Q3 2025 BellRing Brands Inc Earnings Call
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Please be advised that today's conference is being recorded, I would now like to hand the conference over to your first Speaker today, Jennifer Meyer investor relations for bell ring Brands. Please go ahead.
Good morning. And
Bell ring Brand's third quarter of fiscal 2025 earnings call with me. Today are Darcey Davenport, our president and CEO of Paul Road, our CFO.
Darcy and Paul will begin with prepared remarks and afterwards. We'll have a brief question and answer session.
The press release and supplemental 5 presentation, that support these remarks are posted on our website and both the investor relations and the FCC filing sections at Bell. Ring.com in addition to the release and slides are available on the ftc's website.
Before we continue, I would like to remind you that this call will contain what we're 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,
Before 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.
And finally, this call will discuss certain non-gaap measures for reconciliation of these non-gaap measures to the nearest Gap measure. See our press release assisted yesterday and posted on our website with that. I will turn the call over to Darcy.
Thanks, Jennifer, and thank you all for joining us this morning.
We delivered another impressive quarter, continuing to demonstrate our leadership position.
Paul will go into more detail about the quarter's performance and how we expect to end the fiscal year.
I plan to use my time today to remind you of our company's unique value proposition. And why we believe in our continued success.
I have 3 key messages.
The first the ready to drink Shake categories on fire with a long Runway of growth.
Second Premiere, proteins, demand and brand fundamentals. Continue to show exceptional growth.
And last we're building in our brand momentum, positioning ourselves for many years of future growth.
Let's get started.
As, you know, our company's core focus is ready to drink shakes.
It is no secret that this category remains 1 of the fastest growing categories in the entire store. It has incredible momentum with meaningful long-term potential.
Protein is at the center of many macro trends, including health and wellness, the popularity of functional beverages, increases in GLP-1 usage, and the constant consumer desire for convenience.
Ready to drink, shakes are thriving because they fit so well with the evolving Lifestyles and values of today's consumers.
Rtds grew 16% this quarter with 70% of that growth coming from volume.
1 and 2 households now consume our TD shakes, and the category added 5 penetration points in the past year.
This was the second highest household penetration increase of any category, only behind Prebiotic sodas.
It is worth noting that Premier Protein contributed approximately 1 quarter of that growth more than any other brand in the category.
Retailers have seen this categories potential and are getting behind it.
Many leading retailers turned to ask for guidance on how to accelerate their growth.
As a category leader, we serve as the official category captain in several key retailers and advised many others.
we provide thought, leadership on aisle location, assortment merchandising Solutions and signage
And retailers are taking action, they're adding more space for rtds.
Testing, higher traffic, dial locations, and expanding displays in and out of the aisle. All in service of accelerating awareness of the category among their shoppers
Concurrently, they are deemphasized productive. And in many cases, declining sub-segments and Brands which are weighing on their growth
Further adjustments of these underperformers remain—a meaningful opportunity for the category.
Success attracts competition. So it is not surprising to see new protein, rtds enter the category, especially in its biggest channels Club.
The increased interest especially from large established cpg. Companies further validates, the long-term consumer relevance, and staying power of this category.
Competition is good.
It brings expanded shelf space increased marketing, spend heightened focused on Innovation and a drive to Delight consumers. All with the net effect of increased household, penetration and category growth,
we continue to believe the category is in the early stages of growth at 52% household penetration. It Trails mature, cpg categories which are often at 80 to 90%
the convenient nutrition category has a third or less of the space of similar size categories in the Food Channel, a compelling argument, for more space,
the combination of expanded distribution, new households and increased by rate of existing users will Propel this category for years to come
The convenient nutrition category will look vastly different in 5 to 10 years from now. And Premier Protein is positioned well to lead that evolution.
My second message Premiere, proteins, demand and brand fundamentals, continue to show exceptional growth.
And strength.
Premiere protein with RTD market share of 25% is the number 1 brand in RTD segment as well as the number 1 brand in the broader convenient nutrition category, our consumption grew 19% in Q3
Volume gains drove. Approximately 60% of this growth.
The brand hit an all-time high in household penetration and remains the leader in the RTV category, reaching 21.6% of consumers.
Most encouragingly is that our loyalty and buy rate have remained strong among the highest in the category.
Retailers looked to us for thought leadership. As a proven brand, we are the number one velocity brand, with the overwhelming majority of our products in the top third of the category.
our brand continues to win, incremental shelf space with Premier Protein, Shake tdps Up 34%,
Premier Protein continues to be the go-to brand within the RTD category because of its mainstream appeal.
Unbelievable taste and category leading loyalty.
The third and final message we've built strong momentum and we are now taking it to the next level positioning ourselves for many years of future growth.
Key enablers will be increased brand, support distribution expansion, both in and out of the aisle and innovation.
Starting with brand support, as a reminder in late December. We launched our first media campaign since 2021 and results show a strong Roi
In July, we introduced our second wave of media.
Which features our updated packaging, the new packaging, which started to roll out in July. Brings a modern look that improves discoverability at the shelf and raises our appeal to younger consumers.
Consumer and retailer. Feedback has been overwhelmingly positive.
in addition to increasing brand support, we are boosting in store Investments via promotion display and demos
We know from experience promotions and more importantly, the displays that come along with them, are key to reaching new households and growing, our business. We are aggressively pursuing merchandising in aisle and throughout the store, we have established, a dedicated team. In addition to a new broker partner to expand our merchandising and consumer touch points across the store.
These include pallet displays in caps and more recently, single serve bottles and coolers.
Distribution continues to be a major opportunity. We generate 11% of the convenient nutrition category sales but only a 4% share of shelf
In Q4, we will continue to gain tdps on our core products.
Single serve bottles new innovation as well as a short-term incremental, pallet position at a key Club retailer.
We spent the last 4 years developing a scalable regionally, diverse co-manufacturing Network and now have the capacity to aggressively pursue distribution and take advantage of these valuable retail opportunities.
Lastly, we're accelerating our efforts around innovation recall. We launched two new Shake lines this year. The first is our Indulgences line.
Targets and incremental consumption occasion while still delivering on the nutritionals that are consumers, expect from the premier brand.
We are pleased with this line's performance today. Momentum continues to build, and it recently gained distribution in clubs.
The second line almond milkshakes are first, non-dairy protein offering launched in late June.
These shakes need with real almond milk delivered, great, tasting nutrition without artificial colors.
Flavors or sweeteners.
Our first step of many toward more wholesome offerings.
Our innovation pipeline is rich and is packed with both close and long-term innovation that has made us successful, like flavor leadership, pack size, and format expansion.
As well as big I Innovations which will be more disruptive and focuses on incremental, consumers and occasions.
We are committed to Bringing continued excitement to our consumers and Retail Partners for years to come.
In closing, the RTD category has strong momentum.
Retailers are starting to really lean into this category.
The Premier Protein brand is leading the charge as the number 1 brand with scale and a ton of upside.
Premier Protein sells 36 shakes per second but the brand still has only 20% household penetration.
Clearly, highlighting our consumer loyalty and a long runway for growth.
I'm proud of our performance to date with another above algorithm year. Our teams are energized by the momentum. We've built an excited about the opportunity. That is ahead of us.
Our confidence in the long term outlook for bell, ring remains High.
Thank you for your interest in the company. I will now turn the call the call over to Paul
Thanks, Darcy Davenport, and good morning, everyone.
As Darcy mentioned, we had another good quarter.
Net sales were 548 million up, 6% over prior year and adjusted de was 120 million.
Adjusted Eva margins were in line with their expectations at 22%.
Both in net sales adjusted but over slightly head of our expectations with the primary driver, a heavier than expected. E-commerce promotion load in for Premier Protein and dies.
Which will deload in Q4.
Starting with brand performance from your protein. Net sales, grew 6% with volume and pricing up both up, 3%.
Distribution gains and promotions were the main drivers of volume growth.
Recall. We expected trade inventory, changes to be a headwind to Q3 growth. As we lapped prior year, inventory, replenishment, and certain key retailers lowered their weeks of supply.
These trade inventory, changes went as expected with the e-commerce load in a partial offset and together where a high single-digit headwind to growth.
As a result Shake consumption dollar growth of 19%, meaningfully outpaced shipment dollar growth in the quarter.
Dozen, net sales, increased 5%. This quarter lifted by strong growth for international and domestic RTD Shake cells.
Adjusted gross profit.
Which excludes mark-to-market adjustments on commodity, Hedges was 192 million and grew 3% from prior year.
Adjusted gross profit margin of 35.1%, decreased 130 basis points.
Third quarter, third quarter, margins faced, moderate year-over-year pressure from input cost inflation and incremental trade and to a lesser extent. Packaging redesigned cost and the lapping of non-recurring costs favorability in the prior year period.
SG&A expenses were $145 million and included a $68 million provision for legal matters related to our joint juice brand, which was discontinued in 2023.
Excluding this provision, which was treated as an adjustment for non-gaap measures sgna. Expenses were 76 million, a decrease of 40 basis points as a percentage of net sales driven by leverage on GNA.
AMP spend was 3% of net sales, relatively flat compared to the prior year.
Regarding the Joint Juice, litigation a settlement in principles reached during the quarter and remained subject to court approval.
See our press release and 10 Q for further details on this litigation which dates back to 2013.
We expect payment on the matter, sometime, in fiscal 2026.
Before reviewing our Outlook, I would like to make a few comments on cash flow and liquidity.
We generated 40 million in cash flow from operations in the third quarter and 92 million year to date.
We continue to expect our cash flow for fiscal 2025 to be in line with fiscal 2024, with strong operating cash flow generation in the fourth quarter.
As of June 30th. Net debt was 971, 971 million and net leverage was 2 times.
We anticipate net leverage will end the year below 2 times.
With respect to our share repurchases. This quarter, we bought 1.3 million shares at an average price of 65.7 cents per share or 83 million in total.
Year to date. We have acquired 3.8 million shares or approximately 3% of our outstanding shares.
As of June 30th, our remaining share repurchase authorization was $197 million.
Turning to our Outlook, we tightened our fiscal, 25 Guidance, with our midpoint for both net sales and adjusted ibida unchanged.
Our outlook for net sales is now 2.28 to 2.32 billion with adjusted Diva of 480 to 490 million.
Topline growth of 14 to 16% and adjusted IBA growth of 9 to 11% with healthy adjusted IBA dot margins of 21% at the midpoint
Inclusive of the previously mentioned e-commerce timing shift. We expect net sales growth 14% at the midpoint in the fourth quarter.
Premier Protein is the main driver of overall growth with diamondized and other all other expected to grow. Mid single digits.
Our protein is lifted by distribution gains and incremental promotional activity as we return to historical promotional levels.
This is partly offset by lower net pricing.
Consumption dollar growth for Premier RTD shakes is expected to remain strong in the High Teens to low 20s for the quarter.
Regarding fourth quarter adjusted Eva. We expect margins of approximately 19% at the midpoint.
Compared to last year, we expect significantly lower gross margins, partially offset by meaningful sgna Leverage.
For gross, margins higher, promotional spend and input cost, inflation are the main drivers of the decline.
Protein cost, headlines will step up in the quarter for both our powders and shakes with headwinds from elevated way the primary input on our powder products continuing into fiscal 26.
In addition, fourth quarter, gross, margins are negatively impacted by packaging redesign costs and the lapping of 1-time favorability, which combined are 100 basis. Point headlamp.
Sgna dollars are expected to decrease significantly significantly compared to year ago with lower AAP, spend and reduced GNA.
Wrapping up with an update on tariffs. We are monitoring the latest developments in potential implications to our fiscal 26 input cost.
As you may recall, we previously discussed potential headwinds for our fiscal, 26, cost of goods, sold with the higher tariffs, impacting our Dairy, protein Source, from New Zealand, and the EU.
Based on the policy of communicated last week, the overall tariff impact for bell ring has increased slightly with 15%. Tariff rates, tariff rates, and active, for those countries.
While we are evaluating ways to mitigate these costs, we continue to expect a low single-digit impact for our fiscal 2026 total cost of goods sold, with no tariff impact on our fiscal 2025 results.
In closing, we are pleased with our year to-day performance.
Our long-term prospects remain bright, and we are well positioned to close out the year.
Now, turn it over to the operator for questions.
Thank you. At this time. We will conduct the question and answer session.
As a reminder, to ask a question, you need to press *1 and 1 on your telephone and wait for your name to be announced to withdraw your question. Please press *1 1 again and stand by while I compile the Q&A roster.
Our first question comes from Andrew Lazar from Barclays. Please go ahead.
Great. Thanks very much. Good morning everybody.
Good morning.
I'm
Darcy you listed a a bunch of reasons why you remain confident in, you know, the long-term potential of both convening nutrition category and and Premier proteins role within it. Um, I think I remember last year on the fiscal 3Q, call, I think you broadly addressed some expectations for the, the coming year. And I was wondering, if you'd be able to to, you know, admittedly on a preliminary basis, provide some initial color on your thinking for fiscal. 26, thanks so much.
26, we're deep in our planning process, you know, historically, we have talked a little bit about 26 on this call, but candidly it is a lot easier to estimate, um, you know, demand when you're capacity, constrained versus and we're not now. So, um, we are, we kind of have to follow the the planning process, a little more, uh, religiously. So, um, there are a couple uncertain variables.
Um, obviously we just started 1 of our biggest promotions.
Um, with club and we have another 1 later. So we want to see how those go, um, as well as. Um, we've, you know, we're we're still assessing some some um,
What, what happens with tariffs so there are just a few pieces. Overall, we feel great about the long-term opportunity of the business, for all the reasons that I went through, in my scripted to remarks. I really think that, um, you know, not only are we unconstrained from a capacity standpoint, um, you know, our metrics are fantastic. Uh, and I really feel like we're at a Tipping Point with retailers, um, that they're really getting behind the category and we're leading the charge. So feel great about the opportunity. Um, just, you know, in the middle of our print planning process and we'll have more, we'll have more information in our next call.
All right, I'll pass it off. Thank you.
Thank you.
Our next question comes from Carl G ra. Please go ahead.
Yeah. Uh, good morning everybody. Um, couple of, uh, just a couple questions. The first is, um, you know, third quarter, came in, maybe a little bit better than expected when adjusting for, uh, some of the docking issues. And um, but you've narrowed your guide as opposed to maybe coming in at, you know, the higher end given all of the statistics and all the things that you talked about Darcy of the momentum that you have. So just curious why, you know, narrowing as opposed to maybe pushing towards the higher end and then maybe I don't have the scales correct and, um, you know, on your slide 9 but, um, consumption being kind of in line with shipments for 3 Q. I might have expected consumption to be, um, much higher given. There was some dto in in the third quarter, so just trying to understand. Um, if I'm just seeing that wrong, if there's something else in there,
Sure, what?
I'll start with uh, your first question and pass it to Paul for the second. Um, so you know, with any quarter, um, there are many puts and takes, um, but they're all pretty minor. So I'll just walk you through some of the puts and takes just to give you a sense. Um, yes, Q3 consumption was slightly higher than we expected. Um, mainly it was actually pricing, um, because of mix less volume, but, you know, let's call the
That a couple million dollars benefit.
Um, so that's 1 piece. The second piece was we gained, um, I said this, in my prepared remarks, we, um, gained a short-term,
Club pallet. Um so that added a couple about 2 months benefit, 1 was promoted so um that we're call that about 10 million benefit. Um so what offset that was when we gained that short-term Club pallet several other competitors gained short-term space as well. So, we're assuming this increases some competitive pressure in club and that reverses, the first 2 games. So, again, this is, these are small numbers. It's only about, you know, 2% of our quarter, um, but that is the reason. So, you know, we've got some ups and some Downs.
Um, but that is the reason why, why we ended up, um, lowering our upper end.
And, and then on your second question, um, regarding our supplemental schedule, slide 9. So yes, you're correct. We expected, um, consumption of a slightly outpaced shipment. It's more than it did. They came in more in line and the primary driver is the e-commerce uh, heavier than expected load in that we saw in the third quarter. So that is masking the d load to some degree that we saw in club.
And other retail.
The on the last call we called out obviously and expected. The load in the quarter that played out exactly as we expected, we feel good about where our trade inventory levels are for those key customers, but that's, that's the main reason is, yes, we expected it to be uh, slightly lower as well. Meaning consumption over shipments and it was a massive bit by this e-commerce load. And that we expect to fully load, be load and Q4. We think it's purely time.
Okay, got it. Thank you.
1 moment for our next question.
Our next question, comes from David Palmer. From evercore is isi, please go ahead.
Thanks and uh, good morning.
I just want to follow up on Andrew's question because, you know, obviously not commenting on it, given all the mixture of increased competition, but also your distribution, innovation, marketing drivers.
There's a lot of things for us to consider here, and obviously the category remains vibrant.
You know, I I wonder is is is your long-term targeted? 10 to 12%?
A good starting point for us to be thinking about and in the high single digit type category growth. And do you think you'll be gaining, share, this this year, this next year or do you think that that's maybe not as, uh, much in the cards and just any sort of proportions comments that would speak to how we should be thinking about the category and your growth within the category would be helpful?
Um, kind of our in our investor presentation, our our, our very relevant, you know, I think that it's a hot category. Everything I said in my scripted remarks, it's a hot category. Um, we're the number 1 player. Um, we are, you know, when you're
We, I talked a little bit about, you know, the inevitability of, um, increased competition. And I think that, um, it is actually really good for the category. Um, and so I think that all of, you know, we're seeing some real momentum with our retailers.
Um, I think this is the first time I've talked about us being category captains. This has been a strong push for the last year, um, and its really nice to see and it's and we're having some some big impact. Um, and so all of these things and then of course, our Innovation. Um, and you know, this is the first year we've launched 2, new lines in 1 year. Um, and it's, it's, you know, really starting to gather some movement we're getting on shelves. It's, it's, um, the velocities are turning where we started. So, there's just a lot of pieces and, um, and I think that that is why, um, we just, we need a couple more months to work through it. Um, so we can give you a good, a good number.
Okay, I'm passing along. Thank you.
Thank you.
Our next question comes from Megan clap from Morgan Stanley. Please go ahead.
Hi, good morning, thanks so much. Maybe I, I wanted to ask the the competition question, maybe a little bit differently. Endorse you touched a bit on it and you're prepared remarks but I'd love to just hear your updated thoughts in terms of how you're evaluating the single serve opportunity and kind of your desire to move the brand into the mainstream beverage aisle, as a way to reach new customers. Maybe as competition is getting a little bit more.
Fierce if if that's an okay word in in kind of your main club Channel, thank you.
Mr. Megan, I'm going to start, uh, with the club competition, um, because I think there's some context, and that might be helpful. Um, and then I'll end, um, with.
Just our efforts, um, around.
Where we want to be in the store, what's important? And then lastly single serve. So if I don't hit all those points, um, tell me, okay? So let me first with the the kind of Club situation because it's kind of unique.
um,
so when we gained the short-term, I mentioned that when we gained our short-term, um, Club pallet, um, several other competitors, also gained some space. So 1 of our Key Club retailers, um, decided to increase the RTD and powder floor space. Um,
In Q3 and it for a short-term basis.
Um, it's a temporary expansion to fill spots, previously meant for tariff-impacted categories.
So, um, it's a little bit unique. It's supposed to last until the end of the calendar year, so it is, um, you know, we gained some essay space. But, um, also um, some, you know, competitors gained some space because they had all this, this, this new space to fill. Um, so it's a little bit of a unique scenario and I think that's what I think people are. You know, we're seeing the, the increase competition. Um, I will say that I was in a club store this weekend. Um,
and,
it is, it is really um,
It is great for the category. Um, you know, when I was walking around um I bet you 60 to 70% of the carts in the store. Had high protein shakes
In the cart, which you know, people.
It's completely mainstreamed, and I truly believe that the competition is good for the category. Um, I think that this is sort of a unique situation where.
A little bit. So, um, it's a little different in other channels where you have to wait for resets, um and those just happen a little more slowly. So that's 1 piece that I think is important context.
Um the second piece is just our conversations with retailers about where we want to be in the store and the opportunity. And what I would say is um, the guidance we are giving retailers, is it's less about where you are in the store. We want to be in high traffic areas and the category needs to be um, distinctive from the rest of the store, meaning needs to be um have strong signage
You need to clearly see that it's convenient nutrition, it has to have education on, um, to help consumers understand what products they should try. Um, and then these kind of displays outside of the aisle are very important to disrupt consumers in their kind of normal shopping Behavior.
um,
We are actively. So in addition to that,
The work we're doing with our retailers around, you know, expanding the category, potentially, you know, moving the category, merchandising it better, and displaying it throughout the store.
Um,
we are get, I think the
singles are singles efforts is, um, going to be a big Focus next year, which will be around displays throughout the store of singles. Some of those will be ambient, um, because we know that that works very well. Some of them will be in coolers. We've had, um, some success in food accounts where, um, we're getting in coolers, which is nice. So I think that next year will be focused on that. Um, we believe that I mean this will be the first year that we're focused on it. So and then I think the next step would be getting after that DSD opportunity there is um and then and really you need the DSD opportunity for convenience
Thank you.
Our next, our next question comes from Jim.
Solero from Stevens. Please go ahead.
Good morning. Thanks for taking our question. Um, a lot of questions on competition already, and if, if you'll indulge me in in asking the other 1, kind of, the kind of a different way, um, with industry capacity in a better spot and and that maybe opening the door to newer upstart Brands coming into the category. Do you already thoughts on how we should think about promotional Cadence going forward? Just conceptually. I think it would make sense as some of these other brands launched they would probably have some heavy promo efforts behind that and if you have several launching, maybe a, a kind of a sequential Cadence, it might end up where the promotional calendar for the category as a whole is pretty packed for a year.
Um, so just any thoughts around, you know, does that mean that you need to increase or extend your promotional cadence? Do you feel that maybe other brands are going after different customers? Any details you can offer about how we should think about that going forward?
Yeah, I think our promotional Cadence has been pretty consistent. I think. Now, you know, obviously last quarter, we upleveled we announced that, you know, we upleveled our Q4, um, Club promotions and that really got us back to what we used to do before capacity, constraints. So, you know, the, when you look at the quarter, q1 for us, that's
Uh, October November December. Um, that's a low promotional period. Um, historically, um, and for the category as well as for us. Um, the biggest, uh, promotional period is that January February March? Um, that will continue being it. It's when most new people enter into the category. Um, and then there are some usually small, you know, some, you know, minor promotions in Q3. Uh, and then, then another kind of um, you know, big promotional period in the back to school, back to sports time frame, which is our Q4. So I don't expect, you know, I think that is
Um, I think that is— and that's really just, it's following the consumer behavior. Um, and that's, you know, this last year or this year 2025 was our first year of kind of full promotion. Um, and like I said, getting back to what we used to do pre-capacity constraints. So, I think that will be the same going forward.
Thank you.
Our next question comes from Yasmin, Des Wendy, from Bank of America, please go ahead.
Hey guys, thank you for the question. Um so I I just wanted to follow up on Andrew's question earlier and maybe phrase it a little differently. Obviously understanding that you won't get into details about next year until later this year. Um,
I think, in the past, you've alluded, you know, that on algo growth could be in the books for next year, at least on top line. Um, you know, you'll be lapping this year's innovation incremental promotions. You've launched two new lines this year, so I'm not asking for any numbers, but just kind of qualitatively, how much confidence do you have in achieving that on algo growth? And, you know, what are the qualitative things that we should consider for next year, just on top line? Thank you.
Yeah, I think I think we feel good about it. Um I think that uh you know this is if you think of
The last.
Several years, we have been lapping capacity constraints in some way.
so, um, I think that we have been adding
Incrementally.
Different demand drivers.
You know, we started off adding back, our full line.
Um we still had even as, as close as last year, we had um, we still had some out of stocks that we were lapping.
Um, this we we then added um, promotion. We started with Club promotion, then we added fdm promotion. This is the first year we added back our, um, marketing, our marketing drivers,
So, I think this in 25 is the first year that we have.
All of our demand drivers. So as we go on to 26 and Beyond, we are kind of back to normal.
Um, and so I think that as you look at that, I think that, you know, you know, we have said that, you know, our kind of long-term commitment is um 10 to 12%, Top Line at 18 to 20% margins.
So I think that, you know, that is the expectation. Um, and uh, but it I think that that when you look at it, when you zoom out and you remember what we've been doing for the last several years, um I think it gives it gives good context to where we are going forward. And like I said, I think that I think what is exciting about what's going on? Is it it when you have a explosive category? Um,
And you are the number one player. If you look at any other category, um, that you know, grew high growth category, um, the, you know, number one player definitely benefits. Um, and we're seeing that, and that's why we think it's really important to, you know, have a B category captain and help really mold the future. Um, and really go after these incremental displays and being able to put our fingerprint on the, um, assortment and, or at least be able to give them thought leadership. Um, so we can give them guidance about where the consumer is going and how we can help.
Okay, great. Thank you so much.
Our next question comes from Brian Holland from da Davidson. Please go ahead.
Yeah, thanks. Good morning. Uh,
I think I'm the numbers have sort of been addressed to the extent that they can. Uh, so maybe just asking,
Obviously, there's been a lot of questions about the competition, uh, as well. I'm just curious. Darcy. If you could sort of frame for us, how you think about the value proposition of Premier Protein and and for context?
You know, obviously we have new innovation, and this is a category that has and will continue to bring a lot of innovation to market. Um, and so as that evolves, as consumer tastes and preferences evolve.
From your protein, the value proposition of that product Z to Z some of the other products and macros, um, that are out there available to the consumer. What gives you the confidence from that standpoint? That you can, you know, hold or grow. Your share going forward?
Sure, great. Great question.
Um,
Premiere. Um,
Approachable positioning.
Fantastic, tastes and flavors, and great. Nutritionals, it's like the trifecta. Um, a key part of fantastic taste is
this kind of, um,
Thicker milkshake decadent consistency and a wide variety of flavors. So consumers are drinking this product, our product, every day they get, they get tired of chocolate and vanilla. They want to, they want, you know, to try root beer float and pumpkin spice. And, and, um, lemon bar, and all of these other things that are, you know, super exciting, um, they will not sacrifice taste for anything. So that is the value proposition. That is what has made Premiere, so, successful and will continue.
um, what we have and when we kind of map out,
We've done a lot of work on where the white space in the UM category is, and kind of where the biggest growth potential, big buckets are.
And I think that, you know, we feel that there's opportunity in, and again, without going into kind of our innovation strategy. Um, but like we think that we are in a great space in that when we map out what consumers want.
You know.
Most.
And I have exact percentages, but most want thick decadent shakes that fill you up some want kind of thinner, thinner products that are, um, that can be consumed sort of more as a beverage. Um, most want kind of this idea of around 30, grams of protein, let's call it 20 to 30 grams of protein,
Some want higher or lower most want sweet, some want sweetened. So I'm giving you this most sum because it starts mapping out. What the future of this category is going to be, um, the beauty of a kind of young category, is it starts with a few Brands and then they're start and a few products and then it starts, um, expanding into, you go after the most and then you start expanding, um, different line extensions and even other some Brands going after some of the other pieces. And so, I think that, um, some of the new, I mean, I'll use, you know, Ultra filtered milk as an example, um, from a product standpoint. It is much thinner. It's much more like high protein milk, whereas our product is much more of a milkshake, so our consumer loves that.
thicker decadent
Shake type experience because it fills them up.
Um, and so, going to a thinner product is not a great trade for a loyal Premier consumer. However, there's an opportunity for that, and so I think that's how we're kind of looking at the innovation. Um, but we feel like we're in a great place because as we look at, there are a lot more of those people who are looking for great-tasting, approachable positions.
Great nutritionals. And that's part of our marketing campaign. That's part of getting out of the aisle; that's part of all, you know, even some of the backbone of some of our innovation strategy.
Appreciate all the callers. Thank you.
Our next question comes from Peter, Graham from UBS. Please go ahead.
But can you maybe just help us understand of these headwinds you're dealing with in the fourth quarter? What do you view as transitory versus what should linger as we look ahead. Thanks?
Sure. So from a Q4 perspective, you're correct. We expect a margin decline of about 300 basis points versus a year ago. We do expect SG&A dollars to be lower, so there will be significant leverage on SG&A.
Greater than 300 basis points. So it's really gross. Margins that are declining um from there. And the biggest piece is the 2 biggest pieces uh which are promo so we're layering on obviously promo compared to year ago.
Um, especially in clubs. So that is the biggest, um, headwind, I guess to last year. Uh, and then we are seeing some inflation on proteins and or input costs. Um, proteins do step up from the third quarter and it's a headwind to the fourth quarter for both.
Um, shakes and powders.
Uh, and then 1 last piece, which is a lesser impact, is that we do have some 1 timers in the quarter on gross margin, which is related to the the packaging redesign cost that we've called out previously. And then we are lapping some
Some favorability, um, of some non-recurring costs. So, that's about 100 basis point headwind. So, again, promo, and cogs and information are the biggest pieces.
Uh, I call down on my prepared remarks on whey protein in particular, which is the input cost on our powder business.
For both diets. And Premier, we do expect that headwind to continue into fiscal 26, so we continue to expect. The Whey proteins will be elevated and will be a headwind in next year. And so we're looking at obviously mitigating efforts, um, on that
And then really again not getting into 26 much at this point. But uh, you know, tariffs, I think is the other piece as we go into next year, that we, we've called out.
And mentioned it again on my prepared remarks that we do expect some cost headwinds from tariffs to, you know, to impact Us in fiscal 26. We won't be able to fully mitigate them by just
Changing suppliers or changing ingredients. There will be some headwinds that we will work on, but we also have a number of opportunities that we think to...
um,
Pull cost out of our products out of our supply chain. So that's a big effort for 2026 that we're working on, and then I do expect, you know, to see some channel leverage as we continue to grow the top line. So those are kind of the bigger pieces as we think through 2026.
Got it. Thanks so much. I'll pass it on.
Our next question comes from Matt Smith from Stifel. Please go ahead.
Hi, Darcy, you talked about the competitive environment, maybe in the more near-term, can you provide more details about your expectations, for the fall shelf, reset. And as the category enters, this new wave of competition, how do you measure success from here from a market share perspective um and and has the view of the required level of A&P for bell ring changed. Um in this new or or in this more competitive environment. Thank you.
Uh, we feel good about the, uh, fall resets. Um, so, uh, we'll be continuing to expand distribution tdp's, um, on Premier Protein. Um, both like so single serve, we're getting, um, more expansion of single serve. Um,
Than our core products, um, as well as our innovation. So, and I mentioned that temporary incremental, um, pallet in club. So feel great about the, um, fall resets that are coming up. So that was one piece. Um, the market share, um, hey, this is the beauty of um, you know, a growing category and a low household penetration category. If you actually look at our um, market share over time, we've actually grown.
Very well and had a pretty stable market share. Um, and so I think that, you know, we we expect I think that it is not our growth isn't predicated on increasing market share necessarily. We can actually be quite successful in just holding market share. Um, so I think that that is 1 piece and then what was the third question, Matt marketing spent
Oh, you want to take that? Sure. Yeah, so mad. Yeah. We from a marketing spend perspective, we we have called out previously that we would, we would expect over time to, you know, increase our marketing spend from where it's been at Darcy. Said this year we layered on you know, promotional activity. But we do think that going forward that again. I don't think we're talking about big changes but we would expect that we, you know, could lean a little bit further into marketing spend as a percent of sales. Um but mostly that should get offset as we get GNA leverage as well, but to answer your question, yes, I would think that, you know, our amp spend would slowly go up over time.
Thank you. I'll pass it on.
Our next question comes from John Anderson. From William Blair please. Go ahead.
Good morning, thanks for the question. Um, I had a question on Innovation was wondering if you could talk a little bit more about indulgences, uh, that line and whether, um, how incremental, uh, you're seeing that business, in terms of attracting an additional occasion or occasions. And then also on, almond milk. It may be too early, but, um, how, how the brand the premier brand is, is translating, in a kind of a different sub segments of of the category. And then, if I could just throw in a follow-up, maybe for Paul. Are there any any? Um,
A lot of talk about competition, obviously, and investment levels and focus. Any thoughts on changes to kind of your capital allocation priorities going forward? Thanks.
Um, okay, so I'll start um Indulgence. Uh so first of all, I would say that that's the 1. We have the most history on right now, because it launched um, earlier in the year and it's a really strong performance. I think that uh, we launched it first in Mass um, and it did very well 3 out of the 4 flavors are in the top third. We actually got um the fourth item in there because of that success. Um and the success in math, also translated into expanding distribution into other places so and we're continuing, you know, as I I just talked about the TDP gains in Q4.
Or, um, will be expanding Indulgence into, um, kind of more the rest of mass, as well as other food channels include. And also, um, got it into Club as well, a club account as well. So, feel really good about that strong incrementality. You asked about, um, the whole concept of indulgences was that it would be, um, incremental from like, an occasion standpoint. And that is exactly the numbers are, are showing that about half of the sales are actually driven by category expansion. So that is exactly what we want to see. Um, I think the the bonus was that, um, we actually are getting some new consumers. Um, you know, the, the design of it was incremental occasions so you know, having your own consumers, buy more for a different occasion. Um, so that is happening. I said 50%. Um, but
I think what's nice is the bonus is that? We're actually getting some incremental consumers as well, who just see the concept, and they, and they resonate to the concept. So, that feels really good, um, on almond, uh, you know exactly what you said. It's, it's just too early, you know, we just launched, um, really we only have it right now in Amazon. Um, we were, you know, saw, um, they just had a promotion, um, earlier or last month, um,
It, it was included in that, um, saw some good trial there. And now we're rolling out into other food and mass customers. Um, in in the fall, we've got a a test in Mass Etc. So, um, too early to tell, but I would say that, uh, the on Ecom, it's actually, um, haven't we're having good pickup. Um, it's a, it's a personal family favorite in my household, so that goes a long ways.
And our Capital, allocation, I would say no real change to our priorities. Um, we will continue to balance kind of Debt, Pay Downs, on a revolver and, um, share a BuyBacks, you know, opportunistic share BuyBacks.
Um, using our free cash flow, um, or strong free cash flow to fund those items. I think M&A is still...
You know, more medium to long term, we continue to focus on organic growth. So I would say not any significant real changes to our capital allocation approach as we go forward.
Thanks so much.
Our next question comes from Steve Powers from Deutsche Bank. Please go ahead.
Hey and hey thanks. Um not to take us backwards, but I see if if I think if I had told you 3 months ago, that consumption would have ended at 19% for 3 Q.
I I think you would have um said that that indicated momentum, that would likely yield better than the High Teens, low 20s consumption that you're now calling 4 and 4 q. So can can you just be a little bit more precise as to what may have temporarily inflated 3 q and then conversely what may be dampening for Q versus um versus you know, kind of your expectation is 3 months ago.
It's you know it's too soon to call but then I've also heard you know, more recently. You said you know, 10% plus is is your is your is your assumption. So
You know, coming out of Q4 given the current momentum. Um, you know, are you saying that next year is supposed to be a 10-plus percent growth year, or are you not sure about that?
Okay, so
Steve, can you go back to the first question just around, so you're asking about the consumption of Q of Q3 being 19%. And then the expectation of Q4
Right? Because your call coming into the quarter and 3 Q was mid teens, mid to high teens consumption growth. You came in at the high end of that which implies momentum that I think would have all else equal put you towards the top end of your range. That's now, you know, we've kind of ratcheted down towards the midpoint of the range. So just what may have temporarily inflated consumption in 3 q and or what is dampening for Q consumption relative to, you know, what your what your your expected curve was you know, 3 months ago.
Yeah, so I'll just go back to the kind of puts and takes I talked about at the beginning. Um, first of all, the
The Q3 consumption. I mean, it was, it was slight. I mean, we were a little bit on the high side but um it more it was you know, less actually volume it was more on the pricing side so I kind of you talked about maybe it's a benefit of a couple million dollars. Um we the other piece that was on the positive side for Q4 is um we gained that short-term pallet. Um we got a couple months benefit, their 1 was promoted. Um, and then what, what, what offset, what reverses and this is, these are assumptions. But what reverses those, um, 2 Gaines is that when we got that short-term Club palette several other competitors also gained short-term space. And so we're assuming that this increases, you know, the competitive pressures and reverses
The, the 2 Gaines that I talked about now.
These are small pieces, you know, these are minor. These are we're all talking about a you know, 2% up 2% down, so it's just not that extreme. But you know, again it those are the those are the puts and takes, you know, as we go through a quarter, we have a million puts and takes. But those are, those are the those are the keys.
Okay. Okay. And then can you just—because I'm getting questions from a lot of people—like on the 26th, are you saying you don't know? Or are you saying 10% plus?
Yeah, we are in the middle of our planning process. What I said about 10% plus is that our long-term algorithm—that's our goal.
Okay.
Okay, I'll leave it there. Thank you.
Our next question comes from John Balm Gardner from Zhou Security's. Please go ahead.
Good morning, thanks for the question. Um, Darcy your remarks, you mentioned Innovation and the appeal of ultra filtered milk in ready to drink has been proven at scale at this point. There's more competitors coming in with that formula you touched on it a few moments ago. But just to keep with that line of thinking setting aside the viscosity element of it. Are there specific demographics where you're seeing filtered milk appeal more strongly? Are you seeing more new households coming into the category through filtered milk relative to mpc's at this point? Um, if you could just speak to, you know, how you segmentation, and ready to drink going forward? You know, aside from the loyal Premier consumers that are out there and whether you would consider launching an ultra filtered format yourself for Premiere. Thank you.
Um, yeah, John. So, uh, we see...
A pretty even line. Again, we don't really filter. We don't have, no pun intended. Um, we don't look at things through ultra-filtered milk versus MPC, but I understand what you're asking. Um, interestingly enough, we've done a fair amount of research on it just recently, and consumers actually,
I don't know what ultra-filtered milk or MPC is like; ultimately, the source of protein is not a key driver for purchase.
Brands are actually the key driver for purchase.
The the brands and the the um the taste and texture. That's actually what drives and the and the macros are actually what drives, um, but what drives consumption and purchase and trial. Um,
But having said that, when we're looking at new people coming into the category, and if you were to look at, you know,
Ultra filtered milk versus MPC products. They're about even.
Um, and again, I think that goes to consumers aren't distinguishing between the two. What they're coming in on is what flavors resonate with me, what brands resonate with me, um, what macro levels resonate with me. Um, and so I think that even some packaging formats.
Um, resonate with me. So those are, those are the decisions that consumers are making. They're not looking at the protein type of the products that actually the products are made in.
Thanksgiving.
Yep.
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