Welcome to BellRing Brands' first quarter 2022 earnings conference call and webcast. Hosting the call today from BellRing Brands are Darcy Davenport, President and Chief Executive Officer, and Paul Rode, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1:30 P.M. Eastern Time. The dial-in number is 800-839-8318. No passcode is required. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of BellRing Brands for introductions. You may begin.
Good morning, and thank you for joining us today for BellRing Brands' first quarter fiscal 2022 earnings call. With me today are Darcy Davenport, our President and CEO, and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC filings sections at bellring.com. In addition, the release and slides are 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.
Additional information regarding these risks and uncertainties is discussed under the forward-looking statements section in the press release we issued yesterday and other press releases we have issued with respect to Post's proposed distribution of its interest in BellRing Brands, which are posted on our website. We also urge you to read both the registration statements, the proxy statement and prospectuses, the related amendments of these filings, and other documents related to the proposed distribution of Post's interest in BellRing Brands that have been and will be filed with the SEC when they become available, because they will contain important information. 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.
Finally, this call will discuss certain non-GAAP measures. For a reconciliation of these 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 Darcy.
Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our first quarter results and posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business, consumption and key metrics, and now includes both Premier Protein and Dymatize. Our first quarter came in slightly ahead of expectations, with sales of $307 million and adjusted EBITDA of $60 million. Net sales grew 9% over prior year, led by Dymatize, which was up 41%. Premier Protein grew 5%, with both brands benefiting from pricing actions. The single-digit growth for Premier Protein was expected as we lap prior year promotions that aren't repeating. Our adjusted EBITDA margins were healthy despite significant cost headwinds.
As you saw in yesterday's press release, we reaffirmed our fiscal 2022 guidance for both net sales and Adjusted EBITDA to grow between 9%-13%. Other than a slight shift in Dymatize sales from second quarter into first, we don't expect major deviations to the cadence we communicated last quarter. Not surprisingly, inflation ramped up across freight and dairy proteins this quarter. As a result, we announced further price increases on shakes and powders, which will mainly benefit the second half of the year. We expect Q2 sales to be similar to Q1 and to sequentially grow, reflecting the incremental pricing actions and new capacity. We will experience margin pressure in Q2 until the price increases are implemented. Overall, we believe the balance of the year leans toward upside. However, we have seen how quickly circumstances can change in this environment.
While our confidence in the year has grown, at this point, we are reaffirming our guidance. The key drivers that would add opportunity or risk to the year are our ability to deliver our expected production, elasticity relating to upcoming pricing actions, and additional inflation. Now turning to our category brand highlights and updates on capacity expansion. We continue to see robust growth in the convenient nutrition category. Ready-to-drink beverages and ready-to-mix powders both grew 17% versus year ago. Strong consumer tailwinds around wellness and healthier food solutions are driving this growth. RTD beverages added 2.3 points to household penetration and saw growth in purchase size and volume. Ready-to-mix powders continue to be fueled by an increased interest in proactive health and fitness. Our brands are growing despite supply chain challenges.
Premier Protein shake consumption grew 10% across tracked and untracked channels, with e-commerce and mass leading the way. Brand metrics remain strong, demonstrating our high consumer loyalty. Household penetration and repeat rates are holding steady, and velocities are up 45% versus year ago. Our TDPs have started to rebound as we have increased trade inventory levels this quarter. Despite these encouraging signs, we expect Premier Protein RTD shake consumption in Q2 to lag prior year because we are lapping significant promotional periods. Moving to Dymatize. Dymatize had a fantastic quarter, with consumption in the U.S. up 48% across tracked and untracked channels. All key channels contributed with double-digit growth, and brand velocities remain strong. Dymatize ISO100 launched two exciting new flavors this quarter, Dunkin' Cappuccino and Mocha Latte. Both flavors, which were co-developed with Dunkin', are off to a great start. Our operating environment remains challenging.
Supply chain disruptions, largely around labor availability at our existing co-manufacturers, are impacting our ability to rebuild inventory as fast as we want. First quarter production came in slightly below our expectations, mainly due to COVID-driven labor shortages. However, we're encouraged with the improvement in January. Our capacity expansions are progressing well and remain on track. As you may remember, we have capacity coming online each quarter starting Q2. We are comfortable with our ramp-up assumptions despite COVID-related challenges. We also made significant progress identifying and vetting additional growth partners who are expected to bring on capacity in fiscal 2023 and 2024. Finally, I would like to share a brief update on Post's distribution of its interest in BellRing. Overall, the transaction remains on track. We have scheduled a special meeting of BellRing stockholders on March 8th to vote on the transaction.
Post will announce additional details about the spin-off in coming weeks. We believe upon completion of the transaction, BellRing will have increased strategic flexibility to manage our capital structure and should benefit from more liquidity in our shares. In closing, we all have been tested over the last two years. I've been impressed by how our employees, manufacturing, and logistics partners and customers have navigated this period. I believe we'll look back on 2022 as a pivotal year for our brands and our company. One where we solidify the foundation of the business, so we can really see what our brands are capable in the future. I continue to believe that we are in the early innings of our category and brand's growth. Premier Protein and Dymatize are perfectly positioned to attract new households into the category and improve consumers' health along the way.
Thank you, and I look forward to updating you on our progress throughout the year. I will now turn the call over to Paul.
Thanks, Darcy, and good morning, everyone. Net sales for the quarter were $306.5 million, up 8.5%. Adjusted EBITDA was $59.8 million, a slight decline to prior year, and EBITDA margin was 19.5%. Premier Protein net sales grew 4.5%, driven by higher average net selling prices, reflecting reduced promotional activity and price increases. Recall, while we face capacity constraints, we have temporarily reduced Tetra Pak shake SKUs and promotions and marketing. This resulted in expected volume declines from Premier Protein in the quarter. Despite this decline, shipments exceeded consumption in the quarter and resulted in increased retailer inventory. Dymatize net sales grew 41% with volumes up 8%. Net sales outpaced volume growth benefiting from higher average net selling prices, which reflected price increases and a favorable mix.
Strong velocities and distribution gains drove volume growth. Gross profit of $92 million was flat to last year with a decrease in gross profit margin to 30.1%. The gross margin decline results from higher dairy protein costs as well as increased freight, which was mitigated by higher net selling prices. SG&A expenses of $37 million included $2 million of separation costs. Prior year SG&A expenses included $4.6 million of restructuring and facility closure costs. Both items were treated as adjustments for non-GAAP measures. Excluding these items, SG&A increased $1 million and was favorable 50 basis points as a percentage of sales. Our cash flow in the first quarter was unfavorably impacted by higher working capital. A decrease in payables and an increase in powder inventories drove this result. We expect further working capital increases throughout the year as we rebuild our RTD shake inventory levels.
During the quarter, we saw an attractive entry point and repurchased 800,000 shares of our Class A common stock at an average price of $23.34 per share. Our remaining share repurchase authorization is 42 million. As of December 31, net debt was $489 million, and net leverage was 2.1x. During the first quarter, we repaid debt of $90 million using cash on hand. Turning to our outlook, we are maintaining our guidance for net sales of $1.36 billion-$1.41 billion and adjusted EBITDA of $255 million-$265 million. As Darcy highlighted, the year's progressing slightly ahead of expectations with net sales and adjusted EBITDA growth weighted to the second half.
Inflation has outpaced our initial estimates, and we expect additional cost headwinds for both shakes and powders. However, we are executing a price increase to help offset these impacts, which will benefit gross margins in the second half. During the second quarter, we expect high single-digit net sales growth as higher net pricing and volume growth for our powder portfolio is partially offset by volume declines on RTD shakes as we lap promotional activity. We expect Adjusted EBITDA to grow significantly from prior year, benefiting from the pullback of promotions and marketing. Second quarter Adjusted EBITDA is expected to decline sequentially, driven by inflation ahead of pricing as well as modestly higher SG&A. Finally, as Darcy mentioned, Post's distribution of its interest in BellRing remains on track. We expect approximately $400 million of cash will be distributed to BellRing's stockholders, including Post.
As a result, we expect net debt at BellRing will increase to an amount not to exceed 4x Adjusted EBITDA. More details will be provided over the coming weeks. In closing, we are encouraged by the solid start to the fiscal year. Facing short-term challenges, the future has never been brighter. I will now turn it over to the operator for questions.
At this time, if you would like to ask a question, please press star and one on your touch-tone phone. Again, that is star and one if you would like to ask a question. You can remove yourself from the queue at any time by pressing the pound key. We will take our first question today from Andrew Lazar with Barclays. Your line is open.
Good morning, everybody.
Good morning.
Good morning.
Good. Thanks for the question. I guess first off, I know that Darcy, you've referred to 2021 as kind of a year where BellRing sort of had almost two years of growth, sort of compressed into one year. A lot of that had a lot to do with, well, of course, having the capacity, but also a lot of the incremental shelf space gains in a lot of key, sort of key customers that you benefited from. I'm curious if you could kinda maybe characterize how as we go through this year. Are there, you know, major shelf reset windows where you think there can still be incremental progress made?
Obviously, how does the capacity situation play into your ability to sort of take advantage of those when others are having sort of similar issues as you are? Then I've just got a follow-up.
Sure. Right now, as you know, we reduced our SKUs, our Tetra SKUs this year because our capacity is constrained. For the most part, basically customers are spreading out our facings on our core items because, you know, they're one of the most productive SKUs on the shelf. We're not in the place right now that for the next year, we're gonna be expanding our shelf space on our Tetra SKUs. What I think encouraging is we do have some innovation coming on outside of the 30-gram line toward the end of the year. For the most part this year as it's a catch-up year for the 30-gram shake line, we're not gonna be expanding shelf space considerably.
Got it. Then I think when you took some of the initial price increases heading into this year, at least for planning purposes, you had assumed that competitors would not necessarily follow. It was a kind of a prudent conservative stance, you know, heading in. I guess, are you making a similar assumption with some of the incremental pricing that you're taking or and how do you think about your elasticity assumptions for this next round of pricing, at least from how you're forecasting and modeling it internally? Thanks so much.
We're assuming that we included some modest elasticity in our assumptions. In our first round, we tended to be the first to move on pricing in the category, and then most competitors followed, you know, fairly soon afterwards. We have an approach to when we take pricing, we assume elasticity, and then when we see what happens in the marketplace, we adjust those assumptions.
Okay. Thank you.
Thanks.
The next question comes from Pamela Kaufman with Morgan Stanley. Your line is open.
Good morning.
Good morning.
You mentioned that production in the first quarter was slightly below expectations. Can you talk about how much of your fiscal 2022 top-line capacity coming online over the next few quarters? It seems like the balance has shifted more towards pricing now, given the incremental pricing you've taken in the quarter. Is that kind of the right way to think about the composition of your top-line outlook for the year?
I'll hit the first production question first. The production, you know, below expectations in Q1 was related to it. It was mostly in our existing co-manufacturers. The new capacity that is coming online starts in Q2. And then your question around how much is associated with existing versus new of our production this coming year is from existing co-manufacturers. I think what's encouraging is the improvement in January with our existing co-manufacturers. It really was related to kind of the Omicron variant and having absences. We are still seeing some absences, but what's encouraging in January is despite the fact that we are seeing absences and kind of labor shortages, we're still getting the production. That tells me that we're being prioritized over other customers. Second piece is just the composition of our growth.
It depends on which brand we're talking. The growth was predominantly coming from pricing, originally, and that will obviously be the case with our upcoming incremental pricing that we took, we announced this quarter. From Dymatize, it's a mix. It's a mix between volume and pricing.
Thanks.
Paul, anything else?
I think obviously with the price increase, that does obviously push a bit more towards pricing. As Darcy talked about in her prepared remarks, you know, the increases obviously gives us confidence in the year, waiting to kinda see how things play out with elasticities and those kinds of things. It gives us obviously a lot of confidence with.
Thanks. Given some of the supply challenges in Tetra Pak, Have you explored other options for packaging? I know you also sell bottled RTDs. Can you more meaningfully shift your mix to that format?
We do have bottles. Bottles are constrained too. It's really across the industry because of the dramatic demand increase that happened last year, both bottles and Tetras are constrained. It's not as easy. Our Tetra business is so large that the idea of just shifting to another package size, it's just not feasible. I think we are making some co-man shifts on our bottle business, which will dramatically increase our ability to satisfy the increasing demand for our bottles. It's not as easy as just shifting. I am confident in our increase that we have planned from a Tetra standpoint. It's later in the year and then into 2023. Like I said, bottles are also increasing.
Thank you.
Our next question comes from Jason English with Goldman Sachs. Your line is open.
Good morning.
Morning. A couple of questions. First, you all confuse me on some of the comments and guidance, but it's probably my fault as I'm distracted over here and trying to juggle too many balls. Can you go back and I think you started Q1 to Q2, but sequentially growing, which does seem like they can coexist. Then there was also some comments on EBITDA, which sounded upbeat, but then you commented sequentially lower on, could you come back briefly and clarify those for me, please.
Sure. Now I'll hit the net sales, and I'm gonna let Paul hit EBITDA. It's the Q2 similar to Q1, and then sequentially growing. Paul, do you wanna talk about EBITDA?
Yeah. Our comments on EBITDA be sequentially down from the first quarter, which is consistent with our initial expectation going into the year, inflation from Q1 into Q2 ahead of our pricing. We do expect a modest increase in that sequentially down from Q1.
Yeah. Seasonality. Was there a year-on-year comment in there, though, that I missed too?
There was not. Year-over-year, obviously, there's a different dynamic because in last year, in the second quarter, if you're talking about the second quarter, we promote heavily in the second quarter typically. That is not the case this year. So there's a benefit on pricing both from reducing the promotion spend as well as the list price increases that we took on powders in October and back on shakes back in April. So we have the benefit of pricing, but we also have significantly higher inflation in the second quarter versus last year. Particularly whey protein was at its low point, which is our powdered product, in the second quarter of last year, and it's significantly higher this year. So that's the dynamics going on with EBITDA.
Got it. Okay.
You're right, historically, Q2 is lower because of marketing spend. That's the piece I did miss to mention is that we typically spend pretty heavily in marketing in the second quarter, because we do TV advertising, and we're not planning to do that this year. That's another element of EBITDA increase from last year, but again, sequentially down from Q1.
Understood. Bigger picture question for you, Darcy. I remember around the time of separation, you talked about your aspirations to have Premier reach, I think, and correct me if I'm wrong on this, but have Premier reach a 10% sort of penetration level. The penetration growth I'm looking at for the brand has been phenomenal. I think it's actually accelerated during COVID, and you're now north of 8%. Are we approaching sort of an upward governing limit of where you think this can go? Or is there now more scope for penetration growth than perhaps you were envisioning just a few years ago?
Yeah. I think this brand continually surprises. You know, I think that not only do I think that there's more upside from a category standpoint, but we are increasing household penetration faster than I would have predicted. Yes, I think that, you know, I believe that we can get up to. I mean, some of the comparisons I have used are some of the mainstream brands, like Clif and Kind, in the nutrition bar space. They are, you know, right above 10%, 11%, 12%. I use that as a barometer. I still use that as a barometer of where we can get to in the kind of medium term.
Got it. Okay. Thank you. I'll pass it on.
Thanks.
We'll go now to Ben Bienvenu with Stephens. Your line is open.
Hey, guys. Good morning. Jim Salera on for Ben. Wanted to ask a little bit on the production side and inflation. How long of a lead time will there be to get fill rates and service levels back to normal, assuming the Omicron production kind of shakes out in the second quarter? You know, if production is normal at the end of the second quarter, do fill rates get back to normal levels in the third quarter, fourth quarter? Is that still looking into next year?
Yeah, our fill rates and service levels will continue to increase. We are already seeing kind of month-on-month small increases, and we'll continue to see that throughout the year. I think we'll have our trade inventory levels improved, and again, we'll continue to see that by, I would say, Q3, they're gonna look a lot better. Beginning of Q3, they're gonna be looking a lot better.
Okay. If I could add visibility into freight costs in the back half of the year, whether it's, you know, you anticipate it to be kinda where it's been at for the first half, it's gonna go up maybe a little bit of leap there.
Yeah. We do expect that freight will go up into the third quarter, and then based on the evidence we've seen, it kinda flattens out at that point. From a year-over-year perspective, we have more of a headwind in the first half than we have in the second half. That's our current thinking.
Perfect. Thanks, guys. I'll pass it on.
Thank you.
The next question comes from Bill Chappell with Truist Securities. Your line is open.
Thanks. Good morning.
Good morning.
Good morning.
Hey. Hey, Darcy. I guess first question on Premier Protein, what you envision the elasticity looks like in that category as you raise prices. Because I mean, you have a high market share in the drink side. I mean, are people just buying less in general? If there is elasticity, are they switching to lower priced brands? Are they switching to some other form? Just trying to understand. I mean, it doesn't seem like there'd be a whole lot of elasticity, especially with your base, but I assume you're factoring some in one way or the other with higher prices.
To date, we have seen no elasticity. We have been watching it. You know, basically, we increased price and volume went up. However, we are not assuming that's gonna continue. We are assuming some modest elasticity, until we see it in marketplace and kind of, you know, the facts and circumstances which we see in the marketplace based on what competitors do, et cetera, how much the retailer reflects that shelf, then we will make any adjustments to our assumptions.
Okay. Thanks. Just look kinda on that on the cost front, trying to understand, for lack of better terms, you know, how much is transient in nature, but certainly everything from labor to freight, you know. When it's coming from the co-mans, how much do you think rolls off as the commodities get better in six months or, you know, or conversely, labor is kinda here to stay at a higher rate? Any thinking about kind of profitability going forward?
Yeah. I would break it into two pieces. From a commodity front, you know, what we're seeing is whey protein and even milk proteins are at historical highs. Whey protein has been pretty tight, the supply and demand dynamic, but it doesn't look like it's likely until fiscal 2023, or at least that's the kind of current thinking. I do think there's some opportunity as obviously as we get on the other side, 'cause we're talking about protein rates on our powder business that are 2x or plus what they were just a year ago. That's gotta come back down. Obviously, that's one element. Milk protein's been kind of steadily going up as that's our shakes. I think that one's, you know, that one we'll have to keep an eye on.
It seems like both those markets should come back down. There should be a transitory piece of that. On our co-mans, you know, our relationships there are typically long-term contracts, and I don't wanna get into specifics 'cause it varies by customer. You know, if labor costs obviously stay high, it will obviously get absorbed at some point. You know, totaling the production cost is somewhere in 15%-20% of our overall cost, so it's really the commodities that are driving the you know the profitability.
We'll go now to Chris Growe with Stifel. You're welcome.
Thank you. Good morning.
Good morning.
Morning.
Hi. I just had a quick question for you, and sorry if I missed this, but have you said just to get an order of magnitude on the size of the price increases you have in place, the new ones for shakes and for powders?
Go ahead, Darcy. Go ahead. Sorry.
The second round of pricing is slightly higher than the ones we took before. Just an order of magnitude on Premier Protein, double digits on Dymatize, and this round is slightly higher than that.
Okay. That's mostly gonna kick during the second quarter. Is that right?
Correct.
Correct.
I just was curious. You had a chart in your slide deck around showing TDPs and how they've started to increase. I just wanna get a sense of it. It sounds like your supply of product was a little below what you thought. That doesn't mean it didn't grow. Obviously, it did grow. It was more available. Does that line keep going up? Do you continue to see an increase in TDPs as you get more and more supply availability, I guess? That's what's gonna determine that rebuild there.
Yes. I mean, generally, you'll see a slight increase in our fill rates and service level. We do expect TDP down versus year ago because of the...
Yeah. Okay. I guess just to be clear on that then, I'm thinking like for the second quarter, if you're promoting less, that presumably would negatively affect TDPs. Again, not that it can't grow, but it would certainly have a year-over-year effect on TDPs. Is that right?
I mean, the promotion won't have anything to do with the TDPs, if I'm understanding your question, but just the number of SKUs on the shelf. We will see.
Yeah.
I mean, that is really what's affecting the TDPs.
Okay. I got it. Thank you.
Thanks.
We'll go now to Rob Dickerson with Jefferies. Your line is open.
Great. Thanks. I just have a quick question on the inventory side. Darcy, you're saying it sounds like basically maybe all production this year is coming from existing suppliers. Sounds like maybe some of them are getting a little bit better as we kinda get through Q2. Consumption's still obviously up decently. Volumes are down, sorry, when that's the gap. I'm just curious, like, kind of in terms of the inventory situation you have with retailers, when we compare that with the reduction in SKUs, it's like you feel like you're in a pretty good place as you look forward through the year, right? Like, you've reduced the SKUs, maybe the...
As you right-size the SKUs relative to your capacity, like, there shouldn't be kind of further decline, right, just given the lower capacity relative to consumption demand. Like, if that catches up, if you know what I mean.
Rob, are you asking? I mean, I would say our strategy is sound, meaning that we do not expect any change to the number of SKUs that we're going to have, and we believe that the fill rate and service levels will continuously increase throughout the year. We will also gradually increase our safety stock throughout the year. Is that what you're asking?
I just wanna make sure that, you know, if you've reduced the SKUs, right, if you've looked and you've forecasted yourself, that the amount of capacity you have-
Yeah
Should be able to continue to fill those SKUs that you plan to have on shelf this year.
Yeah, absolutely. That's correct. The one thing I will just note is that when you're looking at consumption, we have pretty high, you know, we have some high highs and then we see increases when we have promotions. When you're looking at consumption, you just have to factor in that you're gonna see some negatives on promotions. That is expected. I think that it's just good to have that in the back of your mind when you're looking at the kind of, you know, tracked channel consumption on a week-to-week basis.
I guess back to Jason's question quickly, there was a lot of I mean, like if we're thinking about Q dollars, you know, would you say that maybe sequentially from Q1 to Q2, that maybe EBITDA would see like a similar absolute dollar number? I mean, I know you're not specifically guiding to that number, but obviously with just kind of where the full year EBITDA guide is, right, back half improvement.
No. Write it that way. Just to be clear, we expect EBITDA to decline sequentially from Q1 to Q2 because we're lapping. We do expect it to decline, and that is again because of higher inflation, and that is the primary piece. We expect it to be down. Keep in mind that we've said that we expect that sales and EBITDA growth will be weighted to the second half of the fiscal year, but we do expect it to be sequentially down.
Right. I mean, kind of net-net here, where you came in in Q1 and Q2, despite all the moving pieces and volatility, I mean, it seems like the business is still tracking kind of as you expected coming out of Q4.
Yeah. I mean.
The first half is tracking like we expected with the slight shift of Dymatize sales into Q1 from Q2. Yes, the first half is tracking as we expected.
I mean, Rob, I would just say big picture, this year is going much like we expected. Slight movement of sales from Q2 to Q1, that is just, you know, it's really nothing. It's just a little sales phasing. And then we saw inflation kick up higher than we expected, although we saw that coming on the last call, and therefore we took price, and that affects the back half. I mean, all other than the cadence is largely what we expected.
Perfect. Thank you.
Thanks.
We'll go now to Ken Zaslow with Bank of Montreal. Your line is open.
Hey, good morning, guys.
Good morning.
Two questions. One is, can you walk us through the capacity build over the next, you know, 18-24 months of how it works exactly? You know, how much incremental capacity is coming online through the next, you know, on a quarter-by-quarter basis?
Yeah. Basically, we're full through 2023. I mean, we see increased. That mostly comes from the existing co-mans are pretty stable. The increases come from new co-mans. They start slotting in in Q2 of this year. There is not a huge benefit this year in 2022. Small, still call it 90% of our production is coming from existing for 2022. But then those new co-mans start increasing and become contributors, you know, real contributors in 2023. We also bring on additional co-mans in 2023. We basically add three new ones in 2022, and we add two more in 2023. The big ones, which are, you know, sorry, Michael Foods, would come on in later 2023. They start up later in the year and become kind of smaller contributors in 2023, but bigger contributors in 2024.
Would you say that 2023 additional capacity is 5%, 10%, 15%? When you get to 2024, how would you kind of just do that?
Hold on. I'm calculating.
Take your time.
Call it less in 2022, new capacity is, you know, less than 10%. It becomes, yeah, 20%-25% of 2023. Then it ramps up from there. Remember, because some of the new capacity in 2023, they're actually new greenfield facilities, that timeline, you know, is basically 24 months. We are still talking to partners for kind of late 2023 and 2024.
Okay. My second question is, if you believe you answered an earlier question that you think household penetration kinda, you know, you look to certain brands and need 10%, 100 basis points, 10% more capacity coming online. You obviously don't really believe that 10% is your high watermark, right? I mean, that doesn't. I mean, you obviously believe that you're building capacity because there's demand, and that demand is gonna take you above that 10% household penetration, I'm assuming. So again, why would you even know that there is a limit to the demand of what it is? It, you know, why limit yourself to a household penetration? It seems like you've hit a tipping point. I'm not trying to be, you know, difficult. It just seems odd to come up with, you know, with some arbitrary 10% just, I don't know. It's just a thought.
Yeah, I totally agree.
I'll leave it there.
I completely agree. By the way, I don't see it as a limit. I think it is a step along the way. I truly believe that, I think the category in general is just, I mean, I said early innings, but it has so much more upside. I've used this analogy before, but even within our category, nutrition bars have mainstreamed much faster than you know any other forms within the percent household penetration, where RTD shakes are only at 25%. Powders are even lower. There's no reason why shakes can't get close to nutrition bars. I think that the upside is immense.
I think advantage of that, 'cause it's a mainstream, approachable brand, that shows that it appeals to kind of every need state and within the category. I do not believe that 10% is the limit at all. I think it's a step along the way.
Appreciate it.
Thank you.
We'll go now to Kaumil Gajrawala with Credit Suisse. Your line is open.
Hey, everybody. Good morning. First one, a very quick one. When you talk 2024, is that fiscal or calendar?
Fiscal.
One of the things that we didn't talk about as it relates to capacity is, if there were any key ingredients or inputs or, materials, packaging, they have, I think you mentioned those little foil wrappers, things like that, is that all resolved now? Is it still some areas of, things to watch out for?
Yeah, there's nothing that's problematic at the moment. We extended lead times early on to try to prevent those things from happening. Yeah, we haven't seen any impacts.
Okay, great. That's all. Thank you.
Thank you.
Our next question comes from John Baumgartner with Mizuho. Your line is open.
Good morning. Thanks for the question.
Hi, John.
Maybe first off, Darcy, congrats on Dymatize. I'd like to ask about powders against the broader evolution of the category, maybe, you know, moving beyond COVID volatility into the new normal with work from home and such. How do you think about the role for powder within the category? I mean, have you seen the core consumer for powder change at all pre versus post-COVID? How do you see powders and RTD coexisting as powders grow from here? Then for BellRing, how can you best, I guess, make powder products complementary to the RTD business?
That's a great question. I'm gonna pick up where I was talking about potential of RTDs versus nutrition bars. Powders have even lower household penetration than RTDs. I think that is where Premier helped mainstream or has started to help mainstream RTDs. I also believe that powders are at kind of earlier stage of that mainstream trajectory. They're different than all of the different forms have kind of unique occasions. If you think, I mean, RTDs are more meal replacement, although can be used kind of in between meals, but more meal replacement, while powders are mostly used with food, with smoothies, after workouts. Where they're consumed, RTDs and nutrition bars, mostly on the go, powders at home. They're very complementary.
You know, we have been very successful on Premier Protein with powders. Obviously, Dymatize is our number one powder brand. Both of them go after unique and complementary consumers. Of course, as I was saying before, they have kind of unique and complementary occasions as well.
Okay. Okay, great. I guess, you know, from a supply chain perspective, there's a lot of focus now, understandably, on the month-to-month and quarter-to-quarter. You know, aside from just, I guess, simply increasing, are there opportunities underway here with the changes in supplier base now, I guess, through FY 2023, FY 2024, that, you know, sort of place you in a better position either format-wise or profit-wise to come out of this recalibration with new channels for growth, whether it's out of home, C-stores, instant consumption? Is there opportunity to sort of affect the change in the composition of your capabilities and channels for the longer term, sort of coming out of this year?
Absolutely. I think that. You know, I said this in my prepared remarks just about how I think we're gonna look back at 2021 as a really pivotal year, because I think that what we're gonna look back on is really kind of laying the foundation, laying the table for kind of outsized growth in the future, building up where, you know, we currently from a production standpoint, for instance, you know, we have, you know, five locations now. Four-ish years, we'll be doubling that. We're expanding our bottle capacity dramatically, which will allow us to go. We can really sell bottles or Tetra down the street, et cetera. We start being able to match products to different places and then expanding our distribution from there.
Yes, I believe this year is more about capability building, so then we could take advantage of that in the future.
Great. Thanks for your time. Appreciate it.
Thank you.
We'll go now to Bryan Spillane with Bank of America. Your line is open.
Hi. Thanks, operator. Good morning. I just had one question, and it's if we look at the current fiscal year and just the amount of consumer-facing spend that you're you know anticipating this year, I guess, of both promotions and advertising and marketing, what is that relative to normal? I guess, what I'm trying to get at is we've moved past the supply constraints. How much more marketing would we have to add back as we go forward?
Yeah. On a marketing side, you know, I think in 2021, we spent around what we call advertising to promotion. We, you know, this year, we're pulling back on that, you know, around 2%. Going forward, obviously, we'd want to invest in that, but we also think that'll drive top-line growth as well as we've seen, you know, from our recent past. That would drive top line. But yeah, we would expect over the longer term to at least spend back at the 3% level and perhaps look to increase that over time as our supply comes on board.
Is the order of magnitude, if I remember this correctly, at the time of the separation, right, you had been through a supply chain or supply constraints prior to the separation, and then in that next fiscal year, you know, the margin stepped back because there was more, you know, marketing spend that went in. Just, like, order of magnitude, will it look like that?
No. The situation was a little bit different back then. We did see a fiscal year, I think it was fiscal 2020, that had a stepped up margin. Part of that we benefited from a price increase as well as from favorable protein costs. No, I don't think our margin structure should be impacted. Obviously, we'll have to make sure we're right sizing that. At these historical high prices, it gets harder to get back to the gross margins that we've experienced in the past. I do think over the long term, things will even out, and we should see gross margins, you know, back where they've been historically coming at 33%-34% range, which allows us to spend marketing at the higher.
All right. Thank you.
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