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Category: Stock Market and Movado Group
Date: 28 August 2019 Stock Price: $58.99 We take a look at the earnings release for the first quarter of their 2020 fiscal year of beverage brand owner Brown-Forman whose brands include Jack Daniels and el Jimador tequila
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About Brown-Forman
1870:
With $5,500 in saved and borrowed money, George Garvin Brown, a young pharmaceuticals salesman in Louisville, Kentucky, starts J.T.S. Brown and Bro. with his half-brother. They sell whisky in sealed glass bottles to assure its quality, an innovative approach at a time when whisky is commonly sold by the barrel. Old Forester Kentucky Straight Bourbon Whisky is the flagship brand. After several name changes and the dissolution of the original partnership, George Garvin enters in a partnership with George Forman, his accountant and friend, and Brown-Forman is created
Today:
For almost 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 and GlenDronach. Brown-Forman’s brands are supported by over 4,800 employees and sold in approximately 170 countries worldwide. The image below shows some of the main highlights for Brown-Forman for their 2019 fiscal year
With $5,500 in saved and borrowed money, George Garvin Brown, a young pharmaceuticals salesman in Louisville, Kentucky, starts J.T.S. Brown and Bro. with his half-brother. They sell whisky in sealed glass bottles to assure its quality, an innovative approach at a time when whisky is commonly sold by the barrel. Old Forester Kentucky Straight Bourbon Whisky is the flagship brand. After several name changes and the dissolution of the original partnership, George Garvin enters in a partnership with George Forman, his accountant and friend, and Brown-Forman is created
Today:
For almost 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 and GlenDronach. Brown-Forman’s brands are supported by over 4,800 employees and sold in approximately 170 countries worldwide. The image below shows some of the main highlights for Brown-Forman for their 2019 fiscal year
Financial overview of Brown-Forman's latest results
Numbers we are interested in: (for the quarter)
- Net sales: $766 million (unchanged from $766 million for the same quarter of the previous year)
- Cost of sales: $243 $268 million (up 10% from $243 million for the same quarter of the previous year)
- Gross profit: $523 million $498million down -5% from $523 million for the same quarter of the previous year)
- Net income: $186 million (down -7% from $200 million for the same quarter of the previous year)
- Diluted earnings per share: $0.41 $0.39 (down -6% from $0.41 for the same quarter of the previous year)
- Gross margin: 68.2% 64.9%
- Operating margin: 34.5% 32.4 %
- Cash dividends paid per common share: $0.166
- Dividend yield: 1.1%
- Cash and cash equivalents: $307 million
- Cash and cash equivalents per share: $0.64 (1.1% of the group's stock price)
- Accounts receivable, net: $626 million
- Accounts receivable as percentage of total assets: 11.7% (we see more than 20% as alarming)
- Inventories: $609 million
- Inventories as percentage of total assets: 11.4% (we see more than 20% as alarming)
- Stockholders’ equity: $1.663 billion
- Stockholders equity per share: $3.46
- Shares in issue: 480.088 million
- Cash generated from operations : $72 million
- Cash generated per share: $0.15
Brown-Forman commentary on the results and earnings guidance
Louisville, KY, August 28, 2019 – Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its first quarter of fiscal 2020. For the first quarter, the company reported net sales of $766 million, flat both on a reported and underlying basis compared to the same prior-year period. In the quarter, reported operating income declined 6% to $248 million (-8% on an underlying basis) and diluted earnings per share declined 6% to $0.39. Lawson Whiting, the company’s President and Chief Executive Officer said, “Our first quarter results came in largely as anticipated considering the year-over-year drag from tariffs and timing of customer orders. Our takeaway trends remain healthy in most of our major markets globally, with particularly improving trends in the United States, our largest market. We believe we remain on track to deliver another year of solid underlying net sales and underlying operating income growth driven by the Jack Daniel’s family of brands. This includes the benefit we expect from the launch of Jack Daniel’s Tennessee Apple beginning in October, as well as the continued strength of our portfolio of premium bourbons and tequilas.”
Whiting further added, “We continue to invest behind the momentum of our business, by not only absorbing much of the tariff costs, but thoughtfully re-allocating and reinvesting back into our brands and our people, including the recent announcement of establishing our own distribution platform in the United Kingdom. We believe that investing in momentum will position us well for the next generation of growth and continue to deliver superior returns for our shareholders.”
First Quarter Fiscal 2020 Highlights
• Underlying and reported net sales were flat, with broad-based geographic and portfolio contribution being offset by the impact from tariffs and timing of customer orders:
◦ The United States grew underlying net sales 4% (+6% reported), emerging markets grew underlying net sales 3% (+1% reported), and underlying net sales in our developed international markets declined 3% (-5% reported)
◦ Underlying net sales for the Jack Daniel’s family of brands declined 1% (-1% reported), driven by a 4% underlying net sales decline (-3% reported) in Jack Daniel’s Tennessee Whiskey
◦ Premium bourbons grew underlying net sales 16% (+23% reported), including 15% underlying net sales growth from Woodford Reserve (+22% reported)
◦ Herradura grew underlying net sales 22% (+22% reported) while el Jimador grew underlying net sales 10% (flat reported)
◦ Declining gross margins, down 330 bps, were affected by tariffs and rising input costs
◦ Underlying operating income declined 8% (-6% reported) and diluted earnings per share declined 6% to $0.39
First Quarter of Fiscal 2020 Results By Market – Growth Led by the United States
The United States grew underlying net sales by 4% (+6% reported) driven by sustained double-digit growth from our premium bourbons, Woodford Reserve and Old Forester, and high single-digit underlying net sales growth in aggregate from our tequilas, Herradura and el Jimador. The Jack Daniel’s family of brands grew underlying net sales in the low-single digits reflecting improving trends for Jack Daniel’s Tennessee Whiskey supported by incremental investment in broad reach media and promotional activities. The company’s consumer takeaway trends in the United States continue to improve, growing mid-single digits and largely in-line with total distilled spirits.
Underlying net sales in the company’s emerging markets grew 3% (+1% reported) on top of last year’s strong double-digit underlying net sales growth. This growth was suppressed by approximately three points due to tariff-related buy-ins in the first quarter of fiscal 2019. Despite a difficult macroeconomic and political environment, Mexico grew underlying net sales 3% (+6% reported), fueled largely by pricing gains for Herradura and our super-premium cristalino tequila, Ultra. Brazil grew underlying net sales 7% (+14% reported) driven by expanding demand for Jack Daniel’s Tennessee Fire and Jack Daniel’s Tennessee Whiskey. Russia experienced a 62% increase in underlying net sales (+34% reported) driven by strong consumer momentum and favorable comparisons to the same period last year where results were negatively affected by disruption resulting from the fiscal 2017 route-to-consumer change. Poland’s underlying net sales declined 14% (-15% reported) largely driven by tariff-related buy-ins in the same period last year and declines for Finlandia. China and India produced strong double-digit underlying net sales growth, led by Jack Daniel’s Tennessee Whiskey, while Turkey’s underlying net sales declined double digits due in part to fiscal 2019 first quarter tariff-related buy-ins.
Underlying net sales in the company’s developed international markets declined 3% (-5% reported). This growth was suppressed by approximately six points due to tariff-related buy-ins last year and net pricing reductions this year. Underlying net sales in the United Kingdom and Germany declined 14% (-21% reported) and 9% (-6% reported), respectively, influenced significantly by last year’s first quarter tariff-related buy-ins. France grew underlying net sales 6% (+7% reported) led by the launch of Jack Daniel’s RTDs3 and gains for Jack Daniel’s Tennessee Honey. Australia delivered modest underlying net sales growth of 1% (-2% reported) while Spain grew reported and underlying net sales in the high-single digits as a result of accelerated consumer momentum. Travel Retail’s underlying net sales declined 14% (-15% reported) driven primarily by the timing of customer orders last year where this channel produced strong double-digit underlying net sales growth.
First Quarter of Fiscal 2020 Results By Brand
Jack Daniel’s family of brands underlying net sales declined 1% (-1% reported) globally as growth was impacted by approximately three percentage points due to tariff-related buy-ins and related net pricing reductions. Jack Daniel’s Tennessee Whiskey experienced a 4% decline (-3% reported) in underlying net sales as tariff-related buy-ins and related net pricing reductions significantly affected our developed international markets. Jack Daniel’s RTD/RTP business delivered broad-based underlying net sales growth of 7% (+6% reported), Jack Daniel’s Tennessee Honey grew underlying net sales 5% (-3% reported), and Jack Daniel’s Tennessee Fire increased underlying net sales 2% (-2% reported) fueled primarily by markets outside of the United States. Gentleman Jack grew underlying net sales 7% (+10% reported) driven by demand in both our domestic and international markets.
Brown-Forman’s portfolio of premium bourbon brands, including Woodford Reserve and Old Forester, delivered 16% (+23% reported) underlying net sales growth as category trends remain favorable and the company’s brands continue to gain share in the United States. Woodford Reserve, the leader in the super-premium bourbon category, grew underlying net sales 15% (+22% reported) and was the largest contributor to underlying net sales growth in the first quarter. Volumetric gains fueled Old Forester’s double-digit underlying net sales growth as the company continues to leverage recent investments such as its Louisville distillery and homeplace and the increased focus provided from our emerging brands team in the United States.
The company’s tequila brands sustained double-digit underlying net sales growth fueled by Herradura’s underlying net sales growth of 22% (+22% reported) and el Jimador’s underlying net sales growth of 10% (flat reported). Herradura’s underlying net sales growth was driven by pricing and higher volumes in Mexico and the United States. el Jimador’s underlying net sales growth was driven by higher volumes and pricing in the United States. Finlandia vodka’s underlying net sales declined 5% (-9% reported). Positive volume growth in Russia was offset by underlying net sales declines in Poland driven by the competitive vodka category.
Other P&L Items
Company-wide price/mix increased one percentage point due to favorable growth from our higher- priced brands, offset by a one percentage point decline in volumes primarily related to tariffs. Underlying gross profit declined 5% (-5% reported) pulled down by tariffs and higher input costs. Reported gross margin declined 330bps in the first quarter to 64.9%, approximately 210bps reflective of tariff costs with the remainder essentially being driven by higher input costs, including agave and wood.
Underlying advertising spend decreased 4% (-6% reported) in the first quarter as increased media spend on Jack Daniel’s Tennessee Whiskey in the United States was more than offset by the timing of spend on our tequila brands and the rest of the Jack Daniel’s family of brands. Underlying SG&A decreased 1% (-2% reported) driven by lower compensation-related costs. Underlying operating income declined 8% (-6% reported).
Financial Stewardship
On July 25, 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 October 1, 2019 to stockholders of record on September 6, 2019. Brown-Forman has paid regular quarterly cash dividends for 74 consecutive years and has increased the dividend for 35 consecutive years.
Fiscal Year 2020 Outlook
Growing uncertainty around the global economic and geopolitical environment combined with the competitive landscape in the developed world could impact our future results. Despite these factors, the company is reaffirming its prior full year fiscal 2020 guidance of:
1. Underlying net sales growth of 5% to 7%.
2. Underlying operating income growth of 3% to 5%.
3. Diluted earnings per share of $1.75 to $1.85
Whiting further added, “We continue to invest behind the momentum of our business, by not only absorbing much of the tariff costs, but thoughtfully re-allocating and reinvesting back into our brands and our people, including the recent announcement of establishing our own distribution platform in the United Kingdom. We believe that investing in momentum will position us well for the next generation of growth and continue to deliver superior returns for our shareholders.”
First Quarter Fiscal 2020 Highlights
• Underlying and reported net sales were flat, with broad-based geographic and portfolio contribution being offset by the impact from tariffs and timing of customer orders:
◦ The United States grew underlying net sales 4% (+6% reported), emerging markets grew underlying net sales 3% (+1% reported), and underlying net sales in our developed international markets declined 3% (-5% reported)
◦ Underlying net sales for the Jack Daniel’s family of brands declined 1% (-1% reported), driven by a 4% underlying net sales decline (-3% reported) in Jack Daniel’s Tennessee Whiskey
◦ Premium bourbons grew underlying net sales 16% (+23% reported), including 15% underlying net sales growth from Woodford Reserve (+22% reported)
◦ Herradura grew underlying net sales 22% (+22% reported) while el Jimador grew underlying net sales 10% (flat reported)
◦ Declining gross margins, down 330 bps, were affected by tariffs and rising input costs
◦ Underlying operating income declined 8% (-6% reported) and diluted earnings per share declined 6% to $0.39
First Quarter of Fiscal 2020 Results By Market – Growth Led by the United States
The United States grew underlying net sales by 4% (+6% reported) driven by sustained double-digit growth from our premium bourbons, Woodford Reserve and Old Forester, and high single-digit underlying net sales growth in aggregate from our tequilas, Herradura and el Jimador. The Jack Daniel’s family of brands grew underlying net sales in the low-single digits reflecting improving trends for Jack Daniel’s Tennessee Whiskey supported by incremental investment in broad reach media and promotional activities. The company’s consumer takeaway trends in the United States continue to improve, growing mid-single digits and largely in-line with total distilled spirits.
Underlying net sales in the company’s emerging markets grew 3% (+1% reported) on top of last year’s strong double-digit underlying net sales growth. This growth was suppressed by approximately three points due to tariff-related buy-ins in the first quarter of fiscal 2019. Despite a difficult macroeconomic and political environment, Mexico grew underlying net sales 3% (+6% reported), fueled largely by pricing gains for Herradura and our super-premium cristalino tequila, Ultra. Brazil grew underlying net sales 7% (+14% reported) driven by expanding demand for Jack Daniel’s Tennessee Fire and Jack Daniel’s Tennessee Whiskey. Russia experienced a 62% increase in underlying net sales (+34% reported) driven by strong consumer momentum and favorable comparisons to the same period last year where results were negatively affected by disruption resulting from the fiscal 2017 route-to-consumer change. Poland’s underlying net sales declined 14% (-15% reported) largely driven by tariff-related buy-ins in the same period last year and declines for Finlandia. China and India produced strong double-digit underlying net sales growth, led by Jack Daniel’s Tennessee Whiskey, while Turkey’s underlying net sales declined double digits due in part to fiscal 2019 first quarter tariff-related buy-ins.
Underlying net sales in the company’s developed international markets declined 3% (-5% reported). This growth was suppressed by approximately six points due to tariff-related buy-ins last year and net pricing reductions this year. Underlying net sales in the United Kingdom and Germany declined 14% (-21% reported) and 9% (-6% reported), respectively, influenced significantly by last year’s first quarter tariff-related buy-ins. France grew underlying net sales 6% (+7% reported) led by the launch of Jack Daniel’s RTDs3 and gains for Jack Daniel’s Tennessee Honey. Australia delivered modest underlying net sales growth of 1% (-2% reported) while Spain grew reported and underlying net sales in the high-single digits as a result of accelerated consumer momentum. Travel Retail’s underlying net sales declined 14% (-15% reported) driven primarily by the timing of customer orders last year where this channel produced strong double-digit underlying net sales growth.
First Quarter of Fiscal 2020 Results By Brand
Jack Daniel’s family of brands underlying net sales declined 1% (-1% reported) globally as growth was impacted by approximately three percentage points due to tariff-related buy-ins and related net pricing reductions. Jack Daniel’s Tennessee Whiskey experienced a 4% decline (-3% reported) in underlying net sales as tariff-related buy-ins and related net pricing reductions significantly affected our developed international markets. Jack Daniel’s RTD/RTP business delivered broad-based underlying net sales growth of 7% (+6% reported), Jack Daniel’s Tennessee Honey grew underlying net sales 5% (-3% reported), and Jack Daniel’s Tennessee Fire increased underlying net sales 2% (-2% reported) fueled primarily by markets outside of the United States. Gentleman Jack grew underlying net sales 7% (+10% reported) driven by demand in both our domestic and international markets.
Brown-Forman’s portfolio of premium bourbon brands, including Woodford Reserve and Old Forester, delivered 16% (+23% reported) underlying net sales growth as category trends remain favorable and the company’s brands continue to gain share in the United States. Woodford Reserve, the leader in the super-premium bourbon category, grew underlying net sales 15% (+22% reported) and was the largest contributor to underlying net sales growth in the first quarter. Volumetric gains fueled Old Forester’s double-digit underlying net sales growth as the company continues to leverage recent investments such as its Louisville distillery and homeplace and the increased focus provided from our emerging brands team in the United States.
The company’s tequila brands sustained double-digit underlying net sales growth fueled by Herradura’s underlying net sales growth of 22% (+22% reported) and el Jimador’s underlying net sales growth of 10% (flat reported). Herradura’s underlying net sales growth was driven by pricing and higher volumes in Mexico and the United States. el Jimador’s underlying net sales growth was driven by higher volumes and pricing in the United States. Finlandia vodka’s underlying net sales declined 5% (-9% reported). Positive volume growth in Russia was offset by underlying net sales declines in Poland driven by the competitive vodka category.
Other P&L Items
Company-wide price/mix increased one percentage point due to favorable growth from our higher- priced brands, offset by a one percentage point decline in volumes primarily related to tariffs. Underlying gross profit declined 5% (-5% reported) pulled down by tariffs and higher input costs. Reported gross margin declined 330bps in the first quarter to 64.9%, approximately 210bps reflective of tariff costs with the remainder essentially being driven by higher input costs, including agave and wood.
Underlying advertising spend decreased 4% (-6% reported) in the first quarter as increased media spend on Jack Daniel’s Tennessee Whiskey in the United States was more than offset by the timing of spend on our tequila brands and the rest of the Jack Daniel’s family of brands. Underlying SG&A decreased 1% (-2% reported) driven by lower compensation-related costs. Underlying operating income declined 8% (-6% reported).
Financial Stewardship
On July 25, 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 October 1, 2019 to stockholders of record on September 6, 2019. Brown-Forman has paid regular quarterly cash dividends for 74 consecutive years and has increased the dividend for 35 consecutive years.
Fiscal Year 2020 Outlook
Growing uncertainty around the global economic and geopolitical environment combined with the competitive landscape in the developed world could impact our future results. Despite these factors, the company is reaffirming its prior full year fiscal 2020 guidance of:
1. Underlying net sales growth of 5% to 7%.
2. Underlying operating income growth of 3% to 5%.
3. Diluted earnings per share of $1.75 to $1.85
Brown-Forman's company (NYSE: BF.B) stock price history
The image below shows the stock price history of Brown-Forman over the last 5 years. 5 years ago the stock price was around $35 a share, today its trading at $58.99 a share. Strong increase in the share price over the last 5 years which has rewarded investors handsomely. While the gains are not astronomical like certain IT/Entertainment stocks such as Netflix it has provided investors with consistent growth over time. Slow and steady always wins the race. Dont believe us, think about the tortoise and the hare,
Brown-Forman (NYSE: BF.B) latest stock valuation
Based on the group's earnings report for the first quarter of their 2010 fiscal year as well as the earnings guidance provided we value the group's stock at $41.90 a share. At its current price we do feel the group's stock is overvalued and we would prefer to buy into the group and their quality assets at a price close to or below the $40 mark. Our target price for Brown-Forman of $41.90 is based on their current earnings as well as their expected earnings per share guidance provided.