通用磨坊 (GIS) 2022 Q2 法說會逐字稿

Greetings and welcome to the General Mills Second Quarter Fiscal 2022 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, December 21, 2022 (sic) [2021]. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead.

Thank you, Savanna, and good morning, everyone. Thanks for joining us today for our Q&A session on second quarter results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which were made available this morning on our Investor Relations website.

It's important to note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions, including facts and assumptions related to the potential impact of the COVID-19 pandemic on our results in fiscal '22. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call.

I'm here with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Jon Nudi, Group President of our North America Retail segment. So let's go ahead and get to the first question. Savanna, can you please get us started?

(Operator Instructions) And our first question is from Ken Goodman (sic) [Ken Goldman] with JPMorgan.

Close enough. You highlighted that your actions to offset supply disruptions and logistics issues -- that they're starting to bear fruit. Great to hear, obviously, but we've sort of been seeing a similar pattern from the whole sector for a while now, right, where these, I guess, "hidden costs" are rising, management teams think the worst is over, and then the next quarter, unfortunately, the pattern repeats.

So I guess my question is, in the wake of these exogenous issues continuing to crop up, does your guidance have any sort of bigger cushion in it, bigger than usual, to kind of account for the potential that some of these logistics and supply shortages worsen once again in the back half of the year?

Sure, Ken. This is Kofi. Appreciate the question. As you can obviously see, we gave a little bit wider guidance on operating profit than we did on the top line and EPS as a result of the operating profit guidance. So it reflects, I think, what you're alluding to, which is the underlying volatility in this environment, right?

So at the root cause of this, we see about an eight to tenfold increase in the amount of disruptions in our supply chain. So the predictability is at -- has been at the core, but what we provision and expect in the back half is not much of an improvement, to be candid.

So as you think about it in relation to last year, we saw a ramp-up in external supply chain costs in the back half of the year. We don't expect the -- these costs that we're seeing for disruptions to really materially change in the balance of a year just to replace the ramp-up in those external supply chain costs. And the wider guidance reflects the volatility on the call.

Okay. And then a quick follow-up. In your cereal business, obviously, you've taken a great deal of share from your larger competitor that's having some unfortunate issues of its own right now. Can you just walk us through a little bit where your plants are in terms of utilization in case that the demand for your products continues to grow over the next few months?

Ken, it's Jon Nudi. I would tell you, we feel really good about our cereal business. And while certainly there's been some short-term dislocation from one our major competitors, our performance has really been over the longer time. In fact, over the last 4 years, we've had really strong performance.

As we look at short term, we feel we have the capacity we need to continue that. We continue to invest in our brands. We continue to innovate. And again, we expect to continue to grow share and get the category back to growth as well. So short term, we feel good about our ability in terms of the business, and we'll continue to do what we've done over the last 4 years, and that's [continuing] with the category.

Our next question is from Andrew Lazar with Barclays.

Jeff, I'm curious how General Mills thinks about sort of the balance between, let's say, shorter-term profitability given the dramatically higher cost to serve currently versus the potential for longer-term benefits from sort of stepping up and servicing the customer and consumer in this difficult environment.

So I guess what gives you the confidence that fulfilling this excess demand at this higher cost is sort of worthwhile? And like where is that cutoff and where you would decide to like forgo a sale, not suggesting we're kind of at that point yet.

Yes. Andrew, I mean, one of the things -- we spend quite a bit of time looking at the trade-offs between things like customer service and margin and sales growth and that sort of thing. And we probably try to make sure we play the long game in looking at these things. We've been around for 155 years because we play the long game.

What I would say, in this environment, there isn't a huge trade-off -- I'm not sure there is a trade-off between higher service levels and cost. And that's because if we were to take our foot off the gas on service, what we would find is that we create more deleverage and we would incur fines because -- I mean, we'd be more inefficient. We'd get fined from a retail customer because we're more inefficient, and then we'd be shipping truckloads of stuff that were probably less efficient.

And so there really isn't a cost trade-off. So I don't -- we would not be making more money if we lessened our service. We feel like our responsibility at the end of the day is to the end consumer and making sure they have the products they want and to our retail customers. And by fulfilling that, we're doing our job.

The only thing we would gain by lessening service, our margins would look a little bit better, but our sales will be down. But we wouldn't make any more money for General Mills' shareholders and we certainly wouldn't generate more cash than we're generating now either.

All right. Got it. And then, Kofi, just a quick follow-up. In the outlook, I think you say General Mills expects back half EPS growth to be more weighted to fiscal 4Q. Does this mean you see some, even if modest, EPS growth in 3Q and just far more in 4Q? Or do I not have that right?

Yes. I appreciate the question. What it really reflects is our expectation that we will see an improvement off of the margin decline that we just posted in Q2 and sequential improvement on that as we work our way into -- from Q3 to Q4.

Our next question is from Nik Modi with RBC Capital Markets.

I guess the question, Kofi, is if you can just give us some context on the inflation delta in terms of the guidance. Where were things worse than you expected?

And then the other question I had, just around price elasticity. I mean we've heard a lot of companies talking about things are better than expected, but it just seems like the retailers aren't passing all the pricing on. So I wanted to get your thoughts around that as we kind of go forward over the next few months or quarters.

Sure. Yes. Let me start with your first question. So just as a reminder on the frame here, about 55% of our input costs are sitting in raw and packaging materials, 30% in manufacturing and the remainder on logistics. And what we really saw that kind of accelerated was, in particular, our raw and packaging materials moving up to double digits; logistics, which we now expect to -- was already in the double digits, continue to [rise with the loss] of that base; and manufacturing remaining in the low single digits.

In particular, as we look at the sourcing and packaging, aluminum, resin, fiber, raw materials, grain, fats and oils and meat are particular pressure points as well as creating fuel as we look at the logistics cost structure. And then on your second question in relation to elasticities...

Sure, Nik. It's Jon. So one of the things we are really pleased with is our restaurant capabilities that we've built over the last 5 or 6 years, and we've got a lot more data and analytics that we leverage, a lot more talent coming in the organization. So we've been closely monitoring. Obviously, the pricing that we've taken, a reflection of what we're seeing of the market, and it's really meeting our expectations at this point.

We have seen elasticities that are certainly better than what we would have modeled historically to date. As we move to the back half, we expect to see a bit more elasticity, and we'll continue to monitor that. With our capabilities today, it's really an always on type of system where we're looking -- literally looking at pricing from -- on a daily basis so we can monitor and adjust as needed.

Our next question comes from Robert Moskow with Credit Suisse.

I wanted to know when you're raising your prices, Jon, and you're showing customers your inflation in your ingredients like 8% to 9%, do you also show them the supply chain disruption costs that you're incurring? And is it possible to justify the pricing based on this? Because a customer could argue that maybe some of that's transitory. So I wanted to know how that conversation goes.

Absolutely. So I've been in this for a long time, and I can tell you today, the conversations are no easier than they have been in the past. I think everyone recognizes [the amount of] inflation. And obviously, our job is to [apply] justification. So we spend a lot of time building the case. Most of that case has to be built around inflation, really the market basket. So I think with that, we believe that will stick over a longer period of time.

Certainly, retailers are very aware of some of the short-term supply chain costs that we're incurring because they're incurring the same costs. But at this point, we really don't think this is the conversation. So again, really focusing on some of the more macro factors in inflation to justify the pricing.

Yes. So that's kind of my question, Jon. So is it more difficult then to factor in supply chain disruption as justification? So like the pricing that you're taking, is that designed to offset 8% to 9% inflation longer term? Or is it also designed to offset some of this disruption as well?

Yes. So if you look at our pricing as well in HMM, we believe that offsets the inflation. It's really the short-term supply chain costs that we're seeing that are really the bogey for us, and that is on our conversation with retailers. And again, I mean, we want to make sure that we price in a way that is right for our consumers as well.

So we're balancing how much pricing we can take, how much of the market and then really leveraging these restaurant capabilities that we've built out. So we're trying to take a long view from a pricing standpoint. And clearly, there's some short-term things that are challenging as we speak now with the supply chain costs.

But Rob, I think you bring up a good point. Jon answered it well. But some of these supply chain disruptions, I mean, they will be transitory, and we don't expect them to improve for the rest of our fiscal year, as noted by Kofi earlier. But over the longer term, I mean, the supply chain will get more efficient.

We've got terrific HMM productivity capabilities. And so we are highly confident that these costs over time are costs that the business will not bear. And so even if it's a tougher conversation to have with retailers now, we are confident over time, once the market stabilizes, that these are costs that we can recoup in our P&L.

Maybe -- this is Jeff Siemon. I'd add one more point to that to maybe hit the nail on the head. I -- while we don't expect the disruption environment necessarily to improve meaningfully in the back half, as Kofi said, we do expect our margin performance year-over-year to improve, which is really all about the comparisons, which get quite a bit easier as we had more other supply chain costs in the back half of last year.

So the costs that we're seeing this year on a year-over-year basis will be less of a headwind, which is -- which really drives growth and operating margin improvement in the back half.

Our next question is from Jason English with Goldman Sachs.

Jeff Siemon, you just clarified one of my questions with Kofi, but I'm going to still ask the question with a finer point. Year-on-year, obviously, the gross margin pressure is going to subside just given the comps you have. But you've got price mounting or climbing through the rest of the year. I also know you have inflation coming. As we think about sequentially, gross margins dipped down in the second quarter, is this a floor level based on what you know today? Like should we expect sequential growth in gross margins?

I think what you can expect is we will see an improvement off of the decline and sequential improvement as we move through from Q3 to Q4. And that's about as far as we've implied in the guidance we've given you.

Okay. Okay. So implicitly, the 3Q margins could be weaker than 2Q. Next question, the U.S. consumer is still obviously very flushed with cash, but one of your competitors has already noted that trade-down activities began to resume in categories like cereal.

Are you seeing something similar across any of your categories? And what are you planning for in regards to trade-down behavior, price elasticity, et cetera, as we begin to cycle pretty big stimulus checks early next year?

Jason, it's Jon. We've not seen the dynamic play out. In fact, as we look at our business, most of our categories, our business is strengthening. As we look at share versus private label, private label [stocks during the] pandemic continue to lose share. So -- and we'll continue to monitor that.

We believe that building our brand and innovating and doing what we do best will drive our business. And if you look back historically, when -- during the time of the recession, again, our brands tended to perform well. So at this point, we haven't seen any change in dynamics.

And I would add on that, Jason, we haven't seen it in foodservice either. We haven't seen it in Japan. We haven't seen it in Europe. We haven't seen it in China or Brazil. So we simply haven't seen that [anywhere].

Yes. I haven't seen it either. I was surprised by your competitor noting it, which is why I asked the question. But thanks a lot for the clarification, guys.

Our next question is from Steve Powers with Deutsche Bank.

On the supply chain disruptions that you're seeing and labor shortages, et cetera, taking all your prior comments in context, I guess, are there -- is there a cadence that you're expecting or you're -- places where you're a little bit more optimistic, whether categories of bottlenecks or geographic overlays? Is there a -- are there places in what you're facing now where you're relatively more optimistic versus not in terms of finding that relief? I'm just curious.

Yes. Steve, it's Jon. One of the challenges right now is that the disruptions are really across the tighter supply chains. So in some cases, it's material disruptions that's really impacting a category. In other cases, we're capacity constrained. Obviously, freight and logistics remains a challenge for all of our businesses.

I think probably the one area that we do believe will get better as we move to the back half is material disruptions. And the [duty] action we're taking, we're bringing on alternative suppliers. Where in the past, we might have been single sourcing a particular ingredient, we'll now have options as we move to the back half.

Our sourcing team has been doing a great job, really identifying solutions, and we'll see some of those things come online for some key ingredients that really hurt us through Q2. So I'd say that's the one area that we do expect to get a bit better.

We would expect our service levels to remain challenged through the back half of the year, with Q3 looking a lot like Q2. And in Q4, we get a bit better, but look more like Q1. So on average, we think our service will look similar in the back half compared to the first half.

Okay. Great. Just to be -- just to clarify that, so you're expecting that relief to come in the ingredient sourcing, but more because you're diversifying less because the conditions get better. Is that fair?

That's fair. And today, we have not seen a significant improvement and availability across materials. And every time we see something get better, something else goes the other way around. So it can just be very challenging.

Yes. Okay. Great. And then the other question I had was just on Europe and Australia, where the margin pressure is obviously exceptionally acute. Just as you go into annual price negotiations there, just your -- based on what you're talking about so far, just your relative confidence that, that will be a source of relief -- further relief in the fourth quarter as those negotiations take effect.

I think you've outlined the constraints on pricing in that environment. As you know, there is a pretty firm negotiation window for pricing. I can't comment on anything forward-looking, obviously. But what I will confirm is that, that's why you've seen our margins on EU/AU be under a little bit more pressure than the rest of the segments.

And in particular, as you look at the pricing as a contribution to sales growth, you'll see that reflected there. So we'll leave it there. And it's a very -- and I (inaudible) I'd just add, it's also -- it's a small business. So it's about 10% of our total sales.

Our next question is from Wendy Nicholson with Citigroup.

My first question has to do just in terms of the magnitude of the pricing that we should expect to see on shelf. I think the last 2 months, you said it was 9% average increase at retail in North America. Can you give us a sense for how high you think that will be maybe over the next 6 months?

No. I think we generally don't comment on forward-looking pricing. And just know that we have pricing already in the marketplace that we've already announced to our customers, and so we're confident that it will be higher in the second half of the year. But as a rule, we don't comment on the specifics of forward-looking pricing.

Okay. Fair enough. But I guess my question is with regard to the competitive activity, I know you said private label really isn't a threat and they're not gaining share. But sort of over a longer-term basis, your share trends have been terrific, but I assume at some point, competition is going to start to fight back harder. And maybe in terms of cereal, your competitor -- your major competitor has their hands tied behind their back a little bit from a supply perspective.

But can you talk about what you're seeing maybe from some of the other branded guys in North America in your other categories? Are they being as equally aggressive on pricing? Do you expect them to step up promotion in an effort to gain share? Just maybe what you're seeing kind of in the store right now.

I think it's probably best to let our competitors talk about what their pricing is going to be and what their outlook for their business is. One of the things that I'm most proud of, Wendy, that you did note and I'm glad you noted is that we've gained share over a long period of time, and we've been doing it in North America retail. We've been doing it in our pet business. We've been doing it in Europe and in China and Brazil.

And so one of the things that I'm most proud of, even in this tough environment, we continue to compete very, very effectively. And I think that's a sign of the quality of our execution and our customer service levels.

And so no matter what the -- and that was happening before the pandemic. This happened through the pandemic. It's happening now. And so I think that is the most important thing. And then a lot of that time, our competitors were not constrained by supply and they did not have material disruption. And so those things come and go, and we take them as they come and go.

But one of the things I am most pleased with is our performance, and we've been able to do all of that while we're shaping our portfolio. And so we've added [pepper hands], and it's worked really well. We've divested our yogurt business in Europe and now announced the dough business. And we restructured our organization. So we've been able to have all this competitive quality with that -- while navigating a lot of changes internally as well as externally.

And just in terms of the North America business, I assume one of the big contributing factors to your market share gains has been the innovation we've seen, which has been terrific seemingly across the portfolio in North America retail. But I assume innovation kind of comes in waves. Some quarters are stronger than others.

And I'm not looking for specifics or things you haven't announced yet, but just generally, can you comment kind of thinking maybe about calendar 2022 if you think the innovation pipeline, things to come are as strong as you've launched over the last 6 to 12 months? Just sort of conceptually, is innovation still set to be a good -- a strong driver of hopefully more -- even more market share gains?

Yes. Sure. As Jeff noted, we've been performing well over a long period of time. And to his point, it's really about focusing on the fundamentals, and one of those fundamentals is innovation. So brand-building and innovation are key to our brands over time. And one of the things that we did do during the pandemic was pull back in innovation. In fact, we kept innovating and our customers really appreciated that.

And we've kept the pedal down. So as we move into calendar year 2022, we'd expect to see similar levels of innovation versus what we saw in the past year. In some cases, we've got some bigger ideas we're quite excited about. So at the end of the day, whether there's inflation or not, the fundamentals matter. It's about building our brands, and it's about innovating. We'll continue to do that as we move forward.

Our next question is from Pamela Kaufman with Morgan Stanley.

So during the quarter in North America, you mentioned that your shipments lagged consumption by about 2% because of the service challenges you experienced. Can you just elaborate on what some of the dynamics were that contributed to that? And would you expect this to continue into the back half of the year?

And I guess as a follow-up, is that -- is it related to inventory levels? And do you feel like you have adequate inventory levels to meet elevated demand into the back half?

Yes. Clearly, as we talked about, lots of challenges in the supply chain, and those have impacted our ability to service our customers. So our service levels during the quarter were in the low to mid-80s versus high 90s is what we targeted. As a result, we couldn't shift all the demand that we saw. So as a result, retailers drew down a bit of inventory in the quarter and that led to the gap you talked about.

As we look to the back half, we do expect our service levels to be similar to the front half. So we wouldn't expect to materially close that gap as we move through the back half of our fiscal year. Clearly, our goal is to continue to strengthen our supply chain as we get into fiscal '23 and beyond. We do believe that we'll be in better shape and be able to service all of the demand that's there.

One of the things that we pivoted to is a new metric, on-shelf availability, I think that's really important. And while it's certainly not where we want it to be, it is better than our competition. And our share of sales that we're losing due to not being on the shelf is lower than our competition as well, and that's really a testament to our supply chain and the great job that we're doing and the communication that we have with our customers.

Great. And can you talk about what short-term initiatives you have on the operational side to manage the disruption that you're experiencing in the supply chain? And I guess over the longer term, are there any changes that you're making to operations or increasing investments and capabilities or automation in response to the current operating environment?

Yes, for sure. We went back to a lot of the practices that we put in place at the beginning the pandemic. So one of the things we have are daily control tower meetings at the working level. For North America Retail, I chair a weekly supply chain huddle where we get together with all of our senior leaders across the business, talk about the biggest issues and try to help our team work through some of the challenges that are out there.

We're leveraging data analytics. One of the things Jeff's been committed to for a long period of time is really increasing our investments and our capabilities there. And that's starting to bear some fruit.

So if you think about the number of trucks we have running across North America, we can ensure that they're more full than they are currently. That's good for us, it's good for our business, good for our customers, good for our margins. We're starting to leverage some of that technology. We have a host of other initiatives from a data standpoint, analytics standpoint on the supply chain that will help us over time.

And we're also taking a look at our distribution centers, and there's probably some opportunities to automate some of those facilities where we're challenged right now from a labor standpoint. So we have a host of things happening.

At the end of the day, communication is probably one of the most important things, communication with our vendors to make sure that we get ingredients when we need them to keep our products flying. And then we spend a lot of time meeting with our customers, probably all have been tighter from a supply chain standpoint, really wanting to know real time where we are and working with them to make sure that we service them the best we can and also to service our consumers.

Our next question is from David Palmer with Evercore ISI.

Just looking back at your presentation, Slide #32, which is that gross margin waterfall chart, thanks for that. There's no numbers on some of those steps in the chart, but it looks like the supply chain disruptions, deleverage and other is a large part of the -- or the majority of the decline, if you net out everything else.

In other words, about 300 basis points. Maybe you can confirm if that's at least ballpark correct. But also, obviously, these effects are not new to the quarter. I mean how would you think about that same line item, supply chain disruptions, deleverage and other through the year and what's implied in the guidance for the second half?

Yes. So let me -- so thank you for the question, David. Let me start with Q2 and then I'll talk about what to expect going forward. So I think your read is about exactly right. So just to be very correct, I think you got about 300 basis points of -- or so related to the combination of those disruption factors, and the HMM and price/mix in the quarter offset the impact of the inflation.

But I think going forward, what you can expect as you move into the back half is a step-up starting in Q3 in the contribution from price/mix. I'd expect inflation to be roughly equal front half/back half. So it's pretty evenly spread across the quarter. So it's nothing material there.

And then an easing in the drag or the headwind from the other supply chain disruption costs, not because the costs themselves are easing, but because as you think about comparison to last year, we saw a ramp-up in other costs, primarily driven by our step into greater external supply chain costs.

So we don't expect these costs to ease. We expect them to replace a lot of those costs we saw last year. So effectively, that's kind of how we think about the back half of the year and what drives the margin improvement as we step from Q3 to Q4.

Great. That's helpful. And then you mentioned in one of your remarks that you thought the price elasticity would perhaps get a little less good and less favorable later in the year. What is your thinking there? I think it was Jon that made that comment.

I mean how much -- that's something we've been thinking a lot about. Is it the lapping of stimulus or greater availability of private label or value brands that have perhaps been more supply chain-constrained? What's your thinking about price elasticity as you get further into, say, calendar '22?

(inaudible) go ahead.

Yes. So let me start first. I think I might have misspoke, I said inflation was down -- inflation actually steps up in the back half. HMM is balanced. But to your question on elasticity, we are assuming a moderate increase in price elasticity, although still below our historical models in the back half. So that's what's contained in our sales and profit guidance.

I think we're just trying to be pragmatic, right? So all the things you mentioned, David, are real. At the same time, snack benefits are decreasing a bit, although it's still elevated versus 2019 levels. So from a planning standpoint, we're just trying to be pragmatic. From an elasticity standpoint, we'll see how things play out.

Our next question is from Chris Growe with Stifel.

I had just 2 questions. The first one would just be in relation to this incremental $500 million in inflation from your initial expectations, I'm just curious, if you could frame, how much of that's cost inflation? And how much of that is supply chain disruptions? I think you said that's incorporated into that figure. Just to get a sense of like what's ongoing, what you had [filed] for, if I can say it that way, and what hopefully will be transitory.

Yes. It's a great question, Chris. I'll -- let me take a crack at it. So as you think about maybe $0.5 billion of increased cost that came in since the start of the year in our expectations, about half of that, a little less than half of it is sitting in inflation so -- which we're now estimating to be 8% to 9% for the full year, and that implies then obviously, double digits in the back half.

The other half is really related to those factors in the disruption in the supply chain, so most of which is driven by direct costs for the things that Jon alluded to, inefficiency and trade, alternative supply, all of the things that we're doing in this environment to ensure that we keep customer service levels high.

Okay. And then just a follow-up question, I think, a bit to Dave's question. But -- so this quarter had a stronger pricing performance than I expected, but the gross margin was weaker. And I'm just trying to understand the incremental inflation you're feeling, did more of that -- as you think about for the year, did more that come through in 2Q causing that weaker gross margin?

I'm trying to flip that with your comments about second half inflation stepping up a bit versus first half. So -- but in the quarter, was that a more -- a heavier drag on the gross margin?

The drag came from a combination of inflation and really we saw a step-up in the cost of disruption in Q2 as we moved from Q1 to Q2. So that was actually a bit more of the driver as we looked at the quarter. And then I think as we go forward, as I alluded to, we expect our price/mix contribution from actions that we've already announced and negotiated with customers to start probably mid-quarter and then ramp fully into Q4.

And our final question will be from Michael Lavery with Piper Sandler.

You've obviously talked a lot about the disruptions in the various stages of supply chain. Can you just give us a sense in your guidance what you're assuming relative to a vaccine mandate and what that might do to impact the labor market or testing costs or both?

We actually don't have a specific provision for the vaccine mandate. I think obviously, it's still working its way through the courts. But we aren't expecting it to have a material impact on our guidance beyond what we've already baked in.

So if it did stick, you feel like the incremental costs would be pretty modest or just captured in what you already allow for?

Yes. I think it's probably more of the second, Michael. [I believe that we give] -- it gives us coverage.

Okay. Great. And then on the North America Retail components, your snacks business is pretty significantly outperforming, but the -- it had been for a while, one of the laggards. Can you just maybe give a sense of some of what's really given that a boost? And is it related to a better ability to supply products? Or is there -- is it more innovation than some other factors?

Yes. So we see the grain category and the bar category really accelerate after the lockdown and people get back to being more mobile. So the category is up nicely. Our business actually on bars is up 16% in Q2, just not up quite as much as the category. So we'll continue to stay focused on building our brands. We're still the #1 brand in the category with Nature Valley, continued innovation with Nature Valley Muffin [products] this past first half.

And then we're seeing a lot of growth in the kids segment. It's probably the one area that we're not keeping up. I mean we're growing nicely with the products we have when you see some competitive products like Rice Krispies treats that are growing really nicely off of a big base. So that's probably the one area that we're losing a bit of share. But overall, we like the way we're competing in bars, and we just focus on innovation and brand building.

The other new snack product in our category that we really like is fruit snacks. It's been an amazing category for us over the last 4 or 5 years. Our biggest challenge has been keeping up from a capacity standpoint. We continue to be challenged from a capacity standpoint. We've got more coming online in the back half, and we'll continue to grow that business nicely in double digits, which is really exciting. So we like our snacks business and how it's performing.

Okay. I think that's all the time we have this morning. Appreciate everyone's interest and good questions and discussion. Thanks for sticking with us during the holiday week. We wish everybody a restful holiday season and look forward to catching up in the new year. Thanks so much.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.