Brown Forman Inc

Good day, and thank you for standing by. Welcome to the Brown Forman Corporation first quarter fiscal year 2026 earnings 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 will 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'd like to hand the conference over to your first speaker today, Sue Parham, Vice President, Director of Wrestling Relations. Please go ahead.

Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown Foreman's first quarter fiscal year 2026 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 2026, 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 2025 Form 10-K and from time to time in our Form 10-Q report 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 gap financial measures, and the reasons 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, Sue, and good morning, everyone. I'm glad to be with you to share the highlights and drivers of our first quarter fiscal 2026 top line performance with a focus on our geographic performance, a few unique headwinds to our business, and strategic innovation. Then I'll turn it over to Leanne, who will share additional insights on other financial highlights, including gross margin and operating expenses, before she wraps up with comments on our full year fiscal 2026 outlook, which we are reaffirming. But before I begin, I wanted to take this opportunity to recognize Leanne and her 30-year career at Brown Foreman. As you likely read in our news release earlier this week, Leanne has made the decision to retire on May 1st, 2026. She's been a respected colleague for the past three decades and a valued partner of mine since she joined the executive leadership team four years ago. I've seen the impact she's made not only on our business results and culture, but on the many people at Brown Foreman that she has mentored and developed over the years. Leanne, on behalf of the entire organization, thank you for everything you've done for Brown Foreman. You will be missed. So now on to our results. Overall, I'm pleased with the start to our year. Our first quarter of fiscal 2026 reported net sales declined 3%, but organic net sales increased 1% after adjusting for the A&D impact related to Sonoma-Couture, Finlandia, and Corbell, as well as the negative effect of foreign exchange. From a geographic perspective, our organic net sales growth was led by the emerging international markets, which grew 25%, and the travel retail channel, which increased 7%. This growth was partially offset by a 9% decline in the developed international markets collectively and a 2% decline in the United States. While there are a number of markets influencing these results, I'm going to focus on a few emerging and developed markets, as well as the United States, which highlight some key successes, challenges, and transformations that we're driving across the business. I'll start with key emerging international markets where we have positioned ourselves for strong growth. The economic environment in Mexico remains challenging, with consumers trading down. But despite this, our organic net sales increased 22%. In addition, we gained market share and in the RTD and whiskey categories and continue to outperform in the takeaway results. Within RTDs, we've continued to lead the category in Mexico with the world's first tequila-based RTD, Numix. In an environment where consumers are seeking value, convenience, and flavor, we're well-positioned, having leveraged innovation to fuel our growth and attract new consumers while continuing to engage our current consumers. Brazil is another key growth driver of our emerging markets, where organic net sales grew 30%. This is a result of many years of strategic focus on building the Jack Daniels family of brands in the city of Sao Paulo. With this strong foundation in place, we've been expanding our geographic reach, increasing distribution for Jack Daniels Tennessee Whiskey, along with Jack Daniels Tennessee Apple, Honey, and Fire. In addition, we believe premiumization is an opportunity in the market. Through additional focus on our super premium whiskey portfolio, we've driven increased distribution for brands such as Woodford Reserve, Jack Daniel's Single Barrel, and Gentleman Jack. While off a small base, these brands are growing at a very strong double-digit rate. Turning to our developed markets, I want to focus on Europe, where consumer sentiment and confidence remain pressured in most European economies. Despite this, premiumization is still evident in some countries, and we're gaining share of the whiskey category in seven of the eight top European markets. Organic net sales in Germany declined 13% as economic conditions remained challenging for consumers, and tariff uncertainty caused disruptions in ordering patterns from retailers, which negatively impacted the year-over-year trends. While total distilled spirits trends are in the mid-single-digit decline and the competitive environment is intensifying, Jack Daniel's Tennessee Whiskey grew value share in the market. We also saw double-digit growth for super-premium brands such as Gentleman Jack and Diplomatico Rum. Similar to Germany, economic conditions in the UK are negatively impacting consumer spending, contributing to an organic net sales decrease of 16%. While total distilled spirits trends, including the whiskey category, are in mid-single-digit decline, Jack Daniel's Tennessee Whiskey again gained market share. The tequila category remains a bright spot, growing double digits, with El Jimidor gaining share. El Jimidor remains the number one premium 100% agave tequila in the United Kingdom. We continue to see El Jimidor as a key introduction to consumers globally on how mixable and great tasting 100% agave tequila can be. I'll wrap up my market comments with the United States, where the decline in total distilled spirits trends remain in the low single-digit range. While organic net sales declined 2%, the results were ahead of our depletion-based results and takeaway trends. This was largely influenced by the launch of Jack Daniels Tennessee BlackBerry and the U.S. distributor transitions, which were effective on August 1st. I'll talk more about Jack Daniels Tennessee BlackBerry in a few moments, but before I do that, I'd like to share a few thoughts on the distributor transitions. As you may recall, this was the first time in 60 years we had made a significant change to our distributor partners in the U.S. We began our work on the RFP process over a year ago with the goal of driving improved performance and a material impact to our business in the U.S. And while we're very much in the initial stage of the transition, we're pleased with the early signs from our distributors and believe these changes will unlock growth. strengthen our distributor partnerships, and position us to compete effectively in the evolving U.S. beverage alcohol industry. Key outcomes of the RFP process, whether our relationship with the distributor is new or existing, include increased dedication, updated business relationship terms, and expanded relationships and diversification. The increased dedication comes from an almost three times increase in headcount dedicated to the Brown Foreman portfolio, dedicated selling divisions, and dedicated roles in those divisions, which will bring greater focus and coverage to our brands. We've also updated our ways of working, investment and margin expectations with an increase in distributor investment, and improved margin structure. I'll turn now to a couple of items that are somewhat unique to Brown Foreman. Used barrel sales and the trade dispute between the U.S. and Canada, which created significant headwinds to our first quarter organic net sales results. Organic net sales for used barrels decreased over 40%, with demand and pricing reflective of the current industry operating environment, particularly the Scotch and Irish whiskey suppliers. Canada's organic net sales declined nearly 60% as beverage alcohol products produced in the United States remained off the shelves in the majority of the Canadian provinces. While our non-U.S. brands, such as Diplomatico and El Hemador, continued to deliver growth, they were not able to offset the decline of our brands that are produced in the U.S. That said, we remain optimistic based on our recent developments related to tariffs under the USMCA. Finally, let me provide a few thoughts on strategic innovation, particularly for the Jack Daniels family of brands, which saw the launch of Jack Daniels Tennessee Blackberry in the U.S. a few weeks ago. When it comes to innovation, our goal is to extend the brand's appeal to new consumers and capitalize on new occasions while strengthening the parent brand. The launch of BlackBerry has been incredibly promising and was based on insights such as innovation, particularly from flavored whiskey and U.S. whiskey being the largest growth contributor to total distilled spirits. Jack Daniels has a proven track record of leveraging our global footprint and capabilities to extend the impact of new flavor launches. Blackberry is a globally relevant flavor trend across food and beverage categories. In consumer testing, Jack Daniel's Tennessee Blackberry had high consumer appeal resonating with a very broad audience. Distributors are excited, with shipments already exceeding our expectations, and we're getting wonderful feedback and buzz on the new product from existing fans, new consumers, customers, and the media. While we're excited about the start, we remain cautiously optimistic. Our work isn't done yet, and we need to fuel this excitement to drive continued momentum and strong consumer takeaway. While we're certainly proud of our strong track record of innovation, the long-term growth and resilience of the Jack Daniels family of brands is also fueled by strategic relationships such as our McLaren Formula One and music sponsorships. We're also leveraging an evolved on-premise strategy and our new media campaign to engage a new generation of legal drinking age consumers while remaining intently focused on retaining our core consumers. As a result, compared to a year ago, we're seeing improvements in brand health driven by young adult spirits drinkers. Across key measures of penetration, affinity, and uniqueness, we see significant positive shifts in brand performance over the last year, in particular among legal drinking age to age 34 consumers, but also among consumers age 35 and above. These positive shifts across both age categories affirm that our strategic actions are reaching new consumers while not alienating those who have been friends of Jack for years, and we will continue to take bold actions to further enhance the health and growth of Jack Daniels. We look forward to sharing more on this during our upcoming Investor Day on October 15th, where our focus will be entirely on Jack. While in-person attendance is limited, the presentations will be webcast. Details regarding the live webcast of the presentations along with the Q&A session will be shared in the next few weeks. Overall, I'm pleased with the start to our fiscal 2026 and believe we are still positioned to achieve our full-year guidance. During the first quarter, we focused on strategically growing our portfolio brands globally through a strengthened route to consumer and thoughtful innovation to help navigate the difficult short-term conditions. We're benefiting from our streamlined and simplified workforce structure, which will increase our agility in responding to this dynamic operating environment, and I'd like to thank our Brown Forman employees for their efforts and dedication. With that, I'll turn the call over to Leanne, who will provide more details on our first quarter 2026 results.