LOUISVILLE, Ky. (Aug. 29, 2012) — Brown-Forman Corp.’s operating income increased 19 percent to $221.7 million in the first quarter of 2013, up 17 percent on an underlying basis.
The company grew reported net sales by 4 percent to $878.1 million in the quarter, a 10-percent increase on an underlying basis. Reported net sales growth benefited from buy-ins related to price increases that were implemented in the quarter, offset by the negative impact from foreign exchange and the absence of Hopland-based wines.
After adjusting for the three-for-two stock split that occurred Aug. 10, diluted earnings per share for the first quarter increased 27 percent to $0.69 compared to $0.54 in the prior year period.
“Building from our strong fiscal 2012 results, Brown-Forman is off to a great start in fiscal 2013,” said Paul Varga, the company’s chief executive officer. “Underlying net sales growth of 10 percent in the first quarter was driven by the continued strength of our Jack Daniel’s trademark as well as improving results from other brands in our premium portfolio.”
First quarter 2013 highlights
— Underlying net sales increased 10 percent, driven by broad-based geographic gains, with constant currency net sales3 up 14 percent:
• Price/mix contributed 1 percent to underlying sales growth in the quarter
• Jack Daniel’s trademark grew net sales 15 percent, including double-digit growth from Tennessee Honey, resulting from its geographic expansion outside of the U.S.
• Southern Comfort’s family of brands’ net sales declined 1 percent, while U.S. net sales grew in the quarter
• Finlandia’s family of brands grew net sales 20 percent
• El Jimador family of brands grew net sales 11 percent
— Underlying operating income increased 17 percent, driven primarily by revenue growth, gross margin expansion, and some leverage with operating expenses.
The 15 percent net sales growth for Jack Daniel’s family of brands was driven by a combination of strong underlying demand across the family of brands as well as buy-ins in advance of price increases. Innovation also continued to fuel the trademark’s growth as Jack Daniel’s Tennessee Honey grew global net sales by double digits through the introduction of Honey to select markets outside of the U.S.
Most other Brown-Forman brands experienced solid underlying growth trends in addition to the benefit from buy-ins taken in advance of price increases.
Finlandia’s 20 percent net sales growth was fueled by strong results in Poland and Russia. El Jimador’s net sales were up double digits and Herradura grew net sales over 30 percent, driven by solid performance in the U.S. and Mexico.
Southern Comfort’s family of brands improved from a 7 percent net sales decline in Fiscal 2012 to a 1 percent net sales decline in the quarter. The brand grew in the U.S. on the heels of a stronger and more consistent media presence, more effective promotional efforts with the trade, and continued flavor innovation. This positive momentum in the U.S. was offset by a slow start in some key international markets, negatively impacting the brand’s global results in the quarter.
Sonoma-Cutrer grew net sales in the high single digits, as U.S. results remained robust despite weak on-premise industry trends. Brown-Forman’s super and ultra-premium whiskey brands, including Gentleman Jack, Woodford Reserve, Jack Daniel’s Single Barrel, and Collingwood, grew net sales almost 30 percent in the quarter.
Geographically, underlying net sales outside of the U.S. grew 10 percent, in-line with domestic rates of growth. Underlying net sales growth was particularly strong in the emerging markets, up 13 percent, driven by Poland, Mexico, Russia, and Turkey. While the company believes that price increases taken earlier in the calendar year in Germany, the United Kingdom, and France have slowed our Western European rates of underlying net sales growth to the low single digits, Brown-Forman continued to outperform the market and grow sales, with strong results in France and the Benelux countries. The company expects the broader business environment in Western Europe to remain challenging for the foreseeable future. Net sales in Australia grew by double digits, driven by continued strength in Jack Daniel’s Tennessee Whiskey and the launch of Jack Daniel’s Tennessee Honey in June.
During the quarter, the company’s shareholders approved an increase in the number of authorized shares, which enabled the company to implement the previously approved three-for-two stock split for both its Class A and Class B common stock, paid in the form of a stock dividend on Aug. 10. Brown-Forman also declared a regular quarterly cash dividend of $0.233 per share on Class A and Class B common stock. The cash dividend is payable on Oct. 1 to stockholders of record on Sept. 7.
2013 outlook
At this early stage in the fiscal year, the company is confirming its fiscal 2013 earnings outlook of $2.40 to $2.67, adjusted for the three-for-two stock split. First quarter reported results benefited significantly from buy-ins in advance of price increases. Accordingly, this outlook assumes second quarter results will likely reflect the impact of the marketplace working through the first quarter buy-ins. This outlook also includes anticipated negative impacts from foreign exchange of $0.05 per share and commodity price increases of $0.03 per share.
At this point, for fiscal 2013 the company continues to expect high single-digit growth in underlying sales and operating income.
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