Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales increased by 17.2% in the fiscal fourth quarter, driven by the acquisition of Owen and an additional 53rd week.
- Gross margin improved, resulting in an adjusted EBITDA increase of 15% compared to the previous year.
- The nutritional snacking category continues to grow strongly, driven by volume, with key sub-segments like bars, shakes, and chips showing increases.
- The integration of Owen is progressing as planned, with expectations of significant shareholder value through revenue growth, margin expansion, and cost synergies.
- The Quest brand is expected to have another strong year, with anticipated retail takeaway growth of 9% to 10%, supported by increased production capacity and new product launches.
Negative Points
- Atkins brand sales declined by about 5%, with expectations of continued decline due to reduced marketing and trade investments.
- Temporary chip supply constraints negatively impacted Quest's performance, leading to stockouts at retailers.
- Input cost inflation is anticipated to be a headwind in fiscal 2025, potentially leading to gross margin contraction of about 200 basis points.
- The company plans to discontinue its breakeven Canada export business, impacting fiscal 2025 sales growth.
- Atkins is expected to see a high single-digit decline in retail takeaway in fiscal 2025, partly due to planned reductions in spending and distribution losses.
Q & A Highlights
Q: Can you provide insights on the recent innovation launches, particularly the Bake Shop and coffee drinks, and how they compare to previous innovation cycles?
A: Geoff Tanner, President and CEO, mentioned that the Bake Shop platform, which includes muffins and brownies, is performing well and meeting expectations. The platform targets a sizable market with its low sugar and high protein offerings. Quest's innovation strategy focuses on flipping macros on large snack categories, and they are encouraged by the early performance of these new products.
Q: How do you view the competitive landscape for the upcoming "New Year, New You" season, and are there any anticipated challenges?
A: Geoff Tanner noted that last year's season was challenging due to a competitor's stock issues, which benefited Simply Good Foods. For the upcoming season, they have strong merchandising plans in place and are prepared for competition, although the exact competitive dynamics will become clearer closer to the season.
Q: Can you elaborate on the growth outlook for the legacy business in fiscal 2025, considering factors like Quest's capacity improvements and Atkins' trade spend optimization?
A: Shaun Mara, CFO, explained that reported net sales are expected to grow similarly across the first three quarters, with a flattening in Q4 due to the previous year's 53rd week. Quest's chip supply issues are being resolved, which should add to growth, while Atkins will see a phased reduction in trade spend impacting sales.
Q: What are the expectations for Owen's growth in fiscal 2025, given its recent strong performance?
A: Geoff Tanner highlighted that Owen's growth has been driven by significant distribution gains. While fiscal 2025 will focus on filling distribution voids and optimizing pack sizes, the growth rate is expected to be 20% to 30%, reflecting a more stable expansion phase compared to the previous year's distribution push.
Q: How is the marketing strategy evolving for Atkins and Quest, and what are the expected impacts on brand performance?
A: Geoff Tanner stated that Quest's "It's Basically Cheating" campaign has been highly effective, particularly for chips, and will see increased investment in fiscal 2025. For Atkins, new advertising focuses on weight wellness and aligns with consumer trends, though marketing spend will be optimized to ensure sustainable brand growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
