As inflation moderates through the year, we expect that dynamic to normalize and then we expect to be able to utilize the productivity more incrementally to drive that kind of moderate margin improvement that we’re expecting on meals and beverage for the year. So it is a little bit of a dynamic of Meals & Beverage needing to be a little bit more balanced. I’m not talking about spending back on promo. I’m simply talking about as we talked previously, through our waves of pricing, how to make sure some of our categories like broth and condensed soup, where we know we’re going to be a little bit more value-driven how to manage that. And although that’s provided a little bit of short-term pressure, we expect that as that normalizes in ’24 and productivity is more incremental to the business, you’ll start to see that pivot back and start to see margin recovery there that I know we’re expecting and I think will be very helpful for us as you think about the algorithm and the phasing of ’24.
Anything I missed?
Michael Lavery: Okay. Great. Thanks so much.
Mark Clouse: Yes. Okay. Great.
Operator: Our next question comes from the line of Jason English from Goldman Sachs. Your line is open.
Jason English: Hi. Good morning, folks. Thanks for fit me in.
Mark Clouse: Hi, Jason.
Jason English: Congrats on the margin progression on Snacks. It’s good to see.
Mark Clouse: Thank you.
Jason English: But sticking on margins and turning to the other side, Meals & Beverages. Obviously, some challenges there, particularly in the back half of the year. Based on normal seasonality, it suggests that it looks like you’re probably going to enter the year with margins down a couple of 100 basis points in the first quarter and maybe down up to 100 basis points or so in the second quarter. To get to margins up for the full year, if I’m right on that, and please confirm or deny, it implies material margin expansion in the back half of the year. So is that cadence roughly in line with your expectations? And if so, what drives that ramp in the back half?
Mark Clouse: Yes. I think a big part of it, Jason, is that we have definitely seen — let’s take Q4 as an example on Meals & Beverages, and we talked a little bit about this in Q3 as we kind of foreshadowed the fourth quarter. And although fairly consistent to expectations, you have about a third of the impact on Meals & Beverage that is a mix dynamic that we would expect to reverse in the second half. So, as you see a more dramatic contribution from foodservice and some other lower margin segments that are in the business as well as, as you look at where some of the pressure has been relative to the consumer dynamics I talked about, there’s no question that’s been a little bit more significant on our soup business, which as you know, has a very good margin architecture.
So, mix is a big part of what that dynamic or that swing will be. The other contributor the other major contribution to the margin headwind has been this dynamic that we really do only expect to see in Q4 and Q1, where we knew that pricing was going to lag a little bit of the tail end of inflation as we made some choices relative to more pricing that we did not take in places like broth and a little bit to some degree in condensed soup. As the inflation numbers normalize throughout the balance of the year that is going to be a marked difference in margin impact. And then with the significance of a lot of productivity that we’ve been putting in place, recognizing some of the structural inflation and costs that I talked about will really be landing in the back half of the year.
So, I do expect to see outsized margin recovery in the back half. And I think although you’re phasing does illustrate that, I think it’s fairly accurate to how we see the year unfolding. But I think the drivers that are inherent in that are able to we can pinpoint those. And for the most part, they’re not necessarily executionally-driven or even dramatically related to kind of hope and prayers for the environment. They’re pretty mechanical in nature and is why we felt confident in building a profile that has a little bit more of a back-weighted margin improvement as it relates to Meals & Beverage. So, hopefully, that helps give you at least the variables that we’re looking at.
Jason English: And that’s super helpful. But I’m still a little bit confused. So maybe you can unpack that mix component for me a little bit more because my understanding, my thought was that this was more of a normalization, that foodservice was recovering and now we’re back to more normal mix. You’re saying it’s abnormal. It’s going to reverse. So, what is abnormally going to reverse?
Mark Clouse: Yes, I think you’ve got the dual impact of greater pressure on higher margin portions of your business while also having a much higher growth contribution from foodservice. I think both of those variables flip in the back half of the year. I think you’ll see a stronger relative performance out of our Soup business and higher-margin portions of our business, while also having, as you point out, a more normalized contribution from foodservice. So, I do think it is a little outsized right now as it relates to what we’re modeling for the back half of the year.
Jason English: Predicate on pretty meaningful volume growth in Soup in the back half of the year, am I understanding that correctly?
Mark Clouse: I think returning to volume growth. Meaningful, I think, is always a little bit of a — for Soup, yes, I think it will be meaningful growth.
Operator: Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today’s conference call. We thank you for your participation. And you may now disconnect.
