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

Brown-Forman Delivers Resilient Year-to-Date Performance in a Challenging Environment

March 3, 2021 7:45 AM UTC

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its third quarter and nine months ended January 31, 2021. For the third quarter, the companys reported net sales1 of $911 million increased 1% (flat on an underlying basis2) compared to the same prior-year period. In the quarter, reported operating income decreased 8% to $281 million (-8% on an underlying basis) and diluted earnings per share declined 5% to $0.45.

For the first nine months of the fiscal year, the companys reported net sales of $2,649 million were flat (+2% on an underlying basis) compared to the same prior-year period. Year-to-date reported operating income increased 10% to $998 million (+3% on an underlying basis) and diluted earnings per share grew 12% to $1.63.

Brown-Formans President and Chief Executive Officer Lawson Whiting stated, We remain pleased with our year-to-date underlying net sales growth, particularly when considering the unprecedented and challenging operating environment. Importantly, we remain focused on executing our long-term strategic priorities and our commitment to be better and do better as individuals and as a company. Our strategic priorities have enabled us to build strong business momentum during the COVID-19 crisis and we believe they remain the right strategies to deliver broad-based growth and value creation over the long term.

Year-to-Date Fiscal 2021 Highlights

Underlying net sales grew 2% (flat reported). The United States and our developed international 3 markets each grew underlying net sales 7% (+3% and +10% reported, respectively), while underlying net sales in our emerging markets grew 1% (-8% reported). Jack Daniels family of brands underlying net sales grew 2% (-2% reported) driven primarily by growth from Jack Daniels RTDs 3, Jack Daniels Tennessee Apple, Jack Daniels Tennessee Honey, and Gentleman Jack. These gains were partially offset by a reduction in Jack Daniels Tennessee Whiskeys underlying net sales. Premium bourbons grew underlying net sales 21% (+18% reported), with both Woodford Reserve and Old Forester maintaining strong double-digit growth. The tequila portfolio grew underlying net sales 6% (+2% reported) led by strong volume-driven increases from New Mix in Mexico. Diluted earnings per share increased 12% to $1.63.

Year-to-Date Fiscal 2021 Brand Results

Underlying net sales growth for the Jack Daniels family of brands was driven by Jack Daniels RTDs, the continued international launch of Jack Daniels Tennessee Apple, and broad-based volume growth from Jack Daniels Tennessee Honey and Gentleman Jack. Jack Daniels Tennessee Whiskeys underlying net sales decline was driven by lower volumes in the Travel Retail channel and certain emerging markets reflecting travel bans and other restrictions related to COVID-19 along with lower volumes and unfavorable channel mix shift in many developed international markets and the United States related to significant restrictions in the on-premise channel, partially offset by increased volumes in the off-premise channel in those markets.

Brown-Formans portfolio of premium bourbon brands, led by Woodford Reserve and Old Forester, maintained its double-digit underlying net sales growth. Strong consumer takeaway trends for Woodford Reserve continued to fuel robust double-digit volumetric growth in the United States. Volumetric gains and favorable product mix from Old Foresters high-end expressions drove double-digit underlying net sales growth for the brand.

Underlying net sales growth for the companys tequila brands was primarily driven by higher volumes of New Mix in Mexico. Double-digit underlying net sales growth for el Jimador and Herradura in the United States was largely offset by volumetric declines in Mexico.

Year-to-Date Fiscal 2021 Market Results

Underlying net sales growth in the United States was led by volumetric gains for our premium bourbons, Jack Daniels RTDs, Jack Daniels Tennessee Honey, Gentleman Jack, Herradura, and el Jimador. These gains were partially offset by declines in Jack Daniels Tennessee Whiskey reflecting channel mix shift and lower volumes due to on-premise restrictions and closures.

High single-digit underlying net sales growth in developed international markets was fueled by Jack Daniels RTDs, the ongoing launch of Jack Daniels Tennessee Apple, Jack Daniels Tennessee Honey, and our super-premium American and Scotch whiskeys. These gains, along with strong growth in the off-premise channel, were partially offset by lower volumes of Jack Daniels Tennessee Whiskey due to COVID-19 related restrictions, which severely limited and in some cases entirely shut down the on-premise channel.

The companys emerging markets returned to underlying net sales growth through the first nine months of the fiscal year. Gains were led by Brazil, Poland, and China, largely offset by broad-based declines in Southeast Asia, India, and several Latin American markets as a result of COVID-19 related impacts.

Underlying net sales in Travel Retail continued to be significantly impacted by the continuation of COVID-19 related travel bans and restrictions.

Year-to-Date Fiscal 2021 Other P&L Items

Volumes grew 11% fueled by Jack Daniels RTDs and New Mix. Company-wide price/mix had a 9% unfavorable impact reflecting the portfolio mix shift with growth from lower-priced brands (Jack Daniels RTDs and New Mix) and the unfavorable channel mix shift (primarily for JDTW) from the on-premise channel related to COVID-19 restrictions across several developed markets globally.

Underlying gross profit declined 1% (-5% reported) and reported gross margin contracted 280 basis points to 60.3% driven by higher input costs, lower fixed cost absorption, and the negative effect of the portfolio and channel mix shift discussed above.

The companys investment in underlying advertising increased in the third quarter as anticipated resulting in a year-to-date decline of 10% (-10% reported) largely reflecting the phasing of spend from the first half to the second half of the fiscal year. The company anticipates advertising investments will continue to accelerate significantly over the remainder of the fiscal year. Underlying SG&A declined 4% (-3% reported) driven by the tight management of discretionary spend.

Underlying operating income increased 3% (+10% reported), while diluted earnings per share increased 12% to $1.63, including an estimated $0.19 per share benefit from the gain on the sale of the Early Times, Canadian Mist, and Collingwood brands.

Financial Stewardship

Brown-Forman generated strong free cash flow2 of $531 million year-to-date, a $106 million increase over the same prior-year period primarily reflecting lower working capital requirements.

During the quarter, Brown-Formans Board of Directors approved a $125 million capital investment to expand bourbon making capacity in Kentucky to meet anticipated future consumer demand. As part of this investment, the company will pioneer a long-term study on oak tree sustainability on Brown-Forman distillerys property.

In addition, the company declared a regular cash dividend of $0.1795 per share on the Class A and Class B common stock. Brown-Forman has paid regular quarterly cash dividends for 76 consecutive years and has increased the dividend for 37 consecutive years.

Fiscal Year 2021 Outlook

The company expects to continue to face uncertainty related to the evolving COVID-19 pandemic and its effect on the global economy. As a result, no quantitative guidance is being... More