Treehouse Foods, Inc.

Welcome to Treehouse Foods' fourth quarter 2020 conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please note, this event is being recorded. At this time, I would like to turn a call over to Treehouse Foods for the reading of the Safe Harbor Statement.

Good morning and thanks for joining us today. Before we get started, I'd like to point out that we have posted the accompanying slides for our call today on our website at treehousefoods.com. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as guidance, may, should, could, expects, seeks to, anticipates, plans, believes, estimates, approximately, nearly, intends, predicts, projects, potential, promises, or continue, or the negative of such terms and other comparable terminology. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, Uncertainties and other factors, including COVID-19, that may cause the company or its industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievement expressed or implied by these forward-looking statements. Treehouse is Form 10-K for the period ending December 31, 2019. Treehouse's Form 10-Q for the periods ending March 31, 2020, June 30, 2020, September 30, 2020, and other filings with the SEC discuss some of the risk factors that could contribute to these differences. You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented during this conference call. The company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein, to reflect any change in expectations with regard thereto, or any other change in events, conditions, or circumstances on which any statement is based. Also, we will be discussing some non-GAAP financial measures, including various adjusted items, organic net sales, and free cash flow. Reconciliations between the most directly comparable GAAP measure and the relevant non-GAAP measure and other information about the non-GAAP financial measures can be found in either the earnings press release or the earnings slides, both of which are posted in the investor relations section of our website, treehousefoods.com. For purposes of our discussion, our results and outlook are provided on a continuing operations basis, which excludes the impact of the snacks division, which was sold last year, and the ready-to-eat cereal business. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakland.

Good morning, everyone, and thank you for joining us. I hope everyone is well as we start the new year. I'd like to again begin my remarks today by expressing my gratitude to our Treehouse employees, especially the roughly 9,500 frontline workers in our supply chain, men and women that throughout the pandemic have shown up at work in our factories and our warehouses to serve our customers. I'm incredibly proud of how well we have managed the challenges of 2020 and continue to do so through this COVID environment. Our strong performance to close out the year was really a product of the entire team's effort and commitment. Now, there are a few key takeaways that I want to cover in my remarks today. First, in a tough operating environment, we have made substantial progress executing our strategy and have delivered on our commitments. We've simplified the portfolio, improved our operations and customer service, and transformed the company to position Treehouse for continued success. All of our efforts were critical to enabling Treehouse to successfully face pandemic-related challenges and will drive future growth and value. Our results for both the fourth quarter and the full year reflect this progress. We drove meaningful top-line growth and are also generating substantial cash flows that will enable us to not only deliver on our strategic growth algorithm, but drive additional growth through disciplined investment and a balanced capital allocation approach. Third, we are pleased with the strong progress we are making on integrating our Riviana acquisitions. which is on track to deliver significant accretion, synergies, and value. Finally, all of this is really just the beginning. After Bill walks you through the details of the quarter and the year, I'll come back and share some details around how we plan to continue to leverage our position as a leader in private label and to evolve our strategy to further drive growth. With that, let's turn to slide five. When I joined Treehouse in March of 2018, nearly three years ago, our work at that time was focused on stabilizing the business. We set forth a clear set of priorities and worked hard to execute against them. Our first priority was becoming operationally excellent. As part of that effort, we reduced roughly 11,000 SKUs, exited 11 manufacturing facilities, and meaningfully reduced the number of warehouse ship points. Importantly, we've also instilled a culture of continuous improvement. We also turned our attention to simplifying our systems by consolidating finance and IT platforms, going from 13 ERPs to three, and 100% order to cash on SAP. Another critical aspect of our work focused on reshaping the portfolio. Divesting the SNACNet business working towards the sale of our ready-to-eat cereal business and selling two in-store bakery facilities. With the exception of RTE, which continues to move forward, we have accomplished every divestiture we targeted. A proof point in 2019 was our service levels, which were solidly above our target the entirety of the year. This led us to pivot our focus to TMOS, lean, and driving continuous improvement mindsets across our supply chain. key to our long-term competitiveness. The stabilization of our operations allowed us to take the next step and build a commercial organization to increase customer intimacy and drive top-line growth, and also invest in our people and talent, focusing on our culture. In total, we delivered on each of our commitments. Our efforts resulted in meaningful financial impact including delivering approximately $400 million in run rate cost savings, offsetting a roughly similar amount of headwind due to inflation and lost volume. With that strong foundational progress made, we fast forward to early 2020, pre-pandemic. We entered 2020 focused on unlocking the potential of our businesses. We reorganized to a two-division structure, snacking and beverages, and meal preparation. Doing so allowed us to better align categories and businesses with how our customers think about the categories' roles, enabling each business to focus on their unique strategies and tactics that would best position them for success. In the simplest of terms, snacking and beverages, our growth engine, is about profitable revenue growth through innovation and distribution expansion. while meal prep, our cash engine, focused on improving profitability and generating cash through value engineering and simplification. As the pandemic took hold, the unprecedented pantry stocking in March and April was like nothing any of us had ever seen. And as we all know, 2020 was a different year than anyone had imagined. As we adapted to keep our people safe and service our customers, What quickly became clear is that Treehouse was well-positioned heading into the pandemic and that all of our hard work over the last several years had prepared us to successfully service the changes in demand, proving the strength of our business model. Our operations ran much harder to fill orders. Our commercial organization engaged with customers more closely than before. Our values guided how we addressed the pandemic. by prioritizing the health, safety, and welfare of our employees. The heightened volume improved our efficiencies and profitability, and our ability to keep our customer shelves stocked further differentiated us as a supplier, one uniquely equipped to support our customers through last year's very volatile period of demand. As we service the pandemic demand, the financial results for Treehouse a significant profit improvement, and strong cash flow. The pandemic allowed us to accelerate the timing for deleveraging our balance sheet and pull forward our discussions on how we can best deploy capital to create long-term shareholder value. Progress over the last few years has dramatically reshaped our business, our capabilities, and our expectations moving forward. Today, we have a very different platform than when I arrived. we are a company with a stronger balance sheet and greater financial flexibility. We are more capable culturally, operationally, and commercially. And I believe the proof is in the results that we delivered for the fourth quarter and the year. Turning to slide six, our results reflect that progress. In the fourth quarter, we delivered organic revenue of $1.17 billion, with Riviana contributing another $12 million. Our results were just over the high end of our guidance range, representing 3.3% growth, or 4% on an organic basis. This was driven by strong organic growth of 8.1% in our snacking and beverage business and steady 1.3% organic growth in our meal preparation business. For the year, we delivered 2.7% organic net sales growth, driven by outsized growth trends and unmeasured channels. increasingly composed of some of the fastest-growing food retailers in the country. Many of them also have heavy exposure to private label. On slide seven, we summarized the tremendous progress we've made in generating free cash flow of nearly $300 million for the year, allowing us to more quickly achieve our leveraged target range. Our strong cash flow and balance sheet enabled us to pursue the attractive and highly accretive acquisition of Riviana, After the acquisition, we finished the year with leverage of 3.1 times. Turning next to slide eight, as you remember, we announced the acquisition of Ebro's Riviana Regional Pasta Business in Q3 and completed it in December. Our integration plan is on track, and we're even more excited about the significant value creation opportunity. Riviana will enable us to build real depth in the pasta category, improve our efficiencies from an operating perspective, and enhance our service of national and regional customers for a mix of private label and regional brand. Financially, the deal will have an immediate impact, as we expect to add $170 to $180 million in revenue on a normalized basis and, in 2021, generate $25 million to $30 million in EBITDA and accretion of 20 to 30 cents per share. Fundamentally, we are confident that private label continues to present meaningful opportunities for Treehouse. As the retail landscape and consumers have adapted to the current environment, we're seeing signs that our customers' desire to strengthen their own brands is returning. This foundational demand is something that we are in a unique position to deliver. We like our position in the market to meet this opportunity as the company with the deepest capabilities in reach today in private label. On slide nine, we've shared some recent commentary from several large retailers around their desire to refocus on their private label programs. To be clear, increasing private label penetration doesn't happen overnight. It takes time to develop new products, reset shelves, and support their introduction. My point is that The commentary is very encouraging, and we have a unique opportunity to participate in that growth in a meaningful way. We are undeniably a leader in private label, and our customers count on us to deliver. It's increasingly clear that we are best able to meet their needs and drive growth and value for Treehouse in categories where we have built real depth in terms of both scale and operating capabilities. Slide 10 shows how that is reflected in our results. As you can see, in Q4, we delivered above-market growth in a number of categories where we have significant scale and depth. Approximately 35% of our revenue is generated from categories like these, which we are outperforming private label. We've developed a formula for winning that's focused on depth, in a category where we have a strong foundation, an efficient supply chain, and deep customer relationships. Looking ahead, these are the type of categories where we believe we can continue to leverage our position and build momentum through our advantage depth. With that, let me turn it over to Bill to go into more detail on our results and our outlook for the year. I'll then come back and talk to you about how we are planning to capitalize on our strength and deliver future growth and value creation. Bill?

Thank you, Steve, and good morning, everyone. Thanks for joining us today. Like Steve, I want to begin by saying thank you to the Treehouse team. I'm so impressed with how well we managed through the year, and I am very proud of our strong fourth quarter results. Let me start by recapping the quarter with our scorecard on slide 11. We delivered against all of our key metrics and outperformed on the top line at $1.18 billion, which includes Riviana. Fourth quarter adjusted EBITDA was $154 million, and adjusted EPS totaled $1.07. Turning now to slide 12 and our revenue drivers, mill prep organic growth of 1.3% was driven by a combination of volume, mix, and pricing. The addition of the Riviana pasta business in December added 1.7% growth on top. As Steve mentioned, we closed the acquisition of the majority of Ebro's Riviana brands in mid-December, which added about $12 million in revenue to the fourth quarter. We've been pleased with Riviana's performance thus far. We continue to be very excited about the near and long-term value creation opportunities ahead. As we add their strong regional brand to our portfolio, we will leverage the increased utilization efficiency of our combined operations. Moving on to snacking and beverages, we posted strong growth of 8.1% on our organic basis in the fourth quarter, nearly all due to improved volume and mix. On slide 13, we've given you a more granular look at revenue by channel. As a reminder, the bars represent net sales dollars, and we've provided the percentage change versus the fourth quarter of last year, so that you can better understand our top-line performance. As we walk from left to right, the $19 million impact of the sale of the two ISV facilities is represented by the first orange bar. The second orange bar is a remainder of the carryover loss business and pricing adjustments, which totaled approximately $36 million in Q4. After taking these two items into account, our total retail channel sales as seen within the green box grew 8%. Moving further across the walk, the first green bar represents treehouse revenue within retail measured channels. And if you subscribe to the syndicated data, we are captured within private label. Here we grew 5% in the fourth quarter. The second green bar is treehouse net sales in our measured channels. And similar to the third quarter, we meaningfully outpaced our measured channel performance with growth of 14%. We believe this is a key metric because it captures our sales to a number of value, club, specialty, and e-commerce retailers in North America, many of which have a significant private label presence in their stores. Importantly, growth here demonstrates our alignment with many of these fast-growing, rapidly expanding customers. Finally, industrial and other grew 23% in the fourth quarter, while weakness in the food away from home channel continued and was down 27%. On slide 14, you see our walk across of our key drivers to fourth quarter adjusted EPS of $1.07. Volume and mix was very strong, particularly in snacking and beverage. Pricing out of commodity costs, or PNOC, added $0.07, which was more than offset by $0.17 of COVID-19-related expenses that we absorbed in our adjusted P&L. Things like additional labor and overtime, inefficiencies related to reduced schedules, and lower throughput due to COVID-related absenteeism. The remaining operations impact of $0.14 was primarily driven by higher year-over-year operational costs from unfavorable manufacturing variances and expenses that were delayed from early in the year due to the COVID surge. Fourth quarter SG&A was unfavorable by $0.07 in the quarter due to higher variable incentive compensation related to our strong performance in 2020. Finally, the combined impact of interest and taxes was about a penny worse than the prior year. As you think about the divisions in the context of their strategic objectives, you can see on slide 15 that growth within snacking and beverages was driven by beverages and drink mixes of 24%. Broad is a good example in this group as it continues to benefit from today's at-home cooking environment, and we are very pleased by the addition of some new business. We're also encouraged by wins within our ready-to-drink beverage portfolio. New distribution in cookies, as well as retailer promotions around candy, were the main drivers of 3% growth in sweet and savory in the quarter. On slide 16, we provided a look at our balance sheet and cash flow. Net debt finished the year at $1.9 billion, and we delivered very strong free cash flow of $298 million in 2020 at the top of our guidance range. Our leverage at the end of the fourth quarter, net debt to EBITDA, based on our bank covenant definition, ended the year at 3.1 times. This includes the pro forma impact of the purchase of the Riviana pasta business. With regard to our capital structure so far this year, we have called $200 million of our 2024 notes. The total balance is $603 million, and our intent is to address the remaining amount this year. We're evaluating several attractive options. Rates continue to be very favorable. We think we have a number of paths to consider while maintaining our flexibility. Before I discuss our 2021 guidance, I want to touch on a number of macro headwinds this year and our action plan for navigating them. In 2021, we are anticipating $100 to $110 million in headwinds due to increased ingredient costs. This headwind has already begun to impact our results and will continue through the balance of the year. That's in addition to increased employee costs driven by tight labor markets and rising freight costs. We've been working hard to mitigate the impact of these inflationary pressures. We are confident in our ability to offset these costs through a combination of pricing actions and ongoing lean manufacturing efforts to offset labor increases. We will also realize greater utilization efficiencies from our Riviana integration efforts. On pricing specifically, we expect to start seeing the impact as we enter the second half of the year. Turning now to our 2021 guidance on slide 18. Our revenue guidance for the year is $4.4 to $4.6 billion. I'll give you a bit more color on the cadence in a minute. Our expectation for adjusted EBIT in 2021 is $290 million to $320 million. We anticipate adjusted EBITDA of $525 million to $570 million. We will be including an adjustment for non-cash stock-based compensation in our Adjust EBITDA guidance for 2021. That amount was approximately $26 million in 2020, to give you an idea of magnitude. Our interest expense guidance of $84 to $90 million assumes that we refinance at least $200 million of our 2024 notes this year and successfully lower our rate. Our adjusted effective tax rate is expected to be in the 24 to 25% range. which translates into adjusted EPS for the full year of $2.80 to $3.20. We anticipate free cash flow in 2021 to be approximately $300 million. As you think about the cadence for the year, there are a number of moving pieces to consider, not to mention ongoing COVID-related uncertainties. To help you understand that cadence, we thought it would be most useful to share our point of view on several key issues. I'll give you a sense for how we see the year unfolding, first half versus the second half. As a general rule, our profits are weighted to the back half of the year. Historically, this weighting has been approximately 30% in the first half and 70% in the second half. We anticipate a similar cadence in 2021. As you all know, the COVID pantry stocking in March and April of last year was extraordinary. We estimate that the revenue to live from pantry stocking in the first half of 2020 was $140 to $150 million. We assume that the COVID expenses that we have been absorbing in the P&L each quarter will continue throughout 2021 in the range of $10 to $12 million per quarter. Last year, we closed on the sale of the two in-store bakery facilities in April of 2020. So from a comparability standpoint, it's worth pointing out that the business contributed $22 million in 2020 first half revenue. On a more macro level, we've assumed that the food away from home environment continues to be weak throughout much of the year. Finally, we expect this latest round of government stimulus could likely mute, to some degree, consumers trading to private label as typically seen in prior recessions. I'll wrap up by saying that the top end of our full year guidance of $2.80 to $3.20 assumes the following. First, at home food demand remains elevated for most of the year and our service continues to return to target levels. Second, commodity costs at current levels hold and we are able to successfully implement pricing to offset inflation within the timeframe outline. And third, we continue to run our plants efficiently and do not experience significant plant disruptions or shutdowns. The bottom end of our guidance range captures risks related to our ability to offset commodity costs with pricing, plant disruption, and additional COVID-related challenges. With that, I'll turn it back to Steve to share his thoughts on our outlook for value creation. Steve?

Thanks, Bill. Turning to slide 19, as we have adapted and embraced the challenges of the pandemic, the overall increase in volume accelerated our ability to achieve our profit, cash flow, and financial leverage targets a good six months to a year earlier than we anticipated, positioning us to pull forward the next phase of our strategic journey. 2020 wasn't easy, but we were agile. Where we've had strong success, we've identified key learnings that shape our path forward. We continue to have incredible conviction around the dual engines of our business. Retailers expect excellence across every category we participate in. Our customers' top three priorities are quality, cost, and service. And while breadth can be important in certain instances, we have seen that category depth is what customers truly value. As such, we compete and win consistently in those categories where we have depth and advantage capabilities. We view categories representing 40% of our net sales as growth engines with strong consumer demand, defined pockets of growth, and existing depth with opportunities to go even further. These categories typically have the potential to drive low to mid single digit top line growth with improved margins. Let's take broth for an example. In 2020, Private label broth grew 27%, and we gained almost 200 basis points of share. This is a great category, and we win in broth because, one, it's on trend with strong consumer demand, given its health-conscious and protein-rich attributes. Two, private label share is high, nearly 40%. And three, we have strong capabilities. particularly around assortment, seasonal pricing and promotion, and price gap management. These capabilities open the door to strong customer partnerships. Finally, we have depth and a comprehensive offering from bone broth to vegetable broth. Broth is just one example that as we look across the portfolio, there are similar success stories across several of our categories. For the same reasons, depth, strength of capabilities, and relevance to the consumer. Another 40% of our sales are in cash engines. These are stable, resilient, and attractive categories that deliver strong, consistent cash flow. These categories represent opportunities for us to harvest cash for reinvestment, balance sheet strength, and capital return. We'll continue to look for ways to add pieces to make us deeper in these growth engine categories. by utilizing the strong cash flow from our cash engine businesses to fuel that strategy. As we continue to optimize, we will also focus on renewing and or revitalizing certain categories where we believe there is an opportunity to run these businesses better and position them for growth. If we can't do that in our system, we may exit the category and redeploy that capital to fuel growth. This is about maintaining a discipline that leverages the learnings I spoke about earlier. I believe we have clear opportunities to build on our successes. Becoming a more focused category leader is a natural evolution of our portfolio strategy and will allow us to further advance our customer relationships, creating an opportunity to unlock greater profit potential and generate improved returns for our shareholders. Turning next to slide 20, Our financial flexibility enables us to deploy capital in a number of value-creating ways. Going forward, we plan to deploy a balanced capital allocation program while preserving our balance sheet strength. We will look to invest our free cash flow for growth through disciplined and accretive M&A. The Riviana Pasta business acquisition is a great example of the type of bolt-on opportunities that we are considering And we continue to explore other additions that are highly accretive, align with our existing categories, and leverage our core capabilities. Depending on the availability of accretive and value-creating M&A opportunities, we plan to return our remaining cash flow to shareholders while maintaining the strength of our balance sheet and leverage targets. In that vein, we bought back $25 million of stock in the fourth quarter, or approximately 650,000 shares. Our plan in 2021 is to continue to buy back shares to return capital to shareholders and offset dilution from stock issuance. We expect that our efficient capital allocation supported by strong cash flow will enable us to not only achieve our strategic growth algorithm we've outlined on slide 21, but potentially exceed those targets. In addition to delivering 1% to 2% of organic growth on the top line, we will pursue opportunities to drive additional growth through accretive M&A in focused categories. From a cash flow perspective, a combination of operating leverage, OPEX improvements from ongoing initiatives and synergies from acquisitions will fuel our continued strength in our ability to generate approximately $300 million in cash. And finally, we will ensure that translates into profitability, driving at least 10% adjusted EPS growth each year through a combination of acquisitions and enhanced productivity synergies and share repurchase. I look forward to discussing our strategic evolution further at the Cagney Conference next week. We see tremendous potential in our business and are driving growth. towards very attractive financial targets that we believe are achievable through continued execution of our focused plan. Before we get into Q&A, excuse me, I wanted to acknowledge the press release we issued last night. As we said, we have held multiple discussions with JANA partners in the spirit of maintaining constructive dialogue. Today we are focused on our fourth quarter, and fiscal 2020 results, and 2021 guidance, as well as the compelling opportunity that we believe we have to create value going forward. We will not be commenting further on the JANA filing. Let me close by saying that I'm very pleased with our strong finish to the year, and although 2021 is far from an ordinary environment, we have proven that our business model is resilient and adaptable, and we can deliver extraordinary results. With that, let's open the call to your questions.

We will now begin the question and answer session. I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. To withdraw your question, press the pound key. The first question comes from John Anderson with William Blair. Your line is open.

Good morning, everybody.

Morning, John. Morning, John.

A couple of questions for you. I'm wondering, as you contemplated your 2021 sales guidance, how you're thinking about the underlying growth rate of your key target categories, and perhaps even more importantly, the privately share performance that you expect. I know that there was a lot to deal with about 2020, one of which was work to get your fuller SKU assortments back on shelf. So maybe just kind of an update on where you are with respect to getting fuller assortments back on shelf and how you're thinking about private label market share trends as we move through 2021 to start. Thanks.

Hi, John. Good morning. It's Bill. Thanks for your question. First, I'll just start with your comment on share. The TDPs have recovered sequentially and quite nicely. Almost all the SKUs that we had are back on shelf and are scanning that shelf. From a consumption volume perspective, it does take a couple of purchase cycles here to allow consumers to deplete what's already in their pantries. But if you look at the last three to five IRI reporting cycles, private label has held share. And you have to go all the way back to probably May to see that. So we won share in Q4, and we think that we'll continue to build the business back nicely. Most of our categories, 15 categories or so, are continuing to win share. And the ones that we highlight in the deck are our growth engine categories are really, really strong. So we think we're back on shelf, we're scanning, and we think it's performing pretty strong.

Yeah, good morning, John. The only thing, this is Steve, the only thing else I would say is there is some noise in last year's numbers at the beginning of the pandemic. If you remember, everything jumped, but private label share early in the pandemic actually jumped pretty dramatically. So there'll probably be some noise early on when we lapped those last couple weeks of March, first couple weeks of April. So we'll have to work through that before we get a real look at what the consumer's doing.

fair point fair point uh the second question is on pricing given the need to implement pricing this year as costs have increased both ingredient costs and freight where are you with respect to those discussions and and what maybe has changed in your view uh you know with respect to treehouse's capabilities to implement price versus maybe, you know, several years ago where it may have taken a little bit longer and there may have been a bit of a lag between, you know, price and cost?

Sure, that's a good question, John. You know, I would tell you that when I stepped in, right, almost three years ago, they had just implemented price across the entire system. And we had five different sales forces. We didn't have direct customer teams. We didn't have the commercial organization that we have today. It was a lot of great people, but they didn't have the data. They didn't have maybe the systems and the protocol that we built. So this is a totally different commercial organization. It's a totally different relationship with the customer. And even more importantly, we stand on top of a different service level, right? So I think we're a much different organization to do this. Our teams are armed with what they need to do it. But I would suggest also our relationship with the customer is so much better. Pricing, as you've heard from the couple of calls that have been out already and from all that you've read about it, is here. I mean, there's no question the retailers understand that. So we're working very closely to decide, you know, what can we mitigate? What do we need to pass on? What's the right, you know, movement with the consumer? What's the right decile? What are all of those things? So we have data, we have systems, and we have relationships that we didn't have last time we did that. So as Bill guided to in his prepared remarks, we'll see most of the impact in the back half But that's when we need it. So we expect it to go much differently than it's gone in the past.

Thanks so much.

The next question comes from Robert Moscow with Credit Suisse. Your line is open.

Thanks for the question. Steve, I think the tone on how you're thinking about the portfolio is definitely shifting. You know, it's much more about depth in categories. rather than Brett. So regarding the 20% that's being re-evaluated, how much earnings accretion or dilution are you willing to accept? And could you foresee divesting as much as 10% of the business over time? Is there any kind of range as to how much of the portfolio you think still needs to be divested?

I hope we didn't over-skew the divested part. I think there's some business in there that we don't run as well as we can run them. We've been through an awful lot of different evolution. I think we understand now that we have some businesses where we're not advantaged, where we have either the wrong customer mix, the wrong production cycle, something like that. Something's wrong in there. I think we're going to take some time and try to invest some time in the right people and talent. As you know, that's different people, that's different incentive systems, that's a lot of different things than running a standalone business. Actually, running all three of those businesses is very different. You need different objectives in a growth business than you do in a cash business, and you need different objectives in a revitalized business than you do in those other two. I don't think there'll be as much divestiture as there'll be us positioning those businesses to work well. There'll probably be a few small things we take out, but I don't think it'll be material. It's more about fixing them than it is about selling them.

Okay. And also, you typically give some guidance for first quarter. I didn't see that here unless I missed it. Can you give us a sense, like just roughly, can we expect some organic growth in first quarter? And it seems like an easy comparison to last year. So how are we comparing out of the gate in first quarter?

Hey, Rob, it's Bill. Good morning. How to think about the year overall, we think that on an EPS basis, it's going to split more at 30-70 in terms of first half, second half. We did not guide the Q1 piece. Your point about organic growth in Q1, in those last two weeks in March and those first two weeks in April where we lapped, The big COVID takeout from last year, those are going to be significant numbers, and we probably won't crawl over that in the quarter. We did guide that over the full year on an organic basis, we'll be up slightly and more when you add the Riviana piece in. But we'll think about this this year more in half, and that's only because of COVID. We're very much in this pandemic, and there are still things that can go up and down for us here. We want to make sure we watch it and call it out as directly as we can.

Yeah, maybe I can add to that, Rob, for just a second. I would say your statement on crawling over January and February is right, right? We can crawl over those numbers, right? March, I don't think, I don't know that anybody will comp March, right? And March was significant enough that that'll be a tough comp just in itself. I would just suggest that we should look at our business, and I think Bill mentioned this, but look at more the pre-2020 quarterly cadence, right? I think that 70-20 number that Bill mentioned, we have seasonal businesses, right? We sell pie crust, right? And pie crust is a Thanksgiving, Christmas business. We have a lot of those kinds of businesses that are back-up weighted. So I would suggest our historic seasonality will be strong, but it will be more like our historic seasonality.

And, Rob, just one. I'm sorry, Amelia, at one point before we leave this topic, the other piece is around the inflation and the pricing. You know, I think those will build throughout the year. We don't face all that inflation on day one. We're going to get all that pricing on day one. So, you know, you'll see that kind of come together more towards the back half. But to Steve's point, our historical split between 30-70, first half, second half, is where you'll end up seeing this year come out.

Maybe one follow-up. I think last quarter you said that Some of the new business wins that you had expected in third quarter had been delayed. Have you gotten all of those wins you've expected? Are those in the base now, or are there still delays?

Yeah, most of that is in. There's still some stuff happening here now in the first quarter, right? The commercialization process is happening in the first quarter, but they're on track. They'll be in the first quarter. Maybe the end of the first quarter, but they'll be in the first quarter.

Okay, great.

Thank you. Thanks, Rob.

Once again, ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Rob Dickerson of Jefferies. Your line is open.

Rob Dickerson Great. Thanks so much. Steve, I just had kind of a general question. around your commentary about, you know, potentially getting some of these, you know, categories that you're playing in to low single-digit to mid-single-digit top-line growth relative to the longer-term, you know, guidance and target of one to two. And then also what seems like maybe somewhat soft organic sales growth expectations for 2021 once we factor in the acquisition contribution. So I guess, Nat, it seems like, you know, 21 is still kind of this building phase, continue the momentum with these categories that we saw in Q4, but then later we might have more upside on the top line versus seeing that upside in 21. So I'm just trying to get a sense as to why organic sales growth wouldn't be a little bit better than what you're kind of implying for 21, given the momentum you saw in Q4. Thanks.

Hi, Rob. It's Bill. Let me see if I can answer your question. Let me know if I get it right. But your point around the 21, you know, being not as up as you thought, you know, how we think about it is the COVID lap for us will be significant, particularly that part that happens in the first quarter. And then we did add the Riviana piece in. So on a reported basis, we'll get to a stronger number and be up slightly on an organic basis. Our long-term algorithm of 1% to 2% is still where we focus, and we think as you exit 21, you'll get back to that organic top-line growth rate, to your point.

Yeah, and Rob, I think a good number to use as a base for us is the guidance we gave a year ago on this call, right? When we looked pre-COVID, if you think about just a year ago, we talked about a world that really was our distribution base, what we thought the current company sat on, right? We, you know, underlying the numbers you saw, we did grow in all four quarters this year, but that's not what we guided to, right? We guided for that to build as the year went on, and we guided that the fourth quarter was going to be the quarter where we turned the company to real growth, right? And all those efforts that we've made over the first year and a half or two years would come to fruition. That's why the fourth quarter was so strong. We think the promise of 2020 actually happened. It just, we didn't see it through all the COVID volume. So look at, as a base, look at the guidance we gave for 2020.

Okay, fair enough. And then just quickly on the COVID related costs, you know, I think you did what about 15 and a quarter, I thought you had mentioned maybe 10 to 12 per quarter for 21. So I guess first question is, you know, seems like that's coming down. Can that come down a little bit later as we progress through the year? And then kind of in relation to the cadence of the actual COVID contribution or the cost of the added back, Steve, are there any parts of the business that you foresee really coming back as the year progresses? And I think, you know, you had mentioned the pickle business being somewhat materially hit in 20, but I'm assuming that there's some assumption that that should bounce back in 21. And that's it. Thanks.

Sure. I can speak to it, and then Bill can comment. Yes, I think hopefully things like pickles. We hope to be able to bring that seasonal workforce in to sort cucumbers. I think there's actually a picture in the deck, and that's not how it normally looks. It normally looks with hundreds of people shoulder to shoulder when that happens, and that's not what we can do this year. So I would hope that business comes back, and I would hope food service comes back. So I hope there's a a direct correlation if our retail volume goes down a little bit that we get our food service business back. I don't know, Bill, if you have any other thoughts.

Yeah, I'll put some numbers around, you know, to your point. The first part, you know, we did say between $10 and $12 million a quarter in a drag on our gross margin. related to our COVID expenses that we absorb in the P&L. That gets better if vaccinations happen and the pandemic kind of calms down and you see that virus kind of go away. You expect that to get a lot better for us and that disruption stops, particularly as people get back to their normal lives and schools are back online and all that kind of happens. From a food rate from home perspective, you know, our plan, to Steve's point, is that we have planned for that business to recover midway through the year. So we expect to cut those losses in half in our 2021 guidance at the midpoint. And so those are opportunities for us. If that gets to be better, then our numbers will be better.

All right, Super. Thanks so much.

Thanks, Rob.

This concludes our question and answer session. I would now like to turn the conference back over to Steve Oakland for closing remarks.

Well, I'd like to thank you all for being with us today. I know it's a busy day for you all. It's a busy day for us. And we'll look forward to your thoughts and your questions as we go forward. Have a great day.

This concludes today's conference call. You may now disconnect.