Q2 2024 Post Holdings Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Q2 2024 Post Holdings Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 1. Please be advised that today's call is being recorded. I would like to hand the call over to your speaker today, Daniel ORourke, Investor Relations for Post. Please go ahead.
Good day and thank you for standing by welcome to the Q2 2024 post her post Holdings earnings Conference call. At this time, all participants are in listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question you will need to press star. One one please be advised that today's call is being recorded.
I would now like to hand, the call over to your speaker today, Daniel O'rourke Investor Relations proposed please go ahead.
Daniel ORourke: Good morning. Thank you for joining us today for our post-second quarter fiscal 2024 earnings call. I'm joined this morning by Rob Vitale, our President and CEO, Jeff Zadoks, our COO, and Matt Mainer, our CFO and Treasurer. Rob, Jeff, and Matt will make prepared remarks and afterwards will answer your questions.
Daniel ORourke: Good morning, Thank you for joining us today for post second quarter fiscal 2024 earnings call.
Daniel ORourke: I'm joined this morning by Rob Vitale, our President and CEO, Jeff Statics are C O O and Matt <unk>, our CFO and treasurer.
Daniel ORourke: Rob and Jeff and Matt will make prepared remarks, and afterwards, we'll answer your questions.
Daniel ORourke: The press release that supports these remarks is posted on both the investors and the SEC filing sections of our website, and is also available on the SEC's website. As a reminder, this call is being recorded, and an audio replay will be available on our website at postholdings.com. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
Daniel ORourke: The press release that supports these remarks is posted on both the investors and the SEC filing section of our website and is also available on the Sec's website.
Daniel ORourke: As a reminder, this call is being recorded and an audio replay will be available on our website at post holdings Dot com.
Daniel ORourke: These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. This call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, please see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.
Daniel ORourke: Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
Daniel ORourke: These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements.
Daniel ORourke: This call will discuss certain non-GAAP measures for a reconciliation of these non-GAAP measures to the nearest GAAP measure. Please see our press release issued yesterday and posted on our website.
Robert V. Vitale: Thank you, Daniel, and good morning. Our business maintained the momentum we saw in Q1 with a strong Q2. Strong manufacturing performance, disciplined pricing, and solid cost management continue to drive results. However, with isolated exceptions, volumes generally declined.
Daniel ORourke: With that I will turn the call over to Rob. Thank you Danielle and good morning.
Robert V. Vitale: Our business maintain the momentum we saw in Q1 with a strong Q2.
Robert V. Vitale: Strong manufacturing performance disciplined pricing and solid cost management continued to drive results.
Robert V. Vitale: With isolated exceptions volumes generally declined.
Robert V. Vitale: As we have previously mentioned, SNAP reductions are a meaningful component of the decline. However, there also remains a disconnect between macroeconomic statistics and consumer sentiment. Over time, we expect this to largely impact consumption location and price points rather than volume. We like the balance our portfolio provides by virtue of the mix of products, price points, and channels. Within our consumer brand segment, grocery and pet continue to perform well. While we have incremental investments to make, our confidence continues to grow regarding the sustainable contribution run rate from our pet acquisition.
Robert V. Vitale: As we have previously mentioned snap reductions are a meaningful component of the decline. However, they're also remains a disconnect between macroeconomic statistics on consumer sentiment overtime, we expect us to largely impact consumption location and price points rather than volume.
Robert V. Vitale: We like the balance of our portfolio provides by virtue of the mix of products price points and channels.
Robert V. Vitale: Within our consumer brand segment grocery and pet continue to perform well.
Robert V. Vitale: While we have incremental investments to make our confidence continues to grow out regarding the sustainable contribution run rate from our pet acquisition.
Robert V. Vitale: Cereal remains well positioned in value and is holding its own in premium, with margins improving in both category subsegments. Equally important, the integration of PET into PCB is progressing and remains on track. Our food service business continues to deliver strong results, demonstrating its value proposition to customers through excellent service levels and its value-added product offering. While we saw a bit of a slowdown in restaurant foot traffic this quarter, we believe it is temporary, and our historical algorithm and growth drivers remain intact.
Robert V. Vitale: Cereal remains well positioned in value and it's holding its own in premium with margins improving in both category sub segments.
Robert V. Vitale: Equally important the integration of pet into P. C. B is progressing and remains on track.
Our foodservice business continues to deliver strong results demonstrating its value proposition to customers through excellent service levels and its value added product offerings.
Robert V. Vitale: While we saw a bit of a slowdown in restaurant foot traffic. This quarter. We believe it is temporary and our historical algorithm and growth drivers remain intact.
Robert V. Vitale: Refrigerated retail continues to focus on driving volumes through its vastly improved supply chain, while Weedabix remains resilient in a challenging, albeit improving, environment. As far as capital allocation is concerned, we remain opportunistic with our triangular focus on share buybacks, leverage reduction, and M&A. The M&A pipeline has increased, and we continue to look for opportunities, both strategic and tactical. The debt refinancing we completed in February was exquisitely timed and created broader options for each bucket of capital allocation opportunities. Overall, I am very pleased with our performance through the first half of the fiscal year and remain very optimistic about the balance of FY24. With that, I will now turn the call over to Jeff.
Robert V. Vitale: Frigerator retail continues to focus on driving volumes through its vastly improved supply chain, while weetabix remains resilient in a challenging, albeit improving environment.
Robert V. Vitale: As far as capital allocation, we remain opportunistic with our triangular focus on share buybacks leverage reduction and M&A.
Robert V. Vitale: The M&A pipeline has increased and we continue to look for opportunities both strategic and tactical.
Robert V. Vitale: The debt refinancing we completed in February was exquisitely timed and created broader options for each bucket of capital allocation opportunity.
Robert V. Vitale: Overall, I am very pleased with our performance through the first half of the fiscal year and remain very optimistic for the balance of FY 'twenty four.
Robert V. Vitale: With that I will now turn the call over to Jeff.
Jeff A. Zadoks: Thanks, Rob. And good morning, everyone.
Jeff A. Zadoks: Thanks, Rob and good morning, everyone.
Jeff A. Zadoks: Starting with PCB, both our grocery and pet food products had another strong quarter, each driven by growth in our value offerings. Within grocery, Cereals performed in line with the category as we held branded share in both dollars and pounds. Serial category volumes showed some signs of improvement as the rate of decline slowed to 3.6% for the quarter.
Jeff A. Zadoks: Starting with PCB, both our grocery and pet food products had another strong quarter, each driven by growth in our value offerings within grocery cereal performed in line with the category as we help branded share in both dollars and pounds.
Jeff A. Zadoks: Cereal category volume showed some signs of improvement as the rate of decline slowed to three 6% for the quarter we.
Jeff A. Zadoks: We expect category buy-ins to continue to normalize in Q3, now that we have fully lapped the reduction in SNAP benefits. The main profit drivers within grocery continue to be carryover pricing and strong operating cost performance. For our pet food brands, category share grew in both dollars and pounds. This growth, combined with strong manufacturing performance, drove our results. We further ramped up investments in our premium pet brands in G&A in preparation for exiting the TSA with Smokers.
Jeff A. Zadoks: We expect category volumes, we will continue to normalize in Q3 now that we have fully lapped the reduction in snap benefits.
Jeff A. Zadoks: <unk> profit drivers within grocery continue to be carryover pricing and strong operating cost performance.
Jeff A. Zadoks: For our pet food brands category share grew in both dollars and pounds. This growth combined with strong manufacturing performance drove our results.
Jeff A. Zadoks: Further ramped investments in our premium pet brands in G&A in preparation for exiting the TSA with smokers.
Jeff A. Zadoks: Finally, from a network and supply chain perspective, we are focused on optimization for both serial and pet. We're on track to capture the benefits of closing our Lancaster, Ohio, cereal plant in fiscal 25. For PET, we are implementing an optimized warehouse and distribution network, combined with grocery, and lining up all the necessary internal and third-party capacity to fully exit the Smuckers-COPAC agreement in the first half of 2025. Moving to food service, we had another strong quarter as favorable mix and customer renewals were supported by excellent service levels. While we did see a pullback in overall egg volumes from declines in restaurant foot traffic and inventory reductions at certain customers.
Jeff A. Zadoks: Finally from a network and supply chain perspective, we are focused on optimization for both cereal and pet.
Jeff A. Zadoks: We are on track to capture the benefits of closing, our Lancaster, Ohio, or Hyatt cereal plant in fiscal 'twenty five.
Jeff A. Zadoks: For pet, we are implementing and optimize warehouse and distribution network combined with grocery and lining up all the necessary internal and third party capacity to fully exit the smokers co pack agreement in the first half of 2025.
Jeff A. Zadoks: Moving to foodservice, we had another strong quarter as favorable mix and customer renewals were supported by excellent service levels while.
Jeff A. Zadoks: While we did see a pullback in overall AG volumes from declines in restaurant foot traffic and inventory reductions at certain at certain customers.
Jeff A. Zadoks: We continue to see growth, strong growth, within our higher margin pre-cooked egg products, which were up approximately 5%. There remains significant runway in our business by not only moving existing customers up the product value chain, but also by converting the 40% of food service industry volumes still using shell eggs. Our value proposition has never been stronger or more evident as wage rates drive operators to seek more efficiencies. Rounding out the discussion of food service, although we continue to see cases of avian influenza, including cases found in dairy herds. We have not had any additional outbreaks on our owned or contracted farms.
Jeff A. Zadoks: We continue to see growth strong growth within our higher margin precooked egg products, which were up approximately 5%.
Jeff A. Zadoks: There remains significant runway in our business by not only moving existing customers up the product value chain, but also by converting the 40% of foodservice industry volumes still using shell eggs.
Jeff A. Zadoks: Our value proposition has never been stronger or more evident as wage rates drive operators to seek more efficiencies.
Jeff A. Zadoks: Rounding out the discussion of foodservice, although we continue to see cases of avian influenza, including cases found in dairy herds.
Jeff A. Zadoks: Have not had any additional outbreaks within our owned or contracted firms.
Jeff A. Zadoks: Lastly, we continue to ramp our RTD-shaped co-manufacturing for Bellring with improving production performance in the quarter, albeit well behind our initial start-up plan. We expect to hit our targeted profit run rate for shakes exiting fiscal Q4. Turning to Weetabix, UK serial category volumes declined 3%, but we outperformed the category given our participation in private label. From a supply chain standpoint, our overall service level showed improvement. Outside of serial, UFIT continues to be a volume bright spot providing an attractive source of growth.
Jeff A. Zadoks: Lastly, we continue to ramp our RTD shakes co manufacturing for Bell ring with improving production performance in the quarter.
Jeff A. Zadoks: Be it well behind our initial startup plan.
Jeff A. Zadoks: We expect to hit our targeted profit run rate for shakes exiting fiscal Q4.
Jeff A. Zadoks: Turning to Weetabix UK cereal category volumes declined 3%, but we outperformed the category given our participation in private label.
From a supply chain standpoint, our overall service levels showed improvement.
Jeff A. Zadoks: Outside of serial <unk> continues to be a volume bright spot, providing an attractive source of growth.
Jeff A. Zadoks: The refrigerated retail business had a solid quarter driven by continued manufacturing and cost management. We are focused on driving demand and pulling all levers to do that, including advertising, promotion, and innovation. With that, I'll turn the call over to Matt.
Jeff A. Zadoks: Our refrigerated retail business had a solid quarter driven by continued manufacturing and cost management.
Jeff A. Zadoks: We are focused on driving demand and pulling all levers to do that including advertising promotion and innovation.
Jeff A. Zadoks: With that I'll turn the call over to Matt.
Matthew J. Mainer: Thanks Jeff and good morning everyone. Second quarter consolidated net sales were $2 billion, and adjusted EBITDA was $345 million. Net sales increased 23% driven by recent acquisitions. Excluding acquisitions, sales declined 5% driven by lower overall volumes and the impact of our food service pricing pass-through model partially offset by higher retains pricing across our businesses. Supply chain performance and fill rates remain strong while inflation persists in areas such as sugar and labor costs, with some offsets from lower freight and grain costs. Finally, SG&A increases.
Matt: Jonathan and good morning, everyone second quarter consolidated net sales were 2 billion and adjusted EBITDA was $345 million net sales increased 23% driven by recent acquisitions, excluding acquisitions sales declined 5% driven by lower overall volumes and the impact of our foodservice pricing pass through model, partially offset that.
Matt: Higher retains pricing across our businesses.
Matt: Supply chain performance and fill rates remained strong while inflation persisted in areas, such as sugar and labor costs with some offset from better freight in grain costs.
Matt: Finally, SG&A increase as we continue and targeted marketing investments in our retail businesses.
Matthew J. Mainer: We continue to target marketing investments in our retail businesses. Excluding the benefit of pet food acquisitions and post-consumer brands, net sales increased 1% and volumes decreased 4%. Average net pricing, excluding pet food, increased 5%. Volumes declined primarily in non-retail, cereal, and peanut butter. Segmented Adjusted EVA increased 74% versus prior year as we benefited from the strong contribution of pet food and improved grocery performance. Weedabix net sales increased 10% year over year.
Matt: Excluding the benefit of pet food acquisitions post consumer brands net sales increased 1% in volumes decreased 4% average net pricing, excluding pet food increased 5%.
Matt: Volumes declined primarily in non retail cereal and peanut butter.
Matt: Adjusted EBITDA increased 74% versus prior year as we benefited from the strong contribution of pet food and in periods grocery performance.
Matt: <unk> net sales increased 10% year over year sales benefited from the <unk> acquisition, and a 440 basis point tailwind from a stronger British proud on.
Matthew J. Mainer: Sales benefited from the D-site acquisition and a 440 basis point tailwind from a stronger British Prown. On a currency and acquisition-neutral basis, net sales were flat, and volumes increased 3% while the mix shifted to private label products. Segment adjusted EBITDA decreased 1% versus prior year as increased volumes and payroll FX were offset by a private label mix shift and increased marketing costs. Food service net sales and volumes declined 12% and 2%, respectively.
On a currency and acquisition neutral basis, net sales were flat and volumes increased 3% while mix shifted to private label products.
Matt: Segment, adjusted EBITDA decreased 1% versus prior year as increased volumes in payroll FX were offset by private label mix shift and increased marketing costs.
Matt: Foodservice net sales and volumes declined 12% and 2% respectively.
Matthew J. Mainer: Revenue reflects pass-through of lower grain costs and a reduction in pricing due to the removal of avian influenza price headers from last year. Volumes reflect decreases in our liquid egg products, partially offset by growth in our precooked egg and potato products. Adjusted EBITDA decreased 8% as the removal of avian influenza price headers from last year and lower egg volumes were partially offset by a favorable mixed shift to higher-margin pre-cooked eggs and customer renewal prices. Refrigerated retail net sales decreased 8%, and volumes decreased 5%. Both were driven by distribution losses in egg and cheese products.
<unk> reflects pass through of lower grain costs and a reduction in pricing due to the removal of avian influenza a price adder from last year volumes.
Matt: Volumes reflect decreases in our liquid egg products, partially offset by growth in our precooked egg and potato products.
Matt: Adjusted EBITDA decreased 8% as the removal of avian influenza price at <unk> last year, and lower AG volumes were partially offset by favorable mix shifts to higher margin pre cooked eggs and customer renewal pricing.
Matt: Refrigerated retail net sales decreased 8% in volumes decreased 5%.
Matt: Both are driven by distribution losses in egg and cheese cheese products segment adjusted EBITDA increased 3% led by improvements in plant cost per I'm, sorry plant cost performance on SG&A.
Matthew J. Mainer: Segment adjusted EBITDA increased 3% led by improvements in plant cost, I'm sorry, plant cost performance, and SG&A. Turning to cash flow, in the second quarter, we generated $250 million from operations driven by increased profitability and improved working capital. Our net leverage decreased by two-tenths of a turn to 4.3 times. Capital expenditures in the quarter were approximately $100 million, driven by continued investments in our pet food business and the expansion of our Norwalk, Iowa, pre-cooked egg facility.
Turning to cash flow in the second quarter, we generated $250 million from operations driven by increased profitability and improved working capital our net leverage decreased two tenths of a turn to four three times.
Matt: Capital expenditures in the quarter were approximately $100 million driven by continued investments in our pet food business and the expansion of our Norwalk, Iowa Precooked egg facility.
Matthew J. Mainer: Outside of internal investments, we focused on refinancing and building capital capacity in Q2. Our refinancing significantly added to our debt maturity runway as we cleared out three years of near-term maturities. In addition, we added to our overall liquidity as we increased the size of our revolver by $250 million to $1 billion. Finally, given the strong first half of the year, we again raised our guidance. Within this new guidance range, we see the remaining two quarters of the year as fairly balanced to each other.
Matt: Outside of internal investments, we focused on refinancing and building capital capacity in Q2, our refinancing significantly added to our debt maturity runway as we cleared out three years of near term maturities. In addition, we added to our overall liquidity as we increase the size of our revolver by $250 million to 1 billion.
Matt: Finally, given the strong first half of the year, we again raised our guidance within this new guidance range. We see the remaining two quarters of the year is fairly balanced to each other relative to Q2, we see seasonal lows for refrigerated retail in Q3, and Q4 with some additional investments around our pet integration being the biggest sequential drivers.
Matthew J. Mainer: Relative to Q2, we see seasonal lows for refrigerated retail in Q3 and Q4, with some additional investments around our PET integration being the biggest sequential drivers. With that, I will turn the call back over to the operator for Q&A.
Speaker Change: With that I will turn the call back over to the operator for Q&A.
Operator: Thank you. If you'd like to ask a question, please press star 11. If your question has been answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Andrew Lazar with Barclays. Your line is open.
Speaker Change: Thank you if you'd like to ask a question. Please press star one one.
Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Speaker Change: Our first question comes from Andrew Lazar with Barclays. Your line is open.
Andrew Lazar: Good morning, everybody Hey, good morning, Andrew.
Andrew Lazar: Robert, I wanted to start just thinking through what pet margins might have looked like in the quarter and sort of where we go from here. If we put a low to mid-20s EBITDA margin on legacy PCB and adjust a little bit for the perfection deal, maybe we get around $50 million or so in EBITDA contribution from the larger pet asset, or maybe about a 12% EBITDA margin. And in the last couple quarters, I think margins were also in that range, but you've kind of warned it might be a bit transitory due to some benefits, such as pipeline fill.
Andrew Lazar: Good morning.
Andrew Lazar: I wanted to start just.
Andrew Lazar: Thinking through what what pet margins might've looked like in the quarter and sort of where we go from here.
Andrew Lazar: If we put a low to mid Twenty's EBITDA margin on legacy PCB and adjusted a little bit for the perfection deal.
Andrew Lazar: Maybe we get around $50 million or so in EBITDA contribution from the larger pad asset or maybe about a 12% EBITDA margin I know the last couple of quarters. I think margins were also in that range, but you've kind of warned it might be a bit transitory due to some some benefits such as the pipeline fill and obviously you've talked again today about the need to work plan.
Andrew Lazar: And obviously, you've talked again today about the need or plan for some incremental investment moving forward. So it sounded like margins would revert back a little, but we haven't seen that yet. So I guess I'm just wondering if my math is reasonably accurate and then, you know, what maybe drove the strong performance, because we've had a couple quarters in a row now with this sort of, you know, low to maybe a little bit higher teens EBITDA margin in PET, and I'm trying to get a sense of what you think is the sustainability of that.
Andrew Lazar: For some incremental investment moving forward.
Andrew Lazar: So it sounded like margins would revert back a little but we haven't seen that yet so I guess I'm just wondering if my math is reasonably accurate and then.
Andrew Lazar: What maybe drove the strong performance because we've got a couple of quarters in a row now with this sort of.
Andrew Lazar: Load or maybe a little bit higher teens, EBITDA margin and patent I'm trying to get a sense of what you see is the sustainability of that.
Robert V. Vitale: Well, if anything, you're a touch on the low side in terms of contribution. So, as you rightfully point out, margins have been running reasonably attractively and consistent with some of the top-down talk we had at the outset, that the margin structure was just inappropriately low and needed to be addressed, so that's largely been addressed with better execution through the plans, filling the unmet need, coming off allocation with the exception of some certain products where we remain with some capacity issues.
Speaker Change: Well if anything you are a touch on the low side in terms of contribution.
Speaker Change: So as you rightfully point out margins had been running.
Speaker Change: Reasonably attractive and consistent with some of the top down talk we.
Speaker Change: We had at the outset that the margin structure was just an appropriately low and needed to be addressed so that that's largely been addressed.
Speaker Change: With better execution through the plants filling the unmet need.
Speaker Change: Coming off allocation with the exception of some certain products, where we remain with some capacity issues. So I think that the.
Robert V. Vitale: So I think that the foundation that you just articulated is accurate, but so are the historical comments that we need to make some investments. But what I would tell you is those investments are not going to dramatically change the margin structure. It'll be within that range of low teens where we think this business should operate on an ongoing basis.
Speaker Change: That the foundation that you just articulated is accurate, but so is the historical comments that we need to make some investments, but what I would tell you that those investments are not going to dramatically change the margin structure it'll be.
Speaker Change: Within that range of.
Speaker Change: Hello teens, where we think this business should operate on an ongoing basis.
Andrew Lazar: Got it, thanks for that. In the prepared remarks just now, you talked about how you think the slowdown you've seen in restaurant traffic will be temporary and also that, So, we expect the serial category sort of to normalize in the fiscal second half as you implement some of the changes. And so, I guess if I just take those two sort of together, it suggests a little bit of a brighter outlook potentially for sort of the industry trend as we move forward.
Speaker Change: Got it thanks for that and then.
Speaker Change: In the prepared remarks, just now you talked about how you think.
Speaker Change: Restaurant slowdown <unk> seen in restaurant traffic you think it will be temporary and also that.
We expect the cereal category sort of to normalize in the fiscal second half as you lap some of the changes to snap.
Speaker Change: And so I guess, if I just take those two sort of together.
Speaker Change: It suggests a little bit of a brighter outlook potentially for sort of the industry trend as.
Andrew Lazar: And I don't know, maybe that's a little bit more optimistic than I've heard from some others in the space about the timing of this recovery. And just trying to get a sense of if I'm reading that right, and maybe it's just that you are starting to see some of this play out, which gives you that sort of level of improved visibility.
Speaker Change: As we move forward and.
Speaker Change: I don't know, maybe that's a little bit more optimistic than I've heard from some others in the space about maybe the timing of this recovery and just trying to get a sense of.
Speaker Change: If I'm reading that right or.
Speaker Change: Maybe it's just that you are starting to see some of this play out which gives you that sort of level of improved visibility.
Robert V. Vitale: Or maybe I'll move the plan. Yeah, I think...
Robert V. Vitale: I think the question is timing. I don't think we're significantly different in our outlook from most of our peers. So maybe it was more of an explanation when we said temporary. I didn't mean to imply it was an immediate turnaround. I think we've got, you know, some inflationary issues have hit food service that have already hit retail, and we're seeing some shift back to retail. Volumes in retail are a bit more difficult to parse through because, in addition to having some shift from away from home to in-home, we have the SNAP lapping to contend with.
Speaker Change: Maybe I'll have I think.
Speaker Change: I think the question is timing I don't think were significantly different in our outlook than most of our peers. So maybe it was more an articulation of where he said temporary.
Speaker Change: I didn't mean to imply it was an immediate turnaround I think we've got.
Speaker Change: Some inflationary issues have had foodservice it already hit in retail and we're seeing some shift back to retail volumes and retailer a bit more difficult to parse through because in addition to having some shift from away from home to in home, we have the snap lapping to contend with so parsing out causation is a bit more challenging.
Robert V. Vitale: So parsing out causation is a bit more challenging. The comment about temporary Away From Home was more, you know, if you look at the historical context, these things happen. We've had some, you know, significant customers with some foot traffic issues. I'm very confident with the strong channel partners we have that those will be corrected, and that we will go back to growth in foot traffic. Whether that's been, you know, one quarter, two quarters, you know, I couldn't tell you.
Speaker Change: The comment about temporary.
Speaker Change: Away from home was more if you look at historical context.
Speaker Change: These things occur we've had some <unk>.
Speaker Change: Customers with some foot traffic issues I'm very confident with the strong channel partners. We have that those will be corrected and that we will go back to growth.
And foot traffic.
Speaker Change: Whether that's been one quarter two quarters.
Andrew Lazar: Very quick last one. You mentioned the aseptic plant being up to full capacity really towards the end of the fiscal year. It sounded new to me and a little bit pushed back, and maybe I have that wrong, because I also haven't heard that on the flip side, at least yet, from the folks over at Bellring, being an issue. So, I guess, where's the disconnect there, or has something changed? Yeah, I don't think there's a disconnect. I think you're reading it right.
Speaker Change: Couldn't tell you.
Speaker Change: Got it and then very quick last one just you mentioned.
Speaker Change: The ace uptick plant being up to full capacity really towards the end of their fiscal year. It sounded new to me and a little bit pushed back and maybe I have that wrong. Because I also haven't heard that on the flip side at least yet from from the folks over at Bell ring being an issue so I guess where do I.
Robert V. Vitale: From a post perspective, we've had some startup challenges that we're working through very methodically, not unusual for a startup. One of the reasons this is such an attractive category to be in is it's not easy, so we're overcoming some of those startup issues that everyone contends with, and maybe we should have planned more of them. In my dual-hat role, Bellring anticipated more of the problems than Post did because they've had more startup experiences, so their numbers are already factored into the run rate that we are now achieving. There's no disconnect from the perspective you just outlined. Great, thanks so much.
Speaker Change: The disconnect there or has something changed.
Speaker Change: Yes, I don't think I don't think Theres a disconnect I think you're reading it right from a post perspective.
Speaker Change: We've had some startup challenges that we're working through it very methodically.
Not unusual for a startup.
One of the reasons. This is such a attractive category to be in is it's not easy. So we're overcoming some of those startup issues that everyone contends with and maybe we should've plan more of them.
Speaker Change: And.
Speaker Change: And my dual role.
Speaker Change: <unk> anticipated more of the problems and posted because they've had more startup experiences. So.
Speaker Change: Their numbers are.
Speaker Change: Already factored into.
Speaker Change: The run rate that we are now achieving so.
Speaker Change: Theres no disconnect from the perspective, you just outlined.
Speaker Change: Thanks, so much thank you.
Michael Scott Lavery: Thank you. Our next question comes from Michael Lavery with Piper Sandler. Your line is open.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from Michael Lavery with Piper Sandler Your line is open.
Speaker Change: Okay.
Michael Scott Lavery: Thank you good morning.
Robert V. Vitale: You mentioned that despite the pretty sizable recent avian flu outbreak, you've protected your volumes. Can you help us maybe handicap the pricing outlook, just having been through, you know, having seen some of this before? Is there any early sign of how that might be evolving? And just have some visibility on supply and demand for the, you know, more broadly, that you can share in terms of what we might anticipate as far as how that evolves?
Michael Scott Lavery: Good morning.
You mentioned that despite the pretty sizable recent avian flu outbreak.
Michael Scott Lavery: Protected your volumes.
Michael Scott Lavery: Just.
Michael Scott Lavery: Can you help us maybe handicap the pre.
<unk> outlook, just having been through having seen some of this before.
Michael Scott Lavery: Is there any early signs of how that might be evolving.
Michael Scott Lavery: Having some visibility on on supply and demand for the more broadly that you can share in terms of what we might anticipate as far as how that evolves.
Michael Scott Lavery: A little bit like trying to predict the direction of a tornado, you know. What we focus on is making sure we have effective biosecurity at our facilities. And obviously, we can't control what other participants in the market do, and then price becomes the independent variable. So, you know, we would simply be hazarding a guess as to what direction something like HPAI will take, and I wouldn't want to try to guess. What we would tell you is that we are prepared for multiple contingencies around no breakouts, you know, breakouts that disproportionately affect us and breakouts that disproportionately affect our competitors. So, you know, it's multi-option tree scenarios that we game rather than trying to plan one scenario.
So a little bit like trying to predict the direction of a tornado.
Michael Scott Lavery: Hugh.
Michael Scott Lavery: What we focus on is making sure we have effective bio security over our facilities.
Michael Scott Lavery: And obviously, we can't control what other participants in the market too and then price becomes the independent variables. So.
We would simply be hazard, a guess as to what direction something like.
Michael Scott Lavery: HPA I will take and I wouldn't I wouldn't want to try to guess what we would tell you is that we are prepared for multiple contingencies around no breakouts breakouts that disproportionately affect us and breakouts that disproportionately affect our competitors. So.
Michael Scott Lavery: It's multi multi option tree scenarios that we came rather than trying to play.
Michael Scott Lavery: Plan one scenario.
Robert V. Vitale: Okay, thanks for that. And just on pet parents, as far as the sort of pet parent consumer, it seems to be a bit more trade down and maybe value conscious, like in so many other categories. Can you just give a sense of how, you know, how beneficial that could be or what you're seeing in terms of brand positioning for, for, on your side, and how it all fits together? Well, it's something we've been speaking to about fairly.
Speaker Change: Okay. Thanks for that.
Speaker Change: On pet as far as the sort of the pet parent consumer.
Speaker Change: It seems to be.
Speaker Change: A bit more trade down.
Speaker Change: Maybe value conscious.
Speaker Change: In so many other categories can you just give a sense of.
Speaker Change: How.
Speaker Change: How beneficial that could be or what youre seeing in terms of brand positioning.
Speaker Change: For your side and how it all fits together.
Robert V. Vitale: Well, it's something we've been speaking about fairly consistently, that we baked it into our assumptions that there would be a trade down, and it has been occurring, and we expect it to continue. So, nothing different than we have previously talked about, and when I mentioned the meeting on filled demand, that was primarily in the segment that benefits from the trade down.
Speaker Change: Well, it's something we've been speaking to fairly consistently that we baked it into our assumptions that there would be a trade down and it has been occurring and we expect it to continue so.
Speaker Change: Nothing different than we've previously talked about and that when I mentioned the.
Speaker Change: Meeting until demand that was primarily in the segment that benefits from the trade down.
Speaker Change: Okay, great. Thanks, so much.
Speaker Change: Thank you.
David Sterling Palmer: Thank you. Our next question comes from David Palmer with Evercore ISI. Your line is open.
Speaker Change: Thank you. Our next question comes from David Palmer with Evercore ISI. Your line is open.
David Sterling Palmer: Thanks. Good morning. Question on PET, and particularly things that would drive the top line, your growth plans there. You have Perfection Foods, and in the past, you've talked about repositioning some of the brands like Rachel Ray. So any thoughts about, you know, what your plans are and how it's going so far?
Thanks, Good morning.
David Sterling Palmer: Alright, good morning question on pad, and particularly things that would drive the top line. Your growth plans. There you have protection foods and in the past you've talked about repositioning.
David Sterling Palmer: Some of the brands like Rachael Ray so any any thoughts about.
What what your plans are and how it's going so far.
David Sterling Palmer: Sure.
Robert V. Vitale: You know, when we bought the business, I think we articulated that we viewed it as two segments; we had a premium segment with nutrition, Nature's recipe, and then we had a value segment with the balance of the brands, and that the key to the value segment was stabilizing capacity and making sure we were meeting on a met demand as demand migrated from more premium to less premium. Within Rachel Ray and Nutrish, we see that as more of a marketing issue and positioning the brand to make sure the consumers are clear on the value proposition that's being done, but that's a longer process than fixing the plans and making sure we're meeting the unmet demand.
David Sterling Palmer: When we when we bought the business I think we articulated we viewed it as two segments. We had a premium segment with nutrition Nature's recipe and then we had a value segment with the balance of the brands and the key to the value segment was stabilizing capacity and making sure. We're meeting an unmet demand is the demand migrated from.
David Sterling Palmer: More premium to less premium.
David Sterling Palmer: Within Rachael Ray and nutrition, we see that as more of a marketing issue and positioning the brand.
David Sterling Palmer: To make sure that consumers are clear on the value proposition, that's being done, but that's a longer process than is fixing the plans and making sure we're meeting the unmet demand.
Robert V. Vitale: We are, we are focused on it, and, of course, we are being patient to make sure we have the right creative and the right brand positioning. But this investment opportunity was not predicated upon being able to grow those brands. It was predicated upon maintaining such growth. Specifically, those brands are the additional upside to our investment case.
David Sterling Palmer: We are we are focused on it of course, we are being patient to make sure we have the right creative and the right brand positioning.
David Sterling Palmer: But this <unk>.
David Sterling Palmer: Investment opportunity was not predicated upon being able to grow those brands. It was predicated upon maintaining so growth specifically in those brands as.
David Sterling Palmer: Additional upside to our investment case.
David Sterling Palmer: And then with Perfection, is that there a distribution opportunity in the near term? And what are your thoughts there?
David Sterling Palmer: And then with perfection is that is there a distribution opportunity in the near term what are your thoughts there.
Robert V. Vitale: I would say that Perfection provides more of a rebalancing of our manufacturing, as we now have a Western plant, than it does a distribution opportunity. There may be some distribution opportunities, but that was more about capacity, then growth, and then just the last one on food.
I would say that perfection provides more of a rebalancing of our manufacturing as we now have a western plant than it does a distribution opportunity there may be some distribution opportunities, but that was more about capacity.
David Sterling Palmer: Then growth.
David Sterling Palmer: And then just the last one on food service. Are you still comfortable? Generally speaking, you mentioned the multiple option tree with regard to avian influenza, but are you still generally comfortable with that ninety five million dollar run rate per quarter on EBITDA?
David Sterling Palmer: And then just last one on foodservice.
David Sterling Palmer: Still comfortable generally speaking you mentioned the multiple option trade with regard to avian influenza, but are you still generally comfortable with that $95 million run rate per quarter on EBITDA.
Speaker Change: We certainly are.
Speaker Change: Got it thank you very much.
Speaker Change: <unk>.
Robert V. Vitale: Thank you. Our next question comes from Ken Goldman with J.P. Morgan. Your line is open.
Speaker Change: Thank you. Our next question comes from Ken Goldman with Jpmorgan. Your line is open.
Kenneth B. Goldman: Hi, thanks. Can you remind us maybe what some of the key risks are that are embedded in the lower end of the guidance? And I'm asking because I think maybe some of the lower end included some risk of headwind from HPAI, maybe it still does. Just want to get a sense of kind of what's baked in there, just in case avian flu does not end up being a headwind for you, and make sure I'm right in the first instance there.
Speaker Change: Alright. Thanks.
Kenneth B. Goldman: Can you remind us maybe what some of the key risks are that are embedded into the lower end of guidance and I'm asking because I think maybe some of the lower end included some risk of headwind from HPA, maybe it still does just wanted to get a sense of kind of what's baked in there just in case avian flu does not end up being a headwind for you.
Robert V. Vitale: I think the two key risks are volume trajectory and HPAI. HPAI is just very difficult to predict, as I mentioned earlier. And then, you know, volume trajectory is an uncertainty. We've seen some improvements. We've seen some degradation in other channels. As I mentioned, it's a bit of a confusing consumer environment right now. So I would put those as the two big risks.
Speaker Change: Sure I am right in the first case there.
Speaker Change: I think the two key risks our volume trajectory and HPA.
Speaker Change: HPA is just very difficult to predict as I mentioned earlier and then volume trajectory is.
Speaker Change: Uncertainty, we've we've seen some improvements we've seen some degradation in other channels.
Speaker Change:
Speaker Change: As I mentioned, it's a bit of a confusing consumer environment right now.
Speaker Change: So I would put those as the two big risks.
Kenneth B. Goldman: And you said 2Q; I think you meant 2H, just to be clear. Okay.
Speaker Change: And you said <unk> I think he meant two weeks just to be clear.
Kenneth B. Goldman: And then quickly, just on the M&A environment, you know, hoping to get a little bit of a better sense for what you're seeing there, just in light of your, you know, maybe calling out a little bit more flexibility that you have. But also, just digging in a little bit, has your experience with the pet business changed at all the type of business that you're looking for, maybe opened you or your eyes to a little bit wider variety of opportunities?
Speaker Change: Okay, and then quickly just on the M&A environment.
Speaker Change: Hoping to get a little bit of a better sense for what youre seeing there just in light of your maybe calling out a little bit more flexibility that you have but also just digging in a little bit as you experienced with the pet business changed at all the type of business that Youre looking for maybe opened you are your eyes to a little bit.
Kenneth B. Goldman: Just given how successful you've been in terms of turning the margins around here. I know every opportunity won't be quite that juicy in terms of your ability to improve margins, but has it really just expanded the, like I said, the opportunity set in your eyes longer term? Well, I would say not because...
Speaker Change: Broader of a variety of opportunities just given how successful you've been in terms of turning the margins around here.
Speaker Change: I know theres not every opportunity won't be quite that you see in terms of your ability to improve margins, but is it really just expanded to look at it.
The opportunity set in your eyes longer term.
Robert V. Vitale: Well, I would say not because we have always had a very broad outlook with respect to where we could take our M&A opportunities. However, as we have grown and our portfolio has become more focused on areas where we were able to deliver synergies, that has somewhat narrowed our focus to where we could deliver those synergies. At the same time, you know, we continue to look more broadly at things that would be new platforms.
Speaker Change: Well I would say not because we have always had a very broad outlook with respect to where we could take our M&A opportunities.
Speaker Change: We have growing in our portfolio has become more focused.
Speaker Change: On areas.
Speaker Change: Areas, where we were able to deliver synergies that has somewhat narrowed our focus to where we could deliver those synergies at the same time, we continue to look more broadly at things that would be new platforms.
Speaker Change: So I would say from an internal perspective, because we've always looked at things that with a very broad lens no from an execution perspective.
Robert V. Vitale: So I would say, from an internal perspective, because we've always looked at things with a very broad lens, no, from an execution perspective, do we feel confident in doing something, you know, a bit further afield? I would say yes, and we previously have, so, I mean, previously have felt that confidence. So you know, I think the M&A environment is interesting right now because the pure volume of opportunities has increased. Whether those convert to anything or not remains an uncertainty. I think the volatility in the High Yield Market continues to create some choppiness in the M&A market, so we'll have to navigate that.
Speaker Change: Do we feel confident in doing something a bit further afield I would say, yes, and we previously have so I mean previously have felt that confidence.
Speaker Change: So I think the M&A environment is.
Speaker Change: Interesting right now because of pure volume of.
Speaker Change: Opportunities has increased whether those convert to anything or not.
Speaker Change: Uh huh.
Speaker Change: Remain some uncertainty I think the volatility in the.
Speaker Change: High yield market continues to create some choppiness in the M&A market. So we'll have to navigate that.
Robert Frederick Dickerson: Thank you. Our next question comes from Robert Dickerson with Jeffries. Your line is open.
Speaker Change: Thank you. Our next question comes from Robert Dickerson with Jefferies. Your line is open.
Robert Frederick Dickerson: Great, thanks so much. Maybe it's just kind of an easy question around Q2. I think you said, you know, the next two quarters, Omibe-Dasai should be fairly balanced, but I think that's what you said coming out of Q1 regarding the next three quarters, and clearly, you had a great Q2. I just got on the call a little bit late, so excuse me if you already stated this, but I was just curious, kind of, you know, what changed, obviously, through the quarter relative to, you know, the original perspective.
Robert Frederick Dickerson: Great. Thanks, so much.
Robert Frederick Dickerson: Maybe just kind of a easy question around Q2.
I think you said the next two quarters.
Robert Frederick Dickerson: The EBITDA side should be fairly balanced, but I think that's what you said coming out of Q1 regarding the next three quarters and clearly you had a great Q2.
Speaker Change: I just got on the call little bit late so excuse me. If you already stated this but I was just curious kind of what changed obviously through the quarter relative to the.
Speaker Change: The original perspective.
Matthew J. Mainer: Yeah, I think a little better performance on PCB, for sure, than I expected, just a strong serial performance given the backdrop of the environment there, was probably the biggest outlier relative to our expectations and continued really strong performance in PET. That'll be the biggest mix. And then obviously, we've got some puts and takes in the second half of the year. The biggest driver, like I mentioned, is really refrigerated retail. Has significant seasonality in the second half to the downside versus they have their benefit of seasonality in the first half, especially with Easter all being in Q2. And then we've got some additional investments we're going to make around PCB for PET integration, G&A, and also some of those distribution investments will be sequenced through.
Speaker Change: Yes, I think a little better performance on PCB for sure.
Speaker Change: I expected just.
Speaker Change: Strong sales performance given the backdrop of the environment. There that's probably the biggest outlier relative to our expectations and continued really strong performance in pet.
Speaker Change: That would be the biggest mix and then obviously you've got some puts and takes in the second half of the year.
Speaker Change: The biggest driver like I mentioned it was really a refrigerated retail has significant seasonality in the second half to the downside versus they have their benefit of seasonality in the first time, especially with Easter all being in Q2, and then we've got some additional investments we're going to make around PCB for pet integration G&A and.
Speaker Change: And also some of those distribution investments will be seen cluster.
Robert Frederick Dickerson: All right, super. And then I guess, just going back quickly, the refrigerator retail, I realized there was a little pressure there on the distribution side. So, you know, as we think forward, maybe not just the back half, but longer than the back half of this year. You know, kind of, what's the overall net strategy to kind of resuscitate performance?
Super: Alright, Super and then I guess.
Super: Just going back quickly the refrigerated retail.
Super: Realize it's a little pressure there on the distribution side. So as we think forward, maybe not even just back half but longer than the back half of this year.
Speaker Change: Kind of.
Speaker Change: What's the what's kind of the overall net strategy to kind of resuscitate performance.
Matthew J. Mainer: Sure. I mean, there continues to be investment around the business, in particular around the dinner sides. We've got some new innovation that Jeff mentioned that's hitting the market just recently, so too soon to tell there, but certainly the strategy continues to be innovation combined with additional marketing investment, and we're leaning into promotion a bit more given some of the benefits we saw in Q1.
Speaker Change: Sure I mean, it continues to be an investment around the business in particular around the dinner sides haven't got some new innovation that Jeff mentioned and thats hitting the market.
Speaker Change: Just recently, so too soon to tell there, but certainly the strategy continues to be innovation.
Speaker Change: Combined with additional marketing investment.
Speaker Change: We are leaning into promotion of that market and some of the benefits we saw in Q1.
Robert Frederick Dickerson: All right, great. I'll pass it on. Thanks so much.
Speaker Change: Alright, great. Okay. Thanks, so much.
Marc J. Torrente: Thank you. Our next question comes from Marc Torrente with Wells Fargo Securities. Your line is open.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Mark <unk> with Wells Fargo Securities. Your line is open.
Marc J. Torrente: Hey, good morning, thank you for taking the questions. You just touched on promos a little bit with regard to refrigerated retail. We've seen promo activity more broadly across food and beverage pickup in recent periods. Is that sort of consistent with your view on the market? How rational is that activity in your categories and how do you expect that to progress through the year? Yeah, I do.
Mark: Hey, good morning, Thanks for taking the question.
Mark: You just touch on promos, a little bit with regards to refrigerated retail we've.
Mark: We've seen promo activity and more broadly across food and beverage pick up.
Mark: Recent periods.
Mark: Is that sort of consistent with your view on the market how rational is that activity in your categories. How do you expect that to progress through the year.
Matthew J. Mainer: Yeah, I think it is consistent with our view and what we think needs to happen. Obviously, you know, from a refrigerator retail perspective, it's a little bit of a different segment for us because we don't have a value alternative or a private label like we do, and in cereal, for sure. So we don't get that change and mixed benefit. We're continuing to see investment in promo. And like I said, we had a case in Q1 where we got the benefit of some promotion, a little more sponsored by one of our customers, and saw some significant benefits. So I think we'll continue to take targeted bets there but remain rational.
Speaker Change: Yes, I think it is consistent with our view and what we think needs to happen honestly from a refrigerated retail is a little bit different segment for US is we don't have a value alternative private label likely dealing in cereal for sure. So we don't get that change in mix benefit.
So we're continuing to see investment in promo and like I said, we had a.
Speaker Change: A case in Q1, where we got the benefit of some promotion a little more sponsored by one of our customers and saw some significant benefits. So I think we'll continue to take targeted thats, there but remain rational.
Marc J. Torrente: Okay, and then on M&A, you called out increased activity or opportunity on that front. Maybe some perspective on what is driving that? Have valuations moved at all? And is the environment allowing you guys to be more aggressive there?
Speaker Change: Okay, and then on M&A, you've called out increased.
Speaker Change: Activity or opportunity on that front, maybe some perspective on what is driving that have valuations moved at all in the environment, allowing you guys to be more aggressive there.
Robert V. Vitale: Well, we don't know if valuations have moved yet because what we're first seeing is an increase in opportunity flow, so we need some more transactions. And that combined with some of the movement in the debt markets, both positive and negative, is all impacting the way the market forms. So we need a little bit more time before we can really answer where the equilibrium is on multiples. But what we can say with a fairly high degree of confidence is that the number of opportunities is really significantly ticking up.
Speaker Change: <unk>.
Speaker Change: Well, we don't know if valuations have moved yet because what were your first thing is an increase in opportunity flow. So we need some more transactions to occur in order to gain the sense of a market.
Speaker Change: I think whats driving it is there has been a relatively low period of.
Speaker Change: M&A.
Speaker Change: Specifically private equity exits.
Speaker Change: Have aged some of these opportunities are such that I think they will come to market and more of a.
Speaker Change: Group and that combined with some of the movement in the debt markets, both positive and negative is all impacting.
Speaker Change: The way the market forms so we need a little bit more time before we can really answer where the equilibrium is on on multiples, but what we can say with a fairly degree a fairly high degree of confidence is that the number of opportunities is really significantly picking up.
Marc J. Torrente: Okay, thanks. I'll pass this along.
Speaker Change: Okay. Thanks, I'll pass along.
Speaker Change: Yeah.
John Joseph Baumgartner: Thank you. Our next question comes from John Baumgartner with Mizzou Health Securities. Your line is open.
Speaker Change: Thank you. Our next question comes from John Baumgartner with Mizuho Securities. Your line is open.
John Joseph Baumgartner: Good morning, Thanks for the question.
John Joseph Baumgartner: So, maybe first off, in food service and eggs, the coffee chain segment has been a big driver of growth and pre-cooked food these last few years. But, as you highlighted, about 40% of food service volume is still shell eggs. So in light of these comments about the demand weakness now, how do you think about diversifying the customer base further with new capacity, you know, opening more outlets in areas such as, you know, leisure, and hospitality? And then, I guess, how does the bulk of the outlets with this 40% of shell eggs volume still fit? How does that overlap with your current channel exposure right now? Well, the answer is,
John Joseph Baumgartner: Hey, John.
John Joseph Baumgartner: Maybe first off in foodservice in eggs. The coffee chain segment has been a big driver of the growth in pre cooked. These last few years, but as you highlighted about 40% of foodservice volume is still shell eggs. So in light of these comments about the demand weakness now how do you think about diversifying the customer base further with.
John Joseph Baumgartner: With new capacity opening more outlets in areas such as leisure hospitality and then I guess, how does the bulk of the outlets with this 40% of shell eggs volumes still fits how does that overlap with your current channel exposure right now.
Robert V. Vitale: Well, in reverse order, the shell eggs tend to be the smaller operators. So they, you know, they are less represented in our customer base, so we would be adding distribution as we convert from shell eggs to value-added eggs. For the first part of that question, we have an ongoing effort for the past multi-year, if not multi-decade, to move customers up that value-added pyramid. So, you know, we continue to see growth in the higher value-added products, including the products that heavily skew towards coffee outlets, and we would expect that trend to continue.
Yeah.
John Joseph Baumgartner: Well the.
John Joseph Baumgartner: In reverse order then Shelley <unk>.
John Joseph Baumgartner: Tend to be the smaller operators.
John Joseph Baumgartner: So.
John Joseph Baumgartner: They are less.
John Joseph Baumgartner: Represented and our customer base, so we would be adding distribution as we convert from shell eggs to value added eggs and for the first part of that question. We have an ongoing effort multiyear if not multi decade to move customers up the value added a pyramid. So we continue to see growth in the high.
John Joseph Baumgartner: Our value added.
John Joseph Baumgartner: <unk> products, including the products that heavily skewed towards.
John Joseph Baumgartner: Coffee outlets and we would expect that trend to continue.
Robert V. Vitale: With the additional support of, we now have some tailwind created by an increase in wage rates. So the single biggest variable in driving demand is that we are, Essentially, taking labor and cost out of back of house operations by providing a product that's closer to immediately serviable. So as costs grow, that provides an additional impetus for customers to move up the pyramid, both from value-added and from shell to value-added and up the value-added pyramid.
John Joseph Baumgartner: With the additional supportive we now have some tailwind created by increase in wage rates. So the single biggest variable in driving demand as we are.
John Joseph Baumgartner: Essentially taking labor and cost out of back of house operations by providing a product of closer to immediately survival.
John Joseph Baumgartner: So as costs grow that provides additional impetus for customers to move up the pyramid both from value added both from shell to value added and offer value added pyramid.
John Joseph Baumgartner: Jimmy, I mean, of that 40% of shell ladies volume out there, if it's small operators, are those those folks more inclined to trade into pre-coaster if they're kind of mom and pops, and there's less reason to take labor out of the system? Is there maybe less, you know, less likelihood of chipping away at that 40% over time?
John Joseph Baumgartner: Of that 40% of shell eggs volume out there. If it's small operators are those are those folks do you think.
John Joseph Baumgartner: More inclined to trade into into pre close to up there kind of mom and Pops. In there is there is less reason to take labor out of the system is there can you maybe less less likelihood of chipping away at that 40% overtime, but I think you need to think about it like a pyramid with a 40% at the base and we don't necessarily take the base.
Robert V. Vitale: I think you need to think about it like a pyramid with 40% at the base, and we don't necessarily take the base immediately to the top. What we do is we take the components along the pyramid as it thins from lower to higher in the pyramid. So the first step will be to move an operator from shell to the lowest level of value. Meanwhile, we will be working on trying to move a higher value-add to an even higher value-add. So it's a, you know, it's not a leapfrog, it's a continuum.
John Joseph Baumgartner: Immediately to the top what we do is we take the components along the pyramid as it thins from lower to higher and the pyramid.
John Joseph Baumgartner: So the first step will be to move an operator from shell to the lowest level of value add.
John Joseph Baumgartner: Meanwhile, we will be working on.
John Joseph Baumgartner: Trying to move a higher value add to an even higher value at <unk>.
Speaker Change: I would say, it's not a leapfrog it's a continuum.
John Joseph Baumgartner: Okay, and then my follow-up on refrigerated retail and the side dishes business there, just given the theme this season from companies calling out consumer weakness. Are you seeing any incremental erosion or larger elasticity or risk to that business for the back half of the year? I mean, I know you have innovation and marketing, but to what extent do you see that category becoming more of a discretionary product in this economy?
Speaker Change: Okay, and then my follow up on refrigerated retail and the side dish business Theyre, just just given the theme the season from companies, calling out consumer weakness are you seeing any incremental erosion or larger elasticity or risk to that business for the back half of the year. I mean, I know you have the innovation in marketing, but to what extent do you see that category, becoming more of a discretionary.
Speaker Change: And this in this economy.
Matthew J. Mainer: Yeah, I mean, certainly I've seen that, like I mentioned, John, the pressure in the category, we don't have private label alternatives. So I mean, that's baked into our guidance. And as we talked about, we had the benefit of seasonality in the first half. And I think our challenge is how do we drive higher volume levels outside of the seasonal tailwind that we get. So I think, you know, definitely there's elasticity within the category. And that's why we're trying to invest behind the brands with both additional marketing and promotion to try and drive people either into the trial or back into the category.
Speaker Change: Yes, I mean, certainly I've seen that like I mentioned, John I mean, the pressure on the category, we don't have the private label alternatives.
Speaker Change: Turning to our guidance and as we talked about we had the benefit of seasonality in the first half and I think our challenge is how do we drive.
Speaker Change: Higher volume levels outside of the seasonal tailwind that we get so I think.
Speaker Change: Definitely there is elasticity within the category and that's why we're trying to invest behind the brand with both additional marketing and promo to try and drive people into the trial or back into the category.
John Joseph Baumgartner: Okay. Thanks, Matt. Thanks, Rob.
Speaker Change: Okay. Thanks, Matt Thanks, Rob.
Carla Marie Casella Hodulik: Thank you. And our next question comes from Carla Casella with J.P. Morgan. Your line is open.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from Carla Casella with Jpmorgan. Your line is open.
Carla Marie Casella Hodulik: Hi. You talked about some share losses, and I'm wondering if that was you specifically walking away, or was it shelf space that went to a more valuable competitor?
Carla Marie Casella Hodulik: Hi, you talked about some share losses, and I'm wondering where the where that you specifically walking away or was it shelf space that went to a more value competitor.
Carla Marie Casella Hodulik: I'm sorry, which segment?
Speaker Change: I am sorry, which segment Tyler.
Carla Marie Casella Hodulik: I think you talked about it in food service, or refrigerated? Oh, refrigerated.
Carla Marie Casella Hodulik: I think you talked about it in foodservice and our refrigerated.
Matthew J. Mainer: So that's again in cheese and eggs. Really, the situation there is we lost a couple of key customers, and again, cheese continues to be more of the same. Obviously, we've had some challenges with our cheese business, and we've continued to lose some distribution there, a small piece of the overall portfolio. And then on the egg side of things, we had some challenges given HPAI impacts, and we're trying to get those from a year ago, and we are trying to get back in some of that distribution and regain that distribution, but that's really the situation there.
Carla Marie Casella Hodulik: Refrigerated so that's again in cheese and eggs.
Really the situation. There is we lost with a couple of key customers.
Carla Marie Casella Hodulik: And.
Carla Marie Casella Hodulik: Again cheese continues more of the same obviously, we've had some challenges with our cheese business and we continue to lose some distribution there.
Carla Marie Casella Hodulik: Small piece of the overall portfolio and then on the AG side of things.
Carla Marie Casella Hodulik: <unk> had some challenges given the HPA I am Pacs and we're trying to get those from a year ago, and we are trying to get back.
Carla Marie Casella Hodulik: And some of that distribution every game that distribution, but.
Carla Marie Casella Hodulik: That's really the situation there.
Matthew J. Mainer: Okay, and then can I just ask a follow-up question on Pet. Once you get the distribution where you want it to, will you be fully in-house, or will you be using third parties for any part of that?
Okay, and then can I just ask a follow up on pet.
Carla Marie Casella Hodulik: Once you get the distribution, where you wanted to say will you be fully in house or would be using third party for any any part of that business.
Matthew J. Mainer: Yeah, well, we'll continue to have some third parties for sure, in terms of a co man given the, excuse me, the growth we've seen, especially in our more value products. So we will right size that and have to use some co-manufacturing.
Carla Marie Casella Hodulik: Yes.
Carla Marie Casella Hodulik: We will continue to have some some third party for sure in terms of the co man given.
Carla Marie Casella Hodulik: Excuse me the growth, we've seen especially in our more value products. So we will right size that and how to use some co manufacturing.
Carla Marie Casella Hodulik: Have you disclosed who you use there?
Carla Marie Casella Hodulik: Have you just have you disclosed to us there.
Speaker Change: We haven't.
Matthew J. Mainer: But we're moving from Smucker to independent third-party copackers. OK.
Speaker Change: But we're moving from Smucker too.
Speaker Change: Independent third party co Packers.
Carla Marie Casella Hodulik: Okay, great, thank you.
Speaker Change: Okay, great. Thank you.
Operator: Thank you. We have reached the end of our Q&A session. Thank you for joining us. You may now disconnect. Everyone have a great day.
Speaker Change: Thank you we've reached end of our Q&A session. Thank you for joining US you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Okay.
Speaker Change: [music].