Well, that is in the marketplace right now. It is running, and it is directly comparative advertising to canned vegetables. And it is focused on delivering a superior relative value message because while it might be tempting to trade down to a canned vegetable in the current environment, the trade-off on quality is simply not worth that trade down, and you end up actually in a worse value proposition. So that’s an example of where we’re thinking about the competitive set more broadly than what’s immediately to the left or right of our products in any given section, and we’re thinking about where consumers might go elsewhere, and really getting after that in a very targeted hard-hitting way with a focus on quality and superior relative value.
Nik Modi: Excellent, very helpful. Thank you.
Sean Connolly: Thanks.
Operator: The next question comes from Max Gumport of BNP Paribas. Please go ahead.
Max Gumport: Hi. Thanks for the question. Turning back to gross margins, so a year ago, you were really the first packaged food company to begin to sunset the inflation super cycle and start to post sizable gross margin expansion. But with price mix turning negative now, partly due to the increased trade investment, it seems like productivity is now fighting against inflation, absorption and the negative price mix to hold up gross margin. Are these trends still in line with the mechanical nature of how these inflationary cycles typically have played out in the past? Or are there nuances starting to develop this time around? Thanks.
Sean Connolly: Well, Max, I’ll kick it off and then flip it to Dave. All the mechanical rep stuff should work the way it always does unless there is something new going on with the consumer. And what we saw right after Easter was that something new did start emerging with the consumer as they started making some of these behavior shifts. So that dynamic is not assumed in the typical mechanics of a wrap, right? So that’s why – and by the way, as soon as that dynamic begins to either be embedded in the base or just improving the outright, then the mechanics of a typical wrap go right back to what they would always be. So that’s why we’ve been focused on these volume trends because right through last quarter, when you looked at the group, you didn’t see the bend when you looked across 15 weeks, 13 weeks, five weeks.
Now, particularly for us, you’ve seen that bend. And that bend is getting pretty close to being kind of embedded in the base. And once it does, then you’re set up to be back on algorithm, so to speak. Dave, do you want to add anything to that?
Dave Marberger: Yes. So if you just look at the guidance and you kind of say, okay, where are we going to land? We guided to operating margin of 15.6%. In that is gross margin, and gross margin is going to come in pretty close to where it landed in fiscal 2023. So you look at that and you say, okay, we kept gross margin flat to prior year when we’ve wrapped on pricing, our sales are going to be down for the year based on our guidance, and we’ve had a pretty significant impact from negative absorption, right, because volumes were down all of last year and they’re down first half of this year. So being in manufacturing when you start to get your volumes more stable and actually start inflecting them to be positive, that negative absorption headwind goes away.
So the focus now is we keep gross margins flat this year, we’re increasing our investment, which gets our total investment when we finish this year back to more normalized trade levels. So we’re going to have a business where the margins are consistent with last year, our investments back to where it was, and we have a lot of negative absorption that’s in our base. So in fiscal 2025, we can get back to growth. We have some opportunities to leverage our cost base. We have an investment base that’s where it should be, and it sets us up well for fiscal 2025. So there’s a lot of things bouncing around, but when you copter up and you just look at where we’re going to finish the year, that’s how I think about it.
Max Gumport: Great. And then turning to the investments, it’s good to hear about the favorable response you saw in the second quarter and what that means for your increased investment in the second half. I’m just curious, are you expecting that investment to help category volumes or if other companies are seeing the same response that you’re seeing, are we really just talking about a share fight and doesn’t really improve category volumes. Thanks. I’ll leave it there.
Dave Marberger: Yes I – really interesting question. Basically, what we’re saying is that, yes, the consumer is still deploying some value-seeking tactics to stretch their balance sheet, and that has had some impact on how they prioritized categories. And not every category is equal there, Max, in terms of what we’ve seen in the category. So we’ve seen tactics like this from consumers before, and they tend to serve their purpose over a short horizon and then they tend to disappear. But interestingly, even in some of the categories that remain softer than usual, we are seeing volume malleability via investments that drive share. But over time, frankly, we will take what the field gives us in the moment, whether that’s improved volumes through share gains or improved volumes through improving category momentum. I think we’re going to see both going forward.
Max Gumport: Great. Thanks very much.
Operator: The next question comes from Chris Carey of Wells Fargo. Please go ahead.
Chris Carey: Hi, good morning.
Sean Connolly: Hi, good morning.
Chris Carey: So clearly, investment and promotions are topics that have been well discussed on this call rightly so. I think for me, the question on that is just – and you’ve given a lot of great detail. The question is really the step-up in investment that you expect in the back half of the year, which sounds quite strong. Are you seeing the lift in your volumes so far this quarter to give you the confidence on sequentially improving volumes into fiscal Q3 and to get into fiscal Q4 or is it more kind of conceptual? You’ve seen the uplift that these investments have had on certain of your businesses, which is giving you confidence in the back half. So more – are you seeing it versus the confidence piece if that makes sense?
