Brown-Forman held a conference call to discuss their first quarter fiscal year 2024 earnings. Sue Perram welcomed all participants and introduced Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. The conference call contained forward-looking statements and the company warned of numerous risks and uncertainties that could affect the actual results. The press release and presentation can be found on the company's website and it includes a list of risk factors. Non-GAAP financial measures were also discussed during the call.

Brown-Forman's first quarter results for fiscal 2024 were impacted by the rebuilding of distributor inventories in the prior year period, the timing and phasing of operating expenses, and consumer takeaway trends. The company's reported and organic top-line results were below its longer-term historical trends.

In the first quarter of the fiscal year, the company experienced 3% reported net sales growth and 2% organic net sales growth, driven by the growth of Jack Daniel's Tennessee Whiskey, Jack Daniel's Tennessee Apple and el Jimador. This growth was partially offset by the estimated net decrease in distributor inventories, which had a 6% impact on the overall top-line results. If the net change in distributor inventories were factored in, the net sales growth would have been higher than expected.

Jack Daniel's Tennessee Whiskey led Brown-Forman's growth as organic net sales increased 2%. Jack Daniel's Tennessee Apple also saw a strong increase of more than 50%. El Jimador saw an increase of 26% and the ready-to-drink portfolio grew 5%. The launch of Jack Daniel's and Coca-Cola has been successful, with 1.8 million cases sold across 11 markets, led by the US and Japan.

Brown-Forman announced the successful launch of the Jack Daniel's and Coca-Cola RTD, which has achieved the second highest level of off-premise distribution across the portfolio. The strong investment behind the launch, including broad-reach media, events and trade execution, has resulted in brand visibility, market share gains, and positive feedback from distributors, retailers, and consumers. Brown-Forman plans to expand from 11 to 30 markets by the end of 2024 and has been strategically reshaping its portfolio to focus on premium and super premium brands. The integration of new brands, Gin Mare and Diplomatico, has been successful and Finlandia Vodka was sold earlier in the quarter.

In the first quarter of 2024, Brown-Forman experienced a 5% increase in gross profit and 90 basis points of gross margin expansion due to favorable price/mix, lower supply chain disruption related costs, and the removal of UK tariffs on American whiskey. The company also increased their brand-building investments in the form of 14% organic advertising expenses and 12% organic SG&A investment to support the launch of the Jack Daniel's and Coca-Cola RTD, as well as organizational changes. Finlandia has been an important part of the global growth of Brown-Forman since 2004, and the brand will continue to evolve in the hands of Coca-Cola HBC when the sale closes in 2023.

Lawson and Leanne discussed the strong performance of their brands in the first quarter of fiscal 2024, which was driven by increased distribution and consumer demand in emerging international markets. Jack Daniel's Tennessee Whiskey, Tennessee Honey, and Woodford Reserve all saw strong double-digit growth, with the travel retail channel returning to pre-pandemic levels. Leanne will provide further details on geographic performance, other financial highlights, and the fiscal 2024 outlook.

In the first quarter, organic net sales were flat for developed international markets due to growth in the UK, South Korea, and Germany being offset by declines in Australia and Japan. The US organic net sales decreased 9% due to lower volumes and an estimated net decrease in distributor inventories, but consumer premiumization trends for super premium Jack Daniel's products partially offset the decline. The inventory rebuild from the same period last year was particularly impactful to the US market.

Brown-Forman experienced mid-single digit growth in total distilled spirits, driven by tequila, US whiskey, and RTDs. This led to a gross margin expansion and operating expenses phasing, which was partially offset by a decrease in reported and organic operating income of 4% and 6%, respectively. This resulted in a 7% decrease in diluted EPS to $0.48 per share. Brown-Forman is optimistic about the future and is reaffirming its fiscal 2024 outlook.

The company expects to continue to grow due to their pricing and revenue growth strategies and the addition of two super premium brands, Gin Mare and Diplomatico. They are expecting organic net sales growth to be in the 5-7% range for fiscal 2024, though this is subject to macroeconomic volatility and the potential impact of inflation on consumer spending. They are also expecting to be negatively impacted by inflation in terms of input costs, though this will be partially offset by lower year-over-year costs associated with supply chain disruptions in the previous year.

Agave prices have recently decreased from MXN28 to MXN30 per kilo to MXN16 to MXN18 per kilo, which is encouraging, but the benefits to cost of goods sold will not be immediate. Inflation will still be a headwind for input cost in fiscal 2024, and advertising and SG&A expenses are still expected to remain higher than historical averages due to increased compensation and the transition to own distribution in Japan.

In the first quarter of fiscal 2024, the results reflected the continued normalization of consumer demand and the comparison against the very strong shipments related to the rebuilding of distributor inventories in the year-ago period. In response to a question about the distributor inventory, Leanne Cunningham stated that there was a tough comparison to the first quarter of last year, when there were very strong shipments. She did not provide any information about current distributor stock levels or if there would be any destocking in the next quarter.

Leanne and Lawson Whiting explain that the current inventory levels are back to normal after a year of rebuilding, and the shipments are abnormal from the historic norms due to prioritization of Jack Daniel's Tennessee Whiskey, Woodford Reserve, Gentleman Jack, and Jack Daniel's flavors. The abnormal shipments are due to the rebuilding of the inventory, but it is not destocking.

In the summer of 2020, the industry experienced a post-COVID boom, but in the summer of 2021, Brown-Forman began to experience glass shortages. In order to alleviate the issue, they diversified their glass supply, moved bottling lines, and prioritized Jack Daniel's as the on-premise began to open around the world. This allowed Jack Daniel's to have a big year in fiscal 2022 and fiscal 2023. By the summer of 2022, the whole portfolio had come back online.

Leanne Cunningham explains that the lack of destocking is not due to days of inventory or destocking issue, but rather due to the fact that they are comparing against "crazy quarters" from the previous year. She states that the underlying business is in good shape and that the volatility is not ideal, but it is there. In response to a question, she clarifies that there is no destocking whatsoever and that the issue is purely a comp cadence issue. She also mentions that the Q2 outlook should be good.

Leanne Cunningham and Lawson Whiting discussed the change in distributor buying patterns and how that affects Brown-Forman's inventory levels. They stated that shipments and depletions are aligned, except for the Jack Daniel's ready-to-drink launch in the US.

Lawson Whiting discussed the strength of the US market, which is being elevated by RTD products, and the strong growth of the international markets, particularly in South America, Mexico, and Eastern Europe. He also noted that the UK market is in good shape and delivering well, and that the business is not turning into a 1% growth.

Lawson Whiting explains that the global sales of Jack & Coke across 11 markets is 1.8 million cases, but the sales numbers may appear to be lower due to some of the sales being reported on the Coca-Cola Company's books instead of Brown-Forman's. He reiterates that this is a successful launch and an iconic product.

The Coca-Cola Company and Jack Daniel's have invested heavily in the launch of their product, with broad reach media, events, and trade executions. The product has already achieved 2% of the category in the US in just three or four months, and the potential for the future of the brand is exciting. In the second quarter of fiscal 2024, there will be a headwind due to the launch of Jack Daniel's and Coca-Cola in the US, but the comps are still high and normalizing.

Drew Levine from JPMorgan asked about the discrepancy between the underlying growth rate of 2% and the mid-single digit growth rate of TDS in the US. Lawson Whiting and Leanne Cunningham explained that the difference is due to the launch of the Jack & Coke product and the buying patterns that are associated with it, which have not yet been reflected in the takeaway trends. Drew Levine then asked a follow-up question about gross margins.

Leanne Cunningham discusses the first quarter's gross margin, which was expanded by 90 basis points due to price/mix. This was mainly driven by Jack Daniel's Tennessee Whiskey, and the last of the benefit from the removal of the UK tariffs on American whiskey. She then goes on to discuss the full year, expecting price mix to continue to be a leader, with the absence of supply chain disruption costs and lower levels of inflation negatively impacting input cost. She then talks about agave, saying that it is about what they said.

The company has been anticipating the arrival of agave supply to meet the demand for a long time and is now starting to see the benefit. They have finished cases in the supply chain and inventory that need to be sold through, but they will start to see a meaningful benefit towards the end of the fiscal year '24 and into fiscal year '25. The company grows its own internal agave but has to source on the spot market to meet its needs, leading to the cost of agave and wood being the biggest challenges for the company.

Wood commodity costs remain high, but strategic changes in the supply chain have started to benefit the company. Grain costs, largely corn, are below their peak and natural gas and diesel prices have decreased, resulting in a slight increase in glass costs. The cost trends are moving in a favorable direction and are built into the company's guidance. Vivien Azer asked about advertising spending in the competitive TBA market in the United States, and how it could impact distilled spirit sales.

The beer companies are struggling and trying to turn their brands around, but the company is not following suit and trying to spend their way out of it. Despite the pandemic, the company has lapped the impact of it and is on an elevated base. The company is investing in the launch of Jack Daniel's and Coca-Cola in the US and Germany, and they believe their brands and business are healthy.

Lawson Whiting commented on the need for advertising in the RTD world, noting that malt-based RTDs have experienced a sharp decline and been replaced by spirit-based RTDs which consumers are willing to pay substantially more for due to their better taste. He further noted that this has resulted in wild numbers in the world of Nielsen.

Brown-Forman has observed the consumer's willingness to pay more for a better product, and is in the process of transitioning its route-to-market process in Japan. They have seen success in 14 markets that have moved to own distribution, and are now incurring SG&A costs associated with the transition in Japan. Inventory levels are up due to a glass shortage, and Brown-Forman is monitoring the situation.

Leanne Cunningham explains that the supply chain is replenished with finished goods inventory and they are ready for the holiday season. Bill Kirk asks how net sales are above long-term growth expectations but depletions are below long-term expectations. Lawson Whiting explains that if the distributor inventory topic is adjusted, the sales growth would be 8%, which is higher than the historical norm and makes them confident.

Leanne Cunningham discussed the company's agave needs, which are supplemented by external sources depending on the category demand, finished goods inventory, and liquid inventory. Lawson Whiting provided insight on the Jack & Coke launch, including incremental distribution gains and new launches planned for the rest of the fiscal year. He also provided details on consumer trial and repeat rates.

Brown-Forman had a successful first quarter, reaching their goals in a short period of time. However, they are still unable to measure the rate of repeat purchases. They have launched in the UK, Spain, and Poland, and will be launching in Germany in September. Coca-Cola is taking it to other markets such as Japan, the Philippines, the UK, Poland, Hungary, Netherlands, and Ireland. The call then concluded with closing remarks.

Brown-Forman Corporation will be presenting at the Barclays Global Consumer Staples Conference next week and the presentation will be available as a webcast on their corporate website. They wish everyone an enjoyable weekend, particularly those in the United States celebrating Labor Day, and invite everyone to join them in raising a glass to their founder, George Garvin Brown, on his birthday on September 2. The call concludes.

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