Q1 2024 TreeHouse Foods Inc Earnings Call
Right.
Speaker Change: Welcome to the Treehouse Foods first quarter 'twenty 'twenty four conference call all participants will be in listen only mode. After today's presentation. There will be an opportunity to ask questions to ask a question simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please.
Speaker Change: Please press the pound key. Please note that this event is being recorded at this time I would like to turn the call over to Mike to Mats Filer of Treehouse foods for the reading of the Safe Harbor statements.
Mike: Good morning, and thank you for joining us today earlier. This morning, we issued our earnings release and posted our earnings deck, both of which are available within the Investor Relations section of our website at Treehouse Foods Dot com.
Mike: Before we begin I would like to advise you that all forward looking statements made on today's call are intended to fall within the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Mike: These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward looking statements information concerning these risks is contained in the company's filings with the SEC.
Mike: On September 29, 2023, we completed the divestiture of our snack bars business consistent with prior quarters, we will discuss our results on an adjusted continuing operations basis.
Mike: A reconciliation of non-GAAP measures to their most directly comparable GAAP measures can be found in the release and the appendix tables of today's earnings deck.
Mike: With that let me now turn the call over to our chairman CEO and President Mr. Steve Oakland.
Steven T. Oakland: Thank you, Matt and good morning, everyone.
Steven T. Oakland: I am pleased to be with you today to discuss our first quarter financial results and provide an update on our outlook for the remainder of the year.
Steven T. Oakland: But first I'd like to take a moment to reflect on our journey and all that we've accomplished to be positioned as a leader in private brands snacking and beverages.
Steven T. Oakland: It was just 18 months ago that we sharpened our portfolio focus and began the transformation of the company.
Steven T. Oakland: And our team has worked tirelessly to create a new treehouse.
Steven T. Oakland: While the absolute results of our transformation are still forthcoming.
Steven T. Oakland: I am confident that our strategy and execution will drive returns for our shareholders.
Steven T. Oakland: We remain focused on sustaining and growing leadership and depth across our snacking and beverage categories.
Steven T. Oakland: We do this by enhancing our supply chain and delivering superior service.
Steven T. Oakland: This will in turn drive organic growth and create long term value for all of our stakeholders.
Speaker Change: With that let me start with our first quarter results, which are outlined on slide four.
Speaker Change: We delivered net sales of $821 million.
Speaker Change: Which while down three 9% year over year.
Speaker Change: Above the top end of our guidance range of $810 million.
Speaker Change: In addition, our adjusted EBITDA of $46 million was within our guidance range.
Speaker Change: These results were burdened by the work to restart our broth business, which I will speak more about shortly.
I am pleased with our solid start to the year and believe that we are well positioned to deliver on our full year outlook.
As a result, we are reaffirming our 2020 for guidance.
Speaker Change: Pat will provide more detail on our first quarter results.
Pat: And this guidance shortly.
Pat: Taking a look at slide five I would like to provide an update on our net sales pipeline.
Pat: And the significant opportunity for Treehouse to drive organic growth.
Pat: I am encouraged by the pipeline that our team has built in tandem with the work undertaken to transform the company over the last 18 months.
The size of this pipeline has grown by over 20% during the last quarter as our commercial teams continue to pursue new customer partnerships.
Pat: We are executing well against our plans for 2020 for securing numerous opportunities since the start of the year.
Pat: Including wins in cookies, refrigerated dough pickles and pretzels to name a few.
Pat: This will drive growth in the second half results.
Pat: And showcase our strategy in action within the categories, where we have advantaged capabilities and depth.
Pat: Moving on to an update on our broad facility.
Pat: As you can see on slide six our efforts continue to progress as anticipated.
Pat: We have a plan in place and are tracking against it.
We have upgraded our equipment refined and improved our process.
Pat: And have trained and maintained our workforce the facility with the expectation that production will continue to increase in the coming months.
Pat: This should provide a meaningful lift to our second half profitability in.
Pat: In the meantime, our other brought facility is performing well.
Pat: And we have been doing our best to provide as much product as possible to our customers in this period.
Next I'd like to briefly discuss our supply chain initiatives.
Pat: We've continued to invest directly in our supply chain to drive consistent execution through our network enhance our competitive positioning and strengthen our partnerships with our customers.
Pat: Our teams are driving progress around our three priorities.
Pat: Of T Mos procurement and improving our distribution network.
Pat: An example of how T. Mos is impacting the company can be seen on slide seven.
While our overall equipment effectiveness or OE has good momentum and continue to improve in the first quarter.
Pat: Additionally, our team Ahs procedures are contributing to further improvements in service levels that we restored in the first half of 2023.
Pat: We also feel confident in the benefits that we can achieve from our work across procurement logistics and distribution.
Pat: With the timing of these initiatives, we expect to drive significant gross cost savings of roughly $50 million in the latter half of this year.
Pat: Turning now to an update on the industry.
Pat: Treehouse remains attractively positioned at the intersection of two incredibly powerful long term consumer trends.
Pat: The growth of private brand groceries in North America.
Pat: And the consumers shift towards snacking.
Pat: As you can see on slide eight private brands have consistently gained share over the last two decades.
Pat: Private brand still has significant runway for growth.
Pat: Regardless of the short term changes in the economic backdrop.
Pat: Our strategy of deploying capital with a focus to drive market share leadership in consumer trending food and beverage categories should enable treehouse to consistently deliver organic growth.
Pat: Taking a closer look at the first quarter. We saw continued strength of private brand volume compared to national brands in.
Pat: In the categories in which we operate private brand unit sales and measured retail channel were modestly positive.
Pat: Compared to national brands, which continued to decline.
Pat: Additionally, on slide nine you can see the price gaps between national brands and private brands remained elevated relative to historical levels in our categories.
Pat: Underscoring the value that private brands can offer to consumers.
Pat: This environment continues to be supportive of private brand unit share, which increased in each month of the quarter.
Pat: Indeed, our topline performance is improving and our prospects remain strong with new sales opportunities expected to help our second half volume growth.
Pat: We have also made meaningful progress with the restart of our broth facility and are well positioned to deliver against our plans in this business segment in the latter half of the year.
Pat: We are tracking against our goals with Tmall procurement and distribution cost savings plans, which should help drive margin expansion in the second half.
Overall, we are well positioned to capture the strong consumer tailwind, we're seeing play out.
Pat: And I am excited by the trajectory of our business and our position within the industry.
Pat: I will now turn the call over to Pat.
Thanks, Steve and good morning, everyone.
Pat: I'd like to start by thanking the entire Treehouse team for their work this past quarter, which has driven a solid start to our fiscal year.
Pat: I'll begin with a summary of our first quarter results on slide 11.
Pat: Net sales and adjusted EBITDA, both declined relative to the prior year as expected.
Pat: Net sales of $821 million exceeded the top end of our first quarter guidance of $810 million.
Pat: Adjusted EBITDA of $46 million was in line with our expected range.
Pat: On slide 12, we have provided further detail on our year over year net sales drivers are.
Pat: Our first quarter net sales were down three 9%.
Pat: Volume and mix was down year over year, primarily driven by the carryover of business that we exited last year and planned downtime at our broth facility.
This was partially offset by the volume contribution from our Coffey acquisition.
Pat: Additionally, pricing declined due to targeted commodity driven pricing adjustments as we expected.
Pat: On slide 13, I will take you through our adjusted EBIT drivers.
Pat: And mix, including absorption.
Pat: Was down $35 million in the quarter, primarily driven by unfavorable category mix, including lower volume from our broth business due to the restart that we've discussed.
Pat: Peanut pricing net of commodities contributed $13 million.
This was driven by overall lower commodity cost compared to the prior year.
<unk> coffee, where we have pass through arrangements with our customers.
Pat: As we think about our commodity basket and what we've seen year to date.
Pat: There are input costs that have continued to be inflationary.
Pat: While others have moved lower.
Pat: We continue to believe that on a full year deflation across our basket will be modest.
Pat: Within the pockets, where we're seeing higher inflation, specifically cocoa.
Pat: We are in the process of taking pricing actions to recover those increased costs as we move through the remainder of the year.
Pat: Additionally, our procurement and logistics teams are hard at work executing planned initiatives throughout our network to drive profitability improvement.
Pat: Operations and supply chain, where an $8 million headwind versus the prior year.
Pat: Primarily driven by higher labor costs, and the impact of our broth facility restart.
Pat: Lastly.
Pat: SG&A and other contributed negative $15 million versus last year.
Pat: Primarily due to last TSA income relative to the prior period as we expected.
Pat: Our first quarter guidance contemplated these higher operating expenses associated with the TSA arrangement.
Pat: We have taken the necessary actions to reduce these temporary operating expenses moving forward.
Pat: Moving on to slide 14, I'll touch on our capital allocation strategy.
The board and management continue to be focused on deploying capital in a manner that enhances returns for shareholders.
Pat: Our first priority remains investing in our business, which we do organically through capex investments and inorganically by strategically, adding depth and capabilities like we recently did with pickles and the first quarter.
We also continue to execute on our share repurchase program and Opportunistically repurchased $44 million of company stock in the first quarter.
Pat: We will continue to be disciplined and look at all capital deployment decisions through our risk adjusted returns lens, while maintaining our balance sheet strength.
Pat: Turning now to our guidance on slide 15.
Pat: We are maintaining our full year net sales outlook of flat to 2% year over year growth or a range of $3 four three to three 5 billion.
We expect our organic volume and mix to be slightly positive for the year.
From a pricing perspective.
Pat: We are still planning for a modest commodity driven decline year over year.
We continue to anticipate a slight volume and mix benefit from the acquisitions completed in the last year.
Pat: We expect adjusted EBITDA in a range of $360 million to $390 million.
Pat: Additionally, we still expect free cash flow of at least $130 million.
Pat: Finally, we anticipate net interest expense of $56 million to $62 million.
Pat: And capital expenditures of approximately $145 million.
Speaker Change: As it relates to the second quarter.
We expect net sales to be in the range of $770 million to $800 million.
Speaker Change: Representing a decline of approximately 2% at the midpoint.
Speaker Change: And a sequential improvement versus the first quarter.
Speaker Change: The year over year decline will be driven by organic volume mix, primarily due to the planned downtime at the <unk> facility.
Speaker Change: The low single digit decline in pricing will be largely offset by a positive low single digit contribution from acquisition volume primarily related to coffee.
Speaker Change: Our second quarter adjusted EBITDA is expected to be in the range of $55 million to $65 million.
Speaker Change: The restart of our broth facility impacting volume and mix and the lag on pricing to recover the impact of cocoa inflation provide headwinds in the period.
Speaker Change: I'd also like to provide some additional context on the general net sales and adjusted EBITDA cadence and what you can expect for the remainder of 2024.
Speaker Change: As we discussed on our prior call with regard to net sales, we typically experience lower sales in the first half of the year with.
Speaker Change: With the second quarter being our seasonally lowest quarter from a volume standpoint.
Speaker Change: And higher net sales during the second half of the year, which is driven by our seasonally strongest fourth quarter period.
Speaker Change: The split is slightly more pronounced on adjusted EBITDA, driven by stronger demand and higher utilization, which is also most pronounced in the fourth quarter.
Speaker Change: There are some differences in the seasonality in 2024, given the constraints impacting us in the first half due to our broth facility.
Speaker Change: We still believe our net sales will look relatively close to our historical cadence. However.
Speaker Change: However, our adjusted EBITDA performance will likely be closer to 830, 70 split which is more skewed to the second half than our historical results.
Speaker Change: More specifically, we believe we will see a sequential improvement in adjusted EBITDA of $45 million to $50 million from the midpoint of our second quarter guidance range to what we earned in the third quarter.
Speaker Change: We then anticipate another improvement of similar magnitude and adjusted EBITDA between the third and fourth quarter of this year.
Speaker Change: Okay.
Speaker Change: We are confident in our ability to deliver the strong second half for several reasons.
Speaker Change: One.
Speaker Change: Net sales should show improvement due to the new distribution partnerships that largely begin in the third quarter.
Speaker Change: Two cost savings.
Speaker Change: These initiatives provide the greatest impact to our profitability.
Beginning in both the third and fourth quarters with gross savings of roughly $50 million.
Speaker Change: The savings will be driven by our procurement exercise as well as our ongoing team off and continuous improvement initiatives.
Speaker Change: Three.
Speaker Change: Our efforts to restore one of our broth facilities ahead of the peak broth season should allow us to improve service levels ahead of the fourth quarter.
Speaker Change: Finally, we have some incremental pricing actions in place to recover a recent commodity inflation related to cocoa, which will benefit us from a timing perspective in the back half.
Speaker Change: With that I'll.
Speaker Change: I'll turn it back over to Steve for closing remarks.
Steven T. Oakland: Thanks, Pat before I open the call up to your questions I want to thank the entire treehouse team for their hard work and dedication in driving our strategic execution is our private brand leader.
Steven T. Oakland: We continue to prioritize execution growth and margin expansion as we capitalize on the industry and consumer trends.
Steven T. Oakland: As a result, we are well positioned to deliver our full year guidance.
Steven T. Oakland: Looking ahead, we remain focused on delivering for our customers and consumers and extending our leadership in private brands.
Steven T. Oakland: This in turn will create enhanced value for our shareholders.
Speaker Change: With that I'll turn the call over to the operator to open the line for your questions.
Speaker Change: Yes.
Speaker Change: We will now begin the question and answer session I would like to remind everyone in order to Jack a question. Please press star followed by the number one on your telephone keypad.
Speaker Change: Regarding your question.
Speaker Change: The first question comes from Rob Dickerson of Jefferies. Your line is now open.
Great. Thank you so much I have just two quick questions first one is just a slide where you show the price gaps.
Robert Frederick Dickerson: I'm just curious Steve.
Robert Frederick Dickerson: Maybe kind of like what your perspective is as maybe why those price gaps have widened right just given even the branded.
Rob Dickerson: Branded.
Rob Dickerson: Kind of volume decline environment, we've been experiencing over the past few quarters.
Steven T. Oakland: Sure sure good morning.
Steven T. Oakland: I think theres a couple of things.
Speaker Change: There is actually a small resetting the data recently tool to include a larger set of customers now that's all all of that data has the back data in it. So it's all apples to apples data. So I think it gives a little clearer perspective again, one of the largest.
Speaker Change: Hard discounters is now and that data. So that's good news because it gives us a clearer picture.
Speaker Change: But I also think it is.
Speaker Change: For example of the investment the retailer is making in private brand right. The retailer understands that the consumers looking for value or at least theres, a large segment of consumers looking for value.
Speaker Change: I think you can look at the <unk>.
Speaker Change: National media over the last two weeks and <unk> seen a couple of articles both on our largest customers and the investments they're making so.
Speaker Change: I think it's the customer the retailer excuse me <unk>.
Speaker Change: Investing in private label.
Alright Super.
Speaker Change: And then just just on cocoa.
Speaker Change: Clearly theres been a lot of volatility in the commodity.
Speaker Change: Made some comments around some pricing needs to help offset that.
Speaker Change: I'm, just curious kind of how you're thinking about that pricing right I mean, some of the larger branded manufacturers that we have.
Speaker Change: No.
Speaker Change: Fairly well defined hedging practices and they're trying to wait to see where the commodity goes maybe you don't have as much of a hedging.
Speaker Change: Dynamic on that commodity so I'm just curious when you think of those.
Speaker Change: <unk> pricing needs like are those pricing needs.
Speaker Change: Now, 50% higher or kind of.
Speaker Change: It takes a little bit of pricing and kind of see where that commodity goes over the next nine.
Speaker Change: Nine to 12 months yourself. Thank you that's all yeah. So Rob this pad. So I would say, we do hedge a little bit but it is much more short term than what you would see from the from the national branded players. We we tend to tie our hedging with our cycles of when we know we need to go deliver product and so.
Speaker Change: We bring that back to the customers very factually in terms of where we see inflation and Coco in particular is not the largest commodity for us, but the pace of inflation, obviously over the last.
Speaker Change: Several months was a pause point for us to go realize we need to take some pricing and have very actual conversations with our customers, which to date has been received well given what's gone on in that market.
Yes, I mean, I know, Rob you've written a lot about it in the cocoa world is pretty well.
Speaker Change: Established in the customer mind, so it's not a big commodity for us in our hedging tends to tie to our contracts right. So we don't speculate beyond that we we basically cover that as Pat said, we cover what we need to do on the cycles, which we have pricing committed so.
We feel good about the pricing and the response from the customer has been.
Speaker Change: <unk> has.
Speaker Change: There has been as expected there they know Coco has.
Speaker Change: Has moved dramatically.
Speaker Change: Fair enough. Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question comes from Andrew Lazar with Barclays. Your line is now open.
Andrew Lazar: Good morning, everybody good morning, Andrew.
Andrew Lazar: Hi, there.
Andrew Lazar: The EBITDA cadence guidance, you provided implies second half EBITDA of call it $255 million or so on the more conservative end.
Andrew Lazar: And obviously, it's early to get into 'twenty five but.
Andrew Lazar: Back half run rate, assuming you get back to your sort of typical 40 60 historical first half second half split I guess suggests a full year run rate of closer to about $425 million and I'm just trying to think if that's the right way to think about it and if so.
Andrew Lazar: Does that suggest maybe more normalized earnings power of a bit higher than the 400 million that you've spoken to you now that you've sort of de risked the supply chain quite a bit. Thanks.
Speaker Change: Thanks, so much.
Speaker Change: Yeah, Andrew I think.
Speaker Change: What that really reflects just a couple of reasons that we feel strongly about the back half in terms of the progress we're making on the topline.
Speaker Change: And our cost savings pipeline that we've been able to build up in terms of the $50 million a lot of that related to our procurement exercise.
Speaker Change: And then a return to service in broth, which is a bit flat compared to the prior year and so.
Speaker Change: We feel good about the progress that we're making obviously both will continue to see what the macro environment looks like headed into next year.
And we will get back to 2025, when we have.
Speaker Change: When we talk more but we feel good about the progress that we're making as we head into the back half of the year.
Speaker Change: And the only thing.
Andrew the only thing I would add is that the only thing that really kept us from being on our algorithm. We thought we would exit last year at 400, the only thing that kept us from that as the broth exercise so with that behind US we're in a much better place.
Speaker Change: Great and then you may have covered this towards the end and I apologize.
I missed this the some of the new wins in the 20% increase in the pipeline that you've got.
Speaker Change: What's the what is generally the timing of when some of that can actually start flowing through the P&L is it sort of really more fourth quarter. So that is really.
Much more impactful, obviously, the 25 or Ken does that give you that much more confidence in the visibility to the back half of this year as well. Thanks so much.
Speaker Change: Yes, we think that pipeline really starts to deliver in Q3 and Q4, so you'll see it in both and so we.
Ken: We've been very active from that standpoint, I think the environment is very much set up now.
Ken: We're having very constructive conversations with our retailers.
Ken: Steve made reference to what we're seeing.
Ken: More broadly in the marketplace in terms of our largest customers continue to invest in private label and so we're encouraged by that.
Speaker Change: Alright, thanks very much.
Speaker Change: Your next question comes from Matt Schmid.
Speaker Change: Stifel. Your line is now open.
Matthew Edward Smith: Hi, good morning.
Matthew Edward Smith: When you first provided guidance for the year, you talked about the disruption in the broth plant being about a $20 million drag on EBITDA is that still trending towards that level and can you give us some idea of how the costs were phase or are phase between the first quarter in the second quarter.
Speaker Change: Yes, Matt So I think as we've looked at broth I don't think it's materially different from that we probably are a few million dollars more than what we had anticipated.
Matthew Edward Smith: As we as we continue to do the work there is probably a little bit of Q1, Q2 timing, we didn't get quite right, but I would say materially.
Matthew Edward Smith: It was in line with what we thought.
Matthew Edward Smith: We given what we were doing in the ramp curve, there was probably a little bit more impact to Q1 than Q2, but that ramp will continue throughout Q2, we are making product today and so we're we believe we're on our glide path as we work through the rest of the quarter, but.
That's in terms of how we thought about it and what's happening today.
Speaker Change: Thank you and just one more for me last quarter, you talked about the lift that retailers see when they promote private label is being very positive for their profitability are you seeing or are you hearing from your partners that they will become more promotional with private label in the second half of the year maybe.
Matthew Edward Smith: During the seasonal timeframe. Thank you.
Matt I think we will see that in some of the highest.
Matthew Edward Smith: Seasonal categories things like refrigerated dough.
Matthew Edward Smith: We'll see that.
Matthew Edward Smith: With coffee those kinds of things in the back half and it's really driven yes. They want to do it for the margin, but I think there are more confident in the supply chain. This year. So.
Matthew Edward Smith: Last year, they were still a little bit.
Matthew Edward Smith: Uncertainty on some ingredients and packaging things et cetera, I think the fact that we've returned to service will drive a little more promotional activity in the fourth quarter.
Okay.
Speaker Change: Thanks, Steve I'll pass it on.
Speaker Change: Yes.
Speaker Change: Our next question comes from Carla Michelle from Jpmorgan Chase. Your line is now open.
Speaker Change: Thanks.
Carla Marie Casella Hodulik: Follow up on cocoa.
Carla Marie Casella Hodulik: With all that the bigger movements there is it.
Carla Marie Casella Hodulik: Is that category, where you could see it going there right with the way a coffee where you go into more of a pass through contract or is it still better manage through hedging.
Carla Michelle: Yeah.
Carla I think we will have to see volatility I think coffee is is pass through because of the volatility right one weather than Brazil swings in market dramatically.
Carla Michelle: So the retailers like pass through because they feel like that's the truest way for them to participate in both sides of that.
Carla Michelle: If we saw that kind of volatility it appears from what we see now is there some structural issues that maybe just step change the cost of cocoa.
Carla Michelle: That in fact is the case I don't know that it would be as functional as as.
As the pass through we used for volatile commodities.
Carla Michelle: Okay, Great and then Walmart.
Carla Michelle: Big New private label expands.
Carla Michelle: Churn across a bunch of categories I'm, just wondering if youre seeing any other or if you could just talk to that.
Carla Michelle: Frank you did give some good in your slides.
Carla Michelle: Private label on housekeeping here, but any other key winter losses, you can talk to even if you can.
Carla Michelle: I think we touched on a couple of them in the prepared remarks right.
Carla Michelle: And there are a combination of two things.
Frank: I would go I would take it back one step and I would say that.
Carla Michelle: 18 months ago, we sold 40% of the company right.
Carla Michelle: So for the last year or so the organization has been focused on TSA and reorganization is to run this new business and separate that was all intertwined in our distribution systems et cetera.
Carla Michelle: We now have the organization focused solely on building that pipeline and focused on our capabilities and our capacity and aligning those with the best opportunities for both sales and margins across the industry.
Carla Michelle: So things like what you saw that announcement of new private label.
Carla Michelle: I think one of the hard discounters had an article in the Wall Street Journal as well so there's been a lot out lately.
Carla Michelle: But our team we are really pleased we can now focus and align that team on those opportunities rather than on the administration of the divestiture. So.
Carla Michelle: That's where we see the biggest opportunity and why we think the pipeline. So so solid right now.
Carla Michelle: Okay, and then just one balance sheet.
Carla Michelle: On the working capital side.
Carla Michelle: You talked about the use of cash this quarter.
Carla Michelle: These were also lower is that does that.
Carla Michelle: A decision that youre, making to capture.
Or a better terms or do we see those can expand back to more normal levels in the next few quarters.
Speaker Change: I think that there was nothing different decisions that we've made really on that so I think thats, probably just a function of timing and so we will continue to see those be at historical levels, we're not seeing any pressure on vendor terms or anything as we are.
Speaker Change: As we move forward.
Speaker Change: Okay.
Speaker Change: I'm sorry did you guys did working capital for the year like Scott, whether it would be north or you.
Speaker Change: No we did not.
Speaker Change: We did guide free cash flow.
Speaker Change: At least $135 million.
Speaker Change: 130, sorry.
Speaker Change: Great. Thanks.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: The next question comes from William Reuter from Bank of America. Your line is now open.
Good morning.
William Michael Reuter: My first question on the new business wins that you laid out where those wins that have.
William Michael Reuter: <unk> been awarded to you since your initial guidance would've been provided so or these kind of these are some positive benefits and that they're being offset by maybe a little bit of a delay in Nebraska facility or are these wins that you already knew you were going to be.
William Michael Reuter: Getting compared to guidance.
No. This is the natural progression right. We guide early in the year and these things tend to materialize as we go so that sort of a rolling cycle. So I would say these are probably new new news.
William Michael Reuter: And the broad progress as we as we spoke to earlier, we think is right on what we guided but we feel really good about that plan and we think it's right on where we are where.
William Michael Reuter: Where we initially thought.
Speaker Change: Got it.
Speaker Change: And is there any change in the competitive bidding environment for some of those private label volumes in terms of is it becoming more or less competitive such that the profitability is either.
Speaker Change: Greater or less than it had been in the past.
Speaker Change: No I think there's areas of volatility our business.
Speaker Change: Though simpler than before is still a lot of different categories.
Speaker Change: So I think it's very category specific I think its.
Speaker Change: We tend to do really well in those areas, where we're deeply at which means we have capability, we have cost structure and we have the assortment necessary.
Speaker Change: And then those other areas, where we're investing to build that depth. So.
Speaker Change: We tend to find the margins the best in those places, where we have all the capabilities and the cost structure appropriately aligned.
Speaker Change: Got it and then just lastly for me on capital allocation you made some prepared comments about share repurchases.
Speaker Change: Last year, you had a handful of acquisitions what are you seeing in the M&A landscape and how do you think your capital will be allocated between.
Potential additional acquisitions versus share repurchases sure.
Speaker Change: I think we always say that our first priority for capital is to invest in our business and the acquisitions you've seen of late have all been capability driven right.
Speaker Change: We really address star capability gaps in coffee last year, we did that in pickles here. It actually we announced it last year, but actually closed the first week of January.
Speaker Change: So that M&A would be an opportunity to build capabilities in those in those key businesses, where we see growth opportunity. So.
Speaker Change: I don't I don't see transformational M&A in the near term.
Speaker Change: Never say never but I don't see that in the near term, but but following that then it's about maintaining our balance sheet, obviously balance sheet strength and then it's returning capital to shareholders.
Speaker Change: So we think we can do all three quite frankly.
Speaker Change: Great Alright, that's all from me. Thank you.
Speaker Change: The last question today comes from Gene <unk>.
Gene: From Stephens, Inc. Your line is now open.
Gene: Hi, guys. Thanks for taking my question.
Gene: Good morning.
Gene: Good morning.
Gene: Just wanted to ask on the Labor front I know we've heard other companies talk about labor being kind of one of the sticky areas of inflation.
Gene: Yes.
Gene: We would put cost can you just give us any color you guys are seeing on the labor for manufacturing facilities and any opportunity to leverage that as we move forward.
Gene: Sure. Jim This is Pat so I would say we are generally seeing some some labor inflation and that was built into the cost structure in terms of how we thought about the year go forward.
We've tried to be very forward and working with our locations to ensure we've got the right labor Palmer, we're paying the right wages and we've done that over a couple of years and so we think that well theres probably challenges depending upon location generally speaking we feel like we're in a pretty good place and so the investments we've made both from a wage as well as.
Gene: Just shed schedules and things like that are trying to make us an attractive a player in those places in which we operate.
Speaker Change: Yes, the only thing I would add with that I would add just one thing.
Speaker Change: We talk a lot about the transformation, we did that put us in higher growth higher margin categories, but the other side of that transformation as it improved our balance sheet and it put us in a position where we can invest in we can targeted investment in our business and we do have some locations where labor is tight and those are the places where were you.
Speaker Change: Using automation right, where we're we're using co bots and.
Speaker Change: Automated forklifts and those kinds of things to supplement our labor and to put our our workforce in higher value.
Speaker Change: More rewarding positions and so I think the other side of our transformation really put us in a place where we can we can manage the challenges with labor, we think will bring over the future not just the current ones, but the future months.
Speaker Change: That's helpful and maybe if I can ask a follow up on that you talked about your OE was ahead of your internal target in <unk>, how much of that is just better visibility in the plants and some of the automation versus maybe lower labor turnover that you have.
Speaker Change: Employees that work on the lives for long enough they will make.
Speaker Change: Mistakes with somebody to just started might make them a better overall grasp of the manufacturing process.
I think it's probably a couple of things Tim.
Speaker Change: We took some time last year, if you recall to invest in our plants both from a team off and ensuring we are operating consistently across our plants. So that I think that some of the team also investment in terms of the ways. We work on that I would say it's also.
Speaker Change: Some of the maintenance activities that we've invested in over the year is to get our equipment running more reliably.
Speaker Change: We've tried to make sure we could deliver the season in the places where we know thats important and so I think it's a combination of both our investment in people as well as the investment equipment that we've made over the last year.
Speaker Change: Great. Thanks, guys.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Steve Volkmann for closing remarks.
Steven T. Oakland: Yes, I'd like to thank you all for being with US today and patent I look forward to speaking with you individually into next quarter.
Speaker Change: Great day.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.