Q4 2021 Brown-Forman Corp Earnings Call
Good day, and thank you for standing by and welcome to the Brown Forman Corporation fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session.
And you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your Speaker today 2 program 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, our loss and Whiting, President and Chief Executive Officer Jane Mauro.
Lucky and a vice president and Chief Financial Officer.
And Leann 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 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.
Early new information future events or otherwise.
This morning, we issued a press release containing our results for the fourth quarter and fiscal year 'twenty 'twenty..1 in addition to posting presentation materials that Lawson and Jane will walk through momentarily.
Both the release and the presentation.
<unk> can be found on our website under the section titled investors events and presentations.
In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward looking statements.
Other significant risk factors are described in our form 10-K and form.
Due to net 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.
Regarding the company's financial conditions and results of operations are contained in the press release and Investor presentation.
With that I would like to turn the call over to Lachlan.
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.
From it but given that our fiscal year ended April 30, we're at the stage and our COVID-19 journey, where our results include a full year of living and working and building brands amid a global pandemic. This year showed us that we have and agile organization, a resilient business and a caring team that is emerging stronger and better from challenging times.
Leave our long term values, our strategic priorities and our core purpose of enriching life have been our guide and they have served us well.
And 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 and.
<unk> if you were to look solely at the financial reports were released today, you may or may.
May not fully appreciate the magnitude of what we accomplished.
And a year. Unlike any other we delivered topline growth of plus 6%, which is consistent with our long term performance. Yet this year was anything but consistent and conditions were anything but normal.
The pandemic created unprecedented and market condition.
<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.
Over these past 12 months the true.
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 and momentum proud of what we were able to accomplish and I hope you are too.
In fiscal 'twenty, 1 we focused on the core elements of our strategy to deliver results we were strength.
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 T D's last.
Fiscal and this included the sale of Canadian Mist early times and Collingwood and also included the acquisition of part time Reynders, Our regional RTD brand and New Zealand and Australia. We also play strong focus on our existing RTD brands, including Jack Daniel's RTD is a new mix together, they surpassed 20 million cases, and we continue.
<unk> 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 own.
1 distribution organizations and the U K, and Thailand, allowing us increased control over our brand building efforts and these markets and we've also initiated plans to create owned distribution organizations, and Russia, and Belgium and Taiwan.
From an organizational and people perspective at the beginning of the year, we really redeployed portions.
Continued our work force and response to the shifts and our business due to the pandemic, we're investing in teams and Europe that are going to focus on emerging brands. This is really an effort to accelerate our growth rate and 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 I M C and by investing and 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 a growth driver for our organization in the years to come.
As the physical and digital worlds continued to emerge.
Finally, we continue to invest behind our business and 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.
<unk> on responsible consumption and marketing diversity and inclusion and 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 and each of these areas. So as such over the past year, we made considerable progress against all aspects of ESG.
From an environmental standpoint, we established ambitious new sustainability commitments with a focus on climate action water stewardship, the circular economy and our supply chain given the important role business has to play and the importance of these issues to our business, we had to draw a line and the sand. So we now have compelling meaningful.
Quantitative goals, and we will hold ourselves accountable and.
And very importantly from a social perspective, we committed to be better and do better by building, a more diverse and inclusive and equitable company and community and.
Internally. This includes 10, new actions from the executive leadership team to drive increased accountability and improved representation.
<unk> 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 DNI strategy, many spirits, 1 brown forman.
Our 10 employee resource.
And there are many leaders members and allies are critical to our work I'm reminded of this once again as we are in the midst of pride month here, embracing LGBTQ, plus diversity and raising our own awareness around quality and the ally ship.
Finally from a governance perspective are recognized that we're a bit unique given.
Given that we are family controlled.
However, we believe strongly that our governance system gives us a distinct competitive advantage by allowing us to consider longer term time horizons and make decisions that will benefit our brands, our shareholders and our organization for generations to come.
As you know and January we announced that our board chair.
Groups, such Garvin Brown, the fourth will retire in July and handover leadership of our board of directors to Campbell Brown, the 10th Brown family member and second and fifth generation family members serve and 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 14 years.
Ours 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 and EU announced an agreement and mid may to suspend the planned doubling of tariffs.
EFS for 50% on American Whiskey on June 1st 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 and unlevel, playing field and remains subject to 25% retaliatory tariffs.
But 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 organization.
We hosted 2 and evolving world, we understand how to manage change and 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 and our 30.
30 year career at Brown Forman Jane has been a valued partner of mine since we first had cubicles near each other back and $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 successful careers.
<unk> 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 and advancing our DNI initiatives and conversations, particularly over the last year. She is a.
A true ally I appreciate the impact she has had not only on the business results and our culture, but on the many people at Brown Forman and 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 through our fourth.
<unk> and fiscal year 2021 results.
Thank you lots of them by the Ken word, it's truly been an honor and privilege to be able to be a part of this company from the past 30 years and I know you and your leadership at Brown Forman and the team globally will take this company to new levels and the years to come.
Good morning, everyone.
And 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.
Might 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 on our top line growth and our fourth quarter as we cycle.
And the initial impact of COVID-19.
And benefited from improving levels of consumer confidence and many markets around the world and <unk>.
Vaccinations increased and Lockdowns and restrictions were eased.
Also as we previously communicated we continue to invest behind our brands.
Cycles as evidenced by the significant increase in A&P, and our fourth quarter, reflecting increased support and areas, where our business showed strong momentum and the cycling against last year's meaningful decline and spending during the early months of the pandemic.
With that as a recap let's review our full.
And here 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 a weaker U S dollar.
These gains.
And were partially offset by a decrease and distributor inventory levels and the U S that were higher at the end of fiscal 2020.
Reflecting on.
Build and response to the uncertainty surrounding the early days of the pandemic.
We believe distributor inventory levels are below their pre.
Pre COVID-19 levels due to various supply chain challenges.
We experienced broad based on underlying net sales growth across the IMF geographic clusters of the U S developed international and emerging markets, which was partially offset by declines and our travel retail channel and a reduction and our used barrel.
Yeah.
Our U S business, which represents half of our net sales grew underlying net sales, 10% the highest rate of growth, we've registered and the U S and over 2 decades.
Our premium Bourbon and Tequila brands, along with J D. RTD fueled this strong growth.
Higher consumer demand and increased premium amortization mix and the RTD revolution, more than offset and favorable channel and SaaS mix shift effects.
Speaking of the channel sales mix effects, Jack Daniel's, Tennessee Whiskey was negatively affected by the restrictions and closures and.
Sal premise due to its greater presence in this channel than overall Tds.
And while there is still early in fiscal 2022, we continue to experience solid growth and the off premise compared to the same period 2 years ago, even as the on premise continues to reopen.
In fiscal.
On your 1 our U S E premise share was slightly above 2%.
While still small our brands and this channel collectively grew at triple digit rates outpacing Tds by 10 points.
The pandemic step change alcohol sales.
28 E Commerce and it appears that the change in consumer behavior is sticking on <unk>.
Developed international markets collectively delivered strong underlying net sales growth.
Double digits for the fiscal year.
This growth was driven by a higher volume subjecting Rtd's and Australia.
Sells the harmony.
Broad based volume metric growth objective, and whose Tennessee honey as.
As well as the launch of Jack Daniel's, Tennessee, Apple, which in year..1 is already the size objecting and was Tennessee Honey was in year 4 and Europe.
These positive factors were partially offset.
Set by declines for Jack Daniel's, 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 and tourism.
Collectively our emerging markets reverses underlying.
<unk> net sales declines from earlier in the fiscal year delivering mid single digit growth for the full year.
Reflecting volumetric gains for Jack Daniel's, Tennessee, Whiskey, and Brazil, and Poland, and higher volumes and new mix and Mexico.
The launch objecting or Tennessee, Apple as well as the growth.
Containers, Tennessee Honey.
Both most notably in Brazil.
These positive factors were partially offset by a decrease objective and those Tennessee whiskey and a number of other emerging markets, reflecting declines and tourism and consumers trading down.
Lower volumes of our full.
Object to keyless, and Mexico, and broad based declines have 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 and the shutdown.
The strength of the cruise business now.
Now I thought I would share a few brand highlights with you for the year.
The preference for convenience and at home consumption drove exceptional growth and our RTD portfolio and our flavor whiskey brand.
Globally, Jack Anders RTD exceeded 12 million cases.
Down and new mix crossed 8 million cases.
Remarkably for the year, we sold approximately 5 million increment cases of Archie DS.
Jack Daniels, Tennessee, Honey approximated 2.1 million cases, and our flavor whiskey portfolio grew to $3.3 million.
Cases, and incremental 500000, plus cases or at it for the year.
Our portfolio strategy continues to serve us well as the premium position trend that has been going on for over 2 decades accelerated and fiscal 'twenty 'twenty 1.
Most notably in.
And up markets, resulting in double digit underlying net sales growth for Woodford reserve old Forester era, Dura gentleman, Jack Glenn drawn it and been Rioja.
Of our portfolio, Jack Daniel's, Tennessee Whiskey was most impacted by the pandemic given its size.
And the Bell overall exposure to the on premise and the travel retail channel as the brand experienced a decline and underlying net sales for the year.
Now turning to on gross margin, which declined 270 basis points and resulted in our underlying gross profit growing 3%.
And higher input costs, primarily due to increased costs for our Gaba and wood as well as lower fixed costs absorption project Gainers, Tennessee whiskey drove approximately 3 quarters of the gross margin decrease.
Negative channel and portfolio mix shifts accounted for the rest of the change.
Ben 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 Daniel's make it count campaign globally. The Woodford reserve spectacle of the census campaign.
Moving to 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 investors strategically behind our business to drive herself and to build on the momentum we experienced as the year progressed.
Which resulted in our fiscal 'twenty 'twenty, 1 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 and travel freezes as a result of.
And 19 environment.
In total we grew underlying operating income 4% for the year and reported it was even stronger due to the gain on the sale of Canadian Mist and early times earlier and the year.
This combined with a reduction and our effective tax rate resulted in.
The COVID-19, 9% diluted EPS growth to $1.88 per share, including the 20th sent game from the cell.
And finally to our fiscal 2020.2 outlook. We are optimistic as we look ahead and we expect the operating environment to continue to improve particularly as the on.
In Mis and countries, we're 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 will vary from country to country day.
Depending on the state of the pandemic.
The nations and reopening.
As a result of these factors coupled with unusual comparisons to last year, we expect the seasonality of our results to be volatile during the year, particularly operating income.
We remain confident.
And on Prem the collective strength of our developed markets and should benefit from the reopening of the on premise channel and increase and tourism, which particularly impacted Jack Daniel's, Tennessee Whiskey This past year and some of our smaller emerging brands and.
Additionally, our portfolio remains well positioned to capital.
And laws on the continuing spirits premiums nation trend in aggregate, we expect strong growth and our emerging markets as well as travel retail as we cycle the effect of easy comparisons and begin to stabilize and recover further we do not expect our noncore.
Kaplan's, mainly used barrels to have a material impact on our results. We expect some improvement and our gross margin for the full year driven by positive channel mix is the on premise and tourism recover.
Benefits from a number of productivity related initiatives currently underway begin to be realized.
Orbis and the easing of historically high agave costs start to reverse from.
On a quantitative perspective, we expect both our underlying net sales and operating income to grow and the mid single digits. Similarly, we anticipate our operating investments advertising and SG&A.
B and land 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 our T sees the expansion of our emerging brand teams internationally to select.
2 markets and an increase in our digital marketing and E. Commerce capabilities, we expect our effective tax rate in fiscal 'twenty 'twenty 2 to be higher than the 16.5% registered this past year, largely reflecting the absence of discrete items.
We estimate the rate to more closely approximate.
Select our fiscal 'twenty 'twenty, 1 right from operations from about 21% to 22%.
In summary, while fiscal 2020, 1 was filled with rapidly changing market dynamics interests and turns at every corner, we deliver strong topline growth consistent with our long term.
<unk>.
Our business model remains excellent with nearly a 34% operating margin and and approximately 20% our aussie both industry, leading metrics, we thoughtfully and judiciously prioritize managed and allocated capital throughout the pandemic.
Make emerging with and even stronger balance sheet, we remain committed to our long held capital allocation philosophy to first and best fully behind our business, which we expect capex spending to be and the 130 to 150 million range in fiscal 2020.2.
Second.
Asper 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, and a judicious and tax efficient manner, including our own assessment of known.
And propose changes and 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 we believe our strategic priorities.
Known and helped deliver superior returns over the next decade.
Now before we open call up for Q&A. Please join me and congratulating Lyanne Kenny Ham currently the S V P shareholder Relations officer, Global commercial finance and financial planning and analysis.
We will be promoted to the position of Chief Financial Officer on July 2nd 'twenty 'twenty..1 many of you are likely familiar with Leigh Anne and she has served as our shareholder relations officer for nearly the past 2 years. She has a 25 year better and a brown forman with extensive experience.
This across the company's production and financial operations that make her uniquely qualified to lead our global finance organization and.
Sue indicated she is with us today and will be available for Q&A. So with that this concludes our prepared remarks, we will now take your question operating.
Your answer you May open the line.
As a reminder, task a question you will need to press star 1 on your telephone towards draw. 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.
Copper 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 Jane as you rightly mentioned on understanding the year over year comparison, the 2 year stack and that to your average was exceptionally strong.
Maybe you could spend some time loss and 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 on the second.
U S alcohol company that we've heard from this week, that's noted surprisingly strong strength in the off premise even as the on premise.
Recovers, which is noteworthy so any comments you hear on overall consumption and consumer behavior and channel dynamics, and just kind of tie that in with what you expected for the year I think would be helpful.
Yeah, I mean, I'll start and Jim.
And you can tag along I mean, yes.
I think we have been a little bit surprised at the strength of the off premise.
As the on premise has sort of 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 and a lot of you have done the same.
It has improved significantly and the last few months, where it was down it was down hugely last summer improved a little bit.
And the fall and then took a nosedive down around Christmas time, and was down and that 50% range from much of the winter has improved to only down mid single digits. Now. So you have seen a pretty rapid recovery as the <unk>.
Restaurants and beyond.
And up and.
I know everyone anecdotally talks about it the restaurants these days.
Very crowded and very busy and so a lot of people wanting 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 <unk>.
Hum.
I mean, the the trends have moved from what would have been mid single digit.
For I'll 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 that and 10.2 of the strongest categories out there.
Kayla and American Whiskey and.
And that is essentially the vast majority of our portfolio.
James.
And on and I think that's exactly where I would have gone.
And we're asking why are we done so well I think our portfolio as we've been saying all year long, it's well positioned to take advantage of the trends convenience we benefited.
Tremendously from our RTD business, our <unk> business has been very solid and the U S. And of course, you know, we just entered a new partnership with path, which we believe we'll take it and our RTD business too and even higher level. When we think about the mix ability our flavored whiskey did very well, particularly honey and.
And the U S business and the U S market because of the ease of mixing great tasting cocktail as the keyless loss and this reference that category has been on fire and we've got 2 of the best the keyless, we believe and the industry and have benefited because of that and then something else we've been talking about.
Is everyday luxury.
And that is playing great from the strength of our brands Woodford Reserve, which is continues this phenomenal growth and old forester.
Hi.
What is it that a series.
And whilst theories yet which the students.
And all year and then even we've introduced some higher and expressions on 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.
And that's very helpful. I'll pass it on shows other questions and the queue. Thank you.
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.
Jay and it's been a pleasure working with you and Lee and congrats as well on the new role.
If I can just pivot the conversation to tomorrow.
And please G and it's helpful.
You were able to dimensionalize.
And a good proportion and 75% of the drag on gross margin, but and we kind of think about you know potential recovery on Jack Daniel's going forward, how do we think about on operating leverage helping to debate on the drag on that gross margin place. Thanks.
Yeah.
And Martin So yeah, just a step back as you said, we did have a.
A pretty big drag on our margins this year and it was driven in large part because.
The input cost that was the biggest piece that was 3 quarters of it and still think wood and agave and I will get to as we look forward so really.
Mixed only had a small impact with only a quarter of it so 6 cents or so and when you break it out and you pull it apart yes, a piece of it is because object and was Tennessee whiskey.
And the fact that the on premise with shutdown and Jack Anders and the U S alone is 1 of the top 3.
And on premise brands and so it was impacted.
Significantly and and impacted our margins of course.
So when we look ahead to F. 'twenty 2 as I said in my script and you just wrapper on.
And we are expecting some improvement on.
I would call it pause for a moment and improvements why were.
And 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 and that but we also have had a number of productivity initiatives from our global production organization that will start to be in.
And realize next year and we've got several years before they are all fully realized because of again, just a reminder of our aged whiskey products and how things go on to the balance sheet.
And then mix will benefit from but it's not.
Not the Hugest pieces as I have said this year.
And I've said from this past year and how much it hurt.
Expect that 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 cost commodity cost is around double digits is what we currently have forecasted and there otherwise we would have expected a better improving our margin next.
What are 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 where we set that we can improve mart expect margins to begin to improve and F 22, and as we look beyond that we expect improving trends thereafter, as a reminder, tariffs are still and our numbers theres still.
Sure I can down our numbers and hope.
But we've got the optimistic that debt will go away at some point down the road.
Yeah, and I think to go beyond <unk> and you also asked about some operating expenses.
On the A&P line.
Sure.
As we've I think.
Still drives before and I would expect that to trend in line with sales so a little bit less on that this year.
Because we cut some deeply and really in Q1 of last year, but I would expect us to reinvigorate that a bit and we are as Jane mentioned in her prepared remarks.
Really investing significantly behind the make it accounts campaign and.
We have said and.
And then SG&A.
And so sort of and that mid single digit growth range as we continue to rebuild and <unk> begins again and people travel and business and investing.
And get more normal.
And so another SG&A effort that has been very.
And so important over the last few years have started with the U S. That's our emerging brands group, which we've talked about on previous calls, but pre COVID-19 debt group was delivering really stellar high growth rates.
For some of our smaller brands that are all and that sort of super and ultra premium price points, we're taking that model.
Exporting it to a number of markets in Europe, and Australia and <unk>.
Hope to see pretty strong benefits in terms of portfolio growth from that group and Thats, an investment level to aetna.
That in and around the consumer and by the way just to build on weight loss and setup.
And the on premise.
Sat down from largely and the.
And the Sheryl off and on for sure and the U S. This year, our emerging brands collectively wasn't as strong as prior years, but it is double digits. Thanks to the team and the U S organization true.
And this work and pivoted quickly to the off premise.
That's super helpful. Thanks, If I can just squeeze in a follow up.
And can you comment at all on any changes that you're seeing and the promotional environment in the United States with the reopening of the on premise specifically and the off premise stepped up and promotional events on your competitors. Thanks.
Yes.
And I haven't seen much I mean, I think that the.
Promotional.
Intensity actually somewhat let off and the off premise over last year.
Consumers, we've said a few times, we're walking into 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've seen pockets of increasing price and the off premise and the U S.
It is not.
I'm not sure that it's really changed a lot over the last few months I think on.
I know, we have a bias and increasing bias and this is more of a global and just the us, but we need to see pricing going back up again and that.
As a strategy, we're going to employ over the next year.
Understood Thanks very much.
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 from the mid single digit operating.
Profit growth guidance is that off the reported number or off the underlying.
Okay.
Yeah, I'm sorry about that.
And definitely alcohol underlying number so just as a reminder, the difference between our reported and underlying was largely due to the sale of Canadian mist and early times. So you definitely want to take that out of your numbers and we also had a 1 quarter benefit.
Buying or 1 quarter and they were still and 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 and I'll pass it on.
Thank you. Our next question comes from the line of Rob Oh, and 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 and pain.
And are looking back now on just the U S.
And the impact of Covid on.
And demand for U S spirits versus.
And volume versus beer, and obviously spirits has been gaining share for a long time.
Particularly against fear you noted.
And acceleration in terms of premium position last year.
But do you also think that just the nature of Covid.
And as while staying at home and.
And perhaps less social occasions.
Or NRG 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 a little bit thank you.
Thank you.
Im not it.
And it remains to be seen what happens over the summer it's going to be interesting to watch is obviously the comps get there very very volatile as.
As we wrote such a roller coaster last year.
And I do think.
And at least.
It's the most recent trends, although im talking on the last few months the off premise market has held up so.
It gives us some optimism that those levels are going to stay I don't know federal state and double digit growth rate, but.
Clearly everything that is off premise focused these days, particularly and American whiskey and tequila too I mean, there is there has been quite a.
Swing between categories.
And thankfully.
And said earlier, we are in the right 1.
As far as the 1.
Beer and wine and beer has obviously got a lot more event business to it.
And that they lost all of that and that helped exaggerate the numbers, but I think in general.
General and the pandemic. We've said this a few times so any trend that was happening pre pandemic just accelerated and so.
The spirits versus 1 and beer would be 1 of those premium amortization would be another 1 and convenience as the other core 1 so all 3 of those trends have been working on our favor and.
And as I said.
And it remains to be seen how it unfolds and really as we get into the summer months.
And then sorry.
And I agree with Boston and I'm, not sure that will and it'll be interesting and Watson summarize and it may take a while for all of this to shake out beyond this year even.
A lot of people I know.
Anecdotal.
We have invested and outside.
Entertaining spaces and things like that and definitely we're still seeing.
At home.
Purchases online and so E premise to still be strong for bev alcohol and very strong so indicating to me that people are still that behavior.
Or are driving.
Bringing things to your home is still there.
But we'll see that I mean, that's just the most recent results I read this morning, so but this is kind of interesting.
Okay got it and then.
Follow up question.
And is your portfolio.
Shifts a little.
Notably in terms of packaging more to ready to drink and 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 particularly your ability to access.
Bill.
Channels like convenience that haven't necessarily been traditionally strong points.
For the wine and spirits distributors.
<unk>.
Yes, I mean that was I mean, the whole the whole. The majority reason that we've partnered up with perhaps was to be able to access.
Distribution points.
As you say, our traditional wholesalers, werent and reaching and so.
And that's just started and in the last weeks old kind of thing so.
We're going and we'll see how that progresses with certainly we have optimism.
And with all of those additional points of distribution that will capture.
All of those and bigger prize.
Within the RTD business and the U S. I do think and it's just more of a reminder, ari our RTD business is much much bigger outside of the United States and it is in memory.
And we've got 8 million cases, and new mix and Mexico, and we've got $12.5 million cases of Jack.
And even spread out around the world that does include the U S, but take off 3 million and our international our television business is significantly bigger and more important to the company right now.
In terms of kit from.
Can you just give us maybe 30 seconds just on the mechanics of the paths relationship for that just.
Daniel how how the flow works.
Alright.
Can you elaborate just a little bit more Robert.
And we get.
And then typically youre going to Pat just I'm, just trying to better understand your partnership.
And with past exactly what they will be doing for you and and how that relationship.
And just constructed.
Yes.
Alright, and they are going to make the product there other than R. R.
Yes.
A bottle facility, we have there so they are really going to beef up our KN.
Jack Daniel's country. After so we don't have any today.
And so.
Just 1 thing, but we're going to sales from the glass turbine and then distribute it.
Throughout all of their channels that we don't as you initially we don't have traditionally access too.
And so theyre going to make it.
Got better capabilities as it relates to packaging.
And to speak.
Configurations things like that so we can have some different flexibility debt pack sizes and shapes and so forth like that and so that is the relationship with them. So we will be sell in and sell.
Selling to them and they'll be selling on to US we will get a rule and effect will get a royalty.
And agreed upon royalty and it will scale up as a growth.
A simple way to talk about it.
Perfect. Thank you very much and congratulations all around and thank you.
We thank you.
Thank you. Our next question comes from the line of Lauren Lieberman.
<unk> from Barclays. Your line is now open.
Great. Thanks, so much.
I was curious I love this topic of the emerging brands and 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 and the U S.
Man from shifting to prioritize off premise any progress that's been made on on premise and we've heard other beverage alcohol company and talk about consolidation of wine and spirits and beer lists and those sorts of things I was curious with any thing you're able to talk about.
How you are positioned into on premise recovery for those emerge.
2 quick ones in particular.
And then in terms of the international build out.
Wanted to make sure I understood correctly that that's a new initiative 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 and it really starts to impact the business. Thanks.
Yes.
Emerging barnwell.
The first time for the question on the U S business and what trends that we've seen.
And do know so many bars and restaurants had to reduce their inventories on the last year and so that became an advantage for established big brands that turn faster and it.
And made it challenging for newer brands.
And particularly some of the craft brands that just don't have the ability to push as hard as the major brands do so theres been this window of opportunity I think from companies like Brown Forman and be able to command a bigger piece of the back bar and.
We're going to go and make sure that we get more than our fair share of that opportunity as things evolve over the next few months.
And the international side, and then yes, it is brand new.
It's not even really.
<unk>, yes, it will be over the next few months, but the Europe, obviously is and several months behind in terms of openings and bars and restaurants and.
Didn't make a lot of sense to put a lot of effort on that until until the restaurants begin to open again, but yes I.
And I. Thank you all realize our business outside of the United States in most markets really as Jack Daniel's company.
And we have a big effort to continue to expand our portfolio and those markets led by like a Woodford reserve would be a great example, but our single malt scotches are very important to us.
<unk> Jim.
Even slane Irish whiskey those are.
Smaller brands, but brands that we see a bright future for and that's the purpose of putting these dedicated people in place and these markets that have been so Jack Daniel's oriented.
It's very difficult to build a slane Irish whiskey next next to Jack Daniel's, Tennessee Whiskey I mean is just sales peoples incentives.
Need to be aligned behind the right initiatives.
And so that's the reason we're doing it.
And feel pretty good day.
We'll be on the right place at the right time, and hopefully make that into a significant piece of business just build on on a couple of more points that loss on this.
What we're doing just to give you some scale Laura and really our focus initially is just on the handful of markets.
UK, and Germany, Australia, Poland, Yes, Okay and then.
And so it's very very small in nature and each of those markets are going to have 1 common priority across all which is a great reserve brand that we're still excited about.
But what they do and the other.
And if our emerging brands will be unique likely depending on the category.
And those markets and Hauser.
It's important and those markets so whether it's the Scotch weathers and Irish wishes with or what so just to give a little bit more flavor to it.
Okay. That's great. Thank you and.
Other revenue just diving in a little more deeply on on tequila.
The portfolio and the U S.
And then on just kind of tough to tough to parse out.
Performance of Herradura versus <unk>.
And the mixing bowl and slower growth. So what can you just update us on on what you've seen I guess through the <unk>.
And then I know, we talked about premium position, but as Herradura would you say now growing kind of more in line with its peers and competitors at that Super premium and to the category.
And then as we move through 'twenty, 2 and reopening and hopefully I'll have him a door and bars.
And starts making Margarita has again.
And 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. It is.
From our tables, I guess that we provide to really understand the U S.
Market is doing quite well.
So both brands are growing and both.
<unk> grew volume metrically last year.
Double digits, Eric there are much stronger within the 30% range.
And then there are 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 a new mix. There so is it.
RTD this is.
Both growth strength, so, it's <unk> and El Humidor collectively grew over 30% and the us at the top at a top line perspective, so very strong and and through your point.
If we look at are there are according to the latest.
And after data.
We're growing right at the category.
After we're proud of that and I think.
If you looked at <unk> price point wise, it's growing right in line to the <unk>.
It's a price point as well we've got a number of initiatives underway that loss on may 1 off to pass it over to him. He may want to talk about as we look at the U S market and how excited we are.
Please go ahead with these 2 great brands, 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.
40% of its sales and is running some of the on premise and.
That's 1 of the higher brands and our.
And as we've been <unk>.
And to have that business shutdowns so much.
To be able to deliver and sales growth and change as mentioned was a pretty good performance and.
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.
But know that the growth has been really good and the ultra premium.
On side of Tequila is just I mean.
It is growing so fast and we've got some we've got really a brand called Herradura and legend would be the primary entry in that space and we've got some other upper and line extensions that are not huge but certainly.
Taste really good.
And have a great place with bartenders.
And can really.
ROE their domain.
It is a brand thats 1 of the authentic Mexican to keyless, that's been around for a long long time and.
And we play off that heritage and that authenticity and all those skus and.
And just the way we're going.
Going to build these brands other brands are using the celebrities so much on the tequila category, we haven't done that much and this company, we're certainly watching it and it's been fascinating to see how some brands have absolutely taken off with some of the celebrity endorsements, but.
We're playing this a little bit for the long haul and building building brands.
And we think will be around literally for generations and so feel pretty good about it and then build on Amy mentioned, we're investing in the new creative and.
And the launch for <unk> to support the brand and invest back behind the brand and build it for the long term to William's comment exactly thanks, Lee and us at that point it was something that makeup.
Sales campaign, and then let's see.
Tremendous opportunities for distribution for both of these brands and then which gears slightly on <unk> outside the U S and outside of Mexico, We see tremendous opportunities to introduce this brand to the rest of the world.
Price points.
To keep people have a drink tequila to enjoy it and use it and mixers and so we've got our plans as we look ahead for that too.
Okay. Thank you everybody for such a complete answer and congratulations again to everybody and I really appreciate it.
Yeah.
Thank you. Our next question comes from the line of Andrea Teixeira from JP Morgan. Your line is now open.
Hi, there. This is drew Levine on for Andre and thanks for taking the questions I'm, just curious Jane and I think you've called out some supply challenges are with distributor inventories.
And the prepared remarks, so just curious on the sort of cadence of being able to rebuild those inventories and maybe the magnitude of the shortfall in your view.
And then maybe just what are the sort of pinpoints and getting the product and then their sugars at this point.
Yeah. Thank you for asking and I think what I'm going to.
And about here is.
<unk>.
Talk about it is impacting us.
Supply chain wise.
Disruptions that we're seeing from the <unk>.
From the materials.
To the customer.
Now when I when I talk about that.
So I'll break it down a little bit.
And that as you alluded to we talked about our results being impacted.
Somewhat as these supply chain constraints.
And the U S, where our distributor inventories on our retail inventories are down versus pre COVID-19.
And so what's happened and there is.
Let me leave 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 are red.
And that there is.
Lots of transportation and logistics challenges out there and that are ramping back up as the economy improves.
Will people start to build back and restock inventories, so we see delays and rail service.
And our availability and ocean from ship.
And if things across the ocean trucking capacity and the U S. As example, and then labor shortage that we hear and bars and restaurants, it's also and 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've said and the U S. They are also down and outside and parts of Europe as well.
And so we hope and we're working with our teams and the best we can.
And we're at the Mercy of the supply chain somewhat and this.
As things work out but.
And I think about the material aspect of things because I also said we've had some disruptions on the material side think about how we make barrels we've had some disruptions and steel that we use to make the hoop surround the barrels but the key ingredient.
<unk> 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.
Supplier now.
Look at the quality get behind that and get that resolved.
So as.
And that we 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 and covered but if things get worse, we'll have to update that guidance as we go on and the.
Alright, thanks, so much for that and then.
Second question just for.
Either yourself or laws and you know you mentioned that.
Positive tariff developments.
I think during the last earnings call loss and you said it would be the brown Forman way to consider reinvesting a good chunk of that.
Woods.
And that gave central release more insight just any sort of updated views on what the magnitude of our reinvestment could be if the tariffs come off and and then just I think the U K and might be ahead of the rest of Europe with review of tariffs. So if you could just tell us what the magnitude of.
Tariff.
Steve would be if the UK came off before Europe. Thank you.
Yes.
Yes.
I hate to say, we're getting more optimistic on tariffs because I've said that a few times and it had been wrong every time.
It was good news that they did and double I think we have said that so that would have been and would have been extremely painful.
Tariff.
And 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 and we.
We would benefit from that.
In terms of total dollar benefits I've seen a few folks.
And we really have the number right its probably in the range of $70 million to $80 million.
And those 70.70, so it depends and.
What I don't know is how much of that we would reinvest versus let drop to the bottom line. We just really haven't made that decision yet.
Okay.
Hands on how the business is progressing I think throughout this fiscal year is.
Don how much that we would reinvest but it's going to be a pretty significant amount.
And I think which would be great for the long term health of our business we.
And we very much look forward to that day, and having to wrestle with 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 Sue peril for closing remarks.
Thank you and thank you Lawson and Jane and land and to all of you for 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.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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