Brown Forman Corp (BF-B) Q1 2027 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Brown Forman Corporation first quarter fiscal year 2027 earnings conference call. At this time all participants are on the listen only most. After the speaker's presentation there will be a question and answer session. To ask a question during this session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand my conference over to your speaker today, Sue Parham, Vice President, Director, Investor Relations. Ma'am, please go ahead.

Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown Foreman's first quarter fiscal year 2027 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Jim Peters, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements and, except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise. This morning, we issued a press release containing our results for the first quarter fiscal year 2027, in addition to posting presentation materials that Lawson and Jim will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events, and Presentations. In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our 2026 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures, a reconciliation to the most directly comparable GAAP financial measures, and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and investor presentation. With that, I would like to turn the call over to Lawson.

Thank you, Sue, and good morning, everyone. The first quarter of fiscal 2027 unfolded largely as expected and underscored an important point. Innovation is creating meaningful growth opportunities across our portfolio. Strong momentum from Numix, our RTD portfolio, and Jack Daniels Tennessee BlackBerry helped offset several headwinds. This led to first quarter performance that was largely in line with our expectations and supports our full-year outlook. More specifically, that momentum helped offset expected pressure in areas including used barrel sales, parts of our tequila portfolio, and softer consumer demand across several of our larger developed markets. Challenging industry conditions persist, and consumers remain selective with discretionary spending, particularly in developed markets. Still, we're encouraged by what we're seeing from our innovation pipeline, the strength of our RTD portfolio, and the opportunities we continue to create for our brands around the world. Across our portfolio, we're focused on meeting consumers where they are, with products that offer relevance, convenience, value, and differentiated experiences. That strategy is working, and we're reaffirming our full-year outlook this morning. Before discussing our growth drivers, I'd like to briefly highlight Jack Daniels Tennessee Whiskey. Organic net sales for Jack Daniels Tennessee Whiskey were essentially flat in the quarter. While we remain focused on strengthening performance over the long term, the brand provided an important source of stability in the quarter and continues to serve as the foundation of our portfolio. As we discuss the rest of the quarter, I'll note that results were influenced by several timing-related factors, including ordering patterns driven by our U.S. distributor changes in the summer of 2025 and the launch of Jack Daniels Tennessee BlackBerry. You will hear those dynamics referenced throughout the call. Now, moving on to our growth drivers for the quarter. Our RTD portfolio continues to perform exceptionally well and remains one of our most important growth platforms. Numix delivered strong double-digit growth in Mexico, and continues to benefit from consumers' interest in flavor, convenience, and affordability. In the United States, demand has exceeded our expectations since the launch. To capitalize on this momentum and consumer appeal, we're expanding into additional markets and introducing new flavors and pack options to support future growth. We also continue to see encouraging results from El Jimidor Spritz, which had a strong start in the United States. Taken together, based on recent Nielsen data, our RTD portfolio contributed approximately one point of value growth to our overall U.S. performance. Beyond RTDs, Jack Daniels Tennessee BlackBerry continues to be one of the most successful innovations in our portfolio. The brand is now available in more than 30 international markets, with particularly strong growth in countries including Brazil, France, and the United Arab Emirates. In the United States, BlackBerry contributed more than two points of value growth based on Nielsen takeaway trends. Importantly, we're sustaining this momentum by continuing to invest in the brand, broadening distribution, and introducing new pack sizes that meet a range of needs and occasions. Together, these efforts are driving incremental growth and attracting new consumers to the franchise. We're also extending the trademark through products such as Jack Daniel's Tennessee Blackberry and Lemonade in an RTD format. Consumers were already mixing Tennessee blackberry and lemonade. We simply made it easier. Of course, those gains were partially offset by several areas of our business that remain under pressure. Organic net sales for our non-branded and bulk business, namely our used barrel sales, declined more than 60%. Over the past two years, our sales have declined from more than $100 million to approximately $30 million. Demand for barrels from scotch and Irish whiskey producers remains well below the unusually high levels we experienced a couple of years ago. The decline in the first quarter was driven by the comparison to the prior year period, which benefited from higher demand and pricing before declining throughout the remainder of the fiscal year. Our full-strength tequila portfolio, which includes Eridura and El Hemador, declined in the low teens. While performance remains well below where we want it to be, we're focused on improving results through stronger consumer marketing, clearer brand positioning, and disciplined commercial execution. While it's still early, we're beginning to see encouraging signs, particularly with El Jimidor in the United States, where Nielsen takeaway trends have improved meaningfully. It's also important to acknowledge a few other brands where there were some unique circumstances impacting first quarter results. Organic net sales for Jack Daniels, Tennessee, Honey declined largely due to the challenging operating environment in the U.S., as well as the supply chain disruptions in Chile during the year-ago period, which negatively affected the year-over-year trends. The decrease in Gentleman Jacks stemmed mainly from shipment timing differences, which were related to the distributor transitions in the U.S. last year. Turning to geographies, our results were generally consistent with the trends we anticipated entering the year. Emerging international markets delivered 9% organic net sales growth, led by Mexico and the UAE. Numix continued to drive strong growth in Mexico, while the results in the United Arab Emirates benefited from the timing of shipments. These gains more than offset a challenging comparison in Brazil caused by supply chain disruptions in the year-ago period, and while the country's trends are recovering following the methanol crisis, performance remains below last year. In the developed international markets, organic net sales declined 8%. Australia continued to perform well, growing organic net sales 4%, despite a challenging market environment. Growth was led by Jack Daniels Tennessee Whiskey, which benefited from the timing of ordering patterns and was supported by RTD Innovation, including Jack Daniels Tennessee Serve, a 12% ABV whiskey and cola RTD created exclusively for the Australia market and launched earlier this calendar year. Across much of Europe, consumer demand remains soft, resulting in ongoing pressure on the broader spirits category. Germany, France, and the UK were all very weak as conditions in those markets are particularly challenging. Even in this environment, our whiskey category share remains stable or is increasing in five of our eight largest European markets, and we remain focused on optimizing our route to consumer and driving innovation. In Canada, U.S. produced spirits remain off the shelves in most of the provinces, although we're now lapping a similar comparison period. We continue to assume these restrictions will remain in place for the balance of the fiscal year. The travel retail channel declined 1% during the quarter. Passenger traffic in several key travel corridors remains below historical levels, particularly in parts of the Middle East. Turning to the United States, our performance remains ahead of our largest competitors, with organic net sales flat despite a decline in the overall spirits market. Growth from Jack Daniel's Tennessee Whiskey, our RTD portfolio, and premium innovations such as Jack Daniel's Single Barrel Heritage Barrel helped offset broader market pressures. Importantly, shipments trailed depletion trends by approximately four points as we lapped the distributor transitions and the launch of Tennessee BlackBerry in the prior year period, both of which benefited shipment timing. Broadly speaking, the operating environment remains consistent both with our expectations and prior year performance, and our geographic performance reflects that. Before I close, I want to recognize our people. The dedication of our employees continues to be one of Brown Foreman's greatest strengths. Despite a challenging operating environment, our teams remain focused on execution, supporting one another, and advancing our strategic priorities around the world. In summary, our first quarter unfolded largely as expected. Innovation remains one of our most important growth drivers, and from Numix and our RTD portfolio to Tennessee BlackBerry and Paxi's innovation, we're creating new occasions for consumers to engage with our brands and generating growth opportunities across the portfolio. While pressures remain across parts of the industry, we're focused on the brands, markets, and consumer occasions where we see greatest long-term potential. That focus, combined with the strength of our people and portfolio, gives us confidence in our ability to deliver against our fiscal 2027 outlook. Before turning the call over to Jim, I'd like to briefly comment on my upcoming retirement. As we announced in July, after nearly 30 years with Brown Foreman, I have decided to retire once my successor is named. It's been the privilege of a lifetime to serve as the CEO of Brown Foreman, and I'm grateful for the support of our team around the world, the Brown family, and our board of directors over my career and particularly during my time in this role. While I'm looking forward to my next chapter, until a successor is named, I remain squarely focused on leading the business, executing our strategy, and supporting our teams. The board's corporate governance and nominating committee is leading a comprehensive search process, considering both internal and external candidates. As we have said previously, this is a thoughtful and deliberate effort to identify the right leader for Brown-Forman's next chapter, and we're not providing a specific timeline. Announcing my retirement before a successor is selected was an intentional decision that gives the board the time and flexibility to conduct that process thoroughly by ensuring continuity in the leadership of the business. Following the appointment of my successor, I also expect to support a smooth transition in an advisory capacity. So with that, I'll turn the call over to Jim.

Thank you, Lawson, and good morning, everyone. As Lawson discussed, our first quarter results were largely in line with our expectations. Innovation continued to support top-line performance. Our teams remained disciplined in managing costs and investments. And we delivered growth in both earnings and cash flow while reaffirming our fiscal 2027 outlook. Let me spend a few minutes discussing these results. Starting with profitability, gross margin expanded 40 basis points to 60.2% during the quarter. The improvement was primarily driven by lower costs, largely driven by timing, and favorable portfolio changes, partially offset by foreign exchange and product mix. Foreign exchange, particularly the stronger Mexican peso, remained a headwind. We also saw some expected mix pressure from the continued strong growth of Numix and our broader RTD portfolio. While RTDs carry a different margin profile than much of the rest of our portfolio, their growth continues to support our broader strategy of meeting consumers where they are, creating new occasions, and building important future growth platforms for the business. We also remain disciplined in our approach to investment. Organic advertising expense declined 4%, primarily due to timing. Our philosophy remains unchanged. We align brand investment with depletion trends and continue to believe we are investing at healthy levels behind our portfolio. Organic SG&A increased 5%, driven largely by costs associated with organizational changes intended to reduce complexity and support faster decision-making across the business. Taken together, these factors resulted in reported operating income declining 3%, while organic operating income increased 4%. The combination of improved organic operating performance, lower non-operating post retirement expense, and the benefit of prior year share repurchases drove earnings per share growth of 6% to $0.38. We also delivered strong cash flow performance during the quarter. Cash flow from operations increased $13 million to $173 million, while free cash flow increased $32 million to $161 million. The improvement reflected solid operating cash generation and lower capital spending requirements. Due to our strong financial position, we repaid 300 million euro principal amount of the 1.2% senior notes on the July 7, 2026 maturity date. Turning to our outlook, the key message is straightforward. Our first quarter performed largely as expected, and we are reaffirming our fiscal 2027 guidance. The operating environment remains consistent with the assumptions we outlined at the beginning of the year. Consumer demand remains pressured across many developed markets, while emerging international markets continue to provide important growth opportunities. Innovation continues to perform well, particularly Numix, our broader RTD portfolio, and the ongoing global rollout of Jack Daniel's Tennessee BlackBerry. While shipments have benefited from that momentum, particularly for Tennessee BlackBerry, we continue to expect the gap between shipments and depletions to narrow as the year progresses, with depletions exceeding shipments for the full fiscal year. In addition, we expect continued pressure on used barrel sales, but we expect the impact to moderate through the remainder of the year and the year-over-year dollar impact on net sales will be significantly less. Overall, based on currently known factors, we continue to expect organic net sales to be approximately flat for fiscal 2027. From a profitability standpoint, we remain focused on carefully managing costs while continuing to invest behind our brands. As we move through the year, higher cost whiskey inventory will become a larger factor in our results. These inventories were produced during a period of unusually high inflation and elevated input costs for barrels, grain, energy, and other key inputs. While actions we have taken to optimize our supply chain will benefit us over time, the aging requirements of many of our products mean those benefits will take time to fully materialize. We also continue to expect higher input costs during fiscal 2027, driven primarily by inflationary pressures and lower production volumes. To help offset these pressures, we remain focused on identifying efficiencies, simplifying work, and improving productivity across the organization. As we execute our long-term pricing strategy and continue to benefit from revenue growth management initiatives and strategic innovation, we also expect the continued growth of our RTD portfolio to influence product mix. While RTDs create some pressure on margin mix, they remain an important source of growth, consumer recruitment, and future opportunity for the business. Our outlook for operating expenses continues to reflect investment behind our brands in line with our long-term philosophy. At the same time, we expect SG&A to decline as we lap the elevated investment levels of fiscal 2026 and begin to realize benefits from actions we have taken to simplify the organization. Taking all of these factors into account, we continue to expect organic operating income to decline between 3% and 5%. Based on our first quarter performance and the trends we are seeing across the business, we have increased confidence that results will trend toward the more favorable end of the range. We continue to expect capital expenditures to be in the range of $60 million to $70 million, significantly lower than recent years. In addition, we remain focused on reducing finished goods inventory and improving working capital efficiency, which should further support cash generation. Finally, we continue to expect our effective tax rate to be approximately 20-22% for fiscal 2027. In summary, the first quarter unfolded largely as we expected. Innovation continues to create growth opportunities across our portfolio, our teams remain disciplined in how we manage costs and investments, and our cash flow performance remains strong. While the operating environment remains challenging, our results reinforce our confidence in the plans we outlined at the beginning of the year and in our team's ability to deliver against our fiscal 2027 outlook. With that, this concludes our prepared remarks. Let's open the line for questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. In fairness to all, we ask that you please limit yourself to one question. One moment while we compile our Q&A roster. Our first question is going to come from the line of Drew Levine with J.P. Morgan. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking our question. And Lawson, firstly, congratulations on your upcoming retirement. Was hoping to get some more color on the underlying performance in the U.S. It was up 4%. I think even against the easy comparison, probably a little bit better than expected. In two years, down around 2%, likely better than what we see from a consumer takeaway perspective. So maybe it could just help disaggregate the underlying performance in the U.S. I know you mentioned the RTDs have been performing well. Obviously, you've had BlackBerry and some of the premium expressions. but just sort of help frame up that gap that we've seen over the past two years relative to consumer takeaway and how we should think about that going forward.

So let me just start off by saying I think the U.S. business in aggregate is improving slowly. I mean, it's not – I think it bottomed out, I think we would say, around Christmas or January, and then you're starting to see improvement both in the NABCA takeaway and in Nielsen. So there is that undercurrent for the whole thing. But know that, and we're going to say this probably 10 times here on this Q&A here, that it's a noisy quarter, largely driven by last year, distributor transitions that all happened August 1, and then BlackBerry launch, which was also August 1. It just caused a lot of noise. So just to sort of level set with everyone. When we did the distributor change, as I said, most of the country was August 1. what happened was there was a large amount of shipments that went through in July of last year to get the new distributors ready and fill up their warehouses and then they depleted those cases in August and then we're just we're comping against that period now so shipments were really strong last year and so it muted what did we say four points of growth compared from shipments to underlying so I think that's an important factor but when you're talking about Nielsen takeaway trends versus depletions which I think was your sort of base question it's really two things about half of the difference is distributor margins so we're able to capture that value now in our sales into these distributors that was about three points of it right there and then the other part of it which was significant also is just the timing of our innovation so there's a lot we we as you heard on the prepared remarks we have a lot of innovation right now a lot of it has gone out in the first quarter and I imagine the Nielsen figures will pick that up you know in the upcoming months but right now that that actually had a couple point influence too thank you and one moment for our next question our next question will come from the

line of Peter Grom with UVS your line is open please go ahead great thank you good morning everyone and Lawson congratulations and thank you for all the help over the years. So I guess, look, you know, throughout the prepare remarks, you mentioned several times that one, you know, the first quarter performance was largely in line with your expectations, but you also highlighted that you now have greater confidence in delivering towards a more favorable point of the guidance range. So, you know, obviously it's a pretty dynamic environment. So curious what's driving that increased level of confidence at this point of the year.

Yeah, Peter, this is Jim, and I'll start off with that, because, you know, I think one, as, you know, we kind of saw, and Lawson talked a little bit about, you know, our expectations for the top line for the quarter. We knew we had some tough things to comp from last year, but it came in, when we look at it, relatively strong, and if you really look at with the decline of 1%, you take the barrel sales out of there, and honestly, we're at about flat, and so, again, what we're seeing is a good and very close to where we expected on the top line. Then as we look at things throughout gross margin and other areas, we say, okay, we've started off in a more positive place. And we definitely think a lot of that is timing. And I could go much deeper into that and talk about how that timing works and how we see that coming out. But what we're also seeing is we are taking significant actions to offset many of these costs. And what we're seeing is that a lot of our actions are actually delivering probably at the higher end of the range of what we expect, and we're seeing some of those results come sooner. So while we do expect our gross margins to feel pressure throughout the year due to the timing of how some of the whiskey flows out and all that, we still are actually seeing what I would say is based on our own actions, some more favorable things within the overall cost of goods environment. Now, there are some other pressures that we see within there, you know, things such as diesel fuel costs and aluminum costs are all coming up, but as we step back and we look at it from a perspective of, like I said, what we can offset, what we can take pricing to offset, and we look at all of those things, we also look at that our SG&A was higher in the first quarter than we expected it to be because we did take some smaller, what I'll call more surgical actions to make adjustments within our workforce, and those benefits are going to flow throughout the year. All of those things kind of added together really give us increased confidence that, you know, we could be to the high end of our range from an operating profit perspective and, you know, in line with our sales guidance.

And let me, I'll add two points. One I just said a minute ago, if the US, TDS in the US continues to improve bit by bit, that's going to be, you know, and it has, it's been a pretty steady over the last six, eight months, something like that now. So I think that helps the confidence. And then the other one, Jim said, but I actually think it's worth sales. So as I said, fiscal 24, so call it two years ago, we peaked out over $100 million a year in barrel sales, which has an extremely high gross margin because the barrels are depreciated over the time that they're aging. And so when we actually sell them, it's always been a great margin business. It ended last year around 30 million and we expect a pretty significant drop again this year so you're you know you're talking 80 plus million dollars in less profitability from barrel sales in two years I just don't think that's necessarily part of the story of brown form and we really haven't expanded upon it but it is a been a huge headwind for us now having said all that it can't get any lower. You know, I mean, there's just not that much farther to go. So, it will be less of a headwind going forward, which is starting to give us a little more confidence, too, in the outlook.

Thank you. And one moment for our next question. Our next question will come from the line of Nadine Sarwat with Bernstein. Your line is open. Please go ahead.

Thank you. Lawson, congrats on the upcoming retirement. It's been a real pleasure working with you over all these years. But I promised you I would keep asking about gross margins until you retire. So I guess here's me keeping my promise. So two questions for me. First, you saw 60 basis points of expansion this quarter. I think you guys called out that being driven by lower costs. However, as I think Jim just mentioned, more costly barreled whiskey will continue to be a headwind. So could you give me a sense of what exactly happened with those two factors balancing out in q1 and how we should expect that over the next coming three quarters of the year and then my second question is a longer term bigger picture question now that the discussions with perna ricard regarding that potential combination of ended i appreciate you won't comment on field specifics or discussions but with a few months of hindsight what are your reflections coming out of those discussions for brown foreman as a standalone entity? Has it led to any refreshed or different thinking about how you want to manage the long term strategy for Brown-Forman and where some of the opportunities might lie?

Yeah, Nadine, this is Jim, and I'll start with your question on gross margin. And if you look at where we finished at 60.2 percent, you know, the one thing I point out, too, that is below last year's average, you know, for the full year of gross margin is 60.5 percent. So we are already seeing it and we had some some tailwinds in the fourth quarter that kind of you know helped us there a little bit and i'll say that but we do expect this probably to be more of the what i'll say is the high point of our gross margin for the year um and you know as you mentioned we do expect to begin to see um some of the more expensive barreled whiskey that we have come out and that will come out ratably throughout the year and increase as we get later in the year the other thing as i mentioned you know some of the other cost increases that we're seeing right now such as diesel and aluminum. There's just a lot of volatility around many of the commodities out there. And so, you know, our ability to necessarily predict exactly where those are going to be, and I'd say, you know, right now we're assuming that that just stays in throughout the whole year and could, you know, even to a certain extent possibly increase a little bit. But we're keeping a very close eye on that. I think the other thing that I didn't mention before is, you know, In order to get our inventories in line with where our sales are, we've obviously had to adjust our production and distilling. And a big part of that we've done in a way that's being done rateably throughout the year to do it in the most efficient way. But I think you'll see more of the caution coming through throughout the full year. And so, you know, that's another thing that's not necessarily reflected in the first quarter, but I think will put pressure on us for the rest of the year. But the positive on that is that, again, as we've said, we really are bringing our inventories into what we believe is the right place, and it's helping us from a pre-cash flow perspective. So, you know, it's the right thing to do, but we're trying to make sure we do it in the most efficient way and not just shutting down distilleries for extended periods of time. And I think the plan that we have is going to work very well.

And then, Nadine, to the second question that you had, I mean, a few things. One, I think you all know that we regularly explore strategic opportunities in the normal course of business, and we do evaluate lots of different opportunities against the standard of long-term shareholder value creation. And just in the particular case of Tano, we were unable to reach a mutually agreeable term. So, and then I know everyone's probably asking or thinking, you know, what is the case with Sazerac? And it really comes down to the board and our advisors concluding that the proposal is just not actionable, taking into consideration the view of Wolf Pen Branch, our majority shareholders. So, in terms of reflecting back on that, I mean, look, our ultimate goal is to create long-term value for all of our shareholders. And we're going to do that by focusing on our own strategic and operational priorities. And that's back to the expanding upon our geographic footprint, building brands that resonate with consumers, enhancing operational efficiencies wherever we can, and then continuing to explore additional opportunities to create value for our shareholders. So, hey, look, it gives us the opportunity now, and produce back to the reflecting. We've got a really strong balance sheet. We've got healthy free cash flows. We're going to stick to our long-term capital allocation philosophy of really investing in the business, paying increasing regular dividends, pursuing strategic opportunities when they're there, and then returning cash to shareholders. And that's been our sort of four core capital allocation priorities, you know, for a long time. And so, look, we feel good about our business. We feel more confident about our business today, and we're going to continue to grow and do it on our own and create the most value that we can. So we're moving on.

Thank you. And one moment for our next question. Our next question is going to come from the line of Nick Mody with RBC. Your line is open. Please go ahead.

Yeah, thank you. And Lawson, best of luck in your retirement. I wanted to just press on the industry dynamic because some of the feedback that we've received in the trade would suggest August actually got weaker, not stabilized, I think, with some of the comments you were making, or maybe you were just referring to the past six, eight months, but maybe it's the reinflation of gas prices. I'm just curious if you had any thoughts on kind of what the dynamic has been over the last few weeks, because it looks like there has been somewhat of a change and then if i could just ask about woodford um you know i i believe there were some price actions that were done during the quarter and then maybe scaled back and i just was curious if you can provide some more more color around kind of the the strategy for woodford going forward thank you all right so i i'll be honest i don't know and it sounds like you've got some distributor content i had a week month or what but um so um woodford um i mean the strategy

I mean, there is definitely not a strategy to take price down on Woodford. So that would be wrong. In fact, the Nielsen numbers are going to have it pretty much flat right now. So, no, but the strategy around Woodford is not really changing. I mean, it continues to be a very strong brand. If you look at that top 25 in the U.S., which I don't have in front of me, but it's been one of the strongest brands now over the last several years in an environment where hardly anyone is showing any growth, at least Woodford does continue to grow. And, look, it's one of the strongest brands we have in our entire portfolio. And I, you know, we are huge supporters of it. We have a global aspirations for the brand where we think, you know, we've got real opportunities outside of the United States, too. So of all the brands in our portfolio, a whole lot about. We would love it to grow a little, but it's still a very healthy brand and doing well.

I mean, I think we see further opportunities for distribution within the U.S. on it. And obviously it's got, and then as Lawson mentioned, internationally, it still is, we've, you know, it has grown very little internationally. And that's where we see significant opportunities go forward with the Woodford to expand upon and build upon what we've done with Jack on a global basis. We see Woodford as the next big opportunity.

Thank you. And one moment for our next question. Our next question is going to come from the line of Lauren Lieberman with Barclays. Your line is open. Please go ahead. Thanks so much. I just wanted to follow up a little bit more on the pricing environment in the U.S. I know, you know, Nick just mentioned Woodford, but I was also curious about tequila. Just looking at what you reported for the organic sales for the brands, the tequila brands versus volume, it looks like pricing was a pretty big headwind. So just thoughts on pricing environment-specific tequila, if it's, you know, signs of improvement or stabilization, and then also just more broadly across the balance of portfolio.

Okay, Lauren, let me try to talk this, make sure everybody gets this, because I know it looks really strange on Schedule B and is very, quite honestly, misleading. So this is kind of a long answer, but I'll give you a few points on the category and then how we're doing within that. So if you take the tequila category, and if you just take $750, so don't lock down on one size across, the category pricing wise is down between one and two percent a lot of that what is happening within the tequila world is you are seeing trade down so if you look at the different price points within tequila over 30 is tough and that's where Eridura is and a lot of the other big brands that you all know when you look below if you look at that 20 to 30 or even 15 to 30 it's actually still growing. And so El Hemador is benefiting from that. Interestingly, someone didn't know, El Hemador within that price point, that $15 to $30 price point or $20 to $30, it was this time last year, it was the number nine brand in that price point. Today, it's number four. So we've seen significant improvement in that. And using some Nielsen volume numbers, I'll walk tequila as a category in aggregate. This time last year was running at plus five. Today, it's minus four. So there's been a nine-point swing at tequila, which has hurt a whole lot of brands, as I'm sure you can see in the data. Now, El Jimidor, this time last year, was minus eight. Now, it's minus five. Doesn't sound great, but last year, we had a 13-point gap to the category and losing massive share today, it's down to one. So we have made real improvements in the El Hemador brand. And I think we've got a new package, we've got new communications, we've got all kinds of new things around it, all that are helping to improve the trend. Eridura, as I said, stuck in a higher price point and is difficult. We are about to unveil a whole lot of new things for that brand too. So we do expect that it will improve from here, but it has been tough for quite a while now. So now, speaking to what you see in the earnings release versus, you know, what you expected to see, I guess, there's one big oddity in there. So we changed, as you know, we changed distributor margins last year really across our portfolio. And for the most part, they benefited, well, in aggregate, they benefited us, you know, quite significantly. The tequilas in a sort of an unusual way is the, I don't know if it's the one, but overall distributor margins went up for tequila. So we wanted to make sure that the distributors were incented to sell that product. And so there weren't many brands where we did that, but it was one of them. So it makes the numbers in there and the organic figures look funny. That is not a sort of a true number in terms of what is underlying actually happening in there. The other one that's a little bit smaller, but, well, I don't know if it's smaller. It's still material. California on El Hemador is flying, and it's obviously a massive tequila market, but it's the lowest, you know, it's the lowest, I think the lowest price market in the United States. So we get a little bit of negative mix there, too. So there is some higher discounting happening in the category. I think everybody expected that, but not, you know, it's not a runaway situation at all. As I said, if you compare size, you know, year over year, 750 is down one or two with the change in the cost profile. When I say I think we would have expected it would have been even, you know, worse. And it's just not happened. Same thing with whiskey, which I assume we're going to get to that in one of these questions here. But the pricing environment has remained pretty rational in the United States right now. And, you know, obviously that's a good thing.

Thank you. And one moment for our next question. The next question is going to come from the line of Bill Kirk with Roth Capital Puppets. Your mind is open. Please go ahead.

Good morning, everybody. Lawson, you mentioned pack sizes. I think the comment was related specifically to BlackBerry. But maybe more broadly, what is the opportunity for the portfolio in the U.S. or internationally to expand pack size offerings?

Oh, okay.

Right. Well, as I think we've been talking about, I'm not sure when this trend really started, but it is a couple of years ago now where smaller sizes started growing much faster than big sizes. And we've always cited it as, you know, that's an economic thing where a consumer, if they've got a $20 bill in their pocket and they want to go and they love their Jack Daniels, they would rather buy a smaller size bottle than have to go to a cheaper brand or, you know, whatever else they might do. So that's been kind of a macro thing now for years. So I think that's interesting. When you leave, you asked about leaving the United States. The one thing is you are much more limited outside of the United States in terms of the number of pack sizes you're allowed to actually bring. And so as an example, there's very outside of the U.S. Like the 175 in the U.S. is a volume generator, and it's just not even available. It's not legal in many, many other markets around there. So back to where to, you know, what is the opportunity there? I mean, I do think the small, we're not talking 50 mLs, but the little bit smaller bottles, the 375 or the 200s, are a very good play in the emerging markets where, honestly, our products are expensive in a lot of emerging markets. And so from the consumer, you know, perspective, a full bottle of Jack Daniels, depending on where you are, can be $50 or even more in some places. So that's where the opportunity for smaller sizes tends to show up, and we continue to pursue that.

Thank you. And one moment for our next question. Our next question is going to come from the line of Seamus Cassidy with TD Cal. And your line is open. Please go ahead.

Hi. Good morning, everyone, and congrats, Lawson. So innovation has been a big contributor to growth. But CORD, Jack Daniels Tennessee Whiskey, was flat this quarter, which is an improvement from what we've seen over the past few quarters. I was hoping you could provide some context on sort of what drove that stabilization and how much of it reflects improving consumer demand versus, I guess, your own commercial and execution initiatives.

Yeah, I mean, we talked, I think you heard us say the four-point difference between organic and depletions in the U.S. had a lot to do with, you know, that was a major league factor. in the organic numbers for Tennessee whiskey. Look, it's still a difficult challenge we're having with Tennessee whiskey in some of our larger markets. It's the U.S., it's Germany, it's France, it's Spain. Those are all big black-label markets. We continue to push in the United States, and particularly we've got a lot of consumer communications going on right now. I think we remain pretty excited about the different things that we're doing to promote the brand I think it's gotten much better in my opinion in the last you know a couple of years compared to we were for a while so a lot of those things are improving the takeaway you know in the US has really not improved and it hasn't improved for many many of the largest brands in the US you look across that top 25 sort of list and you know there's a lot of struggles in there so it's just a difficult market right now and it's a difficult market for these largest brands that have difficulty getting away from really the TDS trends that are out there. So, you know, I do think it's worth saying or going off a little bit on how healthy is the U.S. whiskey category. If you look at Nielsen and you do the category breakdown of which they, I don't know, have 20 categories in there, first of all, every single one of them is declining. The only thing that is growing is RTDs. So literally there's not one growing category. But the single strongest category is U.S. whiskey. And so tequila has now fallen several points behind U.S. whiskey. It's down a half a point. So I say all this because a lot of folks, some sell side folks and a lot of trade people have sort of written the category, not that you've written it off, but that they're just less enthusiastic about the category, and look, there are cost challenges, and everyone is dealing with that, and everyone's got some inventory challenges, but consumer demand is still there. And I think that, I don't know, it's just been, I think the demise of the category has been a bit exaggerated. And, you know, I look at our own brands, and I look at things like the Kentucky Bourbon Trail, and visitor counts, and the types of folks that are coming into our distilleries, and the premium, like a lot of what we do now is sort of super super ultra premium tastings things that you pay a lot more for but those you know that that is still in huge demand and so the interest in the category remains very high I just I think I think the category is healthier than maybe the general feeling is around the category so I think it's also worth saying in Jack in the US one is difficult as the consumer takeaway trends of being our pricing is up. So pricing in the U.S. whiskey category, I'm sure I get this right, down 0.6%. So relatively, that's a pretty rational, you know, I mean, I think we were all nervous it could have gotten worse. Whereas a full category only down 0.2, Jack is up one. So, you know, congratulations to that team and for us maintaining that low but slow price increase strategy that we've had for a long time. But in this market, we will take 1% price increases on black level.

Thank you. And one moment for our next question. Our next question is going to come from the line of Eric Serrata with Morgan Stanley. Your line is open. Please go ahead.

Thanks. And congratulations, Lawson. It's been a pleasure working with you over the years. Hopefully we could, hoping to come back to whiskey on the supply side, certainly agree with you that the market seems to be pretty rational in terms of pricing, in terms of what we've seen in the marketplace. Can you give us some perspective as to where you think the industry is in working down some of the excess supply of the past few years? I know you guys have throttled back production thoughtfully. Others have, you know, taken entire distilleries down for a year. Or, you know, how much of a dent do you guys think that that has made in, you know, aging stocks and mature whiskey, you know, to date?

Yeah, okay. I mean, a few things here. The obvious – I don't know, this started probably a year ago where I know a lot of folks and trade people and on the sell side were trying to get at this inventory number using a lot of the KDA statistics as support. Those numbers come out like once a year, and I think it's sort of January. It's a calendar report. So the data that we have now is pretty old. So I don't have a lot of real updated information. I never quite honestly understood some of the conclusions that some had that said we were, I don't know, the industry was nine or ten years long or whatever it was because we were never there. And I can tell you one of the benefits of Jack Daniels, and now I'm talking in terms of inventory, compared to pretty much every other U.S. whiskey brand, you know, we are, in terms of exporting, we are by far the largest brand, and the international markets have been healthier than the U.S., and so if you're a U.S.-only brand, it's been tough, and so lots and lots of companies overproduced during the boom years. And, you know, and that's why you're seeing so many closures and different things right now. So we, part of it is the international market. So with those have been stronger, as I said, so that is helping, you know, to continue to move inventories. We also have an obviously very large RTD business and a very large Jack Flavors business, all of which have been pretty healthy and all of our, much of which is outside of the United States too. And so we're simply not extended anywhere near nine or 10 years, which as I said, now what do we see is happening right now? I mean, we did in calendar 2025, there's a term called new fills, which is basically new, I guess it is what it sounds like. It's filling up a new barrel. It was down 30% in calendar 2025. We don't know what the number is, but I can almost guarantee you it's going to be at least 30% this year. I just can't imagine because I just don't think people, they're not increasing their production levels right now. So if you have a 30 and then a 32 years in a row, you're taking out a fair amount of inventory in a pretty fast way. So that's why we've been saying this for at least a year. If basically the big suppliers that control most of the inventory out there are acting rational and they're all bringing down their inventories. And as you said, some are closing, some are just slowing shifts or doing whatever it is, but it is definitely coming down. And then I would also comment on the number of craft brands. I mean, it's been brutal on those folks. The American Craft Spirits Association, which is the one that provides the data on this. I mean, while there were 3,000 craft distilleries in 2024, and I think it was closer to, you know, a year before that peaked up, someone closing to 4,000, went down to 2,000 in 2025, and I don't know where it's going to come after this fiscal year's over, but you're talking there close to a 75% reduction in the number of craft brands that even sell in the U.S., which is almost hard to believe in some ways, but But there has been a massive amount of folks, but the reality is it's taking supply off the market.

Yeah, and I think you highlighted, and we feel we have done a good job of really managing through this. And as I mentioned earlier, doing it in the most efficient sort of a way. And as Lawson alluded to, we don't feel that we are at the inventory levels of many of our competitors out there, and that's allowed us to do it. And he talked about the international markets. I think the other thing to call out is it's allowed us to do is to do some different expressions, like Jack Daniel's Heritage Barrel, which honestly has been a huge hit. And, you know, that was something as we looked at the whiskey we had and what the opportunities were and created that and put it into the marketplace, we've seen significant momentum with it. So, you know, we've also taken advantage of this to go out and put some things into the market that we found that consumers really, really like.

Yeah, I didn't think to say that. the Jack's super premiums have been really successful and I think it just goes to show I said this the shareholder meeting the brand has massively wide shoulders we can do Jack Daniels Blackberry and a heritage barrel which is $60 a bottle by the way and sell out both of them basically you know and do very very well so the brand can play in a lot of different spaces within the whiskey world and and can do it very successful thank you in one moment for our next question.

Our next question is going to come from the line of Chris Pritchard with Rothschild and Co. Redburn. Your line is open. Please go ahead.

Thank you very much. And Lawson, can I echo everyone else's best wishes? Thank you for your patience over the many years. A couple of questions. Firstly, on ready to drink. Obviously, there's a lot of focus on the Numix expansion. Can you give us a bit of color on where the growth is coming from within the u.s is it specifically biased by certain states um and then more broadly how is the jack and cola ready to drink uh strategy going not just in the united states but but internationally and then perhaps a follow-up question and forgive me slightly i mean you mentioned that you've given the trade better margins for tequila to incentivize them but it doesn't look like you're getting the return on that do you think you need more sales people actually getting getting out there into the market for tequila is there a slightly different coverage versus whiskey that we need to think about. I just want to understand how you're reviewing that incentive and whether you think you're getting a return on it.

That was a bunch. Sorry. That's all right. So I'm not even sure what the question was around Numix. Which state or which part of the country is it doing?

Yeah. I mean, we've just started rolling it out in the U.S. in a limited number of locations and focused on some more larger cities with also significant Mexican-American type of populations because it's been so successful growing in Mexico. And again, we see the continued growth of that in Mexico. And we've expanded that distribution throughout the U.S., and we intend to continue to do that throughout this year. So you'll see that coming continuously. EJ Spritz, our El Hemador Spritz, we're also bringing that into the marketplace. And then you've also got the Jack Daniels Blackberry Lemonade RTD that is hitting the markets right now. And so, again, those are just some examples. Numix has probably been the biggest for us, but we do have other areas where we're seeing significant growth with the RTDs.

Yeah, so, I mean, if you just take a step back for a second on the RTD category as a whole, which is, I mean, is continuing to grow and get to be a bigger and bigger piece of really the U.S. spirits market. I mean, if you look at TDS in either NAPCO or Nielsen, it's down sort of between a half and one point, I think I said earlier. But if you pull our TDs out of that number, it's more like mid-single digits down. So it is a real contributor, and we're big in this business and want to be bigger. So I can tell you the new mix, interestingly, it's only in nine states right now. And as Jim said, it tends to be in states where there's heavy concentrations of Mexican-American consumers but it's already the eighth largest contributor to the RTD category in Nielsen's and that's in a that's fast so we feel pretty good about that the Jack and Cola or Jack and Cola or Jack and Coke RTD overall it declined four percent last year so not lighting the world's on fire but we continue to plow forward we It's now in, I think, 40 countries around the world. We have a really good relationship. We continue to refine it with the Coca-Cola company. It's something very new for them. And so it's going, but the reality is we know this now. The consumer preference, the vast majority of the volumes in the RTD category are light and refreshing. And obviously, cola, although it can be light and refreshing, is generally not considered that. And so we're having, you know, we are going to continue to focus on our TDs that do upon what the consumers are looking for in a bigger and bigger way. And, you know, we feel pretty good that we've got, we're off to a good start.

What's the third trade margin on tequila? Is it driving the benefits?

Salespeople on tequila? But I don't think that's necessarily the answer to our challenges. We feel, relative to whiskey or whatever it might be, I don't think that's the driving factor that's going to turn around the direction of either of those brands. And as I sort of read earlier, I mean, El Hemador is already making nice improvements. And so I think we've done the right things there. We've just got to continue to get it and to grow. Eredura is a bit of a different situation given where its price point is. But, you know, over a long period of time, like over a 10-year CAGR, both of those brands have held up pretty well. It's only been the last couple years where, you know, that it's declined. The issue was if you go over a 10-year period, the category was booming, and we were not exactly booming, but we still had mid-single-digit growth, you know, for a long time. It gets maligned a little bit too much.

Thank you, and one moment for our next question. our next question will come from the line of gregory porter with evercore ifi your line is open please go ahead hey everyone thank you for the uh for the time just a quick question on the blackberry opportunity um you know outside the u.s clearly it's doing a really great job in the u.s market um but outside the u.s if you could just talk a little bit more about the timing and what you guys see the opportunity i know you flagged you know markets like brazil uh mexico that you know should help results later on this year just kind of thinking about the you know sizing there and then which other markets you're looking to roll out the brand thank you well look it is also off to a great start and I know

some folks are worried about the lapping of the launches and all that kind of thing we back up for a second and because I think we said this upon the launch but it was always sort of a two-year plan and so we're just entering you know we're in the second year now first year was largely US and it had a heavy concentration in the 750 size you know and that that was very successful about that somewhere I'm not sure when they actually can't remember when they started springtime or late winter about six months ago we started to bring it to the international markets and so that has happened now and that in the US we're back to now we're really into the size pack sizes and bringing different ones out now and that's happened really over the summer and so the plan has always been to make this a two-year launch, and I think we feel pretty good about it. As far as where else we may see the decent volumes, I mean, I think it's going to be the markets where our flavors have been successful. So that would range anywhere from the UK, Czech, Australia, Brazil. Those markets all are big flavor markets, and I don't know. It's hard for me to sit here and say we think it's going to be a million cases. You look at Apple and its international business is big, so it's honey. So we've, you know, we've got a long way to go before we fully develop that brand and feel pretty confident that, you know, we're going to be able to do that.

Yeah, and I think, you know, adding what I said earlier is that as we bring out the Blackberry and Lemonade RTD, it's just another example of how we can take a brand or a product like a flavored whiskey and then move it into the RTD space. And so, you know, just using that as an example of innovation, not only can we take it into different sizes, into different markets, we're also looking at different formats and how do we use it in things like RTDs. And that then just opens up even more opportunities. So we believe that will be successful, and then it creates us, you know, other opportunities with some of our flavors down the line.

Thank you. We have now reached the end of our question and answer session. I would now like to hand the conference back over to Sue Parham for closing remarks.

And thank you, Lawson and Jim, and to everyone for joining us today for Brown-Forman's first quarter fiscal year 2027 earnings call. If you have any additional questions, please contact us. We look forward to participating in the Barclays Global Consumer Conference next week and hope to see many of you there. For those of you unable to attend, our fireside chat on Wednesday will be made available as a webcast accessible via the Brown-Forman corporate website under the section titled Investors, Events, and Presentations. And today, it's actually a truly special day. We are honoring the birthday of our founder, George Garvin Brown, born on September 2nd, 1846. Alongside celebrating his 180th birthday today, there are barrel filling operations underway at the Old Forester Distillery as we are preparing for George's 200th birthday celebration. So happy birthday, George. With that, this concludes our call.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.