Dave Ciesinski: So, Tom, maybe you can talk about the quarter, I can talk more broadly about the outlook and how we’re thinking about it.
Tom Pigott: Sure. So as we look at the margin growth we experienced in the quarter, it was fairly evenly split, maybe slightly more driven by PNOC, but the cost savings were a key driver as well. And then, I think — I’ll let Dave talk to the forward outlook.
Dave Ciesinski: Yes. So as we look into the future, Andrew, we’re focusing in a couple of areas. We continue to believe that there are big opportunities around automation. For those of you that have been following the stock for a while, you know that we went to a period of years where we invested behind the front of line and back of line automation on our dressing business. And we’re in a season today where we’re investing in the automation of our bakery business. So that’s going to be an important contributor really for the next year and probably then some. As we move beyond other areas where we believe there are opportunities, we continue to be focused on primary and secondary packaging where we think there are opportunities to drive savings as well.
And then I think leveraging the power of SAP, which is fortunately sort of moving a little bit farther into the rear view mirror. But SAP affords us with a lot of information to seek out cost savings opportunities in areas such as reducing waste and being more effective at utilizing our materials, but also looking at things like unplanned downtime and what we need to do to make sure that our plants are running more efficiently. So if you put those together, the combination of automation, the better utilization of resources and the better utilization of labor and plants, we continue to believe that really there’s a multi-year opportunity for us to go after cost savings in the business.
Andrew Wolf: Okay, thanks, Dave. And just a quick — I may have missed this, did you quantify the impact of the Easter shift, what it was for the quarter? And I assume it’s going to be a bit of a drag for the fourth quarter then.
Tom Pigott: So for this fiscal, we had — in the prior year fiscal all the shipments in this quarter. And I think as we look at — as you look at the consumption, some of the consumption last year was in Q4 where we got all of it in Q3 this year. So from a shipment standpoint, we were neutral.
Andrew Wolf: Okay.
Dave Ciesinski: As you know, it was the one we shipped. So it just wasn’t going to be that big of a difference in terms of shipments or on the consumption side.
Andrew Wolf: Yes. Okay, great. Thank you.
Dave Ciesinski: You’re welcome.
Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Jim Salera with Stephens. Your line is open.
Jim Salera: Hi, guys. Good morning. Thanks for taking our question.
Dave Ciesinski: Good morning, Jim.
Tom Pigott: Hi, Jim.
Jim Salera: I wanted to drill down a little bit more on the food service volume. I think all encouraged to see it up given the backdrop of the restaurant. Can you just disaggregate how much of that is your exposure to best-in-class operators like Chick-fil-A versus maybe some share gains where you’re servicing larger amounts of some of your existing customers?
Dave Ciesinski: Jim, I try to think how I would answer that question. Maybe I’ll start by setting the context. About 75% of our business are large national chain restaurant accounts. And we enjoyed growth in the period both on the branded side, which is our own products, where we are picking up share. This would be Marzetti items sold up and down the street. As we look at what’s happening on the restaurant side, what I can tell you is that, we continue to believe that we have a favorable portfolio of customers that’s allowing us to grow better than the average today. That’s what’s really driving it. As far as sort of an account by account basis, are we picking up share, are we not? There really haven’t been many changes there.
And I think really the bigger point that we’re seeing, and then Jim, this is an important way to think about it going forward is that, we continue to believe that chicken is having its moment. If you look at the mix of growth that’s happening in QSR today, it’s really focused around concepts that are selling chicken and whether it’s Chick-fil-A which has been doing it enormously well since 1982 or any one of a number of other operators. That seems to be where the growth is. If you sort of pull apart and we have the data, we looked at sort of the share of pizza and burgers and chicken. Even if you look 52-week, 12-week, and 4-week, chicken continues to drive share even within the year. In one of your reports, you did a nice job of pointing out the long-term trends towards chicken.
We’re seeing that even in a little bit more of a challenging environment continuing to play out. And we believe that we sit in a good spot. We have the right capabilities and those are capabilities we want to continue to leverage with those operators so they can offer consumer relevant items to their customers.
Jim Salera: Great, that’s helpful. And then I think as it ties the environment and restaurants back to the licensed sauce business, given the, let’s say, heightened uncertainty around the restaurant piece of the business, do you find that your partners or potential partners are much more receptive to either new licensing offerings or expanding their license portfolio given the reliability of that royalty check that they get in helping diversify some of their revenue streams given the uncertainty on the traffic side?
Dave Ciesinski: Well, I think, as much as I’d like to tell you that was true, I don’t know if I can necessarily say it. Because I think that our partners take a strategic view of decisions like this. So rather than focusing on the near-end pressure, they’re going to take a longer-term view and figure out is this going to help them diversify their business and grow their revenue? And what we’ve seen is, pretty consistently, the answer to that is yes. I can’t see — tell you that we’ve seen an uptick on that. What I can tell you is, what usually happens in this season and we’ve all been doing it a while here is, as traffic starts to slow down the operators come together. And it’s usually the Chief Marketing Officers, the head of menu development, maybe the Head of the Concept, and others in the business.
And they work together to figure out ideas, menu ideas, that they can talk about in advertising to drive traffic in stores. And I think importantly for us, we’re seeing that activity spin up. And we believe that a newer store benefit. We’re seeing even concepts that haven’t played in chicken start to talk more about chicken, like wings on their menu. And wings, of course, need sauces. So as we think about our overall algorithm, and even our work with our licensed partners, I think the biggest driver to the food service business is going to be activity around new sauces for new menu items. Licensing, we continue to be bullish that it’s a big opportunity for us.
Jim Salera: Great. Appreciate all the color guys. I’ll hop back in the queue.
Dave Ciesinski: Thank you, Jim.
Operator: Thank you. Please stand by for our next question. Our next question comes from a line of Todd Brooks with The Benchmark Company. Your line is open.
Todd Brooks: Hey, good morning, everyone.
Dave Ciesinski: Hi, Todd.
Todd Brooks: Just a couple of follow-up questions. Digging in on licensing, it looks like kind of the capability and the bandwidth to introduce multiple products and support them has expanded. I think this will be in conjunction with our views in the two recent launches, kind of three launches in a year, year and a half window. Bandwidth to handle further new partners as you’re supporting two rollouts simultaneously now. And then the second question that I have is on the Horse Cave side. You hinted at a potential use of capital maybe being a brownfield facility or figuring out what’s next capacity wise with the growth that you’ve seen in your business, what’s kind of the remaining kind of timeframe until Horse Cave starts to get full again from a capacity standpoint?
Dave Ciesinski: Yes. So — Tom, do you want to talk about maybe if you want to on Horse Cave first?
Tom Pigott: Yes. So, from a capacity standpoint, on the food service side, we’re running it full out. Now, what I would tell you is that, we are — what we have today, we are going to continue to focus on improving [OEE] (ph) and maybe adding some manufacturing to it on the food service side. On the retail side, we still have capacity to grow bottles. So we feel good about where we stand with Horse Cave and certainly we’re focused on — there’s been a lot of change in Horse Cave with both SAP implementation and the expansion, and we think we can continue to drive more production out of that facility into the future. In terms of longer term, I think it’s just prudent for us to begin to think about the next phase given the tailwinds the business has. As Dave mentioned certainly we’re in a sweet spot from consumer standpoint and no specific plans at this stage, but we’re starting a process on that front. I don’t know, Dave, if you have…
Dave Ciesinski: No, I’ll go back, Todd, the first part of your question was, how are we in terms of able to handle multiple partners? And I would tell you that we would have the capacity to take on incremental partners and products. I mean, the nature of the Horse Cave factory is that, we make lots of different sauces there. So we would certainly have the manufacturing and the sourcing capability to do that. And one of the areas where we think we’re extremely strong in execution is in our sales team, both inside sales that handles price points and trade and outside sales that are calling on customers. As we’ve added additional items and additional partners, it’s really just giving us more and more scale. We’re at a point now where we’re having some of these big customers and come and meet with us here in Columbus because they view us as innovators and people driving excitement in these categories.
