Good day and thank you for standing by. Welcome to the Brown-Forman Corporation Fourth Quarter and Fiscal 2023 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Sue Perram, Vice President, Director, Investor Relations. 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 fourth quarter and fiscal year 2023 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer and Leanne Cunningham, 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 fourth quarter and fiscal year 2023, in addition to posting presentation materials that Lawson and Leanne 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 Form 10-K and 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 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. With that, I would like to turn the call over to Lawson.

Thank you, Sue and good morning everyone. It’s my pleasure to speak with you today regarding Brown-Forman’s fiscal 2023 results. Fiscal 2023 was another very strong year for Brown-Forman, and importantly, we built on the 17% organic top line and 27% organic bottom line growth we delivered in the previous fiscal year. If we take a step back and consider the headwinds we faced throughout fiscal 2023, it helps to appreciate the quality of our performance even more. As you will recall, we faced numerous headwinds throughout this fiscal year, including supply chain challenges, higher input costs due to inflation, the significant impact of negative foreign exchange and the impacts of the Russian invasion of Ukraine. As we progress throughout the fiscal year, the headwinds began to ease and the world, along with our business, seems to be getting back to normal. While uncertainty and volatility are likely to remain a part of our conversations, we have demonstrated this year and throughout our 153-year history that our brands are healthy, our people are resilient, and our company is able to navigate the challenges that come our way. Consider, for example, since fiscal 2019 or the last year before the pandemic, we have grown organic net sales at an 8% compound annual growth rate through fiscal ‘23 demonstrating our strong track record of consistent and sustainable results over the long-term. Alternatively, if you were to look back at fiscal ‘23 alone, you would see we significantly exceeded our top line growth ambition, which anticipates reported net sales in the mid single-digits. Now as we dig into the full results of the fiscal year, I’ll start with our top line performance and share some highlights from our portfolio of brands. Leanne will then provide additional details for the fiscal year before providing…

Thank you, Lawson, and good morning, everyone. As Lawson reviewed the top line growth and performance of our brands for the fiscal year, I will provide additional details on our geographic performance, other business results and our outlook for fiscal 2024. First, from a geographic perspective. Our top line growth in fiscal 2023 was broad-based was reported an organic net sales growth in each geographic cluster and the travel retail channel compared to the same prior year period. Collectively, emerging international markets delivered strong double-digit organic net sales growth, increasing 24% for the fiscal year. This strong performance was driven by Jack Daniel’s Tennessee Whiskey notably in the United Arab Emirates, Türkiye and Brazil as supply chain disruption eased, which improved product availability and pricing increased. RTDs also meaningfully contributed to the growth with New Mix and Jack Daniel’s RTDs growing strong double digits in Mexico, where the RTD category is growing, and we are gaining share while increasing price. In addition, Herradura and El Jimador delivered double-digit organic net sales growth in Mexico, largely driven by strong pricing. This growth is especially notable as it includes the absence of business in the Russian market as we suspended our commercial operations there in March 2022. Prior to this suspension, this market represented approximately 2% of our total reported net sales. Our developed international markets collectively grew organic net sales double digits in fiscal 2023. Jack Daniel’s Tennessee Whiskey was the largest contributor to this growth, led by Germany, where the brand is growing double-digit and gaining share within the Whiskey category and Japan, which is continuing to benefit from strong consumer demand in both the on-and-off trade. Japan is one of the world’s largest spirits markets with a significant footprint and a leading position in premium plus whiskey. Earlier this…

Thank you. [Operator Instructions] Our first question comes from the line of Vivien Azer from TD Cowen.

Hi, good morning.

Good morning.

Good morning, Vivien.

So thank you so much for all the perspective on your inventory levels. I’m sure you’ve been hearing it, we certainly have, a lot of concern from investors around overall alcohol inventories in the U.S. in particular, looking at the census data. So Lawson or Leanne, I was wondering if you had any comments that you could offer on broader – the broader inventory situation for spirits or U.S. alcohol across the board? Any perspective on that would be helpful. Thanks.

Thanks, Vivien. I’ll take that one. And as we have shared with you over the last seven quarters, we’ve been in a little bit of a different position than some of our peers in the industry. We have similarly had really strong consumer demand. We’ve added some great innovations to our portfolio. But we’ve been faced with the global supply chain challenges, first, related to glass, then followed by the logistic constraints that we’ve had. So we’ve been working for us diligently to rebuild that inventory. And as we shared with you last quarter, we believe that our distributor – we believe that our distributor and retailer inventories would return to more normalized levels at the end of this fiscal year. And so for us, in the U.S., we’re happy to report that our distributor inventory levels are now back to normal. We do continue to have some rebuilding of some brands and some smaller sizes that our shipments and depletions now are largely black and balance across our full strength portfolio. And similarly, in Europe, our stock levels are also largely back to normal after we have the supply chain challenges in fiscal ‘22. So for us, we were just in a bit of a different position. We’ve been kind of updating you on that every quarter as we moved along. And for us, we are kind of just now getting back to what we consider normal inventories across the system.

Understood. But just to follow-up on that. Do you have any comment on the broader inventory situation across distilled spirits? Is there excess inventory? Because that seems to be a concern I’m hearing pretty consistently. Thank you.

I think what we would say is we’re probably all reading and hearing the same things that you are, but we don’t have a comment on the general position.

Okay, fair enough. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Eric Serotta from Morgan Stanley.

Great. Thanks. Great. Hoping you could give some color on your visibility in terms of gross – visibility and outlook in terms of gross margins for fiscal ‘24. I know you’ve called out the continued input cost inflation offset by the absence of some of the extraordinary supply chain charges. But maybe you could give us a little bit of color in terms of your visibility and some of the components there, like agave and wood and other inputs?

Sure. First, I’ll start with kind of what we said right there at the end of our prepared remarks. Just as it relates to our operating income guidance includes brand expenses in line with top line growth. SG&A that’s going to be still a bit above our historical norms just related to higher compensation and the addition of our Japan RTC. So then with that, leaving our gross margin our gross margin assumes that we’re going to continue to benefit from our long-term pricing and revenue growth management strategies. I’ll go into a little bit more detail on that in a moment. Then as it relates to our cost, and we said last quarter, from a supply chain disruption perspective, we will incur significantly less of an impact in F ‘24 as global logistic challenges have eased and we’re going to be returning to our normal shipping lanes in F ‘24. From an inflation perspective, it will continue to negatively impact our input costs, though on a year-over-year kind of rate increase, it will be lower, though still just a bit above our historical trends. To your specific question on some of our key input costs, for agave, we release a similar of what we’ve shared the last several quarters that the external prices continue to be beyond and below their peak, stable at the MXN28 to MXN30 per kilo. For us, it’s a little bit of a headwind in F ‘24 as we have a bit of a mix shift between our internal and external purchases just because our consumer demand is so strong for agave. As it relates to wood, the cost of the commodity continues to be high due to the strong demand. But the changes that we have made in our wood supply chain are beginning…

Yes, really helpful. Thanks for all the detail. Maybe just taking a step back, your gross margins going back to kind of pre-COVID fiscal ‘19 were in the mid-60s going a few years before that, they were in the high-60s. I guess maybe could you talk about visibility in terms of a path to getting back to pre-COVID levels? Are you looking at this in terms of percentage margin? Are you looking at growing the GP dollars? Any sort of long-term perspective versus your history would be helpful.

Yes. I mean everything that I have just talked about as far as the company is focused on growing our value share, and that is reflected in our long-term pricing strategy. We have significantly increased, I think our capabilities as it relates to revenue growth management. So, that is beginning to contribute positively to our gross margin as well as we are an aged product business. And when you look at our portfolio, the historically high levels of agave cost as it relates to our portfolio and wood as it relates to our portfolio kind of has had an outsized impact. We all continue to watch the change in the external agave price. And again, we have shared with this every quarter as we see the additional number of plantings that are coming in the out years, we believe that supply and demand will come back closer into line than what they have been. And then I have just commented on wood that impacts our barrel cost, which is all about some of the changes that we have made in our supply chain, though it’s an aged product, so we will see those benefits as the years ahead of us unfolds.

Great. Thanks so much. I will pass it on.

Thank you. [Operator Instructions] Our next question comes from the line of Bonnie Herzog from Goldman Sachs.

Thank you. Good morning everyone. I just had a quick question on your top line guidance. How much of your top line, I guess organic growth do you expect will be driven from price/mix versus volume growth this year? And then maybe what the breakdown of rate versus mix might look like? And then I would be curious to hear from you, are there any concerns or signs of promotional intensity building, really essentially any changes to your pricing strategy in light of the strains on the consumer globally? Thanks.

I will try that one, Bonnie. So, the pricing strategy, which we started a couple of years ago, which we have been pretty transparent about, was in the low-single digits, sort of in that 2% to 3% range kind of globally everywhere, so U.S. and international, I have been trying to get it across all our brands. So, we have been pretty successful at that over the last couple of years, and we are going to continue that. So, our strategy has been a little bit different than either some other consumer products sectors or even within our own industry, would that have been more aggressive. And there are pluses and minuses to doing that, but we feel comfortable that the best long-term plan is to keep that sort of in that same low-single digit range, but trying to do it every single year without shocking consumers or chasing them away in any way. And so that balance of volume and pricing is what we are looking to achieve. Now, as far as like more recent times, have we seen like discounting go up or anything like that, we really have not. I mean I think the pricing environment in U.S. spirits, but also in Europe is it about as good of a place as it’s been in a while. We find the industry is starting to take regular price increases again after, as we have said for almost a decade of not doing it, but that seems to be back again. And so hopefully, it stays that way, and we will continue to keep our heads down and go for that 2% to 3% a year.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Nik Modi from RBC.

Yes. Good morning everyone. There is some chatter still in the industry regarding glass supply and so I just wanted to kind of get your update there. And if there is an issue, what is actually still the problem or driving the issue? And then the second question is just back on the tequila question. So, we have been seeing some of the data. It looks like promotional activity is picking up. Anything notable there that you guys are monitoring? Thanks for the perspective.

I will start with glass supply. So, as we have navigated glass supply challenges, which was the first constraint that we hit post-pandemic and trying to get our glass supply back to where we needed it to be. I think we have spoke to on this several quarters and the fact that beginning this would have been in F ‘22. We were working closely with our partners to ensure we have the capacity and that they were also getting the quality and quantity of glass that we needed produced. We have also talked about how during that time, we diversified our across more suppliers that now has come online for us. So, for us, we have lived through those challenges and navigated through them successfully to the point that we really aren’t seeing any glass supply challenges for us as we have gone through the back half of F ‘23 and that’s our plan as well for F ‘24.

And then on the tequila question, I mean you asked, have we seen any more discounting or anything like that, no. I am actually kind of surprised to hear that a little bit, although I do know some of the big brands have slowed down a little bit, but some of that, I am just convinced is more about comping against a couple of years, there were some of these brands were growing at 100% growth rate. And so they have just they have kind of hit that wall a little bit. And as Leanne said, there is a little bit different. I mean we are expecting better growth looking ahead as the glass constraints let up. That was the last brand, really the last brand in our portfolio that struggled. And we came out of the box in fiscal ‘23 last summer with very high expectations and then we couldn’t deliver and that was frustrating. But now we have sort of got that all fixed and want to see substantially better growth rates looking ahead. So and as far as discounting go in the category, I mean given the costs still remain very elevated, although I want to say we are sort of peaking out, I have said that before and been wrong. So, it’s – but it does look – I think the outlook is a little bit better than we have to hit the top and should expect a better cost position going forward, but I have no intention of increasing discounting at this stage, at least not on our brands.

Great. Thank you so much.

Thank you. [Operator Instructions] Our next question comes from the line of Kevin Grundy from Jefferies.

Great. Thanks. Good morning everyone.

Good morning.

So, my question was on the Jack & Coke rollout, which sounds like it’s going quite well. Just a few questions, if I could. Maybe just provide an update, how many more markets remain for the rollout? What are some – I can appreciate it’s early innings here, but what are some of the early learnings about the consumer and where you are sourcing occasions for the product? And then just lastly, anything that you can share around trial and repeat purchase rates would be appreciated? Thank you.

Yes. We don’t have a lot of that data yet. So, we will talk about where we are today because basically the rest of the world is still open. So, we are in nine markets Mexico, the U.S., Japan, Philippines, the UK, Poland, Hungary and the Netherlands and Ireland. So, not sure what percentage of the world that would be, but it’s not particularly high. So, we got a ways to go, and it will continue throughout this fiscal year and even into the following year after that, too. So, I mean the short answer on how is it doing and how are we doing, I mean it’s – we feel pretty good about it. The turn rates have been kind of on plan to maybe slightly better than planned so far, and that would be the U.S. and in the other markets that I just talked about, so excited about that. And look, the Coca-Cola Company and Brown-Forman are working very well together on this rollout. They have got some pretty cool programming out there in the world. We talked a little bit about Piccadilly Circus and some other sort of iconic landmark types of things. And so we are coming out big. And this is a good thing for the Jack Daniel’s brand. Even if it is modest profit – incremental profits in the early years, there is a lot of visibility we are getting from that. It’s a lot of advertising dollars that are going behind this launch that are not reflected on Brown-Forman’s P&L, but it’s still happening in the world. And so that is something I don’t want people to forget about that it’s a tremendous amount of consumer interactions that we are getting with this brand. So, it’s all off to a good start. It will probably be another quarter or so before we really have a lot of that sort of turn data that I think we are all looking to see.

Yes. Thanks a lot. But just a quick, I am sorry, Leanne, were you going to say something?

No. You go ahead with your follow-up.

Thanks. A quick follow-up for you. Perhaps you went as far as you would like to go on commenting on margin implications here. I appreciate your comment on Gin Mare and Diplomático, but what can you say about the phasing of this and how investors should think about this rollout what the margin delta is relative to the base portfolio? How we should think about this as you try to scale this product in a number of markets. So, anything that you can provide further there, I think would be useful and then I will pass it on. Thank you.

Okay. Great. Thanks. What we would say is, generally speaking, gross margins on our RTDs is below our company average. But as we think about Jack Daniel’s and Coca-Cola as it relates to our operating margin, it’s a little bit different and the fact that as Lawson just mentioned, so we have consistent strategy, and we can maximize scale. The Jack Daniel’s and Coca-Cola RTD launches are supported by both Brown-Forman and the Coca-Cola Company. So, based on our current expectation, this joint funding should result in higher operating margins for Jack Daniel’s and Coca-Cola related to the rest of our RTDs. And remember, in most of our big markets, this is a transition from existing Jack Daniel’s and cola business to Jack Daniel’s and Coca-Cola. And again, something we continue to believe as well. We always have in the 30 years we have been doing RTDs is they are a wonderful connectivity and marketing tool with the consumer and that it will have a positive impact on our full-strength brand. And just one example of that is Germany, which is one of our largest RTD markets and our RTDs there are strong contributors to our growth and our share gains. And also in that market, Jack Daniel’s is the number one American whiskey and is also growing and outperforming the total category. So, we believe that as we continue to premiumize our business with the Jack Daniel’s and Coca-Cola RTD, it will continue to reflect positively on our entire family of brands.

Okay. That’s great. Thank you both. I appreciate it. Good luck.

Thank you. [Operator Instructions] Our next question comes from the line of Filippo Falorni from Citi.

Hey. Good morning everyone. Question on your guidance, fiscal ‘24 guidance, particularly on top line, at the macro level, you mentioned you remain a little bit cautious on the global macro. What kind of expectations are you embedded in guidance? Are you assuming a continuation of the current trends, worsening of consumer globally and specifically also in the U.S. market? Thank you.

Yes. So, what I will add to that is, again, just to reiterate what we said in our prepared remarks, from a top line perspective, we just completed two consecutive years of double-digit top line growth with F ‘22 at 17% and F ‘23 at 10%. So, now as we move into F ‘24, we have lapped most of the significant impacts of the pandemic. We are moving more towards a normalized environment. But in that normalized environment, we continue to expect increased consumer demand and for our premium portfolio, just more back in line with our historical trends setting on top of that elevated base. Again, Lawson has talked about, I have talked about our continued reliance on the long-term pricing strategy and our revenue growth management. And we will, as we get into F ‘24, it will be – there will still be a little bumpy as we relate to comparing against the strong shipments of rebuilding our inventories that we had that carried over into fiscal ‘23. And then with the recent lapping of the Jack Daniel’s and Coca-Cola launches. So again, it’s – and one thing we also have to factor into our guidance that we lived with, with all of fiscal ‘23 that will be absent in ‘24 is the impact of not having our Russia business. So, that’s in there as well. So – but again, as you said, we keep a close eye on all of the consumer behavior, macroeconomic trends. But in our plan, we still have very strong consumer demand.

Yes. Let me add on the U.S. part of your question. I mean as I look at Nielsen figures right now, just using that as an example, it’s back in the 4% to 5% range for TDS, which is kind of where it was for about a decade before the pandemic actually happened and feels about where I think the market is going to settle out. We are a little bit ahead of that. That’s a good marker for us to shoot for every year to be a little ahead of TDS and said the U.S. market is pretty good. It had an overall only a 3% growth in ‘23. Remember, the first half was 11%, which had some of that inventory rebuild built into it. The slowing down to 3% did recognize bringing some of those inventories back down, which has got us kind of where we are today, which is what we described earlier, is in line. So – but the other thing I would caution everyone be careful extrapolating us to some statement about consumer health around the world. Our story is more about shipment comparisons to last year than it really is about a change in consumer demand. So – but I think overall, look, it’s back to normal. We have said normalized about 10x already today. But normal is pretty good. In the U.S. market, if you can get – continually get mid-single digit sales growth, and we expect higher growth outside of the United States, that algorithm works pretty well for Brown-Forman.

Got it. Thank you. That’s helpful. And just a quick follow-up, you mentioned in your prepared remarks some evidence of down-trading in Europe. Any other market where you are seeing this phenomenon or is it just isolated to Europe? Thank you.

Yes. I mean – well, the U.S. is the one people seem to go at the most. And obviously, when you – if you went back to the Nielsen thing again, if you look at the less than $10, that’s the spirit-based RTDs that are flying, but that bends the numbers if you try to look at the overall thing. So, you have got to look at the different price points. And I mean the important thing is that the super-premium and the ultra-premium price points continue to grow at a faster rate than, say, standard or just premium. So, that has been true for a long time. The gap has closed a little bit, but still premiumization is live and well in the U.S. business. And yes, so we feel like the portfolio is in a pretty good place. And it is a little bit tougher in Europe. TDS numbers are not quite as strong as they are in the U.S., France, I know is a challenging market. But we are growing share in Germany, the UK and Poland, three of the most important international markets that we have around the world. So, we feel pretty good that the takeaway of our brands, particularly in developed international is solid.

Thank you, guys. I will pass it on.

Thank you. At this time, we have run out of time for questions. I would now like to turn the conference back over to Sue Perram for closing remarks.

Thank you and thank you, Lawson and Leanne, and thank you to everyone for joining us today for Brown-Forman’s fourth quarter and fiscal year 2023 earnings call. If you have any additional questions, please feel free to contact us. Before wrapping up today’s call, though, I would like to hand the call back over to Lawson for a few additional comments.

Yes. Just briefly and I know everyone knows by now, heard of the passing of Diageo’s CEO, Ivan Menezes. His influence can be felt really around our industry and in every market where beverage alcohol is sold. He was an admired leader and well respected across the industry. So, on behalf of all of us at Brown-Forman, we send our deepest condolences to his family and the entire Diageo community. That concludes our call.

This concludes today’s conference call. Thank you for participating. You may now disconnect.