Brown Forman Inc

Good day, and thank you for standing by. Welcome to the Brown Forman Corporation fourth quarter and fiscal 2023 earnings call. At this time, all 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sue Parham, Vice President, Director, 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 fourth quarter and fiscal year 2023 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, 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, 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 fourth quarter and fiscal year 2023, 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 statement. 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. With that, I would like to turn the call over to Lawson.

Thank you, Sue, and good morning, everyone. It's my pleasure to speak with you today regarding Brown Foreman's fiscal 2023 results. Fiscal 2023 was another very strong year for Brown Foreman, And importantly, we built on the 17% organic top line and 27% organic bottom line growth we delivered in the previous fiscal year. If we take a step back and consider the headwinds we faced throughout fiscal 2023, it helps to appreciate the quality of our performance even more. As you'll recall, we faced numerous headwinds throughout this fiscal year, including supply chain challenges, higher input costs due to inflation, the significant impact of negative foreign exchange, and the impacts of the Russian invasion of Ukraine. As we progressed throughout the fiscal year, the headwinds began to ease, and the world, along with our business, seems to be getting back to normal. While uncertainty and volatility are likely to remain a part of our conversations, we've demonstrated this year and throughout our 153-year history that our brands are healthy, our people are resilient, and our company is able to navigate the challenges that come our way. Consider, for example, since fiscal 2019 or the last year before the pandemic, we've grown organic net sales at an 8% compound annual growth rate through fiscal 23, demonstrating our strong track record of consistent and sustainable results over the long term. Alternatively, if you were to look back at fiscal 23 alone, you'd see we significantly exceeded our top-line growth ambition, which anticipates reported net sales in the mid-single digits. Now, as we dig into the full results of the fiscal year, I'll start with our top line performance and share some highlights from our portfolio brands. Leanne will then provide additional details for the fiscal year before providing our outlook for fiscal 24. In fiscal 2023, our reported net sales increased 8% or 10% on an organic basis, driven by broad-based reported net sales growth across all geographic clusters and the travel retail channel, including double-digit organic growth in our international markets. Through our revenue growth management initiatives, we continue to execute our long-term pricing strategy for our portfolio brands, which aims to increase prices consistently year after year and to grow net sales through a balance of both volume and value. In fiscal 2023, our organic net sales growth benefited from three points of favorable price mix. This was driven by higher prices across much of our portfolio, but led by Jack Daniel's Tennessee Whiskey, partially offset by a portfolio shift toward our ready-to-drink Our top line growth was broad-based and reflected the continued strength of our portfolio of brands, strong consumer demand, and the return of inventories to more normalized levels. As expected, the estimated net change in distributor inventory did not have an impact on our fiscal year results. Turning to our portfolio of brands. Jack Daniel's Tennessee Whiskey fueled the company's performance. The brand had another remarkable year and increased organic net sales by 8%. This growth is particularly impressive given that the brand is over 15 million 9-liter cases and delivered a 23% organic net sales increase in the last fiscal year. The growth of Jack Daniel's Tennessee Whiskey in fiscal 2023 was driven by strong consumer demand and higher pricing. It's often easy to lose sight of the size and scale of this brand when speaking in quarterly results. but it is indeed an impressive brand with massive appeal around the globe. We believe these latest results reinforce its health and position as the largest global premium spirits brand by volume in the world. The rest of the full-strength Jack Daniels family of brands also delivered strong results, growing organic net sales high single digits during the fiscal year as the consumer premiumization trend drove demand for our super premium products, such as Gentleman Jack, which also benefited from improved product availability as supply chain disruption eased. And of course, we were very excited this year when our Jack Daniels Bonded Tennessee Whiskey was named the 2022 Whiskey of the Year by Whiskey Advocate Magazine. It's a great compliment when Jack Daniels' authenticity, craftsmanship, and quality is recognized with such a coveted award. These brands, along with our specialty launches, such as Jack Daniel's Single Barrel Special Release Heritage Barrel and Jack Daniel's 10 and now 12-year-old Tennessee Whiskey, enable us to premiumize the Jack Daniel's family of brands, continue to highlight our whiskey credentials, and give both longtime and new friends of Jack Daniel's the opportunity to explore and discover within the Jack Daniel's family. While we're always happy to add whiskey accolades to our trophy case, Jack Daniel's is now part of the race for another type of trophy. the FIA Formula One World Drivers' Championship trophy. As you may recall, in September, Jack Daniels became an official global sponsor of McLaren Racing, a British Formula One racing team. Counting more than 1 billion fans worldwide, viewership of Formula One racing is growing at the fastest rate of any major global sport. The majority of the sport's growth comes from the next generation of fans, providing a powerful opportunity to reach legal drinking age consumers and expand Jack Daniels' relevance in pop culture. With races on most continents, this relationship provides a powerful opportunity to engage a truly global fan base. One of the strongest performers in our portfolio this year was Woodford Reserve. Since its founding more than a quarter century ago, Woodford Reserve has grown volume at a double-digit compound annual growth rate. This trend continued in fiscal 2023 as consumer demand remained very strong and organic net sales grew 27%, making Woodford Reserve our second largest contributor to the company's growth. The brand continues to grow in the U.S. and is being discovered internationally as we continue to position this brand for future growth. Last month, the Kentucky Derby was held in our hometown of Louisville and Woodford Reserve as the presenting sponsor stood tall on a global stage. Also in connection to the most exciting two minutes in sports, the brand released its 2023 Derby Bottle with artwork that honored the 50th anniversary of Secretariat winning the 1973 Derby. This collectible bottle featured a painting entitled Still the Greatest. And indeed, we believe Woodford Reserve is still the greatest, as it remains the number one super premium American whiskey brand in the world by volume and value based on IWSR in 2022. Jack Daniels RTDs were also a significant contributor to overall company growth in fiscal 2023, driven by the consumer trends of convenience, flavor, and premiumization. Jack Daniels RTDs grew organic net sales double digits, fueled by the launch of the Jack Daniels and Coca-Cola RTD in the U.S., along with the continued growth of the RTD portfolio in Germany and Australia. As you might recall, in fiscal 2023, we launched the Jack Daniels and Coca-Cola RTD in nine markets, Mexico, the U.S., Japan, the Philippines, the U.K., Poland, Hungary, the Netherlands, and Ireland. So for most of you on this call, you should be seeing cans in your local markets, and I hope that you've had the opportunity to enjoy this great tasting new We're only a few months into the launch, but similar to the initial feedback we received from Mexico, the early results from the markets are very positive. In the US, Jack and Coke is taking share across the category. Our distributors are meeting distribution expectations, and we're seeing stronger than expected reorder rates. Jack and Coke Zero has also outperformed our initial plans. In our European markets, we're exceeding our launch expectations. Specifically in the UK, the rate of sale for Jack and Coke is already matching Jack and Cola. And just a couple of weeks ago, the Jack Daniels and Coca-Cola RTD began appearing on the biggest advertising site in Europe at Piccadilly Circus. The buzz and enthusiasm for the product is certainly high and growing. Globally, we exceeded 1 billion consumer impressions before any paid media ever aired. The potential growth of this product is exciting, but RTDs also serve as a consumer recruitment vehicle. They bring new consumers of legal drinking age into the Jack Daniels family, which we believe will have a positive impact on the full-strength family of brands. We will continue the product launch in additional markets around the globe throughout the 2023 calendar year, and I look forward to continuing to provide updates on the growth of this iconic product. While RTDs have been experiencing accelerated growth, including our Numix brand, which reached nearly 10 million 9-liter cases in fiscal 2023, and delivered very strong double-digit organic net sales growth. I also want to acknowledge the continued strength of tequila, which remains one of the fastest growing spirits categories, particularly at the premium plus price points. Casa Herradura produces some of the most authentic tequila brands in the category, having been founded in 1870, the same year our founder, George Garvin Brown, created Old Forester. In fiscal 2023, Herradura and El Jimidor grew organic net sales by 10% and 14% respectively, even as Arradura faced significant supply chain challenges during the first quarter, and both brands lapped a very strong double-digit growth the prior year. We believe the strong consumer interest in tequila will continue for the foreseeable future, and we are investing significantly behind these brands. As you would have seen last week, we announced an approximate 200 million U.S. dollar investment at Casa Arradura. This multi-phase project includes expanding our distillery operations, bottling, maturation, and processing areas to support the strong consumer demand we see as we look out over the mid to long term. This expansion is particularly exciting as it advances our existing waste-to-energy efforts with a new water recycling and treatment plant. Over the past decade, Casa Heredera has been a pioneer in establishing a water recycling and treatment plant and is one of Brown-Forman's zero-waste to landfill sites. We believe the sustainable technology and this investment will ensure we have access to clean water improve our production efficiencies, and increase our competitiveness. Before I wrap up my commentary on our brands, I wanted to take a moment to acknowledge the changes we've made to our portfolio in recent years. We've been very purposeful in actively managing our portfolio for more than a decade by developing, acquiring, and divesting various businesses and brands. We believe this portfolio evolution alongside product innovation gives us the best opportunity for long-term growth and value creation. In fiscal 2023, we completed the latest efforts in our portfolio reshaping efforts with the acquisitions of Gin Mare, the number one ultra-premium gin, and Diplomatico, the number one super and ultra-premium rum, according to the latest IWSR data. Given the timing, the brands only impacted reported net sales in fiscal 2023 by approximately half a point. However, as we continue to integrate these brands and teams into our organization, we expect them to be meaningful contributors to our growth over the long term. We're delighted Gin Mara and Diplomatica are now part of our Brown Foreman family. Brown Foreman now owns one of the top five brands globally in four strong growth categories, Super Premium American Whiskey, Super Premium Tequila, Ultra Premium Gin, and Ultra Premium Rum. As I close, I want to thank our Brown Forman colleagues around the world that navigated the numerous challenges throughout fiscal 2023 and worked hard to deliver the strong, broad-based results that we're sharing with you today. When we started fiscal 2023, we had confidence that the strength of our portfolio of brands and our strategic investments would support continued growth despite the dynamic operating environment. This confidence was well-placed. The strong consumer demand for our brand served as an important tailwind in the face of stronger than expected inflation and supply chain challenges. We continue to invest significantly behind our brands and our people, and we're able to deliver very strong results that were at or above our long-term ambitions. I'm very pleased with the performance of the business and the continued strength of our portfolio and of our people. Leanne, now I'll turn things over to you to provide more detail on our fiscal 2023 performance and our expectations as we look forward to fiscal 2024.