Q4 2021 Brown-Forman Corp Earnings Call
[music].
Good day, and thank you for standing by and welcome to the Brown Forman Corporation fourth quarter of 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be of question.
The answer session to ask a question during the session you will need to press star 1 on your telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today 2 per am director of Investor Relations. Please go ahead.
Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown Forman fourth quarter and fiscal 'twenty 'twenty 1 earnings call joining.
Joining me today are Lawson, Whiting, President and Chief Executive Officer, Jay Moreau ex.
<unk>, the vice President and Chief Financial Officer.
And Leanne Cunningham Senior Vice President shareholder Relations Officer, commercial finance and financial planning and analysis.
This morning's conference call contains forward looking statements based on our current expectations numerous.
Numerous risks and uncertainties may cause actual results to differ materially.
From those anticipated or projected in these statements.
Many of the factors that will determine future results are beyond the company's ability to control or predict.
You should not place undue reliance on any forward looking statements and the company undertakes no obligation to update any of these statements whether.
Due to new information future events or otherwise.
This morning, we issued a press release containing our results for the fourth quarter and fiscal year 2021. In addition to posting presentation materials that Lawson and Jane will walk through momentarily.
The release and the presentation.
<unk> can be found on our website under the section titled Investors.
The events and presentations.
In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward looking statements.
Other significant risk factors are described in our form 10-K and force.
From a 10-Q reports filed with the Securities and Exchange Commission.
During this call we will be discussing certain non-GAAP financial measures.
These measures a reconciliation to the most directly comparable GAAP financial measures and the reasons management believes they provide useful information to investors.
Starting the company's financial conditions and results of operations are contained in the press release and Investor presentation.
With that I would like to turn the call over to Lawson. Thank.
Thank you Sue and good morning, everyone I'm pleased to be here today to share a few remarks regarding our results this year.
It's a bit hard to believe.
But given that our fiscal year end as of April 30, we're at the stage of our COVID-19 journey, where our results include a full year of living and working on building brands of medical pandemic. The sheer showed us that we are an agile organization of resilient business and of caring team that is emerging stronger and better from challenging times.
<unk>, our long term values, our strategic priorities in our core purpose of enriching life have been our guide and they have served us well.
I'm proud of how our team responded in this environment to deliver the level of results that we're able to share with you today.
In fact, if you were to look solely at the financial reports were released today, you may or may.
Fully appreciate the magnitude of what we accomplished.
And the year. Unlike any other we delivered top line growth of plus 6%, which is consistent with our long term performance yet.
Yet this year was anything but consistent and conditions were anything but normal.
The pandemic created unprecedented market conditions.
<unk> and perhaps surprisingly and many of our largest markets really strong performance at the same time. These results would not have been possible without the resilience creativity agility and determination of our employees around the world. So before moving on I do want to thank each and every 1 of our employees for their continued focus.
Over these past 12 months the for all they have done and continue to do to rise to the challenge re imagine the future take care of each other to move the business forward from momentum proud of what we were able to accomplish on I hope you are too.
In fiscal 'twenty, 1 we focused on the core elements of our strategy to deliver results we were.
Strengthened by the quality of our brand portfolio, our geographic diversification and the strength of our balance sheet I will share a few examples first we continued our ongoing efforts to reshape our portfolio by focusing on premium products and driving innovation in key categories, such as American Whiskey Tequila and our Tvs last.
Paul This included the sale of Canadian Mist early times and Collingwood net also included the acquisition of part time Rangers a regional RTD brand in New Zealand and Australia. We also play strong focus on our existing RTD brands, including Jack Daniel's RTD, the new mix together, they surpassed 20 million cases and we.
The continued to place energy and emphasis on our Jack Daniel's flavors, which has resulted in really strong growth with Jack Daniel's Apple alone, surpassing 500000 cases, and adjusted second year, and Jack Daniel's, Tennessee, Honey eclipsed the 2 million case, Mark and really has become a solid growth driver for the company geographically we established our.
Our own distribution organizations in the U K, and Thailand, allowing us increased control of our brand building efforts in these markets and we've also initiated plans to create owned distribution organizations and Russia in Belgium in Taiwan.
From an organizational and people perspective at the beginning of the year, we really redeployed portions.
<unk> of our workforce in response to the shifts in our business due to the pandemic. We're investing in teams in Europe that are going to focus on emerging brands. This is really an effort to accelerate our growth rate in brands, such as gentleman, Jack Woodford reserve or single malt Scotches and Slane Irish Whiskey and recently, we announced the launch of our integrated marketing.
Communications organization or something we call IMC and by investing in IMC. We believe we can improve how we connect with consumers grow our e-commerce capabilities fully optimize our brand assets and leverage our data more effectively we're confident IMC will be of growth driver for our organization in the years to come.
<unk> is the physical and digital worlds continue to emerge.
Finally, we continue to invest behind our business in both capital and Brian expense to continue growing our leading brands for the long term.
Integrated within our strategic priorities, our environmental social and governance or ESG commitments, including our focus.
On the responsible consumption and marketing diversity and inclusion the communities in which our employees live and work and environmental sustainability. We believe our long term success is tied intrinsically with our ability to lead in each of these areas. So as such over the past year, we made considerable progress against all the aspects of ESG.
Yeah.
From an environmental standpoint, we established the ambitious new sustainability commitments with the focus on climate action water stewardship, the circular economy and our supply chain given the important role business has to play in the importance of these issues to our business we had to draw a line in the sand. So we now have compelling.
<unk> meaningful quantitative goals and we will hold ourselves accountable.
And very importantly from a social perspective, we committed to be better and do better by building a more diverse inclusive and equitable company and community.
Internally. This includes 10, new actions from the executive leadership team to drive increased accountability and improve.
Irritation and development of people of color for the first time ever we tied 10% of the executive leadership teams fiscal 'twenty, 1 short term cash incentive compensation to our DNI goals.
And we continue to make progress against the initiatives set forth on our 10 year of DNI strategy. Many spirits, 1 brown Forman.
Our 10 employee.
Represent source groups and there are many leaders members and allies are critical to our work on.
I'm reminded of this once again as we are in the midst of pride month here from <unk>.
<unk>, LGBTQ, plus diversity and raising our own awareness around the quality and the ally ship.
Finally from a governance perspective, I recognize that we're a bit unique.
The reason that we are family controlled.
However, we believe strongly that our governance system gives us the distinct competitive advantage by allowing us to consider longer term time horizons and make decisions that will benefit our brands are shareholders in our organization for generations to come.
As you know in January we announced that our.
Board Chair George Garvin Brown, the force will retire in July and handover of leadership of our board of directors to Campbell Brown, the 10th Brown family member and second fifth generation family members serve in this role I wanted to take this opportunity to once again, thank Garvin, whose leadership has been steadfast not only during the last year, but through his 14th.
14 years as board chair, it's been a pleasure working alongside you.
And as I begin to wrap up I would be remiss, if I didn't address tariffs, which continued to have a huge impact on our performance. This past year and in fact, our last 3 years.
As you know the U S on EU announced an agreement in mid May to suspend the planned doubling.
<unk> of tariffs to 50% on American Whiskey on June <unk>.
We of course, we're pleased with that development and continue to be encouraged about the possibility of the full removal of tariffs on American whiskey, but in the meantime, American whiskey is still faces an unlevel, playing field and remains subject to 25% retaliatory tariffs.
We hope that the U S. The UK and the EU governments can work quickly to address the trade issues affecting American whiskey and potentially threatening other spirits categories too and please remove all spirits tariffs before the EU tariff escalation pause expires at the end of November.
Our Oregon.
Organization has adjusted to an evolving world, we understand how to manage change in volatility and thrive. Today's results are evidence of our collective and continued success and our ability to care for each other our communities our environment and our business finally, before I turn things over to Jane I wanted to take this opportunity to recognize her.
In our 30 year career at Brown Forman.
Jane has been a valued partner of mine since we first had cubicles near each other back of $19.97.
In fact, we've worked together throughout most of our time at Brown Forman as we each steadily progressed into new and expanded roles I don't think it's an exaggeration to say the chain has had 1 of the most success.
Vessel careers of any executive at Brown Forman. Most recently, she spearheaded innovative capital investment strategies resource allocation models and business transformation efforts that have been instrumental to achieving our ambitions. She has also been instrumental in advancing our DNI initiatives in conversations, particularly over the last year.
She is a true ally.
You hit the impact she has had not only on the business results on our culture, but on the many people at Brown Forman that she has mentored and developed over the years.
Jane on behalf of our entire organization I want to simply say thank you.
With that I'll turn the call over and Jane will walk us.
<unk> fourth quarter and fiscal year 2021 results.
Thank you lots of them for the kind of words, it's truly been an honor and privilege to be able to be of part of this company from the past 30 years and I know you and your leadership of Brown Forman and the team globally will take this company to new levels in the years to come.
Good.
Morning, everyone.
As Lawson said when we look at fiscal 2021, we are very pleased with our strong top line growth consistent with our long term trends. Despite the many challenges presented by the global pandemic. We believe these results reflect the agility and resilience of our people and.
The strength of our brands, allowing us to deliver mid single digit underlying top line growth for the year and an increase over our fiscal 2019, our last full year of performance without COVID-19.
As expected, we experienced an acceleration of our top line growth in our fourth quarter.
Water as we cycled the initial impact of COVID-19, and benefited from improving levels of consumer confidence in many markets around the world as vaccinations increased and Lockdowns and restrictions were eased.
Also as we previously communicated we continue to invest behind.
Brands as evidenced by the significant increase in A&P and our fourth quarter.
Reflecting increased support in areas, where our business showed strong momentum and the cycling against last year's meaningful decline in spending during the early months of the pandemic.
With that as the recap.
The high end the review our full year fiscal 2021 results.
Starting with our top line.
Compared to fiscal 2020, our reported net sales were up 3%, reflecting our strong mid single digit underlying top line growth and the benefit of of weaker U S. Dollar.
These gains were partially offset by a decrease in distributor inventory levels in the U S that were higher at the end of fiscal 2020.
Reflecting on it.
Build in response to the uncertainty surrounding the early days of the pandemic.
We believe the distributor inventory levels are low.
With the pre COVID-19 levels due to various supply chain challenges.
We experienced broad based underlying net sales growth across the IMF geographic clusters of the U S developed international and emerging markets, which was partially offset by declines in our travel retail channel and a reduction.
And our used barrel sales.
Our U S business, which represents half of our net sales grew underlying net sales of 10% the highest rate of growth we've registered in the U S and over 2 decades.
Our premium Bourbon and Tequila brands, along with J D Rtd's fueled the.
The low growth.
Higher consumer demand increased premium amortization mix in the RTD resolution more than offset unfavorable channel and seismic shift effects.
Speaking of the channel sales mix effects, Jack Daniel's, Tennessee Whiskey was negatively affected by the restriction.
The strong enclosures in the on premise due to its greater presence in this channel than overall Tds.
While the hyster early in fiscal 2022, we continue to experience solid growth in the off premise compared to the same period 2 years ago.
Even as the on premise continues to reopen.
Striction fiscal 'twenty 1 of.
Our U S E premise share was slightly above 2%.
While still small our brands in this channel collectively grew at triple digit rates outpacing Tds by 10 points.
The pandemic step change.
The wholesales via E Commerce, and it appears that the change in consumer behavior is sticking on the.
The international markets collectively delivered strong underlying net sales growth up double digits for the fiscal year.
This growth was driven by higher volume objectives Rtd's.
In Australia and Germany.
Broad based volume metric growth of objecting, those Tennessee honey.
As well as the launch of Jack Daniel's, Tennessee, Apple, which in year..1 is already the SaaS objecting of Tennessee Honey was in year 4 in Europe.
These positive factors with.
Actually offset by declines projecting of Tennessee whiskey.
Notably in Spain, the UK and Czech year, reflecting lower volumes due in part to the channel mix from the on premise to the off premise as well as a reduction in tourism.
Collectively our emerging markets.
The part versus underlying net sales declines from earlier in the fiscal year delivering mid single digit growth for the full year we.
Reflecting volumetric gains rejecting the Tennessee whiskey in Brazil and Poland.
Volumes of new mix in Mexico.
The launch of objecting, those Tennessee Apple.
<unk> as well as the growth of objecting as Tennessee Honey.
Both most notably in Brazil.
These positive factors were partially offset by a decrease objective of those Tennessee whiskey in a number of other emerging markets, reflecting declines in tourism and consumers trading down.
Lower.
<unk> of our full strength to keyless and Mexico.
And broad based declines of Finlandia, notably in Russia and Poland.
Finally, as expected our travel retail business remained down for the year, reflecting lower volumes across the portfolio driven by the drop in airline travel.
Volume the shutdown of the cruise business.
Now I thought I would share of few brand highlights with you for the year.
The preference for convenience and at home consumption drove exceptional growth in our RTD portfolio and our flavor whiskey brands.
Globally, Jack Anders RTD exceeded 12.
<unk> cases, and new mix crossed 8 million cases.
Remarkably for the year, we sold approximately $5 million increment cases of RTD.
Jack Daniels, Tennessee, Honey approximated $2.1 million cases, and our flavor whiskey portfolio grew to 3.
The 3 million cases, an incremental 500000, plus cases or add it per the year.
Our portfolio strategy continues the service well as the premium position trend that has been going on for over 2 decades accelerated in fiscal 2021.
Free notably in developed markets, resulting in double digit underlying net sales growth for Woodford reserve old Forester era, Dura gentleman, Jack Glenn <unk> and Ben Rioja.
Of our portfolio of Jack Daniel's, Tennessee Whiskey was most impacted by the pandemic given.
Most of size and overall exposure to the on premise and the travel retail channel as the brand experienced a decline in underlying net sales for the year.
Now turning to gross margin, which declined 270 basis points and resulted in our underlying gross profit growing 3.
Given the excellent.
Higher input costs, primarily due to increased costs for our gourmet and wood as well as lower fixed cost absorption of projecting or Tennessee whiskey drove approximately 3 quarters of the gross margin decrease.
Negative channel and portfolio mix shifts accounted for the rest of.
<unk>.
Moving to A&P investment as mentioned in my opening remarks and discussed in our last quarter call. We significantly increased our spin throughout the second half of the year, most notably behind our Jack Daniels make it count campaign globally, the Woodford reserve spec.
The <unk> of the census campaign and the make it go campaign for Ara Dura.
And finally, the Derby was held this year on May 1st So we made investments leading up to the race, we're invested strategically behind our business to drive herself and to build on the momentum we experienced as.
Of the ear progressed, which resulted in our fiscal 2021 underlying A&P increasing 2%.
Our underlying SG&A investment was flat as higher compensation related costs were offset by tight management of discretionary spend including hiring.
As of Youll freezes as a result of the COVID-19 environment. In total we grew underlying operating income 4 per cent for the year and report it was even stronger due to the gain on the sale of Canadian Mist and early times earlier in the year.
This combined with a reduction in our.
And tried to tax rate resulted in 9% diluted EPS growth to $1.88 per share, including the <unk> gain from the sale.
And finally to our fiscal 2022 outlook.
We are optimistic as we look ahead and we expect the operating environment to continue to.
To improve particularly as the on premise.
In countries, where heavily reliant on tourism further recover.
And there's some degree of business and personal travel resume through the global travel retail channel from a quantitative perspective of course, the pace of recovery is unknown at this time and.
The effect vary from country to country, depending on the state of the pandemic vaccination in reopening.
As a result of these factors coupled with unusual compare in the last year, we expect the seasonality of our results to be volatile during the year, particularly operating income.
We remain confident in the collective strength of our developed markets and should benefit from the reopening of the on premise channel and increase in tourism, which particularly impacted Jack Daniel's, Tennessee Whiskey this past year and some of our smaller emerging brands. Additionally.
Additionally, our.
Things well positioned to capitalize on the continuing spirits premiums nation trend in aggregate, we expect strong growth in our emerging markets as well as travel retail as we cycle of the effect of easy comparisons and begin to stabilize and recover further we.
So we do not expect our non core business, mainly used barrels to have a material impact on our results. We expect some improvement in our gross margin for the full year driven by positive channel mix as the on premise and tourism recover.
Benefits from a number of productivity related initiatives currently underway.
We begin to be realized.
And the easing of historically high agave costs start to reverse.
From a quantitative perspective, we expect both of our underlying net sales and operating income to grow in the mid single digits. Similarly, we anticipate our operating investments.
<unk> advertising and SG&A to be in line in this range as we continue to invest behind our brands to support our topline growth as well as begin to work towards activating various strategic initiatives, including 3 new rtc's the expansion of our emerging brands.
The teams internationally to select markets and an increase in our digital marketing and E. Commerce capabilities, we expect our effective tax rate in fiscal 2022 to be higher than the 16, 5% registered this past year, largely reflecting the absence of discrete items we.
Brand tomato rate to more closely approximate our fiscal 2021 right from operations of about 21% to 22%.
In summary, while fiscal 2021 was filled with rapidly changing market dynamics interest in turns at every corner, we deliver strong topline growth.
We as consistent with our long term aspiration.
Our business model remains excellent with nearly of 34% operating margin and an approximately 20% of Rossi both industry, leading metrics, we thoughtfully and judiciously prioritize managed in allocated capital.
Throughout the pandemic emerging with an even stronger balance sheet.
We remain committed to our long held capital allocation philosophy to first invest fully behind our business.
Which we expect capex spending to be in the $130 million to $150 million range in fiscal 2000.
Capital too.
Second to pay increasing dividends and third to look for acquisitions Opportunistically that will create long term value.
And finally as always we will look for opportunities to return cash to shareholders in a judicious and tax efficient manner, including.
20 of our own assessment of known and propose changes in tax law, the timing amount and form will depend on our assessment of the environment. This recipe has resulted in terrific returns for our shareholders over the past decade of 17% and.
<unk> believe our strategic priorities will help deliver superior returns over the next decade.
Now before we open call up for Q&A. Please join me in congratulating Leann Cunningham currently the SVP shareholder Relations officer Global commercial.
And we Nance and financial planning and analysis, who will be promoted to the position of Chief Financial Officer on July 2nd 2021. Many of you are likely familiar with Lee Ann as she has served as our shareholder relations officer for nearly the past 2 years. She has a 25 year.
Firing of Brown Forman with extensive experience across the company's production and financial operations that make her uniquely qualified to lead our global finance organization.
As Sue indicated she is with us today and will be available for Q&A. So with that this concludes our prepared remarks.
Your bedroom or now take your question on.
Operator, you May open up the line.
As a reminder, task of question you'll need the press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from.
The line of Kevin Grundy from Jefferies. Your line is now open.
Great. Thanks, Good morning, everyone and Jamie and congratulations to both of you.
I'd like to start with the strength of the U S business.
James as you rightly mentioned the understanding of the year over year comparison, the 2 year stack of the to your.
The average.
Exceptionally strong so I guess, maybe you could spend some time of loss as well just kind of.
Talk about some of the building blocks here on the strength that you're seeing I also think it's noteworthy of the second.
Alcohol company that we've heard from this week, that's noted surprisingly strong strength in the.
The off premise, even as the on premise.
Recovers, which is noteworthy so any of any comments you have on overall consumption and consumer behavior and channel dynamics, and just kind of tie that in with what youre expecting for the year I think would be helpful.
Yes.
I'll start with <unk>.
Right, along I mean, yes.
I think we have been.
Been a little bit surprised of the strength of the off premise as the on premise.
<unk> begun to recover to talk about the on premise for a second I mean, the data that we've been seeing and we generally use open table on a lot of you have done the same.
This improves significantly in the last few months, where it was down it was down.
Hugely last summer of improved a little bit on the fall and then took a nosedive down around Christmas time and was down on the 50% range from much of the winter has improved the only down mid single digits. Now. So you have seen a pretty rapid recovery of the restaurants.
On the open up.
I know everyone anecdotally.
He talks about it the restaurants. These days feel very proud of and very busy and so a lot of people wanted to go back out the off premise though.
Does remain very elevated I think if we looked at the napkin data, which would include some of the of our on premise volume.
I mean.
With the trends.
We have moved from what would have been mid single digit for let's say the 10 years before the pandemic hit is now very high single digit even low double digit growth rates and so.
Obviously, the off premise has held up pretty well and I think the good news at least for us is.
On the categories that are leading the tender.
2 of the strongest categories out there at the Chela on American Whiskey.
That is essentially the vast majority of our portfolio.
James.
Net add on I think that's exactly where I would have gone.
Youre asking why are we done so well I think our portfolio as we've been saying all year long is well positioned to take advantage of the trends.
Convenience, we benefited tremendously from our RTD business or the <unk> business has been very solid in the U S. And of course, you know, we just entered a new partnership with path, which we believe will take at our RTD business to an even higher level. When we think about the mix of ability our flavored whiskey did very well.
<unk>.
Particularly honey in the U S business in the U S market because of the ease of mixing great tasting top cocktails as the keyless Watson.
On that category has been on fire. We've got 2 of the best of the Keyless, we believe in the industry and have benefited because of that.
And then something else we've been talking about all year long is everyday luxury.
And that is playing great from the strength of our brands Woodford Reserve, which has continued the phenomenal growth and old forester.
What is the theory.
With me.
That theory out which of the students the terrific and then even we've introduced some higher end expressions in the Tequila category, which is where the growth is coming from so I think we're benefiting from a lot of those type of trends Kevin to be honest with you.
That's very helpful. I'll pass it on so there's other questions from the queue. Thank you.
The west.
Thank you. Our next question comes from the line of Vivien <unk> from Cowen. Your line is now open.
Hi, Thanks, Good morning, and I'll Echo my congratulations.
Jane has been.
Pleasure working with you and Lee and congrats as well on the new role.
If I can just because of the.
And could the margins please jane its helpful.
You were able to dimensionalize.
The good proportion of 75% of the drag on gross margin, but as we kind of think about the potential recovery on Jack Daniel's going forward, how do we think about operating leverage helping to abate some of the drag on that gross margin. Please. Thanks.
Conversate here.
So yes, just the step back as you said, we did have a.
Pretty big drag on our margins this year and it was driven in large part.
The input costs that was the biggest piece that was 3 quarters of it so think of wood and agave and I'll get to it as we look forward.
So really mixed only had a small impact with only a quarter of itself of <unk> or so and when you break it out and you pull it apart yes, a piece of it is because of Jack Daniel's, Tennessee whiskey.
And the fact that the on premise shutdown and Jack Anders and the use.
<unk> alone is 1 of.
3 on premise brands and so it was impacted.
The significantly and impacted our margins of course.
So when we look ahead to F. 'twenty 2 as I said in my script and you just referenced.
We are expecting some improvement on.
We'll pause for a moment and the.
<unk> why we're expecting as because we do expect some of the last couple of years of hurt from agave to begin to reverse only begin next year and we can talk more about that later if people want to know what we're seeing in that but we also have the had a number of productivity initiatives from our global production organization that will start.
The top and realize next year and we've got several years before they're all fully realized because of again, just a reminder of our age with the product and how things go onto the balance sheet.
And then mix will benefit from but it's not the.
It's not the huge pieces of as I said this year.
Set from the past year on how.
<unk> without will want to pause and point out for a moment is something that we have included in our forecast and Thats, a pretty significant increase in commodity cost inflationary commodity costs of around double digits is what we currently have forecasted in there otherwise we would have expected of better improving.
Much of it for the next year of this year and moving to keep an eye on that by the way as I know all consumer products companies are.
But right now we feel of where we said that we can improve <unk> expect margins to begin to improve the in F. 'twenty 2 and as we look beyond that we expect improving trends thereafter as a reminder, tariffs are still on our number.
They are still dragging down our numbers.
But we've got the optimistic that that will go away at some point down the road.
Yeah, and I think to go beyond Vivien you also asked about some operating expenses.
The the A&P line.
Yes.
As.
I think we've said this before I would expect that the trend in line with sales so a little bit less of that this year.
Because we cut some deeply in the really in Q1 of last year, but I would expect us to reinvigorate that a bit and we are as Jane mentioned in our prepared remarks.
Really investing significantly behind the make it accounts.
As we've seen and so.
And then SG&A also sort of in that mid single digit growth range as we continue to rebuild in the <unk> begins again on people travel and business and investing.
More normal.
So another SG&A effort that has been very.
Kim.
The import.
Over the last few years of started with the U S. That's on our emerging brands group, which we've talked about on previous calls.
Pre COVID-19 that group was delivering really stellar high growth rates.
For some of our smaller brands that are all in the sort of Super and ultra premium price points, we're taking.
That model and exporting it to a number of markets in Europe and Australia.
Hope to see pretty strong benefits in terms of portfolio of growth from that group, but that's an investment level too.
At the consumer.
And by the way just to build on weight loss of setup.
The on premise.
Set.
Very largely in the use of the zero off and on for sure in the U S. The share our emerging brands collectively.
Wasn't as strong as prior years, but of double digits. Thanks to the team in the U S organization.
The tremendous work and pivoted quickly to the off premise.
That's super helpful. Thanks, if.
I can just squeeze in a follow up can you comment at all on any changes that youre seeing in the promotional environment in the United States with the reopening of the on premise specifically on the off premise on step up in promotional event from your competitors.
Yes.
I haven't seen much I mean I think the.
The promotional intensity actually somewhat let off in the off premise over the last year as consumers. We've said a few times, we're walking on a liquor store. They were looking for the brand that they know and enjoy and they were buying it and taking it off the shelf without being too picky around price and so you have seen pockets of of increasing price in the off.
From us in the U S. It has not.
Not sure that it's really changed a lot of the last few months I think.
I know, we have a bias of increasing bias on this is more of a global than just the U S. The we need to see pricing going back up again.
That is the strategy, we're going to employ over the next year.
Understood. Thanks.
Yeah.
Okay.
Thank you. Our next question comes from the line of Sean King from UBS. Your line is now open.
Hey, good morning, Thanks for the question.
Question about the guide and sorry, sorry, if I missed this but what base should we be thinking about for the mid single digit operating.
Very much growth guidance is that off the reported number of the underlying number.
Yeah, I'm sorry about that.
Definitely off Paul underlying number so just as a reminder of the difference between our reported and underlying was largely due to the sale of Canadian mist in the early time. So you definitely want to take that out of your numbers.
The property and we also had a 1 quarter benefit or 1 quarter of they were still in our results for the first quarter of the year. So we'll definitely want to take that out when you consider for top and bottom line.
Okay, Great I appreciate it thank you I'll pass it on.
Thank you. Our next question comes from the line of Rob.
Members in Stein from Evercore. Your line is now open.
Great. Thank you very much.
I was just wondering if you could talk kind of.
Big picture.
Looking back now on just the U S.
And the impact of Covid.
Oh on dimmed.
Demand for U S spirits versus Walgreens versus beer, obviously spirits as being of gaining share for a long time.
Particularly against fear you noted.
The acceleration in terms of premium innovation last year, but.
Do you also think the just the nature of Covid and people staying at home.
Perhaps less social occasions.
Or high energy typical beer occasions helped spirits.
Last year and notwithstanding the fact that your spirits.
For at home is very strong right now, but that could possibly reverse.
During the summer of little bit Thank you.
Yes.
I am not.
It remains to be seen what happens over the summer it's going to be interesting to watch is obviously the comps get the very very volatile.
As we wrote such of roller.
All of closer to the last year.
I do think.
At least the most recent trends of I'm talking on the last few months of the off premise market has held up so.
It gives us some optimism that those levels are going to stay I don't know hurdle state of the double digit growth rate.
Clearly everything that is off premise focused.
Because of these days, particularly in American Whiskey, and Tequila too I mean, there is there has been quite a swing between categories.
And thankfully.
I said earlier, we are in the right 1.
As far as the 1.
Beer and wine I mean beer has obviously got a lot more event business to us.
And that they lost all of that and that helped the exaggerate the numbers, but I think in general of the pandemic. We've said this a few times of any trend that was happening pre pandemic just accelerated and so the.
The spirits versus 1 in beer would be 1 of those premium amortization would be another 1 and convenience of the other core 1 so all 3.
Teams have been working on our favor in.
It's just as I say it remains to be seen how it unfolds really as we get into the summer months.
And then sorry.
I agree with Boston I'm, not sure of that well it'll be interesting.
Seeing the Watson summarize it may take a while for all of the shakeout.
Beyond this year even.
A lot of people I know.
Anecdotally have been invested in that.
Entertaining spaces and things like that and definitely we are still seeing the.
At home.
Purchases of online from E premise to still be strong per bev alcohol.
Of those trucks, so indicating to me the people are still the behavior of driving.
Brian Thanks to your home is still there.
We'll see that I mean, that's the.
The most recent results I've read this morning.
But it is interesting.
Okay got it and then Paul.
Follow up question.
<unk>.
Score.
Fully O.
Shifts a little bit of at least in terms of packaging board of ready to drink in cans and again talking about the U S market.
And can you talk a little bit about how that may or may not change your route to market strategy.
And as you.
And particularly your ability to access.
Channels like convenience.
That haven't necessarily been traditionally strong points.
For the wine and spirits distributors.
Yes.
Yes, I mean that was I mean, the whole from.
<unk> core of the majority reason that we've partnered up with perhaps was to be able to access all of those distribution points, but as you say, our traditional wholesalers Martin reaching them. So.
That's just started in the last week.
<unk> on kind of thing so.
We're going on we'll see how that progresses with certainly.
The optimism.
With all of those additional points of distribution that will capture an even bigger.
Lies.
Within the RTD business in the U S. I do think it is.
Just more of a reminder, ari.
Of our RTD business is much much bigger outside of the United States than it is in <unk>.
Got.
We have operating basins of new mix in Mexico, and we've got $12.5 million cases of Jack Daniel's spread out around the world that does include the use of kick off 3 million part of our international RTD businesses significantly bigger and more important to the company right now.
Yes in terms of kit from.
Can you just give us maybe 30 seconds.
Eating on the mechanics of the paths relationship for that just how the flow works.
Okay.
Can you elaborate just a little bit more Robert so all of them. Thank you.
So youre going to Pat just I'm, just trying to better understand your partnership.
Just on pass exactly what they will be doing for you and how that relationship is constructed.
Yes.
They are going to make the product there other than our glass.
A bottle facility, we have there. So there is really going to beef up our KN.
With.
Jack Daniel's country of vessels we.
We don't have any today the pick up the best.
1 thing we're going to sell some of the glass there've been the then distribute it.
Throughout all of their channels that we don't as you initially.
Initially we don't have traditionally access too.
And so theyre going on.
They've got better capabilities as it relates to packaging.
Configurations things like that so we can have some different flexibility the pack sizes and shapes of work like that and so that is the relationship with them. So we will be selling.
Selling to them.
We sell of non to US we will get a rule in effect, we will get a royalty on an agreed upon royalty and it will scale up as a growth.
The simple way to talk about it.
Perfect. Thank you very much and congratulations all around thank you.
Thank you.
And the thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Your line is now open.
Great. Thanks, so much.
Just curious of the love this topic of the emerging brands sales force efforts as you all know and I was just curious I guess 1 retrospectively during the pandemic.
In addition to lost on you mentioned kind of the team in the U S quickly shifting to prioritize off premise any progress that's been made on on premise. We've heard other beverage alcohol company to talk about consolidation of wine and spirits and beer lists and those sorts of things I was curious of any thing you're able to talk about.
How youre.
<unk> into on premise recovery for those emerging brands in particular.
And then in terms of the international build out.
I just wanted to make sure I understood correctly that that's the new initiatives not something that's already been started so should kind of build steam as we move into maybe second half of 'twenty 2 at the earliest that it really.
The impact of the business. Thanks.
Yes.
<unk>.
The first half of the question on the U S business on what trends that we've seen I mean, I do know so many bars and restaurants had to reduce their inventories of the last year and so that became an advantage for establish the big brands the turn faster.
And it made it challenging for newer brands, particularly some of the craft brands that just don't have the ability to continue to push as hard as the major brands do so theres been this window of opportunity I think from companies like Brown Forman to be able to command a bigger piece of the back bar.
We're going to make sure that we get more than our.
Our fair share of that opportunity as things evolve over the next few months.
And the international side of it yes, it is brand new.
Not even really.
<unk> will be over the next few months, but the Europe. Obviously is in the several months behind in terms of openings of bars and restaurants.
Didn't make a lot of sense to put a lot of effort on.
On that until until the restaurants begin to open again, but yes.
Thank you all realize our business outside of the United States in most markets really is the Jack Daniel's company.
And we have a big effort to continue to expand our portfolio of those markets led by lack of Woodford reserve would be of Great example, but our single malt scotches are very important to.
To us <unk>.
<unk> Jim even.
Even slane Irish whiskey those are much smaller brands, but brands that we see a bright future for and that's the purpose of putting these dedicated people in place in these markets that have been so Jack Daniel's oriented.
It's very difficult to build a slane Irish whiskey next next projecting of Tennessee Whiskey I mean, there's just.
Salespeople the incentives.
Need to be aligned behind the right initiatives and so that's the reason we're doing it.
Feel pretty good day.
We will be in the right place of the right time, and hopefully make that into a significant piece of the business.
A couple of more points net loss on this.
What we're doing just the give you some scale.
Really our focus initially is just on the handful of markets.
And Germany, Australia, Poland, Yes, okay.
Then sort of.
Very small in nature and each of those markets are going to have 1 common priority across all of which is a great reserve brand of our stock.
<unk> got it about but what they do and the other rest of our emerging brands will be unique likely depending on the category.
In those markets and how they are.
What's important in those markets, so whether it's the Scotch whether it's an Irish wished with or what so just to give a little bit more flavor to it.
Okay.
Okay. That's great. Thank you and the.
Then just diving in a little more deeply on on tequila.
On the portfolio in the U S.
And then just kind of tough to tough to parse out.
The performance of Herradura vs Humidor, the more of the mix of will end.
Slower growth. So what can you just update us on on what you've seen I guess through the pandemic I know <unk> talked about the premium position, but as Herradura would you say now growing kind of more in line with its peers and competitors at that Super premium into the category.
And then as we move through 'twenty, 2 and reopening and hopefully element.
Sure on bars and certain of.
1 sort of making Marguerite as again.
That the tequila portfolio as a whole.
It shows that our shows that our performance is that a reasonable way of thinking about it yes.
Yes. It is it's hard from our tables I guess.
It provides a really understand of the U S.
As.
<unk> quite well.
So both brands are growing in both brands grew volume metrically last year.
Double digits, Eric there are much stronger within the 30% range and the.
Our sales growth or even stronger because of the pricing that we had so if you just looked at our U S. The keyless and we don't have any we don't have.
Have a new mix there so is it the Ara.
RTD. This is our full strength so it's Eric here on El Humidor collectively grew over 30% in the us at the top of top line perspective, so very strong.
And to your point, if we look at era. According to the latest.
In the Africa data.
Doing.
We are growing right at the category.
We're proud of that and I think.
If you looked at the El Hematoid price point was it's growing right in line to the.
It's a price point as well, we've got a number of initiatives under way that loss of on May 1 of the pass it over to <unk>.
As we look at the U S market and how excited we are as we go ahead with these 2 great brands yes.
Yes.
I'm quite happy with the performance of Herradura over the last year on 1 of the.
Challenges for has been.
Good thing pre pandemic was about 40% of of sales was running some of the on.
They wanted from us.
That's 1 of the higher brands on our in our company and the <unk>.
That business shutdowns so much.
To be able to deliver the sales growth of the changes mentioned was a pretty good performance.
I know Theres a few brands out there that are grabbing a lot of headlines we seem to be slowing a little bit below the radar.
From but noticed the growth has been really good in the ultra premium side of Tequila is just.
It is growing so fast and we've got some we've got really a brand called Herradura legend would be the primary entry in that space and we've got some other upper end of line extensions, but on a few.
Certainly.
Tastes really good and have a great place with bartenders.
And can really.
ROE the Herradura name.
It's a brand that's 1 of the authentic Mexican to keyless thats been around for a long long time.
We play off of that heritage and that often.
For the and all of those Skus in the.
That is the way we're going to build these brands other brands are using the celebrities so much on the tequila category, we haven't done that much in this company. We're certainly watching it it's been fascinating to see how some brands of absolutely taken off with some of the celebrity endorsements, but.
We're playing this a little.
For the long haul and building building brands that we think will be around literally for generations and so we feel pretty good about it.
Sales of named mentioned, we are investing in the new creative.
And the lines for <unk> to support the brand and invest back behind the brand and build it for the long term to William's comment.
Comment on exactly Thanks, Lee index at that point of it something that make a sales campaign of investing.
Tremendous opportunities for distribution for both of these brands and then.
Each gears slightly on L. Hema door outside the U S from outside of Mexico, we see tremendous opportunities.
Introduced.
Brand to the rest of the world.
The right price points.
The teach people how to drink tequila to enjoy it to use it in mixers and so.
Got plans as we look ahead for that too.
Okay. Thank you everybody for such a complete answer.
Congratulations again.
I appreciate it.
Yes.
Thank you. Our next question comes from the line of Andrea Teixeira from Jpmorgan. Your line is now open.
Hi, there. This is drew Levine on for Andre and thanks for taking the questions.
Just curious.
Every day and I think you called out some supply challenges with distributor inventories in.
In the prepared remarks, so just curious on the sort of cadence of being able to rebuild those inventories and maybe the magnitude of of the shortfall of your view.
And then maybe just 1 of the sort of pain points in getting the product.
Distributors at this point.
Yes, Thank you for asking and I think what I'm going to talk about here is.
<unk>.
Talk about it is impacting the.
Supply chain wise.
Disruptions that we're seeing from the <unk>.
From the materials.
To the.
The customer.
Now when I talk about that.
Let me break it down a little bit.
As you've alluded to we talked about our results being impacted.
The supply chain constraints.
In the U S, where our distributor inventories on our retail.
Tories are down versus pre COVID-19.
And so what's happening there is really we're not unique to this.
In terms of the backend of what's going on here, which is what you've heard probably from other CPG companies of Red.
That there is.
Lots of transportation.
The sixth challenges out there a bit of.
Ramping back up as the economy improves people start to build back and restock inventories. So we see delays in rail service.
Container availability in ocean.
Ship things across the ocean trucking capacity in the U S.
And then labor shortage that we here in bars and restaurants is also in the warehousing industry.
So with that being said, we know that our inventory levels are down.
At the end of this past year as I said in the U S. They are also down it.
Outside and parts of Europe as well.
Example.
And so we hope and we're working with our teams. The best we can again, we're at the mercy of the supply chain somewhat and this as things work out but.
When I think about the material aspect of things because I also said we've had some disruptions on the materials side think about how we make barrels we've had some.
Options in the steel that we use to make the hoops around the barrels but the key ingredient that we've had some disruptions on as our glass supplier.
And that is certainly something that is really important to us and something that we.
We are working closely with our <unk>.
Supplier now.
From disrupt the quality.
On that and get that resolved.
So as I gave our guidance today of.
Top line mid single digit underlying.
And same for mid single digit bottom line growth. We think at this point we have these disruptions.
Estimated uncovered but if things get worse, we'll have the update that guidance as we go on in the year.
Alright, thanks, so much for that and then.
Second question just for.
Other yourself or loss of any of you mentioned the positive tariff developments.
I think during the last earnings.
Work on the loss and you said it would be the raw form of way to consider reinvesting.
Trunk of that.
Potential release more insight just any sort of updated views on what the magnitude of our reinvestment could be if the tariffs come off and then just I think the UK might be ahead.
On this call the rest of Europe with review of tariffs. So if you could just tell us what the magnitude of.
Tariff relief would be if the UK came off before Europe. Thank you.
Yes.
Sure.
I hate to say, we are getting more optimistic on tariffs because I've said that a few times and had been wrong every time.
Ahead of them. It was good news that they didnt double I think we have said that so that would have been on would have been extremely painful.
<unk>.
The G 7 meeting that is happening now.
Puts a little bit of light at the end of the tunnel that maybe they can come up with some constructive trade agreements at this meeting.
We would benefit from that.
In terms of total dollar benefits I've seen a few folks.
Don't really have the number of right its probably in the range of $70 million to $80 million Atmos 70, 70, so it depends.
What I don't know is how much of that we would reinvest versus let drop to the bottom line, we just really.
We've made that decision yet.
Okay.
<unk> on how the business is progressing I think throughout this fiscal year as to how much that we would reinvest but it's going to be of pretty significant amount.
I think which would be great for the long term health of our business we.
We very much look forward to that day and having to rest.
1 of them was where we want to invest those incremental dollars because it's pretty significant.
Thank you at this time I am showing no further questions I would like to turn the call back over to <unk> for closing remarks.
Thank you and thank you Lawson and Jane in land and to all of.
Joining us today for Brown, <unk> fourth quarter and fiscal 2021 earnings call. If you have any additional questions. Please contact us and with that this concludes our call.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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