Brown-Forman Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended April 30, 2022. Although the request metadata refers to 2021 Q4, this filing is an annual report; the supplied text does not provide standalone fourth-quarter financial results. Amounts below are in U.S. dollars unless noted.
Business context
Brown-Forman makes, markets, and sells beverage alcohol products in more than 170 countries. Its portfolio includes Jack Daniel’s, Woodford Reserve, Old Forester, Herradura, el Jimador, and Finlandia. The company reports one operating segment. The United States represented 49% of FY2022 net sales; the Jack Daniel’s family is identified as the principal driver of performance.
Key financial results
| Metric | FY2022 | FY2021 | Change or context |
|---|---|---|---|
| Net sales | $3.933 billion | $3.461 billion | Reported +14%; organic +17% |
| Gross profit / margin | $2.391 billion / 60.8% | $2.094 billion / 60.5% | Gross profit +14%; margin +0.3 percentage points |
| Operating income / margin | $1.204 billion / 30.6% | $1.166 billion / 33.7% | Reported income +3%; organic operating income +27%; margin −3.1 points |
| Net income | $838 million | $903 million | Down about 7% |
| Diluted EPS | $1.74 | $1.88 | Down 7% |
| Effective tax rate | 24.8% | 16.5% | Up 8.3 percentage points |
| Cash from operations | $936 million | $817 million | Up $119 million |
| Capital expenditures | $138 million | $62 million | Up $76 million |
| Cash and cash equivalents | $868 million | $1.150 billion | Down $282 million |
| Total debt | $2.269 billion | $2.559 billion | FY2022 includes $250 million current debt; no short-term borrowings at year-end |
Gross margin benefited from favorable price/mix, largely offset by unfavorable cost/mix, including higher supply-chain, grain, and agave costs. Operating margin was pressured by the prior-year $127 million gain on divestitures, the Finlandia impairment, unfavorable cost/mix, and foreign exchange. The FY2021 divestiture gain also contributed an estimated $0.20 per share to prior-year EPS.
FY2022 operating cash flow was $936 million. Cash used in investing activities was $127 million, principally reflecting capital expenditures; cash used in financing activities was $1.038 billion, including a $479 million special dividend. The regular dividend was also increased. At April 30, 2022, current assets were $3.776 billion and current liabilities were $1.034 billion. The company had an $800 million committed revolving credit facility, with no borrowings outstanding.
Material changes and operating performance
- Reported sales growth reflected higher volume and favorable price/mix, with an estimated net increase in distributor inventories also supporting reported results. Supply constraints limited the company’s ability to meet demand.
- Organic sales grew 12% in the United States, 16% in developed international markets, and 29% in emerging markets; Travel Retail grew 67%. Growth was led by Jack Daniel’s Tennessee Whiskey, tequila, and premium bourbons.
- Reported net sales increased 20% for Jack Daniel’s Tennessee Whiskey, 29% for Herradura, 27% for el Jimador, and 16% for Woodford Reserve. These reported brand changes may reflect foreign exchange and other effects as well as underlying demand.
- Cash returned to stockholders through regular and special dividends totaled $831 million in FY2022, compared with $338 million in FY2021.
- Long-term debt was $2.269 billion at year-end; $250 million of notes mature in FY2023. The company’s $800 million commercial paper program is supported by the revolving credit facility.
Outlook, commentary, risks, and unusual items
- For FY2023, management expected mid-single-digit organic net sales growth, slight reported gross-margin expansion, and mid-single-digit organic operating-income growth. The company projected an effective tax rate of approximately 22%–23% and capital expenditures of $190–$210 million.
- Management expected a more significant FY2023 impact from the suspension of commercial operations in Russia and disruption in Ukraine. Before the conflict, the two countries together represented approximately 2% of reported sales.
- The Russia–Ukraine conflict led to a $52 million non-cash impairment of the Finlandia brand, plus other costs including bad debt, inventory write-offs, and severance. The filing reports $61 million in total asset impairment charges, including $9 million for fixed assets. Further Finlandia impairment is possible if valuation assumptions worsen.
- Glass availability and broader logistics constraints curtailed sales and increased production and transportation costs. Management expected logistics and transportation constraints to continue at least through calendar 2022 and possibly through calendar 2023. Inflation, commodity availability and prices, and labor costs are additional pressures.
- Other key risks include dependence on Jack Daniel’s, competition and changing consumer preferences, aged-inventory forecasting, production or supply-chain disruption, foreign-exchange exposure, regulation and alcohol taxes, cybersecurity, and the effects of COVID-19 and economic conditions.
- The EU’s retaliatory tariffs on American whiskey were removed effective January 1, 2022; the UK tariffs were removed effective June 1, 2022, after the fiscal year-end. Management cited these changes as a potential offset to cost pressures.
- The company disclosed a July 2020 malware-related data breach involving unauthorized access to its IT network. It also stated that pending litigation was not expected to have a material adverse effect and that no material loss contingencies were accrued at year-end.
Important facts for investors to verify
- Whether sales growth is sustained in consumer demand and depletions, rather than driven by distributor inventory changes or post-pandemic comparisons.
- Whether supply-chain constraints, inflation, and input costs ease as management anticipated, and whether gross-margin guidance is achieved.
- The ongoing commercial and impairment effects of Russia and Ukraine on Finlandia and FY2023 results.
- Progress against FY2023 organic growth, tax-rate, and capital-expenditure guidance; guidance is non-GAAP where stated and is not directly comparable to a GAAP forecast.
- Debt repayment and liquidity, particularly the $250 million FY2023 maturity, and the company’s continued capacity to fund investment and dividends.
- The assumptions behind Finlandia’s $181 million remaining carrying value and the sensitivity of its valuation to future sales and discount rates.
- The significance of family voting control and the dual-class structure: the Brown family controls a majority of voting stock, while Class B shares are nonvoting.