Louisville, KY, December 6, 2017 – Brown-Forman Corporation (NYSE:BFA, BFB) reported financial results for its second quarter and the first half of fiscal 2018, ended October 31, 2017. For the second quarter, the company’s reported net sales1 increased 10% to $914 million (+8% on an underlying basis2) compared to the same prior-year period. Reported operating income increased 19% in the quarter to $346 million (+16% on an underlying basis) and diluted earnings per share of $0.62 increased 23%.

For the first six months of the fiscal year, the company’s reported net sales increased 10% to $1,637 million (+7% on an underlying basis) compared to the same prior-year period. Reported net sales growth benefited by two percentage points from changes in distributor inventories and one percentage point of foreign exchange. Reported operating income increased 17% in the quarter to $590 million (+14% on an underlying basis) and diluted earnings per share of $1.08 increased 24%.

Paul Varga, the company’s Chief Executive Officer said, “Brown-Forman’s second quarter and first half results were excellent on both a reported and underlying basis. Against a backdrop of improving economies in the emerging markets, and continued momentum in our categories of focus, our underlying net sales have accelerated nicely due to strong performances from our Jack Daniel’s, Woodford Reserve, Old Forester and Herradura brand families, as well as timing-driven improvements in our used barrel sales. We believe that an ever-improving combination of investment, resource allocation, revenue management, innovation, and geographic expansion are important contributors to our acceleration in fiscal 2018.”

Year-to-date Fiscal 2018 Highlights
• Underlying net sales grew 7% (+10% reported), with balanced geographic and portfolio contribution:
◦ Emerging markets3 delivered strong results, with underlying net sales up 15% (+24% reported)
◦ Developed markets3 grew underlying net sales by 5% (+7% reported), with 6% growth in the United States (+9% reported) and 5% growth outside of the United States (+5% reported)
◦ The Jack Daniel’s family of brands grew underlying net sales 7% (+10% reported), including 6% growth (+9% reported) for Jack Daniel’s Tennessee Whiskey
◦ The company’s super- and ultra-premium American whiskey brands3 grew underlying net sales 15% (+22% reported), including 21% growth from Woodford Reserve (+23% reported)
◦ Herradura grew underlying net sales 19% (+15% reported) and el Jimador grew underlying net sales 10% (+15% reported)
• Underlying operating income grew 14% (+17% reported), helped by the timing of operating expenses
• The company increased its outlook for underlying net sales growth to 6% to 7%, underlying operating income growth to 8% to 9%, and FY18 EPS of $1.90 to $1.98.

Year-to-date Fiscal 2018 Performance By Market
Year-to-date underlying net sales grew 6% (+9% reported) in the United States. The increase in sales growth was driven by balanced growth from the Jack Daniel’s family of brands, including Tennessee Whiskey, Tennessee Honey, Tennessee Fire, Gentleman Jack and RTDs/RTP (RTDs). The company also launched Jack Daniel’s Tennessee Rye in the United States during the second quarter. The company’s bourbon brands delivered sustained growth, including double-digit underlying net sales growth from Woodford Reserve and Old Forester. Herradura and el Jimador tequila grew underlying net sales double-digits in the United States as the company continued to invest in building brand awareness for both of these high quality tequilas.

Sales in the company’s developed markets outside of the United States rebounded as expected in the second quarter, and delivered year-to-date underlying net sales growth of 5% (+5% reported). The United Kingdom and Germany delivered strong, double-digit underlying net sales growth in the second quarter after a sluggish start to the year. Australia’s first half results benefited from the first quarter buy-ins in advance of excise tax-driven price increases, while Japan’s underlying net sales declined due to comparisons with the prior year’s buy-ins in advance of price increases. France’s underlying net sales grew mid-single digits, Canada’s underlying results were flat, and Spain delivered improved results following this summer’s transition to owned distribution.

Underlying net sales in the emerging markets jumped 15% (+24% reported) year-to-date. The company’s two largest emerging markets, Mexico and Poland, grew aggregate underlying and reported net sales by double-digits, with both countries experiencing solid demand for the Jack Daniel’s family of brands. Underlying net sales in the emerging markets excluding Mexico and Poland grew at an even faster rate, as economies and currencies have stabilized in most markets. Russia, Turkey, Brazil, Thailand, China and Ukraine grew underlying net sales double-digits, helped by comparisons to a soft first half of fiscal 2017.

Travel Retail3 continued to deliver solid rates of growth, with underlying net sales up 11% (+18% reported). The company continued to drive growth from key global and regional accounts, while also benefiting from improved distribution, higher passenger volumes in Russia and Turkey, and more stable foreign exchange. The company expects comparisons in the emerging markets and Travel Retail to become more challenging during the second half of fiscal 2018 due to solid growth in the same prior-year period.

Year-to-date Fiscal 2018 Performance By Brand
The company’s underlying net sales growth was led by the Jack Daniel’s family, up 7% (+10% reported). Jack Daniel’s Tennessee Whiskey experienced 6% underlying net sales growth (+9% reported) globally, with solid increases across most major markets, including sizable gains in the emerging markets. Jack Daniel’s Tennessee Honey’s underlying net sales grew 8% (+10% reported). Gentleman Jack grew underlying net sales 9% (+11% reported), driven by a new ad campaign and higher media spend. Jack Daniel’s Tennessee Fire’s underlying net sales grew 14% (+22% reported), as the brand continues to benefit from its global rollout and on-premise gains in the United States. Jack Daniel’s RTD business grew underlying net sales 15% (+14% reported), helped by innovation such as Jack Daniel’s Cider, Jack Daniel’s American Serve, Jack Daniel’s Lynchburg Lemonade and Southern Peach Country Cocktails.

Brown-Forman’s portfolio of super- and ultra-premium whiskey brands, including Woodford Reserve, Jack Daniel’s Single Barrel, and Gentleman Jack, delivered 15% underlying net sales growth (+22% reported). Woodford Reserve grew underlying net sales 21% (+23% reported), and Old Forester grew even faster, helped by the combination of higher price, favorable product mix and volumetric gains.

Finlandia vodka grew underlying net sales 8% (+18% reported). Improved results in Russia more than offset the very competitive pricing environment in Poland.

el Jimador grew underlying net sales by 10% (+15% reported), fueled by strong takeaway trends in the United States. Herradura grew underlying net sales by 19% (+15% reported), driven by double-digit gains in both the United States and Mexico, where results were helped by continued growth of Herradura Ultra. New Mix’s underlying net sales growth increased at a high single-digit rate.

Other P&L Items
Company-wide price/mix contributed nearly two percentage points to the 7% underlying net sales growth (+10% reported) year-to-date. Underlying gross profit grew 7% (+10% reported), as first half results benefited from higher volumes of barrel sales. The company expects higher cost of goods in the second half.

Year-to-date underlying A&P spend increased 5% (+5% reported), as the company continued to invest in the Jack Daniel’s family of brands, increased its investment in the development of the fast growing bourbon and tequila brands, and invested in the seeding of brands that are early in their development, such as Slane, GlenDronach and BenRiach. Cost discipline helped drive a continued decline in underlying SG&A, down 1% (-1% reported).

The company delivered underlying operating income growth of 14% (+17% reported) during the first six months of the year, as operating margin expanded by 220 basis points to 36.0%. The company expects the favorable phasing of operating expenses that helped drive operating leverage during the first half will normalize in the back half of fiscal 2018.

Financial Stewardship
Through October 31, 2017, the company delivered a trailing twelve month reported operating margin of 34.2% and ROIC2 of 21.2%.

On November 16, 2017, Brown-Forman declared a regular quarterly cash dividend of $0.1975 per share on the Class A and Class B common stock, an 8.2% increase of the prior dividend, resulting in an annualized cash dividend of $0.79 per share. The quarterly cash dividend is payable on January 2, 2018 to stockholders of record on December 7, 2017. Brown-Forman has paid regular quarterly cash dividends for 72 consecutive years and has increased the dividend for 34 consecutive years.

Regarding the second half of fiscal 2018, Varga added, “We now expect 6-7% growth in underlying net sales for the full year. We also are planning for a second half reversal of the very positive operating leverage we experienced during the first half due to moderately higher cost of sales expectations and a higher operating investment posture associated with the favorable environment for our brands. Even after incorporating these expectations for higher costs in the back half, we are increasing our full year range for underlying operating income growth to 8-9%, and our EPS expectations to $1.90 to $1.98.”

Revised Fiscal Year 2018 Outlook
The global economy has improved modestly over the last year, but emerging markets remain volatile, and the competitive landscape has intensified in the developed world, making it difficult to accurately predict future results. Assuming current trends continue, the company anticipates:

1. Underlying net sales growth of 6% to 7%.

2. A slight increase in underlying SG&A, and underlying A&P growth roughly in-line with sales growth.

3. Underlying operating income growth of 8% to 9%.

4. Diluted earnings per share of $1.90 to $1.98.

Conference Call Details
Brown-Forman will host a conference call to discuss the 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://www.brown-forman.com/, through a link to “Investors/Events & Presentations.” For those unable to participate in the live call, information regarding the digital audio recording of the conference call and the presentation slides will also be 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 & Cola, 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 4,700 employees and sold in more than 165 countries worldwide. For more information about the company, please visit http://www.brown-forman.com/.

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,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,” 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 uncertainties include those described in Part I, Item 1A. Risk Factors of our 2017 Form 10-K and those described from time to time in our future reports filed with the Securities and Exchange Commission, including:

• 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; 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, capital gains) or changes in related reserves, changes in tax rules (for example, LIFO, foreign income deferral, U.S. manufacturing, and other deductions) or accounting standards, and the unpredictability and suddenness with which they can occur
• 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 smaller distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; bar, restaurant, travel, or other on-premise declines; shifts in demographic 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 products 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 implementation-related or fixed costs
• 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, 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; product counterfeiting, tampering, contamination, or product quality issues
• Significant legal disputes and proceedings; government investigations (particularly of industry or company business, trade or marketing practices)
• 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

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