Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown-Forman's third quarter and year-to-date fiscal year 2026 earnings call.

Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations.

Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict.

You should not place undue reliance on any forward-looking statements. Except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

This morning we issued a press release containing our results for the third quarter and nine months ended January 31st, 2026, in addition to posting presentation materials that Lawson and Leanne will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events and Presentations.

In the press release, we have listed a number of the risk factors that you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our 2025 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission.

During this call, we will be discussing certain non-GAAP financial measures. These measures, a reconciliation to the most directly comparable GAAP financial measures, and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations, are contained in the press release and investor presentation.

With that, I would like to turn the call over to Lawson.

Thank you, Sue, and good morning, everyone. I'm pleased to share our third quarter and year-to-date fiscal 2026 results with you today.

First, I'll share the key drivers and highlights of our top-line results, including our geographic performance and strategic innovation. Then I'll turn it over to Leanne, who will share additional insights on other financial metrics, including gross margin and operating expenses, and our full-year fiscal 2026 outlook, which we have reaffirmed.

In general, the key themes we'll share today are very consistent with what we shared in our last several earnings calls, as market conditions have remained largely unchanged. In the current operating environment, which has been challenging and uncertain for some time now, I consider this to be positive.

Our global footprint shows a clear divergence in consumer behavior. While macro uncertainty continues to pressure discretionary spending in the U.S.

and many developed markets, we see significantly stronger, more resilient consumer trends in key emerging international markets and the travel retail channel. As we've shared in previous calls, used barrel sales and the trade dispute between the U.S.

and Canada are persistent headwinds that continue to have a significant negative impact on our year-to-date organic net sales and organic operating income. While we expect the cyclical headwinds to eventually subside, we recognize the highly dynamic nature of our industry and acknowledge that some of the current pressures could persist.

Therefore, our primary focus remains squarely on actively managing the factors within our control. Moving to our year-to-date fiscal 2026 top-line performance: for the first nine months of fiscal 2026, reported net sales declined 2%, with organic net sales flat after adjusting for the unfavorable impact related to the absence of Korbel and Sonoma-Cutrer, as well as the positive effect of foreign exchange.

From a geographic perspective, our organic net sales results continued to be led by the emerging international markets and travel retail channel. Both improved sequentially from the first-half results, delivering 15% and 7% growth, respectively, in the year-to-date period.

In our emerging international markets, Mexico and Brazil continue to lead our performance, delivering strong double-digit growth. In Mexico, organic net sales grew 15%, driven by New Mix, which led the accelerating RTD category in Mexico, gaining market share and benefiting from consumer trends of flavor, convenience, and value, particularly as the economic environment remains under pressure.

In Brazil, organic net sales grew more than 20% in the year-to-date period. Our strategic approach to building the Jack Daniel's family of brands through thoughtful geographic expansion, increased distribution, and targeted revenue growth management strategies continues to produce strong results.

Jack Daniel's Tennessee Apple, Jack Daniel's Tennessee Whiskey, and Jack Daniel's Tennessee Fire each grew organic net sales at a strong double-digit rate and maintained market share. As we have mentioned previously, we also believe that premiumization is an opportunity in Brazil and are focused on increasing distribution for our super-premium whiskey portfolio, which resulted in strong double-digit organic net sales growth for Woodford Reserve and Gentlemen Jack.

The travel retail channel delivered growth across most of the major regions as we benefited not only from an increase in the number of travelers, but also from the strategic workforce restructuring that we implemented a year ago. The decision to restructure our travel retail team ensured that they are now more closely aligned to our global airport operators and growing transportation channels, such as cruise and airlines.

The efficiency of our new structure also allows us to allocate additional resources to fast-growing regions in the Middle East and India. Now to our developed markets, which collectively declined by 6% in a particularly challenging environment.

Canada, of all of our markets, continues to have the most significant impact on our organic results, declining nearly 60% as American-made products remain off shelves in the majority of the Canadian provinces. Turning to our developed Europe markets, the operating environment remains challenging due to sustained pressure on consumer sentiment and confidence across most European economies.

Despite the environment, we are maintaining or gaining share of the whiskey category in six of our eight top European markets. Our organic net sales declined 7% in Germany, where consumers are increasing their savings rates due to the challenging economic conditions, and total distilled spirits trends declined at a mid-single-digit rate, fueling heightened competitive promotional activity.

We've successfully gained further distribution, especially for our ready-to-drink portfolio within the discounter channel. This channel is key as it appeals to consumers who are looking for ways to stretch their budgets, demonstrating our growth even within the current economic climate.

In the UK, organic net sales declined 10%. Challenging category dynamics remain the most significant headwind as economic conditions, including increasing excise taxes, are negatively impacting consumer spending and TDS trends.

Off-premise takeaway trends for total distilled spirits, as well as the whiskey category, remain in low single-digit decline, although trends continue to improve, and Jack Daniel's Tennessee Whiskey continued to outperform the category and gain market share. Even amidst this backdrop, both Germany and the UK benefited from innovation with the strong launch of Jack Daniel's Tennessee Blackberry.

Jack Daniel's has a proven track record of leveraging our global footprint and capabilities to extend the impact of new flavor launches, and we will continue executing our strategic phased launch to support scalable and sustainable geographic expansion for the next few years. To date, we have been very pleased with the early stages of the Blackberry launch.

In addition to innovation, we're also benefiting from strategic route-to-consumer decisions we've made, with strong growth coming from our most recently launched owned-distribution markets of Italy and Japan. We've shared in the past that we believe owning our distribution enables us to deepen our collaboration with our trade partners, accelerate growth for our key super-premium brands like Diplomático Rum and Gin Mare, and further strengthen the presence of our iconic American whiskey portfolio led by the Jack Daniel's family of brands.

Year to date, Italy delivered very strong double-digit organic net sales growth, driven by Gin Mare, Italy's number-one super-premium gin by value, and Diplomático, the number-three super-premium plus rum by value. We also experienced growth across the majority of the remaining brands in our portfolio in Italy, including strong double-digit growth from the Jack Daniel's family of brands.

In Japan, our strategic decision to distribute the William Grant & Sons portfolio brands combines our renowned spirits portfolios, scales our business in Japan, reinforces our standing with local customers, and further strengthened our commitment to long-term growth and innovation in the world's third-largest whiskey market. Now to the United States, where total distilled spirits continued to decline at a low single-digit rate.

Our organic net sales declined 1% in the year-to-date period and remained ahead of both of our depletion-based results and takeaway trends, driven by the benefit from our U.S. distributor changes and the impact of innovation.

With regard to our distributor changes, we're also recognizing the benefits of enhanced dedication and focus, increased distributor investment funds, and an improved margin structure. Innovation has been one of the most impactful growth drivers within total distilled spirits, and we have seen continued excitement and outstanding consumer engagement for our newest brand, Jack Daniel's Tennessee Blackberry.

The launch of Blackberry continued to exceed expectations and is the second-largest new product by value within total distilled spirits in Nielsen. As anticipated, shipments still exceed depletions, though the gap between the two continued to narrow as we move through the year-to-date period.

We remain encouraged by the strong launch in the U.S. and are capitalizing on this excitement to maintain momentum and boost consumer takeaway.

In addition to innovation, RTDs are the other growth driver within total distilled spirits, and there has been quite a bit of activity within our RTD portfolio. First, launching New Mix, Mexico's original tequila RTD, in the U.S.

is an opportunity for us to connect with Mexican American consumers through a highly recognizable brand while simultaneously introducing new consumers to the world's first tequila-based RTD. We are currently testing two flavors in a limited number of states with a focus on growing distribution and awareness before expanding more broadly.

While still limited, we believe the initial launch is off to a strong start and look forward to providing you with future updates. Earlier this week, we announced a mutual agreement to conclude our partnership with Pabst Brewing Company, who has managed the supply, sales, and distribution of Jack Daniel's Country Cocktails within the United States and domestic military markets since fiscal 2021.

The partnership provided us with greater access to production and variety-pack capabilities, along with more efficient access to new distribution channels, and we would like to thank Pabst for the role they have played in helping successfully drive the growth of Jack Daniel's Country Cocktails and in introducing new innovation over the past five years. Ultimately, as we evolved our U.S.

distribution network earlier this year and reviewed our long-term growth strategy, we now believe by centralizing the strategic direction of our flavored malt beverage portfolio, we can more effectively unlock its potential and long-term valuation. We're working closely with Pabst on a comprehensive transition plan to ensure seamless product availability for retailers and distributors through the end of the agreement.

In summary, as we navigate the dynamic and challenging operating environment, we remain focused on actively managing the factors within our control. We continue to act swiftly and make key strategic decisions, including innovating and focusing on our premium plus brands and ready-to-drink offerings to strengthen our brand portfolio and align with current consumer trends, making key route-to-consumer transitions, including in the U.S., Japan, and Italy, and streamlining our workforce structure to increase our agility, leverage synergies, and enhance our ways of working with a clear goal to accelerate our growth in an increasingly challenging and competitive environment.

Through the nine months of fiscal 2026, our team has demonstrated exceptional resilience and focus and has executed our plans despite the challenging backdrop. As such, our results are largely in line with our expectations, and we believe we remain well-positioned to achieve our full-year guidance.

I would like to thank each Brown-Forman employee for their contributions to these results. I know this is a challenging time, and I deeply appreciate the commitment and dedication each of you continues to demonstrate.

Before I conclude my remarks, I also want to provide an update on our CFO recruitment process, which is in active discussions now. While we are always incredibly thoughtful in our approach to talent and succession, we have intentionally focused our search on potential candidates who possess both depth and breadth of leadership experience across finance and operations in publicly traded multinational organizations.

As we look to accelerate growth in key emerging markets, experience leading business segments outside of the U.S. is also a key consideration.

While the process has taken a bit longer than we originally preferred, I feel very good about where we are at this point and appreciate the role that Leanne will continue to play between now and her retirement date at the end of the fiscal year, ensuring a smooth transition. With that, I'll turn the call over to Leanne.

Thank you, Lawson, and good morning, everyone. As Lawson mentioned, I will provide additional insights on other financial highlights, including gross margin, operating expenses, and capital allocation, concluding our prepared remarks with comments on our full-year fiscal 2026 outlook.

First to our gross margin: in the year-to-date period of fiscal 2026, our reported gross profit decreased 1%, resulting in a reported gross margin of 59.9%. Our gross margin expanded 50 basis points due to a 160 basis points A&D benefit largely related to the conclusion of our relationship with Korbel and the absence of the prior-year transition services agreement for Sonoma-Cutrer, and a 30 basis points favorable impact from foreign exchange.

These benefits were partially offset by 90 basis points of higher cost largely due to lower production levels, inflation on our input costs, and timing of cost fluctuations, and 40 basis points of unfavorable price mix due to the strong growth of New Mix and lower used barrel sales. Turning to operating expenses: in the year-to-date period, organic advertising expense decreased 2%, which is largely aligned with our depletion-based top-line results.

Our brand investment remains at what we believe to be a healthy level, and we continue to focus on Jack Daniel's Tennessee Whiskey to support the 'That's What Makes Jack, Jack' global campaign, as well as the launch of Jack Daniel's Tennessee Blackberry. As expected, the majority of fiscal 2026 brand investment occurred during the key selling months of October, November, and December.

Our organic SG&A investment decreased 2% as a result of our strategic workforce restructuring initiative that we implemented in January of 2025. In total, reported operating income was flat, and organic operating income decreased 3% year-to-date fiscal 2026.

Diluted earnings per share decreased 8% to $1.41 per share, which was largely driven by the absence of the prior-year gain on the sale of the Duckhorn investment. Turning to capital allocation: I'd like to take the opportunity to provide you with a few comments related to our capital allocation philosophy and recent actions before moving to our outlook.

As we have shared, our philosophy balances ongoing investment in the business, including organic investments and acquisitions, alongside shareholder returns, such as regular dividends, share repurchases, and special dividends, with the core objective of sustainable long-term value creation. First to our free cash flow, which we define as cash provided by operating activities less capital expenditures: we are diligent in ensuring there is a high level of working capital discipline throughout the organization.

In the nine months of fiscal 2026, capital expenditures decreased by $36 million compared to the year-ago period. While we are continuing to fully invest behind our business, the reduction of our working capital requirements and improved cash generation is the result of a number of projects and expansions now being completed.

We grew cash flow from operations by $263 million to $709 million, primarily reflecting this disciplined working capital management. As you can see on Schedule E of our earnings release, free cash flow increased by $299 million to $628 million, reflecting strong operating cash flow generation and lower capital expenditure needs.

Secondly, on October 2nd, 2025, the Brown-Forman Board of Directors authorized the repurchase of up to $400 million of our outstanding shares of Class A and Class B common stock, and this program was concluded in December 2025. Our balance sheet remains strong, and we continue to strengthen our cash position.

Now to our full-year fiscal 2026 outlook, which, as Lawson shared, we are reaffirming. The spirits sector continues to face headwinds, and we continue to expect that consumer behavior and the level of trade inventories will not change meaningfully during the remainder of our fiscal year 2026.

Our guidance also continues to assume that there will be no change to the current tariff impact, direct and indirect, on our products. Our expectations from a geographic perspective remain the same as well, with continued growth in our emerging markets and the travel retail channel, and expected depletion-based trends in the U.S.

and developed international markets to remain similar to fiscal 2025, with the exception of Canada. While we remain hopeful for the return of American products to Canadian store shelves, we continue to assume American spirits products will remain off the shelf across most of Canada for our full fiscal year, and that expectation is reflected in our fiscal 2026 guidance.

Another significant headwind is the year-over-year impact of our used barrel sales. The challenging and uncertain operating environment faced by the entire spirits industry has reduced the demand for used barrels and consequently also put downward pressure on the pricing.

Therefore, we continue to expect used barrel sales to be lower by more than half of the fiscal 2025 level. These two headwinds negatively impacted our organic net sales results by more than 2 points in the year-to-date period.

While we continue to execute our long-term pricing strategy and expect to benefit from our revenue growth management activities and strategic innovation, particularly Jack Daniel's Tennessee Blackberry, we anticipate product mix headwinds due to faster growth of our RTD portfolio. Also, as you can see on Schedule B of the earnings release, even as the activities to support our U.S.

distributor network moves beyond the phasing impact of the transitions and the launch of Jack Daniel's Tennessee Blackberry concludes, we anticipate that shipments will roughly be in line with depletions in fiscal 2026. For fiscal 2026, based on the year-to-date results and the currently known factors, we reaffirm a low single-digit decline in organic net sales, guiding closer to the stronger end of the range, and reported gross margin expansion, as we believe the benefit from A&D will more than offset the headwinds from the negative price mix and higher cost.

As we shared, the conclusion of the transition services agreement, which followed the Sonoma-Cutrer divestiture, and the absence of Korbel has positively impacted our reported gross margin on a year-over-year basis. While input cost in fiscal 2026 will continue to benefit from lower agave cost, we project higher cost compared to the prior-year period, largely driven by the impact of inflation and lower production volumes.

I would like to take a moment to expand on cost pressures. As you are aware, our portfolio is heavily weighted to American whiskey.

We plan to liquidate aging barrels in the coming years that were produced during the hyperinflationary years of the early 2020s, where we faced significant cost increases for barrels, grain, energy, as well as general inflation. While we have taken strategic steps to optimize our wood supply chain in response to these rising costs, due to the aging of most of our products, the impact of these recent actions will take time to come through our results.

Therefore, we expect the cost pressures associated with our barreled whiskey to persist. Turning to our outlook for organic operating expenses: while our long-term goal is to align A&P spend with depletion-based top-line growth, our fiscal 2026 A&P investment reflects our focus on managing controllable expenses and compares to the accelerated advertising spend incurred during the year-to-go period of fiscal 2025.

We also continue to expect a reduction in SG&A following our strategic workforce restructuring initiative. Based on the above, we are forecasting organic operating income to decline in the low single-digit range, guiding closer to the lower end of the range.

We continue to expect our estimated capital expenditures will be in the range of $110 to $120 million for the full fiscal year, guiding closer to the lower end of the range. We are updating our effective tax rate outlook from a range of approximately 21% to 23% to a range of approximately 19% to 21%.

Again, our performance in the nine months of fiscal 2026 is largely in line with our expectation and provides us the confidence to reaffirm our full-year 2026 outlook. We will continue to navigate the short-term challenges at pace through the strength of our portfolio, including strategic innovation, the benefits of our route-to-consumer transition, our evolved workforce structure, and our strong balance sheet.

We remain focused on delivering our near-term goals balanced against executing our long-term strategy to ensure the enduring success of Brown-Forman. With this being my final quarterly earnings call, I wanted to take a moment before we open the floor for questions to say thank you.

Thank you to my exceptional teammates at Brown-Forman that I have had the honor of working and growing with over the last 30 years. Thank you to the Brown family for entrusting this management team with your investment and your long-term stewardship of this exceptional company.

Thank you to all of our investors and analysts for your many questions and hours of dialogue and for your interest in Brown-Forman. I look forward to continuing to be a long-term shareholder, a brand ambassador, and a proud consumer of our highest-quality premium plus portfolio in my next chapter.

This concludes our prepared remarks. Please open the line for questions.

Hi, good morning, everyone. I wanted to ask about just the developed market business.

Obviously, Lawson, you mentioned the challenges remain in the U.S. and Europe, and one of your key global competitor mentioned the potential for price repositioning.

I would love to hear your thoughts on the pricing environment, the macro pressure that you're seeing in developed markets, and whether you would consider similar actions to try to stimulate volumes in those countries. Thank you.

Okay. Let me take this sort of overall developed market first, and then I'll speak to the pricing second.

Look, in the world of developed markets, we talk about the U.S. when we obviously break U.S.

U.S. out separately from that.

Our developed markets, as you see in our, in our earnings release, there's a few things, maybe one big one right up front, is Canada. That's pulling those numbers down, and we're obviously still not selling in the vast majority of the provinces in Canada, so that that's that is weighing on that quite a bit.

Places like Europe, in aggregate, I mean it it's not changed a lot over the last few quarters. It's it's weak.

Particularly Germany and the UK are both tough markets, and those are big markets for us. Sort of low single digit down is the market.

Now there's a the positive of our European performance is I do know our our top eight markets, we're gaining share in six out of eight, something like that. It's not really a share story over there.

It's just general spirits market weakness, but I think if you sort of look across Europe, it's, as I say, low single digit. Quite honestly, it's better than the United States.

To the U.S. market itself, look, I know everyone analyzes it to death.

We've got all the charts in the world to try to figure out and find the green shoots as to when we think the market's going to, when is it going to turn around. I think that's the reality is that's the key for the industry right now, is when are you going to start to see the U.S.

market turn around. I know a lot of folks have have focused on the result, the last basically two months of Nielsen results.

I always caution on sort of these shorter-term movements because there's just there can be a lot of noise in the shorter term. If you're trying to find a green shoot, that is probably, the best one to go look at right now.

Now, it's still it's still not great, and you got to think about it with RTDs and not and all those kind of things, but it has I don't want to declare it's bottomed out, but over the last couple of months the numbers have improved, by a few points. Pricing, and I I obviously know there's a difference between, by the way, the term 'price reposition' versus just good old, not good old fashioned, bad old fashioned increased discounting.

A few things on that. Repositioning brands down is a very different challenge for some companies.

I would, use el Jimador for Brown-Forman. We we didn't reposition down, we repositioned up, and that can be a a trying experience trying to go up, but it is something that we've done much more than the other way around.

In fact, I can't really think of an example of repositioning down. If you look at TDS right now in the United States, I think the last number we saw, TDS is down about a point from a pricing perspective.

I don't know if that's better than we expected or not. It's a little bit worse than it was six months ago or so, but it's still only 1 point down, and it the, tequila is sort of leading that down a little bit.

I think everybody's been predicting that for a while. I will say Brown-Forman's less than a half a point down, and so in terms of an outlook for a more aggressive market, pricing environment, it it hasn't come through yet.

I know everybody's looking at it and they're looking at industry inventories and saying, 'We expect it's going to come.' We feel pretty comfortable with our own inventory situation.

We're not in the same place that some others are, and, it is our intention to to, try to hold our ground as much as we can. We're not going to be ignorant of sort of market trends if we have to, but right now we don't have to.

I don't I don't believe we have to. I don't think that would be the smart thing to do.

We're going to hold as as hard as we can.

Hey, good morning, and, Leanne, congratulations on your upcoming retirement. I did want to ask on the gross margin commentary that you made at the end of the call.

You mentioned some cost headwinds from higher cost inventory, I guess, coming through over the next couple of years. This is in the context of, Lawson, the pricing environment that you just discussed, probably a little bit tougher than the goal of consistent low single-digit pricing.

Maybe you could just help us out, any other puts and takes we should consider looking over the next couple years on gross margins as we think about potential expansion or contraction. Then I did want to also ask on the U.S.

Underlying sales appeared to be down around 5% in the quarter, which was pretty much in line with Nielsen. I guess I'm wondering if you could sort of quantify any tailwinds you saw from the changes in distributor terms, or Blackberry depletions as we think about the trend there.

Thank you.

All right. Let me start on the gross margin, and then Leanne can talk a little bit about sort of more recent trends around underlying and organic.

I think the easiest way to explain the gross margin trends is if you turn to slide 7 in the earnings presentation that we have out there. It says gross margin expansion of 50 basis points, and it gives you the year-to-date walk.

If you take a look at that, and then you'll see the acquisitions and divestitures, that's the Sonoma-Cutrer and Korbel changes, take that out because that's not going to repeat into next fiscal year. Take out FX.

Then just look across price mix and cost, and the way I think the easiest way for you all to sort of grasp directionally where we're going, this is not intended to be sort of full guidance or anything like that. We aren't ready to do that, but we do want to directionally get everyone an understanding of what we're going to see in terms of headwinds in the next fiscal year.

The price mix, down 0.4, that's generally mix for the most part. We hope to get some of that offsetting, where, as I just said a second ago, that it's not taking prices down, it is much more driven by brands like New Mix, which are going to be lower priced, but are growing at a gigantic rate right now.

Then costs: we expect costs, as Leanne did say, we got a couple of years of continued challenging costs around our barrels, and we know it because these are costs we incurred 4 or 5 years ago. They are going to roll through, and then that will end, and we would see some improvement from there.

Just directionally, that's the kind of year-over-year challenge, I think, we're facing next year in terms of gross margin. Then

to your second question, which was regarding the U.S. underlying results for the quarter, how it relates to distributor terms, and also how Blackberry.

What we would say is we are definitely seeing the positive impact of our distributor transition terms and the investments that they're making behind our brands. We're continuing to see that benefit come through, as well as for the transitions.

We are seeing some impact with our emerging brands as the distributors focus on transitioning and ramping up our core SKUs. We are seeing some impact in the short term to our emerging brands, but we are working closely with our distributor partners on a day-by-day basis, and we expect that to normalize as we continue to go into future quarters.

Then for Blackberry, Blackberry continues to do very well and exceed our expectations in the U.S., and it's going to be a continued source of growth as we look into the future. Then, Lawson, I don't know if there's anything else you want to add to that.

Nope. I think we're good.

Yes. Hi, morning, guys.

Two for me. First, I'd like to push a little bit more on gross margins.

I know you guys called out two factors: mix headwinds from growing RTDs, and let's assume that stays with RTDs continuing on the trend that they are now as a category; and the second, the higher cost of whiskey to be sold through your P&L in the next coming years. Is it fair to assume that, all else being equal, you're looking at gross margin contraction on an organic basis over the coming years?

Then a second broader strategic question: great to see Blackberry being clearly accretive to your portfolio. I know one challenge that's often discussed with a strong flavor launch is the difficulty to lap that tough comp that comes the following year.

Given your concentrated portfolio, and I know you touched on this briefly in the prepared remarks, but how are you thinking about that risk and avoiding that, and how are you looking at growth for Blackberry over the coming years?

Let me start out on the gross margin again. I don't have a lot to add from what I just said a second ago, but yet I think you heard it right.

We have something in the neighborhood of a two-year headwind around costs around gross margins. Gross margin, we've been building all the many other assumptions from mix and pricing and all the other things.

Yes, I said as if sort of got us the conditions today as we're looking out, yes, there's going to be somewhere between 100 and 150 basis points of some compression in there. I think that we're going to fight for.

I said 0.4, that is the mix that I showed on slide 7, and the other part is pure costs.

I think that would go to your comment, Nadine, all other things being equal and all of that works not yet complete. That could be a crossed comment, but we would expect contraction.

Then to the other part of your question as it relates to RTD's impact on gross margin, from a price mix perspective, we've got puts and takes there, as you would expect. In this year, we do have that really strong growth of New Mix that we're seeing, which is a headwind, but then we also have the really significant impact of the lower sales of the highly profitable used barrels.

Again, as we look on a year-over-year basis, as we look out to the future, you wouldn't expect to see that large of an impact as we have in F '26. Again, we continue to work through what is our pricing strategy, what is our product mix headwinds and tailwinds.

When you think about the Blackberry launch, which is profitable, smaller things like King of Kentucky that we just launched, we've got Jack Daniel's Heritage Barrel, we've got a lot of things that continue to ladder consumers up. Then from a Blackberry phasing comment, in the future, we have additional sizes that'll be launched in U.S.

We just launched in a few key developed European markets in the fall of this year, we'll continue to have that benefit. Then we have largely all of our emerging markets that we have not yet launched in, and we know from history Brazil is a very strong flavors market, I think we would have really great expectations for that.

As well as flavors outside of the U.S., we have pretty proven track record that we can grow those to become very sizeable brands.

There's a lot of emerging markets where our flavors do very, very well, as Leanne said. Another piece of this is in the U.S., we didn't launch, remember, till August 1st.

We have that. Then, as Leanne just said, in the fall, we launched in four-ish European markets.

We got the rest of the world to go, plus we have six months in some of the bigger markets like the UK and Germany and Poland. We planned for this not to be a one-year splash, and it's tricky, and the demand, I think, out of the box for the last six months on Blackberry has certainly been higher than what we thought last summer.

The bigger you do in year one, the harder year two is, but it's all for good reasons that that brand. I do think it's worth pointing out one difference between Blackberry and our other flavors that I think is particularly for the U.S.

is a big benefit is it is a simple mix with lemonade, and that's where a lot of consumption is happening. It doesn't take anything but a glass of lemonade and the Blackberry, and that has been the drink, I think, that has worked so easy where some of the other flavors we've launched heck, it's been 15 years since we did Honey, but they never had the easiest matching pairing to make a quick drink with, and I do think that is an important factor and the continued success of these flavors.

Great. Thanks for the call, and congratulations, Leanne.

It's been a pleasure working with you over the years, and best of luck in that next chapter.

Thank you so much.

Could you delve into the inventory dynamics in a bit more detail in terms of what happened in the fiscal third quarter and the expectations for the fourth quarter? Can you help us dimensionalize how much of the shipments ahead of depletions were due to Blackberry versus the prior distributor transformation versus Blackberry international.

I guess it would be Blackberry U.S., Blackberry international, distributor transformations, and other factors. Then, it looks like year-to-date your shipments are about a point or so ahead of depletions in round numbers.

Are you saying that you'd expect that full amount to come out in the fourth quarter? Then, Lawson, maybe a minor point here, but can you just talk a bit about the Middle East exposure?

I know it's small in a percentage basis, but I remember you guys calling out some really outsized growth in Middle East and travel retail over the years, just help us frame that, please. Thanks so much.

Great, Eric. I'll start with your third-quarter and fourth-quarter kind of net change in distributor inventory question.

As you can see on Schedule B volumetrically that our shipments are just slightly ahead of depletions. That is related to our launch of Jack Daniel's Blackberry, and it is related to our distributor transitions in the U.S.

2% NCDI for the U.S. and 5% in our emerging international are our main drivers.

With that, what's driving that is I would call it distributor transition order phasing still continuing to normalize as we go through this fiscal year of transition, and we expect that to balance out through the end of the fourth quarter. We did just launch New Mix in the U.S., which that's a part of that gap, and we're continuing in our launch of Blackberry.

With Blackberry, we're continuing to see strong shipments in the U.S. Depletions are starting to close that gap as they're fan out there, and largely from an international perspective, because it's owned distribution, a lot of that, you're not going to see a lot of impact there from Blackberry launch in our developed markets.

Then what we tried to do was guide you to the higher or stronger end of our range for organic net sales. With that, our expectations for the fourth quarter is we continue to expect to see that normalization of the U.S.

distributor ordering pattern, we do think we will still have some benefit from the Blackberry and New Mix launch in the U.S. Hopefully that is helpful.

Then what I would say to your question on the Middle East, first and foremost, it's always about for us the safety and security of all of our team members, and we're happy to report everyone is safe. Then to the business aspect of that, there, relative to the enterprise, are not some of our largest markets, but the UAE is a strong market for us, and we have been growing nicely there with strong double-digit growth.

In the UAE, we do think that we do have the appropriate level of supply, as we think about our year-to-go, March and April, to meet consumer demand. Then Israel is a much, much smaller business for us.

Again, we think that we've got the resilience and the supply there. GTR could be somewhat impacted, though it's way too early.

We're watching and assessing. If the transportation and airports normalize quickly, then we wouldn't expect to see much of an impact.

As you would assume, we're continuously assessing. We're doing all the work to understand the logistics of where our goods are in transport, and we're rerouting them where prudent.

Again, we feel like with where we are in our fiscal year is very early in this conflict. We've got the inventories that we need in market for our year to go.

Yes, good morning, and thank you. I have a question on your SG&A, please.

You've just lapped the restructuring initiatives which you launched last January. Now, given your commentary on gross margin and some of the other pressures there likely to persist, and the uncertainty, I guess, on the top line still given the environment, how are you thinking of further opportunities for efficiencies at SG&A level as we move towards, say, next fiscal?

Thank you.

I'll let Lawson speak to strategically longer term. I would say here, as we have been in a really dynamic operating environment for some time now, we have been very disciplined in controlling all of the costs that are within our control, as well as all of our operating expenses that are within our control.

I think you would continue to see us look at everything that's available to us and optimize and be very disciplined where we can.

Look, there's not a lot more to add to that. As Leanne said, we're being pretty tight and closely monitoring a lot of our variable operating expenses, including SG&A, and so I think we're just being prudent in the way that we're managing SG&A, and we'll continue to do that going forward.

Great. Thank you.

Good morning, both Lawson and Leanne. Leanne, you thanked a lot of people in your remarks.

I just wanted to take the opportunity to thank you as well for your help over these many years.

Thanks, Steve. You've been a great partner.

I actually have two, and I think they're relatively straightforward, but just let me try. The first one is just following up on the aging barrel cost headwind topic, Lawson.

Your additional comments were helpful, but Leanne, you had mentioned in your opening remarks plans to, I think the word was 'liquidate' aging barrels in the coming years. I just want to pause on that word 'liquidate.'

Is that simply a synonym for normal course selling, or are you planning to hurry sells of

Yes, no, 'Liquidate' is a term that we would use for literally dumping the contents out of the barrel so that we can process them and bottle them.

We're not

Got it. Thank you.

Just wanted to make sure you weren't going to discount those high-cost Okay. Then the other nit is just on the lower tax rate you foresee on the year.

I'm assuming those benefits are cash tax benefits as well. Could you confirm that, and then just any implications on the go-forward?

Does this translate to any kind of structural benefits, or should we assume things revert to more of a normal 21% to 23% range going forward?

I think with what has changed in our tax rate is really favorable year-over-year tax rate changes, lower state taxes, and some discrete items. We are also seeing a lower cash tax than what we would have seen in the year-ago period, but I would think as you look out, you would expect us to kind of go back to that normal range of the 21% to 23%.

Great. Thanks.

Morning, everyone. Leanne, congrats again, and of course, wishing you all the best.

Two quick ones for me, maybe not quick. I guess, Lawson, and for Leanne as well, just on the Diageo news and some of the commentary today around gross margin pressure and sustained pressures around the business, just spend a moment maybe on return of capital and the dividend policy and maybe just sort of express a level of comfort as best you can today within the context of demand pressures, looks like compressed margins, price cuts, I don't know, hard to take that off the table, that's a big worry among the investment community, particularly what we're seeing more broadly in the food space.

Your thoughts there. Then as a follow-up, Lawson, I guess it's obviously the company is not standing still at all, distributor changes, etc.

What more do you think can be done to stimulate demand and manage the portfolio, particularly in the U.S. and developed international, whether this is going to be more emphasis on ready-to-drink because that's where the consumer is going and it might be lower margin, but you kind of need to meet the consumer where they're going, more accessible price points because we keep talking about the tough macro and other companies are moving and it seems like that seems to be less of a lever?

There's a lot here, and I know it's probably not a short answer, but I appreciate you indulging me on both of those. Thank you.

I can start with the first part of your question. That was really about capital allocation, and the Brown-Forman has always had an incredibly strong balance sheet and has always generated really strong cash flow from operations.

As we look out, we continue to believe that we will have everything that it takes to meet the needs of the business and continue to meet the needs of the increasing dividend into the future. If you look at our free cash flow that we've reported today, it kind of goes back more to that normalized level after we've been through a lot of volatility.

This is one area where you can continue to see some of the improved terms from our distributor transitions coming through, that'll be built into our base going forward. We're continuing to reduce the working capital intensity on our balance sheet, and we're in a period now where we've made the investments that we need from a capacity perspective, you should expect that capital expenditure number to be lower as we kind of look out over the next 3 years as well.

With that, I'll turn it over to Lawson.

I don't want to repeat what Leanne just said, but I do want to make the point that and I don't know if this is really what you were inferring a little bit, but there've been some of these I call them the AI-generated reports that have challenged our ability to pay dividends, and I find that to be borderline absurd, quite honestly. If you look at that Schedule E, you can see how much free cash flow we have.

We are so far above any sort of dividend needs that we have the flexibility to make capital decisions in the ways that we would want to do them. Back to the pricing comment that you made, we already hit this one pretty hard, I don't have a ton more to give you other than what Diageo said, I do think, and look, I haven't dissected them and I didn't go back and listen to how they sort of adjusted their comments the following day, but it was more about individual brands that feel like they're in the wrong place than it is a wholesale, 'We need to get more aggressive because that's what's going to drive volumes.'

I don't think any of the big companies are saying that or, in fact, are doing that. It's just not coming up through the data.

I know that some people may say you're wishful thinking or it's coming, or whatever it might be, but we're just not seeing it yet. As I've said earlier, we are not planning, and then it will not be in our plans for next year to see sort of dramatic differences in pricing, that we have ideas from new products and innovation and things like that, which we think can help margins.

We're going to continue to use revenue growth management in the way that we've been doing now for a number of years. Quite honestly, I think we've been pretty successful at deriving value growth through the smart use of some of those levers, and so we're going to continue to do that, too.

On the pricing sort of ultimate impact on margins and that whole question, I just don't see that as a particularly high risk. I don't see it as high of a risk I think that some others are saying.

Was there another question in there? Did we get it all?

Okay.

Hi, this is Seamus on for Rob Moskow, and thanks for the question. I wanted to ask a follow-up on the U.S.

distributor realignment. You described it as a multi-quarter transition and one of your key initiatives.

Now that we're two full quarters into the transition, I was hoping you could give us a candid assessment of how that process has gone, and aside from the improved terms, what benefits you've seen in-market, whether that be improved shelf space or more focus from your partners or otherwise. Thanks.

Look, when we say multi-quarter thing, California and Reyes would have been sort of, I guess, earliest in the process, and that started at the very beginning of our fiscal year. The vast majority of them were August 1st.

That's the sort of timing difference between the two. Look, not all adjusted at the same pace.

There are things like the on-premise where we needed to hire a lot of people to catch up in the on-premise pretty quickly, and they've gotten there. They're there now, and so things are clicking pretty well right now in a lot of states.

There's some inventory flows that we need to tweak, but that's not really a strategic thing. That's just some execution that we're getting, and it all basically happens within the fiscal year anyway.

No, we feel pretty good. The focus on our portfolio, the dedicated sales that we're getting now, I think is going to be a big benefit.

There is some margin benefits, and look, I think looking for some positive news out of all of it, too, is look at Jack Daniel's. It's starting to get a little bit better, and in the on-premise, we're starting to see improved performance, too.

We call it the Jack Pack, which is an internal thing that focuses on sort of the top bars in the top cities across America. The distributors, depending on which state you're in, they're very much behind that, too.

I think we're seeing some of the best performance we've seen in the on-premise with Jack in quite some time. Look, these things don't solve themselves overnight necessarily, but we've got things rolling in the right direction and feeling pretty good about it.

Good morning, everybody. I wanted to ask more about New Mix in the U.S.

Our checks in the initial markets show it doing very, very well. First, how are you thinking about how wide the U.S.

launch can be? Then why not be more aggressive right now with the rollout, given what likely would be strong demand around the World Cup?

Then a very different question: it looks like Diageo is reconsidering whether they want dedicated sales teams and resources at their U.S. wholesalers, or if their products should just go in a general or broad book and then have those dedicated funds diverted into more in-trade spend.

I guess if they pursue that, what do you think it would mean for your relationships with wholesalers, and would you also consider removing dedicated wholesaler sales to reallocate dollars to trade? Thank you.

On the latter part of it there, quite honestly, I have not heard that, I don't really want to comment on how they may be planning that. It does seem hard to believe that dedicated resources are what we consider a very important part of the changes that we made last summer, and consider that important to where we are now.

It's an odd comment, quite honestly, that no one has said to me. It is probably worth saying, we're not generally speaking in the same houses as Diageo in very many places.

There's some, but not a lot. It's just sort of directly not really an impact on us.

Back to the New Mix question, or maybe with World Cup and all that, I honestly hadn't really thought that part of it through. We are in, I don't know how many states, seven or eight states, something like that, but it's the big states where you're going to have a lot more Mexican American consumers, we're capturing a pretty good portion of that population, I think, already.

Look, we're just trying to sort of figure out which flavors and price points and how to bring it forward. I think, as you said, it's off to a really good start.

It is so big in Mexico now that awareness amongst that population is very high. We feel pretty good that we can make this bigger.

It's worth also pointing out, too, we've got a line extension that's going to come out soon with el Jimador Spritz, which it's kind of similar to New Mix, I guess you would call it. Doesn't look the same, doesn't taste the same necessarily, but still it is for those consumers that want sort of the lighter options within the RTD world and which is 99% of the category, or something like that.

We've got a lot in the innovation pipeline, and certainly in RTD, somebody asked earlier, 'Are you going to continue to do RTDs, even though they have lower margins?' There really is only one answer to that: you've got to go where the consumer is, and we'll see how big and important they get.

Right now, they're not, quite honestly, big enough to have a material impact on margins and things like that, but someday they might. Look, we'll take the dollars where we can get them.

Thank you. Thank you, Lawson and Leanne, and thank you to everyone for joining us today for Brown-Forman's third quarter and year-to-date fiscal year 2026 earnings call.

If you have any additional questions, please contact us. We look forward to participating in the UBS Global Consumer and Retail Conference in New York next week and hope to see many of you.

For those of you unable to attend, our fireside chat will be made available as a webcast accessible via the Brown-Forman corporate website under the section titled Investors, Events and Presentations. With that, this concludes today's call.