Brown-Forman(BF_A) - 2023 Q2 - Quarterly Report

Financial Performance - The company reported non-GAAP financial measures to enhance understanding of historical performance and comparability between periods[68]. - Reported net sales for the six months ended October 31, 2022, reached $2.1 billion, an increase of 11% compared to the same period last year, driven by higher volumes and favorable price/mix[101]. - Reported operating income for the six months ended October 31, 2022, was$ 656 million, an increase of 8% compared to the same period last year, with diluted earnings per share rising to $0.99, an 11% increase[101]. - The organic change in net sales for the six months ended October 31, 2022, was 17%[124]. - Reported net sales for the six months ended October 31, 2022, were$ 2.1 billion, an increase of $201 million, or 11% compared to the same period last year[125]. - The effective tax rate decreased to 23.7% for the six months ended October 31, 2022, down from 24.9% in the same period last year[103]. - Diluted earnings per share for the six months ended October 31, 2022, increased 11% to$ 0.99 from $0.89 reported for the same period last year[139]. Market Performance - The United States market reported net sales growth of 11%, driven by higher volumes and favorable mix, with significant contributions from Woodford Reserve and JDTW[107]. - Brazil's reported net sales increased by 44%, fueled by higher volumes of JDTW, partially due to an estimated net increase in distributor inventories[111]. - Reported net sales in Canada increased by 33%, driven by higher JDTW volumes and an estimated net increase in distributor inventories[110]. - Travel Retail channel reported a 60% increase in net sales, reflecting a rebound in travel and an estimated net increase in distributor inventories[112]. - Woodford Reserve and Old Forester both reported net sales increases of 39%, driven by higher volumes in the United States[119]. - New Mix reported a significant net sales growth of 48%, fueled by higher volumes and prices in Mexico[120]. - JD RTD/RTP brands reported net sales growth of 9%, led by growth in Australia and Germany[120]. - JDTA experienced a decline in reported net sales of 16% due to lower volumes in the United States and the negative effect of foreign exchange[118]. Operational Challenges - Supply chain disruptions continued to affect the business, although glass supply improved, and overall logistics challenges constrained product movement and increased transportation costs[98]. - Foreign exchange fluctuations negatively impacted results, primarily due to the strengthening of the U.S. dollar against the euro, Turkish lira, and pound sterling[97]. Strategic Initiatives - The company aims to provide reconciliations of "organic change" to GAAP measures for better clarity on financial performance[70]. - The company uses "depletions" to measure volume that reflects consumer demand more closely than shipments to distributors[90]. - The company calculates "estimated net change in distributor inventories" to understand trends in organic sales[93]. - The company aggregates markets by economic development stages as defined by the IMF for operational analysis[78]. - The company emphasizes the importance of consumer takeaway data as a leading indicator of demand trends[91]. - The "Ready-to-Drink" product category was introduced as a separate aggregation due to its significant contribution to growth in recent years[82]. Future Outlook - The company expects high-single digit organic net sales growth for fiscal 2023, reflecting stronger consumer demand and easing supply chain constraints[142]. - Capital expenditures are planned to be in the range of$ 190 to $210 million for fiscal 2023[142]. Financial Metrics - The total operating expenses for the three months ended October 31, 2022, totaled$ 300 million, an increase of $32 million, or 12% compared to the same period last year[132]. - Reported operating expenses for the six months ended October 31, 2022, totaled$ 579 million, an increase of $47 million, or 9% compared to the same period last year[134]. - Reported advertising expense increased by 16% for the three months ended October 31, 2022, driven by increased investment in JDTW and the launch of Jack Daniel's Bonded[133]. - Reported advertising expense increased 19% for the six months ended October 31, 2022, driven by increased investment in key brands[134]. - The reported cost of sales for the six months ended October 31, 2022, was$ 866 million, an increase of $109 million, or 14% compared to the same period last year[127]. - Gross profit for the six months ended October 31, 2022, was$ 1.2 billion, an increase of $93 million, or 8% compared to the same period last year[130]. Cash Flow - Cash provided by operations for the six months ended October 31, 2022, was$ 316 million, a decline of $19 million from the same period last year[149]. - Cash used for investing activities increased to$ 58 million during the six months ended October 31, 2022, compared to $35 million for the same period last year[150]. - The company has an$ 800 million commercial paper program to fund short-term operational needs, with no borrowings outstanding under the credit facility as of October 31, 2022[145]. Impairment and Suspensions - During the first half of fiscal 2022, the company recognized non-cash impairment charges of $9 million for certain fixed assets[73]. - The company suspended commercial operations in Russia, which is no longer considered one of its largest markets[79].