Pamela Kaufman: Great. Thank you. And just on the competitive dynamics in the category, can you talk about what you’re observing and do you anticipate gaining market share in cereal this year?
Gary Pilnick: When we think about what’s happening in the competitive set in the category, so if you zoom out, when we think about the pressure in the market right now, we think about promotion and investment in the category. So Dave talked about our approach, which is we focus on returns, we focus on balancing volume as well as profitability. And this has been going on in the cereal category. It is worth noting, it’s good for the category. Well-designed promotions really drive category performance. And in fact, it has some of the best lists in retail when it’s done well. And when we take a look at the data, Pam, we’re not seeing anything particularly unusual. We sort of go back in time and see, you know, compared to previous periods and there’s nothing unusual in there.
And in terms of growing market share, we’ve talked about winning in the market and winning as a company. And what makes our model work is a stable top line. So our profit expansion can rattle through the P&L. We also think part of that is winning market share over time. And that is certainly one of our many goals.
Operator: Thank you. Our next question comes from Peter Galbo of Bank of America. Your line is now open. Please go ahead.
Peter Galbo: Hey, guys. Good morning. Thanks for taking the questions.
Gary Pilnick: Good morning, Peter.
Dave McKinstray: Morning, Peter.
Peter Galbo: Dave, maybe just two really quick cleanup ones and then Gary, a broader one. Dave, if you strip out the — I think you said it was 60 basis points of benefit from insurance to the base gross margin for ’23. Just as a building block, what’s your base inflation that you’re baking in for 2024 on the COGS line? And then also if you had a CapEx number, you could help us with on the free cash flow side.
Dave McKinstray: Yes, thanks, Peter. So a couple of things that I’d start with on the, sorry, your first question is on inflation. So let’s start there. On the inflation side of things, I think generally speaking, we’ve seen what I would call more of a stable environment at these elevated price levels. So if you look in aggregate, we’re not seeing a significant amount of deflation in 2023 or in our outlook in 2024. If you go into specific areas of our cost structure or our basket of goods, if you will, there’s a couple areas we’re seeing the deflation. You guys can see it, namely corn wheat, but there’s a couple others that had been what I would call resiliently high and have actually worked the other way. Those being sugar and rice is a couple of examples, and we saw some of the CPI data even as recently this morning where we’re continuing to see inflation in the marketplace be relatively sticky, is a word I would say.
But again, I characterize it for us more of a stabilization at these higher levels. If we didn’t think about our capital plan for next year, we’re targeting the 2.5% of net sales as a base CapEx as you think about that $80 million that I overviewed to stand up, there will be some CapEx in that $80 million. So it’ll be split between one time cost and CapEx, probably a little bit heavier on CapEx in that $80 million. So those are the two pieces to be clear, Peter, we have about a 2.5% of net sales base capital plan. And then that $80 million will be split between CapEx and one-time cost, but a little bit heavier on CapEx.
Peter Galbo: Got it. No, that’s helpful. And then Gary, just one thing that’s come up in a bunch of other calls this early season, particularly around the volume discussion, has been a shift back to more away from home occasion. And while that has like a negative impact on the volume around the tonnage side, it’s having a positive impact on mix, like single-serve items, that sort of thing. Just curious, like, are you observing that at all? It’s been something we’ve seen across other categories, so we just love your perspective on that. Thanks very much.
Gary Pilnick: Yes, and what you’re getting at is occasions for us. And when we think about our business, we think you have it exactly right. We think there’s an opportunity for us when you think Away From Home, you think single-serve. When we think about cereal, we clearly are the number one choice for breakfast. We’ve talked about cereal for dinner, but we also believe there’s real opportunity in snacking. So that we do believe is a tailwind for us. You saw in the innovation comments that we had that we’re leaning into that right now. So, is it a trend? I don’t know. But we think it’s a real opportunity for us one way or another, and we’re going to be getting after it.
Operator: Thank you. Our next question comes from Matt Smith of Stifel. Your line is now open. Please go ahead.
Matt Smith: Hi, good morning. I had a follow-up question on the CapEx outlook for the business. You’ve stripped out the additional capital spend associated with supply chain modernization and the guidance that you’ve given us. And from a high level, given the faster progress against EBITDA and some of the underlying operational efficiencies you’re seeing, does that affect your outlook for the $400 to $500 million of investment for that supply chain modernization over time to unlock the margin expansion? Is there an opportunity for that to move lower? Any comments you can make there would be appreciated.
