Q3 2025 Brown-Forman Corp Earnings Call
Hello and welcome to Brown Forman Corporation, third quarter and year-to-date fiscal 2025 earnings conference call.
At this time, all participants are in a listen only mode. [inaudible]
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session, you will need to press start 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press start 1-1 again.
Speaker Change: I would now like to turn the comments over to Sue, Perram, Vice President, Director of Investor Relations, humor may begin.
Thank you. Thank you. Thank you.
Speaker Change: Thank you, and good morning everyone. I would like to thank each of you for joining us today for Brown Forman's third quarter and year-to-date fiscal year 2025 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer and Leanne Cunningham, Executive Vice President and Chief Financial Officer
Speaker Change: This morning's conference call contains forward-looking statements based on our current expectations, numerous risks and uncertainties may cause actual results differ materially from those anticipated or projected in these statements.
Speaker Change: Many of the factors that will determine future results are beyond the company's ability to control or predict.
Speaker Change: You should not place undue reliance on any forward-looking statements, and, except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events or otherwise.
Speaker Change: This morning, we issued a press release containing our results for the third quarter and nine months ended January 31st, 2025, in addition to posting presentation materials that Lawson and Leanne 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.
Speaker Change: Other significant risk factors are described in our Form 10K and Form 10Q report, filed with the Securities and Exchange Commission.
Speaker Change: During this call, we will be discussing certain non-gape financial measures.
Speaker Change: These measures are 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.
Lawson Whiting: With that, I would like to turn the call over to Lawson.
Speaker Change: Thank you soon, good morning everyone. Thank you for joining us today, as we share our third quarter and year-to-date results for fiscal 2025. When we shared our first half fiscal 2025 result in December , I ended my prepared remarks with these words.
Speaker Change: 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.
Speaker Change: I'm proud to say that we executed our plan and delivered sequentially stronger top and bottom line results as we entered the second half of the year. January was the fifth consecutive month of positive three months rolling organic net sales trends. [inaudible]
This trend returns our year-to-date fiscal 2025 results to growth.
bringing organic net sales in line with. [inaudible]
Speaker Change: and Organic Operating Income ahead of our full year expectations. The operating environment continues to be incredibly dynamic and many uncertainties remain, particularly on the topic of tariffs.
Speaker Change: Taking everything into consideration as we know it today and based on our year-to-date performance, we're again reaffirming our full-year organic net sales and organic operating income outlook for fiscal 2025 .
Speaker Change: Now, let me provide a bit of perspective on our year-to-date fiscal 2025 results. I'll start with the performance of our brands and then Leanne will share more about our geographic performance, other financial highlights and our 2025 outlook.
Speaker Change: A reported net sales decreased 4% in the nine months of fiscal 2025, while organic net sales grew 2% after adjusting for the business model chains for Jack Daniels Country Cocktails.
from a brand perspective. [inaudible]
Speaker Change: Woodford Reserve, and Jack Daniels, Tennessee Whiskey were the two largest drivers of organic net sales growth in the year-to-date period
Speaker Change: Based on takeaway results of the top 20 total distilled spirits brands in the United States from the past 13 weeks, Woodford Reserve is one of only four brands that are currently growing. Specifically, Woodford Reserve continued to accelerate with organic net sales growth of 10 percent, driven by higher volumes as well as positive price mix.
Speaker Change: Results for once again led by the growth of Woodford Reserve to still are select the number one super premium American whiskey globally. Woodford Reserve Double Oak continues to deliver double digit growth
Speaker Change: If you look at the same top 20 brands from six months ago, Woodford Reserve was one of only two brands in growth, so we are seeing some green shoots in the US Spirits market. In addition, within US Whiskey, the super premium and above price tiers are the only growth contributors largely driven by innovation. We are seeing some green shoots in the US Spirits market. We are seeing some green shoots in the US
Speaker Change: We believe that our strategic approach to innovation with our craft and luxury expressions, for instance, adapting barrel finishes and grain recipes, position us to capitalize on growth opportunities in this category [inaudible]
Speaker Change: Our latest introductions which launched in early February include Woodford Reserve batch proof, a limited edition offering, and Woodford Reserve double oak. Both products have a suggested retail price above $100.
Similar to Woodson Reserve Double Oak,
Speaker Change: Woodford Reserve Double-O, to his once-a-limited addition offering. Consumer demand for the product was consistently strong and in keeping with our consumer strategy we have made this expression a permanent member of the Woodford Reserve family of brands. [inaudible]
Speaker Change: Jack Daniels, Tennessee Whiskey, built on its momentum in the first half of fiscal 2025 and once again accelerated sequentially [inaudible]
Speaker Change: I'm very pleased to say that organic net sales for Jack Daniels Tennessee whiskey increased 2% for the year-to-date period. We're continuing to focus on both short-term acceleration and long-term brand building to engage in new generation of legal drinking age consumers while remaining intently focused on retaining our core consumers.
Speaker Change: As we have shared previously, we're engaging with consumers through our McLaren Formula 1 sponsorship, music sponsorships, new media campaigns, and an evolved on-premise strategy to drive acceleration.
Speaker Change: In the on-premise, for example, we're increasing investment in all major markets and have dedicated resources to create a team of brand ambassadors called the Jackpac in key markets across the US.
Speaker Change: The Formula One 2025 season kicks off in Australia in a few weeks, and then heads to China at the end of March.
Speaker Change: This season we will further evolve our approach to our McLaren sponsorship by refining the Jack Scourage Experience, designed to enhance the brand's cultural relevance through a fusion of racing, music, and influencers in key markets around the world. [inaudible]
Speaker Change: Music has been an important part of Jack Daniels' relevance in pop culture. The brand's connection to music began all the way back in 1892 when Jack Daniel formed the Silver Cornut band to engage with people in Lynchburg's town square.
Speaker Change: Through the decades, many musicians such as Frank Sinatra, to most recently Shibuzi, have been friends of Jack and we will continue to focus on building authentic connections like these with each of our consumers.
Speaker Change: We'll also continue to connect with consumers through music during the busy spring and summer concert and music festival season, which provides ideal venues for consumers to trial and to enjoy the Jack and Coke RTD.
Speaker Change: RTDs remain a leading growth category within total distilled spirits driven by consumer trends that favor convenience and flavor with the Jack and Coke RTD continuing to gain global attention.
Speaker Change: In the United Kingdom, Jack and Coke recently received the 2025 Product of the Year Award in the pre-mex spirit category. This award is based on consumer votes and is considered the UK's biggest accolade for product innovation.
Speaker Change: Innovation, particularly flavors and formats, is important in the RTD category.
Speaker Change: Ray, the Jack and Coke cherry limited time offering in the US perform well and now is available in the United Kingdom. For those of you in the US, you should begin to see a variety pack on shelf in the upcoming weeks.
Featuring Jack and Coke
Speaker Change: Jack and Coke Cherry, and Jack and Coke Vanilla in time for the seasonally stronger spring and summer months. Also within our RATD portfolio, Numics continued its impressive growth with a double-digit organic net sales increase in 12 of the past 13 quarters. The brand is well-positioned and continues to gain market share in Mexico.
In addition, new mix will launch a new flavor.
Speaker Change: Numick's Picacito Temerindo in the spring. This launch reflects the culinary richness of Mexico and positions us to capitalize on the growing consumer demand for bolder and more refreshing flavors. It's important to balance tradition and innovation as we adapt to changing consumer trends in the country while maintaining our commitment to quality and authenticity.
Speaker Change: We believe our innovation opportunities will generate interest and attention not only for our portfolio of RTDs but for our portfolio full strength brands as well. There are a few other brands that I know are of interest to many of you.
Speaker Change: The two newest brands in our portfolio, Diplomatico and Jean-Marie, are performing well. Diplomatico-delivered, very strong double digit organic net sales growth led by France and Czechia along with the Travel Retail Channel in Germany. Organic net sales for Jean-Marie increased double digits driven by Germany, Spain, and the Travel Retail Channel.
Speaker Change: In fiscal 2023, when we acquired Diplomatico and Jin Mari, the brands had a strong European presence that both aligned with our route to consumer investments and provided opportunities for growth in the United States. We continue to ensure both Diplomatico and Jin Mari have the focus and dedicated resources to drive their growth by placing the brands in our emerging brands portfolio in both Europe and the United States. We continue to ensure both Diplomatico and Jin Mari have the focus and dedicated resources to drive their growth by placing the brands in the United States.
Speaker Change: While our tequila brands, El Himador and Eridara, improve sequentially they continue to face challenges in the US and in Mexico, their two largest markets. The environment for the tequila category in the US remains competitive with an increasing number of brands while Mexico's economy is faced a challenging macro environment.
Speaker Change: Tequila Errador is 155-year-old brand and we've been celebrating its heritage as the world's first reposato across consumer communications as well as highlighting its craftsmanship, heritage, and authenticity.
Speaker Change: The Launcher Verrador, Kristall, and Mexico, which builds upon the region's crystallino trend is off to a strong start. For Alhémador, the softness in the US and Mexico negatively impacted the performance of the brand globally. [inaudible]
Speaker Change: Even so, we remain optimistic about Alhamidor's ability to introduce consumers to the mixability and versatility of 100% agave tequila. We saw very strong double-digit organic net sales growth in Australia, Brazil, and France, and we continue to believe that Alhamidor can grow the premium tequila category around the world. Despite the performance of our tequila brands in the short term, we believe we have the right brands to capitalize on the growth and tequila category globally over the long term.
Speaker Change: Before turning the call over to Leanne, I want to take a moment to discuss the dynamic landscape of the beverage alcohol industry and how we are proactively adapting to an evolving operating environment with a focus on long-term growth.
Leanne Cunningham: First, our recent route to consumer evolution. We continue to be pleased with our route to consumer change in Japan and are on schedule to launch our own distribution in Italy on May 1st, 2025. And while much of our RTC focus has been on markets outside of the United States, the route to market landscape in the US has evolved as well. As we announced last week, after thoughtful consideration, we have selected Rae's beverage group as our new distributor in California, effective May 1, 2025. As you may recall, Rae's has been our distributor
Leanne Cunningham: Corporation partner for Jack and Coke in California, since we launched the product in the US. Our decision to expand our relationship with raise in California is a bold move that reinforces we are thoughtfully evaluating all aspects of our business in what continues to be a challenging external environment.
Leanne Cunningham: This change will allow us to unlock new growth capabilities and leverage a raise exceptional operational excellence is demonstrated by their impressive growth in California for their existing beer and spirits suppliers. We believe raise beverage group will be a tremendous partner in accelerating our California business.
Leanne Cunningham: It's also important to note that we continue to value the relationship we have built with the Republic National Distributing Company, with whom we work in 23 other states across the United States, and appreciate their continued collaboration and focus on our shared success. We will continue to review our routes of market across the US to ensure our brands are well positioned to win in the highly competitive marketplace.
Speaker Change: Another important strategic initiative I'd like to touch on are the recent changes we announced with regard to our workforce. In January , we announced a series of strategic initiatives designed to position the company for continued growth in the dynamic global spirits market, including restructuring the executive leadership team, reducing our global workforce by approximately 12% and closing the Louisville-based Brown Forman Coopersch. We also offered an early retirement benefit to qualifying US employees. We also offered an early retirement benefit to our workforce. We also offered an early retirement benefit to our workforce.
Speaker Change: Disorganizational evolution will simplify and streamline our organization, allowing us to become more agile and efficient, as well as reinvesting the capabilities, technologies, brands, and people that will drive future growth. The closure of the Coop Ridge in Louis was a difficult decision, as we've been producing our own barrels for almost 80 years.
Speaker Change: During this time, the Cooper-Genistry has evolved and external suppliers are able to provide the same high-quality barrels at scale and at a competitive price.
Speaker Change: You may recall of the last few years that we have discussed the significant impact of wood costs on our gross margins.
Speaker Change: In response to that, we've taken strategic steps to optimize our wood supply chain, including the sale of our mills and our Cooper-gen Alabama and fiscal 2024. The closure of our Louisville Cooperage represents the final step in our wood supply chain strategy.
Speaker Change: which we believe will create efficiencies and allow us to further optimize our capital allocation.
Speaker Change: While we expect to incur approximately 60 to 70 million in aggregate charges for severance and related costs associated with the workforce reduction and coupage closing, collectively, these actions are projected to deliver approximately 70 to 80 million in annualized savings.
Speaker Change: In addition, we expect to receive more than 30 million in proceeds in connection with the sale of the Cooper Jassets.
Speaker Change: We expect to reinvest a portion of the savings to accelerate growth and will provide more detail on our incremental investments in the near future. I want to express my sincere gratitude to our employees particularly those impacted by these changes for their dedication and contributions to Brown Forman.
Speaker Change: We're a 155 year old company because we've evolved and changed over the decades. We're confident that these strategic initiatives will ensure the company endures for generations to come. [inaudible]
Speaker Change: In summary, the year-to-date fiscal 2025 organic net sales and organic operating income are back to growth within the range of our full-year outlook and at the top of our industry.
Speaker Change: While we are still operating in a highly dynamic environment, with many unknowns and uncertainties, based on our nine month results, in what we know today, we continue to believe that we are positioned to achieve our full year guidance which we have reaffirmed.
Lawson Whiting: I believe the combination of our strong portfolio brands are broad geographic reach and our resilient team of people will enable us to achieve our long-term growth potential. With that, I'll turn the call over to Leanne and she'll provide more details on our year to date results.
Leanne Cunningham: 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. As we have shared with you previously, we anticipated a return to growth for organic net sales and organic operating income in fiscal 2025, driven by gains in international markets and the benefit of normalizing distributor inventory trends on a year-over-year basis.
Leanne Cunningham: From a geographic perspective, we saw sequential organic net sales improvement with growth in each of our geographic clusters as we began the second half. This was in line with our expectations and resulted in a return to growth in the year-to-day period.
Leanne Cunningham: Our emerging international markets continue to lead our growth and collectively delivered an 8% organic net sales increase in the year-to-date period. This growth was led by strong double-digit growth in Turkey and Brazil, led by Jack Daniels Tennessee Whiskey. Our business in these markets continued to benefit from the growth of the premium whiskey category. Brazil is also benefiting from our geographic expansion strategy and the launch of an additional package size for Jack Daniels Tennessee Whiskey.
Lawson Whiting: In Mexico, organic net sales were flat, as the challenging economic environment is impacting discretionary spending and consumers are trading down. While our RTDs and Jack Daniels are outperforming competitors and gaining market share, our tequila is continued to underperform. As Lawson mentioned, new mix delivered double digit organic net sales grow driven by a steady pricing and promotional strategy, along with increased distribution. In addition, Jack Daniels RT.
Lawson Whiting: D.D.'s, which include Jack and Coke, outperform the RTD category and fueled value growth.
Lawson Whiting: While the current operating environment is difficult, we are committed to the development and growth of our portfolio brands in Mexico. We are further leveraging our own distribution capabilities with William Grant and Sons, and have begun distribution of hindricks, glensitic, baldini, and monkey shoulder brands. [inaudible]
Lawson Whiting: William Grant & Sons is a fifth generation family-owned company and we believe there are strong synergies between William Grant & Sons brand portfolio and our portfolio of brands.
Lawson Whiting: We believe this distribution agreement will provide us additional strength to achieve greater development of the combined portfolio, particularly in the on trade and the super premium segment. This is yet another example of how we are identifying strategic growth opportunities and moving at pace to execute in a quickly evolving operating environment. Organic net sales in the Travel Retail Channel improves sequentially with a decline of 2% in the first nine months of the fiscal year. This is yet another example of how we are identifying strategic growth opportunities and moving at pace to achieve greater development.
Lawson Whiting: Growth of Diplomatico and Jack Daniels Tennessee Whiskey were more than offset by the decline of our other super premium American whiskeys such as our exclusive global travel retail offerings, Jack Daniels bottled in bond and Jack Daniels American single malt, which compared against enslaunch in the prior year period and Jack Daniels single barrel which compared against a very strong double digit growth in the year ago period. [inaudible]
Lawson Whiting: Our developed international markets collectively delivered an organic net sales decline of 1%. As we have shared, Japan continues to benefit from our route to consumer change to own distribution on April 1, 2024. In South Korea, while the premium whiskey category is still experiencing growth, Jack Daniels Tennessee whiskey faced increased competitive activity, and Jack Daniels Tennessee Apple compared against its launch in the prior year period.
Lawson Whiting: The economic outlook in Germany has weakened and consumer confidence has declined in the market. Between October and January , there was a significant deceleration in spirit takeaway trends including RTDs in Germany, which negatively impacted Jack Daniels Tennessee whiskey as well as the Jack Daniels RTDs. The economic outlook in Germany has weakened and consumer confidence has declined in the market.
Lawson Whiting: in the United States which grew sequentially, organic net sales decreased 1% [inaudible]
Lawson Whiting: Double digit growth from Woodford Reserve, Old Forster, and the Jack Daniels RTDs led by Jack and Coke were the largest growth contributors, while Jack Daniels Tennessee Whiskey and Corbille, California Champaign were the main drivers of the overall decline.
Lawson Whiting: Lawson highlighted the growth drivers of which will reserve and the jacking of RTDs in the US. Therefore, I'll focus my comments.
Lawson Whiting: on Old Forster, Jack Daniels, Tennessee Whiskey, and Corbell, as well as distributor inventory levels, and the consumer environment.
Lawson Whiting: Old Forster, again, delivered double-digit organic net sales growth led by strong performance of the super premium expressions.
Lawson Whiting: The success of these products has created a halo for the Old Forster trademark as Old Forster 86 proof, Brown Forman's founding brand delivered high single digit organic net sales growth
Lawson Whiting: For Jack Daniels Tennessee Whiskey, the brand accelerated sequentially from the first half of our fiscal year and delivered a positive three month organic net sales trend. We have made purposeful efforts to highlight our whiskey-making craftsmanship and credentials through innovation and specialty launches.
Lawson Whiting: This gives both long time and new friends of Jack Daniels the opportunities to explore and discover within the Jack Daniels family. Last week we announced the latest release in the age series.
Lawson Whiting: Jack Daniels, 14-year-old Tennessee Whiskey. This marks the first time in more than 100 years that Jack Daniels has offered an expression of this age.
Lawson Whiting: This product joins Jack Daniels 10-year-old and 12-year-old Tennessee Whiskey, which honors the legacy of Jack Daniels himself and replicates the lineup of age-stated whiskeys available during his time.
Speaker Change: With the majority of the sparkling category in a downturn, Corbille outperformed its price tear thanks to promotional efforts, but the brand did decline for the nine months of the fiscal year, turning to distributor inventory levels in the US. The environment remains unchanged with distributors continuing to target the low end of their normal range. As we shared last quarter, shipments increased for key brands such as Jack Daniels, Tennessee, Whiskey, and Woodford Reserve in several states ahead of the important holiday selling season.
Speaker Change: This was done to ensure supply would meet consumer demand and to mitigate the risk of an out-of-stock situation at the retail level as some retailers are continuing to target the low end of their inventory range.
Speaker Change: Park Daniels Country Cocktail Business Model Change, and the positive impact from our portfolio evolution, which had been obscured by the transition services agreements related to Finlandia and Sonoma Cattrier. These benefits were more than offset by higher cost and the negative impact of foreign exchange.
Speaker Change: As we have shared in prior quarters, we expect higher cost in the fiscal year due to the impact of inflation on our input cost and lower production volumes as we work to return our finished goods inventories to more normal levels.
Speaker Change: Operating expenses in the nine months of fiscal 2025 were lower compared to the year ago period largely due to a 6% decrease in organic advertising expense, which is related to the phasing of our brand-building investments, particularly for Jack Daniels Tennessee Whiskey and Jack Daniels Tennessee Apple in the current fiscal year, as well as comparison against the launch of Jack Daniels and Coca-Cola RTD in the United States in the year ago period.
Speaker Change: and a 4% decrease in organic S-GNA investment led by lower compensation and benefit expenses.
As Rossin mentioned in his comments. [inaudible]
Speaker Change: As a result of our recently announced strategic workforce initiatives, we expect to incur approximately $60 to $70 million of expenses consisting primarily of approximately $27 to $32 million in severance and other employee-related costs and approximately $33 to $38 million in other restructuring costs including costs related to the Coopridge Facility Closure.
Speaker Change: We have incurred $33 million in restructuring and other charges which also includes $4 million in other charges associated with the early retirement benefit. We expect the initiatives to be substantially implemented in fiscal 2025 with the remainder expected to be completed by the end of fiscal 2026.
Speaker Change: $78 million gain on the sale of our investment in Deccorn. In summary, the above results collectively led to a 4% diluted earnings per share decrease to $1.53.
Speaker Change: Now let's turn to our fiscal 2025 outlook. The operating environment is increasingly volatile due to geopolitical uncertainties and the global macroeconomic conditions, particularly with regards to the tariff environment. We continue to expect that the behavior of the consumer and the level of trade inventories will not change significantly during the remainder of this fiscal year. Based on our year-to-date fiscal 2025 results and the currently known factors, we anticipate a return to growth
Speaker Change: for Organic Net Sales. We continue to expect organic net sales growth in the 2% to 4% range, guiding closer to the lower end of the range.
Speaker Change: We continue to believe this growth will be driven by our pricing strategy along with the benefit from price mix through the evolution of our portfolio and our revenue growth management activities.
Albert Emerging Market,
Speaker Change: Innovation and sequential improvement of our developed international markets with the breadth of our growth across numerous geographies.
Speaker Change: Easier comparisons in the second half of fiscal 2025 as we compare against the significant slowdown in total distilled spirits trends, as well as trade inventory reductions, and the benefit of a full-year growth of Gen Mari and Diplomatic Oak, which have had very strong results in the year-to-day period. [inaudible]
Speaker Change: Lower Compensation-related expenses, coupled with our recently announced strategic workforce initiatives. Based on the above, we continue to forecast organic operating income growth in the range of 2% to 4% guiding to the upper end of the range. [inaudible]
Speaker Change: 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.
Speaker Change: We continue to expect our estimated capital expenditures outlook to be in the range of $180 to $190 million and we are updating our effective tax rate outlook from a range of approximately 21 to 23% to approximately 20 to 22%.
and Summery. [inaudible]
Speaker Change: During the nine months of fiscal 2025, we continue to deliver against our expectations. Our financial performance has sequentially improved with our organic net sales and organic operating income returning to growth in the year-to-day period
Speaker Change: Will Endure for Decades and Generations. This concludes our prepared remarks. Please open the line for questions.
Thank you [inaudible]
Speaker Change: Ladies and gentlemen, as a reminder to ask the question, please press start one one on your telephone, then wait for your name to be announced. To withdraw your question, please press start one one again. We'll ask that you limit yourself to one question only, and then you may return to the Q for additional questions. To withdraw your question, please press start one again, and then you may return to the Q for additional questions.
Please stand by while we compile the Q&A roster.
Thank you.
Speaker Change: Our first question comes from the line of Lauren Lieberman with Barclays. The line is open.
Lauren Lieberman: Great, thanks so much, good morning. Hey, so we took a look back at a bunch of transcripts and conversations from the craft boom of the, I guess it would be like 2014 to 2018-19 kind of period.
Lauren Lieberman: and look back at a lot of the things that the company talked about, looked back at your business performance, and Jack Daniels continue to grow nicely in the US despite.
Lauren Lieberman: sort of all of this activity in craft and something we get a lot of questions about outside of the how much are people drinking or not is the likelihood of there being a wave of smaller players. So let's get started.
Lauren Lieberman: Hitting the market in the next year to all this excess whiskey that seems to be out there.
Speaker Change: So, I just kind of wanted to maybe loss and take a step back and think about how you...
Speaker Change: Are or are not preparing for an environment where we come back to having a litany of small brands out there, lots of noise and activities, celebrities during their name on whiskey, and how you think about the relative health of the Jack Daniels and would reserve brands frankly, I guess in the first or today, versus where you were back in kind of 2015.
Thanks.
That's a good question Lauren, so please. Thank you.
Speaker Change: Okay, remember what I said last week, let alone 10 years ago, but I will take a stab at it. So, um...
I don't love the word craft, but-
Speaker Change: There really wasn't, it was not easy, there was a huge barrier to entry in the American whiskey category because it was dominated by five or six companies including us and we weren't selling in any of our extra whiskey so that did change things.
Speaker Change: But fast forward to today, in terms of industry supply, and I mean the number I've been running with in terms of quote unquote craft brands, their market share only got to three or four percent, it still seems to be in that range, and I have read that there's more closing than are opening right now by quite a bit, and so
Speaker Change: I don't consider the industry's supply issue to be a battle against the craft brands.
Speaker Change: It's more all the big players, and you know them all, it's all the ones, all the big, well they're both public and private companies that would be in there.
Now, we also know, or have been told...
Speaker Change: that these are rational players. These are big, for the most part, big companies that have cut back on the supply. I mean, they're slowing down.
Speaker Change: They're either not opening some new plants that were scheduled to be opening or they are slowing down and furlowing some people, all those kind of things. So the industry isn't doing what it naturally is supposed to do, which is to cut back on some of that supply and getting it back in line, you know.
Lauren Lieberman: Look, it doesn't take very long to get it back in line when everybody starts doing that. I'd even cite, if we went back two years ago, if you remember, Lauren, I can even remember being at your conference, and we were reaffirming our guidance at that time, and we missed it, but
Lauren Lieberman: Back then, we were more scared that we were going to be short, not long, so that situation is dynamic, it changed pretty quickly, and we'll see where we lay out.
Lauren Lieberman: And then to your point on Jack Daniel's performance and health, you know, what we would say is the trends as we've been in the fiscal year, they've definitely been improving as sequentially as we've gone through the year, from down six and Q1.
Lauren Lieberman: Slat in the first half, and now to organic growth of plus 2% in the year-to-date period. We see our positives.
Three Month Rolling Organic Nets Hills Trends. [inaudible]
Lauren Lieberman: Some of this, yes, is driven by our Japan investment and our own distribution as well as markets like Turkey, where the premium whiskey category continues to grow . . .
Lauren Lieberman: and then in the U.S. and I'm sure we'll talk about this more. Just it continues to accelerate sequentially also in the U.S. And then if there's anything else you want to add, both in on Brand Health.
Speaker Change: Well, look, I mean, the Jack Daniels brand, I mean, look, it's been a very competitive few years and it's been challenging. We have made a lot of changes to the Jack Daniels.
I'll call it RAND Toolbox.
Speaker Change: to really emphasize different things, and so we are focusing a lot heavier on music right now, so activation.
Speaker Change: Say Global Music Festivals, we do a lot of that kind of thing. [inaudible]
Speaker Change: We have kind of a neat thing where we host songwriters, several times a year down in Winshburg, Tennessee, and they stay on the property and
Speaker Change: that has had something to do with, or at least we think it has something to do with all the song mentions that Jack Daniels has exploded actually in the last couple of years. So that helps and gives you some confidence that we remain relevant with a big chunk of our audience.
Speaker Change: McClaren, we talked a little bit about this on the call. We're redefining the way we do Jack's Garage Experience, which is the music.
Speaker Change: Culture and fusion of racing in there and we bring it all together and those have been I think pretty successful and we're taking, you know, we're doing new on-premise things, Leanne also talked about that a bit. So there's a lot going on, there's a lot changing and...
Speaker Change: You know, what the trends, particularly in the US, have not turned like we would have wanted by now, but we continue to get really nice growth out of our emerging markets, which is really pulling the company along and pulling the brand along right now.
Thank you.
Please stand by for our next question.
Speaker Change: Next question comes from the line of Nadine Sarwat, Bernstein. Your line is open.
Nadine Sarwak: Thank you, Lawson Leanne. Two questions from me. I think in your prepared remarks, you called out the competitive environment for tequila in the US at the moment. In light of some of the price movements we've seen from your competitors. Can you talk to your approach on pricing when it comes to your tequila portfolio in the US? Yeah.
Nadine Sarwak: and how do you think about that balance of volume versus praise when it comes to driving sales growth?
Nadine Sarwak: And the second question, you called out US spirit market value growth, I think minus one sort of bumping along in the same range
Nadine Sarwak: versus the last time we spoke. Are you seeing any changes in consumer behavior underneath that headline, number that's worth calling out, thinking about it by product, price point, or channel, any additional consumer insights would be helpful. Thank you.
Nadine Sarwak: Yeah, I mean, look in terms of, you know, for talking about the US here for a second.
Nadine Sarwak: You know, obviously that's been disappointing. We would have wanted it to sort of bounce back and expected some growth a little bit faster than it's coming through, but that just hasn't happened. So, I do think something that is new at least, or at least new to me.
Nadine Sarwak: But that we have noticed recently is how much the small sizes are driving momentum and share in the US market.
Nadine Sarwak: The reason I bring that up is I think that's a nod to what we still claim, and I know where your head is, Nadine, but the that...
Nadine Sarwak: We still think that this is largely a cyclical versus a structural change, and the reason small sizes are doing well is more because of the cyclical, it's inflation and it's a consumer that's pinched.
Nadine Sarwak: I'm sure we're going to talk more about that but I mean the consumer headwind there of inflation and food inflation in particular is still there.
Speaker Change: Pricing in tequila, how is the other one? Look, yes, as you said, tequila has become more challenging in, you know, I'll say in the last year that some of the big brands have a lot of them, including Erdogan, and, uh...
Speaker Change: and El Hehmidor have gone into decline and we're working very, very hard to improve that. On the pricing side of things though, it wasn't...
Speaker Change: Let me make sure I say this right. Pricings down, okay, pricing in tequila in aggregate is down 1.7%.
Speaker Change: So, some of the, and it's the big brand, some that have gotten a little bit more aggressive. Now 1.7 isn't...
Speaker Change: Super aggressive. I actually, you know, we sort of had some concerns. It was going to be worse. And if you look at TDF pricing, not just tequila, but pricing across US spirits, it's only down a half a point. So, um...
Speaker Change: I would argue rational heads seem to still be, you know, ahead of our competitors are still acting rather rationally and while Tequila has gotten a little bit more challenging and a little bit more aggressive on price it's just by a little bit [inaudible]
Speaker Change: And I'll just add on a little bit as it relates to our...
Speaker Change: Pricing, as it relates to the Killa, it's still a bit ahead of TDS, that's all about, you know, moving El Himador into that faster-going price segment of the $20 to $30 range.
Speaker Change: We have been working on that price as you heard it say for some time. Soon we're going to be relaunching the brand with a new premium package, new communications and with some new innovations around it to support that new price positioning in that fast growing price tier.
Thank you. Please stand by for an next question.
Speaker Change: Our next question comes from Alana Peter Grom, Alana Selpin.
Speaker Change: Thanks, and good morning everyone, hope you're doing well. So I guess I wanted to just get some perspective.
Speaker Change: on distributor inventory, just in the context of organic sales growth, obviously nice to see, you know, a return of growth here in the third quarter. But, you know, there still seem to be a nice tailwind, you know, driven by the distributor inventory changes. I think it was 300 basis points for the quarter and been kind of year to date. Thank you very much.
Speaker Change: Leanne, how should we be thinking about this as we look ahead? Is this just kind of a return to normal and you really wouldn't anticipate any sort of unwind as we think about the fourth quarter or 26? I know you made some comments around the US and would maybe suggest some unwind there, so maybe you can elaborate on that. But yeah, and then just if you were to kind of. [inaudible]
Speaker Change: Look at the 6% organic sales growth and think about the core component or the way you guys use your report at a 30% this quarter. Do you kind of anticipate this underlying growth that can continue to improve as you look ahead?
You know thanks for that.
Speaker Change: Yeah, so I'll start with your inventory question, and I think it's really important to go back and get grounded on where we ended fiscal 24. And if you will recall, we ended fiscal 24 with depletions six points ahead of shipments.
Speaker Change: So as you think about where we are this year, we continue to believe that in general distributors are continuing to target the low end of their normal range of inventory retailers have adjusted their inventory.
Speaker Change: If you look at our schedule be that's in our earnings release for this time you'll see that for a year to date our shipments are largely in line with our depletions and actually our depletions are just ever so slightly ahead of our shipments.
Speaker Change: Robust, Holiday Selling Season, there were some core skews for Jack Daniels, Woodford Reserve, and Corbell that we needed to have at the distributor ahead of the holiday season so with the just retailers carrying
Lower inventory levels, we didn't hit an out-of-stock situation. [inaudible]
Speaker Change: So the distributors have largely sold through that seasonal inventory build and what we expect is that when we get to the end of this fiscal year that shipments and depletions are largely going to be in line. So we're not forecasting any significant changes in the trade inventory levels.
Speaker Change: Depletion-based results. So I think where we are is you're going to continue to see, we're going to continue to operate in a highly dynamic environment. We think the consumer behaviors are going to be stable. We're still going to get...
Speaker Change: a full-year benefit of GenMari and Diplomatico. Again, we have our growth in emerging markets. We would have also talked about...
Speaker Change: This entire year that innovation was skewed to the back half of the year, we've now launched our Woodford Double Double Oak, which the shipments have come through. We expect the depletions to follow and it's been a successful launch today, as well as our Jack Daniels 14-year-old product as well.
Thank you.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Filippo Falorni with City. The line is open.
Hi, good morning everyone.
Speaker Change: I wanted to follow up on Peter's question, just the amount of shimments above the police, I know there's an inventory impact in the period, I go in a year ago period, but how you thinking like adding into fiscal 26?
Speaker Change: Do you see any race that there might be like a negative impact or like you're going to have to do with a more normalized basis?
Speaker Change: and then if I can ask a different question on just a ... [inaudible]
Just taught some tariffs, obviously there's a lot of...
Hayden,
Speaker Change: Uncertainty on the topic, but particularly with the EU, the race, the introduction of tariffs by the end of the month, just any perspective on how you're managing the situation from an inventories standpoint, and any thoughts on pricing with the response of tariffs. Thank you.
Lawson Whiting: So I'll start with inventory just to conclude and I'll turn over to Lawson for terrorists. [inaudible]
Speaker Change: For F-26, of course, we'll be talking about that in our June call. But again, as we think about where our inventory levels are, they continue to be at the low end of their normal range. We expect that shipments and depletions largely are going to come back into line for this fiscal year. So depending on where the year ends, we'll guide more on 26 when we get to June , but right now everything remains stable in the inventory. Thank you very much.
Arina, Arina.
Speaker Change: Okay, tariffs. I didn't think we'd make it 15 minutes in this call without getting the tariffs first, but...
Speaker Change: Look, just to start out with a little bit. This conversation around tariffs won, it's obviously bigger than Brown Forman and it's bigger than our industry.
Speaker Change: and every day seems to unfold a different twist on the story. So there's not that much mom that we can really say. I can tell our competitors and everyone that we're working with is shooting to try to get reciprocal zero for zero terrorists. [inaudible]
Speaker Change: That is our key ask. Maybe that's obvious, but to try to keep this industry out of these trade wars. So we're going to continue to prepare. We, we, we, we, we,
Unfortunately, we've done this before, we've learned a bit.
Speaker Change: and we're committed to really trying to do the best we can for both our consumers and our stakeholders and
Speaker Change: We think we know how to do that so now you asked about the EU and sort of what's happening there and and
Speaker Change: But the EU terrorist, I mean, it's a real possibility, obviously, I mean they automatically roll over on March 31st.
We don't know where this thing is going. [inaudible]
Speaker Change: We don't know any more than you all know that 25% it could be zero, it could be 25, it could be 50 and we actually don't know yet.
Speaker Change: But we do know that the EU is trying to engage with our administration and they've not so far they've not announced any retaliation so that's where it's not a whole lot more we can say.
Speaker Change: This reciprocity issue, though, I think is very, very important and we're going to continue to push that and our competitors are doing something similar.
Speaker Change: But if it doesn't happen that way, if it rolls out where they're coming after American Whiskey again, and we don't have a situation of reciprocity,
Speaker Change: Then the market for spirits, once again, gets very distorted, that is a big disadvantage for us, but we really believe that that's not going to be the case, and we're going to try to continue to believe and hope that American whiskey.
Speaker Change: He's not involved in this big dispute. So on what we've done and preparing for this, I mean it is, and I said this is on the last quarter's call too.
Speaker Change: It's a tough thing to talk about. It's very competitively sensitive and so we're not going to say very much but know that we do have measures in place and we're obviously watching this thing about as closely as we possibly can.
Speaker Change: And then the only thing that all I have to add is as you know, this is a highly volatile situation that we can't predict what's going to happen. So just from a financial perspective.
Speaker Change: Type of tariff would be included in our F-25 guidance, and we believe it's prudent to wait until June to share any other thoughts on the potential impact going forward.
Thank you [inaudible]
Please stand by for our next question.
Speaker Change: Hey, good morning, this is Drew Leon for Andrea. Thank you for taking our questions. So just following up on that thread, Leanne and Lawson, the tariffs on Mexico and Canada, I think Canada is removing some products from the LCBO. So can you maybe quantify the impact that you're building in on the fourth quarter? And then separately, you know,
Speaker Change: You know, maybe you could shed some light on how holiday performed versus your expectations in the U.S. Thank you.
Speaker Change: Why don't I take the Canada piece and you can talk about the holidays a little bit. So, yeah, so Canada and Mexico and the EU for that matter, all there are different situations there, so I wouldn't try to...
You're not mixing them up, but I mean, recognizing Canada. [inaudible]
particularly different than the others. So,
Speaker Change: They, yes, yesterday they were moved basically American and not just beverage alcohol but a lot of American made products have come off the shelves in Canada.
Speaker Change: That's a very disproportionate response to a 25% tariff. So frustrating. And we're going to continue to try to fight for getting, as I said, just a minute ago, these reciprocal to zero for zero tariffs is the best thing for our industry as a whole.
Speaker Change: You know, we're going to see how that all plays out. Canada is not a massive company for Brown Forman. It's around 1% of our sales. So we can withstand, and you know, it's disappointing that some of our consumers are going to be able to get our bottles of Jack Daniels up there because it's a...
Speaker Change: Big Brandon, Canada and popular, but we will see how this plays out and the rumors continue to float around Canada every day. So Mexico, we're going to have to see what happens with Mexico that they haven't announced anything either specific of what is going to happen there, and I think...
Speaker Change: We'll have to see when that actually comes out into the public.
Speaker Change: Yes, so then to your other part of your question, I would say in general the holiday selling season at the enterprise level was expected, you know, as we expected, not a lot of change in consumer behavior though the consumer does continue to be more mindful of their spending.
Speaker Change: Many shoppers are prioritizing deals and promotion because they continue to be stretched. [inaudible]
Speaker Change: and this year kind of what was different for us and we've already talked about that is last year at during kind of the end of the holiday selling season. That's when
Speaker Change: Distributors began to move from the midpoint of their normal range down to the low end of their normal inventory range but
Speaker Change: All in all, we continue to see it was a bit more of a promotional. Hello.
Operating Environment during the holiday season. Amen.
Speaker Change: We personally, we increased our price competitive, but we didn't outpace any of our suppliers.
Speaker Change: and I would say the percentage of the volume sold on promotion for us was at the midpoint of our competitive set. So again, as our scene is our results continue to be in line with our expectation on the holiday season kind of unfolded as we expected.
Speaker Change: You know, one thing I think it's worth going through again. We've done this now on, you know, I know the last few quarters is this whole argument or debate, I guess, on structural versus cyclical changes in our industry and
Speaker Change: I do want to remind everyone, one of the points, I guess, that... that...
Speaker Change: Somehow I think it's getting lost a little bit. If you back up in time, let's actually go back up 20 years, a quick summary, US Spirits Market ran between a four and a five for literally decades.
Speaker Change: and that was based on some premiumness helping. We had spirits taking share from wine and beer, yet population growth, yet all these things and it made in for a multi-decade.
Speaker Change: of really, really healthy growth, yet Kovacom, shot up, and then we went from kind of summer fall of 2020 for three years straight.
Speaker Change: The spirits market really globally was on fire and had really, really strong growth rates to the point everybody or remember we couldn't supply at all because the demand was so high.
Speaker Change: Fast forward to what has happened over the last 18 months. In the summer of 23, beginning of the fall of 23, I remember standing on Liberty Weekend, proclaiming that the US market was growing between 5 and 6, still look healthy, everything felt great.
from September of 23 to December , literally four months. [inaudible]
Speaker Change: The market went from plus six to zero, and then it ran at a minus two for all of 2024. I say all that because I don't believe the big structural things that people talk about all the time. GOP1s, cannabis, and Gen Z.
Speaker Change: That does not take six or eight points off the US spirits market in a period of five months.
Speaker Change: I just don't believe that, and there's just no way that it could have that dramatic effect. And I truly believe that it's...
It's still inflation that is...
Speaker Change: and inflation, and we talked about these some of our prepared remarks, but just a consumer whose pocket is lighter right now and they're struggling through it, so I'm not trying to be...
Speaker Change: Naive, that GOP-1s and cannabis are not a long-term hit when I do think they're out there. I just don't think they are the driving factors of what is affecting this, you know, the spirit's market today.
Speaker Change: Jen Zee is a little bit different in terms of headwinds. That's obviously the younger consumer who doesn't have, you know, they're getting their first jobs out of college maybe, or whatever it might be. They just don't have the money in their pockets to be able to do things. And so I would...
Speaker Change: I think some of the popular press is sort of overeating into Gen Z and what they are doing.
Speaker Change: I think that, you know, the Gen Z will come back, and in fact some of our internal studies. [inaudible]
P. Something, I don't think we've said. Um, um,
Speaker Change: Some of her own internal work, when you get to sort of in that 35 and up age group, we're actually seeing Per capita going up in the United States, which...
Speaker Change: I don't think a lot of people sit much around that so...
Speaker Change: Look, Spirit's going to continue to take share from Bearing One. I don't really see a reason why that would change. I talked about premiumization. Tough right now.
Speaker Change: There's not a lot of premiumization happening, but even in the medium to longer term, we feel pretty good about that. And you've got a population boom with people turning LDA, turning 21, at least for the U.S., and those numbers are improving. So there is a balance of both headwinds and tailwinds over the U.S. [inaudible]
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Thank you. Please stand by for our next question.
Our next question comes from the line of Eric Sirota.
with more than family still on its open.
Great, thanks everyone, good morning.
A couple of cleanup questions. First.
in terms of...
Speaker Change: California, and the distributor transition there. Are you expecting anything unusual or visible and force-quarter results from R&DC, like if selling down inventories as they're act building inventories or do they?
Speaker Change: to sort of wash out or knit out to something not material in the quarter.
Speaker Change: Then, in terms of your finished goods and inventories, I believe you spoke coming out of.
Speaker Change: Last fiscal year, starting this fiscal year that your finish bids were on the high side and you'd be throttling back production a little bit Just wondering, you know, is that done? Are your finish bids inventory now?
and a place that you'd like.
Speaker Change: You know, are you seeing some pretty big inflationary pricing in markets like Kirk-E? Or is a lot of this growth coming from volumes? Thank you and Sarah for the multiple questions.
Speaker Change: Okay, great. Well, I'll start with California. We have all of our teams.
Speaker Change: through R&DC, Brown Forman, and Ray is all working to have a seamless transition. Again, we believe that as we go through kind of the rest of this fiscal year.
Speaker Change: that we will see a seamless transition and not a negative impact as we go through this transition. Again, we have been with raise and we've expanded our relationship with them, but we continue to be a huge partner with R&DC across the other 23 states, so we're all working together to ensure that seamless transition.
from a Brown Forman finish goods. [inaudible]
Speaker Change: Question perspective, we have been working over this fiscal year as we've talked about with lower production to adjust our finished goods, raw material, inventories back down to more historic levels.
Speaker Change: We've made significant progress in that. I would like to believe we definitely have more to go.
Speaker Change: You'll see that impact somewhat muted because of our continued execution against our tariff mitigation strategies.
Speaker Change: So that will become more visible over time. And then an emerging market, it's dependent on the market because Brazil we have geographic expansion for Turkey A. Again you talked about with
Speaker Change: The inflationary market there, we are taking pricing, but then it continues to be a market where the premium whiskey category continues to grow. So we have a mix and it's just on a country by country basis.
Speaker Change: but I think we'll probably one thing I will add to that is...
Speaker Change: We have said over time and it came out of our investor day that Brown Forman's opportunity and emerging markets was an opportunity that I think we heard from a lot of you all that was said was underappreciated and this is a moment where we're seeing that growth come through in those markets.
Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Bonnie Herzog to go miss that line to Lopez.
Bonnie Herzog: All right, thank you. Hi, everyone. Actually was hoping for a little bit more color on your marketing and advertising spend in the corner, which was...
Speaker Change: You know, skill back a little bit, and so I just...
Speaker Change: You know, and I think about that in the context of, you know, the lift you sign your margins and certainly EPS and, you know, near term but just maybe help us understand the strategy behind your spend levels moving forward, especially in the context of, you know, brand building and, you know, driving the recovery that you kind of are highlighting. Thank you. Thank you.
Lawson Whiting: Okay, I can let Lawson talk about brand building. I'll just talk at the highest level where we've always said our brand spin is generally in line with our top line growth. The key there, it is, we always say that it assumes no impact from a change in distributor inventories or otherwise said kind of more in line with our depletion based top line growth because we are continuing to invest particularly in Jack Daniels, Tennessee, whiskey.
Speaker Change: and we're focused on maintaining and growing their share of voice for that long-term brand equity in Lawson, I don't know if it's going to be. Yeah, I mean, as Leanne said, we tend to have it...
Speaker Change: Brand Extence Move with our underlying sales growth. That doesn't, you know, that will, I mean, that's not particularly strong right now across much of the industry, but I think importantly,
Speaker Change: We're going to continue to invest strongly behind the brand. As you know, we had the pretty big reorg around here a month.
two, almost two months ago.
Speaker Change: Some of that investment will go against incremental brand expense, brand investment, advertising, all that kind of stuff.
We are working through that right now, we've...
Speaker Change: It's really not a factor in fiscal 25, and we're going to see what it looks like for fiscal 26. I think we'll probably talk about that more on our next conference call, but there will be incremental investments coming to support the brand graph.
Thank you.
Speaker Change: Ladies and gentlemen, due to the interest of time, I would now like to turn the call back over to Sue for closing remarks.
Speaker Change: Thank you, and thank you Lawson and Leanne, and thank you to everyone for joining us today for Brown Forman's third quarter and year-to-date fiscal year 2025 earnings call. If you have any additional questions, please contact us.
Speaker Change: We look forward to participating in the UBS Global Consumer and Retail Conference in New York next week. I hope to see many of you.
Speaker Change: For those of you unable to attend, our fireside chat will be made available as a webcast accessible via the Brown Forman Corporate website under the section titled Investors, Events and Presentations. With that, this concludes today's call.
Speaker Change: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.