Q1 2025 BellRing Brands Inc Earnings Call
Okay.
Good day and welcome to the building brands first quarter fiscal year 2025 earnings conference call. At this time, all participants are listen only mode.
After the Speakers' presentation, there'll be a question and answer session and instructions will be given at that time.
As a reminder, this call is being recorded.
Speaker Change: I'd now like to turn the call over to Jennifer Meyer Investor Relations for building brands. Please go ahead.
Speaker Change: Good morning, and thank you for joining us today for powering brands first quarter fiscal 2025 earnings call with me today are Darcy Davenport, our president and CEO of haul road, our CFO Darcy I'll call will begin with prepared remarks, and afterwards, we'll have a brief question and answer session.
Speaker Change: The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations Andy at SEC filing section at Bell Rang Dotcom and addition, there really isn't slides are also available on the Sec's web site before.
Speaker Change: 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.
Speaker Change: These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website.
Speaker Change: Finally, this call will discuss certain non-GAAP measures for 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 Darcy.
Darcy Davenport: Thanks, Jennifer and thank you all for joining US. This morning last evening, we reported our first quarter results and posted a supplemental presentation to our website.
Darcy Davenport: I'm pleased to share that fiscal 'twenty five is off to a good start.
Darcy Davenport: The business accelerated as we layered in demand drivers and kicked off the new campaigns on both brands.
Darcy Davenport: Our first quarter results were slightly ahead of our expectations on the top line with more favor ability on the bottom line.
Darcy Davenport: Both net sales and adjusted EBITDA grew approximately 25% driven by Premier protein.
Darcy Davenport: Our EBITDA margins benefited from favorable gross margins and the timing of marketing spend.
Darcy Davenport: As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow between 13 and 17% over fiscal 'twenty, four and adjusted EBITDA to grow between seven and 14% our strong first quarter performance, along with confidence and demand drove our decision to raise our guidance.
Darcy Davenport: Before reviewing the category and brand updates I want to share that our supplemental presentation and corresponding metrics now reflect expanded coverage of the convenient nutrition category as well as our business and.
Darcy Davenport: And the new database. The total convenient nutrition category is now reported at $19 billion up from 13 billion, a sizeable increase in track to coverage.
Darcy Davenport: The new database provides a more accurate picture of the category across channels and a better reflection of our strong market position.
Darcy Davenport: Now to the category and brand update the convenient nutrition category grew 12% in Q1 as I mentioned last quarter. It is rapidly transforming into an everyday and sports nutrition category with those segments driving the most of the growth and making up 75% of sales.
Darcy Davenport: From a foreign perspective ready to drink growth accelerated and continued to lead the category up 18% driven by strong consumer demand.
Darcy Davenport: Our T d's, where the second fastest growing category in the entire store only behind eggs, which had unique supply demand dynamics.
Darcy Davenport: Mainstream every day.
Darcy Davenport: And sports Nutrition, RTD brands continue to bring new consumers into the category and were up 31%.
Darcy Davenport: Ready to mix grew 8% sustained in Q4 as growth rate.
Darcy Davenport: Overall, we see the total convenient nutrition category momentum increase in Q1, and I look forward to an even stronger growth during the Q2, new year, New you season.
Darcy Davenport: Turning to our brands Premier shake consumption growth accelerated this quarter up 23% growth was strong in all channels driven by distribution expansion accelerating velocities and incremental promotional activity.
Darcy Davenport: Expansion in form, including bottles and pack size, along with improved in stocks drove the distribution gains are seasonal flavor winter Mint chocolate has demonstrated high incremental at each of the brand and was the number two our T D item at a major mass retailer this season.
Darcy Davenport: Consumption growth continued with Jay with January up 17%.
Darcy Davenport: Our brand metrics remains strong with premier protein, reaching all time highs in P. D piece and household penetration.
Darcy Davenport: The brand continues to gain new consumers, reaching 20% of household this quarter.
Darcy Davenport: In calendar year 'twenty for Premier protein grew household penetration was 17% a significant contributor to the overall RTD category growth.
Darcy Davenport: The brand's repeat and buy rate grew for the calendar year, demonstrating our category leading consumer loyalty.
Darcy Davenport: Premier protein with RTD market share of 26% 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.
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.
Darcy Davenport: Premier protein powder continued its strong trajectory with consumption up 24% in Q1 behind strong velocities and distribution gains we remain encouraged by the growth potential that premier protein brand. In this format is household penetration reached 2% this quarter and during calendar year 'twenty four premier powder.
Darcy Davenport: Household penetration grew 22% the second highest of any competitor in the powder category.
Darcy Davenport: We continue to believe premier will be a contributor to mainstreaming the powder category in the same way that premier dead in ready to drink.
Darcy Davenport: We're thrilled to share that our premier protein National marketing campaign hit screens late in December just ahead of the new year, New you season.
Darcy Davenport: It is a high energy spot that captures how premier protein bring brings joy to their health journey.
Darcy Davenport: <unk> the tagline sweetened the journey it shows that healthy eating doesn't have to be hard, but can actually be enjoyable and fun.
Darcy Davenport: Our first nationwide campaign, since 2021, and will reach Tvs streaming and social media audiences.
Darcy Davenport: Although early the campaign is generating significant increases in search and traffic to our website is up 80% versus a year ago.
Darcy Davenport: From an innovation standpoint, we launched a new line of Premier protein products, our indulgent line, which are available for decadent shake flavors in one powder flavor.
Darcy Davenport: Items are richer and creamier targeting an incremental occasion of consumption occasion, while still delivering on the nutritionals that our consumers expect from the Premier brand.
Darcy Davenport: The items are building distribution and although early are off to a promising start.
Darcy Davenport: More innovation is planned throughout fiscal 'twenty five.
Darcy Davenport: In addition to exciting advertising and new products, we are updating our logo and redesigning our packaging for the first time in close to a decade.
Darcy Davenport: The refresh design the refresh design build on our strong performing current design and brings a modern look that improves discover ability on the shelf. We expect the updated design will start to hit the shelves in the second half.
Darcy Davenport: Turning to Diamond ties the international business drove the global brand this quarter more than offsetting domestic headwinds.
Darcy Davenport: Despite recent U S trends the brand remains strong holding the number two share position within sports nutrition powders, which represents about half of the overall powder category.
Darcy Davenport: While household penetration and overall distribution levels remained stable we are starting to see some encouraging signs from both marketing from a marketing campaign as well as our new products.
Darcy Davenport: Our marketing campaign with San Francisco running back Christian Mccaffrey exceeded our benchmarks and drove strong lifted them to our brand metrics. As a result, we've expanded our core team a dime type of athletes and influencers by partnering with tennis professional and Olympic medalist Tommy Paul It was ranked number nine in the world.
Darcy Davenport: On the innovation front, we launched two new platforms. This quarter, we know that diamond Diamond ties consumers purchased both free workouts and RTD products. So.
Darcy Davenport: In December we launched RTD shakes.
Darcy Davenport: With fruity and cocoa pedal pebbles flavors as well as pre workout powder called energize available in three flavors.
Darcy Davenport: Early results for both products are positive and we continue to be bullish on the sports nutrition category opportunity.
Darcy Davenport: In closing, our Q1 results position us well for another above algorithm year, our organization has officially pivoted to demand driving.
Darcy Davenport: Strong macro tailwind around protein are driving robust long term growth in our category with ready to drink and powder segment in the early stages of growth.
Premier protein is already the number one convenient nutrition brand and we are just starting to drive demand our innovation pipeline on both brands as rich, enabling us to bring excitement to consumers and our retail partners for years to come.
Darcy Davenport: Last we have a scalable regionally diverse supply chain able to support our long term growth projections, our confidence in our long term outlook for <unk> remains high.
Darcy Davenport: We look forward to sharing our progress next quarter I will now turn the call over to Paul.
Paul: Thanks, Darcy and good morning, everyone.
Speaker Change: As Dorothy highlighted we had a good start to fiscal 2025.
Paul: Net sales for the quarter were $533 million and adjusted EBITDA was $125 million.
Paul: Net sales grew 24% over prior year adjusted EBITDA increased 25%.
Paul: Adjusted EBITDA margins were 23, 5% meaningfully exceeding our expectations.
Paul: Starting with brand performance Premier protein net sales grew 26% behind strong volume growth for RTD shakes and powders.
Paul: Distribution gains incremental promotions inorganic growth drove the sales increase as well as the benefit from our price increase taken in Q4.
Paul: Shipment dollar growth slightly outpaced consumption dollar growth.
Paul: <unk> net sales increased 13% this quarter on 12% higher volume.
Paul: Similar to recent quarters strengthened international business continued with double digit sales growth.
Paul: This was partly offset by domestic headwinds.
Paul: Gross profit of $200 million grew 35% with an increase in gross profit margin of 310 basis points to 37, 5%.
Paul: Our pricing actions offset modest input cost inflation in the quarter we.
Paul: We expect the rate of inflation to increase throughout the year.
Paul: Compared to our expectations first quarter gross margins benefited from $5 million of nonrecurring cost favorability and $1 5 million of unrealized mark to market gains on our commodity hedges, which combined drove margins higher by approximately 120 basis points.
Paul: SG&A expenses were $80 million, an increase of 270 basis points as a percentage of net sales with higher spend for advertising and promotion and warehousing the main drivers.
Paul: Advertising promotion spend was two 8% of net sales up from one 4% in last year's first quarter as we kicked off new campaigns for both from their protein and Diamondback.
Paul: However, we shifted roughly $4 billion of marketing spend from the first quarter to later in the year.
Paul: This along with favorable gross margins contributed to adjusted EBITDA margins coming in above our expectations.
Paul: Operating profit of $115 million increased 42 million compared to prior year. It was positively impacted by lapping $17 million of accelerated amortization last year.
Paul: Before reviewing our outlook I'd like to make a few comments on cash flow and liquidity.
Paul: We generated 3 million of cash flow from operations in the first quarter as anticipated our working capital increased as we added shakes apply to our inventory.
Paul: Moving forward, we believe our inventory levels are largely normalized and accordingly, our adjusted EBITDA to cash flow conversion will improve for the remainder of the year.
Paul: We continue to expect our cash flow in fiscal 'twenty five to be in line with fiscal 'twenty, four and weighted to the back half of the year.
Paul: As of December 31, net debt was $790 million and net leverage was one seven times.
Paul: With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below two times throughout fiscal 'twenty five.
Paul: With respect to our share repurchases. This quarter, we bought 143000 shares at an average price of $77 12 per share or $11 million in total.
Paul: In January we repurchased about 550000 shares at an average price of $72 79 per share or $40 million.
Paul: As of January 31, our remaining share repurchase authorization is 124 months.
Paul: Yeah.
Paul: Turning to our outlook, we raised our fiscal 'twenty guidance for net sales to be $2. Two six to 234 billion and adjusted EBITDA of $4 $70 million to $500 million.
Paul: Our guidance implies strong topline growth of 13% to 17% and adjusted EBIT growth of 7% to 14% with healthy adjusted adjusted EBITDA margins of 21, 1% at the midpoint.
Paul: As Archie mentioned, our better than expected first quarter performance drove our decision to raise our outlook.
Paul: Before reviewing our second quarter outlook I want to give some perspective on our cadence throughout the year.
Paul: Overall, our quarterly sales phasing hasnt changed significantly from our November guide recall, we expect net we expect sales growth to be weighted to the first half of the year as the second half lapse trade inventory load in 'twenty, four which we estimate to be a mid single digit headwind to our second half growth.
Paul: Regarding adjusted EBITDA, we have made some modest changes to our quarterly phasing.
Paul: Recall I mentioned, we shifted marketing spend from the first quarter to the second half.
Paul: Additionally protein costs in the first half for trending slightly more favorable than expected and more unfavorable in the second half.
Paul: The combination of these items and a stronger than expected first quarter has shifted EBITDA growth toward the first half.
Paul: In addition, our guidance continues to include second half cost related to packaging redesign.
Paul: As a result, we expect second half EBITDA margins to be modestly lower than the first half with the full year above our long term algorithm at 21%.
Paul: Moving to our second quarter forecast.
Paul: We expect mid to high teens net sales growth with premier protein the main driver.
Paul: <unk> and all other is expected to be flat to down year over year.
Paul: We expect consumption dollar growth to be meaningfully exceed shipment dollar growth for premier shakes, which is typical in the second quarter.
Paul: We expect second quarter, adjusted EBITDA margins to decline modestly compared to year ago with significantly higher marketing spend more than offsetting higher gross margins.
Paul: In closing we are pleased with our strong start to fiscal 'twenty five.
Paul: Q1 results gives us greater confidence in our full year outlook and long term growth prospects I will now turn it over to the operator for questions.
Speaker Change: Thank you if you would 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 David Palmer with Evercore ISI. Your line is open.
David Palmer: Thanks, Good morning.
Speaker Change: Wanted to ask you about.
David Palmer: Your growth.
How you are growing this year you think in ways that are different than maybe last year and maybe the opportunities going forward.
David Palmer: If you go through this transcript you can get.
David Palmer: A lot of a lot of stuff a lot of things are going on you mentioned the indulgent types, the new pack types PDT versus the.
David Palmer: The Asa big boxes.
David Palmer: We saw some strong growth in E. Commerce. So I'm just wondering how you're how you would characterize the growth levers this year and whats coming in.
David Palmer: Stronger or more importantly, and then maybe how this will play out even beyond 'twenty five.
David Palmer: Sure.
David Palmer: Great question.
David Palmer: So first of all I mean, this year is fundamentally different from last year I mean, we have ample capacity, where we really can.
David Palmer: Drive the business I mean, I mentioned in my prepared remarks that the entire organization is now focused on.
David Palmer: And demand driving.
David Palmer: Where are you really see that is this is the first time that we have started national advertising, we have not had national advertising on our main business our shake business. Since 2021, so that's a big difference and honestly that is the one.
David Palmer: One driver that can lift all channels so incredibly important.
David Palmer: The second piece is just around distribution.
David Palmer: We expanded distribution like distribution and innovation I would say so in past you know last year versus this year.
David Palmer: We're really driving distribution and innovation, whereas Lee.
David Palmer: Last year, we were still having out of stocks on the shelf.
David Palmer: Especially in the food accounts.
David Palmer: And then I would say the third big one is promotion in food. So last year, we did not we we kind of eased in promotion.
David Palmer: Last year and we.
David Palmer: We started in the club channel and then expand it from there.
David Palmer: We now have.
David Palmer: Promotion across and we started layering in promotion and display.
David Palmer: In the food channel and I always like to repeat this because I think our business is different from many other businesses is.
It is less about the sense off for promotion. So it's not about deep discounting all we want we display is what moves our business.
David Palmer: And so we can do as little as we can from a sensor standpoint to get those.
David Palmer: Those displays in the aisle and so and we're really starting January January February March are big.
David Palmer: The big season for Us where the most new consumers enter into the category and so it's nice to see you know our big displays out there like they have been in past years. So so.
David Palmer: So I would say those are kind of the three big areas that are different this year than last year. So hopefully that answers your question.
David Palmer: Okay, Thanks, and if I separate follow up on <unk> International really.
We're super strong this quarter, we would estimate maybe up 40%.
How do you how do you see <unk> playing out this year.
David Palmer: Brand was that international strength sort of a one off for this quarter any thoughts about <unk> and 'twenty five.
David Palmer: We expect and the Diamond size international business to continue to be strong throughout the year and drive the overall the overall business.
David Palmer: In the U S. So I remember international business for <unk> is about.
David Palmer: 40% of the global brand.
David Palmer:
David Palmer: So and I.
David Palmer: The U S business is pressured.
We have.
David Palmer: A few years ago.
David Palmer: We took a lot of pricing and the category took a lot of pricing because of.
David Palmer: Of whey protein prices really accelerating well, we're seeing those commodity prices continue to accelerate so the P&L is pressured.
David Palmer: Specific I mean globally, but but the the consumer and in the U S is is much more pressured.
David Palmer: So I think that as we look at the global brand International will stay strong throughout the year.
David Palmer: And we're looking at.
David Palmer: Basically like single digit growth.
David Palmer: Sure for the global breadth.
David Palmer: Thank you.
Speaker Change: Thank you. Our next question comes from Andrew Lazar with Barclays. Your line is open.
Speaker Change: Great. Thanks, so much good morning.
David Palmer: Darcy last quarter.
David Palmer: You talked about the learnings from several other tests that you did of your advertising campaign behind Premier.
David Palmer:
David Palmer: That is now in full swing on it on a national basis. I know this is the first one in many years, so I'm trying to get a sense of what sort of response, knowing it's still early but you are seeing to the campaign based on whatever metrics that you used to sort of assess the lift or the payback.
So we just it just launched at the end of December.
David Palmer: The last week of December so, it's very very new but the early.
David Palmer: What we look at right now because it's too soon to really see lifts in in market, but.
David Palmer: But we look at web site traffic, we look at online search.
David Palmer: And those look really strong and so we're getting getting consumers attention and they're acting.
David Palmer: And Theyre actually searching premier protein. So that's exactly what we want to see.
David Palmer: And I think that this was a this was a well researched.
David Palmer: The campaign. So I think I told you guys last quarter that we did we performed three test markets. We also did a fair amount of creative testing, we wanted to make sure we got it right.
David Palmer: Because it was the first time that we have.
David Palmer: Launched national media and in several years, so all of the test markets met or exceeded the lift expectations and we made a few we found a few areas from a creative standpoint that we could tweak and improve the spot.
David Palmer: So we were able to do that.
David Palmer: And we're really pleased with the early performance.
David Palmer: Thank you for that and then.
David Palmer: Last quarter you mentioned.
David Palmer: Sort of starting to have more top to top discussions with key customers now that you have sort of ample capacity and some more innovations to talk about that sort of warrant right talking about more incremental shelf space in the store.
Speaker Change: Would you expect this to lead to sort of material gains along these lines of this fiscal year or are those things and those sorts of decisions by retailers really a sort of a longer burn sort of process. Thanks. So much.
David Palmer: Okay.
David Palmer: I would say, yes, and yes.
David Palmer: First of all I think that you know.
David Palmer: One of our main growth drivers is just around getting our fair share of that shelf.
David Palmer: We're about a 25% market share player the number one in the category. So we should absolutely have a quarter of the shelf if not more because we're driving.
David Palmer: Most of the new consumers into the category.
David Palmer: No.
David Palmer: That is happening we have capacity and youre starting to see.
David Palmer: Some really strong increases in PDP is you can track it in our supplemental presentation.
David Palmer: So that is happening.
David Palmer: But then also these top to tops those conversations are more around the future of the convenient nutrition category.
David Palmer: And how I mean, there is it's a new it's a new category I'm, you know 30 years old.
David Palmer: And it's a rapidly changing.
David Palmer: And so if you go to the shelf set in a food account looks very different from a mass account and looks very different from a club accounts and so theres a lot of opportunity to.
David Palmer: To bring in consumer insights to help consumers around makes sense of all the products and how they use the products and who therefore because right now it's very confusing so those conversations not only expanding the convenient new.
David Palmer: Tricia category, expanding sports nutrition, and everyday portion of the category, which is now three quarters of it.
David Palmer: Those kind of conversation and those bigger changes take time, but in the meantime, we're also expanding just getting our.
David Palmer: Kind of our fair share of the shelf.
David Palmer: Would you put your share of shelf at versus your market share right now.
David Palmer: It is so I don't have the exact number but it's about half and half was where it should be.
Speaker Change: Thanks, so much.
David Palmer: Thanks.
Speaker Change: Thank you. Our next question comes from Ken Goldman with Jpmorgan. Your line is open.
Ken Goldman: Hi, good morning, and thank you for the helping sort of framing the rest of the year in terms of cadence. So I was wondering if I could ask.
Ken Goldman: A follow up to that which is how would you like us to think about premier mainly ready to drink.
Ken Goldman: Consumption.
Ken Goldman: In tracked channels any sort of ups or downs or unusual trends. We should think about just as we look ahead at the biweekly releases going forward.
Speaker Change: And can you mostly talking about Q.
Ken Goldman: Q2.
Ken Goldman: Yes, yes.
Speaker Change: I'll say, yes, and yes, just like you did a little bit of both whatever you can offer would be great.
Ken Goldman: Okay. So January I said I was.
Ken Goldman: Up 17%, we expect overall Q2 to be in the mid 20, so we should be seeing.
Ken Goldman: Acceleration as we go into February and March.
Ken Goldman: And that is really driven and again now amusing millo class so.
Ken Goldman: So we have a broader look at tracked channels. So that includes both Amazon and Costco.
Ken Goldman: But yes, so we will so we should be seeing an acceleration into Q2, and then and then we should see strong consumption throughout the year.
Ken Goldman: Got it. Thank you and then as we think about the ready to mix category in the U S.
Ken Goldman: Yes, I think there was some hope that might be there might be a little bit of a rollback situation for lack of a better phrase in January with a large customer across a number of different manufacturers I was just curious a is that correct.
Ken Goldman: We were expecting that MB did that happen this plan and I guess C.
Ken Goldman: What are you looking for in terms of overall category pricing there in light of.
Ken Goldman: Some of the challenges at the higher end.
Ken Goldman: The premium portion of the category as well as higher input costs going forward.
Ken Goldman: Okay. Ken can you. So you said that we were expecting a robot also I'll simplify that Darcy.
Ken Goldman: I was under the impression now I'll simplify it I thought there might be maybe I misheard. This last quarter, there might be a hope that there might be a little bit of incremental promotions at a particular customer in January across ready to mix, but really broadly I'm just trying to get a sense of what you're viewing or what you're expecting from pricing in that category, especially.
Ken Goldman: On the premium side in light of some of the challenges and in light of at the same time, some higher wage cost does that makes sense.
Ken Goldman: Yeah, It makes perfect sense.
Ken Goldman: Watching it very closely because a yes like you said way pricing is is increasing and it's expected to continue to increase.
Ken Goldman: Right now promotions promotion across the category is pretty stable.
Ken Goldman: So not we're not seeing we're not seeing a decrease in promotion to offset the increase in whey protein yet.
Ken Goldman: I think that.
Ken Goldman: Likely we still believe that we're going to see it we haven't seen.
Ken Goldman: Any pricing yet.
Ken Goldman: So I think that we believe we just have to see it later in the year.
Ken Goldman: Because that's where you really start seeing the increases in <unk> protein, but we haven't seen it yet we haven't seen a dramatic shift in promotion plus or minus.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Thomas Palmer with Citi. Your line is open.
Speaker Change: Okay.
Speaker Change: Thanks for the questions.
Speaker Change: First I just wanted to make sure I understood the timing of cost inflation and kind of what's what's driving you talked about mid single digit is that still the expectation and then whats driving that uptick as we move into the back half is it really just looking at where you are or kind of other.
Speaker Change: Other items to call out.
Speaker Change: Yeah overall expectation hasnt changed its mid single digits in really in my prepared remarks.
Speaker Change: Shifting some of the shift of a protein is.
Speaker Change: For full year, it's really neutral, but it took a little bit more favorable first half a little less favorable second half unfavorable in the second half.
Speaker Change: Not that different.
Speaker Change: As far as what's driving Theres, a little bit on whey protein there is a little bit on milk protein. So again, we're talking about relatively small amounts, but a little bit of an uptick.
Speaker Change: And that's just market driven.
Speaker Change: Whey protein continues to remain fairly tight supply demand dynamics of the costs there remain elevated and then.
Speaker Change: Milk proteins, which are the primary input for our shakes. It just it's just been a steady increase the market contract nonfat dry milk is.
Got him down to bits, we're still not fully covered in the latter parts of the year. So we're.
Speaker Change: Obviously being cautious and watching that market, but again, we're talking about pretty small changes net it's really no different than our expectation of mid single digits for the full year.
Speaker Change: Great. Thanks, Thanks for that and then on <unk>.
Speaker Change: No.
Speaker Change: Earlier in the call how pricing had run up quite a bit a couple of years ago and I think last year was given some some cost tailwind rather promotional for the group as a whole maybe an update on the promotional intensity you're seeing now that costs are really starting to escalate that are you seeing any outright price increases or at least a.
Speaker Change: The pullback in promotional activity by the group. Thanks.
Speaker Change: And we are not so we haven't seen them price and yet there are some rumors out there, but nothing we haven't seen anything at the shelf from a price increase standpoint, and and there hasnt been a dramatic change of promotion so pretty.
Speaker Change: Dirty.
Speaker Change: Promotional levels.
Speaker Change: So.
Speaker Change: We expect that there is going to be a change later in the year as these higher protein cost.
Speaker Change: Start flowing through the P&L, but we haven't seen it yet.
Speaker Change: Understood. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from cameo.
Speaker Change: Garza Waller with Jefferies. Your line is open.
Speaker Change: Hey, everyone. Good morning, and congratulations you're liberated from all of the capacity constraints over recent years.
Speaker Change: There is there's a lot going on and what you've laid out I guess the big question is what's the right piece of doing all of these things between the marketing and the repackaging and the innovation.
Speaker Change: There is sometimes the risk of going too fast, especially because.
Speaker Change: This is really your first year of having the ability to be a lot more demand focused so I didn't know you were sort of going at the right speed and not too fast.
Speaker Change: I love that question.
Speaker Change: So we have been.
Speaker Change: If you think about.
Speaker Change: The last.
Speaker Change: Year, starting end of 'twenty three into 'twenty, four and now 25, I would say we have been.
Speaker Change: Pressing the accelerator.
Speaker Change: Consistently.
Speaker Change: Consistently so we first layered in.
Speaker Change: Promotions in some channels.
Speaker Change:
Speaker Change: We.
Speaker Change: Did some light kind of light innovation more around flavors, just to give consumers and retailers.
Speaker Change: Some flavor of statements.
Speaker Change: Then.
Speaker Change: This year was now we are launching both innovation as well as doing advertising, but we're still not we've talked about wanting to get to.
Speaker Change: $4 to 5%.
Speaker Change: Of spend on marketing, we're not there yet where we are we are slowly accelerating for the exact reason that you were talking about which is.
Speaker Change: We don't want we don't want to get into a supply constrained situation.
Speaker Change: And we don't need to we want to try to figure out the right level of support for our business too.
Speaker Change: <unk> derive it year over year.
Speaker Change: So that is exact it's a fine line, but so far I think we've been we've been doing it well and we'll continue to keep that in mind and just your question around packaging.
Speaker Change: We have been working on packaging for a while and I'm really excited about the the new the new graphics, it's an evolution not a revolution.
Speaker Change: But it's it is going in the right direction it'll improve all of our testing it's going to improve discover ability. It's a more modern look.
Speaker Change: And we really haven't we've done small changes to our packaging because it works well.
Speaker Change: But we haven't done kind of a logo redesign and package redesign in about a decade, so it's pretty exciting and that should roll in.
Speaker Change: Towards the end of the year basically like that second.
Speaker Change: That's good context, thank you.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question comes from Jim <unk> with Stephens. Your line is open.
Jim: Hey, guys. Thanks for taking my questions.
Jim: I wanted to go back to something you mentioned earlier, which is that premier is really driving most of the new entrants into the category. If you look at the scanned data it really seems like premier and maybe one other brand or are the ones that continue to gain share can you just give us some insights into why some of the other legacy brands aren't seeing the same level of engagement from the.
Jim: New consumers given that the category as a whole has kind of seen a lot of new people engaging with it.
Jim: Yes.
Jim: Yeah.
Jim: The growth is coming from mainstream so basically the everyday nutrition and sports nutrition segments.
And it's it's really the kind of modern brand I think if you separate the.
Jim: Category into how we look at it which is adult nutrition.
Jim: Sports nutrition everyday nutrition and weight management.
Jim:
Jim: You really start seeing a dynamic where it used to be that adult and weight.
Jim: Really with most of the category and it's where the category began.
Jim: And now you see those parts of the businesses.
Jim: Really declining or just stagnant.
Jim: And you see them.
Jim: The sports nutrition, and and everyday just kind of.
Jim: Exponentially growing.
Jim: I think it is because those part of the categories are more.
Jim: Yeah.
Jim: They're more positive there more pro active health messages as opposed to.
Jim: The adult and the weight side of things are more about deprivation.
Jim: And so I think that that is I think it's a it's a changing consumer view of the entire category.
Jim: Im going much more into that well positive wellness side as opposed to what you want to change about your body.
Jim: So I think that is that that is part of it.
Jim: Great and then if I think about premier in particular is there a way to split up the volume gains between frequency among existing households, whether it's I used to have it once a week and now.
Jim: Three times, a week versus just new households, coming brands that haven't tried the product before.
Jim:
Jim: I don't know if I have that we probably need to follow up with that I don't have that off I don't want to give you the a.
The wrong number all I would say is that.
Jim: We're seeing and it shows in our supplemental presentation, where you see that not only are we increasing households.
Jim: But we're also increasing by rate and repeat rate. So it's rare that you see.
Business that is growing households, as well as growing distribution innovating et cetera, but at the same time time, increasing by rate and repeat rate. So it's definitely so I don't have the breakdown I would say they are both contributing.
Jim: To our growth.
Speaker Change: Okay, Great I appreciate the color I'll hop back in the queue.
Speaker Change: Thank you. Our next question comes from John Baumgartner with Mizuho Securities. Your line is open.
John Baumgartner: Good morning, Thanks for the question.
Speaker Change: Good morning.
David Palmer: Darcy on the fixed side, it sounds as though youre gaining confidence that the depth of deal on promo for the consumer doesn't need to be as deep as it's historically been and I'm curious the extent to which that then enables you to recalibrate your budget and transfer more funding into slotting or other areas that open new opportunities for where in the <unk>.
David Palmer: Or you can be displayed or increase the frequency of quality promo is there may be a longer term benefit to be had here.
David Palmer: Yes, I think that for us.
David Palmer: Goal is display.
David Palmer: And so we we know we do not think that we need to go as deep as perhaps we did a few years ago. However, what I will say is that.
David Palmer: This doesn't have to do with just what we want.
David Palmer: And so.
David Palmer: It is always a negotiation with our retail partners.
David Palmer: About what there is.
David Palmer: What their rules are about.
David Palmer: The the required depth to get display.
David Palmer: So.
David Palmer: If it was up to us.
David Palmer: We would only do we would have very little.
David Palmer: PPR, if any we would just do display.
David Palmer: We know that that's where you really you get the eyeballs you get the trial, we bring people into the franchise and then our 50% repeat fuels.
David Palmer: But again there are there more stakeholders that we need to work with and they have different rules.
Speaker Change: Okay. Thanks for that and then on the ready to mix side coming back to this absence of more prominent price increases thus far can you get the sense at all that the volume success of chic is maybe forcing the powder segment to hold prices more so than usual sort of accept some margin pressure to reinforce relative value. There I mean, I guess I'm curious if maybe there is more.
Speaker Change: Have a fundamental change in how powder as pricing, especially if there's some expectation or optimism for lower cost later this year.
Speaker Change: Paul do you want to talk a little bit about where.
Speaker Change: Where we think pricing is going to go.
Speaker Change: From a protein cost perspective on way.
Speaker Change: What we're seeing is that cost cost remained elevated and we expect those to really go through our fiscal year. So I would not say that we've necessarily seen on whey powders relief, yet I think it's still a tight supply demand dynamic on whey powders and we expect that really to continue through our fiscal year.
Speaker Change: I would say in general.
Speaker Change: I think our perspective is it's hanging on longer than we expected and so it may go beyond this fiscal year, but obviously thats still to be determined as we get further along but I would say our view is that it's.
Speaker Change: It seems to be sticking a little longer than expected.
Speaker Change: But there definitely is a different dynamic because milk protein concentrate is what the protein that we use in our shakes and then way.
Speaker Change: Protein is what is in the powder business and there is definitely a different.
Speaker Change: Dan.
Speaker Change: Cost dynamic in both they're both they're both increasing.
Speaker Change: But milk protein concentrate is kind of just more steady where you don't have.
Speaker Change: The whey protein is a bit more volatile and so.
Speaker Change: And has increased very dramatically.
Speaker Change: Over time, so I think yeah, theres, just a different P&L reality in both sides of the business.
Speaker Change: Okay. Thanks, Darcy Thanks, Paul.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from Brian Holland with D. A Davidson your line is open.
Speaker Change: Thanks. Good morning, I was just curious if you could sort of.
Speaker Change: The third floor is between.
Speaker Change: Some of these distribution gains how much of that is.
Speaker Change: Capacity constraints easing.
Speaker Change: Versus kind of like new product launches that you've talked about I guess it seems like you have a long tail of white space that you've referenced.
Speaker Change: Over the past year plus.
Speaker Change: With respect to.
Speaker Change: Getting your products new form single serve other channels et cetera, So I'm just curious.
Speaker Change: As we think about.
Speaker Change: The long term opportunity for how big this brand how big this category can be how broadly could be distributed.
Speaker Change: We are in that.
Speaker Change: The distribution gains that we're seeing specific to this quarter how much of that is really just kind of core blocking and tackling as capacity constraints versus actually tapping into the long term white space.
Speaker Change: Okay. So.
Speaker Change: From an hour to start let's just start with kind of the blocking tackling out of stocks that were lapping.
Speaker Change: We'll probably finish will have lapped most of the out of stocks by.
Speaker Change: Q I think they ended kind of Q2 trailed into Q3 by Q4 of last year.
Speaker Change: We had mostly fall shelf.
Speaker Change: So if you think of that so if you think of percentage of our growth.
Speaker Change: I think we would say kind of single digit part of our growth maybe a quarter of our growth is coming from that.
Speaker Change: In the first half so that's just kind of like now when you think about the long term opportunity of distribution.
Speaker Change:
Speaker Change: I would bucket it into two sides I mentioned to Andrew that.
Speaker Change: That we were.
Speaker Change: If you if you assume that.
Speaker Change: Your share of shelf should equal your market share.
We we basically should double our space it varies dramatically from account to account.
Speaker Change: But.
Speaker Change: At a macro level.
Speaker Change: We should we should about double our space given where our market share is that's one piece. That's just share of shelf, but then when you think of when you're in a high growth category.
Speaker Change: This growing within one of the fastest growing within the store.
The entire category should increase in space.
Speaker Change: And so I think that's where it gets really interesting.
Speaker Change: And.
Speaker Change: Were the continued so once we kind of fix the shelf, meaning that we get our fair share then we start talking about the.
Speaker Change: The overall <unk>.
Speaker Change: Increase in the category space and those are those top to top discussions and the ones that.
Speaker Change: Should win there obviously are the ones that are driving the new consumers into the shelf and there arent that many of those brands and we're one of them.
Thanks, that's very helpful. And then maybe just on that last point.
Speaker Change: Capacity constraints are easing.
Speaker Change: Presumably not just for you but for the category.
Speaker Change: We've seen little Green shoots.
Speaker Change: Some some time of your brands.
Speaker Change: Private label Skus.
Speaker Change: Having some nice growth here obviously.
Speaker Change: Obviously low basis, just curious how you're seeing the competitive landscape evolved around you.
Speaker Change: As maybe more capacity becomes available and certainly to your earlier point about the category being the second strongest behind eggs right now from a growth standpoint.
Speaker Change: Clearly that brings eyeballs from a competitor standpoint.
So just curious what you're hearing and seeing with respect to competitive activity innovation et cetera around the moat that you've built here with premier protein in ready to drink.
Speaker Change: Yeah from a competitive standpoint, I would say that there aren't a ton of major changes since the last several quarters.
Speaker Change: The the mainstream of sports nutrition brands are winning and there they are the ones, bringing in new consumers into the category.
Speaker Change: Gaining distribution, both in Ireland out of aisle.
Speaker Change: Which has been.
Speaker Change:
Speaker Change: Again, the key because it's a low household penetration category, so people need to see the product.
Speaker Change: And.
Speaker Change: The smaller brands.
Speaker Change: <unk> are honestly, let I mean, yes, you always see some new plant products kind of come and go but really ones that make a difference and are making an impact and gaining a lot of shelf space. There just arent that many within ready to drink very different within ready to mix.
Ready mix you see upstart all the time and I think that's the big difference between ready to drink and ready to mix in bars ready to make some bars are much easier to formulate them you can get.
Speaker Change: You can.
Speaker Change: You can basically formulated in kind of a kitchen, you know a commercial kitchen ware.
Speaker Change: The ready to drink category, just highly complex, it's hard to formulate it takes.
Speaker Change: Two two plus years to formulate these products.
Speaker Change: You have to make them in.
Speaker Change: Very in a facility that is kind of wall to wall stainless steel a septic very expensive usually you have to commit to long term volumes to get the space.
Speaker Change: So it's just a much different.
Speaker Change: Yes competitive moat I would say than in the other parts of the category.
Speaker Change: Thank you. Our next question comes from Matt Smith with Stifel. Your line is open.
Speaker Change: Hi, Good morning, Thursday, Paul you called out the shift in marketing spend from <unk> to the second half can you talk about what drove that change in timing I know, there's a focus on returning marketing and advertising back towards historical levels, but I'm curious how locked in marketing spend is in the second half.
Speaker Change: I can start Paul and then you can add.
Speaker Change: To whatever I Miss.
Speaker Change: So the decision really was around we are supposed to start marketing and kind of the middle of December.
Speaker Change: We pushed it back a few weeks and mainly just we were making some adjustments to the creative and it took a little longer. So we pushed it until we started on in the last week of December right before new year, New you. So.
Speaker Change: So that is kind of the reason why it pushed Paul you want to.
Speaker Change: Yes.
Speaker Change: So obviously.
Speaker Change: Talked about the shift out of Q1 and really we shifted some from Q1 to Q2, which then shifted to the second half of the net impact is about a $4 million shift to second half but.
Speaker Change: The level of spend for US is still it's still the same as it was when we gave guidance last November so nothing has dramatically changed on our marketing spend we still feel like we have the.
Speaker Change: Alright level in our in our guide and our plan.
Speaker Change: If it changes there other than just timing.
Speaker Change: Thanks, Paul and Darcy as a follow up the innovation launch indulgence.
Speaker Change: Does the expansion play out from here I think it was launched in some limited.
Customers do you expect that to start to expand in.
Speaker Change: In this fiscal year and is that shelf space incremental to premier's current shelf space, where you've already launched it.
Speaker Change: Yes, and yes.
Speaker Change: So yes, we started.
Speaker Change: We launched it in Q1.
Speaker Change: With one mass customer and then we started.
Speaker Change: E Comm and then.
Speaker Change: And then we are.
Speaker Change: Planning to expand from there.
Speaker Change: So youll start seeing it pop up in different accounts throughout the year and yes, it's incremental.
Speaker Change: Thanks dosing follow up this one.
Speaker Change: Thank you.
Thank you. Our next question comes from Robert Moskow with TD Cowen Your line is open.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Our next question comes from Robert Moskow with TD Cowen Your line is open.
Speaker Change: Sorry about that.
Speaker Change: Darcy I was hoping for an update on a couple of things one is it.
Speaker Change: Have you.
Speaker Change: Given any extra thought to expanding into the convenience store channel.
Speaker Change: Your convenience nutrition drink I think you should be in the convenience channel.
Speaker Change: And then secondly on <unk> any new data on on how the growth of <unk> is helping your business.
Speaker Change: Can we use channel is still a future opportunity.
Speaker Change: It represents about 10%.
Speaker Change: The overall category so relatively small I agree we should be there we will be there.
Speaker Change: But right now there are other opportunities that are bigger.
Speaker Change: One of the and and we have we've had a fair amount of conversations in the past about just DSD specifically.
Speaker Change: And we've been doing some work on our side to evaluate that.
Speaker Change: For now I think what we're doing is we're kind of testing a hybrid strategy.
Speaker Change: Which we like to call like ship shipped via warehouse merchandize like a DSD within our channels.
Speaker Change: And so we're seeing how far that can get us without going all the way to DSD.
Speaker Change: But convenience, yes, future opportunity, but not immediate.
Speaker Change: So that's the first one second one is <unk> one.
Speaker Change: Yes, so we track it very closely as you might expect.
Speaker Change: And I would say the headlines.
Speaker Change: Trucking.
Speaker Change: Much so the penetration of <unk> ones.
Speaker Change: Based on our research is much faster and bigger than what I think the original base case that Morgan Stanley put together.
Speaker Change: And what I would say the one change benefits definitely benefits our products specifically.
Speaker Change: <unk> ready to mix and ready are ready to drink and ready to mix, but a little bit more on the ready to drink side.
Speaker Change: We estimated that it represents about a quarter of our growth that is still the case and.
Speaker Change: The only change that we saw in the past quarter on from our research is.
Speaker Change: A few more people.
Speaker Change: Lapsing.
So in essence.
Speaker Change: The penetration of the household pen so to speak is.
Speaker Change: Pretty stable, it's not growing anymore and.
Speaker Change: And what we're seeing is there kind of as many people entering or starting with <unk> as coming off at.
Speaker Change: And.
Speaker Change: What and the reason is because they basically hit their target way.
Speaker Change: And so there they are sort of it's plateauing a bit we'll watch that carefully in the next coming few coming quarters, but.
Speaker Change: We still see a big a nice tailwind for the category.
Speaker Change: That's interesting so when you say that it represents 25% of your growth.
Speaker Change: If penetration rates do stabilize here.
Speaker Change: What would happen to that 25% number does that mean that it goes to zero or how do I connect those two.
Speaker Change: No I think that it continues so.
Speaker Change: Because.
Speaker Change: Of the people that start <unk> I mean, not everybody is on using and using our Tvs. So I think that it will continue to grow also it's one quarter. It stabilized I mean I think this is really it's new so we got to keep watching it.
Speaker Change:
Speaker Change: But I think what's encouraging is that.
People use RTD is when they're on the drug.
Speaker Change: But then they also use them after them so when they come off of it.
And so to keep the benefit so I just think that it is.
Still ultimately.
Speaker Change: We still have a low household penetration category.
Speaker Change: Our product is still you know 20% household pen.
Speaker Change: So we have a this is just one of many growth drivers that we see on our business as well as the category.
Speaker Change: Got it thank you.
Speaker Change: Yep.
Speaker Change: Thank you. This concludes our question and answer session. Thank you for your participation you may now disconnect everyone have a great day.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
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