Q3 2023 Post Holdings Inc Earnings Call
Yeah.
Good day and welcome to the post holdings quarter, three 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Daniel Orourke Investor Relations. Please go ahead.
Good morning, and thank you for joining us today for Post's third quarter fiscal 2023 earnings call.
I'm joined this morning by Rob Vitale, our president and CEO , and Matt <unk>, our CFO and treasurer.
Robin map will begin with prepared remarks, and afterwards, we'll answer your questions.
The press release that supports these remarks is posted on both the investors and the SEC filing section of our website and is also available on the SEC's website.
As a reminder, this call is being recorded and an audio replay will be available on our website at post holdings Dot com.
Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as the.
Actual results could differ materially from these statements.
These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements.
And finally this call will discuss certain non-GAAP measures.
For a reconciliation of these non-GAAP measures to the nearest GAAP measure. Please see our press release issued yesterday and posted on our website.
With that I will turn the call over to Rob. Thank you Danielle and thank you all for joining us this morning.
We had a really terrific quarter, and we expect a strong finish to fiscal 'twenty. Three this morning, I'm going to be a bit more proscriptive than usual as it relates to how we think about our business trajectory one year out we realized it between adding the pet business and are outside of foodservice performance, we're making for a challenging model.
So let's start with our pet acquisition, you can infer from Pcbs reported margins that pet food margin realizations exceeding expectations. In fact contribution has well exceeded our underwriting case.
There are three reasons first changes in factory leadership and behaviors within our factories have enabled us to improve service levels and rebuild customer inventories.
Second our G&A assumptions are proving to be conservative and last we have not yet begun to invest in brand rehabilitation.
While we're not going to give specific guidance as it is fair to say our expectations for its contribution have increase in the short term and meaningfully more so once we move past full integration and synergy realization.
Recall, our three tiered approach to evaluating this acquisition.
We said if we can increase margins it will prove to be a good investment or margin opportunity is greater than expected and already starting to hit the P&L.
The second tier was brand rehabilitation and 'twenty 'twenty four will start to reinvest some of the margin upside and seek to redevelop revitalize these brands.
That was investment success tier two and finally, we are building this over the long term as a platform for inorganic growth.
Related to inorganic growth I'm very proud of this team's integration efforts going back all the way to mom brands Treehouse private label, Peter Pan in that pet.
It's a real proficiency at delivering sustainable synergies.
The other contributor to outsized results. This quarter was foodservice business continues its terrific performance.
Ignoring the outsized performance baseline is performing extremely well.
Volumes grew 3% and mix continues to shift towards higher value added products.
In tandem the volume growth and favorable mix produced a sustainably higher level of EBITDA than pre COVID-19.
We estimate this to be approximately $90 million per quarter prior to the impact of ready to drink protein shake manufacturing, which will come online in the first quarter of fiscal 'twenty four.
On top of a strong baseline we delivered outsized performance, Matt will provide some detail on its drivers and their trajectory to normalization.
Last night, we raised our adjusted EBITDA guidance to 1.18 to $1 2 billion.
Back to my comment about helping you model by being more prescriptive.
While our FY 'twenty for planning it's in the preliminary stages, we expect to show modest EBITDA growth next year with our current guidance as the baseline.
Further we expect to be well positioned for FY 'twenty five as we realized synergies from the pet acquisition continued to improve supply chain and make incremental investments in marketing.
The step up in marketing is not limited to pet.
We are stepping up marketing spend across categories, including U S and UK cereal and the Bob Evans brand.
Last I want to be as clear as possible that and anticipating growth next year, we are including seven more months of pet results and normalizing foodservice those are the significant assets.
Hopefully the outlook for 'twenty three in these preliminary comments around 24 gives you the ability to appropriately factor recent M&A in current year performance in your models.
Yeah.
Turning to ready cereal there've been questions lately about volume resiliency in the face of two years of stack pricing.
In fact category pounds were down three 9%.
We attribute this to lapping all micron a shift to away from home breakfast comps consumption.
Significantly the March reduction in snap benefits.
Omicron and snap or non repeating and as a result, we tend to think of the category as mean reverting to a pre COVID-19 zero to 2% decline.
We are also seeing a notable shift to value priced products.
Our shipment volumes this quarter declined five 7%, but half of the volume decline was a result of Peter Pan shipments lapping the temporary market withdrawal of the Jif brand.
On a consumption basis, we grew sequential dollar share in cereal to 19, 9% and Peter Pan is growing half a share point on a two year basis.
Refrigerated retail had a mixed quarter supply change that markedly improved over last year and have enabled product continuity and margin expansion.
On the negative side, we continue to see pressure from private label impacting volumes and we are responding with our first TV advertising in two years, we fully expect to see this brand resume its growth as we drive incremental households, and expand distribution supported by re engaged marketing.
Weetabix isn't a tough macro environment with U K consumers facing food energy and housing inflation well ahead of the U S.
The business is being well managed and we are investing in the brand for the long term in fact against the backdrop of strong company wide.
<unk>, we are increasing marketing in weetabix to enter 2024 and stronger shape.
In terms of capital allocation, we continue to weigh M&A deleveraging and share buybacks against each other.
We have been aggressive purchasers lately since the announcement of our pet acquisition, we have open market repurchased approximately 60% of the amount of shares that we issued to JM smucker.
All while keeping our leverage ratio on a downward trajectory.
In closing we remain quite confident in our recent portfolio moves and we continue to see momentum building in our business.
With that I will turn the call over to Matt.
Yeah.
Thanks, Rob and good morning, everyone.
Third quarter consolidated net sales were $1 9 billion and adjusted EBITDA was $338 million net sales increased 22% driven by the newly acquired pet food business. Excluding this acquisition net sales increased 4% driven by pricing actions in each segment.
Service saw increased volumes as consumers continue to show a preference for eating out during breakfast hours.
Volumes in our retail businesses decreased as pricing elasticity has ticked up and shifted volumes in our private label offerings, although not enough to offset declines in our branded products.
Our supply chain performance and customer order fill rates continue to improve however, we still have pockets of opportunity in both.
Inflation moderated across the business in the quarter, especially in freight costs.
Turning to our segments, starting with post consumer brands, excluding the benefit of the pet food acquisition net sales increased 4% and volume decreased 6% average net pricing, excluding pet food increased 10% driven by pricing actions.
We saw strong volume growth in private label cereal, which was offset by declines in peanut butter and branded cereal.
Segment, adjusted EBITDA increased 28% versus prior year as we benefited from the contribution of the newly acquired pet food business.
Let me over to Weetabix net sales increased 7% year over year, the British pound was nearly comparable quarter over quarter, causing just a nominal foreign currency translation headwind of approximately 50 basis points.
The increase in net sales was attributable to a significant list price increases and was partially offset by unfavorable mix towards private label biscuit.
Volumes decreased 5% as growth in use it extruded products in private label biscuit was not enough to offset declines in branded products, which were driven by inflation related elasticities.
Segment, adjusted EBITDA decreased 26% versus prior year, as lower volumes and higher input and warehousing costs outpaced our pricing actions.
We continue to expect the challenging macro environment in the UK to keep our margins compressed into 2024.
Foodservice net sales and volume grew 8% and 3% respectively revenue growth continued to outpace volume growth as revenue reflects the effect of our timing and our commodity pass through pricing model and our temporary AI price premium.
The benefits of our pricing dynamics for magnified by the combination of our abnormally normally low inventory level at the end of the second quarter and a temporary collapse in market egg prices in May and June .
This market collapse resulted from the post Easter demand pullback coupled with the continued recovery of national layer population falling avian influenza.
Likely take another AI event to have a similar price dynamic the opposite direction.
And as a reminder, such events historically give rise to any incremental pricing.
Our AI pricing tapered off at the end of Q3 and is winding down which is phenomenal tail. In Q4. In addition market egg prices quickly recovered by early July so as we sit here today the business on a go forward basis is running in line with normalized run rate that Rob discussed.
Refrigerated retail net sales and volumes decreased 6% and 11% respectively.
Decline in net sales was driven by lower volumes and was partially offset by increased average net pricing in the portfolio.
Side dish volumes decreased 10%, reflecting price elasticities, and a customer shift to private label.
Segment, adjusted EBITDA increased 25%, primarily benefiting from price pricing actions to offset significant cost inflation favorable sow costs and improved manufacturing performance across our network.
Reinstating advertising and promotion spending versus the prior year was an offset to these benefits.
Turning to cash flow the third in the third quarter, we generated $282 million from continuing operations, which is up significantly sequentially and versus prior year, driven by improved profitability and a decrease in networking capital.
We ended the quarter at net leverage of four eight times, which is down from the $5 one pro forma for the April closing of our Pat transaction.
Moving over to capital allocation capital expenditures were approximately $70 million in Q3, driven by continued progress on the new protein Shake co manufacturing facility, which is slightly delayed though into Q1 of next year.
In addition, we repurchased one $9 million of our shares at an average price of approximately $87 per share and retired $50 million of our debt at an average discount of 13%.
In the month of July we spent an additional $60 million and repurchased 700000 shares reducing our common shares outstanding to approximately $61 million.
So to summarize since the closing of the pet transaction, we have been able to buy back 4% of our shares outstanding and still reduce leverage by three tenths of a turn.
With that I will turn the call back over to the operator, thanks for joining us today.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
One moment will be compile the Q&A roster.
Our first question comes from Andrew Lazar with Barclays. Your line is open.
Good morning, Rob and Matt How're you doing.
How are you.
Hey, Thanks, maybe.
Maybe to start Rob I was hoping to get.
Maybe your perspective on just some of the key dynamics at play in the industry right now on the consumer side, a number of companies I've mentioned.
We are just stretching their budgets on the other hand, it appears they've yet to see other companies any way yet to see much in the way of trade down to private label or switching out of categories.
On the customer side, we've heard about some inventory destocking at retail supply chain sort of get back to normal.
We've heard that branded competitors are getting more promotional but there is sort of mixed sentiment regarding the level of return of promotions. Some say promotions are up year over year, but still below 19 levels others are saying promotions have largely returned to 19 levels I'm just trying to get a sense of maybe what youre seeing in this regard and sort of what youre, how youre expecting the environment maybe to play out over the next six to 12.
Months.
You always get me in trouble with these questions Andrew.
Trap anyway.
I appreciate it.
So here's how we think about the state of the consumer right now.
You have an increasingly bifurcated consumer where we have still call. It half a trillion dollars of excess deposits compared to pre COVID-19 and at the same time, you have a pretty significant increases in credit card debt. So.
If you call that a one third two thirds relationship between the top and bottom.
As that.
Rate of excess deposit amortize as youre going to see a shift down.
And consumer spending.
All the while having unemployment seemingly stay at a fairly attractive level attractive from a macro perspective, not necessarily an inflation comment.
But that leads to a 12.
12 to 18 month horizon of.
Probably a weakening consumer in place to unemployment is not going to get better.
Deposits are not going to get higher.
And spending, particularly if you include the resumption of student loan payments is going to get more challenging. So we think the net consumer position is likely to be weaker not stronger and that that bodes well for shifts to value oriented products, which we're already starting to see and we expect to continue that then suggest that certainly.
We're going to see some more promotional activity in a bit more pressure on <unk>.
Pricing offset by the normal things we've managed for the last.
Okay plus.
Okay got it thanks for that.
And then I think initially with the pet food acquisition you were looking for a contribution of annual sales of about $1 5 billion in annual EBITDA at about $60 million.
Are you I guess are you at a point, where it's early still obviously in the integration but.
Are you at a point, where you're ready to either sort of update that or how do you see those numbers playing out now given it seems like while early things are starting to break in a pretty favorable way pretty quickly.
Well.
We've got the business combined with.
Grocery so we've got pet cereal in and peanut butter under the post consumer brands segment. So.
What we're gonna be able to share with you of course with.
Another quarter as they plan for 2024, and then Youre going to start to see the changes in the segment.
Obviously, the lion's share of the changes in this segment are driven by the pet acquisition, we're not going to give specific.
Updated guidance on on pet because it is part of a larger segment, but I think will be relatively easy.
Z to track the progression over the next couple of quarters.
Could you could you restate the numbers that you started with because I think the way you said it may have been just the 2023 effect or not the actual annual I may have misheard, you, but what numbers to do throw out yes, I think it was $1 $5 billion in sales and then.
The EBITDA of $60 million.
No there was no EBITDA.
<unk> was $100 million, yes, I guess I was just the piece from.
Partial partial year, yes, but $100 million on a full annualized basis, yes, correct and then thanks for that and then I guess the last thing would just be.
As as some companies in the industry are starting to lap pricing.
At least so far it's early.
The volume picture is maybe coming back a little bit more slowly than I think some would have maybe anticipated.
Just looking at the mechanics of how you lap pricing and whatnot.
I guess in your consumer business are you at.
At a point, where you can see a trend developing yet where the volumes are either sort of coming back mechanically as you would've expected as you lap the pricing or or things, maybe a little bit slower in some of those consumer areas like what we've seen from some others. Thanks so much.
No I think our pricing.
Well, our volume dynamic is coming back very much consistent with our expectations I think.
I called out snap in the in my prepared remarks, I think that you can see where that caused a bit of a blip in volume consumption. So we are not seeing any real surprises based on our own expectation again, the only the only surprise in the quarter has been strength of pet margins as we start this journey with pet.
Great good to see thanks, so much thank you Andrew.
One moment for our next question.
Our next question comes from David Palmer with Evercore ISI. Your line is open.
Thanks, Good morning.
It sounds it sounds like Pat is giving you more confidence to guide on fiscal 'twenty four as you are today.
Is it or is it really all Pat that's giving you more confidence.
Specifically.
Digging into the if theres something in foodservice.
Be sustaining above that base case of that $90 million per quarter, plus the $10 million or so you might get some co packing so any thoughts there. Thank you.
Pet is certainly a contributing component of our comfort level and giving you some sense of 24, and let me be completely transparent on that had we not just had the the twin events of adding pets and having quite an outsized performance year to date and foodservice we wouldn't be.
Talking about 2004, just yet that's not a normal cadence so what we're trying to do is.
Try to be respectful.
All of the challenges you all face with the complexity that we sometimes create and give you a little bit more of our thinking as it relates to a period of time a bit further out than we would normally do so.
But in terms of the components, we do feel good about pet, but we feel.
Very good about the.
Most of our business.
Think that theres going to be stress.
Strengthening position in our refrigerated business as we engage with advertising we've invested heavily in weetabix at the expense of Weetabix as current year performance. So we are positioned nicely going into 'twenty four.
It would be nice to see some macro strengthening there, but what we can control we are well controlling.
Our foodservice business, even outside the pricing dynamics of AI is in very attractive shape, we've long talked about invest.
The investment we made in Precook capacity and we made a heavy investment in Precook capacity right ahead of Covid, which were a couple of years.
Look questionable now it is paying off in spades as we see a higher mix towards value added products and recall that the mix and value added products from highest Hello is a four to five times increase in the contribution to fixed overhead so the businesses performing well.
The and.
And each business yet there is room for improvement we have some manufacturing underperformance in Michael Foods, we have the challenges that we've already articulated in weetabix.
Evans and we could always do cost improvement within our.
Our network within PCB. So despite the strength of the year, we feel very confident that we can continue to build upon and improve our trajectory.
That's all very helpful. Just a quick one I think probably investors are most nervous about volume assumptions by any food company. These days.
And I'm, just wondering what sort of volume assumptions, particularly with consumer brands and refrigerated retail are you thinking about for fiscal 'twenty four.
Well, we gave you the category assumption that we're looking at of zero to 2% decline.
Again, we're not through our planning process for 24, so that's a pretty high level category call.
We're not ready to give you, where we're thinking about potatoes, and other categories, yet because we haven't gotten into the details of.
That assumption, but I would expect that to be more positive.
<unk>.
And that's more of a controllable on our side than a category comment because that's the area, where we haven't marketed.
But I think you're probably most interested in a large category like ready to eat cereal and we think it's that.
Downs eroded too.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from Michael Lavery with Piper Sandler Your line is open.
Thank you good morning, Hey, Michael.
Just wanted to come back to foodservice you mentioned.
The mix benefit.
You touched on some of the things that have really driven the lift in the quarter, but if that mix.
Yes.
As more sustained.
How much different is that than the $90 million base case run rate.
Okay.
Should that continue and continue to add to lift is your assumption that it doesn't can you just help us maybe think about the mix piece and what to expect going forward.
I think the best thing I can do is refer you to our investor deck, and which we attempt to normalize that go back to the $90 million.
Per quarter baseline add.
Add in a potential $20 million for ready to drink shakes adjusted by the fact that it doesn't all come on board.
Day, one of the new fiscal year, and then we call out of 3% to 4% growth rate.
In that segment.
And that's a that's a five year model that we've published and its on our website.
Readily available. So I think that's the best way for you to think about the impact of both volume growth and mix.
The mix to higher value added products.
And so some of that mix improvement as is.
<unk> already I guess, that's really what I'm trying to get at that is that the right way to think about it. It is because of the volume growth is well below that but the volume growth is leveraged by the impact of mix.
Gotcha. Thanks.
Thanks for that.
On the share repurchases.
Are you able to give any color on how much or whether or not smucker was involved in that and just.
Their position has changed from where it was when the deal would have closed we are not.
Okay. Thanks, so much thank.
Thank you.
One moment for our next question.
Our next question comes from Bill Chappell with <unk> Securities. Your line is open.
Yeah.
Thanks, Good morning, Hey, Bill.
Hey, Rob just going back to ready to eat cereal I'm just trying to see.
How you think this.
The movie plays out over the next couple of years, I mean, I understand youre seeing volume growth to zero to 2%, but I guess.
The worry is that that.
All the players will know struggled to grab share volume that pricing gets more.
Competitive promotional levels get back to 2019 or even earlier levels.
And you have held up very well there, but I was just trying to figure out does that towards the whole market do you feel like that this time is different and I'm just trying to kind of understand if pricing standpoint more than a volume standpoint, how you see the market playing out in the next 12 to 18 months.
Yeah.
Hey, good and perhaps central question to how you think about this category going forward.
The reality is we don't know.
We.
We tend to be.
Disciplined in the way we behave.
We will we look at we look at different market scenarios and try to make sure that we're <unk>.
Behaving and responding in the manner that is most productive for us.
But we don't spend a lot of time trying to anticipate what those market scenarios, maybe you've got.
A change in the competitive landscape coming with.
Not necessarily new competitor, but <unk>.
Competitor organized in a new fashion, that's going to introduce some uncertainty.
Don't know.
The category is the 100 and whatever it is 130 years old we've been through many different waves.
Over time it.
It seems to work its way out but could there be periods of greater promotional activity certainly.
I.
Can you hear me say it mean reversion a lot lately I tend to think all of these things have a pattern towards mean reversion and I would lump this in the same bucket.
I don't know.
As always I appreciate your candor.
In terms of the plan I think you had said step up marketing not just on pet but across the across the board on the brands.
How does that help is what I'm, telling you again about cereal is that necessary in terms of there are a lot of brands that have pumped.
Popped into the category there is going to be more noise out there and you need to do that or is it just that kind of across the board we need to support our brands with a higher level of support.
No. It was it was frankly more a.
Luxury and.
Net.
From a company wide perspective, we.
Well in excess of some of our internal estimates and felt that we we tend to.
Lean into opportunities to make longer term investments when we have a situation like this and sometimes in the opposite will pull the other direction. So.
Given the strength of the business and some of the challenges we had a big spaces in some of the challenges Bob Evans is faced with lack of advertising we wanted to lean in a bit more aggressively than we otherwise might have so necessity or luxury I think sometimes is a bit blurry, but it felt like more of a luxury given the performance of the portfolio.
Great. Thanks, so much for the color. Thank you.
One moment for our next question.
Our next question comes from Robert Dickerson with Jefferies. Your line is open.
Great. Thanks, so much.
Hey, How's it going.
Rob I just wanted to touch on Weetabix profitability, clearly a little compressed in the quarter I think you said the remarks.
Probably say a bit constrained as you kind of heading into next year.
So maybe you could just comment on kind of what are the.
Core drivers of that compression and then.
Like how do you kind of view the.
The return to kind of.
Prior profitability margins.
Just I guess within the region. Thanks.
Well the single biggest.
Contribution towards the dilution in the margin is a shift towards private label. We are the dominant provider of private label, but we it's not margin parity. So we're keeping volume within the biscuit category, but losing some profit I think in order to restore that profit we need to.
Do what we are doing which is lean heavily into marketing.
Instead of pulling anything back in in a time of a bit of a challenge we are going the opposite way, which which makes the appearance of the margin challenge worse.
But what we're trying to do is set the brand up well for what we anticipate will be an eventual normalization of the macro environment in the UK and win.
The consumer is ready to Reengage, where theyre, having supported it.
Being the brand all along.
No.
I think we weather the storm, we keep our investment level, where it needs to be and we prepare for normalization.
Okay perfect. Thank you.
And then I guess just secondly.
I'm trying to touch on the points, we haven't discussed yet refrigerated retail.
You break out the categories in the release.
Those categories seem to be a bit more volume pressured, let's say a relative to other parts of your business in.
At least from my perspective, we've seen some kind of volume pressure.
Bit more outsize in other areas of frozen, let's say versus kind of center of the store is there.
Anything you think is driving that pressure.
Outside of just the.
Kind of stared issue shift to private label, you think consumers might be.
Hearing a bit more away from kind of higher price point frozen items I'm just trying to gauge why the volume there is maybe more pressured than elsewhere.
Well I think if you let's focus mostly on our.
Side dish business, which is the core of the franchise.
<unk>.
Along with everyone else, we took considerable price last two years at the same time.
This is the segment that had the most challenging supply chain two years ago.
And it is the segment that has had the most improvement in supply chain over these last few years.
So we were in a position.
The last 18 months herself.
Well I mean, the 18 months prior to the last six I should say.
And which we had.
Poorly performing supply chains price escalation lack of advertising support because advertising made no sense, given our inability to support incremental product within our supply chain. So that's not a great position for growing our brand.
We've now fixed the supply chain, we've now fixed.
The lack of marketing support or we are in the process of doing so.
<unk>.
Pricing is normalizing as some of our competitors have now priced so I feel optimistic that the problems in that area or a.
A combination of self inflicted and macro supply chain problems that are behind us it will take a little bit of time to prove that out as we enter 2024 and see the impact of the marketing and the impact of the improve.
Improved supply chain.
Better parity pricing, but those are the reasons to be optimistic about the segment I think it's less about.
A major consumer shift that it is about.
The trajectory over where we've been the last two years.
Alright Super It makes sense and then I guess, just lastly quickly.
Fully realize.
You just completed the <unk> acquisition.
I feel like I always have to ask.
Kind of general.
General appetite for other opportunistic transactions.
Got it.
Given kind of given overall market environment.
Well, we're very interested we are we are looking at things now.
Probably heard Matt Sarah leverage ratio is four eight so we're in a very attractive position too.
Look at external opportunities to buy back shares or nothing else just continue to generate cash and Delever I think the environment. We're in.
Favors us because if you look at.
I think I've shared this before we tend to compete with private equity and private equity.
As in a less favorable position than a year ago with so for being five 5% in the spreads being 5% on top of that for.
Senior debt. So we have a cost of capital advantage that I think could play into our favor and I think demonstrably has done so with pet I think part of the reason we were able to be as successful as we werent petworth.
The paucity of competition for an asset like that.
So.
We will always be active Felicia and looking and hopefully selective enacting.
Perfect. Thank you pass it on.
One moment for our next question.
Yes.
Our next question comes from Jason English with Goldman Sachs. Your line is open.
Yeah.
Hey, Michael.
Jason.
So congrats.
Congrats on the quarter obviously.
Some over earning in the foodservice business and I want to come back to that you guys said that you can go back to more of a normalized earnings level. The last time, we went to this volatility we overshot the upside followed by a bit of a undershooting. The downsides I think egg prices remained depressed for a while as we replace the flock with much more productive chunks.
Why is why should why is that right off the case here. What is what is the risk of you know under it should be on the back end of it.
And why are the condition is different that wouldnt cause us. Thank.
Thank you.
Yes.
The last time, we went through this the issue is more about the balance between grain based and supply base and we're closer to balance. This time. So we don't see the same risk persisting.
An extended period of time, we will always have some risk, but we think the risk is very manageable.
A risk as we look into 'twenty for the other meaningful difference between 2015 and 2023 24 is a shift in our business too.
Much higher priced and higher value added segments of our product mix.
Got it okay and back to refrigerated retail side dishes as he pointed out multi brokerage business. It's got so grocery today.
The second quarter in a row.
Private label pressure.
I imagine that's two more quarters to go at least two.
These cycles, but I guess, that's my question is it just two more quarters like this the change at one major retailer who has pushed out or is there something on the supply chain side, where there is a new supplier out there supplying minutes, we've got one retailer onboard and thats likely to be another to follow with another follow that could this have duration, which encourage you on private label or is it a one and done.
Our fourth quarter is cycling through a back on the other side back to growth.
Now in order for it to take legs and expand meaningfully you would use in the category.
I would need additional capacity, so I mean, theres always the potential for it if someone's going to add capacity.
But that would be a fairly significant gamble, particularly at a time, where we are becoming.
More effective in our own supply chain to more aggressive in our advertising I think that to answer the first part of your question.
The advertising is effectively starting now ish, it's been a couple of weeks. So there certainly will be a lag I would not be surprised to see.
Some further weakness this quarter and start to improve.
First part of next year.
We will see some changes in the rates but.
It's not decided to turn on a dime.
Okay last question for me and I'll pass it on on your consumer brand side.
I believe in the cadence growth inflation still a headwind I think it was one <unk>.
So this quarter that that could be taken away from my computer right now.
The spot cost everything we look on the cost curve, which suggests that that should turned deflationary as we can.
I'll wrap this year and go into that is that what youre seeing in or is there any reason to think that the inflationary pressure from ingredient Wi perspective could be more prolonged.
And Jason you were a little bit hard to hear I didn't hear what business you were asking about could you somewhat repeat their only thing.
Yes, yes.
I'll try to speak a little louder I apologize I'm outside of their products, which annoying.
Consumer brands segment consumer inflation.
Inflation is still eating away at profitability.
Our own cost curve, I think everyone's looking and saying gosh, it's just a matter of time before this turns.
Deflationary from a cost perspective.
Is that realistic or are there offsets, we don't depreciate and what what's the cadence as you look forward.
Yes, so our entire basket of commodities is certainly not deflationary and it's modestly inflationary.
Yeah.
I think I would characterize what we're seeing is.
A disinflation trend rather than a deflation trend and that's what we're anticipating.
Okay. Thank you I'll pass it on thank.
Thank you.
One moment for our next question.
Our next question comes from Matt Smith with Stifel. Your line is open.
Hi, good morning, Matt.
I wanted to follow up on the commentary about the AG business, the improved product mix and balanced sourcing help insulate risk on the back end of this AI cycle as conventional egg prices reset, but wanted to ask if youre seeing any trade down from your customers back to less value added products to take advantage of that wider price gaps.
Conventional shell eggs in this environment.
Zero.
Okay.
That was quick to once you make that switch is very difficult to go back because of the implications on your labor model.
Okay. Thank you for that and maybe if I could follow up on the commentary about refrigerated side dishes in the private label outperformance, we've seen post to benefit from.
A tiered value structure and several of your categories whether it's.
Cereal comes to mind here do you see any advantage to pursuing a similar type of strategy in refrigerated retailers the strength of the brand of Bob Evans and the relatively low penetration of private label differentiating factors there.
I think theres a number of differentiating factors, let me let me start with the answer is yes, I think there is always.
Interesting opportunity to be had with.
Having multiple tiers within the price points of the category, but the difference between cereal in.
And.
The refrigerated side dish category as one of maturity.
Zero businesses.
Quite mature.
Tended towards excess capacity.
Which opened up opportunities around multiple price points, whereas.
Historically.
The side dish category has been earlier in its product lifecycle and much more on a growth curve and has tended towards lack of capacity, which crowded out different price points. So I think I think the balance you have to strike is where you are on the product lifecycle, where you are in the capacity curve and how you want to play in the different.
Price points within those two dynamics.
Okay. Thank you for that I appreciate that I was wondering I'll pass it on.
Thank you we've reached the end of our Q&A session. Thank you for joining US you may now disconnect. Thank you all.
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