Post Holdings, Inc. (POST) Q2 2020 Earnings Call Transcript

Welcome to Post Holdings Second Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. The dial-in number for the call is 800-585-8367 and the passcode is 7265844. It is now my pleasure to turn the floor over to Jennifer Meyer of Post Holdings for introductions. You may begin.

Good morning. This is Jennifer Meyer and thank you for joining us today for Post's Second Quarter Fiscal 2020 Earnings Call. With me today are Rob Vitale, our President and CEO; and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks and afterwards, we'll have a brief question-and-answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC Filings sections at postholdings.com. In addition, the release is available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.

Good morning. Thanks, Jennifer, and thank you all for joining us. I want to begin my comments by recognizing and thanking the thousands of Post employees who have risen to the challenge and kept our supply chains working. We all owe gratitude to the people who keep our stores stocked and who do their part in making this challenge just a bit easier. As you might expect, we had a strong second quarter. Our retail channel businesses performed well and foodservice trailed off as the COVID crisis erupted. This morning, I want to share with you our principles for managing through this and briefly comment on how we expect it to continue to benefit our retail businesses. Most of my time will be focused on helping you understand the impact on foodservice and the path to normalcy. As you saw in our release, we withdrew our fiscal 2020 guidance, which primarily resulted from uncertainty surrounding foodservice volume trajectory. At the onset of this crisis, we adopted three principles. First, we would protect the physical safety of our colleagues. Second, we would keep our supply chains intact. And finally, that we would cushion the economic impact on our people. While we remain committed to delivering long-term value to our shareholders, we are also committed to navigating this crisis in a compassionate manner. We are investing in our frontline people in the form of incremental bonuses and additional safety measures. As I mentioned, essential workers in our supply chain are helping to feed each of us and we owe them our gratitude. We do have plants that support foodservice in which the demand reduction has led to a temporary furlough. We are structuring furlough programs to minimize the impact on employees until we can return to full production. Cost reduction actions are more restrained than they would be if we considered the demand destruction permanent. We are balancing the obligations that flow from our principles with our objective to build value. We believe this balance is not only the morally right thing to do, it is the economically right thing to do. Our culture, our respect for each other and our commitment to our purpose are all being strengthened. Post has a diversified set of businesses and we see that clearly in the impact of COVID-19. Our retail businesses saw a surge in demand and our foodservice business saw a dramatic decrease in demand. My comments about retail will echo what you've heard elsewhere. March had spikes in demand, during which our supply chains were stretched. I am quite proud of how they performed across each of our platforms. Jeff will provide more detail, but it's fair to say our results were quite solid. We believe we are well positioned to benefit from this experience. As a general statement, compared to our competitors, our business includes a greater number of brands with lower household penetration. I would include in this category, MOM brand bag cereal, Bob Evans brand side dishes, and Premier Protein brand shakes. This experience accelerated household penetration and we expect the benefit to be long-lasting. Meanwhile, specifically within cereal, there was a reengagement with the category that seems to have momentum. It is early to make predictions on the durability of this trend, but I would say we have cause for cautious optimism. This is true in both the U.S. and the U.K. In the short term, specifically the balance of 2020, we expect cereal and refrigerated retail products to be strong for the balance of the year. Protein shakes had a demand spike in March but fell off in April. Most of the April result is pantry de-loading, but there is an element of on-the-go consumption that we may temporarily lose. Nonetheless, we expect the trial benefit to remain. If you tune into the BellRing call, you will get greater detail. On balance, we expect to have quite a strong year in our retail businesses. In contrast, our foodservice platform has been materially impacted by shelter in place orders and the resulting demand destruction. As I mentioned, our cost reduction actions are restrained by our assumption that the demand will rebuild as the economy reopens. Within foodservice, we have channels directly affected by COVID response and those less affected. Directly affected channels include full-service restaurants, quick service restaurants, education, and travel and lodging. These channels represent approximately 50% of segment sales. Less affected channels would include food ingredient, health care, government, and other smaller channels. In the first month of the crisis, distributors essentially stopped purchasing in order to reallocate their inventory from affected to unaffected channels. This cost us one purchasing cycle and it cost us some aged inventory. We are now through this initial cycle, but it bottomed at 65% declines through most of April. We are now running closer to down 45% and it seems to be improving each week. We expect that demand recovery will vary by channel and be based on consumer purchasing confidence. The April loss of a purchasing cycle resulted in revenue levels below our fixed costs. Meanwhile, we are incurring incremental costs from the demand fall-off. These are not systemic costs. They are instead reactive to managing the crisis. For example, we are meeting demand for conventional egg products using cage-free inventory simply because of a demand/supply mismatch. We also have significantly higher freight costs in redistributing product. At the risk of redundancy, I will again stress that we are not attacking fixed costs as aggressively as we are retaining capacity for the demand rebuild. As I mentioned, our recovery trajectory is encouraging. With the loosening of shelter-in-place orders and the adaptations being made, such as curbside delivery, we expect an improvement each month and into Q4, with Q4 significantly outperforming Q3. We expect full recovery to take through fiscal '21 as channels like travel and lodging will take longer to heal. This high degree of variability is why we withdrew guidance. Despite the reduction in expected EBITDA from foodservice, we will come close to our original estimates for second half free cash flow. The decline in foodservice EBITDA is offset by increases in retail plus natural declines in working capital, capital spending, and taxes. In no scenarios do we have any concerns about liquidity and are frankly well-positioned to be offensive should attractive opportunities arise. We entered the crisis with over $500 million in cash on hand. In mid-March, we had some concerns about financial system liquidity and we drew $500 million on our revolver. These concerns were unfounded and we are now beginning to lower the amount drawn. In April alone, excluding BellRing, we generated $140 million in cash. Because of the initial uncertainty, we suspended our share buyback program. We will continue to reevaluate our capital allocation strategies as more information becomes available. We want to strike the right balance between the prudent level of defensive positioning and the opportunity to take attractive strategic actions should those opportunities arise. Let me close by saying that our people have done an extraordinary job across the board. Where we are benefiting, we have stepped up into greater demands on all aspects of our business. And where we are hurting, we are making tough decisions in a humane and prudent manner. This is a challenging year, but I'm more proud of this company than I have ever been. With that, I will turn the call over to Jeff.

Thanks, Rob, and good morning, everyone. Adjusted EBITDA for the second quarter was $291.7 million, with consolidated net sales for the quarter growing 7.7% year-over-year. All of our retail businesses performed well this quarter, with strong volume lifts driven by consumer pantry loading and increased at-home consumption in reaction to COVID-19. At the same time, we experienced a sharp decline in demand for our foodservice products in the second half of March. Starting with Post Consumer Brands. Net sales and volumes increased by 10.6% and 14.2%, respectively, with the increases largely attributable to consumer reaction to COVID-19. Volumes also benefited from higher levels of promotional activity. Many of our promotions during the quarter occurred in January and February. However, some large promotional events were in process in March prior to the implementation of widespread stay-at-home orders and continued during the industry-wide pantry loading phase of the pandemic. This resulted in significantly higher sales of promoted product than historically seen. These planned programs are now behind us and we do not expect second half promotions to be at these levels. The effect of these items combined with growth in private label products resulted in an average net pricing decline of 3%. Gross margins modestly improved over the prior year, but we were pressured by the aforementioned decline in net pricing. Cost savings from implementing our new integrated business planning process accelerated this quarter to nearly $8 million. These savings are incremental to our other continuous improvement initiatives. SG&A costs were elevated, resulting from higher warehousing related to transitioning certain warehouse locations as well as higher product donations. Net of all of these factors, segment adjusted EBITDA improved 7% compared to the prior year. Weetabix net sales increased 9% over the prior year. This reflects a 6% and a 4.5% improvement in volume and average net pricing, respectively. Growth in both branded and private label biscuits, driven mostly by increased consumer purchases in the last half of March, was modestly offset by declines in non-biscuit products. We also lapped elevated international shipments resulting from prior year Brexit preparations. Average net pricing benefited from targeted base price increases and favorable mix. A slightly weaker British pound to U.S. dollar exchange rate caused an approximate 180 basis point headwind to both the net sales and adjusted EBITDA growth rates. Overall, Weetabix segment adjusted EBITDA increased 12.5%. Net sales in foodservice decreased 2.7%, with volumes down 4.2%. As Rob discussed, the declines reflected lower demand in March from foodservice customers across the four sub-channels most impacted by COVID-19. Volume growth was robust in January and February, increasing 5.4% year-over-year, masking the sharpness of the volume declines experienced in the last two weeks of the quarter. Adjusted EBITDA declined 27% from the prior year, driven by a number of factors. We saw unfavorable fixed costs absorption as well as $6 million in higher reserves for short-dated inventory, both of which were caused by the sharp declines in demand late in the quarter. Integrated supply chain costs were elevated and included $2.8 million in start-up costs at our new precooked egg facility and higher freight costs, largely caused by inefficient load factors. Last, we incurred approximately $3 million in expenses associated with the February fire at the Bloomfield laying facility. Moving to Refrigerated Retail. Net sales and volumes increased 8.2% and 2.4%, respectively. Side dish net sales increased 23%, reflecting a 13% volume increase and an improvement in average net pricing. We saw solid organic volume growth as well as growth driven by consumer pantry loading. Improvement in average net pricing was driven by targeted price increases communicated at the end of last quarter. The sausage business also saw a significant spike in demand in the last two weeks of March and benefited from an improved price-cost relationship. Refrigerated Retail segment adjusted EBITDA increased 1.7% as these benefits were partially offset by lower cheese and retail egg volumes combined with higher cheese and egg input costs. BellRing net sales increased 19%, while adjusted EBITDA decreased 14%, both of which reflect BellRing's elevated marketing and promotional activities this quarter. As with our other retail businesses, BellRing saw sharp increases in volumes from pantry loading in the last several weeks of the quarter. You can hear further detail about BellRing's results on their conference call later this morning. Turning to our capital markets activities. Before we temporarily suspended our share repurchase program, this quarter, we purchased approximately 2 million shares at an average price of $101.75 per share. Our remaining share repurchase authorization is approximately $162 million. During the quarter, we issued $1.25 billion in principal value of senior notes. The proceeds were used in part to redeem our 5.5% senior notes due in March 2025. We also retired our 8% senior notes this quarter. With these transactions, our bond maturity ladder has been extended to 2030 and our first maturities are not until 2026. Last, in March, we amended our $750 million revolving credit facility, adding flexibility and extending its maturity to 2025. As a reminder, neither BellRing nor Post are obligors or guarantors of the other party's debt. Accordingly, we report leverage statistics for Post independent of BellRing net debt and adjusted EBITDA. Post pro forma net leverage on this basis was approximately 5.3 times as of March 31. For the first six months of the year, our cash flow from operations was $89 million, which was down from a year ago. The primary driver of this decline was $50 million in higher net settlements of our interest rate swaps and the timing of working capital across several of our segments, in particular, increased accounts receivable with the surge in sales at the end of the quarter. We expect the operating cash flow to improve significantly in the second half of fiscal 2020 when compared to the first half of the year. In fact, in April alone, Post and BellRing together generated approximately $165 million of cash as some of the working capital timing reversed, bringing our consolidated cash balance at the end of April, including BellRing, to approximately $1.35 billion. As Rob mentioned, we feel confident in our current liquidity position and our ability to continue to generate positive operating cash flow, which combined will provide us the necessary flexibility to navigate this environment. With that, I'll turn the call back over to the operator for questions.

Your first question comes from the line of Andrew Lazar with Barclays.

I've got two questions, if I could. First would be, Rob, I think you mentioned not much reason to think that your expectation for second half plans would change as benefits to the Retail side would likely offset the challenges in foodservice. I think this comment was in regard to cash flow, but correct me if I'm wrong. Would you expect the same to go for EBITDA, broadly speaking? Or would there be a reason for those two to diverge significantly?

No. There would be some fairly significant divergences because we're bringing in and characterizing the cash flow as essentially intact. We're bringing in balance sheet changes as well, things like working capital, capital expenditures, and taxes. So the decline in foodservice EBITDA will be partially offset by Retail benefits but not entirely.

Thanks for that clarity. Okay. And then, I guess I was intrigued by some of your comments around being cautiously optimistic around the reengagement that you're seeing in certain Retail categories like ready-to-eat cereal, for instance, with some of all this incremental trial that you've been getting. And I know it's real early, but maybe you could share a little bit more of what you're seeing there. Maybe it's some anecdotal evidence that you're seeing around the potential for some of this to be a bit more sticky going forward and kind of what you're doing or the changes basically in how you approach your marketing plans to make sure you're trying to convert as many of those folks into sustainable consumers as you can. Thank you.

Yes. Well, I think you'd have to say it's entirely anecdotal because if you just look at the data, the data reflects such volume growth that is not sustainable. So what we're trying to parse out is what is the surge impact, not just the pantry loading, but the surge impact from consumption while in shelter in place from what is durable, and it's frankly very difficult. But the reason for some cautious optimism is, and again, anecdotally, we hear about consumption at different day parts much more leaning into snacking as a healthier form of snacking, consumers who had not experienced the category in a number of years experiencing it and enjoying it and coming back to it. So I think it's more intuitive and based on conversation because the data right now would give you all sorts of false conclusions. And that's why I'd characterize it as, one, very early; and two, cautious.

Your next question comes from the line of Chris Growe with Stifel.

I hope everyone is doing well. I want to follow up on Andrew's question to gain a deeper understanding of the dynamic between foodservice and retail. Since foodservice accounts for roughly 30% of your business, or slightly less, and the retail segment is performing so well, I'm trying to comprehend why the weakness in foodservice isn't being balanced out by the strength in retail. To clarify, are you preparing for a reopening of foodservice businesses, which means you're incurring significant costs? Does this situation persist throughout the quarter? Is that the message you're conveying? As a result, does this lead to a substantial profit decline that isn't fully compensated by retail gains?

I wouldn't say we are preparing for it because that implies we are making changes. What we are not doing is aggressively cutting costs if we didn't believe the reopening would occur. Regarding our demand, we typically generate about $450 million a quarter in volume, which equates to roughly $150 million a month, and this was down 65% in April. That results in a $100 million decline in revenue. Outside of variable costs, there is very little we can do in the face of such a significant revenue drop in a short timeframe. This situation has a considerable impact on short-term profits regardless of the recovery’s trajectory because it happened so quickly, leaving us with limited ability to respond aside from managing natural variable costs. When the system is de-loaded so rapidly at this scale, the effects on absorption and reaction time create a substantial impact on profit. This scenario is not correlated with the cash-generating capability of the business; as it recovers, the situation will reverse, but it certainly leads to a challenging quarter.

Yes. Okay. And just to follow up, regarding this quarter, which had a different EBITDA composition than I expected, overall it was a strong performance. Are there any additional COVID-related costs that you would identify as having a further impact on EBITDA this quarter? I'm trying to set aside the significant effect on foodservice, focusing instead on unique costs, and how many of those costs will carry into Q3 for you?

Sure. There are additional costs associated with safety and employee welfare. We are incentivizing supply chain workers significantly. However, the main aspect of this quarter that may not be immediately clear as COVID-related is that we had promotion plans in place for the second quarter. When the surge hit in March, those plans were too established to pull back. As a result, we experienced an increase in volume at promotional prices that would typically have been at regular pricing. This is a COVID-related pricing impact that won't happen again.

Your next question comes from the line of John Baumgartner with Wells Fargo.

Rob, just a big picture, sticking with the foodservice egg business. Clearly, a lot of uncertainty in the number of permanent outlet closures, the traffic levels for outlets that continue on. I know you're a big proponent of the optionality trees and kind of planning for the unexpected. So how do you conceptualize COVID? I mean you broadly mentioned your time frame through the end of 2021. But how do you think about the short-term ability to repurpose egg supply into Retail? And then medium and longer term, how do you see the structural opportunities changing for the business versus your base case?

Let me begin by discussing our thoughts on recovery. As Jeff mentioned, the subcategories vary significantly. We believe that quick-service restaurants, which primarily rely on takeaway or drive-through transactions, will recover relatively quickly. Education is straightforward; institutions will either open or remain closed. We see primary and secondary schools likely opening, while colleges will make individual decisions. Full-service restaurants are expected to have a slower recovery as they implement social distancing measures that could limit demand. Travel and lodging will take the longest to recover, which is quite evident. When considering when to expect a return to 2019 levels, we anticipate that will happen in 2022, with 2020 being the low point and 2021 somewhere in between as we work to rebuild demand, ultimately exiting 2021 operating at 2019 levels. Regarding the business structure, we maintain our belief that, barring an unprecedented situation like the one we are currently facing, we run a competitively advantageous business that we want to invest in further. We expect opportunities to arise from this foodservice disruption, although it's too early to fully capitalize on them, we are confident they will present themselves. Thus, our overall outlook on the foodservice sector remains unchanged. While we will adjust our strategy to account for shifts in consumer behavior post-crisis, we must be cautious not to base our entire framework on such a unique event. Concerning our efforts to repurpose into retail, we will continue to do so as best we can and are currently trying to. Initially, challenges arose during the peak of panic buying, as retailers were hesitant to complicate their supply chains, which is understandable. However, over time, we see this as a significant opportunity.

Great. And then just along the lines of the structural thoughts. Also, I'm wondering the extent to which the current environment presents opportunity to maybe wring more structural efficiencies from the network, thinking more broadly Post Holdings: more permanently improving less-than-full truckloads that have been an issue in the past or maybe redeploying CapEx from harder assets into more digital IT capabilities. How do you turn this dislocation into an opportunity for you?

That's a great question. One of the challenges we faced in pursuing those opportunities was the high demand we needed to satisfy due to significant growth in potatoes and solid growth in eggs. This situation allows us to take a step back and evaluate areas where we can improve as we move forward. We are focusing on this across all sectors, not only in foodservice. However, one lasting impact is likely to be an accelerated shift toward e-commerce. We are definitely investing, like many others, to ensure our e-commerce capabilities meet the necessary standards.

Your next question comes from the line of David Palmer with Evercore ISI.

I wanted to check in on the foodservice aspect. You have significant exposure to breakfast, which has been notably affected, experiencing a decline rate around 10 points worse than other meal times. This downturn seems less related to stimulus funds and more about people resuming their commutes to work, making the situation contingent on the reopening of offices. However, we are beginning to see states start to reopen, with Texas and Georgia already in progress and Florida having just reopened. For example, Starbucks is reporting an 85% reopening rate this week, expected to reach 90% or more by early June. Are you starting to notice early signs of how the recovery might unfold for you? Additionally, can we discuss some specific figures regarding the decline rates and what kind of prolonged weakness you might anticipate beyond the initial reopening phase?

We are seeing some optimism regarding the recovery as we transition from the depths experienced in April to some improvement in May and beyond. The process of moving through inventory dislocation into replenishment is ongoing, and we observe growth each week. With respect to things like Starbucks reopening, we are confident in their plans for safely operating their units and believe they will recover quickly. If we could provide specific numbers regarding the reopening instead of withdrawing guidance, we would have done so. However, this situation is new for all of us, and we have broad assumptions about the pace of recovery, which are somewhat speculative. So far, we have been reasonably accurate but want to acknowledge the uncertainty we are facing, unlike anything we have experienced before, and be cautious about predicting the near-term future while still feeling positive about the long-term outlook. Your firm has discussed the concept of human ingenuity, and we are optimistic about that and the prospects for our business model as it evolves. However, we cannot precisely predict how the reopening will unfold or the state-by-state variations in recovery.

You mentioned egg prices. Should we be concerned about margins related to egg prices for the upcoming quarter?

Well, so what I mentioned was that when the crisis hit, we obviously had inventory. And very abruptly, our inventory didn't necessarily line up with our demand. We obviously have a production planning cycle that starts with certain demand assumptions. And when those demand assumptions got upended, it left us with an inventory mismatch. So it was less about egg pricing than about having the higher cost to egg servicing lower cost segments. And that's what I was referring to. That is largely working its way through in April, maybe close to done by now, should be behind us through the balance of the year.

Our next question comes from the line of Jason English with Goldman Sachs.

I want to focus on foodservice and eggs for a moment. It seems that egg prices, particularly liquid egg prices, have reached a new all-time low, approximately half of the previous low, which is quite significant. As you mentioned, there appears to be a lot of inventory available. As we move toward recovery, is there a risk that some customers might choose to take advantage of the current substantial price differences and purchase from the cheaper liquid egg markets to reduce the existing inventory? That's my first question. Secondly, regarding this situation, it seems that the current price levels could be quite damaging to some of your competitors. You’ve mentioned opportunities arising from this from a competitive standpoint. Could you elaborate on that? How do you think this impacts your competitive position over a longer period? Is there a possibility for you to further consolidate the market?

I believe the strength of our business lies in its diversification. However, the downside is that when Retail sees a significant boost, we don't benefit as directly as a dedicated retail company would. As the market recovers, we won't face the same delays that some pure retail firms might. Our business structure allows us to be proactive with middle market companies that rely entirely on food service, which are plentiful. While I don't think the timing is perfect for that now, I expect opportunities to arise soon. Regarding our customers, I believe most will continue adhering to the pricing strategies they've been accustomed to for many years. While there could be some opportunistic behavior, it will likely be limited. Additionally, I don't think the gap in the current commodity price market is as significant as it may appear.

Okay. That's helpful. And then switching back to the cereal business. Certainly, some upbeat commentary from you both in terms of the near term, which we've seen in the data, but also the potential medium and longer term if some of this penetration or re-adoption holds. But I'm curious what you're seeing in some of the most recent data. As we look at some, albeit limited sample set, scanner data through just last week, it suggests that the category has decelerated pretty substantially. And I think actually, last week, the week of May 2, fell into some declines. And this is only in the grocery channel. What are you seeing as you look across all channels in terms of underlying sustained momentum for that category?

Yes. So I have not seen that. What we're looking at all channels. I would characterize just March, April and early May as low 30s, low 20s, high single-digits. So I don't know that we're at a point where we can conclude much just yet. I would have been surprised. I frankly was most surprised by the April number being as high as it was. So I think that we just need to let the data develop a bit before we start making conclusions because this is such an outlier in terms of consumer behavior.

Your next question comes from the line of Jefferies.

So I just want to step away for a minute from the foodservice side, give you a break. In terms of just cereal in general, right? Obviously, we've seen the lift. We don't get it. I guess kind of 2 questions. The first question simplistically is, have you seen any real delta between kind of this lift, let's say, in the U.K. with Weetabix relative to what we've seen in the U.S.? And I don't mean quantitatively, just anything kind of more qualitatively. Any thoughts around that going forward? What any differences could be? I mean it's a very general question. And then secondly, still on cereal, is just that promotional piece, right? It sounds like there's a little bit of promotional pricing that was kind of already in there. But now if we think about kind of where we could go in the second half of the calendar year, the feel is that promotional pricing maybe being pulled back now, maybe some AMP all-in for a number of companies maybe across the board. But as at home maybe shifts kind of, let's say, back to normal, but as away from home kind of picks up and at home kind of starts to drift a little bit, the feel is that maybe promotional pricing or AMP overall actually starts to lift. So the U.K. versus U.S. and then how are you thinking about maybe category promotional and AMP overall kind of for the rest of the calendar year?

There are some notable differences between the U.S. and the U.K. regions. I've primarily discussed the U.S., so I'll concentrate on the U.K. We observed two key trends. First, there was similar surge buying, but we experienced a quicker return to pre-COVID levels plus a slight increase. This meant a better replenishment rate, without the significant rise observed in April. I don't currently have an explanation for this difference, as we are still analyzing the market behaviors. However, the market has shown strong performance in terms of consistent consumption. The second notable trend is a significant shift from private label to branded products. We attribute this change to consumers seeking comfort from established brands during a crisis, particularly the trusted Weetabix brand. While this has been a positive development, it appears that the U.K. market skipped a month of decline and moved directly to replenishment. Regarding promotions, I want to clarify what transpired during the quarter. Given our method of accounting for promotions, any volume increase exceeding our promotional expectations is recorded at the promotional price. We achieved higher than expected volumes due to pre-planned promotional events coinciding with surge buying, which is mostly an external factor for the rest of the year. I don't foresee any significant lingering effects into April, possibly just a day or two. As for our plan for the rest of the year, it is unusually concise and highly consultative with each of our customers. We are working with them to ensure a manageable flow of demand and customer traffic in stores. Therefore, I would be surprised if the remainder of the year involved heavy promotions. However, I wouldn't be shocked to see a reduction in promotions to better manage customer traffic. Ultimately, this situation is still evolving.

Yes, that's very helpful. As a quick follow-up regarding future cash allocation, we find ourselves in a unique situation. You mentioned earlier that there might be some additional opportunities in the foodservice sector, particularly in full service and the overall supply chain. Would you say, compared to a month or two ago, you might be more inclined to explore opportunities in that area of the business rather than just traditional branded packaged food? That's all I have.

I wouldn't necessarily say we're more focused on it. I would say we believe there is likely to be greater value there. We want to remain open to opportunities across the landscape. However, if you examine what has transpired, most businesses that cater to retail have benefited, while those that cater to foodservice have generally not. Therefore, it seems to us that the value may be stronger on the foodservice side.

Your next question comes from the line of Michael Lavery with Piper Sandler.

Can you discuss your thoughts on innovation launches or nontrade marketing for cereal? I understand that simplicity is important right now, but later in the year, when you have more of the consumers' attention, could it be a good time to engage with them in new ways and increase spending? Additionally, regarding foodservice, are there any one-time costs we should be aware of in this quarter? It seems like the risk of obsolete inventory is lower, but I missed some details during Rob's comments.

In terms of innovation, I think, to an unusual degree, innovation is supply chain driven. So where customer supply chains will allow it, we will continue; and where they need to maintain a more simple assortment, we will delay. So I don't really want to get too much more in innovation. I think you all know that we had a lot of ambition for our current year and moving into next year, but that's largely going to be driven by conversations with customers about how aggressive they want to be on changing assortment. In terms of onetime costs, there are not huge onetime costs. There are a myriad of incremental inefficiencies that result from the demand being drawn down so quickly. I highlighted on the call two of them, one being the mismatch between the nature of our inventory and the nature of our demand and the other being the cost of moving product that had already been shipped to where it was now needed, so essentially, double handling in freight. There's numerous such costs. I wouldn't characterize them as significant in individual, but they can add up in aggregate.

Your next question comes from the line of Bill Chappell with SunTrust.

I want to revisit the cereal segment. I recognize the strengths, but it can be challenging to interpret the data when everything is increasing. Without Weetabix in the mix, you're particularly focused on children and value. I'm curious if you believe that the current preference for comfort food, with kids staying home from school, will continue, or if it’s just a temporary trend. Additionally, as unemployment rates have risen recently, are you noticing a quicker shift toward the bag category and whether this value segment is showing any incremental growth? It's difficult for us to differentiate between these trends based on the numbers.

Yes. I mean the numbers are hard to draw conclusions from, so my answers are largely based on intuition. But in my prepared remarks, I commented upon how Post has certain brands that score very well from a taste perspective but don't have the same degree of awareness or household penetration and in that, I called out MOM bags. So MOM bags have very high repeat rate once they have trial, but they historically have suffered from an insufficient trial and relatively lower ACV than some of our peers. So when you got to the panic buying and shelves were empty, it was fairly self-evident of a broad trial opportunity. And our expectation is that some of that will stick. But again, that's, at this point, intuition, not much more than that.

Okay. And we'll just leave it at that. And then moving to 8th Avenue, which I don't think you really talked to about as much, that clearly was a much better quarter for them but obviously more moving parts from private label, too. How is that doing? Is that progressing from kind of their hiccups of 2019?

They had a strong quarter, particularly in the nut butter segment. The pasta business also performed well in retail, although the foodservice portion, which makes up about one-third, showed some decline, not as severe as anticipated, but there was still some weakness. Overall, 8th Avenue had a solid performance, and we believe that COVID will ultimately benefit 8th Avenue this year.

And it made an acquisition intraquarter?

We acquired a factory that manufactures the assets related to the Peter Pan brand, resulting in a co-manufacturing arrangement.

Your next question comes from the line of Ken Zaslow with Bank of Montreal.

Can you discuss your ability to get products onto store shelves? Are you experiencing any stock shortages? Are you able to fully supply your retailers? Additionally, can you address consumer interest in private labels compared to major brands? There's been considerable discussion about whether consumers are actually choosing private labels or are focusing more on branded products. This might also relate to what is available on the shelves.

Yes. Regarding your first question about our ability to supply shelves, I am cautious about tempting fate, but so far we have successfully met demand and are performing very well. I expect this to continue. I am particularly proud of how our supply chains are responding, whether they are dealing with increased demand or facing challenges from demand destruction. The individuals working every day in our supply chain are doing an outstanding job, comparable to health care workers. On private label products, there are a few points to consider. Some consumers, as I mentioned in relation to Weetabix, are seeking comfort in familiar brands during these uncertain times, while others are looking for the cost-effectiveness of private label options due to economic pressures. Additionally, some shortages have led to more indiscriminate shopping behavior. Considering these factors, it's important to allow more data to emerge before drawing conclusions.

That’s a fair point. Thank you.

This does conclude today's conference. Thank you for participating. You may all now disconnect.