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Brown-Forman(BF_A) - 2020 Q2 - Quarterly Report
BF_ABrown-Forman(BF_A)2019-12-05 19:10

Financial Performance - Reported net sales reached 1.8billion,a51.8 billion, a 5% increase compared to the same period last year, with underlying net sales growth of 3% after adjusting for estimated net increase in distributor inventories[95] - Operating income was reported at 600 million, reflecting a 1% increase year-over-year; however, underlying operating income declined by 5% when excluding inventory changes and foreign exchange effects[95] - Diluted earnings per share increased to 0.97,a50.97, a 5% rise compared to the previous year, attributed to higher operating income and a lower effective tax rate[95] - Net sales for the three months ended October 31, 2019, were 989 million, a reported increase of 9% and an underlying increase of 6% compared to the same period in 2018[96] - Operating income for the three months ended October 31, 2019, was 352million,reflectinga6352 million, reflecting a 6% increase year-over-year[96] - Diluted earnings per share for the three months ended October 31, 2019, were 0.59, a 14% increase compared to 0.52inthesameperiodlastyear[96]−ForthesixmonthsendedOctober31,2019,netsaleswere0.52 in the same period last year[96] - For the six months ended October 31, 2019, net sales were 1.8 billion, a 5% increase compared to the same period last year, with underlying net sales growing 3%[129] - Operating income for the six months ended October 31, 2019, was 600million,anincreaseof600 million, an increase of 4 million or 1% year-over-year, while underlying operating income declined by 5%[146] - Effective tax rate decreased to 15.0% for the three months ended October 31, 2019, down from 19.5% in the same period last year[148] - Diluted earnings per share increased by 14% to 0.59forthethreemonthsendedOctober31,2019,comparedto0.59 for the three months ended October 31, 2019, compared to 0.52 for the same period last year[149] Sales Performance by Category - The Jack Daniel's family of brands, premium bourbon brands like Woodford Reserve, and tequila brands drove underlying net sales growth, while declines in Jack Daniel's Tennessee Whiskey (JDTW) partially offset this growth[95] - Reported net sales in the United States increased by 10%, with underlying net sales growth of 6%, driven by the Jack Daniel's family of brands and premium bourbons[102] - Reported net sales in Emerging markets increased by 4%, with underlying net sales growth of 5%, led by Russia, China, and Mexico[106] - Travel Retail reported a net sales decline of 9%, with underlying net sales down 8% due to lower volumes of the Jack Daniel's family of brands[110] - Non-branded and bulk sales saw a significant decline of 21% in both reported and underlying net sales[111] - JDTF's underlying net sales growth was 6%, driven by increased volumes in Brazil and Poland, partially offset by lower volumes in Travel Retail[119] - Reported net sales for tequila brands grew 10%, while underlying net sales increased 11% after adjusting for distributor inventories and foreign exchange effects[120] - Reported net sales for Finlandia declined 8%, with underlying net sales decreasing 7% due to lower volumes and net prices in Poland[121] - Underlying net sales for wine brands increased 2%, driven by volume growth of Sonoma-Cutrer and Korbel Champagne in the United States[122] - The rest of the portfolio reported a 15% increase in net sales, with underlying net sales growing 1% after accounting for foreign exchange and acquisitions[123] Cost and Expenses - Cost of sales increased 15% to 370millionforthethreemonthsendedOctober31,2019,withunderlyingcostofsalesrising16370 million for the three months ended October 31, 2019, with underlying cost of sales rising 16% due to tariff-related costs and higher input costs[130] - Gross profit for the three months ended October 31, 2019, was 619 million, a 5% increase, but underlying gross profit remained flat[133] - Operating expenses totaled 267million,up4267 million, up 4% for the three months ended October 31, 2019, with underlying operating expenses also growing 4%[137] - Operating margin decreased by 0.9 percentage points to 35.6% for the three months ended October 31, 2019, compared to 36.5% in the same period last year[145] - Operating income increased 6% to 352 million for the three months ended October 31, 2019, but underlying operating income declined 3%[144] Cash Flow and Investments - Cash provided by operations was 187millionforthesixmonthsendedOctober31,2019,adecreaseof187 million for the six months ended October 31, 2019, a decrease of 85 million from 272millioninthesameperiodlastyear[150]−Cashusedforinvestingactivitiesincreasedto272 million in the same period last year[150] - Cash used for investing activities increased to 75 million for the six months ended October 31, 2019, primarily due to the acquisition of The 86 Company for 22million[151]−Cashusedforfinancingactivitiesdecreasedto22 million[151] - Cash used for financing activities decreased to 183 million for the six months ended October 31, 2019, compared to 243millioninthesameperiodlastyear[152]−Quarterlycashdividendincreasedfrom243 million in the same period last year[152] - Quarterly cash dividend increased from 0.1660 to 0.1743pershare,effectiveJanuary2,2020[161]−Cashandcashequivalentsdecreasedfrom0.1743 per share, effective January 2, 2020[161] - Cash and cash equivalents decreased from 307 million at April 30, 2019, to 235millionatOctober31,2019[156]−Thecompanymaintainsa235 million at October 31, 2019[156] - The company maintains a 800 million commercial paper program, with outstanding commercial paper of 156millionasofOctober31,2019[157]MarketandStrategicDevelopments−TheUnitedStateswastheleadingcontributortounderlyingnetsalesgrowth,withemerginganddevelopedinternationalmarketsalsomakingsignificantcontributions[95]−Tariff−relatedcostsnegativelyimpactedresults,leadingtolowernetsalesandhighercostofsalesduetoincreasedinventorycostsinmarketswherethecompanyownsinventory[94]−Thecompanyexperiencedtiming−relatedimpactsfromtariffs,withprior−yeartariff−relatedbuy−insaffectingnetsalesinthefirstquarteroffiscal2019[94]−TheTravelRetailchannelsawadeclineinunderlyingnetsales,influencedbythetimingofcustomerorderscomparedtothesameperiodlastyear[95]−ThecompanyacquiredThe86Companyfor156 million as of October 31, 2019[157] Market and Strategic Developments - The United States was the leading contributor to underlying net sales growth, with emerging and developed international markets also making significant contributions[95] - Tariff-related costs negatively impacted results, leading to lower net sales and higher cost of sales due to increased inventory costs in markets where the company owns inventory[94] - The company experienced timing-related impacts from tariffs, with prior-year tariff-related buy-ins affecting net sales in the first quarter of fiscal 2019[94] - The Travel Retail channel saw a decline in underlying net sales, influenced by the timing of customer orders compared to the same period last year[95] - The company acquired The 86 Company for 22 million in cash, which is expected to enhance its product offerings[75] - The company utilizes non-GAAP measures to provide a clearer understanding of its performance, including adjustments for acquisitions, foreign exchange, and distributor inventory changes[78] - The company plans to continue expanding its product offerings and market presence, particularly with the launch of new products like JDTA[102]