Q4 2021 TreeHouse Foods Inc Earnings Call
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Speaker 1: Welcome to the Treehouse Foods fourth quarter 2021 conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Please note this event is...
Welcome to the Treehouse Foods fourth quarter 2021 conference call all participants will be in listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one please.
Please note this event is being recorded.
Speaker 1: At this time, I would like to turn the call over to Treehouse Foods for the reading of the Safe Harbor Statement.
At this time I would like to turn the call over to Treehouse foods for the reading of the Safe Harbor statement.
Speaker 2: Good morning and thanks for joining us today. This morning we issued a press release which is available along with a slide presentation in the investor relations section of our website at treehoused
Good morning, Thanks for joining us today.
Morning, We issued a press release, which is available along with a slide presentation in the Investor Relations section of our website at Treehouse Dot com.
Speaker 2: Before we begin, we'd like to advise you that all forward-looking statements made on today's call are intended to fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Before we begin we'd like to advise you that all forward looking statements made on today's call are intended to fall within the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Speaker 2: These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statement.
These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward looking statements.
Speaker 2: information concerning those risks is contained in the company's filings with the FCC.
Information concerning those risks is contained in the company's filings with the SEC.
Speaker 2: In addition, we'll be discussing operating and financial results on an adjusted basis. Reconciliation of these non-GAAP measures referenced during today's discussion to their most direct, comparable GAAP measures can be found in today's press release on our website. I'd now like to turn the call over to our CEO and President, Mr. Steve O'Brien.
In addition, we will be discussing operating and financial results on an adjusted basis.
A reconciliation of these non-GAAP measures referenced during today's discussion to their most direct comparable GAAP measures can be found in today's press release on our website.
And now I'd like to turn the call over to our CEO and President Mr. Steve Oakland.
Speaker 3: Thank you, PI, and good morning, everyone. We appreciate you joining us today, and I hope everyone has had a good start to the new year.
Thank you Pi and good morning, everyone. We appreciate you joining us today and I hope everyone has had a good start to the new year.
Speaker 3: Before I get into the details of the results and our outlook.
Before I get into the details of the results and our outlook.
Speaker 3: I want to update you on the strategic review process that we announced last quarter.
I want to update you on the strategic review process that we announced last quarter.
Speaker 3: We are actively engaged in that process, including the possible sale of the company or a transaction that would enable us to focus on our higher growth snacking and beverage business.
We are actively engaged in that process, including the possible sale of the company.
Or a transaction that would enable us to focus on our higher growth snacking and beverage businesses through the sale of a significant portion of our meal prep segment.
Speaker 3: through the sale of a significant portion of our meal prep sector.
Speaker 3: We don't have more detail to share today, but we will keep you informed when we have new information to provide.
We don't have more details to share today, but we will keep you informed when we have new information to provide.
Speaker 3: Our strategic review follows a great deal of effort over the last several years to stabilize and strengthen our business.
Our strategic review Paul is a great deal of effort over the last several years to stabilize and strengthen our business and position us for long term sustainable growth, we are delivering on our commitment to drive operational and commercial excellence optimize our portfolio and invest in our people and talent.
Speaker 3: and position us for long-term sustainable growth. We're delivering on our commitment to drive operational and commercial excellence, optimize our portfolio, and invest in our people and talent.
Speaker 3: Building on that progress, the reorganization into our snacking and beverage and meal prep divisions nearly two years ago better positioned each business for success.
Building on that progress the reorganization into our snacking in beverage and meal prep divisions, nearly two years ago better positioned each business for success.
Speaker 3: Our strategy remains critically important in not only how we operate in today's environment, but also how we are positioning ourselves for the future.
Our strategy remains critically important.
Not only how we operate in today's environment, but also how we are positioning ourselves for the future.
Speaker 3: As we strive to be focused category leaders, driving depth and investing in consumer advantaged higher growth categories, we are fueling our strategy.
As we strive to be focused category leaders driving depth and investing in consumer advantaged higher growth categories.
We are fueling our strategy through our cash engine businesses.
Speaker 3: And, as we position Treehouse for the future, all of these efforts have been critical in helping us navigate the current operating environment.
And as we positioned treehouse for the future all of these efforts have been critical in helping us navigate the current operating environment.
With that said, let me now turn to our fourth quarter results.
Speaker 3: With that said, let me now turn to our fourth quarter result.
Speaker 3: On slide three, we've summarized the points we'd like you to take away today.
On slide three we summarize the points, we'd like you to take away today.
Speaker 3: We continue to be encouraged by the strengthening demand across our category.
We continue to be encouraged by the strengthening demand across our categories, which reaffirms the strong underlying fundamentals for private label.
Speaker 3: which reaffirms the strong underlying fundamentals for private labor.
Speaker 3: As we told you last quarter, we remain focused on investing to serve our customers through this difficult period. As we believe that's the right decision.
As we told you last quarter, we remain focused on investing to serve our customers through this difficult period.
As we believe that's the right decision for the long term.
Speaker 3: Next, we continue to implement pricing actions to recover inflation across our supply chain.
Next we continue to implement pricing actions to recover inflation across our supply chain.
Speaker 3: In the quarter, pricing realization was strong, which is a good sign of that progress.
In the quarter pricing realization was strong which is a good sign of that progress.
Speaker 3: Although we don't believe we have seen inflation peak, I'm proud of the way our commercial teams have worked with our customers throughout this period.
Although we don't believe we've seen inflation peak I'm proud of the way our commercial teams have worked with our customers throughout this period.
We continue to provide a high level of detail and transparency around pricing, which is supporting a much greater level of collaboration.
Speaker 3: We continue to provide a high level of detail and transparency around pricing, which is supporting a much greater level of collaboration.
Speaker 3: with our customers than we've seen during prior inflationary periods.
With our customers than we've seen during prior inflationary periods.
Pricing across our various categories is incredibly dynamic.
Speaker 3: Pricing across our various categories is incredibly dynamic. As I mentioned on our last call, we worked with our customers to affect additional pricing this past December .
As I mentioned on our last call, we worked with our customers to affect additional pricing this past December .
Speaker 3: We have also completed virtually all communications of a pricing action that will be effective at the end of March.
We have also completed virtually all communications of a pricing action that will be effective at the end of March.
Speaker 3: And should we see further inflation beyond our current expectations, our teams will be prepared to take the appropriate pricing. As you all know, today's macro challenges, and I'll cover the operating environment in a minute, have impacted the entire landscape and are expected to continue into 2022. But, importantly, we're…
Should we see further inflation beyond our current expectations, our teams will be prepared to take the appropriate pricing.
As you all know today's macro challenges and I'll cover the operating environment in a minute have impacted the entire landscape and are expected to continue into 2022.
Importantly, we are working very hard on everything.
Speaker 3: But we're most focused on controlling those things that we can control.
But we're most focused on controlling those things that we can control.
Speaker 3: We think our action steps to improve service, recover inflation through pricing, and address labor and supply chain disruption will lead to improved profitability, particularly in the back half of 2022.
We think our action steps to improve service recover inflation through pricing.
And address labor and supply chain disruption.
Will lead to improved profitability, particularly in the back half of 2022.
Speaker 3: Bill will give you more color on our thoughts on how we expect 2022 to play out.
Bill will give you more color on our thoughts on how we expect 2022 to play out.
Speaker 3: Importantly, we believe we have a path for profitability to approach pre-pandemic levels by the end of 2020.
Importantly, we believe we have a path for profitability to approach pre pandemic levels by the end of 2022.
Speaker 3: and return to more normalized levels of profit in 2023.
And return to more normalized levels of profit in 2023.
Turning to slide four I will draw your attention to the two charts on the right.
Speaker 3: Turning to slide 4, I'll draw your attention to the two charts on the right related to labor,
Related to labor.
And the supply chain.
Speaker 3: You've heard other companies talk about this, but let me give you a sense for how the broader macro disruption has been impacting us.
You have heard other companies talk about this but let me give you a sense for how the broader macro disruption has been impacting us.
Speaker 3: Like other manufacturers, plant attendance has been inconsistent.
Like other manufacturers plan attendance has been inconsistent.
Speaker 3: We're working hard to address these issues by implementing new recruiting strategies and being creative about how we attract and retain talent.
We're working hard to address these issues by implementing new recruiting strategies and being creative about how we attract and retain talent.
Speaker 3: We've increased schedule flexibility and are offering greater benefits.
We've increased schedule flexibility and our offering greater benefits.
Speaker 3: We are encouraged by the improvements we are seeing in some of our facilities, but it will take time for things to get back to a new normal.
We are encouraged by the improvements we are seeing in some of our facilities, but it will take time for things to get back to a new normal.
Speaker 3: Challenges across our supply networks range from product availability to scheduling issues caused by product not showing up on the right day or at the right time.
Challenges across our supply networks range from product availability to scheduling issues caused by product not showing up on the right day or at the right time.
Speaker 3: The result is production scheduling difficulties, downtime, and inefficiency.
The result is production scheduling difficulties downtime and inefficiency.
These labor and supply chain issues are dictating not only how much we can produce but how efficiently we can produce it.
Speaker 3: are dictating not only how much we can produce, but how efficiently we can produce it.
Speaker 3: Finally, like others in the packaged food industry, we are managing through ongoing freight challenges.
Finally, like others in the packaged food industry, we are managing through ongoing great challenges, including both cost escalation and shipping delays.
Speaker 3: including both cost escalation and shipping delays.
From a financial perspective, the macro environment has had a twofold impact.
Speaker 3: From a financial perspective, the macro environment has had a two-fold impact.
Speaker 3: first, on the top line, it's limiting our ability to service all of our demands.
First on the topline, it's limiting our ability to service all of our demand.
Speaker 3: And second, it's costing us significantly more in the near term to operate our plants and to deliver our products to the customer.
And second it's costing us significantly more in the near term to operate our plants and to deliver our products to the customer.
Speaker 3: That said, we continue to believe that investing to service the customer and build those relationships are the right things to do for the long term.
That said, we continue to believe that investing to service the customer and build those relationships are the right things to do for the long term.
Speaker 3: Let me now take you through the key metrics for the fourth quarter on slide five.
Let me now take you through the key metrics for the fourth quarter on slide five.
Speaker 3: Revenue of 1.17 billion was just above the high end of our guidance.
Revenue of $1 7 billion was just above the high end of our guidance range.
Speaker 3: This was a decline of 1% versus last year, and down 3.8% on an organic...
This was a decline of 1% versus last year and down three 8% on an organic basis.
Speaker 3: limited by our ability to meet our customers' demands.
Limited by our ability to meet our customers demand.
Speaker 3: Adjusted EBITDA margin of 7% declined 610 basis points versus the prior year due to the challenges discussed across our labor force and supply chain.
Adjusted EBITDA margin of 7% declined to 610 basis points versus the prior year due to the challenges discussed across our labor force and supply chain.
Speaker 3: Adjusted diluted EPS of 11 cents in the fourth quarter was in line with our latest guidance revision.
Adjusted diluted EPS of <unk> 11 in the fourth quarter was in line with our latest guidance revision.
Before I turn it over to Bill I want to make sure I Express my gratitude to the Treehouse team for their ongoing dedication focus and agility.
Speaker 3: Before I turn it over to Bill, I want to make sure I express my gratitude to the Treehouse team for their ongoing dedication, focus, and agility. Thank you for your hard work and effort, particularly in this challenging operating environment. I want to let you know how much we appreciate everything you're doing to help us serve our customer day in and day out.
For your hard work and effort, particularly in this challenging operating environment.
To let you know how much we appreciate everything you're doing to help us serve our customer day in and day out.
Speaker 3: With that, let me turn it over to Bill to cover our results in more detail, as well as give you our outlook and guidance for the year. I'll come back afterwards with a few closing comments before we open a call to your questions.
With that let me turn it over to bill to cover our results in more detail as well as give you our outlook and guidance for the year I'll come back afterwards with a few closing comments before we open the call to your questions.
Bill.
Speaker 4: Thank you Steve. Good morning everyone. Thanks for joining us today.
Thank you Steve Good morning, everyone. Thanks for joining us today.
Speaker 4: Let me start by echoing Steve's comments and say thank you to our Treehouse employee.
Let me start by echoing Steve's comments and say, thank you to our Treehouse employees.
Speaker 4: We appreciate the hard work and dedication you continue to put forth every day. I'll start on the next slide.
We appreciate the hard work and dedication you continue to put forth every day.
I'll start on slide six with our scorecard.
Speaker 4: As you notice, our top line revenue is $1.17 billion.
Steve noted our topline revenue one $1 7 billion.
Speaker 4: This compares favorably to our latest guidance range of $1.04 to $1.16 billion.
This compares favorably to our latest guidance range of one four to $1 one $6 billion.
Speaker 4: Because the fourth quarter is our seasonal peak and the macro environment remains challenging, we again had significantly higher demands than we could accept in service. The fourth quarter just EPS was 11 cents, just above the midpoint of our...
Because the fourth quarter is our seasonal peak in the macro environment remains challenging.
We again had significantly higher demand than we can accept and service.
Fourth quarter adjusted EPS was <unk> 11.
Just above the midpoint of our guidance.
Slide seven details our revenue drivers by division.
Speaker 4: Mill prep fourth quarter organic sales declined 3.9 percent.
Milt that fourth quarter organic sales declined three 9%.
Speaker 4: Volume and mix decline 11%. Driven by production constraints.
You may mix declined 11%.
Driven by production constraints with Pos related, though having the most meaningful impact.
Speaker 4: with pasta and refrigerated dough having the most meaningful impact. Pricing was strong.
Pricing was strong and contributed seven one points.
Speaker 4: reflecting increases in oils, durum, coffee, and packaging.
Slightly increases in oils dorm coffee and packaging.
Speaker 4: The branded pasta acquisition, which we closed in December 2020.
The branded pasta acquisition, which we closed in December 2020.
Speaker 4: contributed an incremental 4.3 points of volume year over year.
Contributed an incremental $4 three points of volume year over year.
Speaker 4: Like much of Mill Prep, our branded pasta business has also been on allocation due to labor and supply constraints.
Like much of <unk> branded pasta business has also been on allocation due to labor and supply constraints.
Speaker 4: However, we continue to be pleased with how well the integration has gone and the contributions from the brand to pasta business over the past year.
However, we continue to be pleased with how well the integration has gone and the contributions from the branded pasta business over the past year.
Speaker 4: Snacking in beverages, organic sales was down 3.9%, with categories like crackers and frozen waffles on allocation. Volume and maintenance was down 3.9%, with categories like crackers and frozen waffles on allocation.
Banking and beverages organic sales was down three 9% with categories like crackers and frozen waffles on allocation.
Volume and mix declined seven 1%.
Speaker 4: Pricing of 3.2% was driven by the rise in oils, wheat, and packaging.
Pricing of three 2% was driven by the rise in oils, we are packaging.
Speaker 4: On slide 8, we provided revenue drivers by channel.
On slide eight we provide a revenue drivers by channel.
Speaker 4: Each bar represents the change in net sales dollars year over year.
Each bar represents the change in net sales dollars year over year.
Speaker 4: Our retail sales to measure channels, which is tracked in private label syndicated data, declining $26 million.
Our retail sales to measured channels, which is tracking within private label syndicated data.
Declined $26 million.
Speaker 4: Its labor and supply chain headwinds constrain our ability to service improving demand.
As labor and supply chain headwinds constrained our ability to service improving demand.
Speaker 4: We continue to see better performance within the unmeasured channels, which includes major, value, club, specialty, and e-commerce retailers.
We continue to see better performance within the unmeasured channels, which includes major value club specialty and e-commerce retailers.
Speaker 4: Unmeasured channel sales without only slightly on a year-over-year basis.
Unmeasured channel sales were down only slightly on a year over year basis.
Speaker 4: The food away from home channel continues to improve, as revenue is up $12 million or 21%. Finally, co-manufacturing and other grew 4% in the fourth quarter.
The food away from home channel continues to improve as revenue was up $12 million or 21%.
Finally, co manufacturing and other grew 4% in the fourth quarter.
Slide nine provides our profit drivers.
Speaker 4: Volume and mix and cooling absorption was at negative 52 cents versus last year. Service levels after allocations for most of the quarter were below 90.
Volume and mix in clean absorption was a negative 52 versus last year at service levels. After allocations for most of the quarter or in the low nineties.
Speaker 4: Although pricing net of commodity costs, or PNOC, was a negative 45 cents in the quarter, we are now seeing an improvement.
Although pricing net of commodity costs are peanut was a negative 45 cents in the quarter. We are now seeing that improvement.
Speaker 4: Our commercial team's pricing efforts to recover inflation continues to flow through the P&L.
Our commercial teams pricing efforts to recover inflation continues to flow through the P&L.
Speaker 4: Operations of negative 18 cents was more than explained by labor shortages and supply chain challenges, which have created a higher cost...
Operations of negative 18 was more than explained by labor shortages and supply chain challenges, which have created a higher cost manufacturing environment.
Speaker 4: Fourth quarter SG&A was favorable by 14 cents as we continued our focus on controlling spending.
Fourth quarter SG&A was favorable by 14.
As we continued our focus on controlling spending.
Speaker 4: Finally, interest and taxes together contributed about 5 cents versus the prior year. Slide 10
Finally interest and taxes together contributed about <unk> <unk> versus the prior year.
Slide 10 demonstrates the strong progress we've made on our balance sheet.
Speaker 4: In 2021, we generated free cash flow of $216 million and have improved utilizing that cash flow to reduce that.
In 2021, we generated free cash flow of $260 million that have been pruned utilizing that cash flow to reduce debt.
Speaker 4: Last year, we paid down more than $300 million in debt, finishing the year with $1.9 billion in total.
Last year, we paid down more than $300 million in debt finish.
Finishing the year with $1 9 billion in total.
Speaker 4: liquidity at year end was more than $1 billion between cash and our revolver.
Liquidity at year end was more than $1 billion between cash and our revolver.
Speaker 4: Trainers by 11, we shared this chart with you back in November which now reflects our actual results.
Turning to slide 11, we showed this chart with you back in November which now reflects actual results.
Speaker 4: The point of this slide was to give you in broad strokes a sense of how 2021's challenges impacted a more normalized level of profitability.
The play of the slide was to give you in broad strokes that sense of how 2020 was challenges impacted a more normalized level of profitability.
Speaker 4: We do not believe these factors to be structural but rather episodic in nature.
We do not believe these factors to be structural but rather episodic in nature.
We continue to believe that the underlying earnings power for our business is about $200 million in EBIT.
Speaker 4: We continue to believe that the underlying earnings power for our business is about $300 million in EBIT, or just over $500 million on the adjusted EBIT.
Just over $500 million on an adjusted EBITDA basis.
Speaker 4: With that as a backdrop and before I lay out our 2022 values.
With that as the backdrop and before I lay out our 2022 guidance, let me first share how we're thinking about the macro environment on slide 12.
Speaker 4: Let me first share how we're thinking about the MACL environment on slide 12.
Speaker 4: We anticipate that we'll see demand for private label continue to strengthen, giving us confidence that we have opportunities.
We anticipate that we will see demand for private label continue to strengthen.
Given us confidence that we have opportunity to gain share.
Speaker 4: We also expect that labor and supply chain will remain difficult through at least the first half of the year.
We also expect that labor and supply chain will remain difficult through at least the first half of the year.
Speaker 4: This will continue to pressure our service levels and our ability to meet all of the demands.
This will continue to pressure our service levels and our ability to meet all of the demand.
Speaker 4: Today, well about half of our 29 categories are on allocation. We do anticipate improvement.
Today, while about half of our 29 categories are on allocation, we do anticipate improvement as the year progresses.
Speaker 4: Inflation is also expected to continue in 2022, but we are now seeing the benefit of our price recovery efforts reflected in the P&L.
Inflation is also expected to continue in 2022.
We are now seeing the benefit of our price recovery efforts reflected in the P&L.
Speaker 4: As we discussed earlier, our next pricing action will be expected in late March.
As we discussed earlier, our next pricing action will be effective in late March.
Speaker 4: Should commodity and freight inflation escalate beyond our current expectations, we are prepared to communicate and implement further pricing to recover those costs.
Should commodity and freight inflation escalate beyond our current expectations, we are prepared to communicate and implement further pricing to recover those costs.
On slide 13, we provided our annual guidance.
Speaker 4: We expect next growth of at least 11% in 2022.
We expect net sales growth of at least 11% in 2022.
Speaker 4: Adjust-A-Vadak is projected to be between $385 to $415 million.
Adjusted EBITDA is projected to be between $385 million to $415 million.
Speaker 4: CapEx is estimated to be approximately $135 million for the year.
Capex is estimated to be approximately $135 million for the year.
Speaker 4: This year we provided a more abbreviated set of guidance matches.
This year, we provided a more abbreviated set of guidance metrics.
Speaker 4: In addition, our chart is not intended to imply quarterly guidance.
In addition, our charter is not intended to imply quarterly guidance.
Speaker 4: but rather give you more of a road map to help think about how the year will unfold and profitability will improve.
But rather give you more of a roadmap to help think about how the year will fall and profitability will improve.
Yeah.
Let me start by talking about the drivers of our top line growth of at least 11% this year.
Speaker 4: Let me start by talking about the drivers or top line growth of at least 11% this year.
Speaker 4: In terms of pricing, we continue to do an excellent job working collaboratively with our customers as we do all we can to serve consumers.
In terms of pricing, we continue to do an excellent job working collaboratively with our customers as we do all we can to serve consumers.
Speaker 4: Those pricing efforts will drive top-line growth in the low double digits as we start the year.
Those pricing efforts will drive topline growth in the low double digits as we start the year.
We've taken additional pricing that was largely communicated and will be effective at the end of March.
Speaker 4: We have taken additional pricing that was largely communicated and will be effective at the end of March. We expect pricing to build as the year goes on.
We expect pricing to build as the year goes on.
Speaker 4: In terms of our view on volume, the impact of labor and supply chain disruption is expected to put continued pressure on service levels through at least the first half of the year.
In terms of our view on volume the impact of labor and supply chain disruption is expected to put continued pressure on our service levels through at least the first half of the year.
Because of this we anticipate that volumes will continue to be down most likely muting the impact of pricing early in the year.
Speaker 4: Because of this, we anticipate that volumes will continue to be down, most likely muting the impact of pricing early in the year.
Our labor supply chain and operations initiatives are expected to release some of the pressure in the back half and we anticipate a gradual improvement in both service levels and volumes.
Speaker 4: Our labor, supply chain, and operations initiatives are expected to relieve some of the pressure in the back half, and we anticipate a gradual improvement in both service levels and volumes.
Turning to profitability and our adjusted EBITDA guidance.
Speaker 4: Let me give you some thoughts on the cadence of the year and how to think about the adjusted royal effective groove cardio.
Let me give you some thoughts on the cadence of the year and how to think about the adjusted EBITDA margin progression.
Speaker 4: I'll start by reminding you that the first quarter of each year is typically our smallest from an earnings perspective.
I'll start by reminding you that the first quarter of each year is typically our smallest from an earnings perspective.
Speaker 4: In 2022, first quarter profitability will be impacted further by two issues. One, the ongoing disruption from the current labor and supply chain environment.
In 2022 first quarter profitability will be impacted further by two issues one the.
The ongoing disruption from the current labor at supply chain environment.
Speaker 4: and two, in the first quarter we will sell and recognize the impact of significantly higher cost inventory that was produced at the end of 2021 during the peak of this extraordinary
And two in.
In the first quarter, we will sell and recognize the impact of significantly higher cost inventory that was produced at the end of 2021 during.
During the peak of this extraordinary disruption.
As a result, our first quarter performance is expected to be well below historical levels.
Speaker 4: As a result, our first quarter performance is expected to be well below historical levels. At EBITDA Margin.
EBITDA margins will compress further.
In Q1, we expect the EBITDA margins could be as low as one fourth that of the prior year.
Speaker 4: In Q1, we expect the EBITDA margins could be as low as one-fourth that of the prior year.
Speaker 4: As a reminder, our adjusted EBITDA margin in the first quarter of 2021 was 9.6%.
As a reminder, our adjusted EBITDA margin in the first quarter of 2021 was nine 6%.
Speaker 4: I am confident we will work our way out of this higher cost environment.
I am confident we will work our way out of this higher cost environment.
While I can't predict when the macro environment normalizes I am confident that the actions and initiatives as Steve said earlier, we will address the disruption and we are doing what we can to control the controllable.
Speaker 4: I'm confident that the actions and initiatives that Steve shared earlier will address the disruption. And we are doing what we can to control the controllable.
Speaker 4: As I noted earlier, we anticipate price in the build and service in volumes to improve.
As I noted earlier, we anticipate pricing to build and service and volumes to improve.
Speaker 4: These factors support our belief that just able to have margins will expand throughout 2020.
These factors support our belief that adjusted EBITDA margins will expand throughout 2022.
Speaker 4: In the back half of the year, I believe that EBITDA margins will begin to approach pre-pandemic levels.
In the back half of the year I believe that EBITDA margins will began to approach pre pandemic levels, which on average were in the 11% to 12% range.
Speaker 4: which on average were in the 11 to 12 percent range.
Speaker 4: Importantly, we believe the long-term earnings power of our business is intact, and the fundamentals of private labor may help.
Importantly, we believe the long term earnings power of our business is intact and the fundamentals of private label remained healthy.
Speaker 4: as we exit 2022 and enter 2023, as demand continues to strengthen, as inflation abates, and as we better mitigate the impact of labor and supply chain disruption.
As we exit 2022 and enter 2023 as demand continues to strengthen.
Deflation abates and as we better mitigate the impact of labor and supply chain disruption.
Speaker 4: We believe that we have an opportunity to return to more normalized levels of profit of around $500 million in adjusted EBITDA.
We believe that we have an opportunity to return to more normalized levels of profit of around $500 million and adjusted EBITDA.
Speaker 4: With that, I'd like to turn it back to Steve for closing comments.
With that I'd like to turn it back to Steve for closing comments.
<unk>.
Thanks Bill.
Speaker 3: Thanks, Bill. I opened my remarks today commenting on the strengthening demand we're seeing across our category.
Open my remarks today, commenting on the strengthening demand, we're seeing across our categories I'd like to close today by talking about how important and frankly encouraging that is.
Speaker 3: I'd like to close today by talking about how important and, frankly, encouraging that is.
We are on a transformational journey.
Speaker 3: It's difficult for you to see the impact of that work given the COVID disruptions. We are confident that we are improving our operations.
It's difficult for you to see the impact of that work given the COVID-19 disruptions we.
We are confident that we are improving our operations, we have built a world class commercial organization.
Speaker 3: We've reorganized to better align our businesses with our retail customers.
We've reorganized to better align our businesses with our retail customers.
Speaker 3: and we continue to prioritize the health and safety of our employees.
And we continue to prioritize the health and safety of our employees.
Speaker 3: In 2021, we successfully executed pricing to recover inflation that far exceeded prior periods within the company's history.
In 2021, we successfully executed pricing to recover inflation that far exceeded prior periods within the company's history.
Speaker 3: We also invested in service to the customer at the expense of our near-term profitability.
We also invested in service to the customer at the expense of our near term profitability.
Speaker 3: We've done all this because fundamentally, Private Label remains a key strategy for our retail customers and an attractive long-term growth opportunity.
We've done all of this because fundamentally private label remains a key strategy for our retail customers and an attractive long term growth opportunity.
Speaker 3: We are the private label supply chain for our customers' brands, and we are uniquely positioned to participate in that growth as things normalize.
We are the private label supply chain for our customers' brands and we are uniquely positioned to participate in that growth as things normalize.
Private label growth is driven by both consumer demand and retail customers, who are focused on growing their private label presence and strengthening their own brands.
Speaker 3: Private label growth is driven by both consumer demand and retail customers who are focused on growing their private label presence and strengthening their own brand.
Speaker 3: We've included a few of their recent comments on slide 14.
We've included a few of their recent comments on slide 14.
Speaker 3: from a consumer demand perspective on the right side of slide 40.
From a consumer demand perspective on the right side of Slide 14. We've included a chart that we've shared with you in the past, indicating how private label share has changed versus two years ago.
Speaker 3: We've included a chart that we've shared with you in the past indicating how private label share has changed versus two years ago.
Speaker 3: The green line represents households earning above $100,000 a year, while the orange line represents households below that threshold.
The Green line represents households, earning above $100000 a year.
While the Orange line represents households below that threshold.
<unk> is the total.
As you can see in December both moved up which is an encouraging sign.
Speaker 3: As you can see in December , both moved up, which is an encouraging sign.
Speaker 3: Pre-pandemic, no one could have predicted the ups and downs over the last two years.
Pre pandemic no one could have predicted the ups and downs over the last two years.
Speaker 3: This is why the strength we've been seeing in demand and our order flow indicates the progress we've been making on our transformation.
This is why the strength, we've been seeing in demand and our order flow indicates the progress we've been making on our transformation.
Speaker 3: while we are focused on transitioning to a point where we no longer have categories on allocation.
While we are focused on transitioning to a point, where we no longer have categories on allocation.
Speaker 3: were encouraged by the potential that demand represents for treehouse.
We're encouraged by the potential that demand represents for Treehouse.
Speaker 3: So as we look ahead, we are executing on strategies and actions that we believe will enable us to improve service and meet this growing demand.
As we look ahead, we are executing on strategies and actions that we believe will enable us to improve service and meet this growing demand.
Speaker 3: In the end, our 2022 results will be driven by our ability to meet our customers' demand and maintain a disciplined focus on our cost profile.
In the end, our 2022 results will be driven by our ability to meet our customers' demand and maintain a disciplined focus on our cost profile.
Speaker 3: By doing so, we believe we have a path to return our business to normalize profitability as we exit the year and move into 2023.
By doing so we believe we have a path to return our business to normalized profitability as we exit the year and move into 2023.
Speaker 3: Our investments in a customer are supporting our ability to service their demand, providing a platform for us to drive long-term sustainable growth for Treehouse. With that, let's hope you enjoyed this video.
Our investments in the customer are supporting our ability to service their demand providing a platform for us to drive long term sustainable growth for Treehouse.
With that let's open the call up to your questions.
Operator.
We will now begin the question and answer session I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Speaker 1: We will now begin the question and answer session. I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one.
Speaker 1: And your first question comes from a line of Chris Grove from Steeple. Your line is open.
And your first question comes from the line of Chris Growe from Stifel. Your line is open.
Thank you good morning, good morning, good morning, Chris.
Speaker 5: Morning, Chris. Morning, Chris. Hi. Hi. I just had a question if I could, just to get a better sense of that kind of EBITDA margin progression you expect through the year. So I was surprised by the degree of EBITDA margin decline you expect in the first quarter. I just thought it would be good to get a better sense of what's dragging on that. So you mentioned, Bill, some higher cost inventory. I thought it would be helpful to also understand kind of that volume pricing balance in the first quarter because pricing should be accelerating. It sounds like you're looking for a decent kind of price elasticity overall for the year. Is that a factor in the first quarter as well? Or is it all about that inventory effect on EBITDA margin?
I just.
Question, if I could just to get a better sense of that kind of EBITDA margin progression you expect through the year. So I was surprised by the degree of EBITDA margin decline you're expecting in the first quarter. I was just hoping you could get a better sense of what's what's dragging on that so you mentioned build some higher cost inventory.
Helpful to understand kind of the volume pricing balance in the first quarter because price seems to be accelerating.
It sounds like Youre looking for a decent kind of price elasticity overall for the year is that a factor in the first quarter as well as at all about that inventory effect on EBITDA margin.
Speaker 3: Chris, maybe I'll put a little more color on Bill's comments and then we'll let Bill comment on the progression.
Chris maybe I'll put a little more color on Bill's comments and then we'll have bill comment on the on the progression here. So.
Speaker 3: So, you know what, if you remember from Bill's comments, you know, historically, first quarter's a very small quarter for us, right? The demand signal for first quarter, as we talked about again in the prepared remarks, remains incredibly strong.
If you remember from Bill's comments.
Historically first quarter is a very small quarter for us right.
The demand signal for first quarter as we talked about it again in the prepared remarks remains incredibly strong for the quarter.
Speaker 3: But with that as a backdrop, we got to remember that Omicron hit North America's supply chain system right across the entire system incredibly hard in December .
But with that as a backdrop, we got to remember the omicron hit North America's supply chain system right across the entire system incredibly hard in December and January and Thats exactly when we produce the inventory for first quarter.
Speaker 3: And that's exactly when we produce the inventory for first quarter. So that first quarter inventory and then those sales will carry the burden of all of that disruptive cost, right, that macro disruption.
So that first quarter inventory and then those sales will carry the burden of all of that disruptive cost right macro disruption.
Speaker 3: You know, things like overtime, plan and efficiency, spot freight. There were times in the quarter where we bought ingredients off of our contracts, right? We do all of that because we think keeping the customers shelf stocked and then their consumers pantry stocked is the best thing for private label in the long term, but it was incredibly expensive over the quarter. So maybe Bill, do you want to talk about that?
Things like overtime plant inefficiencies spot freight there were times in the quarter, where we bought ingredients off of our contracts right. We do all of that because we think keeping the customers' shelves stocked and then their consumers pantry stock is the best thing for private label in the long term, but it was incredibly expensive over the quarter. So.
Maybe bill do you want to talk about the build of pricing yeah sure. Thanks, Steve Chris. Thanks for your question just to just to add additional color.
Speaker 4: Yeah, sure. Thanks, Steve. Chris, thanks for your question. Just to add an additional color.
Speaker 4: The pricing wraps nicely into first quarter and into the first half of the year, but the constraints that Steve just talked about, along with that higher cost inventory, is going to mute that impact.
The pricing, perhaps nicely into first quarter and into the first half of the year, but.
But to the constraints as Steve just talked about along with that higher cost inventory is going to mute that impact and you won't see that come through as far as we think of the year as it unfolds. We think service will improve we'll get labor back online and the supplier will benefit from all of our initiatives that we're taking so we do anticipate a challenging environment, but the pricing is.
Speaker 4: and you won't see that come through. As far as we think of the year as it unfolds, we think service will improve, we'll get labor back online.
Speaker 4: and the supply will benefit from all of our initiatives that we're taking.
Speaker 4: So we do anticipate a challenging environment, but the pricing is going to be helpful and the volume is muted and that's what forms our expectations for the first quarter and essentially the first half.
That would be helpful. In the volume of muted and that's what forms our expectations for the first quarter and essentially in the first half.
Speaker 6: Okay, and then just to maybe to follow that a little bit the level of pricing you're going to have in place, let's call it by the end of March roughly with this next round of pricing that would that be sufficient to offset inflation as you see it today? Such that, like, going forward from that point, you should be able to offset inflation. So call it roughly 2 Q. 3 Q and 4 Q.
Okay, and then just to maybe to follow that a little bit less.
Level of pricing that youre going to have in place let's call. It by the end of March roughly with this next round of pricing.
Would that be sufficient to offset inflation as you see it today such that like going forward from that point, you should be able to offset inflation, so call it roughly <unk> <unk> and <unk>.
Speaker 4: That's what's in our guidance, Chris. Obviously, we're not anticipating, we're not certain that inflation won't increase, obviously, and so there could be more actions that need to be taken. But to your point, the pricing that we have in the market that will be effective in March will be enough to offset our inflation as we go forward.
That's our that's what's in our guidance that Chris that obviously, we're not anticipating we're not certain that inflation won't increase obviously and so there could be more actions that need to be taken but to your point the <unk>.
And that we have in the market that will be effective in March will be enough to offset our inflation as we go forward.
Speaker 6: Okay. Thank you for all that color. I appreciate it. Thanks, Chris.
Okay. Thank you for all the color I appreciate it thanks, Chris.
Speaker 1: Your next question comes from the line of Andrew Lazar from Barclays. Your line is open. Great, thanks. Good morning everybody. Good morning Andrew. Good morning.
Your next question comes from the line of Andrew Lazar from Barclays. Your line is open.
Great. Thanks, Good morning, everybody good morning, Andrew Hi, Andrew Hey, there.
Speaker 6: I guess first off, Steve, I think on the last call, you talked about how you were starting to win new business and customers and such, given the company's decision to continue to invest in servicing the customer, even if it meant a higher cost in the near term.
I guess first off Steve I think on the last call you talked about how you were starting to to sort of win new business and customers and side just given the company is going to continue.
We continue to invest right in servicing the customer even if it meant a higher cost in the near term.
And I think in the release it Mike I think I've talked about some distribution losses.
Speaker 6: I think in the release, it might, I think I read the talk about some distribution losses being great.
Being greater than distribution gains and I, just want make sure I understand that a little bit is that sort of a new phenomenon or is it.
Speaker 6: And I just want to make sure I understand that a little bit. Is that sort of a new phenomenon or is it?
Speaker 6: is simply related to just supply constraints or something else? Because I'm trying to get a sense of how that corresponds to the earlier comments about picking up business based on all the investment that you've been doing. Yeah, certainly. I think that's simply two things. I think it's just.
Simply related to just supply constraints.
Something else because I'm trying to get a sense of how that corresponds to the earlier comments about picking up business based on all the investment that you've been doing.
Certainly I think thats.
Simply two things that I think it's just timing.
Speaker 3: timing for when things start, when things ended, and I think it just rattled into what came through in the fourth quarter and what didn't. And then, it wound it in the gutter.
For when things start when things ended and I think it just rattled into what came through in the fourth quarter and what didn't our book of business going into <unk>.
Speaker 3: this year into 2022 is larger than our book of business in 2021. Now the challenge is
This year into 2022 is larger than our book of business in 2021 now the challenge is not.
Speaker 3: achieving business or the order flow, it's really us fulfilling that demand. The key for us this year would be putting the right resources in place so that we can fulfill it and fulfill those new businesses. We are really cautious right now not to...
Achieving business or the order flow.
It's really us fulfilling that demand that the key for us this year will be putting the right resources in place so that we can control.
All of those new businesses, we're really cautious right now not to distract.
Speaker 3: not to disappoint the customer. And so there's probably more new business available to us today, but we're being cautious not to take that and disappoint them.
Not to disappoint.
The customer.
So theres, probably more new business available to us today, but we're being cautious not to take that and discipline.
Speaker 6: How do you see sort of market share playing out in terms of treehouse versus your direct sort of competitors? I mean, I'm assuming others are having similar if not worse.
Do you see sort of market share playing out in terms of treehouse versus your direct competitors I mean, I'm, assuming others are having similar if not worse.
Speaker 6: issues within the private liberal universe, it's harder for us to track your shares.
Within the private label Universe is harder for us to track your share specifically.
Speaker 3: You know that is the challenge, right? So when we talk about the macro share world, you've all seen private label improve sequentially over the last few months.
That is the challenge right. So when we talk about the macro share world.
You've all seen private label improved sequentially over the last few months. If you look at the last eight weeks right for the last eight weeks I believe will actually gain share something we haven't done in a long time during the pandemic right. So we see a very steady return.
Speaker 3: If you look at the last eight weeks, right, four of the last eight weeks, private label actually gained share, something we haven't done in a long time during the pandemic, right? So we see a very steady return for private label in the macros.
For private label in the macro sense.
Speaker 3: I do think that our industry, the complexity that's inherent in our industry, has affected our ability to
I do think that our industry the complexity that's inherent in our industry has affected our ability to.
Speaker 3: to fulfill all of that demand and I think that's reflected in the overall share number. Now specifically with Treehouse, the fact that the opportunities that are coming to us in the categories that we want, right, the core categories of the business, the growth businesses.
To fulfill all of that demand and I think thats reflected in the overall share number now specifically with Treehouse. The fact that the opportunities that are coming to us in the categories that we want right. The core categories of the business the growth businesses are coming to us whether we can accept them right now are not as dependent on that an individual category and do we have.
Speaker 3: are coming to us. Whether we can accept them right now or not is dependent on that individual category and do we have the capacity that the fact that they're coming to us.
The capacity that the fact that they're coming to US is a sign for me that we are we continue to win share does that makes sense.
Speaker 3: is a sign for me that we continue to win share. Does that make sense? Yep, absolutely. And the very last thing, Bill, maybe a number to arrange the type of inflation that you're looking for this year, at least as it stands today. Thanks, reflects!!!
Absolutely and the very last thing Bill.
Maybe a quite a number two or a range that type of inflation that you are youre looking for this year at least as it stands today. Thanks so much.
Speaker 4: Yeah, thank you, Anjoubi. Our range of inflation is mid to high teens is what we're expecting. Obviously, if that's higher, we will take further actions, pricing included along with...
Yes, Thanks, Andrew.
Our range of inflation is mid to high teens is what we're expecting obviously that is higher we will take further actions pricing included along with some initiatives that we're managing internally and just before you leave the other comment on just the.
Speaker 4: some initiatives that we're managing internally. And just before you leave the other comment on just the.
Speaker 4: on the un-serviced revenue. You know, if you quantify that for us in the quarter, that would have really taken our reported revenue that was down 1% up to almost, you know, 5%, or just over 5%. So it was a significant drag on us in the quarter, but revenue was pretty strong.
And service revenue.
Quantify that for us in the quarter that would have really taken our reported revenue was down 1% up to almost 5% or just over 5%. So it was a significant drag on us in the quarter, but revenue was pretty strong that.
Speaker 6: That's if you could have serviced all the demand you're saying. That's right. That's correct. Thank you.
If you could have serviced all of the demand youre, saying Thats right Thats correct.
Okay.
Speaker 1: Your next question comes from a line of Al Chappelle from Truist Securities. Your line is open.
Your next question comes from the line of Ella Chapelle from <unk> Securities. Your line is open.
Speaker 7: Hey, good morning everyone. This is Stephen Langlois for Bill Chappell. Thank you for taking our time.
Hey, good morning, everyone. This is <unk> on for Bill Chappell. Thank you good morning kind of taken up.
Good morning.
Speaker 7: I guess kind of following up on Andrew's question regarding the inflation, can you kind of provide and give us a better sense of kind of where your supply chain issues are greatest in like magnitude sense and then kind of how do you see those improving throughout 2022 and 2023? Is that kind of similar to the pace of the EBITDA margin improvement? Is that how you're thinking about that?
I guess kind of following up on Andrew's question regarding can you provide.
Provide and give us a better sense of kind of where your supply chain issues are greater in magnitude and then kind of how do you see those improving throughout 2022, and 2023 is that kind of similar to the pace of the EBITDA margin improvement.
Are you thinking about that thank you.
Speaker 4: Yeah, that's exactly right. Thank you for your for your question. I'll take this 1 as I said, we expect mid to high teams that will continue to 2022. some of that is going to be driven by commodities coffee, Durham, wheat, oats. Those are all up.
That's exactly right. Thank you for your part of your question I'll take this one as I said, we expect mid to high teens and that will contain a 2022.
Some of that is going to be driven by commodities.
Lastly, durum wheat <unk> those are all up.
Speaker 4: a bit and we have to account for that. We do have packaging that's going to continue to increase as well and be a bit volatile. Think about PET, resins, and cartons. And then finally, I will just say two things. Freight continues to be a market that's impacted by labor, and then we obviously have our labor investments we're making that will continue to help service improve throughout the year.
A bit and we have to account for that.
We do have packaging, that's going to continue to increase as well and be a bit volatile think about pet resins and cartons and then finally I will just say two things freight continues to be.
Market, that's impacted by Labor and then we obviously have our labor investments, we're making that will continue to help service improve throughout the year.
Speaker 3: And Bill touched on it, I think in his comments, but we're trying to be more creative with how we support our plant associates, right? Thank God.
And bill touched on it I think in his comments, but we're trying to be more creative.
With how we support our plant associates right, we've got rough.
Speaker 3: roughly 8,500 people across 40 facilities. That's going to require a different approach than it has in the past. We're going to have more flexibility in our scheduling. We're going to have part-time people in our plants, etc. Our teams are gearing up. We've got pilots and tests going on in different parts of the system that, quite frankly, are encouraging but they're early.
Roughly 8500 people across 40 facilities and that's going to require a different approach than it has in the past we're going to have more flexibility in scheduling we're going to have.
Part time people in our plants et cetera. So our teams are gearing up and we've got pilots and tests going on in different parts of the system.
Quite frankly are encouraging, but they're early and so.
Speaker 3: I think the hourly workforce will be different going forward, and we're trying to position ourselves to be that attractive employer for that workforce.
I think the hourly workforce.
It will be different going forward and we're trying to position ourselves to be that attracted mcwhorter for that with our workforce.
Okay.
Thank you so much for the color.
Awesome.
Speaker 1: Your next question comes from a line of Carla Cassella from JP Morgan. Your line is open.
Your next question comes from the line of Carla Casella from Jpmorgan. Your line is open.
Speaker 8: Hi, my question's on the, you mentioned the covenant amendment on your bank facility. Can you just tell us where that stands today and if it's a net leverage covenant and where you're thinking that may go?
Hi, My question's on the you mentioned the Covenant Amendment on your bank facility can you just tell us where that stands today and is it the net leverage covenant and where youre thinking that may go.
Hi, Carla this is bill Kelly, Yes, we are.
Speaker 4: Hi, Karla. This is Bill Kelly. Yes, we are in the final stages of finalizing that amendment. We expect to file our 10K in the next day or so, and that will include the details in the amendment. I would just say, given the challenges that we have with EBITDA as we go through the first half of the year, we thought it was just proof.
The final stages of finalizing that amendment, we expect to file our 10-K in the next day or so and that will include the details.
In the amendment I would just say.
Given the challenges that we have with EBITDA as we go through the first half of the year. We thought it was just prudent obviously to get.
Speaker 4: obviously to get maximum flexibility. But we feel very comfortable with our liquidity. We ended the year with just over a billion in liquidity if you add in the cash and over the 700 million in the revolver. So we feel pretty strong about that, but we do want to take that additional step and add the flexibility we need to manage through the challenging times that we have. Yeah, to put a little more color to that, we didn't want there to be a situation.
We have maximum flexibility, but we feel very comfortable with our liquidity. We ended the year with just over 1 billion in liquidity, if you add in the cash and over $700 million and the revolver. So we feel pretty strong about that but we do want to take that additional staff and add a flexibility we need to manage through the challenging times that we have to.
Put a little more color to that we didn't want there to be a situation that we cant predict today that would cause us to have to make decisions that would help us serve the customer rate, which might being investing in inventory et cetera. So we wanted just to have that in case in case that happen, we're not sure it will but we wanted that flexibility.
Speaker 3: that we can't predict today that would cause us to have to make decisions that wouldn't help us serve the customer, right? Which might be investing in inventory, etc. So we wanted this to have that in case that happened. We're not sure it will, but we wanted that flexible.
Speaker 8: Great. And the current covenant that you're changing is that the four and a half times or am I, is my number stale? No, that's correct. It's four and a half times. And it's a total net leverage or a secured net?
Okay, that's great and the current covenant that you are changing is that the four five times or am I my numbers fail.
That's correct. It was four five times and as a total net leverage was two six.
<unk> net.
Okay.
It's defined as in our current agreement.
So there are adjustments there.
Great. Thank you.
Yeah.
Speaker 1: And the last question today comes from the line of Robert Moskow from Credit Suisse. Your line is open.
And the last question today comes from the line of Robert Moskow from Credit Suisse. Your line is open.
Speaker 1: Hi, a few questions here. I thought that the guidance for free cash flow last quarter was to be greater than $100 million. I think you finished well over $200 million. What caused the improvement there? Did you change your receivables program? Did you extend that? Because I thought you were bumping up against the limit on it.
Hi, a.
A few questions here.
Hi, I thought that the guidance for free cash flow last quarter was to be greater than $100 million.
Thank you finished well over 200, so what.
What caused.
Improvement there.
Did you change your your receivables program did you extend that because I thought you were bumping up against the limit on it.
Hey, Rob Thanks for the question, we did expand our facility, we did expand it by including more customers and actually more banks as well and then obviously inventory was manageable in the quarter given some of the.
Speaker 4: Hi, Rob, thanks for the question. We did expand our AR facility. We did expand it by including more customers and actually more banks as well. And then obviously inventory was manageable in the quarter given some of the labor constraints and freight constraints that we had and the end service demand that we've shown through. We were just trying to be careful in our guidance to make sure we could account for all of those pieces. And we were stronger than we anticipated.
Labor constraints and breaker strength that we had in the yen service demand that we've shown through.
We were just trying to be careful in our guidance to make sure. We can account for all of those pieces and we were stronger than we anticipated.
Speaker 3: Yeah, if you remember when we guided, we were one month into the quarter, we were just starting to see Omicron hit us, and we knew that it was going to be a turbulent time. Quite frankly, I wish we had put a little more of that cash into inventory, right? So, it's great to build cash, but I'd rather have some of that in my warehouses right now, if I could. Okay, so how much did you extend the receivables program?
Yes, if you remember when we guided we were one month into the quarter. We were just starting to see omicron hit us and we knew that it was going to be a turbulent time.
Quite frankly, I wish we could put a little more of that cash into inventory right. So it's great to build cash, but I'd, rather have some of that money warehouses right now.
Okay.
How much did you extend the receivables program.
Speaker 4: It was $78 million higher than Q3 and $73 million higher than prior year.
It was $78 million higher than Q3 and $73 million higher than prior year.
Speaker 1: So does it mean it's like 350 now instead of, because it was 300 with a limit before, so now you're at 350? 360 almost. Okay. And then another question, I think there's a write down of the bars assets. Is that snack bars? And is that considered one of the aspects of the growth business?
Okay. So that means like three $3 50, now instead of because it was 300 with a limit before so now you're at $3 50.
360 almost.
Hey.
And then another question I think there is a write down of the bars assets does that is that snack bars.
Is that considered one of the aspects of the growth.
Yes.
Speaker 4: Thanks again for the question. We recognize about 9 million related to the write down of bars. It was related to the PPE in that business.
Yeah.
Thanks again for the question, we recognize about $9 million related to the write down of bars. It was related to the PPE.
PPE in that business.
Speaker 4: Obviously, that's a category that had been in our revitalized bucket. It is a
Lee Thats a category that had been in our revitalized bucket. It is.
Speaker 4: It is considered a challenging business force. As you can imagine, in the whole COVID environment, it was one of those categories that was impacted as the...
It is considered a.
A challenging business for us as you can imagine in the whole COVID-19 environment.
It was one of those categories that was impacted as the on.
Speaker 4: The on the go eating occasion kind of was restricted and then obviously 2020 had a huge impact and our current projections don't show a great recovery. And so that's why we did the the proven thing and did the camera right down as the county.
On the go eating occasion kind of was restricted.
And then obviously 2020 had a huge impact in our current projections don't show a great recovery and so thats why we did the.
The prudent thing and ended the impairment write down as the county.
Speaker 4: rules imply. We're still working that business. We still think the recovery will be on the straight vertical line.
<unk> imply we're still working that business. We just don't think the recovery will be industry vertical line.
Speaker 3: Yeah, and Rob, to your point, yes. We think the bars category is a great category. We happen to have some legacy assets in there that are in some of the bar segments that are not those future growth assets, and those are the assets that were impaired here. So as you know, it's a much bigger business than that, and $9 million impairment reflects the particular situation there.
Yes.
To your point, yes, we think the bars category is a great category, we happen to have some legacy assets in there that are in some of the bar segments that are not.
Those future growth assets and those are the assets that were impaired here. So as you know, it's a much bigger business than that of the $9 million impairment reflects the particular situation there.
Speaker 3: Not a focus on the total category, but there are assets within that structure that we think won't be that great.
No not at all.
The focus on the total category, but there are assets within that structure that we think will feature that grew.
Long term.
Speaker 1: OK, but like you're expecting a recovery in bars like how much of a recovery like I know that the snack bar brands that other branded companies have are growing pretty rapidly off the bottom. So.
Okay great.
Mike Youre expecting a recovery in bars like how much of a recovery like I've always said the snack bar brands that other branded companies have or are growing pretty rapidly off the bottom so.
Speaker 1: what's holding you back and maybe size the business for us? Is it a hundred million dollar business or is it?
Yes.
What's holding you back and maybe size the business for us is the $100 million business or is it.
Speaker 3: Here's what I would tell you, Rob. If you go to the bar shelf, you'll look at there's a variety of different bars. There's everything from fruit and grain bars to crunchy bars to all of the new healthy bars. The capabilities to make those bars are fundamentally different.
Lastly, here's what I'll tell you Rob if you go to the bar shelf Youll look at Theres, a variety of different bars, right, there's everything from fruit and green bars.
Two crunchy bars to all of the new healthy bars, and the capabilities to make those bonds are fundamentally different.
Speaker 3: And so we have some assets and some things in our business that maybe reflect those earlier generations of the bar business that are less healthy and that we have lower projections going forward. We also have some assets that are in that more contemporary part of the bar.
So we have some some assets and some things in our business that maybe reflect those earlier generations of the bar business that are less healthy and that we have lower projections going forward. We also have some assets that are in the more contemporary part of the bar business. So the bar business is a complicated one the accounting rules and the forecast we have for parts.
Speaker 3: So the bar business is a complicated one. The accounting rules and the forecast we have for parts of that business are not as healthy as they are for the other parts and they required a $9 million write-off. We can get into the details for you if we need to. I don't think it's a macro bar issue. It's just the micro, the treehouse has some legacy assets and some segments of the bar business that are less healthy.
For that business are not as healthy as they are for the other parts and that required a $9 million of write off.
We can get into the details for you if we need to but I don't think its a macro bar issue its system. The micro the Treehouse has some legacy assets in some segments of the bar business that are less healthy than others.
Speaker 4: And Rob, it's about $130 million business force. Yeah. Thanks for that. Last question. The pricing that you're taking is designed to offset the inflation, but it's not designed to offset the supply chain disruption costs, is that right? Because those are considered transitory.
And Robert it's about $130 million business force, yes.
Thanks for that last question the pricing that you are taking.
Designed to offset the inflation.
But it is not designed to offset the supply chain disruption costs is that right because those are considered transitory.
I would say with.
Speaker 3: I would say with many of the things I would say yes, but we have a cost to serve component of our pricing. The things that we think like labor, things that we think are going to be ongoing and we think are necessary in order to position us for long term are included in pricing. Spot freight for example is not. Things that are transitory are not. The things that we believe are permanent are. There is a cost to serve component in our.
With many of the things I would say, yes, but we have a cost to serve component of our pricing and the things that we think like labor.
We think we're going to be ongoing and that we think are necessary to in order to position us for long term are included in pricing.
Spot freight for example is not things that are that are transitory or not but things that we believe are permanent car. So there is a cost to serve component in our pricing.
Speaker 1: Okay, well, because if we're doing the math on, you started some bars showing how much the incremental costs are for supply chain disruption, how much is
Okay.
If we're doing the math on you signed some bar showing how much the incremental costs are for supply chain disruption how much is.
Speaker 1: commodity inflation, should we assume that the pricing is all of the commodity inflation bar and then a portion of the supply chain disruption bar?
Commodity inflation should we assume that the pricing is.
All of the commodity inflation bar and then <unk>.
<unk> of the supply chain disruption bar.
Speaker 4: I think that's about right. I mean, we quantified in terms of just the percent you see in pricing, so that 11% that you see for the full year, and those double digits going into Q1. I think that's about right. The only other comment, just on transitory versus structural, you know, the labor piece is going to be a step up, and it's going to show up in our hourly charges as well as in the freight component as well.
I think thats about right I mean, we quantified in terms of just the.
The percent you see in pricing so that 11% that you see for the full year, then those double digits going into into Q1, I think thats about right. The only other comment just on transitory versus structural.
Labor piece is going to be a step up and thats going to show up in our <unk>.
Hourly charges as well as in the freight component as well.
Speaker 4: We will continue, obviously, to have, you know, savings from our improvement programs, and we're taking some dramatic steps there to continue to lean out the organization and the operations to make sure we can offset what will be a bit of normalizing place.
We will continue obviously to have.
Savings from our improvement programs and were taking some some dramatic steps there to continue to lean out the organization and the operations to make sure we can offset.
And a bit of a normalized inflation.
Speaker 1: Okay, well don't lean it out too far. You gotta make a lot of food. No question. That's it for me. All right, thank you. Thanks Rob.
Okay don't leave it out too far you've got to make a lot of food.
No question that's it for me thanks.
Thank you.
Thanks, Rob.
Speaker 9: This concludes our question and answer session. I would like to turn the conference back over to Steve Oakley for closing remarks.
This concludes our question and answer session I would like to turn the conference back over to Steve Oakland for closing remarks.
Speaker 3: Well, I'd just like to again say thank you to everybody for being with us today. We know it's a turbulent environment, and we hope you all stay safe, and we look forward to talking to you soon. Have a great day.
Well I'd just like to again say, thank you to everybody for being with US today, we know it's a turbulent environment and we hope you all stay safe and we look forward to talking to you soon have a great day.
This concludes today's conference call you may now disconnect.
[music].
Yeah.
Okay.
Okay.