WK Kellogg Co

Morning. Thank you for attending today's WK Kellogg Co Q3 earnings call. My name is Tamia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Karen Duke, Vice President of Finance and Investor Relations. You may proceed.

Thank you, operator. Good morning, and thank you for joining us today for a review of our third quarter results. I'm joined this morning by Gary Pilnick, our chairman and chief executive officer, and Dave McKinstry, our chief financial officer. Slide two shows our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for the company's future performance, are forward-looking statements. actual results could differ materially from those projected. For further information concerning factors that could cause these results to differ, please refer to the factors listed on the disclaimer slide, as well as those in our SEC filings, including the risk factors section. As we discuss our results today, unless noted as reported, we'll be referencing the respective non-GAAP financial measure which adjusts for certain items included in our gap results. For periods prior to the spinoff, results are presented on a standalone adjusted basis. For periods after the spinoff, results are presented on and referred to on an adjusted basis and compared to our 2023 standalone adjusted results. You can find definitions of each non-gap measure and gap to non-gap reconciliation within our earnings release and in the appendix to the presentation. I will now turn the call over to Gary.

Thanks, Karen, and good morning, everyone. Thank you for joining our third quarter call. Today, I will discuss our financial results and guidance, in-market performance, as well as our back half commercial activations. I'll then turn the call over to our Chief Financial Officer, Dave McKinstry, who will provide additional detail on our Q3 performance and outlook for the year. We'll close out the call with time for Q&A. Let's start by looking at slide three. It's fair to say that the business is performing largely as we expected. For the quarter, net sales increased 0.7%, driven by a balance of improving volume and price realization. Last quarter, we told you we expected stronger second half sales performance due to improvements in our commercial execution and the lapping of the challenging environment that emerged in Q3 of 2023. Indeed, our sales trajectory did improve and was driven by quality commercial programming, better back-to-school activation, continued strength in Canada, and improved performance in non-measured channels. And our supply chain performance is improving as our team continues to deliver better levels of customer service, allowing retailers to replenish inventory to more normal levels, which positively impacted our shipments. Our top line performance, along with continued operational focus and discipline, led to another quarter of gross margin expansion. For the quarter, we achieved gross margin of 29.4%, a 90 basis point increase versus last year. This performance benefited EBITDA, which grew 27.5% in the quarter versus prior year. Overall, we are pleased with how the team is executing and our ability to deliver on our financial commitments in this challenging environment. Our Q3 results puts us in a position today to reaffirm our 2024 net sales guidance and raise our full year guidance range on EBITDA, which is now expected to grow 5% to 6%. Let's turn to slide four to discuss category trends and our performance. The US serial category dollar sales, as measured by Nielsen XAOC, declined 1.4% in the quarter with volume declining low single digits. Both dollar sales and volume improved compared to last quarter. Shopping patterns for the quarter continue to lean towards value-focused retailers and channels. Club and dollar again saw positive dollar consumption growth. This quarter, both were up approximately 3%, driven by a mix of increased display activity and TDPs. Interestingly, while consumers display value-seeking behavior, The granola and premium segments of cereal continue to deliver strong growth. Each saw double-digit dollar consumption growth through positive volume and positive price mix, demonstrating the breadth, affordability, and overall value cereal delivers. Year-to-date, dollar consumption for the category is down 1.2%. The category has performed in line with our planning assumptions and is providing the stable backdrop to execute our strategy. In the U.S., our consumption performance measured by Nielsen XAOC improved sequentially to down 1.8% in the quarter due to increased merchandising with key customers and successful seasonal activations, which I'll talk more about in a moment. We continue to maintain our share position at 27.6%, which improved modestly versus last quarter. We saw share gains during the back-to-school period of August through early September on our participating brands, which we'll discuss in more detail. On volume in the quarter, we also saw sequential improvement in line with expectations and unit volume turned positive, driven by our PPA strategy, which focuses on ensuring we're meeting the consumer with the right product and the right channel. In Canada, our team delivered another solid quarter and outperformed the market, benefiting from quality back-to-school execution and new product introductions. This is a good example of how our increased integration and the new ways of working at WK, where there is fast and effective sharing of ideas across the business. For the year, Canada has increased their market leading position 110 basis points to 38.8%. Additionally, our Caribbean team is executing well and reached a 40% market share during the quarter. While the Caribbean is a smaller market for us, the team's accomplishment is certainly noteworthy. On page five, you could see the performance of our U.S. portfolio. As we said last quarter, our portfolio performance is more easily understood if you look at it in three groups, our core six, the next core, and natural and organic. As a reminder, our core six represents approximately 70% of our sales and includes our six largest brands, which are shown on the slide. The next core contains iconic brands like Corn Flakes, corn pops and apple jacks, and represents approximately 15% of our sales. And finally, Kashi and Bare Naked make up our natural and organic group. In the quarter, five of our core six brands grew or maintained share. This group continues to benefit from the performance of Frosted Flakes and Raisin Bran, which remain two of the fastest growing brands in the category. That said, we continue our work to improve the trajectory of Special K, which, consistent with its recent performance, was down 40 basis points of share in the quarter. While it will take time for the brand to perform to our expectations, the team has a more complete commercial plan for 2025, and we are already getting started with the launch of our new special for a reason campaign. Excluding Special K, our core six was up 30 basis points of share in Q3, and is up 20 basis points of share year to date. Moving to our next core, Corn Pops and Apple Jacks were key brands during our back to school activation and delivered positive dollar consumption in the quarter. In fact, when you look year to date, Corn Pops and Corn Flakes have gained 10 basis points of share, benefiting from improved supply. Finally, our natural and organic group is showing signs of sequential improvement as we're starting to see the positive impact of innovation and our retail sales execution. Bare Naked had improved supply in the quarter, and saw nearly flat dollar consumption along with positive units and volume, affirming that when the brand is on shelf, it performs. We spoke to you about improving supply last quarter, and we are pleased with the meaningful improvement in market. Continuing to build momentum in the growing N&O segment is a big opportunity for WK. Year to date, the majority of our brands have held or gained share, with many growing meaningfully ahead of the category. This performance, driven by improved supply and maturing commercial and sales execution, gives us confidence in our portfolio and our strategy. Now let's look at our back to school activity on slide six. Back to school is an important time of year for Serial. Parents are transitioning to a new routine centered around the morning and looking for our brands to help get the day started right. We are pleased with our first back to school programming as an independent company. Our teams designed commercial activations with the needs of parents in mind, ensuring we show up for consumers in feature and on display. Our end-to-end approach included three elements. First, our new marketing model ran multi-brand campaigns for in-store and digital shoppers, highlighting our back to school brands and what we call our feeding reading promotion, which includes free children's books with the purchase of our products. Next, During the key weeks of back to school, our retail sales force brought this idea to life in store through increased display with key retailers, which drove increased dollar and unit share. And finally, this was enabled by improved supply. Improvement in overall equipment effectiveness, which we refer to as OEE, and customer service are allowing us to return to full commercial programming and execute successfully in store during this meaningful time of year. We believe this is helping us build trust with our retailers. On the Q2 call, we spoke about our back half innovation and tapping into seasonal excitement. On slide seven, let's take a look at how we brought these ideas together with our Halloween innovation Wednesday, a spinoff of the Addams Family story, and the most watched show ever on Netflix. Seasonal offerings play an important role in the category, and Halloween is one of the largest seasonal activations for cereal. Offering such as Wednesday drive category engagement and have become a part of how consumers connect to the holiday. Add to that, these types of purchases are 70% incremental to everyday items and most often bought on impulse, so it's critical to have the right display. In the third quarter, Wednesday was the highest velocity innovation item in the category and had the highest percentage of sales from display, clearly delivering what shoppers are looking for. This is a great example of how we can drive demand when we bring a differentiated offering to the market and deliver value to our consumer. Let's turn to slide eight and look at our supply performance, which makes all of our commercial activations possible. We have consistently spoken to you about investing in and enhancing our supply chain. We know that improved product supply is a key enabler of our integrated commercial plan, and we saw that play out this quarter. Our team delivered a meaningful increase in service levels in Q3 when compared to 2023, driven by optimized planning and improved OEE. This near-term performance is an example of the type of impact our focus and engagement can deliver, while at the same time, we're progressing our longer-term strategic priorities. As a reminder, last quarter, we provided more details about our supply chain modernization journey the plan for our capital investment and network consolidation to drive longer term, sustainable advantage in our business. Supply chain is the foundation of many consumer product companies, and a key strategic priority is strengthening our foundation so we can build into the future. We look forward to providing further updates as we advance this strategic priority. I will now pass the call over to Dave.

Thank you, Gary. Before reviewing our results, I'd like to highlight that our gap results this quarter include charges related to our supply chain modernization initiative. Quantification of the business, portfolio realignment, and restructuring costs that have been incurred through the third quarter are included in the appendix of our presentation and in our earnings release. We've said in the past, due to the spend, our quarterly results and future 2024 results are based on a comparison to our 2023 standalone adjusted results, which exclude intercompany sales and royalty arrangements with Calenova that cease to exist upon the spinoff. Similar to previous presentation, and as Karen mentioned at the beginning, our results are present and referred to on an adjusted basis. We believe this provides investors with increased transparency and improves comparability across periods. Further detail of these non-GAAP measures and reconciliations to the most directly comparable GAAP measure have been provided in today's press release and the appendix list presentation. Now, looking at our results on slide 10. Net sales for the third quarter were $689 million, a 0.7% increase versus the prior year period. Net sales growth was driven by price realization of 1.8%, offset by volume declines of 1.1%. Our volume trend improved versus the second quarter due to strong back to school and seasonal execution and benefited from the improved customer service levels that Gary talked about a moment ago. Stepping back in Q3 2023, we experienced supply disruptions on certain brands within our portfolio. This led to a drawdown on retailer inventory. This year, we returned to more normal levels of supply, which had a twofold impact on our Q3 results. First, It enabled improved commercial activation, which you see in our end market results. And second, it allowed retailers to maintain more normal levels of inventory, which improved our shipments in the quarter versus last year. Additionally, our sales in Canada and non-measured channels continue to trend positively. EBITDA for the third quarter was $65 million, a 27.5% increase versus the prior year quarter. which was driven by top-line performance and continued operational discipline. Turning to our year-to-date results, net sales were down 0.9% versus the prior year period. Despite the ongoing challenging consumer environment, our sales performance is in line with our full-year guidance. Year-to-date EBITDA 217 million increased 5.3% versus the prior year period, driven primarily by improved operational efficiencies. Turning to slide 11, I will now focus on our operational highlights. Gross margin for the third quarter was 29.4%, a 90 basis point increase versus the prior year, which resulted from continued cost discipline and operational efficiency improvements. EBITDA margin in Q3 was 9.5%, a 200 basis point increase versus last year, driven by gross margin improvement and the timing of brand building spend. We remain focused on identifying and investing in high ROI initiatives, which we believe is reflected in our results. Looking now at our below the line items, interest expense in Q3 was $7 million and other income was negative 2 million. Overall, it was another solid quarter for WK, which we believe puts us firmly on track to achieve our financial guidance for the full year. We delivered top line growth driven by sequential volume improvement, while our revenue growth management initiatives generated positive price mix. Operationally, the team did a great job executing back to school and we saw strong performance across the majority of our brands. Let's turn to slide 12 to cover our cash flow and balance sheet. Year-to-date cash flow from operations was $98 million and year-to-date capital expenditures were $96 million, which includes investments in our supply chain and standing up our own infrastructure as we progress towards exiting our transition services agreements. Additionally, year to date, we have paid $41 million in dividends to share owners. Turning to the balance sheet, we ended the third quarter with $489 million of debt and cash equivalents of $47 million, resulting in net debt of $442 million, a decrease of $5 million versus last quarter. This decrease was a result of core working capital favorability in the quarter. Our leverage ratio measured by net debt to trailing 12 month EBITDA is currently 1.6 times. Consistent with what we've said previously, we continue to expect free cash flow for 2024 to be approximately negative 50 million, and we expect to exit 2024 with approximate leverage of 1.8 times as we accelerate spend associated with our supply chain initiative in Q4 of this year. As a reminder, we have fully secured debt commitments to fund our supply chain modernization investments and continue to expect leverage to peak at approximately three times in 2026. Our strong base business cash flow, which converts at a very high percentage from net income, along with our available debt capacity, provide sufficient capital to execute our strategic initiatives as we create significant long-term value. Let's turn to slide 13 to discuss our guidance. Today we're reaffirming our 2024 net sales guidance, which we continue to expect to be at the lower end of the range of down 1% to up 1% versus prior year. Additionally, given our strong year-to-date profit delivery, we are raising our 2024 EBITDA guidance. We now expect 2024 EBITDA growth to be between 5% and 6% up from our prior guidance range of 3% to 5%. As a reminder, in Q4, we expect to lap some one-time costs within net sales that we estimate to be worth approximately a point of growth within the quarter. Q4 also tends to be a lower sales quarter as retailers shift display towards general merchandise for the holiday season. In summary, We're proud of our team and our ability to execute our strategy and deliver financial results in line with our expectations. I'll now turn the call back over to Gary.

Thanks, Dave. As we close, I'd like to pause and acknowledge two key milestones that took place this quarter with our team, our communities, and our retail partners. First, we celebrated our first birthday as an independent company on October 2. It has been a remarkable journey filled with several firsts for this iconic 118-year-old startup. I could not be more proud of our team across the WK organization and how they're transforming this business. And our second milestone demonstrates who we are as a company. Mission Tiger is our signature sustainable business program. Our very own Tony the Tiger is on a mission to support middle school sports by funding programs to supply new equipment, improve facilities, expand access and more. He does this in partnership with our local retailers and communities. Since launching in 2019, we have reached more than 3,000 schools nationwide and created almost 2 million sports and play experiences for middle schoolers. And in Q3, Tony reached another significant milestone. He has now invested in schools in all 50 states. By supporting middle school sports, WK Kellogg Co. is helping to build stronger communities. And with Frosted Flakes being one of the fastest growing brands in cereal, it's a great example of how doing good is also good for business. It has been a year since we became an independent company, and we are pleased with the results we have delivered. We're equally pleased with how we're delivering those results. With that, I'll now open the call to Q&A.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. Please limit yourself to one question and one follow-up in the interest of time. Our first question comes from Kenneth Goldman with J.P. Morgan. You may proceed.

Good morning, Ken.

No, it's a little early. Hi, but just curious, are there any early directional tailwinds, headwinds we should be considering for next year? Any, you know, outlook you might have on the cadence of the top or bottom lines? And I guess, you know, most importantly, and I realize, again, visibility is a little challenged, you know, right now, but know top your guidance calls for flattish top line growth 24 through 26 you're not quite going to get there i think this year is there you know as you see things now just given some of your opportunities and you know offset maybe by macro challenges you know are you going to be aiming for kind of flat top line growth next year thanks for the question ken excuse my voice pardon me um i think where we start is we're pleased with where we're delivering today for 2024

You heard today that we're reaffirming guidance for our top line and actually raising guidance with respect to EBITDA.

You know, it is early.

You said that in the beginning of your question. But let me tell you what we're thinking about. As we think about going forward, I think what you can consider is growth for next year being largely consistent with how we're growing this year. When we think about tailwinds for the organization, We're delivering these results this year. It's our first year as an independent company while we're transforming our business and unplugging it in a challenging environment as well. Next year, those capabilities will continue to mature. We like the planning that we're doing as a company. So we're pleased about the way we're executing, which gives us that much more confidence for next year. largely you can see our growth next year being consistent with this year as well. But again, we appreciate you saying it's early. We'll come back in February with more detail, Ken.

Okay. Thank you for that. And then quickly, the category, you know, and I'm talking the larger sort of breakfast category here because we're, you know, we're seeing certainly some shifts, you know, and you guys are doing a great job with obviously a lot of your brands, but Just from a macro level, we're seeing some shifts more toward beverages and other alternatives to cereal still in the broader breakfast aisle. So just curious, how do you see the competitive landscape just expanding beyond cereal and how rational are some competitors being in there?

Yeah, a couple of things about that. When we think about the category, The way we would describe it, Ken, is providing us the backdrop we need to deliver our overall value proposition. Take a look at serial. I know you asked about other categories, but if you just take a look at serial, large, durable category, we talked about that before. TDPs are holding in. Displays look good as well. There's growth in the premium side of things. So when we look at the category, we think in this particular environment, We like how it's holding up. In particular, look at units as well. Now, one thing that we look at is when we think about our category, we believe we have folks coming into our category, consumers coming into our category. When we look at PPA, one of the things we're finding is there are consumers coming in, maybe lapsed consumers, new consumers coming into cereal. So when we look at this category, we like what we're seeing right now. It provides us what we need to deliver on our model, and going forward, we see that continuing as well into 2025. Again, we do believe the challenging environment would persist, but we like what we're seeing right now. Great. Thank you. Thank you, Ken.

Thank you. The next question comes from Peter Galbo with Bank of America. You may proceed.

Hey, guys. Good morning. Morning, Peter. Dave, in your comments, and Gary, in your comments at the beginning, I think you mentioned, you know, all the factors, you know, in terms of non-track in Canada that were helping drive some of the positive variants in volume this quarter. Dave, I think you did also mention that there's, you know, a little bit of retailer inventory build benefit that was in the quarter, so just hoping you could kind of dimension that for us. And, you know, I'm assuming that doesn't continue into 4Q, but just wanted to make sure.

Yeah, Peter. So just to reiterate what I said a little bit is, recall this time last year, we had a supply chain challenge. And what that led to was a, you know, fairly not insignificant drawdown in retailer inventory, solely due because we weren't supplying product, you know, over the last year, I think, The slide in the presentation really detailed the improvement that we've seen versus last year, and we trended better. So we didn't build inventory this quarter. We are rather consistent on inventory levels from the end of Q2 to the end of Q3. But really, it was the difference of lapping a draw because of that service deficit we had last year. So that was the benefit we saw. As you think about it, you're right. We don't expect that to carry on, of course. It's kind of a one-time thing. I think as you look at our Q4 numbers, you know, we anticipate the underlying business to continue to perform. We've also mentioned that there is the one-time benefit and investment we had in Q4 of last year that will play into net sales. So those two items will get us back into the guidance range that we had on net sales. Got it. Okay. No, that's super helpful.

And maybe just to follow up on Ken's question, you know, similar rates of growth for 25, I think, seems reasonable, at least at this point. Just any early read on any of the other items, you know, whether that's inflation rate for next year, if you kind of have an early read or anything below the line would be helpful. Thanks very much.

Yeah, we'll come back with full details on all the below-the-line items, everything else in February. I would say a couple things. You know, Gary mentioned that we'll be in line roughly on growth rates, you know, from an overall inflation-deflation error, inflation-deflation. We'll get into some of those details later on. So expect us to come back in February with all that detail. Thanks very much.

Thank you. The following comes from Andrew Lazar with Barclays. You may proceed.

Good morning, Gary and Dave.

Good morning. Good morning.

Good morning. Special K is the one big brand of those sort of the core six that, as we can see and you talked about, is kind of what's holding back sort of the share of those brands. And the others, I think, collectively are gaining a little bit of share. So I was hoping you could, you talked about just more commercial activation and whatnot, and you're happy with the plans you have going forward. It's a big brand, and it's one that I know has been a struggle for really a bunch of years now. I guess maybe if you could just add a little bit more color around the plan there, maybe what's perhaps different or that's getting you sort of a little more confident that that brand, from a share standpoint, can start to stabilize a bit more?

Yeah, I think that's very fair, Andrew. You make the point that five or six core brands are growing faster at the category rate, and Special K is down 40 bps now. It was down 40 bps in Q2 as well. So we would say it's stabilizing, but it's not performing where we would expect the brand to perform. So let me give you a little bit of detail that I think would be helpful. It starts with we do think 25 will be different. We feel good about the complete activation plan we have. We then start, let's look at 2024 to begin with. First, there's some mechanical issues that we'll be lapping. There were skew culls. We also changed distribution with a key promotion with one of our retailers, moved from one brand to another, so moved away from Special K. That's in the base for 2024. Those mechanical issues will largely be gone in 2025. I think you'd go to execution as the second thing. This brand we know responds to display, to feature, to promotion, to innovation, and we were pretty light in 2024 as you compare to 2023. We feel better about that for next year as well. The other thing you're pushing on, I think it's a very fair thing, is the strategic piece of it. We like where this brand is. It is at the intersection of taste and health. It's well positioned for consumers. The key is how do we get to those consumers? And we're not standing still. We've already started with that. When we think about Special K, it provides offerings that match a variety of consumer needs. The key is how do you communicate that effectively to your consumers? So a couple of things. We've already started with a new campaign. We've talked about special for a reason. You can understand why we're doing that because Special K is special for the different reasons consumers are looking for. Early reads would say we're getting some positive feedback on that, but that's already in market. But that's the key thing we have to do. That's the right messaging. We've got to use our new marketing muscle to reach our consumers. So what I just described was mechanical issues that we're hoping are behind us. Execution, we hope to perform even better. And strategically, the team is on it already. So not performing where we would hope or expect, and the team is moving forward and we feel better about 2025.

Thank you for that. And then you've talked in recent calls about, and you mentioned it again today, consumers sort of trading down to some of the smaller sizes that allow them to include maybe more of the serial product in their basket size and whatnot. I'm curious how your supply chain is set up to handle that type of flexibility that's needed for maybe smaller package sizes and also what the profitability picture looks like on some of those smaller sizes that might be a higher price per ounce, right, but just smaller overall unit price, what that means for margins, if anything. Thanks so much.

No, thank you, Andrew. We talked to you about that a couple months ago, and you're right. When you look at the public data, We talked about what's happening with units and you saw units were actually growing in Q3. Part of that is our PPA. Now PPA does a variety of different things. It expands your portfolio offerings. So we have folks coming in to get better price per pound, a lower sticker price and everything in between. And we really like the work that the team is doing. By the way, PPA is hard to execute and the team has done it brilliantly. Now you asked about maybe smaller units. We're set up well to do that because we're growing in this space. Our supply chain is all over it. That's what we're working on right now. And we like the economics as well. If I can leave it there, I hope you don't mind. But we like the economics across the portfolio that we're doing in PPA. And for us, what we like about PPA is it's good for the category. It's good for our consumers for a variety of reasons to find the right pack and the right channel. And also, it's good for our business as well.

Thank you.

Thank you. As a quick reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The following comes from David Palmer with Evercore ISI. You may proceed.

Thanks. Good morning. I want to ask a clarification on the earlier answer. I think it was to Ken's question about how you're thinking about 25 on the top line. You said similar to 24. Does that mean roughly minus 1%? Is that what you meant there?

So I think I'm going to go back to the other thing Ken gave us, which is it's early. So we're looking more at a higher level, if you don't mind, David. We'll come back in February. But we're just saying, generally speaking, the growth rates we talked about before, about what the algorithm looks like, I think you can expect something similar to that. I hope it's okay if we leave it there for now. But we'll come back and give you more in February.

Yeah, fair enough. I just am wondering how you're thinking about maybe puts and takes, because if you keep multi-year trends the same, comparisons do ease into the first quarter. You could credibly argue that the multi-year remaining the same could get you to positive organic sales in that first quarter. So I was going to ask you if that, maybe what some offsets to that might be as you're thinking about the big picture. Maybe you can answer that.

I think what I would say is you heard us earlier talk about the complete commercial plan for 25. We feel good about that as well. I do think we might leave it there only because we'll talk more about 25 when we get to February, we'll be able to give you a lot more detail, but the very least we're happy to say we feel good about the growth rates going forward, the algorithm that we're on. And I think what you're hearing is a level of confidence from us because what we're seeing inside the organization, is the ability to execute, drive the business, run our playbook, as well as transforming our three key commercial capabilities, as well as executing on our strategic priorities. We're doing all of that, delivering on our commitment. So, David, I think that's why you're hearing a level of confidence for us.

Yeah. I mean, if I could just squeeze one last one, I would just say, ask maybe about the category from a that trade-up wellness group of brands. I mean, you have Kashi and Bare Naked. You said that there's some healing going on there. Special K remains a bit of a work in progress, and those are some of, you know, sort of the wellness brands that you've, and partly I feel like wellness in this category has been sort of an elusive news and trade-up driver for the category for a while now. What are your thoughts about you know, wellness within the category and the best messaging that you can do to sort of drive some of your premium brands going into 2025. Thanks.

Yeah, we agree with your instincts in our view would be, we like this space. The space is doing well, granola and premium are growing volume and dollars. So you're right. This is something that has emerged in our category, which is interesting because of the bifurcation of value seeking, but also premium granola growing. I also think you have it right that we've got brands that can play here. We've been talking a little bit about bare naked over the last year. We like to say it's under new management, under our chief growth officer, Doug Vandevelde. And if you take a look at what's happening in the public data, it's starting to turn. In fact, it was largely flat in Q3. What we've said there is when it's on shelf, it performs. We need to execute behind that brand, which for that brand, it means supply chain how do we get reliable supply our team is on that it's improving so i think you have it right this is a place that we played before we could play even better and we think there's real opportunity here in the natural and organic segment for wk as well as the category by the way thanks very much thank you

The next question comes from Max Gumport with BNP Paribas. You may proceed.

Hey, thanks for the question. I wanted to ask another question on the serial category. You seem generally encouraged by the underlying data that you're seeing, and particularly if you look at the data on a unit basis. But I do want to ask, just given on a volume basis and sales basis, the categories in design, and that's not all that different from what we're seeing for other U.S. food categories, but I do feel like if we're seeing this shift by the consumer to value, it seems like an environment that should be quite supportive for cereal, given its price per meal. And so I just want to ask why you think we're not seeing better performance from the cereal category in this environment when you have a consumer that is shifting the value? Thank you.

Well, I think that's a fair question, Max. We might turn that around a little bit saying it's performing the way it's performing down about a point in this challenging environment. But we agree with you. We think there would be tailwinds for this category if there are value-seeking consumers. We said earlier there are some consumers that are coming back to the category given the PPA work that we are doing. The other thing to consider is the PPA work that we've done. It's certainly impacting us. And it should impact us because it's going to have an impact on volume. That's also going to have an impact on the category, given the position we have in the category as well. But I think you're right. I think in this environment, cereals should benefit from that. But look, it is a tricky environment out there. The way we look at it is, despite the fact that it's our first year, despite that we have this tricky environment, we're able to deliver on our commitments, reaffirming guidance for the top line, raising for EBITDA as well. When you piece that together, we're pleased that the category is providing that backdrop for us that we could deliver on the value that we want to deliver to our stakeholders. But I think your instincts are quite good there.

Great. Thanks very much. I'll leave it there.

Thank you. As a final reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Robert Moscow with TD Securities. You may proceed.

Hi, I just wanted to ask about, hi, uh, hi there, Gary. Um, I hope your, your voice makes it to this last question. Um, cost. Uh, yeah. Okay. Uh, maybe it's better for Dave anyway. Uh, can you talk about like your inflationary, uh, headwinds this year, to the extent there were any, uh, grains, I imagine would have been down. I can't remember if you can give us a number, but I want to ask, what is it this year? What do you think it could look like next year? Do you see any change? And how would you think about pricing in that environment?

Yeah. Hey, Rob. So, I think a couple of things. One, we haven't gone back and quantified it, but what we've said, and it holds true, we've seen kind of stabilization in 2024 at these higher levels. You're absolutely right. In a portfolio level, you're absolutely right. You know, you can see the corn market, the wheat market, those have come down, and we've benefited from that. Now, I think on the flip side of that, though, there were other commodities specific to 2024 that remained inflationary. And so I'll give you a couple of sugar, rice, things like that that we manage through. So in aggregate, you know, it's been relatively stabilization at the high. As we move forward, you know, that base of where corn and wheat are is largely playing through as we think about 2025. You know, there's some other puts and takes within the portfolio as we think about it. But you know, there's been some stickiness to the inflation that we saw over the last, you know, two to three years. And so as we're thinking about it, it's more towards the stabilization at the elevated levels.

Okay. And maybe, you know, a lot of other companies are talking about labor inflation being a factor. Is that, is labor inflation in your numbers for 24? And would it, would you expect it to be again in 25? Do you have visibility there?

Yeah, Rob, as I spoke about it and I spoke at the portfolio level, I was including all of our costs, right? So as I think about, you know, any puts and takes of benefit on commodities, any other pressures we have, it's a net number of the stabilization at the high. So what that naturally brings you to, if you have some benefit on some commodities, you may have some pressure elsewhere. And that's what I mean by some of these elevated costs that we saw over the last couple of years remaining in place.

Got it. Okay. Thank you.

Thank you. The final question comes from Rob Dickerson with Jefferies. You may proceed.

Good morning, Rob. Great. Thanks so much. Good morning. I just had a question about the general activation plans for next year. Don't take this the wrong way. While I respect your core brand, um they have been around right for some time um so you think there could be some you know innovation dynamic that could maybe assist with category share at least but then i do look at that wednesday box right on the slide um and it doesn't really seem like that's an innovation kind of within a pre-existing brand right it's a it's a totally different marketed product right with wednesday on it different um you know different components within the product That's kind of away from those core brands. So I'm just curious, like, should we expect to see, let's say, like more Wednesdays coming forth? Because, you know, the category, even though maybe a single was better, the volumes are still down, at least in all the track channels with the big retailers. And it was a category that was in secular decline for a long time, kind of pre-COVID. The volumes have also declined for like over two years now. They're still declining. So I'm just curious, maybe there's an innovation list that could occur even within the broader category, and maybe there just needs to be more Wednesdays, if that makes sense.

You know, Rob, we're 100% with you on the power of innovation and the importance of innovation in this category. We might say to you it's an and, and let me just take you through that. If you look at the public, I have the two fastest-growing brands In the cereal category, Frosted Flakes and Raisin Bran. And they're two of the original brands. If you go back in time, they're older than I am. These brands have been around for a while, and they're big. Frosted Flakes is our biggest brand, and it's our fastest-growing brand. Now, to your point, that doesn't just happen. It happens when you have the right messaging, the right promotion, the right tie-ins, but the right innovation. So we have a milkshake franchise that we use in Frosted Flakes with strawberry and chocolate. We used it in the U.S., used it in Canada. And that has really driven the top line for that brand. Raisin Bran is a little bit different. We actually then launched Frosted Bran. So it's part of the Raisin Bran family. And you can just imagine what else we could do with that. Now, I do think your point about Wednesday, seasonal is important, in and out, excitement, news. That is also something else that as a branded player, We like to do, we want to do. The key thing is we need to make sure we have a reliable supply chain that allows us to do that. And then we get to match it up with our marketing team as well as our direct sales force. So I think you're right. But we would say it's an and. So we love this property. As we said, it's the most watched Netflix show of all time. The packaging is beautiful. But I would say to you, the execution on Frosted Flakes, Raisin Bran, and other things, I think we do that in combination to drive our business But importantly, drive the category.

Okay. Okay. Fair enough. And then I guess, you know, we just kind of step back and we think about, you know, the broader category and the potential promotional needs within the category, let's say to, you know, further incentivize the consumer, right? The straps consumer, maybe buy a little bit more cereal, buy more units. Do you feel like, Tad Piper- kind of the promotional environment is a becoming increasingly more competitive or you know, could we be kind of you know experiencing a category such that. Tad Piper- Maybe there isn't really a need to promote more right such that you know kind of overall maybe we could improve the overall profit pool of the category if, so to speak, everyone kind of plays nicely on the promotional front, thank you.

Rob, it's a good question. When we think about this, when we take a look at what's happening in the marketplace, we always look backwards and we compare previous activity to where we are now. And we're largely at historic norms right now. We go back to 2019 because that's the clean period before COVID hit us. But what we're seeing is we're largely at those levels as we look backwards and we're not seeing anything particularly unusual. Our numbers are up. But that's because of what we're lapping. We were not on our front foot in terms of supply. Now we're able to activate more in the market. So while our numbers are up, again, I think we're getting back largely to 2019 levels. Now, when we think about the category and think about promotion, we like promotion. We think it's good for the category. When Dave talks about this, he talks about return. Because it's a balance of volume. It's a balance of price, amounts of profitability. It's all those things. And when you get that right, that drives the category, that drives our business as well. So we think that's a healthy part of the category, and we like how we're doing it. And if you look at Q3, that gives you an example of when we're executing our playbook well, with the right level of promotion, the right innovation, the right sales force, the right activation during back to school. So we like the promotion because the way we do it and the way Dave leads that in the organization.

All right, super. Thank you so much.

Thank you. There are currently no other questions queued at this time. I will now turn it back over to Gary Pilnick for closing remarks.

Thank you, everybody, for joining our call today. I trust you can see that our business is building momentum and delivering positive results. We look forward to sharing our Q4 results with you in February. Thanks so much for joining us.

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.