Brown-Forman Corp (BF.B) 2008 Q4 法說會逐字稿

Good morning.

My name is Teresa, and I will be your conference Operator today.

At this time, I would like to welcome everyone to the Brown-Forman fourth quarter fiscal 2000 year end conference call.

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

After the speaker's remarks there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS)

I would like to turn the call over to T.J.

Graven, Mr.

Graven, please go ahead.

Good morning, everyone and thank you for joining us today.

This is T.J.

Graven, the Director of Investor Relations at Brown-Forman.

With me here today are Paul Varga, our President and Chief Executive Officer; Don Berg, our Executive Vice-President and Chief Financial Officer; and Jane Morreau, Senior Vice-President and Controller.

And also joining us is Ben [Marmer], our incoming Investor Relations Director.

Paul will begin our call this morning with a discussion of several key milestones achieved in fiscal 2008, and Don will follow with a review of our financial performance for the year and our outlook for 2009.

As always, 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 the company undertakes no obligation to update any of these statements, whether it be new information, future events or otherwise.

This morning we issued a press release containing our fiscal 2008 results, and that release can be found on our website under the section titled Investor Relations.

We have listed in the press release a number of the risk factors you should consider in conjunction with our forward-looking statements.

Other significant risk factors are described in our Form 10-K, Form 8-K, and Form 10-Q reports filed with the Securities and Exchange Commission.

During this call, we will also be discussing certain non-GAAP financial measures.

These measures, and the reasons management believe they provide useful information to investors regarding the company's financial conditions and results of operations, are contained in the press release.

With that, I will turn the call over to Paul.

Thank you, T.J., and good morning, everyone.

First, it is a great pleasure to welcome Don Berg to this earnings call as our new Chief Financial Officer.

Don is a 19-year leader at Brown-Forman who has served the company in many different capacities, including the leading finance, corporate strategy and the U.S.

spirits sales and marketing teams during his tenure.

Additionally, Don led the division which laid the groundwork for our expansion in the emerging international markets, and today we were seeing excellent brand development and profit growth in many of these exciting countries.

You will have a chance to spend time with Don in the months ahead, if you haven't already done so.

I'm sure you will appreciate as we do the depth of his industry experience, his knowledge of our company and his financial acumen.

I would also like to recognize Jane Morreau, as she has taken on expanded responsibilities for the financial management of our company.

A seasoned financial executive, and most recently our Controller, Jane joins Don to form the core of Brown-Forman's financial leadership.

During the recently completed fiscal year, we achieved many milestones for our brand in markets around the world.

Our ability to achieve these results in fiscal 2008, given the challenging economic environment in the United States, is a testament to the broad and diverse consumer appeal of our brands globally, and to the adaptive capacity of our employees and partners throughout the world.

In a minute, Don will discuss our financial results for the year.

Before that, I would like to share several notable milestones from fiscal year 2008.

With sales of $3.3 billion, we surpassed the $3 billion mark for the first time in our company's history.

The Jack Daniel's family of brands, incorporating Jack Daniel's Tennessee Whiskey, Gentleman Jack, Jack Daniel's Single Barrel and the Jack Daniel's and Cola Ready to Drink, measured on a drinks equivalent basis, crossed the 10 million case mark, and altogether grew volumes that impressed of a 6% rate globally with reported net sales advancing 12%.

Another first for us was that over 50%, 52% in fact, of our net sales came from markets outside the United States.

Just five years ago, less than 30% of our sales were outside the U.S., while 10 years ago the percentage was closer to 20%.

This shift reflects the increasing demand for our portfolio in markets outside of the U.S., the impact of acquired brands and certainly foreign exchange.

Notably during this fiscal year, the vast majority of our net sales growth, more than 85% of it, came from markets outside the U.S.

In recent years, Finlandia has been a major contributor to our international expansion.

Since taking a majority stake in fiscal 2003, Brown-Forman has added more than 1 million cases to Finlandia's annual depletion.

Over 95% of this incremental volume has been in international markets.

The brand continues to be a major growth driver for Brown-Forman, with global depletions advancing 16% and net sales gaining 33% this past fiscal year.

Our fiscal 2008 results demonstrate an increasingly balanced and diversified growth at Brown-Forman.

Brands such as Jack Daniel's, Finlandia, the Jack Daniel's line extension, Chambord, and the Casa Herradura brands join countries such as the U.S., U.K., Germany, Australia, Korea, India, Poland, Canada, France, Russia, Ireland, Romania, Turkey, and many countries throughout Latin America, to deliver a broad based growth for our company.

While we were less active in terms of distribution investments than in several prior years, we did make some important changes over the last year to improve our route to market and to increase our focus behind core brands within the portfolio.

Examples would be the following.

During the year, we announced a U.S.

sales alliance with Bacardi and Remy Cointreau for a few key U.S.

states.

In these markets, the alliance creates a focused sales team within the U.S.

distributors that will take to market the strong and complementary portfolios of the three companies, while each of the three companies continues with their own unique and independent end market brand building to supplement this improved distributor effort.

Also in the U.S., we evolved our own organizational structure to allow for a more coordinated execution of programs across the country.

And more recently, we've begun the process of combining our brand portfolio in Mexico, where we are integrating the non-Tequila Brown-Forman brand into the sales and marketing operation we acquired with Casa Herradura.

Our goal at Brown-Forman is to continually enhance shareholder value over a very long period of time.

Fundamental to this is our desire to consistently produce excellent rewards for what we consider to be a moderate and acceptable level of investment risk.

Our total shareholder return for the past fiscal year was 8%, assuming dividends for reinvestment, which significantly outstripped the overall decline of 5% for the S&P 500 for the same period.

Looking at the same measure over three, five and 10-year periods, Brown-Forman has also outperformed the returns of the S&P 500.

This is also true for even longer periods of time.

As an example, for the 20-year period Brown-Forman's 14% total shareholder return compares to quite favorably to the S&P's 11% return.

We anticipate the future sources of total shareholder return will be derived from through a combination of strong, consistent organic growth, periodic brand acquisitions, our consistent dividend program, and from time to time by share repurchases such as the $200 million open market purchase which we completed in fiscal 2008.

I will now turn the call over to Don for commentary on our fiscal 2008 results and our outlook for fiscal 2009.

Thank you, Paul.

Good morning, everyone.

As Paul noted, fiscal 2008 results reflect exceptional international growth for our Jack Daniel's and Finlandia brands, and our continued work to deliver outstanding shareholder value.

Despite a softening global consumer environment, diluted earnings per share from continuing operations were a record $3.55, up 10% over fiscal 2007.

As Paul mentioned, more than half of our sales are now from outside the United States.

So let me first talk to the continued success of our international expansion.

For Jack Daniel's, depletions outside the U.S.

expanded 8%, with a broad array of contributors, led by solid double-digit gains in France, Russia, Poland, Romania and Turkey.

Another notable component of our strong growth internationally was the performance of Jack Daniel's in the United Kingdom, the brand's largest market outside of the U.S., where depletions were up 6% and annual buyings are now approaching the 1 million case mark.

Leading our depletion growth in the Asia/Pacific region and Australia, the Jack Daniel's and Cola Ready to Drink product continued to post exceptional results this fiscal year, surpassing the 2 million case mark in Australia and New Zealand combined.

Very recent developments regarding the increased taxation of RTDs in Australia are likely to provide some headwinds in is fiscal 2009.

However, we are watching that situation closely, and while it's early, we believe that the Jack Daniel's franchise will retain its excellent brand health there.

As we highlighted in recent quarters, Finlandia's growth in Poland contributed significantly to the company's overall growth this past year, where the brand's volumes in this market surpassed both the 700 and the 800,000 case mark.

We also experienced exceptional growth in Russia, adding well over 100,000 cases in that market.

In fiscal 2008, Finlandia was recognized by Spirits Business, a U.K.-based magazine, as the fastest-growing global spirit brand.

With all of this momentum, we continue to believe in Finlandia's power as one of Brown-Forman's ongoing growth engines.

Even excluding the exceptional performances in Poland and Russia, we are seeing excellent growth throughout Eastern Europe, where we experienced double-digit depletion gains for our total portfolio on the strength of our Finlandia and Jack Daniel's brand franchises.

This important part of the world has a combined population of more than 300 million people.

It's about the same size as the United States, and has an average GDP growth of over 6%.

We are encouraged by these exceptional results, and we believe our route to market and brand-building infrastructure in Eastern Europe, and our exceptional teams and partners there, have us well positioned to continue to seize the many future growth opportunities in this region.

Finally, looking at Southern Comfort, it delivered solid gains in the U.K., South Africa and Australia.

Now, turning to the United States, fiscal year 2008 was more of a challenge for us, though our base business is still strong, and our developing brands continue to outperform the market.

Jack Daniel's U.S.

depletions were slightly ahead of last year, and we are encouraged by the most recent Nielson trends for the brand.

For example, in the recent three months dollar sales for Jack Daniel's grew at 4.8%, outpacing brands like Jose Cuervo, Crown Royal, Grey Moose and Kettle One to name a few.

Balanced with the strong international growth, Jack Daniel's global depletions were up 4% over the prior year.

Southern Comfort experienced low single-digit declines in the United States on a volumetric basis, but pricing more than offset those declines, driving net sales growth of more than 1% in the period.

Overall, global depletions were flat for the full year, but Southern Comfort posted 6% net sales growth in fiscal 2008.

There have been many questions recently about the possible trading down in the United States, in light of the recent economic slowdown.

While volume growth rates for super premium brands in the industry are certainly not as high as they have been over the last several years, we continue to experience solid double-digit depletion growth for several of our super premium price developing brands, including Vontera, Gentleman Jack and Woodruff Reserve.

Each of these brands reported global net sales gains of at least 22%.

In addition, Tuaca, Sonoma-Cutrer and Chambord continue to register solid depletion gains.

For us, these are encouraging statistics regarding the continued strength and consumer appeal of super premium brands in the United States, where nearly 80% of the combined depletions for these brands were generated.

Let me spend a few minutes talking about acquisitions.

Most of you probably know that Brown-Forman has a long history of success with acquisitions.

In fact, most of the brands in our portfolio were acquired over the years, most notably Jack Daniel's and Southern Comfort.

More recently, we have used acquisitions as a way to take advantage of evolving consumer patterns.

Over the last 10 years, we have moved into high-end chardonnay with Sonoma-Cutrer, premium vodka with Finlandia, and super premium brands that are easily mixed, like Tuaca and Chambord.

In fiscal 2008 altogether these brands, led by Finlandia, contributed more than 10% of our net sales, and nearly 15% of our net sales growth, and as I mentioned earlier, have continued to grow faster than Brown-Forman's average growth rate.

As a continuation of our acquisition strategy, we made an investment in Tequila with the purchase of Casa Herradura in late fiscal 2007.

Importantly, I am happy to report that we achieved our fiscal 2008 plan.

In accomplishing this, we experienced better than anticipated results for el Jimador in the United States, and lower than anticipated integration expenses.

As you expect with a year of transition, there are a lot of moving pieces, some of which offset the positives I just mentioned.

In particular, the performance of our Tequila brands in Mexico fell below our expectations, due primarily to competitive pressures in that market.

Additionally, we spent a good portion of the year reducing inventory levels in the wholesale channel.

Now, with reasonable inventory levels in Mexico and our newly-implemented trade practices, we believe we have a solid foundation from which to build this business.

We also made excellent progress during the year with our el Jimador Ready to Drink brand extension, New Mix, which is the category leader in the Mexican market and continues to outperform the competition.

Our Tequila operation is a complex business, one with excellent growth prospects but also some near-term challenges particularly in Mexico, due to the current [Agade] excess.

Having said that, we continue to be very excited about the future for the Casa Herradura brands, and our intent is to make Tequila one of our great growth vehicles over the next 20 years.

With the transition largely behind us, our fiscal 2009 plan takes another positive step in that direction.

Turning to our full year results that we released earlier this morning, reported operating income for the company was $685 million, an increase of 14% over last year.

Adjusting for a weaker U.S.

dollar, acquisitions for comparable periods, and the absence of a gain on the sale of winery assets last year, underlying operating income grew a healthy 8%.

Note that in the press release issued this morning we have included schedule "A", which reconciles reported growth to underlying growth for various line items in the P&L.

This schedule also discusses the reasons that we believe these measures are useful to investors.

Net sales in fiscal 2008 grew by $476 million or 17% to $3.3 billion, while underlying net sales grew 6% for the year.

Reported gross profit increased $214 million or 14% year-over-year, and underlying gross profit advanced 6% for the year.

Advertising and promotion investments increased $54 million or 15% in fiscal 2008.

The weaker U.S.

dollar contributed 4 percentage points of this growth, and incremental advertising for recently acquired brands accounted for 5 percentage points.

Underlying growth in advertising promotion investments was in line with our underlying revenue and gross profit growth of 6%, and is consistent with our long history of investing in our brands.

Throughout the year, we worked to optimize our allocation of resources, particularly with advertising promotional investments, directing our spending to areas that we believe are the most relevant to the consumer in today's economic environment.

For example, efforts to expand our in-store presence have received incremental attention and resources, though we continue to seek to maintain a balance between investing and brand-building programs which have the potential to generate a more near-term consumer response, and investing for long-term awareness, such as image building methods like advertising and event marketing.

Selling general and administrative investments were up $56 million or 10% on a reported basis.

6 percentage points of this increase was related to our fiscal 2007 acquisitions, and 1 percentage point of the increase was due to the weaker U.S.

dollar.

Adjusting for these, the underlying increase in SG&A was 3%.

Our ability to leverage the past several years of significant incremental investments in SG&A, in support of our global route to market efforts, contributed to our operating income growth for the year.

Our effective tax rate of 31.7% for fiscal 2008 was in line with our fiscal 2007 effective rate.

Cash flow from operations for the full year was $534 million.

We used this cash to repurchase $223 million of our stock, we paid dividends of $158 million, and we funded capital expenditures of $53 million.

In March of this year, our $350 million 3% bonds matured.

We refinanced this under a commercial paper program during one of the most difficult liquidity periods in recent memory, and we took advantage of a lower floating rate environment.

Our average commercial paper rate was 2 1/4% at year end.

We were pleased to maintain our high investment grade credit rating, and missed the backdrop of the current credit environment.

As in the past, we intend to continue to use our strong cash flows to invest behind our exceptional portfolio, repay debt, seek complementary acquisitions, and evaluate opportunities to return cash to our shareholders.

A few brief comments on our fourth quarter.

The sources of growth for the fourth quarter were consistent with the drivers of the full-year results.

These factors, coupled with the operating expense leverage, driven mainly by a decline in SG&A investments in the quarter, drove fourth quarter underlying operating income up 12% over the prior-year period.

As we mentioned in our outlook provided at the end of the last quarter, we expected a reduction in our tax rate for the fourth quarter, but it was even lower than we had anticipated at that time, based on the timing of an effective settlement of a tax uncertainty in the quarter.

For fiscal 2009, we expect a higher effective tax rate, driven primarily by the absence of the fourth quarter tax settlement benefit.

Our forecast for this rate is between 32.4% and 33% for the full year.

Now turning to our fiscal 2009 outlook, building on the excellent 2008 results our fiscal 2009 outlook incorporates expectations for continued solid international growth, and in the U.S., improving trends for both Jack Daniel's and Southern Comfort ,along with healthy growth from the Casa Herradura brands.

Additionally, anticipated increases in raw material and fuel costs, as well as continued leverage from prior-year SG&A investments, are incorporated in our 3% to 10% operating income growth expectations for the year.

This outlook also reflects our expectations for a higher effective tax rate, the benefits from the fiscal 2008 share repurchase and lower interest expense.

Putting it all together, we expect diluted earnings per share to fall within a range of $3.73 to $3.98, representing a growth of 5 to 12%.

That concludes our prepared remarks.

Paul, Jane and I are now happy to answer any questions anyone might have.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Lauren Torres with HSBC.

Good morning.

Good morning.

Good morning.

I'm not sure if you touched upon this in your prepared remarks, but I was hoping you could give us a sense of some of your fourth quarter trends, particularly behind Jack Daniel's and Southern Comfort.

Are we seeing more of a slowdown here, a little bit better improvement, much of the same?

Just to kind of give us a sense of how some of these trends are going in the U.S.?

That would be helpful.

Thanks.

Lauren, I think that the fourth quarter in the international side was - continued to be strong.

I think Don mentioned we reported 8% for the full year on all international markets.

The U.S.

was -- maybe the thing I cite the most is the U.S.

Nielsons, which I think really obviously focused on the off-premise, where we were able to see through the course of the last three months some nice improvements in a channel where we had been starting to focus since late last year.

So we've begun to see some improvements there on the Jack Daniel's brand.

Southern Comfort about the same, though.

Okay, and if I could also ask about some of your expenses in the quarter.

It seems like SG&A, as you mentioned, you were able to pull back a bit there.

I was just curious, looking into fiscal '09, how we should think about these expenses?

Is it ongoing?

Or was it just a little bit of belt-tightening in the quarter that we may not see in fiscal '09?

Lauren, this is Jane.

As we mentioned in the third quarter conference call, we were expecting to have leverage, which you did see come through in the fourth quarter.

It is some general belt-tightening that you saw, like everybody else probably is doing, too, with the difficult economy and so forth as is being experienced in the U.S., so less meetings, less travel, things that have nature.

We do expect to have continued leverage next year in fiscal '09, so you should expect to see - not exactly the same trends but certainly low increases.

Lauren, particularly associated with some of these distributor -- distribution investments we have been making in prior years, it just - we just haven't had as many opportunities to make those long-term investments in distribution infrastructure last year, and as we look at this year we are not seeing it as well.

There are a few spotted examples, but not like some of the investments we've been making in prior years.

So that's a part of the source of this leverage as well.

If I could just lastly ask about advertising, also along the same lines, in light of some tough conditions here in the U.S., is that somewhere you may think about pulling back, or are you still pretty dedicated as far as the investments then that we have seen in the past carrying through this year?

Lauren, I think what you will see, you are seeing an aggregate number, and we aren't pulling back in advertising for next year, as we have typically done historically, and [it's] in line with our revenue growth, and we will continue to do that.

More importantly, where we are looking to invest is in many different avenues.

In other words, we may be shifting money to the markets where they are more responsive to the incremental spend.

We may be doing all these things, and shifting money from I guess more consumer-responsive advertising type of things.

So you will see that but you will see that our advertising plan for next year is in line with what our revenue growth is projected to be.

Yes, I think that - maybe it's the best example of it.

Some of these more rapidly growing international markets, I mean we're continuing to spend nicely behind them, particularly at the A&P level but also some SG&A, whereas places like the U.S., I mean I think we talked about it over the last two calls, where we have really shifted the focus from - particularly from on-premise to off-premise because of some of the shift we have seen at the consumer level.

So those are examples, some of it being - I mean the story being deep down into, I think, a combination of brand market units, is the way we think about it, where you really want to feel the ones that are not having some of the economic conditions that the U.S.

is, and some places, particularly Finlandia, Jack Daniel's, in a lot of these international markets, a lot of these developing brands continuing to get very nice investments behind them.

We are just trying to be appropriate to what we are seeing out there in the environment right now.

Okay.

Thank you.

Your next question comes from the line of Tim Ramey with D.A.

Davidson.

Tim?

Tim, your line is open.

We aren't hearing him.

Your next question comes from the line of Bryan Spillane with Banc of America Securities.

Brian?

Those of you here, we're checking on him.

It sounds like we have some sort of a technology problem here.

Brian, your line is open.

Hello?

This is our favorite call so far.

[Laughter]

Your next question comes from the line of Dara Mohsenian with JPMorgan.

Hi, guys.

Can you hear me?

Got you.

Got it.

Do I get to ask triple the number of questions now?

[Laughter]

Sure.

I know you guys just answered this on SG&A, but I just wanted to follow up on that for a minute because the SG&A leverage was really strong in the quarter, down sightly year-over-year despite the 7% adjusted sales growth.

So it just some belt-tightening there, and cutting back on some discretionary expenses, or is there specific cost savings programs you guys have put into place?

I just wanted to get a little more clarity on exactly what was driving that?

This is Don.

That's really all it reflects, is some of the belt-tightening that we have doing around the corporation, and we have got some various programs around that in place in terms of expectations around T&E and what have you.

But there wasn't anything specific that would have driven that in a particular quarter, and a lot of those programs that were put in place were put in place for - not only for the rest of 2008 but for all of 2009 as well.

Okay.

And as you look out to '09, do you think the SG&A leverage versus revenue growth, is that more similar to the full-year '08 type of numbers you guys posted?

Or is it more in line with Q4's run rate?

We are hoping that it will be slightly better than what you saw for the full year.

Okay.

All right.

One thing on this point that is really -- just as we go along, I mean, I hate to take us back well before this fiscal year, but we were making really significant investments in this - basically our international but also our U.S.

distribution infrastructure over the last five or six years.

And one form of - the way I think of it, it is almost like a synergy for us, is over time to be able to get some leverage out of the income statement, particularly as you look down at the SG&A line.

So I don't know -- we don't know what opportunities will unfold in the future for future investment, because there is a lot of possibilities for us, but we made a serious set of investments in very key markets for us over the period of five or six years, that - some of it's timing and we just haven't had as many opportunities.

But over time I think we will make - well, we will still make investments of course in our distribution infrastructure.

It may not be at the rates we were making back in the early 2000s.

Okay.

That's helpful.

And then, given the commentary on acquisitions in the prepared remarks, as well as the share repurchases recently, Paul, maybe you can give us an update on your cash flow priorities at this point, and specifically where acquisitions and repurchases fit in?

The same as sort of Don outlined in his remarks.

It's sort of the core priorities we always have.

Of course, we have debt right now that we are paying down.

We do have capital.

It's not what - in any significant way different than our historical investments in capital.

The addition of Casa Herradura, we have some capital requirements there over the next couple years, we suspect we'll be putting in a little bit of additional capital.

Jack Daniel's is still growing, so that requires incremental investments in capital.

I think Don talked -- we both talked about the dividend program, and we will be continuing to look for a share repurchase opportunities, just as we did during fiscal year 2008.

I think we both at some point in our comments mentioned periodic brand acquisitions.

We -- we were really pleased, as we look back here over the last few years on these, and directly stated in Don's opening remarks about the performance of these brands we have been purchasing, and how they are adding to Brown-Forman's growth rate.

So we will continue to look for the right opportunities to get brands that can not only do well in our hands, but also help us with our continuing growth.

Okay.

I think as we look at - we have a pretty high level of debt capacity.

We will continue to keep that as acquisitions come available.

A lot of the acquisition side of things is more based upon when the seller wants to sell than when a buyer wants to buy.

So we will keep all of that in mind as we continue to think about our capital structure and cash flows, and where we see opportunities to continue to deliver cash back to the shareholders, we will do it.

The one thing, too, that was evident in Don's comments was that the places where we made these -- what we consider to be successful acquisitions, were in areas where Brown-Forman had not been particularly participating, and that's both from a brand portfolio and as well sometimes from a geographic skew.

And so Finlandia is a wonderful example of, being a premium vodka and giving us, I think as we stated this year, 95% of its incremental growth coming outside of the U.S., but the same thing with premium liqueurs, premium chardonnay.

So we will be looking for things that help round us out.

Okay, great.

And then in terms of 2009 guidance, can you guys give us a sense or quantify the benefit you are expecting from currency and also the pressure you are expecting from grain costs?

In terms of the currency, there is very little if any right now that is embedded in our guide in terms of good news or bad news.

In terms of grain costs, if you are focusing singularly on that line item alone, we are estimating at this point in time - of course, corn prices continue to go up, but at this point in time that singular item is about $15 million.

However, what we also do when we think about this, because of the rising costs all over the place, of course, with fuel costs and they hit you throughout your supply chain, we have various things that can offset or mitigate that, from price increases to hedging the actual corn, to different programs that we have going on with -- Paul mentioned of them, some capital investments to improve our costs, to a number of initiatives that we have underway at our bottling and distillery along the maturation process to look at efficiencies and to mitigate some of these rising costs.

Okay.

And following up on currency, are you guys using current exchange rates in your guidance?

Or are you assuming there is not much benefit from currency in '09 versus '08?

We aren't assuming much benefit, and it is not at the current rate.

Okay.

So you guys -- I guess I'm surprised to hear that, because for the full year the average - I would generally expect a weaker dollar to benefit you guys, but based on your regional mix and where exchange rates are today, you don't expect much benefit from currency?

If I were to look at today's spot rates, there is some upside to that.

Again, you said it right.

Looking at the pound in terms of -- you have to look at the full year and where we -- where the pound was last year versus this year, it is actually our largest [exposed] currency.

So you have to take into consideration that, and look at the whole P&L.

Again, if the currency rates in the Euro and so forth continue to weaken, of course, there will be more benefit.

But at this time it's not significant, and in our guidance it's not significant.

Okay.

That's helpful.

Thanks a lot.

Thank you.

Your next question comes from the line of Bryan Spillane from Banc of America Securities.

It's actually Doug Ernst calling for Bryan.

We're having some technology issues.

Just to follow up on Dara's question on guidance, it seems like you gave a pretty wide range for guidance this year, wider than you have given in the past, and it seems like you have pretty good visibility on cost, SG&A, advertising, tax rate, foreign exchange; is the wider range due to your volume expectation or what is sort of driving the wide range this year?

I think the biggest thing is just the general uncertainty out there in the environment, I think more than anything.

Our traditional range at this time, when we provided guidance, is about a $0.20 range, and I think this year it's about $0.25, and it's also a higher base, so on a percentage basis it's not that different.

We just thought it was wise really in the environment we are in, because I think not just in the United States but all over the world, we are in the midst of a really - I would call it a transitional and uncertain time, and we don't know, just like everybody else we are trying to see how it unfolds, and so we thought particularly with a 12-month guidance we'd give ourselves some flexibility.

Right.

Okay.

That's understandable.

And what are you guys expecting -- what does this guidance incorporate for pricing in the U.S.

and international?

We are -- our plans are to continue to take price increases in fiscal 2009 consistent to what we have in past years, at least at the shelf.

And then particular in the United States, depending upon how we see the competitive levels, you know, throughout the year, we will make adjustments in our discounting programs in terms of how frequent or how deep we will go, consistent with what we have talked about in the past.

As we have come into the U.S.

downturn and as things have gotten more competitive, we've had to get more competitive, I think, at the pricing level.

But at least in terms of at the shelf, we will continue to take the same kind of price increases and continue to build our brands consistently the way we have historically.

Particularly in an environment where the costs are high.

Okay, great.

And just one final question.

We are just wondering what you are looking for the U.S., I guess spirits industry volume growth.

In your expectation, are you expecting the industry to remain stable or to increase or slow a little bit next year?

I think as we thought about going out in fiscal 2009, we have seen a little bit of stability, and if you look at the overall total distilled spirits number that you can see in the [NATCA] data over the -- if you compare this year versus last year, there is not a lot of changes, right?

They are right around the 3% level.

We are anticipating that that's going to continue over the course of fiscal 2009.

Okay, great.

Thank you very much.

Your next question comes from the line of Ian Shackleton with Lehman Brothers.

Good morning.

It strikes me that the tone of today, for today's call, is very different to what we saw in Q2 and Q3, and is a much more positive tone.

And I can see obviously that the Q4 beat seems to have come mainly from the international business.

But having said that, is your view of the U.S.

spirits market perhaps less pessimistic than a few months back?

Ian, because we're - I mean, I think a lot of the conversation we were having in Q2 and Q3 was focused on Jack Daniel's, and I would say in terms of the work we have been doing since that time on Jack Daniel's and some of the results we have been seeing, and you have to look at it market by market, but certainly the response we have been seeing to the activities in the United States on Jack Daniel's has us more encouraged than we might have been back six months ago, even though the environment, to be honest with you, is still quite challenging out there.

But I think our effort has been better, and as a result we have seen just better results.

I think it's a different story a little bit in the U.S.

on Southern Comfort.

We are trailing on Southern Comfort in terms of getting the brand positioned and worked and promoted and merchandised in the way we want, but I think that will come as well.

The international continues to be the driver of the company's growth right now.

You can look at -- literally, I tried to list as many markets as I could where we have seen great growth.

And I think we have been -- we had some differing results than any of the competitors, some of which is because we are at an earlier stage of our development still in many of these markets.

But there is no doubt that Jack Daniel's and Finlandia, and it's really the Jack Daniel's family, have really been doing very well in the international markets.

So we will continue to put investments behind that to try to drive the growth of the company.

So I was just wondering as well with some recent industry developments, and particularly the change of ownership of the Absolut brand and possibly firmer pricing for that brand gives you more confidence, for example, around the whole vodka category, and it means to Finlandia going forward.

Do you actually have more optimism on pricing in categories like vodka, looking forward to your fiscal '09?

We have been increasing the price position of Finlandia pretty steadily over the last couple of years.

Our growth rates on Finlandia relative to Absolut have been superior over the last couple of years.

And again, it was off a smaller base, but we have the number one position in many of the important vodka countries, particularly throughout Eastern Europe.

So there was a lot of activity over the last 18 months.

We were able to see competitive activity around Absolut that kind of disrupts the market, as people were working really hard to sell the Absolut brand in-market, it's settling down I would say, and they are about to go into a transition period themselves.

So all we've tried to do with Finlandia is really stay focused in the priority countries by not only taking the price up but also really moving the brand into new areas of distribution.

We've added flavors.

But the consumer takeaway underneath the Finlandia brand has been excellent, and the volumes have been driving the growth more so than the pricing.

Just a final question.

I thank you very much indeed for the additional disclosure given this time, but of course that does always raise questions, and if we look at that table showing depletions versus sales, I mean the one brand we have effectively got a negative net sales per case is on Fetzer Valley, and I guess really the question is, are you optimistic of seeing better pricing coming through in wine as we go into fiscal '09?

Ian, can you repeat that question?

I missed the middle piece of it.

I was saying -- Fetzer Valley Oaks, you actually had constant currency sales growth less than volume growth.

So it's clear pricing there isn't too robust, and my question as you look further out, and my question was to 09', are you more confident of seeing better pricing there?

I think a lot will depend -- that is one of the most competitive category - segments category of the category, and we will play that literally market by market.

Even though there was a slight difference between the constant currency and the volumes, I think that probably more geographic mix than it is any price reductions on the brand.

We have seen relatively stable - if anything, some moderate increases in the price per case of Fetzer, and it's really been a brand that we worked hard to stabilize over the last couple of years.

So we are quite proud of the volumetric growth we have seen these last 24 to 36 months on it.

Thanks so much.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Judy Hong with Goldman Sachs.

Good morning.

A few questions.

First, I'm hoping if you can give a little bit more granularity into the competitive dynamics for Jack Daniel's in the U.S.?

What are you seeing in terms of promotional activity from your competitors, and whether you feel that some of the price increases that you are planning may have to be reinvested back into promotional spending?

When you look at what's going on in the U.S., it's hard to get just one general answer because there is a lot of different activities going on in different markets depending upon what -- how hard the economic situation is and what have you.

There is no doubt in some pretty large markets that we have seen some pretty competitive pricing out there.

It's not unusual to see some of the major competitors to - within Jack Daniel's competitive set getting [far below] the normal price differences that you see with the brand, and in those markets it's where we stepped up some more of our competitiveness in terms of pricing.

In other areas of the country, you aren't seeing it as much.

It ends up being a market by market basis.

But you can see it's not - and when you look at the Nielson numbers, since as I kind of indicated before, you can go through and you can see where the volumes are coming from and how much [price accounting] is going on in all of that, and it's definitely becoming more competitive.

So when you talk about '09 and your expectation for Jack Daniel's improved trends to continue into '09, what isn't embedded in that expectation as far as the promotional level is concerned?

I think -- I'm not sure what specifically you mean by the promotional level.

Are you talking about -- because the thing we would cite is we are attempting and have -- as Don mentioned, have been encouraged by these recent results, to drive the net sales of Jack Daniel's at a higher rate during FY '09, and so it's not to simply take the volumes up but lay in a number of higher discounts per case, and that's where we were so encouraged, I think, as we started to look into these more quarterly consumer takeaway numbers, where we saw the proportion of our net sales dollars -- we had what we considered to be a very healthy contribution coming from both pricing and volume, and some of our key competitors had a different mix of that.

And so we will play this literally channel by channel, and market by market.

I think the key thing that occurred in the last three to six months for us was the increased focus we put on off-premise merchandising, promotion and effort to try to get the results, and we expect that to continue.

But what you're trying to get to is, are we going to have significantly deeper discounts to drive volume market share?

The answer is no.

Just to pick up a little bit more on that area.

(From here) Basically our approach in this whole thing is we have a very, very - if you look at Jack Daniel's, we have a very broad consumer base, and to the extent that we have consumers within our base that are getting more -- are getting hit more harder in these economic times, we will try to give them opportunities to continue to be able to enjoy Jack Daniel's and its franchise.

To the extent that we have competitors getting into market share wars and getting into kind of a fight to the bottom, that's not a game that we are going to play in.

So we will take had a look at it at a market by market basis and kind of judge what we think is going on out there and what we think we need to do, but to Paul's point, we are -- our intentions are to stay focused on the top line and top sales growth.

Okay.

And can you give us some - a little bit more color in terms of what's happening in the on-premise channel?

This is a channel that we hear a lot of challenges from lower restaurants and bar sales.

I'm just wondering what's going on just from a broader on-premise perspective, and specific to your brands in the on-premise channel?

In looking at some of our most recent information in the on-premise, we are still seeing declines at the on-premise level, and we're seeing that being more than offset at the off-premise level.

Just looking at some of the things that you see in the general press about what's going on with some of the casual dining, clearly people are continuing to stay home more.

There is more -- I think we are seeing more of this consumer behavior where people will, particularly in the elevated 29 age segment, will start out at somebody's house and having a few drinks before going to the on-premise, and you're seeing some of that dynamic hit as well, and our expectations are that we will probably continue to see that during the course of the next year.

One other factor, it will be interesting to see how it unfolds, is that some of this softness in the on-premise actually began around this time last year.

So we will begin to cycle some of the U.S.

on-premise softness to see if it flattens and stabilizes, or if it continues.

So that's still left to be seen.

BUt this period of on-premise softness isn't recent.

It's been going on now for the better part of a year.

Okay.

And then on commodities, I know you have given us some quantification of the grain cost pressure for next year.

Do you have any expectation for glass costs?

Glass costs, we are expecting for us just to be more in the inflationary range at this point.

We actually have a contract on our glass costs that is more - puts us more in an inflationary range.

Okay.

And then my final question, just in terms of the U.K.

market, following the duty increase in March, are you seeing any negative impact from that tax increase?

Not yet.

Is your guidance expecting some softness as a result of the duty increase?

No.

Okay.

Thanks so much.

Thank you.

Your next question comes from the line of Thomas Russo with Gardner Russo & Gardner.

Hi, Paul, congratulations on the great numbers, especially the international numbers coming through with such strong performance, and the leverage from the SG&A spend that you have been placing into the markets for so many years now, it's great to see that coming through.

Thank you.

You bet.

The Jack Daniel's depletions, especially in the international markets, what carry-through do you see?

What's the health of those markets, and Judy just mentioned England in particular, where I was delighted to see that you crossed the 1 million case threshold, what's been driving that growth in an otherwise somewhat sluggish market?

Actually, we were thrilled as well with our U.K.

performance.

Tom, just to clarify, we are just short of a million, but we will cross it here soon.

But I think we really bucked the trend in the U.K., I mean it's been a pretty challenging overall spirits environment there for the last year, year and a half, for a large variety of reasons which have been out in the press.

So I think a big piece of it is we have been there for a long time.

It's ne of the strongest countries for us in terms of just the depth of the brand equity.

We are skewed very heavily to the on-premise in terms of our business, and we just continue to be one of the dominant distilled spirit brands in the U.K., and have plans to continue to grow it.

I think the rest -- we sort of cited so many countries as we went through because we were pleased with the breadth of where Jack Daniel's is really developing, and it's really all over the globe.

As with any of these, when you report a single fiscal year, you will have a few markets that are up more than others, and some that actually might have a soft year.

But what struck us this year was just the extreme diversity of appeal of Jack Daniel's, and even off some of these really smaller bases in places like India, where the company and brand is starting to grow, we saw good growth this year coming back in Korea, out in north Asia.

Of course, everyone has been talking about Eastern Europe, in Eastern Europe we are doing really well, and not off of small bases anymore on Jack Daniel's.

So we are really encouraged.

This is also the first year we have seen a significant step up in the business down in Latin America as well.

It really stepped forward, so we have some hopes for down there down the road as well.

So just it was a broad base year for the growth of Jack Daniel's, and in addition to just the volumetric gains we posted, it was just also the confidence it gave us that there is a lot of growth still ahead.

Legs to run on.

That's just terrific.

Paul, you mentioned -- you made a comment which was the benefit of your adaptive company of - the adaptive capacity of your employees and your partners, and then you talked about two specific partnering events.

One was Mexico, but it seemed like it might be the non-Jack portfolio.

And then the U.S.

was partnering with Remy and with Bacardi.

I'm curious about both those endeavors?

I will start with Mexico.

We were partnered with Bacardi down there on the non-Tequila brands, and have for the last several years, and have done a nice job, but when we made the investment down there we wanted ample time to integrate the business before we took on the responsibility of building the other Brown-Forman brands, so about a year was right, and so we are making that transition literally as we speak.

And we just think it will be a great platform from which we can put increased focus behind Jack Daniel's and Finlandia, Southern Comfort, some of other other brands, and just like we've seen in other markets where we have done this, most recently here, Poland, you do get a great benefit when you are able to apply your own people's focus behind the brand, so that's our hope down in Mexico.

And the U.S., it was - really was to provide some stability for not only ourselves but also for our key distributor partners, by bringing together three independent companies who have similar philosophies in terms of brand building to form a division really within a couple of these U.S.

distributor partners, and then get to work.

So we can bring a very complimentary and strong portfolio so we can go out and compete even more effectively against some of the key competitors that are larger than us.

So I think on paper is really where it - when we started to talk about it, it really became appealing to all three of the companies, and now we are really still in the pretty early stages of its implementation.

The New York market is probably - was the first market we did it, and so we will be paying close attention to how it works in New York, as we think about doing some of the stuff in other markets.

But presumably in New York, the distributors who now see all three of your products will have more clout in market.

Absolutely.

And the idea would be both in the on and off-premise channels to be able to find -- use the whole portfolio to go in and have more influence with the retail environment.

And then to remember also, it won't be the sole effort on behalf of each of the company's brands.

We will continue to have and to supplement that effort with Brown-Forman's regular brand building in the New York market.

I see.

And then just to confirm, in Mexico you will have Jack in your portfolio that goes now through the Herradura channel?

Absolutely, as well as Finlandia and other Brown-Forman brands.

Thank you very much.

Great numbers.

Thank you, Tom.

Mr.

Graven, there are no further questions at this time.

Are there any closing remarks?

I do have a couple of quick comments before we end the call.

First, for those that are New York-based and planning to attend the Belmont, the third leg of horse racing's Triple Crown, we encourage you to enjoy a Woodford Reserve Manhattan.

We are proud to have the opportunity for Woodford to sponsor - to be the official bourbon of the Belmont.

And then finally for those of you I haven't spoken with over the last few weeks, I will be moving into a new role at Brown-Forman, leading our technology organization and initiatives, and while I am looking forward to this opportunity, I will certainly miss working closely with you all.

Ben [Marmer] has been named the new Director of Investor Relations effective June 1, and he and I will be working very closely for the next several weeks on transition items, and to give Ben a chance to meet many of you.

So thanks for joining us here on call, and we will be available this afternoon to take any follow-up calls you have.

That ends our call.

Thank you all.

This concludes today's Brown-Forman fourth quarter fiscal 2008 year end conference call.

You may now disconnect.