Brown Forman Inc · NYSE:BF.A
Brown Forman — Q3 FY2019 Earnings Presentation
28 slides from Brown Forman's earnings presentation, Mar 6, 2019
Slide 1: 3Q & YTD FY19 Results and Outlook
3Q & YTD FY19 Results and Outlook March 6, 2019
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation 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,” “exp
Slide 3: YTD19 Highlights & FY19 Outlook
1 YTD19 Highlights & FY19 Outlook Reported Gross Operating Reaffirmed Fiscal Results Margin Leverage 2019 Outlook • Net sales +3% • YTD gross margins -190bps • Underlying operating • +6-7% underlying net sales ◦ 5% underlying net sales growth ◦ Tariff costs ~ (130bps) income +4% growth (+7% YTD18 co
Slide 4: YTD19 Net Sales Growth Driven by Broad-based Geographic Gains
YTD19 Net Sales Growth Driven by Broad-based Geographic Gains Reported Underlying* +10% +6% +5% +4% +4% +3% +3% +3% +1% —% United Developed Emerging Travel Retail Total United Developed Emerging Travel Retail Total States International States International 4 * See appendix for additional details
Slide 5: Portfolio, Geography, Investment, People
Portfolio Geography Investment People 5
Slide 6: YTD19 Results - Solid Results Despite Tariffs and Difficult Prior Year Comparisons
YTD19 Results - Solid Results Despite Tariffs and Difficult Prior Year Comparisons Reported New Foreign Estimated Underlying Change Accounting Exchange Net Change In Change (%) Standard* Impact Distributor (%) (+/-) (+/-) Inventories (+/-) Net Sales 3% 1% 3% -1% 5% Gross Profit —% 1% 3% -1% 3% Adver
Slide 7: YTD19 Reported Net Sales Growth of 3% Driven by Solid Underlying Growth
YTD19 Reported Net Sales Growth of 3% Driven by Solid Underlying Net Sales Growth of 5%, Partially Offset by a Strong Dollar -1% +3% +5% +1% +3% Reported New Accounting Foreign Estimated Underlying Standard* Exchange Net Change in Distributor Inventories 7 * Adoption of ASC 606 (Revenue from Contrac
Slide 8: Balanced Growth Across Our Top Markets
Balanced Growth Across Our Top Markets YTD19 Net Sales Growth - Reported (Underlying*) United States France +3% (+4%) -1% (+1%) Acceleration in growth led by Led by higher JDTH volumes and bourbons & tequilas launch of JDTR United Kingdom Poland -5% (+3%) +2% (+1%) Volume led growth for the JDFOB Vo
Slide 9: Jack Daniel's Family of Brands
Jack Daniel's Family of Brands YTD19 Net Sales Growth +2% Reported (+4% Underlying) 9 * See appendix for additional details
Slide 10: Bourbons - Old Forester & Woodford Reserve
Bourbons - Old Forester & Woodford Reserve YTD19 Net Sales Growth +20% Reported (+24% Underlying) 10 * See appendix for additional details
Slide 11: Tequila - Herradura, el Jimador & New Mix
Tequila - Herradura, el Jimador & New Mix YTD19 Net Sales Growth +8% Reported (+13% Underlying) 11 * See appendix for additional details
Slide 12: YTD19 Gross Margins - 190bps decline due primarily to tariffs
YTD19 Gross Margins - 190bps decline due primarily to tariffs 67.2% (0.4)% 65.3% (1.3)% (0.1)% (0.1)% FY18 Price/Mix Tariffs Foreign New Accounting FY19 & Cost Exchange Standard 12 * Adoption of ASC 606 (Revenue from Contracts with Customers)
Slide 13: YTD19 Underlying Operating Income Growth Driven by Top-Line Growth and SG&A Leverage
YTD19 Underlying Operating Income Growth Driven by Consistent Top-Line Growth and SG&A Leverage Three Months Nine Months Ended January 31, 2019 Ended January 31, 2019 Reported Change Underlying Change Reported Change Underlying Change (%) (%) (%) (%) Net Sales 3% 4% 3% 5% Gross Profit -3% -1% —% 3%
Slide 14: SG&A Leverage & Reallocation to Consumer Facing Brand Investments
SG&A Leverage & Reallocation to Consumer Facing Brand Investments 14 * See appendix for additional details
Slide 15: FY19 Outlook
FY19 Outlook Growth Underlying Underlying Diluted EPS Net Sales Operating Income 6 - 7% 4 - 6% $1.65 - $1.75 11 - 18% Growth 15
Slide 16: Top-line growth in the United States has accelerated sequentially during Fiscal 2019
Top-line growth in the United States has accelerated sequentially during Fiscal 2019 Reported Underlying* +7% +5% +4% +3% +3% +2% +2% —% 1Q 2Q 3Q YTD 1Q 2Q 3Q YTD * See appendix for additional details 16
Slide 17: Comparisons Ease Significantly in 4Q FY19
Comparisons Ease Significantly in 4Q FY19 Underlying Sales Growth Underlying Operating Income Growth 8 15 6 10 % % 4 5 2 0 0 -5 YTD 4Q YTD 4Q FY18 FY19 Average FY18 FY19 Average Note: The average shown above is a simple straight average derived by summing the year-to-date percentages for fiscal 2018
Slide 18: $1B Returned to Shareholders (LTM)
$1B Returned to Shareholders (LTM*) Dividends $307M PLUS over $400M of other investments: Capex of $111M Special Inventory of $128M Dividends Pension funding of $120M $481M Charitable foundation of $70M Repurchases $200M * LTM as of January 31, 2019 18
Slide 19: Appendix
Appendix 19
Slide 20: Non-GAAP Reconciliation
Non-GAAP Reconciliation We use certain financial measures in this presentation that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures, defined below, should be viewed as supplements to (not substitutes for) our results of op
Slide 21: Definitions
Definitions From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF) and we aggregate brands by spirits category. Below,
Slide 22: Definitions
Definitions Other Metrics. • “Depletions.” We generally record revenues when we ship our products to our customers. Depending on our route-to-consumer (RTC), we ship products to either (a) retail or wholesale customers in owned distribution markets or (b) our distributor customers in other markets.
Slide 23: Reconciliation
Reconciliation YTD19 Net Sales Growth by Top Markets Nine Months Ending January 31, 2019 Estimated Net Change in New Accounting Geographic Area Reported Foreign Exchange (+/-) Distributor Inventories Underlying Standard* (+/-) (+/-) United States 3% 1% —% —% 4% Developed International —% —% 4% -1% 4
Slide 24: Reconciliation
Reconciliation YTD19 Net Sales Growth for Brand Aggregations Nine Months Ending January 31, 2019 Estimated Net Change in New Accounting Aggregated Brands Reported Foreign Exchange (+/-) Distributor Inventories Underlying Standard* (+/-) (+/-) Jack Daniel's Family of 2% —% 3% -1% 4% Brands Old Forest
Slide 25: Reconciliation
Reconciliation Net Sales Growth for the United States by Quarter Estimated Net Change in New Accounting Fiscal Quarter Reported Foreign Exchange (+/-) Distributor Inventories Underlying Standard* (+/-) (+/-) 1Q19 —% 1% —% 1% 2% 2Q19 2% 1% —% —% 3% 3Q19 7% —% —% -2% 5% * Adoption of ASC 606 (Revenue
Slide 26: Reconciliation
Reconciliation 3Q19 Underlying Change Three Months Ending January 31, 2019 Estimated Net Change in New Accounting Reported Foreign Exchange (+/-) Distributor Inventories Underlying Standard* (+/-) (+/-) Net Sales 3% —% 3% -2% 4% Gross Profit -3% —% 3% -1% -1% Advertising -8% 2% 2% —% -4% SG&A -13% 1
Slide 27: Reconciliation
Reconciliation YTD18 & 4Q18 Underlying Sales and Operating Income Change Nine Months Ending January 31, 2018 & Three Months Ending April 30, 2018 Estimated Net Change New Accounting Net Sales Reported Foundation Foreign Exchange (+/-) in Distributor Underlying Standard* (+/-) Inventories (+/-) YTD18
Slide 28: Reconciliation
Reconciliation F14 - F18 Underlying SG&A and Advertising Change Fiscal Year Ending April 30 Acquisitions and SG&A Reported Foreign Exchange (+/-) Foundation (+/-) Underlying Divestitures (+/-) F14 5% —% 1% —% 6% F15 2% —% 2% —% 4% F16 -1% —% 4% —% 2% F17 -3% —% 1% —% -2% F18 15% —% -2% -11% 3% Fisca