
(11)%
(11)%
1%
—%
(4)%
(3)%
Wine
5%
5%
8%
—%
—%
8%
Vodka
14%
14%
21%
—%
2%
23%
Rest of Portfolio
5%
5%
9%
(3)%
18%
23%
Non-Branded and Bulk
NM
NM
11%
7%
1%
18%
Total Portfolio
6%
10%
11%
2%
2%
14%
Other Brand
Aggregations
American whiskey
10%
10%
11%
1%
2%
14%
Premium bourbons
14%
14%
10%
—%
—%
10%
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,
2022
% Change vs. Prior-Year
Period
Geographic
Area3
Net Sales
Reported
Acquisitions and Divestitures
Foreign
Exchange
Organic2
United States
5%
3%
—%
8%
Developed International
12%
—%
3%
15%
Australia
4%
—%
1%
5%
Germany
16%
—%
2%
18%
United Kingdom
5%
—%
7%
12%
France
5%
—%
2%
7%
Canada
(10)%
1%
(4)%
(13)%
Rest of Developed International
33%
3%
2%
39%
Emerging
22%
—%
5%
27%
Mexico
13%
—%
(5)%
9%
Poland
7%
—%
3%
10%
Brazil
14%
—%
2%
16%
Russia
26%
1%
6%
32%
Rest of Emerging
37%
—%
15%
52%
Travel Retail
57%
2%
(1)%
58%
Non-Branded and Bulk
11%
7%
1%
18%
Total
11%
2%
2%
14%
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 Free Cash Flow
Information (Unaudited)
(Dollars in millions)
Nine Months Ended
January 31, 2021
January 31, 2022
Cash provided by operating
activities
$
572
$
683
Additions to property, plant, and
equipment
(41
)
(62
)
Free Cash Flow2
$
531
$
621
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.
Schedule E
Brown-Forman
Corporation
Supplemental Geographic,
Product, and Operations Information (Unaudited)
Nine Months Ended January 31,
2022
Estimated
Net Change in Distributor Inventories3
Geographic Area3 - Net
Sales
United States
2%
Developed International
2%
Emerging
4%
Travel Retail
8%
Non-Branded and Bulk
—%
Brand3 - Net Sales
Whiskey
2%
Jack Daniel’s family of brands
3%
JDTW
5%
JD RTD/RTP
(2)%
JDTH
(2)%
Gentleman Jack
—%
JDTF
9%
JDTA
18%
Other Jack Daniel’s whiskey brands
1%
Woodford Reserve
(6)%
Tequila
(3)%
Herradura
(5)%
el Jimador
(4)%
Wine
3%
Vodka (Finlandia)
4%
Rest of Portfolio
6%
Non-branded and bulk
—%
Statement of Operations Line
Items
Net Sales
2%
Cost of Sales
1%
Gross Profit
3%
Operating Income
5%
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 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
of the statements of operations: (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)
foundation, and (4) impairment charges. We explain these
adjustments below.
“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 of the
statements of operations: (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
charges, and (4) Foundation. We explain these adjustments
below.
- “Acquisitions and divestitures.” This adjustment removes (a)
the gain or loss recognized on sale of divested brands, (b) any
non-recurring effects related to our acquisitions and divestitures
(e.g., transaction, transition, and integration costs), and (c) the
effects of operating activity related to acquired and divested
brands for periods not comparable year over year (non-comparable
periods). Excluding non-comparable periods allows us to include the
effects of acquired and divested brands only to the extent that
results are comparable year over year. 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. Also, during fiscal 2021, we acquired Part Time
Rangers Limited, which owns Part Time Rangers RTDs. This adjustment
removes (a) transaction and integration costs related to the
acquisitions and divestitures, (b) the gain on the sale of the
Early Times, Canadian Mist, and Collingwood brands and related
assets, (c) operating activity for the non-comparable period for
Early Times, Canadian Mist, and Collingwood, which is activity in
the first quarter of fiscal 2021, (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, and (e) operating activity for Part Time Rangers Holdings
Limited for the non-comparable period, which is primarily activity
in the first two quarters of fiscal 2022. We believe that these
adjustments allow for us to better understand our organic results
on a comparable basis.
- “Foreign exchange.” We calculate the percentage change in
certain line items of the statements of operations 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 organic trend both positively and
negatively. (In this report, “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 transactional
and hedging foreign exchange gains and losses from current- and
prior-year periods.
- “Impairment charges.” This adjustment removes the impact of
impairment charges from our results of operations. During the first
three quarters of fiscal 2022, we recognized non-cash impairment
charges of $9 million for certain fixed assets. We believe that
this adjustment allows for us to better understand our organic
results on a comparable basis.
- “Foundation.” In the fourth quarter of fiscal 2021, we
committed $20 million to the Brown-Forman Foundation (the
Foundation) to support the company’s charitable giving program in
the communities where our employees live and work. This adjustment
removes the $20 million commitment to the Foundation from our
underlying SG&A expenses and underlying operating income to
present our underlying 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 provide reconciliations of the “organic
change” in certain line items of the statements of operations to
their nearest GAAP measures in the tables on Schedules A, B, and C
above. 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.
As of the third quarter ended January 31, 2022, we changed
certain non-GAAP financial measures that we have historically used.
We will no longer report “underlying changes” in certain measures
of the statements of operations; instead, we will now report
“organic change” in 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 is in response to comments from and discussions with the
Staff of the Securities and Exchange Commission.
Although we will 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, as shown in Schedule E, we will continue to provide
information concerning 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.
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 to our GAAP income statement measures.
Free cash flow. This measure refers
to the cash provided by operating activities less additions to
property, plant, and equipment on the Unaudited Condensed
Consolidated Statements of Cash Flows above. In Schedule D, we
provide this calculation for the relevant periods. We use this
non-GAAP measure in evaluating the Company’s financial performance,
which measures our ability to generate additional cash from our
business operations. Free cash flow should be considered in
addition to, rather than as a substitute for, net income as a
measure of our performance and net cash provided by operating
activities as a measure of our liquidity.
*Operating expenses include advertising expense, SG&A
expense, and other expense (income), net.
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 the stage of economic development as
defined by the International Monetary Fund (IMF), and we aggregate
brands by beverage alcohol category. Below, we define aggregations
used in this press release.
Geographic Aggregations.
In Schedule C, we provide supplemental information for our
largest markets ranked by percentage of total fiscal 2021 net
sales. In addition to markets that are listed by country name, we
include the following aggregations:
- “Developed International” markets are “advanced economies” as
defined by the IMF, excluding the United States. Our largest
developed international markets are Australia, Germany, the United
Kingdom, France, and Canada. This aggregation represents our net
sales of branded products to these markets.
- “Emerging” markets are “emerging and developing economies” as
defined by the IMF. Our largest emerging markets are Mexico,
Poland, Brazil, and Russia. This aggregation represents our net
sales of branded products to these markets.
- “Travel Retail” represents our net sales of branded products to
global duty-free customers, other travel retail customers, and the
U.S. military, regardless of customer location.
- “Non-branded and bulk” includes our net sales of used barrels,
bulk whiskey and wine, and contract bottling, regardless of
customer location.
Brand Aggregations.
In Schedule B, we provide supplemental information for our
largest brands ranked by percentage of total fiscal 2021 net sales.
In addition to brands that are listed by name, we include the
following aggregations:
- “Whiskey” includes all whiskey spirits and whiskey-based
flavored liqueurs, ready-to-drink (RTD), and ready-to-pour products
(RTP). The brands included in this category are the Jack Daniel’s
family of brands, the Woodford Reserve family of brands (Woodford
Reserve), the Old Forester family of brands (Old Forester),
GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and
Coopers’ Craft.
- “American whiskey” includes the Jack Daniel’s family of brands,
premium bourbons (defined below), and super-premium American
whiskey (defined below).
- “Jack Daniel’s family of brands” includes Jack Daniel’s
Tennessee Whiskey (JDTW), Jack Daniel’s RTD and RTP products (JD
RTD/RTP), Jack Daniel’s Tennessee Honey (JDTH), Gentleman Jack,
Jack Daniel’s Tennessee Fire (JDTF), Jack Daniel’s Tennessee Apple
(JDTA), Jack Daniel’s Single Barrel Collection (JDSB), Jack
Daniel’s Tennessee Rye Whiskey (JDTR), Jack Daniel’s No. 27 Gold
Tennessee Whiskey, Jack Daniel’s Sinatra Select, and Jack Daniel’s
Bottled-in-Bond.
- “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 Country Cocktails, Jack Daniel’s & Diet Cola, Jack
& Ginger, Jack Daniel’s Double Jack, Gentleman Jack & Cola,
Jack Daniel’s American Serve, Jack Daniel’s Tennessee Honey RTD,
Jack Daniel’s Berry, Jack Daniel’s Lynchburg Lemonade, Jack
Daniel’s Whiskey & Seltzer, and the seasonal Jack Daniel’s
Winter Jack RTP.
- “Premium bourbons” includes Woodford Reserve, Old Forester, and
Coopers’ Craft.
- “Super-premium American whiskey” includes Woodford Reserve,
Gentleman Jack, JDSB, JDTR, Jack Daniel’s No. 27 Gold Tennessee
Whiskey, and Jack Daniel’s Sinatra Select.
- “Tequila” includes the Herradura family of brands (Herradura),
el Jimador, New Mix, Pepe Lopez, and Antiguo.
- “Wine” includes Korbel Champagnes and Sonoma-Cutrer wines.
- “Vodka” includes Finlandia.
- “Non-branded and bulk” includes our net sales of used barrels,
bulk whiskey and wine, and contract bottling regardless of customer
location.
Other Metrics.
- “Shipments.” We generally record revenues when we ship or
deliver our products to our customers. In this document, unless
otherwise specified, we refer to shipments when discussing
volume.
- “Depletions.” This is a term commonly used in the beverage
alcohol industry to describe volume. Depending on the context,
depletions usually means either (a) our shipments directly to
retail or wholesale customers for owned distribution markets or (b)
shipments from our distributor customers to retailers and
wholesalers in other markets. We believe that depletions measure
volume in a way that more closely reflects consumer demand than our
shipments to distributor customers do.
- “Consumer takeaway.” When discussing trends in the market, we
refer to consumer takeaway, a term commonly used in the beverage
alcohol industry that refers to the purchase of product by
consumers from retail outlets, including products purchased through
e-premise channels, 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. We
believe consumer takeaway is a leading indicator of how consumer
demand is trending.
- “Estimated net change in distributor inventories.” We generally
recognize revenue when our products are shipped or delivered to
customers. In the United States and certain other markets, our
customers are distributors that sell downstream to retailers and
consumers. We believe that our distributors’ downstream sales more
closely reflect actual consumer demand than do our shipments to
distributors. Our shipments increase distributors’ inventories,
while distributors’ depletions (as described above) reduce their
inventories. Therefore, it is possible that our shipments do not
coincide with distributors’ downstream depletions and merely
reflect changes in distributors’ inventories. Because changes in
distributors’ inventories could affect our trends, we believe it is
useful for investors to understand those changes in the context of
our operating results. We perform the following calculation to
determine the “estimated net change in distributor inventories”:
- For both the current-year period and the comparable prior-year
period, we calculate a “depletion-based” amount by (a) dividing the
organic dollar amount (e.g. organic net sales) by the corresponding
shipment volumes to arrive at a shipment per case amount, and (b)
multiplying the resulting shipment per case amount by the
corresponding depletion volumes. We subtract the year-over-year
percentage change of the “depletion-based” amount from the
year-over-year percentage change of the organic amount to calculate
the “estimated net change in distributor inventories”.
- A positive difference is interpreted as a net increase in
distributors’ inventories, which implies that organic trends could
decrease as distributors’ reduce inventories; whereas, a negative
difference is interpreted as a net decrease in distributors’
inventories, which implies that organic trends could increase as
distributors rebuild inventories.
Note 4 - Jack Daniel’s Country Cocktails 9L
Depletions
Effective April 1, 2021, we entered into a partnership with
Pabst Brewing Company for the supply, sales, and distribution of
Jack Daniel’s Country Cocktails in the United States. Consequently,
our fiscal 2022 results include net sales, but do not include 9L
depletions for this brand. To share results on a comparable basis
for fiscal 2022, we excluded fiscal 2021 9L depletions for Jack
Daniel’s Country Cocktails in the United States.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220302006011/en/
ROB FREDERICK VICE PRESIDENT CORPORATE COMMUNICATIONS
502-774-7707
SUE PERRAM DIRECTOR INVESTOR RELATIONS 502-774-6862
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