Ken Goldman: Hi. Thank you. I wasn’t sure if I heard you correctly, and maybe you said this, maybe you didn’t. But you said that sales growth will be driven primarily by pricing. Does this mean you expect volumes for the year in €˜23 to be positive? And I guess, along those lines, I think you mentioned that you expect elasticity to not necessarily worsen in €˜23 versus €˜22? I think if I heard you right, you said it will remain kind of at today’s level, just curious why that is given that the consumer environment does seem to be eroding a small amount?
Lawrence Kurzius: Start with the last part of it, Ken. We’ve seen some moderation of elasticity as we’ve gone through the year. It looks like peak elasticity was around the time when gas prices were at $5 a gallon and above for most of the country and was really not so much a reaction to our price increase, but to the general level of inflation that consumers were experiencing and the high pressure on their wallet. So our outlook for 2023 seems that the similar environment carries forward and that we’re seeing elasticity in that range. We’ve also adjusted €“ we’ve looked at €“ we’ve seen where we’ve had greater elasticity and where we’ve got less elasticity, and we’ve reflected that in our future pricing actions. So I think that we’ve really been thoughtful around the question of elasticity.
We do expect the consumer to be under pressure in 2023. I don’t care whether you call it a recession or a soft landing. Consumers on the lower end of the income spectrum, not even €“ I’m not talking about the bottom, I’m talking about the lower half. I’m certainly going to have less money and are going to be careful with their budgets. We are reflecting that in our marketing programs already, and with some of the innovation that we’ve launched. It’s not all about buying the cheapest product that consumers are looking for value, and that’s really come through clear on our proprietary research and value has many components. It is true that our sales growth is driven primarily by pricing in 2023. And at the total company level, we expect volumes to be pretty much flat.
And so that would be an improvement in the trend line, but that’s going to vary tremendously by region and a good bit of the overall volume growth is going to come from recovery in China following this we expect following this quarter where we have that tremendous COVID impact right now during Chinese New Year.
Ken Goldman: You guys missed anything there?
Mike Smith: No, I think.
Ken Goldman: Just a quick follow-up and thank you for that. On the restocking, you mentioned that perhaps you hadn’t quite recognized at the time, how large the impact was the last couple of years, totally understandable given the volatility that everyone is going through. I’m just curious if the company is doing anything to maybe slightly improve its ability to quantify those dynamics maybe in a more real-time way. So that going forward, there is just fewer surprises from year-end.
Lawrence Kurzius: That’s a great question, Ken. I’m going to pass that straight to Brendan.
Brendan Foley: Yes. Thanks, Ken, for the question. Definitely, this environment, certainly volatile, made it tougher to read. But as we think about just moving forward, it’s definitely going through, I think this period of time has allowed us to kind of refine how we look at your restocking and just the fluctuations particularly coming out of the season between consumption and shipments. This has allowed us, I think, to kind of refine our view. Overall, we definitely had a pretty disciplined approach to it is even prior to the pandemic, but I think this is refine how we look at it in the tools that we use, the analytics that we apply. So we have a lot of confidence going into this next year, particularly as we exit the first quarter that just the fluctuations that we typically would see during the holiday season between consumption and shipments.
And then on top of that, this restocking comparison, things begin to normalize. I think is our view as we come out of Q1 providing just a little bit more stability in that read.
Mike Smith: Some of that is internal to me. Our supply chain is really operating at a much higher level now than it has an investment service perspective and stability. That’s another thing that gives us better insight into our sales.
Ken Goldman: Thank you.
Operator: Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Robert Moskow: Hi, thanks. I was hoping you could break down €“ I was hoping to break down your volume forecast by Consumer versus Flavor Solutions. Because I think one of the strange dynamics of 2022 is that at a time when consumers are trying to save money, volumes were weak in Consumer, but your bonds pretty strong in Flavor Solutions. So I am wondering how you think of €˜23 and is there a risk that because the consumer environment is so volatile that it might be very tough to determine what the trade down between like foodservice and retail might be?
Lawrence Kurzius: Well, I don’t think that we are giving or providing a split between the growth rates on consumer and flavor solutions. And I will say that we would expect higher growth on flavor solutions in 2023. We have €“ if nothing else, a higher level of pricing expected in the Flavor Solutions segment, and that alone is going to drive a higher increase year-on-year. Flavor Solutions is a bit of a portfolio itself. It includes branded foodservice, where we believe that we have gained significant share in North America, in particular, in our branded foodservice business with the number of wins as we have gone through the year. We have had tremendous growth on flavors and flavor seasonings, for our flavor solutions customers in the area of snacks, performance nutrition.
The health end market, we have had a very strong unit growth through the entire pandemic and continuing through €˜22, and we have seen no end of sight on that. We have been slightly capacity constraint in that area. And we have some significant new capacity that for longer term investments that are finally coming on line in the second quarter that opens up additional capacity for us that’s both for flavor with some expansion that we have done. And at bona or spray drying capability, and in snack seasonings, where we have been in the process of converting one of our plants from some low-margin products, the ability to run a snack seasonings and that conversion is effectively coming online. We are in the trial stages right now, should be online in second quarter.
So, a bit of a longish answer there, but I hope that covered it.
