Brown-Forman (BF-B) Misses Q3 EPS by 2c

Brown-Forman Reports Strong Year-to-Date Results; Operating Income Up Double-Digits

March 7, 2018 7:45 AM EST

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported financial results for its third quarter and the first nine months of fiscal 2018, ended January 31, 2018. For the third quarter, the companys reported net sales1 increased 9% to $878 million (+6% on an underlying basis2) compared to the same prior-year period. Reported operating income increased 11% in the quarter to $304 million (+5% on an underlying basis) and diluted earnings per share of $0.39 increased 4%. Earnings per share incorporates the five for four stock split implemented on February 28, 2018, and was negatively impacted by $0.05 due to the net impact of U.S. tax reform.

For the first nine months of the fiscal year, the companys reported net sales increased 9% to $2,515 million (+7% on an underlying basis) compared to the same prior-year period. Reported net sales growth benefited by two percentage points from foreign exchange and one percentage point from changes in distributor inventories. Reported operating income increased 15% year-to-date to $894 million (+11% on an underlying basis) and diluted earnings per share of $1.25 increased 17%.

Paul Varga, the company's Chief Executive Officer, said, Brown-Formans business momentum continued through the third quarter, resulting in year-to-date underlying net sales and operating income growth of 7% and 11%, respectively, and even stronger on a reported basis. The results were well-balanced by geography and driven by 8% underlying net sales growth for our Jack Daniels led American whiskey portfolio. Our accelerated rates of growth keep us on track to deliver high quality, top-tier results in fiscal 2018. We are reaffirming our underlying outlook for net sales growth of 6-7% and operating income of 8-9%, and adjusting our EPS range to account for tax reform and related items.

Year-to-date Fiscal 2018 Highlights

Underlying net sales grew 7% (+9% reported), with balanced geographic3 and portfolio3 contribution: Emerging markets grew underlying net sales by 15% (+19% reported) The United States grew underlying net sales by 5% (+7% reported) and non-US developed markets grew underlying net sales by 6% (+9% reported) The Jack Daniels family of brands grew underlying net sales 7% (+10% reported), including 5% growth (+7% reported) for Jack Daniels Tennessee Whiskey The companys super- and ultra-premium American whiskey brands grew underlying net sales +16% (+21% reported), including 22% growth from Woodford Reserve (+25% reported) Herradura and el Jimador grew underlying net sales 20% and 9% (+19% and +13%, reported) Underlying operating income grew 11% (+15% reported) The company reaffirmed its fiscal 2018 underlying outlook for net sales growth of 6% to 7% and operating income growth of 8% to 9%. Split-adjusted fiscal 2018 EPS of $1.43 to $1.48 includes an expected full year negative impact due to tax reform of $0.03 and a negative impact of $0.10 from creating the previously announced charitable foundation during the fourth quarter.

Year-to-date Fiscal 2018 Performance By Market

Year-to-date underlying net sales grew 5% (+7% reported) in the United States. The increase in sales growth was driven by broad-based gains from the Jack Daniels family of brands, including Tennessee Whiskey, Tennessee Honey, Tennessee Fire, Gentleman Jack and the portfolio of RTDs/RTP (RTDs). The company also continued to roll-out Jack Daniels Tennessee Rye in the United States, with a solid initial response from our trade partners and consumers. The companys American whiskey portfolio continues 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 underlying net sales double-digits in the United States as both brands maintained their solid momentum in the on and off-premise.

Sales in the companys developed markets outside of the United States remained robust, delivering year-to-date underlying net sales growth of +6% (+9% reported). The United Kingdom and Germany grew underlying net sales by +6% (+10% reported) and +11% (+16% reported), respectively. Australias underlying net sales jumped 10% (+10% reported). Japan was the only one of our top ten markets that declined, due primarily to volume declines in Early Times. Frances underlying net sales increased +5% (+10% reported) and Canada grew +2% (+4% reported). After launching our owned distribution in Spain last summer, results have continued to accelerate, resulting in double-digit year-to-date underlying net sales growth.

Trends in the emerging markets remained strong, despite increasingly difficult comparisons. Underlying net sales in the emerging markets jumped 15% (+19% reported) year-to-date. The companys two largest emerging markets, Mexico and Poland, both grew underlying net sales by 10% (+13% and +25% reported, respectively), fueled by strong demand for the Jack Daniels family of brands as well as growth of tequilas in Mexico. In emerging markets excluding Mexico and Poland, underlying net sales grew in the high teens, as economic conditions have improved and currencies have stabilized. Russia, Turkey, Brazil, Thailand, China and Ukraine grew underlying net sales well into the double-digits.

Travel Retail continued to deliver solid rates of growth, with underlying net sales up 11% (+17% reported) through the first nine months of the fiscal year. Jack Daniel's Tennessee Whiskey is growing well across travel retail, and other brands, such as Gentleman Jack and Woodford Reserve are growing quickly as the company brings this great super-premium American whiskey portfolio to new markets through this channel. Passenger volumes are also continuing to improve, including Russian travelers, and foreign exchange volatility has lessened.

Year-to-date Fiscal 2018 Performance By Brand

The companys underlying net sales growth was led by the Jack Daniels family, up 7% (+10% reported). Jack Daniels Tennessee Whiskey experienced 5% underlying net sales growth (+7% reported) globally, with strong volume gains in markets outside of the United States. Jack Daniels Tennessee Honeys underlying net sales grew 9% (+11% reported). Gentleman Jack also grew underlying net sales 9% (+11% reported), as the new advertising campaign and increased media spend is bolstering results. Jack Daniels Tennessee Fires underlying net sales grew 15% (+22% reported), as the brand continues to benefit from its global rollout and U.S. on-premise momentum. Jack Daniels RTD business has delivered strong underlying net sales growth, up 14% (+17% reported). This growth has been helped by... More