Ladies and gentlemen, thank you for standing by. And welcome to the Brown-Forman Second Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions]. I would now like to hand the conference over to your speaker today, Leanne Cunningham, Senior Vice President, Shareholder Relations Officer. Thank you. You may begin.

Thank you, Dorothy, and good morning, everyone. I would like to thank each of you for joining us for Brown-Forman's second quarter and first half of fiscal 2020 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer and Jane Morreau, 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 control to 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 second quarter and first half of fiscal 2020, in addition to posting presentation materials that Jane will walk you through momentarily. Both the release and the presentation can be found on our Web site under the section titled Investors, Events and Presentations. In the press release, we have listed a number of risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q report filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures. These measures are 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. One quick item before I turn the call over to Lawson and Jane. In the interest of time and fairness, we ask that you limit your questions to one per analyst. You are welcome to rejoin the queue and we will take your follow-up questions as time permits. With that, I'd like to turn the call over to Jane.

Thank you, Leanne. And thank you everyone for joining us for our second quarter earnings call. Today in our earnings release, we reaffirmed our full year growth outlook for underlying net sales and earnings per share and modestly adjusted our outlook for underlying operating income. I'm going to walk you through our first half results, which as Leanne just said, are accompanied by the presentation we posted to our Web site this morning, to provide clarity to our performance given the remains from year-over-year noise, particularly related to tariffs and timing considerations. As I finish my prepared remarks, I'll turn it over to Lawson for an update on progress against our strategic ambitions and the overall health of the business. But before I discuss our first half results, I thought it might be helpful to remind you of how the retaliatory tariffs, particularly from Europe, continue to affect our performance. As you know, we've been discussing the tariff affect over the past six consecutive quarters, beginning with last year's Q1. In fact, in the first half of last year, the tariff related inventory variance in Q1 and subsequent give backs in Q2 created noise in our underlying rate of sales growth, both last year and this year. In addition to the buying effects, which are essentially behind us now, the cost of tariffs has reduced our margins, which are -- or is also either one, lower pricing in certain markets where we sell to our distributors, or higher cost in markets where we import and distribute our products directly. While we expect tariffs to remain for the full year and two weigh on our margins, the comparability issues that we will improve over second half of the fiscal year as we cycle the full year impact of tariffs beginning in…

Well, thank you, Jane and good morning, everyone. Now that we've completed the first half of our fiscal year, I thought it'd be helpful if I focus my comments really on the progress that we are making against our strategic ambitions and then the overall health of our business. For those of you who are able to join us about a year ago at our Investor Conference in New York, you may recall we introduced a strategic framework and ambitions. This framework included our portfolio development efforts, geographic expansion, investment philosophy and then most importantly, our people and our culture. I'll start first with our first portfolio ambition, which is the lead in premium American whiskey. This is largely driven by the Jack Daniel's trademark but increasingly, by Woodford Reserve and then also by Old Forester. First, the Jack Daniel's family of brands, led by Jack Daniel's Tennessee Whiskey, remains strong, healthy and relevant to our consumers worldwide. We see some solid consumer takeaway trends in many of our major markets, including the U.S. where we've seen consumer takeaway accelerating in both volume and value. Jack Daniel's super premium portfolio, the biggest of which would be Gentleman Jack, is approaching 900,000 cases worldwide and serves as a way to really premiumize the trademark. Our Jack Daniel's Flavors continue to bring new consumers into the franchise as evidenced by our eighth consecutive year of growth for Jack Daniel's Tennessee Honey, our fifth consecutive year of growth project Daniel's Tennessee Fire and we anticipate similar success with the launch of our new flavor introduction innovation in Jack Daniel's Tennessee Apple. So it's very early. Certainly, the consumer excitement for this product seems to be very high. Woodford Reserve continues to enjoy its leadership position as the number one super premium bourbon in…

[Operator Instructions] Your first question comes from the line of Peter Grom with JP Morgan.

So my question is a kind of more on the phasing implied in your guidance for the back half of the year, both from a provident sales point but I'm just going to kind of focus on sales right now. So to kind of get from the 3% in the first half to, at least the low end of 5%, you kind of need to accelerate underlying sales to the high-single digit range to kind of get to lower end. So could you provide any commentary as kind of what you were seeing that gives you confidence that the trends can accelerate that meaningfully from here, particularly against tougher comps? And then just kind of -- is it just the benefit of Tennessee Apple and then if this is timing related issues that you kind of mentioned throughout the call. I mean have you already started to see a reversal of these issues in Q3? Thanks.

Sure. So let me take that question as it relates to the top line. And you're right. We're expecting half single digits growth in our underlying net sales in the second half of the year. And this is why we're confident that we will do that. First of all, you saw the acceleration and we expected that acceleration in the second quarter, we grew 6%. As we look to the rest of the year and then recall in my prepared remarks, I talked about several timing related items, customer buying patterns and promotional activities [Technical Difficulty] launch, which was just launched in October. So we expect incremental contribution over the balance of the year. When we got it earlier in the year, back in June, we thought it would have about a 0.5 point impact to the year. We're now saying about a point impact to the year, but that addresses your question too. And then finally, our takeaway trends is to remain healthy and really in many markets of what we're seeing in the P&L today and therefore, that also indicates the timing related activities that we expect to reverse. I would say one more thing. There is nothing in our trends that we've seen today that would lead us to believe that our premium bourbon and tequila portfolios won't sustain their growth, which we're assuming in the back half of the year too. So think of timing, think of sustained growth on bourbon and tequila, think about incremental contribution from Jack Daniel's Tennessee Apple and you got to there.

If I could just, is it fair to assume that the kind of the high end of the range in the context of 3% year-to-date is kind of -- would be a challenge to get to?

To get what [5%]?

To get to 6% to 7% ?

Again, a lot of this depends on our -- we're still trying to figure out early days of Jack Daniel's Tennessee Apple. And then we've got so much of our spend that we've been talking about earlier in my call are in my script that we've taken and reallocated to broad reach media, we've got a lot of that happening now. And so we're hopeful that that impacts our momentum even more, which is not built in. It's in that range, but we don't know how far that will go, so it could get to there.

I mean I do -- I'd just to add a point on there. I mean our -- the U.S. business for us is as strong as it's been in a number of years right now, and TDS remains strong. But we've seen improvements as we've talked about in Tennessee Whiskey itself with the rest of the portfolio is all really supporting our growth rates right now. And so one of the reasons we've got I think pretty decent confidence in the outlook is that that this -- U.S. market continues to pull forward. And yes, I mean, I think the fact that Woodford Reserve itself, Herradura, El Jimador, have gotten much bigger in recent years and so they're more meaningful to the overall mix and they're all growing very, very quickly these days. So yes, we feel very good about it.

Your next question comes from the line of Steve Powers with Deutsche Bank.

Another question on the outlook pivoting to the operating income growth outlook, just to clarify, on the lower the lower outlook that you're calling for now. Where is that going to show up in the P&L in terms of COGS versus SG&A? Because you mentioned incrementally higher input costs. But you also, if I heard you right, seem to reiterate the 200 basis point outlook from before as well. So a little confused as to where the incrementality is on that front. And then you also made some comments on geopolitical risk as a driver for the lower profit outlook. And I guess I'm just somewhat surprised that those are showing up in the cost structure rather as an impact to the top line, what you're not guiding to. So just what are those and where they're going to show up. Thanks.

Again, I think that we've pointed out this -- a couple of fair questions for sure. What I guided to this morning is the reason why we took our bottom line down about a point, which is very modest, was because of the cost pressures, as you said. I've guided from beginning of the year to now to about 200 -- I said about 200 basis points. You got to realize that a couple of -- a few million give or take either way is you're talking to still rounding to 200 basis points. I'm only pointing this out because as I get into this, this more meaning -- hopefully that will follow this. Our second piece does relate to the top line, and it does relate to a little uncertainty with our emerging markets in Travel Retail, because of the economic and geopolitical uncertainties. I'm talking tens of points there. So given our structure of our P&L, very small changes in our net sales growth, very small tens of points, very small changes in our cost of sales related to input costs tens of points. These changes are well within our range and flow-through at somewhat larger impacts on our OI. So just realize our intention at this point in time, we want to continue to invest behind the business. We're not talking about, one on reduce our A&P or anything like that, because we want to sustain what we believe is already healthy top line growth and continue to sustain and propel the launch of Tennessee Apple as we look ahead. So I hope that helps a bit. You're talking -- it does -- if you go and do a little math, it's very small.

So just to play it back, it's all within the prior outlook on the -- within the ranges, but a little bit more pressure on gross margin, a little bit more pressure on the top line versus what you've guided to two months ago…

And I'm talking tens of points.

Yes, understood. Okay, thank you very much.

Your next question comes from the line of Nik Modi with RBC.

I guess the question I -- there are kind of interrelated. But maybe we can get a quick update on just what you're seeing in the competitive landscape as it relates to craft distillers, what you're seeing from some of the bigger players . And then just kind of dovetailing to that discussion about pricing in the U.S. market in particular, and kind of what we were seeing, because we were seeing some deceleration over the last several quarters on an underlying basis on pricing. And so just wanted to get a sense of what's going on there. Thank you.

I'll take this -- touch on a little bit. I mean -- and I think I've said this on a couple of the previous calls. The market share growth of what we would call the craft distillers has been a little bit less than what was predicted a couple of years ago, and I haven't seen it and it's really changed that in recent quarters. Where the big brands continues to hold our share pretty well and the big players continue to hold our share pretty well. So I've said this before and I got a little bit of criticism for it from the craft industry. But they haven't pulled through to the extent that maybe other spot as a competitive threat a few years ago, so that's most of the US comment, but we will see how it plays going forward. The brands that are really growing the fastest in the market these days are sort of the mid, like ours, Woodford, which has gotten actually quite big. But there is other competitive brands out there too that are 100,000, 200,000, 300,000 cases that are growing quite well and quite strongly, that seems to be where the biggest competitive threat is these days. On pricing, do you…

Yes, I can take that. And I think you're talking about the U.S. market as well. As Lawson said in his prepared remarks and added as well, the overall -- the total distilled spirits markets in the U.S. remains quite healthy. We estimate, when we look at our Nielsen, NABCA, other syndicated data, we see it's up 6% to 7%, so really quite nice. Pricing still is fairly muted, or we might say stable. It's barely there so maybe it's 10s of a point improvement, but it's really still fairly muted and stable. There is a couple of categories that we're seeing pricing in, rum, tequilas, liqueurs. For us, tequilas is what we've been paying attention to given our large portfolio of tequila brands. And we've taken pricing and we've seen pricing in the tequila category from other brands now really over the past summer has accelerated some. We see American whiskey and still very healthy when look at that and continues to grow faster than TDS, and really pricing for American whiskey is flat now. But still, I wouldn't call market healthy for pricing, if you will, it has -- the American whiskey, pricing has improved a little bit, but it's again, similar to the overall TDS. So I hope that answers your question as it relates to the pricing environment in the U.S. If not, I'll…

I do think it's less, I would say, less bad. But pricing environment has been pretty weak over the last few years. And there are some nuggets of change that make it look like it just gets a little bit better. But as Jane said, it's small incremental benefit that's not in big time. And I do think we expect to the tequila will be probably the category that we'll see the strongest pricing over there. We've already seen it a little bit and expect that will continue, say, over the next year.

And just one more quick one, on the agave cost pressures. Any visibility on when that could start to improve? I mean -- because it's been so volatile over the last few years.

Yes, you're right. And just as a reminder, for us, the agave costs really didn't start hitting us in a big way until this fiscal year, that's why that was up so much this year, because we had so much internally sourced agave before then, which was significantly lower than if we had been on the external market. If you look at the external market, the price has increased about five fold since 2015 from about 5 pesos per kilogram to over 25 pesos per kilograms. But the real rapid increase has been 2016 through 2018. It seems like it slowed a little bit this calendar year 2019, still going up hitting unprecedented levels. So we're hoping that's leveling off, but we still don't see that reversal of that high cost pressures coming until late calendar 2021 or 2022, early 2022, that's based upon what we have seen that's made available to us on the plantings. And when the planting started to accelerate -- increased significantly and can meet and exceed the demand that's out there.

I'll just add a quick comment on it is, the tequila business, the consumer takeaway in the U.S. has been so strong over the last few years. I mean, while we're well in the double digits as our -- a lot of our competitors, the response to far has been people have been much more aggressive with pricing in Mexico, which is generally a lower margin market, you have to take price down there, or you -- a lot of brands would have become unprofitable very quickly. So we'll see how that -- what happens to consumer demand in Mexico and what that may happen to the long-term cost of -- in the United -- or globally. So there is optimism that it can start to come down, but we have enough visibility into the supply and in the demand's forecast that you can see, as Jane said that, sort of late 2021 or early 2022 seems like when the lines will start to cross and you'll start to see some relief.

Your next question comes from the line of Vivien Azer with Cowen.

So I wanted to dig in a little bit on A&P and your outlook around that, in particular given the change in your agency of record is certainly I think encouraging to see that you guys are investing behind your brands that generally has been very good long-term strategy at Brown-Forman. But there is a little bit of a disconnect it seems, right, in terms of, Lawson, what you kind of said as you started your tenure as CEO. You acknowledged it today, the double-digit growth you know that you had expected kind of sustainably in emerging markets. And how much of a factor was that in terms of changing your agency of record and maybe taking a more global approach to brand building? Obviously, you have innovation in a very large U.S. business that you have to support. But is there any thought that maybe more A&P in emerging markets can kind of get you back to that healthier run rate. Thanks.

Well, I would, the healthier run rate in emerging markets, I think as we said, is largely Mexico issue and then Poland. And Poland, we do expect to get back on track and sort of back to its old ways of very, very healthy growth rates. And it's one of the reasons the back half of the year we think will be stronger. The reason for appointing BBDO, I mean after -- I do find it interesting that Jack Daniel's essentially had the same agency, although, it had morphed through variations over the years, but had the same agency for 50 years. And I hate to say it was nothing more than, it was just time to take a fresh look and getting more global agency to help support us. And then the other brands, the tequila brands, Woodford, all those, their budgets aren't really big enough to sustain a global partner around the world very easily, it's much better, I think, if we consolidate those together and sort of have a team partnership effort. But there is truth too, it's not only emerging markets it's the developed international markets too where the most focus is on develop in those other brands these days, and we will be supporting those with a lot of new and hopefully better advertising. So we've got a new Chief Brands Officer. We've got a new leader on Jack Daniel's. And the combination of that with the new agency, I think, can only bring positive things.

If I could just follow up, since you mentioned Woodford, in particular, internationally. Can you just remind us what Woodfords domestic versus international mix is these days? Thanks.

It'd be [20]…

Yes, in [20]…

Volumetrically, yes.

Your next question comes from the line of Amit Sharma with BMO Capital.

This is Drew Levine on for Amit. I wanted to jump back to the commentary on the COGS line getting worse, perhaps by tens of a point here or there. Can you just talk about the internal productivity initiatives that you have in place, or you could push on more to offset these sorts of tenth of a point moves here and there, and maybe if you can push harder on that? And then just a housekeeping item, obviously, the tax rate was a lot lower than expected and previously, I think we're looking for 20% to 20.5%. So just any update on that would be helpful. Thank you.

Let me start off with the tax rate. So the tax rate was lower in the quarter and our year-to-date, because of a couple of discrete items. And so when we look at our full year we -- which includes our -- the discrete items has happened in the quarter, we expect our rate to be between 18% and 19% for the year, lower than the number you just said. But I would, on an ongoing assumption, assume that our rate from operations, which is included in this 18% to 19% for the rest of the year to between 20% and 21%. So that's our tax rate. As it relates to initiatives for cost, we are -- we have a number of initiatives underway. We are looking and have been looking at, quite frankly, the cost would be even higher if we didn't already have some of these initiatives underway where we are getting -- looking at everything from our packaging materials to how we get more efficient in the plants, to the cost of goods that shows up in cost of goods and if we charge or don't charge, or how much we do for that whether it's paying for us ourselves. So there is a number of things that we've already done and continue to do in that space. We are also looking at technology. We had big project this year that just is really getting underway at our cooperage operation that is significant cost savings. Again, those cost savings because of our aged inventory will not come through for three or four years from now. But these are utilizing technology and machine learning and robotics and things of that nature. So there a number of things going on in that space.

Your next question comes from the line of Bill Chappell with SunTrust.

This is actually Grant on for Bill. Thanks for taking the question. I had a quick one on tariffs, but actually on U.S. tariffs. And I was wondering if you guys have seen any impact or any switching to your brands from the U.S. tariff on scotch imports, or whether you'd expect any lift to your brands going forward from that? Thanks.

Well, it's only single malt scotch, it's not blended. So the volume -- blended is obviously a much bigger category than single malt. So we haven't seen any impact yet. I mean, it hadn't been long enough, but I don't even think it's been a month or so, maybe two months since the whole thing was announced. And so they saw the same as we did in the prior summer when we moved a lot of inventory across the border to get ahead of that, they did the same thing. And so you're just not seeing the pricing in them out changing yet. But to be honest, single malt pricing is so much higher than the vast majority of our portfolio that, although, I'd love to say, it's going to have a positive benefit on our brands, I'm not sure I can honestly say. It's just not a big enough category and it's so far away from the price points on the majority of our portfolio.

Your next question comes from the line of Bryan Spillane with Bank of America.

A couple of questions, first, I don't know if I missed it. But Jane, did you give us the capital -- CapEx outlook for the year?

Yes, that's within the $120 million to $130 million range, and that's unchanged.

And then, Lawson, I guess, two things. One, just Travel Retail, I guess, to come up with some of your competitors as well in terms of just the softness there. And I guess, I'm still not understanding how much of it is just a change in I guess how they're ordering, or is there some other sort of just underlying softness in travel retail, whether it's related to the consumer? Or is it just something more sort of macro that's driving softness in that channel? If you could shed a little bit more light on that.

Yes, I mean it's -- I think it is a little bit of both. I mean, first of all for Brown-Forman, I don't know about the rest of the industry. As we said, we have really double -- very, very strong double-digit growth last year. So the comps have been very, very difficult. But there has been some weakness in terms of global passenger counts and things like that. There is some odd things going on in China. There's other places where global travel retail, I do think as an industry, has taken a couple of -- maybe a couple of points down in terms of its growth rates. I'm not sure if that's a short-term or a long-term thing that I don't really believe it is a long-term thing. But I do think the sort of global weakness in the economy is having an impact on passengers, and that's the most important channel within Global Travel Retail.

And then if I could just sneak one last one in related to Apple. I guess, based on the comments you made in the prepared remarks, it sounds like it's at least initially gotten off to a start that might suggest it could be as big as Honey or Fire . So did I hear that correctly? I'm just trying to get an understanding of like how big you think this could be?

I mean, you heard it correctly…

Very early days…

It's only been out for what six or eight weeks, and whatever it is. So -- but I as I think we've said before, the brands want to taste really, really good. Two, it is priced a little bit under the market leader in the United States as opposed to our last effort with Fire, which was priced above the market leader. So that gives us a little bit of an advantage in terms of maybe in the on-premise and some sustainability there. And yes, I just think it's a flavor too that when you leave the United States, Apple, -- Apple is a very -- it's a common flavor, consumers really love it and there really is no market leader in terms of Apple outside of the United States. It's really only inside the United States, we got established. So that's a world, it's pretty wide open to us. And it does make us optimistic that it can be something big.

Your next question comes from the line of Rob Ottenstein with Evercore.

Lawson, I'm wondering if you just step back a little bit and can you give us your updated views on the spirits market and particularly kind of Brown spirits, whiskey, where that's sourcing the growth in your view, what your marketing people are saying, is it beer, is it wine, is it vodka, and how that maybe that may defer on and off-premise? And is it a question of development of consumer taste, or maybe as you said before, there hasn't been a lot of pricing, is it kind of a pricing issue? Just love to get your big picture thoughts. Thank you.

So I mean, break it up between the U.S. and the rest of the world for a second. So look, American whiskey, which has been growing at a high single-digit right now for a number of years in a row and those trends really have pretty much continued. Now it's interesting, everybody has been talking about the health, the trends and health and all these self-served brands that are -- have absolutely ballooned in the last few years and what's it going to do to your brands or your business. And I'll just cite TDS it's a strong as ever. In fact, it's up a little bit. So I don't necessarily think that we're sourcing, or that the sales are phenomenon has really had much of an impact on spirits yet. There is people that would say that it's impacting vodka a bit, but whiskey is farther away from that, I believe. And so I think we at least have some insulation against some of that phenomenon. So the U.S. business is largely, I think the U.S. American whiskey business is largely the same reasons it's been before, consumers want that sort of full taste, they like the people behind the brands, they like the stories behind the brands. It just fits into sort of American culture these days. Outside of United States, I mean demand it's been thrown around with the tariff situation a little bit. So it's been volatile. But we still look at the enormous runway for our brands particularly that becomes a conversation around sourcing from scotch for the most part. We've said a few times around here that scotch had a 100-year head start on us. But if you go and you look at where the British colonized the world 100 years ago and really planted scotch as the core drink, we continue to go after that consumer and have been doing that well for 20 years. So yes, I mean, I think we still feel pretty good about that and we still feel pretty good about the emerging markets' opportunity where we are well -- we're way behind scotch in those markets. And we, particularly as we said today, places like China, places like India and Asia, in general, we're so under indexed relative to other categories that we're going after that in a bigger and bigger way and allocating more resources that way. So yes, I mean the American whiskey categories is very healthy and feels like it's going to stay that way.

And just in terms of the U.S. Do you see most of the sourcing from beer, or from wine, or from vodka?

Well, spirits have been taking from beer and wine for 20 years. And beer has had its troubles over the last few years. And certainly, we've been a benefactor to that. Vodka has been a funny category, because it's had one brand and it has been an explosive brand for a decade now, or maybe even lower than that. And certainly, they're taking share from the rest of the vodka brands, and we're probably benefiting a little bit from taking share from the other vodka brands too. Analyst -

Okay thank you very much.

Just to build on what Lawson said. I do think, not only all the things that he said about the authenticity, people behind at home places and so forth are, Leanne, today had given us. Today is the National Repeal Day for prohibition. And I do think that at American whiskey, which has great mixability and to take it a step further, it's the cocktail culture of the modern cocktails culture. So again, that was lost during prohibition, or actually created during prohibition and so here we are, happy prohibition day for us. And I do think the mixability that consumers like with cocktails today is a piece of it as well.

Happy Repeal Day, it'll only be happy for me if they repeal tariffs.

Your next question comes from the line of Kevin Grundy with Jefferies.

A few questions for me, I wanted to pick up on Tennessee Apple and then I had a longer-term question on the operating income growth. So the first one to follow up on Brian's question, and I know it's really early days still with Tennessee Apple, but you're clearly feeling a little bit better tweaked up the guidance a bit. Can you talk a little bit about retail takeaway, maybe touch on where you are -- where the brand is sourced in share? At this point, where you're getting the incremental shelf space, touch on cannibalization a little bit and maybe margin implications for the product?

Yes, I mean I can take it. We've only seen four weeks of takeaway data. That's all we've got and that's what we'll be referring to as this comparisons to the early days of both Fire and Honey, and that's comparing favorably to that. So it's very, very early. Where it's sourcing from, it's too early to tell you that. In terms of cannibalization, and we get this question each time we've introduced a product from Jack Daniel's. So both Honey and Fire, and we sell minimum of any cannibalization. What we've seen instead is we bring in new consumers into the franchise, the taste profile, the lighter taste of particularly this one with Apple and then we believe we're going to be sourcing that even more new consumers to it. So it's very early to really get into any more speculation in terms of where it's still on-prem, or where it might be. I think people are just trying it now.

The follow-up is on longer-term operating income growth for the company. So I think the comment was before you expect to return to high-single digit growth beyond fiscal '20 as the income from tariffs fades. But I guess kind of stepping back here a little bit and understanding some of the issues with Travel Retail and emerging markets slowing. It looks like it will probably be the lower end of that range seemingly this year as comps get more difficult. So -- and then the conversation has been sort of constrained U.S. pricing for a long time not enough to offset input cost inflation. So what's the level of confidence? If -- the top line looks like it's something closer to 5, then to 7 and inability to take pricing in the U.S. to offset input cost inflation. What's the level of confidence that high single-digit operating income growth is the number you can hit even over the intermediate term, let alone sort of medium or longer term?

Yes, I mean, look we've hadn't. The conditions that you just talked about right there, for the most part, had been in place for the last 10 years. I mean, there hasn't been U.S. pricing in quite a long time. What's different compared to 10 years ago is we've got a much broader portfolio that's growing. You saw -- or you see in the earnings release how many brands we have growing into the double digits. And so as those get bigger, that's obviously dropping more and more money to the bottom line and becoming a bigger percentage of our mix. And then -- so it is more of a volume led story than a pricing led story. But I do think the shape of the P&L, after we get through this sort of very difficult margin compression time, will return to something that looks more like what we have delivered for last 20 years or something like that. So I would -- I mean, look the story hasn't changed all that much. I don't think even though the tariffs -- I mean, a lot of the cost problems that we have are not -- they are not permanent, well, hopefully, not permanent -- in the context of tariffs. And as those start to fall off, you'll start to see more gross margin expansion in then you'll hopefully, as I say, the P&L will return to the shape of old…

And I'm very confident in our top line, really. I think you've seen the lower end, but I am at the lower end just with timing issues without incremental contribution from Apple, as an example and some other things that we're doing in the back half of the year. So I'm more confident than that.

Thank you very much…

And when you see these things, it's all short term in nature anyhow we still believe in the long-term viability of the emerging markets and Travel Retail too.

And there are no further questions at this time. I will turn the call back over to our speakers for closing remarks.

I would just like to say, thank you, to Lawson and Jane. And thanks to you all for joining us today for Brown-Forman's second quarter and first half fiscal '2020 earnings call. If you have any additional questions, please feel free to contact us. With that, we'd like to close with wishing you all a wonderful holiday season.

Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.