Q4 2021 UTZ Brands Inc Earnings Call
It's always been a hallmark of what's his commitment to our partners.
To offset these higher supply chain costs, we took significant pricing actions throughout 2021 with an additional round of pricing already taken in February of 2022 with two more rounds of pricing actions planned in the late second and third quarter of 2022.
Besides these planned pricing actions, we will continue to take further actions if and when necessary.
In addition, we're driving our productivity.
And our cost reduction programs to help offset continued high input cost inflation and to enhance margins over the long term.
I am confident that we are taking the right approach to position us to create shareholder value over the short and long term as we continue to build pricing and productivity to overcome it continued inflationary pressures.
Throughout our history and during various economic cycles, we have always been steadfast in our approach and stayed very focused on thinking long term to create a strong organization.
We know that we have an organic growth and distribution opportunity that is unique and salty snacking and in 2021, we continue to deploy our long term value creation strategies.
So on that note, let's check in on how we are performing against our core strategies for long term value creation.
As a reminder, our foundational core value creation strategies are one to reduce costs and expand margins two to reinvest those savings to accelerate revenue growth and three to continue to leverage our platform and.
Our core abilities to make strategic acquisitions that add value to our company.
Let's begin with number one reducing costs and expanding margins.
While in 2021, we faced unprecedented inflation that impacted our margins more than we had originally anticipated we continue to make good progress in building a foundation for a more advantaged margin structure and the long term.
In 2021, we delivered on our productivity target of 2% and we completed a new companywide state of the art ERP implementation in February of 2021 with minimal business disruption.
The successful installation of a new RFP ERP is a major milestone for the company that we believe will unlock significant future benefit for us, allowing us to run our business with a higher level of data and insights.
We are already seeing the benefits of this as we are just now annualized and its implementation last year at this time.
We also executed multiple rounds of inflation justified pricing actions in 2021, and the contribution of pricing to net sales increased 6% in the fourth quarter with momentum and carryover benefits building into fiscal 2022.
Our conversion from company owned DSD routes to independent operator, DSD routes is nearing its completion and in 2021, we converted approximately 200 DSD routes and we remain on track to substantially complete this conversion in the first half of 2022.
In conjunction with this we're also excited that with our recent purchase of climate snacks and J&J snacks in New York City. We now have approximately 2000 DSD routes across the United States selling and distributing our snack foods every single day. This is very exciting and a unique benefit of <unk> platform.
And is positive for both long term sales and margin growth.
Finally, as our sales mix shifts more to power brands. This will further help in improving our margins.
Power brands improved to 87% of our retail sales this quarter up approximately 200 basis points from this time two years ago.
As for our plans this will continue to build to an even higher percentage of sales as we go forward.
And we continue to rationalize both our skus and our brands to focus on our larger power brands that we know are able to travel and we will be successful anywhere in the United States.
In addition, 2021 consisted of continued reductions in foundation brand sales driven by reductions in both lower margin private label sales as well as reductions in lower margin partner brand sales that will continue to occur throughout 2022.
The second part of our strategy is reinvesting to accelerate revenue growth.
In 2021, our sales growth continued add per retail scanner data in 2022, we are happy to claim that we became the third largest salty snack brand platform in the United States with our latest retail sales totaling over one 4 billion in sales for the last 52 weeks.
Ending February 22022.
For the 52 weeks ended January 2nd our total portfolio grew eight 3% on a two year CAGR basis versus category growth of eight 1% and more impressively our power brands grew nearly 10% outpacing the category even more.
We also delivered two year share gains across both the grocery and C store channels as well as tremendous sales growth and our expansion in emerging geographies and we delivered two year share gains across potato chips tortilla chips and pork rinds.
In addition, as we continue to position the company for sustainable long term growth, we increased investments in our logistics and manufacturing infrastructure to support geographic expansion new customer wins in core geography growth that are forthcoming in 2022.
These new customer wins are very exciting for us as we look forward to a great 2022 for the growth and expansion of our brands.
Finally, we continued to execute on our third leg of our value creation strategies, which is making and effectively integrating strategic acquisitions.
Last year, we closed three additional value enhancing acquisitions, which includes 50% of foods and RW Garcia.
Each were important and foundational to building a more efficient and growing platform for our sales growth long term.
Unfortunately, we are delivering on our expected cost and revenue synergies of all six of the acquisitions that we've made since we went public in 2020 and these integrations remain on track.
In addition to the integration work and the revenue and cost synergies of these acquisitions FIS.
This data and <unk> Garcia are focused on building more supply to meet the extremely robust demand for our on the border tortilla chips. We are doing this by rapidly in sourcing production in our new plants across the U S and Michigan, North Carolina and Nevada.
To put this in better perspective, one year ago today, 100% of our on the border Tortilla chips were produced by third party co manufacturers. However.
By the beginning of 2022 due to the incredible efforts of our team we are manufacturing approximately 40% of our on the border volume in house and we expect this to increase to over 60% in house by year end 2022, which in collaboration with our very important.
Third party co manufacturing partners will not only significantly improve our ability to service. This rapidly growing brand, but also deliver long term margin enhancement via this in sourcing of production.
In fact on the border tortilla chips grew over 34% at retail on a year over year basis for the first eight weeks of 2022 through February 20th.
Much of which is attributable to the supply dynamics that we put in place in 2021, VSS data and RW Garcia as well as production capabilities installed in both Hanover.
Birmingham, which only reap more benefit for us in 2022.
And beyond.
Finally last month, we announced the acquisitions of climb snacks, and JV snacks, which will better enable us to expand and grow our expansive portfolio of brands and the New York City Metro and the long Island markets, both of which are in our core market and both of which we believe we can enhance sales growth in 2022 and beyond.
We are excited about the benefits that all of these acquisitions will bring to us on both the topline and the bottom line into the future.
Turning briefly to our fourth quarter results organic net sales accelerated significantly and increased seven 4% in the quarter or eight 9% when you adjust for the impact of our Io route conversions.
Total net sales grew approximately 22%, which reflects our strong organic growth plus the contribution benefit from our acquisitions throughout the year.
In addition, adjusted gross profit grew 14% and adjusted EBITDA grew 11% as margins were impacted by the supply chain cost increase is better described earlier, partially offset by our building pricing and productivity momentum.
In 2021, our pricing actions lagged inflation, but let's be very clear.
The benefits of both pricing and productivity are.
Our building momentum and we expect to offset anticipated inflation in 2022.
Before we discuss our IRI retail sales in detail for the period ended January 2nd I'll provide an update on our long term trending retail sales results for 2022 through February 20th.
As you can see our two year CAGR growth rates continue to accelerate to new heights.
Driven by our power brands with two year CAGR growth of approximately 360 basis points better than the category over the last 12 week period.
And our overall portfolio of all brands grew approximately 160 basis points better than the category.
And we have been growing <unk> brands better than the category for seven of the last 12 week cycles of data.
In addition on a one year basis, our power brands grew 13, 5% versus the category of $12 seven with a continued focus on power brands versus foundation brands.
We believe that all of these great sales results are proving that the <unk> brands can and will continue to grow as we continue to execute on our multiple strategies for continued success.
Turning to our growth drivers in the quarter for the 13 week period, ending January 2022, our power brands portfolio on a two year CAGR basis gained share across four of the five major subcategories that we track and we gained share and salsa and K so as well.
We continue to increase our presence in key salty snack subcategories with share gains on a year over year basis in both tortilla chips and pretzels as well as source of queso and on a two year CAGR basis, we grew share in both potato chips and tortilla chips and our power brands grew share in pretzels.
And cheese.
It is great to see our largest subcategories and dollar sales growing and taking share over this two year basis as noted previously our growth and tortillas continues to be robust across all metrics.
To that end, we are leveraging the <unk> platform to drive beyond the border brand to new Heights.
We are not only driving incredible growth from our DSD sales team, but we are also increasing the supply of product to meet this ever increasing demand via both new production capabilities as well as the benefits from our acquisitions in 2021 that have unlocked even more supply.
With these new assets, we know that we can continue to support even more growth in 2022 and beyond.
At a very high level I couldnt be more pleased with the long term value that we're creating for our company with beyond the border brand.
It's exciting to see that retail sales were on the board of tortilla chips are up on a two year CAGR basis, 17% for the last 52 weeks totalling $256 million and retail sales for the on the border salsa and the on the border Queso are up 16, 5% and $42 three.
Percent, respectively on a two year CAGR basis, now totaling $66 million in that same timeframe.
Together this brand is delivering almost $325 million in annual retail sales and continues to grow dramatically with our first eight weeks of February IRI retail results registering a positive growth of 33% year over year.
I can't say enough. Thanks to our team for all of the efforts put forth in 2021 that will reap rewards in 'twenty two and beyond.
In the quarter, we continued to make great progress driving geographic expansion, while also executing to improve the performance in our core.
We grew 14, 5% and expansion in 2014, 3% and our emerging geographies outpacing the category on a two year CAGR basis by about 340 bps for both.
There is no doubt that our brands travel well beyond our core and it's exciting to see our continued successes as we outpaced the market consistently and these white space geographies.
In addition, im happy to report that in our core our two year CAGR continues to accelerate and it increased from five 7% in Q3 to seven 7% in the current quarter ending January .
2022.
Im also happy to report that for the first eight weeks using one year eight week data ending February 20th our core total sales registered a 14, 6% versus the category at 12, 7%.
And our emerging and expansion grew 5% to 700 basis points better than the category showing share gains in all geographies and the start to 2022.
And finally from a channel perspective in the quarter, we gained share in our largest and most important grocery channel. While we drove strong two year and one year growth rates across all channels.
Finally, as we've signaled before this year, we are excited to shift a lot of our existing marketing spend for multiyear sports sponsorships to a much more dynamic and nimble marketing plan and this shift will result in an increase of approximately 40% and consumer pull marketing spend.
<unk> 2021.
I will note that our overall marketing spend is expected to be consistent with last year. So this shift will allow us to be much more focused on digital and social with much more targeted awareness building media than in previous years.
In addition, it will include continued investments into insights and brand investments to create even stronger consumer pull of which is power brands with a focus on our three top power brands.
On the border ends apps.
Judging by our brand and sales results in 2021 and in 2022 today. We believe our messaging is working as we continued to build momentum and excitement across our power brands or geographies and our channels.
We are also happy to report that many of you will begin seeing on shelf that we have also launched a refreshed visual identity on our flagship <unk> brand potato chip.
That will elevate our brand assets and are at shelf appeal.
Looking ahead to 2022, we are well positioned for solid organic net sales growth and market share gains in the attractive salty snack category.
We have a very strong start to the year with robust demand leading to one year growth of 16, 9% in IRI retail sales growth for the first eight weeks through February 20th for the entire <unk> platform as well as approximately 200 basis points of price volume momentum versus what we delivered in the fourth quarter.
Of 2021.
It is truly exciting to see that after 100 years. So much continued momentum for our brains exists with the legacy <unk> brands, one year growth of 20% in the first eight weeks and on the border growth of 34% in that same period.
In addition, beyond our first eight weeks of 2022, our sales team is delivering multiple grocery and C store expansion wins in 2022 to include an exciting expansion with one of the largest grocery chain partners in the southeast that will unlock significant sales and share gains for our power.
Brands.
The wins in grocery in same store that we are actively planning for will support growth beyond our core markets to areas like Florida, Georgia, Michigan, Missouri, Kansas, and Texas I'll be excited to share more about these wins and subsequent quarters.
As we're always intent on investing for the future preparation for these significant key customer expansions began in late 2021, as we began standing up additional warehouses, three pls staffing and manufacturing capabilities to prepare for this new store and customer growth that will begin to rollout.
In May and June of 2022.
And in addition to the pricing momentum from Q4 2021 that we delivered on please know that we have already taken pricing actions in early 2022 in response to anticipated inflationary pressures and we have more pricing actions planned in the second and third quarters.
These increases will protect our ability to invest in growth offset expected inflation and we are hyper focused on leveraging better technology put in place in 2021 to continue to monitor and improve our trade spend.
And which will accelerate our price pack architecture initiatives.
In addition to improved and increased pricing, we are targeting an increase in productivity from approximately 2% in 2021 to approximately 3% in 2022, driven by carryover benefits from 2021 actions continuous improvement strong ROI capex projects product sourced.
Putting an in sourcing improvements and logistics optimization.
Our supply chain organization is focused on maximizing output and increasing efficiency and a continued challenging environment. So that we can meet our elevated demand with added depth and breadth in our talent base and improved analytics from our ERP.
All of this focus will better enable us to identify and take action on opportunities to drive efficiency.
And all of these efforts are sticky.
And that they provide a long runway of benefits for the company as we worked through 2022 and begin to prepare for 2023 and beyond.
Furthermore, we continue to be focused on supporting and optimizing our core power brand portfolio and we will maintain a disciplined approach to innovation, including continued an aggressive SKU and brand rationalization to simplify our supply chain as much as possible.
As noted previously we are shifting marketing spend dollars towards working media and social digital dollars to drive customer poll and brand awareness and excitement.
Finally in 2022, we will be focused on operating the business and integrating and reaping the benefits of our six acquisitions since going public in August of 2020.
To that end each of the acquisitions that we have closed on over the last year are meeting our goals and our objectives.
One quick example of this would be <unk>, which we acquired in February of 2021, and which continues to unlock growth opportunities for our power brands in the Chicago area with 12 week sales in Chicago through February 20th on a two year CAGR doubling year over year since the acquisition too.
33% growth in that market.
In addition, we have merged our DSD operations in Chicago to create an almost 90 plus strong DSD route system that didn't exist for us in January of 2021 kudos to our entire team on the ground in that market, that's creating even more value for our brands into the future.
So in closing I hope you can feel the excitement I have a 2022 and for our long term future as we continue to build a snacking platform that delivers long term shareholder value and continues to delight more and more consumers across the U S with that I'd now like to turn things over to a J code Terrier our CF.
So ajay.
Thank you Dylan.
Good morning, everyone.
I would like to begin by recognizing the amazing efforts all associates in fiscal 2021.
We finished the year strong in several areas, including implementing a new ERP.
Strengthening public company processes and infrastructure.
Leading and integrating acquisitions.
And wrapping up data driven decision, making that has sequentially improved our response to a dynamic industry environment throughout the year.
I am confident that we are better prepared to succeed now more than ever before.
I'll start with a very high level summary of our fourth quarter financial performance.
And then we will dig deeper into our net sales and margin drivers.
Please note that when comparing our 2021 results to our 2020 results fiscal 2020 was a 53 week year.
We estimate this extra week contributed $15 9 million in net sales and $3 million and adjusted EBITDA.
That being said our fourth quarter 2021, net sales increased 22, 2% to $309 million.
We delivered organic net sales growth of seven 4%.
Which would be eight 9%, excluding the impact of the wording company owned DSD routes to independent operators.
As a reminder.
And then we convert routes to Io is.
Certain selling expenses move to sales discounts, thereby benefiting SG&A.
And reducing net sales and gross profit.
Adjusted gross margins contracted 234.
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This is Mike.
This.
It was primarily driven by lower corporate G&A.
<unk> benefits from our recent acquisitions.
And Io drought conditions.
Adjusted EBITDA increased 10, 9%.
To $37 7 million.
Or 12, 5% of sales and.
And adjusted net income declined to $16 million.
Adjusted EPS was <unk> 11 based on fully diluted shares on an as converted basis of $142 million.
Briefly touching on our full year results total net sales increased 22, 4% and organic net sales increased <unk>, 6%.
Adjusted gross profit increased to $429 9 million.
Or 36% of sales.
And adjusted EBITDA increased 16, 7% to $156 2 million or 13, 2% of sales.
We delivered adjusted net income of $77 $5 million and adjusted EPS of <unk> 54.
Now turning to our balance sheet and additional items.
At the end of the quarter.
Our liquidity remains strong with cash and cash equivalents of approximately $42 million.
$97 million available on our revolving credit facility, providing close to $140 million in liquidity.
Moving now to the balance sheet.
Net debt at quarter end was $817 8 million or.
While four seven times normalized further adjusted EBITDA of $175 $5 million.
As a reminder, through the course of fiscal 2021, we funded from our balance sheet approximately $130 million of acquisitions.
Include weakness this data arguably garcia.
And various third party distribution types.
In addition, we spent $31 7 million on capital expenditures, which.
Which I'll note was below our revised outlook of approximately $40 million due.
Due to the timing of certain projects.
Those projects will now conclude in fiscal 2022 and are factored into our Capex guidance.
In addition from a cash flow perspective.
Note that in line with our typical seasonality working capital was a strong source of cash in the fourth quarter of 2021.
Wrapping up on the balance sheet.
Net debt and normalized but the adjusted EBITDA now both reflect the impact of our <unk> acquisition.
Our long term net leverage target ratio remains between three and four times and as Dylan mentioned earlier, we are focused on operating the business integrating acquisitions and delivering synergy targets.
All of which will drive long term EBITDA growth.
I would also note that we have a well priced credit structure.
With covenant light debt instruments.
This provides significant EBITDA headroom, while we work on reducing leverage.
More than 60% of our long term debt has a nominal interest rate swap through September 2026 at a rate of 139%.
Moving back to the P&L for some additional details starting with net sales.
Our net sales growth in the quarter was 22, 2% driven by acquisitions of 23, 2%.
Organic growth of seven 4%.
Offset by an extra week of sales in the fourth quarter of 2020.
As noted earlier.
2020 was a 53 week year with the extra week falling in the fourth quarter.
We estimate this extra week impacted net sales growth in the quarter by eight 4%.
Our organic net sales growth of seven 4% was driven by price mix of 6%.
Volume growth of two 9%.
And the impact of converting routes to iOS, which reduced the net sales growth by one 5%.
Moving down the P&L to adjusted EBITDA.
In the fourth quarter, adjusted EBITDA margins contracted by 130 basis points to 12, 5% of sales.
Excluding the impact of the extra week in fiscal 2020, adjusted EBITDA margins would have declined by 80 basis points.
Decomposing the decrease in the adjusted EBITDA margin for the quarter.
Positive drivers include.
Price mix of 370 basis points, as we took pricing actions to offset inflation.
SG&A, excluding transportation costs of 20 basis points.
Acquisitions of 60 basis points.
Productivity improvement of 120 basis points and volume of 30 basis points.
Partially offsetting these positive drivers was higher inflation, including transportation costs of 680 basis points.
Yes.
Consistent with industry trends, our inflation impact versus last year was comprised of elevated labor and transportation costs.
As well as higher commodity input costs.
These include continued pressure on all varieties of edible oil wheat flour, corn based items and pork related items.
As with our agricultural goods, our packaging components, such as firm resin and Colgate continue to see meaningful cost increases.
To that end as Youll recall, our expectation for total input cost inflation for the second half.
The year was low double digit percentages.
Versus comparable cost in the prior year.
As our fourth quarter progressed, we.
We made decisions to ensure strong levels of service to our customers.
Meet the robust demand from our consumers, while absorbing higher than expected cost to manufacture distribute and sell our products.
This resulted in gross input cost inflation in the second half of the year in the range of mid teen percentages.
As Dylan mentioned earlier these.
These decisions impacted our effect on profits, but we believe these were the right decisions for the long term health of our growing company.
In response to these rising costs, we continue to implement pricing actions and you have been seeing these bid and our sales results as price mix contribution to net sales.
The one 9% benefit in Q1, two 3% in Q2, four 2% in Q3 and 6% in Q4.
In addition, we recently booked further pricing actions in mid February .
And we have additional pricing actions planned throughout the year.
If costs continue to rise beyond what we are seeing in the market today.
We will continue to take pricing actions accordingly.
Note that the benefits from productivity are also helping to offset gross inflation.
Now turning to our full year outlook for fiscal 2022.
This year, we expect continued strong top line momentum with total net sales growth of approximately 7% to 10%.
<unk> fiscal 2021 net sales of $1, one 8 billion.
And organic net sales growth of approximately 4% to 6%.
Which I'll note is above our long term growth outlook of 3% to 4%.
However, with inflation expected to continue and as we support a significant new customer growth.
We expect to modestly grow adjusted EBITDA versus fiscal 2021, adjusted EBITDA of $156 2 million.
While our adjusted EBITDA growth guidance is below our long term growth outlook of 6% to 8% given the way in fiscal 2021, unfolded and as inflation and the cost to serve our customers continues to move higher.
We felt it was important to take a prudent approach to our earnings outlook.
In addition, our outlook assumes that we continue to invest in critical infrastructure to support significant topline growth anticipated this year.
It also assumes incremental SKU rationalization as we optimize our portfolio with an enhanced focus on our power brands, including prioritizing production of branded products to unlock additional capacity for growing brands such as laundry BARDA.
Wrapping up our outlook.
We expect capital expenditures in the range of $50 million to $60 million. This.
This expected increase in capex compared to last year.
Is primarily driven by higher term productivity projects, such as the expansion of our national warehouse in Hanover, Pennsylvania.
Which is expected to drive improved inventory management and lower costs.
Our outlook also assumes the completion of carryover projects from last year.
In addition, we expect a tax rate of approximately 20%.
And net leverage at year end to be consistent with year end 2021.
Within this outlook. We are also assuming gross input cost inflation of low double digit percent for a combined commodity labor and transportation cost basis.
I thought it would be helpful to provide some color on the expected quarterly cadence assumed in our guidance.
As the benefits of our pricing actions on productivity continue to ramp up we expect.
Adjusted EBITDA dollar growth with better margins in the second half of this year.
We expect adjusted EBITDA decline in the first quarter, and then returned to modest year over year growth thereafter from a sales perspective.
We expect our strongest year over year growth to occur in the first quarter, followed by the second quarter.
As a reminder, we are lapping 200 to 300 basis points of negative impact in the first quarter of 2021 due to snow storms.
Furthermore, distribution gains and organic sales growth in the second half of last year will provide a benefit to sales in the first half of 2022.
Before I turn the call over to Dylan I would like to revisit our long term margin opportunity.
We believe that our ability to expand margins remained strong for several reasons.
West.
Our actions around pricing and productivity have stickiness to them.
While they address margin gaps in the near term they will drive margin enhancement than inflation stabilizes.
Second.
Our supply chain capabilities are improving as we accelerated productivity programs and optimize manufacturing and logistics processes to increase throughput and unlock efficiencies.
Third recent acquisitions are allowing us to scale, our manufacturing capability to efficiently support strong demand for our power brands portfolio.
In addition, <unk>.
<unk> house of distribution rights and infrastructure from our third party distributors are positioning us to better serve our customers as we grow nationally.
Towards.
Recent investments in technology are helping unlock insights that enable several margin enhancing work streams.
In addition.
We are now able to integrate acquisitions faster to drive synergies.
Finally.
We are enhancing an already strong management team with new talent.
I am excited to see this team working together to drive this business forward.
With that I will now turn the call back over to Bill.
Thank you Jay and.
In closing I want to reiterate that I truly believe that we are doing the right things to grow our business for both the short term and the long term that in return will drive great results in 'twenty, two 'twenty three and beyond.
As a company over a 100 year history, we have definitely seen inflationary and challenging periods and we are committed to use this dynamic environment to build an even stronger more resilient infrastructure for continued growth.
And as we begin a new year I am very thankful to all of our incredible associates that makes us all happen. Please.
Please know that we are confident in our long term margin opportunity as a company.
We have grown into the third largest platform and salty snacks because of a continued and disciplined belief and growing both our top line sales and our bottom line to that end, we have put in place many of the building blocks for tackling both pricing and productivity in 2022 to drive bottom line results with continued.
Top line growth, we have invested in the people the technology and the infrastructure to unlock this growth and we will aggressively pursue the actions that will complement our bottom line not just for 2022 by 2023 and beyond.
We are excited about our future and we look forward to continuing to create value for all of our stakeholders.
Thank you very much for joining us today on our earnings call and I would now like to ask the operator to open up the call for any questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from Andrew Lazar from Barclays. Please go ahead.
Great Good morning, everybody.
Good morning.
I wanted to start off maybe you provided some thoughts on the direction of EBITDA through the year I was wondering if there's anything more you can add on how you see the weighting of EBITDA.
First half versus second half of the year, obviously is a bit more and more challenging to model given the volatility.
With respect to your full year guidance.
I mean, how would you term it at this point given there is so much there's so much.
Sure.
The fluid nature right. So what we're seeing around around a lot of the things that you've got a forecast do you feel like Youre building in some level of risk.
Additional level of Prudence, and our flexibility, let's say versus what we saw in 2021.
Yes.
Andrew Thank you for the question.
This is a J I'll take that.
So.
To your first question EBITDA cadence you're right.
We can we did comment on an EBITDA being.
Half weighted so I would say about a 45 55 split in terms of adjusted EBITDA dollars between the two halves and I say that because we think margin. We think margins will be pressured in the first half inflation is going to be as high as it was in the second half last year and as we get into the second half we are anticipating.
Debating inflation to continue.
But we started to lap last year's inflation and pricing will continue to Baird. We have couple more rounds of pricing coming and we will see increasing benefits from productivity. So.
That's the best EBITDA cadence, it's also important to understand that revenue I think that the.
That will be incentives to absolute dollars between the two halves it'll be pretty balanced.
We have some strong topline results coming in in the first half.
So to your second question around full year guidance.
I will say, we have carefully considered everything we know about the marketplace and we are being very prudent in our planning this year the environment is very dynamic and.
That said.
If things start to move.
In terms of new information on inflation, we are prepared now more than ever to take more price tackle inflation drive pricing managed supply chain disruptions.
We talked about this in our prepared remarks, the team our tools our processes, they're all coming together very nicely and I think we will be able to proactively.
Manage any new information.
Thank you and then.
Can you talk a little bit more about what you see as the contribution from from price and volume for the full year and what sort of elasticity assumptions you're building in.
Fourth quarter, we actually saw a price and volume were both positive.
Yes based on the four to six organic outlook and the fact that pricing is already at 6% in <unk> and will continue to build suggest maybe some volume decline for the year. This year. So I'm trying to get a sense of how that plays into elasticity assumptions and perhaps whether that could ultimately prove conservative.
Yes.
I'll take that so you are correct and we are very excited about the results that we delivered from a topline standpoint pricing.
Standpoint fourth quarter than what we have seen in.
In the first.
Eight weeks of the year. So as you have seen as you as you mentioned, we sequentially improved pricing, we exited Q4 at 6% and that pricing is building into Q1. It will build further as we execute a couple more rounds and parts of our portfolio and we are also seeing some really nice volume.
Included in Canada, So far this year so.
That's the backdrop as we talk about sales outlook in that context for the year. We considered a few things first and while pricing is ramping up we are also going to start to lap last year's pricing at some point as we look at the quantity of flow and secondly, we are making quite a few choice.
This year two to simplify the business and our focus on the right things and a few of those choices will suppress volume.
I am talking about SKU optimization looking at our brand portfolio.
Prioritizing power brand production in our plants, including the RW Garcia plants that we acquired recently so we can free up capacity for our Nevada brand and third we reconsidered elasticities in the second half. So we are not seeing any elasticity right now demand is outweighing supply what we.
At some point elasticity would come into play.
Baked a little bit of that into.
Our outlook as well.
And also let me remind you.
We still have about 200 routes to convert two independent operator.
<unk>.
Backed with suppress our sales growth by let's say about 100 basis points. So when you put it all together.
We think volume will grow very modestly this year and we will have a first half weighted sales.
Thanks very much.
Your next question comes from Peter Galbo from Bank of America. Please go ahead.
Hey, guys. Good morning, Thank you for taking the question.
Hey, Jamie maybe just a quick clarification for my actual questions, but the 4% to 6% organic top line does that incorporate the planned price increases that the second and third round. It can be your planning for later this year.
Yes, we did it.
Yes.
And then maybe just to start on the inflation commentary low double digit outlook for 'twenty, two I'm, assuming the cadence of that.
Looks like first half is in that still in that mid teens range that you saw to 'twenty. One and then is the assumption that youre lapping higher inflation, but also just maybe things kind of come down.
In the second half to like a high single digit rate just help us understand that a little bit more.
Yes, I think inflation.
Is going to be.
As you pointed out in a low double digits for the year.
I think first half inflation is going to look a lot like second half last year in terms of percent inflation.
And if.
If you back into it to your point it will be second half is going to be.
Probably high single digit inflation.
You have to look at those percentages.
In terms of lapsed last year, and we have provided those last year numbers in our commentary.
Okay. That's helpful.
Maybe.
I guess the other.
More surprising comment out of the prepared remarks with that leverage actually isn't really expected to change very much this year.
Okay.
That kind of seemed like a like a wholesale change in terms of philosophy.
In terms of this year being anymore about debt paydown.
How youre thinking about that and whether or not a constrained your ability to do M&A in 2002, thanks very much.
Yes, thanks for the question so.
Listen leverage is high and we think year end 2022 leverage will be consistent with where we finished last year.
We believe the best path to reducing leverage is to sort of meaningfully grow EBITDA and as we have noted in our remarks will focus on operating the business will integrate acquisitions deliver synergies and all of those activities.
David.
Combined with pricing productivity everything we're doing around our supply chain they will drive EBITDA.
In the long run that said.
Free cash flow will be better this year, but we're going to invest in capex.
And if there is an opportunity to pay down a little bit of debt, we will do that.
Okay.
Your next question comes from Michael Lavery from Piper Sandler. Please go ahead.
Go ahead.
Thank you good morning.
Good morning, good morning.
Could you just elaborate a little bit on your New York City, and long island deals on the surface the optics.
Seem a little counterintuitive, given that you're transitioning to independent operators, but I think theres more nuance there that.
But these are consistent in ways that aren't obvious can you maybe just reconcile how youre thinking about that and what drives the benefits that you're expecting.
Sure. This is Michael this is bill and thanks for the question.
Actually the third party distributors that we purchased in New York City Metro and long Island in New York.
Our.
Independent operators to start so they are independent operators before we acquired them. They are independent operators today after acquisition.
Really what that gives us from a benefit standpoint is it's one of the largest snacking markets in the country.
We've been involved with the third party distributor that we acquire those routes in that system from for longer than I've been at us. So.
Five plus years.
They have a immense network throughout the five boroughs of New York City, They service Bodega as to grocery stores to the mass channel.
All throughout that market.
Our acquiring them vertically integrating.
Taking the profit stream that was before given to a third party. We have now essentially acquired that profit stream as well and we hope that after our decades and decades of.
Knowledge and building DSD routes system servicing customers growing our sales growing our brands that once we vertically integrate them into our system will actually get.
Increased sales increased services increased results out of that market too.
Our customers.
Our fantastic customers in that market that we think we can grow which will better enhance our core.
Geography sales and results as well.
Okay. Thank you that's really helpful color and on the marketing spending you gave some details on some of the moving parts there.
At a higher level can you just help us understand.
I think it was in the fourth quarter, you said that the SG&A favorability was a little bit of an offset to pressures I don't know if that was marketing related or not but looking ahead into 2022 against your plan how much is marketing.
Source of flexibility, if there is greater than expected inflation or cost pressures or is that.
That number that would simply drive potentially upside or downside.
Other costs move around it.
Hey, Thanks. This is a J I'll take that so.
Don.
We are not reducing marketing spend in fact work. We are doing is we are taking the dollars that we do spend on marketing.
And we are shifting more of that spend towards social media digital.
What you might call productive working media.
From a from a plan standpoint.
That's that's what's built in.
That's going to help.
Showed up our brand strength.
There isn't a meaningful pool of dollars available for us to to to work with in order to make or break EBITDA using marketing dollars and the way. We think about it is we are very focused on building these brands supporting them.
And growing our power brands and we're going to continue to do that I think this is Dylan I think what's really exciting about 2022. It will be the very first year in a couple of years here that we don't have a significant portion of our existing marketing funds or immediate funds going into sort of legacy sports sponsorship things.
They are going to be more directed towards social and digital much more able to be nimble in how we approach it where we geo target.
Those dollars, we can focus in on specific geographies focus either focusing on specific brands, where we think that we might want to use that marketing dollars to get better long term results I think you'll you'll note from our.
Fourth quarter sales last year, our year to date sales. This year the success of the UGG brand the success of the on the border brand.
In the first eight weeks of this year on a very relatively minimal dollar spend I think we're getting a lot of.
Bang for Buck that we're putting into marketing because the brands are doing so well.
Okay. That's helpful. Thank you.
Your next question comes from Ben <unk> from Stephens. Please go ahead.
Hey, Thanks, good morning.
Good morning, Brian .
So I wanted to ask.
Just following up around the.
Inflation outlook.
Given how.
Rapidly things are evolving here just in the last few weeks as you think about.
The pricing increases that you have forthcoming.
Was that were those decisions made.
Kind of some of the tightening that we're seeing now in addition to the tightening in the market that we've seen year to date prior to this.
Ukraine, Russia conflict.
And then if we see continuation of.
<unk> headwinds.
What do you think your ability is to take incremental pricing beyond what you have planned.
So I'll take that.
So there are a couple of questions in there so first.
<unk>.
<unk> pricing, we have talked about.
They are baked into our.
Our outlook.
And they are not based on what's happening in the last two weeks. What we are doing is really looking at the inflation thats in front of us.
Right.
Anything thats known to us and reacting back way.
From a from a from the situation constantly evolving the environment being dynamic.
To your other question, we are very prepared now.
Now with the team the tools everything coming together and being in place to proactively go out and take pricing we are watching what the competition is doing.
We are working on entire portfolio not just on the typical pricing levels, but also looking at optimization and our SKU portfolio et cetera to enhance margins. So.
That's what we're doing and from.
From a supply chain standpoint.
We are we are covered on <unk>.
Commodities for 50% of the year roughly.
So far there is a lot of volatility in the marketplace. So far we are not we are not seeing any meaningful.
Directly to arch with what's going on.
Okay, Great and then I wanted to ask about the opportunities you touched on the future channel, we've seen very strong mobility numbers to start the year.
In some cases, even in excess of what we saw pre pandemic. How do you think that dynamic plays into your ability to drive continued.
Growth in that category and then as you think about gaining relative share.
And that channel channel.
Can you talk about some of the things that you have underway.
To drive those improvements.
Thank you.
Yeah, Hey, this is this is Dylan Ben.
Yes, I mean across a lot of our channel C stores being one of them, we have a lot of opportunities spin.
Specifically with the C store channel, we should be able to speak more broadly about some developments with some good customers at the next quarterly call similar to giving more guidance on the.
Southeastern grocery chain that we referred to in our script and in ore.
Slides that we provided to you all as well but.
We are the number two C store provider brand platform on the East coast.
We are lowering the rankings on the West coast, just because we have so much white space opportunity.
So I hope to be talking more about that at the next quarterly call. We're regaining sales and share in C store the brands that we have.
Specifically U S a.
As apps do very well and <unk> continued to build so.
That channel for us as it rebounds, it continues to rebound.
We will continue to provide increased sales for us as well as the grocery channel that we refer to the slides as well.
Okay, great. Thanks, so much.
Your next question comes from Robert Moskow with Credit Suisse. Please go ahead.
Alright. Thanks.
Few questions.
I wanted to know your comments about pricing for inflation are seem to be very focused on.
Inflation expectations for this year, but you did have a lag in 2021 that you never quite caught up too so.
Assume that all of this pricing that you have in the market now is the expectation that it's covering all of it. It's also covering the lag in 2021.
And then I have a quick follow up.
Yes. Thank you for the question so the way the way to think about that is.
Look at it from a from a rolling.
<unk> period, and there will be some of the benefit of pricing that we're taking now going into 2020 and.
And.
As we think about it we've talked about this in our prepared remarks that we have.
Very strong reasons to believe that when inflation stabilizes.
Thanks, I'm going to start to improve in terms of margins and part of that is because that once inflation stabilizes there.
There will be some overlapping pricing benefit going forward. So so.
That's how we're thinking about this.
I see.
And the follow up is you had that chart showing that there is a 6% margin hit for inflation, but some of your food peers are now splitting that up between rate inflation, and then supply chain disruption costs.
And.
It might be easier or it might be tougher to raise pricing.
To cover those.
<unk> cost because they might be perceived as transitory.
Are you lumping them, all together and define that.
That's feasible to go to a retailer and lump it together because at the end of the day, it's going to be more structural than transitory.
We are lumping them together right now.
<unk>.
You are right that in the normal course of business you price for commodity inflation and supply chain disruption costs are always a conversation I will tell you that the category that we get in as many rationale and so far our conversations with with retailers.
Yes.
The competition is doing in the marketplace.
They have been they've been very rational and we haven't seen.
The conversation around commodity versus supply chain disruption yet.
But as a man.
It starts to happen.
We are prepared to tackle it and the way we are preparing for it is like putting all the building blocks in place right now that we've talked about with productivity with optimizing our manufacturing footprint and logistics footprint. So that we can cover.
And on that portion.
If inflation meaningfully going forward.
Makes sense alright, thank you.
Thank you.
And the last question for today comes from Bill Schack Allison.
<unk> Securities. Please go ahead.
Hey, Good morning, guys. This is Steven my angle on for Bill Chappell.
Thank you for taking our question I guess first one alright.
Just on the color. Thank.
Thank you for that production color on production and retail sales for the on the burner chips and salsa brand, but are you guys kind of mind digging a little bit further in terms of the distribution gains and velocities youre seeing so far with the brand.
Yes, Thanks, Steve Great question, we're really really proud of that acquisition and how well that brand is doing.
<unk>.
Much of it is.
Organic growth in the sense that is existing customers of which we are servicing better through better supply.
Much of it is also new ACB and distribution growth is attributable to.
Like I noted the almost 2000 DSD routes that we have across the country that are bringing that brand to market.
In 2021.
We would have had.
Significantly higher and better results in terms of sales.
And it is a high margin brand by the way from a manufacturing gross margin standpoint.
If we had more supply and so we proactively went out in 2021, we acquired <unk> and we acquired RW Garcia both of them.
With the pure intent to utilize them to increase supply right because it has been growing so dramatically and supply chain issues and supply of goods is just an industry wide issue, especially for a brand that's growing as fast so as we look forward into the future as we solidify more supply as we bring more of that supply in.
House, but also count on our co Man network, our third party come in network is.
Is a big important part of our success in 2022 as we grow this brand to new Heights, and you can see by the year to year to date results.
Not just tortillas, but also its salsa in case of business, which is nearing almost $70 million of retail sales.
That's a brand that will drive a lot of growth for us in our core as well as our emerging with existing customers as we increase supply, but also as we gain new customers for that brand and take it even more across the U S and really create a powerhouse tortilla salsa queso brand there.
Awesome, Thanks, very much for the color guys I appreciate it.
Okay.
And there are no further questions at this time I will turn the call back over to Dr. Chris Im curious for closing remarks.
In closing I do just want to thank everybody for joining US today 2021 was an absolutely very challenging time.
Time for the industry and for our company. Our associates are fantastic. They are all very committed to continued growth and long term thinking.
We do believe that 2022 will be an excellent year and that will have a lot of positive.
Things that we're working on that will contribute to the top line and the bottom line to make it a fantastic year I appreciate your support and everyone's health and allowing us to achieve these sites.
This concludes today's conference call you may now disconnect.
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