Marzetti Co Q2 FY2022 Earnings Call

Good morning. My name is Carmen and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation's Fiscal Year 2022 Second Quarter Conference Call. Presenting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question-and-answer period. Thank you. And now, to begin the conference call, here is Dale Ganobsik, Vice President of Corporate Financial and Investor Relations for Lancaster Colony Corporation.

Thank you. Good morning everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2022 second quarter conference call. Our discussion this morning may include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available on our company's website, lancastercolony.com, later this afternoon. For today's call, Dave Ciesinski, our President and CEO, will begin with a business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any questions you may have. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2022. In our fiscal second quarter which ended December 31, consolidated net sales grew 14.2% to a record $428 million, with Retail net sales up 10.1% and Foodservice net sales up 20.3%. Retail net sales growth of 10% was driven by pricing across the portfolio and volume led by the expansion of our licensing program and strong performance on Sister Schubert's frozen dinner rolls. This compares to very strong Retail sales growth of 19.5% during the same period last year. Retail sales volumes measured in pounds advanced 4% on top of the 12% volume growth last year. Notably, our licensing program continued to perform well in the period led by distribution gains for Buffalo Wild Wings sauces and increased household penetration and strong repeat rates for Chick-fil-A sauces. In the aggregate these two licensed sauces combined for over 10% of our net sales growth in the quarter. For the quarter versus prior year, IRI data showed strong share gains for our frozen breads with Sister Schubert’s dinner rolls up 150 basis points to 54.1% and New York Bakery garlic bread up 230 basis points to 42.5%. With sales of $61.6 million in Q2, Sister Schubert’s had its strongest holiday performance ever, thanks to great retail execution in a difficult environment. On a two-year stack basis, for the quarter IRI retail scanner data shows strong sales growth and share gains for several of our branded products, including Marzetti-produced dressings, Sister Schubert’s frozen dinner rolls, New York Bakery garlic bread, and Reames frozen noodles. Of particular note, during the same two-year stack period, our licensed sauce platform has grown from $22 million in sales to $78 million in sales, an increase of 250%. Based on the aforementioned growth, I'm pleased to share that in January IRI named Lancaster Colony Marzetti one of a handful of CPG growth leaders for calendar year 2021. Credit to our Retail and R&D teams for all their efforts in this achievement. In summary, our Retail top line performance in the quarter was driven by passive pricing, and volume growth driven by consumer relevant brands and great store-level execution. In our Foodservice segment, net sales growth of 20% was driven by inflationary pricing, volume growth with our quick-service restaurant or QSR customers, and a rebound in demand for our branded products. Foodservice volumes measured in pounds advanced 7%. Per NPD CREST, our sales to the QSR channel continued to pace well ahead of the industry driven by our strong relationships with national account customers and our outstanding culinary team. Turning to our margin performance, our gross margin decline in the second quarter reflects unprecedented inflation, costs incurred to support the shifting and growing demands of our business and a wide array of supply chain disruptions. During the period, we made significant investments in labor and warehousing to improve customer service levels. And while pricing actions served to offset significant commodity cost inflation and higher freight rates, we were not able to fully recover the other industry-wide cost pressures such as elevated wage rates in the period. Finally, our margins were also adversely impacted by our decision to significantly increase our utilization of co-manufacturers in the period to help satisfy the growing demand of our bottled sauces business. While costly in the short term, the decision to outsource production has not only enabled the strong retail growth we delivered, but also eliminated the immediate need for us to look at acquiring or building a sauce manufacturer to support this rapid growth. In response to these operating and cost pressures, we're implementing discrete actions that should help us improve our margin profile. First, leveraging our recently completed sauce capacity expansion project at one of our Columbus-based facilities to better optimize throughput and reduce cost. Second, adding a new Columbus-based warehouse location and pursuing other initiatives to reduce material handling costs, decrease transportation costs, minimize third-party warehouse needs, and improve inventory management throughout our distribution network. Third, leveraging productivity improvements to enable us to increase the utilization of our own facilities, while moderating our reliance on co-manufacturing, and finally implementing the next phase of our revenue growth management strategy to recover increased labor cost. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our second quarter financial results.

Thanks, Dave. Overall, the results for the quarter reflected strong top-line performance offset by higher costs resulting from significant inflationary impacts, several supply chain challenges, and investments made to facilitate growth. Second quarter consolidated net sales increased by 14.2% to $428.4 million. This growth was driven by consolidated volume growth of approximately 6% and pricing actions taken in both segments. Consolidated gross profit decreased by $10.2 million to $96.6 million. Gross margins declined by 600 basis points. The key drivers of the gross profit decline were the high commodity inflation and increased supply chain costs. Inflation for commodities and packaging materials was approximately 23% consistent with our expectations. The majority of the commodities we utilized were priced at or near 10-year highs. Our significant exposure to soybean oil, which was up notably, drove our inflationary impact higher than many of our peers. The increase in supply chain costs resulted from a number of factors. First, we experienced a high level of inflation on our factory labor and other manufacturing costs. The labor inflation was driven by our decision to raise wages to ensure we had adequate staffing to serve our customers in this tight labor market. Other indirect input costs on things like pallets and supplies were also highly inflationary. Second, our manufacturing costs were also up due to operational challenges in this environment, including supply disruptions at our facilities, lower overhead absorption at some facilities, additional personnel, and other costs we incurred to support growth. Third, we had higher freight and warehousing costs due to wage and fuel inflation, and higher levels of inventory we built to improve service. Last, our co-manufacturing costs were up as we outsourced production to meet our growing demand. As Dave highlighted, we are taking several actions to address these increases and improve our operations. As a result of pricing we continue to execute against our revenue growth management program. We benefited from a second round of pricing in our Foodservice segment that was effective at the beginning of the quarter and our first retail pricing action that was effective at the end of the first quarter. Those actions served to offset the vast majority of the commodity and freight cost inflation we experienced during the quarter on a dollar basis. Additional actions are planned or have been implemented in an effort to recover the remainder of the commodity and freight cost increases as well as the higher labor inflation. We also benefited from strong volume growth in both segments with Retail shipments growing 4% and Foodservice growing 7% behind the programs Dave discussed. Selling, general, and administrative expenses increased 6.8% or $3.3 million. This increase was driven by a higher level of investments to support the continued growth of our business. These investments included a supply chain optimization study, higher brokerage costs attributed to the increased sales, a modest resumption of consumer spending and IT infrastructure improvements. Expenditures for Project Ascent, our ERP initiative, totaled $8.6 million in the current year quarter versus $8.5 million in the prior year quarter. The company recorded two special items this quarter related to the Bantam Bagels business. First, we re-valued the contingent consideration liability to the sellers using fair value accounting. Based on that analysis we reduced the current value of the projected payout by $2.2 million creating the income you see on the contingent consideration line of the P&L. We recorded $1.3 million of this adjustment in our Foodservice segment and $0.9 million of this adjustment in our Retail segment. Second, we re-valued the intangible assets on the balance sheet for this business which resulted in an impairment charge of $0.9 million. This item was recorded in our Retail segment. In addition, the company announced its plans to close our frozen garlic bread facility in Baldwin Park, California. Production at the facility ceased in January of 2022 and the Mamma Bella brand's frozen garlic bread product line was discontinued based on its small size and low profitability. We recorded restructuring impairment charges of $1 million related to this closure. This adjustment was not allocated to the two reportable segments. Consolidated operating income declined $13.3 million or 22.7% versus the prior year to $45.3 million. Operating income declined primarily due to the inflationary impacts and supply chain challenges I described. These items were partially offset by the pricing actions taken and the volume growth the company achieved. Our effective tax rate was 24.3% this quarter, versus a tax rate of 23.8% in the second quarter of fiscal 2021. We estimate that the tax rate for fiscal 2022 will be 24%. Second quarter diluted earnings per share decreased $0.37 to $1.25. The decrease was primarily driven by the operating income decline. The EPS benefit for the change in contingent consideration of $0.06 per share was nearly offset by the restructuring impairment charge of $0.05 per share. Costs related to Project Ascent reduced the EPS by $0.24 per share this quarter and $0.23 in the prior year quarter. With regard to capital expenditures, second quarter payments for property additions totaled $36.5 million. For our fiscal year 2022, we are forecasting total capital expenditures between $170 million and $190 million. This forecasting includes approximately $105 million for the Horse Cave expansion project that will help meet the increasing demand for our dressing and sauce products. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $0.80 per share, paid on December 31, represented a 7% increase from the prior year amount. Our enduring streak of annual dividend increases currently stands at 59 years. Our financial position remains very strong as we finished the quarter debt free with $114 million of cash on the balance sheet. So to wrap up my commentary, this quarter featured strong top-line growth, as well as the unfavorable impacts from significant inflation, supply chain challenges, and investments. We are addressing the inflationary cost increases with our revenue growth management program and as David shared, we have other discrete action plans in place to address the supply chain issues. In addition, we're continuing to invest in the long-term potential of the business. I'll now turn it back over to Dave for his closing remarks. Thank you.

Thanks, Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy and our balance sheet in support of the three simple pillars of our growth plan. Number one, accelerate our core business growth. Number two, simplify our supply chain to reduce our cost and grow our margins. And number three, expand the quarter with focused M&A and strategic licensing. Looking ahead to our fiscal third quarter, sales volume drivers are expected to remain our licensing program and retail and our QSR customers and branded products in Foodservice. Pricing actions will continue to add to total net sales in the face of commodity and packaging cost inflation, and higher freight cost. We also expect cost pressures attributed to higher warehousing cost, supply chain disruptions, increased labor cost, and higher manufacturing costs to remain a headwind to our fiscal third quarter results. As a reminder, our future financial results and expectations remain subject to the impacts of COVID-19, including shifts in consumer demand between Retail and Foodservice, ongoing supply chain challenges and disruptions, and increased cost to produce our products and service our customers. Beyond the discrete actions I shared with you earlier that are underway to improve operations, we also made the decision to engage an outside consultant to assist us with planning for our supply chain network. While it's too early to share any of the preliminary findings of the study, we are very encouraged about the potential opportunities that have been identified. These opportunities are fully aligned with the first and second pillars of our growth plan. I'd also like to update you on two important initiatives currently in progress. First, our significant investment in production capacity at our dressing and sauce facility in Horse Cave is going well with the target completion timeframe in the first half of fiscal 2023. Second, the implementation phase of our ERP initiative Project Ascent remains on track to begin in the first quarter of fiscal year 2023. Turning to growth, I'm excited to announce that we will be adding barbecue sauce to the Chick-fil-A platform. As with other Chick-fil-A sauces, we will plan by executing a small regional pilot in the March and April timeframe that will inform our broader rollout plans. Taking a step back, while our second quarter financial performance fell short of our expectations, actions are underway to help us overcome the many challenges of the current supply chain environment. Longer term, I'm confident that our business remains very well positioned for the future, with category-leading retail brands, a rapidly growing and consumer-centric retail licensing program, and a Foodservice business that supplies many of the leading and fastest growing national chain restaurants across the country. When combined with the investments in capacity and infrastructure, we have a strong and unique platform to deliver profitable growth for years to come. In closing, I'd like to express my sincere thanks for the ongoing efforts of the entire Lancaster Colony team, as we've navigated through unprecedented cost inflation, demand fluctuations and supply disruptions. Our focus remains on the health, safety and welfare of our employees, continuing to play our role in the country's vital food supply chain and preparing our business for the future. This concludes our prepared remarks for today and we'd be happy to answer any of your questions.

Thank you. Our first question is from Tom Brooks with The Benchmark Company. Your line is open.

Hey, good morning, gentlemen. How are you doing? A few questions, if I may. Leading off just with the top line strength that we saw in the quarter, can we talk through where the strength was in Foodservice to see that type of increase in pounds, you talked about maybe some of the branded products coming back, but also strength with your QSR and pizza customers and I know that plays into your customer mix. So if we could talk through the strength there, that'd be great?

Yes, absolutely Todd. First of all, good morning. On the branded side, as you'll remember, same time last year we were pretty deeply in the throes of COVID, and that part of the business was soft. As we rolled through Q1 and Q2, that segment of the business, which supports concepts up and down the street, but also to a lesser degree K–12 education and higher education, started to post sequential strength. So that was a material contributor to that growth. The other side was we continued to see our QSR customers, some of them by name, Chick-fil-A, Domino's, and others, really continued to perform well, all the way through the majority of that December timeframe. Once we got to the very last week of December, we did start to see a pullback because of Omicron that we've seen really continue through the remainder of January, and we can talk about that separately. But really to summarize, we were winning with winners on the Foodservice side in terms of concepts, and then the brands.

That's great. Why don't we tackle Omicron now and I want to do it from a higher level. If you look at kind of what the margin pressures were running on the business kind of through that, let's say even middle of December, before we really saw the spike in Omicron, how much did the inflation reality change for you with the onset of the variant? And anyway you can size what margin pressures were running versus what they were once the variant really took hold?

Sure. In Q2, I don't think we could really point to Omicron as a contributor to our margins per se. When we look at MPD press data, QSR as a whole, when we look at transactions, was probably running, depending on the week, up a point to down a point or so. Once we got into the January timeframe, though, that started to slow down; transactions for these concepts were down in the mid-single digits. When you look at all Foodservice in the aggregate, that same thing is true because of the size of QSR. We've seen a pullback of about 600 basis points in January. So really, I can't point to Omicron as a contributor on the margin side as we look at our Q2 results.

Yes, Dave, let me follow up, because I might not have been clear in how I asked the question. I was talking more than overall Lancaster level: if you looked at the cost of doing business in the latter parts of December, how did that change with Omicron, whether it was employee callouts, friction in your distribution, and just additional costs there? Thanks.

We did see a spike around the week ending December 28, and by the first week of January we were seeing case rates as high as we had seen at any other point during the pandemic. We were seeing call-offs, but we continued to operate without significant disruptions by leaning into overtime and because we were already carrying a little bit heavier labor going into the fall due to anticipated COVID spikes and higher levels of resignations on the hourly side. So our ability to produce saw only a small uptick in overtime costs. December also had other noise, for example the tragic tornado that struck across Kentucky. Fortunately, it didn't impact our facility in a material way, but it did impact a number of our employees and resulted in a bit of a slowdown in December, but not enough for us to call out in detail.

Todd, some of the other impacts beyond Omicron: we did see a number of supply disruptions in our starch supply and packaging material disruptions, and some of our suppliers had difficulty staffing in this environment to provide us with the raw material. So there were a number of disruptions, not necessarily specific to Omicron, that did impact our margins in the quarter.

Yes, Tom is exactly right. Starches and gums as a particular category of supply were a challenge for us. Lidding for Foodservice was a particular challenge. Transportation inbound from our suppliers with truckers calling off continued to be a problem. Those are the usual suspects you're seeing across many partners. The ones that were unique pressure points to us were the products we make — starches and gums that go into sauces and dressings were high among the list, and then some packaging items that are unique.

Okay, great. And then one more, and I'll jump back in queue. If you look at the realities that you just talked about dealing with Q4 and then some of the Omicron realities into Q1, but you did highlight revenue management actions that you're taking. We are seeing favorable trends with Omicron and the speed of this normalizing seems to be encouraging. Just can we look at this gross margin performance in this quarter and think of this as a sort of base of where gross margins should settle out from these pressures in the near term, because we do have these positive levers that you're pulling against it going forward?

Maybe I'll comment on Omicron first. I'm pleased to report that cases and plant call-offs are down substantially and Omicron should begin to normalize across the country. As far as other pressures on margins, Tom and I will comment. Tom?

Todd, it's difficult to give specific guidance given some of the disruptive impacts we experienced in the quarter. We had over 200 basis points of dilution due to commodity impacts on our raw materials and certainly we priced to cover a lot of that. Naturally, as you raise prices and have higher costs, there is natural dilution that's going to hit your P&L, and we expect that to continue at a little over 200 basis points going forward. Some other headwinds we expect are continued labor and other inflation. We do expect some of these disruptions to continue. In terms of tailwinds, the Retail segment took another pricing action on the dough-based products recently, and the Foodservice segment took another pricing action. The goal from a dollar basis is to offset the inflationary impacts. In terms of the supply chain challenges we experienced, as Dave highlighted, we have discrete actions in place. So a lot of headwinds and some tailwinds; difficult to give you a specific ongoing impact, but certainly that commodity inflation piece we expect to remain.

Okay, great. I'll pass it along and jump back into the queue. Thanks.

Our next question comes from Ryan Bell with Consumer Edge Research. Your line is open.

Good morning. So just trying to touch a little bit more on the Foodservice industry trends. It seems like from your commentary that you're pacing ahead of the category overall; maybe could you touch a little bit more on the category growth and then sort of your relative performance? It seems some of the drivers are mix. Outside of that I just wanted to see if you could provide any additional context?

Sure. If you go back to the summer through the middle of January and looked at all Foodservice concepts, the industry overall in transactions was down modestly. If you then click into the QSR space, transactions were modestly positive depending on the week — maybe up or down a point. If you look at our business, within that mix there are a handful of customers that are outperforming the rest; Chick-fil-A and pizza QSR are two examples. So when you look at our performance versus the industry, historically we've performed a couple hundred basis points better than the industry. We're performing even better now because of the strength of the concepts we're aligned with. We're not necessarily gaining share with the concepts broadly in the market, but we're positioned with concepts that are growing, so when you compare our business versus the market, we're growing faster.

Thanks. That's helpful. Could you also touch a little bit more on the details behind the capacity expansion efforts? And what sort of the impact would be from the increase in co-manufacturing usage? And I'm not sure if I picked up on this correctly, but in terms of the co-manufacturing increase and uptick the duration of that, and when can some of that be brought in-house and sort of the margin implications there?

If you take all the challenges associated with COVID and move them aside for a second, in the last two years we've grown our business by almost 25% consolidated. Our Retail business has grown by almost a third. When you look at our licensed sauces, in Q2 of fiscal 2020 we did about $22 million in sales; in Q2 of this year we did almost $80 million. If you think about run rate, we've taken a business that might have been operating at about $90 million and taken it up to a run rate closer to $320 million. That's the order of magnitude of growth with these licensed sauces. We've continued growth on Olive Garden and with Chick-fil-A, on a run-rate basis Chick-fil-A is already bigger than Olive Garden even though it hasn't been in the market a year yet. We've also been expanding Buffalo Wild Wings. Part of what's happening is we've had to make aggressive moves to bring capacity online fast enough to facilitate this growth. There's a strategic reason: if we go to a partner like Kroger or Walmart and ask them to cut in more facings, we have one chance to get it on the shelf and demonstrate that it works. We didn't want to miss that opportunity. To do so, we've had to pay a material upcharge to co-packers to rework our mix and meet demand. We're pushing some of our own products like Simply Dressed out to make room within our own capacity to meet the needs of the business. Our biggest facility in the dressing network is Horse Cave, about 250,000 square feet. The expansion is about another 200,000 square feet with a couple of bottling lines and capacity to meet Foodservice needs. That project is slated to be done in the first half of fiscal 2023. Sequentially we'll start up kitchens and lines to rework the balance of what's out in co-packers. We expanded our Chick-fil-A partnership to include barbecue sauce; part of our strategy will be predicated on our ability to drive this growth. If growth continues faster than expected, we may continue to lean on co-pack partners. If growth moderates, we'll rethink our co-manufacturing strategy. For now we're focused on capturing a unique opportunity through our Foodservice-to-Retail licensing strategy and co-packers are helping us accommodate the speed of that growth.

Thanks, I appreciate the context on that and the details, including the push out for the Chick-fil-A barbecue product. From a general sense, if the pricing and cost environment stabilized, what do you think about the potential for gross margins to move sequentially? Is the pricing currently in effect and planned enough to tip the scales so gross margins might move upward year-over-year or at least the decrease starts to ameliorate somewhat?

Historically we talked about PNOC — pricing net of commodities. We initially tracked commodities, then added freight, and now we include wages in that PNOC conversation. Today when we look at PNOC, with the pricing actions we've taken, we've largely recovered the commodity component and the freight component. Where we're lagging is in trade adjustments; we're in conversations on the Foodservice side to recover those and we have pricing actions in place in Retail to cover them. I would expect from a PNOC perspective that as we go through Q3 and Q4, PNOC should become net neutral. There are other temporary points of dislocation in supply chains—truck drivers and inbound supplier issues—so we'll have to wait and see how they work through. We're also taking actions to secure suppliers where needed to make our factories run more predictably.

Ryan, I'd add that our pricing has been well received by retailers. The strength of our brands is showing good reflection and elasticity impacts are in line with or lower than what we originally projected. We feel good about our ability to price to recover these costs, but it will take some time.

Thanks. One last one from me. Could you touch on some of the potential benefits once you implement the Project Ascent program in early 2023 in terms of general productivity? And then obviously your balance sheet is quite flush; what would that mean in terms of your abilities to digest a larger acquisition?

We're on the forefront of some exciting times. We did a pilot implementation at one factory about a year ago and it's proven very helpful. In the next couple of months we'll take the trade promotion management component live, and when we go live early next fiscal year with order-to-cash, procure-to-pay, and other components, I think we'll see an even larger benefit. Benefits are likely to come in procurement, but the bigger area will be speed of information in our factories to make sure we're staffing right, sourcing right, and running right. It's a little hard to estimate in a COVID environment, but this will give us the ability to do much more seamless acquisitions with cost synergies we haven't been able to achieve in the past. Our current ERP system was installed in 1995 and was not cascaded through the supply chain in areas like MRP, which resulted in a business run pretty manually. When we look at acquisitions today, it precludes us from looking at cost synergies; this will give us a stable, scalable platform to pursue acquisitions and to ramp licensing and other initiatives more seamlessly.

Thank you.

And we have a follow up from the line of Todd Brooks from The Benchmark Company. Please go ahead.

Hey thanks for the second crack here. Can we talk about Chick-fil-A barbecue, and I guess it seems like that probably hits on more categories of retail competitively than Polynesian does. Any commentary you can give us out of the Foodservice side about barbecue popularity versus Polynesian popularity and kind of size where this falls between Chick-fil-A sauce and Polynesian from a revenue opportunity?

Chick-fil-A barbecue sauce is roughly a $500 million category, maybe a bit bigger. There are a range of competitors in that space. Within Chick-fil-A’s lineup it's probably their #3 sauce, so it's a material contributor. Part of what this gives us is the ability to create a bigger and more substantial brand lock on the shelf. In the future, our roadmap could include Chick-fil-A Original, Polynesian, Barbecue and additional SKUs. We're also focusing on launching larger sizes to drive greater holding power on the shelf and in the pantry. Encouragingly, when we look at the brand today, we continue to have extremely high velocities. Trial is high, repeat is high. I believe it's our #2 brand in household penetration, trailing only New York Bakery, but it could possibly pass New York over time. It's an exciting platform, and our retailers are excited about it. When we modeled this, we thought it could have the potential to be the same size as Olive Garden. Today we effectively have two SKUs in Retail — 16-ounce Original and 16-ounce Polynesian — and those two SKUs already generate Retail sales in excess of what we're doing with Olive Garden with a lot of room to run.

So Dave, I'm drawing a picture in my head of what Chick-fil-A will eventually look like in grocery. How long after Horse Cave opening does it take to fully realize the grocery potential?

If you're thinking about sequencing, the Horse Cave factory comes online in the first half of fiscal 2023, with kitchens and lines starting thereafter. That will allow us to expand more aggressively. Based on our modeling we have a base case and upside case; we think that factory gives us capacity for a handful of years. In an upside case we might look for another facility to buy or build. We engaged a top-tier consultancy to look at our growth algorithm, overlay our capacity footprint, and give thoughts to regionality and transportation to plan the next two, four, or six years. That study is helping us think about how to grow while also growing margin. We continue conversations with other partners about other licenses that fit into this mix. Our licensing strategy and our own brands continue to perform well. We need to make sure that it's translating to profit.

That dovetails into the next question. Last call you talked about the licensing strategy and whether to go deeper with existing partners or look at other partners. It seems that's a both-and approach. Can you talk about the depth of that pipeline, opportunities outside bottled dressings and sauces, and whether there are categories where capacity may exist to unlock more momentum on licensed branded products?

We don't view it as either/or; we view it as and. We are looking at adding other licensed partners against dressings and sauces, and we're exploring opportunities around dips and selectively in baked categories where we have capabilities. We're looking anywhere we have capabilities and the opportunity to move into licenses. When you look at the shelf and the world consumers live in today, it's harder to break through noise. Partnering with relevant foodservice partners allows us to leverage their marketing muscle and awareness to penetrate that noise. That strategy continues to hold at a high level and for our company it's a great pathway to create value for us and our licensing partners.

Okay, great. Thanks Dave.

Thank you. And there is no further questions. I will turn the call back to Mr. Ciesinski for his concluding comments.

Thank you, everyone, for your participation this morning. We look forward to joining with you for our third quarter results early in May and in the meantime, stay safe, and we'll look forward to talking with you then.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect. Have a wonderful day.