Brown Forman Inc

Ladies and gentlemen, thank you for standing by, and welcome to the Brown-Forman First Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you would like to withdraw your question, press the pound key. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Leanne Cunningham, Senior Vice President, Shareholder Relations Officer. Thank you. You may begin.

Thank you, Dorothy, and good morning, everyone. I would like to thank each of you for joining us for Brown Forman's first quarter fiscal 2021 earnings call. 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. You should not place undue reliance on any forward-looking statements, and the company takes 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 first quarter fiscal 2021, in addition to posting presentation materials that Lawson and Jane will walk you 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 listed a number of risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures, a reconciliation to the most directly comparable GAAP financial measures and the reason management believes they provide useful information to investors regarding the company's financial conditions and results of operations are contained in the press release and investor presentation. With that, I would like to turn the call over to Lawson.

Thank you, Leanne, and good morning, everyone. As I stated in the earnings release that went out earlier this morning, I'm actually very pleased with the company's first quarter performance and truly want to thank our dedicated, agile, and resilient team of employees worldwide who made these results possible. We entered this fiscal year in one of the most complex and challenging business environments that we have seen in decades. Every market around the world has and continues to experience the health and economic impacts of the COVID-19 pandemic. We continue to lead by our values, keeping the health and safety of all our employees as our highest priority. But we remain committed to our strategic priorities, but like much of the world, we're adjusting the ways in which we do our work. There have been very dramatic changes to channels, to brands, occasions, which really impacts things like size mix and formats. And we continue to see a lot of volatility around the world. One of the most obvious ways that COVID-19 has impacted our business is the prolonged closure of the on-premise and the resulting shift in consumption to at-home occasions. As you can imagine, we've rapidly shifted people and investments into the off-premise, but different markets around the world have shown very different results. Even more interesting, we've also seen the pandemic accelerate a number of macro consumer trends. For the most part, trends that were happening before the pandemic have really accelerated over the past few months. So I thought I'd walk through some of these accelerating trends as well as provide examples of how we are capitalizing on these trends to our advantage. The first really would be premiumization. This was a growing trend pre-COVID and really has been a trend in the spirits business for a long time, but we've seen growth rates of premium and super premium brands accelerate greatly in the US since March. Before I go further, I did want to note that this is an area where we have started to see a divergence between the more developed markets, like much of Europe in the United States and the emerging markets. We believe this is largely due to the broader social safety nets and other forms of stimulus that the larger developed markets offer. So consumer spending has remained strong in many developed markets and the spirits industry is benefiting. We do believe consumers are looking for everyday luxuries, and this is great for super premium spirits in the U S Nielsen trends for spirits who remained very strong since the beginning of the pandemic. and have really maintained those high rates of growth through the summer. The long-term trend of spirits taking share from beer and wine continues. I think as long as people are largely unable to spend on travel and other forms of entertainment, we think that the spirit's strong growth will continue predominantly in the off-premise. Making cocktails at home has certainly become a source of entertainment for many, and that makes this pandemic just a little bit easier to take. We also have confidence that we may not see the level of down trading that we might have seen in past recessions in the developed economies. The factors are just different this time. As a premium spirits company, we feel that our portfolio brands is well positioned to win in this type of environment. The next macro trend I wanted to touch on is media consumption. Consumers have been shifting away from more traditional forms of media for a number of years. And we're not only seeing an increase in overall media consumption, which is intuitive as consumers around the world are spending more time at home, but also an acceleration of media consumption by digital platforms like social and streaming services. As I have mentioned on prior calls, we continue to move more and more of our investments behind our brands into broad reach media, especially growth areas like online video. And I'm thrilled that we brought our new creative partner, Energy BBDO, on board at the beginning of 2020, right before the world went into shutdown. While our brand expense was down significantly in Q1, driven by the uncertain environment, starting in Q2, you will begin seeing more spending as we launch new creative across many of our brands. Some of you may have already seen the new Woodford Reserve ads that began airing earlier this month, and a lot of new work from the Jack Daniels family, which will be coming out soon. While not unique to spirits, the e-commerce channel globally has been growing even faster since the pandemic as consumers look for greater convenience. While e-commerce is still a small part of our overall business today, since March, we've increased our investment, both in dollars and in people, to focus on this growing channel. Familiar and trusted brands are posed to win in these types of shopping environments, which gives many of our brands, like Jack Daniels or Woodford Reserve, we believe a good advantage. Furthermore, convenience more broadly as a macro trend has influenced our business in a couple of ways. With bars closed, consumers want convenient and easy-to-mix cocktails at home. Our Jack Daniel's Tennessee Honey and Apple brands are providing consumers ease in making flavorful yet simple cocktails. And there are a lot of people making margaritas at home, too, and that has really helped our tequila portfolio continue to grow across the U.S. And we're really pleased with the early success of our Drinkworks partnership and our first branded cocktail with them, Subject Daniel's Lynchburg Lemonade. Consumers are also increasingly interested in ready-to-drink cocktails. So I think I'd like to spend a couple of minutes this morning just on this increasingly popular category, and as Jane will share with you, a key driver of our first quarter results. Ready to drink beverages, our RTDs are having a moment right now, but it's a business we've believed in and invested in for a long time. It was nearly 30 years ago that we launched Jack Daniel's Country Cocktails in the U.S. Since that time, we've been building RTDs in many markets around the world. Globally, Jack Daniel's RTDs are now over 10 million cases, with Australia, the U.S., Germany, and Mexico all over a million cases. This really has become a meaningful business for our company. Jack RTDs were created to expand occasions where Jack could be enjoyed and focuses really on the key cocktail serves, such as Jack and Cola, Lynchburg Lemonade, and Jack and Ginger Ale. These RTDs serve as an important consumer recruitment vehicle due to the category's light and really accessible flavor profile. Through innovation, we feel we can meet consumer tastes and pack preferences as they really do vary by market. Such recent examples would include Jack and Berry in Germany, Double Jack and American Serve in Australia, and then Jack Daniel's Country Cocktails Southern Peach and Southern Citrus in the U.S. Our other large RTD business is our tequila-based Numix RTDs in Mexico, which are now over 7 million cases. This business is also doing well in the environment we're in. I believe that we're well-positioned with the right offerings at the right time to meet the increase in popularity of these ready-to-drink cocktails. So with that, I'll turn the call over to Jane, who will walk us through our first quarter financial results.