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spk00: Good morning. My name is Carmen, and I'll be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Calling Corporation fiscal year 2023 third quarter conference call. Conducting today's call will be Dave Sosinski, President and CEO, and Tom Pickett, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the numbers 1-1 on your telephone keypad, and questions will be taken in the order that they are received. If you would like to withdraw your question, press the star 1-1 again. Thank you. And now, to begin the conference call, here is Del Gonopsy, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.
spk04: Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2023 third quarter conference call. Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our company's website, LancasterColony.com, later this afternoon. For today's call, Dave Szczesinski, our President and CEO, will begin with a business update and highlights for the quarter. Tom Figgott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Suszynski. Dave?
spk16: Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our third quarter results for fiscal year 2023. In our fiscal third quarter, which ended March 31st, we were pleased to report both record sales and higher profits. Consolidated net sales increased 15.2% to 465 million, while consolidated gross profit improved 37.9% to 94.2 million. Operating income reached 29.4 million compared to an operating loss of 7.6 million last year. Prior year operating income included a restructuring and impairment charge of 22.7 million. The retail segment reported Q3 net sales of $247 million, up 16%, driven by the favorable impact of pricing actions to offset inflation and strong volume growth of 6%. The volume growth measured in pound shift was driven by the continued success of our licensing program and double-digit growth for our New York bakery frozen garlic bread products. In licensing, Buffalo Wild Wing sauces, Arby's sauces, Chick-fil-A sauces, and Olive Garden dressings all contributed to volume growth. IRI data for our fiscal third quarter showed sales gains for marquee retail brands and notable share gains for our category-leading New York Bakery and Sister Schubert brands. New York Bakery's leading share of the frozen garlic bread category grew 350 basis points to 43.5%. And Sister Schubert's leading share of the frozen dinner roll category increased 150 basis points to 53.1%. In our food service segment, net sales grew over 14% to 218 million, driven by pricing actions, volume gains for several national account customers, and higher demand for our branded food service products. In total, food service segment volume increased less than 1%. Excluding the sales of some less profitable product lines that were discontinued during the past year, food service volume was up over 4%. During Q3, we continued to experience high levels of inflation for raw materials and packaging. That said, through the benefit of our pricing actions, PNOC, or pricing net of commodities, was favorable versus the prior year. This is a continuation of the trend that began in Q1 of this year, in which we were recovering some of the negative PNOC we experienced last year. We also benefited from another quarter of sequential improvement in cost savings attributed to productivity gains. In the quarters ahead, we will maintain our focus on supply chain productivity, value engineering, and revenue management to improve our financial performance. Before I turn it over to Tom, I'd like to extend my sincere thanks to the entire Lancaster Colony team for their ongoing commitment and contributions to our improved operational and financial performance. I'll now turn the call over to Tom Piggott, our CFO, for his commentary on our third quarter results. Tom?
spk09: Thanks, Dave. Overall, the results for the quarter reflected continued top and bottom line growth driven by pricing actions that offset inflationary costs, improved supply chain performance, and strong volume growth versus a prior year quarter. Third quarter net sales increased by 15.2% to $464.9 million. This growth was driven by pricing and volume. Decomposing the 15.2% increase in revenue, 11.3 percentage points were driven by pricing, with the remaining 3.9 percentage points driven by volume and a more favorable sales mix. Consolidated gross profit increased by $25.9 million, or 37.9 percent, to $94.2 million. The increase in gross profit reflected favorable PNOC, improved supply chain performance, and higher volume. If you recall, in Q3 of fiscal 22, we had negative PNOC as we lagged the rapid run-up in costs. We continue to recover those losses. While our commodity inflation was approximately 20% this quarter, our pricing actions offset this increase and the prior year shortfall. As it relates to the improved supply chain performance, in the prior year quarter, we experienced a high level of supply chain disruption resulting in higher costs. This quarter, execution improved and the company generated cost savings that contributed to the improved gross profit performance. Finally, both segments reported volume growth despite the impact of the product discontinuations. Selling, general, and administrative expenses increased 18.9% or $10.3 million. The increase reflects higher incentive compensation, investments to support the growth of the business, and charges resulting from the settlement of lawsuits. The investments to support the growth of the business included higher consumer spending and increased brokerage costs. Consumer spending is increasing in the second half to drive volume growth as our product supply position has improved. Expenditures for Project Ascent, our ERP initiative, were down as the project progressed into its later stages. Costs related to the project totaled $7.6 million in the current year quarter versus $10.3 million in the prior year quarter. Consolidated operating income increased $37 million to $29.4 million. In the prior year quarter, we recorded non-cash restructuring impairment charges and a benefit for changes in contingent consideration. Together, they netted to a $21.4 million expense. Excluding these items, operating income increased due to strong gross profit growth of the business partially offset by the higher SG&A costs. Our tax rate for the quarter was 18.2 percent versus 40.2 percent in the prior year quarter. We estimate our tax rate for the fourth quarter to be 23 percent. Third quarter diluted earnings per share increased $1.06 to 89 cents. The increase was primarily driven by the two non-cash charges in the prior year that I mentioned, which totaled 59 cents, and the improvement in the underlying performance of the business. The reduction in Project Ascent expenses contributed 8 cents to the EPS growth versus the prior year quarter. With regard to capital expenditures, payments for property additions in the third quarter totaled $22.4 million. For fiscal year 23, we are forecasting total capital expenditures of approximately $100 million. This forecast includes approximately $55 million for the completion of the Horse Cave expansion project. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.85 per share paid on March 31st represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 60 years. Our financial position remains strong as we are debt-free with $82.9 million of cash on the balance sheet. So to wrap up my commentary, our third quarter results reflected improved performance in several areas, resulting in very strong profit growth. I'll now turn it back over to Dave for his closing remarks. Thank you.
spk16: Thanks, Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan. To one, accelerate core business growth. Two, simplify our supply chain to reduce our cost and grow our margins. And three, to expand our core with focused M&A and strategic licensing. In our fiscal fourth quarter, we anticipate retail sales to benefit from our licensing program, incremental growth from new products, flavors, and sizes that we introduced this fiscal year. And in food service, we expect continued volume growth from several of our national chain restaurant customers. It's worth noting that our consolidated net sales will compare to last year's fourth quarter that benefited from an estimated 25 million in incremental net sales attributed to the advanced customer orders ahead of our July 1st ERP go-live date for wave one. Cost inflation will remain a headwind to our financial results, but we expect our pricing actions and cost savings initiatives to offset the increased cost. Finally, I'd like to provide you with an update on the implementation phase of our ERP initiative, Project Ascent. As we shared previously, this past July, we successfully completed wave one of the implementation, and in October, we completed wave two. During our fiscal third quarter, we successfully completed wave three of the implementation, adding our largest dressing and sauce production facility in Horse Cave, Kentucky, to the new system. The implementation went as planned, but as expected, we did incur some incremental cost as production and service were unfavorably impacted by the ERP system cutover process. I'm happy to report that the team has successfully addressed those issues. We expect to complete the final waves of Project Ascent in the coming months with the implementation phase scheduled to conclude during our fiscal first quarter. I'd like to extend my sincere thanks to all of my teammates for their ongoing efforts on this important strategic initiative. This concludes our prepared remarks for today, and we'd be happy to answer any questions you might have.
spk00: Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star 11 on your telephone keypad. One moment for our first question, please. and he comes from the line of Todd Brooks with the Benchmind Company. Please go ahead.
spk06: Hey, thanks. Good morning, everybody. Good morning. Good morning.
spk07: A couple questions for you, if I may. One, can we dive into the SG&A spend a little bit? I'd love to get some color going forward, maybe what the legal charges that were in that total, and then talk about maybe the – that higher level of customer spending that was expected in the back half of the year, if that was either outside versus a prior expectations or if we just were too conservative in our modeling of G&A?
spk09: Okay. Hi, Todd. So I'll take you through that. So as we, in the quarter, the incentive compensation increase year over year was $4 million. And really what we had is a case where last year, on the financial performance of the business was below the overall company's expectations, and this year it's exceeding. So that $4 million is more of a transitory item that is kind of a catch-up for the first half of the year as well as the third quarter. The legal settlements were related to closed businesses, and that was $2 million. So that $6 million is more transitory in nature, Then, when you get into the next bucket, we're really talking about the things that invest to grow. The consumer spending was up a million dollars, and the brokerage was up a couple million dollars. Then, the last driver I'll touch on is really the SAP costs in the core business, and that's the amortization and the licensing costs from going live on the new software. Those are the key items I want to hit on. In terms of the outlook for Q4, we're going to continue to invest to grow to support the business, so we do expect the consumer spend to be sequentially higher than last year as our supply position has improved and we continue to want to drive volume growth, and we'll continue to spend on ascent. Some of those transitory costs, particularly the legal and some of the bonus, won't be repeating, so sequentially we do expect the overall spend to decline in the fourth quarter.
spk07: Perfect. That's really helpful. Thanks, Tom. And then my final question, I'll jump back in queue. And this is just trying to level set everybody. So Dave, you teased out the $25 million that we're up against in this quarter. That was a pull forward. But you also talked in the release about some potential pull forward into the March quarter from just Easter timing and the Easter shift. Is there an impact that we need to think about as we're thinking about the retail segment based on that timing? Maybe what type of revenue do you estimate was pulled forward into the market?
spk16: Yeah, so maybe first, Todd, I'll start just talking about Q3, and then maybe we'll talk about the outlook for Q4. For Q3, Easter was a contributor, but it was really a more modest contributor. The bigger driver in the swing on volume was shipments behind new items that we're launching. So in particular, sort of a range of those sauce items that have gone out, the larger size of Chick-fil-A, for example, and some of the others. And the other driver on volume has been just the strength of the Buffalo Wild Wings proposition. As we've been able to bring online incremental capacity, as we've had some of the viral marketing that's taken place, we've seen that business continue to run As we look forward in Q4, I think it's important for you and for the others to continue to track. We did have that $25 million pull forward last year. $10 million of that was in retail. $15 million of that was in food service. Importantly, as we think about what the volume outlook might be like for the consolidated business, we continue to see a pathway to modest overall volume growth. for the business in Q4. If you then screw in a little bit tighter and you look at the retail business, you know, we see line of sight there probably to, you know, possibly in an organic basis as much as, you know, mid to mid single digit volume growth on that business. So we continue to feel good about it.
spk07: That's really helpful. Thanks, Dave. I'll jump back in queue.
spk00: Thank you. One moment for our next question, please. And it comes from the line of Andrew Wolf with CL King. Please proceed.
spk02: Hi, thanks again. Also, good morning. Good morning. I'm going to ask on kind of the state of trade relations, kind of an open-ended question a bit. Just, you know, the retailers, most of the supermarket chains, or certainly the sectors, having negative volumes. it's not horrible elasticities, but it seems like all this pricing has caught up to the trade a bit. Some brands are losing share to private labels. Some of yours were, now they're not. What is the state of play overall with price increases into saying, hey, we need another round of increases to retailer X, Y, and Z? And second, What is the state of play with them asking for ramped up promotions? I see you talk about your customer side, which goes through GNA, but more the net sales one, which goes into the retail trade. Are they asking for more of that as well?
spk16: So Andrew, maybe I'll start by talking about, I'll start with retail, about those conversations at the highest level. And I would characterize them as continuing to be very constructive. the last thing we want to do is go in and talk just about pricing to our customers. And the unfortunate reality is in the last couple of years, because of the rate of inflation we've had, we've had a lot of conversations about pricing. We've been able to counter those conversations by always being able to talk about new item launches and other things that we're doing with them to drive outsized growth. So I think, as I think about the disposition of our relationship with our retailers, I would put them in a very constructive category because we're in there talking about not just pricing, but a lot about volumetric growth and category growth ideas. I don't know if that's necessarily the case for all of our peers, but I can tell you that's sort of where we stand today. As far as pricing is concerned, we have had some tough conversations and we continue to price through the first half of the year. We haven't taken any pricing since the last time that we've talked. Our retail business remains PNOC positive. And to the degree to which we need to go back into the marketplace and have conversations around pricing, we fully expect those conversations to be a whole lot more tough than they were in, let's say, the last 18 months. So now your other question is, what can we expect to see on the trade front. And what I would tell you is to date, we have not been getting lots of pressure to increase our trade rate on our items. You know, where I would expect those conversations are probably the most intense are in commodity categories that have seen a more aggressive fall or in areas where private label is more developed and the retailer feels like they have more leverage to try to bring that money back into the category. That really, you know, knock on wood here, is not our current circumstances. And again, retailers always want to talk about, first and foremost, what we can do with them to drive category growth and the growth of their baskets. And that's the lever that we're really working to drive the hardest. And maybe I'll even talk about the below-the-line marketing spin because areas where we're spending tends to be more focused in partnering with our retailers to drive the growth of basket spending than it is necessarily in some of the, you know, let's just call it equity advertising areas. So, you know, I would say end to end, we're working with them to figure out how we innovate to grow their business, how we market to grow their business, so the relationships on the retail side continue to be, you know, very collaborative. On the food service side, I think we've shared with you over the years, Andrew, that we have a very open and transparent, apparent relationship with our food service operators, particularly in national accounts, around commodity spend. We work with them to take positions on these core commodities. So, again, you know, they know exactly what our situation is on commodities, and we work with them. You know, they tell us oftentimes when they want to take a position, how far they want to go, and everything else.
spk02: Thank you. I appreciate that. A quick follow-up just on the food service side. You know, you've been kind of rationalizing some either items or contracts that we're you know, low margin. And I think you said it was about a 4% volume impact. When does that cycle?
spk16: We're really cycling through the end of that. You'll see a little bit of an impact in Q4, and then it will have essentially run its course. The food service team, you know, beyond rationalizing customers, has done a tremendous job of rationalizing SKUs. And that's been a really important contributor to their ability to improve their their margins overall. I mean, we're talking strong double-digit decreases in items that are helping us simplify that business to create better operating leverage. They deserve a lot of credit in that space.
spk02: Great. Thank you.
spk17: Thanks, Andrew. Thanks, Andrew. Thank you.
spk01: Thank you. One moment for our next question, please.
spk00: And it comes from the line of Connor Rattigan with Consumer Edge. Please proceed.
spk03: Hey, guys. Good morning. Thanks for the question.
spk08: Hi, Connor. Hi, Connor.
spk03: Yeah, so obviously a really strong top line quarter, top line this quarter. Congrats, guys. And, you know, I was just wondering, maybe could you help us sort of understand the drivers here a little bit better? So, you know, obviously the license portfolio was crucial, but, you know, I'm just wondering maybe how much of that 6% retail volume growth was due to RBC? just given that you're comping a pre-launch quarter. And also, on the food service side, is that increased demand that you guys called out, just incremental placements or higher consumption at existing locations?
spk16: Sure. So, the ARBI's contribution was a little less than 20% to that. So, it was a notable contributor, and we continue to be excited about how that proposition is performing. We also saw Buffalo Wild Wings was a strong contributor to that. Chick-fil-A was a strong contributor to that as well. And our own brand, in this case, New York Texas Toast, was a strong contributor as well. The supply chain team has done a really nice job continuing to figure out how to wring out incremental capacity. And our selling and marketing organization has done a nice job of continuing to sell that. I think overall that brand continues to be a really nice story where whether you're looking at the one year or even the two year stack, you're looking at a business that's up, you know, between 20 and almost 25% on the sales line. And we're also seeing it behind volume growth, as I noted here.
spk03: No, that's great. Really helpful guys. And then also on the, on the cost side as well. So I know you've been trending at around 20% inflation for a while. Um, You know, unless I missed it, do you guys have a 3Q inflation figure you can share? And also sort of around the commentary to respect pricing and cost savings to cover inflation. Can we, I guess, be expecting year-over-year margin expansion despite the inflation in 4Q?
spk09: Yes. So thanks for the question. The Q3 inflationary impact was about 20%. And it does begin to moderate a bit in Q4 when we look at the natural dilution from higher prices and higher commodities. We're looking at more of a 150 basis point impact year over year. But then as you look at the offsets, we get a better contribution from the cost savings initiatives, value engineering we've talked about, improved sales mix, and the discontinuations Dave mentioned, insourcing. All of that will help us mitigate that natural dilution we get in Q4. So we're looking at kind of a consistent gross margin percentage versus the prior year in the fourth quarter.
spk16: And then beyond that, we haven't given specific guidance on the outlook, but I think what I would share with you is, as you might expect, it is moderating. We're seeing oil moderate We're seeing just some of the other categories moderate, like eggs, particularly more recently. But they're being offset by other categories that are continuing to run, particularly sweeteners. So we'll have more to share with you on that as we come out with our Q4 results.
spk03: Okay, perfect. And I'll just squeeze one more quick one in here. So just maybe... Yeah, and in the track data that we see, you know, it really looks like Arby's is kind of following that initial rollout track, similar to Chick-fil-A. So I guess just how happy are you guys maybe with the rollout to date? And, you know, is it just roughly in line with our expectations or maybe running slightly ahead?
spk16: I would say it's in line with our expectations. You know, what we've learned with every one of these, Connor, is that it just takes time for our retail partners to get them cut into the shelf to get the right number of facings on the shelf for consumers to become aware and for the items to turn. And that is very, very true with the Arby's proposition. And it's, I mean, across the longer arc of time, I think it's true with... with Buffalo Wild Wings. What you ordinarily see when you come out with a brand like this that let's say has awareness because of the restaurant but doesn't necessarily have retail trial is retailers initially cut it in wherever they can place it. So usually it's gonna be two facings, maybe for the bottom or the top of the shelf. They really don't make a dramatic change to the planogram. Then as that item starts to turn, what happens is you'll see it migrate from the bottom or the top of the shelf a little bit closer to the bullseye and then they'll change the mix of items. You could go from two or four facing, sometimes to six, and they'll dial in the mix of those SKUs to make sure that they have the right amount. It was true with Olive Garden, true with Chick-fil-A, we're seeing it, and Buffalo Wild Wings, and that same thing seems to be playing out on Arby's. So it's very much running in line with what we thought, and we're just thrilled that, you know, Arby's was willing to partner with us on this proposition. Our team has done a great job of just loving on that business and executing it in retail.
spk03: All right. Thanks for the call, guys. That was great, as always. Appreciate it. Of course. Thank you.
spk00: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue.
spk11: We have a question. One moment, please.
spk00: I will follow up from the line of Andrew Wolf from CL King. Please proceed.
spk02: Hi, thank you. Bit of a strategic question, but with the third wave of the ERP implementation now behind you, You've handled different phases from beginning phase to getting things up and running and all that, working with a lot of consultants to doing it yourself. It seems you've addressed, from the outside at least, kind of all the contingencies and all the processes one would go through. And I want to link this to potential M&A since getting a good ERP system is into a decent-sized system. target would be a big part of realizing synergies of various kinds. Where are you at with the ERP implementation as you guys think about it such that you would have enough confidence to say, we can take this target and do all we need to do with integration based on how the ERP implementation has gone?
spk16: Sure. You know, as we pointed out, Andrew, in our script, we've gone through wave one, wave two, wave three. So we've taken the financial backbone and the GL, all of that's on our new system. And then sequentially, we've been rolling in plants and warehouses with our flagship factory and horse cave being really what comprised the better part of wave three. Now, we still have wave four that's out there that we're going to be driving in this current quarter. And really what that's going to be consisting of is bringing the last of our dressing factories online and two of our dressing warehouses. So none of this is going to be new art that we're taking on in wave four. It's just you want to make sure that you have enough people in place to perform hyper care as you're fundamentally changing the way people are working so you can service the business. You know, we fully expect between now and when we're together with you in August talking about our Q4, we will have wrapped up our wave four. And really, our release one, as we call it, will be complete. What we expect to do at that point in time is really to focus around a period that we're calling stabilization, utilization, and training, where after really fundamentally changing the way people work in our factories and our warehouses, just bedding down the system, cleaning up the remnants of broken glass that may still exist, and focusing on helping our people in those plants get far more efficient and effective in how they're doing this work. Now, all of that also creates a window for us to talk about M&A. And that's an item that we are very, very excited about. If you go back really to where we started the journey, this strategic journey you're talking about, we really started out as more of a confederation of companies that had been acquired rather than an integrated company. SAP has enabled us to do that. So from an optionality perspective, it's going to give us the ability to look at small businesses and integrate them into our network very tightly that should glean greater efficiencies. But it also gives us the ability to look at bigger scale acquisitions and do precisely that. It also allows us to follow some of our food service customers or others that want to grow internationally and do that far more effectively than we could have done it on our old platform. So from a timing perspective, like I said, between now and when we're together in August, talking about Q4, we expect that period, release four, or wave four to be behind us. We're going to be entering into the stabilization period. And at that point, really, it allows us to think about what we've described as all along, Lancaster Colony 3.0, where these strategic acquisitions do come into our consideration set. And it's a period we're super excited about. Really, if you look at the last three years, we went through an intense period of externally imposed change because of COVID and supply chain disruptions. Towards the tail end of that, we've gone through a self-imposed period of internal change because of this SAP transformation. And I mean, the only thing I could figure that would be more complicated would be to move the business to Mars, because I got to tell you, you know, I'm talking colonizing Mars because For anybody that's lived through an ERP project, for the project team, for the business operators, I mean, even you can say a forklift operator, somebody working in our kitchens, they're forced to go back and relearn the way they do the work. So this external and internally imposed change is winding down. And what excites us is we're just going to focus on getting better, and that's going to allow for us then to figure out how we leverage the strength of the team and our balance sheet. which both are strong. And I feel like it's a chance for us to think about really another chapter in our book where we can go and grow and create opportunities for people and our customers. So it's certainly an exciting period that we're looking forward to move towards.
spk02: Thank you. And a follow-up on the training and utilization part that you'll be entering into fiscal 24. Just a sense of my experience or my understanding of VRPs is after all what you just described, the process, all the training and utilization, it's kind of cumulative. It's sort of crawl, walk, run, and then potentially exponential benefits if it really goes well. Do you feel you need to have some legs behind that before you would get a target acquired? All right, you feel good about implementation, but do you also want to feel good about getting the payoff that you expected? Or do you feel you can implement and learn the payoff simultaneously and just bring in a new business as well?
spk16: I guess the way we're thinking about it here in Columbus, Andrew, is really a reflection of the total weight on the branch, right? How much weight do we have on the branch for the organization? And the last, let's call it the middle chunk, well, really the better part of this whole year has had a lot of weight on the branch. We've had the ERP implementation, but the other thing we've done is we've doubled the size in square footage of our flagship factory. And that in and of itself brings with it a fair amount of complexity. So, you know, we're seeing the weight of the branch from the expansion start to diminish. the weight of the branch from ERP will diminish. So I wouldn't go so far as to say we feel like we have to have the system perfected before we could entertain an acquisition. But I think we'd have to be able to look at the business and look at all the other things that we have going on and feel like there's a sufficient amount of weight available for the branch for us to take on an acquisition and make sure that we could service our strategic customers, retail and food service operators seamlessly.
spk18: Thank you. Thank you.
spk00: Thank you. And as a reminder, if you do have a question or comment, please press star 11 to get in the queue. I'm not showing any further questions. I will turn the call back to Mr. Sosinski for his concluding comments.
spk16: Thank you, Operator, and thank you, everyone, for your participation this morning. We look forward to sharing with you our fourth quarter results when we're back together in August. Have a great day.
spk00: Thank you again for participating, and you may now disconnect. Thank you. you Thank you.
spk12: Thank you. you
spk00: Good morning. My name is Carmen, and I'll be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Calling Corporation fiscal year 2023 third quarter conference call. Conducting today's call will be Dave Sosinski, President and CEO, and Tom Pickett, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the numbers 11 on your telephone keypad, and questions will be taken in the order that they are received. If you would like to withdraw your question, press the star 11 again. Thank you. And now, to begin the conference call, here is Del Gonopsy, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.
spk04: Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2023 third quarter conference call. Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our company's website, LancasterColony.com, later this afternoon. For today's call, Dave Szczesinski, our President and CEO, will begin with a business update and highlights for the quarter. Tom Figgott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Suszynski. Dave?
spk16: Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our third quarter results for fiscal year 2023. In our fiscal third quarter, which ended March 31st, we were pleased to report both record sales and higher profits. Consolidated net sales increased 15.2% to 465 million, while consolidated gross profit improved 37.9% to 94.2 million. Operating income reached 29.4 million compared to an operating loss of 7.6 million last year. Prior year operating income included a restructuring and impairment charge of 22.7 million. The retail segment reported Q3 net sales of $247 million, up 16%, driven by the favorable impact of pricing actions to offset inflation and strong volume growth of 6%. The volume growth measured in pound shift was driven by the continued success of our licensing program and double-digit growth for our New York bakery frozen garlic bread products. In licensing, Buffalo Wild Wing sauces, Arby's sauces, Chick-fil-A sauces, and Olive Garden dressings all contributed to volume growth. IRI data for our fiscal third quarter showed sales gains for marquee retail brands and notable share gains for our category-leading New York Bakery and Sister Schubert brands. New York Bakery's leading share of the frozen garlic bread category grew 350 basis points to 43.5%. And Sister Schubert's leading share of the frozen dinner roll category increased 150 basis points to 53.1%. In our food service segment, net sales grew over 14% to 218 million, driven by pricing actions, volume gains for several national account customers, and higher demand for our branded food service products. In total, food service segment volume increased less than 1%. Excluding the sales of some less profitable product lines that were discontinued during the past year, food service volume was up over 4%. During Q3, we continued to experience high levels of inflation for raw materials and packaging. That said, through the benefit of our pricing actions, PNOC, or pricing net of commodities, was favorable versus the prior year. This is a continuation of the trend that began in Q1 of this year, in which we were recovering some of the negative PNOC we experienced last year. We also benefited from another quarter of sequential improvement in cost savings attributed to productivity gains. In the quarters ahead, we will maintain our focus on supply chain productivity, value engineering, and revenue management to improve our financial performance. Before I turn it over to Tom, I'd like to extend my sincere thanks to the entire Lancaster Colony team for their ongoing commitment and contributions to our improved operational and financial performance. I'll now turn the call over to Tom Piggott, our CFO, for his commentary on our third quarter results. Tom? Thanks, Dave.
spk09: Overall, the results for the quarter reflected continued top and bottom line growth driven by pricing actions that offset inflationary costs, improved supply chain performance, and strong volume growth versus a prior year quarter. Third quarter net sales increased by 15.2% to $464.9 million. This growth was driven by pricing and volume. Decomposing the 15.2% increase in revenue, 11.3 percentage points were driven by pricing, with the remaining 3.9 percentage points driven by volume and a more favorable sales mix. Consolidated gross profit increased by $25.9 million, or 37.9 percent, to $94.2 million. The increase in gross profit reflected favorable PNOC, improved supply chain performance, and higher volume. If you recall, in Q3 of fiscal 22, we had negative PNOC as we lagged the rapid run-up in costs. We continue to recover those losses. While our commodity inflation was approximately 20% this quarter, our pricing actions offset this increase and the prior year shortfall. As it relates to the improved supply chain performance, in the prior year quarter we experienced a high level of supply chain disruption resulting in higher costs. This quarter, execution improved and the company generated cost savings that contributed to the improved gross profit performance. Finally, both segments reported volume growth despite the impact of the product discontinuations. Selling, general, and administrative expenses increased 18.9 percent, or $10.3 million. The increase reflects higher incentive compensation, investments to support the growth of the business, and charges resulting from the settlement of lawsuits. The investments to support the growth of the business included higher consumer spending and increased brokerage costs. Consumer spending is increasing in the second half to drive volume growth as our product supply position has improved. Expenditures for Project Ascent, our ERP initiative, were down as the project progressed into its later stages. Costs related to the project totaled $7.6 million in the current year quarter versus $10.3 million in the prior year quarter. Consolidated operating income increased $37 million to $29.4 million. In the prior year quarter, we recorded non-cash restructuring impairment charges and a benefit for changes in contingent consideration. Together, they netted to a $21.4 million expense. Excluding these items, operating income increased due to strong gross profit growth of the business partially offset by the higher SG&A costs Our tax rate for the quarter was 18.2 percent versus 40.2 percent in the prior year quarter. We estimate our tax rate for the fourth quarter to be 23 percent. Third quarter diluted earnings per share increased $1.06 to 89 cents. The increase was primarily driven by the two non-cash charges in the prior year that I mentioned, which totaled 59 cents, and the improvement in the underlying performance of the business. The reduction in Project Ascent expenses contributed 8 cents to the EPS growth versus the prior year quarter. With regard to capital expenditures, payments for property additions in the third quarter totaled $22.4 million. For fiscal year 23, we are forecasting total capital expenditures of approximately $100 million. This forecast includes approximately $55 million for the completion of the Horse Cave expansion project. In addition to investing in our business, we also return funds to shareholders. Our quarterly cash dividend of $0.85 per share paid on March 31st represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 60 years. Our financial position remains strong as we are debt-free with $82.9 million of cash on the balance sheet. So to wrap up my commentary, our third quarter results reflected improved performance in several areas, resulting in very strong profit growth. I'll now turn it back over to Dave for his closing remarks. Thank you.
spk16: Thanks, Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan. To one, accelerate core business growth. Two, simplify our supply chain to reduce our cost and grow our margins. And three, to expand our core with focused M&A and strategic licensing. In our fiscal fourth quarter, we anticipate retail sales to benefit from our licensing program, incremental growth from new products, flavors, and sizes that we introduced this fiscal year. And in food service, we expect continued volume growth from several of our national chain restaurant customers. It's worth noting that our consolidated net sales will compare to last year's fourth quarter that benefited from an estimated 25 million in incremental net sales attributed to the advanced customer orders ahead of our July 1st ERP go-live date for wave one. Cost inflation will remain a headwind to our financial results, but we expect our pricing actions and cost savings initiatives to offset the increased cost. Finally, I'd like to provide you with an update on the implementation phase of our ERP initiative, Project Ascent. As we shared previously, this past July, we successfully completed wave one of the implementation, and in October, we completed wave two. During our fiscal third quarter, we successfully completed wave three of the implementation, adding our largest dressing and sauce production facility in Horse Cave, Kentucky, to the new system. The implementation went as planned, but as expected, we did incur some incremental cost as production and service were unfavorably impacted by the ERP system cutover process. I'm happy to report that the team has successfully addressed those issues. We expect to complete the final waves of Project Ascent in the coming months with the implementation phase scheduled to conclude during our fiscal first quarter. I'd like to extend my sincere thanks to all of my teammates for their ongoing efforts on this important strategic initiative. This concludes our prepared remarks for today, and we'd be happy to answer any questions you might have.
spk00: Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star 11 on your telephone keypad. One moment for our first question, please. And he comes from the line of Todd Brooks with the Benchmind Company. Please go ahead.
spk06: Hey, thanks. Good morning, everybody. Good morning.
spk07: Good morning. A couple questions for you, if I may. One, can we dive into the SG&A spend a little bit? I'd love to get some color going forward, maybe what the legal charges that were in that total, and then talk about maybe the – that higher level of customer spending that was expected in the back half of the year, if that was either outside versus prior expectations or if we just were too conservative in our modeling of G&A?
spk09: Okay. Hi, Todd. So I'll take you through that. So as we – in the quarter, the incentive compensation increase year over year was $4 million. And really what we had is a case where last year – on the financial performance of the business was below the overall company's expectations, and this year it's exceeding. So that $4 million is more of a transitory item that is kind of a catch-up for the first half of the year as well as the third quarter. The legal settlements were related to closed businesses, and that was $2 million. So that $6 million is more transitory in nature, Then, when you get into the next bucket, we're really talking about the things that invest to grow. The consumer spending was up a million dollars, and the brokerage was up a couple million dollars. Then, the last driver I'll touch on is really the SAP costs in the core business, and that's the amortization and the licensing costs from going live on the new software. Those are the key items I want to hit on. In terms of the outlook for Q4, we're going to continue to invest to grow to support the business, so we do expect the consumer spend to be sequentially higher than last year as their supply position has improved and we continue to want to drive volume growth, and we'll continue to spend on ascent. Some of those transitory costs, particularly the legal and some of the bonus, won't be repeating, so sequentially we do expect the overall spend to decline in the fourth quarter.
spk07: Perfect. That's really helpful. Thanks, Tom. And then my final question, I'll jump back in queue. And this is just trying to level set everybody. So Dave, you teased out the $25 million that we're up against in this quarter. That was a pull forward. But you also talked in the release about some potential pull forward into the March quarter from just Easter timing and the Easter shift. Is there an impact that we need to think about as we're thinking about the retail segment based on that timing? Maybe what type of revenue do you estimate was pulled forward into the market?
spk16: Yeah, so maybe, you know, first, Todd, I'll start just talking about Q3, and then maybe we'll talk about the outlook for Q4. For Q3, Easter was a contributor, but it was really a more modest contributor. The bigger driver in the swing on volume was shipments behind new items that we're launching. So in particular, sort of a range of those sauce items that have gone out, the larger size of Chick-fil-A, for example, and some of the others. And the other driver on volume has been just the strength of the Buffalo Wild Wings proposition. As we've been able to bring online incremental capacity, as we've had some of the viral marketing that's taken place, we've seen that business continue to run As we look forward in Q4, I think it's important for you and for the others to continue to track. We did have that $25 million pull forward last year. $10 million of that was in retail. $15 million of that was in food service. Importantly, as we think about what the volume outlook might be like for the consolidated business, we continue to see a pathway to modest overall volume growth. for the business in Q4. If you then screw in a little bit tighter and you look at the retail business, you know, we see line of sight there probably to, you know, possibly in an organic basis as much as, you know, mid to mid single digit volume growth on that business. So we continue to feel good about it. That's really helpful. Thanks, Dave.
spk07: I'll jump back in queue.
spk00: Thank you. One moment for our next question, please. And it comes from the line of Andrew Wolf with CL King. Please proceed.
spk02: Hi, thanks, Ganda. Also, good morning. Good morning. I'm going to ask on kind of the state of trade relations, kind of an open-ended question a bit. Just, you know, the retailers, most supermarket chains, or certainly the sectors, having negative volumes. you know, it's not horrible elasticities, but, you know, it seems like all this pricing is caught up to the trade a bit. Some brands are, you know, losing share to private labels. Some of yours were, now they're not. What is the state of play overall with, you know, price increases into, you know, saying, hey, we need another round of increases to, you know, retailer X, Y, and Z? And second, What is the state of play with them asking for ramped up promotions? I see you talk about your customer side, which goes through GNA, but more the net sales one, which goes into the retail trade. Are they asking for more of that as well?
spk16: So Andrew, maybe I'll start by talking about, I'll start with retail, about those conversations at the highest level. And I would characterize them as continuing to be very constructive. the last thing we want to do is go in and talk just about pricing to our customers. And the unfortunate reality is in the last couple of years, because of the rate of inflation we've had, we've had a lot of conversations about pricing. We've been able to counter those conversations by always being able to talk about new item launches and other things that we're doing with them to drive outsized growth. So I think, as I think about the disposition of our relationship with our retailers, I would put them in a very constructive category because we're in there talking about not just pricing, but a lot about volumetric growth and category growth ideas. I don't know if that's necessarily the case for all of our peers, but I can tell you that's sort of where we stand today. As far as pricing is concerned, we have had some tough conversations and we continue to price through the first half of the year. We haven't taken any pricing since the last time that we've talked. Our retail business remains PNOC positive. And to the degree to which we need to go back into the marketplace and have conversations around pricing, we fully expect those conversations to be a whole lot more tough than they were in, let's say, the last 18 months. So now your other question is, what can we expect to see on the trade front. And what I would tell you is, to date, we have not been getting lots of pressure to increase our trade rate on our items. Where I would expect those conversations are probably the most intense are in commodity categories that have seen a more aggressive fall or in areas where private label is more developed and the retailer feels like they have more leverage to try to bring that money back into the category. That really, knock on wood here, is not our current circumstances. And again, retailers always want to talk about, first and foremost, what we can do with them to drive category growth and the growth of their baskets. And that's the lever that we're really working to drive the hardest. And maybe I'll even talk about the below-the-line marketing spin, because areas where we're spending tends to be more focused in partnering with our retailers to drive the growth of basket spending than it is necessarily in some of the, let's just call it equity advertising areas. So I would say end to end, we're working with them to figure out how we innovate to grow their business, how we market to grow their business, so the relationships on the retail side continue to be very collaborative. On the food service side, I think we've shared with you over the years, Andrew, that we have a very open and transparent, apparent relationship with our food service operators, particularly in national accounts, around commodity spend. We work with them to take positions on these core commodities. So again, you know, they know exactly what our situation is on commodities, and we work with them. You know, they tell us oftentimes when they want to take a position, how far they want to go, and everything else.
spk02: Thank you. I appreciate that. A quick follow-up just on the food service side. You know, you've been kind of rationalizing some either items or contracts that we're you know, low margin. And I think you said it was about a 4% volume impact. When does that cycle?
spk16: We're really cycling through the end of that. You'll see a little bit of an impact in Q4, and then it will have essentially run its course. The food service team, you know, beyond rationalizing customers, has done a tremendous job of rationalizing SKUs. And that's been a really important contributor to their ability to improve their their margins overall. I mean, we're talking strong double-digit decreases in items that are helping us simplify that business to create better operating leverage. They deserve a lot of credit in that space.
spk02: Great. Thank you. Thanks, Andrew.
spk01: Thanks, Andrew.
spk02: Thank you.
spk01: Thank you. One moment for our next question, please.
spk00: And it comes from the line of Connor Rattigan with Consumer Edge. Please proceed.
spk03: Hey, guys. Good morning. Thanks for the question.
spk08: Hi, Connor. Hi, Connor.
spk03: Yeah, so obviously a really strong top line quarter, top line this quarter. Congrats, guys. And, you know, I was just wondering, maybe could you help us sort of understand the drivers here a little bit better? So, you know, obviously the license portfolio was crucial, but, you know, I'm just wondering maybe how much of that 6% retail volume growth was due to RBC? just given that you're comping a pre-launch quarter. And also, on the food service side, is that increased demand you guys called out, just incremental placements or higher consumption at existing locations?
spk16: Sure. So, the ARBI's contribution was a little less than 20% to that. So, it was a notable contributor, and we continue to be excited about how that proposition is performing. We also saw Buffalo Wild Wings was a strong contributor to that. Chick-fil-A was a strong contributor to that as well. And our own brand, in this case, New York Texas Toast, was a strong contributor as well. The supply chain team has done a really nice job continuing to figure out how to wring out incremental capacity. And our selling and marketing organization has done a nice job of continuing to sell that. I think overall that brand continues to be a really nice story where whether you're looking at the one year or even the two year stack, you're looking at a business that's up, you know, between 20 and almost 25% on the sales line. And we're also seeing it behind volume growth, as I noted here.
spk03: No, that's great. Really helpful guys. And then also on the, on the cost side as well. So I know you've been trending at around 20% inflation for a while. You know, unless I missed it, do you guys have a 3Q inflation figure you can share? And also sort of around the commentary to respect pricing and cost savings to cover inflation. Can we, I guess, be expecting year-over-year margin expansion despite the inflation in 4Q?
spk09: Yes. So thanks for the question. The Q3 inflationary impact was about 20%. And it does begin to moderate a bit in Q4 when we look at the natural dilution from higher prices and higher commodities. We're looking at more of a 150 basis point impact year over year. But then as you look at the offsets, we get a better contribution from the cost savings initiatives, value engineering we've talked about, improved sales mix, and the discontinuations Dave mentioned, insourcing. All of that will help us mitigate that natural dilution we get in Q4. So, you know, we're looking at kind of a consistent gross margin percentage versus the prior year in the fourth quarter.
spk16: And then beyond that, we haven't given specific guidance on the outlook, but I think what I would share with you is, as you might expect, it is moderating. We're seeing oil moderate We're seeing just some of the other categories moderate, like eggs, particularly more recently. But they're being offset by other categories that are continuing to run, particularly sweeteners. So we'll have more to share with you on that as we come out with our Q4 results.
spk03: Okay, perfect. And I'll just squeeze one more quick one in here. So just give me... Yeah, and in the track data that we see, you know, it really looks like Arby's is kind of following that initial rollout track, similar to Chick-fil-A. So I guess just how happy are you guys maybe with the rollout to date? And, you know, is it just roughly in line with our expectations or maybe running slightly ahead?
spk16: I would say it's in line with our expectations. You know, what we've learned with every one of these, Connor, is that it just takes time for our retail partners to get them cut into the shelf to get the right number of facings on the shelf for consumers to become aware and for the items to turn. And that is very, very true with the Arby's proposition. And it's, I mean, across the longer arc of time, I think it's true with... with Buffalo Wild Wings. What you ordinarily see when you come out with a brand like this that, let's say, has awareness because of the restaurant, but doesn't necessarily have retail trial, is retailers initially cut it in wherever they can place it. So usually it's going to be two facings, maybe for the bottom or the top of the shelf. They really don't make a dramatic change to the planogram. Then as that item starts to turn, what happens is you'll see it migrate from the bottom or the top of the shelf a little bit closer to the bullseye, And then they'll change the mix of items. You could go from two or four facing, sometimes to six, and they'll dial in the mix of those SKUs to make sure that they have the right amount. It was true with Olive Garden, true with Chick-fil-A, we're seeing it, and Buffalo Wild Wings, and that same thing seems to be playing out on Arby's. So it's very much running in line with what we thought, and we're just thrilled that, you know, Arby's was willing to partner with us on this proposition. Our team has done a great job of just loving on that business and executing it in retail.
spk03: All right. Thanks for the call, guys. That was great, as always. Appreciate it. Of course. Thank you.
spk00: Thank you. And as a reminder, if you do have a question, simply press star 11 to get in the queue.
spk11: We have a question. One moment, please.
spk00: We have a follow-up from the line of Andrew Wolf from CL King. Please proceed.
spk02: Hi, thank you. A bit of a strategic question, but with the third wave of the ERP implementation now behind you, You've handled different phases from beginning phase to getting things up and running and all that, working with a lot of consultants to doing it yourself. It seems you've addressed, from the outside at least, kind of all the contingencies and all the processes one would go through. And I want to link this to potential M&A since getting a good ERP system is into a decent-sized target would be a big part of realizing synergies of various kinds. Where are you at with the ERP implementation, as you guys think about it, such that you would have enough confidence to say, we can take this target and do all we need to do with integration based on how the ERP implementation has gone?
spk16: Sure. You know, as we pointed out, Andrew, in our script, we've gone through wave one, wave two, wave three. So we've taken the financial backbone and the GL, all of that's on our new system. And then sequentially, we've been rolling in plants and warehouses with our flagship factory and horse cave being really what comprised the better part of wave three. Now, we still have wave four that's out there that we're going to be driving in this current quarter. And really what that's going to be consisting of is bringing the last of our dressing factories online and two of our dressing warehouses. So none of this is going to be new art that we're taking on in wave four. It's just you want to make sure that you have enough people in place to perform hyper care as you're fundamentally changing the way people are working so you can service the business. You know, we fully expect between now and when we're together with you in August talking about our Q4, we will have wrapped up our wave four. And really, our release one, as we call it, will be complete. What we expect to do at that point in time is really to focus around a period that we're calling stabilization, utilization, and training, where after really fundamentally changing the way people work in our factories and our warehouses, just bedding down the system, cleaning up the remnants of broken glass that may still exist, and focusing on helping our people in those plants get far more efficient and effective in how they're doing this work. Now, all of that also creates a window for us to talk about M&A. And that's an item that we are very, very excited about. If you go back really to where we started the journey, this strategic journey you're talking about, we really started out as more of a confederation of companies that had been acquired rather than an integrated company. SAP has enabled us to do that. So from an optionality perspective, it's going to give us the ability to look at small businesses and integrate them into our network very tightly that should glean greater efficiencies. But it also gives us the ability to look at bigger scale acquisitions and do precisely that. It also allows us to follow some of our food service customers or others that want to grow internationally and do that far more effectively than we could have done it on our old platform. So from a timing perspective, like I said, between now and when we're together in August, talking about Q4, we expect that period, release four, or wave four to be behind us. We're gonna be entering into the stabilization period, and at that point, really, it allows us to think about what we've described as all along, Lancaster Colony 3.0, where these strategic acquisitions do come into our consideration set. And it's a period we're super excited about. Really, if you look at the last three years, we went through an intense period of externally imposed change because of COVID and supply chain disruptions. Towards the tail end of that, we've gone through a self-imposed period of internal change because of this SAP transformation. And I mean, the only thing I could figure that would be more complicated would be to move the business to Mars because I got to tell you, you know, I'm fucking colonizing Mars because... For anybody that's lived through an ERP project, for the project team, for the business operators, I mean, even you can say a forklift operator, somebody working in our kitchens, they're forced to go back and relearn the way they do the work. So this external and internally imposed change is winding down. And what excites us is we're just going to focus on getting better, and that's going to allow for us then to figure out how we leverage the strength of the team and our balance sheet. which both are strong. And I feel like it's a chance for us to think about really another chapter in our book where we can go and grow and create opportunities for people and our customers. So it's certainly an exciting period that we're looking forward to move towards.
spk02: Thank you. And a follow-up on the training and utilization part that you'll be entering into fiscal 24. Just a sense of my experience or my understanding of PRPs is after all what you just described, the process, all the training and utilization, it's kind of cumulative. It's sort of crawl, walk, run, and then potentially exponential benefits if it really goes well. Do you feel you need to have some legs behind that before you would get a target acquired? All right, you feel good about implementation, but do you also want to feel good about getting the payoff that you expected? Or do you feel you can implement and learn the payoff simultaneously and just bring in a new business as well?
spk16: I guess the way we're thinking about it here in Columbus, Andrew, is really a reflection of the total weight on the branch, right? How much weight do we have on the branch for the organization? And the last, let's call it the middle chunk, well, really the better part of this whole year has had a lot of weight on the branch. We've had the ERP implementation, but the other thing we've done is we've doubled the size in square footage of our flagship factory. And that in and of itself brings with it a fair amount of complexity. So, you know, we're seeing the weight of the branch from the expansion start to diminish. the weight of the branch from ERP will diminish. So I wouldn't go so far as to say we feel like we have to have the system perfected before we could entertain an acquisition. But I think we'd have to be able to look at the business and look at all the other things that we have going on and feel like there's a sufficient amount of weight available for the branch for us to take on an acquisition and make sure that we could service our strategic customers, retail and food service operators seamlessly.
spk18: Thank you. Thank you.
spk00: Thank you. And as a reminder, if you do have a question or comment, please press star 11 to get in the queue. I'm not showing any further questions. I will turn the call back to Mr. Sosinski for his concluding comments.
spk16: Thank you, Operator, and thank you, everyone, for your participation this morning. We look forward to sharing with you our fourth quarter results when we're back together in August. Have a great day.
spk00: Thank you again for participating, and you may now disconnect.
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