Treehouse Foods, Inc.

Welcome to the Three House Foods second quarter 2021 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 par, 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 the call over to Three House Foods for the reading of the Safe Harbor Statement.

Good morning, and thanks for joining us today. This morning we issued a press release, which is available, along with a slide presentation, in the Investor Relations section of our website at treehousefoods.com. Before we begin, we'd like to advise you that all forward-looking statements made on today's call are intended to fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC. In addition, we will be discussing operating and financial results on an adjusted basis. A reconciliation of these non-GAAP measures, referenced during today's discussion to their most direct comparable GAAP measures, can be found in today's press release on our website. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakwood.

Thanks, PI, and good morning, everyone. Thank you for joining us. Before I get into the details of the quarter, I'd like to start by framing the environment in which we're operating today. In the first half of this year, we've been lapping last year's record shipments from the COVID-related pantry stock. And I'll discuss the environmental challenges impacting the industry. But through all of this, we've been operating well. And while we've faced individual disruptions, the changes we've made across the organization over the last several years have enabled us to operate successfully. We're responding to customer needs quickly and effectively, and we have maintained service levels at 98%. Looking deeper at our performance in seven of our ten largest categories, like crackers, pretzels, and portable dressings, we've gained share within private label in the quarter. However, total consumer demand for private label has been lower than expected. We believe this is temporary, and I'll discuss this more in a minute. As the economy reopens, we are navigating supply chain disruptions and changes in retailer inventory as they address the evolving demand landscape. At the same time, commodity, freight, and packaging inflation has continued to escalate. Although challenging in the near term, the good news is that this will not impede our ability to execute on our strategy to drive long-term sustainable growth. we have been very successful in several areas. Recall that we talked to you on our last two earnings calls about higher commodity packaging and freight costs of roughly $160 to $170 million this year. Our execution around pricing to recover the higher input costs has been successful. The focus on our customers and delivering high service levels coupled with with a well-organized, data-driven process have enabled our pricing execution. Retail customer acceptance around pricing has been strong, and I'm pleased with our success today. I want to thank our general managers and our commercial organization for what continues to be a disciplined, well-coordinated effort. We will see these pricing initiatives reflected beginning in the third quarter and ramping into the end of the year. Bill will bring more detail to this in his comments. We continue to believe that the investments we're making today in our business, both organic and inorganic, will position us for success as the environment normalizes. And our Riviana integration is on track to deliver synergies ahead of target this year. We are evaluating a short list of acquisition opportunities that would provide an incremental growth catalyst. Of course, we will remain disciplined in seeking the right fit and valuation, and I'll share more thinking around M&A in my closing remarks. We remain committed to optimizing our portfolio. We took another important step in that effort in the second quarter as we completed the sale of the ready-to-eat cereal business for $85 million in early June. Looking at the balance of 2021, as you saw in our release, we are revising our guidance due to our ongoing expectations for the challenging environment that I mentioned earlier. Bill will take you through the details, but our outlook takes into account the following. Our second quarter results, a view that the macro trends continue to pressure private label, and we anticipate some additional inflation for the balance of the year. We expect to take further pricing actions in certain categories. However, the full impact of those actions is not expected to flow through our P&L until 2022. Now turning to slide five and our second quarter results. Second quarter revenue of $1 billion was down from $1.04 billion last year, which included about $83 million of COVID-related pantry stocking. Adjusted EBITDA of $97 million in the second quarter and adjusted EBITDA margin of 9.6% declined to 250 basis points versus last year, driven primarily by lower volume and inflation. We expect pricing will be reflected in our P&L beginning next quarter. We delivered adjusted EPS of 26 cents in line with our guidance framework. I'll walk quickly through the next few slides on the macro environment, which are important for understanding how the broader environment is impacting private label. On slide six, recovery of the away-from-home sector continues and appears to be stabilized, with growth versus 2019 in the 5% to 7% range for the last few months. At the same time, at-home food consumption remains strong versus 2019, a more normalized year. However, private label in measured channels is lagging the overall market. On slide 7, on the left, we show what has happened over the last 18 months as a combination of government stimulus and fewer outlets for spending has bolstered disposable income. We believe that this dynamic has artificially supported a shift in traditional value shoppers' buying patterns as stimulus dollars have periodically boosted income. We have seen a greater propensity for that shopper to trade up to brands. On the right side, we've taken it a step further to look at income levels and purchasing behavior. As you'd expect, edible dollar spend has moved higher regardless of income level. What's interesting is the purchasing behavior for brands versus private label at different income levels. The top two bars represent households with income greater than $100,000 a year and shows edible purchases for the second quarter of 2021 versus 2019. For these households, 17% of their food and beverage purchases were private label. This has been consistent from before the pandemic to today. The bottom two bars represent how habits of the typical value shopper, or those households making less than $100,000 a year, have changed. The chart suggests that these shoppers have shifted more of their dollars away from private label to brands as a result of the additional income. Although three rounds of government stimulus checks created an unexpected shift in consumer purchasing behavior, our view is that that shift is not sustainable long-term, particularly given the inflationary environment. We do expect that stimulus will continue to support the value shopper through the balance of 2021, before beginning to normalize as these programs recede. In addition, we are also seeing promotional activity in certain categories impacting private label consumption as brands invest to retain consumers. Although promotions in total are still below pre-pandemic levels, in the second quarter, we saw aggressive competitive merchandising in a few of our meal prep categories, like pasta and dry dinners. Turning to slide A, today's inflationary environment is presenting headwinds across the entire food industry. Brands do have more short-term levers, such as trade promotion, marketing, and price pack architecture. However, as they too raise prices to address the near-term escalation in input costs and the longer-term labor cost headwind, we believe that the traditional private label value proposition will return. As I noted earlier, The combination of our fact-based approach, trusted retailer relationships, and strong customer service levels have been key factors in our ability to successfully implement pricing this year. Given those same factors, we are confident in our ability to implement a third round of pricing in certain categories later this year, the impact of which will be reflected in 2022. Slide 9 is our revised guidance for the full year. While I'm disappointed to take our estimate down, the combination of lingering COVID-related impact as well as a steady inflationary pressure will make for a challenging operating environment for the remainder of the year. At Treehouse, we've been incredibly focused on thoughtfully navigating the continued uncertainty, and I'm confident that we've built an organization that can mitigate these issues long-term. I'm proud of how our organization continues to deliver for our customers, and I want to thank our employees for their hard work and commitment to high customer service levels. Finally, it's important to recognize that despite the near-term pressures, underlying retail support for private label remains strong, and I'll come back to this in my closing remarks. As the macro environment normalizes and government stimulus ends, we believe consumption and behavior patterns will revert to pre-pandemic trends, and there's still a lot of runway for private brands. Let me now turn it over to Bill to take you through the details of our quarter and the outlook. Bill?

Thank you, Steve, and good morning, everyone. On slide 10 is our Q2 scorecard. Steve characterized the bar dynamics impacting both the top line and profit, so let me give you more context around revenue in the quarter. Our top line of $1 billion was below the midpoint of our guidance by $50 million, driven in three areas. About $30 million of the shortfall was due to softness and private label as a result of the macro environment. This includes continued government stimulus and heavy brand and promotional activity in categories like pasta, dry dinners, refrigerated dough, hot cereal, and crackers. Another $10 million is driven by inventory reductions in large retailers as they face uncertainty around the country reopening and lower than expected foot traffic. Capacity constraints, primarily in our San Antonio red sausage plant, which is still recovering following the harsh February freeze, drove the remainder of the miss. Slide 11 provides revenue by division. Meal prep net sales, which includes approximately $33 million from Riviana, declined 3% versus the second quarter of 2020. The away from home sector, which is largely a meal prep business, rebounded with sales up 64%. Snacking and beverages declined 5% as we left continued pantry stocking activity. On slide 12, we provide a walk of our revenue by channel. Excluding the $3 million impact of the sale of two in-store bakery facilities, which closed back in April 2020, our total retail sales were down $94 million, or 11% in the second quarter. We estimate that revenue from COVID-related pantry stocking accounted for $83 million of the year-over-year change. That means our base business declined $11 million, including Riviana's contributions. Similar to past quarters, unmeasured retail sales, which represents several key club value online retailers, outperform measured channel sales. The way from home channel is rebounding. As I mentioned earlier, food service sales grew 64% in the second quarter. Although we are not yet back to 2019 levels, the improvement is encouraging. Finally, industrial and export channel sales improved 24% in the quarter. Turning to slide 13 and our earnings drivers, Volume and mix, including absorption, were a negative $0.48 of impact. Pricing out of commodities, or PNOC, was a $0.39 drag on the quarter. This was in line with our expectations, as we do not expect our initial pricing actions to offset previously identified inflation until the third quarter. Operations added $0.31 in the quarter due to plant performance and the benefit of the Riviana pasta business. Our shortfall drove a reversal in interest center plan accruals, which benefited both operations and SG&A. The SG&A contribution was 17 cents year-over-year. Interest expense, FX, and other income added 7 cents, driven in large part by our successful refinancing. In line with our balanced capital allocation approach on slide 14, we remained focused on maintaining the strength of our balance sheet, investing in the business, and returning capital to our shareholders. We expect to finish the year within our targeted financial leverage range of three to three and a half times. In the second quarter, we repurchased $25 million of our stock. We continue to believe we are taking the right steps to build a company that drives long-term sustainable growth. We also believe there is value not currently being reflected in our stock price, and we expect to continue to repurchase shares opportunistically. We will balance our goal of returning capital to shareholders with our commitment to invest in our commercial organization, adapt the supply chain, and further enable us to build greater depth in our growth engine businesses. In the second quarter, these investments total $15 million. Steve will cover how we're thinking about M&A in a few minutes. Shifting now to our outlook, let me start with our current point of view around inflation and pricing on slide 15. Echoing Steve's comments, our pricing efforts to offset inflation have been very successful. Our teams have been on top of this from the beginning. This is an extraordinary inflationary environment, unique not only because of how broad-based it has been to date, but also the duration and severity of inflation. What you see at the top of this slide is an illustration of how our view of inflation has unfolded this year across the entire ingredient, freight, and packaging complex. On the agricultural commodity side, it's wide-ranging, from edible oils to durum wheat to cucumbers. And from a packaging and shipping standpoint, things like resin, line of board, and freight. On the bottom, you can see that we've taken pricing actions to offset the input escalation. I said previously that we started the year anticipating significant inflation, about $100 to $110 million in higher commodity, packaging, and freight costs. We updated that in May to reflect the incremental $60 million in inflation, which was primarily driven by soybean oil. As commodity costs have escalated further since then, we now anticipate additional inflation in this year of about $40 million, as we've seen inputs such as coffee and durum wheat on the move. In the last six months, inflation for our key commodities in the marketplace has gone from a single-digit increase to low double-digits. The acceleration continues to be extraordinary across nearly all commodities. For example, soybean oil has risen well over 100% versus last year. On the bottom of the page, we've illustrated our pricing actions to offset inflation. We have already addressed pricing and will continue to do so in a timely manner. We began pricing discussions with customers early in 2021, and in some cases, late 2020. After supporting our customers through the height of the pandemic over the past year, we now have the benefit of strong service levels, healthy relationships, and customers seeking surety of supply. Our approach to pricing is fact-based, but there is a lag between when we face higher costs and when we recover pricing. Pricing across the private label industry is based on actual input costs, not the forward curve, so we take a view at a plain time which supports our customer discussions. This time, we've had a very coordinated effort. To date, we have taken pricing in two rounds. The dotted line indicates the time it takes for us to communicate with our customers for that pricing to be accepted, and then a solid line indicates when that pricing is reflected in our top line. At this point, we are 100% communicated. We have nearly 80% acceptance for both rounds. While we are still in process with our second round of pricing, we are confident that our efforts will be reflected in the P&L in the second half of the year. Input costs have escalated further by approximately $40 million, and this will drive additional pricing in certain categories. We are confident in our ability to capture the necessary pricing. However, given the time it takes to communicate and the lagging in the pricing reflected, we believe this will be a 2022 event. With that context, let's turn to slide 16 for our 2021 revised guidance. Starting at the top, we have taken into account our second quarter revenue shortfall. We have also assumed that there will be continued macro pressure due to consumer behavior over the balance of the year. Our revised revenue guidance is now $4.2 to $4.45 billion. We have reduced our EBIT guidance by about $60 million at the midpoint. The biggest driver here is the incremental $40 million in inflation that won't be offset with the pricing in 2021. In addition, we would assume lower profit due to the lower sales outlook, offset by some benefit from lower COVID costs and slightly better synergies from Riviana over the balance of the year. Our guidance also reflects the uncertainty across the supply chain, challenges in the freight environment, and a continued tight labor market. We are improving our interest expense guidance to $80 to $84 million in line with our successful refinancing efforts earlier this year. We now expect adjusted earnings per share of $2 to $2.50. Consistent with our past practice, we kept our range wide given the seasonality of our business and the magnitude of the fourth quarter contribution to our year. We're also revising our free cash flow guidance for the year to a range of $250 to $300 million, driven by the reduction in EBITDA. We continue to anticipate investing approximately $75 million this year to enhance our commercial and operational capabilities and advance our supply chain. These investments are already factored into our free cash flow guidance, meaning that our underlying free cash flow is greater than $300 million. They are also important as they better position us to accelerate our top line, grow profits, and drive shareholder value. In addition, we have cash proceeds from the sale of RTE, and these will show up in cash flow from investing activities, which is separate from free cash flow. The proceeds total $85 million. On slide 17, we provided our third quarter guidance. We anticipate $1.05 to $1.16 billion in revenue, and our expectation is for just EPS in the range of $0.45 to $0.60. Before I hand it over to Steve, I want to build on his comments by reiterating that there is a great deal of uncertainty in the macro environment, beyond just the economy or the food and beverage landscape. As the world races to reopen, we see potential for continued supply chain disruption. Competition for labor remains fierce. We're closely monitoring the evolving landscape and working hard to mitigate its impact on our business. All the while, we will continue to prioritize the health and safety of our employees, whose efforts we greatly appreciate as they enable us to operate each and every day. Let me now turn it back over to Steve.

Thanks, Bill. I'll close with two slides, beginning on 18th. While our current operating environment remains one of the most dynamic we've ever experienced, we remain confident that the underlying fundamentals of private label have not changed. What gives me confidence is the strategic importance that private label represents for retailers. On slide 18, we've included some recent quotes from our retail partners around how they view private brands. It includes their thoughts from private brands being their not-so-secret weapon, to lofty penetration goals for private brand growth, to recognizing the important role private brands play in improving their profitability mix. The fundamental reason for supporting private brands long-term is that it represents a meaningful opportunity for retailers to get close to their customers, drive loyalty, and truly differentiate themselves among a competitive retail landscape. In closing, I'd like to say a few words about how we think about the opportunities to invest in our strategy through M&A. Our second quarter results drive home the importance of our strategic work to build depth and invest in capabilities across our growth categories. I want to frame how we're thinking about it. Our accomplishments are on operational and commercial excellence, portfolio optimization, and people and talent. have laid the foundation for this focus on our growth engine businesses. These growth engine businesses represent about 40% of our portfolio and are characterized by strong consumer trends, defined pockets of growth, and existing depth with further opportunity. They include categories like single-serve coffee, pretzels, and crackers that are on-trend, snacking, convenience, health and wellness, as well as where we see opportunities to leverage the strong connection with the private label consumer. As Bill shared earlier, the combination of our significant free cash flow and strong balance sheet give us plenty of capacity to do sizable and bolt-on acquisitions. Our focus will be on existing categories or near-end adjacencies. We have a disciplined and robust process whereby our strategy and M&A teams are working in sync under the leadership of our chief strategy officer. And for those of you who have followed the company for several years, I think it's important to point out that this is a new treehouse. We are a different management team with a more refined strategy. We think about and evaluate shareholder value creation opportunities differently. In the past, you would have described us as a private label aggregator. Today, in contrast, we are focused on depth in growth categories. Given the strength of our operating platform today, we have opportunities to drive synergies that did not exist in the company's early days. We see opportunities that will be immediately accreted that add growth and build depth in a very specific set of categories. We will leverage our core strengths and we are disciplined about returns. At the same time, we remain committed to revitalizing those categories where there's an opportunity to return to growth and actively managing those parts of our business where we see limited potential and do not have a capability advantage. We are committed to building a company that drives long-term sustainable growth and drives value creation opportunities. The opportunity, as we build greater depth and actively manage our portfolio, is exciting, and I look forward to updating you on our journey. With that, let's open the call up 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. Your first question comes from Chris Groh with Stifel. Your line is open.

Thank you. Good morning.

Good morning, Chris. Hi, Chris.

Hi. I just had, if I could start off with, just to better understand the pricing dynamic. The pricing in the quarter was weaker than I expected, and we had been talking about it, and that chart did show some of that initial pricing starting to come through late in the quarter. I guess I expected more, so I'm trying to say, I'm just trying to get a sense of how that phases in. It sounds like As you exit the year, do you think you are pricing at the rate of inflation at that point in time? I know that this has been a moving target. I get it. But I just want to get a better sense of the timing of the pricing coming through, if I could start there.

Hi, Chris. It's Bill. As we said in the script and in the slides, we've communicated all the initial inflation that we saw earlier in the year. So we would have been 100% communicated and would expect 80% of that to reflect in the P&L this year. And that's coming through. So to your point, all of that inflation when we start next year will be priced in. What we have to continue, though, is that we had some additional inflation, particularly in a couple of the specific commodities areas. that we're in those communications now. And I would, again, expect that to all be communicated and in our P&L in the early parts of next year.

And then when I see pricing that look like an IRI, and I know it's just a measured channel view, but when I look at IRI data, it shows some pretty strong pricing coming through on the retail shelf year over year. I thought you would be experiencing more of that. Is that the retailer pricing your product up, or is there something that's leading to that to show in the results?

Chris, hi. This is Steve. There may be instances where we've got pricing announced, the retailer may have put it on the shelf before it actually goes into effect. Our contracts have a variety of lead times in them, and those lead times are all in effect. The most exciting part for me is the fact that that this is so different than what we've done on pricing in the past, right? If you remember when I arrived, there was a big pricing exercise on top of poor service, and it started to tumble our business, right? We had a couple of years in a row of of business losses. What's intriguing to me is we're actually gaining business during this period, right? We've won pieces of business with large strategic retailers in some of the most hard hit categories like salad dressings and pasta. So, you know, I think it's a tough time. The category, the total private label category volumes are down, but we've actually gained share through this pricing exercise. So whenever this ends, we're going to come out with a stronger business.

Okay. Thank you for the time today.

And your next question comes from Robert Moscow with Credit Suisse. Your line's open.

Hi. Thanks. One clarification, Bill. I guess I didn't quite get the timing on the pricing. So are you saying that the second round of pricing is still being reviewed and Is any of it going to be reflected in the P&L this year, or is it all reflected in 2022?

Yeah, our supply chain is in the deck, Rob. It does reflect, we think, pretty accurately our point of view on pricing. Most of that will be reflected in the P&L this year. We just have some additional inflation that's coming our way that we have to price for.

Right, Rob. We expect a third round of pricing. Yeah, the third round of pricing will get communicated. We think it will all get accepted, but it will probably start to hit right at the beginning of next year.

Okay. Is there any way of figuring out what percent of your business retailers have already priced ahead of you? Is that an anomaly, or is that pretty commonplace that that happens?

You know, I think it's hard for us to say. I mean, I guess you could dig into the syndicated data. It would be it's easy to know that inflation is part of this world right now. Right. So the retailers understand it's there. They're trying to lap tough numbers from a year ago. So if they make that individual decision, they know what's coming. They know when they're what you know, what their contract gives them as far as lead time.

um so they have the right to price wherever they want right we we price to them they make that pricing decision so that's a tough one for us to answer for you right and it's out of our control frankly right okay and and i guess here's a broader question um you know the the idea for 2022 or eventually is that there's a normalization um where the lower income consumer you know goes back to normal buying patterns uh and disposable income but We're heading into another election year next year. Politicians tend to want to give more programs during those time periods, not less. So what's the contingency plan for 2022 if these buying patterns stay this way? Can you still generate growth in 2022, or would it be a down year?

You know, I don't think it'll be a down year. I think it's not a contingency plan. It is our plan, which is our strategy, right? And we've talked a lot about our growth categories only being 40% of our business. We've got to change that mix. We're doing it. Bill talked about the money we're spending to build capabilities, so we'll do that organically. But we have to do it inorganically, right? We have to speed up that process. So we will use M&A to bolster our growth categories, which will change the mix. With only 40% of your categories growing, you know, the math is against us. So as we change that, we'll generate growth regardless of the macro environment. But the challenge now is that we just have the wrong growth, mix of growth categories, and we're working hard to fix that. Interesting.

Okay. Thank you very much.

And your next question comes from Ken Goldman with J.P. Morgan. Your line's open.

Hi. Thank you, and good morning.

Good morning again.

You know, Steve, you mentioned that you have a – I think the quote was strong balance sheet – But you only have $17 million in cash, the lowest in the decade. You know, as of 1Q, you still had $129 million in unremitted cash, although I don't know where that stands today. And you're at roughly four times net debt to EBITDA. So I'm just curious what leads you to think the balance sheet is healthy enough to take on a lot more leverage right now, if that's the plan via M&A. You know, wouldn't it – Yeah, go ahead.

I was just going to say... I'll let Bill jump in as well. I'm sorry, you want to... Well, yeah, let me start.

No, no, I think... Sure.

You know, Ken, this is typically a time of the year when we build inventory, okay? And that has started. As you know, we have a seasonal business that's a big third quarter and fourth quarter business. And so we recognize what's going to go in inventory and what will be generated and then the cash conversion cycle and what we'll have at the end of the year. So we feel very comfortable in where our cash position is today, where our cash position is versus our plan and where we'll be at the end of the year. We understand what our bank covenants are, which are a little different. You know, there's advex and our bank covenants, which take us well below the levels that you mentioned. So we've got plenty of capacity for debt. And the assets that we're looking at bring EBITDA with them, right? And so when you add those things together, we see financing capability to keep us well within our targeted leverage ratios and give us the firepower to buy the things to impact our business. And there will probably be some portfolio adjustment as well that may bring some additional cash. Thank you.

And then I don't know if you know it off the top of your head, Bill, but do you know what the unremitted cash balance was just so we can mark it down at the end of the second quarter?

We'll have it in one second. It's $144 million, Ken.

To the point, though, just to build on Steve's comment about the balance sheet,

You know, we did take out some very high-priced bonds, you know, both tranches, and we did a nice job in the terminal market as well. So, you know, some of that got caught up in the cash as we paid that debt down this year. But the point that Steve made around, you know, building inventory and seasonal bill, we think that's the way you want to think about it for this year. So we don't think we have any liquidity issues at all. Understood. Thank you.

The last question today comes from Rob Dickerson with Jefferies. Your line's open.

Great. Thanks so much. I just had a question on the top line for the rest of the year on the volume side. My rough math, you know, if I look at the midpoint Q3 and Q4, it seems like the expectation is maybe that volumes on a year-over-year basis improve a bit. And maybe if you just let me know if I'm off there. And I'm also just kind of curious, just kind of given visibility you might already have in Q3, you know, I guess one is, it seems like there's still kind of a decent range on the top line, both for Q3 and the full year. And so kind of where I'm heading here is, just your level of confidence on the volume side through Q3 into Q4 relative to the guide you provided, you know, just given everything you're talking about, about, you know, the macro environment, reversion back to consumption behaviors, what have you. Thanks.

Yeah, sure. This is Bill. I mean, let me start. Maybe Steve will add a couple pieces. I think to the point, you know, our business is seasonal, so Q4 gets a bit larger, and we do have some activities going. that we think have locked in that will drive that. In addition, with Riviana in our portfolio now, you're going to see a bit of a change in that Q4 trend as well. You know, we did provide a wide range. I wanted to account for some of the uncertainty that we've recently seen, particularly in the macro environment, and I wanted to make sure that we went straight down the road there. The other piece that I think is building nicely for us is our footway from home business. You know, as the As that business builds and that industry recovers, that will be a benefit for us as well. So I am confident in the range that we gave. It's a bit wide to account for a range of outcomes, but we're confident that's the right way to think about it.

Yeah, and the only thing I would say is the dynamics are significantly different than in the past. I think when you've seen top-line volatility from us in the past, it's been performance-based, right? It's been losses of pieces of business. That's not the case now, right? We've got a situation where the government is clearly providing significant stimulus to one of our key customer segments, right? That value shopper, as a percent of their total income, the stimulus payments are material, right? And so it's changed their behavior. We don't think that is sustainable long-term. We can't tell you when that will pass, though. We think it will pass, but we don't know when it will pass. And the good news is because we're gaining some share in our core categories, we think we're positioned to take a larger piece of those sales and profits when it does pass. So it's just really hard for us to talk about when it will and when it won't pass.

Yeah, no, it makes complete sense. And I guess kind of what maybe is a bit implied, Steve, is that, you know, as the pricing does start to increasingly enter the market in the next year, you know, kind of the hope here is that relative to, let's say, a more normalized environment where you might be pricing some, you know, hopefully there's not as much volume elasticity kind of given, you know, whenever that plays out, given some of the recovery potential, you know, on the volume, you know, vis-a-vis kind of price gaps with Brandon. Does that make sense?

I think it does. And, you know, we try to watch all of our branded peers and what their announcements are and when. They tended to be a little later than us, so I think our pricing might be a little bit ahead of theirs, and that's natural. We don't have the levers they have. And so I think once it all settles out, I mean, these are real costs, right? I mean, the commodity costs are real, the labor costs are real, and I think are not transitory. Labor is not transitory. This is a step change in labor. And so those things will all work their way through the system, and that's when our traditional value proposition comes back. So when income levels normalize and all of this settles out, you know, I said this in the prepared remarks, this does not affect our free cash flow enough to affect our strategy, right? If you think about what would have happened if this hit the company three or four years ago, we'd be in a very different place. So, you know, this is a tough operating environment. The team's operating really well. You know, day-to-day we have these little intermittent interruptions with supply chain. We're still managing our customer service. Those rates are strong. We're growing share. Our total pie is down right now, but we think that will change. And we don't think it affects our ability to execute our strategy. So that's really our key message.

All right, Chris. Thanks, Steve. Thanks, guys. Take care. You too.

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

Yeah, I just would like to thank you all for being with us today. I know we'll get a chance to talk to many of you in the future and wish you the best. Talk to you soon.

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