Brown-Forman Corporation (NYSE:BF.B) Q2 2018 Earnings Conference Call Transcript

Dec 06, 2017 • 10:00 am ET

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Brown-Forman Corporation (NYSE:BF.B) Q2 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning. My name is Dorothy and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Fiscal 2018 Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Jay Koval, VP and Director of IR. Please go ahead, sir.

Executive
Jay Koval

Thanks, Dorothy and good morning, everyone. I want to thank you for joining us for Brown-Forman's second quarter 2018 earnings call. Joining me today are Paul Varga, our Chairman and CEO; Jane Morreau, EVP and CFO and Brian Fitzgerald, CAO.

(Forward-Looking Cautionary Statements)

And with that, I will turn the call over to Jane for her prepared remarks.

Executive
Jane Morreau

Thank you, Jay and thanks for joining us for our second quarter earnings call. During my comments today, I will reference the slides we posted to our website this morning to help walk you through our two main areas of focus, which includes, first, a review of our first half results and second, our revised outlook for fiscal 2018. After I complete my prepared remarks, I'll turn the call over to Paul for his comments and then we'll open it up to Q&A.

So let me start with the overall highlights which are shown on slide 3. First, our reported net sales grew 10% in the first half, driven by a strong 7% underlying net sales growth, helped by trade inventories and foreign exchange. Reported operating income jumped 17%, driven largely by the strong underlying growth of 14%. Second, our underlying net sales accelerated to 8% in the second quarter, marking the fifth consecutive quarter of improving growth trends as our teams are executing well against our efforts to reignite our top line back towards historic rates of growth. These results lifted our first half underlying net sales growth to 7%. Third, we delivered meaningful operating leverage, primarily due to tight SG&A controls, but helped by intra-year facing of investments behind our brands. And finally, we increased our full year outlook for underlying net sales and operating income growth and now expect 6% to 7% and 8% to 9% growth respectively. We also increased our fiscal 2018 EPS expectations for the second straight quarter to a range of $1.90 to $1.98, representing growth of 11% to 16% compared to fiscal 2017.Let's now turn to slide 4, a review of first half growth rates for several other key metrics. Underlying net sales grew 8% in the second quarter, resulting in 7% year-to-date growth. Although we were looking for a continued acceleration in the first half, we were quite pleased to see our topline growth coming even higher than anticipated. After adjusting for some timing items, which helped resolve, such as significantly higher volumes of used barrels sold in the first half of this year, we estimate that our normalized net sales growth is approximately 5% to 6%, a marked improvement from last year's normalized level of 4%. As highlighted on slide 5, reported net sales increased 10% in the first