Treehouse Foods, Inc.

Welcome to the Treehouse Foods first quarter 2021 conference call. This call is being recorded. At this time, I will turn the 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've 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, 2020. Treehouse's Form 10-Q for the period ending March 31, 2021, 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. For purposes of our discussion, our results and outlook are provided on a continuing operations basis, which excludes the impact of the ready-to-eat cereal business. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakland.

Thanks, PI, and good morning, everyone. Thank you for joining us. On today's call, I'll cover the highlights of our performance in the first quarter and also frame the macro environment for you. I'll then turn the call over to Bill to take you through our results for the quarter in more detail and share our current thinking for the balance of the year. I'll come back at the end to talk more about the progress we're making towards building a company with long-term sustainable growth. On slide three, we've shared the key points that we hope you'll take away from today's call. In short, we are pleased with our results and our progress. We were up against a tough cop given the unprecedented pantry loading we saw a year ago as we entered the shelter in place. Against all of that, we delivered a solid first quarter. And we drove improved EBITDA margins while keeping adjusted EPS roughly flat, despite the inflationary headwinds that we were seeing across the industry. Since I joined Treehouse roughly three years ago, We have meaningfully improved our operations and strengthened our performance. I'm really proud of what we've accomplished and how we continue to evolve and position ourselves for the future. Our investments over the last several years have stabilized our foundation, allowing us to support retailers through the pandemic and differentiate us from private label competition. We have optimized operations, improved service levels, built a strong centralized commercial organization and realigned our portfolio into two divisions, better aligning our categories with how our customers think about their roles in their stores. Our move last year to a two-division structure was timely, and we continue to benefit from having aligned ourselves with how our customers operate. The new structure has streamlined decision-making, enabled us to compete more effectively and to better serve our retail customers, which has in turn deepened our customer partnerships. All of those changes were important in enabling us to generate strong first quarter results. And with that strong foundation, we are well positioned to address the macro environment. As evidence of that, we are maintaining our guidance for the full year. Bill will talk about how our expectations around the cadence of our results by quarter has changed, but we remain confident in our outlook for the top and bottom line. As we take actions to navigate the current environment, we are continuing to invest to drive excellence in areas that our customers value most, cost, quality, and service. We are focused on building commercial capabilities to drive organic growth, as well as operational capabilities to improve manufacturing cost, efficiency, agility, and margins. We also see opportunities to add depth in advantage categories through M&A. With a primary focus on our growth engine categories to accelerate our top line, we are confident that we have a number of good options to profitably grow our business. Turning to slide four, in addition to the changes we made to enhance performance, our results reflect the hard work and effort of our teams. I want to express my continued thanks to our Treehouse employees for their ongoing dedication and focus over the last 13 months. Our first quarter revenue of $1.06 billion declined only 2.5% from last year's sales. We estimate that last year's first quarter benefited by $66 million as consumers navigated the early days of the pandemic. In the first quarter, we made solid progress in expanding adjusted EBITDA margins, which improved 20 basis points versus last year. Adjusted EPS of 36 cents was also strong and just shy of last year's first quarter. As we look to the rest of the year and beyond, let me take a few minutes to talk about our strategy and the environment in the near term. Turning to slide five, as I shared with you on our last call and at Cagney, with the benefit of our stronger foundation, we have taken our learnings from our strategy and the pandemic and are focusing on building depth in our growth engine categories. These categories represent about 40% of our portfolios. and are characterized by strong consumer trends, defined pockets of growth, and existing depth, where we have meaningful opportunities to go further. We also have a set of cash engine businesses, where our goal is to generate cash that we can reinvest and fuel our high-growth businesses. The cash engine categories comprise another 40% of our portfolio. The remaining 20% consists of categories where we are reviewing our opportunities to either revitalize the businesses or to deploy that capital elsewhere. Later, I'll talk more about the progress we're making in these areas. But before I get to that, let me address the macro environment as it is shaping how we see the balance of the year unfolding. Turning to slide six, we've provided a look at both at-home and away-from-home consumption. There are two important takeaways here. First, the year-over-year comparisons for retail consumption are uneven, as consumers started navigating the pandemic last spring. When you compare March of 2021 to two years ago, or 2019, total edibles grew 14%, and private label grew 13% in measured channels. If you then consider private label strength in unmeasured channels, We think this demonstrates that takeaway remains healthy. Second, you can see on the right that the away from home sector is recovering as restrictions across geographies begin to ease, which has positive implications for our food service business. While the pandemic is not yet over, the availability and acceptance of vaccines in the U.S. has been supportive of reopening efforts across much of the country. Beyond the pandemic, Slide 7 captures several of the headwinds across the food and beverage landscape. Specifically, upward pressure on commodities, and in particular soybean oil, has continued. On top of that, freight costs are escalating across the entire landscape due to increased demand and the limited availability of drivers. To a lesser degree, but worth noting, weather headwinds in the first quarter presented challenges. In our case, several plants were affected, with some, like our San Antonio, Texas plant, where we make red sauces and salsa, impacted more extensively than others. Despite the headwinds that were affecting the entire food and beverage industry, we remain confident in our outlook, and as I mentioned, we are reaffirming our full year guidance for 2021 today, as seen on slide 8. Several factors give me confidence that we can continue to deliver the year. First, we are a much healthier business today with stronger customer relationships and a pipeline of opportunities. We've also restored service levels back to the pre-pandemic levels in the 98% range. Second, while the top line will face tough comparisons in the near term, we are taking actions to address those issues within our control, specifically additional pricing to offset the incremental commodity inflation that I spoke to earlier. And third, our retail customers continue to express support for private label. In recent weeks and months, we've heard several customers publicly address their attentions to further expand their private label programs. We remain confident that the long-term opportunities for private label remain intact and that we're in a strong position to benefit, particularly as the environment normalizes. With that, let me turn it over to Bill to take you through the quarter and our outlook for the balance of the year.

Bill? Thanks, Steve, and good morning, everyone. I'll start on slide nine with our Q1 scorecard. Steve already hit on the first quarter highlights versus the prior year period. However, since many of you are interested in a comparison to pre-pandemic results, we've included the change versus 2019 on this chart so that you also have the two-year comparison. I think it's worth noting on this slide that our profit improvement over the two-year period further demonstrates that we are a much healthier company today. Slide 10 provides our revenue drivers by division. Mill prep net sales grew 0.7% versus the first quarter of 2020. Riviana contributed approximately $40 million, more than offsetting the comparison to last year's COVID-related food demand surge and continued weakness in food away from home consumption. The away-from-home sector, whose business mostly falls in the meal prep, began to rebound in March, which is encouraging. Snack and beverage declined 7.9%, driven by the comparison to the initial wave of pantry stocking in the last few weeks of March and our sale of two in-store bakery plants. Excluding that impact of that divestiture, which will be behind us in April, revenue declined 3.9%. Slide 11 walks you through the revenue drivers by channel. I'll point out a couple of things on this slide. After excluding the sales associated with the two in-store bakery plants, total sales in the retail channel declined $18 million versus last year. We also estimate that the net revenue headwind in the quarter related to weather totaled about $4 million, which we do not expect to recover. We are encouraged by the progress as Rivian acquisition and base business growth nearly offset the $66 million related to pantry stocking last year. Finally, as you can see, our retail sales unmeasured channels, which include some key club, value, and online retailers, continue this trend of outpacing ourselves within measured channels. Building on Steve's comments around our performance within our growth categories, slide 12 gives you a look at our results versus private label. Although the comparisons are unfavorable due to the pantry stocking lap, you can see that we continue to outpace overall private label in Q1. As we move down to P&L, slide 13 takes you through our earnings drivers. Volume and mix, including absorption, were negative 15 cents. Pricing net of commodities, or PNOC, was a 28-cent drag on the quarter, as we faced significant inflation across the commodity and freight complex. While our pricing actions are in flight, our expectation is that we won't see the offsetting impact on our P&L until the second half of the year. Operations added 27 cents in the quarter due primarily to planned performance as well as the benefit of the Riviana pasta business in the quarter. As we consider the middle of the P&L, I would note that our COVID expenses in the first quarter did come in below our original expectations. as our teams continue to demonstrate agility and flexibility as we adapt in this environment and keep our employees safe. SG&A contributed $0.09 year-over-year due to the timing of lower expenses. Other income added $0.06, driven by investment gains as we lapped the market volatility from last year. Turning to 514. As I noted on our February earnings call, we have begun the redemption process of our 2024 notes, calling $200 million. Following that, we successfully upsized and extended the maturity of our term loans and used the proceeds to redeem the remaining $403 million of our 2024s. We've included our updated debt structure on the right-hand side of the page, and as you can see, we've been able to lock in some very favorable rates. For those of you that track our financial leverage ratio, we finished the quarter at 3.6 times. I will point out that represents a more straightforward net debt to last 12 months at just the EBITDA calculation versus our bank covenant leverage ratio, which is more complex. We continue to target our financial leverage ratio in the range of 3 to 3.5 times. Before we move on to guidance, I want to build on Steve's earlier comments on the macro environment on slide 15. Like everyone across the packaged food landscape, we are seeing inflation accelerate across nearly all commodities. In our guidance for the year, we estimated agricultural commodity inflation of between $100 and $110 million, as well as higher freight and labor costs. As we see here in May, we are now facing income of inflation of about $60 million, $40 million, which relates to ingredients, and another $20 million in freight. We are working with our customers and we are proceeding with additional pricing actions to offset the more recent increases in soybean oil and freight. We will also look to our lean initiatives and drive efficiencies from increased utilization. While pricing discussions are never easy, our relationships today with our customers are stronger than when we last addressed inflation in 2018. Not only are the teams better equipped and mobilized to engage with our customers, but also today we're having much healthier dialogue as customers focus on surety of supply and service levels. On slide 16, we shared our detailed full-year guidance, reaffirming our ranges of $4.4 to $4.6 billion of revenue, $2.80 to $3.20 in adjusted EPS, and free cash flow of approximately $300 million. It's important to note that the free cash flow guidance includes investments that we're making in the business, which I'll cover in more detail in a moment. Our second quarter guidance is laid out on slide 17, along with several considerations. First, while our expectation for how the remainder of the year will play out has changed due to the rising commodity and freight costs, we have begun implementing our plans to address the incremental inflation. As we consider the higher cost environment and the timing for pricing recovery, we are revising our expectations and now anticipate about 20% of our earnings to come in the first half with the remaining 80% in the second half. This compares to our original expectation for a 30-70 first half, second half split. While this does put a bit more pressure on second half earnings delivery, I will point out that a 20-80 cadence is not dissimilar to 2018 when we took similar actions to offset inflationary headwinds. As well, in 2021, we will benefit from the contribution of Riviana and related synergies in the back half, consistent with our original expectations. Second, we do have higher-cost inventory currently on the balance sheet that was produced in the first quarter and will be sold in Q2. As that inventory is sold, it will pressure growth margins. This higher-cost inventory is a result of not only the inflation I mentioned, but also the weather disruptions from the first quarter that caused several temporary plant closures. Our guidance ranges for the second quarter on the right. We are anticipating $1.02 to $1.07 billion in revenue and 20 to 30 cents in adjusted earnings per share, and inflationary pressure will not yet be offset by our pricing actions. I want to close with a few words that build on Steve's comments earlier about investments in our future. We continue to feel very good about our business and the long-term opportunities ahead. We've proven the resilience of our business model, our balance sheet is solid, and we have financial flexibility. We also have a unique opportunity to further the AOR strategy to build depth in our growth businesses through investments in our commercial and operational capabilities for the future. In the first quarter, we invested $16 million, and we anticipate these investments to total $75 million in 2021 as we enhance our commercial capabilities and advance our supply chains. so that customers view us as their partner of choice, and we are better positioned to accelerate our top line, grow profits, and drive shareholder value. Let me close by expressing my sincere thanks to the Treehouse organization, and I'll turn it back over to Steve.

Thanks, Bill. Bill gave me a nice segue to close today and share our thinking around how we build on our accomplishments to date and continue to invest in our future. As I mentioned earlier, the learnings we've accumulated from our strategy and the pandemic are shaping how we'll position ourselves for the future, including how we'll invest in the 40% of our portfolio that represents our growth engine businesses and leverage the cash that we generate from our cash engine categories. Our growth engine businesses include categories like broth, pretzels, crackers, single-serve and powdered beverages, and pasta. These are categories where we have deep market penetration, and we're working to enhance our customer relationships, as well as build a pipeline of opportunities to fuel growth. Our accomplishments around operational and commercial excellence, portfolio optimization, and people and talent have laid the foundation for this greater focus on growth and for building depth in categories where we are advantaged. 2021 presents a new chapter for our strategic evolution supported by the strength of our balance sheet and our financial flexibility, enabling us to deploy capital in a number of value-creating ways. M&A represents one avenue, and Riviana is a great example of how we built depth in an important category. We're pleased so far with the impact of Riviana, and our transition team is doing a great job managing the integration. We'll continue to seek these kinds of accretive and value-creating opportunities that leverage our core strengths and build on our capabilities. Bill quantified the investments that we're already making behind our commercial organization, business services, and supply chain. These investments will include several work streams. On the commercial side, we are investing in capabilities to optimize assortment, market digitally, and optimize our pricing architectures. we will also look to further our e-commerce strategy and capabilities. In addition, on the supply chain side, automation, value engineering, and indirect sourcing will be key areas of focus. And finally, even as we're making these investments for long-term shareholder value creation, we will also return capital to shareholders. Our plan in 2021 is to continue to buy back shares to offset dilution from stock issuance. I'll close by reiterating that I'm pleased with our start to the year and our ability to navigate the challenges in front of us. More importantly, I'm excited about the investments we're making for our future. As we move forward, we will continue to strive towards having our stock price appropriately reflect the strength of our earnings and the confidence in our outlook. We remain focused on building a company that delivers long-term sustainable growth and drives shareholder value. I look forward to continuing to update you along our strategic journey. With that, let's open the call up to your questions.

At this time, if you would like to ask a question, please press star, turning number one on your telephone keypad. Again, that is starred in the number one. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Anderson with William Blair.

Good morning, everybody. Good morning, John.

Hi, John.

Hi. I just have kind of one big-picture question on the market share performance or trends that you are seeing in private label. relative to both national brands and, I guess, Treehouse relative to other private label competitors. It seems to me, as we kind of parse the measured channel data, which we know is limited and does not provide a complete view of your business, but it does seem to me that the national brands have had a good, you know, 12-month, you know, plus run here relative to private label and kind of gotten private label office trend line improvement which we've seen over many years so how do you think about that you know where we are in terms of private label evolution and the market share opportunity going forward have we hit a ceiling or are we going to resume the kind of share improvement as the macro environment perhaps normalizes and as you take some specific actions within your business?

Hi, John. This is Steve. I think you're absolutely correct. We've had a recession like no other recession. We've had actual consumer income go up. Discretionary income's up and there's less places for them to spend it through this whole thing. We've seen branded food and measured channels do well. That's why we've looked at a couple other. We think that is clearly part of the story. The other part of the story, what I would say two parts of the story, are how well private label has done in other channels, in unmeasured channels, and that's why we've started showing that data. So, the fact that the consumer continues to shop those value channels where private label is their key offering gives us great confidence. The fact that it does well in club, it does well in other places, gives us great confidence. But also the fact that we are performing, and Bill showed those in his remarks, we're performing well. Our performance versus total private label, specifically in our growth categories, would suggest we're gaining share. I think the work we're doing as a company is working, the capabilities we're building is working, and the categories we're focused on are working. That gives us great confidence. We do think things will normalize. How long that's going to take and when the stimulus will slow down, all those things are beyond our control. But what we can control is our performance, and we feel like the efforts we're making and the investments we're making are working. And as soon as the market normalizes, that should be a little tailwind for us.

Thanks. That's helpful. One quick follow-up. I'll let someone else ask about pricing. I'm sure that will come up multiple times. But you've talked a lot now about how you're kind of stratifying or defining the portfolio, growth engines, cap and cash engines, revitalized. A few years ago, there was a lot of discussion around the optimization of your customer mix as well. I think wanting to do business with more strategic customers, maybe that meant larger customers where there were higher volumes and better profit potential. Where are you with respect to customer mix? And are you happy with it? Did you cut too much? Do you need to kind of expand it? Or are you happy with kind of the mix of the customer relationships that you have today? Thank you.

Yeah, John, I think the customer mix is very solid. I would tell you what I understand about our darkest times from a service standpoint is we did have to prioritize, and maybe we did prioritize just the largest customers because we were forced to in order to get service back in line. Our service rates are great, and, you know, you hear us talk now about, you know, digital marketing, about, you know, pricing architecture, about e-commerce, right, not about service on this call. So I think now that we have those fundamentals fixed, we can focus on those customers that have the best opportunity for private label. So I think we're in a very different place, and we probably had to do that at the time, but the foundation is so much stronger now. I think we're in a better place to serve those customers that offer the best opportunities.

Thank you. Good luck.

Thank you.

Your next question comes from the line of Ken Goldman with JPMorgan.

Good morning. This is Onori on for Ken. Good morning. I guess I'll ask the obligatory pricing question. Could you update us on how discussions are going with your customers on pricing? And specifically, how much have you locked in versus how much is still up in the air? and kind of if you could give us a general sense of the magnitude of the increases. Thank you.

Sure. You know, I would suggest pricing is going really well. I think the macro environment is so well understood by everybody in the chain, whether it be our customers, our vendors, our partners. So everybody in the chain understands what's going on from the magnitude of a cost change standpoint. Maybe I'll focus specifically on soybean oil. Soybean oil and soybean oil basis are probably the biggest change from when we talked three months ago. But more importantly, I think it's a great example for us to share on the progress our commercial organization has made at building what I would call true partnerships. The soybean oil pricing that our teams have put together and agreed to with our customers are commitments not just on the pricing for soybean and for things like salad dressing or mayonnaise, those things that use a lot of soybean oil, We not only have the pricing locked in, but we have a volume forecast locked in with the customer. And then we have, in turn, covered that forecast with our vendors, right? We think that soybean oil will be an availability of supply when we get into the back end of this year. And so we've worked with customers on specific pricing, specific volumes, and then covered that volume. So that's why we feel so confident that we can reaffirm for the back half. We have those things covered. And that would be for virtually all of our key soybean oil customers. There's so much pricing across all 29 categories. For me to give you one percentage, I think, wouldn't be accurate. Some of it is ingredient-based. Some of it is just freight and labor-based. So those prices swing wildly based on the specific ingredients. But I would suggest some of those increases are substantial. We're working with a customer to have them be as short as possible. As soon as those commodities come back to their normal averages, we'll get that pricing back down. But I would suggest that it's gone very well. We would not have reaffirmed our year had we not felt that way.

Great, thank you. That's very helpful color on the soybean oil and doesn't follow up, you know. It sounds like on closing oil you're pretty covered, but how are you thinking about the risk of inflation going even higher? You know in the back half is the pricing that you're taking now enough enough to cover that?

You know, obviously, we always have the opportunity to go back to the customer. I think we have a pretty good line of sight. We're a full almost four months into the year now, so we have a pretty good line of sight to what we need. We have the capabilities and the sophistication to cover that appropriately. So I think our purchasing group understands risk management, understands the tools available to them. And they work literally daily with our commercial teams to be sure that that coverage aligns with what we have in the customer. So we feel good about it for the back half of the year. I do think there's more inflation risk. I think there's actually availability risk. The biofuels blenders credits that are on soybean oil will make soybean oil very, very tight for the back half of the year. I think if you're not a large producer, it will be difficult to buy soybean oil.

That'd be great. Thank you. Your next question comes from the line of Chris Groh with Stifel.

Hi, good morning.

Morning, Chris. Hey, morning, Chris.

Hi. I had just two questions for you. Just to think about the levers you have to offset inflation. You have less of those levers than maybe some of the big companies have. But I want to also understand, do you have some productivity savings coming through this year? And to a smaller degree, but can you control some promotional spending? Are there little things like that you can do on top of the pricing to help offset the inflation? Can you give us some color on that?

Sure, I'll start. So, Chris, you know, from a lever perspective, you know, we were very proud of our lane programs that we have in place. And as we face the year, we anticipated a certain amount of labor inflation and probably some freight as well. And we have plans in place to to to offset that. I think the commodity based inflation that Steve talked about. is incremental, and the freight market got a bit more severe as well. So that's where the incremental pricing kind of comes from. But we will continue to always, you know, manage the lean program very efficiently. A lot of the investments we made in the past around Treehouse 2020 and our structural lean program continue to drive benefits for us. And then we'll have a little bit of savings in year for the growth initiatives that we're implementing strategically to go forward as well.

Okay, thank you. And then just another question I had was on, you talked about the service levels being restored and back to kind of where they should be at 98% level. Is that helping you rebuild shelf space? We talked about that, I think, a couple of quarters ago. We're starting to see that improvement, but it seems like it's plateaued a bit. I'm talking about private label overall, not rebuilding to levels of on-shelf presence like it was pre-pandemic. How is that going for your business? Are you seeing that service level? Is that one of the key elements of getting shelf space back like you had pre-pandemic?

You know, Chris, I can't speak for other vendors, but I think we have all the assortment back on shelf that we plan to bring back. I mean, there might be any time you go through this that there's a chance maybe to prune some underperforming items, but there's not the material there. So we're back on. There's one place we spoke to the weather impact group. And the weather really hit Texas, as we all know, and our San Antonio, Texas plant was hit pretty hard there. And so, you know, we might have a category like red sauces that still needs some help, but that's not anything to do with a retailer. That's strictly that we had some damage to a factory from weather, right?

Okay. All right. I appreciate that. Thank you.

Your next question comes from the line of Rob Dickerson with Jefferies.

Great. Thanks so much. So, Steve, just a question about the back half, right? I mean, obviously, there's this, you know, cost, price, timing effect in Q2, but the guidance is then, you know, reiterated for the full year. Pricing, you're saying, is kind of, you know, increasingly locked in in the back half, right, if we assume everything kind of stays where it is. But I think I also heard you say that there was some incremental volume, right, that you have visibility in or on in the back half. So maybe if you could just kind of, you know, expand on that volume comment, because I do think it's important we won't be focused on pricing, but if you do have decent visibility on whether it's increased distribution or you're just saying, you know, there's like a natural cadence of private label coming back into the market or what have you, that would seem like that would limit some potential elasticity risk as well. That's my first question.

Sure, Rob. Well, I think there's two things that have changed, right? We've talked a lot about the inflation and the pricing has changed. We also have three more months visibility into our integration of Riviana. So we look back at, and I think Bill mentioned in 2018, we had similar situation, the earnings cadence was similar. But what we didn't have in 2018 is an accretive acquisition, and we didn't have the synergies from an acquisition. So we have already accomplished several of the key milestones. for the Riviana integration. And so we have even more confidence in those synergies and when they'll hit our P&L. And that tends to, you know, pasta tends to be a cold weather business. And so we know that'll hit us in the back half. And the promotional commitments on brands are starting to be made for those periods. So we have a pretty good sense of what that's going to deliver. So that gives us even more confidence, I would say, than what we had when we originally guided. The pricing is there is a lag, and it'll hit us in the quarter. If you remember, we didn't guide the quarters. We guided the first half. This is going to put a little lag in that. If you think about the difference in what we guided for the first half, And you think the weather that hit Texas in the south is close to a dime. The rest of that is the inflation that Bill spoke to. And we have pricing to recoup that in the back half. So when you add that to the work we're doing on Riviana, I think it gives us a pretty good line of sight to what's going to happen for the rest of the year.

All right. Super. Chris. And then I guess just a question quickly on M&A and, you know, the buckets that you threw out there today. It sounds like, you know, you're still proactively obviously looking at acquisitions, kind of more on the growth side. You call out, you know, the review and revitalize bucket with about 20% of revenues. Maybe, you know, if you could, again, just expand on kind of how you feel about that bucket, right? Is this a bucket where you say, you know, we've gone through all of the different categories you play in and skews, obviously, right? You're calling out about 20% of the portfolio that maybe doesn't have as much, you know, a growth potential or it would cost more to try to drive that growth. So are you also just implicitly kind of suggesting that, not only will we be more proactive in acquisitions potentially, but also obviously that we will, you know, on an ongoing basis look for potential divestments. And that's all. I'll pass it off. Thanks.

Sure. Rob, well, I would say I don't think it's any surprise to anyone that post-pandemic there's a lot of businesses that were being prepped for sale that were held back. And so I think we'll see a lot of M&A activity and opportunity as we come out of the pandemic, right? I think that's pretty well documented across a number of industries, and ours is no different. So we're excited that our balance sheet's in a place when the opportunities appear to be coming to market. So that's good news. With regards to the other, there really are a couple businesses in there that need to be run differently. If you think about it, a revitalized strategy is different than running our core businesses. And so we put different groups on that, different teams on that. It gives us some focus. There's no question a little bit of that capital will, in fact, be deployed. But I don't think we're in a position to talk specifically about what percent. But there are a couple of them that I think are good businesses that need some work and need special attention, and that's what we've tried to segregate to do. As we get closer to that, we'll have more detail going forward.

Makes sense. Thanks, Steve. Appreciate it.

Your next question comes from the line of Marco Capolo with J.P. Morgan.

Hi, good morning, and thank you for taking my question. I just wanted to ask about if there was any update on the potential sale or timing of the ready-to-eat cereal business.

Hey, Marco. This is Bill Kelly. You know, we continue to market the RT business for sale. We don't have any updates, you know, this morning. You know, the activity has picked up as the world kind of opened back up here, you know, this year. So we still have every intention to sell that business and we're moving forward with it.

Yeah, we don't want to infer anything, but we're not any less optimistic about that. We're no less optimistic. We think we'll have that done.

Okay, great. Thank you, guys, and I think some other questions were addressed, but I appreciate it, and I'll pass it off.

Your next question comes from the line of Bill Chappell with Truist Securities.

Hey, thanks. Good morning. Good morning, Bill. You know, back to pricing, if we remember back 10 years ago when we had kind of a similar spike in a short amount of time, the problem was Treehouse ran into wasn't the ability to take pricing, but just the timing. I believe it's still you have to kind of notify and negotiate with each of the retailers, then wait 90 days to get the price to go through. And, you know, it just where branded players can move a lot faster. We didn't know if that's still the case or, you know, if you see any timing issues creating an incremental lag to your business or if things have kind of been cleared up where it's much more straightforward than it was years ago?

Well, maybe I'll start and I can hand it to Bill if he has any thoughts. I think it's highly reflected in the guidance we've given you for the second quarter. So, yes, there will be a lag. It's shorter than I think, Bill, what you articulated or what it was in the past. I can't speak to 10 years ago, but I can speak to the fact that the timelines and the lag that we have and our confidence in it is reflected in the fact that we can reaffirm guidance, but that there will be a lag in the second quarter. So we're set there.

Got it. Okay. And then second question, certainly a lot of themes over the past year about consumers trading up to trusted brands, during the pandemic or during the lockdown. Didn't know if you're seeing, you know, or starting to see kind of a reversal of that or, you know, if we have seen a reversal of that or to norms as we're reopening in certain states or just throughout the country.

You know, I think the data is yet to come on that. I think, you know, that's why we tried to show March, you know, with the progress we've made and unmeasured and how it's very close and measured. You know, we feel good about it. We feel even better about the progress we're making in our categories, those categories we've prioritized. Our trends are better than the categories, trends, and measured channels, so that makes us feel good. And, you know, so we're gaining share in our mind. It's a difficult metric to actually detail. So those things are good. The good news, though, is our food service business is recovering. So we are seeing the pipeline fill start there, which would suggest that the food service operators are starting to feel good about the economy reopening. I think everything around us would suggest that. We've all been somewhere where we've seen the consumer wants to get back out, I believe.

Got it. No, certainly. And the last one just for me on the guidance, you know, should, in reiterating, is it a belief that within a given year you have enough pricing power where you can recoup the near-term issues? Or did we take out some of the upside potential with the recent commodity spikes?

You know, I think the range that we got it to encompasses, you know, what we think could be things that could go, you know, in a better direction than the midpoint would suggest. I think, you know, Steve's point about, you know, in our guidance this year, having Riviana in the back half of seasonal pasta business, having synergies from Riviana come through. He just mentioned the for-way-from-home business coming back online. And, obviously, we're right on target with our pricing in terms of our communications and really focused on providing the surety of supply with our customers. Our service is good. So there's a lot of reasons for us to believe the midpoint in our guidance, and then we try to work a range around that to accomplish your point of what could be better and what could be a struggle.

Okay. I'll leave it at that. Thanks so much.

Thank you.

Your next question comes from the line of Robert Mosco with Credit Suisse.

Hi, Steve.

Hey, look, there's been a couple of pretty high-profile departures with Jay and Dean leaving. And I just want to know, you know, what is your strategy for populating your management team or repopulating? It looks like one of them will be backfilled internally. But, you know, when you came in a few years ago, Steve, I thought the idea was that you'd bring in a lot of really talented people from CPG to take Treehouse to the next level. Is that still kind of – or is it now like you have the bench you need so you feel like you can operate leaner? Is it one of those two things?

Well, you know, I would say two things. Thanks, Rob. I think we've done that, right? I think if you look at Sean Lewis, who we announced is running our commercial organization, and Kevin Jackson, if you look at the people we've promoted within the organization and the people we've brought in from the outside, I mean, Shea got a great opportunity, right? I'm going to build a management team. that is capable of doing more than their current job. And if you do that, you do it well, folks are going to get opportunities that maybe occasionally I can't give them internally. So the good news is the talent below Shea is very strong, and Craig McCutcheon, who was running those businesses for Shea, is now reporting to me doing the same thing he was doing. So I feel good about that. So I would take Shea's departure as a fact that we continue to build talent here. Others have recognized that, and Shea is a great example of that. So I think we will continue to add talent where necessary. I think CPG is a great source. There are other sources, but CPG will be a great source for talent for us. And the performance of the business will show that over time. But if you build great talent, occasionally they will have opportunities that you can't give them, and that's just the case with Shea. So I wish Shea the best. You know, Shea's president of a nice private business. The Treehouse's president and CEO is still here and intends to be here for a while, so that opportunity wasn't available for Shea. So I can't document all. I left a company where I didn't have that opportunity, and Shea did the same thing.

Okay, and a follow-up to that. Treehouse has been through many rounds of restructuring projects, and reorganization. Are you content now with how you're structured into these two divisions? Do these departures mean that you'd have to rethink things at all, or are you pretty much done?

Oh, no. I think we're in good shape, right? I mean, I think we'll add businesses to these divisions. We have a really clear line of sight. We talk about cash engines and growth engines. Most of the growth engines are in the snacking and beverage group, which is just by the definition of what consumers are doing in those categories. It's pretty natural. I think those divisions are lined up clearly with the company strategy, with the business unit strategy. So I want to go back to a comment I made earlier, too. We're talking about investments in e-commerce capabilities and digital marketing and pricing architecture. Those are different conversations for Treehouse, right? So that would suggest that we feel good about the base and that we're starting to grow the capabilities, not doing the denominator constantly.

Okay. Thank you.

All right. Thanks, Rob.

And there for the questions at this time, I will now turn the call back over to the speakers for any closing remarks.

Well, I'd like to thank you all for being with us today and hope you all have a great day, and I'm sure we will have a chance to talk to you individually soon. Have a great day. Take care.

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