Q3 2021 Post Holdings Inc Earnings Call
Welcome to the post holdings third quarter 2021 earnings conference call and webcast hosting the call today from post are Rob Vitale, President and Chief Executive Officer, and Jeff <unk>, Chief Financial Officer, today's call is being recorded and will be available for.
The replay beginning at 12 P M. Eastern standard time, the dial in number is 1.805 858367 and the passcode is 9633789 at this time all participants have been placed in a listen only mode. It is now my pleasure.
And just to try the car the floor over to Jennifer Meyer Investor Relations of post holdings for introductions you may begin.
Good morning, and thank you for joining us today for post third quarter fiscal 2021earnings 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 the first question and answer and session. The.
The press release that supports these remarks and hosted on our website and the C and Investor Relations and the SEC filing section of post Holdings Dotcom and addition of releases available on the SEC's website.
Before we continue I would like to find 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 day of this call and the management undertakes no obligation to update these statements.
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 Rob. Thanks, Jeff.
For a good morning, Thank you all for joining us today.
And total our results for the quarter were largely in line with expectations, but that's realized considerable volatility and the environment and and our results Bell ring outperforms the demand for our core shake product continues to grow rapidly. Meanwhile, the balance of the <unk> portfolio was a bit soft as we continue to navigate through very challenging macro factors.
Such of shortages and labor transportation and packaging as well as the timing of cost inflation versus pricing and recover.
We expect the current environment to persist through the fourth quarter and and as we enter fiscal 2022.
My comments on outlook assume that we do not have of major economic disruption of rising from the adult parent debt.
The challenges we expect the full year results to be largely consistent with our guidance, albeit with a different mix and as you have seen we lowered the top end of the guidance range from $6.2 million to $610 million.
Post consumer brands had a soft volume quarter and largely attributable to what we believe is of temporary consumer shift towards premium purchasing the.
Post branded products performed in line or better than the category post branded products now have the market share of 12, 5% driven primarily by exceptional performance of our pebbles friend. However, we saw weakness and our value portfolio, which includes mom branded bags and private label.
We believe recent increases and discretionary income have produced the trade up. The fact, we expect that to normalize and we further expect the cost reduction enabled by our recent acquisition of 2 cereal plants from Treehouse will provide us further differentiation of opportunities and the value segment.
Our biggest challenge this quarter was and our refrigerated retail segment.
Expect that to be the case and the fourth quarter as well while demand remains strong and most notably on Bob Evans dinner sides and sausage.
Manufacturing constraints, resulting primarily from labor availability have reduced internal capacity, while we've expanded our use of external supply chain partners.
<unk> faced similar challenges with labor and come out of higher cost. The combined manufacturing network was not able to service the full customer demand and Q3 and will further pressure in Q4 and the holiday season.
Last we continue to see extraordinary volatility and south pricing, we've taken steps to offset inflation led by significant pricing, but of course pricing why ex cost.
Foodservice continued its track to recovery was solid sequential gains.
Setting aside the uncertainty around the Delta variant, we remain extremely encouraged by the progress. We continue to look to 2023 for full recovery to baseline 2019 with continued progress in 2022.
Margins are lagging volume recovery as the result of product mix within channels overall channel mix and labor pressures and the timing of inflation recovery and.
Anecdotally, we have 22 precooked egg lines, including the 3 we built the Norwalk immediately prior to the pandemic.
Currently we cannot staff more than 17.
As a result, we were having and allocate demand to our capacity and you may imagine this creates inefficiencies and overall cost absorption.
Weetabix just keeps rolling of law, another solid quarter, we tried to add something fairly significant a significant too if that maintained our pricing discipline and we were outbid.
We'll keep trying to expand their purview.
We see less labor pressure and the U K for an equal amount of transportation challenges and a greater level of challenges and obtaining packaging materials.
We took guidance down and eighth Avenue.
And while our retained the investment there is not material the option value of growing the business remains important to us.
In short our outlook was predicated on and expansion of our Alabama facility to meet strong peanut butter demand.
The combination of labor challenges at capital equipment manufacturers, our own labor shortages and overall poor execution has laid the expansion.
And we incurred approximately $7 million and unusual costs as we're working to remedy this particular issue and and accelerated fashion and.
In addition cost pressures on manufacturing are hitting across the network and will be ongoing and the fourth quarter. We are aggressively taking price, but it will not be effective until October.
And at least have and who did close on Ron's zone of the Rancho any post the acquisition and it is off to a fine start.
Yes.
As you saw of Bell Rang continues its terrific performance and I will let Darcy provide details on her call.
And sure we are navigating a challenging environment reasonably well the pandemic and the public policy of reactions have stressed our supply chains and produced some really unusual results around consumer behaviors labor availability commodity volatility and so forth.
We believe many of these challenges are transitory and the the most likely planning scenario for 2022 is the continuation of elevated price levels and a flattening of the rate of inflation.
Regardless of the transitory of permanent nature of some of these items, we are aggressively attacking productivity opportunities. Additionally.
Additionally, we are creating more bench strength and management to enable greater resource deployment, when we do face to spoke issues within our supply chain or elsewhere and finally, we expect to see mean reversion across categories with respect to value shoppers.
Turning towards capital allocation, we've been active in M&A. In addition to the Treehouse assets. We also acquired the egg beaters brands from Conagra and the third quarter.
Meanwhile to maintain appropriate leverage we were not active and share repurchases this quarter.
This quarter, we closed on the IPO of post holdings partner and Corporation.
We are encouraged by the volume of opportunity we are seeing and are optimistic about executing the transaction the results and value creation for both post and PHP 6 shareholders.
Last night, we announced our intent to fully distribute our position and building brands. We consider this the natural evolution and the already remarkable dollar range story. It will enable post shareholders to choose greater exposure to bell ring. If they so desire operationally. This is a non event ballroom and will continue to be managed exactly as it is today with the strong team.
<unk> led by Darcy Davenport.
We the base case plan of distribution, but it could be impacted by changes and market conditions. During the pendency of the transaction and therefore, we will provide these details as we approach the actual distribution timing.
With that I will turn the call over to Jeff.
Rob and good morning, everyone.
And the third quarter, we continue the lap prior year of Covid impacts, our cereal and refrigerated retail businesses are lapping strong volume list, while our foodservice business is lapping significant declines and demand for its products.
Consolidated net sales were $1.6 billion and adjusted EBITDA was $302.6 million for the third quarter and.
Sales increased 19% compared to prior year and included $78.5 million from our recent acquisitions.
Net sales also reflects the password pricing of commodity cost increases and our foodservice business.
Turning to our segments and starting with post consumer brands post consumer brands.
Net sales and volume both declined 11%.
And bind the private label cereal and Peter Pan acquisitions contributed $38 million and net sales and.
And it provided and 860 basis point benefit to the volume growth rate.
The sales and volume declines and the cereal business, primarily resulted from lapping COVID-19 related increased at home consumption and the prior year.
While our exit of certain low margin business the accounted for approximately 300 basis points of the volume decline.
Volumes were also pressured by demand softness and the value sub segment of the category to which our portfolio of over indexes.
Pebbles continues to be a bright spot growing 10% year over year, despite the challenging comps.
Average net pricing improved 1.2% driven by favorable product mix, partially offset by a higher trade right.
Recall, we virtually eliminated promotions and the prior year and <unk>.
Light of the elevated demand.
Adjusted EBITDA decreased 23% compared to prior year, but was roughly flat to 22019 and was pressured by volume declines unfavorable fixed cost absorption and freight inflation.
Well, we were largely able to offset commodity cost inflation this quarter with continuous improvement and other cost reductions we have implemented based price increases, which we which will benefit the fourth quarter.
Weetabix net sales increased 10% this growth was driven entirely by a stronger British pound for U S dollar exchange rate.
Volumes decreased 2% lapping COVID-19 related increase the at home consumption and.
And the participation of the government backed food program in the prior year.
Partially offsetting these declines was growth and private label, new product introduction and drink products.
Adjusted EBITDA declined 7% driven by the volume decline lower realized average net pricing and modest raw material inflation, partially offset by the favorable currency exchange rate.
Our foodservice business and net sales and volume growth of 80% and 56%, respectively. As we lap significantly lower away from home demand and the prior year.
As I mentioned earlier revenue growth outpaced volume growth as revenues reflect the impact of our commodity cost pass through pricing model.
Although we saw year over year growth this quarter total volume from waned below pre pandemic levels.
Volume growth this quarter was constrained by below normal service levels, and our supply chain driven by labor and freight shortages.
We expect this pressure to continue in the fourth quarter and constrain of recovery trajectory.
Adjusted EBITDA improved to $60 million driven by the higher volumes and average net pricing increased but was only able to partially offset increases and grain and freight costs.
We expect the price cost relationship to progressively improve as our pass through pricing and catches up with grain cost increases.
Results also benefited from improvements and contribution margin and fixed cost absorption, which like volumes remain below pre pandemic levels.
Refrigerated retail net sales and volume decreased 12% and 10% respectively. The.
Volume declines resulted from reduced side dish and sausage service level, primarily driven by labor shortages as.
And as well as lapping COVID-19 related increased at home consumption and the prior year.
Average net pricing improved for side dish sausage and cheese products as a result of price increases taken late in the third quarter.
Adjusted EBITDA decreased to $33 million and was negatively impacted by the lower volumes significantly higher sell cheese and have your input costs increased freight and higher manufacturing costs, which resulted from supply chain inefficiencies.
<unk> net sales and adjusted EBITDA increased 68% and 83% respectively.
Performance was strong for both premier protein and diamond ties and the year over year comparisons also benefited from lapping unfavorable COVID-19 impacts from the prior year.
Premier protein sales increased 65% benefiting from distribution gains and strong velocities and promotional activity and higher average net selling prices.
<unk> net sales increased 98, 5% driven by distribution gains and strong velocities and favorable mix.
Higher freight and raw material costs drove the decline in the segment gross margins.
You can hear further detail about bell rings results on their conference call later this morning.
Turning to cash flow, we had a strong quarter generating $233 million from operations, including $72 million from Bill range.
We had favorable working capital trends and benefited from the timing of interest payments, which are lower which are lower and our first and third quarters.
Our net leverage at the end of the third quarter as measured by our credit facility was approximately 6.1 times.
Keep in mind this excludes the value of our bell ring stake.
With that I'd like to turn the call back over to the operator for questions operator.
Ladies and gentlemen, if you would like to ask a question at this time simply press star followed by the number 1 all of your telephone keypad. Please standby lines of compile the Q&A roster again this time line.
The first question is from the line of Andrew Lazar with Barclays.
Good morning, everybody.
Alright.
Rob I guess I wanted to start off I know you talked about this.
<unk> share of distribution is kind of the natural evolution.
Which makes sense I wanted to get a better sense from you also on what.
What type of advantages or benefits.
This action would accrue ultimately to post shareholders as we go forward as you think about it.
Well I think that.
To post shareholder.
And maybe Mike.
Just ask for a clarification, you mean post shareholders after the transaction or post shareholders as of today.
After the.
And I guess, I guess, a little bit of both actually because I realize there is a bunch of things that can happen afterwards as well.
And so as it gets.
For the sort of why now and what does this ultimately do as of for a post shareholder.
Yes.
I think there's 2 questions why why now and what does it mean for the relative securities.
And the why is kind of of natural evolution of something that we have been fairly transparent about for quite some time well before the IPO the.
And as you look at our portfolio of businesses with very multiples, sometimes and it certainly in this case the.
The best way to reflect value is to allow for direct investment into that.
For multiple segment. So in this case built around which we produced with the IPO and debt the.
The IPO is always a step towards the second step and this is the natural and step which will allow us for.
For us distribution of shares get the liquidity needed into those shares allow it to be as aggressive as it ought to be with respect to using its own currency independent from post objectives.
So there's many reasons to executed on at Bell ring perspective during the pendency and as the upon the distribution I would say from a post shareholder perspective, they get exactly what they have today simply in 2 different 2 different pockets at the reallocation of value and not a.
And not a change and value in terms of giving post shareholders and exactly what they already own prospectively.
After the transaction I think it allows the person.
<unk> of the post business in terms of reporting.
Perhaps some deleveraging depending on the.
Execution of the transaction, but I think the primary benefit is clarity and transparency for the post shareholders.
Got it and then I guess with yesterday's announcement of it naturally gets me thinking a little bit about potential next steps.
And what it means for post going forward for instance on of some of the parts basis post current valuation for.
For some time now has placed a pretty severe discount on let's say your foodservice business relative to similar businesses and so I'm trying to think about next steps in terms of what might need to happen to proposed to be able to create further value right through portfolio change are there areas, where you feel like you need more scale or or less scale and.
Don't know exactly where I'm going with this other than I know you typically think several steps ahead and I'm just trying to keep up.
Yeah.
And you can give us too much credit, we're just trying to execute the transaction right in front of us and.
And what we will promise you is we will keep thinking about these things, but we're going to execute this 1 and then turn to the next 1 okay. Thanks very much.
Yes.
Your next question is from the line of David Palmer with Evercore ISI.
Thanks, Good morning.
Once the essentially the same line of questioning and Poe.
This bell ringing spin off and I know.
The stock is going to be much cheaper than even some of the center store grocery peers, but I know investors are going to be thinking about the topline growth and the long term.
And the topline growth and pricing power of the company and essentially wondering about.
Whether they are sustainable profitable growth of.
Of course, the value of bid.
Seems to be limited right now if people believe your value trap with regard to margins. So what is your what's your thinking about that what would you say to reassure people that some of your core remain remain co businesses has that pricing power and growth. Thanks.
Well I mean, it's challenging environment, there's no question, but.
But I think debt.
If you look over a long period of time.
That we have solid brands with solid positions in our markets.
We.
Most of our businesses have good proxies that you can look to to look to their pricing power and and for something about ours and I would tell you that.
We continue to believe that we have the ability to maintain and hopefully with some better execution expand our margins.
But the proof will be and the put it.
1.1 business that I.
Wonder about is the cereal business.
And recently, we've seen some improvement by.
And 1 of your Michigan based competitors is has gotten some of its revenue footing there.
And at least from the scanner data.
What is the outlook for cereal and do you feel like.
The the pricing powers and he's going to be there to the outlook for pricing is.
Going to be healthy and that and that segment.
And I think I think the outlook for cereal is somewhat clouded right now by some of unusual behavior. So if you'd look at the.
Data going back to 2019, comparing it to 2021.
At the category level you can get.
And perhaps some false conclusions because.
If you strip out value, which is mostly us.
And the branded portfolios have done very well, including ours.
Growing substantially within our post portfolio over that timeframe and gained share.
As I called out in my prepared comments, particularly pebbles.
Where the category and again contributed mostly by us and seeing some headwinds is and this unusual behavior and the traditional value consumer.
And we of hypotheses about that.
Related to blips.
Blips and discretionary income all of the things you already know about.
And we expect that to be transitory.
And assuming that that is transitory we for.
Feel very good about the long term.
The defensibility and slow profit growth and.
Even so our volume growth of the category.
But the 1 the 1 area. We're focused on is what is really happening and that value consumer.
Yeah.
And I wanted to ask 1 last 1 on foodservice.
And you obviously have a lot of exposure to the morning day part that's been.
And 1 of the more lagging day parts for for restaurants out there. If you had to have his track we're thinking about your segments and exposure for that business and the recovery path to par the pre pandemic levels, what segments would you point us to and in the coming quarters.
The path of of each of those segments. Thanks.
Well I would look if youre looking for direct.
Proxies I would look at the big coffee shop operators, which of course of the Starbucks and tuck in and then you could look at some of the.
The restaurant chains like of Darden and what we are seeing in that segment is very strong recovery.
We are seeing some weakness and more of the independent operators, who that segment the didn't survive the pandemic.
And then we're continuing to see some weakness and travel and lodging, which is entirely consistent with what where we expect it to be at this point and the recovery curve.
So on balance.
Quite encouraged we have not seen substantial weakness and the breakfast day part because of our.
Commitment and partnership with each of those change we've seen good recovery.
And lunch and dinner and our potato business. So what what is causing us just the lingering.
Cover of timing issues as the.
The anticipated lag and travel and leisure and of course, we have the big education business that we expect to come back.
And while it this month and next month pending whatever happens around the stealth the variant.
Thank you.
Thank you.
Your next question is from the line of Michael Lavery with Piper Sandler.
Good morning, Thank you.
Right.
Can you just touch on Howard's new role as CLO and.
What if any change the signals for maybe a transition from your holding company model to more integration.
Yes.
And in reverse order I would say it doesn't.
Affect the business model.
And view that as something that is sacrosanct, which is the ability of strong operators to manage their business with sufficient autonomy to be.
Close to the consumer and close to the customer and to make fast real time decision. So we're not changing that model and I.
Out of what we're trying to do is to take the.
The operational talents that hour it has and apply them to some bigger challenges which are for.
Finding ways across the the.
The independent business platform and this could potentially also include.
The spec partners 2 to improve whether that's improved cost true up.
Better collaboration on buying whether it's to improve.
The improvement in sales execution through the way, we look at specific customer relationships or to share ideas across our platform and there are very substantial long tail of projects that we think we will.
The considerably value added but need operational direction with the very strong operator like Howard from from the center so for.
The example of supply chain as you've seen.
Not only post but across the segment.
We've had real challenges with supply chain, all year and many of those problems have.
Common core issues that and.
And a time of challenge like this can be better served by coordination rather than the.
Separation. So what we're trying to do is create that bench strength. So that we can have an additional level of resources to deploy against situations like that and then to think longer term about how can we.
Look at our supply chain and preserve the independents, while driving some benefit of collaboration and cooperation.
For sure what the differences between those 2.
And then lastly, we like every other company are looking at our overall approach to data analytics and <unk>.
Which are long tail of projects and saying where are we on that journey from.
Adequate to the state of the art and where do we want to be so projects like supply chain transformation.
And better coordination among the companies additional bench strength of our all with that transition was aimed to address but it is not.
And the slightest way.
Attempt to change the business model, because we firmly believed and the delek.
<unk> model with very strong operators controlling their individual destinies.
That's really helpful color. Thank you and can I just had a follow up on the cereal you've mentioned before the the decision to exit some of the low margin private label business and.
And so on.
On the surface it might make the Treehouse private label acquisition and a little bit of unexpected can you just maybe compare and contrast, how those are different and what some of the the rationale.
Thinking is right to do that.
A goodly portion of the business, we exited was hot cereal.
As opposed to the ready to eat cereal that we acquired with Treehouse. So it didn't share the.
Cost opportunities.
And that will result from synergize, saying of the Treehouse plants.
So it was a very.
And 1 off line of business that we largely ex.
Exited and there were some specific accounts that we just were not making any money on.
Okay, great. Thank you very much and.
And lastly, Michael there was timing at the time.
We didn't have the opportunity ex U S Treehouse.
Gotcha alright, thank you.
Your next question is from the line of Chris Growe with Stifel.
Hi, good morning.
Just had a question for you if I could first on the follow up on the on the.
And the Bell ringing distribution you you had mentioned Rob you of a base case scenario.
Does that base case I'm sure, we'll get the exact details of the today what does that incorporate using all of the levers are all of the potential the.
The opportunities you have distribute share so split off share of spinoff shares.
Did you expect to incorporate all of those and your distribution of the shares.
Well I would say we expect to consider all of those are what we actually execute against is market dependent.
Okay.
Got it and.
And then as a follow up but we've been hearing about labor issues from post and parts of your business, even before the pandemic and I guess I'm just curious as it come to ahead of the point that I and I've talked to you before about it but is there capital you can deploy and maybe the more aggressive rate that would allow you to be less reliant on labor and fixing these issues and say foodservice refrigerated retail net of.
Some of the lingered even for awhile.
You are quite right and the answer is yes, and that's what I was referring to.
And what I suggested that whether it's transitory or not we know it's the lingering issue because exactly as you point out of predated the pandemic as well so.
And I am losing.
Clarity on what year, but.
Right before going into the pandemic we had.
Started the process of scouring, our our capital expenditure projects and to try to lower some of our IRR thresholds given the argument that capital was.
And you know very cheap and flavor increasingly dear so we have been going.
Going through that process for some time of identifying those opportunities because of the pandemic that got delayed and we didn't want to be implementing capital projects at the same time, we were trying to meet the surge demand and now we are facing an entirely different dynamic of.
The challenge is just and getting capital goods out of the countries in which they tend to be manufacturer of getting them into the U S and moving them around so.
And your premise is dead on.
We've been challenged and executing for what seems to be a bit of of game of lack of mall in terms of the nature of the problem, but we hope are close to the end of that and can deliver upon that productivity.
Is that of multiyear effort is there a lot of higher capex as a result of that and not getting numbers, but just to give perspective on that.
It's a bunch of small projects.
But but but it's many small projects not single big ones. Okay.
Okay.
And just 1 follow up if I could of 1 final question, which would be just to understand and I know if it's possible to answer all of general basis for the business rather than going through each business, but from like a P. Nox standpoint, youre pricing net of your cost and we realize there is the obviously the lag and the egg business as an example, but.
Where you can control that do you expect pricing to be mostly caught up with inflation as you exit fiscal 'twenty 1.
Yes, but.
Yes.
And I think the.
The comment I made in my script was it.
The strength scenarios, we are either see inflation, disinflate and disinflation or plateau at current levels and we're planning plateau so of that.
And if that is the scenario of the develops yes, but I don't feel terribly confident we know the.
The <unk>.
He leaves any better than anybody else.
Okay. Thank you for your perspective.
Thank you.
Your next question is from the line of Rob Dickerson with Jefferies.
Alright, great. Thank you so much.
Robert.
And of a general question.
Yeah.
No.
Going forward.
Hey, Rob with the 5 year, Jeff your phone, it's picking up I'm not able to hear you.
Can you hear me now.
And that's better.
Sorry about that.
Yeah, I just wanted to ask kind of your general thoughts.
Alright, let's say perspective on how you think about.
The total value of post inclusive of active nutrition and bell ring on the sum of the parts first of all this is obviously something we've talked about we've all talked about for some time.
As we think through of the distributions.
Of.
And of the incremental builder and shares kind of post distributions.
Just wondering kind of how you spoke of the sum of the parts post distributions and kind of how that value of starts to come into the post shareholders.
And with what the actual distributions for them.
Yeah.
Yes, It makes total sense and I hope I hope my choice to avoid the question make simple sense.
Yes.
Sure.
We are going to.
Kind of show you are aware of and let you figure out what they're worth rather than try to tell you what they were so.
We obviously have thoughts on the matter and try to act to increase it but.
We don't want to be and the practice of telling the market. What we think is worth.
Alright fair enough and.
And then just.
Through the distribution.
There's obviously and exchange of shares it seems like some of the base case or is the special dividend.
That would be forthcoming.
It sounds like that you know as you play the written and the release would be used for debt pay down.
On a go forward basis, though.
The incremental cash and Jan as we've spoken about before and given kind of where the stock prices.
Day, 1 could argue it's the undervalued still sort of just thoughts on kind of a general go forward M&A needs to be ongoing buybacks. That's it. Thanks.
Yes.
I would answer that with the way I've answered it historically, which is to say those 2 activities compete.
Compete with each other and compete with deleveraging as capital allocation choices and our disciplines will be no different than they have been historically, we will look to determine our comfort level with leverage where we are and the overall refinance market.
Assuming that we're comfortable with that with which we are we.
We would then look at the landscape of M&A opportunities and compare them to what we think the opportunity is and our own shares and make that decision.
Damn near every day, so that's not.
No change and the way, we think about capital allocation and as a result of the spin.
Alright, great. Thank you.
Thank you.
Your next question is from the line of Bill Chapell with the.
Securities.
Yeah.
Thanks, Good morning.
Hey, Rob.
I'm, having a tough time and I mean this carries over from even Treehouse yesterday or early this week as is the whole kind of unusual change or a shift to <unk>.
Away from private label are value brands and in a short period of time and in particular.
Think of of your mom brands, and you're basically seeing behavior change the people who've been buying bags for years and years all of the sudden got of stimulus checks and decided to go up the boxes and brands. So it doesn't really make a whole lot of sense. So if you could give any further color you could give and then any thoughts on have you seen the.
The change as we've moved further away from the checks do you expect it to carry on.
And at least through the rest of the year of any color would be great.
And.
Unfortunately, we're painting the picture without a whole lot of color because you're.
And your <unk>.
Questions you are raising are ones, we raise as well because it is and it is an odd situation and we are dealing in the realm of <unk>.
Hypotheses and speculation rather than real data right now.
I think I think if you look at traffic patterns during COVID-19.
There were some traffic patterns away from.
Channels that are bigger users of our value products towards typically smaller outlets and.
And Bill I'm, giving you the speculation now no and anything else.
Currently see.
A pretty rapid.
<unk>.
Pull back as you see the blips and discretionary income and I thought.
I almost thought about stealing the charter.
The slide the Treehouse had about the discretionary blip and the impact on the value segment because.
And I thought that was fairly illustrative of what we're seeing.
So I think there are some channel issues I think there are some consumer issues.
But they feel transitory and I always hate to use the word feel.
But that's the best I got right now.
And I think that what we need is more data to see how this.
Continues or doesn't continue and Meanwhile, our planning involves scenarios in which it persists longer than expected and scenarios and whichever versus fairly quickly. So we can be ready to meet whatever challenge faces us.
Got it in.
I guess stay tuned on that and.
And I mean, yeah as best as best anybody could again I can think of its.
Unusual as you said, so we're just trying to figure it out.
And switching to eat the Avenue and I know, it's the small investment, but it's also kind of AR and the way of of shareholder.
Improving shareholder returns at the similar opportunity like Bell ring I mean, do you feel like the business took some steps back this quarter because I know the the numbers have been choppy over the past couple of years, but it felt like he was getting kind of back on plan and and things for moving the right direction over the past 2 quarters. So.
Just help us understand is this just operational supply chain issues that are quickly fixed or.
It is still a work in progress.
No I clearly we took a step back.
Had a expectation that we were going to complete the expansion of our Troy, Alabama factory move the remaining.
Equipment that we had gotten from the the acquisition of the manufacturing agreement with Conagra and be and are positioned to expand to provide a much higher level of output which would even.
Even then still struggled struggled to meet it for.
Pretty solid demand for our nut butter business.
For a number of issues that expansion and went very poorly part of it delays simply and getting equipment part of it delays driven by labor and part of it just and poor planning on our part and we are now backed up and I'm going to say 3 months to 6 months.
Before we get to full capacity and then theres going to be some catch up while we are rebuilding inventories and making sure we've got sufficient safety stock of comfortably meet.
Customer expectations so the.
The core businesses, and which we operate I feel very comfortable about I think our position within those markets.
Our categories is very strong.
But we didn't handle the expansion well both for internal and external reasons, and we need to fix that and I think it will be fixed and I'm going to be more cautious and I have and from a timeframe.
I will say 6 months, but the business Prost.
Prospects I think are unchanged, but delayed.
Okay. Thanks for the color.
Our next question is from the line of Jason English.
Goldman Sachs.
Hey, good morning folks.
Good morning, and a few quick questions for me first on the the Bell range announcement, and I want to make sure I'm doing my math right and I know, there's a lot of moving pieces and.
So lock and change, but you've got the base plan out there that says you're going to retain the somewhere around 19.5 million shares.
And so I'm looking at the mass, suggesting that every every post shareholders going to receive around 1.2 shares of bell ringing a is that math right and it would be.
The you're talking about recapitalizing, Valerie and to issue of special dividend would it be imprudent to first for working scenario right now to assume that there's going to be somewhere around 3 turns of leverage on Valerie and post them.
So what we have tried to do is set guardrails rather than intentions.
And the guardrails that I would tell you is that the $19.5 million shares and say.
And as a maximum position that we can retain but there is no obligation to retain that 19.5 million. So that's a choice.
And the.
And the rationale for that is that in order to qualify as the tax for distribution, we have to distribute 80% of our position. So that's a statutory.
We would not expect to take the leverage multiple up greater than the <unk>.
IPO level.
The.
Ultimate determination of what that is.
And it will be market based at the time of the transaction so.
And what we're trying to do is give you limits.
Rather than direction because of the time involved and executing the transaction and there is enough.
Potential changes and the market that we are going to be sensitive to changes and whatever happens and the market and and respond accordingly, and as we approach timing, we'll give you far more detail.
The actual mechanics of the transaction.
Okay.
Okay I appreciate the rough and I.
They definitely get there's a lot of moving pieces.
And so coming back to the the base business fundamentals was hoping you could quantify of couple of things for me.
First the.
The lead lag on Green price and the pass through and Foodservice what was the deficit that you suffered this quarter on that and then secondly, you specified sales shortages and due to low service levels because of the labor and freight.
Issues in both refrigerated and foodservice.
And again can you give us sort of size of the bread box and how big was the the shortfall related to those and how big do you expect it to be in the fourth quarter. Thank you.
Yes.
I'm going to break this up.
In terms of some of the the volume shortfalls, particularly and Bob Evans, it's a bit hard to quantify because we did things like stopped advertising stopped trying to expand distribution and so had we had more capacity.
I think we could have had significantly better volume our marketing has been working has been working our household penetration has been growing our distribution has been growing so.
I think it's a significant number but 1 that would be very challenging to quantify.
Because if you then look at our existing customers. What we did was we have.
And in order and do not order.
The SKU arrangement so.
We don't we are no longer able to attract the do not orders, so I'm going to I'm going to give you a descriptor rather than amounts within the Bob Evans, but the descriptor isn't a significant amount of volume.
Miss on Bob Evans versus what it could've been with additional capacity and I will I will say significant it's probably somewhere in the 5% to 10% range.
And on foodservice the the.
The calculation is.
And if you give me a fairly broad range of latitude and the quarter is probably $3 million to $5 million.
And so not that the another tool.
Well on a annualize that it gets to be a pretty big number.
Sure, but we can't annualize that range I mean, that's the catch up that you should close that gap this quarter.
Correct, but the.
The way, we're thinking about foodservice recovery as we're looking at quarter by quarter and annualize it.
Understood understood the particularly the applicable for revs.
Not for this particular issue I mean, just in general.
Yeah, Yeah, no that makes sense.
Alright, Thank you I'll pass it on thanks.
Yes.
Our final question is from the line of Ken Zaslow with bank of much of yeah.
Hey, good morning, everyone.
Hey, Ken of art.
And alright.
Just circling back and then just 1 or 2 questions everything has been that the honest with you.
Going back to Christy's question can you give some anecdotes of the creative solutions, you're going to think about when you kind of seed labor a zone.
Forward and just from the anecdotal but is it more of a nation is it.
And we tooling some of the facilities just how you're thinking about that and just give me a little bit more meek of the bone on that.
Yeah, I mean, it's not.
This is not anything all of that creative it's more about choices and internal capital allocation, it's driving automation.
Doing things like.
Robotic processes things that have.
And that result in.
Better execution, lower labor direct hours and for <unk> and potentially.
Potentially higher direct labor wages. So what we're trying to do is take out some of the more repetitive motions that become bottlenecks and the processes, where we have the highest turnover and find a better solution for those kind of activities.
When you think about debt from today to like 3 years from now.
Is there some sort of quantification of what you're trying to achieve in terms of.
Reducing manual.
And the labor hours by X percent or.
Some sort of framework.
Not that I would want and go into and this kind of format, but certainly we are looking at the totality of the work force and trying to make set objectives around it for that timeframe.
Okay and then just another follow up question is 1 of inflation.
Have you taken pricing across the entire portfolio are there any areas that you can't take pricing.
And.
If you've taken the pricing if you.
Believe that inflation has leveled and just assuming that at this point have you taken enough where by 2022.
Your relationship would be more in line and and and there would be no more compression on margins and I'll leave it there and I appreciate it.
I believe we have.
And the hedges that some of these commodities are extremely volatile and the best example of that right now being sales they've gone from $25 to 75% to 50 to 85.
So.
And your.
And Youre predicate the commodities are flat.
The answer is a pretty firm yet.
I would just question.
And tell you the hedged the commodities are unlikely to be perfectly flat and some of them of a considerable degree of volatility. So there is a it's not just the.
The level, it's the shape of the curve so very fast movement.
And Ah commodity lifestyles.
Put a little bit more pressure on margins for time being until that long term stabilizes.
And I agree with you on the play.
And I was just trying to figure out where you are and that kind of zone.
And how you get that but I appreciate your candor. Thank you very much.
Ladies and gentlemen that concludes the end of our Q&A session.
Yes.
Great. Thank you all and we will talk to you next quarter Bye bye.
Thank you all for participating in today's conference call the assets and now disconnect Your line.
Yeah.
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