Post Holdings, Inc.
Q1 2021 Earnings Call Transcript

Published: 5 Feb 2021

[Operator:]

Welcome to Post Holdings First Quarter 2021 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer; and Jeff Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for a replay beginning at 12.00 PM Eastern Time. The dial-in number is 800-585-8367 and the passcode is 153-9554. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Post Holdings, for introductions. You may begin.

[Jennifer Meyer:]

Good morning, and thank you for joining us today for Post first quarter fiscal 2021 earnings call. With me today are Rob Vitale, our President and CEO; and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks and afterwards, we'll have a brief question-and-answer session. The press release that supports these remarks is posted on our Web site in both the Investor Relations and the SEC filing section at postholdings.com. In addition, the release is available on the SEC’s Web site. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our Web site. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our Web site. With that, I will turn the call over to Rob.

[Rob Vitale:]

Good morning. Thanks, Jennifer, and thank you all for joining us. The year started with the quarter very much in line with our expectation, and the first half is shaping up in the same manner. Our expectation remains that EBITDA will dip in Q2 and will accelerate in the second half versus the first half. As I briefly review the business, I will share some additional color regarding our expectations. Our U.S. cereal business had a solid quarter, however, it was hampered by supply constraints. During November and December of COVID absenteeism, our Battle Creek facility required us to temporarily suspend production for one building. This resulted in the highly publicized Grape-Nuts shortage. Production was also suppressed on Honeycomb and peanut butter products. We are back to full production, but it will through early spring to restore inventory levels. We estimate the first quarter impact was lost revenue and adjusted EBITDA of approximately $10 million and $6 million, respectively. Longer term, COVID has revealed marries in which we can improve supply chain effectiveness and efficiency. The demand surges and the supply pressures are testing our demand planning and production plan. These learnings are constructive and we expect to emerge from COVID with improved processes. While most pronounced at Post Consumer Brands, supply chains across the company are learning and improving from the experience.

[Jeff Zadoks:]

Thanks, Rob, and good morning, everyone. Consolidated net sales were $1.5 billion and adjusted EBITDA was $284.4 million for the first quarter. Although the COVID effect was less pronounced when compared to prior quarters, each of our businesses continues to be impacted by COVID dynamics. Starting with Post Consumer Brands, net sales grew 1% while volumes were flat. Favorable mix drove improvement in average net pricing. Legacy Post branded cereals had a great quarter with sales up 9% in the aggregate. Partially offsetting these results were declines in private label and government big business as we intentionally exited certain low margin business, as well as softness in licensed brands and Malt-O-Meal bag cereal.

[Operator:]

Thank you. The floor is now open for questions. . Our first question comes from the line of Andrew Lazar of Barclays.

[Andrew Lazar:]

Good morning, everybody.

[Rob Vitale:]

Good morning, Andrew.

[Andrew Lazar:]

I guess first off, Rob, I'm curious, is there any reason to think that margins in the foodservice segment would be sort of structurally different, either higher or lower, when demand returns to pre-pandemic levels? Because I heard you kind of discussed supply chain learnings really across all of the segments in the business. And just trying to get a sense if there's been any learnings specifically in foodservice that make you feel that maybe there's some opportunities on the upside when ultimately demand returns?

[Rob Vitale:]

Yes, I think there are some puts and takes. I think that we have had some learnings that will improve our supply chain. We have continued to invest capital to drive productivity. And we continue to see, as I mentioned, some modest decline in overall category capacity. However, on the other side, on the demand side, this gets a bit crystal bullish. The most likely scenario would be that the customers that gain share as a result of the pandemic are the larger chains that tend to have better volume pricing. So there may be some offsets on pricing that are matched by improvement on cost. Where that exactly balances out yet, it's a bit early to predict. But there are certainly some puts and takes.

[Andrew Lazar:]

Okay. And then I guess year-to-date, you talked about Post has already bought back I guess roughly, maybe 4% of its shares and that follows the purchase of around 8% of the shares in fiscal '20. And obviously share repurchase sometimes can be viewed as sort of a benchmark, right, against which other capital allocation decisions are measured. I guess are these actions more a reflection of a challenge in finding significant opportunities for other uses of capital, not overlooking the two smaller acquisitions, which closed recently or simply the higher potential return you see from your own shares at this point?

[Rob Vitale:]

Well, as I think we've talked about on prior calls, we think of it as a hierarchy of decision making. And one is have we vetted all the internal opportunities for capital expenditures? Assume that that is a yes. And then, is there a compelling need to deleverage? Assume the answer to that is no. And then, how do multiples compare for opportunities that are external versus opportunities that are internal? And what I would share with you is that when we're that active in buying our shares, I think the assumption would be that the multiple is much more attractive on an internal than an external basis. That does not mean that there aren't interesting opportunities abound. It means that there are some multiple disparity that we're not ready to address. And we may need to look at more creative solutions if we want to advance more structural M&A.

[Andrew Lazar:]

Okay. Thanks very much.

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of John Baumgartner of Wells Fargo.

[John Baumgartner:]

Good morning. Thanks for the questions.

[Rob Vitale:]

Hi, John.

[John Baumgartner:]

Rob, I want to ask, just big picture, during the last couple of years Post shifted its focus from bolting big platforms onto the core to more of a focus on organic growth. And now we're seeing the extension of PEBBLES from cereal and Dymatize, premiere into cereal. You mentioned some forthcoming activity at Weetabix UK as well. So it seems that the integration and collaboration is much tighter at this point. So not sure if I'm reading into it too much, but can you speak to this as an insider. How are we changing or tightening the sharing of market analytics and ideas and segmentation internally across the businesses?

[Rob Vitale:]

Well, I think if you reflect on the way Post is organized, we think about it as a bit of a hub with the operating companies being the spokes . And in order for there to be good collaboration across the organization, like a certain amount of trust and relationships have to develop. And that takes time. So, if you look at the period from 2013 to 2017 or so when we were pulling this together, it was a pretty steady flow of new faces and new businesses. And there was step one, which is get to know those businesses, make sure we understand the strengths and weaknesses over time, as opposed to just in the rush of diligence. And then the next more nuanced phase is trying to find those peer-to-peer opportunities to collaborate, which you've just described. And I think it's a really significant opportunity for the business to work together to leverage where we have strengths and mitigate where we have weaknesses across the business. And I think that's one of the real nuanced upsides of the portfolio that we've built. And I couldn't be happier with the way some of these brands are crossing the portfolio, specifically the ones you mentioned with Fruity and Cocoa Pebbles now being the fastest growing protein powder in the country. And the comment I made about premier protein cereal, which again, while it's early, I'm very optimistic about.

[John Baumgartner:]

Great. Thanks, Rob. And then, Jeff, just one for you real quick. You mentioned some expenses for PP&E in your prepared comments. How are you thinking about the year-on-year COVID expense really, as you get into the back half of '21, or even thereafter? How much of the expenses do you think are temporary versus more permanent in nature? Thank you.

[Jeff Zadoks:]

Yes. The magnitude of the costs that we incurred this quarter are in the neighborhood of about $5 million for those sorts of things. But about half of that was for labor-related costs. And I'm excluding the commentary that Rob had about the Battle Creek profit by the way. So this is incremental to that. So about half of that cost was for things like PTO for people who are either quarantine or sick and for overtime for people to replace those lost hours. We would expect obviously that that sort of thing to go away when we get to more normal times, but the remaining, call it 2.5 million or so, that related to PP&E or other cleaning costs and those sorts of things are likely to be more permanent in nature.

[John Baumgartner:]

Okay. Thanks, everyone.

[Operator:]

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

[Bill Chappell:]

Thanks. Good morning.

[Rob Vitale:]

Good morning, Bill.

[Bill Chappell:]

Rob, I'll ask both questions on one sense you had in your prepared remarks. Can you talk a little bit more about what highly accretive means for these recent acquisitions, any more learnings or synergies or thoughts like that? And then maybe give some more color on highly interesting pipeline of deal activity? Just kind of -- not necessarily that you're going to talk about what you're going to buy next, but are you looking more or less in foodservice? Are you looking more or less in retail? So just trying to understand if your focus has changed as it has over the past kind of year as valuations have moved up and down?

[Rob Vitale:]

Yes. So, I would characterize highly creative as opportunities in which we're buying well below the Post multiple, and that's a result of purchase price and synergy realization. It also includes some tax benefits. So significant discounts to where Post is trading. In terms of the current pipeline, as you point out, there's not much that I really can say. But what I can tell you from both the quantitative and qualitative perspective is that it is increasing. I think there was a period of time during the pandemic when either inbound or outbound M&A was perceived reasonably so as a distraction from our core objective, and in this context our meeting across the industry, of just making sure that we were delivering on our base commitment. So M&A was not particularly forefront. And I think that sense is passing. So this year, quantum of opportunities is increasing. And in terms of qualitative, the opportunities that we're looking at are near in because of the answer that I gave about the hierarchy of our M&A decision making. If we're going to look at M&A right now in a traditional structure, it tends to be closer to some component of our business where we can drive operating synergies and get that multiple where it needs to be to justify the investment.

[Bill Chappell:]

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

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of David Palmer of Evercore ISI.

[David Palmer:]

Thanks. Good morning. A couple of questions on that foodservice business. Could we go through that mix again in terms of channel? You have some major chains like Starbucks and Dunkin', they're adding units. And one would presume that they will have more of a full recovery and perhaps more immediate. And then you would have some other channels, perhaps travel related that might have a longer recovery and then some other stuff in between, perhaps you can give us some dimensions of that mix?

[Rob Vitale:]

Yes. The bigger channels -- we've historically talked about there being four broad channels that are affected by COVID; full service restaurants, quick service restaurants, education and then travel and lodging. And the first two we expect to come back reasonably quickly and strongly. And when we say quickly, the implication should mean in correlation to vaccine deployment and mobility restrictions being lifted. So whether that's quickly measured in time from today or not, we’re less confident on it, really means quickly in terms of response to some intervention. Then the third channel, of course, is education and we've talked historically about that being binary -- excuse me, those first two are roughly in tandem about 30% of the total effective channels. Education is another roughly 10%, which is binary. Again, we've talked in the past about kids are going to be back in school or not in school and our -- I think it's fairly obvious, we believe that they will be back in school at some point. Exactly when, again, is a question mark. And that leaves 10% to travel and lodging. And travel and lodging is a fairly big category or a fairly big definition, in that it includes things like cruise lines, leisure travel, casinos, and then it also includes business travel and extended stay in full service hotels and motels as well as airlines. We think that's the most susceptible channel to some longer-term structural weakness.

[David Palmer:]

Makes sense. And with regard to egg prices, I have a feeling I could be educated here as well. The last year, I remember there was an egg price spike that happened in the spring. So you'll be lapping a spike. And you were mentioning in your prepared remarks that you will be dealing with a bit of a pinch in terms of timing on pass through. Can you talk about how that will play out and perhaps any magnitude in terms of how you're thinking about margins from an egg pricing standpoint? Thanks.

[Rob Vitale:]

I'm not going to specifically comment on margins in foodservice right now, because they're fairly volatile. With demand moving around as much as it is, it's quite difficult to bucket the real range of margins. What I would share with you is that we feel very confident in our range of estimates in aggregate. But there could be some continued meaningful volatility in Q2, and then hopefully that Q3 and Q4 is a much more steady state progression upwards as we get a return to normalcy. Jeff, anything you want to add to that?

[Jeff Zadoks:]

I don't know if your question is referring back to our remarks, but just to give a little bit more color around the pricing model for the majority of our contracts. The way it works is we have a repricing every quarter, so the beginning of every quarter is based on a 90-day look back that's based on the prior quarter second month. So to put that more specifically, the prices that went into effect on January 1st were based on the 90-day look back from September, October and November. So that drives how we passed through the cost. And obviously as there's volatility either up or down in grain prices, that can either be a good thing or a bad thing, depending on which side of the -- which side of that curve you're on at a particular quarter. The other thing I would say is, it's pretty common for prices of eggs to go up in the spring because of Easter. There's a seasonal spike because of Easter. Whether we see that this Easter or not is obviously hard to say given the pandemic situation. But in normal times, you'll see that spike every spring.

[David Palmer:]

Great. Thank you.

[Operator:]

Our next question comes from the line of Jason English of Goldman Sachs.

[Jason English:]

Hi. Good morning, folks.

[Rob Vitale:]

Hi, Jason.

[Jason English:]

A couple of questions. So, first, I think your side dish business had some supply chain disruptions pre-COVID. Have you worked through all those gains? Is your supply chain humming on both sides of your cold chain business?

[Rob Vitale:]

No. We continue to see a fairly significant labor shortage that we're continuing to having to manage around. It's a combination of location. There's some impact of COVID. I think there's some impact to simply lack of interest in some of these entry-level positions. So we're still having some workarounds to be dealt with across the cold supply chain.

[Jason English:]

Sounds reasonably transitory though. I think pre-COVID you actually had some machinery equipment issues. Am I right?

[Rob Vitale:]

Pre-COVID, we had some installation issues that were – yes, some discrete miscues that had been dealt with. These are transitory, but they could take a while to work through just as we get through that. The unemployment benefits are creating a bit of dislocation in the employment markets. So we're working through some lack of interest right now that are resulting in some pretty significant open positions. But as you say, we will work through that.

[Jason English:]

You report your cold chain business through two segments, retail and foodservice. Is there any reason to view them as two separate businesses or are they effectively fully integrated with just two different selling arms?

[Rob Vitale:]

No. I think it's fair to say they're two separate businesses that share what is largely a transportation and a warehousing network. We are actually moving the manufacturing functions more closely aligned with each of the businesses. They have shared some manufacturing. But what we're trying to do is make the manufacturing very responsive to the individual business objectives, and then get leverage where it's highly scale sensitive, specifically around the logistics network.

[Jason English:]

And do you think both of these businesses are being fairly valued within Post and how it’s traded today? I presume the answer is no, given your aggressive share repurchase activity? And if the answer is no, why not pursue more aggressive strategic activity to unlock that value?

[Rob Vitale:]

Well, I think that specific elements of value are not something that we talk about in a public forum, and would tell you that our actions are probably the best indication of our opinions. And I think with respect to the second part of your question, we are always exploring different ideas. There are ideas that make a lot of sense on a blackboard that have some operational execution issues. And this is a constant work in progress. And I would not exclude any of those opportunities from the realm of possibility.

[Jason English:]

Thanks a lot. I’ll pass it on.

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of Chris Growe of Stifel.

[Chris Growe:]

Hi. Good morning. Just had a question for you first on, kind of follow-up on the cost inflation. I think you addressed cost inflation for the egg business and the structure of that business. I'm just curious about cost inflation for your retail businesses. And perhaps you could discuss hedging generally and kind of when you sort of start seeing those costs. And then do you think you can price to that cost inflation or do you expect generally to see that pricing come through in those retail businesses?

[Rob Vitale:]

So inflation is fairly apparent across our portfolio right now, as you would expect. And within our grain complex, we've got good coverage for the most part through the balance of this year. And the implications of inflation are more oriented towards how we think about pricing trade and cost reduction in fiscal '22. We would expect to be able to protect that inflation. Exactly how we do it at this point is too early to answer. Within the cold businesses, as Jeff talked about, it somewhat adjusts within food service and within our Bob Evans franchise. We continue to be aggressive in making sure we protect margins from inflation in the same way as I just talked about with our cereal business. But the one segment of that that is much more trade sensitive is our sausage business. We use a trade tool to manage up and down short-term swings in sales, which really can't be hedged. And then within the dairy franchise, we've seen some pretty significant inflation as well. You'll hear more about that a bit later. But we, again, would fall back on the same tools. We're going to look at pricing and cost reduction to make sure that we've got the margins protected long term.

[Chris Growe:]

Okay. Thank you for that. And just a follow-up question from an earlier question on acquisitions and capital allocation. And certainly you're holding a lot of cash today. And then depending how you use that cash only could push up your debt levels overall. I think Jeff cited debt to EBITDA around 5.7x today for Post overall. Is there a concern with that going over 6x, for example? I'm trying to pick a number there, but just trying to get a sense of where are you willing to push the balance sheet to take advantage of any short-term dislocation or opportunities you see with buying your stock back?

[Rob Vitale:]

Yes. So, I think I've made these comments before that maybe more than most we make a distinction between leverage and liquidity. So clearly, we are very liquid. We are also somewhat leveraged. The solution to being a tad high on leverage and historical is not so much to change our capital allocation but to change our recovery -- not to change our recovery but to deliver upon our recovery. Because the reason the debt has crept up is -- well, the debt has not crept up; the leverage has crept up is because of the weakness in foodservice year-over-year. So once we cycle through that and start to show EBITDA growth year-over-year, that will organically come down. We're confident enough in that outcome that it does not cause a great concern for us right now, but it's obviously something we very aggressively manage and monitor.

[Chris Growe:]

Okay. Thank you for that.

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of Michael Lavery of Piper Sandler.

[Michael Lavery:]

Thank you. Good morning. Just was hoping to get a little bit more color on some of the thinking on the first half guidance. I know you've given some of that, but nice first quarter and then you've held the full half. And I know you called out grain costs as one watch out for the second quarter. But just curious how much there may be some conservatism in your thinking there or what else, if anything, should we have in mind as potential watch out?

[Rob Vitale:]

Well, in my prepared comments I went through really the areas that we would attribute the sequential decline to, and those are -- Bellring has a natural cadence. The first quarters tends to be very strong as we shift into a new year new you. The second quarter tends to lag the first quarter, so a portion of that is simply the cadence of the Bellring quarter. The balance of it is really specific to foodservice and directly related to COVID, in that we saw and expected the highest incident rate to come with the coldest weather pre-vaccine. I think if you recall last quarter, I called out that our second quarter would be the most challenging to forecast simply because of all the ambiguity around where we are in COVID vis-à-vis infection rates and vaccine. That has proved to be true. The infection rates, of course, soared in November, December. And when that does, our volumes decline. So one, Bellring; two COVID restrictions. And then the third is the move in commodity prices wasn’t the one that was not baked into a planning assumption, but we had enough conservativism to absorb. We feel very good about the balance of the half. And again, we feel confident in the acceleration into the balance of the year. In terms of how much conservativism is, I don't know. You're conservative until you're not. We think it's the right approach, but we live in uncertain times and only time will tell.

[Michael Lavery:]

Thank you. That’s helpful. And just on your announcement with Hungry Planet, I was wondering if you could give a little bit more color there. Maybe what kind of products that might involve? And any sense of the economics even just in a very high level, like for example, is it a situation where you get distribution revenue or is there anything more than that, or how do we think about what impact that might have on the model?

[Rob Vitale:]

Sure. There are two sources of economic opportunity. One is we wanted to have a plant-free offering for both our foodservice and retail business. We think that both of our franchises in foodservice and retail need that offering. And it was a buyer build decision. It would have taken us years to get to where Hungry Planet was if we attempted to do it on an internal basis. If you recall, we had previously mentioned a distribution arrangement with just egg. So we're trying to make sure that we've got an appropriate both defensive and offensive posture with respect to the whole move towards plant-based proteins. So first, it's a distribution agreement on both sides of our retail and foodservice cold chain. Secondly, we made an equity investment, a modest equity investment in Hungry Planet. And we have a meaningful ownership position with the ability for that position to increase with a series of options if the opportunity proves to be valuable.

[Michael Lavery:]

Okay, great. Thank you very much.

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of Rob Dickerson of Jefferies.

[Rob Dickerson:]

Great. Thanks so much.

[Rob Vitale:]

Hi, Rob.

[Rob Dickerson:]

Hi. How are you? A few questions for you, Rob. Kind of more broadly just in terms of the prior acquisitions you've done as of late and then kind of go-forward pipeline thought process. Obviously, kind of historically, you do still have kind of a protein tilt to the business. And you have Hungry Planet, as we just mentioned. There’s Peter Pan. I saw there is a small kind of – small and more venture investment and then Almark obviously to egg. So, like if we step back and think about where Post was even just a few years ago, where we are today, that protein theme is still existent and seems like it's getting bigger. So, as you think kind of going forward, is that really a part of the positioning and the strategy? And then there's the plant-based side, but you have alternatives, right. You have protein snacks, so that you might want to get more in the snacks and just trying to think about kind of the broader go-forward strategy as new positioning with the retailers? Thanks.

[Rob Vitale:]

Well, in each case that you highlighted, we were attempting to either add a capability or add something that was very close to the portfolio and could be tucked in at a very attractive price. I wouldn't characterize it as we sought to be more protein-oriented or we thought to be any other more macronutrient-oriented. If we had an interesting opportunity in cereal or in cheese or in some other segment that shored up our weakness or expanded our strength at a reasonable value, we would pursue it. We tend to be more opportunistic than to say we want to be bigger in a particular match for a nutrient or a particular segment. So we're much more value sensitive on that front. The small acquisition you mentioned, very, very small; well smaller than what was reported. We have a notion that we want to be more entrepreneurial and realized -- we're not really sure what that means. So we decided to really make a small investment in an entrepreneurial company, so we could try to understand even what we mean by that. So I wouldn't read too much into that other than we are willing to pay some tuition in order to learn some skills. And that was what that was about.

[Rob Dickerson:]

Okay, fair enough. Makes sense. And then just quickly kind of back to the cost inflation/pricing potentially promotional topic. Just in terms of cereal, right, obviously cereal has done well through the pandemic. You continue to execute well. Business seems sound. Every company is speaking about trying to retain increased household penetration. But what does that mean, right? Is there more brand spend required to kind of retain that household penetration and sort of more promotional activity forthcoming kind of on the heels of some grain-related inflation? So how do you kind of foresee the back half of that year in terms of the competitive dynamic within the category, and kind of how you execute through it? And that's it? Thanks.

[Rob Vitale:]

Yes. It's a tough question. I think that as we begin comping the COVID surge, I think it will be interesting to see how everybody across the food landscape reacts, and whether there becomes pressure to try to accelerate that volume and be aggressive on pricing or just recognize it, that's going to be a tough comp to measure against. So, I don't particularly worry too much about specifically what happens in the back half relative to our prior year. We're looking at the back half relative to the performance in the first half, which is what we've been trying to benchmark against, so that we can see that the overall business is getting back to where we expect it to be. I think the question that we spend more time on is following the totality of this two-year period, what has the experiment and all this trial meant to the long-term growth rate of these categories? And our assumption is that it's a positive number, whether that's positive one or positive three, I think there's an element of putting your finger in the wind. But we think it's a positive number and has implications on how we think about innovation, capacity management, and well beyond.

[Rob Dickerson:]

Okay, great. Thanks a lot.

[Rob Vitale:]

Thank you.

[Operator:]

Our next question comes from the line of Ken Zaslow of Bank of Montreal.

[Ken Zaslow:]

Hi. Good morning, everyone.

[Rob Vitale:]

Hi, Ken.

[Ken Zaslow:]

My first question is can you talk about your private label cereal business? You would think under a recessionary environment that there would be greater share that can be gained by private label. That obviously has not been the case. One could argue about stimulus checks, things like that. But how do you foresee that business emerging out of COVID? And to what extent is that either balance or cannibalize any part of the other businesses? Can you talk about that first?

[Rob Vitale:]

Yes. I said before that going into this, we would have expected private label to perform better than it has broadly, not just in cereal, and have speculated that there is a supply side equation here that as supply chains got tested, that private label was not able to maintain the same surge and output because of the SKU count that it’s forced to maintain. So to some extent, there is a supply phenomenon translating into what looks like a demand phenomenon. And I stress to some extent, because there's a very persuasive counterargument that consumers are reverting to brands that they know, et cetera. But I would continue to contend that there's a meaningful supply side dynamic I believe that will pass, and that the normal trends that drive private label will resume and then private label continues to have a perfectly reasonable outlook once it gets past this very choppy period of time. So we are no less interested in developing our private label business than we were with the caveat that while we are demand constrained, we are making some choices to not participate in some of the more marginal private label businesses that Jeff referenced, in our decision to walk away from, in his comments.

[Ken Zaslow:]

Okay. Then my next question, and I'll leave it here, is the cereal category seems to be almost aberrational across the packaged food group, right? The cereal category continues to promote spending -- promotions, despite the – probably the absence of needing to do it. They're going to face increased commodity pressure. How does that play out in a competitive set to be able to offset the pricing, the input cost inflation in an environment where the competitive set seems to have intensified? And one could almost argue maybe a little bit irrational? Can you talk about the category dynamics? And I just feel like it's aberrational relative to the other categories across basically packaged food.

[Rob Vitale:]

Ken, it's a terrific observation, a great question and one that I have no intention to answer.

[Ken Zaslow:]

Fair enough. Thank you.

[Operator:]

Ladies and gentlemen, we have reached the allotted time for questions. We thank you for participating in today's call. You may now disconnect.

[Rob Vitale:]

Thank you, all.