Q1 2020 Earnings Call

August 28, 2019

After the speakers remarks, there will be a question and answer session.

If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If he would like to the chart. Your question press the pound key. Thank you I would now like to turn the call over to Leann Cunningham Senior Vice President shareholder Relations Officer, Ma'am you may begin.

Leanne Cunningham: Thank you, Dorothy, and good morning, everyone. I would like to thank each of you for joining us for Brown-Forman's first quarter of fiscal 2020 earnings call.

Thank you Dorothy and good morning, everyone I would like to thank each of you for joining us for Brown Formans first quarter of fiscal 2020 earnings.

Rachel Smith: Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jane Morreau, 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 the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise. This morning, we issued a press release containing our results for Q1 of fiscal 2020, in addition to posting presentation materials that Lawson and Jane will walk you through momentarily.

Joining me today are Lassonde, Whiting, President and Chief Executive Officer, and Jane Morreau Executive Vice President and Chief Financial Officer. This morning's conference call contains forward looking statements based on our current expectations.

Numerous risk 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 the company undertakes no obligation to update any of these statements whether due to new information future events or otherwise.

This morning, we issued a press release containing our results for the first quarter of fiscal 2020, and a different opposing presentation materials that Losman Jane will walk you through momentarily.

Rachel Smith: 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 risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciliation to the most directly comparable GAAP financial measures, and the reason 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. One quick item before I turn the call over to Lawson and Jane. In the interest of time and fairness, we ask that you limit your questions to one per analyst.

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 risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciliation to the most directly comparable GAAP financial measures, and the reason 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. One quick item before I turn the call over to Lawson and Jane. In the interest of time and fairness, we ask that you limit your questions to one per analyst.

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 risk factors that you should consider in conjunction with our forward looking statements.

Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission.

Rachel Smith: You are welcome to rejoin the queue, and we will take your follow-up questions as time permits. With that, I'd like to turn the call over to Jane. Thank you, Leanne, and good morning, everyone. Today, in our earnings release, we reaffirm our full-year growth outlook for underlying net sales, operating income, and earnings per share as our Q1 performance was essentially in line with our expectations. What I'm going to do is walk you through our Q1 results to provide clarity to our performance, given the considerable noise that exists. After I finish my prepared remarks, I'm going to turn the call over to Lawson for some additional color and comments.

You are welcome to rejoin the queue, and we will take your follow-up questions as time permits. With that, I'd like to turn the call over to Jane.

Jane Morreau: Thank you, Leanne, and good morning, everyone. Today, in our earnings release, we reaffirm our full-year growth outlook for underlying net sales, operating income, and earnings per share as our Q1 performance was essentially in line with our expectations. What I'm going to do is walk you through our Q1 results to provide clarity to our performance, given the considerable noise that exists. After I finish my prepared remarks, I'm going to turn the call over to Lawson for some additional color and comments.

During this call we will be days disgusting certain non-GAAP financial measures. These measures a reconciliation to the most directly comparable GAAP financial measures and the reason 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. My quick item before I turn the call over to Lawson and Jane and in the interest of time in fairness, we ask that you limit your questions to one for analysts you are welcome to rejoin the queue and we will take your follow up questions as time permits with that I'd like to turn the call over to Jay.

Thank you Leann and good morning, everyone today in our earnings release, we reaffirmed our full year growth outlook for underlying net sales operating income and earnings per share as our first quarter performance was essentially in line with our expectations.

What I'm going to do is walk you through our first quarter results to provide clarity to our performance given the considerable noise that exists.

After I finish my prepared remarks, and then turn the call over to Lawson for some additional color and comments.

Rachel Smith: Before digging into our Q1 results, I thought it might be helpful to remind you how we break down our performance to better understand, first, the significant drivers of our results and, second, the trends that could affect our business. We have consistently isolated both the foreign exchange and distributor inventory shifts to provide an estimate of our underlying performance. When there are other factors that are significantly influencing our underlying performance, we have tried to provide visibility, either qualitatively or, where possible, quantitatively. This quarter was particularly noisy, with several factors influencing our underlying performance, most notably the noise introduced by the trade wars and the effects of the retaliatory tariffs, particularly from Europe. While we've discussed this subject for five consecutive quarters, the impact in this year's first quarter is significant and is affecting us in a couple of ways.

Before digging into our Q1 results, I thought it might be helpful to remind you how we break down our performance to better understand, first, the significant drivers of our results and, second, the trends that could affect our business. We have consistently isolated both the foreign exchange and distributor inventory shifts to provide an estimate of our underlying performance. When there are other factors that are significantly influencing our underlying performance, we have tried to provide visibility, either qualitatively or, where possible, quantitatively. This quarter was particularly noisy, with several factors influencing our underlying performance, most notably the noise introduced by the trade wars and the effects of the retaliatory tariffs, particularly from Europe. While we've discussed this subject for five consecutive quarters, the impact in this year's first quarter is significant and is affecting us in a couple of ways.

So before digging into our Q1 results I thought it might be helpful to remind you how we break down our performance to better understand.

First the significant drivers of our results and second the trends that could affect our business.

We have consistently isolate a both foreign exchange and distributor inventory shift.

Provide an estimate of our underlying performance.

When there are other factors that are significantly influencing our underlying performance, we have tried to provide visibility either qualitatively or where possible quantitatively.

This quarter was particularly noteworthy.

It was several factors influencing our underlying performance, most notably notably the noise introduced by the trade Wars.

And the effects of that retaliatory terrorism, particularly from Europe .

Well, we've discussed the subject for five consecutive quarters the impact in this year's first quarter is significant and is affecting us in a couple of ways.

Rachel Smith: First, the buy-in from prior year, which led to higher growth in Q1 last year. Second, a reduction in margins, which is the result of either lower net pricing to certain markets where we sell to distributors or higher costs in markets where we import and distribute our products directly. Aside from tariffs, other factors can affect comparability, and in Q1, consumer buying patterns across a number of markets are notable. With this as a backdrop, I will highlight these factors where appropriate to help cut through the noise. Now turning to our performance in Q1. Our Q1 net sales were essentially flat, in line with our expectations, given the tariff and timing issues I just noted.

First, the buy-in from prior year, which led to higher growth in Q1 last year. Second, a reduction in margins, which is the result of either lower net pricing to certain markets where we sell to distributors or higher costs in markets where we import and distribute our products directly. Aside from tariffs, other factors can affect comparability, and in Q1, consumer buying patterns across a number of markets are notable. With this as a backdrop, I will highlight these factors where appropriate to help cut through the noise. Now turning to our performance in Q1. Our Q1 net sales were essentially flat, in line with our expectations, given the tariff and timing issues I just noted.

First the by hand from prior year, which led to higher growth in the first quarter last year.

And second a reduction in margin.

Which is a result of either lower net pricing to certain markets, where we sell to distributors or higher cost in markets, where we import and distribute our products directly.

Aside from tariffs or other factors can affect comparability and in this quarter consumer buying patterns across a number of markets are notable.

With this as a backdrop I will highlight these factors were appropriate to help cut through the noise.

So now turning to our performance in the first quarter.

Our first quarter net sales were essentially flat in line with our expectations given the terror and timing issues I just noted.

Rachel Smith: Recall last year's Q1, underlying net sales grew 9%, favorably impacted by tariff-related buy-ins and anticipation of price increases, particularly in several of our largest markets in Europe. We estimate this factor and price adjustments related to tariffs reduced our underlying net sales growth by approximately 3 points for the quarter. Additionally, we approximate timing-related buying patterns across a number of our international markets and our global travel retail channel negatively affected our underlying net sales growth by nearly 2 percentage points. Thus, after adjusting for these items, we believe underlying net sales grew in the mid-single digits, which is in line with our long-term track record of performance. Looking at our business from a geographic perspective, I'd like to start with our developed international markets, where our performance was most significantly impacted by tariff-related costs and buy-ins.

Recall last year's Q1, underlying net sales grew 9%, favorably impacted by tariff-related buy-ins and anticipation of price increases, particularly in several of our largest markets in Europe. We estimate this factor and price adjustments related to tariffs reduced our underlying net sales growth by approximately 3 points for the quarter. Additionally, we approximate timing-related buying patterns across a number of our international markets and our global travel retail channel negatively affected our underlying net sales growth by nearly 2 percentage points. Thus, after adjusting for these items, we believe underlying net sales grew in the mid-single digits, which is in line with our long-term track record of performance. Looking at our business from a geographic perspective, I'd like to start with our developed international markets, where our performance was most significantly impacted by tariff-related costs and buy-ins.

Recall that last year's first quarter underlying net sales grew 9%.

Favorably impacted by a tariff <unk> buy ins in anticipation of price increases.

Particularly in several of our largest markets in Europe .

We estimate this factor and price adjustments related to tariff reduced our underlying net sales growth by approximately three points for the quarter.

Additionally, we approximate timing related buying patterns across a number of our international markets.

And our global travel retail channel negatively affected our underlying net sales growth of nearly two percentage points.

Uh huh.

After adjusting for these items, we believe underlying net sales grew in the mid single digits, which is in line with our long term track record of performance.

And looking at our business from a geographic perspective, I'd like to start with our developed international markets, where our performance was most significantly impacted by tariff related costs and buying.

Rachel Smith: Our underlying net sales declined 3% in the aggregate for the markets there, compared to 16% underlying net sales growth in the first quarter of last year. We estimate tariffs had about a 6 percentage point drag on the overall top-line performance in these markets combined in the quarter. Adjusting for the tariff effect and an estimated 2 percentage point reduction related to timing of certain customer purchases, we believe our developed international business grew underlying net sales approximately 5%, in line with our historical performance in these markets. The UK and Germany markets were most significantly affected by the tariff-related buy-ins, and therefore, both reflected underlying net sales decline. We believe our consumer takeaway trends in both of these markets remain healthy.

Our underlying net sales declined 3% in the aggregate for the markets there, compared to 16% underlying net sales growth in the first quarter of last year. We estimate tariffs had about a 6 percentage point drag on the overall top-line performance in these markets combined in the quarter. Adjusting for the tariff effect and an estimated 2 percentage point reduction related to timing of certain customer purchases, we believe our developed international business grew underlying net sales approximately 5%, in line with our historical performance in these markets. The UK and Germany markets were most significantly affected by the tariff-related buy-ins, and therefore, both reflected underlying net sales decline. We believe our consumer takeaway trends in both of these markets remain healthy.

Our underlying net sales declined 3% in the aggregate for the Mark there compared to 16% underlying net sales growth in the first quarter of last year.

We estimate tariffs had about a six percentage point drag on the overall top line performance in these markets combined in the quarter.

Adjusting from the tariff effect and an estimated two percentage point reduction related to the timing of certain customer purchases.

We believe our developed international business grew underlying net sales approximately 5%.

In line with the historical performance in these markets.

The UK and Germany markets were most significantly affected by the tariff related by hand, and therefore, both reflecting underlying net sales decline.

We believe our consumer takeaway trends in both of these markets remain healthy.

Rachel Smith: I thought I would pause for just a moment to mention that UK, our second-largest market, is navigating through multiple changes this year, including, first, the uncertainty around Brexit and, second, the recently announced change in our route to consumer. We have mitigation actions in place for Brexit and are executing against our plan to minimize disruptions and to maintain our business momentum during this transition to our own distribution. France and Spain, both among our largest European businesses and where we have invested in our route to consumer models, delivered mid- and high single-digit underlying net sales growth, respectively. France's growth was fueled by the launch of Jack Daniel's RTDs and sustained strong momentum behind Jack Daniel's Tennessee Honey. Spain continues to benefit from the focus that has resulted from our route to consumer change, as growth was seen across nearly every brand in the portfolio.

I thought I would pause for just a moment to mention that UK, our second-largest market, is navigating through multiple changes this year, including, first, the uncertainty around Brexit and, second, the recently announced change in our route to consumer. We have mitigation actions in place for Brexit and are executing against our plan to minimize disruptions and to maintain our business momentum during this transition to our own distribution. France and Spain, both among our largest European businesses and where we have invested in our route to consumer models, delivered mid- and high single-digit underlying net sales growth, respectively. France's growth was fueled by the launch of Jack Daniel's RTDs and sustained strong momentum behind Jack Daniel's Tennessee Honey. Spain continues to benefit from the focus that has resulted from our route to consumer change, as growth was seen across nearly every brand in the portfolio.

I don't talk for just a moment to mention that you pay our second largest market is navigating through multiple changes this year.

Including first the uncertainty around Brexit and second.

The recently announced change in our route to consumer.

We have mitigation actions in place for Brexit and are executing against our plan to minimize disruption and to maintain our business momentum during this transition to our own distribution.

France, and Spain, both among our largest European businesses, and where we have invested in our route to consumer models.

The Liberty mid and high single digit underlying net sales growth respectively.

France. This growth was fueled by the launch of Jack Daniels, RTD and sustained strong momentum behind Jack Daniels, Tennessee Honey.

Spain continues to benefit from the focus that has resulted from our route to consumer change its growth with thing across nearly every brand in the portfolio.

Rachel Smith: Moving on to our emerging markets. In the quarter, our emerging markets collectively grew underlying net sales 3% on top of last year's double-digit growth. We estimate the tariff-related buy-ins in last year's first quarter for a number of emerging markets, including Turkey and Poland, negatively affected growth by approximately 3 percentage points. Timing related to certain customer buying patterns further suppressed the growth of our emerging markets in the quarter. We expect our emerging markets' underlying net sales to accelerate over the balance of the year and approximate the growth we've experienced over the last two fiscal years. Now, with that being said, in Mexico, our largest emerging market, underlying net sales grew 3%, a bit slower than recent trends, reflecting the difficult macroeconomic and political environment in that country.

Moving on to our emerging markets. In the quarter, our emerging markets collectively grew underlying net sales 3% on top of last year's double-digit growth. We estimate the tariff-related buy-ins in last year's first quarter for a number of emerging markets, including Turkey and Poland, negatively affected growth by approximately 3 percentage points. Timing related to certain customer buying patterns further suppressed the growth of our emerging markets in the quarter. We expect our emerging markets' underlying net sales to accelerate over the balance of the year and approximate the growth we've experienced over the last two fiscal years. Now, with that being said, in Mexico, our largest emerging market, underlying net sales grew 3%, a bit slower than recent trends, reflecting the difficult macroeconomic and political environment in that country.

Moving onto our emerging markets.

In the quarter, our emerging markets collectively grew underlying net sales, 3% on top of last year's double digit growth.

We estimate the tariff really to buy ins in last year's first quarter for a number of emerging markets, including Turkey, and Poland negatively affected growth by approximately three percentage points.

Timing related to certain customer buying patterns further suppress the growth of our emerging markets in the quarter.

We expect our emerging markets underlying net sales to accelerate over the balance of the year and approximate the growth we've experienced over the last two fiscal years.

Now with that being said in Mexico, our largest emerging market.

Underlying net sales grew 3% a bit slower than recent trends, reflecting the difficult macro economic and political environment in that country.

Rachel Smith: Though we often don't discuss BRIC markets as a unit, this quarter, these markets collectively grew underlying net sales in the high single digits. To touch on each market briefly, Brazil continues to focus and execute a strategy as consumer demand expands for Jack Daniel's Tennessee Fire and Tennessee Whiskey. Russia's underlying net sales growth was fueled in part by strong consumer demand of Jack Daniel's Tennessee Whiskey, as well as Finlandia. China and India's strong growth was led by what we believe are early days of introducing Jack Daniel's Tennessee Whiskey to consumers in these markets, where we believe represents significant long-term potential. Quarterly sales in our travel retail can be inconsistent.

Though we often don't discuss BRIC markets as a unit, this quarter, these markets collectively grew underlying net sales in the high single digits. To touch on each market briefly, Brazil continues to focus and execute a strategy as consumer demand expands for Jack Daniel's Tennessee Fire and Tennessee Whiskey. Russia's underlying net sales growth was fueled in part by strong consumer demand of Jack Daniel's Tennessee Whiskey, as well as Finlandia. China and India's strong growth was led by what we believe are early days of introducing Jack Daniel's Tennessee Whiskey to consumers in these markets, where we believe represents significant long-term potential. Quarterly sales in our travel retail can be inconsistent.

Though we often don't discuss BRIC markets to the unit. This quarter. These markets collectively grew underlying net sales in the high single digits.

To touch on each market briefly.

Brazil continues to focus and execute a strategy as consumer demand expands rejecting as Tennessee fire and Tennessee whiskey.

Russias underlying net sales growth was fueled in part by strong consumer demand objectives, Tennessee whiskey as wells Finlandia.

China and India strong growth was led by what we believe are early days of introducing Jack Daniels, Tennessee whiskey to consumers in these markets, where we believe represent significant long term potential.

[laughter] quarterly sales in our travel retail can be inconsistent.

Rachel Smith: This quarter was no exception, as underlying net sales declined, as expected, cycling against the very strong 22% underlying net sales growth in the same quarter last year, which was influenced significantly by the timing of certain customer purchases. Looking ahead, we expect travel retail's underlying net sales growth rates to improve as the large timing effects move out. As a result, we expect full-year underlying net sales growth in the mid-single digits for the year. Now, turning to the US, our largest market, representing a little less than half of our net sales, grew underlying net sales 4% for the quarter, representing an acceleration over the 3% underlying net sales growth delivered in fiscal 2019.

This quarter was no exception, as underlying net sales declined, as expected, cycling against the very strong 22% underlying net sales growth in the same quarter last year, which was influenced significantly by the timing of certain customer purchases. Looking ahead, we expect travel retail's underlying net sales growth rates to improve as the large timing effects move out. As a result, we expect full-year underlying net sales growth in the mid-single digits for the year. Now, turning to the US, our largest market, representing a little less than half of our net sales, grew underlying net sales 4% for the quarter, representing an acceleration over the 3% underlying net sales growth delivered in fiscal 2019.

And this quarter was no exception as underlying net sales decline as expected cycling against the very strong 22% underlying net sales growth.

In the same quarter last year, which was influenced significantly by the timing of certain customer purchases.

Looking ahead, we expect travel retail underlying net sales growth rates to improve.

As the large timing effects move out.

As a result, we expect full year underlying net sales growth in the mid single digits for the year.

Now turning to the U.S., our largest market representing a little less than half of our net sale.

Grew underlying net sales, 4% for the quarter, representing an acceleration over the 3% underlying net sales growth delivered in fiscal 2019.

Rachel Smith: We believe this positive momentum is reflective of the continued strong and sustained performance of both our super premium bourbons led by Woodford Reserve and our tequila portfolio led by Herradura, as well as improving trends for the Jack Daniel's family of brands led by Jack Daniel's Tennessee Whiskey. We believe our trends for Jack Daniel's Tennessee Whiskey are just beginning to reflect the benefits of our incremental broad-reach media and digital investments we have made in the first quarter, and we intend to continue to make over the balance of the year, enabled in part by our significant reallocation within advertising, and a year-over-year increase in activations and promotional activities. The improving trends in our US business are also evident by the fact that we have closed the GAAP versus TDS on a blended basis to less than a point over the past six months.

We believe this positive momentum is reflective of the continued strong and sustained performance of both our super premium bourbons led by Woodford Reserve and our tequila portfolio led by Herradura, as well as improving trends for the Jack Daniel's family of brands led by Jack Daniel's Tennessee Whiskey. We believe our trends for Jack Daniel's Tennessee Whiskey are just beginning to reflect the benefits of our incremental broad-reach media and digital investments we have made in the first quarter, and we intend to continue to make over the balance of the year, enabled in part by our significant reallocation within advertising, and a year-over-year increase in activations and promotional activities. The improving trends in our US business are also evident by the fact that we have closed the GAAP versus TDS on a blended basis to less than a point over the past six months.

We believe this positive momentum is reflective of the continued strong and sustained performance of both our Super premium Bourbons led by Woodford Reserve and articulate portfolio led by Herradura.

As well as improving trends for the Jack Daniels family of brands led by Jack Daniels, Tennessee Whiskey.

We believe our trends for Jack Daniels, Tennessee Whiskey are just beginning to reflect the benefits of our incremental broad reach media and digital investments we have made in the first quarter.

And we intend to continue to make over the balance of the year enabled in part by our significant reallocation within advertising and a year over year increase in activations and promotional activities.

The improving trends in our U.S. business are also evident by the fact that we have closed the gap versus Tds on a blended basis to less than a point over the past six months.

Rachel Smith: Further, the latest three-month Nielsen's reflect that we are growing in line with the industry, which remains very healthy, growing mid-single digits. Now, looking at our business from a brand perspective, Jack Daniel's family of brands, underlying net sales declined 1% globally, as tariff-related costs and buy-ins for Jack Daniel's Tennessee Whiskey, largely in Europe, negatively affected our growth by 3 percentage points. These declines were partially offset by broad-based growth of Jack Daniel's RTDs, international gains for Tennessee Honey, sustained advances for Gentleman Jack, as well as the increasing volumes of Jack Daniel's Tennessee Whiskey in the United States. Our premium bourbon portfolio grew underlying net sales 16% for the quarter, led by over 20% consumer takeaway trends for Woodford Reserve in the US, the leader in the super premium bourbon category.

Further, the latest three-month Nielsen's reflect that we are growing in line with the industry, which remains very healthy, growing mid-single digits. Now, looking at our business from a brand perspective, Jack Daniel's family of brands, underlying net sales declined 1% globally, as tariff-related costs and buy-ins for Jack Daniel's Tennessee Whiskey, largely in Europe, negatively affected our growth by three percentage points. These declines were partially offset by broad-based growth of Jack Daniel's RTDs, international gains for Tennessee Honey, sustained advances for Gentleman Jack, as well as the increasing volumes of Jack Daniel's Tennessee Whiskey in the United States. Our premium bourbon portfolio grew underlying net sales 16% for the quarter, led by over 20% consumer takeaway trends for Woodford Reserve in the US, the leader in the super premium bourbon category.

Further the latest Streamone nelsons reflect that we are growing in line with the industry, which remains very healthy growing mid single digits.

Now looking at our business from a brand perspective.

Jack Daniels family of brands underlying net sales declined 1% globally, its tariff related cost and buy ins for Jack Daniels, Tennessee Whiskey.

Largely in Europe negatively affected our growth by three percentage points.

These declines were partially offset by broad based growth objective centers RTD international gains for Tennessee, Honey sustained advances for gentleman, Jack as well as increasing volumes objecting is Tennessee whiskey in the United States.

Our premium Bourbon portfolio grew underlying net fell 16% for the quarter led by over 20% consumer takeaway trends for Woodford reserve and the U.S. and leader in the Super premium Bourbon category.

Rachel Smith: Old Forester delivered strong double-digit growth in underlying net sales driven by the launch of our new innovation, Old Forester Rye, which has been very well received by the trade and our consumers, as well as broad-based double-digit growth across the portfolio of expressions. The brand's new home place and distillery, which opened last summer in Louisville, has also boosted the brand's growth with nearly 100,000 visitors since that time. Once again, our tequila portfolio showed strong, sustained momentum growing underlying net sales at a double-digit rate, building on the double-digit growth in fiscal 2019. Herradura led the growth with underlying net sales up 22%, driven by higher prices and volumes in both Mexico and the United States. el Jimador shared in the double-digit underlying net sales growth, driven by higher volumes and prices in the United States, as takeaway trends remain strong.

Old Forester delivered strong double-digit growth in underlying net sales driven by the launch of our new innovation, Old Forester Rye, which has been very well received by the trade and our consumers, as well as broad-based double-digit growth across the portfolio of expressions. The brand's new home place and distillery, which opened last summer in Louisville, has also boosted the brand's growth with nearly 100,000 visitors since that time. Once again, our tequila portfolio showed strong, sustained momentum growing underlying net sales at a double-digit rate, building on the double-digit growth in fiscal 2019. Herradura led the growth with underlying net sales up 22%, driven by higher prices and volumes in both Mexico and the United States. el Jimador shared in the double-digit underlying net sales growth, driven by higher volumes and prices in the United States, as takeaway trends remain strong.

[noise] old forester deliver strong double digit growth in underlying net sales driven by the launch of our new innovation old Forester, right, which has been very well received by the trade and our consumers.

As well as broad based double digit growth across the portfolio of expression.

The brand's new home place in distillery, which opened last summer in Louisville.

Has also boosted the brands growth with nearly 100000 visitors since that time.

Once again, our tequila portfolios show strong sustained momentum growing underlying net sales at a double digit rate building on the double digit growth in fiscal 2019.

Herradura led the growth with underlying net sales up 22% driven by higher prices and volumes in both Mexico and the United States.

Oh humidor shirt in the double digit underlying net sales growth driven by higher volumes and prices in the United States, It's takeaway trends remain strong.

Rachel Smith: Moving down our P&L, gross margins were in line with our expectations, declining 330 basis points for the quarter, resulting in underlying gross profit drop of 5%. The margin decline was driven by two factors that we discussed during our year-end earnings call. First, the tariff-related costs, which accounted for roughly two-thirds of the decline. And second, higher input costs, primarily related to agave, as well as ongoing wood inflation. Underlying A&P was down for the quarter, as our increased investment behind Jack Daniel's Tennessee Whiskey in the United States, primarily media-related, was more than offset by the timing of investments on our tequilas and the rest of the Jack Daniel's family of brands. Underlying SG&A was down in the quarter, driven by lower incentive compensation-related expenses, considered to be timing only. Turning now to the full-year outlook.

Moving down our P&L, gross margins were in line with our expectations, declining 330 basis points for the quarter, resulting in underlying gross profit drop of 5%. The margin decline was driven by two factors that we discussed during our year-end earnings call. First, the tariff-related costs, which accounted for roughly two-thirds of the decline. And second, higher input costs, primarily related to agave, as well as ongoing wood inflation. Underlying A&P was down for the quarter, as our increased investment behind Jack Daniel's Tennessee Whiskey in the United States, primarily media-related, was more than offset by the timing of investments on our tequilas and the rest of the Jack Daniel's family of brands. Underlying SG&A was down in the quarter, driven by lower incentive compensation-related expenses, considered to be timing only. Turning now to the full-year outlook.

Moving down our PML gross margins were in line with our expectations declining 330 basis points for the quarter, resulting in underlying gross profit drop of 5%.

The margin decline was driven by two factors that we discussed during our year end earnings call first the tariff related costs, which accounted for roughly two thirds of the decline in second higher input costs, primarily related to gabi as well as ongoing with inflation.

Underlying aim p. was down for the quarter as our increased investment behind Jack Daniels, Tennessee Whiskey in the United States, primarily media related.

Was more than offset by the timing of investments on our tequila and the rest of the Jack Daniels family of brands.

Underlying SG Nate was down in the quarter, driven by lower incentive compensation related expenses.

Considered to be timing only.

Turning now to the full year outlook.

Rachel Smith: As I said earlier, Q1 was essentially in line with our expectations, and thus we believe we remain on track to deliver another year of solid results. Starting with our top-line growth expectations, we expect underlying net sales growth of 5% to 7% in fiscal 2020, unchanged from our earnings call in June. The key message is that we remain confident in the health of our business. While Q1 was noisy, it was expected. After considering these factors, we believe our top-line trends remain solid, growing mid-single digit, and supporting our outlook. Our confidence is further supported by our brand's consumer takeaway trends, which have improved in many of our major markets. Further, we expect our underlying net sales in the US to continue to accelerate, reflecting our more recent blended value takeaway performance and sustained double-digit growth for our premium bourbon brands and tequilas.

As I said earlier, Q1 was essentially in line with our expectations, and thus we believe we remain on track to deliver another year of solid results. Starting with our top-line growth expectations, we expect underlying net sales growth of 5% to 7% in fiscal 2020, unchanged from our earnings call in June. The key message is that we remain confident in the health of our business. While Q1 was noisy, it was expected. After considering these factors, we believe our top-line trends remain solid, growing mid-single digit, and supporting our outlook. Our confidence is further supported by our brand's consumer takeaway trends, which have improved in many of our major markets. Further, we expect our underlying net sales in the US to continue to accelerate, reflecting our more recent blended value takeaway performance and sustained double-digit growth for our premium bourbon brands and tequilas.

As I said earlier Q1 was essentially in line with our expectations and thus we believe we remain on track to deliver another year of solid results.

Starting with our top line growth expectations, we expect underlying net sales growth of 5% to 7% in fiscal 2020.

And change from our earnings call in June .

The key message is that we remain confident in the health of our business.

But Q1 was noisy it was expected.

After considering these factors we believe our top line trends remain solid.

Growing mid single digits and supporting our outlook.

Our confidence is further supported by our brands consumer takeaway trends, which have improved in many of our major market.

Further we expect our underlying net sales in the U.S. to continue to accelerate reflecting our more recent blended value takeaway performance and sustained double digit growth for our premium Bourbon brands into keyless.

Rachel Smith: We also expect Jack Daniel's Tennessee Whiskey to add to our improving trends throughout the year as we continue to invest in incremental advertising and promotional activities. In addition, we continue to expect the launch of Jack Daniel's Tennessee Apple in the United States, which is anticipated to begin shipping in September, with plans to be on the shelves in October, will provide incremental contribution to the year. We are encouraged by our trade partners' response enthusiasm toward this innovation thus far. We still expect gross margins to be down around 200 basis points for the year, split between costs of sales impact related to tariffs and higher input costs. Now, I thought it might be helpful to remind you that we expect the cost of tariffs to continue to be a drag on our margin and bottom line through Q2.

We also expect Jack Daniel's Tennessee Whiskey to add to our improving trends throughout the year as we continue to invest in incremental advertising and promotional activities. In addition, we continue to expect the launch of Jack Daniel's Tennessee Apple in the United States, which is anticipated to begin shipping in September, with plans to be on the shelves in October, will provide incremental contribution to the year. We are encouraged by our trade partners' response enthusiasm toward this innovation thus far. We still expect gross margins to be down around 200 basis points for the year, split between costs of sales impact related to tariffs and higher input costs. Now, I thought it might be helpful to remind you that we expect the cost of tariffs to continue to be a drag on our margin and bottom line through Q2.

We also expect Jack Daniels, Tennessee whiskey to add to our improving trends throughout the years as we continue to invest in incremental advertising and promotional activities.

In addition, we continue to expect the launch of Jack Daniel's, Tennessee, Apple in the United States.

Which is anticipated to begin shipping in September what plans to be on the shelf in October will provide incremental contribution to the year.

We are encouraged by our trade partners response, and he was he has them toward this innovation thus far.

We still expect gross margins to be down around 200 basis points for the year split between cost of sales impact related to tariffs and higher input costs.

Rachel Smith: In Q3, we will begin to cycle these costs from last year. Now, regarding our operating costs in fiscal 2020, we are planning solid reinvestments behind our brands, with underlying advertising growth slightly lagging our rate of net sales growth. As a reminder, our planned advertising investment for the year includes a significant reallocation of certain investments from less efficient areas to broad-reach media, digital, and scalable consumer-facing activations, which we expect to drive an effective increase well above our actual increase in spend. We expect SG&A to grow modestly as we remain diligent and focused on efficiency and productivity, driving some leverage to operating income. So, in summary, we reaffirmed our full-year outlook for underlying operating income growth of 3% to 5% and earnings per share of $1.75 to $1.85.

In Q3, we will begin to cycle these costs from last year. Now, regarding our operating costs in fiscal 2020, we are planning solid reinvestments behind our brands, with underlying advertising growth slightly lagging our rate of net sales growth. As a reminder, our planned advertising investment for the year includes a significant reallocation of certain investments from less efficient areas to broad-reach media, digital, and scalable consumer-facing activations, which we expect to drive an effective increase well above our actual increase in spend. We expect SG&A to grow modestly as we remain diligent and focused on efficiency and productivity, driving some leverage to operating income. So, in summary, we reaffirmed our full-year outlook for underlying operating income growth of 3% to 5% and earnings per share of $1.75 to $1.85.

I thought it might be helpful to remind you that we expect the cost of tariff to continue to be a drag on our margin and bottom line through Q2 and Q3, we will begin to cycle. These calls from last year.

Regarding our operating costs in fiscal 2020.

We are planning solid reinvestments behind our brands with underlying advertising growth slightly lagging our rate of net sales growth.

As a reminder, our planned advertising investment for the year includes a significant reallocation of certain investment from less efficient areas two broad reach media.

Digital and scalable consumer facing activity Activations.

Which we expect to drive an effective increase well above our actual increase in spend.

We expect SGN eight to grow modestly as we remain diligent focus on efficiency and productivity.

Driving some leverage to operating income.

So in summary, we reaffirmed our full year outlook for underlying operating income growth of 3% to 5% and earnings per share of $1.75 to $1.85.

Rachel Smith: We continue to believe we have a long runway of potential growth ahead and that our business remains quite attractive with high margins and industry-leading return on invested capital. In addition, we believe our long-term highly engaged shareholders, led by the Brown family, allow us to endure volatile times such as what we are currently experiencing with tariffs and to continue to thoughtfully build our brands to endure for generations to come. We believe that regardless of the tariff-related drag that significantly affected our results last year and that we expect to continue this year, the Brown-Forman remains healthy with a demonstrated track record of resilience over the last 149 years and with high anticipation of celebrating our 150th year, which is just a few short months away. With that, let me turn the call over now to Lawson for his comments. All right. Excuse me.

We continue to believe we have a long runway of potential growth ahead and that our business remains quite attractive with high margins and industry-leading return on invested capital. In addition, we believe our long-term highly engaged shareholders, led by the Brown family, allow us to endure volatile times such as what we are currently experiencing with tariffs and to continue to thoughtfully build our brands to endure for generations to come. We believe that regardless of the tariff-related drag that significantly affected our results last year and that we expect to continue this year, the Brown-Forman remains healthy with a demonstrated track record of resilience over the last 149 years and with high anticipation of celebrating our 150th year, which is just a few short months away. With that, let me turn the call over now to Lawson for his comments.

We continue to believe we have a long runway of potential growth ahead and that our business remains quite attractive with high margins and industry, leading return on invested capital.

In addition, we believe our long term highly engaged shareholders led by the Brown family allow us to endure volatile time, such as what we are currently experiencing with tariff and to continue to thoughtfully build our brands to endure for generations to come.

We believe that regardless of the tariff related drugs is significantly affected our results last year and that we expect to continue this year the brown Forman remain healthy.

With a demonstrated track record of resilience over the last 149 years.

And with high anticipation of celebrating our 150 this year.

Which is just a few short months away.

Lawson Whiting: All right. Excuse me.

And with that let me turn the call over now to lost him for his comments.

Rachel Smith: Thank you, Jane, and good morning, everyone. As Jane said, and I'll just acknowledge it again, the significant amount of noise in our Q1 results in both sales, it hits sales and the cost line, make it a difficult quarter to understand. So hopefully, her comments provided a lot of clarity in the slides that you have, provide some more clarity in why we remain confident in our outlook for the full fiscal year. So let me reiterate a couple of the key points that we've talked about this morning already. The tariffs are the biggest single thing affecting us both as a result of the buy-ins from last year or comparing against the buy-ins from last year and then also the costs that are flowing through this year.

Thank you, Jane, and good morning, everyone. As Jane said, and I'll just acknowledge it again, the significant amount of noise in our Q1 results in both sales, it hits sales and the cost line, make it a difficult quarter to understand. So hopefully, her comments provided a lot of clarity in the slides that you have, provide some more clarity in why we remain confident in our outlook for the full fiscal year. So let me reiterate a couple of the key points that we've talked about this morning already. The tariffs are the biggest single thing affecting us both as a result of the buy-ins from last year or comparing against the buy-ins from last year and then also the costs that are flowing through this year.

All right excuse me, thank you Jane and good morning, everyone.

As James said and I'll just acknowledge it again the significant amount of noise in our first quarter results and book sales that hit the sales and the cost line make it a difficult quarter to understand so hopefully her comments provided a lot of clarity in the slides that you have on provides more clarity.

And why we remain confident in our outlook for the full fiscal year. So let me reiterate a couple of key points that we've talked about this morning already the tariffs are the biggest single thing affecting us both as a result of the volumes from last year are comparing against the volumes from last year and then also the costs that are flowing through this year.

Rachel Smith: In addition, the timing of certain customer buying patterns, largely in our travel retail channel, but also in a number of emerging markets, are also compounding some of the volatility. But if you cut through all of that, as Jane has said a couple of times, we really do believe that we're still delivering that mid-single-digit sales growth and, importantly, maintaining our consumer momentum. Although another reason I believe that the overall business remains healthier, maybe than the headlines might read, is simply that our takeaway trends have improved in most of our major markets. So if you take a look at the US, the UK, Germany, Poland, and some of the other real big markets around the world, our consumer takeaway, which really is a leading indicator, is moving in the right direction.

In addition, the timing of certain customer buying patterns, largely in our travel retail channel, but also in a number of emerging markets, are also compounding some of the volatility. But if you cut through all of that, as Jane has said a couple of times, we really do believe that we're still delivering that mid-single-digit sales growth and, importantly, maintaining our consumer momentum. Although another reason I believe that the overall business remains healthier, maybe than the headlines might read, is simply that our takeaway trends have improved in most of our major markets. So if you take a look at the US, the UK, Germany, Poland, and some of the other real big markets around the world, our consumer takeaway, which really is a leading indicator, is moving in the right direction.

In addition on the timing of certain customer buying patterns largely in our travel retail channel, but also in a number of emerging markets are also compounding some of the volatility.

But if you cut through all of that.

As James has said a couple of times, we really do believe that we're still delivering that mid single digit sales growth and importantly, maintaining our consumer momentum.

Rachel Smith: So it gives us some confidence that those markets will continue to pull through. Third, we do believe that the top-line results will start to look better over the balance of the fiscal year, partially because we're going to cycle past the tariff-related buy-ins that happened last year, but the launch of Jack Daniel's Tennessee Apple will have a meaningful impact, and then just the overall momentum that we want to continue to see in the US business from our planned investments and focused execution. We anticipate our bottom line results will continue to be negatively affected through Q2. So this is going to be tough for another quarter, but then we get into Q3 and we get to cycle more like-for-like comparisons, and it ought to be a little bit clearer and easier to understand.

So it gives us some confidence that those markets will continue to pull through. Third, we do believe that the top-line results will start to look better over the balance of the fiscal year, partially because we're going to cycle past the tariff-related buy-ins that happened last year, but the launch of Jack Daniel's Tennessee Apple will have a meaningful impact, and then just the overall momentum that we want to continue to see in the US business from our planned investments and focused execution. We anticipate our bottom line results will continue to be negatively affected through Q2. So this is going to be tough for another quarter, but then we get into Q3 and we get to cycle more like-for-like comparisons, and it ought to be a little bit clearer and easier to understand.

Although another reason I believe that the overall business remains healthy or healthier maybe than the headlines might read is simply that our takeaway trends have improved in most of our major markets. So if you take a look at the U.S. and the UK, and Germany, and Poland and some of the other real big markets around the world our consumer take away, which is really is a leading indicator is moving in the right direction. So it gives us some confidence.

That those markets will continue to pull through.

Third.

We do believe that the top line results will start to look better over the balance of the fiscal year, partially because we're going to cycle past turf related volumes that happened last year with the launch of Jack Daniels Apple have a meaningful impact and then just the overall momentum, but we want to continue to see in the us business from our planned investments in talks with focused execution.

We anticipate our bottom line results will continue to be negatively affected through Q2. So this is going to be tough for another quarter, but then we get into Q3, and we get to spike cycle more like for like.

Comparisons than it ought to be a little bit clearer and easier to understand.

Rachel Smith: But last key point, when you cut through all this noise, we do feel like our business is still on track. Therefore, we reaffirmed our outlook for underlying growth in the full-year net sales, and operating income this morning. So enough for the quarter. I want to talk a little bit about a little bit more of the strategies that we're pursuing that give us some good confidence for the long term. I want to spend a little time this morning talking about the US results and why we feel that they're moving in the right direction and providing confidence in the long-term growth outlook for us. As you heard from Jane, the US underlying net sales trends in Q1 reflected an improvement from our fiscal 2019 performance, with stronger trends across much of the portfolio.

But last key point, when you cut through all this noise, we do feel like our business is still on track. Therefore, we reaffirmed our outlook for underlying growth in the full-year net sales, and operating income this morning. So enough for the quarter. I want to talk a little bit about a little bit more of the strategies that we're pursuing that give us some good confidence for the long term. I want to spend a little time this morning talking about the US results and why we feel that they're moving in the right direction and providing confidence in the long-term growth outlook for us. As you heard from Jane, the US underlying net sales trends in Q1 reflected an improvement from our fiscal 2019 performance, with stronger trends across much of the portfolio.

But last key point when you when you cut through all this noise, we do feel like our store business is still on track. Therefore, we've reaffirmed our outlook for underlying growth in the full year net sales and operating income this morning.

So enough for the quarter or talk a little bit about little bit more of the strategies that were pursuing that that give us. Some good confidence for the long term I want to spend a little time. This morning talking about the U.S. results and why we feel that they are moving in the right direction and providing confidence in long term growth outlook.

For us as you heard from Jane Us underlying net sales trends in the first quarter reflected an improvement from our fiscal 2019 performance was stronger trends across much of the portfolio.

Rachel Smith: As a reminder, the US market has by far and away the most developed portfolio brands of any of our markets, and that diversification of the portfolio is a big benefit to us right now. Our growth is not reliant on a single trademark. For example, we saw very strong performance from Woodford Reserve, and that's been going on for a number of years. The brand is about to top the 1 million case mark globally, and so that is becoming a very meaningful brand for us. Herradura continues to grow well into the double digits and is another strong performer. And then we continue to get good performance in el Jimador and Old Forester, which is actually the fastest growing brand in our US business these days. So all of these together are meaningful and moving the top-line growth of this market.

As a reminder, the US market has by far and away the most developed portfolio brands of any of our markets, and that diversification of the portfolio is a big benefit to us right now. Our growth is not reliant on a single trademark. For example, we saw very strong performance from Woodford Reserve, and that's been going on for a number of years. The brand is about to top the 1 million case mark globally, and so that is becoming a very meaningful brand for us. Herradura continues to grow well into the double digits and is another strong performer. And then we continue to get good performance in el Jimador and Old Forester, which is actually the fastest growing brand in our US business these days. So all of these together are meaningful and moving the top-line growth of this market.

As a reminder, newest market has by far and away. The most the golf portfolio brands of any of our markets.

And that diversification of the portfolio as it is a big benefit to us right now.

Our growth is not reliant on a single trademark for example, we saw very strong performance from Woodford Reserve and Thats been going on for a number of years. The brand is about the top 1 million case, Mark globally, and so that is that is becoming a very meaningful brand for us era Dirk continues to grow well into the double digits and as a very another strong performer and then we continue to get good performance in L. humidor and old Forester, which is actually the fastest growing brand in our US business. These days. So all these together are meaningful and moving the ball so top line growth of this market.

Rachel Smith: In order to accelerate our portfolio development in the US market, we established something called the Emerging Brands Group about a year ago, and we've talked about this a couple of times, I know, on these calls. But as a reminder, it's a group of about 40-plus dedicated individuals that really focus just on building some of our smaller, very premium brands, brands like Old Forester, Coopers’ Craft. Now we've inserted Chambord in there. They focus on our three single malt Scotches, but particularly emphasizing The GlenDronach in the US, Slane Irish Whiskey, and now our most recent addition, Fords Gin. Consistent with the message that we had just a few weeks ago at our annual shareholder meeting, these brands continue to thrive.

In order to accelerate our portfolio development in the US market, we established something called the Emerging Brands Group about a year ago, and we've talked about this a couple of times, I know, on these calls. But as a reminder, it's a group of about 40-plus dedicated individuals that really focus just on building some of our smaller, very premium brands, brands like Old Forester, Coopers’ Craft. Now we've inserted Chambord in there. They focus on our three single malt Scotches, but particularly emphasizing The GlenDronach in the US, Slane Irish Whiskey, and now our most recent addition, Fords Gin. Consistent with the message that we had just a few weeks ago at our annual shareholder meeting, these brands continue to thrive.

In order to accelerate but it but in order to accelerate our portfolio development as the US market. We did we established something called the emerging brands group about a year ago and we've talked about this a couple of times I know on these calls but.

As a reminder, it's a group of about 40, plus dedicated individuals that really focus just on building some of our smaller I'm very premium brands brands like old Forester Coopers craft now we've inserted share more on their own they focus on our three single malt scotches, but particularly emphasizing on drawn or can the U.S.

Slane Irish Whiskey and now our most recent addition, Ford's Jim.

Rachel Smith: One of the points that I think we're all very proud of is that they're growing each one of those; at least the major ones are all growing faster today than they were 12 months ago when we first put this group together. I couldn't be more proud of the team and accomplishments, and believe that they've really done a good job in setting us up for the next generation of growth for the company. But it also points to another factor that we think we can use and export to the rest of the world, and that's really the benefit of focus. Focus is what really builds brands in our industry, and I think we're showing that focus can have a meaningful impact on our growth rates.

One of the points that I think we're all very proud of is that they're growing each one of those; at least the major ones are all growing faster today than they were 12 months ago when we first put this group together. I couldn't be more proud of the team and accomplishments, and believe that they've really done a good job in setting us up for the next generation of growth for the company. But it also points to another factor that we think we can use and export to the rest of the world, and that's really the benefit of focus. Focus is what really builds brands in our industry, and I think we're showing that focus can have a meaningful impact on our growth rates.

Consistent with the message that we had just a few weeks ago at our annual shareholder meeting. These brands continue to thrive and one of the points that I think we're all very proud of is that they're growing each one of those or at least the major ones are all growing faster today than they were 12 months ago. When we first put this group together I couldn't be more proud of the team and the accomplishments and.

I believe that they've really done a good job in setting us up for the next generation of growth for the company.

But it also points to another.

Rachel Smith: These lessons we've learned here in the US business, at least in the early days we're not declaring victory yet, but certainly the early days are moving in the right direction. This focused effort really can be used around the world. So our portfolio outside of the US, as you all know, is much smaller and largely focused on Jack Daniel's Tennessee Whiskey. We know that we need to have a both-and here. We need the Jack Daniel's family to continue to grow around the world, and it is. But we also know the importance of building a super premium portfolio of brands. So we want to now replicate the success we've had in portfolio development in the US and make that work in our largest, particularly developed international markets. So we've invested incremental resources in Europe, places like Poland, Germany, France, and the UK.

These lessons we've learned here in the US business, at least in the early days we're not declaring victory yet, but certainly the early days are moving in the right direction. This focused effort really can be used around the world. So our portfolio outside of the US, as you all know, is much smaller and largely focused on Jack Daniel's Tennessee Whiskey. We know that we need to have a both-and here. We need the Jack Daniel's family to continue to grow around the world, and it is. But we also know the importance of building a super premium portfolio of brands. So we want to now replicate the success we've had in portfolio development in the US and make that work in our largest, particularly developed international markets. So we've invested incremental resources in Europe, places like Poland, Germany, France, and the UK.

Another factor that we think we can use and export to the rest of the world and that's really the benefit of focus focus is what really builds brands in our industry and I think we're showing that focus can have a meaningful impact on our growth rates. These lessons. We've learned here in the us business at least in the early days, we're not declaring victory yet, but certainly the early days are moving in the right direction.

But does this focused effort really can be used around the world. So our portfolio outside of the U.S. as you. All know is much smaller and largely focused on Jack Daniels, Tennessee whiskey.

We know that we need to have a both am's here, we need the Jack Daniels family to continue to grow around the world and it is but we also know the importance of.

Building, a super premium portfolio brands. So we want to know replicate the success we've had in portfolio development in the U.S. and make that work in our largest particularly developed international markets. So we've invested an incremental resources in Europe places like Poland, Germany, France, and the UK.

Rachel Smith: And as a result, we've started to see a meaningful acceleration in the growth of some of these brands, particularly Gentleman Jack and Woodford Reserve. So although these brands today are relatively small outside of the US, I mean, order of magnitude, Gentleman Jack's about 250,000 cases, Woodford's about 150, but we believe we've only just begun this long-term growth journey. Over the history, over the last couple of decades, it was not happening fast enough. Portfolio development was not happening fast enough when we were using third parties as our RTC partners. Now we've taken control in most of the largest markets in the world, giving us at least the ability or a better chance to win in the world of portfolio development.

And as a result, we've started to see a meaningful acceleration in the growth of some of these brands, particularly Gentleman Jack and Woodford Reserve. So although these brands today are relatively small outside of the US, I mean, order of magnitude, Gentleman Jack's about 250,000 cases, Woodford's about 150, but we believe we've only just begun this long-term growth journey. Over the history, over the last couple of decades, it was not happening fast enough. Portfolio development was not happening fast enough when we were using third parties as our RTC partners. Now we've taken control in most of the largest markets in the world, giving us at least the ability or a better chance to win in the world of portfolio development.

And as a result, we started to see a meaningful acceleration in the growth of some of these brands, particularly gentleman, Jack and Woodford Reserve.

So although these brands today are relatively small outside of the U.S. government order magnitude gentleman Jack It's about 250000 cases, which is about a 150.

But we believe we've only just begun this long term growth journey.

Rachel Smith: So despite the current drag from tariffs in a very noisy quarter, we do believe we've got the right long-term growth ambitions and that we can continue to deliver. Before I conclude, I do want to say a few words on Fords Gin. Since I did not get the opportunity to talk about it last call, we actually announced the acquisition of Fords Gin a couple of days after the call. But while this brand is small today, it's a little over 30,000 cases. We believe it has the potential to be a powerhouse in the upcoming years. It's just a beautiful liquid paired with an intriguing package and rich brand stories. The combination of all that is a formula that works well for Brown-Forman and something we think we can build upon.

So despite the current drag from tariffs in a very noisy quarter, we do believe we've got the right long-term growth ambitions and that we can continue to deliver. Before I conclude, I do want to say a few words on Fords Gin. Since I did not get the opportunity to talk about it last call, we actually announced the acquisition of Fords Gin a couple of days after the call. But while this brand is small today, it's a little over 30,000 cases. We believe it has the potential to be a powerhouse in the upcoming years. It's just a beautiful liquid paired with an intriguing package and rich brand stories. The combination of all that is a formula that works well for Brown-Forman and something we think we can build upon.

It was simply over the history over the last couple of decades was not happening fast enough portfolio development. It was not happening fast enough. When we're using third parties as our RTC partners now we've taken control and most of the largest markets in the world, giving us at least the ability or better chance to win in this in the world of portfolio development. So so despite the current drag from tariffs.

In a very noisy quarter, we do believe we've got the right long term growth ambitions and that we can continue to deliver.

Before I conclude I do want to say a few words on Ford's Jim.

Since I did not get the opportunity to talk about it last call. We missed we actually announced the acquisition affords you in a couple of days after the call.

While this brand is small today, it's a little over 30000 cases, we believe it has the potential to be a powerhouse in the upcoming years, there's just a beautiful liquid paired with an intriguing package enrich brand stories and the combination of all that is a formula that works well for Brown Forman and something we think we can build upon.

Rachel Smith: Furthermore, Fords Gin, we have put it into that Emerging Brands Group that I was describing earlier, but Simon Ford, the founder, and his team will help us up our game, I think, in the on-premise. They've done a beautiful job in some of the most prestigious bars and restaurants around the world in seeding the brand in a way that very few entrepreneurs actually can achieve. And with a very large percentage of the business in the on-premise right now, we think we can take the Brown-Forman system, the Brown-Forman emerging brands team, and use the size and scale of our system to really find new and exceptional ways to grow. So I'm really looking forward to many success stories on Fords Gin as we talk about that in the coming years.

Furthermore, Fords Gin, we have put it into that Emerging Brands Group that I was describing earlier, but Simon Ford, the founder, and his team will help us up our game, I think, in the on-premise. They've done a beautiful job in some of the most prestigious bars and restaurants around the world in seeding the brand in a way that very few entrepreneurs actually can achieve. And with a very large percentage of the business in the on-premise right now, we think we can take the Brown-Forman system, the Brown-Forman emerging brands team, and use the size and scale of our system to really find new and exceptional ways to grow. So I'm really looking forward to many success stories on Fords Gin as we talk about that in the coming years.

Furthermore, fortune, we have put it into that emerging brands brands group that I was describing earlier, but Simon forward the founder and his team will help us a four game I think in the on premise they've done a beautiful job in some of the most prestigious bars and restaurants around the world.

In seating the brand in a way that very few entrepreneurs actually can achieve in it.

Very large percentage of the business on the on premise right. Now we think we can take the brown formans system. The Brown Forman emerging brands team can use the size and scale of our system to really find new and exceptional ways to grow so I'm really looking forward to many success stories on Ford's Jim.

As we talk about that in the coming years.

Rachel Smith: So look, my last point, just want to thank our employees who've been putting in the extra time and effort through these volatile times. Continue to deliver the growth we're seeing is only possible because of our super talented teams around the world, and I just want to thank you again. So that wraps up our prepared remarks. Dorothy, can you please open up the line for questions? At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. That is star one to ask a question. One moment while we compile the Q&A roster. Your first question comes from the line of Amit Sharma with BMO Capital. Hi. Good morning, everyone. This is Drew Levine on for Amit. Thanks for taking the questions.

So look, my last point, just want to thank our employees who've been putting in the extra time and effort through these volatile times. Continue to deliver the growth we're seeing is only possible because of our super talented teams around the world, and I just want to thank you again. So that wraps up our prepared remarks. Dorothy, can you please open up the line for questions?

So look my last point just want to thank our employees who've been putting in the extra time and effort through these volatile times.

Operator: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. That is star one to ask a question. One moment while we compile the Q&A roster. Your first question comes from the line of Amit Sharma with BMO Capital.

We continue to deliver the growth we're seeing is only possible because of our super talented teams around the world and I just want to thank you again, so that wraps up our prepared remarks, Dorothy can you. Please open up the line for questions.

At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad that is star one to ask a question one moment, while we compile the culinary roster.

Drew Levine: Hi. Good morning, everyone. This is Drew Levine on for Amit. Thanks for taking the questions.

Your first question comes from the line of admit Sharma with BMO capital.

Hi, Good morning, everyone. This is driven on for Matt Thanks for taking the questions.

Rachel Smith: I just wanted to touch on the top line, just trying to think about the cadence through the rest of the year. Obviously, you have some easier comps in the next quarter, but you also mentioned some timing-related issues with customer ordering patterns. So maybe you could kind of give us some help on when those should reverse and kind of how we should think about the cadence through the rest of the year. Thank you. Sure. I'll take that. As you said, one of the things that we know is going to happen in our second quarter, which should help our top line quite a bit, is that what we cycled against last year's give back a tariff. So what you saw in this first quarter will be the opposite the time we get to our second quarter.

I just wanted to touch on the top line, just trying to think about the cadence through the rest of the year. Obviously, you have some easier comps in the next quarter, but you also mentioned some timing-related issues with customer ordering patterns. So maybe you could kind of give us some help on when those should reverse and kind of how we should think about the cadence through the rest of the year. Thank you.

I just wanted to touch on the topline.

Just trying to think about the cadence through the rest of the year.

Obviously, you have some easier comps in the next quarter, but you also mentioned some timing related issues with customer ordering patterns. So maybe you could kind of give us some help on.

Jane Morreau: Sure. I'll take that. As you said, one of the things that we know is going to happen in our second quarter, which should help our top line quite a bit, is that what we cycled against last year's give back a tariff. So what you saw in this first quarter will be the opposite the time we get to our second quarter.

When those should reverse and kind of how we should think about the cadence throughout the year. Thank you.

Sure I'll take that.

As you said.

One of the things that we know is going to happen in our second quarter, which should help our topline quite a bit is that we'll be cycling against last year's give back a chair.

So that top that on what you saw in this first quarter.

Rachel Smith: Further, we're past any impact to the sales line from price reductions with tariffs in the handful of markets where we reduced our price to compensate for tariffs. So that will all be behind us in the second quarter. Further, we'll get a benefit from the introduction of Jack Daniel's Tennessee Apple. It's expected to ship in the middle of September and therefore hit the shelves. Plan is in sometime in October. So we'll get a benefit from that as well in the quarter. So I expect the Q2 to have a nice top line growth. I think our back half of the year will continue to benefit from the acceleration in the US business as well as the Tennessee Apple introduction.

Further, we're past any impact to the sales line from price reductions with tariffs in the handful of markets where we reduced our price to compensate for tariffs. So that will all be behind us in the second quarter. Further, we'll get a benefit from the introduction of Jack Daniel's Tennessee Apple. It's expected to ship in the middle of September and therefore hit the shelves. Plan is in sometime in October. So we'll get a benefit from that as well in the quarter. So I expect the Q2 to have a nice top line growth. I think our back half of the year will continue to benefit from the acceleration in the US business as well as the Tennessee Apple introduction.

Phebe office at the time, we get to our second quarter and will further we're past the.

Any impact to the sales line.

From a price reduction.

With tariffs and a handful of markets where we.

Reduced our price to compensate for tariff so that will all be behind us in the second quarter further we'll get a benefit from the introduction of Jack Daniel's, Tennessee Apple.

It's expected to ship in the middle of September and therefore hit the shelves claim is in sometime in October So, we'll get a benefit from that as well in the quarter. So I expect the Q2 to have a nice topline growth.

I think our back half of the year will continue to benefit from the acceleration in the U.S. business as well as the Tennessee.

Rachel Smith: So all in all, again, we walked through why we believe the top line of 5% to 7% is still achievable because we're essentially still in line with what we were expecting in the quarter, and so nothing has changed that outlook for us. Your next question comes from the line of Judy Hong with Goldman Sachs. Thank you. Good morning. Just following up on the last question, Jane, you talked about the benefit from Apple launch in the Q2. Just wondering if you have any kind of quantification that you could give us on what you think the impact could be. And then I think more broadly, if you think about the US market, clearly we've seen some improvement. I think your promotional activities went up in the quarter.

So all in all, again, we walked through why we believe the top line of 5% to 7% is still achievable because we're essentially still in line with what we were expecting in the quarter, and so nothing has changed that outlook for us.

Apple and introduction so all in all.

Again, we walk through why we believe the topline of 5% to 7% is still achievable.

Operator: Your next question comes from the line of Judy Hong with Goldman Sachs.

Because we're essentially still online with what we are in line with what we were expecting in the quarter and so nothing has changed that outlook for us.

Judy Hong: Thank you. Good morning. Just following up on the last question, Jane, you talked about the benefit from Apple launch in the Q2. Just wondering if you have any kind of quantification that you could give us on what you think the impact could be. And then I think more broadly, if you think about the US market, clearly we've seen some improvement. I think your promotional activities went up in the quarter.

Your next question comes from the line of Judy Hong with Goldman Sachs.

Thank you good morning.

Just following up on the last question Jane you talked about the benefit from Apple launch in the second quarter.

I'm just wondering if you have any kind of quantification that you could give us on what you think the impact could be.

Rachel Smith: So I guess I'm just wondering how you see sort of your strategy to accelerate the US growth, both from kind of the promotional activity, whether we should see that continuing as we go into the holidays, or we should start to see more of an innovation-driven growth in the US market going forward. Let me try that. Again, as we get the impact, I'm not going to get down to the tenth of a point here. I think we communicated at year-end that we expected Apple to contribute incrementally to our business this year, about a half a point of growth. Because we're getting it out in the shelves in the month of October, you'll start to see some of that come through. It won't be material, but it will help our Q2.

So I guess I'm just wondering how you see sort of your strategy to accelerate the US growth, both from kind of the promotional activity, whether we should see that continuing as we go into the holidays, or we should start to see more of an innovation-driven growth in the US market going forward.

And then I think more broadly if you think about the U.S. market clearly weve seen some improvement thinker promotional activities went up in the quarter. So I guess I'm just wondering how you see.

So to your strategy to accelerate the us growth both from kind of the promotional activity, whether we should see that continuing as we go into the holidays or we should start to see more of an innovation driven.

Jane Morreau: Let me try that. Again, as we get the impact, I'm not going to get down to the tenth of a point here. I think we communicated at year-end that we expected Apple to contribute incrementally to our business this year, about a half a point of growth. Because we're getting it out in the shelves in the month of October, you'll start to see some of that come through. It won't be material, but it will help our Q2.

Growth in the U.S. market going forward.

Let me, let me try that.

Again.

As we get the impact.

I'm not going to get down to the 10 some points here I think we communicated at year end that we expected.

Apple to.

Contributing incrementally to our business this year about a half a point of growth.

Because we're getting that out in the shelves and.

Rachel Smith: As it relates to your questions in terms of why we believe the US business will continue to accelerate, this is really similar to what we discussed in our year-end call. You'll recall that our takeaway trends there, which have been improving even at the end of April, were not reflected in our financial results. We grew last year in the US 3%. So we said takeaway is a leading indicator. Lawson just mentioned and reminded us of that again. Our takeaway trends are well in the mid-single digits now, 5 to 5.5% already. Our financial results don't reflect that. So as the year goes on, that will be coming through our financials. So that acceleration will continue to be of our financials. Further, we do plan, as you noted, we do plan to continue the incremental spend behind Jack Daniel's Tennessee Whiskey.

As it relates to your questions in terms of why we believe the US business will continue to accelerate, this is really similar to what we discussed in our year-end call. You'll recall that our takeaway trends there, which have been improving even at the end of April, were not reflected in our financial results. We grew last year in the US 3%. So we said takeaway is a leading indicator. Lawson just mentioned and reminded us of that again. Our takeaway trends are well in the mid-single digits now, 5 to 5.5% already. Our financial results don't reflect that. So as the year goes on, that will be coming through our financials. So that acceleration will continue to be of our financials. Further, we do plan, as you noted, we do plan to continue the incremental spend behind Jack Daniel's Tennessee Whiskey.

The month of October you're starting to see some of that come through it won't be material, but it will help our second quarter as it relates to your questions in terms of why we believe that the U.S. business will continue to celebrate this is really similar to what we discussed in the.

In our year end call, you'll recall that our take rate trends, there, which have been improving even at the end of April .

We are not reflected in our financial results. We grew last year in the U.S., 3%.

So we said takeaway the leading indicator Lawson just mentioned I'm reminded us of that again.

Our takeaway trends are well in the mid single digits now five 5.5% already our financial results don't reflect that so as the year goes on that will be coming through our financials. So that acceleration will continue to see fear for financial.

Further.

Rachel Smith: We believe that the incremental monies that we're putting behind Apple, which actually are beginning in our Q2, will also benefit the whole Jack Daniel's family brand and the parent brand. That combined with incremental promotional activities will continue to celebrate that brand. We do plan that all throughout the year. Yeah. I mean, a couple of things I'd add on top of it too in terms of confidence for the US business as a whole. Some of it is the brands themselves, the Woodford Reserves, the Herraduras, the Old Foresters that we keep talking about, have simply gotten bigger, and they're maintaining the growth rates that they've had for the last couple of years or in some cases even getting better.

We believe that the incremental monies that we're putting behind Apple, which actually are beginning in our Q2, will also benefit the whole Jack Daniel's family brand and the parent brand. That combined with incremental promotional activities will continue to celebrate that brand. We do plan that all throughout the year.

The we do plan as you noted we do plan to continue the incremental spend Baja injecting those Tennessee whiskey, we believe that the incremental monies that we're putting behind Apple, which actually are beginning in our second quarter.

We'll also benefit the whole Jack Daniels family of brand and the parent company a parent brand.

That combined with incremental promotional activities will continue to celebrate that brand.

Lawson Whiting: Yeah. I mean, a couple of things I'd add on top of it too in terms of confidence for the US business as a whole. Some of it is the brands themselves, the Woodford Reserves, the Herraduras, the Old Foresters that we keep talking about, have simply gotten bigger, and they're maintaining the growth rates that they've had for the last couple of years or in some cases even getting better.

Rachel Smith: So you get a more meaningful impact from those brands, and you combine that with really not much in the way of a drag from our tail. I mean, we have a couple of brands, obviously, that are not growing, but it's not a very meaningful impact from those brands. And so I think that helps the overall Brown-Forman portfolio. I mean, I think there's something you said for the US market, the US distribution system itself, which has been through a bit of turmoil over the last few years, seems to be settling down now, and everybody's getting their job done. So that, I think, is a bit of a benefit too. And then we continue to have what I can see as a strong discipline around revenue growth management, trying to manage the business in what we think is the smartest way possible.

So you get a more meaningful impact from those brands, and you combine that with really not much in the way of a drag from our tail. I mean, we have a couple of brands, obviously, that are not growing, but it's not a very meaningful impact from those brands. And so I think that helps the overall Brown-Forman portfolio. I mean, I think there's something you said for the US market, the US distribution system itself, which has been through a bit of turmoil over the last few years, seems to be settling down now, and everybody's getting their job done. So that, I think, is a bit of a benefit too. And then we continue to have what I can see as a strong discipline around revenue growth management, trying to manage the business in what we think is the smartest way possible.

And we do plan that all throughout the year, a couple of things I'd add on top of it to to in terms of confidence for the U.S. business as a whole some of it is the brands themselves of the Woodford there or is the old forester is that we keep talking about have simply gotten bigger and so and they are maintaining the growth rates that they've had for the last couple of years or in some cases, even getting better and so you get a more meaningful impact from those brands and you combine that with really not much in the way of a drag from our tail me. We have a couple of brands, obviously, they're not growing but it's it's not a very meaningful impact from those brands and so I think that helps the overall brown formans portfolio I mean, I think theres. Some activity said for the us market for the U.S. distribution system itself, which has been through a bit of turmoil over the last few years seems to be settling down now.

And everybody is getting their job done so that I think is a bit of a bennett's benefit too and then.

Rachel Smith: And I think that message has gotten through, and people are executing on it. So things just feel a little bit better. Great. Thank you. Your next question comes from the line of Peter Grom with J.P. Morgan. Hey. Good morning, everyone. Morning. I just wanted to get a bit more color on the UK distributor change. I know the company has done a good job of developing in-house distribution over the years, but the UK is a large and important international market that is kind of dealing with a number of its own challenges. So first, it would be helpful to get more background as to why the agreement wasn't renewed. And then second, realizing the company is taking mitigation efforts.

Rachel Smith: And I think that message has gotten through, and people are executing on it. So things just feel a little bit better. Great. Thank you.

We continue to have what I consider cost the strong discipline around revenue growth management trying to manage the business and what we think is the smartest way possible I think that message has gotten through and people are executing well so.

Things just feel a little bit better.

Operator: Your next question comes from the line of Peter Grom with J.P. Morgan.

Great. Thank you.

Peter Grom: Hey. Good morning, everyone. Morning. I just wanted to get a bit more color on the UK distributor change. I know the company has done a good job of developing in-house distribution over the years, but the UK is a large and important international market that is kind of dealing with a number of its own challenges. So first, it would be helpful to get more background as to why the agreement wasn't renewed. And then second, realizing the company is taking mitigation efforts.

Your next question comes from the line of Peter Grom with JP Morgan.

Hey, good morning, everyone.

Good morning.

So.

To get a bit.

How are you I just wanted to get a bit more color on the UK distributor change.

I know the company has done a good job of developing in house distribution over the years for the UK is a large and important international market that is kind of dealing with a number of its own challenges. So first it will be helpful to give more broad background as to why the agreement wasn't renewed and then second realizing the company is taking mitigation efforts.

Rachel Smith: But will there be a point in the future where you have greater clarity on whether or not these issues could have a financial impact on FY20 or beyond? Thanks. Okay. Yeah. I'll start with it a little bit, and Jane can finish on some of the impacts on fiscal 20. But let me back up a little bit just for those that haven't been close to this over the years. With Bacardi, we entered it into we called it a cost-sharing arrangement back in 2002. So it was a 17-year partnership that we've been in there. And basically, what it was, was sharing the sales team between the two of us and then also sharing some back-office support. So we have always held responsibility for our own brands on the marketing of our own brands and let the shared sales force do their job.

But will there be a point in the future where you have greater clarity on whether or not these issues could have a financial impact on FY20 or beyond? Thanks.

Lawson Whiting: Okay. Yeah. I'll start with it a little bit, and Jane can finish on some of the impacts on fiscal 20. But let me back up a little bit just for those that haven't been close to this over the years. With Bacardi, we entered it into we called it a cost-sharing arrangement back in 2002. So it was a 17-year partnership that we've been in there. And basically, what it was, was sharing the sales team between the two of us and then also sharing some back-office support. So we have always held responsibility for our own brands on the marketing of our own brands and let the shared sales force do their job.

But will there be a point in the future, where you have greater clarity on whether or not these issues could have a financial impact on the floor 20 or beyond thanks.

Okay, Yes, let me I'll start with it a little bit and Jane can finish on some of the impacts on fiscal 20, but let me back up a little bit just to for those that havent been close to this over the years, we entered with Bacardi entered into we call. It a cost sharing arrangement back in 2000, 2019 or 17 year.

Rachel Smith: It's been a long, successful relationship. Both companies agreed that it was just time. It was time to take control of our own business and develop our own portfolio. As being the second-largest market in the world for Brown-Forman, one of the comments I made in my prepared remarks was about how we now have a better chance at developing the rest of the portfolio, which is what we want to do. When we started the agreement 17 years ago, there were only 13 brands between both companies, 13 brands in the portfolio, and it was largely complementary as they were focused on rum and we were focused really on Jack Daniel's. We now have something like 110 brands in that structure. I mean, both companies have grown tremendously over the 17 years, and it's everything from Scotch to Irish whiskey to tequila.

It's been a long, successful relationship. Both companies agreed that it was just time. It was time to take control of our own business and develop our own portfolio. As being the second-largest market in the world for Brown-Forman, one of the comments I made in my prepared remarks was about how we now have a better chance at developing the rest of the portfolio, which is what we want to do. When we started the agreement 17 years ago, there were only 13 brands between both companies, 13 brands in the portfolio, and it was largely complementary as they were focused on rum and we were focused really on Jack Daniel's. We now have something like 110 brands in that structure. I mean, both companies have grown tremendously over the 17 years, and it's everything from Scotch to Irish whiskey to tequila.

Partnership that we've been in there and we've basically what it was was sharing the sales team between the two of US and then also sharing some back some back office support. So we have always held responsibility for our own brands on the marketing of our own brands and let the shared sales force do their job and it's been a long successful relationship its.

Both companies agreed that it was just time it was time to take control of our own business and develop our own portfolio. So as being the second largest market in the world for Brown Forman one of the comments I made in my prepared remarks was about how we now have a better chance of developing the rest of the portfolio, which is what we want to do we really when we started the agreement 17 years ago. There were only 13 brands in total between both companies 13 brands in the portfolio and it was largely complimentary as they were focused on enrollment and we're focused on really on Jack Daniels, We now something like 110 brands in that structure I mean, both companies have grown tremendously over the 17 years.

Rachel Smith: So there was a lot of overlap that starts to become a problem in terms of how you're going to get priorities, how you're going to set priorities for your team. So we made the decision that the time was just right, and we'll see how trend's going. Every time that we have made a distribution change in our past, I think we've had a nice uplift from it. So we have confidence that we've done this enough times, that we won't see a tremendous amount of disruption, and life goes on. So yeah, it's going to take us a few months to get through all this stuff, but we put a lot of plans in place to make sure that it's not a lot of disruption this year, and we hope to be in a better place starting at the beginning of next fiscal. Yeah.

So there was a lot of overlap that starts to become a problem in terms of how you're going to get priorities, how you're going to set priorities for your team. So we made the decision that the time was just right, and we'll see how trend's going. Every time that we have made a distribution change in our past, I think we've had a nice uplift from it. So we have confidence that we've done this enough times, that we won't see a tremendous amount of disruption, and life goes on. So yeah, it's going to take us a few months to get through all this stuff, but we put a lot of plans in place to make sure that it's not a lot of disruption this year, and we hope to be in a better place starting at the beginning of next fiscal.

It's everything from Scotch Irish whiskey to kill US. So there was a lot of overlap that became.

Starts to become a problem in terms of how you're going to get priorities are going to set priorities for your team. So.

We made the decision at the time was just right.

And we will.

We'll see how trends going every time that we have made a distribution change in our past I think we've had a nice uplift from it so.

We have confidence that we've done this enough times that we won't see a tremendous amount of disruption and in life goes on so.

Yes, it's going to take us few months.

To get through all this stuff, but we put a lot of plans in place and.

To make sure that it's not a lot of disruption this year and we hope to.

Jane Morreau: Yeah. So just to add on to Lawson's and answer your question as it relates to any financial impact to this year, yeah, I would like to step back and say this is really unlike a lot of other changes to owned distribution companies such as Spain and France where we actually did take a financial hit in those years where we moved to them, and that was because of the inventory reductions that resulted from the third-party relationship to us. Well, in this case, we felt that impact 17 years ago when we moved from our third-party partner at that time to this cost-sharing arrangement, and the inventory's owned by us today. So there will not be a big financial impact as a result of that.

It will be in a better place starting the beginning next fiscal.

Rachel Smith: So just to add on to Lawson's and answer your question as it relates to any financial impact to this year, yeah, I would like to step back and say this is really unlike a lot of other changes to owned distribution companies such as Spain and France where we actually did take a financial hit in those years where we moved to them, and that was because of the inventory reductions that resulted from the third-party relationship to us. Well, in this case, we felt that impact 17 years ago when we moved from our third-party partner at that time to this cost-sharing arrangement, and the inventory's owned by us today. So there will not be a big financial impact as a result of that.

So just to add on to losses and answer your question as it relates to any financial impact to this year.

Yes, I would like to step back and say this is really unlike.

A lot of other changes to own distribution companies, such as Spain, and France, where we actually did take a financial hit in those years will remove tool and that was because of the inventory reductions that resulted from the third party relationships to us.

Well in this case, we felt that impact 17 years ago.

Because when we move from our third party.

Partner at that time to this cost sharing arrangement and the inventories owned by US today. So there will not be a big financial impact as a result of that.

Rachel Smith: Now, we will start to see some startup expenses, so think of them more as one-time in nature, incurred later this fiscal year for putting in systems, hiring, and training people. This has all been factored in our outlook. What's interesting about this particular distribution arrangement is, again, 17 years ago when we moved to this cost-sharing, we would have not only had that hit from the inventory reduction, we would have also gotten the benefit at the time from the increased margin going away that we used to pay our distributor. So this cost-sharing arrangement, we share an SG&A. That's already in our P&L today, so you're not going to see incremental costs really going forward once you get past these startup expenses that aren't material in nature, and they're in our full-year outlook. So hopefully, that answered your question. That was very helpful. Thank you. Yeah.

Now, we will start to see some startup expenses, so think of them more as one-time in nature, incurred later this fiscal year for putting in systems, hiring, and training people. This has all been factored in our outlook. What's interesting about this particular distribution arrangement is, again, 17 years ago when we moved to this cost-sharing, we would have not only had that hit from the inventory reduction, we would have also gotten the benefit at the time from the increased margin going away that we used to pay our distributor. So this cost-sharing arrangement, we share an SG&A. That's already in our P&L today, so you're not going to see incremental costs really going forward once you get past these startup expenses that aren't material in nature, and they're in our full-year outlook. So hopefully, that answered your question.

Now we will start to see some startup expenses, so think of a more onetime in nature.

Incurred later this fiscal year for.

Putting in systems and hiring and training people. This has all been factored into our outlook.

What's interesting about this particular.

Distribution arrangement is again 17 years ago, when we moved to this call sharing we would have not only had the hit.

Up from the inventory reduction we would have also gotten the benefit of the time from the.

Peter Grom: That was very helpful. Thank you.

Increased margin from the margin going away that we used to pay our distributor. So this cost sharing arrangement, we share and SGN a that's already in our PML today, so you're not going to see incremental costs really going forward. Once you get past the startup expenses that aren't material in nature and they are in our full year outlook hopefully that answered your question.

Jane Morreau: Yeah.

Okay. That's very helpful. Thank you.

Yes.

Rachel Smith: Your next question comes from the line of Vivien Azer with Cowen & Company. Hi. Good morning. Morning, Vivien. Good morning. So it sounds like things are very much getting back on track in the US, but there's certainly, from a macro perspective, a lot of noise in developed Europe just in terms of kind of the economic health of the region and then some country-specific uncertainty, namely with Brexit. So Lawson, given your long tenure at the organization, can you just remind us how this business performs, in particular in developed Europe, against a more challenged macro backdrop? Thanks. Well, look, I mean, some of our largest markets in the world, obviously, in developed Europe, this has been a place where we've been able to grow, come mid-single digit now for, I don't know, many years.

Operator: Your next question comes from the line of Vivien Azer with Cowen and Company.

Vivien Azer: Hi. Good morning. Morning, Vivien. Good morning. So it sounds like things are very much getting back on track in the US, but there's certainly, from a macro perspective, a lot of noise in developed Europe just in terms of kind of the economic health of the region and then some country-specific uncertainty, namely with Brexit. So Lawson, given your long tenure at the organization, can you just remind us how this business performs, in particular in developed Europe, against a more challenged macro backdrop? Thanks.

Your next question comes from the line of Vivien Azer with Cowen and company.

Hi, good morning.

Good morning, good morning.

So it sounds like things are very much getting back on track in.

The U.S., but there's certainly from a macro perspective, a lot of noise in developed Europe . Just in terms of kind of the economic health of of the region and then some country specific uncertain need, namely with Brexit So loss given your long tenure at the organization can you just remind us like how this business performance.

Lawson Whiting: Well, look, I mean, some of our largest markets in the world, obviously, in developed Europe, this has been a place where we've been able to grow, come mid-single digit now for, I don't know, many years.

In particular and develop you're up against the more challenged macro backdrop. Thanks.

Well look I mean, the the some of our largest markets in the world. We're obviously in developed Europe . This has been a place where we've been able to grow come mid mid single digit now for.

Rachel Smith: And as we look at the true underlying, I mentioned that the consumer takeaway numbers in there. I mean, it's why we think we've got confidence that we'll continue to be able to grow at those kind of rates. Now, one of the—I don't know if you were implying this or not. I mean, is the world of macro political issues and all that kind of stuff starting to hurt our brand as being sort of Americana, something we at least ask ourselves? But this is not the first time that we've been through, I mean, it's a little bit different this time, but certainly, there've been some anti-American sentiments that have leaked through various markets around the world. But for whatever reason, the Jack Daniel's brand seems to be a bit insulated from that. We just haven't seen any negative backlash against a political issue impair the brand.

And as we look at the true underlying, I mentioned that the consumer takeaway numbers in there. I mean, it's why we think we've got confidence that we'll continue to be able to grow at those kind of rates. Now, one of the I don't know if you were implying this or not. I mean, is the world of macro political issues and all that kind of stuff starting to hurt our brand as being sort of Americana, something we at least ask ourselves? But this is not the first time that we've been through, I mean, it's a little bit different this time, but certainly, there've been some anti-American sentiments that have leaked through various markets around the world. But for whatever reason, the Jack Daniel's brand seems to be a bit insulated from that. We just haven't seen any negative backlash against a political issue impair the brand.

Many many years and as we look at the true underlying I mentioned with the consumer takeaway numbers in there I mean, we that's why we think we've got confidence that we will continue to be able to grow those kind of rates now one of the I don't know if you are implying this or not I mean the.

Is the world is macro political issues and all that kind of stuff starting to hurt our brand as being sort of a miracle and something we at least ask ourselves.

But this is not the first time that we've been through I mean, it's a little bit different this time, but certainly the bin.

Some anti American sentiments that at least through.

Various markets around the world, but for whatever reason the Jack Daniels brand seems to be a bit insulated from that we just haven't seen.

Rachel Smith: And in fact, if you rely on the takeaway figures, it's not happening now either. So we'll continue to fight through. It is a difficult environment. It's a difficult pricing environment over there too. But I think our strategy of maintaining consumer momentum, which you've heard us now say multiple times, is still the right thing to do for the long-term good of the company. It's to maintain that momentum. And so I'm happy as long as we continue to get that top-line growth. Did that answer your question? Yep. That was perfect. Thanks. Your next question comes from the line of Tim Ramey with Pivotal Research. Thanks so much. I know there was tremendous noise relative to travel retail, but that segment sometimes is a canary in the coal mine for overall economic activity and potential slowdown of markets.

In fact, if you rely on the takeaway figures, it's not happening now either. So we'll continue to fight through. It is a difficult environment. It's a difficult pricing environment over there too. But I think our strategy of maintaining consumer momentum, which you've heard us now say multiple times, is still the right thing to do for the long-term good of the company. It's to maintain that momentum. And so I'm happy as long as we continue to get that top-line growth. Did that answer your question?

Any negative backlash against some political issue impair the brand and in fact, if you rely on the takeaway figures, it's not happening now either so.

We continue to fight through.

It is a difficult environment, it's a difficult pricing environment over there too but.

I think our strategy of maintaining consumer momentum, which you've heard us now say in multiple times is still the right thing to do for the long term good as a company is to maintain that momentum and so.

Im happy as long as we continue to get that topline growth.

Vivien Azer: Yep. That was perfect. Thanks.

That answer your question.

Operator: Your next question comes from the line of Tim Ramey with Pivotal Research.

Yes that was perfect. Thank you.

Tim Ramey: Thanks so much. I know there was tremendous noise relative to travel retail, but that segment sometimes is a canary in the coal mine for overall economic activity and potential slowdown of markets.

Your next question comes from the line of Tim Ramey with pivotal research.

Thanks, so much.

You know I know there was tremendous noise relative to travel retail, but that segment, sometimes is a canary in the coal mine for.

Overall economic activity and potential slowdown of markets.

Rachel Smith: It sounds like you didn't really see any slowdown that would be attributable to the base business, but I just wanted to ask that. And number two, if Jane could comment on the tax rate outlook for the year. Sure. I'll talk about the tax rate first. We had got it to a tax rate of around 21% for the full year. We now think it's going to be somewhere between 20% and 20.5%, so slightly better than what we had provided at year-end. As it relates to global travel retail, in terms of anything that we're seeing there, again, we've got it to we think we're going to continue to grow mid-single digit. Are there things happening in various airports and channels? That happens all the time, ebbs and flows. I don't know if that's the same. Yeah.

It sounds like you didn't really see any slowdown that would be attributable to the base business, but I just wanted to ask that. And number two, if Jane could comment on the tax rate outlook for the year.

It sounds like you Didnt really see any slow down that would be attributable to the base business, but I just wanted to ask that and number two as Jane could comment on the.

Jane Morreau: Sure. I'll talk about the tax rate first. We had got it to a tax rate of around 21% for the full year. We now think it's going to be somewhere between 20% and 20.5%, so slightly better than what we had provided at year-end. As it relates to global travel retail, in terms of anything that we're seeing there, again, we've got it to we think we're going to continue to grow mid-single digit. Are there things happening in various airports and channels? That happens all the time, ebbs and flows. I don't know if that's the same.

The tax rate outlook for the year.

Sure I'll talk about the tax rate first.

Our Oh, we got it to a tax rate of around 21% for the full year. We now think it's going to be somewhere between 20, and 20 and a half so slightly better than what we have provided.

Our end.

As it relates to global global travel retail.

In terms of anything that we're seeing there again, we got it should we think we're going to continue to grow mid single digits.

Are there things happen and berries.

Airports and channels that happens all the time ebbs and flows I don't know if it up.

Lawson Whiting: Yeah.

Rachel Smith: I mean, our growth last year in Q1 in that channel was enormous, 22%. So I mean, it's, and I think it gets a little more exaggerated over time as we've gotten bigger in that channel and we do more business with Woodford Reserve. The single-malt Scotches can be, I mean, you can see some volatility in the way that they order those. So it's just part of the game playing in there is you're going to live with the choppy order patterns. But I don't think there's really a change in the outlook. What we've not seen is a decline in travelers and all those kinds of macro things. That stuff all seems to be pretty solid, so. Terrific. Thanks for your help. Your next question comes from the line of Lauren Lieberman with Barclays. Thanks. Good morning. Good morning, Lauren. Hey.

I mean, our growth last year in Q1 in that channel was enormous, 22%. So I mean, it's, and I think it gets a little more exaggerated over time as we've gotten bigger in that channel and we do more business with Woodford Reserve. The single-malt Scotches can be, I mean, you can see some volatility in the way that they order those. So it's just part of the game playing in there is you're going to live with the choppy order patterns. But I don't think there's really a change in the outlook. What we've not seen is a decline in travelers and all those kinds of macro things. That stuff all seems to be pretty solid, so.

Yes, I mean, our growth last year in the first quarter and that channel just enormously at 22%. So I mean, if you're.

And I think it'll give us a little more exaggerated overtime as we've gotten bigger in that channel and we do more business would would reserve the single malt Scotches can be I mean, you can you can see some volatility in the way that they order those so it's just.

It's part of the game playing in there as you're going to live with the choppy order patterns, but I still I don't think there's really a change in the outlook, what we've not seen as a decline in.

Travelers and all those kinds of macro things that that stuff all seems to be pretty solid.

Tim Ramey: Terrific. Thanks for your help.

Operator: Your next question comes from the line of Lauren Lieberman with Barclays.

Terrific. Thanks for your help.

Lauren Lieberman: Thanks. Good morning.

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

Jane Morreau: Good morning, Lauren.

Thanks, Good morning.

Good morning, Don.

Lauren Lieberman: Hey.

Rachel Smith: I just wanted to ask a little bit about tequila. So first was, I guess, to follow on some of the comments that you'd made last quarter around pricing, receptivity, the market, and the competitive environment, so just kind of how that developed, what you've seen in more recent months, and the outlook as we move forward. And then also just it feels, at least from my seat in Times Square, like there's been a major acceleration in your efforts to market both Herradura and el Jimador in the US, or maybe it's just in New York. But if you could just talk about, if that's the case, and sort of a bit of why now. Why not two or three years ago? Why not two or three years looking forward? Why is this the right moment to really step up efforts on those two brands domestically? Thanks.

I just wanted to ask a little bit about tequila. So first was, I guess, to follow on some of the comments that you'd made last quarter around pricing, receptivity, the market, and the competitive environment, so just kind of how that developed, what you've seen in more recent months, and the outlook as we move forward. And then also just it feels, at least from my seat in Times Square, like there's been a major acceleration in your efforts to market both Herradura and el Jimador in the US, or maybe it's just in New York. But if you could just talk about, if that's the case, and sort of a bit of why now. Why not two or three years ago? Why not two or three years looking forward? Why is this the right moment to really step up efforts on those two brands domestically? Thanks.

I'd like to ask a little bit about keela.

So first was I guess a follow on on some of the comments you've made last quarter around pricing receptivity in the market and the competitive environment. So just kind of how that develops.

In more recent months and the outlook as we move forward and then also just it feels at least from my seat in times square like there has been a major acceleration in your efforts to market Bulls, Herradura and El Jimador in the U.S. or maybe it's just in New York.

You could just talk about if that's the case and sort of a bit of why now why not two or three years ago, why not two or three years looking forward wise is the right moment to really step up efforts on on those two brands domestically. Thanks.

Rachel Smith: You want me to take the pricing part of it? Yeah. So the tequila category remains amazingly healthy, particularly in the United States. I think if you looked at last year's IWSR, the overall category grew 16%, so quite nice. But as it relates to the pricing environment, both in Mexico and in the US, that's one category where you're seeing pricing. You're seeing fairly significant pricing in Mexico, and we've taken fairly significant increases as well on our brand. The overall category down there is actually volume has actually slowed value to some categories of the Mexican market, actually down a bit from a volume perspective, but the overall value improved year over year. So if you move to the US, as I said a moment ago, we're actually starting to see pricing across all price points in tequilas.

Jane Morreau: You want me to take the pricing part of it? Yeah. So the tequila category remains amazingly healthy, particularly in the United States. I think if you looked at last year's IWSR, the overall category grew 16%, so quite nice. But as it relates to the pricing environment, both in Mexico and in the US, that's one category where you're seeing pricing. You're seeing fairly significant pricing in Mexico, and we've taken fairly significant increases as well on our brand. The overall category down there is actually volume has actually slowed value to some categories of the Mexican market, actually down a bit from a volume perspective, but the overall value improved year over year. So if you move to the US, as I said a moment ago, we're actually starting to see pricing across all price points in tequilas.

When we take the pricing.

Yes so.

That's a good cheap the key category remains.

Mainly healthy.

Particularly in the United States I think that if you looked at last year's attributes are the overall category grew 16%, so quite nice, but as it relates to the pricing environment.

Both in Mexico and in the U.S.

That one category, where you are seeing in pricing.

You seem fairly significant pricing in Mexico.

And weve taken fairly significant increases as well on our brands. The overall category down or is actually volume has actually slow value that some some categories of the of the Mexican market actually down a bit.

From a volume perspective, but the overall value improve year over year.

So.

Rachel Smith: We took some pricing last year on Herradura and el Jimador. We took some significant pricing on our low-value in tequila this year, Pepe Lopez, and we continue to expect to take some more surgical increases across a number of markets on Herradura and el Jimador this year. We continue to monitor what's going on in the environment. People are taking it, as we talked about, like you said, at year-end, more related to that incredible increase in the cost of the agave, which is a cyclical pattern that we discussed and expect that to come back in the next couple of years. But people are trying to offset these increases as we are by passing on pricing.

We took some pricing last year on Herradura and el Jimador. We took some significant pricing on our low-value in tequila this year, Pepe Lopez, and we continue to expect to take some more surgical increases across a number of markets on Herradura and el Jimador this year. We continue to monitor what's going on in the environment. People are taking it, as we talked about, like you said, at year-end, more related to that incredible increase in the cost of the agave, which is a cyclical pattern that we discussed and expect that to come back in the next couple of years. But people are trying to offset these increases as we are by passing on pricing.

If you move to the US as I said, a moment ago, we're actually starting to see pricing across all price points and keyless. We took some pricing last year on air and ER and al Haman door.

We took some significant pricing on our low value in tequila. This year Peppy Lopez and we continue to expect it takes some.

More surgical increases across a number of markets on air or under and they'll humidor. This year continuing to monitor whats going on in the environment people are taken as we talked about like you said at year end more related to the incredible increase in the cost of the golf.

Which is a cyclical pattern that we discussed and expect that to come back in the next couple of years, but people are past trying to offset these increases as we are passing on pricing.

Rachel Smith: I mean, I think to add on the why now a little bit. I mean, obviously, we bought these brands 12 years ago, and it took us a while to sort of get our feet underneath us with tequila, and it was sort of a slow start. We have changed the model for tequila quite a bit on el Jimador in terms of premiumizing in Mexico and continuing to really grow in the United States. I mean, it's gone from we get these little 150,000 cases to 600 over that period of time, so really good growth there. But Herradura, at the higher price point, is the brand where we're going to put the most sort of consumer-facing activities out there.

Lawson Whiting: I mean, I think to add on the why now a little bit. I mean, obviously, we bought these brands 12 years ago, and it took us a while to sort of get our feet underneath us with tequila, and it was sort of a slow start. We have changed the model for tequila quite a bit on el Jimador in terms of premiumizing in Mexico and continuing to really grow in the United States. I mean, it's gone from we get these little 150,000 cases to 600 over that period of time, so really good growth there. But Herradura, at the higher price point, is the brand where we're going to put the most sort of consumer-facing activities out there.

I mean, I think to add on the wanting to wind down a little bit of a.

Obviously, we bought these brands 12 years ago, and it took us a while to sort of get our feet underneath us with Tokyo on it was a sort of a slow start we have.

Change the model for tequila quite a bit on the heme El HAGE the door in terms of premium as I Premiumizing in Mexico.

And can do to really grow in the United States minutes gone from to get these litter on 150000 cases to 600.

Rachel Smith: And really, the ultra-premium tequila category in the US, which was always led by some of the big brands like Patrón but is a very healthy place to be, the consumer demand is very healthy. I think the consumers love the mixability, the authenticity. It's just a hot category. And so I think it's really taking off, and it's some of the things that we would have put down in the rationale for interest back in 2007. And then the recession hit. Yeah. Well, the recession hit soon thereafter. But a lot of those consumer dynamics are coming true today. And so yeah, it's just a hot place to be, and it's somewhere we want to continue to invest.

And really, the ultra-premium tequila category in the US, which was always led by some of the big brands like Patrón but is a very healthy place to be, the consumer demand is very healthy. I think the consumers love the mixability, the authenticity. It's just a hot category. And so I think it's really taking off, and it's some of the things that we would have put down in the rationale for interest back in 2007. And then the recession hit. Yeah. Well, the recession hit soon thereafter. But a lot of those consumer dynamics are coming true today. And so yeah, it's just a hot place to be, and it's somewhere we want to continue to invest.

Over over that period of time, so really good growth there, but era during at the higher price point as the brand, where we were going to put the most sort of consumer facing activities out there and really.

The category the ultra premium tequila category in the US which was always led by some of the big brands like petroleum, but is a very healthy place to be the consumer demand is very healthy I think the consumers love the mixability the authenticity. The it's just a hot category and so.

I think it's really taking off and in some of the things that we would have put down the rationale for interest back in 2007 and coming Ocean hit Yeah recession go soon thereafter in a bar a lot of those consumer dynamics are coming true today and so.

It's just the hot place to be somewhere we want to.

Rachel Smith: And beyond the US and Mexico, it's so early in its infancy as it relates to the rest of the world, but we're very excited about the opportunities to introduce consumers to tequilas around the rest of the world. That's also in line with Lawson and what he was talking about in our investments and focus and people to premiumize our portfolio beyond Jack Daniel's in those markets outside of the US, why we think there's such tremendous opportunity. Those brands are part of it. Okay. Great. Thank you so much. You're welcome. Your next question comes from the line of Bryan Spillane with Bank of America. Hey. Good morning, everyone. Hey, Bryan. Got a couple of Jane, just a couple of cleanup questions and then just one broader question for Lawson. So just first on the model.

Jane Morreau: Beyond the US and Mexico, it's so early in its infancy as it relates to the rest of the world, but we're very excited about the opportunities to introduce consumers to tequilas around the rest of the world. That's also in line with Lawson and what he was talking about in our investments and focus and people to premiumize our portfolio beyond Jack Daniel's in those markets outside of the US, why we think there's such tremendous opportunity. Those brands are part of it. Okay.

Continuing to invest beyond the U.S. in Mexico. It's so early in its infancy as it relates to the rest of the world, but we're very excited about the opportunities to introduce consumers. He lives around the rest of world Thats also in line with blocks and then what he was talking about and our investments and focus than people to remain as our.

Portfolio beyond Jack Daniels in those markets that sub Thats, why we think theres such tremendous opportunity.

That brings those brands are part of it.

Lauren Lieberman: Great. Thank you so much.

Jane Morreau: You're welcome.

Okay, great. Thank you so much.

Operator: Your next question comes from the line of Bryan Spillane with Bank of America.

Bryan Spillane: Hey. Good morning, everyone.

You're welcome you and your next question comes from the line of Bryan Spillane with Bank of America.

Jane Morreau: Hey, Bryan.

Hey, good morning, everyone.

Bryan Spillane: Got a couple of Jane, just a couple of cleanup questions and then just one broader question for Lawson. So just first on the model.

Brian got a couple of Jane just a couple of cleanup questions and then just one broader question philosophy. So just first on the model.

Rachel Smith: I mean, I might have missed this earlier, but I think on the last call, you talked about gross margins for the year being down 200 basis points. So is that still a good figure to work with? Yeah. About that is perfect. Yes. Okay. And then I think last year, the tariffs were about a 100 basis point drag on price mix annualized for the full year. So if this is really the last quarter, I guess, where we'll have that sort of drag year-over-year comparisons, we should see a little bit of a pickup in price mix as we're modeling out the balance of the year because we will have kind of lapped all that noise. The latter part of your question is correct. I want to say that the impact last year was maybe a bit more. 160 basis points is kind of what I had in mind.

I mean, I might have missed this earlier, but I think on the last call, you talked about gross margins for the year being down 200 basis points. So is that still a good figure to work with? Yeah. About that is perfect. Yes. Okay. And then I think last year, the tariffs were about a 100 basis point drag on price mix annualized for the full year. So if this is really the last quarter, I guess, where we'll have that sort of drag year-over-year comparisons, we should see a little bit of a pickup in price mix as we're modeling out the balance of the year because we will have kind of lapped all that noise.

I might have missed this earlier, but I think on the last call you talked about gross margins for the year being down 200 basis points. So is that still a good still a good figure to work with yeah.

About that is perfect, yes, Okay, and then I think last year.

The tariffs were about 100 basis point drag on price mix for the annualized for the full year.

Jane Morreau: The latter part of your question is correct. I want to say that the impact last year was maybe a bit more. 160 basis points is kind of what I had in mind.

So if this is really the last quarter I guess, we're we'll have that sort of drag year over year comparisons, we should see a little bit of a pick up in price mix is we're modeling out the balance of the year, because we will have kind of lapped all that noise.

The latter part of your question.

It is correct I want to say that the impact last year was maybe a bit more 160 basis points is kind of what I had mine okay.

Rachel Smith: But yes, once we get past Q2, we'll have lapped the cost of the tariffs. Okay. Thanks. And then Lawson, with, I guess, the emergence of hard seltzers here in the US, and it's sort of a slash, right? I think, is it a beer? Is it a spirit? I think consumers have a lot of kind of varying viewpoints of kind of what it is. Can you kind of just maybe talk about how you're observing it and whether there's some opportunities that might present themselves for some of your brands, not necessarily a hard seltzer, but is it maybe the format, right? Having things in more convenient, portable, ready-to-go formats, maybe consumers more sort of open to that now than maybe they had been before, at least in the US. Yeah. No. I mean, I think you're right. We did this at year-end.

But yes, once we get past Q2, we'll have lapped the cost of the tariffs.

Bryan Spillane: Okay. Thanks. And then Lawson, with, I guess, the emergence of hard seltzers here in the US, and it's sort of a slash, right? I think, is it a beer? Is it a spirit? I think consumers have a lot of kind of varying viewpoints of kind of what it is. Can you kind of just maybe talk about how you're observing it and whether there's some opportunities that might present themselves for some of your brands, not necessarily a hard seltzer, but is it maybe the format, right? Having things in more convenient, portable, ready-to-go formats, maybe consumers more sort of open to that now than maybe they had been before, at least in the US.

So, but yes as we once we get past Q2, we have will have lapped the call of the chair.

Okay. Thanks, and then.

Well, often you know with the I guess the emergence of hard self service here in the U.S.

And it's sort of a slash schrader. It I think it is it to be or is it is it a spirit I think people consumers have a lot of kind of varying viewpoints of kind of what it is.

Can you.

Can you kind of just maybe talk about how you are observing it and whether there is some opportunities.

That might present themselves for us for some of your brands not necessarily a hard seltzer, but.

It was it.

Lawson Whiting: Yeah. No. I mean, I think you're right. We did this at year-end.

Maybe the format right, having things in more convenient portable ready to go formats, maybe consumers more sort of open to that now than maybe they had been before at least in the U.S.

Yes.

Rachel Smith: We talked about the categories to be in, and whiskey, tequila, and gin, and how we feel good about that. Then the IWSR, I know, puts a lot into the format of the next 10 years is going to be RTDs. We've got about a 16 million-case RTD business around the world, 7 New Mix, and 9 million cases of Jack Daniel's. But the vast majority of that is outside of the United States. So how are we playing it inside the United States? I mean, as I'm sure everyone knows, it's, from a tax perspective, very punitive against spirits relative to beer or malt. So certainly, that is a disadvantage that the spirits players have relative to these malt brands.

We talked about the categories to be in, and whiskey, tequila, and gin, and how we feel good about that. Then the IWSR, I know, puts a lot into the format of the next 10 years is going to be RTDs. We've got about a 16 million-case RTD business around the world, seven New Mix, and nine million cases of Jack Daniel's. But the vast majority of that is outside of the United States. So how are we playing it inside the United States? I mean, as I'm sure everyone knows, it's, from a tax perspective, very punitive against spirits relative to beer or malt. So certainly, that is a disadvantage that the spirits players have relative to these malt brands.

I mean, I think you're right one of the like we did this at year end, we talked about the categories to be in and whiskey tier one in June and then how we feel good about that and then the items I saw no puts a lot into the format over the next 10 years is going to be our Tvs and we've got about a 16 million case RTD business around the world seven new mix and 9 million cases of Jack Daniels, So, but as the vast majority are outside of the United States. So how are we playing and inside the United States I mean as I'm sure everyone knows it's from a tax perspective, very punitive against spirits relative to beer or mall. So.

Rachel Smith: But I do think we were in fact there was a commercial on television last night for Truly where the guy took it was a bottle of whiskey, and it was a generic bottle, just that whiskey across the top of it, and he actually poured it out and went over to his cooler and grabbed his Truly out of a cooler. I don't know if anyone has seen that yet. So obviously, Truly's coming at us a little bit. But I would argue that the whiskey category is a little bit more insulated from this sort of spike in hard seltzer demand. It's closer in on beer and then likely closer in, I think, on some of the lighter drinks given it's skews female and it's skews younger. So you're going to get a lot of, you're going to start taking from vodka.

But I do think we were in fact there was a commercial on television last night for Truly where the guy took it was a bottle of whiskey, and it was a generic bottle, just that whiskey across the top of it, and he actually poured it out and went over to his cooler and grabbed his Truly out of a cooler. I don't know if anyone has seen that yet. So obviously, Truly's coming at us a little bit. But I would argue that the whiskey category is a little bit more insulated from this sort of spike in hard seltzer demand. It's closer in on beer and then likely closer in, I think, on some of the lighter drinks given it's skews female and it's skews younger. So you're going to get a lot of, you're going to start taking from vodka.

Certainly that is a disadvantage that the spirits players have relative to these multi brands, but I do think we were effect. There was a commercial on television last night for truly where the Guy took it was a bottle of whiskey and it was a generic model just at whiskey across the top of it and they actually called it out.

Rachel Smith: So I don't worry too much about our whiskey portfolio and the impact that it might have on there, but we spend a lot of time thinking about how can we play in that there. And we're running some tests in California right now with Jack Daniel's under a spirit-based model. But given the tax thing that I mentioned, they're expensive. So we feel pretty good about it. It is an interesting phenomenon to watch and see how many people are going after these seltzer drinks. But God, I'm not going to predict the category direction, but we've seen this before in the RTD world. A lot of brands go up fast and go down. So we're trying to do it in our own way, mostly with the Jack Daniel's brand. Yeah. Right. Thanks for that, Lawson. And have a great holiday, everyone. You too. Thank you, Brian.

So I don't worry too much about our whiskey portfolio and the impact that it might have on there, but we spend a lot of time thinking about how can we play in that there. And we're running some tests in California right now with Jack Daniel's under a spirit-based model. But given the tax thing that I mentioned, they're expensive. So we feel pretty good about it. It is an interesting phenomenon to watch and see how many people are going after these seltzer drinks. But God, I'm not going to predict the category direction, but we've seen this before in the RTD world. A lot of brands go up fast and go down. So we're trying to do it in our own way, mostly with the Jack Daniel's brand. Yeah.

And went over to his cooler and grabbed is truly out of recorded if anyone has seen that yet so obviously truly coming at us a little bit I'm, not but I would argue that the whiskey category is a little bit more insulated from this sort of spike in hard seltzer demand. The third there it's closer in on the year, and then likely closer and I think on some of the lighter Thanksgiving skews female and it skews younger so you're going to get a lot of you're going to start ticking from bostco. So so I don't worry too much about our whiskey portfolio and the impact that it might have on there.

Well, we spent a lot of time thinking about how can we play in that there and we're running some tests in California, right now with Jack Daniels under Spirit based.

Model, but it's given the tax thing that I mentioned they are expensive so.

We feel pretty good about it it is an interesting phenomenon to watch and see how many people are going after these these seltzer drinks but.

Good I'm not going to predict the category direction, but we've seen this before in the RTD World. It's a lot of brands go up fast and go down so.

We're trying to do it on our own way, mostly with the Jack Daniels brand.

Bryan Spillane: Right. Thanks for that, Lawson. And have a great holiday, everyone.

Yeah, right before drink.

Lawson Whiting: You too. Thank you, Brian.

Hi, Thanks for that loss in and have a great labor day everyone.

Okay. Thank you Ron.

Rachel Smith: Your next question comes from the line of Chris Pitcher with Redburn. Thanks very much. A couple of follow-up questions, really. On the UK business, just to get a little bit more understanding on where you're sourcing the resources for your own business. If we look at the development of that joint venture, you've become a much more significant player than your partner was sort of back when you first set it up. Are you able to just basically carve out your respective costs, and those salespeople will be enough to support the business? Hence, you're saying there isn't going to be a significant increase in costs, or does your existing partner still require the headcount they currently have in Bacardi Martini?

Operator: Your next question comes from the line of Chris Pitcher with Redburn.

Chris Pitcher: Thanks very much. A couple of follow-up questions, really. On the UK business, just to get a little bit more understanding on where you're sourcing the resources for your own business. If we look at the development of that joint venture, you've become a much more significant player than your partner was sort of back when you first set it up. Are you able to just basically carve out your respective costs, and those salespeople will be enough to support the business? Hence, you're saying there isn't going to be a significant increase in costs, or does your existing partner still require the headcount they currently have in Bacardi Martini?

Your next question comes from the line of Chris pitcher with Redburn.

Hi, Thanks, very much a couple of follow up questions really on the UK business just to get a little bit more understanding on sourcing. The results is fuel you are writing business. If we look at the development.

Joint venture you become a much more significant plant the new partner.

When you first started up are you able to just basically carve out your respective costs.

Nice sales people will be enough to support the business, hence you're saying there isn't going to be a significant increase in costs for the digital existing partners still require the head count may currently have in the Cardium on TV.

Rachel Smith: And then just secondly, following on from the tequila, one of the other distillers recently has been saying that the agave costs aren't falling off perhaps as quick as they thought. Can you comment on when you expect your higher agave costs to start to run off, or you've seen some of that being pushed out a bit further? Thanks. I mean, I can do the UK one, or we both can. I mean, there's a contract in place that goes through a process of how we're going to split the teams up for the most part. And so yeah, we're working through that right now. But on the cost side of things, I think Jane already said this; we expect it to essentially be neutral to where we are today, so. So we already have marketing folks there, our own marketing folks. So this is really to sell spots.

And then just secondly, following on from the tequila, one of the other distillers recently has been saying that the agave costs aren't falling off perhaps as quick as they thought. Can you comment on when you expect your higher agave costs to start to run off, or you've seen some of that being pushed out a bit further? Thanks.

And then just secondly, following on from Takeda.

What are the other day that has recently been saying that the coffee costs on falling off as perhaps as quick as they thought.

Lawson Whiting: I mean, I can do the UK one, or we both can. I mean, there's a contract in place that goes through a process of how we're going to split the teams up for the most part. And so yeah, we're working through that right now. But on the cost side of things, I think Jane already said this; we expect it to essentially be neutral to where we are today, so.

Can you can you comment on on when you expect you'll recall of a cost to start to run off we've seen some of that being pushed out a bit further thanks.

I mean, I can I can do the easy I Wonder we both Karen I mean talk about there's a contract in place that that goes through a process of how we're going to see what the teams are for the most part and so that so yes, we're working through that right now.

Jane Morreau: So we already have marketing folks there, our own marketing folks. So this is really to sell spots.

But on the cost side of things like January said, as we expected to essentially be neutral to where we are today. So.

We already have marketing folks there.

Marketing folks we have.

Rachel Smith: And so yeah, we'll. We're going to split the teams. Yeah. So we already have those. Yeah. And then in terms of the agave, really, we haven't really changed what we believe will happen. Again, we can go back in terms of when we will start seeing that cycle of pricing of the cost of agave to go down. As we talked at year-end, we've had some visibility into the number of plantings by year, by calendar year. And that points to really probably late 2021, calendar 2021, before you start to see that. But there's a lot of dynamics going on, I'll just say that now, in terms of the market with our competitors ourselves actively taking hefty pricing, particularly in Mexico where the margins aren't as attractive as the US.

And so yeah, we'll. We're going to split the teams. Yeah. So we already have those. Yeah. And then in terms of the agave, really, we haven't really changed what we believe will happen. Again, we can go back in terms of when we will start seeing that cycle of pricing of the cost of agave to go down. As we talked at year-end, we've had some visibility into the number of plantings by year, by calendar year. And that points to really probably late 2021, calendar 2021, before you start to see that. But there's a lot of dynamics going on, I'll just say that now, in terms of the market with our competitors ourselves actively taking hefty pricing, particularly in Mexico where the margins aren't as attractive as the US.

So this is really the sales force and so yes, we will.

We're going to split the teams.

So we already have those that Claire.

And then in terms of the Gabi really we haven't.

Got you I Havent really change what we believe will happen.

Again, we can go back in terms of when we will start seeing that cycle of pricing.

The cost of Gabi to go down.

As we talked at year end, we've had have some visibility into the number of plantings by year by calendar year and that points to really probably late 2021 calendar 21 before you start to see that.

But there is a lot of dynamics going on I will just say that now in terms of the market with.

People.

Our competitors ourselves actively taken healthy pricing, particularly in Mexico, where the.

Rachel Smith: So they can take that agave and move it toward the United States and support the great growth that's been happening in the category in the US. So there's a lot of dynamics that could impact that, but really, nothing has changed this right now. But it could perhaps come a little bit earlier, meaning start to see it start to come down a little bit earlier should some of the volume in the Mexico market where it's low-margin, it's being suppressed, really not be needed as quite as high as what is expected in the US. So it could be some little things like that to move it up a little sooner, but we've said toward the end of calendar 2021. Thanks. I'll just do one final clarification because you've reiterated your earnings per share range. You've got a lower tax rate.

So they can take that agave and move it toward the United States and support the great growth that's been happening in the category in the US. So there's a lot of dynamics that could impact that, but really, nothing has changed this right now. But it could perhaps come a little bit earlier, meaning start to see it start to come down a little bit earlier should some of the volume in the Mexico market where it's low-margin, it's being suppressed, really not be needed as quite as high as what is expected in the US. So it could be some little things like that to move it up a little sooner, but we've said toward the end of calendar 2021.

The margins aren't as attractive business as the U.S.. So they can take data gabi and move it towards.

The United States and support the great growth.

Happening in the category and the U.S. so.

Lot of dynamics that could impact that but that's really nothing has changed those right now, but it could perhaps come a little bit earlier, meaning you start to see it start to come down a little bit earlier should some of the volume.

In the Mexico.

Market, where it's low margin, it's being suppressed really not being needed as quite as high as what is expected in the less it could be some little things like that and move it up a little cleaner, but we've said that towards the end of calendar 21.

Chris Pitcher: Thanks. I'll just do one final clarification because you've reiterated your earnings per share range. You've got a lower tax rate.

Thanks, and just one final clarification, because you've reached rights you earnings per share range.

Rachel Smith: Is that helping compensate for some of the adverse currency movements that'll be running through, particularly in, say, the UK market? Is that the way to think why earnings hasn't changed despite the tax? Yeah. I don't know if you're looking at yeah. So foreign exchange for us, I think we have a couple cents maybe in our four-year forecast, which is fairly consistent, I think, with what we started off in the year. But what you're probably asking is, "Hey, I've seen a lot of movement in the currency just themselves, but we have a hedging program in place and have for a number of years." It's a 36-month hedging program. So what you're seeing is some of the underlying results really being offset by our hedges. That's what you're seeing right now.

You put a lower tax rate is that helping compensate for some of the adverse currency movements will be running through particularly inside the UK market.

Thanks.

Jane Morreau: Yeah. I don't know if you're looking at yeah. So foreign exchange for us, I think we have a couple cents maybe in our four-year forecast, which is fairly consistent, I think, with what we started off in the year. But what you're probably asking is, "Hey, I've seen a lot of movement in the currency just themselves, but we have a hedging program in place and have for a number of years." It's a 36-month hedging program. So what you're seeing is some of the underlying results really being offset by our hedges. That's what you're seeing right now.

Earnings hasn't changed despite the talks.

Yes, I don't know if you're looking at.

Yes, so foreign exchange.

For Us I think we have a couple of cents maybe in our full year forecast, which is fairly consistent I think with what we started off in the year, but what were what you're probably asking is hey, I've seen a lot of movement in the currency just themselves, but we have.

A hedging program in place and have for a number years.

Go to the 36 month hedging program. So what you're seeing is some of the.

Underlying results really being offset by our hedges, that's that's what you're seeing in right now.

Rachel Smith: So that's why it's not expected to be a big deal this year because we would have hedged these currencies before now. So it's the hedging offsetting the fluctuations you're seeing in the market. Hopefully, that makes sense because these were laid down some time ago at better rates. And there are no further questions at this time. I will turn the call back over to Leanne. Thank you, Lawson and Jane, and thanks to all of you for joining us today for Brown-Forman's first quarter of fiscal 2020 earnings call. If there are any additional questions, please feel free to reach out and connect with us. Thank you. Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.

So that's why it's not expected to be a big deal this year because we would have hedged these currencies before now. So it's the hedging offsetting the fluctuations you're seeing in the market. Hopefully, that makes sense because these were laid down some time ago at better rates.

So that's why it's not expected to be a big deal. This year, because we would have hedge these currencies for NASA the hedging offsetting the.

Fluctuations are seen in the market.

Okay that makes sense that these will lay down some time ago.

Operator: And there are no further questions at this time. I will turn the call back over to Leanne.

At better rates.

Leanne Cunningham: Thank you, Lawson and Jane, and thanks to all of you for joining us today for Brown-Forman's first quarter of fiscal 2020 earnings call. If there are any additional questions, please feel free to reach out and connect with us. Thank you. Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.

And there are no further questions at this time I will turn the call back over to Leann.

Thank you Austin and Jane and thanks to all of you for joining us today for Brown Formans first quarter of fiscal 2020 earnings call. If there are any additional could add questions. Please feel free to reach out and connect with us. Thank you.

Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.

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