Brown Forman Inc

Good day, and thank you for standing by. Welcome to the Brown-Former Corporation first quarter fiscal year 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'll now hand the conference over to your first speaker today, Sue Perham, Vice President, Director of 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 first quarter fiscal year 2025 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 first quarter fiscal year 2025, 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, 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 a pleasure to speak to you today about Brown Foreman's first quarter fiscal 2025 results. In June, we shared our outlook for fiscal 25 with the expectation that it would be a year of two halves. As you'll recall, we anticipated the second half of our fiscal year would be stronger than our first half on a year-over-year basis, as in the first half we are comparing against strong shipments in a few emerging international markets related to the replenishment of inventory and also lapping stronger shipments that occurred prior to planned price increases. The first quarter results we're sharing with you today are in line with our expectations, and we're confident in reaffirming our full-year growth outlook for fiscal 25. As we move into the details of the quarter, I'll provide an overview of the top line from a brand perspective and share a few insights on gross profit and margin. Then I'll turn it over to Leanne, who will share additional insights on our geographic performance as well as other financial highlights. Our fiscal 2025 reported net sales declined 8%. with organic net sales decreasing 4% after adjusting for the divestitures of Finlandia and Sonoma-Couture in the prior fiscal year, the negative effect of foreign exchange, and a change in how we manage our Jack Daniels Country Cocktail business with Pabst Brewing Company. We haven't talked about Jack Daniel's Country Cocktails for a while, so let me take a few moments to explain that last point. As you may recall, in fiscal 21, we entered into a partnership with the Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel's Country Cocktails in the United States. At that time, Brown Forman continued to produce certain formats of this refreshing, ready-to-drink beverage. But during fiscal 24, we transferred production of all Jack Daniel's Country Cocktails products to Pabst Brewing Company, and as a result, our sales related to Brown Foreman-produced Jack Daniel's Country Cocktail products are significantly lower compared to the prior year period. In the quarter, Diplomatico Rum, Old Forrester, and Woodford Reserve, along with Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Apple, were the largest positive contributors to organic net sales. This growth was more than offset by a decline for Jack Daniel's Tennessee Whiskey. First, to our most recent acquisitions. Diplomatico Rum delivered very strong results in the first three months of the year, largely related to the timing of ordering patterns in the prior year period, which created an easier comparison. Gin Mare was also impacted by the timing of ordering patterns in the prior year period, but this created a tougher comparison and led to a slight decrease in organic net sales. Naturally, there is a higher level of volatility in the trends as the trend only reflects three months of data. Importantly, in the first quarter of fiscal 25, shipments are largely in line with depletions, and we continue to believe that we'll benefit from having a full year of growth from these outstanding super premium brands in our portfolio. Old Forrester, our founding brand, delivered strong double-digit organic net sales growth as the brand benefited from increased volume and our pricing strategy. The brand continues to be incredibly popular with whiskey consumers as evidenced by the over 100,000 entries that were received on the first day of the Old Forrester Birthday Bourbon Sweepstakes, which gives participants a chance to purchase one bottle at $199.99 at the Old Forrester Distillery in Louisville, Kentucky. The demand is so high for this special release, we were fortunate to be able to increase the number of bottles available, which is probably welcome news to anyone that has been trying to add a bottle of birthday bourbon to their home bar. For more than 150 years, we have aspired to uphold George Garvin Brown's founding promise that there's nothing better in the market. I want to wish good luck to everyone who entered these sweepstakes, as I think they will announce winners in downtown Louisville today. I'm also pleased to report that organic net sales growth continued for Woodford Reserve, the number one super premium American whiskey globally. This performance was driven by higher volume in the United States, even when total distilled spirits trends remained well below historical levels. Of the top 20 total distilled spirits brands in the United States, only two are growing in the past 13-week takeaway results, and Woodford Reserve is one of them. This speaks to the strength of the brand and also the challenges many in our industry are facing in the current environment. Both Jack Daniel's Tennessee Honey and Jack Daniel's Tennessee Apple delivered mid-single-digit organic net sales growth, led by Brazil, as well as Turkey A, even as Tennessee Apple is lapping its prior year launch in Korea. In Brazil, we continued our strategic geographic expansion efforts, investing more efficiently with bolder and bigger activities and high engagement content for the consumer. Turning now to Jack Daniel's Tennessee Whiskey. Organic net sales declined 6%, driven by lower volumes led by the United States, the United Arab Emirates, and the United Kingdom, partially offset by an increase in volume in Japan following the transition to owned distribution and higher prices in Turkey. As I mentioned in my opening comment, this decline was expected. In the year-ago period, the United States and the United Kingdom experienced a shift in ordering patterns as inventory was purchased ahead of a price increase in the U.S. and an excise tax increase in the U.K., In addition, in the United Arab Emirates, we faced a tough comparison against the strong shipments in the year-ago period due to the replenishment of inventory. As you'll recall, with the supply chain disruptions we experienced, the emerging markets were among the last of the markets to be replenished. We continue to believe that Jack Daniels has a significant runway for long-term growth despite the recent short-term headwinds. We continue to invest behind the brand and have strategies and plans in place to engage a new generation of legal drinking age consumers while retaining our core consumers, including the Make It Count Global campaign, the McLaren Formula One sponsorship, and the Jack Daniels and Coca-Cola RTD. We're also investing more in short-term activations within the on- and off-premise channels and events such as music festivals and McLaren races globally. Music has been an important part of the Jack Daniels relevance in pop culture and was recently featured in the mega hit A Bar Song, also known as Tipsy, by singer Shaboosie. The song was released in April and reached number one on the Billboard Hot 100 in the United States and other countries such as Australia, Canada, Ireland, Norway, and Sweden. Our global sponsorship of McLaren Racing is also on display with a top three finish for McLaren in 12 of the 15 races held in calendar 2024 with the cars, race suits, and the team garage featuring increased branding for Jack Daniels. There are two upcoming races in the United States, one in Austin in October and then Las Vegas in November. We'll be cheering on Team McLaren to victory. In addition, we're continuing the geographic expansion of the Jack Daniels family of brands and are well positioned to capture the global growth of American whiskey as evidenced by our share growth in markets such as the United Kingdom, Australia, Poland, Mexico, and Brazil. Before moving on, I'll provide a brief update on the continued expansion of the Jack Daniels and Coca-Cola RTD. While growth from the Jack Daniels and Coca-Cola launch continue to be offset by the planned declines in Jack and Cola, which makes it difficult to evaluate the brand from an external perspective, but we are very pleased as we enter our second year. We continue to add new markets, expanding further throughout Europe, as well as launching in South Africa and additional Latin American markets. We plan to launch in India in September and expect to be in more than 30 markets by the end of calendar 24. In addition to geographic growth, we're also innovating. In the U.S., the first displays of Jack & Coke Cherry are beginning to appear. Jack & Coke Cherry will be a limited-time offering intended to generate interest and attention for the family of Jack Daniels RTDs as well as the full-strength family of brands. We'll also be introducing a variety pack as package formats and flavors are vital to the ready-to-drink category and further address the consumer trends of convenience and flavor. The Jack Daniels and Coca-Cola RTD has been a great addition to our portfolio, which is, as you know, we have been very strategically reshaping over the past couple of decades to focus on premium and super premium brands. Before turning the call over to Leanne, I'd also like to provide some additional perspective on our gross profit and margin. In the first quarter of fiscal 25, a reported gross profit decreased 13% and organic decreased 8%, resulting in a gross margin of 59.4%. This gross margin contraction is largely due to timing. As we have shared previously, following the divestitures of Finlandia and Sonoma-Couture, we entered into a transition service agreement with the buyers to ensure a smooth and orderly transition. These agreements had a negative effect on our overall reported gross margin, as the gross margin for these services agreements was significantly lower than the sale of finished goods. This was the main driver of the 140 basis point negative impact from A&D. Overall costs negatively impacted reported gross margin by 440 basis points, largely influenced by inventory levels and the timing of input cost fluctuations. In the first quarter of fiscal 25, we continued to reduce our finished goods inventories on a year-over-year basis. The finished goods that supported our first quarter sales were at a higher cost compared to the year ago period due to the timing of input cost fluctuations, particularly for our tequila brands as we work through the higher cost inventory. Leanne will share more details regarding our outlook, but I'll share now that we do anticipate the headwinds in the first half will become tailwinds in the second half of the year. Favorable product mix with price mix contributed 200 basis points in the first quarter. There was also a positive impact to a reported gross margin of 70 basis points from the recent business model change for Jack Daniels Country Cocktails. This is an example of how we continually look for efficiencies and opportunities to improve our production and supply chain. These tailwinds, though, were more than offset by the headwinds from A&D and the timing of costs. In summary, the start to our fiscal 25 was as we expected, and we believe we're positioned to achieve our full-year guidance. We're still operating in a highly dynamic environment, yet our portfolio remains well-positioned, our geographic reach is broad, and our team members are immensely talented and highly dedicated to growing our business. This has enabled us to navigate short-term volatility and uncertainty as we focus on the long-term growth of our business. With that, I'll turn the call over to Leanne, and she'll provide more details on our first quarter results.