Welcome to BellRing Brands Second 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 800-934-7879. 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 second 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.
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 non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.
Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our second quarter results and posted a supplemental presentation to our website. On March 10th, Post completed its distribution of 80% of its interest in BellRing to Post shareholders. This spinoff positions us with more strategic flexibility to manage our capital structure and provides additional liquidity in our shares. I wanna thank all the people at both BellRing and Post who worked incredibly hard to make this transaction successful. Given the large number of investors participating on this call who are new to BellRing, I wanna step back and give a quick overview of our business. BellRing is a unique company. It's rare to have our size, but still only be in the early stages of the category and brand growth.
We compete in a large and growing convenient nutrition category, specifically in the ready-to-drink and ready-to-mix segments. Both segments are highly under-penetrated, with only 26% and 14% household penetration respectively. The growth in both segments is driven by mainstream health and wellness trends, which have only accelerated throughout the COVID-19 pandemic. We fully expect both segments to continue to mainstream and dramatically increase household penetration. We have two leading brands, Premier Protein and Dymatize, that target differentiated consumer segments. Premier Protein was the original mainstream ready-to-drink brand with the vision to improve people's health by putting great-tasting nutrition within everyone's reach. It is now over a $1 billion b rand with incredible loyalty, but still has less than 8% household penetration, leaving us with a tremendous long-term opportunity. Dymatize, our second largest business, is a world-class sports nutrition brand known for high quality and trusted products.
The brand has proven it has strong appeal with mainstream athletes and will be a major future growth driver. Our business has scaled double-digit organic growth, strong margins, and high free cash flow generation. Since 2017, we have organically grown sales at a compound annual growth rate of 15%. We operate an asset-light model which drives significant free cash flow generation, allowing us to invest in the growth of our business and quickly delever. From our IPO in October 2019 to the first quarter of 2022, we reduced our funded debt by nearly $250 million, and net leverage decreased from 3.8x - 2.1x. When we went public, we laid out our vision and growth strategies. They included increasing household penetration, expanding distribution, launching innovation, expanding internationally, and when appropriate, M&A.
Since our IPO, we have made such great progress against each one of these organic strategies that we have outpaced our shake capacity as well as the capacity in the North American aseptic shake co-manufacturing network. As a result, we are dramatically accelerating our multi-year capacity expansion plan that will support our company's long-term strategy. You saw last night we raised our outlook for the year. Our first half results, combined with increased confidence in our shake supply chain, drove this increase. We feel confident in our ability to deliver our second half results and as our capacity constraints begin to ease over the next several quarters, we expect to resume our historical shake volume growth rates.
Our co-manufacturing partners are producing at the levels we need to deliver the year, and our planned production is expected to increase every quarter through the next several years. This planned expansion will return unit volume growth to double digits in fiscal 2023. However, as anticipated, for the balance of fiscal 2022, we will see a decline in volume compared to year-ago as we rebuild inventory. Remember, in the back half of last year, we drew down inventory to an unsustainable level to satisfy the step change in demand. I'm highlighting this because the underlying growth of the category and the company's unit volume growth will continue to diverge for the next two quarters. We have a great growth story that is currently constrained by our capacity.
We feel good about our progress this year, and while certainly not finished with our planning process, we expect that 2022 back half revenue and EBITDA run rate is a reasonable proxy for 2023. Now turning to Q2 category and brand highlights. The convenient nutrition category continues to see strong growth, with ready-to-drink beverages and ready-to-mix powders both growing dollars 13% versus year ago. Even though most major competitors have taken price, volumes continue to be strong, with RTD ounces growing 8%. Premier Protein continues to demonstrate tremendous strength, despite our need to pull back promotion, marketing, and reduce our SKUs in order to dampen demand. Premier Protein repeat rates and velocities have held steady, demonstrating our high consumer loyalty. Our trailing 52-week consumption is up 20%, which is on pace with category growth despite the recent six months of capacity constraints.
Impressively, Premier Protein's Q2 shake consumption was only down 2%, even though we lacked significant new year promotions and strong advertising support in the year ago period. Retailers have largely held our shelf space through this period of lower supply, given our category-leading velocities. We saw a brief sequential decline in shake TDPs this quarter as retailers worked through remaining inventory of the temporarily discontinued Tetra SKUs. Since then, our TDPs have stabilized, and we expect them to remain at these levels for the balance of the year until we begin building TDPs again in fiscal 2023. I continue to be impressed by the strength and the resilience of the Premier Protein brand. Dymatize had another terrific quarter, with U.S. consumption up 46% across tracked and untracked channels. All key channels saw double-digit growth and brand velocities remain strong.
Our newest Dymatize ISO 100 flavors, Dunkin' Cappuccino and Mocha Latte, drove excitement and velocities for the brand. Pebbles and Dunkin' together are driving nearly half of Dymatize's growth. I'm encouraged by our progress so far this year. New capacity is coming along as expected, and we are confident the brand will re-accelerate when we are fully in stock. Dymatize is on fire and appealing to mainstream athletes. We have successfully taken price on both businesses to offset commodity increases and seen little elasticity to date. We have two high-growth complementary brands that have strong mainstream appeal and significant upside. All in all, we feel confident about our long-term outlook and the building blocks we have in place to get there. Thank you for your time and support. I look forward to updating you on our progress next quarter.
I'll now turn the call over to Paul.
Thanks, Darcy, and good morning, everyone. Our second quarter financial results were strong, with sales of $315 million and adjusted EBITDA of $51 million. Net sales grew 12% over prior year, and for the second quarter in a row were led by Dymatize, which was up 55%, while Premier Protein grew 7%. Adjusted EBITDA was up 21% over prior year, with margin of 16.1%. Premier Protein net sales were driven by higher average net selling prices, reflecting reduced promotional activity and prior year price increases. Recall that while we face capacity constraints, we have temporarily reduced Tetra Shake SKUs and promotion and marketing. This resulted in expected volume declines for Premier Protein in the quarter. Dymatize net sales outpaced volume growth of 25%, benefiting from higher average net selling prices, which reflected October price increases and a favorable mix.
Strong velocities and distribution gains drove volume growth. Gross profit of $87 million was flat to last year, with a decrease in gross profit margin to 27.6%. The margin decline resulted from higher dairy protein cost, increased freight, and higher than expected logistics inefficiencies, which were partially mitigated by higher net selling prices. We saw improvements on logistics costs in the latter part of the quarter, which continued into the third quarter as inventories were better balanced across the network. We estimate these inefficiencies were roughly a 200 basis point drag on the second quarter gross margin. SG&A expenses of $49 million included $10 million of separation costs related to spin-off from Post. Prior year SG&A expenses included $0.8 million of restructuring and facility closure costs. Both items were treated as adjustments for non-GAAP measures.
Excluding these items, SG&A decreased $9 million and was favorable 460 basis points as a percentage of sales driven primarily by reduced marketing. Cash flow from operations in the second quarter. We expect working capital increases in the second half as we rebuild our RTD. Before outlining our updated guidance for 2022, I want to review the changes to our capital from Post. On March 10th, Post distributed to Post shareholders our shares outstanding. Post retained 20% of its interest in BellRing, which translates to 19 million shares or 14% of our shares outstanding. For the distribution, BellRing paid $2.97 per share to Post for a total cash outlay of $405 million. We issued $840 million due March 2030 and borrowed $109 million under our new revolving credit facility.
The combined new debt of $949 million was used in term loan to fund the $450 million share repayment and pay transaction-related fees. As of March 31, net debt was $879 million. Net leverage was 3.6x down from the pro forma spin-off closing target of 4x. Turning to our outlook, we raised our fiscal 2022 guidance for net sales of $1.39-$1.43 billion and adjusted EBITDA of $258-$268 million. Compared to prior year, our updated guidance implies top line growth in the second half of 13%-18% and EBITDA growth of 12%-20%. We expect sequential sales growth in Q3 and Q4, reflecting the incremental pricing actions and new capacity.
For Premier Protein, we expect second half net sales growth to come from pricing actions offset partially by lower volumes. As Darcy mentioned, in the second half of fiscal 2021, we saw significant inventory reductions of shakes as shipments outpaced production driven by strong category and brand growth. This is an expected headwind to shake volumes in the second half, with the third quarter being the toughest volume comparable against prior year. We expect increases in second half margins as recent pricing actions flow through and offset inflation. We expect inflation to step up each quarter in the second half, driven primarily by dairy proteins. Second half EBITDA is expected to be roughly split across Q3 and Q4, growing significantly from prior year. In closing, we are encouraged by our first half performance and are well-positioned heading into the second half.
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 touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star and one if you would like to ask a question. We will take our first question from Andrew Lazar with Barclays.
Great. Thanks very much. Good morning, Darcy and Paul.
Good morning.
Morning.
I guess, Darcy, based on your outlook for the capacity ramp, around when would you expect that we would start to see increases in TDPs and flavor variants as well as in-market commercial activity start to sort of move higher? Have you seen anything in terms of competitive activity on the shelf or, you know, consumer behavior in the category that would impede Premier from restoring TDPs back ultimately to the brand's high watermark, you know, given the capacity that you ultimately have coming online? Thanks so much.
We expect TDPs. The last couple of months, as I said in my prepared remarks, TDPs stabilized in the last two months, basically February, March, and we expect those to maintain for the rest of the year until the first half of 2023, where we really start to drive TDPs again and reintroduce the temporarily discouraged flavors. In response to when we're gonna start driving demand with marketing and promotions, that will then get layered in. You know, current plan is that will get layered in in the back half of 2023, starting with marketing in Q3 and then promotion in Q4. Really, if you think of 2023, we begin layering in the demand driving activities. Then your, I think.
Yeah.
The third question there about competitive activity that could.
Yes.
impede us.
Any changes you've seen that would, you know, impede Premier getting back or restoring TDPs to sort of where the high watermark was given all the capacity you have coming online?
Yeah, nothing that has dramatically changed from a competitive standpoint that would impede us. You know, you can go to any retailer pretty much right now and you will see rising prices across the competitive set as well as capacity constraints. It just depends on, you know, it almost changes which competitor it happens to. That is just a clear indication that this capacity constraint phenomenon is affecting everybody whether you are co-mans or even self-manufactured. No, nothing from a competitive perspective that should impede us on, you know, with our reintroduction plans.
Great. Thanks for your time.
Thank you.
We'll take our next question from Ken Goldman with JPMorgan. Your line is open.
Hi, good morning. I wanted to dig in a little bit on the back half guidance. You know, the consensus estimate for the third quarter top line, you know, $383 million, it implies a pretty sizable step-up in terms of both the one and three year growth rates versus 2Q. I realize you don't want to give specific numbers, but, you know, the Street's modeling sales dollars growing much higher from 2Q to 3Q than from 3Q to 4Q. Paul, I noticed that you called out the tougher volume comp in 3Q as well.
I guess what I'm trying to get at is there any sense you could give us of sort of that cadence between 3Q and 4Q and how comfortable you are with where, you know, the Street numbers are right now?
If you look at what's driving growth in sales from Q2 to Q3, the one thing I'll point out is obviously there's significant pricing actions that are taking place, you know, really late second quarter, really early into the third quarter. We've taken double-digit price increases on our Dymatize powder business, and we've taken, you know, mid to upper single digit increases on our shake business. Some of the step up is clearly from pricing actions. You know, overall, we're relatively comfortable with the growth rates that you outlined.
Okay, thank you. Then wanted to follow up by asking about operating expenses, which, you know, SG&A plus amortization that is, which came in much lighter than what the Street had expected this quarter. I wanted to ask, you know, to what degree was SG&A in terms of dollars, you know, lower than you might have thought going in, or was it really just the Street kind of mismodeling, which it may seem a little bit from our perspective it's the latter. I guess the real question is how do we think about SG&A dollar progression from here? It seems to us that consensus is modeling a nice step-up in 3Q and 4Q. That's in line with how you're thinking about things as well.
Yeah. I don't think about SG&A with amortization as much, but if you strip the amortization piece out. SG&A in the first half was, if you strip out the separation cost of about $12 million, ends up right around 12% of net sales. We are expecting that the second half is largely in line with that SG&A as a percent of sales, perhaps slightly higher, but that would obviously imply that SG&A dollars grows as sales grow prospectively. I would expect that to be largely in line.
Great. Thank you so much.
We'll take our next question from Pamela Kaufman with Morgan Stanley. Your line is-
Morning. I know it's still early and you're in the middle of fiscal 2022, but in the prepared remarks, you suggested that growth for 2022, the back half outlook for points implies about 15% growth. You know, is it fair to think about next year being an above algorithm year and that give you confidence around a stronger outlook?
Yeah. I will say that we did put it in our prepared remarks. I'm gonna caveat it and just say we are early, but you are exactly right that we looked at, and we have always said that, you know, we're constrained this year. Next takes a while longer than all. When we have it, we fully expect to be able to get back to kind of historic growth rates, which are right in line with what you talked about. I think that is where we are. You know, we also have pricing that will benefit the first half.
That's what you laid out is exactly where we think, you know, we think it can be above algorithm because we will no longer be, you know, we will be less constrained than we were in 2022.
Great. Thank you. Just on Dymatize, obviously it's seeing very strong growth. Can you talk about what channels you are focused on building distribution in, where you see further growth opportunity, and what are you observing across repeat rates and velocity, particularly in untracked channels which we have less visibility around?
Sure. I think what's interesting about Dymatize is that we're seeing growth across all channels, even the channels that historically had been softer, like specialty. If you kind of zoom out over time, specialty had lost, but what's nice to see is that we're actually seeing growth across all. That's really because of our new flavors and Dymatize remarkably well across all channels. That's it. Distribution opportunities. The biggest distribution opportunity really is in mass channels. Think of food, drug, mass, and club, and the latter two being probably the biggest opportunity just because that's where powders are the most successful. We have upside in specialty and e-commerce as well. You know, when we talk about household penetration, Dymatize has less than 1% household penetration.
Really the distribution opportunity is tremendous. From a repeat rate and velocity standpoint, very strong. Usually, right now, you know, e-commerce, we are the number two brand on e-commerce. We are one of the leaders in specialty, very strong velocity. Overall, a lot of opportunity on this brand.
We will take our next question from Chris Growe with Stifel. Your line is open.
Hi, good morning.
Good morning.
Hi. I just had a question for you to make sure I understand the second half. In terms of building inventory, it sounds like that's your own inventory you're trying to build as you get more capacity. Or is it retailer inventory? I guess what I'm ultimately trying to get to is to achieve pricing for Premier, you'll have Dymatize growth. It would seem like you need some Premier volumes to grow in there, but I think you're saying they're gonna be down in the second half. Is it?
Yes, we expect volumes for Premier to be down in the second half. It's largely pricing action. We've taken pricing action on Premier again in, you know, in April, late March, end of April, a single-digit increase, but it's more than it was in the last time. That's a driver. Also keep in mind that we're continuing not to promote.
Mm-hmm.
for Premier in the second half benefit as well. There's significant pricing benefit to Premier in the second half. For Dymatize, we've taken our second double digit price increase. The second half will have the benefit of both of our double digit price increases that we've taken, one in October and one in March, April. There's a lot of pricing benefit to Dymatize as well, some volume growth expectations for Dymatize in the second.
Okay, thank you. Then just a quick question on the gross margin. There's obviously a lot of factors going on there from cutting back on promotion. You had, I think, a unique factor this quarter in terms of the gross margin. Another thing I wanted to ask, I think you mentioned that input costs were gonna be up across the second half of the year. We have started to see, you know, whey and non-fat dry milk roll over a little bit. Is there an expectation that that will start to benefit maybe in fiscal 2023, or is that. Do you have hedge positions maybe that keep you from realizing it in the second half of the year?
Yeah, we would not expect much benefit at this point from any significant decreases in protein or second half. We're largely covered at this point. We're about 90% covered. We have a little bit of variable pricing that could benefit, but it's fairly nominal, so really it's more of a fiscal 2023. To your point, we have seen there are some signs, and they're early signs, but there are some signs that the milk proteins and really the dairy proteins are starting to top off and come down. They've been somewhat bouncing up and down for the last couple of weeks. There are signs. To answer your question, we would expect to be largely a 2023 benefit.
Okay. Just to round that out, Paul, on the gross margin, just the again, the reduction in promotional spending, for example, although volume's, you know, likely down, I guess just to think about the gross margin, is it more like the average of the first half or more like the first quarter, I guess, to kind of better understand where that could shake out for the year?
You mean from a gross margin % perspective?
Gross margin percentage, yes. Sorry. Okay.
In that range.
Okay, thanks a lot.
Yep.
Appreciate the time.
We will take our next question from Ben Bienvenu with
Hey, thanks. Good morning, everybody.
Good morning.
I've got two questions. You know, you seem to be ahead of schedule. Obviously, the business was performing well. Mentioned that if the business performs well, you intend to just take that incremental cash and pay down debt at a more, when we saw the prospectus prior, or how are you thinking about where you'd like-
Yeah, certainly our priority is to delever. We've got at the end of March. Our expectation is to continue to pay down on that revolver. Yes, our priority is to delever. As far as being ahead of schedule, you're correct. We're at 3.6 times that March. We're expecting to get down to low threes by the end of this fiscal year. Yeah, we're progressing well.
Okay, great. You pointed out out in your slides the strength of the ready to drink liquids category broadly, but you also, I think, characterized everyone in the industry as having capacity issues. The growth that we can see is understated in the same way that yours is, or how would you characterize the situation you are in with that of competitors?
I think if you look at the growth of it, we saw a step change in growth last year around this time, about April. It's been, you know, pre-pandemic was around 5-6% growth. We've been consistently in the double digits, high teens. It's now come down a little bit, so now this quarter was 13%. We think that it's gonna continue high single digits, maybe low double digits because of a combination of that many competitors like us. We are also having some sporadic out of stock from several competitors.
Answer to your question is I do think it's a little bit lower than it could be. I also would just temper that with we are lapping some pretty in households and influx of new people entering into the category.
Thanks, Ben Bienvenu. Thanks a lot.
Question from Bill Chappell with Truist Securities. Your line is open.
Thanks. Good morning.
Good morning.
Good morning.
I guess first question on Dymatize, you said half the growth coming from the PEBBLES and the Dunkin' flavors. Do you expect competitive responses? Is this a kind of a flavorization of the category that's going on? Or just these particular flavors really kind of you know hit home with consumers?
A combination. Exciting idea of licenses has been around in the specialty side of the world, so think of Vitamin Shoppe, GNC, et cetera. What is, I think, really well done by the team here is finding the right licenses for where I think Pebbles is perfect as well be more of is, you know, it's about to match the equity to the channels. I think these were home runs.
Got it. Some noise in the quarter over the past few months about potentially moving Premier Protein to the convenience store channel. Any update on that that you can share with us?
We still think opportunity. It's just not near term. You know, we have talked to you guys about all the distribution opportunity. Right now, we're focused on capacity for, you know, that is the first and foremost thing we need to hit on. We feel like there is a fair amount of low-hanging fruit just rebounding in the channels that we are. There's upside in the channels where we are, specifically around TDPs, et cetera. We start thinking about these, you know, these new opportunities in white space distribution. Absolutely an opportunity. We see it, but it's down the road.
Great. Thanks so much.
We will take our next question from John Baumgartner with Mizuho.
Good morning. Thanks for the question.
Morning.
Hi, John.
First off, Darcy, growth there. You mentioned the strength of specific and execution-related. If we just step back, to what extent do you see structural changes in that athlete segment that sort of underpin the long-term opportunity? I mean, there seems to be a generational shift with EAS going away, Met-Rx not being what it used to be, and it seems as though the segment's looking for new leadership, whether it's innovation, brand investment. I mean, to what extent would you agree with that? How do you think about building Dymatize and going after the opportunity differently than you've done with Premier over the past decade? Is it really just more of a licensing thing?
No, I think it's much bigger than licensing, and I agree. If you step back and look at the category, we are seeing the growth in the overall convenient nutrition category come from two places. It's every day, which is where Premier lives, and it's sports, where Dymatize is. Those are the two areas that are. During the pandemic, actually adult nutrition also was in there, for obvious reasons. The growth coming really from every day in sports. One thing, there are more getting back, you know, the pandemic was kind of sedentary for all of us. Interest and excitement for getting back to exercise, that's one structural shift. I think that is a kind of long-term trend. That is one thing from just a structural shift.
When you think of the brands, yeah, it used to be sports nutrition if you go into GNC or Vitamin Shoppe, it was all intimidating and masculine and big black powder tubs. Now it's completely different. There is a influx of women into sports nutrition. I mean, a few years ago, we rebranded Dymatize from the traditional masculine black tub to the white kind of, you know, much more approachable, very clearly going after the athlete, mainstream athletes instead of only bodybuilders, for instance. I think and it's a perfect place for Dymatize to be.
Great. I guess just to build on that as a follow-up, you touched on it a little bit, but in the Nielsen data, there seems to be a bifurcation in that the sales of the protein segments, whether it's meal replacement, weight loss
Those sales are down, but specialty and sports are continuing to grow. Is that sort of what you're seeing on an all-outlet basis right now? If it is, you know, might, you know, next year be sort of the year where the category sees a bit of a shakeout as any underperformers as we get into a post sort of COVID trend environment?
Absolutely seeing that trend and absolutely think it's gonna continue.
Great. Thank you.
Thanks.
We will take our next question from Bryan Spillane with Bank of America. Your line is open.
Thanks, operator. Good morning, everyone. Maybe just to follow up on John's question. Darcy, I guess now that you've got the flexibility, right, with capital allocation, if you start thinking about how BellRing can be, you know, acquisitive, if you could just touch on, you know, like, what's the platform, right? Like, what does BellRing bring maybe to a target asset that, you know, BellRing could help with? And then second, I guess following up on John's question, is it really, is there more opportunity in active nutrition, so you know, powders, pre-workout, post-workout, you know, versus, you know, replacement?
From an M&A perspective, you know, our stance hasn't changed. We've got our hands full with capacity. We have two brands that have point, and we don't wanna do anything that could possibly interrupt or dampen our focus on that opportunity because we think it's the biggest one in the category. Just, like, kind of stop there. I think that M&A, even in my prepared remarks, I say when the time is right. I think right now the time isn't right. You know, I think we will continue to focus on the organic opportunity. I do think that these two brands can have the license to really take advantage of all of the trends, especially around mainstreaming, both ready to mix and ready to drink.
You know, most of the time, M&A strategy is because you don't have the brands that can take advantage of the trends, and that is just not us. I think that we will have more of a build strategy as opposed to a buy strategy.
Okay, great. Then maybe just to follow up on that. You know, so if M&A is kind of backseat and you're gonna start to, you know, generate cash and I understand there's still some debt reduction, but just what are the other options to cash? You know, would you consider repurchasing shares, dividends? Is there any consideration given, you know, the capacity lumpiness over the last couple of years of actually maybe putting more CapEx in and owning some plants? Just kind of curious what the other priorities are for the cash.
Yeah, I'll take the capital allocation and, Darcy, if you wanna touch on the owning facilities. Yeah, our priorities, as you said, it's to delever. Share repurchases is certainly part of our capital hedging, so those will be the two priorities, and as Darcy touched on M&A behind.
From a perspective of owning facilities, we always look at it. We like our approach, which is, I think I've talked to you guys about the spectrum of influence or control, and we keep moving. On our left, you have small brands, co-mans that have very little influence, and then on the right it's self-manufacturing. What we keep doing is moving toward self-manufacturing. We started with dedicated co-mans. That increased our influence, Post Holdings, which is also dedicated. Each one of these we're moving that way to increase our influence, but still maintaining our affiliate model.
All right. Thanks, Darcy. Thanks, Paul.
Thanks.
Final question from Ken Zaslow with-
Hey, good morning, everyone.
Good morning.
Your pricing will catch up with your current inflation rate?
Yes, we believe our second half pricing is gonna more than offset the inflation, yes.
If, for example, whey or milk or other things happen, you wouldn't give back your pricing, right?
As we get into next year, if the underlying protein costs come down, then obviously we'll have to decide the right strategy for that, which could include, you know, reinvesting back into promotional activity, reinvesting back into marketing activity. No, we're not. Our strategy is not to give price back, but there will be options at that point.
My last question is what have you seen with elasticity?
No elasticity to date. Obviously we just took, you know, the beginning, basically April, the next mostly, but nothing to date. I think, you know, one interesting thing about elasticity is again, zooming out, consumers move channels. Seeing some increased growth rates in some of the value channel, more value channels like club. We're watching and I think that's an interesting. It's kind of an interesting. It's not elasticity, but it's a behavior, consumer behavior change which, you know, makes sense. From a pure elasticity standpoint, no, we haven't seen anything.
How does that actually affect your business? Is that negative, neutral, positive? You know, if somebody changes where they go to buy your product, does it matter? How do you frame it? Then I'll leave it.
Yeah, very positive for us because of our channel mix.
Oh, interesting. Thank you very much.
Thanks.
This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.