Good morning. My name is Dee, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2024 second quarter conference call. Conducting 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. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your question, press star one one again. Thank you. Now, to begin the conference call, here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 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 at 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 of your questions. 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 2024. In our fiscal second quarter, which ended December 31, 2024 we are pleased to report record financial results as consolidated net sales increased 1.8% to $485.9 million. Gross profit grew 19% to $121.5 million, and operating income increased 28.1% to $65.8 million. I'm very thankful for the effort and commitment by all of our teammates throughout Lancaster Colony that enabled us to deliver these strong results. In our retail segment, net sales growth of 2% was driven by carryover pricing, volume gains for our successful licensing program, continued strong performance for our New York Bakery frozen garlic bread, and increased demand for our Reames frozen egg noodles. Retail segment sales volume, measured in pounds shipped, declined 1.9%. Excluding the impact of a product down-weighting initiative and a reduced commitment to private label bread, retail sales volume increased 1.2%. Specific to our licensed product, retail scanner data for the quarter showed Chick-fil-A sauce is up 6% to $38.7 million, and Olive Garden dressings up 2.1% to $34.4 million. Buffalo Wild Wings sauces were about flat at $19.3 million, which compares to a strong quarter last year when sales increased over 26%. Our category-leading New York Bakery frozen garlic bread saw sales growth of 4% to $88.7 million, for a share of 43.1%. Sales of our Reames frozen egg noodles increased 17.9% to $16.5 million to capture a 70.3% share of the frozen pasta noodle category. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are also performing well, with scanner data showing $9.4 million in sales during the quarter. When combined with the sales of our Marzetti brand dressings, our refrigerated dressing sales have grown to represent a category-leading 27.7%. In the Foodservice segment, sales growth of 1.5% was led higher by demand from several of our national chain restaurant accounts, along with volume growth for our branded Foodservice products. Food service sales volume, measured in pounds shipped, increased 4.6%. During the period, Food service segment net sales were adversely impacted by pass-through price decreases, which resulted from commodity deflation. During Q2, we were pleased to deliver a gross profit of $121.5 million and a gross margin of 25%, an increase of 360 basis points versus last year. This increase was driven by favorability in our pricing net of commodities, or PNOC, following two years of unprecedented inflation, along with the beneficial impacts of our cost savings initiatives. Our focus on supply chain productivity, value engineering and revenue management remain core elements to further improve our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our second quarter results. Tom? Thanks, Dave. This quarter featured continued top-line growth, improved gross margin performance, and higher operating income. The gross profit and operating income results exceeded our expectations and set a second quarter record for the company. Second quarter consolidated net sales increased by 1.8% to $485.9 million. Decomposing the revenue performance, approximately 1.5 percentage points was driven by volume mix, and the remainder was driven by pricing. Pricing was favorable in the retail segment, but deflationary in the Foodservice segment due to lower commodity prices. Consolidated gross profit increased by $19.4 million or 19% versus the prior year quarter to $121.5 million. Gross margins expanded by 360 basis points to 25%. The gross profit growth was primarily driven by favorable PNOC performance and the company's cost-saving initiatives. Commodity costs were deflationary versus the prior year, but remained elevated versus historical levels. Selling, general, and administrative expenses increased 9.7% or $4.9 million. The increase reflects investments to support the growth of the business, including higher consumer spending and increased brokerage costs. Consumer spending increased versus a low comparative period to support retail segment growth initiatives. Reduced expenditures for Project Ascent, our ERP initiative, partially offset these increases. Costs related to the project continued to wind down, totaling $2 million in the current year quarter versus $7.5 million in the prior year quarter. Consolidated operating income increased $14.4 million or 28.1% due to gross profit improvement, partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.4%. We estimate our tax rate for the remainder of fiscal 2024 to be 23%. Second quarter diluted earnings per share increased $0.42 or 29% to $1.87. The net impact of the reduction in Project Ascent expenses was favorable by $0.15 versus the prior year. With regard to capital expenditures, our year-to-date payments for property additions total $37.1 million. For fiscal 2024, our forecasted total capital expenditures remain at $70 million-$80 million. The forecast reflects a decline versus the prior year spending, with the Horse Cave expansion project now substantially complete. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $0.90 per share, paid on December 29th, 2024 represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 61 years. Net cash provided by operating activities for the second quarter was a robust $105.9 million, driven by the higher net income and reduced working capital. Our financial position remains strong, with a debt-free balance sheet and $133.8 million in cash. To wrap up my commentary, our second quarter results reflected continued top-line increases, record gross profit and operating income performance, and investments to support further growth. I will 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. To one, accelerate core business growth. So number two, simplify our supply chain to reduce our cost and grow our margins. And number three, to expand our core with focused M&A and strategic licensing. Looking ahead to our fiscal third quarter, we project retail sales will continue to benefit from our expanding licensing program that will include contributions from the launch of Texas Roadhouse steak sauces. I am also excited to share that we have added Subway as a new partner to our retail licensing program, with an initial offering of 4 different Subway sandwich sauces, including their most popular Sweet Onion Teriyaki. Both Texas Roadhouse steak sauces and Subway sandwich sauces will begin shipping to retailers later this month. In the Food service segment, we expect sustained volume growth from select quick-service restaurant customers. Deflationary pricing is expected to remain a headwind for Foodservice segment net sales in the coming quarter. With respect to our gross profit, we anticipate some continued favorability in our PNOC, but at a sequentially lower level compared to our fiscal second quarter. With respect to our ERP initiative, Project Ascent, following the successful completion of the implementation phase during our fiscal first quarter, we are devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. Finally, as we announced in December, we had a change in our board of directors effective January first of this year, with the appointment of Alan Harris as our chairman, replacing Jay Gerlach. Alan has served as a director on the Lancaster Colony board since 2008 and was appointed lead independent director in 2018. While Jay is stepping down from his role as executive chairman, he will remain actively engaged as director. I would like to extend my deepest gratitude to Jay for his leadership and many years of dedication to Lancaster Colony, both as an executive and as the chair of our board. Jay was appointed to Lancaster Colony's Board of Directors in 1985, and is the corporation's longest-serving director. I would also like to congratulate Alan on his new appointment. Both Jay and Alan bring extensive leadership experience and strategic oversight to our board, which will continue to benefit our company and our shareholders going forward. This concludes our prepared remarks for today, and we'd be happy to answer any questions you might have. At this time, I would like to remind everyone, in order to ask a question, please press star one one on your telephone keypad. One moment. Your first question comes from Jim Salera of Stephens. Hi, good morning, guys. Congrats on a nice quarter. I wanted to- Thanks, Jim. Yeah. Yeah, I wanted to start with the inflationary headwind on Foodservice. I think if we back in, it's like a 300 basis point headwind in the quarter. If we think about the back half of the year, is that 300 basis point number a good kind of sticking point to think about, or is it gonna increase, decrease as we progress through the year? Hey, Jim. Yeah, it's Tom. We expect it to increase a little bit. We're in the 300-400 basis point for the back half on Foodservice deflationary. Okay. And is that- And maybe just a reminder on that, Jim, that just as the way it went up, when it goes down, it's a mark-to-market pass-through. So it's sort of a no harm event on gross profit that also drives modest margin accretion, as we've talked to you about in the past. It's just one of the nuances of that business in our portfolio. Right. Great. Yeah, that's, that's helpful context. So that's broad-based across the portfolio. It's not just, like, a few key accounts, that's just kind of the whole Foodservice? No. No, and it's really driven by our basket of commodities, soybean oil first among them, on that part of the business. Okay, great. Maybe one other question. You know, you guys got a nice lift from PNOC in the quarter, obviously. Think about it stepping sequentially down. As we think about back half gross margins, should it be somewhere between kind of 1Q and 2Q's level, or do we expect it to step down below what 1Q was? I think it was, like, 23%, 23.5%- Yeah. -first quarter. So yeah. Jim, as we're, I'll answer your question kind of as versus prior year. So if you look at the first half, we were up 200 basis points versus the prior year in gross margins. As we look at the back half, we expect it to moderate. We're more in the 150-200, but this is very much dependent on the commodity basket and how things play through. From a tailwind perspective, you know, we are seeing some commodity deflation in our forecast, and we're seeing some nice supply chain productivity results, and those are baked into our outlook in the back half. Okay, great. Thanks, guys. I'll pass it on. Thanks, Jim. Thank you. Thank you. One moment for our next question. Your next question comes from Alton Stump of Loop Capital. Great, thank you. Good morning, and, you know, I would also echo your comments, Dave, as it pertains to Jay, having known him for almost 20 years. Great to hear that he, you know, is taking his next step and will still be involved with the company, and also congrats, on the quarter, of course, as well. Thank you. Thank you. We'll pass your regards on to Jay. Great. Thank you so much. You know, I wanted to ask about the Subway announcement, which you kind of slipped in there. Yeah. You know, pretty quickly there, Dave. You know, I mean, that's obviously, you know, seems like pretty good news, you know, if not huge news. You've had, you know, several major announcements over the last couple of years. I know we've talked about this before, but, you know, how much of an impact do you think the huge success you've had over the last couple of years with Chick-fil-A is having on, you know, with Texas Roadhouse, Subway, Arby's, et cetera? You know, I would have to think that that has led to an increased incentive for these guys to reach out to you and say, "Hey, can we do something similar to what you're doing, you know, with, in this case, Chick-fil-A?" I guess, you know, maybe just some color on, you know, of this recent snowball of, you know, course, new signups you've gotten, you know, how much of that do you think, you know, if not directly, certainly indirectly, you know, is a, you know, result of the big success you've had with Chick-fil-A? Yeah, yeah. I think, you know, as I've shared with a lot of, you know, the covering analysts on the phone and you, Alton, you know, Olive Garden was our first foray into the space, and together with Darden Restaurants and Olive Garden, we learned our way through this. And what we learned, first and foremost, is that the proposition in retail was relevant, and second, that the proposition could actually be net accretive to the Foodservice business in terms of the positive perception around the brand. You know, fast-forward, you know, as we've moved, you know, beyond Darden and obviously continued to nourish that relationship, but added Buffalo Wild Wings and Chick-fil-A, I think it's just allowed us to demonstrate this proposition a little bit more broadly y ou know, Texas Roadhouse was a collaborative conversation. It was actually brokered by one of our big customers in retail. And then Subway was one that was an inbound conversation as well. So it's you know it's an interesting time, and I think it's a manifestation of the fact that the lines between retail and Foodservice are blending. We're seeing more occasions that are at home, and you know our partners out there in Foodservice are becoming increasingly open to this idea. And on the retail side, I think our important partners, be they Kroger, Walmart, or Publix, or whoever, like the idea of bringing you know relevant new items to these categories. So, you know, it's, you know, nothing—no, no tree grows to the moon, but I think our intention here is just to continue to work carefully to look for good partners where we line up at the values level. We're looking for long-term relationships in this space, and we're gonna try to see how far we can take this. We do have a pipeline of other folks that we're talking to. We're not ready to necessarily share with you now because these conversations take time. And we're even starting to look at categories beyond things that are necessarily sold in the restaurant and maybe even other categories than we've played in to date. So, you know, I would love to tell you we have another Chick-fil-A on the hook, but I think we all know there's just one Chick-fil-A out there. But I think this, in conjunction with how we're thinking about organic innovation and M&A into the future, hopefully will give us a balanced sources of growth for our retail business that allows us to compete in the top quartile of our peer group, and that's really our long-term aspiration. Great. Thanks for that, Cole. And then I guess just as a follow-up on that, obviously, you know, of course, the Horse Cave facility is up and running now. You know, it's your biggest facility. You know, is that also playing a role in just, you know, being able to be more aggressive in signing new partners? Because obviously, I think you had, you know, some pretty meaningful, you know, capacity constraints, you know, prior to that facility opening. Well, that's correct. We were constrained on retail bottle capacity. And then also just the SAP implementation created a lot of organizational noise. So one of the things that, you know, we've been happy to be able to focus on in fiscal year 2024, is just really getting back to the basics of focusing on good execution. The theme for this fiscal year is execute to grow, and I think it captures the essence of both elements there, right? Good execution in our plant, focusing on our GMPs, be they safety and quality, good execution in the plant around productivity, and then making sure that we do this in a way that we can, you know, work our way through the external circumstances with, you know, where consumers are to achieve, you know, growth at the higher end of our peer group. Great. Thank you. And then, you know, I have one last one, and then I'll hop back into you. I guess this is probably for Tom. But Tom, just to make sure on your comments on, of course, the larger front, because obviously, you look at the first half of the year, you know, the bulk of that, you know, as you mentioned, you know, 200+ basis point growth came here in Q2. So as I think about your comments, you know, about 150-200 basis points, it seems to say that basically that you think that the back half, you know, could be similar to maybe a bit lower of an increase year-over-year versus the full first half of the year, just not the, you know, huge increase, obviously, you know- Yes. 360, you know, basis points, I think, if my math is right, that we saw here in Q2. Am I right on that? That, that's correct. And I think part of the reason is that as you get into Q4, our expectations based on our commodity outlook and our pricing models, we don't expect as strong a PNOC performance year-over-year in Q4 versus Q3, and what we experienced in Q2. Yeah, the retail business, we continue to have the benefit of pricing. And the pricing, as you might imagine in this environment, is winding down. So that's gonna continue to diminish during the period. We'll continue to see favorability on the commodity side, but when you put pricing and the commodities together, that's the reason why we expect to see this diminish marginally. Got it. Great. Thank you so much, Tom and Dave, for the help. Of course. Thanks, all. Thank you. Thank you. One moment for our next question. Our next question comes from Robert Dickerson of Jefferies. Great. Thanks so much. Good morning, everyone. Good morning. Good morning. Yeah. Nice to hear from you. Got a few questions, try to keep it quick. I guess just kind of, you know, on the back of your last comment on pricing and retail and, you know, how that kind of- Yes. Rolls off- Yes. Which I totally get. Like, could there be, you know, some kind of price deflation on your end in retail in the back half? I'm just thinking through maybe some, you know, kind of investment needs, given kind of a broader backdrop right now on the promotional side from a lot of companies, on- Yeah. within retail. And then also, I mean, it seems like there's a little bit of a, maybe a more challenged comp, let's say last Q3. Yeah. That's the first question. Yeah. So great question. So what you're gonna see is still, you know, some marginal pricing that plays through. On the deflationary side of pricing, we started to see these trends of softness emerge, let's say, in November and into December, and really at that point in time, Rob, we started to put plans in action. So for those of you that are tracking weekly data, we went out on Olive Garden, for example, and we took our entry price point size to 16 oz, where at Walmart, it had floated above $4, and we supported the price down into, like, a $3.95 price point, I think is where it's at on the shelf right now. We also made adjustments. It was a sort of a game time audible on Sister Schubert's, where we had planned actually to take our promoted price point from the prior year at two for $7, up to two for $8. You know, predicated on the softness we are seeing out there in the consumer environment, we actually communicated with retailers. We wanted to roll back to two for $7, and obviously, they were happy enough to honor that. So that wouldn't show up as a decrease versus the prior year, but it was a, let's say, a decrease versus our own algorithm internally. Those are probably cases and points of other areas where we're going out, we're selectively looking brand by brand at, you know, is it the entry price point that matters? Is it our gap versus private label that matters? Is it our promoted price point that matters? We're putting support in there. So I think what you're likely to see is a marginal tick up in trade support, but you're gonna likely see some, hopefully, some volume offsets on that. And what we're trying to do is, long term, orient ourselves towards household penetration, which we think is really probably the more important metric to watch when it comes to the health of the business. And then again, just brand by brand, go in and tune things up a little bit just to make sure the brand sits at a good place. You know, Sister Schubert's an interesting one, if I could go deeper. So we elected to take the promoted price point back down to two for seven. Parenthetically, we are also in the throes of going through the product down weighting on that, where we went from 1.5 oz per roll down to 1.25 oz, which is pretty consistent with what the industry is anyway. We didn't have one complaint during the season. And so we were able to address, you know, lagging margin issues we'd had on that business, as wheat had skyrocketed. But we felt like it was more important to watch our promoted price point. So that's how we're handling it. But back to your original question, which I think is an important one, you know, I would say marginal upticks on trade, but at this point, given our categories, we don't see a wholesale reset. You know, I worked for a long time for Bill Johnson, and he had this saying, "Profitless prosperity." And I think we're all just somewhat cautious about overinvesting and chasing things down. So we feel like watching household penetration is a good strategic way to think about this, and then making those investments that really protect for the, you know, short term and the long term. So you asked a short question, I gave you a long answer. I apologize. Yeah. Yeah, it's usually the other way around. Bill Johnson, good guy, so I appreciate that. Okay, and then, you know, I guess, you know, when I look at your dressings and sauces business, which- Yeah. You know, clearly has the higher margins, clearly been going great for you. Kind of over, like, you know, over time, it seems like there's maybe, like, a little lift, you know, with the launch, you know, things do well. But at the same time, you know, it seems like recently, maybe, like, frozen breads are kind of driving more of the growth than dressings and sauces. So I'm just curious, like, you know, the licensing dynamic has been going great for you in retail. Mm-hmm. At the same time, like, have you seen any recent shifts in consumer behavior? Like, I totally appreciate your prior comments on, you know, some of the price pack architecture. Yeah. You know, and driving household penetration, that's key. But at the same time, I'm just thinking, like, you know, we keep hearing kind of, you know, value-seeking consumer. Yeah. That's maybe buying more, I don't know, frozen dinner rolls than they're buying- Yep. You know, amazing Maui Subway sauce. I don't know. Yeah. Yeah. Thoughts. So you know, it's a bigger question, so I'll try to keep the answer crisp, because I know we're on a timeline here. So maybe we'll take them up a category at a time. You know, I think we're in a season where New York Texas Toast is particularly relevant because that spaghetti and meat sauce meal occasion is a good value for consumers. And our team has done a nice job of using digital marketing to make sure that we're working with our big retailers to try to get into that basket. So, for example, on one of their shopping apps, if they see pasta going in and pasta sauce going in, they're gonna be presented with, sometimes it's just the brand, not even a coupon. And what we find is that there's really solid conversion on those occasions. But on toast, highly relevant in this season. On rolls, you know, I think there again, it's relevant. I don't know, in the case of Sister Schubert's, if I would say that, wow, it's right in the sweet spot of a recession, if we ever got there, like toast is. But I would tell you, as consumers eat at home, it's a great product, and it rounds out the rest of a great meal occasion. On our sauces, you know, I think where we're seeing some cases of trade down, we're not different than any of the others. What you're seeing is a trade down from, you know, traditional food into, for example, you know, the mass merchants. In some cases, mass merchants down into discounters, from larger sizes to smaller sizes. Affluent consumers are going to club. So we're seeing a lot of that, and we're sort of monitoring that as it goes. On licensed sauces, you got a couple of things going on. Chick-fil-A sauce is continuing to grow in the mid-single digits, albeit off of the pace that they were on before. I think that is so unique that consumers are continuing to support it. W e did see some softness on Olive Garden as consumers traded out. They, you know, we could watch them trade from larger sizes to small sizes and small sizes out. That's why we went in and made that price point adjustment. We feel like we're in a good place there. You know, Buffalo Wild Wings and Arby's were, for all intents and purposes, really launched and supported last year. Buffalo Wild Wings, at this point in time, we were getting tens of millions of dollars of free advertising on TikTok. And you're gonna note, if you're looking at weekly scanner data, we're gonna have a rough few weeks, probably more like eight weeks, as we comp that period. The business still, year-on-year, is up more than 25%. So, and if you look at it on a 2-year stack, it's up considerably more than that. So in this case, I don't think it's whether or not the proposition is relevant. We have some hard comps. Things like Arby's, a really unique SKU, a unique occasion. We got crazy support from retailers last year behind this. This year, without the support, it's not selling quite as well off the shelf. You know, what I would maybe ground on with every one of these, Rob, is what we're trying to look at is the velocities of the item and where do they play in the greater condiment space, and all of these play in the top quarter of the category in terms of velocity. So we feel like, you know, some are, you know, they're the Mickey Mantles of the lineup, and some of these are maybe more, you know, position players, but all of them seem to have an important role with our retailers. Again, hopefully, that gives you some of the flavor or the context you were looking for. Yeah. No, that was even better than the last answer. I'll- All right. I'll pass it on. Thank you. Thanks, guys. Very good. Thank you. Thanks, Rob. Thanks, Rob. Thank you. One moment for our next question. Our next question comes from Brian Holland of D.A. Davidson. Yeah, thanks. Good morning. So I wanted to ask- Good morning, Brian. Good morning. I wanted to ask about the PNOC trend. So, you know, egg on my face for not modeling this appropriately in Q2 and accounting for, hey, a more normalized environment means you get some mixed benefit as well, skewing towards retail in Q2. But I just wanna make sure if we kind of disaggregate the mixed benefits kind of flowing through in a normal year versus PNOC. Is the PNOC spread widening and becoming increasingly favorable if we look to recent quarters to Q2? And if we think about the back half, is the commentary that the PNOC spread narrows relative, like Q2 was a peak PNOC spread, or is the second half a little bit more commentary more about, you know, the mix impact, where lower margin Foodservice is a higher percentage of your total net sales? If that makes sense. Yeah. Well, let me take—I'll take the first crack at the answer, Brian, and then I'll turn it over to Tom, maybe to try to go even deeper. And first thing I would tell you is I don't think you have egg on your face in this case. I think one of the hard things about this past quarter, really, the last six months for all of us, has been trying to forecast where commodities are gonna go. You know, soybean oil, for example, if we were looking at where was soybean oil in September? Well, in September, soybean oil was more than $0.60, and that right now it's trading at $0.45, right? If you even went back farther, you go back a year, it was at $0.60. So the falloff we've seen in soybean oil has been pretty precipitous. Over that same period of time, if you looked at wheat, let's say in August, you know, wheat would have been trading somewhere between $700-$750. Right now, it's like at $588. So again, a pretty steep falloff, and corn has fallen off even more. So I think one of the things that's made calling it harder this time, you know, within this narrow window, is I think we've seen commodities come off more aggressively than maybe we were anticipating. We've been pleasantly surprised, and I think if anything, that probably impacted things. If you look at just you know, this is one of the tie-outs we did, and maybe, Tom, I'll let you talk about, you know, versus where they were modeling in terms of consensus and where we came out favorable, maybe the sources of that variance- Yeah. In broad strokes. Yeah. So Brian, to build on Dave's point, I think what we saw versus at the time we talked to you last, we saw favorability in soybean oil, flour and grain, eggs. All of those contributed to the favorable PNOC performance versus versus our expectations as well. And, I think, as Dave hit on, we're, we're very cognizant of making the appropriate reinvestments to protect the business on trade, and that's, that's something that will continue to evolve as, as the year progresses. But to get to your question in terms of the, the flow of the PNOC, and Dave mentioned this earlier, we're in a space right now where you have more carryover pricing in retail and the commodity favorabilities, that, that we accreted this quarter. As you progress further, there's less of that carryover pricing, and there's a bit of a need to reinvest. So, to get to your question, I think Q2, from when we look at our PNOC projections, is the strongest quarter of the year, and Q3 will be favorable, and then less so in Q4, based on, you know, this is all based on our commodity outlook, our projections for a trade reinvestment, which can change. Yeah. But that's, that's how we're looking at it right now. I think modeling the business, Brian, if commodity deflation continues and the PNOC, you know, notwithstanding, I think what you're gonna find is that as commodities come down, you know, it's gonna be a mark-to-market in Foodservice with very modest margin improvement, just because obviously, the way the math flows. But we do expect the overwhelming majority of the deflation to stick on the Foodservice business. So you're gonna see, or excuse me, the retail business, which means you're gonna drive retail margin improvement, which when you guys, if you haven't got a chance to go through the Q, you'll see that broken out in there in more detail. So I think the mix of the businesses in terms of margin, our hope is if this commodity deflation sticks, we should begin to see our retail business revert to some of the historical margins that we've had there. Thanks, David, Tom, for the color, that, that's helpful. Just to put a button on that then, as we look towards the second half of the year. Yep. The PNOC spread tightening is more about pricing fading, and maybe more trade and, you know, assuming just continued sort of stable commodity prices. Is that directionally the way Yeah, I think that's directionally the way we're looking at it. Yeah. Okay, great. And then, you know, the SG&A was up more than I was forecasting. It was a source of deleverage, and I know you called out consumer investment. So maybe Dave, use this opportunity, you know, twofold. One, just state of the consumer in the retail channel, and you know, behavior of the retailers, what you're seeing there as far as. And I know you did mention some of this earlier with some of the pricing and the trade that you're doing. But is the expectation in the second half of the year that in that SG&A line, we need to increase? I know that's something you teased last quarter, as potentially something where you would have to step up on. Is that so? Did that come to fruition in Q2? Should we assume that that maintains maybe a source of deleverage in the second half of the year, consumer investment? Sure. So the consumer investment, if you remember last year, we were light in the first half, heavy in the back half. This year, we told you when we started, we were gonna be normalizing that spend across both halves, right? So I would expect on the consumer side is that our spending will not go up period on period because it was actually elevated last year, right? We don't have any intentions of pulling it back. But if you're looking at just consumer support below the line, we don't have intentions right now of elevating that. So when you look at our total spending on a year, you're gonna see it's elevated because we heavied up a little bit earlier on. Perfect. I'll leave it there. Thank you. Okay. Very good. Thank you. Thanks, Brian. Thank you. One moment for our next question. Your next question comes from Andrew Wolf of C.L. King. Thank you, Andrew. Hi, Andrew. Good morning, and congratulations as well. Good morning. Oh, thank you. Thank you. I'll say, maybe there's soybean oil on my face or something, but. Well. It's all good. It's the big commodity for the whole food complex. I know. On the PNOC, to start with, at least. Yeah. Just on the 360 basis point expansion in gross margin year-over-year. Correct. Either, give us the actual size or maybe a sense of the size, like, PNOC, like, how much would you allocate to PNOC versus, you know, some of the, value engineering? Yeah. That you spoke of, such as the, you know, the downsizing, the units, fruits, et cetera? Yeah. So the PNOC was a little over 200 basis points, and the cost savings initiative was a little over 100 basis points. So that's kind of how it played through the P&L. Got it. And now in that 100 basis points for everything, for the value engineering and all the stuff, Horse Cave, you know, running much better. Right. What is that? Right. Is that fairly sustainable for a while? Because, I mean, there's a lot of little things in there, whereas, you know, the PNOC is just sort of market determined, more or less. Yeah. Well, how are, you know, as you talk about, you know, the total you know, PNOC coming down because of the market and just the way the industry is. What about the second, you know, even though it's 100 basis points plus, how sustainable do you see value engineering and other cost savings? Yeah. So I think what we've told you and the rest of the covering analysts is that we're shooting for about $20 million in cost out every single year, and I think that remains true. You know, how we get that from period to period is gonna evolve. This time around, was a little heavier on procurement and logistics, where we were able to use some of the softness that's out there for line haul on ambient and temperature-controlled trailers to generate some sources of savings. We did have some benefit in productivity, but it was lighter. Manufacturing productivity, excuse me. As we sort of look going forward, I think what you're probably likely to see in the out years, out periods is, you know, things like logistics. You know, we're running bids as we speak now to capitalize on the favorable rates. And we'll lock in those savings, and we'll look to source more savings coming from the manufacturing side and value engineering. That downsizing initiative that we illustrated is a good example of one where we felt like strategically was not gonna diminish the consumer experience in any way. And it was just a prudent move to put in place to get the margins a little bit closer to where they had been historically. So that gives you a sense, I hope. Absolutely. And the other thing I wanted to ask about PNOC regards the, you know, it's gonna be less of a contribution going forward. So I just wanna make sure for us modeling outside of the company, when you're saying that, are you thinking sequentially, or are you saying the year-over-year contribution? Because the third quarter- Year-over-year. So the third quarter. Yeah, year-over-year. Historically, was a lower quarter than the second quarter. Right. So you're. Right. I mean, we can make whatever deduction we should out of that. Yeah, we're doing it year- over- year. Yep. Andrew, I think the watch-out, just to make sure that we remain aligned, is that if you look at the last probably 18 months, our PNOC has been driven by a capital P, PNOC, with pricing. Fuel service pricing. Sure. That was market to market and retail pricing. Now, as we look forward, that's, you know, the, the P is gonna go small P on us. That's what we're talking about. What remains to be seen is what's gonna happen on these commodities, right? Because one of the, the unique things about our company is we took on two years of 20% inflation, and I think we told you guys it was $160 million a year. You look at the deflation that we've seen, it's still a very, very small component of the overall inflation we saw the last couple of years. So as-- if commodities continue to deflate broad and basis on soybean oil, you know, wheat's an important component because of our pasta and breads, and then transportation rates remain where they are. We didn't even get into the cost of diesel fuel, which is up, I don't know, $0.70-$0.75 versus where it was last year. As long as we continue to see room for those commodities to run, we could see commodity deflation. So how we get PNOC will be different than it's been in the past, but we don't expect to see pricing at this point in time. That's one thing our retailers wouldn't wanna hear from us about, is if we came to the door and said, "We'd like to take a price increase. Okay, that's understood. If I could just ask a couple volume questions before I stop asking questions. Please. First in the retail, there was like over a 300 basis point- Yep. Swing. Yep. When you take out the impact from some discontinued- Yep Private label and the down weighting. Yep. And also, the same question as before, can you kind of allocate between the two and, you know, I guess, give us a sense of what the outlook is there? It's good for profits, but not, you know, obviously a nd I guess, what it's saying is that the tonnage is kind of distorted because the units are a lot better when you down weight. Yeah. Yeah. Just a little. If you look at the units, it's a slightly different picture. You know, look, we're still seeing a deceleration on units. But Dale, why don't you go ahead? Yeah. So, Andrew, the down weighting was about 2/3 of it, and then the other third was the private label. Okay, got it. And I just wanna underline something. You mentioned that Sister Schubert's was kind of following the category, so there's not much competitive risk. I mean, is that sort of what the industry's up to right now? It would make sense in this environment, but is this down-weighting pretty, pretty widespread, and you don't feel you're gonna be leading yourselves into a, like, a competitive disadvantage? No, no. I think when we've done these in the past, Andrew, and we've done a handful, I mean, we haven't done a ton of them, but ordinarily, what we're doing is we're moving into the industry standard. We haven't done these where we've led the industry down, so we've certainly conformed. Now on Sister Schubert, which is one where we made those adjustments, you know, I would tell you, if I look at the category trends, you know, the period ending at the, you know, beginning of November, October 29th, the 13-week and the four week period, last four weeks or so, it's continued to perform better than where it was before that. So, I think this is an occasion with a little bit of tailwind, and I think that's a question that Rob was asking. We are seeing, just given the environment, a little bit of tailwind, and we're getting our fair share of it. Got it. The last thing, and this will be, it's a follow-on to that. Please. So I guess, the better, the sharper price point helps the units. How is the per-unit profitability for you and for the retailer? Like penny profit, pennies per item. Yeah, penny profit. Well, I would observe. I would tell you from the way we've talked about it, really, with you guys, is more in terms of our margins, and I think the margin story on retail is the important point. And you can infer that we're making more profit per unit because the margins are improving on those. Retailers, what I would tell you is what we're not seeing is them margining up on us, so I would say there's no reason to think that their penny profit is changing in a big way. I think as we were looking at other categories, in the event we were working against private label heavily, I think the watch-out is there's a propensity sometimes for them to margin up on the brand, as a means by which to drive incremental penny profit off of a branded player and then drive trade down to private label. And if they have the price point architecture right, they can win there as well. In most of our categories, you roll through produce, that's not an issue. If you look at our sauces and licensing, not much of an issue. You move around to our bread items, it's a watch-out, right? If you look at our frozen noodle business, not much of an issue in there. So, if I had to guess their penny profit, I would guess it's pretty consistent. I think if I was working at one of the other, you know, mega cap CPGs where Tom and I worked together, we may be thinking differently about this. If that's my guess is that's a hammer that they're using to get their big brands to conform to their aspiration. Okay. Well, it sounds like you guys are managing that, those, you know, category situations pretty well. So thank you. We're certainly doing our best. And I think your point is an important way to think about it, too, with some of these brands, 'cause you have to, you know, for all of us on this side, working at manufacturer, we need to put ourselves in the shoes of our big retail partners. And I think the corollary is they can make more penny profit per item, but if they're not careful, they trade consumers down, and they drive their category down, which they usually don't like as well. So it becomes kind of a holistic story, which is: What's the overall health of the category? What's the health of their shopping basket? And then, you know, what's their penny profit like? Got it. Thank you. Of course. Thanks, Andrew. Thank you. Thank you. Again, I would like to remind everyone, in order to ask a question, please press star one one on your telephone keypad. One moment for our next question. Our next question comes from Todd Brooks of The Benchmark Company. Hey, thanks, and good morning to you all. Morning, Todd. Morning, Todd. Good morning. A couple questions for you here at the end of the call. First, and thank you for highlighting on the PNOC side, that this becomes more the C than the P going forward. If we look at retail pricing, Dave, in the past, you've talked about. Yes. Not necessarily chasing incremental volume by lowering pricing. I'm just wondering, flipping what you just said about your retailers not looking for incremental pricing increases from you. If you look at customer elasticities right now at retail your thoughts on holding the price. It looks like if you normalize the volume trends, volume trends are pretty good, which I think would argue that maybe there's some confidence in the ability to hold pricing at retail going forward, but would love to get your thoughts on that. So, you know, if you look at 52, 13 down to four or five weeks, obviously you can see the tension on consumers and elasticity. So that much is readily apparent. You know, the elasticities on our products just aren't such that you drop a list price, you're able to get it back. You can't make enough, y ou can't move enough volume. What we find is that there are certain occasions, like on price points, where if we can get below a cliff, you can get significantly more benefit than you might imagine, just in the simple elasticities. I'll give you. I'll go back to the example that we provided around that $4 price point. Our elasticity models probably would have predicted a pickup of X, and we saw a pickup on that move that was somewhere, so far, between 2.5x-3x of what would have been predicted. So in that case, it made sense. And what we also try to do in those conversations with our retailers is, you know, obviously, we're at the table with them, and we're trying to figure out how to make the, our brand healthier, but also make the category healthier. In this case, you know, our customer partners said, "Hey, if you're willing to make this investment, I'm willing to make some investments and give you end caps." So what you're likely to see for a brand like Olive Garden, which I mentioned here, but some of our other brands, is you're gonna see more support in the back half of the year on things like end cap, where if we can make a reasonable investment and get support in things like end cap, feature, and display, there again, you're gonna get far, far better performance than your elasticities would necessarily project. So that becomes part of what we're trying to do, right? Yeah, absolutely. And then my second question, and obviously we're, we're all surprised by the gross margin performance in the quarter, which was great to see. I guess, with the magnitude of the bounce back, in the past, you've talked about Lancaster, getting back to 26, 27% gross margins without a meaningful correction in commodities would be difficult to do. We've seen a correction. I don't know if it qualifies as how you would label it, meaningful, but with the magnitude of the lift that we saw in Q2, can you just talk a little bit longer term about your thoughts on, in this type- if we stay in this type of commodity environment that we're in right now- Sure What, what do you think the gross margin potential for Lancaster is? Thanks. Yeah. Well, you know, what we've said is our, our aspiration is to get the business to the midpoint of our peers. We still think that's doable. As it pertains to its deflation, it, this is a tricky one because, you know, as goes soybean oil, goes a big piece of our business, and we've seen the more recent pullback on the board. And, you know, I, I think what we're asking ourselves is, is this likely to stick? What drove this up early on, and, and Todd, I know you and I and Tom, others here, had the conversation together, was a, a policy, a policy shift towards renewable diesel fuel. So all of a sudden, we saw incremental demand for soybean oil because it was being moved over to diesel fuel n ow we've seen a pullback. The policy hasn't necessarily changed, but if you look at the board today going out to 2025, it's depressed out to about $0.44, so off a couple of cents versus where it is. What we're trying to figure out is, is it because that's a correlation between a falloff on, let's say, crude oil, which is also soft, and you guys are looking at it as much as we are. What's it trading at? About $76 a bbl today, right? Or is there some sort of anticipation that after another election, we may see a policy change? It's just really hard for us to guess, but I think in order for us to get to revert back to that point that you're talking about, we're gonna have to believe that there are structural reasons for oil to remain low, both on the-- or soybean oil, not oil. But soybean oil to be low, both on the board and on basis. And once that day comes true, I think, yeah, then we're gonna have more confidence to say, you know, a lot of this cost that we've taken on structurally is gonna come off. Now, here's what I would tell you. What we try to do in the meantime is when we see pullbacks, we try to buy opportunistically with forward agreements and lock in some of the favorable pricing period on period. Because what we don't know is, hey, is there gonna be another shoe that drops, a bad crop in Brazil, a bad soybean crop in the US, you know, 'cause of weather or something else. So what we're trying to do as this plays out is buy when there's an advantaged opportunity to lock in favorability until we get to a point where the policy side of it works itself out. Knowing that your your ability to contract and lock going forward and strategies around that varies based on price and the ability to do so. Tom, if you're looking at the commodity basket, second half of the year, which I would expect you have pretty good visibility into at this point, how does it compare to the 2Q reality on kind of the commodity piece of PNOC? Yeah, we're looking at deflation at similar levels with some moderation in the fourth quarter. But you know, there are pieces that you know that you really can't forward cover, like the basis we pay to process the soybeans. Things like eggs are more difficult, s o there is just caution. It's like there's some unpredictability in all of this, but that's the outlook we have. Yeah. I think Tom makes a great point. We're all keeping our eyes on what's happening with AVI, the avian influenza that's out there, so. Okay, great. Thank you all. Congrats. Thank you. Thanks, Todd. Thank you. One moment for our next question. Our next question comes from Robert Dickerson of Jefferies. Hey, guys. Sorry, just a very easy, quick follow-up. Just the balance sheet, right? I mean, you talked about it in the script. Cash balance is great. CFO is good, coming through the quarter. Clearly, you still have no debt. And some of these ERP initiatives, you know, clearly are rolling off. So, you know, if we think margin's going up, I'm gonna assume kind of cash flow gets back to a pretty place, and you don't have any debt. So I guess, you know, more from a, you know, a managerial perspective, it doesn't seem like you have a tremendous amount of kind of organic, cash or CapEx needs outside of traditional working capital. So and you've also been fairly quiet, let's say, for a number of years, for some time on the acquisition front, but there could be some cash build. So maybe just, maybe provide any incremental color that you can, you know, as to how you're thinking about that cash, just outside of the standard, verbiage on dividends, et cetera. Thanks. That's it. Sure. Yeah. So, I think, you know, we still see opportunity to invest in the business. That, you know, we've made the big investment in Horse Cave, which certainly helps us from a capacity standpoint. But as we look at kind of into the future, certainly, there's automation opportunities that we wanna invest in with the labor market remaining tight. And those are good return projects. So we'll continue to invest back into the base. That's always priority one, and that's our best return and lowest risk investments. And then when you look at M&A, our strategy is to really look at opportunities that where we can lever our core competencies. Really, in dressings and sauces is kind of our focus area. We see, you know, sauce category continues to be a nice growing space. So we're gonna continue to look at opportunities in that space to really continue to grow this area of dressings and sauces, where we tend to have strong culinary capabilities, nice retail sales team that's able to execute well. And with the Horse Cave investment, we have high-speed lines and capabilities to produce at a very low cost. So that's the focus of our M&A strategy. And certainly, now that we have the SAP project behind us, as well as the Horse Cave expansion, we're certainly more open to looking at opportunities to scale the business further. Perfect. Thank you. Oh, you're very welcome. Thanks, Rob. Thank you. If there are no further questions, we will now turn the call back to Mr. Ciesinski for concluding comments. Well, thank you, everyone. We really enjoyed being with you today. We look forward to being with you again in May when we report our next quarter's results. Have a good rest of the day.