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Article Excerpt
PARTICIPANTS
. Ben Marmor, Brown-Forman Corporation, AVP Director Investor Relations . Don Berg, Brown-Forman Corporation, EVP, CFO . Paul Varga, Brown-Forman Corporation, Chairman, CEO . Kaumil Gajrawala, UBS, Analyst . Lauren Torres, HSBC, Analyst . Tim Ramey, D.A. Davidson & Co., Analyst . Jane Morreau, Brown-Forman Corporation, Senior Vice President, Financial Management . Lindsay Mann, Goldman Sachs, Analyst . Bill Leach, TIAA-CREF, Analyst . Ann Gurkin, Davenport & Company, Analyst . Kevin Dreyer, Gabelli & Company, Analyst . Ian Shackleton, Nemora, Analyst
OVERVIEW
BFB reported YTD underlying sales growth of 4% and 3Q09 underlying sales growth of 1%. Expects FY09 diluted EPS to be $2.70-2.90.
FINANCIAL DATA
A. Key Data From Call 1. YTD underlying sales grew 4%. 2. 3Q09 underlying sales grew 1%. 3. FY09 diluted EPS guidance = $2.70-2.90.
PRESENTATION SUMMARY
S1. Financial Results (D.B.) 1. Overview: 1. While 2Q09 posted robust growth, 3Q09 market conditions were far more challenging and tested Co.'s resiliency. 1. Despite these many challenges, continued to grow underlying business at net sales and operating income lines. 2. 3Q09 underlying: 1. Sales grew 1%. 2. Operating income grew 8%. 3. For first nine months of FY09, grew underlying: 1. Sales 4%. 2. Operating income 5%. 4. Global economy continued its slide throughout this period, affecting business in a number of ways. 1. Significant strengthening of US dollar negatively impacted 3Q09 results, reducing net sales $84m and operating income $30m. 2. Move consumers are making away from on-premise to off-premise. 3. Saw some acceleration of trading down in US. 4. This qtr., saw retailers, wholesalers, and distributors around the world significantly reduce inventories, in what Co. believes is: 1. Quest for cash. 2. Expectation of lower future consumer demand. 5. Jack Daniel's Trends in US: 1. 3Q09 consumer takeaway using NABCA data as proxy, down about 3%. 1. Approx. half of Co.'s depletion decline indicating that retailers did not fully replenish their inventory. 2. Shipments to distributors down about double the depletion rate. 1. Suggests that distributors have not fully restocked their inventory levels. 3. Believes all of these trends are continuing in 4Q09. 6. Continues to focus on driving current underlying net sales and operating income performance with a view to positioning Co. for continued long-term success. 7. Globally, 3Q09 Jack Daniel's depletions declined in high-single digits. 1. Grew in low-single digits for the nine months. 2. Jack Daniel's in US: 1. 3Q09 depletions declined in high-single digits. 2. For first nine months, depletions were about equal to last year. 3. Believes these softer results can be attributed in large part to inventory reductions throughout the supply chain. 4. While takeaway performance outpaced depletions, these trends were somewhat mixed during 3Q09, depending on source of information. 5. For period ending 02/07/09, Nielsen, which focuses on off-premise business, reported solid trends, with: 1. 12-month volume growth, 5% vs. 2% for total distilled spirits (TDS). 2. Three-month volume growth, 4% vs. 1% for TDS. 3. One-month result of plus-3% vs. 1% for TDS. 6. NABCA trends through Jan. 31, which includes results for off and on-premise, were not as strong for Jack Daniel's. 1. For 12-month period, case sales grew 1.5% vs. twice that for TDS, but posted a three-month trend and one-month trend of minus 3% vs. plus-1% for TDS. 2. Believe these statistics reflect how Co.'s focus at off-premise level continues to work while BFB continues to see the effects of declines in on-premise channel. 3. While 12-month NABCA growth trend of 1.5% is almost identical to year ago, the more recent performance increases Co.'s caution in rest-of-the-year outlook. 4. While 3Q09 NABCA results were disappointing, Jack Daniel's outperformed most brands in its competitive set, including: 1. Bacardi. 2. Absolut. 3. Crown Royal. 4. Gray Goose. 5. Jose Cuervo. 5. NABCA results also show the trend of trading down to lower-priced brands, as brands such as Evan Williams, Old Crow and Ancient Age all posted some nice growth rates in this difficult economic environment. 3. Jack Daniel's International: 1. Saw overall depletion gains increasing in low-single digits vs. 3Q08. 2. During 3Q09, depletions expanded at double-digit rates in several markets, including: 1. UK. 2. France. 3. Poland. 4. Romania. 5. Mexico. 6. Softness continued in Spain, Italy, and Ireland. 3. In Eastern European region as a whole, Jack Daniel's continued to post strong high-single digit depletion gains for 3Q09. 1. Rate of growth has slowed from double-digit levels experienced earlier in the year. 4. UK: 1. Depletion gains were due in part to significant successful holiday promotion activity and from a retail buy-in prior to a Feb. price increase. 2. Indicated in past about UK being one of Co.'s larger markets seeing a shift from on-premise to off-premise. 1. This shift continued during this period. 2. For Jack Daniel's, momentum in off-trade began to offset on-trade declines. 5. France: 1. Co.'s fourth largest Jack Daniel's market. 2. Continued to perform well in 3Q09 and YTD periods. 3. In spite of economic difficulties there, Nielsen data shows that whiskey category grew 3% for 12-months ended Jan. 2009. 1. Jack Daniel's during same period grew over 15%. 4. For the first time, Jack Daniel's now comprises slightly over 2% share of France's whisky market. 6. Australia: 1. According to data from Liquor Merchants Association, BFB increased its market share. 2. Through the first nine months for FY, Co.'s brands' total share of full-strength spirits in this market increased 1 point from 6% to 7%. 1. Co.'s total share of all ready-to-drink products increased almost 3 points from 6% to 9%. 2. Share of bourbon-based RTDs increased more than 5 points from 11% to 16%. 3. Jack Daniel's whiskey led Co.'s full-strength spirits share gains in Australia, as full-strength line continued to benefit from consumers switching from ready-to-drink due to dramatic tax increase on RTD products last April. 4. While Co. believes Jack Daniel's benefited from this shift, Jack Daniel's & Cola ready-to-drink brand improved its depletion trends in 3Q09, returning to double-digit growth following the declines experienced in 1H of Co.'s FY. 5. Believes this is due to actions Co. has taken, including proof reduction to keep pricing affordable for consumers. 3. Improved volume trends have not offset gross profit impact of these changes. 1. Believes Co. is better positioned today than after the excise tax took effect last April. 4. Gentleman Jack: 1. Double-digit depletion gains for 3Q09. 1. Although overall growth rate moderated somewhat, Gentleman Jack attained these double-digit gains in US and internationally. 5. Finlandia: 1. Crossed 3m case depletion milestone during the qtr. 1. In only three short years, has been able to add another million cases to the brand. 2. Finlandia has continued to be a powerful Eastern European growth story, as the region's significant growth rates fueled the brand's double-digit growth on a global basis. 3. In 3Q09, Finlandia became the Number 1 imported vodka and Number 1 imported spirit in Czech Republic. 1. This adds Czech Republic to growing list of markets where Finlandia is Number 1 imported vodka, including: 1. Poland. 2. Russia. 3. Romania. 4. Bulgaria. 5. Hungary. 6. Few other markets that in total represent over 50% of Finlandia's business. 6. Southern Comfort: 1. Had difficult qtr. with global depletion trends down in high-single digits. 2. In US, high-single digit depletion decline for 3Q09 was due in part to: 1. Continued weakness in on-premise. 2. What Co. believes were inventory reductions. 3. Brand's overall depletion trends lagged the Nielsen takeaway results, which were up 1% for rolling three months through Feb. 7 vs. high-single digit declines. 3. In UK, experienced similar issues as in US, with depletions declining in mid-single digits for 3Q09. 4. In Germany, brand grew in low-single digits as the...
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