Louisville, KY, August 28, 2008 – Brown-Forman Corporation reported earnings per share decreased 5% to $0.73 and operating income decreased 10% to $141 million for the company’s first quarter of fiscal 2009. This decline was due to a $22 million pre-tax ($16 million after-tax) non-cash charge related to an abnormal number of agave plants identified during the quarter as dead or dying. Excluding this $0.13 per share non-cash charge, earnings per share rose 12% to $0.86 and operating income grew 5% to $163 million as earnings per share benefited from reduced net interest expense, a lower effective tax rate, and a lower number of shares outstanding following the fiscal 2008 share repurchase.
Reported net sales for the first quarter ended July 31, 2008 were $790 million, an increase of 7% from the prior-year period. Adjusting for the items listed on Schedule A of this press release, underlying net sales grew 4%, and underlying operating income grew 3% versus the same period last fiscal year.
• Jack Daniel’s Tennessee Whiskey first quarter reported net sales increased in the mid-single digits, or in the low single digits on a constant currency basis, reflecting the benefit of price increases. Global depletions declined 1% for the period as gains in Eastern Europe and flat U.S. volumes were offset by declines in markets with softening economies, particularly Germany, the U.K., and South Africa.
• Gentleman Jack net sales increased by double digits on both a reported and a constant currency basis for the period. Jack Daniel’s Single Barrel delivered solid net sales growth. While the Jack Daniel’s & Cola brand experienced significant volume declines due to a substantial increase in ready-to-drink excise taxes in Australia, global reported net sales grew in the mid-single digits, but declined in the high single digits on a constant currency basis.
• Finlandia net sales increased by double digits on both a reported and a constant currency basis in the period, reflecting higher volumes and pricing gains. Global depletions grew in the high single digits, led by continued double-digit growth in Eastern Europe.
• Southern Comfort net sales, both reported and in constant currency, declined in the mid-single digits during the quarter. Volume declines, due in part to softness of the on-premise channel in the brand’s major markets, were offset partially by price increases.
• Reported and constant currency net sales for Sonoma-Cutrer, Bonterra, Chambord, Tuaca, and Woodford Reserve grew at double-digit rates for the quarter. The Casa Herradura portfolio’s net sales grew by double digits on a reported basis and in the mid-single digits on a constant currency basis.
Reported gross profit declined 3%, while underlying gross profit gained 1% after adjusting for the non-cash charge related to agave inventory, the benefit of a weaker U.S. dollar, discontinued agency relationships, and estimated changes in global trade inventories. Underlying gross profit growth lagged underlying net sales trends, as grain and energy cost pressures outpaced the rate of price increases.
Reported advertising investments increased 3% over the prior year first quarter. Adjusting for the weaker U.S. dollar and the absence of spending behind exited agency brands, underlying advertising investments were flat for the quarter. This reflects a reallocation of spending to those brands, markets, and channels where we believe the consumer and trade are more responsive to the investments, as well as some shifting of seasonal investments. Selling, general, and administrative (SG&A) expenses increased 1% over the first quarter last year. Adjusting for the weaker U.S. dollar and transition costs related to the fiscal 2007 Casa Herradura acquisition, SG&A decreased 1%, demonstrating the continuation of tight management of expenses and the leveraging of investments made in prior years.
Full-Year Outlook
Due to the non-cash agave charge in the quarter, the company is reducing its fiscal 2009 full year earnings per share guidance to a range of $3.60 to $3.85, representing growth of 1% to 7% over prior-year earnings. Excluding the charge, fiscal 2009 guidance remains unchanged. The guidance incorporates expectations of improving volumetric global trends for Jack Daniel’s, benefits of price increases, continued cost pressures, continued tight control of discretionary operating expenses, lower net interest expense, and additional benefits from the fiscal 2008 share repurchase.
Commenting on the quarter, Paul Varga, chief executive officer said, “The loss of agave plants has reduced our inventory, but we do not believe this will constrain our ability to build our tequila brands to their full potential. While these are certainly challenging economic times, we remain confident about the long-term growth opportunity for our excellent portfolio of premium and super-premium brands.”
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 Web site, www.brown-forman.com, through a link to "Investors Relations." For those unable to participate in the live call, a replay will be available by calling 800-642-1687 (U.S.) or 706-645-9291 (international). The identification code is 60515742.
A digital audio recording of the conference call will also be available on the Web site approximately one hour after the conclusion of the conference call. The replay will be available for at least 30 days following the conference call.
Brown-Forman Corporation is a 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 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:
• continuation of the deterioration in general economic conditions (particularly in the United States where we earn about half of our profits, and other markets where we do significant business), including higher energy prices, declining home prices, deterioration of the sub-prime lending market, interest rate fluctuations, inflation, decreased discretionary income or other factors;
• pricing, marketing and other competitive activity focused against our major brands;
• lower consumer confidence or purchasing related to economic conditions, major natural disasters, terrorist attacks or widespread outbreak of infectious diseases;
• tax increases and/or tariff barriers or other restrictions affecting beverage alcohol, whether at the federal or state level in the U.S. or in other major markets around the world, and the unpredictability or suddenness with which they can occur;
• 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 our other major markets;
• fluctuations in the U.S. Dollar against foreign currencies, especially the British Pound, Euro, Australian Dollar, Polish Zloty and the South African Rand;
• reduced bar, restaurant, hotel and other on-premise business, including consumer shifts to discount stores and other price sensitive purchases and venues;
• longer-term, a change in consumer preferences, societal attitudes or cultural trends that results in the reduced consumption of our premium spirits brands or our ready-to-drink products;
• changes in distribution arrangements in major markets that limit our ability to market or sell our products;
• adverse impacts relating to our acquisition strategies or our integration of acquired businesses and conforming them 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, agricultural uncertainties or other supply limitations that adversely affect the price, availability, quality, or health of grapes, agave, grain, glass, closures or 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, tampering, or contamination of our products and any resulting negative effect on our sales, intellectual property rights, or brand equity;
• adverse developments stemming from state or federal investigations of beverage alcohol industry marketing or trade practices of suppliers, distributors or retailers; and
• impairment in the recorded value of inventory, fixed assets, goodwill or other acquired intangibles.
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