Q2 2025 Brown-Forman Corp Earnings Call

December 5, 2024

Dr.

music by Janis Joplin

For more information visit www.FEMA.gov

Thank you.

Speaker Change: 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 ups.

Speaker Change: Any of these statements whether due to new information future events or otherwise. This morning, we issued a press release containing our results for the second quarter and first half of fiscal year 2025. In addition to posting presentation materials that Lawson and Leann will walk through momentarily.

Speaker Change: Both the release and the presentation can be found on our website under the section titled investors events and presentations.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: We transition to our results we have two very special guest with US as you may recall on November 25, we announced the change in our board of directors Chair here to speak about this upcoming transition is Campbell Brown Brown Forman chair of the board and his successor, Marshall far Executive Vice President and Chief strategic growth.

Speaker Change: Officer, and Brown Forman Board director.

Speaker Change: Both are great great grandson of the Companys founder Campbell and Marshall have a few remarks I would like to share after that we will review our financial results and then Lawson Leann and I will be available for Q&A Campbell I would now like to turn the call over to you.

Campbell Brown: Thank you Sue and good morning, I'm delighted to join you today as this is just the second time I've spoken on one of these quarterly calls. The first time was the third quarter of fiscal 2021, when it was announced that I would become the next chair of the board like then I'm here today to discuss succession planning.

Campbell Brown: As we know it is not by chance that Brown Forman has been a family controlled organization for 154 years, rather we understand the company's independents has been enabled by intentional family connections spanning multiple generations as well as purposeful and productive relationships between.

Campbell Brown: The family Brown Forman as executive leadership team and board of Directors as you may have seen at the recent meeting of the Brown Forman Board of Directors I announced my decision to step down as chair when my term ends in July 2025.

Campbell Brown: This decision may have come as a surprise to some let me assure you that even before assuming the role of board chair in 2021.

Campbell Brown: Use of my time in the position would be thoughtfully measured.

Campbell Brown: My timeline was always well aligned with our board succession planning process at the same time being true to who I am and what I believe is best for the company that I love So dearly.

Campbell Brown: While I am stepping down from my role as chair I am thrilled to have the opportunity to stand for reelection in July as a board member and continue to help Stuart Brown Forman future in that capacity.

Campbell Brown: It's been an honor to serve as chair of the board alongside such a talented collection of directors and a dedicated executive leadership team, but most of all I continue to be impressed by the skill dedication and resilience of our employees.

Campbell Brown: Since I became chair.

Joel has served to reinforce everything I've known to be true and special about Brown Forman.

Campbell Brown: <unk> proud of our committed and United family shareholders. The strength of Brown performance people culture and brand and our strong governance Foundation and process individually. These are attributes any company would envy combined all but ensure brown Forman continued success in independents as a.

Campbell Brown: <unk> family controlled publicly traded company guided by our core values and long term perspective for generations to come.

Campbell Brown: And so it is with great pleasure that I also shared that the board has unanimously approved my successor, and my cousin Marshall <unk>, who will assume the role of chair of the board. Following his reelection to the board at the 2025 annual meeting of stockholders.

Campbell Brown: <unk> will become the 11th Brown family member and third fifth generation family member to serve in this important capacity.

Campbell Brown: As chair Marshall will leverage his unique experience both from within the company and as a champion of the family governance structure to continue to uphold our family's commitment to the long term perpetuity of Brown Forman.

Campbell Brown: The global mindset the industry network, the strategic acumen to guide our board of directors and Stewarding Brown Forman growth and independence.

Marshall is well prepared and ready to take on this role as a member of the board and executive leadership team. He has partnered with loss and widening our CEO and the board on its long term strategy.

Campbell Brown: Have full confidence in Marshalls ability to lead the board in the family you will continue to build upon and strengthen the relationships and legacy that have made and will continue to make brown Forman and independent World class spirits company headquartered in Louisville, Kentucky worthy of your long term.

Campbell Brown: Investment.

Speaker Change: Please join me in congratulating Marshall and wishing him the best in this exciting step in his career and service to Brown Forman with that I'll hand, it over to Marshall.

Thank you Campbell and Hello, everyone first I'd like to thank the board for the confidence it is placing in me.

Speaker Change: Next chair of our board of Directors I started my career at Brown, Forman and $19 98, as a marketing manager and the wind Division I was based in California back then and over the years have held a variety of roles and a number of regions around the globe, including positions that took me to Sidney.

Speaker Change: Amsterdam, and London before recently relocating back to our hometown of Louisville, Kentucky.

Speaker Change: As Campbell mentioned in addition to the various operational roles I've had over my 26, plus years with Brown Forman as well as my nearly nine years of Board service I've also enjoyed working with members of my family since 2000, when the fifth generation began evolving and formalizing our governance Ines.

Speaker Change: <unk>.

Speaker Change: I am very honored to accept this new responsibility as we enter the company's 155th year of operation and I am deeply grateful for the trust placed in me by My Fellow Board members and Brown family I look forward to building on our strong foundation laid by.

Speaker Change: Campbell Garvin and all those who have previously served as chair of this great company.

Speaker Change: Please know that the board and I understand our responsibilities to you our public partners as you look to brown Forman to deliver long term sustainable growth.

Speaker Change: <unk> responsibly over decades and generations.

Speaker Change: Greatly enjoyed meeting some of you at our more recent investor events and look forward to meeting those I have not met at future investor meetings and events.

Speaker Change: With that I would like to turn the call over to Lawson to take us through the first half of fiscal 2025 results.

Lawson: Thank you came on Marshall and good morning, everyone I hope the Campbell and Marshall's remarks are a reminder of the Brown Forman believes deeply and building our business to pass onto the next generation. This belief has been ingrained in our culture since <unk>, 70% by the six generations of Brown family members, who have upheld the legacy of our founder George carbon Brown I haven't.

Joined working closely with Campbell and his role as board chair his deep understanding of our business and gift for building trust and confidence in those around them have made a lasting mark on Brown Forman and our board of directors, while I've worked closely with Marshall as a member of the executive leadership team I'm excited about the opportunity to work with him in his new capacity as board Chair and Marshall We welcome.

Lawson: Visionary thinker with excellent strategic acumen. Please join me in congratulating both of them on this transition also before I share our second quarter and first half results for fiscal 'twenty five I want to express my appreciation to each of our 5700 employees for their contributions to these results they remain dedicated to our brands and our business through the challenging.

Lawson: The operating environment, and then doing so remind me why we often say that there is nothing better than the market and Brown Forman now to our results. As a reminder, we expected fiscal 2025 to be a year of two halves, we anticipated that the second half of our fiscal year would be stronger than our first half because in the first half we compare it against strong shipments related to.

The replenishment of inventory and a few emerging international markets and buy ins ahead of planned price increases. This year is largely unfolded as we anticipated the top and bottom line results that we are sharing with you today continue to be in line with our expectations and we are again reaffirming our full year organic net sales and organic operating income outlook for.

Speaker Change: Fiscal 2025, I'll start with the performance of our brands and then Leann will share more about our geographic performance other financial highlights as well as our fiscal 2025 outlook, let's turn to the drivers of that influenced our first half 2025 results. Our reported net sales decreased 5% in the first half while organic net sales were flat.

Speaker Change: After adjusting for the divestitures of <unk> in the prior fiscal year, the negative effect of foreign exchange and the recent business model changed for Jack Daniel's country cocktails in the first half an increase in used barrel sales was the most significant growth contribution to organic net sales from a brand perspective Woodford reserve diplomatically.

And old Forester, where the largest growth contributors to organic net sales. These gains were largely offset by volume declines for <unk>, which would reserve continues to grow faster than the U S. Whiskey category in the U S and gained value share within the most recent Nielsen and NAV could take away our results. The brand grew organic net sales 8%.

Speaker Change: Given by increased volume as well as positive price mix results were driven by the growth of Woodford Reserve distiller select the number one super premium American whiskey globally, along with strong double digit growth of our ultra premium offering Woodford reserve double Oaked diplomatic go the number two super premium plus run globally delivered.

Speaker Change: Very strong organic net sales growth led by France, and Czech here, along with the travel retail channel, Germany, and the United States as I mentioned, when we acquired diplomatic go in fiscal 2023. The brand has a strong European presence aligning well with our investment in owned distribution in markets, such as France, and Germany, which are diplomatic goes top.

Speaker Change: Two markets were placed diplomatic go into our emerging brands portfolio in both Europe, and the United States. Its third largest market to ensure it has the focus and dedicated resources to drive its growth old Forester, which has consistently provided strong growth. Despite a volatile environment delivered double digit organic net sales growth as the brand benefited from growth of the single.

Speaker Change: Beryl expressions and recent releases such as King Ranch addition, which is exclusively sold in Texas, while we're very pleased with the performance of Woodford Reserve diplomatic go on old Forester Arctic Hela brands, our <unk> continued to face challenges and there are two largest markets of the U S and Mexico and the U S. There's been an increasing number of <unk>.

Speaker Change: Competitors entering the tequila category, while Mexico's economy has faced a challenging macro environment. Despite this performance. We continue to believe we have the right brands to capitalize on the growth in the tequila category globally over the long term <unk> is 154 year old brand of superior quality and taste and we're highlighting its craftsmanship.

Speaker Change: Heritage and authenticity. This year, we've been celebrating <unk> heritage is the world's first <unk> across consumer communications as well as hosting taste of our marquee ton events across the U S and in Mexico. We've recently launched <unk>, our Crystal ball a rep is Sato crystal Lino that builds upon the region's crystal Lino trend for all humidor now that we have.

Speaker Change: Reposition the brands price solidly into the premium price segment, we have opportunities to grow reach and distribution in the U S. And we're also optimistic about <unk> ability to create and grow in the premium tequila category in the rest of the world. We saw very strong double digit organic net sales growth in southeast Asia, as well as Brazil, and Australia <unk>.

Speaker Change: <unk> is the number 100% agave tequila. According to <unk> 2023, while this growth was not enough to offset the softness in the U S and Mexico. We believe <unk> has a strong future can be a key introduction due to cooler for global consumers as they begin to understand the mix ability and versatility of 100% agave tequila after.

Speaker Change: Several quarters of short term headwinds I am very pleased to say that organic net sales for Jack Daniel's, Tennessee whiskey accelerated significantly as we move through the first half of fiscal 'twenty five with sales now flat for the year to date period, we continue to invest behind the brand to engage a new generation of legal drinking age consumers, while retaining our core consumer.

Speaker Change: These include the Mclaren Formula one sponsorship music sponsorships, most recently with should Buzzi, new media campaigns, and the Jack Daniels and Coca Cola ready to drink product. Our TD has continued to be a bright spot within total distilled spirits showing growth across most markets with Jack and coke, notably increasing its value share in many markets around.

Speaker Change: The World, we continue to add new markets, including the launch in India in September and new formats, and flavors within the United States, and Jack and Coke Cherry Limited time offering performed well with initial shopper data from a national grocer, showing that Jack and Coke Cherry added incremental shoppers to the Jack and Coke RTD family. We're also excited to introduce a.

Speaker Change: Variety packs, featuring Jack and Coke, Jack and Coke, Cherry and Jack and Coke vanilla in the U S. The variety packs should be widely available in March 2025, as we lean into summer moments such as time at the beach the Lake and music festivals. We believe our continued geographic expansion and innovation opportunities will generate interest and attention for <unk>.

Speaker Change: Jack Daniel's RTD as well as the full strength family of brands before turning the call over to Leann I wanted to share our latest thoughts on tariffs as I noted is a topic of great interest as you know Brown Forman has been headquartered in the United States for nearly 155 years and we're proud to be the leading exporter of U S spirits products to the world the growth and.

<unk> of our global portfolio allows us to grow at home, increasing jobs and investment in the U S and everywhere. We operate our industry is unique in that many types of spirits like Bourbon, Tennessee Whiskey Irish whiskey Scotch into chela recognizes distinctive products and must be made in their respective countries. So anytime the spirits products or <unk>.

Speaker Change: <unk> by tariffs there is the potential to create an uneven playing field at Brown Forman, we've had an unlevel playing field before given the retaliatory tariffs on American whiskey and as such have learned from our prior experience we've been proactively preparing for a variety of scenarios and have implemented mitigation strategies for our portfolio of brands around.

Speaker Change: The world at this point there are many unknowns and potential scenarios. It is very difficult to predict how this will play out in summary, the first half of fiscal 2025 has unfolded largely in line with our expectations and we continue to believe that we are positioned to achieve our full year guidance, we're still operating in a highly dynamic environment with many uncertainties.

Speaker Change: Even so with all we know today, we continue to expect our second half to be stronger than the first while our short term organic results in the first half were below our historical trends I continue to believe in our long term growth potential led by our strategy our portfolio, our geographic breadth and of course, our talented people with that I will turn the call over to Leann and <unk>.

Speaker Change: I'll provide more details on our first half results.

Leann: Thank you Allison and good morning, everyone as Lachlan mentioned I will provide additional details on our geographic performance other financial highlights and our fiscal 2020 outlook.

Leann: From a geographic perspective as expected we saw sequential organic net sales improvement in each of our geographic clusters as we move through the first half hour emerging international markets return to growth and collectively delivered 6% organic net sales growth in the first half. This growth was fueled by the very strong double digit.

Leann: Growth of Jack Daniel's, Tennessee, Whiskey, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee, Apple and Turkey, and Brazil, our business in Turkey benefited from the continued growth of the premium whiskey category in Brazil. The economy has remained resilient as our results were driven by the growth of the premium plus whiskey category.

Leann: We are gaining share our geographic expansion strategy and the launch of an additional package SaaS for Jack Daniel's, Tennessee Whiskey, Brazil has consistently grown nine later depletions for the full strength Jack Daniel's family of brands at a double digit rate over the past four years and has joined the U S. The UK and Germany as I know.

Leann: In case market, whereas the trailing 12 month Depletions exceeded 1 million nine liter cases in Mexico organic net sales at our <unk> and <unk> declined as the challenging economic environment is impacting discretionary spending and consumers are trading down despite the decelerating conditions in Mexico we.

Leann: <unk> to outperform and gained market share across the channels driven by strong takeaway in RCD in Whiskey. In addition, Eric Dara is driving innovation into Kols with the launch of ore that crystal in Mexico, which built upon the region's crystal lail, our trend and addresses the consumers' need for very subtle tequila across occasions.

Leann: Organic net sales in the travel retail channel declined 3% in the first half growth of Jack Daniel's, Tennessee Whiskey and diplomatic.

Leann: More than offset by the decline of our Super premium American Whiskey as Woodford reserve compared against very strong double digit growth and the launch of our exclusive global travel retail offering Jack Daniel's American single model and the year ago period, we are continuing to innovate in this channel with the tightening phase to the second half of the fiscal year.

Leann: Year.

Leann: Our developed international markets organic net sales collectively was down 3% for the first half as growth in Japan was more than offset by declines in the United Kingdom, and South Korea as we shared last quarter, Japan continued to provide growth following our route to consumer change to our distributions on April <unk> 2020 Fuller.

Leann: While the U K returned to growth in the later months of the first half the market continue to compare against higher volumes in the year ago period related to purchases ahead of the excise tax increase in August 2023 in South Korea. The premium whiskey category is still experiencing growth the Jack Daniel's, Tennessee whiskey experienced.

<unk> competitive activity, while also lapping the prior year launch of Jack Daniel's, Tennessee Apple.

Speaker Change: And in the United States organic net sales decreased 3% double digit growth from Woodford reserve old Forester, and Jack Daniels RTD led by Jack and Coke were more than offset by declines in Jack Daniels, Tennessee, Whiskey, <unk>, California, Champagne Watson highlighted the growth drivers of Woodford Reserve old Forester Jack.

Speaker Change: <unk> in the U S. Therefore, I'll move to additional comments on Jack Daniel's, Tennessee, Whiskey, <unk> as well as on inventory in the consumer environment.

Speaker Change: Later in the year ago period, Jack Daniel's, Tennessee Whiskey experienced a shift in ordering patterns as inventory was purchased ahead of price increases while the brand declined in the first half of this fiscal year. The brand's three month organic net sales trend is ahead of the fiscal year to date trend ended October 2024.

Speaker Change: Also improvement in the three month rolling takeaway trends for us.

Speaker Change: Now the declines in the first half were largely timing related as we are focusing our promotional efforts on the seasonally stronger second half turning to distributor inventory levels in the U S. At the end of our first quarter. We shared that distributors were continuing to target. The low end of their normal range, which is where they remain as the important selling month.

Speaker Change: Of October November and December approach distributors began preparing for the important holiday selling season, and we noted increased shipments for key brands, such as Jack Daniels, Tennessee Whiskey and Woodford Reserve. This was done in a few key markets to ensure supply would meet consumer demand and to mitigate the risk of an out of stock situation at <unk>.

Speaker Change: <unk> level Assembly tailors are continuing to target the low end of their inventory range from a takeaway perspective, three month rolling value trends for total distilled spirits are down approximately 1% and have remained steady in the first half. The premium addition, churn continues with higher priced tiers growing in value and gaining share.

Speaker Change: In the $40 and above price tiers are driven largely by the U S whiskey and tequila categories living answer the rest of the P&L in the first half of fiscal 2025, our reported and organic gross profit decreased 8% and 4% respectively. This resulted in 240 basis points of gross margin contraction.

Speaker Change: Which improved sequentially as we progressed through the first half we continued to benefit from favorable price mix and the Jack Daniel's country cocktail business model change these were more than offset by higher costs, largely driven by the timing of input costs fluctuations coupled with high inventory levels foreign exchange as well as the impact of.

Speaker Change: The transition services agreements related to the divestitures at Atlanta Antonella co chair that we shared during our first quarter earnings call. As a reminder, these agreements had a negative impact on our overall reported gross margin is the gross margin for these services agreements were significantly below the sales of finished goods I will note.

Speaker Change: That as of October 31, 2020 for the transition services agreement related to Sonoma Cutrer has concluded as expected operating expenses in the first half of fiscal 2025 were lower compared to the year ago period, largely due to seasonality at both fiscal years organic advertising expense decreased 4%.

Speaker Change: As we compared against the phasing of our brand building investments in the year ago period. As a reminder, our spend was significantly skewed to the first half of our fiscal year 2024 for Jack Daniel's, Tennessee, Whiskey, particularly the superpremium expressions and to support the launch of the Jack Daniel's and Coca Cola RGD in the United States, Oregon.

Speaker Change: <unk> SG&A investment decreased 3% for the first half driven by lower compensation and benefit expenses as we lapped a 9% increase in the year ago period, and total reported and organic operating income decreased 7% and 3% respectively. In the first half of fiscal 2025. These results.

23% diluted earnings per share decreased to 96 cents per share before moving onto our outlook I would like to share two additional updates since our last quarter related to Sonoma Cutrer and our capital allocation philosophy in the second quarter, we recorded income of $2 million related to our equity share at the <unk>.

Speaker Change: <unk> portfolios earnings as a line item below the operating income line on our P&L based on the equity method one quarter in arrears on October six 2024, it was announced that the Dec corn portfolio would be acquired by private equity funds under the terms of the agreement upon completion of the proposed merger Brown.

Speaker Change: One of them will receive cash of $350 million in exchange for our 21, 4% ownership interest in <unk>. The completion of the merger, which is expected to occur in the second half of our fiscal year is subject to customary closing conditions, including approval by that corn stockholders, we will continue to rip.

Speaker Change: Our equity share of the <unk> portfolio's earnings one quarter in arrears until the merger is complete once our investment is sold we will recognize the equity method earnings only up to the date of <unk>. Most recently available financial statements and recognize a gain on the disposal of linear investment is filled not on a lag.

Lee Brown Forman believes deeply and remains committed to building an enduring business as a testament to this belief our long term perspective, and our enduring commitment to our valued shareholders. Our board of directors recently approved a 4% increase in the quarterly cash dividend Martin 41 consecutive years of dividend increases bounce.

Speaker Change: <unk> continues to be a proud member of the prestigious S&P 500 dividend aristocrats index and has paid regular quarterly cash dividends for 81 consecutive years.

Speaker Change: Lastly, turning to our fiscal 2025 outlook, we continue to anticipate a return to growth for organic net sales and organic operating income in fiscal 2020, driven by gains in international markets and the benefit of normalizing inventory trends on a year over year basis. This outlook is tempered by the global macroeconomic.

Speaker Change: And geopolitical conditions that are creating volatility and uncertainty in the operating environment. We are not forecasting significant changes in the behavior of the consumer or the level of trade inventory as the impacts from inflation and higher interest rates on the consumer and trade still remain as our first half results aligned with our expectations.

Speaker Change: Continue to believe that fiscal 2025 will be a year of two halves. We have moved beyond the comparison against strong shipments and a few emerging international markets as well as lapping stronger shipments associated with the execution of our pricing strategy on a year over year basis in the second half with the majority of the movement in inventories across the distributor.

Speaker Change: Retailer and consumer supply chain behind Us we believe our results will more closely reflect consumer demand. This expectation, though is dependent on the behavior of the supply chain, which is not within our control also we will begin to compare against the significant slowdown in total distilled spirits trends as well as trade inventory reductions and.

Speaker Change: Finally, we believe that we will benefit from having a full year of credits from Gen Moray and diplomatic which had very strong results in the first half of fiscal 2025 with our pricing strategy in place we remain confident in the strength of our brands and the breadth of our growth across numerous geographies. Therefore, we continued.

Speaker Change: We expect organic net sales growth in the 2% to 4% range driven by our emerging and developed international markets. We also continue to believe that we will benefit from price mix through the evolution of our portfolio, which includes the addition of the two super premium brands, Jen Marian Depomed ago, and the divestiture of <unk>.

Speaker Change: Our margin brands Finlandia, and Sonoma Cutrer Air price mix should also continue to benefit from our revenue growth management activities. In addition, the transition services agreement for Sonoma Cutrer has ended and we expect the transition services agreement for Finlandia to come to an end in our second half, which will reduce the A&D headwind and while costs were.

Speaker Change: Higher in the first half of fiscal 2025 compared to the year ago period. This is largely due to the timing of input cost fluctuations, particularly for our tequila brands for these brands, we still expect to benefit from lower agave prices for the full year based on their current performance it will take longer than expected to work through our higher cost.

Speaker Change: Inventory, we have shared that the benefit from the lower agave prices would be more than offset by the impact of inflation on our input costs and lower production volumes with the benefit now being lower we are forecasting that cost will be higher than planned for fiscal 2025, leading to a slight contraction in our reported gross margin.

Speaker Change: On a year over year basis, our outlook for organic operating expenses continued to reflect the investment behind our brands and our people that we will continue to be highly diligent with our SG&A spend to balance the impact of these shorter term pressures on our gross margin based on the above we continue to forecast organic operating income.

Speaker Change: Growth in the 2% to 4% range.

Speaker Change: Low and high end of our organic net sales and organic operating income ranges are based on numerous scenarios with the greatest influence from weaker or stronger consumer demand in key markets, such as the United States and changes in distributor inventory levels. We are operating in a volatile and quickly evolving environment and our third.

Speaker Change: Quarter is seasonally significant to our full year results. We will continue to closely monitor performance indicators and provide you with those updates in our third quarter call. We continue to expect our effective tax rate to be in the range of approximately 21% to 23% guiding closer to the lower end of the range and we are updating our estimated cash.

Speaker Change: Capital expenditures outlook from a range of $195 million to $205 million to a range of $180 million to $190 million for the full year as the phasing of a few of our projects will now extend into the next fiscal year and.

Speaker Change: In summary, the first half of our fiscal 2025 delivered against our expectations. The first half results reflect the current consumer demand environment, along with a few remaining unusual comparisons against the very strong shipments in the year ago period, while our short term organic results in the first half were below our historical trends and.

Speaker Change: Our full year outlook, we believe we will continue to see sequential improvement and growth in the second half as we look ahead to our full fiscal year, we remain confident in our ability to deliver our near term goals as we continue to focus on executing our long term strategy and building Brown Forman for generations to come I would like to add my thanks to and deep.

Speaker Change: Appreciation for my Brown Forman colleagues around the world for their resilience and agility as they continue to identify opportunities for our outstanding portfolio of brands with a dedicated focus on the long term growth of the company. This concludes our prepared remarks. Please open the line for questions.

Speaker Change: Ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue Press star one again.

Again, if you have a question or comment at this time. Please press star one on your telephone keypad.

Speaker Change: In order to facilitate as many questions as possible. We kindly ask that you. Please limit yourself to one question. If you have additional questions. You May press star one wanted to enter the queue again.

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

Speaker Change: Our first question or comment comes from the line of Laura Lieberman from Barclays. Mr. Lieberman. Your line is open.

Speaker Change: Great. Thanks, so much good morning, everyone.

Speaker Change: I was just curious if you could talk a little bit more about inventory levels I know Leon you touched on it in your prepared remarks, but I think.

As always key topic of conversation among investors for your call. So if you could just give us an update maybe on absolute inventory levels, particularly in the U S. I think you had commented last quarter that they were generally holding steady on an absolute basis. So just curious if that was still the case and then how you would sort of characterize.

Speaker Change: Distributor and retailer attitude towards the category overall and expectations for growth around the holiday season. Thanks.

Speaker Change: Okay, great. Thanks Lauren.

Speaker Change: Just to reiterate what we said we continue to believe that the distributors are targeting the low end of their normal range and that retailers have adjusted their inventory levels in response to that lower consumer takeaway trend.

Speaker Change: And the interest rate environment similar to what we would have said in the first quarter.

As you can see on our schedule will be in our first half our shipments this quarter tend to be slightly ahead of our deflation and that's reflected in our normal supply chain now from the consumer as a supplier to the distributor to the retailer to the consumer but as we prepare for the important holiday selling season, we have increased some shipments.

For specific brands, such as Jack Daniels, Tennessee, Whiskey Secretary, there and <unk> to ensure that we've got product there to meet the consumer demand and protect against any out of stocks and in the U S where if you're just continuing to work really closely with our partners.

Speaker Change: Forecasting any significant changes in trade inventory levels.

Speaker Change: And then I think.

Speaker Change: Around the world. It continues to be really similar to where we were at the end of Q1, as well, which is in Europe, where we own the majority of our distribution our stock levels are normal we have clear insight into our two largest markets in Latin America, which are Mexico and Brazil.

Speaker Change: In Mexico, specifically, rgd's or kind of below normal I would say whiskies are kind of in line with the long term trends and the kilos or a bit above that and again, that's more about how the kilos are performing in the Mexico market and Brazil overall that they're at the low end of their so we continue to believe our inventory.

Speaker Change: These are well positioned with our distributors then I would say in the U S. We are being specific and brand.

Speaker Change: Brands.

Speaker Change: To support the holiday season and to ensure that we've got cases, there to meet the consumer demand.

Speaker Change: And then I'm sorry, what was the second part of your question or excuse me the holidays holiday.

Speaker Change: The holiday environment.

Speaker Change: Holiday environment.

Speaker Change: You talked about that a little bit okay.

Speaker Change: We don't have a lot of data yet on how on the holidays. So we're obviously going to have to see I think if you step back and look at total distilled spirits now I'm going to talk about the U S. Here for a second and then we can go to the rest of the world.

Speaker Change:

Speaker Change: And what's even back up a little more than that go back 18 months ago. I know many of you know the story, but I think it's important to reiterate what we think has been driving a lot of the trends over the last 18 months.

Speaker Change: We had said Lauren it was actually in Boston with you at your conference.

Speaker Change: One is it 15 16 months ago. The U S market was still running in that five or six range. So an elevated number which was true for the first half of 'twenty three and then 22, even in 'twenty. One so we've been dealing with that elevated level for quite some time and between that time between sort of labor day and Christmas of last year the market truly fell off.

Speaker Change: And caught everyone by surprise and we've been making the argument now for item four ever since then really that it was driven by economics and inflation and a consumer who has been pinched and I think that's proven itself out across a whole lot of different consumer categories really over the last year.

Speaker Change: And to be honest, it's not really getting a lot better. So we are relatively muted in our expectations for Christmas this year.

Speaker Change: If you look at Tds and the U S. As I said it went from the 6% range in the summer of 2003 to about zero with Christmas and it's been running negative all year.

Speaker Change: If you want to find that if youre looking for green shoots for some pass something positive on a consumer takeaway perspective, the napkin data is getting better.

Speaker Change: And that consumer takeaway, particularly projecting of Tennessee whiskey I would say that is one of the more positive things. We're looking at right now is over the last six months those numbers have improved.

Speaker Change: They're not improving in Nielsen.

Speaker Change: Feel pretty.

Speaker Change: Okay.

Speaker Change: Sort of down low single digits for sure so.

Speaker Change: We still or we will make and continue to make the argument that it is driven by our consumer pinched.

Speaker Change: And that will eventually work itself out, but I would say we're relatively cautious on what this Christmas is going to look like.

Speaker Change: Thank you. Our next question or comment comes from the line of Bernie Herzog from Goldman Sachs. Ms. Herzog. Your line is now open.

Bernie Herzog: Alright. Thank you good morning, everyone I was actually hoping for a little bit more color on the divergence in trends between U S. Consumer takeaways and you reported whiskey Depletions I guess I'm I'm trying to reconcile the negative.

3% to 4% sales trends, we've been seeing in the scanner data for the last few months versus your reported flat depletion growth in the quarter, maybe you could touch on.

Bernie Herzog: Where you're seeing some strength in non tracked channels, possibly on premise.

Speaker Change: And then love to hear your your growth expectation for American Whiskey category.

Speaker Change: This fiscal year and does your guidance assume that Jack Daniel's will will take share. Thank you.

Speaker Change: Alright, so for the U S.

Speaker Change: Youre right Theres been a divergence between napkin Nielsen, but I would argue right now that we're sort of running in the U S around minus three which is and that is about what we have reported on.

Speaker Change: Organic basis instead of rent, it's about what we're seeing on our consumer takeaway basis. So I don't think the disconnect.

Speaker Change: Is all that big what you have seen is a change between Q1 and Q2. It has certainly improved on <unk>.

Speaker Change: Organic basis.

Speaker Change: But at the end of the day.

Speaker Change: We're still down sort of low low single digits. So.

As far as on and off.

Speaker Change: They are not too far apart on.

Speaker Change: On is about a point weaker so I think we would say the U S market is running about a minus two and the minus three in the overall on so not not not.

Speaker Change: Not too far apart, but not too much different than it was six months ago. So that's why we were saying, we're not really expecting a dramatic swing say over Christmas.

Speaker Change: And then and then to the second part of your question about what's built into the guidance.

Speaker Change: And for US, it's about a full year benefit from having Jim Loree and diplomatic go in our results.

Speaker Change: Continued growth of Japan, and then Jack Daniel's, Tennessee whiskey, largely outside of the United States.

Speaker Change: Thank you our next question or comment comes from line of Star.

Speaker Change: Saar walk from Bernstein, Mr. <unk> Your line is open.

Speaker Change: Thank you Austin Leann.

Speaker Change: While we're on the U S. First question can you just elaborate maybe on the performance in October exiting the quarter any commentaries in November in particular, it sounds like it's more of the same from your comments, but if you could just confirm that and then second question you touched on in your prepared remarks.

Speaker Change: Obviously top of mind, but did not from imports from Mexico.

Speaker Change: Go for your Tequila business exports to Europe can you talk a little bit more about how brown Forman is thinking about the potential risks and levers at your disposal should be come into play you called out proactively preparing and implementing mitigation strategy could you elaborate on that thank you.

Speaker Change: Thank you Levi and I will start with the U S added to your question.

Speaker Change: We did see sequential improvement from Q1 to Q2 Q1 in the U S. We were at negative 4% and at the end of our first half we are at a negative 3%. So we are seeing sequential improvement in this market along with several of our other markets.

Speaker Change: I'd say for the U S. One detail I would shares.

Speaker Change: Our market share, where we are holding in the first quarter were slightly declining market share now and that is largely based on our tequila performance then I'll turn it over to lock in for the terrorists for flavor conversation.

Speaker Change: On tariffs so yes, I know you said it nadeem, but let me make sure everybody is clear we've.

Speaker Change: We've got one tariff conversation around the retaliate retaliatory tariffs from Europe based on steel and aluminum, which is what we suffered through in 2018 through 2021.

Speaker Change: And just as sort of a reminder, that was really all about exports of American whiskey.

Speaker Change: Clearly the market leader in that it was a very painful and challenging time for us that is scheduled to come back at the end of March. So it is still a few months out and there is a whole lot that can happen over that time.

Speaker Change: The range is big so it could further be suspended which we think there is a decent chance for that they can be removed altogether or the most drastic scenario would be coming back at 50% and then I'm sure. There's other scenarios in the middle of that we could come up with we're working with all the government stakeholders that you would imagine we would be and we're obviously advocating.

Speaker Change: For a solution that brings stability to all these trade relationships.

Speaker Change: Now, having said that we have learned from our prior experience with tariffs we have been proactively preparing for a number of these scenarios and implementing risk mitigation strategies for our portfolio really around the world, but at this point, there's so many unknowns and potential scenarios and it really it's just difficult to figure out how it's all going.

Speaker Change: Play out now more recently the conversation clearly in the media and basically everywhere has been more about Canada, and Mexico and the plans for 25% tariff there so yes.

Now, we're obviously talking imports.

Speaker Change: Welcome to the party the rest of our industry.

Speaker Change: We have been suffering alone essentially for all these years on the threat of tariffs and now it's gotten much much broader and we're talking about lots of different categories within alcohol, but our business the spirits business given categories like tequila like Scotch like Irish Whiskey, and Bourbon and Tennessee Whiskey.

Speaker Change: <unk> distinctive products they must be made in their designated country or even state.

Speaker Change: And look we're a proud U S headquartered company.

Speaker Change: We're hoping that the.

Speaker Change: Administration is going to realize that any growth in sales of production on those distinctive products made outside of the U S helps us to grow and brings more investment in capital here and so.

Speaker Change: We will see how this all plays out whether or not these are negotiating tactics are real and how big they are going to be obviously American whiskeys are much bigger than killer for us, but neither one is good for us so at this point no.

Speaker Change: Nadeem I wish I could we don't have any insider information on this there are so many potential scenarios and unknowns is just difficult to see how it's going to play out.

Speaker Change: Thank you. Our next question or comment comes from the line of Robert <unk> from Evercore ISI. Mr. I understand your line is open.

Speaker Change: Thank you very much.

Speaker Change: Let me go in a little bit of a different direction.

Speaker Change: Can you talk about.

Speaker Change: Jack Daniel's, Tennessee whiskey in the U S and the sort of measures that you're taking to.

Speaker Change: I don't know if renovate the brand is too strong a word but kind of restore it back to growth.

Speaker Change: What your brand health indicators are suggesting and maybe what we should be modeling of what we should be thinking about for that brand in the U S going forward.

Speaker Change: In terms of both volume and pricing. Thank you.

Speaker Change: Yes so.

Speaker Change: I mean, that's the key question for US and believe me, it's something the company is obviously very very focused on so a few things one.

Speaker Change: Realizing pre the last 18 months, so basically the years of Covid and everything that came after that the brand was very helpful. I mean, the growth rates in the U S were solid.

Speaker Change: And good so it's only been in the last sort of 18 months.

Speaker Change: <unk> gotten much more difficult.

Speaker Change: Yes. It is.

Speaker Change: Not really what we would think of as a brand health metrics.

Speaker Change: Having said that we are working hard to recruit a new.

Speaker Change: New LDA to sort of 30 consumer and some of the things that we're doing which.

Speaker Change: Briefly mentioned on the call at least Mclaren racing has become a bigger and bigger part of our mix of spend and it's not that we do get some decent visibility on the car on the racing and all that kind of stuff, but even just as important if not more important is the amount of activations were doing around it in.

Speaker Change: They often include music, so, we're bringing music and Mclaren together, a little bit we do something called Jack's garage and we're bringing in big acts.

Speaker Change: <unk> is one of them, but there is others also that we bring in and put on these.

Speaker Change: Concerts essentially around these races.

Speaker Change: I think that is that's not an overnight fix but it is something special and unique and something we can own a little bit and theres a lot more going into that.

Speaker Change: <unk>, we've all heard it a million times right now it is at every football game and it is on the radio is still all the time, but it does show relevance I think for the brand.

In that space.

Speaker Change: There's a lot of college of sort of folks I know you've gone to college football games, we play at like four times a game. So we're having some success there. He was on the lines bears football game on Thanksgiving day, and I think we will.

Speaker Change: We're playing that up too so there are things like that.

Speaker Change: Mixing up media right now and there's some new things coming out there and we've got Jack and Coke and so there's lots of different things that we're trying to do a little bit differently.

Speaker Change: And we are starting to see some of that in the metrics the health metrics that we have so.

Speaker Change: I'm not going to go deep into that but.

Some of the key metrics like penetration. So that's the number of people that are actually drinking Jack Daniels or baas, how often do we see it how do people recall seeing activity from the brand and then just perceptions.

Speaker Change: These are these are not things that changed around overnight, but we closely monitor it and things are starting to move in the right direction. So.

Speaker Change: Look it's just a huge brand well known around the world.

Speaker Change: It is brown forman at its core and figuring out how the entire company all 5700 employees or nearly all of them are focused on getting it turned around and as I said on the.

Speaker Change: A few minutes ago, we're starting to see some green shoots.

In the U S and then that good data and we think there is some some positive news happening outside of the United States too so.

Speaker Change: Trending in the right direction.

Speaker Change: Thank you. Our next question or comment comes from the line of Chris pitcher from Redburn Atlanta, Mr. Pitzer. Your line is now open.

Speaker Change: Hi.

Speaker Change: Thank you everyone could you just dig a bit more detail into it.

Speaker Change: How big a contribution to the return of shipments to Japan was in the period because on my calculations, probably used barrel sales plus Japan added about two percentage points to growth.

Speaker Change: I would imagine on quite high drop through margins and then just on the used barrel sales is that a function of price or volume, that's helping drive through because it was up it was much higher than expected. Thanks.

Speaker Change: Yes, so for us fairly specifically that you can see that in our non branded involved and you can see announced schedule B and schedule C. It's really a combination of just supply demand and it can even be customer mix at the time.

Speaker Change: It's volatile it is just it really based on supply and demand and it is up this year from previous years because of the mix of those combination of things in Japan. We've said from the very beginning of that I think we've never disclosed specifically, what we thought I think that one unique piece of growth is we've called.

Speaker Change: It out the entire year as a source of growth for us in this year.

Even as it related to there was disruption in F. 'twenty four as we were preparing for the transition and now is now that we have the transition in the brand in our hands and we are being successful in establishing.

Speaker Change: Establishing our business.

Speaker Change: Taking price and a.

Speaker Change: Capturing the margin so we are here.

Speaker Change: Happy with the growth that that market and that team is able to deliver for us this year.

Speaker Change: Thank you. Our next question or comment comes from the line of Phillip <unk> from Citi. Mr. <unk>. Your line is now open.

Speaker Change: Yeah.

Speaker Change: Hi, good morning, everyone.

Speaker Change: So I wanted to go back to the distributor inventory comment.

Speaker Change: If I look at your schedule D. It seems like it was a pretty significant contributor to organic sales in this quarter.

Speaker Change: Look on a segment basis. It looks it was mainly in emerging markets. So maybe can you give us some sense of what happened, particularly in emerging markets and then in terms of in the context of your guidance of two to four for the full year.

What are your assumption in terms of distributor inventories in the back half should we expect a continued positive trend in the back half, especially as you cycle easier comps.

Speaker Change: How should we think about that particular item. Thank you.

Speaker Change: Yes. So what you are seeing in the emerging international market is really a prior year, where we were.

Speaker Change: Refilling the inventory so for F. 'twenty thought it is the absence.

Speaker Change: Every filling of the inventory in the United Arab Emirates, which we've mentioned before and then to your question on the role it plays in our guidance and what we've talked about is in our second half the majority of the movement in inventories across the distributor a retailer consumer supply chain are behind us and we believe that our.

Speaker Change: Fans are going to more closely reflect total distilled spirits.

We've been intentional just say that we anticipate the benefit of normalizing inventory trends on a year over year basis.

Speaker Change: As we begin to compare against the softening of total distilled spirits trends in the year ago and trade inventory reductions in the year to go and again similar to what we said in our prepared remarks.

Speaker Change: Thank you. Our next question or comment comes from the line of Bill Kirk from Roth. Mr. Kirk Your line is now open.

Bill Kirk: Thank you and good morning, everybody related to the tariff discussion, what's your ability to pre shipped into countries.

Speaker Change: And maybe how does that ability vary by countries, where you own your own distribution and how much of that were you able to do last time European retaliatory tariffs were looming.

Speaker Change: Look I'm going to.

Speaker Change: Punt a little bit on that one and tell you what it's pretty competitively sensitive how we are handling that and so we're going to be quiet on that particular topic, we are making some decisions and some tough decisions but.

Speaker Change: It's it is a very difficult situation no matter, what we do its still going to be a very painful situation painful outcome.

Speaker Change: Thank you.

Speaker Change: Our next question or comment comes from the line of Peter Grom from UBS. Mr. Graham. Your line is now open.

Speaker Change: Thanks, operator.

Speaker Change: Good morning, everyone Hope you are doing well so maybe just two quick housekeeping items Julien I think you mentioned that you maintained the outlook for both the top and bottom line for the year, but you kind of touched on weaker gross margin expectations versus exiting the first quarter. So would it be fair to assume operating profit growth at the lower end of the range or is there an offset elsewhere that maybe.

Speaker Change: Thank you go through.

Speaker Change: And then I guess it sounds like we're still early on kind of the holiday.

Speaker Change: But I just would be curious going back over time, if there is one fewer week between Thanksgiving and kind of Christmas is there any sort of dynamic in terms of demand or drinking occasions that we need to kind of think through on a year over year basis. Thanks.

Speaker Change: Okay. So to your top and bottom line guide question. So our guidance as we said in our prepared remarks, the low in Ohio.

<unk> are based on various scenarios is good and if there's varying levels of consumer demand that we have modeled across key markets such as the U S and we've also modeled various.

Speaker Change: And in that chain estimated net change in distributor inventory.

There are scenarios that fall all across the range that we have provided to you.

Speaker Change: And what we would say is.

Speaker Change: That will that will have.

Speaker Change: Currently planning now for a slight contraction in gross margin.

Speaker Change: We're being very diligent and tightly controlling our SG&A to make sure that we're balancing the short term pressures on our gross margin.

Speaker Change: And then from a holiday perspective.

Speaker Change: Yes.

Speaker Change: To be honest I have not had any conversations with anyone on fewer selling days between Thanksgiving and Christmas. So we hadn't even debated that internally so.

Speaker Change: Thank you.

Speaker Change: Certainly not talked about it like it's a problem yeah and then as we are continuing to look at the performance. It is too early yet to get a look into and even the month of November because we are just now in the process of closing out that month, and we don't have visibility into those results yet in.

Speaker Change: December of course, and we don't have either but we do feel like.

Speaker Change: We will we will have consumer demand across the entire holiday selling season, and it will net out across all of the holidays that fall inside of November through January.

Speaker Change: Thank you.

Speaker Change: We have one more question.

Speaker Change: That is from Eric <unk> from Morgan Stanley.

Speaker Change: Sir Your line is now open.

Speaker Change: Great. Thanks for squeezing me in actually had a couple of questions around that.

Speaker Change: Hi, Syed.

Speaker Change: First earlier this year or late last fiscal year, you did talk about reducing your production to get your finished goods inventory down.

Speaker Change: Where do you stand today versus your target.

Speaker Change: And then the next two parts of the question or kind of about.

Speaker Change: Industry supply.

Speaker Change: Have noticed an increase in supply for some allocated bourbons I'm not talking things in the hundreds of dollars at retail but things in that.

Speaker Change: Call It high <unk> to $40 range are you seeing or expecting any impact on your <unk>.

Speaker Change: High end Bourbons from the increased industry supply.

Speaker Change: Or on Jack.

Speaker Change: And lastly on the supply side and GPI has certainly been having its challenges with it.

Speaker Change: Third party customers.

Speaker Change: What if anything do you think that kind of portends for industry supply as you look forward. Thank.

Speaker Change: Thank you.

Speaker Change: Okay, well I can start with the Brown Forman specific question on inventory levels I would say on a year over year basis, we've made a significant amount of progress and a reduction of our finished goods inventory across our supply chain now we know what needs to be a little bit higher just because.

Speaker Change: We've transitioned more than markets in their own distribution, but when you take a look at our cash flow from operations. One of the primary drivers is that we have just lower working capital requirements and that's driven by the progress that we've made.

Three of those lower production volumes that we've that we've spoken about.

Speaker Change: And on the overall industry supply.

Speaker Change: Not much different than we said last quarter on this I think if you backed up 18 months ago and what I've asked that same question I would have said we were short I mean, it was tight especially.

Speaker Change: Especially on a brand like Woodford that had been growing silver very very fast.

Speaker Change: One year later with a slowdown that we've had we have adjusted our production levels and I'm pretty sure that the big players in the industry have also done the same and that is the way. This industry has worked for 100 years and you would expect that to slow down.

Speaker Change: The impact on the smaller calm craft brands called Challenger brands, whatever you might do yes, I saw that same report.

Speaker Change: It's a tough time to be developing new brands by independent independent companies right now retailers are taking their they already have they've taken inventory all up.

Out of the system and of course, they're going to take out the slower turning skus first and so.

Speaker Change: You've seen struggles there you've seen distributors that are underwater the distributor world is really difficult right now.

Speaker Change: They have to focus on what makes them the most money and that happens to be the big brands and so.

Speaker Change: There are a lot of disadvantages and challenges in that world and I am sure. They are.

Speaker Change: They are slowing down right now and they don't really have a balance sheet like a company like everything for me would have so.

Speaker Change: Yes, it's a challenging space to be and I'm not saying, it's really an advantage for us at this point. It's just the way industry conditions are evolving the biggest average brands I think have a bit of an advantage right now.

Speaker Change: Thank you ladies and gentlemen, this concludes the Q&A session protocol time.

Speaker Change: At this time I would like to turn the conference back over to MS. Sue <unk>, Vice President and director of Investor Relations for any closing remarks.

Speaker Change: Thank you.

Speaker Change: And thank you Lawson and Leigh Anne and thank you to everyone for joining us today for Brown Forman second quarter and first half of fiscal year 2025 earnings call. If you have any additional questions. Please contact us.

Speaker Change: Today is actually national repeal day, recognizing the ratification of the 21st Amendment to the United States Constitution, and a prohibition in the United States and $19 33, I hope that you will join us in raising a glass this day as well as responsibly celebrating during the holiday season tiers and happy holiday with that.

Speaker Change: This concludes our call.

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

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Speaker Change: Good day, ladies and gentlemen, and thank you for standing by welcome to the Brown Forman first half fiscal 2025 earnings conference call.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question at that time, you will need to press star one one on your telephone keypad at this time I would like to turn the conference call over to MS. Sue <unk>, Vice President and director of Investor Relations Ma'am. Please begin.

Speaker Change: Okay.

Sue <unk>: Thank you and good morning, everyone I would like to thank each of you for joining us today for Brown <unk> second quarter and first half of fiscal year 2025 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leigh Ann Cunningham Executive Vice President and Chief Financial Officer. This mornings conference call.

Sue <unk>: Contains forward looking statements based on our current expectations.

Sue <unk>: <unk> risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict you should not place undue reliance on any forward looking statements and except as required by law. The company undertakes no obligation to up.

Sue <unk>: Any of these statements whether due to new information future events or otherwise. This morning, we issued a press release containing our results for the second quarter and first half of fiscal year 2025. 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.

Sue <unk>: Under the section titled Investors events and presentations.

Sue <unk>: 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.

Sue <unk>: 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 before.

Sue <unk>: We transitioned to our results we have two very special guests with US as you may recall on November 25, we announced the change in our board of directors Chair here to speak about this upcoming transition is Campbell Brown Brown Forman chair of the board and his successor, Marshall far Executive Vice President and Chief strategic growth.

Officers and Brown Forman Board director.

Sue <unk>: Both are great great grandson of the Companys founder Campbell and Marshall have a few remarks I would like to share after that we will review our financial results and then Lawson Leann and I will be available for Q&A Campbell I would now like to turn the call over to you.

Thank you Sue and good morning, I'm delighted to join you today as this is just the second time I've spoken on one of these quarterly calls. The first time was the third quarter of fiscal 2021, when it was announced that I would become the next chair of the board.

Sue <unk>: Then I'm here today to discuss succession planning as we know it is not by chance that Brown Forman has been a family controlled organization for 154 years, rather we understand the company's independents has been enabled by intentional family connections spanning multiple generation.

Sue <unk>: As well as purposeful and productive relationships between the family Brown Forman Executive leadership team and board of Directors as you may have seen at the recent meeting of the Brown Forman Board of Directors I announced my decision to step down as chair when my term ends in July 2025, while this does.

Sue <unk>: Susan May have come as a surprise to some let me assure you that even before assuming the role of board chair in 2021, I knew that my time in the position would be thoughtfully measured.

Sue <unk>: My timeline was always well aligned with our board succession planning process at the same time being true to who I am what I believe is best for the company that I loved so dearly.

Sue <unk>: I am stepping down from my role as chair I am thrilled to have the opportunity to stand for reelection in July as a board member and continue to help Stuart Brown Forman future in that capacity.

Sue <unk>: It has been an honor to serve as chair of the board alongside such a talented collection of directors and a dedicated executive leadership team, but most of all I continue to be impressed by the skill dedication and resilience of our employees.

Sue <unk>: Since I became chair the role has served to reinforce everything I've known to be true and special about Brown Forman I am immensely proud of our committed and United family shareholders. The strength of Brown performance people culture, and brand and our strong governance foundation and process individually.

Sue <unk>: Our attributes any company would envy combined the all but ensure brown Forman continued success in independents as a resilient family controlled publicly traded company guided by our core values and long term perspective for generations to come.

Sue <unk>: And so it is with great pleasure that I also share that the board has unanimously approved my successor, and my cousin Marshall <unk>, who will assume the role of chair of the board. Following his reelection to the board at the 2025 annual meeting of stockholders.

Sue <unk>: Marshall will become the 11th Brown family member and third fifth generation family member to serve in this important capacity.

Sue <unk>: As chair Marshall will leverage his unique experience both from within the company and as a champion of the family governance structure to continue to uphold our family's commitment to the long term perpetuity of Brown Forman.

Speaker Change: The global mindset the industry network. These strategic acumen to guide our board of directors and Stuart Brown Forman growth and independence.

Speaker Change: <unk> is well prepared and ready to take on this role as a member of the board and executive leadership team. He has partnered with loss and widening our CEO and the board on its long term strategy.

Speaker Change: I have full confidence in Marshalls ability to lead the board in the family you will continue to build upon and strengthen the relationships and legacy that have made and will continue to make brown Forman and independent World class spirits company headquartered in Louisville, Kentucky worthy of your long term.

<unk> investment.

Please join me in congratulating Marshall and wishing him the best in this exciting step in his career and service to Brown Forman with that I'll hand, it over to Marshall.

Thank you Campbell and Hello, everyone first I'd like to thank the board for the confidence it is placing in me as the next chair of our board of directors.

Speaker Change: Started my career at Brown Forman, and 1998 is a marketing manager and the wind Division I was based in California back then and over the years have held a variety of roles and a number of regions around the globe, including positions that took me to Sydney, Amsterdam, and London before <unk>.

Speaker Change: <unk> relocating back to our hometown of Louisville, Kentucky.

As Campbell mentioned in addition to the various operational roles I've had over my 26, plus years with Brown Forman as well as my nearly nine years of Board service I've also enjoyed working with members of my family since 2000, when the fifth generation began evolving and formalizing our governance.

Speaker Change: Initiatives.

Campbell Garvin and all those who have previously served as chair of this great company.

Speaker Change: Please know that the board and I understand our responsibilities to you our public partners as you look to brown Forman to deliver long term sustainable growth achieved responsibly over decades and generations.

Speaker Change: I have greatly enjoyed meeting some of you at our more recent investor events and look forward to meeting those I have not met at future investor meetings and events.

Speaker Change: With that I would like to turn the call over to Lawson to take us through the first half of fiscal 2025 results.

Speaker Change: Thank you came on Marshall and good morning, everyone I hope the Campbell and Marshall's remarks are a reminder of the Brown Forman believes deeply and building our business to pass onto the next generation. This belief has been ingrained in our culture since <unk> 70 by the sixth generation of Brown family members, who have upheld the legacy of our founder George Garvin Brown.

Speaker Change: Joined working closely with Campbell and his role as board chair his deep understanding of our business and gift for building trust and confidence in those around them have made a lasting mark on Brown Forman and our board of directors, while I've worked closely with Marshall as a member of the executive leadership team I'm excited about the opportunity to work with him in his new capacity as board Chair and Marshall We welcome.

Visionary thinker with excellent strategic acumen. Please join me in congratulating both of them on this transition also before I share our second quarter and first half results for fiscal 'twenty five I want to express my appreciation to each of our 5700 employees for their contributions to these results we remain dedicated to our brands and our business through the challenging.

Speaker Change: The operating environment, and then doing so remind me why we often say that there is nothing better than the market and Brown Forman now to our results. As a reminder, we expected fiscal 2025 to be a year of two halves, we anticipated that the second half of our fiscal year would be stronger than our first half because in the first half we compare it against strong shipments related to.

Speaker Change: The replenishment of inventory and a few emerging international markets and buy ins ahead of planned price increases. This year is largely unfolded as we anticipated the top and bottom line results that we're sharing with you today continue to be in line with our expectations and we are again reaffirming our full year organic net sales and organic operating income outlook.

Speaker Change: For fiscal 2025, I'll start with the performance of our brands and then Leann will share more about our geographic performance other financial highlights as well as our fiscal 2025 outlook, let's turn to the drivers of the influenced our first half 2025 results. Our reported net sales decreased 5% in the first half while organic net sales were.

Speaker Change: After adjusting for the divestitures of <unk> in the prior fiscal year, the negative effect of foreign exchange and the recent business model changed rejecting those country cocktails in the first half an increase in used barrel sales was the most significant growth contribution to organic net sales from a brand perspective Woodford reserve diplomatic.

Speaker Change: <unk> and old Forester, where the largest growth contributors to organic net sales. These gains were largely offset by volume declines for al Haman R&R Enduro Woodford reserve continues to grow faster than the U S. Whiskey category in the U S and gained value share within the most recent Nielsen and NAV could take away our results. The brand grew organic net sales 8%.

Driven by increased volume as well as positive price mix results were driven by the growth of Woodford Reserve distiller select the number one super premium American whiskey globally, along with strong double digit growth of our ultra premium offering Woodford reserve double Oaked Dipper.

Speaker Change: <unk> the number two super premium plus run globally delivered very strong organic net sales growth led by France, and chuckie, along with the travel retail channel, Germany, and the United States as I mentioned, when we acquired diplomatic go in fiscal 2023. The brand has a strong European presence aligning well with our investment in owned.

Speaker Change: Distribution in markets, such as France, and Germany, which are diplomatic those top two markets were placed diplomatic go into our emerging brands portfolio in both Europe and the United States. Its third largest market to ensure it has the focus and dedicated resources to drive its growth old Forester, which has consistently provided strong growth despite a volatile environment delivered.

Speaker Change: Digit organic net sales growth as the brand benefited from growth of the single barrel expressions and recent releases such as King Ranch edition, which is exclusively sold in Texas, while we're very pleased with the performance of Woodford reserve diplomatic on old Forester arc <unk> brands, our <unk> continued to face challenges in their two largest mark.

Speaker Change: <unk> of the U S and Mexico, and the U S. There's been an increasing number of competitors entering the tequila category, while Mexico's economy has faced a challenging macro environment. Despite this performance. We continue to believe we have the right brands to capitalize on the growth in the tequila category globally over the long term <unk> is 154 year old <unk>.

Speaker Change: Rand of superior quality and taste and we're highlighting its craftsmanship heritage and authenticity. This year, we've been celebrating <unk> heritage is the world's first rep is sato across consumer communications as well as hosting taste of our marquee ton events across the U S and in Mexico. We've recently launched narrowed our crystal ball <unk> Crystal Lino.

Speaker Change: It builds upon the region's crystal Lino trend for <unk> now that we've repositioned the brand is priced solidly into the premium price segment, we have opportunities to grow reach and distribution in the U S. And we're also optimistic about <unk> ability to create and grow in the premium tequila category in the rest of the world. We saw very strong double digit organic net sales grew.

Speaker Change: Both in southeast Asia, as well as Brazil, and Australia, where <unk> is the number 100% agave tequila. According to <unk> 2023, while this growth was not enough to offset the softness in the U S and Mexico. We believe <unk> has a strong future can be a key introduction due to cooler for global consumers as they begin to understand the mix.

Ability and versatility of a 100% agave tequila after several quarters of short term headwinds I am very pleased to say that organic net sales for Jack Daniel's, Tennessee whiskey accelerated significantly as we move through the first half of fiscal 'twenty five with sales now flat for the year to date period, we continue to invest behind the brand to engage.

New generation legal drinking age consumers, while retaining our core consumers. These include the Mclaren Formula one sponsorship music sponsorships, most recently with should Buzzi, new media campaigns, and the Jack Daniels and Coca Cola ready to drink product. Our TD has continued to be a bright spot within total distilled spirits showing growth across most market.

Speaker Change: With Jack and Coke, notably increasing its value share in many markets around the world, We continue to add new markets, including our launch in India in September and new formats and flavors within the United States.

Speaker Change: Coke Cherry limited time, offering performed well with initial shopper data from a national grocer, showing the Jackson Coke Cherry added incremental shoppers to the Jack and Coke RTD family. We're also excited to introduce a variety pack, featuring Jack and Coke and Coke Cherry and Jack and Coke vanilla in the U S. The variety pack should be widely available on March two.

Speaker Change: 125, as we lean into summer moments such as time at the Beach, the Lake and music festivals. We believe our continued geographic expansion and innovation opportunities will generate interest and attention for Jack Daniel's RTD as well as the full strength family of brands before turning the call over to Liam I wanted to share our latest thoughts on tariffs as I.

Speaker Change: Note as a topic of great interest as you know Brown Forman has been headquartered in the United States for nearly 155 years and we're proud to be the leading exporter of U S spirits products to the world the growth and expansion of our global portfolio allows us to grow at home, increasing jobs and investment in the U S and everywhere, we operate our industry is unique.

<unk> and that many types of spirits like Bourbon, Tennessee, Whiskey Irish whiskey Scotch into chela recognizes distinctive products and must be made in their respective countries. So anytime the spirits products are targeted by tariffs. There is the potential to create an uneven playing field at Brown Forman, we've had an unlevel playing field before given the.

Speaker Change: Tableau Tory tariffs on American whiskey, and as such have learned from our prior experience we've been proactively preparing for a variety of scenarios and have implemented mitigation strategies for our portfolio of brands around the world. At this point there are many unknowns and potential scenarios. It is very difficult to predict how this will play out in summary, the first.

Speaker Change: For fiscal 2025 has unfolded largely in line with our expectations and we continue to believe that we are positioned to achieve our full year guidance. We're still operating in a highly dynamic environment with many uncertainties, even so with all we know today, we continue to expect our second half to be stronger than the first while our short term organic results in the first half were.

Speaker Change: Below our historical trends I continue to believe in our long term growth potential led by our strategy our portfolio, our geographic breadth and of course, our talented people with that I'll turn the call over to Lan and she will provide more details on our first half results.

Lan: Thank you Lawson and good morning, everyone. As Lawson mentioned I will provide additional details on our geographic performance other financial highlights and our fiscal 2025 outlook from.

From a geographic perspective as expected we saw sequential organic net sales improvement in each of our geographic clusters as we move through the first half hour emerging international markets returned to growth and collectively delivered 6% organic net sales growth in the first half. This growth was fueled by the very strong double digit.

Lan: Growth of Jack Daniel's, Tennessee, Whiskey, Jack Daniels, Tennessee, Honey, and Jack Daniel's, Tennessee, Apple and Turkey, and Brazil, our business in Turkey benefited from the continued growth of the premium whiskey category in Brazil. The economy has remained resilient as our results were driven by the growth of the premium plus whisky category, where.

Lan: We are gaining share our geographic expansion strategy and the launch of an additional package SaaS for Jack Daniel's, Tennessee Whiskey, Brazil has consistently grown nine later depletions for the full strength Jack Daniel's family of brands at a double digit rate over the past four years and has joined the U S. The UK and Germany as a million.

Lan: In case market, whereas the trailing 12 month Depletions exceeded 1 million nine liter cases in Mexico organic net sales at <unk> declined as the challenging economic environment is impacting discretionary spending and consumers are trading down despite the decelerating conditions in Mexico we.

Lan: To outperform and gained market share across the channels driven by strong takeaway in RCD in Whiskey. In addition era Dara is driving innovation into Kols with the launch of era Crystal in Mexico, which builds upon the region's kristalina trend and addresses the consumers' need for perceval tequila across occasions.

Lan: Organic net sales in the travel retail channel declined 3% in the first half growth of Jack Daniel's, Tennessee, Whiskey and diplomatic were more than offset by the decline of our Super premium American whiskeys, as Woodford reserve compared against very strong double digit growth and the launch of our exclusive global travel retail.

Lan: Offering Jack Daniel's American single model and the year ago period, we are continuing to innovate in this channel with the tightening phase to the second half of the fiscal year.

Lan: Our developed international markets organic net sales collectively was down 3% for the first half as growth in Japan was more than offset by declines in the United Kingdom, and South Korea as we shared last quarter, Japan continued to provide growth following our route to consumer change to own distribution on April <unk> 2024.

Lan: While the U K returned to growth in the later months of the first half the market continued to compare against higher volumes in the year ago period related to purchases ahead of the excise tax increase in August 2023 in South Korea. The premium whiskey category is still experiencing the Jack Daniel's, Tennessee whiskey experienced <unk>.

Lan: Competitive activity, while also lapping the prior year launch of Jack Daniel's, Tennessee Apple.

Lan: And in the United States organic net sales decreased 3% double digit growth from Woodford reserve old Forester, and Jack Daniels RTD led by Jack and Coke were more than offset by declines in Jack Daniels, Tennessee, Whiskey Encore, Val, California, Champagne Watson highlighted the growth drivers of Woodford reserve old Forester and the Jack <unk>.

Lan: RTD is in the U S. Therefore, I'll move to additional comments on Jack Daniel's, Tennessee, Whiskey, <unk> as well as on inventory in the consumer environment.

Lan: Later in the year ago period, Jack Daniel's, Tennessee Whiskey experienced a shift in ordering patterns as inventory was purchased ahead of price increases while the brand declined in the first half of this fiscal year. The brand's three month organic net sales trend is ahead of the fiscal year to date trend ended October 2024.

Lan: Also improvement in the three month rolling takeaway trends for carve out the declines in the first half were largely timing related as we are focusing our promotional efforts on the seasonally stronger second half turning to distributor inventory levels in the U S. At the end of our first quarter, we shared that distributors were continuing to target the low end.

Lan: Their normal range, which is where they remain as the important selling months of October November and December approach distributors began preparing for the important holiday selling season, and we noted increased shipments for key brands, such as Jack Daniels, Tennessee Whiskey and Woodford Reserve. This was done in a few key markets to ensure supply would make.

Lan: Similar demand and to mitigate the risk of an out of stock situation at the retail level is some retailers are continuing to target. The low end of their inventory range from a takeaway perspective, three month rolling value trends for total distilled spirits are down approximately 1% and have remained steady in the first half. The premium addition churn continues with.

Lan: Higher priced tiers growing in value and gaining share the growth in the $40 and above price tiers are driven largely by the U S whiskey and tequila categories moving onto the rest of the P&L in the first half of fiscal 2025, our reported and organic gross profit decreased 8% and 4% respectively.

This resulted in 240 basis points of gross margin contraction, which improved sequentially as we progress through the first half we continued to benefit from favorable price mix and the Jack Daniel's country cocktail business model change these were more than offset by higher costs, largely driven by the timing of input cost fluctuations coupled with high.

Inventory levels foreign exchange as well as the impact of the transition services agreements related to the divestitures of Finlandia Antonella co chair that we shared during our first quarter earnings call. As a reminder, these agreements had a negative impact on our overall reported gross margin as the gross margin for these services agreements or <unk>.

Lan: Inefficiently below the sales of finished goods I will note that as of October 31, 2020 for the transition services agreement related to Sonoma Cutrer has concluded as expected operating expenses in the first half of fiscal 2025 were lower compared to the year ago period, largely due to seasonality at both.

Lan: <unk> organic advertising expense decreased 4% as we compared against the phasing of our brand building investments in the year ago period. As a reminder, our spin was significantly skewed to the first half of our fiscal year 2024 for Jack Daniel's, Tennessee, Whiskey, particularly the superpremium expressions and to support the launch of the.

Lan: Jack Daniels and Coca Cola RGD in the United States organic SG&A investment decreased 3% for the first half driven by lower compensation and benefit expenses as we lapped a 9% increase in the year ago period, and total reported and organic operating income decreased 7% and 3% risk.

Lan: Secondly in the first half of fiscal 2025. These results led to a 3% diluted earnings per share decreased to 96 cents per share.

Lan: Moving on to our outlook I would like to share two additional updates since our last quarter related to Sonoma Cutrer and our capital allocation philosophy in the second quarter, we recorded income of $2 million related to our equity share at the desk arm portfolios earnings as a line item below the operating income line on our P&L.

Lan: Based on the equity method one quarter in arrears on October six 2024, it was announced that the datacom portfolio would be acquired by private equity funds under the terms of the agreement upon completion of the proposed merger Brown Forman will receive cash of $350 million in exchange for our 'twenty one.

Lan: <unk>, 4% ownership interest in <unk>, the completion of the merger, which is expected to occur in the second half of our fiscal year is subject to customary closing conditions, including approval by that corn stockholders. We will continue to report our equity share of the <unk> portfolio's earnings one quarter in arrears until the merger is.

Lan: Complete once our investment is sold we will recognize the equity method earnings only up to the date of <unk>. Most recently available financial statements and recognize a gain on the disposal of when the investment is filled not on a lag secondly, brown Forman believes deeply and remains committed to building an enduring business as a <unk>.

Lan: Testament to this belief our long term perspective, and our enduring commitment to our valued shareholders. Our board of directors recently approved a 4% increase in the quarterly cash dividend, marking 41 consecutive years of dividend increases Brown Forman continues to be a proud member of the prestigious S&P 500 dividend aristocrats index.

Lan: And has paid regular quarterly cash dividends for 81 consecutive years and lastly, turning to our fiscal 2025 outlook. We continue to anticipate a return to growth for organic net sales and organic operating income in fiscal 2020, driven by gains in international markets and the benefit of normalizing inventory.

Trends on a year over year basis. This outlook is tempered by the global macroeconomic and geopolitical conditions that are creating volatility and uncertainty in the operating environment. We are not forecasting significant changes in the behavior of the consumer or the level of trade inventory as the impact from inflation and higher interest rates on the consumer.

Lan: And trade still remain as our first half results aligned with our expectations. We continue to believe that fiscal 2025 will be a year of two halves. We have moved beyond the comparison against strong shipment and a few emerging international markets as well as lapping stronger shipments associated with the execution of our pricing strategy on a year over year basis.

Lan: In the second half with the majority of the movement in inventories across the distributor retailer and consumer supply chain behind US. We believe our results will more closely reflect consumer demand. This expectation, though is dependent on the behavior of the supply chain, which is not within our control also we will begin to compare against the significant slowdown.

Lan: In total distilled spirits trends as well as trade inventory reductions and finally, we believe that we will benefit from having a full year of growth from Gen Moray and diplomatic which had very strong results in the first half of fiscal 2025 with our pricing strategy in place we remain confident in the strength of our brands.

Lan: And the breadth of our growth across numerous geographies. Therefore, we continue to expect organic net sales growth in the 2% to 4% range driven by our emerging and developed international markets. We also continue to believe that we will benefit from price mix through the evolution of our portfolio, which includes the addition.

Lan: Of the two Super premium brands, Jen Marian Depomed ago, and the divestiture of lower margin brands Finlandia and Sonoma Cutrer price next should also continue to benefit from our revenue growth management activities. In addition, the transition services agreement for Sonoma Cutrer has ended and we expect the transition services agreement Brooklyn land data come.

Lan: And in our second half, which will reduce the A&D headwind and while costs were higher in the first half of fiscal 2025 compared to the year ago period. This is largely due to the timing of input cost fluctuations, particularly for our tequila brands for these brands, we still expect the benefit from lower agave prices for the full year.

Lan: Based on our current performance it will take longer than expected to work through our higher cost inventory, we have shared that the benefit from the lower agave prices would be more than offset by the impact of inflation on our input costs and lower production volumes with the benefit now being lower we are forecasting that cost will be higher than planned.

Lan: For fiscal 2025, leading to a slight contraction in our reported gross margin on a year over year basis.

Lan: Our outlook for organic operating expenses continued to reflect the investment behind our brands and our people, though we will continue to be highly diligent with our SG&A spend to balance the impact of these shorter term pressures on our gross margin based on the above we continue to forecast organic operating income growth in the 2% to 4%.

Lan: <unk>.

Lan: The low and high end of our organic net sales and organic operating income ranges are based on numerous scenarios with the greatest influence from weaker or stronger consumer demand in key markets, such as the United States and changes in distributor inventory levels. We are operating in a volatile and quickly evolving environment.

Lan: Third quarter is seasonally significant to our full year results. We will continue to closely monitor performance indicators and provide you with those updates in our third quarter call. We continue to expect our effective tax rate to be in the range of approximately 21% to 23% guiding closer to the lower end of the range and we are updating our este.

Lan: <unk> capital expenditures outlook from a range of $195 million to $205 million to a range of $180 million to $190 million for the full year as the phasing of a few of our projects will now extend into the next fiscal year.

In summary, the first half of our fiscal 2025 delivered against our expectations. The first half results reflect the current consumer demand environment, along with a few remaining unusual comparisons against the very strong shipments in the year ago period, while our short term organic results in the first half were below our historical trends.

Lan: And our full year outlook. We believe we will continue to see sequential improvement in growth in the second half as we look ahead to our full fiscal year, we remain confident in our ability to deliver our near term goals as we continue to focus on executing our long term strategy and building Brown Forman for generations to come I would like to add my thanks to Andy.

Appreciation for my Brown Forman colleagues around the world for their resilience and agility as they continue to identify opportunities for our outstanding portfolio of brands with a dedicated focus on the long term growth of the company. This concludes our prepared remarks. Please open the line for questions.

Speaker Change: Again, if you have a question or comment at this time. Please press star one on your telephone keypad.

Speaker Change: In order to facilitate as many questions as possible. We kindly ask that you. Please limit yourself to one question. If you have additional questions you May press star one one and enter the queue again.

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

Speaker Change: Our first question or comment comes from the line of Laura Lieberman from Barclays. Mr. Lieberman. Your line is open.

Great. Thanks, so much good morning, everyone.

Speaker Change: I was just curious if you could talk a little bit more about inventory levels I know Leon you touched on it in your prepared remarks, but I think.

Speaker Change: As always key topic of conversation among investors for your call. So if you could just give us an update maybe on absolute inventory levels, particularly in the U S. I think you had commented last quarter that they were generally holding steady on an absolute basis. Please.

Speaker Change: So just curious if that was still the case and then how you would sort of characterize distributor and retailer attitude towards the category.

Speaker Change: Overall and expectations for growth around the holiday season. Thanks.

Lauren: Okay, great. Thanks Lauren.

Lauren: Just to reiterate what we said we continue to believe that the distributors are targeting the low end of their normal range and that retailers have adjusted their inventory levels in response to that lower consumer takeaway trend.

Lauren: And the interest rate environment similar to what we would have said in the first quarter.

Lauren: As you can see on our schedule will be in our first half our shipments. This quarter are tend to be slightly ahead of our depletions and that's reflecting our normal supply chain now from the consumer as a supplier to the distributor to the retailer to the consumer but as we prepare for the important holiday selling season, we have increased some shipments.

Lauren: For specific brands, such as Jack Daniels, Tennessee, Whiskey Secretary, there <unk> to ensure that we've got product there to meet the consumer demand and protect against any out of stocks and in the U S where if you're just continuing to work really closely with our partners and we're not forecasting any significant changes in trade inventory.

Lauren: <unk> levels.

Lauren: And then I think.

Lauren: Around the world. It continues to be really similar to where we were at the end of Q1, as well, which is in Europe, where we own the majority of our distribution our stock levels are normal.

Lauren: Clear insight into our two largest markets in Latin America, which are Mexico and Brazil.

Lauren: And in Mexico, specifically or Tvs or kind of below normal I would say whiskies are kind of in line with the long term trends and the kilos or a bit above that and again, that's more about how the kilos are performing in the Mexico market and Brazil overall that they're at the low end of their so we continue to believe our inventory.

Lauren: These are well positioned with our distributors then I would say in the U S. We are being specific.

Lauren: Brands.

Lauren: To support the holiday season and to ensure that we've got cases, there to meet the consumer demand.

And then I'm sorry, what was the second part of your question or excuse me the holidays.

Lauren: Holiday over the holiday environment.

Speaker Change: You talked about that a little bit okay.

Speaker Change: Look we don't have a lot of data yet on how on the holidays. So we're obviously going to have to see I think if you step back and look at total distilled spirits now im going to talk about the U S. Here for a second and then we can go to the rest of the world.

Speaker Change: And what's even back up a little more than that go back 18 months ago. I know many of you know this story, but I think it's important to reiterate what we think has been driving a lot of the trends over the last 18 months.

Speaker Change: We had said it was actually in Boston with you at your conference.

Speaker Change: Between that time between sort of labor day, and Christmas of last year, the market truly fell off a cliff and caught everyone by surprise and we've been making the argument now for item four ever since then really that it was driven by economics and inflation and a consumer who has been pinched and I think that's proven itself out across a whole lot of different consumer.

Speaker Change: <unk> really over the last year.

And to be honest, it's not really getting a lot better. So we are relatively muted in our expectations for Christmas this year.

If you look at Tds and the U S. As I said it went from the $6 range in the summer of 2003 to about zero with Christmas and it's been running negative all year.

Speaker Change: Yes.

Speaker Change: If you want to find that if youre looking for green shoots for some pass something positive on a consumer takeaway perspective, the napkin data is getting better and that consumer takeaway, particularly for Jack Daniel's, Tennessee, Whiskey, I would say that as well.

Speaker Change: One of the more positive things we're looking at right now is over the last six months those numbers have improved there.

Speaker Change: They're not improving in Nielsen.

Speaker Change: And they are still pretty kind of ugly.

Speaker Change: Down low single digits for sure so.

Speaker Change: We still will make and continue to make the argument that it is driven by our consumer pinched.

Speaker Change: That will eventually work itself out, but I would say we're relatively cautious on what this Christmas is going to look like.

Speaker Change: Thank you. Our next question or comment comes from the line of Bernie Herzog from Goldman Sachs. Ms. Herzog. Your line is now open alright.

Bernie Herzog: Few months versus your reported flat depletion growth in the quarter, maybe you could touch on.

Bernie Herzog: Where you're seeing some strength as non tracked channels, possibly on premise.

Speaker Change: And then love to hear your your growth expectation for American Whiskey category.

Speaker Change: This fiscal year and does your guidance assume that Jack Daniel's will will take share. Thank you.

Speaker Change: Alright, so for the U S.

Speaker Change: Youre right Theres been a divergence between napkin Nielsen, but I would argue right now that we're sort of running in the U S around minus three which is <unk>.

Speaker Change: That is about what we have reported on.

Speaker Change: Organic basis since that a ramp that's about what we're seeing on our consumer takeaway basis. So I don't think the disconnect.

Speaker Change: Is all that big what you have seen is a change between Q1 and Q2. It has certainly improved on <unk>.

Speaker Change: Organic basis.

Speaker Change: But at the end of the day.

Speaker Change: We're still down sort of low low single digits. So.

Speaker Change: As far as on and off.

Speaker Change: They're not too far apart on.

Speaker Change: On is about one point weaker so I think we would say the U S market is running about a minus two and the minus three in the overall on so not not not too far apart, but not too much different than it was six months ago. So that's why we were saying, we're not really expecting a dramatic swing say over Christmas.

Speaker Change: And then and then to the second part of your question about what's built into the guidance.

Speaker Change: For us it's about a full year benefit from having Jim Loree and diplomatic go in our results.

Speaker Change: Continued growth of Japan, and then Jack Daniel's, Tennessee whiskey, largely outside of the United States.

Speaker Change: Thank you our next question or comment comes from Brian <unk>.

Speaker Change: Saar walk from Bernstein Massawa Your line is open.

Speaker Change: Thank you Austin Liane to Permian, while we're on the U S. First question can you just elaborate maybe on the performance in October exiting the quarter any commentaries in November in particular, it sounds like it's more of the same from your comments, but if you could just confirm that and then second question you touched on Paris.

Speaker Change: In your prepared remarks.

Speaker Change: Obviously top of mind, whether that's from imports from Mexico for your kilo business exports to Europe can you talk a little bit more about how brown Forman is thinking about the potential risks and levers at your disposal should they come into play you called out proactively preparing and implementing mitigation strategies could you elaborate.

Speaker Change: Great on that thank you.

Speaker Change: Thank you Levi and I will start with the U S. Adding to your question. We did see sequential improvement from Q1 to Q2 Q1 in the U S. We were at a negative 4% and at the end of our first half we are at a negative 3%. So we are seeing sequential improvement in this.

Speaker Change: Market along with several of our other markets and we would say for the U S <unk> shares.

Speaker Change: Our market share, where we are holding in the first quarter was slightly declining market share now and that's largely based on our Tequila performance, then I'll turn it over to Alaska for the terrorists for favorite conversation.

Speaker Change: Tariff so yes, I know you said it nadeem, but let me make sure everybody is clear.

Speaker Change: We've got one tariff conversation around where retail is the retaliatory tariffs from Europe based on steel and aluminum, which is what we suffered through in 2018 through 2021.

Speaker Change: And just a sort of a reminder, that was really all about exports of American whiskey.

Speaker Change: Clearly the market leader in that.

Speaker Change: It was a very painful and challenging time for us.

Speaker Change: That is scheduled to come back at the end of March. So it is still a few months out and there's a whole lot that can happen over that time.

The range is big so it could further be suspended which we think there is a decent chance that they can be removed altogether or the most drastic scenario would be coming back at 50% and then I'm sure. There's other scenarios in the middle of that we could come up with we're working with all the government stakeholders that you would imagine we would be and we're obviously advocating.

Speaker Change: For a solution that brings stability to all these trade relationships.

Speaker Change: Now, having said that we have learned from our prior experience with tariffs we have been proactively preparing for a number of these scenarios and implementing risk mitigation strategies for our portfolio really around the world, but at this point, there's so many unknowns and potential scenarios and it really is just difficult to figure out how it's all going to.

Speaker Change: Play out now more recently the conversation clearly in the media and then basically everywhere has been more about Canada, and Mexico and the plans for 25% tariff there so.

Speaker Change: Now, we're obviously talking imports.

Speaker Change: Welcome to the party the rest of our industry.

Speaker Change: We have been suffering alone essentially for all these years on the threat of tariffs and now it's gotten much much broader and theyre talking about lots of different categories within alcohol, but our business the spirits business given categories like tequila like Scott like Irish Whiskey, and Bourbon and Tennessee whiskey their call.

Speaker Change: Distinctive products they must be made in their designated country or even state and.

Speaker Change: We're proud U S headquartered company.

Speaker Change: We're hoping that the administration is going to realize that any growth in sales of production on those distinctive products made outside of the U S helps us to grow and brings more investment in capital here and so.

Speaker Change: We will see how this all plays out whether or not these are negotiating tactics are real and how big they are going to be obviously American whiskeys are much bigger than Q4 us but neither one is good for us so at this point.

Speaker Change: Nadeem I wish I could we don't have any inside information on this there are so many potential scenarios and unknowns is just difficult to see how it's going to play out.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question or comment comes from the line of Robert <unk> from Evercore ISI. Mr. I understand your line is open.

Speaker Change: Thank you very much let me, let me go in a little bit of a different direction.

Speaker Change: Can you talk about.

Speaker Change: Jack Daniel's, Tennessee whiskey in the U S and the sort of measures that you're taking to.

Speaker Change #100: I don't know if renovate the brand is too strong a word but kind of restore it back to growth.

Speaker Change #101: What your brand health indicators are suggesting and maybe what we should be modeling of what we should be thinking about for that brand in the U S going forward.

Speaker Change #101: In terms of both both volume and pricing. Thank you.

Yes so.

Speaker Change #102: It's a key question for US and believe me, it's something the company is obviously very very focused on so a few things one.

Speaker Change #102: Realizing pre the last 18 months, so basically the years of Covid and everything that came after that the brand was very helpful. I mean, the growth rates in the U S were solid.

Speaker Change #102: And good so it has only been in the last sort of 18 months.

Speaker Change #103: Has gotten much more difficult.

Speaker Change #103: It is.

Speaker Change #103: Not really what we would think of as a brand health metrics.

Speaker Change #103: Having said that we are working hard to recruit a new.

New LDA to sort of 30 consumer and some of the things that we're doing which.

Speaker Change #103: Briefly mentioned on the call at least Mclaren racing has become a bigger and bigger part of our mix of spend and it's not that we do get some decent visibility on the car on the racing and all that kind of stuff, but even just as important if not more important is the amount of activations were doing around it.

They often include music, so, we're bringing music and Mclaren together, a little bit we do something called Jack's garage and we're bringing in big acts.

Speaker Change #103: Uzi is one of them, but theres others also that we bring in and put on these.

Speaker Change #103: Concerts essentially around these races.

Speaker Change #103: I think that is that's not an overnight fix but it is something special and unique and something we can own a little bit and theres a lot more going into that.

Speaker Change #103: The Shadows. These bar song, we've all heard it a million times right now it is every football game and it is on the radio is still all the time, but it does show relevance I think for the brand.

Speaker Change #103: In that space.

Speaker Change #103: There's a lot of college of sort of folks I know going to college football games, we play at like four times again, so we're having some success. Some success. There. He was on the lines bears football game on Thanksgiving day, and I think.

Speaker Change #103: We're playing that up too so there are things like that.

Speaker Change #103: Mixing up media right now and there are some new things coming out there and we've got Jack and Coke and so there's lots of different things that we're trying to do a little bit differently.

Speaker Change #103: And we are starting to see some of that in the metrics the health metrics that we have so.

Speaker Change #103: I'm not going to go deep into that but.

Speaker Change #103: These are these are not things that change around overnight, but we closely monitor it and things are starting to move in the right direction. So.

Look it's just a huge brand well known around the world.

Speaker Change #103: It is brown forman at its core and figuring out how the entire company all 5700 employees or nearly all of them are focused on getting it turned around as I said on the.

Speaker Change #103: A few minutes ago, we're starting to see some green shoots in the U S. And then they have good data and we think there is some some positive news happening outside of the United States too so.

Speaker Change #103: Trending in the right direction.

Speaker Change #104: Thank you. Our next question or comment comes from the line of Chris pitcher from Redburn Atlanta, Mr. Pitzer. Your line is now open.

Speaker Change #104: Alright.

Speaker Change #105: Thank you everyone could you just dig a bit more detail into it.

Speaker Change #106: A bigger contribution to the return of shipments to Japan was in the periods because all my calculations probably.

Speaker Change #106: Used barrel sales plus Japan added about two percentage points to growth.

Speaker Change #107: I would imagine on quite high drop through margins and then just on the used barrel sales is that a function of price or volume, that's helping drive through because it was up.

Speaker Change #106: It was much higher than I expected.

Speaker Change #107: Yes, so for us fairly specifically that you can see that in our non branded involved and you can see an unscheduled and scheduled today, it's really a combination of just supply demand and it can even be customer mix at the time.

Speaker Change #107: It's volatile it is just it really based on supply and demand and it is up this year from previous years because of the mix of those combination of things from Japan. We've said from the very beginning of that I think we've never disclosed specifically, what we thought thank that one unique piece of growth is we've called.

Speaker Change #107: It out the entire year as a source of growth for us in this year.

Speaker Change #107: Even as it related to there was disruption in F. 'twenty four as we were preparing for the transition and now it now that we have the transition in the brand in our hands and we are being successful in establishing.

Speaker Change #107: Establishing our business.

Speaker Change #107: Aching price and a.

Speaker Change #107: Capturing the margin so we are <unk>.

Speaker Change #107: With the growth that that market and that team is able to deliver for us this year.

Speaker Change #109: Thank you our next question or comment comes from the line of.

Speaker Change #109: Philipp <unk> from Citi. Mr. <unk>. Your line is now open.

Speaker Change #110: Hi, good morning, everyone.

Speaker Change #110: Sue I wanted to go back to the distributor inventory comments, if I look at your schedule D. It seems like it was a pretty significant contributor to our organic sales in this quarter and if I look on a segment basis. It looks it was mainly in emerging markets. So maybe can you give us some sense of what happened, particularly in emerge.

Speaker Change #110: Some markets.

Speaker Change #110: And then in terms of in the context of your guidance of two to four for the full year, what what are your assumptions in terms of distributor inventories in the back half should we expect a continued positive trend in the back half, especially as you cycle easier comps.

Speaker Change #110: Or how should we think about that particular item. Thank you.

Speaker Change #112: Yes, so what youre seeing in the emerging international market is really a prior year, where we were.

Speaker Change #112: Refilling the inventory so for F. 'twenty thought it is the absence.

Speaker Change #112: The reselling of the inventory.

Speaker Change #112: And at Arab Emirates, which we've mentioned before and then to your question on the role it plays in our guidance and what we've talked about is in our second half the majority of the movements in inventories across the distributor retailer consumer supply chain are behind us and we believe that our trends are going to more closely reflect total just does.

Speaker Change #112: Spirit.

Speaker Change #112: We've been intentional just say that we anticipate the benefit of normalizing inventory trends on a year over year basis, as we begin to compare against the softening of total distilled spirits trends in the year ago and trade inventory reductions in the year to go and again similar to what we said in our prepared remarks.

Speaker Change #112: Okay.

Sure.

Speaker Change #112: Thank you.

Speaker Change #113: Next question or comment comes from the line of Bill Kirk from Roth Mr. Kirk Your line is now open.

Bill Kirk: Thank you and good morning, everybody related to the tariff discussion, what's your ability to pre shipped into countries.

And maybe how does that ability vary by countries, where you own your own distribution and how much of that were you able to do last time European retaliatory tariffs were looming.

Speaker Change #114: Look I'm going to.

Speaker Change #114: Punt a little bit on that one and tell you what it's pretty competitively sensitive how we're handling that and so we're going to be quiet on that particular topic, we are making some decisions and some tough decisions but.

Speaker Change #114: It is a very difficult situation no matter, what we do its still going to be a very painful situation painful outcome.

Speaker Change #115: Thank you.

Speaker Change #116: Our next question or comment comes from the line of Peter Grom from UBS. Mr. Graham. Your line is now open.

Speaker Change #117: Thanks, operator.

Speaker Change #117: Good morning, everyone Hope you are doing well so maybe just two quick housekeeping items, there will be and I think you mentioned that you maintained the outlook for both the top and bottom line for the year, but you kind of touched on weaker gross margin expectations versus exiting the first quarter. So would it be fair to assume operating profit growth at the lower end of the range or is there an offset elsewhere that maybe.

Speaker Change #118: Thank you go through.

Speaker Change #119: And then I guess it sounds like we're still early on kind of the holiday.

Speaker Change #120: But I just would be curious going back over time, if there is one fewer week between Thanksgiving and kind of Christmas is there any sort of dynamic in terms of demand or drinking occasions that we need to kind of think through on a year over year basis. Thanks.

Speaker Change #121: Okay. So to your top and bottom line guide question. So our guidance as we said in our prepared remarks, the low and the high.

Speaker Change #121: And are based on various scenarios, it's going it and if there's varying levels of consumer demand that we have modeled across key markets such as the U S and we've also modeled various.

Speaker Change #121: And in that chain estimated net change in distributor inventory.

Speaker Change #121: There are scenarios on that with our fall all across the range that we have provided to you.

Speaker Change #121: And what we would say is.

Speaker Change #121: The walking dead will have.

Speaker Change #121: Currently planning now for a slight contraction in gross margin.

Speaker Change #121: We're being very diligent and tightly controlling our SG&A to make sure that we're balancing the short term pressures on our gross margin.

Speaker Change #121: And then from a holiday perspective.

Speaker Change #121: Yes.

Speaker Change #121: To be honest I have not had any conversations with anyone on fewer selling days between Thanksgiving and Christmas. So we hadn't even debated that internally so.

Speaker Change #121: We've certainly talked about it like it's a problem and then as we are continuing to look at the performance. It is too early yet to get a look into and even the month of November because we are just now in the process of closing out that month, and we don't have visibility into those results yet December.

Speaker Change #121: December of course, and we don't have either but we do feel like.

Speaker Change #121: We will we will have consumer demand across the entire holiday selling season and that will net out across all of the holidays that fall inside of November through January.

Speaker Change #122: Thank you.

Speaker Change #123: We have one more question.

Speaker Change #123: That is from Eric <unk> from Morgan Stanley.

Speaker Change #124: Sir Your line is now open.

Speaker Change #125: Great. Thanks for squeezing me in actually a couple of questions around that.

Speaker Change #126: Hi, Syed.

Speaker Change #126: First earlier this year or late last fiscal year, you did talk about.

Speaker Change #126: Reducing your production to get your finished goods inventory down.

Where do you stand today versus your target.

Speaker Change #126: And then the next two parts to the question or kind of about.

Speaker Change #126: Industry supply.

Speaker Change #126: We have noticed.

Speaker Change #126: Greece and supply for some allocated bourbons I'm not talking things in the hundreds of dollars at retail with things in that.

Speaker Change #126: Call It high <unk> to $40 range are you seeing or expecting any impact on your <unk>.

Speaker Change #126: High end Bourbons from the increased industry supply.

Speaker Change #126: Or on Jack.

And lastly on the supply side and GPI has certainly been having its challenges with it.

Speaker Change #126: Third party customers.

Speaker Change #127: What if anything do you think that kind of portends for industry supply as you look forward. Thank.

Speaker Change #127: Thank you.

Speaker Change #129: Okay, well I can start with the brand for a specific question on inventory levels I would say on a year over year basis, we've made a significant amount of progress and a reduction of our finished goods inventory across our supply chain now we know what needs to be a little bit higher just because.

Speaker Change #129: We've transitioned more than markets in their own distribution, but when you take a look at our cash flow from operations. One of the primary drivers is that we have just lower working capital requirements and that's driven by the progress that we've made.

Speaker Change #129: Three of those lower production volumes that we've that we've spoken about.

Speaker Change #129: And on the overall industry supply.

Speaker Change #129: Not much different than we said last quarter on this I think if you backed up 18 months ago and what I've asked that same question I would have said we were short I mean, it was tight especially.

Speaker Change #129: Especially on the brands like Woodford that had been growing silver very very fast.

Speaker Change #129: One year later with a slowdown that we've had we have adjusted our production levels and I'm pretty sure that the big players in the industry have also done the same and that is the way. This industry has worked for 100 years and you would expect that to slow down.

Speaker Change #129: The impact on the smaller column craft brands called Challenger brands, whatever you might do yes, I saw that same report.

It's a tough time to be developing new brands by independent independent companies right now retailers are taking their they already have they've taken inventory all up.

Speaker Change #129: Out of the system and of course, they're going to take out the slower turning skus first and so.

Speaker Change #129: You've seen struggles there you've seen distributors that are underwater the distributor world is really difficult right now.

Speaker Change #129: They have to focus on what makes them the most money and that happens to be the big brands and so there are a lot of disadvantages and challenges in that world and I am sure. They are.

Speaker Change #129: They are slowing down right now and they don't really have the balance sheet like a company like Brown Forman would have so.

Speaker Change #130: Yes, it's a challenging space to be and I'm not saying, it's really an advantage for us at this point. It's just the way industry conditions are evolving the biggest stablish brands I think have a bit of an advantage right now.

Speaker Change #131: Thank you ladies and gentlemen, this concludes the Q&A session protocol.

Speaker Change #132: At this time I would like to turn the conference back over to MS. Sue <unk>, Vice President and director of Investor Relations for any closing remarks.

Speaker Change #133: Thank you.

Speaker Change #133: Thank you Lawson and lean and thank you to everyone for joining us today for Brown <unk> second quarter and first half of fiscal year 2025 earnings call. If you have any additional questions. Please contact us.

Speaker Change #133: Today is actually national repeal day, recognizing the ratification of the 21st Amendment to the United States Constitution, and a prohibition in the United States and $19 33.

Speaker Change #133: Hope that you will join us in raising a glass of today as well as responsibly celebrating during the holiday season, Cheers and happy holiday with that this concludes our call.

Speaker Change #134: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.

Q2 2025 Brown-Forman Corp Earnings Call

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