Q4 2021 Post Holdings Inc Earnings Call
Your program is about to begin.
[music].
Welcome to post Holdings' fourth quarter, 2021 earnings conference call and webcast.
During the call today from post are Rob Vitale, President and Chief Executive Officer, and Jeff Statics, Chief Financial Officer.
Today's call is being recorded and will be available for replay beginning at 12 P. M Eastern time.
The dial in number is 800938 to 490, no passcode is required.
At this time all participants have been placed in a listen only mode. It is now my pleasure to turn the floor over to Jennifer Meyer Investor Relations of post holdings for introductions you may begin.
Good morning, and thank you for joining us today for Post's fourth quarter fiscal 2021 earnings call with me today are Rob Vitale, President and CEO and Jeff <unk>, Our CFO Robin Jeff will begin with prepared remarks, and afterwards, we'll have a brief question and answer session.
The press release that supports these remarks is posted on our website.
Both the Investor Relations and Yesterdays filing sections I Post holdings Dot Com. In addition, the release is available on the SEC's website.
Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
Additional information regarding these risks and uncertainties.
Under the forward looking statements section in our press release, we issued yesterday and posted on our website.
We also urge you to read both registration statements the proxy statement and prospectus.
Prospectuses and other documents related to the proposed distribution of our interest in building brands that will be filed with the SEC when they become available because they will contain important information.
These forward looking statements are subject as of the data are current as of the date of this call and 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 Ron. Thank you Jennifer Good morning, and thank you for joining us our fiscal year ended and quite a disappointing matter as cost inflation ran ahead of pricing.
And supply chain inefficiencies caused us to meet our estimates.
We ended fiscal 2021 with adjusted EBITDA of 1.12 billion down one 5% to last year as COVID-19 affected rebounds in foodservice and declines in retail channel segments, roughly offset each other.
This morning, I will share with you the sources of the mess and frame our expectations for the upcoming year.
I want to start with the detail on our shortfall from guidance.
Sales were largely in line with our expectations. The Miss was entirely the result of cost escalation.
The two biggest drivers versus expectations were unfavorable manufacturing costs of nearly $18 million, resulting from plant inefficiencies and poor fixed cost absorption.
And transportation costs, which were $12 million above forecast.
In addition capacity constraints, largely resulting from labor and material shortages and contract manufacturing under shipments.
Inhibited our ability to service demand.
The capacity limitation resulted in customer allocations across foodservice refrigerated retail and bill rate.
Yes.
Stepping back from supply chain, there is plenty of cause for optimism.
Our demand remains quite strong and posting weetabix branded cereal.
Bob Evans branded products, most of our foodservice categories, and especially in Premier protein shakes, we have pockets of softer demand in our value serial segments, notably mom brands and private label.
Our post branded cereals performed well this year, gaining half a share point on the strength of the pebbles franchise.
This was offset by weakness in our value portfolio, we expect consumers to return to value price point says consumer liquidity normalizes.
Weetabix had a modest share gains this year have lifted by innovation compared to two years ago. However, the business has gained one five share points.
Our Bob Evans brand continues to gain new households, with penetration up 3% over the prior year. This gain was achieved despite capacity constraints and out of stocks limiting its growth we plan to fully support this brand with marketing and promotion investment in the back half of the year.
Bell rang flagship product Premier protein shakes continued its impressive consumption up 30%. This summer as with Bob Evans capacity constraints are limiting brand metrics I continue to believe we remain in the early stages of category adoption and I'm quite bullish on bell rings future.
Finally, foodservice demand recovery continues to progress to progress with the exception of travel and lodging and business cafeterias.
For fiscal 2022, we expect adjusted EBITDA in the range of one six to $1 2 billion.
We're a growth rate of 3% to 7%.
Two key assumptions supporting this range are set by the end of our second fiscal quarter ingredients packaging and freight inflation will it peaked and that labor markets will normalize.
To the extent those assumptions prove optimistic there could be pressure on our outlook specifically with respect to inflation. The risk is primarily the timing as we expect to continue to price inflation, albeit with a potential lag.
Regardless that level of adjusted EBITDA does not reflect our expectation of the company's baseline earnings potential.
There are three specific drivers.
First we do expect some of these cost pressures and capacity constraints to continue during the first half easing throughout the fiscal year as pricing labs cost increases and supply chain normalize.
Second we continue to expect a full profit recovery in foodservice will not occur until fiscal 2023.
And finally <unk>.
Synergy realization of prior year acquisitions will largely occur in fiscal 'twenty two.
With 2023 being its first full year in the P&L.
As we expect to each identified issue to improve sequentially. Likewise, we expect each quarter to improve sequentially through the year exiting the year on a more normalized run rate.
To drill further into quarterly cadence the continuation of fourth quarter 2021 is of course, particularly acute during the first quarter.
More specifically during the first quarter, we expect our foodservice platform to underperform in the fourth quarter as a result of persistent labor shortages inhibiting volume demand growth and non pass through inflation that accelerated after year end.
That inflation is being priced but will not be effective until the second quarter and will be perhaps a 15 million dollar hit to the first quarter.
In refrigerated retail, we will see significant sequential improvement.
We are now largely staffed in this segment and it is improving rapidly however capacity constraints in the fourth quarter limited our ability to build inventory ahead of the holiday demand spike.
Meanwhile, recall the balance of the businesses tend to have a seasonal sequential decline in the first fiscal quarter.
With respect to capital allocation, we remained an active buyer of our own shares this quarter.
Since July one we've acquired $1 5 million shares at an average price of 108 point O two.
Recent M&A is performing to plan with the exception of all Mark Hallmark is performing to volume plant, but has experienced the cost acceleration I mentioned and we will need to take incremental pricing all others are performing to both volume and profit expectations.
Recall that the private label business, we acquired from Treehouse is slightly negative EBITDA and is expected to remain so until the second half of the year.
Likewise, I mentioned, the synergy realization will largely occur in fiscal 'twenty, two with 23 being its first full year in the P&L.
We continue a strong M&A pipeline for post and post holdings partnering Corp has numerous potential counterparties. However for core post executing pricing and improving supply chain performance, including synergy delivery remain a greater priority than near term M&A.
Hopefully you saw our release, describing the bell rang brands distribution.
Recall the transaction has three steps.
First we will execute a debt for debt exchange, which will generate cash to be distributed to <unk> stockholders at closing.
Second we will distribute at least 78 million shares of Bell ring in either a pro rata spin or via an exchange offer for post shares.
Finally, roughly six months after the initial two steps, we will monetize our remaining stake.
We believe this transaction will benefit both companies by enabling bell rang to trade on a more liquid fully distributed basis. It will also result in reduced leverage and complexity around the remaining post franchise.
There is no question. This is a challenging environment and will remain one for a bit longer I am grateful for the effort and the commitment of our teams while the consequences of Covid had add far more reaching impact and expect that the experience is making us better as we identify and cure supply chain weaknesses and become ever more crisp on pricing and revenue management.
With that I will turn the call over to Jeff.
Thanks, Rob and good morning, everyone.
Fourth quarter consolidated net sales were $1 7 billion and adjusted EBITDA was $272 $5 million.
Net sales increased 20% and benefited from approximately $100 million from recent acquisitions.
As well as volume demand recovery in the foodservice segment strong growth at Bell rang and pricing actions.
As Rob discussed higher manufacturing and freight costs were significant burdens on results this quarter and internal and external labor shortages disrupted our supply chain.
As a result throughput declined and per unit product costs increased <unk>.
Additionally, our customer order fulfillment rates suffered.
Moving to our segments, starting with post consumer brands net sales and volumes increased 11% and 7% respectively.
Excluding the benefit from the private label cereal and Peter Pan acquisitions, net sales and volumes declined 3% and 5%, respectively, primarily from continuing softness across value in private label cereal products.
Our exit of certain low margin business.
Our pebbles brand continues to show great growth with volumes up 7%.
Cereal average net pricing improved 2% driven by favorable product mix.
And pricing actions.
Adjusted EBITDA decreased 13% versus prior year.
Apply chain disruptions, including planned and unplanned maintenance downtime.
Drove declines in throughput and fixed cost absorption.
<unk> significantly higher manufacturing cost per pound of production.
This was exacerbated by input costs and freight inflation.
Weetabix net sales and adjusted EBITDA increased 12% and 13% respectively.
This growth was driven primarily by a stronger British pound to U S dollar exchange rate.
Total segment volumes were flat.
In private label Biscuit volumes declined as we lap COVID-19 related increased at home consumption in the prior year.
Setting these declines was growth in new product introductions, other private label cereal and drink products.
Lower trade spending drove a modest increase in average net pricing.
Supply chain disruptions, notably packaging and transportation availability.
All sets to this otherwise strong result.
Yeah.
Our foodservice business saw net sales and volume growth of 43% and 23%, respectively and were lifted by significantly higher away from home demand.
As with the third quarter revenue growth outpaced volume growth as revenue reflects the impact of our commodity cost pass through pricing model as we catch up with grain cost inflation.
Although we saw year over year and sequential growth. This quarter total segment volumes remain below pre pandemic levels.
Adjusted EBITDA improved to $56 million benefiting from volatile volume recovery improvements in average net pricing and better fixed cost absorption.
Higher freight costs, partially offset these benefits.
Fixed cost absorption like volumes remains below pre pandemic levels is labor availability and other supply chain disruptions.
Way on throughput driving higher per unit product costs sensor pressing volume growth.
Refrigerated retail net sales and volumes increased 12% and 10% respectively.
The volume growth included an 810 basis point benefit from acquisitions as well as organic growth inside dish and egg products.
Pricing actions drove increases in average net pricing for side dish sausage and cheese products.
Adjusted EBITDA decreased to $24 million and was pressured by significantly higher Sal cheese, and egg input costs increased freight and higher manufacturing costs.
Two our foodservice business labor availability and other supply chain disruptions drove higher product costs and constrained volume growth.
Primarily in side dishes and sausage.
<unk> net sales and adjusted EBITDA increased 20% and 7% respectively.
Top line performance was strong for both premier protein and diamond ties.
Premier protein sales increased 18% benefiting from distribution gains strong velocities and shake price increases.
<unk> net sales increased 41% driven by distribution gains lapping COVID-19 impacts strong velocities and higher net selling prices.
Higher freight and raw material costs drove a decline in segment gross margins.
You can hear further detail about <unk> results on their conference call later this morning.
Turning to cash flow, we had a strong quarter generating $193 million from operations.
Reduced working capital was a key contributor to this quarter's performance.
For the full year cash flow from operations was $588 million after deducting capital expenditures free cash flow was $396 million essentially flat to prior year.
Lower capital expenditures offset by higher working capital were the primary contributors for the year.
Our net leverage at the end of the fourth quarter as measured by our credit facility and excluding Bell rang.
Approximately six two times.
On this basis, we expect to deleverage between three quarters and a full turn once we have completed all of the steps in our announced separation of Bell rang.
With that I'll turn the call back to the operator for questions operator.
At this time, if you would like to ask a question. Please press star and one on your Touchtone phone.
And that is star and one.
We will pause a moment to allow any questions to queue.
Yeah.
And we'll go first to Chris Growe with Stifel.
Your line is open.
Hi, good morning, Thanks for the time.
Just just had a question for you if I could first and obviously.
Obviously, Rob a lot of companies are struggling with and battling through this environment of pricing to cost inflation, which has skyrocketed in your supply chain issues and obviously those worked against post this quarter.
I just want to get a sense of kind.
Each of those elements, if I could it sounds like from a pricing standpoint, well, there's obviously a lag in some areas foodservice as an example, you are pushing through pricing that will it sounds like offset cost inflation is that a reasonable assumption for fiscal 'twenty, two or do you expect to kind of achieve a rate of pricing through the year that will ultimately offset inflation in <unk>.
'twenty two.
The latter I think we will lag in Q1, and then we should achieve parity.
The middle of Q2 with the uncertainty of course being inflation from here.
Okay right right.
And the other thing was on the supply chain again like a lot of companies are having these issues as well, but I guess I sense a bit of a you know hopeful our view of the supply chain you had your challenges obviously this quarter, but I'm thinking like for example in refrigerated retail that seems to be improving a bit.
Reading that the right way or hearing that the right way or are we starting to see some improvement here in the supply chain that gives you a little more confidence in your your outlook for fiscal 'twenty two.
So you're reading that the right way I think if you are.
Do you have to almost go market by market because the labor market is such a local issue, but we have we've had at the peak six factories that we had what I would characterize as severe labor shortages.
And the timeframe Oh late August early September.
Of those three are now largely cured and three still have some fairly severe.
Shortages that were working through.
And it's not just a.
Lack of hiring the turnover is elevated right now as well so.
Yeah. If you look at the leading indicators first leading indicator is applications and those have moved significantly in the right direction.
We now need to make sure that we've got the right applicants and then once were high.
Hired and trained we do a good job of retaining I don't think we're any different than anybody else in this and.
In this particular issue, but it remains challenging as we worked through.
Kind of you know.
I think in the snake as we swallow the impact of this labor shortage through the first quarter, but I would say labor is the most significant.
Aspect of this that is improving with.
It's still a challenge in some ingredients still a challenge.
Okay.
And I know, we will have a chance to speak to Darcy about about bell ring, but in terms of their supply chain.
This is a disappointing quarter that yes, it's great retail growth or consumption growth I should say and then weaker shipments.
And I know that poses committed some capital here to try to help the bell ring along.
Is that a is that a like a sequentially improving supply chain issue as well for them to these cars did you see better and better.
Incremental supply each quarter that will allow them their sales to improve as well their shipments.
They do there is an element of co manufacturer execution that we are pushing so if you look back early.
In 'twenty, one and really up until the latter part of the fourth quarter.
Co manufacturers were attempting to keep pace with all the incremental consumption demand.
So they were performing ahead of their contract minimums.
Because of their own supply chain issues several of our contract manufacturers have returned to minimums, which has put some of the pressure specifically on September a bit into the first quarter, but we expect that to these same issue.
There was a one bespoke issue in terms of a.
Reasonably significant COVID-19 outbreak in one factory and our co man network, but in general it's the same issue facing our.
Co Man network, because it is the balance of the labor market in the country.
Okay, and then just related to that and then my last question.
The the capacity that posts, we'd like to build to helpful.
It's helped bell ring when women when could that would be ready to go and how much of the total capacity would that represent for bell ring.
It'll it'll take about 18 months to build and it's still a relatively modest portion of about 10% to 12% initially growing.
The factory.
As for lines with the potential to double.
So it will initially be a relatively modest piece of the entire network with the potential to grow.
Okay. Thanks for your time this morning.
Thank you.
Yeah.
Yeah.
We will go next to Andrew Lazar with Barclays. Your line is alright. Thanks. Thank.
Thank you very much.
Morning.
Maybe to start I wanted to just explore the I know, it's not the biggest aspect of things here in near term, but I wanted to explore this this co packing arrangement with Bell rang, just a little bit more for a moment.
Stan maybe the opportunistic nature of it I guess it seems like it's a bit at odds with with post plan to sort of be getting out of bell ring stock early next year.
Co man arrangement seems like it's sort of getting back into bell ringing more of like a pick and shovel sort of way, but maybe without the brand ownership. So I guess I'm trying to wrap my head around that a bit and better understand why maybe our current co packer for bell ring would not be stepping up to take on this opportunity.
Well, they certainly would at our so we are not the only part of the Bell ring network expansion well I would I would encourage you to look at it less from the <unk> side and more from the Michael Foods side. So by that I mean, Michael Foods is essentially a enormous ace uptick processor, that's essentially what we do in process.
So when you look at marginal opportunities to invest capital in.
Our core competencies within the Michael Foods network at a relatively low risk with a decent return in excess of our cost of capital. It was an interesting tactical strategic sorry Tactical initiative.
For Michael Foods to step into that mix of contract providers for salary and much as we do for some other customers within our foodservice network. So we see it from our Michael Foods perspective, as an expansion of our.
R R.
Our ingredient.
Yeah, sure ingredient manufacturing business Bel.
Bell Rang just happens to be the customer, we obviously have a considerable amount of confidence in the bell rang demand projections. So it felt like a relatively easy.
Way to allocate capital in businesses that we have very strong capabilities very strong knowledge of the demand side.
And take advantage of that relationship.
Great. Thanks for that and then in the release you I think you mentioned that in your fiscal second half of this year this past year.
A lot of most of the posts retail channel product categories trended towards growth rates that we're back to in line with their pre pandemic levels and I guess, just a little bit incongruent with what we still see is obviously very elevated growth trends for many companies in the packaged food universe and I guess, it's important right because it kind of gets to the debate on where.
There are not the packaged food players can exit the pandemic with even if slightly better growth rate moving forward given all the incremental trial. The past two years from the shift to annual meeting. So I guess I was hoping to get a little bit more clarity on this comment and what might be making maybe trends that youre seeing somewhat different than maybe what some others are if they are.
Yes, I think thats really a serial comment because both Bob Evans and Bell ring are reverting to a bit ahead of already very robust pre pandemic growth rates.
So you know I think that Oh.
I'm inferring your comment is more the slower growing getting back to slower growing or shrinking.
If you look at cereal, where I think that comment is most apps.
I think it's a shift in and.
Premium position within the category more than it is a category issue and private label. If you if you pull out private label I think the category.
Over 19 is up 3% to 4%. So I believe what we're seeing is more of an issue with private label specifically within that category strip. It out you see growth rates very consistent with some of the other center store categories. So I think its part.
Bleeding that are.
Lower income consumer.
I don't think it systemically different than other categories got it thanks, and very very quickly just it might be too early but any even anecdotal data point to get that sort of suggests that you're seeing consumers start to trade down a little bit whether it would be to some of your value brands or private label or is it is it still just too early for some of these macro conditions to have sort of forced back.
To happen no.
I think we are starting to see some anecdotal.
Well its data.
But it's very recent so if you look at the last four weeks and eight weeks you've got.
First some bottoming.
The trends so instead of declining there they're flat and then in the very recent weeks, we've seen some uptick in private label.
So.
It's too early to call it an inflection point, but.
If these trends continue it as an inflection point.
Thanks very much.
Yeah.
Yeah.
And we will go next to Jason English with Goldman Sachs.
Hey, good morning, Thanks for sneaking me in.
Good morning.
Okay.
Goodness lots of questions left.
Let's start with the easing of cost pressure by the end of <unk> can you unpack that a little bit more.
What specifically do you expect to ease is this predicated more on like spot holding begins a lap the upward move in the cost or are you actually underwriting sequential deflation.
No. We're certainly not underwriting deflation. So I think the comment I made was net of price increases. So we're assuming lapping pricing increases by the end of.
Fiscal <unk>.
Second fiscal quarter and at the rate of inflation will not dramatically accelerates or so that there's not a further lag effect on taking pricing.
But we're certainly not good.
And disinflation.
Where are we okay.
Okay.
Yeah, where we do expect to see some <unk>.
Cost improvement is on supply chain execution, as we get better health and our labor situation, which is improving so the controllable aspects of supply chain are improving.
The non controllable aspects of.
Various forms of input transportation inflation, we are not assuming will.
Moderate but that our pricing activities will lap the lag effect.
Understood that makes sense two questions on foodservice. So you have more volume flowing through this quarter grain prices sequentially eased and based on your pricing mechanism pricing should've sequentially moved higher.
I would've expected under those conditions, the EBITDA was sequentially grown not sequentially shrunk.
Hey, I am I right on those three drivers and if so what's the negative offset.
Okay.
Yes, you are right on those drivers and the negative offset as transportation and packaging, which are not hedged are inflating in the quarter at.
Double digit rates.
Okay.
And I hear you loud and clear.
Clear in fiscal 'twenty, three being back to sort of the first normal year, but I have a question on what normal is I've always thought about that business is predominantly in AG business, where consumption grows around two underlying eggs foodservice you premium miazine through more processing, adding another point and then conversion of shell too.
To process all in this can be like a 4% sort of volumetric volume mix grower that can be leveraged to at least 5% of the EBITDA you put out a presentation in September suggesting if you look at it quickly that maybe it's actually only a 2% to 3% EBITDA grower.
For a full cycle.
Is that right.
Should I really be thinking about this only as of 2% to 3% or is there more potential full cycle growth there.
No. We have no reason to believe once recovery and let's define recovery as profitability levels comparable to fiscal 19.
Rate of growth in foodservice has changed.
You know what.
What remains a bit uncertain as the baseline because we have yet to see full recovery and some segments, specifically travel, but we have no reason to believe that that rate has changed I think.
There were some mix of category growth rates in our presentation that may have led to that conclusion, but the expectation is again that we'll see.
<unk>.
Low single digit volume growth some shift to higher value added product and between the two of those will add it with what I believe we have said historically and continue to say, it's 3% to 5% EBITDA growth rate.
Okay got it. Thank you I appreciate it.
Sure.
Yes.
Well go next to David Palmer with Evercore ISI.
Your line is open.
Thanks, and just a follow up.
I can't help it on on the foodservice side it feels like your customers.
<unk> attach has been very strong within that Breakfasty segment. Those coffee players are talking about a lot of breakfast sandwiches being sold it just felt like when you look at an index of your potential customers. It would've been at least a few points.
Points higher than where the street was versus below so I'm wondering about just the shortfall of just your constraints versus what you thought would have been possible in terms of supply, but my real question was really on refrigerated retail I love some anatomy of the of the decline versus.
Of that EBITDA margin versus 2019 levels, when you think about pricing.
Pricing net of costs versus supply chain.
What impact do each of those have and then how did those get better as we think about maybe 19 being an anchor year getting back towards those mid.
Towards high teens actually EBITDA margins when can you get there. Thanks.
That was a long question, David So I'll do my best to.
Break that down.
Uh huh.
So if I if I don't get it please come back to the specifics but.
On foodservice your assumption is quite right, we should've sold more than we did.
The specific customers that order our highest value.
Products are doing quite well and demand is very strong.
100% of the answer is labor availability in key markets, where those products are made and I may have used this statistic in our third quarter call.
We pre pandemic expanded that network from 17 to 22 lines and we are currently only able to operate 18 lines, we expect that to change throughout the year, we expect to be at <unk>.
<unk> 19 by the third quarter and then full.
Full utilization of lines by the end of the year, but the single.
Source of the gap between what you would expect looking at our customers and what we were able to shift this labor availability.
Availability crimping our capacity.
So let me stop there and see if that.
Yeah, and I guess, I, yeah, no and I and I wonder what what happens to that business. I mean, these are big customers that want their egg sandwiches, and so are you or other suppliers filling that in or is there a <unk>.
Back fill or is there a big quarter coming to you in one or two quarters as you potentially rebuilding their inventory.
It should be the ladder, we actually believe we have gained.
Gained share Theres, just not a whole lot of capacity.
This category so the.
Bigger customers are not where we have demand issues. So we're not providing as effectively that some of the smaller customers. So we are we will have a inventory rebuild when we have the inventory.
Got it and then with regard to refrigerated retail just a pricing net of commodities versus supply chain and the pace of recovery there. Thanks.
So so the pricing net of commodities is predominantly a salary issue.
And <unk> have been.
Extraordinarily volatile in the last year going from a low of 26 to a high of 93 or so thereabout 70, now so we've been chasing that and as we chase that we have bracket pricing. So it's an automatic.
Reprice, but it puts margin pressure on the op margin benefit on the down.
So that will be a consistent.
Source of margin variability.
As long as we have that.
Particular line and price it accordingly over time, it really over time. It has a nice return on its capital, but it does create some margin variability.
Core potato business.
Has priced perfectly well it has no pricing excuse me has no cost ahead of pricing no issues there the issue with our.
<unk>.
Our.
Side dish business is that for a while that particular plant was our most acutely challenged plant from a labor perspective.
We were we have demand that would be.
Be in the 15 million pounds, a month or more and we had dipped to a capacity of.
Less than 7 million pounds, we added glide path to get back to 12 backed by April and we are now already just shy of 12, so well ahead of our expectation as we cure the labor situation that was the root cause of many first and second derivative issue.
Is that we're driving incremental costs within that particular segment so of <unk>.
Most optimistic from a trajectory perspective.
Refrigerated retail about the pace of recovery in the margin restoration because it is largely an issue of having to pay a higher tolling charge to go to third party manufacturers and having extremely poor throughput in the factories driving fixed absorption down.
Great. Thank you.
Thank you.
Okay.
Well go next to Michael <unk> with Piper Sandler.
Oh.
Thank you and good morning.
Hey, Michael.
You've called out labor as a headwind and obviously, we hear that all.
All over the group, but.
Can you give a sense in your outlook, what assumptions, you're making about a vaccine mandate. It's surely got a date with the Supreme Court. So it doesn't seem like it's completely settled just yet but are you factoring in what might be a potentially reduced even further labor market or how are you thinking.
About factoring that in.
It's a great question, Michael and we are certainly planning it but no we have not factored in that the vaccine mandate will further crimp the labor market I think the.
The impact that it could have some incremental cost.
But.
I don't think if that.
<unk> out as as drafted.
Drafted I don't know if I should say as expected.
It would probably be an incremental cost of a handful of millions of dollars to us to monitor and test.
But we would need to push through that.
In terms of paying it pretty aggressively in order to make sure that we don't further exacerbate.
The labor issue.
Okay, Great that's helpful.
This got touched on a little bit with with one of Andrews questions, but.
Just going back to the low end consumer.
Certainly you are looking at what may be an inflection point.
Can you just maybe quantify a couple of things do you do you have a sense of how much.
You know what percentage of your cereal consumers are snap recipients.
And obviously, we've already seen the PBT piece of those benefits roll off which is significant and that seems to coincide with the timing you're looking at for bottoming in and potentially turning a corner.
Is that a.
A substantial piece of your consumer base and is that what might be driving that.
You've been giving some hope that this is really on the rebound.
100%, yes.
When the.
When the changes went into effect was precisely when we saw.
The bottoming and then they.
Start to lift in private label I don't have the specific percentage, but it's a material portion of the cereal category.
Okay, great. Thanks, so much.
Thank you.
Well go next to Ken Zaslow with bank of Montreal.
Hey, good morning, everyone.
Yeah.
As you think about the transaction is there any sort of thoughts of revisiting it given where everything is it.
You know is the snowball rolling down the Hill, how do you think about that and the value creation from your asset.
To clarify you mean, the bell rang transaction.
Yeah, I'm sorry, yes.
No I think I think the notion that the two businesses.
Ought to be separated.
<unk> price agnostic what is not is how you do it and.
And as we have laid out.
At each step along the way.
We will make determinations around how to execute it as we get close as we get closer to the execution.
And by that of course, I mean as I had in my prepared comments do we simply distributed to shareholders or do we use the Belgian currency as a means of shrinking post share. So it's obviously relative value.
So that that is the only piece that I would characterize as oh uncertain and impacted by the relative changes in the two companies' share prices.
Okay.
The second question I have and I'll keep it to two questions.
You did say that.
We're gonna be.
Celebrating the marketing investment I believe it was.
The I don't remember exactly right.
Alright.
Is that is that that's an interesting move given the capacity constraints. What do you see that gives you the confidence to be able to use it.
Not parallel with the commentary I'm, saying, Hey look we're still capacity constraint is there a timing and how do you see that playing out.
There is timing so.
What I what I commented on is that we expect.
Towards the latter half of the year to be more fully engaged in driving demand in that category and that specifically the reference I was making to the side dish business, which has gone from.
A really acute flavor situation to largely a solved one in a short timeframe. So it's the business. We are seeing the most rapid improvement from a supply chain and an output perspective, so that gives us confidence that by the time, we get into the second half we would be in a position to drive incremental.
Demand.
Okay.
It doesn't I mean, so again, obviously I guess your level of confidence is very high that it's just a very.
Seemingly a fairly aggressive stair step without making sure the inventories are rebuilt but I understand thank you very much.
But largely self policing so if we are wrong by a quarter.
We will know that in time not to spend the advertising.
Okay, Great I appreciate that.
Mark.
Thank you.
Yeah.
Yeah.
Okay.
And this does conclude today's Q&A session in the post Holdings Q4, 2021 earnings call you may now disconnect.
Thank you.
Okay.
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