Brown Forman Inc · NYSE:BF.A
Brown Forman — Q3 2018 Earnings Presentation
25 slides from Brown Forman's earnings presentation, Mar 7, 2018
Slide 1: YTD18 Results
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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,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectatio
Slide 3: YTD18 Highlights
YTD18 Highlights Reported Underlying Operating Fiscal 2018 Outlook Results Net Sales1 Leverage Reaffirmed outlook for: • Net sales +9% • 3Q growth of 6% • Reported operating • Underlying net sales • YTD growth of 7% margins +170bps • Operating income +15% growth of 6-7% Broad-based portfolio and Sol
Slide 4: 3Q18 EPS Summary
3Q18 EPS Summary $0.05 $0.54 $0.10 $0.49 $0.39 • Repatriation tax on foreign earnings ($0.19) • Re-measurement of net deferred taxes +$0.10 • On-going tax benefit +$0.04 3Q18 Reported EPS 5/4 Split Impact 3Q18 EPS 3Q18 Impact 3Q18 EPS pre 5/4 Split Tax Reform ex. Tax Reform 4
Slide 5: 3Q18 Results - Strong Top-Line, But as Expected, Higher Costs Moderated Operating Income Growth
3Q18 Results - Strong Top-Line, But as Expected, Higher Costs Moderated Operating Income Growth Reported Acquisitions Foreign Net Change Underlying Change & Divestitures Exchange In Estimated Change (%) (+/-) Impact Distributor (%) (+/-) Inventories (+/-) Net Sales 9% —% -4% 1% 6% Gross Profit 9% —%
Slide 6: YTD18 Results - Strong Underlying Growth; Reported Growth Rates Helped by Foreign Exchange and Higher Net Inventories
YTD18 Results - Strong Underlying Growth; Reported Growth Rates Helped by Foreign Exchange and Higher Net Inventories Reported Acquisitions Foreign Net Change Underlying Change & Divestitures Exchange In Estimated Change (%) (+/-) Impact Distributor (%) (+/-) Inventories (+/-) Net Sales 9% —% -2% -1
Slide 7: YTD18 Reported Growth of 9% Driven by Strong, 7% Underlying Net Sales Growth
YTD18 Reported Growth of 9% Driven by Strong, 7% Underlying Net Sales Growth 0% -2% +9% -1% +7% Reported Acquisitions & Foreign Net Change in Underlying Divestitures Exchange Estimated Distributor Inventories 7
Slide 8: Broad-based Geographic Delivery of YTD Net Sales Growth
Broad-based Geographic Delivery of YTD Net Sales Growth Reported Underlying +19% +17% +15% +11% +9% +9% +7% 7% +6% +5% US Developed - ex US Emerging Travel Retail Total US Developed - ex US Emerging Travel Retail Total * See appendix for additional details 8
Slide 9: Balanced Growth Across Our Top Markets
Balanced Growth Across Our Top Markets YTD18 Net Sales Growth - Reported (Underlying) United States France +7% (+5%) +10% (+5%) Volume-driven Growth led by JDTW growth and JDTH United Kingdom Poland +10% (+6%) +25% (+10%) Solid growth in American Led by JDTW whiskeys Australia Japan +10% (+10%) -13%
Slide 10: Emerging Markets Are Strengthening - Two Year Stack
Emerging Markets Are Strengthening - Two Year Stack* Underlying Net Sales Growth 12% 10% 8% 6% 4% 2% 0% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 * A "two year stack" is the quarterly two year compounded annual growth rate of underlying net sales excluding acquired and divested brands for all periods 10 (S
Slide 11: Broad-Based Portfolio Growth
Broad-Based Portfolio Growth YTD18 Net Sales Growth - Reported (Underlying) Jack Daniel's Family +10% (+7%) Old Forester & Woodford Reserve +26% (+22%) Tequilas +15% (+13%) * See appendix for additional details 11
Slide 12: 3Q18 Reported Gross Margins Expanded 40bps; Underlying Margins Pulled Down by Costs
3Q18 Reported Gross Margins Expanded 40bps; Underlying Margins Pulled Down by Costs 1.2% 66.8% 66.4% —% -0.8% 3Q17 Underlying Change/ Acquisitions & Foreign 3Q18 Other Divestitures Exchange 12
Slide 13: YTD18 Reported Gross Margins Expanded 20bps; Underlying Down Slightly Over Nine Months
YTD18 Reported Gross Margins Expanded 20bps; Underlying Down Slightly Over Nine Months +0.3% —% 67.2% 67.0% -0.1% YTD17 Underlying Change/ Acquisitions & Foreign YTD18 Other Divestitures Exchange 13
Slide 14: YTD18 Operating Leverage due in part to Phasing of Expenses in Fiscal 2018
YTD18 Operating Leverage due in part to Phasing of Expenses in Fiscal 2018 Three Months Nine Months Ended January 31, 2018 Ended January 31, 2018 Reported Change Underlying Change Reported Change Underlying Change (%) (%) (%) (%) Net Sales 9% 6% 9% 7% Gross Profit 9% 5% 10% 7% Advertising 11% 6% 8%
Slide 15: Fiscal 2018 Outlook
Fiscal 2018 Outlook Underlying Underlying Net Operating Diluted EPS Sales Income 6 - 7% (prior range of 6-7%) 8 - 9% $1.43 - $1.48 (prior range of 8-9%) (prior split-adjusted range of $1.52 - $1.58) 15
Slide 16: Significant Ongoing Benefit from U.S. Tax Reform
Significant Ongoing Benefit from U.S. Tax Reform* 1 Annualized Ongoing Cash Benefit: ~$65 - $75 Million ◦ Fiscal 2018 ð ~$25 Million ◦ Fiscal 2019 ð Incremental $40 - $50 Million 2 Tax Rate Benefit F18 F19 Before Tax After Tax After Tax Reform Reform Reform U.S. Corporate Tax Rate 35% 30.4% 21% Effe
Slide 17: U.S. Tax Reform: Slight Negative Effect in FY18
U.S. Tax Reform*: Slight Negative Effect in FY18 Increase / (Decrease) EPS ETR U.S. Tax Reform: Net lower full year tax rate $0.06 (2.7)% One-time transition items: Repatriation tax ($0.19) Remeasure net U.S. deferred taxes $0.10 $(0.09) 4.1% Total U.S. Tax Reform Effect $(0.03) 1.4% * U.S. Tax Refo
Slide 18: Fiscal 2018 EPS Outlook Reconciliation
Fiscal 2018 EPS Outlook Reconciliation % Change vs EPS FY17 Prior FY18 Outlook at 2Q18a $1.90-$1.98 11%-16% Split adjusted Prior Outlookb $1.52-$1.58 11%-16% Underlying changes to Outlook $0.00 0% Foreign exchange $0.03 2% Tax Reformc ($0.03) (2%) Establishment of Foundation - 4Q18d ($0.10) (7%) Upd
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, in order 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 and we aggregate brands by spirits category. Bel
Slide 22: Definitions
Definitions Other Metrics. • “Depletions.” When discussing volume, unless otherwise specified, we refer to “depletions,” a term commonly used in the beverage alcohol industry. Depending on the context, “depletions” means either (a) our shipments directly to retailers or wholesalers, or (b) shipments
Slide 23: Reconciliation
Reconciliation YTD18 Net Sales Growth by Geography Nine Months Ending January 31, 2018 Acquisitions & Net Change in Estimated Geographic area Reported (%) Foreign Exchange (+/-) Underlying (%) Divestitures (+/-) Distributor Inventories (+/-) US 7% —% —% -2% 5% Developed – ex US 9% —% -4% 1% 6% Emerg
Slide 24: Reconciliation
Reconciliation YTD18 Net Sales Growth by Top Markets Net Change in Estimated Acquisitions & Geographic area Reported % Foreign Exchange +/- Distributor Inventories Underlying % Divestitures +/- +/- United States 7% —% —% -2% 5% United Kingdom 10% —% -3% —% 6% Germany 16% —% -5% —% 11% France 10% —%
Slide 25: Reconciliation
Reconciliation YTD18 Net Sales Growth for Aggregated Brands Net Change in Estimated Aggregated Brands Reported % Foreign Exchange +/- Distributor Inventories Underlying % +/- Jack Daniel's Family 10% -2% -1% 7% Old Forester and 26% —% -4% 22% Woodford Reserve el Jimador, Herradura, & 15% -2% -1% 13%