Brown-Forman Corporation Q4 FY2024 earnings call

• Fiscal 2024 was challenging with organic net sales down 1% and organic operating income down 2% due to factors like consumer inflation, interest rates, and distributor inventory changes. - Depletion-based results were in line with long-term growth expectations. - Jack Daniel's Tennessee Apple, super-premium expressions, New Mix, and Glenglassaugh were growth drivers. - Geographic performance varied with emerging markets and Travel Retail growing, while US and developed international markets declined. - Gross margin expanded 150 basis points in fiscal 2024 due to favorable price mix and absence of prior year supply chain costs. - Operating expenses increased, but investments in brands and people were expected to unlock future growth.

Brown-Forman's segments showed varied performance. Jack Daniel's Tennessee Apple had double-digit organic net sales growth, reaching almost 900,000 9-liter cases. Jack Daniel's super-premium expressions also saw strong growth, led by Jack Daniel's Sinatra, Single Barrel Rye Barrel Proof, and Bonded Rye. New Mix was a top contributor to organic net sales growth, exceeding 10 million 9-liter cases. Glenglassaugh grew due to cask sales, especially in Asia. Jack Daniel's Tennessee Whiskey declined 5% due to lower volumes in Japan, US, UAE, and Sub-Saharan Africa. Gin Mare and Diplomático had strong double-digit organic net sales growth. Geographically, emerging international markets and Travel Retail had mid-to-high single-digit organic net sales growth, while the US and developed international markets saw declines. Revenue contributions varied by segment with key brands driving growth and others facing challenges.

• Expect organic net sales growth in the 2% to 4% range for fiscal 2025. - Anticipate organic operating income growth in the 2% to 4% range. - Effective tax rate expected to be in the range of approximately 21% to 23%. - Capital expenditures estimated to be in the range of $195 million to $205 million for fiscal 2025. - The second half of fiscal 2025 is expected to be stronger due to lapping tough comps and portfolio evolution.

• Macro-economic and geopolitical uncertainties pose risks to the operating environment. - Impact of inflation and higher interest rates on consumer and trade behavior continues to affect results. - Inventory movements, including unexpected drops in distributor inventories, can impact performance. - Competition and promotional activities from competitors may affect market share. - Commodity costs, such as glass and wood, remain a potential risk to margins.

Q: Can you clarify ingredient costs, specifically what's moving against the company?

A: Leanne Cunningham stated agave prices have fluctuated, grain prices are expected to be lower but above pre-pandemic averages, glass costs are expected to increase 2-3% in the US, and transportation costs are in the low single digits. Also, wood costs remain high but infrastructure adjustments may help offset some of this.

Q: How does the current state of the spirits category in the US compare to expectations, and is there risk of oversupply?

A: Lawson Whiting said US whiskey and tequila are healthy but TDS has been soft. He doesn't believe there's a big disconnect between supply and demand, noting the majority of inventory is from larger suppliers and craft producers aren't the main source of oversupply concern.

Q: Talk about inventories compared to expectations and current levels.

A: Leanne Cunningham said depletion-based results were in line with expectations. Distributor inventories in the US were within normal ranges but had an unexpected drop in the fourth quarter. They believe most inventory movement is behind them but not all is resolved.

Q: How does Brown-Forman think about brand building for Jack Daniel's and the U.S. pricing environment?

A: Lawson Whiting said Jack Daniel's remains strong with stable health metrics. They continue to innovate and support the brand with initiatives like McLaren sponsorship and Jack & Coke RTD. Regarding pricing, TDS pricing is still positive, especially for American whiskey, and rational pricing is maintained by major players.

Q: Update on developed international and emerging markets, and growth in the second half of fiscal 2025?

A: Leanne Cunningham mentioned the U.K. sales decline was due to Jack & Cola transition. Germany had 7% organic net sales growth. Brazil saw growth from Jack Daniel's Tennessee Apple. For fiscal 2025 second half, they expect improvement due to lapping tough comps and portfolio evolution.