The paragraph is the introduction to Brown-Forman Corporation's Third Quarter and Year-to-Date Fiscal 2025 Earnings Conference Call. Sue Perram, Vice President and Director of Investor Relations, introduces key speakers including Lawson Whiting, President and CEO, and Leanne Cunningham, Executive Vice President and CFO. The call will include forward-looking statements, highlighting the presence of risks and uncertainties that may affect actual outcomes. A press release detailing the third quarter results and accompanying presentation materials are available on the company's website. The paragraph also mentions that additional risk factors are outlined in the company's SEC filings.

In this paragraph, the speaker, Lawson Whiting, discusses the company's financial performance for the third quarter and year-to-date results for fiscal 2025. He emphasizes that despite operating in a highly dynamic and uncertain environment, the company has delivered stronger top and bottom line results in the second half of the year. However, concerns about tariffs persist. Nonetheless, the company is reaffirming its full-year outlook for organic net sales and operating income. Whiting concludes by mentioning that he will cover brand performance, while Leanne will discuss geographic performance and other financial highlights.

In the first nine months of fiscal 2025, the company's net sales decreased by 4%, but organic net sales increased by 2% after accounting for previous divestitures and market changes. Woodford Reserve and Jack Daniel's Tennessee Whiskey significantly contributed to organic sales growth, with Woodford Reserve showing a 10% increase in sales driven by higher volume and pricing, particularly in the super-premium category. Woodford Reserve is one of the few growing brands in the U.S. spirits market, with new product launches like Woodford Reserve Batch Proof and Woodford Reserve Double, Double Oak, which target the luxury market with prices above $100. The strategic focus on innovation and premium offerings positions the company well in the competitive whiskey segment.

The paragraph discusses Jack Daniel's strategic efforts to enhance brand engagement and sales. The company reports a 2% increase in organic net sales for its Tennessee Whiskey in early 2025, attributed to both short-term and long-term branding strategies. These include sponsorships with McLaren Formula One and musical events, aimed at attracting younger consumers while maintaining their existing customer base. The strategy also includes increased investment in on-premise markets and creating a team of brand ambassadors, the Jack Pack, across the U.S. Jack Daniel's emphasizes its historical connection to music as a cultural engagement tool, continuing its long tradition of associating with musicians to foster authentic consumer relationships.

The paragraph discusses the growth and innovation in the Ready-To-Drink (RTD) category, highlighting the popularity of Jack & Coke RTDs during spring and summer music events. It notes the global attention the brand is receiving, including the 2025 Product of the Year Award in the UK. The introduction of Jack & Coke Cherry in the US and UK and the upcoming variety pack featuring additional flavors are mentioned. The New Mix brand is also experiencing significant growth in Mexico, with the launch of a new Tamarindo flavor. The paragraph emphasizes the importance of balancing tradition with innovation to meet changing consumer demands and strengthen the portfolio of RTDs and full-strength brands.

The newest brands in the portfolio, Diplomatico and Gin Mare, are experiencing strong growth, particularly in Europe and through travel retail channels. Diplomatico has seen significant sales increases in France, Czechia, and Germany, while Gin Mare has grown in Germany, Spain, and travel retail. Both brands, acquired in fiscal 2023, complement existing consumer investments and offer growth potential in the U.S. Meanwhile, the tequila brands Jimador and Herradura face challenges in their major markets, the U.S. and Mexico, due to competitive and economic pressures. Efforts are being made to highlight the heritage and craftsmanship of Herradura, including the launch of Herradura Cristal in Mexico. Despite current challenges, there is optimism for El Jimador's global growth, particularly in Australia, Brazil, and France, and for El Herradura's role in expanding the premium tequila market worldwide.

The paragraph discusses the company's strategic approach to adapting to the evolving beverage alcohol industry with a focus on long-term growth. It highlights their recent route-to-consumer developments, including the planned launch of their own distribution in Italy and a significant change in California, where Ray's Beverage Group will become their new distributor starting May 1, 2025. This decision builds on their existing relationship with Ray's in California and aims to enhance growth capabilities. The company also values its partnership with the Republic National Distributing Company across 23 other U.S. states and remains committed to reviewing their distribution strategies to ensure competitiveness in the market.

The paragraph outlines a series of strategic initiatives undertaken by a company to foster growth in the global spirits market. Key actions include restructuring the executive leadership team, reducing the global workforce by 12%, and closing the Louisville-based Brown-Forman Cooperage. The company aims to streamline operations, enhance efficiency, and reinvest in growth-driving areas. The decision to close the Cooperage, after nearly 80 years, aligns with the company's strategy to optimize its wood supply chain due to competitive external suppliers and high wood costs. While the restructuring will incur costs of $60 million to $70 million, it is expected to yield $70 million to $80 million in annual savings and generate over $30 million in asset sale proceeds.

The paragraph discusses Brown-Forman's strategic initiatives to reinvest savings for future growth and expresses gratitude to employees affected by these changes. The company, with a history of 155 years, is confident that these strategies will secure its longevity. Despite uncertainties in the dynamic environment, Brown-Forman remains committed to achieving its fiscal 2025 guidance, bolstered by strong brands and a resilient team. Leanne Cunningham provides further details on geographic performance and fiscal outlook, highlighting a return to growth in organic net sales and operating income, especially in international markets, aligning with their expectations.

The paragraph highlights the company's growth in international markets, particularly with an 8% increase in organic net sales driven by strong performance in Turkey and Brazil, led by Jack Daniel's Tennessee Whiskey. Brazil's growth benefits from geographic expansion and a new package size for Jack Daniel's. In Mexico, sales were flat due to economic challenges, though Jack Daniel's and RTDs are gaining market share, despite underperforming tequilas. New Mexico saw double-digit growth, propelled by strategic pricing, promotions, and expanded distribution. The company also formed a distribution agreement with William Grant & Sons to enhance their brand portfolio, focusing on the On-Trade and Super-Premium segments, as part of their strategy to identify and act on growth opportunities.

In the travel retail channel, organic net sales saw a slight decline of 2% in the first nine months of the fiscal year. While Diplomatico and Jack Daniel's Tennessee Whiskey grew, declines in super premium American whiskeys offset this growth. Internationally, organic net sales decreased by 1%, with Japan benefiting from a distribution change, and competitive pressures affecting sales in South Korea. Germany experienced a drop in consumer confidence and spirit sales, affecting Jack Daniel's products. In the U.S., although overall sales decreased by 1%, products like Woodford Reserve, Old Forester, and Jack Daniel's RTDs saw double-digit growth, despite declines in Jack Daniel's Tennessee Whiskey and Corbel California champagne. The paragraph highlights the impact of distributor inventory levels and the consumer environment on these performance trends.

Old Forester experienced strong double-digit organic net sales growth, primarily due to its super-premium products, which also boosted its flagship 86 proof variant. Jack Daniel's Tennessee Whiskey saw sequential acceleration in sales growth and launched a new 14-year-old expression, marking its first age-stated release in over a century. Despite downturns in the sparkling category, Corbel maintained strong sales through promotions. Distributor inventory levels in the U.S. remain low, with increased shipments for brands like Jack Daniel's and Woodford Reserve to meet anticipated holiday demand and prevent out-of-stock issues.

During the holiday selling season, distributors largely sold through their seasonal inventory, aligning shipments and depletions for the fiscal year. The three-month rolling value trends for distilled spirits decreased by about 1% due to timing comparisons. Premiumization in U.S. whiskey and tequila, especially in the $40+ tier, continues with increasing value and market share. Year-to-date fiscal 2025 saw a reported and organic gross profit decrease of 6% and 1% respectively, leading to a 150 basis point decline in gross margin to 59.4%. Though sequential gross margin improvement was observed, it benefited from price mix, a business model change in Jack Daniel's Country cocktails, and portfolio evolution but was offset by higher costs and unfavorable foreign exchange. Expenses decreased, driven by a 6% decrease in organic advertising and a 4% reduction in organic SG&A, aided by lower compensation and benefits and reduced brand-building investments compared to the previous year's launch activities.

The company anticipates incurring $60 million to $70 million in expenses due to strategic workforce initiatives, including severance, restructuring, and facility closure costs. By January 31, 2025, $33 million has already been spent, with the initiatives expected to be mostly completed by fiscal 2025 and fully by fiscal 2026. Operating income reported a 13% decrease, while organic operating income grew by 5% in the first nine months of fiscal 2025. Additionally, the company sold its 21.4% interest in Duckhorn for $350 million, recognizing a $78 million gain. This contributed to a 4% decrease in diluted earnings per share to $1.53. The company expects a volatile operating environment and anticipates 2% to 4% growth in organic net sales in fiscal 2025, leaning towards the lower end of the range.

The company anticipates growth driven by its pricing strategy and revenue management across various markets, despite higher costs in fiscal 2025. They expect consistent gross margins, aided by benefits from lower Agave prices, although offset by inflation and reduced production volumes. Higher costs, particularly for tequila, may delay inventory management. The company plans increased investment in brand advertising, alongside reduced SG&A expenses due to workforce initiatives, and forecasts organic operating income growth of 2-4%, targeting the higher end of this range.

The paragraph discusses Brown-Forman's financial performance and outlook for fiscal 2025. The company has adjusted its effective tax rate outlook and expects capital expenditures to be between $180 million and $190 million. Despite operating in a dynamic environment with fluctuating consumer demand and distributor inventory levels, Brown-Forman has seen growth in organic net sales and operating income. The company remains confident in its ability to navigate a volatile market while focusing on both short-term goals and long-term strategies to ensure enduring success. After concluding the prepared remarks, the paragraph transitions to a Q&A session, with Lauren Lieberman from Barclays asking a question about Brown-Forman's performance during the craft boom from 2014 to 2019, noting that Jack Daniel's maintained growth in the U.S. during this period.

The paragraph discusses the potential increase of smaller whiskey brands entering the market due to an excess supply, and the implications for established brands like Jack Daniel's and Woodford Reserve. Lawson Whiting addresses the past wave of entrepreneurial-led brands that emerged when bulk suppliers grew, breaking the previous dominance of a few large companies. However, despite this, "craft brands" have only achieved a small market share of 3% to 4%. Whiting suggests that the current industry competition is more among large companies rather than against smaller brands. Furthermore, he notes that more small brands are closing than opening, and he considers the big players to be rational market participants.

The paragraph discusses industry trends and performance, specifically focusing on large companies reducing supply by delaying new plant openings and furloughing staff to align supply with demand. It mentions the dynamic nature of these changes and recalls a period two years ago when there were fears of supply shortages. It highlights Jack Daniel's improving performance during the fiscal year, particularly due to investments in markets like Japan and Turkey, with U.S. sales also showing sequential growth. The focus on enhancing the Jack Daniel's brand involves emphasizing music-related marketing efforts, including participation in global music festivals.

The paragraph discusses several initiatives by Jack Daniel's, including hosting songwriters in Lynchburg, Tennessee, and redefining the Jack's Garage Experience that combines music culture with racing. These efforts are aimed at maintaining relevance with their audience, despite less than ideal trends in the U.S. market. However, growth in emerging markets is helping to drive the company forward. The conversation then shifts to two questions from Nadine Sarwat of Bernstein regarding the competitive tequila market in the U.S. and Jack Daniel's pricing strategy, as well as any observed changes in U.S. spirits market value growth and consumer behavior.

In the U.S., consumer health, gauged by TDS, is stagnant or slightly declining, which is disappointing since growth was expected. The rise in demand for smaller product sizes is noted, attributed to cyclical economic conditions like inflation affecting consumer spending. Food and general inflation remain challenges, impacting consumer behavior. The tequila market, particularly big brands, faces pricing challenges with a 1.7% decline, though it's less severe than anticipated, and overall U.S. spirits pricing is down 0.5%, indicating competitors are behaving rationally.

The paragraph features a conversation during a financial review or earnings call, focusing on the tequila market and distributor inventory levels. Leanne Cunningham discusses the strategy to reposition the Herradura tequila brand within the $20 to $30 price range by introducing new packaging, communication, and innovations. Peter Grom from UBS inquires about the impact of distributor inventories on organic sales growth, specifically in relation to a 300 basis point tailwind observed in the third quarter. Cunningham elaborates on inventory considerations, mentioning that depletions were six points ahead of shipments at the end of fiscal '24, and emphasizes the importance of returning to normal inventory levels without anticipating significant changes in the fourth quarter.

The paragraph discusses the current state of inventory and sales for a company’s products, noting that distributors are maintaining low inventory levels in line with consumer trends and inflation. Despite these lower levels, shipments and inventory depletions are largely aligned, with depletions slightly ahead. The company has taken steps to ensure sufficient stock for the holiday season without causing shortages. They anticipate consistent shipment and depletion levels by the fiscal year-end. The company expects stable consumer behavior and benefits from acquisitions like Genmar and Diplomateco, as well as growth in emerging markets and product innovations such as Woodford Double Double Oak and Jack Daniel's 14-year-old product, which have been successfully launched.

In the paragraph, Filippo Falorni from Citi asks about potential risks related to shipments and inventory levels for fiscal year '26, as well as the impact of EU tariffs on the company's operations and pricing strategies. Leanne Cunningham responds by noting that inventory levels are low, and shipments and depletions are expected to align for the current fiscal year, with more guidance to be provided in June. Lawson Whiting addresses the tariffs issue, highlighting the broader industry impact and stating that the goal is to achieve reciprocal 0 for 0 tariffs.

The paragraph discusses the uncertainty surrounding potential EU tariffs on American whiskey amid trade tensions. The industry is preparing for various scenarios, including the possible automatic imposition of tariffs on March 31, which could range from 0% to 50%. The EU has not yet announced retaliatory measures. The speaker emphasizes the importance of reciprocity to avoid market distortions and explains that while preparations are in place, details are sensitive and limited information can be shared.

The paragraph discusses the impact of tariffs on American-made products, particularly in Canada. Due to a 25% tariff, Canada has removed many American products, including beverage alcohol, from shelves, affecting sales. Lawson Whiting from Brown Farm mentions that while this action is more severe than a tariff as it entirely stops sales, Canada only accounts for about 1% of their sales, so the company can endure it. He also mentions the hope for "reciprocal 0 for 0 tariffs" to benefit the industry. Additionally, there's a brief mention of the fluid situation regarding tariffs on Mexico and the EU and the decision to include any impact in their financial guidance for Fiscal Year '25.

The paragraph discusses the distribution and consumer behavior regarding Jack Daniel's, particularly focusing on Canada and Mexico, where there is uncertainty about supply and announcements. Leanne Cunningham notes that during the holiday season, consumer behavior aligned with expectations, with shoppers being more focused on deals due to financial constraints. Last year's holiday season saw distributors reducing their inventories, and the environment was more promotional. Despite increasing price competitiveness, the volume sold on promotion was average compared to competitors. Lawson Whiting mentions the ongoing debate over structural versus cyclical changes in the industry and emphasizes the importance of historical context in understanding these trends.

The U.S. spirits market experienced stable growth for decades, with spirits gaining popularity over wine and beer, driven by factors such as premiumization and population growth. However, during the COVID-19 pandemic, the spirits market saw an explosive increase in demand that lasted until mid-2023. By late 2023, the market's growth slowed dramatically, dropping from a 6% increase to 0%, and eventually declining by 2% throughout 2024. The speaker argues that this decline is mainly due to inflation and not structural factors like GLP-1s, cannabis, or the influence of Gen Z. These factors may pose long-term challenges but are not seen as the primary reasons for the sudden downturn. The younger Gen Z consumers' limited financial capacity is highlighted as a different kind of headwind.

The paragraph discusses several business topics, starting with a perspective on Gen Z's impact on the spirits market. There is an expectation that Gen Z will increase their per capita consumption as they age, contributing to a trend where spirits continue to take market share from beer and wine in the U.S. Despite current challenges with premiumization, there is optimism for future growth as more people reach the legal drinking age. The paragraph then shifts to a Q&A session where Eric Serotta from Morgan Stanley asks about potential impacts on fourth-quarter results due to distributor transitions in California and inventory management issues. He also inquires about the status of finished goods inventories and the contributing factors to sales growth in emerging markets, questioning the balance between pricing and volume increases.

In the paragraph, Leanne Cunningham discusses several key points regarding Brown-Forman’s business activities. She mentions efforts to ensure a seamless transition in California involving collaborations with partners like R&DC and Ray. There has been a focus on adjusting finished goods and raw material inventories to more historic levels, with tariff mitigation strategies aiding this process. In emerging markets, growth strategies vary by region. For instance, in Turkey, despite inflationary pressures, there's price adjustment while the premium whiskey segment grows. The company sees significant opportunities in emerging markets, which were previously underappreciated but are now demonstrating growth. The paragraph concludes with a transition to a question from Bonnie Herzog of Goldman Sachs.

In the paragraph, the speakers, Leanne Cunningham and Lawson Whiting, discuss their company's approach to marketing and advertising spending. They explain that their brand spending typically aligns with their top-line growth, emphasizing consistency despite scaled-back spending in the recent quarter. Leanne mentions ongoing investments, particularly in Jack Daniel's Tennessee Whiskey, to maintain long-term brand equity. Lawson adds that, even though industry growth isn't particularly strong at present, the company plans to invest more in the brand moving forward. A recent reorganization at their company will lead to increased spending on brand expenses, including advertising, with more details expected in future updates.

The paragraph is about the conclusion of Brown-Forman's third-quarter and year-to-date fiscal year 2025 earnings call. The speaker thanks participants and offers to answer additional questions. They mention Brown-Forman's participation in the upcoming UBS Global Consumer and Retail Conference in New York and note that a fireside chat will be available as a webcast on their website. The operator then ends the conference call.

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