LOUISVILLE, Ky. (June 6, 2012) — Brown-Forman Corporation (NYSE:BFA) (NYSE:BFB) today reported fourth quarter and fiscal year 2012 financial results. Reported net sales grew 6 percent to $3.6 billion in fiscal 2012, or 9 percent on an underlying1 basis. Reported operating income decreased 8 percent to $788 million, but increased 9 percent on an underlying basis. Diluted earnings per share were $3.56 compared to $3.90 in the prior year. As expected, reported year-over-year comparisons were negatively impacted by the absence of the gain on sale and associated profits from the Hopland-based wine business, as well as foreign exchange for a combined net impact of $0.54 per share.
Looking ahead to fiscal 2013, the company expects a continuation of fiscal 2012’s strong underlying trends, with net sales and operating income growth in the high single digits, and earnings per share of $3.60 to $4.00.
Fiscal 2012 highlights
• Underlying net sales increased 9 percent, an acceleration from fiscal 2011’s growth rate of 4 percent
• Each of the company’s 12 largest markets grew underlying sales, including market share gains in the U.S.
• Underlying sales outside of the U.S. grew 12 percent in fiscal 2012, and now comprise 58 percent of total sales. Emerging markets drove nearly 45 percent of incremental growth
• Sales growth was led by the Jack Daniel’s trademark, up 12 percent
• Product innovation and line extensions, including the successful launch of Tennessee Honey, contributed roughly two points of the company’s 9 percent sales growth
• Finlandia’s family of brands grew sales 10 percent, with record depletions
• Underlying operating income increased 9 percent, an acceleration from 2011’s growth rate of 6 percent
• $408 million was returned to shareholders, including $216 million in share repurchases and $192 million in dividends
• Brown-Forman’s one-year TSR4 of 22 percent outpaced the S&P 500’s 5 percent
• The company generated an industry-leading ROIC5 of 19 percent
“Underlying net sales and operating income accelerated in fiscal 2012 to pre-2008 levels. We believe this is due to the strength of the Jack Daniel’s trademark and our portfolio of premium brands, our heightened focus on innovation, continued route-to-consumer investments, and the hard work and creativity of our people,” said Paul Varga, the company’s chief executive officer. “While the economic backdrop remains uncertain, we expect that this strength in underlying sales will continue into fiscal 2013, with anticipated growth in the high single-digits. After several years of partially absorbing cost increases, we are planning for price increases to be a larger contributor to our total revenue growth, covering cost inflation and improving our relative price positions in the marketplace.”
Varga continued, “Our strong performance was broad-based, with each of our twelve largest markets growing net sales in fiscal 2012.”
Full year underlying net sales grew by 17 percent in the emerging markets, 8 percent in the developed world outside of the U.S., and 5 percent in the U.S. In total, global net sales grew 9 percent in fiscal 2012, an acceleration from the 4 percent growth the Company achieved in fiscal 2011.
Brown-Forman’s Jack Daniel’s trademark continued to grow net sales globally at a double-digit rate, and as the world’s number one American whiskey, the company believes the Jack Daniel’s trademark is well positioned to continue benefiting from recent global trends in this category. Jack Daniel’s Tennessee Whiskey’s growth accelerated in the last twelve months, and is once again gaining volume and value share over the last three months, according to U.S. Nielsen data. This is likely because of several factors, including an improved marketing mix, the positive halo effect created by last year’s launch of Tennessee Honey, as well as renewed interest in the American whiskey category.
Jack Daniel’s Tennessee Honey is an example of how disciplined innovation can create a positive halo effect for the parent brand. In fiscal 2013, the company will introduce Tennessee Honey to new markets outside of the U.S., as well as expand in the U.S. through additional sizes and through increased on-premise account penetration. In the super-premium whiskey category, Gentleman Jack, Jack Daniel’s Single Barrel, and Woodford Reserve registered solid double-digit depletion gains for the year, powered by international demand. In the aggregate, these three brands depleted over 700,000 cases in fiscal year 2012.
“As an industry leader in American whiskey, we are encouraged by the category’s momentum in the United States and around the world,” Varga said. “Aided by super-premium line extensions, flavored expressions, and RTD innovation, the category’s growing popularity bodes well for Brown-Forman and our stable of leading trademarks.”
Finlandia’s depletions grew 7 percent to over 3.1 million cases, driven by strong demand in Russia and Eastern Europe. The company’s tequila portfolio enjoyed broad-based volume growth driven by Herradura’s 13 percent increase to almost 300,000 cases and 10 percent growth for New Mix. Sonoma-Cutrer also enjoyed depletion growth of over 10 percent for the full year.
Reported gross profit for the year increased 4 percent, while underlying gross profit grew 8 percent. Higher input and fuel costs affected both underlying and reported gross profit trends in the year but inflationary pressures are expected to lessen in fiscal 2013. One way in which the company continued to invest consistently behind its portfolio of brands was through higher advertising spend, up 8 percent on a reported basis with social media playing a more prominent role in the company’s marketing mix. Additionally, reported SG&A increased 6 percent because of higher investments behind people and route-to-consumer initiatives.
Strong operating cash flow in the year allowed the company to pay down $250 million in debt that matured in April of 2012, bringing total debt to $506 million as of April 30, 2012, compared with $759 million as of April 30, 2011. The company had net debt of $168 million, compared to net debt of $192 million as of April 30, 2011. During fiscal 2012, the company returned $408 million to shareholders through the repurchase of 3.1 million shares for $216 million and dividends totaling $192 million. During the fourth quarter, Brown-Forman paid a regular quarterly cash dividend of $0.35 per share on Class A and Class B common stock. Brown-Forman has paid regular quarterly cash dividends for 66 consecutive years and increased them for the last 28 years, making Brown-Forman a member of the Standard and Poor’s 500 Dividend Aristocrats Index.
Fourth quarter 2012 results
For the fourth quarter, the company reported net sales growth of 1 percent and underlying growth of 10 percent. Operating income decreased 32 percent on a reported basis and increased 13 percent on an underlying basis. Prior year’s results benefited from the gain on sale and associated profits of the Hopland-based wine business in the year ago quarter which contributed $65 million to operating income in the fourth quarter of 2011. Diluted earnings per share for the quarter were $0.73 compared to $1.13 in the prior year. As expected, reported year-over-year comparisons were negatively impacted by the absence of the gain on sale and associated profits from the Hopland-based wine business, as well as foreign exchange for a combined net impact of approximately $0.36 per share.
Fiscal year 2013 outlook
The company is forecasting another strong year of underlying growth rates comparable to fiscal year 2012 levels and in-line with historic long-term rates of growth. For fiscal 2013, the company expects high single-digit growth in underlying sales and operating income while continuing to invest in future growth. Brown-Forman projects diluted earnings per share of $3.60 to $4.00, including an anticipated negative impact from foreign exchange of $0.11 per share. This range takes into consideration the challenging macroeconomic environment, uncertainty surrounding the company’s planned price increases, and foreign exchange fluctuations.