Brown-Forman(BF_A) - 2021 Q3 - Quarterly Report

Acquisitions and Divestitures - In fiscal 2020, the company acquired The 86 Company, which owns Fords Gin, and during the first quarter of fiscal 2021, it sold Early Times, Canadian Mist, and Collingwood brands, resulting in a pre-tax gain of $127 million[75]. - The company divested brands that included Early Times, Canadian Mist, and Collingwood, which were sold on July 31, 2020, impacting its whiskey product category[86]. Financial Performance - Reported net sales for the nine months ended January 31, 2021, were$2.6 billion, essentially flat compared to the same period last year, with underlying net sales growth of 2%[100]. - Reported operating income increased by 10% to $998 million, while underlying operating income grew by 3$1.63, benefiting from a gain on the sale of certain brands[100]. - Reported net sales for the three months ended January 31, 2021, totaled $911 million, an increase of$12 million, or 1% compared to the same period last year[134]. - For the nine months ended January 31, 2021, net sales were $2.6 billion, a decrease of$5 million, or essentially flat compared to the same period last year[134]. - Underlying net sales growth for the nine months was 2%, driven by higher volumes, partially offset by unfavorable price/mix[134]. - The underlying net sales for whiskey brands increased 4%, supported by growth in JD RTDs, Woodford Reserve, and JDTA[121]. - Jack Daniel's family of brands saw underlying net sales growth driven by JD RTDs and higher volumes of JDTH and Gentleman Jack[122]. - Tequila brands reported net sales growth of 2%, with underlying net sales increasing by 6% due to higher volumes of New Mix[128]. - Wine business reported net sales growth of 2%, while underlying net sales grew 9% driven by volumetric growth and higher prices of Korbel Champagne[129]. - Reported net sales for Finlandia declined 21%, with underlying net sales decreasing 19% due to COVID-19 impacts[130]. Cost and Expenses - Cost of sales for the three months ended January 31, 2021, was $361 million, an increase of$19 million, or 5% compared to the same period last year[135]. - Underlying cost of sales for the nine months increased 9%, driven by higher volumes, partially offset by favorable cost/mix[136]. - Gross profit for the three months ended January 31, 2021, was $550 million, a decrease of$7 million, or 1%, compared to the same period last year[138]. - Gross margin for the nine months ended January 31, 2021, decreased 2.8 percentage points to 60.3% from 63.1% in the same period last year[139]. - Operating income for the three months ended January 31, 2021, was $281 million, a decrease of$23 million, or 8%, compared to the same period last year[143]. - Operating income for the nine months ended January 31, 2021, increased $94 million, or 10$998 million compared to the same period last year[144]. - Total operating expenses for the three months ended January 31, 2021, were $269 million, an increase of$16 million, or 7%, compared to the same period last year[141]. Market Conditions and Risks - The company reported that the ongoing COVID-19 pandemic continues to impact the global economy, particularly affecting the bar, restaurant, airline, and hospitality industries due to travel restrictions[97]. - The company has identified significant risks related to health pandemics, including COVID-19, which could materially affect its operations and financial performance[94]. - The company faces market risks from changes in foreign currency exchange rates, commodity prices, and interest rates[159]. - Foreign currency fluctuations impact net investments in foreign subsidiaries and foreign currency-denominated cash flows[159]. - Commodity price changes can affect production and supply chain costs[159]. - Interest rate changes affect the fair value of fixed-rate debt and cash flows related to variable-rate debt[159]. - The company manages market risks through procurement strategies and the use of derivative financial instruments[159]. - There have been no material changes to the market risks faced by the company since April 30, 2020[159]. - The risk management program is governed by policies that authorize and control the nature and scope of transactions[159]. Guidance and Expectations - The company is not providing quantitative guidance for fiscal 2021 due to uncertainties related to COVID-19 and its impact on various markets[106]. - The effective tax rate for the full year is expected to be in the range of 17% to 19%[108]. - The effective tax rate for the three months ended January 31, 2021, was 15.7%, down from 18.6% for the same period last year[145]. - The company expects operating expense growth to accelerate in the fourth quarter of fiscal 2021, particularly in advertising investments[107]. Consumer Insights - The company emphasizes the importance of consumer takeaway data as a leading indicator of consumer demand trends, which is derived from retail sales value metrics[93]. - The company has made adjustments for estimated net changes in distributor inventories to better reflect underlying results and trends in its financial statements[78]. International Markets - The company’s largest developed international markets include the United Kingdom, Germany, Australia, and France, which are significant contributors to its net sales[83]. - Developed International markets saw a 10% increase in reported net sales, with underlying net sales growth of 7%, led by Australia, Germany, and France[110]. - The United States reported a 3% increase in net sales, with underlying net sales growth of 7% driven by premium bourbons and JD RTDs[109]. Cash Flow and Dividends - Cash provided by operations for the nine months ended January 31, 2021, was $572 million, an increase of$63 million from the same period last year[148]. - Cash and cash equivalents increased by $431 million during the nine months ended January 31, 2021[148]. - The Board of Directors declared a regular quarterly cash dividend of$0.1795 per share on Class A and Class B common stock[159]. - Stockholders of record on March 8, 2021, will receive the dividend on April 1, 2021[159].