Brown-Forman(BF_A) - 2019 Q3 - Quarterly Report

Financial Performance - For the nine months ended January 31, 2019, the company reported net sales of $2,515 million, consistent with previously reported figures[112]. - The gross profit for the same period was$ 1,690 million, indicating stable performance[112]. - Operating income for the nine months was reported at $901 million, reflecting a slight increase from prior adjustments[112]. - The company’s net income for the nine months was$ 607 million, unchanged from prior reports[112]. - The company reported net sales of $2.6 billion for the nine months ended January 31, 2019, representing a 3% increase year-over-year, with underlying net sales growth of 5% after adjusting for foreign exchange and other factors[118]. - Operating income for the same period was$ 916 million, a 2% increase compared to the previous year, with underlying operating income growth of 4%[118]. - Diluted earnings per share increased by 12% to $1.40, driven by a lower effective tax rate and increased operating income[118]. - For the nine months ended January 31, 2019, net sales were$ 2.6 billion, an increase of $65 million, or 3%, compared to the same period last year[143]. - Underlying net sales grew 5% after adjusting for foreign exchange effects, estimated net increase in distributor inventories, and the adoption of the revenue recognition accounting standard[143]. - Gross profit for the three months ended January 31, 2019 was$ 571 million, a decrease of $16 million, or 3%, compared to the same period last year[151]. - Operating income for the three months ended January 31, 2019 was$ 320 million, an increase of $14 million, or 4%, compared to the same period last year[161]. - Diluted earnings per share for the three months ended January 31, 2019 increased 20% to$ 0.47 from $0.39 reported for the same period last year[168]. - Cost of sales for the nine months ended January 31, 2019 increased$ 71 million, or 9%, to $896 million compared to the same period last year[147]. - Gross margin for the nine months ended January 31, 2019 decreased approximately 1.9 percentage points to 65.3% from 67.2% in the same period last year[154]. - The effective tax rate in the nine months ended January 31, 2019 was 19.2%, down from 28.5% for the same period last year[167]. - Underlying operating income grew 4% for the nine months ended January 31, 2019, driven by factors contributing to the growth in underlying gross profit[163]. Market Performance - The largest developed international markets include the United Kingdom, Australia, and Germany, contributing significantly to net sales[99]. - Emerging markets, particularly Mexico and Poland, are also highlighted as key growth areas for branded products[100]. - The company emphasizes the importance of "depletions" as a measure of consumer demand, reflecting shipments to retail and wholesale customers[107]. - Consumer takeaway data is used to estimate market share and trends, derived from third-party sources like Nielsen[108]. - Emerging markets led the underlying net sales growth, while the U.S. market also contributed meaningfully[118]. - In the United States, underlying net sales increased by 4%, supported by growth from brands like Woodford Reserve and Old Forester, despite declines from Canadian Mist[1]. - Developed International reported flat net sales, but underlying net sales grew by 4%, led by Germany, Australia, and the United Kingdom, with tariff-related costs reducing growth by approximately 2%[1]. - Emerging markets saw reported net sales increase by 3% and underlying net sales grow by 10%, with significant contributions from Mexico, Brazil, and China[1]. - Jack Daniel's family of brands experienced underlying net sales growth, particularly in international markets, despite flat results in the U.S. due to modest volume declines[137]. - Woodford Reserve led premium bourbon growth with a 24% increase in underlying net sales, primarily in the U.S.[139]. - Tequila brands reported an 8% increase in net sales, with underlying net sales growing by 13%, driven by strong performance in the U.S. and Mexico[139]. - Finlandia vodka reported a 9% decline in net sales, with underlying net sales down 7% due to unfavorable product mix and lower volumes in key markets[139]. Costs and Expenses - Advertising expenses totaled$ 308 million, after reclassifications, showing a reduction from previous reports[112]. - The company faced incremental costs associated with tariffs, which negatively impacted underlying net sales growth by approximately one percentage point[118]. - The company anticipates that underlying cost of sales will grow at a significantly higher rate than net sales for the remainder of fiscal 2019 due to tariff-related costs and input cost increases in the high single digits[125]. - Tariffs imposed by the European Union, Mexico, Canada, Turkey, and China have resulted in increased costs, with American whiskey facing a 25% tariff in the EU and Mexico, and a 30% tariff in China[117]. - The company expects the growth rate for underlying operating income in fiscal 2019 to decelerate compared to fiscal 2018 due to tariff costs[126]. Cash Flow and Liquidity - Cash and cash equivalents increased by $21 million during the nine months ended January 31, 2019, compared to an increase of$ 105 million for the same period last year[170]. - Cash provided by operations was $577 million during the nine months ended January 31, 2019, slightly down from$ 582 million for the same period last year[170]. - Cash used for investing activities decreased to $86 million during the nine months ended January 31, 2019, from$ 121 million in the same period last year, reflecting a $35 million decline[171]. - Cash used for financing activities increased to$ 458 million during the nine months ended January 31, 2019, compared to $380 million for the same period last year, primarily due to a$ 205 million increase in share repurchases[172]. - The company declared a regular quarterly cash dividend of $0.166 per share on Class A and Class B common stock, payable on April 1, 2019[179]. - The share repurchase program authorized up to$ 200 million, completed in November 2018, resulting in the repurchase of 4,186,603 shares[181]. - As of January 31, 2019, approximately $210 million of cash and cash equivalents were held by foreign subsidiaries, with$ 120 million repatriated to the U.S. during the fiscal quarter[178]. - The average interest rate on commercial paper borrowings was 2.27% during the nine months ended January 31, 2019, with borrowings averaging $462 million[175]. - The company maintains a conservative liquidity management strategy to meet obligations and fund capital expenditures while returning cash to shareholders[174]. Risk Management - The company utilizes non-GAAP measures to assess underlying changes in financial performance, adjusting for foreign exchange and inventory changes[97]. - The company is exposed to market risks from foreign exchange rates, commodity prices, and interest rates, managed through various strategies including hedging[183].