Q2 2024 Brown-Forman Corp Earnings Call

December 6, 2023

Costs in the year ago period, and finally, while our operating expense growth rate moderated in the second quarter, the timing and phasing of these expenses had an unfavorable impact on our first half operating income now lets turn our attention to how these drivers influenced our first half fiscal 2024 results our reported net sales growth increased two.

Sent in the first half with organic net sales growth increasing 1% after adjusting for the recent acquisitions, notably this growth was delivered against an 11% reported and 17% organic net sales increase in the same period last year. If you were to simply add the organic growth rate in the first half of fiscal 'twenty four.

The organic growth rate in the first half of fiscal 'twenty, three and divide by two the average in the first half over these periods has been 9% fundamentally our brands remain in very strong shape. However over the last couple of months, we have seen a slowdown in consumer spending similar to the trends, we're seeing across total distilled spirits and other consumer packaged.

After two years of strong growth, which was above our long term historical trends consumer demand for our brands is normalizing on this elevated base.

In addition, as we have highlighted in past earnings calls our glass supply significantly improved in the spring and summer of 2022, which allowed us to rebuild distributor inventories historically the estimated net change in distributor inventories would've had a minimal impact on our organic results typically in the range of plus or minus one percentage point and then.

Given year, however, the pandemic related supply chain disruptions created changes in our historical distributor ordering patterns, which has created unusual comparisons and larger impacts over the past few years. If you were to factor in the five percentage points of impact to our organic net sales from the estimated net change in distributor inventories as seen in scheduled.

Our topline results more closely reflect our longer term trends and help support our belief that the fundamental health of our brands and our business remains solid.

Our first half results reflect our ability to consistently deliver growth even in a dynamic and challenging times. This is largely attributable to our broad geographic reach and our portfolio reshaping strategy over the past decade, as we built a diversified global portfolio focused on premium and Super premium brands in the first half organic net sales growth.

It was driven by Jack Daniel's, Tennessee, Apple New mix and Glenn glass. All these gains were partially offset by volume declines associated with our significant inventory rebuild in the first half of last fiscal year, particularly for brands, such as Jack Daniels, Tennessee, Whiskey, Jack Daniels, Tennessee, Honey era, Dora and Woodford Reserve.

Jack Daniel's, Tennessee, Apple grew organic net sales more than 50% led by a strong launch in South Korea, where also better able to meet consumer demand, particularly in markets, such as Brazil, and Chile, our supply chain and logistics challenges east new.

<unk> was the second largest contributor to the company's organic net sales growth increasing 22% as the brand continues to gain value share in the RTD category, and Mexico, and Glenn glass saw a fabulous brand, we haven't had yet much opportunity to discuss with primarily talked about this brand is part of the trio of single malt Scotches that we <unk>.

Quired back in 2016, along with <unk> and <unk> Glenn Glass all was the smallest of the single malt Scotch brands, we purchased and while we've always believed in a strong future for the brand there just hasnt been enough supply to be material to our results as it takes a decade or more for these products to mature through the brands old and rare program we've discovered.

That while going Lassalle, maybe smaller relative to our other single malt brands the value of its casks are mighty we recently sold a single Glen Lessor cask from $19 67 that was one of the largest cash sales in terms of rarity volume and value in the history of the Scotch whiskey industry cash sales from going lessor in the first half of fiscal 'twenty four.

Helped place the brand is the third largest contributor to the company's organic net sales growth. In addition, the brand has recently been relaunched with its first ever 12 year old expression, new packaging and new creative assets and having just returned from a trip to Scotland I can personally attest to the fabulous liquid and the strong growth potential of this wonderful coastal single.

Malte in addition to going last fall, we continue to increase our supply for all of our single malt Scotch brands and believe these brands will be critical contributors to Brown Forman next generation of growth our single malt Scotch portfolio. As one example of our portfolio reshaping efforts over the last decade to increase focus on premium and Super premium brands last year of course, we acquire.

Our newest brands Genmar in diplomat ago, I'm very pleased with the integration of these brands as they contributed two percentage points of growth to our reported net sales in the first half of fiscal 'twenty four our portfolio evolution has also required us at times to say goodbye to brands.

It's always a highly deliberate and thoughtful decision when we decided to celebrate and we do so only when we feel it aligns with our strategic ambitions and portfolio priorities. This was the case with both Finlandia vodka and Sonoma Cutrer, our two most recently announced divestitures the sale of Finlandia vodka to Coca Cola HBC AG was.

<unk> on November one 2023, and the recently announced decision to sell some longer chair to the duck corn portfolio and take an equity ownership position in the company reflects our commitment to long term value creation, we believe our equity ownership stake in the DUC corn portfolio will be of value generating relationship for Brown Forman and offers the benefit of.

Allowing us the opportunity to continue to participate in the premium and ultra premium wine category. We continue to believe in the strength of the <unk> brand and its future growth opportunities in the hands of the DUC corn portfolio with their expertise combined with our strong and diverse route to market. We have great confidence that <unk> will continue to grow in.

On an accelerated trajectory in addition to acquisitions and divestitures. We've also focus significant efforts on premium innovations. We recently released the third member of the Jack Daniel's bonded series, Jack Daniel's bonded Ray building on the success of the Jack Daniel's bonded, Tennessee, Whiskey, and Jack Daniel's Triple Mash and it was just a year.

<unk> that we launched the iconic Jack and Coke cocktail is a branded ready to drink adult beverage in Mexico.

Since then we've expanded Jack and Coke into 13 markets, including Germany, which just launched in September overall, we're pleased with the initial launches and are excited about the brand visibility and market share gains.

For example in the U S. The <unk> Coca Cola RTD is now a top 10 spirit based ready to drink brand and the number one whiskey based RTD and Nielsen and the spirit business a global industry trade publication, just named Jack Daniels and Coca Cola is the best new product in 2023, the positive feedback from distributors retail.

And most importantly consumers continues to benefit not only the Jack Daniels and Coca Cola RTD, but also the perception for Jack Daniel's, Tennessee Whiskey as noted in consumer research. We continue to expect that planned organic net sales declines in the Jack Daniels in Cola RTD will partially offset the growth of the Jack Daniel's and co.

Kolar TD as we continue its transition we believe this premium amortization provides us with the greatest opportunity for long term growth and value creation.

Before turning the call over to Leann I'd also like to add some additional perspective on our gross margin and operating expenses in the first half of fiscal 2024, our reported and organic gross profit increased 7%. Both ahead of their respective topline growth rates. We continue to focus on the execution of our long term pricing strategy and believe we are in a strong.

<unk>, given the strength and relevance of our brands and our continued brand building investments. We're also benefiting from the absence of costs related to the supply chain mitigation as Youll recall. This time last year, we incurred increased transportation and logistics costs in order to satisfy the demand from our distributors and retailers ahead of the important holiday season.

Collectively we have tailwind of favorable price mix, the absence of supply chain disruption related costs and lower tariff related costs due to the removal of the UK tariffs on American whiskey, which more than offset the headwinds of higher input costs and the negative effect of foreign exchange. This resulted in 280 basis point.

A gross margin expansion in the first half as expected operating expenses moderated in the second quarter as the phasing of our brand building investments was significantly skewed to the first few months of our fiscal year to support the launch of the Jack Daniel's and Coca Cola are TD as well as increased investments for Jack Daniel's, Tennessee Whiskey. This resulted in organic advertising expense.

Growth of 12% in the first half of fiscal 'twenty four while also moderating in the second quarter organic SG&A investments increased 9% for the first half as we continue to invest behind our people driven primarily by higher compensation and benefit expenses.

Since I mentioned the removal of the tariffs on American Whiskey I will share the latest update on the EU tariffs when EU tariffs were removed a year ago. A final agreement is still needed to be reached concerning steel and aluminum prior to November one 2023, or the retaliatory tariffs on American Whiskey would return in mid October the U S and EU announced they will.

Continue negotiating for two more months importantly, the American whiskey tariffs are not expected to return while negotiations are ongoing Brown Forman continues to work with governments on both sides of the Atlantic advocating for a solution that brings long term stability to the U S and EU trade relationship. We believe that all parties are seeking a solution that neither party with.

Just to see the return of these tariffs we hope that as the deadline for an agreement approaches the U S and EU governments will find a solution that enables the long term health of the global spirits industry.

In summary, we believe we're off to a good start in fiscal 'twenty for continuing to grow on the exceptionally high same prior year period base, even as consumer demand normalizes I hope. These results illustrate how our business has remained resilient through very dynamic operating conditions as we continue to focus on our long term strategic ambitions, we believe.

<unk>, we will continue to benefit from our long term pricing and revenue growth management strategies as well as a more normalized cost environment, our brands and our business continue to grow because of the people of Brown Forman I would like to thank them for their continuous efforts and commitment to ensuring that there is nothing better than the market than brown Forman with that I'll turn the call over to Lee.

<unk> and she will provide more details on our first half results.

Thank you Roxanne and good morning, everyone I will provide additional details on our geographic performance other financial highlights as well as our updated fiscal 2024, our outlook from a geographic perspective, our emerging international markets continued to lead the company's gotta collectively delivering very strong double digit organic.

That sounds great Kevin back, Jack Daniel's, Tennessee, whiskey, particularly in Turkey as momentum and the premium whiskey category continued.

At MRI data increase distribution and strong consumer demand and power line, which is benefiting from our pricing strategy.

<unk>, which grew strong double digits in Mexico is benefiting from our pricing strategy and gaining share at the RTD category.

And Jack Daniel's, Tennessee, Apple led by Brazil, as well as Chile, where the brand is returning to normal levels of supply.

Also during the quarter, we launched our own distribution in Slovakia, Slovakia has a substantial premium whiskey market land American whiskey is the value leader of the category. This makes it an important market as they drive the global growth of the Jack Daniel's family of brands and bring our broader portfolio to the market in particular.

<unk>, our recently acquired diplomatic a ramp as we have demonstrated with our previous route to consumer investments. We believe owned distribution provides us with increased consumer insights.

On our broader portfolio and a greater portion of the value chain organic net sales in the travel retail channel were flat in the first half as the channel lap, 67% growth in the year ago period strong double digit growth of our Super premium American whiskeys, such as Woodford Reserve.

<unk>, our exclusive global travel retail offering Jack Daniel's American single malt and Jack Daniel's single barrel were offset by declines in Jack Daniels, Tennessee, Whiskey, and Jack Daniel's, Tennessee, Honey organic net sales in our developed international markets collectively were down 2% for the first half as Greg.

And Singapore, Germany, and South Korea.

<unk> that by declines in Japan, and the United Kingdom.

Jack Daniel's, Tennessee, Apple was again, the largest contributor to growth driven by the continuing successful launch of the brand in South Korea, Glen glass out as liaison highlighted earlier, Joe the growth in Singapore our.

<unk> was the next largest contributor this performance supports our belief that <unk> has the ability to create and grow the premium tequila category outside of the U S and Mexico.

This growth was more than offset by year over year declines for Jack Daniel's, Tennessee, Whiskey, which was negatively impacted by Japan data an estimated net decrease in distributor inventory.

An update on our transition to own distribution in Japan. We are pleased to announce that we recently opened our new office and are on track for the launch on April 1st of this fiscal year, turning to the United States organic net sales decreased 5% as a result of lower volumes due to an estimated net.

Race and distributor inventories of 6%, partially offset by higher prices across much of our portfolio.

As <unk> highlighted in the first half recycled against the significant inventory rebuild during the same period last year.

This was particularly impactful to the U S market, where we saw a 7% contribution to organic net sales growth in the prior year period from an estimated net increase in distributor inventories.

As we lap this inventory rebuild we believe that distributor inventories are at normal levels from a takeaway perspective trends for total distilled spirits as well as brand for them and continue to normalize with the recent value growth below the historical mid single digit range as consumer demand has slowed.

Growth continues to be driven by RTD is U S whiskey, and tequila, which aligns well with our portfolio.

We expect our portfolio to continue to benefit from consumer premium amortization as the launch of the Jack Daniel's and Coca Cola RTD and demand for our Super premium Jack Daniel's products, partially offset the volume declines.

The Jack and Coke RTD continues to grow gain share and bring recognition to the entire Jack Daniel's family of brands.

And the newest member of the Jack Daniel's bonded series, Jack Daniel's bonded raw, along with Jack Daniel's Sinatra, and our specialty launches such as Jack Daniels single barrel Rye barrel praise are delivering strong growth.

Not only do these innovations premium as the Jack Daniel's family of brands. They elevate our whiskey credentials provide a halo for the rest of the family and give consumers the opportunity to explore and discover within the Jack Daniels family as Lawson has shared the details of our gross margin expansion and operating expenses for the first.

Have I will now turn to our operating income.

Total reported and organic operating income increased by 1% in the first half of fiscal 2024, largely driven by our gross profit growth, partially offset by the phasing of our operating expenses. These results along with the benefit of a lower effective tax rate were more than offset by an increase.

And interest expense, resulting in a 1% diluted earnings per share decreased to 98 per share before moving to our outlook I would like to take the opportunity to provide you with an update on our recently announced share repurchase program as we announced on October the second 2023, the Brown Forman board of directors.

Authorized the repurchase of up to $400 million of our outstanding shares of class, a and class B common stock from October 2023 through October 1st 2024 as of November 32023, we have completed over half of the program.

Our board of Directors also recently approved a 6% increase in the quarterly cash dividend, marking the 14th consecutive year of an increase to the regular dividend Brown Forman continues to be a member of the prestigious S&P 500 dividend aristocrats index and has paid regular quarterly cash dividends.

80 consecutive years, we remain appropriately attentive to today's uncertain market conditions, while also confident in the long term potential of our portfolio of brands. Our capital allocation philosophy has allowed us to maintain a healthy balance sheet and has produced superior returns over the long term.

We continue to believe that our capital allocation philosophy, coupled with our strategic ambitions will deliver strong results for our investors turning now to our revised fiscal 2020 for outlook and what has been a highly volatile and dynamic operating environment, we continue to be optimistic and believe global.

Trends are normalizing after two years of very strong growth.

We expect to continue to grow on this elevated base due to the contributions from our long term pricing and revenue growth management strategies as well as the addition of two Super premium brands Jan Marian diplomatic go to our portfolio. As a reminder, we completed the Genmar <unk> and Depomed ago acquisitions in the third quarter of.

Fiscal 2023, therefore, the contributions of these brands will be included in our organic results going forward as we mentioned last quarter, we remain cautious due to the current macroeconomic volatility and the potential impact of inflation on consumer spending despite a moderating inflation.

<unk> environment complex global economic conditions remain which is creating mix consumer and channel dynamics and creating a more challenging operating environment, we maintain our belief that the collective strength of our U S and international markets along with the travel retail channel will deliver growth in fiscal 2024, though have.

Tempered our expectations due to slower than anticipated growth through the first half of the fiscal year, particularly in the United States.

And Mexico due to recent changes in trends in the whiskey and tequila categories with this we now expect our organic net sales growth for fiscal 2024 to be in the 3% to 5% range.

Today, we have highlighted the impact on our results from the strong shipments in the year ago period related to the rebuilding of distributor inventories as supply chain disruption eased as we have shared in previous calls I would like to remind you again of the stronger shipments associated with the launch of Jack Daniel's and Coca Cola RTD.

In the United States in the back half of fiscal 2023 that will be lapped in the second half of fiscal 2024. This is reflected in our guidance. We believe inflation will continue to negatively affect input cost even with the favorable agave pricing trend as we mentioned last quarter, while we are very <unk>.

<unk> that agave prices are finally on the downward trajectory the benefits to our cost of goods sold will not be immediate. Additionally, we believe higher input cost will be partially offset by lower year over year cost due to the absence of the supply chain disruption we incurred in fiscal 2023.

Our outlook for the full year operating expenses continued to reflect a normalization of incremental advertising spend aligned with our long term philosophy for advertising spend to be in lined with our topline growth.

So our expectation is that SG&A growth will remain higher than historical averages as we continue to expect higher compensation related expenses and expenses related to the transition to owned distribution in Japan based on these expectations, we anticipate organic operating income growth in the 4% to six.

Percent range for the fiscal year.

Also continue to expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23% and our capital expenditures to be in the range of $250 million to $270 million for the full year before wrapping up I would like to add a few.

Additional details regarding the sale of the Finlandia brand as is customary divestitures are subject to a closing process, where the sale price is adjusted for inventory and other working capital items based on the adjusted sale price at closing the value of the net assets held for sale as well as the absence of Syn <unk>.

Operating income in the second half of fiscal 2024, we expect the transaction will be accretive to our fiscal year 2024 diluted earnings per share by an estimated 12 cents per share in summary, we have now lapped the historically high first half reported and organic net sales growth rate.

While adjusting to more normalized levels of consumer demand and we continue to deliver both organic net sales and operating income growth as we look towards the second half of fiscal 2024, we will begin to compare against a more normalized environment. We believe we will benefit from the strength of our <unk>.

<unk> portfolio of brands the benefit of our portfolio evolution efforts with the addition of Gen. Marian diplomatic O our pricing strategy, our gross margin recovery and the phasing of our brand investments over the last few years, we have faced significant disruptions and challenges. We believe we have now.

Moved beyond the most difficult comparisons of our fiscal year and remain focused on executing our strategy and delivering sustainable and consistent long term performance. This concludes our prepared remarks. Please open the line for questions.

Thank you.

Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced two.

To withdraw your question. Please press star one again.

Please stand by while we compile the Q&A roster.

Our first question comes from the line of Peter Grom with UBS. Your line is open.

Thanks, operator, and good morning, everyone. So obviously, a tougher first half given the inventory dynamic.

I recognize if you back that out organic would've been relatively solid in the first half.

Kind of hit the low end of the range. It does imply a return to kind of mid single digit growth in the back half of the year.

Could you maybe just walk us through the confidence in the outlook at this stage should we expect growth to be more at the low end rather than the high end and just.

Any thoughts on phasing as you look out to the back half of the year, maybe specifically, obviously I'm not.

It might be hard to guess, but is there any kind of shipment dynamic if that's kind of occurring.

Kind of work through this EU tariff situation. Thanks.

Thanks, Peter and I'll start with that our guidance does imply that we're going to have sequential improvement and in the second half and as we shared in our Q1 call. We continue to remain cautious with changes in trends such as the impact of inflation on consumer spending.

Macroeconomic volatility and as you heard in our prepared remarks, we do expect kind of all of our markets and channels to continue to grow but it's about the tempering of our expectations and we've learned we were specific to the United States. When we were on a call.

And our first quarter, we were looking at.

U S three months value growth trends for Tds with acceleration in trends kind of in that mid single digits and the environment that we're in today has we've had a change or a shift in trends, where we're looking at.

Tds decelerating in low single digits. So that's been included as we look out but the drivers that we see for our acceleration is that you can see on slide five we've now lapped and are growing on top of just a really exceptionally high first half of last year, which was a plus 17. So.

Like we said in our prepared remarks that the average is eight.

And one thing that we've also talked about is we did launch Jack Daniels and Coca Cola in the second half of last year, and we will have to comp that as we go through the fourth quarter of this year, but again generally speaking in the back half of the year.

Our.

We have significantly easier comps in the back half and we continue to believe that we're going to be able to benefit from our long term pricing strategy.

We're really leaning on our revenue growth management strategies, we'll talk about that probably in a bit.

And.

What what else is going to drive our acceleration is that Jim loree and diplomat ago, Our recent super and ultra premium acquisitions are going to come into our organic results in the back half of the year, which will help us and we continue to say that our cost trends are heading in the right direction.

And we're on a path to growth gross margin recovery, which is going to continue to help deliver some of that acceleration in the second half as well as you've heard us say in the first quarter.

Call as well as this quarter and the support of the launch of Jack Daniel's and Coca Cola in the U S. We just had a lot of them.

Operating expenses loaded into the first quarter of this year, we saw a moderation in the second quarter and we're going to continue to see that moderation as we go through the rest of this year. So those are kind of the components that are built into our outlook.

And you talked about tariffs real quick at the end of that just a briefing on the first one.

Assume what you meant was have we been shipping incremental cases into Europe ahead of the potential for these tariffs and we have not.

We have not largely because we don't believe that they are going to come through.

In the real near future.

Those that are.

We're not as close to this whole situation.

We continue to work with both sides of the Atlantic We said that on the prepared remarks, a little bit there had been some rumblings lately that.

These tariffs could come back around.

Look we.

We're smarter about this thing we were four or five years ago. When it first came out.

We've got a lot of mitigation scenarios that we know what to do.

At this point as long as that both sides are at the table, which they are right now.

We do not expect this to come around and I think are pretty strong belief is that this will be kicked down the.

The can down the road for at least a couple of years until some of these tariff conversations can get resolved.

Got it so basically even.

If we get to this deadline you are kind of more of the view that this can still be kicked down the road of negotiation.

So it's not like.

A month from now this automatically count goes back as kind of your view correct correct. Okay.

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

Thank you.

Please standby for our next question.

Our next question comes from the line of Vivien <unk> with TD Cowen Your line is open.

Hi, Thank you good morning.

As a follow up on your commentary around the more cautious outlook on the U S. Maybe you can just unpack it a little bit or are we more concerned around price elasticity is the you know more tempered outlook a function of we're downgrading than you were anticipating or is there something more structural.

In terms of per capita consumption within the spirit. Thank you.

Oh, no it's definitely not the last.

Look I think it is simply.

The consumer has weakened a bit over the last 345 months.

That's that's kind of what's changed since where we would have been last quarter.

As Leon went through it I mean, if you just look at Tds.

Which.

As you know there has been running at 4% to 5% for 20 years or something like that certainly stepped over the COVID-19, which I know some of you call it a super cycle.

Went up quite a bit over those years and it's come back down and I would have said most of 2023 calendar 2023, we were in that mid single digit range and then it really fell off.

Over the last as I say, three or four months and so I think there's just been a bit of weakness in consumer confidence that is has hit the entire market.

And brought the number down a little bit, but it's still growing I should say to it is still at a sort of plus two range and so it just made us get a little bit more cautious on the outlook for the U S.

Thanks for that and just a quick follow up.

You guys noted you know the.

<unk>.

The inclusion of Denmark in diplomat ago.

Those are you know quite high end offerings. So how are you kind of thinking about the contribution to organic growth from from those two brands is your outlook you know a little bit more restrained on that too given concerns around the consumer.

Well, where we see kind of really strong growth for gen. Marian Depomed ago globally, yes, but these brands are really.

Large in our European markets, where we are.

Align well with other vessels, we made in our route to consumer So we believe with those brands in our hands in those markets and the performance that we're seeing in those markets. We do see consumers in Europe, I mean, they're optimizing their spend but they're still looking for experiences and everyday affordable luxuries and so we see it.

Pass the growth for those brands and again in our reported results they've contributed two points of growth.

For a year to date and we expect that momentum to continue as we go into the back half of this year.

That's helpful. Thank you so much.

Thank you.

Thank you please standby for our next question.

Our next question comes from the line of Filippo for <unk> with Citi. Your line is open.

Hey, good morning, everyone I had a question on the your comment on distributor inventories I know you cycle the rebuild.

In the first off you also mentioned that they are not at a normal level given the weakness that we're seeing the consumption level, which you alluded to.

Is there a risk that youre going to see more of a normalization of further below this current level. Many of your spirits peers have talked about more of a normalization of distributor inventories. So I'll be curious on your perspective there.

Okay, great Yeah, we believe that and it kind of like we stated in our prepared remarks in general that distributor and retailer inventories have normalized.

The impact of that estimated net change in distributor inventories for us is largely related to that year over year comparison, and if you take a look at schedule D, which are b I'm, sorry, which is in our earnings release and you kind of look at the shipments and Depletions for our full strength portfolio, you'll see that they are.

As shipments and Depletions are largely aligned.

And with that.

It's about we've lapped.

<unk> chain challenges or inventories returning to normal so really what we see going forward is going to be related to consumer demand. One small note is that our recent acquisitions of gen marine diplomatic arent yet reflected in the schedule and you will be adding those in the next quarter.

And maybe just to kind of dig in a little bit deeper.

The U S. We have what we believe they are back to normal this time last year in Europe, we were.

And really in October was the big month, Wherewithal Air Freighting cases into Europe. So we had product available. So we were still rebuilding inventory and again in Q2 of this year, we have really the largest impact of the absence of those supply chain disruption costs, but we believe they're back to normal.

As well and then in our largest markets in Latin America, Brazil, our business is strong and our inventories are at normal levels.

In Mexico, as well for both Brazil, and Mexico, we own our route to consumer so we have visibility through there and then we purchased retail inventory data that continues to let us see further through the chain. So Brazil, we feel like our nor our levels are normal and in Mexico, yes, with it with the <unk>.

The recent change in trend, where we're adjusting accordingly, and all of that's built into our guidance.

Okay. That's super helpful. And then a quick follow up on your Tequila business.

Obviously, we're coming off a cycle of very high inflation I gather Cogs, which is now turning the other way.

How do you assess the potential risk of more price competition in the category, particularly given we're seeing also a slowdown in consumption levels. Thank you.

Yes, so look the <unk> has been on a.

Pretty unbelievable Ron actually over the last few years is particularly also the 20 to 24 year olds up into their Thirty's really have adopted tequila is sort of a drink of choice.

It has done really really well, particularly if that super premium ultra premium price points.

Which is where <unk> is going to be a little bit less than that but still.

A solid well positioned brands across both Mexico, and the U S and in <unk> case increasingly and some other markets around the world. So now to your question about.

What's going to happen with pricing in that in the category.

Look I think.

Yeah.

And hope that the people that are playing in the ultra premium price point for Tequila are the big the big players.

Who all have suffered through a period of time when the agave costs were so high in everyone's margins that would have been playing in that that it's time now to reap some of those benefits of the better margin. So.

I don't expect that we're going to see significant changes in promotional pricing.

And I haven't seen it yet.

Kind of material way, but.

We will have to see what happens over the next six to 12 months, but I.

At least from Brown performance perspective, we are not planning to.

Get more aggressive in that category and we want to be able to stay as an ultra premium brands.

Great. Thank you guys appreciate it.

Thank you.

Please standby for our next question.

Our next question comes from the line of 19 <unk> with Bernstein. Your line is open.

Good morning, everybody. Thank you for taking my question earlier, you called out to low single digit net sales growth for the U S. Spirits market. Overall are you anticipating getting back to that long term mid single digit growth rate that we saw in the U S and if so over what time period.

Are your expectation sort of that coming back in the next few quarters or this year well over a year into the future and then just a slightly shorter term question any color that you could add on what you're seeing in the last month in U S spirits and global spirits since the end of the quarter any changes to the trends.

You've reported today.

Or is it largely in line. Thank you.

Well look those are pretty short timeframe is there I mean I think.

Forecasting where the U S market is going to go as I said its in that sort of low single digit range right now.

Talked a minute ago about it being in the four to five for years and years and years with exception of the Covid boom.

Okay.

What it's going to come back certainly.

If we looked at past cycles. The only time that Tds has really materially weakened in the last 20 years was after the financial crisis.

Sort of 2009 timeframe and its snapped back really fast I think all of us.

Those have been in this business that long.

Remember that because it surprised everyone and it came back and I think it's a category.

Is an amazing resilient category in the United States spirits hasn't I do not believe its lost that factor. So I do think it is just sort of a weakening right now and then we're just going to have to see where consumer spending goes over the next six months.

Hoping and believe it will be back in that sort of mid single digit range and.

Gasoline here, we're talking six to 12 months.

Yeah.

Okay.

What was the second half of your question is.

To be honest I haven't really I haven't seen I'm looking at the same data you are in terms of Nielsen and NAPCO I haven't seen anything real reasons that was any different.

The step down was more in the August September.

<unk> not even sure of the numbers of updated through October yet so.

Alright, Thank you very much.

Thank you.

Please standby for our next question.

Yeah.

Our next question comes from the line of Bryan Spillane with Bank of America. Your line is open.

Hey, Thanks, operator, good morning loss in land.

So first first question just I might have missed this but finlandia just as it is the divestiture now.

<unk> in the guidance.

I think I kind of I kind of missed that towards towards the end of your prepared remarks, just trying to understand.

How finlandia impacts the guidance now versus the previous guide.

Right well, we guide on an organic basis, which would which would exclude.

That benefit, but that's why we also thought it was important to give to you all today quantify that impact because it does kind of fall outside of our organic.

Outlook. So we wanted to make sure that you had that piece, okay, and thats true for EBIT as well as revenue right.

Yes.

Okay.

And then second is just.

Lawson is you talked about the U S a bit.

Travel retail in Mexico, I guess those are two other areas, where we are fielding some questions.

Just about potential slowing so is there anything there we should have known I guess in terms of how the you kind of moderated that.

The full year outlook aside from the U S. Those two or any other <unk>.

Geographies, I guess that might have factored into the more moderate growth expectation.

Yes.

Global travel retail first.

I wouldn't really is a factor of comps because if you can remember this time last year.

We were refilling that channel in a big Big way.

I do expect that.

Just look anyone who has been traveling anytime recently the claims are absolutely jammed and so.

I feel pretty good that that business will return to sort of its historical rates very very quickly. It's just got to get through this call things like.

Mexico is a little bit different than a little.

Confusing necessarily I mean, if you look at our schedule in <unk>.

Year to date sales of four nine something like that so so.

Mexico is the second most important our second largest market in the world for Brown Forman and so it is it is an important market and has been growing pretty dynamically for us.

For a period of years now Thats been led right now by new mix.

Which is a great brand it is absolutely enormous down in that country and I think everyone knows that at this time, but the rest of the business, which had been doing okay. Throughout this year I think we're getting a little more cautious.

That the Mexican consumers, showing some weakness too and so we are expecting a little bit of a slowdown in the second half of the year in that market.

But not fall off a cliff or anything like that either it's just.

The boats akela and whiskey have slowed down a little bit and so we're expecting that.

<unk> through the rest of the fiscal year.

I'm sorry, I was just the only thing I was going to add on to that as we said in our prepared remarks <unk> comping at 67%. When you look at the two first has the average of that we're at 29% and then one of the things that we would also add on Mexico is that while we're seeing kind of way.

Weakness in the whiskey and tequila categories.

We're gaining share.

Cross that and our takeaway data so but again, it's what is talking about for our outlook on kind of a revision in our expectation.

And that's just kind of for that.

The deceleration in the back half of the year.

Yes, yes, no that makes sense.

So maybe I could just sneak one last one and just look Sonoma Cutrer air deal.

With creative actually a pretty good creative solutions in terms of finding a good home for it and making it a transaction that is kind of attractive to both sides. So I'll give you.

We are really good.

Creative solutions.

As youre thinking about portfolio more going forward is there.

Just how should we be thinking about acquisition.

The acquisition divestiture.

Just a.

Continuing on kind of the reshaping you've done or.

Is there a chance we see it sort of.

Move in either direction.

Sure. So I mean look as we would've said literally 10 years ago that we were going to reshape our portfolio to focus on.

Spirits in particular on Super and ultra premium spirits.

That is largely finished.

You know all the different brands that we've sold over the last.

567 years, and we've brought a lot of new things and so we are definitely premium is the portfolio.

Two are pretty big extent, the Sonoma Cutrer, one was slightly different because within the world of one that is certainly a super premium brand.

We're not the only one brand that we own fully on I mean core bell still here, but the the brand was sort of sitting by itself, which is not the most efficient way to operate it.

Dr <unk> group.

One they are fully focused on super Ultra premium wines are one of the premier wine companies in America.

And it's one of those where we believe the value creation opportunities better under their handling all of ours.

I hate to say that in some ways, but.

Wine is really there.

Their focus it's what they do it as the accounts as they call on are all very similar in Sonoma triggers a huge benefit to them too because it is it is so big particularly in the on premise United States and so we just thought it made more sense that way and as you say, we're going to own a piece of our company now and we will share in the upside that hopefully comes in the <unk>.

<unk> near future.

Alright, thanks, guys.

Thank you.

Please standby for our next question.

Okay.

Our next question comes from the line of Lauren Lieberman with Barclays. Your line is open.

Great. Thanks, so much.

I was curious if you could talk a little bit about Latin America about Brazil in particular.

You touched on Mexico, but in Brazil, which I know is a smaller market for you definitely heard.

Some of your peers out there talking about a more challenged environment. So wondering if you could talk a bit about that and then probably much more importantly, the U K.

The U K just backing into it looks like it was down pretty significantly this quarter and I know there is the Jack in Cola dynamics in there, but just any help and perspective on UK I guess I should say are in Germany, too, but western European I'm.

Sorry, Matt Im in France, and France, Alright, those are the two that for me, where I think a little weird.

But just a perspective on the consumer environment, there or how much of this is more about Jackson Cola transition that's impacting the numbers right now thanks.

Okay, great. Thanks, Lauren for Brazil, specifically again, you can see in our year to date results, we've got high single digit.

Organic net sales growth a lot of that is being driven by and again when you think about how we prioritize brands and geographies in supplying.

Our products post supply chain.

Constraints, Jack Daniel's flavor portfolio is has a much improved supply are really are back to normal supply and we are able to support that.

Consumers' taste profile for our products.

Hunting and Apple and really the launch of Jack Daniel's Apple along with our geographic expansion strategy that we've had in that market for a while is continuing to gain market share. So that consumer takeaway is slowing a bit and we do see the competitive environment intensifying.

But we continue to believe we're going to do.

Strong business and in Brazil.

So I'll move to the UK and I think you already said that our business is strong there. What we're seeing is this is really about the transition of our JAK and Colo business out of our results. Because this will be a market where that is led by Coca Cola with the Jack Daniels and Coke and then specific.

Typically to France.

Continues to remain a challenging environment with declining consumer sentiment.

Inflation has been high it is starting to impact the consumers there and their discretionary income spend we are seeing.

A little bit of down trading in that market and maybe a little bit even of a switch to bear.

In that market while the.

The consumer is going through this period of high inflation, but again.

As we look over the longer term and how we are thinking about how diplomatic Ron will have a strong impact to that market over a period of time.

We believe this and as we continue to revise strategy. There. We continue to believe France is going to be a contributor to growth over the mid to longer term.

A follow up on Tennessee, Apple question or comment or you saw that.

It is doing a brilliant job in Brazil, if you're doing a really good job in Korea.

Sort of unusual market, we would be talking about checking the since the Apple was launched in the middle of Covid and was.

As really all new products during Covid was a really tough time to launch things and it.

It didn't meet anywhere near our expectations, but now that we're through a lot of that the expectations on apple or going up a lot and.

I think it's a great product I mean, that's just the taste alone as a business.

Excellent.

<unk> is to a very wide pallets I think on a global basis, and so you'll hear more from us on Apple over the net.

Quarters or years is we think that really has the potential to be a really nice Big addition to the Jack Daniel's family.

Okay, and sorry, just one more follow up on the the Jackson call a piece on the U K should we assume that there is a significant drag for the next like another three quarters till that's fully out of the base.

Thanks, a lot.

And as we're transitioning because that Jack and Colo business will be coming out of our results. So that we would need a full 12 months before we lap that.

Okay. Okay, great. Thank you.

Thank you.

Please standby for our next question.

Our next question comes from the line of Steve Powers with Deutsche Bank. Your line is open.

Great. Thank you. So much just just one final question on the U S. If I could.

In terms of the.

The lower growth expectations.

Are you able to talk a little bit about weather.

Whiskey that's to Cuba.

Or other and Youre from your mind or any any color about kind of price to your product just trying get a little color as to where you see.

Within the portfolio.

The most.

The biggest step down relative to your prior views or if it's more widespread.

And I think this is about.

Lapping and growing on top of that really high.

Impact of rebuilding the inventories in the in the year ago period, and then as we look at where we are year to date and understanding what acceleration can be and what it could potentially look like between here and the year to go period.

So I think we would just say that and then.

Jim Mora and diplomatic though would be a smaller positive impact for for the U S.

But again, we do think there'll be a positive impact, but yes, I mean, I think that it's just kind of generally where we are in the year to a year ago period with what we've seen in the current trends of GBS and one of the things we've talked about it.

On this kind of pass back to normalization and currently being kind of below that mid single digit we believe theres not going to be a linear path back to normalization and it'd probably be a little bit up and down over a period of time.

But we've factored in a little bit of that as well, but I do think American whiskey and tequila too.

Due to the two strongest categories in the U S spirits business, which is where the vast majority of our portfolio is now.

Alta from where we were.

We spread it out a little bit I think both.

Kilos coming down off of Sky High numbers, where American whiskey was steady high but not as high as tequila and so I guess, the delta would be more on the tequila side of things.

Well I do want to point out to what I just want to reiterate one more time.

Projected annual Tennessee Whiskey, So core Black label now there is not a U S statement is global but the brand was up last year first half plus 18.

For a brand the size of Jack Daniel's, Tennessee, <unk> to be to be at a plus 18 is an enormous amount of volume movement now to be down to over the first half of this year, while we don't we don't love that the two year average is still eight and so.

I don't I want to make sure people don't take away from this that the brand is somehow not healthier than anything down that path. The brand has had not only the last two halves, but even over the last five years, Tennessee Whiskey has continued to be a really strong supporter and continues to be the single biggest source of growth for brown Forman will be for the fourth.

The future and then one last thing I'll add on specifically about the U S. As we talk about understanding what our opportunity our long term opportunity is.

With Jack Daniels and Coca Cola, We know it's now a top 10 spirit based ready to drink brand. It's the number one whiskey based RTD and Nielsen, It's got to burn over 2% of the category share and it's really getting great accolades like we talked about in our prepared remarks.

Named one of Jack and Coke is Jack Daniels and Coca Cola as the best New product in 2023 from the spirits business. So again, we think this product is still fairly new in the market with the accolades are.

Supporting what we believe will be that future growth.

Yes. That's helpful did you just pulling it back.

It sounds like.

The revised expectations are fairly broad based but just given.

Even the large numbers that were embedded in tequila growth to begin with more but more of a step down is showing up in that category.

Correct, yes.

Okay.

Good thanks, so much.

Thank you.

Please standby for our next question.

Our next question comes from alarm of Robert <unk> with Evercore. Your line is open.

Great. Thank you very much.

Two questions first.

I think in prior calls you had talked about I'm going to kind of a two to three or 3% price increase.

In the U S and trying to do that on a steady basis.

Is that.

Under review or at risk now given.

Given the weakness in the market so that that would be the first question.

And then the second question.

<unk> is more on your distributors and route to market in the U S and whether whether youre getting the kind of execution.

That you expect doing a lot of channel checks talking a lot of people.

Hi.

A lot of the spirits wine and spirits distributors have gotten very big some of them are taking on beer doing other things and I am hearing more complaints about the execution.

In the U S market.

And people trying to figure out what theyre going to do.

And deal with that so I was just wondering if thats an issue that you are looking at thank you.

Lesson people complaining about U S distributors.

Yes.

The price the pricing question first.

Look we still believe and see solid consumer demand and so we are not planning on really changing that pricing strategy. We have we've been doing it now for two and a half years, where we like in the U S. It's been that two to three range has actually been higher.

Other parts of the world.

Has a lot to do with why our gross margin has expanded so much over the last say six months or so.

We love that and still see a lot of really good pricing opportunity. So it's that low.

Casual low and slow where we believe in that over the long term is the way to go we did not do like some of our competitors took.

Huge increases back when supply chains were very constrained at all that and go to double digits.

That is a risky strategy I think in our industry and not one that we're going to pursue but we are going to continue with the sort of low single digit range and I see that continuing for the foreseeable future.

To the us distributors I mean, we are.

We saw.

Certainly theres been a lot of consolidation in that in that space over the last decade or really two decades were very comfortable with where we are they are doing a good job for us.

In many cases, the largest supplier in many particularly on the R&D C markets and so we get our fair share of attention and feel good about that.

These are great partners that we have and we and we need and have good relationships with so I don't really see any.

Any significant changes happening there in the near future.

Alright, Thank you very much.

Thank you.

Ladies and gentlemen, due to the interest of time I would now like to turn the call back over to Sue for closing remarks.

Thank you and thank you Lawson and Leann and thank you to everyone for joining us today for Brown Forman second quarter and first half of fiscal year 2024 earnings call. If you have any additional questions. Please contact us.

I would like to note that yesterday December 5th was the 90 <unk> anniversary of repeal day, which is the end of prohibition in the United States.

And if that isn't enough reason to chair 90 years ago today Brown Forman became a publicly traded company.

So I hope you will join us in celebrating responsibly of course, these two milestones as well as the holiday season ahead of US here, so everyone and happy holidays.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Okay.

[music].

Yes.

Sure.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Okay.

Thanks.

Okay.

[music].

Okay.

Hello, and welcome to Brown Forman Corporation's second quarter, and first half of fiscal year 2024 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Ask the question. During this session you will need to press star one on your telephone.

Within your automated message advising your hand is right to.

To withdraw your question. Please press star one again.

I would now like to hand, the conference over to Sue <unk>, Vice President Director Investor Relations you may begin.

Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown Forman second quarter and first half of fiscal year 2024 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leigh Ann Cunningham <unk>.

<unk>, Vice President and Chief Financial Officer.

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

<unk> 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.

This morning, we issued a press release containing our results for the second quarter and first half of fiscal year 2024. 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. Thank you for joining us today as we share our second quarter and first half results for fiscal 2024 as anticipated the key drivers behind our first quarter results continued into the second quarter.

Consumer demand for our brands continues to reflect a normalization back to a more historical trends second as we've shared we continue to grow on top of a very strong first half in the prior year driven by the rebuilding of distributor inventories in the prior year period to help put this into better context, I encourage you to reference schedule D and <unk>.

<unk> earnings release third we're starting to see beneficial contributions from both diplomatically and Jean Marie will also continue our portfolio reshaping with the announced sale of Sonoma Cutrer.

While higher input costs were persistent in the first half these costs were more than offset by favorable price and mix and the lapping of the supply chain disruption costs in the year ago period and.

And finally, while our operating expense growth rate moderated in the second quarter, the timing and phasing of these expenses had an unfavorable impact on our first half operating income now lets turn our attention to how these drivers influenced our first half fiscal 2024 results. Our reported net sales growth increased 2% in the first half with organic net.

Sales growth increasing 1% after adjusting for the recent acquisitions, notably this growth was delivered against an 11% reported and 17% organic net sales increase in the same period last year.

You were to simply add the organic growth rate in the first half of fiscal 'twenty four to the organic growth rate in the first half of fiscal 'twenty, three and divide by two the average in the first half over these periods has been 9% fundamentally our brands remain in very strong shape. However over the last couple of months, we have seen a slowdown in consumer spending similar to the <unk>.

We are seeing across total distilled spirits and other consumer packaged goods. After two years of strong growth, which was above our long term historical trends consumer demand for our brands is normalizing on this elevated base. In addition, as we've highlighted in past earnings calls our glass supply significantly improved in the spring and summer of 2002.

'twenty, two which allowed us to rebuild distributor inventories historically the estimated net change in distributor inventories would've had a minimal impact on our organic results typically in the range of plus or minus one percentage point in any given year. However, the pandemic related supply chain disruptions created changes in our historical distributor ordering patterns.

Returns, which has created unusual comparisons and larger impacts over the past few years. If you were to factor in the five percentage points of impact to our organic net sales from the estimated net change in distributor inventories as seen in schedule D. Our topline results more closely reflect our longer term trends and help support our belief that the fundamental health of.

Our brands and our business remains solid.

First half results reflect our ability to consistently deliver growth even in a dynamic and challenging times. This is largely attributable to our broad geographic reach and our portfolio reshaping strategy over the past decade, as we built a diversified global portfolio focused on premium and Super premium brands in the first half organic net sales growth.

Was driven by Jack Daniel's, Tennessee, Apple New mix and Glenn glass. All these gains were partially offset by volume declines associated with our significant inventory rebuild in the first half of last fiscal year, particularly for brands, such as Jack Daniels, Tennessee, Whiskey, Jack Daniels, Tennessee, Honey, Herradura and Woodford Reserve.

<unk> is Tennessee, Apple grew organic net sales more than 50% led by a strong launch in South Korea, where also better able to meet consumer demand, particularly in markets, such as Brazil, and Chile, our supply chain and logistics challenges east.

<unk> mix was the second largest contributor to the company's organic net sales growth increasing 22% as the brand continues to gain value share in the RTD category in Mexico.

<unk> saw a fabulous brand, we haven't had yet much opportunity to discuss with primarily talked about this brand is part of the trio of single malt Scotches that we acquired back in 2016, along with <unk> and Glenn <unk> Glen go I saw was the smallest of the single malt Scotch brands, we purchased and while we've always believed in a strong future for the brand.

There just hasnt been enough supply to be material to our results as it takes a decade or more for these products to mature.

Through the brands old and rare program, we've discovered that while going lassalle, maybe smaller relative to our other single malt brands the value of its casks are mighty we recently sold a single Guang lessor cask from $19 67 that was one of the largest cash sales in terms of rarity volume and value in the history of the Scotch whiskey industry cash sales.

So I'm going to loss all in the first half of fiscal 'twenty four helped place. The brand is the third largest contributor to the Companys organic net sales growth. In addition, the brand has recently been relaunched with its first over 12 year old expression, new packaging and new creative assets and having just returned from a trip to Scotland I can personally attest to the fabulous liquid and strong.

Growth potential of this wonderful coastal single malt and additionally, going last fall, we continue to increase our supply for all of our single malt Scotch brands and believe these brands will be critical contributors to Brown Forman next generation of growth our single malt Scotch portfolio. As one example of our portfolio reshaping efforts over the last decade to increase focus on premium and Super.

Premium brands last year of course, we acquired our newest brands <unk> and diplomatic though I'm very pleased with the integration of these brands as they contributed two percentage points of growth to our reported net sales in the first half of fiscal 'twenty four our portfolio evolution has also required us at times to say goodbye to brands.

<unk> on November one 2023, and the recently announced decision to sell Schlumberger chair to the duck corn portfolio and take an equity ownership position in the company reflects our commitment to long term value creation.

We believe our equity ownership stake in the DUC corn portfolio will be of value generating relationship for Brown Forman and offers the benefit of allowing us the opportunity to continue to participate in the premium and ultra premium wine category. We continue to believe in the strength of the <unk> brand and its future growth opportunities in the hands of the DUC corn portfolio with their.

Our expertise combined with our strong and diverse route to market, we have great confidence that <unk> will continue to grow and on an accelerated trajectory. In addition to acquisitions and divestitures. We are also focused significant effort on premium innovations. We recently released the third member of the Jack Daniel's bonded series Jack.

<unk> bonded Ray building on the success of the Jack Daniel's bonded, Tennessee, Whiskey, and Jack Daniel's Triple mesh and it was just a year ago that we launched the iconic Jordan Coke cocktail is a branded ready to drink adult beverage in Mexico.

Since then we've expanded Jordan coke into 13 markets, including Germany, which just launched in September overall, we're pleased with the initial launches and are excited about the brand visibility and market share gains.

For example in the U S. The Jack Daniels and Coca Cola RTD is now a top 10 spirit based ready to drink brand and the number one whiskey based RTD and Nielsen and the spirit business Global industry trade publication, just named Jack Daniels and Coca Cola is the best new product in 2023, the positive feedback from distributors retail.

And most importantly consumers continues to benefit not only the Jack Daniels and Coca Cola RTD, but also the perception for Jack Daniel's, Tennessee Whiskey as noted in consumer research. We continue to expect that planned organic net sales declines in the Jack Daniels and Kolar TD will partially offset the growth of the Jack Daniel's <unk>.

OCA Kolar TD as we continue its transition we believe this premium position provides us with the greatest opportunity for long term growth and value creation.

Collectively we have tailwind of favorable price mix and the absence of supply chain disruption related costs and lower tariff related costs due to the removal of the UK tariffs on American whiskey, which more than offset the headwinds of higher input costs and the negative effect of foreign exchange. This resulted in 280 basis point.

A gross margin expansion in the first half as expected operating expenses moderated in the second quarter as the phasing of our brand building investments was significantly skewed to the first few months of our fiscal year to support the launch of the Jack Daniel's in Coca Cola <unk> TD as well as increased investments for Jack Daniel's, Tennessee Whiskey. This resulted in organic advertising expense.

Continuing negotiating for two more months importantly, the American whiskey tariffs are not expected to return while negotiations are ongoing Brown Forman continues to work with governments on both sides of the Atlantic advocating for a solution that brings long term stability to the U S and EU trade relationship. We believe that all parties are seeking a solution that neither party, which.

And she will provide more details on our first half results.

Thank you Lawson and good morning, everyone I will provide additional details on our geographic performance other financial highlights as well as our updated fiscal 2024 outlook from a geographic perspective, our emerging international markets continued to lead the companys growth collectively delivering very strong double digit organic.

Net sales growth driven by Jack Daniel's, Tennessee, whiskey, particularly in Turkey as momentum and the premium whiskey category continued the United Arab Emirates due to increased distribution and strong consumer demand in Poland, which is benefiting from our pricing strategy, new mix, which grew strong double digits in <unk>.

Mexico is benefiting from our pricing strategy and gaining share of the RTD category.

Jack Daniel's, Tennessee, Apple led by Brazil, as well as Chile, where the brand is returning to normal levels of supply.

During the quarter, we launched our own distribution in Slovakia, Slovakia has a substantial premium whiskey market, where American whiskey is the value leader of the category. This makes it an important market as we drive the global growth of the Jack Daniel's family of brands and bring our broader portfolio to the market in particular.

Our recently acquired diplomatic go wrong as we have demonstrated with our previous route to consumer investments. We believe owned distribution provides us with increased consumer insights focus on our broader portfolio and a greater portion of the value chain organic net sales in the travel retail channel.

We're flat in the first half as the channel lap, 67% growth in the year ago period strong double digit growth of our Super premium American whiskeys, such as Woodford Reserve, our exclusive global travel retail offering Jack Daniel's American single malt and Jack Daniel's single barrel.

Were offset by declines in Jack Daniels, Tennessee, Whiskey, and Jack Daniel's, Tennessee, Honey organic net sales in our developed international markets collectively were down 2% for the first half as growth in Singapore, Germany, and South Korea were offset by declines in Japan, and the United Kingdom.

Daniel's, Tennessee, Apple was again, the largest contributor to growth driven by the continuing successful launch of the brand in South Korea.

Glenn Glaceau as Lawson highlighted earlier drove the growth in Singapore L. Hema door was the next largest contributor. This performance supports our belief that El Hema door has the ability to create and grow the premium tequila category outside of the U S and Mexico.

This growth was more than offset by year over year declines for Jack Daniel's, Tennessee, Whiskey, which was negatively impacted by Japan due to an estimated net decrease in distributor inventory as an update on our transition to owned distribution in Japan. We are pleased to announce that we recently opened our new office and are on track for the launch.

On April 1st of this fiscal year.

Turning to the United States organic net sales decreased 5% as a result of lower volumes due to an estimated net decrease and distributor inventories of 6%, partially offset by higher prices across much of our portfolio.

As Lawson highlighted in the first half we cycled against the significant inventory rebuild during the same period last year.

This was particularly impactful to the U S market, where we saw a 7% contribution to organic net sales growth in the prior year period from an estimated net increase in distributor inventories.

As we lap this inventory rebuild we believe that distributor inventories are at normal levels from a takeaway perspective trends for total distilled spirits as well as Brown Forman continued to normalize with the recent value growth below the historical mid single digit range as consumer demand has slowed.

Growth continues to be driven by RTD is U S whiskey, and tequila, which aligns well with our portfolio.

The Jack and Coke RTD continues to grow gain share and bring recognition to the entire Jack Daniel's family of brands.

Have I will now turn to our operating income.

And interest expense, resulting in a 1% diluted earnings per share decreased to 98 cents per share before moving to our outlook I'd like to take the opportunity to provide you with an update on our recently announced share repurchase program as we announced on October the second 2023, the Brown Forman board of directors.

Authorized the repurchase of up to $400 million of our outstanding shares of class, a and class B common stock from October 2023 through October one 2024 as of November 32023, we have completed over half of the program.

80 consecutive years.

We remain appropriately attentive to today's uncertain market conditions, while also confident in the long term potential of our portfolio of brands. Our capital allocation philosophy has allowed us to maintain a healthy balance sheet and has produced superior returns over the long term, we continue to believe that our capital allocation.

<unk> philosophy, coupled with our strategic ambitions will deliver strong results for our investors turning now to our revised fiscal 2024 outlook and what has been a highly volatile and dynamic operating environment. We continue to be optimistic and believe global trends are normalizing after two years.

A very strong growth.

We expect to continue to grow on this elevated base due to the contributions from our long term pricing and revenue growth management strategies as well as the addition of two Super premium brands Jen Marian diplomatic go to our portfolio. As a reminder, we completed the gen <unk> and Depomed ago acquisitions in the third quarter of <unk>.

Generic environment complex global economic conditions remain which is creating mix consumer and channel dynamics and creating a more challenging operating environment, we maintain our belief that the collective strength of our U S and international markets along with the travel retail channel will deliver growth in fiscal 2024, though have.

Tempered our expectations due to slower than anticipated growth through the first half of the fiscal year, particularly in the United States.

And Mexico due to recent changes in trends in the whiskey and tequila categories with this we now expect our organic net sales growth for fiscal 2024 to be in the 3% to 5% range.

In the United States in the back half of fiscal 2023 that will be lapped in the second half of fiscal 2024. This is reflected in our guidance. We believe inflation will continue to negatively affect input costs, even with the favorable agave pricing trend as we mentioned last quarter, while we are very <unk>.

<unk> prices are finally on the downward trajectory the benefits to our cost of goods sold will not be immediate. Additionally, we believe higher input costs will be partially offset by lower year over year cost due to the absence of the supply chain disruption we incurred in fiscal 2023.

Our outlook for the full year operating expenses continue to reflect a normalization of incremental advertising spend aligned with our long term philosophy for advertising spend to be aligned with our topline growth.

Percent range for the fiscal year. We also continue to expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23% and our capital expenditures to be in the range of $250 million to $270 million for the full year.

Before wrapping up I would like to add a few additional details regarding the sale of the Finlandia brand as is customary divestitures are subject to a closing process, where the sale price is adjusted for inventory and other working capital items based on the adjusted sale price at closing the value of the net assets held for sale.

As well as the absence of Finlandia as operating income in the second half of fiscal 2024, we expect the transaction will be accretive to our fiscal year 2024 of diluted earnings per share by an estimated 12 cents per share in summary, we have now lapped the historically high first half Ray.

Ported in organic net sales growth rates, while adjusting to more normalized levels of consumer demand and we continue to deliver both organic net sales and operating income growth as we look towards the second half of fiscal 2024, we will begin to compare against a more normalized environment. We.

Believe we will benefit from the strength of our strong portfolio of brands the benefit of our portfolio evolution efforts with the addition of Gen. Marian diplomatic O our pricing strategy, our gross margin recovery and the phasing of our brand investments over the last few years, we have faced significant disruptions in.

<unk>, we believe we have now moved beyond the most difficult comparisons of our fiscal year and remain focused on executing our strategy and delivering sustainable and consistent long term performance.

This concludes our prepared remarks, please open the line for questions.

Thank you.

Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait to hear your name announced.

To withdraw your question. Please press star one again.

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

Our first question comes from the line of Peter Grom with UBS. Your line is open.

Thanks, operator, and good morning, everyone. So obviously, a tougher first half given the inventory dynamic and I recognize if you back that out organic would've been relatively solid in the first half.

Kind of hit the low end of the range. It does imply a return to kind of mid single digit growth in the back half of the year.

Could you maybe just walk us through the confidence in the outlook at this stage should we expect growth to be more at the low end rather than the high end and just.

Any thoughts on phasing as you look out to the back half of the year, maybe specifically, obviously a lot.

It might be hard to guess, but is there any kind of shipment dynamic.

That's kind of occurring.

Work through this EU tariff situation. Thanks.

Thanks, Peter I'll start with that our guidance does imply that we're going to have sequential improvement and in the second half.

And as we shared in our Q1 call. We continue to remain cautious with changes in trend such as the impact of inflation on consumer spending.

Alright, microeconomic volatility and as you heard in our prepared remarks, we do expect kind of all of our markets and channels to continue to grow but it's about the tempering of our expectations and we can when we were specific to the United States. When we were on our call.

And our first quarter, we were looking at.

U S three month value of growth trends for Tds with acceleration in trends kind of in that mid single digits.

And the environment that we're in today has we've had a change or a shift in trends, where we're looking at.

Tds decelerating and low single digit. So that's been included as we look out but the drivers that we see for our acceleration is that you can see on slide five we have.

<unk> now lapped and are growing on top of just a really exceptionally high first half of last year, which was a plus 17. So like we said in our prepared remarks that the average is eight.

One thing that we've also talked about is we did launch Jack Daniels and Coca Cola in the second half of last year, and we will have to comp that as we go through the fourth quarter of this year, but again generally speaking the back half of the year.

Our.

We have significantly easier comps in the back half and we continue to believe that we're going to be able to benefit from our long term pricing strategy.

We're really leaning on our revenue growth management strategies, we'll talk about that probably in a bit.

And.

What else is going to drive our acceleration is that Jim loree and diplomat ago, Our recent super and ultra premium acquisitions are going to come into our organic results in the back half of the year, which will help us and we continue to say that our cost trends are heading in the right direction.

And we're on a path to growth gross margin recovery, which is going to continue to help deliver some of that.

<unk> in the second half as well as you heard us say in the first quarter.

Call as well as this quarter and the support of the launch of Jack Daniel's and Coca Cola in the U S. We just had a lot of.

And you talked about tariffs real quick at the end of that just a briefing on that first and I assume what you meant was have we been shipping incremental cases into Europe ahead of the potential for these tariffs and we have not.

We have not largely because we don't believe that they are going to come through.

The real near future for those that are not as close to this whole situation.

We continue to work with both sides of the Atlantic We said that on the prepared remarks, a little bit there had been some rumblings lately that.

These tariffs could come back around.

Look we.

We're smarter about this thing we were four or five years ago. When it first came out.

We've got a lot of mitigation scenarios that we know what to do.

But at this point as long as both sides of our appetite, which they are right now we do not expect this to come around and I think our.

Our pretty strong belief is that this will be kicked down they'll kick the can down the road for at least a couple of years until some of these tariff conversations can get resolved.

Got it so let me quickly even if we get to this deadline you are kind of more of the view that this could still be kicked down the road negotiations continue so it's not like.

From now this automatically goes back yet.

Correct.

Okay. That's really helpful. Thank you I'll pass it on.

Thank you.

Please standby for our next question.

Our next question comes from the line of Vivien <unk> with TD Cowen Your line is open.

Hi, Thank you good morning.

Follow up on your commentary around the more cautious outlook on the U S. Wilson, maybe you can just unpack it a little bit or are we more concerned around price elasticity is is that you know more tempered outlook a function of we're downgrading than you were anticipating or is there something more structural.

In terms of per capita consumption within spirit. Thank you.

Oh, no it's definitely not the last.

Look I think it is simply the consumer has weakened a bit over the last 345 months.

That's kind of what's changed since where we would have been last quarter.

As Leon went through it I mean, if you just look at Tds.

<unk>.

As you know has been running at 4% to 5% for 20 years or something like that.

Certainly stepped up over the Covid, which I know some of you call it a super cycle.

Went up quite a bit over those years and it's come back down and I would have said most of 2023 calendar 2023, we were in that mid single digit range and then it really fell off.

Over the last as I say, three or four months and so I think there's just been a bit of weakness in consumer confidence that is it has hit the entire market.

And brought the number down a little bit, but it's still growing.

Two it's still at a sort of plus two range and so it just made us get a little bit more cautious on the outlook for the U S.

Thanks for that and just a quick follow up.

Guys noted you know the.

The inclusion of Denmark in diplomat ago, those are quite high end offerings. So how are you kind of thinking about the contribution to organic growth from from those two brands is your outlook you know a little bit more restrained on that too given concerns around the consumer.

Well, where we see kind of really strong growth for gen. Marian Depomed ago globally, yes, but these brands are really.

Large in our European markets, where we are.

<unk> well with other investments we've made in our route to consumer So we believe with those brands in our hands in those markets and the performance that we're seeing in those markets. We do see consumers in Europe, I mean, they're optimizing their spend but they're still looking for experiences and everyday affordable luxuries and so we see it.

Has the growth for those brands and again in our reported results they've contributed two points of growth.

Year to date, and we expect that momentum to continue as we go into the back half of this year.

That's helpful. Thank you so much.

Yeah.

Thank you please standby for our next question.

Our next question comes from the line of Filippo for <unk> with Citi. Your line is open.

Hey, good morning, everyone.

I had a question on the your comment on distributor inventories I know you cycle the rebuild.

In the first off you also mentioned that they are not at a normal level.

Given the weakness that we're seeing the consumption level, which you alluded to.

Is there a risk that youre going to see more of a normalization of further below this current level. Many of your spirits theaters have talked about more of a normalization of distributor inventories. So I'll be curious on your perspective there.

Okay, Great, Yes, we believe that and it kind of like we stated in our prepared remarks in general that distributor and retailer inventories have normalized the impact of that estimated net change in distributor inventories for us is largely related to that year over year comparison, and if you take a look at schedule D, which are be I'm sorry.

Which is in our earnings release, and you kind of look at the shipments and Depletions for our full strength portfolio, you'll see that they are the shipments and depletions are largely aligned and we have.

You talked about we've lapped a supply chain challenges or inventories returning to normal so really what we see going forward is going to be related to consumer demand. One small note is that our recent acquisitions of gen marine diplomatic arent yet reflected in the schedule and we'll be adding those in the next quarter and may.

Just to kind of dig in a little bit deeper.

The U S.

We believe they are back to normal this time last year in Europe, we were.

And really in October was the big month wherever there are creating cases into Europe. So we had product available. So we were still rebuilding inventory.

In Q2 of this year, we have really the largest impact of the absence of those supply chain disruption costs, but we believe they're back to normal as well and then in our largest markets in Latin America, Brazil, our business is strong and our inventories are at normal levels.

In Mexico, as well for both Brazil, and Mexico, we own our route to consumer so we have visibility through there and then we purchased retail inventory data that continues to let us see further through the chain. So in Brazil, we feel like our levels are normal and in Mexico, yes, with it with the <unk>.

Really recent change in trend.

We're adjusting accordingly, and all of that's built into our guidance.

That's about four and then a quick follow up on your Tequila business.

Obviously, we're coming off a cycle of very high inflation and a guy that cost which is now turning the other way.

How do you assess the potential risk of more price competition in the category, particularly given we're seeing also a slowdown in consumption levels. Thank you.

Yes, so look to Cuba has been on a.

Pretty unbelievable Ron actually over the last few years is particularly I would say that 20 to 24 year olds up into their thirty's really have adopted tequila is sort of a drink of choice.

It's done really really well, particularly if that super premium ultra premium price points.

Which is where <unk> is going to be a little bit less than that but still.

A solid well positioned brands across both Mexico, and the U S and in <unk> case increasingly and some other markets around the world. So now to you.

Your question about.

Whats going to happen with pricing in that in the category.

Look I think.

And hope that the people that are playing in that ultra premium price points for tequila are the big the big players.

Who all have suffered through a period of time when the agave costs were so high in everyone's margins that would have been playing in that.

It's time now to reap some of those benefits of the better margin. So.

I don't expect that we're going to see significant changes in promotional pricing.

And I haven't seen it yet.

He kind of material way.

We will have to see what happens over the next six to 12 months, but I.

I know at least from Brown Forman perspective, we are not planning to.

Get more aggressive in that category and we want to be able to stay as an ultra premium brand.

Okay.

Great. Thank you guys appreciate it.

Thank you.

Please standby for our next question.

Our next question comes from the line of 19 <unk> with Bernstein. Your line is open.

You've reported today.

Or is it largely in line. Thank you.

Well look those are pretty short timeframe is there I mean I think <unk>.

Forecasting where the U S market is going to go as I said its in that sort of low single digit range right now.

A minute ago about it being.

Being in the four to five four years and years and years with exception of the Covid boom.

Okay.

To predict when it's going to come back certainly.

If we looked at past cycles. The only time that Tds has really materially weakened in the last 20 years was after the financial crisis.

Sort of 2009 timeframe.

Snapped back really fast I think all of us.

Those have been in this business without long remember that because it surprised everyone and it came back and I think it's a category. This is an amazing resilient category in the United States spirits hasn't I do not believe its lost that factor. So I do think it's just sort of a weakening right now and then we're just going have to see where consumer spending goes over the next six.

Months.

Hoping and believe it will be back in that sort of mid single digit range.

Gasoline here, we're talking six to 12 months.

Yes.

Okay.

What was the second half of your question.

I have to be honest I haven't really I haven't seen him looking at the same data you are in terms of Nielsen and naphtha I haven't seen anything real recent that was any different.

The step down was more in the August September.

Range not even sure of the numbers of updated through October yet so.

Alright, Thank you very much.

Okay.

<unk>.

Please standby for our next question.

Our next question comes from the line of Bryan Spillane with Bank of America. Your line is open.

Hey, Thanks, operator, good morning Lawson Leann.

So first question just I might have missed this but finlandia.

Is it is the divestiture now.

Included in the guidance.

I think I kind of I kind of missed that towards towards the end of your prepared remarks, just trying to understand.

How finlandia impacts the guidance now versus the previous guide.

Right well, we guide on an organic basis, which would which would exclude.

That benefit, but that's why we also thought it was important to give to you all today quantify that impact because it does kind of fall outside of our organic.

Outlook. So we wanted to make sure that you had that piece, okay, and thats true for EBIT as well as revenue right.

Yes.

And then second is just.

Lawson is you talked about the.

U S a bit I just.

Travel retail in Mexico, I guess those are two other areas, where we have field some questions.

Just about potential slowing so is there anything there we should have known I guess in terms of how the you kind of moderated the.

The full year outlook aside from the U S. Those two or any other <unk>.

Geographies, I guess that might have factored into the more moderate growth expectation.

Yes.

Global travel retail first.

That wasn't really as a factor of comps because if you can remember this time last year.

We were refilling that channel in a big Big way.

I do expect that.

Just look anyone who has been traveling anytime recently the claims are absolutely jammed and so.

I feel pretty good that that business will return to sort of its historical rates very very quickly. It's just got to get through this contract mix.

Mexico is a little bit different than a little.

Good morning start confusing necessarily I mean, if you look at our schedule in <unk>.

Year to date sales were nine something like that so so.

Mexico is the second most important our second largest market in the world for Brown Forman and so it is it is an important market and has been growing pretty dynamically for us.

For a period of years now Thats been led right now by new mix.

That the Mexican consumers, showing some weakness too and so we are expecting a little bit of a slowdown in the second half of the year in that market.

But not falling off a cliff or anything like that either it's just.

The boats akela and whiskey have slowed down a little bit and so we're expecting that.

Through the rest of the fiscal year.

Okay.

Sorry, I was just the only thing I was going to add on to that as we said in our prepared remarks, J D. Rs Comping plus 67% when you look at the two first has the average of that we're at 29% and then one of the things that we would also add on Mexico is that while we're seeing kind of weakness in the whiskey.

Kayla category.

We're gaining share.

Across that in our takeaway data, so but again, it's what he's talking about for our outlook on kind of a revision in our expectation.

And that's just kind of for that.

The deceleration in the back half of the year.

Yes, yes, no that makes sense.

So maybe I could just sneak one last one and just look Sonoma Cutrer air deal.

With creative actually a pretty good creative solutions I thought in terms of finding a good home for it and making it a transaction that is kind of attractive to both sides. So I'll give you.

We are really good.

Creative solutions.

As youre thinking about portfolio more going forward is there.

Just how should we be thinking about acquisition.

Acquisition divestiture.

Just a.

Continuing on kind of the reshaping you've done or.

Is there a chance we see it sort of.

Move in either direction.

Sure. So I mean look as we would've said literally 10 years ago that we were going to reshape our portfolio to focus on.

Spirits in particular on Super and ultra premium spirits.

That is largely finished.

You know all the different brands that we've sold over the last.

567 years, and we've brought a lot of new things and so we are definitely premium is the portfolio.

Two are pretty big extent, the Sonoma Cutrer, one was slightly different because within the world of one that is certainly a super premium brand.

We're not the only one brand that we own fully on I mean core bell still here, but the the brand was sort of sitting by itself, which is not the most efficient way to operate it.

Dr <unk> group.

One they are fully focused on super Ultra premium wines are one of the premier wine companies in America.

And it's one of those where we believe the value creation opportunities better under their handling all of ours.

I hate to say that in some ways, but.

Wine is really there.

<unk> near future.

Alright, thanks, guys.

Thank you.

Please standby for our next question.

Okay.

Our next question comes from the line of Lauren Lieberman with Barclays. Your line is open.

Great. Thanks, so much.

I was curious if you could talk a little bit about Latin America about Brazil in particular.

You touched on Mexico, but in Brazil, which I know is a smaller market for you definitely heard.

Some of your peers out there talking about a more challenged environment. So wondering if you could talk a bit about that and then probably much more importantly, the U K.

Sorry, Matt Im in France, and France, Alright, those are the two that for me, where I think a little weird.

But just a perspective on the consumer environment, there or how much of this is more about Jackson Cola transition that's impacting the numbers right now thanks.

Okay, great. Thanks, Lauren for Brazil, specifically again, you can see in our year to date results, we've got high single digit.

Organic net sales growth a lot of that is being driven by and again when you think about how we prioritize brands and geographies in supplying.

Our products post supply chain.

Constraints, Jack Daniel's flavor portfolio is has a much improved supply are really are back to normal supply and we are able to support that.

Consumers' taste profile for our products.

Honey and Apple and really the launch of Jack Daniel's Apple along with our geographic expansion strategy that we've had in that market for a while is continuing to gain market share. So that consumer takeaway is slowing a bit and we do see the competitive environment intensifying.

But we continue to believe we're going to do.

Strong business in Brazil.

So I'll move to U K and I think you already said that our business is strong there. What we're seeing is this is really about the transition of our Jackson Cola business out of our results because this will be a market where that is led by Coca Cola with the Jack Daniels and Coke and then specific.

Typically to France.

Continues to remain a challenging environment with declining consumer sentiment.

Inflation has been high it is starting to impact the consumers there and their discretionary income spend we are seeing.

A little bit of down trading in that market and maybe a little bit even of a switch to bear.

In that market while the.

Consumer is going through this period of high inflation, but again as we look over the longer term and how we are thinking about how diplomatic Ron will have a strong impact to that market over a period of time.

We believe this and as we continue to revise strategy. There. We continue to believe France is going to be a contributor to growth over the mid to longer term.

A follow up on Tennessee, Apple question or comment or you saw that.

It is doing a brilliant job in Brazil, if you're doing a really good job in Korea.

The unusual market, we would be talking about but checking the since the Apple was launched in the middle of Covid and was up.

As really all new products during Covid was a really tough time to launch things and.

It didn't meet anywhere near our expectations, but now that we're through a lot of that the expectations on apple or going up a lot.

I think it's a great product I mean, that's just the taste alone is excellent.

It appeals to a very wide pallets I think on a global basis, and so you'll hear more from us on Apple over the.

Next quarters or years is we think that really has the potential to be a really nice Big addition to the Jack Daniel's family.

And as we're transitioning because that Jack and Colo business will be coming out of our results. So that we would need a full 12 months before we lap that.

Okay. Okay, great. Thank you.

Thank you.

Please standby for our next question.

Our next question comes from the line of Steve Powers with Deutsche Bank. Your line is open.

Great. Thank you. So much just just one final question on the U S and if I could.

In terms of the.

The lower growth expectations.

Are you able to talk a little bit about weather.

Whiskey that's to Cuba.

Or other and Youre from your mind or any any color about kind of price to your product just trying get a little color as to where you see.

Within the portfolio.

The most.

Biggest step down relative to your prior views or if it's more widespread.

And I think this is about.

Lapping and growing on top of that really high.

So I think we would just say that and then.

Jim Mora and diplomat ago would be a smaller positive impact for for the U S.

But again, we do think there'll be a positive impact, but yes, I mean, I think that is just kind of generally where we are in the year to a year ago period with what we've seen the current trends of GBS and one of the things we've talked about it.

But we've factored in a little bit of that as well, but I do think American whiskey and tequila.

Due to the two strongest categories in the U S spirits business, which is where the vast majority of our portfolio is now.

Alta from where we were.

We spread it out a little bit I think both.

Kilos coming down off of Sky High numbers, where American whiskey was steady high but not as high as tequila and so I guess, the delta would be more on the tequila side of things.

Well I do want to point out to what I just want to reiterate one more time.

Projected annual Tennessee Whiskey, So core Black label now there is not a U S statement is global but the brand was up last year first half plus 18.

For a brand the size of Jack Daniel's, Tennessee <unk>.

Plus 18 is an enormous amount of volume movement now to be down to over the first half of this year, while we don't we don't love that the two year average is still eight and so.

I don't I want to make sure people don't take away from this that the brand is somehow a lot healthier than anything down that path. The brand has had not only the last two halves, but even over the last five years, Tennessee Whiskey has continued to be a really strong supporter and continues to be the single biggest source of growth for pro forma will be for the fourth.

The future and then one last thing I'll add on specifically about the U S. As we talk about understanding what our opportunity our long term opportunity is.

With Jack Daniels and Coca Cola, We know it's now a top 10 spirit base ready to drink brand. It's the number one whiskey based RTD and Nielsen, It's got cheaper over 2% of the category share and it's really getting great accolades like we talked about in our prepared remarks.

Named one of Jack and Coke is Jack Daniels and Coca Cola is the best new product in 2023 from the spirits business. So again, we think this product is still fairly new in the market with the accolades are.

Supporting what we believe will be that future growth.

Yes, that's helpful. So just just pulling it back.

It sounds like.

The revised expectations are fairly broad based but just given.

Even the large numbers that were embedded in tequila growth to begin with more but more of a step down is showing up in that category.

Correct, yes.

Okay.

Good thanks, so much.

Thank you.

Please standby for our next question.

Our next question comes from alarm of Robert <unk> with Evercore. Your line is open.

Great. Thank you very much.

Two questions first.

And in prior calls you had talked about I'm going to kind of a two to three or 3% price increase.

In the U S and trying to do that on a steady basis.

Is that.

Under review or at risk now given.

Given the weakness in the market so that that would be the first question.

And then the second question.

<unk> is more on your distributors and route to market in the U S and whether whether youre getting the kind of execution.

That you expect doing a lot of channel checks talking a lot of people.

Right.

A lot of the spirits wine and spirits distributors have gotten very big some of them are taking on beer doing other things and I am hearing more complaints about the execution.

In the U S market.

And people trying to figure out what theyre going to do.

And deal with that so I was just wondering if thats an issue that youre looking at thank you.

Lesson people complaining about U S distributors.

Look the.

The price the pricing question first.

Look we still believe and see solid consumer demand and so we are not planning on really changing that pricing strategy. We have we've been doing it now for two two and a half years, where we like in the U S. It's been that two to three range has actually been higher.

Other parts of the world.

It has a lot to do with why our gross margin has expanded so much over the last say six months or so.

We love that and still see a lot of really good pricing opportunity. So it's that low.

Very casual low and slow where we believe in that over the long term is the way to go we did not do like some of our competitors took.

Huge increases back when supply chains were very constrained at all that and go to double digits.

Back to the US distributors I mean, we are.

We saw.

Certainly theres been a lot of consolidation in that in that space over the last decade or really two decades were very comfortable with where we are they are doing a good job for us.

In many cases, the largest supplier in many particularly on the R&D C markets and so we get our fair share of attention and feel good about that.

These are great partners that we have and we and we need and have good relationships with so I don't really see any.

Any significant changes happening there in the near future.

Alright, Thank you very much.

Thank you.

Ladies and gentlemen, due to the interest of time I would now like to turn the call back over to Phil for closing remarks.

I would like to note that yesterday December 5th was the 90 <unk> anniversary of repeal day, which is the end of prohibition in the United States.

And if that isn't enough reason to chair 90 years ago today Brown Forman became a publicly traded company.

So I hope you will join us in celebrating responsibly of course, these two milestones as well as the holiday season ahead of US two years to everyone and happy holidays.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q2 2024 Brown-Forman Corp Earnings Call

Request a DemoDemo

BF.A

Brown Forman

Earnings