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Brown-Forman Reports Fiscal 2020 Results

LOUISVILLE, Ky.–(BUSINESS WIRE)–Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its fourth quarter and fiscal year ended April 30, 2020. For the fourth quarter, the company’s reported net sales1 declined 5% to $709 million (-10% on an underlying basis2) compared to the same prior-year period. Reported operating income decreased 18% to $187 million (-27% on an underlying basis) and diluted earnings per share declined 20% to $0.27.

For the full year, the company’s reported net sales increased 1% to $3.4 billion (flat on an underlying basis). Reported operating income decreased 5% to $1.1 billion (-6% on an underlying basis) and diluted earnings per share declined 1% to $1.72.

“First, I speak on behalf of the entire Brown-Forman family in saying that our hearts and thoughts are with all who have been so deeply affected by COVID-19. While this is a business challenge, it is, above all, a human tragedy. I would like to thank our 4,800 employees for their exceptional agility and creativity in quickly shifting and adapting to the recent events in such a short period of time,” said Lawson Whiting, President and Chief Executive Officer. He added, “Brown-Forman has endured and prevailed through many challenges over the last 150 years. We believe we are well positioned to successfully navigate the environment we face today and emerge stronger thanks to the continued support of our shareholders, including the Brown family, our healthy balance sheet, the resilience of our people, and the strength of our brands.”

Fiscal 2020 Highlights

  • Underlying net sales were flat (+1% reported) in a year marked by significant disruption

    • The United States, our largest market, grew underlying net sales 5% (+8% reported), while our developed international and emerging markets each declined 1% (-2% and -4% reported, respectively)
    • Jack Daniel’s family of brands underlying net sales were flat (+1% reported). Underlying net sales growth from Jack Daniel’s Tennessee Apple, Jack Daniel’s RTDs3,and Jack Daniel’s Tennessee Honey was offset by declines in Jack Daniel’s Tennessee Whiskey
    • Premium bourbons grew underlying net sales 21% (+24% reported) led by Woodford Reserve’s 19% underlying net sales growth (+23% reported) and supported by even stronger underlying growth from Old Forester, the company’s founding brand, which is celebrating its 150th year
    • Our tequila portfolio grew underlying net sales 2% (+5% reported) as high single-digit growth in the U.S. was partially offset by declines in Mexico. Herradura grew underlying net sales 7% (+11% reported) and el Jimador grew underlying net sales 5% (+8% reported), while underlying net sales for New Mix declined.
    • Non-branded and bulk underlying net sales declined 29% (-30% reported) primarily reflecting lower used barrel demand and pricing along with a reduction in bulk whiskey sales
  • Brown-Forman generated an ROIC3of 20%

Business Environment Update Amid COVID-19 Pandemic

The company completed its third quarter of the fiscal year on January 31, 2020, registering a year-to-date net sales increase of 3% on both a reported and underlying basis with underlying net sales trends holding through February. In early March, the company revised its full-year outlook to include an estimate for the impact of COVID-19 on its results from Asia, most notably China, and Travel Retail only. Subsequent to that time, the rapid spread of the virus resulted in all of the company’s major markets being negatively affected.

“COVID-19 began to affect our performance in the middle of March and continued throughout April as both on-premise, representing approximately 20% of our business globally, and Travel Retail channels essentially came to a halt. We experienced strong growth in the off-premise (based on syndicated takeaway data) and e-Premise channels across most of our developed markets as country lockdowns and government restrictions took hold reflecting both an increase in at-home consumption and some pantry loading,” said Jane Morreau, the company’s Executive Vice President and Chief Financial Officer.

Fiscal 2020 Results By Market

Underlying net sales growth in the United States accelerated in fiscal 2020, increasing 5% (+8% reported), fueled in part by the fall 2019 launch of Jack Daniel’s Tennessee Apple, despite slower growth in the fourth quarter as COVID-19 related impacts began to take effect. Double-digit underlying net sales growth for Woodford Reserve, Old Forester, Jack Daniel’s RTDs, Herradura, and el Jimador collectively, also contributed to the growth for the year.

Underlying net sales in the company’s emerging markets fell 1% (-4% reported) as mid-single digit underlying net sales growth through the third quarter of fiscal 2020 was more than offset by significant declines in the fourth quarter. In Mexico, the company’s largest emerging market, underlying and reported net sales declined 7% as the recessionary economy was further hindered by the effects of the health pandemic. Despite COVID-19 headwinds, Poland’s underlying net sales grew 2% (-1% reported) in fiscal 2020 driven by higher volumes for the Jack Daniel’s family of brands, and Russia delivered strong underlying net sales growth of 8% (+6% reported) led by volume gains for Jack Daniel’s Tennessee Whiskey supported by strong consumer demand.

The developed international markets’ underlying net sales declined 1% (-2% reported) with the pandemic negatively affecting fourth quarter performance across these markets. In the United Kingdom, the company’s largest international market, underlying net sales declined 8% (-10% reported) driven by unfavorable channel and size mix and short-term disruptions from changes to our promotional strategy. Australia and France’s underlying net sales each declined 1% (-5% and -1% reported, respectively). In Australia, lower volumes of Jack Daniel’s RTDs and Jack Daniel’s Tennessee Whiskey were only partially offset by volumetric growth from the super-premium American whiskey portfolio. Declines in France were driven by lower volumes for Jack Daniel’s Tennessee Whiskey, offsetting volume growth from Jack Daniel’s Tennessee Honey and the launch of Jack Daniel’s RTDs. Despite the challenging environment in the final weeks of the fiscal year, Germany’s underlying net sales grew 7% (+8% reported) fueled by volume growth for Jack Daniel’s RTDs.

Travel Retail’s3 underlying net sales declined 10% (-11% reported) largely reflecting the unprecedented implementation of travel bans and restrictions caused by the pandemic.

Fiscal 2020 Results By Brand

The company’s whiskey portfolio grew underlying net sales +2% (+3% reported). Jack Daniel’s family of brands’ underlying net sales were flat (+1% reported). Jack Daniel’s Tennessee Whiskey’s underlying net sales decline offset growth from Jack Daniel’s Tennessee Apple, Jack Daniel’s RTDs, and broad-based volume growth from Jack Daniel’s Tennessee Honey and Gentleman Jack.

Brown-Forman’s portfolio of premium bourbon brands, including Woodford Reserve and Old Forester, continued to grow underlying net sales double digits. Woodford Reserve, the leader in the super-premium American whiskey category, grew underlying net sales 19% (+23% reported) and surpassed the one million 9L case milestone in fiscal 2020. Woodford Reserve’s growth was led by the United States, where consumer takeaway trends remain strong, along with broad-based volume growth internationally. Old Forester, the company’s 150-year-old founding brand, provided even stronger underlying net sales growth powered by volumetric gains and favorable mix from the brand’s high-end expressions.

Brown-Forman’s tequila brands grew underlying net sales 2% (+5% reported) in fiscal 2020, as declines of New Mix were more than offset by underlying net sales growth of 7% (+11% reported) on Herradura, reflecting double-digit volume growth in the United States. el Jimador also contributed to the company’s tequila portfolio growth for the year as underlying net sales grew 5% (+8% reported) driven by higher volumes in the United States as consumer takeaway trends remain strong.

Fiscal 2020 Other P&L Items

Company-wide price/mix was up 1% reflecting faster growth from higher priced Woodford Reserve and increased pricing on tequilas. These benefits were offset by volume declines, most notably on Jack Daniel’s Tennessee Whiskey and Finlandia. Underlying gross profit declined 3% (-2% reported) and reported gross margin contracted 200 basis points to 63.2% driven by higher input costs from agave and wood along with tariff-related costs.

Underlying advertising investment declined 2% (-3% reported) as the company adjusted rapidly in the fourth quarter to an environment which reflected on-premise closures, travel bans affecting the Travel Retail channel, and the cancellation of events and sponsorships across numerous countries. Underlying SG&A grew 1% (flat on a reported basis) as the company maintained its cost discipline focus.

During the fourth quarter, Brown-Forman recorded a non-cash brand name impairment charge of $13 million, or $0.02 per share, in Other expense (income) related to Chambord, a super-premium liqueur. This brand has a significant on-premise presence and is expected to be considerably affected by the closures and restrictions in this channel in response to the COVID-19 pandemic.

Underlying operating income declined 6% (-5% reported).

Financial Stewardship

On May 21, 2020, the Brown-Forman Board of Directors declared a regular quarterly cash dividend of $0.1743 per share on the Class A and Class B common stock, resulting in an annualized cash dividend of $0.6972 per share. The quarterly cash dividend is payable on July 1, 2020, to stockholders of record on June 8, 2020. Brown-Forman has paid regular quarterly cash dividends for 75 consecutive years and has increased the dividend for 36 uninterrupted years.

Fiscal Year 2021 Outlook

The company faces substantial uncertainty related to the evolving COVID-19 pandemic and its effect on the global economy. As a result of this uncertainty, the company is not able to provide quantitative guidance for fiscal year 2021 at this time. With a strong balance sheet, solid cash flows, and ample liquidity, the company expects to fully fund ongoing investments in the business and pay regular dividends. Whiting added, “with our attractive portfolio of brands in growing categories and our resilient supply chain, we believe we will successfully navigate these uncharted waters, similar to other challenges we have encountered over the past 150 years, and emerge an even stronger company with healthier brands to drive our growth in the future.”

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 888-624-9285 and asking for the Brown-Forman call. International callers should dial +1-706-679-3410. 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, 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 150 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including the Jack Daniel’s Family of Brands, Finlandia, Korbel, el Jimador, Woodford Reserve, Old Forester, Coopers’ Craft, Canadian Mist, Herradura, New Mix, Sonoma-Cutrer, Early Times, Chambord, BenRiach, GlenDronach, Slane, and Fords Gin. Brown-Forman’s brands are supported by approximately 4,800 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:

  • Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the resulting negative economic impact and related governmental actions
  • 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 additional retaliatory tariffs on American spirits 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, sales, VAT, tariffs, duties, corporate, individual income, dividends, or capital gains) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
  • 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
  • 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 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; legalization of marijuana use on a more widespread basis; shifts in consumer purchase practices from traditional to e-commerce retailers; 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
  • Decline in the social acceptability of beverage alcohol 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
  • Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products
  • Competitors’ and retailers’ 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
  • 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
  • Inventory fluctuations in our products by distributors, wholesalers, or retailers
  • Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
  • Counterfeiting and inadequate protection of our intellectual property rights
  • Product recalls or other product liability claims, product tampering, contamination, or quality issues
  • Significant legal disputes and proceedings, or government investigations
  • Cyber breach or failure or corruption of key information technology systems, or failure to comply with personal data protection laws
  • 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
  • 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 April 30, 2019 and 2020

(Dollars in millions, except per share amounts)

 

 

2019

 

2020

 

Change

 

 

 

 

 

 

Net sales

$

744

 

 

$

709

 

 

(5%)

Cost of sales

262

 

 

256

 

 

(2%)

Gross profit

482

 

 

453

 

 

(6%)

Advertising expenses

93

 

 

75

 

 

(19%)

Selling, general, and administrative expenses

163

 

 

167

 

 

3%

Other expense (income), net

(2

)

 

24

 

 

 

Operating income

228

 

 

187

 

 

(18%)

Non-operating postretirement expense

3

 

 

2

 

 

 

Interest expense, net

19

 

 

19

 

 

 

Income before income taxes

206

 

 

166

 

 

(20%)

Income taxes

47

 

 

38

 

 

 

Net income

$

159

 

 

$

128

 

 

(20%)

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

$

0.33

 

 

$

0.27

 

 

(20%)

Diluted

$

0.33

 

 

$

0.27

 

 

(20%)

 

 

 

 

 

 

Gross margin

64.8

%

 

63.9

%

 

 

Operating margin

30.7

%

 

26.4

%

 

 

 

 

 

 

 

 

Effective tax rate

22.5

%

 

22.9

%

 

 

 

 

 

 

 

 

Cash dividends paid per common share

$

0.1660

 

 

$

0.1743

 

 

 

 

 

 

 

 

 

Shares (in thousands) used in the

 

 

 

 

 

calculation of earnings per share

 

 

 

 

 

Basic

477,034

 

 

478,148

 

 

 

Diluted

480,047

 

 

480,342

 

 

 

 

 

Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Twelve Months Ended April 30, 2019 and 2020

(Dollars in millions, except per share amounts)

 

 

2019

 

2020

 

Change

 

 

 

 

 

 

Net sales

$

3,324

 

 

$

3,363

 

 

1%

Cost of sales

1,158

 

 

1,236

 

 

7%

Gross profit

2,166

 

 

2,127

 

 

(2%)

Advertising expenses

396

 

 

383

 

 

(3%)

Selling, general, and administrative expenses

641

 

 

642

 

 

0%

Other expense (income), net

(15

)

 

11

 

 

 

Operating income

1,144

 

 

1,091

 

 

(5%)

Non-operating postretirement expense

22

 

 

5

 

 

 

Interest expense, net

80

 

 

77

 

 

 

Income before income taxes

1,042

 

 

1,009

 

 

(3%)

Income taxes

207

 

 

182

 

 

 

Net income

$

835

 

 

$

827

 

 

(1%)

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

$

1.74

 

 

$

1.73

 

 

(1%)

Diluted

$

1.73

 

 

$

1.72

 

 

(1%)

 

 

 

 

 

 

Gross margin

65.2

%

 

63.2

%

 

 

Operating margin

34.4

%

 

32.4

%

 

 

 

 

 

 

 

 

Effective tax rate

19.8

%

 

18.0

%

 

 

 

 

 

 

 

 

Cash dividends per common share:

 

 

 

 

 

Paid

$

0.6480

 

 

$

0.6806

 

 

 

 

 

 

 

 

 

Shares (in thousands) used in the

 

 

 

 

 

calculation of earnings per share

 

 

 

 

 

Basic

478,956

 

 

477,765

 

 

 

Diluted

482,067

 

 

480,409

 

 

 

 

 

 

 

 

 

Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

(Dollars in millions)

 

 

April 30,

2019

 

April 30,

2020

Assets:

 

 

 

Cash and cash equivalents

$

307

 

 

$

675

 

Accounts receivable, net

609

 

 

570

 

Inventories

1,520

 

 

1,685

 

Other current assets

283

 

 

335

 

Total current assets

2,719

 

 

3,265

 

 

 

 

 

Property, plant, and equipment, net

816

 

 

848

 

Goodwill

753

 

 

756

 

Other intangible assets

645

 

 

635

 

Other assets

206

 

 

272

 

Total assets

$

5,139

 

 

$

5,776

 

 

 

 

 

Liabilities:

 

 

 

Accounts payable and accrued expenses

$

544

 

 

$

518

 

Accrued income taxes

9

 

 

30

 

Short-term borrowings

150

 

 

333

 

Total current liabilities

703

 

 

881

 

 

 

 

 

Long-term debt

2,290

 

 

2,269

 

Deferred income taxes

145

 

 

177

 

Accrued postretirement benefits

197

 

 

297

 

Other liabilities

157

 

 

177

 

Total liabilities

3,492

 

 

3,801

 

 

 

 

 

Stockholders’ equity

1,647

 

 

1,975

 

 

 

 

 

Total liabilities and stockholders’ equity

$

5,139

 

 

$

5,776

 

 

 

 

 

Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Twelve Months Ended April 30, 2019 and 2020

(Dollars in millions)

 

 

2019

 

2020

 

 

 

 

Cash provided by operating activities

$

800

 

 

$

724

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Additions to property, plant, and equipment

(119

)

 

(113

)

Acquisition of business, net of cash acquired

 

 

(22

)

Other

 

 

(6

)

Cash used for investing activities

(119

)

 

(141

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Net change in short-term borrowings

(71

)

 

178

 

Acquisition of treasury stock

(207

)

 

(1

)

Dividends paid

(310

)

 

(325

)

Other

(11

)

 

(43

)

Cash used for financing activities

(599

)

 

(191

)

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

(14

)

 

(24

)

 

 

 

 

Net increase in cash and cash equivalents

68

 

 

368

 

 

 

 

 

Cash and cash equivalents, beginning of period

239

 

 

307

 

 

 

 

 

Cash and cash equivalents, end of period

$

307

 

 

$

675

 

 

 

 

 

 

Schedule A

 

 

Brown-Forman Corporation

 

 

Supplemental Information (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Fiscal Year Ended

 

Fiscal Year Ended

 

Nine Months Ended

 

 

April 30, 2020

 

April 30, 2020

 

April 30, 2019

 

January 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported change in net sales

 

(5)%

 

1%

 

2%

 

3%

Acquisitions and divestitures

 

—%

 

—%

 

—%

 

—%

New accounting standard

 

—%

 

—%

 

1%

 

—%

Foreign exchange

 

1%

 

1%

 

2%

 

—%

Estimated net change in distributor inventories

 

(7)%

 

(2)%

 

—%

 

—%

 

 

 

 

 

 

 

 

 

Underlying change in net sales

 

(10)%

 

—%

 

5%

 

3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported change in gross profit

 

(6)%

 

(2)%

 

(2)%

 

 

Acquisitions and divestitures

 

—%

 

—%

 

—%

 

 

New accounting standard

 

—%

 

—%

 

1%

 

 

Foreign exchange

 

—%

 

—%

 

2%

 

 

Estimated net change in distributor inventories

 

(8)%

 

(2)%

 

—%

 

 

 

 

 

 

 

 

 

 

 

Underlying change in gross profit

 

(13)%

 

(3)%

 

2%

 

 

 

 

 

 

 

 

 

 

 

Reported change in advertising expenses

 

(19)%

 

(3)%

 

(2)%

 

 

Acquisitions and divestitures

 

(1)%

 

—%

 

—%

 

 

New accounting standard

 

—%

 

—%

 

4%

 

 

Foreign exchange

 

2%

 

1%

 

2%

 

 

 

 

 

 

 

 

 

 

 

Underlying change in advertising expenses

 

(17)%

 

(2)%

 

3%

 

 

 

 

 

 

 

 

 

 

 

Reported change in SG&A

 

3%

 

—%

 

(16)%

 

 

Acquisitions and divestitures

 

—%

 

(1)%

 

—%

 

 

New accounting standard

 

—%

 

—%

 

1%

 

 

Foundation

 

—%

 

—%

 

8%

 

 

Foreign exchange

 

3%

 

2%

 

2%

 

 

 

 

 

 

 

 

 

 

 

Underlying change in SG&A

 

6%

 

1%

 

(5)%

 

 

 

 

 

 

 

 

 

 

 

Reported change in operating income

 

(18)%

 

(5)%

 

9%

 

 

Acquisitions and divestitures

 

1%

 

—%

 

—%

 

 

Chambord Impairment

 

6%

 

1%

 

—%

 

 

Foundation

 

—%

 

—%

 

(7)%

 

 

Foreign exchange

 

1%

 

—%

 

3%

 

 

Estimated net change in distributor inventories

 

(16)%

 

(3)%

 

—%

 

 

 

 

 

 

 

 

 

 

 

Underlying change in operating income

 

(27)%

 

(6)%

 

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.

 

Contacts

Rob Frederick

Vice President

Brown-Forman Brand & Communications

502-774-7707

Leanne Cunningham

Senior Vice President

Shareholder Relations Officer

502-774-7287

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