The Brown-Forman Corporation held a Fourth Quarter and Fiscal 2023 Earnings Call, with Sue Perram, Vice President, Director, Investor Relations, Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer, in attendance. The call contained forward-looking statements, and the company has listed risk factors in their press release and Form 10-K and Form 10-Q reports. Additionally, the call discussed non-GAAP financial measures.

Brown-Forman had a successful fiscal 2023 despite the headwinds of supply chain challenges, higher input costs, negative foreign exchange, and the Russian invasion of Ukraine. The company grew organic net sales by 8% since fiscal 2019 and exceeded their top line growth ambition of mid-single digits.

Fiscal 2023 saw reported net sales increase 8% or 10% on an organic basis, driven by broad-based reported net sales growth across all geographic clusters and the travel retail channel. Revenue growth management initiatives were implemented to increase prices consistently year after year and to grow net sales through a balance of both volume and value. Jack Daniel's Tennessee Whiskey was the biggest contributor to the company's performance, with organic net sales increasing 8% due to strong consumer demand and higher pricing.

Jack Daniel's has had a successful year, with strong organic net sales growth and recognition from Whiskey Advocate Magazine, who named their bonded Tennessee Whiskey the 2022 Whiskey of the Year. They have also partnered with McLaren Racing, a British Formula One racing team, to reach a global fan base and expand their relevance and pop culture.

Woodford Reserve has seen double-digit growth since its founding and continued this trend in 2023, while Jack Daniel's RTDs also saw double-digit growth due to convenience, flavor and premiumization. The Jack Daniel's and Coca-Cola RTD was launched in nine markets in 2023 and is now available in local markets.

Jack & Coke Zero has been performing well since its launch, with distributors meeting expectations and strong reorder rates. It has especially taken off in the UK, where it is already matching Jack & Cola in rate of sale. Globally, it has already gained 1 billion consumer impressions and is continuing to be launched in more markets. The product is not only doing well, but it is also a recruitment vehicle for new consumers of legal drinking age. The RTD category is growing rapidly, including the New Mix brand, which achieved 10 million 9-liter cases in 2023. Additionally, tequila is a fast-growing category, particularly at the premium plus price points.

In fiscal 2023, Herradura and El Jimador both experienced double-digit growth in organic net sales, despite supply chain challenges in the first quarter. Brown-Forman is investing $200 million in Casa Herradura to expand their distillery operations, bottling, maturation, and processing areas to meet the strong consumer demand. They have also been actively managing their portfolio for the past decade, acquiring Gin Mare and Diplomatico in fiscal 2023, which only impacted reported net sales by 0.5 point.

Brown-Forman had a successful fiscal 2023, with strong consumer demand for its brands and strategic investments supporting growth in spite of inflation and supply chain challenges. The company reported organic net sales growth in each geographic cluster and the travel retail channel compared to the same prior year period. Brown-Forman now owns one of the top 5 brands globally in 4 strong growth categories and expects the newly-acquired brands to be meaningful contributors to its growth over the long-term. Leanne Cunningham will provide additional details on the company's performance and expectations for fiscal 2024.

In fiscal 2023, emerging international markets delivered strong double-digit organic net sales growth, driven by Jack Daniel’s Tennessee Whiskey, RTDs, Herradura, and El Jimador. Developed international markets also saw double-digit growth, notably in Germany and Japan. Jack Daniel’s family of brands and the broader super-premium portfolio will benefit from the transition to own distribution in Japan, effective April 1, 2024.

Brown-Forman recently transitioned to own distribution in Belgium and the Jack Daniel's family of brands as well as Woodford Reserve drove significant growth in the market. The company also saw double-digit organic net sales growth from El Jimador, Woodford Reserve, Gentleman Jack, and GlenDronach. In addition, Diplomatico and Gin Mare recently joined the super-premium portfolio of brands. While inflation has impacted consumer behavior, the company has gained share in Germany and the UK.

Business delivered 3% organic net sales growth in fiscal 2023, reflecting a normalization of supply chain disruptions and increased shipments in the first half of the year. The second half of the year was negatively impacted by a decrease in shipments due to the prior year's inventory rebuilding. Woodford Reserve was the largest contributor to organic net sales growth, driven by strong consumer demand and increasing distributor inventories, while innovations like Jack Daniel’s and Coca-Cola RTD and higher prices across the portfolio also contributed to growth.

Brown-Forman's organic net sales grew by 43% in fiscal 2023, driven by higher volumes across the portfolio and a rebound in the travel retail channel. Reported gross profit increased by 4%, with organic growth of 9%, and reported gross margin contracted by 180 basis points. The disconnect between Nielsen takeaway and actual results narrowed as the company labored many of the factors that created the gap. Inventory levels across the three-tiered system are now back to normal.

The price mix of American whiskey was offset by higher inflation, supply chain disruption costs, and foreign exchange. The company reinvested a portion of tariff relief in their brands, resulting in their brand investment increasing 15-18% and SG&A expenses increasing 8-9%. Reported operating income decreased 6%, due to lower gross margin, impairment charges, and higher operating expenses. Organic operating income grew 8%.

The company's strong cash flow from operations in fiscal 2023 enabled them to meet their current operating needs, fund capital expenditures, and return $378 million to their stockholders through regular dividends. They also issued $650 million in 10-year senior unsecured notes to refinance existing debt and fund an acquisition. The company is optimistic about their fiscal 2024 outlook, as their long-held capital allocation philosophy and strategic priorities will continue to drive superior returns in the long-term.

After two years of strong growth, the company expects to continue to benefit from their pricing and revenue management strategies, and should experience organic net sales growth in the 5-7% range for fiscal 2024. However, they are cautious due to macroeconomic volatility and the potential impact of inflation on consumer spending. The company also expects to incur higher input costs, partially offset by lower costs due to supply chain disruption.

Brown-Forman is expecting organic operating income growth in the 6% to 8% range for the full fiscal year, a fiscal 2024 effective tax rate of 21% to 23%, and capital expenditures of $250 million to $270 million. The company is optimistic about the fiscal year ahead due to its strong premium and iconic brand portfolio, and its talented and diverse team members. This is expected to enable another year of consistent growth in Brown-Forman's long-term performance.

Leanne Cunningham provided an update on the inventory situation for their spirits portfolio. They have faced global supply chain challenges, including glass and logistic constraints, which they have been working to rebuild. They are now back to normal in the United States and Europe, with their distributor and retailer inventories returning to more normalized levels. Depletions and shipments are now largely balanced across their full strength portfolio.

Leanne Cunningham states that their operating income guidance includes brand expenses in line with their top line growth, SG&A that is still a bit above their historical norms due to higher compensation and the addition of their Japan RTC, and gross margin assumptions that will continue to benefit from their long-term pricing and revenue growth management strategies.

The company expects to experience less disruption in their supply chain in F '24, but input costs will still be higher than historical trends due to inflation. Agave prices remain stable at MXN28-30 per kilo, but wood costs remain high due to strong demand. Grain prices have been easing, and glass prices will increase less than in '23 due to lower natural gas prices. Labor costs are still high due to wage inflation, and the company will experience a positive impact from the removal of UK tariffs on June 1, 2022.

Leanne Cunningham discusses the impact of RTDs, the addition of super and ultra-premium brands to the portfolio, and the company's focus on growing value share and increasing capabilities in revenue growth management as it relates to gross margin. She also mentions the impact of agave and wood costs on the portfolio, and the need to watch the external agave price. Overall, she is providing insight into the company's path to getting back to pre-COVID gross margin levels.

Lawson Whiting states that the company has had a pricing strategy in place for the past couple of years, which is low-single digits in the 2%-3% range, and they have been successful at it. They plan to continue this strategy, which is different than some other consumer product sectors and even within their own industry, as it is less aggressive.

Glass supply has been a challenge post-pandemic, and companies have been working with partners to ensure they get the quantity and quality of glass needed to meet demand. Regular price increases have resumed after a decade of not doing so, and the industry is looking to achieve a balance of volume and pricing with a 2-3% increase annually.

Lawson Whiting discussed how the glass supply challenges faced by the company in the back half of F '23 have been successfully navigated, and the company does not expect any glass supply challenges in F '24. He also mentioned that while some big brands have slowed down, the company is expecting better growth going forward due to the glass constraints letting up. He also stated that while costs remain elevated, he does not intend to increase discounting on their brands.

Lawson Whiting reported that the Jack & Coke rollout is going well, with the product being available in nine markets including the U.S., Mexico, Japan, Philippines, the UK, Poland, Hungary, the Netherlands, and Ireland. He indicated that the turn rates have been on plan or slightly better than planned and that the Coca-Cola Company and Brown-Forman have been working together to promote the product with programming at iconic landmarks. He also mentioned that while the product may only bring in modest profits in the early years, there is a lot of visibility and advertising dollars going into the launch.

Leanne Cunningham explains that gross margins for RTDs are typically lower than the company average, but the Jack Daniel's and Coca-Cola RTD launches are supported by both Brown-Forman and the Coca-Cola Company, which should lead to higher operating margins for these products compared to the rest of the RTDs. Additionally, many markets are transitioning from existing Jack Daniel's and cola business to Jack Daniel's and Coca-Cola.

Leanne Cunningham of Jack Daniel's discussed the positive impact of ready-to-drink (RTD) products on their full-strength brand, citing Germany as an example of a successful RTD market. For fiscal year 2024, they expect to move back to a more normalized environment while still experiencing increased consumer demand for their premium portfolio.

Lawson Whiting discussed the continued reliance on the long-term pricing strategy and revenue growth management for fiscal year 2024, and noted that the absence of the Russia business will affect guidance. He also mentioned that Nielsen figures for Total Domestic Spirits (TDS) are back in the 4% to 5% range and that the U.S. market had an overall 3% growth in fiscal year 2023. He cautioned against extrapolating the figures to make statements about consumer health around the world, and noted that the story is more about shipment comparisons to last year than it is about a change in consumer demand. Overall, he noted that the market is back to normal.

Brown-Forman is expecting mid-single digit sales growth in the U.S. market, with higher growth outside of the U.S. There is evidence of down-trading in Europe, and the U.S. is the market that is most affected by this. Premiumization is still alive and well in the U.S., but it is tougher in Europe. However, Brown-Forman is still growing share in Germany, the UK, and Poland. The call has now concluded.

Lawson Whiting concluded the call by expressing his condolences to the family and community of Ivan Menezes, the recently deceased CEO of Diageo, who was an admired leader and respected figure in the beverage alcohol industry. The operator then concluded the call, inviting additional questions to be directed to the Brown-Forman team.

This summary was generated with AI and may contain some inaccuracies.