Q4 2020 TreeHouse Foods Inc Earnings Call
Yeah.
Welcome to Treehouse Foods fourth quarter, 'twenty 'twenty conference call, all participants will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions to ask a question simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Please note. This event is being recorded at this time I would like to turn the call over to Treehouse foods for the reading of the Safe Harbor statement.
Good morning, and thanks for joining us today before we get started I'd like to point out that we've posted the accompanying slides for our call today on our website for Treehouse foods stock comp.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements include all statements that do not relate solely to historical or current facts.
You can generally be identified by the use of words, such as guidance may should could expects seeks to anticipates plans believes estimates approximately nearly intends predicts projects 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 COVID-19 that may cause the company or its industry's actual results levels of activity performance or achievements to be materially different from any future results levels of activity performance or achievement expressed.
For implied by these forward looking statements.
Treehouses form 10-K for the period ending December 31, 2019, Treehouses form 10-Q for the periods ending March 31, 2020 June 30th 2020 September 30th 2020, and other filings with the SEC discuss some of the risk factors that could contribute to these differences.
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 expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein.
Reflect any change in expectations with regard there to or any other change in events conditions or circumstances on which any statement is based.
Also we will be discussing some non-GAAP financial measures, including various adjusted items organic net sales and free cash flow reconciliations between the most directly comparable GAAP measure and the relevant non-GAAP measure and other information about the non-GAAP financial measures can be found in either the earnings press release or the earnings.
Both of which are posted in the Investor Relations section of our website Treehouse foods dotcom.
For purposes of our discussion our results and outlook are provided on a continuing operations basis, which excludes the impact of the snacks Division, which was sold last year and the ready to eat cereal business.
I would like to turn the call over to our CEO and President Mr. Steve Oakland.
Good morning, everyone and thank you for joining us I hope everyone is well as we start the new year.
I'd like to again begin my remarks today.
Pressing my gratitude to our Treehouse employees, especially the roughly 9500 frontline workers in our supply chain.
Men and women throughout the pandemic have shown up at work.
Factories, and our warehouses to serve our customers.
Incredibly proud of how well we have managed the challenges in 2020.
And continue to do so through this COVID-19 environment.
Our strong performance to close out the year. It was really a product for the entire team's effort and commitment.
Now there are a few key takeaways that I want to cover in my remarks today.
First.
Tough operating environment.
We have made substantial progress executing our strategy.
And have delivered on our commitments.
We simplified the portfolio improved our operations and customer service and transformed the company.
To position Treehouse for continued success.
All of our efforts were critical to enabling Treehouse successfully face pandemic related challenges and will drive future growth and value.
Our results for both for fourth quarter and full year reflect this progress.
We drove meaningful top line growth.
And are also generating substantial cash flows that will enable us to not only deliver on our strategic growth algorithm to drive additional growth through disciplined investment and a balanced capital allocation approach.
Third we are pleased with the strong progress, we're making on integrating our Ribena acquisition.
Which is on track to deliver significant accretion synergies and value.
Finally, all of this is really just the beginning.
After Bill walked you through the details for the quarter and the year.
I'll come back and share some details around how we plan to continue to leverage our position as the <unk>.
Leader in private label.
To evolve our strategy to further drive growth.
With that let's turn to slide five.
When I joined Treehouse in March of 2018, nearly three years ago.
Our work at that time was focused on stabilizing the business.
We set forth a clear set of priorities and worked hard to execute against them.
Our first priority was becoming operationally excellent.
Part of that effort, we reduced roughly 11000 skus.
11 manufacturing facilities.
And meaningfully reduced the number of warehouse ship points.
<unk>, we've also instill a culture of continuous improvement.
We also turned our attention to simplifying our systems by consolidating finance and it platforms.
Going from 13 ERP is to three.
100% order to cash on that Sam.
Another critical aspect of our work focused on reshaping the portfolio.
Divesting the snack nut business working towards the sale of our ready to eat cereal business and selling to in store bakery facilities.
With the exception of Rte, which continues to move forward. We've accomplished every divestiture we targeted.
The proof point in 2019 was our service levels, which were solidly above our targets the entirety of the year.
This led us to pivot our focus to T Mos lean and driving continuous improvement mindset across our supply chain.
Key to our long term competitiveness.
Yeah.
The stabilization of our operations allowed us to take the next step.
And build our commercial organization to increase customer intimacy and drive top line growth.
And also invest in our people and talent.
Focusing on our culture.
In total we delivered on each of our commitments our efforts resulted in meaningful financial impact, including delivering approximately $400 million and run rate cost savings.
Offsetting a roughly similar amount of headwind due to inflation and lost volume.
With that strong foundational progress made we fast forward to early 2020.
Pre pandemic.
We entered 2020 focused on unlocking the potential of our businesses.
We reorganized to a two division structure snacking in beverages and meal preparation.
Doing so allows us better align categories and businesses with our customers think about the categories rules, enabling each business to focus on their unique strategies and tactics that would best position them for success.
In the simplest of terms snacking and beverages our growth engine is.
About profitable revenue growth through innovation and distribution expansion.
Meal prep.
Our cash income.
Focused on improving profitability and generating cash.
Value engineering and simplification.
As the pandemic took hold the unprecedented pantry stocking in March and April is like nothing any of us had ever seen.
And as we all know 2020 was a different year than anyone had imagined.
As we adapted to keep our people safe and service our customers what quickly became clearer as the Treehouse was well positioned heading into the pandemic and all of our hard work over the last several years have prepared us to successfully service.
<unk> is in demand.
Proving the strength of our business model.
Our operations ran much harder to fill orders our commercial organization engage with customers more closely than before.
Our values guided how we address the pandemic.
By prioritizing the health safety and welfare of our employees.
The heightened volume improved our efficiencies and profitability.
And our ability to keep our customer shelves stocked further differentiate us as a supplier.
One uniquely equipped to support our customers through last years very volatile period of demand.
As we service the pandemic demand for financial results for Treehouse for significant profit improvement and strong cash flow.
The pandemic allowed us to accelerate the timing for deleveraging our balance sheet and pull forward our discussions on how we can best deploy capital to create long term shareholder value.
Progress over the last few years has dramatically reshaped our business our capabilities and our expectations moving forward.
Day, we have a very different platform than when I arrived.
We are a company with a stronger balance sheet and greater financial flexibility.
We are more capable culturally operationally and commercially.
And I believe the proof is in the results that we delivered for the fourth quarter and the year.
Turning to slide six our results reflect that progress.
In the fourth quarter, we delivered organic revenue of 1.17 billion with Ribena contributing another $12 million.
Our results were just over the high end of our guidance range, representing three 3% growth or 4% on an organic basis.
This was driven by strong organic growth of eight 1% and our snacking and beverage business and steady one 3% organic growth in our meal preparation business.
For the year, we delivered two 7% organic net sales growth.
By outsized growth trends in unmeasured channels.
Pleasingly composed for some of the fastest growing food retailers in the country.
Many of them also have heavy exposure to private label.
On slide seven we summarize the tremendous progress, we've made and generating free cash flow of nearly $300 million for the year.
Allowing us to more quickly achieve our leverage target range, our strong cash flow and balance sheet enabled us to pursue the attractive and highly accretive acquisition of <unk>.
After the acquisition, we finished the year with leverage of three one times.
Turning next to slide eight.
As you remember, we announced the acquisition of <unk> Ruby on original pasta business in Q3 and completed it in December.
Our integration plan is on track and we're even more excited about the significant value creation opportunity.
For Indiana will enable us to build real depth in the pasta category <unk>.
Improve our efficiencies from an operating perspective, and enhance our service of national and regional customers for a mix of private label and regional brands.
Financially deal will have an immediate impact.
We expect to add $170 million to $180 million in revenue on a normalized basis.
And in 2021 generate 25 million to $30 million in EBITDA.
And accretion of 20 to 30 per share.
Fundamentally we are confident that private label continues to present meaningful opportunities for treehouse as.
As the retail landscape and consumers have adapted to the current environment, we're seeing signs that our customers desire to strengthen their own brands is returning.
This foundational demand is something that we are in a unique position to deliver.
We like our position in the market to meet this opportunity as the company with the deepest capabilities and reach today and private label.
On slide nine we share some recent commentary from several large retailers around their desire to refocus on their private label programs.
To be clear, increasing private label penetration doesn't happen overnight it.
It takes time to develop new products reset shelves and support their introduction.
My point is that the commentary is very encouraging and we have a unique opportunity to participate in that growth in a meaningful way.
We are undeniably a leader in private label and our customers count on us to deliver.
It's increasingly clear.
Net we are best able to meet their needs and drive growth and value for Treehouse in categories, where we have built real depth in terms of both scale and operating capabilities.
Slide 10 shows how that is reflected in our results.
As you can see in Q4, we delivered above market growth in a number of categories, where we have significant scale.
And depth.
Approximately 35% of our revenue is generated from categories like these which were outperforming private label.
We've developed a formula for winning that's focused on depth in a category, where we have a strong foundation and efficient supply chain and deep customer relationships.
Looking ahead. These are the type of categories, where we believe we can continue to leverage our position and build momentum through our advantaged debt.
With that let me turn it over to Bill to go into more detail on our results and our outlook for the year.
I'll then come back and talk to you about how we are planning to capitalize on our strength and deliver future growth and value creation.
Bill.
Thank you, Steve and good morning, everyone.
Thanks for joining us today.
Like Steve I want to begin by saying, Thank you to the Treehouse team.
So on track, how well, we manage through the year and I am very proud of our strong fourth quarter results. Let me start by recapping the quarter with our scorecard on slide 11.
We delivered against all of our key metrics and outperformed on the top line at 1.18 billion, which includes really up for.
Quarter, adjusted EBITDA was $154 million and adjusted EPS totaled $1.07.
Turning now to slide 12, and our revenue drivers.
Mill prep organic growth of one 3% was driven by a combination of volume mix and pricing day.
Additionally, Ruby out of pasta business in December added one 7% growth on top.
As Steve mentioned, we closed the acquisition of the majority of Ebro is really out of brands in mid December which added about $12 million in revenue to the fourth quarter.
We've been pleased with avionics performance thus far.
We continue to be very excited about the near and long term value creation opportunities ahead, as we add the strong regional brands for our portfolio, we will leverage to increase utilization efficiency of our combined operations.
Moving on to snack and beverages, we posted strong growth of eight 1% on organic basis in the fourth quarter nearly all due to improved volume and mix.
On slide 13, we give you a more granular look at revenue by channel.
As a reminder, the bars represent net sales dollars and we provided the percentage change versus the fourth quarter of last year. So that you can better understand our topline performance.
As we walk from left to right the $19 million impact of the sell the two ISP facilities as represented by the first Orange bar.
The second Orange bar is the remainder of the carryover of lost business and pricing adjustments, which total approximately $36 million in Q4.
After taking these two items into account our total retail channel sales at seen within the Green box grew 8%.
Moving further across the work the first Green bar represents treehouse revenue within retail measured channels and if you subscribe to the syndicated data we are captured within private label share we grew 5% in the fourth quarter.
The second Green bars, Treehouse net sales in non measured channels and similar to the third quarter, we meaningfully outpaced our measured channel performance with growth of 14%.
We believe this is a key metric because the cash as ourselves for a number of value club specialty and E commerce retailers in North America.
Many of which have a significant private label presence in their stores.
Importantly growth here demonstrates our alignment with many of these fast growing rapidly expanding customers.
Finally, industrial and other grew 23% in the fourth quarter, while weakness in the food away from home channel continued and was down 27%.
On Slide 14, you see our walk across of our key drivers to fourth quarter adjusted EPS of $8 seven.
Volume and mix was very strong, particularly a snack and beverage.
Pricing net of commodity costs, our P&I added seven cents, which is more than offset by 17 cents of COVID-19 related expenses that we absorbed in our adjusted P&L things.
Things like additional labor and overtime inefficiencies related to reduced schedules and Laura throughput due to COVID-19 related absenteeism.
The remaining operations impact of 14 cents was primarily driven by higher year over year operational costs from unfavorable manufacturing variances and expenses that were delayed from earlier in the year due to the Covid surge.
Fourth quarter SG&A was unfavorable by seven in the quarter due to higher variable incentive compensation related to our strong performance in 2020.
Finally, the combined impact of interest and taxes was about a penny worse than the prior year.
As you think about the divisions in the context of their strategic objectives. You can see on slide 15, net growth within snacking and beverages was driven by beverages and drink mixes up 24%.
Bob is a good example in this group as it continues to benefit from today's at home cooking environment.
And we are very pleased by the addition of some new business.
We're also encouraged by wins within our ready to drink beverage portfolio.
New distribution of cookies as well as retailer promotions around candy were the main drivers of 3% growth in sweet and savory in the quarter.
On slide 16, we provided a look at our balance sheet and cash flow net.
Net debt finished the year at $1 9 billion and we delivered very strong free cash flow of $298 million in 2020 at the top of our guidance range.
Our leverage at the end of the fourth quarter net debt to EBITDA based on our bank Covenant definition ended the year at three one times. This includes the pro forma impact of the purchase other would be out of pasta business.
With regard to our capital structure. So far this year, we have call it $200 million of our 2024 notes the total balance of $603 million and our Tennessee address the remaining amount this year.
We are evaluating several attractive options rates continue to be very favorable we think we have a number of paths to consider while maintaining our flexibility.
Before I discuss our 2021 guidance I wanted to touch on a number of macro headwinds this year and our action plan for navigating them.
In 2021, we are anticipating $100 million to $110 million and headwinds due to increased ingredient cost. This headwind has already begun to impact our results will continue through the balance of the year.
That's in addition to increased employee cost driven by tight labor market and rising freight costs.
We've been working hard to mitigate the impact of these inflationary pressures.
We are confident in our ability to offset these costs through a combination of our pricing actions and ongoing lean manufacturing efforts to offset labor increases well.
We'll also realized greater utilization efficiencies from a really out of integration efforts.
On pricing, specifically, we expect to start seeing the impact as we enter the second half of the year.
Turning now to our 2021 guidance on slide 18.
Our revenue guidance for the year is for four to $4 $6 billion.
Give me a bit more color on the cadence in a minute.
Our expectation for adjusted EBIT in 2021 is $290 million for $320 million.
We anticipate adjusted EBITDA of 525 million to $570 million.
We'll be including an adjustment for non cash stock based compensation in our adjusted EBITDA guidance for 2021 debt amount was approximately 26 million in 2020 to give you an idea of magnitude.
Our interest expense guidance of $84 million to $90 million assumes that we refinance at least $200 million of our 2020 for notes this year and successfully lowered our rate.
Our adjusted effective tax rate is expected to be in the 24 to 25 per cent range.
Which translate into adjusted EPS for the full year of $2 80 to $3 20.
We anticipate free cash flow in 2021 to be approximately $300 million.
As you think about the cadence for the year. There are a number of moving pieces to consider that Tim mentioned ongoing COVID-19 related uncertainties.
To help you understand that cadence we thought for the most useful the sharp point of view on several key issues.
To give you a sense for how we see the year unfolding first half versus the second half.
As a general rule, our profits are weighted to the back half of the year. Historically. This wave has been approximately 30% net first half at 70% in the second half we anticipate a similar cadence in 2021.
As you all know the Covid pantry stocking in March and April of last year was extraordinary we estimate that the revenue lift from patchy stocking in the first half of 2020 was $140 million to $150 million.
We've assumed that the COVID-19 expenses that we have been absorbing in the P&L each quarter will continue throughout 2021, and the range of $10 million to $12 million per quarter.
Last year, we closed on the sell the two in store bakery facilities in April of 2020, so from a comparability standpoint, it's worth pointing out that the business contributed $22 million in 2021st half revenue.
On a more macro level, we've assumed that the food away from home environment continues to be weak throughout much of the year.
Finally, we expect this latest round of government stimulus to likely mute to some degree consumers trading to private label is typically seen in prior recessions.
I'll wrap up by saying that the top end of our full year guidance of $2.80 or $3 20 assumes the following.
First at home food demand remains elevated for most of the year and our service continues to return to target levels.
Second commodity costs at current levels hold and were able to successfully implement pricing to offset inflation within the timeframe outlined.
And third we continue to run our plants efficiently and do not experience significant plant disruptions or shutdowns.
The bottom end of our guidance range captures the risks related to our ability to offset commodity cost with pricing.
That disruption and additional COVID-19 related challenges.
With that I'll turn it back to Steve to share his thoughts on our outlook for a value creation Steve.
Thanks Bill.
Turning to slide 19.
As we have adapted and embraced the challenges of the pandemic. The overall increase in volume accelerated our ability to achieve our profit cash flow and financial leverage targets a good six months to a year earlier than we anticipated.
Positioning us to pull forward the next phase of our strategic journey.
2020 wasn't easy, but we were agile where.
Where we've had strong success, we've identified key learnings that shape our path forward.
We continue to have incredible conviction around the dual engines of our business.
Retailers expect excellence across every category we participate in.
Our customers top three priorities for quality cost and service.
Well, Brett can be important in certain instances, we have seen that category depth is what customers truly value.
As such.
We compete and win consistently in those categories, where we have depth and.
And advantaged capabilities.
We view categories, representing 40% of our net sales as growth engines with strong consumer demand to find pockets of growth.
And existing debt with opportunities to go even further.
These categories typically have the potential to drive low to mid single digit topline growth with improved margins let's.
Let's take raw for an example.
In 2020 private label Bra grew 27% and.
And we gained almost 200 basis points of share.
This is a great category and we win in broth, because one it's on trend with strong consumer demand given its health conscious and protein rich attributes.
Two private label shares high nearly 40%.
And three we have strong capabilities, particularly around assortment seasonal pricing and promotion from price gap management.
These capabilities opened the door to strong customer partnerships.
Finally, we have debt and a comprehensive offering from bone broth for vegetable broth.
We're also as just one example.
We look across the portfolio. There are similar success stories across several of our categories. The same reasons depth.
Strength of capabilities and relevance to the consumer.
Another 40% of our sales are in cash from games. These are stable resilient and attractive categories that deliver strong consistent cash flow.
These categories represent opportunities for us to harvest cash for reinvestment balance sheet strength and capital return.
We'll continue to look for ways to add pieces to make us deeper in these growth engine categories by utilizing our strong cash flow from our cash engine businesses to fuel that strategy.
As we continue to optimize we will also focus on renewing.
Or revitalizing certain categories, where we believe there is an opportunity to run these businesses better and position them for growth.
If we can't do that in our system, we may exit the category and redeploy that capital to fuel growth.
This is about maintaining a discipline that leverages the learnings I spoke about earlier.
I believe we have clear opportunities to build on our successes, becoming a more focused category leader is a natural evolution of our portfolio strategy and will allow us to further advance our customer relationships, creating an opportunity to unlock greater profit potential and generate improved returns for our.
Our shareholders.
Turning next to slide 20 <unk>.
Our financial flexibility enables us to deploy capital in a number of value creating ways.
Going forward, we plan to deploy a balanced capital allocation program.
Preserving our balance sheet strength.
We will look to invest our free cash flow for <unk>.
Growth through disciplined and accretive M&A.
For any on a pasta business acquisition is a great example of the type of bolt on opportunities that we are considering.
And we continue to explore other additions for highly accretive align with our existing categories and leverage our core capabilities.
Depending on the availability of accretive and value, creating M&A opportunities. We plan to return our remaining cash flow to shareholders, while maintaining the strength of our balance sheet and leverage targets.
In that vein, we bought back $25 million from stock in the fourth quarter for us.
Approximately 650000 shares.
Our plan in 2021 is to continue to buy back shares to return capital to shareholders and offset dilution from stock issuance.
We expect that our efficient capital allocation supported by strong cash flow will enable us to not only achieve our strategic growth algorithm, we've outlined on slide 21, but potentially exceed those targets.
In addition to delivering 1% to 2% organic growth on the top line, we will pursue opportunities to drive additional growth through accretive M&A and focused categories.
From a cash flow perspective, the combination of operating leverage opex improvements from ongoing initiatives and synergies from acquisitions will fuel our continued strength in our ability to generate approximately $300 million from cash.
And finally, we will ensure that translates into profitability driving at least 10% adjusted EPS growth each year.
Through a combination of acquisitions and enhanced for productivity synergies and share repurchase.
I look forward to discussing our strategic evolution further at the Cagny Conference next week.
We see tremendous potential in our business and are driving towards very attractive financial targets that we believe are achievable through continued execution of our focused plan.
Before we get into Q&A excuse me I wanted to acknowledge the press release, we issued last night.
As we said we've held multiple discussions with channel partners.
The spirit of maintaining constructive dialogue.
Today, we are focused on our fourth quarter and fiscal 2020 results and 2021 guidance.
As well as the compelling opportunity that we believe we have to create value going forward.
We will not be commenting further on the Jan a filing.
Let me close by saying that I'm very pleased with our strong finish to the year and although 2021 is far from an ordinary environment. We have proven that our business model is resilient and adaptable and we can deliver extraordinary results.
With that let's open the call to your questions.
We will now begin the question and answer session I would like to remind everyone in order to ask a question for Scott followed by the number one on your telephone keypad.
Draw your question for us to pound key.
The first question comes from them from.
Comes from Jon Andersen with William Blair. Your line is open.
Good morning, everybody good morning, John morning, Jon.
A.
Couple of questions for you.
I'm wondering is.
You contemplated your 2021.
<unk> guidance.
How you're thinking about.
The underlying growth rate of your key target categories.
And perhaps even more importantly, the private label share performance that you expect.
No that.
There was a lot too.
Deal with throughout 2020.
One of which was the work to get your.
Fuller SKU assortments back on shelf, so maybe just kind of an update on where you are with respect to <unk>.
Getting polar assortments back on shelf.
And how youre thinking about private label market share trends.
We moved through 2021 to start.
Hi, John Good morning, It's bill Thanks for your question.
First of all I'll just start with your comment on share you know the teeny piece have recovered sequentially and quite nicely all the skus and almost all of the Skus that we had our back on shelf scanning that shelf.
From a consumption volume perspective, it does take a bit of a couple of purchase cycles here to allow consumers to deplete, what's already and they're in their pantries, but.
If you look at the last three to five IRI reporting cycles. You know private label has held share and you have to go all way back for probably may to see that so we won't share in Q4, and we think that will continue to build the business back nicely.
All of our cash most of our categories categories or so continuing to win share and the ones that we highlighted in the deck on our growth engine categories.
Really really strong so we think we're back.
Back on shelf, we're scanning and we think is performing pretty strong.
Yes, good morning, John the only thing this is Steve the only thing else I would say is there is some noise in the last year's numbers at the beginning of the pandemic if you remember.
Jump, but private label share in early in the pandemic actually jumped pretty dramatically. So there'll probably be probably be some noise early on when we lap those last couple of weeks of March. The first couple of weeks of April. So we will have to work through that before we get a real look at what the consumer is doing.
Fair point per 0.2nd question is on pricing given the need to implement pricing this year.
As costs have increased both ingredient costs and freight.
Where are you.
With respect for those discussions.
What maybe has changed in your view.
Yeah.
With respect to Treehouse has capabilities to implement price versus maybe several years ago, where.
It may have taken a little bit longer and there may have been a bit of a lag between price and cost.
Sure that's a good question John.
I would tell you that when I when I stepped in right. The almost three years ago. They had just implemented price across the entire system and we had five different sales forces. We didn't have direct customer teams. We didn't have the commercial organization that we have today.
There's a lot of great people, but they didn't have the data they didn't have maybe the systems and the protocols we built so.
This is a totally different commercial organization, it's a totally different relationship with the customer and even more importantly, we're staying on top of a different service level right. So.
We're a much different organization to do this our teams are armed with what they need to do it but I would suggest also our relationship with the customer so much better pricing as you've heard from the from a couple of calls that have been out already and from all the all that you've read about it is.
He is here I mean, there's no question the the retailers understand that so we're working very closely to decide what can we mitigate what do we need to pass on what's the right.
You know movement with the consumer what's the right decile what are all of those things. So we have data we have systems and we have relationships that we didn't have last time, we did that so.
As bill guided to in his prepared remarks, we will see most of the impact in the back half.
But that's when we need it so we expect it to go much differently than it has gone in the past.
Thanks, so much.
Yeah.
The next question comes from Robert Moskow with Credit Suisse. Your line is open.
Hi, Thanks for the question Steve.
Steve I think the tone on on how you're thinking about the portfolio.
It is definitely shifting it's much more about depth in categories.
Rather than breadth so regarding the 20% that's being reevaluated.
How much earnings accretion or dilution are you willing to accept and could you foresee.
Divesting as much as 10% of the business over time is there a is there any kind of range.
Range as to how much of the portfolio, you think still needs to be divested.
I wouldn't I hope we didn't over skew the divested part I think there is some business in there that we don't run as well as we can run them right.
We've been through an awful lot of different evolution I think we understand now that we have some businesses, where we're not advantaged right, where we have either the wrong customer mix the wrong production cycles, something like that something is wrong in there and so I think we're going to we're going to take some time and tried to invest some time and the right people and talent and as you know that's different people that's different incentives.
So that's a lot of different things.
And then running a standalone business actually running all three of those businesses is very different.
Arent, you need different objectives, and a growth business and you're doing a cash business and you need different objectives center and a revitalized business than you do in those other two so.
I don't think there'll be as much divestiture.
The us positioning those businesses to work well there'll probably be a few small things we take out but I don't think it'll be material, it's more about fixing them than it is about selling.
Okay and also you typically give some guidance for first quarter.
I didn't see that here unless I missed it.
Can you give us a sense like just roughly can we expect some organic growth in first quarter.
And it seems like an easy comparison to last year or so.
How are we comparing out of the gate in the first quarter.
Rob It's bill good morning.
You know how to think about the year.
Overall, we think that on an EPS basis, it's going to be split more at 30 70 in terms of first half second half we did not guide.
Q1 piece.
Your point about organic growth in Q1, you know and those last two weeks in March in those first two weeks in April where we lap.
The debate Covid takeout from from last year that was going to be significant numbers, and we probably won't call over that.
And in the quarter, we did guide that over the full year on organic basis will be up slightly and more when you add it will be out a piece and but low.
Well think about this this year more than half and that's only because we're very much in this pandemic and there are still things that where that can go up and down for us where we want to make sure we watch it and call it out as directly as we can.
Yes, maybe I can add to that for just a second I would say your statement on crawling over January and February is right right. We can crawl over those numbers right Mark.
March I don't think I don't know that anybody would comp March and March was significant enough that that that'll be a tough comp just in itself I would just suggest that we should look at our business and I think Bill mentioned this but looking at more of the pre 2020.
Quarterly cadence right.
I think that 70 20 number that bill mentioned.
We are a seasonal business right, we sell we sell pie crust right and pie crust for Thanksgiving Christmas business, we have a lot of those kinds of businesses that are back half weighted. So I would suggest are our historic seasonality will be strong, but it'll be more like our historic seasonality.
And Rob just one im sorry, one point before we leave this topic the other pieces around that the inflation and the pricing I think those will build throughout the year.
So all of that inflation on day, one it was on guard their pricing on day, one so you'll see that kind of come together more towards the back half, but to Steve's point.
Oracle split between 30, 71st half second half is where you'll end up seeing this this year come out.
Maybe one follow up I think last quarter, you said debt.
Some of the new business wins that you would expected in third quarter had been delayed have you gotten all of those wins, you've expected or those in the the base now or is there are there still delays.
Yes, most of that is in there. So there's still some stuff happening here now in the first quarter right. The the commercialization process is happening in the first quarter, but they are all they are on track there'll be in the first quarter.
Maybe at the end of the first quarter, but there'll be in the first quarter.
Okay, great. Thank you thanks, Rob.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one.
On your telephone keypad.
The next question comes from Rob Dickerson of Jefferies. Your line is open.
Great. Thanks, so much.
Steve I, just had kind of a general question or around your commentary about a potentially getting some of these categories that you're playing in to low single digits mid single digit top line growth.
Relative to the longer term guidance and targeted one to two.
And then also what seems like maybe somewhat soft organic sales growth expectations.
For 2021, once we factor in the cash contribution.
So.
Net net it seems like 'twenty, one it's still kind of this building phase continue the momentum with these categories that we saw in Q4, but then later we might have more upside on the topline versus seeing that upside in 'twenty. One. So I'm just trying to get a sense as hoped quite Hawaii organic sales growth wouldn't be a little bit better.
And what's your kind of implied for 'twenty, one given the momentum you saw in Q4.
Hi, Rob its bill let me see if I can answer your question, let me know, but if I get it right, but you're playing around the 'twenty one.
<unk> is up as you'd thought you know how we think about it is the Covid lab for us will be significant particularly that part that happens in the first quarter and then we did add there will be out of pizza and so on a reported basis, we'll get to a stronger number than it would be up slightly on organic basis, our long term algorithm of 1% to 2% is still where we.
Focus and we think as.
As you exit 'twenty, one you'll get back to that organic top line growth rate to your point, yes.
And Rob I think a good number to use as a base for US is the guidance. We gave a year ago on this call right. When we look pre COVID-19. If you think about just a year ago, we talked about our world, they're really that really was our distribution base. What we thought the current company sat on credit.
Underlying the numbers you saw we did grow in all four quarters, so share the desktop what we guided to right. We guided for that debt to build as the year went on and we guided that the fourth quarter was going to be the quarter, where we turned the company to real growth right and all of those efforts that we've made all over the first year and a half for two years would come to fruition.
That's why the fourth quarter was so strong we think the promise of 'twenty 'twenty actually happened. It's just we didn't see it through all the Covid volume. So look look at as a base look at the guidance we gave for 2020.
Okay Fair enough and then just quickly.
On the Covid related costs I think you did buy about 15 in the quarter I saw it.
You had mentioned maybe 10 to 12 per quarter for 'twenty one.
So I guess first question is you know it seems like that's coming down can that come down a little bit later as we progress through the year and then kind of in relation to the cadence of that.
Actual COVID-19 contribution or the cost would be added back.
Or are there any parts of the business that you foresee really coming back as the year progresses, and I think you had mentioned the pickle business being.
Somewhat materially hit in 'twenty, but I'm, assuming that there is some assumption that that should bounce back in 'twenty, one and that's it. Thanks.
Sure I can speak to and then Bill can comment, yes, I think hopefully things like pickles.
We hope to be able to bring that seasonal work force into sort of newcomers right. I think there is actually a picture in the deck and that's not how it normally looks it normally looks.
Hundreds of people shoulder to shoulder when that happens and thats not what we could do this year. So I would hope that business comes back and I would hope foodservice comes back right. So I hope there's.
A direct correlation if our retail volume goes down a little bit that we get our foodservice business back on a bill for you of any other thoughts you put some numbers around to your point. The first part yes, we did say its between 10 and $12 million a quarter.
And a drag on our gross margin related to our corporate expenses that we absorbed in the P&L.
It's better if you know if that's the nation's happen any other pandemic kind of calms down and and you see that virus kind of go away. If you expect that to get a lot better for us in that disruption.
So, particularly as people get back to that normalized and schools are back online and all of that thing all that kind of happens.
From a put away from home perspective, you know our plan to Steve's point is that we have plan for that business to recover midway through the year. So we expect to cut those losses in half and our 2021 guidance at the midpoint and so those opportunities for us is that going to be better than our numbers will be better.
Alright Super Thanks, so much thanks.
Thanks, Rob.
This concludes our question and answer session I would now like to turn the conference back over to Steve Oakland for closing remarks.
I'd like to thank you all for being with US today I know, it's a busy day for you all so busy day for us and we'll look forward to your thoughts on your questions. As we go forward and have a great day.
This concludes today's conference call you may now disconnect.
Okay.