Brown-Forman (BF-A) Tops Q2 EPS by 9c, Raises Guidance

Brown-Forman Reports Strong First Half Results; Raises Full Year Outlook

December 6, 2017 7:45 AM EST

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) reported financial results for its second quarter and the first half of fiscal 2018, ended October 31, 2017. For the second quarter, the companys reported net sales1 increased 10% to $914 million (+8% on an underlying basis2) compared to the same prior-year period. Reported operating income increased 19% in the quarter to $346 million (+16% on an underlying basis) and diluted earnings per share of $0.62 increased 23%.

For the first six months of the fiscal year, the companys reported net sales increased 10% to $1,637 million (+7% on an underlying basis) compared to the same prior-year period. Reported net sales growth benefited by two percentage points from changes in distributor inventories and one percentage point of foreign exchange. Reported operating income increased 17% in the quarter to $590 million (+14% on an underlying basis) and diluted earnings per share of $1.08 increased 24%.

Paul Varga, the company's Chief Executive Officer, said, Brown-Formans second quarter and first half results were excellent on both a reported and underlying basis. Against a backdrop of improving economies in the emerging markets, and continued momentum in our categories of focus, our underlying net sales have accelerated nicely due to strong performances from our Jack Daniels, Woodford Reserve, Old Forester and Herradura brand families, as well as timing-driven improvements in our used barrel sales. We believe that an ever-improving combination of investment, resource allocation, revenue management, innovation, and geographic expansion are important contributors to our acceleration in fiscal 2018.

Year-to-date Fiscal 2018 Highlights

Underlying net sales grew 7% (+10% reported), with balanced geographic and portfolio contribution: Emerging markets3 delivered strong results, with underlying net sales up 15% (+24% reported) Developed markets3 grew underlying net sales by 5% (+7% reported), with 6% growth in the United States (+9% reported) and 5% growth outside of the United States (+5% reported) The Jack Daniels family of brands grew underlying net sales 7% (+10% reported), including 6% growth (+9% reported) for Jack Daniels Tennessee Whiskey The companys super- and ultra-premium American whiskey brands3 grew underlying net sales 15% (+22% reported), including 21% growth from Woodford Reserve (+23% reported) Herradura grew underlying net sales 19% (+15% reported) and el Jimador grew underlying net sales 10% (+15% reported) Underlying operating income grew 14% (+17% reported), helped by the timing of operating expenses The company increased its outlook for underlying net sales growth to 6% to 7%, underlying operating income growth to 8% to 9%, and FY18 EPS of $1.90 to $1.98.

Year-to-date Fiscal 2018 Performance By Market

Year-to-date underlying net sales grew 6% (+9% reported) in the United States. The increase in sales growth was driven by balanced growth from the Jack Daniels family of brands, including Tennessee Whiskey, Tennessee Honey, Tennessee Fire, Gentleman Jack and RTDs/RTP (RTDs). The company also launched Jack Daniels Tennessee Rye in the United States during the second quarter. The companys bourbon brands delivered sustained growth, including double-digit underlying net sales growth from Woodford Reserve and Old Forester. Herradura and el Jimador tequila grew underlying net sales double-digits in the United States as the company continued to invest in building brand awareness for both of these high quality tequilas.

Sales in the companys developed markets outside of the United States rebounded as expected in the second quarter, and delivered year-to-date underlying net sales growth of 5% (+5% reported). The United Kingdom and Germany delivered strong, double-digit underlying net sales growth in the second quarter after a sluggish start to the year. Australias first half results benefited from the first quarter buy-ins in advance of excise tax-driven price increases, while Japans underlying net sales declined due to comparisons with the prior years buy-ins in advance of price increases. Frances underlying net sales grew mid-single digits, Canadas underlying results were flat, and Spain delivered improved results following this summers transition to owned distribution.

Underlying net sales in the emerging markets jumped 15% (+24% reported) year-to-date. The companys two largest emerging markets, Mexico and Poland, grew aggregate underlying and reported net sales by double-digits, with both countries experiencing solid demand for the Jack Daniels family of brands. Underlying net sales in the emerging markets excluding Mexico and Poland grew at an even faster rate, as economies and currencies have stabilized in most markets. Russia, Turkey, Brazil, Thailand, China and Ukraine grew underlying net sales double-digits, helped by comparisons to a soft first half of fiscal 2017.

Travel Retail3 continued to deliver solid rates of growth, with underlying net sales up 11% (+18% reported). The company continued to drive growth from key global and regional accounts, while also benefiting from improved distribution, higher passenger volumes in Russia and Turkey, and more stable foreign exchange. The company expects comparisons in the emerging markets and Travel Retail to become more challenging during the second half of fiscal 2018 due to solid growth in the same prior-year period.

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 6% underlying net sales growth (+9% reported) globally, with solid increases across most major markets, including sizable gains in the emerging markets. Jack Daniels Tennessee Honeys underlying net sales grew 8% (+10% reported). Gentleman Jack grew underlying net sales 9% (+11% reported), driven by a new ad campaign and higher media spend. Jack Daniels Tennessee Fires underlying net sales grew 14% (+22% reported), as the brand continues to benefit from its global rollout and on-premise gains in the United States. Jack Daniels RTD business grew underlying net sales 15% (+14% reported), helped by innovation such as Jack Daniels Cider, Jack Daniels American Serve, Jack Daniels Lynchburg Lemonade and Southern Peach Country Cocktails.

Brown-Formans portfolio of super- and ultra-premium whiskey brands, including Woodford Reserve, Jack Daniels Single Barrel, and Gentleman Jack, delivered 15% underlying net sales growth (+22%... More