Brown-Forman Delivers Strong First Quarter 2022 Results

LOUISVILLE, Ky.–(BUSINESS WIRE)–Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its first quarter of fiscal 2022 with net sales of $906 million increasing 20%¹ (+18% on an underlying basis²) compared to the same prior-year period. In the quarter, operating income decreased 25% to $289 million (+15% on an underlying basis) and diluted earnings per share declined 41% to $0.40 due to the gain from the sale of the Canadian Mist, Early Times, and Collingwood brands in the prior year.

Brown-Forman’s President and Chief Executive Officer Lawson Whiting stated, “Brown-Forman delivered a strong start to fiscal 2022. These results were driven by the strength of our portfolio, which benefited from the re-opening of the on-premise, sustained at-home consumption, and continued premiumization trends.” He added, “While we are optimistic the operating environment will continue to improve, we are closely monitoring the potential volatility associated with the evolving pandemic and continued supply chain disruptions. Backed by the strength of our brands and our people, we are confident in our ability to manage our business for the long term.”

First Quarter of Fiscal 2022 Highlights

Net sales grew 20% (+18% underlying)
- Strong growth across all geographic clusters and the Travel Retail³ channel
- Jack Daniel’s family of brands net sales grew 20% (+16% underlying)
- Premium bourbons grew net sales 34% (+36% underlying)
- The tequila portfolio grew net sales 32% (+23% underlying)

Advertising increased 46% (+44% underlying) as the company supported brand momentum
The company generated strong free cash flow²of $171 million

First Quarter of Fiscal 2022 Brand Reported Results

Jack Daniel’s family of brands net sales growth was propelled by Jack Daniel’s Tennessee Whiskey which benefited from higher volumes globally and favorable channel mix in the United States related to the on-premise reopening.
Jack Daniel’s Tennessee Apple’s net sales growth was fueled by the ongoing international launch.
Premium bourbons, led by Woodford Reserve and Old Forester, maintained double-digit net sales growth driven by strong volumetric gains in the United States.
The tequila portfolio was led by double-digit net sales growth for Herradura and el Jimador. In particular, Herradura benefited from resurgent demand in Mexico following disruption in the prior-year period. These gains were partially offset by lower volumes of New Mix in Mexico reflecting a difficult comparison to the same prior-year period when volume and shelf space benefited from a temporary supply chain disruption in the beer industry.

First Quarter of Fiscal 2022 Market Reported Results

Strong net sales growth in the United States³ was primarily driven by double-digit growth from Jack Daniel’s Tennessee Whiskey, premium bourbons, and tequilas. Jack Daniel’s Tennessee Whiskey benefited from higher volumes and favorable channel mix shift to the on-premise channel.
Developed international³markets maintained double-digit net sales growth driven by broad-based growth led by Germany, France, Korea, and Spain.
Emerging markets³returned to double-digit net sales growth propelled by volume gains across most markets, partially offset by declines throughout most countries in Southeast Asia.
Net sales in Travel Retail³ increased primarily due to a favorable comparison to the same prior-year period, which was impacted by significant disruption due to COVID-19 travel bans and restrictions.

First Quarter of Fiscal 2022 Other P&L Items

Company-wide price/mix increased 19% reflecting the favorable impact of faster growth from our higher-priced brands and favorable mix shift to the on-premise channel. Volumetric growth across the portfolio was offset by the decline in New Mix, resulting in a 1% volume decline in total.
Gross profit increased 19% (+17% underlying), while gross margin contracted 70 basis points to 61% driven by higher input costs related to agave and the impact of supply chain constraints, partially offset by the favorable shift in portfolio mix towards higher-margin brands and channels.
The company’s investment in advertising increased 46% (+44% underlying) driven by higher spend to support the international launch of Jack Daniel’s Tennessee Apple, increased spend for Woodford Reserve compared to the same prior-year period partially due to the timing of the Kentucky Derby, and cycling a substantial reduction in promotional activity during the same period last year due to COVID-19.
Selling, general and administrative expenses increased 14% (+11% underlying) reflecting the timing of higher compensation-related expenses, an increase in non-income tax reserves, and cycling against lower discretionary spend in the prior-year period.
Operating income decreased 25% (+15% underlying), while diluted earnings per share decreased 41% to $0.40.
- Prior-year earnings per share included a $0.19 per share benefit from the gain on the sale of the Early Times, Canadian Mist, and Collingwood brands.

First Quarter of Fiscal 2022 Financial Stewardship

On July 22, 2021, the Brown-Forman Board of Directors declared a regular quarterly cash dividend of $0.1795 per share on the Class A and Class B common stock. The quarterly cash dividend is payable on October 1, 2021, to stockholders of record on September 3, 2021. Brown-Forman has paid regular quarterly cash dividends for 77 consecutive years and has increased the regular dividend for 37 consecutive years.

Fiscal 2022 Outlook

Due to the volatility and uncertainty that continues to exist in the operating environment, including recent COVID-19 trends and global supply chain disruptions, we have revised some of our expectations for fiscal 2022. Currently, we are managing through the impact of global supply chain disruptions, including glass supply, and have deployed a number of risk mitigation strategies to address the various constraints on our business. While we expect these disruptions to persist throughout the fiscal year, we believe the impact will become less significant in the second half of the year.
We expect a more significant unfavorable impact from supply chain disruptions and higher input costs related to agave, transportation costs, and commodity prices to negatively impact our gross margin. As a result of these factors, we expect gross margin to be flat, or slightly down, for the full year versus the slight improvement originally expected.
Despite these challenges, we still anticipate mid-single digit growth in underlying net sales, underlying operating expenses, and underlying operating income for fiscal 2022.
As a result of these factors coupled with unusual comparisons to last year, we expect the seasonality of our results to be volatile during the year.
We expect our effective tax rate to be in the range of about 22-23%.

Conference Call Details

Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (EDT) today. All interested parties in the United States are invited to join the conference call by dialing 833-962-1472 and asking for the Brown-Forman call. International callers should dial +1-442-268-1255. The company suggests that participants dial in ten minutes in advance of the 10:00 a.m. (EDT) start of the conference call. A live audio broadcast of the conference call, and the accompanying presentation slides, will also be available via Brown-Forman’s Internet website, http://www.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 over 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 Tennessee RTDs, 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, GlenDronach, Benriach, Glenglassaugh, Slane, Herradura, el Jimador, New Mix, Korbel, Sonoma-Cutrer, Finlandia, Chambord, and Fords Gin. Brown-Forman’s brands are supported by approximately 4,700 employees and sold in more than 170 countries worldwide. For more information about the company, please visit http://www.brown-forman.com/.

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-consumer changes 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; shifts in consumer purchase practices; 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
Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impact and related governmental actions
Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, 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 acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
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; 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 that affect the 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.


Brown-Forman Corporation Unaudited Consolidated Statements of Operations For the Three Months Ended July 31, 2020 and 2021 (Dollars in millions, except per share amounts)

	2020			2021			Change

Net sales	$	753		$	906		20%
Cost of sales	288			353			23%
Gross profit	465			553			19%
Advertising expenses	62			90			46%
Selling, general, and administrative expenses	148			168			14%
Gain on sale of business	(127		)	—
Other expense (income), net	(5		)	6
Operating income	387			289			(25%)
Non-operating postretirement expense	1			—
Interest expense, net	20			20
Income before income taxes	366			269			(27%)
Income taxes	42			77
Net income	$	324		$	192		(41%)

Earnings per share:
Basic	$	0.68		$	0.40		(41%)
Diluted	$	0.67		$	0.40		(41%)

Gross margin	61.7		%	61.0		%
Operating margin	51.4		%	31.9		%

Effective tax rate	11.6		%	28.5		%

Cash dividends paid per common share	$	0.1743		$	0.1795

Shares (in thousands) used in the
calculation of earnings per share
Basic	478,327			478,793
Diluted	480,429			480,718


Brown-Forman Corporation Unaudited Condensed Consolidated Balance Sheets (Dollars in millions)

	April 30, 2021		July 31, 2021
Assets:
Cash and cash equivalents	$	1,150	$	1,172
Accounts receivable, net	753		803
Inventories	1,751		1,771
Other current assets	263		246
Total current assets	3,917		3,992

Property, plant, and equipment, net	832		816
Goodwill	779		778
Other intangible assets	676		670
Other assets	318		323
Total assets	$	6,522	$	6,579

Liabilities:
Accounts payable and accrued expenses	$	679	$	631
Dividends payable	—		86
Accrued income taxes	34		71
Short-term borrowings	205		155
Total current liabilities	918		943

Long-term debt	2,354		2,346
Deferred income taxes	169		191
Accrued postretirement benefits	219		218
Other liabilities	206		198
Total liabilities	3,866		3,896

Stockholders’ equity	2,656		2,683

Total liabilities and stockholders’ equity	$	6,522	$	6,579


Brown-Forman Corporation Unaudited Condensed Consolidated Statements of Cash Flows For the Three Months Ended July 31, 2020 and 2021 (Dollars in millions)

	2020			2021

Cash provided by operating activities	$	91		$	185

Cash flows from investing activities:
Proceeds from sale of business	177			—
Additions to property, plant, and equipment	(15		)	(14		)
Other	—			(1		)
Cash provided by (used for) investing activities	162			(15		)

Cash flows from financing activities:
Net change in short-term borrowings	55			(50		)
Dividends paid	(83		)	(86		)
Other	(9		)	(5		)
Cash used for financing activities	(37		)	(141		)

Effect of exchange rate changes on cash and cash equivalents	17			(7		)

Net increase (decrease) in cash and cash equivalents	233			22

Cash and cash equivalents, beginning of period	675			1,150

Cash and cash equivalents, end of period	$	908		$	1,172

Schedule A

Brown-Forman Corporation
Supplemental Statement of Operations Information (Unaudited)

	Three Months Ended	Fiscal Year Ended
	July 31, 2021	April 30, 2021



Reported change in net sales	*20%*	3%
Acquisitions and divestitures	2%	—%
Foreign exchange	—%	(1)%
Estimated net change in distributor inventories	(4)%	4%

Underlying change in net sales²	*18%*	6%


Reported change in gross profit	*19%*	*(2)%*
Acquisitions and divestitures	1%	1%
Foreign exchange	—%	(1)%
Estimated net change in distributor inventories	(4)%	4%

Underlying change in gross profit²	*17%*	3%

Reported change in advertising expenses	*46%*	4%
Acquisitions and divestitures	1%	—%
Foreign exchange	(2)%	(2)%

Underlying change in advertising expenses²	*44%*	2%

Reported change in SG&A	*14%*	4%
Acquisitions and divestitures	—%	—%
Foundation	—%	(3)%
Foreign exchange	(3)%	(1)%

Underlying change in SG&A²	*11%*	—%

Reported change in operating income	*(25)%*	7%
Acquisitions and divestitures	39%	(10)%
Foundation	—%	2%
Impairment Charges	2%	(1)%
Foreign exchange	6%	(2)%
Estimated net change in distributor inventories	(6)%	9%
		4
Underlying change in operating income²	*15%*	4%

Note: Totals may differ due to rounding

See “Note 2 – Non-GAAP Financial Measures” for details on our use of Non-GAAP financial measures, how these measures are calculated and the reasons why we believe this information is useful to readers.

Schedule B


Brown-Forman Corporation Supplemental Brand Information (Unaudited) Three Months Ended July 31, 2021

	% Change vs. Prior Year Period
Brand³	Depletions³		Net Sales
Brand³	9-Liter⁴	Drinks Equivalent³	Reported	Acquisitions and Divestitures	Foreign Exchange	Estimated Net Change in Distributor Inventories	Underlying²
Whiskey	11%	16%	19%	3%	—%	(3)%	18%
Jack Daniel’s family of brands	10%	15%	20%	—%	—%	(3)%	16%
Jack Daniel’s Tennessee Whiskey	17%	17%	28%	—%	1%	(7)%	21%
Jack Daniel’s RTD and RTP	1%	1%	6%	—%	(3)%	—%	3%
Jack Daniel’s Tennessee Honey	11%	11%	(3)%	—%	(1)%	14%	10%
Gentleman Jack	3%	3%	(2)%	—%	—%	4%	2%
Jack Daniel’s Tennessee Fire	5%	5%	2%	—%	(1)%	3%	4%
Jack Daniel’s Tennessee Apple	44%	44%	68%	—%	4%	(37)%	35%
Other Jack Daniel’s Whiskey Brands	12%	12%	31%	—%	(1)%	(5)%	24%
Woodford Reserve	30%	30%	31%	—%	—%	4%	35%
Rest of Whiskey	34%	34%	(12)%	63%	(2)%	(10)%	39%
Tequila	(28)%	4%	32%	—%	(5)%	(4)%	23%
el Jimador	14%	14%	34%	—%	(2)%	(7)%	25%
Herradura	76%	76%	94%	—%	(4)%	(9)%	81%
Rest of Tequila	(37)%	(27)%	(15)%	—%	(8)%	1%	(22)%
Wine	9%	9%	30%	—%	—%	(22)%	8%
Vodka	7%	7%	34%	—%	(4)%	(14)%	17%
Rest of Portfolio	18%	18%	(1)%	(3)%	22%	7%	24%
Non-Branded and Bulk	NM	NM	5%	(5)%	—%	—%	—%
Total Portfolio	(1)%	14%	20%	2%	—%	(4)%	18%
Other Brand Aggregations
American whiskey	11%	16%	21%	1%	—%	(3)%	18%
Premium bourbons	30%	30%	34%	—%	—%	2%	36%

Note: Totals may differ due to rounding

Schedule C

Brown-Forman Corporation Supplemental Geographic Information (Unaudited) Three Months Ended July 31, 2021


Geographic Area³	Net Sales
Geographic Area³	Reported	Acquisitions and Divestitures	Foreign Exchange	Estimated Net Change in Distributor Inventories	Underlying²
United States	16%	3%	—%	(4)%	16%
Developed International	17%	1%	(1)%	(5)%	12%
Australia	4%	—%	(1)%	—%	3%
Germany	24%	—%	(2)%	—%	22%
United Kingdom	(3)%	—%	7%	(1)%	2%
France	14%	—%	(3)%	—%	11%
Canada	(4)%	1%	(9)%	11%	—%
Rest of Developed International	57%	5%	(6)%	(32)%	24%
Emerging	40%	—%	(1)%	(5)%	34%
Mexico	12%	—%	(10)%	—%	2%
Poland	18%	—%	(7)%	—%	11%
Brazil	46%	—%	3%	16%	64%
Russia	37%	—%	(3)%	(39)%	(6)%
Rest of Emerging	80%	1%	14%	(24)%	72%
Travel Retail	61%	2%	(5)%	17%	74%
Non-Branded and Bulk	5%	(5)%	—%	—%	—%
Total	20%	2%	—%	(4)%	18%

Note: Totals may differ due to rounding

Schedule D

Brown-Forman Corporation Supplemental Free Cash Flow Information (Unaudited) (Dollars in millions)

	Twelve Months Ended
	July 31, 2020			July 31, 2021

Cash provided by operating activities	$	91		$	185
Additions to property, plant, and equipment	(15		)	(14		)
Free Cash Flow²	$	76		$	171

Note 1 – Percentage growth rates are compared to the same prior-year periods, unless otherwise noted.

Note 2 – Non-GAAP Financial Measures

Use of Non-GAAP Financial Information. We use certain financial measures in this press release 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 operations and other measures reported under GAAP. Other companies may not define or calculate these non-GAAP measures in the same way. Reconciliations of these non-GAAP measures to the most closely comparable GAAP measures are presented on Schedules A, B, C, and D of this press release.

“Underlying change” in measures of statements of operations. We present changes in certain measures, or line items, of the statements of operations that are adjusted to an “underlying” basis. We use “underlying change” for the following measures of the statements of operations: (a) underlying net sales; (b) underlying cost of sales; (c) underlying gross profit; (d) underlying advertising expenses; (e) underlying selling, general, and administrative (SG&A) expenses; (f) underlying other expense (income) net; (g) underlying operating expenses*; and (h) underlying operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, (3) estimated net changes in distributor inventories, and (4) impairment charges. We explain these adjustments below.