Q3 2020 Bellring Brands Inc Earnings Call
The conference call and webcast.
Most in the call today from Darren brands are Darcy Davenport, President and Chief Executive Officer, and Paul Road, Chief Financial Officer.
Today's call is being recorded and will be available for replay beginning at 130 PM Eastern time.
The dollar number is 805 eight size 8367.
And the passcode is nine to 488 to eight.
At this time, all participants had been placed in listen only mode.
It is now my pleasure to turn the floor over to Jennifer Meyer Investor Relations evolving brands for introductions you may begin.
Good morning, and thank you for joining us today propelling brands third quarter fiscal 2020 earnings call with me today, our Darcy Davenport.
The CEO, Paul Brown, CFO RCM, Paul will begin with prepared remarks.
The words will have a brief question answer session.
The press release, a supplemental slide presentation that support these remarks are posted on our website in both the Investor relations and the FTC filings sections at the offering Dotcom. In addition, there released on slides are available on the Fccs website.
Before we continue I would like to remind you that this call will contain forward looking statement.
We are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these steven.
These forward looking statements our current as of the data this call.
Management undertakes no obligation to update the Steven.
As a reminder, this call is being recorded and an audio replay will be available on our website.
And finally this call will discuss certain non-GAAP measure for a reconciliation of these non-GAAP measures to the nearest GAAP measure see our press release issued yesterday posted on our website.
With that I will turn call over to Darcy.
Thanks, Jennifer and thank you all for joining us this morning.
Last evening, we reported third quarter results as was posted a supplemental presentation to our website.
This presentation is designed to provide more insight into our business.
Sampson and key metrics.
We reported third quarter sales at 204 million and adjusted EBITDA of 38.5 million.
As we discussed last quarter, we ended Q2 within slated trade inventories after our customers over bought following the mid March consumer stock that.
This elevated Q2 sales at the expense at Q3 and factored into our second half planning.
In reaffirming guidance in May we highlighted at the second half would be backloaded more specifically, we expected roughly 56% of our second half revenue to fall into the fourth quarter.
With July net sales coming in at close to 100 million. This plan is proving out.
Outside of the timing shift our actual results results were shy of our internal expectations, mainly due to a slower than expected RTD.
Category recovery as a result of left on the go occasions.
Specifically, we forecasted a consistent improvement from the April low, reaching pre cobot levels by June.
Instead, we saw more of a double b U shaped recovery with made dipping back down and not reaching pre kobe levels until after the quarter ended in July.
Coupled with longer then Nick then expected international recovery this shape $50 million to $60 million from our second half sales forecast, which is equally split between Q3 in Q4.
Although we're seeing encouraging signs in the July our TB category consumption period, we lowered our Q4 growth assumptions given a choppy recovery we experienced in Q3.
However, because of the over performance in the first half.
Find with non strategic S. DNA reductions in the back half a year, we still expect to deliver our full year EBITDA inline with our original expectation.
I'd like to now focused on brand highlights progress against our growth strategies and and with our outlook.
Despite strong cobot category headwinds Premier protein shake consumption was strong this quarter up 11% across the tracked in untracked channels.
I'm track outpaced track channels growing 33% in the quarter, while track declined 4.5%.
E Commerce Premier protein third largest channel led the way up an amazing 185%.
We also got terrific growth in food and drug.
38%, and 33%, respectively, driven by distribution and increased marketing and promotion.
July consumption has remained strong at 12% in tracking on track channels.
I'm tracked continues to drive our growth up 39%, while track channels faced headwinds in July due to promotional timing shifts that will reverse later in the quarter.
Now to our growth strategies.
Strong marketing programs continue to be drivers for the brand Premier protein increased two share points in the quarter to 18% of the RTT category.
Our promotional strategy remains effective.
Driving approximately 40% of our consumption growth and TD piece continue to increase at 6% in the quarter.
Premier protein household penetration substantially increased year to date to 6.6% supported by media, including television advertising.
Our new products continued to perform well and are gaining distribution.
Kathy Latte and our powder product velocities are ranked in the top 10% of the category.
Protein without continues to sell well and we have gained expanded distribution, which we will see in the next two quarters.
I'm excited about our pipeline of new products coming out over the next several months, including what welcoming back my personal favorite pumpkin Spice it shifts this month.
Now to where other brands.
Dimetapp sizes domestic business had a good quarter at 9% led by club any commerce.
Our launch of ice the 100, cocoa and fruity Pebbles has quickly shown success ranking in the top 10 skews where it is sold.
Unfortunately, but dying to ties and Powerbar international businesses continued to be challenged as a result because of it.
Our supply chain remains stable.
During the quarter, we successfully brought online a fifth co manufacturing location.
This was challenging given the covert environment and I'm proud of our team's hard work on this achievement.
This additional capacity gets its further flexibility to support our growth plans.
Now to our outlook.
Pandemic has created strong category headwinds and the slower than expected recovery has affected both of our our domestic and international businesses.
As a result, we have lowered our back half sales.
However, despite those challenges, we still expect to deliver double digit net sales growth for the year.
In Q4, we have significant growth drivers lined up including promotions in most major retailers expanded distribution and we already have a strong to align the books.
Given we exceeded our expectations for the first two quarters and we're confident in our ability to achieve our Q4 forecast I'm happy to reaffirm our full year EBITDA guidance.
I'm incredibly proud of our company and I don't want to Miss the opportunity to publicly thank all of our employees and our co manufacturing partners for navigating the stressful time.
I continue to have confidence in our brand fundamentals.
And I'm energized by the business momentum expanded distribution innovation pipeline and our long runway for growth.
I'll now turn the call over to Paul.
[noise], Thanks, Darcy and good morning, everyone.
Net sales for the quarter to work 4 million, an adjusted EBITDA was 38.5 million.
Third quarter results as anticipated were pressured by the impact of cold is wells changes in customer inventory levels when compared to prior year.
Called it impacted our quarterly net sales results on several fronts first it took longer retailers to reduce their on hand, RTD shake inventory from inflated levels at the beginning of the quarter.
Second as Darcy detail DRTV liquid category, that's significant headwinds.
Third our international business, which historically has accounted for 50% of or net sales declined significantly compared to last year.
Well, we anticipate in many of these impacts the category recovery was slower than expected.
From <unk> perspective, you're approaching that sales declined 12%.
TD shaken up sell down 10%.
The disconnect between shipments in our strong 11% consumption growth for RTP shakes was largely expect.
The blood consumption as retailers work through buying more.
Additionally, recall, we lapped last year's coal for shipments related to a fourth quarter promotion.
These inventory related headwinds were partially offset by strong distribution gains across channels [noise].
Dramatize a strong late in the club in ecommerce channels, which combined grew 50% in the corner.
We anticipate it's wrong wrote for these channels in the second half and the brand continues to gain distribution in FDM and club, while consistently delivering double digit growth within E commerce.
This growth was outweighed by Colby driven declines globally for the specialty business, resulting in an overall net sales declined 16.6%.
Our of our net sales declined 44%, reflecting the impact more portfolio optimization strategy in North America, and lower international volumes driven by specialty store closures.
We expect coded to lay on the brands results in the fourth quarter.
But the decline should moderate novelty of sleep labs, the portfolio optimization strategy in North America.
[noise] turning back to consolidated results gross profit of 69 million declined 24% this quarter with gross profit margin declined 450 basis points to 33.6%.
The margin decline related to anticipate higher input costs, primarily <unk> based proteins and a higher trade promotion rate.
Actually I actually in a expenses as a percentage of net sales increased 240 basis points to 16%.
This increase was driven by strategic increasing marketing spend of 2 million and 2.1 million incremental public company costs offset partially by lower compensation expense.
Adjusted EBITDA for the quarter was 38.5 million a decrease of 37.1%.
Adjusted EBITDA margin of 18.9%.
Before reviewing our outlook I would like to make a few comments on cash flow and liquidity.
We have a strong third quarter of cash flow generating 32 million from operations and we repaid the 65 million, we had borrowed under our revolver as precautionary measure in light of the uncertainty koby created.
This left us with 22.5 million of cash on hand, and 145 million available under our revolver at quarter end.
As of June 30, net debt was 715 million and that leverage was 3.8 times.
Although this was an increase in leverage from last quarter, it isn't one where expectations given our quarterly adjusted EBITDA compared to prior here.
We still expect in the fiscal year with materially lower net leverage and to reach our net leverage target of three times the fiscal 2021 [noise].
Turning to our outlook, we're pleased to reaffirm or fiscal year 2020, adjusted EBITDA outlook of 192 to 2.2 million.
However, based on lower second half expectations due to colder we've adjusted our net sales range to 960 to 980 million.
In spite of Cobiz headwinds fourth quarter is expected to deliver strong double digit top line growth driven by premier protein RTD shakes.
It will benefit from distribution gains and incremental promotional activity.
We anticipate remember brands will be weighed down by the lingering effects of coated, especially the domestic and international specialty businesses.
Got it ties these headwinds are expected to more than all.
To more than offset continued strong gains in E Commerce club and Ftn.
Overall, we're confident in our ability to deliver a strong fourth quarter results.
Category dynamics have improved from the third quarter and the fourth quarter is off to a great start as evidenced by our strong July net sales.
We're protein, which is 80% of our net sales have continued to registered double digit consumption growth in the face of coded and we expect that growth Gen trend to continue in Q4.
With that I'd like to turn the call back over to the operator for questions.
Thank you Sir the floor is now open for questions. If you wish to ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove yourself from the Q that's the pankey.
Our first question comes from a lot of Angela Saar of Barclays.
Great. Thanks, good morning, everybody.
Good morning.
[noise] first off Dorsey as you mentioned the trends in food and drug and truck and track channels I don't know seems to be in good shape as is club, whereas our club and E Commerce and on track. So it does seem like it's primarily mass in track channels that that with some of the issue in some of it.
Data that we all see and scanner.
If that's the case.
Is it primarily sort of promotional timing or is there something else going on there and trying to get a sense of when we would expect to start to see some of that track data, which is heavily weighted I think towards mess start to go to look improved.
I'm sure. So one of the things that we experienced during Q3 was that Kobin hit club and map harder than any other channels and you know consumer stayed away from the larger stores in favor of smaller local grocery stores and E Commerce and so there is one category.
Hey aspect of that and we're already seeing that change and improve.
On specific to our brain rooms on we are so.
Typically in July we're seeing improvement across consumption, but specifically in July we are laughing and promotional timing in both tracked club and manner.
And that should turn around later in the quarter.
Got it great. That's that's helpful. And then when we think about trial and repeat you've also talked about the you know the impressive household penetration gains and sort of about 50% or so repeat rate just as you think there for you if we think forward a little bit.
Is there any other or research or or data points that you've got as you know tally up what consumers are telling you that that makes you feel like that type of repeat rate or.
The stickiness, if you will right. If some of this incremental household penetration can be not insignificant. If we think forward going into into your fiscal 0.1.
Yeah, I think the biggest predictor of the future as the path and one of the things I mentioned on in my prepared remarks is we included a supplemental deck on our website that goes through some of our key metrics and go back in time to give you a broader perspective and.
One of the pages I'm follows household Penn from 2016 can now and you basically see I almost doubling up household penetration, but are repeat rate stays consistent at around 50% and so I think that right. There I mean, we.
In you increased household penetration you usually see a decrease in repeat but we haven't I'm. So for us our challenge and opportunity has always been to increase household penetration because 6.6 is great growth from 2016, but it's still rally.
Typically low in the broader scheme and we're confident that we'll get the repeat in the loyalty because we've shown that the brand has some of the strongest category.
Thanks, so much worse.
Thank you.
Our next question comes from lot of Ken Goldman of JP Morgan.
Hi, Thank you I wanted to dig in a little bit more toward guidance. Obviously, you made changes to your sales number but not your EBITDA number and you gave us some reasons why but.
Was there any consideration to maybe you know given some of the downside surprise this quarter essentially take the opportunity to take EBIT down the EBITDA down a little bit as well just to give yourself a little bit of cushion where do you really feel like they're just not much visibility into your cost structure.
And the related sales that you feel it just wasn't necessary.
So we we absolutely evaluating it and as you know, we've we overachieved the first half and our EBITDA margins have been running toward the high end of our long term algorithm and both of those things gave us an EBITDA flexibility and then in addition, when we.
Not entered into it it's pandemic, we ensured that we maintained some slight financial flexibility within RPM now just in case that our forecast our sales forecast were slightly off so in many ways. We were ready for that because we wanted to deliver on our annual.
Oh I'm commitment of either on EBITDA. So I feel confident we have good visibility into that into Q4 already and so and that's that's the main reason why we didn't adjust that.
Thank you for that and then I wanted to follow up with asking about your SKU assortment you had talked obviously about some of the products.
I'd like doing very well was there any pressure from your customers to reduce skews by a more meaningful amount than you would've hoped for expected during the crisis. So far or you know given your limited number of products already was that something you didnt quite feels much of.
Yeah, there really was no pressure around SKU assortment.
Short and sweet Thank you [laughter].
Thank you.
Our next question comes from line of David Palmer of Evercore ISI.
Thanks, Good morning.
Just looking at your advertising and consumer marketing spending for the first nine months. It looks like that was up almost 200 basis points as a percentage of sales, which I don't I think there was similar to what you would have thought but I, although I remember the promotion and advertising we're supposed to be.
Going up 300 basis points. So could you comment on your gross spending year to date.
Is it in line with what you were going to spend do you still playing on spending that same sort of.
Step up in the fourth quarter and then looking into 21 are you thinking similar amounts of gross spending in other words, the need not be another step up or maybe even you'd only been need to have the same level in that year and I have a quick follow up.
Great I'll hit the strategy and then if Paul has anything and specific to add he will from a strategy standpoint, our plan from a and piece standpoint with a ways to focus our biggest spend in Q2, which is around new year, New you. When most people are entering the <unk>.
Category and then we're going to have a smaller spend.
In the back half, we chose to move that smaller spend into Q3 and send it in Q3, because we felt like we had a very strong promotional plan in Q4 and candidly we are seeing softness in the category on and we also saw.
Benefits on cheaper advertising rates more eyeballs et cetera. So on overall from the year. Our media spend is very similar to what we expected.
And then and just hit.
Pacified, but in Q4, we will not have we will have a small A.M.P. vijay because of our heavy promotional spend.
On the 21 question Oh, we saw this year as really you know this was our first year with television advertising on it was very effective in building household penetration, which was our main goal. So we we expect and plan.
<unk> to increase that in 21, and obviously, we're in the process of doing that planning right now.
You know as we're looking into 21, there's probably there's many gives and takes here with regard to how we should think about your topline you're kind of an lucky with a lot of the on the go this year.
But then again you you're lapping some.
Out of.
Out of stock issues or supply chain issues and.
And then God knows how things will work as far as the recovery rate up on the go into this next year. So how are you thinking about the major chunks of gives and takes as as you as we try to model fiscal 21, particularly as it is regard to the that topline. Thanks.
Yeah, I don't think we're in a position right now to talk and you know in detail Oh, I'm 21, which we will obviously due in the next quarter, but we are seeing improved category trends in July and so we are we actually all.
Those are recovery took longer than you know we predicted we are actually it was actually only about a month different than what we predicted so we are seeing July.
On liquid category up above pre cobot level. So in many ways. Although you know there are no promises likoguard, but in many ways. We believe and we are back to having the category a tailwind we know what works to drive our business and it.
Kinda back to our original playbook.
Thank you.
Thank you.
Our next question comes from one of Jason English of Goldman Sachs.
Hey, good morning folks good morning.
RC.
Your your performance this quarter is definitely costs, a little bit flat footed in terms the magnitude of decline, but your forecast for next quarter implies sort of pretty robust snap back I think at the midpoint your guidance upwards around 23% growth roughly speaking.
Yeah I'm hearing your reference consumption in July of around 12, our premier I'm, assuming international Climatized Powerbar still down so somewhere in the mid to high single digit overall consumption for the portfolio in aggregate and tell me if I'm off base there.
Yes, if that's the if that is generally right, what's going to drive the incremental growth to get to that 23% type level in the fourth quarter.
Yeah, So you're exactly right that we're expecting continued declines in the international business. So specifically diamond ties Powerbar, but we are expecting to see pretty robust growth in premier shakes, specifically on and that's really drive.
Then by promotions that we have in almost every single major account as well as the category rebound of being more of a tailwind that has been I think that what is.
Encouraging is you know at this point in a corridor, we actually have very good very good visibility to is Lee two third of our quarter from a shipments perspective, and candidly, that's what's give us GAAP batteries with giving us confidence.
Okay.
Yes.
The only thing I, Yeah, I would add quickly is that.
Recall that we were also lapping.
Somebody go favorable call.
Fourth quarter prior year because of the early loaded into Q3, so that that that is about 9%.
The benefit to the fourth.
Okay.
For my follow up I'm going to try to cheat a little bit hearing squeeze two questions and my apologies I know Jennifer is going to punish the later for up but first the volatility of the business me from up 32, it up 19 to down 14 and up 23.
And that's just this year, we see the volatility going back is there ever a scenario a case, where we don't have as much volatility going forward is there anything you could do to manage the business for a for a little more often.
A little more.
Consistency I suppose and then second part of the question, which is totally unrelated in the chief of the second question.
Yeah, I look I look around the world is not feel anything like a post hope it world, yet and I'm not expecting it or pre covert world Yeah, I'm not expected to feel like a pre cobot world for quite some time why should we expect your business to perform at pre koby type levels for.
For for anytime in the next exposed even though it may have hit that level in July why should we believe it will be durable.
Yeah, great questions, Okay out at the first one on Iran consistency so.
Our business.
Is just naturally because of the we have you know some.
Fan club concentration, we have had a natural kind of lumpiness in our quarter to quarter. However, what we are and hopefully you guys have had a chance to look at that supplemental deck is by providing more transparency to what we usually see corridor by corridor.
Our goal is that you guys start understanding that it actually can be I'm more predictable this year not predictable, obviously and even last year. We had our you are our capacity constraints, but.
But there there should be some predictability around promotional promotions because in essence the difference between quarter to quarter is usually just promotional loads India loads.
So that's the first piece the second piece is just around I agree. It does not feel like we are in a post co bid world I think some of the dynamics that are unique to our category.
Specifically when I'm. So when you think about convenient nutrition.
The bars the on the go piece and bars have definitely gotten hit the most I mean in the quarter bars were down 24%, where our T.V.'s were only down 4% on whats happening within RTD that I still even in July where it is up 7% versus pre covered levels than that.
Why I think there are some unique things happening one I still believe that the on the go usage occasion is still under indexing people are not out in about like they were before however, the in home you is over index and indexing and what we're seeing is some new trends there.
And you know food as medicine, or proactive health and knives really benefiting be adult nutrition side of our business, but it's also benefiting the ours has it doesn't see every day and nutrition side of the business it's hurting.
You know weight management and sports nutrition, but I think those are some of the dynamics that where our business actually can.
Benefit candidly from kind of a a post 'cause it or a code world.
Thank you very much that's another thing.
Thank you.
Our next question comes from line of Rob Dickerson of Jefferies.
Great. Thanks, so much.
So I guess.
I don't have a follow up.
Made in terms of.
Well some benefit.
Okay, and Oh around you know uses.
Got it with a medicine.
So to speak I feel like if I remember correctly or sold in the last call.
You would you discuss tell.
A decent percentage of your overall buyer base.
Actually consumed for product.
Right, so not all undergo.
And obviously.
You know primarily buying that in the club channel.
Good question I would happen.
But consumer big.
Relative to other customer bases in the category grew more at home is there something you can do to essentially support ongoing food at home consumption of your product or and or potentially shift or think about adjacent seat caught construction snacks without it.
Yeah. It's a great question, so you're exactly right, we see about 80% 80, 85% of our business at.
And in that house or at home.
And on those are and what we're doing is like you know many other CPG because we're evaluating these changing consumer behavior and adjusting so we've addressed our communication strategy. We did it right away to focus more about using our products and recipes, which has always been very very successful.
Oh on social I'm, obviously, we adjusted our eight R. M. P strategy I think as we go forward. We are looking at different ways. We can oh, we can kind of renovate for use on packaging call out on our our packages and too.
All out certain benefits that we have to really leverage some of these trends and then on the longer standpoint, we're definitely looking at at at AD product ideas and that would be leveraging leveraging some of the trends that I already talked about.
Okay, Great and then secondly.
Yeah.
The number of people within the industry.
More specifically around your categories.
Ill.
Brewing that you guys, we kind of go when shelf resets later this year.
Retailers overall youre still.
Regarding some of the larger brands.
That's all.
Across all occurred but more specifically just your category and give it there's so many player.
Then you know a higher growth category like person to person. The bar side. This deal is that maybe some of the larger players could actually benefit through the shelf resets no I realize you're focused more called.
We've got isn't.
Sure. So the thing is essences tinder is over different.
How do you all about your share.
Joel you as we go through that process.
You are promoting.
You are trying to send that helpful and occurred further.
Oh, Yeah, I'm really excited about the upcoming reset and specifically at you know the the bulk I think in the past I talk about kind of 50 50, 50% of the shelf sets reset in the fall, 50% and in the spring back and change to be more of a 60 40.
Split and so we have visibility to the new reset that are coming up in our Q1 and I think what you explained about retailers supporting the larger brands, but typically the larger growing brands.
I think that our resets, we'll show you that and I and we're we're gaining some significant space, which you know I would argue as long overdue, but I'm very excited to see it.
That's great to hear I'll pass it on thank you very much. Thanks.
Our next question comes from line of John Baumgartner of Wells Fargo.
Good morning, Thanks for the question.
No.
I wanted to come back to the gross margins just given the pressure this quarter the pressure last quarter.
Yes, you outsource model, where you're not seeing as much the leverage or whatever it was insource Greg.
Drills down a bit more to the components there about pressure next the cost inflation your comments between cost inflation changes in year on year promo, maybe just more detail. There then for follow up with dislocations from coded how is that impacting sort of changes given your outlook for Gary call completion Youre going forward. Thanks.
Sure, Yes, so from a third third quarter expect versus last year correct on margins were down.
And it's really two primary components. It is the increased promotional spend as well as as the increase in milk protein cost.
So it's kind of 60 40 split really from the drivers on the margin side as we look into next year dairy costs have been somewhat volatile times.
Kind of after coated.
We were expecting higher propane costs as we went into fiscal 21, that's been a little bit pepper based on the markets recently, but we're still expecting.
Minor headwinds.
On the milk protein side on weight on whey protein actually we.
So those have been a bit.
A more favorable not increasing so there may be a marginal benefit there, but I mean any protein cost for next year as you know our thinking is that.
But some of our supply chain initiatives.
Opportunities offset some of that but we do think there'll be some modest headwind for proteins as we go into next year.
And is there any is there any ability to I guess, we had more than you had historically any changes supply chain initiatives on that front are still just.
Your historical them either norm in terms of I guess looking up more chance as opposed to hedging.
Yeah were werent valuating several strategies.
To get upon when looking at different ways to do that and we have even in this fiscal year implemented some different strategies and we have.
Executed in the past and we're continuing to explore some additional opportunities. There. So yes, we're taking to evaluate find the best way too.
To mitigate that [noise].
The baseball.
Our next question comes from one of Pamela Kaufman of Morgan Stanley.
[noise] Pamela make sure you're not on mute.
Our next question will come from the line, Brian Holland of D.A. Davidson.
Thanks, Good morning.
Most of my questions have been answered so maybe just two quick kind of follow on one.
Darcy sounds like from everything you're saying.
So you have pretty good line of sight on on distribution gains a mid C. D upcoming shelf resets, which is certainly encouraging to hear given the.
Kind of the landscape in some some uncertainty going in about how shelf resets harbor, who is going to play out. So so maybe just first point of clarification.
You feel very comfortable with the line of sight, you have on distribution gains going into fall.
Well, yes, we do a well well debt.
We have some minor reset it happening in the grocery side of the business in Q4, but the major ones, we will see in our Q1 and yet we already we already know where those will land and its positive for brand.
Okay got it and then just quickly on the scanner data. Obviously you know some scrutiny there that's been reference for the call and you you did a great job of walking through the puts and takes there, but just just to.
Help us understand as we watch this data over the next few months I know you lap some material promotional events in the prior year period.
You know just taking the cobot backdrop out of this.
As we look forward over the next couple of months no significant events that we are lapping that maybe won't be repeated that we should just be mindful of one way or the other that might impact the way the scanner with looked.
The I always want to be careful with nine not but no major wine.
If you remember so last year, we actually only did.
We did only a handful of promotion.
The suit, it's typically in our club account.
And Ah, we had a small promotion in manner.
Which were lapping right now, but what's different about this year as we basically have.
In almost all of our retailers.
Appreciate the color best of luck.
Thank you.
Our next question comes from a lot as Bill Chappell of chose Securities.
Thanks, Good morning.
Good.
But first listen just that's when we look to the third quarter, the inventory or the trade inventory issue.
I'm just trying to raise it did we just miss model that or you did it have been a little different than expected because I think I was going back and I think the comment was it was expected to be kind of about $50 million hit the demand over the equally over the next two quarters, but it seems like a majority of it happened in in Threeq, two so did something.
Differently or do we just not get the message.
Yeah, I think there are two thing so we we did our back to communicate the hi testing them or inventory at the end of Q2, which benefited Q2, but hurt Q3 and that the when you looking at that.
Back half it was back loaded into Q4, clearly we need to do a better job because we look back at the script and we thought we were clear, but clearly not so we can work on that for sure what we meant.
Was and what was the new information is that the rate of recovery of the category and that was what I was talking about kind of the doubling I mean, if you go back to the.
Overall communion nutrition category, but specifically liquid you'll see week on week that it hit a low in April and then toward the end of April the category actually saw Daddy a recovery.
We expected at that time with the information we have but that would continue gradually up to pre cobot levels as of June obviously that it actually went back down and that was that w. curve that I talked about so that would really honestly than men.
As opposed to we had visibility to obviously customer inventory.
Got it and the kinda on follow up on that seen lines like.
What are your kind of current thoughts for.
Active nutrition, you know over the as we come out of Tobin and the reason I see that is.
As you saw that your numbers were were declining I mean sales of ketchup and frozen potatoes were triplet.
And so you know through clearly there are consumers that are gone to comfort food and are still on comfort food and it didn't know if if you thought it would respect is everybody's trying to shed a said the pounds and be more active in north nutritious coming out of this or whether there was kind of a permanent.
You know pause on on some of the active nutrition growth as people slowly come out of it.
Yeah, So I mean big picture from a trend perspective, Oh, you know we still are there's the.
Temporary piece, which is really this on the go reduction so that I think.
Well well continue once there's a vaccine even it's starting to come back I think as more people as we all start.
As we're all learning more about the virus in understanding how to function with that so I think that as a temporary piece that we're already starting to improve I think that.
When you look at need state.
The area that is benefiting is adult nutrition and somewhat and at that.
Everyday nutrition, what's getting hit is weight management and sports nutrition.
I believe that those will come back so sports sourcing attrition has been hit for awhile, but I believe they will come back I think as people start.
Getting wanting to get back into their health routines et cetera. So the fundamentals of the category are strong people are looking to to improve their house. They want convenience. So I have no doubt that this category will rebound.
Okay, great. Thanks to the color. Thank you.
Our next question comes from one of comes I flow of bank of Montreal.
Hey, good morning, everyone.
Good morning.
How does this affect your loan can go through.
And it doesn't act. So if you remember we had planned to our long term algorithm. We had planned to have a higher growth rate. This year, because we were lapping that you constrain, but the long term.
As 10% to 12% growth with 18% to 20% EBITDA margins and actually what what were seeing because of Cove. Ed is we're actually still delivering on that long term algorithm. However, we thought we would be over delivering this year.
Okay, well my second question is.
When you did the promotional shift from second quarter, two third quarter fourth quarter, how definitely.
I don't know he was there.
The promotional shift.
Yeah, and the in two quarters ago, you said that there was going to you you were delaying the promotions from the second quarter to the third worthless.
The mistaken.
Just read the transcript no okay.
No you're right and so a couple of things happen. So we actually this last quarter because of so those those moved to Q4 and actually into Q1, but what changed in this quarter is we are.
Slowly ended at doing an incremental promotion because ah.
In our club accounts, mainly because our club accounts saw the declining category and we were there first call. So net net we actually ended up with the same amount of promotions in this year, even though we thought they were moving.
Great I'll leave everything to later, thank you very much. Thank you.
And our final question comes from one of Chris growing Stifel.
Hi, This is Matt Smith on for Chris My first question relates to the inventory position at retail could you talk about what happens in the fourth quarter when I look at the bars on the slide the provided it looks like there's potentially more inventory de loading to go.
Probably want to take that Oh, sorry, yes.
Oh.
[noise] coming out of the third quarter, we feel like the inventory levels are and balance at our our key customers.
Visibility.
So we do not anticipate the fourth quarter, having significant deviations between shipments.
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Okay, Great and then my follow up would be as it relates to the household penetration and repeat rates he provided.
Could you talk about the benefit of new products and how those are impacting repeat rates and then on TD piece or they're very repeat rates based on the new products that are influencing the performance.
Sure so.
There are few things it kind of you expect with repeat rates is that as you expand distribution and you expand expand household.
Is that youre at both by rate and repeat rate would go down I think back one of the things that I was saying at the very beginning is that's what I'm really excited about is that we actually see a very stable repeat rate over over the years so that.
It was really good and and with regards to.
By rate, we are seeing some decline in Bahrain, mainly just because we're going from big packs in club to smaller pack in FDM, but still very strong. So I think I answered your question.
Did I get everything.
Thank you.
Thank you.
And ladies and gentlemen that was our final question was that would do conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day.
Thank you.
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