Ladies and gentlemen, thank you for standing by, and welcome to Brown-Forman Corporation Fourth Quarter and Fiscal Year 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Sue Perram, Vice President, Director of 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 2025 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 2025, 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, a reconciliation to the most directly comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations, are contained in the press release and investor presentation. With that, I would like to turn the call over to Lawson.

Thank you, Sue, and good morning, everyone. Thank you for joining us today as we share our fourth quarter and fiscal year 2025 results. Throughout fiscal 2025, Brown-Forman navigated the extremely challenging and uncertain operating environment by remaining focused on the long term, leveraging our strengths and executing our business strategies with a focus on improving our route to consumer in several markets, evolving our workforce to simplify and streamline our organization, allowing us to become more agile and efficient and growing our portfolio of brands through sponsorships, media campaigns and innovation. That said, the fiscal year unfolded largely as we expected. This reflects the continued path to normalization following the significant multiyear disruption related to our supply chain, 2-plus years of exceptionally high demand and the impact of higher inflation and interest rates on the consumer and trade over the last 2 years. For context, in fiscal 2025, our shipments closely matched our depletions for the first time in 6 years. Our reported net sales decreased 5% in fiscal '25, while organic net sales grew 1% after adjusting for the divestitures of Finlandia and Sonoma-Cutrer in the prior fiscal year, the negative effect of foreign exchange and the business model change for Jack Daniel's Country Cocktails. Putting our fiscal '25 results into the longer-term view, our 5-year organic net sales compound annual growth rate was 6%, reflective of our historic trends. Now let me share some perspectives on the fiscal 2025 results through our integrated business strategy. I'll start with the performance of our portfolio and provide a few updates on our people, then Leanne will share more about our geographic performance and our investments, along with other financial highlights and our fiscal '26 outlook. From a brand perspective, Woodford Reserve was the largest driver of organic net sales…

Thank you, Lawson, and good morning, everyone. As Lawson mentioned, I will provide additional details on the other two pillars of our corporate strategy, geographies and investment along with other financial highlights and our fiscal 2026 outlook. From a geographic perspective, we shared with you previously that we anticipated a return to growth for organic net sales and organic operating income in fiscal 2025, driven by gains in international markets, along with the benefit of normalizing distributor inventory trends on a year-over-year basis. Today, the results we are sharing with you reflect those expectations. Our emerging international markets continue to lead our growth and collectively delivered a 9% organic net sales increase in fiscal 2025. This growth was led by continued strong double-digit growth in Türkiye and Brazil, led by Jack Daniel's Tennessee Whiskey. The sustained growth of the premium whiskey category positively impacted our business in these markets, along with Brazil, which benefited from our geographic expansion strategy and the launch of an additional package size for Jack Daniel's Tennessee Whiskey. In Mexico, organic net sales grew 4% despite the challenging economic environment. While discretionary spending has been negatively impacted and consumers are trading down, our RTDs and the Jack Daniel's family of brands are outperforming competitors and gaining market share. As Lawson mentioned, New Mix continued to deliver double-digit organic net sales growth driven by increased distribution as well as a steady pricing and promotional strategy. Jack Daniel's RTDs, which include Jack and Coke, outperformed the RTD category and delivered high single-digit organic net sales growth. As I mentioned last quarter, we are committed to the development and growth of our portfolio of brands in Mexico and further leveraged our own distribution capabilities. In fiscal 2025, we began the distribution of brands within the William Grant & Sons…

[Operator Instructions] And the first question is going to come from Bryan Spillane with Bank of America.

Lawson, just stepping back, and I appreciate the commentary about just how volatile and difficult, I guess, the consumer environment is. And one thing we're trying to square here is how it's not uniform across all other consumer categories. Like if we look at, I don't know, lodging, gaming, leisure, I mean, there's a lot of other consumer categories that when we go through the transcripts or we listen to the companies describe the consumer, it's kind of normal, if not even a little bit better than normal. And yet if I take the commentary today, you would think we were in a recession, right? So can you just kind of -- a, is that your observation as you're kind of looking at the consumer and trying to understand what's happening specifically to Brown-Forman and the spirits? And any insight you can give us to help square that circle? Because I think, right, part of the reason why the stock is kind of erased over 10 years' worth of appreciation is simply because I think people are seeing it more structural than cyclical. So any insight there would be helpful.

Yes, Bryan, it's a good question, a difficult one. I mean the -- look, there are certainly a lot of consumer categories that are very weak. You're right. You cited a few that have done better than others. I know some big consumer products companies in the last couple of days have released earnings and they've gotten hammered with weaker consumer demand. So there's certainly an element to that in a lot of what we've been saying. The whole structural versus cyclical argument, which we've been talking about for 6 quarters now, I think, something like that. I mean I don't think there's a lot of newness to necessarily add to that conversation. I mean I've seen more and more people, but it's the same big 3, the GLP-1s, the cannabis and Gen Z, and we've been saying that for 1.5 years now. And I know on the sell side that the world seems to be a little bit split on the extent of the pressure that it's putting on our category. We'd be naive if we didn't say that there isn't some pressure coming from those. But I still would argue that it is the consumer and their wallet just doesn't have as much money in it. You're right, they're spending money on things like vacations and lodging, as you said, and other things like that. But then when it trickles down and they go to the grocery store, I think in some cases, spirits has fallen out of the basket a little bit. And that isn't obviously great. But on the tailwind side of things, there are some things that are doing well. Spirits continues to take share from beer and wine. So that dynamic hasn't changed. Premiumization is not at the same rate it was, but it's…

All right. If we learn more, I'll share with you. But it is -- we're perplexed by it.

Yes.

And our next question will come from Nadine Sarwat with Bernstein.

I have two, one on the guidance and one longer term. So first one on the guidance, can you flesh out a little bit what's included in that top line guidance for fiscal '26, both in terms of distributor inventories and/or underlying consumer demand? Are you assuming some improvement in the back half or simply more of the same? And similarly, on the profit guide, just clarifying what does that imply tariffs, is that status quo? Are you baking in any form of tariff assumption in there? So that's the sort of tariff question. And then the longer-term question is your fiscal '26 guidance is now obviously quite far off. The medium-term growth algorithm that you've communicated at your last Investor Day. And I think if we reflect on what's going on with the stock today, that's probably a big portion of that growth being at least for the moment, pushed into the future. So for those who are listening in who are concerned about that and reaching that medium-term growth algorithm that you communicated previously, has that algo changed? How are you thinking of the potential for the business to grow in the long term?

Nadine, thanks for your questions. I'll start with guidance, and I'll turn it over to Lawson for our longer-term algorithm. So kind of stepping back a bit, as we think about F '25, largely in line with our expectations, we had sequential improvement through each of the first 3 quarters. And then in the fourth quarter, we had planned for that trend to continue. But then that's where we got into more geopolitical volatility around the tariff environment. We saw the drop in the consumer confidence. And that's on top of that kind of stretched consumer we've been talking about for several quarters. And when we think about our fourth quarter and then how that leads into F '26, that impacted the U.S. and a lot of our key developed markets, particularly Europe. But for our performance in the fourth quarter is kind of largely in line with the softening trends of TDS. So that's how we enter our fiscal '26. And so from an environment perspective, we do think it's going to remain volatile and the visibility is going to continue to be low around the tariff environment. That's a big piece of that. We believe that through all of that continued kind of uncertainty that the consumer is going to remain at that sustained level that it is now. And so we're just really thinking about the behavior of the consumer and the level of trade inventories as we're thinking about the environment that we'll be operating in, in fiscal 2026 is kind of largely the same as we entered into this fiscal year. But we have a lot going on, as we talked about as it relates to our outlook because, again, during Lawson's prepared remarks, we are really investing and strengthening the portfolio of the brands,…

Long term, the growth algorithm. So just to remind everyone sort of what that was or what we said in our last investor conference was sort of mid-single-digit growth in the United States, growing around the TDS number, which historically been in that 4% to 5% range. A little bit higher on the developed international and a little bit better than that on emerging markets. When we get to there, that sort of makes all the math work. And we had literally achieved that for the most part over the last 20, 30 years kind of time frame. Obviously, the last few years have been a whole lot more volatile than that. So having said that, when we talked about that kind of algorithm. If you remember, if you go back 2 years ago, TDS in the U.S. was growing 5% or 6% even 2 years ago. Long term, we have always said kind of a 4% to 5% grower market. Well, right now, it's declining at 4% to 5%. So that algorithm doesn't work when the market is declining at that kind of rate. So when we're going to return to our old growth algorithm, I do think has a lot to do with not only the U.S., but in Europe starting to see some improved industry trends. I mean -- and I think that's true across the whole industry. I mean we are obviously not the only ones that are not delivering against that long-term algorithm. But if you're a believer in the cyclical nature of so many of the problems here, it's tough to predict when that's going to come back, but it will. And look, the fourth quarter had some weakness in it a little bit. TDS weakened a point or 2 more. So that contributed to sort of a little bit of a surprise, I think, that everybody is seeing right now. But we still feel like we are pulling the right levers that we've got the right brands in the right categories. All that kind of stuff hasn't changed. It's just the environment continues to be really difficult.

Our next question will come from Kevin Grundy with BNP.

Two strategic ones for me, if we could. So Lawson, a key competitor here has a new CFO comes from the Coke system. There's been great progress on the soft drink side from a mix perspective, from a package mix perspective. And it seems like that may be something that a key competitor is intent on pursuing as a way not just to drive profits but also to reach a more value-oriented consumer and to drive improvement. And I was just curious to kind of get your thoughts on that. And then just unrelatedly, just on the pricing outlook here, if you could just comment, you guys have heard this before, just in terms of the amount of supply that's out there in U.S. whiskey, coupled with the fact that demand is slowing, which is now reflected in your outlook. And the worry among the investment community is what that may -- mean for industry pricing and then ostensibly margins. So maybe just your updated thoughts on those two things would be appreciated?

All right. Leanne, let me take the pricing question first, and then we'll come back into the RTDs. Pricing, look, what we have said before and we are still seeing today is low single digit on a regular basis is the pricing that we want to see out of Brown-Forman. We're always talking about the U.S., but come back to the U.S. pricing for a second. Over the last 13 weeks, TDS was down 1 point. We were down less than that. So that's not great, but not -- it's not like the bottom is falling out. And you get some mixed things in there, too, as RTDs have been strong. But importantly, though, I think an interesting part of that is U.S. whiskey, suburbans for the most part, or Tennessee Whiskey, is basically flat. So for those that have expressed concern, I know over the last few calls, we've had conversations around industry supply and things like that. At least so far, it has not flowed through to more promotional lower pricing. And so -- and I think and what we said last time, and I just I'll say it again, the big players in American whiskey control or we have very large market share of the American whiskey category, and it's the big players. It's the Diageo's Brown-Forman and Sazerac and Beam. And they seem to be professional in their pricing, whatever the word really wants to be rational. I guess that's a better word for it, that they're being rational in their pricing environment. Tequila is the other category that everybody wants to talk about. It's down 2% once again, it's not like the bottom is falling out, but I think we all accepted that you were going to see some pressure on tequila pricing given the direction of the cost of agave. So -- but it's -- I don't want to say pleasantly surprised, but I guess I am a little bit that the pricing environment has stayed where it is.

And then I would say to the RTD comment that you were referring to, we've been in this business for over 30-plus years. We have over kind of 30 million cases of RTDs already in our portfolio. But you would have heard in Lawson's prepared comments, it's something we continue to very much believe in. New mix, which is one of our key drivers of growth in Mexico, we've been able to take pricing. We have been expanding our distribution. And through innovation, we've been launching new flavors. For the -- in F '26, we're also going to take New Mix and extend it beyond Mexico and launch it into the U.S. targeted specifically to some areas as we begin the launch to give it good footing. As we go forward, we think it will continue to resonate well with a lot of consumers. And then also for our Jack & Coke, it's about geographic expansion in F '26 and working through and launching new innovations in that space. You would have seen us do that in F '25 with the variety pack, which we had Jack and Coke, Jack and Coke Cherry and Jack and Coke vanilla. And it's just a space where we continue to innovate and grow. So we agree the consumer right now in many places around the world is preferring convenience and flavor, and this is a good format to be able to deliver that to them.

One thing I'll add to that, too, on the comment earlier about package and sizing and things like that, that quite honestly is a little bit easier in the nonalcoholic space, there's more flexibility than there is in ours. But just as one stat, I found it interesting. I have not heard this before. 80% -- this is in Nielsen, U.S. last 12 months, 80% of the dollar growth in spirits has been through the 375 and the 50 mL, so the small sizes. That's unusual to say the least. And I think it just -- it goes further to talk about cyclical challenges of a consumer who's pinched and just goes to the store with a $10 bill instead of $20, and then they get the smaller size. But we don't necessarily consider that a bad thing, and that came up a couple of calls ago, maybe for some folks. It means they still want your brand. They just can't afford the whole -- they can't afford a leader or whatever it might be, and so they're taking a smaller size. So I think that is a sign, and it's call it an opportunity, too, that we need to get better at getting our small sizes out there and everyone, particularly in the U.S., is very aware of that, and they're going for it. So...

And one small data point about the consumer in the U.S., while our coupons are a small tool in our promotional toolkit and have the same consistent level on F '24, F '25 of coupons offered, we are seeing redemption rates increase. So again, looking at that consumer who's looking for the value and be able to afford the luxury they can while remaining brand loyal.

And one, if I can, to Nadine's question from 5 minutes ago, I wanted to add one other point, I think, that's important that I forgot to say. And it's basically despite what's happened over the last 12 months and a bit of the volatility and the challenges and the slowdown in the business, our 3-year, our 5-year and our 10-year CAGR for top line growth is the same number. It's all in the mid-single digits. So the 3-year and the 10-year are the same number. It doesn't feel that way right now because of what's happened really in the last 12 months, but it's coming off those elevated years post-COVID. But I just find that interesting that 3, 5 and 10 would all be the same.

And the next question is going to come from Lauren Lieberman with Barclays.

So Lawson, just following on the heels of that and looking at those sort of average growth rates over a multiyear period, obviously, like by nature of the math, there's smoothing inherent in that. But the trend line is less than encouraging. And notwithstanding everything you've already offered on view as cyclical versus structural, what about the what if? Like what if it is more structural? What if the category, let's say, TDS rather than being down 4% to 5%, we reach a new level and it's kind of like -- it's more like beer. So let's call it down [indiscernible]. But let's just for the sake of argument, say it's a down low single digit. What does that mean? What's the business planning? What's the break glass in case of emergency plan if there is one. But just to what degree are you guys having these conversations about what is the future business model if it's not cyclical?

Well, look, I mean, that's a tough question, and we certainly talk about it, although I'd still argue I think we've -- we still believe in the cyclical side of the argument. But to try to answer your question a little bit as to what will we do differently. I mean, look, you take a page out of carbonated beverages and sodas, you take a page out of beer, some of those means you're doing more pricing. If the volume is not there and they still deliver -- I mean, both beer and carbonated beverages have obviously lived on pricing for the last decade really. So I think there's some changes there. I mean I think there's some resource reallocation. We're not seeing these headwinds in much of our emerging markets, and they continue to grow. They continue to be the source of strength for our company, and there's a long way to go in the world of emerging markets. As we've said many, many times, we kind of barely scratched it. So I think that where the growth comes from is going to be a little bit different, too. And then we look at our portfolio, I mean, I still -- we are -- as everyone knows, we are a premium-based spirits company. Premium consumers, I do believe, are going to continue to be -- they're going to want brands like the ones that we have. And so I think we're relatively underexposed compared to some others that have a bigger, longer tail and a lower-priced portfolio.

And just to build on that a bit, like with the U.S. RFP that we just did, it was all about making sure that the brands that we have in a competitive market are with partners that have proven track records, strong capabilities and a shared commitment to make sure they're going to continue to grow our brands they have ensured we are going to have dedication, focus, investment and building our brands. We continue to do that in other markets such as UAE, where we are expanding our distribution and Turkiye, where we have new distributors that will cover more geographies to Lawson's point, emerging international. We're doing it with Italy and Japan and taking those brands into our hands, especially with Gin Mare and Diplomatico, where we have a lot of opportunity to continue to grow those brands. So it's that and it's continued to find synergies where it's available. And I hope through all of the work that we have been doing over the last 2 fiscal years, F '25 and what we have planned for F '26, we are demonstrating that we are moving at pace with many strategic initiatives, and we are being incredibly agile to make sure we're capturing synergies and opportunities.

And the next question will come from Robert Moskow with TD Cohen.

I was hoping you could comment on a couple of things. One is this is a very volatile global environment. And in a lot of markets, there's discontent about American brands. Have you done any like testing of how your Jack Daniel's brand is perceived in these international markets, if anything has changed? And then secondly, can you talk about your philosophy on A&P? A&P is down 6% in fiscal '25. Would you expect it to be down again in fiscal '26 given the expectation for sales to be down?

Yes. Well, let me take on the Jack one first. And we've had this quite literally over my career. It's come through numerous different times when there's a bit of anti-American sentiment moving around the world. Historically, they've never "taken it out on the brand." And we've got numerous examples of that back in the days of when Russia -- when we were still selling in Russia that we didn't lose any momentum there with that. France is another one where over the years, we've had different -- there have been different anti- American sentiments and it didn't really affect the brand. And so -- and then in terms of how do we measure it, are we testing it and those kind of things, I mean, it's one thing. I mean, almost if I could find one very positive thing to say today after everything that we're doing is we have made so many changes to the Jack Daniel's communications and consumer touching, all those plans have changed quite a bit, highlighted by the new advertising campaign, which has only been out for a few weeks. So you're not going to see anything in the data yet. But we are seeing now meaningful improvement in the brand health measures. And there's probably nothing more important over the long term for Brown- Forman than that. And so we think we've made some smart moves there and the different programs that we're running right now. And so when we do our consumer testing, we are not seeing anything flow through in terms of a knock to brand health so far. So we feel pretty good about that.

And then from an A&P philosophy, there's really no change in philosophy. There's just been volatility in that philosophy because we plan our A&P in line with our depletion-based expectations. And starting with COVID, as you've been following our story, depletions and shipments that there have been a gap between those for a lot of reasons that we've discussed over many years. Those gaps have now closed. So we will continue to plan in line with depletion based growth. And over the last -- and I think it's important to mention that over the last 5 years, we've increased our brand investment by nearly $100 million. So we believe the level of investment that we're making in our portfolios is adequate. And that also, we have to remember for our portfolio of premium plus brands that are also supported by our people, which are coming through SG&A.

And the next question will come from for Filippo Falorni with Citi.

So first, I wanted to ask about the developed international business. Clearly, a material deceleration in Q4. I get the Canada component of it, but can you expand a little bit more in kind of the European weakness? You talked a bit about the U.K., but just general, the weakness that you see in other developed markets there? And then the second question, just a follow-up on the guidance. I know you guide on an organic basis. Just clarifying, does that include the Korbel exit? And if not, like just give us a sense of how much that should be an incremental headwind to top line and profit?

Yes. Well, I'll take the international question first. I mean we -- the international markets continue to grow -- drive a lot of the growth for our company. I think you all know that. Europe has been weaker for quite a while. And there, if you go to takeaway trends in Europe, you just look at spirits takeaway, they're kind of similar to what you're seeing in the United States. And so still very difficult markets. They're kind of down in that low to mid-single-digit range. And so we will see how that plays out. We continue to take share in many, many markets across Europe, and they continue to be an important part of our company and a big part of our company. But as we said earlier, I mean, the emerging markets of, I'll call it, Latin America and Mexico, in particular, are very strong for Brown-Forman and continue to be highlight markets. We've been -- particularly Brazil, we've been talking about that for a long time. And we're seeing pockets of growth in other parts of Asia and other emerging markets. And so it's Europe that we need to get turned around. We've made a lot of changes and some around consumer changes there and expectations are that, that will improve over the next year.

And then from a Korbel perspective -- or from our guidance perspective related to Korbel, in our organic results, our organic P&L, we will have May and June included in that from -- then excluded from that point forward. And then from a reported perspective, it will exclude Korbel from May, June -- sorry, July 1 forward. And that's a $94 million on our S&S top line and then about $12 million in operating income on the bottom line that will come out of the reported P&L.

Due to time, this will conclude the Q&A session. I would now like to turn the call back over to Sue 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 2025 Earnings Call. If you have any additional questions, please contact us. As we close National Bourbon Day, it's June 14. It's the day to recognize the official spirit of the United States. And on this day, wherever you are, we hope that you will responsibly enjoy a glass of Old Forester or Woodford Reserve with us. With that, this concludes today's call.

Thank you. This does conclude today's conference call. Thank you for participating, and you may now disconnect.