Q2 2021 TreeHouse Foods Inc Earnings Call
Okay.
Welcome to the Treehouse Foods second quarter 2021 conference call, all participants will be even listen and I won't be mailed on.
Today's presentation, and there will be and opportunity to ask questions to ask a question and see simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question press. The pound key. Please note. This event is being recorded at this time I would like to turn the call over it.
And 3 house foods for the reading off the Safe Harbor statement.
Good morning, and thanks for joining US today. This morning, we issued a press release, which is available along with the slide presentation and the Investor Relations section of our website at Treehouse Foods Dotcom and <unk>.
And we begin we'd like to advise you that all forward looking statements made on today's call.
Intended to fall within the Safe Harbor provision of the private Securities Litigation Reform Act of 1995.
These statements are based on current expectations and projections and.
And involve risks and uncertainties that may cause actual results to differ materially from our forward looking statements information concerning those risks is contained and the company's filings with the SEC.
In addition, we will be discussing operating and financial results on an adjusted basis.
A reconciliation of these non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release on our website I'd now like to turn the call over to our CEO and President and Mr. Steve Oakland.
Thanks, Pete and good morning, everyone. Thank you for joining us.
Before I get into the details of the quarter I'd like to start by framing the environment and which we're operating today.
And the first half of this year, we've been lapping last year's record shipments from the Covid related pantry stock and.
And I'll discuss the environmental challenges impacting the industry.
But through all of this we've been operating well and while we faced individuals' disruptions. The changes we've made across the organization over the last several years have enabled us to operate successfully.
We're responding to customer needs quickly and effectively and we have maintained service levels at 98 per cent.
Looking deeper and our performance and 7 of our 10 largest categories like crackers pretzels and portable dressings, we've gained share within private label and the quarter.
However.
Total consumer demand for private label has been lower than expected.
We believe this is temporary and I'll discuss this more in a minute.
As the economy reopens, we are navigating supply chain disruptions and changes and retailer inventory as they address the evolving demand landscape.
At the same time commodity freight and packaging inflation has continued to escalate.
Although challenging and the near term and the good news is that this will not impede our ability to execute on our strategy to drive long term sustainable growth.
We have been very successful and several areas.
Recall that we talked to you on our last 2 earnings calls about higher commodity packaging and freight costs are roughly $160 million to $170 million this year.
Our execution around pricing to recover the higher input cost has been successful.
Focus on our customers and delivering high service levels, coupled with a well organized data driven process have enabled our pricing execution.
Retail customer acceptance around pricing has been strong and I'm pleased with our success to date.
I want to thank our general managers and our commercial organization for what continues to be a disciplined well coordinated effort.
We will see these pricing initiatives reflected beginning in the third quarter and ramping into the end of the year.
Bill we're bring more detailed to this and his comments.
We continue to believe that the investments, we're making today and our business, both organic and inorganic will position us for success as the environment normalizes.
And are really on and integration is on track to deliver synergies ahead of target this year.
We are evaluating a short list of acquisition opportunities that would provide and incremental growth catalyst.
Of course, we will remain disciplined and seeking the right fit and valuation and I'll share more thinking around M&A and my closing remarks.
We remain committed to optimizing our portfolio, we took another important step and that effort and the second quarter as we completed the sale of the ready to eat cereal business for $85 million and early June.
Looking at the balance of 2021 as you saw on our release, we are revising our guidance due to our ongoing expectations for the challenging environment that I mentioned earlier.
Bill will take you through the details, but our outlook takes into account the following.
Our second quarter results.
Q, but the macro trends continue to pressure private label.
And we anticipate some additional inflation through the balance of the year.
We expect to take further pricing actions and certain categories. However, the full impact from those actions is not expected to flow through our P&L until 2022.
Now turning to slide 5 and our second quarter results.
Second quarter revenue of $1 billion was down from $1.04 billion last year.
Which included about $83 million of Covid related pantry stocking.
Adjusted EBITDA of $97 million from the second quarter and adjusted EBITDA margin of 9.6% declined 250 basis points versus last year, driven primarily by lower volume and inflation.
We expect pricing will be reflected in our P&L beginning next quarter.
We delivered adjusted EPS of 26 cents in line with our guidance range.
I'll walk quickly through the next few slides on the macro environment, which are important for understanding how the broader environment is impacting private label.
On slide 6 recovery of the away from home sector continues and appears to be stabilized with growth versus 2019, and the 5% to 7% range for the last few months.
At the same time at home food consumption remains strong versus 2019 and more normalized year. However.
However, private label and measured channels is lagging the overall market.
On slide 7 on the left we show what has happened over the last 18 months is a combination of government stimulus and fewer outlets for spending that was bolstered disposable income.
We believe that this dynamic is artificially supported a shift and traditional value shoppers buying patterns and stimulus dollars per.
<unk> boosted income we have seen a greater propensity for that shopper to trade up to brands.
On the right side, we've taken it a step further to look and income levels and purchasing behavior.
As you would expect edible dollar spend has moved higher regardless of income on.
What's interesting is the purchasing behavior for brands versus private label at different income levels.
The top 2 bars represent households, with income greater than $100000 a year and.
And shows edible purchases for the second quarter of 2021 versus 2019.
For these households, 17% of their food and beverage purchases where private label.
This has been consistent from before the pandemic tutor day the.
Bottom 2 bars represent.
That's the typical value shopper or those households, making less than $100000 here and have changed the chart suggests that these shoppers have shifted more of their dollars away from private label to brands as a result of the additional income.
Although 3 rounds of government stimulus checks and created an unexpected shift and consumer purchasing behavior.
Our view is that that shift is not sustainable long term, particularly given the inflationary environment.
We do expect that stimulus will continue to support the value shopper through the balance of 2021.
Before beginning to normalize as these programs receipt.
In addition, we are also seeing promotional activity in certain categories impacting private label consumption.
And as brands invest to retain consumers.
Although promotions and total are still below pre pandemic levels and the second quarter, we saw aggressive competitive merchandising and a few of our meal prep categories like pasta and dry dinners.
Turning to slide 8 today's inflationary environment is presenting headwinds across the entire food industry.
Brands do have more short term levers such as trade promotion and marketing and price pack architecture.
However, as day to raise prices to address the near term escalation and input costs and the longer term labor cost headwinds, we believe that the traditional private label value proposition will return.
As I noted earlier the.
The combination of our fact based approach trusted retailer relationships and strong customer service levels have been key factors and our ability to successfully implement pricing this year.
Given those same factors, we are confident and our ability to implement a third round of pricing and certain categories. Later this year the impact of which will be reflected in 2022.
Slide 9 is our revised guidance for the full year.
While I'm disappointed to take our estimate that the combination of lingering COVID-19 related impact as well as a steady inflationary pressure will make for a challenging operating environment for the remainder of the year.
Treehouse, we've been incredibly focused on thoughtfully navigating the continued uncertainty and I'm confident that we build an organization that can mitigate these issues long term.
I'm proud of how our organization continues to deliver for our customers and I want to thank our employees for their hard work and commitment to high customer service levels.
Finally, it's important to recognize that despite the near term pressures underlying retail support for private label remains strong and I'll come back to this and my closing remarks.
As the macro environment normalizes and government stimulus and we believe consumption and behavior patterns will revert to pre pandemic trends and there's still a lot of runway for private brands.
Let me now turn it over to Bill to take you through the details of our quarter and the outlook.
Bill.
Thank you, Steve and good morning, everyone.
On Slide 10 is our Q2 scorecard, Steve characterized the buyer dynamics impacting both the top line and profit. So let me give you more context around revenue and the quarter.
Our top line of $1 billion was below the midpoint of our guidance by $50 million driven and 3 areas.
About $30 million on the shortfall was due to softness and private label as a result on the macro environment.
This includes continued government stimulus and heavy brand and promotional activity and categories like pasta dry dinners refrigerated dough hot cereal and crackers.
And another $10 million is driven by inventory reductions and large retailers and they face uncertainty around the country reopening and lower than expected foot traffic.
Capacity constraints, primarily and our San Antonio and sources flat, which is still recovering and finally, the harsh February freeze drove the remainder of the mess.
Slide 11 provides revenue by division.
No prep net sales, which includes approximately $33 million from maybe on a declining 3% versus the second quarter of 2020.
The away from home sector, which is largely a meal prep business rebounded with sales up 64 per se.
Snack and beverages declined 5% as we lapped continued patchy stocking activity.
On slide 12, we provide a walk of our revenue by channel.
Excluding a 3 million dollar impact of the sale of 2 and in store bakery facilities, which closed back in April 2020, our total retail sales were down $94 million or 11% and the second quarter.
We estimate that revenue from Covid related pantry stocking and accounted for $80 million of the year over year change and that means our base business declined $11 million, including really attribution.
Similar to past quarters, and measured retail sales, which represent several key club value and online retailers and outperform measured channel sales.
The away from home channel is rebounding and.
As I mentioned earlier foodservice sales grew 64 per cent and the second quarter. Although we are not yet back 2019 levels the improvement is encouraging.
And finally, industrial and export channel sales improved 24% and in the quarter.
Turning to slide 13, and our earnings drivers.
And it makes and quoting absorption were a negative 48 cents of APAC.
Pricing net of commodities are peanut was a 39 cents drag on the quarter. This was in line with our expectations as we do not expect our initial pricing actions to offset previously identified inflation until the third quarter.
Operations added 31 cents and the quarter due to past performance and the benefit on the movie out a path of the business.
Our shortfall drove a reversal on annual incentive plan accruals, which benefited both operations and SG&A.
SG&A contribution was 17% year over year.
Interest expense FX, rather and income added 7 cents driven in large part by our successful refinancing.
In line with our balanced capital allocation approach on slide 14, we remain focused on maintaining the strength of our balance sheet and.
And I see and the business and returning capital to our shareholders.
We expect to finish the year within our targeted financial leverage range of 3 to 3 and a half times.
And the second quarter, we repurchased $25 million of our stock.
We continue to believe we are taking the right steps to build a company that drives long term sustainable growth.
We also believe there is value and not currently being reflected on our stock price and we expect to continue to repurchase shares opportunistically.
We will balance our goal of returning capital to shareholders with our commitment to and that's what our commercial organization adapt the supply chain and further enable us to build greater depth and our growth engine businesses.
And the second quarter these assets totaled $15 million.
He will cover how we're thinking about M&A and in a few minutes.
Shifting now to our outlook.
Let me start with our current point of view around inflation and pricing and on slide 15.
Echoing Steve's comments, our pricing efforts to offset inflation have been very successful.
And our teams have been on top of this from the beginning.
This is an extraordinary inflationary environment unique not only because of how broad base and that's been the date, but also the duration and severity of inflation.
Well you see at the top of the slide is an illustration of how our view on inflation has unfolded this year across the entire ingredient freight and packaging complex.
On the agricultural commodity side, its wide ranging from edible oils, Saddam wheat to cucumbers and from a packaging and a shipping standpoint things like resin Atlanta Board and freight.
On the bottom you can see that we've taken pricing actions to offset the input escalation.
I said previously that we started the year anticipating significant inflation about $100 million to $110 million and higher commodity packaging and a free class.
Well you have a day that and made reflect the incremental $60 million and inflation, which was primarily driven by soybean oil.
And as commodity costs have escalated further since then we now anticipate additional inflation this year of about $40 million.
As we've seen inputs, such as coffee and durum wheat on the move.
And the last 6 months inflation for our key commodities and the marketplace has gone from a mid single digit increase to the low double digits.
The acceleration continues to be extraordinary across nearly all commodities.
For example, soybean oil has risen and well over 100% versus last year.
On the bottom on the page, we illustrate our pricing actions to offset inflation we.
We have already addressed pricing and we'll continue to do so on a timely manner.
Began pricing discussions with customers early in 2021 and in some cases late 2020.
After supporting our customers through the high doesn't had damage over the past year. We now have the benefit of strong service levels healthy relationships and customers seeking surety of supply.
Our approach to pricing as fact base, but there is a lag between when we face higher costs and when we have a pricing.
Pricing across the private label industry, it's based on actual input costs not the forward curve. So we take a view at a point in time, which supports our customer discussions.
This time, we've had a very coordinated effort.
To date, we have taken pricing in 2 hours and the data line indicate the time it takes for us to communicate with our customers for that price and it would be accepted and and a silo away indicate when that pricing is reflected in our top line.
At this point, we have 100% communicated we have nearly 80% acceptance for both balance while.
And while we're still in process with our second round of pricing. We are confident that our efforts will be reflected in the P&L and the second half of the year.
Input costs have escalated further by approximately $40 million and this will drive additional pricing on certain categories. We are confident and our ability to capture the necessary pricing. However, given the time it takes to communicate and the lagging he and the pricing reflected and we believe this will be a 2020.2 event.
With that context, let's turn to slide 16 for 2020, 1 revised guidance.
Starting on the top we have taken into account our second quarter revenue shortfall.
We have also assume that there will be continued macro pressure due to the soma behavior over the balance of the year.
Our revised revenue guidance is now 4 point to the 4.4 of $5 billion.
We have reduced our EBIT guidance by about $60 million at the midpoint.
The biggest driver here is the incremental $40 million and inflation that wont be offset with pricing and 2021.
In addition, we assume lower profit due to the lower sales outlook.
Debt by some benefit from lower COVID-19 costs, and slightly better synergies from really on over the balance of the year.
Our guidance also reflects the uncertainty across the supply chain challenges and the freight environment and a continued tight labor market.
We are improving our interest expense guidance to $80 million to $84 million in line with our successful refinancing efforts earlier this year.
We now expect adjusted earnings per share of $2.2.50.
Assistant with our past practice, we kept the range wide given the seasonality of our business and the magnitude of the fourth quarter contribution to our year.
We're also revising our free cash flow guidance for the year to a range of $250 million to $300 million driven by the reduction in EBITDA.
We continue to anticipate investing approximately $75 million this year to enhance our commercial and operational capabilities and advance our supply chain.
And that's what you are already factored into our free cash flow guidance, neither underlying free cash flow was greater than $300 million.
They are also important as they better position us to accelerate our top line grow profits and drive shareholder value.
In addition, we have cash proceeds from the sale of Rte and these will show up and cash flow from investing activities, which is separate from free cash flow.
Proceeds totaled $85 million.
On slide 17, we provided our third quarter guidance.
We anticipate 1 played all $5 billion to $1.16 billion and revenue.
And our expectation is for adjusted EPS and a range of 45 to 60 sites.
Before I hand, it over to Steve I want to build on his comments by reiterating that Theres, a great deal about certainty and the macro environment beyond just the economy or the food and beverage landscape.
As the world races to reopen we see potential for continued supply chain disruption.
Competition for Labor remained spheres, we're closely monitoring the evolving landscape and are working hard to mitigate this impact on our business.
All the while we will continue to prioritize the health and safety of our employees, whose efforts we greatly appreciate and they enable us to operate each and every day I mean, now I'll turn it back over to Steve.
Thanks, Bill I'll close with 2 slides beginning on 18.
While our current operating environment remains 1 of the most dynamic we've ever experienced.
We remain confident that the underlying fundamentals and private label have not changed.
What gives me confidence is of strategic importance that private label represents for retailers and.
On Slide 18, we've included some recent quotes from our retail partners around how they view private brands.
It includes their thoughts from private brands being they're not so secret weapon.
Too lofty penetration goals for private brand growth.
2 recognizing the important role private brands play.
And improving their profitability mix.
The fundamental reason for supporting private brands long term.
Is that it represents a meaningful opportunity for retailers to get closer to their customers drive loyalty and.
And truly differentiate themselves among our competitive retail landscape.
In closing I'd like to say a few words about how we think about the opportunities to invest and our strategy through M&A.
Our second quarter results drive home the importance of our strategic work to build depth and invest and capabilities across our growth categories.
On a frame how we're thinking about it.
Our accomplishments are on operational and commercial excellence portfolio optimization and people and talent of.
I've laid the foundation for this focus on our growth engine businesses.
These growth engine businesses represent about 40% of our portfolio.
And are characterized by strong consumer trends and define pockets of growth and.
And existing debt with further opportunity.
They include categories like single serve coffee pretzels and crackers.
And our on trend snacking convenience health and wellness as well as where we see opportunities to leverage the strong connection with the private label consumer.
As bill shared earlier, the combination of our significant free cash flow and strong balance sheet gives us plenty of capacity to do sizable and bolt on acquisitions.
Our focus will be on existing categories or near in Adjacencies.
We have a disciplined and robust process, whereby our strategy and M&A teams are working and sink under the leadership of our Chief strategy Officer.
And for those of you who have followed the company for several years.
I think it's important to point out that this is a new treehouse, we are a different management team with a more refined strategy.
We think about and evaluate share holder value creation opportunities differently.
In the past you would have described us as a private label aggregator.
Today, and contrast, we're focused on debt and growth categories.
Given the strength of our operating platform today, we have opportunities to drive synergies that did not exist and the company is early days.
We see opportunities that will be immediately accretive.
And that growth and build debt and a very specific set of categories.
We will leverage our core strengths and we are disciplined about returns.
At the same time, we remain committed to revitalizing those categories, where there's an opportunity to return to growth.
And actively managing those parts of our business, where we see limited potential and do not have a capability advantage.
We are committed to building a company that drives long term sustainable growth and drives value creation opportunities.
The opportunity is.
As we build greater depth and actively manage our portfolio is exciting and it looks.
Forward to updating you on our journey.
With that let's open the call up to your questions.
We will now begin the question and answer his question I would like to remind everyone in order to ask a question press star followed by the number 1 on your telephone keypad to withdraw your question cost per pound key.
Your first question comes from Chris Growe with Stifel. Your line is open.
Thank you good morning, Good morning, Chris Hi, Chris Hi.
And I just had a if I could start off with just to better understand the pricing dynamic and I am at the pricing and the quarter was weaker than I expected and we had been talking about and and and the chart did show some of that initial pricing starting to come through late in the quarter.
I guess I expected more so I'm trying to say and I'm, just trying to get a sense of how that phases and it sounds like as you exit the year or do you think you are pricing at the rate of inflation at that point in time.
I know that this has been a moving target I get it but I just want to get a better sense of the timing of the pricing coming through and if I could start there.
Chris It's bill.
The and.
As we said and in his script and in the slides and we've communicated all the initial inflation that we saw early on a year. So we would have been 100% communicated and would expect 80% of that to reflect on the P&L. This year and that's coming through so to your point all of that inflation. While we started next year it'll be a well priced and well we have to continue though is that we had some additional.
And inflation, particularly in a couple of the specific commodities.
And those communications now and I would again expect that to all be.
Communicated and and and and.
And then our P&L and any early part of next year.
And then when I see pricing.
It looks like and IRI and that they know its just the measured channel view, but when I look at IRI data. It shows some pretty strong pricing coming through on the retail shelf year over year.
I thought you would be experiencing more of that is that the retailer pricing your product or is there something you know that.
And that's leading to that to kind of show and the and the and the results.
Criticized this is Steve Yeah, there may be instances, where we've got pricing announced the retailer may have put it on the shelf before it actually goes into effect.
And our contracts have a variety of lead times and and those lead times are all on effect.
The most exciting part for me is the fact that the this is so different and what we've done on pricing and the past right. If you remember when I arrived there was a big pricing exercise on top of poor service and it started to tumble our business right and we had a couple of years in a row of business losses.
And what what's intriguing to me is we're actually gaining business that during this period. We've won a 1 on pieces of business with large strategic retailers and some of the most hard hit categories like salad dressings and pasta.
No.
I think it's a tough time the category the total private label category volumes are down.
But we've actually gained share through this pricing exercise. So so whenever this and we're going to come out with a stronger business.
Okay. Thank you for the time today.
And your next question comes from Robert Moskow with Credit Suisse. Your line is helpful.
Hi, Thanks.
1 clarification bill like I.
The right to price wherever they want right, we price to them they make that pricing decisions. So that's a tough 1 for us to answer for Ya right and it's out of our control frankly right.
Okay, and and here's a broader question.
The idea for 2022 or eventually is that there's a normalization.
Where the lower income consumer goes back to normal buying patterns.
And disposable income, but you know we're heading into another election year next year.
Politicians tend to want to give more programs during those those time periods not less so what's the contingency plan for for 2022, if if these buying patterns stay this way can you still generate growth and 2022 or or would it be.
Ah down here.
You know I don't think it'll be a down year I think are it's not a contingency plan and it is our plan, which is our strategy right and.
And we've talked a lot about our growth categories, only being 40 per cent of our business. We've got to change that mix. We're doing it a bill talked about the money, we're spending to build capabilities. So we'll do that organically, but we have to do with Inorganically right. We have to speed up that process. So we will use M&A to bolster our our growth categories, which will change the mix.
With only 40 per cent of your categories growing.
Math is against us so as we change that will generate growth regardless of the macro environment.
But the challenge now is that we just have the wrong growth mix of growth categories, and we're working hard to fix that.
Interesting okay. Thank you very much.
And your next question comes from can Goldman with J P. Morgan Caroline's open.
Hi, Thank you and good morning, more and more you again.
Even though Steve you mentioned that you have a I think the quote was strong balance sheet, but you only have $17 million in cash and if the lowest and a decade you know as of 1 <unk> you still have 129 million and unremitted cash, although I don't know where that stands today, you know and you're at roughly 4 times net debt to eat.
<unk>. So I'm just curious what leads you to think the balance sheet is healthy enough to take on a lot more leverage right now if that's the plan via M&A and you know it wouldn't it.
Yeah go ahead, and I was gonna start all over to go all over the line jumped Venezuela, Nevada.
And.
I'm sorry, you away.
Yeah, Let me start you know and no I think I haven't been working from home.
Yep.
Sure you know Ken this is typically a time of the year when we when we build inventory okay and that has started as you know we have a seasonal business, that's a big third quarter and fourth quarter business and so we we recognize what's gonna go and inventory and what will be generated and and then the cash conversion cycle and what we'll have at the end of the year. So we feel very <unk>.
Comfortable and where our cash position is today, where our cash position physician is versus our plan and where will be at the end of the year we.
We understand what our bank covenants are which are a little different you know, there's add backs and our bank covenants, which take us well.
Well below those levels that you mentioned, so we've got plenty of.
Plenty of capacity for debt and the assets that we're looking at bring EBITDA with them right and so when you add those things together, we see financing capability to keep us well within our our targeted leverage ratios and and give us a firepower to buy the things to impact our business and and they'll probably be some.
Leo adjustment as well that may bring some additional cash.
Bill and thank you and then you know and off the top of your head Bill, but do you know what the unremitted cash balance was just so we can market down at the end of the second quarter.
[noise] [noise] [noise] will have and on second yeah I think.
And I'll need to yeah.
Yeah I'm on the phone.
It's 144 million Ken.
To the point, though.
Steve's comment about the balance sheet.
We did take out some very high price bonds.
Both Sanchez and we did a nice job and and the and and.
And the turmoil market as well so.
The cash didn't you know some of that got caught up and the cash as we pay that debt down the share, but the the point I see you've made around building.
Building amatory and seasonal Bill we think that's the way you want to think about it for for the share. So we don't think I have any liquidity issues at all.
Understood. Thank you.
The last question today comes from from Dickerson Jeffery your lines open.
Oh, great. Thanks, so much.
Instead of a question on the top line for the rest of the year on the volume side and if my.
My rough man.
No.
Your total is at the mid point, you prudently, but complied and 2.4.
Yeah. It seems like the expectation is maybe that volumes on.
On a year over year basis.
And prove a bit and maybe.
And maybe you can just let me know if I'm off there and and I'm also just kind of curious and.
Just kind of give and visibility you might already have and 2.3.
You know I guess, 1 is that it seems like there's still kind of a decent range.
On the top line and both for 2.3 and the 4 year and so kind of where I'm heading here is just.
Just your level of confidence.
On the volume side through 2.3 and the cute for relative to the guide you provided.
Give and everything to talk to you about about you know the macro environment reversed and back and consumption behaviors and what what have you.
Yeah sure. This is this is let me let me start may be stable and a couple of pieces I think the point you know we are our business and seasonal so we queue for it and get a bit larger and we do have some activities that we think of locked and and that would that would drive that in addition, maybe on it and our portfolio now you got to see a bit of of.
Change and that Q4 trend as well we did provide away range I I wanted to account for some of the uncertainty that we've recently and have seen particularly and the macro environment and I wanted to make sure that we went out of state and stay down the road there. The other piece that I think it's really nicely force as our foot away from home business.
And the is that business build on energy and that industry recovers that'll be a benefit for us as well, so I am confident and and they and the range that we gave it as a big white to account for a range of outcomes, but that we're confident and that's the right way to think about it.
Yeah, and the only thing I would say.
The dynamics are significantly different than in the past I think when you have seen top line volatility from us in the past.
It's been performance based right, it's been losses of pieces of business.
That's not the case now right. We have we've got a situation where the government is clearly providing significant stimulus to 1 of our key customer segments right net value shopper as a percentage of their net any of their total income of the stimulus payments or material right and so it's changed their behavior.
We don't think that's that is sustainable long term.
We can't tell you 1 that will pass, though we think it will pass, but we don't know when it'll pass and the good news is because we're gaining some share and our core categories.
And we think we are positioned to take a larger piece of those sales and profits when it does pass. So it's just really hard for us to talk about when it will and 1 on won't pass right.
Yeah, no that's great.
Great sense, and then I, just kind of wood and.
He is a bit and implied that.
As the price and does start to increase the free market and the next year and you're kind of the hope here and that the relative and let's say more normalised environment, where you might be price. So.
And hopefully there's not as much volume elasticity kind of give and.
Whenever that plays out given some of the recovery potential.
You know on the ball you beat the beams kind of price gaps with Brandon.
And then methods I think it does and you know we tried to to watch all of our branded peers and what their announcements are and when they tended to be a little later than ER, sorry, I think our pricing might be a little bit ahead of theirs and that's natural we don't have the leverage they have and so I think once it all settles out I mean, these are real cost right I mean, the the commodity.
[noise] costs are real the labor costs are real and and I think are not transitory labor is not transitory. That's this is a step change and labor and so those things will all work their way through the system and that's when our traditional value proposition comes back so when income levels normalized and all of this settles out.
And I said this and the and the prepared remarks, you. This does not affect our free cash flow enough to affect our strategy right. If you think about what would have happened with this hit the company 3 or 4 years ago, who would be and a very different place. So you know this is a tough operating environment. The teams operating really well day to day, we have these little intermittent interruptions with supply chain, we're still we're managing.
And our customer service at those rates are strong.
We're growing share our our total pies down right now, but we think that will change so and we and we don't think it affects our ability to execute our strategy. So that's really our key message.
Alright, great. Thanks day, Thanks, guys take care.
You too.
This concludes our question and answer sauce, and I would like to turn the conference back over to Steve Oakland for clothing remarks.
Yeah, I just would like to thank you all for being with US today, and then we will get a chance to talk to many of you and the future and wish you. The best talk to you soon.
This concludes today's conference call and give me now disconnect.
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