Brown-Forman Delivers Double-Digit Net Sales Growth in the First Half and Raises Full Year Outlook

LOUISVILLE, Ky.–(BUSINESS WIRE)–Brown-Forman Corporation (NYSE: BFA, BFB) reported financial results for its second quarter and the first half of fiscal 2023. For the second quarter, reported net sales¹ increased 10% to $1.1 billion (+16% on an organic basis²) compared to the same prior-year period. Reported operating income decreased 2% to $313 million (+8% on an organic basis) in the quarter, and diluted earnings per share decreased 4% to $0.47.

For the first six months of the fiscal year, reported net sales increased 11% to $2.1 billion (+17% on an organic basis) compared to the same prior-year period. Reported net sales growth was negatively impacted by six percentage points of foreign currency exchange. In the first half, reported operating income increased 8% to $656 million (+19% on an organic basis) and diluted earnings per share increased 11% to $0.99.

Lawson Whiting, Brown-Forman’s President and Chief Executive Officer stated, “Brown-Forman has once again displayed tremendous resolve, delivering double-digit revenue growth for the first half of fiscal 2023. Consumer demand for our brands remains strong, and we have set the organization on a path for continued growth with our sustained brand investments, recently announced acquisitions, product innovation, and strategic relationships.”

Whiting added, “Despite foreign exchange and inflationary headwinds, Brown-Forman is on track to deliver another solid year of growth in fiscal 2023. The Board’s recent approval of a 9% increase in the regular quarterly cash dividend reinforces our shared confidence in the long-term health of our business.”

First Half of Fiscal 2023 Highlights

• Delivered broad-based reported net sales growth across all geographic clusters and the Travel Retail channel driven by strong consumer demand and the continued rebuilding of distributor inventories
• Portfolio growth was led by:
  • Jack Daniel’s Tennessee Whiskey with reported net sales growth of 9% (+18% organic),
  • Sustained double-digit growth of Woodford Reserve with reported net sales of 39% (+40% organic), and
  • Ready-to-Drinks³ (RTDs) with double-digit reported net sales growth of 14% (+20% organic) propelled by Jack Daniel’s RTDs and New Mix
• Reported gross margin contracted 130 basis points driven by inflation, supply chain disruption costs, and foreign exchange
• Reported advertising expense increased 19% (+25% organic)
• Diluted earnings per share increased 11%

First Half of Fiscal 2023 Brand Results

• The Jack Daniel’s family of brands’ reported net sales growth of 9% (+17% organic) was fueled by Jack Daniel’s Tennessee Whiskey, which experienced broad-based growth across all geographic clusters and the Travel Retail channel. Higher pricing and an estimated net increase in distributor inventories positively impacted reported net sales, partially offset by the negative effect of foreign exchange. Continued consumer desire for convenience and flavor drove gains in Jack Daniel’s RTDs, Jack Daniel’s Tennessee Honey, and Jack Daniel’s Tennessee Fire. Innovation also contributed to net sales growth with the launch of the Jack Daniel’s Bonded series.
• Premium bourbons³, propelled by Woodford Reserve and Old Forester, delivered 39% reported net sales growth (+40% organic) driven by higher volumes in the United States, which included an estimated net increase in distributor inventories as glass supply constraints eased.
• Ready-to-Drinks delivered double-digit reported net sales growth driven by consumer preference for convenience and flavor. Jack Daniel’s RTDs/Ready-to-Pours (RTPs) grew reported net sales 9% (+15% organic) led by Australia and Germany, partially offset by the negative effect of foreign exchange. New Mix delivered 48% reported net sales growth (+46% organic) fueled by Mexico with market share gains in the RTD category.
• Reported net sales for the tequila portfolio increased 10% (+11% organic) led by el Jimador and Herradura. el Jimador grew reported net sales 16% (+18% organic) and Herradura increased reported net sales 9% (+9% organic) driven by volumetric growth in the United States. Herradura’s reported net sales were positively impacted by an estimated net increase in distributor inventories as supply constraints eased.

First Half of Fiscal 2023 Market Results

• Reported net sales grew across all geographic clusters and the Travel Retail channel driven by continued consumer demand, brand strength, and the rebuilding of distributor inventories with some easing of supply chain constraints compared to the first half of fiscal 2022. This broad-based growth was partially offset by foreign exchange headwinds.
• Reported net sales in the United States grew 11% (+11% organic) with volumetric gains, favorable mix, and higher pricing across the portfolio. Growth was led by higher volume and pricing from Woodford Reserve and Jack Daniel’s Tennessee Whiskey. Korbel California Champagne partially offset the growth due to the combination of higher pricing and lower volumes.
• Developed International³ markets experienced strong consumer demand as reported net sales increased 3% (+14% organic) due to volumetric growth from Jack Daniel’s Tennessee Whiskey and Jack Daniel’s RTDs. Reported net sales growth in developed international markets was led by Spain, Korea, and Canada.
• Emerging³ markets’reported net sales increased 14% (+27% organic) led by the growth of Jack Daniel’s Tennessee Whiskey in Brazil and Sub-Saharan Africa, as well as sustained double-digit growth in Mexico fueled by New Mix.
• The Travel Retail channel continued to deliver strong growth with a reported net sales increase of 60% (+67% organic) driven by higher volumes across much of the portfolio as travel continued to rebound.

First Half of Fiscal 2023 Other P&L Items

• Reported gross profit increased 8% (+17% organic). Gross margin contracted 130 basis points to 58.8%, driven by the impact of inflation on input costs, costs related to supply chain disruptions, and the negative effect of foreign exchange. This decline was partially offset by favorable price/mix and the removal of E.U. and U.K. tariffs on American whiskey.
• Reported advertising expense grew 19% (+25% organic) driven by increased investment in the United States to support Jack Daniel’s Tennessee Whiskey, Herradura, the launch of the Jack Daniel’s Bonded series, and Woodford Reserve. Reported selling, general, and administrative expenses increased 7% (+11% organic), largely driven by higher compensation-related expenses.
• The company’s reported operating income increased by 8% (+19% organic).
• Earnings per share increased 11% to $0.99 driven by the increase in reported operating income and the benefit of a lower effective tax rate.

First Half of Fiscal 2023 Financial Stewardship

On November 17, 2022, the Brown-Forman Board of Directors approved a 9% increase in the regular quarterly cash dividend to $0.2055 per share on its Class A and Class B common stock. The dividend is payable on January 3, 2023, to stockholders of record on December 2, 2022. Brown-Forman has paid regular quarterly cash dividends for 79 consecutive years and has increased the regular cash dividend for 39 consecutive years.

Fiscal 2023 Outlook

The company anticipates stronger growth in fiscal 2023 despite global macroeconomic and geopolitical uncertainties. Accordingly, we update our guidance for fiscal 2023 as follows:

• Reflecting the strength of our portfolio of brands, stronger consumer demand, and the easing of supply chain constraints, we expect organic net sales growth in the high-single digit range.
• The reported gross margin decline during the first half of fiscal 2023 was driven by higher inflation, supply chain disruption costs, and the negative effect of foreign exchange. For the full year, we expect reported gross margin to be consistent with the first half of fiscal 2023.
• Based on the above expectations, we anticipate high-single digit organic operating income growth.
• We expect our fiscal 2023 effective tax rate to be in the range of approximately 22% to 23%.
• Capital expenditures are planned to be in the range of $190 to $210 million.

Conference Call Details

Brown-Forman will host a conference call to discuss these results at 10:00 a.m. (ET) today. A live audio broadcast of the conference call, and the accompanying presentation slides, will be available via Brown-Forman’s website, brown-forman.com, through a link to “Investors/Events & Presentations.” A digital audio recording of the conference call and the presentation slides will also be posted on the website and will be available for at least 30 days following the conference call.

For over 150 years, Brown-Forman has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Jack Daniel’s Tennessee RTDs, Jack Daniel’s Tennessee Honey, Jack Daniel’s Tennessee Fire, Jack Daniel’s Tennessee Apple, Gentleman Jack, Jack Daniel’s Single Barrel, Woodford Reserve, Old Forester, Coopers’ Craft, The GlenDronach, Benriach, Glenglassaugh, Slane, Herradura, el Jimador, New Mix, Korbel, Sonoma-Cutrer, Finlandia, Chambord, Fords Gin, and Gin Mare. Brown-Forman’s brands are supported by approximately 5,200 employees globally and sold in more than 170 countries worldwide. For more information about the company, please visit brown-forman.com.

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,” “outlook,” “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:

• Our substantial dependence upon the continued growth of the Jack Daniel’s family of brands
• Substantial competition from new entrants, consolidations by competitors and retailers, and 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
• 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
• Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers
• 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; further legalization of marijuana; shifts in consumer purchase practices; 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
• 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, or labor
• Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impacts and related governmental actions
• Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, and related economic slowdowns or recessions, 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
• Product recalls or other product liability claims, product tampering, contamination, or quality issues
• Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects
• Failure to attract or retain key executive or employee talent
• Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value
• Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including new retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism; and health pandemics
• Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations
• Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar
• Changes in laws, regulatory measures, or governmental 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, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
• Decline in the social acceptability of beverage alcohol in significant markets
• Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products
• Counterfeiting and inadequate protection of our intellectual property rights
• Significant legal disputes and proceedings, or government investigations
• Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws
• 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 our public filings, including 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.

Contacts

Brown-Forman Corporation

Rob Frederick

Vice President

Corporate Communications

502-774-7707

Sue Perram

Vice President

Investor Relations

502-774-6862

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