Q1 2027 Brown Forman Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Brown-Forman Corporation First Quarter Fiscal Year 2027 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sue Perram, Vice President, Director, Investor Relations. Ma'am, please go ahead.

Speaker #1: Good day, and thank you for standing by. Welcome to the Brown-Forman Corp Q1 2027 Earnings Conference Call. At this time, all participants are in listen-only mode.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press *11 on your telephone.

Speaker #1: You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, Sue Perham, Vice President, Director, Investor Relations. Ma'am, please go ahead.

Speaker #2: Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown-Forman's first quarter fiscal year 2027 earnings call.

Sue Perram: Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown-Forman's First Quarter Fiscal Year 2027 Earnings Call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jim Peters, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

Speaker #2: Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jim Peters, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations.

Speaker #2: Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict.

Speaker #2: 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 #2: This morning, we issued a press release containing our results for the first quarter of fiscal year 2027, in addition to posting presentation materials that Lawson and Jim will walk through momentarily.

Sue Perram: This morning, we issued a press release containing our results for the first quarter fiscal year 2027, in addition to posting presentation materials that Lawson and Jim will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events, and Presentations. In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our 2026 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures.

Speaker #2: Both the release and the presentation can be found on our website, under the section titled "Investors, Events, and Presentations." In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward-looking statements.

Speaker #2: Other significant risk factors are described in our 2026 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission.

Speaker #2: During this call, we will be discussing certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures, as well as 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.

Sue Perram: 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 conditions and results of operations, are contained in the press release and investor presentation. With that, I would like to turn the call over to Lawson.

Speaker #2: With that, I would like to turn the call over to Lawson.

Speaker #3: Thank you, Sue, and good morning, everyone. The first quarter of fiscal year 2027 unfolded largely as expected and underscored an important point: innovation is creating meaningful growth opportunities across our portfolio.

Lawson Whiting: Thank you, Sue, and good morning, everyone. The Q1 of fiscal 2027 unfolded largely as expected and underscored an important point. Innovation is creating meaningful growth opportunities across our portfolio. Strong momentum from New Mix, our RTD portfolio, and Jack Daniel's Tennessee Blackberry helped offset several headwinds. This led to Q1 performance that was largely in line with our expectations and supports our full-year outlook. More specifically, that momentum helped offset expected pressure in areas including used barrel sales, parts of our tequila portfolio, and softer consumer demand across several of our larger developed markets. Challenging industry conditions persist, and consumers remain selective with discretionary spending, particularly in developed markets. Still, we are encouraged by what we are seeing from our innovation pipeline, the strength of our RTD portfolio, and the opportunities we continue to create for our brands around the world.

Speaker #3: Strong momentum from NewMix, our RTD portfolio, and Jack Daniel's Tennessee BlackBerry helped offset several headwinds. This led to first-quarter performance that was largely in line with our expectations and supports our full-year outlook.

Speaker #3: More specifically, that momentum helped offset expected pressure in areas including used barrel sales, parts of our tequila portfolio, and softer consumer demand across several of our larger developed markets.

Speaker #3: Challenging industry conditions persist, and consumers remain selective with discretionary spending, particularly in developed markets. Still, we're encouraged by what we're seeing from our innovation pipeline, the strength of our RTD portfolio, and the opportunities we continue to create for our brands around the world.

Speaker #3: Across our portfolio, we're focused on meeting consumers where they are, with products that offer relevance, convenience, value, and differentiated experiences. That strategy is working, and we're reaffirming our full-year outlook this morning.

Lawson Whiting: Across our portfolio, we are focused on meeting consumers where they are with products that offer relevance, convenience, value, and differentiated experiences. That strategy is working, and we are reaffirming our full-year outlook this morning. Before discussing our growth drivers, I would like to briefly highlight Jack Daniel's Tennessee Whiskey. Organic net sales for Jack Daniel's Tennessee Whiskey were essentially flat in the quarter. While we remain focused on strengthening performance over the long term, the brand provided an important source of stability in the quarter and continues to serve as the foundation of our portfolio. As we discuss the rest of the quarter, I will note that results were influenced by several timing-related factors, including ordering patterns driven by our US distributor changes in the summer of 2025 and the launch of Jack Daniel's Tennessee Blackberry. You will hear those dynamics referenced throughout the call.

Speaker #3: Before discussing our growth drivers, I'd like to briefly highlight Jack Daniel's Tennessee Whiskey. Organic net sales for Jack Daniel's Tennessee Whiskey were essentially flat in the quarter. While we remain focused on strengthening performance over the long term, the brand provided an important source of stability in the quarter and continues to serve as the foundation of our portfolio.

Speaker #3: As we discuss the rest of the quarter, I'll note that results were influenced by several timing-related factors, including ordering patterns driven by our U.S.

Speaker #3: Distributor changes in the summer of 2025 and the launch of Jack Daniel's Tennessee BlackBerry—you will hear those dynamics referenced throughout the call. Now, moving on to our growth drivers for the quarter, our RTD portfolio continues to perform exceptionally well and remains one of our most important growth platforms.

Lawson Whiting: Now, moving on to our growth drivers for the quarter. Our RTD portfolio continues to perform exceptionally well and remains one of our most important growth platforms. New Mix delivered strong double-digit growth in Mexico and continues to benefit from consumers' interest in flavor, convenience, and affordability. In the United States, demand has exceeded our expectations since the launch. To capitalize on this momentum and consumer appeal, we are expanding into additional markets and introducing new flavors and pack options to support future growth. We also continue to see encouraging results from el Jimador Tequila Spritz, which had a strong start in the United States. Taken together, based on recent Nielsen data, our RTD portfolio contributed approximately 1 point of value growth to our overall US performance. Beyond RTDs, Jack Daniel's Tennessee Blackberry continues to be one of the most successful innovations in our portfolio.

Speaker #3: New Mix delivered strong double-digit growth in Mexico and continues to benefit from consumers' interest in flavor, convenience, and affordability. In the United States, demand has exceeded our expectations since the launch.

Speaker #3: To capitalize on this momentum and consumer appeal, we're expanding into additional markets and introducing new flavors and pack options to support future growth. We also continue to see encouraging results from El Jimador Spritz, which had a strong start in the United States.

Speaker #3: Taken together, based on recent Nielsen data, our RTD portfolio contributed approximately one point of value growth to our overall U.S. performance. Beyond RTDs, Jack Daniel's Tennessee BlackBerry continues to be one of the most successful innovations in our portfolio.

Speaker #3: The brand is now available in more than 30 international markets, with particularly strong growth in countries including Brazil, France, and the United Arab Emirates.

Lawson Whiting: The brand is now available in more than 30 international markets, with particularly strong growth in countries including Brazil, France, and the United Arab Emirates. In the United States, Blackberry contributed more than 2 points of value growth based on Nielsen takeaway trends. Importantly, we are sustaining this momentum by continuing to invest in the brand, broadening distribution, and introducing new pack sizes that meet a range of needs and occasions. Together, these efforts are driving incremental growth and attracting new consumers to the franchise. We are also extending the trademark through products such as Jack Daniel's Tennessee Blackberry and Lemonade in an RTD format. Consumers were already mixing Tennessee Blackberry and lemonade. We simply made it easier. Of course, those gains were partially offset by several areas of our business that remain under pressure.

Speaker #3: In the United States, BlackBerry contributed more than 2 points of value growth based on Nielsen takeaway trends. Importantly, we're sustaining this momentum by continuing to invest in the brand, broadening distribution, and introducing new pack sizes that meet a range of needs and occasions.

Speaker #3: Together, these efforts are driving incremental growth and attracting new consumers to the franchise. We're also extending the trademark through products such as Jack Daniel's Tennessee Blackberry and Lemonade in an RTD format. Consumers were already mixing Tennessee Blackberry and Lemonade—we simply made it easier.

Speaker #3: Of course, those gains were partially offset by several areas of our business that remain under pressure: organic net sales for our non-branded and bulk business—namely, our used barrel sales—declined more than 60%.

Lawson Whiting: Organic net sales for our non-branded and bulk business, namely our used barrel sales, declined more than 60%. Over the past 2 years, our sales have declined from more than $100 million to approximately $30 million. Demand for barrels from Scotch and Irish whiskey producers remains well below the unusually high levels we experienced a couple of years ago. The decline in the Q1 was driven by the comparison to the prior year period, which benefited from higher demand and pricing before declining throughout the remainder of the fiscal year. Our full-strength tequila portfolio, which includes Herradura and el Jimador, declined in the low teens. While performance remains well below where we want it to be, we are focused on improving results through stronger consumer marketing, clearer brand positioning, and disciplined commercial execution.

Speaker #3: Over the past two years, our sales have declined from more than $100 million to approximately $30 million. Demand for barrels from Scotch and Irish whiskey producers remains well below the unusually high levels we experienced a couple of years ago.

Speaker #3: The decline in the first quarter was driven by the comparison to the prior year period, which benefited from higher demand and pricing before declining throughout the remainder of the fiscal year.

Speaker #3: Our full-strength tequila portfolio, which includes Herradura and el Jimador, declined in the low teens. While performance remains well below where we want it to be, we're focused on improving results through stronger consumer marketing, clearer brand positioning, and disciplined commercial execution.

Speaker #3: While it's still early, we're beginning to see encouraging signs, particularly with El Jimador in the United States, where Nielsen takeaway trends have improved meaningfully.

Lawson Whiting: While it is still early, we are beginning to see encouraging signs, particularly with el Jimador in the United States, where Nielsen takeaway trends have improved meaningfully. It is also important to acknowledge a few other brands where there were some unique circumstances impacting Q1 results. Organic net sales for Jack Daniel's Tennessee Honey declined largely due to the challenging operating environment in the US as well as the supply chain disruptions in Chile during the year ago period, which negatively affected the year-over-year trends. The decrease in Gentleman Jack stemmed mainly from shipment timing differences, which were related to the distributor transitions in the US last year. Turning to geographies, our results were generally consistent with the trends we anticipated entering the year. Emerging international markets delivered 9% organic net sales growth, led by Mexico and the UAE.

Speaker #3: It's also important to acknowledge a few other brands where there were some unique circumstances impacting first quarter results. Organic net sales for Jack Daniel's Tennessee Honey declined largely due to the challenging operating environment in the U.S., as well as the supply chain disruptions in Chile during the year-ago period, which negatively affected the year-over-year trends.

Speaker #3: The decrease in Gentleman Jack stemmed mainly from shipment timing differences, which were related to the distributor transitions in the U.S. last year. Turning to geographies, our results were generally consistent with the trends we anticipated entering the year.

Speaker #3: Emerging international markets delivered 9% organic net sales growth, led by Mexico and the UAE. New Mix continued to drive strong growth in Mexico, while the results in the United Arab Emirates benefited from the timing of shipments.

Lawson Whiting: New Mix continued to drive strong growth in Mexico, while the results in the United Arab Emirates benefited from the timing of shipments. These gains more than offset a challenging comparison in Brazil caused by supply chain disruptions in the year ago period. While the country's trends are recovering following the methanol crisis, performance remains below last year. In the developed international markets, organic net sales declined 8%. Australia continued to perform well, growing organic net sales 4% despite a challenging market environment. Growth was led by Jack Daniel's Tennessee Whiskey, which benefited from the timing of ordering patterns and was supported by RTD innovation, including Jack Daniel's Tennessee Serve, a 12% ABV whiskey and cola RTD created exclusively for the Australian market and launched earlier this calendar year. Across much of Europe, consumer demand remained soft, resulting in ongoing pressure on the broader spirits category.

Speaker #3: These gains more than offset a challenging comparison in Brazil caused by supply chain disruptions in the year-ago period. While the country's trends are recovering following the methanol crisis, performance remains below last year.

Speaker #3: In the developed international markets, organic net sales declined 8%. Australia continued to perform well, growing organic net sales 4% despite a challenging market environment.

Speaker #3: Growth was led by Jack Daniel's Tennessee Whiskey, which benefited from the timing of ordering patterns and was supported by RTD innovation, including Jack Daniel's Tennessee Serve, a 12% ABV whiskey and cola RTD created exclusively for the Australia market and launched earlier this calendar year.

Speaker #3: Across much of Europe, consumer demand remained soft, resulting in ongoing pressure on the broader spirits category. Germany, France, and the U.K. were all very weak, as conditions in those markets are particularly challenging.

Lawson Whiting: Germany, France, and the UK were all very weak as conditions in those markets are particularly challenging. Even in this environment, our whiskey category share remains stable or is increasing in 5 of our 8 largest European markets, and we remain focused on optimizing our route to consumer and driving innovation. In Canada, US-produced spirits remain off the shelves in most of the provinces, although we are now lapping a similar comparison period. We continue to assume these restrictions will remain in place for the balance of the fiscal year. The travel retail channel declined 1% during the quarter. Passenger traffic in several key travel corridors remains below historical levels, particularly in parts of the Middle East. Turning to the United States, our performance remains ahead of our largest competitors with organic net sales flat despite a decline in the overall spirits market.

Speaker #3: Even in this environment, our whiskey category share remains stable, and it is increasing in five of our eight largest European markets. We remain focused on optimizing our route to consumer and driving innovation.

Speaker #3: In Canada, U.S.-produced spirits remain off the shelves in most of the provinces, although we're now lapping a similar comparison period. We continue to assume these restrictions will remain in place for the balance of the fiscal year.

Speaker #3: The travel retail channel declined 1% during the quarter. Passenger traffic in several key travel corridors remains below historical levels, particularly in parts of the Middle East.

Speaker #3: Turning to the United States, our performance remains ahead of our largest competitors, with organic net sales flat, despite a decline in the overall spirits market.

Speaker #3: Growth from Jack Daniel's Tennessee Whiskey, our RTD portfolio, and premium innovations such as Jack Daniel's Single Barrel Heritage Barrel helped offset broader market pressures.

Lawson Whiting: Growth from Jack Daniel's Tennessee Whiskey, our RTD portfolio, and premium innovations such as Jack Daniel's Single Barrel Heritage Barrel helped offset broader market pressures. Importantly, shipments trailed depletion trends by approximately 4 points as we lapsed the distributor transitions and the launch of Tennessee Blackberry in the prior year period, both of which benefited shipment timing. Broadly speaking, the operating environment remains consistent both with our expectations and prior year performance, and our geographic performance reflects that. Before I close, I want to recognize our people. The dedication of our employees continues to be one of Brown-Forman's greatest strengths. Despite a challenging operating environment, our teams remain focused on execution, supporting one another, and advancing our strategic priorities around the world. In summary, our Q1 unfolded largely as expected. Innovation remains one of our most important growth drivers.

Speaker #3: Importantly, shipments trailed depletion trends by approximately four points as we lapped the distributor transitions and the launch of Tennessee Blackberry in the prior-year period, both of which benefited shipment timing.

Speaker #3: Broadly speaking, the operating environment remains consistent with both our expectations and prior year performance, and our geographic performance reflects that. Before I close, I want to recognize our people.

Speaker #3: The dedication of our employees continues to be one of Brown-Forman's greatest strengths. Despite a challenging operating environment, our teams remain focused on execution, supporting one another, and advancing our strategic priorities around the world.

Speaker #3: In summary, our first quarter unfolded largely as expected. Innovation remains one of our most important growth drivers, and—from NewMix and our RTD portfolio, to Tennessee Blackberry and pack size innovation—we're creating new occasions for consumers to engage with our brands and generating growth opportunities across the portfolio.

Lawson Whiting: From New Mix and our RTD portfolio to Tennessee Blackberry and pack size innovation, we are creating new occasions for consumers to engage with our brands and generating growth opportunities across the portfolio. While pressures remain across parts of the industry, we are focused on the brands, markets, and consumer occasions where we see greatest long-term potential. That focus, combined with the strength of our people and portfolio, gives us confidence in our ability to deliver against our fiscal 2027 outlook. Before turning the call over to Jim, I would like to briefly comment on my upcoming retirement. As we announced in July, after nearly 30 years with Brown-Forman, I have decided to retire once my successor is named.

Speaker #3: While pressures remain across parts of the industry, we're focused on the brands, markets, and consumer occasions where we see the greatest long-term potential. That focus, combined with the strength of our people and portfolio, gives us confidence in our ability to deliver against our fiscal 2027 outlook.

Speaker #3: Before turning the call over to Jim, I'd like to briefly comment on my upcoming retirement. As we announced in July, after nearly 30 years with Brown-Forman, I have decided to retire once my successor is named.

Speaker #3: It's been the privilege of a lifetime to serve as the CEO of Brown-Forman, and I'm grateful for the support of our team around the world, the Brown family, and our board of directors over my career, and particularly during my time in this role.

Lawson Whiting: It has been the privilege of a lifetime to serve as the CEO of Brown-Forman, and I am grateful for the support of our team around the world, the Brown family, and our board of directors over my career, and particularly during my time in this role. While I am looking forward to my next chapter, until a successor is named, I remain squarely focused on leading the business, executing our strategy, and supporting our teams. The board's Corporate Governance and Nominating Committee is leading a comprehensive search process, considering both internal and external candidates. As we have said previously, this is a thoughtful and deliberate effort to identify the right leader for Brown-Forman's next chapter, and we are not providing a specific timeline.

Speaker #3: While I'm looking forward to my next chapter, until a successor is named, I remain squarely focused on leading the business, executing our strategy, and supporting our teams.

Speaker #3: The board's Corporate Governance and Nominating Committee is leading a comprehensive search process, considering both internal and external candidates. As we have said previously, this is a thoughtful and deliberate effort to identify the right leader for Brown-Forman's next chapter, and we're not providing a specific timeline.

Speaker #3: Announcing my retirement before a successor is selected was an intentional decision that gives the board the time and flexibility to conduct that process thoroughly while ensuring continuity in the leadership of the business.

Lawson Whiting: Announcing my retirement before a successor is selected was an intentional decision that gives the board the time and flexibility to conduct that process thoroughly by ensuring continuity in the leadership of the business. Following the appointment of my successor, I also expect to support a smooth transition in an advisory capacity. With that, I will turn the call over to Jim.

Speaker #3: Following the appointment of my successor, I also expect to support a smooth transition in an advisory capacity. So, with that, I'll turn the call over to Jim.

Speaker #1: Thank you, Lawson, and good morning, everyone. As Lawson discussed, our first quarter results were largely in line with our expectations. Innovation continued to support top-line performance, our teams remained disciplined in managing costs and investments, and we delivered growth in both earnings and cash flow while reaffirming our fiscal 2027 outlook.

Jim Peters: Thank you, Lawson, and good morning, everyone. As Lawson discussed, our Q1 results were largely in line with our expectations. Innovation continued to support top-line performance. Our teams remain disciplined in managing costs and investments. We delivered growth in both earnings and cash flow while reaffirming our fiscal 2027 outlook. Let me spend a few minutes discussing these results. Starting with profitability, gross margin expanded 40 basis points to 60.2% during the quarter. The improvement was primarily driven by lower costs, largely driven by timing and favorable portfolio changes, partially offset by foreign exchange and product mix. Foreign exchange, particularly the stronger Mexican peso, remained a headwind. We also saw some expected mix pressure from the continued strong growth of New Mix and our broader RTD portfolio.

Speaker #1: Let me spend a few minutes discussing these results. Starting with profitability, gross margin expanded 40 basis points to 60.2% during the quarter. The improvement was primarily driven by lower costs, largely due to timing, and favorable portfolio changes, partially offset by foreign exchange and product mix.

Speaker #1: Foreign exchange, particularly the stronger Mexican peso, remained a headwind. We also saw some expected mix pressure from the continued strong growth of New Mix and our broader RTD portfolio.

Speaker #1: While RTDs carry a different margin profile than much of the rest of our portfolio, their growth continues to support our broader strategy of meeting consumers where they are, creating new occasions, and building important future growth platforms for the business.

Jim Peters: While RTDs carry a different margin profile than much of the rest of our portfolio, their growth continues to support our broader strategy of meeting consumers where they are, creating new occasions, and building important future growth platforms for the business. We also remain disciplined in our approach to investment. Organic advertising expense declined 4%, primarily due to timing. Our philosophy remains unchanged. We align brand investment with depletion trends and continue to believe we are investing at healthy levels behind our portfolio. Organic SG&A increased 5%, driven largely by costs associated with organizational changes intended to reduce complexity and support faster decision-making across the business. Taken together, these factors resulted in reported operating income declining 3%, while organic operating income increased 4%.

Speaker #1: We also remain disciplined in our approach to investment. Organic advertising expense declined 4%, primarily due to timing. Our philosophy remains unchanged: we align brand investment with depletion trends and continue to believe we are investing at healthy levels behind our portfolio.

Speaker #1: Organic SG&A increased 5%, driven largely by costs associated with organizational changes intended to reduce complexity and support faster decision-making across the business. Taken together, these factors resulted in reported operating income declining 3%, while organic operating income increased 4%.

Speaker #1: The combination of improved organic operating performance, lower non-operating post-retirement expense, and the benefit of prior year share repurchases drove earnings per share growth of 6% to $0.38.

Jim Peters: The combination of improved organic operating performance, lower non-operating post-retirement expense, and the benefit of prior year share repurchases drove earnings per share growth of 6% to $0.38. We also delivered strong cash flow performance during the quarter. Cash flow from operations increased $13 million to $173 million, while free cash flow increased $32 million to $161 million. The improvement reflected solid operating cash generation and lower capital spending requirements. Due to our strong financial position, we repaid 300 million euro principal amount of the 1.2% senior notes on the 7 July 2026 maturity date. Turning to our outlook, the key message is straightforward. Our Q1 performed largely as expected, and we are reaffirming our fiscal 2027 guidance. The operating environment remains consistent with the assumptions we outlined at the beginning of the year.

Speaker #1: We also delivered strong cash flow performance during the quarter. Cash flow from operations increased $13 million to $173 million, while free cash flow increased $32 million to $161 million.

Speaker #1: The improvement reflected solid operating cash generation and lower capital spending requirements. Due to our strong financial position, we repaid €300 million principal amount of the 1.2% senior notes on the July 7, 2026, maturity date.

Speaker #1: Turning to our outlook, the key message is straightforward. Our first quarter performed largely as expected, and we are reaffirming our fiscal 2027 guidance. The operating environment remains consistent with the assumptions we outlined at the beginning of the year.

Speaker #1: Consumer demand remains pressured across many developed markets, while emerging international markets continue to provide important growth opportunities. Innovation continues to perform well, particularly NewMix, our broader RTD portfolio, and the ongoing global rollout of Jack Daniel's Tennessee BlackBerry. Shipments have benefited from that momentum, particularly for Tennessee BlackBerry.

Jim Peters: Consumer demand remains pressured across many developed markets, while emerging international markets continue to provide important growth opportunities. Innovation continues to perform well, particularly New Mix, our broader RTD portfolio, and the ongoing global rollout of Jack Daniel's Tennessee Blackberry. While shipments have benefited from that momentum, particularly for Tennessee Blackberry, we continue to expect the gap between shipments and depletions to narrow as the year progresses, with depletions exceeding shipments for the full fiscal year. In addition, we expect continued pressure on used barrel sales, but we expect the impact to moderate through the remainder of the year, and the year-over-year dollar impact on net sales will be significantly less. Overall, based on currently known factors, we continue to expect organic net sales to be approximately flat for fiscal 2027. From a profitability standpoint, we remain focused on carefully managing costs while continuing to invest behind our brands.

Speaker #1: We continue to expect the gap between shipments and depletions to narrow as the year progresses, with depletions exceeding shipments for the full fiscal year.

Speaker #1: In addition, we expect continued pressure on used barrel sales, but we expect the impact to moderate through the remainder of the year, and the year-over-year dollar impact on net sales will be significantly less.

Speaker #1: Overall, based on currently known factors, we continue to expect organic net sales to be approximately flat for fiscal 2027. From a profitability standpoint, we remain focused on carefully managing costs while continuing to invest behind our brands.

Speaker #1: As we move through the year, higher-cost whiskey inventory will become a larger factor in our results. These inventories were produced during a period of unusually high inflation and elevated input costs for barrels, grain, energy, and other key inputs.

Jim Peters: As we move through the year, higher cost whiskey inventory will become a larger factor in our results. These inventories were produced during a period of unusually high inflation and elevated input costs for barrels, grain, energy, and other key inputs. While actions we have taken to optimize our supply chain will benefit us over time, the aging requirements of many of our products mean those benefits will take time to fully materialize. We also continue to expect higher input costs during fiscal 2027, driven primarily by inflationary pressures and lower production volumes. To help offset these pressures, we remain focused on identifying efficiencies, simplifying work, and improving productivity across the organization. As we execute our long-term pricing strategy and continue to benefit from revenue growth management initiatives and strategic innovation, we also expect the continued growth of our RTD portfolio to influence product mix.

Speaker #1: While the actions we have taken to optimize our supply chain will benefit us over time, the aging requirements of many of our products mean those benefits will take time to fully materialize.

Speaker #1: We also continue to expect higher input costs during fiscal 2027, driven primarily by inflationary pressures and lower production volumes. To help offset these pressures, we remain focused on identifying efficiencies, simplifying work, and improving productivity across the organization.

Speaker #1: As we execute our long-term pricing strategy and continue to benefit from revenue growth management initiatives and strategic innovation, we also expect the continued growth of our RTD portfolio to influence product mix. While RTDs create some pressure on margin mix, they remain an important source of growth.

Jim Peters: While RTDs create some pressure on margin mix, they remain an important source of growth, consumer recruitment, and future opportunity for the business. Our outlook for operating expenses continues to reflect investment behind our brands in line with our long-term philosophy. At the same time, we expect SG&A to decline as we lap the elevated investment levels of fiscal 2026 and begin to realize benefits from actions we have taken to simplify the organization. Taking all of these factors into account, we continue to expect organic operating income to decline between 3% and 5%. Based on our Q1 performance and the trends we are seeing across the business, we have increased confidence that results will trend toward the more favorable end of the range. We continue to expect capital expenditures to be in the range of $60 million to $70 million, significantly lower than recent years.

Speaker #1: Consumer recruitment and future opportunity for the business. Our outlook for operating expenses continues to reflect investment behind our brands, in line with our long-term philosophy.

Speaker #1: At the same time, we expect SG&A to decline as we lap the elevated investment levels of fiscal 2026 and begin to realize benefits from actions we have taken to simplify the organization.

Speaker #1: Taking all of these factors into account, we continue to expect organic operating income to decline between 3% and 5%. Based on our first quarter performance and the trends we are seeing across the business, we have increased confidence that results will trend toward the more favorable end of the range.

Speaker #1: We continue to be in the range of $60 million to $70 million, significantly lower than recent years. In addition, we remain focused on reducing finished goods inventory and improving working capital efficiency, which should further support cash generation.

Jim Peters: In addition, we remain focused on reducing finished goods inventory and improving working capital efficiency, which should further support cash generation. Finally, we continue to expect our effective tax rate to be approximately 20% to 22% for fiscal 2027. In summary, the Q1 unfolded largely as we expected. Innovation continues to create growth opportunities across our portfolio, our teams remain disciplined in how we manage costs and investments, and our cash flow performance remains strong. While the operating environment remains challenging, our results reinforce our confidence in the plans we outlined at the beginning of the year and in our team's ability to deliver against our fiscal 2027 outlook. With that, this concludes our prepared remarks. Let's open the line for questions.

Speaker #1: Finally, we continue to expect our effective tax rate to be approximately 20% to 22% for fiscal 2027. In summary, the first quarter unfolded largely as we expected.

Speaker #1: Innovation continues to create growth opportunities across our portfolio. Our teams remain disciplined in how we manage costs and investments, and our cash flow performance remains strong.

Speaker #1: While the operating environment remains challenging, our results reinforce our confidence in the plans we outlined at the beginning of the year and in our team's ability to deliver against our fiscal 2027 outlook.

Speaker #1: With that, this concludes our prepared remarks. Let's open the line for questions.

Speaker #2: Thank you. As a reminder, to ask a question please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. In fairness to all, we ask that you please limit yourself to one question. One moment while we compile our Q&A roster. Our first question is going to come from the line of Drew Levine with JP Morgan. Your line is open. Please go ahead.

Speaker #2: In fairness, all we ask is that you please limit yourself to one question. One moment while we compile our Q&A roster. Our first question will come from the line of Drew Levine with JPMorgan.

Speaker #2: Your line is open. Please go ahead.

Speaker #3: Hey, good morning. Thanks for taking our question. And Lawson, firstly, congratulations on your upcoming retirement. Was hoping to get some of course. Hoping to get some more color on the underlying performance in the US, it was up 4%.

Drew Levine: Hey, good morning. Thanks for taking our question. Lawson, firstly, congratulations on your upcoming retirement.

Lawson Whiting: Thanks.

Lawson Whiting: Was hoping to get some-

Lawson Whiting: Of course.

Drew Levine: Hoping to get some more color on the underlying performance in the US. It was up 4%. I think even against the easy comparison, probably a little bit better than expected. The two years down around 2%. Likely better than what we see from a consumer takeaway perspective. Maybe you could just help disaggregate the underlying performance in the US. I know you mentioned the RTDs have been performing well. Obviously, you've had Blackberry and some of the premium expressions. Just sort of help frame up that gap that we've seen over the past two years relative to consumer takeaway and how we should think about that going forward. Thank you.

Speaker #3: I think, even against the easy comparison, results were probably a little bit better than expected. On a two-year basis, that's down around 2%, likely better than what we see from a consumer takeaway perspective.

Speaker #3: So maybe you could just help disaggregate the underlying performance in the US. I know you mentioned the RTDs have been performing well. Obviously, you've had BlackBerry and some of the premium expressions.

Speaker #3: But just to help frame up that gap that we've seen over the past two years relative to consumer takeaway, and how we should think about that going forward.

Speaker #3: Thank you.

Speaker #4: Okay. So let me just start off by saying the U.S. business in aggregate is improving. It's slowly— I mean, it's not— I think it bottomed out.

Jim Peters: Okay. Let me just start off by saying that the US business in aggregate is improving. Slowly. I think it bottomed out, I think we would say, around Christmas or January. Then you are starting to see improvement both in the NABCA takeaway and in Nielsen. So there is that undercurrent for the whole thing. But know that, and we are going to say this probably 10 times here on this Q&A, that it is a noisy quarter, largely driven by last year distributor transitions that all happened 1 August, and then Jack Daniel's Tennessee Blackberry launch, which was also 1 August. It just caused a lot of noise. So I need to step back from that one for a second, too. Just to sort of level set with everyone. When we did the distributor change, as I said, most of the country was 1 August.

Speaker #4: I think we would say around Christmas or January, and then you start to see improvement both in the NABCA takeaway and in Nielsen. So, there is that undercurrent for the whole thing.

Speaker #4: But know that, and we're going to say this probably 10 times here on this Q&A, that it's a noisy quarter—largely driven by last year's distributor transitions that all happened August 1, and then BlackBerry launched, which was also August 1.

Speaker #4: It just caused a lot of noise, so thanks for stepping back from that one for a second too. So, just to sort of level set with everyone, when we did the distributor change, as I said, most of the country was August 1.

Speaker #4: What happened was there was a large amount of shipments that went through in July of last year to get the new distributors ready and fill up their warehouses.

Jim Peters: What happened was there was a large amount of shipments that went through in July of last year to get the new distributors ready and fill up their warehouses. Then they depleted those cases in August. Then we are comping against that period now. So shipments were really strong last year, and so it muted, what did we say, four points of growth from shipments to underlying. So I think that is an important factor. But when you are talking about Nielsen takeaway trends versus depletions, which I think was your sort of base question, it is really two things. About half of the difference is distributor margins. So we are able to capture that value now in our sales into these distributors. That was about three points of it right there. Then the other part of it, which was

Speaker #4: And then they depleted those cases in August. And then we're just we're comping against that period now. And so shipments were really strong. Last year and so it muted what did we say?

Speaker #4: Four points of growth compared from shipments to underlying. So I think that's an important factor. But when you're talking about Nielsen takeaway trends versus depletions, which I think was your sort of base question, it's really two things.

Speaker #4: About half of the difference is distributor margins. So we're able to capture that value now in our sales into these distributors. That was about 3 points of it right there.

Speaker #4: And then the other part of it, which was significant also, is just the timing of our innovation. So there's a lot we, as you heard on the Prepared Remarks, we have a lot of innovation.

Lawson Whiting: significant also is just the timing of our innovation. So there is a lot. As you heard on the prepared remarks, we have a lot of innovation right now. A lot of it has gone out in Q1, and I imagine the Nielsen figures will pick that up in the upcoming months. But right now, that actually had a couple point influence, too.

Speaker #4: Right now, a lot of it has gone out in the first quarter, and I imagine the Nielsen figures will pick that up in the upcoming months.

Speaker #4: But right now, that actually had a couple-point influence, too.

Speaker #2: Thank you. And one moment for our next question. Our next question will come from the line of Peter Graham with UBS. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Peter Grom with UBS. Your line is open. Please go ahead.

Speaker #2: Please go ahead.

Speaker #5: Great. Thank you. Good morning, everyone. And Lawson, congratulations and thank you for all the help over the years.

Peter Grom: Great. Thank you. Good morning, everyone, and Lawson, congratulations, and thank you for all the help over the years.

Lawson Whiting: Thanks, Peter.

Speaker #4: Thanks, Peter.

Speaker #5: So I guess, look, throughout the prepared remarks, you mentioned several times that, one, the 1st quarter performance was largely in line with your expectations.

Peter Grom: So I guess, look, throughout the prepared remarks, you mentioned several times that the Q1 performance was largely in line with your expectations, but you also highlighted that you now have greater confidence in delivering towards the more favorable point of the guidance range. Curious what's driving that increased level of confidence at this point of the year.

Speaker #5: But you also highlighted that you now have greater confidence in delivering toward the more favorable point of the guidance range. So, obviously, it's a pretty dynamic environment.

Speaker #5: I'm curious—what's driving that increased level of confidence at this point in the year?

Speaker #4: Yeah. Peter, this is Jim, and I'll start off with that because I think, one, as we kind of saw—and Lawson talked a little bit about our expectations for the top line for the quarter—we knew we had some tough things to comp from last year.

Jim Peters: Yeah. Peter, this is Jim, and I'll start off with that because I think, one, as we kind of saw, and Lawson talked a little bit about our expectations for the top line for the quarter. We knew we had some tough things to comp from last year, but it came in, when we look at it, relatively strong. If you really look at with the decline of 1%, you take the barrel sales out of there, and honestly, we're at about flat. What we're seeing is a good and very close to where we expected on the top line. Then as we look at things throughout gross margin and other areas, we say, "Okay, we started off in a more positive place," and we definitely think a lot of that is timing.

Speaker #4: But it came in, when we look at it, relatively strong. And if you really look at the decline of 1%, you take the barrel sales out of there.

Speaker #4: And honestly, we're at about flat. So again, what we're seeing is good and very close to where we expected on the top line.

Speaker #4: Then, as we look at things throughout gross margin and other areas, we say, okay, we've started off in a more positive place, and we definitely think a lot of that is timing.

Jim Peters: I could go much deeper into that and talk about how that timing works and how we see that coming out. What we are also seeing is we are taking significant actions to offset many of these costs. What we are seeing is that a lot of our actions are actually delivering probably at the higher end of the range of what we expect, and we are seeing some of those results come sooner. So while we do expect our gross margins to feel pressure throughout the year due to the timing of how some of the whiskey flows out and all that, we still are actually seeing what I would say is, based on our own actions, some more favorable things within the overall cost of goods environment. There are some other pressures that we see within there.

Speaker #4: And I could go much deeper into that and talk about how that timing works and how we see that coming out. But what we're also seeing is that we are taking significant actions to offset many of these costs.

Speaker #4: And what we're seeing is that a lot of our actions are actually delivering, probably at the higher end of the range of what we expect.

Speaker #4: And we're seeing some of those results come sooner. So, while we do expect our gross margins to feel pressure throughout the year due to the timing of how some of the whiskey flows out and all that, we still are actually seeing what I would say is, based on our own actions, some more favorable things within the overall cost of goods environment.

Speaker #4: Now, there are some other pressures that we see within there—things such as diesel fuel costs and aluminum costs are all coming up. But as we step back and look at it from a perspective of, like I said, what we can offset, what pricing we can take to offset, and we look at all those things, we also note that our SG&A was higher in the first quarter.

Jim Peters: Things such as diesel fuel costs and aluminum costs are all coming up. As we step back and we look at it from a perspective of, like I said, what we can offset, what we can take pricing to offset, and we look at all of those things. We also look at that our SG&A was higher in the Q1 than we expected it to be because we did take some smaller, what I will call more surgical actions to make adjustments within our workforce. Those benefits are going to flow throughout the year. All of those things kind of added together really give us increased confidence that we could be to the high end of our range from an operating profit perspective and in line with our sales guidance.

Speaker #4: Than we expected it to be, because we did take some smaller, what I'll call more surgical, actions to make adjustments within our workforce. And those benefits are going to flow throughout the year.

Speaker #4: All of those things, kind of added together, really give us increased confidence that we could be at the high end of our range from an operating profit perspective and in line with our sales guidance.

Speaker #5: And let me add two points. One, as I just said a minute ago, if the US TDS in the US continues to improve bit by bit, that’s going to be—and it has.

Lawson Whiting: I will add two points. One I just said a minute ago. If the US TDS in the US continues to improve bit by bit, and it has. It has been pretty steady over the last 6, 8 months, something like that now. I think that helps the confidence. The other one Jim said, but I actually think it is worth expanding upon a little bit, is the barrel sale. As I said, fiscal 2024, so call it 2 years ago, we peaked out over $100 million a year in barrel sales, which has an extremely high gross margin because the barrels are depreciated over the time that they are aging. When we actually sell them, it has always been a great margin business. It ended last year around $30 million, and we expect a pretty significant drop again this year.

Speaker #5: It's been pretty steady over the last six, eight months, something like that now. So I think that helps the confidence. And then the other one Jim said, but I actually think it's worth expanding upon a little bit, is the barrel sales.

Speaker #5: So as I said, in fiscal '24, so call it two years ago, we peaked at over $100 million a year in barrel sales, which has an extremely high gross margin because the barrels are depreciated over the time that they're aging.

Speaker #5: And so, when we actually sell them, it's always been a great margin business. It ended last year around $30 million, and we expect a pretty significant drop again this year.

Speaker #5: So you're talking about $80-plus million in less profitability from barrel sales in two years. I just don't think that's necessarily part of the story of Brown-Forman.

Lawson Whiting: You are talking $80-plus million in less profitability from barrel sales in 2 years. I just do not think that is necessarily part of the story of Brown-Forman. We really have not expanded upon it, but it has been a huge headwind for us. Having said all that, it cannot get any lower. There is just not that much farther to go. So, it will be less of a headwind going forward, which is starting to give us a little more confidence, too, in the outlook.

Speaker #5: We really haven't expanded upon it, but it has been a huge headwind for us. Now, having said all that, it can't get any lower.

Speaker #5: You know what I mean? There's just not that much farther to go, so it will be less of a headwind going forward, which is starting to give us a little more confidence, too, in the outlook.

Speaker #2: Thank you. And one moment for our next question. Our next question will come from the line of Nadine Sarwat with Brown Senior. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Nadine Sarwat with Bernstein. Your line is open. Please go ahead.

Speaker #2: Please go ahead.

Speaker #6: Great. Thank you. Lawson, congrats on the upcoming retirement. It's been a real pleasure working with you over all these years. But I promise you, I will keep asking about gross margins until you retire.

Nadine Sarwat: Great. Thank you. Lawson, congrats on the upcoming retirement. It has been a real pleasure working with you over all these years. I promised you I would keep asking about gross margins until you retire, so I guess here of me keeping my promise. Two questions from me. First, you saw 60 basis points of expansion this quarter. I think you guys called out that being driven by lower costs. However, as I think Jim just mentioned, more costly barreled whiskey will continue to be a headwind. Could you give me a sense of what exactly happened with those two factors balancing out in Q1 and how we should expect that over the next coming three quarters of the year? My second question is a longer term, bigger picture question.

Speaker #6: So I guess here's me keeping my promise. So, two questions from me. First, you saw 60 basis points of expansion this quarter. I think you guys called out that being driven by lower costs.

Speaker #6: However, as I think Jim just mentioned, more costly barreled whiskey will continue to be a headwind. So could you give me a sense of what exactly happened with those two factors balancing out in Q1, and how we should expect that over the next coming three quarters of the year?

Speaker #6: And then my second question is a longer-term, bigger-picture question. Now that the discussions with Pernod Ricard regarding that potential combination have ended, I appreciate you won't comment on deal specifics or discussions.

Nadine Sarwat: Now that the discussions with Pernod Ricard regarding that potential combination have ended, I appreciate you will not comment on deal specifics or discussions, but with a few months of hindsight, what are your reflections coming out of those discussions for Brown-Forman as a standalone entity? Has it led to any refreshed or different thinking about how you want to manage the long-term strategy for Brown-Forman and where some of the opportunities might lie?

Speaker #6: But with a few months of hindsight, what are your reflections coming out of those discussions for Brown-Forman as a standalone entity? Has it led to any refreshed or different thinking about how you want to manage the long-term strategy for Brown-Forman?

Speaker #6: And where might some of the opportunities lie?

Speaker #4: Yeah, Nadine, this is Jim. And I'll start with your question on gross margin. If you look at where we finished, at 60.2%, the one thing I'd point out, too, is that this is below last year's average for the full year gross margin, which was 60.5%.

Jim Peters: Nadine, this is Jim, and I will start with your question on gross margin. If you look at where we finished at 60.2%, the one thing I would point out, too, that is below last year's average for the full year of gross margin of 60.5%. We are already seeing it, and we had some tailwinds in the Q4 that kind of helped us there a little bit, and I will say that. We do expect this probably to be more of what I will say is the high point of our gross margin for the year. As you mentioned, we do expect to begin to see some of the more expensive barreled whiskey that we have come out, and that will come out ratably throughout the year and increase as we get later in the year.

Speaker #4: So, we are already seeing it. And we had some tailwinds in the fourth quarter that kind of helped us there a little bit. And I'll say that.

Speaker #4: But we do expect this probably to be more of, what I'll say, is the high point of our gross margin for the year. And as you mentioned, we do expect to begin to see some of the more expensive barreled whiskey that we have come out.

Speaker #4: And that will come out ratably throughout the year and increase as we get later in the year. The other thing, as I mentioned, is that some of the other cost increases we're seeing right now, such as diesel and aluminum, involve a lot of volatility around many of the commodities out there.

Jim Peters: The other thing, as I mentioned, some of the other cost increases that we are seeing right now, such as diesel and aluminum. There is just a lot of volatility around many of the commodities out there. Our ability to necessarily predict exactly where those are going to be, and I would say, right now we are assuming that that just stays in throughout the whole year and could even, to a certain extent, possibly increase a little bit. But we are keeping a very close eye on that. I think the other thing that I did not mention before is, in order to get our inventories in line with where our sales are, we have obviously had to adjust our production and distilling. A big part of that we have done in a way that is being done ratably throughout the year to do it in the most efficient way.

Speaker #4: And so our ability to necessarily predict exactly where those are going to be—and I'd say right now we're assuming that just stays in throughout the whole year—and could even, to a certain extent, possibly increase a little bit.

Speaker #4: But we're keeping a very close eye on that. I think the other thing that I didn't mention before is that in order to get our inventories in line with where our sales are, we've obviously had to adjust our production and distilling.

Speaker #4: And a big part of that we've done in a way that's being done ratably throughout the year to do it in the most efficient way.

Speaker #4: But I think you'll see more of the cost of some of that lower production coming through throughout the full year, and so that's another thing that's not necessarily reflected in the first quarter.

Jim Peters: But I think you will see more of the cost of some of that lower production coming through throughout the full year. That is another thing that is not necessarily reflected in the first quarter, but I think will put pressure on us for the rest of the year. But the positive on that is that, again, as we have said, we really are bringing our inventories into what we believe is the right place, and it is helping us from a free cash flow perspective. So, it is the right thing to do, but we are trying to make sure we do it in the most efficient way and not just shutting down distilleries for extended periods of time. I think the plan that we have is going to work very well.

Speaker #4: But I think it will put pressure on us for the rest of the year. But the positive is that, again, we believe we're in the right place.

Speaker #4: And it's helping us from a free cash flow perspective. So it's the right thing to do. But we're trying to make sure we do it in the most efficient way, and not just shutting down distilleries for extended periods of time.

Speaker #4: And I think the plan that we have is going to work very well.

Speaker #5: And then, Nadine, to the second question that you had. I mean, a few things. One, I think you all know that we regularly explore strategic opportunities in the normal course of business.

Lawson Whiting: Then Nadine, to the second question that you had. A few things. One, I think you all know that we regularly explore strategic opportunities in the normal course of business. We do evaluate lots of different opportunities against the standard of long-term shareholder value creation. Just in the particular case with Tanay, we were unable to reach a mutually agreeable term. Then I know everyone is probably asking or thinking, what is the case with Sazerac? It really comes down to the board and our advisors concluding that the proposal is just not actionable, taking into consideration the view of Wolf Pen Branch, our majority shareholder. So, in terms of reflecting back on that, look, our ultimate goal is to create long-term value for all of our shareholders.

Speaker #5: And we do evaluate lots of different opportunities against the standard of long-term shareholder value creation. And just in the particular case with Teneau, we were unable to reach mutually agreeable terms.

Speaker #5: So, and then I know everyone's probably asking or thinking, what is the case with Sazerac? And it really comes down to the Board and our advisors concluding that the proposal is just not actionable, taking into consideration the view of Woodford Branch, our majority shareholder.

Speaker #5: So, in terms of reflecting back on that, I mean, look, our ultimate goal is to create long-term value for all of our shareholders, and we're going to do that by focusing on our own strategic and operational priorities.

Lawson Whiting: We are going to do that by focusing on our own strategic and operational priorities, and that is back to the expanding upon our geographic footprint, building brands that resonate with consumers, enhancing operational efficiencies wherever we can, and then continuing to explore additional opportunities to create value for our shareholders. So, look, it gives us the opportunity now, and pretty much back to the reflecting. We have got a really strong balance sheet. We have got healthy free cash flows. We are going to stick to our long-term capital allocation philosophy of really investing in the business, paying increasing regular dividends, pursuing strategic opportunities when they are there, and then returning cash to shareholders. That has been our sort of four core capital allocation priorities for a long time. So, look, we feel good about our business.

Speaker #5: And that's back to expanding upon our geographic footprint, building brands that resonate with consumers, enhancing operational efficiencies wherever we can, and then continuing to explore additional opportunities to create value for our shareholders.

Speaker #5: So, look, it gives us the opportunity now, and reflecting back, we've got a really strong balance sheet. We've got healthy free cash flows.

Speaker #5: We're going to stick to our long-term capital allocation philosophy of really investing in the business, paying increasing regular dividends, pursuing strategic opportunities when they're there, and then returning cash to shareholders.

Speaker #5: And that's been our sort of four core capital allocation priorities for a long time. And so, look, we feel good about our business. We feel more confident about our business today.

Lawson Whiting: We feel more confident about our business today, and we're going to continue to grow and do it on our own and create the most value that we can. We're moving on.

Speaker #5: And we're going to continue to grow, and do it on our own, and create as much value as we can. So we're moving on.

Speaker #1: Thank you. And one moment for our next question. Our next question is going to come from the line of Nick Moody with RBC. Your line is open.

Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Nik Modi with RBC. Your line is open. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Yeah. Thank you. And Law, best of luck in your retirement. I wanted to just press on the industry dynamic because some of the feedback that we've received in the trade suggests August actually got weaker, not stabilized, I think, with some of the comments you were making.

Nik Modi: Yeah. Thank you. Lawson, best of luck in your retirement. I wanted to just press on the industry dynamic because some of the feedback that we've received in the trade would suggest August actually got weaker, not stabilized, I think was some of the comments you were making, or maybe you were just referring to the past six to eight months. Maybe it's the re-inflation of gas prices. I'm just curious, if you had any thoughts on kind of what the dynamic has been over the last few weeks, because it looks like there has been somewhat of a change. Then if I could just ask about Woodford. I believe there were some price actions that were done during the quarter and then maybe scaled back, and I just was curious if you can provide some more color around kind of the strategy for Woodford going forward.

Speaker #2: Or maybe you were just referring to the past six, eight months. But maybe it's the re-inflation of gas prices. I'm just curious if you had any thoughts on what the dynamic has been over the last few weeks, because it looks like there has been somewhat of a change.

Speaker #2: And then, if I could just ask about Woodford. I believe there were some price actions that occurred during the quarter and then maybe scaled back.

Speaker #2: And I just was curious if you can provide some more color around the strategy for Woodford going forward. Thank you.

Nik Modi: Thank you.

Speaker #5: All right, so I'll be honest. I don't know about anything in August—that is an awfully short-term question. It sounds like you've got some distributor contacts that maybe—I don't know if they had a weak month or what.

Lawson Whiting: All right. I'll be honest. I don't know about anything in August. That is an awfully short-term question. It sounds like you've got some distributor contacts that maybe, I don't know if they had a weak month or what. I don't know, so I'm not even going to comment on that. Woodford, the strategy, there is definitely not a strategy to take the price down on Woodford. That would be wrong. In fact, the Nielsen numbers I think have it at pretty much flat right now. But the strategy around Woodford is not really changing. It continues to be a very strong brand. If you look at that top 25 in the US, which I don't have in front of me, but it's been one of the strongest brands now over the last several years in an environment where hardly anyone is showing any growth.

Speaker #5: But so, I don't know. So I'm not even going to comment on that. Woodford—I mean, the strategy... I don't—I mean, there is definitely not a strategy to take price down on Woodford.

Speaker #5: So, that would be wrong. In fact, the Nielsen numbers—I think you have it at pretty much flat right now. So, yeah. But the strategy around Woodford is not really changing.

Speaker #5: I mean, it continues to be a very strong brand. If you look at that top 25 in the U.S.—which I don't have in front of me—but it's been one of the strongest brands now over the last several years.

Speaker #5: And in an environment where hardly anyone is showing any growth, at least Woodford does continue to grow. And look, it's one of the strongest brands we have in our entire portfolio.

Lawson Whiting: At least Woodford does continue to grow. Look, it's one of the strongest brands we have in our entire portfolio. We are huge supporters of it. We have global aspirations for the brand where we think we've got real opportunities outside of the United States, too. Of all the brands in our portfolio, it is not one that I worry a whole lot about. We would love it to grow a little faster than it is right now, but it's still a very healthy brand and doing well.

Speaker #5: And we are huge supporters of it. We have global aspirations for the brand, where we think we've got real opportunities outside of the United States, too.

Speaker #5: So of all the brands in our portfolio, it's not one that I worry a whole lot about. We would love for it to grow a little faster than it is right now.

Speaker #5: But it's still a very healthy brand, and yeah, I'm doing well.

Speaker #4: I mean, I think we see further opportunities for distribution within the U.S. on it. And obviously, as Lawson mentioned, internationally as well.

Jim Peters: I think we see further opportunities for distribution within the US on it, and obviously it's got. As Lawson mentioned, internationally.

Speaker #4: It's still, as we’ve said, grown very little internationally. And that's where we see significant opportunities going forward with the Woodford. To expand upon and build upon what we've done with Jack on a global basis, we see Woodford as the next big opportunity.

Lawson Whiting: It still has grown very little internationally, and that's where we see significant opportunities go forward with the Woodford. To expand upon and build upon what we've done with Jack on a global basis, we see Woodford as the next big opportunity.

Speaker #1: Thank you. And one moment for our next question. Our next question is going to come from the line of Lauren Lieberman with Barclays. Your line is open.

Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Lauren Lieberman with Barclays. Your line is open. Please go ahead.

Speaker #1: Please go ahead.

Speaker #6: Great, thanks so much. I just wanted to follow up a little bit more on the pricing environment in the U.S. I know Nick just mentioned Woodford.

Lauren Lieberman: Great. Thanks so much. I just wanted to follow up a little bit more on the pricing environment in the US. I know Nik just mentioned Woodford, but I was also curious about tequila. Just looking at what you reported for the organic sales for the tequila brands versus volume, it looks like pricing was a pretty big headwind. So just thoughts on the pricing environment, specific tequila, if it's signs of improvement or stabilization, and then also just more broadly across the balance of the portfolio. Thanks.

Speaker #6: But I was also curious about tequila. Just looking at what you reported for the organic sales for the brands with tequila brands versus volume, it looks like pricing was a pretty big headwind.

Speaker #6: So, just thoughts on the pricing environment specific to Tequila—if you're seeing signs of improvement or stabilization—and then, also, more broadly across the balance of the portfolio.

Speaker #6: Thanks.

Speaker #5: Okay, Lauren, let me try to talk through this. I want to make sure everybody gets this because I know it looks really strange on Schedule B and is, quite honestly, very misleading.

Lawson Whiting: Okay. Lauren, let me try to make sure everybody gets this, because I know it looks really strange on Schedule B. It is very, quite honestly, misleading. This is kind of a long answer, but I'll give you a few points on the category and then how we're doing within that. If you take the tequila category, and if you just take 750, so don't lock down on one size across. The category, pricing wise, is down between 1% and 2%. A lot of that, what is happening within the tequila world is you are seeing trade down. If you look at the different price points within tequila, over $30 is tough. That's where Herradura is and a lot of the other big brands that you all know. If you look at that $20 to $30 or even $15 to $30, it's actually still growing.

Speaker #5: So, this is kind of a long answer, but I'll give you a few points on the category, and then how we're doing within that.

Speaker #5: So if you take the Tequila category, and if you just take 750—so don't lock down on one size—across the category, pricing-wise, is down between 1 and 2 percent.

Speaker #5: A lot of what is happening within the tequila world is you are seeing trade-down. So, if you look at the different price points within tequila, over $30 is tough.

Speaker #5: And that's where Aridura is, and a lot of the other big brands that you all know. When you look below, if you look at that 20 to 30, or even 15 to 30, it's actually still growing.

Speaker #5: And so, El Jimador is benefiting from that. Interestingly, something I didn't know: El Jimador, within that price point—that $15 to $30 price point, or $20 to $30—it was, this time last year, the number nine brand in that price point.

Lawson Whiting: el Jimador is benefiting from that. Interestingly, something I didn't know, el Jimador, within that price point, that $15 to $30 price point or $20 to $30, this time last year, it was the number 9 brand in that price point. Today, it's number 4. So we've seen significant improvement in that. Using some Nielsen volume numbers, I'll walk tequila as a category in aggregate. This time last year, was running at +5. Today, it's -4. So there's been a 9-point swing in tequila, which has hurt a whole lot of brands, as I'm sure you can see in the data. Now, el Jimador this time last year was -8. Now it's -5. Doesn't sound great, but last year we had a 13-point gap to the category and losing massive share. Today, it's down to 1.

Speaker #5: Today, it's number four, so we've seen significant improvement in that. And I'll use some Nielsen volume numbers. I was watching Tequila as a category—in aggregate, this time last year, it was running at plus five.

Speaker #5: Today, it's minus four. So there's been a nine-point swing in Tequila, which is for a whole lot of brands, as I'm sure you can see in the data.

Speaker #5: Now, Alhimidor this time last year was minus eight. Now it's minus five. Doesn't sound great, but last year, we had a 13-point gap to the category.

Speaker #5: And losing massive share today, it's down to one. So we have made real improvements in the El Jimador brand, and I think we've got a new package.

Lawson Whiting: We have made real improvements in the el Jimador brand. I think we have got a new package, we have got new communications, we have got all kinds of new things around it, all that are helping to improve the trend. Herradura, as I said, stuck in a higher price point. It is difficult. We are about to unveil a whole lot of new things for that brand, too. We do expect that it will improve from here, but it has been tough for quite a while now. Now, speaking to what you see in the earnings release versus what you expected to see, I guess. There is one big oddity in there. As you know, we changed distributor margins last year, really across our portfolio, and for the most part, in aggregate, they benefited us quite significantly.

Speaker #5: We've got new communications. We've got all kinds of new things around it, all that are helping to improve the trend. Aridura, as I said, is stuck at a higher price point and it is difficult.

Speaker #5: We are about to unveil a whole lot of new things for that brand, too, so we do expect that it will improve from here.

Speaker #5: But it has been it's been tough for quite a while now. So now, speaking to the what you see in the earnings release versus what you expected to see, I guess, there's one big oddity in there.

Speaker #5: So, we changed—as you know—we changed distributor margins last year really across our portfolio. And for the most part, they benefited—well, in aggregate, they benefited us quite significantly.

Speaker #5: The Tequilas in a sort of an unusual way is the I don't know if it's the one, but it overall distributor margins went up for Tequila.

Lawson Whiting: The tequilas, in a sort of an unusual way, is the, I do not know if it is the one, but overall distributor margins went up for tequila. We wanted to make sure that the distributors were incented to sell that product. There were not many brands where we did that, but it was one of them. It makes the numbers in there and the organic figures look funny. That is not a sort of a true number, in terms of what is underlying actually happening in there. The other one that is a little bit smaller, but, well, I do not know if it is smaller, it is still material. California on el Jimador is flying, and it is obviously a massive tequila market, but it is the lowest, I think, the lowest price market in the United States. We get a little bit of negative mix there, too.

Speaker #5: So, we wanted to make sure that the distributors were incented to sell that product, and so there weren’t many brands where we did that.

Speaker #5: But it was one of them. So it makes the numbers in there in the organic figures look funny. That is not that's not a sort of a true number in terms of what is underlying actually happening in there.

Speaker #5: The other one that's a little bit smaller but well, I don't know if it's smaller. It's still material. California on Alhimidor is fine. And it's obviously a massive Tequila market, but it's the lowest it's the lowest I think the lowest price market in the United States.

Speaker #5: So we get a little bit of negative mix there, too. So there is some higher discounting happening in the category. I think everybody expected that, but it's not a runaway situation at all.

Lawson Whiting: There is some higher discounting happening in the category. I think everybody expected that, but it is not a runaway situation at all. As I said, if you compare size year over year, 750 is down 1 or 2. With the change in the cost profile, when I say I think we would have expected it would have been even worse. It has just not happened. Same thing with whiskey, which I assume we are going to get to that in one of these questions here. But the pricing environment has remained pretty rational in the United States right now, and obviously, that is a good thing.

Speaker #5: As I said, if you compare size year over year, 750 is down one or two. With the change in the cost profile, when I say I think we would have expected it would have been even worse, and it's just not happened.

Speaker #5: And same thing with whiskey, which I assume we're going to get to in one of these questions here. But the pricing environment has remained pretty rational in the United States right now.

Speaker #5: And obviously, that's a good thing.

Speaker #1: Thank you. And one moment for our next question. Our next question is going to come from the line of Bill Kirk with Rock Capital Partners.

Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Bill Kirk with ROTH Capital Partners. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Speaker #7: Good morning, everybody. Lawson, you mentioned pack sizes. I think the comment was related specifically to BlackBerry. But maybe more broadly, what is the opportunity for the portfolio in the US or internationally to expand pack size offerings?

Bill Kirk: Good morning, everybody. Lawson, you mentioned pack sizes. I think the comment was related specifically to Blackberry. But maybe more broadly, what is the opportunity for the portfolio in the US or internationally to expand pack size offerings?

Speaker #5: Oh, okay. Well, as I think we've been talking about, I'm not sure when this trend really started, but it was a couple of years ago now where smaller sizes started growing much faster than big sizes.

Lawson Whiting: Well, as I think we've been talking about, I am not sure when this trend really started, but it is a couple of years ago now where smaller sizes started growing much faster than big sizes. And we've always cited as that is an economic thing where a consumer, if they have got a $20 bill in their pocket, and they want to go and they love their Jack Daniel's, they would rather buy a smaller size bottle than have to go to a cheaper brand or whatever else they might do. So that has been kind of a macro thing now for years. I think that is interesting. You asked about leaving the United States. The one thing is you are much more limited outside of the United States in terms of the number of pack sizes you are allowed to actually bring.

Speaker #5: And we've always cited that as an economic thing, where a consumer, if they've got a $20 bill in their pocket and they want to go and they love their Jack Daniel's, they would rather buy a smaller size bottle than have to go to a cheaper brand or whatever else they might do.

Speaker #5: So that's been kind of a macro thing now for years, so I think that's interesting. When you leave—you asked about leaving the United States.

Speaker #5: The one thing is, you are much more limited outside of the United States in terms of the number of pack sizes you're allowed to actually bring.

Speaker #5: And so, as an example, there are very few large format bottles outside of the US. Like, the 1.75 in the US is a big volume generator.

Lawson Whiting: And so, as an example, there are very few large formatted bottles outside of the US. The 1.75 in the US is a big volume generator, and it is just not even available. It is not legal in many other markets around there. So back to what is the opportunity there? I do think the small, we are not talking 50 mLs, but the little bit smaller bottles, the 375 or the 200s are a very good play in the emerging markets where, honestly, our products are expensive in a lot of emerging markets. And so from the consumer perspective, a full bottle of Jack Daniel's, depending on where you are, can be $50 or even more in some places. So, that is where the opportunity for smaller sizes tends to show up, and we continue to pursue that.

Speaker #5: And it's just not even available. It's not legal in many, many other markets around there. So, back to where, to what is the opportunity there?

Speaker #5: I mean, I do think the small—not, we're not talking 50 mLs—but the little bit smaller bottles, the 375s or the 200s, are a very good play in the emerging markets where, honestly, our products are expensive in a lot of emerging markets.

Speaker #5: And so, from the consumer perspective, a full bottle of Jack Daniel's, depending on where you are, can be $50 or even more in some places.

Speaker #5: So that's where the opportunity for smaller sizes tends to show up, and we continue to pursue that.

Speaker #1: Thank you. And one moment for our next question. Our next question is going to come from the line of Seamus Cassidy with TD Cowen.

Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Seamus Cassidy with TD Cowen. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Speaker #8: Hi. Good morning, everyone, and congrats, Lawson. So, innovation has been a big contributor to growth, but core Jack Daniel's Tennessee Whiskey was flat this quarter, which is an improvement from what we've seen over the past few quarters.

Seamus Cassidy: Hi. Good morning, everyone, and congrats, Lawson. Innovation has been a big contributor to growth, but core Jack Daniel's Tennessee Whiskey was flat this quarter, which is an improvement from what we have seen over the past few quarters. I was hoping you could provide some context on what drove that stabilization and how much of it reflects improving consumer demand versus, I guess, your own commercial and execution initiatives. Thanks.

Speaker #8: I was hoping you could provide some context on what drove that stabilization, and how much of it reflects improving consumer demand versus, I guess, your own commercial and execution initiatives.

Speaker #8: Thanks.

Speaker #5: Yeah. I mean, we talked—I think you heard us say—the four-point difference between organic and depletions in the U.S. had a lot to do with that. That was a major league factor in the organic numbers for Tennessee whiskey.

Lawson Whiting: Yeah. I think you heard us say the 4-point difference between organic and depletions in the US had a lot to do with that. That was a major league factor in the organic numbers for Tennessee Whiskey. Look, it is still a difficult challenge we are having with Tennessee Whiskey in some of our larger markets. It is the US, it is Germany, it is France, it is Spain. Those are all the big black label markets. We continue to push in the United States, and particularly, we have got a lot of consumer communications going on right now. I think we remain pretty excited about the different things that we are doing to promote the brand. I think it has gotten much better, in my opinion, in the last couple of years compared to we were for a while. A lot of those things are improving.

Speaker #5: Look, it's still a difficult challenge we're having with Tennessee Whiskey in some of our larger markets. It's the U.S., it's Germany, it's France, it's Spain.

Speaker #5: Those are all big—they're big Black Label markets. We continue to push in the United States, and particularly, we've got a lot of consumer communications going on right now.

Speaker #5: I think we remain pretty excited about the different things that we're doing to promote the brand. I think it's gotten much better, in my opinion, in the last couple of years compared to where we were for a while.

Speaker #5: So, a lot of those things are improving. The takeaway in the U.S. has really not improved, and it hasn't improved for many of the largest brands in the U.S.

Lawson Whiting: The takeaway in the US has really not improved, and it has not improved for many of the largest brands in the US. You look across that top 25 list, and there is a lot of struggles in there. It is just a difficult market right now, and it is a difficult market for these largest brands that have difficulty getting away from really the TDS trends that are out there. I do think it is worth saying or going off a little bit on how healthy is the US whiskey category. If you look at Nielsen and you do the category breakdown, of which they, I do not know, have 20 categories in there. First of all, every single one of them is declining. The only thing that is growing is RTDs. Literally, there is not one growing category. But the single strongest category is US whiskey.

Speaker #5: You look across that top-25 sort of list, and there are a lot of struggles in there. So it's just a difficult market right now, and it's a difficult market for these largest brands that have difficulty getting away from, really, the TDS trends that are out there.

Speaker #5: So I do think it's worth saying, or going off a little bit on, how healthy is the U.S. whiskey category. If you look at Nielsen and you do the category breakdown—which they, I don't know.

Speaker #5: I have 20 categories in there. First of all, every single one of them is declining. The only thing that is growing is RTDs. So literally, there's not one growing category.

Speaker #5: But the single strongest category is U.S. whiskey, and tequila is now falling several points behind U.S. whiskey. It's down half a point.

Lawson Whiting: Tequila has now fallen several points behind US whiskey. It is down a half a point. I say all this because a lot of folks, some sell-side folks and a lot of trade people, have sort of written the category, not that you have written it off, but that they are just less enthusiastic about the category. Look, there are cost challenges, and everyone is dealing with that, and everyone has got some inventory challenges, but consumer demand is still there. I think the demise of the category has been a bit exaggerated. I look at our own brands, and I look at things like the Kentucky Bourbon Trail and visitor counts and the types of folks that are coming into our distilleries and the premium. A lot of what we do now is super, ultra-premium tastings, things that you pay a lot more for.

Speaker #5: So I say all this because a lot of folks, some sell-side folks, and a lot of trade people have sort of written off the category.

Speaker #5: Not that you've written it off, but that they're just less enthusiastic about the category. And look, there are cost challenges, and everyone is dealing with that.

Speaker #5: And everyone's got some inventory challenges, but consumer demand is still there. And I think that, I don't know, it's just been—I think the demise of the category has been a bit exaggerated.

Speaker #5: And I look at our own brands, and I look at things like the Kentucky Bourbon Trail and visitor counts, and the types of folks that are coming into our distilleries. And the premium—a lot of what we do now is sort of super, ultra-premium tastings, things that you pay a lot more for.

Speaker #5: But that is still in huge demand, and so interest in the category remains very high. I think the category is healthier than maybe the general feeling is around the category.

Lawson Whiting: But that is still in huge demand. Interest in the category remains very high. I think the category is healthier than maybe the general feeling is around the category. I think it is also worth saying in Jack in the US, as difficult as the consumer takeaway trends have been, our pricing is up. Pricing in the US whiskey category, let me make sure I get this right, down 0.6%. So relatively, that is pretty rational. I think we were all nervous it could have gotten worse. Whereas a full category only down 0.2, Jack is up 1. So, congratulations to that team and for us maintaining that low but slow price increase strategy that we have had for a long time. But, in this market, we will take 1% price increases on black label.

Speaker #5: So I think it's also worth saying, and Jack, in the U.S., as difficult as the consumer takeaway trends have been, our pricing is up.

Speaker #5: So, pricing in the U.S. whiskey category—are you sure I got this right? Down 0.6%. So, relatively, that's pretty rational. I mean, I think we were all nervous it could have gotten worse.

Speaker #5: As a full category, we're only down 0.2. Jack is up 1. So, congratulations to that team and to us for maintaining that low but steady price increase strategy that we've had for a long time.

Speaker #5: But in this market, we will take 1% price increases at the bottle level.

Speaker #1: Thank you. And one moment for our next question. Our next question is going to come from the line of Eric Serrada with Morgan Stanley.

Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Erik Serota with Morgan Stanley. Your line is open. Please go ahead.

Speaker #1: Your line is open. Please go ahead.

Erik Serota: Great. Thanks, and congratulations, Lawson. It has been a pleasure working with you over the years. Hoping to come back to whiskey on the supply side. Certainly agree with you that the market seems to be pretty rational in terms of pricing, in terms of what we have seen in the marketplace. Can you give us some perspective as to where you think the industry is in working down some of the excess supply of the past few years? I know you guys have throttled back production thoughtfully. Others have taken entire distilleries down for a year. How much of a dent do you guys think that that has made in

Speaker #3: Great, thanks. And congratulations, Lawson. It's been a pleasure working with you over the years. Hopefully, we can come back to whiskey on the supply side.

Speaker #3: I certainly agree with you that the market seems to be pretty rational in terms of pricing. In terms of what we've seen in the marketplace, can you give us some perspective as to where you think the industry is on working down some of the excess supply of the past few years?

Speaker #3: I know you guys have thoughtfully throttled back production. Others have taken an entire distillery down for a year. How much of a dent do you think that has made in aging stocks and mature whiskey to date?

Operator: aging stocks and mature whiskey to date.

Speaker #5: Yeah, okay. I mean, a few things here. Obviously, I don't know. This started—it could've started probably a year ago, where I know a lot of folks and trade people on the sell side were trying to get at this inventory number using a lot of the KDA statistics as support.

Lawson Whiting: Yeah. Okay. A few things here. Obviously, I do not know, this started, it could have started probably a year ago, where I know a lot of folks and trade people and on the sell side were trying to get at this inventory number, using a lot of KDA statistics as support. Those numbers come out once a year, and I think it is a calendar report. The data that we have now is pretty old. I do not have a lot of real updated information. I never, quite honestly, understood some of the conclusions that some had that said we were, I do not know, the industry was 9 or 10 years long or whatever it was, because we were never there. I can tell you one of the benefits of Jack Daniel's, and now I am talking in terms of inventory.

Speaker #5: Those numbers come out about once a year, and I think it's in January—it's a calendar report. So, the data that we have now is pretty old.

Speaker #5: So, I don't have a lot of really updated information. I never, quite honestly, understood some of the conclusions that some had that said we were—I don't know.

Speaker #5: The industry was nine or ten years long, or whatever it was, because we were never there. And I can tell you one of the benefits of Jack Daniel's—and now I'm talking in terms of inventory.

Speaker #5: Compared to pretty much every other US whiskey brand, we are in terms of exporting, we are by far the largest brand. In the international markets have been healthier than the US.

Lawson Whiting: Compared to pretty much every other US whiskey brand, in terms of exporting, we are by far the largest brand. The international markets have been healthier than the US, and if you are a US-only brand, it has been tough. Lots and lots of companies overproduced during the boom years, and that is why you are seeing so many closures and different things right now. Part of it is the international market, so with those have been stronger, as I said, so that is helping to continue to move inventories. We also have an obviously very large RTD business and a very large Jack flavors business, all of which have been pretty healthy, and much of which is outside of the United States too. We are simply not extended anywhere near 9 or 10 years, which as I said. Now, what do we see is happening right now?

Speaker #5: And so if you're a US-only brand, it's been tough. Lots and lots of companies overproduced during the boom years, and that's why you're seeing so many closures and different things right now.

Speaker #5: So, part of it is the international market. Those have been stronger, as I said, and that is helping to continue to move inventories.

Speaker #5: We also have an obviously very large RTD business and a very large Jack Flavors business, all of which have been pretty healthy, and much of which is outside of the United States, too.

Speaker #5: And so we're simply not extended anywhere near nine or ten years, which, as I said. Now, what do we see happening right now?

Speaker #5: I mean, we did in calendar 2025. There's a term called "new fills," which is basically new—I guess it is what it sounds like.

Lawson Whiting: In calendar 2025, there is a term called new fills, which is basically, I guess it is what it sounds like. It is filling up a new barrel. It was down 30% in calendar 2025. We do not know what the number is, but I can almost guarantee you it is going to be at least 30% this year. I just cannot imagine, because I just do not think people are. They are not increasing their production levels right now. If you have a 30 and then a 30 two years in a row, you are taking out a fair amount of inventory in a pretty fast way. We have been saying this for at least a year. Basically, the big suppliers that control most of the inventory out there are acting rational, and they are all bringing down their inventories.

Speaker #5: It's filling up a new barrel. It was down 30% in calendar 2025. We don't know what the number is, but I can almost guarantee you it's going to be at least 30% this year.

Speaker #5: I just can't imagine, because I just don't think people—they're not increasing their production levels right now. So, if you have a 30, and then a 30 two years in a row, you're taking out a fair amount of inventory.

Speaker #5: And in a pretty fast way. So, that's one we've been saying for at least a year. Basically, if the big suppliers that control most of the inventory out there are acting rationally and they're all bringing down their inventories—

Speaker #5: And as you said, some are closing, some are just slowing shifts. They're doing whatever it is, but it is definitely coming down. And then I would also comment on the number of craft brands.

Lawson Whiting: As you said, some are closing, some are just slowing shifts or doing whatever it is, but it is definitely coming down. I would also comment on the number of craft brands. It has been brutal on those folks. The American Craft Spirits Association, which is the one that provides the data on this. While there were 3,000 craft distilleries in 2024, and I think it was closer to a year before that, peaked up somewhere closer to 4,000, went down to 2,000 in 2025. I do not know where it is going to come after this fiscal year is over, but you are talking there close to a 75% reduction in the number of craft brands that even sell in the US, which is almost hard to believe in some ways. There has been a massive amount of challenge for those folks.

Speaker #5: I mean, it's been brutal on those folks. The American Craft Spirits Association, which is the one that provides the data on this—I mean, while there were 3,000 craft distilleries in 2024, I think it was closer to a year before that peaked up, some went close to 4,000, and then it went down to 2,000 in 2025.

Speaker #5: And I don't know where it's going to come after this fiscal year is over. But you're talking there, close to a 75% reduction in the number of craft brands that even sell in the US, which is almost hard to believe.

Speaker #5: In some ways. But there has been a massive amount of challenge for those folks. And, the reality is, it is taking supply off the market.

Lawson Whiting: But the reality is it's taking supply off the market.

Speaker #3: Yeah, and I think you highlighted, and we feel, we have done a good job of really managing through this and, as I mentioned earlier, doing it in the most efficient sort of way.

Jim Peters: Yeah. I think you highlighted, and we feel we have done a good job of really managing through this. As I mentioned earlier, doing it in the most efficient sort of a way. As Lawson alluded to, we don't feel that we are at the inventory levels of many of our competitors out there, and that's allowed us to do it. He talked about the international markets. I think the other thing to call out is it's allowed us to do is to do some different expressions like Jack Daniel's Single Barrel Heritage Barrel, which honestly has been a huge hit. That was something as we looked at the whiskey we had and what the opportunities were, and created that and put it into the marketplace. We've seen significant momentum with it.

Speaker #3: And as Lawson alluded to, we don't feel that we are at the inventory levels of many of our competitors out there, and that's allowed us to do it.

Speaker #3: And he talked about the international markets. I think the other thing to call out that it's allowed us to do is to do some different expressions like Jack Daniel's Heritage Barrel, which honestly has been a huge hit.

Speaker #3: And that was something, as we looked at the whiskey we had and what the opportunities were, and created that and put it into the marketplace, we've seen significant momentum with it.

Speaker #3: So, we've also taken advantage of this to go out and put some things into the market that we found consumers really, really like.

Jim Peters: We've also taken advantage of this to go out and put some things into the market that we found that consumers really, really like.

Speaker #5: Yeah, I mean, I didn't think to say that. The Jack Super Premiums have been really successful, and I think it just goes to show—I said this at the shareholder meeting.

Lawson Whiting: Yeah. I didn't think to say that. The Jack super premiums have been really successful. I think it just goes to show, I said this at the shareholder meeting, the brand has massively wide shoulders. We can do Jack Daniel's Tennessee Blackberry and a Heritage Barrel, which is $60 a bottle, by the way, and sell out both of them basically, and do very, very well. So the brand can play in a lot of different spaces within the whiskey world and can do it very successfully.

Speaker #5: The brand has massively wide shoulders. We can do Jack Daniel's Blackberry and a Heritage Barrel, which is $60 a bottle, by the way, and sell out both of them, basically.

Speaker #5: And do very, very well. So the brand can play in a lot of different spaces within the whiskey world, and can do it very successfully.

Speaker #2: Thank you. One moment for our next question. Our next question will come from the line of Chris Pritchard with Rothschild & Co.

Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Chris Pritchard with Rothschild & Co./Redburn. Your line is open. Please go ahead.

Speaker #2: Redburn, your line is open. Please go ahead.

Speaker #1: Thank you very much. And Lawson, can I echo everyone else's best wishes? Thank you for your patience over the many years. A couple of questions.

Chris Pritchard: Thank you very much. Lawson, can I echo everyone else's best wishes? Thank you for your patience over the many years. A couple of questions. Firstly, on ready to drink. Obviously, there's a lot of focus on the New Mix expansion. Can you give us a bit of color on where the growth is coming from within the US? Is it specifically biased by certain states? More broadly, how is the Jack Daniel's & Cola ready to drink strategy going, not just in the United States, but internationally? Then perhaps a follow-up question. Forgive me slightly. You mentioned that you've given the trade better margins for tequila to incentivize them, but it doesn't look like you're getting the return on that. Do you think you need more salespeople actually getting out there into the market for tequila?

Speaker #1: Firstly, on ready-to-drink, obviously there's a lot of focus on the new mix expansion. Can you give us a bit of color on where the growth is coming from within the U.S.?

Speaker #1: Is it specifically biased by certain states? And then more broadly, how has the Jack and Cola ready-to-drink strategy been going, not just in the United States, but internationally?

Speaker #1: And then perhaps a follow-up question—forgive me, slightly—you mentioned that you've given the trade better margins for tequila to incentivize them, but it doesn't look like you're getting the return on that.

Speaker #1: Do you think you need more salespeople actually getting out there into the market for tequila? Is there a slightly different coverage versus whiskey that we need to think about?

Chris Pritchard: Is there a slightly different coverage versus whiskey that we need to think about? I just want to understand how you're reviewing that incentive and whether you think you're getting the return on it. Thanks.

Speaker #1: I just want to understand how you're reviewing that incentive, and whether you think you're getting a return on it. Thanks.

Speaker #5: Okay, that was a bunch. That's all right. So I'm not even sure what the question was around new mix. Which state or which part of the country is it doing?

Lawson Whiting: Okay. That was a bunch.

Chris Pritchard: Sorry.

Lawson Whiting: That is all right. I am not even sure what the question was around New Mix. Which part of the country is it doing?

Jim Peters: Yeah, we have just started rolling it out in the US in a limited number of locations and focused on some more larger cities, with also significant Mexican American type populations, because it has been so successful growing in Mexico. Again, we see the continued growth of that in Mexico. We have expanded that distribution throughout the US, and we intend to continue to do that throughout this year. You will see that coming continuously. el Jimador Tequila Spritz, our el Jimador Tequila Spritz, we are also bringing that into the marketplace. You have also got the Jack Daniel's Blackberry & Lemonade RTD that is hitting the markets right now. Again, those are just some examples. New Mix has been the biggest for us, but we do have other areas where we are seeing significant growth with the RTDs.

Speaker #3: Yeah, I mean, we've just started rolling it out in the US in a limited number of locations and focused on some more of the larger cities.

Speaker #3: With also significant Mexican-American type of populations, because it's been so successful growing in Mexico. And again, we see the continued growth of that in Mexico.

Speaker #3: And we've expanded that distribution throughout the U.S., and we intend to continue to do that throughout this year. So, you'll see that coming continuously.

Speaker #3: EJ Spritz, our L Humidor Spritz—we're also bringing that into the marketplace. And then you've also got the Jack Daniel's Blackberry Lemonade RTD that is hitting the markets right now.

Speaker #3: And so again, those are just some examples. New Mix has probably been the biggest for us, but we do have other areas where we're seeing significant growth with the RTDs.

Speaker #5: Yeah. So, I mean, if you just take a step back for a second on the RTD category as a whole—which, I mean, is continuing to grow and becoming a bigger and bigger piece of, really, the U.S. spirits market.

Lawson Whiting: Yeah. Just to take a step back for a second on the RTD category as a whole, which is continuing to grow and get to be a bigger and bigger piece of, really, the US spirits market. If you look at TDS in either NABCA or Nielsen, it is down between a half and 1 point, I think I said earlier. But if you pull RTDs out of that number, it is more like mid-single digits down. So, it is a real contributor. We are big in this business and want to be bigger. I can tell you the New Mix, interestingly, it is only in 9 states right now, and as Jim Peters said, it tends to be in states where there is heavy concentrations of Mexican American consumers, but it is already the eighth largest contributor to the RTD category in Nielsen. That is fast. We feel pretty good about that.

Speaker #5: I mean, if you look at TDS, in either NAPCO or Nielsen, it’s down sort of between half a point and one point, I think I said earlier.

Speaker #5: But if you pull RTDs out of that number, it's more like mid-single digits down. So it is a real contributor. And we're big in this business.

Speaker #5: And want to be bigger. So I can tell you the new mix, interestingly, is only in nine states right now. And as Jim said, it tends to be in states where there's heavy concentrations of Mexican-American consumers.

Speaker #5: But it's already the eighth-largest contributor to the RTD category on Nielsen's side, and that's fast. So we feel pretty good about that.

Speaker #5: The Jack and Cola or Jack and Cola or Jack and Coke RTD, overall, it declined 4% last year. So not lighting the worlds on fire.

Lawson Whiting: The Jack Daniel's & Cola or Jack Daniel's & Coca-Cola RTD, overall, it declined 4% last year, so not lighting the world's on fire. But we continue to plow forward. It is now in, I think, 40 countries around the world. We have a really good relationship. We continue to refine it with The Coca-Cola Company, as it is something very new for them. So, it is going, but the reality is, and we know this now, the consumer preference, the vast majority of the volumes in the RTD category are light and refreshing. Obviously cola, although it can be light and refreshing, is generally not considered that. We are going to continue to focus on RTDs that do upon what the consumers are looking for in a bigger and bigger way. We feel pretty good that we are off to a good start, so.

Speaker #5: But we continue to plow forward. We continue—it's now in, I think, 40 countries around the world. We have a really good relationship.

Speaker #5: We continue to refine it with the Coca-Cola Company. Is it something very new for them? And so it's going, but the reality is we know this now.

Speaker #5: Regarding consumer preference, the vast majority of volumes in the RTD category are light and refreshing. And obviously, cola—although it can be light and refreshing—is generally not considered that.

Speaker #5: And so we are going to continue to focus on RTDs that deliver upon what the consumers are looking for in a bigger and bigger way.

Speaker #5: And we feel pretty good that we're off to a good start. So, trade margin—

Lawson Whiting: What was the third one?

Lawson Whiting: Trade margin on tequila.

Speaker #3: On tequila, is it driving the benefits? I mean, would we like—

Jim Peters: Oh, okay.

Lawson Whiting: Is driving the benefits. Would we like more salespeople on tequila? Sure. But I don't think that's necessarily the answer to our challenges. Relative to whiskey or whatever it might be, I don't think that's the driving factor that's going to turn around the direction of either of those brands. As I read earlier, el Jimador is already making nice improvements. I think we've done the right things there. We just got to continue to get it and to grow. Herradura is a bit of a different situation given where its price point is. But over a long period of time, like over a 10 year CAGR, both of those brands have held up pretty well. It's only been the last couple of years that it's declined. The issue was, if you go over a 10 year period, the category was booming, and we were not exactly booming.

Speaker #5: More salespeople on tequila? Sure. But I don't think that's necessarily the answer to our challenges. We feel, relative to whiskey or whatever it might be, I don't think that's the driving factor that's going to turn around the direction of either of those brands.

Speaker #5: And I told, as I sort of read earlier, I mean, El Humidor is already making nice improvements. And so I think we've done the right things there.

Speaker #5: We just have to continue to get it and to grow. Air Dur is a bit of a different situation, given where its price point is.

Speaker #5: But over a long period of time, over a 10-year CAGR, both of those brands have held up pretty well. It's only been the last couple of years where that's declined.

Speaker #5: The issue was, if you go over a 10-year period, the category was booming and we were not exactly booming. But we still had mid-single-digit growth for a long time.

Lawson Whiting: But we still had mid-single digit growth for a long time. It gets maligned a little bit too much, I think.

Speaker #5: So it gets maligned a little bit too much, I think.

Speaker #2: Thank you. Please hold one moment for our next question. Our next question will come from the line of Gregory Porter with Evercore ISI. Your line is open.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Gregory Porter with Evercore ISI. Your line is open. Please go ahead.

Speaker #2: Please go ahead.

Speaker #6: Hey, everyone. Thank you for your time. Just a quick question on the BlackBerry opportunity—outside the U.S., clearly, it’s doing a really great job in the U.S. market.

Gregory Porter: Hey, everyone. Thank you for the time. Just a quick question on the Blackberry opportunity outside the US. Clearly, it is doing a really great job in the US market. But outside the US, if you could just talk a little bit more about the timing and what you guys see for the opportunity. I know you flagged markets like Brazil and Mexico that should help results later on this year. Just kind of thinking about the sizing there and then which other markets you are looking to roll out the brand. Thank you.

Speaker #6: But outside the US, if you could just talk a little bit more about the timing and what you guys see as the opportunity. I know you flagged markets like Brazil and Mexico.

Speaker #6: That should help results later on this year. Just kind of thinking about the sizing there, and then which other markets you're looking to roll out the brand.

Speaker #6: Thank you.

Speaker #5: Well, look, it is off to a great start. And I know some folks are worried about the lapping of the launches and all that kind of thing.

Lawson Whiting: Well, look, it is off to a great start. I know some folks are worried about the lapping of the launches and all that kind of thing. Let me back up for a second, because I think we said this upon the launch, but it was always sort of a 2-year plan. We are in the second year now. First year was largely US, and it had a heavy concentration in the 750 size. That was very successful about that. Somewhere, I am not sure when they actually, cannot remember when they started, springtime or late winter, about 6 months ago, we started to bring it to the international markets. That has happened now. In the US, we are back to now we are really into the pack sizes and bringing different ones out now, and that has happened really over the summer.

Speaker #5: Let me back up for a second, because I think we said this upon the launch, but it was always sort of a two-year plan.

Speaker #5: And so we're just entering—we're in the second year now. The first year was largely US, and it had a heavy concentration in the 750 size.

Speaker #5: And that was very successful. Somewhere—I'm not sure when exactly, I can't remember if it was springtime or late winter—but about six months ago, we started to bring it to the international markets.

Speaker #5: And so that has happened now. And in the US, we're back to now, we're really into the size—pack sizes—and bringing different ones out now.

Speaker #5: And that's happened really over the summer. And so, the plan has always been to make this a two-year launch, and I think we feel pretty good about it.

Lawson Whiting: The plan has always been to make this a 2-year launch, and I think we feel pretty good about it. As far as where else we may see decent volumes, I think it is going to be the markets where our flavors have been successful. That would range anywhere from the UK, Czech, Australia, Brazil. Those markets all are big flavor markets. It is hard for me to sit here and say we think it is going to be 1 million cases. You look at Apple, and its international business is big, so is Honey. So we have got a long way to go before we fully develop that brand, and feel pretty confident that we are going to be able to do that.

Speaker #5: As far as where else we may see decent volumes, I mean, I think it's going to be the markets where our flavors have been successful.

Speaker #5: So that would range anywhere from the UK, Czech, Australia, Brazil. Those markets are all big flavor markets. And I don't want to—I don't know.

Speaker #5: It's hard for me to sit here and say we think it's going to be a million cases. You look at Apple, and its international business is big.

Speaker #5: So, it's funny. We've got a long way to go before we fully develop that brand, and I feel pretty confident that we're going to be able to do that.

Speaker #3: Yeah, and I think adding what I said earlier is that as we bring out the BlackBerry and Lemonade RTD, it's just another example of how we can take a brand or a product like a flavored whiskey and then move it into the RTD space.

Jim Peters: Yeah. I think, adding what I said earlier, is that as we bring out the Jack Daniel's Blackberry & Lemonade RTD, it is just another example of how we can take a brand or a product like a flavored whiskey and then move it into the RTD space. Just using that as an example of innovation, not only can we take it into different sizes, into different markets, we are also looking at different formats. How do we use it in things like RTDs, and that then just opens up even more opportunities. So we believe that will be successful, and then it creates us other opportunities with some of our flavors down the line.

Speaker #3: And so, just using that as an example of innovation—of not only can we take it into different sizes and into different markets, we're also looking at different formats.

Speaker #3: And how do we use it in things like RTDs? And that then just opens up even more opportunities. So we believe that will be successful.

Speaker #3: And then it creates us other opportunities with some of our flavors down the line.

Speaker #2: Thank you. We have now reached the end of our question-and-answer session. I would now like to hand the conference back over to Sue Param for closing remarks.

Operator: Thank you. We have now reached the end of our question and answer session. I would now like to hand the conference back over to Sue Perram for closing remarks.

Speaker #7: Thank you. And thank you, Lawson and Jim. And to everyone for joining us today for Brown-Forman’s first quarter fiscal year 2027 earnings call.

Sue Perram: Thank you. Thank you, Lawson and Jim, and to everyone for joining us today for Brown-Forman's Q1 fiscal year 2027 earnings call. If you have any additional questions, please contact us. We look forward to participating in the Barclays Global Consumer Conference next week and hope to see many of you there. For those of you unable to attend, our fireside chat on Wednesday will be made available as a webcast accessible via the Brown-Forman corporate website under the section titled Investors Events and Presentations. Today, it is actually a truly special day. We are honoring the birthday of our founder, George Garvin Brown, born on 2 September 1846. Alongside celebrating his 180th birthday today, there are barrel-filling operations underway at the Old Forester Distillery as we are preparing for George's 200th birthday celebration. So happy birthday, George. With that, this concludes our call.

Speaker #7: If you have any additional questions, please contact us. We look forward to participating in the Barclays Global Consumer Conference next week and hope to see many of you there.

Speaker #7: For those of you unable to attend, our fireside chat on Wednesday will be made available as a webcast, accessible via the Brown-Forman corporate website under the section titled "Investors, Events, and Presentations."

Speaker #7: And today, it's actually a truly special day. We are honoring the birthday of our founder, George Garvin Brown, born on September 2, 1846, alongside celebrating his 180th birthday today.

Speaker #7: There are barrel-filling operations underway at the Old Forester Distillery as we are preparing for George's 200th birthday celebration. So, happy birthday, George. With that, this concludes our call.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

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