--Long-term Issuer Default rating (IDR) at 'A+';
--Senior Unsecured Notes at 'A+';
--Short-term IDR at 'F1';
--Commercial Paper at 'F1'.
The Rating Outlook is Stable.
Key Rating Drivers
Brown-Forman's ratings are supported by the sizeable operating earnings and consistent cash flow generation that is derived from the strong and competitive brand portfolio of one of the largest worldwide spirits companies. These elements combined with relatively conservative financial strategies with regard to acquisitions, leverage and share repurchases along with continued investment in its existing brand portfolio that result in a solid credit profile.
Major contributors to Brown-Forman's operating earnings are its
Brown-Forman's spirits portfolio primarily competes in the super premium to premium category and skews toward whiskeys, liqueurs and bourbons. Fitch views this as a competitive strength, because the aging process and inventory investments required are a barrier to entry providing an impediment particularly for value competition. Brown spirits have taken share from beer and clear spirits with the favorable demand trends driven by flavored and higher-end whiskey and bourbon products. As such, Brown-Forman has experienced strong category momentum for
Brown-Forman has good geographic diversification with net sales contribution in fiscal 2014 of 41% from
Debt Structure and Liquidity
All of Brown-Forman's debt is senior and unsecured, and the company maintains a very manageable maturity profile with approximately
Brown-Forman has relatively good financial flexibility as a result of its cash balances, stable free cash flow (FCF) generation and reduced leverage. As of
Industry Risk Factors
Industry risk factors and Brown-Forman's high concentration of earnings from its
Fitch believes Brown-Forman could participate in industry consolidation with bolt-on acquisitions that are not expected to increase leverage materially in the near term. The company's acquisition strategy is to acquire brands opportunistically with growth potential and that complement its current portfolio. Acquisitions that could complement the portfolio would include Scotch, Irish whiskey, Vodka or a local brand.
Leverage (total debt to EBITDA), which increased to 1.5 times (x) following the
Recent Operating and Financial Performance and Outlook
Sales, net of excise taxes, increased 5% to
Operating income, excluding other expenses-net, increased 7% to
Brown-Forman anticipates mid to high single-digit growth in sales in fiscal 2015 with select price increases, primarily international. Brown-Forman expects depletion volumes to grow mid-single digits. Brown-Forman also expects modest operating leverage through the SG&A line that should result in underlying operating income growth of 9-11%, which Fitch believes is reasonable.
Future developments that may, individually or collectively, lead to a positive rating action include:
--An upgrade is unlikely given Brown-Forman's dependence on the
Future developments that may, individually or collectively, lead to a negative rating action include:
--Larger than expected debt-financed acquisitions that result in total debt-to-operating EBITDA exceeding 1.5x or total adjusted debt-to-operating EBITDAR exceeding 2.0x could lead to a ratings downgrade;
--A change in financial policy and/or implementation of a large special dividend;
--A significant and sustained loss of market share for the
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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