Brown Forman : Q3 2024 Brown-Forman Corp Earnings Conference Call press release

BROWN-FORMAN REPORTS YEAR-TO-DATE FISCAL 2024 RESULTS;

UPDATES FULL YEAR OUTLOOK

March 6, 2024, LOUISVILLE, KY - Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its third quarter and nine months ended January 31, 2024. Third quarter reported net sales decreased 1%1 to $1.1 billion (-2% on an organic basis2) compared to the same prior-year period. In the quarter, reported operating income increased 116% to $373 million (+5% on an organic basis) and diluted earnings per share increased 189% to $0.60.

For the first nine months of the fiscal year, the company's reported net sales increased 1% to $3.2 billion (flat on an organic basis) compared to the same prior-year period. Year-to-date reported operating income increased 25% to $1.0 billion (+2% on an organic basis) and diluted earnings per share increased 32% to $1.58.

Lawson Whiting, Brown-Forman's President and Chief Executive Officer shared, "In a year with significant uncertainty and complexity in the spirits industry, Brown-Forman has demonstrated continued resilience and agility following two years of double-digit organic net sales growth. As industry trends have normalized, we have expanded our gross margin, executed our strategic priorities, and invested behind the business. As we look to the end of the fiscal year, we remain confident in the strength of our portfolio and our ability to deliver long-term growth."

Year-to-Date Fiscal 2024 Highlights

• Reported net sales growth in Emerging3 markets and the Travel Retail3 channel was partially offset by declines in Developed International3 markets and the United States.
• From a brand perspective:
• • The recently acquired brands, Gin Mare and Diplomático, drove Rest of Portfolio's3 reported net sales growth of 79% (+11% organic).
  • New Mix delivered very strong reported net sales growth of 34% (+17% organic).

• • Jack Daniel's Tennessee Apple delivered double-digit reported net sales growth of 44% (+45% organic).
  • Jack Daniel's Tennessee Whiskey's reported net sales declined 6% (-5% organic).
• Reported gross profit increased 5% (+6% organic) with strong gross margin expansion of 250 basis points.
• The company increased reported advertising expense by 11% (+7% organic) to support investment behind its brands for long-term sustainable growth.
• The sale of the Finlandia vodka brand was completed on November 1, 2023, generating a pre-tax gain of $90 million.
• The $400 million share repurchase program was completed as of December 31, 2023.

Year-to-Date Fiscal 2024 Brand Results

• The recently acquired brands, Gin Mare and Diplomatico, drove the significant increase in the Rest of Portfolio's reported net sale growth of 79% (+11% organic) led by the Developed International markets and the United States.
• The Ready-to-Drink3 (RTD) portfolio continued to deliver growth as consumer demand for convenience and flavor remained strong. New Mix's reported net sales increased 34% (+17% organic) fueled by higher prices and the positive effect of foreign exchange. Reported net sales of Jack Daniel's RTD/RTP portfolio increased 1% (+1% organic) driven by the continued launch of the Jack Daniel's & Coca-Cola RTD. This growth was largely offset by lower volumes of Jack Daniel's & Cola RTD, due to the transition to Jack Daniel's & Coca-Cola in several markets.
• Reported net sales for the Tequila3 portfolio were flat (-3% organic). el Jimador delivered reported net sales growth of 5% (+4% organic) led by higher prices, particularly in the United States, partially offset by lower volumes in Mexico and the United States. Herradura's reported net sales declined 7% (-10% organic) due to lower volumes in the United States, partially offset by the positive effect of foreign exchange.
• Lapping strong results in the same prior-year period, reported net sales for Whiskey3 products declined 2% (-1% organic), driven by lower volumes for Jack Daniel's Tennessee Whiskey and Jack Daniel's Tennessee Honey. This decline was partially offset by the growth of Jack Daniel's Tennessee Apple and the rest of our whiskey portfolio, including Jack Daniel's super-premium expressions, Glenglassaugh old and rare cask sales, and Woodford Reserve.

Year-to-Date Fiscal 2024 Market Results

• Emerging markets grew reported net sales 9% (+11% organic) led by very strong growth of New Mix in Mexico and Jack Daniel's Tennessee Apple in Brazil and Chile.

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• The Travel Retail channel sustained growth on an exceptionally high comparison in the same prior- year period, as reported net sales increased 3% (+1% organic) propelled by the super-premium American whiskey portfolio. Woodford Reserve, the launch of Jack Daniel's American Single Malt, and growth of Jack Daniel's Single Barrel were the largest contributors of growth in the channel. This growth was partially offset by lower volumes of Jack Daniel's Tennessee Whiskey and Jack Daniel's Tennessee Honey.
• Reported net sales in the United States decreased 1% (-2% organic), a sequential improvement from the first half results. Lower volumes were partially a result of a net decrease in distributor inventories. This decline was largely offset by higher prices across the portfolio led by Jack Daniel's Tennessee Whiskey and el Jimador, the growth of super-premium Jack Daniel's expressions such as Jack Daniel's Sinatra and Jack Daniel's Single Barrel Rye Barrel Proof, and Diplomático.
• Developed International markets' reported net sales decreased 2% (-6% organic) primarily due to lower volumes of Jack Daniel's Tennessee Whiskey in Japan, following a significant inventory build in the second half of the prior fiscal year. This decrease also included the purchase of inventory from the current distributor as the company prepared for its transition to owned distribution on April 1, 2024. The decline in reported net sales was partially offset by sales growth from our recently acquired brands, Gin Mare and Diplomático, and the continued launch of Jack Daniel's Tennessee Apple in South Korea.

Year-to-Date Fiscal 2024 Other P&L Items

• Reported gross profit increased 5% (+6% organic) with strong gross margin expansion of 250 basis points to 60.9%. The increase in gross margin was driven by favorable price/mix and lower supply chain disruption related costs, partially offset by higher input costs, the negative effect of foreign exchange, and the negative effect of acquisitions and divestitures.
• Reported advertising expense grew 11% (+7% organic) driven by increased investment in Jack Daniel's Tennessee Whiskey, the launch of Jack Daniel's & Coca-Cola RTD, and the recently acquired Gin Mare and Diplomático brands. Reported selling, general, and administrative expenses increased 10% (+8% organic) largely due to higher compensation and benefit-related expenses.
• The company's reported operating income increased 25% (+2% organic) driven by the positive effect of acquisitions and divestitures (the gain on the sale of the Finlandia brand and the absence of post- closing costs and expenses in connection with the acquisitions of Diplomático and Gin Mare in the prior year), higher gross margin, and the absence of the prior year period Finlandia non-cash impairment. This increase was partially offset by operating expense growth and the negative effect of foreign exchange.

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• Diluted earnings per share increased $0.38 driven primarily by the increase in reported operating income.

Financial Stewardship

As announced on October 2, 2023, the Brown-Forman Board of Directors authorized the repurchase of up to $400 million (exclusive of brokerage fees and excise taxes) of outstanding shares of Class A and Class B common stock from October 2, 2023, through October 1, 2024, subject to market and other conditions. As of December 31, 2023, the program was completed.

On January 23, 2024, the Brown-Forman Board of Directors declared a regular quarterly cash dividend of $0.2178 per share on its Class A and Class B common stock. The dividend is payable on April 1, 2024, to stockholders of record on March 8, 2024. Brown-Forman, a member of the prestigious S&P 500 Dividend Aristocrats Index, has paid regular quarterly cash dividends for 80 consecutive years and has increased the regular dividend for 40 consecutive years.

Fiscal 2024 Outlook

The operating environment continues to be challenging following two years of double-digit organic net sales growth. With the evolving global macroeconomic conditions and normalizing industry trends, we are tempering our expectations. Accordingly, we now expect the following in fiscal 2024:

• Organic net sales to be flat, reflecting the slower than anticipated growth for the nine months ended January 31, 2024.
• Based on the above organic net sales growth outlook, and our expectation of gross margin improvement, we anticipate organic operating income growth in the 0% to 2% range.
• We expect our fiscal 2024 effective tax rate to be in the range of approximately 20% to 22%.
• Capital expenditures are now planned to be in the range of $230 to $240 million.

Conference Call Details

Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (ET) today. A live audio broadcast of the conference call, and the accompanying presentation slides, will be available via Brown-Forman's website, brown-forman.com, through a link to "Investors/Events & Presentations." A digital audio recording of the conference call and the presentation slides will also be posted on the website and will be available for at least 30 days following the conference call.

For more than 150 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel's Tennessee Whiskey, Jack Daniel's Ready-to-Drinks, Jack Daniel's Tennessee Honey, Jack Daniel's Tennessee Fire, Jack Daniel's Tennessee Apple, Gentleman Jack, Jack Daniel's Single Barrel, Woodford Reserve, Old Forester, Coopers' Craft,

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The GlenDronach, Benriach, Glenglassaugh, Slane, Herradura, el Jimador, New Mix, Korbel, Sonoma- Cutrer, Chambord, Fords Gin, Gin Mare, and Diplomático Rum. Brown-Forman's brands are supported by approximately 5,600 employees globally and sold in more than 170 countries worldwide. For more information about the company, please visit brown-forman.com. Follow us on LinkedIn, Instagram, and X, formerly Twitter.

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Important Information on Forward-Looking Statements:

This press release contains statements, estimates, and projections that are "forward-looking statements" as defined under U.S. federal securities laws. Words such as "aim," "anticipate," "aspire," "believe," "can," "continue," "could," "envision," "estimate," "expect," "expectation," "intend," "may," "might," "plan," "potential," "project," "pursue," "see," "seek," "should," "will," "would," and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and uncertainties include, but are not limited to:

• Our substantial dependence upon the continued growth of the Jack Daniel's family of brands
• Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks
• Route-to-consumerchanges that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs
• Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers
• Changes in consumer preferences, consumption, or purchase patterns - particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of marijuana; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
• Production facility, aging warehouse, or supply chain disruption
• Imprecision in supply/demand forecasting
• Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor
• Risks associated with acquisitions, dispositions, business partnerships, or investments - such as acquisition integration, termination difficulties or costs, or impairment in recorded value
• Impact of health epidemics and pandemics, and the risk of the resulting negative economic impacts and related governmental actions
• Unfavorable global or regional economic conditions and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
• Product recalls or other product liability claims, product tampering, contamination, or quality issues
• Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects
• Failure to attract or retain key executive or employee talent
• Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including additional retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism, kidnapping, extortion, or other types of violence; and health pandemics
• Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations
• Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar
• Changes in laws, regulatory measures, or governmental policies, especially those affecting production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products
• Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
• Decline in the social acceptability of beverage alcohol in significant markets
• Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products
• Counterfeiting and inadequate protection of our intellectual property rights
• Significant legal disputes and proceedings, or government investigations
• Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws
• Our status as a family "controlled company" under New York Stock Exchange rules, and our dual-class share structure

For further information on these and other risks, please refer to our public filings, including the "Risk Factors" section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.

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Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Three Months Ended January 31, 2023 and 2024

(Dollars in millions, except per share amounts)

		2023			2024		Change
Net sales	$	1,081	$	1,069	(1%)
Cost of sales		457			434	(5%)
Gross profit		624			635	2%
Advertising expenses		141			143	1%
Selling, general, and administrative expenses		186			203	9%
Other expense (income), net		124			(84)
Operating income		173			373	116%
Non-operating postretirement expense		27			1
Interest expense, net		22			30
Income before income taxes		124			342	176%
Income taxes		24			57
Net income	$	100		$	285	186%
Earnings per share:
Basic	$	0.21	$	0.60	189%
Diluted	$	0.21	$	0.60	189%
Gross margin		57.7%			59.4%
Operating margin		15.9%			34.9%
Effective tax rate		19.5%			16.5%
Cash dividends paid per common share	$	0.2055	$	0.2178
Shares (in thousands) used in the
calculation of earnings per share
Basic		479,152			474,806
Diluted		480,460			475,566

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Brown-Forman Corporation

Unaudited Consolidated Statements of Operations

For the Nine Months Ended January 31, 2023 and 2024

(Dollars in millions, except per share amounts)

		2023			2024		Change
Net sales	$	3,182	$	3,214	1%
Cost of sales		1,323			1,257	(5%)
Gross profit		1,859			1,957	5%
Advertising expenses		372			414	11%
Selling, general, and administrative expenses		541			595	10%
Other expense (income), net		117			(91)
Operating income		829			1,039	25%
Non-operating postretirement expense		27			2
Interest expense, net		54			86
Income before income taxes		748			951	27%
Income taxes		172			193
Net income	$	576		$	758	32%
Earnings per share:
Basic	$	1.20	$	1.59	32%
Diluted	$	1.20	$	1.58	32%
Gross margin		58.4%			60.9%
Operating margin		26.0%			32.3%
Effective tax rate		23.0%			20.3%
Cash dividends paid per common share	$	0.5825	$	0.6288
Shares (in thousands) used in the
calculation of earnings per share
Basic		479,121			477,542
Diluted		480,482			478,444

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Brown-Forman Corporation

Unaudited Condensed Consolidated Balance Sheets

(Dollars in millions)

		April 30,			January 31,
		2023			2024
Assets:
Cash and cash equivalents	$	374	$	589
Accounts receivable, net		855			878
Inventories		2,283			2,529
Assets held for sale		-			161
Other current assets		289			258
Total current assets		3,801			4,415
Property, plant, and equipment, net		1,031			1,014
Goodwill		1,457			1,464
Other intangible assets		1,164			1,004
Other assets		324			340
Total assets	$	7,777		$	8,237
Liabilities:
Accounts payable and accrued expenses	$	827	$	747
Dividends payable		-			103
Accrued income taxes		22			19
Short-term borrowings		235			728
Liabilities held for sale		-			15
Total current liabilities		1,084			1,612
Long-term debt		2,678			2,678
Deferred income taxes		323			289
Accrued postretirement benefits		171			171
Other liabilities		253			242
Total liabilities		4,509			4,992
Stockholders' equity		3,268			3,245
Total liabilities and stockholders' equity	$	7,777	$	8,237

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Brown-Forman Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended January 31, 2023 and 2024

(Dollars in millions)

	2023				2024
Cash provided by operating activities	$	410	$	362
Cash flows from investing activities:
Proceeds from sale of business		-			194
Acquisition of business, net of cash acquired		(1,195)			-
Additions to property, plant, and equipment		(116)			(148)
Other		11			17
Cash provided by (used for) investing activities
	(1,300)			63
Cash flows from financing activities:
Net change in other short-term borrowings		1,002			492
Repayment of long-term debt		(250)			-
Acquisition of treasury stock		-			(400)
Dividends paid		(279)			(300)
Other		(5)			(4)
Cash provided by (used for) financing activities
	468			(212)
Effect of exchange rate changes		(15)			2
Net increase (decrease) in cash, cash equivalents, and restricted cash		(437)			215
Cash, cash equivalents, and restricted cash at beginning of period		874			384
Cash, cash equivalents, and restricted cash at end of period		437			599
Less: Restricted cash at end of period		(9)			(10)
Less: Cash included in assets held for sale at end of period		-			-
Cash and cash equivalents at end of period	$	428	$	589

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