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, 2024 (2024 Form 10-K). Note that the results of operations for the three months ended July 31, 2024, 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 report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). Additionally, we use some financial measures in this report that are not measures of financial performance under 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, (2) other items, and (3) 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), (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods), and (d) fair value changes to contingent consideration liabilities. 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 fiscal 2023, we acquired Gin Mare Brand, S.L.U. and Mareliquid Vantguard, S.L.U., which owned the Gin Mare brand (Gin Mare). This adjustment removes the fair value adjustments to Gin Mare’s earn-out contingent consideration liability that is payable in cash no earlier than July 2024 and no later than July 2027.

During fiscal 2024, we sold our Finlandia vodka business, which resulted in a pre-tax gain of $92 million, and entered into a related transition services agreement (TSA) for this business. This adjustment removes the (a) transaction costs related to the divestiture, (b) operating activity for the non-comparable period, which is activity in the first quarter of fiscal 2024, and (c) net sales, cost of sales, and operating expenses1 recognized pursuant to the TSA related to distribution services in certain markets.

During fiscal 2024, we sold the Sonoma-Cutrer wine business in exchange for an ownership percentage of 21.4% in The Duckhorn Portfolio Inc. (Duckhorn) along with $50 million cash and entered into a related TSA for this business. This transaction resulted in a pre-tax gain of $175 million. This adjustment removes the (a) transaction costs related to the divestiture, (b) operating activity for the non-comparable period, which is activity in the first quarter of fiscal 2024, and (c) net sales, cost of sales, and operating expenses1 recognized pursuant to the TSA related to distribution services in certain markets.

During the first quarter of fiscal 2025, we recognized a gain of $13 million on the sale of the Alabama cooperage. This adjustment removes this gain from our other expense (income), net and operating income.

We believe that these adjustments allow for us to better understand our organic results on a comparable basis.

• “Other Items.” Other Items include the additional items outlined below.

“Jack Daniel’s Country Cocktails business model change (JDCC).” In fiscal 2021, we entered into a partnership with the Pabst Brewing Company for the supply, sales, and distribution of Jack Daniel's Country Cocktails in the United States while Brown-Forman continued to produce certain products. During fiscal 2024, this production fully transitioned to Pabst Brewing Company for the Jack Daniel’s Country Cocktails products. This adjustment removes

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

the non-comparable operating activity related to the sales of Brown-Forman-produced Jack Daniel’s Country Cocktails products for the first quarter of fiscal 2024 and fiscal 2025.

“Franchise Tax Refund.” During the first quarter of fiscal 2025, we recognized a $13 million franchise tax refund due to a change in franchise tax calculation methodology for the state of Tennessee. This modification lowered our annual franchise tax obligation and was retroactively applied to franchise taxes paid during fiscal 2020 through fiscal 2023. This adjustment removes the franchise tax refund from our other expense (income), net and operating income.

• “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 2025 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. 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.

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 2025 Year-to-Date Highlights,” we provide supplemental information for our top markets ranked by percentage of 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 Spain. This aggregation represents our net sales of branded products to these markets.

• “Spain” includes Spain and certain other surrounding territories.

• “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.

• “Brazil” includes Brazil, Uruguay, Paraguay, and certain other surrounding territories.

•**“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, regardless of customer location.

Brand Aggregations.

In “Results of Operations - Fiscal 2025 Year-to-Date Highlights,” we provide supplemental information for our top brands ranked by percentage of net sales. In addition to brands listed by name, we include the following aggregations outlined below.

Beginning in fiscal 2025, we aggregated the “Wine” and “Vodka” product categories into “Rest of Portfolio,” due to the divestitures of Sonoma-Cutrer and Finlandia. Please refer to the new definition of "Rest of Portfolio” for more information. The fiscal 2024 "Rest of Portfolio" amounts have been adjusted accordingly for comparison purposes.

•**“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), The Glendronach, Glenglassaugh, Benriach, Slane Irish Whiskey, and Coopers’ Craft.

•**“American whiskey” includes the Jack Daniel’s family of brands (excluding the “Ready-to-Drink” products defined below), 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 & Coca-Cola RTD, Jack Daniel’s Country Cocktails, Jack Daniel’s Double Jack, 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 & Coca-Cola RTD products and Jack Daniel’s bulk whiskey shipments for the production of these products.

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

• “Rest of Portfolio” includes Sonoma-Cutrer, Korbel California Champagnes, Diplomático, Gin Mare, Chambord, Finlandia Vodka, Fords Gin, and Korbel Brandy.

•**“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 Apple (JDTA), Jack Daniel’s Tennessee Fire (JDTF), 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 Triple Mash Blended Straight Whiskey, Jack Daniel’s Bottled-in-Bond, Jack Daniel’s American Single Malt, Jack Daniel’s 12 Year Old, Jack Daniel’s 10 Year Old, and other Jack Daniel’s expressions.

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,” “ambition,” “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 2024 Form 10-K, and those described from time to time in our reports on Form 10-Q filed with the Securities and Exchange Commission (SEC).

Overview

Unless otherwise indicated, all related commentary is on a reported basis and is for the three months ended July 31, 2024 compared to the same period last year.

Divestitures

During the third quarter of fiscal 2024, we sold the Finlandia vodka business for $196 million cash and entered into a TSA for this business. During the fourth quarter of fiscal 2024, we sold the Sonoma-Cutrer wine business in exchange for an ownership percentage of 21.4% in Duckhorn along with $50 million cash and entered into a TSA for this business. The TSAs for these divestitures negatively impacted our gross margin for the three months ended July 31, 2024.

Fiscal 2025 Year-to-Date Highlights

*•*We delivered net sales of $1.0 billion for the three months ended July 31, 2024, a decrease of 8%. The decrease was driven by (a) lower volumes; (b) the negative effect of acquisitions and divestitures; (c) the negative effect of foreign exchange; and (d) the impact of the Jack Daniel’s Country Cocktails business model change (JDCC), partially offset by favorable price/mix.

**◦**From a brand perspective, net sales declines were led by JDTW and the Finlandia divestiture.

◦From a geographic perspective, the declines in net sales were across all geographic aggregations.

*•*We delivered gross profit of $565 million for the three months ended July 31, 2024, a decrease of $86 million, or 13%. Gross margin decreased 3.3 percentage points to 59.4% from 62.7% in the same period last year. The decrease in gross margin was largely driven by the timing of input cost fluctuations coupled with high inventory levels, as well as the impact of the TSAs for the divestitures (as described above), partially offset by favorable price/mix and the impact of JDCC.

*•*We delivered operating income of $281 million for the three months ended July 31, 2024, a decrease of 14% largely driven by the timing of input cost fluctuations coupled with high inventory levels, the impact of the TSAs for the divestitures (as described above), and the negative effect of foreign exchange. The decrease was partially offset by the gain on sale of the Alabama cooperage, Franchise Tax Refund, and favorable price/mix.

• We delivered diluted earnings per share of $0.41 for the three months ended July 31, 2024, a decrease of 14% from the $0.48 reported for the same period last year, driven primarily by the decrease in operating income.

Summary of Operating Performance
												Three Months Ended July 31,
(Dollars in millions)																																	2023						2024									Reported Change						Organic Change****1
Net sales																																	$	1,038					$	951								(8		%)				(4		%)
Cost of sales																																	387						386									—		%				2		%
Gross profit																																	651						565									(13		%)				(8		%)
Advertising																																	131						126									(4		%)				(1		%)
SG&A																																	200						188									(6		%)				(5		%)
Other expense (income), net																																	(7)						(30)									nm4						nm4
Operating income																																	327						281									(14		%)				(13		%)
Total operating expenses**2																																	$	324					$	284								(12		%)				(3		%)
As a percentage of net sales**3
Gross profit																																	62.7		%				59.4		%							(3.3)		pp
Operating income																																	31.5		%				29.6		%							(1.9)		pp
Non-operating postretirement expense																																	$	1					$	—								nm4
Interest expense, net																																	$	27					$	28								2		%
Effective tax rate																																	22.9		%				23.1		%							0.2		pp
Diluted earnings per share																																	$	0.48					$	0.41								(14		%)
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 2025 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 on a reported basis and is for the three months ended July 31, 2024 compared to the same period last year.

Top Markets
Three months ended July 31, 2024			Net Sales % Change vs. 2024
Geographic area****1			Reported			Acquisitions and Divestitures			JDCC****2			Foreign Exchange						Organic****3
United States			(5		%)	(1		%)	2		%	—		%				(4		%)
Developed International			(9		%)	2		%	—		%	1		%				(6		%)
Germany			(6		%)	—		%	—		%	—		%				(6		%)
Australia			(4		%)	—		%	—		%	3		%				(1		%)
United Kingdom			(21		%)	—		%	—		%	(1		%)				(23		%)
France			(5		%)	—		%	—		%	1		%				(5		%)
Canada			(8		%)	3		%	—		%	2		%				(2		%)
Spain			(14		%)	—		%	—		%	1		%				(14		%)
Rest of Developed International			(9		%)	9		%	—		%	3		%				3		%
Emerging			(16		%)	5		%	—		%	6		%				(5		%)
Mexico			(18		%)	—		%	—		%	2		%				(16		%)
Poland			(21		%)	19		%	—		%	(7		%)				(10		%)
Brazil			18		%	—		%	—		%	11		%				29		%
Rest of Emerging			(23		%)	6		%	—		%	11		%				(5		%)
Travel Retail			(11		%)	2		%	—		%	—		%				(8		%)
Non-branded and bulk			27		%	—		%	—		%	—		%				27		%
Total			(8		%)	2		%	1		%	2		%				(4		%)
Note: Results may differ due to rounding

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

2“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

3See “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’ net sales declined 5% driven by lower volumes, led by JDTW and el Jimador, along with the negative impact of JDCC. The declines were partially offset by higher volumes of Woodford Reserve, reflecting an estimated net increase in distributor inventories.

Developed International

• Germany’s net sales declined 6% driven by lower volumes of JDTW, partially offset by the positive contribution from Diplomático.

• Australia’s** net sales declined 4% led by the negative effect of foreign exchange.

• The United Kingdom’s net sales declined 21% driven by lower volumes, led by JDTW, partially due to the buy-in ahead of an excise tax increase in the same prior-year period.

• France’s net sales declined 5% driven by declines across our Jack Daniel’s family of brands and the negative effect of foreign exchange, partially offset by the positive contribution from Diplomático.

• Canada’s** net sales declined 8% driven by the negative effect of foreign exchange and the divestitures of Sonoma-Cutrer and Finlandia.

• Spain’s net sales declined 14% driven by lower volumes of JDTW, partially offset by the positive contributions from Diplomático and Gin Mare.

• Net sales in the Rest of Developed International declined 9% driven by the Finlandia divestiture, the negative effect of foreign exchange, and lower volumes of Gin Mare in Italy. The declines were partially offset by higher JDTW volumes in Japan primarily due to changes in distributor ordering patterns in the same prior-year period (we transitioned to owned distribution April 1, 2024).

Emerging

• Mexico’s net sales declined 18% led by lower volumes of Herradura and New Mix.

• Poland’s** net sales declined 21% driven by the Finlandia divestiture and lower volumes of JDTW, partially offset by the positive effect of foreign exchange.

• Brazil’s net sales increased 18% driven by higher volumes across the portfolio, led by JDTA, JDTW, and JDTH. The growth was partially offset by the negative effect of foreign exchange.

• Net sales in the Rest of Emerging declined 23% led by (a) lower JDTW volumes in the United Arab Emirates, due to an estimated net decrease in distributor inventories; (b) lower volumes of el Jimador in Colombia; (c) the Finlandia divestiture; and (d) the negative effect of foreign exchange (reflecting the strengthening of the dollar primarily against the Turkish lira). These declines were partially offset by JDTW growth in Türkiye and Sub-Saharan Africa.

Travel Retail’s net sales declined 11% driven by lower volumes of the other super-premium Jack Daniel’s expressions and Woodford Reserve, as well as the Finlandia divestiture. The declines were partially offset by the growth of Diplomático.

Non-branded and bulk’s net sales increased 27% driven by higher prices for used barrels.

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 on a reported basis and is for the three months ended July 31, 2024 compared to the same period last year.

Major Brands
Three months ended July 31, 2024									Net Sales % Change vs 2024
Product category / brand family / brand****1									Reported			Acquisitions and Divestitures			JDCC****2			Foreign Exchange						Organic****3
Whiskey									(5		%)	—		%	—		%	2		%				(3		%)
JDTW									(8		%)	—		%	—		%	2		%				(6		%)
JDTH									—		%	—		%	—		%	4		%				4		%
Gentleman Jack									(1		%)	—		%	—		%	2		%				1		%
JDTA									(1		%)	—		%	—		%	6		%				5		%
JDTF									(1		%)	—		%	—		%	2		%				1		%
Woodford Reserve									3		%	—		%	—		%	—		%				3		%
Old Forester									16		%	—		%	—		%	—		%				16		%
Rest of Whiskey									(20		%)	—		%	—		%	2		%				(18		%)
Ready-to-Drink									(12		%)	—		%	7		%	2		%				(4		%)
JD RTD/RTP									(13		%)	—		%	10		%	2		%				(2		%)
New Mix									(11		%)	—		%	—		%	2		%				(9		%)
Tequila									(23		%)	—		%	—		%	—		%				(23		%)
el Jimador									(26		%)	—		%	—		%	—		%				(26		%)
Herradura									(15		%)	—		%	—		%	—		%				(14		%)
Rest of Portfolio									(18		%)	21		%	—		%	(2		%)				1		%
Non-branded and bulk									27		%	—		%	—		%	—		%				27		%
Note: Results may differ due to rounding

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

2“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

3See “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

• Net sales for JDTW declined 8% driven by lower volumes, led by the United States, the United Arab Emirates, and the United Kingdom, along with the negative effect of foreign exchange (primarily reflecting the strengthening of the dollar against the Turkish lira). The declines were partially offset by higher volumes in Japan following the transition to owned-distribution and higher prices in Türkiye, in response to high inflation and currency devaluation.

• Net sales for JDTH were flat driven by growth in Brazil and Türkiye, offset by the negative effect of foreign exchange. An estimated net increase in distributor inventories positively impacted net sales.

• Net sales for Gentleman Jack declined 1% driven by the negative effect of foreign exchange.

• Net sales for JDTA declined 1% driven by the negative effect of foreign exchange and declines in South Korea following the continued product launch in the same prior-year period, partially offset by higher volumes in Brazil.

• Net sales for JDTF declined 1% driven by the negative effect of foreign exchange.

• Woodford Reserve’s net sales increased 3% driven by higher volumes in the United States, partially offset by lower volumes in Travel Retail.

• Old Forester’s net sales increased 16% driven by higher prices and volumes in the United States.

• Net sales for Rest of Whiskey declined 20% driven by lower volumes of the other super-premium Jack Daniel's expressions and Glendronach.

Ready-to-Drink

• Net sales for the JD RTD/RTP brands declined 13% led by the impact of JDCC and the negative effect of foreign exchange.

• New Mix net sales declined 11% driven by lower volumes.

Tequila

• el Jimador’s net sales declined 26% driven by lower volumes in the United States, Colombia, and Mexico. The declines were partially offset by higher prices in the United States.

• Herradura’s net sales declined 15% led by lower volumes in Mexico.

Net sales for Rest of Portfolio declined 18% driven by the Finlandia divestiture and the negative effect of foreign exchange, partially offset by the positive contribution from Diplomático due to timing of order patterns in the same prior-year period. An estimated net increase in distributor inventories positively impacted net sales.

Non-branded and bulk’s net sales increased 27% driven by higher prices for used barrels.

Year-Over-Year Period Comparisons

Unless otherwise indicated, all related commentary is on a reported basis and is for the three months ended July 31, 2024 compared to the same period last year.

Net Sales
			3 Months
Percentage change versus the prior year period ended July 31			Volume			Price/mix			Total
Change in reported net sales			(17		%)	9		%	(8		%)
Acquisitions and divestitures			3		%	(2		%)	2		%
JDCC1			6		%	(5		%)	1		%
Foreign exchange			—		%	2		%	2		%
Change in organic net sales			(8		%)	4		%	(4		%)
Note: Results may differ due to rounding

1“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

For the three months ended July 31, 2024, net sales were $1.0 billion, a decrease of $87 million, or 8%, driven by (a) lower volumes; (b) the negative effect of acquisitions and divestitures; (c) the negative effect of foreign exchange; and (d) the impact of JDCC, partially offset by favorable price/mix. Lower volumes were led by JDTW, our RTD portfolio, and el Jimador. Price/mix reflects higher prices, led by Türkiye (in response to high inflation and currency devaluation) and the United States, as well as favorable product mix. See “Results of Operations - Fiscal 2025 Year-to-Date Highlights” above for further details on net sales for the three months ended July 31, 2024.

Cost of Sales
			3 Months
Percentage change versus the prior year period ended July 31			Volume			Cost/mix			Total
Change in reported cost of sales			(17		%)	17		%	—		%
Acquisitions and divestitures			3		%	(5		%)	(2		%)
JDCC1			6		%	(3		%)	3		%
Foreign exchange			—		%	1		%	1		%
Change in organic cost of sales			(8		%)	10		%	2		%
Note: Results may differ due to rounding

1“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

For the three months ended July 31, 2024, cost of sales were $386 million, a decrease of $1 million, as lower volumes and the impact of JDCC were offset by unfavorable cost/mix (timing of input cost fluctuations coupled with high inventory levels) and the impact of the TSAs for the divestitures of Finlandia and Sonoma-Cutrer.

Gross Profit
Percentage change versus the prior year period ended July 31			3 Months
Change in reported gross profit			(13		%)
Acquisitions and divestitures			4		%
JDCC1			—		%
Foreign exchange			2		%
Change in organic gross profit			(8		%)
Note: Results may differ due to rounding

1“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

Gross Margin
For the period ended July 31			3 Months
Prior year gross margin			62.7		%
Price/mix			2.0		%
Cost			(4.4)		%
Acquisitions and divestitures			(1.4		%)
JDCC1			0.7		%
Foreign exchange			(0.3		%)
Change in gross margin			(3.3)		%
Current year gross margin			59.4		%
Note: Results may differ due to rounding			—

1“JDCC” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

For the three months ended July 31, 2024, gross profit of $565 billion, a decrease of $86 million, or 13%. Gross margin decreased 3.3 percentage points to 59.4% from 62.7% in the same period last year. The decrease in gross margin was largely driven by the timing of input cost fluctuations coupled with high inventory levels, as well as the impact of the TSAs for the divestitures (as described above), partially offset by favorable price/mix and the impact of JDCC.

Operating Expenses
Percentage change versus the prior year period ended July 31
3 Months			Reported			Acquisitions and Divestitures			Franchise Tax Refund****1						Foreign Exchange												Organic
Advertising			(4		%)	2		%	—		%				1		%										(1		%)
SG&A			(6		%)	1		%	—		%				1		%										(5		%)
Total operating expenses****2			(12		%)	4		%	4		%				1		%										(3		%)
Note: Results may differ due to rounding

1“Franchise Tax Refund” is included in “Other Items”. See “Non-GAAP Financial Measures” above for additional details.

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

For the three months ended July 31, 2024, operating expenses totaled $284 million, a decrease of $40 million, or 12%. The decrease in operating expenses was primarily driven by (a) the gain on sale of the Alabama cooperage, (b) the Franchise Tax Refund, (c) the decrease in SG&A expense, (d) the decrease in advertising expense, and (e) the positive effect of foreign exchange.

• Advertising expense decreased 4% for the three months ended July 31, 2024 led by lower Jack Daniel’s and Coca-Cola RTD spend as compared to the prior-year period launch in the United States, as well as the impact of our recently divested brands. The declines were partially offset by an increase in JDTW advertising expense.

• SG&A expense decreased 6% for the three months ended July 31, 2024 driven by lower compensation-related expenses, discretionary spend, and benefit-related expenses.

Operating Income
Percentage change versus the prior year period ended July 31			3 Months
Change in reported operating income			(14		%)
Acquisitions and divestitures			3		%
Other Items1			(4		%)
Foreign exchange			3		%
Change in organic operating income			(13		%)
Note: Results may differ due to rounding

1“Other Items” includes “JDCC” and “Franchise Tax Refund”. See “Non-GAAP Financial Measures” above for additional details.

For the three months ended July 31, 2024, operating income totaled $281 million, a decrease of $46 million, or 14%. Operating margin decreased 1.9 percentage points to 29.6% from 31.5% in the same period last year largely driven by the timing of input cost fluctuations coupled with high inventory levels, the impact of the TSAs for the divestitures (as described above), and the negative effect of foreign exchange. The decrease was partially offset by the gain on sale of the Alabama cooperage, Franchise Tax Refund, and favorable price/mix.

The effective tax rate for the three months ended July 31, 2024 was 23.1% compared to 22.9% for the same period last year. The increase in our effective tax rate was driven primarily by a larger impact of state taxes, which was partially offset by the net impact of discrete items.

Diluted earnings per share of $0.41 for the three months ended July 31, 2024, decreased 14% from the $0.48 reported for the same period last year driven primarily by the decrease in operating income.

Fiscal 2025 Outlook

Below we discuss our outlook for fiscal 2025, which reflects the trends, developments, and uncertainties (including those described above) that we expect to affect our business.

We anticipate a return to growth for organic net sales and organic operating income in fiscal 2025 driven by gains in international markets and the benefit of normalizing inventory trends. This outlook is tempered by our belief that global macroeconomic and geopolitical uncertainties will continue to create a challenging operating environment. Accordingly, we reiterate the following expectation for fiscal 2025:

• Organic net sales growth in the 2% to 4% range.

• Organic operating income growth in the 2% to 4% range.

• Our effective tax rate to be in the range of approximately 21% to 23%.

• Capital expenditures planned to be in the range of $195 to $205 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 $446 million at April 30, 2024, and $416 million at July 31, 2024. As of July 31, 2024, approximately 41% 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 7 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report for outstanding commercial paper balances, interest rates, and days to maturity at April 30, 2024, and July 31, 2024. The average balances, interest rates, and original maturities during the periods ended July 31, 2023 and 2024, are presented below.

									Three Months Average
																					July 31,
(Dollars in millions)																					2023						2024
Average commercial paper																					$310						$438
Average interest rate																					5.27%						5.52%
Average days to maturity at issuance																					32						29

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), repayment of our notes maturing in April 2025, dividend payments, 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 $17 million during the three months ended July 31, 2024, declined $21 million from the same period last year, reflecting lower earnings offset partially by lower working capital requirements.

Cash provided by investing activities was $10 million during the three months ended July 31, 2024, compared to $44 million used for investing activities during the same period last year. The $54 million change largely reflects proceeds of $51 million received from the sale of our Alabama cooperage in May 2024.

Cash used for financing activities was $51 million during the three months ended July 31, 2024, compared to $50 million in cash provided by financing activities during the same prior-year period. The $101 million change largely reflects a $99 million decrease in net proceeds from short-term borrowings.

Dividends. See Note 8 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 2025.