Q3 2023 Lamb Weston Holdings Inc Earnings Call
Speaker 2: Ladies and gentlemen, you are currently on hold for the Lamb Weston third quarter earnings conference call. At this time, we are admitting additional participants. The session should be underway in approximately one minute. We do thank you for your patience and ask that you please continue to remain on the line.
Speaker 2: Good day everyone and welcome to the Lamb Weston third quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dexter Congleton. Please go ahead.
Speaker 3: Good morning and thank you for joining us for LAMB Wesson's third quarter 2023 earnings call.
Speaker 3: This morning we issued our earnings press release available on our website, Glam Weston.com.
Speaker 3: Please note that during our remarks, we'll make some forward-looking statements about the company's expected performance that are based on how we see things today. Additional results may differ materially due to risks and uncertainties.
Speaker 3: Please refer to the cautionary statements and the risk factors contained in our SEC C-Fileings for more details on our forward-looking statements.
Speaker 3: Today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for, and should be read together with our GAAP results.
Speaker 3: You can find the gap to non-gap reconciliations in our earnings release.
Speaker 3: With me today are Tom Warner, our President and Chief Executive Officer, and Bernd Et Magiata, our Chief Financial Officer.
Speaker 3: Tom will provide an overview of the current operating environment, while Bernard will provide details on our third-quarter results and our updated fiscal 2023 outlook.
Speaker 3: With that, let me now turn the call over the top.
Speaker 3: Thank you, Dexter. Good morning and thank you for joining our call today. We delivered strong results in our physical third quarter as we continue to build good operating momentum.
Speaker 3: Specifically, sales grew 31% while gross margin expanded in each of our core business segments. This in turn drove strong EBITDA and earnings per share growth.
Speaker 3: I want to thank the entire Limb Weson team for their dedication and focus on serving our customers. Together, we delivered another great quarter and positioned ourselves for a strong finish to the year.
Speaker 3: This Thank You is also to our more than twelve hundred colleagues in Europe who are now officially members of the global Lamweson team after we recently completed the purchase of the remaining interest in Landamweson Meyer.
Speaker 3: Limited Western Europe, Middle East, and Africa, or Lamb Westthan EMEA, adds six factories and about £2 million of production capacity to our global manufacturing footprint. It strengthens our ability to serve customers in key markets around the world and it enhances world-class management operating.
Speaker 3: and commercial team with deep knowledge of the frozen potato industry. We've kicked off the process to integrate Lamb West and EMEA's operations and are excited to see what we can deliver together both now and over the long term. Before turning the call over to Bernadette, let me first provide some quick updates on the current operating environment.
Speaker 3: While the macro environment remains highly challenging, overall franchise demand remains healthy.
Speaker 3: Total restaurant traffic improved versus the prior year quarter when traffic was negatively affected by the Omicron variant.
Speaker 3: QSR essentially accounted for the entire growth in traffic, including strong growth across burger and chicken restaurant chains, which are significant contributors to driving FRE demand.
Speaker 3: In contrast, traffic at casual dining and full-service restaurants fell versus the prior year.
Speaker 3: This has a more pronounced effect on our food service segment and contributes in part to a decline in that segment's volume.
Speaker 3: The fry attachment rate, which is the rate at which consumers order fries when visiting a restaurant or other food service outlets, remains solid.
Speaker 3: As we previously noted, we're encouraged by how the category is currently performing in away-from-home channels, but continue to expect restaurant traffic and demand trends will be volatile through fiscal 2023 and into fiscal 2024. Consumers continue to deal with a challenging macro environment.
Speaker 3: Demand for fries and food in home channels remains solid. Shipments by our retail segment grew in the third quarter, led by strong performance in products sold under licensed restaurant brands.
Speaker 3: We expect demand in this channel will remain solid into fiscal 2020 and beyond.
Speaker 3: With overall category demand holding up relatively well and as industry supply expected to be constrained for at least the next couple of years, we believe the environment for pricing actions to counter input cost inflation may remain generally favorable.
Speaker 3: In addition, we've been building our revenue growth, management, and execution capabilities.
Speaker 3: We made good progress, as shown by our ability to offset input cost inflation and drive the recovery in our gross margins over the past year in each of our core business segments.
Speaker 3: Nonetheless, we are continuing to work on maximizing revenue and margin by further evaluating markets and sales channels, by using a broader set of variables, and by leveraging data-backed insights on our customers and consumers.
Speaker 3: Pricing in the quarter in our global segment was in line with our expectation as we continued to incorporate new pricing structures for customer contract renewals, inflation-driven price escalators, and benefits from pulling forward pricing actions for contracts up for renewal in the coming years.
Speaker 3: Despite lapping some of the pricing actions we took in fiscal 2022, price mix in both the food service and retail segments in the quarter was better than we anticipated as we continued efforts to rationalize pricing structures and strategically improve customer and product mix across the respective portfolios.
Speaker 3: During the remainder of physical 2023 in our global segment, we don't expect any additional notable pricing actions to take effect.
Speaker 3: In food service, we expect the year-over-year growth rate and price mix to decelerate as we continue to overlap with more of the fiscal 2022 pricing and mix improvement actions.
Speaker 3: And in retail, we expect the year-over-year growth rate and price mix will also decelerate as we continue to lap last year's pricing actions. However, this will be tempered by a recent price increase that took effect towards the end of the third quarter.
Speaker 3: With respect to the potato crop in North America,
Speaker 3: We believe we have secured enough open market potatoes to meet our production forecast until the early potato varieties are harvested in July . We purchased open potatoes from growers in the Columbia Basin and Idaho, but also secured supply from as far away as the East Coast. This adds up to our potato costs through the first half of physical 2024.
Speaker 3: With respect to the upcoming potato crop, as previously discussed, we've agreed to a nearly 20% increase in the contract prices for potatoes grown in the Columbia Basin and have locked in the targeted contracted acres to be planted in that region.
Speaker 3: We're in the process of securing most of the acres in our other growing regions in North America. And expect to have this process completed shortly with contract prices largely in line with the 20% increase in the basin.
Speaker 3: In Europe , we have secured the acres in our key growing regions and expect to complete the contracting process shortly.
Speaker 3: Like North America, contract prices are up significantly to reflect input costs and inflation from your others.
Speaker 3: In summary, we delivered another strong quarter of sales and earnings growth, which has enabled us to raise our financial targets for the year and continue to build strong operating momentum across each of our core segments.
Speaker 3: We're excited about more than 1,500 new Lamb Weston EMEA colleagues that have joined the global team and believe that leveraging EMEA's capabilities will help us better serve customers around the world.
Speaker 3: And finally, category demand remains healthy and we believe that industry supplies should remain constrained for at least the next couple of years.
Speaker 3: Let me now turn the call over to Bernadette to review the details of our third quarter results and our updated Financial Physical 2023 Outlook.
Speaker 4: Thanks Tom and good morning everyone.
Speaker 4: I want to also thank the Lam Weston team for delivering another quarter of strong results and continuing to build good operating momentum across the company.
Speaker 4: This momentum has enabled us to raise our financial targets for the remainder of the year.
Speaker 4: I also want to add a warm welcome to the LAMWESTER NMEA team.
Speaker 4: Let's begin with our third quarter results. Sales in the third quarter were up 31% to $1.25 billion.
Speaker 4: Price mix was up 31% as we continued to benefit from pricing actions across each of our core business segments to counter inputs and manufacturing cost inflation.
Speaker 4: The increased reflects the carry-over impact of product pricing actions that we initiated in fiscal 2022, as well as pricing actions that we began implementing during this fiscal year.
Speaker 4: Our overall sales volumes were flat.
Speaker 4: While we increase shipments to our large QSR chain customers and to retail customers in North America, which generally reflects demand and restaurant traffic trends that Tom described earlier,
Speaker 4: large QSR chain customers and to retail customers in North America, which generally reflects demand and restaurant traffic trends that Tom described earlier. Smart Growth?
Speaker 4: in volume was offset by a couple of factors.
Speaker 4: First, we continued efforts to strategically improve our product and customer mix by exiting certain lower price, lower margin business.
Speaker 4: Second, into a lesser extent, softer casual dining and full service restaurant traffic also affected volumes in the quarter, which is largely reflected in our food service
Speaker 4: It's worth noting that in the quarter, we also continue to make progress in stabilizing our supply chain with better availability of production team members and key ingredients, as well as improve production forecasting.
Speaker 4: As a result, the impact on production in the quarter was relatively modest, which helped drive improvements in our customer fill rates versus our first and second quarters.
Speaker 4: This improvement is more apparent in our retail and food service segments, as we have largely maintained high fill rates in our global segment since the start of the pandemic.
Speaker 4: That said, we expect changes in product mix and consumer demand will continue to pressure our near-term production, and therefore shipments of high-demand products, including retail fries, premium fries, and batter-coated products.
Speaker 4: We expect this volume pressure and our ability to meet growing consumer demand will continue until our capacity investments in China, Idaho, Argentina and the Netherlands become available over the next couple of years.
Speaker 4: Gross profit in the quarter increased $177 million to nearly $400 million as a result of our sales growth and gross margins expanding 860 basis points versus the prior year quarter to 31.7%.
Speaker 4: Our strong gross margin performance reflects the cumulative benefit of executing pricing actions in each of our business segments to counter input and manufacturing cost inflation as well as leveraging efforts to improve customer and product mix and supply chain productivity.
Speaker 4: On the cost side in the quarter, we again realized a double-digit increase in input and manufacturing costs per pound.
Speaker 4: This was largely driven by about a 20% increase in contracted prices for potatoes in North America.
Speaker 4: significantly higher prices for open market potato purchases due to poor yields from the calendar year 2022 crop, and continued increases in the cost of edible oils, ingredients for batter coating, labor and energy.
Speaker 4: In contrast, our transportation costs fell in the quarter as industry rates for rail, trucking and ocean freight services continued their steady decline over the past couple of quarter.
Speaker 4: We are continuing to reduce our freight charges to customers to match the decline in costs, which will steadily reduce the tailwind from transport prices in our sales line. However, the impact on our gross profit over time will be largely neutral.
Speaker 4: Moving on from Gross Profit.
Speaker 4: Our S-GNA excluding items impacting comparability in pre-$49 million to $136 million.
Speaker 4: Primarily reflecting higher compensation and benefit expenses due to improved operating performance, as well as actions to maintain competitive pay levels across our organization.
Speaker 4: We also had higher expenses related to improving our IT infrastructure, including designing and building a new ERP system, and a $6 million increase in advertising and promotion expenses, largely behind support of our branded products in our retail segment.
Speaker 4: Equity method earnings from our unconsolidated joint ventures increased $12 million, excluding items impacting comparability and mark-to-market adjustments associated with currency and commodity hedging contracts. Global price myths, largely reflecting pricing actions in Europe , drove the increase.
Speaker 4: Moving to our segment. Fails in our global segment were up 33% in the quarters.
Speaker 4: Price mix was up 33%, reflecting the revenue growth management initiatives and pricing actions to counter inflation that Tom described earlier.
Speaker 4: Global's volume was flat. Solid growth of shipments to large QSR chain customers in North America was offset by the impact of exiting certain lower priced and lower margin business in international and domestic markets as we actively manage our customer mix.
Speaker 4: Global's product contribution margin increased to $168 million from a relatively weak prior year quarter, which at the time reflected significant input in manufacturing cost increases and only a modest benefit from product pricing actions. Global's segments product contribution margin percentage.
Speaker 4: in the quarter was 25.8%, which is back to its seasonal pre-pandemic level and was also a bit better than expected as we realize more benefits from pulling forward pricing actions for some customers than we originally anticipated.
Speaker 4: Sales in our food service segment grew 22%, driven by a 25% increase in price mix, as we continue to realize the carryover benefits of product pricing actions that we announced throughout fiscal 2022, as well as the actions taken in fiscal 2023 to counter inflation. Sales volumes were down about 3%, primarily...
Speaker 4: actions more than offset, higher manufacturing cost per pound, and the impact of lower volumes.
Speaker 4: Our retail segment delivered another strong quarter, with sales up 50%.
Speaker 4: Price mix increased 44 percent, reflecting pricing actions across our branded and private label portfolios to counter inflation. This was aided in part by limited trade support given the strong category demand and constraints supply environment.
Speaker 4: Volume in the segment was up 6% due to better customer fill rates for our branded products.
Speaker 4: Private label volume was also up, as we lapped the incremental losses of certain lower-priced and lower-margin products over the past couple of years.
Speaker 4: Retail's product contribution margin increased to $83 million, and its margin percentage topped 38%. The cuma benefit from pricing actions more than offset the higher manufacturing cost per pound.
Speaker 4: We are very pleased with how our retail team has strengthened our market share, profitability, and portfolio mix over the past couple of years, and we remain confident in our ability to remain the overall category leader.
Speaker 4: Moving to our liquidity position and our cash flow.
Speaker 4: Our balance sheet remains solid with strong liquidity and a low leverage ratio.
Speaker 4: We ended the quarter with about $675 million of cash and a $1 billion undrawn revolver. Our cash balance was inflated as we did take on a new $450 million term loan at the end of January to fund most of the cash consideration for the EMEA transaction.
Speaker 4: which closed a couple days into our fiscal fourth quarter.
Speaker 4: Our net debt was more than $2.5 billion at the end of the third quarter, resulting in a 2.3 times leverage ratio on a trailing 12 month basis.
Speaker 4: After accounting for the EMEA transaction, the estimated net debt at the beginning of our fiscal fourth quarter would be approximately $3.3 billion, resulting in a 2.6x leverage ratio using our updated fiscal 2023 earnings target.
Speaker 4: and an annualized contribution from our AMENA operation.
Speaker 4: Our capital allocation priorities remain unchanged.
Speaker 4: We continue to prioritize investing in the business to drive long-term growth, as well as delivering dividend growth for our shareholders and share repurchases to off-set management delusion.
Speaker 4: In the first three quarters of the year, we generated about $335 million of cash from operations.
Speaker 4: That's about $16 million more than the first three quarters of last year.
Speaker 4: This is largely due to the higher earnings partially offset by increased working capital.
Speaker 4: Capital expenditures were nearly $500 million, which is up about $270 million from the first three quarters of last year.
Speaker 4: This increase is largely related to construction costs as we continue to expand processing capacity in Idaho, China, and Argentina.
Speaker 4: In the first three quarters, we returned nearly $146 million of cash to shareholders, including $106 million in dividends and about $41 million in share repurchases. Now, let's turn to our 2023 outlook.
Speaker 4: Our updated targets include the financial consolidation of Lamb Weston in EMEA, beginning in our fiscal fourth quarter.
Speaker 4: For the year, we've increased our sales target to $5.25 to $5.35 billion.
Speaker 4: Up from our previous target of $4.8 to $4.9 billion.
Speaker 4: About 300 to 300, and twenty-five million dollars of the increase reflect the consolidation of Lam West in EMEA.
Speaker 4: The additional $100 to $150 million increase reflects our strong results in our Fiscal Third Quarter and our expected continued momentum in the fourth quarter. Thank you for taking the contribution from EMEA.
Speaker 4: We expect our net sales growth in the fourth quarter to be driven by price mix as volumes will continue to be affected by exiting certain lower price and lower margin volume business to strategically manage customer and product mix and the potential for a slowdown in restaurant traffic and consumer demand.
Speaker 4: For earnings, we're targeting adjusted diluted earnings per share of $4.35 to $4.50. That's up from our previous target of $3.75 to $4. And adjusted EBITDA, including unconsolidated joint ventures.
Speaker 4: of $1.18 to $1.21 billion.
Speaker 4: up from our previous estimate of 1.05 to 1.1 billion dollars.
Speaker 4: Of the $110 to $13 million increase in our adjusted EBITDA target.
Speaker 4: We estimate that EMEA will contribute an incremental $10 to $15 million to that amount.
Speaker 4: This implies that EMEA's total EBITDA contribution of 20 to 25 million dollars in the fourth quarter, which is in line with the normalized full-year pre-pandemic EBITDA of about €1 million.
Speaker 4: The additional $100 to $115 million increase in our full year EVA-DOT target reflects our strong results in our fiscal third quarter and our expected strong sales and earnings growth in the fourth quarter.
Speaker 4: Including the consolidation of EMEA, we're targeting a full year growth margin of 27 to 27.5%.
Speaker 4: Implying a fourth quarter GTH margin of 23% to twenty-four and a half percent.
Speaker 4: Excluding EMEA, we've raised our full year gross margin target to 28 to 28.5%.
Speaker 4: Up from our previous target of 27% to 28%.
Speaker 4: This implies a fourth quarter gross margin target excluding EMEA of 25 to 27 percent.
Speaker 4: While this would be a healthy gross margin expansion versus the prior year quarter, it also implies a notable step down from our fiscal third quarter gross margin of 31.7%.
Speaker 4: We believe this estimate is prudent, reflecting typical seasonal patterns in our cost structure.
Speaker 4: Significantly higher-cost open market potatoes, continued inflation for key inputs, and the impact of volume declines as inflationary pressures affect consumers.
Speaker 4: With respect to SGNA, we expect expenses, excluding items impacting comparability, of 550 to five hundred and seventy million.
Speaker 4: That's up from our previous target of $525 to $550 million.
Speaker 4: The increase largely reflects the consolidation of Lamwest Denemea. In addition, we increased our estimate for capital expenditures to between $700 million to $725 million, up from our previous estimate of $400 million and $475 million.
Speaker 4: To $525 million, this increase reflects accelerated spending behind capital expansion investments, as well as capital spending associated with the consolidation of EMEA.
Speaker 3: We also made adjustments to other financial targets, which you can find in our earnings release. And with that, let me turn the call back over to Tom for some closing comments. Thanks, Bernadette. Let me sum it up by saying we are executing in this challenging operating environment and are confident in our increased financial targets for the year.
Speaker 3: We also continue to feel good about growth trends in the category and believe that the investments we're making in our people, new production capacity and infrastructure will have us well positioned to support sustainable, profitable growth over the long term.
Speaker 3: Thank you for joining us today. We are now ready to take your questions.
Speaker 2: Thank you. If you would like to ask a question, please signify pressing star one on your telephone keypad. If you're joining us today using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is Mr. Keith. I will buy the digit one at this time. We'll pause for a moment.
Speaker 2: We'll take your first question from Andrew Lazar from Barclays. Please go ahead, sir.
Speaker 5: Great. Thanks so much. Good morning, everybody. Good morning, Andrew. Good morning, Andrew. Just start off, you know, I know that lamb western did not necessarily see pre-pandemic gross margins as a feeling. But with margins now, you know, above pre-pandemic levels, excluding the recent transaction, of course, I guess what are the key factors that provide?
Speaker 5: visibility to further margin expansion moving forward to the extent that that's that's how you see it. And then I've just got to follow up. Thanks.
Speaker 4: Good morning Andrew, this is Bernadette. You know as we look at our margins, I think the key piece that we're focused on now is our revenue growth management and our execution capabilities that Tom mentioned. We're focused on continuing to work on maximizing revenue as well as margin and we'll continue.
Speaker 5: As you mentioned, another 20% for the current coming crop. Should we expect some incremental pricing going forward, as I guess as we roll into fiscal 24 or have you implemented all that you need for the coming year? And with capacity constraints starting to ease? God, you can take ourges in here before we go in.
Speaker 5: I guess what I'm getting at is could we have a scenario in the coming fiscal year where you have both some incremental pricing and Some positive volume growth as well giving constraints have been one of the main reasons for volume being Flatish to down the last couple quarters. Thank you. Yeah, Andrew this time. So a couple things You know as we noted we have
Speaker 3: taking some pricing actions here at the end of the third quarter. We're going to continue to evaluate as we roll up our plan for physical 2024, which starts in June , kind of what the overall inflation number is going to be. And we are not.
Speaker 3: at all in a deflationary period, our crop cost is going to be up 20%.
Speaker 3: As we start evaluating the overall input cost complex, as we do every year, we're gonna determine the pricing actions we may have to take. And the team and the marching orders, we've done a very good job to offset inflation. We're gonna continue to do that.
Speaker 3: So, as we noted in the prepared remarks,
Speaker 3: We've had to over the last 12, 15 months.
Speaker 3: do a lot of catch-up pricing just based on the nature of what our contract constraints were and so I feel good about where we're at in terms of really getting back to more normalized margin levels before the pandemic and we're going to continue to execute and evaluate what's going on in the...
Speaker 3: the QSRs are performing tremendously well in terms of traffic. Our food service, so the casual dining segment, we're seeing some softness as we do when you have some economic things happening like is going on today, so people are trading down.
Speaker 3: We have rationalized our customer and product mix over the past 12 to 15 months.
Speaker 3: Which is part of our revenue growth management initiative, and as we.
Speaker 3: continue to evaluate opportunities in the marketplace, Andrew, I think, and get our operations running back to
Speaker 3: A higher throughput level that's going to give us up that's going to give us opportunities to take on business going forward. So the other thing to remember is.
Speaker 3: We've got a lot of capacity coming on our first.
Speaker 3: capacity turn-on is going to be this fall in China. So we're evaluating how that's going to look in terms of production shifts from North America to China. And then shortly after that, we'll have American Falls, Argentina, and Crenogon over the next few days.
Speaker 3: directionally 18 to 24 months. So we're getting prepared as we turn that capacity on to evaluate opportunities around the globe.
Speaker 3: Directionally, 18 to 24 months. So, we're getting prepared as we turn that capacity on to evaluate opportunities around the globe. Thank you so much.
Speaker 3: Four months. So, we're getting prepared as we turn that capacity on to evaluate opportunities around the globe. Thank you so much, yes.
Speaker 2: We'll hear next from Tom Palmer from JP Morgan.
Speaker 6: Good morning and thanks for the question. Longto Ning. Maybe I could just start off by clarifying expectations for the euro business. You noted normal EBITDA of about one million, and then the fourth quarter guidance is pretty consistent with that. But I think the business has been doing a bit better than this over the past couple of quarters, at least.
Speaker 6: Are there reasons, such as certain costs that are not excluded from the adjusted earnings, other cost headwinds, or seasonality, that might make this figure a bit lower in the fourth quarter? And then, when we look at the results this year, would the general assumption be that next year's EBITDA will grow year-over-year on top of that?
Speaker 4: Yes, good morning Tom. As we take a look at our fourth quarter guidance that we provided, excluding EMEA, you will typically see a step down in our gross margins as you move from the third quarter to the fourth quarter, just based on seasonality.
Speaker 4: then we're also going to be lapping prior year price increases and so we're going to see a deceleration of effect of that as we continue to move forward. Again we also mentioned that we did see some pricing pull forward as well and so there's some effect of that that you're
Speaker 4: Noting in the third quarter that we wouldn't see in the fourth quarter, and, as we always do, we take a step back and take a prudent approach as we guide to where we think we're going to end at the end of the fourth quarter. But those are the main triggers that are going to affect what you're seeing in the guidance for the fourth quarter. Understood. Thank you.
Speaker 6: And then just maybe on the gross margin, I know you noted kind of a more normal seasonal decline in the fourth quarter. I think a quarter ago you were talking about maybe less than a normal quarterly decline in the fourth quarter. I know, Bernadette, you mentioned it being prudent in your prepared remarks. Is there anything to consider that has shifted that expected cadence?
Speaker 6: Beyond that, I mean, for instance, was 3Q much better than you expected, and therefore you're expecting more than normalization or anything with the timing of pricing? Because it would seem like you're getting a bit of help, at least on the retail side, given the late quarter pricing action.
Speaker 4: Yeah, I think there was a couple of things. There was a little bit more pull forward and benefit in the prior quarter and then also we are seeing more open market purchases so we ended up bringing in at much higher prices just given the way that the crop ended up this year from a yield perspective. So those are the two items that I would say are impacting that the greatest.
Speaker 7: Thank you.
Speaker 2: Adam Samuelson from Goldman Sachs, your line is open.
Speaker 3: Yes, thank you. Good morning, everyone. Morning, Adam.
Speaker 8: I'm going to go. So the first question is on Europe and you can kind of roll that now into the consolidated business. But Bernadette, you would have told the fourth quarter guidance for the business kind of reflecting.
Speaker 8: kind of learning consistent with that pre-pandemic 100 million euro run rate. Do you have the actual trailing 12 months or what the fiscal 23 EBITDA would be for the JV?
Speaker 8: kind of on a 100% basis just as a point of reference. And as we think about moving into fiscal 24, that would seem like fiscal 23 is above that pre-pandemic run rate, kind of reasons why the fiscal 24 is above that pre-pandemic run rate.
Speaker 8: kind of profitability would could be lower year on year or higher just help us think about kind of some of the key moving pieces here that you're thinking about for the European business in the next 12 months.
Speaker 4: Yeah, thanks for the question, Adam. A couple of responses to that. I would say first, as we look at the fourth quarter guidance, that's what I would take to look at the normalized amount for this year in terms of being that $100 million Euro on a run rate basis. And then, you know, certainly there's going to be a number of things as we...
Speaker 4: work on over time as we integrate this business with ours to bring in more upside as we continue to progress. But it's not going to happen overnight. It's going to happen over time. But those are some of the opportunities that we see to be able to continue to grow this business. Yeah. And I'll just add, Adam. This has been Aaron Kelly.
Speaker 4: as we integrate this business with ours to bring in more upside as we continue to progress. But it's not going to happen overnight. It's going to happen over time. But those are some of the opportunities that we see to be able to continue to grow this business. Yeah, and I'll just add, Adam, we have a
Speaker 3: tremendous management team running that business. And they've managed it through a tremendous amount of volatility over the last 15 months with all the things that are going on. And I'm more confident now with the trajectory of EMEA and that business.
Speaker 3: and the foundation that the management team has put in place, and the overall global reach we now have to serve our customers in all the international markets. So we have a lot to do to get that business integrated into one global team.
Speaker 3: And over time, I'm super confident where the capabilities allow us to really serve our customers in a different manner than we ever have. So it's a tremendous accomplishment what the team has done with that business. I can't emphasize that enough. We got a great leadership team over there and I'm excited and looking forward to what we're going to do as we integrate that business going forward.
Speaker 8: All right, now that's helpful, and then just on the CapEx, which with one quarter left in the year was a pretty sizable kind of increase in the look, even inclusive of the Groningen CapEx at the JV that you're now kind of consolidating. Does this change any of the timing around the Argentine...
Speaker 8: Idaho or Chinese capacity, or the things you're doing in the rest of the network, or capabilities around coatings or battering that...
Speaker 8: you're pulling forward, just help us think about kind of snagging to that capex step up, how it impacts timing of new capacity and what should we think about as a range for the consolidated capex for next year at a high level.
Speaker 4: Yeah, no, so as we take a look at our capital spending, you know, there were a number of items where we had long lead time, just given the supply chain dynamics that are out there. And we've been able to accelerate some of those things in terms of equipment and other pieces to come in, which is being reflected in our overall capital spending for this
Speaker 4: online. As we look to next year you know certainly as we do every year end when we give our fourth quarter guidance we'll update with our capital spending at that time but we'll have another year of significant capital expenditures given we're bringing on over a billion pounds in the next 18 to 24 months with all of the capacity expansions that we referred to.
Speaker 8: Alright, that's all. It's not really helpful. I'll pass it on. Yeah.
Speaker 5: Hey Adam, it's Dexter. Let me just kind of for everybody just kind of here's the timing of the other capacity coming online. China is going to be sometime fall 23.
Speaker 5: American Falls, Idaho is going to be spring of 24.
Speaker 9: Argentina is fall of 24.
Speaker 9: Right? And then, cried again in another lens. Initial thoughts right now are going to be early calendar 25. It's kind of, yeah, early to mid. That one's a little bit more in flux, but that's kind of where the timing is right now. Thank you. As a reminder, ladies and gentlemen.
Speaker 10: towards the end of 3Q. In global, it seemed like there was no more incremental that was at least expected to come this year. Maybe you can opine a little bit on food service. That was the one area where we didn't hear about if there were any incremental pricing actions. In addition to that, I would love any first thoughts as plantings have gone into the ground here in early April . For more information, visit www.fema.gov
Speaker 3: Yeah, so in terms of the food service segment, we've done a really good job over the past year to kind of catch up to our inflation, and so I feel comfortable where we're at on that. As I said earlier, we're evaluating.
Speaker 3: as we look to our physical, our physical 2024, our input cost inflation and how that's going to materialize and then as we do every year, then we'll get together and think about what we need to do to offset inflation.
Speaker 3: I can't say this enough, we're still in an inflationary environment in our business. As we have in the past and will continue to do, we're going to evaluate our pricing actions in all segments to offset inflation.
Speaker 4: And that's kind of what we're going to do. Yeah, so with the food service increase, there will just be a small impact in the fourth quarter given the timing of that announcement. And then the only other thing is, as it relates to the crop, we are currently in the process of planting there, the Columbia Basin in Idaho, so we'll provide more of an update.
Speaker 10: on our next call. Okay, no, that's helpful. And then maybe just to follow up on Adam's question on CapEx, you know, obviously kind of from a position of strength, you guys are accelerating some of the spend. Bernadette, it didn't sound like you were kind of pulling forward any spend from next year, but maybe just wanted to clarify that. And then just in a broader context on kind of capital allocation.
Speaker 10: with the cap expense being as high as it is, and maybe you're gonna move past through a lot of that, the debt's turned out pretty far at this point. You started to buy back a little bit of stock in the quarter, the dividend yield is pretty low relative to peers, just maybe you can kinda comment on how you're seeing this set up for some of the other pillars within capital allocation. Thanks very much. Yeah, so if I take the latter question first, you know,
Speaker 4: As Tom mentioned, we're still really confident in the strength of this category, and we're going to continue to invest for the long term. As it relates to our cash position and our overall low debt to equity ratio, we want to maintain flexibility for the long term.
Speaker 4: into consideration share buybacks as we have in the past to offset management dilution, but as we've also shown we will opportunistically buyback when it makes sense.
Speaker 4: And then just to confirm your first question on the capital spending, we haven't necessarily pulled much forward in terms of total capital spending. We've got a lot of large projects happening over the next 18 to 24 months and some of that was just on some long lead time equipment.
Speaker 2: Thanks very much, guys. This is Bob Dickerson from Jefferies.
Speaker 6: Great, thanks so much. This is my first question, more mechanical, to you Bernadette. It looks like the interest expense expectation for the year hasn't changed, but clearly you're taking on the term loan and maybe some...
Speaker 5: assumed pre-existing debt, I would think, from Meijer. Maybe just kind of quickly explain.
Speaker 4: Maybe I just missed it on the prepared remarks. Kind of how that interest expense doesn't change with the assumption of that. Yeah, no, that's a great question. What we're finding is that we're having more capitalized interest related to some of these heavy capital projects, which is putting more of that.
Speaker 8: which is offsetting some of that interest expense overall. So that's all that you're seeing there. Got it. But that would probably be more like a Q4 event. Like we would still assume that, even though you're not guiding that.
Speaker 5: there would be incremental debt and interest given the deal, just thinking about the mechanics of the actual acquisition. Yep, you're exactly right. You're thinking about it right.
Speaker 8: Okay, super. And then maybe just Tom and Burd, we're talking about a lot of commentary around that 100 million on the Myers AV and kind of what the potential run rate could be.
Speaker 6: Maybe just another kind of way to ask it is just, you know, that's the number we've been, we've all been talking about, you know, visa v kind of pre pandemic. But then also, there are all these synergies or some synergies that should come through. So I'm just curious, like, you know, over the past few months, you've actually closed the transaction. And I do feel like you have better line of sight on kind of synergy potential without having it.
Speaker 3: different strategies to get that business back on track. I fully expect
Speaker 3: over the next 12 months that we will improve our run rate that we've indicated prior.
Speaker 3: And, you know, I'm not going to give a specific number, but I'm more confident now than ever that this, where that business is going and the trajectory that the team has got that business on and the synergies and the integration that we're going to do over the next 12 months is going to well position me.
Speaker 3: better than it ever has and you know we're not going to give specific numbers but I will tell you I'm confident that we will move that business in a direction that you know that is that I believe is much better than what we've indicated.
Speaker 6: Sorry, super. And then just quickly, a little bit more fun to talk about. You know, I saw... Soon, I'll be happy to answer any questions about other related Duhat. And I should work on any questions before I say offings this evening. Sure, well, we actually have a opportunities for thoughts, but as you see, we want to have
Speaker 6: your ability to enter dominoes.
Speaker 6: with products that is not fried. It's more baked.
Speaker 6: Maybe if you just spend a minute kind of speaking to the technology that maybe you have on a proprietary basis that allows you to do that.
Speaker 6: Is that something that I would assume you would clearly try to attack with other customers that, let's say, don't have flyers? That's it. Thanks.
Speaker 3: Yeah, so I'm not going to get into all the product technology, but we're super excited about it.
Speaker 3: that product and how it's performing is performing better than expected. You know, I've been talking about that for a long time in terms of getting into non-fri channels and that was a big first step. We've done that with other well-known chains. Also...
Speaker 3: And, you know, we're gonna continue to monitor it. We're gonna, you know, work with non-fry channel customers as we do today. We'll continue to do that. And we have a great innovation team working on...
Speaker 3: you know, non-fri potato products, but those are long lead time items, but I will tell you what is happening with that particular product is exciting and it's performing amazingly. So, you know, we'll continue to monitor it, but it's...
Speaker 3: It's been a long time coming and hats off to the team that put a lot of years of work into getting that to market and it's great to see it pay off and really do well in the marketplace.
Speaker 2: Thanks so much. As a final reminder, ladies and gentlemen, it is the Starkey followed by the digit one. We'll hear next from William Reuter from Bank of America.
Speaker 11: Good morning. I just have two questions. The first is you mentioned M&A. You also are active in building a handful of new facilities. You're going to be consolidating the JV and you talked about a lot of the operational changes you're going to make there.
Speaker 11: I guess do you feel like you're at the point now where you still could be active? And I guess what types of businesses or where within the supply chain do you expect that you would be more active?
Speaker 3: Yeah, so the intent and part of our strategic playbook is we're always going to be evaluating potential acquisitions within the potato category. That's the number one focus. The category is strong, it's good returns, great investment, it's growing, and we have not only invested.
Speaker 3: we have a strong balance sheet. So if an opportunity comes up, we'll be able to execute it. And so that's always gonna be on the table. And I've been consistent in that over the past six years. So I feel good about where our capital, our balance sheet is.
Speaker 3: We're investing to expand our footprint. It's right on strategy. We're positioning ourselves in the industry to support our customers in all the markets around the world. We're all good about where we're at.
Speaker 11: Okay, and then my second question, is there any way for you to provide some additional color around what the impact of open market purchases were this year? Just trying to think about in the event that you're able to fill that with contracted purchases next year, what that tailwind could be. Yeah, we haven't quantified the impact of those open market purchases.
Speaker 4: there is a meaningful impact this year similar to last year.
Speaker 9: Great, okay that's all for me, thank you. Hey Bill, one other thing, I mean the reason that we had to go the open market is because the crop yields weren't good this year. Typically you know if you have an average crop then you really don't have to go into the open market that much at all. Great, thank you.
Speaker 2: We do have a follow-up from Andrew Lazar from Barclays. Please go ahead. You're welcome.
Speaker 5: Thanks so much, just a super quick one, Tom, when you announced the Joint Venture acquisition with Meyer. I think one of the things you'd mention was that you also hope that or intended that this action would kind of send a message to the broader sort of European sort of competitive environment there. That...
Speaker 5: you were certainly looking for there to be over time the potential for further consolidation in what is a much more fragmented operating theater in Europe . And I'm just curious if this transaction now that you have closed it in your couple months since announcing it, whether the dialogue or pace of conversations maybe with others has picked up more generally. We saw another one outside of you. Right, it turns out.
Speaker 3: are or are not happening. But consistent, Andrew, with how I positioned this over the last several years is we're continuing to be as active as we can. I think the intention of
Speaker 3: What I would love to do from an industry standpoint is known and certainly the Transaction with Lamb-West and Meyer you know people took notice, but you know we'll
Speaker 3: I'll leave it at that and hopefully the fragmentation of the market, it's a private sector and people gotta come to the table. But I'm pretty sure they're clear, they know what I want to do.
Speaker 2: Thank you. That does conclude the Q&A portion of today's conference. I would like to turn the conference back over to Dexter for any additional or closing comments. Thanks for joining the call this morning. If you want to schedule a follow-up session, please do so. And if you want to schedule a follow-up session, please do so.
Just send me an email and organize time. Thanks for everybody joining the call. Thank you. That does conclude today's teleconference. We thank you all for your participation. We now disconnect.
Oh I.