Q4 2024 BellRing Brands Inc Earnings Call
Yeah.
Speaker Change: Good day and thank you for standing by welcome to Bell Ring Brands' fourth quarter fiscal year 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session to ask a question during this sudden.
Speaker Change: You will need to press star one one on your telephone.
Speaker Change: We'll then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please.
Speaker Change: Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Jennifer Meyer Investor Relations for Bell Rang. Please go ahead.
Jennifer Meyer: Good morning, and thank you for joining us today for Bell ring brands fourth quarter fiscal 2024 earnings call with me today are Darcy Davenport, our president and CEO of Hal Brown our CFO.
Our call will begin with prepared remarks.
Jennifer Meyer: The words, we will have a brief question and answer.
Jennifer Meyer: <unk>.
Jennifer Meyer: The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor relations and the SEC filing section at Bell Rang Dotcom. In addition, the release and slides are available on the Sec's website.
Jennifer Meyer: 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.
Jennifer Meyer: These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements.
Jennifer Meyer: As a reminder, this call's being recorded and an audio replay will be available on our website.
Jennifer Meyer: Finally, this call will discuss certain non-GAAP measures.
Jennifer Meyer: A reconciliation of these non-GAAP measures to the nearest GAAP measure see our press release issued yesterday and posted on our website with that I will turn the call over to Dusty.
Thanks, Jennifer and thank you all for joining us this morning.
Last evening, we reported our fourth quarter and fiscal 'twenty for results and posted a supplemental presentation to our website.
Jennifer Meyer: Fiscal 'twenty four it was a great year for Bell ring brands, our net sales grew 20% with adjusted EBITDA up 30%.
Jennifer Meyer: Our full year results for the second year in a row meaningfully exceeded our long term algorithm as we added shake capacity and began to layer in demand drivers.
Jennifer Meyer: The end of the year is an important time for us to reflect on the past and reassess the future opportunity. There were three things that stood out to me.
Jennifer Meyer: First is the expanding growth potential of the convenient nutrition category, specifically the segments that we compete in ready to drink shakes and ready to mix powders.
Jennifer Meyer: Ready to drink as a category standout delivering double digit growth in each of the last four years. Despite all of this growth. It's still has low household penetration at 48% compared to most mature categories that are close to double that.
Jennifer Meyer: This combined with strong macro trends like the mainstreaming of mainstreaming of protein growing popularity of functional foods and beverages and the continued rise in healthy convenient foods highlights along the path of future growth.
Jennifer Meyer: The second thing that stood out to me is the power an incredible future potential of our brands.
Jennifer Meyer: This year was a pivotal year for our largest brands premier protein because we steadily increased our supply and we demonstrated that the demand is there and we will continue to grow as we layer in demand drivers.
Jennifer Meyer: Premier protein reached new highs across many key metrics, including household penetration market share distribution and Bahrain.
Jennifer Meyer: What is true unique is that we did this without significant advertising or promotion at many retailers.
Jennifer Meyer: Further illustrating the brand strength strengths and future potential.
Jennifer Meyer: The third thing that struck me is about our organization.
Jennifer Meyer: Our team has been working hard to prepare for the moment when shake production would be unconstrained, we have fantastic advertising campaigns prepared.
Jennifer Meyer: Compelling category story that will unlock shelf space for the future for the category as well as our brands and we developed delicious new products with a promising pipeline of innovation.
Jennifer Meyer: At our core we are a growth company and we have been preparing for this moment and we are ready for a strong 25.
Jennifer Meyer: Now, let's get to Q4 category and brand highlights.
Jennifer Meyer: The convenient nutrition category grew 6% in Q4, it is rapidly transforming into an everyday and sports nutrition category.
Jennifer Meyer: These segments make up 75% of it at our growing approximately 10%.
Jennifer Meyer: In Q4, which better reflects the category my mom.
From a form perspective ready to drink growth accelerated and continued to lead the category up 13% driven by household penetration and by rate are fairly rare combination CPG may.
Jennifer Meyer: Mainstream everyday and sports nutrition RTD brands continued to drive most of that growth and are up 25% versus year ago.
Jennifer Meyer: Ready to mix grew 4% slowing from Q3, which was boosted by incremental feature and display activity. We continue to be excited about the tailwind that protein provides consumers and its high relevance and broad with a broad swath of individuals'.
Jennifer Meyer: Turning to our brands Premier shake consumption growth accelerated this quarter at 14%.
Jennifer Meyer: Growth was strong in mass food and e-commerce channels, driven by accelerated velocities feature and display activity along with distribution expansion in math and food club.
Club grew despite lapping a longer promotional period.
Jennifer Meyer: Promotional event in prior year.
Jennifer Meyer: October's overall consumption accelerated up 28% lifted by distribution gains and pumpkin Spice our fall seasonal flavor.
Pumpkin Spice has demonstrated impressive incrementals to the brand and was the number one pumpkin item at a major mass retailer this fall.
Jennifer Meyer: As I mentioned earlier, our brand metrics remains strong with premier protein, reaching all time highs in PDP and household penetration.
Jennifer Meyer: Sheikh Tdp's grew 21% versus Q3, and we improved in stocks and expanded both both forms and pack sizes household penetration added just over three percentage points, reaching 19, 4%, surpassing our goal for the year.
Jennifer Meyer: Impressively, we saw growth in repeat and buy rates with repeat rate increase increasing to 52% demonstrating our category leading consumer loyalty.
Jennifer Meyer: Premier protein with RTD market share of <unk> 23 per cent maintained its position as the number one brand in the RTD segment as well as the number one brand in the broader convenient nutrition category.
Jennifer Meyer: All of this is especially encouraging because in a high growth category with low household penetration, we see plenty of room to continue to grow our brand and expand the overall category.
Premier protein powder continued its strong trajectory in Q4 with consumption growing 43% behind strong velocities and distribution gains in fact at a major mass customer.
Jennifer Meyer: It was the fastest growing brand across the entire powder category in the quarter.
Jennifer Meyer: We remain encouraged by the growth potential of Premier protein brand in this format as it reached over $75 million in net sales. We expect another year of robust growth in 'twenty five 'twenty five as we invest more in marketing dollars to drive awareness. We continue to believe the brand will be a contributor to mainstreaming the powder category in the same way.
Jennifer Meyer: Premier dead to ready to drink.
Turning to Diamond ties the brand remains one of the strongest in the powder category with velocities in the top third.
Jennifer Meyer: Key customers.
Jennifer Meyer: So penetration overall distribution levels remained stable U S consumption, which covers about two thirds of the global brand was relatively flat versus last quarter, but down compared to compared to a year ago. As a result of the ongoing softness in the specialty channel and a tougher comparable food and club.
Jennifer Meyer: Encouragingly <unk> International business continues to be strong with net sales up 30%. This quarter as a result global <unk> net sales delivered growth for the quarter.
Our national marketing campaign with San Francisco, All pro running back Christian Mccaffrey launched on November 14th during NFL Thursday night football.
Jennifer Meyer: In addition to new advertising, we have new product platforms launching in the first half of fiscal 'twenty five.
Jennifer Meyer: Overall, we continue to be bullish on the sports nutrition category opportunity.
Jennifer Meyer: Now to our outlook as you saw in yesterday's press release, we are anticipating another above algorithm year, we expect fiscal 'twenty five net sales to grow between 12% and 16% and adjusted EBITDA to grow between five and 11%.
Jennifer Meyer: As a reminder, our algorithm and net sales growth of between 10% to 12% with EBITDA margins of between 18 and 20%.
Jennifer Meyer: Our plan reflects strong volume growth for premier protein and a pivot from supply focus to demand driving we are eager to have all of our demand drivers in place. This year and are stepping up our marketing dollars on premier protein.
Jennifer Meyer: We are excited to see our national marketing campaign on Premier hit screens late in the first quarter ahead of new year, New you season.
Jennifer Meyer: EBITDA growth in fiscal 'twenty five is expected to lag net sales growth as we experienced input cost inflation across our portfolio. Most noticed noticed most notably on our powder business and our increased marketing activities. Paul will provide further details on our fiscal 'twenty five outlook.
Speaker Change: In closing I'm thrilled with our performance this year our confidence in the long term outlook of Bell ring remains.
Speaker Change: Strong macro tailwind around protein are driving robust long term growth in our categories with ready to drink and powder segments in the early stages of growth.
Speaker Change: Premier protein and Diamond tires are leading mainstream brands with low household penetration and strong loyalty with premier protein maintaining the number one share position in the category.
Speaker Change: Our innovation, our innovation pipeline is rich, enabling us to bring excitement to consumers and our retail partners for years to come.
Speaker Change: Last we have a scalable regionally diverse supply chain able to support our long term growth projections.
Speaker Change: Finally, I would like to thank all of our employees customers and operations partners for an incredible year and I look forward to a fantastic fiscal 'twenty five.
Speaker Change: We will provide updates on our progress next quarter I will now turn the call over to Paul.
Paul: Thanks, Darcy and good morning, everyone.
Paul: I'm pleased to share our fourth quarter results came at the high end of our expectations.
Paul: Sales for the quarter were $556 million and adjusted EBITDA was $117 million.
Paul: Sales and adjusted EBITDA, both grew 18% over the prior year with adjusted EBITDA margin of 21%.
Paul: Starting with brand performance Premier protein net sales grew 20%, primarily driven by strong volume growth for both RTD shakes and powders.
Paul: RTD shakes sales grew 21% boosted by organic growth and distribution gains as well as a 1% benefit from our price increase taken late in Q4.
Paul: Shipment dollar growth outpaced consumption dollar growth with shipments benefiting from load ends up new distribution in Q1 promotions as well as replenishment of the food channel shelf gaps.
Paul: So amortize net sales increased 4% this quarter on 7% higher volume.
Speaker Change: Strength in the international business continued in Q4 with double digit sales growth.
Speaker Change: This was partially this was partly offset by domestic headwinds with softness in distribution losses, primarily in specialty and food weighing down overall brand growth.
Speaker Change: Yes.
Speaker Change: Gross profit of $205 million grew 32% with an increase in margin of 400 basis points to 36, 9%.
Speaker Change: Gross profit included higher unrealized mark to market gains on our commodity hedges versus prior year and production attainment of fees received from Shaw Shake co manufacturers.
Speaker Change: Excluding these impacts gross margins increased 250 basis points compared to year ago, primarily from net input cost deflation as we lapped elevated protein costs in the prior year.
Speaker Change: Excluding onetime costs in the prior year period, SG&A expenses as a percentage of net sales increased 320 basis points.
Speaker Change: Half of which was driven by higher marketing spend as expected.
Speaker Change: Advertising and promotional spend rose to four 5% of net sales as we increased marketing support across our portfolio.
Speaker Change: Operating profit of 112 million grew 44% it was positively impacted by lapping $7 billion of accelerated amortization recorded in the prior year.
Speaker Change: Turning to full year 'twenty fiscal 'twenty four results net sales were just shy of $2 billion up 20% over the prior year.
Speaker Change: Gross profit of 707 million grew 33% with margins up 360 basis points over 2023.
Speaker Change: This growth was driven by input cost inflation, partly offset by higher promotional activity.
SG&A expenses were $285 million and when excluding onetime items increased 160 basis points as a percentage of net sales.
Speaker Change: Marketing spend increased 60 basis points versus prior year. It was three 1% of net sales this year.
Speaker Change: Adjusted EBITDA grew 30% to $440 million with a margin of 22, 1% an increase of 180 basis points.
Speaker Change: Before reviewing our outlook I would like to make a few comments on cash flow and liquidity.
Speaker Change: We generated $4 million of cash flow from operations in the fourth quarter and two 1 billion for the year.
Speaker Change: As expected shake inventory levels increased in the fourth quarter, driven by incremental production volumes, putting us in a strong inventory position at the end of the year.
Speaker Change: In fiscal 2025.
Speaker Change: Expect to further build shake weeks supply to optimal levels, most notably in Q1 as.
Speaker Change: As a result, our cash flow in fiscal 'twenty five is expected to be similar to fiscal 'twenty four.
Speaker Change: As of September 30.
Speaker Change: That was the second $769 million and net leverage was one seven times.
Speaker Change: With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below two times in fiscal 'twenty five.
Speaker Change: With respect to our share repurchases. This quarter, we bought roughly 700000 shares at an average price of $55 97 per share a $41 million in tools.
Speaker Change: For the fiscal year, we repurchased $2 6 million shares at an average price of $56 12.
Speaker Change: <unk> hundred $47 million total.
Speaker Change: Our remaining share repurchase repurchase authorization of $175 million.
Speaker Change: Turning to our outlook, we expect fiscal 'twenty five net sales of $2 two four to $2 32 billion and adjusted EBITDA of $460 to $490 million.
Speaker Change: Our guidance implies strong topline growth of 12% to 16% and adjusted EBITDA growth of 5% to 11% with healthy adjusted EBITDA margins of 28% at the midpoint.
Speaker Change: We expect dollar or percentage of sales growth to be weighted to the first half of the year, while adjusted EBITDA growth will be weighted to the second half.
Speaker Change: From a brand perspective, we expect mid teen sales growth for Premier protein driven by volume gains Shake list price increase benefits and continued category tailwind.
Speaker Change: Key drivers of Premier Protein's volume growth include distribution gains on new and existing products increased promotional activity and organic growth.
Speaker Change: Expanded formats and pack sizes, along with innovation drive new distribution growth this year.
Speaker Change: Net sales growth in the first half of fiscal 'twenty five benefit from lapping low shake supply in the prior year, while the second half basis, a modest headwind as we lap trade inventory loads in the prior year.
Speaker Change: We expect a low to mid single digit sales growth for <unk> in fiscal 'twenty five driven by volume.
Speaker Change: Fiscal 'twenty five adjusted EBITDA margins are expected to decline 130 basis points at the midpoint, but at 28% still above our long term algorithm of 5%.
Speaker Change: Gross margins are expected to be moderately pressured by higher protein and other input cost.
Speaker Change: Significant inflation will weigh on our powder margins in fiscal 'twenty five after experiencing very favorable protein rates of 24.
Speaker Change: On shakes, our price increase taken in the fourth quarter of 'twenty four is expected to largely offset inflation, which gradually increases throughout the year.
Speaker Change: SG&A as a percentage of net sales is also expected to be a modest headwind to margins as we increased marketing for premier protein, particularly in the first half compared to a year ago.
Speaker Change: Turning to our first quarter forecast, we expect net sales growth north of 20% with premier protein and the main driver.
Speaker Change: <unk> is expected to grow low to mid single digits.
Speaker Change: Premier protein growth was lifted by distribution gains promotions in organic growth as well as our shake price increase.
Speaker Change: We expect shipment dollar growth for premier shakes to be relatively in line with consumption growth.
Speaker Change: First quarter adjusted EBITDA margins are expected to be meaningfully lower than prior year as higher SG&A expenses, partially offset by a modest increase in gross margins.
Speaker Change: On SG&A, we are expecting a significant step up in advertising promotion spend from very low levels, a year ago as we kick off our premier protein nationwide campaign late in the quarter.
Speaker Change: Gross margins compared to prior year benefit from our recent pricing actions on shakes offset partially by input cost inflation.
Speaker Change: In closing we are encouraged with our strong performance in fiscal 'twenty for our long term outlook remains bright and we look forward to delivering another above algorithm year in fiscal 'twenty five I will now turn it over to the operator for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Andrew Lazar from Barclays.
Andrew Lazar: Great. Thanks, Good morning, Darcy and Paul.
Speaker Change: Good morning.
Speaker Change: Alright I.
Speaker Change: I guess first off Darcy I think.
Darcy Davenport: You have done some trial runs in isolated geographies around increased marketing spend behind premier.
Darcy Davenport: And that you would sort of use those learnings to kind of inform how you want to go about this the broader national campaign. This year, if I have that right. Maybe what are some of the key takeaways or learnings from those trials as it relates to sort of your approach you're taking this coming year around the increasing advertising and consumer spend.
Speaker Change: Perfect. Thanks for the question.
Speaker Change: You are right. We did we did a couple of things.
Speaker Change: This quarter to prepare for our in our National campaign, We had three end market test and then we also just did some additional creative testing.
Speaker Change: We're still waiting for the full resort the results, but the early results would say that the in market test met or exceeded our lift expectation. So that's great.
Speaker Change: Then the second piece is on the creative testing we saw some areas it was <unk>.
Speaker Change: Performed very well, but we saw some opportunities to improve the creative which is kind of in my mind.
Speaker Change: The best case scenario is the existing well we have the existing created performed at or above our expectations in market, but we also have some areas to tweak it and improve so all in feeling really good we have the time to tweak the creative a little bit and then we'll we'll.
Speaker Change: Hit the market later in Q1.
Speaker Change: Great. Thank you for that and then.
Speaker Change: I guess what is your sort of current view on what the increase in capacity will look like in fiscal 'twenty five.
Speaker Change: Last quarter. It was kind of a mid teen increase that was expected I don't know if thats changed or not and then are you closer to having to start to add additional lines in.
Speaker Change: Either or both of the Greenfield production facilities, because I know that takes some time to get those up and running thank you.
Speaker Change: Yes, Andrew for fiscal 'twenty five.
Speaker Change: Production volumes that we're expecting here in the mid to high teens.
Some of that is because we have as we touched on last quarter, we did get some incremental production, which obviously benefited Q4 into Q1, and we expect that to continue on into the future and so we really expect that our current network can support our growth really later in the fiscal 'twenty six 'twenty seven talk a little bit.
Speaker Change: Perhaps further out than we discussed previously on when we think we may need to look at additional lines. So we believe we can continue to get.
Speaker Change: Additional additional volumes from our existing network, which obviously for us is better because it's lower.
Speaker Change: Lower risk.
Speaker Change: For us to do so so the little changed from last time, but not dramatic.
Speaker Change: Thank you so much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Ken Goldman from Jpmorgan.
Ken Goldman: Hi, good morning, everybody. Thank you.
Speaker Change: I wanted to ask Darcy previously you had indicated that.
Speaker Change: This year's revenue growth 2020, fives might be near the top end of our longer term algo. So maybe around 12% now 12% is at the bottom of the range can you maybe walk us through what changed in the last few months that gave you incremental optimism that it will.
Speaker Change: Allow you to feel a little more comfortable with the higher range at this time or was it previously just a case of Hey, maybe you were just a little too early to be precise and now you have a little more clarity into how the year is going to unfold.
Speaker Change: Yes, I think it's just the latter our full plan wasn't finalized in August when we had our last call.
Speaker Change: And so we knew that it was rolling up strong.
Speaker Change: And felt comfortable with the top end of our algorithm, but just as the planning process.
Speaker Change: Kind of.
Speaker Change: <unk> developed and we obviously saw more opportunity.
Speaker Change: It makes sense and then for my follow up Paul you gave some helpful <unk>.
Information on the first quarter I may have missed it but.
Speaker Change: I think we kind of had enough.
Speaker Change: Puzzled pieces to kind of get exactly to where youre thinking about for EBITDA dollars.
Speaker Change: Understanding that sales will be up 20% or.
Speaker Change: More but the margin will be meaningfully lower any more clarity you can give us on sort of where you'd like to kind of net out on that bottom line in terms of dollars, where bottomline growth would be helpful. I think just because of those kind of major puts and takes there.
Speaker Change: Yes, so yes, we expect our first quarter EBITDA margins to be meaningfully lower than year ago.
Speaker Change: The biggest driver is on the SG&A line, which we expect a significant step up for marketing. Our A&P you may recall last year A&P was relatively on the low side.
Speaker Change: About.
One 4% was very low last year, we're expecting it to step up very meaningfully this year as we are.
Speaker Change: Marketing behind our brands, but also starting to do premier national marketing towards the latter part of the quarter. So it's a very significant step up on the market on the SG&A line and we expect some additional headwinds on G&A. So it's a pretty significant step up for.
Speaker Change: For SG&A and then our gross margins, we actually expect those to be.
Speaker Change: Moderately favorable pricing.
Speaker Change: Pricing for shakes does offset some of the inflation, but net net a pretty meaningfully lower EBITDA margin in Q1 versus a year ago.
Speaker Change: Yeah.
Speaker Change: Thanks, so much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Matthew Smith from Stifel.
Matthew Smith: Hi, good morning, Thanks for the question.
Matthew Smith: Marketing stepped up in the fourth quarter and you called out higher marketing spend for the upcoming fiscal 'twenty five should we think of the four 5% of sales from the fourth quarter as a goalpost for the full year or maybe even higher than that with the rollout of the marketing campaign being more targeted in the fourth quarter.
Speaker Change: No. If we if we think about fiscal 'twenty five I would not expect 5% to be the full year I think it would be it should be a little bit less than that again Q4, we had a number of things going on that including the the test marketing we had for our Premier shakes I will say that as you look at fiscal 'twenty five.
Speaker Change: Marketing will be a bigger headwind to.
Speaker Change: <unk> margins and EBITDA in the first half than it is the second half because we did step up marketing in the second half of 'twenty four or so because as you look at 25 fairly sizable step ups in both Q1 and Q2.
Speaker Change: 25 versus a year ago.
Speaker Change: More moderates in the second half, but net net it should be somewhere in the high threes.
Speaker Change: Low low to mid fours for the year.
Thank you Paul I'll pass it on.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Our next question comes from the line of David Palmer from Evercore ISI.
Speaker Change: Thanks.
Speaker Change: I'll maybe make this.
Speaker Change: Super General question about convenience channel I know Theres a lot of curiosity about.
Speaker Change: Strategies to improve your penetration in that channel and growth rate in that and I would suspect there is some synergies with expanding plastic bottle.
Speaker Change: Passive as well there could you could you maybe talk about that.
Okay.
Speaker Change: Sure Yeah, so the convenience channel just.
Speaker Change: Give a broader perspective so.
Speaker Change: It only represents about 10% of the category. So it's actually a pretty small part of the category.
Speaker Change: And so that is not just is not our immediate focus.
Speaker Change: And we see that actually the bigger opportunity for us is expanding expanding distribution, where we already are distributed so TDP is.
Speaker Change: Incremental displays in food I mean, we think theres an opportunity to double our business in food that is that and we also see a very big opportunity and so those are the big expansion opportunities now I want to separate I wanted to separate out kind of debt.
Speaker Change: Convenience channel and the single serve opportunity because we actually think the single serve opportunity is a very big one.
Speaker Change: It's just not it just doesn't have to be in the convenience channel and so that is something that we are absolutely we're expanding our bottle.
Speaker Change: Production and will be and we are focused internally as an organization to expand our single bottles and that would be in the.
Speaker Change: In the channels that we already are are being distributed.
Speaker Change: No that's great color I, just wanted to ask one more on that on advertising.
Speaker Change: Get to the fours as Paul was just talking about in terms of advertising mix.
Speaker Change: Where do you where does that place you in terms of your share of voice in the category. It feels like this category.
Speaker Change: It might be under advertised right now versus your 20% market share.
Speaker Change: How much of the heavy lifting will you be doing in terms of advertising voice and I'll pass it on.
So just from a share of voice it gets close on Premier protein and same way and we are also advertising diameter size, but I think youre more asking about premier protein.
Speaker Change: During so what's unique about.
Speaker Change: This category is just that a little bit of the seasonality. So Paul mentioned that we will start advertising kind of at the end on premier at the end of Q1.
Speaker Change: Just to kind of prime the pump for the big season, which is our Q2 or in January February March that is when most people most new people enter into the category during so.
Eric: I'm, Eric quoting diet season.
But so during the period when <unk>.
Eric: Brands are advertising, so I think it mostly Q2 Q3 Q4, we will have a competitive share of voice.
Eric: Yes.
Speaker Change: Thank you.
Speaker Change: Uh-huh.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Jim <unk> from Stephens, Inc.
Speaker Change: Hey, Paul.
Speaker Change: Morning.
Speaker Change: I wanted to ask a question just about maybe the composition of growth and I appreciate probably getting a lot of good detail in your prepared remarks, but what are you guys expecting for kind of RTD shakes category growth and then when you talk about some of the distribution gains is that distribution for the whole category.
Speaker Change: And obviously you have a prominent place there or is it you're finding premier is getting distribution, where other competitors are kind of being left out of that incremental shelf space.
Okay. So first there are a couple of questions in there. The first one was what do we expect for the RTD category.
Speaker Change: We expect the RTD category to grow at.
Speaker Change: Low double digits. So I think that we will continue to see expansion of our Tvs.
Couple the mainstream brands.
Speaker Change: And premier kind of leading that are the ones driving the category growth.
Speaker Change: And we will continue to see that.
Speaker Change: As far as the desk or distribution gains and and when you look at our gross.
Speaker Change: For the year.
Speaker Change: We expect.
Speaker Change: 75% of our premier growth to come from new distribution and new products. So that is definitely going to be driving most of our growth and we will because we are the ones driving the growth we should get most of the shelf space.
Speaker Change: So again I think that.
Speaker Change: We're having incredibly.
Speaker Change: Constructive conversations with our retailers.
Speaker Change: They realize that.
Speaker Change: Convenient nutrition is under spaced.
Actually when you look at our category compared to other.
Speaker Change: Categories in the store.
Speaker Change: With much lower growth rates I mean, we should have two to three convenient nutrition should have two to three times that.
Speaker Change: Category space as it does today.
Speaker Change: So I think that.
Speaker Change: The retailers see that opportunity Unfortunately to date.
Speaker Change: Theres just been a lot of capacity constraints and so now that you know.
At least we are.
Speaker Change: We're out there I talked about in my prepared remarks that.
Speaker Change: We have an incredible category kind of selling deck, which walks at retailers through the opportunity and the opportunity is twofold. One is just incremental space and why the category deserves it but the other piece is if you've been.
Speaker Change: And.
Speaker Change: Any kind of food account.
Speaker Change: Youll see the opportunity of just organization and merchandising of the category.
The category generally is kind of misunderstood and confusing to many consumers and it needs to be cleaned up and so we have a lot of recommendations around that.
Speaker Change: <unk> by research et cetera. So those were some of the pieces that I that I was referencing when I was saying kind of the organization is ready for this moment, when we're unconstrained, where we can actually.
Speaker Change: Go on me.
Kind of offensive.
Speaker Change: Alright, I appreciate it thank you I'll pass it.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of John Baumgartner from Mizuho Securities.
Speaker Change: Good morning, Thanks for the question.
Speaker Change: Good morning.
Darcy there were there was some high level comments around innovation for 2025 at this point are you at Liberty to speak more in detail about those and maybe just conceptually when you speak about new platforms. What's your expectation for these platforms in terms of offer new ingredients or benefits that can attract new users new age groups. So on.
Speaker Change: I'm, probably not at Liberty to talk as much as you'd like me to.
Speaker Change: Okay.
Speaker Change: It's still early.
Speaker Change: But I will talk in maybe a little more specifics okay. So.
Speaker Change: Premier on I'll talk first Premier then diamond dies.
Premier we will continue to have closing innovation in the past called that little eye innovation, that's flavors pack size formats.
Speaker Change: So we will continue to expand the offerings there.
Speaker Change: We think there's a ton of opportunity low risk.
Speaker Change: And not only do you increase household penetration through these offerings, but you also increased by rate so that will happen, probably a little less sexy than the bigger innovation.
Speaker Change: But I think what's exciting around next year, we will have two new launches under premier.
Speaker Change: And Thats, what we would call more big innovation.
Speaker Change: One launching in Q2, the other in Q4.
Speaker Change: And once they are on the shelf I'll tell you more about them.
Speaker Change: And then diamond ties we have two lines launching in kind of the first half and these are platform ideas.
Speaker Change: And then the first half one and Theyre, both I'll have a little teaser is they are both.
Speaker Change: Outside of the typical.
Speaker Change: Protein powder.
Speaker Change: No.
Speaker Change: So to get at and the idea around.
Speaker Change: The big innovation for both businesses is.
Speaker Change: It has to check the box for incremental household incremental consumers or incremental occasions.
Speaker Change: So that is.
Speaker Change: That is what needs to be true.
Speaker Change: Does that give you a little.
Speaker Change: Yes, I'll sit tight.
Speaker Change: And then maybe just a follow up there.
Speaker Change: Going back to the household penetration and shake the category level the rate of increase accelerated this year relative to what we've seen post COVID-19, which was already strong.
Speaker Change: In terms of the underlying drivers and penetration is it possible to isolate how much of the recent growth in shake has come from substitution of other formats, whether it's bars are powders relative to absolute new users into the nutrition category and as that has a balanced is it changing at all do you expect it to change in 2025 and beyond how do we think about that penetration perspective.
Speaker Change: Most of the growth is coming from.
Speaker Change: Incremental.
Speaker Change: Incremental to the category, so very little coming from well first of all it's only 10% of our growth is coming from brand switching so start there.
Speaker Change: And most and then the so the 90% is coming from new users or our own users buying more.
Speaker Change: So and there is actually.
Speaker Change: There is not that much interaction, we're not sourcing a lot of volume from borrowers and powders a little from powders.
Speaker Change: But not not that much most of it is coming from out like new consumers or our own consumers buying more and those those.
Speaker Change: Our own consumers buying more are usually if you think of kind of the consumer progression. Those are ones that have recently come into the category and now are becoming with because for with US we have 50% repeat so with those consumers just continuing to maybe they came in.
Speaker Change: A year ago, two years ago, and now Theyre, just theyre, becoming everyday users.
Speaker Change: Thanks Archie.
Archie: Thank you.
Archie: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Bill Chapell from <unk> Securities.
Speaker Change: Thanks, Good morning.
Speaker Change: Sure.
Speaker Change: But does it.
Speaker Change: Talk a little bit more about the decision on stepping up marketing in 2025, and kind of why now and what level because it seems like it's it's a step change I mean, you've kind of grown exceptionally well over the past few years, despite not doing any national marketing despite not.
Speaker Change: Kind of flooding near ways and it seems like at least this quarter and probably for the next few quarters you are deciding to step up so maybe give us an inside look of what the thought process was from the company are from the management team of like why now where do we go with this how far is too far helpful. Little is too little any kind of color around that would be.
Speaker Change: Great.
Speaker Change: Sure I think that we've always seen advertising as an important demand driver.
Speaker Change: We the last time, we were on air was 2021.
Speaker Change: And the and it is it really is if you think of the only demand driver that is able to lift your entire business.
Speaker Change: It's advertising.
Speaker Change: Especially you know national advertising and so.
Speaker Change: That is the reason we've always we've just had to we needed to wait until we are confident in our supply and so now we're confident in our supply.
Speaker Change: What I will say around levels I mean, Paul talked about just percentage of sales.
Speaker Change: But I think that just maybe a little more qualitatively.
I think we are being cautious meaning that we are.
Speaker Change: We are star.
Speaker Change: Starting to press the accelerator of advertising.
Speaker Change: And but we're not kind of pedal to the metal at the very beginning and we did the test markets. This last quarter. So we have a sense of what the lift should be win win.
Speaker Change: When rolled out nationally.
Speaker Change: We feel great about that we also will be ready and we have some upside on production.
Speaker Change: If the results ended up to be higher than we expected.
Speaker Change: But overall I mean.
Speaker Change: We are the biggest.
Speaker Change: Opportunity for.
Speaker Change: Premier and the category is household penetration and there is nothing better to expand household penetration of the entire business than advertising.
Speaker Change: Okay, and then maybe kind of tying into that when you talk about things like.
Do you believe you can double the food channel.
Speaker Change: Sales over a certain amount of time.
Speaker Change: What are those consumers consuming right now.
Speaker Change: That's always the you have good household penetration I think you've said that 80% of your consumption is for breakfast.
Speaker Change: Is this different meal different occasions of the.
Speaker Change: Similar user or these new consumers that are coming in and.
Going for meal replacement or going for active nutrition, where they havent over the past few years.
Speaker Change: What's the driver of that.
Speaker Change: Yes.
Speaker Change: You are right so that so about 60% of our consumption as a meal replacement. So think of those people they're not in the category now they.
Speaker Change: They may not be there either either having an unhealthy breakfast.
Speaker Change: And I'm sure you've heard me say, you know theyre, stopping and having an egg mcmuffin theyre, stopping and having and dunkin donuts, so theyre, having in and they want to make it a healthier change in their lifestyle and they start with breakfast or theyre not having breakfast at all and so this is incremental.
Speaker Change: They have been told by their doctor or their trainer or there or someone that they need to either lose weight or they need to just improve their health.
Speaker Change: And they start with.
Speaker Change: The <unk>.
Speaker Change: Improving their first meal of the day, so that is where our research shows where most of the people are entering the biggest reason is because they want to improve their health and lose weight.
Speaker Change: And it usually is around breakfast now that is the main one however, as we begin to expand kind of big Guy innovation.
Speaker Change: Then you start going at new occasions.
Speaker Change: On top up outside of kind of just breakfast because yes breakfast is the biggest one the next one is.
Speaker Change: <unk>.
Speaker Change: Good morning, and mid afternoon snack.
Speaker Change: And then the next occasion is a replacement for lunch. So based on each one of those occasions, you replace a different food.
Speaker Change: Got it so your thought is just more occasions than necessarily.
Speaker Change: Occasions is driving it.
Speaker Change: Probably a little bit more than the new users.
Speaker Change: New users. This number one new users is number one occasion number two great. Thanks, so much. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Thomas Palmer from Citi.
Speaker Change: Hi, good morning, and thanks for the question.
Speaker Change: We hope to get a quick refresher on your pricing plans. It sounds like you instituted the price increase in the fourth quarter for Premier and then it did not sound like they were last time around diamond size is that still the case and then just any magnitude of kind of thinking through the price increase this year and.
Speaker Change: Yes, I guess confirming that it's just that one round on premier. Thank you.
Speaker Change: Yes. The current thinking is it's really confirming what you said so we took a pricing mid single digit price increase on premier shakes.
Speaker Change: Late in the fourth quarter, So we'll get the benefit of that throughout most of fiscal 'twenty five we are seeing.
Speaker Change: So significant inflation on our powder business.
Speaker Change: Which we price floor back if you go back in time.
Speaker Change: Significant pricing on the.
Speaker Change: On our <unk> business and Premier business powders back in late in the first half of fiscal 'twenty two.
Speaker Change: We're seeing protein costs really go back to about those same levels that we saw in late 'twenty two 'twenty three as we price for that.
Speaker Change: And so right now we're not contemplating actually pricing per se on our powder. So it is something we are evaluating what we will look at it as perhaps promo rates promotional rates could come down a bit, but it's something we're evaluating but as of now it's primarily the premier price increase that were.
Speaker Change: And our guidance.
Speaker Change: Okay, great. Thank you and maybe I'll just follow up quickly on the inflation side any help on the magnitude of the inflation that you're facing and then I just want to make sure I have it right the premier.
Speaker Change: Shakes pricing is covering the magnitude of inflation.
Speaker Change: What youre seeing on that piece of the business. So the pressure would be the powder side.
Speaker Change: Correct, Yeah. So we expect a price increase to an shakes to cover inflation on powders.
Speaker Change: What I'd say is again, we took significant pricing back in 'twenty two on this business in 'twenty. Four is protein costs came down it did drive really strong margins for our powder business in 24. So that's part of the that's part of the reason you see our EBITDA margins are really strong.
Speaker Change: In fiscal 'twenty for US is a lot of that is just the powder really favorable protein rates and those are flipping on us as we as we.
Speaker Change: Move into 'twenty, four 'twenty, five and I feel like I missed the first part of your last question pointed I Miss.
Speaker Change: Oh, sorry, just any help on magnitude of inflation to be thinking about yes. Thank you sorry about that yeah. So overall I would say inflation is in the mid single digit range. It's more impactful again as I mentioned on our powder business powder as an example, so.
Speaker Change: We're looking at cost of on a protein for our powder. So thats. Good whey protein is up about 50%, that's our expectation for fiscal 'twenty five and it's almost doubling in Q1. So we're talking about significant inflation from our powders is much more significant.
Speaker Change: Our shake business, obviously, its less than that but still still inflation on not only the protein, which we expect to continue to increase as we go through the year, but we're also continuing to see inflation on things like manufacturing cost to bid on packaging. So much more modest increases in slower to build inflation increases on our on our shake business raw power.
Speaker Change: That's much more impactful, especially in the first half of it.
Speaker Change: It moderates as we go through the year, but it's still a headwind throughout the year for powders.
Hamzah: Okay. Thank you thanks Hamzah.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Robert Moskow from T J Cohen.
Speaker Change: Hey, Good morning. This is Jacob Henry on for Rob Moskow. Thanks for the question.
Speaker Change: I think just one from me I know, it's still early but how have the elasticity has been versus your expectations on the shakes following the price increase.
Speaker Change: It is early but they're largely as we expected I would say modest elasticity.
Speaker Change: One interesting piece is we are seeing a trade up from the four count to the 12 count.
Speaker Change: And that's a little higher than we would've expected.
Speaker Change: Again, we saw that in powders.
Speaker Change: Over the last year, where consumers would trade up to larger sizes within diamond ties so not.
Speaker Change: Not unexpected, but a bit higher.
Speaker Change: Honestly I think it's good news in that.
Speaker Change: They.
They're moving to.
Speaker Change: There was some pantry loading once you get a bigger pack you end up consuming more which I think is is great, but thats really the only the only piece, but otherwise largely as expected.
Speaker Change: Great. Thank you I appreciate that color I'll leave it there.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Steve powers from Deutsche Bank.
Steve Powers: Great. Thank you and good morning.
First just potentially.
Speaker Change: Potentially a rudimentary question, but pulpwood production attainment piece could you just give us a little tutorial as to what those are.
Speaker Change: And whether they are expected to recur at all or if it was just isolated to the fourth quarter yes.
Speaker Change: So the latter question, we're not expecting those things to continue so production attainment fee is basically we have.
Speaker Change: Our co manufacturers have volume commitments to us.
Speaker Change: And if they do not meet those volume commitments.
There is a fee to be paid for the missed volume and so that's what that was in the fourth so it's something we recognized in our fourth quarter related to volume in fiscal 'twenty for that was.
Speaker Change: Not deliberate.
Speaker Change: Yes, Okay, that's what I thought okay. Thank you.
Darcy Davenport: And then Darcy.
Darcy Davenport: On incremental innovation you talked about.
Speaker Change: Sort of thresholds for new innovation to drive incremental households, or more occasion I guess.
Speaker Change: Are there.
Speaker Change: Any thresholds we should.
Speaker Change: Think about in terms of the profitability of the Incrementals are you from a profitability perspective, they have to be margin neutral margin accretive and how do you.
Speaker Change: Kind of balanced.
Speaker Change: The complexity that new innovation, new platforms represent relative to.
Speaker Change: Just trying to keep.
Speaker Change: Simplicity and efficiency in the business.
Speaker Change: Yes, our goal is to have all innovation margin accretive over time, I think that obviously when you launch new innovation.
Speaker Change: Sometimes need to to support it at the beginning but in the long term, we want it to be margin.
Speaker Change: Accretive and just from a complexity standpoint, I mean, we have a fairly simple business.
Speaker Change: So I think we know that that.
Speaker Change: When we do launch innovation, there will be some complexity brought in but honestly.
Speaker Change: It's nothing it's still a pretty simple business, so again margin accretive as the goal.
Speaker Change: And our and then just our innovation plan is.
Speaker Change: We would launch over time, we would launch a new platform on the Premier side every 18 months. Obviously, we've been we haven't launched a lot of big eye innovation over the last few years. So we've got a lot in the hopper. So that's why we have two this year, but over time, we will get back to.
Every 18 months.
Speaker Change: Okay very good. Thank you so much thank.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change #100: At this time I'm showing no further questions. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
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Speaker Change: Good.
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