Louisville, KY, November 29, 2007 – Brown-Forman Corporation reported diluted earnings per share for its second quarter ended October 31, 2007, of $1.04, up 4% compared to the same prior year period. Higher quarterly earnings reflect accelerated double-digit international profit growth for the company’s Jack Daniel’s Tennessee Whiskey, Finlandia vodka, and Southern Comfort brands. Strong international consumer trends, particularly in Europe, a weaker U.S. dollar, higher global trade inventory levels, and the acquisition of Casa Herradura , contributed to the 16% reported growth in operating income for the quarter. Excluding the benefits of a weaker U.S. dollar, higher trade inventories, acquired brands, and the absence of last year’s gain associated with the sale of winery assets in Italy, underlying operating income was up 6% in the quarter.
Net sales in the quarter increased 23% to $893 million, while gross profit also expanded 23% to $470 million. The addition of acquired brands, significant gains in consumer demand internationally for the company’s premium global brands, and favorable foreign currency trends fueled these improvements. The company’s gross margin on a stripped net sales basis (gross profit as a percentage of net sales excluding excise tax) was 65.7%, unchanged when compared to the same prior-year period, as foreign exchange benefits and the continued shift in mix of our business to higher margin international markets were offset by the addition of lower margin Mexican business and higher costs from rising grain and energy prices.
Advertising expenses increased $20 million, or 22%, in the quarter, reflecting additional investments behind the company’s premium global brands (Jack Daniel’s, Southern Comfort and Finlandia), new investments in support of acquired brands, and the effects of a weaker U.S. dollar. SG&A expenses increased approximately $26 million, or 21%, largely driven by the Casa Herradura acquisition and the resulting addition of a sales, marketing, and distribution infrastructure in Mexico, and a weaker U.S. dollar.
Jack Daniel’s global depletions grew in the low-single digits in the quarter as mid-single digit gains internationally more than offset a modest quarterly decline in the U.S. The brand’s first half global depletions grew in the mid-single digits, driven by 9% volume growth in international markets. Strong double-digit volume gains were recorded in the first half of the fiscal year for both the Gentleman Jack and the Jack Daniel’s & Cola brand extensions.
Globally, Southern Comfort volumes grew at a low-single digit rate in the quarter, as double-digit increases in the U.K. and South Africa offset a low-single digit decline in the U.S. For the first half of the fiscal year, the brand’s depletions grew 10% internationally. Global Finlandia volumes continued to grow at an impressive double-digit rate in the quarter as the brand sustained its four-year trend of strong performance in Eastern Europe. Depletions for our super-premium developing brands increased at a high-single digit rate in the quarter, led by Woodford Reserve, Sonoma-Cutrer, and Chambord. Depletions for the company’s mid-priced regional brands declined at a low-single digit rate in the quarter.
For the first six months of the fiscal year, reported diluted earnings per share were $1.81, up 2% over the prior-year period. Operating income for the first half of the fiscal year increased 13% on a reported basis. Adjusting reported results for favorable benefits from foreign currency fluctuations, acquisitions, trade inventory fluctuations, and last year’s net gain on the sale of winery assets, operating income grew 7% for the first half of this fiscal year. Solid international consumer demand for Jack Daniel’s, Southern Comfort, and Finlandia, and improved volumes and profits from several other brands including Gentleman Jack, Bonterra, Korbel, and Woodford Reserve drove this underlying growth.
Share Repurchase Program
As announced yesterday, the company’s Board of Directors has authorized the repurchase of up to $200 million of outstanding Class A and Class B common stock over the next 12 months, subject to market and certain other conditions. Under this plan, the company can repurchase shares from time to time for cash in open market purchases, block transactions, and privately negotiated transactions.
Full-Year Outlook
The company is narrowing the range of its full-year earnings outlook for fiscal 2008 to $3.42 to $3.54 per diluted share, representing forecasted growth of 9% to 13% over comparable prior year earnings of $3.14 per share. This outlook includes expected earnings dilution of $0.13 to $0.18 associated with the acquisition of Casa Herradura, which is unchanged from prior guidance, and excludes any potential benefit from share repurchases during the remainder of this fiscal year. Despite a more challenging environment in the U.S. and the company’s expectation for higher energy and grain costs, this revised outlook anticipates additional foreign exchange benefits, solid underlying gross profit growth (particularly outside the U.S.), moderating increases in operating expenses, and a lower tax rate in the second half of the fiscal year.
Brown-Forman will host a conference call to discuss second quarter results at 10:00 a.m. (EDT) today. All interested parties in the U.S. are invited to join the conference 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 the 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 Web site, www.brown-forman.com, and then click on the link to "Investor Relations."
For those unable to participate in the live call, a digital replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291 (international). The identification code is 23915963. A digital audio recording of the conference call will also be available on the web page approximately one hour after the conclusion of the conference call. The replays will be available for at least 30 days.
Brown-Forman Corporation is a diversified producer and marketer of fine quality beverage alcohol brands, including Jack Daniel’s, Southern Comfort, Finlandia Vodka, Tequila Herradura, el Jimador Tequila, Canadian Mist, Fetzer and Bolla wines, and Korbel California Champagnes.
Important Note on Forward-Looking Statements:
This release contains statements, estimates, or projections that constitute "forward-looking statements" as defined under U.S. federal securities laws. Generally, the words "expect," "believe," "intend," "estimate," "will," "anticipate," and "project," and similar expressions identify a forward-looking statement, which speaks only as of the date the statement is made. 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. We believe that the expectations and assumptions with respect to our forward-looking statements are reasonable. But by their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that in some cases are out of our control. These factors could cause our actual results to differ materially from Brown-Forman's historical experience or our present expectations or projections. Here is a non-exclusive list of such risks and uncertainties:
• changes in general economic conditions, particularly in the United States where we earn about half of our profits
including higher energy prices, declining home prices, deterioration of the sub-prime lending market, or other factors;
• lower consumer confidence or purchasing related to changes in economic conditions, major natural disasters, terrorist
attacks or widespread outbreak of infectious diseases;
• tax increases, whether at the federal or state level or in major international markets and/or tariff barriers or other
restrictions affecting beverage alcohol;
• limitations and restrictions on distribution of products and alcohol marketing, including advertising and promotion, as a
result of stricter governmental policies adopted either in the United States or in international markets;
• adverse developments in the class action lawsuits filed against Brown-Forman and other spirits, beer and wine manufacturers
alleging that our industry conspired to promote the consumption of alcohol by those under the legal drinking age;
• fluctuations in the U.S. dollar against foreign currencies, especially the British Pound, Euro, Australian Dollar, and the
South African Rand;
• reduced bar, restaurant, hotel and travel business, including travel retail;
• longer-term, a change in consumer preferences, social trends or cultural trends that results in the reduced consumption of
our premium spirits brands;
• changes in distribution arrangements in major markets that limit our ability to market or sell our products;
• adverse impact on performance and reported results as a consequence of integrating acquisitions and ensuring their
conformance to the company’s trade practice standards, financial controls environment and U.S. public company requirements;
• price increases in energy or raw materials, including grapes, grain, agave, wood, glass, and plastic;
• changes in climate conditions and agricultural uncertainties that adversely affect the supply of grapes, agave, grain and
wood;
• termination of our rights to distribute and market agency brands in our portfolio;
• press articles or other public media related to our company, brands, personnel, operations, business performance or
prospects;
• counterfeit production of our products and any resulting negative effect on our intellectual property rights or brand
equity; and
• adverse developments as a result of state or federal investigations of beverage alcohol industry trade practices of
suppliers, distributors and retailers.
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