Brown-Forman (BFB) UBS Global Consumer and Retail Conference summary

Margin trends and cost management

• Gross margins have fluctuated, peaking in the high 60% range around 2013–2014, but have since returned to about 60% due to rising costs, especially for wood and barrels post-COVID.

• Elevated costs from whiskey produced during the 2021–2022 demand surge are impacting margins, but relief is expected in a few years as less expensive barrels are used.

• Outsourcing barrel production aims to reduce long-term wood costs, with benefits anticipated in the coming years.

• Recent SG&A reductions focused on reallocating overhead from Louisville to growth markets, with minimal impact on sales functions.

• Productivity and cost-saving initiatives are being emphasized to adapt to uneven global demand.

Cash flow and capital allocation

• Free cash flow has increased due to reduced capital expenditures and inventory levels following post-pandemic demand normalization.

• Free cash flow is expected to grow faster than operating income for the foreseeable future.

• Capital deployment priorities remain brand and facility investment, maintaining a long-standing dividend policy, and selective acquisitions.

• No significant plans to re-enter the vodka category due to low margins and limited appeal.

Industry and consumer trends

• Structural and cyclical factors, including health trends, cannabis, and GLP-1s, are impacting alcohol consumption, especially among younger consumers.

• Per capita consumption has declined most among people in their twenties, driven by affordability and lifestyle shifts.

• Ready-to-drink (RTD) products are an entry point for younger consumers, who may later transition to full-strength spirits.

• Spirits remain attractive compared to beer and soft drinks, with pricing strategies among major players remaining rational and disciplined.