Brown-Forman Corporation Q1 FY2025 earnings call

• Gross profit: Reported gross profit decreased 13% and organic decreased 8% in Q1, with gross margin at 59.4%. The contraction was due to timing, transition service agreements, and input cost fluctuations. - Geographic performance: Developed international markets had a 6% organic net sales decline; US had 4% organic net sales decrease; Emerging international markets declined 5%; Travel Retail channel decreased 8%. - Inventory/consumer environment: Distributors target low end of normal range; total distilled spirits and Brown-Forman trends below historical growth; premiumization persists with higher price tiers growing. - Innovation: Jack & Coke Cherry launch, variety pack for Jack Daniel's RTDs, expansion of Jack Daniel's and Coca-Cola RTD to new markets.

In the first quarter of Fiscal Year 2025, Diplomático Rum had strong results due to favorable ordering patterns in the prior year. Old Forester delivered strong double-digit organic net sales growth受益于销量增长和定价策略。Woodford Reserve saw organic net sales growth driven by higher volume in the US. Jack Daniel's Tennessee Honey and Apple achieved mid-single-digit organic net sales growth, led by Brazil and Türkiye. Jack Daniel's Tennessee Whiskey had an 8% organic net sales decline due to lower volumes in the US, UAE, and UK, partially offset by growth in Japan. Revenue contributions: Diplomático Rum, Old Forester, Woodford Reserve, Jack Daniel's Tennessee Honey, and Apple were key contributors, while Jack Daniel's Tennessee Whiskey was a detractor.

• Reaffirmed full-year growth outlook. - Expect sequential improvement in fiscal 2025. - Organic net sales growth expected in 2%-4% range. - Reported gross margin expected to expand with sequential improvement. - Organic operating income growth expected in 2%-4% range. - Effective tax rate expected 21%-23%; capital expenditures $195M-$205M.

• Inventory timing and input cost fluctuations impacting gross margin. - Macroeconomic and geopolitical uncertainties affecting operating environment. - Competition and changing consumer trends in the spirits industry.

Q: Peter Grom asked about confidence in achieving full-year target and 2Q performance.

A: Leanne Cunningham said it's the year of 2 halves, expects sequential improvement, 2Q reflects total distilled spirits trends, and will benefit from full year of Gin Mare and Diplomático and lapping soft prior year totals.

Q: Andrea Teixeira asked about inventory levels and trade/consumer takeaway.

A: Leanne Cunningham said distributors target low end of normal range, retailers adjust inventories; depletions in line with shipments, focus on consumer demand.

Q: Eric Serotta asked about inventory reduction and industry inventory.

A: Leanne Cunningham said finished goods WIP and raw material inventory reduced year-over-year, but finished goods up due to tariff prep; Lawson Whiting said industry supply sensitive to demand, but Brown-Forman feels good about whiskey supply.

Q: Nadine Sarwat asked about underlying net sales weakness and consumer health.

A: Lawson Whiting said timing of price increases and buy-in affected Q1; Leanne Cunningham said gaining share in some markets despite decelerating environments.

Q: Filippo Falorni asked about gross margin cost impact and transition service agreements.

A: Leanne Cunningham said cost impact due to timing, inventory fluctuations; transition service agreements to end in second half, removing headwind.

Q: Robert Moskow asked about Jack Daniel's marketing to younger consumers.

A: Lawson Whiting said track consumer insights monthly, new campaign resonating, Jack Daniel's still strong despite short-term trends.

Q: Nik Modi asked about cannabis beverage impact and tequila softness.

A: Lawson Whiting said no significant cannibalization; tequila weakness due to price pushing in Mexico/US, but category still strong.

Q: Steve Powers asked about distributor inventories and tequila softness.

A: Leanne Cunningham said no significant inventory change outlook; Lawson Whiting said tequila category growing, but Brown-Forman's tequila faces competition.