Brown-Forman Reports Stellar Results in Fiscal 2013
06 Jun 2013 --- Brown-Forman Corporation reported financial results for its fourth quarter and fiscal year ended April 30, 2013. For the quarter, reported net sales1 increased 8% to $866 million (+7% on an underlying basis2) and reported operating income increased 18% to $177 million (+15% on an underlying basis).
Diluted earnings per share in the quarter increased 8% to $0.52, compared to $0.49 in the prior year period, including approximately $0.07 cents of benefits due to the timing of shipments and discrete tax items.
For the full year, reported net sales increased 5% to $3,784 million (+8% on an underlying basis), reported operating income increased 14% to $898 million (+13% on an underlying basis), and diluted earnings per share increased 16% to $2.75 compared to $2.37 in the prior year period. Reported earnings per share were negatively impacted by the absence of Hopland-based wines and adverse foreign exchange, but benefited from the aforementioned items in the fourth quarter of 2013.
Paul Varga, the company’s chief executive officer, said, “We are pleased to have delivered another year of top-tier industry results, with underlying sales growth of 8% and underlying operating income growth of 13%. The company achieved solid price increases, which helped drive margin expansion. Due to continued global interest in North American whiskey and favorable trends in premiumization, we remain cautiously optimistic that Brown-Forman’s strong and balanced organic growth will continue in fiscal 2014."
Fiscal 2013 Highlights
- Underlying net sales increased 8%, driven by broad-based geographic gains and brand strength, with constant currency net sales3 up 6%
- Price/mix contributed over three points to net sales growth
- Jack Daniel’s family of brands grew net sales 11%
- The company’s super and ultra-premium whiskey brands grew net sales 19%
- Casa Herradura’s family of tequila brands grew net sales 9%
- Finlandia’s family of brands grew net sales 6%
- Underlying operating income increased 13%, driven by top-line growth, gross margin expansion, and operating expense leverage
- As of April 30, 2013, Brown-Forman generated an industry-leading ROIC4 of 22%
Fiscal 2013 Performance
The company’s underlying sales growth of 8% was driven by strong brand performance from its focused portfolio. The company’s outperformance was also fueled by the strength of the North American whiskey category, continued growth of Jack Daniel’s Tennessee Honey, and growth from premium and above brands. Company-wide price/mix contributed approximately three points to full year sales growth and drove the company’s global value share, while depletions grew at a mid single-digit rate. This balanced revenue growth helped deliver gross margin expansion of 200bps. Approximately half of the increase was driven by improved price/mix and reductions in costs associated with value-added packaging, while the other half was due to the absence of Hopland-based wines.
In the emerging markets, net sales growth was widespread. Turkey’s net sales jumped 38% as route-to-market changes implemented two years ago have dramatically improved distribution as well as accelerated the success of brand-building efforts among consumers in a rapidly growing distilled spirits market. Russia enjoyed similarly strong year-over-year growth, increasing net sales by 36%. Brazil, the company’s fourteenth largest market outside of the United States, enjoyed a 23% increase in net sales. Ukraine, Kazakhstan, and Georgia grew net sales by 29% to almost 300,000 cases in the aggregate. Southeast Asia’s net sales grew 16% to 300,000 cases, driven by Thailand’s 19% jump, India’s 26% increase, and Indonesia’s 29% growth. Emerging Africa surpassed the 100,000 case mark with net sales growth of 12%.
Net sales continued to grow at a mid to high single-digit rate in most of the developed markets, including a strong performance in the United States, where net sales, adjusted for Hopland-based wines, grew by 8%. Australia and the United Kingdom also continued to grow net sales in the mid single-digits, while France grew by 14%, roughly in-line with its five and ten year rates of growth. Not surprisingly, net sales growth in Italy and Spain remained under pressure given the weak economic conditions, but the company’s portfolio gained share in these challenging markets. Japan’s 18% net sales growth included some inventory build related to the new agency relationship with Asahi.
The company’s Global Travel Retail business delivered 12% net sales growth, driven by price increases, successful innovation, and new product launches, including the successful rollout of Jack Daniel’s Tennessee Honey and Jack Daniel’s Sinatra Select.
The majority of the company’s brands delivered net sales growth in the year, led by the Jack Daniel’s trademark. Jack Daniel’s Tennessee Whiskey grew net sales by 7%, with markets outside of the United States modestly outpacing the strong growth in the United States.
Jack Daniel’s Tennessee Honey’s global net sales nearly doubled in the second full year in the marketplace. Sales in the United States grew by 37%, as brand awareness has grown and velocity has increased in the off-premise. Sales outside of the United States were driven by the successful rollout of the brand to several key markets including the United Kingdom, Australia, Poland, and South Africa. The company expects to bring this great product into other important markets for Jack Daniel’s in fiscal 2014. Jack Daniel’s Tennessee Honey, along with other innovations, contributed roughly 25% of the company’s net sales growth in Fiscal 2013.
Brown-Forman’s portfolio of super and ultra-premium whiskey brands, including Woodford Reserve and Woodford Reserve Double Oaked, Jack Daniel’s Single Barrel, Gentleman Jack, and Collingwood, grew net sales almost 20% in the year and depleted over 825,000 cases. Woodford’s performance was exceptional, up 28%, and the company believes there is a long global runway ahead for this brand, including markets outside of the United States given only 14% of the brand’s sales are currently generated in non-U.S. markets. Additionally, the company intends to ramp up spending behind its Gentleman Jack brand in fiscal 2014 with the recent launch of the ‘Order of Gentlemen’ marketing campaign, and believes this super-premium line extension is also well-positioned for global growth. Markets outside of the United States grew net sales 30% in fiscal 2013 and drove almost two-thirds of Gentleman Jack’s incremental sales.
Finlandia vodka’s family of brands grew net sales by 6%, reaching record levels, with depletions of almost 3.3 million cases. Sales growth was driven by strong demand in Russia.
The Casa Herradura family of tequila brands grew net sales by 9%. Herradura grew global net sales 15%, fueled by 20% growth in the United States. New Mix RTDs grew 13% and el Jimador grew net sales by 11% in the United States, offset by a 2% decline in non-U.S. markets.
Southern Comfort’s family of brands net sales grew 1% in the United States, but declined 4% globally, an improvement from the 7% decline in Fiscal 2012. While Southern Comfort continued to experience sales declines in markets outside of the United States, the company believes that fiscal 2013 marked the first step towards returning the brand to global growth.
Underlying SG&A increased by 8% and underlying A&P spend grew by 6% in fiscal 2013, as the company continued to invest in its brands and the infrastructure that will support the company’s goal of delivering long-term growth.
Dividends and Other
As of April 30, 2013, total debt was $1,002 million, compared with $510 million as of April 30, 2012. On February 25, 2013, Brown-Forman completed the redemption of its outstanding $250 million 5% notes due 2014 and recorded a pre-tax expense of $9 million.
During fiscal 2013, the company returned almost $1.1 billion to shareholders through its recurring quarterly dividends as well as the $4 special dividend paid during the third quarter of fiscal 2013. Brown-Forman has paid regular cash dividends for 67 consecutive years and increased them for each of the last 29 years, making Brown-Forman a member of the Standard and Poor’s 500 Dividend Aristocrats Index. The company also produced what it believes to be an industry-leading return on invested capital of 22%.
Fiscal Year 2014 Outlook
Despite the uncertainty in the global macroeconomic environment, the company is anticipating that the strong trends experienced in fiscal 2013 will continue into fiscal 2014. Accordingly, the company currently expects high single-digit growth in both reported and underlying sales, driven by the continued global expansion of the Jack Daniel’s trademark, including both Tennessee Whiskey and Tennessee Honey. The company’s focus on super-premium brands including Herradura, Woodford Reserve, Gentleman Jack, and Jack Daniel’s Single Barrel, along with continued growth in Finlandia and an improvement in Southern Comfort’s results, should also drive sales growth. Sales growth includes expected price increases in the low single-digit range, which should help offset inflationary pressures.
