Brown–Forman Corporation

  • Brown–Forman   Corporation is a US based alcohol business that has a portfolio of bourbons,   whiskeys, vodkas, gins and wine. Well-known brands include Jack Daniel's,   Early Times, Old Forester and Woodford Reserve.

  • · Net sales for the financial year sales grew 3% to $3.5 billion, with   operating profit increasing by 7% to $1.2bn. Gross margins for the year came   under pressure, declining to 60.5% from 63.2% in 2020. The decline in the   gross margin was mainly a result of higher input costs as well as   unfavourable channel and portfolio mix shift. Despite the decline in the   gross margin, Brown-Forman reported a 130bpt increase in operating margins to   33.7% from 32.4% in 2020.

  • EPS for the year increased by 9% to $1.88, while the dividend for   the year increased by 4% to $0.76cps

  • Free cash flow improved to $755 million from $611 million in the   corresponding 12 months in 2020. Capital allocation remained impressive with   return on invested capital reported at 20%.

  • On a regional basis, the group’s largest market, the US, delivered   strong net sales growth of 10%. Developed international markets also grew by   10%, led by Australia, Germany, France, and the UK. Emerging markets saw net   sales increase by mid-single digits, driven by Brazil, Mexico, China and   Poland. The growth in these regions was offset by a slump in travel retail   sales which contracted by 48% year-on-year.

  • Brown-Forman has been around for 150 years implying it has survived through a number of adversities including Prohibition, and as such we remain confident that it will survive and thrive post the current pandemic. The company has an outstanding track record of capital allocation with returns on capital consistently above 20%. This quality has seen the company increase by over 100-fold over the last 40 years. We remain confident that Brown-Forman will continue to grow steadily and create shareholder value for investors over the years to come. However, on the current PE multiple of close to 40x we would wait for a more attractive entry point.

Brown–Forman Corporation