Welcome to the TreeHouse Foods Q2 2022 conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note, this event is being recorded. At this time, I would like to turn the call over to TreeHouse Foods for the reading of the safe harbor statement. Good morning, and thanks for joining us today. This morning we issued our earnings release, which is available along with the slide deck in the Investor Relations section of our website at treehousefoods.com. Before we begin, we would like to advise you that all forward-looking statements made on today's call are intended to fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC. In addition, we will be discussing operating and financial results on an adjusted basis. A reconciliation of those non-GAAP measures referenced during today's call to their most direct comparable GAAP measures can be found in today's press release on our website. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakland. Thanks, PI, and good morning, everyone. I'm joined today by Pat O'Donnell, our interim CFO and Chief Accounting Officer. As we announced previously, Pat stepped into that role upon Bill Kelley's departure. We appreciate Bill's contributions, and we wish him well. We are fortunate to have a strong, deep bench of talent here at TreeHouse, and Pat has quickly transitioned into the role and responsibilities of the interim CFO. He has led both the controllership and financial planning and analysis functions since joining TreeHouse in 2017. We are pleased with our Q2 results as our strategy to drive operational and commercial excellence, optimize our portfolio, and support our people and talent continues to pay dividends. Our Q2 results are yet another building block that we have in place to continue to improve service and profitability throughout the year and to position ourselves well for our Q4 seasonal peak. Our top-line performance reflects the impact of our pricing to recover inflation and our ability to capture incremental volume, specifically in our Snacking and Beverages businesses. More broadly, private label consumer demand continues to accelerate, posting 22 straight weeks of share gains in the categories that we operate in. As the underlying fundamentals of private label have strengthened, increased demand demonstrates that the value proposition is resonating with consumers. Input cost inflation continued in the Q2, particularly in inputs like eggs, wheat, and oats. In response, we have communicated and are implementing additional pricing that will be reflected late in the Q3. While the labor and supply chain environment continues to present challenges, our operating teams are demonstrating great agility as we remain focused on servicing our customers. We continue to invest in our workforce with retention and engagement being a high priority. We are also taking steps to make our manufacturing work environments more appealing. Everything from facility upgrades to designing more effective and attractive work schedules so that TreeHouse can be viewed as the employer of choice in each local market. Taking all of these factors into account, we are raising our top-line guidance for the full year and reiterating our outlook for adjusted EBITDA. As I noted a few moments ago, private label is gaining momentum. Inflation is driving shelf prices higher, which you see on the left-hand side of slide four, making the private label value proposition even more compelling to consumers. Price caps, noted on the right, continue to be in the low thirties. While price caps will vary, at these levels, the private label value proposition is very attractive. The combination of high shelf prices and high price caps translates into a dollar savings for a basket of private label goods that has never been greater. This is translating into a shift in consumer purchasing behavior toward private label, which you can see on slide 5. You can see that the pandemic-related trends in the past two years actually began to reverse early this year, and that private label share gains have been accelerating since March. For those of you looking for more of these macro data points, you'll note that we've included a few additional slides in the appendix. Overall, I'm encouraged with our progress, and I believe that we are very much on track to continue to improve service and profitability throughout the year as we begin to enter our seasonal peak. We are effectively managing inflation with pricing, collaborating with our customers, and executing on our efforts to drive cost savings across the network. I want to thank our TreeHouse employees for their effort and commitment to making these things happen each and every day. Before I turn it over to Pat, let me say that we continue to work very diligently to reshape the TreeHouse portfolio through a divestment of a significant portion of our meal prep business so that we can build leadership and depth around a focused group of categories in our higher growth snacking and beverage businesses. We are encouraged with the progress we have made on this process thus far, but will not be providing further comments on that topic unless and until we have definitive information to share. With that, let me turn it over to Pat to take you through the details of the quarter. Thanks, Steve. I'm happy to be here with you today. Having been intimately involved in our strategic evolution and also having led several of our transformation projects over the last five years, it's an honor to be taking this interim role at such a pivotal time for TreeHouse. I'd like to start by echoing Steve's comments and recognizing our teams and expressing our gratitude around everyone's hard work and dedication towards servicing our customers. Those efforts are particularly evident in our top line performance this quarter. With that, I'll cover our Q2 results on slide 6 and 7. We posted strong revenue growth, up 19.4% to $1.2 billion. Pricing drove 17.7% of the growth while volume rose 2.1%, offset by 40 basis points of FX. As Steve mentioned, our teams continue to do an excellent job working with our customers, providing transparency around commodities and implementing pricing to recover inflation. Our ability to capture growing incremental volume across several categories within Snacking and Beverages in particular has been encouraging, and I'll review the division results in a minute. Q2 adjusted EBITDA was $67 million or 5.6% margin. Although margin declined 360 basis points versus the prior year, we were very pleased with the 60 basis point sequential improvement, which was in line with our expectations. Adjusted diluted EPS was a loss of $0.04 compared to $0.26 of income last year. On a divisional basis on Slide 7, Meal Preparation sales grew 18.3%, driven by pricing of 20.5%, reflecting recovery of input cost inflation, primarily in oils, durum, and oats. This was partially offset by a 1.7% decline in volume mix and 50 basis points of FX. Although we continue to be constrained across several Meal Preparation categories, we're encouraged by the progress we're making sequentially, and we expect to continue to build on that through the balance of the year. Snacking and Beverages grew 21.4% in the quarter, of which 12.7% was pricing and 9% volume and mix. Strong category trends, coupled with improving service, enabled Snacking and Beverages to capture incremental demand during the quarter. On Slide 8, you can see that we delivered growth across all channels in the quarter with healthy gains in both measured and unmeasured channels. Slide 9 takes you through our profit drivers. Volume and mix, including absorption, contributed $10 million in the quarter as we captured some incremental private label demand, particularly across Snacking and Beverages. Total pricing net of commodities was down $1 million versus last year, which captures the continued escalation in commodities year-over-year, netted with our pricing to recover inflation. As you think about the back half of the year, we will have further pricing actions to be reflected in our P&L. Sequentially, assuming that inflation aligns with our expectations, its impact will continue to improve as pricing catches up. Operations in the supply chain declined $33 million versus last year. Here, we continue to be burdened by our efforts to mitigate labor and supply chain disruption, especially as it relates to material availability. As Steve noted earlier, we are also investing heavily in training, retention, and engagement to address the labor challenges and enable us to improve operational efficiency. Finally, other, which contributed -$2 million year-over-year, primarily reflects foreign currency impacts. On the balance sheet, our revolver remains largely undrawn, and we have liquidity of close to $1 billion. We finished the Q2 with debt covenant leverage of 4.5 times, below the amended higher covenant ratio of 5.5 times. Turning to guidance on Slide 10, we are raising our full year revenue guidance to mid- to high-teens growth, driven primarily by pricing that will continue to build into the back half of the year as we approach our peak season. Our guidance also assumes that volume growth for the full year will be in the low single digits. We are encouraged by the robust private label demand, and we will continue to work diligently to fill incremental orders as we actively manage constraints and ongoing challenges in labor and materials availability. It will take some time before we are able to restore service levels to target. The macro environment remains challenging and dynamic. As a result, we are maintaining our adjusted EBITDA guidance of between $385 million and $415 million. We are making good progress, but our work to mitigate disruption and improve profitability is ongoing. With regard to the Q3, we anticipate adjusted EBITDA margin improvement of 50-100 basis points from the 5.6% level we reported in Q2. The more recent escalation in inflation and its related pricing lag will put some pressure on the coming quarter's profitability. As I mentioned earlier, we are taking further pricing action. That pricing will be reflected late in the Q3, so as we get into the Q4 and our seasonal peak, we anticipate pricing to more fully offset inflation. Importantly, over the full cycle, we expect to be able to recover the entirety of the inflationary headwind. With that, let me now turn it back to Steve. Thanks, Pat. Before we open it to your questions, I'd like to close with a few comments on how our value proposition is truly resonating with consumers. On slide 11, we've included survey results from June showing that consumers are making changes to reduce their spending, which include embracing store brands and the value that they represent. That once they begin to try these brands, the vast majority of survey respondents are highly satisfied with the quality that they offer, and importantly, they intend to keep purchasing store brands. The likelihood of repeat purchase at 91% and the satisfaction rate of 72% tell you that those opportunities are being realized. These survey results give me confidence that we've turned the corner in terms of consumer behavior. History would tell you that during periods of economic downturn, private label gains trial, new consumers, and as a result, share increases. Historically, these periods have been step changes for private label. Today, private label is positioned significantly better than in past periods of economic downturn. First, the quality and assortment of private label has improved dramatically. The number of options now include a spectrum from natural organic to national brand equivalent to value offerings. Second, the retail landscape has also changed dramatically. Growth in terms of number of outlets has been driven in a large part by private label focused discount retailers. Today, there are also retailers whose private label programs not only drive traffic, but play a key role in their store image. Finally, retailers are more committed than ever to their private label strategies and are making meaningful investments to support their store brands. When you combine the focus our commercial teams have placed on the customer, the operational improvements we've made over the last several years, and the investment and effort we are putting towards labor and supply chain disruption, we are in an excellent position to continue our top-line momentum in the second half of the year. We also have the building blocks in place to improve profitability as we head into our Q4 seasonal peak. Our people, our talent, and our values are all critical to these results. I'm excited every day by the contributions I see across our organization, and I'm excited about the opportunity we have in front of us to drive long-term sustainable growth. With that, let's open the call up to your questions. We will now begin the question and answer session. I would like to remind everyone in order to ask a question, press star followed by the number 1 on your telephone keypad. To withdraw your question, press the pound key. Your first question is from the line of Andrew Lazar with Barclays. Please go ahead. Morning, everybody. Morning, Andrew. Hi there. Steve, in the press release, you know, there was a bunch of discussion about the pickup in sort of increasing private label demand and your ability to sort of get after some of those opportunities, particularly in Snacking and Beverages. I was wondering if this was the case in Meal Preparation as well, 'cause I guess I didn't see that mentioned in sort of the Meal Preparation discussion. I don't know whether TreeHouse was just unable to fulfill the extra demand 'cause of the supply chain challenges there or if there really is some differences between the two segments in terms of what you're seeing on consumer behavior. Yeah. Thank you, Andrew. I would say it's two things. I would say that the supply chain disruption hit Meal Preparation a bit harder, okay? The demand is across the private label segment, and I think we commented in the scripted remarks about the growth in private label across the categories we participate in. It is happening across the categories. There's probably a little more. As the economy has opened up, much of the Snacking and Beverages mix is those on-the-go items, right? With the economy in a more normal and the consumer in a more normal away from home standpoint, those businesses are doing well. The demand is incredibly strong in Snacking and Beverages. It's strong across all of them, but we are a bit more disrupted in Meal Preparation. Thank you for that. Then, I guess very just back of the envelope, it seems like Q4 EBITDA margins would need to be sort of in a more like the 13% range or so. You know, that's not out of line, I guess, with what the company posted, you know, even in the Q4 of 2019. It's obviously a major step up from the mid-sixes that you expect in Q3. I guess what's holding back more of the margin improvement in Q3, and I appreciate there's incremental pricing coming through, but maybe you can take us through, like, a little bit more of a bridge and kind of how you get there in the Q4 and sort of what your visibility is, more importantly, to those key bridge items. Thanks so much. Yeah. Thanks, Andrew. This is Pat O'Donnell. I think you touched on some of that. You know, we originally had expected a level of inflation, and we saw that escalate here in the Q2. You know, we have a little bit of the higher priced inventory on hand that will flow through into Q3. We'll continue to see that profitability increase as we drive through that pricing in the quarter. The other is, of course, our seasonal peak as you normally see. We typically have an increase in profit in that process. We are starting to see gradual improvement in our supply chain as you saw in this quarter, and we expect to continue to see some of that as we think about labor and, you know, material constraints and the like. Thank you. Your next question is from the line of Bill Chappell with Truist Securities. Please go ahead. Thanks. Good morning. Morning, Bill. Going back to the supply chain issues, can you just give us a little more color on what and where the bottlenecks are and how, you know, what we should be looking for as you start to get back to kind of normalcy in the back half? Sure. I mean, I'll break it into two buckets, right? We have labor, and then you have packaging and ingredients, right? Labor, we think is the most controllable inside our box, right? We've done a lot on what we call labor activation. I think we talked in the prepared remarks about, you know, that has shifted its focus to retention. We're starting to see when we run employment events, we're starting to see more applicants, right? We're seeing more participation. It's not a surprise given the inflation, given what we all hear about the economy, right? Getting those right people, keeping those right people, you know, training and turning them is really expensive and very disruptive. On the labor side, I feel good about it, and we're making slow, steady progress. You know, as Pat said, why do we feel good about the Q4? We are building inventory, right? We're starting to pick up some pace, so we'll be prepared for that quarter. On Packaging and Materials, you know, we need that to happen, right? Our vendors are getting better. The commitments, I mean, I have literally monthly calls with some of my peers and CEOs at our biggest vendors, and we're starting to see that progress pick up. That's all aligned in our guidance. You know, we don't think it'll be perfect, but we do think it's gonna get dramatically better. Okay. Thank you. On input costs, I mean, certainly there's been some relief in the market over the past month or two. Should I look at that? I imagine, especially some of your seasonal items and with the packing and what have you. A lot of your costs, you're probably locked in for the remainder of the year. Is that fair, or could you see any relief this year, or is that more next year? Again, I understand the overall cost basket is still higher. I'm just talking more about actual inputs. Yeah, maybe I'll touch on it, and Pat can follow up. You know, I think, you know, as we get later in the year, obviously, we have the mechanics to understand what our pricing and our costs are gonna be for the Q4, right? I think we have good visibility to that. You're right, we have to own that stuff, and we have to have it in production, you know, to get that ready. Most of that impact, I think, will happen later in the year. There may be a tiny bit of it in the Q4. We do have to own it. What I like is, we don't have to go out and announce more pricing. That's all done. It's all in process. We have pretty good visibility to what we're pricing against from a cost standpoint. I'm sure there'll be some little non-hedgeable stuff that hits us, but we have that in our forecast. Pat. Yeah, I agree. That's great. Good. Got it. Thank you much. Thank you. Your next question is from the line of Chris Growe with Stifel. Please go ahead. Hi, good morning. Morning, Chris. Hi. I had a question for you. I've just been curious with this. We're seeing obviously very strong pricing coming through from your business. We're seeing less robust pricing in private label at retail. I'm just curious your experience you're seeing from retailers. I guess they're holding maybe some pricing back and maybe what benefit that's offered to volume in the short term. You know, I would say that we have seen it all over the board. You know, we operate in so many categories. We've seen some places where the retailer's actually been ahead of us and some places where they've been behind us. I think the gaps, as we spoke to in the prepared remarks, are solid, which tells me we have a little bit more room and the retailer has a little bit more room to move. They are concerned about their image with their consumer, right? They're trying to give value offerings with their consumer. That's why I feel so good about not just the Q4, but as we roll into next year. I think the retailer really wants that value perception. Private label will be a big part of that. We won't be the only thing in it, but we'll be a big part of that. I think they're gonna do their best to keep their pricing sharp. Again, Chris, I would say it's all over the map in our category. Some were ahead of us and some are behind us in taking. Okay. I was curious as well about PNOC being virtually flat in the quarter. When I look at a weaker EBITDA margin, is that the supply chain and labor disruptions that are weighing on the margin? There should be, I guess, some weight, if you will, mathematically on the margin from pricing. With PNOC being flat, I was surprised the margin was still down year-over-year. Yeah. Chris, this is Pat. I think you're right. I think we continue to see some level of disruption as we continue to operate both on the material and the labor. I think you're seeing some of that flow through. We did see additional inflation in 2Q that will impact us in Q3 as we continue to move forward. I wouldn't look at that bridge and try to duplicate it for Q3. Okay. Thank you. I do think slide nine shows that pretty well. I think that's what you're referencing. You know, it shows you how tough the operating environment is, and that's why I think we feel so good that if we start to make progress there, which we're seeing, you know, that's the key to the margins returning. Yeah. Yep. Okay. Thanks so much. Your next question is from the line of Robert Moskow with Credit Suisse. Please go ahead. Hi. Thanks, Steve, and Pat. Good morning. A follow-up on the PNOC question. If things have leveled off in 2Q, is that signaling that you have now caught up to your inflation? You know, I know you're saying that there's extra costs, but you know, the objective of the pricing, I guess, is to get to level. I guess then the follow-up there is, you know, edible oil prices on the commodity markets are down. I think durum wheat is down, too. You know, why are your costs going up in relation to that? Then follow up. You know, maybe I'll touch on it, and Pat can follow up. You know, I think there is more cost ahead of us. As you know, what we own isn't always aligned exactly with where the commodity markets you would see are. You know, there's a hedge position in there. We feel really good to get it within $1 million for the quarter. We think that's quite an accomplishment. The pricing that's coming is by far the smallest piece of price we've taken to date, okay? To your point, there isn't a lot more needed. We do need to get our supply chain correct. I think we had a question earlier. You know, we have to build a lot of that inventory, Rob. You know, yes, are there mechanisms to get a little bit of savings? Can we help the customer a little bit? Maybe. But most of that's gonna come in next year, the lower price of product or lower cost, raw materials. What should we expect for PNOC in Q4? Like, will your pricing be well above inflation? Because I'm having trouble figuring out any other way that you could get to your margin target other than price well above. Yeah. Rob, that's right. I mean, as we've talked about in the past, you know, we have to demonstrate to our customers a level of cost in order to justify that pricing. We've done that, and we'll continue to do that. As we catch up in Q4, relative to the commodities that we bought, you know, that's what we would expect to see. Yeah. We'll expect it to turn positive. Again, we look at it on a broader basis than that. For the Q4, we expect that number to be positive. Okay. All right. Thanks. Your next question is from the line of Jon Andersen with William Blair. Please go ahead. Yeah. Good morning. Thanks for the questions. Thanks. Bigger picture question just on the acceleration in private label demand that you're seeing. In the past, you know, what have you seen in terms of the duration of these kind of step-ups in consumer demand? Is this something we can really view as sustainable for the foreseeable future? Does it kind of, you know, come and go quickly? Just trying to understand a little bit more about kind of the strength that we're seeing here and how we should think about that persisting, you know, as we look forward. Sure. Sure, John. You know, I think, you know, it's hard to say this, but I think the last real economic recession we had was 2008, 2009. If you go back in the data, you'll see each one of those recessions, there was a step change in private label share market, right? What gives me some real good feelings about this is, I mentioned this in the scripted comments again, if you think of how different both the assortment and the quality of private label is today and the retailer landscape. Right? The retailer landscape, I mean, there are what? Over 1,000 new hard discount European retailers that are focused on private label in North America that didn't exist in 2008, right? Our largest customers have both, you know, have cut their assortment to natural and organic, to national brand equivalent, and to value. The biggest mainstream retailers have multiple assortment. You know, you've got, you know, the mass retailers launching big private label brands against it. I think the quality and assortment is dramatically different than what the consumer saw in past recessions. None of us can forecast how long this will last. Will it be a soft landing? How deep will it be? All of those questions that everybody asks, you know, every day. I think we're gonna do better. What it has shown in the past is you get a bunch of trials you wouldn't have ordinarily gotten, and that trial tends to be sticky to a certain percent. With the way we're positioned today, I would think that'll be better. It certainly has to be another step change. The question is how big. Okay, that makes sense. I wanted to ask on the cash flow front. You know, you tend to generate the majority of your cash in the second half of the year, and I'm wondering how you're thinking of, you know, if that will happen again this year, whether you have kind of a kind of a range that you could talk about for free cash for the year and capital allocation going forward, how you expect to allocate that and what your priorities are. Thank you. Yeah. We didn't guide cash flow this year, but I think directionally, your statement is right as you think about cash generation being highest in Q4 as we move through the back half of the year and we, you know, have our seasonal peak. As we think about kind of capital allocation, I think it's gonna be consistent with how we've thought about this before as we continue to strengthen our balance sheet, think about leveraging our debt, or de-leveraging our debt and then moving forward. Our priorities are not different from a cash flow perspective than what we've communicated previously. Right. You know, we still feel really good about our cash flow, even though inventory is gonna be a little more expensive, as you know. I don't think the supply chain is gonna let us build too much of it. We're hoping to set the thing right on a dime for enough inventory for the Q1. Okay. Thanks so much. The last question today comes from the line of Carla Casella with J.P. Morgan. Please go ahead. Hi. Good morning. This is Mike on for Carla. We just wanted to ask about the M&A environment. I know you guys won't comment on the potential divestments or significant portion of the Meal Preparation, whether you're thinking about divesting. Anything you're seeing on the Snacking and Beverages side, and sort of as a follow-up to the last question, just given your good liquidity, would you guys consider calling the bonds? You know, I think... Well, first of all, I'll jump back to you. I think 4% bonds in the current high yield market are quite a lever for us. I mean, we, as you know, we have, I think, six more years on those. So that debt looks really attractive today. So we're proud of those. We'll hang on to them. But with regard to M&A, there's some small stuff out there. I think, you know, quite frankly, with the leveraged loan market so tight, I think most of the sponsor-led stuff is on pause. But we think there'll be stuff come forward here as it starts to open up and normalize. Right? Yeah. Great. Yeah. Thank you. Thank you. Okay, I think that's our last question, and I would just like to thank you all for being with us today, and we look forward to the opportunity to see you in person soon. Take care. Have a great day. This concludes today's conference call. You may now disconnect.