Q4 2025 Bellring Brands Inc Earnings Call
Speaker #1: After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker #1: Please press *11 again to withdraw your request. Be advised that today's conference is being recorded. I would now like to turn the conference over to our speaker today, Jennifer Meyer.
Speaker #1: Please go ahead.
Speaker #2: Good morning, and thank you for joining us today for BellRing Brands' fourth-quarter fiscal 2025 earnings call. With me today are Darcy Davenport, our President and CEO, and Paul Rode, our CFO.
Speaker #2: Darcy and Paul will begin with prepared remarks, and afterwards, we will have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the Entity Filing sections at BELLRING.com.
Speaker #2: In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements that are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements.
Speaker #2: These statements reflect management's current expectations and beliefs. Management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website.
Speaker #2: And finally, this call will discuss certain non-GAAP measures. For reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website.
Speaker #2: With that, I will turn the call over to Darcy.
Speaker #3: Thanks, Jennifer, and thank you all for joining this morning. Fiscal year '25 was a strong year for BELLRING BRANDS. Net sales grew 16% and adjusted EBITDA margin reached $20.8%.
Speaker #3: launched our first media campaign since '21, delivering We compelling returns, expanded distribution while elevating retailer partnerships, and accelerated our multi-year innovation strategy. We also advanced our savings program, enhancing flexibility to reinvest in future growth.
Speaker #3: Our strong track record of cash generation continued this year, and we meaningfully stepped up our share repurchases, buying approximately 7% of our shares outstanding.
Speaker #3: We expect another successful year in fiscal '26. With a softer Q1 followed by a stronger balance of the year. Paul and I will provide additional detail on our guidance and quarterly cadence.
Speaker #3: Turning to the fourth quarter, the ready-to-drink shake category grew 15% while Premier Shake consumption grew 20%, driven by incremental promotion events. Premier continues to have category-leading metrics, including the number one household penetration and the category's highest repeat rate.
Speaker #3: Notably, both household penetration and buy rate increased during the quarter, reinforcing the brand's unmatched strength and consumer loyalty. Now turning to the category, RTD shakes are one of the fastest-growing CPG categories, fueled by consumer health and wellness trends, functional beverage preferences, and GLP-1 usage.
Speaker #3: Household penetration of 54% highlights a long runway for growth as it trails mature CPG categories, which are often at 80% to to 90%. Retailers are leaning into this opportunity.
Speaker #3: Increasing category space, testing higher traffic to aisle locations, and expanding display space to capture growing consumer demand. The success of this category—which has doubled in retail sales since 2019 to $8.7 billion—has naturally attracted competition.
Speaker #3: Currently, the two leaders, including Premier Protein, have approximately 50% market share. The other participants include newer insurgent and crossover brands, along with some declining legacy brands.
Speaker #3: Of note, legacy brands, approximately 30% of the category, have which collectively represent been meaningful share donors for several years now. Over time, we expect retailers to consolidate the shelf behind a handful of the best-performing brands and move them to more heavily trafficked aisles.
Speaker #3: believe that mainstream appeal, We high repeat rates, and execution capabilities will determine the long-term winners. Premier Protein is well-positioned to benefit from these developments and continue to lead the category.
Speaker #3: Over the next few years, we expect the RTD shake category dollar growth to be high single to low double digits. With volume as the primary driver, in late '25, a major club retailer significantly expanded their RTD assortment.
Speaker #3: While we do not know for certainty, we assumed the expanded assortment continues through fiscal '26. We expect pricing benefits to subside and promotional spending to slightly increase as new brands work to establish themselves in the market.
Speaker #3: These near-term dynamics lead us to expect category growth in the high single digits for '26. In the medium to long term, we expect more marketing spending, expanded shelf space, innovation, and the mainstreaming and affordability of GLP-1s to drive higher household penetration and category growth.
Speaker #3: We are confident in our continued strength in the category. Premier's deep category knowledge, strong brand equity, scalable manufacturing network, and robust retailer relationships give us confidence that we will continue to be the category leader in capturing meaningful share of long-term growth.
Speaker #3: I'll now turn to our long-term targets. BELLRING began its journey as a public company six years ago, with $850 million in revenue. Our total revenue base is now $2.3 billion.
Speaker #3: revenue has And our Premier Protein shake tripled. Since IPO, we have delivered a net sales CAGR of 18%, significantly ahead of our long-term revenue growth projection of 10% to 12% shared at the time of our listing.
Speaker #3: There are multiple ways to achieve strong growth in our business. However, it becomes more difficult to grow at double-digit rates off a larger revenue base.
Speaker #1: Updating our long-term growth algorithm from low double to high single revenue digits to digits, specifically 7% to 9%, with Premier Protein driving our growth.
Speaker #1: assumes This that Premier Protein , the one market number share brand , will continue to grow relatively with the RTD category . While in line slightly weighs dymatize down our growth maintaining , we are our adjusted rate EBITDA margin algorithm of 18 to 20% , which embeds higher levels of brand investment enabled by our savings cost agenda .
Speaker #1: These investments are designed to reinforce our brand strength and position us for sustained , profitable the long growth over . Our updated revenue growth algorithm is healthy and together with attractive margins and asset light model , we our expect to continue to generate strong flow significant and create value for our shareholders .
Speaker #1: cash Turning to our outlook for 26 . Our 26 net sales guidance is a range of 4% to 8% growth , with adjusted EBITDA margins of at the 18% midpoint .
Speaker #1: Sales for the year are expected to be modestly below our long-term algorithm because of the softer first quarter, driven by specific items and near-term competitive dynamics.
Speaker #1: We expect strengthen with the performance to remainder of the end of our algorithm year . At the , adjusted EBITDA margin is expected to be at the lower end of our range , primarily due to significant commodity inflation and tariffs , along with lagged the revenue impact of increased brand investments for expect flat Q1 , we consumption for Premier RTD October and November lapping the shakes with toughest club channel comparisons , including a non-recurring promotion for context , we are 23% consumption growth in lapping the first quarter of 25 , which included very strong club consumption smallest with the number of new brand entrants and an incremental and an incremental promotion .
Speaker #1: Q1 sales net largely follows consumption, with some timing-related additional headwinds impacting, resulting in a sales 5% decrease in roughly net sales.
Speaker #1: provide more detail . later We Paul will expect consumption along with net sales to starting accelerate mid-December , as we move through the year .
Speaker #1: Our in FDM initiatives merchandising , advertising and innovation become more meaningful contributors to our growth and club comparisons ease as we lap expanded assortments .
Speaker #1: Now I'll additionally provide details on our operating plans for 2026. Our priorities for this year include continuing to grow our distribution.
Speaker #1: Both in and out of aisle two, we will increase advertising investment while elevating its impact. The three launch provides innovation that consumers want. Ads that create excitement, occasions, and trials drive both distribution in and out of the aisle. This is an opportunity, starting with club. We intend to position and bolster our channel with new products, increased sampling, and additional promotional efforts.
Speaker #1: spending We performance in club to improve as we move through the year . Our TDP premier , increases , driven primarily mass food , in and e-commerce channels , grew by more than 20% in 25 , and we have strong plans to expand at similar rates in 26 .
Speaker #1: As I mentioned last quarter, we have partnered with a new broker to significantly expand store-level coverage and launched a retail sales internal team focused on securing displays, especially in-store and entry price point.
Speaker #1: Multi-packs. In late Q1, we will launch a partnership with a major mass retailer that includes placements across pharmacy and grocery aisles, plus extensive displays and end caps.
Speaker #1: This program will also include the first launch of our new Shake innovation , targeting incremental occasions , which discuss later I'll remarks Our second priority is .
Speaker #1: Advertising. We saw a return on a strong investment in fiscal 2025 and further decided to invest in elevating our creative in 2025 and 2026. Premiere has the highest unaided brand awareness in the category, though there remains a significant opportunity for expansion.
Speaker #1: We have strengthened our agency roster and will be launching a new creative campaign designed to drive household penetration, strengthen emotional connections, and bring fresh energy and relevance to the brand.
Speaker #1: The campaign kicks off in late December and includes national TV and strong components. Turning to innovation, in fiscal 2025, we conducted a comprehensive demand study and incorporated the results into our multiyear innovation strategy.
Speaker #1: The study validated our product for 26 and identified focus several whitespace opportunities , some of which have accelerated that . We have accelerated .
Speaker #1: Launching in late 26 early 27 . and Specifically in 26 , we are our focus intensifying across flavors , consumer segments , and occasions .
Speaker #1: In June of 25 , we launched Almond Milkshakes , our first non-dairy protein offering with the strategy of bringing new consumers into our brand .
Speaker #1: early , it Although is already the number two turning for count in the non-dairy RTD set , we are seeing strong incrementality with nearly half of the buyers new to the brand .
Speaker #1: milkshakes are expanding Almond distribution throughout 26 and supported by advertising year ago , we launched . line with the indulgent About a goal of driving incremental occasions .
Speaker #1: worked . In It 26 , we will build on that success as well as the success of our Cafe Latte Core Shake flavor with our new coffee house or coffee shake line .
Speaker #1: Each shake provides 30 g of protein and the caffeine equivalent of one cup of coffee, meeting the protein and energy consumer need, which is incremental to our core baseline.
Speaker #1: It will be in caramel macchiato, targeting a mocha sweeter taste palate. The coffeehouse launches in mid-December through both mass and e-commerce channels.
Speaker #1: The launch fully supported will be with paid media influencer partnerships and signage , in-store and sampling , and lastly , Premier is known for its flavor , innovation and we will continue to bring flavor excitement to the category throughout the year .
Speaker #1: In closing, Premier has a history of strong growth and is the number one in one of the fastest-growing brand categories in retail.
Speaker #1: The power of the brand is our evident in record high household penetration and repeat rates . Our first mover advantage lies in being a pure play company with attractive margins and a deep category expertise .
Speaker #1: Retailers see the categories potential and they are partnering with Premier they develop their growth plans . Q1 has some unique dynamics that are causing near-term as challenges , but growth in the balance of the year is strong .
Speaker #1: The brand and business fundamentals are robust , and I have confidence in delivering the year we are investing in our brands , sharpening our innovation plans , and driving our execution and sales .
Speaker #1: Our savings agenda to enable our next phase of growth. I remain confident in our future and our ability to create sustained, long-term value for shareholders.
Speaker #1: Thank you for your interest in the company. I will now turn the call over to Paul.
Speaker #2: Thanks , Dorothy . Good morning everyone
Speaker #2: Fiscal 2025 was a year of performance for strong Bellring, with net sales growth of 16%. Adjusted EBITDA was $482 million, and the adjusted EBITDA margin was 20.8%.
Speaker #2: Our over generated $261 million in cash flow from operations, and we ended the year at a net leverage ratio of 2.1 times. Our strong balance enabled us to repurchase 9 million shares for $473 million.
Speaker #2: Total. In approximately 7% of shares, we continued to repurchase outstanding, with 40 million repurchased to date in October, with the first quarter.
Speaker #2: In the fourth quarter, net sales were ahead of our expectations at $648 million, up 17% year over the prior year. We delivered EBITDA of $117 million at an adjusted margin of 18.1%.
Speaker #2: Premier Protein net sales grew 15% and were in line with expectations. This growth was driven by strong volume increases for ready-to-drink (RTD) shakes, with RTD powder shake sales growing 14%, propelled by volume growth from incremental promotional events and distribution gains, offset partially by an unfavorable price mix.
Speaker #2: As expected , Premier Sheikh dollar consumption was up 20% and outpaced revenue growth . This difference was driven by expected changes in trade inventory , primarily the previously noted e-commerce de-load , as well as the pricing impact from our incremental promotional events , which had an outsized impact to our net sales compared to consumption at retail prices .
Speaker #2: Dymatize net sales growth of 33% was well ahead of our expectations, driven by strong volumes. International strong consumption and a volume pull forward ahead of our late Q1 price increase led to this growth. We expect the latter to be a headwind to Q1 growth, just in gross profit, which excludes mark-to-market adjustments on commodity hedges. Gross profit was $192 million and declined 4% from the prior year. The adjusted gross profit margin of 29.7% decreased 620 basis points.
Speaker #2: The decline was driven by mid single digit input cost inflation , increased promotional activity , and a one time packaging redesign . Cost .
Speaker #2: Protein costs stepped up in the quarter across both powders and shakes , and we expect these headwinds , most notably on powders , to continue into fiscal 26 .
Speaker #2: SG&A expenses were 81 million and delivered significant leverage at 12.5% of sales , versus 16% of sales in the prior year quarter . The reduction in expenses was driven by lower marketing and advertising expenses , as expected , as we lapped a period of heavier media and creative testing .
Speaker #2: I'd now discuss our like to long term targets and capital allocation priorities , followed by our fiscal 2020 financial guidance . As Darcy discussed in her remarks , we now target long term annual net sales growth of 7 to 9% .
Speaker #2: We expect our business to maintain strong our profitability in reiterating our long term adjusted EBITDA margin algorithm of 18 to 20% in 2023 through 2025 .
Speaker #2: We exceeded our adjusted EBITDA margin . That performance reflected strong sales growth algorithm with favorable pricing and a more constructive environment . cost commodity Prior to the half of second fiscal 2025 , advertising spend as a percentage of net sales was also relatively low at approximately 3% .
Speaker #2: Given past supply constraints, looking ahead, our adjusted EBITDA margin algorithm reflects a healthier level of premier brand support, with company advertising investment increasing to 4% to 5% of net sales and promotional spending at competitive levels.
Speaker #2: Our just EBITDA margin margin algorithm , also now incorporates the impact of tariffs as previously communicated , tariffs will begin to impact our PNL starting in fiscal 26 .
Speaker #2: While we have mitigated much of our tariff exposure, we do expect an annualized ongoing impact to our margins of approximately 120 basis points.
Speaker #2: We continue to evaluate ways to further mitigate these impacts to bolster our margin target. We have accelerated cost savings initiatives across our organization.
Speaker #2: The primary areas of savings include more efficient utilization of our manufacturing, warehousing, and transportation networks, as well as procurement savings from ingredients and packaging.
Speaker #2: term , Longer savings our cost high efforts protein costs in 2026 , and modest SGA are leverage expected to be supportive of improvement in our EBITDA margins .
Speaker #2: Our disciplined capital allocation priorities remain unchanged . We will first invest in growth initiatives , including innovation , marketing and process capabilities systems , and .
Speaker #2: Second , we expect to remain with low asset light expenditures after investing in our business , we expect to be aggressive and repurchasing shares with our M&A opportunistically being a longer term priority capital Turning to .
Speaker #2: fiscal our we expect net sales of 26 outlook , 2.41 to 2.49 billion . This represents 4 to 8% growth . Adjusted EBITDA is expected to be 425 to 455 million , with a margin of 18% from a perspective , we brand expect high digit single sales growth from Premier Protein at the midpoint , premieres volume growth is driven by category continued tailwinds , distribution expected to be including innovation and brand investments .
Speaker #2: Volume performance is expected to be partially offset by a low single-digit headwind from promotional investments. As Darcy mentioned in her remarks, we expect high sales declines for the rest of the single-digit portfolio for Dymatize. We are executing a price increase beginning in late Q1 to offset meaningful whey protein inflation, which has been prudently modeled in elasticities.
Speaker #2: Additionally , we are reducing brand navigate high investment as we protein costs in the brand has a difficult sales comparison in Q4 . to Q1 , net total sales are Specific expected to be down approximately 5% , with both Premier and Dymatize declining in line largely with our overall decrease consumption growth for protein shakes is Premier expected to be flat in club Q1 is toughest comparison of the year , where we lap a period with entrants and fewer new chose not to repeat promotions for Premier and Dymatize .
Speaker #2: Dymatize had a strong Additionally , benefited from a from Q1 forward sales pull of approximately 8 million , mostly related to shipments . Ahead of our late Q1 price increase .
Speaker #2: Together, the promotions and sales pull forward are percentage points, a four headwind to our first quarter growth. As we move into Q2, we expect an acceleration in consumption and both net sales, with the balance of the year sales to grow at the high end of the algorithm.
Speaker #2: At the midpoint of our guidance, this is driven by what we expect to outperform overall company growth for the balance of the year.
Speaker #2: As a robust merchandising programs in the FDM channel for phase in Q2 and beyond , and club comparisons , parables ease . Moving to fiscal 2026 , adjusted EBITDA , we expect adjusted EBITDA margins to decline 280 basis points at the midpoint , with lower adjusted margins .
Speaker #2: The driver adjusted gross margins are expected to be significantly pressured by primary input costs, particularly whey protein. Inflation is driving the primary input cost for powders.
Speaker #2: introduction of The tariff costs and promotional investment with margin pressure primarily in the first half of the year , tariffs are expected to have an impact of 80 basis points on our gross margins , net of mitigation and the impact of timing .
Speaker #2: remaining The EBITDA margin primarily impact is due to increased advertising , which is partially offset by G&A leverage . Advertising as a percentage of sales is expected to be approximately 4% , with the largest year over year dollar increases in Q2 and Q3 .
Speaker #2: We expect adjusted Q1 EBITDA dollars to be below prior year levels , with a margin of approximately 16% . The midpoint primarily driven by lower sales and gross margins .
Speaker #2: Q2 , In adjusted EBITDA , adjusted EBITDA dollars are expected to improve margin sequentially , with rate approximately Lower 100 basis points . sequentially due to a combination of higher sales inclusive of pricing , continued high commodity inflation , and the timing of advertising support .
Speaker #2: We anticipate adjusted EBITDA growth in the second half due to higher sales growth , easing commodity inflation , and higher cost savings . In closing , fiscal 25 was a strong year , highlighted by robust top line growth and strong profitability .
Speaker #2: We feel our plans confident in ability to deliver our 2026 guidance and long term outlook . Premier is the number one Sheik brand with durable , competitive advantages in an attractive category , and we expect the investments we are making this year to bolster our long term position .
Speaker #2: Finally, our cash-generative business and strong balance sheet enable us to fund our growth plans while also opportunistically repurchasing shares. I will now turn it over to the operator for questions.
Speaker #3: Thank you , ladies and gentlemen , if you have a question or a comment at this time , please press star one one on your telephone .
Speaker #3: If your question has been answered, you wish to remove yourself from the queue. Please press star one one again. We'll pause for a moment while we compile our Q&A roster.
Speaker #3: Our first question comes from Steve Powers, Deutsche Bank. Your line is open.
Speaker #4: Great . Thank you very much . And good morning , everybody . You know , Darcy , I think it's fair to say that a lot has changed over the last six months in your categories and around business .
Speaker #4: your just could start out by you summarizing what you've observed and how that's influenced your 26 plans , as well as your updated long term views and why you believe the outlook you've landed on is the is the right one , both in the year ahead and longer term .
Speaker #1: Sure . You know what I would actually with start what has not changed . I think what not has changed is the the the momentum in the category .
Speaker #1: There is I mean , the household penetration , it's still a low household penetration category , you know , call it 50% with a ton of upside there .
Speaker #1: I mean , you could actually argue there's more momentum in the category . And what is also not changed is , you know , Premier's position in the category .
Speaker #1: So we are the number one brand, number one in household penetration, number one in repeat purchases, and we have a strong national supply chain, etc.
Speaker #1: . So I think those are kind of the mainstays . I would also I think what what has changed is , you know , it's more competitive , which I think is , you know , it's expected .
Speaker #1: mean , the I way the way I view the category in total is , is that there are there kind of and I walk through some of this in my prepared remarks .
Speaker #1: But there are the leading brands, which include Premier, representing about 50% of the category. There are also these insurgent and crossover brands, which represent about 10% of the category.
Speaker #1: And then there are declining legacy brands, which represent about 30% of the category, who have been kind of shared meaningful donors through the year.
Speaker #1: As I look forward , what we expect to see is the leading brands keep leading and winning the insurgent brands are there's going to be some mix .
Speaker #1: going to be There's shake kind of a up where , you know , some will make it and some will not . And then the declining brands will continue to decline .
Speaker #1: as I So look at our guidance and our plan for 26 , I feel really good . We have , you know , we have a tough Q1 there are some unique dynamics going on with Q1 , with in the club side of the business .
Speaker #1: We're lapping a period with fewer new entrants in one major club customer, and we're lapping some non-repeating promotions in the other. So it's a tough quarter, but that does not represent the business.
Speaker #1: The last three quarters are much like every other quarter that we've had , which has strong , strong growth . And the reasons to believe there is , you know , the categories We healthy .
Speaker #1: We have strong plans. The rest of the business is dry but is growing very rapidly. We've got a couple of really exciting partnerships; for example, we have a partnership with this mass retailer that I talked about, which really is, I think, a sign of what we're going to see in other grocery accounts.
Speaker #1: And then advertising hitting, as well as innovation. So I think there's reason to believe, as well as my view on the category.
Speaker #4: I was told only one question, so I'm going to respect that and let it go on, move on.
Speaker #3: One moment for our next question . Our next question comes from Andrew Lazar with Barclays . Your line is open .
Speaker #5: Great . Thanks so much . Darcy . I remember last quarter , not you did yet have as much clarity as you as you wanted around the repeat rate for some of the new entrants or the insurgents that have come into the category , particularly at largest your customer .
Speaker #5: assuming you at I'm least have some additional clarity . Now on on some of this . And I guess more importantly , what that means for sort of expected shelf set right for the year ahead at your largest club customer .
Speaker #5: I was hoping you could maybe update us a bit on that dynamic . I think that was one of the one of the main reasons why last quarter you weren't yet in a position to sort of provide 26 guidance , as I think many had had kind of hoped at the time .
Speaker #1: Yeah , sure . So yeah , as I said in my remarks , that one of the changes that that is we do expect that that our major club customer will keep that set .
Speaker #1: expanded So that that is a change versus what we had assumed before . So we think that the competitive set will be , you know , bigger and remain the same .
Speaker #1: I think that we wanted to watch repeat rates . I would say , you know , we're we're continuing to monitor , I think what is clear is that not know , all of these kind of insurgent brands are going to make it .
Speaker #1: definitely going to There is be a shakeout . These thresholds that you have to hit at these club customers are high . And so I think that we will continue to see sort of a a rotation of different kind of smaller brands bringing news , but also kind of just coming in and out .
Speaker #1: I would say what we have learned , we are our fifth pallet in that , in that customer will , as we expected , will be will transition out the rest of our business is super strong .
Speaker #1: I think that what I've what we learned and learned is that I think that the category , the category is strong , it's expandable .
Speaker #1: I think that there, from an insurgent brand standpoint, there will be winners and losers, and it's really hard to hit those thresholds.
Speaker #1: I think that , you know , we are well positioned really versus consumption look at . When we the interaction between us and competitors , have a we clear position and our repeat rates are only getting stronger .
Speaker #1: and we're also source , So we are sourcing some volume from those competitors . So I think I feel really about our business and good the long term .
Speaker #1: Despite kind of a little bit of there's messiness in this quarter .
Speaker #5: Okay . Great . Thank you
Speaker #5: .
Speaker #1: Thank
Speaker #1: you .
Speaker #3: One moment for our next question . Our next from Megan Clapp with Morgan Stanley . question comes Your line is open .
Speaker #6: Hi . Good taking our morning . Thanks for question . I wanted to ask just about the club channel again . Maybe following up a bit on Andrew's question .
Speaker #6: There's been a lot there's of unique dynamics , just here in the first not but you quarter , all year in the club channel .
Speaker #6: And clearly it's a important channel for the category a bit more mature for you , but when we think about the acceleration that you talked about , you're going to see in mid-December and the kind of down five to up nine or so embedded in the guide , how much is driven by the club channel and particular just tell us what and can you what that and , for what you're expecting for growth in the club channel this year how and and the headwinds various and tailwinds shake out kind of in your mind as you think about that , that channel .
Speaker #6: you Thank .
Speaker #1: Yeah . So what we expect is that the growth is the major growth is largely coming outside of from the club channel . I mean , we've been seeing stronger growth for many , many quarters from our FDM .
Speaker #1: The food drug mass and e-commerce channels . So that is know , where , you see that's where we we have kind of the most potential and where we kind of see the most opportunity for the category as us .
Speaker #1: well as So our what guidance assumes is that the club comparisons get better throughout the throughout the quarters , but the growth largely is coming from the the rest of the channels .
Speaker #1: So I think and and that I you know in our in my talked about kind of the reasons to believe just around distribution , merchandising , advertising and innovation .
Speaker #6: Okay . Darcy Thank you .
Speaker #3: One moment for our next question
Speaker #3: . . Our next question comes from David Palmer Evercore with ISI . Your line is open .
Speaker #7: Thanks . And thanks for the commentary on your general areas of investment . I , you know , a going to be looking lot of us are all channel scanner data .
Speaker #7: The consumption data , wonder I how you're thinking about what we will see in that trend through the consumption of the rest fourth quarter .
Speaker #7: And I presume which be a will, you know, into to Q, you know, how you're thinking what we would see based on what plans are and to the degree that you can, can you tell us how you're factoring in increased competition that you see and perhaps some surprises, room for, and your innovation contribution to growth?
Speaker #7: And thank you .
Speaker #7: And thank you .
Speaker #1: a consumption Chair , from standpoint are expecting , you , we know , in continue November we'll see , to you know , tough club comps .
Speaker #1: Remember we have that nonrecurring that the club promotion that we are not recurring . So expect kind of negative slightly negative kind of low single digits continuing through November .
Speaker #1: What we start you'll start seeing an you acceleration in sort of the back half of December as New Year . So we have the mass So kind of expect low double partnership .
Speaker #1: Digits in all of December, but it'll ramp up toward the end. And then that momentum will continue through kind of January, February, and March on.
Speaker #1: and So there really is unique things going some on right now within the club channel that then ease out . Obviously , the the non-recurring club promo is , you know , very specific .
Speaker #1: In October and November . But after that , I think that , know , what happens you is that it continues to accelerate as we layer on these demand drivers .
Speaker #1: David, what was the other question?
Speaker #7: Well , then how you know , you're thinking increased about competition being a headwind , perhaps including some room for surprises there . But also to contribution you're thinking about just the innovation , giving you some help on some of the consumption numbers .
Speaker #7: You're thinking about ?
Speaker #1: Yeah , I would say that our , our , our guidance in court is , is very I would say it's prudent . It's conservative .
Speaker #1: It , it puts in . Assumptions around continued competition . And so I think , you know , it's it's one of the reasons why really good I feel about , you know , I feel really good about delivering the year quarter quarter by .
Speaker #3: Thank you. One moment for our next question. Our next question comes from Brian Holland with D.A. Davidson. Your line is open.
Speaker #2: Thanks .
Speaker #8: Good morning. I wanted to maybe follow up on the conversation around compares as we go over the balance of the year. I mean, if I look at Premier Tins Pro consumption.
Speaker #8: You know , a little bit softer in Q2 and Q3 prior year in club overall consumption , pretty strong throughout the year . So I know you did a longer promo event at your largest club customer this this past August , September .
Speaker #8: So, just a little more—just a little better understanding about why or how you view the compares being easier over the balance of the year, and what level of visibility do you actually have into competitor shelf placement?
Speaker #8: As we go through the year ?
Speaker #1: so Okay , start . And then Paul , if you I'll add on anything . Yeah . So our our club comparisons do get easier .
Speaker #1: So if you remember in our largest club customer the expanded set started . Started easing in in Q3 and then expanded more in Q4 .
Speaker #1: So we are lapping . So especially in Q1 and and into Q2 , we are lapping a period with kind of , less competition .
Speaker #1: So so the the comps are more difficult in the front end . I think what we as move forward , I would say we have your the visibility on competitive entrance is , is I mean , I would say pretty good for the first half and then , you know , we have I mean , we don't even know about , you know , our resets for the back half .
Speaker #1: Here's what I would say is . Our , our , you know , as the number one brand within the category . Our retail partners are are choosing us to figure out what they're going to do in this in their category .
Speaker #1: So there's some exciting things going on . And I'm going to , you know , I referred to this in my in my remarks , but in several retailers , a club retailer as well some , some as food major retailers , they're testing higher traffic dials to move the category .
Speaker #1: And they're not just they're not moving the entire category . What they're deciding to do is they're selecting the the best performing brands , the ones that have the most mainstream appeal .
Speaker #1: they're And moving those into these new higher traffic sets . Obviously , that includes Premier Protein , but some of the legacy brands will stay back in kind of the the pharmacy .
Speaker #1: So that dynamic is not something they're testing it right now . So we're not seeing that necessarily in make its way into consumption .
Speaker #1: But it will in medium the to long term , probably actually long term not even medium term . So some of those dynamics are , are really exciting .
Speaker #1: And I think show you where the category is going . And where as the number one brand , where we will be going .
Speaker #2: And I'll add a couple of things . So obviously we had very strong distribution gains in fiscal 25 . And so we'll obviously get the full year benefit of of that in fiscal 26 , pretty significant including some distribution gains in our fourth quarter .
Speaker #2: In particular, at a mass retailer that reset shelves. And so, obviously, we'll get the full year benefit of that reset as well, including.
Speaker #2: And then in our first quarter , we have some innovation that's also shipping out . So as you kind of get into beyond Q2 and , some of that information will start shipping .
Speaker #2: obviously Q2 is a very big pulse period for us of of advertising . So we're stepping up our advertising , stepping up our merchandising , stepping up our promotional events , especially in FDM .
Speaker #2: And so those are reasons we think that that sales and consumption will accelerate as we move into Q2 and beyond , with additional innovation hitting later in the year .
Speaker #2: those are the So big those are the big pieces for the reasons for why we consumption will accelerate as we move throughout the year .
Speaker #3: Thank you one moment for our next question . Our next question comes from Thomas Palmer with J.P. Morgan . Your line is open .
Speaker #9: Good morning. I wanted to maybe bridge a little bit more on your EBITDA margin, down around 280 basis points year over year.
Speaker #9: You noted , I think , around 80 basis points from tariffs . And your comments suggest maybe another 80 basis points for stepped up advertising .
Speaker #9: So when we're kind of thinking through the remaining 120 basis points , maybe , maybe a little help kind of bridging like a leverage excluding advertising .
Speaker #9: Inflationary pressure , excluding tariffs . And then maybe thinking through some of the cost savings that you noted . Thank you .
Speaker #2: So as you as you highlighted , we're calling for EBITDA be down margins to about points 280 basis compared to a year ago .
Speaker #2: As you mentioned, about 80 basis points of that is from tariffs. From a line item perspective, we expect gross margins to be down.
Speaker #2: That's the lion's share of that decrease . And then we would expect to be modestly down with advertising an 80 basis point headwind .
Speaker #2: And then there's offset partially by some G&A leverage . When you look at within gross margins , we we're calling for inclusive of tariffs , a low to mid single digit inflation headwind .
Speaker #2: of that Much is on whey proteins , which is the input cost on our powders which we are taking pricing for late in Q1 .
Speaker #2: So obviously that'll start to as we get offset move into Q2 and beyond on our shake business . We do have a little bit of a step up in Q1 , and then inflation is pretty flat to slightly up as you kind of go through the year on shakes .
Speaker #2: And so the puts and takes are we have some additional inflation especially , you know , especially on our powder business which we're pricing on , on our on our shake business .
Speaker #2: We have some modest inflation as we go through the year, but we also have cost savings initiatives that are more impactful in the second half of the year.
Speaker #2: So one of the things I want to point out here is that if you look at our margins for kind of by quarter , the first half obviously has as has we're lapping a very , very strong margin .
Speaker #2: First half last year , we had gross margins , nearly 35% . And so that's so as you look at kind of the headwinds throughout the year , the first quarter has the biggest headwind on a perspective margin versus year ago .
Speaker #2: Q2 also has has a sizable headwind , at less than Q1 . And then as we get to the second half , things are actually , you know , fairly similar versus year ago from a margin perspective .
Speaker #2: So it's really the first half where we have the biggest headwind related to to to margins . And it's again , largely driven by inflation , but also our stepped up promotions as well .
Speaker #9: Thank you
Speaker #9: .
Speaker #3: What a next moment for our question . Our next question comes from Peter Graham with UBS . Your line is open .
Speaker #10: Thanks . Great . Good morning Darcy . Good morning Paul . So I wanted to go back to the market share discussion and follow up to Andrew and Steve's question .
Speaker #10: And I guess specifically on what you are seeing from the insurgent brands. And I guess, do you think they have the potential to see similar, maybe market shares to what the...
Speaker #10: leaders are at Category today ? And I ask this around the more debate around what the competitive landscape looks like . I think at some point to the potential that we could , you know , this industry could be similar to what we see in energy drinks , where you have a duopoly versus maybe some others , where you have 5 or 6 brands with similar share .
Speaker #10: So I know you mentioned that you think it's some of these brands are going to go away , but maybe to take the other side of it .
Speaker #10: I'm curious if you think any of these insurgent brands have potential to become more real competitive threats over time .
Speaker #1: I mean , I'll just you guys have been along with our journey , and I think you even see it with our major competitor .
Speaker #1: It takes a long time to build a national , you know , network of a national supply chain . And so I think that from know , I think it's a , you .
Speaker #1: you can some of these insurgent brands can do well in one retailer . But I think expanding out and we've done it , you know , this is this is kind of in , many ways this is playbook .
Speaker #1: you can some of these insurgent brands can do well in one retailer . But I think expanding out and we've done it , you know , this is this is kind of in , many ways this is our Right .
Speaker #1: we Like started in club . We expanded outside of it . It is incredibly complicated . So it is complicated to it's a complicated supply chain .
Speaker #1: The expertise that you need to have the sophistication around expanding and being able to service multiple different channels . You know , simultaneously , as well as the back end of on the on the , you know , the common side .
Speaker #1: And then even if you're self manufactured , that's a whole nother that's a whole nother piece . So am I assuming , you know , we are assuming that , of course , there's going to be , you know , there are going to be a couple of these brands that insurgent probably make it .
Speaker #1: But , but , but it is it is going to take a while . And think that what we're I but I seeing , there will be think many more that don't and that and I just do not want to underestimate the move from one kind of club customer to go national is very complicated .
Speaker #1: takes It multiple years and it's a different skill set . So . So yeah , I think that ultimately , you know , I think this category is going to consolidate around , you know , kind of the most successful brands , a them handful of I .
Speaker #1: And clearly think that's include obviously going to us as an M1 brand .
Speaker #10: Thank you so much Great . .
Speaker #3: One moment for our next question . Our next question comes from Alexia Howard with Bernstein . is Your line open .
Speaker #11: Good morning everyone .
Speaker #1: Morning .
Speaker #11: Can I ask about pricing expectations , price versus volumes embedded within your guidance ? You're obviously taking a list price increase on Dymatize with the rest of the portfolio .
Speaker #11: Do you expect promotional activity step ups to actually bring pricing downwards ? And does that cadence vary through the year ?
Speaker #2: Yeah . So for I'm gonna break it into brands . So for Premier Pro Tein we would expect you know a modest kind of a low single digit headwind related to pricing .
Speaker #2: that So incorporates our stepped up trade investments , offset by we expect some favorable mix . So there is a there is a low single digit headwind .
Speaker #2: We're expecting on on our shake business , which obviously is the biggest part of our business on Dymatize , we're taking a price increase on powders , but we expect mix to play a big part of this because we we now have RTD shakes and dymatize and those are at a much lower price per pound than powders .
Speaker #2: That throws off a really funky mix . net So overall total bell ringing , I'd expect the , you know , a low single digit headwind overall with Premier similar .
Speaker #2: And then Dymatize , even though we're taking a price increase may look like it's it's negative because of just mix .
Speaker #11: Thank you very much. I'll pass it on.
Speaker #3: One moment for our next question . Our next question comes from Matt Smith with Stifel . Your line is open .
Speaker #12: Hi . Good morning Darcy . Following up on the discussion or Paul around higher promotional activity over the next year , we've seen a step up in promotional intensity from insurgents in recent weeks .
Speaker #12: And as you look forward , do you expect premier promotional activity to be moving higher ? More on a frequency or a depth basis ?
Speaker #12: And and do you expect that to be focused in certain channels ? It sounds like maybe club promotion should be similar relative to the year .
Speaker #12: prior Once we get past the first quarter . Thank you .
Speaker #1: Yeah , I think that's that's me right . Paul . Yeah . So you're you're exactly right . We're expecting to see a little bit of a step of promotion in 26 .
Speaker #1: And yeah , I think it's , it's interesting that just October , especially in the club channel , is usually not a high promotion time period .
Speaker #1: And it was a little bit more . And it's coming from the insurgent brands . So from our standpoint and and also I would just say that just remember that this category is actually fairly low promotion compared to many categories .
Speaker #1: It's just about it's about 25 to 30% sold on deal . So just keep that in mind as you're as you're thinking about just this category kind of in the macro as far as .
Speaker #1: our But going to see a business , we are little bit of uptick in promotion , mostly as as we about talked our emphasis specifically in FDM , as we are getting the aisle , as I've talked to you guys before , the key is for is getting out of the aisle us to get that trial , to get that .
Speaker #1: And then with 50% repeat , we get our the repeat . So that's a emphasis . big brought on the broker . It's That's why we why we have a new internal team focused on this around singles and entry point .
Speaker #1: Multi priced multi-packs . So because of that when you have that merchandising you usually have to do some sort of TPR . a So we are going to see a little bit of a step up of , of promotion that comes along with that expanded merchandising .
Speaker #3: Thank you. One moment for our next question. Our next question comes from Yasmeen with Bank of America. Your line is open.
Speaker #13: good morning Hey , everyone . Thanks for the question . So I a quick just had one on longer term strategy . So you guys walked away from the PowerBar business a couple years ago and considering that the convenient nutrition category is expanding outside those traditional have you products , given any thought into , say , going back into bars or expanding into , you know , breakfast offerings like waffles , pancakes and I guess I'm just asking as well , because given the recent , you know , the press release of the recently announced board appointment , it highlighted David's , you know , finance , M&A background .
Speaker #13: I So also don't know if there's , you know , been any has there change in your capital allocation priorities , particularly around M&A and your product portfolio portfolio as well ?
Speaker #13: you Thank .
Speaker #1: And why don't I hit the portfolio piece and Paul , you can hit capital allocation . So from a portfolio standpoint we really we believe in our category specifically ready to drink shakes and and secondarily powders .
Speaker #1: think We that is a ton of there opportunity I talked about in my prepared remarks just around this demand landscape study that we did .
Speaker #1: A key part of demand that landscape study was to evaluate , to make sure that there was going to be a ton of room to grow .
Speaker #1: And there were many years of strong growth , kind of a ton of white space that we could capture . So . It confirmed that .
Speaker #1: So we love this category . We think there's a lot of opportunity . We have a great brand to compete . Now , having said that , we also do participate in some of these .
Speaker #1: have We a great brand that we have . We have learned that can that can travel to heavier trafficked aisles . We are competing in some of these other areas , but we're through doing it licensing .
Speaker #1: if So we actually have a frozen pancake , we have a frozen waffle , we have a dry pancake mix , we have a cereal , we're actually expanding some of those , it through licensing because we want I want this laser organization focused in what we believe is the biggest opportunity , which is ready to drink shakes and powders .
Speaker #1: So we do not have any plans to go back into bars. It's a highly competitive area, with low barriers to entry, etc.
Speaker #1: so , but we love the area that we and and we think there's a lot of upside and I'll pass it over to Paul for capital allocation .
Speaker #2: Darcy . Yeah . Thanks , The capital allocation I say that would our priorities haven't shifted really that much . Obviously our first priority is always investing the business .
Speaker #2: as we And talked about , we are making investments this year . You know , within trade and promotion to continue to drive this business outside of that , because we generate , you know , really strong cash flow .
Speaker #2: We're not expecting to change our asset light models . We have low CapEx obviously , that provides us a lot of cash flow that we can obviously allocate from a , you know .
Speaker #2: Recently , and we still think is the most attractive is share repurchases . We've obviously leaned into share so repurchases . And that's , you know , still our near-term priority , but M&A , you know , we're always looking at M&A .
Speaker #2: We're looking all the time . We get pitched things all the time . And so you know , we'll we'll definitely , definitely keep an on M&A .
Speaker #2: eye out And it's something I you know think that , is becoming I wouldn't call it near-term , but it's more kind of in the mid to longer term priorities for us .
Speaker #2: And yes , David coming to the board obviously brings a lot of strength in that area . So that's great for us . And so M&A is is something we're always looking at .
Speaker #2: And if we find the opportunity we right certainly would go go after it .
Speaker #1: Yeah . And on the board side we're really happy to have David on board . I think I think he he brings a great skill set .
Speaker #1: And we're always looking at expanding and improving the skill set on our board . We our board has been incredible over the years and we just want to continue to make it better and increase the skill set .
Speaker #1: I think David does. And that.
Speaker #3: In a thank you moment for our next question, our next question comes from John Baumgartner with Mizuho Securities. Your line is open.
Speaker #2: Good morning. Thanks for the question. I'd like to ask about...
Speaker #8: . RTD
Speaker #2: Category segmentation .
Speaker #14: Fairlife Core Power . They've established that premium segment in Ultrafiltered milk , but now we've seen competitors relaunch with two legacy Ultrafiltered . You know , some of the newer entrants , the insurgents private label , they're adopting Ultrafiltered .
Speaker #14: I'm Darcy , why the So curious , making this shift with Ultrafiltered becoming more of a standard recipe ? Is it is it tied to raw materials availability ?
Speaker #14: Is it viewed as a license to move more , more premium ? Is there a specific consumer they're chasing ? Just curious . Your thoughts there on that on that recipe shift and how might this shift position premiere differently relative to history ?
Speaker #1: Yeah , yeah , I think that I think the category is maturing . I think that I think that it is , you know , when we did our demand landscape study , I think that what it what became very clear our head in of innovation , I will quote her and she just she described the , the landscape is like there's different strokes for different folks .
Speaker #1: Meaning some when the category was more nascent , kind of everybody kind of wanted the same thing . But as it expands , there are different , you know , preferences .
Speaker #1: And so , for instance , you know , some people want thick shakes , some people want thinner shakes , some people want dairy shakes , some people want plant .
Speaker #1: So I think what the good news for us is that our core 30 gram shake addresses the biggest consumer needs . But it doesn't it doesn't address every consumer need .
Speaker #1: And so as now we are kind of growing up , we hit with the 30 gram with our core offering . We hit the biggest one .
Speaker #1: But now we're launching innovation to go after some of these other needs . And like , I think a good mean , I that example of is so talking about when you're ultrafiltered milk , that is an innovation .
Speaker #1: It's a thinner offering. It's more of a beverage. Ours is more of a thicker shake. Ours is more of a meal replacement.
Speaker #1: So I think starts that explaining why there's actually not that much interaction between the two . It's a it's going after kind of a different consumer , different occasion .
Speaker #1: We launched almond milkshake. That's a non-dairy product. We knew that was an opportunity. We think it's a smaller opportunity than the dairy side of things, but it's an incremental opportunity.
Speaker #1: And I think our numbers that we're getting from Almond Milkshake, even though it is early, are showing exactly that 50% incremental.
Speaker #1: We're getting to new people . So that is a key aspect of our innovation strategy is really going after , you know , make sure that our 30 gram core business is strong .
Speaker #1: We always are looking at making it better . We're always looking at in bringing in , you know , news and flavor innovation , etc.
Speaker #1: but at the same time , we also are going after some of these other , you know , incremental consumer needs with other innovation .
Speaker #14: Okay . Thank you .
Speaker #3: One moment for our next question. Our next question comes from Jon Andersen. William Blair, your line is open.
Speaker #8: Hey , Thanks
Speaker #8: good morning .
Speaker #15: for the question . We've talked a lot about the insurgent brands this morning . And , Darcy , you mentioned you expect over time there to be a bit of a shakeout which which makes sense .
Speaker #15: You know , to me with with , some , you know , winners and some , you know , not meeting the thresholds but in your kind of experience , how long would you expect kind of a process like that to kind of take or to play out .
Speaker #15: And the reason I ask is because it seems like the competitive dynamic that is weighing a bit today could could remain difficult . You know , until that kind of shakeout period .
Speaker #15: The ShakeOut event kind of plays out more broadly in the market. Thanks.
Speaker #1: Yeah I mean it's a great question . I think that , you know , we're seeing it right now , obviously we're seeing brands that are not making the threshold .
Speaker #1: You know , I think what I think I would zoom out a little bit . So I think the reason why even in , in Steve's very first question , just about our view of the category .
Speaker #1: These insurgent and kind of crossover brands, they're getting a lot of attention. They only represent, and there are a lot of them.
Speaker #1: So and I think that remembering and I think that what is important is where the growth is coming from is , is it's coming from , you know , the the leading brands bringing in more households .
Speaker #1: And then also sourcing volume from those declining legacy brands , which are not insignificant , 30% of the market share is in these in declining of these kind brands .
Speaker #1: So legacy what's happening is that , yes , there's going to be there's going to be some churn in the insurgent kind of crossover brands .
Speaker #1: Some are going to make it , some are going to not . There's always going to be new news . It's an exciting category .
Speaker #1: I mean , see it in energy . There's always like you this group that kind of starts turning . But like if you zoom out the leading brands which have established which has , they they have high , you know , let's just talk about Premier , you know , high penetration .
Speaker #1: Number one , repeat national supply chain that built over years and years and years . We have we're in now you know , invested .
Speaker #1: We have capacity . We're now investing in the brand . We're you know we're leaning in we're partnering with retailers to figure out where in the store that category this should be and how it should be merchandised and how to maximize it .
Speaker #1: They're choosing us to do that . the leading brands are just So going to they're going to keep on winning . There's going to be churn around the insurgent .
Speaker #1: They're choosing us to do that . the leading brands are just So going to they're going to keep on winning . There's going to be churn around the insurgent brands the legacy brands are going to be the ones .
Speaker #1: I think that that continue to be they have been shared donors for years , and they're going to and that and and that is just it's kind of accelerating .
Speaker #1: So , you know , your question around how long is it going to take ? I mean , I think there's going to always be this kind of churn of insurgent brands .
Speaker #1: And it's I think it's I think it's an category . We exciting watch it for sure . But think I there that will I think the focus in my mind is and they're actually sourcing some volume from the declining legacy brands .
Speaker #1: So but I think the focus is that we definitely expect there to be , you know , a consolidation and the most successful brands are the ones that are going to to , to really propel forward .
Speaker #15: Thank you . .
Speaker #3: One moment for our next question. Our next question comes from Robert Moskow with TD Cowan. Your line is open.
Speaker #16: Hey, this is Jacob Henry on for Rob. Just one question from me. I think I heard you guys mention that your fifth pallet at the club customer is large and transitioning out.
Speaker #16: I'm just wondering if you have any insight into when and why that's happening. Thanks.
Speaker #1: it was always Yeah , going to be it was always going to be a temporary SKU . So it went in . It's coming out in in Q2 .
Speaker #1: So it'll phase out.
Speaker #16: Okay . Thank you .
Speaker #3: And showing I'm not any further questions at this time . And as such this does end today's presentation . We thank you for your participation .