Financial Performance - For the third quarter of fiscal 2023, the company reported net sales of $1,081 million, representing a 4% increase compared to $1,037 million in the same period last year, with organic net sales growth of 5%[136] - The cost of sales increased by 10% to $457 million from $415 million year-over-year, while organic cost of sales also grew by 10%[136] - Gross profit remained relatively stable at $624 million, with a slight organic growth of 2%[136] - Diluted earnings per share decreased by 61% to $0.21 from $0.54 in the same period last year, primarily due to a decrease in reported operating income and a $27 million pension settlement charge[135] - Reported net sales for the nine months ended January 31, 2023, were $3.2 billion, an increase of 8% compared to the same period last year, driven by higher volumes and favorable price/mix[142] - Reported operating income for the same period was $829 million, a decrease of 13% year-over-year, attributed to lower gross margin and a non-cash impairment charge of $96 million for the Finlandia brand[142] - Reported gross profit for the nine months ended January 31, 2023, was $1.9 billion, an increase of $94 million, or 5%, with a gross margin decrease of 1.7 percentage points to 58.4%[160] - Operating income for the three months ended January 31, 2023, was $173 million, a decrease of $174 million, or 50%, with an operating margin decrease of 17.6 percentage points to 15.9%[164] - For the nine months ended January 31, 2023, reported operating income totaled $829 million, a decrease of $129 million, or 13%, compared to the same period last year, with an operating margin decrease of 6.6 percentage points to 26.0% from 32.6%[216] Sales Growth - The United States reported net sales growth of 4%, driven by higher volumes of Woodford Reserve and price increases across the portfolio, particularly for Jack Daniel's brands[144] - Emerging markets saw a reported net sales increase of 18%, with significant contributions from Mexico (30%) and Brazil (61%)[144] - Travel Retail channel reported a 48% increase in net sales, reflecting a rebound in travel demand post-COVID-19 restrictions[146] - Non-branded and bulk reported net sales increased by 34%, driven by higher prices for used barrels[148] - Premium bourbons, JDTW, and Ready-to-Drinks were key drivers of reported net sales growth[142] - Reported net sales for JDTW increased 6%, driven by higher volumes in emerging markets and developed international markets[176] - Reported net sales for Woodford Reserve increased 34%, driven by higher volumes in the United States[179] - Reported net sales for el Jimador increased 18%, led by growth in the United States and Mexico[182] Expenses and Charges - Total operating expenses increased by 64% to $451 million, with organic operating expenses growing by 18%[136] - A non-cash impairment charge of $96 million was recognized for the Finlandia brand name during the third quarter of fiscal 2023 due to macroeconomic conditions[169] - Reported operating expenses for the three months ended January 31, 2023, totaled $451 million, an increase of $176 million, or 64%, primarily due to a non-cash impairment charge for the Finlandia brand[162] Tax and Cash Flow - The effective tax rate for the quarter was 19.5%, a decrease of 1.5 percentage points from the previous year[136] - The effective tax rate for the nine months ended January 31, 2023, was 23.0%, a slight decrease from 23.4% for the same period last year[165] - Cash provided by operations was $410 million during the nine months ended January 31, 2023, a decline of $273 million from the same period last year, mainly due to increased working capital and $50 million in transaction costs related to acquisitions[226] Acquisitions and Financing - The company acquired the Gin Mare and Diplomático brands, which had a negative impact of $42 million on reported operating income due to transaction expenses[131] - Cash used for investing activities was $1,300 million during the nine months ended January 31, 2023, compared to $63 million for the same period last year, largely reflecting acquisitions of Gin Mare ($468 million) and Diplomático ($727 million)[204] - The company entered into a $600 million senior unsecured 364-day term loan credit agreement on January 3, 2023, to be used for working capital and general corporate purposes[200] - The company has an $800 million commercial paper program to fund short-term operational needs, with an average interest rate of 4.61% as of January 31, 2023[201] - The company repaid the $250 million principal amount of 2.25% notes on their maturity date of January 15, 2023[224] Market Conditions and Risks - The removal of tariffs on American whiskey positively impacted reported net sales growth by approximately 0.5% and reduced cost of sales growth by about 4%[130] - Foreign exchange fluctuations negatively impacted results, primarily due to a stronger U.S. dollar against the euro, Turkish lira, pound sterling, and Polish zloty[140] - Supply chain disruptions continued to affect the business, although glass supply improved during the nine months ended January 31, 2023[141] - The company faced various risks including competition, changes in consumer preferences, and potential impacts from geopolitical events such as Russia's invasion of Ukraine[139] Future Outlook - The company expects organic net sales growth in the range of 8-10% for the full year, with reported gross margin anticipated to be consistent with the first half of fiscal 2023[219] - The effective tax rate expectation for the full year is in the range of approximately 22% to 23%[219]
Brown-Forman(BF_B) - 2023 Q3 - Quarterly Report