Brown-Forman Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Route-to-Consumer Evolution: Successful distribution change in Japan, scheduled launch in Italy on May 1, 2025. Selected Reyes Beverage Group as new distributor in California effective May 1, 2025, to unlock growth capabilities.
• Workforce Restructuring: Announced strategic initiatives including reducing global workforce by ~12%, closing Louisville Cooperage, and offering early retirement. Projected annualized savings of $70-80 million with ~$60-70 million in charges.
• Brand Innovation: Woodford Reserve Batchproof and Double Double Oak launched; Jack Daniel's 14-year-old Tennessee Whiskey introduced. New Mix and Jack Daniel's RTDs outperforming competitors in Mexico and globally.

Segment Performance

• Woodford Reserve: Organic net sales grew 10% year-to-date, driven by higher volumes and positive price mix. Woodford Reserve Distiller Select and Double Oak were key drivers.
• Jack Daniel's Tennessee Whiskey: Organic net sales increased 2% year-to-date, with acceleration sequentially. Focus on short-term acceleration and long-term brand building, including McLaren Formula 1 sponsorship and music campaigns.
• RTDs: Jack & Coke RTD gained global attention, with Jack & Coke Cherry available in the UK and a variety pack launching in the US. New Mix had double-digit organic net sales growth in Mexico, with a new flavor launch planned.
• Diplomático and Gin Mare: Both delivered double-digit organic net sales growth. Diplomático strong in France, Czechia, and travel retail; Gin Mare strong in Germany, Spain, and travel retail.
• Tequilas (El Jimador and Herradura): Sequential improvement but faced challenges in US and Mexico. Herradura Cristal launch in Mexico off to a strong start, but El Jimador impacted by softness in US and Mexico.
• Geographic Performance: Emerging international markets led growth with 8% organic net sales increase, led by Turkey and Brazil. Developed international markets had organic net sales decline of 1%. US organic net sales decreased 1%, with growth from Woodford Reserve, Old Forester, and Jack Daniel's RTDs offset by declines in Jack Daniel's Tennessee Whiskey and Korbel.

Guidance

• Organic Net Sales: Expect growth in 2%-4% range, guiding closer to lower end, driven by pricing, price mix, emerging markets, innovation, and sequential improvement in developed markets.
• Organic Operating Income: Forecast growth in 2%-4% range, guiding to upper end, with investment behind brands and strategic workforce initiatives.
• Capital Expenditures: Estimated in $180-190 million range.
• Effective Tax Rate: Updated from 21%-23% to 20%-22%.

Risks

• Tariffs: Uncertainty around tariffs, particularly EU tariffs, with focus on reciprocal 0 for 0 tariffs to keep the industry out of trade wars. Impact on consumer and stakeholders needs to be managed.
• Economic Environment: Challenging macro environment in Mexico affecting discretionary spending and tequila performance. Competitive environment in tequila category with price competition.

Question and Answer

• Q: Thoughts on craft brands and Jack Daniel's/Woodford Reserve health A: Industry supply issue not a battle against craft brands; Jack Daniel's improving sequentially with positive 3-month rolling organic net sales trend, leveraging music, McLaren sponsorship, and on-premise strategies.
• Q: Tequila pricing and US spirits market consumer behavior A: Tequila pricing down 1.7%, rational competition; US spirits market flattish, small sizes driving momentum due to cyclical inflation and consumer pinch.
• Q: Distributor inventories and organic sales growth A: Distributors target low inventory range; shipments and depletions expected to be in line by end of fiscal year; underlying growth expected to continue with innovation and emerging markets.
• Q: Tariffs and EU impact A: Focus on reciprocal 0 for 0 tariffs; EU tariffs a real possibility, preparing for potential impacts while working to keep the industry out of trade wars.
• Q: California distributor transition and finished goods inventories A: Seamless transition expected; finished goods inventories adjusted to historic levels through lower production, with progress made.
• Q: Marketing and advertising spend strategy A: Brand spend aligns with top-line growth; incremental investments planned for brand growth, to be discussed more in future calls.