Q2 2024 Lancaster Colony Corp Earnings Call

February 1, 2024

Okay.

Operator: Good morning. My name is Phoebe, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2024 second quarter conference call. Conducting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise.

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

Jamie: At this time I would like to welcome everyone to the Lancaster Colony Corporation fiscal year, 'twenty 'twenty four second quarter conference call.

Jamie: Conducting today's call will be a day for since key president and CEO and Tom Pigott CFO.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Operator: After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your question, press star 11 again. Thank you. And now, to begin the conference call: Here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 second quarter conference call. Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. [inaudible] A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Speaker Change: After the speakers have completed their prepared remarks, there will be a question and answer period.

Speaker Change: If you would like to ask a question. During this time simply press star one one on your telephone keypad.

Speaker Change: If you would like to withdraw your question Press Star one one again thank you.

Speaker Change: And now to begin the conference call.

Speaker Change: Here is Dale can upset vice president of corporate Finance and Investor Relations for Lancaster Colony Corporation.

Speaker Change: Okay.

Dale Canfield: Good morning, everyone and thank you for joining us today for Lancaster colony's fiscal year 2024 second quarter conference call.

Our discussion. This morning May include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

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

Dale Canfield: Discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Dale N. Ganobsik: Also note that the audio replay of this call will be archived and available at our company's website, LancasterColony.com, later this afternoon. On today's call, Dave Ciesinski, our president and CEO, will begin with a business update and highlights for the quarter. They will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Dale Canfield: Also note that the audio replay of this call will be archived and available at our company's website like us for college Dot Com later this afternoon.

Dale Canfield: For today's call, Dave <unk>, our president and CEO will begin with a business update and highlights for the quarter.

Dale Canfield: Tom Pigott, our CFO will then provide an overview of the financial results.

Thomas K. Pigott: Dave will then share some comments regarding our current strategy and outlook.

Thomas K. Pigott: At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

David A. Ciesinski: Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski.

Thomas K. Pigott: Once again, we appreciate your participation. This morning, I'll now turn the call over to Lancaster, colony's President and CEO, Dave Demski, Dave.

David A. Ciesinski: Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024. In our fiscal second quarter, which ended December 31st, we are pleased to report record financial results, as consolidated net sales increased 1.8% to $485.9 million, and gross profit grew 19% to $121.5 million.

Dave Demski: Thanks, Dale and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024.

Dave Demski: Our fiscal second quarter, which ended December 31, we are pleased to report record financial results as consolidated net sales increased one 8% to $485 9 million gross profit grew 19% to $121 5 million and operating income increased 28 one.

David A. Ciesinski: And operating income increased 28.1% to $65.8 million. I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster Colony that enabled us to deliver these strong results. In our retail segment, net sales growth of 2% was driven by carryover pricing, volume gains for our successful licensing program, continued strong performance for our New York bakery frozen garlic bread, and increased demand for our Reims frozen eggnog. However, retail segment sales volume measured in pound shifts declined 1.9%, excluding the impact of a product downweighting initiative and a reduced commitment to private label bread.

Dave Demski: 1% to $65 8 million.

Speaker Change: I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster colony that enabled us to deliver these strong results.

In our retail segment net sales growth of 2% was driven by carryover pricing.

Speaker Change: <unk> gains for our successful licensing program.

Speaker Change: <unk> strong performance for our New York bakery frozen garlic bread and increased demand for our <unk> frozen egg noodles.

Speaker Change: Retail segment sales volume measured in pounds shipped declined one 9% <unk>.

Speaker Change: Excluding the impact of our product down weighting initiative and our reduced commitment to private label bread retail sales volume increased one 2%.

David A. Ciesinski: Retail sales volume increased 1.2%. Specific to our licensed product, retail scanner data for the quarter showed Chick-fil-A sauces up 6% to $38.7 million and Olive Garden dressings up 2.1% to $34.4 million. Buffalo Wild Wing sauces were about flat at $19.3 million, which compares to a strong quarter last year when sales increased over 26 percent.

Speaker Change: Specific to our licensed product retail scanner data for the quarter showed chipotle sources up 6% to $38 7 million and olive garden dressing up two 1% to $34 4 million.

Speaker Change: Hello, Wild wings sauces were about flat at $19 3 million, which compares to a strong quarter last year when sales increased over 26%.

David A. Ciesinski: Our category-leading New York bakery frozen garlic bread saw sales growth of 4% to $88.7 million for a share of $43.1, and sales of our Ream's frozen egg noodles increased 17.9% to $16.5 million to capture a 70.3 share of the frozen pasta noodle category. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are also performing well, with scanner data showing $9.4 million in sales during the quarter. When combined with the sales of our Marzetti brand dressings, our refrigerated dressing sales have grown to represent a category-leading 27.7 percent. In the food service segment, sales growth of 1.5% was led higher by demand from several of our national chain restaurant accounts, along with volume growth for our branded food service product. Food service sales volume measured in pounds shipped increased 4.6%. During the period, food service segment net sales were adversely impacted by pass-through price decreases, which resulted from commodity deflation.

Speaker Change: Our category, leading New York bakery frozen garlic bread saw sales growth of 4% to $88 7 million for a share of $43 one.

Operator: Good morning. My name is Dee, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2024 second quarter conference call. Conducting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise.

Sales of our reames frozen egg noodles increased 17, 9% to $16 5 million to capture a 73 share of the frozen pasta neutral category.

Speaker Change: I'm also happy to report that chip fillet refrigerated salad dressings, which we launched nationally last may are also performing well with scanner data showing $9 4 million in sales during the quarter.

Speaker Change: When combined with the sales of our <unk> brand dressings, our refrigerated dressing sales have grown to represent a category leading 27, 7%.

Operator: After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your question, press star 11 again. Thank you. And now, to begin the conference call: Here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 second quarter conference call. Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Speaker Change: In the foodservice segment sales growth of one 5% was led higher by demand from several of our national chain restaurant accounts, along with volume growth for our branded foodservice products.

Speaker Change: Foodservice sales volume measured in pounds shipped increased four 6%.

Speaker Change: During the period Foodservice segment net sales were adversely impacted by pass through price decreases which resulted from commodity deflation.

Thomas K. Pigott: During Q2, we were pleased to deliver a gross profit of $121.5 million and a gross margin of 25%, an increase of 360 basis points versus last year. This increase was driven by favorability in our pricing net of commodities or PNOC following two years of unprecedented inflation, along with the beneficial impacts of our cost savings initiative. Our focus on supply chain productivity, value engineering, and revenue management remains core elements to further improve our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our second quarter results. Tom?

Speaker Change: During Q2, we were pleased to deliver a gross profit of $121 5 million and a gross margin of 25%.

Speaker Change: An increase of 360 basis points versus last year.

Speaker Change: This increase was driven by favorability in our pricing net of commodities. Our Penang following two years of unprecedented inflation, along with the beneficial impacts of our cost savings initiatives.

Speaker Change: Our focus on supply chain productivity value engineering and revenue management remain core elements to further improve our financial performance.

Dale N. Ganobsik: Also note that the audio replay of this call will be archived and available on our company's website, LancasterQuality.com, later this afternoon. On today's call, Dave Ciesinski, our president and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. He will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

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

Thomas K. Pigott: Thanks, Dave. This quarter featured continued top-line growth, improved gross margin performance, and higher operating income. [inaudible] Second quarter consolidated net sales increased by 1.8% to $485.9 million. Decomposing the Revenue Performance Approximately 1.5 percentage points was driven by volume mix, and the remainder was driven by price. Pricing was favorable in the retail segment, but deflationary in the food service segment due to lower commodity prices. Consolidated gross profit increased by $19.4 million, or 19% versus the prior year quarter, to reach $121.5 million.

Thomas K. Pigott: Thanks, Dave This quarter featured continued top line growth improved gross margin performance and higher operating income.

Thomas K. Pigott: The gross profit and operating income results exceeded our expectations and set a second quarter record for the company.

Thomas K. Pigott: Second quarter consolidated net sales increased by one 8% to $485 $9 million.

Dale N. Ganobsik: Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski.

Thomas K. Pigott: Decomposing the revenue performance approximately one five percentage points was driven by volume mix and the remainder was driven by pricing.

David A. Ciesinski: Thanks, Dale. And good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024. In our fiscal second quarter, which ended December 31st, we are pleased to report record financial results, as consolidated net sales increased 1.8% to $485.9 million, and gross profit grew 19% to $121.5 million.

Thomas K. Pigott: Pricing was favorable in the retail segment.

Thomas K. Pigott: But deflationary in the foodservice segment due to lower commodity prices.

Thomas K. Pigott: Consolidated gross profit increased by $19 4 million or 19% versus the prior year quarter to $121 $5 million.

Thomas K. Pigott: Gross margins expanded by 360 basis points to 25%.

Thomas K. Pigott: Gross margins expanded by 360 basis points to 25%. Gross profit growth was primarily driven by favorable PNOT performance and the company's cost-saving initiatives. Commodity costs were deflationary versus a prior year, but remained elevated versus historical levels. Selling general and administrative expenses increased 9.7%, or $4.9 million. The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs. Consumer spending increased versus a low comparative period to support the retail segment growth initiative. However, reduced expenditures for Project Ascent, our ERP initiative, partially offset these increases. Costs related to the project continue to wind down, totaling $2 million in the current year quarter versus $7.5 million in the prior year quarter. Consolidated operating income increased $14.4 million, or 28.1%, due to gross profit improvement partially offset by the higher SG&A expenses I mentioned.

David A. Ciesinski: And operating income increased 28.1% to $65.8 million. I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster Colony that enabled us to deliver these strong results. In our retail segment, net sales growth of 2% was driven by carryover pricing, volume gains for our successful licensing program, continued strong performance for our New York Bakery frozen garlic bread, and increased demand for our Reims frozen eggnog. However, retail segment sales volume measured in pound shifts declined 1.9 percent, excluding the impact of a product downweighting initiative and a reduced commitment to private label bread.

The gross profit growth was primarily driven by favorable <unk> performance and the company's cost saving initiatives.

Thomas K. Pigott: Commodity costs were deflationary versus the prior year, but remained elevated versus historical levels.

Thomas K. Pigott: Selling general and administrative expenses increased nine 7% or $4 9 million.

Thomas K. Pigott: The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs.

Thomas K. Pigott: Consumer spending increased versus a low comparative period to support retail segment growth initiatives.

Thomas K. Pigott: Reduced expenditures for project ascent, our ERP initiative, partially offset these increases.

David A. Ciesinski: Retail sales volume increased 1.2%. Specific to our licensed product, retail scanner data for the quarter showed Chick-fil-A sauces up 6% to $38.7 million, and Olive Garden dressings up 2.1% to $34.4 million. Buffalo Wild Wing sauces were about flat at $19.3 million, which compares to a strong quarter last year when sales increased over 26%.

Thomas K. Pigott: Costs related to the project continued to wind down totaling $2 million in the current year quarter versus $7 5 million in the prior year quarter.

Consolidated operating income increased $14 4 million or 28, 1% due to the gross profit improvement, partially offset by the higher SG&A expenses I mentioned.

Thomas K. Pigott: Our tax rate for the quarter was 23, 4%, we estimate our tax rate for the remainder of fiscal 2004 to be 23%.

David A. Ciesinski: Our category-leading New York bakery frozen garlic bread saw sales growth of 4% to $88.7 million for a share of $43.1. Sales of our Reams frozen egg noodles increased 17.9% to $16.5 million to capture a 70.3 share of the frozen pasta noodle category. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are also performing well, with scanner data showing $9.4 million in sales during the quarter. When combined with the sales of our Marzetti brand dressings, our refrigerated dressing sales have grown to represent a category-leading 27.7%. In the food service segment, sales growth of 1.5% was led higher by demand from several of our national chain restaurant accounts, along with volume growth for our branded food service products. Food service sales volume measured in pound shift increased 4.6%. During the period, food service segment net sales were adversely impacted by pass-through price decreases, which resulted from commodity deflation.

Thomas K. Pigott: Second quarter diluted earnings per share increased 42, or 29% to $1 87.

Thomas K. Pigott: The net impact of the reduction in project ascent expenses was favorable by <unk> 15 versus the prior year.

Thomas K. Pigott: With regard to capital expenditures, our year to date payments for property additions totaled $37 $1 million.

For fiscal 2004, our forecasted total capital expenditures remain at $70 million to $80 million.

Thomas K. Pigott: Our tax rate for the quarter was 23.4%. We estimate our tax rate for the remainder of fiscal 24 to be 23%. Second quarter diluted earnings per share increased 42 cents, or 29%, to $1.87. The net impact of the reduction in project assent expenses was favorable by 15 cents versus the prior year. With regard to capital expenditures, our year-to-date payments for property additions totaled $37.1 million.

The forecast reflects a decline versus the prior year spending with the horse cave expansion project now substantially complete.

Thomas K. Pigott: In addition to investing in our business. We also returned funds to shareholders. Our quarterly cash dividend of <unk> 90 per share paid on December 29th represented a 6% increase from the prior year's amount.

Thomas K. Pigott: Our enduring streak of annual dividend increases stands at 61 years.

Thomas K. Pigott: Net cash provided by operating activities for the second quarter was a robust $105 $9 million driven by the higher net income and reduced working capital.

Thomas K. Pigott: Our financial position remains strong with a debt free balance sheet and $133 $8 million in cash.

Thomas K. Pigott: [inaudible] The forecast reflects a decline versus a prior year's spending, with the Horse Cave Expansion Project now substantially complete. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.90 per share paid on December 29th represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 61 years. Net cash provided by operating activities for the second quarter was a robust $105.9 million, driven by higher net income and reduced working capital.

Thomas K. Pigott: So to wrap up my commentary on our second quarter results reflected continued topline increases record gross profit and operating income performance and investments to support further growth.

David A. Ciesinski: During Q2, we were pleased to deliver a gross profit of $121.5 million and a gross margin of 25%, an increase of 360 basis points versus last year. This increase was driven by favorability in our pricing net of commodities, or PNOC, following two years of unprecedented inflation, along with the beneficial impacts of our cost-savings initiative. Our focus on supply chain productivity, value engineering, and revenue management remains core elements to further improve our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our second quarter results. Thanks, Dave.

Thomas K. Pigott: I will now turn it back over to Dave for his closing remarks. Thank you.

Dave Demski: Thanks, Tom as we look ahead Lancaster colony will continue to leverage the combined strength of our team.

Dave Demski: Our operating strategy and our balance sheet in support of the three simple pillars of our growth plan.

One accelerate core business growth to number two simplify our supply chain to reduce our cost and grow our margins and number three to expand our core with focused M&A and strategic licensing.

Looking ahead to our fiscal third quarter, we project retail sales will continue to benefit from our expanding licensing program that will include contributions from the launch of Texas Roadhouse stake sources.

David A. Ciesinski: Our financial position remains strong with a debt-free balance sheet and $133.8 million in cash. So, to wrap up my commentary, our second quarter results reflected continued top-line increases, record gross profit and operating income performance, and investments to support further growth. I will now turn it back over to Dave for his closing remarks. Thank you.

Dave Demski: I am also excited to share that we have added subway as a new partner to our retail licensing program with an initial offering of four different subway sandwich sauces, including their most popular sweet onion teriyaki.

Dave Demski: Both Texas Roadhouse stake sauces, and subway sandwich sauces will begin shipping to retailers later this month.

Thomas K. Pigott: This quarter featured continued top-line growth, improved gross margin performance, and higher operating income. The gross profit and operating income results exceeded our expectations and set a second quarter record for the company. Second quarter consolidated net sales increased by 1.8% to $485.9 million.

Dave Demski: In the Foodservice segment, we expect sustained volume growth from select quick service restaurant customers.

Dave Demski: <unk> pricing is expected to remain a headwind for foodservice segment net sales in the coming quarter.

Dave Demski: With respect to our gross profit we anticipate some continued favorability in our peanut butter.

Dave Demski: But a sequentially lower level compared to our fiscal second quarter.

Dave Demski: With respect to our ERP initiative project ascent following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth.

David A. Ciesinski: As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan: number one, accelerate core business growth; number two, simplify our supply chain to reduce our cost and grow our margin; and number three, expand our core with focused M&A and strategic licensing. Looking ahead to our fiscal third quarter, we project retail sales will continue to benefit from our expanding licensing program that will include contributions from the launch of Texas Roadhouse Stakes Off. I am also excited to share that we have added Subway as a new partner to our retail licensing program with an initial offering of four different Subway sandwich sauces, including their most popular sweet onion teriyaki. Both Texas Roadhouse Steak Sauces and Subway Sandwich Sauces will begin shipping to retailers later this month.

Thomas K. Pigott: Decomposing the revenue performance. Approximately 1.5 percentage points was driven by volume mix, and the remainder was driven by price; pricing was favorable in the retail segment, but deflationary in the food service segment due to lower commodity prices. Consolidated gross profit increased by $19.4 million, or 19% versus the prior year quarter to $121.5 million.

Finally, as we announced in December we had a change in our board of directors effective January 1st of this year with the appointment of Alan Harris, as our chairman, replacing Jay Gerlach.

Dave Demski: Alan has served as a director on the Lancaster Colony Board since 2008 and was appointed lead independent director in 2018.

Jay Gerlach: Jay is stepping down from his role as executive Chairman He will remain actively engaged as director.

Speaker Change: I would like to extend my deepest gratitude to Jay for his leadership and many years of dedication to Lancaster colony, both as an executive and as the chair of our board.

Thomas K. Pigott: Gross margins expanded by 360 basis points to 25%. Gross profit growth was primarily driven by favorable peanut performance and the company's cost saving initiative. Commodity costs were deflationary versus a prior year, but remained elevated versus historical levels. Selling general and administrative expenses increased 9.7% or $4.9 million.

Speaker Change: Jay was appointed to Lancaster colony's board of directors of $19 85, and it's the corporation's longest serving director.

Speaker Change: I'd also like to congratulate Alan on his new appointment.

Speaker Change: Both Jay and Allen bring extensive leadership experience and strategic oversight to our board, which will continue to benefit our company and our shareholders going forward.

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

David A. Ciesinski: In the food service segment, we expect sustained volume growth from select quick service restaurant customers. However, deflationary pricing is expected to remain a headwind for food service segment net sales in the coming quarter. With respect to our gross profit, we anticipate some continued favorability in our PNOPs, but at a sequentially lower level compared to our fiscal second quarter. With respect to our ERP Initiative, Project Ascent, following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. Finally, as we announced in December, we had a change in our board of directors effective January 1st of this year with the appointment of Alan Harris as our chairman, replacing Jay Gerlach.

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press star one one on your telephone keypad.

Thomas K. Pigott: The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs. Consumer spending increased versus a low comparative period to support the retail segment growth initiative. Reduced expenditures for Project Ascent, our ERP initiative, partially offset these increases. Costs related to the project continued to wind down, totaling $2 million in the current year quarter versus $7.5 million in the prior year quarter. Consolidated operating income increased $14.4 million, or 28.1%, due to gross profit improvement partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.4%. We estimate our tax rate for the remainder of fiscal 24 to be 23%. Second quarter diluted earnings per share increased 42 cents, or 29%, to $1.87. The net impact of the reduction in project assent expenses was favorable by 15 cents versus the prior year. With regard to capital expenditures, our year-to-date payments for property additions totaled $37.1 million.

One moment.

Speaker Change: Your first question comes from Jim <unk> of Stephens.

Jim: Hi, Good morning, guys congrats on the nice quarter.

Jim: Thanks, Jim.

Jim: Yes, I wanted to start with the <unk>.

Jim: Generic headwind on foodservice.

Jim: Back in it's like a 300 basis point headwind in the quarter. If we think about the back half of the year.

Speaker Change: Is that 300 basis point number a good kind of sticking point to think about or is it going to increase decrease as we progress through the year.

Thomas K. Pigott: Hey, Jeremy it's Tom.

Thomas K. Pigott: We expect it to increase a little bit we're in the three to 400 basis points for the back half on foodservice deflationary.

Tom Pigott: Okay.

Tom Pigott: Is that and maybe just Jim just a reminder, on that just as the way. It went up when it goes down it's a mark to market pass through so it's sort of a no no harm event on gross profit that also drives modest margin accretion as we've asked you about in the past it's just.

David A. Ciesinski: Allen has served as a director on the Lancaster Colony Board since 2008 and was appointed Lead Independent Director in 2018. While Jay is stepping down from his role as Executive Chairman, he will remain actively engaged as a director. I would like to extend my deepest gratitude to Jay for his leadership and many years of dedication to Lancaster Colony, both as an executive and as the chair of our board. Jay was appointed to Lancaster Colony's Board of Directors in 1985 and is the corporation's longest-serving director.

Tom Pigott: One of the nuances of that business in our portfolio.

Right Great Yes, that's.

Speaker Change: That's helpful context.

Speaker Change: So that's broad based across the portfolio. It's not just like a few key accounts that just kind of the whole foodservice.

Speaker Change: No, it's really driven by a basket of commodity soybean oil first among them.

Speaker Change: On that part of the business.

Speaker Change: Okay great.

Thomas K. Pigott: For fiscal 24, our forecasted total capital expenditures remain at 70 to $80 million. The forecast reflects a decline versus the prior year's spending with the Horse Cave expansion project now substantially complete. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.90 per share paid on December 29th represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 61 years. Net cash provided by operating activities for the second quarter was a robust $105.9 million, driven by higher net income and reduced working capital.

Speaker Change: Maybe one other question you guys got a nice lift from <unk> in the quarter obviously.

Speaker Change: Think about it stepping sequentially down.

Speaker Change: We think about back half gross margins.

Speaker Change: Should it be somewhere between kind of <unk> level or do we expect it to step down below what <unk> was I think was like 23.

Speaker Change: <unk> first quarter.

Speaker Change: So yes, so Jim.

Jim: I'll answer your question kind of as a versus prior year. So if you look at the first half we were up.

Speaker Change: 200 basis points versus the prior year on gross margins as we look at the back half.

Speaker Change: We expect it to moderate or more in the 150 to 200, but this is this is very much dependent on the commodity basket and how things play through.

James Ronald Salera: Thanks, Jim. Yeah, I wanted to start with the inflationary headwind on food service. I think if we back in, it's like a 300 basis point headwind in the quarter. If we think about the back half of the year, is that 300 basis point number a good one to think about, or is it going to increase or decrease as we progress through the year? Hey, Jim. Yeah, it's Tom.

Speaker Change: From from.

Speaker Change: A tailwind perspective, we are seeing some commodity deflation in our forecast and we're seeing some nice supply chain.

Productivity.

Speaker Change: Results and those are baked into our outlook in the back half.

David A. Ciesinski: Our financial position remains strong with a debt-free balance sheet and $133.8 million in cash. So to wrap up my commentary, our second quarter results reflected continued top line increases, record gross profit and operating income performance, and investments to support further growth. I will now turn it back over to Dave for his closing remarks. Thank you.

Speaker Change: Okay, great. Thanks, guys I'll pass it on.

Speaker Change: Thanks, Tim.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Your next question comes from Alton Stump of loop capital.

Thomas K. Pigott: We expected it to increase a little bit. We're in the 300 to 400 basis point range for the back half on food service deflationary. Okay, and is that maybe just Jim, just a reminder on that, that just as the way it went up, when it goes down, it's a mark to market pass through. So it's sort of a no-harm event on gross profit. That also drives modest margin accretion, as we've talked to you about in the past; it's just one of the nuances of that business in our portfolio. Right, great. Yeah, that's a helpful context. So that's broad-based across the portfolio. It's not just like a few key accounts; it's kind of the whole food service.

Alton Stump: Great. Thank you good morning.

I would also echo your comments Dave.

Alton Stump: Jay had been done here for almost 20 years, great to hear that.

Alton Stump: Sticking his next step it will still be involved with the company and also congrats on a quarter of course as well.

David A. Ciesinski: As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan: number one, accelerate core business growth; number two, simplify our supply chain to reduce our cost and grow our margin; and number three, to expand our core with focused M&A and strategic licensing. Looking ahead to our fiscal third quarter, we project retail sales will continue to benefit from our expanding licensing program, which will include contributions from the launch of Texas Roadhouse Stakes Off. I am also excited to share that we have added Subway as a new partner to our retail licensing program with an initial offering of four different Subway sandwich sauces, including their most popular sweet onion teriyaki. Both Texas Roadhouse Steak Sauces and Subway Sandwich Sauces will begin shipping to retailers later this month.

Speaker Change: Thank you. Thank you for that regards answer Jay.

Speaker Change: Great. Thank you so much.

Speaker Change: I want to ask about the subway announcement, which you kind of slipped in there.

Speaker Change: Pretty quickly there.

It seems like pretty good news, if not huge news <unk> had several major announcements over the last couple of years I know you talk about this before but how much of an impact do you think the huge success you've had over the last couple of years with Sequoia is having on weather.

Speaker Change: Whether it's Texas Roadhouse subway argues etc.

Speaker Change: I would have to think that that has led to an increase in incentive for these guys reach out year genetics with yourself.

Speaker Change: More to what Youre doing.

Thomas K. Pigott: No, and it's really driven by our basket of commodities, soybean oil first among them in that part of the business. Okay, great. Maybe one other question, you guys got a nice lift from PNOC in the quarter, obviously, but think about it stepping sequentially down as we think about back half growth. Should it be somewhere between 1Q and 2Q's level, or do we expect it to step down below? I think it was like 23, 23 and a half in the first quarter.

Speaker Change: Within this group Chick-fil-a, yes.

Speaker Change: Maybe just some color on.

Speaker Change: Obviously recent snowball of new sign ups.

Speaker Change: How much of that.

Speaker Change: If not directly or indirectly.

Speaker Change: A result of the success you've had with you before.

Speaker Change: Yes, I think.

Speaker Change: As we have shared with a lot of the <unk>.

Speaker Change: Covering analysts on the phone and you Alton.

Speaker Change: Olive garden was our first foray into the space and together with Darden restaurants, Olive garden, we learned our way through this and what we learned first and foremost is that the proposition in retail was relevant and second that the proposition could actually be net accretive to the foodservice business in terms of the positive perception around the brand.

David A. Ciesinski: In the food service segment, we expect sustained volume growth from select quick service restaurant customers. However, deflationary pricing is expected to remain a headwind for food service segment net sales in the coming quarter. With respect to our gross profit, we anticipate some continued favorability in our PNUPS, but at a sequentially lower level compared to our fiscal second quarter. With respect to our ERP Initiative, Project Ascent, following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. Finally, as we announced in December, we had a change in our board of directors effective January 1st of this year, with the appointment of Alan Harris as our chairman, replacing Jay Gerlach.

Thomas K. Pigott: So, yeah, Jim, I'll answer your question kind of as a versus prior year. So, if you look at the first half, we were up 200 basis points versus the prior year on gross margins. As we look at the back half, we expect it to moderate or more in the 150 to 200.

Speaker Change: Fast forward.

Speaker Change: As we've moved beyond Darden, and obviously continued to nourish that relationship, but added Buffalo Wild wings and Chipotle I think it's just allowed us to demonstrate this proposition a little bit more broadly.

Thomas K. Pigott: But this is very much dependent on the commodity basket and how things play out. From a tailwind perspective, we are seeing some commodity deflation in our forecast, and we're seeing some nice supply chain productivity results. And those are baked into our outlook in the back. Great. Thanks, guys. I'll pass.

Texas Roadhouse was a collaborative conversation it was actually brokered bye bye.

Speaker Change: One of our big customers in retail.

Speaker Change: And then subway was one that wasn't an inbound conversation is as well so it's.

Speaker Change: It's an interesting time and I think it's a manifestation of the fact that the lines between retail and foodservice are blending we're seeing more occasions that are at home and our partners out there in foodservice are becoming increasingly open to this idea and on the retail side I think are important partners be they <unk>.

Alton Kemp Stump: Thanks, Jim. Thank you. One moment for our next question. Your next question comes from Alton Stump of Loop Capital. Great. Thank you. Good morning.

David A. Ciesinski: And, you know, I would also echo your comments, Dave. Jay, having known him for almost 20 years, great to hear that he... is taking the next step and will still be involved with the company. And also, congrats on a quarter, of course, as well.

Speaker Change: <unk>, Walmart or public center whoever liked the idea of bringing relevant new items to these categories. So.

Speaker Change: Nothing no no tree grows to the moon, but.

Speaker Change: Our intention here is just to continue to work carefully to look for good partners, where we lineup at the values level, we're looking for long term relationships in this space.

David A. Ciesinski: Thank you. Thank you. Well, Pat, please pass on your regards to Jake. Great. Thank you so much.

Speaker Change: And we're going to try to see how far we can take this.

We do have a pipeline of other folks that we're talking to we're not ready to necessarily share with you now because these conversations take time.

David A. Ciesinski: You know, I want to ask about the subway. I slipped in there pretty quickly there, you know. That's obviously pretty good news, you know, if not huge news. You've had, you know, several major announcements over the last couple of years. I know we talked about this before, but how much of an impact do you think the huge success you've had over the last couple of years with Chick-fil-A is having on, you know, whether it's Texas Roadhouse, Subway, Arby's, et cetera? I would have to think that that has led to an increased incentive for these guys to reach out to you and say, Hey, can we do something similar to what Maybe we should just recolorize this recent snowball of, you know, of course, new science you've gotten, you know, how much of that do you think, you know... if not directly, certainly indirectly, you know, is a result of the big success you've had. Yeah, yeah, I think so.

Speaker Change: And we're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we played in today. So.

Speaker Change: I would love to tell you we have another chick fillet on the hook, but I think we all know Theres just one check for lay out there, but I think this in conjunction with how we're thinking about organic innovation and.

Speaker Change: M&A in the future hopefully will give us a balanced.

Speaker Change: Sources of growth for our retail business that allows us to compete in the top quartile of our peer group and Thats really our long term aspiration.

Speaker Change: Great. Thanks for that color and then I guess, just as a follow up on that obviously for Sikorsky facilities up and running now.

Thomas K. Pigott: Good morning, guys. Congratulations. Thanks, Jim! Yeah, I wanted to start with the inflationary headwind on food service. I think if we back in, it's like a 300 basis point headwind in the quarter. If we think about the back half of the year, is that 300 basis point number a good one to think about, or is it going to increase or decrease as we progress through the year? Hey, Jim. Yeah, it's Tom.

Speaker Change: It's your biggest facility is that also playing a role.

Speaker Change: Being able to be more aggressive in finding new partners. Because obviously I think you had some pretty meaningful capacity constraints prior to that facility opening.

Speaker Change: Well, that's correct, we were constrained on retail bottle capacity.

Speaker Change: And then also just the SAP implementation created a lot of organizational noise. So one of the things that.

Speaker Change: So we've been happy to be able to focus on in fiscal year. 'twenty. Four is just really getting back to the basics of focusing on good execution. The theme for this fiscal year is execute to grow and I think it captures the essence of both elements there right good execution in our plant focusing on our <unk> safety.

David A. Ciesinski: You know, as I've shared with a lot of, you know, the covering analysts on the phone and you, Alton, Olive Garden was our first foray into the space. And together with Darden Restaurants and Olive Garden, we learned our way through this. And what we learned first and foremost is that the proposition in retail was relevant, and second, that the proposition could actually be net accretive to the food service business in terms of the positive perception around the brand. You know, fast forward a few years, as we've moved beyond Darden and obviously continued to nourish that relationship, but added Buffalo Wild Wings and Chick-fil-A, I think it's just allowed us to demonstrate this proposition a little bit more broadly. You know, Texas Roadhouse was a collaborative conversation.

Speaker Change: And quality good execution in the plant around productivity and and then making sure that we do this in a way that we can work our way through the external.

Thomas K. Pigott: We expected it to increase a little bit. We're in the 300 to 400 basis point range for the back half on food service deflationary. Okay, and is that maybe just Jim, just a reminder on that, that just as the way it went up, when it goes down, it's a mark to market pass through. So it's sort of a no harm event on gross profit that also drives modest margin accretion, as we've talked to you about in the past. It's just one of the nuances of that business in our portfolio. Right, great. Yeah, that's a really helpful context. So that's broad-based across the portfolio. It's not just like a few key accounts; kind of the whole food service.

Speaker Change: Circumstances, with where consumers are to achieve.

Speaker Change: Growth at the higher end of our peer group.

Speaker Change: Terrific.

Speaker Change: One last one and then ill hop back in the queue. I guess this is probably for Tom but Tom just to make sure on your comments on the gross margin front, because obviously you look at the first half of the year the.

Speaker Change: Bulk of that.

Speaker Change: Mentioned 200, plus basis point growth came here at <unk>.

Thomas K. Pigott: So as I think by your comments about 150 to 200 basis points seems to say that basically that you think that the back half could be similar to maybe a bit lower or an increase year over year versus the full first half of the year just not.

David A. Ciesinski: It was actually brokered by one of our big customers in retail. And then Subway was one that was an inbound conversation as well. So it's, you know, it's an interesting time. And I think it's a manifestation of the fact that the lines between retail and food service are blending. We're seeing more occasions that are at home.

Thomas K. Pigott: Huge increase obviously.

Thomas K. Pigott: Yes.

Thomas K. Pigott: 60 basis points I think if my math is right that we saw here into Q am I right on that.

Thomas K. Pigott: No, it's really driven by our basket of commodities, soybean oil first among them in that part of the business. Okay, great. Maybe one other question, you guys got a nice lift from PNOC in the quarter, obviously, but think about it stepping sequentially down as we think about back half growth. Should it be somewhere between 1Q and 2Q's level, or do we expect it to step down below? I think it was like 23, 23 and a half in the first quarter.

Speaker Change: That's correct and I think part of the reason is that as you get into Q4.

David A. Ciesinski: And, you know, our partners out there in the food service industry are becoming increasingly open to this idea. And on the retail side, I think our important partners, be they Kroger, Walmart, Publix, or whoever, like the idea of bringing relevant new items to these categories. So, you know, it's nothing, no tree grows to the moon, but I think our intention here is just to continue to work carefully, to look for good partners where we line up at the values level. We're looking for long-term relationships in this space. And we're gonna try to see how far we can take this. We do have a pipeline of other folks that we're talking to. We're not necessarily ready to share them with you now because these conversations take time.

Speaker Change: There is less our expectations based on our commodity outlook and our pricing.

Speaker Change: Models, we don't expect as strong a peanut performance year over year in Q4 versus Q3.

Speaker Change: And what we experienced in Q2.

Speaker Change: And the retail business, we continue to have the benefit of pricing.

Speaker Change: And the pricing as you might imagine in this environment is winding down so that's going to continue to diminish during the period, we will continue to see favorability on the commodity side, but when you put pricing and the commodities together. That's the reason why we expect to see this.

Thomas K. Pigott: So, Jim, as we are, I'll answer your question kind of as a versus prior year. So if you look at the first half, we were up 200 basis points versus the prior year on gross margins. As we look at the back half, we expect it to moderate or more in the 150 to 200.

Speaker Change: Diminish marginally.

Speaker Change: Got it great. Thank you so much Tom Dave for the help.

Dave Demski: Of course, thanks al.

Thank you one moment for our next question.

Thomas K. Pigott: But this is very much dependent on the commodity basket and how things play through from a, you know, a tailwind perspective. We are seeing some commodity deflation in our forecast, and we're seeing some nice supply chain productivity results. And those are baked into our outlook in the back. Great. Thanks guys. I'll pass.

Dave Demski: And our next question comes from Robert Dickerson of Jefferies.

David A. Ciesinski: And we're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we did today. So, you know, I would love to tell you we have another Chick-fil-A on the hook, but I think we all know there's just one Chick-fil-A out there. But I think this, in conjunction with how we're thinking about organic innovation and M&A into the future, hopefully will give us a balanced source of growth for our retail business that allows us to compete in the top quartile of our peer group. And that's really our long-term aspiration. Great, thanks for that call. And then, I guess just as a follow-up on that, obviously, the Horse Skate Facility is up and running now, you know; it's your biggest facility. Is that also playing a role in just, you know, being able to be more aggressive in finding new partners?

Robert Dickerson: Great. Thanks, so much good morning, everyone.

Robert Dickerson: Good morning, good morning.

Robert Dickerson: Yes.

Robert Dickerson: Nice to hear from you.

Robert Dickerson: But a few questions try to keep it quick.

I guess just kind of.

Robert Dickerson: On the back of your last comment on on pricing in retail and how that rolls off.

Robert Dickerson: Which I totally get it.

David A. Ciesinski: Thanks, Jim. Thank you. One moment for our next question. Your next question comes from Alton Stump of Loop Capital. Great. Thank you. Good morning.

Yeah.

Robert Dickerson: Could there be some.

Robert Dickerson: Price deflation on your end in retail in the back half I'm, just thinking through maybe some kind of investment needs given kind of a broader backdrop right now on the promotional side from a lot of companies.

Robert Dickerson: Within retail.

Robert Dickerson: And then also it seems like there is a little bit of a maybe a more challenged comp, let's say last Q Gary first question Yeah.

David A. Ciesinski: And, you know, I would also echo your comments, Dave, and Jay, having known him for almost 20 years, great to hear that he... next step, but we'll still be involved with the company and also congrats on a quarter, of course, as well. Thank you. Thank you. Well, Pat, please pass your regards on to Jay. Great. Thank you so much.

Gary: So great question, so what youre going to see us still some marginal pricing that plays through on the deflationary side of pricing.

When we started to see these trends of softness emerged let's say in <unk>.

Gary: November and into December and really at that point in time and Rob We started to put plans in action. So for those of you that are tracking weekly data. We went out on Olive Garden for example, and we took our our entry price point sizes 16 ounce were at Walmart ended floated above four bucks and.

David A. Ciesinski: Because obviously, I think you had, you know, some pretty meaningful, you know, capacity constraints prior to that. Well, that's correct. We were constrained on retail bottle capacity.

David A. Ciesinski: You know, I want to ask you something about the subway. Over the last couple of years, how much of an impact do you think the huge success you've had over the last couple of years with Chick-fil-A is having on other restaurants, you know, whether it's Texas Roadhouse, Subway, Arby's, etc.? I would have to think that that has led to an increased incentive for these guys to reach out to you and say, hey, can we do this? similar to what you're doing, you know, with, in this case, Chick-fil-A, I guess you know. Maybe we should just recolorize this recent snowball of, you know, of course, new science you've gotten, how much of that do you think, if not directly, certainly indirectly, is a result of the big success you've had? Yeah, yeah, I think, as I've shared with a lot of, you know, the covering analysts on the phone and you all and, you know, Olive Garden was our first foray into the space. And together with Darden Restaurants and Olive Garden, we learned our way through this.

Gary: And we supported the price down into like at 395 price point I think is where its had on the shelf right now.

David A. Ciesinski: And then also just the SAP implementation created a lot of organizational noise. So one of the things that we've been happy to be able to focus on in fiscal year 24 is just really getting back to the basics of focusing on good execution. The theme for this fiscal year is execute to grow, and I think it captures the essence of both elements there, right? Good execution in our plant, focusing on our GMPs, be they safety and quality, good execution in the plant around productivity, and then making sure that we do this in a way that we can, you know, work our way through the external circumstances with, you know, where consumers are to achieve growth at the higher end of our peer group.

Gary: We also made adjustments it was sort of a game time audible on sister Schubert, where we had planned actually to take our promoted price points from the prior year at $2 seven up to 248 predicated on the softness we are seeing out there in the consumer environment, we actually communicated with retailers we wanted to roll.

Gary: <unk> two for seven and obviously they were happy enough to honor that so that wouldn't show up as a decrease versus the prior year, but it was let's say a decrease versus their own algorithm internally those are probably cases and points of other areas, where we're going out were selectively looking brand by brand that is at the entry price.

Gary: Point that matters is that our gap versus private label that matters in our promoted price point that matters and we're putting support in there. So I think what youre likely to see is a marginal pickup in trade support.

David A. Ciesinski: Great, thank you. And then, you know, one last. Hot back in the heat, I guess this is probably for Tom, but Tom, just to make sure on your comments on the gross margin front, because obviously you look at the first half of the year, you know, the bulk of that, and you know 200 plus basis point growth came here in 2Q. So, as I think by your comments, you know, about 250. It seems to say that, basically, that you think that the back half could be similar to maybe a bit lower of an increase year-over-year versus the full first half of the year, just not the, you know, huge increase, obviously, of $200,000. 60 basis points, I think, if my math is right, that will solve your N2Q problem.

Gary: But youre going to likely see some hopefully some volume offsets on that and what we're trying to do is long term orient ourselves towards household penetration, which we think is really probably the more important metric to watch when it comes to the health of the business.

Gary: And then again just brand by brand go in and tune things up a little bit just to make sure that the brand sits setup and a good place.

David A. Ciesinski: And what we learned first and foremost is that the proposition in retail was relevant, and second, that the proposition could actually be net accretive to the food service business in terms of the positive perception around the brand. You know, fast forward a few years, as we've moved beyond Darden and obviously continued to nourish that relationship, but added Buffalo Wild Wings and Chick-fil-A, I think it's just allowed us to demonstrate this proposition a little bit more broadly. You know, Texas Roadhouse was a collaborative conversation.

Sister Schubert's an interesting one if I could go deeper so we elected to take the promoted price point back down to two seven.

Gary: <unk>. We are also in that throws up going through the product down weighted on that where we went from announced and a half per roll down to announce in a quarter, which is pretty consistent with what the industry is anyway. We didn't have one complaint during the season.

Gary: And so we were able to address lagging margin issues. We had on that business had we as we had skyrocketed.

Gary: But we felt like it was more important to watch our promoted price points. So that's how we're handling it but back to your original question, which I think is an important one.

David A. Ciesinski: Am I right about that? That's correct. And I think part of the reason is that as you get into Q4, there's less. Our expectations, based on our commodity outlook and our pricing models, we don't expect as strong a PNOC performance year over year in Q4 versus Q3 and what we experienced in Q2. In the retail business, Alton, we continue to have the benefit of pricing, and the pricing, as you might imagine, in this environment is winding down, so that We'll continue to see favorability on the commodity side, but when you put pricing and the commodities together, that's the reason why we expect to see this diminish marginally. Got it, great. Thank you so much, Tom and Dave, for your help.

Gary: I would say marginal upticks on trade, but at this point given our categories, we don't see a wholesale reset.

Gary: Yes.

Gary: I worked for a long time for Bill Johnson any at this saying profitless prosperity and I think we're all just somewhat cautious about over investing in chasing things down. So we feel like watching household penetration is a good strategic way to think about this and then making those investments that really protect.

Speaker Change: The short term and the long term. So you ask a short question I gave you a long answer I apologize yes.

Speaker Change: The other way around.

Speaker Change: Yes.

Speaker Change: At that.

Speaker Change: Okay, and then I guess.

Speaker Change: When I look at your.

Speaker Change: Dressings, and sauces business, which clearly is the higher margins clearly been going great for you.

David A. Ciesinski: Of course. Thanks to all. Thank you. One moment for our next question. And our next question comes from Robert Dickerson of Jeffrey. Great. Good morning, everyone.

Speaker Change: Kind of over.

Speaker Change: No.

Speaker Change: Over time it seems like there is maybe like a little lift with with the launch things do well.

Speaker Change: But at the same time it seems like recently, maybe frozen breads are driving more of the growth in dressings and sauces.

Robert Frederick Dickerson: Morning. Morning. Yeah, nice to hear from you. But I have a few questions; try to keep it quick.

David A. Ciesinski: I guess just kind of, you know, on the back of your last comment on pricing and retail and, you know, how that kind of rolls off, which I totally get. Could there be some kind of price deflation on your end in retail in the back half? Some, you know, kind of investment, broader backdrop right now, and then also. Yeah. Yeah, so great question.

David A. Ciesinski: And we're gonna try to see how far we can take this. We do have a pipeline of other folks that we're talking to, but we're not ready to necessarily share with you now because these conversations take time.

Speaker Change: I'm just curious.

Speaker Change: No.

Speaker Change: The licensing dynamic has been going great for you in retail at the same time like have you seen any recent shifts in consumer behavior like a totally appreciate your prior comments on <unk>.

David A. Ciesinski: And we're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we did today. So, you know, I would love to tell you we have another Chick-fil-A on the hook, but I think we all know there's just one Chick-fil-A out there. But I think this, in conjunction with how we're thinking about organic innovation and M&A into the future, hopefully will give us a balanced source of growth for our retail business that allows us to compete in the top quartile of our peer group. And that's really our long-term aspiration. Great, thanks for that call. And then, I guess just as a follow-up on that, Horsescape Facility is up and running now, you know; it's your biggest facility. Is that also playing a role in just, you know, being able to be more aggressive in finding new partners?

Speaker Change: Some of the price pack architecture.

Speaker Change: And driving household penetration that's key.

David A. Ciesinski: So what you're going to see is still, you know, some marginal pricing that plays through on the deflationary side of pricing. We started to see these trends of softness emerge, let's say, in November and into December. And really, at that point in time, Rob, we started to put plans in action.

Speaker Change: But at the same time I'm, just thinking like we keep hearing kind of value seeking consumer.

Speaker Change: Maybe buying more I don't know frozen dinner rolls and they are buying.

Speaker Change: <unk> Maui subway thoughts I don't know yeah yeah.

Speaker Change: So.

David A. Ciesinski: So for those of you that are tracking weekly data, we went out to Olive Garden, for example, and we took our entry price point size, the 16 ounce, where at Walmart, it had floated above four bucks. And we supported the price down into like a $3.95 price point, which I think is where it's at on the shelf right now. We also made adjustments; it was a sort of a game-time audible on Sister Schubert, where we had planned actually to take our promoted price point from the prior year at two for seven up to two for eight, you know, predicated on the softness we are seeing out there in the consumer environment. We actually communicated with retailers that we wanted to roll back to two for seven. And, obviously, they were happy enough to honor that.

Speaker Change: <unk>.

Speaker Change: Now this one is a bigger question so I'll try to keep the answer Chris because I know we're on a timeline here, maybe we'll take them.

Speaker Change: Our category at a time I think we're in a season, where New York, Texas Toast is particularly relevant because that spaghetti and meat sauce meal occasion is a good value for consumers.

Speaker Change: And our team has done a nice job of using digital marketing to make sure that we're working with our big retailers.

Speaker Change: To try to get into that basket. So on up for example on one of their shopping apps, if they see pasta going in and <unk>.

Speaker Change: Pasta sauce going and they're going to be presented with.

Speaker Change: Sometimes it's just the brand not even a coupon and what we find is that there is really solid conversion on those occasions, but.

Speaker Change: On toast highly relevant in this season.

Speaker Change: On rolls.

Speaker Change: I think we there again it's relevant.

Speaker Change: I don't know in the case of sister Schubert, If I would say that while it's right in the sweet spot of a.

Speaker Change: Of a recession, if we ever got there like toast is but I would tell you as consumers eat at home, it's a great product and it rounds out the rest of a great meal occasion on our sources.

David A. Ciesinski: Right. Good execution in our plant, focusing on our GMPs, be they safety and quality, good execution in the plant around productivity, and then making sure that we do this in a way that we can work our way through the external circumstances with where consumers are to achieve growth at the higher end of our peer group. Great. Thank you. And then, you know, one last.

Speaker Change: I think where we're seeing some cases of trade down if we're not different than any of the others. What youre seeing is it trade down from traditional food into for example, the mass merchants in some cases mass merchants down into discounters from larger sizes to smaller sizes affluent consumers are going to.

David A. Ciesinski: So that wouldn't show up as a decrease versus the prior year, but it was, let's say, a decrease versus their own internal algorithm internally. Those are probably cases in points of other areas where we're going out, we're selectively looking brand by brand to see, you know, is it the entry price point that matters? Is it our gap versus private label that matters?

Speaker Change: Club, So we're seeing a lot of that and we're sort of monitoring that as it goes on licensed sources, you've got a couple of things going on Chipotle sauce is continuing to grow in the mid single digits, albeit off of the pace that they were on before I think that is so unique that consumers are continuing.

David A. Ciesinski: Hot back in the heat, I guess this is probably for Tom, but Tom, just to make sure on your comments on the grocery market front, because obviously you look at the first half of the year, you know, the bulk of that. And, you know, 200 plus basis point growth came here in 2Q. So, as I think by your comments, you know, about 250... points.

David A. Ciesinski: Is it our promoted price point that matters? And we're putting support in there. So I think what you're likely to see is a marginal tick up in trade support, but you're gonna likely see some, hopefully some volume offsets on that. And what we're trying to do is long-term orient ourselves towards household penetration, which we think is really probably the more important metric to watch when it comes to the health of the business. And then again, just brand by brand, go in and tune things up a little bit just to make sure the brand sits in a good place. You know, Sister Schubert's an interesting one if I could go deeper.

Speaker Change: To support it we did see some softness on olive garden as consumers traded out we could watch them trade some larger sizes small sizes and small sizes out. That's why we went in and made that that price point adjustment, we feel like we're in a good place there.

Thomas K. Pigott: It seems to say that basically you think that the back half could be similar to maybe a bit lower of an increase year-over-year versus the full first half of the year, just not the, you know, huge increase, obviously. Yeah. 60 basis points, I think, if my math is right, that will solve your N2Q.

Speaker Change: Buffalo Wild wings, and arby's, where for all intents and purposes really launched and supported last year at Buffalo Wild wings. At this point in time, we're getting tens of millions of dollars of free advertising on tick tock and Youre going to note. If you are looking at weekly scanner data, we're going to have a rough few weeks probably.

Thomas K. Pigott: Am I right about that? That's correct. And I think part of the reason is that as you get into Q4, there's less. Our expectations, based on our commodity outlook and our pricing models, we don't expect a strong PNOC performance year over year in Q4 versus Q3 and what we experienced in Q2. In the retail business, we continue to have the benefit of pricing, and the pricing, as you might imagine in this environment, is winding down, so that's going to We'll continue to see favorability on the commodity side, but when you put pricing and the commodities together, that's the reason why we expect to see this. Diminish.

Speaker Change: More like eight weeks as we comp that period the business still year on year is up more than 25%. So and if you look at on a two year stack, it's up considerably more than that.

Speaker Change: So in this case I don't think it's whether or not the proposition is relevant.

David A. Ciesinski: So we elected to take the promoted price point back down to two for seven. Parenthetically, we are also in the throes of going through the product downweighting process on that, where we went from an ounce and a half per roll down to an ounce and a quarter, which is pretty consistent with what the industry is anyway. We didn't have one complaint during the season.

Speaker Change: Have some hard comps things like arby's, a really unique SKU.

Speaker Change: Unique occasion, we got crazy support from retailers last year behind us.

Speaker Change: This year without the support it's not selling quite as well off the shelf.

Speaker Change: What I would may be ground on with every one of these Rob is what we're trying to look at is the velocities of the item and where do they play in the greater condiment space and all of these play in that top quarter of the category in terms of velocity. So we feel like summer.

Thomas K. Pigott: Marginally. I've got it. Great. Thank you so much, Tom and Dave, for the help.

David A. Ciesinski: Of course. Thanks, everyone. Thank you. One moment for our next question. And our next question comes from Robert Dickerson of Jeffrey. Great, thanks so much. Good morning, everyone.

Speaker Change: They are the Mickey <unk> of the lineup and some of these are may be more position players, but all of them seem to have an important role with our retailers.

David A. Ciesinski: And so we were able to address, you know, lagging margin issues we'd had on that business as wheat had skyrocketed, but we felt like it was more important to watch our promoted price point. So that's how we're handling it. But back to your original question, which I think is an important one, you know, I would say marginal upticks in trade, but at this point, given our categories, we don't see a wholesale reset. It worked for a long time for Bill Johnson, and he had this saying, profitless prosperity.

Speaker Change: And.

Speaker Change: Again, hopefully that gives you some of the flavor of the context you were looking for.

David A. Ciesinski: Morning. Morning. Yeah, nice to hear from you. But I have a few questions; try to keep it quick.

Speaker Change: Yes, no that was that was even better than the last answer.

Speaker Change: Ill pass it on thank you thanks, guys.

David A. Ciesinski: I guess just kind of on the back of your last comment on pricing and retail and, you know, how that kind of rolls off. Which I totally get. Could there be some price deflation on your end in retail in the back half, some, you know, kind of invest, broader backdrop right now, from a lot, uh, and then also. Yeah. Yeah. So great question.

Thank you Rob Thanks, Rob.

Speaker Change: One moment for our next question.

Speaker Change: And our next question comes from Brian Holland of D. A Davidson.

Brian Holland: Yeah. Thanks, good morning.

Brian Holland: I wanted to ask good morning, Brian.

Brian Holland: Good morning.

Wanted to ask about.

Speaker Change: The peanuts.

Speaker Change: Trend so.

Speaker Change: Yes.

David A. Ciesinski: And I think we're all just somewhat cautious about over investing and chasing things down. So we feel like watching household penetration is a good strategic way to think about this and then making those investments that really protect for the short term and the long term. I apologize. Yeah, yeah, it's usually the other way around. I'm a good guy, too.

Speaker Change: AGL My base, we're not modeling this appropriately in Q2.

Speaker Change: <unk> for a more normalized environment means.

Speaker Change: You get some mixed benefit as well.

Skewing towards retail and <unk>.

Speaker Change: But.

Speaker Change: I just want to make sure if we kind of disaggregate the mixed benefit kind of flowing through in a normal year versus peanut is the peanuts spread widening and becoming increasingly favorable if we look to recent quarters Q2, and if we think about the back half of the commentary that the peanuts spread narrows.

David A. Ciesinski: So for those of you that are tracking weekly data, we went out to Olive Garden, for example, and we took our entry price point size, the 16 ounce, where at Walmart, it had floated above $4, and we supported the price down into like a $3.95 price point, which I think is where it's at on the shelf right now. We also made adjustments; it was a sort of a game-time audible on Sister Schubert, where we had planned to take our promoted price point from the prior year at two for seven up to two for eight, you know, predicated on the softness we are seeing out there in the consumer environment. We actually communicated with retailers, and we wanted to roll back to two for seven. And obviously, they were happy enough to honor that.

David A. Ciesinski: I appreciate that. OK, and then I guess. You know, when I look at your dressings and sauces business, which clearly has a higher margin, It's going great, kind of over, like, you know... Over time, it seems like there's maybe like a little lift, you know, with the launch, things are doing well. But at the same time, you know, it seems like recently maybe the frozen breads are kind of driving more of the growth than dressings and sauces. So I'm just curious, like, you know...

Speaker Change: Relative like <unk> was a peak pinard spread towards the second half a little bit more commentary more about.

Speaker Change: The mix impact were lower margin food service is a higher.

Speaker Change: The percentage of your total net sales if that makes sense.

Speaker Change: Yes, let me take the.

Speaker Change: I'll take the first crack at the answer Brian.

Speaker Change: And then I'll turn it over to Tom maybe to try to go even deeper and first thing I would tell you is I don't think you have egg on your face in this case I think one of the hard things about this past quarter really the last six months for all of US as been trying to forecast where commodities are going to go in our soybean oil for example, if we were looking at were with soybean oil.

David A. Ciesinski: The licensing dynamic has been going great for you in retail. At the same time, have you seen any recent shifts in consumer behavior? We wholly appreciate your prior comments on... some of the price pack architecture. Driving Household Penetration.

Tom: In September well in September soybean oil was was more than 60 net right now it's trading at 45 right.

David A. Ciesinski: So that wouldn't show up as a decrease versus the prior year, but it was, let's say, a decrease versus their own internal algorithm. Those are probably cases and points in other areas where we're going out, we're selectively looking brand by brand to see, you know, is it the entry price point that matters? Is it our gap versus private label that matters?

Tom: It even went back bar that you go back a year. It was at 60. So the falloff we've seen in soybean oil has been pretty precipitous over that same period of time. If you looked at week, let's say in August we would've been trading somewhere between.

David A. Ciesinski: But at the same time, I'm just thinking like... appearing, kind of, you know, value. Yeah, let's maybe buy in more frozen dinner rolls, and they're buying, you know, amazing Maui subway sauce. I don't know.

Tom: 750, right now I've got a 588, so again, a pretty steep fall off and Cornish has fallen off even more so I think one of the things that's made call on it harder. This time within this narrow window is I think we've seen commodities come off more aggressively.

David A. Ciesinski: Yeah. Yeah. So, you know, it's. Now this one's a bigger question, so I'll try to keep the answer brief because I know we're on a timeline here.

David A. Ciesinski: Is it our promoted price point that matters? And we're putting support in there. So I think what you're likely to see is a marginal tick up in trade support, but you're going to likely see some, hopefully some volume offsets on that. And what we're trying to do is long-term orient ourselves towards household penetration, which we think is really probably the more important metric to watch when it comes to the health of the business. And then again, just brand by brand, go in and tune things up a little bit just to make sure the brand sits in a good place. You know, Sister Schubert's an interesting one if I could go deeper.

David A. Ciesinski: Maybe we'll take them up one category at a time. You know, I think we're in a season where New York and Texas toast are particularly relevant because that spaghetti and meat sauce meal occasion is good value for consumers. And our team has done a nice job of using digital marketing to make sure that we're working with our big retailers to try to get into that basket. So on, for example, on one of their shopping apps, if they see pasta going in and pasta sauce going in, they're gonna be presented with, sometimes it's just the brand, not even a coupon.

Tom: Then maybe we were anticipating we've been pleasantly surprised and I think if anything that.

Tom: That probably impacted things if you look at just this is one of the Thai outs, we did and maybe Tom I'll, let you talk about versus where they were modeling in terms of consensus and where we came out favorable maybe the sources of that Varian has broad strokes.

Tom: Yeah, So Brian to build on Dave's point, I think what we saw versus the <unk>.

Tom: At the time, we talked to you last we saw favorability.

Tom: <unk> in soybean oil flowering green eggs all of those contributed to the favorable <unk> performance versus <unk>.

Tom: First is our expectations as well.

Tom: <unk>.

David A. Ciesinski: And what we find is that there's really solid conversion on those occasions, but on toast, highly relevant in this season, on rolls. You know, I think we, there again, it's relevant. I don't know, in the case of Sister Schubert, if I would say that, wow, it's right in the sweet spot of a recession, if we ever got there, like toast is. But I would tell you, as consumers eat at home, it's a great product, and it rounds out the rest of a great meal occasion with our sauces. You know, I think where we're seeing some cases of trade down, we're not different than any of the others. What you're seeing is a trade down from, you know, traditional food into, for example, mass merchants. In some cases, mass merchants have downsized down into discounters from larger sizes to smaller sizes.

I think as Dave hit on we're very cognizant of making the appropriate reinvestments to protect the business on trade and Thats something that we will continue to evolve as the year progresses, but to get to your question in terms of the flow of the PDOC.

Tom: <unk> mentioned this earlier, we're in a space right now where you have more carryover pricing in retail and the commodity favorability.

Tom: That we accretive this quarter as you progress further theres less of that carryover pricing and theres a bit of a need to reinvest.

David A. Ciesinski: And so we were able to address, you know, lagging margin issues we'd had on that business as wheat had skyrocketed, but we felt like it was more important to watch our promoted price point. So that's how we're handling it. But back to your original question, which I think is an important one, you know, I would say marginal upticks in trade, but at this point, given our categories, we don't see a wholesale reset. I worked for a long time for Bill Johnson, and he had this saying, profitless prosperity.

Tom: So to get to your question I think Q2.

From when we look at our P&I projections.

<unk> is the strongest quarter of the year and Q3 will be.

Tom: We will be favorable and then less so in Q4 based on this.

Tom: This is all based on our commodity outlook, our projections for trade reinvestment.

Tom: Which can change, but that's that's how we're looking at it right now and I think modeling the business, Brian that commodity deflation continues and the peanut.

David A. Ciesinski: Affluent consumers are going to clubs. So we're seeing a lot of that, and we're sort of monitoring that as it goes. On licensed sauces, you have a couple of things going on. Chick-fil-A sauce is continuing to grow in the mid-single digits, albeit off of the pace that they were on before. I think that is so unique that consumers are continuing to support it. However, we did see some softness on Olive Garden as consumers traded out. You know, we could watch them trade from larger sizes to small sizes and small sizes out.

Tom: Notwithstanding.

Tom: I think what youre going to find is that.

Tom: As commodities come down.

Tom: It's going to be a mark to market in foodservice with very modest.

Tom: Margin improvement just because obviously the way the math flows, but we do expect the overwhelming majority of the deflation to stick on the foodservice business, So youre going to see or excuse me the retail business, which means you are going to drive retail margin improvement, which when you guys. If you haven't got a chance to go through the <unk>.

Tom: The Q, you'll see that broken out in there and more detailed.

David A. Ciesinski: That's why we went in and made that price point adjustment. We feel like we're in a good place there. You know, Buffalo Wild Wings and Arby's were, for all intents and purposes, really launched and supported last year. And, at this point in time, Buffalo Wild Wings was getting tens of millions of dollars of free advertising on TikTok.

Tom: I think the mix of the businesses in terms of margin. Our hope is if this commodity deflation sticks, we should begin to see our retail business referred to some of the historical margins that we've had there.

David A. Ciesinski: I appreciate that. Okay. And then, you know, I guess.

Speaker Change: Thanks, David Hump of the color. That's helpful. Just to put a button on that then as we look towards the second half of the year. The <unk> spread tightening is more about pricing fading and maybe more trade.

David A. Ciesinski: You know, when I look at your dressings and sauces business, which clearly has a higher margin, it's going great, kind of over, like, you know. Over time, it seems like there's maybe like a little lift, you know, with the launch, things are going well. But at the same time, you know, it seems like, recently, maybe frozen breads are kind of driving more of the growth than dressings and sauces. So I'm just curious, like, you know...

And.

Speaker Change: Assuming just continued sort of.

David A. Ciesinski: And you'll note, if you're looking at weekly scanner data, we're going to have a rough few weeks, probably more like eight weeks, as we compile that period. But the business, still, year on year, is up more than 25 percent. And if you look at it on a two-year stack, it's up considerably more than that. So in this case, I don't think it's whether or not the proposition is relevant. We have some hard comps. Things like Arby's, a really unique SKU, a unique occasion.

Speaker Change: Stable commodity prices Directionally, yes, I think that's directionally the way we're looking at it yes.

Speaker Change: Okay, Great and then.

Speaker Change: SG&A was up more than I was forecasting a a good source of deleverage and I know you called out consumer investments so maybe they.

Speaker Change: Use this opportunity.

Speaker Change: Twofold, one this state of the consumer in the retail channel.

Speaker Change: And.

Speaker Change: Behavior of the retailers, what youre seeing there as far as.

Speaker Change: And I know you did you did mentioned some of this earlier with some of the pricing and the trade that youre doing but is the expectation in the second half of the year that in that SG&A line, we need to increase I know thats something you teased last quarter with potentially something where you would have to step up on.

David A. Ciesinski: We got crazy support from retailers last year behind this, and this year, without the support, it's not selling quite as well off the shelf. You know what? What I would maybe ground on with every one of these, Rob, is what we're trying to look at is the velocities of the items and where they play in the greater condiment space. And all of these play in the top quarter of the category in terms of velocity. So we feel like, you know, some are better than others. They're the Mickey Mantles of the lineup.

Speaker Change: Did that come to fruition in Q2 and should we assume that that maintains maybe.

Speaker Change: <unk> of deleverage in the second half of the year consumer investment.

David A. Ciesinski: Yeah. Yeah. So, you know, it's. It's a now a bigger question.

Speaker Change: Sure. So the consumer investment if you remember last year, we were light in the first half heavy in the back half. This year. We told you. When we started we were going to be normalizing that spend across both apps right. So.

David A. Ciesinski: So I'll try to keep the answer crisp because I know we're on a timeline here. Maybe we'll take them up a category at a time. You know, I think we're in a season where New York and Texas toast is particularly relevant because that spaghetti and meat sauce meal occasion is good value for consumers. And our team has done a nice job of using digital marketing to make sure that we're working with our big retailers to try to get into that basket. So on, for example, one of their shopping apps, if they see pasta going in and pasta sauce going in, they're gonna be presented with, sometimes it's just the brand, not even a coupon.

Speaker Change: Would expect on the consumer side is that our spending will not go up period on period, because it was actually elevated last year right. We don't have any intentions of pulling it back, but if youre looking at just consumer support below the line. We don't have intentions right now of elevating that so when you look at our total spending on a year youre going to see us elevated.

David A. Ciesinski: And some of these are maybe more, you know, position players, but all of them seem to have an important role with our retailers. And again, hopefully that gives you some of the flavor or the context you were looking for. Yeah, no, that was even better than the last answer. I'll, I'll pass it on.

Speaker Change: Because we have eaten up a little bit earlier on.

Speaker Change: Perfect I'll leave it there thank you.

David A. Ciesinski: Thank you. Thanks, guys. Very good. Thank you. Thanks, Rob.

Speaker Change: Okay very good thanks, Brian.

Speaker Change: Thank you one moment for our next question.

David A. Ciesinski: Thank you. One moment for our next question, and our next question comes from Brian Holland of D.A. David.

Speaker Change: Okay.

David A. Ciesinski: And what we find is that there's really solid conversion on those occasions, but on toast, highly relevant in this season, on roles. You know, I think we, there again, it's relevant. I don't know, in the case of Sister Schubert, if I would say that, wow, it's right in the sweet spot of a recession if we ever got there like toast is. But I would tell you, as consumers eat at home, it's a great product, and it rounds out the rest of a great meal occasion with our sauces. You know, I think where we're seeing some cases of trade down, if we're not different than any of the others, what you're seeing is a trade down from, you know, traditional food into, for example, mass merchants, in some cases, mass merchants down into discounters from larger sizes to smaller sizes; affluent consumers are going to clubs. So we're seeing a lot of that. And we're sort of monitoring that as it goes. With licensed sauces, you got a couple of things going on.

Speaker Change: And your next question comes from Andrew Wolf of CL King.

Brian Holland: Yeah, thanks. Good morning. So I wanted to ask you something. Good morning, Brian. Good morning.

Thank you Andrew good morning, and congratulations as well.

Andrew Wolf: I will say thank you. Thank you.

Andrew Wolf: Soybean oil.

David A. Ciesinski: I wanted to ask about the PNOC trend. Egg on my face for not modeling this appropriately in Q2 and accounting for, hey, a more normalized environment. You get some mixed benefits as well, skewing towards retail and 2Q.

Andrew Wolf: Or something but.

Andrew Wolf: Yeah.

Andrew Wolf: Wow.

Andrew Wolf: It's all good.

Andrew Wolf: It's a big commodity for the whole food complex.

Andrew Wolf: Now on the P&I.

Andrew Wolf: With at least yes.

Andrew Wolf: Just on the 360 basis point expansion in gross margin year over year correct.

Andrew Wolf: Neither.

David A. Ciesinski: I just want to make sure that if we kind of disaggregate the mixed benefits kind of flowing through in a normal year versus PNOC, is the PNOC spread widening and becoming increasingly favorable? If we look at recent quarters to Q2, and if we think about the back half, is the commentary that the PNOC spread narrows relative, like 2Q was a peak PNOC spread, or is the second half a little bit more commentary about, you know, the mixed impact where lower-margin food service is a higher percentage of your total net sales, if that makes sense? Yeah, well, let me take a crack at the answer, Brian. And then I'll turn it over to Tom, maybe to try to go even deeper. And the first thing I would tell you is I don't think you have egg on your face.

Andrew Wolf: Give us the actual size or maybe a sense of the size.

Andrew Wolf: Like how much was.

Andrew Wolf: Would you allocate the P&I versus some of the value engineering that you spoke of such as <unk>.

The downsizing the units fruits, etc.

Speaker Change: Yes, so the.

Andrew Wolf: So the Penang.

Andrew Wolf: It was a little over 200 basis points.

And.

Andrew Wolf: The cost savings initiative.

Andrew Wolf: Was a little over 100 basis points, that's kind of how.

Andrew Wolf: How it played through the P&L.

Speaker Change: Got it and now in that 100 basis points for the everything for the.

Speaker Change: Value engineering.

Speaker Change: All of a sudden horse.

Speaker Change: Running much better alright right.

Speaker Change: Is that really sustainable for a while because I mean, there's a lot of little things in there, whereas the <unk> is just sort of market determined.

David A. Ciesinski: Chick-fil-A sauce is continuing to grow in the mid single digits, albeit off of the pace that they were on before. I think that it is so unique that consumers are continuing to support it. We did see some softness on Olive Garden as consumers traded out that, you know, we could watch them trade from larger sizes, small sizes, and small sizes out. That's why we went in and made that price point adjustment. We feel like we're in a good place there. You know, Buffalo Wild Wings and Arby's were, for all intents and purposes, really launched and supported last year. Buffalo Wild Wings, at this point in time, we were getting tens of millions of dollars of free advertising on TikTok.

Speaker Change: Well.

David A. Ciesinski: In this case, I think one of the hard things about this past quarter, really, the last six months for all of us has been trying to forecast where commodities are going to go. You know, soybean oil, for example, if we were looking at where soybean oil was in September. Well, in September, soybean oil was more than $0.60. And right now, it's trading at $0.45, right? If you even went back farther, you go back a year, it was at $0.60.

Speaker Change: You talk about the total.

Speaker Change: You are not coming down because of the market and just the way the industry is.

Speaker Change: What about the second even though it's a 100 bps plus how much how sustainable do you see value engineering and other cost savings yeah. So I think what we've told you and the rest of covering analysts is that we were shooting for about $20 million of cost out every single year and I think that remains true how we get that from peers.

Speaker Change: To periods is going to evolve this time around was a little heavier on procurement and logistics, where we were able to use some of the softness that's out there for line haul on ambient temperature controlled trailers to generate some sources of savings. We did have some benefit in productivity, but it was lighter manufacturing productivity excuse.

David A. Ciesinski: So the fall off we've seen in soybean oil has been pretty precipitous. Over that same period of time, if you looked at wheat, let's say in August, wheat would have been trading somewhere between, you know, $700 and $750. Right now, it's like at $588.

David A. Ciesinski: And you'll note, if you're looking at weekly scanner data, we're going to have a rough few weeks, probably more like eight weeks, as we compile that period. But the business, still, year on year, is up more than 25%. So and if you look at it on a two-year stack, it's up considerably more than that. So in this case, I don't think it's whether or not the proposition is relevant. We have some hard comps. Things like Arby's, a really unique SKU, a unique occasion.

Me as we sort of look going forward I think what you are probably likely to see in the out years out period is.

Speaker Change: Things like logistics, we're running business, we speak now to capitalize on the favorable rates and will lock in those savings and we will look to source more savings coming from the manufacturing side and value engineering that downsizing initiative that we illustrated is a good example of one where we felt like strategically was not going to.

David A. Ciesinski: So again, a pretty steep fall off. And corn is falling off even more. So I think one of the things that's made calling it harder this time, you know, within this narrow window is that I think we've seen commodities come off more aggressively than maybe we were anticipating. We've been pleasantly surprised. And I think, if anything, that probably impacted things. If you look at just, you know, this is one of the tie-outs we did.

Speaker Change: The consumer experience in any way.

Speaker Change: <unk>.

And it was just a prudent move to put in place to get the margins a little bit closer to where they had been historically.

David A. Ciesinski: We got crazy support from retailers last year behind this, and this year, without the support, it's not selling quite as well off the shelf. You know what? What I would maybe ground on with every one of these, Rob, is what we're trying to look at is the velocities of the items and where they play in the greater condiment space, and all of these play in the top quarter of the category in terms of velocity. So we feel like, you know, some are. They're the Mickey Mantles of the lineup.

Speaker Change: Okay.

Speaker Change: It gives you a sense I hope.

Speaker Change: Absolutely.

Speaker Change: The other thing I wanted to ask about P&I.

Speaker Change: Regards the it's going to be less of a contribution going forward. So.

David A. Ciesinski: And maybe, Tom, I'll let you talk about, you know, versus where they were modeling in terms of consensus and where we came out favorable, maybe the sources of that variance in broad strokes. Yeah, so Brian, to build on Dave's point, I think what we saw versus the, at the time we talked to you last, we saw favorability in soybean oil, flour, and grain, and eggs. All of those contributed to the favorable PNOC performance versus our expectations as well. And I think, as Dave hit on, we're very cognizant of making the appropriate reinvestments to protect the business on trade, and that's something that will continue to evolve as the year progresses. But to get to your question in terms of the flow of the PNOC, and Dave mentioned this earlier, we're in a space right now where you have more carryover pricing in retail and the commodity favorabilities that we accreted this quarter. As you progress further, there's less of that carryover pricing, and there's a bit of a need to reinvest. So to get to your question, I think Q2, when we look at our PNOC projections, is the strongest quarter of the year, and Q3 will be favorable, and then less so in Q4.

Speaker Change: I just wanted to make sure for us modeling.

Speaker Change: Side of the company. When you are saying that are you thinking sequentially are you, saying the year over year contribution because the third quarter year over year.

Speaker Change: Third quarter will be a.

Speaker Change: Lower quarter than the second.

So youre right.

Speaker Change: We can make whatever reduction shut out of them.

Speaker Change: Year over year in.

And Andrew I think the watch out just to make sure that we remain aligned is that if you look at the last.

Speaker Change: Probably 18 months or P. Knock has been driven by our capital P. Peanut with pricing do service pricing that was marking to market and retail pricing now as we look forward. That's the Pea is going to go small P. On us that's what we're talking about what remains to be seen is what's going to happen on these.

David A. Ciesinski: Thank you. Thanks, guys. Very good. Thank you. Thanks, Rob.

David A. Ciesinski: Thank you. One moment for our next question, and our next question comes from Brian Holland of D.A. David.

Speaker Change: Commodities.

Speaker Change: Because.

Speaker Change: One of the <unk>.

Speaker Change: The unique things about our company as we took on two years of 20% inflation and I think we told you guys was $160 million a year you look at the deflation that we've seen it's still a very very small component of the overall inflation. We saw last couple of years. So as if commodities continue to deflate origin basis on soy.

David A. Ciesinski: Yeah, thanks. Good morning. So I wanted to ask you something. Good morning, Brian. Good morning.

David A. Ciesinski: I wanted to ask about the PNOC trend. So, you know. Egg on my face for not modeling this appropriately in Q2 and accounting for, hey, a more normalized environment. You get some mixed benefits as well, skewing towards retail and 2Q. I just want to make sure that if we kind of disaggregate the mixed benefits kind of flowing through in a normal year versus PNOC, is the PNOC spread widening and becoming increasingly favorable if we look to recent quarters to Q2? And if we think about the back half, is the commentary that the PNOC spread narrows relative like Q2 was a peak PNOC spread, or is the second half a little Yeah, well, let me take a crack at the answer, Brian. And then I'll turn it over to Tom, maybe to try to go even deeper. And the first thing I would tell you is I don't think you have egg on your face.

Speaker Change: Bean oil.

Speaker Change: It's an important component because of our pasta breads.

Thomas K. Pigott: This is all based on our commodity outlook and our projections for trade reinvestment, which can change, but that's how we're looking at it right now. And I think modeling the business, Brian, if commodity deflation continues and the PNOC notwithstanding, I think what you're going to find is that as commodities come down, it's going to be a mark-to-market in food service with very modest margin improvement, just because, obviously, the way the math flows. But we do expect the overwhelming majority of the deflation to stick in the food service business.

Speaker Change: And then transportation rates remain where they are we didn't even get into the cost of diesel fuel which is.

Speaker Change: I don't know 70, 75 versus where it was last year as long as we continue to see room for those commodities to run we can see commodity deflation. So how we get P knock will be different than it's been in the past.

Speaker Change: But we don't expect to see pricing at this point in time, that's one thing our retailers would not want to hear from US about is that we came to the Jordan said, we'd like to take price increase.

Speaker Change: Okay, that's understood and if I could just add.

Thomas K. Pigott: So you're gonna see, or excuse me, the retail business, which means you're gonna drive retail margin improvement, which when you guys, if you haven't got a chance to go through the queue, you'll see broken out there in more detail. So I think the mix of the businesses in terms of margin, and our hope is, if this commodity deflation sticks, we should begin to see our retail business revert to some of the historical margins that we've had there. Thanks, David, and Tom for the color; that's helpful.

Speaker Change: Asked a couple of volume questions before.

Speaker Change: Stop asking questions.

Speaker Change: So first in the retail there was like over 300 basis points.

Speaker Change: Swing.

Speaker Change: Yes, when you take out the impact from some of your private label and the downgrading.

Speaker Change: And also the same question as before can you kind of allocate between the two.

Speaker Change: <unk>.

Speaker Change: I guess give us a sense of what the outlook is there it's good for profits, but not obviously.

Speaker Change: And I guess, what im saying is that the tonnage is kind of distorted because the units are a lot better when you download, but yes. When we look at the unit, it's a different it's a slightly different picture.

Thomas K. Pigott: Just to put a button on that, then as we look towards the second half of the year, the peanut spread tightening is more about pricing fading and and maybe more trade and and, you know, assuming just continued sort of stable commodity prices? Is that the direction? Yeah, I think that's the direction we're looking at it. Okay, great.

Speaker Change: Again, we're still seeing a deceleration on unit.

David A. Ciesinski: In this case, I think one of the hard things about this past quarter, really, the last six months for all of us, has been trying to forecast where commodities are going to go. You know, soybean oil, for example, if we were looking at where soybean oil was in September, well, in September, soybean oil was more than $0.60, and right now it's trading at $0.45, right? If you even went back farther, you go back a year, it was at $0.60.

Speaker Change: Why don't you go ahead, Jeff.

After the <unk> was about two thirds of it and then the.

Jeff: The other third was the private label.

Jeff: Okay got it and I just want to underline something you mentioned that just your Schubert was kind of following the category. So there's not as much competitive risks I mean is that sort of what the industry is up to you right now it would make sense in this environment.

Is this downgrading pretty pretty widespread and you don't really youre going to be leading yourselves into.

David A. Ciesinski: And then, you know, SG&A was up more than I was forecasting. It was a source of deleverage, and I know you called out consumer investment. So maybe, Dave, you could use this opportunity, you know, twofold.

Jeff: That's a competitive disadvantage.

Jeff: No no I think when we've done these in the past Andrew and we've done a handful I mean, we haven't done a ton of them, but ordinarily what we're doing is we're moving into the industry standard we haven't done these where we've led the industry down so we've certainly conformed.

David A. Ciesinski: So the falloff we've seen in soybean oil has been pretty precipitous. Over that same period of time, if you looked at wheat, let's say in August, wheat would have been trading somewhere between, you know, $700 to $750. Right now, it's like at $588.

David A. Ciesinski: One, just say to the consumer in the retail channel and, you know, the behavior of the retailers, what you're seeing there as far as – and I know you did mention some of this earlier with some of the pricing and the trade that you're doing, but is the expectation in the second half of the year that in that SG&A line, which I know that's something you teased last quarter, it's potentially something where you would have to Did that come to fruition in Q2, and should we assume that that remains, maybe, a source of de-leverage in the second half of the year, consumer investment? Sure.

Jeff: No on sister, Schubert, which is one where we made those adjustments.

Jeff: I would tell you if I look at the category trends the period ending at the beginning of November October 29% to 13 week in the four week period.

David A. Ciesinski: So again, a pretty steep falloff. And corn has fallen off even more. So I think one of the things that's made calling it harder this time, you know, within this narrow window is that I think we've seen commodities come off more aggressively than maybe we were anticipating. We've been pleasantly surprised. And I think, if anything, that probably impacted things. If you look at just, you know, this is one of the tie-outs we did.

Jeff: Four weeks or so it's continued to perform better than where it was before that.

Jeff: So.

Speaker Change: I think this is an occasion with a little bit of tailwind and I think that's a question that Rob was asking so.

Speaker Change: So we are seeing just given the environment, a little bit of tailwind and we're getting our fair share of it.

Speaker Change: Got it the last thing and this will be a follow on to that.

I guess, a better sharper price points helps units.

Speaker Change: Our per unit profitability for you and for the retailer.

David A. Ciesinski: And maybe, Tom, I'll let you talk about, you know, versus where they were modeling in terms of consensus and where we came out favorable, maybe the sources of that variance in broad strokes. Yeah, so Brian, to build on Dave's point, I think what we saw versus the time we talked to you last, we saw favorability in soybean oil, flour, and grain, and eggs. All of those contributed to the favorable PNOC performance versus our expectations as well. And I think, as Dave hit on, we're very cognizant of making the appropriate reinvestments to protect the business on trade. And that's something that will continue to evolve as the year progresses. But to get to your question in terms of the flow of the PNOC, and Dave mentioned this earlier, we're in a space right now where you have more carryover pricing in retail and the commodity favorabilities that we accreted this quarter.

Speaker Change: With profit parenting spends per item.

David A. Ciesinski: So the consumer investment, if you remember last year, we were light in the first half, heavy in the back half. This year, we told you when we started, we were going to be normalizing that spend across both halves, right? So what I would expect on the consumer side is that our spending will not go up period on period because it was actually elevated last year, right? We don't have any intentions of pulling it back.

Yes Penny profit.

Speaker Change: Yeah.

Speaker Change: I would tell you from the way we've talked about it really with you guys is more in terms of our margins and I think the margin story.

Speaker Change: On retail is the important point and you can infer that were making more profit per unit because the margins are improving on those.

Speaker Change: Retailers, what I would tell you is what we're not seeing is them marching up on us. So I would say theres no reason to think that their penny profit is changing.

Speaker Change: In a big way.

I think as we were looking at other categories in the event, we were working against private label heavily I think the watch out is there is a propensity sometimes for them to margin up on the brand.

David A. Ciesinski: But if you're looking at just consumer support below the line, we don't have intentions right now of elevating that. So when you look at our total spending for a year, you're going to see it's elevated because we have it up a little bit earlier on. Perfect. I'll leave it there.

Speaker Change: As a means by which to drive incremental penny profit off of a branded player and then drive trade down to private label and if they have their price point architecture right. They can win there as well and most of our categories you rolled through produce that's not an issue. If you look at our sources and licensing not much of an issue.

Brian Holland: Thank you. Okay. Very good. Thanks, Ryan.

Speaker Change: You move around to our bread items.

David A. Ciesinski: Thank you. One moment for our next question. And your next question comes from Andrew Wolf of C.L. King.

Speaker Change: <unk> right. If you look at our frozen noodles business not much of an issue in there so.

David A. Ciesinski: As you progress further, there's less of that carryover pricing, and there's a bit of a need to reinvest. So to get to your question, I think Q2, when we look at our PNOC projections, is the strongest quarter of the year. And Q3 will be favorable, and then less so in Q4. This is all based on our commodity outlook and our projections for trade reinvestment, which can change. But that's how we're looking at it right now.

If I had to guess there penny profit I would guess it's pretty consistent.

Andrew Paul Wolf: Thank you, Andrew. Good morning and congratulations as well. Thank you, thank you. Soybean Oil. But, um, well. It's all good.

Speaker Change: But.

Speaker Change: I think if I was working at one of the other Mega cap Cpg's, where Tom and I worked together.

Speaker Change: We may be thinking differently about this does that my guess is that's.

Speaker Change: A hammer that they're using to get their big brands to conform to their aspiration.

David A. Ciesinski: It's a big commodity for the whole food complex, start with, at least. Yeah, just on the 360 base, cross-margin year-over-year? Correct. Peanock, like how much would you allocate to PNOC versus some of the value engineering that you spoke of?

Speaker Change: Mhm, Okay, well it sounds like you guys are managing that.

David A. Ciesinski: And I think modeling the business, Brian, if commodity deflation continues and the PNOC notwithstanding, I think what you're going to find is that as commodities come down, it's going to be a mark to market in food service with very modest margin improvement just because, obviously, the way the math flows. But we do expect the overwhelming majority of the deflation to stick on the food service business. So you're gonna see, or excuse me, the retail business, which means you're gonna drive retail margin improvement, which when you guys, if you haven't got a chance to go through the queue, you'll see that broken out in there in more detail. So I think the mix of the businesses in terms of margin, our hope is that if this commodity deflation sticks, we should begin to see our retail business revert Thanks, David, and Tom for the color; that's helpful.

Speaker Change: Category situations pretty well so thank you.

Speaker Change: We're certainly we're doing our best and.

Thomas K. Pigott: or, you know, the downsizing, the... Yeah, so the PNOC was a little over 200 basis points, and the cost savings initiative was a little over 100 basis points. So that's kind of how it played out in the P&L. Got it. And now in that hunger base.

Speaker Change: I think your point is an important way to think about it too with some of these brands because you have to for all of US on on this I've broken at manufacturer, we need to put ourselves in the shoes of our big retail partners.

And I think the corollary is they can make more penny profit per item, but if they're not careful they trade consumers down and they drive their category down, which they usually don't like as well so.

David A. Ciesinski: All this stuff, the horse came, you know, running much better. Right. Right. Is that really sustainable for a while? a lot of little things, whereas, you know, the PNOC is just sort of marked. Well, how are you?

Speaker Change: It becomes kind of a holistic story, which is what's the overall health of the category, what's the health of what's the health of their shopping basket and then whats their penny profit like.

Speaker Change: Got it thank you.

Speaker Change: Of course, it makes sense.

David A. Ciesinski: You know, if you're not coming, just the way the industry is. What about Value Engineering? Yeah, so I think what we've told you and the rest of the covering analysts is that we were shooting for about $20 million in cost out every single year. And I think that remains true. But, how we get that from period to period is going to evolve.

Speaker Change: Thank you again I would like to remind everyone in order to ask a question. Please press star one one on your telephone keypad.

David A. Ciesinski: Just to put a button on that, then as we look towards the second half of the year, the peanut spread tightening is more about pricing fading and and maybe more trade and and, you know, assuming just continued sort of stable commodity prices? Is that the direction? Yeah, I think that's the direction we're looking at it. Okay, great.

Speaker Change: And one moment for our next question.

Speaker Change: Okay.

Our next question comes from Todd Brooks of the benchmark company.

David A. Ciesinski: This time around was a little heavier on procurement and logistics, where we were able to use some of the softness that's out there for line haul on ambient and temperature-controlled trailers to generate some sources of savings. We did have some benefit in productivity, but it was lighter. Manufacturing productivity, excuse me, as we sort of look going forward, I think what you're probably likely to see in the out years, out periods is things like logistics. We're running bids as we speak now to capitalize on the favorable rates, and we'll lock in those savings, and we'll look to source more savings coming from the manufacturing side and value engineering. That downsizing initiative that we illustrated is a good example of one where we felt like strategically And it was just a prudent move to put in place to get the margins a little bit closer to where they had been historically. It gives you an idea, I hope. Absolutely. And the other thing I want to ask is this. It's going to be less of a contribution going forward. I just want to make sure that it works for us.

David A. Ciesinski: And then, you know, SG&A was up more than I was forecasting. It was a source of deleverage, and I know you called out consumer investment. So maybe, Dave, use this opportunity, you know, twofold. One, just say to the consumer in the retail channel and, you know, the behavior of the retailers, what you're seeing there as far as – and I know you did mention some of this earlier with some of the pricing and the trade that you're doing, but is the expectation in the second half of the year that in that SG&A line, which I know that's something you Did that come to fruition in Q2?

Todd Brooks: Hey, Thanks, and good morning to you all.

Todd Brooks: Good morning, Todd.

A couple of questions for you here at the end of the call first and thank you for highlighting on the peanuts side that this becomes more of the season.

Todd Brooks: Then the key going forward, if we look at retail pricing, Dave in the past you've talked about.

Todd Brooks: Not necessarily chasing incremental volume by lowering pricing and I'm just wondering.

Todd Brooks: Flipping what you just said about retailers not looking for incremental.

Todd Brooks: Pricing increases from you if you look at customer elasticities right now at retail.

Todd Brooks: Your thoughts on holding the price it looks like if you normalize the volume trends.

Todd Brooks: Trends are pretty good, which I think would argue that maybe there's some confidence in your ability to hold pricing at retail going forward, but would love to get your thoughts on that.

David A. Ciesinski: And should we assume that this maintains maybe a source of de-leverage in the second half of the year, consumer investment? Sure. So the consumer investment, if you remember last year, we were light in the first half, heavy in the back half. This year, we told you when we started, we were going to be normalizing that spend across both halves, right? So what I would expect on the consumer side is that our spending will not go up period on period because it was actually elevated last year, right? We don't have any intentions of pulling it back.

Todd Brooks: So if you look at 50 to 13.

Todd Brooks: Down to four or five weeks, obviously, you can see that tension on consumers and the elasticity. So that much is readily apparent.

Todd Brooks: <unk> on our products just aren't such that should drop out. This price you are able to get it back you can't make enough.

David A. Ciesinski: When you're saying that, are you thinking sequentially? Because the third quarter... Year over year. So the third quarter, lower quarter. Right. We can make whatever production we should out of that. Yeah, we're doing it year over year. Yeah.

Todd Brooks: Move enough volume.

Todd Brooks: What we find.

Todd Brooks: Is that there are certain occasions like on price points, where if we can get below a cliff you can get significantly more benefit than you might imagine just in the simple elasticities I'll give you I'll go back to the example that we provided around that $4 price point.

David A. Ciesinski: And Andrew, I think the watch out, just to make sure that we remain aligned, is that if you look at the last, probably 18 months, our PNOC has been driven by a capital P, PNOC, with pricing, service pricing that was market-to-market and retail pricing. Now, as we look forward, that's, you know, the P is gonna go small P on us. That's what we're talking

Todd Brooks: Our elasticity models, probably would have predicted a pickup of X and we saw pickup on that move that was somewhere so far between two and a half to three acts of what would have been predicted so in that case. It made sense and what we also tried to do in those conversations with our retailers is obviously, we're at the table with them and we're trying to figure out how to make.

Our brand healthier, but also make the category healthier and in this case, our customer partners said, Hey, if you are willing to make this investment envelope to make some investments and give you in caps, so what you're likely to see for a brand like olive garden, which I mentioned here, but some of our other brands this year, you're going to see.

David A. Ciesinski: Thank you. Okay, very good. Thanks, Brian.

David A. Ciesinski: What remains to be seen is what's gonna happen with these commodities. Right? One of the unique things about our company is that we took on two years of 20% inflation, and I think we told you guys it was $160 million a year. Now, when you look at the deflation that we've seen, it's still a very, very small component of the overall inflation we saw the last couple of years.

David A. Ciesinski: Thank you. One moment for our next question. And your next question comes from Andrew Wolf of C.L. King.

Todd Brooks: And more support in the back half of the year on things like in cap, where if we can make up a reasonable investment and get support and things like Encap feature and display there again youre going to get far far better performance than your elasticities, what would necessarily project so that becomes.

David A. Ciesinski: Thank you, Andrew. Good morning and congratulations as well. Thank you. Thank you. Soybean oil. But, um, well. It's all good.

David A. Ciesinski: So as if commodities continue to deflate, board and basis on soybean oil, you know, wheat's an important component because of our pasta and breads, and then transportation rates remain where they are. We didn't even get into the cost of diesel fuel, which is, I don't know, $0.70, $0.75 versus where it was last year. As long as we continue to see room for those commodities to run, we could see commodity deflation. So how we get PNOC will be different than it was in the past, but we don't expect to see prices at this point in time. That's one thing our retailers wouldn't want to hear from us about, is if we came to the door and said, we'd like to take a price. Okay, that's understood. asked for a couple of volumes.

Todd Brooks: Part of what we're trying to do right.

David A. Ciesinski: It's a big commodity for the whole food complex, to start with at least. Yeah. Just on the 360 base and Chris Margin, year-over-year. Or, the actual size.

Speaker Change: Yes, absolutely.

Speaker Change: And then my second question.

Speaker Change: Obviously, we're all surprised by the gross margin performance in the quarter, which was great to see.

Speaker Change: Guess would be the magnitude of the bounce back.

David A. Ciesinski: Sizemore. Peanock, like how much would you allocate to PNOC versus some of the value engineering that you spoke of? or, you know, the downsizing, the... Yes, so the...

Speaker Change: In the past you've talked about giving back to the 26, 27% gross margins without a meaningful correction in commodities.

Speaker Change: It would be difficult to do we've seen a correction I don't know if it qualifies.

Speaker Change: How you would label it meaningful but with the magnitude of the lift that we saw in Q2 can you just talk a little bit longer term about your thoughts on this type of if we stay in this type of.

David A. Ciesinski: So the PNOC was a little over 200 basis points, and the cost savings initiative was a little over 100 basis points. So that's kind of how it played out in the P&L.

Speaker Change: Commodity environment that we're in right now what do you think the gross margin potential.

Speaker Change: Potential customers. Thanks, Yeah, well, what we've said is our aspiration is to get the business to the mid point of our peers, we still think thats doable as it pertains to deflation.

David A. Ciesinski: Thank you. So first, in retail, there were like over 300 when you take out the impacts from some discontinued private labels and the Downway. Also, the same question as before, can you kind of allocate between the two?

David A. Ciesinski: And now in that hunger base, for the sake of all this stuff, the horse came running much better.

Speaker Change: And this is a tricky one because as.

David A. Ciesinski: Is that really sustainable for a while? a lot of little things. Whereas, you know, the P-NOC is just sort of... Well, how are you?

Speaker Change: <unk> soybean oil goes a big piece of our business and we've seen the more recent pullback on the board.

David A. Ciesinski: I guess it gives us a sense of what the outlook is there. It's good for profit. And I guess what it's saying. Tonnage is kind of distorted because the units, Yeah, if you look at the units, it's a different, it's a slightly different picture.

Speaker Change: I think what we're asking ourselves. This is this likely to stick what drove this up early on in <unk> and Todd I know, you and I and.

Speaker Change: Other senior had conversation together.

Speaker Change: Polish a policy shift towards renewable diesel fuel so all of a sudden we saw incremental demand for soybean oil because it was being moved over to diesel fuel.

David A. Ciesinski: Talk about, you know, the toll. You know, if you're not coming, just the way the industry is. What about... Even though it's 100 bips plus, how much... Value Engineering, and Yeah, so I think what we've told you and the rest of the covering analysts is that we were shooting for about $20 million in cost savings every single year. And I think that remains true. You know, how we get that from period to period is going to evolve.

David A. Ciesinski: You know, we're still seeing a deceleration in units, but Dale, why don't you go ahead? Yeah, so, Andrew, the downweighting was about two-thirds of it, and then the, Yeah, the other third was the private label. OK. And I just want to underline something. You mentioned that Sister Schubert was kind of following the cat, not a very competitive risk.

Speaker Change: We've seen a pullback in the policy hasnt necessarily changed but if you look at the board today going out to 2025.

Speaker Change: It's it's depressed out to about 44, so off a couple of cents versus where it is.

Speaker Change: What we're trying to figure out is is that because thats a correlation between a falloff on let's say a crude oil which is also soft and you guys are looking at as much as we are whats it trading at about $76 a barrel today right.

David A. Ciesinski: This time around, it was a little heavier on procurement and logistics, where we were able to use some of the softness that's out there for line haul on ambient and temperature-controlled trailers to generate some sources of savings. We did have some benefit in productivity, but it was lighter. Manufacturing productivity, excuse me, as we sort of look going forward, I think what you're probably likely to see in the out years, in the out periods, is, you know, things like logistics. You know, we're running bids as we speak now to capitalize on the favorable rates, and we'll lock in those savings, and we'll look to source more savings coming from the manufacturing side and value engineering. That downsizing initiative that we illustrated is a good example of one where we felt that strategically it was not going to, you know, diminish the consumer experience in any way. And it was just a prudent move to put in place to get the margins a little bit closer to where they had been historically. It gives you a sense, I hope. Absolutely. And the other thing I want to ask you... It's going to be less of a contribution going forward. I just want to make sure that it is the right model for us.

David A. Ciesinski: I mean, is that sort of what the industry's up to right now? It would make sense in this environment. But is this downweighting pretty widespread in you?

Speaker Change: Or is there some sort of anticipation that after another election, we may see a policy change. It's just really hard for us to guess, but I think in order for us to get to revert back to that point that you are talking about we're going to have to believe that there are structural reasons for oil to remain low both on the soybean oil net oil but soybean.

David A. Ciesinski: You're going to be leading yourselves into a [inaudible] No, no, I think when we've done these in the past, Andrew, and we've done a handful. I mean, we haven't done a ton of them. But ordinarily, what we're doing is moving into the industry standard. We haven't done these things where we've let the industry down. So we've certainly conformed. Now on Sister Schubert, which is one where we made those changes. You know, I would tell you, if I look at the category trends, you know, the period ending at the beginning of November, October 29, the 13-week and the four-week period, the last four weeks or so, it's continued to perform better than where it was before that. So I think this is an occasion with a little bit of a tailwind.

Speaker Change: Oil to be low both on the board and on basis and once that date comes true I think yes, then we're going to have more confidence to say a lot of this cost that we've taken on structurally is going to come off now here's what I would tell you what we tried to do in the meantime.

Speaker Change: When we see pullbacks, we try to buy opportunistically with with forward agreements.

Speaker Change: And lock in some favorable pricing period on period, because what we don't know is hey is there going to be another shoe that drops a bad crop in Brazil, a bad soybean crop in the U S.

Because whether something else. So what we're trying to do as this plays out is <unk>.

Speaker Change: By when there is an advantaged opportunity to lock in favorability until we get to a point, where the policy side of it works itself out.

Speaker Change: Knowing that you're.

Speaker Change: Your ability to contract and lock going forward and strategies around that varies based on price and the ability to do so.

David A. Ciesinski: When you're saying that, are you thinking sequentially? Are you saying the year-over-year contract... because the third quarter... Year over year. So the third quarter, lower quarter, second quarter. So you know what I mean.

David A. Ciesinski: And I think that's a question that Rob was asking. So we are seeing, just given the environment, a little bit of tailwind, and we're getting our fair share. Okay.

Speaker Change: If youre looking at the commodity basket.

Speaker Change: Second half of the year, which I would expect to have pretty good visibility into at this point how does the comparative of two key reality on kind of the commodity piece of feedback.

David A. Ciesinski: The last thing this will be is a follow-on to that, a better, sharper price. How is the per unit profit? In, Yeah, Penny Profit. I would tell you from the way we've talked about it with you guys is more in terms of our margins, and I think the margin story on retail is the important point, and you can infer that we're making more profit per unit because the margins are improving on those. Retailers, what I would tell you is that we're not seeing them margin up on us, so I would say there's no reason to think that their penny profit is changing in a big way. I think as we were looking at other categories, in the event that we were working against private label heavily, I think the watch out is there's a propensity sometimes for them to margin up on the brand as a means by which to drive incremental penny profit And if they have the price point architecture right, they can win there as well. In most of our categories, you roll through produce. That's not an issue.

Speaker Change: Yes, we're looking at the.

Speaker Change: Deflation that at similar levels.

Speaker Change: And with some moderation in the fourth quarter.

David A. Ciesinski: We can make whatever production we should out of it. Yeah, we're doing it year over year. Yeah.

Speaker Change: But.

Speaker Change: There are pieces that yes.

David A. Ciesinski: And Andrew, I think the watch out just to make sure that we remain aligned is that if you look at the last, probably 18 months, our PNOC has been driven by a capital P, PNOC, with pricing, service pricing that was market to market and retail pricing. Now, as we look forward, that's, you know, the P is going to go small P on us. That's what we're talking about.

Speaker Change: That you really can't forward cover.

Speaker Change: The basis repay to process the soybeans.

Speaker Change: Things like eggs are more difficult. So there is.

Speaker Change: <unk> cautions its like there is some there is some unpredictability and all of this.

Speaker Change: But that's the outlook we have yeah.

Speaker Change: Tom make some great client, we're all keeping our eyes on what's happened with Abi the avian influenza.

Speaker Change: Out there.

David A. Ciesinski: What remains to be seen is what's going to happen with these commodities, right? Because one of the unique things about our company is we took on two years of 20% inflation. And I think we told you guys it was $160 million a year. If you look at the deflation that we've seen, it's still a very, very small component of the overall inflation we saw the last couple of years. So as if commodities continue to deflate, board and basis on soybean oil, you know, wheat's an important component because of our pasta and breads. And then transportation rates will remain where they are.

Speaker Change: Okay, great. Thank you I'll congrats.

Tom: Well, thank you Melissa.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from Robert Dickerson of Jefferies.

Robert Dickerson: Hey, guys, sorry, just a very easy quick follow up.

Robert Dickerson: Okay.

Robert Dickerson: It was just the balance sheet right.

Robert Dickerson: In the script.

Robert Dickerson: Our cash balance is great CFO was good.

Robert Dickerson: Coming to the quarter clearly you still have no debt.

David A. Ciesinski: We didn't even get into the cost of diesel fuel, which is, I don't know, $0.70, $0.75 versus where it was last year. As long as we continue to see room for those commodities to run, we could see commodity deflation. So how we get PNOC will be different than it has been in the past, but we don't expect to see pricing at this point in time. That's one thing our retailers wouldn't want to hear from us about is if we came to the door and said, we'd like to take a price. Okay, that's understood. asked for a couple of volumes, Thank you. So first in retail, there were like over 300 Wang when you take out the impact from some discontinued private labels and the Downway. Also, the same question as before, can you kind of allocate allocate between the two?

Robert Dickerson: And some of these ERP initiatives clearly are rolling off so.

David A. Ciesinski: If you look at our sauces and licensing, not much of an issue. But you move around to our bread items. It's a watch out, right?

Robert Dickerson: Zinc margins going up mid assume kind of cash flow gets back to a pretty place and you don't have any debt. So I guess more from us.

David A. Ciesinski: If you look at our frozen noodle business, not much of an issue there. So if I had to guess their penny profit, I would guess it's pretty consistent. I think if I was working at one of the other mega-cap CPGs where Tom and I work together, we may be thinking differently about this. My guess is that it's a hammer that they're using to get their big brands to conform to their aspirations

Robert Dickerson: A managerial perspective, it doesn't seem like you have a tremendous amount of kind of organic.

Robert Dickerson: Cash or capex needs outside of traditional working capital. So <unk> also been fairly quiet, let's say for a number of years for some time on the acquisition front.

Robert Dickerson: But there could be some cash build so maybe just maybe provide any incremental color.

David A. Ciesinski: Mm hmm. Okay. Well, it sounds like you guys are in the category. Thank you. We're certainly doing our best. I think your point is an important way to think about it too with some of these brands because you have to, you know, for all of us on this side working at a manufacturer, we need to put ourselves in the shoes of our big retail partners. And I think that the corollary is they can make more penny profit per item, but if they're not careful, they trade consumers down, and they drive their category down, which they usually don't like as well. So it becomes kind of a holistic story, which is what's the overall health of the category, what's the health of their shopping basket, and then, you know, what's their penny profit like? Of course,

Speaker Change: You can.

Speaker Change: As to how youre thinking about that cash to south side of the standard <unk>.

Speaker Change: <unk> on dividends et cetera. Thanks, that's it sure yes, so I think we still see opportunity to invest in the business. We've made the big <unk>.

Speaker Change: Investment in horse cave, which certainly helps us from a capacity standpoint, but as we look at kind of into the future certainly.

Speaker Change: There's automation opportunities that we want it.

Speaker Change: Invest in with the labor market remains tight.

David A. Ciesinski: and, I guess, give us a sense of what the outlook is there. It's good for profit, not, you know. And I guess what it's saying. Tonnage is kind of distorted because the units, Yeah, if you look at the units, it's a different, it's a slightly different picture.

And those are good return projects. So we will continue to invest back into the base. That's always priority one and that's our best return and low risk investments.

Speaker Change: And then when you look at M&A.

Speaker Change: Our strategy is to really look at opportunities that where we can lever our core competencies really in dressings and sauces as kind of our focus area.

David A. Ciesinski: You know, we're still seeing a deceleration in units, but Dale, why don't you go ahead? Yeah, so, Andrew, the downweighting was about two-thirds of it, and then the, Yeah, the other third was the private label. OK. And I just want to underline something you mentioned that just your Schubert was kind of following the cat, not a very competitive risk.

Operator: Again, I would like to remind everyone that in order to ask a question, please press star 1 1 on your telephone keypad.

Speaker Change: C C.

Speaker Change: SaaS category continues to be a nice growing space and so.

Operator: One moment for our next question. Our next question comes from Todd Brooks of the Benchmark Company. Hey, thanks and good morning to you all. Morning, Todd.

Speaker Change: So we're going to continue to look at opportunities in that space to really.

Speaker Change: Continue to grow this area of dressing and sauces, where we tend to have strong culinary capabilities.

David A. Ciesinski: I mean, is that sort of what the industry is up to right now? It would make sense in this environment, but downweighting is pretty widespread.

Todd Morrison Brooks: A couple questions for you here at the end of the call. First, and thank you for highlighting on the Peanuts side that this becomes more of the C than the P going forward. If we look at retail pricing, Dave, in the past, you've talked about not necessarily chasing incremental volume by lowering prices. And I'm just wondering, flipping what you just said about your retailers not looking for incremental pricing increases from you. If you look at customer elasticities right now at retail, your thoughts on holding the price, it looks like if you normalize the volume, volume trends are pretty good, which I think would argue that maybe there's So if you look at 52.13 down to four or five weeks, obviously, you can see the tension on consumers in elasticity. So that much is readily apparent. The elasticities on our products just aren't such that you drop a list price and you're able to get it back. You can't make enough; you can't move enough volume.

Speaker Change: Nice.

Retail sales team, that's able to execute well.

Speaker Change: And with the horse cave investment, we have high speed lines and capabilities to produce at a very low cost. So that's that's the focus of our M&A strategy and certainly now that we have the SAP.

David A. Ciesinski: You're going to be leading yourselves and a lot of other people. Thank you. Thank you. No, no, I think when we've done these in the past, Andrew, and we've done a handful. I mean, we haven't done a ton of them.

Speaker Change: Project behind Us.

Speaker Change: As well as the horse cave expansion.

Speaker Change: We're certainly more open to looking at opportunities to scale the business further.

Speaker Change: Perfect. Thank you.

David A. Ciesinski: But ordinarily, what we're doing is moving into the industry standard. We haven't done these things where we've let the industry down. So we've certainly conformed. Now on Sister Schubert, which is one where we made those changes. You know, I would tell you, if I look at the category trends, you know, the period ending at the beginning of November, October 29, the 13-week and the four-week period, the last four weeks or so, it's continued to perform better than where it was before that. So I think this is an occasion with a little bit of a tailwind. And I think that's a question that Rob was asking. So we are seeing, just given the environment, a little bit of tailwind, and we're getting our fair share. I got it.

Speaker Change: Okay, very well thanks, Rob.

Speaker Change: Thank you if there are no further questions. We will now turn the call back to Mr assistance for concluding comments.

Mr Assistance: Well. Thank you everyone. We really enjoyed meeting with you today, we look forward to being with you again in May when we report our next quarter's results have a good rest of the day.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

David A. Ciesinski: The last thing this will be It's a follow-on to that, a better, sharper price. How is the per unit profit for you, and for Prof. Penn?

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

David A. Ciesinski: What we find is that there are certain occasions, like price points where if we can get below a cliff, you can get significantly more benefit than you might imagine just from the simple elasticities. I'll go back to the example that we provided around that $4 price point. Our elasticity models probably would have predicted a pickup of X, and we saw a pickup on that move that was somewhere, so far, between 2.5 to 3X of what would have been predicted. So, in that case, it made sense.

Speaker Change: [music].

David A. Ciesinski: Yeah, Penny Profit. I would tell you from the way we've talked about it really with you guys, it's more in terms of our margins, and I think the margin story on retail is the important point, and you can infer that we're making more profit per unit because the margins are improving on those. Retailers, what I would tell you is that we're not seeing them margin up on us, so I would say there's no reason to think that their penny profit is changing in a big way. I think, as we were looking at other categories in the event that we were working against private label heavily, I think the watch out is there's a propensity sometimes for them to margin up on the brand as a means by which to drive incremental penny profit In most of our categories, you roll through produce; that's not an issue. If you look at our sauces and licensing, it's not much of an issue. You move around to our bread items; it's a watch out, right?

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

David A. Ciesinski: Mm-hmm, okay. Well, it sounds like you guys are in the same category. Thank you. We're certainly doing our best, and I think your point is an important way to think about it too with some of these brands because you have to, you know, for all of us on this side working at a manufacturer, we need to put ourselves in the shoes of our big retail partners. And I think the corollary is they can make more penny profit per item, but if they're not careful, they trade consumers down, and they drive their category down, which they usually don't like as well. So it becomes kind of a holistic story, which is what's the overall health of the category, what's the health of their shopping basket, and then, you know, what their penny profit is like. Of course,

Speaker Change: [music].

David A. Ciesinski: Thank you. Thank you. Again, I would like to remind everyone in order to ask a question, please press star 11 on your telephone keypad. One moment for our next question. Our next question comes from Todd Brooks of the Benchmark Company. Hey, thanks and good morning to you all. Morning, Todd.

David A. Ciesinski: And what we also try to do in those conversations with our retailers is, you know, obviously, we're at the table with them, and we're trying to figure out how to make a brand healthier, but also make the category healthier. And in this case, our customer partner said, hey, if you're willing to make this investment, I'm willing to make some investments and give you impact. So what you're likely to see for a brand like Olive Garden, which I mentioned here, but some of our other brands, is you're gonna see more support in the back half of the year on things like NCAP, where if we can make a reasonable investment and get support for things like NCAP features and display, there again, you're going to get far better performance than your elasticities would necessarily project.

David A. Ciesinski: A couple questions for you here at the end of the call. First, and thank you for highlighting on the Peanuts side that this becomes more the C than the, and the P going forward. If we look at retail pricing, Dave, in the past, you've talked about not necessarily chasing incremental volume by lowering pricing. And I'm just wondering flipping what you just said about your retailers not looking for incremental pricing increases from you if you look at customer elasticities right now at retail, your thoughts on holding the price, it looks like if you normalize the volume volume trends are pretty good, which I think would argue that maybe there's some confidence in the ability to hold pricing at retail going forward, but would love to get your thoughts on, So if you look at 52.13 down to four or five weeks, obviously, you can see the tension on consumers in elasticity, so that much is readily apparent.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

David A. Ciesinski: So that becomes part of what we're trying to do, right? And then my second question and, obviously, we're all surprised by the gross margin performance in the quarter, which is great to say. [inaudible] In the past, you've talked about, listen, getting back to 26, 27% gross margins without a meaningful correction in commodities would be difficult to do. We've seen a correction. I don't know if it qualifies as how you would label it meaningful.

David A. Ciesinski: The elasticities on our products just aren't such that you drop a list price, you're able to get it back, you can't make enough, you can't move enough volume. What we find is that there are certain occasions, like on price points, where if we can get below a cliff, you can get significantly more benefit than you might imagine just from the simple elasticities. I'll go back to the example that we provided around that $4 price point. Our elasticity models probably would have predicted a pickup of X, and we saw a pickup on that move that was somewhere, so far, between two and a half to three times X of what would have been predicted. So, in that case, it made sense.

David A. Ciesinski: But with the magnitude of the lift that we saw in Q2, can you just talk a little bit longer term about your thoughts on this type of, if we stay in this type of commodity environment that we're in right now, what do you think the gross margin potential is? Yeah, well, you know, what we've said is that our aspiration is to get the business to the midpoint of our peers. We still think that's doable as it relates to deflation.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Okay.

David A. Ciesinski: This is a tricky one because, you know, soybean oil is a big part of our business, and we've seen the more recent pullback on the board, and, You know, I think what we're asking ourselves is, is this likely to stick? What drove this up early on, and Todd, I know you and I and Tom and others here had the conversation together, was a policy shift toward renewable diesel. So all of a sudden, we saw incremental demand for soybean oil because it was being moved over to diesel fuel. Now we've seen a pullback. The policy hasn't necessarily changed, but if you look at the board today going out to 2025, it's depressed by about 44 cents, so off by a couple of cents versus where it is. What we're trying to figure out is that because that's a correlation between a fall off in, let's say, crude oil, which is also soft.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

David A. Ciesinski: And you guys are looking at it as much as we are. What's it trading at? About seventy six dollars a barrel today. Right? Or is there some sort of anticipation that after another election we may see a policy change? It's just really hard for us to guess.

Sure.

David A. Ciesinski: But I think in order for us to get to revert back to that point that you're talking about, we're going to have to believe that there are structural reasons for oil to remain low, both on the soybean oil, not oil, but soybean oil to be low both on the board and on basis. And once that day comes true, I think, yeah, then we'll have more confidence to say. You know, a lot of this cost that we've taken on structurally is going to come off. Now, here's what I would tell you, what we try to do in the meantime, is when we see pullbacks, we try to buy opportunistically with forward agreements and lock in some of the favorable pricing period on period. Because what we don't know is, hey, is there going to be another shoe that drops? A bad crop in Brazil, a bad soybean crop in the U.S., you know, because of weather or something else.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

David A. Ciesinski: So what we're trying to do is buy when there's an advantageous opportunity to lock in favorability until we get to a point where the policy side of it works itself out, knowing that your ability to contract and lock going forward and strategies around that vary based on price and the ability to do so. Tom, if you're looking at the commodity, the second half of the year, which I would expect to have pretty good visibility into at this point. How does it compare to the 2Q reality on the kind of the commodity? Yeah, we're looking at deflation at similar levels, with some moderation in the fourth quarter. But, you know, there are pieces that, you know, that you really can't forward cover, like the basis we pay to process soybeans. Things like eggs are more difficult.

Speaker Change: Okay.

Speaker Change: [music].

David A. Ciesinski: And what we also try to do in those conversations with our retailers is, you know, obviously, we're at the table with them, and we're trying to figure out how to make the brand healthier, but also make the category healthier. And in this case, our customer partner said, hey, if you're willing to make this investment, I'm willing to make some investments and give you impact. So what you're likely to see for a brand like Olive Garden, which I mentioned here, but some of our other brands is more support in the back half of the year on things like NCAP, where if we can make a reasonable investment and get support for things like NCAP, feature, and display, there again, you're going to get far, far better performance than your elasticities would necessarily project. So that becomes part of what we're trying to Right. And then my second question, and obviously, we're all surprised by the gross margin performance in the quarter, which is great to say. I guess the magnitude of the bounce back will be.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Thomas K. Pigott: So there is just cautioned. It's like there's some unpredictability in all of this, but that's the outlook we have. Tom makes a great point. We're all keeping our eyes on what's happening with ABI, the avian influenza that's out there. Okay, great.

Yes.

[music].

Todd Morrison Brooks: Thank you all. Congratulations. Thank you, Dave. Thank you. One moment for our next question. And our next question comes from Robert Dickerson of Jefferson. Hey guys, sorry, just a very easy, quick follow-up. Hey. It's just a balance sheet, right? I mean, you talked about it in the script.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Robert Frederick Dickerson: The cash balance is great, um [inaudible] What do you think, Martin? Cash flow gets back to a pretty place. [inaudible] you know, from a managerial perspective, it doesn't seem like you have tremendous capital. Capitals, a number of years for some time on the acquisition, cash bill. [inaudible] Thank you for watching, and I'll see you in the next video, can you tell how you're thinking about that cash yourself, verb. Sure, yeah.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Thomas K. Pigott: So I think, you know, we still see opportunities to invest in the business. We've made the big investment in Horse Cave, which certainly helps us from a capacity standpoint. But as we look kind of into the future, certainly there are automation opportunities that we want to invest in with the labor market remaining tight, and those are good return projects. So we'll continue to invest back into the base. That's always priority number one.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Yes.

Speaker Change: Yes.

Speaker Change: Okay.

[music].

David A. Ciesinski: In the past, you've talked about getting back to 26-27% gross margins without a meaningful correction in commodities. It would be difficult to do. We've seen a correction, but I don't know if it qualifies as how you would label it meaningful.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

David A. Ciesinski: But with the magnitude of the lift that we saw in Q2, can you just talk a little bit longer term about your thoughts on this type of, if we stay in this type of, commodity environment that we're in right now? What do you think the gross margin will be? potential. Yeah, well, you know, what we've said is that our aspiration is to get the business to the midpoint of our peers. We still think that it's doable, as it pertains to deflation.

Speaker Change: Okay.

Speaker Change: Yes.

David A. Ciesinski: This is a tricky one because, you know, soybean oil is a big piece of our business, and we've seen the more recent pullback on the board, and, you know, I think what we're asking ourselves is, is this likely to stick? What drove this up early on and Todd, I know you and I and Tom, and others here had a conversation together was a policy, a policy shift toward renewable diesel. So all of a sudden, we saw incremental demand for soybean oil because it was being moved over to diesel fuel. Now we've seen a pullback. The policy hasn't necessarily changed, but if you look at the board today going out to 2025, it's depressed out to about 44 cents, so it's off a couple of cents versus where it is.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Yes.

David A. Ciesinski: What we're trying to figure out is that because that's a correlation between a fall off in, let's say, crude oil, which is also soft, and you guys are looking at as much as we are, why is it trading at about $76 a barrel today, right? Or is there some sort of anticipation that after another election, we may see a policy change? It's just really hard for us to guess.

Speaker Change: Okay.

Thomas K. Pigott: And that's our best return and lowest risk investments. And then when you look at M&A, our strategy is to really look at opportunities where we can leverage our core competencies. Really, dressings and sauces is kind of our focus area.

Speaker Change: Okay.

Speaker Change: Yes.

David A. Ciesinski: But I think in order for us to get to revert back to that point that you're talking about, we're going to have to believe that there are structural reasons for oil to remain low, both on the soybean oil basis, not oil, but soybean oil. And once that day comes true, I think, yeah, then we're going to have more confidence to say, You know, a lot of this cost that we've taken on structurally is going to come off. Now, here's what I would tell you. What we try to do in the meantime is when we see pullbacks, we try to buy opportunistically with forward agreements and lock in some of the favorable pricing period on period because what we don't know is, hey, is there going to be another shoe that drops, a bad crop in Brazil, a bad soybean crop in the US, you know, because of weather or something else. So what we're trying to do is this plays out when there's an advantageous opportunity to lock in favorability until we get to a point where the policy side of it works itself out, knowing that you have your ability to contract and lock going forward.

Thomas K. Pigott: We see, you know, the sauce category continues to be a nice growing space. And so we're going to continue to look at opportunities in that space to really continue to grow this area of dressings and sauces, where we tend to have strong culinary capabilities and a nice retail sales team that's able to execute well. And with the Horse Cave investment, we have high-speed lines and capabilities to produce that at a very low cost.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Thomas K. Pigott: So that's the focus of our M&A strategy. And certainly now that we have the SAP project behind us, as well as the Horse Cave expansion, we're certainly more open to looking at opportunities to scale the business further. Perfect. Thank you. You're very welcome.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

David A. Ciesinski: Thanks, Rob. Thank you. If there are no further questions, we will now return the call. (inaudible) Well, thank you, everyone.

Okay.

Operator: We really enjoyed meeting with you today. We look forward to being with you again in May when we report our next quarter's results. Have a good rest of the day.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Operator: This concludes today's conference call. Thank you for participating and you may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good morning.

David A. Ciesinski: And strategies around that vary based on price and the ability to do so. Tom, if you're looking at the commodity second half of the year, which I would expect to have pretty good visibility into at this point. How does it compare to the 2Q reality on kind of the commodity? Yeah, we're looking at deflation at similar levels, with some moderation in the fourth quarter. But, you know, there are pieces that you really can't cover, like the basis we pay to process the soybeans. Things like eggs are more difficult, so there is, Just caution, there's some unpredictability in all of this, but that's the outlook we have.

Operator: My name is Dee, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2024 Second Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

David A. Ciesinski: After the speakers have completed their prepared remarks, there will be a question and answer period. After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your question, press star 1 1 again.

Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

David A. Ciesinski: Tom makes a great point. We're all keeping our eyes on what's happening with ABI, the avian influenza that's out there. Okay, great.

Speaker Change: Yes.

Speaker Change: Okay.

Dale N. Ganobsik: Thank you. And now we begin the conference call. Here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 second quarter conference call. Our discussion this morning may include forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events.

David A. Ciesinski: Thank you all. Congratulations. Thank you, Luke.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Operator: Thank you. One moment for our next question. And our next question comes from Robert Dickerson of Jefferson. Hey guys, sorry, just a very easy, quick follow-up. Hey. It's just a balance sheet, right? I mean, you talked about it in the script.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Operator: Cash Balance is great, um, all y'all. What do you think, Martin? Cash flow gets back to a pretty place. Dad, more, you know, a managerial perspective, it doesn't seem like you have tremendous cash or CapEx needs outside of, Capitals, number of years for some time on the acquisition. Cash Bill, Crowley, can you tell me how you're thinking about that cash yourself? Verbez.

Speaker Change: Okay.

Speaker Change: Yes.

David A. Ciesinski: A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also, note that the audio replay of this call will be archived and available on our company's website, LancasterColony.com, later this afternoon. For today's call, Dave Ciesinski, our president and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Speaker Change: Okay.

Operator: Sure, yeah. So I think, you know, we still see opportunities to invest in the business. We've made the big investment in the horse cave, which certainly helps us from a capacity standpoint. But as we look kind of into the future, certainly, there are automation opportunities that we want to invest in with the labor market remaining tight, and those are good return projects. So we'll continue to invest back into the base. That's always priority number one.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Yes.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Operator: And then when you look at M&A, our strategy is to really look at opportunities where we can lever our core competencies, really, in dressings and sauces, which is kind of our focus area. We see, you know, the sauce category continues to be a nice growing space.

David A. Ciesinski: Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski.

Speaker Change: Okay.

Yes.

David A. Ciesinski: Thanks, Dale. And good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024. In our fiscal second quarter, which ended December 31st, we are pleased to report record financial results, with consolidated net sales increasing 1.8% to $485.9 million, and gross profit growing 19% to $121.5 million.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Operator: And so, we're going to continue to look at opportunities in that space. To really continue to grow this area of dressings and sauces, where we tend to have strong culinary capabilities, a nice retail sales team that's able to execute well. And with the horse cave investment, we have high-speed lines and capabilities to produce at a very low cost.

Speaker Change: [music].

Speaker Change: Yes.

Operator: So that's the focus of our M&A strategy. And certainly now that we have the SAP project behind us, as well as the horse cave expansion, we're certainly more open to looking at opportunities to scale the business further. Perfect, thank you.

Operator: You're very welcome. Thanks, Rob. Thank you. If there are no further questions, we will now turn the call back to Ciesinski for concluding comments. Well, thank you, everyone.

Speaker Change: Yes.

David A. Ciesinski: And operating income increased 28.1% to $65.8 million. I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster Colony that enabled us to deliver these strong results. In our retail segment, net sales growth of 2% was driven by carryover pricing, volume gains for our successful licensing program, continued strong performance for our New York Bakery frozen garlic bread, and increased demand for our Reims frozen egg nougat. However, retail segment sales volume measured in pound shifts declined 1.9 percent, excluding the impact of a product downweighting initiative and a reduced commitment to private label bread.

Speaker Change: Yes.

Speaker Change: Okay.

David A. Ciesinski: We really enjoyed meeting with you today. We look forward to being with you again in May when we report our next quarter's results. Have a good rest of the day.

Operator: This concludes today's conference call. Thank you for participating and you may now disconnect. ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? and Sean Cotter.

Speaker Change: Yes.

Speaker Change: Hum.

Operator: Thank you for watching. I'm Sean Cotter. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good morning.

Speaker Change: Yes.

Speaker Change: Thanks.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Steve: Good morning, My name is Steve and I will be your conference call for.

Steve: Sure I'll take her today.

Steve: At this time I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2024 second quarter Conference call.

Steve: Conducting today's call will be Dave <unk>, President and CEO and Tom Pigott CFO.

David A. Ciesinski: Retail sales volume increased 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, 1.2%, Specific to our licensed product, retail scanner data for the quarter showed Chick-fil-A sauces up 6% to $38.7 million and Olive Garden dressings up 2.1% to $34.4 million. Buffalo Wild Wing sauce sales were about flat at $19.3 million, which compares to a strong quarter last year when sales increased over 26%. Our category-leading New York Bakery frozen garlic bread saw sales growth of 4% to $88.7 million for a share of 43.1, and sales of our Reams frozen egg noodles increased 17.9% to $16.5 million to capture a 70.3 share of the frozen pasta noodle category. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are also performing well, with scanner data showing $9.4 million in sales during the quarter.

Operator: Thank you. And now, we begin the conference call. Here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 second quarter conference call. Our discussion this morning may include forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC.

Steve: All lines have been placed on mute to prevent any background noise.

After the speakers have completed their prepared remarks, there will be a question and answer period.

Steve: If you would like to ask a question. During this time simply press star one on your telephone keypad.

Steve: If you would like to withdraw your question Press Star one again, thank you.

Steve: And now to begin the conference call.

Steve: Here is Dale can offset.

Dale Canfield: President of corporate Finance and Investor Relations for Lancaster Colony Corporation.

Dale Canfield: Good morning, everyone and thank you for joining us today for Lancaster colony's fiscal year 2024 second quarter conference call.

Dale Canfield: Our discussion. This morning May include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Operator: Also note that the audio replay of this call will be archived and available on our company's website, LancasterColony.com, later this afternoon. On today's call, Dave Ciesinski, our president and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. He will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

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

Dale Canfield: Discussion of these risks and uncertainties is contained in the Companys filings with the SEC.

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

For today's call, Dave <unk>, our president and CEO will begin with a business update and highlights for the quarter Tom.

Dale Canfield: Tom Pigott, our CFO will then provide an overview of the financial results.

David A. Ciesinski: When combined with the sales of our Marzetti brand dressings, our refrigerated dressing sales have grown to represent a category-leading 27.7%. In the food service segment, sales growth of 1.5% was led higher by demand from several of our national chain restaurant accounts, along with volume growth for our branded food service products. Food service sales volume measured in pound shift increased 4.6%. However, during the period, food service segment net sales were adversely impacted by pass-through price decreases, which resulted from commodity deflation.

Thomas K. Pigott: Dave will then share some comments regarding our current strategy and outlook at.

Thomas K. Pigott: At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Operator: Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's president and CEO, Dave Ciesinski. Dave?

Thomas K. Pigott: Once again, we appreciate your participation. This morning, I'll now turn the call over to Lancaster, colony's President and CEO, Dave Demski, Dave.

Dave Demski: Thanks, Dale and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024.

Dave Demski: In our fiscal second quarter, which ended December 31, we are pleased to report record financial results as consolidated net sales increased one 8% to $485 9 million gross profit grew 19% to $121 5 million.

David A. Ciesinski: Thanks, Dale. And good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2024. In our fiscal second quarter, which ended December 31st, we are pleased to report record financial results, with consolidated net sales increasing 1.8% to $485.9 million, and gross profit growing 19% to $121.5 million.

Dave Demski: And operating income increased 28, 1% to $65 8 million.

Speaker Change: I am very thankful for the effort and commitment by all of our teammates throughout Lancaster colony that enabled us to deliver these strong results.

Speaker Change: In our retail segment net sales growth of 2% was driven by carryover pricing volume gains for our successful licensing program continued strong performance for our New York bakery frozen garlic bread and increased demand for our <unk> frozen egg noodles.

Speaker Change: Retail segment sales volume measured in pounds shipped declined one 9% excluding.

Speaker Change: Excluding the impact of our product down weighting initiative and our reduced commitment to private label bread retail sales volume increased one 2%.

Thomas K. Pigott: Thanks, Dave. This quarter featured continued top-line growth, improved gross margin performance, and higher operating income. The gross profit and operating income results exceeded our expectations and set a second quarter record for the company. Second quarter consolidated net sales increased by 1.8% to $485.9 million. Decomposing the Revenue Performance Approximately 1.5 percentage points was driven by volume mix, and the remainder was driven by price. Pricing was favorable in the retail segment, but deflationary in the food service segment due to lower commodity prices.

Speaker Change: Specific to our licensed product retail scanner data for the quarter showed AAA sources up 6% to $38 7 million and olive garden dressing up two 1% to $34 4 million.

Speaker Change: Buffalo Wild wings sauces were about flat at $19 3 million, which compares to a strong quarter last year when sales increased over 26%.

David A. Ciesinski: And operating income increased 28.1% to $65.8 million. I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster Colony that enabled us to deliver these strong results. In our retail segment, net sales growth of 2% was driven by carryover pricing, volume gains for our successful licensing program, continued strong performance for our New York Bakery frozen garlic bread, and increased demand for our Reims frozen egg nougat. However, retail segment sales volume measured in pound shifts declined 1.9 percent, excluding the impact of a product downweighting initiative and a reduced commitment to private label bread.

Speaker Change: Our category, leading New York bakery frozen garlic bread saw sales growth of 4% to $88 7 million for a share of $43 one.

Speaker Change: Sales of our reames frozen egg noodles increased 17, 9% to $16 5 million to capture a 73 share of the frozen pasta neutral category.

I'm also happy to report that chip Palais refrigerated salad dressings, which we launched nationally last may are also performing well with scanner data showing $9 4 million in sales during the quarter.

Thomas K. Pigott: Consolidated gross profit increased by $19.4 million, or 19% versus the prior year quarter, to $121.5 million. Gross margins expanded by 360 basis points to 25%. The gross profit growth was primarily driven by favorable PNOT performance and the company's cost-saving initiatives. Commodity costs were deflationary versus a prior year, but remained elevated versus historical levels. Selling general and administrative expenses increased 9.7% or $4.9 million. The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs. Consumer spending increased versus a low comparative period to support the retail segment growth initiative. Reduced expenditures for Project Ascent, our ERP initiative, partially offset these increases. However, costs related to the project continued to wind down, totaling $2 million in the current year quarter versus $7.5 million in the prior year quarter.

Speaker Change: When combined with the sales of our <unk> brand dressings, our refrigerated dressing sales have grown to represent a category leading 27, 7%.

David A. Ciesinski: Retail sales volume increased 1.2%. Specific to our licensed product, retail scanner data for the quarter showed Chick-fil-A sauces up 6% to $38.7 million, and Olive Garden dressings up 2.1% to $34.4 million. Buffalo Wild Wing sauces were about flat at $19.3 million, which compares to a strong quarter last year when sales increased over 26%.

Speaker Change: Foodservice sales volume measured in pounds shipped increased four 6% during.

Speaker Change: During the period Foodservice segment net sales were adversely impacted by pass through price decreases which resulted from commodity deflation.

Speaker Change: During Q2, we were pleased to deliver a gross profit of $121 5 million and a gross margin of 25%.

Speaker Change: An increase of 360 basis points versus last year.

Speaker Change: Our focus on supply chain productivity value engineering and revenue management remain core elements to further improve our financial performance.

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

Thomas K. Pigott: Consolidated operating income increased $14.4 million, or 28.1%, due to gross profit improvement partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.4%. We estimate our tax rate for the remainder of fiscal 24 to be 23%. Second quarter diluted earnings per share increased 42 cents, or 29%, to $1.87. The net impact of the reduction in project assent expenses was favorable by 15 cents versus the prior year. With regard to capital expenditures, our year-to-date payments for property additions totaled $37.1 million. For fiscal 24, our forecasted total capital expenditures remain at $70 to $80 million.

Thomas K. Pigott: Thanks, Dave This quarter featured continued top line growth improved gross margin performance and higher operating income.

Thomas K. Pigott: The gross profit and operating income results exceeded our expectations and set a second quarter record for the company.

Thomas K. Pigott: Second quarter consolidated net sales increased by one 8% to $485 9 million.

Thomas K. Pigott: Decomposing the revenue performance approximately one five percentage points was driven by volume mix and the remainder was driven by pricing.

Thomas K. Pigott: Pricing was favorable in the retail segment.

Thomas K. Pigott: But deflationary in the foodservice segment due to lower commodity prices.

Thomas K. Pigott: Consolidated gross profit increased by $19 4 million or 19% versus the prior year quarter to $121 5 million.

Thomas K. Pigott: Gross margins expanded by 360 basis points to 25%.

Thomas K. Pigott: Gross profit growth was primarily driven by favorable <unk> performance and the company's cost saving initiatives.

Thomas K. Pigott: The forecast reflects a decline versus a prior year's spending, with the Horse Cave Expansion Project now substantially complete. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.90 per share paid on December 29th represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 61 years. Net cash provided by operating activities for the second quarter was a robust $105.9 million, driven by higher net income and reduced working capital.

Thomas K. Pigott: Commodity costs were deflationary versus the prior year, but remained elevated versus historical levels.

Thomas K. Pigott: Selling general and administrative expenses increased nine 7% or $4 $9 million.

Thomas K. Pigott: The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs.

Thomas K. Pigott: Consumer spending increased versus a low comparative period to support retail segment growth initiatives.

Thomas K. Pigott: Reduced expenditures for project ascent, our ERP initiative, partially offset these increases.

Thomas K. Pigott: Costs related to the project continued to wind down totaling $2 million in the current year quarter versus $7 5 million in the prior year quarter.

Thomas K. Pigott: Thanks, Dave. This quarter featured continued top-line growth, improved gross margin performance, and higher operating income. The gross profit and operating income results exceeded our expectations and set a second quarter record for the company. Second quarter consolidated net sales increased by 1.8% to $485.9 million. Decomposing the revenue performance, approximately 1.5 percentage points was driven by volume mix, and the remainder was driven by price. Pricing was favorable in the retail segment but deflationary in the food service segment due to lower commodity prices. Consolidated gross profit increased by $19.4 million, or 19% versus the prior year quarter, to reach $121.5 million.

Thomas K. Pigott: Our financial position remains strong with a debt-free balance sheet and $133.8 million in cash. So to wrap up my commentary, our second quarter results reflected continued top line increases, record gross profit and operating income performance, and investments to support further growth. I will now turn it back over to Dave for his closing remarks. Thank you.

Thomas K. Pigott: Consolidated operating income increased $14 4 million or 28, 1% due to the gross profit improvement, partially offset by the higher SG&A expenses I mentioned.

Thomas K. Pigott: Our tax rate for the quarter was 23, 4%, we estimate our tax rate for the remainder of fiscal 2004 to be 23%.

Thomas K. Pigott: Second quarter diluted earnings per share increased 42, or 29% to $1 87.

Thomas K. Pigott: The net impact of a reduction in project ascent expenses was favorable by <unk> 15 versus the prior year.

Thomas K. Pigott: With regard to capital expenditures, our year to date payments for property additions totaled $37 1 million.

Thomas K. Pigott: For fiscal 2004, our forecasted total capital expenditures remain at $70 million to $80 million.

Thomas K. Pigott: The forecast reflects a decline versus the prior year spending with the horse cave expansion project now substantially complete.

Thomas K. Pigott: Gross margins expanded by 360 basis points to 25%. Gross profit growth was primarily driven by favorable peanut performance and the company's cost saving initiatives. Commodity costs were deflationary versus a prior year, but remained elevated versus historical levels. Selling general and administrative expenses increased 9.7% or $4.9 million.

Thomas K. Pigott: Our enduring streak of annual dividend increases stands at 61 years.

Thomas K. Pigott: Net cash provided by operating activities for the second quarter was a robust $105 $9 million driven by the higher net income and reduced working capital.

Thomas K. Pigott: Our financial position remains strong with a debt free balance sheet and $133 $8 million in cash.

Speaker Change: So to wrap up my commentary on our second quarter results reflect the continued top line increases record gross profit and operating income performance and investments to support further growth.

Thomas K. Pigott: The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs. Consumer spending increased versus a low comparative period to support the retail segment growth initiative. Reduced expenditures for Project Ascent, our ERP initiative, partially offset these increases. Costs related to the project continued to wind down, totaling $2 million in the current year quarter versus $7.5 million in the prior year quarter. Consolidated operating income increased $14.4 million or 28.1% due to gross profit improvement, partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.4%. We estimate our tax rate for the remainder of fiscal 24 to be 23%. Second quarter diluted earnings per share increased 42 cents, or 29%, to $1.87. The net impact of the reduction in project assent expenses was favorable by 15 cents versus the prior year. With regard to capital expenditures, our year-to-date payments for property additions totaled $37.1 million. For fiscal 24, our forecasted total capital expenditures remain at $70 to $80 million.

David A. Ciesinski: In the food service segment, we expect sustained volume growth from select quick service restaurant customers. However, deflationary pricing is expected to remain a headwind for food service segment net sales in the coming quarter. With respect to our gross profit, we anticipate some continued favorability in our PNOT, but at a sequentially lower level compared to our fiscal second quarter. With respect to our ERP Initiative, Project Ascent, following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. Finally, as we announced in December, we had a change in our board of directors effective January 1st of this year, with the appointment of Alan Harris as our chairman, replacing Jay Gerlach.

Speaker Change: I will now turn it back over to Dave for his closing remarks. Thank you.

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

Dave Demski: The number one accelerate core business growth to number two simplify our supply chain to reduce our cost and grow our margins and number three to expand our core with focused M&A and strategic licensing.

Dave Demski: Looking ahead to our fiscal third quarter, we project retail sales will continue to benefit from our expanding licensing program that will include contributions from the launch of Texas Roadhouse stake sources.

Dave Demski: Im also excited to share that we have added subway as a new partner to our retail licensing program with an initial offering of four different subway sandwich sauces, including their most popular sweet onion teriyaki.

Dave Demski: Both Texas Roadhouse stake sauces, and subway sandwich sauces will begin shipping to retailers later this month.

Dave Demski: In the Foodservice segment, we expect sustained volume growth from select quick service restaurant customers.

David A. Ciesinski: Allen has served as a director on the Lancaster Colony Board since 2008 and was appointed lead independent director in 2018. While Jay is stepping down from his role as executive chairman, he will remain actively engaged as a director. I would like to extend my deepest gratitude to Jay for his leadership and many years of dedication to Lancaster Colony, both as an executive and as the chair of our board. Jay was appointed to Lancaster Colony's Board of Directors in 1985 and is the corporation's longest-serving director.

Dave Demski: Deflationary pricing is expected to remain a headwind for foodservice segment net sales in the coming quarter.

Dave Demski: With respect to our gross profit we anticipate some continued favorability in our peanut butter.

Dave Demski: But at a sequentially lower level compared to our fiscal second quarter.

Dave Demski: With respect to our ERP initiative project ascent following the.

Dave Demski: The successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth.

Thomas K. Pigott: The forecast reflects a decline versus a prior year's spending, with the Horse Cave expansion project now substantially complete. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.90 per share paid on December 29th represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 61 years. Net cash provided by operating activities for the second quarter was a robust $105.9 million, driven by higher net income and reduced working capital.

Dave Demski: Finally, as we announced in December we had a change in our board of directors effective January 1st of this year with the appointment of Alan Harris, as our chairman, replacing Jay Gerlach.

David A. Ciesinski: I would also like to congratulate Alan on his new appointment. Both Jay and Alan bring extensive leadership experience and strategic oversight to our board, which will continue to benefit our company and our shareholders going forward. This concludes our prepared remarks for today, and we'd be happy to answer any questions you might have. At this time, I would like to remind everyone that in order to ask a question, please press star 1 1 on your telephone keypad. The first question comes from Jim Salera of Stephen. Good morning, guys. Congratulations. [inaudible] Yeah, I wanted to start with the inflationary headwind on food service. I think if we back in, it's like a 300 basis point headwind in the quarter. If we think about the back half of the year, is that 300 basis point number a good number to think about, or is it going to increase, or decrease as we progress through the year? Hey, Jim. Yeah, it's Tom.

Dave Demski: Alan has served as a director on the Lancaster Colony Board since 2008 and was appointed lead independent director in 2018.

Speaker Change: While Jay is stepping down from his role as executive Chairman He will remain actively engaged as director.

Speaker Change: I would like to extend my deepest gratitude to Jay for his leadership and many years of dedication to Lancaster colony.

Speaker Change: That's an executive and as the chair of our board <unk>.

Speaker Change: <unk> was appointed to Lancaster colony's board of directors of $19 85, and it's the corporation's longest serving director I.

Speaker Change: I would also like to congratulate Alan on his new appointment, both Jay and Allen bring extensive leadership experience and strategic oversight to our board, which will continue to benefit our company and our shareholders going forward.

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

Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press star one one on your telephone keypad.

Speaker Change: One moment.

Speaker Change: Your first question comes from Jim <unk> of Stephens.

Jim: Hi, Good morning, guys, congrats on a nice quarter.

James Ronald Salera: We expected it to increase a little bit. We're in the 300 to 400 basis point range for the back half on food service deflationary. Okay, and is that maybe just Jim, just a reminder on that, that just as it went up, when it goes down, it's a mark to market pass through. So it's sort of a no-harm event on gross profit.

Jim: Thanks, Jim.

Jim: Yes, I wanted to start with the <unk>.

Jim: Generic headwind on foodservice things will be back in it's like a 300 basis point headwind in the quarter. If we think about the back half of the year is that 300 basis point number a good kind of sticking point to think about or is it going to increase decrease as we progress through the year.

Tom: Hey, Jeremy its Tom.

Tom: We expect it to increase a little bit we're in the three to 400 basis point for the back half on foodservice deflationary.

David A. Ciesinski: That also drives modest margin accretion, as we've talked to you about in the past, it's just one of the nuances of that business in our portfolio. Right. Great. Yeah, that's helpful context. So that's broad-based across the portfolio. It's not just like a few key accounts.

Tom: Okay.

Is that and maybe just Jim just a reminder, on that debt just as the way. It went up when it goes down it's a mark to market pass through so it's sort of a no.

Tom: No harm event on gross profit that also drives modest margin accretion as we've talked to you about in the past. It's just one of the nuances of that business in our portfolio.

David A. Ciesinski: In the food service segment, we expect sustained volume growth from select quick service restaurant customers. However, deflationary pricing is expected to remain a headwind for food service segment net sales in the coming quarter. With respect to our gross profit, we anticipate some continued favorability in our PNOT, but at a sequentially lower level compared to our fiscal second quarter. With respect to our ERP Initiative, Project Ascent, following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. Finally, as we announced in December, we had a change in our board of directors, effective January 1st of this year, with the appointment of Alan Harris as our chairman, replacing Jay Gerlach.

Speaker Change: Right great yes.

Speaker Change: That's helpful context.

Thomas K. Pigott: It's not just like a few key accounts, kind of the whole food service. No, and it's really driven by our basket of commodities, soybean oil first among them in that part of the business. Okay, great. Maybe one other question: you guys got a nice lift from PNOC in the quarter, obviously, but think about it stepping sequentially down. As we think about back half growth, should it be somewhere between 1Q and 2Q's levels, or do we expect it to step down below? I think it was like 23, 23 and a half, the first quarter.

Speaker Change: So that's broad based across the portfolio. It's not just like a few key accounts that just kind of the whole foodservice.

Speaker Change: No, it's really driven by a basket of commodity soybean oil first among them.

Speaker Change: On that part of the business.

Speaker Change: Okay great.

Speaker Change: Maybe one other question you guys got a nice lift from <unk> in the quarter obviously.

Speaker Change: Think about it stepping sequentially down.

Speaker Change: We think about back half gross margins.

Speaker Change: Should it be somewhere between kind of <unk> level or do we expect it to step down below what <unk> was I think it was like 23.

Speaker Change: $23 five first quarter understood.

Speaker Change: So, yes, so hey, Jim.

Jim: I'll answer your question kind of is versus prior year. So if you look at the first half we were up.

Speaker Change: 200 basis points versus prior year on gross margins as we look at the back half.

Jim: We expect it to moderate or more in the 150 to 200, but this is this is very much dependent on the commodity basket and how things play through.

Jim: From from.

Thomas K. Pigott: From a tailwind perspective, we are seeing some commodity deflation in our forecast, and we're seeing some nice supply chain productivity results. And those are baked into our outlook in the back. Great. Thanks, guys. I'll pass.

Jim: A tailwind perspective, we are seeing some commodity deflation in our forecast and we're seeing some nice supply chain.

Jim: Productivity.

Jim: Results and those are baked into our outlook in the back half.

Speaker Change #100: Okay, great. Thanks, guys I'll pass it on.

Thomas K. Pigott: Thanks, Jim. Thank you. One moment for our next question. Your next question comes from Alton Stump of Loop Capital. Great. Thank you. Good morning.

Speaker Change #101: Thanks, Jim.

Speaker Change #102: Thank you.

Speaker Change #103: One moment for our next question.

Speaker Change #103: Your next question comes from Alton Stump of loop capital.

Alton Stump: Great. Thank you good morning.

Alton Kemp Stump: And, you know, I would also echo your comments, Dave, and Jay, having known him for almost 20 years, great to hear that he... next step, but we'll still be involved with the company and also congrats on a quarter, of course, as well. Thank you. Thank you. Well, Pat, please pass your regards on to Jake. Great. Thank you so much.

Alton Stump: I would also echo your comments, Dave as it pertains to <unk>.

Alton Stump: Jay had been done here for almost 20 years, great to hear that.

Alton Stump: Sticking his next step it will still be involved with the company and also congrats on a quarter of course as well.

Speaker Change #104: Thank you. Thank you for that regards answer Jay.

Speaker Change #105: Great. Thank you so much.

David A. Ciesinski: You know, I want to ask about the subway, slipped in there, you know, pretty quickly their day, you know, I mean, that's obviously, you know, seems like pretty good news, you know, if not huge news, you've had, you know, several major announcements over the last couple of years. I know we talked about this before, but how much of an impact do you think the huge success you've had over the last couple of years, particularly is having on, you know, whether it's Texas Roadhouse, Subway, Arby's, et cetera, you know, I would have to think that that has led to an increased incentive for these guys to reach out to you and say, Hey, can we similar to what you're doing with, in this case, Chick-fil-A.

Speaker Change #105: I wanted to ask about the subway announcement, which you kind of slipped in there yes.

Jay Gerlach: Pretty quickly there.

Jay Gerlach: Obviously, it seems like pretty good news if not huge news <unk> had several major announcements over the last couple of years I know you talk about this before but how much of an impact do you think the huge success you've had over the last couple of years with Sequoia is having on weather.

Jay Gerlach: Whether it's Texas Roadhouse subway argues et cetera.

Jay Gerlach: I would have to think that that has led to increased incentives for these guys to reach out to you.

Similar to what Youre doing.

David A. Ciesinski: Maybe we just recolorize this recent snowball of, you know, of course, new signups you've gotten, how much of that do you think, you know... if not directly, certainly indirectly, you know, is a result of the big success you've had with? Yeah, yeah, I think. You know, as I've shared with a lot of, you know, the covering analysts on the phone and you, Alton, Olive Garden was our first foray into the space. And together with Darden Restaurants and Olive Garden, we learned our way through this. And what we learned first and foremost is that the proposition in retail was relevant.

Jay Gerlach: Within this group Chick-fil-a, yes.

Hi, good morning, guys. Congrats. Thanks. Thanks, Jim. Yeah, I wanted to start with the, inflationary headwind on food service. I think if we back in it's like a 300 basis point headwind in the quarter. If we think about the back half of the year, is that 300 basis point number a good kind of point to think about, or is it going to increase, decrease as we progress through the year? Hey, Jim. Yeah, it's Tom.

Jay Gerlach: Maybe just some color on.

Jay Gerlach: All of this recent snowball of new sign ups.

Jay Gerlach: How much of that.

Jay Gerlach: If not directly or indirectly.

Jay Gerlach: A result of the success you've had with your floor.

Speaker Change #106: Yes, yes, I think.

Speaker Change #106: As we have shared with a lot of the <unk>.

Speaker Change #106: Covering analysts on the phone and you Alton.

Speaker Change #106: Olive garden was our first foray into the space and together with Darden restaurants, Olive garden, we've learned our way through this and what we learned first and foremost is that the proposition in retail was relevant and second that the proposition could actually be net accretive to the foodservice business in terms of the positive perception around the brand.

David A. Ciesinski: And second, that the proposition could actually be net accretive to the food service business in terms of the positive perception around the brand. You know, fast forward, you know, as we've moved beyond Darden and obviously continued to nourish that relationship, but added Buffalo Wild Wings and Chick-fil-A. I think it's just allowed us to demonstrate this proposition a little bit more broadly. You know, Texas Roadhouse was a collaborative conversation. It was actually brokered by one of our big customers in retail. And then Subway was one that was an inbound conversation as well.

Speaker Change #106: Fast forward.

Speaker Change #106: As we've moved beyond Darden, and obviously continue to nourish that relationship, but added Buffalo Wild wings and Chipotle I think it's just allowed us to demonstrate this proposition a little bit more broadly.

Speaker Change #106: Texas Roadhouse was a collaborative conversation it was actually brokered by.

Speaker Change #106: One of our big customers in retail.

Speaker Change #106: And then subway was one that was an inbound conversation is as well so.

David A. Ciesinski: So it's, you know, it's an interesting time. And I think it's a manifestation of the fact that the lines between retail and food service are merging. We're seeing more occasions that are at home.

Speaker Change #106: <unk>.

Speaker Change #106: It's an interesting time and I think it's a manifestation of the fact that the lines between retail and foodservice are blending we're seeing more occasions that are at home and our partners out there in foodservice are becoming increasingly open to this idea and on the retail side I think are important partners be they <unk>.

David A. Ciesinski: And, you know, our partners out there in the food service industry are becoming increasingly open to this idea. And on the retail side, I think our important partners, be they Kroger, Walmart, Publix, or whoever, like the idea of bringing relevant new items to these categories. So, you know, it's nothing, no tree grows to the moon, but I think our intention here is just to continue to work carefully, to look for good partners where we line up at the values level. We're looking for long-term relationships in this space. And we're gonna try to see how far we can take this. We do have a pipeline of other folks that we're talking to. We're not necessarily ready to share with you now because these conversations take time, and we're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we've played in today. So, you know, I would love to tell you we have another Chick-fil-A on the hook.

Speaker Change #106: Wal Mart or publix or whoever like the idea of bringing relevant new items to these categories. So.

Speaker Change #106: Nothing no no tree gross to the Moon, but I think our intention here is just to continue to work carefully to look for good partners, where we lineup at the values level. We're looking for long term relationships in this space and we're going to try to see how far we can take this.

Speaker Change #106: We do have a pipeline of other folks that we're talking to we're not ready to necessarily share with you now because these conversations take time.

Speaker Change #106: We're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we played in today. So.

Speaker Change #106: I would love to tell you we have another chick fillet on.

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