Brown-Forman(BF_A) - 2023 Q3 - Quarterly Report

Financial Performance - Net sales for the three months ended January 31, 2023, were $1,081 million, representing a 4$1,037 million in the same period of 2022, with an organic change of 5%[150] - Gross profit for the three months ended January 31, 2023, was $624 million, showing no change from$622 million in the same period of 2022, with an organic change of 2%[150] - Operating income decreased by 50% to $173 million for the three months ended January 31, 2023, compared to$347 million in the same period of 2022, with an organic change of -11%[150] - Reported net sales for the nine months ended January 31, 2023, were $3.2 billion, an increase of 8$829 million, a decrease of 13% year-over-year, impacted by a non-cash impairment charge of $96 million for the Finlandia brand name[181] - Diluted earnings per share decreased by 16$1.20 from $1.43 in the prior year, primarily due to lower operating income and a$27 million pension settlement charge[182] - Diluted earnings per share for the three months ended January 31, 2023, were $0.21, a decrease of 61$0.54 in the same period of 2022[150] Expenses and Costs - Advertising expenses increased by 21% to $141 million for the three months ended January 31, 2023, compared to$117 million in the same period of 2022, with an organic change of 23%[150] - Total operating expenses for the three months ended January 31, 2023, were $451 million, a 64$275 million in the same period of 2022, with an organic change of 18%[150] - Reported cost of sales was $1.3 billion for the nine months ended January 31, 2023, an increase of$151 million, or 13%, compared to the same period last year[227] - Reported operating expenses totaled $1 billion for the nine months ended January 31, 2023, an increase of$223 million, or 28%[231] Tax and Impairment - The effective tax rate for the three months ended January 31, 2023, was 19.5%, a decrease of 1.5 percentage points from 21.0% in the same period of 2022[150] - The company recognized a non-cash impairment charge of $96 million for the Finlandia brand name during the third quarter of fiscal 2023[131] - A non-cash impairment charge of$96 million was recognized for the Finlandia brand name during the third quarter of fiscal 2023[260] Sales Growth by Region - Travel Retail reported net sales increased by 48%, driven by higher volumes as travel rebounded from COVID-19 restrictions[155] - Canada reported a 28% increase in net sales, attributed to higher JDTW volumes and an estimated net increase in distributor inventories[154] - Brazil's reported net sales surged by 61%, driven by higher volumes and prices of JDTW, with a positive impact from an estimated net increase in distributor inventories[186] - Reported net sales in the Rest of Developed International increased by 26%, led by JDTW gains, particularly in Japan, Korea, and Belgium[154] - France experienced an 18% decline in reported net sales due to negative foreign exchange effects and lower volumes in the whiskey category[154] Supply Chain and Operational Challenges - Supply chain disruptions continued to affect the business, although glass supply improved, overall logistics and transportation challenges constrained product movement[180] - The increase in working capital was primarily due to higher levels of inventory affected by increased input costs and supply chain disruptions[264] Future Outlook and Investments - The company expects organic net sales growth in the range of 8-10% for the full year[236] - Capital expenditures are anticipated to be in the range of $190 to$210 million[236] - Cash used for investing activities was $1.3 billion during the nine months ended January 31, 2023, primarily due to acquisitions of Gin Mare and Diplomático[244] Cash Flow and Financing - Cash provided by operations was$410 million for the nine months ended January 31, 2023, a decline of $273 million from the same period last year due to increased working capital and higher inventory levels[264] - Cash provided by financing activities was$468 million during the nine months ended January 31, 2023, compared to $930 million used for financing activities in the prior-year period, reflecting a significant change of$1,398 million[265] - The company borrowed $600 million from a 364-day term loan in January 2023, contributing to the increase in financing cash flow[265] - There was a$583 million increase in net proceeds from the issuance of commercial paper during the nine months ended January 31, 2023[265] - Dividend payments declined by $462 million, largely due to a special dividend of$479 million paid in December 2021[265] Commercial Paper and Liquidity - The average interest rate on commercial paper increased to 4.61% for the three months ended January 31, 2023, compared to 0.16% in the same period last year[263] - The average days to maturity at issuance for commercial paper was 52 days for the three months ended January 31, 2023[263] - The company expects to meet short-term liquidity needs through cash generated from operations and borrowings under its commercial paper program[263] - Significant longer-term cash requirements include payments related to long-term debt and employee benefit obligations[263]