Lamb Weston Holdings, Inc. Common Stock

Q2 2021 Earnings Conference Call


spk_0: the tree and welcomes the lamb western second quarter twenty twenty one earnings call today's conference is being recorded at this time of extra and the conference over to that you're probably bp investor relations have lambasted please go ahead
spk_1: good morning i beg you for joining us what atlanta was his second quarter twenty twenty one earnings call this morning we issued our properties release which is available on our website i am western dot com 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 duty to risks and uncertainties the cheaper to the tosh nary statements and risk factors contained in our se si filings but more details on are forward looking statements some to date remarks include non gap financial measures these non gaap financial measures should be should not be considered a replacement for a should be read together with our gap results you can find the gap the non gaap reconciliations and are earning choice with be today or one of our president and chief executive officer and robert that are chief financial officer will provide an overview of the current operating environment while the apple provide some details on our second quarter results as was some ship and transfer or quarter but that for me now turn the call of at the top
spk_2: thank you dr commercial to thank you for joining our call today
spk_1: when under salad finance result in a second quarter a large fire lamb watch temptation for ten just tax cheat well for the showers experiment that's only possible because of their ongoing commitment to serving our customers suppliers and communities and i can thank them enough as or dedication and sport
spk_2: or so and quarter results also reflect operating conditions that were generally similar to what we experience in the first quarter
spk_1: all restaurant traffic and the us was written by only steady and around ninety percent a pre pandemic levels from last quarter
spk_2: our traffic in front of the potato to me or a continue to vary widely by channel
spk_1: drag at large chain restaurants are essentially at higher levels as quick service restaurants continued to leverage drive through take out and delivery format traffic at full service restaurants with seventy to eighty percent per year levels for much as a poor however traffic began to surface in november as governments reimposed social and on palestine restrictions in an effort to contain a resurgence of coke and at the onset of cold weather tampered outdoor dining out
spk_2: opportunities across many markets
spk_1: traffic and demanded non commercial customers which includes lodging hospitality healthcare schools and universities sports and entertainment and workplace environment was fairly steady at around fifty percent greater levels for retire quarter
spk_2: in retail consumer demand continue to be strong with weekly category boy and girl between fifteen and twenty percent versus apply here outside the u s restaurant traffic and fried demand or uneven even across markets and varied within the quarter and europe or to serve our way unless my joint venture side man during much of the quarter was similar to last year
spk_1: but and seventy five eighty five percent a prayer levels during the latter part of the quarter as governments reimpose social restriction and as weather turn colder as you may recall and like in the you asked us are as in europe generally have only limited drives are capabilities the man and are other international markets was mixed in china and australia the man was nearby your levels and are other key markets in asia latin america overall demand improve sequentially from our first quarter but remained well below prayer levels point or weeks by many of the softer traffic and demand trans that we began to see in november to carry over into our fiscal third quarter
spk_2: the surplus sure resurgence of covert in the us and europe has led government imposed even more rigid social restrictions in addition respect outdoor restaurant times in traffic and our largest markets to fall further as we enter the coldest months of the year in the northern hemisphere
spk_1: not surprisingly leaseback traffic at full service restaurants or continue to be disproportionately affected
spk_2: major tsr change in the us should be able to continue to hold up well due to their ability to serve customers be a drive through a delivery retail should also bad it as consumers eat more meals at home and as radical discuss layer while still early or shipments to those channels in december support that you
spk_1: some water and i'm near term we anticipate faith and even more challenging and are operating conditions there what we experience and the first half of our physical shares on the other and we believe this code and a shock to demand is temporary are competent in the strength of the frozen potato category and you not see any structural impediments to recovery and i'm man and girls over the long term
spk_2: as covered vaccines become more widely available on the coming months and and the virus is more broadly contain weeks by governments will gradually less also restrictions this lead to steady growth and restaurant traffic as a year progresses we believe this world will lead to overall president date on demand approaching pre pandemic levels
spk_1: on a runway basis but in the calendar twenty twenty one and i'm sure time we're confident in our business fundamentals the pricing capacity utilization and tales supply and our ability to manage through the pandemics impacts on manufacturing operations i recently announced increase in our quarterly dividend and the play and resumption of our share repurchase program reinforce our conviction in the strength of our business and category as well as our commitment to sport customers and create value for our stakeholders
spk_2: in summary we delivered solid gg results and are executing well and a challenging environment
spk_1: so expect frozen tail demand a spokesman in the near term do to reduce traffic falling government reimpose social restrictions as well onset of colder weather and we're optimistic that the increasing availability of covert vaccines will enable restaurant traffic to gradually improve your progress as and that dumb animal approach prepare endemic levels but he and of challenger twenty twenty one fella return to call over to rob
spk_3: thanks on good morning everyone
spk_1: as time noted we delivered solid financial results in the second quarter as our teams continued to manage through an ever changing demand environment as well as coded related disruptions to our manufacturing and distribution networks with a quarter net sales declined twelve percent to eight hundred ninety six million dollars sales volume was down forty percent largely due to pry demand that restaurants and food service been negatively impacted following government imposed restrictions to contain the spread of coded as well as colder weather beginning to limit outdoor dining across many of our markets in addition volume was down as we laughed the benefit of additional shipping days related to the timing of thanksgiving last year overall as tom described earlier restaurant traffic and our sales volumes in the u s stabilized at approximately ninety percent of free pandemic levels although performance varied widely by stay on channel international sales were next that improves sequentially vs or first quarter price mix increase two percent driven by improved price in our food service and retail segments as well as favorable mix in retail gross profit decline sixty two million dollars as lower sales and higher manufacturing costs more than offset the benefit that they will price mix and productivity savings as we discussed in our previous earnings call we expected or manufacturing costs to increase in the quarter this was partly due to processing tito's from the twenty ninth teen crop through early september which is a couple of months longer than usual we did this in order to manage finished goods inventories in light of the pandemics impact on friday man processing older crop result in increased cost due to significant big to hire raw material storage fees and lower recovery rates since we typically carry upwards of sixty days of finished goods inventory we realize the impact of these costs in our second quarter income statement as we sold that inventory we also realized tire manufacturing costs to the input cost inflation primarily related attaboy else rob caters and other raw ingredients overall or input cost inflation was in the low single digits finally we continue to realize incremental costs and inefficiencies resulting from the pandemics disruptive affect our manufacturing and supply chain operations as a reminder these costs more to relate to labor and other costs to shut down sanitized and restart manufacturing facilities impacted by kogan costs associated with modifying production schedules reducing run times and manufacturing retail products online primarily designed for food service products and cause for enhancing employee safety and sanitation protocols as well as for and rental where housing transportation splicing costs specifically in a quarter we had notable disruptions in our facilities in idaho as well as lesser ones and some other facilities we expect to continue to incur coded related costs to at least the remainder of fiscal twenty twenty one as a result we consider these costs and disruptions as part of our ongoing operations and are no longer disclosing these costs separately sg and eight declined by nearly eight million dollars in the quarter largely due to lower and incentive of compensation expensive rules and a three and a half million dollar reduction in advertising and promotional expense the decline with partially offset by investments to improve our operations and i id infrastructure which included about five million dollars of non recurring consulting and training expenses associated with implementing phase one of our new york v system equity method earnings were nineteen million dollars which is a four million versus last year excluding the impact of unrealized mark to market adjustments equity earnings increased about two million do better performance by our european joint venture however like in the us or shipments softened during the latter part of the quarter with like any effect on harassment restaurant traffic of governments reimposing social restrictions as well as colder weather on outdoor dining he the dog including joint ventures was two hundred and thirteen million dollars which is down forty eight million the decline was driven by lower income from operations and was partially offset by fire equity method earnings eluded dps in the quarter was sixty six cents down twenty nine cents largely due to lower income from operations pps was also down due to higher interest expense reflecting are higher average total debt and the right off some debt issuance costs as we paid off a term loan a year early the decline is partially offset by higher employee or earnings moving to our segments sales for a global segment which generally include sales for the top one hundred north american based us or and full service restaurant chains as well as all sales outside of north america were down twelve percent in the quarter volume was down eleven percent due to softer demand for fries outside the home especially in our international markets shipments to large chain restaurant customers in the us of which approximately eighty five percent or to qs ours approached prior year levels as us ours leverage drive through and delivery format however some of that strength also reflected pulling forward sales a customized and limited time offer and products from the third quarter international sales which historically comprise comprised about forty percent of segment sales where'd about eighty percent of prior levels in the aggregate but very by market shipments and china and australia approach prior your levels or shipments to other parts of asia and latin america improve sequentially as customers and distributors and many of these markets were able to right size and mentors however they remain well below prior your levels price mix declined one percent as a result of negative next price alone was black love of product contribution margin which is gross profit less a mp expense declines twenty eight percent to ninety three million dollars lower sales volume fire manufacturing costs and on a bull mix drove the decline sales for food service segment which services north american food service distributors and restaurant chains generally outside the top one hundred north american restaurant customers declined twenty one percent in the quarter volume decline twenty five percent segments to smaller chain an independent full service and quick service restaurants tracked around seventy to eighty percent of prior your levels too much of october but slowed to sixty to seventy percent in november following governments reimposing social restrictions and it's colder weather tempered restaurant traffic
spk_3: and some of our markets
spk_1: shipments to non commercial customers improved modestly since summer i remain at around fifty percent of prayer levels with strengthen and healthcare more than offset by continued weakness and the other channels spice mix increased four percent behind a carry over benefit of pricing actions taken in the latter half of fiscal twenty twenty mix continued to be unfavorable with some hard hit independent restaurants looking to reduce costs by purchasing more value added products rather than the premium lamb west and branded once while we brigade much of this business since the pandemic first struck last spring on a year over year basis it remains a mix headwind food services thought for a contribution margin decline twenty one percent to eighty eight million dollars lower sales volumes are your manufacturing costs and unfavorable mix drove the decline and was partially offset with by favorable price sales for a retail segment increase seven percent in a quarter price mix increase seven percent primarily reflecting favorable next benefit of selling more of our higher margin branded portfolio of alexa alexia grown in idaho and licensed restaurant trade more
spk_3: thanks
spk_1: you increase nominally tales of are branded products were up about thirty percent which is well above category growth rates which ranged between fifteen and twenty percent the increase in are branded volume was offset by the lot of certain low margin private label volume the began late in the second quarter of fiscal twenty twenty as well as an additional amount that began a couple of months ago as a result we expect private label losses to continue to be a headline retails product contribution margin increased six percent to thirty million dollars the increase was driven by favorable max and lower mp expense and was partially offset by higher manufacturing costs moving to our cash flow and liquidity position where comfortable with our liquid a position and confident in our ability to continue to generate cash in the first half we generated nearly three hundred and twenty million dollars cash from operations which is down about twenty five million versus last year to lower sales and earnings
spk_2: we spent fifty four million in cap acts including expenditures for a new york the system
spk_1: we paid sixty seven million dollars in dividends and a few weeks ago and else to two percent increase in our quarterly dividend in addition we plan to resume our share repurchase program this quarter as you may recall we temporarily suspended or buyback program in late fiscal twenty twenty in order to help preserve our liquidity during the early days of the pandemic as we discussed in our previous earnings call in september we amended our credit agreement put in place a new three year seven hundred and fifty million dollars at all at the same time using a portion of the more than one billion dollars cash on hand we prepaid be approximately two hundred and seventy million dollar outstanding balance on the term loan there was due in november of twenty twenty one at the end of the second quarter we had more than seven hundred and sixty million dollars of cash on hand and our new revolver was undrawn or total debt was two point seven five billion dollars and our net debt to even da ratio was three point one types now turning to our shipments so far in the third quarter broadly speaking in the us demanded qs ours and at retail are holding up well while traffic at full service restaurant restaurants continues to soften specifically us shipments in the four weeks ending december twenty seventh were approximately eighty five percent of prior levels in our global segments shipments to are large us are and full service chain customers in the us were more than ninety five percent of prior your levels
spk_3: we expect that rate will largely continue for the remainder the third quarter
spk_1: in our food service segment shipments to our full service restaurants regional and small fewer sars and non commercial customers in aggregate were sixty to sixty five percent of prior your levels that is largely in line with what we realize during the latter part of the second quarter we anticipate that shipments to full service restaurants and small and regional us ours will continue to soften and social restrictions broad the winter weather takes a bigger bite out of outdoor dining shipments to non commercial customers which have historically comprised about twenty five percent of the segments volume were roughly half about prior your levels and will likely remain soft for the remainder the corner in our retail segments shipments were about prior your levels with strong volume of are branded products partially offset by a decline and shipments of private label products we believe that this rate will largely continue for the remainder the quarter outside the u s overall demand has slowed that has varied by market in europe shipments by our land much to my or joint venture
spk_2: were approximately eighty five percent of prior your levels continuing the softer demand that we realize during the latter part of the second quarter
spk_1: we believe that shipments will continue to soften due to severe social restrictions and colder weather humans to are other international market which primarily include asia oceania latin america were mixed in aggregate international shipments so far in the quarter of them softer than what we realize during the latter half of the second quarter as a reminder all of our international sales are included included as part of our global souls in short other than a us que ours which can leverage drive through access global demand for fries at restaurants and food service will be soft and the third quarter following governments real is a every imposing restrictions to combat the resurgence of coded as well as colder weather in our northern hemisphere market limits outdoor dining opportunities with respect to contract pricing after completing discussions for contracts that were up for renewal we expect pricing a crime or domestic large chain restaurant part portfolio in aggregate to be flat vs prior year
spk_2: outside of these large chain restaurant contracts on balance domestic pricing is holding up well
spk_1: are we continue to see increase competitive activity in more value added oriented products in some international markets and to a lesser extent in some value tiered domestic market segments with respect cause the potato crop in our growing regions in the columbia basin idaho alberta and the upper midwest is consistent with historical averages in aggregate we don't see any notable impact on cost outside of inflation crop and are growing areas in europe is also broadly consistent with historical averages which should help ease cost pressures they're vs last year however we do expect to continue to incur additional cost as a result of kobe it's disruptive impact on our manufacturing and supply chain operations
spk_2: and we expect that will continue to do so until the virus is broadly contained now here's offer some close encounters
spk_1: ankara our lives just for the summer by saying while the near term environment will be volatile we believe that a restaurant traffic will gradually recover to prevent epic levels but a calendar twenty twenty one
spk_2: continue to focus on the right strategic and operating priority to serve our customers and build upon long term health of the category in order to create value for stakeholders
spk_0: thank you for joining us today and we're now ready to take your questions thank you ladies and gentlemen if you wish to ask the question of this time t signal by pressing star one on your telephone keypad please ensure the meat function on your telephone his twitched off to lie your signal reach our equipment again teeth christian one to ask a question
spk_4: and we can take our first question from and you know their affair please please go ahead
spk_2: when your body and happy new year
spk_4: what is your of happy new year and to two questions for me if i could first you would with visibility to getting back to pre pandemic levels of of demand by calendar year and i'm curious to are any signs you are seeing have a lasting leadership in competitive dynamics among sort of a clean north american players that could result in lamb one
spk_2: in coming out of it in a stronger in a relative position that it when it yeah and are so i think you know
spk_1: right now the the industry the all navigating through you know the pandemic and
spk_2: your from for want some standpoint the our strategy about changed and in a while we have caused a few things that we're thinking about pre pandemic i will tell you that were actively in some projects and it and it's all about positioning as company as we we believe the demand it returned my calendar year and you think about eighteen months from now
spk_1: have you ready to gas or share demand across all world so while we have caused a few things we have read we engaged in some things projects that we're working on they were move those or and yourself and position twelve eighteen months from now that captures dead
spk_4: captions to man we believe you come back to prevent emmett levels
spk_5: that the good segue into my my second question which is and i know it's an odd time in some regards to ask about incremental industry capacity but you know if you see frozen complicated i'm man approaching pre pandemic level again by county around and and you know assuming demand globally grows it your normalized levels from there and know it takes a few years to get your new
spk_4: capacity for the industry on line
spk_2: when when would you think we might hear from new new industry capacity addition to being announce whether it be in allow my skin or or others yeah jail one of our competitors the elder and the process each day any capacity that they were working on prevent damage
spk_1: yeah from our standpoint and we got some things that were moving forward and your the right time and an older all the work around it
spk_2: you're only that decision the other thing that you was a silver linings with all this his we've really focused entirely on ours efficiency and operation efficiency within our current foot plan and it did given jealous visibility to opportunity we believe within the car manufacturing footprint to locked
spk_1: capacity so yeah that's something that the supply chain came in lamaze and is focused on we have a big initiative with and supply chain to unlock capacity and drive efficiencies and you know if you think about and or the the times have you know new capacity versus what we have our so proud i'm a hundred percent confident that was our supply chain initiative unlocks isn't a bad decision our turf flat bread that were absolutely and a great position as the man returned to support the are not only our current customers desert their business returns at all for future demand and category girls are still squirrel your position
spk_4: but again every time we only those decisions in terms of getting ourselves ready for them and resurgence g twenty four months out
spk_0: thanks return
spk_6: and we can now take our next question from adam sandlers and goldman sachs please go ahead
spk_2: ah yeah thanks are good morning everyone maria maria
spk_1: morning i at so i guess my ah my first question is really really digits or the the pricing comment you made i made earlier in kissimmee where you're seeing them without a criminal competitive activity international you that will you be that presented in your export markets and the us not admit that your tmj the that is that european competitors you are looking to you pushing to asia to tell me think about and from frame kind of where you're seeing that is that later they hadn't played before and then and domestically on the the in the value to your side that just european and pointing to the his coaches hundred think about the origin of i can tell you dragon and how
spk_2: clearly how much your volumes of only kind of training in the
spk_1: yeah this is rob the in in terms of the that price and the internationally it's it it is is a mix of where that's coming from the the competitive some of that in some markets where there is some of that lower end up production is coming from local local producers i just brought in the cash flow and solve it is coming from access pass for the in europe ah
spk_2: similarly in the us again it's it's in that lower end
spk_1: the value market and and we have seen some increases from the europeans that that the
spk_7: and you certainly having some impact in in that limited or market
spk_1: and just do it anyway
spk_2: each time you do the job think we're just how much that your business is really into categories resisting and shreds contextualized kind of for pockets with there isn't all that a competitive eventually die and we all we don't necessarily just cause there but but drops point it's it's the lower i'm fine flow what we call it so it's really
spk_1: not cheerio piece of our business the point years
spk_2: you know it it's more pronounced in asia
spk_1: the europeans are being competitive in asia and it you know it's it's not one market specifically it's random markets in asia and the are changing a good job trying to old sir but i'm you know when you get no situation stab you know customers are going to think think about gonna do for direction but
spk_2: the we'll watch closely did it is more pronounced in that as man but i will say no
spk_6: it it's nothing that weren't not used to dealing with it's just more aggressive and eligible work through it and caps are opportunities where we can
spk_1: okay that's wonderful management my second one was going to be anything about the tissue third quarter and can of volumes of slowing down on foot from where they were anything
spk_2: seemingly a little bit more orderly than that that he might have been in the spring on distributor i'm sensitive and thinking about the gross margin kind of occasions in the of of the mark on soccer volumes in the near term and just kind of letters you can or just the billy a plan better than to manage that kind of lower volume near term else i'll talk to the the patterson en route in the parks and you know if you think back sir that the national stars also oh pandemic your business evaporated were down sixty percent in total of sixty percent so you know as we learned over the next quarter while our
spk_1: did you know we're see softness and some of the channels to separately food service
spk_2: i don't believe it's going to be anywhere near was when all are saying started now that said you know we we gave times on what's happening go through december
spk_1: and you know i think that's gonna be word workplace out over the next thirty six days widgets or winner things are open a back up
spk_8: the most important thing for
spk_1: us
spk_2: as to be prepared for the opening back up and we learned a lot of lessons last spring as a management team of myself personally that know we have to be ready and what does that mean it means if you think about april may were taken some measured right now so sure we gotta write him and towards the right product so when the name demands snaps back which we believe it will spring and start increasing we can serve as our customers
spk_1: all the while recognize that
spk_2: you know we're still dealing with was manufacturing operating issues because of calvin in terms of efficiency so in on the one hand while yeah things are falling down and some areas on the other hand it's a great opportunity for us to get ourselves positions to a man on the same stamps back so and her to ask me about i'll them as we come out you know get the spring and summer and get vaccines and the same hopefully starts getting behind us
spk_6: the other time leaders can be soprano demand for people to out go out again and he has already prepared for that
spk_0: okay great and advance really help come on monday
spk_6: we can now take our next question some massacres dickerson jeffries please go ahead ah great thank you very much
spk_1: don't disturb you can go back to will comments you made on to the the where you are now in terms of you know the get into tories and ah i have to be ready by presidential debates snap back in that spot april manager and whatever is on they have do you feel i guess we're you know around or about my and lessons and a current inventory levels and maybe the industries in between levels and a be the be right some of this kind of hopefully temporary softness in the two three in part of the business later there is a movie set back you say okay this is where we are now potatoes be as good as the industry has
spk_5: the feel like the kind of forecasts he had so much appropriately know for them to demand will be go back to write march your goals
spk_1: of last year the now as you sit here you think about two three and did the yeah into the spring summer you kind of say yeah you know he still feel pretty guardians revealed pretty good about his inventory levels and long at that the man does snap back so we're out once again and you have so to speak over inventory that there
spk_2: yeah i think i might my point of view as i mean i believe industry balance from from level as stand point where or balanced i feel good about you know ah barat on broadway ability and are tracking at work what what we have in store and to meet the needs even if there's or and demand
spk_1: think we're good shape the yellow yeah that thing that we're working on right now makes your weed out the the right inventory levels of product that
spk_2: was really cold when the economy open back up and may june and so we got data and we can look and see what customers the products they were they were we were ship and job so or positioning those products that the out a different level safety shocked if you will die just anticipate that anna and elsa mortgage save on fence good him a toy towards the think the thing to remember it is you know the timing of you know what or table may or june the timing of consumer demand i'll go out to eat more maybe it's further down the road i'm more manage it and we can manage our production and we can manage a mentor level so he others things we can do and have done and always do just to manage
spk_1: the supply the demand side of it and so i feel good about we're at now
spk_2: like i said we're getting ourselves prepared for the man returned as we get through que three a day he overcomes you'll be in shape and will react as needed as based on the orange signals were getting from our customers
spk_1: yeah brad the other you get frog the other point a major the distinction i initially oh when when the pandemic first hit demand it it felt like when i have perfect insight into the downstream distribution you know through the channel but it felt like they were working with old models and so the orders continued to calm
spk_9: even is endemic and user to ban was coming off we're seeing a quicker adjustment in that now and so i think if we've learned they've also learned and and so that i'm not a concern about downstream channel be an overloaded
spk_10: okay great
spk_1: can confirm that might need to specific gonna have a mom and question but got shot on though you know you global division label janet sales decline four percent by two years that features i get in the shipping days in addition of or is he says
spk_10: last night so that's pretty good all things considered
spk_1: i'd argue if i'm thinking about you three night
spk_10: you don't have it out that big tough compare so to speak on the boy inside good than the speaking did to global so you know it is it there
spk_1: that you know what should we be sitting on the global side that he has scales the trajectory of that year the year showed in philly brilliant food
spk_2: right assuming that you shipments are still pretty good you know to to be pandemic to the kind of feel like it or we can all one model down still on on but obviously the or go does matter that just any color on that would be awful yeah i would say that in the qs our side the big us ours
spk_1: that that at demand seems to be just fine there they figured out the model on their leveraging the the the the drive throughs and so forth in that in know there there are other parts of of that business that nom ah you know sell to more more sit down restaurants in the end up going to continue to look what our food service and then in our international sales and okay again that varies by contrary we we sided that china australia being relatively strong but there are some other international locations which aren't as strong as european take your now recognise europe's not in our say old line it's down in the equity earnings and so in europe the qs as are don't have the drive through so we'll we'll have some some headwinds there
spk_10: just because they don't have the same model
spk_1: and it was very quickly forgotten as ask
spk_10: the past month to sell and a while dusters gonna come to me and sale we've heard the night he left in some contract pressure of the larger tsr domestically ah i had no evidence of that speak until it sound like things are pretty dead so to speak after what i'm hearing sell that
spk_2: do you the opportunity the exact that a is that it said had some a the blacksmith every contract passionate any magic cure sarge nuts off back
spk_11: that we are specifically
spk_2: talk about ah customers to go to asians
spk_1: what i will tell you we're just like every other year we go through a have contract see them with our customers so to speak
spk_2: and just like last year just like hear me for the sheer with i came through as as wage packet and yeah that's that's
spk_10: generally where we ended up
spk_0: okay perfect thanks guys appreciated
spk_1: you
spk_2: and we can now take our next question from tom palmer jp morgan piece colored
spk_1: the morning and thanks rob detail on a crime trends on in the policemen the prepared remarks you mentioned your view that the overall rating potato industry man could could plead pandemic levels by the end of his calendar year i just wanted to clarify how this with a final name watson would you assume that the company's sales trends it be comparable to the overall industry or on their reasons why you might diverged from the industry either because of a different channel next in the industry or because of some some customer wins or losses that have been taking place yeah does it as is robyn in terms of our our overall performance again the food service business you know that's where we expect to see this have as we talk about of a to queue as ours of largely gonna hell l their own ah so really in the food service
spk_2: where will see a lot of that strength and so and then some of those international markets are we talked about that has been a little more challenge and so those are the areas where we think will see the strength arm and again a farm talked about in terms of of the path to the unlock the supply chain team is working on
spk_1: you know while we haven't spent the capital for a new line per se but the guy to figure out ways to get some cattle out so do you think about that the ability to to service that pass the i think our our international sales team as well set up and well positioned and we talked about our food service sales team with that direct sales
spk_6: model them to being favored position relative to the movies of our competitors were more broker oriented
spk_12: that that adjusted their their service model a little bit the cost of that and so we do feel feel good that will have relatives opportunities
spk_1: okay so just to clarify what you mean by that you think you could either were with the industry if not better when you say returned to prepare number exactly
spk_2: okay thank you and then just wanted to ask you if you wrapped up prepared remarks with with the commentary on on contract negotiation i just wanted to clarify exactly what this means to you're saying that the contracts that renegotiated this year were flat and then should we assume that be nine the contract that a wool over as the typical place increases that are normally baked into them and so kind of that the net net of of your contract basket would be positive or you mean that the net net would be planning oh well all the contracts as i stated earlier or that we talked about and or donna share got to go to his work at what we expected and we will necessarily good and to the economics that so it's just did we got through it just like with you every other year and you know there's there's some contracts that we have that there is inflationary pricing mechanisms that are just that every year
spk_6: yeah those those contracts are in place
spk_0: the don't automatically the changes based on inflation just get passed through so yards or as a century other year happens really changed
spk_13: okay i understood that give can we can now take our next question from brian's plane of bank of america please go ahead
spk_6: hey i think you operator and happy new year everyone of now
spk_13: they do i could maybe get the pick up first on the dot com question on on around in inflation and pricing and i get the more i'm just focused on inflation you can you give us to to the a a a job either what you're seeing now you know i think like cooking oil has has inflated recently and you know we did it for a costs are higher i don't really know or would like to get me to get them inside to is is in terms of grower inflation just did it their inflation and things like
spk_2: a under oath of good allied your seed potatoes in order to try to get it said of whether or not you know the industry or or you feel maybe a little bit more input inflation as we move into into the out year versus what you've seen over the last the last few years yeah right love that about it address the the trial as we do every year we don't have any specifics
spk_1: i totally get through the negotiating which know that's it that's happening
spk_2: as i am as we're talking here so ill down the road yeah july october yeah we'll talk about what the overall prowl
spk_14: looks like an advantage of all and just like mature year so
spk_1: yeah it isn't ryan's rob it if if if you think about it mean a lot of as you know driven by energy fuel whether it's diesel run the tractor whether it's gas gone into fertilizer production things like that and and those tend to tend to move together
spk_13: i'm you you've mentioned edible oil specifically and and gathered there's been a little bit of an upswing in the market recognize we do hedge and so you know in and enter into longer term contracts and that and so if you put all that together i think that low single digit inflation overall is is what we're looking at ah in the near term and added farm said you know as we go through raw negotiations you know we'll see how that comes out with that and and then get the second one related to the innovation you know pre you know pre pandemic will get you look you look at last year and they reach them some i'm you know
spk_2: upside i get from some the limited time offer didn't the the more value added innovation the a particular you at dollars i thought you know as we start to normalize is there he give it to some color on on on kind of what be innovation pipeline maybe looking like and in madrid admit made their maybe a little bit of on
spk_1: media about up a pipeline i guess that be backed up a little bit in terms of getting from new product we can innovation into the market just because you know that it's been so disrupted over the last you know ten or eleven month
spk_2: yeah right i l l you can view kinda understand as and nitrogen and allow the specific some some of the things we're working on ah we you have a full pipeline i will tell you one one same though we are acceleration is or crispy odds delivery offering
spk_1: joy to him out that about fifty miles eighty months ago
spk_2: and you know we're applying her technologies to some different
spk_13: try format so with the
spk_0: it's are trying to sweet spot delivery
spk_1: and drive through it all those database and yell some subtraction on it it's a small base but it is the girls on first non delivery to accelerating okay great thank god i can now take our next question from prescribe stephen to go ahead
spk_15: hi good morning my happy new years while to you
spk_2: more interest is hi good morning said a couple questions than the first one to speed and been following questions you'd he didn't know the higher cost of proceed potatoes out of storage the been stored longer
spk_1: i did try to get a sense of your potatoes supply and the adjusting to beta supply to catch the avoid that was later the year at each other during a good place on supply and therefore the future costs for processing centers
spk_2: get hurt like i said earlier ah
spk_1: very well balanced with raunchy to base our latest forecast for the remainder of years i feel very comfortable our ah
spk_2: and justice in terms of
spk_1: the broader impact know with the that i am change last spring summer we made a decision to soared around potato longer than we ever and and the implications of that is just object to yield ah that were used to based on in stores longer just as a perform in the factories as well as a large storage sold or through all that ah you know gone forward with his own the car crash in storage we will process that on a normal timeline as we haven't previous year so it's just said it was just a one off thing to the decision based on the change in demand that you alive in the old crap longer so it's now but that that all behind us now yeah that makes sense when people him a second question you can remember questions around the am yeah with the march she contracts and similar potential protein and elements
spk_2: he was curious are the one time things you're doing or the may we on pricing the that meant to draw better demand i we talked about in a limits i'm offering quite the opposite of that the could be as i did the restaurants you to try to regenerate man i losing think anything to do an animal protein and promotion driven the shorter wait and your pricing in a small contracts
spk_1: now that that or not saying anything any change ah that's driving
spk_16: demand that the interesting thank her is that some the hell we are each look at all kinds of different
spk_1: ada the the encouraging thing
spk_2: as the importance of fries on menu is at an all time high
spk_1: now you know invariably say like of that holes as demand returns
spk_2: that's go further add to
spk_17: overall for as ride a it forward and feel that such as an answer staying same that or monetary right now
spk_2: alexander stand and whether that holds or not ah i'm remains of each season but ill again and you look for positive and that's and that's one thing that is really interesting
spk_18: because i can be
spk_0: if it holds to the level it's holding on the importance mandy importance
spk_10: hum
spk_6: yeah scale of a demand even further than what we believe it's gonna come back but in and calendar year which is causing free pandemic levels
spk_1: good thank you for that
spk_2: you cannot take our next question from when you're not or bank of america peace go ahead
spk_1: good morning i just have to quick one last quarter you laid out what the one time costs were associated with coded as wonder if you could lay out that again for the second quarter and then what of those will remain post gilbert yeah this is rob in in terms of in terms of the detail of that cause with we've we've really concluded that those are just part of our operating costs now and frankly it you if you go back to the first quarter and never going to the right off on ron and we were shot now lines for are you know for long periods of time they were real easy to carve out we did get some detail on on like you know what the increase annotation protocols and so forth and an mvp it's open bar in the plants and that continues on the rest of it you know if you bring and lines up and down and has become more difficult to really separate out what
spk_6: operating vs folded and so he just embedded into our our structure on an ongoing basis now and so
spk_2: it you know it clearly or costs structure should improve his as the virus gets less and less
spk_1: and we have less impact on our growing and so forth it's just gotten to the point where it's part of our normal operations of our business and embedded in our costs to we're not breaking that al
spk_6: that makes sense and then in terms of the gross margin pressures in the quarter your capacity utilization as well as this
spk_1: aged potato crop that had larger storage costs associated with that the guess with one of those with larger and will continue to see the head wound of the elevated storage costs on your player you inventory or are we to that
spk_18: yeah
spk_0: the not in terms of the stores cause that was just the carry over from old prof we we got through the manufacturer that crop ah i'm in in the the first in an an early part of the second quarter and they are those sitting in inventory and then sold and were out of that now in the second a the second quarter so we shouldn't see that as and when going forward
spk_19: okay and i guess just one more can sneak it in last time you gave us an update on a leverage target three to four times you that still the range
spk_6: yeah we haven't changed our leverage targets at all
spk_2: great i'll pass other thank you and i can now take our next question from corona tpm on more please go ahead
spk_1: hi national clicking has been answered by i guess given some of the weakness your see and the their ability to pick a new contract your new business
spk_2: the has that changed he talked about in the competition on the lower end and contracts that a private i guess that that's something more your existing you on buy new businesses in the opportunities and
spk_1: yeah you know it it's
spk_19: as time i am you know that the team or always talk and the potential new customers
spk_0: you obviously with the demand change
spk_1: yeah those are more difficult a lot of the customers that that we haven't party was initially was about your supply so your guy we are all that sell now as we got through the pandemic and in our team or sales team or on the ground search for new opportunities and as early as
spk_0: changed

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