Brown-Forman Corporation (BFB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Brown-Forman Corporation First Quarter Fiscal Year 2027 Earnings Conference 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. Ma'am, 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 First Quarter Fiscal Year 2027 Earnings Call. Joining me today are Lawson Whiting, President and Chief Executive Officer; and Jim Peters, 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 first quarter fiscal year 2027, in addition to posting presentation materials that Lawson and Jim will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events & 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 2026 Form 10-K, and from time to time, in our 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 conditions 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. The first quarter of fiscal 2027 unfolded largely as expected and underscored an important point. Innovation is creating meaningful growth opportunities across our portfolio. Strong momentum from New Mix, our RTD portfolio, and Jack Daniel's Tennessee Blackberry helped offset several headwinds. This led to first quarter performance that was largely in line with our expectations and supports our full year outlook. More specifically, that momentum helped offset expected pressure in areas, including used barrel sales, parts of our tequila portfolio and softer consumer demand across several of our larger developed markets. Challenging industry conditions persist, and consumers remain selective with discretionary spending, particularly in developed markets. Still, we're encouraged by what we're seeing from our innovation pipeline, the strength of our RTD portfolio and the opportunities we continue to create for our brands around the world. Across our portfolio, we're focused on meeting consumers where they are with products that offer relevance, convenience, value, and differentiated experiences. That strategy is working, and we're reaffirming our full year outlook this morning. Before discussing our growth drivers, I'd like to briefly highlight Jack Daniel's Tennessee Whiskey. Organic net sales for Jack Daniel's Tennessee Whiskey were essentially flat in the quarter. While we remain focused on strengthening performance over the long term, the brand provided an important source of stability in the quarter and continues to serve as the foundation of our portfolio. As we discuss the rest of the quarter, I'll note that results were influenced by several timing-related factors, including ordering patterns driven by our U.S. distributor changes in the summer of 2025 and the launch of Jack Daniel's Tennessee Blackberry. You will hear those dynamics referenced throughout the call. Now moving on to our growth drivers for the quarter. Our RTD portfolio continues to perform exceptionally well and remains one of our most important growth platforms. New Mix delivered strong double-digit growth in Mexico and continues to benefit from consumers' interest in flavor, convenience and affordability. In the United States, demand has exceeded our expectations since the launch. To capitalize on this momentum and consumer appeal, we're expanding into additional markets and introducing new flavors and pack options to support future growth. We also continue to see encouraging results from el Jimador Spritz, which had a strong start in the United States. Taken together, based on recent Nielsen data, our RTD portfolio contributed approximately 1 point of value growth to our overall U.S. performance. Beyond RTDs, Jack Daniel's Tennessee Blackberry continues to be one of the most successful innovations in our portfolio. The brand is now available in more than 30 international markets, with particularly strong growth in countries, including Brazil, France and the United Arab Emirates. In the United States, Blackberry contributed more than 2 points of value growth based on Nielsen takeaway trends. Importantly, we're sustaining this momentum by continuing to invest in the brand, broadening distribution and introducing new pack sizes that meet a range of needs and occasions. Together, these efforts are driving incremental growth and attracting new consumers to the franchise. We're also extending the trademark through products such as Jack Daniel's Tennessee Blackberry and Lemonade in an RTD format. Consumers were already mixing Tennessee Blackberry and Lemonade. We simply made it easier. Of course, those gains were partially offset by several areas of our business that remain under pressure. Organic net sales for our non-branded and bulk business, namely our used barrel sales, declined more than 60%. Over the past 2 years, our sales have declined from more than $100 million to approximately $30 million. Demand for barrels from Scotch and Irish whiskey producers remains well below the unusually high levels we experienced a couple of years ago. The decline in the first quarter was driven by the comparison to the prior year period, which benefited from higher demand and pricing before declining throughout the remainder of the fiscal year. Our full-strength Tequila portfolio, which includes Herradura and el Jimador declined in the low teens. While performance remains well below where we want it to be, we're focused on improving results through stronger consumer marketing, clearer brand positioning and disciplined commercial execution. While it's still early, we're beginning to see encouraging signs, particularly with el Jimador in the United States, where Nielsen takeaway trends have improved meaningfully. It's also important to acknowledge a few other brands where there were some unique circumstances impacting first quarter results. Organic net sales for Jack Daniel's Tennessee Honey declined, largely due to the challenging operating environment in the U.S. as well as the supply chain disruptions in Chile during the year ago period, which negatively affected the year-over-year trends. The decrease in Gentleman Jack stemmed mainly from shipment timing differences, which were related to the distributor transitions in the U.S. last year. Turning to geographies. Our results were generally consistent with the trends we anticipated entering the year. Emerging international markets delivered 9% organic net sales growth, led by Mexico and the UAE. New Mix continued to drive strong growth in Mexico, while the results in the United Arab Emirates benefited from the timing of shipments. These gains more than offset a challenging comparison in Brazil caused by supply chain disruptions in the year ago period. And while the country's trends are recovering following the methanol crisis, performance remains below last year. In the Developed International markets, organic net sales declined 8%. Australia continued to perform well, growing organic net sales 4% despite a challenging market environment. Growth was led by Jack Daniel's Tennessee Whiskey, which benefited from the timing of ordering patterns, and was supported by RTD innovation including Jack Daniel's Tennessee Serve, a 12% ABV whiskey and Cola RTD created exclusively for the Australian market and launched earlier this calendar year. Across much of Europe, consumer demand remained soft, resulting in ongoing pressure on the broader spirits category. Germany, France and the U.K. were all very weak as conditions in those markets are particularly challenging. Even in this environment, our whiskey category share remains stable or is increasing in 5 of our 8 largest European markets, and we remain focused on optimizing our route-to-consumer and driving innovation. In Canada, U.S. produced spirits remain off the shelves in most of the provinces, although we're now lapping a similar comparison period. We continue to assume these restrictions will remain in place for the balance of the fiscal year. The Travel Retail channel declined 1% during the quarter. Passenger traffic in several key travel corridors remains below historical levels, particularly in parts of the Middle East. Turning to the United States. Our performance remains ahead of our largest competitors, with organic net sales flat despite a decline in the overall spirits market. Growth from Jack Daniel's Tennessee Whiskey, our RTD portfolio, and premium innovations such as Jack Daniel's Single Barrel Heritage Barrel helped offset broader market pressures. Importantly, shipments trailed depletion trends by approximately 4 points as we lapped the distributor transitions and the launch of Tennessee Blackberry in the prior year period, both of which benefited shipment timing. Broadly speaking, the operating environment remains consistent both with our expectations and prior year performance, and our geographic performance reflects that. Before I close, I want to recognize our people. The dedication of our employees continues to be one of Brown-Forman's greatest strengths. Despite a challenging operating environment, our teams remain focused on execution, supporting one another and advancing our strategic priorities around the world. In summary, our first quarter unfolded largely as expected, innovation remains one of our most important growth drivers. And from New Mix and our RTD portfolio, to Tennessee Blackberry and pack size innovation, we're creating new occasions for consumers to engage with our brands and generating growth opportunities across the portfolio. While pressures remain across parts of the industry, we're focused on the brands, markets and consumer occasions where we see greatest long-term potential. That focus, combined with the strength of our people and portfolio, gives us confidence in our ability to deliver against our fiscal 2027 outlook. Before turning the call over to Jim, I'd like to briefly comment on my upcoming retirement. As we announced in July, after nearly 30 years with Brown-Forman, I have decided to retire once my successor is named. It's been the privilege of a lifetime to serve as the CEO of Brown-Forman, and I'm grateful for the support of our team around the world, the Brown family and our Board of Directors over my career and particularly during my time in this role. While I'm looking forward to my next chapter, until a successor is named, I remain squarely focused on leading the business, executing our strategy and supporting our teams. The Board's Corporate Governance and Nominating Committee is leading a comprehensive search process, considering both internal and external candidates. As we have said previously, this is a thoughtful and deliberate effort to identify the right leader for Brown-Forman's next chapter, and we're not providing a specific time line. Announcing my retirement before a successor is selected was an intentional decision that gives the Board the time and flexibility to conduct that process thoroughly by ensuring continuity in the leadership of the business. Following the appointment of my successor, I also expect to support a smooth transition in an advisory capacity. So with that, I'll turn the call over to Jim.

Thank you, Lawson, and good morning, everyone. As Lawson discussed, our first quarter results were largely in line with our expectations. Innovation continued to support top line performance. Our teams remain disciplined in managing costs and investments, and we delivered growth in both earnings and cash flow, while reaffirming our fiscal 2027 outlook. Let me spend a few minutes discussing these results. Starting with profitability. Gross margin expanded 40 basis points to 60.2% during the quarter. The improvement was primarily driven by lower costs, largely driven by timing and favorable portfolio changes, partially offset by foreign exchange and product mix. Foreign exchange, particularly the stronger Mexican peso, remained a headwind. We also saw some expected mix pressure from the continued strong growth of New Mix and our broader RTD portfolio. While RTDs carry a different margin profile than much of the rest of our portfolio, their growth continues to support our broader strategy of meeting consumers where they are, creating new occasions and building important future growth platforms for the business. We also remain disciplined in our approach to investment. Organic advertising expense declined 4%, primarily due to timing. Our philosophy remains unchanged. We align brand investment with depletion trends and continue to believe we are investing at healthy levels behind our portfolio. Organic SG&A increased 5%, driven largely by costs associated with organizational changes intended to reduce complexity and support faster decision-making across the business. Taken together, these factors resulted in reported operating income declining 3%, while organic operating income increased 4%. The combination of improved organic operating performance, lower non-operating post-retirement expense and the benefit of prior year share repurchases drove earnings per share growth of 6% to $0.38. We also delivered strong cash flow performance during the quarter. Cash flow from operations increased $13 million to $173 million, while free cash flow increased $32 million to $161 million. The improvement reflected solid operating cash generation and lower capital spending requirements. Due to our strong financial position, we repaid EUR 300 million principal amount of the 1.2% senior notes on the July 7, 2026 maturity date. Turning to our outlook. The key message is straightforward. Our first quarter performed largely as expected, and we are reaffirming our fiscal 2027 guidance. The operating environment remains consistent with the assumptions we outlined at the beginning of the year. Consumer demand remains pressured across many developed markets, while emerging international markets continue to provide important growth opportunities. Innovation continues to perform well, particularly New Mix, our broader RTD portfolio and the ongoing global rollout of Jack Daniel's Tennessee Blackberry. While shipments have benefited from that momentum, particularly for Tennessee Blackberry, we continue to expect the gap between shipments and depletions to narrow as the year progresses, with depletions exceeding shipments for the full fiscal year. In addition, we expect continued pressure on used barrel sales, but we expect the impact to moderate through the remainder of the year and the year-over-year dollar impact on net sales will be significantly less. Overall, based on currently known factors, we continue to expect organic net sales to be approximately flat for fiscal 2027. From a profitability standpoint, we remain focused on carefully managing costs while continuing to invest behind our brands. As we move through the year, higher cost whiskey inventory will become a larger factor in our results. These inventories were produced during a period of unusually high inflation and elevated input cost for barrels, grain, energy and other key inputs. While actions we have taken to optimize our supply chain will benefit us over time, the aging requirements of many of our products mean those benefits will take time to fully materialize. We also continue to expect higher input costs during fiscal 2027, driven primarily by inflationary pressures and lower production volumes. To help offset these pressures, we remain focused on identifying efficiencies, simplifying work and improving productivity across the organization. As we execute our long-term pricing strategy and continue to benefit from revenue growth management initiatives and strategic innovation, we also expect the continued growth of our RTD portfolio to influence product mix. While RTDs create some pressure on margin mix, they remain an important source of growth, consumer recruitment and future opportunity for the business. Our outlook for operating expenses continues to reflect investment behind our brands in line with our long-term philosophy. At the same time, we expect SG&A to decline as we lap the elevated investment levels of fiscal 2026 and begin to realize benefits from actions we have taken to simplify the organization. Taking all of these factors into account, we continue to expect organic operating income to decline between 3% and 5%. Based on our first quarter performance and the trends we are seeing across the business, we have increased confidence that results will trend towards the more favorable end of the range. We continue to expect capital expenditures to be in the range of $60 million to $70 million, significantly lower than recent years. In addition, we remain focused on reducing finished goods inventory and improving working capital efficiency, which should further support cash generation. Finally, we continue to expect our effective tax rate to be approximately 20% to 22% for fiscal 2027. In summary, the first quarter unfolded largely as we expected. Innovation continues to create growth opportunities across our portfolio. Our teams remain disciplined in how we manage costs and investments, and our cash flow performance remains strong. While the operating environment remains challenging, our results reinforce our confidence in the plans we outlined at the beginning of the year and in our team's ability to deliver against our fiscal 2027 outlook. With that, this concludes our prepared remarks. Let's open the line for questions.

[Operator Instructions] Our first question is going to come from the line of Drew Levine with JPMorgan.

Lawson, firstly, congratulations on your upcoming retirement. I was hoping to get some more color on the underlying performance in the U.S. It was up 4%. I think even against the easy comparison, probably a little bit better than expected. In the 2 years, down around 2%, likely better than what we see from a consumer takeaway perspective. So maybe you could just help disaggregate the underlying performance in the U.S.? I know you mentioned the RTD has been performing well. Obviously, you've had Blackberry and some of the premium expressions, but just sort of help frame up that gap that we've seen over the past 2 years relative to consumer takeaway and how we should think about that going forward?

Okay. So let me just start off by saying I think the U.S. business, in aggregate, is improving slowly. I mean it's not -- I think it bottomed out, I think we would say around Christmas or January, and then you started to see improvement both in the NABCA takeaway and in Nielsen. So there is that undercurrent for the whole thing. But know that -- and we're going to say this probably 10 times here on this Q&A here, that it's a noisy quarter, largely driven by last year, distributor transitions that all happened August 1 and then Blackberry launch, which was also August 1. It just caused a lot of noise. So I just step back from that one for a second, too. So just to sort of level set with everyone. When we did the distributor change, as I said, most of the country was August 1. What happened was, there was a large amount of shipments that went through in July of last year to get the new distributors ready and fill up their warehouses and then they depleted those cases in August. And then we're just -- we're comping against that period now. And so shipments were really strong last year, and so it muted, what did we say, 4 points of growth compared from shipments to underlying. So I think that's an important factor. But when you're talking about Nielsen takeaway trends versus depletions, which I think was your sort of base question, it's really 2 things. About half of the difference is distributor margins. So we're able to capture that value now in our sales into these distributors. That was about 3 points of it right there. And then the other part of it, which was significant also is just the timing of our innovation. So there's a lot -- we -- as you heard on the prepared remarks, we have a lot of innovation right now. A lot of it has gone out in the first quarter. And I imagine the Nielsen figures will pick that up in the upcoming months. But right now, that actually had a couple of point influence too.

Our next question will come from the line of Peter Grom with UBS.

Great. And Lawson, congratulations, and thank you for all the help over the years. So I guess, look, throughout the prepared remarks, you mentioned several times that one, the first quarter performance was largely in line with your expectations. But you also highlighted that you now have greater confidence in delivering towards a more favorable point of the guidance range. So obviously, it's a pretty dynamic environment. So curious what's driving that increased level of confidence at this point of the year?

Yes. Peter, this is Jim, and I'll start off with that because I think, one, as we kind of saw and Lawson talked a little bit about our expectations for the top line for the quarter, we knew we had some tough things to comp from last year, but it came in, when we look at it, relatively strong. And if you really look at with the decline of 1%, you take the barrel sales out of there. And honestly, we're at about flat. And so again, what we're seeing is a good and very close to where we expected on the top line. Then as we look at things throughout gross margin and other areas, we say, okay, we started off in a more positive place. And we definitely think a lot of that is timing. And I could go much deeper into that and talk about how that timing works and how we see that coming out. But what we're also seeing is, we are taking significant actions to offset many of these costs. And what we're seeing is that a lot of our actions are actually delivering probably at the higher end of the range of what we expect, and we're seeing some of those results come sooner. So while we do expect our gross margins to feel pressure throughout the year due to the timing of how some of the whiskey flows out and all that, we still are actually seeing what I would say is based on our own actions, some more favorable things within the overall cost of goods environment. Now there are some other pressures that we see within there, things such as diesel fuel costs and aluminum costs are all coming up. But as we step back and we look at it from a perspective of, like I said, what we can offset, what we can take pricing to offset and we look at all of those things. We also look at that our SG&A was higher in the first quarter than we expected it to be because we did take some smaller, what I'll call, more surgical actions, to make adjustments within our workforce. And those benefits are going to flow throughout the year. All of those things kind of added together, really give us increased confidence that we could be to the high end of our range from an operating profit perspective and in line with our sales guidance.

And let me -- I'll add 2 points. One, I just said a minute ago. If the U.S. -- TDS in the U.S. continues to improve bit by bit, that's going to -- and it has. It's been pretty steady over the last 6, 8 months, something like that now. So I think that helps the confidence. And then the other one, Jim said, but I actually think it's worth expanding upon a little bit is the barrel sales. So as I said, to -- fiscal '24, so call it, 2 years ago, we peaked out over $100 million a year in barrel sales, which has an extremely high gross margin because the barrels are depreciated over the time that they're aging. And so when we actually sell them, it has always been a great margin business. It ended last year around $30 million, and we expect a pretty significant drop again this year. So you're talking $80-plus million less profitability from barrel sales in 2 years. I just don't think that's necessarily part of the story of Brown-Forman. We really haven't expanded upon it, but it is a -- it has been a huge headwind for us. Now having said all that, it can't get any lower. I mean, there's just not that much further to go. So it will be less of a headwind going forward, which is starting to give us a little more confidence too in the outlook.

Our next question will come from the line of Nadine Sarwat with Bernstein.

Great. Lawson, congrats on the upcoming retirement. It's been a real pleasure working with you over all these years. But I promised you, I would keep asking about gross margins until you retire. So I guess here's me keeping my promise. So 2 questions for me. First, you saw 60 basis points of expansion this quarter. I think you guys called out that being driven by lower costs. However, as I think Jim just mentioned, more costly barreled whiskey will continue to be a headwind. So could you give me a sense of what exactly happened with those 2 factors balancing out in Q1? And how we should expect that over the next coming 3 quarters of the year? And then my second question is a longer-term bigger-picture question. Now that the discussions with Pernod Ricard regarding that potential combination have ended, I appreciate you won't comment on deal specifics or discussions. But with a few months of hindsight, what are your reflections coming out of those discussions for Brown-Forman as a stand-alone entity? Has it led to any refreshed or different thinking about how you want to manage the long-term strategy for Brown-Forman, and where some of the opportunities might lie?

Yes. Nadine, this is Jim. And I'll start with your question on gross margin. And if you look at where we finished at 60.2%, the one thing I'd point out, too, that is below last year's average for the full year gross margin of 60.5%. So we are already seeing it, and we had some tailwinds in the fourth quarter that kind of helped us there a little bit, I'll say that. But we do expect this probably to be more of the, what I'll say is the high point of our gross margin for the year. And as you mentioned, we do expect to begin to see some of the more expensive barreled whiskey that we have come out, and that will come out ratably throughout the year and increase as we get later in the year. The other thing, as I mentioned, some of the other cost increases that we're seeing right now, such as diesel and aluminum, there's just a lot of volatility around many of the commodities out there. And so our ability to necessarily predict exactly where those are going to be. And I'd say right now, we're assuming that, that just stays in throughout the whole year and could even, to a certain extent, possibly increase a little bit. But we're keeping a very close eye on that. I think the other thing that I didn't mention before is in order to get our inventories in line with where our sales are, we've obviously had to adjust our production in distilling. And a big part of that we've done in a way that's being done ratably throughout the year to do it in the most efficient way. But I think you'll see more of the cost of some of that lower production coming through, throughout the full year. And so that's another thing that's not necessarily reflected in the first quarter, but I think will put pressure on us for the rest of the year. But the positive on that is that, again, as we've said, we really are bringing our inventories into what we believe is the right place, and it's helping us from a free cash flow perspective. So it's the right thing to do, but we're trying to make sure we do it in the most efficient way and not just shutting down distilleries for extended periods of time. And I think the plan that we have is going to work very well.

And then, Nadine, to the second question that you had, I mean, a few things. One, I think you all know that we regularly explore strategic opportunities in the normal course of business. And we do evaluate lots of different opportunities against the standard of long-term shareholder value creation. And just in the particular case of Pernod, we were unable to reach a mutually agreeable terms. And then I know everyone is probably asking or thinking what is the case with Sazerac. And it really comes down to the Board and our advisors concluding that the proposal is just not actionable, taking into consideration the view of Wolf Pen Branch, our majority shareholders. So in terms of reflecting back on that, I mean, look, our ultimate goal is to create long-term value for all of our shareholders. And we're going to do that by focusing on our own strategic and operational priorities. And that's back to the expanding upon our geographic footprint, building brands that resonate with consumers, enhancing operational efficiencies wherever we can and then continuing to explore additional opportunities to create value for our shareholders. So look, it gives us the opportunity now, and putting us back to the reflecting. We've got a really strong balance sheet. We've got healthy free cash flows. We're going to stick to our long-term capital allocation philosophy of really investing in the business, paying increasing regular dividends, pursuing strategic opportunities when they're there and then returning cash to shareholders. And that's been our sort of 4 core capital allocation priorities for a long time. And so look, we feel good about our business. We feel more confident about our business today, and we're going to continue to grow and do it on our own and create the most value that we can. So we're moving on.

Our next question is going to come from the line of Nik Modi with RBC.

Yes. And Lawson, best of luck in your retirement. I wanted to just press on the industry dynamic because some of the feedback that we've received in the trade suggests August actually got weaker, not stabilized, I think, with some of the comments you were making or maybe you were just referring to the past 6 to 8 months. But maybe it's the reinflation of gas prices. I'm just curious like if you had any thoughts on kind of what the dynamic has been over the last few weeks because it looks like there has been somewhat of a change. And then if I could just ask about Woodford, I believe there were some price actions that were during the quarter and then maybe scaled back. And I just was curious if you can provide some more color around kind of the strategy for Woodford going forward?

All right. So I'll be honest. I don't know about anything in August. That is an awfully short-term question. It sounds like you've got some distributor contacts that maybe, I don't know if they had a weak month or what. But -- so I don't know, so I'm not going to comment on that. Woodford, I mean, the strategy, I don't -- I mean there is definitely not a strategy to take price down on Woodford. So that would be wrong. In fact, the Nielsen numbers, I think you have it, are pretty much flat right now. So -- but the strategy around Woodford is not really changing. I mean it continues to be a very strong brand. If you look at the top 25 in the U.S., which I don't have in front of me, but it's been one of the strongest brands now over the last several years in an environment where hardly anyone is showing any growth. At least Woodford does continue to grow. And look, it's one of the strongest brands we have in our entire portfolio. And I -- we are huge supporters of it. We have a global aspirations for the brand, where we think we've got real opportunities outside of the United States, too. So of all the brands in our portfolio, it is not one that I worry a whole lot about. We would love it to grow a little faster than it is right now, but it's still a very healthy brand and yes, doing well.

I mean, I think we see further opportunities for distribution within the U.S. on it. And obviously, it's got -- and then as Lawson mentioned, internationally, it still is -- we've -- it has grown very little internationally, and that's where we see significant opportunities go forward with the Woodford. To expand upon and build upon what we've done with Jack on a global basis, we see Woodford as the next big opportunity.

Our next question is going to come from the line of Lauren Lieberman with Barclays.

I just wanted to follow up a little bit more on the pricing environment in the U.S. I know Nik just mentioned Woodford. But I was also curious about tequila, just looking at what you reported for the organic sales for the brands, the tequila brands, versus volume, it looks like pricing was a pretty big headwind. So just thoughts on the pricing environment specific to tequila, signs of improvement or stabilization, and then also just more broadly across the balance of the portfolio.

Okay. Lauren, let me -- I'll try to talk and make sure everybody gets this because I know it looks really strange on that -- on Schedule B. It is very quite honestly, misleading. So this is kind of a long answer, but I'll give you a few points on the category and then how we're doing within that. So if you take the tequila category, and if you just take 750, so don't lock down on one size across, the category, pricing-wise, is down between 1% and 2%. A lot of that -- what is happening within the tequila world is you are seeing trade down. So if you look at the different price points within tequila, over $30 is tough. And that's where Herradura is and a lot of the other big brands that you all know. When you look below -- if you look at the $20 to $30 or even $15 to $30, it's actually still growing. And so el Jimador is benefiting from that. Interestingly, I didn't know, el Jimador, within that price point, that $15 to $30 price point or $20 to $30. It was -- this time last year, it was the #9 brand in that price point. Today, it's #4. So we've seen significant improvement in that. And using some Nielsen volume numbers, I'll walk tequila as a category in aggregate. This time last year, it was running at plus 5. Today, it's minus 4. So there's been a 9-point swing in tequila, which has hurt a whole lot of brands, as I'm sure you can see in the data. Now el Jimador, this time last year was minus 8. Now it's minus 5. It doesn't sound great. But last year, we had a 13-point gap to the category and losing massive share. Today, it's down to 1. So we have made real improvements in the el Jimador brand. And I think we've got a new package. We've got new communications. We've got all kinds of new things around it, all that are helping to improve the trend. Herradura, as I said, stuck in a higher price point. It is difficult. We are about to unveil a whole lot of new things for that brand, too. So we do expect that it will improve from here, but it has been tough for quite a while now. So now speaking to what you see in the earnings release versus what you expected to see, I guess, there's one big oddity in there. So we changed -- as you know, we changed distributor margins last year really across our portfolio. And for the most part, they benefit -- well, in aggregate, they benefited us quite significantly. The tequilas, in a sort of an unusual way, it's the -- I don't know if it's the one, but overall distributor margins went up for tequila. So we wanted to make sure that the distributors were incented to sell that product. And so there weren't many brands where we did that, but it was one of them. So it makes the numbers in there and the organic figures look funny. That is not sort of a true number in terms of what is underlying actually happening in there. The other one that's a little bit smaller, but -- well, I don't know if it's smaller, it's still material. California on el Jimador is flying, and it's obviously a massive tequila market. But it's the lowest -- I think the lowest price market in the United States. So we get a little bit of negative mix there too. So there is some higher discounting happening in the category. I think everybody expected that, but not -- it's not a runaway situation at all. As I said, if you compare size year-over-year, 750 is down 1% or 2%. With the change in the cost profile, what I say, I think we would have expected it would have been even worse. And it's just not happened. And same thing with whiskey, which I assume we're going to get to that in one of these questions here, but the pricing environment has remained pretty rational in the United States right now, and obviously, that's a good thing.

Our next question is going to come from the line of Bill Kirk with ROTH Capital Partners.

Lawson, you mentioned pack sizes. I think the comment was related specifically to Blackberry. But maybe more broadly, what is the opportunity for the portfolio in the U.S. or internationally to expand pack size offerings?

Okay. Well, as I think we've been talking about, and I'm not sure when this trend really started, but it is a couple of years ago now where smaller sizes started growing much faster than big sizes. And we've always cited it's -- that's an economic thing where a consumer, if they've got a $20 bill in their pocket and they want to go and they love their Jack Daniel's, they would rather buy a smaller size bottle than have to go to a cheaper brand or whatever else they might do. So that's been kind of a macro thing now for years. So I think that's interesting. When you leave -- you asked about leaving the United States. But one thing is you are much more limited outside of the United States in terms of the number of pack sizes you're allowed to actually bring. And so as an example, there's very few large formatted bottles outside of the U.S., like the 175 in the U.S. is a big volume generator, and it's just not even available. It's not legal in many, many other markets around there. So back to where -- what is the opportunity there? I mean I do think the small -- we're not talking 50 mls, but the little bit smaller bottles of 375 or the 200s are a very good play in the emerging markets where -- honestly, our products are expensive in a lot of emerging markets. And so from the consumer perspective, a full bottle of Jack Daniel's, depending on where you are, it can be $50 or even more in some places. So that's where the opportunity for smaller sizes tends to show up and we continue to pursue that.