Q2 2021 Sunopta Inc Earnings Call
Good morning, and welcome to sign up the second quarter fiscal 2021 earnings conference call by now everyone should have access to the earnings press release that was issued this morning and is available on the investor of relations paid on sand on this website.
And at Www Dot son of the Dot Com. This call is being webcast and its transcription will also be available on the company's website and.
As a reminder, please note that the prepared remarks, which will follow contain forward looking statements and management may make additional forward looking statements and response to your questions.
These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to at all of risk factors contained and said not just press release issued this morning. The company's annual report filed on form 10-K, and other filings with the securities and exchange can.
For more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward looking statements. The company undertakes no obligation to publicly correct or update the forward looking statements made during the presentation to reflect future events or circumstances.
Except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference and we.
Reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today also please note that unless otherwise stated all figures discussed today are in U S dollars and are occasionally rounded to the nearest millieme and now I'd like to turn the conference call over to.
Sign up to CEO, Joe and then.
Good morning, and thank you for joining us today with me on the call is Scott Huckins, our Chief Financial Officer.
Our second quarter results of nearly 10% revenue growth and 61% EBITDA growth demonstrates the strength of our strategy and the quality of our execution against our corporate priorities.
These priorities are portfolio transformation accelerating customer centric innovation and doubling the plant based business.
We continue to emphasize top line growth in our plant based business and improving profitability and free faced the significant revenue increases we are realizing and plant based beverages and reflect our competitive advantages combined with continued strong consumer demand and our fruit based business unit the progress.
We continue to make is being driven by internal efforts to optimize customer capacity operating cost and pricing.
Before I began unpacking, our Q2 results.
Let me offer three key takeaways from the quarter.
First the momentum and plant based beverages remains strong and continues to be led by oak based products and by our core customers.
And second based on our business development pipeline with existing and new customers. We remain optimistic about the long term growth prospects for our plant based portfolio.
Third, though we remain very focused on co manufacturing our portfolio of owned brands and plant based is also performing well delivering solid gain and helping us bring innovation to market faster and increasing and important in both revenue and margin.
Let me first start with the high level view of key accomplishments from the second quarter, and then I'll share some of the details by segment.
Overall second quarter results were ahead of the outlook, we shared with you on the Q1 call for.
For the second quarter total revenue was up nine 7% versus Q2, 2020 to 202.3 million and.
And up 17, 5% compared to Q2.2019.
Gross margin improved by 40 basis points, the 13% and adjusted EBITDA advanced 60.8% to $16.1 million or 8% of revenue.
Client base continued to be our key growth driver, while our focus and fruit based remained on improving productivity and profitability and we demonstrated the significant leverage inherent in our model with adjusted EBITDA, increasing at a much faster rate than revenue.
We are pleased with the progress of our strategic initiatives around expanding capacity and plant base and improving productivity across the network.
Manufacturing is core to our business and the progress we have made and transforming our operations has been impressive.
From multiple capacity expansions and plant based to footprint optimization and automation and fruit, we're building real competitive installation and our business.
The other production, we brought online and plant based and the fourth quarter of 2020th performing well, giving us headroom to aggressively pursue new business opportunities.
Our Allentown and project is also tracking the plan expected to be operational in late Q4, and we are starting a similar sized project and Modesto.
Automation implemented and our plan is driving solid gains and productivity and making us more nimble around core capacity utilization.
We have made considerable progress and consolidating our fruit based operation with the exit of our South gate facility in July and closure of our Santa Maria facility in Q1.
Finally, we've made significant progress derisking, our fruit based operations, including sourcing three times more fruit from South America, and processing over 50% more and Mexico versus a year ago.
The trends around plant based combined with our strategically advantaged capabilities has set the stage for yet another expansion of our plant based operations.
I'm pleased to announce that we are and the final stages of negotiating a lease for the construction of a new Mega facility and the Dallas Fort worth area to support long term growth and our plant based business.
This Greenfield 275000 square foot facility is by far the largest capex project we've ever undertaken.
And having capacity to grow as a core element of our five pronged service offering and we are excited that this capacity will continue to allow our customers and our brands to keep pace with consumer demand the.
Plant is expected to be operational by late 2022.
And we will augment the incremental capacity, we brought online at the end of 2020, along with the Allentown and Modesto expansion projects and.
In aggregate the projects, we have and motion now effectively give us the ability to double the business.
We have intentionally designed the project to be developed and phases at.
Customer demand rises.
In addition to supporting continued growth and our core business. This new facility broadens, our geographic footprint add new capabilities and further strengthens our competitive position as a partner for our customers.
With this new plant, we will have facilities in the east of the.
The west the Midwest and now the south, allowing us to offer very competitive cost.
And improved environmental footprint and redundant manufacturing capabilities to lower risk for our customers.
The added scale will improve our margin profile over time as we expect to realize further supply chain savings by having a more efficient national network.
Now, let me turn to our segment results.
Starting with our plant based segment, we have three strategic priorities for.
First build a competitively advantaged business model around quality capacity cost customer service and R&D.
And second build a robust ingredient business to enable further participation and refrigerated plant based milks and third build of multi pronged go to market business that includes co manufacturing private label and own the brands.
The results in the second quarter show significant progress on all measures, including a 21, 4% increase and plant based revenue, which was on top of and 11, 9% increase and the second quarter of 2020 generating a two year stack of 33, 3%.
Now, let me share of bit of retail sales category data to help frame on our results.
The plant based beverage category and retail continues growing despite overlapping and the Covid frenzy of Q2, 2020.
For the 13 week period that aligns with our Q2 plant based milks increased three 7% overall due to continued strong sales of oat milk.
From a foodservice standpoint plant based milks are and ingredient and coffee beverages and therefore, we don't have syndicated data for foodservice. The based on our sales results. It is safe to say there were robust sales of plant based coffee drinks in foodservice.
There are three primary drivers of our growth and the quarter.
From a product standpoint, it was the oat milk.
From a channel standpoint, it would foodservice.
And from a go to market standpoint, it was both our core co manufacturing customers and our own brands.
Oh, the milk accounted for half of our growth and Q2, which is similar to what we experienced in Q1.
Importantly, the gains we are realizing you don't milk are coming from both existing customers like Starbucks as well as winning new business.
In addition to the strong foodservice new business.
We signed a multiyear extension to continue supplying oat milk to a large CPG company, who is currently the market share leader and retail oat milk.
And their sales success, along with strong results from other customers provide authentic marketplace testimony to the quality of our oat milk and the proprietary manufacturing process, we have built to help our customers differentiate their product offerings.
It is quite likely that the demand we're seeing for our industry, leading oat milk will necessitate the construction of yet another processing system and the not too distant future and would be in addition to the Texas project.
As I mentioned, we will face these project in a good capital stewards.
From a go to market standpoint, we saw very strong growth and our top five customers with sales growth of 49% and the quarter.
And as it relates to our own brands and the addition of Dream and West Soy, which we acquired in mid April we're additive to the plant based revenues and the second quarter accounting for approximately four percentage points of our segment growth.
In addition to this our recently launched brand of organic oat milk Creamer zone is seeing strong sales velocities and both retail and E. Commerce and is gaining distribution with a line of sight to being and over 3500 stores by year end for.
From a channel perspective, our growth and plant based during the second quarter was more concentrated and foodservice, which has been experiencing of rebound versus last year. When COVID-19 was significantly pressuring this channel moving to our fruit based segment. Our three strategic priorities are number one derisking the business through.
Graph of diversification customer pricing programs and better grow of relation.
Number two is it focus on becoming the low cost operator, and frozen fruit through automation and footprint reengineering.
And number three is to evolve the portfolio via innovation towards more value added offerings.
We made solid progress against all three of these and in the quarter.
We've been focused on supply chain reengineering to lower costs and improve margins, which is expected to enable us to deliver sharply higher earnings when revenue growth returns to a consistent upward trajectory.
Second quarter results and fruit based where illustrative of these efforts.
The site revenue being down one 9%, we showed improvement and both segment level gross margin as well as segment level operating margin.
Similar to the plant placed the normalization of at home consumption trends contributed to lower retail sales volume of frozen fruit, partially offset by increased foodservice volume.
For the 13 week period that coincided with our result retail frozen fruit category sales were down one 7% due to lapping significant COVID-19 driven growth and the prior year period.
It's a much different story and fruit snacks with the category experiencing strong growth of 10, 4%.
Our initiatives and around rationalizing marginally profitable customers and products were another factor pressuring fruit based revenues and the second quarter.
Finally supply constrained with certain fruit varieties negatively affected revenue from blended fruit offerings. This was also a headwind in Q1, so not a surprise.
Partially offsetting these factors for the strong performance and our innovation, driven and fruit snacks business, reflecting volume growth from new business development and very strong consumer demand.
And finally increased commodity pricing for raw fruit provided of 3% lift to the second quarter fruit based revenues as we passed along higher costs to customers.
From a customer standpoint, lower distribution from large retail customers, coupled with supply challenges negatively affected our frozen fruit business and Q2.
Conversely, significant growth, especially from large CPG customers and snacks drove revenue and margin increases.
Our top five strategic customers and snacks collectively grew 76% and Q2 versus the same time in 2020.
As part of our effort to evolve the portfolio through innovation tomorrow value add we are launching the line of value added fruit based breakfast bowls and this is a rapidly growing segment with brands like tattooed chef.
And we are excited about the innovation, we are bringing to this segment.
Some of the bowls, we are launching will have a fruit smoothie base whole fruit and toppings like quinoa, Chris and Granola. We are also launching GSE bowls, which feature of GSE base and whole blueberries.
Consistent with our agnostic go to market approach this product innovation will launch and some retailers under our brand Sunrise growers. It will launch of the private label offering and other retailers and we are also in development to co manufacturer of this product for a large CPG company.
We are currently and test with the major club store chain under the Sunrise growers brand and we have authorization from several customers starting in Q4 of 2021 and rolling into 2020 two.
In summary, we continue executing at a very high level across the organization through the first half of 'twenty 'twenty. One we've delivered on our plan of aggressive plant based growth higher margins and substantial growth and adjusted EBITDA.
We've been winning business with new customers, capturing additional business from existing customers, adding capacity and expanding our portfolio of products, coupled with our strong balance sheet for Nokia remains well positioned for substantial long term growth and some of the fastest growing CPG category.
All of which supports my continued optimism for the future.
We remain committed to the previous 2021 outlook and believe our strategies and our team will continue to deliver as we seek to fuel the future of food.
Now I will turn the call over to Scott to take us through the rest of the financials Scott.
Thank you very much Joe and good morning, everyone. We're excited to report another solid quarter.
As Joe mentioned second quarter revenues of $202.3 million were up nine 7% year over year.
Strong volume gains led to a 21, 4% increase and plant based while for.
Route based had a modest decline of one 9% as we continue to focus on rationalizing marginally profitable business.
Adjusted EBITDA increased 68% to $16.1 million as our strategic focus on growing plant based and optimizing fruit created significant leverage across our business.
Gross profit was $26.3 million for the second quarter of 2021.
And increase of $3.1 million for 13, 2% compared to $23.3 million during the second quarter of 2020.
The plant based segment accounted for $3.2 million of the increase in gross profit due to higher volumes. The addition of the dream and what sort of brands and productivity improvements within our plant based beverage and ingredient operations.
Gross profit and the fruit based segment was basically flat as lower volumes of retail frozen fruit.
Higher strawberry and transportation costs and unfavorable foreign exchange impacts from the stronger Mexican peso were largely offset by volume growth and fruit snacks and fruit based toppings, along with productivity gains and the plants.
As a percentage of revenues second quarter gross margin was 13% compared to 12, 6% a year ago of <unk>.
40 basis point increase.
The plant based segment gross margin was 17, 9% down only 30 basis points from last year.
This is the very strong result, considering plant based absorbed 110 basis points of depreciation expense associated with the capacity expansions, we added in the fourth quarter and 40 basis points of increased transportation costs.
These headwinds were almost entirely offset by increased revenue and productivity gains, reflecting our investments to drive scale and efficiency.
Raw material pricing did not have a material impact on plant based gross margins because of the weighting towards the co manufacturing customers, which tend to operate under pass through pricing arrangements for all raw material inputs.
Gross margin and the fruit based segment was seven 1%.
<unk> to 7% last year and increase of 10 basis points.
Our near term focus and fruit based continues to be optimizing profitability through a combination of rationalizing the marginal business and.
Improving productivity.
Taking costs out of the business and focusing the business around our large retail customers.
Operating income was $1.7 million and the second quarter compared to a loss of <unk> 4 million and the prior year.
SG&A increased <unk> 8 million for three 8% to $22.7 million as integration expenses related to the dream and Westfalia acquisition were partially offset by lower variable compensation costs.
Lots of attributable to common shareholders from continuing operations for the second quarter was $1.7 million or two cents per diluted share compared to a loss of $7.7 million for nine cents per diluted share during the second quarter of 2020.
Note that this quarter's loss is after giving effect to $4.7 million of other expense charges, primarily related to the exit of our south gate fruit processing facility and <unk>.
Paired with other income of <unk> 8 million last year.
On an adjusted basis.
And quarter 2021 earnings were <unk> 1 million or zero cents per diluted share for.
Versus an adjusted loss of $7.9 million for nine cents per diluted share in the prior year period.
And as Joe mentioned, adjusted EBITDA was $16.1 million compared to $10 million and the prior year, a 68% increase.
I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning.
Turning to the balance sheet and cash flow.
As of July three 2021, total debt was $206 million down approximately $243 million from the second quarter of 2020 and up $69 million from $137 million at the end of the first quarter due to the seasonal build of fruit inventory along with.
The acquisition of the Dream and West soy brands.
Total debt reflects $159 million drawn on our asset based credit facility with the balance representing the smaller credit facilities lease and other financing arrangements.
Leverage stood at three times at the end of the second quarter versus $6 three times a year earlier.
From a cash flow perspective cash used in operating activities. During the second quarter of 2021 was $39.1 million compared to cash generated of $2.7 million during the second quarter of 2020.
The change and operating cash flow versus last year was due to a stronger seasonal build of the fruit inventory and more expensive inventory compared to this time last year.
Cash used in investing activities was $32.4 million compared with $6.3 million and last year's second quarter, reflecting the acquisition of Dream and Westwood.
Priority of providing our outlook I'd like to spend a few minutes on inflation is this remains a major area of discussion across all industries.
The potential impact of inflation on our business varies across three categories, which are one raw materials.
To operating costs and three supply chain costs.
These three categories have different impacts based on how we go to market, which are one private label.
Two from manufacturing and three branded products.
For example, and our plant based business a significant amount of our revenue is true co manufacturing arrangements for our customers typically bear most of the the risk of price variation and raw material costs and contrast, our fruit based business is more concentrated and private label products where price pass through.
Timing tends to lag and <unk>.
Where we are largely but not fully insulated from increases in raw material prices.
And branded products, we did not experience any material inflationary headwinds for the quarter the changes in commodity prices would need to be offset by pricing and productivity gains.
When we look at plant operating costs, we bear those costs entirely so any inflation must be offset by plant productivity initiatives.
Finally, when we look at supply chain costs or more specifically freight there is limited risks with our co manufactured products because it's largely picked up by customers. So they bear the impact of changing freight rates.
It's the opposite with our private label business.
And we are typically delivered and the products of the customer noted and there is some opportunity to pass along cost increases, but again, its more limited and often lags and timing.
Lastly, and branded products, we are exposed to changes and freight costs and need to offset those with productivity gains.
In summary, like everyone, we are facing rising costs and many areas, but the most meaningful areas to us today are more associated with our fruit based and branded businesses because of the deliberate and nature of the product and we must absorb much of the outcome transport.
Our plant based business is largely insulated.
In total and given our increase in overall margin, we have demonstrated our ability to grow gross profit and EBITDA.
Bite and inflationary environment.
At this time, we don't see any inflationary trends and our business that would dramatically impact the progress as we go into the second half of 2021.
Let me close by providing some commentary around the outlook for the second half of 2021.
And obviously there is uncertainty surrounding the impact of COVID-19, and the potential changes and consumer behavior as a result, but based on our current expectations. We offer the following the outlook.
On the top line, we forecast the plant based to look similar to Q2 in terms of year over year growth.
And the fruit. We similarly think revenue will look like Q2 with single digit declines.
From the margin standpoint, it is very much the same story with plant based remaining and the high teens and.
And the fruit being similar to last year's margin levels, recognizing we have more challenging comps and the back half.
Finally from an EBITDA standpoint, we forecast strong year over year improvements again, recognizing our comps get tougher and the second half where last years second half represented 60% of 2020 EBITDA.
Before opening up the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer for SKU level of activity.
With that I'd ask the operator to please open up the call to questions.
At this time if you have a question. Please press Star then the in apparel line and your telephone keypad and.
And your first question comes from Andrew <unk> with BMO.
Hey, good morning, Thanks for taking the question.
My first one is about your commentary around the competitive moat and competitive dynamics.
And it certainly sounds from the from the data points that you provided like everything is and a good place and you've mentioned some ways that you are building your competitive installation, but yes.
Can you talk about what drives your competitive moat, where your.
And what youre doing to build that competitive installation and if you've seen any changes and competitive dynamics kind of over the last several months or quarters.
Thanks, Andrew and good morning.
In terms of the changes in the competitive landscape, we have not seen anything material. So far this year in <unk>.
Terms of how we view, our competitive differentiation and the marketplace.
We were particularly proud of the strength of our R&D organization and our ability to partner with Big CPG companies to drive innovation and deliver the quality that they expect day in and day out second is we have very deep long relationships with our customers and.
Third we believe we have a very advantaged supply chain and certainly the project that we referenced in and Texas is a major strategic unlock for us.
Our priority of doubling and the plant based business.
The supply chain advantages for that.
Out of affords us along with adding capabilities.
Well as cost and sustainability Differentiators is is going to be just of further strengthening of our business model.
Gives us plants and or within the 100 miles of.
Four of the five biggest states and the U S with Texas of course being the second biggest state and in the U S and so we're excited about that as the further insulator for the business.
Okay. That's helpful and then.
On the outlook for the.
Fruit based segment.
Is the change from a top line perspective relative to what you've communicated prior is that really related to the pricing that you mentioned or are you seeing some underlying improvements whether it's and the fruit snacks that you mentioned or otherwise that that the.
And the outlook underlying has actually improved.
Yes.
As referenced.
We're optimistic and have great momentum and the fruit snacks business.
The frozen fruit in 2020 had some pretty major volatility from a COVID-19 standpoint, and so we're.
Seeing some return to normalization, if you will and the and the retail landscape and so we think.
And those two factors combined.
Afford us the opportunity to <unk>.
Deliver a pretty solid back half number.
Relative to the SKU and customer rationalization that we've done sure that makes sense and then just lastly from me is there any other detail you can provide on the on the kind of Mega facility that youre talking about with respect to either.
Cost of products or.
No youre expanding your R&D capabilities with the new facility or excuse me the new headquarters. So you know I'm not sure if that plays into it but just any any kind of color around that would be helpful. Thank you.
We will get into unpacking that as we get kind of closer I mean, where we're at the stage now and we're on the doorstep hopefully of signing the lease here.
And we've done site selection, we have kind of a broad understanding around capabilities that we're going to put in.
But the.
This facility is really in the unlock for growth in 2023 and beyond and so I think it's probably more appropriate for us to kind of hold on specifics there until we get closer.
So hopefully that makes sense yeah, absolutely. Thank you very much.
Your next question comes from Jon Andersen with William Blair.
Hey, good morning, Joe and Scott.
And John Good morning.
Okay, a lot of areas, we could go into let.
And let me start by asking a little bit about foodservice, which was.
A strong channel for you on the quarter, obviously youre getting help from the.
The kind of the rebound in the channel.
You did call out of a.
Customer in the prepared comments I think your largest customer and referenced.
Both based products.
Lakers Plano based products for them is that new and as that durable.
Yes that is.
And that is new with <unk>.
We started.
Shipping out to Starbucks and the middle of the second quarter were playing a secondary supplier role there.
We were pleased that we were able to step in and and help our largest customer with one of our set of opt out.
Branded products I know some of the folks on the call have seen that product in stores and have asked us about it.
And so we were we felt fortunate that we were able to step in and help them.
In terms of the durability, we would fully expect that we will be and are positioned to continue to help them well into 2022.
Okay. Thanks, that's super helpful.
Sure.
And then.
You mentioned that.
I thought it was interesting and you kind of called out.
Brands your own brands in the a little bit more I think than you have and the past, even noting that they're playing and increasing the important role and.
And the portfolio from a contribution perspective could you talk a little bit more about that and how you kind of.
And do that in a way.
And that allows you to remain kind of customer agnostic as well.
Yeah.
And obviously with the acquisition and in.
In mid April and the revenue that we realized.
100% incremental and so.
Brand delivered.
The acquisition delivered five points of the 21 points of growth that you would have seen and so we felt it was appropriate at the call that out.
I would tell you to date the.
Our brand initiatives have been additive with no subtraction.
On the integration is going well the sales volume.
It's coming and as exactly as we've expected.
We're very focused on non cannibalistic gross levers and trying to push on.
Non cannibalistic activities with respect to our large co manufacturing customers.
And.
Really what I can tell you is.
Since the acquisition of all of the activities with our major co manufacturing customers have all been around deepening and lengthening our partnership.
Okay.
Thank you on that.
And I did also want to ask sorry, I'm circling back around to you.
You made a comment on a multiyear extension.
With the.
The co man for the largest I think oat milk brand and the U S did I hear that one right and that's out of.
How new is that and what kind of duration or visibility does that that new arrangement kind of provide you and is that kind of part of the calculus for the the green field the facility in Texas, you've just seen in aggregate you know more demand longer.
Relationship durations from from Big customers and plant based.
That is not a new relationship for us that has been.
Our long standing relationship with.
The company that is currently running the leading national brand and all of milk and the U S and it was a multiyear extension.
Okay.
I guess both of the last question I'll pass it on is around just the outlook.
I think last quarter.
And maybe a little off on this but last quarter you may have said.
That you expected strong double digit EBITDA growth in 2021.
I think today you said.
Yeah.
Our EBITDA growth.
The double digit I might just be parsing words, but has.
And the outlook changed at all.
Uh huh.
In terms of.
EBITDA and the second half for for the full year relative to kind of your initial expectations of our expectations as of last quarter. Thank you.
Hey, John and Scott and good morning, I'd say no the outlook has not changed.
We want to recognize is that the the comps obviously get a lot tougher in the back half and they've been pointed out the <unk>.
60% of for the last years EBITDA was and the second half so no change and outlets just on a comparative basis of tougher set of comps and that's really the takeaway.
Okay. Thanks very much.
Your next question comes from Alex Fuhrman with Craig Hallum Capital.
Great. Thanks, very much for taking my question wanted to talk a little bit more about oat milk I think thats pretty.
The thing that is driving half of your revenue growth and plant based considering it's still a relatively small category.
Talk about where that growth is coming from has that been more.
Grocery or food service and then as we think about the capacity you have coming online over the next year or two both the new Texas project that you alluded to today is as well as some of the other.
Previously announced projects that Havent come online yet how much of that new capacity is going to be related to <unk>.
And so the first part of your question and foodservice or retail the answer is yes, we're seeing strong <unk> growth.
In both.
Retail sales co manufactured brands is that predominantly sell into retail so that was the strong growth lever of growth lever excuse me as well as <unk>.
<unk> growth and our foodservice.
Sales of the oat milk, so both channels were strong drivers of out.
Certainly relative to the capacity additions.
That is a network answer in that yes, those projects will absolutely enable further growth and <unk>.
Okay, Great that's really helpful.
And then just thinking about.
Your different customers and channels it sounds like.
The retail grocery store business continues to be strong, even even as you're lapping tough.
And it's related to the pandemic.
Last year, what does that look like and as you kind of move into the third and fourth quarter presumably.
Foodservice is going to continue to recover on the other end of the pandemic or are you expecting maybe some choppiness.
And as you know kind of the push and pull between retail and foodservice plays out or has it been pretty much smooth sailing so far.
As the channel shift.
Q2, the Q2 overlap and foodservice was by far the biggest.
On overlap anomaly that we experienced last year and so we would see it returning to kind of more historical levels and more.
The traditional overlaps and that's why we've shared some of the 2019 numbers as we've gone through this as well as obviously, it's a little bit easier to compare to the pre COVID-19 die.
Dynamics of the business than always trying to explain the crazy overlaps from from last year.
Great that's really helpful. Thank you.
Your next question comes from Mark Smith with Lake Street capital.
Hi, guys a couple of questions from the first off you've talked about inflationary pressures that youre seeing kind of across the board.
Can you talk about your ability to take price and your branded products.
Yeah.
And as Scott referenced we have not experienced any major inflationary pressures on the on the branded side of things.
And what I would say is obviously the U S retailers are certainly on the receiving end of significant.
Price increases from many many many brands. So I don't think it would be and the odd conversation. If we found ourselves and call. It six months time, having to go into the grocery retail environment and take the price increase but as Scott referenced as we sit today, we do not force.
See any material inflationary pressures on our branded products that would require us to take a price increase.
Okay, Great and then.
And as we look at the fruit business you guys talked about some of the headwinds that you face there.
And anything you can give us on kind of your outlook and what it what it would take determined this business profitable again.
Yeah.
For.
Kind of of a summary of of the season I mean, we met our pack plan. So we.
We processed as much fruit as we need for the next 12 months the.
And the plants ran better than prior year, but the cost of the fruit, meaning the price that we paid to the growers was significantly higher than previous years really as a result of just the really skinny inventory positions that everybody in the industry had produced a bit.
Have a of.
The pricing frenzy, if you will.
And that lasted for the entire season, and we obviously feel like over time, we can get that pricing moved through to our customers, but we pay for the fruit all upfront and then we realize the pricing over 12 months. So.
But in.
In total I mean, we feel like we can get the majority of them.
The majority of that higher cost free passed onto our customers it just not and overnight.
No overnight activity, so Scott anything to add there I would say it perspective is helpful. I think the.
The two headwinds rider, it's Joe just I think accurately summarized fruit pricing, but also.
The peso strengthening and is also a bit of headwind because remember we've been of a large facility, we've just run and 50% more for it through down in Mexico, and I think when I'm on.
So I'm done and I'm pleased that we've I think we've told the right strategic levers free.
Three times more sourcing and freight and South America, 50% more processing and in Mexico, and that's obviously cost advantaged relative to our U S footprint and then.
Automation running through those plants, the footprint consolidation and the SKU rat work, we've done I think we've pulled the the appropriate leverage I think the key will be just the time scale of the development of those price increases.
And looking at the fruit snack business, that's doing well is there just not enough to really.
Drive that business higher to make up for some of the headwinds that you faced and other places and then if you could talk about the new bold businesses that just the <unk>.
Timing that that's going to take a couple of quarters before and you see any impact from the those new products.
Yes, I mean, we the fruit snacks business.
As a small but mighty growth.
Ever for the business right now that we are looking to continue to invest in and drive expansion and and where.
And incredibly bullish about the innovation potential in that business and the and the customer relationships that we have so it is kind of full steam ahead on the fruit snacks business.
It's not as large as our frozen business and therefore, just the levering effect will take some time.
In terms of the bowls products.
Sure that in the context of one of our three strategic priorities and crude is moving towards more value added.
Portfolio of products and so yeah, I mean, we have the product in.
Distribution right now, but it certainly takes.
I would say north of four quarters for retailers to do resets, the authorizations et cetera. So.
And unfortunately, they are not aligned and their timing as to when they do reset but.
We've had great reception for the product so far.
Excellent. Thank you guys.
At this time there are no further questions I will now hand, the call back for closing remarks.
Great well, thank you everyone and for your interest and so and we appreciate it and wish everyone. A great day. Thank you.
Yeah.
That concludes today's conference. Thank you for your participation you may now disconnect.