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Brown-Forman Reports Solid Year-to-Date Results; Reaffirms Full Year Outlook

Louisville, KY, March 6, 2019 – Brown-Forman Corporation (NYSE: BFA, BFB) reported results for the third quarter and nine months of fiscal 2019, ended January 31, 2019. For the third quarter, the company’s reported net sales1 increased 3% to $904 million (+4% on an underlying basis2) compared to the same prior-year period. The company estimates that underlying net sales growth in the third quarter was negatively impacted by one percentage point due to lower net prices to distributors in certain markets to offset the incremental cost of tariffs. In the quarter, reported operating income grew 4% to $320 million (+4% on an underlying basis) and diluted earnings per share grew 20% to $0.47.

For the first nine months of the fiscal year, the company’s reported net sales increased 3% to $2,580 million (+5% on an underlying basis). Reported net sales growth was negatively impacted by three percentage points from foreign exchange. The company estimates that year-to-date underlying net sales growth was negatively impacted by almost one percentage point due to tariff-related lower net prices. Year-to-date reported operating income grew 2% to $916 million (+4% on an underlying basis) and diluted earnings per share of $1.40 increased 12%.

Lawson Whiting, the company’s Chief Executive Officer said, “Our portfolio of premium spirits brands delivered solid rates of sustained sales growth, led by the strength of our bourbon and tequila brands, as well as the international expansion of the Jack Daniel’s trademark. We remain on track to deliver another strong year of results as cost discipline helped offset some of the large burden we are absorbing due to the retaliatory tariffs on American whiskey.” Whiting added, “The growth opportunity for our brand portfolio remains significant, and our teams around the world are executing on our long-term growth strategy.”

Year-to-date Fiscal 2019 Highlights

• Underlying net sales grew 5% (+3% reported), with broad-based geographic3 and portfolio contribution:
◦ Underlying net sales in the emerging markets grew by 10% (+3% reported), developed international markets by 4% (flat reported), and the United States by 4% (+3% reported)
◦ The Jack Daniel’s family of brands grew underlying net sales 4% (+2% reported), including 2% underlying net sales growth (flat reported) for Jack Daniel’s Tennessee Whiskey
◦ Super-premium American whiskey brands grew underlying net sales 24% (+21% reported), including 24% underlying net sales growth from Woodford Reserve (+21% reported)
◦ Herradura and el Jimador grew underlying net sales 14% and 15%, respectively (+9% and +11% reported)
• Underlying operating income grew 4% (+2% reported) and earnings per share increased 12% to $1.40
• The company repurchased $78 million of common stock during the three months ended January 31, 2019

Year-to-date Fiscal 2019 Results By Market – Balanced Geographic Delivery of Growth

The company delivered solid, broad-based growth around the world, with the strongest results coming from the emerging markets, as well as continued mid-single digit growth in the developed world.

Year-to-date underlying net sales in the United States grew 4% (+3% reported). Sales growth continued to accelerate quarter over quarter in fiscal 2019, resulting in 5% underlying net sales growth in the third quarter (7% reported), as back half weighted activities began to take hold in the marketplace. According to six and twelve month syndicated data, Brown-Forman’s value-based consumer takeaway3 trends are in the mid-single digit range. The company’s premium bourbons, Woodford Reserve and Old Forester, remained standout performers in the United States delivering strong double-digit underlying net sales growth. Sales growth for the Jack Daniel’s family of brands including Jack Daniel’s Tennessee Whiskey, Gentleman Jack, Jack Daniel’s RTD/RTP products, Jack Daniel’s Tennessee Fire and Jack Daniel’s Tennessee Honey also accelerated sequentially. Herradura and el Jimador tequilas grew aggregate underlying net sales double-digits due to continued investments in the brands and favorable category momentum.

Underlying net sales in the company’s developed international markets grew 4% (flat reported), driven primarily by volume gains. This growth was suppressed by approximately two points from the previously mentioned tariff-related lower net prices, primarily in Europe. Germany and Australia delivered very strong underlying net sales growth of 13% (+9% reported) and 7% (flat reported), respectively. Spain’s year-to-date underlying net sales grew double-digits as results continued to benefit from the fiscal 2018 transition to owned distribution. The United Kingdom and France were up modestly, delivering underlying net sales growth of 3% (-5% reported) and 1% (-1% reported), respectively. Canada’s underlying net sales declined 5% (-10% reported) due to a change in our selling and marketing structure.

Underlying net sales in the company’s emerging markets grew 10% (+3% reported) on top of last year’s underlying net sales growth of 15% (+19% reported). Mexico remained the largest growth driver, with underlying net sales up 15% (+5% reported), fueled by strong gains across the portfolio of tequila brands, including Herradura, New Mix and el Jimador, as well as continued growth from the Jack Daniel’s family of brands. Brazil grew underlying net sales 27% (-6% reported) due to strong demand for Jack Daniel’s Tennessee Whiskey. Poland delivered underlying net sales growth of 1% (+2% reported) as double-digit gains for Jack Daniel’s Tennessee Whiskey were largely offset by soft results for Finlandia. Russia experienced a 4% increase in underlying net sales (+24% reported). Turkey’s underlying net sales declined low single-digits, while reported net sales were down significantly due to adverse foreign exchange. Several other emerging markets, including Southeast Asia, China, Ukraine and India delivered double-digit underlying net sales growth during the first nine months of fiscal 2019.

Travel Retail delivered solid year-to-date results, with underlying net sales up 6% (+1% reported). Growth was led by increased demand for Woodford Reserve, expansion of GlenDronach and BenRiach, as well as new product launches, including Jack Daniel’s Bottled-in-Bond and Jack Daniel’s Tennessee Rye.

Year-to-date Fiscal 2019 Results By Brand – Strong Growth in American Whiskey and Tequila
The company’s underlying net sales growth was driven by strong global demand for American whiskey. The Jack Daniel’s family of brands grew underlying net sales 4% (+2% reported) globally, and was negatively impacted by approximately one percentage point due to tariff-related lower net prices. Jack Daniel’s Tennessee Whiskey experienced 2% underlying net sales growth (flat reported), driven by volume gains. Gentleman Jack grew underlying net sales 8% (+8% reported). Jack Daniel’s Tennessee Honey’s underlying net sales gained 6% (+6% reported) and Jack Daniel’s Tennessee Fire increased underlying net sales 6% (+5% reported), fueled by continued global growth for both brands. Jack Daniel’s RTD/RTP business delivered underlying net sales growth of 8% (+3% reported) despite difficult comparisons against last year’s high rates of growth.

Brown-Forman’s portfolio of super-premium American whiskey brands, including Woodford Reserve, Jack Daniel’s Single Barrel and Gentleman Jack, delivered 24% underlying net sales growth (+21% reported), as category trends remain favorable. Woodford Reserve grew underlying net sales 24% (+21% reported) and is enjoying out-sized growth as the leader in the super-premium bourbon category. Old Forester grew net sales double-digits due to volumetric gains and favorable price/mix.

el Jimador grew underlying net sales by 15% (+11% reported), propelled by volume growth and higher prices in the United States as well as strong takeaway trends in Mexico after repositioning the brand in the premium space over the last few years. Herradura grew underlying net sales by 14% (+9% reported), with double-digit gains in the United States and Mexico fueled by continued consumer demand for Herradura Ultra. New Mix’s underlying net sales grew double-digits, helped by new SKUs and innovation including the launch of New Mix Mineral.

Finlandia vodka’s underlying net sales declined 7% (-9% reported). The decrease in underlying net sales was driven by a competitive retail environment for vodka in Poland and the tough prior year comparison when we changed to a new distributor in Russia.

Other P&L Items
Company-wide price/mix contributed two percentage points to the 5% underlying net sales growth (+3% reported) during the first nine months of the year. Underlying gross profit grew 3% (flat reported), and was held back by the cost of absorbing tariffs and higher input costs. Year-to-date reported gross margins declined 190bps to 65.3%, with approximately 130bps of the decline due to tariffs.

Underlying advertising spend increased 3% (-2% reported) year-to-date as the company made investments across the brand portfolio, including Jack Daniel’s Tennessee Whiskey, the first year of the Woodford Reserve Kentucky Derby sponsorship, and this past summer’s opening of the Old Forester distillery and homeplace. Underlying SG&A declined 2% (-4% reported), driven by a continued focus on cost discipline and efficiency gains, as well as declines in compensation-related costs. The company delivered underlying operating income growth of 4% (+2% reported). Foreign exchange negatively impacted reported operating income growth by three percentage points.

Financial Stewardship
On January 29, 2019, Brown-Forman declared a regular quarterly cash dividend of $0.166 per share on the Class A and Class B common stock, equating to an annualized cash dividend of $0.664 per share. The quarterly cash dividend is payable on April 1, 2019 to stockholders of record on March 4, 2019. Brown-Forman has paid regular quarterly cash dividends for 73 consecutive years and has increased the dividend for 35 consecutive years.

During the third quarter of fiscal 2019, the company repurchased a total of 1.6 million Class A and Class B shares for $78 million, at an average price of $48 per share. These repurchases completed the company’s $200 million share repurchase program.

As of January 31, 2019, total debt was $2,508 million compared to $2,556 million as of April 30, 2018.

Fiscal Year 2019 Outlook

The competitive landscape in the developed world remains intense, and recently enacted retaliatory tariffs on American whiskey have created additional uncertainty around the company’s near-term outlook, making it difficult to accurately predict future results. Assuming tariffs remain in place for the full fiscal year, the company currently anticipates:

1. Underlying net sales growth of 6% to 7%.
2. Modest declines in underlying SG&A and underlying A&P growth roughly in-line with net sales gains.
3. Underlying operating income growth of 4% to 6%.
4. Diluted earnings per share of $1.65 to $1.75.

Conference Call Details
Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (EST) today. All interested parties in the United States are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call. International callers should dial +1-706-679-3410. The company suggests that participants dial in ten minutes in advance of the 10:00 a.m. (EST) 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://localhost/, through a link to “Investors/Events & Presentations.” For those unable to participate in the live call, the digital audio recording of the conference call and the presentation slides will also be posted on the website. The replay will be available for at least 30 days following the conference call.

For nearly 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 RTDs, Jack Daniel’s Tennessee Honey, Jack Daniel’s Tennessee Fire, Gentleman Jack, Jack Daniel’s Single Barrel, Finlandia, Korbel, el Jimador, Woodford Reserve, Old Forester, Canadian Mist, Herradura, New Mix, Sonoma-Cutrer, Early Times, Chambord, BenRiach, GlenDronach and Slane. Brown-Forman’s brands are supported by over 4,800 employees and sold in more than 170 countries worldwide. For more information about the company, please visit http://localhost/.

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:
• Unfavorable global or regional economic conditions and related 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
• Risks associated with being a U.S.-based company with global operations, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including potential retaliatory tariffs on American spirits and the effectiveness of our actions to mitigate the negative impact on our sales and distributors; compliance with local trade practices and other regulations, including anti-corruption laws; terrorism; and health pandemics
• Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar
• Changes in laws, regulations, or 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, sales, VAT, tariffs, duties, corporate, individual income, dividends, or capital gains) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
• The impact of the U.S. tax reform legislation, including as a result of future regulations and guidance interpreting the statute
• Dependence upon the continued growth of the Jack Daniel’s family of brands
• 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; legalization of marijuana use on a more widespread basis; shifts in consumer purchase practices from traditional to e-commerce retailers; 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
• Decline in the social acceptability of beverage alcohol in significant markets
• 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, labor, or finished goods
• 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
• Inventory fluctuations in our products by distributors, wholesalers, or retailers
• Competitors’ and retailers’ consolidation or 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
• Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
• Inadequate protection of our intellectual property rights
• Product recalls or other product liability claims, or product counterfeiting, tampering, contamination, or quality issues
• Significant legal disputes and proceedings, or government investigations
• Failure or breach of key information technology systems
• Negative publicity related to our company, brands, marketing, personnel, operations, business performance, or prospects
• Failure to attract or retain key executive or employee talent
• 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 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.

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