Brown-Forman Reports Excellent First Half Performance; Expects Strong Underlying Results to Continue in Second Half

Louisville, KY, December 8, 2011 – Today Brown-Forman Corporation (NYSE:BFA, BFB) reported strong results for its fiscal 2012 second quarter and first half ended October 31, 2011. Net sales for the quarter on a reported basis were $1.0 billion, up 12%, and diluted earnings per share grew 4% to $1.09.  For the first six months of the fiscal year, net sales increased 12% to $1.9 billion, and diluted earnings were up 5% to $1.90 per share. Excluding the net effect of the Hopland based wine business , diluted earnings per share were up 8% for the quarter and 11% for the first half. Reported operating income rose 5% to $246 million for the fiscal 2012 second quarter and increased 6% to $432 million for the first six months.

First half reported net sales benefitted from underlying  growth and higher estimated net distributor inventory levels, the latter of which was attributable to several factors, including advanced buying ahead of anticipated price increases in several markets, the timing of promotional activities, and pipeline fill associated with product innovations. The company expects distributor inventories will rebalance in the second half of the fiscal year, reducing the growth rate in reported net sales. However, the company anticipates underlying net sales growth for the full fiscal year in the high single digits.

Importantly, underlying trends continued to accelerate in the quarter as shown in the table below:    

Brown-Forman’s Chief Executive Officer, Paul Varga stated, “We delivered an excellent quarter and strong first half as we accelerated our growth in underlying net sales and operating income versus fiscal 2011.  Performance was led by the Jack Daniel’s trademark, which grew volumes globally at a double-digit rate, and drove the company’s widespread geographic growth.  This performance was aided by compelling portfolio innovation, particularly in the Jack Daniel’s Family, growth in our super-premium brands, and continued international growth of the brand portfolio. Each of these is an important contributing element to our long-term growth strategy.” Varga continued, “While we expect the strengthening of the U.S. dollar to dampen our reported earnings, we anticipate the continuation of our strong underlying results for the remainder of our fiscal year.”

Brown-Forman’s growth in underlying net sales for the first half of the year was anchored by solid performance gains in the U.S. and stronger growth outside the U.S., in both developed and emerging markets, most notably Germany, Mexico, Russia, the U.K., Turkey, France, Brazil, Australia and Canada. These gains more than offset soft performance in a few markets, such as Spain and Poland.  In addition, the company continued its rollout of various brand and marketing innovations, including Southern Comfort Fiery Pepper, a great tasting combination of two Louisiana icons, Southern Comfort and Tabasco® sauce, and a new Finlandia bottle design dubbed ‘melting ice’.  The Jack Daniel’s Family grew net sales double-digits on a constant currency basis for the six-month period, reflecting the introduction of the innovative Jack Daniel’s Tennessee Honey product in the U.S., accelerating global growth for

Jack Daniel’s Tennessee Whiskey, and the continued international expansion of Gentleman Jack, Jack Daniel’s Single Barrel, and Jack Daniel’s ready-to-drink brands. In addition, the company’s super-premium brands continued to grow at impressive rates, led by Woodford Reserve, Herradura, and Sonoma-Cutrer.

According to Varga, “Brand and marketing innovation and the flexibility and responsiveness of our team continued to be preeminent drivers of sustainable growth in a very competitive global marketplace.”

For the first half of the fiscal year, growth in gross profit was driven largely by volume gains. Gross margin declined modestly, reflecting increases in input costs and excise taxes. In addition, gross margin was impacted by lower margins derived from the Hopland-based wine brands that were sold last fiscal year, but remain as agency brands through December. Growth in operating expenses  for the fiscal first half, in part, was driven by a planned increase in advertising expenses to support several brand innovation launches, and SG&A increases associated with inflation on salary and related expenses, and route-to-consumer changes made in several markets last year. Our expectations for the second half of the year are for underlying operating expenses to moderate as growth in brand innovation spending subsides. The company believes that underlying operating income will grow in line with current rates for the full fiscal year.

On November 30, 2011, the company’s share repurchase program expired. During the course of the program, the company repurchased a combined total of 3.4 million Class A and Class B shares for $234 million, at an average price of $69.39 per share. In addition to its share repurchases during the quarter, Brown-Forman declared on November 17, 2011, a regular quarterly cash dividend of $0.35 per share on Class A and Class B common stock, a 9.4% increase over the prior dividend.  This is the 28th consecutive year Brown-Forman has increased its dividends per share.

Varga noted, “Brown-Forman continues to have strong cash flows and an excellent balance sheet to support long-term strategic initiatives and compelling global brand opportunities to create long-term value for our shareholders.”

Full-Year Outlook Update
Brown-Forman expects the strong underlying results achieved in the first half of the fiscal year to continue in the second half, but anticipates reported results to be adversely affected by the stronger U.S. dollar.  As a result, the company has adjusted its full-year earnings outlook to a range of $3.45 to $3.70 per diluted share.

Brown-Forman will host a conference call to discuss the results at 10:00 a.m. (EST) this morning.  All interested parties in the U.S. are invited to join the conference call by dialing 888-624-9285 and asking for the Brown-Forman call.  International callers should dial 706-679-3410 and ask for the Brown-Forman call.  No password is required.  The company suggests that participants dial in approximately ten minutes in advance of the 10:00 a.m. start of the conference call.

A live audio broadcast of the conference call will also be available via Brown-Forman’s Internet Web site, www.brown-forman.com, through a link to "Investor Relations."   For those unable to participate in the live call, a replay will be available by calling 855-859-2056 (U.S.) or 404-537-3406 (international).  The identification code is 26091775.  A digital audio recording of the conference call will also be available on the Web site approximately one hour after the conclusion of the conference call.  The replay will be available for at least 30 days following the conference call.

For 140 years, Brown-Forman Corporation has enriched the experience of life by responsibly building fine quality beverage alcohol brands, including Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia, Jack Daniel’s & Cola, Canadian Mist, Korbel, Gentleman Jack, el Jimador, Herradura, Sonoma-Cutrer, Chambord, New Mix, Tuaca, and Woodford Reserve.  Brown-Forman’s brands are supported by nearly 3,900 employees and sold in approximately 135 countries worldwide.  For more information about the company, please visit http://www.brown-forman.com/.

Important Information on Forward-Looking Statements:

This report contains statements, estimates, and projections that are "forward-looking statements" as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “plan,” “potential,” “project,” “pursue,” “see,” “will,” “will continue,” and similar words identify forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  By their nature, forward-looking statements involve risks, uncertainties and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and other factors include, but are not limited to:

• declining or depressed global or regional economic conditions; political, financial, or credit or capital market instability; supplier, customer or consumer credit or other financial problems; bank failures or governmental debt defaults
• failure to develop or  implement effective business and brand strategies and innovations, including route-to-consumer, and marketing and promotional activity
• unfavorable trade or consumer reaction to our new products, product line extensions, or changes in formulation, packaging or pricing
• inventory fluctuations in our products by distributors, wholesalers, or retailers
• competitors’ pricing actions (including price reductions, promotions, discounting, couponing or free goods), marketing, category expansion, product introductions, entry or expansion in our geographic markets, or other competitive activities
• declines in consumer confidence or spending, whether related to the economy (such as austerity measures, tax increases, high fuel costs, or higher unemployment), wars, natural or other disasters, weather, pandemics, security concerns, terrorist attacks or other factors
• changes in tax rates (including excise, sales, VAT, tariffs, duties, corporate, individual income, dividends, capital gains) or in related reserves, changes in tax rules (e.g., LIFO, foreign income deferral, U.S. manufacturing and other deductions) or accounting standards, or other restrictions affecting beverage alcohol, and the unpredictability and suddenness with which they can occur
• governmental or other restrictions on our ability to produce, import, sell, price, or market our products, including advertising and promotion in either traditional or new media; regulatory compliance costs
• business disruption, decline or costs related to organizational changes, reductions in workforce or other cost-cutting measures
• lower returns or discount rates related to pension assets, interest rate fluctuations, inflation or deflation
• fluctuations in the U.S. dollar against foreign currencies, especially the euro, British pound, Australian dollar, or Polish zloty
• changes in consumer behavior or preferences and our ability to anticipate and respond to them, including societal attitudes or cultural trends that result in reduced consumption of our products; reduction of bar, restaurant, hotel or other on-premise business or travel
• consumer shifts away from spirits or premium-priced spirits products; shifts to discount store purchases or other price-sensitive consumer behavior
• distribution and other route-to-consumer decisions or changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in implementation-related costs
• effects of acquisitions, dispositions, joint ventures, business partnerships or investments, or portfolio strategies, including integration costs, disruption or other difficulties, or impairment in the recorded value of assets (e.g. receivables, inventory, fixed assets, goodwill, trademarks and other intangibles)
• lower profits, due to factors such as fewer or less profitable used barrel sales, lower production volumes, decreased demand for products we sell, sales mix shift toward lower priced or lower margin SKUs, or cost increases in energy or raw materials, such as grain, agave, wood, glass, plastic, or closures
• natural disasters, climate change, agricultural uncertainties, environmental or other catastrophes, our suppliers’ financial hardships or other factors that affect the availability, price, or quality of agave, grain, glass, energy, closures, plastic, water, wood, or finished goods
• negative publicity related to our company, brands, marketing, personnel, operations, business performance or prospects
• product counterfeiting, tampering, contamination, or recalls and resulting negative effects on our sales, brand equity, or corporate reputation
• significant costs or other adverse developments stemming from class action, intellectual property, governmental, or other major litigation; or governmental investigations of beverage alcohol industry business, trade, or marketing practices by us, our importers, distributors, or retailers

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