Q1 2020 Earnings Call
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Good day and welcome to the Treehouse Foods first quarter 2020 conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Sarkies followed by zero.
After today's presentation, there will be an opportunity to ask question to ask the question you might press Star then one on your Touchtone phone to withdraw from the question Q. Please press Star then too. Please note. This event is being recorded I would now like to turn the conference over to Treehouse foods for the reading of the Safe Harbor statement. Please go ahead.
Good morning, and thanks for joining us today.
Before we got started I'd like to point out with posted the accompanying slides for our call today.
Our website at Treehouse Foods Dot com.
The conference call May contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements include all statements that do not relates solely to historical or current facts.
Can generally be identified by the use of words such as guidance.
Okay should could [laughter] seeks to anticipate plan believes estimates.
Definitely nearly 10 predicts projects potential promises or continue where the negative such terms and other comparable terminology. These statements are only production.
As you've seen in our release this morning, we deliver a strong Q1 in a reaffirming our full year guidance.
Given the changes in the past save weeks.
I'd like to take you through how we're thinking about I'm going to start that over sorry, I pages got stuff [noise].
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As you've seen in our in a release. This morning, we delivered a strong first quarter.
In a reaffirming are full your guidance.
Giving the changes for the past eight weeks I'd like to take it through how we're thinking about the year and the puts and takes.
The last few times, we've spoken with you we've talked about the hard work and structural changes we've made around operational excellence and commercial excellence and the re crafting a bar portfolio.
But also our work to build culture and define how we work together as an organization as you can see on slide for.
I believe that these things prepared us and positioned us.
To service the demand that began in March.
My point here is that the structural work over the past few years was important.
It was important because it enabled us to harness the power and culture the organization to deliver for our customers.
That work enabled us to act swiftly and nimbly to flex our production capacity and to help our retailers restock their shelves.
Importantly, however, we've been able to do so in ways that prioritized an protected the health safety and welfare of our employees as you can see on slide five.
Incredibly proud of how we as an organization I responded to the crisis and balanced people safety.
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Pardon me every wine. Thank you for holding their into technical issues with that recording and we will try to get that corrected and started again and about five minutes late Oh. Thank you.
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Yeah. Good morning, everyone. This was Steve Oakland I want to apologize for the events. This morning as many of you know these are recorded the night before they're editor digitally and the copy that we read last night was perfect and the one that they played this morning is not the edited version so.
The the once you have to do must be prepared to read a lot. So we're going to read a lot and we're going to start where are we finished so.
I apologize for that but if there's anything we've learned in this covert environment you've got to be flexible you got to be prepare. So this is just one more example of of how the the work from home events, obviously have affected our provider.
So I'll finish where I'll I'll begin at the beginning of the top for the paragraph where I, where they cut it off.
Point here is with the structural work for the past few years was important.
It was important because it enabled us to harness the power and the culture of the organization to drive and deliver for our customers.
That work enabled us tax swiftly and nimbly to flex our production capacity and to help our retail customers restocked or shelves.
Importantly, however, we've been able to do this in ways that prioritized an protected the health safety and welfare a bar employees.
You can see on slide five I'm incredibly proud of how we as an organization have responded to the crisis and balanced people safety with fulfilling increase demand.
You'll recall that in February, which now seems like a very long time ago.
We announced our moved to a two divisions structure as seen on slides six.
And that Kevin Jackson would be joining us to lead the snacking and beverage division.
Kevin and I worked together for many years during those years. He has led marketing sales and food service businesses.
Scale and I'm delighted to have him on board.
Importantly are moved to two divisions brings us a step closer to aligning our organization and how we manage the categories with our customers goals and strategies.
I'm convinced that is also improved the speed at which we are responding to this crisis.
Before we you know the results I think it's important that we frame for you are exposure to the current dynamics.
On Slideseven on the left hand side of the chart.
We've provided you the I.R.I. point of sale data for the categories in which we operate.
Both in total and for private life.
The retail grocery channel for Treehouse represents about 80 per cent of our revenue.
With <unk> being indicative of about half of that.
You can see that during the peak of the pantry stock up in the second and third week. Some March private label appears to be lagging Brandon.
[noise] there shouldn't be a surprise.
Consumers Rusty rushed to stock their pantries, there was simply more physical branded inventory on the shell.
And that's because normally about 80% to 85% of a grocer shelf is granted.
Now that the retailers restocked the data is showing the private label is tracking closely with Brandon.
Oh, the remaining 20 per cent of our business about half of that or 10% is food service.
And the balances industrial co manufacturing another.
Moving to the away from home channel on the right hand side of slide seven we've done a bit of modeling for you to help you estimate the sensitivity of food away from home versus food at home consumption.
At the top our numbers meals consumed in each channel annually per capita.
If you assume a 10% decline in the number of meals eaten outside the home you shouldn't get about a 2.5% lift and meals eaten at home each year.
Today, we're <unk>, we're currently tracking declines in food service of about 30%.
As one third of restaurants closed.
And while two thirds of stayed open only open for carry out and delivery.
You can see that the impact on growth of meals eaten at home is meaningful on an annual basis.
Now as restaurants open this will be dynamic.
So how is this played out in our first core.
<unk> gives you a look at the first quarter for organic sales adjusted Eva Donny P. us versus last year.
If you remember we guided our first quarter revenue down about 6% of the midpoint versus a prior year.
Or January sales in February sales were tracking on our original plan.
But then we're outpaced by the pandemic related search in March which gives us to the 2.6% organic growth for the poor.
This is where we began to see the impact of the efforts I spoke to earlier.
We were able to respond quickly by adding shifts and production days and ran full out across nearly all of our factories.
Helping us support demanded March and position ourselves for April and beyond.
This unprecedented level of demand presents both opportunities and challenges Sly nine gives you some color on these considerations.
On the positive side, we have a very traditional grocery weighted center of the store portfolio.
With about two thirds of our revenue in categories located in south to store.
We have a diversified network of 36 plants in North America and two in Italy.
So fixed costs leverage is driven by throughput and greater efficiency.
What's less obvious but equally important is how a relentless focus on service has improved our customer relationships. During this time.
Over the last several weeks, we've been working closely with our customers to both refill their shelves and to prioritize production of their highest velocity skews.
And communicate current finished good inventories on a real run a real time basis.
So simultaneously, we've been paying attention to our own supply chain to ensure that we had ample supplies at the proper packaging and raw materials.
[noise] are improved customer connectivity is bringing us the benefit of clear demands signals.
It is enabled us to drive efficiency and leverage.
And we've working you know we've worked very hard on team Austin continuous improvement our factories and this is helping us to fill even more of their worse.
These efforts have not gone unnoticed.
It's allowing treehouse to stand out in private level.
The thank you emails and anecdotal comments coming back from our commercial leaders are customer service teams are simply more than positive. Many cases quite frankly, there are inspiring.
On the other hand, there are some additional considerations that we will need to managed through.
We will be continuing to prioritize the safety of our people into balance that with our production needs.
In this environment I think it's important to recognize that our cost to serve this demand is slightly higher and if we had been able to methodically plan for the increase in production.
It'll be a number of ongoing expenses support our safety efforts.
Food service is also about 10% of our revenue.
We serve that channel largely through the meal preparation division with categories like pickles salad dressings and cheese sauce.
However, given the declines in food away from home channel in some cases, we've idled these lines and idled these plants.
As a result of the restrictions on traveling social distancing, we have put on hold a number of internal initiatives that we had built into our original 2020 plan.
And bill will get into some detail on those.
We're cautiously optimistic that we'll be able to pursue a few days when the new normal becomes clearer.
But at this point there was no assurance on when that will happen.
Finally, we will continue to have a good pipeline of new business plan to launch in the second half the year.
We want to be appropriately cautious on how the retailers plans for promotion new product support maybe evolving.
As we're now in early May while demands signals or stabilizing there's still higher than normal.
Along this continues wouldn't park be determined by one states begin to lift their stayed home orders and how consumers respond as things start to open up.
And the impact of a potential recession.
This when and how will be important to determining how the balance of the year unfolds.
[noise] [noise] [noise] [noise] [noise] [noise], clearly the shape and cadence of the year has changed there's a great deal of uncertainty in the market with various scenarios on a wide range of potential outcomes.
All of these considerations were considered when we reaffirmed our original guidance for 2020.
Of adjusted the P.S. $2.40 to $2.65. The mid point at which is $2 and 53 per cents, a 6% increase over 2000 in 19.
With that let me know turn it over the bill to walk you through the quarter and the details of our outlook before we open the call to Q. and.
<unk>.
Thank you Steve Good morning, everyone I Hope you and your families are both safe and healthy.
We're all first quarter results because like we themes number one.
And volume increases from his from consumer stock up in March.
Number to our team scratch execution it'd be service the increase covert demand and number three the weight benefit we have achieved from the infrastructure at work up the last few years.
And it's like 10, we provided actually want results versus guidance and I say 11, a key matchups page.
Net sales of $1.8 billion outperformed happen of our guys range by $60 million, while adjusted E.P.F. 37 cents eat the top end of our guidance by seven cents.
<unk> within a line with our guidance and $98.7 million.
I'm glad 11, you can see that division direct okray income the client, we point $3 million compared to prior year Indonesian deal I margin was down 50 basis points the same period.
That's like 12 year over year, exactly E.P.S. improve four cents or 12%.
We had a couple of moving parts here. So let me give me some direction.
[noise] volume and makes including absorption, what's 10 cents below last year.
On one hand, we had the negative wrap of Los volume.
That was off that in large part by March volume and absorption, but mixed with negative mostly within the mill pet business.
<unk> contributed 12 cents a negative thing was I sent my lower overall, the justice costs compared to last year.
Operations contributed choose sent as we didn't run me a number of our plans full out like <unk> pasta and Mac and cheese.
S G.N.A. in tax offset each other.
Right 13 provides revenue drivers for our new segments organic net sales growth for the <unk> business without 50 basis points off now and Babbage's grew by 6% which are very good results.
Total company organic net sales Butte, 2.6%, which exceeded our values.
You're going to grow up number excludes were better compare ability skew <unk> at backs any impact of the to install a bakery facilities, which were sold in mid April.
Back in February we anticipated A. Q1, net sales decline of about six per cent at the midpoint.
Primarily due to the carry over a loss distribution and pricing from 2019 that would impact the first half.
This is certainly the case, though the surgeon March demand more than counteract it they carry over.
Trying to slide 14, we've added some disclosure beginning this quarter on revenue by channel in the first quarter I put away from home business, the client about $11 million a year over year.
Like 15 indicates our ongoing competent finished end of our balance sheet in our liquidity position.
[noise] [noise], our business generated salad positive cash flowing Q1, which is different than our previous years cash on the first quarter is usually negative.
Again to the implications for cash in Logan outflows for the year and a few slides.
Inline with our standard priorities for cash we continue to pay down that netback finished just under $1.9 billion for the quarter.
We didn't take a proactive and precautionary steps to draw down $1 million under our revolve her.
I intent was to ensure a financial flexibility and it's uncertain environment any sweets cash on hand.
We do anticipate we pay me in the near future.
Do you have a few one approximately $621 million of our 750 million revolver remain and drawn and available.
Moving forward, we think we have appropriate financial flexibility.
I like 16, a Steve mentioned, we affirming original guidance for the year.
Want to I want to walking through it in a bit more detailed help you think about how the <unk>.
We are we affirming the $4.1 billion to $4.4 billion in next sales this year with a couple of variables that can movie within that range.
Most obvious the food away from home weakness.
Point is anyone's guess as to when the country, we're trying to some level of our new normal.
But a rapid rebound is unlikely.
Secondly, customer plants or private label support may move around its customers they view that priorities.
That doesn't mean, they won't move forward if that we've seen a couple of cases, where retailers have requested and he wants to be pulled ahead.
Well, we do want to be a pragmatic about the potential for delayed and its environment.
As you are all aware, there's a great deal about certain key in the market and many economists believe every session is inevitable.
Private label has historically benefit as consumers lived to spend a lot that have greater proclivity to buy a private label.
We've included flying the appendix to help frame how private label had seen they lived in private sessions.
Clearly much demand was unprecedented and although we saw continue strength in early April more recently, we are seeing signs of moderation why still at an elevated pace.
Should retail gross you demand capacities levels. The likelihood is certainly higher yeah. We can achieve the top end of our revenue guidance. However, it is still very early in the year.
Moving down to P. and now we continue to believe we will deliver a <unk>, a 480 to five and $10 million.
Well of thoughts here.
On the cost site, we have experienced a modest level of disruption related temporary plant shut down so deep cleaning and sanitation.
Employee safety is our number one priority. So we will continue to exercise way caution as we work do these issues.
In most cases plant closes relate to sanitation I've only lasted a few days, but in others. It has been longer and that can be expensive.
Well some of these will be one time charges you laid the Kobe 19 touches intensify sanitation, there's some ongoing costs to be considered.
Yeah, Steve mentioned earlier today, we had been able to service higher demand to any shift and running overtime.
In some cases, we've also incurred higher freight transportation to get product deliver out of time.
This brings me to some opportunities and that may not be fully recognize as we do every year, we haven't actionable and realistic set or productivity and aside from this good that we built into our 2020 guidance.
Some of those are supply chain related.
I've also type in the past about the work we need to address the work we need to do to address spend it costs.
Because of the current environment in number of initiatives it had to be put on hold do the heightened state you protocols and travel restrictions.
[laughter], we certainly expect to execute this word, but the delays and the tiny amount being able to achieve the latest savings it's still unclear.
And third we expect we will have a bit of it at that had when the balance of the are due to the week of Canadian dollar.
Nat Nat proportion of U.S. input class, where products so into Canada is greater than that which is made in Canada and sold him to the U.S.
Well this has more of an impact on milk that business that snacking and beverages. We estimate in total that <unk> 4 million dollar impact with the flow year.
The bottom line is that we are we affirming our guidance up $2.40 to $2 in 65 cents and adjusting the P.X.M. continue operations, which you have 53 being the midpoint.
We're also maintain he free cash flow guidance up to I didn't they'd be we had a million dollars.
As I say, it's still early in the year, we have a long way to go as we approach the middle of the year, we expect to have a clear picture of habit back half a year will shape up.
Well I 17, they taste you'd do I thinking for the second quarter guidance of 40 to 50 cents at adjusted earnings per share.
We've contemplate a wide range of outcomes, including both risk and opportunities listed here.
And pay particular attention to the most recent take away trends.
We're getting to 1.05 to one point O. $9 billion and net sales, which had the midpoint implies about 4% grow up on a reporter basis and about seven per cent grow up on organic basis.
Oh by the pointing out here that net sales for the two I started making facilities totaled about $20 million in a second quarter of 2019.
<unk> facilities in mid April we'll have a matter of contribution from that business in the upcoming quarter.
[noise]. We are also anticipating a currency had to win in second quarter revenue of about 5 million due to weakness in the Canadian dollar.
Regarding second quarter edge, actually but that to a range of $105 million to $120 million.
Understandably indicates their expectations for the U.S. changed since we were with you last.
I'm Fine 18, we have updated what we first year with the February around the first half closed the second half of 2020.
Frankly, neither the k. over of lost business and pricing adjustments, nor the new business when have changed any meaningful way since that time.
Here's what we layer did.
First an extra case, if a higher demand based on what we know about the first quarter.
<unk>, we built in an assumption for the balance of the year to contemplate more at home consumption and third these were offset by the impact of food service declines.
There's translate into a moral boss first half top line that grows faster, 2.5% to 3.5% and the second half that now forecasts it'd be in the range of flat to doubt, 2% I know you quite a basis.
Similarly, I find 19, we have not changed our free cash flow guidance by the way the unfold, but the way the unfolds has evolved.
Last year in Q. why don't we were cash flow negative as we rebuilt immaturity is following the holidays. This year as you can imagine we depleted image ready to meet customer demand.
And the second quarter, we will need to came to run hard.
And the third quarter as we usually do we will be building image way ahead of our usual peak fourth quarter.
This means we not affect be cash flow negative in the second or third quarters with an even larger inflow.
<unk>.
Before I turn it back over I want to echo thanks to our employees.
The focus teamwork and agility I've seen says a great deal about who we are as a team to me it's clear that the work we put in over the last few years has enabled us absorbing classes like this one and to come out stronger and the other side.
With that let me, let me now turn it back to see forest closing comments.
Your bill.
I'd like to close my remarks today by building on bills comments.
Pandemic 'cause created uncharted territory for all of us with lasting effects that are yet to be determined.
During such uncertain time, or a number of things I can be certain though.
First we were emerging as a stronger healthier tree house.
We're finding success through the continued focus on our strategy and our customer centric approach.
Tree House organization today has been built for this.
Our commercial on customer service organizations are earning greater recognition with our customers.
Are two divisions structure is helping us to better to find strategies and termine end to determine how to best position Unoptimized. These businesses in the future.
Importantly, our long term strategic growth algorithm remains intact of one to two per cent growth on the top line <unk>.
Greater than or equal to 10 per cent he'd be escrow and $300 million of cache of free cash flow on an annual basis.
And lastly.
People and talent are key to our future and to driving this organization forward.
In the face of adversity are people have shown resilience their demonstrating agility, they're coming up with creative ways to implement social distancing measures.
They're doing a better job and I couldn't be proud her.
So let me close in the same way that I opened my remarks today.
Thank you two are more than 10000 employees. Thank you for all you've done your dedication and commitment or inspiring and we will continue to prioritize your health safety and welfare.
Well before we turn it over to Cuba, Hey, I know that we have a focus on transparency well I'm, sorry that we had to share with you today. The first draft of our recording but hopefully that gives you a sense of how the process works and we will now open the call for your questions.
We will now be getting a question and answer session. You'll have to question. You May pets are then one on your time.
Using a speaker phone please pick up your handset before pressing a key to withdraw from the question cute. Please press sorry, then too [noise].
Our first question is some <unk> J.P. Morgan. Please go ahead.
[noise] Hi, Thank you and then you saw some of my first round. Some notes you would.
We were when that was happening to you guys are what happened, but it did provide it did provide a moment of levity for all of US I think oh, well well that was a it was our first draft. A I think one thing you learn you learn something kind of everyday keep your original script closer to you don't really have to run your office to get your copy of original script. That's the only thing I learned today yeah.
That's right that's how can we.
Well I wonder.
I'm paraphrasing, a little bit, but you guys mentioned something on the.
On the the earnings call on the on the non pre recorded [laughter] I'm out.
Hi, harming yourself for the year and again I'm paraphrasing on that but I wanted to get a sense <unk>.
You know what needs to happen for you to sort of hit the high end. When you think about what happened with food service what happens at home in General I, just wanted to get a sense you know a little bit about whether you're <unk> yeah.
Hit the high into your number sort of what do you need to happen to get there I guess sure.
Sure you know I I would take you back to to slide 18, and our deck, Okay, and that's where we show first happen second half and there's gonna be interdependency between these different bars. Okay. We've got a number of new businesses and and like like Bill sudden his comments some of those are pulled forward.
If the covert related demand is greater than what we have in there right.
There was an opportunity for that to happen I think you know, where there's and and God forbid. There's there's you know a scare in the fall. There's all those things that we talk about right. So so that bar is going to probably be interdependent with the food service bar next to it right. If if food services greater that borrow be bigger quite frankly, we have more retail than food service. So there's some.
Interplay there that could be positive for us.
If it isn't I think the new initiatives bar, the new business bar will be bigger.
So it really is so early in the year that it's hard for us to predict what's gonna happen in that fall period, and how much of that innovation will be the customers priority and how much of just keeping the <unk>. The <unk> the shelf stock will be that customers priority. So those two bars are going to have some interplay I think there's some upside there if things go well health wise.
And then the food service question right. How quickly will rebound will we have a <unk> a pipeline fill will we have all of those things you know I think we've seen a few things on the news in the last week or so of some markets, but I I think it's just too early for us to to forecast that number.
Couple of that's helpful.
It is but with that in mind, what was the purpose I guess, calling out the high end of guidance if there's so much uncertainty.
<unk> the message you just said Hey, your guide some like you know arguably conservative I just didn't quite understand why that was being highlighted if there is so much you know variability in the back half the year well I just think that we got off to such a stronger start than we we thought right. So if if the back half of the year anyway normalizes, there's there's upside to.
Yes, but we just don't know, but what if it will or won't so you know you've I don't think we can project the kind of first and second quarter that we've projected and not say that there's not the potential for it to be better.
Right. That's helpful. Thank you.
The next question, it's I'm, David <unk> cool.
Research. Please go ahead.
Great. Thank you good morning.
I'm going to come back.
Thanks, guys I wanted to go back to this slide 18, and kind of pick up the thread, where where can wise, but I want to spend a couple more minutes on the new business bar cause I believe that previously what the expectation was was that meals in in the big good segments apologies your your old segment.
<unk> those two segments were expected to see some significant upturns in the second half of the year on new business wins.
Can you just get a little bit more granular in terms of we don't what you were expecting within those businesses why that second half was going to be so much better and then what's changed I suppose that I'm just trying to wrap my mind around you know what these retailers are going to accept for me when new products are not in and just just a little bit more.
Granularity, yet how you're thinking about some of those important business is sure.
Sure you know there were there were a new projects. One there were there were both N. [noise].
In retailing in contract pack, you think about plant visits think about production trials. Those are usually things, where we have the customer in the facility right. Those things are hard to do now those things are happening virtually and and it's surprising how how people are figuring out how to do that so the.
The the question is can we get all of the things done all of those items and all of those efforts done can we get those formulas approved can we get those labels approved without putting a group of people in a conference room and our factory right. So far that's happening in some cases, it's happening a little slower maybe than it would normally which is natural right. We don't have all the people in one room.
We're shipping stuff back and forth.
So that's a little bit of that now on the other hand.
You know the though that's centers for businesses very strong and so the the other question I have is if the coven bar on that chart is bigger if the retailer is consumed with keeping their shelves filled with cobot will they just print simply postpone something to the first quarter right.
And and we have not gotten that feedback yet, but they're not up against those deadlines yet.
But they will be in the second quarter. So when we were back to your three months from now we'll have a really good look at what's gonna happen in the second two quarters I think we've projected here. What we think is going to happen that's got a little bit of putting taken both of those but it's really too early to tell if if we can get all of that done virtually or not.
And then just one related question the the business that you critical loss that that was expected to come out is it in fact lost or is this cold environment, making these retailers tell you to continue to produce these things even though technically they were gonna tradition do other suppliers.
You know that there's a little bit of that there's certainly a little bit of that there's a a few places where they they just haven't been able to do the exact same thing I was just talking about where they have not been able to do there you know they're playing visits there plant trials their their approval on time, so there's been a little bit up dragon that that's been.
Causative for us.
But but I think net net that's all going to wash out right I think we'll we'll hang onto a few things a little bit longer we'll have a few things start a little bit slower I I'm really impressed a couple on the big baked goods things are you know Bill mentioned there's.
Or two that are probably moving even faster than we thought there was a few things that actually removing pretty fast and those were important to that that big Blue bar. There. So you know we wouldn't have it as big of their if we didn't feel good about it I just think there's gonna be some interplay between food service right, there's going to be some interplay between that and the cope with bar.
Well, the winning just hard to figure out right now.
They didn't give her the comment data before we leave the topic. This is bill I think the Dimensionalize D.K. over impact we have about $100 million in Las distribution in the second half I just have the context around it.
<unk> I'm, starting the first quarter to the Nite x. around it not the second half yeah, Yeah, I'm, sorry, first quarter, but contacts from.
Okay. Thank you okay.
Okay.
And that's a question sound Crazy people.
Hi, Good morning morning, Chris I Hope you guys are well and I just had a couple of quick question. So I didn't want to just to understand the degree to which the first quarter benefited from fixed costs leverage and then how your service level sustained through the quarter. We were looking at some numbers there last year, how service levels improving.
And then release that can you say how much the costs were like some of the incremental cost that maybe burden to you in the first quarter and then how look in the second quarter sure maybe I'll touch on the service levels all that bill touched on the on the cost numbers.
You know our service levels were remarkably strong you know two things is the you know the first that was a three weekend really event right. So you were on a lot of your existing inventory I give our teams a lot of credit. The first couple of days of March we get you know, we do vendor manage inventory with a number of our customers and we were.
Heading to see scanner data that was picking up then you know we have pretty strong models and and our demands signals are pretty tight they don't move a few points up or down very often we started to see those those demands signals strengthen we went to a couple of customers. Some of 'em jumped in with US. Some didn't we started running our plants early.
We were in a good inventory position to do that so we started running maybe the first week of March ahead of this thing, which allowed us to fill it you know not quite it or 98.1, but but in the high nineties for March there's a couple of categories like pasta and dry dinners that are up you know when the 200% range or work for those.
Days and so you know you you never have 200 per cent of the of the product and image, where that's just not not effective.
But we have a lot of capacity and pasta, we we turn those big presses on and and ran really hard.
You know I I think we did a great job in the first quarter. The service was felt a little bit in April and I think it's bouncing back now. So you know we had we had to play a little catch up the first week or two of April.
And we're we're doing that now we're in much better shape today than we were the first or first week of April.
There's a couple of categories, though you know macaroni and cheese boxes of macaroni and cheese. When you got kids home from daycare in school and get some from college, if we see the center of the plate stuff. If if meet continues to be a struggle. Our senator the played items like pasta will continue to be under a lot of of pressure.
So you want to comment on sure. It let me <unk>, let me talk about the costs here for a second so let me give you the idea of the buckets and then I'll give you some context in terms of two one in packing well you may think on on a full year basis.
Versus Steve mentioned in a script and it's comments you know the safety of our employees is the number one focus for us and we'll do a lot to maintain a healthy and positive work environment. So when you think about hard costs, such as incremental screening temporary hourly wage and P.C.'s increases and then funding we will decide a funny bank of usable.
Hours.
Employees can draw from if they are ill or they can't at work at some of their home maybe ill. So some of those costs would would it came in the key one and we projects on that to to continue throughout the a year potentially.
Second and trying to direct cost to produce obviously more labor overtime more sanitation, the P.P.E. stuff and I was the incremental Ali costs. Some of those items you know such as plexiglas ensure the right space scene in the sub assembly areas. All those things are all important to us and those are Costa we'll have a encourage.
You want and throughout the year potentially.
And lastly, you know we did have some one time cost latest shutting down facilities as we address them any any call that in a incidences in several cases, we shut down facility for almost 72 hours or longer and then we perform incremental sanitation procedures Ah before we considered reopening so they'll shut down <unk>.
You know have at the Middle class by also span of base class such as rat depreciation security lighting et cetera, and those pieces. They want the also covering the script is that we had several items that productivity and efficiencies. We're gonna get after if you want any 2020 that we were not able to to do as we a lot do.
Crises so for contacts in in Q1 that was all about you know $10 million or so in our number all those things kind of add it up and I won't comment on a full year number but it it will be tens of millions of dollars that we'll have to deal with as we go forward. The other comment you ask is about the operations you saw in the charge that yeah.
<unk> is positive a year over year and as Steve comment. It you know, we were very efficient and what leverage and all that investment we made in t. mice and lean and we really port on a lotta volume in our teams that really Apple formed an incredible away.
So below the costs higher in the second quarter than they were in the first quarter represents the case and then within operations figure what traps in a lot of numbers does that incorporate all these costs.
So where you'd net net positive incorporate all these costs.
Your net positive incorporating the class as you know we capitalize some issues an amateur already so some of that costs will roll into two floors.
The trend will continue a bit into q. too when I'm hesitant to discuss is that I'm not I'm not sure what could come up here right. Our our guidance contemplate that we may have you know an issue or two and we went to think that's crude way to think about it.
Okay. Thank you very much.
Yeah.
The next question is from Brian <unk>, a bank of America.
<unk>.
They good morning, everyone warning, Brian Hi, Brian.
I guess my question is just around the the food services.
You have in the.
You know.
Already drag and the second half you remind that.
How big that is the percentage of sales, but also just.
Find a trap from the outside.
<unk>.
More or quick serve restaurants or institutional channel, you're trying to get a 10th of what the mic.
That we can kind of we're looking at data from the out that we can get offensive whether that that improving now.
You give them so I was looking detail.
So I I think you know we we we said that the put away from home is about 10% of our annual revenue. So if you think about it in that way they'll give you an item you know way to organize it.
Yeah, and our our categories are really across the whole food service, our big categories are salad dressing and those are probably in traditional restaurants as well as b. and I. Those those those segments, we do make can't cheese sauce, and so if you think about all the nachos that weren't served at the final four right, we're a big supplier to those vendors.
But we also survive are sort of quick sort of restaurant in that in that business and then we're in the pickled business and so we have a a large pickled business across all channels of food service. So.
Those would be the three biggest categories, how how big is quick service, it's a percentage of the total.
Oh I would suggest it's you know maybe 20% of it it's not that big yeah. Okay.
Thank you.
<unk>.
[noise] next question is from brain Huh, Oh, well targeted security. Please go ahead.
Thinking through time and.
And other animals.
I just want to hopefully try to reconcile different way.
<unk> if I look at your slides seven you know the food away from home.
Kinda transition to at home meals.
You know moderately yeah. My my belief is looking at the end category, that's or in in the Nielsen date on relative to.
This one or the that's heartless and <unk> it might not stuff.
Pop up fairly you know if I look at the Nielsen data for the last 13 weeks across the categories are participating.
And on the chart you have up to the left you're looking at a lot of double digit growth costs basically everything.
Oh, how does that reconcile with <unk> you have to the left on Slideseven Nielsen data running up double digit too you know a whore percent potential growth number two to.
Yeah. Those are male so those are individually meals right not not not dollar. So you don't want someone buys a boxes of pasta and those things that maybe more than one meal. So I'm not sure that loading the the pantry you know the the the spike in in pantry loading, we're we're seeing demands solid.
And above last year, but but really stabilized at this moment. So I I think the the number of meals versus how the consumer stock their pantry or maybe two different numbers right. We can get back in another another presentation with maybe a little bit more thought on that I'm not sure that the sales number and the number of meals number.
It is as easy to to extrapolate.
<unk>.
What does.
Yeah.
You know 4% growth for for the upcoming quarter to be pretty conservative <unk> some of the numbers or something from other package, whose company <unk> Hmm.
Upcoming periods, Yeah, I think you need to remember that we guided it down you know five or six so that's on less distribution than we had last year. So you've got to add to our first quarter. You know if you're up to 2.6 on the first quarter, you've got to add six you know, they're 6%, we did that with 6% less distribution.
Apples to apples basis sets, an eight 8.2 number right. So for telling you were up for we laugh those distribution losses at the end of the second quarter and going into third quarter. So you know I think it's a much healthier position then maybe when you when you really put that together. So it maybe maybe it's more in line with what you're thinking when you when you look at it that way.
Okay.
And second you know.
I'm going back to another person's question.
<unk> Oh God.
I was wondering what's the implication for her free cash if you parts that I am could you remind us what's your priorities are per creed recap.
<unk> has like teams in this environment or basset permit your time in the best of luck yeah.
Hi, This is bill I think the yeah. The the first point is we got our free cash number to be too could be a 300, if we move around on the on the top line range, we still a whole throne room with that thinking there's going to be obviously costs to service. This volume and we have you know investments would need to make around.
Please safety and how that we know we've talked about you know I think when you think about you know freak Ashville. Our priorities you know still remain the same I'll be eight first and foremost, we've maintained flexibility and and and enough cashier to make sure. We can whether any storm that comes our way we feel good about that we continue to folk.
US on paint on our debt and that's what we'll stand you know, we'll we'll look at data to chew out to focus on you know obviously are bored contemplates many different scenarios and in the future. They may decide to do something different in terms of reprioritization by our focus now is paying you pay a dad and stay unstable insecure through this crises.
Oh, Thanks for your time to stay healthy yeah. Thank you do too.
The next question, it's from John Anderson a billion Blair. Please go ahead.
Hi, Good morning, everybody and hope you are hope your wealth Yep morning, John Hi, <unk>.
Morning.
One quick housekeeping question, let's start.
Would you give us a little bit more of a description of the the distribution Lawson.
The price adjustments.
That impacted you in Q1.
And when you laugh those distribution and pricey adjustment headwinds.
As you look forward.
Sure sure the pricing was was predominantly in our single <unk> unit.
So the units actually that that that business was down in dollar split up nicely in units in the first quarter in his performing really nicely in units, we're starting to lap. Some of those you know that I think we talked a lot about on <unk> you know last year on calls as those beds. All all we're renewed that pricing re adjusting.
It itself and that that pricing has been stable sense, but that that pricing, mostly in a little bit of Los we did step away from one large piece of business or that was on profitable that will be through first week or so of the third quarter. So I think what what we talked about is the the new business wins as you see.
See in slide 18 get considerably larger than the any carry overturn in our number that that continues for the for the for the third and the fourth quarter and the numbers pretty dramatic and the third and fourth quarter right. So a little bit of turning our numbers healthy right. We if we win every bit.
We don't understand the the pricing in a category right. So we we don't want that kind of turned where you you've seen from tree else in the past, but we want a little bit of <unk> to make sure. We're at the right number. So so those things are happening.
Okay.
They'll mentioned 100 million dollar head, winning <unk> is that right and and yeah, what what kind of Edwin cute too.
We expect.
On the you know we we sat in the in the first half essentially that we would have 175 to 200 you know in in the lack of last yeah. So we've got about half a half of it will stay with that.
Perfect. Okay, and then Oh, one other a broader question I'm I'm wondering how you're thinking about the possibility of consumer trial. During this time you have more people eating at home participating maybe in categories that they haven't participated in to the same extent recently or perhaps.
And how how he's private label position versus national brand to to benefit from that I thought. It was interesting comment that you made that that initially with a surge brands you know where outperforming private brand that his subsequently kind of normalize, but again or or do you think there's a trial opera.
You hear that can benefit private brands longer term.
And it is there an opportunity that's as pantries are loaded in kind of some of the search demand settles down for for private print out perform like.
Yeah, you know I think we think there is you don't quite frankly as in many of US you saw the pictures are you experienced it personally people were buying any past. So that was on the shelf right things were you know people were just describing what was there and those couple of weeks on March. So we don't we're not paying a lot of attention strategically to the to the IRA.
Nielsen data from those couple of weeks in March, but we do think going forward. It's a it's a great time for private label you know I think unfortunately, it's pretty clear we're going to have some economic challenges right. The the amount of unemployment. So so yes. We think we think this is going to be a great time for probably the label, we think a number of the the hard disk out.
There there that are almost pureplay private label retailers are better position than ever we think the the large mass retailers are better position than ever and then if you'd think about the national grocery chains, they've got multiple tiers of private label from from natural organic all the way down to opening price point. So we think the opportunity for us to gain share.
Build business for the future Sorta begins now right begins middle of the second quarter I I wouldn't suggest that the the Russian March really was that so yeah. We we think it's a nice opportunity for US I mean, you know we're we're disappointed in how this was all happening and where the demand you know why the demand is with us, but we're really.
<unk>, how the company the business and and our people are responding to the demand.
Right.
The next question, it's I'm Robert mascot credit.
Go ahead.
I. Thank you for the question <unk>.
Hey, I'm site 18, Yeah, I got my rule wrap to try to measure these bars [laughter] [noise].
And you know does it suits service decline.
Acting in the back.
I mean, it looks to be like 33% headwind tend to business, but but some turbans only 10% of your business. So.
Maybe that's not to scale, but <unk> am I measuring that right.
You know I think.
They're not to scale I mean, it's illustrate of obviously, but if you think it boots services, 10% of our business. If it's down 50 per cent. It's it's a 5% had went up it's down you know 30%. It's it's a 3% headwind and I think those are the questions is this is this a 234 or five six per cent headwind. We I think we don't know that I do.
Think there'll be interplay with that Green bar I do think if if in fact people stay out of restaurants and stay at home. It will drive that that green bar. So there's interplay there they are not to scale I I think if we knew that number we'd.
She would be a in a wonderful place right now I think right all of us, but we're confident in the new business bar, we understand what the carry over a losses are I think the two bars that we don't know and why were hesitant to guide more aggressively for another quarter, so until we see it or more accurately.
Are those green and orange bars on yet.
Meanwhile, well when I would argue is you're calling it out as a net negative that the interplay of these two that sounds overly conservative to me, but but I'll I'll I'll put that aside oh, you're right.
Yeah, but but the new business bar, you know that historically has been the toughest one to predict customers say, they're going to do something and then they don't.
Oh, and I think you've talked about that on the call today.
But is it fair to say that it just doesn't play out the way you think.
It's probably gonna get pushed into 2021, because I have to imagine every retailers doesn't have to look at their their their merchandising sat and think about how to provide more value offerings.
And you get I I know you talked about is already but qualitatively are retailers.
Showing you that that that's their intention once they can kinda.
Catch their breasts with all the all the volume and their stores.
Yeah, I <unk> I think they are and and I think they're they're just you know everybody's had their nose on the grindstone here right.
And and specifically the retailer and I think they are now getting to to look at the horizon, a little bit and they're saying, okay. How do we manage in a recession, what what should we do you know they I I think that's happening right now and I think there <unk> and each retail or depending on their position in the in the you know are they value or they right what what their positioning is is to <unk>.
Limiting how that is I think private label will play a key part of it. If we have that can I mean, I think it's pretty clear we're gonna have some kind of an economic slowdown event. How you know there's all kinds of numbers on how long that's gonna happen. So it's pretty clear the private label is gonna be part of that.
Right, Okay and so.
Maybe you can give us an overall number I <unk>.
You have the benefit of Huh Labreck the volume and then you have all the extra costs related to that <unk> already about equal or as one higher than the other.
Yeah, well, we hope that it will be a bit slightly better equal to better what what's unknown is obviously some of the covert expenses that could come our way that we have an anticipated you know if we have you know 40 plaques. If we were have any type of significant outbreak that would be costly yeah, but he efficiencies are definitely have any as well one thing ever.
You should know on the call. We we're we've been hyper conservative here right with our people safety because we think we think shutting down for a couple of days and cleaning and separating folks and doing the the you know we do contact tracing we do voluntary quarantines every time, we we get anybody and and you know tests are coming back quicker now when we were doing that stuff.
Without the the the advent of knowing if someone was positive or not so it was taking a week or two.
We have felt that that was the better.
Avenue, then trying to to start up in rerun right away because I think our people feel feel better about it. They recognize we have their safety in mind I think we can plan production better and we're not having these mass outages that you've seen in in some of the other food processors or you know across the country. So I think our our method has been.
A little bit more conservative now we do have situations traditionally literally as we speak the pickle crop of the the cucumber crop starts to come in it starts in Mexico goes to North Carolina, then goes to Michigan.
Historically, we would have literally 100 people temporary worker shoulder to shoulder sorting cucumbers in article factories, we're not doing that okay. We're running out on a very very different basis, and so that that will cost us some money that will take us some time that'll cost us a little top line those things are all factored in there. So we're.
Not we're not we're being very careful that we don't have the big catastrophic bump.
In in doing that we're we're imposing some costs on ourselves that that will be lingering. If we continue with the pace. We are and we don't have that big bump. It's the the costs should the benefits should outweigh the cost.
And maybe I should have been more specific but.
I'd say I raised by sales guided by.
You know I raised my operating profit by 3% or.
Less than that because of the because of the incremental costs.
I think it I was I would say less than the yeah sales guidance. Okay that was range yeah, yeah, well, it's gonna cost so some money to be to be prudent here right. We have to put People's safety first.
Ah Okay. Thank you.
<unk>.
The next question, it's I'm, Rob kicker thing again please.
Oh, great. Thanks, so much.
<unk>.
Said it quick quick question time on channel data.
On channel dynamics, obviously, a lot of question I already asked and answered you know we're speaking to food service, Yeah, just kind of in general.
You know how is your exposure.
More of a convenience store side number one and then I guess, you know I'm kind of asking that as it pertains to yeah, the ready to drink coffee.
<unk> was off.
Sure. You 60020, just you know are are there yeah, we refer to food service and few at home, but anything on that launch with respect to other channels would be really helpful that the lab sure you know Ah ready to drink is still relatively small I'm really proud of that team.
They've actually done some virtual launches as we've <unk> as in the last couple of weeks right. We've we've got products will prove that were there were for personally done all done virtually so very proud of them, it's not a big C. store business at this moment, it's really it's either a contract pack or traditional grocery business. So.
It's probably off this this is that's one place that's probably postpone some effort right just because of the nature of new sales calls new new capability the customer likes to come on at your plan B. with you that that's one of the areas, it's probably slowed down a little bit.
So when you talked about the so potential in the back half doesn't feel like that's got a.
Big driver almost so there's there's more upside on that basis, but probably more as me thinking at 21, exactly yeah, and only because of what it takes to launch a new totally new segment right that makes complete says yeah. You. So much they say yeah you too.
Next question in terms of John Baumgartner Wells Fargo. Please go ahead.
Right. That's the question warning Hi, John.
Mmm.
<unk>.
<unk> sizeable chunk of your <unk> here in the first time so.
Huh, that's progressing on track with the typical.
Even with the team of retailers no tilton see rubber larger brandy companies right now are smaller companies also reasonable.
Errors occurrences.
<unk> private label suppliers or maybe the focus on books in business for the next 12 months less about just absolutely pure pricing and more about the ability to serve in somebody intangibles.
The last couple years.
Yeah, I I think it's a a couple things I think everything took pause for a little while I I think you know all of US put our heads down and and try to get orders out the door right. All of US were doing everything virtually so you know I give our customer service team, we were processing record numbers of orders in record numbers of cases and we.
Did it virtually that we've we've never run that team from home, we ran up from home there's not another another large monitor to best buy in in Wisconsin, right. We ran on bought every one of them. So that that teams done a great job I I think you know the first couple of months to the or the bidding process was right on track a much of that has been put on hold there's a few things that have gone.
True. So the you know that may be postponed into the in in the early next year or the back half of this year.
And I do think there is there's been a lot of focus on the size of our capacity our capability and we've had a number of customers <unk> ask us to help in areas, where maybe where maybe the business will split you know we have happened somebody else's house, we we may have a leaned in and given a little bit more or we will be going forward. So.
I think we're I think your assessment of the the benefits of being a large vendor are probably a significant in this environment.
Yeah.
Well last question came from from each Acura.
<unk>.
Hi, Good morning, <unk>, one for you see it and then with one follow up question. So to just comb through what I think you've been talking about throughout the call.
As for the.
<unk> demand upside that we're seeing in the business or should we expect that that's really coming from existing customer Wallis increase philosophy has a products that they're putting on the shelves just getting better me purchase and I want to understand how you think about managing supply chain and maybe we'll keep new customer wins, because I know you have a long.
The time for.
Quality assurance people checking your supply chain factories, and there might be increasingly difficult to covet scenario. So how do we think about the timing and how that interplays, what new customer wins as a function of what's happening right here right now if that makes sense and then have a follow up.
Sure well I I think you'd touched on why why we said the the the new you know the the customers priorities could shift right I think it's surprisingly how well they have found a way to use third party on it they found a way to use a virtual on it. They found a way you know we're we're obviously Fedex thing samples things that would normally be done in a conference room.
With a customer in our plant are being done virtually they're being done by zoom right. So we're finding a way to get that done I think that's why we we said that the second half revenue might be just a tad less than what we originally guided but the first half was going to be so much more robust that you know the year would be better.
And I think that's where we said that would be the upside it depending on when things free up and how fast we can get those things done I think that will happen.
And do your question on well that does that going to cause even more lag and mort longer lead times.
I'm not sure. That's the case I I think it's going to help a lot of it's gonna be when people feel comfortable traveling right I I do think having people in our plants as an important part of our selling and worry they're going to have to figure out how to do and even better job virtually in or we're gonna have to reopen the travel system. So.
We're doing both right. We're we're we're doing the the virtual thing right now we may have to figure out how to do that even better if if traveled listen to an option.
I understood and then as we think about that profile that company and maturity schedule.
You think about you know taking advantage of a little bit of normalization in the re curve right now to maybe rifai. Some debt that's higher costs in your account structure and then any comments on the receivables program and how that factors into maybe working capital three castle outlook of the year. Thank you.
Hi, <unk> I think the <unk>. The first part is in terms of the you know the capital markets that markets. Obviously, we're watching everything that you you are watching we want to be you know opportunistic when the time is right. There's been some instability there in Ohio market and then there's been some activity that's been been helpful to us, but we'll look at those things all the time and and and will say.
We'll stay prune with it we are still managing the air receivable, you'll see it in our cue that without a day that's been a fact before I send that we will continue to program.
Thank you.
It can claim that question and answer your question I would like to turn the conference talk Okay <unk> Okay.
[noise] well again I'd like to thank you all for being with US today I think we're we're encouraged by what we see I'm glad to that all of you were able to do it in the you're all safe, we look forward to being back with you in another quarter hopefully that you know, we'll see a more normalize situation it won't be able to.
Do that so with all that please stay safe and we look forward to talk to you personally take care.
[noise] that conferences now okay.
Thank you for a time bin today presentation okay.
[laughter].
[laughter].