Brown-Forman(BF_A) - 2022 Q1 - Quarterly Report

Financial Performance - Reported net sales for the three months ended July 31, 2021, were $0.9 billion, a 20$289 million, while underlying operating income grew by 15% after excluding certain factors[95]. - Diluted earnings per share for the three months ended July 31, 2021, were $0.40, a decrease of 41$0.67 reported for the same period last year[95]. - The United States contributed a 16% increase in reported net sales, with underlying net sales also growing by 16%[102]. - Emerging markets saw a reported net sales increase of 40%, with underlying net sales growing by 34%[106]. - Travel Retail reported a 61% increase in net sales, with underlying net sales growth of 74%[109]. - Gross profit rose by 19% to $0.6 billion, with underlying gross profit increasing by 17$264 million, with underlying operating expenses growing by 20%[127]. - Operating income for the three months ended July 31, 2021, was $289 million, a decrease of$98 million or 25% compared to the same period last year[129]. - Underlying operating income grew 15% after adjusting for acquisitions, estimated net increase in distributor inventories, foreign exchange effects, and impairment charges[129]. - Operating margin decreased by 19.5 percentage points to 31.9% from 51.4% in the same period last year[129]. - Effective tax rate increased to 28.5% for the three months ended July 31, 2021, compared to 11.6% for the same period last year[130]. - Cash and cash equivalents increased by $22 million during the three months ended July 31, 2021, with cash provided by operations up$94 million to $185 million[132]. - Cash used for financing activities was$141 million, an increase of $104 million compared to$37 million for the same period last year[134]. - The effective tax rate is anticipated to be in the range of 22-23% for fiscal 2022[101]. Market and Consumer Insights - The largest developed international markets for the company include Australia, Germany, the United Kingdom, France, and Canada[79]. - Emerging markets for the company include Mexico, Poland, Brazil, and Russia[80]. - The company defines "depletions" as a measure of volume that reflects consumer demand more accurately than shipments to distributors[88]. - Consumer takeaway data, provided by third parties, is used to estimate market share and trends in consumer demand[89]. - The company faces risks including competition, changes in consumer preferences, and potential disruptions in the distribution network[90]. - The company does not intend to update forward-looking statements unless required by law, acknowledging inherent risks and uncertainties[90]. Sales Growth by Category - Whiskey brands reported net sales growth of 19%, driven by JDTW, Woodford Reserve, and JDTH, with underlying net sales growth of 18%[113]. - Tequila brands saw reported net sales increase of 32%, with underlying net sales growth of 23%, primarily from Herradura and el Jimador[117]. - Wine business reported net sales growth of 30%, with underlying net sales increasing by 8% due to higher volumes of Korbel Champagne and Sonoma-Cutrer[119]. Cost and Margin Analysis - Gross margin is expected to be flat or slightly down for the full year due to higher input costs and supply chain disruptions[100]. - The gross margin decreased by 0.7 percentage points to 61.0%, impacted by higher input costs and supply chain constraints[126]. - Advertising expenses surged by 46%, with underlying advertising expenses up by 44% due to reduced promotional activity last year[127]. Acquisitions and Impairments - In fiscal 2021, the company sold Early Times, Canadian Mist, and Collingwood brands, resulting in a pre-tax gain of $127 million[69]. - The company acquired Part Time Rangers Limited, which owns Part Time Rangers RTDs, during fiscal 2021[69]. - A non-cash impairment charge of$6 million for certain fixed assets was recognized in the first quarter of fiscal 2022[74]. - JDTH's underlying net sales growth was driven by volumetric gains in emerging markets, particularly in Chile and Brazil[115]. - The Jack Daniel's family of brands experienced broad-based underlying net sales growth, supported by higher volumes and favorable channel mix[114]. Future Outlook - The company expects mid-single digit growth in underlying net sales and operating income for fiscal 2022 despite ongoing supply chain challenges[101]. - Approximately 55% of cash and cash equivalents were held by foreign subsidiaries, which the company expects to reinvest indefinitely outside of the United States[136]. - The average interest rate on commercial paper decreased to 0.16% for the three months ended July 31, 2021, from 0.93% in the same period last year[139]. - The company declared a regular quarterly cash dividend of $0.1795 per share on Class A and Class B common stock[142].