But we don’t share any of the information in terms of number of acres but have taken into consideration what we’re seeing from restaurant traffic trends.
Robert Moskow: Okay. And maybe a follow-up to that. Just mathematically, I think you said traffic is kind of flattish at restaurants and attachment rates are still pretty good. How does that translate to a mid-single-digit volume decline? If I just qualitatively put those two numbers together, I would think volume would have held up a little bit better.
Bernadette Madarieta: Yes. I think from a volume perspective, our QSRs, we are seeing sequential declines in volume and that’s what’s driving a lot of the volume decreases that you’re seeing.
Robert Moskow: Sequential declines?
Bernadette Madarieta: Yes.
Robert Moskow: Yes. Is that a year-over-year decline also? Or is it kind of…
Bernadette Madarieta: Yes, it is. Absolutely, it’s a year-over-year as well as sequential. We’ve continued to see QSR traffic decline. When we were saying about flat that was more in the Foodservice space.
Robert Moskow: Foodservice. Okay, separate. Got it.
Operator: We’ll go next to Rob Dickerson with Jefferies.
Rob Dickerson: Great. Just a couple of quick ones for me. I guess, kind of more broadly speaking, kind of given the, I guess, shift in, let’s say, at least the near-term traffic outlook. Is there anything broadly speaking, the kind of changes kind of everything you walked through at the Investor Day in October just regarding kind of the long-term outlook, like long-term outlook like based with 2% to 4%, you are saying, you think temporary — I’m not sure kind of how temporary that is. But then there was also an implied margin uptick each year over the next few years. Just trying to gauge kind of all the moving pieces as we think longer term.
Tom Werner: Yes, Rob, as I sit here right now, yes, we’ve been talking about softer traffic and that’s been in the market for a while. I don’t have any — as I sit here right now, our long-term algorithm, I’m confident in. And if this is prolonged, we have certain things that we can activate to adjust the company and the footprint. But right now, we’ve made some investment decisions 2 years ago based on what we believe the category is going to continue to do. I believe it’s going to continue to grow, even though — we’ve got a softer period. And so I don’t have any reason to believe that over the long term, we need to adjust our algorithm at this point.
Rob Dickerson: Got it. Super. That’s clear. And then just very quickly, I also think you had stated back in October, right, increasing the dividend over time but then potentially some incremental repurchase activity outside of employee option exercises. So I’m just curious, I mean we can all see clearly, stock looks a little pressured today. I’m trying to gauge your appetite on buyback potential as you think forward to the next 12 months.
Tom Werner: Yes. So we’re committed to the dividend. And as we evaluate our CapEx, we’ll certainly take a look at our share buyback as we always do. And we’ll stay committed to our dividend over time. And so yes, absolutely, based on what’s going on today with our equity price, we’re going to evaluate that.
Operator: We’ll go next to Matt Smith with Stifel.
Matt Smith: When you look at the slowdown in restaurant traffic, one of the factors have been the level of pricing. We’ve continued to see away from home inflation moving higher. So a couple of questions here. Any thoughts on what’s needed to firm traffic up? Is that consumers adjusting to inflation? Or would you expect operators to lean more heavily into value offerings and promotions related to that? One of the considerations in the past, you’ve talked about in periods of economic softness and pressure on QSRs, fry performance has been fairly resilient benefiting from value menus featuring fries heavily. Are you seeing that level of activity today?
Tom Werner: As we sit here today, I think there’s 2 things. I think the consumers has to adjust to the menu pricing in terms of the inflation. I believe we’re going to start seeing more menu value meal offerings going forward to drive traffic trends. That’s been typically the case in the past when things have slowed down a bit. So I think it’s a combination of both going forward but it’s going to take some time.
Matt Smith: And then just a follow-up question on potato cost. It sounds like they’re expected to be down low single digits in North America for the 2024 crop. That’s one of the few instances where potato costs are actually down year-over-year. Is the pressure from the potential of lower pricing to your customers, is that offset by higher input costs across the rest of your basket? Or would you expect some pressure on your pricing going forward from lower potato costs?
Tom Werner: Yes. So just to reset, even though it’s down like we stated 2% to 3%. If you go back and stack it up the last 2 years, it’s been up significantly. And when — we’re in the middle of rolling up our entire input basket right now for ’25, as we’ve stated, there are commodity inflationary pressures in other areas of our input basket. So while our inflation, we don’t expect it to be double digits like it has been in the last 2 to 3 years. We’re still going to be dealing with some inflation at this point. I’m not going to give you a specific number, we’ll talk about that in July because we’re in the middle of kind of rolling up our ’25 operating plan right now.
Operator: we’ll move next to Marc Torrente with Wells Fargo Securities.
Marc Torrente: You touched on sort of the net — on the ERP process. The recent implementation was a heavy lift. It sounds as though you are more confident in ability to limit the transition impact for the next steps. Maybe how are those next steps different and some of the learnings you have gained from the recent transition?
Bernadette Madarieta: Yes, sure. So some of the next steps are different in that we’re able to go live at one plant and isolate and therefore, limiting the impact, whereas with all of the central systems that were affecting customer ordering, inventory management and others this time that was more difficult. I think that as we’ve shared from an inventory visibility perspective and lessons learned, there’s always more things that you’re going to be able to do in terms of change management and other things. And those are the things that we will continue to focus on as we move forward into our plant phases.
Marc Torrente: Okay. And then in the third quarter due to the transition, as fulfillment normalizes, how should we think about, I guess, price/mix trends flowing through the next several quarters, considering both wraparound pricing, potentially more muted new pricing and then actual underlying mix? And how much of a contributor will be that underlying mix going forward?
Bernadette Madarieta: Yes. So as it relates to mix, we talked about the impact in fourth quarter and coming off of the ERP transition. As we go to fiscal ’25, we will continue to see more favorable mix impact as we bring on our new capacity in American Falls, for example, where we are able to offer more premium products. So those are some of the things that you’ll see by way of changes in mix. And then next year, we won’t be lapping some of those lower-margin exits that we had made in fiscal ’23.
Operator: We’ll go next to Max Gumport with BNP Paribas.
Max Gumport: Turning back to the comments on slower restaurant traffic trends and your expectation that they’ll be temporary in nature. I’m just curious what type of visibility you have right now that’s giving you the confidence in seeing some improvement in restaurant trends in the horizon. I know you talked about the impact of the higher menu prices and how consumers will adjust to that eventually. But just curious what’s impacting that confidence? And any sort of sense of time line for how we can see it play out?
Tom Werner: Yes. So number one, we got the fry attachment rate has stayed pretty consistent. It’s been above historical levels for the past 2, 3 years. So that’s one thing. The other thing that we monitor continually is restaurant traffic every month that we look at and while it’s been slowing recently, as we’ve discussed on the call, we believe based on kind of how we model some things that we expect that to — the consumer to get adjusted to the inflationary menu pricing and we expect that to return here going forward. So it’s not a perfect, linear assumption that we’re making but overtime we think it’s going to return back to in-store restaurant business.
Bernadette Madarieta: Yes. And the only other thing that I’d comment on that, we’ve talked a lot about in the past is related to French fries and the fact that they are one of the highest margin items on restaurant menus. And we will likely then continue to see pushing towards those types of products by the restaurants.
Max Gumport: Got it. And then turning back to the sort of the backfilling of the contracts that you exit in ’23, it feels like it’s been pushed off a bit, right, given the ERP transition. But I’m just curious because right now, I feel like you’re going to be trying to maintain relationships with customers that were impacted by the ERP transition. So how far that has your ability to start to make progress on backfilling some of those contracts you exited with higher margin business has been pushed, is that more of a middle of ’25-type event now? I’ll leave it there.
Tom Werner: Yes. So we’re on the front end of a lot of our contracting with customers right now, as I stated earlier and we’ve got a plan put together as we start thinking about FY ’25 and targeted customers and rebuilding the relationships with some of the customers that we impacted, unfortunately, with our ERP situation. And it’s going to take the next several months to work through all that. But I expect as our team will recapture that business will be targeted in our approach to that. And so it’s going to take some time to rebuild those relationships. And we’re going to be mindful as we always are at this time of year as we talk to our customers that we’re contracting with on the opportunities that we feel we need to target and go after.
Operator: We’ll go next to William Reuter with Bank of America.
William Reuter: I just have two. The first is, at this point, are there any orders that continue to be delayed? I just wanted to put a finer point on that.
Bernadette Madarieta: We’re back to our previous order fulfillment rates.
William Reuter: Okay. Good to hear. And then the second, given your early conversations with customers and the fact that you are in the midst of contract negotiations, have you gotten any sense that customers are leaning on you more than they would have in the past based upon the recent challenges that existed?
Tom Werner: No, I don’t — we don’t have any — from a customer standpoint, we were communicating well with them. With the challenges we had, a lot of our bigger customers, we made sure they understood all the things we’re going through. So generally, they didn’t like it but they understood. But there’s no fallout from a lot of our bigger customers as we went through this. And we did our best to protect everybody as we could.
