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Brown-Forman(BF_A) - 2021 Q1 - Quarterly Report
BF_ABrown-Forman(BF_A)2020-09-02 20:02

Acquisition and Divestitures - In fiscal 2020, the company acquired 100% of The 86 Company, which owns Fords Gin, and sold its Early Times, Canadian Mist, and Collingwood brands, resulting in a one-time pre-tax gain of 127million[66].ImpactofCOVID−19−TheCOVID−19pandemicnegativelyimpactedresults,particularlyintheon−premisechannel,whichrepresentsnearly20127 million[66]. Impact of COVID-19 - The COVID-19 pandemic negatively impacted results, particularly in the on-premise channel, which represents nearly 20% of the business, and in Travel Retail due to travel bans[85]. - Despite the challenges from COVID-19, the company reported solid off-premise gains in developed markets, reflecting increased at-home consumption and strong growth in the e-premise channel[85]. - Emerging markets reported a 20% decline in net sales, with underlying sales down 3%, primarily due to adverse effects from COVID-19 in Russia and Southeast Asia[102]. - Travel Retail channel experienced a significant decline, with reported net sales down 59% and underlying net sales down 63% due to travel restrictions[106]. - The ongoing COVID-19 crisis has led the company to manage operating expenses closely and limit discretionary spending to preserve liquidity[140]. Financial Performance - Reported net sales for fiscal 2021 were 753 million, a decrease of 2% year-over-year, but underlying net sales grew by 3% after adjusting for distributor inventories[87]. - Operating income increased by 56% to 387million,withunderlyingoperatingincomegrowing15387 million, with underlying operating income growing 15% when excluding certain gains and inventory adjustments[87]. - Diluted earnings per share rose by 73% to 0.67, benefiting from a 0.19persharegainonthesaleofcertainbrandsanda0.19 per share gain on the sale of certain brands and a 0.08 per share tax item[87]. - Reported net sales for the three months ended July 31, 2020, were 753million,adecreaseof753 million, a decrease of 13 million, or 2% compared to the same period last year[126]. - Underlying net sales grew 3% after adjusting for an estimated net decrease in distributor inventories, driven by 22% volume growth[126]. - Operating income increased by 56% to 387millionforthethreemonthsendedJuly31,2020,withunderlyingoperatingincomegrowing15387 million for the three months ended July 31, 2020, with underlying operating income growing 15%[133]. - Gross profit decreased by 7% to 465 million, with a gross margin of 61.7%, down 3.2 percentage points from the prior year[129]. - Operating expenses totaled 205million,down18205 million, down 18% compared to the same period last year, with underlying operating expenses down 17%[130]. - The diluted earnings per share for the three months ended July 31, 2020, increased by 73% to 0.67 from 0.39inthesameperiodlastyear,benefitingfroma0.39 in the same period last year, benefiting from a 0.19 per share gain on the sale of Early Times, Canadian Mist, and Collingwood[135]. Market Trends and Consumer Demand - The largest developed international markets for the company include the United Kingdom, Germany, Australia, and France, while the largest emerging markets are Mexico, Poland, and Russia[71][72]. - The company defines "depletions" as a measure of volume that reflects consumer demand more accurately than shipments to distributors[80]. - Consumer takeaway data, which measures retail purchases, is used to estimate market share and trends, indicating how consumer demand is evolving[81]. - The United States led underlying net sales growth with a reported increase of 3% and an underlying growth of 9%, driven by strong demand for JD RTDs and premium bourbons[97]. - Developed International markets saw reported net sales increase by 13% and underlying net sales grow by 12%, with significant contributions from Australia, the UK, and Germany[98]. - The Jack Daniel's family of brands saw underlying net sales growth, primarily from JD RTDs and JDTH, despite declines in JDTW[112][113]. - Tequila brands reported flat net sales, but underlying net sales grew 16%, supported by higher volumes of New Mix due to COVID-19 related disruptions in the beer industry[118]. - Reported net sales for the Wine business grew 3%, while underlying net sales increased 10% driven by volumetric growth and higher prices of Korbel Champagne[120]. - Reported net sales for Finlandia declined 27%, with underlying net sales decreasing 24% due to COVID-19 impacts in Russia and Travel Retail[121]. Financial Strategy and Outlook - The company maintains a strong financial position with solid operating cash flow, no current or impending shareholder distributions beyond regular dividends, and no long-term debt maturities until fiscal 2023[86]. - The company expects gross margin to remain under pressure due to higher input costs and mix shifts, with no quantitative guidance provided for fiscal 2021[91]. - The effective tax rate for the full year is expected to be in the range of 17% to 19%[93]. - The effective tax rate decreased to 11.6% for the three months ended July 31, 2020, down from 18.2% in the same period last year, driven by a deferred tax benefit[134]. - The company has an 800millioncommercialpaperprogram,withoutstandingbalancesincreasingfrom800 million commercial paper program, with outstanding balances increasing from 336 million in 2019 to 360millionin2020,whiletheinterestratedroppedfrom2.56360 million in 2020, while the interest rate dropped from 2.56% to 0.93%[144]. - Cash provided by operations increased by 19 million to 91million,primarilyduetolowerworkingcapitalrequirements[136].−Cashprovidedbyinvestingactivitieswas91 million, primarily due to lower working capital requirements[136]. - Cash provided by investing activities was 162 million, an increase of 205millioncomparedtothesameperiodlastyear,mainlyfromthedivestitureofbrandstotaling205 million compared to the same period last year, mainly from the divestiture of brands totaling 177 million[137]. - Cash and cash equivalents rose by 233millionduringthethreemonthsendedJuly31,2020,reaching233 million during the three months ended July 31, 2020, reaching 908 million, with approximately 43% held by foreign subsidiaries[141]. - Cash used for financing activities increased to 37millionfrom37 million from 26 million in the same period last year, largely due to a decline in net proceeds from short-term borrowings[138]. - The company declared a regular quarterly cash dividend of 0.1743pershareonJuly23,2020,forstockholdersofrecordonSeptember4,2020[147].−ThecompanyemphasizestheimportanceoftheJackDaniel′sfamilyofbrandsforcontinuedgrowthandmarketpresence[82].−Thecompanyanticipatesongoingrisksfromhealthepidemics,foreigncurrencyfluctuations,andchangesinconsumerpreferences,whichcouldimpactfutureperformance[82][83].−Thecompanyplanstoincreaseadvertisinginvestmentsandcontribute0.1743 per share on July 23, 2020, for stockholders of record on September 4, 2020[147]. - The company emphasizes the importance of the Jack Daniel's family of brands for continued growth and market presence[82]. - The company anticipates ongoing risks from health epidemics, foreign currency fluctuations, and changes in consumer preferences, which could impact future performance[82][83]. - The company plans to increase advertising investments and contribute 20 million to the Brown-Forman Foundation during fiscal 2021[92]. - The company maintains strong investment-grade credit ratings (A1 by Moody's and A- by Standard & Poor's), providing financial flexibility for future investment opportunities[139].