Brown Forman Inc

Good morning and welcome to the Brown Foreman fourth quarter and fiscal year 2019 earnings call. My name is Nicole and I will be facilitating the audio portion of today's interactive broadcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer segment. To ask a question via the telephone, please press star 1. If you would like to withdraw your question, please press the pound key. For those of you on stream, please take note of the options available in your event console. At this time, I would like to turn the show over to Jay Koval, VP of Investor Relations. Please go ahead, sir.

Thanks, Nicole, and good morning, everyone. I want to thank you for joining us for Brown Foreman's year-end earnings call for fiscal 2019. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jane Moreau, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict, and you should not place undue reliance on any forward-looking statements, and the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise. This morning, we issued a press release containing our results for the fourth quarter fiscal 2019, in addition to posting presentation materials that Lawson and Jane will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events, and Presentations. In the press release, we have listed a number of the risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K, 8-K, and 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciliation to the most directly comparable GAAP financial measures and the reasons that management believes that they provide useful information to investors regarding the company's financial conditions and results of operations are contained in the press release and investor presentations. As a reminder, before I turn the call over to Lawson and Jane, in the interest of time and fairness, we ask that you limit your questions to one per analyst. You're welcome to rejoin the queue, and we'll take your follow-up questions as time permits. So with that, Lawson.

Thank you, Jay, and good morning, everyone. You know, we've called this the Year of Change, Challenges, and Continued Consumer Momentum for Brown Foreman. We're generally pleased with our top and bottom line results for fiscal 2019 and both of which were up 5% on an underlying basis. Importantly, our top-line growth rate would have been really, I call the run rate, would have been 6% excluding the impact from tariffs. So generally called a good year in maintaining consumer momentum. You know, not a great year given all the headwinds that we're facing to the bottom line, but still a good year for us. We have a lot of reasons, too, to be optimistic, I think, about fiscal 20 and beyond, starting with the U.S. spirits market itself, where the trends are as strong as ever. particularly within the consumer goods world, the U.S. spirits market remains one of the best businesses in CPG. We believe we have one of the best premium spirits portfolios in the world, as evidenced really by the strength and consistency of our long-term results. We've averaged 5% to 6% underlying top-line growth for most of the last decade, and we expect more of the same in fiscal 20. So Jane, in a few minutes, will share more of the detail behind what we believe was balanced delivery of these results in fiscal 19, and then also share some key milestones that we achieved during the year. So rather than remember fiscal 19 as the year of tariffs, we changed the headline to be 2019 remembered as the year we continued to invest in momentum across the portfolio and we delivered balanced growth across many geographies and brands. Recently, the IWSR Global Report came out a week or two ago, and it was interesting to read as it covered or talked about a lot of the both attractive and then unattractive segments within beverage alcohol. Essentially, it's the categories really that you want to be in going forward include whiskey, tequila, gin, and the format of RTDs generally. And we obviously have a big whiskey business. We have a big tequila business. RTDs are increasingly important to the company, and we continue to seek ways to play into the gin category. So we feel like we're positioned well in the categories that you want to be in and relatively less involved in categories like vodka, liqueurs, rum. wine and even beer where we do not have as much exposure. So it really supports our overall portfolio strategy and all the portfolio reshaping we've done over the past several years as we've gotten out of some of those unattractive categories. For example, obviously the divestiture of our wine business a few years ago and our liqueur businesses two or three years ago and then really increasing our exposure to whiskey both with Irish and Scotches. So we feel pretty good about the portfolio reshaping we've done and the impact that can have going forward. So some brand highlights from fiscal 19. First, just talk Interbrand, which is the global marketing agency, once again named Jack Daniels Tennessee Whiskey, is the most valuable global spirits trademark in the world. Our teams are very proud of that, and we continue to defend that position strongly. And while we believe the runway is still long for Tennessee Whiskey, we've been thoughtfully diversifying the trademark through innovation and geographic broadening of our revenue base. Today, the Jack Daniels family of brands, beyond Tennessee whiskey, is now over 3.4 million cases, and Jack Daniels RTDs cross 9 million cases. These brands are much earlier in their global development than Tennessee whiskey, and they tend to be both growth and margin enhancing. Most importantly, they strengthen the Jack Daniels trademark by allowing us to participate in new drinking occasions and bring in new consumers. So we expect the forthcoming Jack Daniels Tennessee Apple to be a significant contributor globally in the years ahead. The apple whiskey category has grown to over 2 million cases, nearly all of which is in the United States, and our partners are very excited about the potential for this Jack Daniels Tennessee apple in the marketplace. While it's essentially going to be a U.S.-only launch in fiscal 20, we are excited about the long-term potential for the brand around the world. Another highlight of fiscal 19 would be Woodford Reserve. It's interesting. It took us 10 years. We started the brand in 1997, and it took us 10 years to hit the 100,000 case mark. Last year, the brand added 170,000 cases. So globally, the brand family hit 890,000 cases and is well on track to surpass 1 million cases in 2020. Woodford was named Spirit Brand of the Year by MarketWatch, and for anyone who watched this year's Kentucky Derby, we executed some amazing activations for the brand and generated sizable impressions through our excellent sponsorship. Furthermore, the performance of Woodford Reserve Double Oaked The launch of malt, special offerings such as our partnership with Baccarat and Duty Free this summer all serve to further premiumize the brand and really solidify it as the category leader in the world of super premium whiskey. And we do believe the best is yet to come with significant run room in the United States and then even greater outside of the United States, which delivered only 20% of its volume this year. Tequilas are another bright spot in the portfolio, with both Herradura and El Jimidor delivering double-digit growth rates last year. And we've also introduced a Cristalino product down in Mexico called Herradura Ultra, which is approaching 100,000 cases. So that business is very strong and growing very quickly. So while the majority of our portfolio growth is coming from these American whiskey brands and our tequila brands, we're also planting the seeds for tomorrow's growth. Over the last few years, We've launched Slain Irish Whiskey. We bought the Glendronic, Benriach, and Glen Glassall trademarks in the single malt space, all of which are growing at tremendous growth rates right now. In summary, our portfolio strategy focused on premiumization and disciplined innovation is a clear strength of Brown Foreman. We really believe it will continue to deliver consistent results year in and year out, including positive mix. We really don't have a leaky bucket anymore, which is another benefit to our business. Over the past years, there were a number of years where brands were really leaking on the sales line and provided sort of a headwind for us, and we've largely fixed those or sold them off. So we still remain very confident in our portfolio going forward. I'm frequently asked about the sustainability of the bourbon boom in general and the supply outlook. And believe me, it's something we study closely because our perspective has implications on our long-term corporate strategies. But in short, we believe this bourbon renaissance is just getting started, and the historical cycles really would support this viewpoint. Younger consumers are increasingly focused on brands with provenance and with authenticity, and they're searching for quality over quantity. With our premium spirits portfolio intentionally focused on American whiskey, We believe we're one of the best positions companies in the consumer staples universe to continue to deliver sustained compounding growth and sales. In addition to favorable category trends, another reason I believe in our ability to deliver growth in both fiscal 20 and over the long term is that we're still comparatively early in our journey into the world of the international world, particularly in emerging markets. As just one example, 10 years ago in Brazil, our business was roughly 35,000 cases. Today, it's our 10th largest market in the world, and we sell over 400,000 cases. And there are numerous examples like that around the world. Moreover, 20% of Jack's volumes come from the emerging market space. And some of you may remember, we've talked about this in past investor calls, 50% of Johnny Walker's volumes are coming from the emerging markets. And so, as we approach a lot of those emerging markets, we really do believe we have a long runway ahead to keep capturing share from the incumbent Scotch whiskey brands in many of these markets. We plan for the long term, enabled by strong ground family support. So while the short-term discussion might be skewed to topics such as the tariff impact on our margins, we're focused on the opportunities ahead that will help us deliver the best possible shareholder returns through the power of compounding over many years. The spirits business, as I said, is one of the best in the world. We enjoy strong rates of growth driven by increasing consumer demand. We've successfully delivered higher rates of growth in the industry over the long term thanks to our focused portfolio strategies in the right categories and our ability to build and grow world-class brands. We fully intend on fueling this momentum with the right balance of investments in our brands, our geographies, our assets, and our people, and we believe that this will enable us to deliver great results, including consistent and sustained top-line growth, high operating margins, and leading returns on invested capital. So I believe we can get back to that high single-digit operating income growth when we move past these tariff burdens in the middle of fiscal 2020. The tariff burden is substantial. As you would have heard on our last call, we talked about $125 million on an annualized basis. Roughly 60% of the American whiskey business into Europe is a Brown Forman product. So we have a high share of of these exports. So we view these tariffs really from the EU as a targeted campaign right at Brown Foreman, an American business headquartered in Kentucky. Our corporate headquarters, our production assets, and the employees who produce our fine whiskeys are all located in the United States, and that isn't going to change. We've invested billions over the years behind capacity expansion and aging inventory stocks, and we've created meaningful jobs in contributing to growth in both Kentucky and Tennessee. It's a tough situation. We continue to actively work with our leaders in both the U.S. and abroad, and we seek a quick resolution to these tariffs. So with that, let me turn the call over to Jane for a more detailed look at both Fiscal 19 and the outlook for 2020. Okay.