Q2 2020 Earnings Call
The Pope Holdings first quarter 2020 earnings conference call into web cast.
Hosting the calls a day for post <unk>, President and Chief Executive Officer.
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Chief Financial Officer.
Today's column is being recorded and then we will be available for replay beginning at 12 PM Eastern sit down and number is 805 858367 in the past coat is 1371 013.
At this time operatives must have in place and they listen only known it is now my pleasure to trying to <unk> manner of post holdings for introduction maybe can.
Good morning. This was shot from I.R. and thank you for Chinese today, because second quarter first call 2020 earnings call with me today or round like Kelly, our president in Seattle, and just status R.C.F.L. Robin Draft weekend, My prepared remarks, and afterwards, we'll have a phrase question and answer session.
Press release Us apart Easter Marxist posted on our website.
After relations scanned the L.P.C. filing sections I was holdings Dot Com. In addition, there releases available on the S.P.C.'s website.
Before we continue.
Idea, but this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
These forward looking statements our current as as the data this call and management undertakes no obligation to update these statements.
As a reminder, this call is being recorded and been audio replay will be available on our website and finally this call we'll discuss certain non gotten measures for reconciliation of these nongaap measures.
It's got measure see our press release she'd yesterday posted on her website.
With that I will turn the call over to Rob.
The morning.
Thanks, Jennifer.
We all over attitude to the people, who keep our store stocked it who do their part and making this challenge just a bit easier.
As you might expect we had a strong second quarter or retail channel business is performed well and food service trailed off has to Kobe crisis erupted.
This morning, I want to share with you or principles for managing through this.
Easily comment on how we expected to continue to benefit our retail businesses.
Most of my time will be focused on helping you understand the impact on food service in the past normalcy.
Because you saw on or release, we withdrew our fiscal 2020 guidance, which primarily resulted from uncertainty surrounding food service volume trajectory.
At the onset of this crisis, we adopted three principles.
First we would protect the physical safety of our colleagues.
Second we would keep our supply chains intact.
And finally that we would cushion the economic impact on our people.
Well, we remain committed to delivering long term value to our shareholders. We're also committed to navigating this crisis in a compassionate manner.
We are investing in our frontline people in the form of incremental bonuses and in the form of additional safety measures.
As I mentioned, the sexual workers that are supply chain or helping to feed each of us and we owe them our gratitude.
We do have plants that support food service in which the demand reduction has led to a temporary furlough.
We are structuring furlough programs to minimize the impact to employees until we can return to full production.
Cost reduction actions are more restrained and they would be if we considered the demand destruction permanent.
We're balancing the obligations that flow from our principles with our objective to build value. We believe this balance is not only the morally right thing to do it it's the economically right thing to do or.
Our culture, a respect for each other in our commitment to our purpose are all being strike that.
Post has a diversified set of businesses that we see that clearly in the impact of covert 19.
A retail businesses saw a search and demand in our first food service business saw a dramatic decrease in the man.
My comments about retail will echo what you heard elsewhere March had spikes in demand during which are supply chains were stretched.
Quite proud of how they performed across each of our platforms.
Jekyll provide more detail, but it's fair to see our results were quite solid.
We believe we are well positioned to benefit from this experience as a general statement compared to our competitors are business includes a greater number of brands with lower household penetration.
I would include in this category mom brand bag cereal.
Bob Evans brand side dishes and Premier protein brand shakes.
This experience accelerated housework penetration and we expect to benefit to be long lasting.
Meanwhile, specifically within cereal there was a reengagement with the category that seems to have more about it.
It is early to make predictions on the durability of this trend, but I would say we have cause for cautious optimism.
This is true in both the U.S. and the U.K.
In the short term specifically the balance of 2020, we expect cereal and refrigerated retail products to be strong for the balance of the year.
T shakes head of demand Spike in March but fell off in April.
Most of the April result is pantry d. loading, but there is an element of on the go consumption that we may temporarily loose.
Nonetheless, we expect to trial belt benefit to remain.
If you tune into the Bell ring call you will get greater detail.
Balance we expect to have quite a strong here in our retail businesses.
In contrast, our food service platform has been materially impacted by sheltering place orders and the resulting demand destruction.
As I mentioned, our cost reduction actions are restrained by our assumption that the demand will rebuild that's economy reopens.
Within food service, we have channels directly affected by Kobe response, and those less affected.
Directly affected channels include full service restaurants quick service restaurants education.
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These channels represent approximately 50 per cent of segment sales.
Less effective channels would include food ingredients healthcare government and other smaller channels.
In the first month of the crisis distributors essentially stopped purchasing in order to reallocate their inventory from affected too and affect the channels.
This cost us one purchasing cycle and it costs estimation inventory.
We are now through this initial cycle, but it bottomed out 65% declines through most of April.
We are now running closer to down 45% and it seems to be improving each week.
We expect that demand recovery will vary by channel that'd be based on consumer purchasing habits.
The April loss of a purchasing of a purchasing cycle resulted in revenue levels below are fixed costs.
Meanwhile, we are occurring incremental costs from the band fall off these are not systemic cost there instead reactive to managing the crisis. For example, we are meeting demand for conventional like products using catering inventory simply because of a demand supply mismatch. We also have significantly higher freight costs and redistributing product.
At the risk of redundancy I will again stressed that we are not attacking fixed costs as aggressively as.
We are retaining capacity for the demand rebuilt.
As I mentioned, our recovery trajectory is encouraging.
With the loosening of shelter and place orders and the adaptations being made such as curbside delivery.
We expect an improvement each month and into queue for with Q. for significantly outperforming Q3.
We expect full recovery to take through fiscal 21 as channels like travelling watching will take longer to heal.
This high degree of variability is why we withdrew guides.
Despite the reduction unexpected events from food service, we will come close to our original estimates for second have free cash flow.
Decline in food service <unk> is offset by increases in retail plus natural declines in working capital capital spending the taxes.
No scenarios do we have any concerns about liquidity and our frankly, well position to be offensive should attractive opportunities arise.
We entered the crisis with over $500 million and cash on hand.
Mid March we had some concerns about financial system liquidity, and we drew $500 million on our revolver.
These concerns weren't founded and we are now beginning to lower the amount drawn.
In April alone, excluding Bell ring, we generated 140 million and cash.
Because of the initial uncertainty we suspend it our share buyback program.
We will continue to reevaluate our capital allocation strategies, that's more information becomes available we want to strike the right balance between the prudent level of defensive positioning.
The opportunity to take attractive strategic actions should those opportunities arise.
Let me close by saying that are people have done an extraordinary job across the board, where we are benefiting we have stepped up into greater demands on all aspects of our business and where we are hurting we're making tough decisions in a humane and prudent manner.
This is a challenge a year, but I'm more proud of this company than I have ever been.
With that I will turn the call over your job.
Thanks for up and good morning, everyone.
Adjusted even for the second quarter was $291.7 million with consolidated net sales for the quarter, drawing 7.7% year over year.
All of our retail businesses performed well this quarter with strong volume list driven by consumer pantry loading increased at home consumption in reaction to cope at 19.
At the same time, we experienced a sharp decline to demand for food service products in the second half of March.
Starting with post consumer brands net sales and volumes increase by 10.6% and 14.2% respectively with the increases largely attributable to consumer reaction to cope with 19.
Volumes also benefited from higher levels of promotional activity.
Promotions during the quarter occurred in January and February.
However, some large promotional events were in process in March prior to the implementation of widespread stay at home orders and continued during the industry why pantry wedding page of the pandemic.
This resulted in significantly higher sales are promoted product and historically seat.
These plan programs are now behind Us and we do not expect second have promotions to be at these levels.
The effect of these items combined with growth in private label products resulted in an average net pricing decline of 3%.
Gross margins mindlessly improved over the prior year, but we were pressured by the aforementioned declined to net pricing.
Cost savings from implementing our new integrated business planning process accelerated this quarter to nearly $8 million.
B savings or incremental to our other continuous improvement initiatives.
S. U.N.A. calls for elevated resulting from higher warehousing related to transitioning certain warehouse locations as well as higher product donations.
<unk> all of these factors segment, adjusted EBITDA improved 7% compared to the prior year.
Weetabix net sales increase 90% over the prior year.
Just reflects a 6% and a 4.5% improvement in volume in average net pricing respectively.
Growth in both branded in private label biscuits, driven mostly by increased consumer purchases in the last helpful March.
Was modestly offset by declines and non biscuit products.
We also lapped elevated international shipments, resulting from prior year Brexit preparations.
Average that pricing benefited from targeted base price increases and favorable mix.
Slightly weaker British pound to U.S. dollar exchange rate caused an approximate 180 basis point headwind to both the net sales and adjusting <unk> growth rates.
Overall Weetabix segment, adjusted EBITDA increased 12.5%.
Net sales in food service decrease 2.7% with volumes down 4.2%.
Rob disgusted declines reflected lower demand in March from food service customers across the force of channels most impacted by covert 19.
Volume growth was robust in January and February increasing 5.4% year over year.
Masking the sharpness of the volume declines experience in the last two weeks of the corridor.
Adjusted even declined 27% for the prior year driven by a number of factors.
We saw unfavorable fixed costs absorption as well as $6 million at higher reserves for short dated inventory.
Both of which were caused by the sharp declines in demand late in the quarter.
Integrated supply chain cause for elevated included $2.8 million and startup costs at our new pre cook deck facility and higher freight costs largely caused by inefficient load factors.
Last week heard approximately $3 million and expenses associated with the February fire at the balloon for Bloomfield laying facility.
Moving to refrigerated retail net sales volumes increased 8.2% and 2.4% <unk> respectively.
Side dish net sales increased 23%, reflecting a 13% by you increase and an improvement an average net pricing.
We saw a solid organic volume growth as well as growth driven by consumer pantry loading.
Improvement in average net pricing was driven by targeted price increases communicated at the end of last quarter.
Sausage business also saw a significant spike into band in the last two weeks of March and benefited from it improved price cost relationship.
Refrigerated retail segment adjusted EBITDA increase 1.7% as these beneficial benefits for partially offset by lower cheese and retail egg volumes combined with higher it cheese input costs.
Bell ring net sales increase 90% well adjusted <unk> decreased 14% both of which reflect bell rings elevated marketing and promotional activities this quarter.
As with or other retail businesses Bell ring, so sharp increases in volumes from pantry loading in the last several weeks with a quarter.
You can hear further detail about bell rings results on their conference call later this morning.
Turning to our capital markets activities before we temporarily suspended our share repurchase program. This quarter, we purchased approximately 2 million shares at an average price of $101.75 per share.
I'll remaining share repurchase authorization is approximately $162 million.
During the quarter, we issued 1.25 billion in principle value of four and five 8% senior notes. The proceeds were used in part to redeem or 5.5% senior nodes do in March 2025, We also retired or eight per cent senior notes this quarter.
With these transactions are bond maturity letter has been extend it to 23, and our first maturities or not until 2026.
Last in March we amended arch 750 million dollar revolving credit facility, adding flexibility and extending its maturity to 2025.
As a reminder, neither bell ring, nor post or Obligors were geared tours of the other parties debt.
Accordingly, we report leverage statistics for post independent a bell ring net debt and adjusted EBITDA.
Post pro forma net leverage on this basis was approximately 5.3 times as of March 31st.
For the first six months of the year or cash flow from operations was $89 million, which was down from a year ago.
Primary driver of this decline was 500 excuse me was 50 million in higher nips elements.
Of our interest rate swaps and the timing of working capital across several of our segments in particular increase the couch receivable with the surge in sales at the end of the quarter.
We expect operating cash flow to improve significantly the second half a fiscal 2020, what compared the first half of the year.
In fact in April I'm, posting bell ring together generated approximately 165 million of cash as some of that working capital timing reversed.
Bringing or consolidated cash balance at the end of April, including Bell ring to approximately $1.35 billion.
As Rob mentioned, we feel competent in our current liquidity position in our ability to continue to generate positive app operating cash flow, which combined will provide us the necessary flexibility to navigate this environment.
With that I'll turn to call back over the operate to the operator for questions.
[noise] at this time.
He would like to eight question.
And the number one.
Mmm.
Yep.
Partly.
[noise] got two questions if I could.
First would be Robin Cook, you mentioned not much reason to think that your expectation per second half plans would change as benefits to the retail side would likely offset the challenges in food service I think this come up with regard to cash flow. The correct me if I'm wrong would would you expect it.
Seem to go for you, but broadly speaking were there'd be reason for those two to diverge significantly.
No there would be some fairly significant divergences because we're bring in getting the characterizing the cash flow as essentially attacked we're bringing in balance sheet changes as well things like working capital capital expenditures in taxes. So the the decline in food service, he but will be partially offset.
By retail benefits, but not entirely.
Thanks for that clarity and then.
I guess, you know I was intrigued by some of your comments around being cautiously optimistic around the reengagement that you're seeing in certain retail categories like like really it's a real for instance, with some of all this incremental trial that you've been getting.
And I know, it's real early but maybe you could share a little bit more what you're seeing their maybe at some anecdotal evidence that you're seeing around the potential for somebody has to be you know a bit more sticky going forward and and kind of what you're doing or or the changes basically and how you approach your marketing plans to make sure you're trying to convert as many of those folks you know went to.
Consumers as you can think yeah, well I I think you'd have to say it's entirely anecdotal because if you just look at the data the data reflects such volume growth that you you know it's not sustainable so what we're trying to parse out as you know what what is the search impact not just the pantry loading, but the surgeon pack from.
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Term place from what is durable and it's frankly very difficult, but the reason for some cautious optimism is and again anecdotally you know we hear about consumption at different dayparts much more leaning into snacking as a healthier form of snacking consumers, who had not experienced the category in a number of years.
Experiencing it and enjoying it and coming back to it. So you know I think it would it's more intuitive and based on conversation because the data right now with with.
Give you all sorts of false conclusions and that's why characterize is one very early in two cautious.
Makes sense understood. Thanks very much.
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Please.
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Hi, good morning.
<unk>.
Hope you guys are well I I'm I want to follow on Andrews question, just to better understand that suits servers versus retail dynamic and given that you know food services in in terms, 30% of your business a little less than that any of this retail business. The other major chunky was doing so well I guess I'm trying to understand how how the food service weakness <unk>.
Set by the retail strength and I guess to just to reiterate that is it that you're.
Preparing for a reopening of the food service <unk> food service businesses. Therefore, there's a high degree of costs. Your your bearing does that continue throughout the quarters at the idea you're trying to leave and therefore, it was pretty large profit hit it doesn't quite upset the benefit from retail.
I I wouldn't say, we are preparing for it because that suggests were changing things. What we are not doing is aggressively reducing cost. If we didn't think the reopening would happen. So if if our demand. So let's go back to what I said in my prepared comments about demand flows.
In real time.
So we do roughly $450 million a quarter of volume you know call it roughly $150 million a month and that was down 65% in April.
So that's $100 million a revenue decline.
Mm.
Other than the variable cost there's very little we can do in a revenue decline of that magnitude in that short period of time.
So so that has a fairly significant impact on short term profit you know irrespective of trajectory of recovery simply because it happened so fast with really very modest ability to react to it.
Other than the natural variable costs. So when you when you d. load the system that fast without level of magnitude.
The the absorption impact and the reaction time suggest a disproportionate impact on profit. It is very little to do with the cash generating potential of business because as a recovers that phenomenon reverses.
But it makes for an ugly court.
And then just.
Following as you think about the this quarter, which are different make up if you will need what I expected a very good performance overall, how much are there are there incremental cost that you you could call out to say you know <unk>. There was an incremental burden on Eva dial this quarter and and I'm trying to get put aside these like the significant effect and food service.
Just unique costs and then how much those continue into Q3 for you.
Sure well of course, there are incremental costs around safety unemployed welfare.
We are bonusing supply chain workers in a fairly aggressive manner.
But I think the.
The biggest new us to the corridor, which is not those two cost will be ongoing for the duration and you know we we I think.
I have learned a lot in this experience you want to look at you know how we how we approach work flow.
But some of that maybe permanent.
That doesn't necessarily mean is higher or lower cost it could be a change.
I think the nuance in the corridor shit, it's not obvious.
That it's Kobe related is that we had <unk> and this is cereal we had promotion plans going into the second quarter.
Which when the surge impact hit in March those plans were to develop to retract and what it did was it accelerated a considerable amount volume onto promoted pricing. This it really would have ordinarily been at based pricing.
So it's a it's a covert impact on pricing that will not repeat.
Okay.
So much.
If.
Question comes on line.
Gardener with <unk>.
The morning, instead of <unk>.
More India.
Right.
Curious sticking with the food service egg business, you're really a lot of uncertainty in the number of no permanent outlive closures to traffic levels <unk> I know, you're a big for corner of the Optionality trees and kind of your claim cookie unexpected so huh centralized code and Robbie mentioned your time frame through your again to 2021, but you haven't thinking about the short term ability to be purpose.
Supplying to retail and then medium in longer term hadn't structural opportunities changing for the business versus your base case.
Well, let let me start with how we think about recovery and Jeff mention that I think I mentioned as well that the subcategories are different we think that there will be a fairly rapid recovery and Q.S. ours, where the predominant transaction is either take away or drive through.
Education's binary they will either be open or closed and you know what we are seeing is it.
Secondary primary and secondary is likely to be open and colleges will be individual decisions.
Full service restaurants, we think we'll have a slower path to recovery as they implement social distancing protocols that could constrained demand and then the longest tail is traveling watching it I I think it's it's largely self evident so we look at that as a.
You know if you look at Windows 19 repeat we we think 19 repeats in 22 with 20 being the low point 21, being you know somewhere between as we rebuild demand. So you know exiting 21 at a full run right to 19.
With respect to the structure of the business. We continue to believe that in anything other than a black Swan environment like the one we're in that it's a competitively advantage business that we want to invest more in not less and we think that there will be opportunities that come out of this food service disruption, it's a bit early to capitalize upon them but.
We are fairly confident that they will emerge. So we don't this doesn't really change our outlook on.
The food service category, we are not going to change our strategy based you know we will obviously modifiers strategy based on the way consumer Bavier changes coming out of it which it undoubtedly will but I think we want to be very careful not to.
Build the entire framework around such a.
Such a rare event with respect to re purpose, saying into retail we will continue to do that as we can and are attempting to do it now they're there were challenges at the height of the panic buying related to retail or not wanting to add complexity into their supply chains, which was quite understandable. So it made it a bit more challenging.
[noise] early on.
Overtime that certainly a meaningful opportunity.
Great and then you know just you know along the lines of the structural thoughts most are wondering the extent to which the current environment present opportunities to maybe you're reading more structural efficiencies from the network you're thinking more broadly post holdings, you are more permanently improving less than full truckloads there'd been an issue in the past or maybe we deploring cap x. from harder assets.
More digital I, just got abilities you how do you turn this dislocation to an opportunity for you well I think it's a great question and you know one of the challenges that we had and moving on those opportunities was that we had such demand challenges to meet because of great growth in potatoes, and solid growth in eggs that this doesn't give us a.
Moment to step back and say how are are there some areas into which we compare it to be stronger coming out of this ever doing that across the board you know not just in in food service, but you know one of the lingering effects of this is likely going to be a acceleration of shifty commerce and we are certainly investing like everyone else's and making sure our capabilities and E. commerce.
Are where they need to be.
Thanks, very much appreciated thank you.
Yeah next question comes in a line of <unk> <unk> <unk>.
Thanks. Good morning, just wanted to follow up on Nah. That's the good morning, when it's follow up on food service. You know you have a lot of breakfast exposure there that deep part it's been hard hit a as I'm sure you're aware something like 10 points worse than other day parts.
In terms of the decline rate and you you you know arguably it's not as much tied to some of the the stimulus dollars. It's more about people literally commuting more to work so it's going to depend on the reopening but.
You are beginning to see some reopening it states you know the Texas isn't the George's are already go in Florida. Just reopened you know player like a Starbucks is 85% reopened this week, 90% my or more by early June. So are you beginning to see little examples.
This <unk> how the rebuild we'll go for you and can we talk so maybe some real numbers about what sort of decline rates were talking about here and and maybe the the tail that you can expect in terms of weakness.
The reopening just framework wise thanks.
Well first of all yes, we are seeing some a a case for optimism in terms of the rebuild as we go from really the depth of April into some of the recovery in may and beyond as we move through inventory dislocation into replenishment Henry punishment is continuing to grow each week.
You know as it gets too things like Starbucks reopening we have a lot of confidence in their plans for safely operating their their units that they will rebound fairly quickly.
In terms of adding.
Discrete and specific numbers around the reopening I I would say if we could do that.
Withdrawing guys, we would have changed it.
Challenge is this is a worker first impression for all of US. So we have very broad assumptions as to what these pace of recovery will be but you know they are fairly broad assumptions, thus far we've been pretty accurate, but you know we want to recognize the fact that this is a.
Time period in which we are dealing with the level of uncertainty really unlike anything we've seen before.
And respect that and be cautious with respect to try to put to find a point on what the near term future holds even at the same time as we feel very comfortable about the longer term. So you know if you. If you look I mean, you're from I think coined the the human ingenuity trade, we feel very good about the human ingenuity trade and the likelihood that.
This ends.
We feel very good about the business model.
That develops but exactly how that occurs in what reopening looks like and what can happen state by state.
Are crystal balls not that good.
And you just just a quick went on the you mentioned egg prices.
You know any sort of noise with regard to margins with regard to egg prices that we should be thinking about for the upcoming quarter.
Thanks, well so what I mentioned was that you know when when the.
When the the crisis hit we obviously had inventory and very abruptly our inventory didn't necessarily line up with our demand. We obviously have a production planning cycle that start with a certain demand assumptions and windows demand assumptions.
Got up ended it left us with an inventory mismatch. So it was less about a pricing than about having.
The higher costs to egg servicing lower costs segments.
And that's what I was referring to that is largely working its way through in April.
Maybe close to done by now should be behind us through the balance of the year.
Great great. Thank you.
Your next question comes from the line of Jason English.
Hey, I'm going to books.
Thank you.
<unk>.
I wouldn't stick on food service next when that too yeah.
It looks like a crisis not surprising liquidate prices up here in new all time low I think are unhappy with the <unk>, which is pretty substantial.
And to see your point it sounds like there's a lot of inventory out there. So as we as we leg into a pasta recovery.
It's a risk some your customers instead of buying off your green based market prices.
Up to explain what is probably a pretty substantial arbitrage right now in like into the cheaper liquidate markets to to help depletes familiar with toilets out that that's sort of question one and then <unk> sticking on that it sounds like given the price levels of <unk>. It has the potential it'd be quite devastating to some of your competitors and you sort of hinted at the.
<unk> you turn the opportunities in the wake up.
Her perspective.
You expand upon how do you think this changes your compared to position over longer duration. It is their opportunity prize for you to consolidate the marketing.
Well in reverse order you know I think the beauty of our businesses that we are somewhat diversified the negative are if our businesses that when there's a windfall purely a retail we don't experience at the same way up here retail business would and as we as this recovery we won't have the the lag effect that.
Some of our more pure retail business as well as well we'll have recovery. So we have a nice balance in our business that allows us to be fairly aggressive with respect to companies that are more middle market size businesses that are 100% food service driven of which there are many I'm not sure.
The time is just.
<unk>, yeah for that kind of activity, but I think there will be an opportunity.
In the you know not too distant future.
In terms of the.
The behavior of our customers I think.
By enlarge our customers will stick to their pricing models that they have been accustomed to four in many cases now decades will there be some opportunism certainly could be I I think that that's relatively modest and frankly I'm not sure that in the commodity price market, where we are in now that the gap is as big as.
<unk> you May think it is.
Okay. That's helpful and then switching back to the serial business certainly some must be commentary from meal. Both in terms of the near term, which was seeing the data but also.
Essential medium a longer term if someone is penetration here. We adoption holds I'm curious, what you're seeing and spend the most recent data as we look at some albeit limited sample set scanner data through just last week. It's adjust the category has d. celebrated pretty substantially on it and I think actually last week to week of May 2nd.
Fell into some decline. So this is only in the grocery channel. What are you seeing as you look across to all channels in terms of underlined stay momentum for that category. Thank you.
Yeah. So I have not seen that what are we looking at all channels I would characterize just March April and early May as you know low thirties, low twenties, hi single digits. So.
I don't know that we're at a point, where we can conclude much just yet I I would've been surprised I frankly was most surprised by the April number being as high as it was so.
I think that we just need to let that day to develop a bit before we start making conclusions because it's such a outlier in terms of consumer behavior.
Yeah makes sense, okay. Thanks, guys I'll pass now.
<unk>.
Your next question comes in the line of.
Yeah.
Jefferies.
<unk>.
Hey, How's it going.
So.
Makes me question question I sort of step away from.
Permit from the food service I'd give you break in in terms of Huh in terms of just in general like you obviously between the left we all get it yeah, yeah kind of two two questions. First question Simplistically is have you seen any real dealt though between kind of this list.
Let's say in the U.K. with Weetabix relative to what we've seen in the U.S. and I don't mean quantitatively just anything kind of more qualitatively in any thoughts around that going forward with any differences could be very very general question and secondly stolen cereal is just not promotional.
Right it sounds like there's a little bit a promotional pricing kind of already in there.
You know like you know now if we think about kind of where we could go into the second half of the calendar year.
They feel that they you know promotional pricing maybe being pulled back now maybe some you know N.P. all all in for a number of companies or maybe across the board.
It adds at home, but shit you know you know kind of say back to normal, but you know it's away from home kinda picks up in at home kind of starts to drift a little bit feels that maybe promotional pricing or A.M.P. overall actually starts to left so.
The U.K. versus the U.S. and then how are you thinking about you know maybe you know category promotional on A.M.P. overall kind of for the rest of calendar year.
So couple of interesting differences between the U.S. and the U.K.
I I've largely talked about the U.S. So let me focus on the U.K., what we thought too.
One.
Oh, the same level of search buying.
But we saw more rapid decline to <unk>.
Yes.
<unk>. So we went we went back to a better replenishment rate without the April phenomenon of being up you know in the twenties.
And I I, frankly don't have attributes and for that difference at this point, we're still trying to understand how the different markets are behaving, but the market has paid very well in terms of steady state consumption.
The other interesting phenomenon is that there's been a fairly significant shift in our business from private label to Brandon.
And we're attributing that simply to.
Consumer seeking comfort in a crisis no one brand, particularly one with the strength of Weetabix.
Nothing more than that so it's been a it's been a real positive what we did not have I think we in the U.K. skipped the second and went straight to more of a replenishment right.
In terms of promotion again, I I want to be real clear as to what happened in the corridor.
Because of the way we account for promotion a run up and volume.
Above our expectations for a promotional that.
We'll all be treated in that.
That promoted price. So we we weigh over performed are promoted volumes because of preplanned events that that ran into the circuit by.
And that largely exotic in us to the balance of the year. There I don't think there was any lingering effects and to April though you know maybe once a day or two.
In terms of the balance of the year.
Yeah, I I would say to an unusual degree it's shortened and very much consultative with each of our customers because what we're trying to do in tandem with them is to make sure that we have a demand flow and a traffic flowing stores. It can be safely managed so I I wouldn't.
I would be very surprised to see if the balance of the year was heavily promoted I would not be surprised to see if there was some pull back and promotion to manage some of that traffic.
But the most true thing I can tell you is that it's a work in progress.
That's very helpful.
And then I get too quick follow up is just.
Around go forward cash allocation.
Obviously, you know an hour you know unique situation, but I think you had said you know earlier, but.
There there could potentially be some incremental opportunities all the food server side or just given what's occurred you know, especially in in holes in full service and the overall supply chain. So they would you say, yeah generally relative to a month or two ago.
You might be you could be leaning a little bit more keeping your eyes open a little bit more it's opportunities kind of been that channel that side of the business you know potentially relative to just you know traditional branded package here and that's all I have thanks, so much.
I.
I wouldn't necessarily say, we're more focused on it I would say we think there.
I could it be greater value their we we.
To be opened opportunities across the landscape.
If you look at what has happened.
Most businesses that are the ski retail have benefit and most it skew food service have not so it it just intuitively strikes us at the value may be better on the food service I.
Makes sense. Thanks, so much.
Next question comes on on line of Michael never really type person.
[noise] the morning, Thank you.
Michael.
One on cereal can you talk it's just about your thinking on innovation launches or non trade marketing and I realize at the moment, there's a need for simplicity, but you know maybe later in the year or sometime when you still have a little more of the consumers attention. Then then maybe usual.
Is it a time to get in front of them in different ways and spend more and then just seconds a follow up on back on food service <unk>, just any one time costs to watch out for in this corner. It sounds like the obsolete obsolete inventory risk is lower but I did have a brief technical issue.
During robs comments I'm, sorry, if I Miss something on either one of those.
In terms of innovation I think to an unusual degree innovation is supply chain, driven so where customers supply chains.
Will allow it we will continue and where they need to maintain a more simple assortment. We will delay. So I don't really want to get too much more an innovation I think you all know that we had.
A lot of ambition for our current here and moving into next year, but that's largely going to be driven by.
Conversations with customers about how aggressive they want to be on changing it's working.
<unk>.
Terms at one time costs.
There.
There are not huge one time cost there.
There are a a mirror yet.
Incremental inefficiencies that result from the demand being drawn down so quickly I highlighted on the call.
Two of them one being the mismatch between the nature of our entering the nature of our demand and the other being the cost of moving product that had already been shipped to where it was now needed so essentially double handling and freight.
There's numerous such costs I wouldn't characterize that has.
Significant an individual but they can add up and in aggregate.
Okay. Thanks, that's helpful.
Thank you.
Your next question comes from Atlanta.
<unk>.
Good morning, he'll be older all well you two bill like you.
They just want to dig back into two cereal and see yeah, I understand that the the string and it's hard hard to can understand all the.
What it actually telling you and everything is going up but but did you know with excluding weetabix, you're you're kinda over index to kids and then to to value and so I just wanted to see.
<unk>.
Oh really kids are home from school and college, and and everyone's going for more comfort food and I think you're brands would definitely fall into that category. So didn't know if you thought that part was kind of sticky.
Or it's more getting a temporary live whereas you switch to the the values side, if you're seeing as unemployment rates go up over the past mounted you're seeing a big faster mood to to the the bag category and and the value side, if if you're seeing incremental lift it's tough for us to see one versus the other ones for like the numbers.
Yeah, I mean, the numbers are hard to.
Hard to draw conclusions from so you know my answers are are largely based on intuition, but in my prepared remarks I commented upon how post has certain brands that.
Score very well from a taste perspective, but don't have the same degree of awareness or household penetration and can that I called up my bags. So mom bags have a very high repeat rate once they have trial, but they historically have suffered from insufficient trial.
Relatively lower A.C.V., then some of our peers.
So when you got to the panic buying.
And shells were empty it was fairly self evident of abroad trial opportunity and our expectation is that some of that will stick.
But again, that's at this point intuition not much more than that.
Okay.
And.
<unk> and then moving to eat the Avenue, which I don't think you really talked about as much.
<unk> it much better quarter for them, but but obviously more moving parts one private label too.
How is that doing you know is that progressing from kind of their hiccups up 2019.
It is ah they particularly within the not butter business. They had a terrific quarter. The pasta business had a very strong retail business. The portion of it that as food service, which is roughly a third.
Was off not not as dramatically off as you might expect but it's still it's still had some weakness but on balance eighth Avenue performed very well and we expect cove it to be a net benefit to eighth Avenue for the year.
And it made an acquisition it's recorder.
We acquired a factory that manufacturers and assets that manufacture the Peter Pan brand. So it was a cold manufacturing arrangement.
Okay, great. Thanks, so much.
Though.
The next question comes in the line.
<unk>.
Hey, good morning, everyone.
Alright.
He can you talk about how your ability to get product to the shells are you seeing how to stops are you able to.
Fully supply you you are retailers with the <unk> with product and then my follow up question is can you talk about consumers interest in private label versus Big brains. There's been a lot of the date on you'll all consumers actually train gallons of private label or are they seeking a greater focus on.
Lands and and maybe that also relates to what can be on the shelves.
Yeah. Your first question of are we able to supply the shells I I almost I'm scared to answer for tempting to face, but so far we have been able to meet the demand and and continue to perform very well and no kidding. Aside I expect that to continue what I am what I'm truly most proud of his responses of our supply chain.
Around the <unk> company, both in situations in which there being stretch from.
Incremental demand and where they're under pressure from demand destruction, it's been.
You know I I hate to say he used to work hero too loosely given what healthcare workers and others are doing but the people showing up every day doing their job in the supply chain or maybe just behind health care workers. So I feel very good about that.
On private label I think there's a couple of observations one is that.
There are some consumers who are as I mentioned in connection with Weetabix seeking the comfort of well known and brands in a time in which anxiety is quite high.
There are others, who are seeking the economic efficiency of private label in a time in which economic pressures quite high.
Then there is the fact that there have been some shortages so people are indiscriminate.
I think when you put those three things together you land on you Gotta, let a little data develop before you can reach a conclusion.
That's a fair point thank you.
I.
<unk>.
<unk>. Thank you for participate.
Okay.
[music].