Brown-Forman Corp (BF.B) 2004 Q2 法說會逐字稿

Good morning.

My name is Molly, and I will be your conference facilitator today.

At this time I would like to welcome everyone to the Brown-Forman quarterly earnings report.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Thank you.

Mr. Whiting, you may begin your conference.

Thank you, Molly.

Good morning, everyone.

This is Lawson Whiting speaking.

I'm the Director of Investor Relations at Brown-Forman Corporation and would like to welcome you to our second quarter fiscal 2003 conference call.

Today Paul , the new CEO of Brown Forman Beverages will begin discussions with a review of trends on the world wild wine and spirits business and of our brand performance during the second quarter.

Phoebe Wood our Executive Vice President and Chief Financial Officer will follow with more detail on the financial results of both our beverage and consumer durables business and provide some guidance on our expectations for the balance of this fiscal year.

We'll then open up, will then take questions from investors.

This report contains forward-looking statements within the meaning of the private securities litigation reform act of 1995.

Except as required by law, we do not intend to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Statements are subject to a number of important risks, and uncertainties that could cause our actual results and experiences to differ materially from the anticipated results.

These risks include but are not limited to a deterioration in the economic conditions in the principle countries to which we export our beverage products, a further decline in discretionary consumer spending, a further decline in demand for tableware, or giftware products in the uncertainties of litigation increases in federal or state excise taxes on spirits and wine would also depress our domestic beverage business.

A tax by anti-alcohol activists or legal or regulatory measures against alcohol including its advertising and promotion could also adversely affect results.

These statements are also subject to the factors mentioned in part one, item two of the company's form 10 K for the year ended April 30, 2003, which we incorporate herein by reference.

Now I'll turn the call over to Paul Varga.

Good morning, everyone.

I'm looking forward to meeting many of you in person in the future.

Some of you as early as next week in Lynchburg, Tennessee.

But for today we'll simply make use of the phone lines to talk about Brown-Forman's beverage business.

My goals are to discuss the general state of our business and second to provide you with insight that will help to you better understand our company's performance.

Let's just dive in.

In general, the trends in our beverage business are fairly similar to the past few quarters.

Our spirits brands particularly those on the premium side continue to experience good growth.

However, we have not seen any real improvement in extremely competitive and challenging environment for wines.

In the United States, the environment for spirits remains healthy.

A lot has been written lately about the resurgence of spirits in the United States over the past couple of years.

In my opinion, three of the main drivers are as follows.

One is favorable demographic trends, a second driver is increased investments behind more creative marketing programs and line extensions.

And third, is the increasing relevance of the major spirits brands through improved packaging, great drinks promoting and lifestyle marketing programs which make our brands a relevant part of responsible drinking today.

If you combine these factors with an economy that seems to be improving rather nicely this year, you get a generally healthy environment for premium spirits brands in the United States.

Outside of the U.S., the environment is more mixed.

The United Kingdom continues to be one of the hottest markets in the world for us.

But a few countries in Continental Europe have seen some weakness.

Recent changes in drinking and driving legislation in France, for example, are hurting nearly all wines and spirits companies operating in that country, and we are no exception.

In Germany, which is a major market for Jack Daniel's, continues to endure a rather sluggish economy.

Although we remain confident that Continental Europe will be a source of growth in upcoming years, we are somewhat cautious on a near-term prospect in both Germany and France.

Results from Asia are also mixed.

Our volumes in Japan are down, but we have recently taken our first price entries in that market in many, many years, so we expect our margins to increase there this year.

Korea, which was such a hot market for the past few years, has slowed.

Jack Daniel's continues to maintain its market share, but the whiskey market has weakened somewhat as the economy has contracted over the past year.

Australia remains a vibrant market for us.

We continue to grow our volumes of Jack Daniel's Tennessee Whiskey, but the real success is Jack Daniel's and cola ready to drink brand, which is very hot.

Volumes are increasing at rates well into the double digits we feel fairly good about that market going forward.

Let me turn specifically to some of our individual brands and how they performed over the last quarter.

Jack Daniel's continues to look very strong with worldwide depletion growth in the mid single digits.

Depletions in the United States, which represents about 55% of the brands total worldwide volume continue to accelerate and are up in the low to mid single digits.

This is a couple of points higher than the same time last year, so we're encouraged as we enter the key holiday selling season.

Having said that, shipments were actually down slightly for the quarter, reflecting lower U.S. wholesaler inventories compared to the same period last year.

We view this only as a timing issue as shipments are off to a good start in the third quarter.

Outside of the U.S., the performance was mixed.

United Kingdom remains very, very strong.

Our transition to the cost-sharing arrangement with Bacardi has been very successful so far, and our volume growth continues to be excellent.

As I mentioned earlier, the rest of Continental Europe is somewhat mixed with the weakest market being France.

It's also worth mentioning that Jack Daniel's continues to make very nice progress in Eurasia and Africa where growth rates have accelerated and in excess of 20% on a 12-month basis.

Turning to Southern Comfort.

If the brand continues to provide solid growth for our beverage business.

We are particularly encouraged about the brand's on-premise results in the United States which have continued to accelerate over the past year.

As we have previously mentioned, this brand has gone through a real revitalization over the past couple of years.

Advertising investments for the brand in the U.S. are up nearly 50% over the past five years, and that's significant rate of reinvestment is now paying dividends as our profit growth has been very strong here in the U.S.

A key area of focus for us, as we look out into the future, is to maintain and accelerate the momentum that we have built here in the United States.

And in the United Kingdom, where Southern Comfort has lost volume over the past ten years, the brand is growing very nicely again.

Much of this can be attributed to the cost-sharing arrangement that we have with Bacardi where the brand is getting significantly more focus than we previously have.

We are quite encouraged about the trends in the U.K. and optimistic about the outlook for the next several years.

However, challenges remain in Southern Comfort's other markets outside of the U.S. and U.K.

We have a significant amount of brand-building work to do outside of our top two countries and we will be working very hard on this in upcoming years.

Results for Finlandia have generally been mixed as well.

As we have discussed before on these conference calls, the U.S. market for premium imported vodkas, while growing consistently, is also extremely competitive.

This is largely because of the numerous new products and line extensions which have been introduced in the past couple of years.

At least in the short term, we expect stronger profit growth in the international markets than we do in the domestic market.

Interestingly, Finlandia is the only brand in the Brown-Forman portfolio which is larger outside of the U.S. than inside.

In fact, over 80% of its total volume is outside of the U.S.

In most of eastern and central Europe, as well as many markets in Latin and South America, Finlandia is the number one or number two premium imported vodka brand.

Although the premium category is rather small in some of these countries.

We have only had the distribution of Finlandia in some of its largest markets like the Czech Republic and Poland for about ten months.

And while we are still navigating our way through the transition in some of these markets, we are very encouraged by the market position which Finlandia holds and by the opportunities for growth in these countries.

Let me now shift over to our wine segment.

In a nutshell, the environment hasn't changed much.

As we have mentioned before, a global oversupply of grapes has resulted in significant pricing pressure across the U.S.

Brown-Forman's longer term supply contracts for Fetzer that resulted in an average cost per ton that is significantly higher than the current spot market for comparable quality grapes.

Because of the extremely competitive environment, we are unable to pass on those higher costs through higher retail prices.

As a result, the gross margins in our wine business declined sharply over the past two fiscal years.

Although this year's smaller harvest from California will be of some benefit, the global inventory oversupply remains very large, and we don't expect to get much better over the rest of our fiscal year.

A key issue for the worldwide inventory situation will be this year's harvest in Australia.

Although it is still several months away, the absolute size of the harvest will clearly have an impact on the pricing environment in the United States.

Over the past year, we have worked very hard to improve the price position of our wine brands, particularly Bolla, but it has not been easy.

We are seeing volumes drop as we try to hold the line on pricing, particularly in California, where the large retailers have such a commanding percentage of wine sales.

We continue to fight it out, but these are very tough conditions.

The company still has expectations for a modest improvement in profitability from its wine brands this year driven by slight improvement in the gross margin and lower overall operating expenses.

And now I would like to turn the call over to Phoebe Wood, our Chief Financial Officer, who will walk you through more specifics on our second quarter results and update our guidance for the full fiscal year.

Thank you, Paul.

Good morning, everyone.

This morning Brown-Forman reported earnings per share of $1.45, up 23% over the same period last year.

The March 2003 share repurchase accounted for 12 cents of the quarter's increased earnings.

Excluding this benefit, earnings increased 15 cents per share, or 13%.

As Paul discussed, the story is similar to recent quarters.

Our beverage business remains fairly strong, although several of our wine brands in the consumer durables segment remains soft.

The two biggest factors impacting the quarter were the change in foreign exchange rates and the benefits from the March 2003 share repurchase.

Beverage revenues were up 5% for the quarter, although the weaker dollar accounted for most of the revenue growth.

Obviously, export sales of our core spirits brands are benefiting from foreign exchange trends.

However, note that our foreign exchange exposure are has changed somewhat over the past couple of years.

We currently import such brands such as Finlandia, Tuaca and Bolla and we source an increasing amount of product for Lenox and Gorham from Germany.

These are all Euro denominated markets.

As a result, a weaker U.S. dollar versus the Euro does not enhance our bottom like it used to in these markets.

We benefit more from dollar weakness compared to the British pound, Australian dollar and Japanese Yen.

Our gross profit in beverages was up 10% for the quarter and 13% for the first half of the year.

Importantly, the gross margin in our beverages business increased from 49% in fiscal 2003 to 51.4% this past quarter.

This is the first increase in our gross margin in ten quarters.

This increase in margin is being driven by four factors.

Number one, foreign exchange.

Number two, organic price increases in both wine and spirits.

Three, some positive mix benefits as we are no longer selling some lower margin wine brands, and four, the higher margin earned in the United Kingdom under the new costs-sharing arrangement.

Advertising expenses were up a strong 16% in the quarter as we have continued to reinvest behind our spirits brands.

Over the past quarter, we significantly increased our spending on Finlandia Vodka, Woodford research Bourbon and Tuaca Italian liqueur as well as continuing to make a substantial investment behind both Southern Comfort and Jack Daniel's.

Although advertising investments are expected to be down year over year for our wine brands, we've clearly anticipate very strong rates of advertising and promotion growth for our spirits brands this fiscal year.

Beverage SG&A costs were up about 10% for the quarter, driven by two primary factors.

One, pension costs, which are higher by about $2.5 million, and secondly, higher SG&A costs related to the consolidation of both Finlandia Vodka worldwide and [inaudible] operations which were acquired in the second half of last fiscal year.

The final significant issue for the quarter was the absence of a $6 million operating loss recorded in the second quarter of fiscal 2003 on Jack Daniel's Original Hard Cola.

This loss was a result of the national television campaign supporting the brand's launch last September.

It is fair to say that this brand has performed well below our initial expectations.

Our current level of investment behind the brand is more commensurate with its current volume and gross profit contribution, and we do not anticipate that the brand will have meaningful impact on our financial results over the next couple of years.

Overall, the beverage business looks solid.

Our spirits brands have some good momentum as we move into the important holiday season and the comparisons for our wine brands will be easier as we move into the second half of the year.

All in all, we are comfortable with the outlook for this segment for the remainder of the fiscal year.

Turning, then, to the consumer durables division, results for the second quarter were slightly better than our expectations.

Although this followed a record loss for the segment in the first quarter.

Net sales were up 4%, as we saw some encouraging improvement in the wholesale channel.

Sales through the segment's outlet stores were higher than the disappointing results from the previous year, although results through this channel have remained volatile.

The most disappointing issue for the quarter was the continuing downturn in the direct consumer channel as response rate for catalogs, Internet and direct-mail division declines.

Operating income for the segment was even with last year.

It is noteworthy that this is a seasonal business.

It's a large portion of its sales in November and December.

Early signs regarding holiday orders are mixed as we are cautiously optimistic about results from the wholesale channel and generally concerned about the direct to consumer channel.

Our full-year guidance of $4.10 to $4.30 per share remains unchanged.

This projection includes the 11 cents per share charge incurred in the first quarter for the litigation settlement.

To be clear, almost all the analysts that report their estimates to First Call are reporting their estimates excluding this 11 cent charge.

I mention this just to avoid confusion about any apples to apples comparisons.

Also, this forecast does not consider the recently announced stock split.

Assuming our shareholders approve the issuance of the new shares, we will restate all earnings per share figures at that time.

Before moving on to the Q&A portion of this conference call, I'd like to point out that we'll be hosting a strategic update meeting in Lynchburg, Tennessee, on December 3rd.

We'll be Webcasting this presentation, and anyone can view the slides live on our Website as they are presented in Tennessee.

Simply click on the investors section at www.brown-forman.com.

And it will guide you through the process.

The slides will also be available for downloading for those that cannot listen to the live broadcast.

That concludes our prepared remarks.

Now Paul Varga, Lawson Whiting and I will be glad to answer any questions you may have.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad now.

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Darrra Moseenyan from J.P. Morgan.

Good Morning

I have two questions.

First off, I'm a little surprised you didn't raise full year EPS guidance given strong quarter and inventory drawdown for Jack Daniels in the quarter.

Could you give me a little more detail?

Are you trying to be cautious heading into the back half of the year is this and if you could just kind of review those assumptions?

And then second, on the Finlandia brand, can you give us Q2 U.S. volume results there and an update on the marketing levels put behind that brand and maybe plans for the remainder of the year?

Thank you for your question.

Let me address the first one.

Our formal guidance, you know, hasn't changed during this whole fiscal year.

And we're confirming that today.

I think it's really because the beverage business remains very solid, we do see some weakness in wines.

Consumer durables is below expectations.

What really behind this is that the biggest time of the year for both of our biggest segments is coming up over the next 30 days.

Frankly, we don't know what those are going to be.

Given those unknowns, we are choosing to just keep our guidance in the $4.10 to $4.30 range.

I'll answer the second question.

Regarding Finlandia Vodka, second quarter performance.

We did see improvement in our overall trends in Finlandia, in great part, due to the planned relaunch of the Finlandia packaging and marketing and promotional programs surrounding it in the second quarter.

So as expected, we saw a pickup in our overall results on Finlandia in the second quarter.

We hope that those will continue to perform in a commensurate way through the rest of the year.

We also saw an increase in the advertising and promotion behind the brand in the second quarter and we expect those investments to continue throughout the rest of the fiscal year.

Okay.

Great.

And if Finlandia volume number for the second quarter?

Do you guys have that?

For the U.S.?

It was up very nicely.

Okay.

All right.

Great.

Thank you.

Thanks for your question.

Your next question comes from Mark Schwartzberg from Legg Mason.

Good morning everyone.

Hi, Mark.

Hey there.

Paul a question for you, following on some of your opening comments, it seems that spirits have been outgrowing beer for a period of years.

And that that, the delta there if you will, in terms of rates of growth has grown quite dramatically in '03.

So the share-taking by spirits from beer has increases dramatically.

If, indeed, you're seeing that same phenomenon and perhaps you're not, but if you are, I wonder if you could share with us your thoughts on what might be driving this acceleration, if you will, and the share erosion of beer vis-a-vis spirits.

I think we tend to look at -- as a -- we tend to focus on it more as the acceleration in just overall spirits consumption.

And I think it may be coming from a variety of sources to the extent it is stealing from beer share, you tend to speculate more on that.

But there's a one-to-one cause effect.

I did mention a number of the things that I think are underlying the -- what I call kind of spirits resurgence, and they aren't just in the past year or in the past couple of quarters.

We've seen what I'll call moderate and steady improvement in overall spirits consumption in the United States for the last several years.

And I think part of it is favorable demographics growth in the important LDA348 segments has been maybe one contributing factor, I think.

The other factors I discussed related to improved overall, I think, marketing surrounding a lot of the spirits trademarks.

That's everything from, I think, efforts behind the parent brands as well as line extensions and whether they be in flavors or ready-to-drink fashions, there's a lot of revitalization efforts surrounding many of the leading spirit brands.

And there's just no doubt, a -- an improving cocktail culture.

There just is for sure growing out of the on-premise environment.

I think all of those things contribute to great-tasting drinks that compete not just with beer but with all beverage alcohol occasions.

Thank you.

Your next question comes from Thomas Russo from Gardner, Russo and Gardner.

Hi.

Good morning.

A couple questions, first for Paul.

Paul, in the U.S., could you describe your view of Crown Royal and its performance as a category competitor to Jack Daniel's, and just an overview as to how that's working competitively?

Second, Paul, could you speak a moment about if you've changed, and if so, how you might have changed the marketing message for Jack Daniel's, and then the medium that you're using to advertise that.

So two questions for the U.S.

And then in the United Kingdom, Paul, could you discuss how much of the strength at the moment both Jack Daniel's and Southern Comfort might be one period, and that once you work through the depressing effect of [Diagio] on the final chapter of its agency, that you might get back to more organic growth rates might not be so steep as that which you're experiencing now.

So those are three questions.

Sure.

Take them one at a time here.

On your questions related to the U.S., Tom, we as I think you know, we view Crown Royal as you would expect us to, as a very serious competitor across many of our brands because it is one of the leaders in premium whiskey in the United States.

I mean, their performance over a long period of time has been very good.

And so we see interaction with Crown Royal in our number of our brands starting, of course, with Jack Daniels but also with Canadian Mist and some of our super premium whiskeys as well.

It's unavoidable to consider Crown Royal in all that we do.

I think there's also their geographic area of strength where they grew up with down in the southern and southwestern part of the United States where Brown-Forman was very traditionally strong, whether it was on our Bourbon brands, Canadian Whiskey brands or on Jack Daniel's.

So their growth in the Bourbon belt has, for the last 15 or 20 years, made Crown Royal a very serious competitor.

We know we share a lot of consumption on the variety of brands we have with them.

And we take that into consideration in our marketing efforts.

There's no doubt, if you study the figures, their growth from a much lower base has outpaced the growth of our number of our brands.

Here in the more recent, I'd say five to six years on Jack Daniel's, we've found that we've been making very, very good progress across the United States in competing with Crown Royal and of course remain larger than them today in the U.S.

On your second question related to specifically Jack Daniel's, I think communications and marketing, pivotal to a lot of the Jack Daniel's revitalization efforts going back to I'd say the mid-1990s in the United States, we're freshening and taking a new look at the way we take the brand to market.

What is tended to see at that time was a complementing of our traditional images and advertisements and marketing programs surrounding Jack Daniel's.

We moved very much to increase our overall advertising budget.

And we also increased what we call sort of our lifestyle marketing budget.

Which are being a relevant part of in-market promotions whether they be with concert tours and rodeos or other lifestyle-type events.

So we've seen a commensurate increase in both of those areas consistently over the last number of years.

In part to compete with brands, growing brands and such as Crown Royal and others in the spirits industry.

We remain committed to all those great messages that and campaigns that have served us to well and continue to be relevant today, but the most important thing we remain committed to in our messaging on Jack Daniel's is putting forth a really relevant communication of the Jack Daniel's story.

And if that requires us to add to it at times, we obviously will do that.

I think your reference to the medium is probably related a little bit to have we shifted marketing media?

We have, in fact, seen our mix change as television has become available to us in the United States.

There's a growing number of avenues for television access today that a number of our brands, not just Jack Daniel's, are utilizing, and we see that continuing to grow literally month by month as national cable stations or regional cable outlets become available to us.

Let me shift over now, I guess, to your last question, which dealt with the performance of Jack Daniel's and Southern Comfort in the United Kingdom.

We really don't believe there was a depressing effect on our results, particularly in the in-market results on Southern Comfort and Jack Daniel's during the transition from Diagio to Bacardi.

It was an extremely smooth transition that we felt actually very good about a year ago.

So we know our performance today and we study on a number of different levels, is actually organic, very good growth.

And so it's particularly encouraging on Southern Comfort, which has seen a great turnaround due to the focus that we've put behind it in that market.

And Jack Daniel's growth trends, which were already very, very good, continue to perform quite nicely.

So not a one-time recovery from depressing effects, but actually just a continuation -- an acceleration?

Absolutely.

It's not good numbers compared to weak, depressed numbers last year.

Thank you, Paul.

Sure.

Thanks, Tom.

Thanks.

Your next question comes from Ann Gurkin from Davenport.

Good morning.

Hi, Ann.

Wondering if you could give more specific pricing on Jack Daniel's and how much you're putting on supporting the brand, can you comment on marketing spending on that brand and shift it toward long term, long-term strategy for Bourbon, both in the U.S. and worldwide, like what do you look for pricing, inventory levels, things like that?

Okay.

I'll take a stab.

I mean, our pricing varies around the world, for sure.

I would say that the -- on average you would see our Jack Daniel's pricing increasing in the 2 to 3% range would be our historical performance and would continue to be our recent performance.

And that is usually a mixture from a wide variety of countries.

If you're referring specifically to the United States, those numbers would still continue to hold.

And one notable exception would be Southern Comfort where we have particularly in the United States been on a very long-term repositioning of that brand and taken probably more aggressive pricing than what y'all would consider the industry norm as a means of over that period of time repositioning the brand upward.

And I hope that answers your questions on the two primary brands and their pricing.

Regarding volumes, I mean, we still have very high expectations for both Jack Daniel's and Southern Comfort going forward.

I think, as I mentioned in my opening comments, Jack Daniel's continues to perform very consistently and very well in the mid single digits.

And in recent years, we've begun to see improvement in Southern Comfort's volume, and particularly its two most significant countries of the U.S. and U.K.

One of our challenges there is to try to get more market, participating in growing Southern Comfort, and that's work we still have to do.

I think that basically answers the questions regarding pricing and spending.

And then you were talking about reinvestment?

Right.

I think on both of those brands, one of our positions has been over a period of time to reinvest portions of our incremental gross profit that are against the best opportunities we see, and while we don't have a standing philosophy that says we'll put, you know, 50% of every incremental gross dollar back into it, we are always looking at what the competitive situations are in the various countries where we do business, what the pricing structures are, what the volume performances are.

And we make those decisions on a market-by-market basis.

Okay.

And then one more question.

You talked about shipment volumes down for Jack Daniel's.

Can you tell me what the inventory level is with distributors in the U.S.?

Could you give that out in days?

Ann, we don't give that specific out.

I mean, it is down several days for the quarter.

But that's about as much as we're going to go on that.

Okay.

Great.

Thanks.

Your next question comes from Graeme Eadie from Deutsche Banc.

Hi.

Good morning to you all.

If I could delve a bit deep other the pricing front, Paul, as you see the underlying fundamentals in the U.S. spirits industry is very favorable at the home, the sort of price increases you're getting in Jack Daniel's have been 2 to 3%, that has been the case historically.

To what extent does the improving fundamentals change your view on pricing?

Does that perhaps give you the scope to maybe put pricing up or maybe even cut it if you're getting or to not cut it due to substantial increases because the underlying demand for the product is so strong?

Just summarize, the question really is to what extent do the strong fundamentals at the moment influence your pricing strategy?

I think it certainly a context against which you make your individual pricing decisions.

The realities of how we change price in the United States are actually -- I mean, unfortunately for those who like easy answers, they're quite complex because you tend to do it market by market, size by size.

And I'll give you just some examples.

The -- the pricing moves we'll make on some sizes, we will think of differently than on other sizes.

An example being our leader size in the United States, which is a very large business on Jack Daniel's, you might think differently about its pricing because the majority of that business goes into the on premise, which isn't a retail pricing environment whereas pricing on other sizes you might think a little differently about because you have shelf pricing available in the off-premise retailing account.

So that's just one simple example of the complexity of it.

But we definitely feel more confident about raising prices when the environment and the economy in general are recovering.

There's just no doubt about it.

And you feel more cautious when things are not going so good.

So, again, like I said, we try to make those individual decisions market by market.

But we see the rates of price increase being around what they've been historically for us.

Great.

Thank you very much.

Thanks, Graeme.

At this time I would like to remind everyone, in order to ask a question, please press star and then the number one on your telephone keypad now.

Your next question comes from Bryan Spillane from Bank of America.

Hi.

Good morning.

Hi, Bryan.

Two questions.

One, Phoebe, if you could just give us some direction on cap ex what you're expecting for, you know, by the end of this year and also for next year, and then also for Paul, if you could talk a little bit about, you know, as you see the fundamentals or volumes begin to improve a little bit in the spirits industry, how has the dynamic between sort of the high-end brands differed from what you're seeing at the low end?

I guess what I'm after is, are you seeing people trade up, or are you seeing as people drink more spirits, are they just choosing the higher price brands?

Go ahead.

I'll answer that second question first, Phoebe.

I think what you would tend to see, yes, we are definitely seeing better volume metric trends on our more premium and super premium brands than we have on our standard price or popular priced brands.

I think as you probably know, Bryan, that's a very long-term trend as well in the U.S.

Right.

And that has tended to be also a trend in many other developed countries around the world.

But no more apparent than the United States.

I think one of the big contributing factors to that tends to be we always forget about it is how the business improves in the on-premise environment which tends to have premium and super premium spirits in stock and not have, in many cases, the standard and popular price sets.

So as business moves and is more vibrant in the on-premise environment, you tend to see business shift toward those brands.

And then you also just see that as an industry, you see the various levels of the supply chain naturally gravitate toward the promotion of those brands because of their favorable economic.

Right.

So I think that is a trend that has been going on for some time.

And I don't expect to cease.

Has it accelerated at all?

I guess the sense that I'm getting is that change or that dynamic has accelerated more recently.

Is that fair?

It may be fair here in the last year.

There was clearly with something -- I don't know that any of the trends that we saw in the late '90s and in early 2000 that were going on which was a dramatic shift toward the premium and very super premium brands.

And lot of that stalled with a lot of the economic difficulties in the U.S. over the last couple of years that I would say versus 12 months ago for sure, premium brands are performing better than popular brands.

And it's just right in their 12-month trends.

Okay.

Bryan, regarding your capital expenditure question, we're going to be 75 to $85 million this year.

Um-hm.

In cap ex.

Really is a long-term trend, I don't really see that changing very much.

It might be slightly down a little bit for next fiscal year, but it's right in that range.

Okay.

Great.

Thank you.

Yeah.

Your next question is a follow-up question from

from Gardner and Russo.

Hi.

It's Gardner, Russo, Gardner.

Paul, on the foreign front, in Asia particularly, I'm wondering if you had any ax to grind in Korea with the gin row situation.

And then I was curious about when you referred to the acceleration in Eur Asia - Africa particularly for Jack Daniel's, if you could scale that level of base is so we know where it's growing from and then look back over your entire international outlook at the moment to see how it squares with Owsley's longstanding commitment to move Jack Daniel's over 10 million cases within a fairly direct period of time.

And how the international will play into that and what the scale of that opportunity looks like now.

Sure.

Specific about Korea and then base Asia as it exists today and then scale that 10 million case objective in light of experience.

Okay.

Thanks.

I'm not sure I know about what you're referring regarding an accident to grind regarding gin row, but I'll go ahead and talk about Korea and a little bit about Asia.

We are extremely encouraged by our I'll say previous four or five years of experience in Korea.

And only recently has it slowed as their economy has struggled.

I think we may have mentioned to you before, it's a place where we took the opportunity to go ahead and put our own people on the ground to help build our business.

And we think that has been a very wise decision for the company.

We really believe that we'll work through the -- I think what I'll call the tentativeness of the situation there is today and resume growth as the economy recovers and as the whiskey business in that country recovers as well.

It is an extremely attractive whiskey business in Korea.

But we will definitely have to work through, I think, just the macro economic situation there.

There are other countries in Asia where we have also have slightly different but a similar approach to distribution, places like Taiwan and China where we are investing today to put people on the ground and initial resources behind primarily Jack Daniel's in order to build the brand for the very long term.

And in a market like China, where we've now been at it since about 1994, we have seen steady progress, continue to be encouraged by the results we're getting there.

So I think the results can definitely improve from where they are, but it may take, as we all knew going into it, a considerable amount of time.

So we're being very patient brand builders out in Asia.

That's a terrific response, Paul, because you're actually investing up front to build China.

Can you give any kind of anecdotes about what your brands' position is like in China?

Anything that describes what drives popularity , and it may be a reflection of its growth in China?

Really, Tom, what it is more than anything, we went in and virtually were doing no business and had a very specific channel strategy there where we built our brand primarily in the on-premise, in that market what we refer to as western-style accounts.

We've just sort of grown up through -- I think what a lot of people would call Americana.

So I think there's very much a positive association with western lifestyle and Jack Daniel's being very much associated with it.

And the more that continues, the more favorable it will be for Jack Daniel's.

And I think that probably has been our primary approach to it.

And we have seen that work to our benefit over many, many years in other places, and we hope it takes place in Korea as well.

Let me just move also quickly to your other comments and questions regarding Eur Asia and Africa.

I thought I'd get more specific about performance in south Africa which is something just this past quarter notably we passed the 100,000 case mark.

And we'd like to celebrate anytime we go above the 100,000 case mark for Jack Daniel's just about anywhere.

That is one of the markets that we began to work in back when you referred to Owsley and his goal to build Jack Daniel's almost ten years ago in more pervasively around the world.

And that would be a shining example of variety, of tools we've utilized to make the brand extremely relevant down in the South African market and to have the kind of progress we have there.

The entire region sells in the range of 400,000 cases, when I say Eur Asia and Africa.

And a lot of that from a very, very small base, just ten years ago.

Thank you.

Okay.

And Phoebe, congratulations again on that share repurchase with its continuing impact.

That really was well timed.

Thank you, Tom.

Congratulations.

Yep.

Thank you, Tom.

There are no further questions at this time.

I would like to turn the call back over to Mr. Whiting.

Okay.

Thank you, everyone.

That concludes the second quarter conference call.

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