Q1 2023 Brown-Forman Corp Earnings Call

August 31, 2022

Good day, Thank you for standing by welcome to Brown Forman first quarter fiscal year 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Sue pair them with Investor Relations. Please go ahead.

Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown Forman first quarter fiscal year 2023 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 Newmar.

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.

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 first quarter fiscal year 2023. In addition to posting presentation materials that Lawson and Leann will walk through momentarily.

Both 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 Investor presentation.

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

Thank you Sue and good morning, everyone. As we began fiscal 'twenty three our momentum continued and we delivered another quarter of double digit topline growth on both a reported and organic basis.

We experienced strong consumer demand driven by increased travel and tourism the gradual reopening of the on premise internationally as well as sustained premium amortization trends.

In addition, as we indicated on our last conference call in the first quarter, we benefited from an increase in distributor inventories as we continue to recover from supply chain disruptions and constraints that began impacting our results in the prior fiscal year.

Supply chain disruptions continue to affect our business during the first quarter of fiscal 'twenty three while our glass supply improves overall supply chain logistics and transportation continued to be constrained, which impacted our route to market and increased our costs.

Some headwinds turned to tailwind our gross margin expanded with favorable price mix and the removal of tariffs more than offsetting increased costs and the negative effect of foreign exchange.

This improvement in our gross margin enabled us to further invest behind our brands and our people while growing our bottom line ahead of the topline.

Overall, I'm very pleased with the start to our fiscal year and remain thankful to our brown Forman employees for their continued focus on growing our brands throughout the world.

So this morning I'll provide a few more details on the quarter and then I'll turn things over to Leann.

Our reported topline growth increased 11% with organic growth increasing 17% after adjusting for foreign exchange headwinds organic net sales growth in the quarter was driven by continued growth strong growth for Jack Daniel's, Tennessee, Whiskey, Woodford reserve and the Jack Daniel's RTD.

Jack Daniel's, Tennessee Whiskey remains the lead driver of our growth as the brand continued to deliver double digit growth with an organic net sales increase of 21% driven by strong consumer demand higher pricing and favorable channel mix.

Second our Super premium American Whiskey portfolio increased organic net sales double digits Woodford reserve led this effort growing organic net sales, 39% and reaffirming the strength of the trademark.

Glass supply constraints ease and we increased our bottling capacity, we were better able to meet consumer demand for Woodford reserve.

Also in May we launched the first Super premium Jack Daniels line extension in a quarter of a century.

New Jack Daniels bonded, Tennessee, Whiskey, and Jack Daniel's Triple mass blended straight whiskey are the first two permanent expressions in the brand's new bonded series and they are off to a great start.

The products are currently available in the U S, France, the UK and Italy, and we will continue to rollout internationally.

These whiskeys are another opportunity for both our friends in new drinkers to explore and discover everything Jack Daniel's has to offer.

<unk> is our Tds, which grew organic net sales, 17% were the third largest contributor to overall company growth fueled by the consumer trends of convenience and flavors.

Leading this growth as Jackie and those in Cola, which gives us continued confidence in our global agreement with the Coca Cola company to deliver the iconic Jack and Coke cocktail is a branded ready to drink adult beverage. We're on track to launch the Jack Daniels and Jack Daniels and Coca Cola RTD beginning in late calendar 'twenty two in Mexico.

We look forward to sharing more about this exciting agreement between two global American icon in the quarters and years to come as it expands to markets throughout the world.

The rest of the Jack Daniel's family also delivered solid results led by a double digit organic net sales increase collectively from Jack Daniel's, Tennessee, Honey injected and Youll, Tennessee fire, particularly in the U S is the glass supply constraints have eased.

Beyond our American whiskey portfolio organic net sales for our full strength to kill a portfolio declined 3%.

Supply disruption mainly related to glass for <unk> in the U S and Mexico as well as difficult prior year comparisons in the U S were significant contributors to this performance.

Demand, particularly in the U S remains very strong with glass supply challenges and continued stable, but elevated cost for agave have slowed our profit growth.

New MX performed well as the RTD category in Mexico is growing and the brand is increasing share.

So <unk> build upon its momentum is the continued reopening of the on premise channel drove a double digit increase in organic net sales.

And our Scotch portfolio led by <unk> and <unk> also produced strong results.

Earlier this month, we announced an investment of over 30 million pounds in the Glen neurotic distillery to significantly increase production capacity.

Based on the latest <unk> data global demand for the Glen drawn it has tripled since 2016 the year that we acquired the brand as whiskey car stores around the world discovered the Distilleries award winning single months. We believe this investment will steward long term future growth of the brand.

Leann will go into depth about our results in each of the geographic divisions, but I was pleased to see broad based growth across all geographic clusters and the travel retail channel.

Also in the first quarter of fiscal 'twenty, three our reported gross profit increased 13% and our organic gross profit growth was 21%. Both ahead of their respective topline growth rates, while we experienced some headwinds in the form of a negative foreign exchange effect higher costs related to supply chain disruptions and higher input costs due to inflation.

They were all more than offset by tailwind, including favorable price mix and the removal of the EU and UK tariffs on American whiskey.

This combination of headwinds and <unk> resulted in an 80 basis points of gross margin expansion in the quarter.

It was this time last year that we shared our plans to increase prices in the U S. On the majority of our brand portfolio as part of an overall strategy to increase prices more consistently year after year.

At the conclusion of the first quarter and nearly 90% of the price increases for fiscal 'twenty three have been executed and we've seen retail shelf price changes reflected in almost two thirds of the United States.

Based on Nielsen data Brown Forman remains a price leader with two 7% pricing growth outpacing total distilled spirits of around 2%. We continue to utilize our revenue growth management tools to evaluate pricing opportunities not only in the U S. But also internationally.

We believe the health and relevance of our brands as well as our continued brand building investments will allow us to successfully implement our long term pricing strategy.

In summary, we had a strong start to the fiscal year and remain optimistic as we look ahead, even as the global macroeconomic and geopolitical environment remains volatile and uncertain.

This optimism is grounded in our success in both the short and long term, we've been through challenging times and conditions over the last three years as well as the last 152 years, we've been tested yet we've remained resilient we've experienced adversity, yet we've continued to grow.

Brown Forman has endured because we have some of the most attractive spirits brands and some of the most desirable categories and we continue to innovate and expand our portfolio, we have thrived because of the bold and diverse perspectives of our people, which allow us to think creatively innovate constantly and grow consistently.

I want to thank each and every one of them for delivering the results that we're sharing with you today, they give our company character and complexity purpose and perseverance agility and authenticity and I'm greatly appreciative.

So with that I'll turn the call over to Leann and she'll provide more details on our first quarter results.

Thank you Lawson and good morning, everyone. As also reviewed our headlines for the quarter I will provide additional details on our business results and our outlook for fiscal 'twenty to 'twenty three.

First I will share our topline results by geographic cluster.

Developed international markets collectively delivered strong organic net sales growth of double digits for the quarter, an increase in tourism and a return to the on premise channel field broad based growth across the markets. Despite continued supply chain challenges.

Jack Daniel's, Tennessee Whiskey was the largest contributor to growth driven by Germany, Spain and Austria.

<unk> also contributed to the growth as it has seen solid momentum since transitioning to our own distribution in January of 2022.

Jack Daniel's ready to drink momentum continued with double digit growth led by Germany, and Australia consumers desire for convenience and interest in the ready to drink category remains high in these markets and we are gaining share.

Aligned with our strategic priority of increasing focus on our premium and Super premium portfolio. Our emerging brands model that we recently began extending to some international markets delivered very strong double digit organic net sales growth driven by grid jonnock elohim, it or analytics.

Reserve.

Collectively our emerging international markets continue to rebound with very strong double digit organic net sales growth driven by strong organic growth from Jack Daniel's, Tennessee, Whiskey, particularly in Turkey, Sub Sahara Africa, Brazil and Chile.

Jack Daniels, Tennessee, Honey, good organic net sales double digits led by Chile, where the brand has more than doubled and new mix growing strong double digits in Mexico.

Growth was partially offset by lower volumes of ore in Mexico, as the brand say supply chain constraints.

And year over year declines in Russia due to the suspension of our commercial operations beginning in March of 2022.

The U S business remains strong growing organic net sales 7%.

This growth builds upon the 19% organic net sales growth delivered in the first quarter of fiscal 2022 which was fueled by the initial reopening of the on premise channel.

Reserve led the growth for the first quarter with a positive impact from higher pricing and higher volumes as supply and capacity constraints eased.

Also benefiting from an improved supply chain environment, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee fire experience volumetric gains.

Growth was partially offset by lower volumes of core Bell and Jack Daniel's, Tennessee, Whiskey, which both lapped double digit comparison in the same prior year period.

Despite the supply chain challenges, we estimate a net increase in distributor inventories positively impacted net sales.

Although even with the increase in the quarter, we believe distributor inventory levels remain below their pre pandemic levels. This is due in large part to transportation and logistics constraints as well as increased consumer demand, we continue to monitor consumer mobility trends and based on data.

Im open table and Google mobility, the on premise trends have continued to hover around pre pandemic levels.

This shift to the on premise is continuing to impact off premise takeaway trends as consumers have made the gradual return to restaurants and bars.

Our year over year takeaway trends have also been adversely impacted by supply chain constraints for brands, such as gentleman, Jack and Jack Daniel's, Tennessee, Honey, Jack Daniel's, Tennessee fire, and Jack Daniel's, Tennessee Apple.

Finally, the travel retail channel continued its strong rebound growing organic net sales, 85% led by increased Jack Daniel's, Tennessee Whiskey volume as international airline travel and the cruise business accelerated in the May through July period.

Our business in this channel has not yet fully recovered to pre COVID-19 levels. The continues to close the gap.

I will also share the details of our gross margin expansion for the quarter I will now turn to our operating expenses.

Organic advertising expenses in this quarter compared to the same prior year period grew at a higher rate than our top line growth largely due to the timing of our increased investments in the United States to support Jack Daniel's, Tennessee Whiskey era Dara.

Launch of Jack Daniel's bonded and Triple Nash and Woodford Reserve.

Our organic SG&A investment increased high single digits, driven primarily by higher compensation related expenses and the investment behind our people to support our business needs in a post pandemic environment, while continuing to leverage new ways of working.

In total reported and organic operating income grew 19% and 32% respectively. In the first quarter of fiscal 'twenty 'twenty three.

These results combined with a decrease in our effective tax rate resulted in a 30% diluted earnings per share increased to 52 cents per share and finally to our fiscal 'twenty 'twenty three outlook. We continue to be optimistic as we look ahead, even amidst the current volatility and as.

Certainty of the global macroeconomic and geopolitical environment, we believe our headwind and tailwind will remain largely the same through the remainder of our fiscal year and the strength of our portfolio of brands supported by strong consumer demand and our strategic investments will enable continued growth and therefore.

We are reiterating our full year fiscal 'twenty 'twenty three guidance.

With the start of a new fiscal year, we have now cycled against the more volatile mindset of the pandemic and believe we are seeing trends began to stabilize we remain confident in the collective strength of our U S developed and emerging international markets, along with the travel retail channel we.

We anticipate our results should continue to benefit from the continued return of tourism and the gradual reopening of the international on premise channel along with stronger pricing and innovation we.

We do remain cautious given the potential impact of inflation and rising energy prices on consumer spending.

I also want to reiterate that the seasonality of our fiscal 'twenty 'twenty three results will be impacted by the abnormal seasonality of our fiscal 2022 shipments due to supply chain disruptions as you will recall in the first half of fiscal 2022 distributor inventories did not increase.

The important holiday season as is typical and we experienced stronger shipments in the second half of fiscal 2022 as glass supply challenges began to ease.

In the first half of fiscal 'twenty 'twenty three we expect distributor inventories to continue 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.

Our second half results will lap the increase and the net change in distributor inventory related to the rebuilding of our inventory position in the prior year period as it relates to our fiscal 2023 cost the removal of the EU and UK tariffs on American Whiskey remains a significant tailwind.

And while we continue to expect input cost inflation to remain a headwind.

So costs related our glass supply position has improved there's some challenges remain for some of our brands, particularly era Dara.

We are continuing to partner with our current glass suppliers as well as add new suppliers to address these constraints.

And similar to many other CPG companies, the overall supply chain, particularly transportation logistics and freight continues to be challenging while we are actively working to navigate these challenges and their impact we do believe supply chain disruption will remain a headwind for the remainder of the fiscal year.

Based on these headwinds and tailwind we are reiterating our reported gross margin guidance for <unk> to expand slightly for the full year as our trajectory of expansion continues.

Also related to our supply chain, we constantly search to identify continuous improvement opportunities to optimize both our supply chain and its related costs.

As we have shared with you during many calls we have been progressing various initiatives to address the challenges related to the cost of wood.

One such initiative has led us to the recent announcement regarding the decision to sell our Stevenson mill in Alabama, and Jacksonville, and Ohio to Independence, Dave Company. This sale is a part of a long term agreement between Brown Forman and independence, Dave to allow for the.

<unk> and diversification of our supply chain network independence, Dave is that dynamic family owned Cooperage company and is committed to environmental sustainability in its operations.

All of this existing mills are sustainable Forestry initiative certified and independence day like Brown Forman is a founding member of the White Oak initiative to support the long term sustainability of white oak for us.

Although divesting part of our business is never an easy decision. There are significant advantages to this partnership including broader based sourcing continuous improvement initiatives and cost savings from economies of scale.

We are also pleased that all employees impacted by the agreement will be offered positions with independence, Dave It.

It is important to note, we will continue to own and operate our Clifton mill in Clifton and Tennessee, and both our Brown Forman and Jack Daniel's co bridges.

As we have stated many times that when the EU and U K tariffs on American Whiskey were removed we would reinvest a portion of the relief back behind our brands. We are very pleased that in fiscal 2023, we are now executing against this additional investment behind our brands.

And as we shared last quarter, we will also invest behind our people and expect a continued rebound of discretionary spend to support our business needs in a post pandemic environment.

Based on these expectations. We currently expect our organic net sales and organic operating income to grow in the mid single digit range for the full fiscal year.

And we still expect our fiscal 'twenty twenty-three effective tax rate to be in the range of about 22% to 23%.

Lastly, we have noted the impact of foreign exchange on our reported results. The dollar continues to strengthen against many major currencies. Most notably we are seeing the negative effect of the appreciation of the dollar against the euro and the Turkish lira.

The guidance, we provide is on an organic basis, which excludes the impact of foreign exchange.

If we were to take the rates, where they are today against the dollar for the remainder of the fiscal year foreign exchange would be a headwind for us in fiscal 'twenty 'twenty three on a reported basis.

In summary.

And as Lawson stated, we have had a strong start to fiscal 2023, delivering double digit top and bottom line growth on both a reported and organic basis. We remain optimistic as we look ahead and are confident in our ability to build upon this momentum and deliver consistent long term growth despite near term.

Challenges and uncertainties, we believe our brands and our people are resilient as our results continue to reflect as we often say there is nothing better than the market than Brown Forman. This concludes our prepared remarks. Please open the line for questions.

Thank you.

As a reminder to ask your question Youll need to press Star one on your telephone.

Please standby, while we compile the Q&A roster.

One moment for our first question. Our first question comes from Andrea.

Sierra with Jpmorgan Your line is open.

Thank you for taking my question. So good morning, I wanted to just first of all congratulate you on the earnings but just if you had this 5%.

Positive impacts, which was called out in the last quarter's call in the first quarter.

It seems like your the been neither of your fiscal year would then be the risks because there is a strong number do you expect that inventory if we'd be able to phase out in the second quarter fiscal or you still have that benefit in your view I know that GR numbers, which still continues to be.

Bob.

If you can elaborate a little bit more between consumption and indications. Thank you.

Hi, Andrea this is Lee and we are continuing to evaluate the timeline to get back to normalization of our distributor inventories.

So last fiscal year.

We've talked about in our prepared remarks in the second quarter and the second half we began making significant progress.

Inc. Rebuilding inventories were continuing to work very hard to rebuild those inventories, but at the same time, we're continuing to experience very strong consumer demand.

And at the same time, we've also launched a new innovation. So while we are working to improve our inventory position you guys. David a net increase in distributor inventory change that we are making progress, but we are facing challenges in strong demand. So we're we'll come back to you will know more as we go.

Get into the second second quarter to understand kind of what our exact timeline looks like but we do continue to see.

Benefit in the first quarter as you stated.

I'm, a glass supply perspective supply chain in general we expect to be a headwind for the fiscal year. Our glass supply has continued to improve with our current supplier increasing capacity, we've broadened our supplier base. The Jack Daniel's facility is still bottling at record pace.

And as also noted in prepared remarks, we continue to face challenges for some brands in some sizes and particularly for this quarter.

And we have some capacity strength in the current supply chain and we're addressing that currently by expanding our supplier base.

And then as we noted kind of one of the challenges that we will that will impact us through the remainder of the fiscal year is our ability to move the product into market through logistics and supply and <unk>.

Freight constraints because there is a high demand for the equipment. There is an imbalance of the equipment around the world and again thats coming with associated cost and then the U S, which is our home market in our largest market, where we produce the vast majority of our product, we still face driver challenges and equipment challenges so net.

We're making progress and we are working to replenish it does remain below.

Pre pandemic levels, but we're encouraged by the strong consumer demand.

Yes, I mean I think.

Add a little bit to it because it seems like glass supply I mean, this has been a major problem for us for a year now we actually first started talking about this is this quarter a year ago. When we first really gave some detail on our glass supply situation and so fast forward a year I do think it's worth reviewing because it almost.

Feels like every question, we're going to ask this morning glass supply as part of the answer.

But a year ago, we really we prioritize Jack Daniel's, Tennessee Whiskey, So core black label.

Folk.

Allocate our immediate needs to Jack Daniel's, Tennessee Whiskey as really the on premise was opening up not only in the United States, but around the world and so we really prioritize Tennessee whiskey.

To the detriment of practically every other brand in our portfolio and so as the year went along our demand has been very strong I mean demand for Tennessee Whiskey, which we believe is the largest certainly one of the largest on premise brands in the world. The demand has just been outstanding.

Standing quite honestly and so we had a big year last year and it continued on through the first quarter of this year.

But as I said brands like gentleman, Jack the flavors and now most recently our tequila brands have all suffered for it. So we've caught up with Jack Daniels, Tennessee Whiskey for the most part I mean, it's taken a little longer because of the strong man, but it's.

It's doing well Woodford reserve had a great quarter. So we've begin to replenish inventories of Woodford around the world same thing on old Forester.

Gentleman, Jack and flavors are not caught up yet, but they're getting better but you'll see those I think youll see those trends improve in the upcoming few quarters and then as we as we said Herradura really suffered over the last quarter and that was.

I will say it was a bit of a surprise, but it.

Eric Joseph for one point to also make Herradura grew by 90% in quarter. One last year. So tough comps is also part of that answer, but certainly the brand is suffering under glass supply shortage.

But we're working very hard to try to fix but it's not there yet.

That's super helpful. If I can squeeze just one one question on <unk>.

Consumers have been receiving the price increase and if you were saying it doesn't look like you're seeing any of the on trade, but just this is.

Topics as we obviously spoke to all the companies. This earnings season. If there is any price elasticity are you seeing on the trade.

That you should be aware of.

Yes.

Look we have pushed through our price increases I think we said sort of 90% of the price increases are already reflected on the shelf.

And we haven't we haven't seen the trade down now.

Express a little caution in looking at our trends and then extrapolate those to sort of macro trends because of our glass situations, so that dominates over any sort of.

Trade down or lack thereof really because.

Not showing through in our numbers when we look at Tds, we're not really seeing it is obviously, it's a U S comment, but youre not seeing it really in the data there either and so.

Elasticities I think the biggest piece of an elasticity question always is what are your competitors doing and our competitors are also going up and so for the first time and I'll say a decade youre seeing some pretty good pricing throughout the industry.

And youre not seeing youre not seeing a lot of pushback. So we're able to get prices through we're getting them through the retailers. It's on the shelf and consumers are still buying it so so feeling pretty good.

We use the term affordable luxury a lot.

And I do think spirits is an affordable luxury where consumers they prioritize that bottle of Jack Daniels and to the detriment of a lot of other consumer products, we you've seen a lot of the retail at the big retailers in the U S that have struggled with inventories.

Were kind of the opposite where we don't have enough inventory out there.

And it's pretty healthy.

It's a good situation in that.

<unk> is still there.

Okay helpful. Thank you I'll pass it on.

Thank you.

One moment for our next question.

Yeah.

Our next question comes from Peter Grom with UBS. Your line is now open.

Hey, good morning, everyone hope you're doing well so.

Kind of wanted to follow up on Andrea's question, just around the guidance and just given the strong start to the year.

Top line and margin perspective.

Just the guidance seems to imply a pretty meaningful slowdown from here and I guess I would just would be curious is that simply just conservatism given.

Given the uncertainty on many fronts. So is there something youre seeing more real time.

Other markets around the world, that's giving you some concern here.

Well and again building copy.

Peter how are you as a nice to hear from me it's been a while.

Yes.

Building on what Lawson said from an inventory perspective, we really started.

Glass supply begin to ease in our second half of last year.

Our shipments were kind of above they were they were above our depletion level trying to get our inventory rebuild so yes, we've had a strong start to our year and we know that next quarter, we'll be comping one of our.

Our lowest performing quarter of fiscal 2002, but then at the end of fiscal 'twenty. Two we had a four point benefit from those shipments so when week.

I've talked about we have we will have a strong first start first half of our 2003 and that we will have to call that four point benefit that we saw in the second half and then we also and again as we said in our prepared remarks, we do remain cautious about how inflation and rising energy costs are going to impact.

Our consumers it will there be any macroeconomic or geopolitical events that.

Similar to last March when we suspended our business. So again that will be an impact in F. 'twenty three is the absence of our business in Russia.

So from a cost perspective.

Talked about this a bit we're facing challenges.

Easing on the glass supply, but then now moving to logistics and transportation and then it will be our ability to get our <unk>.

<unk> to market and to consumers, which we believe is possible, but it's going to come.

At an increased cost some of which we plan because we have plan for inflation every year.

One of the things that.

It is different for us is that as we talk about inflation with the removal of the EU and the U K tariffs on American whiskey.

Unlike many others well that will help us to mute the impact of inflation in costs.

We have so I don't necessarily is very early in the year. There is a lot of year to go and a lot can unfold ahead of US we are definitely optimistic and off to a strong start.

But we know we have a strong back half of last year to call.

With party decided now is the right time and I know I think last time, you mentioned in Mexico launch in the fourth quarter.

But just any initial thoughts around timing in the U S.

Contribution to topline growth versus maybe cannibalization version.

Listing ready to drink portfolio.

Sure. So look we are behind the scenes working through all of that right. Now there is obviously a ton of work that goes into launching a new product on the scale of what this is about and you're correct. We are looking at a couple of months away.

From launching in Mexico.

We're going to do I think I prefer to do is push this question off for another quarter, we will be more transparent with you all as we move into the rest of the fiscal year. We are still working behind the scenes on the cadence of launches the level of investment all the everything that goes with effectively a new product launch.

On a positive side, our Jack Daniels and coal so not the coke, but Chuck Davidson Cola.

Is flying.

That business is still really really strong and so that's part of the part of the trick to this launches how we remove those products from the market and replace it with John Coconuts.

A little more complicated than maybe that might sound, but.

This is still a very healthy business theres, a lot of particularly in the U S. There is a lot of competitors not so much in the coke side of things, but I mean, theres a lot of our TV interest these days and there's a handful of brands that are doing really really well.

So we feel really good that this thing once we get it out there in the market.

We will be ready too.

Drive some with some pretty significant demand, but I think we're going to wait another quarter before we sort of release a lot of those details.

And then the only thing I would add to that is we are we're really excited about the numerous opportunities that we believe that this product will have from a geographic expansion perspective, and our ability to gain share with it as well yeah, obviously, the Coca Cola system.

So big.

They cover that cover the world.

Our products have been we haven't even offered Jack in Cola and many many parts of the world. So it's going to be an exciting thing for this company.

We're looking at looking forward to it knowing that most of that growth is really going to fall in calendar 2023.

Sure.

Okay. Thanks, so much for that color I'll pass it on.

Thank you one moment for our next question.

And our next question comes from Nathan <unk> with Bernstein. Your line is now open.

Hi, everybody I got to kick off with my usual question on pricing I remember on the last conference call. We discussed how you're taking on pricing across the board in the U S. Great to hear that I think you said, 90% of that pricing for this fiscal year has gone through can you give us an update on your pricing strategy outside of the U S. So have you taken incremental price.

This is especially in light of that inflationary environment.

And then one final question Jack Daniel's Apple I know, you mentioned flavors being de prioritize but even if we take into account.

Changes in distributor inventory, we're at a fall of about 8% underlying level is there anything else, we shouldnt bear in mind for the weakness in the quarter for this brand or is this a one off because of the supply chain issues. Thanks.

Yes, let me.

Take pricing a bit and then maybe you can comment on that.

Apple itself.

Yes.

The pricing.

Strategy that we're implementing as global its not just the U S and it's kind of similar similar numbers.

Europe has been a very difficult pricing environment for a long time.

But we are finally pushed we push through successfully pushed through last year and we will continue to do it again this year.

All at that low single digit pricing.

For the 2% to 3% range is something I want to see.

For the foreseeable future I mean every year, we don't want to we're not trying to go up 10, one quarter and then back off a little bit it's trying to go slow and steady and.

That's worked it's worked so far.

As I mentioned to the earlier question I think a lot of it has to do with other brands are also going up too and so we're not seeing this sort of negative reaction either from the retailers necessarily mean, there is still there are still challenges to partner with them to get prices up but but the environment is more conducive right now for most for many <unk>.

<unk>.

In our industry not only grown performance to go up.

We're talking about Apple just a lull and then to your Apple question Nadine its really.

In the process of lapping the final phase of its international launch last year demand has been high and as Lachlan mentioned.

Prioritization of our products with the constraints that we have it has been negatively impacted by that but we continue to believe that if launch and its connectivity with consumers remains very high.

Got it. Thank you if I could just clarify on that pricing have you taken pricing get outside of the U S or is that something youre looking to do you.

You have no no no we did it yes, we did it last.

Last cycle, so it would've been.

I guess Q2 for the most of our Q2 Q3 of last year, where the international prices all went through.

Got it so you're planning on hopefully implementing similar pricing.

Fiscal year.

Correct got it. Thank you very much I'll turn it over.

Thank you one moment for our next question.

And our next question comes from Vivien <unk> with Cowen. Your line is now open.

Hi, Good morning. Thank you sorry to go back to the glass supply, but that loss and I think you've given us permission to begin on that so.

It seems like.

Herradura was clearly the surprise and as I reflect back on your commentary around glass supply issues last fiscal year.

Just looking at Herradura as results were you rightly call out a very tough comp how is it that herradura was more immune to glass supply issues in fiscal 'twenty, two what changed this quarter. Thanks.

Well I mean, it's just where the glass is coming from and which plants are supplying the individual brands and so.

Good morning.

What changed this quarter. Thanks.

Well I mean, it's just where the glass is coming from and which plants are supplying the individual brands and so.

Okay Herradura as one of the most important brands in our portfolio and so it would have gotten some level of priority.

Particularly <unk> in the U S but.

Okay.

As the demand as I said was 90% in Q1, but as the demand as I said was 90% in Q1 the demand for several of our brands are not only there but that would be the most obvious one where the demand was higher than what we were forecasting.

You can keep that going for a little while but eventually that you've got <unk>.

No problem and so that problem showed its head.

Over the last quarter couple of quarters really in Herradura.

We're madly trying to find alternatives and find additional supply, but it's challenging.

It really is.

Yes.

That's helpful. And then maybe just to follow up on that.

With the underlying gross margin disclosure I was wondering if you could just kind of unpack Ethan just like order of magnitude the 180 basis points of cost pressure that you saw like how much of that was glass versus agave versus other thanks.

The largest driver of the one.

180 basis points of higher input cost is a portion of that is glass pricing as glass prices as we can we have the commodity inflation on natural gas I would say a bigger piece of it right now is corn and agave and I'll explain the agave piece in a moment.

For our cores.

For the quarter futures, there they've moderated throughout Q1 and <unk>.

It's stabilizing as we look out for F. 'twenty three but it is stabilizing at a place as approximately 20% higher than last year. So again. This is where in Q2, we'll know more about the harvest.

It has been impacted by the weather, but the quality of it will be supply demand and again, the harvester, becoming as soon another thing associated corn is the increased freight costs due to jet fuel for us agave is going to be.

Little bit of a headwind this year now and I want to make sure that I'm clear the external agave prices have remained stable between 27 and 29 Mexican pesos per kilo right now we're seeing prices at the top end of that range for brown Forman its going to be the mix.

What percentage, we source from the external market versus what we have internally grown ourselves.

With.

The balance between what our inventory.

Inventory of agave are that are ready to be harvested versus our demand we are sourcing externally at a bit of a higher mix.

And then what we would have last year, so there's a bit of that change impact there, but the pricing for external it is.

Stable, so really for us, it's I would say corn and a guy. They are the two biggest we'll know more for corn as we get into the harvest.

And we do have small inflationary increases on.

The cost of wood and Nash.

Natural gas is about it so is there anything else I can provide to you on that.

No that's really helpful. Thank you very much.

Thank you.

One moment for our next question.

And our next question comes from Chris pitcher with Redburn. Your line is now open.

Thanks very much.

Question is on extending the Jack Daniels brand it sounds from your comments.

Still comfortable with a flavor extension Scott today, and there's more growth to go for an.

It feels like honey, perhaps just sort of achieved sort of critical mass should we expect you to be sort of working on further extensions beyond.

Or do you think the flavors stories, perhaps playing out and the focus there is more now more towards extending the premium extension for Jack Daniel.

As a follow up to that I mean, looking at bonded and triple mash.

Sort of price premium do you think Jack Daniel's can move to and still achieve meaningful volumes. Because you have tried to take the brand up the price ladder before it runs into resistance have you are you targeting existing Jack Daniel's consumers to trade them up where you are now going after more premium whiskey consumers. Thanks.

Well.

To the second half of your question the answer is both.

The bonded series as I say, we haven't done.

For premium or Super premium line extension in a long long time, it's really since gentleman Jack.

And some of the single barrel expressions over the years. So we are we feel really good about the initial takeaway on these on these innovations has been very strong.

And we feel we feel very good about that it's getting really positive reviews in.

Is that sort of $29 $30 $31 price point, there is a real market projecting those consumers and so we feel pretty good about that as far as the flavor side of things I mean, certainly honey.

Honey has been a homerun for this company over the last 10 years.

And Apple Apple experiencing its own sort of issues not only lapping.

Launching but the Apple launch.

The timing, whether you're talking about the U S or international is terrible because it was right in the middle of it.

Right as the pandemic was hitting and that was a tough time to introduce new products.

I do feel that Apple has got it.

Have a healthy future and will do well, we do not have plans for another flavor in the near future I'll never say never but.

We're going to focus on these more premium line extensions for now in the core of the core Jack Daniels, Tennessee, Whiskey, which is.

Gross like it hasn't seen in <unk> and.

A number of years, we've now it's going to be several years in a row of growth on growth.

In ways that we feel pretty good about it so.

Yes, so I think we'll be slow on any flavor extensions and youre going to see you're going to see more advertising behind these bonded series, it's already we're already promoting it.

Rice promoting it but.

Television and digital and all the different ways that we communicate.

Big way on these brands and so it's kind of exciting to see that there is there is a nice market for premium extensions off of Jack Daniels Bryan and then the only thing that outlet build onto that is.

When we think about premium extension for Jack Daniel's, Tennessee Whiskey Gentleman Jack is now over 750000 cases, and we still believe it is very early in its international growth opportunity. So.

For me I would say higher than 750000 cases.

Yes keep in mind gentleman, Jack two was.

And as we look back if we fast forward a couple of years and I look back over everything that happened over this glass shortage gentleman, Jack is probably going to be the branded.

I don't know if it suffered the most.

It was a rough.

The Nielsen numbers are nowhere indicative of what we think the true underlying demand is for gentleman Jack It's just.

The brand has just taken it on the Chin last year.

It really didn't have any supply.

Please.

Thanks very much.

Thank you one moment for our next question.

And our next question comes from the line of Stephen Powers with Deutsche Bank. Your line is now open.

Hello, Thanks very much.

I had two questions the first one.

On the U S. If I, if I back out the trade inventory dynamics and get to the metric formerly known as underlying growth.

I think we ended up with like a 2% growth number in the U S. In the quarter, which was a bit light of our expectations just wanted to.

Get your sense for.

We know what that signifies for sort of that underlying normalized demand in the U S. If it was in line with your expectations and how do you expect that to trend from here.

Well first of all calling underlying for did you say, formerly known as <unk>.

One of the better lines that I've heard in a while.

Look the U S business.

Our international business is still.

Very much dominated by Jack Daniels and so.

The international demand was very very strong and we were able to supply. The U S is much more diversified and so brands like Woodford and old Forester and.

Basically everything other than Jack damage, you've got such a massive.

Sure.

<unk> got a very broad portfolio that was constrained by glass supply also think something that I'm, just not sure I appreciated a year ago, but the U S. On premise opened up quicker than the rest of the world and so we're lapping now that that reopening Q1 would have been.

Heavy reopening period for the U S.

International markets were more like Q2 or into Q3 and so.

So.

Some of it was just the comps too so that once again.

Answer to everything is glass supply and tough comps.

Impact of the U S business.

Look I look at our U S business.

Woodford I don't know when the U S number I guess it was a global number but still being a plus 39.

Huge growth number.

We've got to get our Tequila is going again, I mean that certainly was not a that was a negative for the quarter.

But still.

Still feeling pretty good about our U S business.

The way it has trended over the last even over the last few years, our U S business has been elevated now really throughout the pandemic. If you go back in.

Step back a little bit and look over a longer time period than a three or two or three year CAGR of four year CAGR youre going to see our U S business has been growing more like us it's been pretty steady, but it's been higher than our historical average is more like a seven as opposed to a really long term average more like five or six so yes.

U S business still really healthy.

Okay.

Good perspective, thank you and I guess the second question. If I could was just going back to I think it was andrea's question at the start around inventory dynamics since the second quarter.

I may have misheard I misinterpreted the answer but it seemed like there was a bit more uncertainty.

From from your answer in terms of whether or not and to what degree.

That trade inventory rebuilding would be continued tailwind in the second quarter I guess my perspective is given given what we've seen in the first quarter.

Acknowledging constraints, but seemingly improved supply and just what youre lapping last last year with with sort of the.

The teeth of the of the supply constraints I would expect I would've expected more kind of affirmative answer that Trey inventory dynamics would be more of a definitive tailwind in the second quarter and I just I just wanted to play that back to you and see if I was wrong or if I misinterpreted what you had said earlier. Thank you.

Yes, so I mean it comes back to we're continuing to evaluate the timeline for the normalization of our distributor inventory because we've got multiple factors at play at the same time, our glass supply position is.

Strengthening our facilities our bottling at record paces were getting inventory finished cases produce that are seeing challenges to get to market through supply chain, but we're not we have multiple strategies in place to get the cases there.

We are experiencing very strong consumer demand. So as we believe we have inventory to meet demand demand is increasing and at the same time, we are launching our new innovation at the bonded series and getting that to market. So we know when we.

We started really January but the second half of F. 'twenty two.

We began producing at a higher level and moving cases into the market that is continuing but the rebuild.

Is potentially going to take a longer period of time, depending on how consumer demand changes.

Yes, yes, it does.

To extent that you are having the organic growth we will either benefit from you've got your supply getting stronger I think your resort strengthening so if consumer demand is strong and that will show up in sort of.

Sorry, if it consumption.

Amanda's.

Bit softer, allowing you to replenish inventory would show up in.

Kind of a trade inventory build either way.

Okay I understand all staff ramp like thank you so much.

Okay.

Thank you one moment for our next question.

Okay.

And our next question comes from Noah <unk> with Jefferies. Your line is now open.

Hey, good morning, everyone. Its actually Kevin Grundy here congrats on the strong results.

We covered a lot of ground hopefully these will be fairly quick.

On FX fully acknowledge that you guys do not guide.

My question is on transactional FX and maybe you can just help us think about that we can do our own modeling on topline just thinking about the flow through to operating profit should we be thinking about the same transactional impact too.

<unk> operating income and that is to say it was a 6% impact headwind on the topline in the quarter was at 60% impact to profit to more than two five times sort of multiplier. If you will is that the right way to think about.

The impact of profit for the year is that something you can comment on.

Well as well as we would think about this so starting with <unk>.

It is the transactional impact largely related to the euro and the lira Youre exactly right on the on the impact.

For the shape of it for the for the <unk>.

<unk> I don't want to comment on that because again, we started in calendar year 'twenty, three which again would have hit some of the back half of our F. 'twenty two we started to see some chat.

Challenges or headwinds from FX, so that will we will be going against that a bit in light of F. 'twenty three.

But again, it's transactional we don't see any meaningful remeasurement from a translational perspective and yes.

We've just been clear to say that if we were to assume that rates remain where they are today, it's going to be a headwind. So.

Yes.

I would hesitate to say shape wise it'll be consistent throughout the year it will be.

More consistent than not is going to depend on when we get into the back half of the year, how we're lapping that okay. Okay.

Thank you for that and then a quick one we've talked about this on the call before just balance sheet and uses of cash. So the debt leverage continues to creep lower Lena you talked about some asset sales at the end of your prepared remarks I'm not sure magnitude of that maybe you can comment on how we should think about it but just it.

It would be good to get your updated thoughts on where your debt leverages now even taking into account.

Elevated levels of Capex for the year your debt leverage would still continue to creep lower.

Consideration. So your updated thoughts there would be would be appreciate it. Thank you.

Okay, Great I'll start with the demand the divestiture of our Tuesday of Nos again.

This is about optimizing our strategic sourcing model, we think theres going to be is it gives us a broader base of sourcing continuous improvement initiatives that will ultimately result in cost savings with economies of scale now the impact of that from a capital perspective, it would not be material.

But we do from a barrel cost wood cost perspective, we do expect to start seeing favorable cost. The back end of this kind of Q4 of this year, but with our aging process and the associated.

The accounting for it for that it will take a period of time before we recognize that so that that I just wanted to comment on that part first and as it related to capital again, we don't typically we don't talk about a target, but what is really important for us is that we maintain flexibility and the strength of our balance sheet.

We know that we are facing supply chain challenges there are geopolitical embraer.

Environmental.

Vince that we also want to hedge against that we also want to be well positioned to take advantage of any potential investment opportunities. So we keep our balance sheet in a place where we can capture those opportunities and hedge against any of the risks.

Yes, I don't think theres so much of a change really in our capital allocation strategy. I mean, we're always going to look to invest in our business first.

Acquisitions are difficult in this industry, but we're always looking.

Share buybacks are.

The current administration has made them, maybe a little bit less attractive.

With some of the excise taxes that they're posting but we'll always balance the.

The share buyback and special dividend question I know, it's only been what has it been eight or nine months since we did a special dividend and so there is not pressure necessarily to do one of those really soon but.

I think just at the end of the day, we feel like we're good and smart and we have a good capital allocation strategy and we're really not changing it.

Very good thank you both.

Thank you.

At this time, we've run out of time for questions I'd like to hand, the conference back over to Sue Param for any closing comments.

Thank you.

So lots and land and thank you to everyone for joining us today for Brown <unk> first quarter fiscal year 2023 earnings call. If you have any additional questions. Please contact us.

We look forward to presenting next week in person at the Barclays Global Consumer Staples Conference and hope to see many of you for.

For those of you that are unable to attend the presentation will be made available as a webcast that will be accessible via our brown Forman corporate web site under the section titled investors events and presentations.

We wish everyone, an enjoyable weekend and hope you will join us in raising a glass on September 2nd as we say happy birthday to our founder George carbon Brown with that this concludes our call.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

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Good day, Thank you for standing by welcome to Brown Forman first quarter fiscal year 2023 earnings conference call at this time all participants.

<unk> are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Sue Param with Investor Relations. Please go ahead.

Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown Forman first quarter fiscal year 2023 earnings call.

Joining me today are Lawson, Whiting, President and Chief Executive Officer, and Leanne 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 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 Investor presentation.

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

Thank you Sue and good morning, everyone. Since we began fiscal 'twenty three our momentum continued and we delivered another quarter of double digit topline growth on both the reported and organic basis.

We experienced strong consumer demand driven by increased travel and tourism the gradual reopening of the on premise internationally as well as sustained premium position trends.

Some headwinds turned to a tailwind our gross margin expanded with favorable price mix and the removal of tariffs more than offsetting increased costs and the negative effect of foreign exchange <unk>.

This improvement in our gross margin enabled us to further invest behind our brands and our people while growing our bottom line ahead of the top line.

Overall, I'm very pleased with the start to our fiscal year and remain thankful to our brown Forman employees for their continued focus on growing our brands throughout the world.

So this morning I'll provide a few more details on the quarter and then I'll turn things over to Liam.

Second our Super premium American whiskey portfolio increased organic net sales double digits.

Woodford Reserve led this effort growing organic net sales, 39% and reaffirming the strength of the trademark.

Glass supply constraints ease and we increased our bottling capacity, we were better able to meet consumer demand for Woodford reserve.

Also in May we launched the first Super premium Jack Daniels line extension in a quarter of a century.

The new Jack Daniels bonded, Tennessee, Whiskey, and Jack Daniel's Triple mass blended straight whiskey are the first two permanent expressions in the brand's new bonded series and they're off to a great start.

The products are currently available in the U S. France, the U K and Italy, and we will continue to rollout internationally.

These whiskeys are another opportunity for both our friends in new drinkers to explore and discover everything Jack Daniel's has to offer.

Jack Daniel's RTD, which grew organic net sales, 17% were the third largest contributor to overall company growth fueled by the consumer trends of convenience and flavors.

Leading this growth as Jackie and those Nikola which gives us continued confidence in our global agreement with the Coca Cola company to deliver the iconic Jack and Coke cocktail is a branded ready to drink adult beverage. We're on track to launch the Jack Daniels and Coke, Jack Daniels and Coca Cola RTD beginning in late calendar 'twenty two in Mexico.

We look forward to sharing more about this exciting agreement between two global American icon in the quarters and years to come as it expands to markets throughout the world.

The rest of the Jack Daniel's family also delivered solid results led by a double digit organic net sales increase collectively from Jack Daniel's, Tennessee, Honey and Jack Daniel's, Tennessee fire, particularly in the U S is the glass supply constraints have eased.

Beyond our American whiskey portfolio organic net sales for our full strength to kilo portfolio declined 3%.

Supply disruption mainly related to glass were aired or in the U S and Mexico as well as difficult prior year comparisons in the U S were significant contributors to this performance.

Demand, particularly in the U S remains very strong with glass supply challenges and continued stable, but elevated costs for agave have slowed our profit growth.

New MX performed well as the RTD category in Mexico is growing and the brand is increasing share.

So I am going to try and build upon its momentum as we continued reopening of the on premise channel drove a double digit increase in organic net sales and our Scotch portfolio led by Glenn <unk> also produced strong results.

Earlier this month, we announced an investment of over 30 million pounds in the Glen <unk> distillery to significantly increase production capacity.

Just on the latest AWS, our data global demand for the <unk> X has tripled since June 2016, the year that we acquired the brand as whiskey common stores around the world discovered the distilleries award winning single malls. We believe this investment will steward long term future growth of the brand.

We will go into depth about our results in each of the geographic divisions. When I was pleased to see broad based growth across all geographic clusters and the travel retail channel.

They were all more than offset by tailwind, including favorable price mix and the removal of the EU and UK tariffs on American whiskey.

This combination of headwinds and <unk> resulted in 80 basis points of gross margin expansion in the quarter.

It was this time last year that we shared our plans to increase prices in the U S. While the majority of our brand portfolio as part of an overall strategy to increase prices more consistently year after year.

We believe the health and relevance of our brands as well as our continued brand building investments will allow us to successfully implement our long term pricing strategy.

In summary, we had a strong start to the fiscal year and remain optimistic as we look ahead, even as the global macroeconomic and geopolitical environment remains volatile and uncertain.

To thank each and every one of them for delivering the results that we are sharing with you today give our company character and complexity purpose and perseverance.

Jody and authenticity and I'm greatly appreciative.

With that I'll turn the call over to Leann and she will provide more details on our first quarter results.

First I will share our top line results by geographic cluster.

International markets collectively delivered strong organic net sales growth of double digits for the quarter, an increase in tourism and a return to the on premise channel field broad based growth across the markets. Despite continued supply chain challenges.

Jack Daniel's, Tennessee Whiskey was the largest contributor to growth driven by Germany, Spain and Austria.

Belgium also contributed to the growth as it has seen solid momentum since transitioning to owned distribution in January of 2022 Jack.

Reserve.

Collectively our emerging international markets continue to rebound with very strong double digit organic net sales growth driven by strong organic growth from Jack Daniels, Tennessee, Whiskey, particularly in Turkey, Sub Sahara Africa, Brazil and Chile.

Jack Daniels, Tennessee, Honey grew organic net sales double digits led by Chile, where the brand has more than doubled and new mix growing strong double digits in Mexico.

Growth was partially offset by lower volumes of ore Dara in Mexico, as the brand say supply chain constraints.

Year over year declines in Russia due to the suspension of our commercial operations beginning in March of 2022.

The U S business remains strong growing organic net sales 7%.

This growth builds upon the 19% organic net sales growth delivered in the first quarter of fiscal 2022 which was fueled by the initial reopening of the on premise channel.

Woodford Reserve led the growth for the first quarter with a positive impact from higher pricing and higher volumes as supply and capacity constraints eased.

Also benefiting from an improved supply chain environment, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee fire experience volumetric gains.

Growth was partially offset by lower volumes of core Bell and Jack Daniel's, Tennessee, Whiskey, which both lapped double digit comparison in the same prior year period. Despite.

Despite the supply chain challenges, we estimate a net increase in distributor inventories positively impacted net sales.

Although even with the increase in the quarter, we believe distributor inventory levels remained below their pre pandemic levels. This is due in large part to transportation and logistics constraints as well as increased consumer demand, we continue to monitor consumer mobility trends and based on data.

Im open table and Google mobility, the on premise trends have continued to hover around pre pandemic levels.

This shift to the on premise is continuing to impact off premise takeaway trends as consumers have made the gradual return to restaurants and bars.

Our business in this channel has not yet fully recovered to pre COVID-19 levels. The continues to close the gap.

And lessons shared the details of our gross margin expansion for the quarter I will now turn to our operating expenses.

Organic advertising expenses in this quarter compared to the same prior year period grew at a higher rate than our topline growth largely due to the timing of our increased investments in the United States to support Jack Daniel's, Tennessee Whiskey era Dara the launch of Jack Daniel's bonded and Triple Nash and with.

With reserve.

Total reported and organic operating income grew 19% and 32% respectively. In the first quarter of fiscal 'twenty 'twenty three.

These results combined with a decrease in our effective tax rate resulted in a 30% diluted earnings per share increased to 52 cents per share.

And finally to our fiscal 'twenty 'twenty three outlook, we continue to be optimistic as we look ahead, even amidst the current volatility and uncertainty of the global macroeconomic and geopolitical environment, We believe our headwinds and tailwind will remain largely the same through the remainder of our fiscal year and the strength of our portfolio.

Leo of brands supported by strong consumer demand and our strategic investments will enable continued growth and therefore, we are reiterating our full year fiscal 'twenty 'twenty three guidance.

With the start of a new fiscal year, we have now cycled against the more volatile months of the pandemic and believe we are seeing trends began to stabilize we remain confident in the collective strength of our U S developed and emerging international markets, along with the travel retail channel we.

Anticipate our results should continue to benefit from the continued return of tourism and the gradual reopening of the international on premise channel along with stronger pricing and innovation we.

We do remain cautious given the potential impact of inflation and rising energy prices on consumer spending.

The important holiday season as is typical and we experienced stronger shipments in the second half of fiscal 2022 as glass supply challenges began to ease.

And while we continue to expect input cost inflation to remain a headwind.

So costs related hourglass with swap position has improved.

Some challenges remain for some of our brands, particularly era Dara.

We are continuing to partner with our current glass suppliers as well as add new suppliers to address these constraints.

Based on these headwinds and tailwind we are reiterating our reported gross margin guidance for <unk> to expand slightly for the full year as our trajectory of expansion continues.

Related to our supply chain, we constantly search to identify continuous improvement opportunities to optimize both our supply chain and its related costs.

As we have shared with you during many calls we have been progressing various initiatives to address the challenges related to the cost of wood.

One such initiative has led us to the recent announcement regarding the decision to sell our Stevenson mill in Alabama, and Jacksonville, and Ohio to Independence, Dave Company. This sale is it part of a long term agreement between Brown Forman and independence, Dave to allow for the.

<unk> and diversification of our supply chain network Independence day is that dynamic family owned Cooperage company and is committed to environmental sustainability in its operations.

All of this existing mills are sustainable Forestry initiative certified and independence day like Brown Forman is a founding member of the white oak initiatives to support the long term sustainability of white oak for us.

We're also pleased that all employees impacted by the agreement will be offered positions with independence, Dave It.

It is important to note, we will continue to own and operate our Clifton mill in Clifton and Tennessee, and both our Brown Forman and Jack Daniels Q bridges.

For the last components of our outlook the outlook for operating expenses remains the same in addition to our philosophy of growing the investment behind our brands at a rate similar to our topline growth as we have stated many times that when the EU and UK tariffs on American whiskey were removed we would reassess.

With a portion of the relief back behind our brands. We are very pleased that in fiscal 2023, we are now executing against this additional investment behind our brands.

And as we shared last quarter, we will also invest behind our people and expect a continued rebound of discretionary spend to support our business needs in a post pandemic environment.

Based on these expectations. We currently expect our organic net sales and organic operating income to grow in the mid single digit range for the full fiscal year.

Can we still expect our fiscal 'twenty 'twenty three effective tax rate to be in the range of about 22% to 23%.

The guidance, we provide is on an organic basis, which excludes the impact of foreign exchange.

In summary.

And as <unk> stated, we have had a strong start to fiscal 2023, delivering double digit top and bottom line growth on both a reported and organic basis. We remain optimistic as we look ahead and are confident in our ability to build upon this momentum and deliver consistent long term growth despite near term.

Thank you.

As a reminder to ask your question you will need to press star one one on your telephone.

Please standby, while we compile the Q&A roster.

Our first question comes from Andrea.

Sierra with Jpmorgan Your line is open.

Thank you for taking my question. So good morning, I wanted to just first of all.

Correct later on the earnings, but just as you had this 5%.

Positive impact, which was called out in the last quarter's call in the first quarter.

It seems like your the remainder of your fiscal year would then be the risks because of there is a strong number do you expect that inventory, we build to phase out in the second quarter fiscal or you still have that benefit in your view I know the TR numbers would still question it would be.

But if you can elaborate a little bit more bitch legal function.

And the patients. Thank you.

Hi, Andrea this is liane.

We are continuing to evaluate the timeline to get back to normalization of our distributor inventories.

The last fiscal year and again, we talked about in our prepared remarks in the second quarter and then the second half we begin making significant progress on.

Rebuilding inventories were continuing to work very hard to rebuild those inventories, but at the same time, we're continuing to experience very strong consumer demand.

Into the second.

Quarter to understand kind of what our exact timeline looks like but we do continue to see.

Benefit in the first quarter as you stated.

From a glass supply perspective supply chain in general we expect to be a headwind for the fiscal year. Our glass supply has continued to improve with our current supplier increasing capacity, we've broadened our supplier base.

Jack Daniel's facility is still bottling at record pace.

As also noted in prepared remarks, we continue to face challenges for some brands in some sizes and particularly for this quarter is Eric era, and we have some capacity strength in the current supply chain and we're addressing that currently by expanding our supplier base.

Great constraints, because there is a high demand for the equipment. There is an imbalance of the equipment around the world and again thats coming with associated costs and in the U S, which is our home market in our largest market, where we produce the vast majority of our product we still face driver challenges on equipment challenges so net.

We're making progress and we are working to replenish it does remain below.

Pre pandemic levels, but we're encouraged by the strong customer demand.

Yes, I mean I think.

Feels like every question, we're going to get asked this morning glass supply as part of the answer.

But a year ago, we really we prioritize Jack Daniel's, Tennessee Whiskey, So core black label.

Folk.

To the detriment of practically every other brand in our portfolio.

So as the year went along our demand has been very strong I mean demand for Tennessee Whiskey, which we believe is the largest are certainly one of the largest on premise brands in the world. The demand has just been outstanding.

Standing quite honestly and so we had a big year last year and a continued on through the first quarter of this year.

But to this as I said brands like gentleman, Jack the flavors and now most recently our tequila brands have all suffered for it. So we've caught up with Jack Daniels, Tennessee Whiskey for the most part I mean, it's taken a little longer because of the strong man, but it's.

It's doing well Woodford reserve had a great quarter. So we begin to replenish the inventories of Woodford around the world same thing on old Forester.

I will say it was a bit of a surprise, but it but.

Eric Joseph for one point to also make Herradura grew by 90% in quarter. One last year. So tough comps was also part of that answer but certainly the brand is suffering under a glass supply shortage.

That we're working very hard to try to fix but it's not there yet.

That's super helpful. If I can squeeze just one one question on how consumers have been receiving the price increase and if you were saying it doesn't look like you're seeing any down trade, but this is the topic that we.

Obviously, you spoke to all the companies. This earnings season, if there is any.

The price elasticity Youre seeing.

On the trade that investors should be aware of.

Yes.

Look we have pushed through our price increases I think we said sort of 90% of the price increases are already reflected on the shelf and.

And we haven't we haven't seen the trade down now.

Perhaps a little caution in looking at our trends and then extrapolate those to sort of macro trends because of our glass situations, so that dominates over any sort of.

Trade down or lack thereof really because.

Not showing through in our numbers when we look at Tds, we're not really seeing it is obviously, it's a U S comment, but youre not seeing it really in the data there either and so.

Elasticities I think the biggest piece of an elasticity question always is what are your competitors doing and our competitors are also going up and so for the first time I'll say a decade youre seeing some pretty good pricing throughout the industry.

And youre not seeing youre not seeing a lot of pushback. So we're able to get prices through we're getting them through the retailers it's on the shelf.

Consumers are still buying it so so feeling pretty good.

We use the term affordable luxury a lot.

And I do think spirits is an affordable luxury where consumers prioritize that bottle of Jack Daniels and to the detriment of a lot of other consumer products, we you've seen a lot of the retailers the big retailers in the U S that have struggled with inventories.

Were kind of the opposite where we don't have enough inventory out there.

And it's pretty healthy.

It's a good situation in that.

Land is still there.

Okay helpful. Thank you I'll pass it on.

Thank you.

One moment for our next question.

Our next question comes from Peter Grom with UBS. Your line is now open.

Hey, good morning, everyone and hope you're doing well.

Kind of wanted to follow up on Andrea's question, just around the guidance and just given the strong start to the year.

Top line and margin perspective.

Just the guidance seems to imply a pretty meaningful slowdown from here and I guess I would just would be curious is that simply just conservatism given.

Do you have any uncertainty on many fronts. There is there kind of something you're seeing more real time, either U S or other markets around the world, That's giving you some concern here.

Well and again building hi, Peter how are you as a nice to hear from me it's been a while.

Yes.

Building on what Lawson said from an inventory perspective, we really started.

Glass supply begin to ease in our second half of last year.

Our shipments were kind of above.

They were above our depletion level trying to get our inventory rebuild so yes, we've had a strong start to our year and we know that next quarter, we will be comping one of our.

Our lowest performing quarter of fiscal 'twenty, two but then at the end of fiscal 'twenty. Two we had a four point benefit from those shipments so when week.

I've talked about we have we will have a strong first start first half of our 2003 and that we will have to call that four point benefit that we saw in the second half and then we also and again as we said in our prepared remarks, and we do remain cautious about how inflation and rising energy costs are going to impact.

Our consumers.

Will there be any macroeconomic or geopolitical events that.

Similar to last March when we suspended our business. So again that will be an impact in F. 'twenty three is the absence of our business in Russia.

So from a cost perspective.

Talked about this a bit we're facing challenges.

Easing on the glass supply, but then now moving to logistics and transportation and then it will be our ability to get our.

To market and to consumers, which we believe is possible, but it's going to come.

Increased costs, some of which we plan because we have plan for inflation every year.

One of the things that.

Is different for us is that.

About inflation with the removal of the EU and UK tariffs on American whiskey.

Unlike many others well that will help us to mute the impact of inflation in costs.

We have so I don't necessarily is very early in the year. There is a lot a year ago and a lot can unfold ahead of us.

Definitely optimistic and off to a strong start.

But we know we have a strong back half of last year to come.

Got it. Thank you for that that's Super helpful. And then just maybe following different topic, just the Coca Cola and Jack Daniels partnership can you maybe just provide some more background on the partnership why both parties decided now is the right time and I know I think last time, you mentioned in Mexico launch in the fourth quarter.

But just any initial thoughts around timing in the U S.

Contribution to topline growth versus maybe cannibalization version.

Ready to drink portfolio.

Yeah.

From launching in Mexico.

We would.

Do I think I prefer to do is push this question off for another quarter, we will be more transparent with you all as we move into the rest of the fiscal year. We are still working behind the scenes on the cadence of launches the level of investment all the everything that goes with effectively a new product launch.

On a positive side are objecting those in coal so not the coke objectives in Cola.

Is flying.

That business is still really really strong and so that's part of the part of the trick to this launches how we remove those products from the market and replace it with Janssen coconuts.

A little more complicated than maybe that might sound, but.

This is still a very healthy business theres, a lot of particularly in the U S. There's a lot of competitors not so much in the <unk>.

<unk> side of things, but I mean, theres a lot of RTD interest these days and there's a handful of brands that are doing really really well.

So we feel really good that this thing once we get it out there in the market.

We will be ready to go.

Drive some with some pretty significant demand.

I think we're going to wait another quarter before we sort of release a lot of those details and then the only thing I would add to that is we are we're really excited about the numerous opportunities that we believe that this product will have from a geographic expansion perspective, and our ability to gain share with it as well yeah I'll.

Honestly, the Coca Cola system.

So big.

They cover that cover the world.

Our products have been we haven't even offered Jack in Cola and many many parts of the world. So it's going to be an exciting thing for this company.

And we're looking forward to looking forward to it knowing that most of that growth is really going to fall in calendar 2023.

Sure.

Okay. Thanks, so much for that color I'll pass it on.

Thank you.

Our next question.

And our next question comes from Nathan <unk> with Bernstein. Your line is now open.

Hi, everybody.

<unk> with my usual question on pricing I remember on the last conference call. We discussed how you're taking from a pricing across the board in the U S. Great to hear that I think you said, 90% of that pricing for this fiscal year has gone through can you give us an update on your pricing strategy outside of the USO have taken incremental price this especially in light of that inflationary.

<unk>.

And then one final question Jack Daniel's Apple I know, you mentioned flavors being prioritized, but even if we take into account.

Changes in distributor inventory, we're at a fall of about 8% underlying level is there anything else, we should bear in mind for the weakness in the quarter for this brand or is this a one off because of the supply chain issues. Thanks.

Yes, let me I'll.

Take pricing a bit and then maybe you can comment on that.

Apple itself.

Yes.

The pricing.

Strategy that we're implementing as global its not just the U S and it's kind of similar similar numbers.

Europe has been a very difficult pricing environment for a long time.

But we are finally push we've pushed through successfully pushed through last year and we will continue to do it again this year.

All at that low single digit pricing.

Sort of 2% to 3% range is something I want to see.

For the foreseeable future I mean every year, we don't want to we're not trying to go up 10, one quarter and then back off a little bit it's trying to go slow and steady and.

That's worked it's worked so far.

As I mentioned to the earlier question I think a lot of it has to do with other brands are also going up too and so we're not seeing this sort of negative reaction either from the retailers necessarily mean, they are still there are still challenges to partner with them to get prices up but but the environment is more conducive right now for for most for many <unk>.

<unk>.

In our industry not only grown formats to go up.

I will talk about Apple just a little bit and then to your Apple question Nadine its really.

In the process of lapping the final phase of its international launch last year demand has been high and as Wilson mentioned.

Prioritization.

Our products with the constraints that we have.

Has been negatively impacted by that but we continue to believe that launch and its connectivity with consumers remains very high.

Got it. Thank you if I could just clarify on that pricing have you taken pricing get outside of the U S or is that something youre looking to do you have no no no. We did it yes, we did it last.

Kind of last cycle. So it would have been I.

I guess Q2 for the most part Q2 Q3 of last year, where the international prices all went through.

Got it so you're planning on hopefully implementing similar pricing.

This fiscal year.

Correct got it. Thank you very much I'll turn it over.

Thank you one moment for our next question.

And our next question comes from Vivien <unk> with Cowen. Your line is now open.

Hi, good morning, Thank you.

Sorry to go back to the glass supply, but lastly, I think you've given us permission to begin on that.

So it seems like.

<unk> was clearly the surprise and as I reflect back on your commentary around glass supply issues last fiscal year.

Well I mean, it's just where the glass is coming from and which plants are supplying the individual brands and so.

I was wondering.

What changed this quarter. Thanks.

Well I mean, it's just the way.

The glass is coming from and which plants are supplying the individual brands and so.

Okay, Eric Duerr as one of the most important brands in our portfolio and so it would have gotten some level of priority.

Particularly <unk> in the U S but.

As the demand as I said was 90% in Q1, but as the demand as I said was 90% in Q1 the demand for several of our brands not only at <unk>, but that would be the most obvious one where the demand was higher than what we were forecasting.

Yes.

You can keep that going for a little while but eventually that runs into a problem and so that problem.

Ed.

Over the last quarter couple of quarters really on Herradura.

As we have.

We're madly trying to find alternatives and find additional supply, but it's challenging.

It really is.

Yes.

That's helpful. And then maybe just to follow up on that.

The largest driver of the one.

180 basis points of higher input costs is a portion of that is glass pricing as glass prices as again, we have the commodity inflation on natural gas I.

I'd say a bigger piece of it right now is corn and agave and I'll explain the agave piece in a moment.

But for our cores.

For the quarter futures, there they've moderated throughout Q1 and.

As we are stabilizing as we look out for F. 'twenty three but it is stabilizing at a place as approximately 20% higher than last year. So again. This is where in Q2, we'll know more about the harvest.

Hey, that's been impacted by the weather, but the quality of it will be a supply demand and again the harvest will be coming soon and other thing associated corn is the increased freight cost due to jet fuel for us agave is going to be.

A little bit of a headwind this year now I want to make sure that I'm clear as the external agave prices have remained stable between 27 and 29 Mexican pesos per kilo right now we're seeing prices at the top end of that range for Brown Forman its going to be the mix of.

What percentage, we source from the external market versus what we have internally grown ourselves and with the.

The balance between what our inventory.

Inventory of agave are that are ready to be harvested versus our demand we are sourcing externally at a bit of a higher mix.

And then what we would have last year, so there's a bit of that change impact there, but the pricing for external.

Stable, so really for us, it's I would say corn and agave are the two biggest we'll know more.

And as we get into the harvest.

We do have small inflationary increases on.

The cost of wood and natural gas is about it. So is there anything else I can provide to you on that.

No that's really helpful. Thank you very much.

Thank you.

One moment for our next question.

And our next question comes from Chris pitcher with Redburn. Your line is now open.

Thanks, very much I have a couple of questions on extending the Jack Daniels brand it sounds from your comments.

Still comfortable with the flavor extension strategy and there's more growth to go for an Apple it feels like honey, perhaps just sort of achieved sort of critical mass should we expect you to be sort of working on further extensions beyond.

Or do you think the flavors story is perhaps playing out and the focus there is more now more towards extending the premium extension for Jack Daniel and as a follow up to that I mean, looking at bonded and triple mash.

What sort of price premium do you think Jack Daniel's can move to and still achieve meaningful volumes. Because you have tried to take the brand up the price slightly before it runs into resistance have you are you targeting existing Jack Donald consumers to trade them up where you are now going after more premium whiskey consumers. Thanks.

Well.

To the second half of your question the answer is both.

The bonded series as I say, we haven't done.

Premium or Super premium line extension in a long long time really since gentleman Jack.

And some of the single barrel expressions over the years. So we are we feel really good about the initial takeaway on these on these innovations has been very strong.

And we feel we feel very good about that it's getting really positive reviews and.

Sort of $29 $30 $31 price point, there is a real market projecting those consumers and so we feel pretty good about that as far as the flavor side of things I mean, certainly honey.

Honey has been a homerun for this company over the last 10 years.

And Apple Apple experiencing its own sort of issues not only lapping the launching but the Apple watch is just the timing whether you're talking about the U S or international is terrible because it was right in the middle of it.

Right as the pandemic was hitting and that was a tough time to introduce new products. So I do feel that Apple is going to go to.

Have a healthy future and we will do well, we do not have plans for another flavor in the near future I'll never say never but.

We're going to focus on these more premium line extensions for now and the core the core Jack Daniels, Tennessee, Whiskey, which is.

Gross like it hasn't seen in.

A number of years, we've now it's going to be several years in a row of growth on growth.

In ways that we feel pretty good about it so.

Yes, so I think we'll be slow on any flavor extensions and youre going to see some more advertising behind these bonded series, it's already we're already promoting it.

Rice promoting it but tullow.

TV and digital and all the different ways that we communicate.

Big way on these brands and so it's kind of exciting to see that Theres, a theres a nice market for some premium extensions off of Jack Daniels Bryan and then the only thing that I will build on to that is.

When we think about premium extension for Jack Daniel's, Tennessee Whiskey Gentleman Jack is now over 750000 cases, and we still believe it's very early in its international growth opportunity. So.

For me I would say higher than 750000 cases.

Yes, and keep in mind gentleman, Jack too was.

As we look back if we fast forward a couple of years and then look back over everything that happened over this glass shortage gentleman, Jack is probably going to be the branded.

Don't know if its suffered the most.

It was a rough.

The Nielsen numbers are nowhere indicative of what we think the true underlying demand is for gentleman Jack It's just.

The brand has just taken it on the Chin last year is it really didn't have any supply.

Please.

Thanks very much.

Thank you one moment for our next question.

And our next question comes from the line of Stephen Powers with Deutsche Bank. Your line is now open.

Hello, Thanks very much.

I had two questions the first one.

On the U S. If I, if I back out the trade inventory dynamics and get to the metric formerly known as underlying growth.

I think we ended up with like a 2% growth number in the U S. In the quarter, which was a bit light of our expectations I just wanted to go.

Your sense for.

We know what that signifies for sort of that underlying normalized demand in the U S. If it was in line with your expectations and how you expect that to trend from here.

Well first of all calling underlying four what did you say, formerly known as <unk>.

One of the better lines that I've heard in a while.

Look the U S business.

Our international business is still.

Very much dominated by Jack Daniels and so.

The international demand was very very strong and we were able to supply. The U S is much more diversified and so brands like Woodford and old Forester.

Basically everything other than Jack Dan you've got such a massive.

You've got a very broad portfolio that was constrained by glass supply also think something that I'm just not sure I appreciate it a year ago, but the U S. On premise opened up quicker than the rest of the world.

So we're lapping now that that reopening Q1 would have been a heavy reopening period for the U S.

International markets or more like Q2 or into Q3 and so.

Some of it was just the comps do so once again.

The answer to everything is glass supply and tough comps.

The impact of the U S business.

Look I look at our U S business, I mean, Woodford I don't know when the U S number I guess it was a global number but still being a plus 39.

As a huge growth number.

We've got to get our Tequila is going again, I mean that certainly was not a that was a negative for the quarter.

But still.

Still feeling pretty good about our U S business.

The way it has trended over the last even though in the last few years. Our U S business has been elevated now really throughout the pandemic. If you go back and step back a little bit and look over a longer time period than a three or a three year CAGR of four year CAGR youre going to see our U S business has been growing more like us it's been pretty steady, but it's been higher than <unk>.

Our historical average is more like a seven as opposed to a really long term average more like five or six so yes.

This business is still really healthy.

Okay. Okay.

Good perspective, thank you and I guess the second question. If I could was just going back to I think it was andrea's question at the start around inventory dynamics since the second quarter.

I may have misheard I misinterpreted the answer but it seemed like there was a bit more uncertainty.

From from your answer in terms of whether or not and to what degree.

That trade inventory rebuilding would be a continued tailwind in the second quarter I guess my perspective is given given what we've seen in the first quarter.

Acknowledging constraints, but seemingly improved supply and just what youre lapping last last year with with sort of the.

The teeth of the of the supply constraints I would expect I would've expected more kind of affirmative answer that trade inventory dynamics would be more of a definitive tailwind in the second quarter and I just I just wanted to play that back to you and see if I was wrong or if I misinterpreted what you had said earlier. Thank you.

Yes, I mean, it comes back to we're continuing to evaluate the timeline for the normalization of our distributor inventory because we've got multiple factors at play at the same time, our glass supply position is.

Strengthening our facilities our bottling at record paces were getting inventory finished cases per days that are seeing challenges to get to market through supply chain, but we're not we have multiple strategies in place to get the cases there.

We are experiencing very strong consumer demand. So as we believe we have inventory to meet demand demand is increasing and at the same time, we are launching.

Our new innovation at the bonded series and getting that to market. So we know when we started really January but the second half of F. 'twenty two.

We began producing at a higher level and moving cases into the market that is continuing.

But the rebuild.

Is potentially going to take a longer period of time, depending on how consumer demand changes.

Yes, yes.

Yes.

To the extent that you are having.

Organic growth will either benefit from you've got your supply getting stronger I think youll resort strengthening so if consumer demand is strong that will show up in sort of.

Sure I'll be consumption, if demand is a little bit softer, allowing you to replenish inventory would show up in.

Kind of a trade inventory build either way.

Okay I understand all staff ramp like thank you so much.

Thank you one moment for our next question.

Okay.

And our next question comes from Noah <unk> with Jefferies. Your line is now open.

Hey, good morning, everyone. Its actually Kevin Grundy here congrats on the strong results.

We covered a lot of ground hopefully these will be fairly quick.

On FX fully acknowledge that you guys do not guide.

My question is on transactional FX. So maybe you can just help us think about that we can do our own modeling on top line just thinking about the flow through to operating profit should we be thinking about the same transactional impact too.

<unk> operating income and that is to say it was a 6% impact headwind on the topline of quarter was at 16% impact of profit to more than two five times through the multiplier. If you will is that the right way to think about.

The impact of profit for the year is that something you can comment on.

Well as well as we would think about this so starting with <unk>.

It is the transactional impact largely related to the euro and the lira youre exactly right on the impact.

The shape of it for the for the full year I don't want to comment on that because again, we started in calendar year 'twenty, three which again would have hit some of the back half of our F. 'twenty two we started to see chat.

<unk> AOS are headwinds from FX, so that will be going against that a bit in light of F. 'twenty three.

But again, it's transactional we don't see any meaningful re measurement from a translational perspective and.

We've just been clear to say that if we were to assume that rates remain where they are today, it's going to be a headwind. So.

Yes.

I would hesitate to say shape wise it'll be consistent throughout the years it will be.

More consistent than not is going to depend on when we get into the back half of the year, how we're lapping that okay. Okay.

It would be good to get your updated thoughts on where your debt leverages now even taking into account.

Elevated levels of Capex for the year your debt leverage would still continue to creep lower.

So I just I'd love to get your thoughts on targeted debt leverage and then as we think about uses of excess cash where is the bias today between buybacks versus perhaps one time dividends of course, there's a long history of Brown Forman those sort of consideration. So your updated thoughts there land would be would be appreciate it. Thank you.

Okay, Great I'll start with the domestic the divestiture of our two Steve knows again.

This is about optimizing our strategic sourcing model, we think theres going to be it gives us a broader base of sourcing continuous improvement initiatives that will ultimately result in cost savings with economies of scale now the impact of that from the capital perspective, it would not be material.

But we do from a barrel cost wood cost perspective, we do expect to start seeing favorable cost. The back end of this kind of Q4 of this year, but with our aging process and the associated.

Accounting for that it will take a period of time before we recognize that so that that I just wanted to comment on that part first and as it related to capital again, we don't typically we don't talk about a target, but what is really important for us is that we maintain flexibility and the strength of our balance sheet.

We know that we are facing supply chain challenges there are geopolitical empire.

Environmental.

Vince that we also want to hedge against that we also want to be well positioned to take advantage of any.

Potential investment opportunities. So we keep our balance sheet in a place where we can capture those opportunities and hedge against any other risks.

Yes, I don't think there's much of a change really in our capital allocation strategy. I mean, we're always going to look to invest in our business First act.

Acquisitions are difficult in this industry, but we're always looking.

Share buybacks are.

The current administration has made them, maybe a little bit less attractive.

With some of the excise taxes that they're posting but we'll always balance the.

I think just at the end of the day, we feel like we're good and smart and we have a good capital allocation strategy and we're really not changing it.

Very good thank you both.

Thank you.

At this time, we've run out of time for questions I'd like to hand, the conference back over to Sue Param for any closing comments.

Thank you.

So Lawson and Lan and thank you to everyone for joining us today for Brown <unk> first quarter fiscal year 2023 earnings call. If you have any additional questions. Please contact us.

We look forward to presenting next week in person at the Barclays Global Consumer Staples Conference and hope to see many of you for.

We wish everyone, an enjoyable weekend and hope you will join us and raising a glass on September 2nd as we say happy birthday to our founder George Garvin Brown with that this concludes our call.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Q1 2023 Brown-Forman Corp Earnings Call

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