Q3 2020 TreeHouse Foods Inc Earnings Call
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Ladies and gentlemen, this is the operator today's conference will begin and approximately two minutes until that time your lines will again be placed on music hold thank you for your patience.
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Welcome to the Treehouse Foods third quarter 2020 conference call.
All participants will be in listen only mode.
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Please note this event is being recorded.
This time I would like to turn the floor over to Treehouse foods for the breathing or the safe Harbor statement.
Good morning, and thanks for joining us today.
Before we get started I'd like to point out that we posted the accompanying slide for our call today on our website at Treehouse to Dot com.
Conference call may contain forward looking statements within.
And the meaning of the private Securities Litigation Reform Act like teams.
Forward looking statements include all statements that do not relate solely to historical or current facts you.
You can generally be identified by the use of words, such as guidance may should could expects seeks to anticipates plans beliefs.
Believes estimates approximately nearly intends predicts.
Jack potential promises or continue or the negative of such terms and other comparable terminology.
These statements are only predictions the outcome of the events described in these forward looking statements are subject to known and unknown risks.
Uncertainties and other factors, including covered nine [laughter]. It may cost the company worth industry's actual results levels of activity performance or achievements to be materially different from any future results levels of activity performance or achievements expressed or implied by these forward to three.
Treehouses form 10-K for the period ending December 30, Onest 2019.
Treehouses form 10-Q for the period, ending March 31, and June Thirtyth 2020, and other filings with the FCC discuss some of the risk factors that could contribute to these different.
You are cautioned not to unduly rely on such forward looking statements, which speak only as of the date made when evaluating the information presented during this conference call.
The company expects me disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein.
To reflect any change in expectations with regard there to or any other change in events conditions or circumstances on which any statement is saying.
For purposes of our discussion of our results and outlook are provided on a continuing operations basis, which excludes the impact of effects Division, which was sold last August and the ready to eat cereal business.
I'd now like to turn the call over to our CEO and President, let's just keep it up.
Thank you Pete good.
Good morning, everyone and thank you for joining us.
This find you and your families as well as we continue to manage through these unusual times.
We have a lot to cover this morning, but before I get into the details of where he broke.
Transaction.
And our progress in the quarter.
First let me start by expressing my thanks to our employees are.
Our dedicated team has demonstrated great perseverance and adaptability through numerous challenges this year.
Including implementing new safety protocols in our plants and embracing remote work arrangements, while dealing with their personal and family circumstances, all while managing their health.
Their ability to stay focused and to live our treehouse values each day.
Helping us drive success for our customers and I'm incredibly proud of what we continue to accomplish together.
On today's call I'll walk you through the borough acquisition and how it fits with our strategy to drive profitability and cash flow for Treehouse.
And is in line with our meal prep business objectives.
I will also discuss how we continue to navigate through the pandemic and support our customers, which has enabled strong profits and cash flow.
Finally, we'll talk about our progress in bringing more assortment back to the shelves and how private label is starting to see share recovery.
Let me take a step back and provide some context for all of these actions.
As you'll remember, we announced a resegmentation of our business into two divisions back in February.
As you can see on slide for.
This enables each division to pursue unique strategies that best position our categories for success.
The re segmentation also better aligned our portfolio with how the customers think about these categories in their stores.
Simply put snacking and beverages consists of our higher growth categories that reflect key trends and provide an opportunity for top line growth through innovation and distribution expansion.
While meal preparation consist of more mature categories and is focused on improving profitability and generating consistent cash flow.
This resegmentation helps us define the organization around the work we've done over the past several years through our Treehouse 2020 and structure to win initiatives.
We have right sized our organization structure and cost, enabling us to drive greater efficiency as we respond to increased customer demand.
These efforts have also improved our commercial capabilities. All of this has led to our current financial strength and flexibility.
All right just a transaction.
<unk> really on a business provides us with a number of attractive original brands across multiple geographies.
The map shows are existing presence and green and.
And the complimentary addition over the honest geography's and yellow.
This acquisition will enable us to deepen our product reach and key categories and better serve our national and regional customers.
Many of you will recognize the Prince brand in the northeast while here in the Midwest, where familiar with cream out.
These brands are well known in their local markets and many have been part of family meal plans for nearly 100 years.
The transaction includes the Saint Louis manufacturing facility, but excludes the wrong zoning brand.
The branded nature of the portfolio means that operations can be efficiently focused on producing a select number of SK use, allowing us to complete longer production runs and deliver margins that are higher and private label.
Turning to the financial highlights on slide six the acquisition is also financially compelling.
We anticipate the transaction will be 20 to 30 accretive and the first full year after closing.
It was $4 million better when the top end of our guidance.
We continue to focus on top line improvement.
This quarter's revenue of one point O $5 billion grew 70 basis points on an organic basis and was within our guidance range.
From a division perspective, snacking and beverage deliberate excellent top line growth, while mill prep posted solid profit performance. Despite the ongoing weakness in the foodservice channel.
Slide eight is a look at the syndicated data showing how overall private label share trended and measure channels something that I know many of you track.
You will recall that private label outperformed early in the pandemic.
In April responding to sharp increases in demand.
We worked with our customers to simplify and prioritize certain esker use this had two important impacts.
First it allowed us to better serve our customers needs and keep their shelves stocked with private label basics.
Second this simplification enabled us to run more physical cases through our plans driving profitability and cash flow.
The trade off of these benefits was a temporary decline and private label share and measured channels of about 200 basis points in the second quarter.
The next Orange bar indicates the carryover impact of lost business and pricing adjustments in Q3.
And totaled about $40 million in the quarter.
You will note that that is materially lower than in the first half of the year.
Value clubs specialty ecommerce retailers that are not included in scanner data our capture.
Here, we grew 11% more than twice our measured channel growth.
This is an important data point because within this bucket are some of the fastest growing food retailers in the country.
Several of which are weighted heavily towards private label, although we normally don't break down our revenue this way.
Given the current dynamics, we think it helps better frame what's happening in our business.
Sales for industrial export and Komando grew 12%, while food away from home declined 22% in the quarter.
Let me wrap up with some final thoughts on the pandemic and the current dynamics and then hand it over to Bill.
We will continue to prioritize the health safety and welfare of our people our operations have adapted well and our coated response team is doing a great job.
While we did not shut down and tire plants for days or weeks this quarter. It was not without some disruption.
Many of the communities, where we have facilities by Green Bay, Wisconsin, Cedar Rapids, Iowa, Dallas, Texas are struggling to manage through elevated coated levels.
We are convinced that our plants are safe.
However, the fact is that we have little control outside of our four walls.
Covered related developments have impacted our staffing levels and could be a limiting factor in our ability to service all of our demand in the fourth quarter.
In the quarter. We also overcame short term disruption in our Cedar Rapids, Iowa in Cambridge, Maryland plants due to storms and hurricane Isaac.
Finally, this environment continues to be very difficult for anyone to forecast accurately.
Our customers' forecasts are not always aligned with their actual demand patterns and this creates certain challenges in matching supply and demand.
While there was a range of possibilities on how the fourth quarter will play out given the resurgence covance, we fully anticipate that the eating at home trend will continue and it will be higher grocery demand.
Two 145 $8 million.
Division operating income margin improve 130 basis points.
Flipping the impact of our actions to drive improve operating efficiency across our platform as well as higher volumes and improve mix.
Slide 12 work sheet across the adjust EPS drivers for 55 cents last year 271 this year.
Volume and mix, including absorption contributed five fence.
As our plants continue to run hard to build inventory ahead of our seasonal peak fourthquarter.
Pricing that a commodity costs of the drag of seven.
Driven primarily by logistics and warehousing.
Trade it pick up a bit as the lap of 2019 negotiated rate.
In the quarter, we did see demand for at home food moderate. However, we continue to see inconsistency in customer forecasts versus order patterns. This in turn has some impact on our ability to assure that we have the right products to production to meet our customers needs.
As an example in one instance, we have a customer forecast their needs for a category nearly 50% above prior year levels, but their order came in another 5% higher than that this.
This is just one example of a multiply by many customers you get a sense of the level of complexity that this can create.
Week this year as he might work at school arrangements has slowed on the Gulf consumption.
The focus fire no preparation that Ah.
515 is profit growth and cash flow generation.
And a quarter mill, perhaps saw more of a disruption relate to absenteeism and weather related circumstances.
Main course meals, which includes passed then hot cereal is driving nice profitability as we streamline production that had increased throughput, especially on pasta.
As elevated demand has continued we have put certain categories with the main course meals on allocation.
Center store grocery with a significant foodservice exposure in pickles cheese sauce and dressings remains weak.
Specific to pickles as you know earlier this year, we scaled back production in light of soft foodservice demands, but we also made the choice to keep people safe and distant in our plants by not bringing in hundreds of temporary workers.
Although we've made good progress addressing labor shortages crop availability due to hurricanes in the southeast added further challenges to the category.
Before I move over to the balance sheet, let me update your our actions to store assortment and get the D prioritize skews back into distribution.
We've included two examples on slide 16 to demonstrate that effort.
Within mill trap, we've highlighted surf on the left.
Item chart is TVP share, whereas eunice shares on top indicated and orange.
The normalized environment private label serve TVP sure hovers, any 18% to 19% range and Eunice shares usually between 26 and 28%.
And the second quarter, the impact of reduced assortment cause TVP share to decline about 120 basis points, while unit sure fell to 23%.
Cable syrup was one of the earliest categories, where we restored assortment as you can see as TVP sure has returned towards historical levels unit sure has followed.
You can see a similar pattern in our griddle business, although we still have a bit of work to do to return to pre covid levels are frozen waffle business is plenty in the right direction.
Let me say a couple of words about capital allocation.
Slide 18, before we get into guidance.
10.
Steve covered how we're thinking about the current environment in our considerations when the commercial and operational perspective.
While the effect of Covid and Covid.
Mirrors are very focused on being prepared for the winter season, and the holidays and we have seen some order acceleration.
Certain categories.
At the top end of the range or guidance assumes that at home food demand.
And continues to be elevated.
The holiday season, a strong and we are able to service our demand well.
Given the difficulty predicting where the states implement stay at home orders again.
Potential for sharp demand increases for food or guidance is not assumed a pantry stocky event like weeks.
Variance in March.
Should that occur we do believe there is potential for us to over deliver however, I want to be cautious here.
And Steve mentioned as Covid cases increase that impacts staffing.
Ensuring that we have labor necessary to run our plants is coming at a higher costs and like a number of other food manufacturers, we're seeing demand greater the supply in several places.
So your parents restocking event exacerbate that situation.
This acquisition is a demonstration of our commitment to executing our strategy and delivering shareholder value.
Starting with a significant accretion we expect it will contribute to our earnings next year.
To be sure. The recent environment has produced a series of events that have not been seen before.
This recession is unlike any in the past although.
Sure.
Good morning, everyone morning morning, Ken.
I wanted to ask first you know, it's not often we see acquisitions in this sector being this immediately accretive to EPS. So I'm. Just curious can you walk us through some of the underlying assumptions that get you to that 20% to 30% range and I guess.
Civically.
What are you assuming for year, one revenue I know you eight we have LTM, but some of that's affected by colder and stock up.
What are you assuming for year one margin.
And how much of that margin is coming from the underlying business sort of.
Our June versus any expected synergies you might have.
Sure Ken maybe I'll start on that note I'll hand, it to bill good morning.
We worked with that team and I think we paid a fair value for what we would do either of the poster art.
Covid values are reicher and volumes are so.
I think we will get some some benefit in the near term it appears kovats gonna hang on for Awhile and so if we can get it closed quickly will will benefit from that that'll be upside but.
But we think it's a great long term fit it allows us to like.
Coverage.
To get operating leverage on Ah on quite frankly, Ah Ah scaled system that hipc built that we think just needs to be needs to be run harder.
And before we leave it I got it and just one more piece and then release we did cover the fact that this is age for tax prefer.
For purposes acquisition.
It's going to be an asset acquisition and obviously there is a tax benefit.
It would be immediately synergistic to what to us as well.
Okay. Thank you for that and then for my follow up.
Can you walk us through how the decision to buy reviewing to affect your ability to repurchase stock and.
And I guess in any way does it indicate that maybe you don't think your stock is as cheap as perhaps perhaps maybe some observers believe at this time.
Maybe I'll will do the same thing I'll start no. We agree with that we think are stock is really cheap and and there were a lot of questions over the last few months on why aren't we buying stock and hopefully now that's obvious right. We were we were in the midst of this transaction and we were we were locked out book personally.
And as a company from doing such a thing.
The beauty of this transaction and as you saw.
Is it so financially component.
Knowing that it doesn't inhibit us in any way it doesn't materially changed any of our leverage ratios and so it doesn't take any of those.
Options off the table, so will grow up you want to come any more on that but I think just the build Steve's point.
The opportunities are bore was considering before this transaction are still available to the board and yet it's acquisition, it's accretive we're bringing in EBITDA.
From a leveraged perspective, we have lots of flexibility here and we will continue to prioritize those opportunities, but this is in no way eliminate which is a benefit of this transaction quite frankly, yes, and I know the last few months have been a little awkward because we couldn't have this conversation and.
Hopefully now it's obvious why we why we couldn't have this conversation we were able to bring value to not just next year, but to every year following that and we just thought that was that was quite frankly, a long term perspective that we had to take rather than.
And knowing that in fact, we have all options on the table now so.
Great. Thanks, so much thanks.
Thanks, Ken.
Offered.
I think what we tried to show.
I believe on slide eight was but we feel comfortable that.
The whole premise of private label.
We took we took basically two quarters parity assortment back.
Ran very very effectively and.
That that cash flow in those earnings we thought were were well worth that that couple of months to share loss.
So we see the share coming back.
We thought it I.
I guess, it's coming back I guess as expected. We did think the volume would be a little stronger in the quarter, but it appears to be coming now. So we think the year end numbers going to be whether your numbers on a bill if you want to.
So any more detail on that yeah. Thanks. Thanks, Steve you know John the data point I'll, just add two to Steve's comments demand is strong in these categories, but.
Significantly as you pointed out in the third quarter relative to the run right in the first half of the year, where do we go from here and and and when when does that.
No go away completely I guess.
When do we stop talking about that.
Yeah, I think it is when you get into the queue for it tells off quite quite nicely and then and it's like we did breakout ISP differently as well and so both of those kind of get get behind us. So.
You'll see the impact of the new business wins.
Come through in a clean away fairly quickly here and I think we want we don't plan.
Let's there'll be some material changes that we have not seen yet we don't plan that guy that way in the future.
We've had several of our large customers come to us and ask where we can help many of the larger customers have multiple vendors have a primary to secondary vendor in their key categories and Weve had customers ask us.
In what categories do we have capacity, where we can help fulfill.
That backup supply. So we think there is some opportunity to gain share.
So we're cautious on that because some of those are the categories that are the tightest rate there the the pastas to the dried dinners to the refrigerated those are the things that where the capacity is tight to begin with.
But yes, we think we can gain a little bit here okay.
Just one.
Final question, which is in relation to the fourth quarter.
Just given your guidance in relation to the prior year. The s's is down it's down and certainly if I if I exclude the tax benefit you expect or the lower tax rate.
What are the factors that we did you keep in mind there for the fourth quarter earnings performance.
There is a degree of conservatism conservatism in there as well, but just the items that we have to keep in mind for potentially weighing on earnings year over year.
So Chris on the on the opportunity side and what could make it higher obviously, if there's more color demand and.
Any kind of color resurgence to a certain extent, we have an ability there to.
To to leverage our network, even further and grow I think that the risk that you have to contemplate is the cold weather related issues right. So we've been really good about keeping our plant up and running we've been impacted like most of our main factors in the space have been impacted by just some of the labor issues related to Kobe relate.
Good issues as people kind of have to deal with.
Okay elder care and working through the various disruption outside of the building and so we have to worry about some of the costs that will be included our adjusted piano. If those were to run a bit higher we have to contemplate that in the guidance.
Okay. Thanks, so much.
Chris on the simplest of terms that we were the last time, we guided a back half of a midpoint of $1.70. We overperformed in the third quarter. The new guidance is $1.76 for the back half. So it probably says well a little bit of that overperformance in the in the first in the second quarter or excuse me. The first half of the backup which is that.
Third quarter, it will a little bit of that over performance in the third quarter get eaten up in wages and costing over time those kinds of things we have the potential for that to happen right. We'll see how it goes and then to your point, we wanted to be transparent about the tax opportunity.
You see that coming through as well.
Okay. Thank you for that.
Your next question comes from the line of David Driscoll with Davy Research.
Great. Thank you and good morning.
Hey, David.
I had a follow up question related to the acquisition and then just a bigger picture question on the acquisition and on your.
Your current pasta operations I think you said, Steve in the script that prior to Covance Youre popped operations were running 70% to 80% of capacity and now you're running over 100% capacity utilization within your pasta assets.
You bought a pasta company, but you didn't buy all the manufacturing that they had you bought one plant and you said that there were some of the Hebrew pasta was was produced in plants that you are not acquiring so I don't understand how you're actually going to make it all if you are making more than 100% in your existing.
And stuff and you bought you've got this acquisition, where do you how do you make this pasta that you're buying if you're not acquiring all of their manufacturing assets and I'm, sorry, if I completely missed something but help me out right. There and then I have a bigger picture question I'd like to ask no sure David as is common in these kinds of transitions we have a.
Transition services agreement with them and we have a contract pack agreement to get us through the Covance searches with demand and they've got plenty of capacity on their side to do that so.
So weve acquired one that we think long term, we need and we've we've run we've done this acquisition based on what we think the run model as long term to better load the toll system, but in the interim we have plenty of access to their current capacity.
Okay, all right that makes sense.
Then the bigger question is on brands versus private label when there's a lot of talk right now Mcconnell was on yesterday and Mitch Mcconnell. It was on yesterday talking about wanting to get a stimulus bill by the end of the year.
Right.
Would you agree that the stimulus bills seemingly drive people more towards branded food purchases is that something that we have to watch out for when we think about that treehouse revenues that if in fact, there is a sizable stimulus bill that eats age.
Hey, just say it like this but a negative for private label products. As these middle income low income consumers have money they seem to be trending more towards brands. It does your data tell you that or do you see it in a different light. Thank you.
You know David.
We don't see it that way, we see and that's what we tried to show on slide eight we show we saw as distribution right. When we paired the assortment back and simplified the assortment. It was great for the company and it was a great trade off that assortment for earnings and cash.
But we lost share. So we think having assortment back we don't think the fundamental premise of private labels different at all especially if you think about the growth in those non measured channels. You. All know for those retailers are they're doing really well through this whole thing and many of them are primarily private label retailers. So no.
No we wouldn't feel that as a risk we.
We did see a pantry load and cutting our distribution as causing those those issues not now.
Not a consumer behavior.
Super helpful. Thank you so much thanks.
Your next question comes from the line of Robert Moskow with credit.
Hi, I was hoping that may Mitch Mcconnell within that on this earnings call, but I guess these are unusual times.
Hi, Rob.
Hi.
Hi, everybody.
So I guess I'm trying to balance out.
The upside to your business from retailers.
Expanding private label with the limitations of.
What you can do for them from your supply chain, because I read that the retailers are trying to expand.
The number of vendors that they work with.
To provide more flexibility during kobin.
Given the supply chain restraints, so how do you determine whether to take incremental business.
And do you push those.
Customers were asking for the business for longer terms strategic relationships with that is.
Is that your response to them when they ask you for that incremental supply.
You know Rob I think Fortunately, we're we deal with virtually every mainstream retailer in the United States and Canada right now right. So there isn't a retailer that we don't know well and we don't were not able to have a very candid conversation is this opportunistic do we need to just help you for a couple of months or a week.
If so that may come at one price if we need to if we have an opportunity to be with you for a long term that might be a different set of economics right. So I think we understand those things we can have great relationships with them. So I think we can make each one of those decisions.
They're all individually different right the largest mass retailers are very different than the than the Super Regionals I would say so I think we know everybody well enough that we're able to make those decisions one by one and either price them. Accordingly, if it's a short term thing.
Cover your costs or or make a commitment for the longer term.
Thank a lot of people are looking a little longer term. This has shown them that.
Most private label manufacturers in order to be competitive can't have a lot of excess capacity and that they need to they need to be longer term versus shorter term in many cases.
So I think we've seen more of that lately.
And if I if I can just go back to David's question, a little bit I thought in the first half of the year that the message was.
Just don't have the sense of urgency to trade down to private label.
You've gotten the benefit the stimulus package, there's a lot of disposable income.
So and that that's why brands took market share.
Or is that still what's happening now or do you feel like things are coming back more into balance.
I think the data the data would suggest that a lot of people that entered the grocery store or the folks because as you know.
We showed on slide nine the decline in foodservice right the folks who left the grocery store over the last 20 years are the same folks who'd left brands for other alternatives for food consumption and the when they came back to a lot of them all brands right and our data would suggest that a lot of older and higher income folks came back to the grocery store that's not a surprise that they went back and bought Brad.
Yes.
So I don't think the people who bought private label before the recession or before all of this.
Stop buying private label made I'm sure there was some of that.
But I think the data would suggest that that those who typically bought brands maybe with the stimulus haven't been forced to trade down. So we haven't gotten the incremental lift but I don't think it's taken our core customer ROI.
Okay that makes sense I want to make sure and I think as they add just one piece there. The other thing that we have to consider is you know working.
Working with our retail retail partners and kind of their requests we prioritize.
Right the right scale as we bring our skews back online.
See our demand kind of pull through better right and that that's well on its way and kind of working well so I think that the.
That is that assortment thats going to be better for that private label consumer and that's going to help as well.
Okay. Thank you.
Your next question comes from the line of Bill Chappell with truly security.
Thanks, Good morning.
The first.
A quick question on the acquisition.
What gives you confidence that this past.
Passes kind of FTC in light of kind of the whole trials and tribulations of cereal business, if I remember correctly, though in the markets here in pasta.
Fairly consolidated amongst three or four players and not that different from cereal. So just trying to understand what have you done. This in this current administration and maybe that does change.
Goes goes by quickly.
Or doesn't have the same as you could see a little bit.
Well if you remember the of the serial deal was a private label manufacturer trying to buy a private label manufacturer.
Only 20% of our businesses and brand. These are the other regional brands I hope that map that we showed in my remarks gives you a good sense that there isn't overlap right that we didn't buy market share in markets, where we have market share we did not buy the run Sony brand, which which lines up against our Mahler's brand. So I think that that both.
The Bro legal staff in our legal staff.
We're very capable in laying out our very careful and capable and laying out to a transaction that that didn't trip any of those concerns and there are a few remember there is that there is a great big international competitor.
In the past the business umbrella and then there's the checkout and there's a number of other other folks in the pasta category today.
Got it field you don't see it as an issue now.
There isn't any competitors in the past the market just just to that point, yes, Sir we didn't buy all the regional brands to be to be clear, but I think the way. The math plays out will should give you a pretty good sense that we put a lot of thought into that.
Okay, and then second I think we're all asking the same question but.
Just trying to understand on on top line organic growth.
Yes.
Did you get the distribution gains that you expected this fall because I guess I understand.
David or Rob or other question.
If we were all expecting faster growth and faster than category growth has moved in the fall and it feels like we kind of moved up the goalpost again, so just trying to understand.
Just because you see some excitement.
Taken in October how does that give you confidence that we're not just keeping pushing it further and further out is there any data points you can say like private label steady.
We're getting our distribution gains and now we have hard metric to we're often running or is this just more intuitively you feel real good about the most recent month.
Yeah, I think the if I may get back to the total distribution points that we showed in the slide.
And that those trends are there early but there are probably in the right direction and I think the idea is that you know this is building nicely and the other point that we've made in the segments of the business, our snack and beverages growth, which was pretty strong and and we think those categories is going to be up obviously were challenged by a few categories pickles is one given.
Some of the challenges that covert by but we don't we don't have any fundamental concern here. That's new we are managing through a very difficult environment, but we're getting skews back online were getting the distribution points back up.
Takeaway is happening at a concert at the retailer level, it's it's coming.
Yes, I would I'd go back to say that we guided to the third quarter to be flattish.
We grew up 700 basis points on a smaller distribution base that distribution base is coming back now as we showed at spot. So so that's why we feel good that we'll get back to the growth rates, we recently got it.
Okay I'll leave it there thank you.
Your next question comes from the line of John Baumgartner with Wells Fargo.
Good morning, Thanks for the questions Hi, Dara.
I guess first off you just just thinking through the environment, you're it looks as though private label.
Recovering sequentially. So can you speak to what you're hearing or seeing going into 2021 in terms of the bidding environment. How accurate is it relative to normalized levels, a retailer shying away because of Cobiz uncertainty and that makes relief. We're speaking that you have already just curious how that ties into the market share opportunity that maybe I had for you.
Sure I would say if it's trying to normalize.
I think through the first six months of this year. So everybody. It was really hunker down trying to run their business. They were they were concerned about new item.
Commercialization those kinds of things, we actually did a couple of things Bill spoke to one of them.
His script, it's been very successful in a cookie cracker business, but.
I think they're trying to get a normalized so I think there will be the normal opportunities for us.
That we normally have so I would think by the first quarter.
21, it'll it'll be in a normalized unless we have a big cobot Spike obviously everything is is conditioned on that but but I see it coming back to normal levels nothing nothing concerning nothing.
Either either side.
Yes, I mean, just to add before you leave the topic you know the results have been good and the bid process customer feedback is very positive and we had really good success in commercializing and Thats odd covered environment, but there will always be some turnover in the bid process. We don't want to win every single one of them because I think we have a choice.
Asset protect profitability, but I think I think a strong there and what we're doing very well.
Okay, Great and then specifically on the natural and organic part of the portfolio have you been surprised at how strong the growth has been in that space. This year, maybe it ties back to the stimulus benefits in the first half of the year, but given the challenges impacting some of the startup brands that are out there to what extent are you seeing any changes in dialogue or accelerate.
Opportunities for you guys in that part of the portfolio. I mean is there any sort of beneficial disruption that mix longer term.
Folio, you're coming at Akoti.
You know I would suggest that the that our strength is with a couple of those traditional retailers that have multi tier as a private label and have a strong you know.
Premium or natural organic offering or the true natural organic retailer right. So you know and in some cases those retailers are doing pretty well it's.
It's doing well and E com right. So one of them is tied to the E. Com. So I would say those things are been been opportunities but.
Bill if you've seen anything else. Besides that it's really been driven by a couple of key retailers, who are focused on that for private level. I would also just say our breadth of our categories. Here is helpful. In that we have such an offering in the space I think at.
Theres some benefit there.
Thank you. Thank you.
The last.
Question for today comes from the line of Rob Dickerson with Jefferies.
Great. Thanks, so much.
Yes, hi.
How are you good.
Well like I said kind of a broader question on profitability and margins.
Obviously.
Down a bit meal preparation.
Right.
Very impressive performance in snacks and beverages. So.
Obviously I understand right.
Giving 2021 diet.
But I'm just curious you know given all these moving parts right you had some right.
The credit driven cost said, there's going to be some.
The labor side.
But then there's also some offsetting with fixed cost absorption.
You know as we think forward into let's say the next 12.
The two months I'm, assuming you're going to try to capture as much of that margin less than that.
Yes.
At the same time, hoping to every calendar some profitability piece on your preparations Im just curious you know like.
What can you do.
To try to keep.
The profitability up.
Correct.
Where you see that sticky as you go forward with the understanding that and for some has to be given back that's it. Thanks so much.
And maybe I can start and Steve can add the.
First of all how we think about the the margin profile and to your point, we're not giving long term guidance, but standing involved. This year. We're just really pleased with the way our manufacturing operations have have stood up.
Our ability to to be very effective and efficient in this cycle middle environment. Its been helpful. What we'll get back to right, we'll get back to some of the efficiencies in our Tms program and our lean programs that will continue to to drive some opportunities there to expand our margins we lead.
We don't think of that inflationary commodity environment, but at this point.
So we we think things will come back to us in that regard so they've got a very efficient.
And it will always have to make some investments side or to maintain that capability, but we think there.
There's an opportunity here to continue to drive.
Margin expansion as we as we go forward.
The only other thing I would say is it's important to remember that the bulk of the food away from home.
Lines lay on the meal Prep division.
So thats under absorbed overhead plants. That's a that's a number of cost that are weighing on now so I think the.
I think the snack and beverage business is great and they're making great progress I think we should we should assume that in a normalized environment.
Comes back.
Even just material.
Back, we'll take some pressure off of gross margins and you'll see more true picture of what that business can deliver.
Okay Super Thank you so much.
This concludes our question and answer session I would now like to turn the conference back to Steve Oakland for closing remarks.
Well I would just like to thank you all for being here today and appreciate your questions and we look forward to the next couple of months and I Hope you, all say well and stay safe and we'll we'll hope for.
A clean and healthy holiday season.
Take care.
This concludes today's conference call you may now disconnect.