Q1 2021 Post Holdings Inc Earnings Call
Welcome to post Holdings first quarter 2021 earnings conference call and webcast.
Hosting the call today from post are Rob the tally President and Chief Executive Officer.
And just that ox Chief financial Officer.
Today's call is being recorded and will be available for replay beginning at 12 P. M Eastern time.
The dial in number is 805 858 free six seven.
And the pass code is 1539554.
At this time, all participants have been placed in a listen only mode.
It is now my pleasure to turn the floor over to Jennifer Meyer Investor Relations of post holdings for introductions you may begin.
Good morning, and thank you for joining yesterday per post first quarter first of all of 'twenty 'twenty One earnings call with me today are Rob Vitale, our president and CEO and Jeff <unk>, Our CFO, Rob and Jeff will begin with prepared remarks, and afterwards, we'll have a brief question and answer session.
Press release that the part of Steve's remarks posted on our website and both of the Investor Relations and the SEC filings sections at post Holdings Dot Com. In addition, the release is available on the SEC's website.
Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors that the actual results could differ materially from these statements.
Forward looking statements are current as of the date of this call and the management undertakes no obligation to update these statements as of.
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 measures for a reconciliation of these non-GAAP measures to the nearest GAAP measure see our press release issued yesterday and posted on our website with that I will turn the call over to Ron.
Morning, Thanks, Jennifer and thank you all for joining us.
The year started with the quarter very much in line with our expectation and the.
The first half the shaping up in the same manner.
Our expectation remains that EBITDA will dip in Q2 and will accelerate in the second half versus the first half.
After I briefly review the business I will share some additional color regarding our expectations.
Our U S cereal business had a solid quarter. However, it was hampered by supply constraints.
During November and December our Covid absenteeism at our Battle Creek facility required us to temporarily suspend.
The spend production for one building in fact this resulted in the highly publicized grape nuts shortage.
Production was also suppressed on honeycomb and peanut butter products.
We are back to full production, but it will take through early spring to restore inventory levels.
We estimate the first quarter impact was lost revenue and adjusted EBITDA of approximately $10 million and $6 million respectively.
Longer term.
Covid has revealed some areas in which we can improve supply chain effectiveness and efficiency.
The demand surges in the supply pressures are testing of our demand planning and production planning.
These learnings are constructive and we expect to emerge from Covid with improved processes, while most pronounced at post consumer brands supply chain across the company of our learning and improving from the experience.
For some time.
We have sought more fundamental cereal category innovation.
Well quite early I am cautiously optimistic about two of our efforts pre.
Premier protein cereal has launched with great success of limited distribution.
This launch combines our heritage strength in cereal with our competence in protein and we believe delivers great tasting cereal with high protein.
Second we have launched snacking products, which leverage our iconic brands into more rapidly growing day parts.
Weetabix continues to perform exceptionally well Covid has helped the category and Weetabix has gained share in the category Sim.
Similar to the U S. We have an intriguing innovation pipeline that we will soon introduce.
Our core refrigerated platform the barbell of inside this business continues its rapid growth by increasing consumption dollars, 21% over last year.
Volume grew a healthy 11 per share.
Meanwhile, our retail branded egg business also turned in a solid quarter with volumes increasing 13%.
The weak spot remains our cheese business. In addition to commodity price volatility production delays from a co packer resulted in lost sales volume.
Bell ring will be holding of separate call.
The business continues to rapidly grow its core ready to drink franchise.
Transportation cost accelerated faster than expected and pressured gross margins, we expect to mitigate the margin pressure in Q3.
Further we are excited to share of the diamond highs two is growing nicely.
You will have seen bell rang reaffirmed its guidance for the full year.
In eighth Avenue, we continue to be encouraged by recent trends like several of our categories peanut butter is supply constrained.
We also expect eighth avenue to be more active in looking to add to its portfolio.
That leaves foodservice, which is borne the brunt of the Covid burden.
We had an encouraging quarter in that there is a near perfect correlation between our increased demand and the loosening of Covid restrictions.
As expected late in the quarter restrictions tightened in many key markets across the country that pressured demand early in Q2 with an expectation that it reverses entering Q3.
Because of the reduced demand non contracted pricing is generally weak therefore, the EBITDA decline remains more than linear to the volume decline.
Category of capacity has not expanded in fact it is modestly decline. Therefore, we expect this will reverse with demand recovery.
Finally, the quarter saw the beginning of what has turned into a rather substantial run up in commodity costs are pass through pricing model captures this increase but there is a lag between the cost change in the pricing change Jeff will speak more about this.
In terms of recovery, we remain highly confident across the channels with the possible exception of business travel, we expect business travel to lag recovery in other segments.
So to summarize we have a growing confidence in demand recovery and its implication on profitability, but we remain cautious in trying to estimate the timing of the full recovery.
With respect to capital allocation, we have been quite active.
This quarter and continuing into the second quarter, we were aggressive in repurchasing shares.
We also announced two tuck in acquisitions that we expect to be highly accretive both of sense closed.
As I mentioned last quarter, there seems to be more opportunities available than since the pandemic started and we have an interesting pipeline.
I want to close with some comments on our outlook. We have we gave first half outlook in November and continue to expect to deliver on it.
Of the implied sequential decline from the first the second quarter was plant. We continue to expect the second half to materially outperformed the first half. The two key drivers of this cadence or first bell rings normal quarterly promoted pricing fluctuations and the timing of its marketing spend the results in Q2 being its low point with the second half materially more profitable.
<unk>.
And second our planning assumed foodservice would dip in the second quarter as a result of tighter COVID-19 restrictions during the winter months, we expect even the limited rollout of the vaccine along with more favorable weather will drive material improvement to each of quarters three and four.
The more effective and rapid the vaccine rollout becomes the more material. We expect the improvement to be again. This is entirely consistent with our planning assumptions.
The increase in grain prices exceeded our short term expectations, but we plan with sufficient conservativism to allow for this type of short term volatility.
In closing, we expect to meet our targets for the first half and with the additional clarity we hope to have when we announce second quarter, we intend to provide specific second half guidance.
With that I will turn the call over to Jeff.
Thanks, Rob and good morning, everyone.
Consolidated net sales were $1 5 billion in.
And adjusted EBITDA was $284 4 million for the first quarter.
Although the Covid effect was less pronounced when compared to prior quarters. Each of our businesses continues to be impacted by Covid dynamics.
Starting with post consumer brands net sales grew 1% with volumes with well volumes were flat.
Favorable mix drove a 1% improvement in average net pricing.
Legacy post post branded cereals had a great quarter with sales up 9% in the aggregate.
Partially offsetting this results were declines in private label and government bid business as we intentionally exited certain low margin business.
As well as softness in license brands and multimedia bagged cereal.
Adjusted EBITDA increased three 6% compared to prior year, reflecting the net pricing benefit and SG&A reductions.
All sets of this growth were manufacturing inefficiencies inflation in raw materials and freight and.
And increased COVID-19 related compensation screening and PPE expense.
Expenses.
And as Rob discussed post consumer brands results were achieved despite COVID-19 related shutdowns and employee leaves at our Battle Creek facility.
Weetabix net sales increased 11, 8% over prior year.
This reflects eight 3% and 7% improvement in volume and average net pricing respectively.
Volume growth benefited from increased at home consumption, particularly for cereal biscuits. We also saw solid growth in extruded product sales private label and exports.
The export growth.
It was partially driven by shipments that accelerated ahead of Brexit.
The stronger British pounds of the U S. Dollar exchange rate resulted in an approximate 280 basis point tailwind to the net sales and adjusted EBITDA growth rates.
Overall Weetabix segment, adjusted EBITDA increased 16, 9%.
Our foodservice business continue to be significantly impacted by Covid with net sales and volume is declining 16% and 20% respectively.
Our acquisition of hitting some foods was a slight benefit to these results.
Additionally, volume benefit of approximately 370 basis points from our participation in government backed food initiatives such as the USDA farmers to families food box program.
Our participation in these programs largely came to an end in November.
The overall foodservice declines continued to reflect lower away from home demand in reaction to Covid our volumes.
Continue to be highly correlated with the degree of restrictions imposed on consumer mobility of gathering.
As the first quarter progressed, and Covid counts and restrictions increased we experienced the corresponding decline of demand which continued into January.
We continue to anticipate a full recovery will likely take through fiscal 2021.
Adjusted EBITDA declined 46, 3% to $44 million, primarily resulting from loss of profit from reduced volumes as well as unfavorable pricing and mix.
In addition of rig business began to face headwinds from the timing of commodity input cost versus the timing of re price and grain based sales contract.
Until grain prices plateau, we will face these headwinds in particular in our second fiscal quarter.
Refrigerated retail net sales and volumes increased five 3% and one 1% respectively.
So I dish volumes grew 13%, reflecting strong growth for both Bob Evans and simply potatoes.
Partially offsetting this growth were declines in egg cheese and sausage volumes.
Overall, net pricing improved reflecting favorable mix targeted side dish price increases and higher brand of cheese pricing.
Growth in sales of volumes led to an 18, 3% year over year improvement in refrigerated retail segment adjusted EBITDA.
Higher side dish manufacturing costs freight inflation and higher sales input costs were offsets to the seat growth.
<unk> net sales increased 15, 7% and adjusted EBITDA increased three 6%.
From your protein sales increased 17, 4% driven by distribution gains for both existing and new products and incremental promotional activity.
<unk> net sales increased 16, 2% driven by distribution gains.
Further details of Bell Boll range results on their conference call later this morning.
Turning to cash flow, we had a strong quarter generating $114 $5 million from operations, including $23 million from Bill range.
We had favorable working capital trends and benefited from the timing of interest payments, which are lower than our first and third quarters.
Our net leverage at the end of the first quarter as measured by our credit facility was approximately five seven times.
During the quarter, we repurchased one 7 million of our shares at an average price of $93 43 per share.
Between January one and February 3rd we acquired approximately 800000 additional shares at $97 48 per share.
On February 2nd we received the new board authorization for up to $400 million and share repurchases.
This replaces our prior remaining over the authorization.
With that I'd like to turn the call back to the operator for questions.
Operator.
Thank you 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 of your question has been answered you may remove yourself from the queue by pressing the pound key.
Our first question comes from the line of Andrew Lazard of Barclays.
Good morning, everybody.
Good morning, Andrew.
I guess first off probably I'm curious is there any reason to think that margins in the foodservice segment would be sort of structurally different either higher or lower when demand returns to pre pandemic levels, because I heard you kind of discussed.
Supply chain learnings really across all of the segments in the business.
I'm just trying to get a sense if there is.
But any learnings specifically in foodservice debt.
You feel that maybe there were some opportunities on the upside when ultimately demand returns.
I think there are some puts and takes I think that we.
We have had some learnings that will improve our supply chain we of.
To invest capital to drive productivity.
And we continue to see as I mentioned, some modest decline in overall <unk>.
Category capacity, however on the other side on the on the demand side.
And this gets a bit crystal ball ish.
The most likely scenario would be that the customers that gain share.
Share as the result of the pandemic are the larger chains of tend to have better volume pricing. So there may be some offsets on pricing that are matched by improvement in our cost where that exactly balances out yet it's a bit early to predict but there are certainly some puts and takes.
And then I guess year to date of you talked about post has already bought back I guess, roughly maybe 4% of its shares kind of follows the purchase of around 8% of the shares in fiscal 'twenty.
And obviously share repurchase sometimes can be viewed as sort of of benchmark right against which other capital allocation decisions are measured.
And I guess sort of these actions more of a reflection of.
The challenge in finding significant opportunities for other uses of capital not overlooking the two smaller acquisitions, which closed recently, we're simply of the higher potential return you see from your own shares at this point.
Well as I think we've talked about on prior calls we think of it as of here Archie of decision, making and one is.
Have we vetted all of the internal opportunities for capital expenditures assumed at that.
As of yet.
And then.
Is there a compelling need to deleverage assume the answer to that is no and then how to how the multiples compare for opportunities that are external versus opportunities that are internal and what I would share with you is that when were of that active in buying our shares I think the assumption would be the the.
The multiple is much more.
More attractive on an internal and external basis that does not mean that there arent interesting opportunities abound.
It means that there are some multiple of.
The despaired disparity that we're not ready to address.
And we may need to look at more creative solutions, if we want to.
Advanced more structural M&A.
Thanks very much.
Thank you.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning, Thanks for the question.
Hey, Jeff.
Rob I wanted to ask just big picture during the last couple of years post shifted its focus from bolting big platforms onto the courts of more of a focus on organic growth now we're seeing the extension of pebbles from cereal at the Diamond ties Premier into cereal you mentioned some forthcoming activity that we did take the UK as well so.
It seems that the integration and collaboration is much tighter at this point, so youre not sure if I'm reading into it too much but can you speak to the said of insider.
Range or tightening the sharing of market analytics and I did in the segmentation you internally across the businesses.
Well I think if you.
The reflect on the way post is organized do we think about it as a.
Bit of a hub with the operating companies being the spokes and in order for there to be.
Good collaboration across the organization like that of certain amount of trust and relationships have to develop and that takes time. So if you look at the period from.
2013 to 2017 or so when we were.
Pulling this together.
It was a pretty steady flow of new faces in new businesses and there was step one which is.
Get to know those businesses make sure we understand the strengths and weaknesses over time as opposed to just in the.
Rush of diligence and then the.
The next more nuanced phase is trying to find those peer to peer opportunities to collaborate which you've just described and I think it's a really.
Significant opportunity for the business to work together to leverage where we have strengths and mitigate where we have weaknesses across the business and I think that's one of the real.
Nuanced upsides of the portfolio that we've built and I couldnt be happier with the way.
Some of these brands are crossing of the portfolio specifically the ones you mentioned with fruity and cocoa pebbles now being the fastest growing protein powder in the country and the comment I made about premier protein cereal.
Which again, while it's early I am very optimistic about.
Great. Thanks, Rob.
And then Jeff just one for you real quick you mentioned some expenses for PP&E and your prepared comments how are you thinking about the year on year of Covid expense really as you get into the back half the F. 'twenty, one or even thereafter, how much of the expenses do you think are temporary versus more permanent in nature. Thank you.
The.
Sure.
The magnitude of the cost that we incurred this quarter or in the neighborhood of about $5 million from those sorts of things.
But about half of that was for.
Labor related costs and I am excluding the commentary that Rob had about the Battle Creek.
The.
By the way so this is incremental to that.
So about half of that cost was for.
Things like.
PTO for people are either quarantine are sick and per overtime for people to replace those lost hours.
We would expect obviously that sort of thing to go away when when we get to more normal times, but the remaining call. It two and a half a million dollars or so that related to the PP&E or other cleaning.
Cleaning cost and those sorts of things are likely to be more.
Permanent in nature.
Okay. Thanks, everyone.
Our next question comes from the line of Bill Chappell of true of Securities.
Thanks, Good morning good.
Morning Bill.
Hey, Rob I'll I'll ask both questions on one sentence you had in your prepared remarks can you talk a little bit more about what.
Highly accretive means for these recent acquisitions anymore learnings or synergies of thoughts like that and then maybe give some more color on.
Highly interesting pipeline of of <unk>.
Deal activity just kind of.
Yes.
Talking about whats youre going to buy next but.
Are you looking at more or less in foodservice are you looking more of less than <unk>.
And in retail so just trying to understand if your focus is changed as it has been over the past year.
<unk> moved up and down.
Yes so.
Would characterize the highly accretive.
As opportunities in which we're buying well below the post multiple.
And that's the result of.
Purchase price and synergy realization.
It also includes some tax benefits so.
Significant discounts to where post is trading in terms of the.
In terms of the current pipeline.
As you pointed out theres not much did I really can't say.
But what I can tell you from both the quantitative and qualitative perspective is that it is increasing.
I think there was a period of time during the pandemic when either inbound or outbound M&A was perceived reasonably so as a distraction from our core objective and in this context, our meeting across the industry.
I was just making sure that we were delivering on our base commitments. So M&A was not particularly.
Forefront.
And I think that census, passing so the sheer quantum of opportunities is increasing and in terms of qualitative.
The <unk>.
Opportunities that we're looking at our near in because of the answer.
But I gave about the here Archie of our M&A decision, making if we're going to look at M&A right now in a traditional structure it tends to be closer to some component of our business, where we can drive operating synergies and get that multiple where it needs to be to justify the investment.
Got it I'll leave it at that thanks, so much.
Thank you.
Our next question comes from the line of David Palmer of Evercore ISI.
Thanks couple of questions on food good morning couple of questions on that foodservice business.
We go through that mix again in terms of channel you have some major change like Starbucks and Duncan, they're adding units and one would presume that they will have more of a full recovery and perhaps more immediate and then you would have some other channels, perhaps travel related that might have a longer recovery and some other stuff in between.
Perhaps you can give us some dimensions of that mix.
Yes, the bigger channels.
We talked about there being.
For the broad channels that are affected by Covid.
Full service restaurants quick service restaurants, education, and then travel and lodging.
And the.
The first two we expect to come back reasonably quickly and strongly and when we say quickly.
The implication should mean in correlation to <unk>.
<unk> seen deployment and mobility restrictions being lifted so whether thats quickly measured.
Time from today or not.
We're less confident on it really means quickly in terms of response to some intervention.
Then the the third channel of course, it's education, and we've talked historically about that being binary excuse me those first two are.
Roughly in tandem about.
About 30% of.
The total effective channels.
Education.
Is another roughly 10%.
Which is binary again, we've talked in the past about kids are going to be back in school or not in school.
I think it's fairly obvious we believe that they will be back from school at some point.
Exactly when again as the question Mark and that leaves the 10%.
To travel lodging.
Travel lodging is a fairly big category.
The big definition in that it includes things like cruise lines leisure travel casinos and then it also includes business travel and extended stay in full service hotels, and motels as well as well as airlines, we think thats the most.
Susceptible channel to some longer term structural weakness.
Makes sense and with regard to egg prices.
The only guy could be educated here as well.
Last year I remember there was an egg price spike that happened in the spring so you'll be lapping of Spike and you were mentioning in your prepared remarks that there was that you'll be dealing with the bit of a pinch in terms of timing on pass through could you talk about the.
How that will play out and perhaps any magnitude in terms of how you're thinking about margins from a pricing standpoint. Thanks.
The I'm not going to specifically comment on margins in foodservice right now because they are fairly volatile with with demand moving around as much as it's quite difficult to.
Bucket the real range of margins, what I would share with you is that we feel very confident in our range of estimates in aggregate.
But there could be some continued meaningful volatility in Q2, and then hopefully that.
Q3, and four is of much more steady state progression upwards as we get a return to normalcy.
If anything do you want to add to that I don't know if your question is.
Referring back to art.
Remarks, but.
Just to give a little bit more color around the pricing model for the majority of our contracts.
The way the way it works is we have a.
Repricing every quarter. So at the beginning of every quarter is based on a 90 day look back that's based on the prior quarter's second month, so to put that more specifically the prices that went into effect on January one for.
We're based on the 90 day look back from September October and November.
No.
That drives how we pass through of the costs and obviously, yes, there's volatility either up or down in grain prices that can either.
The good thing or a bad thing, depending on which side of the.
Which side of that curve, you're on and of particular quarter.
The.
The other thing I would say is it's.
Pretty common.
Prices of the bags that go up in the spring because of Easter there is the seasonal.
Seasonal spike because of Easter, whether we see that this easter or not is obviously hard to say given the given the pandemic situation but.
In normal times Youll see that Spike every every spring.
Great. Thank you.
Our next question comes from the line of Jason English of Goldman Sachs.
Hey, good morning folks.
Hey, Jay.
Couple of questions.
First I think.
Your your side dish business had some supply chain disruptions pre COVID-19.
Have you worked through all of those gates is your supply chain humming on both sides of your cold chain business.
No.
We continue to see.
Fairly significant labor labor shortage that we're continuing to having to manage around.
It's a combination of location there is some impact of Covid I think there are some.
The impact of the simply.
Lack of interest in some of these entry level positions. So we're still having some workarounds to be dealt with across the coal supply chain.
It sounds reasonably transitory of though I think pre Covid, you actually had some machinery equipment issues of like am I right.
The pre Covid, we had some installation issues of where some.
Discrete miscues that have been dealt with these are transitory, but they could take a while to work through just as we get through the the.
The unemployment benefits are creating a bit of dislocation in the employment markets. So we're working through some.
The lack of interest right now that were that are resulting in some pretty significant open positions, but as you said, we will work through that.
You report you report your cold chain business through two segments.
Retail and foodservice.
Is there any reason to view them as two separate businesses or are the effectively fully integrated with just two different cellulose.
No I think it's fair to say there are two separate businesses the share.
What is largely of transportation and warehousing network we.
We are actually.
Moving the manufacturing functions more closely aligned with each of the businesses. They have shared some manufacturing, but what we're trying to do is make the manufacturing very responsive to the individual business objectives, and then get leverage where it's highly scale of sensitive specifically around.
The logistics network.
And do you see both of these businesses are being fairly valued with the post and how its traded today.
I presume the answer is no given your aggressive share repurchase activity and if the.
The answer is no.
Why not pursue more aggressive strategic activity to unlock that value.
Well I think that.
Specific elements of our value of our not something that we talk about in the public forum in wood.
We would tell you the our actions are probably the best indication of our opinions and I think with respect to the second part of your question.
We are always exploring different ideas.
There are ideas that make a lot of sense on the blackboard that have some operational execution issues and this is a constant work in progress.
I would not exclude any of those opportunities from the.
The realm of possibility.
Thanks, a lot of I'll pass it on.
Yeah.
Our next question comes from the line of Chris <unk> of Stifel.
Sure.
Hi, good morning.
Hi.
I just had a question for you first on kind of follow up on the cost inflation I think you address cost inflation for the eggs because of a business and the structure of the of that business. I was just curious about cost inflation for your retail businesses and perhaps could you.
Discuss the hedging and generally and kind of what are you supposed to start seeing those costs and the do you think you can price to the cost inflation or do you expect generally to see that pricing come through in those retail businesses.
So inflation is fairly apparent across our portfolio right now as you would expect in within our grain complex. We've got good coverage.
Through for the most part through the balance of this year and the implications of inflation are more oriented towards how do we think about <unk>.
<unk> trade in cost reduction in fiscal 'twenty, two we would expect to be able to protect that inflation exactly how we do it at this point is the too early to answer.
Within the.
Coal businesses as Jeff talked about.
Somewhat adjusts within foodservice and within our Bob Evans franchise.
We continue to be aggressive in making sure we protect margins from inflation in the same way so I just talked about with.
With our cereal business, but the the one segment of that debt is much more trade sensitive as our sausage business we use a.
Trade tool to manage up and down short term swings in sales, which really can't be hedged and then within the dairy franchise, we've seen some pretty significant inflation as well.
You'll hear more about that a bit later, but we again would fall back on the same tools, we're going to look at.
Great pricing and cost reduction to make sure that we've got the margin is protected.
Long term.
Thank you for that and then just a follow up question from an earlier question on acquisitions and capital allocation and you certainly are holding a lot of cash today.
And the depending how you use that cash flow could push up your your debt levels overall.
I think Jeff side of debt to EBITDA around five seven times today for post overall.
Is there a concern with that going over six for example, I'm trying to pick a number there, but just trying to get a sense of where you're willing to push the balance sheet to take advantage of any short term dislocation of opportunities you see with say buying your stock back.
Yeah, So I think I've made comments before that.
Maybe more than most we make the distinction between leverage and liquidity. So clearly we are very liquid we are also somewhat leveraged.
The solution to being a tad higher leverage than historical is not so much to change our capital allocation, but to change our.
Our recovery not to change our recovery, but deliver upon our recovery.
Because the reason the debt has crept up as well.
Well the debt has not crept up the leverage has crept up is because of the weakness in foodservice year over year. So once we cycle through that and start to show EBITDA growth year over year that will organically come down.
Confident enough in that outcome that it does not cause a great concern for us right now, but it's obviously something we are very.
Very aggressively manage and monitor.
Okay. Thank you for that.
Thank you.
Our next question comes from the line of Michael Lavery Piper Sandler.
Thank you good morning.
Just hoping to get a little bit more color on some of the thinking on the first half guidance I know you've given some of that but.
This first quarter and then you held the full half.
I know you called out of Green cost is one watch out for the second quarter, but just curious how much there may be some conservatism in your thinking there or what else if anything should we have in mind as potential watch out.
Well in my prepared comments I went through.
Really the areas that we would attribute the sequential decline to and those are the bell range has a natural cadence the first quarters tends to be very strong as we ship into a new year new you.
The second quarter tends to lag the first quarter. So a portion of that is simply the cadence of the Belmont in quarter.
The balance of it is really specific to foodservice.
The directly related to Covid.
That we.
But we saw an expected the the highest.
Incident rate to come with the coldest weather pre vaccine I think if you recall last quarter I called out that our second quarter would be the most challenging to forecast simply because of all of the ambiguity around where we are in COVID-19 vis vis the infection rates in vaccine that has proved to be true the the.
Infection rates of course, sorry.
In November December and then when that does our volumes to decline.
And then so one belt range to Covid.
Covid restrictions and then the third is the move in commodity prices was the one that was not baked into our planning assumption, but we had enough conservatism to absorb.
We feel very good about the <unk>.
Balance of the of the half.
Again, we feel.
Confident in the acceleration into the balance of the year.
In terms of how much conservatism is I don't know.
You are conservative conservative until Youre, not we think it's the right approach but.
We live in uncertain times, and the only time will tell.
Thank you that's helpful.
Just on your announcement with hungry planet and I was wondering if you could give a little bit more color there.
Maybe what kind of products that might involve and any sense of the economics, even just at a very high level of like for example is it a situation where you get distribution revenue or is there anything more than that or how do we think about what the impact that might have on the model.
Sure.
There are two sources of <unk>.
The economic opportunity one is we wanted to have a plant free offering.
For both of our foodservice and retail business, we think that our both of our franchises and foodservice and retail need debt offering and it was a buyer of build decision it would've taken us years to get to where a hungry plant. It was if we attempted to do it on an internal basis. If you recall we had.
The previously mentioned a distribution arrangement with just day. So we're trying to make sure that we've got an appropriate both defensive and offensive posture with respect to.
The whole move towards plant based proteins. So first it's a distribution agreement on both sides of our.
Retail and foodservice.
Foodservice Cold chain Secondly, we made an equity investment.
The modest equity investment in Hungary planet, and we have a meaningful ownership position with the ability for that position to increase with the series of options if the opportunity proved to be valuable.
Okay, great. Thank you very much.
Yeah.
Our next question comes from the line of Rob Dickerson of Jefferies.
Great. Thanks, so much.
Hey, how are you.
Just a question for you Rob.
More broadly.
Just in terms of the current.
Prior acquisitions, you've done as of late and then kind of the go forward pipeline and thought process.
You know obviously, you know kind of historically you do still have kind of of protein tilt to the business.
Yes, right and you have a replay of that as we just mentioned as Peter Pan I saw there was a small kind of.
Smaller more venture.
The P dos elmar.
Mark obviously stu to we still AG. So.
Like if we step back and think about kind of where post was even just a few years ago of where we are today.
You know that protein team.
He's still existent it seems like its getting bigger so.
As you think kind of going forward is that it really part of the positioning of the strategy the client.
Client base side, but the of alternative.
Yes, the protein snack sales like you might want to get more of the snacks I'm just trying to think about kind of post the.
Broader go forward strategy is and your positioning with the retailers.
Well.
Each case that you highlighted we were attempting to either out of capability or at something that was very close to the portfolio and could be.
Could be tuck in at a very attractive price I wouldn't characterize it as we sought to be more protein oriented or are we sort to be any other more macro nutrient oriented if we had an interesting opportunity in cereal are in cheese or in some other segment that shored up of weakness or expanded the strength at <unk>.
Reasonable value, we would pursue it.
We tend to be more opportunistic.
Not to say, we want to be bigger in a particular the metro new.
<unk> are of particular segments. So we're much more value sensitive.
On that front.
The small <unk> acquisition, you mentioned very very small well smaller than what was reported and as we have.
We have a notion that we want to be more entrepreneurial.
Realized you know, we're not really sure what that means so we decided to really.
To make a small investment in the entrepreneurial company. So we could try to understand what we mean by that.
So I wouldn't read too much into that other than we are willing to.
Some of tuition in order to earn learn some skills and.
That was what that was about.
Okay fair enough of it makes sense.
And then just quickly kind of back to the.
The cost inflation slash pricing potentially promotional.
The topic.
Just in terms of cereal right, obviously cereals done well through the pandemic.
Continue to execute well.
Business seems sound.
Every company speaking about trying to retail increased household penetration.
But what does that mean right. It's the more you know.
Brand spend required to kind of retain that household penetration of sort of more promotional activity forthcoming kind.
On the heels of some grain related inflation.
So how do you kind of.
Foresee the back half of that year in terms of the competitive dynamic within the category and kind of how you execute through it and that's it. Thanks.
Yes, I mean, it's a tough question I think that.
As we begin comping the.
The Covid surge I think it'll.
It'll be interesting to see how everybody across the the.
Food landscape reacts and whether theyre becomes pressure to try to accelerate that volume and the aggressive on pricing or just recognize that that's going to be a tough comp too.
Measure against so I don't particularly worry too much about <unk>.
Specifically what happens in the back half relative to our prior year, we're looking at the back half relative to the.
The performance in the first half, which is what we've been trying to benchmark against so that we can see that the overall business is getting back to where we expect it to be I think the question that we spend more time on is following the totality of this two year period.
What has the experiment and all of this trial met two of the long term growth rate of these categories and our assumption is that it's a positive number whether that is a positive one or a positive three I think there is an element of putting your finger in the wind, but we think it's a positive number and has implications on how we think about.
Innovation capacity management.
And well beyond.
Okay, great. Thanks, a lot.
Okay.
Our next question comes from the line of Ken Zaslow of Bank of Montreal.
Hey, good morning, everyone.
Yes.
My first question is can you talk about your private label cereal business.
You would think under a recessionary environment.
That there would be greater share of that can be gained by private label that obviously has not been the case one could argue about the stimulus checks of things like that but how do you foresee that business emerging out of Covid and to what extent does that either balanced or.
Cannibalize any part of the other businesses can you talk about that first.
Yes.
<unk>.
Before.
That.
Going into this we would have expected private label to perform better than it has broadly not just in cereal.
And have speculated.
That there is a supply side of the equation here that as supply chain has got test is the private label was not able to maintain the same surge in output because of the SKU count that is forced to maintain so that to some extent.
There is a.
The supply of phenomenon translating into what looks like of demand phenomenon and I stress to some extent because there's there's a very persuasive counterargument that consumers are reverting to.
Brands that they know et cetera, but I would continue to contend that there's a meaningful supply side dynamic I believe that we will.
Pass.
And that.
The normal trends that drive private label will resume in the private label continues to have a perfectly reasonable.
Reasonable outlook once it gets past is very choppy period of time. So we are.
No less interested in developing our private label of <unk>.
And we were with the caveat debt, while we're demand constrained, we're making some choices to not participate in some of the more marginal private label businesses that Jeff referenced.
In our decision to walk away from in.
In his comments.
Okay.
The question and I'll leave it here is the cereal category seems to be almost aberrational across the packaged food group day.
The cereal category continuing to promote spend at promotions despite the.
Probably the absence of needing to do it.
Is there going to face increased.
Commodity pressure.
How does that play out in a competitive set to be able to offset the pricing the the input cost inflation.
In an environment where the.
It seems to have intensified and one could almost all use <unk>.
Maybe a little bit irrational can you talk about the category dynamics I, just feel like its aberrational relative to the other categories across.
Basically packaged food.
Ken It's a terrific observation of great question, and one that I have no attention to answer.
Yeah.
Fair enough.
Thank you.
And ladies and gentlemen, we have reached the allotted time for questions.
Thank you for participating in today's call you may now disconnect.
Thank you all.
Yes.
Thank you.
[music].
Sure.