Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with both our unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended April 30, 2023 (2023 Form 10-K). Note that the results of operations for the six months ended October 31, 2023, are not necessarily indicative of future or annual results. In this Item, “we,” “us,” “our,” “Brown-Forman,” and the “Company” refer to Brown-Forman Corporation and its consolidated subsidiaries, collectively.

Presentation Basis

Non-GAAP Financial Measures

We use some financial measures in this report that are not measures of financial performance under U.S. generally accepted accounting principles (GAAP). These non-GAAP measures, defined below, should be viewed as supplements to (not substitutes for) our results of operations and other measures reported under GAAP. Other companies may define or calculate these non-GAAP measures differently.

“Organic change” in measures of statements of operations. We present changes in certain measures, or line items, of the statements of operations that are adjusted to an “organic” basis. We use “organic change” for the following measures: (a) organic net sales; (b) organic cost of sales; (c) organic gross profit; (d) organic advertising expenses; (e) organic selling, general, and administrative (SG&A) expenses; (f) organic other expense (income) net; (g) organic operating expenses1; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures and (2) foreign exchange. We explain these adjustments below.

• “Acquisitions and divestitures.” This adjustment removes (a) the gain or loss recognized on sale of divested brands and certain fixed assets, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs), and (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). Excluding non-comparable periods allows us to include the effects of acquired and divested brands only to the extent that results are comparable year over year.

During the third quarter of fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which owned the Gin Mare brand (Gin Mare). Also, during the third quarter of fiscal 2023, we acquired (a) International Rum and Spirits Distributors Unipessoal, Lda., (b) Diplomático Branding Unipessoal Lda., (c) International Bottling Services, S.A., (d) International Rum & Spirits Marketing Solutions, S.L., and (e) certain assets of Destilerias Unidas Corp., which collectively own the Diplomático Rum brand and related assets (Diplomático). This adjustment removes the transaction, transition, and integration costs related to the acquisitions and operating activity for the non-comparable period, which is activity in the first and second quarters of fiscal 2024. We believe that these adjustments allow for us to better understand our organic results on a comparable basis.

During the second quarter of fiscal 2024, we recognized a gain of $7 million on the sale of certain fixed assets. This adjustment removes the gain from our organic other expense (income), net and organic operating income to present our organic results on a comparable basis.

• “Foreign exchange.” We calculate the percentage change in certain line items of the statements of operations in accordance with GAAP and adjust to exclude the cost or benefit of currency fluctuations. Adjusting for foreign exchange allows us to understand our business on a constant-dollar basis, as fluctuations in exchange rates can distort the organic trend both positively and negatively. (In this report, “dollar” means the U.S. dollar unless stated otherwise.) To eliminate the effect of foreign exchange fluctuations when comparing across periods, we translate current-year results at prior-year rates and remove transactional and hedging foreign exchange gains and losses from current- and prior-year periods.

We use the non-GAAP measure “organic change,” along with other metrics, to: (a) understand our performance from period to period on a consistent basis; (b) compare our performance to that of our competitors; (c) calculate components of management incentive compensation; (d) plan and forecast; and (e) communicate our financial performance to the Board of Directors, stockholders, and investment community. We provide reconciliations of the “organic change” in certain line items of the statements of operations to their nearest GAAP measures in the tables under “Results of Operations - Fiscal 2024 Year-to-Date Highlights” and “Results of Operations - Year-Over-Year Period Comparisons.” We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance and comparability between periods.

1 Operating expenses include advertising expense, SG&A expense, and other expense (income), net.

Definitions

Aggregations.

From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the International Monetary Fund (IMF), and we aggregate brands by beverage alcohol category. Below, we define the geographic and brand aggregations used in this report.

Geographic Aggregations.

In “Results of Operations - Fiscal 2024 Year-to-Date Highlights,” we provide supplemental information for our top markets ranked by percentage of reported net sales. In addition to markets listed by country name, we include the following aggregations:

•**“Developed International” markets are “advanced economies” as defined by the IMF, excluding the United States. Our top developed international markets were Germany, Australia, the United Kingdom, France, Canada, and Japan. This aggregation represents our net sales of branded products to these markets.

• “Emerging” markets are “emerging and developing economies” as defined by the IMF. Our top emerging markets were Mexico, Poland, and Brazil. This aggregation represents our net sales of branded products to these markets.

•**“Travel Retail” represents our net sales of branded products to global duty-free customers, other travel retail customers, and the U.S. military, regardless of customer location.

•**“Non-branded and bulk” includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine, regardless of customer location.

Brand Aggregations.

In “Results of Operations - Fiscal 2024 Year-to-Date Highlights,” we provide supplemental information for our top brands ranked by percentage of reported net sales. In addition to brands listed by name, we include the following aggregations outlined below.

In fiscal 2023, we began presenting “Ready-to-Drink” products as a separate aggregation due to its more significant contribution to our growth in recent years and industry-wide category growth trends. “Whiskey” no longer contains Jack Daniel’s ready-to-drink (RTD) and ready-to-pour (RTP), and “Tequila” no longer includes New Mix. These brands are now included in the “Ready-to-Drink” brand aggregation.

•**“Whiskey” includes all whiskey spirits and whiskey-based flavored liqueurs. The brands included in this category are the Jack Daniel’s family of brands (excluding the “Ready-to-Drink” products defined below), the Woodford Reserve family of brands (Woodford Reserve), the Old Forester family of brands (Old Forester), GlenDronach, Benriach, Glenglassaugh, Slane Irish Whiskey, and Coopers’ Craft.

•**“American whiskey” includes the Jack Daniel’s family of brands (excluding the “Ready-to-Drink” products defined below) and premium bourbons (defined below).

•**“Premium bourbons” includes Woodford Reserve, Old Forester, and Coopers’ Craft.

•**“Super-premium American whiskey” includes Woodford Reserve, Gentleman Jack, and other super-premium Jack Daniel's expressions.

•**“Ready-to-Drink” includes all ready-to-drink (RTD) and ready-to-pour (RTP) products. The brands included in this category are Jack Daniel’s RTD and RTP products (JD RTD/RTP), New Mix, and other RTD/RTP products.

•**“Jack Daniel’s RTD/RTP” products include all RTD line extensions of Jack Daniel’s, such as Jack Daniel’s & Cola, Jack Daniel’s Country Cocktails, Jack Daniel’s Double Jack, Jack Daniel’s & Coca-Cola RTD, and other malt- and spirit-based Jack Daniel’s RTDs, along with Jack Daniel’s Winter Jack RTP.

• “Jack Daniel’s & Coca-Cola RTD” includes all Jack Daniel’s and Coca-Cola RTD products and Jack Daniel’s bulk whiskey shipments for the production of this product.

•**“Tequila” includes the Herradura family of brands (Herradura), el Jimador, and other tequilas.

•**“Wine” includes Korbel California Champagnes and Sonoma-Cutrer wines.

• “Vodka” includes Finlandia.

• “Rest of Portfolio” includes Chambord, Gin Mare, Korbel Brandy, Diplomático, and Fords Gin.

•**“Non-branded and bulk” includes net sales of used barrels, contract bottling services, and non-branded bulk whiskey and wine.

• “Jack Daniel’s family of brands” includes Jack Daniel’s Tennessee Whiskey (JDTW), JD RTD/RTP, Jack Daniel’s Tennessee Honey (JDTH), Gentleman Jack, Jack Daniel’s Tennessee Fire (JDTF), Jack Daniel’s Tennessee Apple (JDTA), Jack Daniel’s Single Barrel Collection (JDSB), Jack Daniel’s Bonded Tennessee Whiskey, Jack Daniel’s Sinatra Select, Jack Daniel’s Tennessee Rye Whiskey (JDTR), Jack Daniel’s Bottled-in-Bond, Jack Daniel’s Triple Mash Blended Straight Whiskey, Jack Daniel’s No. 27 Gold Tennessee Whiskey, Jack Daniel’s 10 Years Old, and Jack Daniel’s 12 Years Old.

Other Metrics.

•**“Shipments.” We generally record revenues when we ship or deliver our products to our customers. In this report, unless otherwise specified, we refer to shipments when discussing volume.

•**“Depletions.” This metric is commonly used in the beverage alcohol industry to describe volume. Depending on the context, depletions usually means either (a) where Brown-Forman is the distributor, shipments directly to retail or wholesale customers or (b) where Brown-Forman is not the distributor, shipments from distributor customers to retailers and wholesalers. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do.

• “Consumer takeaway.” When discussing trends in the market, we refer to consumer takeaway, a term commonly used in the beverage alcohol industry that refers to the purchase of product by consumers from retail outlets, including products purchased through e-commerce channels, as measured by volume or retail sales value. This information is provided by outside parties, such as Nielsen and the National Alcohol Beverage Control Association (NABCA). Our estimates of market share or changes in market share are derived from consumer takeaway data using the retail sales value metric. We believe consumer takeaway is a leading indicator of consumer demand trends.

• “Estimated net change in distributor inventories.” We generally recognize revenue when our products are shipped or delivered to customers. In the United States and certain other markets, our customers are distributors that sell downstream to retailers and consumers. We believe that our distributors’ downstream sales more closely reflect actual consumer demand than do our shipments to distributors. Our shipments increase distributors’ inventories, while distributors’ depletions (as described above) reduce their inventories. Therefore, it is possible that our shipments do not coincide with distributors’ downstream depletions and merely reflect changes in distributors’ inventories. Because changes in distributors’ inventories could affect our trends, we believe it is useful for investors to understand those changes in the context of our operating results.

We perform the following calculation to determine the “estimated net change in distributor inventories”:

• For both the current-year period and the comparable prior-year period, we calculate a “depletion-based” amount by (a) dividing the organic dollar amount (e.g. organic net sales) by the corresponding shipment volumes to arrive at a shipment per case amount, and (b) multiplying the resulting shipment per case amount by the corresponding depletion volumes. We subtract the year-over-year percentage change of the “depletion-based” amount from the year-over-year percentage change of the organic amount to calculate the “estimated net change in distributor inventories.”

• A positive difference is interpreted as a net increase in distributors’ inventories, which implies that organic trends could decrease as distributors reduce inventories; whereas, a negative difference is interpreted as a net decrease in distributors’ inventories, which implies that organic trends could increase as distributors rebuild inventories.

Important Information on Forward-Looking Statements:

This report contains statements, estimates, and projections that are “forward-looking statements” as defined under U.S. federal securities laws. Words such as “aim,” “anticipate,” “aspire,” “believe,” “can,” “continue,” “could,” “envision,” “estimate,” “expect,” “expectation,” “intend,” “may,” “might,” “plan,” “potential,” “project,” “pursue,” “see,” “seek,” “should,” “will,”

“would,” and similar words indicate forward-looking statements, which speak only as of the date we make them. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. By their nature, forward-looking statements involve risks, uncertainties, and other factors (many beyond our control) that could cause our actual results to differ materially from our historical experience or from our current expectations or projections. These risks and uncertainties include, but are not limited to:

• Our substantial dependence upon the continued growth of the Jack Daniel's family of brands

• Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks

• Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs

• Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers

• Changes in consumer preferences, consumption, or purchase patterns – particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of marijuana; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation

• Production facility, aging warehouse, or supply chain disruption

• Imprecision in supply/demand forecasting

• Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor

• Risks associated with acquisitions, dispositions, business partnerships, or investments – such as acquisition integration, termination difficulties or costs, or impairment in recorded value

• Impact of health epidemics and pandemics, and the risk of the resulting negative economic impacts and related governmental actions

• Unfavorable global or regional economic conditions and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations

• Product recalls or other product liability claims, product tampering, contamination, or quality issues

• Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects

• Failure to attract or retain key executive or employee talent

• Risks associated with being a U.S.-based company with a global business, including commercial, political, and financial risks; local labor policies and conditions; protectionist trade policies, or economic or trade sanctions, including additional retaliatory tariffs on American whiskeys and the effectiveness of our actions to mitigate the negative impact on our margins, sales, and distributors; compliance with local trade practices and other regulations; terrorism, kidnapping, extortion, or other types of violence; and health pandemics

• Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations

• Fluctuations in foreign currency exchange rates, particularly a stronger U.S. dollar

• Changes in laws, regulatory measures, or governmental policies, especially those affecting production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products

• Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur

• Decline in the social acceptability of beverage alcohol in significant markets

• Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products

• Counterfeiting and inadequate protection of our intellectual property rights

• Significant legal disputes and proceedings, or government investigations

• Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws

• Our status as a family “controlled company” under New York Stock Exchange rules, and our dual-class share structure

For further information on these and other risks, please see the risks and uncertainties described in Part I, Item 1A. Risk Factors of our 2023 Form 10-K, this Quarterly Report, and those described from time to time in our future reports filed with the Securities and Exchange Commission (SEC).

Overview

For the six months ended October 31, 2023, we experienced reported net sales growth across emerging and developed international markets, and the Travel Retail channel, partially offset by declines in the United States. Declines in the United States reflect an estimated net decrease in distributor inventories, largely due to cycling against a significant inventory rebuild during the same period last year when we were recovering from supply chain disruptions.

Fiscal 2024 Year-to-Date Highlights

• We delivered reported net sales of $2.1 billion for the six months ended October 31, 2023, an increase of 2% compared to the same period last year. The increase was driven by favorable price/mix and the recently acquired brands, Gin Mare and Diplomático, partially offset by lower volumes. An estimated net decrease in distributor inventories negatively impacted reported net sales.

**◦**From a brand perspective, reported net sales growth was driven by the recently acquired brands, Gin Mare and Diplomático, and the growth of New Mix and JDTA, partially offset by declines of JDTW.

◦From a geographic perspective, emerging markets, developed international markets, and the Travel Retail channel all contributed to reported net sales growth, partially offset by declines in the United States.

• We delivered reported gross profit of $1.3 billion for the six months ended October 31, 2023, an increase of $87 million, or 7%, compared to the same period last year. Gross margin increased 2.8 percentage points to 61.6% from 58.8% in the same period last year. The increase in gross margin was driven by favorable price/mix, lower supply chain disruption related costs, and lower tariff-related costs, partially offset by higher input costs and the negative effect of foreign exchange.

• We delivered reported operating income of $666 million for the six months ended October 31, 2023, an increase of 1% compared to the same period last year, reflecting higher gross margin, partially offset by operating expense growth.

• We delivered diluted earnings per share of $0.98, a decrease of 1% from the $0.99 reported for the same period last year, driven primarily by higher interest expense, partially offset by higher reported operating income and the benefit of a lower effective tax rate.

Summary of Operating Performance
			Three Months Ended October 31,																											Six Months Ended October 31,
(Dollars in millions)			2022						2023									Reported Change						Organic Change****1									2022						2023									Reported Change						Organic Change****1
Net sales			$	1,094					$	1,107								1		%				(1		%)							$	2,101					$	2,145								2		%				1		%
Cost of sales			481						436									(9		%)				(13		%)							866						823									(5		%)				(8		%)
Gross profit			613						671									9		%				9		%							1,235						1,322									7		%				7		%
Advertising			121						140									16		%				10		%							231						271									17		%				12		%
SG&A			180						192									7		%				6		%							355						392									10		%				9		%
Other expense (income), net			(1)						—									nm4						nm4									(7)						(7)									nm4						nm4
Operating income			313						339									8		%				9		%							656						666									1		%				1		%
Total operating expenses**2			$	300					$	332								11		%				8		%							$	579					$	656								13		%				13		%
As a percentage of net sales**3
Gross profit			56.0		%				60.6		%							4.6		pp													58.8		%				61.6		%							2.8		pp
Operating income			28.7		%				30.6		%							1.9		pp													31.2		%				31.0		%							(0.2)		pp
Non-operating postretirement expense			$	—					$	—								nm4															$	—					$	1								nm4
Interest expense, net			$	15					$	29								80		%													$	32					$	56								74		%
Effective tax rate			23.7		%				22.0		%							(1.7)		pp													23.7		%				22.4		%							(1.3)		pp
Diluted earnings per share			$	0.47					$	0.50								6		%													$	0.99					$	0.98								(1		%)
Note: Totals may differ due to rounding

1See “Non-GAAP Financial Measures” above for details on our use of “organic change,” including how we calculate these measures and why we believe this information is useful to readers.

2Operating expenses include advertising expense, SG&A expense, and other expense (income), net.

3Year-over-year changes in percentages are reported in percentage points (pp).

4Percentage change is not meaningful.

Results of Operations – Fiscal 2024 Year-to-Date Highlights

Market Highlights

The following table provides supplemental information for our largest markets. We discuss results of the markets most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the six months ended October 31, 2023 compared to the same period last year.

Top Markets
Six months ended October 31, 2023			Net Sales % Change vs. 2023
Geographic area****1			Reported			Acquisitions and Divestitures						Foreign Exchange						Organic****2
United States			(4		%)	(1		%)				—		%				(5		%)
Developed International			3		%	(4		%)				(2		%)				(2		%)
Germany			10		%	(1		%)				(3		%)				5		%
Australia			(4		%)	—		%				1		%				(4		%)
United Kingdom			(5		%)	(1		%)				(3		%)				(9		%)
France			1		%	(1		%)				(3		%)				(3		%)
Canada			—		%	(1		%)				1		%				—		%
Japan			(79		%)	—		%				(4		%)				(84		%)
Rest of Developed International			23		%	(12		%)				(3		%)				8		%
Emerging			17		%	(1		%)				2		%				19		%
Mexico			30		%	—		%				(18		%)				12		%
Poland			26		%	(1		%)				(5		%)				20		%
Brazil			11		%	—		%				(2		%)				9		%
Rest of Emerging			10		%	(1		%)				17		%				25		%
Travel Retail			3		%	(2		%)				(1		%)				—		%
Non-branded and bulk			(3		%)	—		%				1		%				(2		%)
Total			2		%	(2		%)				—		%				1		%
Note: Results may differ due to rounding

1See “Definitions” above for definitions of market aggregations presented here.

2See “Non-GAAP Financial Measures” above for details on our use of “organic change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

The United States’ reported net sales decreased 4% driven by lower volumes reflecting an estimated net decrease in distributor inventories, partially offset by higher prices across our portfolio led by JDTW and the acquisition of Diplomático. The estimated net decrease in distributor inventories was largely due to cycling against the significant inventory rebuild during the same period last year driven by the recovery from supply chain disruptions.

Developed International

*•*Germany’s reported net sales increased 10% driven by the launch of the Jack Daniel’s & Coca-Cola RTD, the positive effect of foreign exchange, and the acquisition of Gin Mare.

• Australia’s** reported net sales declined 4% driven by lower volumes of JD RTDs and JDTW along with the negative effect of foreign exchange, partially offset by higher prices for JD RTDs.

*•*The United Kingdom’s reported net sales declined 5% driven by lower volumes of Jack Daniel’s & Cola, which we previously distributed, due to the introduction of the Jack Daniel’s & Coca-Cola RTD that we do not distribute in this market. The decline was partially offset by the positive effect of foreign exchange.

• France’s reported net sales increased 1% driven by higher prices of JDTW and JDTH and the positive effect of foreign exchange, partially offset by lower volumes of JDTH, JDTF and JDTW.

*•*Japan’s reported net sales declined 79% driven by lower volumes of JDTW due to an estimated net decrease in distributor inventories following a significant inventory build in the second half of fiscal 2023. During the first quarter of fiscal 2024, we announced plans to distribute our own brands in Japan, effective April 1, 2024.

• Reported net sales in the Rest of Developed International increased 23% driven by the acquisitions of Gin Mare and Diplomático, the launch of JDTA in South Korea, and Glenglassaugh high-value cask sales. An estimated net decrease in distributor inventories negatively impacted reported net sales.

Emerging

• Mexico’s reported net sales increased 30% driven by the positive effect of foreign exchange, higher prices and volumes of New Mix, higher prices of Herradura, and growth of JD RTDs.

• Poland’s** reported net sales increased 26% driven by higher prices and volumes of JDTW and the positive effect of foreign exchange.

• Brazil’s reported net sales increased 11% led by higher volumes of JDTA and JDTF along with the positive effect of foreign exchange, partially offset by lower JDTW volumes reflecting an estimated net decrease in distributor inventories.

• Reported net sales in the Rest of Emerging increased 10% led by JDTW growth in Türkiye and the United Arab Emirates, partially offset by the negative effect of foreign exchange and lower JDTW volumes in Sub-Saharan Africa. An estimated net decrease in distributor inventories negatively impacted reported net sales.

Travel Retail’s reported net sales increased 3% driven by growth of our super-premium American whiskey portfolio and the acquisition of Gin Mare, partially offset by lower volumes of JDTW and JDTH.

Brand Highlights

The following table provides supplemental information for our largest brands. We discuss results of the brands most affecting our performance below the table. Unless otherwise indicated, all related commentary is for the six months ended October 31, 2023 compared to the same period last year.

Major Brands
Six months ended October 31, 2023									Net Sales % Change vs 2023
Product category / brand family / brand****1									Reported			Acquisitions and Divestitures			Foreign Exchange						Organic****2
Whiskey									(2		%)	—		%	1		%				(1		%)
JDTW									(4		%)	—		%	1		%				(2		%)
JDTH									(7		%)	—		%	—		%				(8		%)
Gentleman Jack									(7		%)	—		%	2		%				(5		%)
JDTF									(11		%)	—		%	—		%				(10		%)
JDTA									51		%	—		%	1		%				52		%
Woodford Reserve									(3		%)	—		%	—		%				(3		%)
Old Forester									(5		%)	—		%	—		%				(5		%)
Rest of Whiskey									22		%	—		%	—		%				22		%
Ready-to-Drink									9		%	—		%	(5		%)				4		%
JD RTD/RTP									2		%	—		%	(1		%)				1		%
New Mix									41		%	—		%	(19		%)				22		%
Tequila									2		%	—		%	(3		%)				(1		%)
Herradura									(5		%)	—		%	(4		%)				(9		%)
el Jimador									8		%	—		%	(1		%)				7		%
Wine									5		%	—		%	—		%				5		%
Vodka (Finlandia)									4		%	—		%	—		%				3		%
Rest of Portfolio									104		%	(92		%)	5		%				17		%
Non-branded and bulk									(3		%)	—		%	1		%				(2		%)
Note: Results may differ due to rounding

1See “Definitions” above for definitions of brand aggregations presented here.

2See “Non-GAAP Financial Measures” above for details on our use of “organic change” in net sales, including how we calculate this measure and why we believe this information is useful to readers.

Whiskey

• Reported net sales for JDTW decreased 4% driven by lower volumes in the United States, Japan, and Sub-Saharan Africa, partially due to an estimated net decrease in distributor inventories, and the negative effect of foreign exchange. The decline was partially offset by growth in Türkiye, the United Arab Emirates, and Poland.

• Reported net sales for JDTH decreased 7% driven by volumetric declines led by the United States, largely reflecting an estimated net decrease in distributor inventories.

• Reported net sales for Gentleman Jack decreased 7% driven by lower volumes in the United States, due primarily to an estimated net decrease in distributor inventories, and the negative effect of foreign exchange. The decline was partially offset by higher volumes in emerging markets.

• Reported net sales for JDTF decreased 11% driven by declines in the United States reflecting an estimated net decrease in distributor inventories.

• Reported net sales for JDTA increased 51% led by the product launch in South Korea and higher volumes in Brazil.

• Woodford Reserve’s reported net sales decreased 3% driven by lower volumes in the United States, reflecting an estimated net decrease in distributor inventories, partially offset by gains in Travel Retail.

• Old Forester’s reported net sales decreased 5% driven by lower volumes in the United States, reflecting an estimated net decrease in distributor inventories.

• Reported net sales for Rest of Whiskey increased 22% driven by the growth of our other super-premium Jack Daniel's expressions and Glenglassaugh high-value cask sales.

Ready-to-Drink

• Reported net sales for the JD RTD/RTP brands increased 2% driven by the launch of the Jack Daniel’s & Coca-Cola RTD and the positive effect of foreign exchange, partially offset by lower volumes of Jack Daniel’s & Cola.

• New Mix grew reported net sales 41% fueled by higher prices and volumes in Mexico and the positive effect of foreign exchange.

Tequila

• Herradura’s reported net sales declined 5% driven by (a) lower volumes in the United States due to an estimated net decrease in distributor inventories and (b) an unfavorable portfolio mix shift reflecting lower volumes of the ultra premium expressions driven largely by comparisons to the national launch of Herradura Legend in the United States during the same period last year. These declines were partially offset by the positive effect of foreign exchange and higher prices in Mexico.

• el Jimador’s reported net sales increased 8% driven by higher prices, led by the United States, and higher volumes in Colombia. This growth was partially offset by lower volumes in Mexico and the United States.

Reported net sales for our Wines increased 5% driven by higher volumes of Korbel California Champagne, due to an estimated net increase in distributor inventories, and Sonoma-Cutrer in the United States.

Vodka (Finlandia) reported net sales increased 4% driven by growth in Ukraine and Poland.

Reported net sales for Rest of Portfolio increased 104% largely driven by the acquisitions of Gin Mare and Diplomático.

Year-Over-Year Period Comparisons

Net Sales
			3 Months															6 Months
Percentage change versus the prior year period ended October 31			Volume			Price/mix			Total									Volume			Price/mix			Total
Change in reported net sales			(9		%)	10		%	1		%							(6		%)	8		%	2		%
Acquisitions and divestitures			(1		%)	(1		%)	(1		%)							(1		%)	(1		%)	(2		%)
Foreign exchange			—		%	(1		%)	(1		%)							—		%	—		%	—		%
Change in organic net sales			(9		%)	9		%	(1		%)							(7		%)	7		%	1		%
Note: Results may differ due to rounding

For the three months ended October 31, 2023, reported net sales were $1.1 billion, an increase of $14 million, or 1%, compared to the same period last year driven by (a) favorable price/mix, (b) the positive effect of foreign exchange, and (c) the acquisitions of Gin Mare and Diplomático, largely offset by lower volumes. Price/mix largely reflects higher prices across much of our portfolio led by JDTW. Lower volumes were driven by (a) JDTW due to an estimated net decrease in distributor inventories and (b) Jack Daniel’s & Cola due to the introduction of the Jack Daniel’s & Coca-Cola RTD.

For the six months ended October 31, 2023, reported net sales were $2.1 billion, an increase of $44 million, or 2%, compared to the same period last year driven by favorable price/mix and the acquisitions of Gin Mare and Diplomático, partially offset by lower volumes. Price/mix reflects higher prices across much of our portfolio led by JDTW. Lower volumes were driven primarily by an estimated net decrease in distributor inventories in the United States. See “Results of Operations - Fiscal 2024 Year-to-Date Highlights” above for further details on net sales for the six months ended October 31, 2023.

Cost of Sales
			3 Months															6 Months
Percentage change versus the prior year period ended October 31			Volume			Cost/mix			Total									Volume			Cost/mix			Total
Change in reported cost of sales			(9		%)	—		%	(9		%)							(6		%)	1		%	(5		%)
Acquisitions and divestitures			(1		%)	(1		%)	(1		%)							(1		%)	(1		%)	(2		%)
Foreign exchange			—		%	(2		%)	(2		%)							—		%	(2		%)	(2		%)
Change in organic cost of sales			(9		%)	(3		%)	(13		%)							(7		%)	(2		%)	(8		%)
Note: Results may differ due to rounding

For the three months ended October 31, 2023, reported cost of sales were $436 million, a decrease of $45 million, or 9%, compared to the same period last year. Lower volumes were driven by (a) JDTW due to an estimated net decrease in distributor inventories and (b) Jack Daniel’s & Cola due to the introduction of the Jack Daniel’s & Coca-Cola RTD. Cost/mix reflects (a) input cost inflation, (b) the negative effect of foreign exchange, and (c) the acquisitions of Gin Mare and Diplomático, offset primarily by lower supply chain disruption related costs.

For the six months ended October 31, 2023, reported cost of sales were $823 million, a decrease of $43 million, or 5%, compared to the same period last year. Lower volumes were driven primarily by an estimated net decrease in distributor inventories in the United States. Cost/mix reflects (a) input cost inflation, (b) the negative effect of foreign exchange, and (c) the acquisitions of Gin Mare and Diplomático, partially offset by lower supply chain disruption related costs.

Gross Profit
Percentage change versus the prior year period ended October 31			3 Months						6 Months
Change in reported gross profit			9		%				7		%
Acquisitions and divestitures			(2		%)				(1		%)
Foreign exchange			1		%				1		%
Change in organic gross profit			9		%				7		%
Note: Results may differ due to rounding

Gross Margin
For the period ended October 31			3 Months						6 Months
Prior year gross margin			56.0		%				58.8		%
Price/mix			4.2		%				3.3		%
Cost (excluding tariffs)			0.9		%				0.1		%
Acquisitions and divestitures			0.1		%				(0.1		%)
Tariffs1			0.2		%				0.3		%
Foreign exchange			(0.8		%)				(0.7		%)
Change in gross margin			4.6		%				2.8		%
Current year gross margin			60.6		%				61.6		%
Note: Results may differ due to rounding			—						—
1“Tariffs” include the combined effect of tariff-related costs, whether arising as a reduction of reported net sales or as an increase in reported cost of sales.

For the three months ended October 31, 2023, reported gross profit of $671 million increased $58 million, or 9%, compared to the same period last year. Gross margin increased 4.6 percentage points to 60.6% from 56.0% in the same period last year. The increase in gross margin was driven by favorable price/mix, lower supply chain disruption related costs, and lower tariff-related costs, partially offset by higher input costs and the negative effect of foreign exchange.

For the six months ended October 31, 2023, reported gross profit of $1.3 billion increased $87 million, or 7%, compared to the same period last year. Gross margin increased 2.8 percentage points to 61.6% from 58.8% in the same period last year. The increase in gross margin was driven by favorable price/mix, lower supply chain disruption related costs, and lower tariff-related costs, partially offset by higher input costs and the negative effect of foreign exchange.

Operating Expenses
Percentage change versus the prior year period ended October 31
3 Months			Reported			Acquisitions and Divestitures									Foreign Exchange												Organic
Advertising			16		%	(5		%)							(1		%)										10		%
SG&A			7		%	—		%							(1		%)										6		%
Total operating expenses****1			11		%	(2		%)							(1		%)										8		%
6 Months
Advertising			17		%	(5		%)							(1		%)										12		%
SG&A			10		%	—		%							(1		%)										9		%
Total operating expenses****1			13		%	(2		%)							2		%										13		%
Note: Results may differ due to rounding
1Total operating expenses include advertising expense, SG&A expense, and other expense (income), net.

For the three months ended October 31, 2023, reported operating expenses totaled $332 million, an increase of $32 million, or 11%, compared to the same period last year.

• Reported advertising expense increased 16% for the three months ended October 31, 2023 driven by increased investment in JDTW, advertising expense for the recently acquired Gin Mare and Diplomático brands, and advertising expense associated with the launch of Jack Daniel’s & Coca-Cola RTD.

• Reported SG&A expense increased 7% for the three months ended October 31, 2023 led by higher compensation and benefit-related expenses.

For the six months ended October 31, 2023, reported operating expenses totaled $656 million, an increase of $77 million, or 13%, compared to the same period last year.

• Reported advertising expense increased 17% for the six months ended October 31, 2023 driven by increased investment in JDTW, advertising expense for the recently acquired Gin Mare and Diplomático brands, and advertising expense associated with the launch of Jack Daniel’s & Coca-Cola RTD.

• Reported SG&A expense increased 10% for the six months ended October 31, 2023 led by higher compensation and benefit-related expenses.

Operating Income
Percentage change versus the prior year period ended October 31			3 Months						6 Months
Change in reported operating income			8		%				1		%
Acquisitions and divestitures			(1		%)				(1		%)
Foreign exchange			2		%				1		%
Change in organic operating income			9		%				1		%
Note: Results may differ due to rounding

For the three months ended October 31, 2023, reported operating income totaled $339 million, an increase of $26 million, or 8%, compared to the same period last year. Operating margin increased 1.9 percentage points to 30.6% from 28.7% in the same period last year driven by a higher gross margin, partially offset by operating expense growth and the negative effect of foreign exchange.

For the six months ended October 31, 2023, reported operating income totaled $666 million, an increase of $10 million, or 1%, compared to the same period last year. Operating margin decreased 0.2 percentage points to 31.0% from 31.2% in the same period last year driven by operating expense growth, partially offset by a higher gross margin.

The effective tax rate for the three months ended October 31, 2023 was 22.0% compared to 23.7% for the same period last year. The decrease in our effective tax rate was driven primarily by lower state taxes, decreased impact of prior intercompany sales of inventory taxed at rates higher than current statutory rates and the beneficial impact of the foreign-derived intangible income deduction, which was partially offset by a lower benefit from the reversal of valuation allowances in the current period and the net impact of other discrete items.

The effective tax rate for the six months ended October 31, 2023 was 22.4% compared to 23.7% for the same period last year. The decrease in our effective tax rate was driven primarily due to decreased impact of state taxes, lower tax contingencies in the current period, and the beneficial impact of the foreign-derived intangible income deduction, which was partially offset by a lower benefit from the reversal of valuation allowances in the current period and the net impact of other discrete items.

Diluted earnings per share of $0.50 for the three months ended October 31, 2023, increased 6% from the $0.47 reported for the same period last year, driven primarily by the increase in reported operating income and benefit of a lower effective tax rate, partially offset by higher interest expense. Diluted earnings per share of $0.98 for the six months ended October 31, 2023, decreased 1% from the $0.99 reported for the same period last year, driven primarily by higher interest expense, partially offset by higher reported operating income and the benefit of a lower effective tax rate.

Fiscal 2024 Outlook

Below we discuss our outlook for fiscal 2024, which reflects the trends, developments, and uncertainties (including those described above) that we expect to affect our business. When we provide guidance for organic change in certain measures of the statements of operations we do not provide guidance for the corresponding GAAP change, as the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, such as foreign exchange, which could have a significant impact to our GAAP income statement measures.

This updated outlook revises certain aspects of the fiscal 2024 outlook included in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Form 10-Q for the period ended July 31, 2023, filed with the SEC on August 30.

While we remain optimistic about our prospects for growth of organic net sales and organic operating income in fiscal 2024, evolving global macroeconomic conditions continue to create a challenging operating environment tempering our expectations. Accordingly, we now expect the following in fiscal 2024:

• Organic net sales growth in the 3-5% range as we maintain our belief that the strength of our portfolio of brands and our pricing strategy will deliver growth.

• Based on the above organic net sales growth outlook and our expectation that continued input cost pressures will be partially offset by lower supply chain disruption costs, we anticipate organic operating income growth in the 4% to 6% range.

• We continue to expect our fiscal 2024 effective tax rate to be in the range of approximately 21% to 23%.

• Capital expenditures are planned to be in the range of $250 to $270 million.

Liquidity and Financial Condition

Liquidity. We generate strong cash flows from operations, which enable us to meet current obligations, fund capital expenditures, and return cash to our stockholders through regular dividends and, from time to time, through share repurchases and special dividends. We believe our investment-grade credit ratings (A1 by Moody’s and A- by Standard & Poor’s) provide us with financial flexibility when accessing global debt capital markets and allow us to reserve adequate debt capacity for investment opportunities and unforeseen events.

Our cash flows from operations are supplemented by our cash and cash equivalent balances, as well as access to other liquidity sources. Cash and cash equivalents were $374 million at April 30, 2023, and $373 million at October 31, 2023. As of October 31, 2023, approximately 45% of our cash and cash equivalents were held by our foreign subsidiaries whose earnings we expect to reinvest indefinitely outside of the United States. We continue to evaluate our future cash requirements and may decide to repatriate additional cash held by our foreign subsidiaries, which may require us to provide for and pay additional taxes.

We have a $900 million commercial paper program that we use, together with our cash flows from operations, to fund our short-term operational needs. See Note 6 to the Condensed Consolidated Financial Statements for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2023, and October 31, 2023. The average balances, interest rates, and original maturities during the periods ended October 31, 2022 and 2023, are presented below.

									Three Months Average												Six Months Average
																					October 31,												October 31,
(Dollars in millions)																					2022						2023						2022						2023
Average commercial paper																					$31						$400						$15						$355
Average interest rate																					3.66%						5.47%						3.66%						5.39%
Average days to maturity at issuance																					31						36						31						34

Our commercial paper program is supported by available commitments under our $900 million bank credit facility that expires on May 26, 2028. Although unlikely, under extreme market conditions, one or more participating banks may not be able to fund its commitments under our credit facility. To manage this counterparty credit risk, we partner with banks that have investment grade credit ratings, limit the amount of exposure we have with each bank, and monitor each bank’s financial conditions.

Our most significant short-term cash requirements relate primarily to funding our operations (such as expenditures for raw materials, production and distribution, advertising and promotion, and current taxes), dividend payments, share repurchases, and capital investments. We expect to meet our planned short-term liquidity needs largely through cash generated from operations and borrowings under our commercial paper program. If we have additional liquidity needs, we believe that we could access financing in the capital markets. Our most significant longer-term cash requirements primarily include payments related to our long-term debt, employee benefit obligations, and deferred tax liabilities.

We believe our current liquidity position, supplemented by our ability to generate positive cash flows from operations in the future, and our ample debt capacity enabled by our strong short-term and long-term credit ratings, will be sufficient to meet all of our expected future short- and long-term financial commitments.

Cash flows. Cash provided by operations of $97 million during the six months ended October 31, 2023, declined $219 million from the same period last year, attributable largely to higher levels of inventory, reflecting significantly higher input costs as well as a rebuilding of inventories that had been constrained by past supply chain disruptions.

Cash used for investing activities was $61 million during the six months ended October 31, 2023, compared to $58 million for the same period last year. The $3 million increase largely reflects an $18 million increase in capital expenditures, partially offset by a $9 million increase in proceeds from sale of fixed assets, and proceeds of $4 million received upon settlement of a post-closing working capital adjustment related to the Diplomático acquisition.

Cash used for financing activities was $23 million during the six months ended October 31, 2023, compared to $1 million in cash provided by financing activities during the same prior-year period. The $24 million change largely reflects a $42 million increase in share repurchases, a $17 million increase in dividend payments, partially offset by a $34 million increase in net proceeds from issuance of commercial paper.

Dividends. See Note 7 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for information about cash dividends declared per share on our Class A and Class B common stock during fiscal 2024.

Share repurchases. As announced on October 2, 2023, the Board of Directors authorized the repurchase of up to $400 million (excluding brokerage fees and excise taxes) of outstanding shares of Class A and Class B common stock from October 2, 2023, through October 1, 2024 (the Repurchase Program), subject to market and other conditions.

Under the Repurchase Program, in October 2023, we repurchased 31,947 Class A shares at an average price of $57.14 per share and 718,932 Class B shares at an average price of $55.99 per share, for a total cost of $42 million.

Subsequent to the end of the quarter through November 30, 2023, we repurchased 77,158 Class A shares at an average price of $60.18 per share, and 2,942,873 Class B shares at an average price of $58.57 per share, for a total cost of $177 million. As of November 30, 2023, approximately $181 million remained available under the program.