Q4 2020 Brown-Forman Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Brown Formans fiscal year.
Dolphin 20, <unk> earnings conference call 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 this session. You wanted to press star one on your telephone if you like to withdraw your question press. The pound key please be advised that today's conference is being recorded if you require brother sister.
Please press Star Zero, I would now like to hand.
The conference over to your Speaker today, Leann Cunningham Senior Vice President shareholder Relations officer. Thank you you may begin.
Thank you Dorothy and good morning, everyone I would like to thank each of you for joining us for Brown Formans here in earnings call for fiscal 2020, joining me today, our Lawson 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 X.
Dictation 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.
Litigation to update any of these statements, whether due to new information future events or otherwise.
This morning, we issued a press release containing our results for the fourth quarter fiscal 2020. In addition to publishing presentation materials that loss and a Jane will walk through momentarily. Both the release in the presentation can be found on our website under section titled investors events and presentations.
In the press release, we publish 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 describing certain non-GAAP financial measures. These measures reconciliation to the most or.
Lastly, comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the companys financial conditions and results of operations are contained in the press release and Investor presentation.
As a reminder, before I turn the call over to loss and then Jane and the interest of time unfairness. We ask that you limit your questions to one for analyst you are welcome to rejoin the queue and we'll take your follow up questions as time permits with that I would like to turn the call over to Lawson.
Thank you Leann and good morning, everyone.
Our last Investor call when we discuss third quarter Orange was on March four drilling for the world went into locked down.
Since that call. So much has changed around the world. So today, while we will cover our full year financial results, we're really going to focus more of our time updating you on the impact of the pandemic on our business and sure. How will you have and will continue to strategically navigate volatility and uncertainty there were facing.
But before we do that let me say the events happening across America highlighted yet again, the disturbing and systemic racism to persist in the United States I'm proud of the work Brown Forman Pandora employees have been doing and diversity inclusion for nearly two decades, which only accelerated one rough they should bear our chief diversity and inclusion officer.
Joined the company in 2007, well, we've been diligent in our diversity inclusion work. We all know that are so much more to be done.
These current events of spark numerous conversations across the company about how we live our value of respect.
How are we identify and eliminate bias within ourselves and how we continue to foster in an environment and relationships, where we can bring our best cells to work.
Brown Forman, we're continually challenging ourselves to be better than to do better as individuals as leaders and his teams.
I do want to highlight a few initiatives that are company that not only promote diversity and inclusion within the company, but also address racial inequality in Louisville, Kentucky, where we have our corporate headquarters.
Last fall, we published our 2030 diversity and inclusion strategy, where we sit quantitative ambitions specifically for people of color and women.
We've talked a portion of our executive compensation to make sure we can achieve these ambitions.
Also leading the new racism in business Council sponsored by Greater Little link. This counsel will focus on racism inequality in will lead efforts to cultivate minority business as a new talent.
Another effort is with our largest and most influential brand Jack Daniels, which is committed to uplifting. The important story of its first mastered is still are near a screen.
I hope the life and legacy of nearest we're forming a partnership with near screening that will create developmental opportunities for African American talent for senior distilling roles and support African American entrepreneurs and distilling startups more information about this partnership will be shared in the coming weeks in the California neighborhood Homed Orlova corporate.
Campus, we're committed to being better neighbors and over the past three years, we've made local community investments, but more than $6 million, including supporting the nearby why Im CA and Simmons College in the coming months will commit to providing additional resources for the industry, California initiative. This initiative will focus on improving education.
Altman and wealth building for our closest neighbors, the majority of whom are blocks.
Conclusion, I want to make a clear that we are committed as individuals and as an organization to continue to take action in order to address the racial and ethnic divides and in any qualities in our local communities and our industry around the globe.
Right now turning to the global covert 19 Pandemics.
Well a business challenge above at all we know what's a human tragedy at Brown Forman as we always do we took a people first approach to this crisis, which means the health and safety of our employees as our number one priority.
In support of our colleagues friends and partners facing hardship in loss, we produced on hand, sanitizer to protect our workforce and community frontline workers. We've supplied in are continuing to supply high proof alcohol to manufacturers of hand, sanitizer, which now is producing over 20000 gallons per day. We've also donated in communities, where we work.
Live around the world from supporting bartender communities restaurants relief funds and community foundations, providing over 70000 meals to soup kitchens, and homeless shelters and mobile as well as countless hours of volunteerism I really would like to thank all of our 4800 employees around the world for their exceptional agility and creativity and quick.
Shifting and adapting to the recent challenges from our quicken nearly seamless transition to working from home, where it's possible adjusting on how we work in our production facilities to ensure the health and safety over employees, which resulted in almost no impact to our supply chain with that I'm going to turn the call over to Jane Who'll walk us through how our business has been impacted by cope.
19, the adjustments, we've made to the business and the strength of our balance sheet. Afterwards, I'll share our strategic priorities that we'll continue to guide us through the near term in which I believe will position our brands in our business to be even stronger in the long term Jane.
Thank you Lawson and good morning, everyone.
Before I get into the results I would like to bid on Timolol since comments and acknowledge that the last several weeks have required our entire organization to pivot quickly to the changing business environment bought on first by the global pandemic to now tremendously trying times, especially for Black College.
His recent events highlight the continue work still to do in the United States to close the racial inequities guy.
I too would like to thank our entire employee population for resilience and extra efforts during these trying times.
As we continue to work to grow our business.
And these efforts we understand that our diverse inclusive culture is key to our continues to assess and in these times, we're refocusing our efforts on deepening our understanding and acceptance of all of our differences.
It was difficult to make a transition from these significant issues.
Let's turn to a full year results.
This go 20 really was a year like no. Other we began to here with a business environment in which our margins continued to be weighed down by tariff largely European terror and higher Gabi calls.
To end the year with a global pandemic and is resulting in effect on the global economy that we're still facing today.
Despite these challenges we still achieved many significant accomplishments and milestones in fiscal 2020 that I'd like to take a moment and highlight.
We saw Woodford reserve exceed 1 million cases.
We continue to innovate developing and launching Jack Daniels, Tennessee, Apple and depleting over 250000 cases, and just eight months.
Our objective new flavor portfolio surpassed two and a half million cases.
And to put that in perspective, none of our Jackie news flavors existed a short nine years ago.
Illustrating the importance the innovation has provided including being a significant source of growth and bringing in numerous new consumers to the Jack Daniels franchise.
Jack Anders or Tds reach I mean have cases in Germany.
Forced or our founding brand grew underlying net sales double digits and is now over 300000 cases or business in the U.S. accelerated its top line compared to fiscal 2019.
In outpace Tds for the first time since the summer of 2018 re transitioned our UK entirely on business to distribution route to consumer models, both launching on May one 2020.
We welcome forge into our family of brands and.
We closed another chapter in our hundred 50 year history of enduring and throbbing.
I'm not going to spend a lot of time going through the financial performance for fiscal 2020, as we typically do but instead focus more on the last couple of months of this fiscal year well results were significantly impacted by the global health pandemic.
First as a reminder, we completed a third quarter or the fiscal year on January 31st 2020 with year to date underlying net sales go a 3%. This trend held up for US through February we began to experience the effect of the pandemic on our results beginning in mid March was.
A new throughout April.
As many of our major markets went into country wide walk down implemented significant stay at home restrictions and shut down or severely limited the on premise business, which represents approximately 20% of our business globally. In addition travel bans another restrictions were implemented and these significantly affected the treble reach.
On channel as a result, we estimate that the pandemic negatively affected our underlying net sales approximately 15% for the March April period, with a greater negative effect. The current in April fallen some benefit we believe we experienced some pantry loading in March as we look broadly across our geographic clusters.
Oh were affected during this period, some more than others I want to call your attention to this on slide seven or our presentation, we uploaded to our Investor Relations website. This morning as you can see the most notable decline occurred in our travel retail business, where international travel and crews channels essentially hoped it overnight.
Additionally, our emerging markets were down significantly some markets such as Mexico went into the crisis with weak economic conditions. Further history would suggest that is coming for emerging markets consumers to reduce spending on our category and focus on essential needs during challenging economic times.
Our developed international markets experience underlying net sales decline similar to the company for the March April period, and worse in the U.S., but we felt strong off premise consumer takeaway trends across many of these markets.
These increases were not sufficient to offset the on premise closures and finally, our business in the U.S. experienced a slowdown in performance over this two month period is held up well and continue to grow since the pandemic began to affect the U.S. the off premise takeaway trends for beverage alcohol significant.
Only accelerate it and have remained robust over the past 13 weeks spirits grind the fastest or we expect there were some early on pantry loading in mid to late March overall consumption has clearly shifted from the on premise to new at home occasions, our blend it take away trends over the period.
Outperform Tds and importantly, the strong growth in the off premise channel has offset the significant hit to the on premise business in many of our major markets around the world consumer purchase patterns change quickly, it's bars and restaurants essentially shut down we saw impressive growth of our brands in the premise channel.
And significant acceleration and large off premise accounts, we observed consumers moving toward trusted brands and seeking opportunities to indulge everyday luxuries, we know that the consumers are seeking convenient such as Archie D and flavored whiskey and increased home consumption occasions, including virtual cocktail parties.
And we ascertain the consumers were and are still making larger less frequent shopping trip. We quickly made adjustments to our focus and resources based on these trends and applied on a market by market basis. For example, we reprioritized our portfolio and we shifted our focus to channel.
Those were the consumer was and continues to shop, we shifted advertising investments and teams to align with these reprioritized areas of focus such as digital as well as prioritize off premise accounts, such as classic versus convenience large format versus independent we reduced discretionary spending such.
TNT, we stopped spending behind on premise activities and various events and sponsorships that were cancelled and we accelerated and fueled our activities and E premise channel in several key markets globally as a covert 19 pandemic in its effect on the global economy continues to evolve we are close.
Mostly monetary key indicators in each market such as the stage of restrictions in a given market our country consumer trends and behavioral insights and macro economic conditions.
We believe this will aid us in our evaluation of the peso recovery inbound appropriately identify opportunities now given the high degree of uncertainty that we all face in these times.
I'd like to take a few minutes to comment on our financial position.
Specifically to address the topic of liquidity first of all a few relevant facts on April thirtyth, the end of our fiscal year 2020.
We had 675 million dollar and cash equivalents on hanging our commercial paper balance was roughly 330 million with an average of over 70 days to maturity for paper outstanding and we had approximately 2.3 billion of long term debt outstanding importantly in a long term debt picture, we have no maturities.
Until our fiscal 2023 or 800 million dollar credit facility was and remains Undrawn. So we believe our financial position remained strong and are continuing capacity to generate solid operating cash flows is sound. We believe our streets will allow us to navigate this crime.
Yes as circumstances evolve that said, we have taken and we'll continue to take additional steps to secure our strong financial position manage in both our uses and sources of cash for example, well we continue to manage our uses of cash thoughtfully as we always have we have turned up our focus in a few error.
Yes naturally we are in managing operating expenses closely and have significantly curtailed discretionary spending such as freezes for hiring and travel on the Capex right. We will continue to invest behind the business with an eye toward the future and not for go important maintenance spending how rep.
We are reprioritizing indifferent certain spending were prudent we're more actively managing our working capital, including monitoring credit closely while working constructively with our customers most affected by the crisis in parallel to our management or cashews cheese, we have bolstered our cash balances imposition brown.
Permit to access additional liquidity if needed first just a few comments on the short term debt markets and our recent experience we rounding to March despite extremely volatile conditions in the short term debt market, then which have improved markedly. Since then we sustain our access to short term funding in the commercial paper market.
Leading up to our fiscal yearend, we added to our cash position by issuing commercial paper more of it and with longer durations than usual, enabling us to fortify our cash position looking ahead, we expect to meet our short term liquidity needs to cash generated from operations in borrowings under our commercial paper.
Oh program. However, as you know well these are dynamic times. So we're closely monitoring both our own liquidity outlook based on various scenarios conditions in the debt capital markets. If our appraisal suggest award sending situation, we won't hesitate to increase our margin of.
Safety on the liquidity.
Considering our history of strong operating cash flows are excellent credit rating and the resilience of our industry and our business and these turbulent times, we expect that if needed we could access additional debt capital readily and with favorable terms and finally to our fiscal <unk> 21 outlook.
As we indicated in our earnings release. This morning, we face a central uncertainty related to the evolving cobot 19 global pandemic and its effect on the global economy. As result of this uncertainty we are not able to provide quantitative guidance for fiscal 2021 at this time, we hope to have a better picture.
How the recovery, including this economic effect on consumers may unfold in effect, our full year financial results. When we report our Q1 performance later this summer with that being said based on our early read of performance in May we believed that our topline results will show some improvements to that weeks.
Parents in March April, but still down relative to last year separately, given our strong balance sheet solid cash flows and ample liquidity, we expect to fully fund ongoing investment in our business and continued to pay regular dividends in summary, our fiscal 2020 was a year like no.
Whether in 150 year history, and we expect to continue to face headwinds given the current environment, our view of the ultimate global opportunity for our brands.
And diminish we believe our talented resilient in agile employees, our commitment to diversity inclusion are attractive portfolio brands in growing categories are resilient global supply chain and our strong balance sheet will allow us to merge and even stronger company was held.
Your brands that will drop our growth for the next generation and with that let me turn the call back over to Lawson to conclude our prepared remarks. This morning.
Thank you James as we all know there is substantial amount of uncertainty in the world in in the days ahead, but we do have a 150 years of experience of successfully navigating. Many challenges. These include World Wars prior pandemic prohibition, a depression and recessions, although this global pandemic and economic challenges certainly difference.
I do believe wound are and we will reemerge even stronger.
I'm optimistic about our future and confident we are the right strategy to guide US now and as we look ahead, we're well positioned in some of the best categories in the spirits industry and we remain focused on developing a premium portfolio that we can develop around the world. In this current environment. We know the consumers are looking for both trusted brands and for an opportunity to indulgent everyday luxuries.
I would argue that Jack Daniels actually the most trusted brand in the spirits industry. We continue to strive to deliver bounce geographic growth with competitive routes to consumer near term, we will be reallocating more towards the developed markets, including the United States, where spirits consumption has been relatively stronger will also be allocating more resources towards.
Channels like E commerce to ensure we're utilizing most competitive rovs to consumer a hallmark of Brown formans, we intend to maintain or historically disciplined approach to capital deployment, including our commitment to return cash to shareholders in a prudent yet opportunistic manner. Additionally, we aspire to deliver top tier total shareholder returns over the long term and finally.
We'll continue to leverage our town tonnage our workforce over the last few months I've seen truly exceptional examples but that ability and resilience in our people people will continue to be our most important NASA as discussed in shared with you on many occasions in the past we think about our future generations. This crisis provides us with the opportunity to Reimagine. The next gen.
Ration of growth for our brands or geographies or people and our investments.
At the end of the day or goals to ensure the long term health of Arconic brands and finally, we'll continue to be guided by our values, while working to preserve the resources of our planet educating consumers on responsible consumption of our brands and ensuring the communities in which we live and work provide social equities for all without Dorsey may open up the call for questions.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad that Istar want to ask a question, we'll pause for just a moment to compile the Q and a roster.
Well first question comes from a line of Dara Mohsenian from Morgan Stanley.
Hey, guys hope, we're doing well.
My question was was on Premiumization, obviously, you've had a great track record of success and Premiumizing your portfolio over time.
Hey, just wanted to get a sense for your thoughts on the potential for continued computer triggered up longer term in this new environment. You know as you look out over the next few years and be can you discuss how you might tweak your premiumization strategy, a big going forward and this new environment, you know boundary product affordability et cetera.
How those strategies marriage.
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Sure, let me take a shot at it I mean.
One thing the Premiumization as you know over the last month really over the last decade has been one of the biggest macro factors in our industry and even over the last 12 months. If you look at the difference between value in volume you continue to see very strong premiumization trend in the industry now if you look over what's happened over the last couple of months.
Those trends have continued you haven't seen the trade down the.
What else is always worried about ultra premium is still growing the fastest on Super and then work your way down the chain. So.
So even in this environment in this particular set of circumstances that were in the Premiumization trends continue so I.
I think we feel good about that at our portfolio does you to that and we continue to them.
You know we want to continue to make that happen. So.
As far as looking out ahead.
Over the next couple of years I don't I don't see us changing our portfolio strategy other than to focus on more super premium and above brands I mean, that's where that not only where the growth has been but I think that's where our.
You know where our company for forms the past its one of the reasons, we created that emerging brands group for the U.S.
It's been two years now.
As driven those very super premium brands that needed to focus than they have had an outstanding run now for two years.
Last few months accepted but.
You know I really liked that part of our portfolio and I like that part of our strategy and I think we're going to continue for.
Okay and are you expecting premiumization that sort of trend we've seen the last couple of months to continue here just any thoughts on why we we've seen such strong trends still.
Higher end pieces of the portfolio and if that's sort of continues as you look out over the next quarter Sir.
Yes, I do think it will continue.
Unless you know that no we're really talking mostly about the U.S., but.
You know, we don't know where the economy is going and so if you do see a pretty you know a dip in the fall in the Winter. Then you know that may change the equation, a little bit but for now the U.S. consumer has been extremely resilient and even though it's moved from onto it off.
[music].
Things are still love them their cocktails and so that's part of the business as you know as really remain strong I think.
And I just don't see that really change just there just to build on weight loss fan.
And when we look back in time over periods, where there had been recession. We can go back to the financial crisis that happened in 2008, 2009, and we did see trading down we did see some slowdown and premiumization.
But they still it's still group.
And then it lasted per se. It 12, 18 month period and it came back with vision. It grew double digits and so if the passes any indication of the future and nobody knows in this environment. This is totally different than anything for but we had that optimism and those transport been looking at as well.
Your next question comes from a line of Peter Grom JP Morgan.
Hey, good morning, everyone hope, you're all are doing well.
Morning.
Jane I appreciate the commentary on trends improving in May versus March and April but.
Could you maybe provide more color on what youre seeing in the U.S. internationally global travel retail quarter to date, and maybe where you're seeing figures improvement.
I'd be curious to understand the channel dynamics across these markets, particularly with.
Countries and stays beginning to reopen while others appear to be getting worse. Thanks.
Sure.
Again.
There's a lot of dynamics going on here and as you said you said that perfectly.
Countries or a different stages that the pandemic countries are at different stages of coming out of the pain doing different stages that opening different state different all kinds of different things that are effectiveness. So.
The answer is not a simple answer as you can as you can imagine what we saw some some improvement on.
In the bond.
In the month of May what we're looking at current trends or.
Places.
Like you asked him in certain channels are certain portfolio I guess I should say, so our our Jack Daniels, Tennessee, Honey, our Tds are doing quite well.
Our global travel retail remains Dan.
All in the month of March April, which was down around 65% still holding this thing.
Some of our emerging markets have improved.
No we see that early look looks like it back to levels that was a year ago may.
In other parts of Southeast Asia have rebounded, but then you have other parts of Latin America that are just other parts of emerging markets such as the Latin America did are just going into the pandemic. So there's not a one size fits all answer here I hate to say.
But I would like to build on Monday things that we are seeing at this might help you.
Think about the on premise Andy business, primarily in the developed markets.
If we think about Europe, it's a bit further behind the U.S.
For instance, our second largest market is so is the UK.
Listening.
Friction there for bars and restaurants, not going to be July 4th you probably know this Frank just opened last week, Germany has been opened to the middle May and we're seeing nice trends in Germany census reopened.
In the U.S. the trends are.
For the what we've been following those trends for the early opening those that opened prior to May 15.
Where we saw the off premise was down stay in that 90% range.
By the end of May they had improved sit down 70%, we're seeing nice improvement, but slow slow improvement of course. This is all going to be depended upon the consumer.
No, it's going to safety and when they feel like they can come back. So I wish there was an easier answer for you, but that's why it's so hard to also give any kind of forecast right now because there's so many scenarios. So many things at play that are impacting each and every market and one size does not fit not it's hard to generalize anything and.
Right.
Let me, let me add on a little bit to today regarding the emerging markets, because that's where we've seen the most the delta what's the biggest also within our portfolio and it.
That's where I had the most concerned about what the next year may look like.
Our emerging markets, which you know over the last few years has been a very dynamic sort of double digit growth area for many of the years was already slowing a bit this fiscal year, we're still growing but it was slowing.
A lot of that was led by Mexico, which is our largest emerging market in Mexico has had its own economic problems you know going back over the last 12 to 18 months and so we saw some weakness there earlier on and that was a big portion of the change in our sales, but if you look out at the rest of the emerging markets World.
You know I'm talking about South America Africa, particularly South Africa, if you look across parts of Asia on India, a lot of those countries have gone into either complete shutdown or something close to a complete shutdown and.
Those markets don't have the social safety net that you're seeing in the U.S. and mustard Western Europe, and so those markets when when they go into shutdown people don't have money for luxury at all and there are really going to the basic goods and try and just being able to try to survive and so.
I do think you're going to see a deeper problem in those markets and it's going to be tougher to come out of there. So.
Yes, I would argue that emerging markets with a place that we were trying to figure out how that's going to go but it does it does have a fair amount of concern.
And just as a reminder, that percentage of our business and emerging markets about 18% now.
And some mark how many emerging markets are doing okay like I said, the China's already yeah.
Poland very nicely, which goes into our emerging markets too. So just as a reminder of some of the night markets that are in there, but as well.
That's all for one reason he mentioned in the script that we're doing reallocation of spending this year as well towards more the developed markets.
Your next question comes from the line of Vivian as our with Cowen.
Hi, Thank you and good morning, I hope, everyone is safe and healthy.
Wanted to double back on the Premiumization on question walks in and then a quick follow up.
What.
Kind of sense, given the outsized growth in Woodford I, just wanted to check in and see whether you guys were experiencing any supply constraint given the growth that you've seen March and April for us.
Thanks, not but can you just confirmed that you're in a position to reallocate like inventory.
What FERC had an international priority, perhaps at the emphasize to make sure that you don't suffer docs.
Thanks.
Yeah, I know that really is not a concern I mean for Woodford in particular, we've been planning for these very high growth rates now for.
As long as five or six years so.
And it continues to roll forward it did not see us substantial him in one month isn't going to disrupt that you know the long term supply chain for it so and the international opportunity is still very significant and it is one that.
You know pre pandemic conversations that was one of the biggest things that we were talking about at the company and it's something.
Actually I want to see some changes in some of the big markets in Europe, so that that.
They can copy even if in a smaller away some of the emerging brands trends that we've learned and put together under you asked where we're sort of taking that model and export to get into into a lot of those markets and so that's still going to be a priority going forward.
Daniels also is I mean it is.
It's not really well, it's not supply constrained.
At least for now.
You know, it's having a slowdown that so really it's not it's not a situation where we're worried about supply.
Hello, Dan that he's referring to actually it's kind of fascinating.
Studying.
The trends in the U.S. marketplace as it relate syndicated data and you really had to pull it parts I understand what it's really telling me I'm sure you know that.
But the slogan he's referring to is really the on premise.
A business going way in Jack Daniels, and Brown Forman up a large percentage of our business that are its premium and so when you have.
Think about PDF, what Scott value, it's got all kinds of things a lot of the value brands are not.
Oh.
On premise locations and probably aren't down.
Aren't being pulled down because of that lost business.
So it's something as you get into the results start understanding that as they come back I should have said this earlier too as it comes back and say that we've seen that opened early in may well, we've seen the drop from the on premise declined 90 down to 70, we've actually seen this spring.
All in the off premise.
Yes.
Okay fair excuse.
30% growth range, which.
It's very encouraging.
That's very helpful and encouraging thank you both lochend and gene in a quick follow up on I really a plot.
Our corporate leadership in your home market of available, which obviously has been.
Center in terms of some of the.
So it it concerns of your local population you do have a cooperage there and then downtown.
The old Forester on visitor center can you just confirm whether there was any disruption or has been recently given what's been going on in mobile. Thanks.
No. We did I mean, we routinely to the coded crisis, we did have some issues that the cooperage very early on but it was.
Liner and we only closed for a couple of days.
As far as what's going on over the last few weeks in low award has not had an impact on.
We are closed but there hasn't been any.
Impact physical impact on our facility closed me in our home places.
Yes, we do curve.
Pickup and delivery now but.
Actually been keeping a close all on along with the state.
In the governors.
And we will fully open as that comes about.
Perfect. Thank you so much.
Your next question comes from a line of Kevin Grundy with Jefferies.
Hey, good morning, everyone. I Hope you are all doing well.
I had a question on the U.S. Bourbon category and it was we look at the syndicated data that's been some discussion. It's just it's hard to ascertain how much.
As the obvious shell shift thats hard to ascertain how much pantry loading is going on if you could comment on that I'm not sure if.
If there's a number that you guys track.
So you look at it but what I'm really looking for is the overall category growth rate in terms of what you're seeing more recently in May and June for the Bourbon category and then.
If you'd indulge me just a housekeeping question for Jane.
Collection risk or bad debt risk in the on premise channel given that some of these bars restaurants will not come out of this.
Does that entirely reside with distributors or is there any risk sharing that's going to take place with brown formans. Thanks for that.
Yes.
Kevin I think there.
Friends.
And then.
And then they use.
I can look at correct.
And I can look at NABCA data and like I said, the viviana few moments ago really do have to start pulling it apart and understand what's going on there and.
The.
The extra overall urban.
Trends.
In the off premise.
Have remained very strong they're up about 36% what you've got to do is you've got to pull out Pennsylvania.
What shutdown and you got to pull out the on premise business.
Once you've done that again, we show growth of around 36%.
Farm in is growing faster than that art art, Bourbon and Tennessee Whiskey is one around 38%. This is for the most recent data.
April.
Uh huh.
We did see a mall ashish.
I guess the slowed down if you will that you're referring to maybe from the Nelson's and that category.
But still up very strong extell up in the 30 percentage range from a off premise takeaway trend perspective.
At about that what you saw though.
And those trends.
Celleration in there and a couple of category categories. It was core Joel worse into keyless.
Of course, our portfolio has some in it.
Wonderful Tequila, we have look course.
Our an apple, but that the extent of our portfolio and those category. So.
I feel optimistic fill that we're still seem very strong trend from the syndicated data as it relates the Burbank.
See with.
And then your question about.
Our bad debt.
I thought it might be helpful. Just talk about what we've done.
On that just for a moment.
Specifically to your question, but.
Census.
Pandemic started we really didnt working actively with that customers around the globe.
I mean looking for ways to partner partnering with them and credit issue not really productive way.
Not surprisingly.
Arch in April.
Customers catering to the on premise in travel retail channels.
The additional credit due to.
Fall off in their business.
And those are those comments are more outside the U.S. I think you were referring to.
But what I would.
Hi, Jane I'm sorry.
Yes, no problem as we looked at all these things we went through each each request on a case by case basis than we did grain some additional credit warrants.
The good news that we've seen already what we did do some of that.
Really provide marks April artist start to see some collections on that you're not seeing any degradation and our credit picture by the way.
No change in our bad debt.
As it relates anything going on.
We felt to our distributors.
Distributor sell launch in the retailers.
We have not had any any body.
So that's really there I guess.
The risk at that point them of course.
I think with the openings that the on premise is starting to happen hopefully some of those.
And we'll get move in there, but to your point there maybe some uh huh.
Bad debt.
I'm collectability on the part that what the end up there in his is probably the shift in and around in other parts of their distributor houses.
It could then.
Of course, our shipments in the short term, but not long term.
Okay. Thanks for all the color.
Your next question comes from a line of Brian's Blaine with Bank of America.
Hi, good morning, everyone.
Hi, Brian.
So.
I wanted the.
Ask a question more about just the approach is we're kind of thinking about how to model really complicated situation.
It does it make sense to in the U.S. and international developed markets.
Per capita consumption stays the same we have to make some assessment about channels in brand and price but.
Perhaps don't really change is where people.
Well, we'll consume that developed.
Let me market.
Especially if we're going to go into a recession per capita consumption maybe goes down a bit.
And then travel rebuilt obviously just sort of.
Depended on being opened or is that.
Just a basic framework is that reasonable way to approach it.
I mean, I, one we don't know.
But I think if your approach is pretty reasonable I do think what are the things that's happened over the last few months compared to what had been happening in the prior years before it whatever trends were happening seem to be an exaggerated. So if you look at the U.S. spirits has been very healthy in the U.S. for 10 years or more well 20 years.
Furthermore, the trend of spirits, taking share from beer and wine has continued and has accelerated over the last few months and so per capita in the U.S. I would say is probably picking up a little bit.
But your go to Europe, and it's a bit of the opposite it it's not an extreme change, but beer has been healthier than spirits in Europe for the last few years.
And even if you look at short term trends now you're seeing that same thing happen. So maybe there's a little bit of per capita going down I don't think it's all that significant.
And then emerging markets is kind of a unique pocket I'm not sure how to even think about per capita there but certainly that.
As I mentioned, a few minutes ago those markets are struggling.
Thanks, if I could just sneak a follow up.
Is there anything we should be thinking about in terms of shipments versus depletion.
These channels that are shut down.
Their inventory backed up there and potential that your you'll you'll ship less than looks completed this year.
We did if you saw on our financial.
We did.
Balance in our shipment.
Versus depletion for shipments were a little bit higher than our depletion and.
I think that was largely.
Indeed.
Big on balance anyplace else around the world, but what we saw.
Building of inventories within the UK just because of the.
Uncertainty around logistics in warehouse folders and production and all that what we have already seen in our may in I'm, sorry, I see NRG shipments that you can see that.
From a shipment perspective coming back in balance.
No.
And I don't if we were out of balance really any place.
Alright.
Hi.
The inventory piece that I found interesting is really a U.S. thing is the consumer them themselves in their pantries, where we all looked at the March explosion in the Nielsen numbers and said well those pantry loading going on we're going to see a falloff in the off premise and they are coming months because of that and it didnt 13th straight weeks I mean.
You've had a decelerating Nielsen trends for some period of time. So it was true pull through where consumers were I mean, they were actually breaking it.
And then going back to the store. So I mean that was a piece of good news.
But I must admit we were little bit cautious about say you can almost one half ago.
Right click paper towels, and Jack Daniels right can't Gotta behaviour.
Alright. Thanks.
Yes.
Your next question comes from a line of Bill Chapelle.
With Suntrust.
Hi, inserted grin on for Bill Thanks for taking my question.
Just had one on costs in the quarter in any kind of onetime costs related to co bid now you guys had co supported bar tenders in the area I don't know if there any other production costs that were onetime in nature in the quarter or any crossties, she kind of carrying forward here in the new normal environment. Thanks.
Yes, there are definitely.
One time.
Donation.
Charitable contributions and so forth.
Okay.
And we.
Im up and we did have some cost awful flowing through our cost of goods.
Our early employee related to make them.
With a acquiring supplies like.
Women and things like that which would have been that's another me and ourselves.
But.
That.
That's about it.
Nothing huge immaterial.
Got it thank you.
Your next question comes from a line of more than Lieberman with Barclays.
Great. Thanks, good morning.
And.
Curious if he could talk a little bit about brand building so.
You know in your industry brands or are built in on premise that we've been the discussion and particularly as you've been developing those premium super premium brands in your portfolio all the resource needs allocating the on premise.
So what you think forward.
Of course, not knowing how.
Kobin.
Fold bite you know just the notion of there being lower capacity at restaurants, and bars and kind of give the consumer mobility inflow people changes for the foreseeable future.
How do you think about kind of building brands in what might be sort of new world for quite a period of time. Thanks.
Yes, I mean I do think.
I think it's going to change over the next 12 months on you know how it beyond the next 12 months I think is a bit of a different answer but as the on premise. The on premise is going to be down.
Almost no question about that over the next 12 months and that has been an important brand building channel.
You know throw literally throughout the decades I guess, so so what does the result, I do think it pushes.
Towards the tried and true trusted brands that we talked about a little bit earlier I mean that.
The bars themselves, one you're not going to be running a lot of promotions in restaurants that are only a third full and it just doesn't make a lot of sense and so we're reallocating dollars away from that channel away from events and stadiums and things like that and more under what we call broad based media. So that is that is a brand building change happening there but.
I also do think that it makes new brands, it's going to be more challenging for new tiny brands to dent into the big brands.
That are out there now and that's a bit of a different trends compared to what has been happening.
Craft brands have had not really made a meaningful impact on market share over the last few years, they sort of top down around three or 4%, we're still growing but there's nothing like Peter.
I think those brands are going to have a hard time, because restaurants that are struggling there are only how full has to be careful with their inventories and have to rationalize the skews and so you're going to see them gravitate towards brands that turn.
So that's a benefit for Jack Daniels.
At the same time it may make some of our other brands take affords Gen. As an example, which is much smaller it makes it that much harder and so I also think theres, a dynamic where consumers are not you're not able to go up to a bar look at 200 brands behind the bar and make a choice on a different something you want to try you're sitting in a table you have to be able to order something that.
No and so experimentation goes down a little bit.
Well just have to see how that plays out over time, but I do think.
There is there will be a bias in the in the on premise world for the Big tried and trusted brands with respect to see how that plays out.
Loren just the build on what law.
[music].
It's really.
Excellent question as you can imagine we don't know how are you just kind of look so we are here at Brown chairman.
Looking at.
What the future going to look like.
What's the though it may have re imagine what it might be.
About predicting exactly what's going to happen what might happen.
So.
Good.
A large shock if you will so some things will continue.
Yep, leveraging technology did the digital topped consumers.
Things may become more important.
And we've done in the past and so.
I think even with our premise.
E Commerce premise based the contact with economy, but the digital everything is coming about and so that's gonna be areas that we look at too we're not sitting there, saying, okay. We're planning on it.
Do you expect to come back but.
What are those other ways to consumers.
Changed and will permanently changed so just want you to know that we're looking at.
Imagining what things Mike in the future.
Okay. Thanks, so much.
And your final question comes from the line of Chris pitcher with Redburn.
Thanks, very much couple of questions page.
To give us a bit more color on how the rollout.
Of Apple has progressed in the coveted environment.
Yes, accelerating growth in the Alpha Jack Daniels brands, which are she was awful.
Just wanted to give so whether you think pay tropical sandal or its hidden to touched the rolled out to that and then secondly in the UK the investment you've put down in terms of sales and distribution over here again as the cobot environment.
Rollout slowed or do you expect caused the on tried opens up head that organization as a position to start fully delivering on the on the plans that you had in place. Thanks.
All right I'll take the Apple warning.
In the U.S. It got to 250000 cases, and eight months and in the U.S. So that that's a very solid intro and we're happy that tenant.
I believe 210 in the U.S. work, which is essentially on.
Plan, if you will.
No.
Yes.
The last couple of months I'm actually not ensure it would happen in last couple of most of the your with Apple itself, but I mean, I think in general the brand is.
On plan it is being very well received it has a great taste to it and these flavors have done well.
In this covert environment, where consumers are staying home the flavors are largely off premise play anyway, and so they've benefited from that.
The international expansion on apples has been hindered by.
We still it did launch in the UK, and Germany, and France in a few others, but we have we've sort of pulled back a little bit, particularly in markets that have a high on premise.
You know percentages business or the Italy's in Spain in places like that we just said you know what let's not even launch right now just doesn't make any sense in that environment. So that has slowed the international rollout out, but that's a matter of timing.
I expect that we will.
You know begin to bring that into the new markets as conditions open up and in some of those places that have really locked down.
The answer your Chris a question, Chris as it relates to the UK.
Definitely has been.
We did not project that cope with environment, bringing on.
The 100, new employees are so that we have there so.
But I will say that.
It's showed a lot of agility a lot of people around the world. We've set up our systems and processes. We trained sales guy all remotely during this time and I'm proud of everything. This has happened with that same transition is going very well, we've got people in place for able to ship so our supply chain and logistics are running.
We've met with the off trade now what's different is the entre.
As I said earlier, the entre not projected to come back on until July 4th with significant restrictions. So that's a big percentage of our customer base, but in terms of the tradition the transition.
Shipping and selling and so forth with our off premise trade all is going well and we're having to direct conversations with their keach.
Great stakeholders.
Getting a better understanding that we didn't have before.
When we didnt have a full.
Insights into what was going into markets like to walk going well and that Brian.
Yes.
I'll turn it back over to our speakers for closing remarks.
But just like to say, thank you Dorothy and thank you to loss and Jane into all of you for joining our call today for Brown Formans year in fiscal 2020, if you have any additional questions. Please feel free to contact.
With that we wish you a safe and healthy summer. Thank you.
Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.