Q4 2022 Brown-Forman Corp Earnings Call

June 8, 2022

Good day, ladies and gentlemen, and thank you for standing by welcome to the Brown Forman Corporation fourth quarter and fiscal year 2022 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 this session you will need to press Star then one.

One on your telephone keypad, if you require any further assistance. Please press Star then zero as a reminder, this conference call is being recorded at this time I would like to turn the conference over to MS. Sue parent ma'am. Please begin.

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 year 2022 earnings call.

Joining me today are Lawson, Whiting, President and Chief Executive Officer, and Leigh Ann Cunningham, Senior Vice President and Chief Financial Officer.

This morning's conference call contains forward looking statements based on our current expectations.

Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.

Many of the factors that will determine future results are beyond the company's ability to control or predict.

You should not place undue reliance on any forward looking statements, except as required by law. 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 2022. In addition to posting presentation materials that Lawson and Leann will walk through momentarily.

The release and the presentation can be found on our website under the section titled investors events and presentations.

In the press release, we have listed a number of 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 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 regarding the company's financial condition and results of operations are contained in the press release and <unk>.

After presentation.

With that I would like to turn the call over to Lawson. Thank.

Thank you Sue and good morning, everyone I'm proud to share our results with you today, which certainly exceeded our expectations. We were able to deliver these strong results because we have some of the most talented people building some of the industry's strongest brands and I am pleased with our performance. This past year, we build upon our growth that we achieved in fiscal 'twenty, one and delivered very strong double digit.

Top and bottom line growth for this fiscal year. Despite numerous headwinds. These include supply chain challenges tariffs higher input costs and the impacts of the Russian invasion of Ukraine, Our topline growth was broad based and fueled by many of the same drivers that we shared with you throughout this fiscal year first we experienced sustained demand.

And due to the reopening of the on premise channel and the gradual return of tourism and travel. We also benefited from cycling against overall lower comparisons in the prior fiscal year, notably in certain emerging markets and the travel retail channel second our portfolio is well aligned with consumer trends, particularly premium innovation and convenience we're strategically position.

And the American Whiskey, Tequila, and RTD categories, which we believe are high growth categories with strong consumer demand in fiscal 2022, our reported net sales increased 14% or 17% on an organic basis, which includes approximately four points of growth related to rebuilding our distributor inventories in the second.

Half of the fiscal year, Jack Daniel's, Tennessee, whiskey fueled the Companys performance, having a remarkable year, increasing organic net sales by 23% the previous fiscal year was tougher for Jack Daniel's, Tennessee Whiskey. It's one of the largest on premise brands in the world and it was heavily impacted by the on premise restrictions as we've shared in our previous calls.

We believe the brand was impacted by disruptions that were circumstantial and temporary and largely related to COVID-19 in fiscal 'twenty. Two the brand added approximately $1 5 million nine liter cases and has now grown to more than 14 million cases, we believe these results demonstrate the health and strength of the largest global premium spirits brand.

By volume in the World the rest of the Jack Daniel's family of brands also delivered strong results growing reported and organic net sales high single digits during the fiscal year as the consumer trends of flavor and convenience continue to drive demand around the globe for our flavored whiskeys injecting those rtd's collectively Jack Daniels, Tennessee, Honey Jack Daniel's.

Tennessee fire and Jack Daniel's, Tennessee, Apple achieved double digit organic net sales growth. Our continued international launch of Jack Daniel's, Tennessee, Apple along with solid volume growth in the United States drove a strong double digit organic net sales increase for the brand in fiscal 'twenty to Jack Daniel's, Tennessee, Apple was introduced in October of 2019 and his approach.

709 liter cases, which is impressive considering this brand has largely been built during the pandemic lockdowns and restrictions Jack Daniels, Tennessee, Honey and Tennessee fire grew organic net sales for the fiscal year, while both were adversely impacted by supply chain disruptions largely related to glass supply similar to our belief about Jack Daniel's Tennessee.

Whiskey last year, we believe the impact of these brands is temporary and circumstantial and that the brands remain healthy attracting those rtd's grew organic net sales high single digits on top of very strong double digit growth in the prior year, while the majority of our RTD business is international driven by Australia, and Germany, We believe the combined consumer trends of flavor.

<unk> and premium innovation are driving demand for spirit based our Tds and the U S and creating additional opportunities for growth with the strong consumer popularity of our spirit based our TD in the U S. We've recently begun its national launch. We also continue to be very excited about the current and long term growth outlook for our Super premium brands, even with the headwind of glass supply can.

Strains Woodford reserves organic net sales grew double digits for the fiscal year with higher volumes and price increases we estimate the distributor inventories are still lower compared to last year, but the gap has closed significantly during the fourth quarter of the fiscal year. We believe we have some of the most authentic tequila brands to participate in the fastest growing spirits category Herradura and El <unk>.

<unk> grew organic net sales by 28% and 27%, respectively and collectively exceeded 2 million nine liter cases in fiscal 'twenty two in the U S, which is the largest market by volume for our full strength to kill a portfolio premium realization trends continue in the tequila category as Herradura and generated a strong double digit volume increase in <unk>.

And close to a 100000 incremental cases in fiscal 'twenty two.

We entered the year with four strategic areas of focus pricing RTC expansion emerging brands growth and increased digital marketing and e-commerce capabilities I thought I'd take a moment to comment on each of these focus areas first given the strength of our brands, we were able to capture value growth opportunities through pricing as well as revenue.

Growth management initiatives as a part of these initiatives we increased prices in the U S. On Woodford reserve old Forester, El <unk> ore Dora and Shambaugh <unk> as well as Jack Daniels, Tennessee Whiskey earlier in the fiscal year. We also continue to evaluate pricing opportunities throughout the balance of our brands and geographic clusters as the health of our brands.

Strong supported by the investments, we're making behind these brands second we launched new routes consumers with the addition of Taiwan, Belgium, and Luxembourg, We strongly believe control of our distribution, which gives us ownership of our business along the value chain offers us an increased consumer focus and prioritization of our brands and we will continue to look for additional opportunities.

<unk> ahead in the U S. The investment we made four years ago and our emerging brands team has fueled the growth of brands such as old Forester, Shambaugh, and our single malt Scotches, Glenn <unk>, <unk> and <unk> as well as fords gin in fiscal 'twenty, two we invested behind replicating this model in Europe and successfully increased our footprint for the Woodford Reserve family.

<unk> Sham bore the single malt scotches as well as our Tequila is similar to our experience in the U S. With dedicated teams focused on these brands, we're able to deliver very strong growth finally in fiscal 'twenty. Two we made an investment to create our integrated marketing communications organization or IMC, the way consumers connect and engage with Brad.

<unk> has evolved dramatically in the past few years 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 our team of marketers around the world our focus on driving the growth of our brands is the physical and digital worlds continue to emerge before I wrap up.

I wanted to take a moment to acknowledge our continued emphasis on ESG, particularly in the areas of alcohol responsibility environmental sustainability diversity and inclusion and the investments we make in our community and $18 70, George carbon Brown Road five words on the label the world's first bottled Bourbon nothing better than the market. This was the commitment he made.

Then and it remains our commitment today. These five words keep us on a constant journey to deliver better for our teams our brands our company and our global community. This commitment is why we have been on the forefront of ESG before it was even recognized by those terms our ESG commitments have been interwoven into the fabric of our organizational DNA for decade.

And today they are integrated into our strategic framework, it's about living a spirit of commitment. These commitments are built on a sound highly effective governance system comprising of our <unk> executive leadership team and our board of directors and they are strengthened by our relationship with our controlling family shareholders. The Brown family, we're committed to making an impact in doing our.

Apart that's why we have integrated the spirit of commitment into how we do business every day, because what we build now we build to pass on as I close I want to reiterate my continued confidence in our strategic priorities, our brands and our people we experienced numerous uncertainties and headwinds in fiscal 'twenty two yet we were able to deliver very strong results thankfully.

We believe many of these headwinds are becoming tailwind our results are made possible because of our long term focus on building consumer demand for our premium and super premium products and because of the Brown Forman employees around the world, who exemplify our company values of integrity respect.

Just teamwork and excellence I have great admiration for the people of Brown Forman, whose tremendous passion for our business as the overriding reason for our success Leann I'll now turn things over to you to share more on our performance and also the optimism that we are feeling as we look ahead.

Thank you Lawson and good morning, everyone and Rob will review the key themes for our fiscal year and the performance of our brands I will provide additional details on our geographic performance other business results and our outlook for fiscal 2023 first as Lachlan mentioned, we built upon our momentum in fiscal 2021 and deliver.

Another year as topline growth from a geographic perspective, we experienced broad based growth across all of our geographic clusters. The U S emerging markets and developed international markets, along with a rebound at the travel retail channel all contributed to our organic net sales growth the U S business.

<unk> has been resilient and delivered double digit organic net sales growth for the fiscal year, even as supply chain challenges adversely impacted our business, Jack Daniel's, Tennessee whiskey with the largest contributor to this performance given the higher volumes and a favorable channel mix shift with the continued reopening at the on premise channel.

Addition, distributor inventories increased compared to the prior year as supply chain challenges, specifically glass supply constraints continued to ease, allowing for the rebuilding of inventories Woodford reserve El <unk> were also key contributors to the growth of the U S market benefited from increased volume and the positive.

Impact of price increases taken earlier in the fiscal year era, Dara and <unk> continued the strong growth as premium plus tequila is among the fastest growing spirits categories and continues to gain share beyond the spirits category. We are pleased that <unk> return to growth and surpassed the 500000 case.

Milestone as the reopening of the on premise channel drove a double digit increase in volume we continue to monitor consumer mobility trends observed by Google mobility, and open table and based on this data the on premise trends have fully bounce back after the omicron disruption experienced.

And our third quarter and have continued to hover around pre COVID-19 levels in the premise channel our market share was slightly above 2% for most of this fiscal year the trend of at home consumption remained strong even as the on premise channel is reopening and consumers return to in store shopping. This is approximately four times.

Higher than our share prior to the pandemic, while still small E. Commerce is an important space due to its rapid growth as consumer purchase patterns shift along with its attractive economics current estimates from our E. Commerce partners indicate that profit per case and basket sizes are higher and the premise channel <unk>.

Third to brick and mortar stores, primarily data product mix through our recent investment in our IMC organization. We believe we are well positioned to capture this opportunity and participate in the channels growth in fiscal 2022 emerging markets collectively delivered strong double digit organic.

Net sales growth despite the headwinds of supply chain disruption and the suspension of our commercial operations in Russia. During the fourth quarter. This strong performance was driven by broad based growth of Jack Daniel's, Tennessee, whiskey, notably in Turkey, Romania, and Shelly <unk>.

With the continued launch of Jack Daniel's, Tennessee, Apple led by Chile, and Brazil, where consumers have embraced its refreshing flavor and our full strength tequila brands era, Dara and <unk>, Canada, Mexico as the premium edition trend continued and we benefited from a healthy pricing environment.

Adding to double digit organic net sales growth.

<unk> developed international markets grew organic net sales double digits for the fiscal year with the reopening of the on premise channel and the rebound of travel and tourism and some markets being the key contributors to growth while facing the headwind of supply chain challenges the Jack Daniel's family of brands continued to drive overall.

All gains as Jack Daniels, Tennessee, Whiskey delivered strong double digit organic net sales growth led by markets such as the U K and Germany, where we are gaining market share in Spain, which is benefiting from the gradual return of tourism, Japan and Korea also experienced strong growth as we rebuilt inventory in Japan and Korea.

<unk> from a shift in whiskey consumption to international brands. This consumer shift in Korea also benefited the growth of Jack Daniel's, Tennessee, Honey, Jack Daniel's ready to drink delivered another year of double digit organic net sales growth for the fiscal year lapping very strong prior year comparison, largely driven by Australia and Jeremy.

As we have previously shared in fiscal 2022 we invested in the increased focus of our Super premium portfolio, such as the Woodford Reserve family of brands Soundboard single malt Scotches, Herradura and El <unk> to the international expansion of our emerging brands group model, particularly in the UK.

With this increased focus these brands collectively delivered very strong double digit organic net sales growth the travel retail channel experienced a strong rebound as it continued to cycle against easier prior year comparison due to the impact of the pandemic lockdown and restrictions growing organic net sales.

<unk>, 7% driven by increased volumes.

Our travel retail business continues to recover it remains below pre pandemic levels lastly for net sales volume represented nine of the 17 points of organic net sales growth for fiscal 2022 and price mix was eight points favorable price mix was driven by faster growth from our higher price.

Brand led by the strong resurgence of Jack Daniel's, Tennessee, Whiskey, and the favorable channel mix shift due to the continued re opening of the on premise channel moving to gross profit and gross margin for the full year reported gross profit increased 14% with organic growth of 17%, which was in line with our.

Ganic topline growth reported gross margin expanded slightly ahead of our expectations, increasing 30 basis points year over year as favorable price mix and the positive effect from divestitures in the prior fiscal year were largely offset by higher input costs and the negative effect of foreign exchange consistent with our call.

Throughout the 2022 fiscal year the increases in our cost were driven by additional logistics cost supporting our efforts to minimize the impact of supply chain disruption and input cost headwinds related to grain and agave. In addition, due to the impacts of the Russian invasion of Ukraine during our fourth quarter, we redo.

The value of our inventory and the related markets turning to operating expenses, which represents the investments we make behind our brands and our people that drive sustainable long term top line growth total organic operating expenses increased 8% in line with our expectations as we continue to invest behind our brands are.

Reported and organic advertising expense increased 10% and 11%, respectively, driven primarily by higher investment in our developed international and emerging markets to support Jack Daniel's, Tennessee whiskey as the on premise reopen as travel and tourism returned and in support of the continued launch of Jack Daniel's.

Tennessee, Apple we continue to invest behind our people SG&A expenses increased 3% on a reported and 7% on an organic basis as we lapped lower discretionary spend during fiscal 2021 due to restricted mobility related to the pandemic higher compensation and benefits related.

Expenses and expenses related to the impacts of the Russian invasion of Ukraine from a reported perspective the increase in SG&A was partially offset by the absence of the prior year $20 million commitment to the Brown Forman Foundation ripped.

<unk> operating income increased 3% for the full year, driven by net sales growth and the absence of the prior year Brown Forman Foundation commitment, partially offset by the effect of acquisitions and divestitures, a noncash impairment charge for the Finlandia brand and the negative effect of foreign exchange as noted in our <unk>.

Earnings release in the fourth quarter, we recognized a 52 million dollar or <unk> <unk> per share noncash impairment charge for the Finlandia brand name the impairment reflects a decline in the long term outlook for Finlandia due to our suspension of operations in Russia, which is a key market for the brand.

Organic operating income, which excludes the impact of acquisitions and divestitures. The Brown Forman Foundation commitment foreign exchange and impairment charges grew 27% diluted earnings per share decreased 7% to $1 74 per share as the increase in reported operating income was <unk>.

More than offset with a year over year increase in our effective tax rate along with the estimated 20 per share prior year benefit from the gain on sale of early times Canadian mist, and Collingwood brands and related assets in regards to capital deployment, we approach our decisions with the core objective of sustainable long.

Term value creation, our long term perspective and commitment to our shareholders has made brown forman a reliable source for growth, we believe our capital allocation philosophy and strategic priorities will continue to drive superior returns in fiscal 2022, we returned $831 million to stockholder.

<unk>, which included a special dividend of $1 per share or approximately $480 million and $351 million in regular dividends and finally to our outlook for fiscal 'twenty 'twenty. Three we are optimistic as we look ahead, even amidst the current volatility and uncertainty of the globe.

Macroeconomic and geopolitical environment in this dynamic operating environment, we believe the strength of our portfolio of brands and the strategic investments, we have and are making will support continued growth strong consumer demand for our brands continued to be a tailwind. However, we remain cautious due to the potential.

Impact of inflation and rising energy prices on consumer spending while many of the international markets have stabilized as we cycled against the early days of the pandemic. We remain confident in the collective strength of our U S developed and emerging international markets. We anticipate our results should continue to.

Benefit from the reopening of the on premise channel internationally and the further return of tourism, along with stronger pricing and innovation.

Also expect travel retail will continue to recover and that we will not resume operations in Russia. Further we do not expect the non core business, mainly used barrel sales to have a material impact on our results. This fiscal year quantitatively, we expect organic net sales growth for fiscal 'twenty two.

Three to reflect our longer term growth rate in the mid single digit range. It is important to note that the seasonality of our fiscal 2023 results will be impacted by the abnormal seasonality of our fiscal 2022 shipments due to the impact of supply chain disruptions in the first half of fiscal 2020.

Two distributor inventories did not increase ahead of the important holiday season as is typical and we experienced stronger shipments in the second half of fiscal 2022 and supply chain challenges continued to ease in the first half of fiscal 'twenty 'twenty three we expect distributor inventories to return to more normal.

<unk> levels. Therefore, we expect our growth rate in the first half to benefit from the net change in distributor inventory, while the second half we will lap the increase in the net change in distributor inventory related to rebuilding of our inventory position in the prior year period, the disproportionate impact of the EU and UK tariff.

On American Whiskey on ground form it will be a significant tailwind as the EU tariffs were removed January one of this calendar year and the UK tariffs were removed last week on June 1st. We also expect to continue to benefit from the favorable pricing environment and we believe the cost associated with supply chain.

<unk> will be less of an impact in fiscal 'twenty 'twenty three as inflation increased in fiscal 'twenty 'twenty. Two we have planned that it will remain a headwind in fiscal 'twenty 'twenty three based on these headwinds and tailwind we are projecting reported gross margin to expand slightly for the full year as our.

Trajectory of expansion continues as we have shared during our three years of being negatively impacted by the EU and UK tariffs on American Whiskey. Our plan has been to reinvest a portion of this relief back behind our brands. Once they were removed. We are very pleased at that time has come and that we are positioned to further.

Their support our topline growth ambition as we invest in an increased level of focus on <unk> in the U S. Our super premium portfolio internationally, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee, Apple and Europe , and Jack Daniel's, Tennessee Whiskey globally, we will also invest behind our people to support our business needs and <unk>.

Post pandemic environment, while continuing to leverage new ways of working based on these expectations. We anticipate organic operating income growth in the mid single digit range for the full year, we expect our fiscal 'twenty 'twenty three effective tax rate to be in the range of approximately 22% to 23%.

And lastly for capital expenditures over the past 10 years, we have completed a number of major projects to expand our capacity to support the strong consumer demand for our American whiskey portfolio as well as two expansions with a significant focus on providing an exceptional customer experience, namely the old forester.

Urban distillery and the Slane Irish Whiskey distillery. We also completed a major technology, driven modernization, which is a cost savings project at our largest barrel, making operation based on the continuing strong consumer demand for our brand specifically, our aged products as well as <unk> and <unk>.

Expansions are required to support this growth we estimate the capital expenditures will be in the range of $190 million to $210 million for the full year.

In summary, we are pleased with our very strong broad based growth in fiscal 2022 from both a brand and geographic perspective, which delivered double digit organic top and bottom line growth. Despite the many significant challenges and headwinds while we have been disproportionately impacted by tariffs and supply chain.

<unk> largely related to glass supply and impacted by the pandemic and the consequences of the Russian invasion of Ukraine, Brown Forman portfolio of brands and its team members continued to demonstrate a high level of resilience and ability to deliver continued top line growth. We believe we have the right long term strategic priorities to gas.

Got us to continued long term growth further supported by the investments we made in the strategic initiatives implemented in fiscal 2022 partnered with stronger price positioning and the removal of the EU and UK tariffs on American whiskey.

Creating tailwind for fiscal 'twenty 'twenty three we are proud of the results and accomplishments in fiscal 2022 and are optimistic about the year ahead. This concludes this concludes our prepared remarks. Please open the line for questions.

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Our first question or comment comes from the line of <unk> <unk> from Bernstein. Your line is open.

Hi, Lawson Leann really strong set of results and I'd like to focus on the F. 'twenty three guidance. Please.

So first of all Youre guiding to reported gross margin expanding slightly could you elaborate on what order of magnitude do you mean by slightly are we looking at less than one percentage point greater.

And then secondly, where are you seeing agave prices right now versus what you had expected before and where do you anticipate them going over the next year or two thank you.

Good morning, good afternoon <unk>.

I'll start and then loss of Malton can follow on with starting with our gross margin.

For F. 'twenty three we have talked about and we've been working on our stronger price positioning we expect that to benefit us.

In F 'twenty three.

As well as innovation, that's going to be led by our U S national launches of Jack Daniel's bonded and Triple match, which are helping us accelerate the premium amortization of the Jack Daniel's family of brands, that's going to be launching in the U S. In may and the international launch of followed later in the fiscal year.

We're going to expand the U S launch of our Jack Daniels Spirit based RTD, which has been incredibly well received by the consumer for our flavor and convenience trends that we're seeing here as well as Eric <unk> legend, which demand for Tequila is high and this will be placed in the.

<unk> plus $100 price point.

Do we have said it in my prepared remarks, the removal of the EU and UK tariffs will be a headwind and we will see less impact from supply chain disruptions, so and our price mix and the removal of the EU tariffs are planned to more than offset the cost and we can go into cost later, if you'd like.

But specifically to your tequila and I got a pricing question.

As we've discussed over the last few quarters, our <unk> prices are below their peak and they've stabilized around the 27 to 29 Mexican peso per kilo.

And we have that kind of a stabilized price through the full fiscal 'twenty three and it's about the greater demand for the entire category and for US It will be a little bit of a tailwind because with that strong demand that will mean, we will source more on the spot market versus.

The percentage that we have of our internally grown agave. So we have that all included in.

Our F 'twenty three plan.

Yes, let me.

Talk a little bit more about the pricing side of things I know you've.

Written quite a bit about that.

Bob Brown farm and our place in that.

I think it's worth spending a few minutes on this to backup even thinking about the last five or 10 years, where pricing in the spirits business was relatively weak volume growth was relatively strong, particularly compared to beer where volumes were pretty weak.

And we're very aggressive on pricing and so.

Fast forward to today are really over the last year. We began this internally really a push for better pricing.

A year ago.

Which thankfully as Leon said was enough to offset our cost for sure. So I think that'll be something that sticks out in terms of our ability to drive pricing enough to offset our cost challenges is certainly a positive point to lock to the past fiscal year.

But we have been successful in driving pricing through and really on a pretty much on a global basis, we have taken price increases on almost the entire portfolio. So so that has been something new and different and certainly badly needed as inflation really have spiked up over the last few months, but I just think it's worth pointing out that our pricing change.

Has that been going on for a year and not just not just in reaction to what has happened really over the last I guess three months.

But yes, so feeling pretty good about our positioning right now and where it's what we can deliver even in the next fiscal year.

Got it I appreciate you Preempting my pricing question can you touch on how do you expect that to go on over the coming year should we be expecting the same strategy of pricing to continue or more any color you could give.

I mean, it's.

Look in my opinion, and what we are pushing the organization to do it's about low single digit pricing, but doing it on a consistent basis Europe year over year over year, and so we want to get back into a more balanced volume pricing situation and so I would say it is.

Kind of similar to what we were able to deliver and over the past year.

Got it thank you very much very helpful.

Sure.

Thank you. Our next question or comment comes from the line of Andrea Teixeira from Jpmorgan. Your line is open.

Hey, Good morning. This is drew Levine on for Andrea Congratulations on the strong results.

So I wanted to touch on what Youre seeing from a consumer perspective.

Obviously the results have been really strong so probably suggest youre not really seeing too much impact at this point from inflationary pressures or elasticity is from some new pricing.

The market.

But I guess as you think about the spirits category going forward.

Primarily in the U S are you seeing any signs of slowing premium <unk> trends.

How is that informing your guidance outlook for for this year.

And if you're seeing anything different internationally between developed and emerging markets.

Well I mean, a couple of pieces to that.

Interesting we are not seeing.

Yes at least pressure on the consumer in terms of spending on spirits.

We obviously had a very strong fourth quarter. Some of that is refilling inventories around the world, but we're not seeing a degradation in from the consumer yet we're not seeing the trade down now I'm not saying that it may not happen if gas prices stay elevated.

They are right now and that continues for the rest of the year, but.

So far so good and this business still is in pretty good pretty good state and I think that's true both for the for the.

The U S for our developed international and our emerging markets.

Business is pretty good across all three and if you step back also I think it's worth saying, if we step back and look through sort of fiscal 19% to 22 and you compare those three big geographic clusters, they've all had pretty similar result, pretty and pretty strong.

Throughout what has been a very volatile and crazy few years.

And then to inflation I would just say that.

We have a portfolio of premium and Super premium brands that are well positioned to.

To stand the impact of inflation.

And any kind of a typical year we have.

Generalized.

<unk> over a period of time of around 3% as we look to F. 'twenty three and the inflation impact there is a bit higher than that that's mostly driven by our glass, which is being impacted by a high energy costs.

Luminal freight as Lachlan mentioned as due to high fuel costs, and then grain, but for US that's more of a higher cost due to the global demand of corn have already mentioned.

So and also to strong consumer demand I think is what if we take a longer term perspective.

Goes to our capital expenditures that we have planned because with over 85% of our strip net sales coming from age product, we see strong consumer demand well into the future and I know we've been focused on expanding our capacities in for our American whiskeys over.

This past decade, most recently with the Kentucky distilleries.

Yes.

We also have recently said last year, we are expanding our single malt Scotch distillery and we will be beginning to expand our Tam.

Sheila.

Distilleries because of the strong long term demand, we see well out into the future and then of course the associated warehouses with those so.

Again to losses point, we don't see any we are closely monitoring the impact of inflation and energy prices on our consumers and that we're also watching the macroeconomics and the geopolitical uncertainties that are out there, which for US one of the things that impacted us.

Just since the last quarter was the suspension of our operations in Russia, and as that relates to our F. 'twenty three outlook.

That was two points of approximately two points of top line growth.

And that we would have planned had we not suspended that business.

And I think on the cost side I'll, just I'll add another point onto that.

Something to differentiate I think brown forman from the rest of beverage alcohol and for that matter CPG in general.

As you all know we have some really suffered from input cost inflation over the last four or five years that is predominantly from two things, which we've talked about many times wood and agave.

And that's kind of unique I mean, we are a whiskey and tequila company for the most part so it is different than the rest of the spirits world, but those are costs very specific to our industry certainly not.

Across CPG, so our problems have been around for four or five years and that's what has hurt our gross margin over that time period.

Yes.

I don't know if I hesitate to use the words, it's in our rearview mirror, but it largely is and where youre seeing much of the cost inflation. These days and fuel and real estate for that matter in a lot of commodities those are not particularly heavy input costs for us and so we.

We were able to deliver a small improvement in our gross margin and hope we can continue that because we're just simply not seeing the input inflation to the extent that many others are.

Thanks for all the color I appreciate it.

Thank you. Our next question or comment comes from the line of Lauren Lieberman from Barclays. Your line is open.

Great. Thanks, good morning.

During your comments you talked a lot about as you typically do the full year trends and I know you said that inventories are still generally below where you'd like them to be but I was wondering if you could speak a bit to a degree to which you think kind of in some of these supply chain challenges are behind you or are we still very much in the sake of it and.

And B any comments you can offer on consumer takeaway versus shipments in the last couple of months, just so we kind of get a sense as we look forward.

These dynamics between continuing to rebuild that inventory position and actual consumer takeaway.

Hi, Lauren this is Lee and I'll start with the supply.

Supply chain disruption.

Again, like we talked about last quarter. It took us several quarters moving into this it will take us several quarters moving out of it.

What we can say is our glass supply has continued to stabilize with our current supplier. We have increased capacity improved yields and they are prioritizing our needs and as well as we continue to broaden our supplier base across our key brands and sizes. So.

We're making strides in getting the glass supply back to the levels of which we need.

Our Jack Daniel's facility has been bottling at record paces. So now we kind of begin to move more towards facing global logistics challenges that many other CPG companies have been facing for awhile, specifically shipping container availability and then in the USA still workforce challenges as it relates to transportation.

Mission and we expect that these will be continue to be stressed through.

Fiscal 2003 and of course, the higher costs associated with that we continue to have our cross functional team in place working to optimize where we can.

Meet the.

Strong consumer demand and what we're seeing right now is an increasing level of consumer demand. So as we continue.

To get the glass that we needs the needs keep increasing.

To your point, we do continue to believe that even with the progress that we made in F. 'twenty two that our distributor and retailer inventories remain below pre COVID-19 levels and so we will be working through all of 2003 rebuilding those distributor and retailer inventories, but then when you look at the.

The year over year impact.

And like we talked about in our prepared remarks in the first half will be going against abnormally low levels of shipments and then in the second half we'll be comping, the abnormally high level of shipments, but on a year over impact year over year, we don't expect that four points of benefit to AP.

Yes, I think a little more on the glass story.

I won't go through the whole thing, but because we've done this on previous calls, but last summer when we decided to re allocate the finite amount of glass that we had really to focus on Jack Daniel's, Tennessee Whiskey. So core black label that was largely because we saw the on premise opening around the world and we certainly didn't want to miss that and Jack Daniel's.

By our own estimates as either the largest or certainly one of the largest on premise brands in the world. So that worked and you obviously see the numbers that Jack Daniels, we were able to deliver this year. It was a spectacular year for <unk> for Black label.

But it came at the cost for pretty much every other brand in the portfolio and so we've been trying to refill that all year, but it did take several number of points away. If you look at gentleman, Jack and single barrel and I'll run through some of these but certainly Woodford loss, probably 10 points of growth in Nielsen I think it's not more of what we would've expected old forester and Eric.

There are all lost a fair amount of growth.

That was disappointing and so the question is what happens now with the Q4, we added the glass supply began to improve some a lot of that is because we are now sourcing from a number of different suppliers, where we were really locked in with one before and so that is now coming in and I think it has been shipped.

And sitting at the distributor.

It hasn't really made its way to the retail shelf, yet and it's certainly not showing in the nielsen's yet but.

Sure.

We expect that we will start to flow through in upcoming months or at least upcoming quarters. I think we have said, we expect glass to still be somewhat of an inhibitor to growth. We won't have everything we want to probably the second half of next year, but the situation is certainly getting better.

Okay, and I don't want to be.

<unk>, but with all of that as backdrop.

And the comment that I made on demand still accelerating.

How conservative do you think the revenue outlook may or may not be for for fiscal 'twenty. Three there is nothing to sneeze at in what you've offered.

Just feels like the momentum is really strong.

And you've got tailwind from just.

In better supply.

Yes, thats separate from the innovation.

Yes, right and this is where we go back to the year over year.

Having to comp that the four points of benefit that we got in F. 'twenty two along with the suspension of our business in Russia, which again like I said, we had planned that to be at two points of top line growth in 'twenty three.

The spend at that business and this is where in our international markets, we believe that with the.

The double digit declines of F. 'twenty, one and some of our international markets to the double digit.

Gains that we saw this year.

Business is beginning to normalize and for US we've been through the volatility of tariffs the volatility of the pandemic and then so we believe we are a lot of our international markets. We're beginning now to see more normalized growth levels, taking all of these other things into effect.

With us again strong pricing and innovation, but we've got Russia, and some supply chain disruptions and normalization in that it's all kind of coming back to near our long term growth algorithm.

Mid single digit topline growth.

To be quoted to say return to normal I mean, I've said return to normal several times in the last couple of years and had been very wrong.

Taken back my words.

But it does feel like it now we are finally, I mean theres been so much volatility.

Reported results in any kind of takeaway of results in the U S. Everything.

It feels like things are starting to normalize and you should see.

Yes, I think results that are sort of on par or maybe hopefully a little bit better over what we do what we've done over the last 10 years.

Yes.

Okay. Thank you I'll pass it on thank you so much both of you.

Thank you.

Thank you. Our next question or comment comes from the line of Bryan Spillane from Bank of America. Your line is open hi.

Operator, good morning, Lee and Boston.

Maybe just to pick up on that last Lauren's point.

Not to sort of.

Beat up your revenue guidance, but I mean, depletions I think for the year were up seven the back half.

I think it was it was at 14% in the third quarter, 10% in the fourth quarter I mean it just.

I understand that there is the <unk>.

Youll have the headwind from.

Russia, and Theres, some headwinds you've called out but it just seems like it is.

Pretty dramatic.

Sort of slowdown in Depletions that youre expecting and I, just I just want to make sure that maybe the normalization of Depletions implies mid single digit growth, but is that am I.

Looking at that right or am I missing something.

Well I think it's more of us thinking about what are all the uncertainties and volatilities that are out there any further impact from a geopolitical standpoint again I've mentioned it already a couple of times here, but the impact of the Russia invasion on Ukraine to our business.

And then what does it look like with the impact to consumer spending even though we know that.

We provide our consumers with an affordable everyday luxury with our premium and Super premium portfolio.

There is just I think it's more of.

I'll just go back to the conversation, we just had of.

There is a lot of really good positive there's a couple of negatives with supply chain disruptions disruption and Russia, and then I think it just always out to the extent that we can see right now of a normalization in that space now.

We want we want to be optimistic and think that.

Our business will perform at a higher level, but.

We'll just have to continue this story on a quarter by quarter basis.

Hey.

And then just a follow up.

Watson, we've heard kind of listening to retailers over the last month or so talk about some of the changes. This is probably more in the U S. But.

One of the themes that seems to be recurring is.

Is that or be playing out is that we've seen in some other product categories outside of consumables, even where the pandemic had consumed some consumers that were maybe participating in some premium categories. Because they had some spare cash or the balance sheets, where there was less things to spend money on and now you are beginning to see some of that transition.

<unk>.

And so I'm just curious if you look at premium spirits or even your own brands is there any sort of have you have you experienced any of that any evidence that maybe you've had some some temporary sort of consumers in the category that.

As the situations normalize maybe.

Trade back out.

Yes.

The trade down or trade up scenario look we certainly have benefited over the last few years to the trade up in the premium amortization, but I think that's one of those trends that started before the pandemic only accelerated into the pandemic.

And I find it hard for consumers, particularly our consumers and we have a very premium portfolio I don't see fans of Woodford reserve as an example backing down into less expensive Bourbons I just don't believe that we haven't seen it it's.

It's muddy because the retailers the targets and walmarts of the world get instant daily information, we don't really have that so.

We haven't but we just we.

We haven't seen it.

We will see how the year plays out I mean, I think it will be one of the big it's one of the big uncertainties.

But I feel pretty good it will be in the spirits business. These days in the Super premium spirits. These days relative to lots of others.

The people of brand loyalty from our consumers with with again, our affordable everyday luxury yes.

The idea wasn't so much.

Your kind of core consumers, it's just that the where consumers who might never have purchased the premium spirit before who now had some spare cash.

We're in the cat wouldn't be able to sustain in the category. So it's like you had some some renters basically in the category and we've seen that.

In other categories does it sound like that's been a big factor for you though.

Not yet not yet and I hope that it doesn't happen I think the bigger macro ones things like consumers trading out of beer and spirits just right a lot of that has happened and that's another one of those pre pandemic. It was happening in an accelerated and its environment.

We will see.

We'll see how that plays out, but I think thats a bigger.

Bigger factor the other one I think it is interesting. These days I was staring at some of the Nielsen data Boy you want to be in the American whiskey and tequila categories.

I mean, they are by far and away the strongest.

And so many of the white spirits are pretty weak so.

I think the company Brown Forman in general is well positioned not only where we are but in the right categories at the right time and I also think it's interesting that American whiskey one of the reasons why I think both of those categories are doing so well relative to others innovation plays a big part of that.

As Leon said, 85% of our products are aged or if it's a barrel aged product boy that suits that plays really well in the innovation more on and Thats why I think American whiskey has sort of led all categories in terms of innovation kilos, not barrel, aged but its certainly aged in the field for 678 years.

And there's lots of things you can do with barrel, finishing on tequila too that really I think makes innovation better and I. Just think it's one of the reasons both categories are flourishing right now.

Thanks for the insight Thanks, Lawson plant I'll pass it on.

Thank you. Our next question or comment comes from the line of Vivien <unk> from Cowen Your line is open.

Hi, good morning.

I was hoping to pivot to develop to Europe , a little bit please.

Curious to hear your perspective on the health of that consumer I know theres a lot of chatter about gas price inflation in the U S, but it's arguably worse.

There and we did see a slowdown in Germany, and France. So any commentary that you could offer there would be helpful. Thank you.

Okay.

I mean look I think Europe Europe first of all Europe has remained extremely resilient and strong for us over the last few years it's been.

Some of our best markets and I look through Germany in particular, the United Kingdom.

But really big markets in Europe are very very strong and so feeling pretty good about that now the on premise.

There has been a little bit more challenged in Europe than it has been in the United States.

Bars, and restaurants really took longer to reopen and so there's just been a lithium has just been a little bit slower so.

Off premise in Europe , I'm trying to look through some of the data that we have here.

It doesn't look as good as the U S business looks.

But for now lets say what forever for a reason, but for many many years Brown Forman European business, we have outperformed the competition in Europe more so than any other place in the world and that's true for like the last 10 years and so.

Jack Daniel's just is really well positioned over there and cranking, along and I think.

We've put these emerging brands groups together in and really just started over the last year in Europe , and we're putting them into the major markets over there really trying to develop higher end brands that just haven't gotten the attention in the last 10 or 20 years from us So Woodford and our Scotches.

Kilo brands I mean, there's a lot of the very high end Super premium Ultra premium brands are getting focus now that they didn't previously have and so hopefully that is sort of a nice growth driver over the next few years.

Again, we still see opportunity as as the on premise.

Europe .

That has continual reopening to do in F. 'twenty, three and again to build on what Lawson said marketing markets like Germany and the UK.

We are seeing volume growth.

From a lot of our brands as well as in Spain. So we are seeing positive results coming out of our developed international markets and again, we have that planned into the next fiscal year as well.

Okay understood and if I can just squeeze in a quick follow up for the eight points of price and mix that was realized in the year is it possible to break that out between mix and rate. Please. Thank you.

Okay.

Let's see.

Got it.

Yes.

Maybe in that might be one that I'll follow up with you on.

Okay great.

Thank you our.

Our next question or comment comes from the line of Nik Modi from RBC capital markets. Your line is open.

Thank you good morning, everyone. Welcome I was hoping you can provide some context on just competitively what you're seeing in the market as you take pricing have you seen the competitive that move as well just any context around that would be helpful.

Yes, I mean I think.

It is interesting that the <unk>.

As I said earlier on the call that the spirits business didn't take a lot of pricing over the last 10 years and now everybody seems to be doing it at the same time.

But there has been more inflation.

Pricing inflation across the industry. It's one of the reasons why I think.

This is not massive rates are in price increases, but they are low single digit in there steady.

And most of our competitive set has done the same thing where youre starting to see.

Little bit of pricing across the industry and obviously elasticities are better when the competitive set is also taking price at the same time so.

Yes, so from our perspective, a healthier environment.

And if I could just follow up on.

Commentary around the consumer.

Over the last let's call. It a few weeks I have certainly picked up some feedback from the trade both retailers and distributors that velocities have slowed and there was a concern the promotional activity is going to have to ramp the deal with the current consumer environment.

Yes.

I'm getting that feedback I'm just curious on your reaction to that I mean, clearly based on what you saw this quarter in some of your commentary it seems like youre not seeing that so I'm just trying to reconcile.

The two perspective.

I mean I'm.

I'm not sure how to answer your question, because we truly have not seen that yet, but theres a lot of noise in our world because of the glass supply and the replenishing of inventories.

Not only replenishing of distributor inventories, but getting into the retail stores and actually replenishing.

The consumer shelf so.

I can't add much more on to that we are certainly not planning incremental promotions in terms of or some kind of reversal in our pricing position that.

I would be very resistant.

For that given we've worked so hard to get get the pricing to where it is so I guess, we're going to have to see how it plays out throughout the year I mean, we're not going to be naive about it.

But our intention is to hold on to the price increases we've already made and as I said earlier to continue with that low and steady rate of increase throughout the fiscal year.

Excellent very helpful. Thank you.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our next question or comment comes from the line of Kevin Grundy from Jefferies. Your line is open.

Great.

Good morning, and congratulations on the strong results this year.

Two quick ones for mainland first just a housekeeping question on the guidance and what it implies for EPS, So just sort of making reasonable assumptions around the stronger dollar and the add back of the Finlandia charge. It seems like you are in the 195 to $2 in EPS just confirm that for me. If you would not mind that I'm not missing any nonoperating items magnitude of FX in terms of how we're thinking about it that way.

Helpful. And then the broader question really for both the view is just the prioritization of investment with tariff relief, which <unk> been waiting for for some time.

I ask that in the context.

Mid single digit organic sales growth guidance and similarly mid single digit operating income guidance doesn't imply much in terms of operating leverage in the business notwithstanding whether it's conservative or not we'll see how the year plays out.

You spoke to some of it around Jack Daniels, Tennessee, Honey and Apple in Europe , and then J D.

Globally, just maybe just help us sort of understand the priorities and your visibility on the spend in the current environment, but thank you for both of those.

Okay as it relates to EPS, we haven't provided guidance for that as it relates to FX. We also don't forecast that's why we provide an organic outlook.

Now if we were to take.

The rates, where they are today against the dollar it would be a headwind for us in F. 'twenty three on a reported basis, but again with all the volatility uncertainty 12 months ahead of us.

We haven't forecasted FX and its impact on us. So we've provided everything on an organic basis.

To your point on reinvesting.

We continue from an operating expense perspective, the brand spend will be in line with top line growth and we've talked about the reinvestment of some of the tariff savings back into our business, we've been talking about that for three years.

What we're going to do is we're going to remain agile and disciplined with our discretionary spending as we go through.

F 'twenty three and as we talked about our prepared remarks.

The new ways of working that we have learned during the pandemic and we believe that it will all of this will deliver mid single digit bottom line growth.

As for brands and allocation of investments I mean, a couple of the ones that.

You may not be thinking about I guess, so much wanted to meritor in the U S.

Thats chela categories, obviously flying and we really need to work on building awareness and distribution for Herradura. So that is going to be a big effort over the next year. The establishment of these emerging brands teams I talked about that earlier, so I won't repeat all that but no.

That will take up incremental resources, both people and brand building investments and then it's back to broad reach media on Jack Daniels. We continue to we have already significantly increase that in the past couple of years and we will continue to do that so.

Those would probably be the big three I think in terms of incremental investment for next year.

Okay very good thank you Bob good luck.

Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to MS. Sue permit for any closing remarks. Thank.

Thank you Howard.

Lawson and Leann and thank you everyone for joining us today for Brown <unk> fourth quarter and fiscal year 2022 earnings call. If you have any additional questions. Please contact us.

We look forward to presenting in person at the Deutsche Bank Global Consumer Conference next week and hope to see many of you for those of you unable to attend the presentation will be made available as a webcast accessible via the Brown Forman corporate web site under the section titled investors events and presentations.

We wish everyone, a safe and enjoyable summer and with that this concludes our call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

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Good day, ladies and gentlemen, and thank you for standing by welcome to the Brown Forman.

<unk> fourth quarter and fiscal year 2022 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 this session you will need to press Star then one on your telephone keypad.

If you require any further assistance. Please press Star then zero as a reminder, this conference call is being recorded at this time I would like to turn the conference over to MS. Sue parents Ma'am. Please begin.

Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown <unk> fourth quarter and fiscal year 2022 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leigh Ann Cunningham, Senior Vice President and Chief Financial Officer.

This morning's conference call contains forward looking statements based on our current expectations numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.

Many of the factors that will determine future results are beyond the company's ability to control or predict you should not place undue reliance on any forward looking statements and except as required by law. The company undertakes no obligation to update any of these statements whether due to new information future events or otherwise.

Both the release and the presentation can be found on our website under the section titled Investors <unk>.

<unk> and presentations.

And 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 10-Q reports filed with the Securities and Exchange Commission.

Investor presentation.

With that I would like to turn the call over to Lawson. Thank.

Thank you Sue and good morning, everyone I'm proud to share our results with you today, which certainly exceeded our expectations. We were able to deliver these strong results because we have some of the most talented people building some of the industry's strongest brands and I am pleased with our performance. This past year, we built upon our growth that we achieved in fiscal 'twenty, one and delivered very strong double digit.

Top and bottom line growth for this fiscal year. Despite numerous headwinds. These include supply chain challenges tariffs higher input costs and the impacts of the Russian invasion of Ukraine, Our topline growth was broad based and fueled by many of the same drivers that we've shared with you throughout this fiscal year first we experienced sustained demand.

And due to the reopening of the on premise channel and the gradual return of tourism and travel. We also benefited from cycling against overall lower comparisons in the prior fiscal year, notably in certain emerging markets in the travel retail channel second our portfolio is well aligned with consumer trends, particularly premium innovation and convenience we're strategically positioned.

By volume in the World the rest of the Jack Daniel's family of brands also delivered strong results growing reported and organic net sales high single digits during the fiscal year as the consumer trends of flavor and convenience continue to drive demand around the globe for our flavored whiskey and Jack Daniels RTD collectively Jack Daniels, Tennessee, Honey Jack Daniel's.

Tennessee fire and Jack Daniel's, Tennessee, Apple achieved double digit organic net sales growth. The continued international launch of Jack Daniel's, Tennessee, Apple along with solid volume growth in the United States drove a strong double digit organic net sales increase for the brand in fiscal 'twenty to Jack Daniel's, Tennessee, Apple was introduced in October of 2019 and his approach.

Last year, we believe the impact of these brands is temporary and circumstantial and that the brands remain healthy protecting those are td's grew organic net sales high single digits on top of very strong double digit growth in the prior year, while the majority of our RTD business is international driven by Australia, and Germany, We believe the combined consumer trends of flavor.

<unk> and premium innovation are driving demand for spirit based our Tds and the U S and creating additional opportunities for growth with a strong consumer popularity of our spirit based our TD in the U S. We recently began its national launch. We also continue to be very excited about the current and long term growth outlook for our Super premium brands, even with the headwind of glass supply.

Strange Woodford reserves organic net sales grew double digits for the fiscal year with higher volumes and price increases we estimate the distributor inventories are still lower compared to last year, but the gap has closed significantly during the fourth quarter of the fiscal year. We believe we have some of the most authentic tequila brands to participate in the fastest growing spirits category Herradura and El <unk>.

<unk> grew organic net sales by 28% and 27%, respectively and collectively exceeded 2 million nine liter cases in fiscal 'twenty two in the U S, which is the largest market by volume for our full strength tequila portfolio premium realization trends continue in the tequila category as Herradura and generated a strong double digit volume increase in <unk>.

Added close to 100000 incremental cases in fiscal 'twenty two.

Growth management initiatives as a part of these initiatives we increased prices in the U S. On Woodford reserve old Forester, <unk> era, Dora and Shambaugh <unk> as well as Jack Daniels, Tennessee Whiskey earlier in the fiscal year. We also continue to evaluate pricing opportunities throughout the balance of our brands and geographic clusters as the health of our brands.

Strong supported by the investments, we're making behind these brands.

We launched new routes consumers with the addition of Taiwan, Belgium, and Luxembourg, We strongly believe control of our distribution, which gives us ownership of our business along the value chain offers us an increased consumer focus and prioritization of our brands and we will continue to look for additional opportunities ahead in the U S. The investment we made four years ago and our emerging brands teams.

Fueled the growth of brands, such as old Forester, Shambaugh, and our single malt Scotches, Glenn <unk> <unk> as well as fords gin in fiscal 'twenty, two we invested behind replicating this model in Europe and successfully increased our footprint for the Woodford Reserve family brands Sham bore the single malt scotches as well as our to give us similar to.

Our experience in the U S with dedicated teams focused on these brands, we're able to deliver very strong growth finally in fiscal 'twenty. Two we made an investment to create our integrated marketing communications organization or IMC, the way consumers connect and engage with brands has evolved dramatically in the past few years by investing in IMC. We believe we can improve.

<unk>, how we connect with consumers grow our e-commerce capabilities fully optimize our brand assets and leverage our data more effectively our team of marketers around the world our focus on driving the growth of our brands is the physical and digital worlds continue to emerge before I wrap up I wanted to take a moment to acknowledge our continued emphasis on ESG, particularly in the areas of.

Alcohol responsibility environmental sustainability diversity and inclusion and the investments we make in our community and $18 70, George carbon Brown Road five words on the label the world's first bottled Bourbon nothing better than the market. This was the commitment. He made then and it remains our commitment today. These five words keeps us on a constant journey.

To deliver better for our teams our brands our company and our global community. This commitment is why we've been on the forefront of ESG before it was even recognized by those terms our ESG commitments have been interwoven into the fabric of our organizational DNA for decades and today. They are integrated into our strategic framework, it's about living our spirit.

Commitment. These commitments are built on a sound highly effective governance system comprising of our BF executive leadership team and our board of directors and they are strengthened by our relationship with our controlling family shareholders. The Brown family, we're committed to making an impact and doing our part that's why we have integrated the spirit of commitment into how we do business every day.

Because what we build now we build to pass on as I can.

Close I want to reiterate my continued confidence in our strategic priorities, our brands and our people we experienced numerous uncertainties and headwinds in fiscal 'twenty. Two we were able to deliver very strong results thankfully. We believe many of these headwinds are becoming tailwind. Our results are made possible because of our long term focus on building consumer demand for our premium.

And Super premium products and because of the Brown Forman employees around the world, who exemplify our company values of integrity respect.

Rust teamwork and excellence I have great admiration for the people of Brown Forman, who has tremendous passion for our business as the overriding reason for our success.

I'll now turn things over to you to share more on our performance and also the optimism that we are feeling as we look ahead.

Thank you Lawson and good morning, everyone and welcome review the key themes for our fiscal year and the performance of our brands I will provide additional details on our geographic performance other business results and our outlook for fiscal 2023 first as Wilson mentioned, we built upon our momentum in fiscal 2021 and deliver.

Another year of top line growth from a geographic perspective, we experienced broad based growth across all of our geographic clusters. The U S emerging markets and developed international markets, along with a rebound of the travel retail channel all contributed to our organic net sales growth the U S.

<unk> business has been resilient and delivered double digit organic net sales growth for the fiscal year, even as supply chain challenges adversely impacted our business Jack Daniel's, Tennessee Whiskey was the largest contributor to this performance driven by higher volumes and a favorable channel mix shift with the continued reopening of the on premise channel.

In addition, distributor inventories increase compared to the prior year as supply chain challenges, specifically glass supply constraints continued to ease, allowing for the rebuilding of inventories Woodford reserve and old Forester were also key contributors to the growth of the U S market benefited from increased volume and.

The positive impact of price increases taken earlier in the fiscal year, Arizona and El <unk> continued the strong growth as premium plus tequila is among the fastest growing spirits categories and continues to gain share beyond the spirits category. We are pleased that Sonoma cutrer returned to growth and surpassed the 500.

<unk> case milestone as the reopening of the on premise channel drove a double digit increase in volume we continue to monitor consumer mobility trends observed by Google mobility, and open table and based on this data the on premise trends have fully bounce back after the omicron disruption.

Experienced in our third quarter and have continued to hover around pre COVID-19 levels in the premise channel our market share was slightly above 2% for most of the fiscal year. The trend of at home consumption remains strong even as the on premise channel is reopening and consumers return to in store shopping this is approximately.

Four times higher than our share prior to the pandemic, while still small E. Commerce is an important space due to its rapid growth as consumer purchase patterns shift along with its attractive economics current estimates from our E. Commerce partners indicate that profit per case and basket sizes are higher in the premise.

Channel compared to brick and mortar stores, primarily due to product mix through our recent investment in our IMC organization. We believe we are well positioned to capture this opportunity and participate in the channels growth in fiscal 2022 emerging markets collectively delivered strong double digit.

Organic net sales growth despite the headwinds of supply chain disruption and the suspension of our commercial operations in Russia. During the fourth quarter. This strong performance was driven by broad based growth of Jack Daniel's, Tennessee, whiskey, notably in Turkey, Romania, and Shelley innovation with the continued launch of Jack.

Daniel Tennessee, Apple led by Chile, and Brazil, where consumers have embraced its refreshing flavor and our full strength tequila brands era, Dara and al Hema door, Jim is on Mexico as the premium position trend continued and we benefited from a healthy pricing environment, leading to double digit organic net sales.

Growth.

Collectively developed international markets organic net sales double digits for the fiscal year with the reopening of the on premise channel and the rebound of travel and tourism in some markets being the key contributors to growth while facing the headwind of supply chain challenges the Jack Daniel's family of brands continued to drive over.

Raul gains as Jack Daniels, Tennessee, Whiskey delivered strong double digit organic net sales growth led by markets such as the U K and Germany, where we are gaining market share in Spain, which is benefiting from the gradual return of tourism, Japan and Korea also experienced strong growth as we rebuilt inventory in Japan and Korea.

Benefited from a shift in whiskey consumption to international brands. This consumer shift in Korea also benefited the growth of Jack Daniel's, Tennessee, Honey, Jack Daniel's ready to drinks delivered another year of double digit organic net sales growth for the fiscal year lapping very strong prior year comparisons largely driven by Australia and Jerry.

Many as we have previously shared in fiscal 2022 we invested in the increased focus of our Super premium portfolio, such as the Woodford Reserve family of brands, Sean bore single malt Scotches Herradura and El Humidor through the international expansion of our emerging brands group model, particularly in the UK.

67% driven by increased volumes, while our travel retail business continues to recover it remains below pre pandemic levels Lastly for net sales volume represented nine of the 17 points of organic net sales growth for fiscal 2022 and price mix was eight points.

Will price mix was driven by faster growth from our higher priced brands led by the strong resurgence of Jack Daniel's, Tennessee, Whiskey and the favorable channel mix shift due to the continued re opening of the on premise channel moving to gross profit and gross margin for the full year reported gross profit increased 14% with organic.

Growth of 17%, which was in line with our organic top line growth reported gross margin expanded slightly ahead of our expectations, increasing 30 basis points year over year as favorable price mix and the positive effect from divestitures in the prior fiscal year were largely offset by higher input costs and.

The negative effect of foreign exchange consistent with our comments throughout the 2022 fiscal year the increases in our cost were driven by additional logistics cost supporting our efforts to minimize the impact of supply chain disruption and input cost headwinds related to grain and agave. In addition, due to the impacts of the.

Our Russian invasion of Ukraine during our fourth quarter, we reduced the value of our inventory and the related markets turning to operating expenses, which represents the investments we make behind our brands and our people that drive sustainable long term top line growth total organic operating expenses increased 8% in line with our expectations.

<unk> as we continue to invest behind our brands, our reported and organic advertising expense increased 10% and 11%, respectively, driven primarily by higher investment in our developed international and emerging markets to support Jack Daniel's, Tennessee whiskey as the on premise reopen as travel and tourism.

And in support of the continued launch of Jack Daniel's, Tennessee, Apple, we continue to invest behind our people SG&A expenses increased 3% on a reported and 7% on an organic basis as we lapped lower discretionary spend during fiscal 2021 due to restricted mobility related.

To the pandemic higher compensation and benefits related expenses and expenses related to the impacts of the Russian invasion of Ukraine from a reported perspective the increase in SG&A was partially offset by the absence of the prior year $20 million commitment to the Brown Forman Foundation ripped.

Our earnings release in the fourth quarter, we recognized a 52 million dollar or <unk> <unk> per share noncash impairment charge for the Finlandia brand name the impairment reflects a decline in the long term outlook for Finlandia due to our suspension of operations in Russia, which is a key market for the brand.

More than offset with a year over year increase in our effective tax rate along with the estimated 20 per share prior year benefit from the gain on sale of early times Canadian mist and colleagues with brands and related assets in regards to capital deployment, we approach our decisions with the core objective of sustainable long.

While macroeconomic and geopolitical environment in this dynamic operating environment, we believe the strength of our portfolio of brands and the strategic investments, we have and are making will support continued growth strong consumer demand for our brands continued to be a tailwind. However, we remain cautious due to the.

Central impact of inflation and rising energy prices on consumer spending while many of the international markets have stabilized as we cycled against the early days of the pandemic. We remain confident in the collective strength of our U S developed and emerging international markets. We anticipate our results showed continued.

The benefit from the reopening of the on premise channel internationally and the further return of tourism, along with stronger pricing and innovation. We also expect travel retail will continue to recover and that we will not resume operations in Russia. Further we do not expect the noncore business mainly used barrels.

Sales to have a material impact on our results. This fiscal year quantitatively, we expect organic net sales growth for fiscal 'twenty 'twenty three to reflect our longer term growth rate in the mid single digit range. It is important to note that the seasonality of our fiscal 2023 results will be impacted by the <unk>.

Ed normal seasonality of our fiscal 2022 shipments due to the impact of supply chain disruptions in the first half of fiscal 2022 distributor inventories did not increase ahead of the important holiday season as is typical and we experienced stronger shipments in the second half of fiscal 2022.

Supply chain challenges continued to ease in the first half of fiscal 'twenty 'twenty three we expect distributor inventories to return to more normalized levels. Therefore, we expect our growth rate in the first half to benefit from the net change in distributor inventory, while the second half we will lap the increase in the net change in distributor.

Inventory related to rebuilding of our inventory position in the prior year period, the disproportionate impact of the EU and UK tariffs on American whiskey on Brown Forman will be a significant tailwind as the EU tariffs were removed January one of this calendar year and the UK tariffs were removed lag.

Asked week on June 1st we also expect to continue to benefit from the favorable pricing environment and we believe the cost associated with supply chain disruption will be less of an impact in fiscal 'twenty 'twenty three as inflation increased in fiscal 'twenty 'twenty. Two we have plan that it will remain a headwind.

In fiscal 'twenty, two 'twenty three based on these headwinds and tailwind we are projecting reported gross margin to expand slightly for the full year as our trajectory of expansion continues.

As we have shared during our three years of being negatively impacted by the EU and UK tariffs on American Whiskey. Our plan has been to reinvest a portion of this relief back behind our brands. Once they were removed. We are very pleased at that time has come and that we are positioned to further support our topline growth ambition as we end.

<unk> and an increased level of focus on <unk> in the U S. Our super premium portfolio internationally, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee, Apple in Europe , and Jack Daniel's, Tennessee Whiskey globally, we will also invest behind our people to support our business needs in a post pandemic environment, while continuing to leverage.

New ways of working based on these expectations, we anticipate organic operating income growth in the mid single digit range for the full year, we expect our fiscal 'twenty two 'twenty three effective tax rate to be in the range of approximately 22% to 23% and lastly for capital expenditures over the.

10 years, we have completed a number of major projects to expand our capacity to support the strong consumer demand for our American whiskey portfolio as well as two expansions with a significant focus on providing an exceptional customer experience, namely the old forester urban distillery and the Slane Irish whiskey distillery.

Larry We also completed a major technology, driven modernization, which is a cost savings project at our largest barrel, making operation based on the continuing strong consumer demand for our brands, specifically, our <unk> products as well as error in our Hema door further expansions are required to support this growth.

We estimate the capital expenditures will be in the range of $190 million to $210 million for the full year.

<unk> largely related to glass supply and impacted by the pandemic and the consequences of the Russian invasion of Ukraine, Brown Forman portfolio of brands and its team members continue to demonstrate a high level of resilience and ability to deliver continued top line growth. We believe we have the right long term strategic priorities today.

Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

If your question has been answered or you wish to remove yourself from the queue simply press the pound key.

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Our first question or comment comes from the line of <unk> <unk> from Bernstein. Your line is open.

Hi, Lawson Leann really strong set of results and I'd like to focus on the F. 'twenty three guidance. Please.

Firstly, you are guiding to reported gross margin expanding slightly could you elaborate on what order of magnitude do you mean by slightly are we looking at less than one percentage point greater.

And then secondly, where are you seeing agave prices right now versus what you had expected before and where do you anticipate them going over the next year or two thank you.

Good morning, good afternoon Nadine.

I'll start and then loss of Malton can follow on with starting with our gross margin.

For F. 'twenty three we had talked about and we've been working on our stronger price positioning we expect that to benefit us.

In F 'twenty, three as well as innovation thats going to be led by our U S national launches of Jack Daniel's bonded and Triple match, which are helping us accelerate the premium amortization of the Jack Daniel's family of brands, that's going to be launching in the U S. In may and the international onshore followed later in the fiscal year.

Sure.

The plus $100 price point.

We do we've said it in my prepared remarks, the removal of the EU and UK tariffs will be a headwind and we will see less impact from supply chain disruptions, so and our price mix and the removal of the EU tariffs are planned to more than offset the cost and we can go into cost later, if you'd like.

But specifically to your tequila and agave pricing question.

As we've discussed over the last few quarters, our gourmet prices are below their peak and they've stabilized around the 27 to 29 Mexican peso per kilo.

We have that kind of a stabilized price through the full fiscal 'twenty three and it's about the greater demand for the entire category.

For us it will be a little bit of a tailwind because with that strong demand that will mean, we will source more on the spot market versus the percentage that we have of our internally grown agave. So we have that all included in.

Our F 'twenty three plan.

Yes, let me, let me talk a little bit more about the pricing side of things I know, you've written quite a bit about that.

Outbound farm and our place in that.

I think it's worth actually spending a few minutes on this to back up even thinking about the last five or 10 years, where pricing in the spirits business was relatively weak volume growth was relatively strong, particularly compared to beer where volumes were pretty weak.

We're very aggressive on pricing and so.

Fast forward to today are really over the last year. We began this internally really a push for better pricing.

A year ago.

Which thankfully.

Land said was enough to offset our cost for sure. So I think that'll be something that sticks out in terms of our ability to drive pricing enough to offset our cost challenges is certainly a positive point to lock to the past fiscal year.

<unk> had been going on for a year and not just not just in reaction to what has happened really over the last I guess three months.

Sure.

But yes, so feeling pretty good about our positioning right now and where it's what we can deliver even in the next fiscal year.

Got it I appreciate you preempted my pricing question can you touch on how do you expect that to go on over the coming year should we be expecting the same strategy of pricing to continue.

Or more any color you could give.

Yes.

Kind of similar to what we were able to deliver and over the past year.

Got it thank you very much very helpful.

Yeah.

Thank you. Our next question or comment comes from the line of Andrea Teixeira from Jpmorgan. Your line is open.

Hey, Good morning. This is drew Levine on for Andrea Congratulations on the strong results.

So I wanted to touch on what Youre seeing from a consumer perspective.

Obviously the results have been really strong so probably suggest youre not really seeing too much impact at this point from inflationary pressures or elasticity is from some new pricing.

The market.

But I guess as you think about the spirits category going forward.

Primarily in the U S are you seeing any signs of slowing premium <unk> trends.

How is that informing your.

Our guidance outlook for for this year.

And if you're seeing anything different internationally between developed and emerging markets.

Well I mean, a couple of pieces to that.

Interesting we are not seeing.

Yes at least pressure on the consumer in terms of spending on spirits.

They are right now and that continues for the rest of the year, but.

So far so good this business still is in pretty good pretty good state and I think thats true both for the U.

The U S for our developed international and our emerging markets.

Throughout what has been a very volatile and crazy few years.

And then to inflation I would just say that.

We have a portfolio of premium and Super premium brands is well positioned.

To stand the impact of inflation.

Any kind of a typical year we have a.

Generalized.

Inflation over a period of time of around 3%.

As we look to add 23, and the inflation impact there it is a bit higher than that.

That's mostly driven by our glass, which is being impacted by a high energy cost aluminum freight as Lachlan mentioned as due to higher fuel costs, and then grain but for us that's more of a higher cost due to the global demand of core I've already mentioned.

Agave.

And also to strong consumer demand I think.

We take a longer term perspective, it kind of goes to our capital expenditures that we have planned because with over 85% of our strip net sales coming from age products, we see strong consumer demand well into the future and I know we've been focused on expanding our capacity.

<unk> and for our American Whiskeys over this past decade, most recently with the Kentucky distilleries.

We also have recently said last year, we are expanding our single malt Scotch distillery.

And we will be beginning to expand artist.

Tequila.

Distilleries because of the strong long term demand, we see well out into the future and then of course the associated warehouses with those so.

Again to Lawson's point, we don't see any we are closely monitoring the impact of inflation and energy prices on our consumers and that we're also watching the macroeconomics and the geopolitical uncertainties that are out there, which for us and one of the things that impacted us.

Just since the last quarter was the suspension of our operations in Russia, and as that relates to our F. 'twenty three outlook that was two points of approximately two points of top line growth.

That we would have planned had we not suspended that business.

I think on the cost side I'd, just I'll add another point onto that.

Something to differentiate I think brown forman from the rest of beverage alcohol and for that matter CPG in general.

As you all know we have some really suffered from input cost inflation over the last four or five years that is predominantly from two things, which we've talked about many times wood and agave.

Across CPG, so our problems have been around for four or five years and that's what has hurt our gross margin over that time period.

Hi.

I don't know if I hesitate to use the words, it's in our rearview mirror, but it largely is on where youre seeing much of the cost inflation. These days.

Fuel and real estate for that matter in a lot of commodities those are not particularly heavy input costs for us and so.

We were able to deliver a small improvement in our gross margin and hope we can continue that because we are just simply not seeing the input inflation to the extent that many others are.

Thanks for the color I appreciate it.

Thank you. Our next question or comment comes from the line of Lauren Lieberman from Barclays. Your line is open.

Great. Thanks, good morning.

And B any comments you can offer on consumer takeaway versus shipments in the last couple of months, just so we kind of get a sense as we look forward.

These dynamics between continuing to rebuild that inventory position and actual consumer takeaway.

Hi, Lauren this is Lee and I'll start with <unk>.

Supply chain disruption.

Again, like we talked about last quarter. It took us several quarters moving into this it will take us several quarters moving out of it.

We're making strides in getting the glass supply back to the levels of which we need.

Our Jack Daniel's facility has been bottling at record paces. So now we kind of begin to move more towards facing global logistics challenges that many other CPG companies have been facing for a while specifically shipping container availability and then in the USAA was still workforce challenges as it relates to transportation.

And we expect that these will be continue to be stressed through.

Fiscal 'twenty three and of course, the higher costs associated with that we continue to have our cross functional team in place working to optimize where we can.

Meet.

Strong consumer demand and what we're seeing right now is an increasing level of consumer demand. So as we continue.

To get the glass that we needs the needs keep increasing.

To your point, we do continue to believe that even with the progress that we made in F. 'twenty two that our distributor and retailer inventories remain below pre COVID-19 levels and so we'll be working through out all of 'twenty three rebuilding those distributor and retailer inventories, but then when you look at the.

Year over year impact.

Yes, I mean, I think a little more on the glass story.

I won't go through the whole thing because we've done this on previous calls, but last summer when we decided to allocate the finite amount of glass, but we had really to focus on Jack Daniel's, Tennessee Whiskey. So core black label that was largely because we saw the on premise opening around the world and we certainly didn't want to miss that and Jack Daniel's.

By our own estimates as either the largest or certainly one of the largest on premise brands in the world. So that worked and you obviously see the numbers that Jack Daniels is able to deliver this year. It was a spectacular year for for Black label.

But it came at the cost for pretty much every other brand in the portfolio and so we've been trying to refill that all year, but it did take several number of points away. If you look at gentleman, Jack and single barrel and I'll run through some of these but certainly Woodford loss, probably 10 points of growth in Nielsen I think if not more of to what we would've expected old forester and Eric.

There are all lost a fair amount of growth.

That was disappointing and so the question is what happens now with the Q4, we added the glass supply began to improve some of our a lot of that is because we are now sourcing from a number of different suppliers, where we were really locked in with one before and so that is now coming in and I think it has been shipped.

And sitting at the distributor and Thats. It Hasnt really made its way to the retail shelf, yet and it's certainly not showing in the nielsen's yet but.

We expect that we will start to flow through in the upcoming months or at least the upcoming quarters.

I think we have said, we expect glass to still be somewhat of an inhibitor to growth. We won't have everything we want to probably the second half of next year, but it is the situation is certainly getting better.

Okay, and I don't want to be presumptuous, but with all of that as backdrop.

And the comment that I made on demand still accelerating.

How conservative do you think the revenue outlook may or may not be for for fiscal 'twenty. Three there is nothing to sneeze at and what you've offered right, but it just feels like the momentum is really strong.

And you've got tailwind from just being in better supply.

Yes. This is separate from the innovation.

Yes, right and this is where we go back to the year over year.

We have suspended that business and this is where in our international markets, we believe that with.

The double digit declines of F. 'twenty, one and some of our international markets to the double digit.

Gains that we saw this year.

Business is beginning to normalize and for US you know we've been through the volatility of tariffs the volatility of the pandemic and then so we believe we are a lot of our international markets. We're beginning now to see more normalized growth levels, taking all these other things into effect.

With us again strong pricing and innovation that we've got.

<unk> and some supply chain disruptions and normalization in that it's all kind of coming back to near our long term growth algorithm of that mid single digit topline growth yes.

To be quoted to say return to normal.

You said return to normal several times in the last couple of years and had been very wrong.

Taken back my word.

But it does feel like it now we are finally, I mean theres been so much volatility.

Reported results in any kind of takeaway of results in the U S. Everything.

It feels like things are starting to normalize and you should see.

I think results that are sort of on par or maybe hopefully a little bit better over what we do what we've done over the last 10 years.

Okay. Thank you I'll pass it on thank you so much both of you. Thank you.

Thank you. Our next question or comment comes from the line of Bryan Spillane from Bank of America. Your line is open hey, Thanks, operator, good morning, Leann Boston maybe.

Maybe just to pick up on that last Lauren's point.

Not to sort of beat up your revenue guidance, but I mean, depletions I think for the year were up seven you know the back half.

I think it was it was at 14% in the third quarter, 10% in the fourth quarter I mean it just.

And I understand that there is the <unk>.

Youll have the headwind from.

Russia, and Theres, some headwinds you've called out but it just seems like it is.

It's a pretty dramatic.

Sort of slowdown in Depletions that youre expecting and I, just I just want to make sure that maybe the normalization of Depletions implies like mid single digit growth, but is that am I looking at that right or am I missing something.

Does it look like with the impact to consumer spending even though we know that.

We provide our consumers with an affordable everyday luxury with our premium and Super premium portfolios.

Just I think it's more of.

I'll just go back to the conversation, we just had of theirs.

A lot of really good positive there is a couple of negatives with supply chain disruptions disruption and Russia.

And then I think it just always out to the extent that we can see right now of a normalization.

That space now.

We want we want to be optimistic and think that.

Our business will perform at a higher level, but.

We'll just have to continue this story on a quarter by quarter basis.

Okay.

And then just a follow up.

Watson we've heard.

Listening to retailers over the last month or so talk about some of the changes. This is probably more in the U S. But.

One of the themes that seems to be recurring is is that we'll be playing out is that we've seen in some other product categories outside of consumables, even where the pandemic had consumed some consumers that were participating in some premium categories, because they had some spare cash or the balance sheets, where there was less.

Things to spend money on and now you are beginning to see some of that transition out and so I'm. Just curious if you look at premium spirits or even your own brands is there any sort of have you have you experienced any of that any evidence that maybe you've had some.

Temporary sort of consumers in the category that.

As the situations normalize maybe they trade back out.

Yes.

The <unk>.

Trade down or trade up.

Mario look we certainly have benefited over the last few years to the trade up in the premium position, but I think I mean, that's one of those trends that started before the pandemic only accelerated into the pandemic.

It's muddy because the retailers the targets and walmarts of the world get instant daily information, we don't really have that so.

We haven't but we just we haven't seen it.

Point.

We will see how the year plays out I mean, I think it will be one of the big it's one of the big uncertainties.

But I feel pretty good it will be in the spirits business. These days in the Super premium spirits. These days relative to lots of others.

All of brand loyalty from our consumers with with again, our affordable everyday luxury yes, I think the idea wasn't so much.

Your kind of core consumers. It's just that they were consumers who might never have purchased the premium spirit before who now had some spare cash.

Who were in the cat.

Wouldn't be able to sustain in the category. So it's like you had some some renters basically in the category and we've seen that.

In other categories does it sound like that's been a big factor for you though.

Not yet not yet and I hope that it doesn't happen I think the bigger macro ones things like consumers trading out of beer and spirits.

A lot of that has happened and thats. Another one of those pre pandemic. It was happening in accelerated in this environment.

We will see we will see how that plays out, but I think thats a bigger that's a bigger factor. The other one I think it is interesting. These days I was staring at some of the Nielsen data Boy you want to be in the American whiskey and tequila categories.

They are by far and away the strongest.

So many of the white spirits are pretty weak so.

I think the company Brown Forman in general is well positioned not only where we are but in the right categories at the right time and I also think it is interesting that American whiskey one of the reasons why I think both of those categories are doing so well relative to others innovation plays a big part of that.

And there is lots of things you can do with barrel, finishing on tequila too that really I think makes innovation better and I. Just think it's one of the reasons both categories are flourishing right now.

Thanks, Thanks for the insight Thanks, Lawson plant I'll pass it on.

Thank you. Our next question or comment comes from the line of Vivien <unk> from Cowen Your line is open.

Hi, good morning.

I was hoping to pivot to develop to Europe , a little bit please.

Im curious to hear your perspective on the health of that consumer I know theres a lot of chatter about gas price inflation in the U S, but it's arguably worse.

There and we did see a slowdown in Germany, and France. So any commentary that you could offer there would be helpful. Thank you.

Okay.

I mean look I think Europe Europe , I mean first of all Europe has remained extremely resilient and strong for us over the last few years it's been.

Some of our best markets and I look through Germany in particular, the United Kingdom.

But really big markets in Europe are very very strong and so feeling pretty good about that now the on premise.

It has been a little bit more challenged in Europe than it has been in the United States.

Bars, and restaurants really took longer to reopen and so there's just been a loopnet has just been a little bit slower so.

Off premise in Europe , I'm trying to look through some of the data that we have here.

It doesn't look as good as the U S business looks.

But for let's say what forever for a reason, but for many many years Brown Forman European business, we have outperformed the competition in Europe more so than any other place in the world and that's true for like the last 10 years and so.

Jack Daniel's just is really well positioned over there and cranking, along and I think.

Kilo brands I mean, a lot of the very high end Super premium Ultra premium brands are getting focus now that they didn't previously have and so hopefully that is a sort of a nice growth driver over the next few years and again, we still see opportunity as as the on premise and in.

In Europe .

Has continual reopening to do in F. 'twenty, three and again to build on what Lawson said marketing markets like Germany, and the UK, we are seeing volume growth.

From a lot of our brands as well as in Spain. So we are seeing positive results coming out of our developed international markets and again, we have that planned into the next fiscal year as well.

Alright.

Let's see.

Got it.

Yes.

Vivien that might be one that I'll follow up with you on.

Okay great.

Thank you. Our next question or comment comes from the line of Nik Modi from RBC capital markets. Your line is open.

Thank you and good morning, everyone. Welcome I was hoping you can provide some context on just competitively what you're seeing in the market as you take pricing have you seen the competitive set move as well just any context around that would be helpful.

Yes, I mean I think.

It is interesting that the.

As I said earlier on the call that the spirits business. It didn't take a lot of pricing over the last 10 years and now everybody seems to be doing it at the same time, but.

But there has been more inflation.

Rising inflation across the industry. It's one of the reasons why I think.

This is not massive rates are in price increases, but they are low single digit in there steady.

And most of our competitive set has done the same thing where youre starting to see.

Little bit of pricing across the industry and obviously elasticities are better when the competitive set is also taking price at the same time so yes.

Yes.

Our perspective, a healthier environment.

And if I could just follow up on.

The commentary around the consumer.

Over the last let's call. It few weeks certainly picked up some feedback from the trade both retailers and distributors that velocities have slowed and there is a concern the promotional activity is going to have to ramp the deal with the current consumer environment.

Yes.

I'm getting that feedback I'm just curious on your reaction to that I mean, clearly based on what you saw this quarter and some of your commentary it seems like youre not seeing that so I'm just trying to reconcile.

The fee perspective.

Yes.

I'm not sure how to answer your question, because we truly have not seen that yet, but theres a lot of noise in our world because of the glass supply and the replenishing of inventories and not only replenishing of distributor inventories, but getting into the retail stores and actually replenishing.

The consumer shelf so.

I can't add much more on to that we are certainly not planning incremental promotions in terms of or some kind of reversal in our pricing position that.

I would be very resistant.

For that given we've worked so hard to get get the pricing to where it is so I guess, we're going to have to see how it plays out throughout the year I mean, we're not going to be naive about it.

But our intention is to hold on to the price increases we've already made and as I said earlier to continue with that low and steady rate of increase throughout the fiscal year.

Okay very helpful. Thank you.

Thank you again, ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on your telephone keypad.

Our next question or comment comes from the line of Kevin Grundy from Jefferies. Your line is open.

Great.

Thanks, Good morning, and congratulations on the strong results this year.

Be helpful. And then the broader question really for both the view is just the prioritization.

<unk> investment with tariff relief, which you've been waiting for for some time.

And I ask that in the context.

Mid single digit organic sales growth guidance in <unk>.

<unk> mid single digit operating income guidance doesn't imply much in terms of operating leverage in the business notwithstanding whether it's conservative or not we will see how the year plays out.

You spoke to some of it around Jack Daniels, Tennessee, Honey and Apple in Europe , and then J D.

Globally just just.

Maybe just help us sort of understand the priorities and your visibility on the spend in the current environment. Thank you for both of those.

Okay as it relates to EPS, we haven't provided guidance for that as it relates to FX we.

Also don't forecast, that's why we provide an organic outlook.

Now if we were to take.

The rates, where they are today against the dollar it would be a headwind for us in F. 'twenty three on a reported basis, but again with all the volatility uncertainty. The 12 months ahead of us.

We haven't forecasted FX and its impact on us. So we've provided everything on an organic basis.

To your point on reinvesting.

What we're going to do is we're going to remain agile and disciplined with our discretionary spending as we go through F.

F 'twenty three and as we talked about our prepared remarks.

The new ways of working that we have learned during the pandemic and we believe that it will all of this will deliver mid single digit bottom line growth.

As for brands and allocation of investments I mean, a couple of the ones that.

You may not be thinking about I guess, so much wanted to meritor in the U S.

Thats chela categories, obviously flying and we really need to work on building awareness and distribution for Herradura. So that is going to be a big effort over the next year. The establishment of these emerging brands teams I've talked about that earlier, so I won't repeat all of that but no.

Those would probably be the big three I think in terms of incremental investment for next year.

Okay very good thank you Bob good luck. Thanks.

Thank you.

Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to MS. Sue pyramid for any closing remarks.

Thank you Howard.

Thank you Lawson and Lan and thank you everyone for joining us today for Brown <unk> fourth quarter and fiscal year 2022 earnings call. If you have any additional questions. Please contact us.

An enjoyable summer and with that this concludes our call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Q4 2022 Brown-Forman Corp Earnings Call

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