Q3 2022 Hostess Brands Inc Earnings Call
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Yeah.
Greetings and welcome to hostess brands incorporated third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Amit Sharma Vice President.
Investor Relations. Thank you you may begin.
Good afternoon, and welcome to hostess Brands' third quarter 2022 earnings conference call joining.
Joining me on today's call is Andy Callahan.
I'm, President and CEO and travel Center Chief Financial Officer.
By now everyone should have access to the earnings release for the period ended September 32022 established publish at approximately four P M Eastern time.
The press release and Investor presentation are available on <unk> website at hostess brand Dot com.
This call is being webcast and a replay will be available on our website.
During the course of this call management will make a number of forward looking statements, including expectations and assumptions regarding the company's future performance.
Actual results may differ materially from these forward looking statements and we undertake no obligations to update or revise these forward looking statements.
A detailed list of these risks and uncertainties can be found in today's earnings release and in our SEC filings.
Management will make a number of references to non-GAAP financial measures that we believe will provide useful information to the investors.
A full reconciliation of these non-GAAP measures. The most comparable GAAP measures is included in the earnings release.
With that I'll turn the call over to Andy Callahan, our president and CEO .
Thank you Amit I would like to begin with a few highlights from another quarter of strong top and bottom line results. I'll then offer a few comments on our long term growth outlook before handing it over to Travis for a detailed review of our quarterly financial results, we will close with a discussion of our higher guidance for the full year before open.
Up to you for questions.
Let me start with the third quarter, which delivered strong growth across all three key elements of our financial performance net revenue adjusted EBITDA and adjusted EPS.
The growth was driven by successful pricing and revenue growth management initiatives as well as improving supply chain execution and productivity savings, which helped to mitigate inflation give.
Given our strong year to date results and continued momentum we are raising our full year top and bottom line outlook. We now expect our 2022 net sales to increase by 17% to 19%, while raising our full year EBITDA and EPS growth guidance.
Two $290 million to $293 million and 96 to 98 cents respectively.
Now a few highlights for the quarter.
We delivered 20% organic net revenue growth with a stronger contribution from price mix as we executed our most recent pricing actions our strong top line led to solid bottom line growth with our adjusted EBITDA and adjusted EPS, increasing by 12, 2% and nine.
5%, respectively, even as we continued to encounter pockets of supply chain for agility and elevated cost inflation.
The third quarter was our 11th consecutive quarter of at least 9% revenue growth and the sixth consecutive quarter of double digit growth. It was also notable that we were able to keep our volume essentially flat in the quarter demonstrating the strength of our portfolio supported by our innovation and marketing investments and focus.
Which helped to offset elasticities from recent pricing actions, we are well positioned to continue to drive growth during the challenging economic times due to the resiliency of our categories are pure play snacking portfolio and are accessible price points.
At the retail sales level, sweet baked goods and cookies, both posted strong broad based growth in the quarter.
Our sweet baked goods point of sale led by the hostess brand grew by 17% in the quarter.
As expected pricing was a bigger driver of hostess growth during the quarter as retail prices increased by double digits, reflecting our recent pricing actions and our continued focus on revenue growth management.
Underlying consumption trends remain solid as snacking frequencies, including for Sweet indulgent snacks remain elevate.
Main elevated even in the post pandemic environment.
Our access to all retail channels and our affordable price points are particularly attractive in the current environment as consumers seek better value to fit with their lifestyle and consumption occasions.
Which is reflected in another quarter of double digit growth for hostess brands single serve and multi pack offerings point of sale for each increased by more than 15% during the quarter with two year stacked growth of approximately 33% and 29% respectively. Both well ahead of underlying.
Category trends.
Turning to the Bornemann brand work.
Point of sale increased by 28, 8% in the quarter, including 28, 1% growth in the sugar free segment, where he gained 500 basis points of share during the quarter.
Workman strong ongoing growth momentum continues to be driven by expanding distribution and our investments in advertising to increase brand awareness wariness and impactful innovation.
We continue to be very pleased with the performance of <unk> business, which is margin accretive to our portfolio and is continuing to deliver against our initial expectations.
With strong double digit top and bottom line growth over the last three years, we have built an impressive track record of strong performance during a period of unprecedented volatility and challenges more importantly, as I said at our March Investor day, Despite an increasingly complex consumer and macro macroeconomic environment.
I continue to believe the foundation of hostess brands has never been stronger and I've never been more confident of our team's capabilities and drive to deliver our long term growth algorithm. Let me offer a few highlights first we have unique access to broad fast growing snacking occasions, and a best in class business model there.
Perfectly with our impulse driven categories.
The indulgent Sweet Snacking segment is one of the largest and fastest growing segments within macro snacking, which itself continues to grow faster than overall food and has also shown to be consistently more resilient in prior economic downturns. In fact, a recent survey to better understand the impact of the current environment.
<unk> on our consumers in core categories signal.
The majority of the consumer surveys are indeed worried about the economy and plan to cut back spending.
However, a vast majority of the same consumers indicate that they will continue to look for new snacking options and 82% say that sweet snacks brings them joy, especially during times of uncertainty.
This is consistent with other data and research and reinforces our belief that the hostess brands portfolio is well positioned as consumers look for value in the current environment within the overall macro snacking universe in which we compete we are attractively price relative to other snack offerings, providing consumers an accessible off.
<unk> as they look to stretch their shopping dollars.
In addition to our presence in growing categories. We are targeting the most attractive snacking occasions, where hostess and <unk> are uniquely positioned to win we are prioritizing five fast growing occasions, which are more than $50 billion in retail sales and provides us a large and sustainable.
Platform for our future growth.
Second we are accelerating innovation marketing and consumer facing capabilities to fully unlock the potential of our iconic brands and access to be attractive snacking occasions our.
Our impactful innovation is a key driver of our growth strategy, we have not slowed our investments in innovation, even during times of resource constraint and supply chain challenges our retail partners have certainly noticed that and they are equally enthusiastic about our innovation.
And it's really about how we are leveraging our occasion based framework, a consumer and shopper insights to innovate and generate profitable and sustainable growth from last year's standout baby bonds to this year's highly anticipated houses bouncers were building and executing a multiyear pipeline of new products to continue our innovation momentum.
And drive category growth.
Bouncers, which re imagines our iconic twinkie thing done and do net offerings in a probable version ideal for the lunchbox occasion is off to a strong start.
While it is early we've had strong display support for the key back to school period with good sell through driving trial and expanded placement in the traditional channels before its introduction into convenience store channel. This month.
As we are committed to increasing our advertising and marketing support for both our innovation in core products as.
As we mentioned at our Investor Day earlier this year, our A&M spending will likely grow ahead of our expected revenue growth over the next several years as we establish a new base level of spend to support long term mid single digit top line growth.
We continue to be highly disciplined with our A&M spend to ensure we achieve a high R O.
Our test and learn process has proven to be successful and provides us the confidence that our future investments will drive continued profitable growth.
We also continued to invest in talent throughout the organization, including our bakeries warehouses and importantly in our R&D and product quality teams last month, we announced the addition of Adrian <unk> as our Chief supply chain Officer, Adrian joined just with nearly 30 years of diverse supply chain experience with Kimberly Clark.
<unk>, which began in his native Argentina and culminated as head of global capabilities. His appointment continues our track record of attracting industry, leading talent to build upon our strong execution history and capability development.
Additionally, our innovation and marketing investments are attracting new households to our brands.
And our investment in product quality are driving an increase in our two time buyer and more than twice the rate of the category. These two consumer fundamental metrics together reinforces my confidence that our model is working and are good indicators of the sustainability of our topline growth.
Third in addition to pricing actions, we continue to pull on multiple levers to manage the current inflationary environment as well as protect and modestly expand margins over the long term.
As expected higher prices to offset elevated inflation were the main driver of both our top and bottom line during the quarter revenue growth management is a key component of our growth flywheel and we continue to step up efforts to accelerate our productivity agenda, our productivity initiatives, which spanned procurement are baked.
Greece transportation and distribution are also gaining traction and are beginning to deliver results.
Overall, I'm proud of our dedicated and talented workforce for continuing to execute at high levels through these challenging periods. While we successfully navigate the current environment. We remain focused on growing the right way over the long term, we are making great progress on corporate responsibility initiatives as outlined in our second corporate responsibility report.
Attaining our key CSR goals as part of strategic objectives of our executive team with direct oversight from our board as we continue to build a strong sustainable corporate culture that values nimbleness integrity, tenacity, inclusivity and a commitment to quality.
In summary, I am pleased with our strong quarterly and year to date results, which are enabling us to raise our full year sales EBITDA and EPS guidance and build on our track record of delivering excellent results through a challenging operating environment. We are executing on our strategic priorities and remain confident in our.
<unk> ability to deliver our attractive long term growth algorithm.
With that let me turn it over to Travis to go through the quarterly financial results and our revised outlook in greater detail.
Thanks, Andy I'm proud to speak to another quarter of outstanding performance at hostess I will start with a review of our topline results.
<unk> net revenue for the third quarter increased 22% to $346 2 million another record sales quarter for hostess brands. Our top line was driven primarily by price mix as we benefited from planned pricing actions and successful execution of our revenue growth management initiatives.
<unk> was essentially flat, even with additional pricing flowing into the market.
Our sweet baked goods portfolio nearly 90% of total sales grew 18, 7% during the quarter, while our cookie portfolio grew 33, 2% demonstrating growth across our entire portfolio.
Switching to retail sales trends, our Nielsen measured sweet baked goods point of sale increased by 17% for the 13 week period, ending October one with broad based growth across all key channels.
<unk> Pos increased by 28, 8% in a period nearly double the 13, 4% growth for the overall cookie category driven by pricing.
Innovation and distribution gains with strong growth in the sugar free sub segment.
<unk> share of the Cookie category increased by nearly 30 basis points in the quarter as.
As Andy mentioned, both our single serve and multi pack offerings grew by double digits during the quarter. Our breakfast portfolio also continued to outperform the sub segment with 26% growth in the quarter compared to 18, 3% for the total breakfast subsegment driven in part by our impactful innovation.
Moving to the rest of the P&L adjusted gross profit of $116 1 million increased by 16, 9% in the quarter driven by pricing actions revenue growth management initiatives and productivity savings, partially offset by inflation.
Adjusted gross margin of 33, 5% for the quarter declined 93 basis points from the year ago period at 18, 5% inflation and inefficiencies caused by continued supply chain for agility were partially offset by favorable price mix and benefits from productivity initiatives in the quarter.
More specifically our continued focus on development of our revenue growth management capabilities led to higher net price realization during the third quarter, which is historically our largest promotional quarter.
Adjusted EBITDA increased by 12, 2% to $72 7 million in the quarter as higher gross profit was partially offset by higher operating expenses are.
Our adjusted operating expenses, including SG&A increased by 23, 9% to $61 9 million driven primarily by planned investments in our people and capabilities as well as higher depreciation and advertising spend.
Adjusted EBIT margins declined by 150 basis points to 21%, primarily due to lower gross margin as previously discussed.
Our effective tax rate, excluding discrete items was 26, 7% consistent with the prior year quarter and largely in line with our 27% outlook for the full year.
Adjusted net income of $32 2 million for the quarter increased 11, 4% from the prior year period.
Adjusted earnings per share of <unk> 23.
Increased nine 5% as the contribution from higher EBITDA was partially offset by higher depreciation and amortization.
At the end of the quarter, we had cash and cash equivalents of $190 8 million short term investments of $41 9 million and net debt of $855 million with a net debt leverage ratio of two nine times, which is at the bottom of our targeted 3% to four times range.
In the quarter, we received insurance proceeds of $33 million under the representation and warranty insurance policy, we purchased in connection with our 2020 acquisition of Bornemann.
During the quarter, we repurchased $45 $5 million worth of shares under our previously announced $150 million repurchase program.
Turning to our outlook for the year, given our strong quarter and year to date results. We are raising both our top and bottom line guidance for 2022.
We now expect full year net revenue growth of 17% to 19% up from our previous guidance of at least 15% growth.
We continue to expect full year volume to increase by low to mid single digits. Our strong year to date execution is enabling us to increase our full year EBITDA guidance range. We now expect adjusted EBITDA of $290 million to $293 million up from towards the high end of the 280 to 290 million.
Dollars range.
We are also increasing our EPS guidance to a range of 96 to 98 per share up from the previous 93 to 98 per share range.
We now expect our full year capex to be within the range of $125 million to $135 million versus the previous $120 million to $140 million range.
Our expected tax rate of 27% remains unchanged from our original guidance.
We now expect average shares outstanding of approximately $138 million down modestly from the previous range of $138 five to $139 5 million.
Consistent with our last call, we continue to expect high teens inflation for the full year.
However, given the timing of certain costs, our Q4 inflation rate is expected to be higher than Q3.
And we are covered for a market traded commodities for the remainder of the year.
We now expect full year gross margins to come in slightly better than our previous outlook of down 200 basis points versus prior year, driven by better than expected contribution from revenue growth management and productivity initiatives in the second half of the year.
As previously communicated we will continue to make targeted investments across the organization, including investments in our people.
Capabilities products and brands are most recent innovation bouncers is off to a good start and we will meaningfully step up advertising and marketing support in the fourth quarter to drive awareness and trial.
I am proud of our team's ability to deliver another quarter of strong top and bottom line performance in a dynamic operating environment and I'm excited to continue our journey of driving sustained profitable growth with that I will turn it back to Andy for closing comments.
Thanks, Travis we are grateful for the confidence you have placed in our ability to successfully navigate the challenging environment.
And once again I would like to close by thanking and congratulating the talented hostess team who put their hearts into everything they do.
We are well positioned to deliver our raised outlook for 2022 and remain focused on delivering our attractive long term growth and leading shareholder return over time.
With that we are ready for your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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You May press star two if you'd like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Pamela Kaufman with Morgan Stanley . Please proceed with your question.
Hi, good evening.
Yes.
I have a question about your outlook for pricing so several companies, particularly in the snacking space implementing additional rounds of pricing given continued input cost inflation.
What is your preliminary sense for next year's inflation outlook and based on your forecast.
Needing to take additional pricing.
Hi, Pam.
Thanks for the question good to hear from you.
It's too early to talk about 'twenty three so.
We're not really going to speculate on 'twenty three we will do that next quarter, what I will say however.
Is <unk>.
Pricing for us is the law.
Last resort, we continue to evaluate future pricing actions really in the broad context of the consumer but also our ability to continue to drive efficiencies revenue growth management with travelers talked about today, our productivity initiatives. So it's all of the balance of making sure we're delivering the right consumer.
<unk> in a responsible way and also managing our revenue growth management and all of our efficiency with all that being said, we feel we're really well placed both in our snacking categories. The resiliency of our categories are underlying trends.
Our innovation and our marketing initiatives. So we take all of those into consideration as we look for more long term sustained value creation. So too early to talk about 2003, we look at it all the time, we look at it within our balanced lens and right now as we end 2000 and to all the pricing we need to deliver on our commitments for 'twenty two.
We are in the market as as we've talked about last time that flow through in July and he can add.
You got it handy.
And then my second question is just on your guidance, which is moved to opt for top line and EBITDA, but you've narrowed your EPS range, despite projecting a lower share count.
Can you just talk to what's kind of limiting the flow through.
Q EPS from higher EBIT.
And how should we think about your interest rate exposure and the current rising rate environment.
Yes. So thank you Pam this is travis thanks for the question I'll I'll handle this announced separate them between your EBIT EPS question and then interest rates.
So first I'll talk about EPS. So we did raise the bottom end of the range.
As <unk> talked about we have bought back shares and you see that in our prepared comments.
When we think about our EPS there is a lot of activities going on in our business and many of which we've alluded to we've talked about the amount of innovation that we've done we've talked about our investments.
In innovation, we've talked about our cap allocation against our core business, which includes arkadelphia.
A meaningful spend we have there. So those are a lot of dynamics going on our business and the reason why I set that up is that as we look at our assets. We are continuing focus on our network optimization.
Delivering our long term innovation pipeline and driving productivity and efficiency initiatives and in doing so we regularly evaluate the underlying assets across our manufacturing base to ensure that we are advancing those capabilities in the most efficient and productive way so from time to time.
This requires us a way to shift from certain assets that are not advantageous to everything that I talked about two two supporting our growth and that's what's playing out in the EPS line and you see that in the depreciation and amortization is our conscious decisions about ensuring that we have the right.
<unk> that are going to drive the growth in those areas that I talked about.
So now I'm going to pivot to your interest so.
Im really excited about our interest expense, we've done a really good job managing our interest expense.
Just to give you a little bit of context, 65% of our debt is essentially fixed.
At approximately 4% interest rate our effective interest rate for Q3 was about three 8%. So we're really proud about that given the current interest rate environment.
That we are and so obviously, we will have interest expense rise as we continue to operate in this environment, but obviously the.
Fixed debt at 65% does give us a little bit, but a bit of a hedge.
Help there so I would anticipate interest expense to go up.
In Q4, and as long as the interest rate environment remains as is we will continue to experience higher interest expense on that variable portion of our debt.
Great. Thank you.
Our next question is from David Palmer with Evercore ISI. Please proceed with your question.
Thanks.
A question I wanted to ask you on gross margin.
Year ago. It was roughly 36% are in the low sixes and.
I'm, just wondering how youre thinking about that as a target over time.
And if we were to break down the roughly 200 basis points of decline how much would you say is supply chain friction versus pricing behind commodity inflation.
Yes.
Thanks for the question as you can imagine given what we've shared at year to date inflation is in the high teens Q3 was 18, 5% Q2 was 20% so.
Our largest headwind and if you think about year over year margin decline is obviously and inflation.
Given the magnitude now how we think about inflation and Andy alluded to this.
Little bit earlier, we think about a toolkit to manage costs and to manage to manage costs and to drive.
Our ability to continue to invest back in our business. So there is multiple tools in this tool kit pricing is one of them, we will use them when we need to and we will use it when we're dealing with 18, 5% inflation, but we also have revenue growth management and <unk> and we've invested in those capabilities and you've seen that play out in Q3 and we.
Alluded to that in our prepared remarks, we've also invested in our ability to drive.
Repeatable and scalable processes across our entire business system across our bakery across our warehouses in procurement and transportation to continually fill a pipeline of productivity initiatives. So as we think about our margins over time as we think about recouping, our margins over time and slightly expanding them we will leverage.
Our GM capabilities and our productivity capabilities.
To really drive to continue that investment into innovation into our product quality and into our marketing as well so David it's too soon to talk about timing.
Travis I think most importantly, you are looking for we're committed to recovering our gross margin expanded modestly over time, including the anchor.
Starting point you talked about.
Right, Okay, and just looking at your slides you mulch.
Multi pack sales growth was still strong although it is not as strong as your single serve them recently.
Recently that that the breakfast traffic, it's convenience stores has been remarkably strong lately I'm. Just wondering if you have any observations kind of coming out of Covid.
Are you seeing some slowing in some at home snacking behaviors and pack types and products and seeing the inverse perhaps some mobility related stuff, that's beginning to get more uptake any comments would be helpful.
Yeah. Thanks, David.
So, let's keep things in context.
You talked about slowing so.
I think we're one of the top growers if you look over the past several years, both in units and in dollar sales for.
For the quarter, just so everybody is grounded.
Let me make sure I think for the quarter. Our single serve was up 17, 5% in dollars or multi pack was up 16, and a half or two year stack.
On single serve is 33% and multi pack was 28 nine so we feel good specifically within the convenience channel. Our Pos was up 17%. So just as a context of driving growth.
<unk>, we do expect unit sales.
We guided for the full year kept that the same on our unit sales of.
The high side, two 5% for the full year.
Two zero. So we do expect unit sales to slow it is consistent with our model.
As far as traffic can be in the convenience channel the latest data and we get external data I don't have any internally proprietary data on that but what we see and what we also see in our orders as you know.
The traffic continues to be relatively consistent in inside sales continue to be relatively robust and resilient.
What's important for US is we have opportunities on both multi pack single serve given the nature of the impulse nature of our category and our growth model to access is $50 billion of occasions that we talk about a lot and thats proven to be true in our model, we see the impact of our pricing on the elasticity in net debt.
Impacting our units on a downside thats being offset by some of the macro trends, but more importantly, some of the largest drivers in our model our innovation our investment in marketing and our ability to execute and those things will continue over time throughout our algorithm even as the impacts of short term pricing kind of go back. So yes, we can.
Talk about a lot of things in the short term and they're all good questions, but over the long term what our model says is the activities that we're doing in excess of $50 billion, which are broader than our category alone continue to work and I just wanted to leave everybody, but that that message.
Thank you.
Thanks, Dave.
Our next question comes from Ken Goldman with Jpmorgan. Please proceed with your question.
Hi, Thank you so much.
Hi.
Hi, good afternoon.
I wanted to ask about bouncers, clearly, it's doing well I wanted to ask.
You've obviously been innovating well for a long time, but I feel like this is sort of a step up in a maybe a little bit of a bigger direction correct me, if that's wrong and I'm just wondering how does that sort of benefit you in terms of.
Future innovations.
Do you have a little bit more street cred, so to speak with some of your customers in terms of the next innovation.
Is this sort of help you introduce more products a little bit easier going forward just wanted to kind of see if theres any kind of incremental flow through to the rest of year.
<unk> new product pipeline from the success of this.
Yes.
I appreciate the questions and I appreciate the spirit of the question.
Let me step back with our customers our relationships with our customers we value them we.
Want them to be sustainable just like all of our relationships across our across our network.
The strategies that we've been implementing.
Our building the sustainability of that because we are growing our strategies our category growing strategies that as a starting point and what we're doing is we're accessing consumers and attracting them to sweet baked goods as a viable stack, which is what I just talked about in the previous message. We do have a good try with that we'd never left innovation during COVID-19, we continue to invest.
When there wasn't as much out there we were able to launch baby bonds and other things that were highly successful of high repeat rates the enthusiasm between our from our customers. It's too early to tell consumers ultimately determined that has been highly enthusiastic our distribution has been very strong we're just turning on our advertising here.
October Thats is testament of our enthusiasm behind it because we need to drive awareness. So it will be a step up we will see that in Q4 and <unk> talked about that.
And bouncers is a up we believe this platform mobile as well so in other words, we have an initial launches of <unk> of our some of our icons, but Tina Lambert, Dan O'leary, who you've heard from an Investor day do a terrific job of starting with the consumer insights looking at our occasion based segmentation model. This targeted launch of <unk>.
And has a broader appeal out there does really well. So we're enthusiastic about our initial customer response has been very good too early tell it to consumers, but we do believe that it's scalable <unk> platform mobile and we're excited about the pipeline as well we talked to our customers about pipelines.
So it's not a one and done.
Is that as much as just one individual item that get some get some excited that we're focused on category growth, we're focused on pipeline and were.
Focus on sustainability of them.
Makes sense I'll pass it on thank you.
Thanks, Ken.
Our next question comes from Ben <unk> with Stephens. Please proceed with your question.
Hey, Ben.
Hey, guys you got gensler on for Ben.
Hi, gentlemen, good quarter.
Alright, thanks, guys.
Boardman is continues to perform exceedingly well.
Can you just talk about what's driving that is it you guys are investing in the category more than peers.
It's a fresh brand I mean, what's driving kind of that consistent outperformance.
Yes, there is.
There is a lot of things we integrated workmen's we.
Re imagined it and brought it into our.
Operating model.
And.
We when we when we originally integrated it in we we got efficient on the Skus, we reformulated, where we needed to do we re imagined the packaging so within our logistics and then the team <unk> got busy really understanding the insights from the consumer back like we do everything so what I'd say at the fundamental.
The piece of it is we got a portfolio that we thought was sustainable growth, what we call scalable niche and that's our model and it starts with the consumer and then it starts with and activating our playbook to be but access as consumers within there.
And when we did that so we have tailwind from the occasions in which we compete our sugar free is really doing well, but.
The broad portfolio is also doing well to the team continues to refine our customer teams are executing extremely well our distribution continues to move up and the quality of the distributions really good.
We have expanded into the convenience channel.
And both importantly, as you saw the sales dollars were up but also the unit consumption. In this environment continues to be up. So we now have two really meaningful brand it.
Businesses, one in cookies, which is $8 billion.
In retail sales and sweet baked goods, which is quickly approaching the size above 7 billion approaching the size of cookies, where we obviously have a more meaningful position with <unk> to be able to grow remember, 100% nearly 100% of our portfolio of snacking, we have macro trail wins to really branded positions with <unk> in the category.
We are executing I would put them up against as good or better than anybody else. So.
We're running our playbook.
Great.
Maybe I could circle back on the bouncers launching of the C stores.
When you push them into C stores are they going to be in kind of prebuilt displays where theyre separate.
Or are they just going to be on the shelf.
No.
Speaking.
Yeah.
Yes, Scott and his team do a great job in convenience channel I'll put them up against anybody who does it and so the comp there it'll be a both so one of the beauties efficiencies of our business model is the nature of where one of the highest impulse categories, the risk, which by the way is really testament to the expand the ability of our category.
When we can when we can activate our plan and we can do it the way we want we talk about accessibility to $50 billion.
<unk>, we can actually we can really access as consumers given the impulse nature of our categories. So when we go in the C stores are our logistics model allows us to do that really efficiently and getting really display ready things right out the convenience channel as well as getting it on the shelf. So the fast answer is both.
Okay, Great I'll pass it on thanks for that question Matt.
Thanks Ben.
Our next question comes from Robert Moskow with Credit Suisse. Please proceed with your question.
Hi.
Im just trying to drill down a little more into the fourth quarter guidance.
It implies a deceleration in sales growth that's pretty significant.
And so I wanted to know why that would be and also your comment that your your inflation will be higher in fourth.
Why is that is it from hedges rolling over.
Or is it something else.
Hey, why don't we take the cost first I'll I'll do that real quick as Travis mentioned in the prepared remarks, it's just the timing of some of the Cogs coming through our P&L in Q3 versus Q4, which is kind of related to some of the contracts and relationships. We have it's not a long term indication that things will talk about that at the <unk>.
Time, but thats the way its flowing through this year correct, we're still holding to the 19% inflation. This is simply a switch Q3 to Q4 of certain costs and no indication of that.
Yes.
And then related to <unk>.
Sales growth, we feel terrific about the sustainability of our model.
I think it's difficult to look at quarter to quarter in todays environment I mentioned, some incredible numbers, we're coming up on <unk>.
Just three years of 9% or more growth, we're looking at a quarter of.
80% of our Pos was 13% or better so.
We'll continue to activate our playbook one thing that didn't come up Rob that I know you are always interested and it's not just a point of sale, but if you look at the consumer fundamentals of our business. If you step back we continue to access households, our household penetration has continued to be up if you look at over the last 52 weeks, we're adding two times buyer to our category.
The market share it lost last year, I recall, you talking about it and and talking about supply chain issues being kind of.
The reason for that you didn't mention what your market share was in this quarter, where was it compared to last year and it may not look good optically, but it is it where you would hope it would be based on that anomaly.
Yeah, there's a couple ways to combat this <unk>.
Have a lot of respect for all of our competition I take them serious and they're out there doing a nice job and that that mentality I think keeps us high on our game.
Flat answer as our market share is was flatbed basically it is essentially flat for the quarter.
On a auto market share basis.
What's that was really <unk> shares one metric and that'll go quarter to quarter. Some of the things I talk about long term are important but also the expand ability of our category is really important because we can grow we even with a flat market share as I mentioned, you know our top three channels were up at least 13%.
So that's the way I look at it certainly we did mentioned you know we benefited in the short term from the competition just distributions some things, but what's what's gonna last over time with a lot of these strategies that we talked about overtime.
Okay. Thank you.
Our next question is from Steve powers with Deutsche Bank. Please proceed with your question.
Hey, Thanks, Hey.
Do you think I'm gonna pull pull together a couple of different things you'd be talking about throughout the call.
It's it sounds like you're you're successfully reaching do consumers new households, new occasions with incremental products in an incremental initiatives.
Which is great.
And yet volume just flat for the quarter now I get it flat volume given the price of your taking as is.
Is.
Impressive in its own right, but I guess I guess, maybe I just wanted to maybe build on some of what you were talking about earlier, just how you think about the incremental reach you seem to be obtaining.
Relative to what what would you know intuitively appear to be a decline in what you know you might consider based occasions, especially if those declines seemed to be accelerating volumetrically based on recent consumption data.
Just how you think about that what that might mean for the medium term.
Yeah, what I think in the.
The way I think about that.
Is obviously, we're putting a lot of pricing into the marketplace and theirs.
Some <unk> matter of a list <unk> impacts us.
The strategies that we're implementing will last well beyond this period of inflation and the impact that the pricing in the short term has to consumers relative to a less vicinity. So that's why I did bring that up about our ability to be able to access new households, our ability to when they try.
Yes that they repeat with us and that's why our innovation our marketing efforts are important.
We expected as worse communicated and it sounds like we're getting <unk> I don't know, whether it's just our side, but I apologize if there's interference on our line.
What we what we have continued to do is activate our playbook over the long term as we've gone through.
Some of the pricing and as I mentioned this Travis mentioned, we take pricing extremely serious seriously. We think we have a good value equation to the consumer we do what's needed we expect to recover margins over time, and we expected and not just pull the pricing lever. That's why we're very balanced about then continued to large M. A productivity as we talk to talk to them.
So that's why those metrics are important can you access new new household and can you.
Have them <unk> and all of our investments are proven that that's the case, so that'll start showing after we get through some of the short term impacts of pricey less this city.
Okay understood. That's helpful. Thank you.
Yeah.
Okay.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we pull for questions.
Our next question is from Rob Dickerson with Jefferys. Please proceed with your question.
Great. Thanks, a lot.
I just wanted to kind of talk about Victoria, Let's say circle back to kind of the longer term opportunity.
Give me the playbook and also given pricing so that someone can.
I have a different angle you know.
I kind of assume the category your products over at all so we're gonna sell it.
Out of a lower absolute price point.
<unk> else.
Versus the total store.
You know volumes flat with high pricing will used in Q3.
Obviously is impressive 50 to set you know we're not seeing everybody put up the same numbers can everyone's been impressive. The story has been impressive consumer seems resilient.
But would you kind of step back and say.
Walk in the near term or even the quote unquote. The medium term you know maybe the volumes wouldn't grow as much just kind of given that upfront kind of shocked by the consumer but could also be an opportunity, especially if you continue to speak with the retailers.
That if you are kind of performing year over year on a volume basis, a little bit better.
Other categories, maybe get a little bit more pricing and some other categories that this could be actually an ideal.
An opportune time.
<unk>, alright, and try to attract new consumers did you get into next year, because your absolute price point to sound very expensive that's it. Thanks.
Yeah, So would that as he wrapped I. Appreciate the question I think I understand the spirit of it is okay. So with the your investments in value and innovation are you truly price to the value and we think about that all the time price and the value. While we look at our algorithm and make sure we have the sustainability of it.
So.
We want to deliver to consumers.
The best value.
For the dollars that they can have at the same time that we're delivering industry leading growth.
Industry, leading margins and therefore industry, leading total shareholder return, we calculate all of those based on that equation based on what we know about our consumers and base about what we know about our P&L.
We think we have as they stay in here today to at least closed at 22, we think we have that balance of sustainability sustainable profitable growth.
Correct, while the consumers absorbing a lot. So we don't think about his opportunistically. We let me think about the right price value to the consumer that will drive to sustainable profitable growth and that's the way we look at it.
We think we haven't right with that being said.
Too early to look at 23, we reevaluate that all the time and we are in a position maybe the other end of that given what you said that if needed will be in a position to activate the correct lovers to continue to keep that track record of successful results.
Alright fair enough. Thank you.
In Europe .
We have reached the end of the question and answer session I'd like to turn the call back over to Andy Callahan for closing comments.
Well I appreciate your interest and thanks for the confidence you've placed in our team as we continue to execute our plan to inspire moments of Joy Rob. This one's for you for all stakeholders consumers or investors are suppliers and certainly our team. So thanks for everybody for your interest.
Great.
Guess holiday season, because we'll be back in talking to some of you in the interim but not on a quarterly call until after the holidays. So have a great close to 2022 and we'll see many of your next year. Thanks again.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.