United Natural Foods Inc (UNFI) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the United Natural's second-quarter 2012 conference call. During today's presentation, parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday, March 6, 2012. I would now like to turn the conference over to Scott Eckstein of Financial Relations Board. Please go ahead.

Thank you, operator and good morning, everyone. By now, you should have all received a copy of this morning's press release. If anyone still needs a copy, please contact Joe Calabrese in our New York office at 212-827-3772 and we will send you a copy immediately following this morning's conference call.

With us this morning from management is Steve Spinner, President and Chief Executive Officer and Mark Shamber, Chief Financial Officer. We will begin this morning with opening comments from management and then we will open the line for questions.

As a reminder, this call is also being webcast today and can be accessed over the Internet at www.unfi.com.

Before we begin, as usual, we would like to remind everyone about the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made in this morning's conference call.

Additionally, in today's press release and on today's call, we provide both GAAP and non-GAAP financial measures, including operating expenses, operating income, net income and earnings per diluted share. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. For a complete reconciliation of GAAP to non-GAAP financial measures, please refer to our earnings release issued earlier today available on our corporate website, www.unfi.com, under Investors. With that, I would like to turn the call over to Steve Spinner. Steve, please go ahead.

Thank you, Scott and good morning, everyone. Welcome again to UNFI's second-quarter fiscal 2012 and mid-year results. Almost three years ago, UNFI began a drive toward building marketshare, coming together as one company, being operationally excellent and further driving our cultural commitment to sustainability and philanthropy. We refer to this strategy internally as MOOS -- marketshare, one company, operational excellence and sustainability. And I would like to make a couple of comments regarding our progress.

We have demonstrated terrific positive momentum toward building marketshare as evidenced by our over 15% increase in sales both for the second quarter and for the first half of fiscal 2012 versus prior year. This success was driven by a relentless focus on adding new customers, expanding existing customer relationships and building the infrastructure for new channels and categories of products.

Marketshare improvements were especially positive in our core UNFI distribution businesses, as well as our Albert's Organics and UNFI Canada divisions. All three of our distribution channels exhibited strong year-over-year growth, led by our supermarket channel, which saw over 32% growth.

Additionally, our retail category management and iUNFI technology continue to demonstrate UNFI's very unique and capable expertise throughout our product categories and customer base.

Continued improvements in the industry and sustained inflation over 4% helped our overall revenue numbers. However, we carefully watch a phenomenon aptly named the rule of fours very carefully. When inflation continues over 4%, combined with sustained fuel price at over $4 per gallon based on history, we know this can contribute to a consumer slowdown. Both inflation and fuel are very close to 4 in each case.

On balance however, despite rising fuel prices and inflation, this is a terrific time to be in our industry. Consumers have a passion for specialty and organic foods as shown by demand for the products we distribute at a rate that significantly exceeds the rate of growth in conventional foods. In particular, growth in organic produce, value pack foods, organic dairy and grains have experienced significant growth. More and more families are buying a broader array of our products, which we believe will continue and it is evidenced in our revision to fiscal 2012 revenue guidance to a range of $5.11 billion to $5.17 billion.

We have also made great progress towards coming together as one company. From benefit plans, to compensation procurement, warehouse operations and category management, UNFI is truly taking advantage of its scale to drive down costs and standardize processes and practices.

With respect to operational excellence, while delayed, the deployment of our new warehouse management system is back on track for a fiscal 2012 fourth-quarter implementation in our Ridgefield, Washington facility.

Delivering operational excellence is what will drive our long-term operating margin expansion. During the last 12 months, we successfully implemented operational labor management throughout our UNFI distribution centers, nationalized risk management, food safety and have completed the organizational development of our general managers.

Additionally, through the centralization of our fleet management, we have brought down the cost of equipment and succeeded in driving up our fleet utilization. Our one company and operational excellence initiatives contributed to driving down expenses as a percent of net sales, excluding special items, by 56 basis points versus the prior year and 69 basis points sequentially versus Q1.

To provide some perspective, our warehouse operations during the quarter delivered a 14 basis point improvement in expenses as a percentage of sales versus prior year while our transportation realized an increase of only 2 basis points as a percentage of sales despite considerably higher fuel costs and significant changes in routes made necessary to accommodate customer onboarding.

At the same time, warehouses' expenses declined and our productivity increased as a result of our implementation of our national labor management standards. The stakes are quite large for us here as is the upside. For example, a companywide increase of just one case selected per hour equates to over $1 million in savings. As a reminder, these improvements took place at a time when we were also divesting our non-foods business and transferring the remaining specialty business from our Harrison, Arkansas facility to other UNFI distribution centers.

It is also important to note that the second quarter is quite important to us. The Thanksgiving and holiday and Christmas lift requires careful planning and execution. During this quarter, UNFI delivered its highest service level to customers across North America since I have been associated with our Company. To accomplish this, we made a conscious effort to increase inventory to support the needs of our customers and the investment really paid off despite a $1.7 million increase in shrink associated with this inventory build. Our strong service level was accomplished through the dedication of thousands of UNFI associates who worked around the clock during the holidays to ensure our high order fill and on-time deliveries.

Our second quarter of fiscal 2012 was the fifth quarter of our previously disclosed four to six quarter window of issues related to new customer onboarding, declining gross margin and pressure on our operating margin expansion. I am really pleased with our 17.5% increase in net income versus prior year and quite impressed with our team's ability to utilize operational improvements to increase our operating margin by 6 basis points as a percentage of sales in the quarter.

Despite the very strong increase in earnings, we remain quite focused on operating leverage to increase our operating margin. These continued improvements will drive our revision of earnings per share for fiscal 2012 to a range of $1.79 to $1.86 per diluted share. Continued shift away from full service programs to partial or no service models and customer mix shifts continue to cause disruption to our gross margin, which was down 48 basis points versus the prior-year quarter.

Let me add I am very proud of our continued focus on sustainability and philanthropy. Through LEED-certified distribution centers, solar power, hydrogen fuel cells, natural gas-powered tractors and green teams throughout North America, our people prove that UNFI is a leader in delivering a strong return to our shareholders while staying true to our mission and belief in doing what is right for the environment and our constituents.

Looking forward, our strategy around MOOS will continue and endure. In addition, we will continue focusing our efforts on new business, building out our organizational development, concentrating on selective M&A and a ramp-up of standards to standardize our operational and systems platforms.

Also, with our 15% plus sales growth during fiscal 2012, we are going to need new buildings and expansions. Construction will likely begin with the consolidation of our two Denver facilities in fiscal 2013, followed by several building expansions and a new Northeast center in fiscal 2014.

Our strategy has come together, helped by strong demand for our product, terrific people and a wonderful culture here at UNFI, our future is bright. Now I will turn the call over to Mark Shamber, our Chief Financial Officer, to review the highlights of our second quarter and first half 2012. Mark?

Thanks, Steve and good morning, everyone. Net sales for the second quarter of fiscal 2012 were $1.29 billion, which represents growth of 15.5% or approximately $172.5 million over the prior-year second quarter's net sales of $1.11 billion. Inflation continued to increase on a year-over-year basis although the rate of increase did moderate sequentially as inflation was 4.36% for the second quarter compared to 3.85% in the first quarter, an increase of 51 basis points; year-to-date, net sales of $2.5 billion yielding sales growth of $336.9 million, or 15.5% over the first half of fiscal 2011. Excluding sales from acquisitions, our year-to-date growth is 14.3%.

For the second quarter of fiscal 2012, the Company reported net income of $22 million, or $0.45 per diluted share, an increase of approximately 17.5% or $3.3 million over the prior year. Net income for the second quarter of fiscal 2011 was $18.7 million, or $0.39 per diluted share. EPS increased by 15.4% as EPS growth was impacted by the higher average share count in fiscal 2012.

On a channel basis, super natural sales increased by 12.8% in the second quarter and now represent approximately 37% of sales. Sales growth in the independents channel was 8.1%, but declined from a mix standpoint and for the quarter represented approximately 34% of sales. The supermarket channel sales increased by 32% due to a full quarter of sales from our new national customer and conventional supermarkets now represent approximately 25% of sales while food service comprised approximately 2% of sales after growing by 22% in the second quarter.

At 17.3%, gross margin for the quarter showed a 48 basis point decline over the prior year's second-quarter gross margin of 17.8% and a 49 basis point decline sequentially. The primary drivers of our lower gross margin were the continued shift in the growth mix of business towards super natural and conventional supermarkets with limited or no service components, which accounted for more than a third of the decline in margin. The inventory write-offs highlighted in this morning's press release also represented about 13 basis points of the decline.

Gross margin for the first half of fiscal 2012 was 17.6% compared to 18% in the prior year, a decline of 46 basis points caused by those same factors I just noted. Our operating expenses for the quarter were 14.4% of net sales compared to 15% for the same period last year. This represents a 56 basis point improvement over the prior year as operating expenses as a percentage of net sales benefited from a variety of areas, which Steve covered in his comments.

Excluding the portion of our Canadian business, which involves the use of third parties for deliveries in certain regions, diesel fuel had a negative impact of 6 basis points on operating expenses in comparison to the second quarter of fiscal 2011 as fuel represented 80 basis points of distribution and net sales in the quarter.

Fuel expense in the second quarter decreased by 7 basis points versus the first quarter despite an almost 2% increase in our fuel prices during that period due to our continued focus on reducing costs. Our diesel fuel costs in the second fiscal quarter increased by approximately 15% from the prior-year second quarter while the Department of Energy's national average was up approximately 19% over the prior year.

Share-based compensation expense totaled $2.5 million in the quarter compared to $2.2 million in the prior-year second quarter. Share-based compensation expense represented [20] basis points in both fiscal years. Operating income for the quarter was 2.9%, a 6 basis point improvement over the prior year.

Interest expense in the quarter of $1.4 million was approximately 6.5% higher than the prior year and was about 29% higher sequentially due to our higher debt levels associated with the higher average inventory levels during the quarter. Inventory was $595 million at quarter-end as days inventory on hand averaged 55 days for the second quarter, an increase of about three-quarters of a day over the prior year's second quarter when we were at 54 days. The higher average days on hand resulted primarily from carrying higher inventory levels during the holidays to drive service levels. Sequentially, inventory levels increased by about 2.25 days compared to the first quarter of fiscal 2012. DSO for the second quarter increased sequentially by a day to 22 days.

Capital expenditures were $5.1 million, or 40 basis points of net sales for the quarter, which is well below our targeted spending. Consistent with the last couple of years, a greater portion of our CapEx is planned for the second half of the fiscal year.

Outstanding commitments under our credit facility were $213 million at quarter-end with available liquidity of approximately $214 million, including cash and cash equivalents. Our leverage remained at approximately 1.4 times on a trailing 12-month basis due to our investment in inventory for the holidays. Leverage should decrease in the back half of fiscal 2012 as we generate the majority of our positive free cash flow during the third and fourth quarter. Through the first five weeks of our fiscal third quarter, we reduced our debt levels by over $45 million.

As discussed in this morning's press release, we are raising our net sales guidance for fiscal 2012 to a range of $5.11 billion to $5.17 billion, which represents a 12.8% to 14.1% increase in total net sales over fiscal 2011. We had previously provided net sales guidance of $5 billion to $5.1 billion on September 8, 2011.

In addition, we are narrowing and raising the lower end of our GAAP diluted earnings-per-share guidance for fiscal 2012 to a range of $1.79 to $1.86. This reflects the impact of our year-to-date sales trends and anticipated leverage in operating efficiencies. Our previous GAAP earnings guidance was $1.75 to $1.87 per diluted share.

During fiscal 2012, we expect to incur approximately $6.5 million to $7 million in operating expenses associated with our previously announced divestiture of our conventional non-foods and general merchandise lines of business and the startup expenses associated with the onboarding of our new national customer. Excluding the impact of these expenses, we expect diluted per share for fiscal 2012 in the range of approximately $1.88 to $1.94 per share.

Capital expenditures are still expected to be in the range of approximately 1% of revenues; however, we will update this guidance as needed when we report our third-quarter results once the timing of certain projects becomes more definitive. At this point, I will turn the call back over to the moderator for the question-and-answer session.

(Operator Instructions). Ed Aaron, RBC Capital Markets.

Great. Good morning, everybody. I wanted to maybe start by asking about the independent channel. The growth there slowed a little bit on a sequential basis and maybe it is just the tougher comparison, but that channel has always been kind of a barometer for the industry. I am just kind of wondering if maybe we should be at all concerned that the rule of fours might be starting to show an impact in that channel specifically.

Yes, we are not overly concerned about that, Ed. I am not sure why it declined, just a little bit as I recall. We still feel very confident in the independent channel. So the short answer is we are optimistic there.

Okay, thanks. And then I wanted to ask about -- I know you said -- I think you said Ridgefield was kind of tracking for a Q4 implementation. That sounds maybe a little bit later than where we had expected it to be. Is that just sort of like crossing Ts and dotting Is, so to speak or were there any sort of surprises as you kind of geared up for that?

The biggest delay was a conscious decision to push it out so that we could get through the holidays and also get through the customer onboarding. Both of the things required a tremendous amount of energy and we didn't want to put those at risk. So I think when you look at the delay, it was primarily driven by those two things. I think there is some kind of crossing the Ts, dotting the Is and making sure that we are ready to go. And I think we are in a position to feel pretty confident about fourth-quarter go-live. But those are the things that really pushed the date up.

Okay. And just my last question, this is I guess the second quarter in a row where you have had an inventory write-down issue and Steve, can you just maybe address that at a high level in terms of kind of the processes that you have in place so this doesn't become more of a recurring theme?

Yes, I mean our processes are actually pretty good. And if you look back over the course of history, look back certainly the last three years, our shrink was very well-managed. I don't remember what the exact shrink number is as a percentage of our revenue, which is how we look at it. The last quarter was specific to one specific product category where we had some heat cause some problems. We made some changes to our facilities that will prevent that from happening again. And I think in this particular quarter, we made a very conscious effort to bring in a lot of inventory to support what we expected to be a very big holiday lift and we did have a very big holiday lift.

I think that it probably exposed some weaknesses in our own internal systems to take a look at demand and forecasting, but I am pretty comfortable that we have good policies and procedures around managing shrink. Certainly history has proven that we do. I think we just caught ourselves last quarter in a very unique situation and this one in a very specific scenario driven primarily by an intentional increase in inventory to support what was a big holiday period.

All right. I will pass it on. Nice job on the quarter.

Scott Mushkin, Jefferies & Co.

Good morning. This is actually Brian on for Scott. Thanks for taking our questions. Just one quick follow-up on the implementation to the DCs. After Ridgefield, do you think you will kind of keep running them one at a time or see how they go or will they start to kind of come in groups together?

Actually with us this morning is Sean Griffin. He is our Senior VP of Distribution. I am going to let him answer that question.

Sure. Good morning. We expect, coming out of the Ridgefield implementation, we will have a period of time where we have built some specific metrics to gauge our success. Following on the success of Ridgefield, we would expect to do two to three implementations to the WM platform per year.

That's great, okay. And then maybe on a different note, we were hoping maybe you might be able to detail available business during the year. Is there a significant new business up for bid across the industry and any color on your current businesses that might be available or coming up for contract negotiation compared to last year? Any color there?

Again, we don't get into disclosure of those customers that we are working on or those customers that are risk that are not overly material to our total business volume. We think that the pipeline is still strong for new business. We think that there is a lot of opportunities for us in adjacent categories, specialty cheese, protein, alternative channels that UNFI historically hasn't participated in before. So there is a ton of opportunity for us to continue to grow the business on the top line at a rate that we've become quite accustomed to.

As far as businesses at risk, we always have business that is at risk. But where we sit today, we are pretty comfortable with our overall revenue plans.

Great. And then I guess one final question, if I may. Operating margin, you guys saw some nice expense leverage and I know the plan is to have them fall more than the gross profit as you get the mix shift. 3%, 3.5%, is that still realistic, how long do we get there? Any thoughts on kind of -- any update there would be appreciated. Thanks.

Yes, I mean I think, Brian, we wouldn't necessarily put an ultimate target as to where our operating margins can expand to, but we have put the three-year guidance out there that says we will get between 9 to 12 basis points of expansion in any given -- or an average of that over a three-year period and we still feel comfortable where we are in fiscal 2012 to achieve that ex some of the nonrecurring items we had in the first quarter. And so I wouldn't want to look past that target for '12 and that target for '13 until we are in a position -- whether we have another Analyst Day/Investor Day and set future expectations at that point. But I would say we still feel that we can get 9 to 12 basis points of expansion over the next couple of years and then we'll -- at that point, we'll certainly update and look a little bit further out.

That's great. I appreciate the color. Thanks very much.

Greg Badishkanian, Citigroup.

Great, if you could maybe talk a little bit about your core customer base, excluding the new customer business that you got. That core business, I am assuming, also saw a little bit of an acceleration. And if so, anything that drove that acceleration?

I'm not sure I understand the question. You are talking about by product category or --?

No, customers. So your -- kind of the comparable customers last year that you have kept, if you exclude like the new business.

Yes, I think where we are, Greg is, if you back out the business we have taken on, the business that we disposed of and you adjust for inflation, we are probably -- we have said the industry is 6% to 8%, some years 7% to 9%. I mean I think right now we are in an 8% to 10% growth range when you take out all the different moving parts and just truly look at the comp. So I mean it has been spread across the channels and it has varied by quarter-to-quarter, but when you get back down to the core, we are probably in the 8% to 10% range, maybe at the midpoint or a little bit higher.

Okay, that's helpful. And just I would think with a little bit warmer weather, people are eating out more, eating less at -- going to health food stores, going to regular supermarkets, so that would have hurt your business, but yet you have seen that acceleration. So do you think that is just due to a stronger consumer or is there anything else in the industry that is driving it?

I mean we know that just by looking at the data that -- I forget whether it is 4 or 5 out of 10 families are buying more organic food in the household this year than they did last year. We know that this -- we have talked about the crossover consumer, the consumer that buys both organic and conventional, that the rate of increase in organic food for those crossover consumers is increasing at a very nice pace. So I think that overall it is just continued strong demand for our product.

Organic produce, in particular, over the last several quarters has just been incredible, the rate of increase in overall sales growth for truly organic produce. If you break it down a little further, the categories that continue to do really well are the organic dairy, the grains, any of the value-packed products where consumers can get into either specialty or organic at a less expensive price by buying a bigger pack and size. So all those things I think are helping.

Good. And I know Cisco would mention if they have double-digit type of inflation in certain categories. It is really tough to pass that on overall. Inflation 4%, something like that, you are seeing a little bit over that. That seems to be okay. Are there certain categories that you are seeing the double-digit increases and what is your outlook over the next 12 months? What are you expecting there?

We have said for the last couple of quarters that 3% to 4% roughly inflation was pretty good for us and the consumer could deal with it. You start going north of 5%, 4% to 5% inflation and it is going to have an impact. Generally speaking, we can pass through the inflation. It may take us a little while, but we pass it through because so much of our business is on a cost plus. But ultimately, the consumer is the one who decides on the overall ability for them to stay with the product. You get into 8%, 9%, 10% inflation, we are going to see some slowdown. Go ahead.

Yes, and I think, Greg, when we look at the next 12 months, I mean they certainly can at least give you a look into the next six, is that we would expect that inflation may top out in Q3. I mean I think it may be at the point right now where it is turning over barring any new increases from any of our suppliers. And if you look at fiscal 2011, this was really where we saw some of the biggest price increases in the third and the fourth quarter. We saw almost 250 -- 225, 250 basis points of increase in last year's Q3, Q4. So if we don't see similar levels of increases coming through from suppliers this year in that timeframe, we probably get maybe as high as 4.5% in 3Q or it starts to come off. But I would expect 3Q is probably somewhere between 4% and 4.5%. And then if commodity trends don't force the suppliers to push through or try to push through future price hikes, that probably drops below 4% in the fourth quarter.

Great, thank you and nice quarter.

Bob Cummins, Wellington Shields & Co.

Very good. Thanks very much and congratulations on another great quarter. You are really doing a fine job. Your Company happens to be one of the few on my list that doesn't pay a dividend and you are generating substantial amounts of profits, obviously. Have you considered establishing a regular quarterly dividend? I mean there are some of my clients that won't buy a stock that doesn't pay dividends.

Yes, I mean we really haven't. With 15% growth, at this point, our viewpoint is to take all that free cash and put it back into growing the business. I think, at some point, if the growth rate were to fall off pretty significantly, we might have to look at it differently, but that is our viewpoint today.

Okay, just asking. Thank you.

(Operator Instructions). Ed Aaron, RBC Capital Markets.

Great, thanks. I just wanted to ask a follow-up on CapEx. If you look kind of back prerecession, you guys are running more like 2% of sales on CapEx and it has come down to about 1%. And Steve, you mentioned in your prepared remarks that, just with all the growth, you are kind of at the point where you need to add some capital. When you look out the next kind of three or four years just based on where the business is growing, do you still think that 1% of sales is the right number or do you think it might kind of creep back closer to where it used to be just given the growth that you are seeing?

That is a great question and we spend a ton of time internally talking about that. Certainly, for the fiscal year '12, we are comfortable with the guidance. We really haven't thought about '13 or '14 yet, so I would say I would much prefer to wait until we get through our budgets and look at our projects, both in terms of IT and construction before I would comment on total CapEx looking out into '13 or '14.

We've got a pretty good discipline here around CapEx and the creation of free cash and we like that discipline. But on the other hand, when you have the kind of growth that we have, our buildings are running out of capacity. We will get into more color on that as we get toward the end of fiscal '13 and into discussions about 2013.

Thank you.

Eric Larson, EJ Larson Research Group.

Yes, good morning, Steve and Mark. Could you just give us a quick update? Obviously, your fuel costs are going to be working against you now for the next couple of quarters, more so on a year-over-year basis. And as I recall, there is -- I think there is a 60-day lag between when you actually see the fuel costs go up and then you can implement a surcharge on that fuel. Is that correct and how do you kind of see the progression of that and will you be able to get enough operating margin improvement to kind of help offset some of that fuel cost?

The first part of the question, we changed our fuel surcharge language about maybe a year or so ago to 30 days. So we make changes to our fuel surcharges every 30 days now, not 60 so that we don't have to deal with volatility in either direction. We continue to have forward contracts at about 40% of our fuel, which is significantly lower than the market. We think that the fuel surcharges cover the lion's share of the remaining balance. So barring any significant change in the price of fuel, a very volatile market where fuel was advancing $0.20, $0.30, $0.40 a gallon, we are probably in pretty good shape.

And Eric, I would just add one note. Is that if you were to go back and look at the diesel prices last year, really, as we sit here today, which is probably five weeks into our third quarter, this was the timeframe where things really ramped back up. I mean we have probably been -- since last March at this time, we have probably been in a range of $3.80 to $4.10 for a national average for diesel. So there will be a bit of a headwind on a year-over-year basis through the first half, first third, first half of the third quarter. But once we get to that point, we are kind of consistently in that range for the next 12 months. I mean it has been, like I said, in that $0.30 band during that entire timeframe.

Okay, good. Thank you. I just wanted to clarify that. Thank you.

(Operator Instructions). Scott Van Winkle, Canaccord.

Hi, guys. I joined the call a little bit late, so I apologize if this was already touched on. But with the new business with Safeway, can you give us an idea of where you are, maybe a percentage along the way of getting to ultimate efficiency?

The business is fully onboard. We feel pretty good with where we are. There has been some bumps in the road that we are working our way through, but we are confident with both them and their position and us and what we have accomplished thus far. I think it is probably going to be a little while before we become really efficient in understanding all the ins and outs of the deliveries and the items.

As far as the timeframe, I mean I would say typically it is 9 to 12 months to fully vet out all of the operational efficiencies that you need to when you bring on a new customer. So we are probably six months away.

Great, thank you.

Michael Krestell, M Partners.

Thanks and good morning, guys. Steve, in your opening comments, I think you mentioned something about fleet management and the utilization increasing. Can you talk about where that is now and just how much room left you think there is to go before you sort of hit where you would like to be from a target perspective?

Yes, I mean a lot of the heavy lifting has been done. We have centralized the acquisition of equipment. We have centralized the way in which we look at the primary transportation metrics, idle time, miles per gallon, distance traveled. The key and most significant win for us is in reroutes and what that means is that we take a look at the existing routes from an existing facility and we reroute the fleet to essentially make -- to make sure that we are doing it in the most efficient manner, taking into consideration the fact that there are customers that have demands for delivery times, etc.

We have done that rerouting in a couple of facilities, two or three facilities. It is a very big project, takes a long time. So we still -- most of our upside is in continued reroutes. All of the upside related to fleet acquisition, the way we manage the fleet and the driver force and the metrics have already been completed. But still lots of room as it relates to rerouting our fleet and that is probably a two-year project.

Okay. And does the rerouting -- can that happen independently of what happens from the WM implementation or do they sort of (inaudible)? (multiple speakers)?

Yes. Oh, yes. Yes, absolutely.

Okay, great. Thank you.

Eric Larson, EJ Larson Research Group.

Yes, thanks. I am sorry, guys. Thanks for taking the follow-up call. I have just one other follow-up. Your divestiture, expenditures and your -- your divestiture and onboarding expenses one-times this year you've said is a range of $6.5 million to $7 million and you are at $6.8 million year-to-date, I am assuming that you won't have a lot of expenses in the back half or is there something in there that I am missing?

No, that is accurate, Eric. I mean we left a little bit of room on the range to the extent that there are any late expenses that come in or if there is any other folks that maybe haven't yet left the Company and it could go down as we true up on some of the accruals that we made during the first half. I mean if you notice for this quarter, it was -- I think it was just around $100,000 to the positive, again, just reflecting some true-up of estimates.

Okay, thanks for the clarification.

Thank you. There are no further questions at this time. I will turn it back over to management for any closing remarks.

Thanks. Thanks again for participating in our call to review our second-quarter and first-half results. Remember, eat more specialty and organic foods. Thanks and have a great day.

Ladies and gentlemen, this does conclude the conference call. If you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 and enter in the access code of 4515575. Thank you for your participation. You may now disconnect.