Brown-Forman Corporation Class B 2027 Q1 Earnings Call

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-Forman'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 New Mix, our RTD portfolio, and Jack Daniel's 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 Daniel's Tennessee Whiskey. Organic net sales for Jack Daniel's 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 Daniel's 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. New Mix 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 Jimador 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 Daniel's 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 Herradura and el Jimador, declined in the low teens. While performance remains well below where we want it to be, we are focused on improving results through stronger consumer marketing, clearer brand positioning, and disciplined commercial execution.

While it is still early, we are beginning to see encouraging signs, particularly with el Jimador in the U.S., where Nielsen takeaway trends have improved meaningfully. It is also important to acknowledge a few other brands where there were some unique circumstances impacting first quarter results. Organic net sales for Jack Daniel's 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 Jack 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.

New Mix 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. 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 Daniel's Tennessee Whiskey, which benefited from the timing of ordering patterns and was supported by RTD innovation, including Jack Daniel's Tennessee Serve, a 12% ABV whiskey and cola RTD created exclusively for the Australian market and launched earlier this calendar year. Across much of Europe, consumer demand remained soft, resulting in ongoing pressure on the broader spirits category.

Germany, France, and the U.K. 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 are 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 4 points as we lapsed 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-Forman'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.