Called to Account: Jack Daniel’s maker Brown-Forman’s latest earnings are more of the same

Brown-Forman Corp., the maker of Jack Daniel’s whiskey, posted second-quarter earnings Wednesday that again included nonstandard metrics that have been criticized by the Securities and Exchange Commission.

An examination of the company’s financial results last quarter found the company using adjusted, nonstandard numbers that it failed to reconcile with its standard numbers, making an adjustment for inventory that is not allowed under SEC rules, and being inconsistent in its reporting for acquisitions and divestitures.

Read: The company that makes Jack Daniel’s is skirting accounting rules, experts say

Brown-Forman BF.B, +6.48% said at the time that its nonstandard metrics “assist in understanding both our performance from period to period on a consistent basis, and the trends of our business.” And it said the company fully complies with SEC rules.

The company has made no changes to its approach in its second-quarter numbers and is still not following guidelines, set last May by the SEC, that remind companies that numbers prepared according to GAAP, or Generally Accepted Accounting Principles, must be shown first and emphasized equally alongside adjusted, or non-GAAP, figures, which often make results look better.

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The guidelines are part of an SEC crackdown on the use of non-GAAP earnings numbers that has led to comment letters to dozens of companies, many of which have had to change their reporting practices.

At an accounting industry conference in Washington this week, Kyle Moffatt, the SEC’s corporation finance division interim chief accountant, told the audience that the No. 1 focus for the regulator’s comment letters to companies is still non-GAAP metrics. His staff continues to issue non-GAAP comment letters, in particular on revenue-related metrics and adjustments where the titles are too close to the GAAP name. “That,” he said, “is a bit misleading.”

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Brown-Forman continues to describe non-GAAP-compliant numbers as “underlying”; the term was used 72 times in its earnings release, down from 77 times last quarter. The company sets forth underlying net sales, underlying operating income, underlying gross profit, underlying SG&A (sales, general and administrative expenses) and underlying operating expenses.

“We adjust, as applicable, for (a) acquisitions and divestitures, (b) foreign exchange and (c) estimated net changes in distributor inventories,” is how the company explains the word “underlying”.

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Once again, the company does not offer a comprehensive reconciliation of GAAP versus non-GAAP metrics. The schedule Brown-Forman presents is labeled “supplemental information” and does not use the terms GAAP or non-GAAP. The adjustment amounts are presented as percentage changes, rather than actual numbers.

A Brown-Forman spokesperson did not respond to a request for comment.

The stock was up 6% Wednesday and has gained 46% in 2017, while the S&P 500 SPX, -0.01% has risen 18% and the Dow Jones Industrial Average DJIA, -0.16% has advanced 22%.

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