Ladies and gentlemen, thank you for standing by and welcome to the Brown-Forman Fourth Quarter Fiscal 2014 Year-End Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I will now turn the call over to Jay Koval, Vice President and Director of Investor Relations. Please go ahead, sir.

Thank you, Lorrie and good morning everyone. I want to thank you for joining us today for Brown-Forman's fourth quarter 2014 earnings call. Joining me today are Paul Varga, our President and Chief Executive Officer; Jane Morreau, Executive Vice President and Chief Financial Officer; and Brian Fitzgerald, Chief Accounting Officer. This morning's conference call contains forward-looking statements based on 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 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 fourth quarter of fiscal 2014. The release can be found on our website under the section titled Investor Relations. In the press release, we have listed a number of the risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K, Form 8-K, 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 and the reasons management believes they provide useful information to investors regarding the company's financial conditions and results of operations are contained in the press release. And with that, I will turn the call over to Jane for her prepared remarks.

Thanks Jay. Thanks everyone for joining us today for our fiscal 2014 year-end earnings call. I plan on covering three topics today and then I am going to turn the call over to Paul. First, I am going to review our excellent 2014 results and then I am going to briefly discuss our fourth quarter results and recent global trends we see entering 2015. And finally, I am going to share our outlook for fiscal 2015. So let me start with a review of our 2014 results. Simply put, we had terrific year, thanks to the balanced geographic delivery of growth from our leading portfolio of American whiskey brands, not to mention high-quality investments behind both our brands and our people. Our underlying net sales grew over 6% in 2014. While this top line growth was slightly below the 7% we had targeted for the full year, we estimate that we outperformed our global competitive set by roughly five-point as the rate of growth slowed considerably during the year. We believe that our results have been less impacted due to the balanced approach to investment in both emerging and developed markets, as well as our disciplined management of risk. This approach has helped us drive our growth in both developed markets such as Western Europe while being -- while avoiding being overly dependent on some of the emerging markets that experienced meaningful slowdown this year such as China. So let me run through some of our geographic results. When we look at our emerging markets business, it performed quite well. In fact, we delivered 9% underlying net sales growth. Notably, we enjoyed sales growth of greater than 20% in markets such as Brazil, the former CIS countries, China, Turkey, Emerging Africa, Southeast Asia and Russia. But our results in emerging…

Thank you, Jane, and good morning to everybody. Obviously, I have few comments to what Jane has done here this morning. I -- in general I thought we had a just another great year overall and I think our relative key TSR performance over four horizons one, three, five and 10 years provide what I considered to be perhaps the finest summary statement about the quality of our fiscal year 2014, as well as the many successful years that have preceded it. Across all four of these time horizons, Brown-Forman's absolute and relative TSRs are impressive in my view. Our annual total shareholder return over 10 years was 17%, significantly outperforming our industry competitive set, consumer staple and the S&P 500. In fact, Brown-Forman stood the very top of this benchmark set over the three, five and 10-year horizons with only Beam outperforming us on the one year as a result of their sell to Suntory. Now, Jane highlighted the two biggest reasons for our F 2014 outperformance relative to industry, those were, one, our strong exposure to and category leadership of the premium American whiskey segment which continues to have excellent momentum. And two, our geographical balanced contributions from both developed and emerging markets alike. I believe in combination these two descriptors helped make Brown-Forman unique today in the global spirits business. Led by our multi-decade work on the amazing Jack Daniel's trademark, Brown-Forman has and continues to play the lead role and expanding the appeal of premium American whiskey to more than 160 countries worldwide. Globally, consumers have come to appreciate Jack Daniel's and American whiskey for abundance of attributes that, I believe, include taste, quality, heritage, premiumness and authenticity. At the very same time, consumers also enjoy Jack Daniel's mixability, modern popularity, and its accessible, less formal,…

(Operator Instructions) Your first question comes from the line of John Faucher of JPMorgan.

Thank you. Good morning. I have to say -- first off, the top line continues to be great and you are growing faster than the industry which is obviously tremendous. I guess, I am a little confused on the top line guidance for next year in two ways. So, first off, you talked about the category slowing. And if I look at your results on a one-year, two-year basis, they are slowing a little bit. So, it’s going to be moderating pricing. And yet it sounds like you are comfortable that you can reaccelerate the top line. So can you walk me through that? And then, I guess, more specifically in Q1, unless my numbers are wrong, I actually had Q1 as your easiest comp of the year. So can you talk a little bit about may be what we are not seeing in the comp on an underlying basis that makes Q1 such a tough quarter? Thanks.

Yeah. Let me see if I can start up with the first one and Paul may jump in.

Sure.

Paul and I can -- I will answer the second one or do the first. So, let's talk about the top line, while we are still confident that we can achieve the 6% to 8% range of net sales growth that we that provided guidance on for the next year. A couple of things. We are actually seeing in the U.S., I think you may have seen the most recent NAFTA information that our trends are actually improving there. So U.S. is one of our largest market. It’s worth of 40% of our sales. And so that we are seeing improving sales there. We had a drag on our earnings this past year as we have discussed on several times as it related to Mexico. We are not expecting that again next year. In fact, we are seeing improving trends there. We are expecting not to have inventory give back situation that we had this particular year. We are also seeing some pricing abilities going on there. Pricing power, if you will, as the Agave price -- cost of Agave has caused suppliers to start increasing their prices in that market. In addition, the third piece that I would point to is France. We knew that when we went to our own distribution model there that it would increase our sales and resulting gross profit. In fact, as I said in my script this morning, it also flows through the bottom line and we will profit via that whole operations covering our infrastructure cost. So those three things, in addition to the continued growth in emerging markets. When I look at emerging markets, excluding the Mexico that I just referred to for this year, we continue to grow well above our growth rate for the company and we expect that to continue. We continued the round at the same pace that we did in the third quarter. Once we consider the give backs that we expected and we communicated during our call on the third quarter. So those are the some of the reasons that I would point to.

Yeah. A way I sometimes summarize it, if you just take the 12-month and think of it 6% underlying net sales growth rate. And then you think that's replicable and then you consider the impact of what we think will be improved years both in the United States and the full year impact of France, I actually think those are the two most significant contributing factors to our enthusiasm. I think you want to talk about Q1?

Yeah. So let me see if I can take you through the Q1, according to your thinking, there is going to be an easier comp. I think what we have to do is really rewind time a little bit. 2013 was our first year that we took pricing in a number of years. Recall, we weren’t taking pricing during the economic downturn. And so in 2013, our first quarter we took significant pricing globally and in particular in the U.S. was very significant. In fact, if you looked at our numbers in the first quarter of 2013, out depletion growth was up 17%. You fast forward it to 2014, we took another significant price increase and our depletions were basically flat with that. What we are doing in 2015, we are still taking pricing around outside the U.S. We are not taking as much. We are still taking price increases in the U.S., but not as much. So what we are expecting is some give backs from that very first year when we took the price increases up and the retailers bought in. So there will be a reduction in retailer inventory levels, if you will. And that's what we are expecting to be the tough comps at the top line. I also want to mention one another tough comp, but I think it’s worth mentioning as well is on the SG&A line. And the reason why I think that's worthy of mentioning is recall some of the investments that we made this year -- we've been talking about France on a number of calls now. But for the first statement this coming fiscal year we will be -- this will be new expenses for us until we start lapping when it came on board in January. So that we have a couple of other investments that we made in the last part of the year including the Cooperage, as well as moving our headquarters in Europe to Amsterdam and those were all fourth quarter investments. So you are going to see some heavier upfront SG&A spending through the first couple of quarters of the year.

And one reminder we have historically -- this is why I think such a benefits to doing this, stripped out what I call the shipment based inventory fluctuations in our quarterly financials as we discussed some with you. And so you will see the reconciliation between reported and underlying that you usually include particularly during the periods of price increases adjustments for shipment based inventory. We don’t -- it’s just too hard for us to estimate what the depletion based versions are, and I think that's the major source of this U.S. tough comp that we are going to have is just buy-ins. Now remember we will give back the benefit of not having -- we expect to get those perhaps in Q2, where you don’t have all the give back that was associated with those buy-ins before. So it’s very logical sequencing. And we are just trying to highlight for you that it could impact our Q1. But as we unfold the remainder of FY 2015, you expect it to fall in the range of what we are proving you today.

Okay. Great. Thank you.

Okay. Thanks for the questions.

Your next question comes from the line of Judy Hong of Goldman Sachs.

Thank you. Good morning, everyone. I guess, my question is just some elaboration on your decision to may be take a little bit more modest pricing in the U.S. You know, sales have obviously been relatively healthy for you guys. So just in terms of maybe thinking about portfolio as a whole is this really for the broad-based portfolio you are taking a little bit more modest pricing approach. What is sort of driving your decision to do that? And then just, you know, what you are seeing from a competitive perspective perhaps as well.

You know, I think its profitability combination of a couple of factors from my vantage point and Jane you add to. I think we outpaced the market with Jack Daniel's. And so we don’t just manage the brand for its immediate financial success. And so one of the things we are always trying to monitor and evaluate is how the consumer response is. And it’s my view that the consumption of the brand is very important to their brand equity, not just the purchasing of them and the consumer's willingness to pay what we would hope to be higher prices, but their enjoyment of the brands with that -- particularly with other people is one of the contributing factors I think the brand equity in this business. And so, I mean, I have always been a fan of closing monitoring the balance of volumetric contributions alongside the pricing once. And I just feel like we leaned so heavily in United States over the last two years on the pricing. I felt back 24 or 30 months ago that, that would the right thing to do to reinforce premiumness and some of the things that we were seeing that we thought Jack Daniel's particularly in the United States might have needed to reinforce because of the developing American Whiskey segment above it in terms of price. But you go through that, you look at it and I don’t regret the pricing that we have taken over the last 24 months. I just think it’s a good year to be more moderate and let the consumer and the trade settle into these pricing levels of Jack Daniel's as we go along. So it’s really more based on just a balancing act of brand equity development. And while recognizing that volume contributions and pricing contributions are different as it affects our P&L.

Okay. And then just staying on the U.S., you talked about the year starting off a little bit slowly and you are seeing some improvement recently. Can you just may be talk about what you think is sort of driven the year -- just start off slowly and then what's driving the recent improvement. And then just in terms of what you are seeing in on-premise in particular as you called out that channel has particularly been soft to see any signs of that channel perhaps improving?

I can talk a little bit about the latter one. Of course, I think the most recent information from the restaurant traffic count this came up a couple days is showing improving trends in the on-premise. In terms of our sales, as we look through our results through our most recent information, we actually did see some improving trends still declining, but some improving trends. I do think that as we talked on the last call, there's several things impacting the on-premise from economic trends the consumer confidence the young millennial in terms of their unemployment the highest among all sectors of the population. And so there has been a move for them to consume maybe not on-premise, but and off premise. And then of course the long unusually cold winter that we had that didn't really end until I guess, March -- end of March, so we think all those things have improved. So, we're optimistic that we're seen some improvement in the trends what we saw yesterday from the restaurant and in our most recent trends, but there's still down because of all those other factors.

And I mean -- I mean I understand, to think that we talked about it on the last call; I think there's always a quarterly or weekly references to everything from traffic counts to weather. I think the more interesting thing we're trying to consider particularly for the U.S. market is whether or not there is a just fundamental change between on and off that is either consumer related to particularly the young adults of today or there's just an inherent price sensitivity and advantage to drinking and off premise that's been accentuated. And so those are I think critical things for us to think about and our people in United States are thinking about how they support the on and off premise knowing that both the channels are vital for this business. But on the margins, the off premise continues to do better than the on-premise and I think I really do feel like the off premise numbers just leaned more heavily in these last two years as an industry and it reinforces the comments I made just a minute ago on pricing versus volumetric growth. Still healthy growth for the industry and doing well within beverage alcohol, but you do have to know that people particularly whether it's difficult or more difficult economic times that they will be more hesitant as prices are going up for the industry. So I think people -- I noticed that in the first year, we went up United States, we did not outpace the competition as much as the cumulative impact of years one and two with our second year price increases as I think many in the industry, particularly in non-Brown spirits were moderating their pricing. And so that's something you pay attention to and I think that can have an impact on on-premise trends, off premise trends too in the split between pricing and volume. And then I think you had another question and I would just refer back to earlier answer which was why are we starting the year soft? I mean we really just think that it is the seasonal effect of cycling against pre-priced increase buying in the United States that won't exist in Q1 as strongly and we'll have to laugh that quarter and I could put some pressure on the volumetric results in the Q1. And that's the basic answer to that.

Okay, got it. Thank you.

You're welcome.

Your next question comes from the line of Mark Swartzberg of Stifel.

Yes, good morning, guys. A couple questions also kind of trying to probe more on the topic of growth and sustainability. One of them is Russia-Turkey obviously doing very well, could you comment on how you think those particular markets are evolving? And then kind of more on the development side of your business, Australia, U.K., and Mexico obviously different trends there, but do you try to handicap how the future my compared to the recent trend you've seen in those three markets, that would be great?

Well, I'll let -- may be first do one on those markets as maybe a grouping, Jane referred this in her comment that what really differentiated our FY 2014 if you study it historically with the merger market performance relative to our competition. We've been outperforming a lot of our competitors in the developed -- particularly developed International markets. While also because -- largely because of our success with Tennessee Honey and Woodford Reserve and brands like that also growing share in the U.S. So, the thing that really stood out to us in FY 2014 was the differential performance in emerging markets, even though we saw some difficulty that Jane highlighted in places like Mexico and Poland. I think going forward, I mean we're not anticipating -- we don't know what our competition will do in terms of their forecast of growth, but we certainly anticipate the emerging markets continuing to be strong. So, I would reference Turkey and Russia, I mean certainly in Eastern Europe everyone got a more cautious attitude as it relates to what's happening over there and just the economic world an impact of what's going on over there. But, it hasn't yet changed our posture as it relates to building our brands or making investments et cetera. So, we're continuing to expect nice growth. And as a leading growth for our company from emerging markets as they have been producing for us in the last many years. The U.K., I think was one of the markets that had a great year. And it's one of the nice benefits that U.K. had a nice year when the Australian distilled spirits market was more difficult for everybody and we were -- we grew a little bit down there, but not as much as we had in some prior years. And so that geographic balance we got there that we referenced a couple times today was really a big help, so having the U.K. and Germany and France have good years. If Australia or Mexico, Poland has a little more of a soft one, we can recover as the company.

And that's great, Paul. In terms of trying to sustain that strength you've seen in the U.K. and potentially even having a pickup in Australia is that -- are those typical exercises or is that kind of more kind of given the trends you're seeing and a plan to have something you think reasonable?

I mean we wouldn't be sharing them with if we didn’t think they were reasonable. I mean maybe the way to think about it is a couple of the things that have been leading the growth of the company have been just the worldwide performance of both the Jack Daniel's Tennessee Whiskey brands as well as the global rollout of Jack Daniel's Tennessee Honey. And I would say that our prospects even that we might deliver like the examples we've been citing today in United States, the Jack Daniel's result to different balance of pricing and volume. Our hopes and expectations as it relates to Jack Daniel's Tennessee Whiskey and I'm encouraged that even out here in year four for Jack Daniel's Tennessee Honey, our organization a similarly optimistic about its continued growth and we've got other things as Jane mentioned, that we're either testing or rolling out mostly in the world of Jack Daniel's innovation that could be encouraging for us too. So, I think all set, I'm really comfortable with a 6% to 8% underlying sales forecast that Jane provided.

Yeah. I'll just add on to what Paul said, in addition to the U.K., we've had a lot of -- the rest of our portfolio will be on Jack Daniel's doing very -- in the very early in their stages of development, so we're doing very well and had a great year for Chambord, and to walk us many of our other brands, Woodford Reserve, Old Forester just getting introduced, so we're very optimistic there. Australia is a tough market and we know that it was this year, the economy is tough. The excise taxes that they take twice a year and we continue to worry about that in terms of accessibility and affordability of our brands to the consumer. And it is one that we continue to expect some toughness in next year.

The one thing I would cite to that I continue to think as unique, I mentioned some of these in my comments is, relative to our SKU to American Whiskey and within the American whiskey to Jack Daniel's, in this regard is a real event which as it relates to the question you asked. There are not a lot of brand I can only count a couple less than five that have the geographic breadth of Jack Daniel's, Not only performance today but opportunity. And I think that is something that encourages us. I mean we can't forecast what's going to happen in every single market, but the ability to continue to develop Jack Daniel's across 160 countries or more and in a large number of them, we're in very early stage development is one of the things that gives us the encouragement here.

That's great. And if I could I had two follow-ups. One on what you just said, Paul and Jane, and then just on gross margin outlook. But what you just said, it seems to help you kind of manage the complexity that any company facing the growth and the different rates of growth around the world that you are facing. But nonetheless it seems that complexity is nonetheless going up for your business, the geographic trends, the emphasis on different flavors, the SKU count. Can you just speak to how you think as a CEO and as a team you organizationally are getting better at managing complexity? And then, as I said, I had a gross margin question.

Yeah, I mean, certainly doing business that widely brings in all kinds of necessities to do it well everything from encountering regulatory threats or these things that we call dark markets where they put restrictions on marketing communication. We are always developing new capabilities and fields associated with it. I mean, I do think we bring to the world these assets that I have referred to. But, I mean, I would be foolish not to think that in -- we are not going to be a much smarter organization all these in five years or eight years' time. I mean, we have to continue to learn new things in some of these markets and then actually make sure we act on what we learned. I mean, I think we are pretty good at it. I mean, we certainly know how to do the Jack Daniel's and American whiskey part. We feel, we've been added now for on an active basis 20 years to 30 years globalizing Jack. And we -- I think we are correctly and continue to be pretty conservative about how quickly to extend it. We've been encouraged by the sort of results we've had with line extensions or new brands that come from Jack Daniel's, those do have complexity, I agree with you. So, one of the things you can do to make sure you do it well is to test, and that’s why we do this testing, and I mean real market test in addition to the just observing social media or going and stage testing. So -- I think those are things that are helpful to us. The experience of our people. We have a lot of people. I mean, one of the things I'm proud about is to the tenure results of the company.…

Absolutely, very much so and the whole response is very helpful. Last one, just the guide on the gross margin, I can't tell if there is something really incrementally not going to be as powerful this fiscal year as last fiscal year or if it's just conservatism on your part? Can you just talk a little bit about how things might break for or against you in terms of input costs and mix relative to the gross margin guide?

Yeah. So as we talked about in the script that we are expecting to continue to expand our gross margins. So you will see gross margin improvement this next year. Just a little bit more moderate than what we saw this year, the 100 basis points that we delivered this past year. Recall what we said earlier, we are taking a little bit more moderate price increase in the U.S. so that in itself will make the gross margin not quite expand as far as it did this past year. We are still expecting favorable mix that happens via organic growth. And so we are still expecting that. So if I were to think about the gross margin, I think of it in two parts really, improvement due to France, again we used to pay a margin to our distributors to distribute our products there. We are not paying that anymore, so that will drop down to your gross profit. And then we are expecting some price increases, as we talked globally they are just not as much as we had this last year and that will more than offset the cost of inflation on COGS, but not as much as this past year, and that’s the two pieces.

And mix from either from a geographic or from a product standpoint, any thoughts on how that might play out, your plans versus what we saw last year?

Yeah, that’s actually in my organic side of the equation, if you will, that’s the price mix.

Okay.

So it should be more balanced.

Great. And the two you gave us on price was that inclusive of mix or that’s purely the rate plus mix would be on top of that?

That would -- mix would be on top of that.

Mix would be on top. Okay, great. Thank you.

Thank you.

Next question comes from line of Bill Chappell of SunTrust.

Hi, this is [Stephanie] (ph) in for Bill. I just have a quick question kind of going off the last one, the gross margin. Could you actually breakout the portion of this quarter's gross margin expansion and what was due to the distribution transition in France? And then kind of do you expect that same kind of magnitude to continue into kind of all the way to 3Q 2015? And then just I have a quick question on the Jack Daniel's Fire rollout and just kind of the timing on that.

I will tell you what, we will get back to you on the margins for France, I don’t have that. As specifically in the Q4, we do expect that -- again, as I just spoke to the margin expansion for next year it will help us there have the margin expansion and then…

…Tennessee Fire, I mean, it's just -- we just literally have gone into test here in -- of last -- I mean, I think 12 weeks or so, 10 weeks or something. And so we are going to at least start to see -- first, we haven’t seen any quantitative data, so I think we're going to need to see little bit of that. And -- I mean, I suspect we will be commenting to you all on each sort of quarterly update about how things are going and what our expectations are. But there is no -- we have no preset timing as to when the test is over. We're really just going to -- we think it's really smart to put it into a real market test and observe it and then digest the results and make decisions based on that. So we will keep you posted.

Hey, thanks so much.

You're welcome.

Ladies and gentlemen, we have reached the allotted time for questions and answers. I will now return the call to Jay Koval for any additional or closing remarks.

Thank you, Lorrie and thanks to all of you for joining us today for our fourth quarter earnings call. Please feel free to reach out to us if you’ve any additional questions, and have a great week.

Thank you.

Thanks.

Thank you for your participation in the Brown-Forman fourth quarter fiscal 2014 year-end conference call. You may now disconnect.