Brown-Forman(BF_A) - 2024 Q3 - Quarterly Report

Acquisitions and Divestitures - In fiscal 2023, the company acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U. for a total purchase price of $523 million, which included$468 million in cash and $55 million in contingent consideration[109]. - The company recognized a pre-tax gain of$90 million from the sale of its Finlandia vodka business to Coca-Cola HBC AG for $194 million in cash during the third quarter of fiscal 2024[116]. - The company plans to sell its Sonoma-Cutrer wine business to The Duckhorn Portfolio, Inc. for approximately$50 million in cash and a 21.5% ownership stake in The Duckhorn Portfolio, Inc.[118]. - The goodwill recorded for the Gin Mare acquisition is $306 million, which is not expected to be deductible for tax purposes[113]. - The company expects to finalize the purchase price allocation for the Diplomático acquisition, which had a total goodwill of$386 million, with $108 million expected to be tax-deductible[112]. - The company reached an agreement to sell its Sonoma-Cutrer wine business, expected to close in Q4 of fiscal 2024[123]. - The company recognized a non-cash impairment charge of$96 million for the Finlandia brand name in Q3 of fiscal 2023[126]. Financial Performance - Reported net sales for the nine months ended January 31, 2024, were $3.2 billion, an increase of 1$2.0 billion, an increase of $98 million, or 5$1.0 billion, a 25% increase compared to the same period last year, attributed to acquisitions and higher gross margin[172]. - Diluted earnings per share for the nine months ended January 31, 2024, were $1.58, a 32$1.20 reported for the same period last year[172]. - For the nine months ended January 31, 2024, reported net sales were $3.2 billion, an increase of$31 million, or 1%, compared to the same period last year[188]. - Reported gross profit for the nine months ended January 31, 2024, was $2.0 billion, an increase of$98 million, or 5%, with gross margin increasing 2.5 percentage points to 60.9%[220]. - For the three months ended January 31, 2024, reported operating income totaled $373 million, an increase of$200 million, or 116%[194]. - Diluted earnings per share for the three months ended January 31, 2024, were $0.60, an increase of 189$0.21 reported for the same period last year[197]. - Reported operating income for the nine months ended January 31, 2024, totaled $1.0 billion, an increase of$210 million, or 25% compared to the same period last year[224]. Sales Performance - Reported net sales for Jack Daniel's Tennessee Whiskey (JDTW) decreased by 6%, primarily due to declines in Japan, the U.S., and Sub-Saharan Africa, along with negative foreign exchange effects[152]. - Reported net sales for Jack Daniel's Tennessee Honey (JDTH) declined by 6%, attributed to lower volumes in the U.S.[153]. - The company's organic net sales for the whiskey category decreased by 1% year-over-year, with a 1% positive impact from foreign exchange[151]. - The company experienced a 9% decline in reported net sales for Jack Daniel's Tennessee Fire (JDTF), driven by lower volumes in the U.S.[153]. - The company reported a 3% increase in net sales for the vodka category, which includes Finlandia, prior to its divestiture[151]. - The company noted a 79% increase in net sales for the rest of the portfolio, despite a 72% impact from acquisitions and divestitures[151]. - Emerging markets and Travel Retail contributed positively to reported net sales growth, while developed international and the United States experienced declines[170]. - The acquisition of the Gin Mare and Diplomático brands positively impacted reported net sales growth and operating income for the nine months ended January 31, 2024[170]. - The United States reported a net sales decline of 1%, primarily due to lower volumes, which was partially offset by higher prices and the acquisition of Diplomático[175]. - Germany's reported net sales increased by 12%, driven by the launch of Jack Daniel's & Coca-Cola RTD and the acquisitions of Diplomático and Gin Mare[176]. - Reported net sales for New Mix grew by 34%, fueled by higher prices in Mexico and favorable foreign exchange effects[184]. - Reported net sales in Mexico increased 22%, driven by the positive effect of foreign exchange and higher prices of New Mix[209]. - Reported net sales for JDTA increased 44%, driven by higher volumes in Brazil and the product launch in South Korea[212]. Expenses and Costs - Reported cost of sales for the nine months ended January 31, 2024, were $1.3 billion, a decrease of$66 million, or 5%, primarily driven by lower volumes[189]. - For the three months ended January 31, 2024, reported operating expenses totaled $262 million, a decrease of$189 million, or 42% compared to the same period last year[221]. - Reported advertising expense increased by 1% for the three months ended January 31, 2024, driven by increased investment in JDTW and advertising for the recently acquired brands[221]. - Reported SG&A expense increased by 9% for the three months ended January 31, 2024, led by higher compensation and benefit-related expenses[221]. - Operating margin increased by 6.3 percentage points to 32.3% from 26.0% in the same period last year[224]. Cash Flow and Financing - Cash and cash equivalents increased from $374 million at April 30, 2023, to$589 million at January 31, 2024[227]. - Cash used for financing activities was $212 million during the nine months ended January 31, 2024, compared to$468 million in cash provided by financing activities during the same prior-year period[230]. - Under the Repurchase Program, the company repurchased 175,632 Class A shares at an average price of $59.35 per share and 6,736,658 Class B shares at an average price of$57.83 per share, for a total cost of $400 million[231]. Tax and Capital Expenditures - The effective tax rate for the three months ended January 31, 2024, was 16.5$230 to $240 million for fiscal 2024[199]. Market Outlook - Organic net sales are expected to be flat for fiscal 2024, reflecting slower than anticipated growth for the nine months ended January 31, 2024[199]. - The average interest rate on commercial paper increased from 4.61% in January 2023 to 5.51% in January 2024[228].