Q3 2024 Brown-Forman Corp Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Brown Forms Third Quarter and year-to-date fiscal 2024 earnings call. At this time, all participants are in a listen-only mode.

Speaker Change: Good day, and thank you for standing by welcome to the Brown Forman third quarter and year to date fiscal 2024 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session. Please press star one one on your tele.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sue Perram, Vice President, Director, Investor Relations. Thank you, and good morning, everyone.

Susanne J. Perram: Phone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Sue pair them Vice President director of Investor Relations.

Susanne J. Perram: Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown Forman third quarter and year to date fiscal 2024 earnings call. Joining me today are locked in Whiting, President and Chief Executive Officer, and Leann Cunningham Executive Vice President and Chief Finance.

Susanne J. Perram: I would like to thank each of you for joining us today for Brown Forman's third quarter and year-to-date fiscal 2024 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. However, numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and, except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

Susanne J. Perram: Officer. This morning's conference call contains forward looking.

Susanne J. Perram: Based on our current expectations numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements.

Susanne J. Perram: 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.

Susanne J. Perram: This morning, we issued a press release containing our results for the third quarter and nine months ended January 31st, 2024, in addition to posting presentation materials that Lawson and Leanne 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.

Susanne J. Perram: This morning, we issued a press release containing our results for the third quarter and nine months ended January 31, 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.

Susanne J. Perram: Investors events and presentations.

Susanne J. Perram: 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.

Susanne J. Perram: 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.

Susanne J. Perram: 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 Lachlan.

Lawson E. Whiting: Thank you, Sue, and good morning, everyone. Thank you for joining us today as we share our third quarter and year-to-date results for Fiscal 2024. Before we get into the specifics of Brown Forman's performance, I wanted to take a moment to offer a few comments about the dynamics and trends within the broader spirits industry. The last few years have been some of the most volatile and complex in my 26 years in the spirits industry, with a variety of factors creating noise within the system. This can make it hard at times to distinguish between short-term headwinds and long-term trends.

Lachlan: Thank you Sue and good morning, everyone. Thank you for joining us today as we share our third quarter and year to date results for fiscal 2024 before we get into the specifics of Brown Forman performance I wanted to take a moment to offer a few comments about the dynamics and trends within the broader spirits industry. The last few years have been some of the most vault.

Lachlan: Toe and complex in my 26 years in the spirits industry with a variety of factors, creating noise within the system. This can make it harder times to distinguish between short term headwinds and long term trends. The last few months have been particularly noisy as demand for spirits has been normalizing after more than two years of outstanding growth to truly understand.

Lawson E. Whiting: The last few months have been particularly noisy as demand for spirits has been normalizing after more than two years of outstanding growth. To truly understand the current environment, however, it's important to reflect back on the beginning of the pandemic when the closure of on-premise establishments, limitations on travel, and remote work prompted many consumers to shift their spirits consumption from bars and restaurants and invest in at-home bars for entertaining. Once restrictions eased, and bars, pubs, and restaurants reopened, consumers began spending heavily on vacations and other experiences they missed during the lockdowns. In addition, many consumers continued to entertain at home.

Lachlan: Stand the current environment. However, it is important to reflect back on the beginning of the pandemic when the closure of the on premise limitations on travel and remote work prompted many consumers to shift their spirits consumption from bars, and restaurants and invest it at home bars for entertaining once restrictions eased in bars pubs and restaurants reopened.

Lachlan: <unk> began spending heavily on vacations and other experiences they missed during the Lockdowns. In addition, many consumers continue to entertain at home many in our industry called this the Covid Super cycle in calendar 2023. After two plus years of above average spending consumers were getting back to more normal consumption patterns.

Lawson E. Whiting: Many in our industry called this the COVID super cycle. In calendar 2023, after two-plus years of above-average spending, consumers were getting back to more normal consumption patterns, but they were soon faced with high inflation and increased interest rates that made them reconsider when and how they purchased spirits. By the late summer of 2023, the spirits industry across much of the developed world, including the U.S., saw the impact of these changing consumer behaviors in the form of weakening takeaway trends. However, we continue to believe, as we mentioned last quarter, that these trends are a direct result of the volatility consumers have experienced since the pandemic and do not imply a longer-term change in the way they consume and enjoy spirits. At the same time, consumers were adjusting their behavior as a result of the pandemic, and Brown Formn had its own set of pandemic-related challenges to navigate.

Lachlan: Soon faced with high inflation and increased interest rates that made them reconsider when and how they purchase spirits, but a late summer of 2023, the spirits industry across much of the developed world, including the U S saw the impact of these changing consumer behaviors in the form of weakening takeaway trends. However, we continue to believe as.

Lachlan: As we mentioned last quarter that these trends are a direct result of the volatility consumers experienced since the pandemic and do not imply a longer term change in the way they consume and enjoy spirits at the same time consumers were adjusting their behavior as a result of the pandemic Brown Forman had its own set of pandemic related challenges to navigate.

Lawson E. Whiting: This included disruptions to supply chain logistics and glass supply constraints that impacted our historical distributor ordering patterns and created unusual comparisons over the past few years. Today, we have a supply chain that is adjusting back to normal levels of consumer demand, and at the same time, it's also facing increased inflation, increased interest rates, and increased competition. I share all of this to try and bring clarity to the difficult dynamics we've had to navigate and to explain why, despite a challenging fiscal year, we continue to remain confident in the long-term health of the spirits consumer and the spirits industry. The other very important topic for Brown Forman in this fiscal year is the improvement in our gross margin. This, too, has been a journey we've been on now for several years.

Lachlan: This included disruptions to supply chain logistics and glass supply constraints that impacted our historical distributor ordering patterns and created unusual comparisons over the past few years. Today, we are a supply chain that is adjusting back to normal levels of consumer demand and at the same time. It's also facing increased inflation increased interest rates and increased comps.

Lachlan: <unk> I share all of this to try and bring clarity to the difficult dynamics, we've had to navigate and to explain why despite a challenging fiscal year. We continue to remain confident in the long term health of the spirits consumer and the spirits industry. The other very important topic for Brown Forman. This fiscal year is the improvement in our gross margin. This too has been <unk>.

Lachlan: Ernie we've been on now for several years, we've continued to execute our pricing strategy through our enhanced revenue growth management capabilities and increased price. We benefited from the growth of our Super premium brands in the form of more favorable price mix and these improvements along with the absence of the supply chain disruption costs in the year ago period more than offset.

Lawson E. Whiting: We've continued to execute our pricing strategy through our enhanced revenue growth management capabilities and increased prices. We've benefited from the growth of our super premium brands in the form of a more favorable price mix, and these improvements, along with the absence of supply chain disruption costs in the year-ago period, more than offset higher input costs, and we're pleased with our strong gross margin expansion. Now, let me provide a bit of perspective on our fiscal 2024 net sales. Reported net sales growth increased 1% in the 9 months of fiscal 2024 with flat organic net sales growth.

Lachlan: Higher input costs, and we're pleased with our strong gross margin expansion now let me provide a bit of perspective on our fiscal 2024 net sales our reported net sales growth increased 1% in the nine months of fiscal 2024 with flat organic net sales growth. These results compare against strong results in the prior year were strong consumer demand.

Lawson E. Whiting: These results compare against strong results in the prior year, where strong consumer demand, higher pricing, and the rebuilding of distributor inventories generated high single-digit reported net sales growth and double-digit organic net sales growth. I encourage you to reference Schedule D, which illustrates five percentage points of impact on our organic net sales from an estimated net decrease in distributor inventories. If you factor in this impact, our top-line results continue to be in the range of our longer-term trends and help support our belief that our business is solid and our brands remain healthy. In the 9 months of fiscal 2024, the largest growth contributors to organic net sales growth were Jack Daniels Tennessee Apple, New Mix, and Glen Glassaw. As you will recall, the international rollout of Jack Daniels Tennessee Apple has been slowed by the pandemic-related impacts.

Lachlan: Higher pricing and the rebuilding of distributor inventories generated high single digit reported net sales growth and double digit organic net sales growth I encourage you to reference schedule D, which illustrates five percentage points of impact to our organic net sales from an estimated net decrease in distributor inventories if you factor in this impact.

Lachlan: Our topline results continued to be in the range of our longer term trends and help support our belief that our business is solid and our brands remain healthy and the nine months of fiscal 2024, the largest growth contributors to organic net sales growth were and Jack Daniel's, Tennessee, Apple New mix and Glenn glass off as you will recall the international rollout.

Lachlan: Objecting, those Tennessee, Apple had been slowed by the pandemic related impacts however, our supply and logistics challenges, where east we were better able to meet consumer demand, which drove growth for Jack Daniel's, Tennessee, Apple, particularly in markets, such as Brazil, and Chile. We've also had a strong launch in South Korea, resulting in very strong double digit growth for the brand.

Lawson E. Whiting: However, as supply and logistics challenges were eased, we were better able to meet consumer demand, which drove growth for Jack Daniels Tennessee Apple, particularly in markets such as Brazil and Chile. We've also had a strong launch in South Korea, resulting in very strong double-digit growth. Despite a challenging environment in Mexico, Numix continued to deliver double-digit organic med sales growth as the brand benefits from higher pricing and continues to gain value share in the RTD category. Glenglassol continues to be a standout brand as its awareness and prestige among whiskey connoisseurs continues to grow. As discussed last quarter, the brand continued to benefit from cask sales through its old and rare program. In addition, Glenglassol's Sand End was named the 2023 Whiskey of the Year by Whiskey Advocate Magazine.

Lachlan: Despite a challenging environment in Mexico, new mix continued to deliver double digit organic net sales growth as the brand benefits from higher pricing and continues to gain value share in the RTD category, Glenn who I saw continues to be a standout brand as its awareness and prestige among whiskey connoisseurs continues to grow as we discussed last quarter the <unk>.

Lachlan: <unk> continued to benefit from cask sales through its old and rare program. In addition, gregoire source sand and was named the 2023 whiskey of the year by Whisky Advocate magazine. This is our second year in a row that our Brown Forman brand has received powerful and impactful acclaim from whiskey critics across the globe, if you'll recall Jack Daniel.

Lawson E. Whiting: This is the second year in a row that a Brown Formn brand has received powerful and impactful acclaim from whiskey critics across the globe. If you'll recall, Jack Daniels Bonded captured this most coveted global accolade in the whiskey industry back in 2022. Since I mentioned Jack Daniels Bonded, I'll also note that collectively, the Jack Daniels Super Premium Expressions delivered strong double-digit organic net sales growth in the year-to-date period. This growth was led by Jack Daniels Sinatra, Jack Daniels Single Barrel Rye Barrel Proof, and the newest member of the Bonded series, Jack Daniels Bonded Rye. This is the result of our purposeful efforts to premiumize the Jack Daniels family of brands and elevate our whiskey credentials through innovation and special launches. In doing so, we give both long-term friends of Jack Daniels and new friends the opportunity to explore and discover within the Jack Daniels family.

Lachlan: Bonded captured this most coveted global accolade in the whiskey industry back in 2022 since I mentioned, Jack Daniel's bonded I'll also note that collectively the Jack Daniel's Super premium expressions delivered strong double digit organic net sales growth in the year to date period. This growth was led by Jack Daniel's Sinatra, Jack Daniel's single barrel Rye.

Lachlan: Beryl proof and the newest member of the bonded series Jack Daniel's bonded Ray. This is the result of our purposeful efforts to premium is the Jack Daniel's family of brands and elevate our whiskey credentials through innovation and special launches in doing so we give both long term friends of Jack Daniels and new friends the opportunity to explore.

Lachlan: And discover within the Jack Daniels family also included in this innovation is the Jack Daniels and Coca Cola RTD, which just celebrated one year since the national launch in Mexico, while it's still early to the brand's global launch the Jacqueline Coke RTD is earned numerous awards, including best can cocktail and best drink concept by beverage.

Lawson E. Whiting: Also included in this innovation is the Jack Daniels and Coca-Cola RTD, which just celebrated one year since its national launch in Mexico. While it's still early for the brand's global launch, the Jack & Coke RTD has earned numerous awards, including Best Canned Cocktail and Best Drink Concept by Beverage Digest and was named the Coca-Cola company's number one innovation in 2023. Jack & Coke is the number one RTD SKU in Great Britain and Poland and remains the number one whiskey-based RTD in the United States.

Hi, just named the Coca Cola company's number one innovation in 2023, Jack and Coke is the number one our TD SKU in Great Britain in Poland and remains the number one whiskey based our TD in the United States and in less than 12 months over 100 million cans have been sold in just 13 markets increasing brand visibility not only for the <unk>.

Lawson E. Whiting: And in less than 12 months, over 100 million cans have been sold in just 13 markets, increasing brand visibility not only for the RTD but also for Jack Daniels' full-strength portfolio. The Jack Daniels RTD portfolio had minimal impact on the overall organic net sales results in the year-to-date period, largely due to the transition of the Jack & Cola business to Jack Daniels Coke. We believe this transition is building a stronger, more premium, and more global foundation that creates value and supports our long-term growth. The benefits of the premiumization trend continue to be evident in the organic net sales growth of Woodford Reserve, which returned to growth in the year-to-date period, driven by the brand's luxury expressions, such as Batch Proof and the Master's Collection. Our founding brand, Old Forrester, introduced the newest expression in its super-premium whiskey rose series, Old Forrester 1924, a 10-year-old whiskey with a suggested selling price of $115.

Lachlan: But also for Jack Daniel's full strength portfolio, the Jack Daniel's RTD portfolio had minimal impact on the overall organic net sales results in the year to date period, largely due to the transition of the Jack in Cola business to Jackson Coke. We believe this transition is building a stronger more premium and more global foundation that creates value and support.

Lachlan: What's our long term growth the benefits from the premium position trend continued to be evident in the organic net sales growth of Woodford reserve, which returned to growth in the year to date period, driven by the brand's luxury expressions such as batch proof in the Masters collection, our founding brand old Forester introduced the newest expression and its super premium whiskey row.

Lachlan: Series Old Forester 19, 'twenty for a 10 year old whiskey with suggested selling price of $115. The whiskey row series continues to grow but also creates a halo for the parent brand and I'm proud to say that old Forester has recently crossed the half a million nine liter cases milestone and our newest super and ultra premium brands Genmar and diplomat.

Lawson E. Whiting: The whiskey rose series continues to grow but also creates a halo for the parent brand, and I'm proud to say that Old Forrester has recently crossed the half-a-million, nine-liter case mile. And our newest super and ultra-premium brands, Gin Mare and Diplomatico, entered our organic results in the third quarter and collectively delivered a very strong double-digit organic net sales growth. To wrap up our top-line performance, I'll share a few thoughts on Jack Daniel's Tennessee Whiskey, which was the largest offset to growth of our organic net sales. First of all, it is lapping an exceptionally high comp from the prior year period. Also, volume declined in the nine months of the fiscal year, mainly related to our route-to-consumer transition in Japan and the U.S. and the comparison against the inventory rebuild in sub-Saharan Africa in the year-ago period. However, we believe these disruptions are circumstantial and temporary, and are confident that Jack Daniels remains in a position of strength with robust medium and long-term performance and exceptional brand health. For example, Jack Daniels Tennessee Whiskey has again been named the most valuable spirits brand in the world by Interbrand, for the eighth year in a row.

Lachlan: <unk> entered our organic results in the third quarter and collectively delivered a very strong double digit organic net sales growth to wrap up our topline performance I'll share a few thoughts on Jack Daniel's, Tennessee, Whiskey, which was the largest offset to growth of our organic net sales first of all it is lapping an exceptionally high comp from the prior year period also volte.

Lachlan: <unk> declined in the nine months of the fiscal year, mainly related to our route to consumer transition in Japan, The U S and the comparison against the inventory rebuild in sub Saharan Africa in the year ago period. We believe these disruptions are circumstantial and temporary and are confident that Jack Daniel's remains in a position of strength with robust medium and long.

Term performance and exceptional brand health for example, Jack Daniel's, Tennessee Whiskey has again been named the most valuable spirits brand in the world by Interbrand, making this the eighth year in a row and fact based on our consumer insights research Jack Daniel's, Tennessee Whiskey ranked number one or number two across the measures of brand awareness penetration and consideration across.

Lachlan: Most markets and we continue to support the brand's health and growth through the make it count Global campaign, the Jack and Coke are TD and the Mclaren Formula one sponsorship, we have strategies and plans in place to return Jack Daniel's, Tennessee whiskey to growth, which we will share in more detail during our Investor day later this month, while the path to normalization in the spirits.

Lawson E. Whiting: In fact, based on our consumer insights research, Jack Daniels Tennessee Whiskey ranks number one or number two across the measures of brand awareness, penetration, and consideration across most markets. And we continue to support the brand's health and growth through the Make It Count global campaign, the Jack & Coke RTD, and the McLaren Formula One sponsorship. We have strategies and plans in place to return Jack Daniels Tennessee Whiskey to growth, which we will share in more detail during our Investor Day later this month. Additionally, while the path to normalization in the spirits category impacted our top-line results, we continue to be pleased with our gross margin. As I shared previously, we have moved from contraction to expansion. In the first nine months of fiscal 2024, our reported and organic gross profit increased 5% and 6%, respectively.

Lachlan: <unk> impacted our topline results, we continue to be pleased with our gross margin as I shared previously we have moved from contraction to expansion in the first nine months of fiscal 2024, our reported and organic gross profit increased 5% and 6% respectively. Both were ahead of their respective topline growth rates, the strength and health of our brands along.

Lachlan: With our continued brand building investments enabled us to increase price across many brands in our portfolio, which helped drive the 290 basis points of price mix contribution to gross margin gross margin also benefited from the absence of supply chain mitigation costs, which more than offset higher input costs. As a reminder, in the prior year to date period.

Lachlan: We incurred increased transportation and logistics costs in order to satisfy the demand from our distributors and retailers for the important holiday season in total favorable price mix the absence of supply chain mitigation costs and lower tariff related costs due to the removal of the UK tariffs on American whiskey more than offset higher input costs.

Lawson E. Whiting: Both were ahead of their respective top-line growth rates. The strength and health of our brands, along with our continued brand-building investments, enabled us to increase prices across many brands in our portfolio, which helped drive the 290 basis points of price mix contribution to gross margin. Gross margin also benefited from the absence of supply chain mitigation costs, which more than offset higher input costs.

Lachlan: And the negative effects of foreign exchange and acquisitions and divestitures. This resulted in 250 basis points of reported gross margin expansion in the year to date period. In summary, we continue to operate in a very dynamic operating environment that has impacted our short term results. We believe that we will benefit from the evolution of our brand portfolio long term price.

Lawson E. Whiting: As a reminder, in the prior year-to-date period, we incurred increased transportation and logistics costs in order to satisfy the demand from our distributors and retailers for the important holiday season. In total, favorable price mix, the absence of supply chain mitigation costs, and lower tariff-related costs due to the removal of the UK tariffs on American whiskey more than offset higher input costs and the negative effects of foreign exchange and acquisitions and divestment. This resulted in 250 basis points of reported gross margin expansion in the year-to-date period.

Lachlan: And revenue growth management strategies, as well as a moderating cost environment, even as consumer demand normalizes. The spirits category offers attractive growth healthy margins and high returns on capital and we're well positioned globally with premium and Super premium brands in growing categories. We also have an organization of highly talented people who are.

Lachlan: Committed to our strategic priorities and company values I'd like to thank all of our Brown Forman employees across the world for their focus on growing our brands and achieving our long term ambitions with that I'll turn the call over to Leann and she'll provide additional details on our geographic performance other financial highlights as well as our updated fiscal 2020 for outlook.

Leanne Cunningham: Thank you Austin and good morning, everyone from a geographic perspective, our emerging international markets collectively delivered 11% organic net sales growth and continued to lead the company's growth in the year to date period, Jack Daniel's, Tennessee, Apple, particularly in Brazil, and Chile, once again led the growth data.

Leanne Cunningham: In summary, we continue to operate in a very dynamic operating environment that has impacted our short-term results. However, we believe that we will benefit from the evolution of our brand portfolio, long-term pricing and revenue growth management strategies, as well as a moderating cost environment, even as consumer demand normalizes. The spirits category offers attractive growth, healthy margins, and high returns on capital, and we're well-positioned globally with premium and super-premium brands in growing categories. We also have an organization of highly talented people who are committed to our strategic priorities and company values. I'd like to thank all of our Brown Formn employees across the world for their focus on growing our brands and achieving our long-term ambitions. With that, I'll turn the call over to Leanne, who will provide additional details on our geographic performance, other financial highlights, as well as our updated Fiscal 2024 Outlook. Thank you, Lawson, and good morning everyone.

Leanne Cunningham: Our ability to meet strong consumer demand with the return of normal levels of supply Jack Daniel's, Tennessee Whiskey growth was led by <unk>.

Leanne Cunningham: There is no lithium and the premium whiskey category continued in Mexico, New mix continued to deliver strong double digit growth as the brand continued to benefit from our pricing strategy and gain share at the RTD category in the travel retail channel organic net sales grew 1% and then nine months of the fiscal year.

Leanne Cunningham: Here, which is impressive as it lapped 52% growth in the year ago period, when international airline travel and the cruise industry rebounded and nearly returned to pre COVID-19 levels strong double digit growth of our Super premium American whiskeys, such as Woodford Reserve.

Leanne Cunningham: Jack Daniel's and American single malt, Alright exclusive global travel retail offering and Jack Daniel's single barrel was partially offset by declines in Jack Daniels, Tennessee, Whiskey, and Jack Daniel's, Tennessee, Honey, turning to the United States organic net sales decreased 2% driven by lower volumes, partially reflecting on.

Leanne Cunningham: From a geographic perspective, our emerging international markets collectively delivered 11% organic net sales growth and continued to lead the company's growth in the year-to-date period. Jack Daniel's Tennessee Apple, particularly in Brazil and Chile, once again led the growth due to our ability to meet strong consumer demand with the return of normal levels of supply. Jack Daniel's Tennessee Whiskey growth was led by Turkia as momentum in the premium whiskey category continued.

Leanne Cunningham: Estimated net decrease in distributor inventories of 2% the impact of our year to date results due to the comparison against the significant inventory rebuilding during the first half of fiscal 2023 moderated as we believe distributor inventories normalized in the third quarter at fiscal 2023.

Leanne Cunningham: In Mexico, Numix continued to deliver strong double-digit growth as the brand continued to benefit from our pricing strategy and gain share of the RTD category. In the travel retail channel, organic net sales grew 1% in the nine months of the fiscal year, which is impressive as it lapped 52% growth in the year-ago period when international airline travel and the cruise industry rebounded and nearly returned to pre-COVID levels. Strong double-digit growth of our super premium American whiskeys, such as Woodford Reserve, Jack Daniel's American Single Malt, our exclusive global travel retail offering, and Jack Daniel's Single Barrel, was partially offset by declines in Jack Daniel's Tennessee Whiskey and Jack Daniel's Tennessee Honey. Turning to the United States, organic net sales decreased 2%, driven by lower volumes partially reflecting an estimated net decrease in distributor inventories of 2%.

Leanne Cunningham: And have remained at normal levels, our pricing strategy, which led to higher prices across much of our portfolio led by Jack Daniel's, Tennessee, Whiskey and al Hema door helped to limit the decline.

Leanne Cunningham: Similar demand for U S whiskey, particularly Super premium remains strong as U S. Whiskey is the second largest contributor to total distilled spirits value growth and therefore, the demand for our Super premium Jack Daniel's products, Jack Daniel's Sinatra, Jack Daniel's single barrel Rye barrel crave and <unk>.

Leanne Cunningham: Jack Daniel's bonded Ray along with our limited releases of Jack Daniel's 10, and 12 year old delivered strong growth and partially offset the decline in Jack Daniels, Tennessee Whiskey volume the fastest growing category in the U S remains the ready to drink category. It has been nearly one year since the launch of the Jack Daniel's <unk>.

Leanne Cunningham: The impact of our year-to-date results due to the comparison against the significant inventory rebuilding during the first half of fiscal 2023 moderated as we believe distributor inventories normalized in the third quarter of fiscal 2023 and have remained at normal levels. Our pricing strategy, which led to higher prices across much of our portfolio, led by Jack Daniel's Tennessee Whiskey and El Hemador, helped to limit the decline. Consumer demand for U.S. whiskey, particularly super premium, remains strong as U.S. whiskey is the second largest contributor to total distilled spirits value growth in Nielsen. Demand for our super premium Jack Daniel's products, Jack Daniel's Sinatra, Jack Daniel's Single Barrel Rye Barrel Proof, and Jack Daniel's Bonded Rye, along with our limited releases of Jack Daniel's 10 and 12 year old, delivered strong growth The fastest growing category in the U.S. remains the ready-to-drink category. It has been nearly one year since the launch of Jack Daniel's and Coca-Cola RTD in the U.S., and the brands continue to grow and gain share. Jack Daniel's RTD, led by Jack and Coke, remains a top 10 brand family by value in Nielsen.

Leanne Cunningham: OCA Cola RTD in the United States and the brand continues to grow and gain share Jack Daniel's RTD led by Jack and Coke remains a top 10 brand family by value and Nelson. We continue to believe that our portfolio is well positioned to benefit from the consumer trends are premium innovation and convenience.

Leanne Cunningham: Moving onto our developed international markets collectively organic net sales declined 6% for the nine months of fiscal 2024, driven by lower volumes, primarily reflecting an estimated net decrease in distributor inventories of 6% growth of Jack Daniel's, Tennessee, Apple led by the continuing.

Leanne Cunningham: Access for a launch in South Korea, and Glenn glass out old and where cash sales in Singapore was more than offset by a decline for Jack Daniel's, Tennessee Whiskey in Japan related to the estimated net decrease in distributor inventory data fulfillment of backlogged orders in the second half of last year when.

Leanne Cunningham: Supply was available to meet this demand coupled with the transition activities to our own distribution. We continue to progress as planned with our lines just a few weeks away on April. The first in addition, as we continue to drive and build our business in Europe. We are pleased to announce that we will establish our own distribution.

Leanne Cunningham: Nation, and Italy effective May 120, 25, Italy is one of the top five spirits markets in the European Union, making it an important market for driving the growth of our Jack Daniel's family of brands globally and in particular for our latest portfolio additions, Italy is the largest market for gen <unk> and <unk>.

Leanne Cunningham: We continue to believe that our portfolio is well positioned to benefit from the consumer trends of premiumization and convenience. Moving on to our developed international markets, collectively organic net sales declined six percent for the nine months of fiscal 2024, driven by lower volumes primarily reflecting an estimated net decrease in distributor inventories of six percent. Growth of Jack Daniel's Tennessee Apple, led by the continuing successful launch in South Korea and Glenn Glassow's old and rare cast sales in Singapore, was more than offset by declines for Jack Daniel's Tennessee Whiskey in Japan related to the estimated net decrease in distributor inventory due to fulfillment of backlogged orders in the second half of last year when supply was available to meet this demand, coupled with the transition activities to our own distribution.

Leanne Cunningham: With the largest market for diplomatic of ramp globally. This market holds significant potential for future growth and we believe this change will enable us to strengthen our commercial and brand building capabilities, while increasing consumer focus and prioritization of our portfolio as Wilson has shared the details of our strong gross margin expansion for us.

Leanne Cunningham: The nine months of fiscal 2024, I will now turn to our operating expenses and income as we have shared with you in prior quarters, we allocated more brand building investment in the early months of fiscal 2024 to support the launch of the Jack Daniel's and Coca Cola RTD in the United States. We also increased investment for Jack Daniels.

Leanne Cunningham: We continue to progress as planned with our launch just a few weeks away on April 1st. In addition, as we continue to drive and build our business in Europe, we are pleased to announce that we will establish our own distribution organization in Italy, effective May 1, 2025. Italy is one of the top five spirits markets in the European Union, making it an important market for driving the growth of our Jack Daniel's family of brands globally, and in particular for our latest portfolio additions. Italy is the largest market for gin mara and the fifth largest market for Diplomatico rum globally.

Leanne Cunningham: Tennessee whiskey due to the phasing of our investments our operating expenses continued to moderate through the nine months of fiscal 2024, which resulted in organic advertising expense growth of 7% in the year to date period. Similarly, organic SG&A and that's meant also moderated through the nine months of fiscal 2012.

Leanne Cunningham: Fuller as we continue to invest behind our people, primarily led by higher compensation and benefit expenses, resulting in an increase of 8% for the year to date period, our year to date reported operating expenses, which decreased 11% were impacted by three items the absence of the prior year.

Leanne Cunningham: This market holds significant potential for future growth, and we believe this change will enable us to strengthen our commercial and brand building capabilities while increasing consumer focus and prioritization of our portfolio. As Lawson has shared the details of our strong gross margin expansion for the nine months of fiscal 2024, I will now turn to our operating expenses and income. As we have shared with you in prior quarters, we allocated more brand building investment in the early months of fiscal 2024 to support the launch of the Jack Daniel's and Coca-Cola RTD in the United States. We also increased investment for Jack Daniel's Tennessee Whiskey.

Leanne Cunningham: Noncash impairment charge for the Finlandia brand name the current year a gain on the sale of Finlandia and the absence of the prior year post closing costs and expenses related to the acquisition of diplomatic allergen Moray and total reported operating income increased 25% and organic operating on.

Leanne Cunningham: Income grew 2% and the nine months of fiscal 2024. These results led to a 32% diluted earnings per share increased to $1.58 per share before moving to our outlook I'd like to take the opportunity to provide you with an update on our share repurchase program that we announced on October.

Leanne Cunningham: Due to the phasing of our investments, our operating expenses continued to moderate through the nine months of fiscal 2024, which resulted in organic advertising expense growth of seven percent in the year-to-date period. Similarly, organic SG&A investment also moderated through the nine months of fiscal 2024 as we continue to invest behind our people, primarily led by higher compensation and benefit expenses, resulting in an increase of eight percent for the year-to- Our year-to-date reported operating expenses, which decreased 11 percent, were impacted by three items, the absence of the prior year non-cash impairment charge for the Finlandia brand name, the current year gain on the sale of Finlandia, and the absence of the prior year post-closing costs and expenses related to the acquisition of Diplomatico and Genmare. In total, reported operating income increased 25 percent, and organic operating income grew two percent These results led to a 32 percent diluted earnings per share increase to $1.58 per share.

Leanne Cunningham: The second 2023 as you may recall, the Brown Forman board of directors authorized a repurchase of up to $400 million of our outstanding shares of class, a and class B common stock I am pleased to announce that as of December 31st 2023, We have completed the program now turning to.

Leanne Cunningham: Our updated fiscal 2024 outlook as Wilson highlighted global trends are normalizing. After two years of very strong organic net sales growth and what has been a challenging and dynamic operating environment, we experienced softer than expected consumer trends during the important holiday selling season globally.

Leanne Cunningham: Which limited our expected top line acceleration, while we have to lap stronger shipments associated with the launch of Jack Daniel's and Coca Cola RGD in the U S. In the fourth quarter of fiscal 2023, the year ago period is in line with longer term historic trends. We also expect to continue to benefit from our long term.

Leanne Cunningham: Pricing and revenue growth management strategies as well as the contribution from our recent Super premium brand acquisitions, Jan Murray and diplomatic though we now expect our organic net sales growth to be flat for fiscal 'twenty 'twenty. Four also in this fiscal year. We continue to believe our gross margin will it.

Leanne Cunningham: Before moving to our outlook, I'd like to take the opportunity to provide you with an update on our share repurchase program that we announced on October 2nd, 2023. As you may recall, 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. I am pleased to announce that as of December 31st, 2023, we have completed the program. Now, turning to our updated fiscal 2024 outlook. As Lawson highlighted, global trends are normalizing after two years of very strong organic net sales growth. In what has been a challenging and dynamic operating environment, we experienced softer-than-expected consumer trends during the important holiday selling season globally, which limited our expected top-line acceleration.

Leanne Cunningham: Span as higher input costs, driven by inflation will be more than offset by price mix and the absence of supply chain disruption our outlook for organic operating expenses to increase remains the same and our stamps incremental advertising spend will be above our top line growth rate.

Leanne Cunningham: Our expectation is that SG&A growth will remain higher than historical averages as we continue to expect higher compensation and benefit related expenses and costs related to our transition to owned distribution in Japan based on these expectations, we anticipate organic operating income growth to be in the range of.

Leanne Cunningham: While we have to lap stronger shipments associated with the launch of Jack Daniels and Coca-Cola RTD in the U.S. in the fourth quarter of fiscal 2023, the year-ago period is in line with longer-term historic trends. We also expect to continue to benefit from our long-term pricing and revenue growth management strategies, as well as the contribution from our recent super premium brand acquisitions Genmari and Diplomatico. We now expect our organic net sales growth to be flat for fiscal 2024.

Leanne Cunningham: Zero to 2% for the full fiscal year, we have revised our expectation for the effective tax rate for fiscal 2024 to now be in the range of approximately 20% to 22% and we now anticipate capital expenditures to be in the range of $230 million to $240 million.

Leanne Cunningham: For the full year before opening the call up to Q&A I would also like to add a few comments on our recent capital allocation actions in particular, the sale of our cooperage in Alabama, the pending divestiture of genomic a chair and our long standing commitment to our community and the environment during the third quarter we.

Leanne Cunningham: Also, in this fiscal year, we continue to believe our gross margin will expand as higher input costs driven by inflation will be more than offset by price mix and the absence of supply chain disruption. Our outlook for organic operating expenses to increase remains the same and assumes that incremental advertising spend will be above our top-line growth rate. Our expectation is that SG&A growth will remain higher than historical averages as we continue to expect higher compensation and benefit-related expenses and costs related to our transition to owned distribution in Japan. Based on these expectations, we anticipate organic operating income growth to be in the range of 0 to 2 percent for the full fiscal year. We have revised our expectation for the effective tax rate for fiscal 2024 to now be in the range of approximately 20 to 22 percent, and we now anticipate capital expenditures to be in the range of $230 to $240 million for the full year.

Leanne Cunningham: <unk> announced the sale of our cooperage in Trinity, Alabama to independence, Dave Company, and our continuing efforts to optimize our wood supply chain, we have committed to a long term strategic relationship with independence, Dave company to ensure a stable supply of high quality barrels to meet our demand at a competitive price.

Leanne Cunningham: While creating efficiencies and optimizing capital allocation and our supply chain. The relationship also allows for the expansion and diversification of our supply chain network Brown Forman will continue to own and fully leverage the brown Forman cooperage in Louisville, Kentucky. This allows us to produce approximately half of the barrels.

Leanne Cunningham: Required to support our needs, while enabling us to continue developing and innovating for our brands and new expressions moving to Sonoma Cutrer air the divestiture to the deck, one portfolio and the assumption of an equity ownership position in the company subject to certain customary closing adjustments and conditions is still expect.

Leanne Cunningham: Before opening the call up to Q&A, I would also like to add a few comments on our recent capital allocation actions, in particular the sale of our Cooperage in Trinity, Alabama, the pending divestiture of Sonoma Cattrare, and our long-standing commitment to our community and the environment. During the third quarter, we announced the sale of our Cooperage in Trinity, Alabama, to Independence Dave Company.

Leanne Cunningham: To close in the fourth quarter of fiscal year 2024, we continue to believe in the strength of the Sonoma Cutrer brand and its future growth opportunities and that this transaction reflects our portfolio evolution strategy as well as our commitment to long term value creation and lastly, I.

Leanne Cunningham: In our continuing efforts to optimize our wood supply chain, we have committed to a long-term strategic relationship with Independence Dave Company to ensure a stable supply of high-quality barrels to meet our demand at a competitive price while creating efficiencies and optimizing capital allocation in our supply chain. The relationship also allows for the expansion and diversification of our supply chain network. Brown-Forman will continue to own and fully leverage the Brown-Forman Cooperage in Louisville, Kentucky.

Leanne Cunningham: I'd like to share that we have recently announced that in fiscal 'twenty 'twenty four we have committed to a 22.5 million dollar investment benefiting the Brown Forman Foundation and Denture fan the Brown Forman Foundation was created in <unk> 2018, with the goal of helping fund our ongoing philanthropic endeavors.

Leanne Cunningham: This allows us to produce approximately half of the barrels required to support our needs while enabling us to continue developing and innovating for our brands and new expressions. Moving to Sonoma Cattrare, the divestiture of the Duckhorn portfolio and the assumption of an equity ownership position in the company, subject to certain customary closing adjustments and conditions, is still expected to close in the fourth quarter of fiscal year 2024. We continue to believe in the strength of the Sonoma Cattrare brand and its future growth opportunities and that this transaction reflects our portfolio evolution strategy as well as our commitment to long-term value creation. And lastly, I would like to share that we recently announced that in fiscal 2024, we have committed to a $22.5 million investment benefiting the Brown-Forman Foundation and Dentra Fund. The Brown-Forman Foundation was created in fiscal 2018 with a goal of helping fund our ongoing philanthropic endeavors with a focus on our corporate hometown of Louisville, Kentucky.

Leanne Cunningham: With a focus on our corporate hometown of Louisville, Kentucky, the danger fan a nonprofit seed fund created that Brown Forman and the Brown family and 2012 helps to promote a more sustainable whisky industry with a focus on the three natural resources most important for the distillation and aging.

Leanne Cunningham: Of whiskies wood water and grain as you know at Brown Forman, we take an integrated approach to value creation, where all aspects of our company can chevy too and are fundamental to our strategy, including our commitment to environmental sustainability alcohol and marketing responsibility diversity and inclusion.

Leanne Cunningham: And contributing to the vitality of the communities in which we live and work. These investments are just two examples of how we are living our spirit of commitment in summary, we are adjusting to more normalized levels of consumer demand and a challenging and dynamic operating environment as we look to the end of fiscal 2024.

Leanne Cunningham: The Dentra Fund, a non-profit seed fund created by Brown-Forman and the Brown family in 2012, helps to promote a more sustainable whiskey industry with a focus on the three natural resources most important for the distillation and aging of whiskeys: wood, water, and grain. As you know, at Brown-Forman, we take an integrated approach to value creation where all aspects of our company contribute to and are fundamental to our strategy, including our commitment to environmental sustainability, alcohol and marketing responsibility, diversity and inclusion, and contributing to the vitality of the communities in which we live and work. These investments are just two examples of how we are living our spirit of commitment. In summary, we are adjusting to more normalized levels of consumer demand in a challenging and dynamic operating environment.

Leanne Cunningham: We believe that we have moved beyond the most difficult comparisons and disruptions of our fiscal year and will benefit from our long term strategies as well as our portfolio evolution. We believe our portfolio of brands as strong as they are participating in growing categories and price segments and are driven by the consumer trends are premium.

Leanne Cunningham: Position and the desire for convenience and flavor, while we have more modest near term expectations. We believe our long term perspective will enable us to navigate the current environment and its short term impact as we have many times since our founding in 18, 70 and to deliver consistent and reliable performance.

Leanne Cunningham: As we look to the end of fiscal 2024, we believe that we have moved beyond the most difficult comparisons and disruptions of our fiscal year and will benefit from our long-term strategies as well as our portfolio evolution. We believe our portfolio of brands is strong as they are participating in growing categories and price segments and are driven by consumer trends of premiumization and the desire for convenience and flavor.

Leanne Cunningham: Turns over the long term, we look forward to seeing many of you in person soon and sharing more about the confidence we have in our long term ambitions at our Investor Day on March 20th. This concludes our prepared remarks. Please open the line for questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Operator: While we have more modest near-term expectations, we believe our long-term perspective will enable us to navigate the current environment and its short-term impacts as we have many times since our founding in 1870 and to deliver consistent and reliable performance and returns over the long term. We look forward to seeing many of you in person soon and sharing more about the confidence we have in our long-term ambitions at our Investor Day on March 20th. This concludes our prepared remarks. Please open the line for questions. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: And our first question comes from Lauren Lieberman with Barclays. You May proceed.

Great. Thanks, so much.

Lauren Rae Lieberman: So I'm still honestly after all the prepared remarks, a bit confused around where the shortfall really stemmed from.

Lauren Rae Lieberman: In the quarter and stemming going into into Q4, because you had talked about sequential improvement in the second half with what was expected third quarter. It looks like it decelerated sequentially. Despite the easier comp I know you mentioned softer holiday demand globally, but again that doesn't really help me with the <unk>. So.

Operator: One moment for questions. And our first question comes from Lauren Lieberman with Barclays. You may proceed. Great, thanks so much.

Speaker Change: Just if you could maybe rank order what sort of where are the areas, where a short term negative surprise I think that'd be really helpful. Thanks.

Leanne Cunningham: So I'm still, honestly, after all the prepared remarks, a bit confused around where the shortfall really stemmed from, both in the quarter and stemming, you know, going into Q4. Because you talked about sequential improvement in the second half with what was expected. The third quarter looks like it decelerated sequentially, despite the easier comp. I know you mentioned softer holiday demand globally. But again, that doesn't really help me with the four Qs. So just if you could maybe rank order where the areas were of short-term negative surprise, I think that'd be really helpful. Thanks. Thanks, Lauren.

Speaker Change: Thanks, Lauren and I will go ahead, and I'll step back a little bit broader first and then I'll narrow and specifically to your question. So.

Speaker Change: First let me say, we think about our business in decades, and generations and I'd like to point you to slide five which when we think about the 2020 decade that we're in and the kind of the first three full fiscal years, you can see that our compounded annual growth rate for that period of time on the organic net sales basis is at a nine.

Speaker Change: <unk>, which is definitely above our long term growth.

Speaker Change: Algorithm, and then kind of moving closer in to the periods that we're in now we have now lapped the first half of F. 'twenty, three which was our strongest first half growth rate in the last decade, we talked about that in our last call and that was all about rebuilding our inventories and then if you kind of look at last year kind of now.

Leanne Cunningham: And I'll go ahead and I'll step back a little bit wider first, and then I'll narrow in specifically to your question. So first, let me say, you know, we think about our business over decades and generations. And I'd like to point you to slide five, which, when we think about the 2020 decade that we're in and the kind of the first three full fiscal years, you can see that our compounded annual growth rate for that period of time on an organic net sales basis is at 9%, which is definitely above our long-term growth rate algorithm. And then, kind of moving closer to the periods that we're in now, we have now lapped the first We talked about that on our last call, and that was all about rebuilding our inventories.

Speaker Change: Nine months year to date in this year that CAGR is 6%, which is in line with our longer term growth algorithm. So when we step back and look at it at the broadest perspective, so far for this decade. We believe we are off to a good start and we have confidence.

Speaker Change: And then our business is sound with a strong gross margin expansion and strong cash flow. So just to set the stage and then at the Dow and even closer to your <unk>.

<unk> is youre right and Thats, what we said is during the important holiday selling season.

Leanne Cunningham: And then if you kind of look at last year, kind of nine months, year-to-date, and this year, that CAGR is 6%, which is in line with our longer-term growth algorithm. So when we step back and look at it from the broadest perspective, so far for this decade, we believe we're off to a good start, and we have confidence that our business is sound with a strong gross margin expansion and strong cash flow. So just to set the stage, and then to dial in even closer to your question, you're right, and that's what we said, that during the important holiday selling season, we did not expect the softness of consumer trends that we did see during that important holiday selling season. And that has now limited our top-line acceleration.

Speaker Change: Did not.

Speaker Change: We expect the consumption of those consumer trends that we did see during that important holiday selling season and that has now limited our topline acceleration.

Speaker Change: When we think about it from a markets perspective.

Speaker Change: As it was U S and the key developed markets of the UK.

Speaker Change: In France, and I'm sure in this call will talk a lot about the U S. But while we're here I'll talk about the U K, which we know the U K part of it is about our transition to.

Speaker Change: The Jack Daniel's and co led to the Jack Daniels and Coca Cola business, but we really did see a slowing consumer and a very strong promotional environment during the holiday selling season.

Leanne Cunningham: When we think about it from a market perspective, for us, it was the U.S. and the key developed markets of the U.K. and France. And I'm sure on this call, we'll talk a lot about the U.S., but while we're here, I'll talk about the U.K., which we know the U.K. Part of it is about our transition to the Jack Daniels and Coca-Cola business, but we really did see a slowing consumer and a very strong promotional environment during the holiday selling season. And then in France, we saw the slowing consumer trend even kind of declining more than we expected with the whiskey, with the softness in the whiskey category, and definitely some trading down in that market.

Speaker Change: Then in France, we saw the slowing consumer trend, even kind of declining more than what we expected with the whiskey with the softness in the whiskey category and some definitely some trading down in that market.

Speaker Change: And then what I would say than kind of the.

Speaker Change: Rest of that piece is this slowdown across many of our emerging international markets, which was just more than what we had expected in our guidance.

Speaker Change: One thing I can say as you can see in schedule D.

Speaker Change: Alright, sorry schedule would be that when we reported last time, our shipments and depletions for our full strength portfolio were in line. We now see where we are year to date that our Depletions are ahead of shipments. So again, that's another signal that we believe that we are kind of moving beyond what we have had to lap.

Leanne Cunningham: And then, kind of the rest of that piece is the slowdown across many of our emerging international markets, which was just more than what we had expected in our guidance. One thing I can say, as you can see in Schedule D, or, sorry, Schedule B, that, you know, when we reported last time, our shipments and depletions for our full-strength portfolio were in line. We now see, where we are today, that our depletions are ahead of shipments.

Speaker Change: But then as we talk about kind of to your point with the last quarter.

Speaker Change: Like we shared in our last call when we think about the second half we know we have to lap that.

Speaker Change: <unk> of Jack Daniel's and Coca Cola RGD in the U S. But when you look at kind of the.

Leanne Cunningham: So again, that's another signal that we believe that we are kind of moving beyond what we have had to do. But then, as we talk about kind of, to your point with the last quarter, like we shared in our last call. When we think about the second half, we know we have to laugh at the launch of Jack Daniels and Coca-Cola RTD in the U.S., but when you look at the court as a whole, the half as a whole, we have to comp a plus 5%.

Core the half as a whole we have to comp of plus 5% and we're we believe we're going to be able to do that is again with the contribution of our newly acquired brands of gin Marian diplomat ago, we're continuing to see benefits from pricing and revenue growth management, which is kind of equating to that strong gross margin expansion that.

You have seen in our results and then again.

Speaker Change: Our operating expenses.

Speaker Change: Increase that remains the same where we had phasing where our brand expense was greater in the first part of the year, we know that will moderate through the rest of this year and SG&A expenses. That's just that's related to the higher compensation and benefits related expenses as well as.

Leanne Cunningham: And where we believe we're going to be able to do that is again, with the contribution of our newly acquired brands of Jinmari and Diplomatico, and we're continuing to see benefits from pricing and revenue growth management, which is kind of equating to that strong gross margin expansion that you have seen in our results. And then again, operating expenses, increase that remains the same where we had phasing where our brand expense was greater in the first part of the year, but now that will moderate through the rest of this year, and SG&A expenses, that's just that's related to the comp higher compensation and benefits related expenses as well as our increased expenses for the own distribution investment that we're making in Japan that's set to go live on. April 1st. So that is all built into our guidance. Let me give you a shorter version of that, Lauren.

Speaker Change: Our increased expenses for the owned distribution investment that we're making in Japan are set to go live on <unk>.

Speaker Change: So that is all built into our guidance.

Speaker Change: Let me let me give you a shorter version this is Lauren.

Lauren Rae Lieberman: [laughter] Christmas Stunk, but around the world I mean, we had a lot of markets the disappointed during.

Lauren Rae Lieberman: During Christmas this year, which we did not expect when we were.

Lauren Rae Lieberman: Thinking about our year to go period three months ago. So it was it.

Lauren Rae Lieberman: It was surprisingly weak.

Lauren Rae Lieberman: Okay.

Speaker Change: Just one quick follow up because that was a very fulsome answer. So thank you both versions.

Lawson E. Whiting: Christmas spunk around the world. I mean, we had a lot of markets that disappointed during Christmas this year, which we did not expect when we were thinking about our year to go period, you know, three months ago. So it was surprisingly weak.

Speaker Change: Okay.

Speaker Change: But what does that mean for inventory levels in Q4, because I know you called it the ships depletes in that like the big the Big picture laps are getting to a better we're moving along but.

Leanne Cunningham: Okay, now just one quick follow-up, because that was a very fulsome answer. So thank you both for both versions, the short and the long version, but what does that mean for inventory levels in q4? Because I know, Leanne, you call it the ships versus the pleats in that like the big picture laps, you know, we're getting to a better place. But, Shipments like shipments were also weak for Christmas, right? I'm just trying to put the two pieces together.

Speaker Change: <unk>.

Speaker Change: Shipments shipments were also weak for Christmas right I'm, just trying to put the two pieces together because if you expected Christmas do better usually the shipments of kind of happened right and it's the depletions of the problem. So that's also a little bit surprising to me, if I'm, making sense.

Speaker Change: I would expect it to be shipments might've been okay, but depletions would've been the problem and that would leave a hangover for Q4.

Leanne Cunningham: Because if you expected Christmas to be better, usually the shipments have kind of happened, right? And it's the depletions that are the problem. So that's also a little bit surprising to me, if I'm making sense. I would expect it to be shipments might have been okay, but depletions would have been the problem. And that would leave a hangover for Q4.

Speaker Change: Yeah, I think what we saw was we didn't see those orders come in for the important holiday selling season likely at the level that we traditionally do and being able to comp above where we were.

Leanne Cunningham: Yeah, I think what we saw was, you know, we didn't see those orders come in for the important holiday selling season at the level that we traditionally do and be able to comp above where we were. So you, That didn't come in the way that we expected again in that late November, December timeframe that we were expecting. And so when we think about again, and we continue to be in a bit of a different position, which we've talked about many times, as we rebuild our inventory, we continue to believe that our inventories through the supplier to the distributor to the retailer to the consumer are in line. And really, this is about consumer takeaway at this point for us.

Speaker Change: So we have that.

Speaker Change: It didn't come in the way that we expect it again in that late November December timeframe that we were expecting.

Speaker Change: So when we think about again.

Speaker Change: We continue to be.

Speaker Change: And a bit of a different position, which we've talked about this many times.

Speaker Change: We rebuilt our inventory we continue to believe that our inventories through the supplier to the distributor and retailer to consumer are in line and really this is about consumer takeaway at this point for us and so again.

Speaker Change: That fluctuation and consumer takeaway being lower than what we expected really drove that for us.

Leanne Cunningham: And so again, that fluctuation in consumer takeaway being lower than what we expected really drove that for us. We do continue to see, you know, when we go to the US specifically, that net change and distributor inventory kind of come back in line. If you look from the first half to the third to the nine months ended, that is coming much more back in line with what we said we expected it to moderate. Okay. All right. Great. Thank you. I'll pass it on.

Speaker Change: We do continue to see.

Speaker Change: Go to the U S. Specifically you continue to see that net change in distributor inventory kind of come back in line. If you look from the first half to the third to the nine months ended that is coming much more back in line, which we said we expected it to moderate.

Speaker Change: Okay, Alright, great. Thank you I'll pass it on.

Leanne Cunningham: Thank you. One moment for questions. Our next question comes from Bonnie Herzog with Goldman Sachs. You may proceed. All right, thank you. Good morning.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Bonnie Herzog with Goldman Sachs. You May proceed.

Bonnie Lee Herzog: Alright. Thank you good morning, I actually just maybe have a bit of a follow on on the conversation you guys were just having regarding inventory levels, but Laura the consumer I guess level do you have a sense of where these are and really how much you think consumer pantry destocking is impacting the category and then.

Bonnie Lee Herzog: I actually, you know, just maybe have a bit of a follow-on from the conversation you guys were just having regarding inventory levels, but more at the consumer level, do you have a sense of where these are? And, you know, really how much you think consumer pantry de-stocking is impacting the category? And then your thoughts on when that might reverse? And Lawson, do you still believe category growth will get back to the mid-signal digit range? And then, if so, how quickly could this occur?

Speaker Change: And your thoughts on when that might reverse and loss and do you still believe the category growth will get back to the mid single digit range and then if so how quickly could this occur. Thank you, yes, okay. Thats a good question because we have we have talked.

Lawson E. Whiting: Yeah, okay, Bonnie, that's a good question because we have talked a lot about that internally over the last few weeks about – I'm talking about the consumer inventory thing. And I do think, and I believe, although it is – that's a hard number to get to. There's really no way to study consumer inventories, necessarily, of what's still in the pantry.

Speaker Change: A lot about that internally over the last few weeks around im talking about the consumer inventory thing and I do I do think and I believe although it is that's a hard number to get to there's really no way to study consumer inventories necessarily want to do on the pantry, but my theory. If you look at the last 345 years, you can see the elevated growth rates.

Lawson E. Whiting: But my theory, if you look at the last three, four, five years, you can see the elevated growth rates. Leanne was just quoting a few of them, but let's just focus on the three-year, because it's on page five of our – you're looking at a 9 percent organic growth rate over three years, including this year. That is way – several points above any sort of normal run rate for the most part in our industry. Some of that has to be sitting in a consumer's pantry. Now,

Speaker Change: Leann was just quoting a few of them, but let's just focus on the three year because it's on page five of our.

Speaker Change: Youre looking at a 9% organic growth rate over three years, including this year.

Speaker Change: That is way.

Speaker Change: Several points above any sort of normal run rates for the most part in our industry.

Speaker Change: That has to be sitting in a consumer's pantry at home right now.

Speaker Change: People think of spirits is often referred to as a fast moving consumer good and it's really not there's not like food or some other categories that move much faster spirits kind of in the middle when I think about different consumer categories, I think about food being the fastest I think about I don't know when.

Lawson E. Whiting: People think of spirits as often referred to as a fast-moving consumer good, and it's really not. It's not like food or some other categories that move much faster. Spirits, I call it, kind of in the middle.

Lawson E. Whiting: When I think about different consumer categories, I think about food being the fastest; I think about a bike, you know, an exercise bike is the slowest, because once you pull that demand forward, you're not going to buy another bike. Spirits are in the middle, and so it is taking some time to clear those consumer cabinets. We've said before that 80% of our consumer base only buys two bottles a year, so they have a bottle sitting in their cabinet at home that's probably half full, and it's just the deferred cost. The good thing is we think that if you do the math around that, that should largely be over, and that's why Leanne just said here. We expect going forward, particularly in the U.S., I think That's question one. What was the second one?

Speaker Change: An exercise bike is the slowest because once you pull that demand forward, you're not going to buy another bike experiences in the middle and so it is taking some time to clear those consumer cabinets.

Speaker Change: We've said before that we look at like 80% of our consumer base only buys two bottles a year. So they have a bottle sitting in their cabinet at home, that's probably half full it's just the deferred cost. The good thing is we think that if you do the math around that that should be largely be over and that's why we and just said here, we expect going forward.

Speaker Change: Particularly in the U S. I think we're talking but our sales rates to be much closer to what consumer takeaway is right now.

Speaker Change: Okay last question what was the other.

Speaker Change: When lindon.

Speaker Change: Yeah.

Speaker Change: Tds getting back to normal 4% to 5%, which is what it has been for decades share that in the last couple of years and all the volatility I know I've seen some of our competitors that have said anywhere from six to 18 months and that's a pretty big that's a pretty big range.

Lawson E. Whiting: Yeah, you know, TDS getting back to normal at four to 5%, which is what it has been for like decades, short of the last couple years and all the volatility. I know I've seen some of our competitors that have said anywhere from six to 18 months. And that's a pretty big, that's a pretty big range.

Speaker Change: For us as what we're saying we do believe next year will start to return to those normal levels.

Speaker Change: As <unk>.

Speaker Change: Inventory conversation, largely we think will largely be over.

Speaker Change: Alright, thank you.

Lawson E. Whiting: I think for us, what we're saying we do believe next year will start to return to those normal levels. As for Inventory Conversation, largely, you know, we think it will largely be over. All right. Thank you. Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Our next question comes from Andrea Teixeira with Jpmorgan you May proceed.

Speaker Change: Hey, Good morning. This is Julian on for Andrea and Thank you for taking our question.

Bonnie Lee Herzog: One moment for questions. Our next question comes from Andrea Teixeira with JP Morgan. You may proceed. Hey, good morning. This is Drew Levine for Andre.

Julian: So just following up on the U S. You talked about some changes in consumer behavior internationally in France, I think youre seeing some trade down can you talk about what youre seeing in the U S. Any evidence of perhaps smarter value seeking channel shifts or trade down and then also what youre seeing from an on premise perspective.

Drew Nolan Levine: Thank you for taking our question. So just following up on the US. You talked about some changes in consumer behavior internationally in France. I think you're seeing some trade down. Can you talk about what you're seeing in the US?

Lawson E. Whiting: Any evidence of perhaps more value-seeking challenges or trade down, and then also what you're seeing from an on premise perspective? If there's been any incremental softness there? Thank you.

Julian: If there's been any incremental thoughts there. Thank you.

Speaker Change: Yeah. So look I mean on the trade down Congress sitting there versus the U S.

Speaker Change: And I think this is good news I think relative to probably what people are expecting but if you look at the data, particularly I'm looking at Nielsen data over the last three months youre not seeing trade down.

Lawson E. Whiting: Yeah, so look, I mean, on the trade down converse, it is now the US. And I think this is good news, I think, relative to probably what people are expecting. But if you look at the data, particularly Nielsen data, over the last three months, you're not seeing trade down. And we've still got that same dynamic where, I'll simplify a little bit here, but $30 and above is growing much faster, and take RTDs aside, pull that out of that when I say this, but $30 and above is growing at a materially better number than 30 and below, and so that's that. We're not seeing the trade down in our old portfolio, and we're not really seeing it across the industry yet, so I And that, I think we were expecting to see maybe a little bit more of that.

Speaker Change: We've still got the same dynamic where.

Speaker Change: Simplify a little bit here, but $30 and above is growing much and take our Tds decided to pull that out of that when I say this but.

Speaker Change: 30, and above was growing at us.

Speaker Change: Materially better number than 30 and below and so that's just we're not seeing the trade down on our own portfolio and we're not really seeing it across the industry yet so I think.

Speaker Change: That just hasnt it just.

Speaker Change: It just hasnt happened and that I think we were expecting to see maybe a little bit more.

Speaker Change: Consider that good news.

Speaker Change: And on the pricing environment, which you didn't you didn't specifically ask about that but I think it's worth.

Speaker Change: Looking about that for a second because pricing really has not.

Speaker Change: <unk> been worried as <unk> seen consumer weakness that somehow that would result in more aggressive pricing deeper pricing that Christmas all of those kind of things and it didn't really happen and we're not really seeing that coming through the data right now as you look at Tds across spirits, it's still positive.

Lawson E. Whiting: So I generally consider that correct. And on the pricing environment, which you didn't specifically ask about, but I think it's worth talking about that for a second, because pricing really hasn't, you know, we've been worried, as you've seen, consumer weakness, that somehow that would result in more aggressive pricing, deeper pricing, Christmas, all those kinds of things. And it didn't really happen.

Speaker Change: Plus one or one five something right in there.

Speaker Change: And interestingly this is where we were narrowing down even quicker as tequila in the U S. And then U S whiskey across the U S. And both are also positive. So there's been a lot of speculation that the keel of pricing would start to fall apart as the costs have come down is just not showing and if you look at the last 13 weeks when you go.

Lawson E. Whiting: And we're not really seeing that coming through the data right now. If you look at TDS across spirits, it's still possible, plus 1 or 1.5, something right in there. And interestingly, this is where we were narrowing down even quicker, is tequila in the US, and then US whiskey across the US. And both are also positive. So there's been a lot of speculation that tequila pricing would start to fall apart as the costs have come down. But it's just not showing up.

Speaker Change: Cover the Christmas.

Speaker Change: Time period, both those categories saw improved pricing not not lower and so while I do hear a lot of these anecdotal stories of X Y Z brand with deep or whatever it might have been in there are examples out there like that but for the most part pricing is holding up so far and I consider that to be.

Lawson E. Whiting: And if you look at the last 13 weeks, which would cover the Christmas time period, both of those categories saw improved pricing, not lower. And so while I do hear a lot of these anecdotal stories of XYZ brand went deep, or whatever it might have been, and there are examples out there like that, but for the most part, pricing is holding up so far, and I consider that to be, you know, a pretty big positive. Thanks for joining us on this premise. I have the on-premise numbers in front of me.

Speaker Change: A pretty big positive too.

Speaker Change: Did I answer.

Speaker Change: On premise do you haven't don't have the on premise numbers in front of me.

Speaker Change: So.

Speaker Change: Sorry, we don't I don't have their on premise numbers right in front of me. So I don't I haven't seen a material change in those necessarily but I'm trying to find them.

Speaker Change: The data point, let's get back to you on the on premise. This is why we talked about that there is two points of acceleration compared to the October 23rd. So we continue to see acceleration there with Tds and Brown Forman now growing low single digits.

Leanne Cunningham: Sorry, I don't have the on-premise numbers right in front of me, so I haven't seen a material change in those necessarily, but I'm trying to find them. This is where we talked about that there were two points of acceleration compared to October 23rd, so we continue to see acceleration there with TDS and Brown Form and now growing low single digits. All right, I'll pass it on.

Speaker Change: Alright, I'll pass it on thank you so much.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Chris pitcher with Redburn Atlantic You May proceed.

Chris Pitcher: Hi, Thank you very much.

Chris Pitcher: Just a question in terms of buying patents, you've sort of alluded to it but in the current environment have you seen any structural changes in how retailers or wholesalers.

Leanne Cunningham: Thank you so much. Thank you. One moment for questions. Our next question comes from Chris Pitcher with Redburn Atlantic. You may proceed. Thank you very much.

Chris Pitcher: And given the sort of the interest rate environment the uncertainty.

Chris Pitcher: Can I ask just a question in terms of buying patterns? You sort of alluded to it, but in the current environment, have you seen any structural changes in how retailers or wholesalers are buying, given the sort of interest rate environment and the uncertainty? Is that creating, making it harder for you guys to plan? And then, if I could have a follow-up question, on Japan, you flagged that as being one of the areas that got hit hard by de-stocking, with sales down 100%. It's quite hard to gauge what the real underlying revenue is with your new route to market there. Could you give us an idea of what sort of scale the Japanese business is still running at, despite all these massive distortions? Thanks very much.

Chris Pitcher: Is that creating.

Chris Pitcher: Making it harder for you guys to plan and.

Chris Pitcher: And then if I could have a follow up just on Japan, you flagged that as being one of the areas that got hit hard by Destocking with with sales down 100% its quite hard to gauge what the real underlying revenue as with your new route to market that could you give us some idea of what sort of scale. The Japanese business is still running at despite all these massive distortions.

Speaker Change: Thanks very much.

Speaker Change: Yeah. So I'll go back to the first part of your question, which is.

Speaker Change: As far as buying patterns, we shared with you I think in our last call that.

Leanne Cunningham: Yeah, so I'll go back to the first part of your question, which is, you know, as far as buying patterns go, we shared with you, I think, in our last call that, as far as rebuilding the markets that we have with and replenishing their distributor and retailer inventory that kind of has, we have changed, in the short term, our traditional, consistent seasonality of the shipments. We have changed, in the short term, our traditional, consistent We're still lapping some of that, especially as you get into our emerging international markets. And we're lapping the way that we rebuilt that, and the timing and the cadence are a little bit different.

Speaker Change: And how we prioritize rebuilding the markets that we have with and replenishing their distributor and retailer inventory that kind of has.

Speaker Change: Change in the short term our traditional.

Speaker Change: Consistent seasonality of the shipments that we pattern buying that we have seen we're still lapping.

Speaker Change: Some of that especially as you get into our <unk>.

Emerging international markets, and we're lapping the way that we've rebuilt that and the timing and the cadence is a little bit different. It makes it does make it a little bit harder, but I think for us. The biggest piece again was back to that important holiday selling season and consumers being a stretching their discretionary.

Leanne Cunningham: It does make it a little bit harder, but I think for us, the biggest piece, again, was back to that important holiday selling season and consumers stretching their discretionary spend because of how they've been impacted by interest rates and inflation. And for Japan, when we look at that business, again, this has been a year of kind of two pieces. One was how we rebuilt our inventory in the prior year. And I think we said in our prepared remarks, you know, we had a backlog of orders waiting for supply to be able to fill those. We were able to do that in the second half of last year.

Speaker Change: Ben.

Speaker Change: Because of how they've been impacted with interest rates and inflation and for Japan. When when we look at that business again. This has been a year of kind of two pieces. One was how we've rebuilt our inventory in the prior year.

Speaker Change: And I think we said in our prepared remarks, we had a backlog of orders waiting for supply to be able to fill those we were able to do that in the second half of last year, So coupling that with our route to consumer change.

Leanne Cunningham: So coupling that with our route to consumer change, it has basically, we haven't needed to make any shipments to Japan this year. To your point, what does the business look like more on a depletion basis? And we would say, you know, we have been in frequent contact with the team there as they continue to progress to this own distribution model on April 1st. And from a depletion base, you know, we're still excited about the health of our brands in that market. So again, I would say from an organic perspective, we just have to, we're investing in the long-term value creation opportunity in Japan, and it's set to be a growth driver as we move forward. Just a quick follow-up: normally, a company, a country, a market would drop out if it's not in the top ten in a period. Can we assume the fact that you've still put Japan in there, that it would be a top ten market for you on a normalized basis? Yeah, how do we set our top 10. And I think we have it in our queue.

Speaker Change: It is just basically a we havent needed to make any shipments to Japan. This year to your point.

Speaker Change: <unk>.

Speaker Change: Business look like more on a depletion based and we would say.

Speaker Change: We have been in frequent connection with the team there as they continue to progress to this one Jan one distribution model on April the first and from a depletion based and we're still excited about.

Speaker Change: The health of our brands in that market. So again I would say from an organic perspective, we just have we're investing in the long term value creation opportunity in Japan, and it is set to be a growth driver as we're moving forward.

Speaker Change: Just a quick normally a company a country a market withdraw pilots if it's not in the top 10 and appeared can we assume you still put Japan and that it would be a top 10 market for you on a normalized basis.

Speaker Change: Yeah, how we set our top 10 and I think we have it in our Q is basically set on April 30 of our prior year. So okay.

Leanne Cunningham: It's basically set on April 30 of our previous year. So it's in there for that reason. Thank you.

Speaker Change: And therefore for that reason.

Speaker Change: Thank you.

Nadine Sarwat: One moment for questions. Our next question comes from Nadine Sarwat with Bernstein. You may proceed. Hi, thank you for taking my question. Two for me. First, just a clarifying question.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Our next question comes from Nathan <unk> with Bernstein you May proceed.

Nathan: Hi, Thank you for taking my question two for.

Nathan: For me first just a clarifying question you had mentioned your view that perhaps the market in the U S could get back to that historical 4% to 5% value growth into next year can I, just clarify without fiscal next year or calendar next year.

Nadine Sarwat: You had mentioned your view that perhaps the market in the US could get back to that historical 4 to 5% value growth in the next year. Could I just clarify, is that fiscal next year or calendar next year? And then my second question, something I think a lot of people are bringing up amongst investors, the topic of moderation, perhaps younger consumers drinking less, and adding some GLP-1s in there. I mean, all of this has been thrown around as potential reasons for the weakness that we're seeing in US spirits. But to be honest, on US alcohol more broadly, with the implication that, you know, that could be a permanent change. I would be curious to get your views on that. All those factors I listed, and where do you think it goes from here? Thank you. Yeah, good. So, Nadine, the.

Nathan: And then my second question something I think a lot of people are bringing up.

Investor topic of moderation, perhaps younger consumers drink quinoa and.

Nathan: <unk> one from there I mean, all of this has been a turnaround as potential reasons for the weakness that we're seeing.

Nathan: U S spirits, but to be honest and use alcohol.

Nathan: <unk> with the implication that that could be apartment and change I would be curious to get your views on that those all those factors I have listed and where do you think it goes from here. Thank you.

Nathan: Yes.

Speaker Change: Good evening.

Lawson E. Whiting: A few things on this, because this is obviously a topic that we have spent a lot of time trying to understand a little bit better, too. You know, if, over the last, I'll make it up, five years, we had seen TDS go from five to four to three to two to one, something like that, I would be concerned that some of those things you just talked about, wellness trends, cannabis trends, GLP-1s, all those types of things, that would be an indicator that something is happening structurally in the business, going to, you know, that could be. But that's not what we saw, on this call knows what I mean; it's that four to five range with COVID moving it around volatility wise, but it has been in that range for decades.

Speaker Change: A few things on that because it's obviously a topic that we have.

Speaker Change: Spent a lot of time trying to understand a little bit better too.

Speaker Change: Over the last I'll make it up five years, we had seen Tds go from five to $4 three to two to one something like that I would be concerned with some of those things you just talked about wellness trends cannabis trends GOP ones all of those types of things.

Speaker Change: That would be an indicator that something is happening structurally in the business got it.

Speaker Change: There could be permanent.

Speaker Change: But that's not what we saw.

Speaker Change: As I think everyone on this call knows that four to five range with Covid moved it around volatility wise, but it has been in that range for decades, and then all of sudden we know if you look at Tds the same <unk>.

Lawson E. Whiting: And then all of a sudden, we know if you look at TDS, the same, you look at July of last summer, and you see a very sharp deceleration in the market, like GLP-1s or cannabis is not going to take a market and move it four or five points, you know, seemingly overnight. And so I just don't think that's what is driving it.

Speaker Change: Look at July of last summer and you see a very sharp deceleration in the market.

Speaker Change: <unk> ones are cannabis is not going to take a market move at four to five points seemingly overnight and so I just don't think Thats. What is I don't think those big macro concerns that are out there or what is impacting the market today now over the next decade or two do I want to look at that and understand that better. It is it could be.

Lawson E. Whiting: I don't think those big macro concerns that are out there are what is impacting the market today. Now, over the next decade or two, do I want to look at that and understand that better? It is, you know, it could be a headwind, yes, but particularly on that, you know, a health, you know, healthier Gen Z kind of conversation. Cannabis, you know, that's been around now for, I don't even know, 10 plus years, whatever it is, we've studied that 18 ways till Sunday and have never been able to find a state where we saw reduced alcohol consumption based on it going legal. And it's tough to do now because so many places are legal.

Speaker Change: A headwind, yes, but particularly on.

Speaker Change: A healthier.

Speaker Change: Healthier Gen Z kind of conversation.

Speaker Change: Cannabis that's been around now for I don't even know 10 plus years whatever it is we studied that 18 ways to Sunday and have never been able to find.

Speaker Change: State, where we saw reduced alcohol consumption based on going legal stuff to do now because so many places are legal but.

Lawson E. Whiting: But so, yeah, so I do think, in general, these are shorter-term challenges, particularly for the U.S., but it's also true in Europe, too. Europe is feeling a lot of the same macro effect. And I do think it's that combination of what we've already talked about, but the very difficult competition.

Speaker Change: So yes, so I do think in general these are shorter term challenges, particularly with the U S. But it's also true in Europe to Europe is fueling a lot of the same macro factors in the USA.

Speaker Change: And I do think it's that it's the combination of what we've already talked about but the very difficult comps I think the consumer is weaker than it was say this time last year.

Lawson E. Whiting: I think, you know, the consumer is weaker than it was, say, this time last year. Now, predicting whether the turnaround is going to be six months or 12 months, I, I don't know. I don't have a crystal ball on that. But I am a believer that the macro factors impacting our business are more short-term in nature than the big macro. Got it.

Speaker Change: Yes.

Speaker Change: Predict now predicting as the turnaround it would be six months or 12 months.

Speaker Change: I don't know.

Speaker Change: I don't have a crystal ball on that but I am a believer that the macro factors impacting our business or more short term in nature than these big macro headwinds.

Leanne Cunningham: And just to confirm that getting back to four to 5% next year comment with that next year fiscal calendar, I don't know if I was kind of, I'm not making it up, but I mean, it's more of a return to normal over the next, call it 12 to 24 months in our world, something like that. Yeah, and then the one thing that we looked at is, and history is not always a predictor of the future for many reasons we know, when we went and looked back at the last time the consumer was really stretched by macroeconomic factors, we looked at 2000, 2001, 2008, 2009. They were followed by really strong years of growth. And those trends, when they were negatively impacted, were much shorter. And like Lawson just said, it's kind of that 12 to 18-month window by which we're already in. So none of us really know, but that's what history has told us.

Speaker Change: Got it and just to confirm you that getting back to 4% to 5% next year comment with that next year.

Speaker Change: For calendar I don't know if I was kind of.

Speaker Change: I'm, making it up but I mean, it's more of a return to normal over the next call. It 12 to 24 months in or something like that yeah, and then the one thing that we looked at it in history is not always a predictor of the future for many reasons. We know when we went and looked back at the last time, the consumer was really stretched with macroeconomic.

Speaker Change: Actors, we'd like to 2000, 2001 2008 2009.

Speaker Change: They were followed by really strong years of growth and those trends were when they were negatively impacted were much shorter. Unlike Lawson just said, it's kind of the two.

Speaker Change: <unk> the 18 month window.

Speaker Change: By which we're already in it so none of us know.

Speaker Change: But that's what history has said to us.

Nadine Sarwat: Got it. Very clear. Thank you very much.

Speaker Change: Got it very clear thank you very much.

Eric Adam Serotta: Thank you. One moment for questions. Our next question comes from Eric Serotta with Morgan Stanley. You may proceed.

Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Eric Cerrado with Morgan Stanley You May proceed.

Lawson E. Whiting: Morning, thanks for taking the question. First off, I'm hoping you could expand upon your comments earlier on pricing and promotions. First, I guess, as a housekeeping item, when did your pricing in the US, particularly for Jack Daniels, go in? And then I know you said that, you know, those who are not seeing much pricing in the data, but it does seem like it's more than kind of a one-off anecdotal, or the anecdotal reports about discounting seem to be more than one off. I know Diageo mentioned some increased promotions in the US, but I'm just wondering if you have any broader perspective between what seems to be a broader theme of increased promotions and what you guys are seeing in the data. Yeah, well, on the Unknown Attendee, um, You know, and that's a U.S. comment for the most part, but it actually does apply to much of the rest of the world, too.

Eric Adam Serotta: Good morning, Thanks for taking the question.

Eric Adam Serotta: First of all I'm, hoping you could.

Eric Adam Serotta: And upon your comments earlier on pricing and.

Eric Adam Serotta: Promotions first I guess, just a housekeeping item what when did your pricing in the U S, particularly on Jack Daniels go in.

Eric Adam Serotta: And then I.

Eric Adam Serotta: I know you said that the.

Speaker Change: Thus, we are not seeing much pricing in the data.

Speaker Change: But it does seem like it's more than kind of one off anecdotal.

Speaker Change: Or be anecdotal.

Speaker Change: Reports about discounting seem to be more than one off I know Dr. Gio mentioned, some increased promotions in the U S.

Speaker Change: Just wondering if you have any broader perspective between what seems to be a broader.

Speaker Change: The theme of increased promotions and what you guys are seeing in the data.

Speaker Change: Yes.

Speaker Change: <unk>.

Pricing history I guess.

Speaker Change: When did it kick in.

Speaker Change: You're talking about the U S. It was about three years ago.

Speaker Change: Now so we have chosen I think a slightly different path than some of our competitors.

Lawson E. Whiting: Europe's had pretty healthy price increases in the last couple of years, too, which... collectively, is one of the main reasons why we've been able to improve our gross margin, and so, You know, I have very little interest in giving that back. And so we're going to continue to be pretty strong with that. As I mentioned earlier, I mean, I... You know, anecdotally, it feels that way, and I've heard the same things, and I saw what some of our competitors have said, but the reality is, it's not coming through in the data, so I don't know. I'm not sure how else to answer that.

Speaker Change: <unk> talked about this numerous times.

That low and slow and it's what I want to see continuing going forward and is what we're trying to strive again, even over the next 12 or 24 months.

Speaker Change: And that's a U S comment for the most part but it actually does apply to much of the rest of the world to Europe's had pretty healthy price increases the last couple of years too.

Speaker Change: Which is <unk>.

Speaker Change: Collectively why one of the main reasons why we've been able to improve our gross margin and so.

Speaker Change: I have very little interest in giving that back and so we're going to continue to be pretty strong with that as I mentioned earlier.

Speaker Change: I know anecdotally it feels that way and Ive heard the same things and I saw with some of our competitors have said, but the reality is is not coming through the data. So I don't know.

Speaker Change: I'm not sure how else to answer that.

Lawson E. Whiting: I mean, we talked about trade-down earlier, you know, a couple questions ago, or the lack of it, I should say. So it's not coming through in trade-down here, and we're not seeing it in terms of really individual brands that have all of a sudden gone deep. And by the way, I think it's worth commenting, too, and this is at a very high level, so personally, you know, we're not deep-studying this quite yet.

Speaker Change: Talk about trade down earlier, a couple of questions ago that or the lack of I should say so it is not coming through in trade down to here and we're not seeing it in terms of.

Speaker Change: Really individual brands that are all of a sudden gone deepen and by the way I think it's worth probably commenting too.

Speaker Change: This is at a very high level, so I personally.

Speaker Change: We're not deep studying this quite yet, but the competitive the Brent some of the brands that have gone lower haven't seen much in the way of.

Lawson E. Whiting: Some of the brands that have gone lower haven't seen much in the way of, you know, a decent rebound in their volumes. I'm not sure that's the core consumer problem right now; pricing elasticity, you know, is, as I said, low and slow. But if you compare pricing changes over the last two, three years to what grocery has done to what other consumer categories have done, where it was much higher, you know, you saw much higher inflation in the food channel, let's say than you did in spirits. And so I just don't, I don't think, I'm not that worried that our pricing actions have chased consumers away from our products. I just don't. I think that would be sort of missing what the actual problem is. Great. And then there is just one other question.

Speaker Change: A decent rebound in their volumes I'm just not sure of these.

Speaker Change: I'm not sure if thats the core consumer problem right now is higher pricing pricing elasticity.

Speaker Change: As I said low and slow, but if you compare pricing changes over the last two to three years towards grocery has done to other consumer categories have done where it was much more.

Speaker Change: You saw much higher inflation in the food channel, let's say than you did in spirits and so I just don't I.

Speaker Change: I don't see.

Speaker Change: Im not that worried that our pricing actions have chase to consumers away from our partner. So I just don't think that would be sort of missing what the actual problem is.

Speaker Change: Great and then just one other question.

Eric Adam Serotta: I'm hoping to get your perspective on either Brown Forman or the industry's barreled whiskey inventories. Obviously, there has been a massive investment cycle over the past decade, making up for the previous three or four decades. But, you know, maybe, hopefully, you can give some comments as to where you think inventories are today relative to future demand, realizing you've got a plan for multi-decade cycles here. Yeah, so I'll talk about our barrel whiskey inventory. And I think for anybody who's followed us for a while, you've probably heard us say that we have a very robust semi-annual process where we're always adjusting to future consumer demand outlooks. And by doing that, we capture the change in trends, if there are any. So when you look at our that our barrel whiskey, we're constantly adjusting it. When you look at our balance sheet, you know when you see increases for us there,

Speaker Change: I'm, hoping to get your perspective on either brown forman or industry.

Speaker Change: Barreled whiskey inventory has obviously been a massive investment cycle over the past decade, making up for the previous three or four decades, but.

Speaker Change: Maybe hopefully you could give some comments as to why.

Speaker Change: Where you think inventories are today relative to future demand realizing you've got a plan for.

Speaker Change: Multi decade cycles here.

Speaker Change: Yeah, So I'll talk about our barrel whiskey inventory and I think for anybody who's followed us for a while you've probably heard us say that.

Speaker Change: We have a very robust semiannual process, where.

Speaker Change: We're always adjusting to.

Speaker Change: Future consumer demand outlook and with doing that we capture the change in trends if there are any.

When you look at our our barrel whiskey, we're constantly adjusting it when you look at our balance sheet. When when do you see increases for US there. It is about looking out over the long term and that represents our future growth expectations and you probably.

Speaker Change: With work in process and in some brands you would find our ageing inventory there and we are with this acquisition of diplomatic though you would have seen that increase as well so.

Speaker Change: Four.

Speaker Change: Many in the industry I don't want to speak on anybody's behalf that many in the industry use.

Speaker Change: The same proprietary way of doing the work, but I know that they often look at their long term demand over that cycle as well.

So I think people are always adjusting.

Speaker Change: Great I'll pass it on thank you.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Peter Grom with UBS you May proceed.

Peter K. Grom: Thanks, operator, and good morning, everyone hope you're doing well so.

Peter K. Grom: I guess I'm a bit confused by the commentary on the top line trajectory. So on one hand youre talking about.

Peter K. Grom: A normalization of category growth you would expect that to get back to that mid single digit growth at some point over the next 12 to 18 months and that would kind of seem to imply that 25, it could be another challenging year, but but on the other hand, if you back out the distributor inventory headwind, which sounds like you expect to be largely compete complete after you've kind of already.

Peter K. Grom: This mid single digit growth rate so.

Peter K. Grom: No we will get the fiscal 'twenty five in June.

Peter K. Grom: How should we think about the building was for your organic growth outlook for over the next 12 months should we focus more on that.

Peter K. Grom: Category growth rate or should we be kind of focusing on kind of lapping this distributor inventory headwinds. Thanks.

Speaker Change: Yes, so as excited as we are to begin to talk about our next fiscal year, we'll have that in full detail for you.

Speaker Change: And our next call.

Speaker Change: I do think you picked up on an important point.

Speaker Change: If you look at that depletion scheduled rescheduled.

Speaker Change: <unk>.

Speaker Change: If you assume that we are there from an inventory perspective, certainly depletions are better than.

Speaker Change: Certainly a lot better than shipments over this year. So so we're getting there.

Speaker Change: Getting past these comps I mean, theres like light at the end of the tunnel.

Speaker Change: We can't get there fast.

Speaker Change: The world.

Speaker Change: Okay. That's helpful. And then maybe just a quick follow up on gross margin I know a lot of moving pieces here in Boston I. Appreciate the commentary on the year to date progress, but from a quarterly perspective, you'd have to really go back to kind of a tariff data to see a sequential step down of this magnitude in the third quarter relative to the second quarter was that simply a function.

Speaker Change: Weaker volume performance was there something else that drove that kind of sequential step down.

Speaker Change: Yeah. So when we think about our gross margin in the outlook that we have.

Speaker Change: Driven by a couple of things. So one we lapped supply chain disruption and largely speaking we had the majority of the cost in our second quarter of last year. So that benefit continues to moderate as we move through the rest of the year and then.

Just as we do kind of estimates from an inventory costing perspective.

Speaker Change: We would have had a benefit in our fourth quarter of last year that we will have to comp this year, but all of that has been built into our full year guidance for the entire year, where you've been able to see kind of the difference between our top line growth estimates and our operating income in north leverage that way.

Speaker Change: Expected through there, but we have been.

Speaker Change: Very happy to return to gross margin expansion and have the strong expansion that we've had through the through the nine months to date.

Speaker Change: But again talking about in that last quarter. It will go more towards the guidance that we have provided.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: One moment for questions.

Speaker Change: Our next question comes from Filippo <unk> with Citi. You May proceed.

Filippo: Hi, good morning, guys.

Filippo: I have a question on the ready to drink spirits part of the category, particularly in the U S. If you look at total spirits category stripping out ready to drink actually the trends have been a lot more negative than it looks on the surface. So do you think this growth in the ready to drink spirits is more structural.

Filippo: And have you done any work of calculating any impact on your volumes, given obviously, you sell less liquid and ready to drink compared to like a full bottle if that were to continue to grow at this rate.

Filippo: And following up on the margin part.

Filippo: You talked in the past about ready to drink spirits being more gross margin dilutive, although more similar to the operating margin level. So any thought on the margin implications will be helpful. As well. Thank you.

Speaker Change: Yes. So your first part of that was the Cvs and yes, Youre right. Our Tvs are boosting Tds for sure you take those outlets closer to flat.

Speaker Change: Which honestly is close to flat.

Speaker Change: It's been 30 plus years since GDS has gone negative in the United States not since the early 19 nineties when they had the excise tax changes so from a pure Tds takeaway U S figure, it's about as bad as it's been.

Speaker Change: That is it has been in my career. So there are certainly challenges there now do I think there's this big structural move.

Speaker Change: The world of RTD is one I mean, they meet a lot of consumer trends and needs right now so I do believe it's a very powerful category.

Speaker Change: But if you go back over the last 20 or 30 years, when you look through our industry there've been so many booms and busts.

Speaker Change: Of different brands, but we always start out by talking about California coolers are 30 years of Brown Forman 30 years ago. When it went from 12 million cases to zero in about two years, So I mean there.

Speaker Change: There are booms and busts in that space, Jack and coal is a little Jack and Coke is a bit different in that it's such an established strength already it's the largest mark on the world.

Speaker Change: That is not a fact in my mind.

Speaker Change: There are other brands, we'll see we've seen what happened to the mall based or Tds over the last few years in that category got blown up.

Speaker Change: Largely by the spirit based our TD so.

Speaker Change: It is a volatile space for sure.

Speaker Change: Then to your at the liquid part in the margin part of your question excuse me and liquid yes. There is less liquid in the case of Rgd's escalate and then the full strength, but we will be planning to supply liquid to significantly broader geographic reach with this product.

Speaker Change: Again, and we just talked about the process that we use and looking for the demand needed for our liquid so that would be built into there and then from a margin perspective, though gross margins for Archie DS are lower than our company average.

Speaker Change: Jack and cokes should be higher than the rest of our RTD portfolio, because we will have advertising support jointly funded between Brown Forman and the Coca Cola Company and also we have to look at it in totality of when we are increasing.

Speaker Change: Our RTD business that we're also adding in the two super and ultra premium brands of Jim Murray and diplomatic which have higher gross margins in the company. So you'll have to take all of those factors into account.

Speaker Change: Got it thank you I'll pass it on.

Speaker Change: Thank you I would now like to turn the call back over to sue them for any closing remarks.

Sue: Thank you and thank you Lawson and Leann and thank you to everyone for joining us today for Brown <unk> third quarter and year to date fiscal 2024 earnings call. If you have any additional questions. Please contact us we look forward to seeing many of you in Louisville on Wednesday March 20th for our 2024 Investor day presentations by the company.

<unk> executive leaders will focus on Brown Forman strategic priorities and long term ambitions details regarding the live webcast of the presentation along with the question and answer session can be found in the March 4th press release about the event and with that this concludes today's call.

Speaker Change: Thank you for your participation you may now disconnect.

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