Chris Hall: So as we sit here today, first of all, we’re very pleased with our H2 2022 versus H1, when we saw a material improvement in our gross margin. As we had talked about as our pricing actions took place, which were somewhat spread across the year and our productivity efforts that had been a little bit delayed earlier in the year, really starting to take wind in the back half and into 2023. So given that we definitely see margin improvement across the first half of the year more than in the back half of the year. As a result of that, our EBITDA growth will be greater in the first half of the year than in the second half of the year. From an inflation point of view, we’ve dealt with low double digits in 2022. We do see that moderating across 2023, and right now, we’re in the €“ more of the mid single digit range on inflation.
And we believe the pricing and productivity actions that we have in flight and/or are planned on the productivity front for the balance of the year will drive that margin expansion across the year, again, more heavily weighted to the first half. But you may have seen, we did take some pricing late in the year last year. We just passed through a latest round here in February that’s in the marketplace now. So we will see some additional pricing flow through in 2023. And if you think of the totality of 2023 net sales growth, we talked about low double digit, that’ll be high single digit volume growth again and mid-single digit pricing, again, weighted more heavily to the first half of the year.
Andrew Lazar: Great, thanks very much.
Operator: Thank you. Our next question comes from the line of Peter Galbo of Bank of America. Your line is open.
Peter Galbo: Great, thanks. Good afternoon, everyone. Thanks for taking the questions.
Todd Lachman: Hey, Peter.
Peter Galbo: Chris, just to start on the EBITDA guidance for the year, I think in your prepared remarks, you may be mentioned more of an even split this year on EBITDA versus 2022. I just wanted to make sure I heard that correctly and if you can put any kind of numbers around that. And maybe just the second part to that question is, given the level of sales growth on an organic basis, I guess, I’m a little surprised that there’s not more of it flowing down to the EBITDA line. I think that that’s probably more of a ramp, as you said in some of the capabilities in marketing expense, but just anything you can do to help us on that one as well.
Chris Hall: Yes. Sure. And you’re right on both points. We €“ as I just mentioned, we do anticipate more of our profit growth and margin growth coming in the first half of the year. It has a little bit to do with how 2022 played out, because of more mid-year-ish and later pricing and productivity. That’s what’ll drive us to more balance in 2023 versus 2022 across the year on the EBITDA line. In 2022, we were roughly 44%-ish of EBITDA was in H1. I think you would see 2023, we anticipate not all the way to 50-50, but getting closer to an even split maybe 47%. And then on the EBITDA line, you’re right, it’s the reinvestments that we will make in 2023 below gross margin as we did in 2022. And those are again within the marketing line, where we see a significant up ramp in marketing supporting Rao’s primarily and noosa in more kind of historical legacy rates.
R&D, we’re investing behind, in fact, we just opened up a new facility, R&D facility down in Austin, that’s attached to our plant there. And so we’re building out new capabilities there. We are adding €“ we have that in 2022. We’ll continue to add critical roles were needed, but more importantly, the tools required for those roles to be successful. We’re that building relationships with retailers, things like, master data, data mining and things like that. So we’re continuing to make those investments below the line, and that is why you’ll see not quite the margin expansion that on the EBITDA line that we anticipate on the gross margin line.
Todd Lachman: But importantly, Peter, hey, this is Todd, just to build on that. And we’ve highlighted this, we are building a business for the long-term and we’re building Rao’s to a $1 billion and beyond. And there’s no question in our minds that Rao’s is going to blow by that $1 billion net sales mark. But the way to do that is to invest, and I’ll just give you perspective in 2022, we invested an increased year-on-year and awareness for the Rao’s brand, I’ll just use that as a proxy, increased from 48% to 58%, 1,000 basis points, ten-fold percentage points year-on-year. The way to add households is through mental and physical availability is making the brand more mentally available through awareness of the brand and physically available through distribution.
And our playbook is €œthat simple€. But we have a growth obsessed organization and we look to do whatever we can in order to drive awareness and distribution, notably, of our leading brand across all the categories in which it competes. We have plans now in 2023 to invest a larger increase year-on-year in 2023 versus 2022 than we did in 2022. So we are confident that will lead to similar chunky gains in household and awareness of the brand. And when you combine it with the distribution gains I just talked about, that’s what’s going to lead to the highly differentiated volume growth that we’re driving. As you can see in Slide 7 that we put up on the website, vis-à -vis our peers, that’s how you really drive volume. Now granted, we have a lower penetrated brand in Rao’s, but it’s now the number two brand in regards to dollar share, but it’s only 6% in units, only 12% household penetration, only 58% in awareness.
And we still have just major, major runway in getting our top skews to full distribution.
Peter Galbo: Great. Thanks, Todd, for the color there. And maybe just maybe as a follow-up, I think Chris and Todd, there’s a leverage target now in the slides and you have some proceeds from the Birch sale. Can you just talk about use of proceeds and kind of how you’re thinking about getting the leverage down, getting that interest expense burden down from where you are today? Thanks.
Chris Hall: Yes, you bet. So, we are very pleased with our progress on leverage finishing the quarter below 3x. I think we had guided that too below 3.5x and $140 million sitting on our balance sheet at the end of the year. That really allows us a lot of flexibility first and foremost to reinvest behind our brands. Our current brands to drive the core growth that we’re seeing that could take either to drive the top line as we expand our TAM expansion efforts. It could be to improve profitability, which we are €“ where that’s capital, where that’s expands to making those investments into secure supply. We are growing at the rates were growing. Making sure that we could adequately meet the demand is important. We did improve €“ increase our inventory levels across 2022.
And as we closed out the year, we’re in a very nice position on inventory. So that’s where we will invest the money first and foremost. Down the road, potential M&A if it makes business and financial sense, as we’ve talked in the past and then primarily to continue to delever. We’ve operated €“ we managed our debt very prudently. We’ve operated typically 3%, 3.5%, up to 4%, we’ve gone higher than that when we’ve done acquisitions. But we’re happy with where we are now, servicing the debt. We’ll continue to delever. We generate a lot of cash from the business. And so that’s how we’ll manage our capital allocations.
Peter Galbo: Thanks guys.
