Lamb Weston Holdings, Inc. Common Stock

Q1 2021 Earnings Conference Call


spk_0: the drain welcome to the way unless you first quarter twenty twenty one earnings call today conference is being recorded at a time i would like to from a conference over to ducks are convoy bp investor relations of lamb it please go ahead
spk_1: he wanted a bookkeeper georgia and what's his first quarter twenty two cool this morning we issued orders press release which is available on our website by watch and doctor please note that during our remarks will make some forward looking statements about the company's expected performance these statements are based on how we see things today actual results may differ materially to the risks and uncertainties please refer to the cautionary statements and with tractors contained in our se si filings for more details on are forward looking statements them up to date remarks and could not get financial measures these non gaap financial measures should not be considered a replacement for as should be read together with or gap results you can find the gap to non gaap reconciliations in earnings release with me today or tomorrow or president and chief executive officer and rabbit not or chief financial officer tom will provide an overview of the current operating environment as well as other business updates
spk_2: rabble them provide some details on our first quarter results
spk_3: as well some trends that we're seeing so far in the second quarter with that i mean out turn the call over the top thank you dr good morning everyone and thank you for joining our call today out that you and your family's continue to be well
spk_1: let me just start by saying and i feel good about our performance in the quarter and how we are executing of the company
spk_3: this is a testament to the lamb was the team and i want to thank them for their commitment to each other and or company as well as or continued service your customer suppliers and communities as we navigate is challenging environment or our first priority remains ensuring the health and safety of our employees since the onset of the pandemic we have instituted more rigorous operating protocol across a company especially for a production and front line teams that work to keep feeding the world while while keeping our manufacturing facilities and products safe in some cases this is created additional birds for our team members and their families and i want to thank them for their commitment and understanding i continue to be inspired by the spirit of teamwork their employees show every day and i make me proud be a part of this great company in addition to the hard work by our team or improve financial performance vs our fourth quarter of twenty twenty reflects to broad factors first the operating environment has steadily recovered over the past few months with restaurant traffic and for i demand improving in north america and most of our key markets second we have gotten better at managing through the disruption that a pandemic has created in our manufacturing operations as well as controlling costs across the business with respect to the operating environment we're optimistic about the sequential improvement breath and pace of recovery and restaurant traffic and fry demand however we also remain cautious about the uncertain the other recovery stability with toby continuing to be a challenge in the us and some key international markets in the u s overall restaurant traffic and i demand steadily improved early in the quarter then largely stabilize at level that were below what we saw just before the pandemic traffic at large quick service chain restaurants approach prior levels especially during the latter half of the quarter by leveraging drive through take out and delivery format full service restaurant traffic also improved as a quarter progressed then stabilize is about seventy five to eighty percent of prayer levels as governments relax restrictions for on premise dining and restaurants lay more on carry out livery an outdoor dining degenerate sales traffic and the man and non commercial customers which includes lodging and hospitality healthcare schools and universities sports and entertainment and workplace environments remain at less than fifty percent of prior levels for the entire quarter although it did improve modestly as a quarter progressed in retail demand growth in the quarter was strong after beauty and more than fifty percent weekly category mine girls enable and may weekly volume growth steadily moderate to between fifteen and twenty percent growth by august as restrictions on restaurants east in europe which is serve our lamb was admired joint venture friday man approached prior levels by the end of the quarter although it's important to know that the man at this time last year was somewhat saw for us dude you're poor potato crop the major improvement in our other key and on international markets was mixed in china and australia demand steadily improved and approach prior levels by the end of the quarter in our other key markets in asia and latin america the improvement in the man was uneven as governments employed differing approaches to contain the spread of the virus
spk_2: it's shorter demand steadily improved in the u s and across most of our international markets as summer progress than stabilize below breathe and at levels
spk_3: along with a steady recovery demand our teams levers lessons learned when covered first head and ever doubted our operations to better manage through the current environment as i noted earlier since the onset of the pandemic we've stepped up our employees safety and sanitation protocols at each of our manufacturing commercial and support locations which has resulted in earlier detected a pill that him on our workforce
spk_1: we've also steadily become more efficient and minimizing disruption to our manufacturing facilities and service levels including isolating east specific areas of our facility that would be needed to shut down sanitize restart after members of our production team are affected by the virus as well as increasing flexor
spk_3: ability to adjust production schedules and run times across the network or supply chain team has been able to significantly reduce or incremental production costs and of inefficiency as compared to what we incurred in the fourth quarter of physical twenty twenty we've also taken or a the steps to aggressively man's are selling general and administrative expenses including shutting down all travel and large meetings and differing other discretionary expenditures and projects our one project or we did not differ with implementing phase one of our new enterprise resource planning system as we believe it will be a key enabler to driving efficiency it over the long term we're currently evaluating options for went to begin implementing phase two before any call off to rob let me update you on the tail drop in the prize the environment with respect to the crop on a preliminary basis we believe the crop and are growing areas in the columbia base in idaho alberta and the upper midwest will be consistent with historical averages in the aggregate early read on the european potato crop is that it will also be consistent with his with historical averages and as to walk and sign given the poor drops in recent years as usual provider updated view of the crop yield and quality and how we expect the crop to hold up in storage when we report or second quarter results in early january with respect to contract discussions and pricing were largely through the negotiations for the domestic large chain restaurant contracts that are up for renewal this year and in the aggregate we have maintained stable pricing in the portfolio for those contracts you have to be finalized will remain discipline and taken approached design to maintain and reinforce our strategic customer relationships
spk_4: outside of these large chain restaurant contract on balance domestic pricing continues to hold up well however we have begun to see increase competitive activity in some domestic market segments as well as more of value oriented products segments in some international markets
spk_3: as the man continues to strengthened we expect rising price or these segments will lessen in summary we forget about our performance in the quarter and our executing as a company we're optimistic about the positive demand trans in the us an interview in an international markets but we remain cautious do the continued uncertain he would the current operating environment where navigating through the crisis by prioritizing the health and safety of our employees leveraging our manufacturing footprint and operational agility to make sure we service customers and aggressively controlling costs across the entire company and finally weren't raised about the health of this year's crop as well the overall pricing stability across our portfolio peter challenging times which each there will be around for while the we also believe that by focusing on our strategies and our commitment or employees and servicing our customers will emerge stronger company now let me turn to call over to rob thanks tom good morning everyone as tom noted we believe that we weathered the worst to the pandemics fact on our operations during the fourth quarter of fiscal twenty twenty the man across most restaurants sectors has improved from the lows of to for providing a backdrop for us to deliberate three percent sequential sales growth our first quarter the sequential increase in earnings was more dramatic we nearly doubled gross profit from a hundred and eleven million to two hundred and fourteen million the increase even da including joint ventures by more than two and a half times from seventy eight million to two hundred and two million as we increased operating leverage and we greatly improved our ability to control costs and managed to the disruption that pandemic has on our manufacturing network and distribution chain while results remain below pre pandemic levels and down vs prior year the sequential improvement in the demand environment and our financial performance is encouraging now turning to our year over year results net sales decline twelve percent versus prior your quarter to eight hundred and seventy two million tales volume was down fourteen percent has frozen to pay potato demand outside the home continue to be affected by government imposed restrictions on restaurant traffic and other food service operations however after realizing some benefit from customers reloading inventories early in the first quarter or weekly shipment trends in each of our domestic channels and most of our international markets steadily improved as a quarter progressed i'll discuss it in more detail when reviewing our business segment performance price makes increased two percent due to improvements in both the food service and retail segments gross profit decline thirty five million dollars with about sixteen million due to pandemic related costs on our manufacturing and supply chain operations and sixteen million is down from forty seven million a pandemic related production costs that we incurred in the fourth quarter of fiscal twenty twenty of the sixteen million about six were utilization related costs and inefficiencies rising from disruption store manufacturing network that compared to about twenty five million dollars of costs for utilization related costs that we incur in the fourth quarter as a reminder these costs largely relate to labour another costs to shut down sanitize and restart manufacturing facilities impacted by coven costs associated with modifying production schedules and reducing run times across our network to compensate for facilities impacted by coven an incremental costs and inefficiencies related to manufacturing retail products online primarily designed for food service products the other ten of the sixteen million dollars consists of non utilization related costs and included about three million dollars of expense to the remaining crop year and twenty nineteen raw potato purchase obligations and about seven million for enhanced employees safety sanitation protocols as well as for incremental where housing transportation and supply chain costs
spk_5: as we previously discussed we expect to encourage utilization and non utilization related costs and efficiencies as long as our manufacturing and supply chain operations are impacted by the pandemic
spk_3: the remaining nineteen million dollar decline gross profit largely reflects lower sales volumes partially offset by favorable price mix a five million dollar a year over year change and mark to market adjustments and cost efficiency savings sg and and the quarter was essentially flat cost management efforts including a three a half million dollar reduction advertising and promotional expense said one million dollars of nonrecurring expenses associated with implementing our new the rp system and four million dollars a pandemic related expenses largely related to that costs every retaining certain sales employs equity method earnings were twelve million dollars up one million from last year however excluding the impact of unrealized mark to market adjustments equity airings declined to million with have due to pandemic related costs cymru what we incurred and our base business while down vs last year equity earnings increase sequentially as a result of significant decline and pandemic related costs in the first quarter as well as steady improvement in our weekly shipments by european joint venture even went including joint ventures was two hundred and two million dollars down thirty one million about twenty one million the decline with due to pandemic related cos i discussed the remainder the the da decline was driven by lower sales growth profit the looting dps in the quarter with sixty one sense down eighteen cents or twenty three percent from last year now moving your segments sales for a global segment which includes a top one hundred us based qs are and full service restaurant chains as well as all sales outside of north america were down fourteen percent in the core price makes declined one percent as a result of negative mix volume self thirteen percent due to the decline in demand for prize outside of the whole however weekly shipments to large qs are change which historically comprise about one half a global segments sales improved from around eighty five percent of prior your levels at the end of may two near prior your levels by the end of the first quarter weekly shipments to large full service change which historically comprised about ten percent of global sales improved from forty five to fifty percent in may to seventy to eighty percent by the end of first quarter as governments relax restrictions on on premise dying and as restaurants improved carry out and delivery capabilities international sales which historically comprised about forty percent of segment sales were mixed as tom noted monthly shipments in china and australia approached prior year levels by the end of the quarter is demand steadily improved monthly shipment trends in other markets in asia pacific and latin america or uneven this mirrored pattern and were in demand recovery but also generally lag as the rate of custom black the rate of past improvement as customers and distributors in these markets continue to right size their inventories google product contribution margin which is gross profit less a and p expense decline twenty five million dollars to seventy eight million pandemic related costs really accounted for about nine million dollars of the decline with the remainder driven by lower sales tales were food service segment which services north american food service distributors and restaurant chains outside the top one hundred north american restaurant customers decline twenty two percent in the quarter price makes increase six percent behind a carry over benefit of pricing actions taken in the latter half of the fiscal twenty mix with unfavorable for two reasons burst independent restaurants which purchase a high amount of lamb west and branded products have been disproportionately impacted by the and pandemic and second some customers have traded down to more value oriented products in order to reduce costs important to note that this impact was more pronounced in the fiscal fourth quarter and we've steadily regained much of this business as restaurant traffic improved in recent months volume declined twenty eight percent reflecting the continued impact that government imposed restrictions have had on consumer traffic or weekly shipments to full service and small and regional quick service restaurant which together have historically can't compromise three quarters of the segment sales improved that eighty to eighty five percent of prior sales by the end of the first quarter or weekly shipments to noncommercial outlet which of a store ugly compromise the other twenty five percent of the segment sales modestly improved as a quarter progressed but were soft at about fifty percent of bro you're levels food services product contribution margin declined seventeen million dollars to eighty six million but pandemic related cost accounting for four million of the decline the remainder was prime it primarily driven by lower sales offset by favorable price mix tail to our retail segment increased nineteen percent in the court volume increased eleven percent although this masks the performance of are branded portfolio which historically has compromised about forty percent of the segments volume or brands are winning boy and growth of are grown in idaho alexia and license brand products with up together more than thirty percent in the quarter that's well above weekly category volume growth rates which rain between range between fifteen and twenty five percent however retail segments volume growth was part of growth was partially offset by decline in private label shipments which reflects the loss of certain low margin private label business
spk_5: largely began during the third quarter of fiscal twenty twenty
spk_3: price makes increased eight percent reflecting that favorable mix of more branded products retail product contribution margin increase seven million dollars to thirty six million and was ruined by higher sales volumes say rule mix and lower and p expense
spk_5: this increase was partially offset by three million a pandemic related costs
spk_3: moving to our cash flow and liquidity position in the first quarter we generated more than two hundred and fifty million dollars of cash from operations that's up twelve million versus last year
spk_6: or top priorities and point cash continue to be embarrassing to grow the business and returning cash to shareholders
spk_3: in the quarter we spent thirty three million dollars in cap acts including for our newly rp system given the outlook for the business cash flow and improved liquidity position where increase our capital expenditures target for the year to one hundred and eighty million dollars from one hundred and forty million as we invest in productivity an optimization projects
spk_7: as well as some targeted growth capacity
spk_3: with respect capital returns we declare a regular quarterly dividend two weeks ago just the pandemic began we've taken steps to enhance our liquidity and further and strengthen our financial position by entering a new a new three hundred and twenty five million dollar term loan and completing a five hundred million dollar note offering in september we amended our credit agreement to put in place a new three or seven hundred and fifty million dollar volver to replace the five hundred million dollar facility that was set to expire in november with twenty twenty one the new revolver remains under on and fully available in conjunction with the revolver with more than one billion dollars of cash on hand we chose to prepay the approximately two hundred and seventy million dollar outstanding balance on the term long those do in november twenty twenty one all in the financing actions were taken since a pandemic began have increased or liquidity by nearly one billion dollars lowered are weighted average interest rate and stretched or det amortization while only increasing are expected annual after tax interest payments by about eleven million dollars to along with our current so long with our ability to continue to generate cash we feel good about our current liquidity position now turning to some demand transit we're seeing in the second quarter is tom mentioned in the that get the new an environment now our weekly shipments of largely stabilized during the latter half of the first quarter and into the first four weeks of september specifically in the u s shipments today in the second quarter are approximately ninety percent of prior your levels in our global segment weekly shipments store large qs are and full service chain restaurant customers in the us are trending and around ninety five percent of prior your levels oculus ours are like are likely to be largely unaffected we anticipate the shipments to full service restaurants could take a step back as outdoor dining options become more limited with the onset of colder weather in our food service segment weekly shipments to our full service restaurants regional a small qs as ours and non commercial customers in aggregate or training and approximately eighty percent of prior your levels shipments to full service restaurants and small and regional qs ours have been trending above that rape but could soften do the colder weather humans to non commercial customers have been trending well below that rate and are likely to remain so until the spread of code it is broadly contained in our retail segment weekly shipments are trending even with prior your levels were strong volume growth of our branded products are set by decline and shipments of private label products in europe weekly shipments to date in the second quarter by our european joint venture are approaching prior year levels although consumer demand at this time last year was somewhat soft due to high prices and quality concerns as a result of the poor across as in the us we believe that shipments to full service restaurants in europe may also began to soften as cold weather reduces outdoor dining options shipment trends in our other international markets are mixed in china and australia shipments are approaching prior levels in other markets in asia pacific in latin america demand has improved since the end of the first gore although our shipments continue to generally lag demand improvements as customers and distributors continue to right size their inventories as a reminder all of our international sales are included as part of our global segments results in short overall demand across our markets is largely consistent with what we observed during the latter half of the first quarter although we remain cautious about the effect of the onset of colder weather on outdoor dining as well as a continuing spread the virus in the us and as resurgence in some key international markets in addition when estimating sales for the quarter recall that are second quarter results last year benefited from strong sales customized products including limited time offerings as well as from additional shipping days related to the timing of the thanksgiving holiday with respect to costs as we previously discussed we plan to process potatoes from the twenty nine pm crop too early september which is couple of months longer than usual we stretched out the old crop in order to manage inventories in light of the pandemics impact on friday me out
spk_5: processing older crop result in higher cost as a result of higher raw potato storage fees and lower recovery rate
spk_3: since we typically carry upwards of sixty days of finished goods inventory will realize the impact of these higher cost in our second quarter income statement as we sell that inventory over the coming months now here's tom for some closing comment thanks rob let me just quickly summer by saying it was solid quarter in the context of the current operating environment and i'm proud of our manufacturing commercial and support teams have continue to focus on the right strategic and operating priorities deserve our customers we're optimistic about the steady improvement restaurant traffic and fried a man and most of our markets as well as ability to control costs and manager the pandemics impact on our operations however we do expect some choppiness into man as world continues the manager the crisis
spk_0: we remain confident that the lamb that land was it is well positioned to emerge as a strong company once we get to the other side of the pandemic and create value for stakeholders over the long term thank you for joining us today know are now ready to take your questions if you would like to ask a question please signal by pressing style one on your toes on keypad
spk_8: if you are using a speaker phone please make sure your me function it turned out to why you did not to be to equipment a game for star one to answer questions and will to go first question
spk_9: some chris ground with stephen by the morning what aggressive and i thank you for the time that he said i'm just gonna start off and a question for you in the gross margin
spk_3: onto that the mark improvement sequentially he thought have the leverage you talk about are a lower probably causes an example you want their element of the suit that we seen all is stronger price and makes them stronger expected so she that in the food service division i sent to get essentially somewhat mixes positive the of surprising coming through his well i guess i'm trying to think about the first quarter of as the fourth quarter and how important component was to the cause more informative was more the leverage them at that price mixing improvement
spk_1: there has his job
spk_9: you know the the important staying comparing to queue for it's really about the volume returning ah and just you for we just fell off a cliff in food service and as you guys know this of our stronger margin segments so you know it's it's a combination of uprising flow through and
spk_3: and really the the restaurants reopen aids and volume sorry to recover and you wanna really drilled the sequential improvement and now i'm realising that the from the pricing you had the price you in the fourth quarter against mass by mixing up will say that it's a resolution well yeah absolutely and it's a the you know we had significantly lower volume into for
spk_10: so was a mistake about allow it and you know as you as you look into we talked about you on
spk_9: it's really volume and bright flown through and i'm returning like i said yeah get any in in food service chris that that it's not a that that the price increase comes through over time i mean it's not it's not one customer they're all different contracts with a role at different times of some of that has you know a a lobe more impact on cue on the which are que por
spk_11: i just more found that know and i'll go with my question on the gross margin be the think about normally from que onda cute to you have a nice sequential unproven gross margin it's not like they have some residual cause coming to from utilizing your crop as an example and you as a majority of a tough comp as well
spk_3: we think about the gross margin is it just continued on volume or they're nothing the costs side there that we should legalize a gross margin any been a little softer and queue to rescue want even a sequential that normally is better i don't think so
spk_9: your spot address it that that one we got some costs carry over there that we don't normally having to to to to normally were fret what we're selling crap that was process directly out of fields so no storage costs to it and they're fresh potatoes a process better so that's going to have some impact on our cue to me
spk_0: margin
spk_12: in in addition as i mentioned i think and my comments that that really call the queue to last year we had strong performance and and lt else and other specially products like that does that help on pricing side
spk_13: the given to him
spk_14: thank you
spk_13: we'll take our next question from angela's i with barclays
spk_3: when or me first thing i'm at a time he mentioned it sounds like there's some may be increased competitive pressure and some segments of the u may be outside of some of the large chains and some more value oriented think international segment you may have said so be it just i'm three to do that a little bit more and gives a sense of said what's happening there and
spk_1: is it is it through sort of contracts or not necessarily contract pricing just kind of more like spot pricing can types of competiton i wasn't trying to get a better handle on it
spk_3: andrew it's predominantly spot pricing in certain regions in the in the north america and it's it's allowed i'd characterize it this way as a bit more pronounced than normal and like i said everything over all from a pricey standpoint is pretty stable nothing and we haven't seen before you know so we're watching carefully but obviously you know with capacity available we just need to as through it was well the at that the international sided with the way to think about it the price pressures on the lower now the lower life float items
spk_13: that's that we characterized as non value added so we play and that a little bit in law these markets
spk_1: that are most of our focus is on the the value added by chris kept early for i type items in international markets but ah
spk_3: you know it is going to belgium on the lower value at than other outside and then i'm good he talked about term for a sequential demand trains and traffic and certainly improving pretty dramatically over the course of the corner of course from the from the lows if you will in the in the fourth quarter but that maybe last couple weeks it seems to kind of like stabilized or plateaued little bit and some of the levels meant that rambling grew stronger sense of what you think is is driving that sort of and moderating piece of sequential improvements in sort of pressure and trafficker ways no meeting is obviously we haven't necessarily a come into like super cold weather and and things it's a two point of kind of moderated or the the peace right a sequential improvements moderator it's of trying to give a sense of of what you're seeing out there what you think is driving thank you yeah so that some of the que en you know think about is wasted or a and and you wanted we reopened a lot of our customers started rebuilding stocking inventory to the dramatically decrease or orders and in you know sorry march april may so there was a restock have any kind of men may through june and or a i get caught up and so i think you know i think about where we're at today in terms of demands been pretty stable at the levels that we talk to you and the script and yelled at the thing you know we had our eye on as as as the weather changes and you know
spk_15: yeah flare ups in covert as far as we certainly have day where we look at the markets that are potentially put more restrictions on our watching those ordering patterns very closely so
spk_0: meals or couple things that bad
spk_16: why we continue to remain cautious about we just gotta work through it and it'll actually itself over the next ninety days otherwise other wasn't a carefully thanks for much what go next question from brian's playing with bank of america hey thank you and i do more yeah everyone the couple questions first on on the on on on on margin than i get his were thinking about caught going forward
spk_3: on you know understanding that some the code would cost the on the probably you know stay in the bait for while he did to the two cents or how much on the expensive maybe your differing into you know the out years who did how much caught avoidance
spk_17: is is is happening this year and and that we might have to think about
spk_3: adding back into the out years and then also get that we're we're talking about the begun comment at all on on just what you're seeing and from the for car and if if that's something we should be thinking about yeah thank brian in in terms of different cost of in you know that did those inefficiency cost and the coven costs and saw and so forth there are those are flying straight through the inventory now if if you're asking about are we differing any maintenance costs are things like that that might bite us in future you know that we continue to maintain our facilities ah ah as we normally do and so nothing there so it really nothing that i would say gives deferred into out years now we did mention last last call that we had deferred some expansion capital that we were looking at but again that's that's you know we'll we'll reassess that it's market recovers
spk_16: in terms of frame costs you know
spk_3: yeah i've heard others have had challenge with some some near term for a weekend a contract lot of are tracking as opposed to play a lot in the spot market where we'd have some free volatility maybe more into for is is that as in an early and que one was as we're trying to catch up the inventories and hot shining some things are are are rail tracks free had some negative impact to admit that we pretty well stabilized and again so because we contract the tracking largely were not as exposed as maybe some others that you may have heard okay and then and then just playing that who are injured quite question around pricey that the competitive are dynamic than the market give a sense now of kind of were capacity utilization rates are or how much flak the reason the system in north america and you again i think we we spoke about this lack what are you know it seemed like there were some point older plants maybe they didn't taken out of commission and with a little bit difficult a thing from the feet were sitting and really to get an understanding of just where would the industry sits right now and tribunal data rates really call color you can help with the would that would be would be would be helpful yeah right you know america's good and it's a specific number on utilization rate because it's it's really a moving target right now and you know we have you think about plan was then serialization race below where even stored we operated but on top of that you know we as we have shut down and start ups them in over the past
spk_18: since it the pandemic started it really muddy the waters on what your overall capacity is now we know the absolute number historically
spk_3: but you know it's about run and production as much as you can in light of the disruptions were experiencing and they've got a lot better and we're gonna lie like i noted my remarks were a lot better at justin and moving production around when we have a disruption to service our customers which also there's a cost element to that so you know i think i like this
spk_16: because more stabilized
spk_0: brian
spk_16: boy have a better understanding of
spk_19: the overall capacity yield utilization and across the industry and and you know to of said expenses experience and zone same thing that we ourselves
spk_20: it is it's a bit of a moving target right now
spk_3: right yeah i appreciate that thank you ankara what or next question from compound palmer with jp morgan
spk_21: the morning and thanks for the question on i wanted to ask on the retail shipments i i was a bit surprised the quarter to the figure was only flat given our robust you're branded take away as i appreciate branded much stronger than private label but do you think that the quarter to date shipment figure is it
spk_9: reflection of overall take away transfer for you at retail or are shipments maybe lagging that that take away labor
spk_19: yeah i think that that armed
spk_22: again as i said i'm prepared remarks that that on are branded business we continue to perform very well and and private label we've we've seated some of that that that volume or that started really and que three of last year
spk_3: and so i think that that are branded performance yeah i think it is continues to be very strong but that private label us as our loss as or overall sales out of the retail i think that that accurately reflected now category trends out of the retail stores and when you get the nails nielsen data and as we do and so you you see those are or continue to be pretty strong overall but for us is that if that makes trade okay thanks
spk_21: an argumentative couple for lpl next quarter we've we seek us our minds at least you don't be getting good to try and more favorably
spk_0: are you seeing those customers turning back towards there are starting to plan limited time authors and to you know to what extent my those start to blow through in the next one or two
spk_19: yeah tom i will get into specifics on customers and lg owes when i will say is you know there's
spk_23: there's renewed interest across many of our customers or but those obviously take some time to get through the
spk_19: the innovation and then get it on menu so more to come on that but also say is there some renewed interest in it i beg you we'll take our next question from my dickerson with jeffries
spk_1: okay thank you so much
spk_3: yet since the in terms of the crop this year it sounds like know what you're saying and prepared remarks and is when crop maybe you're forcing areas that sounds you know about average this year which is good
spk_1: but given the either production the number potatoes that when the ground this year finishers crab and kind of where we are yell and
spk_24: in terms of the hardest time and i do you kind of curled find that the man supply equation you know fairly healthy it out this point when you look at the overall broader crop and then secondly you know could others the maybe some a disadvantaged you have given them the reemergence of demand ah but maybe some buried
spk_25: regional supply forcing that their i think our overall our characterize it is right now based on
spk_19: you know our overall demand forecast were balanced from a raunchy the industry's account in the same spot so he with your years as you know the our forecast change we quickly line at with our needs and are i came does great job canvassing are growing areas and ensure that dad
spk_3: our power to serve as our customers i think everything's pretty bad right now okay great
spk_1: and then also
spk_3: them for recently know large how ignored since we started construction and one of their plants are they were shouting at the start in charge them we hit the back building
spk_2: and obama seems like i say so much for this you're curious year with if you divide comment on just maybe like you don't be sad to see more confidence you know on the other industries like structural a basis of the industry as we think about or even going into counter twenty one because lot
spk_3: much the be out to run a some now but get up with a gun out for eighteen months in a like the tartars that for your plant you know would soon to me that the industry is saying yes were targeted ads but we also had to be prepared for when demand that because you know the industry of always and destruction impaired at this point
spk_23: that
spk_26: yeah absolutely it's a it's a
spk_0: motor car but as for the category that we feel same way and you know so
spk_19: one of the a one main reasons for increasing capitals ran job to for capacity and you know that added that product category as man
spk_1: growing over the years so you know we're we're evaluating
spk_27: yeah we're thinking about two years out and as the saying returned back to normal
spk_3: yeah i think everybody's gonna get us or does it after her plans and i'm those move the can't move move the category forward and i think it's absolutely about confidence okay great thank you have it on what he got knocked question can adam samuelson with goldman sachs are you think everyone wearing arab and yeah maybe maybe i'm taking off who robbed got question just are on on on the last supply i believe the contract rate in and up in the pacific northwest with years up about three per
spk_19: sat and in under trying to sure when you take pride in stable terms of your contract negotiations with with with your customers he that pricing fable a knack number or is that and growth number to me i think about flat top line price for nurses should be a and motivating a digit inflation on the on the eight about that
spk_2: yeah and i'm in in terms of the pricing negotiations with customers a quote what we were speaking to
spk_19: is that that that generally the the pricing negotiations you know we're were consistent with expectations and so i think there was some concern that that some had expressed on our last call that that there might be surprising pressure and and we just haven't seen that now the
spk_3: that in our global business you know those big chain customers we ten on average to have about a third of those contracts come up every year and those contracts structures are different somehow pass pass through elements some from the somehow just cost inflation elements and so forth and so you know that that it's it's you know fairly variable in terms of how those contracts were but i think overall i think the readers that that that pricing and a marketplace for sales continues to be in good shape stable from our expectations
spk_1: the on the raw side you know the crops in good shape and and and we've got what we need to serve as our customers for this year
spk_3: okay not that awful and then enter the followed just thinking about ah in the fc game line and he may have frame has what back and look like to see or know your body kidding very tight lid on one discretionary spending and something like a near barely eking and the current environment but what back and look like and corollaries any update on the ip project in terms of timing the completion yeah adam is tom are you know in terms of as dna we've you know early on i agree madison you know put a lid on stopped all non discretionary spending and projects and ah you know travel those kind of face and will continue to do that as he also terms of levels of as a i think we target around eight nine percent of sales and you know the with that said as as they continue to improve you know there's there's some things we may choose the best and
spk_27: within es una but or matter that tie the like we have in the team's done a good job put a lid on cost of now discretionary
spk_0: in terms of the rp
spk_1: yeah i got all of take that tone in terms of the er p i'm in a we we have implemented release wanna that e r p which covered our financial reporting covered are maintenance in the plants and covered are indirect procure to pay cycle
spk_28: and that with that been implemented in is now operating and and standard r p exercise not perfect but but not horrible it's all it's it's fine operating well the team's done a great job with it
spk_3: in terms of released to that impacts more customer facing an inventory elements and and given the car environment wow we're we're really step back from that one to let the keep people in the business run the business and is challenging time and to just managing three the risk so we're going through the assessment now to determine what the timing is to do that but we we have relaunched at this point i'll get or that are helpful thanks so much we'll take our next question from brian time with wells fargo security hector's amazon and my question has do out your potato supply you know you had said coming into the years your contract contractor down twenty to twenty five percent and he made some earlier comments that your your bounce from our law perspective relative dear forecast how much latitude do you have to catch up with demand with spot potatoes you you know if you were to see demand come in stronger than your forecast we we have a ah like we do every time this year we have a pretty good idea
spk_2: work with our growers potato growers as potential the potatoes
spk_1: available and we make decisions we make decisions as you're already it out you make sure that we have are able based on the changing forecast and it will continue to make those decisions throughout the course of yelenic sixty nine hundred twenty days as they change
spk_3: the so there is some flexibility in the system you in on and that the whole industry dead cow the same playbook so
spk_29: like i said we go we make some decisions
spk_3: me the to do today to do some things to keep it bowels right now based on our latest thank you all know how the the demands gonna play out for the bowels of the year it will continue to evaluate it and we have a great a team that has a very good understanding of what's available on the market so i asked i have no concern that will be if if things improve dramatically the we have a plan and played to make sure we stay balanced
spk_1: my next question is that you know you you touched on lp owes the potential you know enough in the margin opportunity to as you see historically know he has no in your discussions with in contracting for the upcoming year
spk_3: with your qs our customers what what is their mindset around l t owes is their potential for more of them or lesser them year over year you know or can you just touch on that the potential quantity of alfio going to your view basis
spk_1: yeah i think the the way to think about it is the others a period where
spk_3: he a lot of customers have all different sizes were focused on many simplification
spk_1: based on you know the environment that unfold in the last six months of i think you know now that now that there's a return of demand you know the the mindset was so our customers is
spk_30: share of occasion
spk_3: i'm you know so that's that's leading towards renewed discussions on
spk_31: no el tio activity and what that could look like for some of our customers and every customers different so some are more aggressive on menu items than others and you know that the thing to remember is you know what those disgusting stars and does take some time
spk_3: to get him in the marketplace not menu and the my last question is you you and you touched on this briefly know you look at capital allocation you talk about wrote returning cash to shareholders you know given the lord has utilization in the industry oh we could see there might be from the outside looking in opportunities to maybe make some capacity acquisitions and more favorable multiples when you're out in and not too distant past can you touch on maybe what the and a pipeline looks like today vs you know a year ago and and do feel more confident putting money to work on acquisitions vs returning it to shareholders noted for me thank you commoner up
spk_1: yeah so you know consistent to would i've talked about in the past
spk_3: one of our strategic pillars in best for girls and import parlours his emanate and
spk_32: you know we continue to canvass
spk_0: the industry even in the last six months or san as in touch with
spk_3: opportunities as possible and at hand you know it's that it's an environment that may lead to some opportunistic am a day and it you know the the great news is the around and see we're done a good job good nerve
spk_0: you get in the revolver down in this environment and you know building some
spk_3: additional debt so we cash on about she'd go out of firepower and you know have the opportunity presents itself the in already play so we can to eat everything we can move some forward in our radio like pure comments
spk_33: what are your next question from like a cellar with to be morgan
spk_3: oh look at four o'clock on supply like to power ah don't want kobe related concepts are breaking than out in more detail white person and third do you expect to recur each quarter going for it throughout the year
spk_0: yeah the that this is rob of the it that's so hard to determine because what you what you're trying day forecast there is how many infections you're going to have where they're gonna come on what line and so how you shut that down so i think that's it
spk_34: a challenge to the forecast so
spk_0: you know that the the best that we can do is disclose what what has happened and disclose enough of the detail and then you know i'll let you do your on forecast uncovered and nice and the spot
spk_35: now that think you a know how are you evaluating your south a at retailers you feel like you have the right you that retail and then how are you looking at this in the food pyramid space as well
spk_0: yeah i think from a retail standpoint
spk_1: we forget about our shelf space and facing is rob mentioned you know the the branded offerings aren't shell for doing pretty well
spk_0: and you know we were continued evaluating

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