Brown-Forman Corporation Q2 FY2025 earnings call

• Succession planning: Campbell Brown announced stepping down as Chair, with Marshall Farrer to succeed him. - Financial results: Woodford Reserve, Diplomatico, and Old Forester showed growth, while tequila brands faced challenges. Geographic performance varied with emerging markets growing and developed markets and U.S. seeing declines. - Tariffs: Brown-Forman has been preparing for potential tariffs, especially related to European retaliatory tariffs and new Canada/Mexico tariff talks. - Dividend: Board approved 4% increase in quarterly cash dividend, marking 41 consecutive years of increases. - Inventory: Distributors targeting low end of normal range, shipments adjusted for holiday season.

Jack Daniel's Tennessee Whiskey saw accelerated organic net sales growth with RTDs like Jack & Coke performing well. Woodford Reserve had 8% organic net sales growth driven by volume and price/mix. Diplomatico had strong organic net sales growth, especially in Europe and travel retail. Old Forester delivered double-digit organic net sales growth. El Jimador and Herradura faced volume declines in the U.S. and Mexico. Geographic-wise, emerging international markets had 6% organic net sales growth, while developed international markets were down 3%, and U.S. organic net sales decreased 3%.

• Anticipate organic net sales and operating income growth in 2%-4% range for fiscal 2025. - Effective tax rate expected to be 21%-23%. - Capital expenditures revised from $195M-$205M to $180M-$190M. - Second half expected to be stronger than first, with results reflecting consumer demand more closely.

• Tariffs: Uncertainty around potential tariffs on U.S. spirits exports, including retaliatory tariffs from Europe and new Canada/Mexico tariffs, which could create an uneven playing field. - Macroeconomic conditions: Global macroeconomic and geopolitical conditions creating volatility and uncertainty in the operating environment. - Inventory/supply chain: Inventory levels and supply chain dynamics impacting performance and growth expectations.

Q: Could you talk a little bit more about inventory levels?

A: Distributors targeting low end of normal range, retailers adjusted inventory levels. Shipments increased for specific brands like Jack Daniel's Tennessee Whiskey, Woodford Reserve and Korbel for holiday season. Not forecasting significant changes in trade inventory levels.

Q: Could you talk a little bit more about the divergence in trends between U.S. consumer takeaways and reported whiskey depletions?

A: U.S. running around minus 3%, with NABCA data showing improvement for Jack Daniel's Tennessee Whiskey. Divergence not too big, on and off trends not too far apart.

Q: Could you elaborate maybe on the performance in October exiting the quarter and tariffs?

A: Sequential improvement in U.S. market from Q1 to Q2. For tariffs, European retaliatory tariffs scheduled to come back end of March, working with stakeholders, but many unknowns and scenarios.

Q: Could you talk about Jack Daniel's Tennessee Whiskey in the U.S. and brand health indicators?

A: Working hard to recruit new LDA consumers, using McLaren Racing and music activations like Jack's Garage. Seeing some positive trends in health metrics like penetration and perceptions.

Q: Could you give us some sense of what happened in emerging markets with distributor inventories and assumptions for back half?

A: Emerging international market organic sales growth due to prior year inventory refilling absence. Second half majority inventory movements behind us, trends to reflect total distilled spirits.

Q: Could you talk about ability to pre-ship into countries and tariff handling?

A: Competitively sensitive, making tough decisions but situation painful regardless.

Q: Could you talk about supply side, finished goods inventories, impact on high-end bourbons and MGPI challenges?

A: Made significant progress in reducing finished goods inventory. Industry supply increase for some bourbons may impact high-end brands, but Brown-Forman adjusted production. MGPI challenges may impact industry supply, with big established brands having advantages currently.