Brown-Forman Corporation Q2 FY2025 earnings call

• Board Transition: Campbell Brown steps down as Chair of the Board, succeeded by Marshall Farrer, who will assume the role following reelection. - Financial Results: Discussed organic net sales performance by geographic region (emerging markets grew, developed markets faced challenges), gross profit decreased due to higher costs but improved sequentially, operating expenses lower than prior year, and a 4% increase in quarterly cash dividend. - Tariffs: Proactive preparation and mitigation strategies in place for potential retaliatory tariffs from Europe, with uncertainty around tariff outcomes. - Inventory and Consumer Environment: Distributors target low end of normal inventory range, retailers adjusted levels, sequential improvement in US market observed, but cautious outlook for holiday season due to economic conditions.

Jack Daniel's Tennessee Whiskey: Organic net sales accelerated, with RTDs like Jack & Coke showing growth in many markets and new launches including a variety pack. Woodford Reserve: Grew organic net sales 8% driven by increased volume and price/mix, with Woodford Reserve Distiller Select and Double Oaked performing well. Diplomatico: Delivered very strong organic net sales growth, especially in France, Czechia, travel retail, Germany, and the US. Old Forester: Delivered double-digit organic net sales growth,受益于single barrel expressions and King Ranch Edition. El Jimador and Herradura: Faced volume declines in US and Mexico due to competition and economic challenges. Korbel: Declines were timing-related, with focus on second half promotions. Revenue contributions for each segment were not explicitly stated as percentage, but each brand's performance was discussed in detail.

• Organic Net Sales: Expect 2%-4% growth in fiscal 2025, driven by international markets and price/mix. - Organic Operating Income: Expect 2%-4% growth. - Tax Rate: Estimated effective tax rate in the range of approximately 21%-23%, guiding closer to the lower end. - Capital Expenditures: Revised from $195M-$205M to $180M-$190M due to phasing of projects into next fiscal year.

• Tariffs: Potential retaliatory tariffs from Europe and other regions, impacting exports of US spirits and imports of tequila, scotch, etc. - Consumer Environment: Volatile consumer spending due to economic conditions, affecting demand for discretionary spirits. - Industry Supply: Impact of increased industry supply on high-end bourbons and Jack Daniel's, and challenges from third-party customers like MGPI affecting industry supply dynamics.

Q: Could you talk a little bit more about inventory levels, particularly in the U.S.?

A: Distributors target low end of normal range, shipments slightly ahead of depletions, increased shipments for specific brands like Jack Daniel's Tennessee Whiskey and Woodford Reserve to meet holiday demand.

Q: Can you elaborate on the divergence in trends between U.S. consumer takeaways and reported whiskey depletions?

A: U.S. market running in low single digits, on and off-trade trends not too far apart, with NABCA data showing improvement for Jack Daniel's Tennessee Whiskey.

Q: Can you talk about the performance in October exiting the quarter and tariffs?

A: Sequential improvement in U.S. market from Q1 to Q2, proactive preparation for potential tariffs from Europe with mitigation strategies in place.

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

A: Working to recruit new legal drinking age consumers with initiatives like McLaren sponsorship, music activations, and Jack's Garage events, seeing some positive trends in health metrics.

Q: Can you talk about distributor inventories in emerging markets and guidance?

A: Emerging markets saw prior year inventory refilling absence, guidance assumes normalization of inventory trends in second half with easier comps.

Q: What's your ability to pre-ship into countries and how does it vary by owned distribution?

A: Competitively sensitive, tough decisions being made but outcome still painful.

Q: Fairness of operating profit growth outlook and holiday season impact?

A: Guidance based on various scenarios, holiday season too early to assess with visibility into November results pending.

Q: Questions on supply side, inventory, industry supply, and MGPI?

A: Brown-Forman made progress in reducing finished goods inventory, industry supply increase may impact high-end bourbons and Jack Daniel's, MGPI challenges portend industry supply challenges.