B&G Foods Inc (BGS) 2022 Q1 法說會逐字稿

Good day and welcome to B&G Foods' First Quarter 2022 Earnings Conference Call. Today's call, which is being recorded, is scheduled to last about one hour including remarks by B&G Foods management, and a question and answer session. I would now like to turn the call over to your host, Sarah Jarolem, senior director of corporate strategy and business development for B&G Foods. Sarah.

Good afternoon and thank you for joining us. With me today are Casey Keller, our chief executive officer, and Bruce Walker, our chief financial officer. You can access detailed financial information on the quarter in the earnings release to be issued today, which is available at the investor relations section of bgfoods.com. Before we begin our formal remarks, I need to remind everyone that part of the discussion today includes forward-looking statements.

These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to B&G Foods' annual report on form 10k and SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. BG Foods undertakes no obligation to publicly update or revise any forward-looking statements, whether it was as a result of new information, future events, or otherwise. We will also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share at base business net sales.

Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights, and his thoughts concerning the outlook of fiscal 2022 and beyond. Bruce will then discuss our financial results for the first quarter of 2022 and our guidance for fiscal 2022. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Sarah, and thank you all for joining us today for our first-quarter earnings call. The first quarter of 2022 continue to be challenged by inflation and supply recovery. Net sales increased by 5.4% versus the first quarter of 2021, ahead of our expectations. Sales were driven by continued, elevated demand compared to pre-COVID levels, and higher pricing with relatively low elasticities. However, first-quarter adjusted EBITDA declined 16.2% versus last year behind higher than expected inflationary cost pressures accelerated by the war in Ukraine, particularly in oil, wheat, corn, fuel and other commodities. We expect that our latest pricing initiatives will recover these higher costs in the back half of 2022. There is a lag between higher costs of goods sold and pricing during the first half of 2022. New pricing actions will take effect in late Q2 and early Q3 with a 2 to 3-month notification and implementation period required by our retail partners. Bruce will talk more specifics on the quarter, including financial and portfolio highlights, but let me address the key factors driving 2022 first-quarter results in more detail.

Inflation, total cost of goods sold inflation in 2022 is projected between 19% to 20% following the impact of the war in Ukraine and global supply issues. We plan for inflation in the low to mid-teens but now have line of sight to significantly higher costs. In particular, soybean oil, the primary input to Crisco, is now over $0.8 per pound, relative to our projections in January of less than $0.6. Wheat and corn have reached historical highs because of the Ukraine-Russia disruption, and vegetable costs for Green Giant have risen as farmers shifted to crop planting.

Freight and delivery costs have also increased sharply behind higher oil prices. Second, pricing. B&G has executed several rounds of pricing actions, trade spend efficiencies as well as weight reduction initiatives to offset higher input costs. Pricing in Q1 delivered $36.2 million in additional revenue from 2021 increases and additional pricing implemented in late February. More pricing actions have been fielded in March and April that will be implemented between May and early July. Pricing elasticities are generally lower than projected on price increases already reflected on shelf.

Third, supply. During Q1, we also experienced supply issues at B&G facilities and co-manufacturers related to Omicron infections and labor and material shortages. Production output and service levels steadily recovered through February and March, but customer fill rates during Q1 were below 90%. Finally, demand. Most B&G categories and product lines experienced reasonably strong demand relative to prior year and pre-COVID levels.

We continue to see consumers eating and preparing more meals at home, partially driven by hybrid work models with some days during the week spent working remotely in the home. Looking forward, we expect that pricing will catch up to recent inflationary cost spikes in late Q2 and the back half of 2022. Customer fill rates are expected to steadily improve, borrowing any further disruptions to enable growth and improve margins. The outlook for fiscal year 2022 is for net sales to increase more than previous guidance with pricing elasticities increasing somewhat from current levels.

On the bottom line, adjusted EBITDA is projected lower than previous guidance driven by the lag between new higher costs and pricing actions moving into the market. Overall, we remain consistent on our major priorities. Foremost, managing B&G Foods effectively through the concurrent inflationary pricing and supply environment, which means pricing as quickly as possible to recover higher input costs and increasing production and critical supply to improve (inaudible) levels above 95%. Second, improving organic growth performance beyond COVID recovery to plus 1% to 2%.

Capitalizing on the post-pandemic trends of remote, working from home, and renewed interest in cooking. Third, focusing on brands and categories where we have the capability, scale, and right to win in terms of resources, investment, and structure. Fourth, making discipline acquisitions that are creative to our portfolio and cashflows and fit with our core expertise and center store dry distribution. And finally, accelerating cost savings and productivity efforts to eliminate non-value-added costs, offset inflation and strengthen margins longer-term. To deliver on these priorities and goals, we are working to reorganize the company operations into 4 business units establishing clear focus and expectations within the B&G portfolio.

As discussed, BG units will define the categories and brands that we will resource and grow, the platforms for future acquisitions, the brands that will run for efficiency and cash flow and the businesses we may exit over time. The business unit structure will also push accountability and multifunctional responsibility down to more closely managed parts of the complex B&G portfolio, improving the speed and clarity of decision-making to deliver growth and financial performance. The timeline to complete these organization changes is the next 3 to 4 months, and I expect to provide specifics on composition structure and performance expectations in late summer or early fall.

Finally, before turning the call back to Bruce, I'd like to mention 2 additional items. First, as we announced in a press release shortly after our earnings release, today we acquired the frozen vegetable manufacturing operations of Growers Express. Growers Express has been our long-term manufacturing partner for our Green Giant Riced Veggies and our Green Giant Veggie Spirals, 2 of our important frozen vegetable innovation products that we launched shortly after acquiring the Green Giant brand. This relatively small acquisition, which closed today, allows us to take greater control of our supply chain which we expect to improve access to product, help to protect our margins, and also enhance our innovation efforts for the Green Giant brand. Second, earlier this quarter we closed on the previously announced sale of our Portland, Maine manufacturing facility.

Thank you. And I will now turn the call over to Bruce.

Thank you, Casey. Good afternoon, everyone. As Casey just discussed, our first quarter was heavily impacted by severe input cost increases across large portions of our portfolio coupled with continued industrywide supply chain disruptions that, while improving, have still been a drag on the business. The negative pressures have been offset in part by our pricing initiatives that include list price increases, trade spend reductions, product weight-outs, and the impact of product mix. These initiatives that we have taken to improve net pricing have been designed to be equally as large. However, due to the lag effect on implementation, our margins have been compressed in the short term. We expect similar levels of margin compression in the second quarter due to the input cost increases.

But our model assumes that our pricing initiatives will begin to catch up to the cost increases and lead to relief beginning late in the second quarter and in the second half of the year. Our supply chain issues continue to improve and we expect strong net sales performance to continue throughout the year. During the first quarter of 2022, we generated net sales of $532.4 million adjusted EBITDA of $77.9 million, and adjusted diluted earnings per share of $0.34. Net sales for the first quarter, 2022, increased by $27.3 million or 5.4% ahead of our annual targets despite the supply chain challenges. Price coupled with mix accounted for $36.2 million of the net sales increase. FX had a negligible impact and volumes accounted for a decrease of $9 million.

We believe that supply chain challenges and low fill rates contributed to the majority of the volume declines. We continue to monitor our brands to measure the negative impact of elasticity resulting from our pricing initiatives. But so far, these impacts have been relatively modest and concentrated on a relatively small selection of our brands. Net sales of Crisco increased by $21 million for 36.2%. Net pricing which we implemented to help offset extreme levels of input cost increases, particularly for soybean oil and canola oil, contributed to the majority of the sales increase for Crisco. However, we also had significant increases in Crisco volumes during the quarter. Clabber Girl had another strong quarter for net sales as we closed out the baking season. Net sales of Clabber Girl increased by $3.6 million or 20.5% during the quarter. Like Crisco, net sales of Clabber Girl benefited from both price and to a lesser but still meaningful extent, volume growth.

Cream of Wheat benefited from price and volume, driven in part by continued strong demand across the brand's portfolio, particularly for Cream of Rice products which are showing very strong momentum. Net sales of Cream of Wheat increased by $2.8 million or 15.5%. Net sales of Ortega which has benefited from increased production capacity from our new Taco softline in Hurlock, Maryland, increased by $3.6 million or 9.3%.

Maple Grove Farms had another strong quarter, with net sales increasing by $1.2 million or 6%. Green Giant also had modest growth with net sales increasing by $3.2 million or 2.4% in the quarter. Net sales of Green Giant shelf-stable products benefited from a full quarter of lapping against last year's allocation constraint levels and were up by $3.9 million or 11.5%.

Net sales of Green Giant frozen products, on the other hand, were slightly down of 0.7 million or 0.7%. Net sales of our spices and seasonings business were off for the first quarter, primarily driven by 2 factors. First, lapping last year's first quarter was challenging, as it was one of the peak performance quarters for the spice category.

Separately, our supply chain constraints which were challenging late last year and early in the first quarter had a significant impact on our ability to produce and keep up with demand levels. That, while lower than last year, still remain quite elevated.

Net sales of our spices and seasonings business decreased by $15.1 million, or 14.7% in the first quarter of 2022 when compared to the first quarter of last year. However, when compared to the first quarter of 2020, net sales of our spices and seasonings increased by $14.9 million or 20.4%.

We have made significant investments in our Ankeny, Iowa's spices and seasonings facility and we are beginning to see meaningful improvements in our fill rates for this important category of our business. We expect that our improvements will better enable us to maximize our opportunity in the spices and seasonings category this year. Gross profit was $101.3 million for the first quarter of 2022 or 19% of net sales. Gross profit was $117.8 million in the first quarter of 2021, or 23.3% of net sales. During the first quarter of 2022 gross profit was negatively impacted by higher than expected input cost inflation, which was, in many cases, higher in the first quarter of 2022 than it was in the fourth quarter of 2021. Our expectation is that input cost inflation will continue to have a significant industry-wide impact during fiscal 2022.

As we have discussed on previous calls, we have been able to mitigate a portion of the impact of inflation by locking in prices through short-term supply contracts, and advanced commodities purchase agreements, and by implementing cost-savings measures. We are also executing various pricing initiatives, including list price increases, trade optimization, and product weight-outs. However, these pricing initiatives generally lag behind rising input costs.

As such, we were unable to fully offset all of the incremental cost that we faced in the first quarter of 2022. We expect the similar cost pressures in the second quarter of 2022. Based on current levels of input costs, we expect to see margin recovery in the second half of 2022. Selling general and administrative expenses decreased by $3.6 million, or 7%, to $46.8 million in the first quarter of 2022, compared to $50.4 million in the first quarter of last year.

The decrease was composed of decreases in acquisition, divestiture related, and non-recurring expenses of $4 million and consumer marketing expenses of $1.5 million partially offset by increases in selling expenses of $1.7 million, general administrative expenses of $0.1 million, and warehousing expenses of $0.1 million. Expressed as a percentage of net sales, selling general and administrative expenses improved by 1.2 percentage points to 8.8% for the first quarter of 2022, as compared to 10% for the first quarter of 2021.

During the first quarter of 2022, we completed this closure and sale of our Portland, Maine manufacturing facility and recognized the gain on sale, which was partially offset by expenses related to the closure of the facility and the transfer of manufacturing operations. As I mentioned earlier, we generated $77.9 million in adjusted EBITDA in the first quarter of 2022 compared to $92.9 million in the first quarter of 2021. The decrease in adjusted EBITDA was primarily attributable to industry-wide input cost inflation, and supply chain disruptions partially offset by list price increases, trade spend reductions, and the net benefit during the first quarter relating to the Portland closure and sale. Adjusted EBITDA as a percentage of net sales was 14.6% in the first quarter of 2022, compared to 18.4% in fiscal 2021. Interest expense was $26.8 million for the first quarter of 2022, compared to $27 million in the first quarter of 2021. Depreciation and amortization was $19.8 million in the first quarter of 2022 compared to $20.3 million in the first quarter of last year.

We had an effective tax rate of 24.6% for the quarter compared to 25.5% in the prior year. We generated $0.34 in adjusted diluted earnings per share in the first quarter of 2022, compared to $0.52 in the prior year. Despite the margin cost pressures and the decrease in adjusted EBITDA when compared to last year, net cash from operations was relatively flat compared to last year. We generated $25.2 million in net cash from operations in the first quarter of 2022, compared to $26 million in the first quarter of 2021.

As I mentioned earlier on the call, we expect second quarter of 2022 to have many similarities to the first quarter. Based on what we know today about costs and what we have implemented in terms of pricing, we expect our price increases to catch up to the cost increases between the end of the second quarter and the beginning of the third quarter. Directionally speaking, we are expecting a negative impact of more than $200 million for the full year from the combination of material cost increases, factory labor, and logistics.

Similarly, we have implemented or are in the process of implementing price initiatives that we expect to generate over $200 million in benefit during the year. We have executed multiple rounds of list price increases already this year and will continue to do so as needed over the course of the year. We expect our various pricing or revenue management initiatives to cover more than 95% of the brands in our portfolio.

With pricing as a large driver of net sales performance for the year, and based on where we finished the first quarter, we are increasing our guidance for net sales to 2% to 4% growth, up from a prior guidance of 1% to 3%, and our traditional long term growth algorithm of 0% to 2%. This implies 2022 net sales of approximately $2.1 billion to $2.14 billion.

A key factor that will influence our ability to hit this target includes the impact of any further supply chain disruption on our customer fill rates. Fill rates have begun to recover from the Omicron-related disruption that negatively impacted performance at the end of 2021 and earlier this year. While we are still far below our customer fill rate expectations, we are beginning to move in the correct direction. We are also watching closely for any signs of negative elasticity. So far, we are experiencing only a very modest elasticity in certain brands. But as we mentioned previously, supply chain challenges have been the leading driver of top-line performance for the majority of our brands.

Based on our current net sales forecast, and when factoring in both cost increases and revenue management initiatives, we expect to generate adjusted EBITDA of approximately $348 million to $350 million. Adjusted EBITDA margins will obviously be down, but we do expect the recovery over time when the pace of input cost inflation moderates. Additionally, we expect interest expense of $110 million to $115 million, including cash interest of $105 million to $110 million, depreciation expense of $60 million to $65 million, amortization expenses of $20 million to $22 million, an effective tax rate of 26.5% to 27.5%, adjusted diluted earnings per share of $1.65 to $1.75, and CAPEX of approximately $50 million.

Now I will turn the call back over to Casey for further remarks.

Thank you, Bruce. As discussed, the first quarter showed progress in delivering sales and pricing growth, but could not offset the gross margin impact of escalating input and operating costs. Additional pricing actions have been fielded and implemented to recover higher costs and will flow through in late Q2 in the back half of 2022. We will continue to closely monitor inflation and respond quickly with any further pricing and continued productivity efforts. This concludes our remarks, and now we would like to begin the Q&A portion of our call. Operator?

(Operator Instructions) Our first question comes from the line of William Reuter from Bank of America.

Once all of the additional price increases have been pushed through, and assuming that we don't have accelerating inflation from here, would we expect that next year you could be kind of back in that 18% to 20% EBITDA margins range that you've talked about in the past or will still take some time to get there?

I think that would be the goal, is the big wildcard is what continues to happen with inflation and do we have any more shocks to the system like we had over the first quarter of this year, but certainly, that is the goal to return to those margin profiles.

I mean, and our pricing is largely, going to recover gross margin dollars. So you will have a little natural compression of margins because of the higher price realization. But our goal is to get back to that, as Bruce said, to that 18% to 20%, but I think while and costs stay high we'll probably have a slight margin compression over our long term goals.

Yes. Now, that makes sense on the inflation and the margin rate coming down a bit. And then I guess my second question with regard to the change in the organizational structures that's going to be put in place over the next 3 to 4 months, I mean, you mentioned that it's going to improve speed and agility, is there any, either incremental costs of having more labor or is this actually going to result in some cost savings in terms of your headcount?

I think it's largely a reorganization in which we expect to be relatively neutral. In terms of the total SG&A or G&A costs associated with the business. It's largely reorganizing ourselves to kind of create multifunctional units, which are driving aspects of our business and have people make decisions that are closer to the business in more real-time. But our goal is to maintain this at relative cost neutrality. So we'll have some puts and takes and some movements and other things that are maybe some slight restructuring costs, but so far we've designed this to be relatively cost-neutral.

Our next question comes from Michael Lavery from Piper Sandler.

I just want to follow up on that margin question, just trying to understand. I did this quickly. I hope the math is right, but just based on what you have in the bag for the first quarter and what your guidance would point to, it looks like you're guiding 17% to 18% EBITDA margins for the rest of the year. I guess if that's right, what really gets you there and what kind of trajectory does it look like? I think you said it's more second-half skewed, which of course would just push those numbers even higher if the second quarter is more similar to the first.

Yes. Not talking to margins for a specific quarter, but directionally there is expansion. If you think about a lot of the pricing that we're expecting to get this year, it will be in the second half of the year. And most of that is already underway. It just hasn't fully ramped into the business yet. Right. And so, there's a process of communicating those price increases to the customers. We need to do that. We need to wait until after the costs have materialized and then there's a process to go through. And so very large cost increases this year that we face and very large pricing. And that's the biggest driver.

Yes. We will expect to see better margins in the back half quarters, the back 2 quarters.

Well, I guess, can you just contextualize it a little bit more on the prior question, you were really referencing kind of an 18 or higher for next year and waving a little bit of caution around that. But I think that your guidance is pointing to that in the second half of this year. Is that achievable?

Again, the whole point is premised on input cost increases that we've already seen and price increases. And so if we have another shock to the system this year and the back half from an input cost, we will have to have additional price increases to take it. If not, the pricing increases should catch up to the cost increases by the back half of the year.

But just to be clear, what we're saying is our long-term goal is to get to 18 to 20. I think the issue will be that even next year will be challenged to get over 18 because of this natural margin compression with higher realization in a higher cost, right?

Got you. And can you just give some of the thinking on why the gain on the sale would've been included in adjusted EBITDA? That feels much more like a one-time item.

I don't know. I mean, look, it's an accounting calculation. It's again, on sale. It was offset in part by some costs that we incurred in terms of factory shutdown. So some of those net against each other in part.

Our next question comes from Carla Casella from JPMorgan.

On the M&A front, did you say how much you paid for Growers Express?

We didn't. It was a private transaction. It's on the smaller side, and terms were not disclosed.

Okay. And so they owned the (inaudible), the Green Giant license. Was that recently that you sold that to them?

Before our time actually, they've owned it for years and that's a small piece of the business.

It's fresh.

Yes. And then the other part is they are the manufacturing for 2 of our kind of long time initiative innovation products, the Spiral Veggies, and the Rice Veggies.

Okay, great...

And that's really what the transaction was all about.

Are there other opportunities like that to buy bring someone in-house that you've already been working with. When you mentioned to them M&A, are you talking about, like what we've seen in the past, brand acquisitions on a larger scale?

Yes, there's not a ton of opportunities like this. We're always looking, but in general, we're looking for opportunities similar to what we've done in the past. Obviously, we'll point to the ones that have been more successful than not. That's the role model, is to do more like what we own and what we have today that's going to do well and build a more focused portfolio. Still, expectation is to be more disciplined than the past.

Most of our acquisitions will probably be buying entire businesses. This one just happened to be a great opportunity to integrate our supply chain. There may be some others like this, but really, I don't see any on the near-term horizon.

Okay, great. It's M&A, you continue to look even though your leverage is relatively high. I would assume you're somewhat limited in financing given how high the leverage is at this point, or is it just a steady process of looking at M&A regardless?

I think it's a steady process of looking certainly from a capital structure standpoint. It's got to fit within the context of where our leverage is. We've got debt and equity with which to fund stuff. Open for M&A, but you're raising a valid point, we got to be smart about how we finance things.

Okay, great. Just on the cost increases, you mentioned oil, wheat, corn, fuel, any of those that you can hedge? If so, how far out can you hedge or are there any that just can't be hedged?

Honestly, we can increase coverage on some of these commodities, but to be honest, increasing coverage right now at historical highs doesn't feel like the right thing to do. We just don't know where they're going to go. We try and protect our near-term supply, but we don't go out and hedge long term when the market is at historical highs.

Our next question comes from Karru Martinson from Jefferies.

In terms of the reorganization, I thought I heard you say that there would be a portion of the business that would be positioned for potential divestitures. I just wanted to get a sense of what's the magnitude of businesses that you think may no longer fit with you if they do not come up to your full standards?

I think within the business unit structure, we would have a business unit that was managing a collection of assets that we would I think manage for cash flows and stability and over time, we might decide that some of those businesses don't belong in our portfolio. I think in the near term, those are relatively small businesses, not huge. But we'll always be looking at our portfolio and deciding which businesses we think fit, where are we going to drive value and add value in the future and where do we have platforms for future acquisition and roll-up.

And when you guys talk about still being below fill rates your end customers getting work, we've been getting kind of mixed signals from grocers and others. Some are saying that they're still seeing strong demand. Others are saying they were starting to lap tougher comps. Consumers are pulling back a bit. But certainly, below fill rates would suggest that that demand is still out there. I mean, what are you guys seeing or hearing from your customers?

I mean, we're hearing that demand still remains elevated, compared to pre-COVID levels. So in some of the traditional categories, and in preparing meals and other things. So we're still hearing that demand is high, but it is off the COVID eyes. So we continue to see strength behind kind of at-home meal consumption, particularly as people continue to work some parts of their week remotely, which is driving a few more meal occasions like breakfast and lunch.

And that's coming out pretty clearly in the research. So we still are seeing some elevated demand is going to vary by category in terms of people's behavior. I do expect that you'll see people shift a little bit more eating out at home, on the margin. But again, I think relative to kind of pre-COVID levels, we're still seeing at-home consumption at a higher demand.

And our next question comes from Robert Moskow from Credit Suisse.

Casey and Bruce, I'm just looking at the cash flow, and first quarter looks a lot like first quarter a year ago. And last year was characterized by working capital being a big use of cash like $100 million as you were chasing an upward inflation curve. It looks like that's playing out again this year. So if this is the scenario where you have another use of cash of that size, and depress free cash flow, what will happen at the end of the year? Does that put too much pressure on your balance sheet? Would you have to do another equity deal or what do you think?

Yes, the goal would be to not have quite as much as last year, I still think that there is going to be some. The real pressure that we saw last year was 2 things. It was the cost inflation which was a big product of the second half of the year, and the other half was the repiping for Green Giant so we had virtually run out of products during the COVID enhanced period and last year was a big investment from Green Giant and some others. So, you're right, there will be some pressure, don't expect it to be as much as it was last year.

Okay, and is the balance sheet strong enough to handle that or?

Yes, we would make sure to manage the balance sheet to handle that.

And we will now take our next question comes from Eric Larson from Seaport Research Partners.

Two of them from me. So first and it's maybe you've talked a little bit about this, but in your prepared comments, you said that obviously, sales are going to be more elevated than you had expected because of pricing. But then you also threw wind there that but then you also through in there that you're looking for more elasticity. Are you seeing elasticity yet or is that just from an overabundance of caution?

I think a little bit the latter. So far with pricing which has been implemented in the market that we can track and do some elasticity management, we've seen relatively low elasticity. I would not say no elasticity. We have seen some elasticity, but it's relatively low to what our models would have historically predicted.

In our future projections, we're predicting that that goes up modestly out of a little bit of caution to not assume that we're going to stay up at this level but maybe go up a little bit more but still below where were expecting elasticity to be at a historical upgrade. Because everybody, the entire category, is going up. Just to be cautious, we assumed a little bit higher elasticity in our (inaudible) projection. That's the easy answer.

Okay, so the other question is you had mentioned also that, I think, you were expecting some more vegetable inflation on the input side, and stated that you think the farmers are going to be shifting from kind of vegetable acreage into maybe some more of the traditional role crops like corn, soybeans, wheat, whatever. We haven't started that. Never really started that planting season much yet.

I mean, a farmer is telling you that are your suppliers saying that there isn't go to be as much acreage this year, so I guess I'm just curious as to what...

Those conversations we kind of lock in planting and contracts with our vegetable suppliers. We locked those in, kind of in the last month based on what plantings they're contracting, and what we're seeing is that it's more expensive to get the vegetable planting contracted. I think because a lot of farmers are shifting towards the record high prices in soybeans and corn.

So, are you getting the acreage? I understand that it's probably going to cost more, right?

Yes, we're going to get the acreage, that's what we're hearing, but it's going to cost us a little bit more because now we're competing against other land use process. That's actually one of the things that has changed in the last month for us in terms of our inflation assumptions, we've got clarity from our farmers on what we expect to be the cost of the new crop coming out, kind of starting in July or August.

Perfect, I was assuming, I was anticipating that maybe you were maybe even anticipating some shortage of supply but I get, I understand what you're saying at this point, so thank you.

So far we're being told that our needs can be met. And obviously a lot of that depends on what kind of a crop really comes out, so-- But so far, from a planning standpoint, it looks like we can meet our needs.

Thank you and we now have a follow-up question comes from Carla Casella of JPMorgan.

I was just wondering if you gave any - add any color on labor in terms of given issues of labor, are labor costs also going up to the year or are you lapping easier compared to some labor fronts?

So, labor, I think there's 2 components to this. One is that we have raised wages in many of our plants to maintain our workforce. In some of our factory markets we have extremely low unemployment, so it's been difficult to maintain full staffing. So this has been improving I think quite a bit over the last couple of months. We have raised wages, we've put in new programs to recruit labor, so I feel like our labor situation is getting better and most of our factories, or maybe still one or two that were still trying to get back up to full staffing.

But I think what you're hearing us say about inflation and cost pressures is that we do expect our direct labor cost and the factories, it will be up this year over last year to maintain full staffing and maintain full production.

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

Can I just ask one question about what are you seeing on elasticities, and are you seeing any value brands or private label, and how do you factor that in, not just this year, but into 2023?

I mean, I think we're still seeing relatively low elasticities in some of our most price-sensitive products, we might see them be a little bit higher, but still well below historical model predictions. I think one of the reasons why we are saying we've raised our expectations on elasticity a little bit, but not where it would have been historically, is that we do expect, as, prices get higher and higher, particularly on some of our products that have really big cost increases, that we will see a little bit of migration to private label. So far, we have not really seen that very broadly, but we expect as prices go higher, that some of that could happen.

Have you seen any of your competitors not follow or have you not followed some of your competitors? I'm not sure, which comes first, but I'm just trying to make sure that the disparity between you and your competitors are still the same, or has there been any change in that across any parts of your portfolio, and then I'll leave it there and appreciate it.

Largely the same. Sometimes you see, private label or different competitors moving at different rates, but largely, people have responded to the higher input costs.

There are no further questions at this time. Presenters, you may continue.

Great. Thank you, everybody.

Thank you.

And this concludes today's conference call. Thank you, everyone, for participating. You may now disconnect.