Post Holdings Inc (POST) 2019 Q1 法說會逐字稿

Welcome to Post Holdings' First Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer; and Jeff Zadoks, Chief Financial Officer.

Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. The dial-in number is (800) 585-8367, and the passcode is 855-7859. (Operator Instructions)

It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Post Holdings for introductions. You may begin.

Good morning, and thank you for joining us today for Post's First Quarter 2019 Earnings Call. With me today are Rob Vitale, our President and CEO; and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session.

The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filing section at postholdings.com. In addition, the release is available on the SEC's website.

Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements.

As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website.

With that, I will turn the call over to Rob.

Thanks, Jennifer, and thank you all for joining us. We had a solid first quarter with each business performing well. We modestly updated our adjusted EBITDA guidance as you would have seen in our press release. Our consumer brands platform continues to perform well. We had a strong consumption quarter, with dollar market share reaching 20.1%, although we did benefit from heavier trade activity in the first quarter versus our plans for the balance of the year.

Within these solid results, we still have opportunities to improve. We continue to see plant conversion costs run approximately 4% ahead of last year. In 2019, we are focusing on assortment simplification and improving overall supply chain execution. Our internal focus on capability development and execution is the next step in the evolution from MOM Brands and Post Foods as separate businesses to a streamline combined business to ultimately a sophisticated consumer brands platform well positioned for future acquisitions.

I want to spend the most time on our new segment reporting. When we acquired Bob Evans, we decided to create pure foodservice and retail channel businesses. This produced stronger, more focused organizations, a key tenet to our operating model. We also sought to best leverage our cold supply chain across both businesses as appropriate.

Last year, we reported these businesses as 1 segment, while we worked through integration. Commencing this quarter, we are reporting 2 segments. Under this structure, our foodservice business co-manufacturers some, but not all of our retail products. This has the effect of capturing margin in foodservice that pre-acquisition would have been in Bob Evans. Once we cycle fiscal 2019, we will have comparability. This year, I encourage you to analyze margin transfer these segments in total.

To help you model their performance, I'm going to give you the baseline against which we measure 2019 performance. In 2018, the reported Refrigerated Food segment had adjusted EBITDA of $442 million. The reported number excluded approximately $29 million of Bob Evans' adjusted EBITDA earned during post fiscal 2018, but prior to the close of the acquisition. Recall also, that the fiscal 2018 reported number included $25 million of excess earnings from egg pricing as we discussed throughout last year.

The net result to the baseline adjusted EBITDA of $446 million. This quarter, the segment together earned $125 million and are tracking quite favorably compared to baseline. Synergy delivery remains on track, and the Bob Evans brand continues to perform well. Specifically, this quarter, the Bob Evans brand side dish business grew volumes 12%. In our sausage business, we've reduced trade spending, and consequently, expanded margins, while contracting volumes.

Our legacy Simply Potatoes brand declined approximately 2%. Blending the brand metrics may have contributed to a misinterpretation of a slowdown in our side dish business. Meanwhile, our foodservice platform continues to show strong momentum in value-added eggs and potatoes, growing volumes 5.8% and 4.6%, respectively. We executed well against all key metrics and are well positioned for the year.

In Active Nutrition, we continue to navigate the capacity constraint for ready-to-drink shakes. We executed exceedingly well to deliver a strong quarter. To refresh the context, having exited last year with essentially no inventory, our 2-flavor strategy was aimed at maintaining ACV and maximizing shake output. Withdrawing 5 of 7 flavors maximized output for the remaining 2, but have resulted in an intentional decline of 38% in total distribution points. Despite a 38% decline in TDPs, our shake volume grew 4%, a rather extraordinary outcome.

We begin flavor reintroduction this month, and we expect all flavors to return to market by the end of April. The brand performance through this disruption gives us considerable confidence that the flavor reintroductions will result in a return to our historical growth rate.

With respect to our announced IPO of the Active Nutrition business, we do not have much to update. We continue to work on the registration statement and its financial statement precursors, while we remain on track, we are in no hurry to execute the IPO. We want to be ready and then allow the market conditions to develop.

Finally, we had a turnaround in our Weetabix promotional strategies, and we are quite happy to report that the pricing volume dynamic is returning towards our underwriting case. While the work is by no means complete, this success is a real bright spot for the quarter as we reestablish the appropriate pricing structure to this valuable brand.

By the time we report next quarter, we should have more clarity around Brexit. Our contingency planning is around working capital as we are building inventory in the event of port disruptions. There's a modest incremental cost around additional storage facilities and inventory builds do come with a bit higher risk of subsequent write-offs. We do not see the risk as material. Our exposure to Brexit lies mostly in currency translation, however, we are hedged at approximately 60% of the free cash flow we would expect to repatriate over the next 3 years. Our capital allocation strategy remains unchanged. We continue to view through an opportunistic lens, the balancing priorities of share repurchases, deleveraging and M&A.

Before I turn the call over to Jeff, I have one quick housekeeping matter with respect to 8th Avenue. This is our first quarter following its recapitalization, our practice will be to limit commentary to what is in our press release until a material change occurs in either the business composition or its results.

With that, let me again thank you for your support. I'll now turn the call over to Jeff.

Thanks, Rob, and good morning, everyone. Adjusted EBITDA for the first quarter was $292.5 million, with consolidated pro forma net sales growing 3% year-over-year.

Post Consumer Brands net sales grew 5.4%, with volumes and net pricing up 4.8% and 0.6%, respectively. Pebbles, other licensed products and Honey Bunches of Oats drove the majority of the volume growth, while the increase in average net pricing resulted from favorable product mix and pricing taken later in the quarter. Post Consumer Brands adjusted EBITDA improved 8% compared to prior year. Volume gains and reduced advertising and consumer spending drove the improvement, while meaningful year-over-year systemic inflation and freight commodities and wages persisted this quarter.

Weetabix net sales were up 1% over prior year, despite a 3-point currency headwind. Year-over-year average net pricing improved 8%, while volumes declined, driving a modest increase in margins and adjusted EBITDA.

Net sales in the foodservice segment increased 4% on a pro forma basis, with volumes up 5%, driven by strong growth in both egg and potato products. Adjusted EBITDA for this segment was $77 million, benefiting from volume growth and the Bob Evans acquisition. Despite a tough comparison, as the prior year included excess profit from favorable egg market prices, the legacy foodservice business was able to grow adjusted EBITDA slightly with higher volumes somewhat offset by mild freight rate inflation. Pro forma net sales for refrigerated retail were flat, with volumes up 3%. Side dish volumes grew 7%, driven by distribution gains and continued strength in Bob Evans brand side dish products. Adjusted EBITDA for this segment was $48 million.

Net sales in our Active Nutrition business were flat year-over-year, short-term capacity constraints with our shake co-manufacturers causes to limit production to 2 flavors and pull back on promotional and advertising activities. Despite these constraints, we achieved net sales growth for shakes of 3.8% for the quarter. Adjusted EBITDA for the segment grew approximately 18%, benefiting from lower raw material input costs and marketing expenses.

Before we open up the call for Q&A, I would like to talk -- I would like to make a few comments on capital transactions and cash flow. Market conditions during the quarter created an opportunity to repurchase our shares and bonds at attractive prices. We repurchased approximately 290,000 shares at an average price of $88.12 per share and $60 million in total principal value of our senior notes at an average discount to par of 7%. Our remaining share repurchase authorization is approximately $280 million. We expect to continue a balanced approach to share repurchases and leverage reduction.

Our net leverage at the end of the first quarter, as measured by our credit facility, was approximately 5.2x, down 0.2 of a turn from the beginning of the quarter.

In January, we gave notice for redemption of all outstanding shares of our Series C preferred stock with a redemption date of February 15. Preferred holders have the option to convert their preferred shares to common shares prior to the redemption date. Assuming holders convert their shares rather than redeem them, this event would have no impact on our fully diluted share count. This conversion will eliminate the annual dividend of approximately $8 million paid to the preferred holders.

Our first quarter cash flow generation was strong, generating $239 million from operations. First quarter capital expenditures were nearly $80 million, as expected a step-up from recent periods, primarily related to growth in our egg business.

With that, I'd like to turn the call over to the operator for questions. Operator?

(Operator Instructions) Our first question comes from the line of Andrew Lazar of Barclays.

I guess, first off, it was, I think, our impression that fiscal '19 maybe a bit more back-end loaded from an EBITDA growth standpoint, I think, due to inflation being a little bit more front-half weighted; I think pricing being a bit more back-half weighted; some of the manufacturing nuances; Bob Evans synergies, I think, being a little more second half weighted; and obviously the year-ago excess Michael Foods profit that might hit earlier in the year. So I guess, I was hoping if you could comment on that a little bit in light of the first quarter over delivery. And I guess, I'm specifically interested in maybe the cadence of EBITDA build for the balance of the year, how much of the Michael over earning hit you took this quarter versus, I guess, if any will bleed into 2Q? And then, if you can, the EBITDA contribution from Bob Evans this quarter?

So when we gave guidance at the beginning of the year, we talked about it being back half, pretty much exactly as you just described it. And I think in some meetings we've talked about, how if you just divide the midpoint of our guidance by 4 that the first quarter would obviously be below the average and we would build throughout the year. So I think, there were some difference of interpretations to how severe that slope was. So the overall earning relative to expectation, I think, varies by how significant different hears of that message interpreted the degree of the slope. It was a strong quarter, but not a massively over-earning quarter relative to our expectations. So we continue to expect the cadence. So again depending on perhaps that slope is a less steep slope than listeners would have previously interpreted. Michael performed very strong. So in terms of the $25 million overhang from last year, it's roughly half and half in terms of the first and second quarter, and we pretty much performed through that. Your question about -- specific to Bob Evans EBITDA is a hard one to answer because we have now sort of reconfigured the business, that we really can't give you a pure Bob Evans number anymore because it now shares a platform with the legacy Michael retail business, which was almost as big as the Bob Evans business. So you can look at the reported refrigerated retail numbers and look at the size of the refrigerated retail platform relative to historical reports. But I think, admittedly, this will be a bit complicated from a comparability perspective throughout '19 and what the comment I made in my prepared remarks was that the best way to look at the performance of Bob Evans is to say in combined 2017 pre-acquisition and our Michael Foods segment, you had x in '18 we just went through, we had $446 million and we had $125 million through the first quarter of FY '19. So you can see a pretty significant amount of EBITDA built in that aggregate progression. And I think it's fair to assume that in order to get to that level of EBITDA build, it requires the baseline Bob Evans business to be intact, the synergies to be intact and growth rate to be intact.

Got it. And then one of the largest areas of outperformance, at least, from our model. And I think consensus in the quarter was Consumer Brands EBITDA. And I know this is the segment where I think you were going to have maybe sort of a greatest amount of ingredient inflation. And as you mentioned in your prepared remarks, you still had a decent slug of promotion and trade spend in the quarter. And obviously the EBITDA still came in above where we sort of have that falling out. So I guess, I just want to get a sense of what drove that and sort of how sustainable you see that going forward?

Well, we see it as sustainable and we expect that to be a component of the upward slope through the balance of the year. I suspect that the difference between expectation and what we delivered is more about again that same phenomenon of how deeply different people interpreted the degree of the back end.

Got it. I'm generally an optimist in life but maybe I just got that a little wrong this time. Last quick one thing for me would just be, regarding the separation of Refrigerated Foods into 2 segments. Is there anything operationally that will be different that's an unlock from that? Or is it really more about just providing some additional transparency to each business, which in and of itself I think is a good thing.

Well, from a perspective of how GAAP requires us to report the nature of the way we manage the business virtually leads to a requirement to report it that way. So we view the businesses as stand-alone independent businesses that happen to share some common manufacturing and supply chain functionality. But what we don't want to do is to conflate the different functions and strategies of foodservice versus retail. The whole purpose of the work to separate them was to give them distinct strategies that they could independently pursue. So by giving you the separate reporting segments, we achieved that. The challenge in this particular process is that they do share supply chain and manufacturing and require some cost allocations to get to the reported numbers.

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

Just a quick question for you in relation to from a high level. Your gross margin was a little stronger than I thought and your SG&A was a little less than I expected. I just want to understand, there's some influence in there from Bob Evans and the exclusion of 8th Avenue. I just wanted to get a sense of like the underlying performance or kind of what's behind those. So if you could give your color on the gross margin and sort of the SG&A level overall for the quarter?

Well, you just hit on the biggest contributor to the margin change year-over-year was that we added higher-margin business and took out our lowest margin business. Beyond that, I suspect it's more about where you set baseline expectations because it was largely in line with our expectations.

Okay. That's helpful. And then just to be clear on Active Nutrition and the IPO. It sounds like are you proceeding at the same pace to sort of keeping an eye on industry conditions to know like when it's proper to move on that IPO. Is that the way to say that?

Yes, we are doing all the work we're expected to do, which is getting audited financial statements that reflects part of our allocations. We're getting the S-1 ready, all the execution work. I think given that it's a long lead-time process, one of the vagaries we can't anticipate is what the status of the IPO market will be when we're ready. So what we want to do is have all of our ducks in a row, and then if the market is ready, we go; if it's not ready, we wait until it is.

Okay. And just if I could follow up on Active. There were some concern that developed through the quarter about a slowdown in shake sales, I know that you're pretty clear last quarter about that and the inventory situation you were in. So I guess, what I'm really interested is kind of going forward from here. Should we see sequential progress like in the second quarter as you build -- or you're able to build inventory, having more capacity, we should see stronger sales commence in 2Q? Or is it more second half? I just want to understand how that progresses through the year?

Yes is the answer to your question, that we will -- we're going to start introducing -- reintroducing flavors in February, but that we don't expect to see them completely back on shelf until early in the -- in April, so our third fiscal quarter. So it will build as we go through the year, which is exactly in line with hopefully what we communicated in our last quarter call.

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

It seems like you've built the balance sheet on the assumption of a fair amount of steepness and difference between 1-month LIBOR and 10-year is like 15 basis points right now. I would think that -- I mean, you talked about buying back bonds and you talked about reconfiguring the balance sheet. But how is that playing out in your swap liability, how is -- I assume it's pretty good news based on what you've seen?

Yes, so specifically with respect to our swap liability, it's negative news because as the 10-year treasury moves down, that liability grows. But the reason it grows is because it's a hedge against our refinance risk. So as the 10-year stays down or goes down, our cost of refinancing also goes lower. So those 2 are intended to match each other on a present value basis and they are doing so. We don't have, as I think you know, any near-term maturities. So that's sort of hedged against a longer-term action related to when we start to either have call dates or maturities.

Sounds good. And just to kind of better understand what you're talking about in terms of the Brexit risk, I guess, you summed it up and said it's basically currency translation. But you're saying you don't really think that you have distribution channel risk in any meaningful way?

Well, the bulk of the Weetabix product is sourced within the U.K. What is not sourced within the U.K. is mostly packaging. There are some vitamins and relatively small products, and I mean small, both physically and from a cost perspective. And the reason I phrase the physical is most of the cost is around storage space. So what we are doing is attempting to make sure that if we are in a situation in which there is a port disruption that adds days, weeks or even months to the supply chain that we're ready to react to whatever reality develops. Likewise, where we have export business, this quarter, we're starting to build inventory outside of the U.K. So we have the other side of that equation balance. So if you look at the operations -- and there's cost associated with all of those activities, but they're relatively modest. The way we report EBITDA is on a translated basis at an average spot rate through a quarter. So to the extent that Brexit creates currency volatility, we could have some earnings volatility reflected in EBITDA, but the actual flow-through of the economics is that roughly 60% of our free cash flow that we do repatriate, which is the real economic impact of the foreign currency is about 60% hedged.

Okay. And if I could squeeze one more in on Active Nutrition. I mean, presumably we're past the worst of the supply chain tightness there in Tetra Pak. How quickly do we think that things normalize?

Well, as I responded to Chris, we start this month, we continue in March, we should be fully on shelf by April. So actually getting a full quarter of performance of all flavors in all outlets is probably not going to be embedded in 1 quarter until the fourth quarter. But we will be able to see progression very clearly along the way.

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

Just a quick follow-up on Active Nutrition. You commented that there's no rush. Is that -- implied that there is any change to the timetable of looking to go an IPO this summer or I mean will you be willing to wait till fall or early next fiscal year?

So I'm trying to go from memory, I think when we announced what we targeted was '19. I don't remember if we were specific of saying summer or fall. So we still view it as a '19 event and nothing has changed in terms of the cadence of our work and expectations. If we're ready to go in July and the markets make sense for us to go in July, we will. August is a bad month to transact in the capital markets. So if we don't hit July, we're looking at September, and then obviously market dependency if we -- what we are not going to do is to transact because we said we're going to transact in '19 or hit somewhat arbitrary date. What we're going to do is be ready and then address the market when the market is open to us.

But the current angulation to the business don't change the time line?

Oh, not at all. I mean, we would not. We expected what happened in the first quarter to happen, I mean, it almost happened exactly as we prescribed it when we announced. If we had concerns about the angulation of the business, we wouldn't have announced the IPO at the same time we announced the flat quarter from a business that had been growing 20%. So this is going exactly according to our expectations. Now the next part has to also go according to our expectations, but nothing to date has been a surprise.

Got it. And then maybe asking Andrew's question a little different. Looking at Refrigerated, you said the base business was $440 million of EBITDA, you did $125 million in the first quarter. So if my math is still good that annualizes to $500 million and there's some seasonality. Is that due to synergies coming in faster-than-expected or the business being more profitable than you thought or input cost? What's driving that?

Synergies and growth.

Do you want to be more specific or just let's leave it at that?

Well, the challenge on trying to allocate synergies is -- between Bob Evans and Michael Foods is exactly what I talked about as you start to make some theoretical allocations and why I'm trying to be somewhat high level on that answer. We talked about $35 million of synergies over 3 years in our Bob Evans announcement with a goodly portion of it being delivered in FY '19. So I think -- I don't want to be more specific than to say that we are on track to achieve the $35 million. A portion of that flew -- flowed through FY '19 Q1. But we achieved or tracking to achieve well in excess of that. So it's a combination of the 2. I don't know if I just gave the answer in more words, but hopefully that's a little helpful.

It is. Last one for me. Just U.S. consumer, I mean, the cereal business was very strong performance. You did say that there was a little more promotional or more activity this quarter. But I mean, is there any reason that this should revert back to a kind of flat growth over the next few quarters or -- it seems like it's in a pretty good place?

Well, I think both of those statements are true. It is in a good place. But we don't want to plan to this kind of growth in a category that is essentially down low single digits. So I think we did benefit from the heavier trade that we would not expect to be repeating at least at the same level through the balance of the year. So we are not planning within our guidance continued growth at level in cereal. We are looking at it more of a flattish business as we always have.

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

Rob, just wanted to stick with Consumer Brands, I mean, obviously, clearly very strong growth. And just to expand on your comments to Andrew about the slope in '19. How are you thinking about the incremental growth in the licensed brands in building new distribution because from what we can see in Nielsen, I mean, the ACV in the Mondelez portfolio are still far below your legacy business and now you're also layering on the Hostess SKU. So just any context there would be helpful.

Yes, both are -- in both businesses, we start with a anchor customer who has a bit of exclusivity. And then once that exclusivity period runs, the ACV builds. And we're in that ACV build period with Oreo and Sour Patch is lagging that by probably a year or so. So I think, they're both ACV and consumption opportunities in each brand. Each brand are doing well. There is likely to be some interaction between the 2 that may cannibalize. But right now, both appear to be promising in both distribution growth and in velocity.

Okay. And then on the foodservice segment, just maybe bigger picture question. In terms of how you think about the business scaling and building it out going forward. I mean to the extent that you do or would engage in further M&A, what shape do you envision that taking in terms of new categories? Or how confident are you that you can source assets in that kind of sub-10x preferred level? And how do you think about synergy capture with any deals in that space going forward?

Well, it's the highly situational answer to that question. I think that we have a terrific business model aimed at taking labor out of our operators' channels by moving up the value-added chain in currently 2 commodities and there's probably opportunity to do in other commodities. We are so strong and well positioned in the category that the bar for M&A is higher. So -- whereas, we have more consumer and secular challenges in cereal and we want cereal to be positioned well to be an acquirer of a number of assets that we think will help supplement some challenges there, whereas the business is so strong in Michael Foods in our overall foodservice segment, we want to be a bit more deliberate with respect to M&A, so not distract from the core focus of just doing what it's doing. So we have M&A opportunities. We have M&A capabilities. But we have very high expectations for what that M&A must do in order to justify the risk of distraction from day-to-day execution against the many opportunities that organically face the business.

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

Just 2 questions. One is what is the implication for profitability in '19 and 2020 for the Weetabix pricing structure being reestablished?

Well, in '19, it's embedded in the guidance; and in '20, we're not prepared to talk about. So I'm going to dodge your question.

Okay. Let me ask in a different way. Does it get back to the base case by 2020? Does it accelerate it? Is this in line with what you thought last quarter and the quarter before? Or have you kind of reestablished the pricing dynamics a little bit earlier or later? Just trying to getting some color on that. How is that?

So I would tell you that we had an expectation around volume and price and that we feel very encouraged on both sides of that equation, vis-à-vis our expectation the year ago when we started this reset. So I think what we are -- our takeaways right now are the brand strength is every bit as resilient as we expected going in. And that much of this biscuit pricing phenomenon was simply a self-inflicted wound that has been corrected and will remediate. So it has remediated faster. Whether it will get back to bright in 2020 or 2019 or a little longer, we're not prepared to declare victory on. We don't want to strike the ball at the 50-yard line here, but we feel optimistic that the bulk of these problems are first identified; second, contained; and that the plan is working to correct them.

And now you're prepared to accelerate your innovation in Weetabix in the U.K.? Or do you just establish it, get the pricing structure and then work from here? How does that play out?

No, I think there's opportunities to start to look at innovation in Weetabix. I would call that a very modest contributor to 2019, but more sets up for potential in 2020.

All right. And then my second question is, you talked about the plant conversion cost being 4% higher than last year. What is the process to which you can actually reduce that? What are the actions taken on? And what is the timing of that? And is this a surprise to you?

Well, it's not a surprise in the quarter. If you go back 2 quarters ago or so, we had a decline in gross margins that we talked about, having a handful of positives aspects, one of which was some additional complexity that we had built into our manufacturing system. So as I talked about in my prepared remarks, one of the objectives for the year is assortment simplification. And I think as we start to simplify our offering, we will naturally see some improvement in conversion costs that will return to where we were in 2017.

And what is the timing of that? Is it a 2019? And when will you be realigned and what is -- will you be flat by the end of the year on a run-rate basis? How do I think about that?

I would think that approximately year-end, I wouldn't want to stick a flag too firmly in the ground, but approximately year-end on a run-rate basis, we should have most of it corrected.

Okay. And then in 2020, that would be in -- then you would continue to move on that in terms of additional cost savings? Or does that once you get to flat you kind of typical operation?

No, we have a very rigorous, continuous improvement program, which I would expect to continue to yield results. I think the question that is an ongoing question and will always remain an ongoing question is the degree to which you reinvest that margin expansion in some other opportunity, whatever that may be versus bringing it to profit.

And the answer to that question?

Ongoing debate.

And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Carla Casella of JPMorgan.

I'm wondering if you could give us -- if there's any update in terms of your thoughts about the use of proceeds from the IPO?

Well, initially, it will be to retire term debt, but we would likely view that as a -- just a transition spot.

Okay. And then on the M&A front, are you seeing more or less opportunities out there, just given the markets and are there any particular areas that you would target? Meaning would you want to add another leg to the stool or more build on the existing businesses that you're in? Or is there any criteria around it -- around your selection process?

Well, the -- if you look at the marginal return on capital, it will tend to favor doing something in portfolio. By that, I mean, an acquisition that is complementary to a business we're already in. To move outside of that, there needs to be something different. Either a pricing opportunity, I mean, M&A pricing, not market pricing or a capability that we seek or a geography that we seek, something bespoke to the transaction. But in-market transactions are going to -- I mean, in-portfolio transactions are going to tend to have a higher return. So we would favor those. And then we always have the use of capital, share repurchases, which makes the bar for new legs of the portfolio that much higher.

Right. And then are there more opportunities or less just given kind of Brexit or other kind of macro trends?

Oh, I would say, there are neither more nor less. We have a constant flow of opportunities, and what varies over time is the quality of the opportunities. And I would say the quality of the opportunities is mixed. We have many, many opportunities to look at high-flying small businesses, fewer opportunities to look at quality large investments. It's kind of all over the board.

Okay. Great. And then just one more, just on the Refrigerated, the separation -- I'm sorry, the foodservice separation to a new segment. Should we read that, is that the segment that could be separable from your other businesses like your Active?

Well, I think, you should read that all of our segments could be separable. There are inhibitors to doing that in capital structure and complexity across the portfolio, readiness for any one business. But I think you should think about those as very long-term possibilities.

And that was our final question. I'll now turn the call back over to Mr. Vitale for any additional or closing remarks.

Thank you, all. Again, I think, it was a solid quarter. We feel good about how the year appears to be setting up, and we look forward to talking to you in May.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.

Thank you.