Steve Oakland: Sure. Well, just another reset there, Rob. What we try to do in our presentations, we try to market really clearly where we look at total private label. And most of the data you’ll see is just our categories because we know how hard it is for people outside of Treehouse to really look at our categories, right? So, we try to give you data in our presentation decks that are the Treehouse categories aggregated, right? Yes, but I would say, in our categories, we see maybe less innovation from the private label competitor. And I think most of our competitors are smaller private companies. Many of them have very different balance sheets than us, right? They’ve got different private equity investors. They’ve got leverage at a much higher rate than we do, especially now.
I mean, we’re virtually unlevered in our balance sheet. So, I think we are able to make investments in technology, in capability, in packaging, at a faster pace right now. We see that than our competitive set. Now, we are pleased to see, and this may sound strange, but we’re pleased to see marketing coming back in categories like crackers and broth and those things, because we want – the brands drive the consumer to the shelf, right? The retailer doesn’t put a lot of media behind private label. They will merchandise. And so, when that decision is made at the shelf, when the brands bring people to the shelf through media, that’s great for us, right, regardless of what that is. So, we think the price gaps are so significant today, we think that the absolute penny price point is the most significant it’s ever been.
So, we welcome the brands, even the brands’ promotional spending because it drives traffic to the shelf. So, we think right now – now, I would expect our private label competitors, as interest rates normalize, as those things, then the competitive set will normalize, but I would suggest it’s a little less competitive in the category, and we’re looking forward to the brand bringing more attention to it.
Rob Dickerson: All right got it. Great. And then I guess just quickly, kind of with respect to the balance sheet and go-forward capital allocation needs, I think you put on a slide, I heard you say kind of clear priority is still to kind of fund the business on an organic basis. I think this year CapEx is maybe a little bit higher than you’ve kind of run historically. I’m just curious, and maybe I just don’t remember, kind of, are there other CapEx needs as you now kind of look at the supply chain, you clearly have had some more incremental time, let’s say relative to when you had your investor day, if we’re thinking forward even into next year, are there projects that you say, you know what, yes, we could probably be a little bit higher than average as we get through next year, but still clearly have a very clean balance sheet with plenty of cash? Thanks.
Pat O’Donnell: Yes, that’s exactly the right way to think about it. We weren’t able to do all of the repairs and upgrades and things that we would’ve liked to during kind of the COVID times and then the subsequent supply chain disruption times. And so, we now have the ability, and we have a list of projects that allow us to go put that capital to work in our plants and to help us drive the supply chain savings that we think we can deliver over the kind of 2024 to 2027 horizon. And so, we think by making those investments now, that’ll help pay for itself as we think about the next several years, and some of that’ll help us drive the supply chain savings. Some of that will unlock capacity for us to help drive the topline. And then some of that will help with innovation and things like that where we can bring products to our customers.
And so, we want to make those investments now while we can, because we think it’s prudent, and we think that delivers over the medium term.
Rob Dickerson: All right, super. Thank you.
Operator: Your next question comes from the line of Matt Smith with Stifel. Your line is open.
Matt Smith: Hi, good morning. I wanted to ask about inflation and where you’re seeing inflation in the business today. I realize that PNOC was a positive contributor this quarter, but you lap a lot of the pricing benefits as we head into the fourth quarter. So, can you talk about that the inflation you’re seeing in the business today, and if you think that’s at a level where you would need to take regular pricing as a part of the contract negotiation process. And the reason I’m asking is that we’re seeing private level price gap on a percentage basis actually narrow today on the retail shelf. And I’m curious as to your opinion and as to when you think retailers will have caught up on that private label pricing, we might actually see that gap begin to expand again.
Pat O’Donnell: Yes, so I would say from an inflation standpoint, we went into this year thinking we would see sort of mid-single digit inflation, and I think that’s what we’ve experienced. And so, at this point, we don’t have line of sight as we start our planning process for next year, significant change in inflation headed into 2024. So, we feel like our pricing is in a good spot. As it relates to the price gaps, I think we did price earlier I think than some of the competition. So, you are seeing some of that private label pricing continue to flow through, and we’ll start to lap that in the macro kind of sense here over the next several quarters. I do think some of the price gap narrowing is more related to brand merchandising, which we’re okay.
I think our price gaps still remain very healthy relative to 2019 when you had more normalized levels of merchandising more broadly. And so, we’re very comfortable generally with where the price gaps are. And so, we don’t think that’s really been an issue for us.
Steve Oakland: Yes, and any pricing I think that we would see into next year would be very discreet, a specific ingredient or a specific category, but not broad-based.
Matt Smith: Okay. Thank you for that. And if I could just ask one more question here, which is that you’ve outlined some headwinds in the away-from-home and co-manufacturing areas of your portfolio. Can you talk about how those businesses have trended on a sequential basis? Did you expect stronger sales in the second half and that just didn’t materialize? Or are those businesses weakening relative to the first half?
Pat O’Donnell: I think they’re slightly weaker relative to the first half. We weren’t expecting significant growth coming out of those sectors. I think we saw food service traffic decelerate a bit towards the end of the third quarter. And so, that drove down a couple of the categories in the food-away-from-home business. And then from a co-manufacturing, we support some significant brands there. And so, we saw that decelerate a little bit, which is more just a reflection of some of the broader macro trends. So, we use those channels I think in a way that helps us keep our plants operating, and so – and get some throughput through them. And so, that’s a bit about how we think about them. So, we’ll look, continue to grow with those customers as necessary, but we try to reflect what we’re seeing from a trend standpoint.
