Brown-Forman Corp (BF.A) (BF.B) This autumn 2021 Convention Name Outcomes with Transcript

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Brown-Forman Corp. (NYSE: BF.A) (NYSE: BF.B)

Q4 2021 earnings call

06/09/2021, 10:00 p.m. ET

Content:

  • Prepared remarks
  • questions and answers
  • Call participant

Prepared Notes:

operator

Hello and thank you very much for your willingness. Welcome to the Brown-Forman Corporation fourth quarter 2021 conference call. (Operator information) Please note that today's conference will be recorded. (Operation manual)

I would now like to hand the conference over to your speaker today, Sue Perram, Director, Investor Relations. Please go on.

Sue Perram – Director, Investor Relations

Thank you and good morning everyone. I want to thank each of you for joining Brown-Forman's conference call today on Fourth Quarter and Fiscal Year 2021 Results. Joining me today is Lawson Whiting, President and Chief Executive Officer; Jane Morreau, Executive Vice President and Chief Financial Officer; and Leanne Cunningham, Senior Vice President, Shareholder Relations Officer, Commercial Finance and Financial Planning and Analysis.

This morning's conference call contains forward-looking statements that are based on our current expectations. Numerous risks and uncertainties could mean that the actual results differ materially from the results expected or projected in these statements. Many of the factors that determine future results are beyond the company's ability to control or predict. You should not place undue reliance on forward-looking statements, and the company assumes no obligation to update these statements as a result of new information, future events, or otherwise.

This morning we released a press release with our fourth quarter and fiscal 2021 results and presentation materials that Lawson and Jane will briefly review. Both the press release and the presentation can be found on our website under the heading Investors, Events and Presentations. In the press release, we have listed a number of risk factors that you should consider in connection with our forward-looking statements. Other significant risk factors are described in our Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. During this conference call, we will discuss certain non-GAAP financial measures. These metrics, a comparison with the most directly comparable GAAP financial metrics, and the reasons management believes they provide useful information about the company's financial position and results of operations are included in the press release and investor presentation.

With that, I want to transfer the call to Lawson.

Lawson E. Whiting — Managing Director

Thank you Sue and good morning everyone. I am pleased to be here today to make a few comments on our results for this year. It's a bit hard to believe, but with our fiscal year ending on April 30th, we are in the stage of our COVID-19 journey where our results lived and worked for a full year in brand building amid the global pandemic to have.

This year has shown us that we have an agile organization or a resilient company and a caring team that emerges stronger and better from challenging times. Our long-term values, strategic priorities, and primary purpose of enriching life have been our guide and have served us well. I am proud of the way our team reacted in this environment to deliver the results we can share with you today. If you just look at the financial reports we released today, you may not fully appreciate the extent of our accomplishments. In a year like no other, we achieved sales growth of plus 6%, which is in line with our long-term performance. But this year was anything but constant and the conditions were anything but normal.

The pandemic has created unprecedented market conditions and, perhaps surprisingly, a really strong performance in many of our largest markets. At the same time, these results would not have been possible without the resilience, creativity, agility and determination of our employees worldwide. So before I go any further, I would like to thank each and every one of our employees for their continued focus over the past 12 months and for everything they have done and continue to do to rise to the challenge of reshaping the future, caring for everyone take care of others and move the business forward. I am incredibly proud of what we have achieved, and I hope you are too.

So in fiscal & # 39; 21 we focused on the core elements of our strategy to deliver results. We have been empowered by the quality of our brand portfolio, our geographic diversification and the strength of our balance sheet. I'll share a couple of examples. First, we continued our ongoing portfolio redesign efforts by focusing on premium products and innovating in key categories such as American whiskey, tequilas and RTDs. This included the sale of Canadian Mist, Early Times, and Collingwood last fiscal year. This included the acquisition of Part Time Rangers, a regional RTD brand in New Zealand and Australia.

We have also focused heavily on our existing RTD brands, including Jack Daniel & # 39; s RTDs and New Mix, which together exceeded over 20 million cases. And we continue to put energy and emphasis on our Jack Daniel & # 39; s flavors which has resulted in really strong growth, with Jack Daniel & # 39; s Apple alone topping 500,000 cases in the adjusted second year and Jack Daniel & # 39; s Tennessee Honey has surpassed the 2 million box mark and is truly a solid growth driver for the company. Geographically, we have established our own sales organizations in the UK and Thailand, which gives us greater control over our branding efforts in these markets, and we have also initiated plans to set up our own sales organizations in Russia, Belgium and Taiwan.

From an organizational and personnel point of view, we actually switched parts of our workforce at the beginning of the year in response to the shifts in our business due to the pandemic. We invest in teams in Europe that will focus on emerging brands. This is really an attempt to accelerate our growth rate and brands like Gentleman Jack, Woodford Reserve, our single malt scotches and Slane Irish whiskey. And recently we announced the launch of our integrated marketing communications organization, or something we call IMC. And we believe that by investing in IMC we can improve connectivity with consumers, expand our e-commerce skills, fully optimize our brand values, and use our data more effectively. We are confident that IMC will be a growth driver for our company in the years to come as the physical and digital worlds continue to merge.

Finally, we continue to invest behind our business in both capital and branding expenditures to continue our long-term growth of our leading brands. Integrated into our strategic priorities are our environmental, social and governance or ESG commitments, including our focus on responsible consumption and marketing, diversity and inclusion, the communities in which our employees live and work, and environmental sustainability. We believe that our long-term success is inextricably linked to our ability to lead in each of these areas. As a result, we have made significant progress on all aspects of ESG over the past year. From an ecological point of view, we have established the ambitious new sustainability commitments with a focus on climate protection, water stewardship, recycling management and our supply chain.

Given the important role that business has to play in the importance of these issues to our business, we had to drag a line in the sand. So we now have compelling, meaningful quantitative targets that we ourselves will hold accountable. And most importantly, from a social perspective, we are committed to getting better and doing better by building a more diverse, inclusive, and fairer company and community. Internally, this includes 10 new actions by the leadership team to increase accountability and improve the representation and development of People of Color. For the first time, we have tied 10% of the short-term cash compensation of the management teams in fiscal year '21 to our D&I targets. And we're continuing to make progress on our 10 year D&I initiatives, Many Spirits, a Brown Forman. Our 10-employee resource groups and their many leaders, members, and allies are critical to our work. I remember once again that here we are in the middle of Pride month, embracing LGBTQ plus diversity and raising our own awareness of equality and allies.

Finally, from a management perspective, I acknowledge that we are a bit unique in that we are family controlled. However, we firmly believe that our governance system gives us a distinct competitive advantage by allowing us to consider longer-term time horizons and make decisions that will benefit our brands, our shareholders and our organization for generations to come. As you know, we announced in January that our Chairman of the Board, George Garvin Brown IV, was retiring in July and handing over the leadership of our board to Campbell Brown, the 10th Brown family member and second-fifth generation member of this family Function, is passed. I would like to take this opportunity to thank Garvin again, whose leadership has been steadfast not only over the last year but also during his 14 years as Chairman of the Board. It has been a pleasure to work with you.

And when I start to graduate, I would be remiss if I didn't address the tariffs that have continued to have a major impact on our performance over the past year and over the past three years. As you know, the US and the EU announced an agreement in mid-May to suspend the planned doubling of tariffs to 50% on American whiskey by June 1st. We were of course pleased with this development and are still encouraged by the possibility of a complete abolition of tariffs on American whiskey. Meanwhile, however, American whiskey is still facing an uneven playing field and is still subject to 25% retaliatory tariffs. We hope that the US, UK and EU governments can work quickly to resolve the trade problems affecting American whiskey, and potentially threatening other categories of spirits, and please remove all spirits tariffs before the EU tariff scaling break expires at the end of November. Our organization has adapted to a developing world. We know how to cope with changes in volatility and to be successful. Today's results are testament to our shared and continued success and our ability to care for one another, our communities, our environment and our business.

Finally, before I hand things over to Jane, I wanted to take this opportunity to acknowledge her and her 30 year career with Brown-Forman. Jane has been a valued partner of mine since we first had cubicles side by side in 1997. In fact, we worked together most of our time at Brown-Forman as we continued to evolve in the new and expanded roles. I think it's no exaggeration to say that Jane had one of the most successful careers of any Brown-Forman executive. Most recently, she led innovative investment strategies, resource allocation models and corporate transformation efforts that have been instrumental in helping us achieve our ambitions. She was also instrumental in developing our D&I initiatives and discussions, especially last year. She is a true ally. I appreciate the impact she has had not only on business results and our culture, but also on the many people at Brown-Forman who she has mentored and developed over the years. Jane, on behalf of our entire organization, I just want to say thank you.

With that, I'll transfer the call and Jane will walk us through our fourth quarter and fiscal 2021 results.

Jane C. Morreau – Executive Vice President, Chief Financial Officer

Thanks, Lawson, for the words. It is truly an honor and a privilege to have been part of this company for the past 30 years. And I know that you and your leadership at Brown-Forman and the team around the world will take this company to the next level in the years to come.

Good morning everyone. As Lawson said, looking ahead to fiscal 2021, we are very pleased with our strong top-line growth in line with our long-term trends, despite the many challenges posed by the global pandemic. We believe these results reflect the agility and resilience of our people and the strength of our brands, which enable us to deliver underlying mid-single digit revenue growth for the year and an increase over our 2019 fiscal year, our last full year of performance without COVID. , to achieve. 19th

As expected, we saw our revenue growth accelerate in the fourth quarter as we cycled through the initial effects of COVID-19 and benefited from improved consumer confidence in many markets around the world as vaccinations increased and lockdowns and restrictions eased. As previously announced, we are continuing to invest in our brands, as evidenced by the sharp increase in A&P in our fourth quarter, reflecting increased support in areas where our business has shown strong momentum and the cyclical trend versus the significant drop in spending last year Year during the first few months of the pandemic.

With this summary, let's review our results for the full year of fiscal 2021. Starting with our topline. Compared to fiscal 2020, our reported net sales increased 3%, reflecting our strong underlying mid-single digit revenue growth and the benefit of a weaker US dollar. These gains were partially offset by a decline in distributor inventory levels in the U.S., which were higher at the end of fiscal 2020, reflecting an increase in response to uncertainty in the early days of the pandemic. We believe that traders' inventories are below their pre-COVID levels due to various challenges in the supply chain.

We saw broad underlying net sales growth across the IMF's geographic clusters in the US, developed international markets, and emerging markets, partially offset by decreases in our travel retail business and decreases in our used barrel sales. Our US business, which accounts for half of our net sales, grew 10%, the fastest growth rate we have seen in the US in over two decades. Our premium brands Bourbon and Tequila as well as JD RTDs contributed to the strong growth. Higher consumer demand, an increased premium mix and the RTD revolution have more than offset the unfavorable channel and size mix shift effects.

Speaking of channel SaaS mix effects, Jack Daniel & # 39; s Tennessee Whiskey was negatively impacted by the restrictions and closings in the on-premise space due to its greater presence on that channel than overall TDS. Even though fiscal 2022 is still early, we are still seeing solid growth in the off-premise space compared to the same period two years ago, even if the on-premise business continues to reopen. In the & # 39; 21 financial year, our US e-premise share was slightly above 2%. While still small, our brands on this channel grew along at triple digit rates, outperforming TDS by 10 points. The pandemic move has transformed alcohol sales through e-commerce and among the peers that change in consumer behavior clings to.

Our developed international markets delivered strong underlying net sales growth overall, which increased by double digits for the year. That growth was driven by higher volumes from Jack Daniel & # 39; s RTDs in Australia and Germany, broad volumetric growth from Jack Daniel & # 39; s Tennessee Honey, as well as the launch of Jack Daniel & # 39; s Tennessee Apple, which in the first Already the size of Jack Daniel & # 39; s Tennessee, Honey was in Europe for the fourth year. These positive factors were partially offset by declines in Jack Daniel & # 39; s Tennessee whiskey, particularly in Spain, the UK, the Czech Republic, partly due to the on-premise to off-premise channel mix as well as a decline in tourism.

Taken together, our emerging markets are reversing the underlying net sales decline from the beginning of the fiscal year and delivering mid-single digit growth for the full year, reflecting volume increases for Jack Daniel & # 39; s Tennessee whiskey in Brazil and Poland, higher volumes of New Mix in Mexico, the launch of Jack Daniel & # 39; s Tennessee Apple as well as the growth of Jack Daniel & # 39; s Tennessee Honey, both primarily in Brazil. These positive factors were partially offset by the decline in Jack Daniel & # 39; s Tennessee whiskey in a number of other emerging markets, declines in tourism and consumer trades, lower volumes of our full strength tequilas in Mexico, and broader declines in Finlandia, particularly in Russia, reflects and Poland. Finally, as expected, our travel retail business declined over the year, driven by lower volumes across the portfolio caused by the decline in air travel and the shutdown of the cruise business.

Well, I thought I'd share a few brand highlights for the year with you. The penchant for convenience and home consumption resulted in exceptional growth in our FTE portfolio and our Flavor whiskey brand. Globally, Jack Daniels RTD exceeded 12 million cases and New Mix exceeded 8 million cases. Notably, we sold approximately 5 million additional FTE cases during the year. Jack Daniel & # 39; s Tennessee Honey totaled around 2.1 million cases and our flavor whiskey portfolio grew to 3.3 million cases, adding another 500,000 cases for the year.

Our portfolio strategy continues to serve well as the premiumization trend that has persisted for over two decades accelerated in fiscal 2021, especially in developed countries, resulting in double-digit underlying net sales growth for Woodford Reserve Old Forester, Herradura, Gentleman Jack, GlenDronach and Benriach. Of our portfolio, Jack Daniel & # 39; s Tennessee Whiskey was hardest hit by the pandemic due to its size and overall exposure to travel retail as the brand saw a decline in underlying net sales over the year.

Now let's turn to our gross margin, which decreased 270 basis points and increased our underlying gross profit by 3%. Higher input costs, mainly driven by increased costs for agave and wood, as well as lower fixed cost absorption that Tennessee Whiskey predicts, resulted in gross margin declining by approximately three quarters. The rest of the change was due to negative channel and portfolio mix shifts.

Switch to A&P investing. As mentioned in my opening remarks and discussed on our conference call last quarter, we increased our spending significantly in the second half of the year, particularly in connection with our global Jack Daniel & # 39; s Make-it-Count campaign, the Woodford Reserve spectacle of the census campaign and the do it campaign for Herradura. And finally, the derby took place on May 1st this year. So we made investments in the run-up to the race.

We have strategically invested behind our business to propel ourselves forward and build on the momentum we've seen over the year, which resulted in our underlying A&P increasing 2% for fiscal 2021. Our underlying SG&A investments were unchanged as higher compensation-related costs were offset by tight management of discretionary spending, including hiring and travel stops due to the COVID-19 environment. Overall, we increased underlying operating income for the year by 4% and report that it was even stronger due to the gain on the sale of Canadian Mist earlier in the year. Combined with a decrease in our effective tax rate, this resulted in diluted EPS growth of 9% to $ 1.88 per share, including the gain of $ 0.20 on the sale.

And finally to our outlook for the 2022 financial year. We look to the future with optimism and expect the operating environment to continue to improve, especially as the countries and countries that are heavily dependent on tourism continue to recover and a certain amount of business and private travel will take place over the global travel retail channel is resumed. From a qualitative point of view, the pace of recovery is of course unknown at this point and will vary from country to country depending on the state of the pandemic, vaccinations and reopening. Due to these factors in connection with an unusual comparison with the previous year, we expect a volatile seasonality of our results over the course of the year, especially the operating result.

We remain confident in the combined strength of our developed markets and should benefit from the reopening of the on-premise channel and the increase in tourism, particularly affecting Jack Daniel & # 39; s Tennessee whiskey and some of our smaller emerging brands over the past year impacted. In addition, our portfolio remains well positioned to benefit from the ongoing trend towards premiumization of spirits. Overall, we expect strong growth in our emerging markets and in travel retail as we cycle through the effect of simple comparisons and begin to stabilize and recover. In addition, we do not expect our non-core business, mainly used barrels, to have a material impact on our results. We expect some improvement in our gross margin for the full year, driven by a positive channel mix as the on-premise and tourism industries rebound, take advantage of a number of productivity-related initiatives currently being implemented, and begin lowering Agave's historically high costs to reverse.

From a quantitative point of view, we expect both our underlying net sales and our operating profit to grow in the mid-single digits. Likewise, we expect our operational investments, advertising, and SG&A to end up in this area as we continue to invest in our brands to support our sales growth and work towards activating various strategic initiatives, including three new FTE, the expansion of our aspiring brand teams internationally to select markets and an increase in our digital marketing and e-commerce capabilities. We expect our effective tax rate in fiscal 2022 to be higher than the 16.5% last year, largely due to the lack of individual items. We estimate the rate is about 21-22% closer to our operating rate for fiscal 2021.

In summary, while fiscal 2021 was marked by rapidly changing market dynamics and interest in every corner, we achieved strong sales growth that was in line with our long-term aspirations. Our business model remains excellent with an operating margin of nearly 34% and a ROIC of around 20%, both industry leading metrics. We have thoughtfully and prudently prioritized, managed and allocated capital throughout the pandemic, and emerged with an even stronger balance sheet. We remain committed to our long-standing philosophy of capital allocation to initially fully invest in our business, for which we expect capital expenditures in the range of US $ 130 million to US $ 150 million in fiscal 2022. Second, to pay increasing dividends. And third, to look opportunistically for acquisitions that create long-term value.

Finally, as always, we will look for ways to return cash to shareholders in a reasonable and tax efficient manner, including our own assessment of known and proposed tax changes. The amount of time and depends on our assessment of the environment. This recipe has provided our shareholders with an excellent return of 17% over the past decade, and we believe our strategic priorities will help us deliver phenomenal returns over the next decade.

Before we open the call for questions and answers, please join me in congratulating Leanne Cunningham, currently SVP Shareholder Relations Officer, Global Commercial Finance and Financial Planning and Analysis, who will be promoted to Chief Financial Officer on July 2nd. 2021. Many of you probably know Leanne from having served as our shareholder relations associate for the past two years. She is a 25 year veteran of brand performance with extensive experience in both manufacturing and finance that makes her uniquely qualified to lead our global finance organization. As Sue indicated, she is with us today and is available for questions and answers.

This concludes our prepared remarks. We are now taking your questions. Operator, you can open the line.

Questions and answers:

operator

(Instruction manual) Our first question comes from the line of Kevin Grundy of Jefferies. Your line is now open.

Kevin Grundy – Jefferies – analyst

Many Thanks. Good morning everyone. And Jane, Leanne, congratulations to both of you. I want to start with the strength of the US business. Jane, as you correctly mentioned, the 2 year stack, or 2 year average, was exceptionally strong compared to last year. I guess you could maybe spend some time, Lawson too, just talking about some of the building blocks here and the strength you see. I also find it remarkable that you are the second U.S. alcohol company we've heard of since this week that has surprisingly strong off-premise strength, even as the on-premise bounces back, which is remarkable is. Any comments here on overall consumption and consumer behavior and channel dynamics and simply relating them to your expectations for the year would be helpful in my opinion.

Lawson E. Whiting — Managing Director

Yes I mean. OK. I'll start and you can join in. I mean, yeah, I think we were a little surprised at the strength of the off-premise as the on-premise has kind of started to recover. To talk about the on-premise for a second. I mean the data we've seen and we generally use open tables. I know many of you have done the same. It has improved significantly over the past few months where it has been in the red – it went down tremendously last summer, improved a bit in the fall, and then took a nosedive around Christmas time and was in that range of 50 for much of the time % Winter, only improved in the mid single-digit range. So you've had a pretty quick recovery as the restaurants have started to open up and I know that nowadays everyone in the restaurants is talking anecdotal, feeling very crowded and very busy, and so many people want to go out again.

However, the off-premise remains very high. Ich denke, wenn wir uns die NABCA-Daten ansehen, die einige der — unseres On-Premise-Volumens umfassen, meine ich, die Trends haben sich von dem mittleren einstelligen Bereich entfernt, der für die 10 Jahre, sagen wir, im mittleren einstelligen Bereich gewesen wäre vor der Pandemie sind jetzt sehr hohe einstellige sogar niedrige zweistellige Wachstumsraten. Und so hat sich die Off-Premise offensichtlich ziemlich gut gehalten und ich denke, die gute Nachricht zumindest für uns sind die Kategorien, die führend sind – zwei der stärksten Kategorien da draußen, Tequila und American Whiskey, und das ist im Wesentlichen den größten Teil unseres Portfolios. Jane, gibt es da noch etwas hinzuzufügen.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Ich denke, ich könnte etwas hinzufügen, und ich denke, genau dorthin wäre ich gegangen. Sie fragen sich, warum wir so gut abgeschnitten haben? Ich denke, unser Portfolio ist, wie wir das ganze Jahr über gesagt haben, gut positioniert, um von den Trends und der Bequemlichkeit zu profitieren. Wir haben enorm von unserem FTE-Geschäft profitiert. Unser FTE-Geschäft in den USA war sehr solide, und Sie wissen natürlich, dass wir gerade eine neue Partnerschaft mit Pabst eingegangen sind, von der wir glauben, dass sie unser FTE-Geschäft auf ein noch höheres Niveau heben wird.

Wenn wir an die Mischbarkeit denken, die unser aromatisierter Whisky sehr gut abschneidet, insbesondere Honey im US-Geschäft – auf dem US-Markt wegen der Leichtigkeit des Mischens, großartig schmeckende Spitzencocktails wie Tequila, hat Lawson gerade darauf hingewiesen, dass diese Kategorie in Flammen steht. Wir haben zwei der besten Tequilas, an die wir in der Branche glauben, und haben davon profitiert. Und noch etwas, über das wir das ganze Jahr über gesprochen haben, ist der alltägliche Luxus, und das spielt eine große Rolle bei der Stärke unserer Marken, Woodford Reserve, die ein phänomenales Wachstum verzeichnet hat, und Old Forester, die Serie C, die sich hervorragend entwickelt. Und dann. sogar wir haben einige High-End-Ausdrücke in der Tequila-Kategorie eingeführt, von der das Wachstum kommt. Ich denke, wir profitieren von vielen dieser Art von Trends, Kevin, um ehrlich zu sein. Ja.

Kevin Grundy — Jefferies — Analytiker

Das ist sehr hilfreich. Ich werde es weiterleiten, so wie andere Fragen in der Warteschlange. Vielen Dank.

Operator

Vielen Dank. Unsere nächste Frage kommt aus der Linie von Vivien Azer von Cowen. Ihre Leitung ist jetzt geöffnet.

Vivien Azer — Cowen und Company — Analyst

Hallo, danke, guten Morgen. Und ich werde meine Glückwünsche wiederholen. Jane, es war mir eine Freude mit dir zu arbeiten und Leanne gratuliert ebenfalls zu der neuen Rolle. Wenn ich schätze, ist das Gespräch bitte am Rande. Jane, hilfreich, dass Sie einen guten Anteil dimensionieren konnten, 75 % der Belastung der Bruttomarge. Aber wenn wir über die mögliche Erholung von Jack Daniel's in der Zukunft nachdenken können, wie denken wir bitte über die operative Verschuldung, die dazu beiträgt, diese Bruttomarge zu bremsen? Vielen Dank.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Ja, also, ja, nur ein Schritt zurück, wie Sie sagten, wir hatten dieses Jahr einen ziemlich großen Druck auf unsere Margen, und das wurde zum großen Teil durch die Inputkosten getrieben. Das war das größte Stück, das waren drei Viertel davon, also denk an Holz und Agave und ich komme weiter, wenn wir nach vorne schauen. Der wirkliche Mix hatte also nur einen kleinen Einfluss, war nur ein Viertel davon, also 0,06 USD oder so. Und wenn man es ausbricht und auseinander nimmt, ja, ein Stück davon liegt an Jack Daniel's Tennessee Whisky und der Tatsache, dass die On-Premise geschlossen wurde und Jack Daniel's allein in den USA zu den Top 3 gehört -Prämisse Marken. Und so wurde es erheblich beeinflusst und wirkte sich natürlich auf unsere Margen aus.

Wenn wir also wie gesagt auf das Geschäftsjahr '22 blicken und Vivien, auf die Sie gerade Bezug genommen haben. Wir erwarten eine gewisse Verbesserung. Ich werde einen Moment innehalten und die Verbesserungen, die wir erwarten, sind, weil wir erwarten, dass sich einige der Verletzungen der letzten Jahre von Agave umkehren, erst im nächsten Jahr beginnen, und wir können später mehr darüber sprechen, wenn Leute wollen wissen, was wir darin sehen. Aber wir hatten auch eine Reihe von Produktivitätsinitiativen unserer globalen Produktionsorganisation, die im nächsten Jahr umgesetzt werden, und wir haben noch mehrere Jahre, bis sie alle vollständig umgesetzt sind, weil wir nur noch einmal an unser Alter mit den Produkt und wie es in der Bilanz weitergeht. Und dann wird der Mix profitieren, aber es ist nicht das — es sind nicht die riesigen Stücke, wie ich dieses Jahr sagte, ich sagte vom letzten Jahr und wie sehr es weh tat. Mit diesem Willen haben wir einen Moment innehalten und darauf hinweisen wollen, dass wir in unsere Prognose aufgenommen haben und das ist ein ziemlich signifikanter Anstieg der Rohstoffkosten. Die inflationären Rohstoffkosten liegen im zweistelligen Bereich, wie wir dort derzeit prognostiziert haben. Otherwise, we would have expected a better improving margin next year or this year. And we're going to keep an eye on that. By the way is that all consumer products companies are. But right now we feel what we said that we can improve — expect margins to begin to improve in FY '22. And as we look beyond that, we expect improving trends thereafter. As a reminder, tariffs are still in our numbers, are still dragging down our numbers and we're optimistic that that will go away at some point down the road.

Lawson E. Whiting — Chief Executive Officer

Yeah. And I think to go beyond, Vivien, you also asked about some operating expenses. I mean, the A&P line, as we've, I think we've said this before. I would expect that to trend in line with sales. It's a little bit less than that this year because we cut so deeply really in Q1 of last year. But I would expect us to reinvigorate that a bit. And we are, as Jane mentioned in her prepared remarks, really investing significantly behind the Make it Count campaign. And so — and then SG&A also sort of in that mid-single digit growth range as we continue to rebuild and T&E begins again and people travel and business (Speech Overlap)

So another SG&A effort that has been very important over the last few years have started with the U.S., that's our emerging brands group, which we've talked about in previous calls. But pre-COVID, that group was delivering really stellar, high growth rates for some of our smaller brands that are all sort of super and ultra premium price point. We're taking that model and exporting it to a number of markets in Europe and Australia and hope to see pretty strong benefits in terms of portfolio growth from that group. But that's an investment level too.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

And by the way, just to build on what Lawson said despite the on-premise shutdowns largely in the U.S. which are all often on for sure in the U.S. is our emerging brands collectively, working as strong as prior years, but it did grow double-digits. Thanks to the team in the U.S. organization did a tremendous work and pivoted quickly to the off-premise.

Vivien Azer — Cowen and Company — Analyst

That's super helpful. Thanks. If I can just squeeze in a follow-up. Can you comment at all on any changes that you're seeing in the promotional environment in the United States with the reopening of the on-premise, specifically in the off-premise step up in promotional spend from your competitors? Thanks.

Lawson E. Whiting — Chief Executive Officer

Yeah, I mean, I haven't seen much. I mean, I think the promotional intensity actually somewhat let off. I mean, off-premise over the last year as consumers — we've said a few times we're walking into a liquor store, they were looking for the brand that they know and enjoy, and they were buying and taking it off the shelf without being too picky around price. And so, you've seen pockets of increasing price in the off-premise in the U.S. It has not — I'm not sure that it's really changed a lot over the last few months. I think I know we have a bias, an increasing bias and this is more of a global than just the U.S., that we need to see pricing going back up again. And that is a strategy we're going to employ over the next year.

Vivien Azer — Cowen and Company — Analyst

Understood. Thanks very much.

Operator

Thank you. Our next question comes from the line of Sean King from UBS. Your line is now open.

Sean King — UBS — Analyst

Hey, good morning, thanks for the question. I had a question about the guide. And sorry, sorry, if I missed this. But what base should we be thinking about for the mid-single-digit operating profit growth guidance? Is that off the reported number or off the underlying number?

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Yeah, I'm sorry about that. It's definitely off of underlying number. So just as a reminder, the difference between our reported and underlying which largely due to the sale of Canadian Mist and Early Times. So, you definitely want to take that out of your numbers and we actually had a one-quarter benefit or one-quarter, they were still in our results for the first quarter of the year. So definitely want to take that out when you can the first top and bottom line.

Sean King — UBS — Analyst

Okay, great. I appreciate it. Thank you. I'll pass it on.

Operator

Thank you. Our next question comes from the line of Rob Ottenstein from Evercore. Your line is now open.

Robert Ottenstein — Evercore — Analyst

Great, thank you very much. I was just wondering if you could talk, and a big picture kind of looking back now on just the U.S. and the impact of COVID on demand for U.S. spirits versus wine versus beer. And obviously, spirits has been gaining share for a long time, particularly against beer. You noted an acceleration in terms of premiumization last year, but you also think that just the nature of COVID and people staying at home, perhaps less social occasions or high energy typical beer occasions helped spirits last year and notwithstanding the fact that you're spirits for at-home is very strong right now, but that could possibly reverse during the summer a little bit? Thank you.

Lawson E. Whiting — Chief Executive Officer

I mean, I'm not, it remains to be seen what happens over the summer. It's going to be interesting to watch as obviously the comps get — they're very, very volatile, as we were at such a roller coaster last year. I mean, I do think at least if the most recent trends, although I'm talking the last few months, the off-premise market has held up. So it gives us some optimism that those levels are going to stay. I don't know if it will stay double-digit growth rate. But clearly everything that is off-premise focus these days, particularly in American Whiskey and tequila too. I mean, there is — there has been quite a swing between categories, and thankfully we have said earlier we are in the right one.

As far as the wine — beer and wine, I mean, beer has obviously got a lot more event business to it and that they lost all of that and that helped exaggerate the numbers. But I think in general the pandemic, we've said this a few times, so any trend that was happening pre-pandemic just accelerated and so the spirits versus wine and beer would be one of those, premiumization would be another one and convenience is the other core one. So all three of those trends have been working in our favor. And it's just, as I say, it remains to be seen how it unfolds really as we get into the summer months.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Yeah, I agree with Lawson. I'm not sure that will — it will be interesting to watch some more months and may take a while for all of this to shake out beyond this year even. A lot of people I know anecdotally have invested and outside entertaining spaces and things like that. And definitely, we're still seeing the at-home purchases of online. So e-premise to still be strong for, so I'd call very strong. So indicated to me that people are still at behavior of driving of bringing things to your home is still there. Those thing, I mean, that's the most recent results I've read this morning. But this is going to be interesting.

Robert Ottenstein — Evercore — Analyst

Got it. And then my follow-up question. As your portfolio shifts a little bit, at least in terms of packaging, more ready to drink in cans. And again, talking about the U.S. market, can you talk a little bit about how that may or may not change your route to market strategy, and particularly your ability to access channels like convenience that haven't necessarily been traditionally strong points for the wine and spirits distributors?

Lawson E. Whiting — Chief Executive Officer

Yeah, I mean, that was, I mean, the whole — the majority reason that we partnered up with Pabst was to be able to access all those distribution points that as you say are traditional wholesalers weren't reaching, and so that's just started in the last, I mean, weeks old kind of things. So we're going to — we'll see how that progresses, but certainly we've optimism with all those additional points of distribution that we'll capture an even bigger prize within the RTD business in the U.S. I do think, and it's just more of a reminder. Our RTD business is much, much bigger outside of the United States than it is in. I mean, we've got 8 million cases of New Mix in Mexico and we've got 12.5 million cases of Jack Daniel's spread out around the world, that does include the U.S.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Like off 3 million part.

Lawson E. Whiting — Chief Executive Officer

Our international RTD business is significantly bigger and more important to the company right now.

Robert Ottenstein — Evercore — Analyst

So can you just give us maybe 30 seconds just on the mechanics of the Pabst relationship for that? Just how the flow works?

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Continued elaborate. Just a little bit more, Robert (Technical Issues)

Robert Ottenstein — Evercore — Analyst

I'm just trying to better understand your partnership with Pabst, exactly what they will be doing for you and how that relationship is constructive?

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Yeah, I mean, they are going to make the products there other than our our glass bottle facility we have there. So they're really going to beef up our can Jack Daniel's country cocktails which we really don't have any today to speak up. So that's one thing. But we're going to sell them the glass. They're are then going to be distributed throughout all of their channels that we don't as you asked. Initially, we don't have traditionally access to. And so they're going to make it. They've got better capabilities as a relates to packy chain configurations, things like that, so we can have some distant mixability that passes and shape and so forth like that. And so that is the relationship with them. So we will be selling and things — selling to them and they will be selling on to us. We'll get a role — in effect, we'll get a royalty and agreed upon loyalty and it will scale up as they grow. That's the simplest way to talk about it.

Robert Ottenstein — Evercore — Analyst

Perfect. Thank you very much and congratulations all around. Thank you.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

We thank you.

Operator

Thank you. Our next question comes from the line of Lauren Lieberman from Barclays. Your line is now open.

Lauren Lieberman — Barclays — Analyst

Great, thanks so much. I was curious as I love this topic of the emerging brands, sales force efforts as you all know and I was just curious. I guess; one, retrospectively during the pandemic, in addition to as Lawson only mentioned kind of the team in the U.S. quickly shifting to prioritize off-premise. Any progress made on on-premise. We've heard other beverage alcohol company talk about consolidation of wine and spirits and beer lists and those sorts of things. I was curious with any thing you're able to talk about how you're positioned into on-premise recovery for those emerging brands in particular? And then in terms of the international build out, I just want to make sure I understood correctly that that's a new initiative, not something that's already been started, so should kind of build steam as we move into, maybe second half of '22 at the earliest that it really starts to impact the business? Thanks.

Lawson E. Whiting — Chief Executive Officer

Yeah, I mean. Well, the first half of the question on the U.S. business and what trends that we've seen. I mean, I do know so many bars and restaurants had to reduce their inventories over the last year and so it became an advantage for established big brands the turn faster, and it made it challenging for newer brands, particularly some of the craft brands that just don't have the ability to continue to push as hard as the major brands do so. There has been this window of opportunity I think for companies like Brown-Forman to be able to command a bigger piece of the back bar and we're going to go make sure that we get more than our fair share of that opportunity as things evolve over the next few months.

In the international side, I mean, yes it is brand new. It's not even really formed yet. It will be over the next few months. But Europe, obviously is a several months behind in terms of openings of bars and restaurants and didn't make a lot of sense to put a lot of effort on that until the restaurants begin to open again. But as, I think you all realize our business outside of the United States in most markets really is a Jack Daniel's company. And we have a big effort to continue to expand our portfolio in those markets, led by, like a Woodford Reserve will be a great example. But our single malt scotches are very important to us. Fords Gin, even Slane Irish Whiskey, those are much smaller brands, but brands that we see a bright future for and that's the purpose of putting these dedicated people in place in these markets that have been so Jack Daniel's oriented. It's very difficult to build a Slane Irish Whiskey next to Jack Daniel's Tennessee Whiskey. I mean, it's just sales people's incentives need to be aligned behind the right initiatives and so that's the reason we're doing it, and feel pretty good that it will be in the right place at the right time and hopefully make that into a significant piece of business.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Just building on a couple of more points that Lawson just made. What we're doing, Just to give you some scale, Lauren. Really our focus initially is just on the handful of markets, is the U.K. and Germany, and I think Australia.

Lawson E. Whiting — Chief Executive Officer

And Poland, yeah.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Okay. And then, so it's very, very small in nature. And each of those markets are going to have one common priority across all, which is our great Woodford Reserve brand that we're so excited about. But what they do with in the other rest of our emerging brands will be unique likely, depending on the category in those markets and how they're — what's important in those markets. So whether it's the scotch, whether it's Irish whisky or what. So just to give a little bit more flavor to it.

Lauren Lieberman — Barclays — Analyst

Okay, that's great. Thank you. And then just diving in a little more deeply on tequila. The portfolio in the U.S. sometimes it's kind of tough to parse out performance of Herradura versus el Jimador that's more the mixable and slower growth. So what can you just update us on what you've seen, I guess through the pandemic? I know we talked about premiumization, but with Herradura would you say now growing kind of more in line with it's peers and competitors at that super premium end of the category? And then as we move through '22 and reopening and hopefully el Jimador and bars, everyone sort of is making margaritas again, that the tequila portfolio as a whole shows shows that our performance. Is that a reasonable way of thinking about it?

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Yeah, it is hard from our tables, I guess, that we provide to really understand. The U.S. market is doing quite well. So both brands are growing and both brands grew volumetric last year double digits, Herradura much stronger within the 30% range. And then their sales growth were even stronger because of the pricing that we had. So if you just looked at our U.S. tequilas, then we don't have any — we don't have a New Mix there, so its a RTD. This is our full strength. So Herradura and el Jimador collectively grew over 30% in the U.S. at the topline perspective. So very strong.

And into your point, if we look at Herradura according to the latest NABCA, we're growing right at the category and we we're proud of that. And I think that — if you look at el Jimador price point wise, its growing right in line to its price point as well. We've got a number of initiatives under way Lawson may want, I'll pass it over to him, he may want to talk about as we look at the U.S. market and how excited we are as we go ahead with these two great brands.

Lawson E. Whiting — Chief Executive Officer

Yeah, I mean, I'm quite happy with the performance of Herradura over the last year. One of the challenges for Herradura has been — a good thing pre-pandemic was about 40% of its sales was running through the on-premise. And that's one of the higher brands in our company. And to have that business shut down so much to be able to deliver the sales growth and changes mentioned was a pretty good performance. And I know there's a few brands out there that are grabbing a lot of headlines. We seem to be flying a little bit below the radar, but know that the growth has been really good. And the ultra premium side of tequila is just, I mean, it is growing so fast. And we've got some — we've got really a brand called Herradura Legend would be our primary entry in that space and we've got some other upper in line extensions that are not huge, but certainly taste really good and have a great play for bartenders and can really grow the Herradura name.

It's a brand that's one of the authentic Mexican tequilas that's been around for a long, long time. And we play off that heritage and that authenticity and all those queues, and I mean, that is the way we're going to build these brands. Other brands are using the celebrities so much on the tequila category. We haven't done that much in this company. We're certainly watching it. It's been fascinating to see how some brands have absolutely taken off with some of the celebrity endorsements. But we're playing this a little bit for the long haul and building brands that we think will be around literally for generations, and so feel pretty good about it.

Leanne Cunningham — Senior Vice President, Shareholder Relations Officer

And then as Jane mentioned, we are investing in the new creative in the lines for Herradura, just support the brand and invest back behind the brand and build it for the long term to Lawson's comment.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Exactly. Thanks, Leanne. (Speech Overlap) tremendous opportunities for distribution for both of these brands. And then just to switch gears slightly on el Jimador outside the U.S. and outside of Mexico, we see tremendous opportunity to introduce this brand to the rest of the world, if that's the right price point to if these people had to drink tequila to enjoy it, so use it and mixers. And so we've got plan as we look ahead for that too.

Lauren Lieberman — Barclays — Analyst

Okay. Thank you everybody for such a complete answer, and congratulations again to everybody. I really appreciate it.

Operator

Thank you. Our next question comes from the line of Andrea Teixeira from J.P. Morgan. Your line is now open.

Drew Levine — J.P. Morgan — Analyst

Hi, there, this Drew Levine (Phonetic) on for Andrea. Thanks for taking the questions. Just curious, Jane. I think you called out some supply challenges with distributor inventories in the prepared remarks. So just curious on the sort of cadence of being able to rebuild those inventories and maybe the magnitude of the shortfall in your view? And then maybe just one of the sort of pain points in getting the product to the distributors at this point?

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Yeah, thank you for asking. And I think what I'm going to talk about here is, first talk about it's impacting us supply chain wise. Disruptions that we're seeing from the materials so the customer now. When I talk about, but let me break it down a little bit. And in that as you alluded to, we talked about our results being impacted somewhat by the supply chain constraints in the U.S. where our distributor inventories and our retail inventories are down versus pre-COVID.

And so what's happening there is really we're not unique to this in terms of the backend of what's going on here, which is what you heard probably from other CPG companies that there is lots of transportation and logistics challenges out there that are ramping back up as the economy improves, people start to build back and restock inventory. So we see delays in rail service, container availability and ocean can't ship things across the ocean, trucking capacity in the U.S. as an example. And then labor shortage that we hear in bars and restaurants, it's also in the warehousing industry. So with that being said, we know that our inventory levels are down at the end of this past year, as I said in the U.S. They're also down in parts of Europe as well. And so we hope and we're working with our teams the best we can, again, we're at the mercy of the supply chain somewhat and this as things work out.

But when I think about the material aspects of things, because I also said we've had some disruptions on the material side, think about how we make barrels. We've had some disruptions in steel that we used to make the hooks around the barrels, but the key ingredients that we've had some disruptions on is our glass plant. And that is certainly something that is really important to us and something that we are working closely with our supplier now, look at the quality, get behind that and get that resolved. So as I gave our guidance today, the topline mid single-digit underlying and same for mid-single digit bottom line growth. We think at this point, we have these disruptions estimated and covered. But if things get worse, we'll have to update that guidance as we go on in the year.

Drew Levine — J.P. Morgan — Analyst

Okay. Thanks so much for that. And then second question just for (Indecipherable) you mentioned positive tariff developments. I think during the last earnings call, Lawson, you said it would be the run Forman way to consider reinvesting a chunk of that. Was potential release more insight? Just any sort of updated views on what the magnitude of a reinvestment could be if the tariffs come off? And then just, I think the U.K. might be ahead of the rest of Europe with review of tariffs. So if you could just tell us what the magnitude of tariff relief would be if the U.K. came off before yours? Thank you.

Lawson E. Whiting — Chief Executive Officer

Yeah, I mean. I hate to say we're getting more optimistic on tariffs because I've said that a few times and have been wrong every time. It was good news that they didn't double. I think we have said that. So that would have been extremely painful. The G7 meeting that is happening now puts a little bit of light at the end of the tunnel, that maybe they can come up with some constructive trade agreements at this meeting and that we would benefit from that. In terms of total dollar benefits, I've seen a few folks don't really have the number right. It's probably in the range of $70 million to $80 million.

Jane C. Morreau — Executive Vice President, Chief Financial Officer

At most $70 million.

Lawson E. Whiting — Chief Executive Officer

$70 million, so. And what I don't know is how much of that we would reinvest versus let drop to the bottom line. We just really haven't made that decision yet. It depends on how the business is progressing, I think throughout this fiscal year as to how much that we would reinvest, but it's going to be a pretty significant amount I think, which would be great for the long-term health of our business, where we very much look forward to that day and having to wrestle with where we want to invest those incremental dollars, because it's pretty significant.

Operator

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Sue for closing remarks.

Sue Perram — Director, Investor Relations

Thank you. And thank you Lawson, Jane and Leanne, and to all of you for joining us today for Brown-Forman's fourth quarter and fiscal 2021 earnings call. If you have any additional questions, please contact us. And with that, this concludes our call.

Operator

(Operator Closing Remarks)

Duration: 60 minutes

Call participants:

Sue Perram — Director, Investor Relations

Lawson E. Whiting — Chief Executive Officer

Jane C. Morreau — Executive Vice President, Chief Financial Officer

Kevin Grundy — Jefferies — Analyst

Vivien Azer — Cowen and Company — Analyst

Sean King — UBS — Analyst

Robert Ottenstein — Evercore — Analyst

Lauren Lieberman — Barclays — Analyst

Leanne Cunningham — Senior Vice President, Shareholder Relations Officer

Drew Levine — J.P. Morgan — Analyst

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