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Brown-Forman (BF.B) Q3 Earnings & Sales Beat on Revived Trends
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Brown-Forman Corporation (BF.B - Free Report) has reported robust third-quarter fiscal 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Sales and earnings increased year over year, backed by increased demand for its brands.
For the fiscal third quarter, earnings per share of 54 cents advanced 19% year over year and surpassed the Zacks Consensus Estimate of 48 cents. The rise can be attributed to robust operating margin growth, which offset higher costs.
Net sales of $1,037 million beat the Zacks Consensus Estimate of $1,005 million. The top line increased 14% year over year on a reported basis. On an organic basis, net sales were up 22% from the prior-year level.
BrownForman Corporation Price, Consensus and EPS Surprise
For third-quarter fiscal 2022, Brown-Forman’s gross profit amounted to $622 million, improving 13% year over year, and the gross margin contracted 40 basis points (bps) to 60%. Operating income improved 24% year over year to $347 million on a reported basis. Organic operating income increased 43%. The operating margin expanded 270 bps to 33.5% in the fiscal third quarter.
Selling, general and administrative (SG&A) expenses increased 4% year over year, while advertising expenses declined 4% for the fiscal third quarter.
The Zacks Rank #3 (Hold) company’s shares have lost 6.8% in the past three months compared with the industry’s decline of 4.5%.
Image Source: Zacks Investment Research
Year-to-Date Performance
Brown-Forman also unveiled the results for the first nine months of fiscal 2022. Adjusted earnings for the first nine months declined 12% year over year to $1.43 due to gains from the sale of the Canadian Mist, Early Times and Collingwood brands in the prior year.
Net sales of $2,937 million rose 11% from the year-ago period. Sales benefited from solid double-digit growth in emerging and developed international markets, as well as gains in the United States and a recovery in the Travel Retail channel. On an organic basis, net sales were up 14%.
Net sales for the Jack Daniel’s family of brands were up 12% on a reported basis and 14% on an organic basis. The upside was mainly driven by 17% sales growth from Jack Daniel’s Tennessee Whiskey. Organic sales for Jack Daniel’s Tennessee Whiskey rose 20% on higher global volumes and favorable channel mix because of the ongoing reopening of the on-premise channel. Sales were also aided by the ongoing international launch of the Jack Daniel’s Tennessee Apple and robust consumer demand for Jack Daniel’s RTDs. However, supply-chain disruptions acted as deterrents.
Premium bourbon brands reported sales growth of 10% on both reported and organic basis for the first nine months of fiscal 2022, driven by growth in Woodford Reserve and Old Forester. The rise was supported by gains in the United States, Travel Retail and the U.K. During the period, sales for Woodford Reserve slightly moderated due to the ongoing supply-chain headwinds, which led to lower distributor inventories.
The company’s tequila brands witnessed 19% net sales growth on a reported basis and 17% on an organic basis. The category benefitted from double-digit growth from Herradura and el Jimado.
Sales in the United States advanced 5% on a reported basis and 8% on an organic basis. The rise was driven by strength in Jack Daniel’s Tennessee Whiskey, premium bourbons, and tequilas, somewhat offset by the impacts of acquisitions and divestitures in the prior year, supply-chain disruptions, and reduced volume for Jack Daniel’s Tennessee Honey and Gentleman Jack. Meanwhile, the developed international market reported sales growth of 12%, with organic sales up 15%. The rise was driven by the reopening of the on-premise channel, and the rebound of travel and tourism in some markets. The emerging markets registered 22% net sales growth, while organic sales improved 15%. This was backed by volume gains across most markets, partially offset by negative currency exchange rates.
Net sales in the Travel Retail channel advanced 57% on a reported basis and 58% on an organic basis on the back of favorable year-over-year comparisons as the business continues to recover from the pandemic-led travel bans and restrictions.
In the first nine months of fiscal 2022, Brown-Forman’s gross profit amounted to $1,765 million, up 11% year over year on a reported basis and 14% on an organic basis. The reported gross margin contracted 10 bps to 60.1% due to supply-chain disruptions and higher input costs, mainly related to agave and grain. Currency headwinds also impacted the gross margin.
Advertising expenses for the reported quarter rose 12% on both reported and organic basis. The increase can be attributed to continued investments in its brands. SG&A expenses increased 8% on both reported and organic basis for the first nine months of fiscal 2022.
Operating income declined 4% to $958 million on a reported basis. Nevertheless, operating income increased 19% on an organic basis. The operating margin declined 510 bps to 32.6% for the first nine months of fiscal 2022.
Balance Sheet & Cash Flow
The company ended third-quarter fiscal 2022 with cash and cash equivalents of $812 million, and long-term debt of $2,061 million. Its total shareholders’ equity was $2,519 million. For the nine months ended Jan 31, 2022, BF.B generated $683 million in cash from operating activities, while free cash flow amounted to $621 million.
On Jan 25, 2022, the company declared a quarterly cash dividend of 18.85 cents per share on Class A and Class B shares. The dividend is payable Apr 1, 2022, to shareholders of record as of Mar 8.
Outlook
Despite the ongoing uncertainties and supply-chain disruptions, management issued the fiscal 2022 view. The company noted that the previous guidance is not directly comparable to the current view as it now presents results on an organic basis against an underlying basis reported earlier.
The company expects organic net sales growth of 11-13% for fiscal 2022, mainly driven by the strong year-to-date results and robust consumer demand. The easing of supply-chain constraints is also likely to aid results as it provides an opportunity to rebuild inventory.
However, it anticipates costs related to supply-chain disruptions and inflationary cost headwinds to continue hurting the gross margin. This is expected to be offset by modest gains from the removal of tariffs in the EU. Consequently, the company expects the reported gross margin for fiscal 2022 to be flat or slightly down year over year.
Brown-Forman expects organic operating expenses, including advertising and SG&A expenses, to increase 7-9% for fiscal 2022. Organic advertising expenses are likely to be slightly below the organic sales growth projection. Based on the above assumption, the company anticipates organic net income to increase 12-16% for fiscal 2022. The effective tax rate is expected to be 22-23% for fiscal 2022.
Stocks to Consider
We have highlighted three better-ranked stocks in the Consumer Staples sector, namely Fomento Economico Mexicano (FMX - Free Report) , Coca-Cola (KO - Free Report) and Diageo (DEO - Free Report) .
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It currently has a Zacks Rank #2 (Buy). FMX has a trailing four-quarter earnings surprise of 33.6%, on average. Shares of FMX have rallied 12.3% in the past three months.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 0.2% from the year-ago period's reported figures. FMX has an expected EPS growth rate of 14.8% for three-five years.
Coca-Cola, which is a global beverage giant, currently has a Zacks Rank #2. The company has an expected EPS growth rate of 8% for three-five years. Shares of KO have improved 13.7% in the past three months.
The Zacks Consensus Estimate for Coca-Cola's current financial-year sales and earnings per share suggests growth of 8.8% and 6%, respectively, from the year-ago period’s reported figures. KO has a trailing four-quarter earnings surprise of 13.5%, on average.
Diageo, involved in producing, distilling, brewing, bottling, packaging and distributing spirits, wine and beer, currently has a Zacks Rank #2. Shares of DEO have declined 6.8% in the past three months.
The Zacks Consensus Estimate for Diageo’s current financial-year sales and earnings per share suggests growth of 32.1% and 15.9%, respectively, from the year-ago period’s reported figures. DEO has an expected EPS growth rate of 9.2% for three-five years.
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Brown-Forman (BF.B) Q3 Earnings & Sales Beat on Revived Trends
Brown-Forman Corporation (BF.B - Free Report) has reported robust third-quarter fiscal 2022 results, wherein the top and bottom lines beat the Zacks Consensus Estimate. Sales and earnings increased year over year, backed by increased demand for its brands.
For the fiscal third quarter, earnings per share of 54 cents advanced 19% year over year and surpassed the Zacks Consensus Estimate of 48 cents. The rise can be attributed to robust operating margin growth, which offset higher costs.
Net sales of $1,037 million beat the Zacks Consensus Estimate of $1,005 million. The top line increased 14% year over year on a reported basis. On an organic basis, net sales were up 22% from the prior-year level.
BrownForman Corporation Price, Consensus and EPS Surprise
BrownForman Corporation price-consensus-eps-surprise-chart | BrownForman Corporation Quote
For third-quarter fiscal 2022, Brown-Forman’s gross profit amounted to $622 million, improving 13% year over year, and the gross margin contracted 40 basis points (bps) to 60%. Operating income improved 24% year over year to $347 million on a reported basis. Organic operating income increased 43%. The operating margin expanded 270 bps to 33.5% in the fiscal third quarter.
Selling, general and administrative (SG&A) expenses increased 4% year over year, while advertising expenses declined 4% for the fiscal third quarter.
The Zacks Rank #3 (Hold) company’s shares have lost 6.8% in the past three months compared with the industry’s decline of 4.5%.
Image Source: Zacks Investment Research
Year-to-Date Performance
Brown-Forman also unveiled the results for the first nine months of fiscal 2022. Adjusted earnings for the first nine months declined 12% year over year to $1.43 due to gains from the sale of the Canadian Mist, Early Times and Collingwood brands in the prior year.
Net sales of $2,937 million rose 11% from the year-ago period. Sales benefited from solid double-digit growth in emerging and developed international markets, as well as gains in the United States and a recovery in the Travel Retail channel. On an organic basis, net sales were up 14%.
Net sales for the Jack Daniel’s family of brands were up 12% on a reported basis and 14% on an organic basis. The upside was mainly driven by 17% sales growth from Jack Daniel’s Tennessee Whiskey. Organic sales for Jack Daniel’s Tennessee Whiskey rose 20% on higher global volumes and favorable channel mix because of the ongoing reopening of the on-premise channel. Sales were also aided by the ongoing international launch of the Jack Daniel’s Tennessee Apple and robust consumer demand for Jack Daniel’s RTDs. However, supply-chain disruptions acted as deterrents.
Premium bourbon brands reported sales growth of 10% on both reported and organic basis for the first nine months of fiscal 2022, driven by growth in Woodford Reserve and Old Forester. The rise was supported by gains in the United States, Travel Retail and the U.K. During the period, sales for Woodford Reserve slightly moderated due to the ongoing supply-chain headwinds, which led to lower distributor inventories.
The company’s tequila brands witnessed 19% net sales growth on a reported basis and 17% on an organic basis. The category benefitted from double-digit growth from Herradura and el Jimado.
Sales in the United States advanced 5% on a reported basis and 8% on an organic basis. The rise was driven by strength in Jack Daniel’s Tennessee Whiskey, premium bourbons, and tequilas, somewhat offset by the impacts of acquisitions and divestitures in the prior year, supply-chain disruptions, and reduced volume for Jack Daniel’s Tennessee Honey and Gentleman Jack. Meanwhile, the developed international market reported sales growth of 12%, with organic sales up 15%. The rise was driven by the reopening of the on-premise channel, and the rebound of travel and tourism in some markets. The emerging markets registered 22% net sales growth, while organic sales improved 15%. This was backed by volume gains across most markets, partially offset by negative currency exchange rates.
Net sales in the Travel Retail channel advanced 57% on a reported basis and 58% on an organic basis on the back of favorable year-over-year comparisons as the business continues to recover from the pandemic-led travel bans and restrictions.
In the first nine months of fiscal 2022, Brown-Forman’s gross profit amounted to $1,765 million, up 11% year over year on a reported basis and 14% on an organic basis. The reported gross margin contracted 10 bps to 60.1% due to supply-chain disruptions and higher input costs, mainly related to agave and grain. Currency headwinds also impacted the gross margin.
Advertising expenses for the reported quarter rose 12% on both reported and organic basis. The increase can be attributed to continued investments in its brands. SG&A expenses increased 8% on both reported and organic basis for the first nine months of fiscal 2022.
Operating income declined 4% to $958 million on a reported basis. Nevertheless, operating income increased 19% on an organic basis. The operating margin declined 510 bps to 32.6% for the first nine months of fiscal 2022.
Balance Sheet & Cash Flow
The company ended third-quarter fiscal 2022 with cash and cash equivalents of $812 million, and long-term debt of $2,061 million. Its total shareholders’ equity was $2,519 million. For the nine months ended Jan 31, 2022, BF.B generated $683 million in cash from operating activities, while free cash flow amounted to $621 million.
On Jan 25, 2022, the company declared a quarterly cash dividend of 18.85 cents per share on Class A and Class B shares. The dividend is payable Apr 1, 2022, to shareholders of record as of Mar 8.
Outlook
Despite the ongoing uncertainties and supply-chain disruptions, management issued the fiscal 2022 view. The company noted that the previous guidance is not directly comparable to the current view as it now presents results on an organic basis against an underlying basis reported earlier.
The company expects organic net sales growth of 11-13% for fiscal 2022, mainly driven by the strong year-to-date results and robust consumer demand. The easing of supply-chain constraints is also likely to aid results as it provides an opportunity to rebuild inventory.
However, it anticipates costs related to supply-chain disruptions and inflationary cost headwinds to continue hurting the gross margin. This is expected to be offset by modest gains from the removal of tariffs in the EU. Consequently, the company expects the reported gross margin for fiscal 2022 to be flat or slightly down year over year.
Brown-Forman expects organic operating expenses, including advertising and SG&A expenses, to increase 7-9% for fiscal 2022. Organic advertising expenses are likely to be slightly below the organic sales growth projection. Based on the above assumption, the company anticipates organic net income to increase 12-16% for fiscal 2022. The effective tax rate is expected to be 22-23% for fiscal 2022.
Stocks to Consider
We have highlighted three better-ranked stocks in the Consumer Staples sector, namely Fomento Economico Mexicano (FMX - Free Report) , Coca-Cola (KO - Free Report) and Diageo (DEO - Free Report) .
Fomento Economico Mexicano, alias FEMSA, has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. It currently has a Zacks Rank #2 (Buy). FMX has a trailing four-quarter earnings surprise of 33.6%, on average. Shares of FMX have rallied 12.3% in the past three months.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 0.2% from the year-ago period's reported figures. FMX has an expected EPS growth rate of 14.8% for three-five years.
Coca-Cola, which is a global beverage giant, currently has a Zacks Rank #2. The company has an expected EPS growth rate of 8% for three-five years. Shares of KO have improved 13.7% in the past three months.
The Zacks Consensus Estimate for Coca-Cola's current financial-year sales and earnings per share suggests growth of 8.8% and 6%, respectively, from the year-ago period’s reported figures. KO has a trailing four-quarter earnings surprise of 13.5%, on average.
Diageo, involved in producing, distilling, brewing, bottling, packaging and distributing spirits, wine and beer, currently has a Zacks Rank #2. Shares of DEO have declined 6.8% in the past three months.
The Zacks Consensus Estimate for Diageo’s current financial-year sales and earnings per share suggests growth of 32.1% and 15.9%, respectively, from the year-ago period’s reported figures. DEO has an expected EPS growth rate of 9.2% for three-five years.