...that. This is magically going to work, I've been told, but this is a virtual meeting with Brown-Forman. Kate, do we know if they're on right now, or are they close? No, I'm here. Oh, you're here? Okay. But no video, is that right? Video, yeah, sorry. Oh, okay. You will be a voice from the stars. All right, so this is Brown-Forman. It's one of the largest distilled spirits companies in the world, and a market leader in the American whiskey category. In 2024, the company generated over $4 billion in sales, $1.4 billion in operating income. And with us today is our President and CEO, Lawson Whiting, joining us virtually. So thanks a lot for coming, Lawson. Appreciate it. Sure, good to be here. Okay, great. So we're gonna start with kind of a broad question for you about the U.S. spirits industry and your thoughts and outlook. Look, this has been a rough hangover post-pandemic. Sales in our Nielsen tracking data and NABCA show things are just kind of flattish right now. Drinking patterns probably haven't normalized. There's price sensitivity. Just broadly, why do you think it's taken the industry so long to return back to its normal growth rate? Yeah. So, look, you said it correctly. It's this sorta hangover post-boom and volatility period that we did, you know, right after COVID. I think to step back for a second, at this time last year, basically Labor Day weekend of 2023, so four months ago, the U.S. spirits market was running between 5% and 6%. So still at a kind of elevated level, less than it had been in the year or a couple of years before that, but still very solid growth. By the time we got to Christmas, it was near 0%. So the market in a period of almost a quarter and a few months drop off that much has been the big question that everyone has been asking, and it caught everyone by surprise. I mean, we ended up lowering our own estimates a couple of times last year, as we didn't predict that kind of drop-off, and really nobody else did either. So then the question is, you know, what is driving that? And now I've said for probably the last six months, it's what we call the big three. So it's GLP-1s, cannabis, and Gen Z? And all three of those I would consider, you know, potential long-term headwinds. But I don't believe that is really what's driving the number from six to zero in a heartbeat. So I still believe this is a combination of, obviously, inflation and a consumer that's pinched, probably is the biggest single one, you know, part of it. But I also believe a lot of this, the GLP-1 drops, for example. A lot of people have cited has. That is a long-term thing, but there's just not enough people on it yet to really drive the number down. There's some consumer studies, even that we've done, that would say those consumers that are using some of the GLP-1s are not really spirits consumers anyway. But I do think the other part of it is the consumer cabinet. That has also been pretty well-publicized. And it's one of those things where you can't reach into a consumer's cabinet to figure out what they have in there, so it's very difficult to sort of scientifically do it. So there's a bit of making assumption. There's a bit of anecdotal in it, too. But consumers bought a lot of bottles in that 2021, 2022, first half of 2023 time period, and some of those bottles are still sitting in their cabinet at home. And we're, you know, a lot of people have said, "Well, then when is that going to end?" That's a tough question. Generally speaking, we do know that the casual drinker, so about 80% of consumers in the United States, drink about two bottles a year at home. And so then you gotta estimate how many bottles did they have at home, but I think it's a reasonable assumption. I know I'm tying together a few dots that are not that easy to tie together, but we would say that the turnaround ought to be coming relatively soon. And so, we're just gonna have to see that you're also fighting a consumer that is weak, and so both at the same time are contributing to the challenges. But, I think the outlook has gotten a little bit better for the consumer in the U.S. with inflation coming down a little bit, gas prices coming down a little bit. There are some green shoots out there that make me feel like there's some light at the end of the tunnel. Thanks. Lawson, kind of as a follow-up to that, just this might be irrelevant because I'm really asking about last year. But like you said yourself, like Labor Day last year, growth was still kinda normal in terms of consumption, like mid-single digit. Yeah. But also what happened just before that, I think there was a massive distributor inventory de-loading, which, you know, you recently lapped. Did the distributors get a sense that demand was slowing before the rest of us? Like, or am I jumping to a conclusion there? No, I don't think so, because I didn't think the inventory days coming down was really a lot of it was in calendar 2024, in my fiscal year, calendar year. A lot, and it's, you're correct in that distributor inventory days were high at the end of fiscal 2023, and then they spent a lot of last year dripping down to the point now where we would say they're pretty much at a normal range now. Mm-hmm. But certainly, I think what they saw, that they didn't predict necessarily, was the retail side of things taking inventory down, particularly in the national account world. The drug channel and the mass channels, you have significant destocking across the industry in that retail tier, and then there's the question now: is that in a normal spot? I think most people are saying that the large group of damage from that has been done. That's, I think internally for our own Brown-Forman inventories, we have pretty good visibility into that we're comfortable with them now. Okay, got it. Maybe talk a little bit more about your company's specific strategic pillars for growth. What are the key things that you are working on internally to drive the business? And what resources have you put against, you know, exploiting those opportunities? If you look anybody that's followed Brown-Forman for a little while, I we have this whole strategy, it's all on our, our website and things like that. But it's people, geography, investment, and portfolio. And I'll focus really on the portfolio and then geography is the two big drivers and really strategic growth, strategic growth drivers. So and this is why I feel pretty good about our long-term algorithm, which we can talk about it in a little bit, too. But if you backed up this company, honestly, if you back 20 years, we are a completely different looking company than we were then. We had loads of wine brands and relatively low-priced wine brands. We had a consumer durables business. We had so many random businesses popped into our company. We had some big brands that were not growing. And so if you put yourself back in 20, you know, 10 years ago, Jack Daniel's, and it was growing tremendously back then. That was, those were the early days of the bourbon boom. We had Jack Daniel's Honey, we had a lot of things lining up that really had a, you know, high growth rate on the Jack Daniel's family. But then you looked at the rest of our portfolio, and there was no growth. We, you know, at that time, Woodford Reserve was small. I mean, it was growing, but it wasn't big enough to really move the needle back then, like it does today in a much more meaningful way. Even Old Forester was a shell of the size it is now. And then we had brands like Southern Comfort, and we had Early Times and Canadian Mist and others that were all big brands, and declining. And it was very difficult. We couldn't get enough Woodford to offset the declines of those other brands. We have subsequently reshaped our portfolio so much that all that's... the declining brands are gone, and we've done the acquisitions or the innovations around, say, our single malt Scotch portfolios. So we've got three really nice brands there. But Fords Gin and the more recent ones of Gin Mare and Diplomático, brands like that are all growing, you know, are solid brands that I think long, you know, medium to long term, are all gonna be well above any sort of company-wide, you know, needed growth rate. So it's gone, that rest of the portfolio has gone from a drag to a plus. So I mean, I think that's one strategic pillar that we have improved greatly and should set us up for, you know, some decent future growth. The other part of it is the international growth of this company has been enormous. When I... I've been here 27 years, but if you go back to the beginning of my career, we were 80% U.S., 20% international. Today, we're 45% U.S., 55% international, and those numbers continue to separate a bit as our international businesses have been growing, you know, faster than the U.S. business, you know, for, you know, for quite a number of years now. So, there's a lot of places that we see, a lot of growth potential for us. We're not in a lot of the, some of the bigger spirits markets in the world. We, we've played the international growth journey a little bit different than, say, a Diageo and Pernod, which went heavy in China, heavy in India, and we diverted a little bit, and we went heavy in, say, Mexico and South America, particularly Brazil. We've invested in different markets across Asia and most recently in Japan, in a very significant way. So we've gotten our international growth a little bit differently than some of those other big companies. But it has worked. It's worked for us, and now we've got, I'll talk about South America for a second. I mean, Brazil is a brilliant market for us, and a lot of other companies are struggling there, but the Jack Daniel's brand is very strong, and they, that country, they really like the Jack Daniel's flavors, and that has also been a nice growth driver. Okay. Can you talk a little more specifically about just order of magnitude? Like, Brazil is how big of a market is it as a percentage of your sales and your specific strategy, say, in Brazil? You mentioned flavors, but is it also more distribution strength, partnerships? You know, how does it look? How do you market there differently, say, than you market here? Yeah. So I don't have the number you can find in our industry; it's in a top ten market. But, yeah, I don't have it off the top of my head. But I can tell you the strategic view of it is interesting because it is something about us that we're asking ourselves, why don't we do this in more of these really big countries that are hard to get your arms around, places like China and India? So we went into Brazil in a big way, probably 15 years ago now, might even be a little bit more than that. But really focused on São Paulo. Did not succumb to the temptation to spread it out all over the country quickly, which often happens, you know, in our industry when you're going into a new market. But spent more, well, most of that fifteen-ish years, focused on just one city, and albeit a big city, but, we did, I think, a nice job in seeding it in the right way. We lost money on it for years... but got it into the on-premise in a way we wanted to develop the relationships and built the brand. And the flavors has come later, but it just, there are some countries in the world that love Jack Daniel's flavors, whether it be honey... It's mostly honey and apple, but both brands have had a really nice run, in a bunch of countries, and in Brazil now. So the expansion plan is we're now in Rio, for instance, and we are moving into some more cities. So just now we're getting geographic expansion within a country, and, you know, and it's continuing. You know, the momentum has stayed there. And so, yeah, it's just a great market. Got it. And in terms of channels, is on-premise most of the time where you start because that's where the thought leaders are? It depends on the market, but yes, that would be a general... You know, it's kind of a generalization, but, what was the old line? There used to be a line we used. You build in the o- well, whatever it is. You most markets are- your on-premise isn't gonna be bigger than your off-premise, or there'd be very few instances where that would be true. But it is a nice way to get influencers and get sort of real organic growth, you know, as you build the brand. If you build it, they will come, is that what you're referring to? Yeah. Sort of, yes. I just saw Field of Dreams a couple of nights ago, so fresh in my mind. So Jack Daniel's, the brand, is about 65% of your volume. You know, it, it's down more recently. You know, we can attribute that to the post-pandemic behavior. But my concern, and I think others too, is that with all of the premiumization going on, and the consumer that's where the real growth is, you know, can Jack Daniel's grow or at least maintain itself if the growth in whiskey is premium, is in the premium market? So, you know, what have you seen in terms of, like, that interaction? Is the brand losing consumers who are trading up? And then what are you doing from a marketing standpoint to stabilize it? Yeah, so look, the premiumization story, particularly within American whiskey, is largely a U.S. phenomenon, first of all. And keep in mind, we got, you know, we're growing, as I said earlier, the international side of things are growing much faster than the U.S. But true, it is, at the end of the day, it's a much more competitive category as the last 10 years you've seen the, you know, the bourbon boom, they call it, has brought in a whole lot of, you know, new competitors into the category. I will say one thing, for at least in the short term, over the last year, if you look through the top, well, the top 20 largest brands in the United States, the largest brands are the ones that are having the biggest hangover right now. Because I believe those are the ones that have the consumer home cabinet full. Does that make sense? Those are the brands that were booming during COVID, they're the ones that are most apt to have leftover room for us. So that has something to do with it. If you skip the last twelve months, I can tell you, we, over the last five years, over the last ten years, over the last twenty years, the growth rate for the Jack Daniel's family of brands is right in the mid-single-digit range over all those different timeframes. So if... This is how the math works, it gets into sort of the medium to long-term algorithm, and I know there's been a number of companies that have been sort of taking that algorithm down. Obviously, this year, we're not guiding to anywhere near what we would consider the long-term algorithm, but the math works. If we can continue to get 5% out of the family of brands, or even less than 5%, we have the rest of the portfolio that can grow at a much faster rate, and the math works. And so I do feel confident that we've got the right mix in there, and that we've got between Jack and then the rest of the portfolio, we can, you know, we can make it work. Now, having said that, it's hard. You know, I mean, the competitiveness of the category has gotten enormous, but we do have things that we've really tried to do differently. Formula One racing is, you know, an example of getting involved in the fastest growing sport in the world, and those are the right fans that we want. They're higher income, and they're a meaningful way to reach legal drinking age consumers. And so, we're also, you know, it's important to stay relevant in pop culture. And for anybody that's listened to Shaboozey in the last three or four months, you can't miss it in a college football game, but that's kind of an anthem to Jack Daniel's. And so, we've, you know, got some good things there, and it does. You know, the brand itself plays very well in music. We got a lot of super premium line extension work that we're doing. We continue to get good growth out of the flavors, and so it's a battle out there. It is not easy. I'm not saying that, but we still feel pretty good that we can continue to do what we, you know, not necessarily what we've been doing for the last ten or twenty years, but continuing to build on what has, you know, been one of the most successful brands in the world. We just got to get through this, what has been a really challenging last twelve months. I've, you know, seen all the marketing around Jack Daniel's domestically. I think I asked this on the last earnings call, but like, is the primary objective to bring younger consumers to the brand for the first time, or is it to remind, you know, the lapsed users to come back? Yeah. You know, that's one of the biggest questions sort of out there around even internally as to how you balance recruitment and retention. The reality is you've got to do both, and we have been doing both, and it doesn't mean you've got two different messages out there. You can find, like music as an example, we think we can do recruiting and retaining with the music platform, and so we're not skewing one way really or the other. We don't do quite as much in the U.S. as much Lynchburg-based advertising as we used to. Everybody remembers the Jack Daniel's advertising as the black and white ads and the one-stop light town. You know, if you happen to be in London and you're on the underground, you know, those big black and white ads are still up on the walls there. Different markets play it a little bit differently, but the reality is you gotta do both at the same time. Got it. Maybe let's pivot to the premium brands, Old Forester, and Woodford, which have been great growth stories and resonate so well with bourbon experts. Can you talk about, like, how you balance the need for growth at the company with the need also to preserve the specialness of those brands and create reserves that are, you know, that uphold that image? You know, how do you balance those two kinda competing factors? Yeah. So a few different things. One, I could say American whiskey, and then tequila actually has some of this, too, are the best two categories for premiumization and innovation. So just take American whiskey for a second, take Woodford for a second. Woodford has a line extension called Double Oaked, which has been a phenomenal brand for something that it costs, is it $55-$60 a bottle, something like that, has gotten meaningful in size, and it's because you can do different things with it. So Double Oaked means it is Woodford Reserve for most of its life, and then we dump it and put it into a new oak barrel for another 6 to 12 months. Now, so you've got double barrels, double oaked, and you can charge twice as much for it. So there are some pretty neat things in there, but the core Woodford Reserve is still. It's the most, well, it's one of the strongest growing brands in all of the U.S. right now, and it's been one of the most best-developed brands in the industry, I would say, in the last 20 years. And it's, it is just happened. We built that brand back in nineteen ninety-six, and that was a time when no one was building bourbon brands. Now, the category was in decline. We didn't have a whole lot of competition. We started. This is another one of those. We started out every year, I think they had. It had, like, 20-some-odd years in a row of double-digit volume growth, but it was done in the right way. So you build it in the right counts, patience, and that's what it takes to really build some premium brands. You get a lightning in a bottle brand every once in a while, but that is one that was carefully built over, you know, over a long, long period of time, to the point now where it's one of the strongest brands in our portfolio and continues to grow. Old Forester's kind is a different story. It's the founding brand of the company, so it's a 154-year-old brand, and it, like just about every other American whiskey brand, ex-Jack, from 1970 until 2010 or so, was in decline, and it went from 1 million cases to 100,000 cases, and now it's up over 500,000 again. So it's been built in the right way. We have, you know, just with its core, 86- and 100-proof, but also we did, it's called the Whiskey Row Series, if anybody knows the brand. The different series are represented by a year, and there's something special about each one of them that tells a little bit of a different story, but that's been a way to premiumize the brand and really has done, makes the P&L a whole lot better, as those extensions are much more expensive. They probably start in the mid- or high-$40s and goes up well over $100 a bottle. So, we've done pretty well there, and it's been fun for the family, to be honest, 'cause the last five or six annual shareholder meetings that I've been overseeing, the... I've gotten up in front of the family every single time and said, "Once again, Old Forester is the fastest-growing brand in the company, significant brand in the company." And there's a lot of pride around hearing that, and it's just not that often in this world that you take a brand that had gone from, as I said, 1 million to 100,000 cases, and you turn it around and grow it again. That is not easy to do, but the teams have been really successful at it. Okay, well, let me push you a little bit on that because it is the fastest-growing brand, but it's not a household name. Like- Yeah ... is there any interest internally to make it more of a household name, or is it like, "No, if we do that, then we lose the premium image of it? No, I don't think you'd lose the premium image of it. No, we're continuing, you know, like it's all the basic stuff. It, it is a household name, I'll say, in the Southeast of the United States, and- Got you ... and it is a handful of core markets, including Kentucky, where we want the brand to be really strong, and it's very much a part of the Bourbon Trail, and so that helps to build awareness on it, too. I mean, our just as an example, our distillery or the home place, which is down on Main Street, Louisville, particularly, I don't know how many days a week this is true, but it basically is sold out for months in advance on the weekends in particular. So, I mean, it's building and it's growing. It's very much known for being a great whiskey for the price, so, and that price has gone up quite a bit. We've been pretty aggressive on that. But I don't... It's not like you go national and somehow you lose the premium imagery of it. That isn't the way that works, and it's a great brand in the bartender community, and that's the place we accent quite hard when we're trying to grow distribution and grow the brand in the on-premise around the country. There's a lot of bartenders that really do look at Old Forester, and would have it, you know, as a house brand, so yeah, that's it. We've just got to keep going. ... Okay. Can I pivot to your ready-to-drink strategy? You have a partnership with Coke now, and I think you're kind of swapping out of the Jack and Cola positioning to Jack and Coke. Can you talk about, like, what the overall strategy of ready-to-drink is? You know, what's the main objective of it, and how is it going? Yeah. So, yeah, first of all, Jack and Cola has been a product that we've had around for, like, thirty years, and maybe even more than that now. Jack Daniel's Country Cocktails is the other Jack RTD that has also been around sort of in the same timeframe, too, and it. That was a much smaller opportunity, but it has doubled in size since we handed the reins over to Pabst. So it's a, you know, it's a nice entry and a nicely growing one. But Jack and Coke, kind of, that's a whole other thing. So Jack and Cola, as I said, is a very big brand in places like the U.K., or was a very big brand in places like the U.K., Germany, and Australia. Those are the kind of the big three, but Europe in general, Jack and Cola is pretty big and meaningful and, and many millions of cases, and, something that's, you know, been quite profitable and kind of flies under the radar a little bit. So now, we began this relationship with Jack and Coke a couple of years ago. It's only really been in the... I mean, it's not even global yet, but, we've been rolling it out, slowly necessarily, but it's been paced around the world over the last, eight, not even eight, fifteen months, something like that. And, you know, Jack and Coke, we, we control the sales of this product right now, in the U.S. and in Germany, and ultimately, we will have Australia, too. But the Coke system and the bottling system takes over for the rest of the world. And so from our perspective, there's a couple of strategic elements to it. One, you get the pure advertising of it. So there is plenty, not plenty, but there are significant amounts of advertising happening for Jack and Coke, and a lot of it is on the Coca-Cola books. It's not even on Brown-Forman, so you don't always see that in the numbers. But it is, you know, I mean, it's been a very strong launch. It's, you know, it's tough to set expectations, if I'm totally honest, with Jack and Coke. I mean, it sounds... You know, it's difficult to predict what was gonna happen, and it continues to be a little bit difficult. But the one thing we do know is, I mean, the Jack, the Coke system is so big that, the strategic side is it's bringing the brand into markets that we haven't been in before, and a lot of that's Asia, but even Africa. Take places like that, where. Take Africa, just as an example. Bottle of Jack Daniel's is really expensive, particularly relative to the incomes in that country, so it has never been a massive opportunity, in many of these countries that just don't have the disposable income. But they do have the income to buy, you know, either a single can or a six-pack Jack and Coke. And so the Coca-Cola Company and the bottlers want to get this thing globally distributed, and we're kind of riding the coattails of that a little bit. We think, you know, the potential for it is very, you know, very big. But in the short term, it has been a little bit. It's been confusing, I think, to some of the press, some of the analysts and others. I'll take the U.K. as the cleanest example, where Jack and Cola was big, and now the Coca-Cola system is about to take over. So we've been withdrawing Jack and Cola from the shelves, which would have been our sale, and Jack and. If the Coca-Cola Company then does it, we still earn a profit by selling the whiskey in, but from a pure revenue perspective, you know, it's not nearly as great. So all of a sudden, you look at the U.K., and you say, "What happened? You know, what's going on in that market?" A lot of it is that. Okay, but from a consumer standpoint, is the objective to bring younger people to the franchise for the first time? Is it a gateway to the Jack brand? Yes and yes. So, yeah, sorry, I didn't say that before, but it is very much a recruitment tool, and it is very much a grow awareness tool. The can in the hand thing is important, too, so consumers see it. And as I said, it's affordable, and so you can, you can bring, you know, LDA or people in their twenties. You know, it's very much a different occasion than Jack Daniel's Tennessee Whiskey, but it still makes, you know, the brand. And everyone. You know, Jack and Coke itself, in the on-premise, is the most often bar call in the world, sort of a margarita, but the margaritas aren't branded for the most part. So in terms of a branded call, Jack and Coke is number one in the world. So as much as we can explode that and continue to grow that, you know, I think is very important. It's something that can only help the brand. Okay. Lawson, I know you as a really strong bourbon company, and... But you're into tequila, and you bought Diplomático and Gin Mare, while also divesting some other brands. Like, do you-- In terms of your company's capabilities, you know, what do you feel comfortable that your diversification strategy is really working? I'm just thinking of it in terms, you know, tequila is down 20% for you. Are you comfortable with your capabilities to run a diversified liquor company, or is it more difficult in some of these other spirits? It's one. I wouldn't really call it a diversification strategy. That is not the way we'd sort of approach some of these acquisitions. We look at them like they're good businesses in and of themselves. And look, as you all know, the spirits business in and of itself is a great business, with high margins, high returns on capital, and just generates a whole lot of cash. And so we want more. We just want more of that. I don't mean to say that we're gonna go do a bunch more acquisitions, but we've always had a full breadth portfolio. Admittedly, you know, some have been more successful than others. I'll talk to tequila in a second specifically, but one of the bigger strategies we've had around here in the last... In the U.S., it started about seven or eight years ago. We created an Emerging Brands group that are specialty people that do nothing but focus on these really high-end Diplomáticos and Gin Mare type brands. But you also put single malt Scotch in there and, and a couple of others, and we've had powerful results out of them. So I know we've got the ability and the capability to be able to go do it. We're really investing now in that concept outside of the United States, particularly mostly in Europe. And, you know, look, it's some of those countries are, like, less than a year since they've gotten into that, and Woodford Reserve may fit into that group outside of the United States. And so, you've got different portfolios for different countries, but we have continued to grow those very well. We certainly, you know, the fact we've been able to do, you know, Woodford and Old Forester just because they're American whiskeys, I think it's all good old-fashioned brand building. It doesn't matter necessarily which category you're in. Now, tequila, just to hit that for a second, one, I would note, as you're seeing, which if you're looking at our, like, quarter results or things, you're looking at a global number. Mexico is significantly weaker than the United States. Right. But over the last... Let me get it here. Let me make sure I get these numbers right. The brand over the last five years has continued. Both Herradura and El Jimador have been growing sort of in that 9-10% range as a five-year category. This last quarter, except it, because I don't remember the number after that. But it has, while we did not keep up with some of these celebrity brands, it's not like the tequila was a drag on the, you know, drag on the company or something like that. So it has been, you know, and a lot of other brands. The tequila category, I think, more than any, and this is, this is anecdotal, but the tequila category, more than any other category during COVID, exploded. And you, a lot of those really expensive bottles, how many friends do you have that still have an expensive bottle of tequila sitting on the back of their home bar? They're like decorations, but they're not moving at anywhere the speed they were during that period. And look, we are choosing purposely, you know, it's a Herradura is the most important of the two, and it's a, it is a real brand of craftsmanship and heritage and authenticity. We're focusing on the pureness of it, the lack of additives, and really getting into Herradura Reposado as an example, which is the original sort of Reposado in Mexico. So we're playing on the classic cues, the super premium, ultra premium cues. I know that's not a celebrity-driven strategy, and we've asked ourselves a bunch of times whether or not, you know, that would have been... That is a faster way to build the brands, I think, but it is also, it's a tough way to maintain over really long periods of time, and we're in this business for really long periods of time. And so we got to do better. I'm not, I'm not trying to gloss over it, really, but, we got to find some better ideas and some better ways to grow the brand, you know, faster. But, it's still a great brand and a good place. Okay. Well, we're gonna have to stop it there. But Lawson, thank you very much for joining us, and appreciate you participating. Thank you. All right. Thank you.