ConAgra Brands, Inc.

Q1 2022 Earnings Conference Call


spk_0: the morning and welcome to the can either brown first quarter of fiscal year twenty twenty two earnings conference call all participants will be and was in only mode should you need assistance a signal conference specialist by pressing the sarkies all a dicey route after today's presentation will be an opportunity to ask questions to ask a question you may press star than one on your touchdowns on to withdraw from the questions you please poseidon to we that you limit yourself to one question and one follow up please note this event is being recorded i would now like to turn the conference over to brian carney investor relations
spk_1: please go ahead
spk_2: the morning everyone thanks for joining us i remind you that we will be making from forward looking statements today and we are making those statements in good faith do not have any guarantee about the results we will receive descriptions of the risk factors are included in the documents we filed with fcc other will be discussing from non gap financial measures references to adjusted items including organic net sales refer to measures that exclude items management the leave impact the compare ability for the period reference please see the earnings release for additional information on our compare that with the items the gap to non gap reconciliation can be found in either the earnings press release or the earning flights both of which can be found in investor relations section of our website con agra brands dot com with an alternate over shot thanks brian good morning everyone and thank you for joining our first quarter fiscal twenty twenty two earnings call today even i will discuss our results for the quarter are updated outlook for the remainder of the year and why we believe that con agra continues to be well positioned for the future
spk_3: why five lays out or key messages for today first as everyone is aware the external environment is incredibly dynamic right now and we see many of these challenges persisting but despite the complex operating situation ongoing dedication resilience and agility of our team enabled us to deliver solid he one results on the back of strong sales we continue to benefit from are proven approach to brand building and the breadth of investments were making to increase consumer demand these efforts drive france health which is evidenced by the continued strength of our sales share and repeat rates across the portfolio as a result we believe our brands are well positioned to continue managing through the current inflationary challenges and support ongoing inflation just by pricing actions looking ahead with reaffirming are keep us out outlook for the year however we now see be slightly different path to achieving that he ps we expect inflation to be higher than originally forecast it but we also see continued strength in consumer demand even above our original expectations we believe that consumer demand coupled with additional pricing and cost saving actions will enable us to deliver adjusted deluded dps of about two dollars and fifty cents so with that is the backdrop let's jump right in we know that our long term performance is a function of the caliber and engagement on our team and that has never been more true than today i'm extremely proud of the teams resilience and agility and adapting to the dynamic environment we're currently experiencing as a result of our teams continued hard work and dedication we've been able to successfully executed through sustained elevated demand and challenging supply conditions first as we've already mentioned consumer demand has remained at higher levels than we expected due to macro forces as well as the unique position of our portfolio this is a great problem the have but it increases the demands on our supply chain at a time when the industry is navigating labor shortages material supply issues and transportation costs and congestion challenges taken together these factors created an upper control limit on the amount of product we could produce and shit
spk_2: and he won if we had the capacity to meet all of the demand our numbers would likely have been even more impressive however our ability to deliver solid results amid this dynamic environment is a testament to our teams ongoing commitment to executing the con agra a playbook each and every day
spk_3: the con agra a playbook the portfolio modernization remains or north star in any operating environment regardless of the external factors that may influence short term demand and supply dynamics in any given quarter we define long term success as creating meaningful and lasting connections between consumers and our brands we believe that our playbook is the most effective framework for delivering on that objective
spk_2: those of you who have followed us for awhile will recall that our modern approach the brand building is more comprehensive than legacy industry practices he said of anchoring our brand building predominantly in broadcast advertising that pushes new messages on old products
spk_3: we enter our investments and our efforts first in developing new modern and superior items them
spk_2: once we created these more modern and provocative products be invested drive the physical availability of those items in store and online
spk_3: finally our investments to drive meaningful wonder one communication to the right consumers at the right time at the right place enable us to remain salient and relevant this comprehensive approach and unwavering investments in commitment to modernizing and premium icing our portfolio continues to pay off and enables us to better manage our branch within any environment
spk_2: and if you can see a flight eight our team delivered solid results during the first quarter as you know or year over year growth rates were impacted by the elevated demand we experienced during the first quarter of fiscal twenty twenty one when we were still in the early months of the pandemic given this dynamic will reference some to your figures
spk_3: throughout today's presentation to provide more helpful context of what we believe is the underlying strained than trajectory of the business you could see on a to your fag or basis organic net sales for the first quarter increased seven percent and adjusted e p s grew by nearly eight percent
spk_2: importantly are solid performance in the first quarter was broad based just take a look at slide nine total con agra waited dollars shared roof zero point eight points on a to your bases in the quarter with share games in each of our domestic retail domains frozen snacks and staples innovation for made the key to our success across the portfolio in one flight ten highlights the impact of are disciplined approach to delivering new products and modernizing our portfolio during the first quarter or innovation outperformed strong results we delivered in the year ago period
spk_3: this reflects not only the quality of the product launch but also our efforts to support those launches with investments in capabilities that deliver deeper more meaningful consumer connections and as you can see our innovation rose to the top of the pack in several key categories including snacks sweet treats frozen vegetables and frozen meals our performance is a clear testament to the innovation and marketing engine con agra and we believe the solid reputation we built with customers and consumers in addition to developing superior product we also remained focused on physical availability during the first quarter through both brick and mortar and online
spk_2: flight eleven demonstrates how our ongoing investments in ecommerce continue to yield strong results once again we delivered quarterly growth in our one billion dollar ecommerce business both against our peers and as a percentage of our overall retail sales we outpaced the entire total edible category in terms of ecommerce retail sales growth during the first quarter just as we did throughout fiscal twenty twenty one
spk_3: e commerce else now represents more than nine percent of our total retail sales more than double what they were just two years ago
spk_2: as we mentioned earlier are solid top live performance during the first quarter was driven by strong demand robust brand building investments and inflation justified pricing actions
spk_3: slide twelve details the extent of our pricing options to date few key points to keep in mind first we began implementing actions on some of our domestic retail products in the fourth quarter of fiscal twenty twenty one in response to the inflation we began to experience last fiscal year
spk_2: the majority of our domestic retail pricing actions however just started to hit the market at the end of que one in response to the inflation we spoke to you about on our to for earnings call in july
spk_3: as a result the benefit in a quarter is less than what we expect to see going forward you can see this playing out in a consumption data from the last four weeks all of which are part of our fiscal second quarter during this period or on shelf prices rose across all three domestic retail domains looking ahead our original plans for the year included additional inflation just by pricing in future period given the heightened inflationary environment however we now expect to takes incremental actions beyond those original plan any of these actions have already been communicated to our customers and the benefits will be weighted towards the second half of the fiscal year we'll keep you apprised but it's important that we stress that our pricing actions are not a blunt instrument we take a fact based approach to pricing within the portfolio we use that data driven approach to lasted cities and thoughtfully execute actions to align with customer windows we look ahead we remain confident in the fiscal twenty twenty two if yes guidance we outline on the fourth quarter call but we now expect take a different path to achieving that guidance as mentioned we now expect inflation to be higher than originally forecast it however we believe that the combination of continued so trained them consumer demand incremental inflation justify pricing and additional cost savings actions will enable us to offset the impact of that inflation
spk_2: i'd like to briefly unpack these factors starting with the update to inflation expectations
spk_3: you can see a flight fourteen we currently expect gross inflation to be approximately eleven percent for fiscal twenty twenty two compared to the approximately nine percent we anticipated at the time of our fourth quarter call the bulk of the incremental inflation can be attributed to continue to increases in the cost of proteins edible fats and oils grains and steel cans since or few for call i want to emphasize that this is our best current estimate of gross inflation for the full year and does not account for the impact of supply chain productivity improvements for hedging they will provide more color on inflation and the various levers were able to pull to help offset it's impact even in the face of this acutely inflationary environment we remain squarely focused on continuing to invest in our brands and capturing the strong consumer demand and we're pleased to share that the consumer demand were experience we experience during the first quarter exceeded our prior expectations you can see on fly fifteen or total company retail sales on a to your cagr basis for up nearly seven percent in the first quarter with strong growth across are frozen snacks and staples domain and when you peel back the only further you find even more evidence to underscore the durable strength of our top line performance the chart on the left side of flights sixteen jet seven straits that we you to grow our household penetration during the first quarter building upon the significant new consumer acquisition we've achieved over the past year and a half the what i believe believe is even more encouraging is the chart on the right we didn't just acquire new consumers we have to them the data shows growth and repeat race that demonstrates our new consumers discover the incredible products and tremendous value proposition of our portfolio for proud that our products are resonating with consumers that those shoppers keep coming back for more importantly or performance on these metrics household penetration and repeat rate has not only been strong in the absolute but relative to the competition as well for also encouraged by the elasticity of demand for our portfolio which has been better than previously expected flight seventeen demonstrates that our pricing actions today i've had limited impact on demand as i mentioned most of our pricing actions taken it gets to date began to appear on shelves at the end of que one and you can see how that dynamic is being reflected in the data for september which is part of our second for
spk_2: we continue to be cautiously optimistic that are lasted cities will remain favorable as the full array of pricing enters the market as evidenced by are strong penetration and repeat race a growing number of consumers have clearly discovered the convenience and value that are retail for folio provides taken together the net result of these factors i just details is the reaffirmation of our p s guidance and margin a few updates on how we expect to get there
spk_3: we're increasing our ganic net sales guidance to be approximately plus one percent up from approximately flat at the time of our cue for call we are reaffirming are adjusted operating margin guidance to remain at approximately sixteen percent we're updating our gross inflation guidance to about eleven percent and we are reaffirming are adjusted dps guidance of approximately two dollars and fifty cents
spk_2: or i turn to call every day i want to briefly reinforce some of the longer term fail when we believe will benefit us for years to come this includes enduring trends that predates the coven eighteen pandemic and new consumer behaviors adopt the over the past eighteen months
spk_3: is a reminder we have a proven track record of successfully attracting lenny oh and genji consumers at a higher rates and our categories as a whole by attracting younger consumers now we create the groundwork for future growth not only do these younger generations offered the opportunity to drive lifetime value they're larger than the jan x generation that immediately preceded them historically younger adults have eaten at home less than older generations a meaningful shift toward at home eating tends to happen during the family formation years in particular we know that annual frozen category spend per buyer increases in households with young kids and any
spk_2: creases further as the kids grow up
spk_3: importantly almost half of millennials have yet to begin having kids and we fully expect they'll consumption of con agra products will grow along with the growth of their families another enduring trend is the growth of snacking which has long been the fastest growing occasion and food and shows no signs of slowing down we have a very strong two billion dollar ready to eat snacks business that spans multiple sub categories where we either have the fastest growing brand the largest brand
spk_4: for both
spk_3: coburn eighteen pandemic has only serve to accelerate these existing trends and create additional long term growth drivers one of the primary drivers for more at home eating is the shifting workplace dynamics that are meaningfully changing weekday eating behaviors this includes for the contract and workforce and the rise of remote work it's more people work from home for exit the workforce the more likely these people are to eat at home particularly on weekdays fortunately some aspects of remote workforce adoption are expected to be permanent the way we work is changing and that's driving changes in consumer eating habits as well more time at home also means more time devoted to preparing meals younger consumers are acquiring new skills and developing new food habits at a formative age the behavioral science tells us that when people learn to cook an early age they continue to cause elevated levels as they get older and consumers of all ages are rediscovering their kitchens and cooking more at home cross all these long term tailwind we believe our portfolio is uniquely positioned to meet the needs of today's consumers are frozen portfolio offers hyper convenient meals and inside perfect for the quick work lunch or family dinner our snacks and sweet treats portfolio caters to those looking to experience old any time flavors at home while enjoying time with friends and family and are staples portfolio offers the simple cooking a meal enhancers that both experience and first time cops are seeking
spk_2: summary on average portfolio has delivered against the recent behavioral shift setter than the competition
spk_3: and as we move beyond the pandemic and millennials and engines years continued age we believe that our brands are well positioned to become an even more regular part of their routines now that i've highlighted our performance for the quarter and strong positioning for the future i'll turn it over to dave to provide more details thanks john and good morning everybody i'll start by going over some highlights from the quarter shown on fly twenty one as a reminder er year every your comparisons reflect the laughing of extremely strong demand for at home food consumption during the early months of the pandemic for that reason are also including to your pay harrison's for a number of important metrics to provide help or context regarding the underlying health of our business
spk_2: we are pleased with the overall results of the first quarter which as shown disgust reflected our ability to successfully navigate the current dynamic environment
spk_3: organic that sales declined by point four percent compared to a year ago and increase seven for set on a to your tag
spk_2: adjusted gross profit and adjusted operating profit both decreased year over year but were flat on it to your basis demonstrating our ability to offset the double digit inflation experienced in the business during the course i also want to highlight the increase in our advertising and promotion or stand on both a one in for basis
spk_3: these investments reflect our continued commitment to building and maintaining strong brand learning to fly twenty two i'd like to spend a few minutes discussing our that sales for the quarter
spk_2: on an organic that sales basis the point four percent decrease during the quarter was driven by a two percent decline in volume from laughing last year's elevated demand
spk_3: this decline was almost entirely offset by favorable brand next and the pricing actions we've taken today in response to the inflationary environment there are two items i want to call out on price mix first as a reminder the majority of our domestic retail pricing actions just started to hit shelves at the end of two one so the benefit in the quarter was limited compared to the benefits we expect to receive over the course of fiscal forty two seconds or one point six percent benefit from price mix lapses seventy basis point benefit in the prior year period that was associated with the true up of fiscal for fiscal twenty fourth quarter trade expense across without that item
spk_2: the current quarters price makes benefit would have been plus two point three percent divestitures resulted in a one hundred and ten basis point decline in that sales during the quarter and foreign exchange provided a fifty basis point benefit together these factors drove a one percent decline in total con agra net sales for the quarter compared to a year ago by twenty three shows or net sales summary by segment both on a year over year
spk_3: and a two year compounded basis as you can see we've had strong to your compounded net sales growth and each of our three retail segments with a slight decline in our food service segment net sales for the entire company have increased seven percent on a to your tiger basis
spk_2: our to your annual sales growth rate for the domestic retail segments is tracking closely with the retail consumption growth achieved over the same period
spk_3: turning to adjusted operating margin fly twenty four details the puts in takes of our first quarter results
spk_2: first quarter inflation with sixteen point six percent driving are adjusted gross margin decline of five hundred and thirty basis points compared to a year ago
spk_3: we delivered five hundred and fifty points of benefit from our margin lever actions in the quarter inflation justified pricing supply chain realize productivity cost synergies associated with the pinnacle foods acquisition and lower pandemic related expenses however these benefits were more than offset by the very significant inflation
spk_2: note that the sixteen point six percent inflation shown on the slide represents gross market inflation for que one and does not include hedging for sourcing benefits
spk_3: we capture hedging as part of our realize productivity for the first quarter our net inflation inclusive of hedging with high single digits aren't you want adjusted operating margin was also impacted by year over year changes to a np and adjusted as cnn as i previously mentioned we continued to increase our investments in a in pay in the quarter
spk_2: you just operating profit and margin by segment for the quarter or shown on flights twenty five as a reminder we expect our first quarter this fiscal year to benefit the lead from our inflation justified pricing actions
spk_3: it's also worth highlighting again that are adjusted operating profit is flat on a to your basis
spk_2: over a two year period we have completely offset double digit inflation while also increasing investment in the business
spk_3: as you can see on flights twenty six or you wanna just a dps of fifty cents was heavily impacted by inflation as well as by a slightly higher tax rates these headwinds were partially offset by strong performance from our our did mills joint venture lower net interest expense and a slightly lower average diluted share can do to our share repurchases during the quarter learning to fly twenty seven we ended the quarter with a net that's even the ratio of four times which was in line with our expectations and reflects the seasonality of the business our cash flow from operations and free cash flow were also both in line with our expectations for the quarter
spk_2: are catholics increased year over year as we remained focused on continued capacity investments to maximise physical availability of our products
spk_3: we also continue to return capital to shareholders during the first quarter
spk_2: we repurchased approximately fifty million dollars of common stock and paid approximately one hundred and thirty two million dollars in cash dividend as a reminder the board of directors approved a fourteen percent increase to our annual dividend in july we paid our first dividend at the increased quarterly rate of thirty one and a quarter cents per share for one dollar and twenty five cents per share on an annualized basis
spk_3: shortly after the conclusion of que one as we've already detail today we continue to experience cost of goods told inflation at a level that is both significant and in excess of the level projected at the time of our cue for fiscal twenty one earnings call we now expect gross cost of goods sold inflation to be approximately eleven percent for fiscal twenty two we previously expected gross inflation of approximately nine percent this heightened inflationary pressure is coming from increases across many inputs particularly proteins edible fats and oils grain and metal base packaging we're also seeing increasing costs and transportation given marketplace dynamics we have strong plans in place to mitigate the impact of this inflation
spk_2: first we will leverage sourcing and hedging given our sourcing and hedging positions we only expect two thirds of the two hundred basis points increased and gross inflation to impact of fiscal twenty two piano
spk_3: regarding quarterly flower we expect about half of the net impact from this heightened it's inflation to hit in the fourth quarter weeks that the other half to impact you to and two three about equally as a reminder the benefit of hedging actions is classified as realize productivity in our schedules in addition to hedging and sourcing we expect to have a number of drivers to help offset inflation in fiscal twenty two sean already detailed these drivers include higher than expected consumer demand lower than expected elasticity of demand an incremental inflation justified pricing beyond our original plan sean noted the benefits of our incremental pricing action will be weighted towards the second half of the fiscal year we're also taking additional actions to enhance supply chain productivity through the balance of fiscal twenty two and as always we will maintain a disciplined approach to cost control which continues to be a hallmark of our culture we now have additional cost savings actions plan beyond what was included as part of our national guidance for the year in summary we intend to leverage are full range of margin drivers to offset the impact of inflation we expect to realize the benefits from these drivers as the your progressive with the benefits weighted towards the second half of the year we continue to expect margins to improve sequentially over the remainder of fiscal twenty two the updated inflation expectations the higher than expected consumer demand and a comprehensive actions we are taking to combat rising costs are all reflected in the updated fiscal points your guidance we issued this morning
spk_2: we remain confident in our original adjusted mps guidance of approximately two dollars and fifteen cents for the year
spk_3: but the path to achieve that guidance has changed we now expect organic net sales growth of approximately one percent compared to our prior expectations of approximately flat growth also we expect our just it operating margin to continue to be approximately sixteen percent but sees the modest compression vs our original forecast we expect the increase in dollar profit from higher net sales together with incremental cost savings to off that the incremental net inflation dollars
spk_2: as i explain on last quarter's call this guidance is our best estimate of how we were for will perform in fiscal twenty two but our ultimate performance will be highly dependent on multiple factors including first how consumers purchase food as food service establishment continue to reopen and people return to in office work and in person school second the level of inflation we ultimately experience third elasticity of demand impact as consumers respond to higher prices and finally the ability of our and to and supply chain to continue to operate effectively as the pandemic
spk_5: continues to evolve
spk_2: before turning it over to the operator for q and i i want to reiterate sean's comments regarding our confidence in the resiliency of our business
spk_3: our ability to deliver solid results amid such a dynamic environment reflects the continued dedication of our team as well as the strength of our brands and the con agra a playbook thanks for listening everyone that concludes my remarks en el paso to the operator for questions
spk_0: we will now begin a question and answer session to ask a question you may poseidon one on your touch chances if you're using a speaker phone please sit up your hands before pressing a case to withdraw from the question kids a sad song on things we ask that you limit yourself to one question and one follow us our first question comes from andrew with our of cyclists please go ahead
spk_6: great thanks very much maybe to start off you know many companies in the in the food space or certainly seem better topline line but you know had done incremental trouble servicing that that demand efficiently due to the labour challenges and sort of other supply chain disruptions biggest can address looking for a for higher sales than initially expected and and sort of a similar margin for the full yourself to really improved up
spk_7: profit dollars i wasn't me to provide out maybe a bit more tolerant sort of the key buckets and and quantify some of those keep puts it takes for us because i guess that's where i'm getting a bit of pushback back this morning and terms of us he ordered the higher operating profit that you would now see in light of all these arms you know what of all these challenges and then secondly just what would be the offset to the better operating profit for the full year they keep cps roughly in a similar place for the full your thanks so much
spk_3: the morning to do let me take the first party question dave you can you can add your comment little bit on the supply chain situation as europe's implying eyes with respect to supply chains it is a daily grind so i am incredibly appreciative and crowd or team clearly when demand from consumers is this strong at the same time that the supply constraints service can suffer and to manage that to the best of our abilities and maximize our sales we attack each of the root causes as aggressively as we can i so with it's with respected labour environment it is about recruiting as aggressively as we can and then keeping people healthy when they get in the door
spk_2: with respected materials and ingredients it's about keeping the pressure on suppliers and having contingencies
spk_3: and with respect to logistics it's about being his creative and aggressive or as we can and so in times like these it does come down to agility and resilience and that's really how our culture is wired and yeah we talk about having refused to lose attitude everyday and in the end you know the supply chain challenges will
spk_2: ultimately bait and when they do with the fact that our consumers have such affinity for a product set us up very well for the future so that's that's really our goal is to do everything within our power to get as many boxes of our products as we can help out the door to help offset some of it because pressure stadium and add anything to that
spk_3: yeah let me let me address your operating profit margin question andrew as i mentioned am i prepared remarks given the dynamic of increasing profit from are higher sale dollars while setting the dollar impact of inflation the map on that compressors margins a bit so weak that fire sales at same operating profit so our guidance on operating margin was approximately sixteen percent we were expecting to tip a bit above that and previous guys now are expecting to tip for a bit allow that were still sort of got into approximately sixteen percent so that's that's that's the dynamic on your operating profit question is it is your look at this kind of the bridge to to roughly how we get their last quarter i gave a bridge just updating it now al we expect eight hundred basis points of operating margin headwind from the eleven percent gross inflation with our inflation going up respect about four hundred and ninety point so operating margin tell when from the class coming out including our realize productivity and that includes are hedging insourcing as well as are lowered cut lower
spk_4: how the costs and the pinnacle synergies and weeks back about one hundred and ninety basis points of operating margin tailwind from all of our price makes actions including our pricing merchandising our products and segment next and then a little bit of a headwind on on sg and eight operating margin so
spk_7: that sort of that the rough bridge to get your to death
spk_6: little bit below sixteen percent right and then just be mvps thing about the same
spk_3: i guess now that you've kind of said talk about the marginal little that i guess there's no no significant change in sort of below the line items necessarily person what you'd expect and previously
spk_0: now we have the easy we had a good quarter for artists and so i might have a little bit a benefit their but our tax rate was a tech higher as well so they kind of wash
spk_8: thank you the next question it and can goldman a jp morgan say go ahead
spk_9: oh hi thank you
spk_3: attorney is david or any notable tailwind your headwinds just as we think about model in the second quarter yeah i know you don't give for guidance and they that's to silly can avoid some surprises guide i used to said many times the progression of fiscal twenty two pricing and savings be back have loaded so hopefully people have gotten that message but is there anything specific we should be reminded of additional trader cool apps anything like that
spk_9: yeah can i would tell you is there's nothing like that really the second quarter we're going to see more of a benefit from price next versus what we saw in the first quarter the gross inflation is gonna be roughly the same as we saw in the first four so it'll be the second half where the percentage of gross inflation will started six why and it'll still be up at it will be at a lower rate the second quarter inflation gross inflation's going to be roughly the same such going to be the increase benefit from price next
spk_8: okay thank you for that and i'm one was a me sean
spk_3: you seen some labor strikes at model delays and now looks like person fairly major ones at kellogg's
spk_2: as you look at your relationships with your employees in general how much with do you think there is for i get a similarly unfavorable events are with can aggregate i realize if things are so hard to forecast i'm just curious for your your brother saucer
spk_3: yeah you know it's as as i just mentioned in my in my earlier remarks it's a it's a tight labor market and you know it's it's takes a lot and ingenuity and creativity and effort
spk_10: you know to track and like he's employees to the best of our ability so yeah we're obviously always trying to cultivate strongest possible relationships with our employees are so that the you'll feel good about coming to work every day and i feel good about where we sit right now but it's it's you know there's no denying it's it's it's a daily grind
spk_0: and and and i'm really proud of what the team is doing because we are able to as you saw in our he wants sales to produce that levels a while the service may not be where we wanted to be it's it's very strongly absolute that's our goal is to keep keep trains wrong
spk_11: right elsa much
spk_2: the next question had some david palmer as ever choir isi please go ahead
spk_11: thanks to just a quick when dave on the on the inflation friends the second half of siskel twenty two what's your visibility on that inflation and perhaps just specifically what is that rates that you anticipate for the second half that goes with eleven percent for the for year as quick follows yeah me we were sixteen little sixty point six percent few one will be in that general area for que to so obviously for total levin percent were we're gonna hire single digits for the second half
spk_2: and and visibility on that is at
spk_3: fairly contracted or was could you give us percentage younger i mean you can a year to go were thirty five to forty percent locked in for the rest of the year so you know there's just as i've talked about in the past david there's there's just certain you know commodity like proteins were were limited our ability to lock and
spk_11: you know things like get a big oil's we we do a better job and and and can lock and more south or that's where we are right now so it's our arts our best estimate right now are procurement team does an amazing job really understanding the dynamics and each one of these categories you know really every one of them varies you know whether it's you know weather related empire tax sort of wheat and resins more you know that wales as more about like capacity in terms of demand an end you know our noble diesel so every category just has different dynamics and are all over itself but that's our best call as of now and that the follow up really is about the long term i mean you had some long term targets eighteen percent plus but margins wanted to percent topline you're obviously going to be blowing away that organic sales number but there's a bit of an interesting timing and dynamic cost and price environments this that's gone
spk_3: on this year i'm wondering if you still see that the eighteen percent plus being something that's him play over the medium term can you get back there in other words is the sixteen percent that were at this year or roughly is that really a time insane or do you think about things maybe definitely more in terms of getting back to gross profit dollars not gross that save the margins that you would have had how are you thinking about that a pass it on a david a jaunt on yeah obviously we're not going to get into specifics today on future margins as you know we plan on doing an investor meeting in the spring or but also as you know our focus is not only on absolute margin
spk_0: fortunately margin trajectory in the future and we've always had levers and place to helpless capture a positive trajectory as we move forward not to mention you know the the pricing actions that were taking today sets of stuff well we believe for future in terms of overall price realization per unit and march and so will leave it at that for
spk_12: now
spk_13: wilshere more as we get toward our master me
spk_14: thank you
spk_12: the next question is from alexia howard atheism like our heads good morning everyone
spk_3: the morning can i ask about the productivity outlook for the year if he i'm a huge applause out or the impact of hygiene and maybe also separating out the impact of the closet related costs coming out are you able to get a sense that the underlying productivity are in improvements and and so much more ah at the cost synergies from the tackle deal of the remaining hear how are we coming to the tail end of that
spk_15: the only star with without the last question first we have about ten million left than the pinnacle synergies ten million dollars a year to go and we should have those all and by the end of the fiscal year or as i mentioned previously weeks back to four hundred ninety basis points of of margin wind coming out of our realize productivity it's it's it's
spk_12: a little difficult to get really precise with how much as hedging sourcing birches you know how much is just core realize productivity there's a lot moving around there's a little bit of overlap they are you know is where you know driving savings because of you know scale we have and buying a particular commodity but than that commodities inflating and and where we're heading itself you know it's all in one bucket and it's why we reported that way so you know we've we've historically averaged three percent realize productivity and we're still on that same track you know there's obviously a lot of other costs floating around
spk_3: but we still feel really good about our core realize productivity delivery that's enough for four hundred ninety basis points of benefit
spk_16: site that that's what i would zack
spk_0: right thank you and then as a follow ups and some leverage at four times i mean obviously given the pandemic related benefits that you've enjoyed as as several court is now there was a bit of a bump to either das at might we expect elaborate to take off a not so to i'm over the next and toddler court is just just because the
spk_17: the the down on his mighty normalizing
spk_18: yeah like the a so so this level the four times is in line with our expectations and it reflects the seasonality the business as we increase our spending on him and story to prepare for are heavier sales quarters with your cue to que three so we yeah we expect leveraged to peek into to and then come back towards our target level and the second half great thank you very much i'll pass it on
spk_3: the next question it's i'm jason english and goldman sachs please go ahead a commodity folks like a slimy and
spk_18: opponents a couple of quick questions here first the outlook for inflation to moderate from sixteen percent gross inflation in the front half of the year to somewhere the high single digit range
spk_3: what sort of costs of us are underpinning that are used to minute that spot costs come in or used to me spot cause continue inflate the rate of inflation just moderates as we lot prior year any more specificity or collie to give to help us understand that would be appreciated
spk_11: get that the biggest thing their jason is the laughing right so we really started to see inflation take up in the second half of last year really take up and que for and so were we are laughing or know bigger bases and so
spk_18: you know it's it's kind of more the run rate of of kind of where we are but i'm that's the biggest driver for second half being more high single digits
spk_3: go on just a paraphrase make sure i understand it it sounds like a senior for your kind of assuming spot runs flat from here and we cycle the run up last year which caused moderation cracked yeah on and then in in terms of the pricing build can you put some teeth others for a small i understand that are underlying absent laughing at the try to crawl you're running up to thirty depths of price growth this quarter what does that look like i used clearly there's a step up from the price increases he took the end of the quarter or would expect in medieval it means measly higher price in the second quarter where are we going to be run regime at the end of the year yet so i last call i talked about price makes for fiscal twenty two or three to four percent
spk_18: given this update were really more it four percent four percent plus for the year
spk_0: so as yet you know obviously with us delivering the one point six percent price mixing que one
spk_19: aperture sorted are higher four percent kind of to go so that's what weeks backed up we we took our we took some pricing the end of fiscal twenty one but we talk a big amount of pricing belt last month of que one so we really didn't see the benefits so we'll start seeing that benefit starting in in future oh that really supports that kind of estimate for total price match join anything you want agitated additional that we've got more rob pricing coming in the second half and some of which was not contemplated in our original plan we gotta take more yet we will i saw prince my face i in the meantime you know demand has been very strong well last these have been negligible
spk_3: sure for sure makes sense thanks guys as not i give the next question a term robert moscow of credit suisse please go ahead
spk_19: i thank you for that the question
spk_3: hi dave i was surprised to not here you mentioned freight and transportation in the increasing your in inflation guides from nine to eleven erase talk about food and packaging why is that it is that located elsewhere no it's it's in there and i mention frightened transportation in my prepared comment so that was i did mention that am i was giving example the particular commodities and dynamics but you know absolutely you know it's a it's a very challenging environment right now with transportation in terms of you know not just cause caused by you know the reliability of trucks and and you know you staff opted to the ship and making sure that trump's truck show up and so you know there's a lot going on there so that that's part of the eleven percent for sure
spk_9: okay so that's definitely okay thank you don't also about the timing of the new price increases can all of that happened in fiscal twenty two
spk_3: or to some of it's spill over into twenty three just because it's tiring
spk_20: while the actions roberts will take place within twenty two and so will start getting the benefits in twenty two undoubtedly and then some the benefit will continue to spill over into into next year where we will be laughing
spk_0: a period where we didn't have the pricing place so that's one of the reasons we think the set up looks good as we kind of get get through this disease cycles are usually have to prove to be transitory in terms of rate of change and said the fact that surprising a broad based way will be in place and then the rate of change that
spk_11: we'll update or that is where the goods that applies
spk_21: okay but all that can hit the shelves in fiscal twenty two right yeah we should we should you should be seeing it in the scanner data apps of the next wave that comes in second half you you'll see show of the scanner data as we get a second
spk_3: okay i thank you the of
spk_2: the next question is from brian's the lane of bank of america place that had i thank you operator to morning everyone
spk_3: so first question for me just days on now we've talked a lot about inflation but just can you comment at all on on maybe any tightness in availability of supply of of inputs in and more specifically
spk_21: you know like the tomato crop in california with was stressed by that he'd over the summer of love hearing that there's some tightness in availability of of steel cans arm and maybe some other produce items are just can you can you just give us any any color on on you know like availability of raw materials and and that at all having an impact on on i guess basically sales right are you at all supply can strangest just on availability of of raw material
spk_22: yeah brian's sean are you know that cities with my earlier comments within the constrain as i'll call it within supply chain you know the three buckets i mentioned or labor obviously materials ingredients and and which is to stop we're working all three of those pockets aggressively every day and you know there are periodically of the of
spk_3: particular by input on that will get strength and so we've gotta go you know the extra mile we get our fair share of what's available but also have contingency plan so that we can you know ships or mix is necessary if we have to go through a period where we get shortage on a particular greedy we will try to make it up with other products that we've got capacity to to kind of push out the door stuff you know this this is why described this is kind of a daily grind is you know this is a year of perseverance where we've gotta make sure we are on top of what is available get maximum quantity we can keep our people healthy get the truck to get the products to our our customers get as many boxes of our stuff out the doors we can because on the other side of that challenge is tremendously strong consumer demand and and we want to take full advantage of of that because our depth of repeat you know helps us captured a lifetime value these consumer so you know it it's it's it's volatile we're dealing with every company or spaces dealing and i think our team's doing a really good job interfaces and then get just as follow up i guess in terms of the the strong the man and the pricing is just i tell can you talk a bit about how you're approaching some of the holiday windows on you know i guess is worth thinking about pricing is a function of list price increases and you know promotional frequency and death
spk_23: on is is there more of an opportunity to take advantage of those hollow our that yelled not needing to promote as aggressively i guess in the holiday windows on just simply because demand a strong and you know those are theories were still going to show up and in shop anyway or is it more getting more price realization
spk_0: outside of those those holiday windows
spk_24: yeah you know it's interesting o'brien somebody asked me recently i why don't our customers just try to sheets demand our by by taking more more price than inflation is is my answer was that's not the way customers tend to behave i can't say i've ever ever seen a price the inflation to steer demand downward on but the the have been willing to accept pricing comments and and on our and i when you're in a strange supply situation we do look at promotional reductions to keep demand in check and not exacerbates supply challenge yourself you know it's we work with our retailers and some of the stuff that they like to get out on the floor during the holidays you've got to aspects
spk_3: those holiday promotions you've got it's just six the location getting it out on the floor and then you've got to the amount of magnitude of a discount certainly we want to help or consumers to find our products during the holidays but the magnitude of the discount or does not sides need we don't need to fan the flames of supply challenges so you may go to a very fair reasonable point much how we we behave during the height of a pandemic with respect to promotion
spk_24: get a shot they said
spk_25: spread
spk_3: the next question is some prayer or august sense as barclays we'd go ahead okay thank you so much for taking a then they appreciate your comments around sure the seasonality at the edge of things just given the difficulty and sort of parsing really similar trends in the last couple of years as we think about to get forward looking trends is this cadence and leverage that you do
spk_26: sky survey and up take into the first quarter continuing into the second quarter in terms of not leverage before coming back in there in the back half something that we should expect on a go forward basis
spk_0: yeah for of so that is we look at fiscal twenty two look like up and future will peak and few to and then we'll come back down and que three and then few for that it is it's hard to look as to hercules because of you know that the emanate activity we've had bites if you hadn't more normalized pattern that's what you would see for the business
spk_2: given the seasonality because we sell we sell lot of product in our second and third quarters and said there's a lot of our investment in working capital as we kind of go through the first have the yeah that's that's sort of how it will play out okay that's helpful and then as we think about sure that improvement in the back to we anticipate most of that
spk_0: i mean i guess just given that dynamics as here so much of that should come from an additional that pay down whether it's sort of cp oriented or any other potential that action that they take

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