Q2 2021 Whole Earth Brands Inc Earnings Call
[music].
Okay.
Yeah.
Greetings and welcome to the whole Earth brands incorporated second quarter 2021 earnings call.
This time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded and is now.
My pleasure to introduce Jeff Sonic and Investor Relations. Thank you you may begin.
Thank you and good morning, today's presentation will be hosted by Albert Van Zoning, Chief Executive Officer, and Andy Russi, Chief Financial Officer Executive Chairman Irwin Simon is also participating on the call and will be available for Q&A.
Comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of $19.95.
All statements other than statements of historical facts are considered forward looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the <unk>.
<unk> discussed in the forward looking statements.
And 1 of these risks and uncertainties are identified and discussed and the company's filings with the SEC. We will also refer to certain non-GAAP financial measures. Please refer to the tables included in the earnings release, which can be found on the Investor Relations website Investor <unk> Com.
Earth brands of Dot com for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures with that I'd now like to turn the call over to Albert <unk> CEO.
Thank you, Jeff and thanks to everyone for joining the call today.
Oh, no strength is the global leader in the bedroom 40, you sweetener and reduced sugar categories.
Our vision is to grow a whole new rents to a 1 billion plus revenue global food and beverage company by doing 3 things 1 disrupted the massive 100 billion total addressable market dominated by refined sugar and and it's.
Trace large adjacent categories on a mission to make sweep healthy.
Our value is leading to a global health problem.
Find sugar is that concern for all generations whole.
And of brands is part and the solution.
Providing consumers with the new sugar substitutes baking solutions and offer ready to eat no sugar and new products.
We believe that we're perfectly aligned with the powerful and consumer macro trends towards health and wellness that are here to stay and are only accelerating with the shifting demographics and emergence of millennials and Gen Z.
<unk>.
Drive category leadership from best in class innovation and brand building.
Expanding our global distribution.
Leveraging our exceptional supply chain capabilities, continuing to accelerate our growth through strategic M&A as well as taking full advantage of the expertise of our world class team with long experience and large global food companies.
And free cash.
Bold Cola brands from and mostly sweetener business to a holistic better for you food company.
In Q2, our business performed above expectations, consistent with our past free quarter and performances since becoming a public company.
Our branded CPG segment faced some headwinds in Q2 due to a tough prior year comparison due to the COVID-19 and less pantry loading and last year.
This resulted in a year over year decrease of 8% on an organic constant currency basis that said, we believe a more appropriate measure of performance is looking through the lenses of our 2 year stack growth.
We're very pleased by our past, 15% increase and revenue on a constant currency basis versus the second quarter of 2019.
This demonstrates the strength and momentum of our portfolio and our ability to generate long term sustainable revenue growth.
We delivered a company record adjusted EBITDA of 22 million and increase of 9% versus Q2.2020, driven by revenue growth contributions from this work and wholesome acquisitions and improve the margins and productivity gains.
I am also pleased to report, that's worth and wholesome acquisitions, which almost doubled our revenue and our first year as a public company.
Including integrated and we're now operating as 1 business.
We are delivering on our synergies as planned.
Our power of 1 with our retail partners. That's also being launch with very positive results to date.
We are fortunate to have already been working on barrios optimization initiatives and what is now a decidedly inflationary environment and we believe that we have several tools to help offset inflation, we see implementation in the coming quarters and years. This.
Include the driving supply chain productivity pricing and trade spend optimization and overall productivity initiatives.
Essentially we remain comfortable range and raising our fiscal 2021 full year guidance, whether COVID-19 goes away or remain and we felt a little longer.
We have demonstrated over the past 4 quarters, the strength and resilience of our business as we look ahead.
Our confidence and our ability to deliver strong sustainable growth and.
And take advantage of the tremendous market opportunities I mentioned earlier.
The basis of our confidence lies and our proven operating model built on 5 strategic pillars brand building innovation distribution and supply chain and our world class team.
Let me provide some Q2 highlights.
On brand building.
You can now discover new packaging design and campaigns consistent with each brand's promise for equal wholesome and older Earth with.
With each brands also showing GAAP proudly part of whole or friends logo.
We have already got from that highly positive response to the changes we have made from consumers and our retail partners.
<unk> connects with consumers seeking to reduce or eliminate shoe hearings are done yet we have a robust consumer digital and marketing campaign as well as partnership with Troy and borrower and the reduced and get that you shouldnt come and unity.
Whole her is rooted in plant based sweeteners for beverages, and baking and more that opened a word of goodness among the awareness community.
And our whole some portfolio of organic paired trade the sweeteners encourages consumer across the country to base things better.
On the innovation.
We are on track to meet our goal of search and product launches this year and branded CPG and 15 in flavors and ingredients as we focus on delivering on our commitment to having over 15% of our branded CPG segment revenues derived from product innovation on a 3 year rolling basis.
<unk>.
Our innovation and branded CPG and his focus on micro territories baking 10 base keto friendly zero sugar functional benefits organic and fair trade and current categories of sugar substitutes and base mixes as well as expanding into Adjacencies.
Corner recent innovation is anchored in high growth ingredients, such as monk fruit and windows and collagen peptides and incremental new usage occasions, we success across key retailers.
Square and the whole some new base mixes are being rolled out and North America and ready to disrupt a massive $1.8 billion base mix category, we can be for innovation and both card can choose Quito and premiums cratch facing capturing multiple locations with offerings ranging from scratch.
We're ready to move.
<unk> portfolio of base mixes and cake cookie brownie, and pancake waffle or keto friendly no added sugar Linton and green tree low plex civic natural and.
Sweet and border for individuals with diabetes.
Wholesome is launching a new line of organic pair trade scratch quality premium based mixes and capturing the growth terrain of consumer convenience, we scratched quality premium ingredients.
This base mixes are sweetened with organic fair trade sweeteners, such as honey I gather coconut sugar brown sugar and cane sugar and that supports farmer communities.
And we had introduce innovation and better for you chocolate cake mixes jams and across our international and markets.
On growing distribution.
And they say, we and our last earning call our expanded portfolio of brands significantly improves our shelf presence and visibility with retail customers.
In North America, we have integrated our sales organization to expand our partnership with retailers and lead the category and sweeteners and baking.
We call it the power of 1.
And is now under way with retailers and based on early results, we believe between yield enormous benefits and support of category and our business similar to the success. It has yielded across most over because you've got the groups.
We're very pleased with our confirm gains and distribution in North America, and our expanding distribution breadth and depth across brands.
Products and guests on the shelves of retailers and Q3, and Q4, we would share growth and ACB and number of stores in Nielsen and minerals.
Our e-commerce platform, which already contributes over 10% of our global sales is well position to benefit from the consumers buying pattern and shifts towards e-commerce purchasing.
And we're very pleased with the resurgence of foodservice, we're leveraging the national distribution footprint of equal to drive placement of our expanded front of the house sweetener portfolio and create conveniently solution and programs and capitalize on incremental backup the house opportunities with <unk>.
Fabric and mixology and bakery ingredients.
Our manufacturing and supply chain.
Supply chain and is in Dallas.
Our competitive advantage for whole airframes and continued supply chain improvements will allow us to mitigate inflation and drive top line revenue growth margin expansion and free cash flow generation.
We are progressing as planned on our branded CPG supply chain reinvention project to provide added scale and leverage of our overhead costs beginning in the second half of 2021 proved 2023 by optimizing the combined assets of whole or friends.
<unk> and wholesome.
And find more details about this initiative and our supplemental earnings presentation.
Additionally, we and our flavors and ingredient segment, our manufacturing footprint optimization resulted in the closing of our Camden production, but.
We expect to deliver approximately 2 to 3 million savings in 2021, and an additional $2.3.002 million 22, consistent with our plans.
With respect to our flavors and ingredients segments, we're very pleased with Q2 performance.
From favorable comparisons versus the second quarter of 2020, when orders were pools and <unk>.
Word into Q1 to prepare for Covid.
Investments in R&D and sales are paying off with good momentum in the business and significant new customer wins, thanks to <unk> product innovations launched in 2021.
And we expect the business to continue to produce strong free cash flow driven by our global leadership position and decrease and our diverse end markets.
Widening the near term, we're focused on our organic growth efforts and generating strong free cash flow in order to reduce our balance sheets and leverage M&A remains an important part of our growth strategy.
We intend to continue to increase penetration and the better for you sweetener and address and suites category through organic initiatives and M&A based on our strong pipeline of opportunities.
These categories include baking mixes chocolate bars, Champs and spreads to name a few and represent over 13, beginning and addressable market opportunity with a projected 8% calendar in the coming years.
Our ability to complete the integration of <unk> and hold some at a fast space is evidence of M&A being a core competency based on the deep expertise and experience we have in our leadership team.
We sat and.
And he will now take you through our financials and outlook for 2021.
Thank you Albert and good morning to everyone.
As a reminder, for those new to our company, our consolidated financials reflect flow predecessor, and successor period and indicative of the June 22.
2020 business combination day.
Second quarter results that I'll discuss compare the successors second quarter 2021 results ended June 32021 to the combined second quarter 2020 results, which includes the predecessors April 1.2020 through June 25.2020 results.
And the successors June 26, 2020 through June 32020 results.
As a result, our reported GAAP financials may not be comparable to the prior year period.
Call out some of the items that impact comparability, where appropriate to enhance your understanding of our financial progress and also point you to our non-GAAP reconciliations at the end of the press release for additional detail.
So I encourage you to view the supplemental earnings presentation on our Investor Relations website.
Note, we completed the acquisition of <unk> on November 10, 2020, and wholesome on February 5.2021.
I will speak to reported results, which includes 4 and wholesale for the full second quarter period. Additionally.
Additionally, we will provide some select pro forma results as if we owned <unk> worth and wholesome and 2021, 2020, and 2019 to assist and your analysis of the organic growth of the combined portfolio.
For the second quarter ended June 32021, consolidated product revenues were $126.5 million, representing and 89, 3% increase from $66.8 million for the prior year quarter.
On a pro forma basis, including its worth and wholesome for the whole quarter and both the current and prior year periods organic product revenue declined 1.4% compared to the prior year second quarter or declined 3.8% on a constant currency basis.
Reported gross profit was 41.4 million compared to $26.6 million and the prior year second quarter and gross profit margin of 32, 7% and the second quarter of 2021 compared to 39, 8% and the prior year period.
Results were positively influenced by $11 million of contributions from the sort of and wholesaler acquisitions revenue growth from the legacy branded CPG and flavors and ingredients segment.
And productivity gains.
Adjusted gross profit margin when adjusting for all adjustments was 34% down from 41, 2% and the prior year driven primarily by the inclusion of wholesome and private label business.
Consolidated operating income was $6 million compared to an operating loss of $5.2 million and the prior year and consolidated net income was $3.7 million and the second quarter of 2021 compared to a net loss of $6 million and the prior year.
Consolidated adjusted EBITDA increased 94, 9% to $22 million driven by contributions from this work and wholesome acquisitions revenue growth and productivity gains.
Really offset by public company costs.
Now shifting to segment results for Q2.
Branded CPG segment product revenues increased $56 million or 130% to $99.1 million for the second quarter of 2021 compared to $43.1 million for the same period and the prior year.
On a constant currency basis product revenues increased 123, 1% driven by the addition of <unk> worth and wholesome revenue, which was not comparable to the prior year period.
Constant currency results reflect the strong growth and our natural brands.
On a pro forma basis, including the impact of both acquisitions and the current year and prior year periods organic constant currency product revenue decreased 8.1% compared to the prior year second quarter.
On a 2 year stacked basis, when comparing second quarter 2021 second quarter 2019 branded CPG segment pro forma organic constant currency revenue increased 14, 5%.
Operating income for the branded CPG segment was $10.3 million and the second quarter of 2021 compared to operating income of $1.8 million for the same period and the prior year.
The increase of $8.5 million was driven by contributions from the acquired stores and wholesome businesses revenue growth and productivity gains within the segment.
Flavors and ingredients segment product revenues increased 15, 3% to $27.4 million for the second quarter of 2021.
Compared to $23.8 million for the same period and the prior year.
The increase was driven by growth across most of the product line and a favorable comparison and the prior year for the business realized a surge and product orders and March 2020 related to COVID-19, with reduced revenues and the second quarter of 2020.
Operating income for the flavors and ingredients segment was $3.7 million and the second quarter of 2021 compared to operating income of $0.1 billion and the prior year period the.
The increase was driven primarily by revenue growth.
Operating expenses were flat at $2.8 million and facility closure and restructuring costs and <unk> 9 million of amortization expenses were offset by transaction related expenses of $3.8 million recorded in 2020 that did not reoccur.
Finally, beginning with the first quarter of 2021, and our corporate office functions are now reported and included under corporate.
These associated expenses were previously reported within the Companys branded CPG segment.
Corporate is not a reportable or operating segment.
Certain prior year amounts have been reclassified to conform to the current presentation.
Operating expenses for corporate for the second quarter of 2021 were $8 million compared to $7 million of operating expenses and the prior year.
Operating expenses for corporate increased $1 million, primarily driven by increased public company costs stock based compensation, partially offset by transaction related expenses of $4.5 million and 2020.
Now let me briefly cover June year to date results consolidated.
Consolidated product revenues were $232.3 million, representing an increase of 74, 9% compared to June year to day 2020.
Also an increase of 71, 1% on a constant currency basis.
On a pro forma basis, including the impact of both acquisitions for the full 6 months periods ended June 32021 and 2020.
Organic product revenue increased 3% or increased <unk>, 9% on a constant currency basis compared to the prior year.
Branded CPG segment product revenues were $189 million and increased 117, 2% compared to the prior year period also and increase of 111% on a constant currency basis.
Constant currency results reflect the acquisitions of wholesome and score and growth and our natural brands.
On a pro forma basis, including the impact of both acquisitions for the full 6 month periods ended June 32021, and June 32020, organic constant currency product revenue increased 0.2% compared to the prior year period audits.
On a 2 year stacked basis, when comparing first half 2021 to first half 2019.
Branded CPG segment pro forma organic constant currency revenue was up 11, 5%.
Operating income was $24 million compared to an operating loss of $5 million and the prior year period.
The increase was due to $11.1 million goodwill asset impairment charge and the prior year $7.9 million of contributions from the acquired swerved and wholesome businesses revenue growth and productivity gains.
Flavors and ingredients segment product revenues were $51.4 million and increased 3.9% as compared to the prior year period the.
The increase was driven by growth and derivatives.
Operating income for the 6 months ended June 32021 was $4.7 million compared to an operating loss of $23.9 million and the prior year period.
$8.6 million increase was primarily driven by asset impairment charges totaling $29.5 million recorded and the first quarter of 2020 transaction related expenses of $3.8 million also recorded in 2020 and revenue growth, partially offset by $4.5 million.
A facility closure and restructuring costs, and a $1.9 million increase and amortization expenses due to purchase accounting revaluation of intangible assets.
Reported gross profit was $77 million and increase of $24.5 million about $52.5 million and the prior year period and gross profit margin was 33, 1% and the 6 months ended June 32021 down from 39, 5% and the prior year period.
Adjusted gross profit margin when adjusting for all adjustments was 35, 3% down from 41, 5% and the prior year, driven primarily by a wholesome and private label business.
Consolidated operating income was $2.9 million compared to an operating loss of $38.5 million and the prior year period and consolidated net loss was $8.3 billion for the 6 months ended June 32021, compared to a net loss of $34.6 million and the prior year.
Period.
The improvement was largely due to the noncash asset impairment charges recorded in 2020, the positive impact of acquisitions and lower transaction related costs.
Consolidated adjusted EBITDA increased 64, 9% to $39.4 million driven by contributions from the acquired <unk> and wholesome businesses revenue growth and productivity, partially offset by increased public company costs.
Now moving to cash flow and the balance sheet.
Cash used in operating activities for June year to date was $9.5 million that is net of $17 million of 1 time cash costs.
Our June year to date capital expenditures were $4.6 million.
Free cash flow when excluding cash related adjustments, such as M&A transaction costs restructuring public company readiness and other 1 off items was $3 million.
As of June 32021, we had cash and cash equivalents of $24.1 million and $384.7 million of long term debt net of unamortized discount and issuance costs.
On February 5.2021, we entered into and amended and restated credit agreement and part to finance the acquisition of wholesome sweeteners.
The new agreement provides for $75 million revolving credit facility and a $375 million 7 year senior secured first lien term loan b.
Using our forecasted 2021 adjusted EBITDA, our net debt to adjusted EBITDA ratio on June 32021 was 4.5 times.
Reducing balance sheet leverage as a corporate priority and we estimate that we will achieve our ratio of net debt to adjusted EBITDA of approximately 4 times by December 31.2021.
Now shifting to our outlook.
We are reiterating our full year 2000, and 'twenty, 1 guidance, which includes our recent acquisitions are sort of and wholesome.
Outlook represents our expectations for growth on a pro forma organic basis and margins for the combined business, we define pro forma organic growth to be as a company owned boats worth and wholesome for the full year 2020 and 2021.
We continue to expect.
Holiday product revenues to be and the range of $493 million to $505 million.
And it reported growth of greater than 78% and pro forma organic growth of 3% to 5% Consol.
Consolidated adjusted EBITDA, and the range of $82 million to $85 million, representing reported growth of greater than 50% and pro forma organic growth of 3% to 5%.
We also expect adjusted EBITDA margins to be approximately 17% of consolidated product revenues and.
Adjusted gross profit will be 34% to 35% of product revenues, which again reflects the influence of our acquired assets awesome and square.
Total capital expenditures will be and the range of $10 million to $12 million.
Lastly, we expect a 2021 GAAP tax rate of approximately 7% for the year reflective of discrete onetime favorable tax items.
And balanced and in relative terms and you think about the seasonality or cadence for the year and with the added contribution from Schwab and wholesome, we expect a sequential build from first half the second half of 2021 in terms of revenue and adjusted EBITDA dollar contributions.
We expect the operational plan and will be visible each quarter as we move through the year with each sequential quarter being better than the other as we capture the benefits from product innovation distribution gains and enhanced productivity from our footprint optimization project.
That concludes our prepared remarks, operator now over to you. Please open the call for Q&A.
Thank you we will now be conducting a question and answer session.
And would like to ask a question. Please press star 1 on your telephone keypad copper.
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For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment. Please while we poll for your questions.
Our first questions come from the line of Rob Dickerson with Jefferies. Please proceed with your questions.
Great. Thank you so much good morning, everyone.
Yes.
First question I have and you just.
Kind of where you ended just in terms of that.
Actual delegates and what's implied in guidance and the back half.
Maybe if you could just and Albert and jumped into trade.
Just kind of provide some color in terms of visibility on potential distribution gains I guess and in Q3 and kind of as you get from year end.
And I kind of circle back to some comments you made last quarter when.
You suggested.
That full distribution of our distribution and the core horse brand at least.
So I think that should be accelerating through and you get through that.
Back half of the year, that's the first question.
Rob and good morning, and since you are suggesting to start with MDA will follow.
The request and I'm happy to add after that.
Sure.
Yeah happy to jump in and good morning, Rob I think I'm actually we've got a slide in our supplemental Doc page 21 of our supplemental deck that kind of walks you through the first half to second half guide and and how we bridge from our first half figures and both revenue and adjusted EBITDA.
And what Youll see there basically are 3 defining factors there between the fact that volume and wholesome for the whole period.
The baking and seasonality that exists within wholesome and score and then to your point that you just asked Rob on the growth initiatives.
We have with distribution and innovation coming from coming to market here as we speak as we go into third quarter and ended the fourth quarter coming into coming into play.
Maybe I'll, let Robert talk a little bit more about those distribution gains, but the team's done a great job getting distribution and we feel very very comfortable we feel confident about that so and the Alberta. If you went out and anything else. It up yes. Thank you, Andy and Rob, but I did talk to the last quarter about our power 1 which as you know he's a we consider this to.
And really a breakthrough initiatives to improve the growth from the category, even further improve the shop ability on the shelf. We saw retail partners and we are seeing very strong results coming out of power, 1 and the brick and mortars numbers of distribution are secured.
And we're going to find your way on the shelf in Q3 and Q4, what I'm excited and that you also see this power off 1 for example, coming through and.
Foodservice for example, where we're leveraging the power of equal to really drive power with 1 on the front of the house.
Providing an alternative and.
And the very broad set of suites and rooms, but also on the back of the house, we from baking solution, that's our sugar free or organic as well as mixology and this is new for us and we coming out of the power of 1 so expect to see more of that happening and the second house with a number.
<unk> news weaned from being already secured and in the bank.
Okay Super and then.
Kind of fast forward a bit from next year, obviously, I realized and I provided guidance for next year, but I would assume that's from discussions you would you have and with retailers as we go through quite.
Part of the next few months.
And what are the conversations.
<unk> potential resets for next year, so and given.
Some of the distribution growth typically in the back half of this year were delayed right from these would have been conversations had been.
And 2019, so I was just curious as you.
Our walking into those conversations now kind of like the larger power of 1 strategy.
And just kind of.
What's the general feel here on kind of overall timing.
That optimizing and car that shelf.
Sales optimization program.
For <unk> through 'twenty, 2 and kind of the way.
I'd asked it from more selectively and says you know.
Is it the whole periods, you get a whole distribution gains and 3 and then Theres. Some more in Q4 then.
And as you get from next year, it's the same thing right.
The sequential build or you know kind of has the feel more a little bit of a sequential build but as we get some of these shelf resets different parts of the year there could be.
And more material step up let's try and get a sense of kind of how this flows through the next 18 months.
Yeah, I would tell you Rob that the North American and most of you know and grocery you may have but those would be a shelf resets or product.
Making it to the plan O gram during the year, but by and large and lot of those major reset and do happen and decisions are made the first out and as you say if anything COVID-19 has slowed down and they need to meet the number of shelf reset which is usually once a year or the timing of it which is they need and Maureen.
And to Q3 and Q4, so as you look forward and as we.
And forward to the power of 1 what obviously is going to make to the shelf in Q3, and Q4 is going to be overlapping sales in Q1, and Q2 of next year and that time will be already talking about bringing more innovation and as you know this year, we're on track to non.
Non <unk> new product on branded CPG, and we have and more innovation coming and that's going to make its way through discussions and the first half of the year Lisa shelf reset the year on average which is on the second and health you had.
<unk> different.
The timing for an exemplary and Europe, where the shelf reset and do happen at the end of Q1 and the discussions start in August.
We speak and.
So the Europe, you said diesel would be off balance versus the U S. North American market, but I would say no from again its debt and therefore to your <unk>.
Question, you're going to see incremental momentum building of course, as we capture a bigger share.
Off the shelf and health and importantly, the retailers and the consumers to find easy shrunk from ADT, we seem to show.
Okay Cool makes sense and then just quickly.
I just wanted to clarify on the.
And offsets cost inflation.
It sounds like the way, our let's say.
Got it back half from prior guidance.
Drafts and your comments that there.
You do have enough levers too.
Seems like almost fully offset the cost inflationary and tackle curve commentary as more and working to offset so I I know.
Up until now and it's still now cut your cost inflation and relative.
So a lot of others and copper.
And for the debt.
A bit lower.
And same time average.
But he is talking about labor share supply chain kind of what have you.
You seem to be saying, yes, there could be some incremental and thereby kind of given what we have and the portfolio and the levers and we can pull.
And it doesn't sound like you are very concerned about that cost inflation at least for now.
Wanted to clarify that.
Yes, Rob that's and and I would reiterate where you decide yes, we're confident and our ability to offset inflation in 2021, given all the levers that we have to pull and we've listed that out a little bit to some of those levers and our in our supplemental Doc but no. We feel very confident we've got a great supply chain team.
We've got a great commercial team, managing and as well and and our ability to offset we feel extremely confident and our ability to offset inflation. This year.
Alright, Thank you I'll pass it off net.
Okay. Thank you Rob.
Thank you. Our next question will come from the line of Bobby Burleson with Canaccord. Please proceed with your questions.
Yeah. Good morning, Thanks for taking my questions.
Yeah, I think just the first 1 would be going back to the kind of.
In house, first and foodservice environments, and kind of what your distribution partners and retail partners are thinking or.
And we're seeing given the spike and Delta.
Whether or not there is any change in terms of.
That big obviously stocking of that last year, that's a tough comparable as a tough comparison last quarter year over year.
Do you anticipate any.
Stocking ahead of.
Concerns over shutdowns or any changes in terms of what youre seeing downstream.
As it relates to the dynamics and Covid right now.
Yes.
It's a great question Bobby and.
What I would tell you used to I think we have demonstrated over the last 1 year that our business is balanced and we feel that it's a very resilient and so I would say.
Sales in my opening comments waiver COVID-19.
And the new volume stays with us and I leave.
And for longer or less longer I don't see and D. G.
Change in trajectory and our business at all and.
And this is essentially predicated on the receivable and micro trends that the debt.
Our over which is again, if you look at coffee and tea consumption cooling and high single digit that happens and where.
If you look and making which really came to the forefront and 50% of sugar consumption with natural ingredients.
And of course, some we fall Earth.
We do see that continuing as we have said and then we have a very balanced portfolio of brands and very well balanced across channels and foodservice is 10% and part of mix, we're very happy to see the research and <unk>, but we have 10% and and E. Commerce that is doing extremely well and the 80% and <unk>.
Brick and mortars, and didn't theory weighted diversified geographic and depending on where any variance or or or health concerns can keep the most we are also well diversified so I would say that what I takeaways the resilience and.
And we consider this to be more or less neutral.
As far as we're concerned.
Okay, Great and then just onto the inflation topic.
If if inflation and turns out to not be transitory.
And I'm curious kind of.
What the relationship is between your currency hedging and currency exposures and string.
Strength of the dollar just wanted to know kind of structurally what that relationship is and then you know.
Timing of you passing along some of these cost increases and.
In the form of.
And your own price increases maybe later this year early next year with what the plans are.
Thoughts around that topic. Thanks, Andy do you want to take the first piece and then depending.
May add to the second piece, Yeah sure absolutely Bobby So first on the <unk> and the currency part.
<unk>.
Roughly a little bit less and 25% of our revenues and ballpark wise our R. R.
And foreign currencies, there are almost some natural hedges there and.
Currently between currencies number 1 and number 2 just across the P&L. So our net exposure as a total company at the bottom line.
I'll call it kind of more internal hedges to help us balance out to not have any real significant exposure from a from an FX perspective, but the bottom line.
From the pricing perspective.
Taking pricing now and we're looking at taking pricing and and into the future maybe I'll, let Albert comment on that a little bit further.
I would just tell you Bobby you know hats off to the team, which as you know he's worked with team hats off to.
Irwin, who use guiding gas in terms of fees are invaluable experience and but I would say that we really started on the journey of productivity from the beginning.
So we havent weighted force.
And inflation and I would say that the discipline and productivity and as you know we have talked previously about the supply chain reinvention and on the flavors and ingredients, we've been talking about a simple.
And I chain reinvention and the brand new TPG the synergies that we get from square and whole. Some together, we've you know great and discipline and our trade spending and the pricing.
We would take consistently from most over companies.
And our positioning us very well of course, we need to be extremely.
The regent and that's what we're doing but I think we have the team the initiatives and we started early enough.
To feel that we can at this point of safety and this this year and and the year ahead.
Okay, great. Thank you.
Thank you Bobby.
Thank you. Our next question is come from the line of Mark Smith with Lake Street Capital. Please proceed with your questions.
I guess first question from me just wondering if you could give us any more details on the sale of the Camden, New Jersey facility and and it sounds like the savings there are pretty immediate but any other details you can give us would be great.
Good morning. Thank you Randy if you can address that.
Good morning, Mark and you know things obviously, the sale of the Camden facility was a big milestone for us as it was the kind of closure of our footprint optimization project on the flavors and ingredients segment that we've been speaking about for you know for the past year or 2 and so that facility was sold and.
And the second quarter.
Production that was there is fully being done and our Richmond, Virginia facility, which is a much smaller footprint and a much more efficient operating structure and so to your point.
Mark.
The gains for that are immediate and youll see in our supplemental deck.
And then and consistent with the kind of pro forma benefits and we talked about a year ago well expected.
You know margin accretion and the second half of the year benefits to kick and a $2 million to $3 million and second half of the year and $2 million to $3 million and the first half of next year on a sequential basis. So.
No. That's that's an immediate savings for us and a real and and a pure cash driver too as it goes forward and so really excited and team did a great job getting that facility closed a lot of hard work with immediate benefits.
Okay, and then just as we look at new products and launches and it sounds like you're on pace now, but can you can you talk about kind of the initial consumer response to some of these new products.
Sure.
The consumer products.
Are we <unk> 45, as I say debt balance share T already and are bringing at TPG and <unk> are our flavors and ingredients and this is reid and aided by your marketing and consumer insights to given weaker and D, which we do have across North America Europe and.
And in Asia, and I would tell you that our innovations really.
Starting from the consumer shifts that we see away from sugar and the desire of consumers to really having problem that tastes great. Because as you know consumers would never compromise from bad debts are natural and we have a number of innovations really coming into oil and natural and agreed.
And sadly lose it ranker tool and exciting little and and so on and so forth as well as consumer litigation and with a number of our products in the baking.
And whether it's base mixes and we square non sure Fortis.
Do you mean debates based mixes and kimco cookies, brownies and awesome and I would tell you that the results. So far on the brands and TPG are very strong as we say during the year and we felt and we probably we have secured distribution that he's going to appear on shelf and the second house, So I wouldn't.
Say that the reception he's he's a strong similarly.
I'm very pleased by our flavors and ingredient performance, we have stepped up to be R&D teams here, we have stepped up our sales organization and proficient and is it more and I think talking aside from the favorable comparison to 15% versus a year ago and Q2 is indicative of a non.
Mentum around.
Like round there'll be read that keeps our Mac and this week and so I would say that innovation for us.
Is read 1 thing thats, a bit easier and it's 1 of our 5 core operating pillars, together with great brands and great distribution and.
And we have been able to de lever over 15% of our net sales coming from innovation and a freebie eroding babies for the last 3 years. So we see that continue we're happy with where we are and how are you.
Look forward to see what do you see those products on the shelves coming into Q3.
Perfect and then as we look at the new products and look at your mix of ecommerce sales do some of these new products, especially baking mixes and other things gives you more opportunity and your e-commerce or are they products and maybe wouldn't do as well and E com.
That's a great question.
The great thing about E Commerce and this is why I invested you need seats 2018, and we're very happy to have now 10% of our global being being ecommerce is that the amount of Skus you can put their easy limited and so you have a much broader depth.
<unk> and depth of products and you get and very quick return from could choose from which is very healthy in terms of new innovation and very helpful. Also as we talk to retailers. So I would say that this is an opportunity e-commerce to put out more products and to have more.
More consumers successes day means and.
Has this opportunity to us and go.
Go forward, we see over retail channels.
Okay and.
Retail growth was kind of my last question just as we look at it it looks like and the quarter retail growth was maybe down a little bit and you can you talk about.
New customers and new retail partners that are out there.
I assume you are talking about 2 quarter versus 'twenty 'twenty co branded CPG correct yeah.
So this was this was really driven by and a onetime pantry loading by and large and I always say that in our case.
Further to that which is something that everybody experienced you do.
We talk a lot and during the Covid about our outstanding customer service during the whole and crisis of Covid, we're able to.
Service at the 90, 998% levels what needs to happen and that's about 7 million for Q2 would need to happen is that some of our competitors were not able.
To supply and therefore, we had an addition to the usual COVID-19 the pantry loading and we also had some retailers that key to us and say competitor be cannot supply can you. Please jump in and so we had this additional 1 time, which is essentially driving the year on year compare.
Reason, which is why the way, we like and we think it's more relevant to look at these really looking at the momentum and versus Q2.2019 into and we're very pleased with the 15% growth.
Okay.
And just as far as your expansion and distribution within the retail partner side do you feel about how that's moving today.
And as I said earlier, we're happy with where we are we have a number of our secured.
Distributions and that's always going to come through which I cannot.
For the obvious reasons and disclose.
But we are happy and.
Shrinking Ah as weakening.
Perfect. Thank you.
Thank you our next questions come from the line of Scott, Washington, with <unk> Capital. Please proceed with your questions.
Hey, guys. Thanks for taking my questions.
She had a.
My first question was around and to your comment about sequentially better EBIT margin.
Each quarter and did I get that right or maybe you can just a little clarity on what you said right.
Revenue stopped.
And so we are expecting Scott and as Andy I and jumping on that and good morning.
We are and yes.
We are expecting sequentially incrementally better sales, our revenue and EBITDA in absolute figures.
Quarter on quarter, So Q3 and Q4.
I mean, we do have factors like the the flavors and ingredients.
The closure of the Camden and that'll help our back half of the year margins, but about what we were guiding to more was the absolute sales and EBITDA.
That's perfect. Thanks for the clarity.
The second question really is about the power of 1 initiatives.
And how you guys are approaching and are you are you looking at kind of flagship customers that you are.
Growing up in the fresh market and I guess, it was Thursday, or Friday, and Youre set there is just terrific and.
I would think maybe the wholesome baking products and go be slotted and somewhere like that first.
Or is that not how to look at it.
Good morning.
And that's.
That's a great question once you have them put.
Put together your power of 1 the timing on how you've rolled out really depends.
On the on your retailers and that goes really back to the question of from Rob before.
Steel and this is a year were doing meetings face to face zooms et cetera is always something that we're managing with our retailers and deeper and retailers get a deep and different times. So we are active and we are essentially to your point putting it forward.
It really opportunities when they are going to shelf resets is being done whenever those discussions we don't control the timing of Covid, but we also are in a.
And we used the power of 1 to proactively reach out and do it and again, let's remember all CPG shelves and and.
And categories do tend to have some level of category management. This is really probably 1 of the few I know where you don't have that and therefore, we believe that the benefit to our retail partners and to the category and its shop ability to your point and you spend a lot of time visitors and dish.
And I. Thank you for that I think is going to carry us forward.
And for this year, but also from the years to come because as you know this is an ongoing process.
And you work with retailers and every single mode to make them better and the direction that we have now set.
Okay and then my.
Final question really goes to them and put them together, because it's really kind of too, but im put them together. So it looks like and we talked about this last quarter of the placements.
On Amazon It looks like you guys made a lot of progress there as far as and when you do a search youre coming up quick.
And Theres an advertisement there are you seeing lift from that and then in conjunction with that with all the other things Youre getting this was touched on before but.
Should we think 'twenty 2 is going to just grow faster because of everything that's going on versus kind of the long term try and and would that put some pressure on profits are not really if that's correct.
I would like.
Costa Andy and so just second and some of the first piece of it.
E Commerce I wouldn't I would tell you that we.
We are leveraging best practices and the team that works and globally very closely together and Europe and Asia were very strong and in the U S and as you know is the funnel and we are working to bring people in and we're working to make sure that people do.
Do you see opportunities to take on.
More and we're working on people to come back and then we are also working on people going somewhere else to come to us and as you know this is this is a virtuous circle.
Which cost money and that's what we are seeing is that essentially this is and the investment where you have very good return on the investment.
And I'm going to jump in here when you ask about crusher.
On profits and 2022.
Growth is a big part.
Our strategy here and.
And last year at this time.
And just the $200 million company and you heard Andy's forecast.
Between 475, and 4.5 O 5 I mean the company.
And regards to.
Public company costs infrastructure costs and that.
Hum.
I feel with the growth opportunities and where our ACB is today and household penetration.
And you also heard Andy talked before about the type of job, we're doing and regards to controlling inflation not taking pricing, where we don't have to so.
I don't see.
Pressure on profits with our growth I think there is as you know from me White space is a big big opportunity for us so.
And also on top of this here and we're not sitting by the sidelines and not looking net acquisition. So.
As the company looks for good organic growth Albert talked about his new products before and I'll tell you.
And we just recently and a board meeting and I saw some fantastic new products from the best I've ever seen.
With the distribution opportunities and just even with our international opportunities.
I don't see growth B and issue, that's going to affect our profitability going forward.
And Andy you jumped in here from a financial standpoint.
Yeah, No I Echo everything that Irwin, just just said and I think to your to your your question Scott on the mix part of it no. It would not have and impact on the on the bottom line from a from a mix channel mix perspective.
And then as far as the growth goes.
Should we expect a little faster growth in 2022 or is that.
Too early to tell.
Well, what I would I would.
Hey, Scott you know me I would push them, but I think the big thing.
What I would give in 2020.2 guidance and.
Matt I think as I said before.
I want to come back and just commend and what this team has done and a short period of time.
And.
With that as I said, we have plenty of new products, we have plenty of white space to go after plenty of opportunities and the e-commerce.
Ultimately acquisition. So I think there is a lot of <unk>.
Run way out there for this company to grow and to grow.
Faster.
Perfect, Thanks, and nice Congress Irwin.
And I can do to Scott.
Thank you.
No further questions at this time I would like to turn the call back over to Albert and zoning for any closing remarks.
I just would like to thank everybody for joining the call today and we are looking for to have discussions with all of you and thank you. So much for your time.
Thank you.
Thank you for your participation and this does conclude today's teleconference. You may disconnect your lines at this time.
Have a great day.