Post Holdings, Inc.
Q3 2016 Earnings Call Transcript

Published: 5 Aug 2016

[Operator:]

Welcome to Post Holdings' Third Quarter 2016 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 replay beginning at 12 PM Eastern Time. The dialer number is 1-800-585-8367 and the passcode is 46697305. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Mr. Brad Harper, Investor Relations of Post Holdings for introduction. Sir, you may begin the conference.

[Brad Harper:]

Thank you and good morning. Welcome to the Post Holdings' conference call, where we will discuss results for the third quarter of fiscal 2016. With me today are Rob Vitale, our President and CEO, and Jeff Zadoks, our CFO. Rob and Jeff will begin the call with prepared remarks, and afterwards, will be available for a brief question-and-answer session. The press release that supports these remarks is posted on our website in the Investor Relations section and in the SEC filings section at postholdings.com. In addition, the release is available in our SEC filings on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties, which should be carefully considered by investors, as actual results could differ materially from these forward-looking statements. For more information, please visit the SEC filings page in the Investor Relations section of our website. These statements speak only as of the date of this call and management undertakes no obligation to update or otherwise revise these statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. As a reminder, this call is being recorded for audio replay. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.

[Robert V. Vitale:]

Thanks, Brad, and thank you all for joining us. We are pleased to share with you our third quarter results. We had another great quarter, with strong adjusted EBITDA performance across segments. On a consolidated basis, revenue was $1.2 billion and adjusted EBITDA was $231 million. This morning, I will discuss segment highlights and our strategic outlook. I will also provide some directional insights into how we are thinking about 2017 as we begin our planning process. Michael Foods continues to perform well. Repopulation following last year's outbreak of avian influenza is nearly complete. Our owned farms were operating at full output by the end of the fiscal third quarter. Third-party contract farms continue to repopulate and we expect them to reach full production capacity by the end of calendar 2016. During the quarter, we continued to reverse some of the temporary incremental AI pricing. In the egg business, we continue to see mix favor high margin value-added products. Our volume within the food service channel continues to normalize, but the food ingredient channel has been slower to normalize. Our continued long-term optimism about our egg business is grounded by its leading market position in a growth category. We've had a successful year and well navigated the AI prices. In the short term, we anticipate declining margins and profit levels from the egg business. Meanwhile, we have plans to mitigate the decline elsewhere in our portfolio. We continue to make great progress at Post Consumer Brands. We are focused on executing synergy and productivity savings, and our plans continue to be on track. Our ERP conversion is behind us, and we are implementing a new trade tool, which is targeted to be completed early in the first quarter of fiscal 2017. Recall, we announced our plans to spend $25 million on a corporate-wide basis on brand building and cost reduction. Post Consumer Brands has incurred approximately $11 million by the end of the third quarter, with approximately $4 million of spend planned for the fourth quarter. We remain cautiously optimistic on the cereal category. It continued to moderate this quarter with a dollar decline of 0.2%, and a pound decline of 0.4%. The category continues to benefit from stable base performance and lower losses from incremental sales. In fact, base dollars increased 0.5%, and base pounds increased 0.4%. In the quarter, the category saw significantly lower losses from incremental sales compared to the losses in the prior two quarters. We continue to be encouraged to see sales mix shifting to base from promotion, as we believe this is long-term healthy. As a reminder, a the shift towards base sales is beneficial for us, as we have historically under-indexed on our share of promotion. Specific to Post, our consumption dollars increased 0.4% and pounds declined 0.8% for the quarter. Our primary focus is on supporting our core four brands

[Jeff A. Zadoks:]

Thanks, Rob. Good morning. Starting with the Michael Foods Group; net sales were $518 million for the third quarter. On a comparable basis, net sales decreased 11.4%. Our egg volume declines continued to abate with a decline in the current quarter of approximately 13% compared to a decline of approximately 16% in the second quarter. Egg revenues decreased 15.5% as we continue to rollback the temporary component of AI pricing to grain-based customers. We also lowered pricing to our market-based customers in line with Urner Barry market prices primarily for food ingredients and retail shell egg customers. We plan to further rollback AI price adders during our fiscal fourth quarter, as our layer repopulation efforts have progressed as expected. Potato and cheese continued to benefit from the exit of lower margin business, although volumes have declined approximately 3% and 1% respectively as a result. In pasta, volumes grew nearly 12%, primarily from gains in food ingredients and private label. Michael Foods Group adjusted EBITDA was $109.2 million. Adjusted EBITDA benefited from an attractive price cost relationship and favorable product mix across all four products. This resulted in improved margins and improved profitability on both an absolute basis and per pound across all four products. Moving to Post Consumer Brands, third quarter net sales were $434.5 million. On a comparable basis, net sales increased 1% with volumes up approximately 2%. Volume increases from Malt-O-Meal branded bags, Pebbles and quarterly bid business were partially offset by declines for MOM boxes, Raisin Bran, Shredded Wheat and licensed brands. Net pricing declined approximately 1% on a comparable basis. Post Consumer Brands' adjusted EBITDA was $104.7 million for the quarter. Adjusted EBITDA benefited from manufacturing and SG&A synergy savings. This was partially offset by approximately $5 million of increased spending, which was related to the incremental corporate-wide investments targeted to brand building and cost reductions. Turning to Active Nutrition, sales were $156.1 million and increased 4.7% on a comparable basis. Strong sales growth for Premier Protein shakes more than offset a 22% net sales decline for Dymatize, which is impacted by our strategy to exit the private label powder business. We also saw soft international sales primarily driven by competitive pricing pressures arising from the strong U.S. dollar. Active Nutrition adjusted EBITDA was $24.1 million and benefited from higher non-promoted volumes and lower raw material costs at Premier and manufacturing savings associated with the PowerBar and Dymatize facility closures. During the third quarter, we invested approximately $2.3 million in incremental marketing spending for the Premier Protein and PowerBar brands. This spending was related to the incremental corporate-wide investment. We expect an additional $3 million of investment for these initiatives in the fourth quarter. Moving to Private Brands, third quarter net sales were $137.9 million, an increase of approximately 1% over the prior year. The sales increase was driven by increased volumes for organic and regular peanut butter, dry fruit and nut products and granola. This was partially offset by reduced volumes for tree nut butters, as we are lapping a period in which certain tree nut butter customers moved to dual sourcing. Private brands adjusted EBITDA was $15.2 million and benefited from increased volumes. This was offset by unfavorable mix in the nut butter business and higher co-manufacturing costs in the granola business. Before moving to guidance, I'd like to comment on our interest rate swaps, capital market transactions and net leverage. We continue to have interest rate swaps with an aggregate notional amount of $1.6 billion in place to hedge a portion of the interest rate exposure related to future refinancing of our fixed rate debt. During the third quarter, we incurred a non-cash mark-to-market loss on these swaps of $62.6 million as long-term interest rates once again fell significantly. However, we continue to see significant appreciation in the trading value of our outstanding fixed rate bonds. As I mentioned last quarter, this indicates the potential for lower refinancing costs, which we opportunistically acted upon earlier this week by issuing $1.75 billion in aggregate principal amount of 5% senior notes through 2026. These 2026 notes were used to fund a tender offer for our 7.375% senior notes through 2022. Approximately $1.24 billion of the 2022 notes were tendered, leaving an aggregate outstanding principal balance on those notes of approximately $133 million. We also used funds from the 2026 notes to repay the $374 million principal balance on our term loan. For the total note and term loan principal balance repayment, this refinancing will result in a net annual cash interest savings of approximately $25 million. Additionally the refinancing extends our debt maturity profile, while increasing our secured debt capacity. Our pro-forma net leverage is 3.8 times as measured by the terms of our credit facility in giving full credit for these capital market transactions and cash on hand. At this net leverage level, we have significant secured and unsecured debt capacity to pursue new M&A opportunities. Now turning to our outlook, we expect adjusted EBITDA for fiscal 2016 to be from $915 million to $925 million. Of the previously announced incremental $25 million investment in brand building and productivity, we expect approximately $9 million to be incurred in the fourth quarter of fiscal 2016. Additionally, we expect margins in the Michael Foods egg business to continue to normalize. And we expect fourth quarter margins in the Active Nutrition segment to be lower as we have significant promotional spending planned for all three brands in the segment. With that I'd like to turn the call back over to the operator for questions. Operator?

[Operator:]

And your first question comes from the line of John Baumgartner with Wells Fargo.

[John Joseph Baumgartner:]

Rob, I'd like to ask on the egg business. Your comments on food ingredients being slower to normalize there, what sort of an impact is that having or will have on your business and for the broader industry? And as you think about the emerging trends with the move to cage-free, what's your desire to serve that segment? How well positioned are you to kind of meet that demand going forward?

[Robert V. Vitale:]

So, the normalization of the ingredient segment is in part driven by a surprisingly low level of Urner Barry pricing that is allowing some of the more price sensitive ingredient customers to move back down the value chain or the value added chain to shelled eggs. So, those are the lower margin customers within the overall ingredient channel. The ingredient channel remains an important one for us, and we want to be in the right spot within that channel and we believe we are. We believe the key to that channel normalizing consistent with the balance of the portfolio is a more normal Urner Barry pricing, which we expect to eventually cure itself, much like other commodities. The solution for low prices is low prices, and it will we expect normalize in the relatively near future. With respect to cage-free, and John, repeat the question on cage-free.

[John Joseph Baumgartner:]

I mean in terms of just what's your desire to serve that market. How well-positioned are you given your current footprint to go and do that versus incremental CapEx or you need more M&A to go after that?

[Robert V. Vitale:]

Well, first let me start with that Michael is the largest cage-free provider in the country already and we are committed to aggressively supporting our customers announced and already active moves to cage-free. So, we would expect that over a long timeframe, and let's average that as roughly a decade, which if you look at most of the announcements, the announcements last out in that timeframe. We would expect a significant redeployment in our supply chain towards cage-free. That redeployment is a complicated one, it will involve conversion of existing facilities, it will involve greenfield facilities, and it's a process that's done in tandem between our own farms and our third-party contract farms. So, the capital commitment which is significant is shared among a supply chain that involves us and third parties, subject typically to a contract that we provide those third parties. Ultimately resulting in a final solution that tends to be a higher margin product for us.

[John Joseph Baumgartner:]

Great. And just one follow-up on the MOM business. That business has not been as widely distributed as your legacy Post cereal historically, yet when you look at the velocities, they're just as good as if not better than the Post business. How do you think about distribution expansion for MOM going forward, whether it's in fiscal 2017 or further on down the road?

[Robert V. Vitale:]

Sure. So, you're quite right in that, MOM has very high loyalty and relatively lower awareness than some of the other competitors. So, what we have seen is one of the benefits of the combination with legacy Post Foods and its very high ACV is to try to expand MOM into retail outlets and distribution points in which it previously didn't play. We are then supporting that with a increased level of advertising behind the MOM brand. So, we think that that velocity once we get the better distribution that the Post Foods system may help provide portends well for the ongoing growth of the segment.

[John Joseph Baumgartner:]

Great. Thanks, Rob.

[Robert V. Vitale:]

Thank you, John.

[Operator:]

Your next question comes from the line of Chris Growe with Stifel.

[Christopher Growe:]

Good morning.

[Robert V. Vitale:]

Hey, good morning, Chris.

[Christopher Growe:]

Hi. I just had two questions if I could, let me start first with Michael, just to understand as that business sort of – if you look at it on a profit per pound basis, as it moves back towards historical averages. I just want to get a sense of when that should normalize, is it as simple as when the volume is fully in place in say the fourth calendar quarter of this year, or maybe in the first quarter 2017? Or – and I guess to that point, we talked before about the potential to better manage your mix and could the profit per pound stay at a higher level coming out of this AI influenced environment?

[Robert V. Vitale:]

So, it's a relatively complicated answer, but let me give it a shot, in that the price dynamic is certainly the key to it as supply comes back online, but the timing of supply coming back online and the timing of volumes normalizing have a potential mismatch as we increase our grain based supply and are selling on a market basis, with respect to – and the mismatch is with respect to where that market based pricing is, compared to our grain based pricing. So, it's a multivariate answer that involves both the timing of grain-based supply coming back online, the timing of volume coming back online and the related market pricing, compared to grain-based pricing. So, what we believe is that across 12 months that will normalize, but there may be some choppiness along the way, as it's unlikely that, that will be a perfectly smooth transition back to normalcy, all of which is factored into our planning for 2017.

[Christopher Growe:]

So, just to be clear does that normalize sort of when volume is back – over the course of 12 months, when volume is back online fully or from this point forward?

[Robert V. Vitale:]

We get closer and closer each quarter. Our best guess would be halfway through 2017, we're entirely normalized, but at this point, we're early in our planning process. So, we'll have more for that in the next quarter call?

[Christopher Growe:]

Sure. That's helpful. Thank you. And then just a question, you have increased advertising this year across the business in Post Consumer Brands and Active Nutrition have gotten some of that money. So, I'm just curious about the decision to pull back on the spending next year, did it not work, is an easy first question. But beyond that what was the motivation behind the increase in spending and why not continue that spending in 2017?

[Robert V. Vitale:]

So, going into fiscal 2016, we had what we considered to be an appropriate level of spending behind A&C. Given the strength of the year, we choose to increase it above what we considered to be a ongoing level of required A&C. And entering 2017, we'll have a budgeting start point of normalcy. To the extent, the business supports it, we would continue to reinvest in A&C, but that's not our starting point. We view it as more of a dynamic budgeting tool than a fixed decision with which we enter the year. So I would not at all want to say it didn't work, it looks in fact like it did work, but it wasn't unusually high levels. So we're simply creating cushion around the overall portfolio performance by normalizing the budget.

[Christopher Growe:]

Okay. That's very helpful. Thanks for your time today.

[Robert V. Vitale:]

Thank you.

[Operator:]

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

[Robert V. Vitale:]

Hi, Bill.

[William B. Chappell:]

Thanks. Good morning. Hey Rob, in your prepared remarks, I think, the comment was the expectation for the egg business profitability be down sequentially, but we'll offset that with other parts of the business in the fourth quarter. I missed what other parts of the business we're going to be making up or the picking up the slack?

[Robert V. Vitale:]

So I – my comment was more intermediate than specifically to the fourth quarter, although the fourth quarter could participate in that as well. The balance of the portfolio that will pick up the slack was the comments I made around annualizing synergies already achieved, incremental synergy, and I mean, our cereal business now. Annualizing synergies already achieved, incremental synergies that are being realized in 2017. The pullback of the incremental spending, I just mentioned with Chris. Within Active Nutrition, the normalization of cost of Dymatize ongoing growth, of the Premier shake business with new distribution and terrific velocities. And finally, within private brands, the growth in each of the lines of business that result from the capacity expansions that are currently underway. So the comment is true in the fourth quarter, but really is a longer term more intermediate comment on that.

[William B. Chappell:]

Okay. Thanks. And maybe you could just address the thesis especially now we're closer to year end of that you've – the company has been over earning on the egg business this year which leads for a very tough comp into next year. I mean, any visibility into whether that's the right way or the wrong way to look at it?

[Robert V. Vitale:]

Well, and that's what I'm attempting to address is, making a distinction between the company over-earning and an individual segment within the company over-earning. We do expect to see some mean reversion within the Michael business to be the other side of that over-earning, but that it be offset by other opportunities in the balance of the portfolio, such that the conclusion on a two-year basis will be that the company did not over-earn even though one segment may have over-earned.

[William B. Chappell:]

Okay. And then the last one from me. Just a year ago, you had done some kind of some short-term financing expecting what sounded kind of some M&A activity, there hasn't been anything in the past year. Would you characterize that more, because maybe the company has been focused one large platform transaction or because prices out there for some of the things that have come up just been too high?

[Robert V. Vitale:]

I'm not going to comment specifically on where our focus has been. Other than that, we have had a rich pipeline throughout the year, we have looked at a lot of opportunities, and in a year in which our business was growing as significantly as it has perhaps our focus shift is slightly towards an internal orientation, but that we are no less engaged in M&A than we ever have been. And part of what we are paid to do is, sometimes not do M&A when the opportunity is not the right one. So we are quite active in the M&A market and as I've made the comment in my prepared remarks, quiet and inactivity should not be construed to as or quiet should not be construed as inactivity, there's a lot of activity.

[William B. Chappell:]

Sounds great. I'll turn it over. Thanks.

[Robert V. Vitale:]

Thank you, Bill.

[Operator:]

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

[Jason English:]

Hey. Good morning, folks.

[Robert V. Vitale:]

Hey, Jason. All right.

[Jason English:]

Yeah. Thank you for allowing me to ask a question. Not to beat a dead horse, but I do want to come back to Michael's real quick and see if we can get a little more specific. You mentioned a return to normalization, but as I think Chris Growe touched on, A, there's been presumably some degree of underlying growth in the business from what normally used to look like, there's been a mix shift, there's been some productivity. What does normalized profit look like for Michael's? That's part one, if you can give us color on that. And secondly, in answer to that question, effectively I think you've been sort of net short the spot egg markets because you've had to dip in to the supply. Your comment on your supply shifting to more grain based as capacity comes online, but you're still selling on some of the spot prices, it sounded to me like you may actually flip and kind of go net long on egg prices at a time where they're down. So, even on a path to normalization, we could undershoot and maybe have to suck up some pain here for the next couple of quarters. Is that fair? So, that's I guess a multifaceted first question.

[Robert V. Vitale:]

So, let me start with normalization. We think normalization lands at a premium to the pre-AI levels, as a result of better mix and an AI insurance premium built into our go forward pricing model. I think you're accurately reflecting the potential. I would not necessarily want to tie it specifically to the next couple of quarters because there is some uncertainty about the timing of the grain-based supply and the interactions with the Urner Barry, but that is a potential that exists in the near to intermediate term as we see those different variables operating in different directions. So, that's why I cautioned that it's better to look at Michael over a 12 month basis than to try to make any near-term prediction on one or two quarters, and we will try to further illuminate that when we come back with the fourth quarter call.

[Jason English:]

Okay. I look forward to the further illumination. Real quick on the cereal business, you talked about annualization of some of the cost saves bleed into next year plus some incremental on the synergy target, plus maybe a pullback of some of the incremental spend you put in there as we go into next year. Can you give us some numbers around those? What is the synergy or how much of the synergy cost saves from this year bleed into next? What's the new incremental step-up and how much incremental cost just from discretionary investment could come out?

[Jeff A. Zadoks:]

So, we will give you the incremental spend. In aggregate it's $25 million on PCB, it's $15 million specifically. What we're not going to do is line item go into synergies. What we are wanting to come back with is consistently improving profit and margin levels such that the synergy is self evident, but that we don't want to be focused on and accountable for delivering a specific synergy, so that we can make real-time dynamic decisions throughout the year, may choose to lean into something different than a synergy number. The synergies are real and significant and will be baked into all of our guidance numbers, but we're not going line item provide them.

[Jason English:]

Very good. Thank you.

[Jeff A. Zadoks:]

Thanks, Jason.

[Operator:]

Your next question comes from the line of Cornell Burnette with Citi.

[Cornell R. Burnette:]

Good morning.

[Robert V. Vitale:]

Hey, Cornell.

[Cornell R. Burnette:]

Okay. So, you guys made some comments on the cereal category being down very modestly in the June quarter. Pricing looks disciplined. And of course, we have an outlook for another big crop here in the U.S. this fall. With all of that in mind, should we take away a high level of conviction that the incremental $15 million of spending that's in consumer which comes out next year, along with all of the cost savings that you're getting from MOM, that all of that essentially is just going to drop to the bottom line and in the consumer business. Is that a fair way to think about it next year?

[Jeff A. Zadoks:]

So, that's somewhat what I was alluding to in my answer to Jason is that we will make on a dynamic basis decisions around investing in longer term. So that if we have the opportunity, as we did this year, to lean into certain programs with less near term but more long-term benefit, we may do that. Otherwise, the answer to your question is yes.

[Cornell R. Burnette:]

Okay. And then also in the Active Nutrition segment, you see EBITDA margins there now around 15% up nicely, as you lapped kind of the issues last year from Dymatize. Do you feel that margins in Active Nutrition are at an appropriate level or do you see room to take them higher going forward, once you pass all of the spending that takes place in the fourth quarter? And if so, what are some of the drivers of that?

[Jeff A. Zadoks:]

If you look at EBITDA margins, we in all likelihood would want to maintain it at that level or actually bring it down as we spend more behind the brand and see additional growth in distribution and velocity. So, it's a very rapidly growing brand and we don't want to, to bleed it by over focusing on margin structure during its growth phase of its product lifecycle. So, what you're going to see in the very near term is a heavier marketing spend, which will have a dampening effect on near-term EBITDA margins. Long-term, we think it's a mid to high-teens EBITDA margin structured business once you get to a more mature segment or a more mature portion of its product lifecycle and we are spending less behind A&C.

[Cornell R. Burnette:]

And then, you were talking about, I believe, in the Dymatize business a normalization of costs next year. Can you talk a little bit about exactly what's going on there, and possibly quantify what that could mean?

[Jeff A. Zadoks:]

Sure. Specifically, what we are talking about is the input costs that they've been incurring for their primary protein inputs, raw materials. As we've commented before, they were long, higher priced contracts compared to market throughout this entire fiscal year. We are now seeing visibility into the fact that towards the tail-end of our fiscal fourth quarter, we'll start to be able to get through that contract and buy on the open market. And we've discussed before the order of magnitude, if Dymatize was able to buy on the current market, which of course it's not a given, but if it could for a full fiscal year, the order of magnitude is in the $12 million to $15 million range.

[Cornell R. Burnette:]

Okay, very good. Thanks a lot.

[Operator:]

Your next question comes from the line of Tim Ramey with Pivotal Research Group.

[Timothy S. Ramey:]

Thanks a lot. The demand for foodservice eggs seems to be strong and we're sort of doing this analysis on a static basis, but the backdrop is good demand growth. Wondering about Post's ability to increase volume in 12 months, 18 months out to meet that demand?

[Jeff A. Zadoks:]

Well, the predicate for being able to do that of course is the return of full supply and we would anticipate as we mentioned in the comments that that would occur by year-end. So, in the timeframe you mentioned we certainly would have the capacity to pursue and meet that demand.

[Timothy S. Ramey:]

Okay. And then we've talked about maybe the contract structure for QSR contracts changing to include some sort of a risk premium for AI, which would have the effect of improving perhaps margins longer term beyond where we were before AI. Can you update us on where the company is at in achieving some of those goals?

[Robert V. Vitale:]

Really no updates since last time we talked in my earlier comments that we expect between the shift and that premium there to be a normalization at a higher level than pre-AI. Throughout this year because of some of the unusual characteristics of the AI phenomenon, we've been trying to give previews into 2017 and bit longer term than we frankly are comfortable giving given the timing of our planning process. So, many of these questions will become more clear as we go through our annual planning. So, I'm going to limit it to directionally rather than put a specific quantification of it. Again, directionally we think it will be better, quantification will take a little more time.

[Timothy S. Ramey:]

Sure. And just remind me as we enter the fourth quarter, Dymatize will be roughly a normal comp year-over-year. In other words, we're past the damage?

[Robert V. Vitale:]

Last year's fourth quarter had the significant write-offs in it, if you recall. So last year's comp is very negative. Look at it more sequentially. We expect third quarter and fourth quarter to be relatively comparable, although there is some investment as we mentioned occur in the fourth quarter in the Dymatize brand as well, so it probably will be slightly down on a sequential basis in – sorry, go ahead.

[Timothy S. Ramey:]

No, I was just thinking about it from a top-line perspective, are we kind of past the damage on Dymatize at this point?

[Robert V. Vitale:]

We are past the damage. But again, the comps are not comparable because fourth quarter would have been the first quarter last year after we had closed our plan.

[Timothy S. Ramey:]

Sure.

[Robert V. Vitale:]

Closed the deal.

[Timothy S. Ramey:]

Thanks so much.

[Robert V. Vitale:]

Thanks, Tim.

[Operator:]

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

[Kenneth Bryan Zaslow:]

Hello?

[Robert V. Vitale:]

Hi, Ken.

[Kenneth Bryan Zaslow:]

Just two quick questions. One is, holistically, how do you compare your long-term growth algorithm to the packaged food, how would you assess yourself relative going forward to the growth algorithm of your packaged food peers in your portfolio?

[Robert V. Vitale:]

Well, we almost have to go through that segment-by-segment. The cereal business is a flat to potentially 1% up business with cost reduction allowing us to manage EBITDA to the 1% to 2%. And I'm making that comment on the other side of full synergy realization. So that really doesn't kick in until 2018. We see significant growth in our Active Nutrition portfolio well ahead of the CPG peer group. And then, within the Michael segment, once we get past the AI, the supply situation, we think that's a mid single-digit grower as the increased consumption of protein portends well for its unit volume growth as it represents one of the cleanest and most affordable forms of protein consumption. Private Brands is very specifically tied currently to a few segments of nut better, which has some very positive dynamics behind it. So, on average, I would say, we have an internal growth algorithm that is slightly ahead on a blended basis of our peers, and then I would argue, we have potentially greater M&A optionality.

[Kenneth Bryan Zaslow:]

Great. And then my last question is Active Nutrition, what is the margin potential for that going forward?

[Robert V. Vitale:]

Yeah. As I mentioned, we think about it in the terms of the mid-teens EBITDA.

[Kenneth Bryan Zaslow:]

Great. Perfect. Thank you.

[Operator:]

We've reached the allotted time for questions-and-answers. I will now turn the call back to the presenters for closing.

[Robert V. Vitale:]

Well, as always, thank you for your participation, and next call, we'll look forward to giving you both the results of a really solid fiscal 2016, and give you our formal guidance as we look further into 2017. So, thank you, and we'll talk to you soon.

[Operator:]

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