Brown-Forman Corporation announced financial results for its second quarter and the first half of fiscal 2021. For the second quarter, the company’s reported net sales of $985 million were essentially flat (+4% on an underlying basis) compared to the same prior-year period.
In the quarter, reported operating income decreased 6% to $330 million (+6% on an underlying basis) and diluted earnings per share declined 15% to $0.50.
For the first six months of the fiscal year, the company’s reported net sales decreased 1% to $1,738 million (+4% on an underlying basis) compared to the same prior-year period. Year-to-date reported operating income increased 19% to $717 million (+11% on an underlying basis) and diluted earnings per share grew 20% to $1.17.
Brown-Forman’s President and Chief Executive Officer Lawson Whiting stated,
“We continue to be pleased with our underlying top-line growth in the first half. Notably, our business accelerated in the second quarter amidst an unprecedented environment.
These results are a testament to the resilience of our people, the strength of our brands, and the agility that so many before us today have demonstrated over the company’s last 150 years. As the pandemic continues, our focus remains on prioritizing the safety of our employees, meeting the needs of our consumers and business partners, and pursuing our long-term strategy.”
First Half of Fiscal 2021 Highlights
- Underlying net sales grew 4% (-1% reported)
- The United States grew underlying net sales 9% (+3% reported) while our developed international3 markets grew underlying net sales 10% (+10% reported). Underlying net sales in our emerging markets were flat (-13% reported).
- Jack Daniel’s family of brands underlying net sales grew 2% (-3% reported). Underlying net sales growth from Jack Daniel’s RTDs3, Jack Daniel’s Tennessee Apple, Jack Daniel’s Tennessee Honey, and Gentleman Jack was partially offset by an unfavourable channel mix shift in Jack Daniel’s Tennessee Whiskey.
- Premium bourbons grew underlying net sales 22% (+18% reported) driven by sustained double-digit growth across Woodford Reserve and Old Forester.
- The tequila portfolio grew underlying net sales 13% (+5% reported) led by strong volume-driven increases from New Mix in Mexico and el Jimador in the United States, which additionally benefited from higher prices. Herradura’s underlying net sales declined 2% (-4% reported) as lower volumes, primarily in Mexico, more than offset double-digit growth in the United States.
- Non-branded and bulk underlying net sales declined 33% (-34% reported) primarily reflecting lower demand and pricing for used barrels.
- Underlying operating income increased by 11% (+19% reported) driven primarily by operating expense leverage.
First Half of Fiscal 2021 Brand Results
The Jack Daniel’s family of brands underlying net sales growth was driven by Jack Daniel’s RTDs, the ongoing launch of Jack Daniel’s Tennessee Apple, and broad-based volume growth from Jack Daniel’s Tennessee Honey and Gentleman Jack.
Underlying net sales decline for Jack Daniel’s Tennessee Whiskey was driven by lower volumes in certain emerging markets and our Travel Retail channel reflecting travel bans and other restrictions related to COVID-19, along with unfavourable channel mix effect in the United States and developed international markets related to significant restrictions in the on-premise channel.
Brown-Forman’s portfolio of premium bourbon brands sustained their double-digit underlying net sales growth. Woodford Reserve’s gains were fueled by strong consumer takeaway trends in the United States, slightly offset by volume declines in Travel Retail. Old Forester’s robust double-digit underlying net sales growth was powered by ongoing volumetric gains and favourable mix from the brand’s high-end expressions.
The company’s tequila brands contributed to underlying net sales growth through the first half led by higher volumes of New Mix in Mexico. el Jimador’s underlying net sales growth was driven by volumetric growth and higher pricing in the United States, while Herradura’s underlying net sales declines reflected lower volumes, primarily in Mexico, more than offsetting higher volumes, prices, and favourable product mix in the United States.
First Half of Fiscal 2021 Market Results
From a geographic perspective, underlying net sales growth in the United States and developed international markets was partially offset by declines in Travel Retail and used barrels.
In the United States, strong underlying net sales growth was led primarily by volumetric gains for our premium bourbons, Woodford Reserve and Old Forester, Jack Daniel’s RTDs, Jack Daniel’s Tennessee Honey, Gentleman Jack, Herradura, and el Jimador. These gains were partially offset by declines in Jack Daniel’s Tennessee Whiskey reflecting an unfavourable channel mix effect resulting from COVID-19 restrictions in the on-premise channel.
Double-digit underlying net sales growth in developed international markets was fueled by Jack Daniel’s RTDs, the launch of Jack Daniel’s Tennessee Apple in a number of countries, Jack Daniel’s Tennessee Honey, and Gentleman Jack.
The company’s emerging markets registered sequential improvement in the second quarter resulting in flat underlying net sales growth (-13% reported) for the first half of fiscal 2021 led by Brazil, Mexico, and Poland but offset by broad-based declines in Southeast Asia, Russia, India, and several Latin American markets as COVID-19 adversely affected these markets.
Underlying net sales in Travel Retail continued to be significantly impacted by the continuation of travel bans and restrictions.
First Half of Fiscal 2021 Other P&L Items
Volumes grew 15% led primarily by Jack Daniel’s RTDs and New Mix. Company-wide price/mix decreased 12% reflecting the portfolio mix shift with growth from lower-priced brands (Jack Daniel’s RTDs and New Mix) and unfavourable channel mix effect resulting from the COVID-19 related restrictions in the on-premise channel.
Underlying gross profit declined 1% (-6% reported) and reported gross margin contracted 350 basis points to 60.2% driven by higher input costs, lower fixed cost absorption and the negative effect of both the portfolio and channel mix shift discussed above.
The company’s investment in underlying advertising declined 23% (-23% reported) reflecting the phasing of spend, a reduction in on-premise activations, and the cancellation of consumer events and sponsorships are given the current environment. The company anticipates advertising investments to accelerate significantly over the balance of the fiscal year. Underlying SG&A declined by 6% (-6% reported) driven by the tight management of discretionary spend.
Underlying operating income increased by 11% (+19% reported) driven primarily by operating expense leverage, which we expect will reverse in the second half of the fiscal year.
Diluted earnings per share increased 20% to $1.17 including an estimated $0.19 per share gain from the sale of the Canadian Mist, Early Times, and Collingwood brands.
Financial Stewardship – 37th Year of Consecutive Increase in Regular Dividend
On November 19, 2020, the Brown-Forman Board of Directors announced a 3% increase in the regular quarterly cash dividend to $0.1795 per share on the Class A and Class B common stock. This marks the company’s 76th consecutive year of paying a dividend and 37th year of uninterrupted increases in their regular quarterly cash dividend. The quarterly cash dividend is payable on January 4, 2021, to stockholders of record on December 4, 2020.
Fiscal Year 2021 Outlook
The company continues to face substantial uncertainty in the rapidly evolving environment due to COVID-19 and its effect on the global economy. As a result of this ongoing uncertainty and expected volatility, the company is not providing quantitative guidance for the fiscal year 2021.
Jane Morreau, Executive Vice President and Chief Financial Officer, noted
“We believe our financial and business fundamentals remain strong, allowing us to navigate this highly dynamic environment while remaining focused on our long-term strategic priorities.” Morreau added, “In our 150-year history, we have experienced many unforeseen turbulent events and have emerged stronger. We believe this time will be no different.”