Q3 2022 Lamb Weston Holdings Inc Earnings Call
Please standby were about to begin.
Good day and welcome to the Lamb Weston third quarter 2022 earnings call. Today's call is being recorded at this time I'd like to turn the call over to Dexter.
Dexter <unk> VP Investor Relations of Lamb Weston. Please go ahead.
Good morning, and thank you for joining us for Lamb Weston third quarter 2022 earnings calls. This morning, we issued our earnings press release, which is available on our website Lamb Weston Dot com.
Please note that during our remarks, we'll make some forward looking statements about the company's expected performance.
These statements are based on how we see things today.
Actual results may differ materially due to risks and uncertainties.
Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward looking statements.
Some of today's remarks include non-GAAP financial measures.
non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results.
You can find the GAAP to non-GAAP reconciliations in our earnings release.
With me today are Tom Werner, our President and Chief Executive Officer, and Bernadette battery out of our Chief Financial Officer, Tom will provide some comments on our performance as well as an overview of the current operating environment.
Brendan will then provide some details on our third quarter results and updated fiscal 2022 outlook.
Let me now turn the call over to Tom.
Good morning, and thank you for joining our call today first of all I want to thank all my colleagues for their continued dedication and perseverance to keep Lamb Weston as an industry leader and a strong business partner are.
Our solid financial results in the third quarter or are a direct result of how well our manufacturing supply chain and commercial teams have remained focused on improving our operations and serving our customers during a challenging macro environment, which includes the impact of an exceptionally poor potato crop.
We continue to be encouraged by strong French fry demand and feel good about our continued progress.
Specifically in the third quarter, we delivered solid sales growth and drove sequential and year over year gross margin expansion.
And we did this despite the impact of armour cranberry slowing your restaurant traffic and disrupting our production and distribution operations more than we expected.
We benefited benefited from our previously announced pricing actions to mitigate the significant cost inflation across our supply chain.
We've also been driving improvements in our manufacturing operations as we focus on what's in our control.
This includes mitigating some of the effects of the poor potato crop with product specification changes and portfolio optimization work that we discussed previously.
Factory Labor remains challenging as we were we remain below preferred staffing levels, but we're making steady progress in a highly difficult labor market, we're addressing the labor gap by focusing on retention and new ways of attracting talent. We will continue to push hard on our staffing initiatives and are encouraged by the improvements we're seeing.
However, it will take time to get all of our factories staff, where they need to be.
Like others, we're managing through freight challenges, including both cost increases and shipping delays.
The freight challenges are impacting our top line as it limits our ability to service full demand. This is caused by a lack of containers for international and domestic shipments and truck driver shortages.
This combined with higher fuel cost has also increased our cost to deliver products.
We're continuing to navigate through these and other operating challenges and remain on track to deliver our financial commitments for the year.
Our capacity expansion investments in Idaho in China also remain on track and it will have us well positioned to support increasing customer demand over the long term.
Let me provide some brief updates on the operating environment before turning the call over to part of that.
Let's start with demand in the U S. Overall Friday man restaurant traffic in our third quarter remains solid although a weakened temporarily as the omicron Bury it spread quickly <unk>.
Rob's impact peaked in January and affected consumer traffic at both quick service and full service restaurants and.
In addition, some restaurants closed temporarily or reduced operating hours due to staff shortages, which further impacted demand.
Restaurant traffic, however has rebounded to pre omicron levels.
Before I attachment rate in the U S, which is the rate at which consumers order fries wouldn't when visiting a restaurant or other foodservice outlets has been fairly consistent since the beginning of the pandemic and remains above pre pandemic levels.
Going forward, we expect restaurant traffic and consumer demand for fries in the U S to remain strong.
Although it may be more volatile in the near term as consumers face significant significant cost inflation. In contrast, fry demand in retail channels may continue to benefit if demand in out of home channels is affected.
Outside the U S demand in Asia, and Oceana remained stable.
However, we have not been able to meet that demand due to the limited availability of shipping containers for export.
We expect overall demand in these regions to return to pre pandemic levels widespread COVID-19 related government restrictions in key markets, such as China may lead to demand volatility in the near term.
Demand in Europe , which are served by our Lamb Weston Meyer joint venture has also been fairly stable. Although it was temporarily affected by the spread of biomarker on during the quarter as in the U S. We expect demand in Europe may be volatile in the upcoming months as cost inflation and Covid variance Tampa restaurant traffic.
So overall, while we expect that demand in the near term will be choppy, we remain confident in the long term resiliency and growth prospects of the category in the U S. In our key international markets.
With respect to pricing.
Our price mix growth accelerated sequentially in the third quarter as we continued to execute on our previously announced product and freight pricing actions in our foodservice and retail segments to offset inflation and as we began to implement pricing actions in our global segment.
Going forward, if we see further inflation, we're prepared to take additional pricing actions as well as drive opportunities to improve product and customer mix.
To that end last week, we began implementing another round of pricing actions in our foodservice and retail segments and we expect to see the benefits of these actions gradually build over the next six months.
In our global segment contracts, representing about one third of the segments volume are up for renewal. This year, we began discussions with those customers and expect to have most of the contract terms agreed by early fall.
With respect to this year's upcoming potato crop, we've agreed to a 20% increase in the contracted price per pound in our primary growing regions in the Columbia Basin, Idaho, Alberta in the Midwest. This.
This increase reflects our approach for annual price changes that reflect that.
Cost to grow plus an appropriate return for our growers such that they are viable over the long term.
We'll begin to see the impact of these higher contracted potato prices during the second quarter of physical 2023, as we began to process. The early potato varieties that are harvested in mid summer.
In addition over the past few months, we partnered with our growers to contract for acres that represent nearly all of our projected needs associated with this year's crop.
The number of acres contracted assumes an average crop year.
Planning of this year's potato crop started in March and typically concludes by the end of April and will provide our usual crop updates during future quarterly earnings calls as a growing season progresses.
Okay.
Finally, our hearts go out to all the people affected by Russia invasion of Ukraine.
Our exposure to Russia is indirect as it runs through our 50% ownership in Lamb Weston Myer.
Last month, the Russia, JV began winding down production of Lamb Weston branded products and pause construction of its previously announced capacity expansion.
We continue to monitor the situation and any decisions regarding that operation will be made in conjunction in conjunction with our partner in Europe .
So in summary, we feel good about our progress in the quarter, especially given the highly challenging operating environment and we remain on track to deliver our financial commitments for the year.
Our pricing actions and cost mitigation efforts enabled us to drive sequential and year over year gross margin expansion.
We've agreed on contract price in acres to be planted for this year's potato crop.
And we remain confident in the resiliency and long term growth prospects of the category, although demand may be volatile in the near term.
Let me now turn the call over to Bert to review the details of our third quarter results and our updated fiscal 2020 outlook.
Thanks, Tom and good morning, everyone.
Let me start by echoing Tom's comments thanking our employees.
We appreciate your hard work and dedication.
As Tom discussed we feel good about the benefit from our pricing actions and cost savings effort to offset much of the significant cost inflation that we've been experiencing and.
And I am confident in our ability to continue to manage through this volatile business environment.
Specifically in the quarter, our sales increased 7% to $955 million.
Price mix was up 12% as we continued to execute our previously announced the product and freight pricing actions in each of our business segments to offset input manufacturing transportation cost inflation.
Most of the increase in the quarter reflects these pricing actions while mix was also favorable.
Sales volume declined 5% as we were unable to fully serve market demand due to logistics constraints, especially for our international shipments as well as lower production run rates and throughput at our factories, resulting from labor shortages.
Increased shipments in our foodservice segment and to our large chain restaurant customers in North America that are served by our global segment, partially offset the volume decline.
However, while volume increased in these channels. It was tempered by the omicron variance negative effect on restaurant traffic on the availability of labor to keep restaurants open and on our production facilities and supply chain.
Gross profit in the quarter increased $24 million.
Product and freight price increases along with favorable mix more than offset the impact of higher costs on a per pound basis.
And lower sales volumes.
We expanded gross margin by 110 basis points versus the prior year quarter, and 270 basis points sequentially to more than 23%.
Looking at our Cott double digit inflation drove the increase in cost per pound for the third straight quarter and accounted essentially for all of the increase in the quarter.
There were four key areas that drove the increase in cost.
First.
Commodities played the biggest role led by edible oils ingredients for batter and other coatings and packaging.
Labor costs also increased due to competition for factory workers.
Second transportation rates continued decline due to the persistent disruption in global logistics networks. We also continued to use an unfavorable mix of higher cost trucking versus rail to meet service obligations for certain customers.
Third we began to see higher potato costs, resulting from the poor crop that was harvested last fall and our primary growing region.
The increase in potato costs reflects the impact of purchasing potatoes in the open market at a significant premium to contracted prices.
Higher transportation costs for shipping potatoes from the Midwest and Eastern North America to our plants in the Pacific Northwest.
Lower potato utilization rates and running production lines at lower speeds to accommodate low quality potatoes.
The increase in our potato cost.
Decrease in potato utilization rate and how the crop is performing in storage are all in line with the expectations that we shared with you last quarter and we believe we've secured enough potatoes to deliver our volume forecast until we begin to harvest the early potato varieties in July .
As a reminder, we will continue to realize the financial impact of this year's poor potato crop do most of the second quarter of fiscal 2023.
The final key area that drove the increase in costs our operational inefficiencies.
Blaine by Labor shortages omicron related absenteeism, especially in January and into early February and other industry wide supply chain challenges.
This resulted in lower production run rates and throughput in our factories, leading to fewer pounds to cover fixed overhead.
As I'll discuss later, we'll continue to see the impact of these costs in the fourth quarter.
The effect of lower potato utilization and production run rates in the third quarter was largely offset by a range of cost mitigation efforts, including eliminating underperforming skus changes to product specifications and increased productivity savings from our winters, one and other cost saving initiatives.
So in short, we're managing well through this highly inflationary and poor potato crop environment. We feel good about how we are controlling those things that we can control, which led to the year over year and sequential gross margin expansion.
Moving on from cost of sales.
Okay.
Our SG&A declined $9 million in the quarter, largely due to lower consulting expenses associated with improving our commercial and supply chain operations as those projects and it.
Over overall compensation and benefits expense and a $2 million decline in advertising and promotion expenses.
The decline in SG&A was partially offset by higher information technology infrastructure cost, including cost to design. The next release seven new enterprise resource planning system.
Equity method earnings in the quarter were $30 million and included a $20 million unrealized gain related to mark to market adjustment associated with currency and commodity hedging contracts.
The large mark to market gain in the quarter, primarily relates to changes in the value of natural gas derivatives that Lamb Weston Meyer as commodity markets there have experienced significant volatility.
Excluding the impact of these mark to market adjustments equity earnings increased $1 million versus the prior quarter.
Favorable price mix and higher sales volumes were largely offset by input inflation and higher manufacturing and distribution costs in both Europe and the U S.
Moving to our segments.
Sales in our global segment were up 2% in the quarter.
<unk> increased 8%, reflecting domestic and international pricing actions associated with customer contract renewals and inflation driven price escalators.
It also reflects higher prices charged for freight.
Volume fell 6%.
International shipments, which have historically accounted for about 40% of the segment's total volume were down nearly 20% versus the prior year quarter due to limited shipping container availability and disruptions to ocean freight networks.
Sales volumes to North American large <unk> and casual dining restaurant customers increase but at a slower rate than previous quarters due the omicron negative impact on consumer traffic.
Global's product contribution margin, which is gross profit less advertising and promotional expenses declined 8% to $73 million.
Our manufacturing and distribution cost per pound as well as the impact of lower sales volumes more than offset the benefit of favorable price mix.
Moving to our foodservice segment sale.
Sales increased 34% with price mix up 22% and volume up 12%.
As expected the rate of increase in food services price mix accelerated sequentially to 22% in the third quarter from 8% in the second quarter as the benefits of the product and freight pricing action that we began implementing earlier this fiscal year to mitigate inflation continued to build.
In addition, the increase reflects favorable product and customer mix.
The ongoing recovery in demand from small and regional restaurant chains and independently owned restaurants as well as from noncommercial customers drove a 12% increase in sales volumes.
While our shipments to restaurants have essentially returned to pre pandemic levels, our shipments to noncommercial channels have not yet fully rebounded.
As with our sales to large chain restaurants in our global segment. The foodservice segments volume growth was tempered by omicron negative impact on restaurant traffic and labor availability in those restaurants.
In addition, manufacturing labor shortages and the effect of Omicron related absenteeism limited our ability to fully serve demand due to lower production run rates and throughput in our factory.
Food services product contribution margin rose, 52% to $107 million with favorable price volume and mix more than offsetting higher manufacturing and distribution cost per pound.
In our retail segment sales declined 12% with volume down, 24% and price mix up 12.
The volume decline reflected two factors.
First more than half of the decline was due to incremental losses of certain lower margin private label products.
Second despite solid category growth branded product volumes were down as labor and supply chain disruption limited our ability to service demand.
The increase in price mix was driven by product and freight pricing actions across our portfolio to offset inflation as well as favorable mix.
Retail's product contribution margin declined 5% to $32 million.
Our sales volumes and higher manufacturing and distribution costs per pound drove the decline, which was partially offset by favorable price mix and a $2 million decrease in A&P expenses.
Moving to our liquidity position and cash flow.
We ended the quarter with nearly $430 million in cash.
And $1 billion of availability on our Undrawn revolver.
Through the first three quarters of the year, we generated about $175 million of cash from operations.
That's down about $200 million versus the first three quarters of the prior year due primarily to higher working capital and lower earnings.
Year to date, we've spent more than $225 million in capital expenditures as we continued construction of our capacity expansions in Idaho in China.
We've also returned nearly $230 million of cash to our shareholders, including $103 million in dividends and $126 million in share repurchases.
After repurchasing $50 million of shares in the third quarter, we have just under $300 million remaining under our buyback authorization.
Now, let's turn to our updated fiscal 2022 outlook.
We expect our full year sales growth to be above our long term target of low to mid single digits.
In the fourth quarter, we expect sales to be driven by price mix as we continue to execute our previously announced product and transportation pricing actions to offset input and transportation cost inflation.
However, we expect sales volumes will continue to be pressured as export volumes remain constrained due to limited shipping container availability supply chain volatility in labor shortages challenge run rates and throughput at our factories.
And as restaurant traffic and consumer demand may slow due to inflation and the persistent effect of Covid variance in the U S and key international markets.
In addition, please note that we'll be lapping a high volume comparison in the prior year.
With respect to earnings for the full year, we expect our gross margin will be 19% to 20%.
This update puts us at the high end of the 18% to 20% range that we provided in our previous outlook where.
We're comfortable to be at the higher end of that range.
Because of our confidence in the pace and execution of product and freight price increases that were currently implementing in the market.
We have more clarity on the net impact on margin from this year's poor potato crop and were making steady progress in stabilizing our supply chain operations and driving savings behind our cost mitigation initiatives.
Based on our updated full year estimate we expect our gross margin in the fourth quarter to be 19% to 21%.
That's down sequentially from the 23% we delivered in the third quarter and reflects in part our usual gross margin seasonality.
It also includes the impact of significantly higher costs held in finished goods inventory that were produced during the third quarter.
These costs were driven by incremental costs and inefficiencies associated with very high levels of crime related factory worker absenteeism in January and February that resulted in broad based production disruptions.
Since we typically hold 50 to 60 days of finished goods inventory will realize these cost during our fiscal fourth quarter as that inventory is sold.
Below gross margin, we expect our SG&A expenses in the fourth quarter to step up to $105 million to $110 million as we continue to invest in the design and build of our new ERP system.
We expect equity earnings excluding the impact of any mark to market adjustments will remain pressured due to input cost inflation and higher manufacturing costs in both Europe and the U S.
For the year, we continue to expect interest expense to be approximately $110 million.
<unk> the $53 million of costs associated with the senior notes that we redeemed in the second quarter.
Total depreciation and amortization expense of approximately $190 million and an effective tax rate of approximately 22%.
We've reduced our estimate for capital expenditures to $325 million from our previous target of $450 million to reflect the timing of expenditures related to our capacity expansion projects in Idaho in China.
So in some.
In the third quarter, we delivered solid sales growth and expanded our gross margins behind our pricing actions and our cost mitigation efforts for.
For the year, we're targeting the upper end of our previous gross margin range due to our confidence in our pricing execution to offset inflation.
More clarity that we now have on our potato costs and the steady progress that we're making in stabilizing labor in our supply chain.
Now here's Tom for some closing comments.
Thanks for that let me just quickly reiterate our thoughts on the quarter by saying I am proud of how our Lamb Weston manufacturing supply chain and commercial teams are continuing to take the right operating steps to manage through this challenging business environment.
We're on track to deliver on our targets for the year and we remain committed to investing to support growth and create value for our stakeholders over the long term. Thank.
Thank you for joining us today, and we're now ready to take your questions.
Thank you if you would like to ask a question you may signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment once again star one for questions.
We'll take our first question from Peter Galbo with Bank of America.
Hey, guys. Good morning, Thank you for taking the questions.
Good morning, Peter.
Tom I just wanted to get your thoughts kind of now that the.
Summer 'twenty two crop as it started to go into the ground.
How are you thinking about some of the different puts and takes obviously nobody has the perfect crystal ball, but.
It seems like drought in the Pac northwest is still kind of relatively high youre using a seed crop from last year.
The poor crop you know keep last year was obviously an issue fertilizer like how are you think about all those puts and takes in it encompassed in.
In the let's call it in the ground.
Yes, Peter So it's early on in the planning.
And how we look at every crop year.
Certainly we look at history, but we plan it at average historical levels and in terms of our you know the impact that we had last year because of the I E.
It is highly abnormal.
It's early innings, and we're gonna have to really.
We'll monitor it.
No impact from a seed standpoint, but.
Got you.
As I said in my prepared remarks.
The crop progresses as we always do in July and October we will give you an update but we plan for an average.
Yield quality.
Crop year every year. So you know, we'll adjust that as we learn more as the.
Growing season progresses.
Got it no that's helpful.
<unk>, maybe if I could ask on gross margins you know in your prepared remarks, you mentioned the fourth quarter would follow kind of historical seasonality or more normal historical seasonality as we continue to process. This kind of lower quality crop through the first half of next year.
Would you still expect I guess first quarter second quarter seasonality to kind of come back into play is as other elements of the business start to normalize.
Yeah, absolutely Peter you know the first half of next year, we will continue to be affected by this year's poor crop and then once we move into next year's crop, which as Tom mentioned, we're planning will be average that's when.
Should be able to get closer to those pre pandemic margins.
So there Peter.
Yep Yep, sorry still here.
No. Thanks, very much guys I'll pass it on.
Yes.
Yeah.
Thank you we'll take our next question from Andrew Lazar with Barclays.
Good morning, everybody.
Morning, Andrew.
Morning.
Hi.
So I think if I'm not mistaken I think you just mentioned that your I guess your anticipation would be that you still get back to sort of your more normalized margins in the second half of fiscal 'twenty three.
With some of the just the recent news and knock on effects are the next wave of inflation for a lot of items, you know, even even potatoes sort of out of the mix for a minute as those are contracted.
You know I guess, how does how do you continue to sort of have the comfort level on that is it just that youre seeing obviously the pricing go through and therefore, given what we've seen more recently in terms of incremental cost there's the confidence that that more can work and be pass through in a timeframe that allows you to get back to those margins as you had initially expected or is there.
Els, Yes, Andrew just a couple of things.
You know the certainly average crop is going to help that.
Obviously significantly and you know as we plan our.
In the middle of planning, our physical 'twenty three we have a point of view on what inflation is going to be which I won't get into until the next call as we wrap our plan for 'twenty three.
But.
We've have a and have been executing our pricing actions and.
This is where all the old with.
<unk> is a challenge, but I'm confident in how we've been executing and we're in the early innings.
Of contract negotiations with some of our bigger customers.
And we're going to work, we'll work through it and the team is doing a great job. So I feel very confident we will pass through this inflation.
And we're going to get some help from the drop next year, but if it comes in on an average level. So those are really the two things that gives me a lot of confidence that we're going to get back to pre pandemic margin levels and there was no indication right now thats, telling me that we're not and so I feel really good about it.
And then.
I realize you are in the early innings of some contract negotiations for the third of those large customers.
Contracts that are coming up for renewal for the remainder of them that are that are not yet up for renewal I know you've talked about the possibility.
Of.
Sort of maybe expanding or kind of expanding the definition of what some of those sort of escalate inflation escalators or how they're defined in those contracts to to try and get some relief even for contracts, where they're not up for renewal just yet and I'm just trying to get a sense of how house or progress has been made there or are you are you able to get.
Some additional pricing through.
Even where there's not not a contract that's up for renewal.
Yeah, I mean, we're having very robust conversations with those customers Andrew.
And you know, we're partnering with them were working through it.
And we're being very transparent with what's what what our inflation is what we're dealing with and I would say those conversations have been very positive everybody understands the environment. We're all working in.
And so.
So again the team is doing a great job, having those conversations being very transparent with the customers letting them know, what we're dealing with and what is potentially coming Adam.
When their contracts are coming due so it's a very it's a work in progress, but we are making progress.
Thank you.
Thank you we'll take our next question from Tom Palmer with Jpmorgan.
Good morning, Thanks for the question good morning, Tom.
So first I just wanted to ask on the potato side.
When you consider yield losses and spot market purchases, what is your potato and inflation I'm really just trying to understand how much of the 20% higher contracted rate.
Might be offset by normalized yield per acre and fewer spot market purchases next year.
Yes.
We're we won't get into our yield in our.
Processing performance those kind of things, we don't talk about that.
But the cost increase is 20%.
You know the big the big impact are two things to our P&L. This year from a potato processing standpoint, its yield per acre, which is down because of the weather conditions. So we've had to procure more potatoes on the open market and.
It's no secret, we've trucked potatoes from the east coast like other processors have in that cost more money, obviously and it's also how the quality of the potatoes processed through our factories. So the yield to make a pound of French fries. It takes more patel.
<unk>, just because of the quality and size and all that so.
You know we take.
Take the hit in two different areas its yield per acre and its processing efficiency in our factories and we haven't.
We haven't disclosed what the overall impact is because we're still trying to understand it as we take these potatoes out of storage.
Typically this time of year.
It's always a cyclical issue.
Because your quality of potatoes, coming out of storage is less than one of your Colorado field. So we're still.
You know we have an estimate on what the overall impact for the year is going to be but we're still.
Two months to go here 234, or five months to go in processing these potatoes.
Okay understood.
And then maybe switching just to the capital expansion plan capex coming quite a bit below your initial outlook.
You indicated in the prepared remarks that both plant expansions remain on track so what's really causing the delays of this year and why is that not affecting the timing is it. There's just a ton of catch up coming next year and as long as that takes place you'll still be on track.
Yeah. That's absolutely right. This is granted that it's just a matter of timing and you know windows are equipment pieces theyre coming in but based on our current projections and what we're seeing from our vendors. We're still on track with the estimated completion date, it's just a function of timing between this.
And next year.
Great great. Thank you.
You bet.
Thank you we'll take our next question from Rob Dickerson with Jefferies Jefferies.
Great. Thanks, so much.
So.
I'm just kind of a question on segment margins.
And kind of the differentiating factors between let's say foodservice.
As the global segment.
If we look at foodservice now right. The op margin Q3 was actually already higher I believe.
The pre pandemic, which is a great positive, it's obviously driven by pricing.
The global side, not so much right takes a little more time there.
Maybe it kind of ties into Andrew's question.
On the contracted side.
I guess first if we think about the go forward where pricing is now a foodservice, we're assuming kind of more normalized.
The demand environment.
Is it your perspective that you know that's the margin that.
You Hope you can retain right as you get into Q4, and maybe next year, all things considered and they'll be global side Yep. Even you know as you get into the back half of next year, even if the crop is or if it worked normalize some of those costs roll off.
Should that global margin just be going up anyway.
Because of the incremental pricing would be getting.
From your other negotiations.
I'd say as you get through the summer. So I'm, just trying to get a sense of kind of margin.
Potential on a go forward, even if the crop more normal.
That makes sense.
Yeah well.
No.
The plan is as we look at our inflation our plan for 2023, we're factoring in.
Pricing actions and cost savings to drop to offset all of the inflation and to get our margins back to pre pandemic levels. That's that's.
Where we're headed.
And there's going to be puts and takes.
As we.
You know as we negotiate these contract prices with our customers.
But again you know the.
It is dependent upon an average crop, which you know well know in the next six months, where the crops going to end up but.
Yes.
That's where we're driving the business and.
Again, my confidence level is very high that we're going to continue to execute towards that based on how we've been executing.
With some of the pricing actions, we've taken today and but it's going to take time, the global segments with laggard will get through the negotiations and you'll you'll see improvement in the back half and the global segment specifically.
Okay. Okay.
And then maybe just so I understand this a little bit better obviously the potatoes.
Contracted with the growers you forgot the open market.
It probably is more understood.
You know if we're thinking out you know multi year period right as you get to the end of this year.
And then let's see.
<unk> contract with those growers.
There were some increased costs.
You know to the growers right, yes, as we get to the end of this year for the forward.
It still sounds as if kind of pass through pricing ability.
And the business.
Would still be alive, and well and the potential for either further pricing.
Right on the multi year, but still be possible right. It does if you would say right now we've taken a lot of pricing we feel like we're in a good spot we have to be careful about it.
Still very contingent on kind of what the cost is potatoes would be on the go forward is that right.
Well yeah. It is and you know you got it.
Let me step back you have to understand.
What we're doing from a pricing standpoint.
We're flushing through inflation.
And it's it's.
As as.
Pervasive as I've ever seen it a lot of us in the industry.
So.
When you think about that and you also think about.
The importance of French fries on our menu.
It is a profit driver so.
You know it's.
I'm going to be a continuation cost to grow is potentially going to go up and we will continue to price. It just adds we have in past years. So.
It's a question of.
To me there is an element that at some point.
As if the costs continue to increase to the levels. They are what's the elasticity of a French fry.
And right now we haven't seen it. So we will continue to run our game plan and we will adjust to the market.
You know down the road.
Alright Super.
Thank you.
Thank you we'll take our next question from Chris Growe with Stifel.
Yeah.
Thank you good morning, good morning drove stress higher.
Our first question a bit of a follow on to Rob's question, There and you have a another price increase going through I guess that would be I think that's in foodservice and retail.
That would take hold roughly in September . So if you think about the timing it takes to get that through I'm. Just curious how to think about that is that related to.
Cost that you're bearing now is it any way getting in getting in front of what is going to be a higher potato costs next year and given the timing of when this takes hold so I want to understand that price increase if I could.
Yeah, Chris This is Bernie that it absolutely is related to the significant cost in place and that Tom was just referring to that we're seeing now and we're passing those costs through and we'll continue to monitor the environment and the inflation that we continue to see in packaging ingredients.
Oil et cetera, and make decisions in terms of when you know further pricing actions may be necessary to offset that significant inflation that we're seeing.
Have you said what percentage of this price increases.
No.
Do you want to.
[laughter], Chris we don't disclose that.
Okay.
Thank you.
One more question for me, if I could which is that if I'm just thinking about the piece of your global Division that is that was affected by it and you mentioned, how it was down 20 plus percent.
Liam.
It's quick math I'd say, it's about a 4% drag on volume on the overall company I just want to make sure is that math in the right area. There and then maybe related to that then more importantly.
As export volume clearing anymore now are you getting more on the road and maybe are there competitors coming in or is there anyone else, who will come in and satisfy that volume.
Yeah, so as it relates to the global volume the Matthew did theirs right in terms of the impact on the total company and then as we look at export volume. It is starting to increase we're seeing a few more containers be available than what we saw during the third quarter. So that is a positive sign but it's still.
Much lower than what we've seen previously and what we've come to expect for that international business.
Okay. Thank you for your time today.
Thanks, Chris.
As a reminder, star one if you would like to ask a question we'll take our next question from Adam Samuelson with Goldman Sachs.
Good morning, everyone.
Thank you for taking my question.
Actually again stepping in for Adam.
If you could provide some additional color on a few items.
We think about the next six to 12 months what are your expectations on cost inflation on.
What parts of your Cogs basket become more or less inflationary compared to your prior call.
Yeah. So.
You know we've.
Indicated were up 20% on potato.
Teo raw price the in terms of the overall.
Basket inflation.
The middle of putting together our 2023 plan.
And we will give some more color on that in the upcoming earnings calls on what our overall view of inflation is.
For 2023.
That's helpful. Thanks, and then if I could ask a follow up.
The performance and your JV compared to your base business, then any differences in volume trends or inflationary pressures.
Yeah, no and as it relates to our joint venture, they're seeing very similar.
Inflationary cost increases and then more recently certainly as a result of what's going on between Russia, and Ukraine There've been large increases in prices for natural gas and then we've had to make some changes to the oil that's used in that joint venture, but absolutely they're saying the.
Impact on their businesses, what we're seeing here from an inflation standpoint.
Thanks, and congrats on the quarter.
Thank you.
We'll take our next question from William Reuter with Bank of America.
Okay.
Good morning.
So I know your contract for your raw material I'm, sorry for your raw potatoes in terms of the other oils that are part of your cost of goods sold other ingredients and packaging.
What level of forward contracting purchases do you do there.
Yeah, so as it relates to our oil purchases and contracting.
As it relates to price.
We have contracts in place for first quarter of 'twenty, three and some of the second quarter, but a pretty minimal amount beyond there we don't have any other contracts in place.
Perfect and then secondarily given the delay in Capex associated with the two expansion projects do you have an early sense of even ballpark, where capex could be for fiscal year 'twenty three.
Yeah, we're in our planning process right now so we don't have anything to share today, but certainly we will provide you an update at our next earnings call.
I understand okay. Thank you.
Thank you.
At this time that will conclude our question and answer session I would like to turn the call back over to Mr. Convoy for any additional or closing remarks.
Thanks for joining the call today happy to take any follow up questions.
Over the next number of days. Please E Mail me so we can schedule a time.
Happy you're opening day everybody.
Kind of go from there. Thank you.
That will conclude today's call. We appreciate your participation.
Yeah.
[music].
Yeah.
Yeah.