Q2 2023 Utz Brands Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Art's Brands, Inc. Second quarter 2023 earnings call I would now like to turn the call over to Kevin Powers Senior Vice President Investor Relations. Please go ahead.
Good morning, and thank you for joining us today on the call today are Howard Friedman, Chief Executive Officer, Ajay Qatari, yet Chief Financial Officer, and Kerry to bore Chief operating officer.
However, today, we will make prepared comments this morning, and all three will be available to answer questions. During our live Q&A session.
Please note that some of our comments today will contain forward looking statements based on our current view of our business and actual future results may differ materially.
Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance.
Before I turn the call over to Howard I, just have a few housekeeping items to review.
Today, we will review certain adjusted or non-GAAP financial measures.
Which are described in more detail in this morning's earnings materials.
Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website.
Finally, the company has also prepared presentation slides and additional supplemental financial information, which are posted on our Investor Relations website.
Now I'd like to turn the call over to Howard.
Thank you, Kevin and good morning, everyone, it's great to be here today.
I'll begin our discussion this morning with an overview of our second quarter results and consumption trends and then Jay will discuss our financial performance in more detail. Following our prepared remarks, we will open the call for questions.
Starting with our second quarter results, we delivered another quarter of strong organic net sales growth as we execute against our growth strategies and as our salty snack category trends remained resilient in.
In addition, our margins continue to recover through our pricing actions and productivity programs, which enabled us to again raise our full year adjusted EBITDA outlook in.
In the quarter, our organic net sales increased four 3%, even as we lapped 13, 6% comparable growth in the prior year.
As we expected our sales growth was led by pricing with our volume trends improving relative to the first quarter led by our branded volumes, which increased in the second quarter. As a reminder, our non branded volumes. This year are being proactively impacted by our aggressive actions to better optimize our product mix and trim noncore and lower margin private label.
<unk> and partner brands.
As we move throughout the second half of the year.
Through a combination of distribution gains new product innovation increased marketing spending and lapping prior year SKU rationalization, we expect our total sales volume momentum to build each quarter.
I'm a consumption perspective in the quarter, our power brand momentum continued and increased 10% on top of 18% growth last year, which was our seventh consecutive quarter of double digit growth leading to share gains for Boulder Canyon <unk> and on the border.
Our adjusted EBITDA margin recovery continued with our second consecutive quarter of year over year expansion led by prior year pricing execution higher levels of productivity and portfolio optimization.
In addition, during the quarter, we made progress against our network optimization program to support more profitable growth and better balanced capacity across our network as we closed our manufacturing operations in Birmingham, Alabama, and we continue to in source production into our us plants from car manufacturers.
Briefly touching on our second quarter financial results total net sales increased three 6% adjusted gross profit increased 1% and adjusted EBITDA increased 7%, while adjusted EBITDA margins expanded led by accelerating productivity benefits across logistics and lower delivery costs.
Our adjusted gross margins declined more than we expected.
This was largely due to transitory higher inbound freight and potato costs to support growth in the west and a transitory volume deleverage due to our network optimization program. These headwinds are behind us and we can continue to expect for gross margins to improve in the second half of the year and as Jay will provide more color during his comments.
Looking at our retail consumption trends in the quarter, our retail sales increased 9% versus the salty snack category growth of 12%, our three largest brands us on the border and zaps, which combined represent about three quarters of our retail sales again delivered double digit growth.
Our flagship <unk> brand grew 7%, even as we lapsed 25% growth in the prior year, driven by potato chip growth of 15%, marking the eighth consecutive quarter of double digit growth for utz potato chips.
On the border tortilla chip consumption rebounded nicely, increasing 16% as we lapped the prior year increased merchandising support and large distribution gains in the mass channel.
In addition on the border was particularly strong within the grocery channel in our core markets with growth of over 40%.
Zaps consumption remained robust and increased 35% in the quarter, primarily driven by sustained momentum of our new flavored pretzel innovation.
Our seasoned pretzels continue to drive the overall pretzel subcategory and we recently won the Best Pretzel Award and people magazine's Food Awards 2023 edition, earning a rare perfect rating from testers.
This follows our South magazine Pantry Award as the winner for Best Pretzel sticks, which was announced on the NBC today show.
When you look across our consumption trends during the quarter consistent with what I mentioned earlier, our volume trends continued to improve with each successive month as we worked through our lapse from last year.
As a reminder, we were still lapping significant activity in the mass channel through April due to promotional activity that did not repeat in 2023.
In addition, we secured new distribution gains primarily in the grocery and mass channels that began in may which helped drive volume momentum in the quarter and we expect for these trends to continue in the second half of the year.
Moving to our key salty subcategories, we gained share across potato chips, and pretzels and our tortilla chip growth improved significantly relative to our first quarter performance driven by on the border.
<unk> growth was led by us with growth across all major channels and over 50% growth for Boulder Canyon led by distribution gains at key strategic retailers in the grocery channel.
Pork rinds and cheese remained focus areas and while they are not a big portion of our sales. We are intent on turning these businesses back to growth.
For pork rinds are performance is improving as we make price pack architecture changes and introduced new packaging and cheese snacks. Our sales growth was primarily impacted by lapping incremental programming in the mass channel last year that did not repeat.
From a geography perspective, we are making progress penetrating our white space opportunities as our double digit consumption momentum continued in our expansion regions driven by the <unk> brand Zaps and Boulder Canyon, all supported by distribution gains.
Our performance in the core was mixed largely due to lapping very strong us brand growth in the prior year Golden flake softness, particularly in potato chips and portfolio optimization actions within our RW Garcia brand.
That said, we delivered growth across on the border Zaps and Boulder Canyon, and we expect our core performance relative to the category to improve in the second half of the year.
Shifting to our better for you segment of southeast Knacks, our consumption of natural channel increased by nearly 20% in the second quarter significantly outpacing category growth of 10%.
Our primary better for you brand in the natural channel is Boulder Canyon, and we maintain the number three ranking and salting snack category as measured by spins growing 28% in the quarter, which was triple the category growth rate.
Boulder Canyon has now delivered 22 consecutive periods of double digit growth and spins and as the number two potato chip brand in the natural channel with our avocado oil chip now ranked number one in terms of dollar sales.
Consistent with our growth strategies as we sustained strength across our power brands in the second half of the year, we remain committed to thoughtfully, increasing our brand marketing investments.
Our initial primary areas of focus will be on enhancing our package design with strategic design partners first focused on <unk> and on the border.
Elevating our Omnichannel and e-commerce strategy by investing in new capabilities integrating deeper into the business and increasing retail media advertising.
And expanding our marketing capabilities of incremental investment and agency support to build brand awareness on our power brands.
In addition, we are capitalizing on trend right innovation.
As I mentioned earlier, we've had great success with our SaaS flavored pretzel launch.
And this year, we've added more on trend flavors to our us brand portfolio I'm, especially pleased with the introduction of Mike's Python chips.
Hot and spicy is now the number one flavor in salty snacks and is growing nearly twice the rate of the category.
And our mics Hot Honey sales are already four times higher than our previously best US limited time offer.
Our weekly velocities are well ahead of expectations and are already approaching one of our top selling items honey barbecue chips as.
As we've been to supporting this launch with retail activation and marketing support driving nearly 75 million earned media impressions.
Given the success of the launch I'm pleased to announce that Mike's Hot Honey chips has secured placement in our long term assortment and reflects the strength and our innovation approach.
Wrapping up I'm pleased with our progress this year as we've been building our capabilities delivering sustained results in a dynamic environment and are well positioned for a strong second half of 2023.
I am confident that we will drive continued organic net sales growth with sales volume momentum building throughout the year and will be supported by increased brand investment focused on our power brands critical.
Critically these investments will be funded by our productivity and revenue management initiatives, which remain on track and will also help to expand gross and adjusted EBITDA margins in the second half of the year.
Finally, we expect to deliver on our commitments and generate stronger cash flow to reduce balance sheet leverage to unlock further financial flexibility down the road.
Now I'd like to turn the call over to a J J.
Jay Thank.
Thank you Howard and good morning, everyone.
Our second quarter results reflect the resilience of our salty snack category.
Despite again lapping significant growth in the prior year, we delivered organic growth of four 3%, while proactively optimizing our portfolio.
In addition, we expanded adjusted EBITDA margin as we are executing our margin enhancing programs.
I would like to thank the entire <unk> team for their contributions.
And we remain well positioned for a strong 2023.
Turning to our second quarter results in more detail.
Net sales was in line with our expectations and increased three 6% to $362 9 million.
Adjusted gross margin declined 100 basis points to 35% and this includes an approximate 70 basis points of negative impact from our Io conversions.
Excluding this impact our adjusted gross margin contracted about 30 basis points versus last year.
As Howard mentioned earlier, the gross margin decline in the quarter was larger than we expected primarily for two reasons.
First last year's potato crop is were lower than normal in the western part of the country that supply, our Washington, and Arizona plant.
Given the growth we are seeing in this region, we decided to source more per day dose from the Midwest to <unk>.
Support production in these plants.
This drove both inbound freight costs and potato cost higher but.
Was temporary in nature as we have now transitioned into a new crop harvest out west and fully sourced.
Second during the second quarter, we experienced larger than expected transitory volume deleverage associated with our network optimization program.
As a reminder, we announced the closure of our Birmingham plant in April .
We would act on production and the facility quicker than we originally anticipated to shift production to more efficient plants and <unk>.
As a result, we experienced higher than expected stranded costs.
The transition is now complete.
Importantly, these transitory impacts are behind us and our network optimization efforts combined with the insourcing of production from core manufacturers.
And stepped up productivity benefit and sales volumes will drive gross margin expansion in the second half of the year.
For context the <unk>.
Month of April was the lowest gross margin month in the quarter and our margins improved across each successive month in the quarter.
Pulling this all together our gross margin expectations in the second half of the year remain unchanged.
And we continue to expect year over year expansion.
Okay.
Adjusted SG&A expense declined two 6% to $81 7 million and improved by 144 basis points as a percent of sales.
As a reminder.
Our outbound freight which is the vast majority of our freight expense given our DSD operations to the sites with an SG&A expense and not cost of goods sold.
As a result, the benefits from improved freight market conditions combined with our productivity initiatives focused on logistics helped to drive strong expense leverage in the quarter.
Okay.
Finally, our adjusted EBITDA increased by seven 1% to $45 2 million.
Or 12, 5% as a percent of net sales.
Adjusted net income of $18 $8 million and adjusted EPS of <unk> 13 per share were both in line with last year, largely due to higher interest expense.
Moving to the P&L for some additional details starting with <unk>.
Our net sales growth in the quarter was three 6% driven by organic growth of four 3%.
In addition, <unk>.
Total net sales were impacted from the conversion of company owned auto spit out to independent operators, which reduced the net sales growth by <unk>, 7%.
Our organic net sales growth was led by price realization of 6%.
Partially offset by lower volume mix of one 7% as we expected.
In addition, our SKU rationalization initiatives are ongoing as we aggressively optimize low margin skus to improve portfolio mix.
And we unlock manufacturing capacity to focus on producing our branded business.
This program began late into the first quarter of 2022 and through a wraparound impact from last year's actions.
With the new actions this year.
Our volume was proactively impacted by approximately 350 basis points in the second quarter.
When we adjust for proactive SKU rationalization actions, we estimate that our volume mix grew one 8% in the quarter led by our power brands.
In the second quarter, adjusted EBITDA increased seven 1% and margins expanded 40 basis points to 12, 5% of sales.
Rich as Howard mentioned was our second consecutive quarter of margin expansion.
Decomposing the change in the adjusted EBITDA margin for the quarter positive drivers include a price benefit of 6%.
Productivity improvements of two 7%.
<unk> mixed benefit of 70 basis points.
Largely driven by favorable sales mix from our SKU rationalization actions.
Partially offsetting these positive drivers were the unfavorable margin impact of seven 8%.
By commodity and labor inflation, and selling and administrative expense impact of 1%.
Due to our continued investments in marketing people selling infrastructure and supply chain capabilities to support our growth.
Our second quarter adjusted EBITDA margin performance reflects good execution against our primary margin enhancing initiatives.
Our pricing actions last year are countering inflation, while we continue to enhance our price pack architecture program and optimize our trade spend leveraging improved capabilities.
Our aggressive SKU rationalization actions are providing a mixed benefit to margins, while we free up capacity in our plants and distribution network.
To help US service, our higher margin power brand business.
Our productivity programs are on track and we continue to expect to deliver productivity of approximately 4% in 2023 as a percent of Cogs.
For example, our integrated business management capabilities are starting to deliver a more balanced demand and supply plan, which is helping to drive higher levels of productivity.
Okay.
Lastly, we are progressing our manufacturing network optimization program, while also in sourcing volume, where we have capacity.
As we first announced in April we completed the closure of our manufacturing operation in Birmingham, Alabama.
And we have been shifting production to our facilities in Kings Mountain, North Carolina, and Hanover, Pennsylvania.
Off note.
In connection with the closure, we recorded an expense of $8 9 million in the second quarter.
Which includes $1 3 million in severance and related costs.
And $7 6 million of fixed asset impairments.
Now turning to cash flow and balance sheet.
Beginning with cash flow consistent with normal seasonality.
Cash flow used in operations in the first half of the year was $4 $3 million.
The second quarter improvement reflects our cross functional efforts to improve our cash conversion cycle as we have made foundational improvements across our operations.
We continue to expect progress on our net leverage reduction in the back half of the fiscal year as we drive stronger free cash flow conversion, which remains a major priority for the company.
Capital expenditures stepped up in the second quarter, and we have $32 million.
In the first half of fiscal 2023.
I'm really related to supporting our productivity programs and our manufacturing expansion in Kings Mountain.
Finishing with the balance sheet net debt at quarter end was $913 3 million or five one times trailing 12 months normalized adjusted EBITDA of $177 4 million.
As I stated earlier, our first half is a heavier use of cash and we would expect progress on our net leverage reduction in the back half of the fiscal year.
Now turning to our full year outlook for fiscal 2023.
Today, we reaffirmed our net sales growth outlook.
And increased our adjusted EBITDA growth outlook.
As we consider our first half performance and look ahead to the remainder of the year.
Our outlook is unchanged for total net sales growth of 3% to 5%.
And organic net sales growth of 4% to 6%.
Our shift to independent operators is expected to impact our total net sales growth by approximately 1%.
And price is expected to be the largest contributor to growth.
With volume mix consistent with last year, assuming a 3% impact to growth from our SKU rationalization actions.
Okay.
From a profitability perspective, we continue to expect to deliver gross margin expansion in 2023.
Though less than our previous expectations, given the transitory impacts in the second quarter.
Higher potato sourcing costs were offset by favorability in the outbound freight rates.
Which is recorded in SG&A expense.
While this shift P&L geography for inflation.
Our total gross input cost inflation outlook of high single digits is unchanged.
Putting it altogether, we continue to expect adjusted EBITDA margin expansion this year.
But the majority of it will now come from SG&A expense leverage.
And given stronger than expected SG&A expense leverage and better productivity benefits in our delivery costs, we are raising our adjusted EBITDA growth outlook from 7% to 10% to 8% to 11%.
Okay.
Moving down the P&L, we continue to expect our full year 2023, adjusted effective tax rate.
To be approximately 20% to 22%.
And interest expense of approximately 55 million and capital investments of between 50% to $55 million, primarily to support manufacturing capacity expansion.
Finally.
We expect stronger free cash flow generation in the second half of the year from higher profits.
Seasonality and our working capital initiatives.
Our capital priorities remain consistent and we expect to reduce leverage in fiscal 2023 by half a turn and end the year below four five times normalized adjusted EBITDA.
In closing.
We are confident in delivering another year of strong operating performance in 2023.
With continued topline momentum.
Optimization of our cost structure.
And expansion in margins, while we invest in our capabilities.
And now operator, we would like to open the call for questions.
Yeah.
The floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad. If at any point you would like to withdraw from the queue. Please press star one again, we will now take a moment to compile a roster.
Yes.
Yeah.
Our first question comes from the line of Andrew Lazar from Barclays. Please go ahead.
Great. Thanks, Good morning, Howard and a J good morning, Andrew.
First off you mentioned that Youre still looking for.
<unk> volumes on a year over year basis for the full year and.
And then I guess, just would suggest a pivot to a year over year volume growth in the back half I just want to make sure I have that right and if so what are the key drivers I guess to delivering volume growth in the second half.
And I guess, what gives you that confidence also in light of a little bit of I guess, the broader food industry malaise when it comes to sort of volume recovery.
Hey, Andrew Howard I appreciate the question.
First of all I would I would.
Point out that one of the nice things that we've been seeing across our second quarter is a sequential improvement in our volumes overall, which is largely what we had expected as.
As we were building through the quarter I think if you turn to the back half there are a couple of areas, where I think that gives us confidence first are drags actually become less impactful, we're seeing that in the second quarter and we will see that continue drags likes our SKU rationalization gets less of a of a net taker on our trend as we go into <unk>.
Q3, and Q4, we are seeing some of our.
Brands like Golden Flake that are actually the trends are improving and we're seeing better momentum both in our mass channel, which we talked a lot about last year as being a challenge.
And our club business also as we move through some of our prior year laps.
Second we are.
Experiencing incremental distribution gains specifically in mass and grocery.
We kind of started in may of this year and we're starting to see the benefits of those.
<unk> drives.
Third is one of the areas that we're continuing to work on is the multi pack variety pack segment of the category, which as a port a piece where the consumer interest is high as is the retailer opportunity. We've improved our packaging structure, we've added incremental assortment and we've got our price points in a place where we would've expected them to remain competitive with <unk>.
Of the year and then the last thing is incremental sales activity, but also where I'll start to step up our marketing investment.
Earlier in our in our journey together that are being thoughtful about how we start to increase marketing year on year.
Really starts to step up as we build confidence in our both our capability.
To actually deliver the message, but also the partnerships with some of our customers. So all of those things together I think roll up to a positive back half volume trend.
Great and then.
Can you talk a bit about what youre seeing in I guess in the competitive environment in salty snacks at the moment I guess some players have finally sort of solved some of their own capacity constraints from a year ago, and maybe we're back to more normal levels of sort of merchandising and in market activity. So I'm, just trying to get a sense for that and sort of where your merchandising levels stand currently and where do you think.
Either need to be if thats different from where they are sort of right now.
Yes.
I'd say overall really not a lot of surprises one of the great things about our category. Obviously is the consumer's resilience the customer likes to sell it and our competitors are all typically very rational even as they have cycled back into better supply chains. So.
Our perspective, it's largely what we would've expected to see Youre right. The year on year. It is the promotional environment higher.
But I would just point to if you went back to 2019 overall promotional activity in terms of both frequency and depth, so how often and how inexpensive and how deep do legal on pricing, we're still as a category well below those levels as we return both currently and we would expect into the future obviously.
The biggest issue for us will always be around maintaining our price gaps, where we expect them to be.
Across all of our <unk> and as of right now, we only make adjustments if we need to but right now we feel pretty comfortable with where we are.
Thanks, so much thank you.
Our next question comes from the line of <unk> <unk> per week from Oppenheimer. Please go ahead.
Good morning, and thanks for taking my question. So I just wanted to dive deeper into gross margins. So just wanted to get a sense of your confidence in the second half gross margin expansion and if theres anything to think about from a cadence perspective between Q3 and Q4.
Hey, Robert I'll take that this is a J.
So really second half gross margins, if you look at second quarter.
What we're expecting is headwinds of second quarter, which were temporary in nature are behind us and the tailwind we experienced in the second quarter will get stronger into the second half.
To elaborate on that.
We experienced.
Some some crop issues and our demand went up for Boulder Canyon out west and we ship potatoes from the Midwest. So that was temporary we are into the new crop in the second half. So that's behind us and we talked about in our prepared remarks about bermingham plant closure, a little sooner than we.
<unk> as well so all of that is behind us from a headwind standpoint, and then from a tailwind standpoint, our volumes are trending up.
And we show those trends and you can see that in the retail data and our margin.
Margin mix is improving as we work through SKU rationalization program, that's been coming through it's going to continue into the second half and our productivity program has really ramped up we are close to 4% of Cogs.
As a new baseline and our actions around network optimization in sourcing of production from coal manufacturers, where we have capacity all of those things are driving cost out in our plans and our logistics network.
And finally as these volumes ramp up plans.
Seeing better leverage on fixed costs as well so all of that will continue and actually step up we will continue to make investments in the business. We did so in the second quarter, we will do some investments in the second half as well, but these positive drivers.
And the lack of negatives gives me a lot of confidence we will we will step up margins.
Thank you and then maybe one follow up question. So one of your competitors called out some chunked some channel shifting out there just curious if youre seeing consumer shift to dollar or anything else of note during the quarter.
Hey, Ross, it's Howard I'll take that.
Look I think we remain very fortunate in our category to consumers overall price outlay for the products that they buy from us tends to be relatively small so we're an affordable indulgence that said.
One of the things we always see in this cycle as consumers will start to value shop. So for some consumers thats, an absolute price point and they may go to more <unk>.
<unk>, a trade and in some cases, they're looking for.
The lowest price based on volume and now move up the price ladder. So youll see we do see consumers doing a little bit more shopping and spending a little bit more time in on both ends of the price ladder.
Which again not terribly surprising in any given market and I'd call it relatively normal.
Our assortment meets all of the demands from the consumer and we feel pretty good that we will we will continue to have the offerings that they're going to find wherever they shop.
Great. Thank you thank.
Thank you. Thank you.
Our next question comes from the line of Michael Lavery from Piper Sandler. Please go ahead.
Thank you and good morning.
Hey, Mike.
So Howard you're around nine months and came in with good momentum. So there wasn't a broken business to fix but as you have settled in now.
What if any changes do you see as appropriate.
Maybe specifically any shifts in marketing approach as well.
Thanks for the question, Mike So, yes, and I think I am probably the most grateful that the business was on a good footing when I got here and.
It remains so today.
Look I think there are a couple of areas that I continue to look at and observe and believe that we can accelerate on the foundation that was established in the previous.
It's basically century of growth.
First is increasing our marketing spending thought Hawaii and that is largely from where I sit building brands, both in where consumers want to shop, whether it be retail media or where they want to receive the message, which was primarily more in digital and performance based.
So we will start to increase in those two domains over time.
The second the second thing is in order to do that you need to really understand your consumer you need to understand the analytics rationale of what theyre doing and making sure where youre doing is working and probably the biggest change that ive made it was the introduction of Gen <unk> to the company in innovation insights and analytics. She brings a tremendous amount of capability.
In building those building that perspective for this company. So that we can continue to invest.
Where we want to be and then the third area is I think that we are getting to the point where.
As we think about expansion as we think about the role we play with consumers. We have businesses that consumers are very excited about <unk>, and Boulder Canyon, and us and making sure that those businesses get the appropriate level of attention. While we manage the rest of our portfolio over time it'd be remiss to not mentioned Boulder canyon as well by making.
Sure that were driving our drivers and and being thoughtful about where we focus our time and energy I think those are the big themes I would offer.
That's great.
The marketing spend especially.
Segways perfectly into the other question I had on.
It's just the cost savings opportunity I think.
Mentioned in the past.
There was even a little bit more of an opportunity than you might've first imagined.
<unk> got the accelerating productivity over the last few years and now this.
Near 4% of Cogs run rate in 2023.
Is there even be more upside to that is that kind of the right baseline to think about.
An ordinary year, maybe what's ahead in terms of productivity can step up any further to help fund some of the marketing initiatives as well.
Yes, I'll take that this is Jay So you are correct I think we are.
Very pleased that our productivity program has stepped up and it's running at about 4% of Cogs right now I think thats, a new baseline for at least a few more quarters definitely for 2024 and 4%.
It should generate higher dollars and in the next year.
What gives us.
Comfort that this program is going to stay elevated is.
The type of opportunity that we are seeing in several areas. So you've seen us do some network optimization work in sourcing.
There is more to do their procurement is an area, which we are just starting to explore a huge opportunity for us and we're doing some more work in that area. The team has built out the capabilities now there.
<unk>.
Getting started with the work stream itself and.
And logistics plant.
The opportunities within the boxes.
And within that network that will continue so.
Huge huge amount of work going on in that area lots of cost out opportunities.
I will shamelessly plugged.
<unk> will talk a lot more about it on December 15th when we meet what our Investor day. So.
More to motor discussing that.
Okay, great. Thanks, so much.
Our next question comes from the line of Peter Galbo from Bank of America. Please go ahead.
Hey, good morning, guys.
Good morning.
Jay maybe just a quick clarification.
Talked about improving free cash flow in the back half, but did you give an actual updated.
Target on free cash flow for the year.
We did not.
Still at the same target I think we expect about $50 million okay.
Okay Cool cool.
And then Howard just kind of going back to Andrew's question around maybe less so around branded competitors.
But more so focused on potato chips, we've seen a pretty meaningful uptick in the private label penetration on on potato chips in particular.
Yeah.
Understanding that you have volume growth baked in just how are you thinking about that dynamic again, it's off of a low base, but.
It has been a notable uptick here over the past couple of quarters. So just the interplay youre seeing between.
Branded and private label, maybe in that sub category.
Yes. So I appreciate the question look I think it's very normal.
In this environment that we start to see private label come.
Come back into the conversation they play out they play an important role.
For retailers.
We are fortunate that there is still only about 5% of the overall category. So a relatively.
Lower base to build off of but again not terribly surprised to see them perform to be in the market I think for us it actually highlights the need for us to continue to do brand building and innovation when we launched something like a Microsoft Honey there isn't an obvious corresponding.
Competitive items that youre competing on value as opposed to price and so that's where I think we tends to stand out I feel good about where our potato chip portfolio is overall.
<unk> is doing has been continues to perform we obviously had a very heavy lapped to do versus prior year in our core.
But overall, we continue to be.
To be pretty comfortable with where we are and I think ultimately are.
Our path to success in that sub cat and all of the others is brand building driving consumer demand and value.
Beyond just price.
Great. Thanks, very much guys. Thank you.
Our next question comes from Jim <unk> from Stephens, Inc. Please go ahead.
Hi, guys. Thanks for taking my questions, Hey, Jeff if I look at the.
Geographic distribution it looks like power brands did particularly well across your expansion geography.
Would it take to lift our performance in the core markets. So that we see that kind of more in line with expansion.
Yeah, Jim I appreciate the question, it's a conversation.
That we continue to have to make sure that we are growing our core we're holding in our core and then obviously <unk>.
Expansion via our net.
Growth driver for market share and so when the core does not perform quite the way we would have expected it to.
It's an area that we spend quite a bit of time I'd offer you a couple of things first part of the part of the challenges we've had in the core and more recently are really around our foundation brands versus our power brands and so as those brands.
Fulfill their role in the portfolio.
We obviously have a little bit of a drag there that it can become a little bit more challenging and those are things like we've got to get Golden flake.
Right footed, we're seeing good progress in the activities that we have but as golden flake trends improve that should naturally start to help the core more.
More importantly, the core is the place where our marketing and innovation should be the most impactful because we're not introducing the brand and we're not trying to build brand awareness, we're trying to drive ultimate ultimately interest in consumption. So as we continue to invest in the brands, we would expect that our core wood.
Our power brands would naturally lift even more than they even within our expansion geographies second is our hybrid DSD Tw model. We are continuing to work with those two businesses together and we are very happy with how that has been unfolding, but bringing doing more collaboration between those two.
Pieces of our route to market I think will also help and then the last thing ultimately for US is as we do start to lap SKU rationalization and some other things we do have greater time and energy to focus to make sure that our power brands fulfill their role while our foundation brands fulfill theirs.
Great. That's helpful. And then maybe to follow up on that you guys talked about Mike and.
And I know.
Zaps flavor and principals as well had been very well received can you just talk about the.
One way for innovation.
Using those to kind of help springboard the portfolio.
Whether it's new distribution wins or or helping propel.
Propel the core market with those edited Skus.
Yeah, So look on <unk>.
Happy with what Mike said, Honey and <unk> both have in common it has been being having on trend flavors and being trend right. Spicy is a an area of the category at the moment that is growing quite quickly.
And I think for US an area, where I think we can do we can continue to innovate finding on trend flavors partnering with them. We know we make a great tasting chip and we know consumers like the product, we deliver and so driving some interest there is one.
Placing our innovation strategy that I think youll see more of us more from us as we go forward.
Second is.
To be honest I think at times, we need to be a little bit more focused on some of the innovation that we do and really putting our shoulder into a couple of bigger ideas and that I think is a good example of what made mikes Hot successful we had better points of disruption we had better display activity, we had better execution and we were therefore able to support it with mark.
Getting and that Formula It works for us. So we will continue to drive more of that as we go forward and then ultimately rotating those items into our permanent assortment should be a place where if we have an item. We're excited about it the consumer loves it making sure that it stays in our fleet of Skus to be able.
Keep consumer interest and repeat is an area, where we also I think are going to get better at and I think Mike is a good example of we started out put our toe in the water on trend flavor worked really really well incremental for us in the consumer.
And so now we're going to bring it in and we're going to we're going to continue to offer it every day.
Great. Thanks, guys I'll hop back in queue. Thank you.
Yes.
Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Yeah.