Brandon Gall: Yes. So the mid and value decline in the quarter was primarily driven by the R&DC distributor change and subsequent load-in of the mid- and value brands in Q1 of last year. So that’s really what drove the majority of the declines in mid and value in the quarter. We expect to have easier comps for those 2 product lines as the year plays out. And as we shared on our last call, because of the rationalization, the rationalization, the prices we’re taking on some of our mid- and value brands as well as the load-in. We expect a lot of that has largely offset the gains we expect to continue to make growth-wise in Premium Plus. So we still expect our branded spirits growth for the year to be flattish to low single digits, but we do expect to continue to get gross margin expansion as the year goes on.
David Bratcher: Yes, Bill, this is perfectly with your other question. I mean at this point last year, we were making a large wholesaler change, and you prep them in inventory. So on a comparative basis, over time, we’ve been able to not only successfully make that change, but get that inventory managed to the right level as well.
Bill Chappell: Great. And sneaking one more. Dave, why do you think you haven’t made another acquisition since Penelope almost a year, maybe quantify just the number of opportunities you’re seeing? Is it price? Or is it just really looking for the right fit?
David Bratcher: It’s really looking for the right fit, Bill. There are things, obviously, with some of the headwinds we’ve seen in the overall industry, I think there are some people that would normally be on the larger scale multinational sellers sitting tight for the moment for all the reasons that you know of. But we’re starting to see some movement. But the real reason is, is we want to do it the right way. We want to make sure that we’re finding something that goes into our portfolio that’s margin accretive, and that helps us evolve to that brand and spirits company. So to do that, we have been disciplined, very disciplined in our cost, but I have very, very high confidence that we’re going to be able to do some things in the near future.
Operator: The next question comes from Ben Klieve from Lake Street Capital Markets.
Ben Klieve: Just one quick one for me on the brown goods side. You talked about the vast majority of volume is committed for the balance of this year. Probably earnings call, you talked about how your sales force is looking into bookings into 2025. Wondering if you can provide any updates on kind of the longer-term sales funnel coming out of brown goods looking into ’25.
Brandon Gall: Yes. Ben, this is Brandon. I’ll start. So that’s something we’ve highlighted about what we like about the new distillate business is that is that those sales and those contracts are multiyear in nature. So we do already have some visibility into 2025. We’ll probably quantify that better for you as the year goes on just as we did last year. But what I will say is with EML’s leadership and some other efforts we’ve been making, we’re looking to the U.S. as we always do, but we’re also getting more and more optimistic about opportunity for our brown goods outside the U.S. So as the year goes on, we expect to provide updates along the way.
David Bratcher: Yes. I would add that Brandon mentioned Amel, but that really is the key focus of what Amel’s really thriving on right now is the distilled solutions business, doing everything that we’ve already said to you to what we’re going to do and then all the opportunities in brands. His role here, taking on just the commercial aspect of that is really giving us the the platform to properly execute and do the things that we’ve been talking about, and that is continue to do what we do in the U.S., look at things internationally and how do we continue to maximize the business.
Ben Klieve: Got it. I appreciate that from both of you. Congrats a good start to the year here.
Operator: The next question comes from Mitchell Pinheiro from Sturdivant & Co.
Mitchell Pinheiro: Just a couple of questions. In the branded spirits business, are you seeing, I guess, consumer behavior, are you seeing trade down? I know you talked — we talked premiumization, but are we seeing — in other categories, you’re seeing the consumer get a little tighter in spending. And I’m just curious what you’re seeing or what you anticipate for the remainder of the year?
Brandon Gall: Yes, I’ll take that. We — obviously, we continue to stay focused on the premium plus. Within the Premium Plus and you look at the price tiers within that, yes, by category, by product, you do see some shifting and maybe from Ultra to premium or vice versa. We still see and believe and it shows in the data that, that premium plus category is still the focus area across the industry. It’s where the opportunity lies to grow our business. I do believe, as you said, that as consumer inflation and economic conditions change, People do respond, okay? And they may make that a little different decision. But here’s what’s great about our branded business is that we have total representation across those price points in all the main categories. So in summary, yes, I think it’s fair to say consumer pricing may shift a little, but I still and the data supports, it’s still a premium plus market.
Mitchell Pinheiro: Do you still have — do you have levers like that you can pull should things get maybe a little tighter? Or is sort of what your plans are in place and they’re kind of firm and not much variability there?
Brandon Gall: Yes. One of the best levers we have as a company, and we feel is a little bit unique to us is points of distribution. And we feel like in the states we’re in, in the United States, there’s a lot of runway there for us to continue to expand our brands out on the shelf, not only on the shelfs in the chains and retailers that we’re in, but also ones altogether. So that’s what our focus is. We talked about it on previous calls, and we’re going to continue to spend a lot of time executing there.
David Bratcher: I think what Brandon said is right on because at the end of the day, our growth in that section is about pod expansion first and foremost. As we expand our pods, you’ll see the increase, you’ll see the margin accretion append you’ll see the sales happen. As you expand those pods though, we do through our marketing efforts and what I’ve said in the script, we really do focus on velocity, which is a marketing piece of it. So you have to go and and and we are, at this moment, continuing to expand our business on a pod driven basis and then back it up with the market needs to get it pulled through.
Mitchell Pinheiro: Okay. And then I guess last question on Branded is in your view, David, from your — your long history in the business, it seems, at least from my view, and I’m curious in your view, there is a huge influx of just new brands, new age classifications, new toasted and all sorts of stuff, it almost to the point where the proliferation seems overkill and also maybe hurting the category. Do you think we’re over branded in the branded spirits business up and down the category? Or do you expect any kind of pullback in brands? Or you think the set is going to stay kind of firm?
David Bratcher: Well, in 30 years of doing this, what I can tell you what you’re seeing in the use American is as an example, that’s where you’re focused. There are a lot of SKUs. I could go all the way back to the bucket as we go to yourself now. There’s still a lot of oc on the shelves. You see that now in American whiskey, — you’re going to see that on tequila. That’s kind of the history of the industry, which if you think about it in business fundamentals, not a bad thing, it means that suppliers like ourselves are shifting to where that consumer demand is. But the challenge is, is keeping up with that consumer. That is the challenge at the end of the day. That’s why when we talk about our business and our branded spirits business, yes, we’re a leader in American whiskey, but we can’t sit on that all the time.
You have to have offerings and you have to be able to go across not only the price point and the portfolios because like you said, there are a lot of fast followers out there. When people see categories growth, it’s a natural tendency for people to go in and bring more SKUs in it. What we do is what you try to do is we go in and we establish dominance on that particular try to be the brand of choice. But don’t take our eye off the ball to the other categories either.
Operator: The next question comes from Robert Moskow from Cowen.
Robert Moskow: For the question wanted to ask about the gross margin dilution in distilling Solutions, I guess, down 100 basis points on a pro forma basis. Is that because of the mix shift? Is that the main driver of that?
David Bratcher: It is. And so if you look at the pro forma for 2023 for this telling Solutions, the gross margins for last year would have been right around 45%. We showed this on our last call, but happy to share it again. The mix shift is going to result in slightly lower margins. We expect it to be in the low 40s for the segment going forward, which is higher than I think a lot of people may have anticipated just because of the pricing we’ve been able to get on new distillates. So there is a little bit of a headwind there, Rob. But it’s still a very, very nice margin for the segment, and it’s one that we feel is sustainable as we go forward.
Robert Moskow: Okay. Got it. And then I guess the follow-up to that is in that you have price mix down 11%, and it really is that mix impact. But I don’t remember you quantifying how much of that 11% was mix. Like can you quantify how much price was up excluding that factor?
