Brown Forman Inc

Good day, and thank you for standing by. Welcome to the Brown Forman Corporation third quarter and year-to-date fiscal 2022 earnings conference call. At this time, participants are in a listen-only mode. After the speaker's presentation, 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. Please be advised that today's conference is being recorded. If you're requiring further assistance, please press star 0. I would now like to turn the conference over to your speaker today, Sue Parham, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown-Forman's third quarter and year-to-date fiscal 2022 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Senior 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, except as required by law, 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 third quarter and nine months ended January 31, 2022, in addition to posting presentation materials that Lawson and Leanne 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 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 reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and investor presentation. As of the third quarter of fiscal 2022, we have changed certain non-GAAP financial measures that we have used historically in our public disclosures, in our analysis of results of operations in our SEC filings, as well as in our earnings release documents. We will no longer report underlying measures of change for any P&L line items. Instead, we will begin reporting organic measures of change for certain P&L line items. This change to our non-GAAP financial measures is in response to comments from and discussions with the staff of the Securities and Exchange Commission. Organic includes all of the non-GAAP adjustments that we have historically made in adjusting GAAP to underlying results, except that organic does not include an adjustment for estimated net change in distributor inventories. We will continue to adjust for acquisitions and divestitures, foreign exchange, and unusual or non-recurring transactions. For comparability purposes, The presentation and amounts of our non-GAAP financial measures for all prior periods presented in today's release and presentation and discussed on today's call have been restated to reflect these changes to our non-GAAP financial measures. We have posted schedules covering historical periods on our website. Our business can be affected by changes in distributor inventories, particularly in our largest market, the United States, where the three-tier system includes suppliers, distributors, and retailers. We will not adjust our non-GAAP P&L measures for estimated fluctuations in distributor inventories, yet we will continue to provide meaningful, qualitative, and quantitative information so that you can understand how estimated fluctuations in distributor inventories may affect our results from operations. We have added Schedule E to our earnings release, which contains supplemental information that presents separately the estimated net effect of distributor inventory changes on our results. In addition to explaining our results, when we expect that fluctuations in distributor inventories could impact our trend significantly in future periods, we plan to disclose that to you as we have endeavored to do previously. Specifically to our outlook, in the past, when we have provided guidance, whether in qualitative or quantitative terms, we have communicated our expectations for key measures on an underlying basis. Going forward, when we provide such guidance, we will do so on an organic basis. Therefore, the current outlook is not directly comparable to our previously presented outlook. Accordingly, we have provided our updated fiscal 2022 outlook in our third quarter earnings release and form 10Q using the organic basis. With that, I would like to turn the call over to Lawson.

Well, thank you, Sue, and good morning, everyone. I'm proud to share our results with you today as we deliver double-digit organic top and bottom line growth for the first nine months of our fiscal year. But before I do, I did want to take a moment to acknowledge that the entire Brown Forman community is extending our thoughts to those impacted by the war in Ukraine, particularly our employees and their families. We will continue to hope for a peaceful resolution. I also want to thank our 4,700 Brown Forman employees around the globe who many of whom have stepped up to help their Ukrainian colleagues, just as they've stepped up in every way the last two years. They've made it possible for us to deliver these strong business results. We have an immensely talented team that remains committed to our strategic priorities and our company values, and it is this resolve and determination that has allowed us to navigate numerous uncertainties and challenges over the years while delivering sustainable and consistent long-term growth. So turning to the results, we continue to see strong, broad-based top-line growth across our major geographic clusters, driven by many of the same themes that we've shared with you throughout this fiscal year. First, our top-line growth accelerated in the third quarter due to the gradual reopening of the on-premise channel, the return of some travel and tourism, and the cycling of lower comparisons, notably in emerging markets and the travel retail channel. Second, we continue to see strong consumer demand in both the American whiskey and tequila categories where our brands are well positioned. Our portfolio is also continuing to benefit from the premiumization trends across our industry. Finally, we continue to face challenges from supply chain disruptions largely related to glass supply. These disruptions reduced our finished goods inventories along with the inventories at both the distributor and retailer levels. While we are seeing some signs of improvement, the supply chain challenges negatively impacted our net sales and increased our costs in the year-to-date performance. Leanne will talk more about this in just a couple of minutes. These drivers led to an overall reported net sales increase of 11% year-to-date and 14% on an organic basis, despite the supply chain problems negatively impacting our results. This was led by a double-digit organic net sales increase for the Jack Daniels family of brands, fueled by a 20% organic net sales increase for Jack Daniel's Tennessee Whiskey. As a reminder, last quarter we shared that we had prioritized Jack Daniel's Tennessee Whiskey as we navigated the supply chain challenges. You can see that prioritization in the results, as they demonstrate the strong consumer demand for the brand, particularly in the on-premise, as well as our focus on rebuilding inventories across the supply chain. Given the size of the brand, this growth is particularly impressive, adding almost 1.6 million 9-liter cases compared to the same period last year. The strength of the Jack Daniels trademark extends to the full family of brands. Year-to-date, Jack Daniels RTDs grew organic net sales mid-single digits, even against strong double-digit comparisons in the prior year. The consumer trends of flavor and convenience are continuing to drive demand for RTDs, as well as flavored whiskey, globally. Collectively, the Jack Daniel's flavors delivered double-digit organic net sales growth year-to-date. The continued international launch of Jack Daniel's Tennessee Apple, along with solid volume growth in the United States, delivered double-digit organic net sales for the brand. And while Jack Daniel's Honey and Jack Daniel's Fire grew organic net sales year-to-date, Both brands' growth rates have been adversely impacted by the supply chain disruptions, which includes our decision to prioritize Jack Daniel's Tennessee Whiskey. These same supply chain challenges had a significant impact on Gentleman Jack, which led to a year-to-date decline in organic net sales for the Jack Daniel's Super Premium brands. The tequila category remains very strong, benefiting our full-strength tequilas. Year-to-date Arradura and El Jimidor grew organic net sales 29% and 20% respectively. Woodford Reserve's organic net sales grew high single digits year to date, but given the prioritization of Jack Daniel's Tennessee Whiskey, the brand experienced a decline in distributor inventories, adversely impacting its results. Importantly, we believe consumer momentum for Woodford Reserve remains strong, and similar to Jack Daniel's Tennessee Whiskey, should benefit from increased supply as we work through and resolve the supply chain disruptions. Finally, as I mentioned, our portfolio of super premium brands continues to benefit from the consumer premiumization trends as well as our investment behind our emerging brands teams. Brands such as Old Forrester, Chambord, our single malt scotches, Glendronic, Benriak, and Glenglassaw, as well as Ford's Gin, have also benefited from the reopening of the on-premise, particularly in the U.S., where this channel is an important part of our brand building model. In Europe, the recent investment in our emerging brands model has enabled us to increase our footprint for the Woodford Reserve family of brands, Chambord, our single malt scotches, as well as our tequilas. With dedicated teams focused on these brands, we're able to deliver very strong growth and believe there is considerable opportunity for continued international expansion and growth. As I close, I want to reiterate my continued confidence in our people, our brands, and our strategic priorities. We believe we are uniquely and strategically positioned to capitalize on consumers' preference for premium and super-premium spirits. their appreciation for American whiskey and tequila, and the continued desire for convenience. This has created strong demand for our portfolio brands around the world and a healthy runway for future growth as we continue to invest behind these brands. These strengths are the foundation for our continued strong business results, even amongst continued headwinds in the form of tariffs, high input costs, and supply chain disruptions. And thankfully, I still continue to believe that many of these headwinds we have experienced over the past few years are soon to become tailwinds. One last topic before I hand it over to Leanne. Yesterday, you should have seen our announcement regarding several changes to my executive leadership team. I'd like to take this opportunity to thank Ralph de Chabert and John Hayes who are retiring later this summer for their many leadership contributions over decades and the many ways they've helped our company grow and our inclusive culture thrive. In addition to these retirements, I'm making further changes to my team through disciplined succession planning to continue the company's successful brand building and growth strategies. I'm extremely grateful for the opportunity to work with an executive leadership team composed of such experienced and talented leaders, and I'm confident Brown Foreman is in capable hands under their leadership. Leanne, I'll now turn things over to you.