Brown-Forman Reports Full Year 2012 Results – Anticipates Another Strong Year of High Single-Digit Underlying Operating Income Growth in Fiscal 2013

Louisville, KY, June 6, 2012 – Brown-Forman Corporation (NYSE:BFA, BFB) today reported fourth quarter and fiscal year 2012 financial results.  Reported net sales grew 6% to $3.6 billion in fiscal 2012, or 9% on an underlying1 basis.  Reported operating income decreased 8% to $788 million, but increased 9% on an underlying basis.  Diluted earnings per share were $3.56 compared to $3.90 in the prior year.  As expected, reported year-over-year comparisons were negatively impacted by the absence of the gain on sale and associated profits from the Hopland-based wine business2, as well as foreign exchange for a combined net impact of $0.54 per share.

Looking ahead to fiscal 2013, the Company expects a continuation of fiscal 2012’s strong underlying trends, with net sales and operating income growth in the high single digits, and earnings per share of $3.60 to $4.00.

Fiscal 2012 Highlights
• Underlying net sales increased 9%, an acceleration from fiscal 2011’s growth rate of 4% 
o Each of the Company’s twelve largest markets grew underlying sales, including market share gains in the U.S.
o Underlying sales outside of the U.S. grew 12% in fiscal 2012, and now comprise 58% of total sales.  Emerging markets drove nearly 45% of incremental growth
o Sales growth was led by the Jack Daniel’s trademark, up 12%
o Product innovation and line extensions, including the successful launch of Tennessee Honey, contributed roughly two points of the Company’s 9% sales growth
o Finlandia’s family of brands grew sales 10%, with record depletions3
• Underlying operating income increased 9%, an acceleration from 2011’s growth rate of 6%
• $408 million was returned to shareholders, including $216 million in share repurchases and $192 million in dividends
• Brown-Forman’s one-year TSR4 of 22% outpaced the S&P 500’s 5%
• The Company generated an industry-leading ROIC5 of 19%

Fiscal 2012 underlying results accelerated as shown below:

 

Growth in Underlying

Change in Reported

Net Sales

Operating Income

Net Sales

Operating Income

Fiscal Year 2012

9%

9%

6%

-8%

Fiscal Year 2011

4%

6%

6%

20%

Fiscal Year 2010

1%

6%

1%

7%

Paul Varga, the Company’s Chief Executive Officer, said, “Underlying net sales and operating income accelerated in fiscal 2012 to pre-2008 levels.  We believe this is due to the strength of the Jack Daniel’s trademark and our portfolio of premium brands, our heightened focus on innovation, continued route-to-consumer investments, and the hard work and creativity of our people.  While the economic backdrop remains uncertain, we expect that this strength in underlying sales will continue into fiscal 2013, with anticipated growth in the high single-digits.  After several years of partially absorbing cost increases, we are planning for price increases to be a larger contributor to our total revenue growth, covering cost inflation and improving our relative price positions in the marketplace.”

Varga continued, “Our strong performance was broad-based, with each of our twelve largest markets growing net sales in fiscal 2012.”  Full year underlying net sales grew by 17% in the emerging markets, 8% in the developed world outside of the U.S., and 5% in the U.S.  In total, global net sales grew 9% in fiscal 2012, an acceleration from the 4% growth the Company achieved in fiscal 2011.

Brown-Forman’s Jack Daniel’s trademark continued to grow net sales globally at a double-digit rate, and as the world’s number one American whiskey, the Company believes the Jack Daniel’s trademark is well positioned to continue benefiting from recent global trends in this category.  According to U.S. Nielsen data, Jack Daniel’s Tennessee Whiskey’s growth accelerated in the last twelve months, and is once again gaining volume and value share over the last three months.  This is likely due to several factors, including an improved marketing mix, the positive halo effect created by last year’s launch of Tennessee Honey, as well as renewed interest in the American whiskey category.

Jack Daniel’s Tennessee Honey is an example of how disciplined innovation can create a positive halo effect for the parent brand.  In fiscal 2013, the Company will introduce Tennessee Honey to new markets outside of the U.S., as well as expand in the U.S. through additional sizes and through increased on-premise account penetration.  In the super-premium whiskey category, Gentleman Jack, Jack Daniel’s Single Barrel, and Woodford Reserve registered solid double-digit depletion gains for the year, powered by international demand.  In the aggregate, these three brands depleted over 700,000 cases in fiscal year 2012.

Varga added, “As an industry leader in American whiskey, we are encouraged by the category’s momentum in the United States and around the world.  Aided by super-premium line extensions, flavored expressions, and RTD innovation, the category’s growing popularity bodes well for Brown-Forman and our stable of leading trademarks.”

Finlandia’s depletions grew 7% to over 3.1 million cases, driven by strong demand in Russia and Eastern Europe.  The Company’s tequila portfolio enjoyed broad-based volume growth driven by Herradura’s 13% increase to almost 300,000 cases and 10% growth for New Mix.  Sonoma-Cutrer also enjoyed depletion growth of over 10% for the full year.

Reported gross profit for the year increased 4%, while underlying gross profit grew 8%.  Higher input and fuel costs affected both underlying and reported gross profit trends in the year but inflationary pressures are expected to lessen in fiscal 2013.  One way in which the Company continued to invest consistently behind its portfolio of brands was through higher advertising spend, up 8% on a reported basis with social media playing a more prominent role in the Company’s marketing mix.  Additionally, reported SG&A increased 6% due to higher investments behind people and route-to-consumer initiatives.

Strong operating cash flow in the year allowed the Company to pay down $250 million in debt that matured in April of 2012, bringing total debt to $506 million as of April 30, 2012, compared with $759 million as of April 30, 2011.  The Company had net debt of $168 million, compared to net debt of $192 million as of April 30, 2011.  During fiscal 2012, the Company returned $408 million to shareholders through the repurchase of 3.1 million shares for $216 million and dividends totaling $192 million.  During the fourth quarter, Brown-Forman paid a regular quarterly cash dividend of $0.35 per share on Class A and Class B common stock.  Brown-Forman has paid regular quarterly cash dividends for 66 consecutive years and increased them for the last 28 years, making Brown-Forman a member of the Standard and Poor’s 500 Dividend Aristocrats Index. 

Fourth Quarter 2012 Results
For the fourth quarter, the Company reported net sales growth of 1% and underlying growth of 10%.  Operating income decreased 32% on a reported basis and increased 13% on an underlying basis.  Prior year’s results benefited from the gain on sale and associated profits of the Hopland-based wine business in the year ago quarter which contributed $65 million to operating income in the fourth quarter of 2011.  Diluted earnings per share for the quarter were $0.73 compared to $1.13 in the prior year.  As expected, reported year-over-year comparisons were negatively impacted by the absence of the gain on sale and associated profits from the Hopland-based wine business2, as well as foreign exchange for a combined net impact of approximately $0.36 per share.
 
Fiscal Year 2013 Outlook
The Company is forecasting another strong year of underlying growth rates comparable to fiscal year 2012 levels and in-line with historic long-term rates of growth.  For fiscal 2013, the Company expects high single-digit growth in underlying sales and operating income while continuing to invest in future growth.  Brown-Forman projects diluted earnings per share of $3.60 to $4.00, including an anticipated negative impact from foreign exchange of $0.11 per share.  This range takes into consideration the challenging macroeconomic environment, uncertainty surrounding the Company’s planned price increases, and foreign exchange fluctuations.
 
Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EDT) this morning.  All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call.  International callers should dial 706-679-3410 and ask for the Brown-Forman call.  No password is required.  The company suggests that participants dial in approximately ten minutes in advance of the 10:00 a.m. start of the conference call.

A live audio broadcast of the conference call will also be available via Brown-Forman’s Internet website, http://www.brown-forman.com/, through a link to "Investor Relations."   For those unable to participate in the live call, a replay will be available by calling 855-859-2056 (U.S.) or 404-537-3406 (international).  The identification code is 79064300.  A digital audio recording of the conference call will also be available on the website approximately one hour after the conclusion of the conference call.  The replay will be available for at least 30 days following the conference call.

For more than 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Korbel, Gentleman Jack, el Jimador, Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, and Woodford Reserve.  Brown-Forman’s brands are supported by nearly 4,000 employees and sold in approximately 135 countries worldwide.  For more information about the Company, please visit http://www.brown-forman.com/.

Footnotes:
1 Underlying change represents the percentage increase or decrease in reported financial results in accordance with generally accepted accounting principles (GAAP) in the United States, adjusted for certain items.  A reconciliation from reported to underlying net sales, gross profit, advertising expense, SG&A, and operating income (non-GAAP measures) increases or decreases for the fourth quarter and fiscal 2012, and the reasons why management believes these adjustments to be useful to the reader, are included in Schedule A and the note to this press release.
2 The Hopland-based wine business was sold in April of 2011, and remained as agency brands through December 31, 2011.  The net negative effect of this business on fourth quarter earnings growth was $0.29 per diluted share and $0.43 for the full year.  These agency relationships resulted in fiscal 2012 reported net sales of $79 million and $0.04 per diluted share.
3 Depletions are shipments direct to retail or from distributors to wholesale and retail customers, and are commonly regarded in the industry as an approximate measure of consumer demand.
4 TSR (Total Shareholder Return) assumes dividends reinvested, and measured over the one-year period ending April 30, 2012.
5 ROIC, or return on invested capital is defined as the sum of net income (excluding extraordinary items) and after-tax interest expense, divided by average invested capital.  Invested capital equals assets less liabilities, excluding interest-bearing debt for the one-year period ended April 30, 2012.

Important Information on Forward-Looking Statements:
This report 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,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,” “will,” “will continue,” and similar words identify 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 other factors include, but are not limited to:
• declining or depressed global or regional economic conditions, particularly in the Euro zone; political, financial, or credit or capital market instability; supplier, customer or consumer credit or other financial problems; bank failures or governmental debt defaults
• failure to develop or implement effective business, portfolio and brand strategies, including the increased U.S. penetration and international expansion of Jack Daniel’s Tennessee Honey, innovation, marketing and promotional activity, and route-to-consumer
• unfavorable trade or consumer reaction to our new products, product line extensions, price changes, marketing, or changes in formulation, flavor or packaging
• inventory fluctuations in our products by distributors, wholesalers, or retailers
• competitors’ consolidation or other competitive activities such as pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets
• declines in consumer confidence or spending, whether related to the economy (such as austerity measures, tax increases, high fuel costs, or higher unemployment), wars, natural or other disasters, weather, pandemics, security concerns, terrorist attacks or other factors
• changes in tax rates (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
• governmental or other restrictions on our ability to produce, import, sell, price, or market our products, including advertising and promotion in either traditional or new media; regulatory compliance costs
• business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting measures
• lower returns or discount rates related to pension assets, interest rate fluctuations, inflation or deflation
• fluctuations in the U.S. dollar against foreign currencies, especially the euro, British pound, Australian dollar, Polish zloty or Mexican peso
• changes in consumer behavior or preferences and our ability to anticipate and respond to them, including societal attitudes or cultural trends that result in reduced consumption of our products; reduction of bar, restaurant, hotel or other on-premise business or travel
• consumer shifts away from spirits or premium-priced spirits products; shifts to discount store purchases or other price-sensitive consumer behavior
• distribution and other route-to-consumer decisions or changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related or higher fixed costs
• effects of acquisitions, dispositions, joint ventures, business partnerships or investments, or their termination, including acquisition, integration or termination costs, disruption or other difficulties, or impairment in the recorded value of assets (e.g. receivables, inventory, fixed assets, goodwill, trademarks and other intangibles)
• lower profits, due to factors such as fewer or less profitable used barrel sales, lower production volumes, decreased demand or inability to meet consumer demand for products we sell, sales mix shift toward lower priced or lower margin SKUs, or cost increases in energy or raw materials, such as grain, agave, wood, glass, plastic, or closures
• natural disasters, climate change, agricultural uncertainties, environmental or other catastrophes, or other factors that affect the availability, price, or quality of agave, grain, glass, energy, closures, plastic, water, or wood, or that cause supply chain disruption or disruption at our production facilities or aging warehouses
• negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
• product counterfeiting, tampering, contamination, or recalls and resulting negative effects on our sales, brand equity, or corporate reputation
• significant costs or other adverse developments stemming from class action, intellectual property, governmental, or other major litigation; or governmental investigations of beverage alcohol industry business, trade, or marketing practices by us, our importers, distributors, or retailers

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