Q3 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Brown Formans third quarter fiscal 2020, <unk> earnings Conference call.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Brown-Forman Third Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you would like to withdraw your question, press the pound key. Please be advised that today's conference is being recorded. If you require further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Leanne Cunningham, Senior Vice President, Shareholder Relations Officer. Thank you. You may begin.

At this time all participants are in listen only mode. After the speaker's remarks, there will be a question and answer session to ask a question. During the session you need to press star one on your telephone if he would like to withdraw your question press the pound King.

Please be advised that today's conference is being recorded if you require further assistance. Please press star zero I when I went to him a conference over to your speaker today, Leann Cunningham Senior Vice President shareholder Relations officer. Thank you you may begin.

Leanne Cunningham: Thank you, Dorothy, and good morning, everyone. I would like to thank each of you for joining us for today's Brown-Forman's Q3 fiscal 2020 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jane Morreau, 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 the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

Leanne Cunningham: Thank you, Dorothy, and good morning, everyone. I would like to thank each of you for joining us for today's Brown-Forman's Q3 fiscal 2020 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jane Morreau, 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 the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

Thank you Dorothy and good morning, everyone I'd like to thank each of you for joining us for today's Brown Formans third quarter fiscal 2020 earnings call. Joining me today, our loss and Whiting, President and Chief Executive Officer, and Jay morale 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 and these statements. Many other factors that will determine future results are beyond the company's ability to control or predict you should not place undue reliance on anything.

Forward looking statements and the company undertakes no obligation to update any of these statements whether due to new information future events or otherwise.

Leanne Cunningham: This morning, we released a press release containing our results for Q3 fiscal 2020, in addition to posting presentation materials that Jane 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 risk factors that 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 delivering 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 conditions and results of operations, are contained in the press release and investor presentation. One last note this morning.

This morning, we released a press release containing our results for Q3 fiscal 2020, in addition to posting presentation materials that Jane 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 risk factors that 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 delivering 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 conditions and results of operations, are contained in the press release and investor presentation. One last note this morning.

This morning, we released a press release containing our results for the third quarter fiscal 2020. In addition to posting presentation materials that Jane will walk through momentarily both or release in the presentation can be found on our website under the section titled investors.

Events and presentations in the press release, we have looked at a number of risk factors that you should consider in conjunction with our forward looking statements.

There are 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 delivering certain non-GAAP financial measures. These measures reconciliation to the most directly comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the companys financial condition and results of operations are contained in the press release and Investor presentation.

One last note. This morning are the state of Kentucky will be conducting a statewide tornado drill at 10 no. Seven. This morning, we are not certain if this will create any disruption to our call if necessary, we may need to mute the line for a moment and we apologize in advance for any potential disruption with that I would like on the call over to walk.

Leanne Cunningham: The State of Kentucky will be conducting a statewide tornado drill at 10:07AM this morning. We are not certain if this will create any disruption to our call. If necessary, we may need to mute the line for a moment, and we apologize in advance for any potential disruption. With that, I would like to turn the call over to Lawson.

The State of Kentucky will be conducting a statewide tornado drill at 10:07AM this morning. We are not certain if this will create any disruption to our call. If necessary, we may need to mute the line for a moment, and we apologize in advance for any potential disruption. With that, I would like to turn the call over to Lawson.

Lawson Whiting: All right, good. Thank you, Leanne, and good morning, everyone. Before I comment on our year-to-date performance, I do wanna take just a short moment to recognize what a special time it is to be part of Brown-Forman as we enter our 150th year. Back in 1870, our founding brand, Old Forester, was first introduced into the US. Today, we now have a portfolio of over 40 premium and super premium brands sold around the globe. Since our founding, the company's been agile and resilient in navigating through many challenges, including things like prohibition, world wars, and economic recessions, just to name a few historical events. Today, we find ourselves amid trade wars, resulting in tariffs that are weighing on our industry, geopolitical events that are disrupting many countries around the world, and now a virus that is threatening the global economy.

Lawson Whiting: All right, good. Thank you, Leanne, and good morning, everyone. Before I comment on our year-to-date performance, I do wanna take just a short moment to recognize what a special time it is to be part of Brown-Forman as we enter our 150th year. Back in 1870, our founding brand, Old Forester, was first introduced into the US. Today, we now have a portfolio of over 40 premium and super premium brands sold around the globe. Since our founding, the company's been agile and resilient in navigating through many challenges, including things like prohibition, world wars, and economic recessions, just to name a few historical events. Today, we find ourselves amid trade wars, resulting in tariffs that are weighing on our industry, geopolitical events that are disrupting many countries around the world, and now a virus that is threatening the global economy.

Good thank you and good morning, everyone.

Before I comment on our year to date performance I do want to take just a short moment to recognize what a special time. It is to be part of Brown Forman is when 150 us here.

Second Eighteenseventy, our founding brand old for sure I was first introduced into the U.S. today, we now have a portfolio over 40 premium and Super premium brands sold around the globe.

Since our founding the company's match our own resilient navigating through many challenges.

Putting things like Prohibition World Wars, and economic recession, just to name a few historical events.

Today, we find ourselves in mid trade wars, resulting in tariffs that are weighing on our industry.

Joe political events that are disrupting many countries around the world now virus that is threatening the global economy.

Lawson Whiting: While the headwinds feel pretty strong right now, Brown-Forman has continued to grow throughout our history and remains a strong, healthy company, supported by the commitment of our long-term shareholders, and importantly, our dedicated and talented employees around the world. So now, on to the performance of the company. Jane's gonna take us through the company's financial results in a moment, but first, I'd like to provide an update on our progress toward our strategic ambitions. As you've heard me discuss on previous calls, we continue to evaluate our performance, both on a geographic and through a portfolio lens. From a geographic perspective, 18 of our 20 largest markets are delivering underlying net sales growth this year, highlighting the strong benefits of our geographic diversification.

While the headwinds feel pretty strong right now, Brown-Forman has continued to grow throughout our history and remains a strong, healthy company, supported by the commitment of our long-term shareholders, and importantly, our dedicated and talented employees around the world. So now, on to the performance of the company. Jane's gonna take us through the company's financial results in a moment, but first, I'd like to provide an update on our progress toward our strategic ambitions. As you've heard me discuss on previous calls, we continue to evaluate our performance, both on a geographic and through a portfolio lens. From a geographic perspective, 18 of our 20 largest markets are delivering underlying net sales growth this year, highlighting the strong benefits of our geographic diversification.

Well the headwinds feel pretty strong right now from form and has continued to grow throughout our history and remains a strong healthy company supported by the commitment of our long term shareholders and importantly, our dedicated and talented employees around the world.

Now onto the performance of the company.

James going to take us through the Companys financial results in a moment, but first I'd like to provide an update on our progress toward our strategic ambitions.

As you've heard me discussed on previous calls we continue about evaluate our performance both on a geographic and through a portfolio loans.

From a geographic perspective, 18 of our 20 largest markets are delivering underlying net sales growth. This year, highlighting the strong benefits of our geographic diversification.

Lawson Whiting: As a side note, this does not include travel retail, which actually is in decline, and we can talk a little bit about later. However, the growth rates of +3% Underlying Net Sales year-to-date for the company are below historical norms, and they're also below our expectations. But we believe going forward, these rates will return to more historical numbers, and we will talk about that throughout the rest of this call. From a portfolio perspective, our premium and our super premium brands are well positioned to continue to deliver accelerating top-line momentum, with leading positions in some of the most attractive and fastest-growing spirits categories, such as whiskey and tequila.

As a side note, this does not include travel retail, which actually is in decline, and we can talk a little bit about later. However, the growth rates of +3% Underlying Net Sales year-to-date for the company are below historical norms, and they're also below our expectations. But we believe going forward, these rates will return to more historical numbers, and we will talk about that throughout the rest of this call. From a portfolio perspective, our premium and our super premium brands are well positioned to continue to deliver accelerating top-line momentum, with leading positions in some of the most attractive and fastest-growing spirits categories, such as whiskey and tequila.

As a side note. This does not include travel retail, which which actually is a decline and we can talk a little bit about later, however, the growth rates of plus 3% underlying net sales year to date for the company or below historical norms and arc and they're also below our expectations, but we believe going forward. These rates will return to more historical numbers will.

Talk about that throughout the rest of this call.

From a portfolio perspective, our premium and our Super premium brands are well positioned to continue to deliver accelerating topline momentum with leading positions and some of the most attractive and fastest growing spirits categories, such as whiskey into Cuba.

Lawson Whiting: In particular, the super premium brands in our portfolio are propelling the company's growth both in the US and increasingly in our international markets, becoming a more powerful growth driver for the company. So to get into a couple of the specific brand performance, issues, look, the Jack Daniel's family of brands' underlying net sales was +3% year-to-date, essentially in line with the company's growth rate. We've encountered some near-term challenges for Jack Daniel's Tennessee Whiskey, which is the core of the Black Label brand, in some of our international markets. Jane's gonna talk more about this in her remarks when we get into the market-by-market analysis. But from a strategic perspective, we believe we still have the right strategy in place to deliver long-term profitable growth, and we are investing behind the opportunities.

In particular, the super premium brands in our portfolio are propelling the company's growth both in the US and increasingly in our international markets, becoming a more powerful growth driver for the company. So to get into a couple of the specific brand performance, issues, look, the Jack Daniel's family of brands' underlying net sales was +3% year-to-date, essentially in line with the company's growth rate. We've encountered some near-term challenges for Jack Daniel's Tennessee Whiskey, which is the core of the Black Label brand, in some of our international markets. Jane's gonna talk more about this in her remarks when we get into the market-by-market analysis. But from a strategic perspective, we believe we still have the right strategy in place to deliver long-term profitable growth, and we are investing behind the opportunities.

In particular, the Super premium brands in our portfolio are propelling the company's growth both in the U.S. and increasingly our international markets, becoming a more powerful growth driver for the company.

So to get into a couple of a specific brand performance.

Issues look the Jack Daniels family of brands underlying net sales plus 3% year to date essentially in line with the company's growth rate.

We've encountered some near term challenges for Jack Daniels, Tennessee, Whiskey, which is the core black label brand and some of our international markets Jane's going to talk more about this in her remarks, when we get into the market by market analysis, but from a strategic perspective, we believe we still have the right strategy in place to deliver long term profitable growth and we are investing behind the opportune.

Entities.

Lawson Whiting: The Jack Daniel's RTD business is now over 9 million cases globally and continues to deliver solid growth, as the increasingly popular RTD format provides Jack Daniel's consumers with convenience in their drinking occasions. We continue also to focus on the versatility of our portfolio through innovation, which has resulted in the creation of Jack Daniel's Tennessee Honey and Fire over the last 9 years. These two brands now contribute 2.4 million 9-liter cases at very attractive margins and are connecting new consumers to the Jack Daniel's trademark. With the launch of Jack Daniel's Tennessee Apple, which is off to a strong start in the United States, we are continuing to drive innovation and diversifying the portfolio. For our international consumers, we're gearing up for the launch of Jack Daniel's Tennessee Apple, and it should begin to appear on retail shelves in the next few months.

The Jack Daniel's RTD business is now over 9 million cases globally and continues to deliver solid growth, as the increasingly popular RTD format provides Jack Daniel's consumers with convenience in their drinking occasions. We continue also to focus on the versatility of our portfolio through innovation, which has resulted in the creation of Jack Daniel's Tennessee Honey and Fire over the last 9 years. These two brands now contribute 2.4 million 9-liter cases at very attractive margins and are connecting new consumers to the Jack Daniel's trademark. With the launch of Jack Daniel's Tennessee Apple, which is off to a strong start in the United States, we are continuing to drive innovation and diversifying the portfolio. For our international consumers, we're gearing up for the launch of Jack Daniel's Tennessee Apple, and it should begin to appear on retail shelves in the next few months.

Projecting as our TV business is now over 9 million cases globally and continues to deliver solid growth as the increasingly popular RTD format provides Jack Daniels consumers with convenience and their drinking occasions.

We can see also to focus on the versatility of our portfolio through innovation, which has resulted in the creation of Jack Daniels, Tennessee, Honey and fire over the last nine years.

Two brands now contribute 2.4 million nine liter cases at very attractive margins and are conducting new consumers to the Jack Daniels trademark.

With the launch of Jack Daniels, Tennessee, Apple, which was off to a strong start in the United States, We're continuing to drive innovation and diversifying the portfolio.

Our international consumers, we're gearing up for the launch of Jack Daniels, Tennessee, Apple and it should begin to appear on retail shelves in the next few months.

Lawson Whiting: Gentleman Jack, which we don't talk about quite as often, one of our super premium family members, is now nearly 700,000 cases and continues to deliver strong international growth. We've also made notable progress towards our strategic ambition of increasing the scale of our super premium portfolio. Woodford Reserve remains the leader in the super premium bourbon category and has been consistently growing strong double digits since its introduction 20 years ago, or more, 22 years ago. Supported by its excellent track record, along with innovations such as Double Oaked, Woodford Reserve has eclipsed 1 million nine-liter cases and is one of the largest growth contributors to the company. Looking ahead, we'll be focusing on the international development of this incredible brand, with incremental resources being invested in a number of key markets around the world.

And gentleman, Jack, which we don't talk about quite as often one of our Super premium family members is now nearly 700000 cases and continues to deliver strong international growth.

Gentleman Jack, which we don't talk about quite as often, one of our super premium family members, is now nearly 700,000 cases and continues to deliver strong international growth. We've also made notable progress towards our strategic ambition of increasing the scale of our super premium portfolio. Woodford Reserve remains the leader in the super premium bourbon category and has been consistently growing strong double digits since its introduction 20 years ago, or more, 22 years ago. Supported by its excellent track record, along with innovations such as Double Oaked, Woodford Reserve has eclipsed 1 million nine-liter cases and is one of the largest growth contributors to the company. Looking ahead, we'll be focusing on the international development of this incredible brand, with incremental resources being invested in a number of key markets around the world.

We've also made notable progress towards our strategic ambition of increasing the scale of our Super premium portfolio.

Woodford Reserve remains the leader in the Super premium Bourbon category and has been consistently growing strong double digit since its introduction 20 years ago.

For more 22 years ago supported by its excellent track record along with innovations such as double Oaked Woodford Reserve is eclipsed 1 million nine liter cases and is one of the largest growth contributors to the company.

Looking ahead, we'll be focusing on the international development of this incredible brand with incremental resources being invested in a number of key markets around the world.

Lawson Whiting: As I mentioned a few minutes ago, Old Forester is celebrating its 150th anniversary this year. It continues to present itself as a leader in American whiskey. The brand is steeped in a reputation of quality and innovation with its core expressions, and has increasing popularity with its Whiskey Row series. This brand has been registering impressive gains in the bourbon category and is becoming an increasingly meaningful growth driver for the company. Like Brown-Forman, coincidentally, Herradura was also founded in 1870 and is also celebrating its 150th anniversary. Since we purchased the brands over 12 years ago, excuse me, the super premium tequila category in the US has shown dramatic growth. To note, Herradura's underlying net sales are up 20% year to date, and it's grown to over 600,000 cases, with nearly half of its volume outside of Mexico.

As I mentioned a few minutes ago, Old Forester is celebrating its 150th anniversary this year. It continues to present itself as a leader in American whiskey. The brand is steeped in a reputation of quality and innovation with its core expressions, and has increasing popularity with its Whiskey Row series. This brand has been registering impressive gains in the bourbon category and is becoming an increasingly meaningful growth driver for the company. Like Brown-Forman, coincidentally, Herradura was also founded in 1870 and is also celebrating its 150th anniversary. Since we purchased the brands over 12 years ago, excuse me, the super premium tequila category in the US has shown dramatic growth. To note, Herradura's underlying net sales are up 20% year to date, and it's grown to over 600,000 cases, with nearly half of its volume outside of Mexico.

As I mentioned, a few minutes ago old Forester is celebrating its hundred fiftyth anniversary. This year. The continues to presented itself as a leader in American whiskey brands steeped in a reputation of quality and innovation with its core expressions and has increased in popularity with its whiskey Rose series. This brand has been registered an impressive gains in the Bourbon category and as Bill.

Coming to an increasingly meaningful growth driver for the company.

Like Brown Forman Coincidently Herradura. It was also found in 1970 and is also celebrating its hundred fiftyth anniversary.

Since we purchased the brands over 12 years ago excuse me the superpremium Tequila category in the U.S. as shown dramatic growth.

To note Herradura as underlying net sales are up 20% year to date and it's grown over 600000 cases with nearly half of its volume outside of Mexico.

Lawson Whiting: However, the unprecedented cost of externally sourced agave is putting pressure on gross margins. To help mitigate, we've been able to increase prices and accelerate the growth of Ultra, our higher-priced innovation, which is now nearly 20% of the business. We expect cost pressure to continue, however, through fiscal 2021 and continuing, but continuing our strong sales trends. Forward-looking, Herradura and el Jimador are well positioned in the fast-growing super premium and ultra-premium segments. Our single malt scotch portfolio is also performing very well, led by GlenDronach, which has been experienced considerable growth and has a very promising future. And our other emerging brands, things like Slane Irish Whiskey, Coopers' Craft, and Fords Gin, while newer in their development, continue to show potential for very meaningful growth.

However, the unprecedented cost of externally sourced agave is putting pressure on gross margins. To help mitigate, we've been able to increase prices and accelerate the growth of Ultra, our higher-priced innovation, which is now nearly 20% of the business. We expect cost pressure to continue, however, through fiscal 2021 and continuing, but continuing our strong sales trends. Forward-looking, Herradura and el Jimador are well positioned in the fast-growing super premium and ultra-premium segments. Our single malt scotch portfolio is also performing very well, led by GlenDronach, which has been experienced considerable growth and has a very promising future. And our other emerging brands, things like Slane Irish Whiskey, Coopers' Craft, and Fords Gin, while newer in their development, continue to show potential for very meaningful growth.

However, the unprecedented cost of externally sourced to Gaba is putting pressure on gross margins to help mitigate we've been able to increase prices and accelerate the growth of ultra are higher priced innovation, which is now nearly 20% of the business.

Our cost pressure to continue however through fiscal 21, and continuing but continuing our strong sales trends forward looking herradura no human are well positioned in the fast growing superpremium and ultra premium segments.

Our single Mall Scott's portfolio is also performing very well led by Glendronach, which has been experienced considerable growth and has a very promising future.

There are other emerging brands things like Slane, Irish Whiskey, Cooper's Bourbon and forge June while newer in their development continued to show potential for very meaningful growth.

Lawson Whiting: So generally speaking, we feel very confident across the different brands in our portfolio and the many levers of growth that we can pull upon. Geographically, I'm very pleased with the success of our US business this fiscal year to date. US is not only our largest market, but it is leading our growth in our 150th year. In the most valuable global spirits market in the world, Brown-Forman takeaway trends are outpacing TDS, driven largely by our American whiskey and flavored whiskey portfolios, as well as our tequila brands. The launch of Jack Daniel's Tennessee Apple has also, as I said, gone very smoothly and is accelerating growth to our overall plan. However, we recognize we need better performance on Jack Daniel's Tennessee Whiskey in the US.

So generally speaking, we feel very confident across the different brands in our portfolio and the many levers of growth that we can pull upon. Geographically, I'm very pleased with the success of our US business this fiscal year to date. US is not only our largest market, but it is leading our growth in our 150th year. In the most valuable global spirits market in the world, Brown-Forman takeaway trends are outpacing TDS, driven largely by our American whiskey and flavored whiskey portfolios, as well as our tequila brands. The launch of Jack Daniel's Tennessee Apple has also, as I said, gone very smoothly and is accelerating growth to our overall plan. However, we recognize we need better performance on Jack Daniel's Tennessee Whiskey in the US.

So generally speaking we feel very confident across the different brands in our portfolio in the many levers of growth that we can pull apart.

Geographically I'm very pleased with the US the success of our US business. This fiscal year to date, you asked us not only our largest market, but it is leading our growth in our 150 of here.

And the most valuable global spirits market in the World Brown Forman takeaway trends are outpacing Tds, driven largely by our American whiskey and flavored whiskey portfolios as well as our tequila brands.

The launch of Jack Daniels, Tennessee, Apple has also as I said gone very smoothly and is accelerating growth to our overall plan.

However, we recognize we need better performance on Jack Daniels, Tennessee whiskey in the U.S., but it is worth noting that we can outpace tds with essentially flat to low single digit performance on our biggest brand.

Lawson Whiting: But it is worth noting that we can outpace TDS with essentially flat to low single-digit performance on our biggest brand. We could not have said that even a few years ago, but our bourbon and tequila brands have gotten big enough that they actually have a meaningful impact on the overall trends in the US business. Developed international are having a relatively weak Fiscal 2020, as the UK, Australia, and Japan are weighing on performance. Where we have made investments in our routes to consumer, places such as France, Spain, and Germany, our business is healthy, and we've been able to broaden our portfolio of brands.

But it is worth noting that we can outpace TDS with essentially flat to low single-digit performance on our biggest brand. We could not have said that even a few years ago, but our bourbon and tequila brands have gotten big enough that they actually have a meaningful impact on the overall trends in the US business. Developed international are having a relatively weak Fiscal 2020, as the UK, Australia, and Japan are weighing on performance. Where we have made investments in our routes to consumer, places such as France, Spain, and Germany, our business is healthy, and we've been able to broaden our portfolio of brands.

We could not have said that even a few years ago, but our permanent feel of brands have gotten big enough that they actually have a meaningful impact on the overall trends in the us business.

Developed international or having a relatively weak fiscal 20, because the UK, Australia, and Japan or wait weighing on performance.

Where we have made investments in our occupancy in places such as France, and Spain, and Germany, our business is healthy and we've been able to broaden our portfolio of brands.

Lawson Whiting: In the UK, which is the second largest market in the world for Brown-Forman, we're in the final stages of investing in a highly talented team and will soon assume full control over our route to consumer, which we believe will reaccelerate growth in this market into the next fiscal year, and expectations are that this will be a strong market for us into the future. Our emerging markets are being led by BRIC this year. All four are providing strong underlying net sales growth, largely driven by Jack Daniel's Tennessee Whiskey. Also worth pointing out is Southeast Asia is producing strong underlying double-digit growth. For the first time in a while, Asia really has been delivering solid growth this year. However, these markets are likely to suffer in the near term as a result of the impacts from coronavirus.

In the UK, which is the second largest market in the world for Brown-Forman, we're in the final stages of investing in a highly talented team and will soon assume full control over our route to consumer, which we believe will reaccelerate growth in this market into the next fiscal year, and expectations are that this will be a strong market for us into the future. Our emerging markets are being led by BRIC this year. All four are providing strong underlying net sales growth, largely driven by Jack Daniel's Tennessee Whiskey. Also worth pointing out is Southeast Asia is producing strong underlying double-digit growth. For the first time in a while, Asia really has been delivering solid growth this year. However, these markets are likely to suffer in the near term as a result of the impacts from coronavirus.

In the UK, which is the second largest market in the world for Brown Forman. We're in the final stages of investing in a highly talented team and will soon assume full control overall control over our route to consumer.

We believe will reaccelerate growth in this market into the next fiscal year and expectations are that this will be strong market for us into the future.

Our emerging markets are being led by brick this year all for providing strong underlying net sales growth largely driven by Jack Daniels, Tennessee whiskey.

Also worth pointing out of southeast Asia is producing strong underlying double digit growth for the first time in a while Asia really has been delivering solid growth. This year. However, these markets are likely to suffer in the near term as a result of the impacts from Corona virus I am however, very encouraged that our brands or how our brands are resonating with consumers.

Lawson Whiting: I am, however, very encouraged that how our brands are resonating with consumers. Looking into the future, I do think that Asia is a part of the world where we are relatively small but fast-growing, which I do think bodes well for the future opportunity we have there. To the coronavirus situation, just briefly, I do want to pause and take a moment to say the health and safety of our employees is paramount. Like other companies, we've taken steps to limit our employees' risk by limiting travel, canceling certain meetings, providing up-to-date information from the CDC and the World Health Organization, and ensuring our flexible work policies are being utilized. There's so many unknowns right now, and it's difficult to quantify the financial impact. Jane will try to walk you through our thinking on this difficult topic.

I am, however, very encouraged that how our brands are resonating with consumers. Looking into the future, I do think that Asia is a part of the world where we are relatively small but fast-growing, which I do think bodes well for the future opportunity we have there. To the coronavirus situation, just briefly, I do want to pause and take a moment to say the health and safety of our employees is paramount. Like other companies, we've taken steps to limit our employees' risk by limiting travel, canceling certain meetings, providing up-to-date information from the CDC and the World Health Organization, and ensuring our flexible work policies are being utilized. There's so many unknowns right now, and it's difficult to quantify the financial impact. Jane will try to walk you through our thinking on this difficult topic.

And looking into the future I do think that Asia is a part of the world or we are relatively small, but fast growing which I do think bodes well for the future opportunity we have there.

To the krona virus situation, just briefly I do want to pause and take a moment say the health and safety of our employees is paramount like other companies, we've taken steps to limit our employees risk by limiting travel canceling certain meetings, providing up to date information from the CDC in the World Health organization and ensuring our flexible work policies are being.

Utilized theres, so many unknowns right now and it's difficult to quantify the financial impact Jane will try to walk you through the our thinking on this difficult topic.

Lawson Whiting: So in summary, we're expanding the breadth of our premium and super premium portfolio geo- both geographically and diversifying our revenue base in categories with the strongest momentum. We continue to have confidence in our long-term global growth potential. Currently, although currently our overall growth rate is a bit below historical trends and our expectations, these are largely driven by multiple short-term disruptions coming together in one fiscal year. We believe through continuing to execute our long-term growth strategy, focused on portfolio, geography, investments in our people, we'll continue to extend our leadership in premium American whiskey around the world and continue our track record of consistently delivering profitable growth. While the near-term challenges remain, we will weather the storm as we have throughout our 150 years, as we relentlessly focus on creating value for our shareholders.

So in summary, we're expanding the breadth of our premium and super premium portfolio geo- both geographically and diversifying our revenue base in categories with the strongest momentum. We continue to have confidence in our long-term global growth potential. Currently, although currently our overall growth rate is a bit below historical trends and our expectations, these are largely driven by multiple short-term disruptions coming together in one fiscal year. We believe through continuing to execute our long-term growth strategy, focused on portfolio, geography, investments in our people, we'll continue to extend our leadership in premium American whiskey around the world and continue our track record of consistently delivering profitable growth. While the near-term challenges remain, we will weather the storm as we have throughout our 150 years, as we relentlessly focus on creating value for our shareholders.

So in summary, we're expanding the breadth of our premium and Super premium portfolio June both geographically and diversifying our revenue base in categories with the strongest momentum we continue to have confidence in our long term global growth potential currently our although currently our overall growth rate is a bit below historical trends and our expectations. These are long.

<unk> driven by multiple short term disruptions coming together in one fiscal year.

We believe throughout through continuing to execute our long term growth strategy focused on portfolio geography investments and our people will continue to extend our leadership in premium American whiskey around the world and continue our track record of consistently delivering profitable growth, while the near term challenges remain more weather the storm as we have throughout our 150.

Two years as we relentlessly focused on creating value for our shareholders with that I'll turn the call over to Jane and review more detailed in our financial performance that we released this morning.

Lawson Whiting: With that, I'll turn the call over to Jane, and to review more detail in our financial performance that we released this morning.

With that, I'll turn the call over to Jane, and to review more detail in our financial performance that we released this morning.

Thank you loughlin and good morning, everyone.

Jane Morreau: Thank you, Lawson, and good morning, everyone. Over the next several minutes or so, I plan on walking you through two items. First, our Q3 and year-to-date results, which, as Lawson just said a moment ago, are a bit lower than we had expected at this point in the year, driven largely by some poor performance in some of our international markets. I'll discuss that in more detail as I go throughout my presentation this morning. And then secondly, I'm gonna review our full-year outlook, which we revised to reflect two things. One, a tempered expectations in some of our international markets, and two, the increasingly uncertain global economic outlook, which includes an estimate of the effect the coronavirus may have on our business globally, including our global travel retail business in Asia. Let's begin with our actual performance.

Jane Morreau: Thank you, Lawson, and good morning, everyone. Over the next several minutes or so, I plan on walking you through two items. First, our Q3 and year-to-date results, which, as Lawson just said a moment ago, are a bit lower than we had expected at this point in the year, driven largely by some poor performance in some of our international markets. I'll discuss that in more detail as I go throughout my presentation this morning. And then secondly, I'm gonna review our full-year outlook, which we revised to reflect two things. One, a tempered expectations in some of our international markets, and two, the increasingly uncertain global economic outlook, which includes an estimate of the effect the coronavirus may have on our business globally, including our global travel retail business in Asia. Let's begin with our actual performance.

The next couple of minutes, there's no I plan on Lucky through two items first our third quarter and year to date results, which is lost just said a moment ago are a bit lower than we had expected at this point in the year driven largely by.

For instance, our international markets I'll discuss at more detailed looks like this.

Good morning, and then secondly, I'm going to review our full year outlook.

To reflect two things one a tempered expectations and some of our international markets and to the increasingly uncertain global economic outlook, which includes an estimate of the effect. The Corona virus may have on our business globally, including global travel retail business in Asia.

So let's begin with our actual performance.

Jane Morreau: First, our underlying net sales grew 3% in the quarter, slower than we had anticipated, but consistent with the company's first half results. Second, while the impact of retaliatory tariffs, particularly from Europe, will continue to weigh on our margins and profits for the full year, the year-over-year effect began to ease a bit in our Q3. In fact, our underlying gross profit grew for the quarter for the first time since the cost of tariffs began affecting us, up 3%, consistent with our top line. The cycling of tariffs also helped to boost our underlying operating income growth in the quarter, up 5%.

First, our underlying net sales grew 3% in the quarter, slower than we had anticipated, but consistent with the company's first half results. Second, while the impact of retaliatory tariffs, particularly from Europe, will continue to weigh on our margins and profits for the full year, the year-over-year effect began to ease a bit in our Q3. In fact, our underlying gross profit grew for the quarter for the first time since the cost of tariffs began affecting us, up 3%, consistent with our top line. The cycling of tariffs also helped to boost our underlying operating income growth in the quarter, up 5%.

First our underlying net sales grew 3% in the quarter slower than we had anticipated, but consistent with the company's first half results.

Second while the impact of retaliatory terror, particularly from Europe will continue to weigh on our margins and profit for the full year to year over year SEC began to ease a bit in quarter three.

In fact, our underlying gross profit grew for the quarter for the first.

The cost of Terrace began effectiveness.

3%.

Consistent with our topline.

The cycling of tariff also helped boost our underlying operating income growth in the quarter.

5%.

Consistent with a third quarter performance our year to date underlying net sales grew 3% on top of 5% growth in the same period last year, but again lower than we had anticipated we will be at this point in our fiscal year.

Jane Morreau: Consistent with our third quarter performance, our year-to-date underlying net sales grew 3% on top of 5% growth in the same period last year, but again, lower than we had anticipated we would be at this point in our fiscal year. So breaking down our underlying net sales performance by geography just gives a bit more color on what Lawson just provided. Again, the US, our largest market, representing nearly half our sales, continued to lead our growth, growing 6% underlying net sales year to date, the market's strongest rate of growth registered in 4 years. This growth was fueled by the launch of Jack Daniel's Tennessee Apple and sustained double-digit underlying net sales growth from our premium bourbon brands, notably Woodford Reserve and Old Forester, and our tequila brands in aggregate.

Consistent with our third quarter performance, our year-to-date underlying net sales grew 3% on top of 5% growth in the same period last year, but again, lower than we had anticipated we would be at this point in our fiscal year. So breaking down our underlying net sales performance by geography just gives a bit more color on what Lawson just provided. Again, the US, our largest market, representing nearly half our sales, continued to lead our growth, growing 6% underlying net sales year to date, the market's strongest rate of growth registered in 4 years. This growth was fueled by the launch of Jack Daniel's Tennessee Apple and sustained double-digit underlying net sales growth from our premium bourbon brands, notably Woodford Reserve and Old Forester, and our tequila brands in aggregate.

Breaking down our underlying net sales performance by geography, just a bit more color on what often just provided.

Again, the U.S., our largest market representing nearly half ourselves continues to lead our growth.

Right, 6% underlying net sales year to date.

The market strongest rate of growth registered in four years.

This growth was fueled by the launch of Jack Daniels, Tennessee, Apple and sustained double digit underlying net sales go from our premium Bourbon brands, notably reserve in old Forester, NRT Keala brands in aggregate.

The strong growth again as losses in the world's most valuable spirits market.

Jane Morreau: This strong growth, again, as Lawson said, in the world's most valuable spirits market, was also supported by improving takeaway trends, which accelerated over the past quarter and are now growing ahead of the healthy total distilled spirits mid-single-digit growth for the first time in over 18 months. In our emerging markets, we also experienced another quarter of sequential improvement in growth, with underlying net sales up 6% year to date on top of last year's double-digit gains. The acceleration was less than expected at this point in the year, due in part to route-to-market disruptions in Africa and macroeconomic and geopolitical challenges, which have begun to weigh more heavily on certain markets in the CIS and Latin America.

This strong growth, again, as Lawson said, in the world's most valuable spirits market, was also supported by improving takeaway trends, which accelerated over the past quarter and are now growing ahead of the healthy total distilled spirits mid-single-digit growth for the first time in over 18 months. In our emerging markets, we also experienced another quarter of sequential improvement in growth, with underlying net sales up 6% year to date on top of last year's double-digit gains. The acceleration was less than expected at this point in the year, due in part to route-to-market disruptions in Africa and macroeconomic and geopolitical challenges, which have begun to weigh more heavily on certain markets in the CIS and Latin America.

It's also supported by improving takeaway trends, which accelerated over the past quarter and are now going ahead of our the healthy total distilled spirits mid single digits growth for the first time and over 18 months.

And our emerging markets. We also experienced another quarter of sequential improvement in gross.

Underlying net sales up 6% year to date on top of last year's double digit gains.

The acceleration with less than expected at this point in the year due impart to route to market disruptions in Africa, and macroeconomic and geopolitical challenges, which have begun to weigh more heavily on certain markets in the.

America.

One of our largest emerging markets are actually our largest emerging market, Mexico, where we grew underlying net sales double digits last year. At this time is now growing in the low single digits do the third quarter, reflecting a weakening economy.

Jane Morreau: One of our largest emerging markets, or actually our largest emerging market, Mexico, where we grew underlying net sales double-digit last year at this time, is now growing in the low single-digit through Q3, reflecting a weakening economy. We were to exclude Mexico and include, and the rest of Latin America, CIS, and Africa, our emerging markets grew underlying net sales double-digit. So despite seeing some pockets of slowdown, strong double-digit underlying net sales growth was delivered across a number of emerging markets, including Turkey, Russia, China, and parts of Southeast Asia, led by strong volume growth of Jack Daniel's Tennessee Whiskey. Poland also returned to mid-single-digit underlying growth year-to-date, following a very strong quarter for Jack Daniel's Tennessee Whiskey. Now, I thought I'd pause for a moment and discuss our performance in Asia.

One of our largest emerging markets, or actually our largest emerging market, Mexico, where we grew underlying net sales double-digit last year at this time, is now growing in the low single-digit through Q3, reflecting a weakening economy. We were to exclude Mexico and include, and the rest of Latin America, CIS, and Africa, our emerging markets grew underlying net sales double-digit. So despite seeing some pockets of slowdown, strong double-digit underlying net sales growth was delivered across a number of emerging markets, including Turkey, Russia, China, and parts of Southeast Asia, led by strong volume growth of Jack Daniel's Tennessee Whiskey. Poland also returned to mid-single-digit underlying growth year-to-date, following a very strong quarter for Jack Daniel's Tennessee Whiskey. Now, I thought I'd pause for a moment and discuss our performance in Asia.

We were to exclude Mexico include and the rest of Latin America see I asked in Africa, our emerging markets grew underlying net sales double digits.

So despite seeing some pockets of slowdown strong double digit underlying net sales growth was deliver across a number of emerging markets, including Turkey, Russia, China in parts of Southeast Asia.

Led by strong volume growth objectives, Tennessee whiskey.

Oh and also returned to mid single digit underlying growth year to date, following a very strong quarter for Jack Daniels, Tennessee Whiskey.

I thought a pause for a moment and discuss our performance in Asia.

Over the past nearly two years, we've been quite pleased with the momentum and increasing contribution we've been experiencing from this part of the world.

Jane Morreau: Over the past nearly two years, we've been quite pleased with the momentum and increasing contribution we've been experiencing from this part of the world. Specifically, our business in China has been growing underlying net sales at a double-digit rate since fiscal 2018, led in large part by our growing e-premise business, where we have been focusing our investment in this market. Our performance through January had essentially not been affected by the coronavirus. So understandably, we do expect a marked slowdown in our Q4 in this market and other parts of Asia, and have already experienced this in February. Despite this near-term headwind, we remain optimistic about the long-term growth potential for our portfolio throughout Asia. Similar to the first half of the year, our developed international markets delivered 2% growth in underlying net sales year to date.

Over the past nearly two years, we've been quite pleased with the momentum and increasing contribution we've been experiencing from this part of the world. Specifically, our business in China has been growing underlying net sales at a double-digit rate since fiscal 2018, led in large part by our growing e-premise business, where we have been focusing our investment in this market. Our performance through January had essentially not been affected by the coronavirus. So understandably, we do expect a marked slowdown in our Q4 in this market and other parts of Asia, and have already experienced this in February. Despite this near-term headwind, we remain optimistic about the long-term growth potential for our portfolio throughout Asia. Similar to the first half of the year, our developed international markets delivered 2% growth in underlying net sales year to date.

Specifically our business in China has been growing underlying net sales at a double digit rate since fiscal 2018.

Let in large part are growing premise business, where we have been focusing our investments in this market.

Our performance through January had essentially not been affected by the Corona virus.

So understand notably we do expect a marked slowdown in our fourth quarter and this market and other parts of Asia and have already experienced this in February.

Despite this near term headwinds, we remain optimistic about the long term growth potential for our portfolio throughout Asia.

Similar to the first half of the year are developed international markets deliver 2% growth in underlying net sales year to date.

Jane Morreau: This growth was led by Germany, Czechia, France, Spain, and Korea, reflecting strong growth of Jack Daniel's RTDs, Jack Daniel's Tennessee Honey, and our super premium American whiskey portfolio, Woodford Reserve, and Gentleman Jack. In the UK, our largest market outside the US, underlying net sales declined in the first nine months. You may recall that we are navigating through multiple challenges in this market this year, including, first, the upcoming route-to-consumer change in May, two, changes in our promotional strategy, and three, softness in the cash-and-carry channel. So all combined, we are experienced what we believe is some short-term disruption. We expect the negative trends in this market to ease as we move into next fiscal year.

This growth was led by Germany, Czechia, France, Spain, and Korea, reflecting strong growth of Jack Daniel's RTDs, Jack Daniel's Tennessee Honey, and our super premium American whiskey portfolio, Woodford Reserve, and Gentleman Jack. In the UK, our largest market outside the US, underlying net sales declined in the first nine months. You may recall that we are navigating through multiple challenges in this market this year, including, first, the upcoming route-to-consumer change in May, two, changes in our promotional strategy, and three, softness in the cash-and-carry channel. So all combined, we are experienced what we believe is some short-term disruption. We expect the negative trends in this market to ease as we move into next fiscal year.

This growth was led by Germany check you, France, Spain in Korea, reflecting strong growth objective centers RTD, Textainer, PSMC honey and our Super premium American Whiskey portfolio, Woodford Reserve and gentleman Jack.

In the UK, our largest markets outside the U.S. underlying net sales declined in the first nine months.

You may recall that we are navigating through multiple challenges in this market this year, including.

First the upcoming route to consumer change in May.

Two changes than our promotional strategy and three softness in the cash and carry channel.

So all combined we are experience what we believe is some short term destruction.

We expect the negative trends in this market to ease as we move into next fiscal year.

In addition to some softer than planned results in the UK. The devastating buyers in Australia have also contributed to our developed international markets growing less than expected.

Jane Morreau: In addition to some softer than planned results in the UK, the devastating fires in Australia have also contributed to our developed international markets growing less than expected. Our global travel retail business, which had declined in Q1 and Q2 of this fiscal year, grew underlying net sales high single digits in Q3, due in part to easy comparisons to the same quarter a year ago. Despite the improvement in the trend, global travel retail remains a drag on our top line, with underlying net sales down 3% year to date.

In addition to some softer than planned results in the UK, the devastating fires in Australia have also contributed to our developed international markets growing less than expected. Our global travel retail business, which had declined in Q1 and Q2 of this fiscal year, grew underlying net sales high single digits in Q3, due in part to easy comparisons to the same quarter a year ago. Despite the improvement in the trend, global travel retail remains a drag on our top line, with underlying net sales down 3% year to date.

Our global travel retail business, which had decline in the first and second quarter. This fiscal year grew underlying net sales single.

Group net sales high single digits in the third quarter due impart to easy comparisons to the same quarter a year ago.

By improvement in the trend global travel retail remains a drag on our top line with underlying net sales down 3% year today.

Well, we experienced some improvement in the quarter and had anticipated further improvement in the fourth quarter, resulting from the facing a certain customer purchases. We now estimate that as a result of the Corona virus, our travel retail business for the full year will be down similar to year to date performance.

Jane Morreau: While we experienced some improvement in the quarter and had anticipated further improvement in the fourth quarter, resulting from the phasing of certain customer purchases, we now estimate that as a result of the coronavirus, our travel retail business for the full year will be down similar to year to date performance. Our used barrel business declined significantly in the third quarter. The decline in the businesses reflects both a reduction in demand, due in part to the US tariff impact on single malt Scotch whisky, and secondly, softening prices driven by the increased supply of used barrels in the market. This business and our other non-branded business, which includes contract bottling and bulk whiskey and bulk wine sales, have negatively affected our underlying net sales year to date by about 1 percentage point.

While we experienced some improvement in the quarter and had anticipated further improvement in the fourth quarter, resulting from the phasing of certain customer purchases, we now estimate that as a result of the coronavirus, our travel retail business for the full year will be down similar to year to date performance. Our used barrel business declined significantly in the third quarter. The decline in the businesses reflects both a reduction in demand, due in part to the US tariff impact on single malt Scotch whisky, and secondly, softening prices driven by the increased supply of used barrels in the market. This business and our other non-branded business, which includes contract bottling and bulk whiskey and bulk wine sales, have negatively affected our underlying net sales year to date by about 1 percentage point.

Our youth apparel business declined significantly in the third quarter.

The decline in businesses flex both.

Reduction in demand due in part to the U.S. terror impact on single not Scott Whiskey.

Secondly, softening prices driven by the increased supply abuse barrels in the market.

This business and our other Nonbranded business.

This concludes contract boggling and bulk whisking bulk oneself have negatively affected our underlying net sales year to date about one percentage point.

Now looking at our business or portfolio Lynn.

Jane Morreau: Now, looking at our business through a portfolio lens, consistent with the drivers of our growth through the first half of the year, our premium whiskey brands, Jack Daniel's RTD, Jack Daniel's Flavors, and Tequilas, remain the key contributors. As Lawson mentioned, Woodford Reserve continued its consistent double-digit underlying net sales gains, fueled by strong consumer momentum in the United States, and is now over 1 million-case super premium brand globally. With only 20% of its volume outside of the United States, growing at an even faster rate, we believe the brand has a significant runway for geographic expansion. Tequilas delivered underlying net sales growth of 10% year to date, pulled down modestly by our pricing actions on the Pepe Lopez Mixto brand in the US. Our consumer takeaway trends in the US remain very strong.

Now, looking at our business through a portfolio lens, consistent with the drivers of our growth through the first half of the year, our premium whiskey brands, Jack Daniel's RTD, Jack Daniel's Flavors, and Tequilas, remain the key contributors. As Lawson mentioned, Woodford Reserve continued its consistent double-digit underlying net sales gains, fueled by strong consumer momentum in the United States, and is now over 1 million-case super premium brand globally. With only 20% of its volume outside of the United States, growing at an even faster rate, we believe the brand has a significant runway for geographic expansion. Tequilas delivered underlying net sales growth of 10% year to date, pulled down modestly by our pricing actions on the Pepe Lopez Mixto brand in the US. Our consumer takeaway trends in the US remain very strong.

Consistent with the drivers of our growth for the first half of the year, our premium whiskey brands, Jack theaters RTD checking its flavors and keyless remain the key contributors.

As Lawson mentioned Woodford freezer continued its consistent double digit underlying net sales gains fueled by strong consumer momentum in the United States.

Is now over a million case Super premium brand globally.

With only 20% of its volume outside of the United States going in that even faster rate. We believe the brand has a significant runway for geographic expansion.

To keyless delivered underlying net sales growth of 10% year to date pull down modestly by our pricing actions on the peppy lip is mixed don't brand in the U.S.

Our consumer takeaway trends in the U.S. remain very strong.

For Herradura specifically in addition to the strong takeaway trends in the U.S. and increasing volumes in Mexico higher prices and a favorable product mix in both the U.S. and Mexico helped to deliver the 20% growth in underlying net sales year to date.

Jane Morreau: For Herradura, specifically, in addition to the strong takeaway trends in the US and increasing volumes in Mexico, higher prices and a favorable product mix in both the US and Mexico helped to deliver the 20% growth in underlying net sales year to date. Jack Daniel's RTDs grew underlying net sales mid-single digits on a year-to-date basis, driven by volumetric gains in Germany and the US, and the introduction and launch in France. JD Flavors continued its broad-based geographic growth, most notably in the US, France, Poland, Czechia, and Brazil. As it relates to the successful launch of Jack Daniel's Tennessee Apple in the US, the brand remains on track to deliver about a 1 percentage point of growth for the company this year.

For Herradura, specifically, in addition to the strong takeaway trends in the US and increasing volumes in Mexico, higher prices and a favorable product mix in both the US and Mexico helped to deliver the 20% growth in underlying net sales year to date. Jack Daniel's RTDs grew underlying net sales mid-single digits on a year-to-date basis, driven by volumetric gains in Germany and the US, and the introduction and launch in France. JD Flavors continued its broad-based geographic growth, most notably in the US, France, Poland, Czechia, and Brazil. As it relates to the successful launch of Jack Daniel's Tennessee Apple in the US, the brand remains on track to deliver about a 1 percentage point of growth for the company this year.

Gainers, our Tds grew underlying net sales mid single digits on a year to date basis, driven by volume metric gains in Germany and the U.S.

And the introduction and launch in France.

JD flavors continued its broad based geographic growth, most notably in the U.S., France, Poland, Czech yet in Brazil.

As a relates to the successful loss objective.

Apple and that use the brand remains on track to deliver about a one percentage point of growth for the company this year.

Jack Daniels, Tennessee Whiskey underlying net sales were essentially flat is year to date growth in emerging markets were offset by declines for the brand in the UK and our travel retail channel.

Jane Morreau: Jack Daniel's Tennessee Whiskey underlying net sales were essentially flat, as year-to-date growth in emerging markets were offset by declines for the brand in the UK and our travel retail channel. Moving down the P&L to gross margin. Year-to-date gross margins declined 200 basis points year-over-year, reflecting, resulting in flat underlying gross profit growth through the first nine months. The reduction to gross margin was driven by the same two factors we've highlighted for the last three earnings calls. First, our input costs reflecting agave and wood inflation, and secondly, tariff-related costs.

Jack Daniel's Tennessee Whiskey underlying net sales were essentially flat, as year-to-date growth in emerging markets were offset by declines for the brand in the UK and our travel retail channel. Moving down the P&L to gross margin. Year-to-date gross margins declined 200 basis points year-over-year, reflecting, resulting in flat underlying gross profit growth through the first nine months. The reduction to gross margin was driven by the same two factors we've highlighted for the last three earnings calls. First, our input costs reflecting agave and wood inflation, and secondly, tariff-related costs.

Moving down the piano to gross margin.

Year to date gross margins declined 220 basis points year over year, reflecting.

Resulting in flat underlying gross profit growth through the first nine months.

Section to gross margin was driven by the same two factors. We've highlighted the last three earnings call first our input cost, reflecting the gabi in wood inflation, and secondly tariff related costs.

As I mentioned earlier, while the impact of tariff related costs will continue to impact of full year margin as we began to cycle. Prior year period that were affected by tier the year over year effect began to ease in the quarter was 100 basis points compression for the first nine months compared to 200 basis points.

Jane Morreau: As I mentioned earlier, while the impact of tariff-related costs will continue to impact our full-year margin, as we began to cycle prior periods that were affected by tariffs, the year-over-year effect began to ease in the quarter, with 100 basis point compression for the first nine months, compared to 200 basis points through the first half. We continue to invest behind our brands with underlying A&P spending up 3% year-to-date, in line with our top-line growth. As we've discussed in previous calls, the effective increase in our spend is much higher, given the significant reallocation we took this fiscal year to increase our efficiency from high-touch spend to broad-reach media and digital investments, along with our increase in activations and promotion activities.

As I mentioned earlier, while the impact of tariff-related costs will continue to impact our full-year margin, as we began to cycle prior periods that were affected by tariffs, the year-over-year effect began to ease in the quarter, with 100 basis point compression for the first nine months, compared to 200 basis points through the first half. We continue to invest behind our brands with underlying A&P spending up 3% year-to-date, in line with our top-line growth. As we've discussed in previous calls, the effective increase in our spend is much higher, given the significant reallocation we took this fiscal year to increase our efficiency from high-touch spend to broad-reach media and digital investments, along with our increase in activations and promotion activities.

Through the first half.

We continue to invest behind our brands with underlying MP spending up 3% year to date.

In line with our topline growth.

As we've discussed on previous calls the increase in our spend is much higher given the significant reallocation. We took this fiscal year to increase our efficiencies.

Spin to broad reach media and digital investments.

Along with our increase in Activations and promotion activities.

On the S. DNA front, we remain committed through a disciplined approach to our investment looking for opportunities to continue to gain efficiencies, including productivity initiatives that ultimately result in operating leverage.

Jane Morreau: On the SG&A front, we remain committed to a disciplined approach to our investment, looking for opportunities to continue to gain efficiencies, including productivity initiatives that ultimately result in operating leverage. It is important to note, however, that while we continue to leverage prior investments, we've also increased our SG&A in markets where we see opportunity to heighten our focus behind building our brands and accelerating our growth. For example, a key element of this can be seen in our Q3 of this fiscal year as we began to invest in the UK, opening a new office and creating and forming the team and capabilities that we believe will support building our broader portfolio of brands and our new route to market structure that will begin on May 1.

On the SG&A front, we remain committed to a disciplined approach to our investment, looking for opportunities to continue to gain efficiencies, including productivity initiatives that ultimately result in operating leverage. It is important to note, however, that while we continue to leverage prior investments, we've also increased our SG&A in markets where we see opportunity to heighten our focus behind building our brands and accelerating our growth. For example, a key element of this can be seen in our Q3 of this fiscal year as we began to invest in the UK, opening a new office and creating and forming the team and capabilities that we believe will support building our broader portfolio of brands and our new route to market structure that will begin on May 1.

Is important to note however that while we continue to leverage prior investments. We also increased our SDMA in markets, where we see opportunity to heighten our focus on building our brands and accelerating our growth.

Our example, a key element of this can be seen in our third quarter. This fiscal year as we began to invest in the UK opening and new office.

And creating informing the team and capabilities that we believe will support building, our broader portfolio brands and our new routes and market structure that will begin on may one.

Andy aggregate.

Jane Morreau: In the aggregate, both our reported and underlying operating income declined modestly year to date, driven in part by an approximate 3 percentage point drag related to tariff-related costs. An effective tax rate of just over 17%, which includes a couple of discrete items year to date, drove 4% growth in diluted earnings per share to $1.45. Now turning to my final topic this morning, an update on our fiscal 2020 full year outlook. There are really two sets of factors weighing on our outlook, which I will describe in turn, that has led us to revising our full year underlying net sales growth from 5% to 7% to low single digits. First, temporal expectations from some international markets reflecting short-term disruptions and macroeconomic and geopolitical headwinds.

In the aggregate, both our reported and underlying operating income declined modestly year to date, driven in part by an approximate 3 percentage point drag related to tariff-related costs. An effective tax rate of just over 17%, which includes a couple of discrete items year to date, drove 4% growth in diluted earnings per share to $1.45. Now turning to my final topic this morning, an update on our fiscal 2020 full year outlook. There are really two sets of factors weighing on our outlook, which I will describe in turn, that has led us to revising our full year underlying net sales growth from 5% to 7% to low single digits. First, temporal expectations from some international markets reflecting short-term disruptions and macroeconomic and geopolitical headwinds.

So far reported an underlying operating income declined modestly year to date, driven impart by an approximate three percentage point dry related to tariff related costs.

An effective tax rate of just over 17%, which includes a couple of discrete items here today.

Drove 4% growth in diluted earnings per share to $1.45.

Now turning to my final topic this morning, and update on our fiscal 2020 full year outlook.

There are really to set the factors weighing on our outlook, which I will describe in turn.

It has led us to revising our full year underlying net sales growth from 5% to 7% to low single digits.

First temper expectations, some international markets, reflecting short term disruptions and macroeconomic and geopolitical headwinds.

Specifically to discuss the UK, our largest international market is experiencing short term changes and disruptions.

Jane Morreau: Specifically, to discuss the UK, our largest international market, is experiencing short-term changes and disruptions, including the transition to our own route to market in just a few months. The economy of our largest emerging market, Mexico, continues to weakening. The strengthening US dollar has made our brands more expensive to our customers and consumers in certain other emerging markets, such as Latin America and CIS, further exacerbating the uncertainty and unpredictability of demand. And finally, unplanned destocking in travel retail. Now turning to the second factor weighing on our outlook, the uncertainty and unpredictability, the effect the coronavirus may have on our business globally, including the current most affected areas, travel retail in Asia, most notably China. Included in our outlook is an estimate of some additional deterioration that is likely as this continues to evolve globally.

Specifically, to discuss the UK, our largest international market, is experiencing short-term changes and disruptions, including the transition to our own route to market in just a few months. The economy of our largest emerging market, Mexico, continues to weakening. The strengthening US dollar has made our brands more expensive to our customers and consumers in certain other emerging markets, such as Latin America and CIS, further exacerbating the uncertainty and unpredictability of demand. And finally, unplanned destocking in travel retail. Now turning to the second factor weighing on our outlook, the uncertainty and unpredictability, the effect the coronavirus may have on our business globally, including the current most affected areas, travel retail in Asia, most notably China. Included in our outlook is an estimate of some additional deterioration that is likely as this continues to evolve globally.

Including the transition to our own route to market in just a few months.

Economy of our largest emerging market Mexico continues to weakening.

The strengthening U.S. dollar has made our brands more expensive to our customers and consumers and certain other emerging markets, such as Latin America and see how yes.

Further exasperating, the uncertainty and unpredictability of demand.

And finally and plane destocking in travel retail.

Now turning to the second factor weighing on our outlook.

The uncertainty and predictability the effect the krona virus may have on our business globally.

Including the current most affected areas travel retail in Asia.

Most notably China.

Included in our outlook is an estimate of some additional deterioration that is likely if this continues to evolve globally.

We continue to expect gross margins will be down around 200 basis points for the year against split between tariff related costs.

Jane Morreau: We continue to expect gross margins will be down around 200 basis points for the year, again, split between tariff-related costs and higher input costs. Regarding our operating costs for the full year, despite the volatile and uncertain market, we continue to build our brands, investing behind them roughly in line with our net sales growth. We're expecting SG&A to now be flat for the year, continuing to provide leverage to operating income. We've reduced our underlying operating income outlook from a range of 2% to 4% to flat to modestly down, driven by lower top-line expectations that I just discussed. We narrowed our earnings per share outlook from $1.75 to 1.85 to $1.75 to 1.80, still benefiting from a lower effective tax rate.

We continue to expect gross margins will be down around 200 basis points for the year, again, split between tariff-related costs and higher input costs. Regarding our operating costs for the full year, despite the volatile and uncertain market, we continue to build our brands, investing behind them roughly in line with our net sales growth. We're expecting SG&A to now be flat for the year, continuing to provide leverage to operating income. We've reduced our underlying operating income outlook from a range of 2% to 4% to flat to modestly down, driven by lower top-line expectations that I just discussed. We narrowed our earnings per share outlook from $1.75 to 1.85 to $1.75 to 1.80, still benefiting from a lower effective tax rate.

And higher input costs.

Regarding our operating costs for the full year.

Despite the volatile and uncertain market, we continue to build our brands investing behind them roughly in line with permits escrow.

We are expecting us to an end to now be flat for the year continued to provide leveraged to operating income.

We've reduced our underlying operating income outlook from a range of 2% to 4% to flat to modestly down driven by lower topline expectations that just discussed.

We narrowed our earnings per share outlook from $1.75 to $1.85 to $1.75 to $1.80 still benefiting from a lower effective tax rate.

Lastly, our expectations for growth. This year are now below our initial range.

Jane Morreau: So lastly, while our expectations for growth this year are now below our initial range, we continue to believe there is a long runway of opportunities ahead for our brand. Our teams are experienced, as Lawson said, at weathering these uncertain times and are focused on accelerating our business back towards our consistent historic rates of growth. However, we are cognizant of the current market dynamics that may limit our near-term improvement. In the meantime, we believe our business remains very attractive, with nice margins resulting from the efficiency and historic consistency in our revenue growth, industry-leading Return on Invested Capital, and ample free cash flow. Over many years, we have followed a systematic approach to our capital allocation that has served us well. First, reinvesting back into the business to meet future demand. Second, growing our cash dividends.

So lastly, while our expectations for growth this year are now below our initial range, we continue to believe there is a long runway of opportunities ahead for our brand. Our teams are experienced, as Lawson said, at weathering these uncertain times and are focused on accelerating our business back towards our consistent historic rates of growth. However, we are cognizant of the current market dynamics that may limit our near-term improvement. In the meantime, we believe our business remains very attractive, with nice margins resulting from the efficiency and historic consistency in our revenue growth, industry-leading Return on Invested Capital, and ample free cash flow. Over many years, we have followed a systematic approach to our capital allocation that has served us well. First, reinvesting back into the business to meet future demand. Second, growing our cash dividends.

We continue to believe Theres, a long runway of opportunities ahead for our brands.

Our teams are experienced as losses said weathering. These uncertain times and are focused on accelerating our business back towards our consistent historic rates of growth.

However, we are cognizant of the current market that may make that made limit our near term improvement.

In the meantime, we believe our business remains very attractive.

Nice margins, resulting from the efficiency in historic consistency in our revenue growth.

Indices, leading return on invested capital.

And ample free cash flow.

Over many years, we have followed a systematic approach to our capital allocation to has served us well.

First reinvesting back into the business to meet future demand.

Second growing our cash dividends and in the absence of meaningful M&A opportunities, we return excess cash to shareholders to special dividends and share repurchases.

Jane Morreau: In the absence of meaningful M&A opportunities, we return excess cash to shareholders through special dividends and share repurchases. Currently, we continue to invest behind the business in expanding our production capabilities, increasing whiskey inventory to meet future growth expectations, investing in technology to not only improve our efficiencies throughout all of our functions of the company, but also to derive growth-based analytic insights, such as our revenue management platform. We continue to return cash to shareholders, as we always have, thoughtfully, disciplined, and consistently, including increasing our cash dividend for this calendar year by 5%. While we have been navigating near-term challenges, including tariffs and the increasingly uncertain and volatile world, we continue to manage our business as we always have for the long term.

In the absence of meaningful M&A opportunities, we return excess cash to shareholders through special dividends and share repurchases. Currently, we continue to invest behind the business in expanding our production capabilities, increasing whiskey inventory to meet future growth expectations, investing in technology to not only improve our efficiencies throughout all of our functions of the company, but also to derive growth-based analytic insights, such as our revenue management platform. We continue to return cash to shareholders, as we always have, thoughtfully, disciplined, and consistently, including increasing our cash dividend for this calendar year by 5%. While we have been navigating near-term challenges, including tariffs and the increasingly uncertain and volatile world, we continue to manage our business as we always have for the long term.

Currently we continue to invest behind the business and expanding our production capabilities, increasing whiskey inventory to meet future growth expectation.

Investing in technology to not only improve our efficiencies throughout all of our functions of the company, but also to derive growth based analytic insight such as our revenue management platform.

We continue to return cash to shareholders as we always have.

Thoughtfully discipline and consistently.

Including increasing our cash dividend for this calendar year by 5%.

Well, we have been navigating near term challenges, including tariffs.

Andy increasingly uncertain and volatile world, we continue to manage our business as we always have for the long term.

Strong support from our shareholders. This loss and also said, including the brand family enables this long horizon, which is essential to the company steep aged spirits.

Jane Morreau: Strong support from our shareholders, as Lawson also said, including the Brown family, enables this long horizon, which is essential to the company's steeped and aged spirits. We believe our portfolio of premium, super premium whiskey and tequila brands position us well to continue creating value for all of our shareholders. And with that, this concludes our prepared remarks. Dorothy, please open the call up for questions.

Strong support from our shareholders, as Lawson also said, including the Brown family, enables this long horizon, which is essential to the company's steeped and aged spirits. We believe our portfolio of premium, super premium whiskey and tequila brands position us well to continue creating value for all of our shareholders. And with that, this concludes our prepared remarks. Dorothy, please open the call up for questions.

We believe our portfolio premiums Super premium whiskey into Kiva brands.

Position us well to continue creating value for all of our shareholders.

And with that this concludes our prepared remarks Darcy. Please open the call for questions.

As a reminder, if he would like to ask a question. Please press Star then the number one on your telephone keypad that is star one to ask a question, we'll pause for just a moment to compile the culinary roster.

Operator: As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. That is star one to ask a question. We'll pause for just a moment to compile the Q&A roster.

Operator: As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. That is star one to ask a question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Peter Grom with JPMorgan.

Your first question comes from the line of Peter Grom with JP Morgan.

Operator: Your first question comes from the line of Peter Grom with J.P. Morgan.

Hey, good morning, everyone.

[Analyst] (J.P. Morgan): Hey, good morning, everyone.

Peter Grom: Hey, good morning, everyone.

Jane Morreau: Morning, Peter.

Jane Morreau: Morning, Peter.

Morning, Peter.

Lawson Whiting: Morning.

Lawson Whiting: Morning.

So maybe this is a bit earlier, but I would imagine you're starting your planning for next year and it would be helpful to try and understand how youre thinking about how about the impacts of the virus and weaker international growth beyond just next quarter.

[Analyst] (J.P. Morgan): So maybe this is a bit early, but I would imagine you're starting your planning for next year, and it would be helpful to try and understand how you are thinking about the impacts of the virus and weaker international growth beyond just next quarter. I guess what I'm really trying to get at is if top line growth remains below historical levels, input costs are still a headwind, and your tax rate moves back into the 20 to 21% range, you know, what are the levers you can pull in order to deliver earnings growth in fiscal 2021? Thanks.

Peter Grom: So maybe this is a bit early, but I would imagine you're starting your planning for next year, and it would be helpful to try and understand how you are thinking about the impacts of the virus and weaker international growth beyond just next quarter. I guess what I'm really trying to get at is if top line growth remains below historical levels, input costs are still a headwind, and your tax rate moves back into the 20 to 21% range, you know, what are the levers you can pull in order to deliver earnings growth in fiscal 2021? Thanks.

I guess, what I'm really trying to get out in the top topline growth remains below historical lever levels input costs are still a headwind and your tax rate moves back of the 20% to 21% range. What are the levers you can pull in order to deliver earnings growth in fiscal 2001. Thanks.

Yeah.

Bill look when I think.

Lawson Whiting: Yeah, look, I mean, I think, you know, obviously, we're not giving out guidance yet for next fiscal year, but I think as you look at our business in general, we feel pretty confident on the US business these days as it is, you know, sort of above TDS, and I would expect that, you know, to continue. As I said in my prepared remarks, even with Jack at sort of subdued rates, we're able to grow above that TDS number. So, and believe me, there are a lot of plans, and there's a lot of action and a lot of activity going around to try to improve the growth rates on Tennessee whiskey. And if that happens, you know, we're even, I'll call it, more confident in the US market. So that feels pretty good.

Lawson Whiting: Yeah, look, I mean, I think, you know, obviously, we're not giving out guidance yet for next fiscal year, but I think as you look at our business in general, we feel pretty confident on the US business these days as it is, you know, sort of above TDS, and I would expect that, you know, to continue. As I said in my prepared remarks, even with Jack at sort of subdued rates, we're able to grow above that TDS number. So, and believe me, there are a lot of plans, and there's a lot of action and a lot of activity going around to try to improve the growth rates on Tennessee whiskey. And if that happens, you know, we're even, I'll call it, more confident in the US market. So that feels pretty good.

Obviously, we're not giving out guidance yet for next fiscal year, but I think as you look at our business in general.

We feel pretty confident on the U.S. business. These days as it is sort of above Tvs and I would expect that to continue.

As I said in my prepared remarks, even with jacket sort of subdued rates.

We're able to grow above at Tds number so.

And believe there are lot of plan is there is lot of action or lot of activity going around to try to to improve the growth rates on Tennessee, whiskey and if that happens.

I'll call it more confident in this in the U.S. markets, so that feels pretty good.

Lawson Whiting: The developed international side of things is subdued, but it largely, as Jane said, it's largely the UK. There are other markets that are not kicking on all cylinders these days. But, you know, I think we can get that, you know, we'll get that category of markets, the developed international, back into what its traditional range would be, mid to even a little bit better than mid-single digit growth. But I'll take mid-single digits out of that part of the world, and emerging is the volatile one. It's always been the volatile one. It's been growing at a rate above, you know, our company average now for a number of years. It has slowed this year, as we said, largely because of Mexico. Asia is the wild card in this, and I don't know how to tell you to...

The developed international side of things this subdued but are largely as James said is that largely the UK. There are other markets that are not kicking on all cylinders these days, but.

The developed international side of things is subdued, but it largely, as Jane said, it's largely the UK. There are other markets that are not kicking on all cylinders these days. But, you know, I think we can get that, you know, we'll get that category of markets, the developed international, back into what its traditional range would be, mid to even a little bit better than mid-single digit growth. But I'll take mid-single digits out of that part of the world, and emerging is the volatile one. It's always been the volatile one. It's been growing at a rate above, you know, our company average now for a number of years. It has slowed this year, as we said, largely because of Mexico. Asia is the wild card in this, and I don't know how to tell you to...

I think we can get that.

We'll get that category markets the developed international back into what its traditional range would be mid to even little bit better than mid single digit growth, but I'll take mid single digits out of that part of the world and emerging as the volatile one.

It's always been the volatile one it's been growing at a rate above.

Our company average now for a number of years. It has slowed this year as we said largely because of Mexico.

Asia is the wildcard in this and I don't know how to tell you that we're trying to think about what is the growth rate for that part of the world going to be as right now its solid but.

Lawson Whiting: You know, we're trying to think about what is the growth rate for that part of the world is gonna be, because right now, it's solid. But you know, we're gonna be a little more subdued, and I think at the end of the day, we're gonna be, we use the word around here, agility, a lot. You're gonna have to be agile next year because you know, while things do have a tough outlook, the comps are gonna be a little bit easier next year, and I could see some bounce backs and some other things that make it, you know, that turn it into a pretty good year. So I'm not directly answering your question because I, we have not provided that guidance yet.

You know, we're trying to think about what is the growth rate for that part of the world is gonna be, because right now, it's solid. But you know, we're gonna be a little more subdued, and I think at the end of the day, we're gonna be, we use the word around here, agility, a lot. You're gonna have to be agile next year because you know, while things do have a tough outlook, the comps are gonna be a little bit easier next year, and I could see some bounce backs and some other things that make it, you know, that turn it into a pretty good year. So I'm not directly answering your question because I, we have not provided that guidance yet.

Thank you.

We're we're going to be a little more subdued and I think at the end of the day, we're going to be.

We use the word around here agility alot, you're going to have to be agile next year because.

While things do have a tough outlook the comps are going to be a little bit easier next year I could see some bounce backs and some other things.

That make it then turn it into a pretty good year. So.

I'm not directly answer. Your question is are we to have enough provided that guidance, yet, but I think we generally feel pretty good on the topline that things will return to what I call more normalized growth rate.

Lawson Whiting: I think we generally feel pretty good on the top line, that things will return to what I call a more normalized growth rate.

I think we generally feel pretty good on the top line, that things will return to what I call a more normalized growth rate.

Okay Thats it.

[Analyst] (J.P. Morgan): Okay.

Peter Grom: Okay.

Jane Morreau: Hugh, just-

Jane Morreau: Hugh, just-

[Analyst] (J.P. Morgan): That's helpful. Okay.

Peter Grom: That's helpful. Okay.

Okay.

Jane Morreau: Just, just to build on what Lawson said, a little bit more on the developed international. He was hitting on the UK, and as I said in my, my prepared remarks this morning, what's happened in the UK, we believe, is really some short-term disruption. So if you get that short-term disruption behind us next year, just having that market back to sta- stability will get us back more to our historic growth in that part of the world. So that will help. As Lawson said, it, it is the emerging markets, but we've got a lot of pockets of growth, and we're very excited about a number of those. But it, it, as you know, emerging markets always have been volatile in everybody's business. But there are tremendous opportunities long term. I see this all as really just short term right now.

Jane Morreau: Just, just to build on what Lawson said, a little bit more on the developed international. He was hitting on the UK, and as I said in my, my prepared remarks this morning, what's happened in the UK, we believe, is really some short-term disruption. So if you get that short-term disruption behind us next year, just having that market back to sta- stability will get us back more to our historic growth in that part of the world. So that will help. As Lawson said, it, it is the emerging markets, but we've got a lot of pockets of growth, and we're very excited about a number of those. But it, it, as you know, emerging markets always have been volatile in everybody's business. But there are tremendous opportunities long term. I see this all as really just short term right now.

Build on weight loss and set a little bit more on the developed international he was hitting on the UK NFS mop prepared remarks. This mark what's happened in the UK. We believe is really some short term disruption. So if you get that short term disruption behind this next year just happened that market factors states stability will get us back more to our has.

Growth in that part of the world. So that will help as loss and said that this is the emerging markets that we've got a lot of pockets of growth and very excited about a number of those.

But.

As you know.

Emerging markets.

I always have been volatile in everybody's business, but there.

Tremendous opportunities long term must see this all is really the short term right now.

Okay. That's helpful.

[Analyst] (J.P. Morgan): Okay, that's helpful. Just a quick follow-up. I just on your global travel retail guidance, I think you mentioned earlier that you expect full year to be in line with your FY, which kind of implies -3% for Q4. It just strikes me as meaningfully better than what we've seen from your peers. Any color on how you arrived at that would be pretty helpful. Thanks.

Peter Grom: Okay, that's helpful. Just a quick follow-up. I just on your global travel retail guidance, I think you mentioned earlier that you expect full year to be in line with your FY, which kind of implies -3% for Q4. It just strikes me as meaningfully better than what we've seen from your peers. Any color on how you arrived at that would be pretty helpful. Thanks.

Just a quick follow up I just.

On your global travel retail guidance I think you mentioned earlier that you expect.

Full year to be in line with your data, which kind of implies minus 3% for Q4 and.

It just strikes me is meaningfully better than what we've seen from your peers.

Any color on how you arrived at that would be pretty helpful. Thanks.

Im sorry.

Jane Morreau: I'm sorry. It, say it's better than what our peers? Is that what you're saying?

Jane Morreau: I'm sorry. It, say it's better than what our peers? Is that what you're saying?

Hey, it's better than what our peers.

But what you're saying yeah, yeah, I think our businesses.

Lawson Whiting: Yeah, I mean,

Lawson Whiting: Yeah, I mean,

Jane Morreau: Yeah, I mean, I think our business is smaller percentage-wise than them. They have more concentration in Asia than we do. And so our concentration of our travel retail business is more in Europe, so they probably are being affected a bit more than we are from the Asia part of the world. With that being said, we had, as we've talked about the travel retail business before, it's quite lumpy and volatile anyhow from quarter to quarter and when people purchase. And so we had the strong growth at the beginning of last year, first half, and now we're cycling again some softer growth in the second half of travel retail. We still do expect some improvement, but that'll be offset by this coronavirus on our business and the global... Just people less traveling internationally.

Jane Morreau: Yeah, I mean, I think our business is smaller percentage-wise than them. They have more concentration in Asia than we do. And so our concentration of our travel retail business is more in Europe, so they probably are being affected a bit more than we are from the Asia part of the world. With that being said, we had, as we've talked about the travel retail business before, it's quite lumpy and volatile anyhow from quarter to quarter and when people purchase. And so we had the strong growth at the beginning of last year, first half, and now we're cycling again some softer growth in the second half of travel retail. We still do expect some improvement, but that'll be offset by this coronavirus on our business and the global... Just people less traveling internationally.

Percentage wise.

They have more concentration in Asia, and we do.

So our concentration of our travel retail business is more in Europe. So.

So they probably are being affected a bit more than we are from the from the Asia part of the world.

With that being said, we had as we've talked about the travel retail business before it's quite.

Lumpy and volatile anyhow from quarter to quarter when people purchase and so we had the.

Strong growth at beginning of last year first half and now we're cycling against them.

Softer growth in second half of travel retail, we still do expect some improvement, but that will be offset by this corona buyers on our business in the growth just people less traveling internationally we.

Jane Morreau: But that's what I would answer your question in terms of why theirs are different than ours, smaller, and it's where they're concentrated.

But that's what I would answer your question in terms of while others are different than our smaller and as for their concentrated.

But that's what I would answer your question in terms of why theirs are different than ours, smaller, and it's where they're concentrated.

Okay. Thank you I'll pass it on.

[Analyst] (J.P. Morgan): Okay, thank you. I'll pass it on.

Peter Grom: Okay, thank you. I'll pass it on.

Your next question comes from a line of Lauren Lieberman with Barclays.

Operator: Your next question comes from the line of Lauren Lieberman with Barclays.

Operator: Your next question comes from the line of Lauren Lieberman with Barclays.

Great. Thanks, good morning.

[Analyst] (Barclays): Great, thanks. Good morning.

Lauren Lieberman: Great, thanks. Good morning.

I was hoping we could talk a little bit more about the UK may of course, you gave us some high level commentary, but I guess, one just more color on what's going on with cash and carry I feel like last quarter. It sounded like it was limited to a few customers in more of maybe a retail than a consumer dynamics. So just curious how that sort of evolved and.

Jane Morreau: Good morning.

Jane Morreau: Good morning.

[Analyst] (Barclays): I was hoping we could talk a little bit more about the UK. I mean, of course, you gave us some high-level commentary, but I guess one, just more color on what's going on with cash and carry. I feel like last quarter it sounded like it was limited to a few customers and more of maybe a retail than a consumer dynamic. So just curious how that sort of evolved. And then secondly, kind of changes in the promotional strategy, you know, impact on the route to market transition. These, you know, I would think were, you know, planned and embedded in guidance and are things you've done in other markets previously.

Lauren Lieberman: I was hoping we could talk a little bit more about the UK. I mean, of course, you gave us some high-level commentary, but I guess one, just more color on what's going on with cash and carry. I feel like last quarter it sounded like it was limited to a few customers and more of maybe a retail than a consumer dynamic. So just curious how that sort of evolved. And then secondly, kind of changes in the promotional strategy, you know, impact on the route to market transition. These, you know, I would think were, you know, planned and embedded in guidance and are things you've done in other markets previously.

Then secondly, kind of changes in the promotional strategy impacting the route to market transition.

I would think were planted embedded in guidance and our things you've done in other markets. Previously so you could share in kind of like what's gone wrong or differently.

[Analyst] (Barclays): So anything you could share on kind of like, what's gone wrong or differently, specifically, you know, again, because this is something you've done very successfully in other markets before with arguably less disruption. Thanks.

So anything you could share on kind of like, what's gone wrong or differently, specifically, you know, again, because this is something you've done very successfully in other markets before with arguably less disruption. Thanks.

Specifically you know again, because this is something you've you've done very successfully in other markets before with arguably less less.

Attraction. Thanks.

Yes so.

Jane Morreau: ... Yes, so, let me start. I think Austin will chime in here, too. The cash and carry is limited to a couple customer, or one customer, really. And so that business, and we talked about last time, so that really hasn't changed from our Q3, where we were referring to what was going on there. We just, it was more precise saying cash and carry this time. The increased promotional strategy, you're right, it was planned. And, you know, something that we're doing as we get ready to own our own distribution come May.

Jane Morreau: ... Yes, so, let me start. I think Austin will chime in here, too. The cash and carry is limited to a couple customer, or one customer, really. And so that business, and we talked about last time, so that really hasn't changed from our Q3, where we were referring to what was going on there. We just, it was more precise saying cash and carry this time. The increased promotional strategy, you're right, it was planned. And, you know, something that we're doing as we get ready to own our own distribution come May.

Let me start I think hospital chime in here too.

The cash and carry is limited to a couple of customer.

One customer really.

And so that business and we talked about last time, so that really hasn't changed from our third quarter. We were from to what was going on there. We just more precise thing fashion carry this time of increased promotional strategy, you're right it what plans and.

Something that we're doing as we get ready to own distribution come may and that's why when we look ahead so to this market.

Jane Morreau: That's why when we look ahead to this market, and the optimism we have going forward versus what we have had this year, we will be in control of a lot of our decisions of working with the grocers and determining the pricing strategies. Right now, that doesn't always happen. So that's important for us as we go forward. Just a reminder of why we made this decision to go on our own around the consumer in the UK. This relationship has probably served us quite well. It started in 2002, served both companies quite well, but we had very limited portfolio at that time. I don't know, 10, 12, 15 brands, and now combined, we have over 100 brands.

That's why when we look ahead to this market, and the optimism we have going forward versus what we have had this year, we will be in control of a lot of our decisions of working with the grocers and determining the pricing strategies. Right now, that doesn't always happen. So that's important for us as we go forward. Just a reminder of why we made this decision to go on our own around the consumer in the UK. This relationship has probably served us quite well. It started in 2002, served both companies quite well, but we had very limited portfolio at that time. I don't know, 10, 12, 15 brands, and now combined, we have over 100 brands.

And.

Optimism, we have going forward versus.

What we have had this year.

We will be in control.

Have a whole lot of our decisions of working with the grocers and determining the pricing strategies and right now that doesn't always happen.

And so that's important for us as we go forward.

Just a reminder, why we made this decision to go on our own arrest the consumer and into UK.

Relationships, probably surface quite well.

It started in 2000 to Sue served both companies quite well, but we had very limited.

Bill Lu at that time, I don't know 10, 12, 15 brands and now combined we have over 100 Grand So you can only imagine the lack of attention focused prior to the nation understanding the consumer and.

Jane Morreau: So you can only imagine the lack of attention, focus, prioritization, understanding the consumer, and focus on our own portfolio. And so we haven't transitioned yet. It, again, is 1 May, but we believe the focus, the prioritization, the understanding the consumers, the more direct contact with our customers, if you will, will allow us to not only accelerate our business there, but get our rest of our portfolio grown quite nicely.

So you can only imagine the lack of attention, focus, prioritization, understanding the consumer, and focus on our own portfolio. And so we haven't transitioned yet. It, again, is 1 May, but we believe the focus, the prioritization, the understanding the consumers, the more direct contact with our customers, if you will, will allow us to not only accelerate our business there, but get our rest of our portfolio grown quite nicely.

UBS.

Because on our own portfolio and so.

We haven't transition.

Yes.

Got it.

Debt again, its may one, but we believe the focus the prioritization the understanding that consumers.

The more.

Direct contact with our.

Our our customers if you will.

We will allow us to not only accelerate our our business there, but get our rest of our portfolio grown quite nicely. Yes. This one's kind of a different animal. This time. It. This is a cost sharing arrangement as opposed to and what we use views typically would more agency type relationships and so you're not going to see a big margin change you're not going to see I mean are this is.

Lawson Whiting: Yeah, this one's kind of a different animal this time. It's this is a cost-sharing arrangement as opposed to an, what we used to use typically with more agency-type relationships. And so you're not gonna see a big margin change. You're not gonna see, you know, I mean, our this has been one of the most successful markets in the world for Brown-Forman for literally, you know, a long time. But, you know, it, I think both companies would admit it's just time. We've, as, as Jane said, our portfolio's got bigger, the conflict's got bigger, and, and we've moved on.

Lawson Whiting: Yeah, this one's kind of a different animal this time. It's this is a cost-sharing arrangement as opposed to an, what we used to use typically with more agency-type relationships. And so you're not gonna see a big margin change. You're not gonna see, you know, I mean, our this has been one of the most successful markets in the world for Brown-Forman for literally, you know, a long time. But, you know, it, I think both companies would admit it's just time. We've, as, as Jane said, our portfolio's got bigger, the conflict's got bigger, and, and we've moved on.

Then one of the most successful mortgage in the world for over four literally over a long time.

But I.

I think both companies would admit it just time Weve as James said our portfolio, it's got bigger the conflicts got bigger.

We've moved on so on the pricing of the promotional question you asked a little bit earlier, I mean that the.

Lawson Whiting: So on the pricing of the promotional question you asked a little bit earlier, I mean, if we're totally honest, the amount of promotion in the UK market got too big, and so we're trying to reduce that a little bit and get some pricing up. And we're working on that slowly. It's not a, you know, I mean, you have to do it slowly with the European retail world. But we're, I don't know if we're paying the price necessarily. We're just seeing short-term disruption with some of our customers as we do a little bit less promoting. We do think in the long run, it's the smart thing to do, and we'll both, you know, we're taking our medicine now for what we think, you know, can be a great outlook, you know, going forward.

So on the pricing of the promotional question you asked a little bit earlier, I mean, if we're totally honest, the amount of promotion in the UK market got too big, and so we're trying to reduce that a little bit and get some pricing up. And we're working on that slowly. It's not a, you know, I mean, you have to do it slowly with the European retail world. But we're, I don't know if we're paying the price necessarily. We're just seeing short-term disruption with some of our customers as we do a little bit less promoting. We do think in the long run, it's the smart thing to do, and we'll both, you know, we're taking our medicine now for what we think, you know, can be a great outlook, you know, going forward.

Okay, we're totally on us to the amount of promotion in the UK market got too big and so we're trying to reduce side, a little bit and get some pricing up.

And we're working on that slowly it's not a.

You have to do it slowly with the European retail world.

But were.

Paying the price necessarily we're just seeing short term disruption with some of our customers as we do a little bit less promoting we do think in the long run its the smart thing to do and and we'll both we're taking our medicine now for what we think.

Can be a great outlook going forward.

Okay, great. Thanks ill turn it.

Jane Morreau: Okay, great. Thank you so much for the help.

Jane Morreau: Okay, great. Thank you so much for the help. Yeah, that's really helpful.

Yes, Thats really helpful.

Lawson Whiting: Yeah.

Jane Morreau: Yeah, that's really helpful.

Your next question comes from a line of Vivian AIDS are with Cowen.

Operator: Your next question comes from the line of Vivien Azer with Cowen.

Operator: Your next question comes from the line of Vivien Azer with Cowen.

Thank you good morning, just to follow up on the topline. Please I'm, giving you guys were pretty specific about the croda buyers impact on travel retail and what you're seeing in February pusses, specifically in Asia Pacific, but as we think about on the revision to the full year guidance are you already.

Jane Morreau: Thank you. Good morning. Just to follow up on the top line, please. Jane, you guys were pretty specific about the coronavirus impact on travel retail and what you're seeing in February, specifically in Asia Pacific. But as we think about the revision to the full year guidance, are you already or also baking in some weakness in newer markets where the coronavirus is starting to emerge, particularly developed Europe, like Italy and France? Thanks. Yeah, thank you, Vivien. I'm glad you asked the question. I thought, let me just pause for a minute because we want to be super clear here with what we have in our forecast. So, again, if you looked at what we did, we took our overall forecast down, as you saw.

Vivien Azer: Thank you. Good morning. Just to follow up on the top line, please. Jane, you guys were pretty specific about the coronavirus impact on travel retail and what you're seeing in February, specifically in Asia Pacific. But as we think about the revision to the full year guidance, are you already or also baking in some weakness in newer markets where the coronavirus is starting to emerge, particularly developed Europe, like Italy and France? Thanks.

We're also baking in some.

Some weakness in newer markets, where the credit virus and starting to emerge, particularly developed Europe, like Italy, and France. Thanks.

Yes, I mean, that's it. Thank you guys, maybe I'm glad you're asking a question about let me just pause for a minute we want to be super clear here.

Jane Morreau: Yeah, thank you, Vivien. I'm glad you asked the question. I thought, let me just pause for a minute because we want to be super clear here with what we have in our forecast. So, again, if you looked at what we did, we took our overall forecast down, as you saw.

What we have in our forecast.

So again, if you looked at what we did we took our overall forecasts.

Now as you saw reduced our our underlying.

Jane Morreau: We reduced our underlying forecast with two factors. First, it was the tempering of the growth and contribution from some of our international markets, again, reflecting some short-term disruptions as well as these macro and economic and geopolitical challenges. So when we look at our base business, what we would say, estimate now that our base business is doing is probably growing in the 3.5 to 4.5% range. It is therefore a couple points less than what our expect- expectations were just three months ago. But the second factor that we built into our forecast, and this is what you are asking specifically about, Vivien, that led to our reduction in our top-line outlook, and again, not surprising, is this unpredictability and uncertainty surrounding the coronavirus and what it may have on our business globally.

We reduced our underlying forecast with two factors. First, it was the tempering of the growth and contribution from some of our international markets, again, reflecting some short-term disruptions as well as these macro and economic and geopolitical challenges. So when we look at our base business, what we would say, estimate now that our base business is doing is probably growing in the 3.5 to 4.5% range. It is therefore a couple points less than what our expect- expectations were just three months ago. But the second factor that we built into our forecast, and this is what you are asking specifically about, Vivien, that led to our reduction in our top-line outlook, and again, not surprising, is this unpredictability and uncertainty surrounding the coronavirus and what it may have on our business globally.

Okay. Two factors first it was the tempering of the growth in contribution from some of our international markets again, reflecting some short term disruptions as well these mackeown economic and geopolitical.

And as to when we look at our base business, but we would say estimate now that are based businesses. During his probably grown in 3.5% to 4.5% range. It is therefore couple of points less than what our expects expectations were just three months ago.

But the second factor that we built into our forecast and this is what youre asking specifically about Vivian.

That led to our reduction in our topline outlook.

Again, not surprising unpredictability and uncertainty surrounding the krona virus and what it may have on our business globally. So we've estimated at this point, there's about a point drag.

Jane Morreau: So we've estimated at this point, there's about a 1-point drag, including those markets that are currently affected. So to your point, directly, the Asian markets, including China, other parts of Asia, Travel Retail, and Italy. So collectively, that's about 8% of our business. And as I said earlier, yes, we've already seen areas, many of these areas already affected in our February results. But that being said, we also have in that 1%, some additional downside impacts. And we don't know, none of us know if that's gonna be enough, too much, as we're learning daily as this situation unfolds. So we're really only looking at our Q4. We haven't tried to estimate any downstream secondary effects on anything beyond...

So we've estimated at this point, there's about a 1-point drag, including those markets that are currently affected. So to your point, directly, the Asian markets, including China, other parts of Asia, Travel Retail, and Italy. So collectively, that's about 8% of our business. And as I said earlier, yes, we've already seen areas, many of these areas already affected in our February results. But that being said, we also have in that 1%, some additional downside impacts. And we don't know, none of us know if that's gonna be enough, too much, as we're learning daily as this situation unfolds. So we're really only looking at our Q4. We haven't tried to estimate any downstream secondary effects on anything beyond...

Including those markets that are currently affected so to your point directly from the park, the Asian markets, including China other parts of Asia travel retail and we haven't it only in there so collectively that's about 8% of our our business.

And as I said earlier, yes, we've already seen.

Areas many of these areas already effective.

Cover results, but that being said we also path.

And that 1% some additional downsides impact and we don't know none of US no that's going to be enough too much.

We're learning daily as this.

Duration unfolds.

So we're really only looking at our fourth quarter, we haven't tried to estimating down stream secondary effects on on anything.

On the the demand, we see and in an expectation for perhaps it spread and some other markets. We don't know about the economy in the consumer confidence and sentiment and how they may linger into our first quarter in summer months.

Jane Morreau: The demand we see, and then an expectation for perhaps it spreading some other markets. We don't know about the economy, the consumer confidence, and sentiment, and how they may linger into our first quarter and summer months. So we'll obviously come back in June with more guidance on that for next year. So anyways, I know I went into a little bit more detail, but I thought it was important to just phrase it for you or put it in perspective in terms of where we are and the why we did reduce our our guidance into the two buckets.

The demand we see, and then an expectation for perhaps it spreading some other markets. We don't know about the economy, the consumer confidence, and sentiment, and how they may linger into our first quarter and summer months. So we'll obviously come back in June with more guidance on that for next year. So anyways, I know I went into a little bit more detail, but I thought it was important to just phrase it for you or put it in perspective in terms of where we are and the why we did reduce our our guidance into the two buckets.

So well obviously come back in June with more guidance on that for next year. So it was unaware went into a little bit more detail, but I thought it was important to discuss.

Prices for year or put it in perspective in terms of where we are and that's why we did reduce our but our guidance into the two buckets.

That's very helpful detail. Thank you so much.

Lawson Whiting: That's very helpful detail. Thank you so much.

Vivien Azer: That's very helpful detail. Thank you so much.

Your next question comes from a line of Kevin Grundy with Jefferies.

Operator: Your next question comes from the line of Kevin Grundy with Jefferies.

Operator: Your next question comes from the line of Kevin Grundy with Jefferies.

Hey, good morning, everyone.

[Analyst] (Jefferies): Hey, good morning, everyone.

Kevin Grundy: Hey, good morning, everyone.

Oh, Evan two very quick ones for me just clarification on the guidance and just to kind of see where you are.

Jane Morreau: Good morning, Kevin.

Jane Morreau: Good morning, Kevin.

Lawson Whiting: Good morning.

Lawson Whiting: Good morning.

[Analyst] (Jefferies): Two, two very quick ones for me. Just clarification on the guidance and just to kind of see where you are for fiscal Q4. So the guidance is now low single digits for the year. You know, my, my thinking is you're probably toward the higher end of low single digits, and that is, you know, closer to 3% as opposed to 1%, with the 3% for the year implying something sort of similar for Q4, particularly given the strength of the US. But if you could just confirm that, that would be helpful just to kind of see, you know, where you are with that. And then for Lawson, just an update on the US pricing environment.

Kevin Grundy: Two, two very quick ones for me. Just clarification on the guidance and just to kind of see where you are for fiscal Q4. So the guidance is now low single digits for the year. You know, my, my thinking is you're probably toward the higher end of low single digits, and that is, you know, closer to 3% as opposed to 1%, with the 3% for the year implying something sort of similar for Q4, particularly given the strength of the US. But if you could just confirm that, that would be helpful just to kind of see, you know, where you are with that. And then for Lawson, just an update on the US pricing environment.

For fiscal Fourq you. So the guidance is now low single digits for the year. My thinking is you're probably towards the higher end of low single digits and that is closer to 3% as opposed to one.

With the 3% for the year, implying something sort of similar for Q, particularly given the strength of the U.S., but if you could just confirmed that that would be helpful. Just to kind of see where you are with that and then for loss and just an update on the U.S. pricing environment.

[Analyst] (Jefferies): As we look at the Nielsen data, the price mix remains negative and has been that way, although albeit moderating somewhat. Can you just give us a little bit of an update there in terms of what you're seeing in the competitive environment, and then your expectations going forward from a pricing perspective, to help drive some gross margin improvements? So thank you for both of those.

As we look at the Nielsen data at the price mix remains negative and has been that way, although albeit moderate moderating somewhat due just give us a little bit of an update there in terms of what you're seeing the competitive environment and then your expectations going forward from a pricing perspective.

As we look at the Nielsen data, the price mix remains negative and has been that way, although albeit moderating somewhat. Can you just give us a little bit of an update there in terms of what you're seeing in the competitive environment, and then your expectations going forward from a pricing perspective, to help drive some gross margin improvements? So thank you for both of those.

To help drive some gross margin improvement so thank you for both of those.

Yes.

Jane Morreau: Kevin, just as I just mentioned a moment ago, our base business guidance would be probably in the 3.5% to 4.5% range, and we've got about a point drag from the coronavirus. So whether it's gonna be worse or not than that, we don't know. So that's how we got to our low single digit growth.

Jane Morreau: Kevin, just as I just mentioned a moment ago, our base business guidance would be probably in the 3.5% to 4.5% range, and we've got about a point drag from the coronavirus. So whether it's gonna be worse or not than that, we don't know. So that's how we got to our low single digit growth.

Kevin just.

If I just mentioned a moment ago, our our base business guidance would be in the probably in the three and a half the 4.5% range and we've got about a point drag from the Corona virus, so whether it's going to be worse or not and that we don't know that's how we got to our low single digit growth.

Thanks.

[Analyst] (Jefferies): Okay, thank you.

Kevin Grundy: Okay, thank you.

Lawson Whiting: Yeah, I mean, I can. I'd like to shout out the pricing thing. So, look, I mean, as we've talked about now on numerous calls, the pricing environment has been challenging in the US for a number of years now, really. Really for the last, I'll say, last decade, it's been low single digits. Some of that, you know, I mean, as, you know, as most companies do, we take a hard look at what our competitors are doing and where we are relative to that and try to pick our spots. And we've done that. In the last year, we had gotten above, and the competitors were going down, and that hurt our volumes a bit.

Lawson Whiting: Yeah, I mean, I can. I'd like to shout out the pricing thing. So, look, I mean, as we've talked about now on numerous calls, the pricing environment has been challenging in the US for a number of years now, really. Really for the last, I'll say, last decade, it's been low single digits. Some of that, you know, I mean, as, you know, as most companies do, we take a hard look at what our competitors are doing and where we are relative to that and try to pick our spots. And we've done that. In the last year, we had gotten above, and the competitors were going down, and that hurt our volumes a bit.

I'd like to shut the pricing thanks so.

Look I mean as as we've talked about now on numerous calls the pricing environment has been challenging in the U.S. for.

A number of years now really really for the last I'll say last decade, it's been low single digits.

Some of that or you know me as you know as most companies do we take a hard look at our competitors are doing and where we are relative to that and try to pick our spots.

And we've done that in the last last year.

We had gotten above and the competitors were going down enough that hurt our volumes a bit and so at the beginning of this fiscal year, we got a little more aggressive at our our volumes have reacted our volume growth. This year is as good as it's been.

Lawson Whiting: And so at the beginning of this fiscal year, we got a little more aggressive, and our volumes have reacted. Our volume growth this year is as good as it's been, I don't know how many years, you know what I mean? It's a number of years. So, I think, you know, if we, you know, that's a good thing, and that means consumers are still taking the product away, and you know, we feel pretty good about that. But it's cost us on the value line, and we wanna get that back in balance again.

And so at the beginning of this fiscal year, we got a little more aggressive, and our volumes have reacted. Our volume growth this year is as good as it's been, I don't know how many years, you know what I mean? It's a number of years. So, I think, you know, if we, you know, that's a good thing, and that means consumers are still taking the product away, and you know, we feel pretty good about that. But it's cost us on the value line, and we wanna get that back in balance again.

How many years generates a number of years, so I think if we.

Thats a good thing and that means consumers are still taking the product away and we feel pretty good about that but it's cost us on the value line and we we want to get that back in balance again. So the idea for next year is certainly the habit more imbalance and that's something that we're working on very hard and actually I think you'll start to see some of the results of that even in the.

Lawson Whiting: So the idea for next year is certainly to have it more in balance, and that's something that we're working on very hard, and actually, I think you'll start to see some of the results of that even in Q4, which will improve our mix. When you were commenting about the mix, was that a Jack Daniel's question or the full portfolio?

So the idea for next year is certainly to have it more in balance, and that's something that we're working on very hard, and actually, I think you'll start to see some of the results of that even in Q4, which will improve our mix. When you were commenting about the mix, was that a Jack Daniel's question or the full portfolio?

Fourth quarter, which will improve our mix when you when you're commenting about the mix was that a Jack Daniels question or the full portfolio that was that was a black label question that I'm, saying I mean overall the.

[Analyst] (Jefferies): That was a Black Label question that I'm seeing. 'Cause I mean, overall, the higher growth of the more premium products is driving more favorable price mix overall, but I was specifically just looking at Black Label, where the trend there from a price mix perspective remains negative.

Kevin Grundy: That was a Black Label question that I'm seeing. 'Cause I mean, overall, the higher growth of the more premium products is driving more favorable price mix overall, but I was specifically just looking at Black Label, where the trend there from a price mix perspective remains negative.

Higher growth of the more premium products is driving more favorable price mix overall, but I was specifically just looking at black label, where the trend there from a price mix perspective remains remains negative.

Yes that will start to.

Lawson Whiting: Yeah, you, that will start to improve here in Q4.

Lawson Whiting: Yeah, you, that will start to improve here in Q4.

Improve.

Here in Q4.

Very good. Thank you good luck.

[Analyst] (Jefferies): Very good. Thank you. Good luck.

Kevin Grundy: Very good. Thank you. Good luck.

Your next question comes from the line of Sean Keane with you vs.

Operator: Your next question comes from the line of Sean King with UBS.

Operator: Your next question comes from the line of Sean King with UBS.

So the question.

[Analyst] (UBS): Good question. I have a question, just drilling in a little bit on the Travel Retail. Is it safe to assume that that business is a, I guess, a lower gross margin, but a higher operating margin than, I guess, the base business? And, I guess, if at all, is that something to keep in mind?

Sean King: Good question. I have a question, just drilling in a little bit on the Travel Retail. Is it safe to assume that that business is a, I guess, a lower gross margin, but a higher operating margin than, I guess, the base business? And, I guess, if at all, is that something to keep in mind?

Another question just drilling in a little bit on the travel retail is it safe to assume that that that business is a I guess, a lower gross margin, but a higher operating margin.

Then then I guess the base business.

I guess, if at all is that something to keep in mind.

Yeah.

Jane Morreau: Yeah. I'm sorry if I make sure that I understand your question. Did we earn less, a higher, or a lower margin?

Jane Morreau: Yeah. I'm sorry if I make sure that I understand your question. Did we earn less, a higher, or a lower margin?

I'm, sorry, if I make sure that I understand your question do we earn less a higher or lower.

[Analyst] (UBS): Yeah, I'm just wondering if, like, the margins from a... From what I've heard in the past is that it's a higher gross margin business for Travel Retail, but it's actually a lower operating margin. Or sorry, a lower gross margin, but a higher operating margin. Is that a fair assumption for the Travel Retail portion of the business?

Sean King: Yeah, I'm just wondering if, like, the margins from a... From what I've heard in the past is that it's a higher gross margin business for Travel Retail, but it's actually a lower operating margin. Or sorry, a lower gross margin, but a higher operating margin. Is that a fair assumption for the Travel Retail portion of the business?

I'm just wondering if the margins for me what I've heard the passes that it's a higher gross margin business for travel retail, but it's actually a a lower operating margin or sorry, a lower a lower gross margin, but a higher operating margin is that a fair assumption for travel retail portion of the business.

Jane Morreau: It's definitely a higher operating margin because of the, there's not the brand spend in there, so it's really more the, the products themselves and the packaging that you, you see and some of the people, the experience that are, are there, so more, more that. Definitely more.

Jane Morreau: It's definitely a higher operating margin because of the, there's not the brand spend in there, so it's really more the, the products themselves and the packaging that you, you see and some of the people, the experience that are, are there, so more, more that. Definitely more.

Only a higher operating margin because of the theres not Brian spend in there. So it's really more thus.

The products and so the packaging that you've you see in some of the people.

Variance that or are there more that.

Lawson Whiting: Yeah, I have to look at the gross margin of the business is, I mean, we sell a lot of single malt scotch, for instance, into that channel, and that's gonna be higher margin business. But, you know, and Woodford Reserve has actually had a really nice run in the global travel retail business, too. But now we also most often focus on the airport side of things, but you also got to keep in mind, the global travel retail sector is a lot broader than just airport business. There's a lot of border store business in Europe, and in China, and so-

Lawson Whiting: Yeah, I have to look at the gross margin of the business is, I mean, we sell a lot of single malt scotch, for instance, into that channel, and that's gonna be higher margin business. But, you know, and Woodford Reserve has actually had a really nice run in the global travel retail business, too. But now we also most often focus on the airport side of things, but you also got to keep in mind, the global travel retail sector is a lot broader than just airport business. There's a lot of border store business in Europe, and in China, and so-

Hi.

Look at the fifth the gross margin the business everything we saw a lot of single mode. Scott for instance into that channel and thats going to be higher margin business.

But yeah and Woodford reserve is actually had a really nice run in the in the global travel retail business too, but now we also most often focus on the airport side of things, but you also got to keep in mind. The global travel retail sector has a lot broader than just airport business. There's a lot of border store business in Europe and in China.

I mean supplemental to carry goes in there sort of military I mean, so you've got a real big mix, which I think as James said earlier Golden Star reach a while it's hurting our growth rates right now because it's Nick it's not big enough to really Tonight or moving our corporate say gross margin or operating margin around it wouldn't try to over.

Jane Morreau: Our military carry goes in there.

Jane Morreau: Our military carry goes in there.

Lawson Whiting: So, I mean, so you've got a real big mix, which I think, as Jane said earlier, Global Travel Retail, while it's hurting our growth rates right now because it's decline, it's not big enough to really consider moving our corporate, say, gross margin or operating margin around it. It. I wouldn't try to overthink that piece of it in terms of, is that gonna be a help or a hindrance to our, you know, overall company gross margins.

Lawson Whiting: So, I mean, so you've got a real big mix, which I think, as Jane said earlier, Global Travel Retail, while it's hurting our growth rates right now because it's decline, it's not big enough to really consider moving our corporate, say, gross margin or operating margin around it. It. I wouldn't try to overthink that piece of it in terms of, is that gonna be a help or a hindrance to our, you know, overall company gross margins.

Thanks that piece of it in terms of is that going to be a help or a hindrance to our.

Overall company gross margins.

[Analyst] (UBS): Great. That's helpful color. Thank you.

Sean King: Great. That's helpful color. Thank you.

Great. That's helpful color. Thank you.

Your next question comes from a line of Bryan Spillane with Bank of America.

Operator: Your next question comes from the line of Brian Spillane with Bank of America.

Operator: Your next question comes from the line of Brian Spillane with Bank of America.

Hey, good morning, everyone.

[Analyst] (Bank of America): Hey, good morning, everyone.

Bryan Spillane: Hey, good morning, everyone.

Hi, good morning.

Lawson Whiting: ... Morning!

Jane Morreau: ... Morning!

[Analyst] (Bank of America): Two quick ones for me. First, I think you touched, Jane, in the prepared remarks, you touched a little bit on agave inflation, and that sounds like it's gonna stay inflationary for next year. Can you give us just an update on where we stand now on barrel costs and wood? Has anything loosened up in that market? And then I have a follow-up.

Two quick ones for me first I think you puts gain in the prepared remarks touched a little bit on a gabi inflation and thats sounds like it's going to stay inflationary for next year.

Bryan Spillane: Two quick ones for me. First, I think you touched, Jane, in the prepared remarks, you touched a little bit on agave inflation, and that sounds like it's gonna stay inflationary for next year. Can you give us just an update on where we stand now on barrel costs and wood? Has anything loosened up in that market? And then I have a follow-up.

Can you give us just update on where we said now a barrel cost to wood has anything loosened up in that market that I've a follow up.

Yes sure.

Jane Morreau: Yeah, sure. I'll talk about, we did talk about tequila or the agave cost a bit. And just as a reminder on that, we've been consistently saying, that we expect agave costs to continue to increase, through calendar year, most of calendar 2021. So in other words, we won't start to start seeing any easing till the back half of calendar 2021, early, calendar 2022. So just as a reminder, and we've, we've got that information based upon what is publicly available from the CRT. So we can see when planting started to accelerate, and we kind of know what the demand is, and so we can see, by the way, tons of plantings more recently. So we know six or seven years from now, we'll have, there'll probably be lots, lots of pressure on pricing at that point in time.

Jane Morreau: Yeah, sure. I'll talk about, we did talk about tequila or the agave cost a bit. And just as a reminder on that, we've been consistently saying, that we expect agave costs to continue to increase, through calendar year, most of calendar 2021. So in other words, we won't start to start seeing any easing till the back half of calendar 2021, early, calendar 2022. So just as a reminder, and we've, we've got that information based upon what is publicly available from the CRT. So we can see when planting started to accelerate, and we kind of know what the demand is, and so we can see, by the way, tons of plantings more recently. So we know six or seven years from now, we'll have, there'll probably be lots, lots of pressure on pricing at that point in time.

I will talk about that we did talk about tequila R&D got my call for a bit and just as a reminder, on that we've been consistently saying in.

We expect a golf and cost continue to increase.

Through calendar year.

Most of calendar 21, so in other words, we won't start to start seeing anything to the back half of calendar 21 early.

Calendar 22, so just as a reminder, we've we've got that information based upon what does the publicly available from the CRT. So we can see when planting started to accelerate.

And we kind of know what the demand is and so we can see of by the way tons of plantings more recently, so we know.

Six or seven years from now we'll have there probably will be lots and lots of pressure on pricing at that point time, but in the near term again, it's going to be late calendar 21 early calendar 2002, before we see cost pressures, but now with that being said, Brian it's important to note that what we're seeing in the market.

Jane Morreau: But in the near term, again, it's gonna be late calendar 2021, early calendar 2022, before we see cost pressure fade. Now, with that being said, Brian, it's important to note that what we're seeing in the market, what we had seen, like a fivefold increase from 2015 in the price of the agave, it really, and it rapidly increased during 2016 through mid-last year. We have seen some slowing. It's still growing, but not at the, and still at unprecedented dollar, I guess, peso cost, if you will, but it's just not growing as rapidly. So that perhaps is a bit of good news there, if you will.

But in the near term, again, it's gonna be late calendar 2021, early calendar 2022, before we see cost pressure fade. Now, with that being said, Brian, it's important to note that what we're seeing in the market, what we had seen, like a fivefold increase from 2015 in the price of the agave, it really, and it rapidly increased during 2016 through mid-last year. We have seen some slowing. It's still growing, but not at the, and still at unprecedented dollar, I guess, peso cost, if you will, but it's just not growing as rapidly. So that perhaps is a bit of good news there, if you will.

What we had seemed like a five fold increase from 2015 in the price of the Guy but.

It really in a rapidly increased during 2016 through mid last year, we have seen some slowing is still growing but not at the.

And still at unprecedented dollar I guess peso golf costs. If you will but is this not growing as rapidly. So that perhaps is a bit of a good news. There. If you will as it relates to the cost of wood.

Jane Morreau: As it relates to the cost of wood, we have seen some moderation in that, but again, you're not gonna start to see that come through our P&L, because of our aged products for four years from now. Coupled with that, we have capital investments that we've made, so all of that's got to factor in. None of that will come through our P&L for four years because of our aged products.

As it relates to the cost of wood, we have seen some moderation in that, but again, you're not gonna start to see that come through our P&L, because of our aged products for four years from now. Coupled with that, we have capital investments that we've made, so all of that's got to factor in. None of that will come through our P&L for four years because of our aged products.

We have seen some moderation in that but again, you're not going to start to see that comes the RFP and now.

Because of our age products for four years from now and coupled with that we have capital investments that we've made so all of that's going to factor in none of that will come through arpino four years because of our age products. It's still the rate of growth of our cost of our whiskey products have really objective manuals.

[Analyst] (Bank of America): But still, the rate of growth of the cost of our whiskey products and really of Jack Daniel's will moderate considerably next year relative to where we've been the last couple of years. So we'll make it less. So more to think about. We're at higher cost levels at this point, but the rate of inflation should start to moderate versus what it's been the last, you know.

Bryan Spillane: But still, the rate of growth of the cost of our whiskey products and really of Jack Daniel's will moderate considerably next year relative to where we've been the last couple of years. So we'll make it less. So more to think about. We're at higher cost levels at this point, but the rate of inflation should start to moderate versus what it's been the last, you know.

Will moderate considerably next year relative to where we've been the last couple of years, but we'll get to take slots.

So more to think about we're at higher cost levels. At this point put the rate of inflation should start to moderate versus what it's been the last year or to combine the two combined yes.

Jane Morreau: Yes.

Jane Morreau: Yes.

[Analyst] (Bank of America): year or two.

Bryan Spillane: year or two.

Jane Morreau: Combined, the two combined. Yes. If you put the agave and barrels together. Yeah.

Jane Morreau: Combined, the two combined. Yes. If you put the agave and barrels together. Yeah.

To put the gabi in barrels together.

The losses, if you could just give give some color now that the Apple is that in the market for awhile and I guess I'm interested in is how it's up how you think the Jack Daniels, Tennessee Black label.

[Analyst] (Bank of America): Then, Lawson, if you could just give some color now that Apple has been in the market for a while. I guess what I'm interested in is how you think the Jack Daniel's Tennessee Black Label is impacted by having all of these sort of line extensions. Do you think that it's diluting the core? Are there things you may need to do to strengthen or reinforce the positioning of Black Label in order to make sure that it stands out from all of these other brand extensions?

Bryan Spillane: Then, Lawson, if you could just give some color now that Apple has been in the market for a while. I guess what I'm interested in is how you think the Jack Daniel's Tennessee Black Label is impacted by having all of these sort of line extensions. Do you think that it's diluting the core? Are there things you may need to do to strengthen or reinforce the positioning of Black Label in order to make sure that it stands out from all of these other brand extensions?

Is impacted by having all of these sort of line extension you think that diluting the cut of the core.

Thank you you may need to do too.

Strengthened or reinforced positioning of of black label in order to make sure that as it stands out from all of these other other.

Other brand extensions.

Yes, so thats a good the cannibalization question is one.

Lawson Whiting: Yeah. So, I mean, that's a good-- the cannibalization question is one. It's difficult. First of all, we look at it about 16 different ways, trying to figure out how, you know, what is actually happening out there. Because to be honest, we were a little more concerned about the cannibalization of Honey and Fire necessarily than we were on Black Label. But when we've done the work, and it's the same thing that we've said, you know, sort of on prior, when this has come up in prior conversations around Fire and Honey, there's been almost no cannibalization. It... To be honest, I think it probably surprises us a little bit, but it just hasn't been there.

Lawson Whiting: Yeah. So, I mean, that's a good-- the cannibalization question is one. It's difficult. First of all, we look at it about 16 different ways, trying to figure out how, you know, what is actually happening out there. Because to be honest, we were a little more concerned about the cannibalization of Honey and Fire necessarily than we were on Black Label. But when we've done the work, and it's the same thing that we've said, you know, sort of on prior, when this has come up in prior conversations around Fire and Honey, there's been almost no cannibalization. It... To be honest, I think it probably surprises us a little bit, but it just hasn't been there.

It's different first of all we look out at about 16 different ways trying to figure out how what is actually happening out there because.

The the honest we were a little more concerned about the cannibalization podium far unnecessarily than we were on black label, but when we've done the work and it's the same thing that we've said sort of on prior when this has come up in prior conversations around fired honey there has been almost no cannibalization it.

We also think it's probably surprised us a little bit but that it just hasn't been there there's.

Lawson Whiting: There's, you know, it really has been successful in bringing in new consumers, and different occasions, and it just feels like it is showing through the analysis that we do, that it's tiny. I mean, it's almost truly on what we've done so far year to date on the impact on Black Label; it's imperceptible. I mean, literally, you know, a few thousand cases kind of thing, but it's not, you know, it's not the reason that the Tennessee whiskey brand in the US has slowed down like it has. And, you know, another piece of it, it's on a volumetric basis; Black Label is up nearly 3% at the same time that we've released Apple. So I think that also gives us some confidence that just the cannibalization is not there.

There's, you know, it really has been successful in bringing in new consumers, and different occasions, and it just feels like it is showing through the analysis that we do, that it's tiny. I mean, it's almost truly on what we've done so far year to date on the impact on Black Label; it's imperceptible. I mean, literally, you know, a few thousand cases kind of thing, but it's not, you know, it's not the reason that the Tennessee whiskey brand in the US has slowed down like it has. And, you know, another piece of it, it's on a volumetric basis; Black Label is up nearly 3% at the same time that we've released Apple. So I think that also gives us some confidence that just the cannibalization is not there.

It really has been successful and bringing in new consumers.

And different occasions on it just feels it feels like it did it is showing through the analysis that we do that it's tiny I mean, it's almost truly on what we've done so far year to date on the impact on black label, its imperceptible I mean literally.

A few thousand cases kind of thing, but it's not it's not.

It's not the reason that the Tennessee Whiskey brand in the U.S. has slowed down like it asked.

As you know another piece of records on a volume metric basis Black label is up nearly 3% at the same time that we've released Apple. So I think that also gives us some confidence that.

The cannibalization is not there.

Great. Thank you.

[Analyst] (Bank of America): Okay, great. Thank you.

Bryan Spillane: Okay, great. Thank you.

There are no further questions at this time.

Operator: There are no further questions at this time. Are there any closing remarks?

Operator: There are no further questions at this time. Are there any closing remarks?

Are there any closing remarks.

I would just just like to say thank you to wasn't Jane and those has joined US today for Brown Formans third quarter fiscal 2020 earnings call. If you have any additional questions. Please feel free to contact us and thank you.

Jane Morreau: We would just like to say thank you to Lawson, Jane, and those that have joined us today for Brown-Forman's Q3 fiscal 2020 earnings call. If you have any additional questions, please feel free to contact us, and thank you.

Leanne Cunningham: We would just like to say thank you to Lawson, Jane, and those that have joined us today for Brown-Forman's Q3 fiscal 2020 earnings call. If you have any additional questions, please feel free to contact us, and thank you.

Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.

Operator: Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.

Operator: Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.

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