Q4 2024 TreeHouse Foods Inc Earnings Call
Speaker Change: Welcome to the Treehouse Foods fourth quarter 2024 conference call. All participants will be in listen-only mode.
Speaker Change: Thank you, Matt and good morning, everyone.
Speaker Change: Today, I will share with you our fourth quarter and full year 2024 financial results as well as provide our initial 2025 guidance.
Speaker Change: Before we get to the results I'd like to update you on a couple of recent events.
Speaker Change: First the voluntary recall frozen griddle products, which occurred last quarter.
Speaker Change: As you can see on slide four Treehouse foods initiated the recall of products made in our Branford, Ontario facility out of a commitment to food safety and quality.
Speaker Change: The recall was initiated as a result of a rigorous quality assurance testing of our products made at the facility.
Speaker Change: We temporarily closed the facility to conduct a deep cleaning sanitation and hygienic restoration.
Speaker Change: The facility resumed shipping products in recent weeks in line with our expectations.
Speaker Change: And we anticipate no significant financial contribution from griddle and the first quarter.
Speaker Change: Second in January we completed the purchase of <unk> tea.
Speaker Change: Which is outlined on slide five.
I am pleased to welcome the Harris Teeter team to Treehouse foods.
Speaker Change: The transaction strengthens our competitive positioning in the fast growing private label tea category and.
Speaker Change: And as unique blending and sourcing capabilities that customers desire.
Speaker Change: Building upon our category leadership.
Speaker Change: And enhancing our position through additional depth and scale.
Speaker Change: The acquisition includes Harris Teeter manufacturing facilities in Morristown, New Jersey, and Marietta, Georgia.
Speaker Change: And provides vertical integration across the company's existing tito's.
Speaker Change: Okay.
Speaker Change: Turning now to a brief summary of our fourth quarter and fiscal year results on slide six.
Speaker Change: Fourth quarter, adjusted net sales of $911 $4 million and adjusted EBITDA of $118 $3 million were both in line with our expectations.
Speaker Change: We drove an improvement in our volume and mix and posted almost 4% growth in.
Speaker Change: In the period.
Speaker Change: Amidst voluntary recall related disruptions in our supply chain, we executed well to achieve significant cost savings securing anticipated procurement savings, which provided the benefits we expected this quarter.
Speaker Change: Looking at fiscal year 2020 for adjusted net sales of $338 billion and adjusted EBITDA of.
Speaker Change: $337 million were also in line with our updated expectations.
Speaker Change: We delivered flattish volume and mix for the year, despite our supply chain challenges.
Speaker Change: Let's take a closer look at the consumer trends, we experienced during the fourth quarter in the categories in which treehouse offerings.
Speaker Change: Detailed on slide seven.
Speaker Change: Private brand unit sales experienced a rather sharp deceleration during the quarter.
Speaker Change: We believe this slowdown was a result with continued macro pressure.
Speaker Change: That has impacted the broader food and beverage market.
Speaker Change: We are experiencing similar trends, thus far in Q1, and we have planned our 2025 business accordingly.
Speaker Change: Despite the macro trends I am pleased to report that overall private label industry dynamics remain favorable as we have illustrated on slide eight.
Speaker Change: Price gaps are healthy and maintain their historical cadence during the holiday period.
Speaker Change: Despite weaker consumption private brands maintain share.
Speaker Change: As it relates to promotion levels. We once again saw the traditional pattern of gradual increases as the calendar year progressed.
Speaker Change: Looking ahead, we believe an increase in promotional activity is likely.
Speaker Change: Given industry volume softness in overall consumption patterns and we have planned accordingly.
Speaker Change: Promotions are generally still below the historic levels seen prior to the pandemic.
Speaker Change: And we remain comfortable with the expected levels of promotions in our categories.
Speaker Change: Moving to slide nine private brands have been consistently gaining share over the last two decades, which we believe will continue over the long term.
Speaker Change: Treehouse remains attractively positioned at the intersection of two incredibly powerful long term consumer trends.
Speaker Change: The growth of private brand groceries in North America, and the consumers Love Snacking.
Speaker Change: Continuing with the discussion of the long term opportunity on slide 10.
Speaker Change: It's clear that many grocery retailers also see further runway for growth in private brands and are making their own strategic investments accordingly.
Speaker Change: Walmart and Albertsons, both launched new private label brands in 2024.
Speaker Change: Costco Kirkland brand is well established globally.
Speaker Change: And all of the continues its store base expansion across the U S with an assortment that's focused almost exclusively on private brands.
Speaker Change: The retailer emphasis underscores the opportunity available to treehouse to partner with our retail customers gain share and create value over the long term.
Speaker Change: I will conclude by providing additional context.
Speaker Change: As to how we plan to manage the business in 2025.
Speaker Change: Which incorporates the challenging macro food trends and slower category growth.
Speaker Change: We will continue to focus on what we can control as an organization.
Speaker Change: Primarily the performance of our supply chain and our cost structure.
Speaker Change: While we've made progress improving our operations, we still have a significant opportunity to improve our execution and consistency.
Speaker Change: As we begin 2025, we are sharply focused on executing what you see outlined on slide 11.
Speaker Change: We have visibility to delivering our commitment of $250 million of gross supply chain savings through 2027.
Speaker Change: We are focusing on optimizing costs across our supply chain network to drive improved profitability.
Speaker Change: I am confident that through our margin management function, we can improve the profitability of our current business as well as sharpen our competitiveness as we work to win new business. This year.
Speaker Change: We will allocate our supply chain capacity to the most attractive mix of opportunities to best drive profitability for both Treehouse and our customers.
Speaker Change: We have good line of sight to some additional near term opportunities to drive net sales and cash flow.
Speaker Change: As highlighted on slide 12.
Speaker Change: First we have the opportunity to improve the production efficiency at our Cambridge facility.
Speaker Change: Which despite significant improvement in 2024.
Speaker Change: It is still not yet in line with our long term expectations.
Speaker Change: And second we are on our way to a resolution.
Speaker Change: Of the frozen grow recall that is impacting our first half.
Speaker Change: With the glide path progressing as planned.
Speaker Change: Third our coffee business will begin to realize cost synergies this year as we complete the needed investments in the facility that we acquired.
Speaker Change: Which should bolster our coffee margin capability.
Speaker Change: And finally <unk>.
Speaker Change: Our level of growth Capex is going to moderate moving forward.
Speaker Change: As we complete some carryover projects from last year.
Pat: With that I will now turn the call over to Pat for further detail on our fourth quarter results and our 2025 outlook.
Speaker Change: Pat.
Pat: Thanks, Steve and good morning, everyone.
Pat: Like to start by expressing my gratitude to the entire Treehouse team for a solid close to the year.
Pat: I'm confident in our plans heading into 2025.
Pat: I will start with a summary of our fourth quarter results on slide 13.
Pat: Adjusted net sales of $911 4 million and adjusted EBITDA of $118 3 million, both improved versus the prior year in line with our expectations.
Pat: Progress on procurement savings drove stronger adjusted gross margin performance adjusted EBITDA margin rose to 13%.
Pat: Let me walk through these results in greater detail.
Pat: On slide 14.
Pat: We have provided a look at our year over year net sales drivers are.
Pat: Our adjusted net sales increase of 2% was primarily driven by volume and mix, which was up three 8% due to strong performance in eight of our top 10 categories led by pretzels in store bakery cookies and broth.
Pat: This positive volume and mix contribution was offset by the impact of our frozen grid.
Pat: <unk> restoration, which provided a drag of two 8%.
Pat: Pricing was a headwind of about 70 basis points due to targeted commodity driven pricing adjustments as we expected.
Pat: Finally, foreign currency provided a drag of 10 basis points.
Pat: Moving to slide 15, I'll walk you through our profit drivers.
Pat: Volume and mix, including absorption had no impact on the quarter.
Pat: PDOC, our pricing net of commodities was a drag of $23 million as expected, which was driven by higher commodity costs and targeted pricing investments.
Pat: <unk>.
Pat: Operations and supply chain provided at $29 million benefit year over year, driven by supply chain cost savings primarily related to our procurement initiatives.
Pat: In 2024, we achieved $60 million in gross savings.
Pat: Lastly, SG&A and other provided a benefit of $4 million year over year, driven by expense management and freight costs.
Moving onto a summary of our capital allocation strategy on slide 16.
Pat: We remain focused on deploying capital in a manner that enhances returns for shareholders.
Pat: We have been balanced in our approach over the past three years with a relatively even split between our strategic priorities.
Pat: Our first priority remains investing in our business, which we do organically through capex and inorganically by strategically, adding depth and capabilities as illustrated by our recent acquisition of Harris Teeter.
Pat: We will continue to maintain our balance sheet and execute on our share repurchase program. When we believe our share price has become dislocated.
Pat: And we have the cash on hand to do so.
Pat: In 2024, we returned roughly $150 million to shareholders through our share repurchase program.
Pat: As we continue in 2025, we will remain disciplined looking at every possible capital deployment decision by evaluating risk adjusted returns.
Pat: Now turning to our outlook for 2025, I'd like to spend a few moments framing how we are thinking about the year on slide 17.
Pat: We continue to see a challenging macro food environment is slowing category growth.
Pat: As it relates to our top line outlook. There are a few factors to consider in our 2025 guidance for adjusted net sales in a range of $3 three four to $3 4 billion or approximately flat at the midpoint.
Pat: Volume and mix are expected to decline approximately 1% year over year due to a couple of factors.
Pat: Organic volume and mix are expected to decline approximately 1% Theyre Harris tea volume benefit is expected to be offset by our previously announced decision to exit the ready to drink business and other margin management actions along with the impact of the frozen redrow product recall.
Pat: Yeah.
Pat: We expect that commodity related pricing will be an approximately 1% benefit in 2025.
Pat: Moving to profitability, we expect adjusted EBITDA in a range of $345 million to $375 million in 2025.
Pat: We are confident in the progress that we've made in implementing our supply chain savings initiatives.
Pat: And believe we are on track to deliver continued cost savings in 2025.
Additionally, we have made margin management a priority in the coming year and are executing on this strategy as we speak.
Pat: We expect free cash flow of at least $130 million driven by improved profitability.
Pat: Finally, we anticipate net interest expense in a range of $80 million to $90 million and capital expenditures of approximately $125 million, which should continue to move lower as we move beyond the multiyear investment period in both capacity and cost equivalent.
Pat: With regard to the first quarter, we are expecting adjusted net sales in a range of $785 million.
Pat: To $800 million, which represents a year over year decline of approximately three 5% at the midpoint.
Pat: Volume and mix are expected to decline approximately 3% year over year.
Pat: Harris tea volume benefit will be more than offset by the onetime impact from the present grid El product recall.
Pat: In terms of profitability, we expect adjusted EBITDA at a range of 38 million to $46 million.
Pat: With that I'll turn it back over to Steve for closing remarks, Steve.
Steve: Thanks Pat.
Speaker Change: 2024 was a difficult year for the food industry and Treehouse.
Speaker Change: I'd like to thank the team for managing the business through a tough environment.
Speaker Change: While we stand the benefit from our categories returning to their historic growth rates.
Speaker Change: Continue to believe.
Speaker Change: Treehouse has meaningful margin expansion opportunity.
Speaker Change: We have been implementing near term strategies to enhance value that are within our control.
Speaker Change: These include several efficiency opportunities across our supply chain and our overall cost structure that should drive improvement in the near term.
Speaker Change: As we head into 2025, we are focused on strengthening the foundation of our supply chain and margin management initiatives restoring production levels in key categories and pursuing profitable new business.
Speaker Change: Additionally, as we move through next year and conclude some carryover growth projects. We will begin a multi year glide path to lower levels of Capex, which will drive higher free cash flow conversion.
Speaker Change: These efforts should drive improved profitability and cash flow regardless of the macro headwinds.
Speaker Change: With that I'll turn the call over to the operator to open the line for your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To remind everyone in order to ask a question press star followed by the number one on your telephone keypad can be J. Your question Press Star followed by the number of when you can.
Andrew: The first question comes from Andrew <unk> of Barclays. Your line is open.
Speaker Change: Great. Thanks, so much good morning, guys.
Andrew: Good morning.
Andrew: I guess first question would be in.
Andrew: In the fourth quarter excluding.
Andrew: Excluding all the one time dynamics of exiting businesses in the grid will recall I think he's not undervalue them underlying volume rose three eight.
Tom: Thanks, Tom.
Tom: Most of the same on the same basis, if I'm looking at it right I think youre looking for underlying volume again, excluding all of these one time things in the first quarter that sort of flattish.
Tom: I guess, if I have that right what would.
Tom: But what do you attribute the sort of sequential slowdown too.
Pat: Yes, Andrew this is Pat so I think as we started the ramp up of the <unk> facility that was part of what helped us into the fourth quarter as we work.
Pat: Shipping is much Brock I think we've also seen an offset in some of the category deceleration that we talked about.
Pat: We exited the last couple of months and based on what we can see year to date, we're seeing maybe just slightly positive category trends, but largely flat and so I think thats the way were thinking about.
Pat: The first quarter.
Steve: Got it got it thanks for that and then Steve just a little bit more high level.
Steve: Sort of from an industry perspective really across branded and private label.
Steve: Over the past couple of decades right. The group has.
Steve: From time to time dealt with whatever significant fundamental challenges and.
Steve: Each time, while it's taken some time the group has sort of found its way back to sort of a better place.
Steve: One sort of one way or another and it just feels like valuations for the group at this stage are almost sort of implying that but at this time is different okay.
Steve: The challenges the industry currently faces are maybe more enduring or sort of structural in nature.
Steve: And I guess I'm just curious on your thoughts obviously, if you've been in the industry a long time.
Steve: At any given point in time at which it's always seemed like the challenges are structural and then they've proven battery and again I don't want to be dismissive of any of the challenges the industry spacing I know they are real but you get a sense of what I'm getting a sense of like is this time different and your view sure maybe.
Steve: Maybe I'll, maybe I'll answer that by by pulling it back to Treehouse and how we look at it and we're looking at exactly what you just articulated.
Steve: Obviously, we're not satisfied with our 2024 results right. We know this business is capable of more than that.
Steve: And you've got this environment of high inflation, you've got the <unk>. One question you've got the consumer pressure question. So you've got a lot of questions around you.
Steve: And if I tell you just back it's been literally less than two and a half years, just under $2 five years ago.
Steve: We sold the meal prep business and created the new Treehouse right. We chose categories. When we did that that had grown historically, 3% to 5% in units okay.
Steve: And some of those categories had grown at that pace for a decade.
Steve: Obviously to your point these things have changed dramatically right now right.
Steve: Got a low growth to no growth environment private label dynamics within the categories are good right, but the categories aren't good right. So.
Steve: What I inferred in my prepared remarks, and I hope the group on the call understands.
Steve: Is that our management team our board our leaders think this is an opportunity for exactly what you said to reset ourselves to rethink how we go to market, how we run our business and do it differently.
Steve: We talked about your focus on things you can control right.
Steve: In our case, it's our supply chain its operational excellence its efficiency, we think we can drive significantly more profitability and cash flow.
Steve: We think it has to start with the guide we gave you today, a very conservative volume guidance right.
Steve: That conservative volume guide allows us to focus on execution, we can tighten up our spending things like growth capital working capital and we can focus our team on projects that will take out structural costs right.
Steve: So we do think it comes back right and to your point it does right, but what we wanted to do was be a place where when that happens we can really leverage that financially. So our focus in the near term is to drive those things out.
Steve: I think Pat I think our categories were up seven tenths of a point in units in the in January right.
Steve: And so if that happens we'll be a tad better than what we guided.
Steve: But we thought a conservative guide.
Steve: Really a different mindset across treehouse and across our teams to focus on on on making this operation ready for when that happens and then we're going to know more right. We're going to the GOP. One question, it's going to flush itself out right over the next year or two.
Steve: A lot of these trends the food cost rate for commodities will get will settle.
Steve: Can have a more uncertain environment today with tariffs and all the things that are going on around us. So.
Steve: I think we just.
Steve: Building and I know some of my peers are working on some of the same same issues.
Steve: And so I think we positioned the business for for normalcy, and normalcy will happen right. It has to your point every other time.
Sandra: Okay I appreciate your thoughts. Thank you, yes, thanks Sandra.
Steve: Okay.
Speaker Change: The next question comes from the line of Mark Smith from Stifel. Your line is open.
Mark Smith: Hi, good morning, Thanks for taking my question.
Steve: Morning.
Steve: Steve I wanted to kind of.
Steve: Ask you about the margin management actions, you're taking in 2025.
Steve: I think it's hard to kind of tease out what the impact to volumes is based on the guidance, perhaps a point or so.
Steve: Can you can you talk a little bit more about the phasing of when you expect to see the volume headwind from some of those margin management actions and if.
Steve: This is kind of a reset in 2025 or if this is more of a go forward way of managing the business, where we could continue to see volume drag that is offset by new contract wins over time sure maybe I'll touch on.
Steve: How we approach this and when I think it's going to impact us and Pat can talk about here right.
Steve: So.
Steve: In a market.
Steve: Sort of what I, just said to Andrew.
Steve: If youre, assuming your business is going to grow 3% to 5% and thats been the historic trends.
Steve: Youre, adding shifts you are adding capacity you are taking on complexity that isn't that efficient in your plants.
Steve: Our margin management allows us to especially in those capacity constrained areas to really align efficient operations with the best op, where can we give our customers what customers and what volume will that be the most effective for them in the most effective for us.
Steve: And not put that pressure on that team to try to grab that extra piece of business that ends up being inefficient right.
Steve: So I think there'll be a point or two of volume drag throughout the year.
Steve: But I think it's offset dramatically by the cost to serve that volume, but we've done some really really good work that that suggest some of that volume is really expensive to serve.
Steve: Now that doesn't mean that as things recover we wont make capex cap capacity expansion expenditures again.
Steve: But I think theres, a chance to theres, a chance to pause on that and also over the next year or two I think our T. Mos activity, we're seeing great progress from Tmall. So that's adding capacity to our system. So, let's let that run for a year or two in <unk> and free up some capacity and we will go fill it so maybe I'll hand, it to Pat to talk about yes, sorry.
Pat: Thank you youre thinking about that right.
Speaker Change: On vacation I think youll see that build throughout the year, obviously, the first quarter, we've got visibility into what business, we want to serve there.
Speaker Change: Out there youll start to see us make choices on bids that we participate and where we may not want to run down the structural margin in a category in mid to low and in other parts of business that like Steve described that are complex.
Speaker Change: The tail than what we serve that don't make sense for us. So I think think about that is probably starting second quarter and then building throughout the year.
Speaker Change: I'm not going to be draconian, but a couple of points of volume out of our system. The most expensive part of our tail can really impact our margin capable.
Speaker Change: Thanks, Pat and just as a tactical follow up the margin management actions. The drag on volume is that going to be it looks like the way guidance. We've laid out that's not going to be included in what you're calling organic volume is that right.
Speaker Change: Yes, I think the way that we describe that Thats right, maybe the way we described organic might just be what we would call sort of base business, maybe another way to say that.
Speaker Change: Thank you I'll pass it on.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Jon Andersen of William Blair. Your line is open.
Speaker Change: Hey, good morning, everybody good morning, John.
Speaker Change: A couple of quick quick questions.
Speaker Change: On the supply chain.
Speaker Change: Cost saving program I think you mentioned Pat that.
Speaker Change: Cumulatively realized $60 million of gross savings in 2020.
Speaker Change: <unk> can you talk a little bit about.
Speaker Change: How big we should be thinking about the cadence of the <unk>.
Speaker Change: Outlets that program in 2005.
Speaker Change: 36.
Speaker Change: And then.
Speaker Change: Also curious.
Speaker Change: Aerobic the commentary around the capital expenditure glide path.
Speaker Change: Kind of a multiyear glide path to a lower capex rate.
Speaker Change: I think the Capex fragrances were up four 3% of sales from 24.
Kind of implied in the 3837 $3 eight range.
Speaker Change: In 2025, how that.
Speaker Change: You expect that to kind of assuming all else equal.
Speaker Change: How that glide path like play out over the next.
Speaker Change: Two to three years thanks.
Speaker Change: So on the supply chain seeming a lot of what we drove this year. It was related to our procurement cost savings initiatives and we were really pleased to see the flow through of that in the second half of the year, primarily so given that we did a lot of that work in the second half what we expect to flow through in 2025 will be the carryover impact of that is.
Speaker Change: Is the remainder on the pipeline as we continue to execute on that obviously in a lower volume environment, it's a little bit harder to drive through.
Speaker Change: Kind of ongoing cost savings and we do see a little bit of inflation. So that number from a manufacturing will be a little bit smaller than this year, but we see ability for T Mos to offset our inflation and deliver a little bit and then we've had good progress as well on our logistics and Theres still more work to go there. So I would say think of.
Speaker Change: 125, providing probably a little bit less from a from a procurement savings, but thats my line on its way, we will get some manufacturing and we will get to start to work on our logistics, which were the pillars of what we talked about and then we'll just look at based on volumes what are the structural things we've got to do.
Speaker Change: To make sure we're aligning effort with the volume that we do have.
Speaker Change: Then as it relates to Capex, we arent winding up a couple of multi year projects in 2025, and I think for this business. We've said historically, 3% to three 5% is probably the level of Capex I think on the high end would be what you need to go to drive more growth and so on the low end, if youre not trying to trap background.
Speaker Change: Closer to the low end of that overtime, if youre not making those types of investments and so.
Speaker Change: That'd be a little bit of how we think about the glide path and we'll obviously, we'll update that as we get closer to it.
Speaker Change: Makes sense one quick follow up.
Speaker Change: I think it's.
Speaker Change: Dates back a little ways down, but at one point you had shared a kind of a view of where you may be in 2027% from the margin perspective, but I think an implied EBITDA margin of around 12% in light of some of the kind of the.
Speaker Change: Pivot that youre, making here based on the macro.
Speaker Change: Category performance.
Speaker Change: Thank you are going to be scrutinizing some of the category customer.
Speaker Change: Relationships, a little bit more for margin management does that does that change.
Speaker Change: The kind of the complexion of long term algo.
Speaker Change: Lower topline, but offset by improved profitability gross profit dollars. Thanks.
Speaker Change: Yes, I am not sure John we would say at this point, we're going to go a lot about that but I think that'll be the real focus Tonight I think obviously the work to go drive that type of margin on a lower volume requires a little bit more effort. So.
Speaker Change: I don't think we're going to we're going to see anything different but obviously as we get greater line of sight and we see the benefits of that pay off we can update as we go along.
Speaker Change: Great. Thanks, so much.
Speaker Change: Sure.
Speaker Change: The next question comes from Jim scenario.
Speaker Change: Kim Sinatra.
Speaker Change: Defense incorporated your line is open.
Speaker Change: Yes. Good morning, Thanks for taking my questions good morning.
Speaker Change: You can maybe give a little more detail around the softness in private label consumption.
Speaker Change: Sequential step down.
Speaker Change: Thank you.
Speaker Change: You did call out some strength.
Speaker Change: <unk> cookies and the in store bakery, which at least conceptually I would think a little bit more discretionary and some of the other categories in store.
Speaker Change: The consumer spending there.
Speaker Change: These little pressured in other areas that would actually be a benefit to private label.
Speaker Change: Just any color you can offer around that would be helpful. Sure sure a couple of things.
Speaker Change: We actually took some share in a couple of those categories right.
Speaker Change: Our pretzels team has been performing incredibly well in the if you remember a couple of years ago, We made an investment to bring seasoned pretzels to market that is starting now to pay off so I think in ISP as well there are some new business in that in that.
Speaker Change: In that group, so I think frankly that's execution.
Speaker Change: And unfortunately.
Speaker Change: When we have the hangover of our frozen grid, all those things are hard to harder to show through but so we actually had some <unk>.
Speaker Change: Some execution strength there.
Speaker Change: Honestly, we have historically seen brands peak in December that's been a historical peak.
Speaker Change: Obviously, you've got holidays, you've got all of those things happening so.
Speaker Change: And you've got a lot of promotional support.
Speaker Change: But I.
Speaker Change: I have listened to the other calls on the.
Speaker Change: A few calls theres been out I, just think we had a soft consumer environment.
Speaker Change: In the month of December like we saw decelerate as we got into the quarter I don't know if thats a consumer paying for Christmas I don't know what those things are but we saw the volume decelerate.
Speaker Change: We saw I mean, we gained a tiny bit of share.
Speaker Change: A tiny bit positive, which is still better than the category dynamics, but.
I think it was more of a macro category issue or a macro consumer spending issue than it was a private label wishes.
Speaker Change: And like we said we saw about seven <unk>.
Speaker Change: Improvement in January right, a small improvement in January now we are at record share levels right. So.
Sure so not sure it's a private label issue as it is a just a macro issue.
Speaker Change: Okay, that's great and maybe just.
Speaker Change: A follow up question to that.
Speaker Change: We think about 2025 and again ignoring all the.
Speaker Change: One time headwinds.
Speaker Change: Should we think about.
Speaker Change: General category improvement versus operational execution, leading to share gains as the drivers of the kind of base business volume.
Speaker Change: I think we are planning for volume to be flat, which as I said in my opening comments. That's a conservative point of view that allows us I think the underlying categories.
Speaker Change: If there are anything like January might be up to a point ish.
Speaker Change: But that allows us a little bit of room.
Speaker Change: To do a little bit of a.
Speaker Change: Distribution changes and things to improve our margins right the Harris Teeter acquisition.
Speaker Change: We thought well that's great mix, it's profitable volume, we thought bringing that in gave us an umbrella to operate under to make the rest of the business to position the rest of the business in a much better place. So I think what youll see there we'll win some pretzel business, we'll win some of those great categories, where we're performing really well.
Speaker Change: And then we will use that opportunity to position the rest of the business for a more profitable run going forward.
Speaker Change: Okay, Great I'll hop back in the queue.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question comes from Rob Dickerson of Jefferies. Your line is open.
Speaker Change: Great. Thank you, maybe just one kind of technical question and one broader question.
Speaker Change: For the quarter.
Speaker Change:
Speaker Change: Volume mix was up three eight and then we have.
Speaker Change: The line that shows kind of facilities restoration impact, which I assume that's the griddle business.
Speaker Change: That's correct when we go Okay and then when we go back last year to Q4, I believe it was about a 4% drag.
Speaker Change: From the broth dislocation from that.
Speaker Change: From that disruption.
Speaker Change: Yes.
Speaker Change: Im trying to kind of like net broth, let's say two griddle.
Speaker Change: Would you say that that 4% drag from last year's Q4 was essentially.
Speaker Change: Essentially recovered in this year's four.
Q4, with the first question yes.
Speaker Change: Yes, Rob this is Pat so I would say some of that.
Speaker Change: For that we saw in.
Speaker Change: In the prior year and 2023 is recovered over the course of the year I think as we've described it in the past we do think it's going to take through Q1 to get Brock.
Speaker Change: This level is back up and so.
Speaker Change: We're seeing that so I wouldn't say, it's fully recovered in that timeframe, it's a seasonal item and so it takes a little bit.
Speaker Change: From a capacity standpoint to go fill that pipeline back up so we weren't quite there in the fourth quarter.
Speaker Change: Perfect and then just Steve.
Speaker Change: Steve you had the comment in the prepared remarks around.
Speaker Change: The expectations for promotional activity to increase.
I kind of took that.
Both branded and private label.
So I guess just kind of first part of the question is just.
Speaker Change: Kind of in this like lighter volume.
Speaker Change: Environment.
Speaker Change: And then kind of your comment on kind of trying to push the margin on a lower volume base.
Speaker Change: Is the idea is you kind of get through Q1.
Speaker Change: The environment lets just say doesn't improve materially.
Speaker Change: And as we kind of get through the year.
Speaker Change: Both branded and private label could actually start to promote a little bit more to try to get those volumes.
Speaker Change: And hopefully.
Speaker Change: The lower absolute price point on a promoted private label item becomes more attractive in this environment.
Speaker Change: Sure.
Speaker Change: Sure I think the assumption is branded right.
Speaker Change: I think that there are still below.
Speaker Change: At some point, we have to stop using pre pandemic rates going too far nobody's going to remember when it was right but.
Speaker Change: Yes.
Speaker Change: The promotional levels are still not at historic norms right. So there is room for promotions to grow based on that we expect branded promotion volumes look it's a low volume environment right. So we.
Speaker Change: Spec them to try to find ways to target that and be effective.
Speaker Change: We contemplated that in our flat guidance right. We think thats that's contemplated in when it comes to promotion for us.
Speaker Change: So that's something we work on the with the retailer.
Speaker Change: Not trade for US is not the same line that's built into the contracts that we have so.
Speaker Change: If if we're if we need to do that or they need to do that we'll work on that together, but it won't have financial impact to us the way promotion does and branded accounting right. So.
Speaker Change: But my feeling is the gaps are pretty substantial right now I think they can sustain and.
Speaker Change: And the value proposition for private label I think is the best it's ever been from a quality and assortment and price point, so price gap So I don't.
Speaker Change: I think we'll weather and we can deliver the numbers that we have comfortably without us having to do much.
Speaker Change: And that assumes brands are aggressive.
Speaker Change: Okay Super and then.
Speaker Change: Maybe just one last quick one on Harris T.
Speaker Change: 4% excuse me 4%.
Speaker Change: Contribution to 'twenty five.
Speaker Change: Just as you step into that business and I'm sure you've heard it pretty quickly or closely sorry.
Speaker Change: Before you purchased it.
Speaker Change: Kind of out of the gate is there like a.
Speaker Change: Kind of a larger increase distribution opportunity.
Speaker Change: Is there something strategic.
Speaker Change: Pairs with coffee.
Speaker Change: So we just started discussing right clearly understand kind of what's the what's.
Speaker Change: What the CAGR on that business has been the category.
Speaker Change: Just trying to understand kind of yes.
Speaker Change: What do you do with the out of the gate.
Speaker Change: I think number one it's a great category.
Speaker Change: Typically that is a category that has bought with coffee right the hot beverage group.
Speaker Change: In most retailers is altogether and so they bring in.
Speaker Change: And even deeper group of relationships with that particular category than we do but also we have a small T business right and we pack team for some of the some.
Speaker Change: Some of the most specially.
Speaker Change: Foodservice retailers and things we have a very high end tea business that didn't have the procurement and blending capabilities. So it brings vertical integration to the business, we already had and thats, where the little extra synergy per treehouses.
Speaker Change: Besides just the integration stuff right. So I think and this is a really deep.
Speaker Change: Group from an expertise level. So they are clear category experts. So I think what we felt they could run our existing <unk> business better than we were running right now knock on our team just we felt there was going to be synergy on our tea business.
Speaker Change: Super Thank you.
Speaker Change: The next question comes from Carla Casella of Jpmorgan. Your line is open.
Carla Casella: Hi, Thanks for taking the question.
Speaker Change: On the griddle facility shut down.
Speaker Change: And more broadly than that can you talk about what you're seeing in terms of.
Speaker Change: You talked about account wins.
Speaker Change: I'm wondering if you're seeing any account losses and if you if there's any kind of net net wins versus losses way to think about the business.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I think our customers have been with us really strongly both on our on our broth recalling on our.
On our griddle recall so.
Speaker Change: We think the distribution base as we come out of this will be very similar to the distribution base when we went into it.
Speaker Change: I think thats just our transparency.
Speaker Change: No consumer.
Speaker Change: Injuries on this this was.
Speaker Change: This is the rigor that we put into an older facility that we own and I think there are QA groups really appreciate our vigilance on it.
Speaker Change: I think it was the right thing to do was expensive in it and I know the retailers didn't don't like this kind of thing, but they appreciate having a partner with the kind of vigilance that we have so.
Speaker Change: So far we think our distribution of the neutral.
Speaker Change: Okay, Great and then just any conversations you've had with the rating agencies I know I asked this all the time that the Triple C rating on the conference.
Speaker Change: Lode.
Speaker Change: I was wondering if you've got any kind of insights to maybe get your rating up and what you may need to do.
Speaker Change: Yes, I think it's no different from other stakeholders, who are just looking for consistency of execution and delivering on what we set out and so I think as we do that you'll see it I think as we as we keep leverage.
Speaker Change: LOE as well I think thats, another kind of mechanical trigger point as well that when you think about and certainly even with our refi we felt like pricing we got in the first quarter was.
Carla Casella: Probably reflected what you point your sentiment is on the on the rating as well, yes, Carla I would just say, our bondholders and our our lenders.
Carla Casella: Look it is favorable to that credit ratings. So we think the underlying earnings power of the business show through and we understand the rating agencies conservative stance and where we are.
Carla Casella: We're anxious for that.
For us to have the returns and the results that we can show through to them as well.
Speaker Change: Okay, great. Thank you.
Speaker Change: The last question today comes from.
Speaker Change: And bank of America Your line.
Speaker Change: Okay.
Speaker Change: Good morning, I just have two the first your leverage is kind of down near the bottom of your target range of three to.
Speaker Change: So the three five times.
Speaker Change: Should we assume that I guess the majority of cash at this point, we will either be deployed towards M&A or if there are not opportunities towards share repurchases.
Speaker Change: Yes.
Speaker Change: I think the way to think about that as we obviously did M&A in January and so we did put some of that cash that we had on the balance sheet to use early in the quarter and the first quarter of 2025 for the Harris Teeter acquisition and so.
Speaker Change: From a leverage standpoint, you may see that move up just a little bit.
Speaker Change: From from where we set our target was and then we'll work that down over the course of the year, but certainly not not levering up the company by any stretch but.
Speaker Change: We will change a little bit in the first couple of quarters of 2025.
Speaker Change: We think by year end, though will be in it.
Speaker Change: Even lower position I think the slide 16.
Speaker Change: We thought it was important we talk about capital allocation and the discipline that we have we think that Pie chart really gives you a sense that we have in fact invested in our business. We have in fact kept our balance sheet strong.
Speaker Change: And Opportunistically return cash to shareholders. So we don't see any change in that going forward.
Speaker Change: Got it and then.
Speaker Change: Given the diversity of your product portfolio, it's a little bit difficult from the outside to track how your commodities.
Speaker Change: They look for the year I guess in general are you going to see either inflation or deflation or should they be relatively flat.
Speaker Change: Yes.
Speaker Change: Sort of low to mid single digit inflation is what we've got visibility to right now.
Speaker Change: Large chunks of that that are in coffee and cocoa, which if you've followed those those have been up somewhat more dramatically than other commodities and then there's probably some things in some edible oils and some other ingredients that we use that are up a little bit year over year. So we'll watch that as we go through the year, but that's what we've got visibility to right now and we've assumed some level of pricing in our topline.
Speaker Change: Yes.
Speaker Change: And we've talked a number of times much of our coffee pricing is pass through rate is on on the timing.
Speaker Change: Timing pass through and we hedge it accordingly based on those master agreement so.
Speaker Change: That's a mechanical exercise and thats, probably the largest single piece of it.
Speaker Change: Okay. So does it stand to reason that it sounds like from the last answer that largely you did push through price increases and let's.
Speaker Change: <unk> Cocos in Cerro Verde.
Speaker Change: As throughs on that or a coffee I can't remember, which one you just mentioned but.
Speaker Change: <unk> price for the majority of the other commodity inflation you saw for the year.
Speaker Change: I would say that activity is happening right now.
Speaker Change: I'd say, that's more current I wouldn't say we've done it I would say it's being done.
Speaker Change: And obviously there are certain positions in front of that stuff. So that gives us the time to.
Speaker Change: Due to the customer lead times and stuff.
Speaker Change: Great. That's all for me thank you.
Speaker Change: Okay.
Speaker Change: This concludes our question and answer session.
Speaker Change: I'd to turn the conference back over to Steve Oakland, Chairman, CEO, and President of Treehouse Foods for closing remarks.
Speaker Change: Well I'd like to thank everyone for being with US today I am sure.
Speaker Change: This is what you plan for Valentine's day, but we appreciate you being with us and we'd hope that we hope you have a great evening.
Speaker Change: And we look forward to talking to you live in between and again next quarter have a great day.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Yeah.