Brown Forman 2Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Whiskey consumption has been in long term secular decline

“let’s go back to 1970s and look at how many cases of American whiskey were sold at that time, it’s about 100 million cases. That’s when the consumption of American whiskey actually peaked.

We’ll fast forward it to today where there is a 40-year secular decline in the category. It was roughly cut in half, so it’s about 50 million cases. If you look at the U.S. population of legal drinking age at that time, it’s grown about 50%, meaning the per capita consumption of American whiskey has fallen by almost 70% over that period. So, we were witnessing an inflection point in the U.S. American whiskey around 2010 where we really saw consumer interest in the category reignited.”

craft distilling and changing taste profiles have helped spur demand

“when we look at what we think is the cause of this renewed demand, of course, there is multiple factors, but I’m just going to mention a few. One, is the rise of craft distilling, which is led by our own Woodford Reserve, the consumer interest in heritage and authenticity, and what appears to be vodka fatigue.

I’m going to focus on another factor I’m calling a fourth factor today, which is the important as the flavored whiskey. So, in 2013, in the U.S. the flavored whiskeys accounted for about 45% of the American whiskey volume growth.

Looking at what drove that was definitely demographics played a major role in that with increased interest from women and minorities based on their changing taste profiles and preferences, as well as convenience.

I can speak to this. I have a couple of millennial kids myself, but I know I probably taught them to like things that tasted differently, but millennials definitely have grown up with many different flavor offerings whether it’s cereals or soda or water or juices. So they now expect to have all kinds of choices and tastes and they want great tasting things.”

We have one of the highest tax rates of our competitors

“I think we have the highest tax rate of all of our competitors’ business and something that we’ve been very, very focused on and looking for smart ways to reduce our tax rate. And, of course, one of the biggest ways is to continue to grow your business outside the U.S. like we have been”

Marijuana legalization is a threat

“you occasionally have things like a U.S. consideration of the legalization of marijuana becomes a big threat. You try to assess and look at and think about long term. “