Steve Oakland: Sure. So, remember, price gaps are now returning to historic levels where private label grew, okay? And those are percentage price gaps, not penny price gaps. So, 20% of a product that now costs $4 that used to cost $3, right? So, the moment of truth, I think the old AG laughy comment about the moment of truth right in front of the shelf is when the consumer walks up to the shelf and looks at both private label and branded. So, we think even in the promotional environment that the absolute penny gap is so significant, along with the better quality assortment that our retailers have in front of the consumer right now, we need eyes in front of the shelf, right? Private label price decisions are made at the shelf. So, if you drive traffic to the shelf, we hope categories grow, and we’re confident that private label will get a share of that category growth given the absolute penny gaps that are in front of us now.
Rob Moskow: Okay. And then my follow up, I think you said that OEE improved five points from a year ago. How does that take into account the broth issues? And then I think you had some issues in pretzels and cookies in third quarter as well. To what extent did those issues hurt those numbers, if at all?
Pat O’Donnell: Yes, I think we’ve got investment in TMOS across our whole network. so, we have multiple plants. and so, obviously we’re talking about one plant and the impact there. And we’ve invested in other plants. We talked a bit about dough. That was a plant where – a network where we didn’t operate as effectively and we put some maintenance in, in the middle of the year, and then that allowed us to service the seasoned. So, I think you’re seeing where we’ve made the investments earlier on, that’s starting to pay off with those efficiencies. And we really look at our broth facility as the last one where we can go drive further improvement from a service standpoint. We think in most other places we’re there. And there continues to be opportunity in 2024.
We think we can continue to be more efficient and eliminate waste throughout our network. And we’ve got a lot of cost savings plans in place, things that we planned for in 2023 that’ll be executed or are being executed in 2024, that gives us confidence around how we think about margin next year.
Steve Oakland: Well, and Rob, just so you know, we do aggregate all of our 26 facilities. So, the broth plan is one of them. And so, it did probably tamp that number down just a bit, right? And it will tamp it down in the first two quarters. But that gives you a sense, even with that, last year we grew 5% in OEE right? Now, to be fair, Treehouse was not at the top of the OEE hill, right? We have some room to grow, and we have – that’s why there’s the kind of cost savings in our network that there is, right? There is substantial opportunity in our network, and the good news is, we’re making progress at attacking it.
Rob Moskow: Great. Thank you.
Operator: Your next question comes from a line of Rob Dickerson from Jefferies. Your line is open.
Rob Dickerson: Great. Thanks so much. Good morning. I just want to ask a little bit more about, I guess the pricing cadence of the year, right? I mean, it seems like kind of given the guidance for Q1, with vol mix down some, let’s say mid-single digits, just to kind of right-size it back to net, I mean, it sounds like pricing might be down, I don’t know, like four. Maybe it’s three to four, but then the comment for the year is down modestly. And just to kind get to the full-year year-over-year guide, it would seem like maybe there’s a little bit more price investment in Q1. But then at the same time, back to Andrew’s question on the pass-through dynamic, it would seem like given it’s contractual, that there’s not like a tremendous amount of flex. So, just say any color you can kind of give as to kind of how you see that year-over-year pricing dynamic playing out as we move through the year. Thanks a lot.
Pat O’Donnell: Yes, maybe I’ll start with the full year, and what we’re really anticipating is sort of low single-digit impact of pricing. And that’s the pass-through that Steve described, where we have lower cost in some of our commodities and those types of things, or true pass-through. So, we think from a profit, that’ll be consistent through the year. So, I don’t think we’re seeing much difference in Q1 in terms of that low single-digit. I think you’ll have the broth impact, and then I think you’ll have some of the same consumption trends that we saw in Q4 carry into Q1, and that’s really how we’ve thought about Q1.
Rob Dickerson: Okay. Got it. And then I guess just in terms of the innovation pipeline, we were able fortunate enough to see some of it back at your Investor Day. Clearly, it seems like retailers are very proactive in trying to re-merchandise private label. Have you had certain conversations with retailers that just give you the conviction that clearly that innovation can get on a shelf and drive velocities?
Steve Oakland: Yes, Rob, I mean, the reason we’re so confident to guide what we’ve done is there is new business in pretzels, coffee, pickles. We actually have visibility in the contracts that’ll start January of 2025, right? We’ve got some awards that that go that – that’s how far out some of this stuff works. So, when we saw you at the Investor Day, we were presenting those things. They are now in the pipeline and we’ll see those on the shelf over the course of this year and into next year. So, yes, we have great visibility into that right now. Now, sometimes the date pushes a month or two. We’ve been conservative so that we won’t be impacted if that happens, right, but they’re – the visibility is pretty good on that right now.
Rob Dickerson: All right, super. And then just to sneak a quick one in. D&A guide for the year, I don’t think you provide it. Sometimes you do. I don’t know if you have that, and that’s it. Thanks.
Pat O’Donnell: Yes, we can give you that offline, but we don’t expect significant changes.
Rob Dickerson: All right, cool. Thank you.
Operator: Your next question comes from a line of William Browder from Bank of America. Your line is open.
William Browder: Hi, good morning. I have two. The first is, in your non pass-through categories, what’s your outlook for input costs for the year?
Pat O’Donnell: Yes, I think we continue to see relatively elevated commodity overall. And so, we’re not seeing significant deflation, perhaps some modest disinflation in a couple of key commodities. But overall, we’re seeing things that still remain relatively elevated to history. And so, really kind of relatively smaller to similar to last year.
William Browder: Okay. And then last year you completed a couple of acquisitions. They were – some were modest in size and some were a little bigger. What’s your outlook for M&A in 2024 and beyond? Your leverage is clearly low after you received the proceeds from the meal prep divestiture, I guess, interest in increasing that leverage to try and expand into new categories or build out existing ones further.
Steve Oakland: Well, I think you just articulated it right. We don’t see the need, given the cash flow we’ll have this year, to increase our leverage significantly. We think we can execute our capital allocation strategy. It’ll be invest in businesses to drive depth in the categories, right? Make us more attractive and better operators. It’ll be invest in our plants so that we don’t have events like what we had in the third quarter, right? It’s to fortify that supply chain through CapEx and maintenance. There’ll be some automation expense, right? There’ll be some investments to make us more efficient and let us apply labor at those places that are high value. And then it’ll be maintaining that balance sheet and returning capital to shareholders, right? So, we really feel like the transaction and now the paydown of the note allow us to do all three of those things.
William Browder: Perfect. All right. That’s all for me. Thank you.
Operator: [Operator instructions] Your next question comes from the of Carla Casella from J.P. Morgan. Your line is open.
Carla Casella: Hi, somewhat following on Bill’s question, you’re sitting on a large cash balance now after recouping that accrued. And I’m just wondering, you’re netting that out to get to your 2.1x leverage, but do you anticipate using any more of your excess cash to pay down debt?
Pat O’Donnell: I think we laid out our priorities. We want to maintain the solid balance sheet. The goal is not to go return to the historical levels of leverage that we’ve had in Treehouse. And so, I think our first priority is to go invest back in the business. And so, that’s clearly where we see the greatest opportunity for Treehouse, and we’ll continue to do it in a very disciplined way like you saw us do last year. And so, if we need to stay at relatively lower levels of leverage, we’ll do that. We’re not in a hurry to go spend the cash in one way or the other. And I think we’ll maintain a very balanced approach across all of those.
Steve Oakland: Carla, the other thing I would say is, we’re really proud of our current debt structure, right? Our 4% bonds and with the swaps, the rest of our debt is incredibly priced to the market today. And so, we think that investing some of those funds in our business and returning to shareholders, makes a lot of sense right now. So, I think should that change, we’ll look at it differently. But given the fact that overnight deposits I think pay equal or more than what our debt structure is, there’s no real reason for us to pay a lot of it down in a hurry.
Carla Casella: That makes complete sense. And you’re still targeting your comfortable level with leverage 3 to 3.5x?
Pat O’Donnell: That’s right.
Steve Oakland: That’s correct. Yep.
Carla Casella: Okay. And then just one follow-up question on the cost. Can you give us a little bit more color in terms of how much of the freight, the lower freight impacted benefit of the quarter? And then, what are the biggest drivers within freight? Is it gas, labor, other?
Pat O’Donnell: Yes, I think we’ve seen freight markets somewhat stabilize. I think that’s happened over the last couple of quarters. I don’t know that it’s – a lot of that is on the kind of distribution expense within our P&L. I don’t know that it’s the largest driver. I think our outlook is that that’ll continue to be consistent in terms of how we think about that. And a lot of it is shipment to our distribution centers or to our customers, so think about that in terms of …
Steve Oakland: Yes, and freight availability, I mean, the key is, as the economy slowed down a bit, freight is much more available. And so, it’ll be interesting over time if that capacity drives carrier rates down, right? I think we’ve seen a little bit of that. The spot rate has come down, but we’ll see what happens as we go forward. The best thing is we’ve got great availability. We’re able to be on time in full because the carrier shows up on time. So, that was not the case as you know a year or so ago, but it is the case today.
Carla Casella: Okay, that’s great. And just one clarification. On your EBITDA adjustment for your guidance for 2024, you show with and without the $20 million impact from the broth facility disruption. Will that be – are those $20 million of onetime items that you’ll call out in EBITDA? Or is that $20 million on top of other onetime items that might be adjusted in your EBITDA?
