So, these are some of the things that we’ve spoken to I think from not only the fourth quarter call but also at CAGNY and I would just reiterate them here. The collection or the integration of all of that together we believe is driving the right level of performance on the business overall.
Adam Samuelson : Okay, that’s helpful. And then maybe just to follow up from Mike, just the comments on the second quarter and the gross margin that will be up modestly year-over-year. I guess I’m just trying to make sense of from a – should we be thinking about SG&A percent of sales similar to the first quarter? It doesn’t seem like your top line, maybe a little bit of setback in Flavor Solutions sequentially in terms of the top line. But it doesn’t seem like you’re talking about a big setback probably in terms of the overall company sales. I know last year was a tougher comp on price cost, but I guess I’m trying to just make sure I understand why it would seem like the profit growth, if not the profit dollars themselves are decelerating.
Mike Smith: I think, Adam, maybe think about it this way. I mean, second quarter is kind of an inflection point for us. The pricing which for the first quarter was about 2.7% and think about it for the year is going to be at 1%. So, second, third, and fourth quarters is coming down. While volume is turning positive and we’re getting sequentially improvements, in that second quarter you don’t have as much cover for pricing and your volume while it’s improving isn’t to the level it is in the second half. So that is – in second quarter, as I said in the remarks, we’re activating some of our price cap management activities more than in the first quarter. So that puts a little pressure on the sales line and the profit line. But we’re confident those investments, including increased A&P, which we had in the first quarter but also in the second quarter too, will contribute to driving sequential volume improvement in both Q2 but in the second half.
So, I think what you’re getting a little bit is a bit of a – like I said, it’s an inflection point before the volume growth, which we’ll talk about in the second half. So, it puts a little pressure on margins. We’re still having positive margin improvement versus last year, but if you think about last year, that was like the sweet spot of when our pricings were really going in, overcoming the cost impacts. We talked about that last second quarter. So that was – at that point our margins were up 300 basis points from the prior year, I think it was. But we still see, again back to the first half, second half really good margin improvement in the second half for the first half. The first half is about investments. We benefited in the first quarter also, the wrap GOE programs, things like that too, which did help the first quarter, but a lot of moving parts in the second.
That’s why we tried to give you a little bit of summary in the script.
Adam Samuelson : The color is appreciated. I’ll pass it on. Thank you.
Operator: Thank you. Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi. Just a couple of follow-ups. Thanks. Can you remind us again what percent of the portfolio in the U.S. are you executing this price gap strategy? I think you said it’s 50%? And maybe a little more color on what segments you’re working on right now and what you’re learning from that. Secondarily, I think you mentioned some dollar trial sizes in hot sauces. I haven’t seen that. Can you explain a little bit why you think that’s incremental to the category? Is your competition doing it? And if so, are they gaining any share as a result, or is it really just helping everybody? Thanks.
Brendan Foley: Thanks, Rob. So, let me address – I just want to make sure I don’t forget your second question as I address yours. With regard to price gap management, I mean I think I just would go back to confirming what we’ve said also at CAGNY, is that that program and those efforts, which is quite targeted on a skew-by-skew basis, represents less than 15% of our Americas…
Robert Moskow: 15%
Mike Smith: Yeah, 15%, its 15 not 50.
Robert Moskow: I thought you maybe said 50%, and it’s 15%.
Brendan Foley: And it’s really being applied to targeted parts of our spices and seasonings category and recipe mixes. So, we’re also taking price gap management efforts selectively across other regions. I would say EMEA is an example of that. But this is just part of, I think, good tactical blocking and tackling on the parts of our portfolio where we think maybe a price point just simply isn’t at a place where it could be successful. So, that’s the color I would add to that. Now, specifically on your question on hot sauce, the background I would first provide, hey, this is an attractive category. There’s always, particularly more so than most categories, a lot of new competition always entering in the category. So, this is something that we live and operate with all the time.
We do have underlying strength in our base business on hot sauce and really healthy consumer loyalty. Our plans remain pretty consistent. We’re fueling a lot of growth through increasing both Cholula and Frank’s brand marketing. In fact, Frank’s is going to be activated all 12 months of the year in terms of being on air, and that’s the first time we’re doing that. And to really tap into the growth that we’ve seen in this segment, and we are also expanding distribution. But our underlying trends are pretty good. Now, more recently, particularly in like the end of the fourth quarter, the beginning of the first quarter, we’ve seen retailers push the concept of trial sizes, like at $1 price point. And it’s created, obviously, a lot of consumer value when you have just a really low opening price point of $1 for something that’s like an ounce or less of product.
