Brown-Forman Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Brands: Woodford Reserve's growth, New Mix's expansion, Jack Daniel's new campaign and innovation, Diplomatico's strong performance, Gin Mare's impairment, and challenges with Korbel and Tequila brands.
• People: Implemented workforce reduction and cooperage closing, incurring $63M in aggregate charges, with annualized savings of $70M-$80M.
• Geographic: Emerging markets driving growth, Mexico's performance, travel retail challenges, and U.S. distributor transitions.
• Financial: Reported net sales decreased 5% in fiscal '25, organic net sales grew 1% after adjustments. Gross profit decreased 7%, operating income decreased 22%, EPS decreased 14% to $1.84. Capital deployment included increased dividends and note repayments.

Segment Performance

• Brand Perspective:
  • Woodford Reserve was the largest driver of organic net sales growth, with 8% organic net sales growth, driven by higher volume and positive price/mix. It also saw strong international performance, especially in Japan and Türkiye.
  • Used barrel sales were the second largest contributor to organic net sales in fiscal '25.
  • New Mix had double-digit organic net sales growth, surpassing 11 million 9-liter cases and launching new flavors in the U.S.
  • Jack Daniel's Tennessee Whiskey had 1% organic net sales growth, with new campaigns and innovation like the launch of Jack Daniel's Tennessee Blackberry.
  • Diplomatico delivered double-digit organic net sales growth, led by France, Germany, and travel retail.
  • Gin Mare had 1% organic net sales growth but recognized a $47M noncash impairment charge.
  • Korbel and Tequila brands (el Jimador, Herradura) had organic net sales declines.
• Geographic Perspective:
  • Emerging international markets had 9% organic net sales growth, led by Türkiye and Brazil.
  • Mexico had 4% organic net sales growth, with RTDs and Jack Daniel's family of brands outperforming.
  • Travel retail organic net sales declined 5%.
  • Developed international had 3% organic net sales decline, with Japan showing growth but Italy, South Korea, and the U.K. declining.
  • U.S. had 2% organic net sales decline, with Woodford Reserve, Old Forester, and Jack Daniel's RTDs growing but offset by Jack Daniel's Tennessee Whiskey and Korbel declines.

Guidance

• Fiscal 2026 Outlook:
  • Expect low single-digit decline in organic net sales due to volatile operating environment, geopolitical uncertainties, and global macroeconomic conditions.
  • Organic operating income expected to decline in the low single-digit range.
  • Used barrel sales expected to return to more typical levels, a significant year-over-year headwind.
  • U.S. and developed international depletion-based trends similar to fiscal 2025, with some disruption in U.S. distributor transition.
  • Estimated capital expenditure outlook in the range of $125M-$135M.

Risks

• Geopolitical and Macroeconomic: Geopolitical uncertainties and global macroeconomic conditions creating consumer uncertainty and below historical total distilled spirits trends.
• Tariff Volatility: Tariff environment impacting costs and sales, with visibility low.
• Cyclical Industry Challenges: Used barrel sales returning to typical levels in challenging environments, affecting growth and operating income.

Question and Answer

Q: Bryan Spillane asks about the difference in consumer environment vs other categories like lodging and gaming.

A: Lawson Whiting discusses cyclical vs structural factors, noting GLP-1s, Gen Z, and premiumization as factors, but argues many issues are cyclical.

Q: Nadine Sarwat asks about fiscal 2026 guidance and long-term growth.

A: Leanne Cunningham and Lawson Whiting discuss guidance factors like used barrels, distributor transitions, and long-term growth algorithm, emphasizing premium brands and emerging markets.

Q: Kevin Grundy asks about competitor's CFO and pricing outlook.

A: Lawson Whiting talks about pricing rationality in the industry and RTD innovation, while Leanne Cunningham discusses New Mix and Jack & Coke growth.

Q: Lauren Lieberman asks about structural vs cyclical and business planning.

A: Lawson and Leanne discuss premium brands, emerging markets, and distribution strategies to navigate challenges.

Q: Robert Moskow asks about Jack Daniel's perception and A&P philosophy.

A: Lawson Whiting talks about Jack Daniel's brand perception, Leanne Cunningham discusses A&P philosophy aligned with depletion-based growth.

Q: Filippo Falorni asks about developed international business and Korbel exit.

A: Lawson Whiting expands on developed international weakness, Leanne Cunningham discusses Korbel exit impact on top line and operating income.