Q1 2021 Bellring Brands Inc Earnings Call
Welcome to Bell Rang brands first quarter 'twenty 'twenty, one earnings conference call and webcast hosting the call today from Bell ring brands are Darcy Davenport President.
And Chief Executive Officer.
Paul rode Chief Financial Officer, today's call is being recorded and will be available for replay beginning at 130 P. M. Eastern time the dial.
A low number is 805 85867 and the passcode is 1876 009 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 Bell ring brands for introduction.
Again.
Good morning, and thank you for joining us today per thousand brands first quarter fiscal 2021 earnings call with me today are Darcy Davenport our price.
And Paul Brown, our CFO Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question and answer session.
The press release and supplemental slide presentation that supports these remarks are posted on our website in both the Investor Relations.
E filing section at salary on Dot Com. In addition, a relief from slides are available on the SEC's website.
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 as actual results could differ materially from these statements.
These forward looking statements are current as of the date of this call and management undertakes no obligation to update these channel.
As a reminder, this call is being recorded and an audio replay will be available on our website and finally this call will discuss certain non-GAAP 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 Darcy.
Thanks, Jennifer and thank you all for joining us this morning.
Last evening, we reported our first quarter results as well as posted a supplemental presentation to our website. The presentation provides more insight into our business consumption in key metrics.
I'm pleased to report that our fiscal 2021 is off to a good start with net sales of 282 million and adjusted EBITDA of 61 million slightly above our internal estimates.
Net sales were up 16% with premier protein and diamond price, both growing double digits.
As you saw on our press release, we affirmed our sales and adjusted EBITDA guidance for the full year.
The quarterly cadence is largely as expected with some minor tweaks.
First we slightly over performed both sales and adjusted EBITDA in the first quarter, mainly due to a shift in sales from the second quarter.
Second inflation ramped up in the middle of the first quarter.
We've done a good job with our cost out strategy and had been able to offset a portion of these headwinds.
But given the expected surge in freight and additional milk protein inflation, we announced a modest price increase in our shake business starting in Q3.
We will experience continued margin pressure in Q2 until the price increases implemented.
But we are confident in our full year guidance.
Now turning to our category brand highlights and growth strategies.
The overall convenient nutrition category remained stable growth in liquids and powders accelerated this quarter and are running above pre COVID-19 growth rate.
The adult and everyday nutrition segments are driving this growth as consumers are increasingly focused on their general health.
Most of the increase penetration is coming from everyday nutrition, while growth in adult is primarily the same consumers buying more.
Powders are also seeing some strong momentum, resulting from increased at home consumption.
From your protein shake consumption grew meaningfully this quarter at 28% across tracked and Untracked channel.
Growth was broad based and accelerated in nearly all channels when compared to prior quarter and year ago healthy.
Healthy velocities strong distribution gains and incremental promotions drove this growth.
Food and ecommerce channels led the way at 69% and 121% respectively.
This strong momentum has continued in Q2 with our first four weeks showing 17% growth across tracked and untracked channels with impressive gains in food mass and E Commerce.
We continue to make great progress against our growth strategies Premier Protein's household penetration reached 7% an increase of 19% over prior year. Our distribution continues to build with brand P. D piece at 17% sequentially, reflecting our Q1 shelf gains.
In January we kicked off our national marketing campaign, which includes T V digital and social media.
We complemented our proven strategy of having real fans, explaining why they love our shakes with spots focused on our key differentiator amazing taste.
And the first few weeks of the campaign our results are encouraging with search and website traffic exceeding the same period last year.
Our new flavors and pack sizes are driving significant growth cafe latte now in its second year and cinnamon roll our newest flavor are performing in the top 15% other category were sold.
Our upsizing initiative is off to a great start with our new 12, count driving almost three quarters of our growth in the mass channel.
Premier is also growing outside of shakes with powders up 129% driven by distribution and velocity.
Yeah.
<unk> had another strong quarter at 35% domestically.
With growth across all key channel distribution in F. D. M grew 38% since prior quarter with strong product expansion in the mass channel.
Our new ISO 100 products fruity and cocoa pebbles continue to be standouts driving velocity across all channels and securing significant new distribution.
Our international sales were flat year over year Premier shakes in Canada showed meaningfully meaningful increases, but softness across the rest of the portfolio offset this growth.
The impact of Covid on the global specialty channel continues to affect the diamond ties on Powerbar brands. However, we expect this to slowly recover later this year.
I wanted to take a moment to discuss our business realignment, we executed this quarter, which impacts both diamond and our international business.
Over the last several years, there has become more overlap between premier protein and diamond tied in the U S.
As a result, we decided to combine the management of these two brands housed in Emeryville.
As part of the realignment, we created a dedicated international team, who will drive growth across all of our brands outside the U S.
Regrettably. These changes resulted in reductions across our work force in Dallas and Germany.
I believe this was a needed strategic steps to position Bell ring for the future, but these decisions are not made lately and I want to thank our employees for all the hard work and dedication over the past years.
Overall I remain confident in our 'twenty 'twenty one outlook our supply chain performance is strong and our shake co man network is well positioned to support our growth.
Our new creative is now running and our messaging is reaching more households.
Our distribution gains are driving meaningful growth and we are seeing strong brands blocks across most major retailers.
Our new products are succeeding in market and our innovation pipeline is building driving long term value for the brand.
I continue to be energized by a long runway for growth and now believe we have optimized our organizational structure to truly drive those growth strategies.
I will now turn the call over to Paul.
Thanks, Darcy and good morning, everyone.
Net sales for the quarter were $282 4 million up 15, 7%.
Adjusted EBITDA was $60 7 million up three 6% on EBITDA margin was 21 five per cent.
Premier protein net sales increased 17, 4% driven by RTD shakes.
First quarter results benefited from distribution gains for both existing and new products and incremental promotional activity.
<unk> net sales grew 16, 2% this quarter driven by distribution gains in club and mass and continued double digit growth in E commerce.
International sales were <unk> improved sequentially, but remained weak on a year over year basis as a result of COVID-19.
Net sales of all other products decreased 11, 2%.
Turning back to consolidated results gross profit of $91 9 million increased <unk>, 7% this quarter with gross profit margin declining 490 basis points to $32 five per cent.
The margin decline was largely as expected and related to higher input costs, primarily milk based proteins and freight as well as incremental promotional activity.
SG&A expenses were $38 3 million and as a percentage of net sales declined 140 basis points to 13, 6%.
SG&A expenses on a current year included $4 6 million on restructuring and facility closure costs related to our business realignment the Darcy discussed earlier.
These expenses were partially offset by $1 5 million of lower separation costs, both of which were treated as adjustments for non-GAAP measures.
Excluding these items SG&A was down approximately 1 million compared to prior year and marketing spend was flat.
Before reviewing our outlook I would like to make a few comments on cash flow and liquidity.
We had a strong first quarter free cash flow generated 23 million from operations.
At quarter end, we had $58 million of cash on hand, and $150 million available under our revolver.
As of December 31, net debt was $635 million and net leverage was three two times.
Turning to our outlook, we continue to expect fiscal 2021 net sales of 1.07 to $1, one 2 billion and adjusted EBITDA of $207 million to $217 million.
As Darcy previewed our quarterly pacing is largely tracking with our expectations.
First half gross margins will be further pressured by higher free cost before rebounding in the second half when our RTD shakes pricing takes effect.
For the second quarter recall that we will lap the prior year Covid pantry loading benefit from Premier protein.
Which is a headwind to our net sales and EBITDA growth, but a tailwind for our third quarter.
In addition, our promotional activity on advertising investments will peak in Q2 as expected.
Overall, we remain confident in our full year estimates and are pleased with the top line performance and distribution wins for Premier protein a diamond ties.
With that I would like to turn the call back over to the operator for questions.
Thank you at this time I would like to inform everyone. If you'd like to ask a question. Please press Star then the number one on your telephone keypad. That's your question has been answered and you wish to remove yourself from the queue press the pound key we ask that while you pose your question that you. Please pick up your handset to allow optimal sound quality.
Our first question comes from the line of Ken Goldman of Jpmorgan.
Thank you and I love the 11 minutes of prepared remarks is fantastic. So thank you for keeping it brief for everybody.
I wanted to ask about the gross margin.
Which of course was down.
A significant amount this quarter for the third straight time.
Got it right youre facing a spike in dairy and free <unk> been promoting some more on some channels I'm just wondering because I think the investors and we certainly are guilty of this have been modeling in much stronger gross margins what can you tell us specifically.
Is there any way you can quantify what your expectations are for that line for the next few quarters or just for the year just in the name of sort of making sure that we don't get those negative surprises on that line item again.
Sure, Ken and good morning, I'll take that yes.
Yes so.
Moving into the year, we expected our gross margins to decline versus last year because of especially the first half was impacted more so by protein cost and we expect it to continue to make brand investments in promotional spending so we expected gross margins declined versus last year.
What has changed obviously spray cost has increased and so that is putting more pressure on our margins in the first half. So overall for the year, we expect our margins to be down versus last year.
We now expect that our second half should be above last year's gross margins because of the price increase offsetting some of these costs first half down second half above last year keep in mind, our historical margins have been.
Mostly around 34% with a spike in 19 because of the price increase we took at that point in time, where they got a little bit above 34, but historically, we've been about ground. There. So we expect to get closer to that as we take the price increase going into next year.
Great that is very helpful. Thank you and then my follow up.
I'm curious what you experienced in terms of any.
Pushback from your customers to the price announcement I would assume not much just given how transparent higher dairy and freight costs are in.
Even how theres not much elasticity in the market right now, but I just wanted to get any any color I could probably up on that thanks.
Customers.
You guys know customers never like a price increase them, but they absolutely understand why we're doing it and as you explained theyre seeing the same inflation as we are and so they understand it.
And remember we took price two years ago and everyone behave very rationally you know customers reflected it at shelf you access these were very close to our estimate and so we expect the same this time.
Yeah.
Your next question comes from the line of Andrew Lazaro of Barclays.
Good morning, everybody.
Good morning.
First off I guess with regard to premier.
This mix was down about four 5%.
Result of some of the incremental promotional activity on that as you mentioned was part of the pressure on gross margins I guess could you discuss a little bit how you evaluate the trade offs between incremental revenue generated versus the margin pressure and I guess more of the optics right of what some might call, perhaps lower quality growth or.
Our reliance on promotion and I guess put another way what gives you the confidence that the incremental promotional spend.
Is and continues to be an effective use of funds.
So our focus as we have a walk you guys through is building household penetration. We continue to believe that that is the biggest driver of long term value and growth or specifically premier protein.
We knew we were going to one of those strategies to increase household pen is raising marketing and promotion this year to drive that and we know that once we get trial on this brands because of our over because of our repeat rates that are over 50%.
We will have a loyal consumer.
So as we if you look at 'twenty, one promos theyre actually very similar to 'twenty, except for we tested an incremental promotions at club promotion in Q1, which is which is what youre seeing in the numbers.
But other than that they are actually fairly consistent with Sam as you guys know we have a bigger push in Q2 and Q4 on.
And then we added the Q1 promotion as well.
Great. Okay. Thank you for that and then Paul.
I mean, you mentioned heading into the first quarter. It was expected that pretty much all of the EBITDA growth in fiscal 'twenty, one would occur in the second half and on.
Obviously, you had free three 5% growth that you realized in EBITDA in the first quarter and obviously fiscal <unk> expect anticipate it to be down to off I guess is anticipated to be down to basically offset this so that you're still kind of have that that same cadence of virtually all of the EBITDA growth in the second half and then similarly on sale.
I think as expected sales in the first half will be up high single digits, obviously first quarter was up far far greater than that.
If it was to hold to the first half guidance that you initially gave on sales that would imply a.
A deceleration in sales to maybe minus one to plus three in the second quarter.
But given you have so much momentum I don't know if that still holds so I'm just trying to put this in perspective, what you did in the first quarter based on what your initial sort of first half guidance was if you get my drift.
Yes, I think I do so our thinking on first half growth is still still in line with our original expectation I think Darcy touched on in her prepared remarks that we did see a little bit of a shift into Q1 versus Q2. So we just whenever you are loading these large promotions, sometimes a little bit different.
And then do you expect on so what we believe we have seen is a bit of a pull in Q1, a little harder than than expected. So that obviously falls out in Q2.
What's the freight headwinds, obviously that put some additional pressure on our second quarter as well. So we really think our first half is largely intact. It's just a little bit of shifts between the first and.
Second quarter no signal no concerns about the sequential revenue top line great.
Great. Thanks, so much to you both.
Thank you.
Our next question comes from the line of Brian Holland of D. A Davidson.
Yes. Thanks, good morning, So I wanted to probe that debt.
This implied.
<unk> growth a little bit further.
It sounds like I guess that some of that pull in from Q2.
Maybe related to that club promotion that you referenced.
Curious if there's anything I mean, obviously there is something about the end of the quarter here when we start to lap the initial demand surge around Covid. I mean is that just something where you feel like you don't have enough visibility on so why not just stick with the same cadence through the first half a day out of that that lapses or is there something else in one of these channels.
But we need to be mindful off because again.
Celebrating in scanner through January that ramp from current with the promotion of Costco.
So they'll cannibalization there so it seems like a lot of momentum going into that second half of March.
March so anything that we should be mindful of other than just the <unk>.
Just trying to be mindful of the Covid.
<unk>.
Certainly as we're lapping last year, yes, the Covid comp was a was a big tailwind for us in the second quarter of last year. We I think we previously estimated that.
The high single digits and drove high single digit growth for us last year that were obviously lapping so that does obviously weigh on your growth rates from last year to this year.
Regarding the business momentum, we do feel like it's still strong.
Theres nothing that debt.
That I've seen on we've seen that would suggest that there is.
Reasons for concern, but everything we've seen from a revenue side has been tracking to our expectations again with just a bit of a.
The shift from from Q1 into Q2 from.
Absolutely Paul.
Yes, Paul just so just to confirm that you said high single digits.
Contribution from sort of the Covid demand surge in Q2, that's how much that contributed.
What would you contribute to last year, so that would be the headwind per this year. So that's the flip between Q2 and Q3, where it's a headwind in Q2 and a tailwind for Q3.
Understood and then if I could just ask a big picture question.
I think relative to three six months ago. It feels like we'll be in.
Similar to the dynamic that's in place today is as it pertains to consumer mobility, which obviously has been up.
It has been beneficial to the category in your business in particular, but if we extrapolate that out further.
There's forecast out there that would suggest two X the American workforce will be working from home in some form.
Five years from now vs.
Pre COVID-19. So just wondering if you have done any work on that any analysis.
If there is reason to kind of we think the opportunity here just given the relative.
Convenience of shakes versus bonds at home and obviously, when we look at the penetration growth and the repeat rates on your business in particular I'm. Just curious if you have any sense at this point on that.
We are.
We're incredibly.
Excited about.
On our momentum as a business because not only yes, we have the negative of the mobility, but we have the positive of them I mean, we I walked through the category and liquids and powders are in the last 13 weeks or double the growth of the overall category. So we're seeing.
On the tailwind of just general health and the sentiment of consumers of really being worried about their general health and what they can do personally to improve that so we've got that tailwind and I think that that's a long term I think and.
I think obviously it got accelerated with the pandemic, but I think that will that will stay front and center for a while and so then you take that and then you put on you layer on top the increase of mobility and that we are a a convenience product.
I think we look forward and see a lot of a lot of encouraging signs.
I appreciate the color best of luck.
Your next question comes from the line of Chris Growe of Stifel.
Hi, good morning.
Good morning, Good morning, I just had a question for you if I could first on just to understand.
Maybe I can better understand.
The fact that this quarter had a promotional load in and as I look at the charts on the data I guess I was just a little stumps still on how with consumption being up so strongly from premier of 27, 5%.
And obviously revenue and volume for that business made up less than that.
Just how that dynamic works and maybe more importantly, how much should come out of Q2 as a result of debt load and that occurred in the first quarter.
Yeah. So I'll take the latter part of your question. There. So our thinking is that we have seen maybe a 1% to 2% pull forward from Q1 or from Q2 into Q1, so it's not big but.
It does impact obviously the growth rates a bit.
So that would be that part of your question.
I mean, our first quarter is typically a very heavy shipments to consumption quarter.
Because all of the all of the January promotions that are going on a lot of them do load for us and in the first quarter. So.
There's a chart in our supplemental debt actually shows that dynamic and it's fairly consistent with last year. It was up a bit maybe from last year, which is part of that pull forward, we're talking about but it is not meaningfully different from last year's Poland.
Yeah, I think what I would add is that in on track and we did see we did see that consent, we had some ship in.
From ship in volume in Q4.
That we saw that consumption in Q1, which is I think it which is the delta between the consumption and the shipments as well.
Okay. Thank you for that I have a follow up on that but I guess I understood what you're saying just a quick second question would be.
Just to get a sense of how much the inflation outlook has changed for the year and then can you give any color on the degree of the price increase you are taking and maybe that'll help dimensionalize the increase in cost.
So let me take the inflation piece on Im sure Paul.
Yes from an inflation perspective.
The change from our original estimate which is primarily freight.
Is that it'll be 75 to 100 basis point drag on the year.
So that's the magnitude of the freight impact, which has ramped up really kind of late in our first quarter.
And then from a pricing standpoint, just for competitive reasons I don't think we're going on I'm not going to go into the exact price increase, but it's modest and similar to what we at <unk> two years ago.
Okay, and then just to be clear on that Paul that inflation, that's 7500 basis point drag on the gross margin is that the way to quantify that that is exactly right. Okay.
Thanks, so much for your time.
Thank you.
Your next question comes from the line of Tim Perz of Stephens, Inc.
Good morning, Congrats on the nice quarter.
So.
How should we expect you to approach marketing spend this year I know you've planned to advertise advertise on TV for an additional three months this year, but if you achieve your household penetration and it's kind of like ahead of time would you be more inclined to drive margins by pulling back on marketing spend in the back half or do you kind of plan to stick to that goal and pursue additional households this year.
Here.
Yeah, we plan to continue with our plan from an advertising standpoint.
Big picture is.
We are under pressure, we believe we are underpenetrated and so we know our marketing is working and we're seeing early results first of all it worked last year to drive household penetration we made some changes.
Just to optimize it this year and in early if you first three weeks, we see that it is more effective than even last year. So we believe it is the right way to build long term value for the business and we think Theres a lot of upside so we're absolutely continuing.
On the path to spend to acquire assets.
Okay. Thank you and.
Premier protein household penetration was up about 18% year over year, but your consumption exceeded that.
So can you just talk a little bit about what youre seeing from the buying rate among existing consumers and what's driving that higher.
Yeah.
Yeah. So about 80, let's say if I'm going to get to your question about 80% of our growth is coming from outside the category and it's a combination of new households, and buy it right.
Two of our from a strategy standpoint, our goal. This year was twofold household penetration and buy rate and so from a household penetration standpoint, we are push it you know we are increasing our marketing and our promotion.
As well as and then from a buy rate and coming out with new products, new flavors expense et.
Cetera, and then from a buy rate standpoint, we have our upsize initiative and so those combination is is where you're seeing kind of you see the increase of household pen, but then you see the buy rate as well.
Okay. Thank you I'll pass it along thank you.
Yeah.
Your next question comes from the line of Bill Chappell of Truest security.
Thanks, Good morning.
Good morning, I just wanted to go back to just the freight issue I'm just trying to understand because I imagine you have some free contracts, where you don't see the immediate hip is free costs rise and so I guess trying to understand since it is it just you said that creeped up late in the first quarter and immediately hitting you in the second quarter.
What what.
The weighted to prevent that from us.
But to begin in the second quarter that you haven't priced enough for that as we go into the third quarter, just trying to understand kind of what visibility you have on on your freight rates and what kind of.
In order to price this doesn't happen again and again as we move through the year on things starting to open up.
Sure Yes.
We do have obviously, some visibility into our freight costs through our through our providers.
But it really didn't move up quite quite a bit on I think you've seen that obviously inflation with other companies as well.
Covid, causing some shortages with drivers.
But the really long term thinking is that that will continue on for a period of time, but to your point on.
There's always risk that it goes up and theres opportunity should it come down but.
We feel like we've taken we've looked at the rest of the year and looked at it at this elevated level as we've thought about the <unk>.
Impact of our business for the rest of the year.
So I mean, just your thought is three rigs.
Peak to where you are.
<unk> price for the potential peak is that fair, yes expectation.
Expectations, yes.
Got it and then just follow up just any color on channels.
Is it safe to say club versus non club performed the similar rate or maybe it did seem like you had more promotions and obviously more new product introductions in the club channel.
Any color there would be helpful. Thanks.
Yes.
Oh, sorry.
I'm, just kind of clarify the feedback from here or total story, where both.
Premier premium I'm, sorry, yeah, so premier untracked still for the quarter.
Overall.
Our consumption was at 27, 5%. It was led by on track. So Untracked still was tracking ahead and driving the growth over track so about.
About 43% and tracked being up 15% and you know it was were having really solid we continue to have really solid growth in E. Commerce. We did have a promotion on ecommerce, which drove some of that which again with expected and then we're seeing solid growth.
And in a on track club.
And then but I will say I think some of the areas that I'm.
Most excited about is.
Our progress in food, specifically food and mass and on and getting more products on the shelf and really getting that brand black which is something that we haven't had before and we're seeing it in in market.
Great. Thank you.
Thanks.
Your next question comes from the line of Jason English of Goldman Sachs.
Hey, good morning folks.
Good morning good.
I guess I've got two quick questions.
Well, maybe not quick but the first one is.
How much of the growth in Diamond price.
Coming from these pebbles extensions and should we be looking at these as almost like a license in and out or do you think there is reason to believe that could actually have durability.
Sure.
Yeah.
So we don't have the exact number.
The four pebbles, but what but I'll separate out the growth of the domestic growth from a distribution and velocity standpoint, so about 60% of the.
Growth was coming from distribution and about 40% from velocity a lot of that velocity is coming from pebbles and and the excitement there.
And it's really coming across channel.
We absolutely think it has durability.
And I think that Youll start seeing I think the excitement around you know.
I think I've explained the consumer insight to this piece, it's not just about borrowed equity there. It is steeped in solid consumer insight that basically says that the diamond price consumer.
Hmm.
Is starved of carbs.
And so basically haven't eaten sugary cereal, but in a long time and love it and so because our product deliver so well on the you know fruity and cocoa pebbles experience. It really is kind of scratching at ash and so that is that as a consumer insight.
That can be really built right.
Interesting.
Second question.
<unk> got a great organic growth story here and I'm, not asking you to muddy the waters, but.
Yes, I do recall when you guys were initially spinning out and standard this business up on a standalone basis part of the rationale was to be able to have a high multiple business that could acquire other high multiple businesses on the growth assets.
Whereas M&A on your agenda today and have you seen any opportunities perhaps open up during COVID-19.
Yeah, I think you highlighted and described it well.
We we do believe and I think we've communicated that says that we are excited you know the organic growth of specifically premier but.
Also diamond price is our number one priority and we still think there's a ton of upside.
And that that really is is our focus and just to jump on you know we've historically, we've talked more about premier as being the driver of that which it will be but I think the you know recent.
Recent momentum on dying the ties really gets us excited on that growth story is low and so that puts us in a situation where M&A is absolutely one of our our growth strategy, but it it becomes more of a nice to have as opposed to a need to have which.
Which allowed us to.
Pick and choose and wait for the right opportunity as opposed to being force to buy something because were trying to hold up a growth rate.
Makes sense based on I'll pass it on.
Yeah.
Your next question comes from the line of Rob Dickerson of Jefferies.
Great. Thank you so much.
Darcy.
Yesterday.
The larger food company.
Doesn't really focused specifically on protein shakes and bars to powders.
Stated that.
Seemed like discussions with retailers and kind of what.
As seen on the shelf, let's say in the past six months.
I would suggest that maybe there's been a little bit more shelf allocated to kind of shakes and powders right just given kind of the at home consumption share.
A shift maybe theirs.
A less attraction from the time being at least just to the more on the go bars.
And then they stated that.
That also through those conversations with other retailers that they would think that some of that would reverse back out right.
There's almost like a temporary mix adjustment, obviously to cater to our demand is.
So I just thought I'd ask you know kind of you.
That's what you're seeing too if you agree with that got on what's your perspective is and.
Really would there be so much shift because it seems like your shift has been.
Driven by good product and distribution gains increased GDP not off of Covid kind of was already planned. But then there is kind of the other commentary that you own.
Her way of kind of what's happening within the broader category. If we think about the mix between powder shakes vis vis bars.
That makes sense.
That makes sense I agree with.
On the fact that we are seeing some share.
Shelf space space from bars to our Ts and powders.
I have not heard that.
That is a temporary.
Change I guess I look at it.
No.
Retailers keep I mean, very simply retailers keep items that are growing and they're growing their category and so.
I just said you know 80% of our growth is coming from outside of the category. We actually have very little growth that is coming from shifting among the category. So and we're one of the highest velocity products in the category. So.
I haven't heard it and honestly I am.
I It doesn't worry me from a premier standpoint, or a diamond I think line for that matter.
Okay, Great and then just I guess just quickly.
Obviously, the focus right now is building the core right. There's a long runway of growth still on the current product offerings or categories. As you just stated.
There is.
The new Premier cereal right described we've seen the innovation already come out discussed earlier on the post call.
Are you.
Thinking already kind of like where can we take premier right, let's we have kind of the plan in place.
In terms of the distribution strategy and.
With the right offerings, we just need to execute so maybe theres a little bit more bandwidth.
In terms of kind of where you could take the category into other adjacent sorry, other adjacencies or for now is it just block and tackle on the core thanks, that's it.
It's both so absolutely the core we saw the kind of upside within our within our categories, but innovation is a big driver for us we've been investing both within R&D as well as within our marketing and focusing on where this brand can go I think cereal was a good test for us.
And we could see if the brand could.
Travel outside to other categories and other heavily trafficked.
IOS and I think that the early results are really positive and so we look at that we've always thought debt.
On a growth.
Net.
You know future growth was we've talked about center of store and I think that this bodes well for for that for that transition at now. It's just about what is the best strategy to go to center of store.
Got it alright, thank you.
Thanks.
Your next question comes from the line of Ken Zaslow of Bank of Montreal.
Hey, good morning, everyone.
Morning, Good morning.
Two questions. One is when you think about your shelf space gains can you talk about how much shelf space, you've gained and how much do you think that's permanent and maybe that's.
My first question.
Yes.
So.
We.
I'm forgetting the exact numbers in my in my prepared remarks, but we gained substantial shelf space both on premier and on diner ties this last quarter.
We're pretty consistently gaining PDP tdp's or that.
We communicated that you know where we're under shelves really our market share would from kind of market share versus share of shelf. We are still under shelf. So we still have room to grow.
But this Q1 was a really big move we gained substantial.
I think I mentioned this in the last call we doubled our shelf size at a mass retailer and coming up in the spring is the resets for some major food accounts, we will continue to see bid.
Big distribution expansions within those accounts further.
Expanding our brand block.
So and then diameters, we gained I think 38%.
On.
TDP is I N S. P M, which is a big push for us and that was mainly due to amass accounts and we're already seeing the velocities.
Strong enough to hold that space and expand and so same thing on diamond ties, where we see these food accounts, which we're going to and we're expecting to see some increase in <unk> as well.
Yeah.
My second question is when I think about expanding the premier brands.
What consumer insights did you see that would want premier to get into a single category a category, which.
I don't know if I can remember, but the probability of success of a new brand.
<unk> can't be more than 1%, it's a very low so what consumer insights to you.
Have that would give you the confidence debt extending from you in just two versus I don't know other categories would be the right for a for you to gain to the center of the store just.
Thought there thanks.
Well the first thing is that we know that premier.
And as a brand is consumed 60 per cent of the time at breakfast. So we also know that breakfast is an occasion, where consumers don't usually get enough protein they have bagels and doughnuts and muffins.
So and we know you know as the old saying goes it's the most important meal of the day. So that is I think the insights now the second piece is just a practical application, which I would just say it. We also happen to have a sister company, who makes cereal. So it was a.
Fairly easy test to see if are our brands could travel. So I think there is it is there it's very much steeped in solid consumer insight, but also there's a practical element.
Thank you very much.
Yes.
Your next question comes from the line of combo calls from a wala of credit Suisse.
Hi, everybody good morning, or I guess good afternoon can you.
You talked a little bit about E Commerce E commerce capabilities, and maybe a bit about how much. It grew but also just how it's evolving what sort of capital you might be putting in or on <unk>.
<unk>, you are making to expand that side of your business.
E Commerce is a big focus for us and so just to give you a sense of kind of history, and where we are and 19 ecommerce represented 6% of our business.
Now is at 10%.
<unk> of our business, we think that it could be you know 10% to 15%. So we've invested its also whats interesting about E. Commerce. What we've learned is it is a great trial driver for us So we're actually seeing them.
Our household penetration grow and asking trial through E. Commerce, and then sometimes actually then buy because our ecommerce product is a little bit more expensive than in other channels oftentimes, we'll see consumers enter in an E Commerce and then.
I repeat in other channels and then just from a capability standpoint.
We're expanding you know marketing dollars, we're actually looking at pursuing ecommerce only innovation, we've increased head count.
And we have a general management kind of approach to E commerce.
Where we have kind of sales marketing and operations working together because it is a different it is a different way to go to market.
Interesting. Thank you and then on the topic of the primary mission has been.
Increasing household penetration and your successes of course now being replicated to the best of their ability by others, but we're also going into a time where.
On pricing as necessary, maybe promotion mitigation as necessary. While competition is also increasing so how are you thinking about just the dynamic between those two is it a little bit of a.
Are we in the growth curve of the industry, where it's a bit of a real estate grab or is this something that you feel like it's okay to cool the just from a period of time.
The deal with the input costs and worried about some of this other stuff later.
Well so lacked a it's a great question so last quarter you know.
Hi.
We came out and said that we.
We would rather not take price you know, we we wanted to drive top line, we felt like.
We would.
We were comfortable with the assumptions the cost inflation assumptions that we had incorporated in our forecast did not take price. However, we also said that if those assumptions prove to be.
Be too low and the Faq come up and they are higher than that we would adjust our course and that's what happened.
Freight is obviously, increasing as well as we saw from increase of.
Dairy proteins, so we decided to take price at the back half we evaluated other areas like marketing et cetera, We just felt like given our household penetration and given our experience and our long term goals of.
<unk>, Inc, and talking to more consumers and our marketing is working we didn't want to pull that back. So I still believe that even though we're taking price we still will increase household penetration.
And we're gonna be watching that closely.
Thank you.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning, Thanks for the question.
Good morning.
Maybe first off Darcy back on the promotion front for Premier in terms of total activity for 2021, how are you sort of balancing is the degree of activity between straight price discounts for consumers relative to investments in store displays or any sort of push levers for the trade.
How does that balance different relative to the past few years as the brand now growth penetration.
So.
Our philosophy and not really I wouldn't maybe net it's not our philosophy. So.
From a from a promotion standpoint.
A few years ago.
We used to only get T P r's.
From a trade perspective, now because we have tested our brand is big enough we proved to retailers.
And that actually we bring in more households, when were on display and we have quality merch, we're only doing quality merch.
So on.
And that has made all the difference in the world from an effectiveness standpoint, so we once you know.
Hopefully you guys have seen this but I'm in the new year, New you I mean, we had displays and in most retailers and and large displays and sometimes.
Sometimes multi product displays and so and that is really important for us because we bring so many people from outside the category.
And after that we need to get out of the aisle to get People's Eyeballs and then once we do we hold them, we get the repeat and we grow the category for the long term so I think that.
Let me see if I answered your question about promotion and that's split.
Yes, absolutely right on.
Point, there and.
And then I guess, a follow up just to come back to <unk> given that your comments. This morning seem I guess pretty bullish.
ISO products, both from drawing board to the market. When you think about premier exponentially surprising to the upside from the time that was acquired I guess back in 2013, how do you see the parallels are evolving for diamond I mean, just given what youre sort of learning real time about the brands and consumers is there any reason why it could evolve into.
$500 million business over time are the ambitions sort of change your growing to an extent there. Thank you.
Yes, we are very pleased with the momentum of Diamond types. I think what is encouraging is how it is taking and the man.
Not that long ago. This brand was a specialty only products.
Product and so to have and the team has done a fantastic job of kind of repositioning it and changing and moving the on.
That the channel to make it much more balance index, it's succeeding in E Commerce and again now mass.
I, if I fast forward five years I still believe.
Premier is going to be our big brand.
I expect us to have more brands than just premier and diamond type, but premier will be the biggest brand just because it is the most mainstream brands and I've talked about how we actually.
Kind of source volume or appeal to all of the different consumers.
But <unk> has a very solid place right for athletes and sports nutrition. It has a very clear consumer and so yeah I believe that it can be a much bigger brands double the size that it is now on <unk>.
Then shortly.
Well I'm trying to spread the word on Gold's gym. So it sounded you ballpark for what it's worth Thank you Scott.
Thank you.
Your next question comes from the line of David Palmer of Evercore ISI.
Thanks.
The question just a bit of a follow up to Rob's question about retailers, giving more merchandising and shelf at the expense of bars, and obviously, that's a retailer decision.
I guess theres consumer ones behind that and I guess Theres a thought debt. This was as a convenience play that bars are on the go type products and <unk>.
Maybe.
<unk> are not as much and this is a temporary thing and as mobility returns it gets better for bars that could be one narrative.
But I suspect that's simplistic and there are other consumer on.
Needs demands that are at play here debt, because I am ready to drink beverages is pretty convenient too. So could you just talk about that what youre seeing in terms of the airplane is it really one cannibalizing the other in your view.
They really have different.
On different occasions, so I mean.
If you think of.
Shakes are for the most part you know 60%.
Consumed in the morning, they're more likely to be used as a meal or a healthy meal replacement bars are much more snacking oriented and they're much more on the go I think what there are a lot of consumer trends and macro.
Trends that are.
Fueling.
The RTD and the liquid side of things as well as the powder side of things that on.
Our tailwind to borrowers, but not quite as much and those are all around general health immunity.
If you think of it so.
Most.
Our T DS have bought our vitamin and mineral blend those are very important to consumers and so that you know when you're talking about people are trying to increase their immunity et cetera, as that becomes a more as we go more into kind of proactive health.
It was not and I think youre going to start seeing a bigger divide between our T d's and powders and and borrowers which have made their way much more into snacking.
Got it. Thank you and just a question on marketing and the message both how you market and what messages youre going to play on.
Wondering about the buzz creation type of stuff and how much of it is.
What you're trying to do on social media I Wonder for example, did you have something to do with debt.
<unk> users per combining premier protein with Starbucks coffees that protein coffee.
Was that we saw out there.
Over the last quarter or so.
And what Youre doing from a digital messaging standpoint, the things you are pushing on from a message standpoint. Thanks.
Yeah, we love the profit.
So what is.
So I.
I dunno exciting about premier.
Is our consumers create the content and we don't ask them to they didn't do it because there is so much excitement and love for this brand what we do is once they created we feel it.
And we then kind of jump on it.
It give it more legs changes to strategy is from an advertising standpoint, its more tweaking than anything else is we have T V. We have digital and social media and we are adding more dollars and Ah.
And more time to the to the budget, we're talking to more people. So we are adding consumers with different types of messages. The beauty of obviously digital and social is that you can change the message slightly depending on who the audience is we updated creative I said this in my prepared.
Remarks is it's all been about our devoted fans really telling other people people off centrically why they consume on the product, but now we're complementing those with what we're calling we call. The first ones testimonials, we call. The second one to taste ammonium, which is really all about taste and hid.
Adding that how how.
Amazing our consumers believe that taste is and showing it and visuals.
And then we're also supporting some of our new products with National Media, which we've never done before so those are some of the changes within our strategy on.
And kind of how we.
Amplify the buzz that already happened from our consumers.
Thank you.
Thanks.
Your next question comes from the line of Bryan Spillane of Bank of America.
Hey.
Good morning, just two quick ones from me.
One is I know you've talked a lot about kind of where the first quarter landed versus expectations in cadence for the year, but I think I might have missed or I'm not sure I might have missed this but just.
Where is consumption tracked relative to what your expectations were and especially around premier and given just the elevation and activity you've had.
Merchandising activity you've had does that has that run ahead of what your expectations were.
Consumption is pretty.
Pretty consistent with our expectation I would say with one small change is we did and I think I mentioned this maybe in some of the follow up to the last quarter is we did see.
Small.
Net.
Net increase in November in some club stores when the some of the additional lockdowns happen in several of the state almost like a mini panic buy what was interesting about it is it appears to.
I'm not so.
People bought more but yet, but then they consumed more in the quarter. So it didn't affect our and it didn't we didn't see that decrease that we saw in last March. So at so that was the only thing that was surprising it from a consumption standpoint, it's just a little bit of a panic buying in November.
Okay, great. Thanks, and then just related to the price increase.
Should we factor in anything for customers may be buying ahead of that price increase so.
When it's effective so I guess I'm trying to understand whether or not there'll be any other disconnect between ship.
Shipments in consumption just consumption related to the price increase.
Yeah.
On.
We don't you know that's going to happen that that will happen somewhat we do monitor that and if people if our retailers.
Put in you know three times the order than normal we will.
We will act on that and try to bring it down.
So I wouldn't necessarily model in a massive.
Increase I think that we have control over that we did not have that happened two years ago and so I think we are we have a we.
We have a process in place to address that.
Terrific. Okay. Thank you.
Thank you.
Ladies and gentlemen, we have reached the allotted time for questions and answers. We thank you for participating and Bill Wrang brands first quarter 2021 earnings conference call and webcast. You may now disconnect your lines and have a wonderful day.
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