Q2 2021 Brown-Forman Corp Earnings Call
Starting with our top-line compared to the first half of last year reporting net sales were down modestly as a result of the decrease in distributor inventory levels that were built in a States in April and the negative effect of the stronger US dollar adjusting for these factors are underlying net sales grew 4%
As we look broadly across our Geographic clusters. We saw a wide range of top-line performance with either strong growth are generally double-digit declines month. We experienced top-line growth and approximately 85% of our markets through the first half driven by a number of factors including are well-positioned portfolio. The trends are Innovation and externally the impact that government stimulus package has had a number of markets on the economy.
The markets where we are experiencing significant declines appear to have been affected by a variety of factors such as down trading due to economic conditions heavy on promotion Bossier and for us in markets such as Spain and czechia.
Declines and tourism of course in travel-retail but also in Southeast Asia as an example, and then the external Factor lacking here was the lack of stimulus from the government or any of these markets starting with r u s business which represents approximately half our net sales. We sustain our strong first-quarter underlying net sales performance in the quarter off despite lapping last year's launch objecting is Tennessee apple as our year-to-date underlying net sales grew 9% this strong growth reflects many of the same things we discuss in the first quarter.
Verse the strength in the off-premise.
The channel shift since the pandemic began has remained significant with off from his volumetric growth more than offsetting the on-premise decline our portfolio contains the benefit from being well-positioned and growing categories and to meet the needs of our consumers during this environment at home consumption. Most notably the consumers desire convenience portability and variety as well as he's a mix ability is being met by the Jack Daniels rtd's checked a new flavors and our portfolio up to a jealous.
Of note Jack Daniel's Country cocktails again delivered exceptional performance more than doubling volume both in the quarter and on a year-to-date basis compared to last year.
Separately the shift to at home consumption convenience and the desire for contactless Commerce has propelled our portfolios explosive growth in the e-commerce change know which continued triple-digit Trends compared to pre levels and as consumers seek everyday luxury premium ization continues to favor our Superbowl premium portfolio, particularly Woodford Reserve and our Craft series expressions of old Forester is the brand families sustain their double-digit underlying net sales.
Or develop Market's underlying net sales in the high single digits for the second quarter and 10% through the first half continued growing demand for Jackie owners. Rtd's most noticeably in Australia and Germany benefiting from the consumers desire for inconvenience. And the launch of Jack Daniel's Tennessee. Apple drove these games. We remain please off and was going to see apple internationally what we continue to see the rate of sales equal to or greater than the honey post-launch rate of cells are Emerging Markets collectively reverse or first quarter declines growing underlying net cells low single-digits for the second quarter and lifting the underlying net sells to Flat your today.
In Brazil have been resilient in the first half and while Mexico's declined in the quarter, its underlying net sales have grown here today. It's German by the exceptional performance of the new mix our TV business in the fourth quarter benefiting from the temporary Interruption experience in the country's beer supply chain off while the new mix business remains healthy. We continue to see evidence of consumer trade down in this akela and whiskey categories in Mexico and several other of Emerging Markets.
The rest of our Emerging Markets collectively remained down here today. Most notably southeast Asia Russia, India and Latin America off. Finally our travel retail business continued to be the most significantly affected with International airline travel with declining almost 90% and nearly all the cruise industry remains shutdown while we sell slight Improvement in the second quarter is our military channel is performing. Well our travel retail business, excluding this channel continue to experience net sales declines. Well over 60% for the first half of the fiscal year.
Turning to our largest brand for a moment Jack Daniel's Tennessee, whiskey over all through the first half the branch volumes remained down with essentially flat volumes angst us and are developed International markets and declines in Emerging Markets build the rate of the clients improve somewhat in the second quarter and declines in the travel retail Channel.
The shift from on-premise or off-premise consumption in the are developed markets continues to drag Down Jack Daniel's Tennessee, whiskeys underlying net sales year-to-date. However, we believe the brand remains quite healthy and is gaining share in the majority of its top ten markets. Now turning to our gross margin a gross margin declined 350 basis points through the first-half resulting in our underlying gross profit dropping 1% higher input costs related to a month and would as well as a reduction in fixed cost absorption do to lower Jack Daniel's Tennessee whiskey volumes represented nearly two-thirds of our gross margin decline.
Channel in portfolio mix shifts essentially drove the remainder of the margin drop moving to Brand expense, why are advertising spin was down for the quarter reflecting a reduction and on-premise activations and the cancellation of various events and sponsorships. We did see that's kind of slow compared to the first quarter as them best moments. Most notably behind our new Jack Daniels Make It Count Kink pain began in October. We continue to expect our advertising investment to excel over the balance of the fiscal year are underlined sg&a investment remained down in the quarter reflecting tight management of discretionary spending such as travel in hiring freezes and finally to our fiscal 2021 Outlook as we look ahead a high level and certainty continues to exist including the Dead.
packed of the current service
And COVID-19 cases and resulting restriction as well as the impact this may have on our consumer demand notably during the critical holiday season that is upon us and the tapering off of government financial stimulus in a number of countries barring no changes between now and the end of the calendar year and the potential effect on the global economy employment and overall recovery as a result of the sense certainty in volatility that we expect to persist over the months to come we are not providing quantitative guidance for fiscal 2021 at this time.
What's that being said and more qualitatively speaking as we think about our broad Geographic clusters first are developed markets what we suspect the volatility in a certainty to remain high for the foreseeable future as we experienced a second round of lockdowns related to the pandemic and have noted slow down in our November early results in Europe. We remain optimistic given the resiliency and strength of a performance during to date travel-retail month. We do not expect our business to recover this year in this Channel and we will remain down significantly. We expect many of our Emerging Markets will remain subdued that we anticipate to benefit from Easy comps when we begin to lap the start of the pandemic and our fourth quarter are non-branded business dominated by the cells of used barrels is expected wage.
Continue to be a drag on our top-line performance this year as it was in the first half reflecting the expectation of lower volumes and pricing our gross margin will remain under pressure for the year driven by the expectation of higher input costs and mixed shifts. However, where our gross margin ultimately plans with Iraq not only on the volumes of our business, but the mix of our business geographically by portfolio Channel and size regarding operating Investments, we believe we are well-positioned true Beth effectively. We expect are unusually high operating expense leverage in the first half to significantly reverse in the second half reflecting a notable increase in Broad reach media spin, as we are investing more into the important holiday. And the recently-launched Jack Daniels dead.
Make It Count campaign as it relates to our effective tax rate for the full year. We still expect are all in tax rates to be in the range of 17 to 19% off our balance sheet and cash flows remain strong and our Capital allocation strategy is unchanged outside and just mentioned a few recent action in this Arena.
as you
No, our first priority is invest fully behind our business our board recently improved in the investment of $125 million dollars in capital to expand our bourbon making a capacity and Kentucky to meet the anticipated future consumer demand of Our Brands. We also announced a couple of weeks ago and increase in our annual regular dividend month marking the 37th consecutive year of increases and the 76-year of paying quarterly dividends in our hundred fifty year history. We continue to actively evaluate our portfolio selling their Early Times Canadian Mist in Collingwood Brands and as lost and mentioned acquiring the ready-to-drink brand long time Rangers in summary while there have been a number of challenges and headwinds in the first six months of our year. We believe our results reflect our agility. Yep.
Resilience to adapt and seize the opportunities in this very volatile and uncertain environment as the COVID-19 pandemic and its effect on the global economy continues to evolve we will continue to manage as we always have putting our people first and staying focused on the long-term has lost and mentioned in our hundred fifty year history. We have experienced many turbulent and unforeseen events and have emerged from those times stronger and with healthier brands.
And with that this concludes our prepared remarks. Let's open the line to question at this time. I would like to remind everyone that if you would like to ask a question to press star one again that start for any questions. We'll pause for just a moment.
And the first question will come from Steve powers powers with Georgia Bank, please go ahead.
Yes, great. Thanks. Good morning. Hey, so I guess maybe we could start on on the A&P if I could I guess I'm curious as to you know with the lower spending in the first half just what that implies about your share of voice your to date and then how you anticipate that that shared voice to Thursday? It's a trend is as you as you ramp the Investments that you called out the second half.
May I can set it off with the phasing of of the spin? I mean really what you saw on just as a reminder. Yeah, we were down significantly in the phone order and it was really more driven by when the pandemic hit and that's taken a pause and our spend so that we can evaluate and reflect where we want it to spend and the type of thing that we wanted to have to take place. And so that continued a bit into the second quarter though. I will say that it's always more important that back and peel back the engine if you will and understand that we were spending and did increase our spending in places where the momentum was going. So behind us would preserve an Old Ford Store behind our our TVs behind our flavor. So all the things that you have seen dropped driving our growth in the quarter we spend behind and have spent behind here today.
What we did though was pull back a bit as I said in the first quarter rightfully. So for the COVID-19 because of the restrictions on the on-premise channel, which took
Activities out of that as well as sponsorship and dents and things and we said let's take the money there and and and reallocate it too broad Retreat media involved in and focus it when the news campaign did Lawson mentioned earlier came out it comes out and that's really behind Jack Daniels and the Make It Count campaign and I really just started in the October. Really late October and so you didn't see a lot of that but you're going to see a heavy concentration when we think about the phasing of it. We wanted to be there for the holidays are a lot of spending is focused in the holiday. What we think we'll have nice Cheryl voice and from then on when you compare our spin relative to the prior-year quarter where we were down because again totally related so I'll let law some pick up on Cheryl's Voice or anything. He wants to get on that. The only thing to add to that is that share a voice at least I think an hour.
General opinion. It's getting to be less and less relevant as a metric to use because the explosion in the spending in the world of digital and social media. So while I do think our thoughts share a voice will be going up markedly over the next few months. I just be a little cautious on using that as a real strong metric. This is the different ways that people are spending and it's Jean said, she's right. We were dead. I know the teams were very excited to get these new campaigns out there and there was just a bit of a bias to wait until we had that and so for the most part Jack is ready. Now Woodford has been out now for a few months you're going to see more from Old Forest or more on our Tequila's in the very near future. And so you'll be seeing more of Our Brands on are, you know starting now?
Okay, that's great and maybe a follow-up on on that that question a different bucket investment. I'm curious about on the when I look back hard to guess to to figure out what the right Benchmark is, but you know a decade ago and was running about about mid-teens the percentage of sales clearly first half were down below 10% I guess when you think about you know, the the normal what normalization looks like as we as we emerge it what how should investors be thinking about the right level of spending for your business as it's as is currently scaled-down and then that's I guess the follow-up and the second bucket. It just didn't come up here prepared marks. But but obviously e-commerce has been you know, making great inroads in your across the market wage or categories specifically, I'm just curious as to how you've you pivoted, you know to step up your Investments there. And whether you think you're you're you know, you're keeping Pace with the change your effectively ahead.
You know just what your level of Readiness is, um for the you know, the e-commerce Channel as it as it looks in the future.
Let me let me check the first part of the question and
and lots and build on that but something that we we try to Target each year and certainly at this point in time of the world the birds from that page try to Target our spending in line with our Revenue growth. And so you wouldn't see I think what you're seeing in the first half is just what I explained earlier in my commentary which was off the timing the phasing how coveted how I've been to but again and that's why it was so dramatic in the first half relative to our top-line growth just being down but it is something that we long-term want to spend in line with our our sales growth. I hear what you're saying. You're looking back a decade ago. There's a lot to puss secondary go. Look it's pull out FX brands that have come and gone and and things of that nature and we also look at the spending that we do not just in, New Jersey.
All while line items in the p&l OR packaging costs will show up in cost of goods are gifts that shows up in costs of goods are promotional activity which are our net reduction to ourselves and then of course of people who build the brands and so we look at it holistically like that as opposed to just one line item. But again, and I would say our Ambitions are to a guy named been in line with our growth in revenues on an ongoing sustained basis. Yeah, please don't but 10% number you quoted from the first half you can kind of throw that out cuz we will be dead. We will be building back up as we've said here in the second half of the Year. Pretty pretty strongly as far as the e-commerce. I mean, I think we're you know, we like a lot of others see the opportunity here. I mean that's you know, everybody is seeing that but I we have industry estimates that say that in the next three or four or five years you're going to see as much as 10% of global sales going through e-commerce, and it's only a 2% off.
So, you know, you're going to see an explosion there and we're obviously going to be a part of that but it is small in the US. It's sort of 1% right now 1 1 and 1/2, but we've we've added a lot of Invesco there and we will be adding more over the next say 6 to 6 months or so. And so we've got we've got a number of ideas and things that we're going to do there and we're reallocating resources pretty much like you would expect we would like to make sure that we're there, you know for that channel, but you know it it's not only thing in fact, it's bigger than in many markets outside of the China being the most well-known but am UK Germany France, Australia Brazil Mexico. It's all you know, all those markets are seeing exploding e-commerce growth and we're making sure that we're going to be a part of it.
Okay, perfect. I'll pass it on. Thanks so much.
The next question will come from Shaun King with UBS, please go ahead for the question. I guess I'd like to understand your outlook on on tariffs given the new Administration office and within that in the event that you saw some, you know, retaliatory tariff relief. Would you pass that on to Consumers and the form of pricing or potentially Step Up investment or even flow through the bottom life?
Okay, the big my favorite question looked at Tara switch now two and half years into it, you know, none of us 2 and 1/2 years ago thought that we would still be in the situation that we're in now and we continue to work hard to try to find ways, you know for the entire industry to get out of this mess. There are I mean, I think compared to sail a quarter when we talked about this certainly some encouraging signs certainly the due Administration seems to be putting people in place in in important sort of economic roles or trade related roles wage are more Centrist than a little more free trade than what we have seen out of the Trump Administration. And so we have to be a little more optimistic there. Um, and we'll see I mean I do think also the, you know, really both the USA and the EU to gather want more stability in these international relations. They don't like the chaos either and so, you know, we don't know what the bite Administration is going.
to do what we are trying everything that we can do to influence to make sure that you know that these
Trade disputes get resolved. And so, you know, I hate to I am more optimistic. I guess I've been optimistic now for two and a half years and still hasn't solved itself off optimism isn't getting it done. But there's so many people that are getting hurt by these things and I think the entire industry is looking at this like we need to solve both sides of the Atlantic. It's Thursday the same time because they're two different disputes, but both sides are working to to limit it or or get rid of it altogether and then there is brexit, which is only what three weeks away or or something like that. And so I do think the US and UK have been making progress there on trying to find free trade agreements. And so that one May pop up sooner than a that a resolution with the EU but I am not getting more positive on the topic.
line item we've talked about this before I know on calls we look at
And answer to your second part just to build on what box instead second part of your question. We don't have a crystal ball. As you said we are optimistic cautiously optimistic, but it if the terrorists would go away you're asking what would we do would we drop it to the bottom line? We spend what we take pricing more value waiting all those things. I think are biased would be certainly to take some and reinvest it back in business. Look at pricing and all the different variables. So this is something we hope we can actually Implement here at the Terrace go wasting pricing decisions are largely separate from tariffs. It's more of a how much we going to reinvest in the business and and how much is going to drop to the bottom line and you'll get a lot of it depends when this actually happens. How do you do the UK versus the EU a lot of things like that, but it'll be a balance between the two.
Great might be a very tough question. I appreciate the answer. Thank you.
The next question will come from Lauren Lieberman with Barclays, please go ahead great. Thanks. Good morning. You both spoke a lot about about marketing and the new Jack Daniels camper TV, but I was also curious about building brand Equity sort of in the new world assuming right. There's a time frame for on-premise to completely come back even post vaccine and that's been such a core part of the you know, the the spirits model and especially for establishing some of your newer more premium brands in in a markets in new geographies. So just curious how you're thinking about that, you know demand brand awareness creation model and and what it looks like again with a more limited on-premise Footprints even post-pandemic
Yeah, I mean look that's that's a tough question the going forward. I do think first of all the restaurant business while slow to come back it will come back and we will continue to use that as an a channel to promote particularly the smaller Brands and that's what was working. Very very well pre COVID-19 was the brands like Ford's and the Rams I explained and even our our glendronach in our in our single malt scotches. So that model really really was working. Well, we're having to Pivot to spend a little bit more time and attention with those folks in the specialty on-premise Channel, which is still huge. I'm Stephanie, especially off-premise Channel. I'm sorry, which is still very very big and and it's just a matter of focus. It seems to be working it you can do that focus in the on-premise. You can do it in the offer on a month, but you just need to put time and attention against these smaller Brands and that separating those people's responsibilities from building a Jack Daniels are building a Woodford, you know has worked very very well in the south.
And we're going to do you know outside of the US now too. I mean, we're we're you know, it it would certainly it works better when the on-premises is more.
But these folks are able to do both channels at the same time and really build these Brands and I think we've got enough confidence that that model can work that we are going to continue to walk to focus on it. Yeah, just to build on what else instead I think our our model for it. As you said has been in D on permissible what I think we are also saying I'm saying is that we know that how Brands grow is by awareness. And so whether the traditional media which have been dead going away for some time in terms of the spend with cord cutters and so forth like that and more toward streaming video streaming online social things of that nature these brass can get awareness through those mechanisms food or goes through those channels. And so again, we want to be reached we're trying to reach more consumers regardless of what it is dead.
Which brands whether they're small or large. So our brand-building model is really focused on reach and being top of my if it's small and however, we might do it in a month. I said, I think the smaller the smaller Brands can play well in the in in the digital space.
Great. Thank you.
The next question is from Peter Grom with JPMorgan, please go ahead.
Hey, good morning, everyone. So I was hoping to get a little bit more color on the gross margin performance and and fully understand how the company is thinking about that my item off Jane. I know you mentioned that the pressure is expected to continue and visibility on channel and Country mix is limited, but could you maybe help us understand how we should think about raw material inflation in the back half where where I would imagine you have a higher degree of visibility and then building on that specifically there seems to be a view from some of your competitors that that a gas prices have stabilized. Is that something you were also seeing or or the expectation that relieved they're still doesn't come until the end of calendar 21. Thanks.
Sure, great question. Just I think maybe I'll start off with just what where we are here today. And then what we're forecasting for the rest of the year off expecting for the rest of the year. I'm didn't just pull ourselves back and say what does this look like over the longer-term? So as you heard me and you saw on our earnings release this morning we talked about about three hundred fifty basis points of margin erosion about a third of that is really due to this channel five portfolio shift mix and the other two-thirds of it is that we do the input costs and fixed cost absorption being less because the volume now the input cost is driven by two components agave.
And would or the cost of making would something.
A lot of time talking about in the past is we're my didn't all of us here that are would cost or lay down for years ago when we're coming through today. So the reason why I'm mentioning that is because of some of the things will working on today, which will help improve our margins longer-term. So I'll come back to that in just a moment. So that's where we are on a year-to-date basis. Hopefully that first makes sense. As you said, yes, we said we do still expect margins to be down for the year or forecasting by the end of the year Thursday. We won't we will improve from the 350 basis points drag of where we are today. It will improve from there. I think we've tipped our Peak off if you will and so we expect that to improve where we land as as as you also pointed out Peter depends upon these submit the channel makes the portfolio dead.
So forth, but we do expect an improvement in the back half of the year. Now thinking of our future expectations of margins think medium-to-long-term.
I started off explaining the the wood situation because again what we're seeing come through the p&l this year is wood. That was lay down four or five six years ago. And so we've got a the number of initiatives that we've been working on and continue to work on and we'll continue to work on that will help improve or the situation in these input in these type of areas, like would things that are going into the Aging of the barrel, they will not show up this year. They will show off down the road.
A doggie, you mentioned Agave. We really haven't changed our outlook on a Godly from what we explain in the first quarter again. Just as a reminder, It's really based upon see Archie planting some fifteen and sixteen we expected things to the the situation to supply-demand imbalance to improve by the end of month next about a year from now, which is our calendar twenty-two. So this time next year we have though because overall tequila on a worldwide basis, but I'm doing great in the US and and and growing quite rapidly. It is actually forecasted to be down for the year Mexico's down part of other other parts of the world where it's really not that big anyhow, but it sounds so, I think I WS are said came out with a forecast of Tequila's being down about 4% off.
For the calendar year only mentioned that is because we have seen some stabilization and pricing no change really from our first quarter conversation with you, which is about 26 to 28 pesos so still in that range, but perhaps the pressure on the prices will come down a bit faster. We're hoping, then maybe this time next year, but we're not seeing a rapid change. We don't expect it to be all of a sudden drop drop down to the bottom. But so but I do expect to start seeing some benefits starting later next next fiscal year for sure.
and then finally
It's one of the previous callers asked was about Tara and we're cautiously optimistic that they will resolve successfully and that will also take pressure off of our margin and so over the long term if I'm thinking medium long-term. I'm looking at our margins to improve not only where it is today. But even from their home have one final variable that we've been working on which is our pricing talked about this before with this this group. I believe which is our Revenue growth management capabilities. We invested a lot in tools. We've gotten quite sophisticated in our organization and just recently wrote it out to the rest of our major markets around the whole world will build in those capabilities and what that capabilities allow us to do is to look at optimizing our pricing by channels by customer whether our promotions are effective birth.
Not effective where those opportunities to take pricing and more actively doing that and have actually seen nice benefits from it already in the US and that will help as we go down to just a follow-up coming on the tequila category just cuz it's it's been fascinating to watch we we've said and you can read a lot of different cpg categories. Whatever Trends were happening at accelerated over the last, you know, eight or nine months. I don't think there's any category where that may be more apparent than tequila cognac seen a bit of it too but in the US but yeah in the US and the super premium and ultra-premium brands are on fire. I mean, they're just growing at rates, you know that are through the roof and it we also met people like to make a margarita at home, but I don't think that many people are buying 60 and $70 bottles of tequila and making margaritas with I mean that's over ice with the lime drinking it as a cocktail and wage.
You look at the Nielsen trends of the napkin Trends or anything else. I mean pocket which is a much larger category for every dollar that tequila is growing box is losing in the two of them almost offset each other, but it just been a dramatic change in the spirits business in terms of categories between those two and it's you know, they say it's been interesting watching quantity is a good thing for us cuz we're very small and off lock the world and and much bigger entity low-cost to sign. If you're interested in a recipe this one yesterday for margaritas, I'm trying tonight after this month lease is over. I appreciate that if I just I do have one quick follow-up changes based on you know, some of those would initiative you mentioned, I guess when can I expect those to begin to show up in the p&l? And I guess you know
I guess you'd have given the aging process here. Right? I mean when for how much longer do you?
Packwood to be inflationary given, you know what you've laid down four years ago.
Yes, so I think what we've we've laid down in the barrel is already in the barrel. So I think you're talking about four years down the road before we start seeing some real benefits. We're doing some things today that could come through a bit of a can come through a light bulb want to like, oh, they don't get too technical here, but we'll get a little bit of that coming through Insurance in next year's.
Okay. All right. Thank you.
The next question will come from Bonnie Herzog with Goldman Sachs, please go ahead.
Thank you. Good morning. I I wanted to touch on the Divergence that you're seeing between your volumes and price mix, you know, definitely understand. There's several, you know, major driver of both from a product mix and a channel makes standpoint, but I guess it would be helpful. If if you could provide a little bit more color on the driver's of this and then second. Can you give us a sense as to when we might expect this Divergence to narrow? I guess. I'm wondering, you know, how big of a risk do you guys see that pricing, you know, ultimately reversed to lower levels off the long-term. Thanks.
Yeah, I assume what you're referring to is that are volumes were up 15%
year-to-date and that's really driven by our our business where we've seen explosive growth on our Jack enters. Our TVs are 36% and birth of in our new mix business, which is 100% in Mexico is up quite nicely as well as benefiting from a first-quarter beer destruction in that market. And so something that we like to do is to type the equalize this on an equivalent basis. And so when you equivalized the drinks on a that's a metric basis for strength whiskeys and pull strings Tequila's you're about a 1% volume metric growth
Our mix again is really again driven by the portfolio portfolio shifted meaning the acceleration RTD in the in the new mix we talked about this in our first quarter earnings call that something we prayed about from time to time is just this margin of rejection from our TVs, but quite frankly, it's pretty small in the grand scheme of the margin erosion that we've seen and we want to be there for the consumer which we are you can tell by the volumetric trend we're meeting the convenience needs to taste the flavor for cocktails and so forth like that. So we're have and will continue to believe that the small amount of margin erosion resulting from the Archie business is a good thing in this environment. Particularly. Yeah, we've been having an internal debate quite honestly on how sustainable and he's go through Thursday.
RTD world and and
Are they just COVID-19 cause people so many people are home or they or they something bigger than that and I do think you know, we call megatrends but I mean convenience and flavor fits very well on those and so I you know, I don't you're not going to be seeing the triple digit growth rates that we've seen in some places but we we feel pretty good. It's going to stay the other big one that mentioned in her office prepared remarks, but is the on-off thing. I mean, that's obviously very big too probably bigger than most folks realize as that leader size in the US would be the example versus 175. It's just much more profitable. And so that'll reverse and be a benefit to the gross margin, you know at some point too. So there's there's just a lot going on in terms of mix
That all add up but there's lots and lots of small things.
Did we answer your question? Yeah, that was helpful. But I mean if I may just circle back on the pricing lever and I don't know how comfortable you guys aren't talking about that but love to hear your views over the long-term. I mean, I think we talked about tequila pricing and that is that's inching up. It's not going by Leaps and Bounds but there's certainly momentum to take the price up in that even our own Brands. You know, if you go skew for SKU as the comparison or Apples to Apples. There is some small amount of pricing going up now largely from reduced discounting in the office from us, but I don't sense in the industry or even in our own sentiments that when this is over we're going to get more aggressive on pricing. I mean anybody really wants that and so I thought I would expect similar to what you know, we haven't had much pricing. It's been very very low single-digit, but that's a fair assumption I think going forward to you know long-term.
Okay. Thank you. Appreciate it.
The next question is from Kevin Grundy with Jeffries, please go ahead.
Great morning, everyone happy holidays and and congrats on the continued progress in the quarter a couple of questions for me. If I'm a one-on-one on the Outlook and then just to file for divorce on on cash and capital deployment. So the first one probably for for Lawson just sort of understanding that you know, we have to get through some volatility here in the winter months. But the broad question, how was your planning changed internally if at all as you think about it post vaccine environment over the next twelve months and then maybe more immediate term with respect to the guidance talk about the factors you'd like to see them before reinstituting guidance. So you mentioned some of the challenges in November. We understand that's going to be some volatility. The flip side is, you know, you're also seeing growth and 85% of your markets. I think collectively, you know, the industry came across Total Beverage alcohol has a little bit better sense of what changes in Mobility May mean with respect to channel implications and and and consumer and demand so maybe just comment on that and then I'll follow up dead.
On the cash and capital appointment. Thanks.
That's a doozy. Okay. So the like I do in terms of how we think about planning for the future and things like that. I wouldn't I mean I know the brand expense variation between the first half and the second half seems very very COVID-19 and it's certainly was in q1, but we're not really changing our mentality here are over the medium or long-term is is Jane said having or Antico grow in line with sales is a pretty fair way to think about it. And so I even though we as I say the first half hasn't been that way that is the sort of the long term medium and long-term direction that we you know that we look at as far as you know different the one thing in the planning world that we'll see how the next twelve months ago is dead. What is the recession look like? I feel you know, I think we feel pretty good about the United States and sort of the bigger markets in Europe, but boy some of the Emerging Markets of the world I think are still off.
So they're going to be slower coming out of this. And so how do we reallocate resources to make sure we're keeping the vibrant the UK Germany's of the world without walking away from the Emerging Markets, but we're certainly not going to be investing at the exact same levels and some of those that continue to struggle, you know in a recessionary environment and I you know, not that I'm an economist. But if you you certainly the the The Economist that are out there who are predicting a pretty rough return for places like India and Africa and pieces of South America places like that Global Travel retail is another one that is likely to be in a, you know, pretty subdued wage Trends now for you know for years
Got it, that that's all all fair changes. You want to make a comment as well?
Yeah, I mean I could just a couple of things on to what I said, I guess this reallocation is done has been something we've been focusing on for a while in terms of to be more effective than our spend and so the the COVID-19 is really accelerated that so I don't know that we're going back to plan A bunch of a more expensive spend and on-premise desk will have people there. So I don't know cuz you said post covet and Thursday. It's a crystal ball. So I wish I had actually the same consumer behaviors and what they made look like after that but I think our Focus will continue to be reaching as many consumers we can in our messaging and continued with new creative and this new advertising agency, but I thought it might take one point that I want to make sure that I have a phone number.
I talked about this stuff. I wasn't alluded to it in the script that works the shutdowns in Europe and lockdowns and Europe happened in late October. So really didn't affect our results wage in my script that we did see a Slowdown in November history is going to be our toughest quarter.
it
And it was going to be anyhow going to be our toughest quarter the top line and then the the leveraging because we are spending during this time during this in D. And then Thursday, then we should swing back with the fourth quarter as we go again easy, if the top line and then the left spending there, so that's I know a lot of practical but I wanted to make sure that I explained that somewhere on this conversation. We appreciate the caller quick quick follow-up and then I'll pass it on cash is growing on the balance sheet. You don't have any debt coming. Do you how are you thinking about return of capital above and beyond the normal dividend? The stock is still near all-time highs. The company does have a history of paying special dividends periodically is the thinking you're going to sort of remain prudent here as long as the guidance is off the table or do you return to to share BuyBacks and potentially consider a special dividend wage?
And where the balance sheet is and and then with the cash balance is I don't pass it on thanks. Yes. So I mean we were doing in the net cash position is is a bit this year versus last year off really all the Insurgency. We did it purposefully. We do have the proceeds from the sell of Canadian Mist Early times. And there we are not planning as we always do as I mentioned earlier we want to suck business first and foremost nothing's changed we mentioned today $125 billion dollar investment. We're going to it's just was approved by our board of directors to spend to expand our bourbon making a capacity in Kentucky. So that is something that we're doing our dividend just went up but we do not have any plans for this fiscal years. There's too much uncertainty and volatility. We've got lots of things coming up who knows why we're cautiously optimistic to care for go away if tariffs goes the other way in June we had
Cash on hand is pretty important to us and we just really don't know what's happening. So again that was purposeful which are seeing on our balance sheet and really the mix of how we're doing this between our short-term debt off in cash. And so that's the same for the fiscal year ladies and gentlemen, we've reached the end of the allotted time for the Q&A session. Are there any closing comments from management?
We would just like to thank you, and thank you lost and Jana to all of you for joining us today for brown-forman second quarter and first half of fiscal 2021 earnings call. If you have any additional questions, please contact us and with that. We'd like to wish you all a safe and wonderful holiday season. Thank you.
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.
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