Marc Torrente

Marc Torrente asked about the stickiness of the increased normalized run rate for foodservice, the level of conservatism in the $125 million per quarter estimate, and the drivers of Q1 upside. He also inquired about the key drivers behind the down price mix in PCB, particularly consumer dynamics, and the trends in the pet category (dog vs. cat) and expectations for Post's pet volumes recovery. Finally, he asked about the cost savings flow-through from cereal facility closures and potential future streamlining actions.

Answer

Matt Mainer, CFO and Treasurer, highlighted the value proposition and runway for converting shell eggs to value-added as drivers for foodservice stickiness, returning to normalized supply/demand. Nico Catoggio, COO, attributed PCB's price mix headwind primarily to lower promotional spend and assortment adjustments in cereal, and Nutrish price testing in pet. He noted softer dog segment trends in pet but expects sequential volume improvement for Post's pet business with brand relaunches. Catoggio also stated that cost savings from cereal plant closures would mostly impact the P&L in Q3 and Q4, with no major obvious streamlining opportunities beyond that.

Marc Torrente asked about current trends in the pet category, particularly the softer dog segment compared to cat, and Post's expectations for the category near term. He also inquired about the recovery of Post's own pet volumes through the year, given sequential improvements and various puts and takes. Additionally, he asked about the cost savings benefit flow-through from the two cereal facilities closures and if other streamlining actions are being considered.

Answer

COO Nico Catoggio noted no major changes in pet category trends (dog softer than cat due to urbanization) and confirmed Post's business is sequentially improving, driven by Nutrish and Gravy Train price point tests, with expectations for further help from brand relaunches. He stated that benefits from cereal plant shutdowns should mostly hit the P&L starting in Q3 and Q4, with no obvious major streamlining opportunities thereafter.

Marc Torrente inquired about any changes to the underlying assumptions for the GO4 and Eighth Avenue businesses within the 2026 EBITDA guidance, specifically regarding the previously called out $45 million-$50 million annualized EBITDA and $15 million in synergies. He also asked for color on the contribution baked in for the Post Holdings business for the first quarter top line and EBITDA, and about volume trends in core grocery, including any incremental pressure from SNAP.

Answer

CFO and Treasurer Matt Mainer confirmed no change to the $45 million-$50 million outlook for fiscal 2026 contribution from Eighth Avenue, with confidence in achieving synergy run rates by year-end. He noted that about half of Eighth Avenue's $20 million Q4 contribution was pasta, and only two months of pasta contribution are expected in fiscal 2026. For core grocery, Mr. Mainer stated a conservative outlook, expecting marginal improvement year-over-year in the second half of fiscal 2026, with Q1 and Q2 looking similar to Q3 and Q4 of the prior year.

Marc Torrente inquired about any changes to the underlying assumptions for the GO4 and Eighth Avenue businesses within the 2026 EBITDA guidance, specifically regarding the previously called out $45 million-$50 million annualized EBITDA and $15 million in synergies. He also asked for color on the contribution baked in for the Post Holdings business for the first quarter top line and EBITDA, and about volume trends in core grocery, including any incremental pressure from SNAP.

Answer

CFO and Treasurer Matt Mainer confirmed no change to the $45 million-$50 million outlook for fiscal 2026 contribution from Eighth Avenue, with confidence in achieving synergy run rates by year-end. He noted that about half of Eighth Avenue's $20 million Q4 contribution was pasta, and only two months of pasta contribution are expected in fiscal 2026. For core grocery, Mr. Mainer stated a conservative outlook, expecting marginal improvement year-over-year in the second half of fiscal 2026, with Q1 and Q2 looking similar to Q3 and Q4 of the prior year.

Marc Torrente asked about the recent performance and future seasonality of the Eighth Avenue business, the timing of plant optimization savings, and the resulting impact on manufacturing capacity utilization.

Answer

CFO Matt Mainer stated there were no changes to Eighth Avenue's expected contribution for the fiscal year but acknowledged a recent performance pullback due to pre-acquisition uncertainty. He noted no significant seasonality. On optimization, Mainer confirmed plant closures are on track for the end of the calendar year, which should bring utilization to the mid-80s. Further actions will depend on the cereal category's performance.

Marc Torrente asked about performance trends in the grocery category, specifically who is outperforming, and if there has been any sequential improvement since the quarter's end. He also requested an update on the RTD shake manufacturing ramp-up.

Answer

COO Jeff Zadoks described a dichotomy where both premium and value-oriented products are performing well, squeezing the middle. He noted a slight improvement in cereal trends in April but was cautious about declaring a recovery. He added that the RTD shake ramp is slower than hoped but trending favorably, though it is not yet a material profit contributor.

Marc Torrente asked for confirmation that profit was better than planned in PCB and Foodservice, questioned the sustainability of PCB's upside, and inquired if the underlying segment outlook had changed. He also asked about the phasing of CapEx for the year.

Answer

COO Jeff Zadoks agreed with the assessment, noting PCB's strong margins are expected to continue and that the segment outlook, excluding AI impacts, is unchanged. CFO Matt Mainer addressed CapEx, explaining that Q1 was elevated due to project timing and the full-year guidance remains appropriate, implying lower spending in subsequent quarters.

Marc Torrente asked for details on the recent recalibration of Post's long-term EBITDA growth algorithm and how that bridges to the FY25 guidance. He also requested more color on the distribution losses in lower-margin products within the Refrigerated Retail segment.

Answer

CFO Matt Mainer detailed the updated long-term growth algorithm by segment and noted that for FY25, most segments are expected to perform in line with it, with the exception of Weetabix due to its ERP conversion. Regarding Refrigerated Retail, he specified the distribution losses were in eggs and cheese. The company will lap the egg loss in Q1 and the cheese loss in Q2 of fiscal 2025, but he noted that high egg prices remain a headwind for that business.

Marc Torrente inquired about the visibility to volume growth in the second half, particularly North America's performance at or above the first half, asking how much of this is driven by the 53rd week and the underlying momentum against tougher comparables, and what this could mean for fiscal 2027. He also asked about recent traffic trends in November/December and expectations for the next 12 months.

Answer

CFO Bernadette Madarieta stated that second-half volume, excluding the 53rd week, is expected to be consistent with the first half's pace of increase with chain customers, while international volumes are expected to be flat year-over-year. CEO Michael Smith mentioned expected consumption growth of 2-4% over the next five years, higher in emerging markets, and reiterated confidence in gaining share. He noted that November traffic data was consistent with previously shared soft trends.

Marc Torrente asked about the visibility to volume growth in the back half, specifically how much is driven by the 53rd week, the underlying momentum against tougher comparables, and the outlook for fiscal 2027. He also inquired about recent traffic trends in November/December and expectations for the next 12 months.

Answer

CFO Bernadette Madarieta stated that second-half volume, excluding the 53rd week, is expected to be relatively consistent with the first half's pace for North America, while International volumes are expected to be flat year-over-year. President and CEO Michael Smith mentioned that consumption is expected to grow 2-4% over the next five years, with higher growth in emerging markets. He expressed confidence in gaining share and growing volume even in a challenged traffic environment. Michael Smith confirmed that November traffic data is consistent with Bernadette's prepared remarks, showing no significant improvement or deterioration.

Marc Torrente asked for insights into the underlying run rate of SG&A and the phasing of net cost savings, given that SG&A came in lower than expected due to a non-recurring $7 million and timing shifts in strategic investments. He also inquired about visibility into future new customer wins and the ability to sustain volume momentum if industry traffic remains muted.

Answer

CFO Bernadette Madarieta stated that about one-third of the fiscal 2026 cost savings are expected to benefit SG&A, noting the Q1 benefit included a one-time $7 million item. She added that SG&A will also be affected by incremental costs for stock compensation normalization and $10 million in strategic investments later in the year. CEO Mike Smith declined to comment on future customer wins but pointed to the restart of a curtailed line as an indicator of confidence in the business. CFO Bernadette Madarieta reiterated that Q1 volume outperformance in North America partly reflects a timing shift of new customer ramp-up planned for later periods.

Marc Torrente inquired about the underlying run rate of SG&A going forward and the phasing of net cost savings, given that Q1 SG&A was lower than expected due to a non-recurring $7 million and timing shifts in strategic investments. He also asked about visibility into other new customer wins and the company's ability to sustain volume momentum if industry traffic remains muted, considering that new customer wins materialized quicker than anticipated.

Answer

CFO Bernadette Madarieta stated that about one-third of the fiscal 2026 cost savings are expected to benefit SG&A. She reiterated that the Q1 SG&A benefit included the $7 million one-time item and that future quarters would be affected by cost savings, incremental stock compensation costs, and $10 million in strategic investments slated for the latter half of the fiscal year. CEO Mike Smith declined to comment on future customer wins but pointed to the restart of a curtailed line in American Falls as an indicator of confidence in the business's demand signals. Ms. Madarieta clarified that the Q1 North America volume outperformance was partly due to an acceleration of new customer activity that was already planned for later periods in the original guidance.

Marc Torrente of Wells Fargo Securities asked about the fiscal 2026 sales outlook, specifically the volume contribution from the 53rd week and the expected sales cadence throughout the year. He also requested a more detailed bridge for the expected decline in gross profit, seeking quantification of factors like pricing, inflation, and fixed cost absorption.

Answer

CFO Bernadette Madarieta explained that sales will be more pressured in the first half of FY26 due to carryover pricing actions, with the 53rd week benefiting volume primarily in the second half. For gross profit, she indicated margins would be lowest in Q1 and improve sequentially into Q3, as the company returns to a more typical seasonal benefit from the new, lower-cost potato crop starting in Q2.

Marc Torrente from Wells Fargo Securities inquired about the outlook for rational pricing in North America and the drivers behind the weak price/mix performance in the International segment.

Answer

CEO Mike Smith stated that due to soft demand and some new international capacity announcements, he expects pricing to remain pressured in the near term. The international price/mix weakness was driven by deliberate pricing actions to remain competitive in key markets.

Marc Torrente asked if Lamb Weston's utilization rate would be ahead of the industry over the medium term and inquired about the progress made in working down elevated finished goods inventory.

Answer

President and CEO Thomas Werner stated that he believes Lamb Weston's utilization is generally in line with the industry standard. CFO Bernadette Madarieta explained that inventory levels are seasonally at their peak in the second and third quarters following the harvest and will be worked down through the remainder of the fiscal year.

Marc Torrente asked for context on the Connell facility's relative manufacturing costs and the timeline for other curtailments. He also requested more color on strong international volume trends and the role of new production capacity in driving that growth.

Answer

President and CEO Tom Werner explained the Connell closure was a strategic decision based on its cost structure and future capital requirements relative to the entire network. CFO Bernadette Madarieta highlighted that international growth is being driven by significant customer wins, particularly in the Asia Pacific and Latin America regions, which will be supported by new capacity coming online.

Marc Torrente asked how Freshpet is prioritizing top-line growth in its core business versus accelerating other opportunities like international expansion or adjacent categories in light of current market trends.

Answer

CEO Billy Cyr affirmed that the U.S. dog food business remains the number one priority due to its enormous untapped potential, stating they will invest for good returns but not chase growth at any cost. CFO Todd Cunfer and COO Nikki Beatty highlighted the digital channel as a significant growth opportunity, noting its 40% growth rate and the large gap between Freshpet's 13% digital sales penetration and the category's 35%.

Marc Torrente of Wells Fargo asked how Freshpet is prioritizing top-line growth and whether current trends are accelerating plans to enter new channels, international markets, or adjacent categories.

Answer

CEO Billy Cyr emphasized that the U.S. dog food business remains the number one priority due to its enormous untapped potential. He stated they will invest for good returns but not chase growth at any cost. CFO Todd Comfort and COO Nikki Beatty added that the digital and e-commerce channel represents a significant, underdeveloped growth opportunity that they are actively focusing on, given its low share of Freshpet's sales compared to the overall pet category.

Marc Torrente asked for an update on consumer behavior, particularly regarding buy rate gains, the shift to larger pack sizes, and the expected evolution of product mix.

Answer

CFO Todd Cunfer described the current market as a 'tale of two cities,' where the ultra-premium segment, including Freshpet, and the value segment are performing well, while the middle is being squeezed. He emphasized that Freshpet's target consumer is less impacted by inflation and continues to see the value in the product, driving strong performance.

Marc Torrente asked for an update on consumer behavior, particularly regarding strong buy rate gains and the previously mentioned shift to larger pack sizes, and how mix is expected to evolve.

Answer

Executive Todd Cunfer described the market as a 'tale of two cities,' where the ultra-premium segment, including Freshpet, and the value segment are performing well while the middle is being squeezed. He stated that Freshpet's consumers recognize the value and are willing to spend, and this consumer group continues to be large and growing.

Marc Torrente from Wells Fargo asked for details on the strong Branded Spirits margins, the drivers behind the material reduction in A&P spending, and the effectiveness of the focused brand strategy. He also questioned the sales and profit phasing for the Distilling Solutions segment between the first and second half of the year.

Answer

CFO Brandon Gall attributed strong Branded Spirits margins to the Premium Plus portfolio mix but expects lighter margins in H2 due to pressure on value brands. He clarified that the A&P spend decrease was due to lapping a large campaign from the prior year and that the focus on key brands like Penelope is working well. Corporate Controller Mark Davidson added that the guided 50% sales decline in Distilling Solutions implies a significant H2 decrease, but gross profit will be better than the previously guided 65% decline due to favorable pricing negotiations.

Marc Torrente inquired about the visibility into the Distilling Solutions outlook, asking about the progress of customer contract recalibrations and the impact on volume and pricing cadence. He also questioned if the segment's margins, which beat expectations, were driven by cost savings or better performance, and how they are expected to progress.

Answer

Brandon Gall, Interim CEO & CFO, stated that 100% of contracted customers have been contacted, with the vast majority confirming or modifying orders, which has improved visibility for 2025 and even led to extensions. He confirmed these modifications are factored into the full-year guidance. Mark Davidson, VP & Corporate Controller, added that the segment's full-year guidance for a 50% sales decline and 65% gross profit decline remains, noting Q1 was stronger due to contract timing, with weaker performance expected in the second half.

Marc Torrente of Wells Fargo sought to understand the level of confidence in the 2025 guidance, asking for context on the buildup of the Distilling Solutions forecast and any expected quarterly cadence. He also questioned the outlook for cash flow, considering earnings pressure, reduced CapEx, and the potential Penelope earn-out.

Answer

Brandon Gall, Interim President, CEO, and CFO, affirmed that the vast majority of the 2025 distilling projection is contracted and that the guidance now proactively assumes some contracts will be renegotiated. Mark Davidson, VP and Corporate Controller, added that Q1 is expected to be the softest quarter. Gall addressed cash flow, stating that significant reductions in CapEx (to ~$36M) and net whiskey putaway (to $15M-$20M) will support strong free cash flow. He also clarified the Penelope earn-out is not due until Q1 2026.

Marc Torrente from Wells Fargo asked about the level of committed business for 2025 given the current contracting season and the security of those commitments after recent nonperformance issues. He also sought details on the extent of excess industry inventory, the potential for further fixed cost reductions, and actions being taken by competing suppliers.

Answer

CEO David Bratcher affirmed strong confidence in the 2025 outlook for brown goods, explaining that they have analyzed all contracts and 'weeded out' less reliable business to establish a core plan. He noted that while perfect visibility on industry inventory is elusive, major players are more likely to 'age up' their products than dump inventory. CFO Brandon Gall added that MGP has already reduced its whiskey put-aways significantly in 2024 and will continue to do so in 2025 while actively working to mitigate the impact of fixed cost absorption from lower production.