Brown Forman Inc

Good day, and thank you for standing by. Welcome to Brown Foreman's Corporation Fourth Quarter and Fiscal Year 2024 Earnings Results Conference Call. At this time, all participants are on 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 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Sue Perham. Vice President and Director of Investor Relations. Sue, 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 2024 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 2024, in addition to posting presentation materials that Lawson and Leigh Ann 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 are 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. Thank you for joining us today as we share Brown Foreman's fiscal 2024 results. Before diving into the details, I wanted to provide a few high-level comments on our performance and my perspectives on the year. Brown Foreman is a 154-year-old company, so we have been through periods of complexity and uncertainty in the past. We understand what it means to be resilient. We know how to navigate short-term challenges while remaining focused on our long-term strategy. Fiscal 2024 has certainly been a challenging year as we're still operating in a highly dynamic environment. While our business is not immune to the impacts of industry and macroeconomic headwinds, Brown Forman and its people have remained agile, focused, and committed to the long-term growth of our brands and of our business. There is certainly a lot of complexity to our results, which we will walk you through momentarily. However, when you consider our depletion-based results, which we believe represents the true health of our business, we're pleased with our fiscal 2024 performance as it is in line with our long-term growth expectations. While that statement may surprise some of you, this past fiscal year was greatly impacted by changes in consumer, retail, and distributor inventories. We believe our brands remain healthy, we're in the right categories and price points, we're confident in the outlook for our business so let's discuss all of this in greater detail throughout the year we've been using the word normalization as we lapped the impact of the supply chain challenges and the rebuilding of inventory in the prior year as well as consumers getting back to historical consumption patterns we expected our organic results to moderate in fiscal 2024 after two plus years of double digit growth however as we move through the year conditions changed consumers faced higher inflation and increased interest rates that made them as well as distributors and retailers, reconsider when and how they made purchases. In this environment, our fiscal 2024 results were below our expectations, with organic net sales declining 1% and organic operating income decreasing 2%. And this is where it gets particularly complex and potentially confusing, so thank you for allowing me to get into the weeds here a bit. As seen in Schedule D, the estimated net change in distributor inventory had a very significant influence on our results this year, reducing our organic net sales by 6% and operating income by 14%. The scale of this impact is significant when compared to any other time prior to the pandemic, as the estimated net change in distributor inventory has historically only impacted organic results by one or two points in any given year. The sizable difference in fiscal 2024 between shipments and depletions was driven by several factors converging at one time. This includes the tough comparison against the rebuilding of distributor inventories in fiscal 2023 related to the glass and supply chain challenges, along with the more recent changes in distributor and retail ordering patterns. We found that the timing and size of orders has fluctuated from their historical patterns to adjust for higher interest rates and moderating consumer demand. We believe our performance is best captured by factoring in the impact from the estimated net change in distributor inventories, which is what I referred to earlier as our depletion-based results. These depletion-based results, which capture the sale of our brands from distributors to retailers, is the way we manage our business internally within Brown Foreman and the way we incentivize our leaders. From this perspective, our top line results more closely reflect our longer term trends and our bottom line results were particularly strong. For these reasons, we believe the fundamental health of our brands and our business remains solid. We've also been using the word normalization because if we look back over the past five years, which encompasses the numerous impacts of the pandemic, our five-year organic net sales compound annual growth rate is 6%. This is in line with our long-term growth algorithm and demonstrates our strong track record of consistent and sustainable results over the long term. I also want to highlight the 150 basis points of reported gross margin expansion that we delivered in fiscal 2024. We've benefited from favorable price mix as we continue to execute our long-term pricing strategy along with our enhanced revenue growth management capabilities. We also benefited from the growth of our super premium brands. Price mix, along with the absence of the supply chain disruption costs in the prior year period, more than offset higher input costs and unfavorable foreign exchange. We're very pleased with our strong reported gross margin expansion and believe we will continue on this path in the coming fiscal year. 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 of brands. Leanne will then provide additional details for Fiscal 24 before providing our outlook for Fiscal 25. The main growth drivers of organic net sales were Jack Daniel's Tennessee Apple, the Jack Daniel's Super Premium Expressions, Numix, and Glenn Glassall. We haven't talked much about these brands in the past, but they're examples of how the consumer trends of premiumization, convenience, and flavor continue to drive our business. They also illustrate the value and importance of our portfolio evolution and innovation strategy, as well as our continued geographic expansion and route-to-market strategy. The work we have done to build a diversified global portfolio focused on premium and super premium brands provides us with many opportunities for growth, even in dynamic and challenging times. Chuck Daniels Tennessee Apple was a top performer as the brand delivered very strong double-digit organic net sales growth and is now almost 900,000 nine-liter cases. The brand was launched in 2019, just prior to the beginning of the pandemic when the closure of the on-premise and supply chain disruption significantly impacted our ability to build brand awareness. However, as supply and logistic challenges eased, we were better able to meet consumer demand for the product. Today, we're seeing strong growth in markets such as Brazil and Chile. And we've also continued to introduce the brand into new markets and had a strong launch in South Korea in fiscal 24. Collectively, the Jack Daniels Super Premium Expressions also delivered strong double-digit organic net sales growth in fiscal 24. This growth was led by Jack Daniels Sinatra, Jack Daniels Single Barrel Rye Barrel Proof, and the newest member of the bonded series, Jack Daniels Bonded Rye. Our exclusive global travel retail offering, Jack Daniels American Single Malt, also contributed to the strong results. Over the last several years, to meet consumer preferences, we have purposefully premiumized the Jack Daniels family of brands and elevated our whiskey credentials through innovation and specialty launches. This allowed us to offer both long-term friends of Jack Daniels and new friends the opportunity to explore and discover within the Jack Daniels family. Of course, another trend in beverage alcohol is the continued growth of ready-to-drink beverages, specifically spirit-based RTDs. This trend is evident in our fiscal 24 results, with NuMix serving as the second largest positive contributor to organic net sales, growing to more than 10 million 9-liter cases in fiscal 24. The brand continued to deliver double-digit organic net sales growth, benefiting from higher pricing and value share gains in the RTD category, despite a challenging environment in Mexico. The third largest positive contributor to overall organic net sales was Glenglassaw, as the brand's awareness and prestige among whiskey connoisseurs continued to grow. Most notably, Glenglassaw's Sand End being named the 2023 Whiskey of the Year by Whiskey Advocate magazine. And as we've shared over the last couple of quarters, the brand continued to benefit from cask sales, particularly in Asia, through its old and rare program. The growth from these brands was almost entirely offset by declines in organic net sales from Jack Daniel's Tennessee Whiskey. Jack Daniel's Tennessee Whiskey declined 5%, led by lower volumes in Japan as we transitioned to own distribution, the United States due to slowing consumer demand, and the United Arab Emirates and Sub-Saharan Africa, both of which had strong comparisons given the significant rebuilding of inventory last year. As we shared during our Investor Day in March, Despite recent short-term headwinds in our industry, we believe Jack Daniels has a significant runway for growth and are confident in achieving our long-term ambitions. Jack Daniels remains one of the most iconic brands in the world, with solid brand health and a long-term performance track record with the Jack Daniels family of brands, growing volume at a 5% compound annual growth rate over the past 5, 10, and 30-year periods. The fact that the brand's 5-year growth rate is the same as its 30-year growth rate means that it is not slowing down. That is impressive for a brand of its size. The Jack Daniels family of brands is a robust portfolio that expands across multiple occasions, price points, and geographies. And we believe we have strategies and plans in place to engage a new generation of legal drinking age consumers while retaining our core consumers. In addition, we are positioned to capture the global growth of American whiskey as we accelerate the geographic expansion of the Jack Daniels family of brands. We continue to support the brand's health and growth through the Make It Count global campaign, the McLaren Formula One sponsorship, and the Jack Daniels and Coca-Cola RTD. I do want to acknowledge that the impact of Jack and Coke RTD is difficult to see in our fiscal 24 results, primarily due to the transition to Jack and Coke RTD from our pre-existing Jack and Cola RTD business. Even so, we continue to believe Jack & Coke is an iconic brand and a fabulous product and can build a stronger and more global foundation for the Jack Daniels family of brands. Consider, for example, the Jack & Coke RTD grew to 4.5 million 9-liter depletions in over 25 markets around the world in fiscal 24, of which 2 million of the cases were incremental, leading to more than 120 million cans in consumer hands. Brand investment increased significantly in markets where we transitioned from Ancola to Ancoke, with more than half of the increase contributed by Coca-Cola. And very positive consumer response, with greater than 86% of consumers indicating strong intent to repurchase the Jack & Coke RTD. Jack & Coke was a significant portfolio enhancement for us, as were the additions of Gin Mare and Diplomatico. In fiscal 24, Ginmari and Diplomatico were integrated into the Brown-Forman portfolio brands, and I'm pleased to say that both brands delivered strong double-digit organic net sales growth. These brands have given us scale in Europe and enabled route-to-consumer changes, such as our recent announcement for Italy's own distribution transition. And with these brands, Brown Foreman owns at least 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. We believe this portfolio evolution, alongside product innovation, gives us the best opportunity for long-term growth and value creation. As I close, I want to thank my Brown Forman colleagues around the world for their commitment to our company values and their daily efforts to deliver our long-term ambitions. Throughout our 154-year history, It has been the strength of our people, the health of our portfolio, and the breadth of our geographic reach that has enabled us to navigate short-term uncertainty and volatility. While we experienced a very dynamic operating environment in fiscal 24, we still believe the spirits category and Brown Foreman offer attractive growth. We delivered over 60% gross margin and a 30% operating margin. while generating strong cash flows with high returns on capital. And we are well positioned to benefit over the long term from the evolution of our brand portfolio and the investments behind our brands and people. Leanne, I'll now turn the call over to you to provide more detail on our fiscal 24 performance and our outlook for fiscal 2025.