Brian Holland: Thanks. David thanks for the color. That’s helpful. Just to put a button on that. And as we look towards the second half of the year, the PNOC spread tightening is more about pricing saving and maybe more trade. And assuming just continued sort of stable commodity prices is that the directionally the way we’re looking at it?
Tom Pigott: Yeah. I think that’s directionally the way we’re looking at it. Yeah.
Brian Holland: Okay. Great. And then the SG&A was up more than I was forecasting. It was a source of deleverage. And I know you called out consumer investment. So maybe Dave, use this opportunity twofold. One, this state of the consumer in the retail channel and behavior of the retailers what you’re seeing there as far as and I know you did mention some of this earlier with some of the pricing and the trade that you’re doing. But is the expectation in the second half of the year that in the SG&A line, we need to increase? I know something you teased last quarter potentially something where you would have to step up on. Is that — did that come to fruition in Q2? And should we assume that that maintains maybe a source of deleverage in the second half of the year consumer investment?
Dave Ciesinski: Sure. So the consumer investment if you remember, last year we were light in the first half heavy in the back half. This year we told you, when we started we were going to be normalizing that spends across both halfs, right? So what I would expect on the consumer side is that, our spending will not go up period-on-period because it was actually elevated last year, right? We don’t have the intention of pulling it back. But if you’re looking at just consumer support below the line, we don’t have intentions right now of elevating that. So when you look at our total spending on a year you’re going to see us elevate it because you heavied up a little bit earlier on.
Brian Holland: Perfect. I’ll leave it there. Thank you.
Dave Ciesinski: Okay. Great. Thanks, Brian.
Operator: Thank you. One moment for our next question. And your next question comes from Andrew Wolf of CL King.
Andrew Wolf: Thank you. Good morning and congratulations as well. I’ll say maybe just soybean oil on my face or something. But it’s all good.
Dave Ciesinski: It’s a big commodity for the whole food complex.
Andrew Wolf: No. On the PNOC to start with at least. Just on the 360 basis point expansion in gross margin year-over-year.
Dave Ciesinski: Correct.
Andrew Wolf: Either give us the actual size or maybe a sense of the size like PNOC, like how much was would you allocate to PNOC versus some of the value engineering that you spoke of such as the downsizing the units P&L, et cetera.
Tom Pigott: Yeah. So the so the PNOC was a little over 200 basis points and the cost savings initiative was a little over 100 basis points. That’s kind of how it played through the P&L.
Andrew Wolf: Got it. And now in that 100 basis points for the everything for the value engineering and all the Horse Cave running much better, is that fairly sustainable for a while? Because I mean there’s a lot of little things in there whereas the PNOC is just sort of market determined more or less. Well, as you talk about the total PNOC coming down because of the market and just the way the industry is, and what about the second — even though it’s 100 bps plus how much — how sustainable do you see value engineering and other cost savings?
Dave Ciesinski: Yeah. So, I think what we’ve told you in the rest of covering analysts is that, we were shooting for about $20 million of cost out every single year. And I think that remains true. How we get that from period-to-period is going to evolve. This time around was a little heavier on procurement and logistics, where we were able to use some of the softness that’s out there for line haul on ambient and temperature-controlled trailers to generate some sources of savings. We did have some benefit in productivity, but it was lighter — manufacturing productivity, excuse me. As we sort of look going forward I think what you’re probably likely to see in the out-years out-periods is, things like logistics we’re running business.
We speak now to capitalize on the favorable rates and we’ll lock in those savings, and we’ll look to source more savings coming from the manufacturing side and value engineering. That downside an initiative that we illustrated is a good example of one where we felt like strategically was not going to diminish the consumer experience in any way. And it was just a prudent move to put in place to get the margins a little bit closer to where they had been historically. So that gives you a sense I hope.
Andrew Wolf: Absolutely. And the other thing, I wanted to ask about PNOC regards the — it’s going to be less of a contribution going forward. So I just want to make sure for us modeling outside of the company. When you’re saying that are you thinking sequentially? Or are you saying the year-over-year contribution because the third quarter —
Tom Pigott: Year-over-year.
Andrew Wolf: So the third quarter is slower quarter — slower quarter than the second quarter. So, you — I mean, we can make better introduction out of that.
Tom Pigott: Yeah, we’re doing it year-over-year.
Dave Ciesinski: And Andrew, I think the watch out just to make sure that we remain aligned is that, if you look at the last probably 18 months our PNOC has been driven by a capital P PNOC with pricing, fuel service pricing that was marking to market and retail pricing. Now, as we look forward that’s — the P is going to go small P on us. That’s what we’re talking about. What remains to be seen is what’s going to happen on these commodities, right? Because one of the unique things about our company is we took on two years of 20% inflation. And I think we told you guys it was $160 million a year. If you look at the deflation that we’ve seen it’s still a very, very small component of the overall inflation, we saw last couple of years.
So, as if commodities continues to deflate order in basis on soybean oil, we’d see an important component because of our pasta and breads. And then transportation rates remain where they are. We didn’t even get into the cost of diesel fuel which is up, I don’t know $0.70, $0.75 versus where it was last year. As long as, as we continue to see room for those commodities to run, we could see commodity deflation. So, how we get PNOC will be different than it’s been in the past. But we don’t expect to see pricing at this point in time. That’s one thing our retailers wouldn’t want to hear from us about is, if we came to the door and said, we’d like to take a price increase.
Andrew Wolf: Okay. That’s understood. And if I could just ask a couple of volume questions before I stop asking questions. So first in the retail there was like over a 300 basis point swing. When you take out the impact from some discontinued private label and the down weighting. And also the same question as before can you kind of allocate between the two? And I guess give us a sense of what the outlook is there good for profits, but not obviously. And I guess what it’s saying is that the tonnage is kind of distorted because the units are a lot better when you down weight.
Dave Ciesinski: Yes. If you look at the units it’s a different — it’s a slightly different picture. We’re but we’re still seeing a deceleration on units. But Dale why don’t you go ahead?
Dale Ganobsik: Yes. So Andrew the down weighting was about two-thirds of it and then the other one-third was the private label.
Andrew Wolf: Okay. Got it. And I just want to underline something. You mentioned that just Sister Schubert was kind of following the category so they’re not a much competitive risk. I mean is that sort of what the industry is up to right now? It would make sense in this environment. But is this down weighing pretty widespread and you don’t feel you’re going to be leading yourselves into like a competitive disadvantage?
