Q2 2023 Lancaster Colony Corp Earnings Call

February 2, 2023

Okay.

Good morning, My name is Anita and I will be your conference call facilitator today at this time I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2023 second quarter Conference call.

Today's call will be David Filinski, President and CEO and Tom Pigott CFO .

All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer period.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad and questions will be taken in the order that they every seat if you would like to withdraw your question press the pound P. Thank you.

And now to begin the conference call here is David.

It's gone <unk>, Vice President of corporate Finance and Investor Relations for Lancaster Colony Corporation.

Good morning, everyone and thank you for joining us today for Lancaster colony's fiscal year 2023 second quarter Conference call. Our discussion. This morning May include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 995.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially and the company undertakes no obligation to update these statements based upon subsequent events.

A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Also note that the audio replay of this call will be archived and available at our company's website <unk> Dot com later this afternoon.

For todays call Beth Winski, our president and CEO will begin with the business update and highlights for the quarter, Tom Pigott. Our CFO will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook at the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Once again, we appreciate your participation. This morning, I'll now turn the call over to Lancaster, colony's President and CEO , Dave <unk> Dave.

Okay.

Thanks, Dale and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2023.

Our fiscal second quarter, which ended December 31, we were pleased to report both record sales and higher profit.

<unk> net sales increased 11, 4% to $477 million, while consolidated gross profit improved five 7% to $102 1 million and operating income grew 13, 3% to $51 3 million.

The retail segment second quarter net sales reached $259 million up five 6%, including the favorable impact of the pricing actions, we have taken to offset inflationary cost.

On pricing sales gains were driven by New York bakery frozen garlic bread and the continued success of our licensing program.

The growth of licensed sources was led by Buffalo Wild wings and incremental sales from the recently launched Rb's foresee an RV sources.

Retail segment sales volumes measured in pounds were up three 8% in the period due to price elasticity as anticipated along with the impact of our decision to exit some less profitable product lines in fiscal 2022.

IRI data for the second quarter showed very strong performance for our marquee retail brands.

Sister, Schubert's, leading share of the frozen dinner roll category increased 140 basis points to 55, 4%.

<unk> share of the refrigerated salad dressing category added 110 basis points to 23, 7%.

And New York bakery, leading share of the frozen garlic bread category grew 90 points to 43, 1%.

In summary, the Q2 top line results for our retail segment reflect our pricing actions strong share growth from our core retail brands and contributions from our licensing program, which were partially offset by price elasticity and product line rationalizations.

In our foodservice segment net sales grew over 19% driven by our pricing actions along with volume gains for select customers in our mix of national accounts.

Foodservice volume was down four 6% in the quarter, primarily driven by our decision to exit some less profitable product lines in fiscal 2022.

During Q2, we continued to experience high level, some inflation for raw materials packaging and freight.

That said, we've made great progress through our pricing actions to where our Penang are pricing net of commodities was favorable versus the prior year.

This is a continuation of the trend that began in Q1 and which we are recovering some of the negative Penang we experienced last year.

In the quarters ahead, we intend to focus on productivity gains in our supply chain and revenue growth management to improve our financial performance.

Before I turn it over to Tom I would like to extend my sincere thanks to the entire Lancaster colony team for all their ongoing commitment and contributions to our improved operational and financial performance.

I'll now turn the call over to Tom our CFO for his commentary on our second quarter results Tom.

Thanks, Dave overall, the results for the quarter reflected continued top and bottom line growth driven by pricing actions that offset inflationary costs as well as improve fundamentals first quarter consolidated net sales increased by 11, 4% to $477 4 million.

This growth was driven by successfully implemented pricing actions in both segments.

Decomposing the 11, 4% revenue growth 15, four percentage points were driven by pricing.

The impact of the volume decline, Dave mentioned was four percentage points.

Consolidated gross profit increased by $5 5 million or five 7% to $102 $1 million.

Gross profit margin declined by 110 basis points, reflecting the dilutive impact of higher pricing and commodity costs on the percentage calculation.

The increase in gross profit dollars reflects favorable pricing net of commodities or Penang in both segments.

If you will recall in Q2 of fiscal 'twenty, two we had negative peanuts as we lagged the rapid run up in costs.

We continue to recover those losses, while our commodity inflation was about approximately 24% this quarter, our pricing actions offset this increase and the majority of the prior year shortfall, resulting in the improved performance.

Consistent with the first quarter.

Our results also reflected improved fundamentals in three areas.

Both of our segments have eliminated lower profit businesses and Skus.

Second through improved planning scheduling and tactical execution factory head count was down for the quarter versus the prior year quarter.

Third inventory days on hand are down versus the prior year quarter and our mix of inventory is better aligned with demand trends.

These items, along with a more stable and predictable operating environment helped to improve gross profit and significantly improve our cash flow performance.

Selling general and administrative expenses declined one 5% or $800000. This decrease was primarily due to lower expenditures on project ascent.

<unk> for project ascent, our ERP initiative totaled $7 $5 million in the current year quarter versus $8 6 million in the prior year quarter. We also benefited from lower professional fees and timing related changes in consumer spending.

<unk> operating income increased $6 million or 13, 3% to $51 $3 million, primarily due to the gross profit growth and the reduction in SG&A costs.

In the prior year quarter, we had a change in contingent consideration and a restructuring charge. The net impact of these items was immaterial.

Our tax rate for the quarter was 22, 8% versus 24, 3% in the prior year quarter.

We estimate our tax rate for the remainder of fiscal year 'twenty three to be 23%.

Second quarter diluted earnings per share increased 20 to $1 45.

Decrease was primarily driven by the growth in operating income.

With regard to capital expenditures payments for property additions in the second quarter totaled $31 $9 million.

For fiscal year 'twenty, three we are forecasting total capital expenditures of approximately $100 million.

Okay.

This forecast includes approximately $50 million for the completion of the horse cave expansion project.

In addition to investing in our business. We also returned funds to shareholders our quarterly cash dividend <unk> 85 per share on December 30th represented a 6% increase from the prior year amount.

Our enduring streak of annual dividend increases now stands at 60 years.

Our financial position remains strong as we are debt free with $95 $5 million of cash on balance sheet.

So to wrap up my commentary on our second quarter results reflect revenue growth driven by pricing that serve to offset significant commodity inflation.

In addition, the company continued to execute well on the fundamentals and a more stable operating environment.

I'll now turn it back over to Dave for his closing remarks. Thank you.

Thanks, Tom as we look ahead Lancaster colony will continue to leverage the combined strength of our team our operating strategy and our balance sheet and supported the three simple pillars of our growth plan.

To one accelerate core business growth.

Number two to simplify our supply chain to reduce our cost and grow our margins.

And three to expand our core with focused M&A and strategic licensee.

In our fiscal third quarter, we expect retail sales to benefit from our expanding licensing program. While in the foodservice segment. We anticipate continued volume growth from some of our <unk> customers.

Cost inflation will remain a headwind for our financial results, we expect our pricing actions and cost savings initiatives to offset the increased cost.

During our fiscal third quarter, we will also continue to ramp up the production in the newly expanded section of our dressing and sauce facility in horse Cave, Kentucky.

In the back half of our fiscal year SG&A costs will reflect increased investments in our business, including higher levels for spend on consumer promotions.

We will also continue to monitor economic conditions for any potential impact on our foodservice business.

Finally I.

I'd like to provide you with an update on the implementation phase of our ERP initiative project ascent.

As we shared previously this past July we successfully completed wave one of the implementation.

In October we completed wave two.

We are now in the early days of the third wave of implementation, which will add our dressing and sauce production facility in horse cave, Kentucky to the new system.

As many of you are aware this facility is the largest plant in our manufacturing network.

All of this proceeding as planned and we look forward to completing this important phase of project ascent.

Note that during the implementation phase we will have this facility down for four days as part of the cutover process, our third quarter financial results will reflect the incremental costs associated with this temporary shutdown.

I would like to extend my sincere thanks to my teammates for their ongoing efforts on this very important strategic initiatives.

This concludes our prepared remarks for today and we'd be happy to answer any questions that you might have.

Operator.

Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then one on your telephone keypad.

Our first question today comes from Andrew Wolf with CL King. Please go ahead.

Okay.

Thank you and good morning.

I wanted to good morning.

Hi, Thank you.

On volume.

There was.

It improved I mean volumes were still down but.

They improved a lot nicely for retail.

I saw that your direct to.

<unk> are your consumer.

Marketing was down but.

How about.

The promotion that is accounted for as a net reduction of sales.

Particularly trade spending or other items that you did.

Could you give us a little more detail on the evolution of the improvement in volume sequentially this quarter versus last quarter and what did that include promoting and did that impact the gross margin.

Yes, Great question, Andrew and I will take it head on.

Our trade spending performance trade in the period was essentially flat.

Versus the prior periods and on volume if you adjust for the fact that we had discontinuation in the prior period that we're continuing to work our way through.

Our volume access Jim discontinuation was down one 9% and I think when you pull it apart you look at it across retail and foodservice and I'll hit them sequentially. Our retail business remained strong the business continues to perform very much in line with our elasticities, we posted record shares in New York, Texas Toast and.

We posted record shares in sister Schubert, as well or March any brand in refrigerated dressing continued to do well in the licensed sources. We've told you before are a bit unique in that it's they don't have necessarily the direct competitors on the shelf. So.

Vis vis the magnitude of the price increases we feel very good about the volume that we have that's in there.

And the performance now swing it around to foodservice here again, I would say that we're seeing we're optimistic about what we're seeing so traffic across the whole industry was essentially flat in the period and that was marginally better than it was in the preceding quarter.

And if you look at our mix of customers kind of reflects that we had several customers Chick Fil a first among them network growing traffic Taco Bell was also a strong olive garden was strong.

But there were also some others in the space that were a little softer, but what continues to give us a measure of optimism and when we look at volume.

Our elasticity is in retail are performing in line with our expectation and really we have our new items that are back half loaded as we've shared with you guys throughout the period. This this fiscal year to date and in Foodservice I would tell you. The same things we remain cautiously optimistic about the consumer and we.

We have <unk> activity that's planned in the back half. So net net we think our volume is holding up in line slightly better than our expectations at the beginning of the year.

Okay.

Thank you and with some.

Pretty full explanation so on the gross margin spin.

Specifically.

Are there any things in there to call out with regard to getting horse cave up and running is there.

Obviously when horse cave is running whenever that is sometime in the future that will have an impact.

I'd like to know about you, but particularly in the quarter was.

Was there any disruption there.

Okay go ahead.

So yes. This is Tom on the on the quarter and the margins one of the things we did see.

Obviously year over year.

We've got quite a bit of commodity inflation, when you put in $50 million of higher inflationary costs and $50 million of pricing you get a natural dilution of over 200 basis points on our P&L. So year over year. That's a key driver now sequentially, we did see much higher egg costs and a couple of other.

Commodities debt that resulted in some of the dilution youre seeing sequentially, but overall, despite those higher costs, we were able to from a on a dollar basis offset it and still grow our gross profit.

This more challenging environment.

And Andrew if I can maybe go in on horse cave. The startup has gone very much in line with our expectations if not better.

So the factory has gone live it's up and running in the new section, we're servicing customers out of that exactly as we had planned in my prepared comments I mentioned that we were going to be taking it down in this period for several days and thats because of the SAP cutover, but I wanted to make sure that you and others understand.

And that we went out and we said we intended to bring that facility up with that new expansion and that team down there has done a fantastic job. It's brought it up and maybe a little bit later in the comments I will talk about new items that we have on the horizon and it's been a blessing because we've seen a resurgence in demand on Buffalo Wild wings and that new capacity.

<unk> has enabled us to keep up with that surge in demand.

Again, thank you for that explanation and I'll get back in the queue and let some others ask questions. Thank you.

Thanks, Andrew.

Next question comes from Brian Holland with Cowen. Please go ahead.

Yes. Thanks, good morning, gentlemen, if I could just start with.

The retail segment topline.

Strikes me that the track sales in Nielsen.

<unk> grew at about <unk> you reported.

Thank you.

Curious, where the Delta comes from I'm not sure if thats still a little bit of a byproduct of folks working off inventory from the pull forward of demand.

Or if you record quarter.

Server side, but maybe.

If you could disaggregate the impact of SKU rat on retail there was any.

Yes, so you're exactly right. If you look at the scanner consumption. It was in fact stronger than what we shipped in the period.

Honestly, we can't necessarily speak to why there was a de load or something else, but generally we have been shipping to consumption and it's just.

I would say, it's just a bit of a timing thing that's going on there.

As we look in on the magnitude of the discontinuation on retail alone that accounted for several points of growth as well in terms of shipments that are in the mix, yes, Brian .

Brian on the.

On the retail impact it was little over 100 basis points.

And then I think.

If you really peel it back where we saw the biggest disparity in terms of shipments.

Our revenue versus consumption is obviously <unk> is doing extremely well the licensed product and.

I think in the prior year period, we were still building some inventories so that may be what youre seeing.

What about.

Anything in the non tracked channels that would be a factor one way or the other to explain the delta.

Whether you might be lapping.

Whether you lapped a program or anything like that just curious.

Not really no okay. Okay.

Okay.

And then if I.

Yes.

To go back to the gross margin component again, so I guess, what I'm trying to reconcile is I understand the gross profit dollar growth I understand peanut going from negative to positive and some improved mix.

But it didn't convey to.

Gross margin improvement either sequentially or year on year and it doesn't sound like start up costs for a horse cave were material.

But again, if there's something there to call out just so we understand I just kind of wanted to maybe we'll just start there to level set and then think about what the path forward is just based on what youre dealing with both upstream and downstream.

Yeah. So.

So when you look at the percentage margins.

When you lay in all the commodity inflation and keep in mind, our inflation is a lot higher than our peers really due to our exposure to soybean oil and this quarter in particular eggs were up quite dramatically and so when you when you factor that in and you.

You say, okay, I'm going to add $50 million of inflationary cost to the P&L and you price for you got that natural dilution that occurs sequentially as I mentioned, it really was the eggs and soybean oil was up sequentially and then we also.

Had some tomato costs that were up sequentially. So so thats why youre seeing all of that dilution. Despite the positive Penang.

As you go forward.

We feel like.

We're going to definitely grow our our.

Gross margin percentages versus the prior year certainly in Q3, and we're looking at Q4 now to try to make sure that we are successful there as well, but but keep in mind. It's this.

Until we see some sort of stabilization of costs. We do have this dilution this dilution impact.

And certainly if we get to a point, where some of these commodities moderate and come down it will certainly be gross.

The percentage dilution certainly we're focused on growing the penny profit.

And happy with the quarter's performance.

Okay. That's great. If we could just kind of double click on the commodity component. So.

Looking I guess a little bit backwards.

Put in place.

Something like 24 first question this quarter is that.

Forgive me I don't have to put my finger is that an acceleration in Berkeley.

The magnitude of inflation you faced in <unk>.

Yes, yes, okay.

Okay.

Go ahead, I'm sorry, Tom.

Yes.

Like I said it was.

The unforeseen run up in AG costs sequentially was the key driver.

Yeah and then.

We roll that forward.

I guess, maybe a two part question here.

One.

Where are you kind of from a hedging standpoint eggs are what they are right. Now obviously there is some discussion that maybe the.

Flocks are improved.

Sure.

Second half of calendar 2023, maybe we could get some cost relief.

Don't know if youre in position to capture that based on what your forward buying looks like and then kind of a similar dynamic because we're hearing encouraging news on the oil and those prices coming down so I don't know, Dave where Tom if you have commentary there just trying to get a sense of we think inflation as youre looking at it right now Mark.

Rates from here.

So maybe I'll jump in and then have Tom come in and add more color.

On hedging on eggs to remind your eggs are an area, where it's difficult to hedge with our whole eggs, we buy on grain based agreements so as grains move up and down so do the cost of our eggs I would say there we've been able to somewhat.

Take a more modest impact, but inflation on the less but we also buy yolks for some of our our formulas and you cannot hedge against those jokes. What we've been able to do is get Ford protection, which is 90 day pricing protection, which brings me to the second part then I want to bring in on things like eggs and EBIT.

Oil as we see it continue to move we're continuing to hedge where we can and then price where we can't to make sure that we're passing those along so on these items, where we saw the exposure in this period, we have pricing actions that have gone into flight, particularly for areas that are products that are heavy consumers of eggs, whether theyre in foodservice.

<unk> or whether they're in retail.

I appreciate the color last one for me and forgive me today for being very model specific and not asking some of the fund strategy question I typically like to hear Dave opine on hopefully someone else in the queue, we'll get to some of that but.

Is there as you look at your.

As you look at where you are today.

Our expectation that further pricing as needed do you think you've got it all in there at this point do you expect to have to take more.

And if so maybe where is that is that foodservice driven or retail.

Yes, so Brian as Dave mentioned, there are a number of actions in flight all of those have been successfully sold in so we feel we continue to feel good about our ability to price to cover this so.

In both segments so there.

There is not a concern.

For us in terms of retailer pushback at this stage, we're able to get the pricing in <unk>.

Dave mentioned with the more recent run up there are additional actions that are in flight to help us maybe I'll add to that point. If you remember last year. At this time, we are talking about the fact that our pricing was lagging the inflation.

In Q1, we were paying off positive where accident pricing exceeded the costs that were coming in helping us recoup in this period, we were peanut positive again, and we expect that trend to continue farmers. So I think even where we're seeing this this shift is on the margins. We should have been more peanut positive. We're not further run up in that short term and things.

Like eggs, but I think what we want to convey Brian in terms of the model is as we're seeing it come through and we can't hedge it or even if we can we're pricing for it and we're pushing forward. So we feel like that muscle is is fully developed and we're utilizing it.

Appreciate the color everyone I'll leave it there.

Thanks, Brian Thanks, Brian .

Next question comes from Todd Brooks with the Benchmark company. Please go ahead.

Hey, good morning, everybody and hope you're well.

Hey, good morning morning, Todd.

Quick question following up on Brian's last question, if you look at.

And David just talk about where you cant hedge youll go out and try to price for continued either stickier or even accelerating inflationary pressures in spots.

How does that vary by channel right now how do you think about pricing in the retail channel.

Willingness to take it relative to the elasticities that youre seeing and.

Kind of that early shot across the bow from from whole foods trying to push back on suppliers already do you feel like.

Pricing will be easier to get in the foodservice segment going forward if needed versus the retail segment.

Brian Alright, Todd rather our conversations on pricing continue to be very constructive open retail and in foodservice Im looking at a sheet that shows me about a dozen discrete pricing actions that are going into effect in this at the very end of our second quarter and early on in.

Our fiscal third quarter, which is now.

And these are all conversations that were had in retail that have sold through and on foodservice. Those conversations remain the same I do want to go back and clarify a little bit on things, where I saw whole foods announcement on commodities and I don't know what data they are looking at but it doesn't necessarily lineup with the data.

That we're looking at.

I would tell you is things may have eased off of their high end discrete categories.

And maybe that's particularly true in some of the.

The commodities that they are buying but a year and a half ago. We were looking at 20% inflation on raw material and packaging and we're looking at 20% inflation through the remainder of this year and even as we look forward, we're continuing to see inflation, albeit at a lower rate and thats just on raw material and packaging so any air.

Or is that you may see some modest pullback is being overcome by areas, where we're continuing to see inflation and that particularly I would point to things like beyond that.

Rice on the board may have pulled back some but basis, which we really need that when you factor in what the total delivered cost is is still remaining very very high.

So net net we're not seeing relief on inflation, we wish we were because we would be net beneficiaries and we don't have any intention at this point to roll back our prices because the economics of our market basket don't support that.

Okay, great can I have a follow up.

Gasoline.

How does that change with these actions that youre anticipating taking for the back half of the year.

Yes. So excellent question. So we're we're now more high single digit in retail and <unk>.

Very high single digit in foodservice. So so we are looking at more pricing than we had initially anticipated.

Based on these.

These more recent commodity moves.

Okay, Great and then I will slide in a more strategic question.

Horse cave now that we're up and running and producing product out of that facility. Dave can you walk through.

Maybe a horse cave ramp timeline timeline.

Does it take to ramp fully.

And where do we go as far as at full ramp we unlock maybe some chick fil a expansion opportunities with larger pack sizes additional flavors, how do we unlock maybe some other licensed programs with the capacity Thats come online and then finally, we are in that process does co man volume maybe come up.

And go back into an owned facility.

Yes, so good questions across the board loved talking about these because it gives us a chance to talk about the strength of the.

The top line of the business so.

Maybe first just focusing in on the factory itself. So I mentioned earlier that the startup has gone very much in line with our plan.

We're literally producing hundreds of thousands of cases out of the facility now and it's enabled us to keep up with a really sort of a fund spike in demand that we've seen on BW W. I know most of you probably are our tip talkers I don't claim to be won but as a case in point, we had two aspiring tick talkers that created <unk>.

Piece.

Sure.

That included the Buffalo Wild wings, garlic, parmesan us and both of those videos combined have over 25 million views and that product has been absolutely on fire.

Resulting in a big surge in demand well in excess of what we had in the forecast and the fact that horse cave has been up and running has enabled us to meet that surge in demand and go so really tight for all intents and purposes, it's running and it's out there to meet our demand and we need it because as we look forward. If you remember it's March when we go into.

For the full rollout in retail of our new items. That's the large size of the Chick Fil a sauce, that's the barbecue and sweet and spicy sriracha on chip fillet. It also includes the.

<unk>.

The Caesar.

Adam that we have for olive garden.

Not to mention just a whole lot more energy behind Buffalo Wild wings.

No.

I would tell you I am just thrilled with the progress that the team has made there in our view now is just how high is high and how fast as fast as we as we look to run that item.

So it's a good story and on retail as well it's out there it's producing product.

And we just look forward to sweating. It harder now your last question was how does this factor in on co pack.

To the degree to which we have co pack agreements, we're honoring those but we expect those to wind down through the remainder of this year and early into next year and then to bring them.

Virtually all of that volume back in house.

Just a follow up on that and then I'll pass it along Tom if we're bringing that.

Co pack volume back Ken as we think about.

I know, we've talked margin dollars more than we talk margin rate, but just kind of what type of benefit from a from a margin rate.

He is in house production versus co pack production.

Yes so.

We've talked about it being a dilutive impact of a 100 200 basis points throughout so over time, we will get that that that dilution back.

So it certainly will be a catalyst as we go forward.

Okay, great. Thanks, guys.

Thanks Todd.

The next question comes from Connor <unk> with consumer Edge Research. Please go ahead.

Hey, guys good morning.

Good morning Connor.

Yes, so just a quick one for me here at the end of the at the end of the call. So thank.

What you are seeing greater elasticity in retail versus foodservice when adjusted for SKU rationalizations, and so obviously the retail and foodservice businesses are quite different but I guess, just why switching foodservice volumes have remained so strong right I mean, it seems to run contrary to popular belief unison consumers were dialed back.

<unk> or cutting back on their grocery basket.

Yes, it's a great point, we're just not seeing it so far conner if past is prologue, we would see exactly that sort of thing, but so far the consumers remaining resilient when you look at the traffic really which.

We have pricing discussions with our customers they either reflect those on their menu or they don't and then ultimately what it comes down to is what's happening on traffic consumer traffic in these concepts and you follow the data like we do has remained quite resilient I mentioned on the call that.

Traffic overall was flat for the industry.

<unk> the prior period and if you look at it it was sequentially stronger than the periods before and now if you dial it in yogurt our portfolio, we have chipotle and Chick Fil a continues to drive traffic growth.

And and that helps us as well so when you look at the mix of business our business versus others I think part of what you're looking at is influenced by the strength of the Chick Fil a franchise in our business that's showing that.

That helps a lot thanks guys.

Thank you Connor.

The next question is a follow up Andrew Wolf with C. L. King. Please go ahead.

Yeah.

Okay.

Yes.

The inventory being down, particularly the finished goods inventory down 7% or so at least from.

The end of the last fiscal year.

That includes the inflation and producing it so.

I mean, what.

What is the inventory down on a case basis, it's all good.

Could I, just add 20% to that and say the cases are down 25% to use a round number or am I not thinking of it the right way.

Your clothes, it's not quite that much but its down sizable in terms of our units of inventory and last year, we had a lot of unstable demand. So we built up.

We got long on some some items in this year throughs as I mentioned in my script. There are some better tactical planning and execution, we've been able to drive that inventory down and really.

Help our cash flow performance. So thank you for <unk>.

To that question.

Sure.

No thats part of your plan.

But just to revisit I think Brian asked you about this and I just wanted to kind of re asking is there any.

Have you heard anything even anecdotally if you can wrap it up and say that's for certain whether the retail trade, maybe destock a little bit.

For the December quarter, either because of this or the foodservice sounds like the foodservice youre part of foodservice <unk> good enough, but did you see anything in retail or anybody destocking, whether to shore up their balance sheet or get their cash a little bit better or maybe they had a little less demand in December .

Just ticked down.

Deferred orders or anything anecdotally.

We're trying to figure out what's going on with Brian brought up consumption versus calendar shifts.

Yes no.

We've stated obviously really close to our sales teams on retail and in foodservice and there hasn't been any conversations like that so there is nothing that we can point to specifically.

Having done this a wildlife Tom and the rest of US here Youll see this periodically you'd much rather see what we're seeing now where your consumption off the shelf is faster than your shipments than the other way around but just generally if we're looking at the business and we look at the fundamentals, it's tracking very much in line with with our expectations.

Yes.

But I would also tell you is even on things like.

One question it can be as are their execution issues inside where were having problems getting the product out.

Our on time and in full was higher this period than it was last year same period. So we're continuing to see sequential improvements on all sorts of operating metrics not just improved inventory Budd.

Our service levels have improved.

Our safety and our plants have improved we've really just spent the last year trying to buckle down to tighten up execution in India and coordination.

Got it thank you.

The next question is a follow up with hard rock with the benchmark company.

Please go ahead.

Hey, just a couple of quick follow ups, if I may what's what's the timing on the horse cave cutover when that four day shutdown will be I'm just wondering.

That is a weekend.

Okay perfect. So we're in the middle of the quarter. So we.

We don't really need to think knock wood, obviously, but we don't need to think about any impact to how we model the quarter four.

For the shutdown given that from the quarter shutdown, assuming all goes well.

Yes, we're looking at it as a modest headwind if everything goes well its certainly we you'd lose.

There are a couple headwind factors to it we do lose those production days and you've got the factory absorption impact and then.

Certainly, there's a cost to training and startup cost.

So there should be a bit of a modest headwind in Q3 from it it's difficult to quantify what what it will be until we actually are through it but we'll certainly keep you posted and part of it's just the absorption hit because we have the factory down for four days and this is a factory that would be running $24.

Seven so if you just look at the rough math 90 days in a period four days in the period youre going to be down which is just going to drive a little bit on top of what Tom described a little bit of modest absorption.

Okay, Great and then my other follow up was on the G&A side I think you talked about.

Some timing changes in consumer spend I mean, if I back out the one time project costs.

It looks like SG&A is running just north of 9%, what's the what's the right level set to put that based on the commentary around maybe some accelerating consumer spend as we look to the back half yes, yes.

So I'm glad you brought that up because we do we do expect to be spending more in consumer in the back half as we continue to drive volume growth.

Or.

Continuing to drive volume in the business.

The.

We also mentioned the ascent costs coming back to the base business.

Previously and Thats, five or $6 million incremental in the year.

Slightly back half loaded and then we have some additional other costs.

Compensation expense that we're anticipating in the back half when you look at it as a percent increase on the full year.

When you take out the ascent costs rolling in we're looking at more of a 3% to 4% increase.

And then the set costs, adding to that so.

So I think when you do the math on that we will have a lot of catch up on a fair amount of catch up in SG&A, but overall the year full year profile.

Be in line with kind of our expectations initially.

Okay, great. Thanks, Tom.

If there are no further questions. We will now turn the call back to Mr. Christian.

Yes.

<unk> comment.

Thank you Anita and thank you everybody for joining our call today, we look forward to senior guys out on <unk> and the forthcoming period and if we don't see a sooner we'll talk to you in may have a great rest of the day.

This conference has now concluded. Thank you for attending today's presentation you may now begin.

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Good morning, My name is Anita and I will be your conference call facilitator today.

At this time I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2023 second quarter Conference call.

Today's call will be David <unk>, President and CEO and Tom Pigott.

CFO .

All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer period.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad and questions will be taken in the order today everything.

I would like to withdraw your question press the property. Thank you.

And now to begin the conference call here is David.

John <unk>, Vice President of corporate Finance and Investor Relations for Lancaster Colony Corporation.

A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Also note that the audio replay of this call will be archived and available at our company's website like <unk> Dot Com later this afternoon.

For today's call, Dave <unk>, our president and CEO will begin with a business update and highlights for the quarter. Tom Pigott. Our CFO will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook at the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Once again, we appreciate your participation. This morning, I'll now turn the call over to Lancaster, colony's President and CEO , Dave <unk> Dave.

Thanks, Dale and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2023.

In our fiscal second quarter, which ended December 31, we were pleased to report both record sales and higher profits.