Lancaster Colony Corp (LANC) 2016 Q3 法說會逐字稿

Good morning. My name is Suzanne and I will be your conference facilitator today. At this time I would like to welcome everyone to the Lancaster Colony Corporation's fiscal year 2016 third-quarter conference call. Conducting today's call will be Jay Gerlach, Lancaster Colony Chairman and CEO; Dave Ciesinski, President and COO; and Doug Fell, Vice President, Treasurer, and CFO. (Operator Instructions). And now to begin the conference call here is Mr. Dale Ganobsik, Director of Investor Relations for Lancaster Colony Corporation. Please go ahead.

Thank you, Suzanne. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal 2016 third-quarter conference call. Let me begin by reminding everyone that our discussion this morning may include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the Company undertakes no obligation to update these statements based upon subsequent events.

A detailed discussion of these risks and uncertainties is contained in the Company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our Company's website, LancasterColony.com, later this afternoon. With that said, I will now turn the call over to Lancaster Colony's Chairman and CEO, Jay Gerlach. Jay?

Thanks, Dale, and good morning. Thank you for being with us today. We are pleased to have with us this morning our new President and Chief Operating Officer, Dave Ciesinski, who is also President of our food business. Dave is an excellent addition to our leadership team who can help drive our growth into the future. You will get to hear from Dave as we wrap up our prepared remarks.

Turning to our third-quarter results, we are quite pleased to report both sales growth and operating margin improvement. Sales increased 9.3% in the quarter and still a respectable 6.1% without the benefit of the Flatout acquisition, which we anniversaried on March 13. Without the benefit of Flatout, retail and food service channel sales growth rates were both just a fraction over 6%. Including Flatout, our mix moved heavier to retail by about 100 basis points to 51.2%.

Overall sales growth was driven by the addition of Flatout, increased volumes, and pricing. The pricing benefit was largely due to the impact of higher egg costs, retail volume was helped by continued growth in refrigerated dressings and Olive Garden shelf-stable dressings. We saw gains in frozen garlic bread with a modest decline in frozen dinner rolls. We feel the timing of Easter had a minimal but favorable impact.

Our food service channel saw continued volume growth from our major national chain customers, including some new limited time offer business. Our rationalization efforts had a small negative impact on sales in the channel. Segment operating margin improved about 320 basis points due to the benefit of higher selling prices, lower commodity costs, and lower freight costs, partially offset by increased consumer and trade spending. The quarter was helped by the reversal of what we experienced in our first and second quarter when our price recovery lagged the impact of much higher egg costs. With our food service pricing now being adjusted downward to reflect currently lower egg costs, we expect the net pricing benefit to greatly diminish in our fourth quarter.

Looking at retail sellthrough for our six primary retail categories, as measured by IRI for the 12 weeks ended March 20, we maintained our number one leadership position in all categories and saw share growth in all but two -- frozen dinner rolls and refrigerated dressings. New retail product sales were led by our New York Bakery soft pull-apart roles and Simply Dressed Avocado Ranch Dressing. Let me now ask Doug to make a few comments.

Thank you, Jay. Overall, our balance sheet remains strong. I will comment on some of the larger line items within our balance sheet that have changed since June 30. Turning first to our cash balances, as conveyed in our previous earnings call, the significant decline of $88 million since June 30 primarily reflects the payment of our $5 per share special dividend on December 31. As previously reported, this totaled $137 million. The offset to this event was our fiscal year-to-date cash generated by operations of approximately $100 million, reduced by regular cash dividends of $40 million and property additions of $12 million.

Our accounts receivable balance increased nearly $8 million from the June level. In general, the increase primarily reflects higher sales volumes. Consistent with past quarters, we continue to see our overall agings remains solid. Our inventories remain in line with those at June 30 and our expectations, including certain seasonal inventories as we exit the Easter holiday. We continue to place emphasis on this important element of our working capital.

With respect to our balance sheet capitalization, we continue to have no debt and nearly $500 million in total shareholders' equity. The reduction in shareholders' equity from last June, in general, reflects the impact of the $5 special dividend paid on December 31. We ended the quarter with over $94 million in cash and equivalents as we continue to benefit from strong operating cash flows.

On April 8 we entered into a new unsecured credit facility that expires in April 2021. Given current market conditions, we slightly increased our borrowing capacity from $120 million to $150 million. Subject to the consent of the participating banks in our facility, we have the ability to borrow an additional $75 million under the new facility. In general, all the major terms and financial covenants of the new facility remain unchanged.

Given our balance sheet posture and overall liquidity, we continue to possess considerable flexibility to address our foreseeable cash requirement, including the support of our future organic growth initiatives, acquisition opportunities, continued dividends, and opportunistic share repurchases.

Finally, our overall effective tax rate of 34.2% is consistent with our expectations and previous guidance. We would expect a similar effective rate in our fourth quarter. Thanks again for your participation with us this morning, and I will now turn the call back over to Jay for concluding comments. Jay?

Thank you, Doug. Looking to the fourth quarter, we feel positive about continued growth in both channels. However, sales gains will be mitigated by the anniversary of the Flatout acquisition, deflationary pricing we expect to see in our food service channel, and higher placement costs for new retail products that will reduce reported net sales. Our rationalization initiative will also have a greater impact on food service sales volumes this quarter, while growth from our core national chain account customers should continue.

We expect higher sales in our retail channel from the same general areas as we've seen recently. New retail products will include the further roll-out of Marzetti Vineyard dressings, beyond the select markets they've been in the last few months. Brand-new items being introduced this spring are New York Bakery Bake & Break Garlic Loaves, Marzetti Spicy Avocado Dip, and Olive Garden Red Wine Balsamic Dressing. Several new flavors are also being added to our Marzetti Simply Dressed and Girard's dressing lines. We don't anticipate a beneficial impact from these introductions in the quarter, as product placement and other promotional costs offset initial sales in the near-term.

From a cost perspective, we expect commodity and freight costs to remain favorable. While we remain focused on manufacturing costs and related cost savings initiatives we do anticipate some continuing challenges in certain areas of our operations. Turning to capital investment, we now estimate the year to finish at about $16 million, with dressing, packaging, and processing equipment being our biggest investment for the year.

We continue to be interested in acquisition opportunities, and while we are actively in the market we have nothing to report today. With eight full days on the job, let me now introduce and ask Dave Ciesinski to make a few comments.

Thanks, Jay, and good morning, everyone. I'm thrilled to have joined the Lancaster Colony Corporation, which has a portfolio of strong brands, relevant categories, and a strong track record of execution. I look forward to building on the recent history in the next chapter of our Company.

Thanks, Dave. Let me close by thanking Bruce Rosa for his countless contributions over a 41-year career with us. He played an integral role in the growth of our food business, from its early years of less than $15 million in sales to over $1.1 billion today. Suzanne, we are ready to take questions.

(Operator Instructions). Frank Camma, Sidoti.

Good morning, guys, and congratulations on the quarter. I know you commented a little bit about this, but can you break down the benefit you had in the quarter with --? So you had 6% organic growth, about. Was that roughly half volume, half price? I'm just trying to drill down on that a little bit more.

If you put volume and mix together, Frank, that probably is a little over half, and pricing is maybe about a third or so.

Okay. Good. The other question, could you comment a little bit on Flatout? I know last quarter it disappointed you a little bit. Well, maybe disappointed is the wrong word, but there was some seasonality impact and sales had pulled back a little bit. But obviously it looks like it's gone back up this quarter. I was wondering if you could talk about that.

Yes, I think we've seen a little bit of improvement in Flatout; still have some of the same headwinds we've talked about in the past, particularly relative to some display in one of our key customers. (multiple speakers) changes impacting us there. But generally I think the business has been improving and we hope that will continue as we move into the fourth quarter and beyond.

Okay. Great. And the last thing is just on -- because you mentioned commodity costs obviously still favorable. Recently soybeans have been going up a little bit relative to where they were in the summertime. I was wondering if you could comment on that, if it stays elevated?

Well, certainly if it stays elevated for any period of time it will have an impact. As you know, we do make forward buys on (multiple speakers), going out a year, a year plus. On the near-term it's not having a material impact, but we do consistently buy oil month in and month out, so those higher costs will work their way into our average cost as we start to look several quarters down the road. But in the near-term not any real material negative impact from that.

Right. Okay. So the lag would be couple of quarters at least, basically, is what you're saying? It sounds like. (multiple speakers)

Yes, I think that's fair. Yes.

A fair assumption? Okay. Thanks, guys.

Philip Terpolilli, Wedbush.

Yes. Good morning. Thanks for taking the questions. A couple on the top line. I guess the first thing -- and I think you just mentioned a little bit about one of your largest customers, but could you give us an update there? What's going on? Not only with Flatout but also with the frozen business, if you are back to more normalized buying patterns with them?

Yes, Phil, I think they are relatively normal, certainly for this time of year. As you know, we've got a seasonable seasonal component of that, that as we move through the fall holidays is behind us a little bit of an Easter impact. But not real significant there as far as any kind of changes or anything. So, yes, I think things are operating pretty much as normal.

Right. And that was actually my next question on Easter. You mentioned that slight benefit. Is there any way to quantify your best guess what you guys think that was?

It was pretty minimal given the timing was so close to last year, Phil, so my estimate would probably be just $1 million or less. So relatively insignificant.

Okay. That's helpful. And then just two more, staying on the top line. You were mentioning or you called out in the press release a step-up in the marketing, promotional expenses. I would assume a lot of that is around new products. Has that already been happening on some of the new items that you've been launching? The Vineyard dressings, etc. or now that you are -- it sounds like maybe pressing down, getting more distribution, that you are stepping that up a little bit more. How do we think about that?

Well, a little bit of it does happen as we work through new product introductions. So, yes, we would've done a little bit on Vineyard dressings, Veggie Drizzles as we brought those to market on a pretty limited roll-out basis in the fall. And so we will be stepping that up a little bit as we go through the spring, as well as a couple of the new items I mentioned. But we also, I think, in the quarter and as we've talked about in the past, continue to see a little bit of an uptick in our consumer spend just trying to, again, support the brands and build the brand strength a little bit day in and day out.

Sure. And those new products, now that they've been out there a few more months, what's the response in the marketplace? Or how are they going maybe versus your expectations?

Again, the roll-out was pretty limited on the Vineyard dressings and the Veggie Drizzles initially, so still a little hard to tell. So I think we've probably got to go another few months as we more broadly roll them out to get a good sense of that.

Right. Okay. And then just lastly on the top line, from a bigger picture perspective. I know we've talked a lot about this, but in terms of competition you've been in some different categories, but particularly refrigerated dressings -- you have driven innovation there, have seen maybe a few incremental competitors come in; no real impact to you. Have you seen any sort of change in that over the last few months? Or maybe conversations with retailers as there's been more competing product that wants to get shelf space, or are the conversations you are having very much the same that you've always had?

Well, I think it is a category that's certainly got a lot of interest both at the retailer level as well as with the consumer, so there are new entrants into it. So, with the limited amount of shelf space, as there always is throughout the store, maybe a little bit more even where it's in a refrigerated space. You've got to be sure you are delivering value and delivering growth opportunity, hence some of the innovation we are trying to bring into that product line in that space.

All right. Okay. Great. I'll pass it along. Thanks, everyone.

Eric Gottlieb, D.A. Davidson.

Good morning, everyone. Thank you for taking my question. First, on the top line, is it fair to say that 1% or so of the volumes was due to Leap Year?

You know, we didn't calculate a specific number there. You may be in the ballpark with that, sure.

Okay. And then can we dive into COGS a little bit more? How much was lower ingredients versus packaging, if you could break that out?

I don't know if we can do that quickly off the top of our heads. I'll look to Doug and see if he could --.

I would just generally convey, Eric, that predominantly it was driven by ingredients. Packaging, while favorable, was far less of a component.

Got it. That's good enough for me. So, within ingredients, how much was egg costs? And what were some of the other that you maybe want to highlight?

Well, still the big savings are coming out of -- year-over-year are coming out of soybean oil and flour. But generally across the ingredient deck we had some savings. Egg costs, I think, in the quarter were relatively flat with last year.

Okay. And then I know we talked about this a little bit, but your line of sight for these costs going forward -- have you been able to take advantage of the lower eggs in the recent weeks? And -- well, we already talked about oil and everything.

We'd anticipate soybean oil and flour to continue to be favorable, certainly through the fourth quarter at this point, and again a number of other smaller ingredients being modestly favorable. Eggs do turn favorable as we get into the fourth quarter.

Okay. And then moving on to the food service LTO programs, when will these run out? Or some of them have already?

Well, yes, have already. They vary in length by program and by customer, but so those are -- we are running through those routinely, quarter in and quarter out. So sometimes that can be a little bit of a favorable comparison just from a timing standpoint to prior periods, and sometimes it might go the other way. It just depends on the cycles our customers are in, as well as the ones that we are able to participate in versus, again, prior periods.

Got it. And have some of these customers announced plans to do other ones? Or should we see a fall-off in the coming quarters? I know they are always continuous, but just from what we know by line of sight?

Yes, I think general line of sight would be probably similar, maybe a little bit better. But again, they are relatively short-lived and coming and going, so timing can be spread over quarters as well. So it's just a little hard to predict specific quarter to quarter.

And then two more questions and then I'll leave it there. How much have you taken pricing down due to the lower COGS? How much have you given back to your customers and when do those go into effect?

It's a little tough to quantify the exact impact of that, but the primary item that's come down, Eric, is that of egg costs. And those have been passed through, back to our chain account customers. And that became effective at the beginning of the quarter.

Okay. And then, last question, the rationale for the new debt. I know you said you are actively in the market for acquisitions. Is there a specific area you are targeting, by sales size or business line? And then what other uses of this debt would you have?

We've had -- Eric, we've been focused on looking for branded retail businesses, product lines, that in some broad sense that are on trend, which probably means it's some kind of better-for-you product. And it can be a wide spectrum of things that might fall under that. Continue to actively look. We are pretty open-minded to size, but maybe ideally for us it's something in the $50 million to $100 million in revenue range. But we could certainly go smaller than that, maybe a fair bit smaller.

And we would certainly be open to larger opportunities if we thought the opportunity and the fit were appropriate. So, the credit line certainly could be used to fund not only acquisition growth but other capital needs, particularly capital project kind of investment. So it does give us that flexibility. So those are the primary things we would be thinking about to potentially use that line for.

Great. I appreciate the color. Congratulations on the solid quarter.

Thank you.

Jeffrey Thomison, Hilliard Lyons.

Thanks. Good morning. Very impressive quarter, guys. Several questions here. First of all, if we could just go back to the frozen dinner roll topic for a bit. This seemed to be a challenge in recent quarters with you and some other category participants mentioning the competitive environment. And perhaps the dynamics of the business to the benefit of the daily/bakery area and maybe to detriment of the frozen aisle. So, has this changed or is it more of a reversion to the mean, so to speak, for this category?

I think this category has been feeling just that, in our case, for probably the last year or a little bit more, so that just continues. I don't think we're seeing any big change in that, but those macro challenges are definitely there for the category.

So it would be relatively unchanged from just a quarter or two quarters ago, or has it changed?

No, I don't think it's changed. Probably the only difference, again, is the seasonality impact. So the December quarter is just a bigger quarter for frozen dinner rolls because of both Thanksgiving and Christmas following in the quarter.

Got you. And then a theoretical question on plant capacity and utilization. As you consider using your balance sheet and available capital to pursue good-fit acquisitions, do you currently have access plant capacity at your existing facilities to integrate a potential acquisition? Or would an acquisition have to include its own manufacturing facility?

Most likely the latter. While we do have some capacity, it varies across our product lines. So, for example, we were just talking about frozen dinner rolls. We definitely have capacity to make more of that kind of product. But in other areas -- salad dressing, in particular -- we are still relatively tight on capacity. So it would be a little more challenging to try to integrate something that didn't come with its own capacity there.

Okay. And then I know it's relatively minor here but, Doug, could you just go over the quarter swing in the interest/other expense line item as it went from an expense in the year-ago period to a positive number in the recent period? Because after six months that item went from an expense figure to a larger expense figure.

Sure, Jeff. I think, in summary, the primary item -- to your point, it's relatively small -- it is a small favorable uptick in some of the impact we have on foreign exchange.

Okay. And then -- let's see, I had one more question, as it related to your answer to a previous question. Doug, I think you mentioned that you -- in terms of cost savings, you had passed through recently at the beginning of the quarter. Were you talking about the beginning of the March quarter that just concluded or the beginning of the current June quarter?

Sorry for not being clear on that, Jeff. The beginning of the fourth quarter.

Okay. June quarter. Okay. And then welcome to Dave. It's been a good eight days for him in terms of your stock price.

Thank you.

Thank you, guys.

Elliott Schlang, Great Lakes Review.

Firstly, and most importantly, congratulations on a great quarter. Dave, welcome to the Company, and I'd be interested in what compelling opportunities you saw at Lancaster Colony in making your decision to go with them. Where might we expect some change, if it's not too early to ask? Or what do you see as the Company's greatest strengths?

I would focus, Elliott, on the fact that it's been eight days. I think I'm here at the beginning of a nine. But as I outlined in my comments, it was really a portfolio of very strong brands; relevant, growing categories that we've talked about here on the call; and also just a tremendously strong track record over a long period of good execution in the marketplace. All that, together with a really nice culture, made it feel like a nice place to go and build on my career.

Good. Well, congratulations and good luck with it, for all our sakes. Jay, there were no purchases of stock during the quarter, if I read the release properly. Any reason for that?

Yes, that is correct, Elliott. Well, as you know, we do do that just on an opportunistic basis. And while we still maintain the authorization that's been in place -- since we haven't been buying many shares, it hasn't changed a whole lot. I think it's right around 1 million; 400,000 shares authorized. We are open to that as conditions present themselves and consider it from time to time, but just haven't done that lately. But it's always something we are evaluating.

And any new comments on any new accounts that have come in, especially with your interest in expanding the distribution towards the West in some of the areas you are not as strong in?

Elliott, I don't think I could name a specific new customer in the last quarter or so that I would call out, but continued opportunity to develop them both in the retail channel, but also in the food service channel as well.

And it was the McLane-Walmart relationship, I assume there has been no significant changes of note?

That's correct.

And on the acquisition front, you outlined some of your criteria. Have there been any changes that you are pondering as you look at the acquisition front, and have been modestly successful in getting some good ones, but perhaps not as many as you or we would like to see. Has there been any changes as you get deeper into looking at acquisitions as to what you should be looking at or what you are looking at?

Elliott, no, I wouldn't say we are thinking about any material changes. I think that the breadth of opportunities we can look at when we are focused on retail, but looking again at on-trend, better-for-you is potentially -- will encompass a lot of different things. So it's a pretty wide net. We do look at a lot of different ideas, but we do try to avoid things that such as private label, for example. It's just not something that we spend any real time on. But, no, not a material change.

And with the dramatic changes in trends in nutrition, are you considering reformulating any of your products that would create a new major expenditure or broadening your acquisition search to some areas that may not have fit in as effectively five years ago as they might in the world of future nutrition?

Well, yes, from that standpoint, again, when you think about that broad better-for-you definition, it would encompass things like the broad natural and organic space; even GMO-free product that -- all of those that we would be open-minded to and looking at as potential opportunities. As you know, the trends with the consumer are definitely going in those directions.

If you look back five years ago, one, they are probably less things to look at, but it wouldn't have been quite as high a priority for us as it would be today. So I think we'd definitely consider those. As you know many, of those kind of product lines' businesses are somewhat smaller. So when I mentioned $50 million to $100 million, some of these natural, organic kind of brands -- product lines, you might find down in the $10 million, $15 million, $20 million areas. So we are certainly open to those size of things as we go forward.

And as it relates to reformulating we have a constant initiative, Elliott, to look at ways to improve our nutrition, our ingredient decks, on our entire product offering and make some changes in those from time to time.

And last, as you look to expanding geographically, Canada has been relatively minor to you, and I don't think Mexico comes in at all -- I may be wrong on that -- but are you thinking in terms of making a more concerted effort into those two geographies?

Well, probably particularly Canada, where we do have definitely a bigger presence versus Mexico. And I think we've developed some nice position up there on some of our products, maybe particularly our Veggie Dip product line. So, yes, we are looking for opportunities to do more in the Canadian market. Probably not that level of current priority for Mexico, but we are certainly doing a little bit of business there and open into expanding that.

Thank you.

You're welcome.

Brett Hundley, BB&T Capital Markets.

Good morning, gentlemen. I apologize; I joined the call late, so if I cover anything you guys have already spoken on, I apologize. Jay, I think I heard you say that pricing was about one-third of the sales increase for the quarter, is that correct?

That's right, yes.

Okay. And I assume you are talking about organic sales growth of 6%. If I pull out Flatout, maybe of that 6% growth a third of it was pricing?

That's right, yes. It was without Flatout, yes.

Okay. Great. I appreciate that. And then I also think I heard you say that Walmart was getting back to normal buying patterns. And if so, I wanted to also ask you about does that include clean store initiatives that have been happening across the retail space, and with that customer in particular? Do you see that clean store initiatives are starting to improve a little bit?

Well, first of all, I guess I didn't name a customer, so you will make that assumption. But the clean store initiatives that are out there, I think they are still in place. I don't think anything has really changed on that front.

Okay. But maybe retail inventory management -- retailer inventory management from the end of last year has become more normalized, you are saying?

Yes, I'd say that's probably true. And the impact that we saw in the last quarter may, again, been as much due to the seasonal component, particularly of our frozen dinner roll business.

Okay. That's clear. And as your Flatout product has probably been most impacted by clean store initiatives across the retail landscape, do you guys believe that you've been able to improve upon trade level management at all? Have you been positively surprised by maybe how well Flatout has been able to do in different areas of the store? Any update you can give there?

I don't know I can give you much of an update. I don't know I'd say we've been surprised, but I think where we've seen the product move to other areas of the store, outside the deli area, we have found that there's still some good following for the brand. And a lot of certainly active users still make their way to wherever it is in the store. Probably just a little bit more challenging to get first trials when you get outside that deli department.

I might be misremembering, but as far as the in-store, was Flatout's distribution in recent years roughly half in the deli area and half on shelf in the bread space? Does that sound about right?

No, I'd say it was much more heavily in the deli area.

Okay. And I wanted to ask you also just about this Vermont labeling law and whether or not we should build in any expectations on added cost or complexity into your model going forward from that?

Well, there's definitely going to be a little bit of complexity and a little bit of added cost. I don't know that we feel like it's going to be huge, but there will be a little bit there, including just some transition costs from current packaging and labeling to the new labeling.

Okay. And on -- I think I heard you discussing commodity costs. You mentioned egg costs were flat year on year. Doug, I don't know if you can remind us what H1 inflation looked like for eggs or what the impact was in the front half of the year?

I don't think we've quantified that prior, Brett, but it was significant, and I would qualify it as that.

Okay.

And as sharply as it went up, it really has come back down to current pricing compared to that of the prior year during the third quarter. The industry has really recovered quite nicely.

Okay. And I think I heard you say, Jay, that with some of your other commodities that you saw good savings in the quarter. There's been a fair amount of volatility in the oil seeds complex. Has any of this made you want to go further out on coverage, or do you just continue to buy forward commodities as you historically have?

We've generally done it as we historically have done it, Brett. So, no, we have not jumped up and taken our coverage leverage levels up different than the practices we've had in the past couple of years.

Okay. And then just two more from me, if I may. Food service; your sales there have been, I think, solid for a while and some of this I attribute to your account specific -- your customer-specific relations. Another portion of it I think might be macro. We hear stories about how restaurant trends seem to be improving. One of -- I think one of your larger customers on the food service side reported results that were maybe a little bit more challenging, yet it seems like your results specifically continue to improve nicely. So can you take us through your food service segment and maybe describe how much sales strength for Lancaster is due to account-specific growth versus just the macro broadly?

Well, the macro side I think is improving a little bit. It would probably be the smaller share of the growth, though. I think just the mix of top customers we have in our list of chain accounts has certainly been favorable for us. Whether it's everyday business, again, or their promotional limited time offer business we were talking about a few minutes ago. I think we've been fortunate on both of those to see good performance from a number of our customers.

And then just lastly, I wanted to go back to a question that I heard on this previously. But we watch your refrigerated dressings category pretty closely, and in some of the store checks that we do competitor pricing seems to be all over the place. It seems like it's improved recently just in what we've been able to monitor, but the space has pulled in some other competitors. There's been some competitive activity as people jockey for space, but I'm curious about expansion of the category as a whole and just how much bigger it can get.

You guys have a very established brand. You bring a lot of innovation to the category. You are a clear leader there. And I'm just curious, again, going back to the discussions that you have with your customers on category data, category management that you can bring to the space, and what the risk is of the space getting potentially bigger and more competitive over time?

Well, Brett, one, it's certainly hard to predict growth rates going forward. However, the produce department refrigerated dressings definitely are more on-trend product than some others. And as you compare it to shelf-stable dressings, I'd say definitely more on-trend there. It is a category that is seeing more entrants, so more competitive activity, although the entrants generally are coming in with some unique positioning, usually at the higher end of the market from a price point standpoint.

So, it's not like the category is being inundated with competitive pricing activity, but there also are some alternative types of products, brands of products, that are working their way into the shelf. In the end, I think there is a limitation with retailers as to how big they will let that display space get in the produce department. So I don't think you will see it expand up to sizes like you would see over in the shelf-stable area, by any means. It's got a long way to go to get anywhere near that in volume as well.

But, again, I think it's an attractive department today for both the retailer and the consumers looking more and more in the produce department for those kind of offerings.

Thanks, Jay. I appreciate it.

(Operator Instructions). Philip Terpolilli, Wedbush.

Thanks. Just one quick follow-up. Doug, you were mentioning before on pricing, that there was timing in place I think at the start of the quarter of give-back there. Was that just in food service or where you talking about retail as well?

Just food service, and more specifically just to the national chain customers.

Got it. Okay. I just wanted to clarify that. Thanks.

And there are no further questions at this time. I turn the call back over to Mr. Gerlach for any closing or concluding remarks.

Well, thank you again for joining us today. We'll look forward to talking to you mid-August or so with our fourth-quarter and full-year results. Have a great day.

And this concludes today's conference call. You may now disconnect.