Brown-Forman Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Brand Performance: Woodford Reserve's growth, New Mix's expansion, Jack Daniel's new campaign and product launch, Diplomatico's strong growth, Gin Mare's challenges, and Tequila brands' performance.
• Geographic Performance: Emerging international markets led growth (Türkiye, Brazil), Mexico saw 4% organic net sales growth with RTDs and Jack Daniel's brands outperforming, travel retail declined 5%, developed international markets had mixed results with Japan growing but others declining.
• Workforce Initiatives: Fiscal 2025 included workforce reduction and cooperage closing, resulting in $63 million in charges, aiming for $70-80 million annualized savings.
• Strategic Moves: Distribution changes in U.S. with new distributors, distribution of William Grant & Sons portfolio brands in Mexico, and own distribution launch in Italy and Japan.

Segment Performance

• Woodford Reserve: Delivered 8% organic net sales growth, driven by higher volume and positive price/mix. Contributed significantly to organic net sales growth.
• New Mix: Continued double-digit organic net sales growth, surpassing 11 million 9-liter cases, with plans to launch new flavors in the U.S.
• Jack Daniel's Tennessee Whiskey: Organic net sales grew 1%, with new global campaign "that's what makes Jack" launched, and new product Jack Daniel's Tennessee Blackberry to be launched.
• Diplomatico: Delivered very strong double-digit organic net sales growth, led by France, Germany, and travel retail.
• Gin Mare: Organic net sales grew 1%, but faced challenges in Italy with distribution transition, resulting in a $47 million impairment charge.
• Korbel and Tequila Brands: Organic net sales declined, with Tequila category facing competitive environment and macroeconomic challenges in Mexico.

Guidance

• Organic Net Sales: Expect low single-digit decline in fiscal 2026, driven by weaker consumer demand, used barrel sales returning to typical levels (half of fiscal 2025), and product mix headwinds.
• Organic Operating Income: Forecast low single-digit decline, with careful cost management and investment behind brands.
• Capital Expenditure: Outlook in range of $125 million to $135 million.

Risks

• Geopolitical and Macroeconomic: Uncertainties in tariff environment, global macroeconomic conditions leading to consumer uncertainty.
• Consumer Trends: Impact of GLP-1s, cannabis, and Gen Z on consumer spending, affecting spirits demand.
• Industry Challenges: Competitive environment in Tequila category, distribution transition disruptions in U.S.

Question and Answer

Q: Bryan Spillane on consumer environment and structural vs cyclical concerns A: Lawson Whiting discussed consumer wallet pressure, GLP-1s, cannabis, and Gen Z as factors, noting cyclical nature of challenges.

Q: Nadine Sarwat on fiscal 2026 guidance and long-term growth A: Leanne Cunningham talked about low single-digit organic net sales decline, used barrel sales impact, and long-term growth levers; Lawson Whiting mentioned mid-single-digit growth algorithm and premium brand strength.

Q: Kevin Grundy on competitor RTD efforts and pricing outlook A: Lawson Whiting discussed rational pricing, small size growth in U.S. spirits, and Leanne Cunningham talked about RTD innovation and distribution expansion.

Q: Lauren Lieberman on structural vs cyclical and future business model A: Lawson Whiting and Leanne Cunningham discussed premium brand focus, emerging markets growth, and strategic distribution changes.

Q: Robert Moskow on Jack Daniel's perception and A&P philosophy A: Lawson Whiting addressed Jack Daniel's positive perception despite global sentiment, and Leanne Cunningham discussed A&P philosophy aligned with depletion-based growth.

Q: Filippo Falorni on developed international business and Korbel exit impact A: Lawson Whiting talked about European market weakness and Leanne Cunningham explained Korbel exit's impact on top line and operating income.