Brown-Forman Corp (BF.B) 2012 Q1 法說會逐字稿

Good morning.

My name is Crystal and I will be your conference operator today.

At this time, I would like to welcome everyone to the first-quarter fiscal 2012 earnings conference call.

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

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

(Operator Instructions).

Mr.

Ben Marmor, you may begin your conference.

Thank you.

Good morning, everyone and thank you for joining us for Brown-Forman's fiscal 2012 first-quarter earnings call.

This is Ben Marmor.

Joining me today are Paul Varga, our President and Chief Executive Officer; Don Berg, Executive Vice President and Chief Financial Officer; and Jane Morreau, Senior Vice President, Finance.

Don will begin our call this morning with a few remarks about our quarter, our guidance and recent trends.

Then we will open up the call for questions.

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 due to new information, future events or otherwise.

This morning, we issued a press release containing our results for the fiscal 2012 first quarter.

The 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 be discussing certain non-GAAP financial measures.

These measures and the reason management believes they provide useful information to investors regarding the Company's financial conditions and results of operations are contained in the press release.

And with that, I will turn the call over to Don.

Thanks, Ben.

Good morning, everyone.

This morning, we issued our fiscal 2012 first-quarter earnings release and reaffirmed our expectations for the fiscal year.

In many ways, this is a continuation of the improving performance story we have been seeing over the last year or so.

With this first quarter, we believe there are four key takeaways.

First, we believe the year is off to a good start, particularly as it relates to our net sales and operating income performance.

Overall, we are about where we expected to be on an underlying basis; although the mix is a bit different.

Once again, our geographic diversification played an important role in our results.

Our international sales grew quite well with underlying sales up 8%.

Our underlying US sales growth was similar at 7%.

Together, they netted to a 7% organic growth rate, a notable improvement over our fiscal 2011 full-year trend of 4%.

For operating income, our 7% underlying growth improved compared to the fiscal 2011 growth of 6%.

So in total, we continue to be pleased with this direction in our trends.

A second key takeaway is that our growth continues to be fairly broad-based, especially geographically, as well as from innovation.

I will expand on this more in a moment.

A third takeaway is that although foreign exchange rates improved reported results for our first quarter when compared to the prior year, they are still relatively in line with the rates we use for the fiscal 2012 guidance that we provided in June.

Therefore, our position within the guidance range has not shifted much due to changes in foreign exchange rates.

The last key takeaway relates to our guidance.

Incorporating my previous comments on foreign exchange and considering that the quarter's performance was generally in line with expectations and given how early we are in the fiscal year, we confirmed our full-year guidance of $3.45 to $3.85 per share.

We also kept unchanged our underlying operating income guidance of mid to high single digits.

Let me spend a few minutes talking about our sales performance.

Starting with our international markets, Germany continued its strong growth where we believe we are benefiting from the route-to-consumer change made last year when we began directly selling to the trade in this important market.

We also believe this particular quarter benefited some from a buy-in in advance of an August 1 price increase.

Sales in Russia were also up as we cycled against weak comparisons in the prior-year period where the business was slowed in advance of some route- to-consumer changes there.

Brazil showed strong net sales growth due to a higher realized price due to our route-to-consumer change last year, which enables us to capture the margin we previously paid to our outside distributor.

France, the UK and Turkey all continued to have strong underlying trends and if you look at our emerging markets altogether, they grew at a double-digit rate.

We had experienced net sales declines during the quarter in Poland due largely to a slowing premium vodka category.

Spain continued to show weakness with soft consumer takeaway trends related to the difficult economic conditions.

And also, we saw modest sales declines in Australia, which we believe is largely a result of competitive pricing activity in the market.

Moving onto our portfolio, our performance was led by the strong growth of Jack Daniel's Tennessee Whiskey internationally where the brand saw solid gains with Turkey, Germany and France among the strongest growers.

The brand also returned to growth in the United States where we believe we have the opportunity to further improve the brand's trends.

Jack Daniel's RTDs performed very well for the quarter due to gains in Germany and Mexico, as well as geographic expansion of various expressions in the US, Poland, South Africa and Japan.

Let me spend a little time talking about Jack Daniel's Tennessee Honey.

As you all know, the brand was launched in the US in late March.

It is off to what we believe is a great start and the results so far are encouraging with excellent initial reception from both the trade and consumers.

This brand is playing in an exciting and emerging category within the US spirits business.

Internally, we have debated what we should actually call it -- the flavored whiskey category, the flavored brown spirits category, but what we do agree on is that, thus far, it has been exciting for the Jack Daniel's trademark and for the US business.

According to the latest Nielsen trends, in its first four months of sales, Jack Daniel's Tennessee Honey was larger than the four-month sales for Evan Williams Honey, Wild Turkey American Honey and Red Stag combined.

Nielsen data also reveals that Tennessee Honey is driving most of the growth of the Jack Daniel's trademark in the US.

To illustrate, last year in the first quarter, the Jack Daniel's Family Nielsen takeaway for net sales was a minus 1%.

Using the same Nielsen source for this year's first quarter, the Family was up over 10%.

All expressions -- Jack Daniel's Tennessee Whiskey, Gentleman Jack, and Single Barrel -- are all growing and have all shown acceleration in Nielsen versus last year's first quarter.

So we are encouraged by the impact that Tennessee Honey is having on the rest of the Jack Daniel's Family.

To date, we have seen no signs of significant cannibalization and we believe that the brand has provided a nice halo for the rest of the Jack Daniel's portfolio.

We also believe that the brand is attracting new consumers and new occasions into the franchise.

Let me also provide a little more color on the strength of Jack Daniel's global performance in the quarter.

The Family of brands net sales were up double digits on an underlying basis.

Some of this acceleration in growth is a result of expanding our RTD offerings, our continued geographic expansion and the initial success of Honey.

Some of this performance was specific to the quarter.

For example, we did experience some retail inventory build in advance of certain price increases.

There were some markets, such as Russia, with soft comps and we believe we are towards the end of the initial distribution push and trial phase of Honey.

Thus, over the balance of the year, we do expect some moderating trends in give back around the world for the trademark.

All of these factors have been considered in our guidance.

Looking at other aspects of our portfolio, performance was mixed as gains for several brands, including Chambord Vodka, Herradura, Sonoma-Cutrer and Woodford Reserve, were offset by declines in some brands, including Southern Comfort, Korbel and el Jimador.

As with Jack Daniel's, we are using innovation as one of the key initiatives to reverse the trends of some of the softer performers.

For example, we are particularly pleased with Herradura.

Last fiscal year, we introduced a new package and performance in both the US and Mexico has accelerated with the first quarter's net sales growing at double-digits.

For Southern Comfort, we continue to see good growth for its lime flavor extension and we are about to launch a pepper version in the US in a partnership with Tabasco, another iconic Louisiana brand.

In addition, we are introducing lime and RTD extensions into new overseas markets and we have other plans for the future, both in terms of flavor expansions, as well as additional geographic development.

So in summary, we are off to a good start.

Our international growth continues with an 8% underlying first-quarter performance.

The Jack Daniel's Family of brands performance has accelerated and based on this first-quarter performance and recognizing how early we are in the fiscal year, we are reiterating our guidance of $3.45 to $3.85 per share for the year.

So with that, let me open the call for any questions.

(Operator Instructions).

Vivien Azer, Citigroup.

Hi, good morning.

My first question has to do with the top-line growth.

I am wondering whether you could quantify for us what your sales growth in the quarter would have looked like ex the sell-in of Honey?

Sure, Vivien.

We don't really disclose on a brand-for-brand basis, but I think when you look at that overall top-line growth, a few points did come from all of the different innovation that we have been doing around the globe and I'd think about it that way.

Fair enough.

I have been really impressed with the category growth that we have been seeing in Nielsen for bourbon and the acceleration that you guys highlighted in your own results.

I am just wondering does that at all change your outlook for your growth in the US that you talked about last quarter.

Well, Vivien, we think it is a help.

Clearly, depending upon how you are measuring the impact of some of the flavored whiskey introductions, that is one, of course, new and exciting area to it, but the ultra-premium and superpremium expressions in what we think are American whiskey and bourbon continue to do extremely well too.

So I think it has been building over the last couple of years and of course, some of the new introductions associated with flavored entries are adding even more fuel to it.

But I mean if you just look at almost any of the metrics around whether it is bourbon or North American whiskey, what you are seeing is they are, in relatively short order over the last couple of years, they have started to compete at or above the level of distilled spirit growth.

Yes, absolutely.

My last question has to do with the investment spending.

It is clearly paying off.

It did come in a little bit higher than I had been looking for in the quarter.

I was wondering if you could help us think about how flexible you are in terms of your investment spending.

If you are seeing it working, can you double-down in relatively short order on kind of -- through television.

I have been noticing a lot of kind of 15 and 30-second spots, which I would imagine are pretty easy to buy.

Just in terms of helping us think about kind of the flow of investment spending for the rest of the year.

Well, I mean the examples you gave are perfect examples of the way we have been looking at it for the last couple of years.

I mean to really look at it to get the intended impact both short and long term, sometimes I think devices like 15s and 30s help.

I mean a lot of what you would have observed here more recently were very much associated with either new launches like Tennessee Honey or just new ideas, new creative ideas to support -- for example, Jack Daniel's had some incremental media in the quarter.

But we think a lot of the A&P spending, and it's on a percentage change for the first quarter, it is not likely to repeat itself through the course of the fiscal year.

It just happens to match up with the launch, which is very normal.

When you are having a pretty good-sized launch like Tennessee Honey, you are going to invest in a lot of ways to support it, which we did starting with the first quarter of this year.

Absolutely, that's fair enough.

Thanks.

Lauren Torres, HSBC.

Good morning.

I was just hoping you could talk a little bit more about this acceleration you are seeing in the US.

Recently, we heard similar comments from Diageo.

They were talking about premium and superpremium brands doing quite well.

Just curious what you are seeing from price points maybe by channel, if you think that this acceleration is sustainable.

I know we still see these high unemployment numbers.

So just curious what you think is really driving this and I guess just thinking out more than this quarter, is this type of growth and acceleration sustainable?

It's a good question.

I mean certainly we have been seeing similar things to what you are referring to.

If you look at some of the NABCA data and you look at what is happening along price points, I mean you do see kind of at that ultra-premium level and superpremium level some of the higher growth rates.

You see a little bit of a mixed bag kind of in the middle.

They are all growing nicely at this juncture.

On-premise seems to be now growing kind of at a 1% rate on a 12-month basis when you look at NABCA.

So it is an improvement.

It is probably not as healthy as what we would like it to be, but it is certainly better than what we were seeing over the course of the past two to three years.

And so that is all very encouraging.

There is a lot of obvious uncertainty out there from the standpoint of what a lot of the things that are happening in the economy today are going to translate to down the road and we do keep our eye on consumer confidence levels and they bounce around quite a bit and they have taken a bit of a dip here more recently.

And so there still continues to be concern on the horizon.

We hope it can be sustainable.

We are obviously coming into the important holiday period here and so we will keep our eyes closely focused on that.

But we are encouraged by what we have seen up to this point in time.

I think I might add just one -- I mean it just feels to us, because these numbers jump around when you look at the on versus off-premise growth.

It just feels better I think in terms of stability of some of this on-premise.

It is not roaring back, but it is better for sure in my view than it was a couple years ago.

It has been slow to come back I think because it has been a few years here that it has been soft and that might have an impact as well on sustained recovery.

All the indicators Don talked about I think have an influence on that.

The other thing that I think is in this US market is the surge of just new ideas and innovation that have come to the market.

And on some level, you have to look at the numbers closely.

You wonder if that is adding to the market, in fact growing the market in addition to just swapping share out between brand trademarks.

And so a lot of the reports over the last several quarters have shown that new products and innovation as a percentage of the total growth have been rising.

So I think innovation can play a role in it.

And of course, you always worry then do you get over -- does the market get stuffed with innovative products.

But I do believe in the last couple of years it is adding to the growth and it's because consumers have an interest in it.

And you mentioned too, we are getting close to the holiday season or the selling season.

So I know we've had rather promotional or high levels of promotional activity last couple years heading into holidays.

Are you kind of concerned that we will see something similar this year or has, in general, for yourself and maybe the industry, have you seen things a bit more rational and you think that is what we will see heading into this holiday season?

It is too early to tell what we are going to be seeing in the holidays, but certainly more recently things have been far more rational than what they were.

One of the other encouraging things is, again, when you kind of look at the NABCA data and you look at what is happening in the price mix arena, there has been a little bit of improvement there.

So I mean overall the industry is growing at around a 4%, 4.5% rate and somewhere around 1% to 1.5% of it is coming from price mix.

We think a lot of it is coming through mix based on the comments we were talking about earlier in terms of starting to see some of the improved trading up.

But it does look like it is a much more healthy environment than what we were seeing a year or two ago where there was some pretty heavy promotional discounting going on.

Great, thank you.

Tim Ramey, D.A.

Davidson.

Good morning.

I was hoping you might give us a little bit more color on the decline in gross margin.

I would have -- and anything can happen in a given quarter, I know -- but over time, I assume that the sale of the Hopland winery assets will be positive to mix on gross margin.

Can you give us any more clarity around that?

Tim, this is Jane.

In terms of the quarter, I think it was actually something we signaled at our year-end.

We were starting to see cost pressures coming at us, not only from fuel prices, which have stabilized a bit recently, but higher fuel prices, higher glass costs and higher corn prices.

And so it is coming in that line item on cost and we expected it to pressure us this year despite the fact that you are right in noting that the Hopland brands went away.

But we are seeing higher costs.

We expect it to be sustained for the balance of the year, so we were expecting to have somewhat of a lower I guess gross profit or gross profit margin percent growth.

Got it.

And then also just on the buy-in in Germany, is there any sense of how big the impact of a trade load might have been there?

In terms of number of months or weeks?

I would actually --.

Or just how it contributed to sales growth perhaps.

Oh, it's fairly typical.

It is fairly typical that, depending upon -- it would vary by customer.

And actually the thing I found sort of encouraging about the fact we were disclosing to you all that we had buy-ins was the fact that they were buy-ins in advance of a price increase.

So often times, you all have been curious about the pricing environment out there.

Well, there is one such example where the prices were going up and there was a buy-in.

But I don't have any estimate of number of cases or months or weeks.

Germany alone is not a big deal.

We were trying to signal there was a lot of activity going on in the quarter.

Terrific.

Thanks.

Ian Shackleton, Nomura.

Yes, good morning, gentlemen.

Two questions.

You [signed] off some price increase in markets like Germany.

I just wondered whether you were doing much in the US ahead of the holiday season because I guess you would have to be moving now really.

The second question is, from a wholesaler sentiment point of view, I guess we have heard some talk about wholesalers feeling less confident in the last few weeks.

Are you seeing any adjustment to their stock levels?

As it relates to pricing, we have seen a little bit in the United States market-by-market and in some instances side-by-side.

There are a few where, just because of competitive activity, you have seen a little bit more discounting.

I know for a fact though the tequila business for el Jimador's experience, it's just really competitive in terms of pricing in a lot of the key markets for tequila.

So it can vary brand-by-brand and I think even within brand sometimes by size as a lot of retail activity skews sometimes to the larger sizes.

But versus a year ago, we are attempting to find more opportunities to get those front-line prices up where we can get them, but we are not in an environment where you can take just what I'd call wholesale large percentage price increases we would have all seen in the mid-2005, 2006 type period.

I will let Don comment on the distributors -- we just had a distributor partnership meeting here a couple of weeks ago where we had -- and then we periodically do this and I would have gone totally the opposite way from what you were picking up in terms of their enthusiasm.

Now it may have been they were really excited about some of the new activity that we have been putting in the market and innovation, but just generally we felt like they were observing a little bit of a bounce in the on-premise, they were feeling okay about the business.

They also would declare it is really competitive out there, as it always is.

But I wasn't picking up in my conversations with them any waning sentiments about the US and I will let Don speak --.

I would agree with Paul.

I haven't heard anything that would indicate anything other than a fairly nice level of confidence actually and if anything, we have actually seen at the distributor level a slight pickup in their inventories, which I am not sure if I would attribute that to confidence coming in as the holiday period coming up or if it is just kind of normal course of business.

It is probably more the latter than the former, but certainly we are not hearing any kind of voices of concern out there.

Of course, our inventories would be up just to get the introduction of Tennessee Honey.

I mean it is just a new product they didn't have last year and with some of the innovation at times you are putting in a little bit in advance of the introduction anyway.

So with our Company, I think this year they would have a little higher inventories because of the introduction of Tennessee Honey.

And just to be clear, I mean those comments that we are making at that distribution tier, any of that impact comes out in our calculation of underlying sales.

So when we report overall underlying sales of 7%, that already excludes any of those inventory impacts at the distributor level.

Okay, thanks for that.

And just one other point, you may have answered and unfortunately you broke up for us.

But on E&P for the year -- sorry -- on advertising for the year, are we expecting a more normal increase?

Presumably the Honey uplift will be there for a couple of quarters, but will start to mitigate as we go into the second half.

That's a correct assumption, yes.

Good.

Thank you very much.

Ann Gurkin, Davenport.

Good morning.

I wanted to start with Australia.

Can you give me any more detail about volume, price mix, pricing, anything else?

Sure.

On the overall sales, our price mix was about 1.5 percentage points.

We think it was mostly mix and then the rest would be volume.

That is gearing against the 7% underlying net sales rate.

That's for the whole Company.

For the whole Company.

Were you asking specifically about price mix in Australia?

In Australia, yes.

Okay.

We broke up, so I think I heard it the same way Don did.

I mean I would have to go look to see what price mix was in Australia.

We can talk a little bit about -- I mean part of it is we had taken some pricing down in the Australian market and so that would have had a positive impact on price, but that is a really competitive particularly RTD market.

So I think part of the impact there is just reaction to the price increases that we were taking back in the spring.

And as always with a particularly competitive marketplace like the Australian RTD, you look at that and see what you can do to do your best balancing of price and volume.

We do that in every market everywhere, but it just had a softer quarter as a result of that.

Okay, great.

And then with respect innovation, can you help me understand how you think about pricing that innovation versus the underlying brand?

Are you going to use pricing?

Will you increase prices on innovation to kind of raise the bar?

Can you help me understand that strategy?

I will tell you there is a couple of different influences and I don't want this to sound like a copout, but it really varies expression by expression and it will be dependent a little bit on pricing, somewhat on formulation too.

Often times, some of the innovation can be at lower proof levels than the parent trademark and that does, of course, have an impact on gross profit.

When you move into where a lot of the RTD innovation has been, of course, you have got I mean a really different sort of price/volume relationship there and you have to look at it a couple of different ways.

That is why in our schedules, we provide it on a 9 liter and an equivalent basis.

So there is adjustment factors we make around the world for per case profitability and actual what the size of the business is.

So we are looking at that regularly.

I mean we try -- because any time, depending upon the line extension, you are always sensitive to whether or not you are going to be cannibalizing.

So in your efforts in formulation or putting the product out in the market, you want it to be either at worst neutral or at best for you, particularly with these premium line extensions, you want it to be favorable to the extent that somebody trades an occasion from the parent.

So we look at that awfully close.

But I would say it varies depending upon the trademark and whether it is a full strength or an RTD.

Got you.

Our experience -- companies that innovate bring out great new products, kind of use that often to raise the pricing more, to improve the mix and so I was just curious if (multiple speakers) your philosophy.

I will give you an example.

The Jack Daniel's Tennessee Honey in the United States is a 70 proof product versus the Jack Daniel's Tennessee Whiskey, which is an 80 and they are line priced.

It will vary market-by-market, but they were targeted to be line priced with one another.

So that will give you an indication that you have got a favorable overall cost structure basically at the same price.

So that does improve mix between the two.

Fair enough.

And then the domestic spirits industry for the calendar year, do you think it should be up in the range of 4% to 4.5%?

Is that a fair target?

At the sales dollars or volumetric?

Domestic volume for the US spirits industry.

Volumes, that sounds -- I mean it just sounds -- if I could pick it up from what I've been seeing in terms of numbers, but maybe dollars.

It will depend -- we look at a bunch of different sources and we have been seeing -- it always depends on what the mix of activity is here in the last four months, whether it is more premium or less premium.

But my guess would be something in the 4% to 5% range on dollars for the industry would be great.

And in that, that 1%, 1.5% mix, is that fair?

I mean I would have to study it.

But yes, if you go back on it, we have still continued to see benefits from mix and pricing slightly above the volumetric growth.

That's great.

That helps.

Thank you very much.

Kevin Dreyer, GAMCO Asset Management

Hi, good morning and congratulations on the strong top-line growth.

I was just curious if you could quantify at all the impact of the pipeline fill of Tennessee Honey in the quarter.

Let me just answer it this way.

There's a couple of different ways we think about it, most of which we don't disclose.

I mean what I will say on it is that the inventory build between -- that we would be taking out and the data we provide to you, Tennessee Honey is captured in there.

And those would be the initial inventory builds at the wholesale level that we would strip out between our reported top-line growth and our underlying top-line growth.

So all of our estimate of that pipeline build is in there and we don't disclose what kind of estimates we would be making on retail inventory.

Okay, fair enough.

Also, just at the consumer level, curious, especially towards the end of the quarter in July, in late July and maybe early August, are you seeing any change at all in the US consumer?

Maybe in the on-premise, are people pulling back at all?

Obviously you seem pretty positive about your overall US business.

Well, it just started to improve here in the last few months, so that is why you are picking up in both our reported results, but also maybe in our tone.

I mean, for us, I would have to comment on us.

I think part of this is we are participating in something that the US segment -- the US distilled spirits industry had been seeing prior to us.

And so we were actually, in my view, in some ways, playing catch-up to where a couple of our competitors were out in front of us.

And we are really pleased that we've so far got some initial good reaction to this what I will call just interest in varied drinking occasions and flavors are playing a big role in that.

And the consumer and trade both seem kind of interested in this area, so that is why we talked a little bit about it.

The thing that I find most encouraging about what we are seeing from Tennessee Honey is why we have actually had a hard time defining one specific segment for it is that it is really tapping into a range of ways that the consumer is using it.

Meaning it is basically being consumed both straight and mixed.

Who is using it?

We are getting a wide variety of demographic interest in the brand.

Even where.

It is both on and off-premise so far that we have seen and I think it will be interesting to see as the months go on, I mean one thing that has been encouraging to us is that we introduced a whiskey-based product in the warm weather months of the US.

And it will be interesting to see -- normally people would skew whiskey-based products toward the cold weather months.

So it is almost having some success in some ways from -- people might have stereotyped it as being seasonal.

This is a counterseasonal introduction and it has done pretty well.

So, so far, it is showing great range, which means it may be tapping into a lot of different occasions and a lot of different consumer segments and we will just have to see where it goes.

But it makes it a challenge to say, well, what is this segment.

But it is clearly one of the new things in the last two years in the US that are creating some excitement not just for us, but for other companies as well.

Great, thank you.

Thomas Russo, Gardner Russo & Gardner.

Hi, Paul, good morning.

Paul, two questions.

The first has to do with an observation.

Last night, I met with a couple in New York who have historically been French wine snobs and they described to me their quest to find yet the next small batch bourbon out of Williamsburg Brooklyn or up the Hudson.

So they also, for some reason, not only case Bourbon, but also they are now singing rye whiskey's praises.

I would have guessed neither of these trends three years ago.

And I wonder whether within Brown-Forman you have any portfolio items that you can sort of use to reposition to address this quest.

Or also just your views in general about the pressures maybe felt by that craft and artisanal spirits category that seems to grow?

It's a real -- I was mentioning earlier the superpremium and ultra-premium expressions are causing a lot -- I didn't segment it down to what I think you are calling the artisanal or the microdistilleries.

There is a lot of action in that area all over the country.

And I actually like to think that Woodford Reserve at Brown-Forman was the original and it is doing very, very well for the Company, both here in the US and in selected international markets.

And at times, we have a Masters collection that is added to that that is tapped into expressions such as rye and other more -- even that would be offshoots of the base Woodford brand that are basically these artisanal expressions.

And so we have had some of that.

We have done it at times with Old Forester.

There are -- I think for a whiskey company, you have to stay alert to these possibilities and it is one that we have been looking at from a variety of different angles.

But we have taken note of both the rye growth in key markets around the US and also the creation of some of these microdistilleries.

So it is something we will always continue to look at.

That area, even through the most difficult economic times, stayed pretty strong, that real ultra-premium and superpremium.

Of course, you always have to make those products well in advance of their time in the market.

So that is always one of the factors for the aged product, but it is a pretty exciting area.

Thank you.

Yes, it is fragmenting quickly as well.

The other question is the Jack Daniel's domestic core bottle seems to have a higher shoulder, a more square expression.

Talk a bit about how that has been rolling out both on-premise and off-premise and what your feedback has been from the trade and from the consumer.

Well, so far so good.

It went out -- it started to roll in the spring and we think it is largely getting into distribution by now.

I mean there is still I am sure depending upon the market, there is still some transition to go, but it is getting out there.

I mean if the first-quarter results are any reaction to the packaging change, I would say it is a thumbs-up from consumers and the trade around the world.

Of course, you can tap into a lot of that these days with social media in terms of just gauging reaction and Jack Daniel's has a wonderful following on Facebook and Twitter these days as well.

And so we can get a lot of feedback and so far, we are really pleased overall with what the reaction has been to that.

You can imagine the Jack Daniel's consumer at the same time had the opportunity to start experiencing Tennessee Honey too.

So I have a feeling that with a lot of people, because that was so new and the packaging changes were in our view just nice refinements to the bottle and label, that maybe Tennessee Honey's excitement overwhelmed a lot of consumers relative to the bottle.

Yes.

And then by reference, the experience of repackaging Gentleman Jack was a huge homerun.

So just sort of phase that against the new bottle because your expectations for what this might do in light of what happened with Gentleman Jack when you repackaged it.

Well, our expectations will be quite different because there was actually a fun article in the Wall Street Journal a little while back that had a picture of all the Jack Daniel's packaging changes going back something like 60 years.

And it was almost like a farce because it had been so relatively unchanged over that time with minor refinements.

The types of packaging changes that we made to Gentleman Jack, and then some of the results we are seeing here more recently from Herradura, were more dramatic in terms of before and after.

And when you have really large changes that you think can be impactful, you will see much bigger trenching, particularly on little brands.

And so I think the scale of the brands are quite different and so is the scale of the change.

Thank you very much.

Mario Gabelli, Gabelli & Co.

Hi, it's good to hear Mr.

Russo's hands-on approach to research, particularly with the French drinkers.

Paul, as you are looking out over the next three years, one of your competitors is going through a financial engineering, splitting the company into a couple of parts and obviously one of those parts maybe kind of a yummy for some larger corporate entity to consolidate with.

As you are positioning yourself and your thought processes, is that -- the new competitor coming into the market, would that accelerate the growth for bourbon and bourbon-related products?

Or how do you see that and would you need a product extension that you would buy rather than create internally if that were to happen as you are thinking about -- I forget the name of the company.

Actually, the topic you are suggesting here -- actually -- if you think about it, Brown-Forman has always in the marketplace competed with Jim Beam, I mean just directly, not only with individual brands, but -- so the other divisions that are being spun, we didn't focus much on anyway.

So as far as we are concerned, we are going to go to market and compete against -- I mean clearly they are a more focused corporate entity, but in the marketplace --.

Well, let's assume Diageo buys them and let's assume Bacardi buys them, how does that change the game plan for you down the road?

Well, the way I think about it is it is one less direct salesforce in the marketplace perhaps competing against Brown-Forman people.

If a company like that gets integrated in any other company and it sounds to me like that that brand portfolio won't have as many dedicated resources to it as it does today.

So that is an advantage for us.

Paul, I just have to ask, and I am delighted that I have got an insight into some of the new products courtesy of Mr.

Russo.

Thanks, Tom.

Thanks for your interest.

You bet.

At this time, I am showing there are no further questions.

Thank you, Crystal.

We don't have any closing remarks today.

Thank you everyone for joining us and have a great holiday weekend.

Thank you all.

This concludes today's conference call.

You may now disconnect.