Greetings and welcome to the General Mills First Quarter Fiscal 2023 Earnings Q&A Webcast. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, September 21st, 2022. I would now like to turn the conference over to Jeff Siemon, VP of Investor Relations. Please go ahead.
Thank you, Kelly, and good morning, everyone. We appreciate you joining us today for our Q&A session on our first quarter fiscal 2023 results. I hope everyone had time to review our press release and listen to our prepared remarks and view the presentation materials, which were made available this morning on our IR website. It's important to note that in our Q&A session, we may make forward-looking statements that are based on our current views and assumptions. Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here with Jeff Harmening, our Chairman and CEO, Kofi Bruce, our CFO, and Jon Nudi, Group President of our North America Retail segment. Let's go ahead and get to the first question. Kelly, can you please get us started?
Certainly. Thank you. If you'd like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Once again, it's one-four if you would like to register for a question. Our first question comes from Andrew Lazar with Barclays. You may proceed with your question.
Thank you. Good morning, everybody.
Good morning.
Good morning, Andrew.
Maybe to start off, I think, you know, the area that diverged from expectations the most in the quarter was certainly on gross margin, which actually expanded modestly year over year. I was hoping you could provide a bit more detail on sort of the drivers of this performance and maybe more importantly, how you see the sustainability and sequential cadence of margin performance through the remainder of the year.
Sure, Andrew. This is Kofi.
Okay.
I would just note, you know, we're pleased with the start on margins for Q1. The primary driver, just as we think about kind of where we are that the HMM cost savings, plus benefits from price mix offset inflation deleverage and our other sort of operating costs we've taken on in this environment to show modest expansion in the quarter. I think as we look forward, you know, we're not gonna give guidance largely in recognition still of the fact that we are in a highly dynamic environment and still vulnerable to supply chain disruptions. As we think about the operating environment, there's still a high degree of volatility.
The biggest variables as you can imagine, as we think about the gross margin progression for us are gonna be volume performance on the level of disruption and as we obviously would just take note of the inflationary environment where we just noted that we're expecting modestly higher inflation for the year. That's kind of the table setting.
Okay. I guess second, I'm curious of some of the volume declines that you're seeing just based on elasticity in, let's say, North America Retail. Do you have a sense for how much of that is due to, let's say, the loss of promoted volume versus base or full price volume? You know, just given that you and others are not promoting as much in light of current service levels. I guess I ask this because it could help us get a maybe an even better sense of the health of sort of the underlying business, if you will.
Yeah. Jon Nudi, you wanna take that?
Yeah. Good morning, Andrew. As we look at the unit declines, the vast majority of that is due to promotional pulling back and not so much frequency, but really adjusting our price points. In most categories, it's up to about 75% of the unit declines is due to promotional pullback.
Okay. Very helpful. Thanks so much.
Our next question comes from David Palmer with Evercore ISI. You may proceed with your question.
Hi. I'm trying to think of a good follow-up on gross profit because obviously that was very impressive this quarter. I'm wondering how are you viewing your gross profit performance, your gross margin performance versus your plan so far? Maybe you could speak to that. I'm wondering to what degree would you be teasing or have us tease out perhaps some benefits that might not repeat in the future, some things that are outsized benefits, such as some of the market share gains in your higher margin categories or perhaps promotional activity that you don't feel like will be as favorable? Anything that you would do to caution us on gross margin?
Yeah. I think sort of broadly beyond the qualitative, let me get to the front part of your question. In the quarter, largely what was sort of unexpected on gross margin was the level of volume and on the back of the elasticities that Jon just alluded to, which were lower than we expected going into the quarter and into the beginning of the fiscal year. That resulted in less deleverage pressure.
That flowed through to gross margin. I think as a cautionary note, while you know, I would certainly be at the front of the line along with all our business leaders, including Jon, to want the environment stabilized, I think supply chain disruption is still very real, categorically well above historical levels and the cost of servicing volume in this business, even as we think we are doing it competitively in our North America business, is just higher and will remain higher until we see that stabilization. That probably is the first and primary cautionary note. The second is obviously the interaction of pricing and volume and elasticities in this environment remains still hard to read because we are in an ahistorical period, and it is hard, frankly, to call those things.
Those are sort of the cautionary notes, and they all have pretty reasonable and reasonably significant impact on gross margins. I think the last thing is, as we noted in the scripted remarks, we did flag some other headwinds that potentially it will flow through to operating margin, including increased investment on the business to sustain long-term growth, and the cost of the expected cost of the recall on Häagen-Dazs.
If I could just squeeze in just a follow-up on the supply chain comment. Was there improvement through the quarter such that your so-called exit rate supply chain friction was less at the end of the quarter than it was at the beginning of the quarter, that gives you hope that that'll be less going forward? I'll pass it on. Thanks.
Yeah, sure. Fair question. As we entered the year, we expected a very modest improvement in the level of supply chain disruption. The quarter effectively played out in line with those expectations and with the expectations we set at the beginning of the year, which are, you know, we're still expecting a categorically higher level of supply chain disruption than our historical experience.
Thanks.
Our next question comes from Chris Growe with Stifel. You may proceed with your question.
Thank you. Good morning.
Morning, Chris.
Morning, Chris.
Hi. I just had a question, if I could, and I think you have an expectation that elasticity will increase from here. I think that's a very true assumption. I'm just curious if you're seeing any signs of that or any indicators that would indicate that elasticity is increasing or maybe some categories where you're seeing it, perhaps that you know give you a bit of a warning sign for the business overall. Seems like it's going pretty well across the industry. I just wanna see if there's anything that we're missing here.
Chris, this is Jeff Harmening. I mean, I don't think you've missed anything so far. You know, Kofi alluded to just a minute ago, elasticities have been more favorable to us than we had anticipated in the current environment, particularly as consumers have traded away from home eating to more at home eating consumption. It's just a matter of as we look through the year, you know, we would anticipate that elasticities would become a little bit less favorable than they are right now, but still more favorable than they would have been historically. So far we have not seen really any change in elasticities, which, you know, for us was a positive for the quarter.
That's great. Yeah, thank you. I know we've had a few gross margin questions. It was quite a great performance there. I just was curious, maybe Kofi to you and to the phasing questions around the gross margins. Do you still have price increases that are going into place that need to take place to offset the inflation? I guess related to that, you have this increase in inflation. Does that prompt you to take more pricing at retail overall? Thank you.
No, appreciate that. We have most of the vast majority of our pricing in market to address or announced to address the inflation that we see, including the revised modest revision up in the inflationary guidance. The last round being in our North America food service business where we've taken some additional steps to address costs of goods as we saw more inflation in the quarter than we did price mix. I think we're in a place where we feel comfortable we've got this sort of bounded.
Okay, great. Thank you.
You bet.
Our next question comes from Cody Ross with UBS. You may proceed with your question.
Hey, good morning. Thank you for taking our questions. I'm just going to nitpick a little bit here. You noted supply chain headwinds in pet. Can we unpack that a little bit? Which brands and categories are you seeing the most impact? I'm just a little bit surprised that given the pet demand that you're seeing or demand in the pet category, you were not able to deliver total sales dollars in line with the fourth quarter of last year.
Sure.
Yeah. Let me take that, Kofi, and I'll unpack it a little bit. If you want me to unpack it even more, let me know. I would say, first, I would remind everybody on the call that we grew our pet business double digits yet again in the first quarter, and we've increased our pet sales $1 billion over the last four years. While it may not have been the run rate of Q4, it's still growing at double digits. I guess that would be my first bit of context. You know, the second I would say is that I think it's also important to remember that Q1 last year, our sales were really strong.
That's not only because we had capacity, but also we were working off some inventory. We were selling not only everything we could make first quarter of last year, but we were also drawing down inventory levels of product we had made previously. The comparisons are particularly difficult, by the way, as they are in the second quarter of this year as well. The comparisons are really difficult. When we look at our performance, I would say our supply chain improved modestly throughout the quarter in pet. Our service levels improved modestly in line with our expectations.
You know, we actually grew share in the wet pet food category, and we lost share in treats and in dry, and that's where we don't have the capacity. Just to answer your question just a little further, you know, as a reminder, we anticipate having more capacity for treats coming online in the third quarter in January of this year, and then dry is gonna take another few quarters to get in line. That's important to note because as we think about our second quarter in pet, we'll have a lot of costs from increasing service in the business, whether through its external supply chain or through adding capacity on treats and warehouse space and all those things, but we won't yet have the sales associated with it.
You can expect our second quarter in pet to be a little bit challenged, but we're highly confident that will rebound in the third and fourth quarters of this year.
That's 2Q Pet margin that you're referring to, not sales? I just wanna make sure I understand that.
Yeah. I would say primarily the margin piece, yes.
Gotcha. That's helpful. One more quick question, if I may. You noted in your prepared remarks plans to step up brand building and investments for growth. Which categories and brands do you see the most opportunity? Thank you.
Well, I would say, you know, like, over the long run, we see the most opportunity in our global brands and our local gem businesses. They include businesses like Pet and Häagen-Dazs and Nature Valley, probably the biggest upside potential. Also some of our local gem businesses like Totino's, where we highlighted during the quarter and we're at capacity is now a billion-dollar brand for us. Pillsbury, which is a billion-dollar brand, Wanchai Ferry dumplings in China. The biggest areas of opportunity for us are gonna be probably the ones that you would anticipate, which are our big billion-dollar brands in global categories, as well as some of our local gem brands that I just mentioned.
Our next question comes from Steve Powers with Deutsche Bank. You may proceed with your question.
Hey, thanks, and good morning.
Morning.
I'm gonna hit on gross margin again, and then a follow-up on Pet. On the gross margin, acknowledging the uncertainty around, you know, volume progression and supply questions, Kofi, that you mentioned, we just focus on the phasing of run rate inflation relative to pricing benefits and HMM benefits. You know, do any of those things get tougher from 1Q before they get better? Or it feels like you're relatively well caught up, you know, between pricing and productivity benefits relative to the rate of inflation as we run through the first quarter. I'm just trying to get a sense of, A, if that's correct, and then, B, do any of these cost things get worse for some reason before they get better?
Well, I would say broadly, you know, we are modestly higher on inflation in the front half. Modestly is probably the appropriate. But I think on balance, it is still a relatively balanced year in terms of our inflation call between 14% and 15%.
Okay.
And then I-
Okay.
Steve, this is Jeff.
Go ahead, Jeff.
I would just say from a pricing standpoint, you know, we will start to roll over more meaningful pricing in the back half of this year. Obviously, as you saw, strong price mix come through in Q1. You know, that's likely similar in Q2, and then it decelerates as we start comping more meaningful step-ups last year.
Yeah. Okay. That's fair. Thank you very much. On the Pet question, you know, given sort of the tightness of supply and, you know, it looks like you're obviously making efforts to bring supply online, but it feels like the real relief isn't gonna come at this point until fiscal 2024. We've seen the competitors in the space, you know, start to buy up capacity to sort of accelerate that and get incremental capacity online sooner.
I just wanted to get, you know, kind of play that off you and just get a sense for is that something, you know, you would consider as you think about capital allocation, M&A strategies, is, you know, adding capacity through acquisition something that's on the table, or are you more inclined to just stick to building it out and working through co-packers?
Yeah. Thanks. Very fair question. Let me make sure. There's one point I wanna make sure or clarify on 'cause you talked about relief coming in fiscal 2024. I would say I think about it in two pieces and I'm not trying to nitpick, but I think this is important. Our treat capacity. We're lacking capacity in treat and in dry. On treats, we'll bring on external capacity in the third quarter of this year, so we don't need to wait until fiscal 2024 for treat capacity. We're really short on that. We bought a great business on Nudges and True Chews and so forth. We're branding at Blue Buffalo, so we're really excited about what we can do.
We just need the capacity, and we don't need to go out and buy additional capacity for that because we will have what we have coming January. On the dry, it is true that it's gonna take a while for us to get dry capacity. If something became available, whether it's through external supply chain or buying or another source, if the question is would we be willing to look at that? Absolutely, we'd be willing to look at that if it would speed up our rate instead of doing it internally. We haven't had that option yet present itself, but were it to, we would certainly evaluate that and the speed to market of that and the cost relative to doing it ourselves.
Great. Okay, thank you very much.
Okay.
Our next question comes from Jason English with Goldman Sachs. You may proceed with your question.
Hey, folks. Thanks for slotting me in. Congrats on a strong start to the year.
Thank you.
I'm gonna come back to pet, but with a different question. First, the capacity that you're going to be bringing on in dry, can you give us some context in terms of how much this is gonna add for you in fiscal 2024?
Jason, we said it was, it's gonna be about upwards of $150 million of capital that we're putting in. We talked about that on the Q4 call. Beyond that, we haven't quantified, you know, what percentage of additional capacity, but it'll be meaningful. It'll be a meaningful chunk to add.
Okay. You're not alone, right? Nestlé's adding, Mars is adding, Hill's is adding, as Steve mentioned, both organically and inorganically. Simmons is adding, Phelps is adding. Like, there's a litany of small manufacturers. There's a lot of capacity being built. It seems like it's come in, like, in the wake of COVID as we start to anniversary a pull forward in pet adoption. In other words, it seems like it's coming at a time when there's not a lot of volume growth in the industry. Yeah, how does this play out? As we think forward, like, what's the risk that pet gets pretty darn competitive with an overbuild of capacity and becomes a pretty promotional category?
I understand the rationale behind the question, but I mean, promotional activity in pet usually isn't a very productive effort, because demand is pretty inelastic and consumers tend to be very loyal. I would also add that, you know, even pre-pandemic, as you probably realize, Jason, you probably remember this, is that, you know, we were growing Blue Buffalo double digits already, even in a category that was barely growing in terms of pounds before that. The most important thing to remember is not the trend of the pandemic, but is the humanization trend, which I know you well remember. That, that's been going on for 15 years or so, and Blue Buffalo is very well positioned to grow in that market.
Even in the face of a category that sees low growth in pounds, Blue Buffalo participates in the fastest-growing part of a very attractive category with the best brand. We're confident no matter whatever happens in the rest of the category, that Blue Buffalo is gonna be well- positioned as we look to the future.
No doubt. I'm not arguing that premiumization should fade away. To that point, you've got double-digit growth this quarter. I think everyone has double-digit growth because the inflation out there. Can you unpack maybe that price mix line then for us? Like, how much of it is just pass-through of higher cost and how much of it is the mix, the premiumization that you're talking about?
It's really a combination. You know, we have seen meaningful pricing, SRM actions on the business. Obviously, the business itself is high mix, but so the largest amount is really what we're seeing from an SRM standpoint in the quarter.
Got it. All right. Thanks a lot, guys. I'll pass it on.
Thanks.
Our next question comes from Bryan Spillane with Bank of America. You may proceed with your question.
Hey, good morning, guys.
Morning.
I wanted to ask a question about food service. I guess, you know, looking at the margins in the quarter, I know you called out in the press release that, you know, maybe pricing has lagged outside of flour milling. Can you just talk about a couple of things? One, you know, how much pricing do you think you're gonna need to recover margins? Can margins sort of recover in the course of fiscal 2023? And then, maybe separate from that, is there any, I guess, like, stranded cost or dyssynergy related to the resegmentation that's kind of reflected there? Is it more than just inflation, and is there any, like, stranded cost or, you know, anything related to the resegmentation that's affecting it in the near term?
Look, I'll have Kofi probably get into the specifics of this, but this is Jeff. Let me. It was. It's a lot to unpack in food service quarter. I guess one of the takeaways top line I would share with you is that, we have high confidence in our food service business and certainly in the fact that we can grow it into the future and that the margins will improve. I want you to know there's nothing fundamentally amiss in our food service business. Having said that, there's a lot going on in this particular quarter, so probably let Kofi explain a little bit of that.
Sure. Let me just start with your reference to index flour pricing or index pricing on our bakery flour. As a reminder, that is profit neutral, dollar profit neutral. As you know, prices go up to cover costs, it's just close to a dollar, a fixed dollar profit. As you think about that, a good chunk of the price mix you saw in the business, which was about 21%, was actually driven by index pricing.
On the rest of the business, we did not see enough price mix come through to fully cover the inflation in the quarter. We subsequently have additional pricing to work with to pass through to the customers, and we would expect in the balance of the year we'll continue to see improvement in the margin prospects for the business. To your question about stranded costs. Just as a reminder, we decoupled the convenience business primarily focused on convenience stores and other smaller convenience channels and put that into North America Retail as part of the snacks business. With that, we actually moved administrative structure as well. There isn't really an overhang from stranded costs. All of that kind of went with the business.
You know, this is a pretty fair representation of the underlying food service business margins.
Okay. It's some of this is just the math of, you know, flour prices going up. You get the dollar profits, but it's profit neutral, and the rest is really just gonna be catching up to inflation, I guess, in the non-flour milling piece. Is that a good way to think about it?
That is exactly the way I would put it. You've got it.
Bryan, just to-
All right. Cool
To maybe put a finer point on that. In the pricing going up for index pricing with no incremental profit dollars coming with it is actually margin negative for the segment in the quarter to the tune of about 200 basis points. So
Yeah. Yeah
Which is obviously a big portion of you're seeing that flow through in this quarter.
Yeah. Perfect. Thanks, Jeff. Thanks, guys. Appreciate it.
You bet.
Our next question comes from Jonathan Feeney with Consumer Edge. You may proceed with your question.
Hey, good morning. Thanks very much. Two questions. First, I wanted to dig in on the 14%-15% expected COGS inflation. Could you comment, if you can, any more about kind of how much of that is input costs relative to, you know, all the other, the structural inflationary things that you're facing? Just a flavor for that or is input cost the vast majority of that would be helpful. My second question would be more broadly, in the U.S., promotional levels, merchandising levels are, you know, if you wanna use the, you know, the syndicated data, something like 10 points off their pre-COVID normal. Are retailers expecting they get back to that pre-COVID normal at some point? Thanks.
Okay. Well, let me start on the front part of the question, and then I'll hand the second part probably to Jon or Jeff. Just as you think about our call on modestly higher inflation, we're seeing a couple things go on, but primarily it reflects the burden of higher labor, energy, and transportation costs on our suppliers, in particular on items in our COGS that have high conversion. Think about your value-added ingredients such as nuts, fruits, flavors, et cetera. The pass-through impact to that.
Second is that as we've been working our way through the quarter on the expectation that we will see higher volume flow through as a result of slightly lower elasticities than expected, we've outstripped coverage in some areas. So we're actually buying out in the back half of the year at and exposed to more spot market prices. So those are the primary drivers as we think about it. Then just as a reminder, you know, we started taking coverage positions at the turn of the calendar year for this year. You know, our coverage position is still you know, reasonably strong relative to the spot prices. So we're you know, effectively pretty in the money as you think about our coverage.
Those are some critical things just as you think about the guidance and how we're thinking about the balance of the year on inflation. Then I'll let Jon or Jeff handle the second part of your question.
Yeah. This is Jeff. Let me take that one. I think you know, as I said at a conference a couple weeks ago, you know, we think the risk of promotions ramping up significantly over the next couple of quarters is quite low. The reason is that you kinda have to believe three things to be true in order for it to see a lot of promotions increase. The first, you'd have to think that this inflationary cycle were different than the ones we've seen before. I was, you know, running a business in the last inflationary cycle here at General Mills. What we see is that there isn't really a sharp increase in promotions coming out of an inflationary cycle. You'd have to think that the environment would be different.
The second thing is you have to believe the disruption in the supply chain are gonna change significantly from where they are now. The third is that you'd have to see COGS inflation not only decelerate, but also get to absolute deflation. The fact is that I think you need all three of those things. We don't see any of those things as we see right now. We just increased our guidance on inflation a little bit. We've told you that supply chain disruptions remain high, elevated. They're about two times what they were before the pandemic, even if they're below what they were, you know, a year ago. Then, you know, those inflationary cycles we see keep playing out. So look, that's what we think. I mean, the risk is relatively low, given what I just laid out.
Thanks. Very helpful.
Thank you.
Our next question comes from Ken Zaslow with Bank of Montreal. You may proceed with your question.
Morning, guys.
Morning.
Morning.
I have two questions. One is, what are your expectations for your innovation progression this year and next relative to the last two years?
I would say in aggregate, we would expect our, you know, our levels of innovation to roughly flow the same as they have in prior years. I would say the one exception to that would probably be our pet business. Clearly, when you're capacity constrained, innovating when you're capacity constrained is a little bit difficult. In pet, we would see our innovation weighted to the second half of the year, and we'll talk about that more in December. We're actually quite pleased with some of the innovation we see coming. A lot of it's on our established businesses and some of it, you know, some new products. In pet, I would say that we probably have more coming in the second half of the year than the first half of the year.
In general, the promotion, the innovation timing is roughly similar.
You don't think that you'll accelerate it given your supply constraints being a little bit easier. I would've thought you would've told me your innovation will actually accelerate over the next two years given all the things that have happened between the consumer, the innovation. You know, but I hear what you're saying. I'm just curious. My next question is, as you go forward in a couple years, can your gross profits expand if elasticity becomes what you think it's going to be and volumes don't, you know, kind of subside a little bit? Or do you truly need the volume, you know, operating leverage? Because that seems to be one of the points you pointed to as a key core reason for gross margin expansion.
I was just trying to get a little color on that, and I appreciate your time as always.
Sure.
Sure. I appreciate the question. This is Kofi . I would just note, you know, our gross margins are down still relative to the pre-pandemic, so fiscal 2019, probably about 140 basis points or so. I think the goal for us during this inflationary period has really been to drive our HMM cost saving, which remain roughly 3%-4%, and our price mix benefits from SRM to be enough to offset inflation. I think, you know, actually as we measure it, we have done a pretty good job of kind of covering the inflation with the combination of those two things.
The reason our gross margins are down versus that period is because of the cost of dealing with supply chain disruptions and the additional cost to operate and serve the business in this environment. Those costs, when the supply chain environment stabilize, are the things that we would expect to be able to take out in relatively short order with targeted HMM and productivity actions as well as changes in our supply footprint. That, I think, gives us confidence that with as we step out of this environment, we will be able to get our gross margins back to sort of pre-pandemic levels in a more stable environment.
Great. I appreciate it. Thanks, guys.
You bet.
Our next question comes from Michael Lavery with Piper Sandler. You may proceed with your question.
Thank you. Good morning.
Morning.
Morning.
You'd mentioned consumers shifting back to more food at home as part of what's probably softening elasticities. Your organic growth in food service outpaced North America Retail. Even going back a few years, I know there's some moving parts, maybe the comparisons aren't all perfect, but it looks like even against fiscal 1Q 2020, it's grown faster. Is that driven by inflation and index pricing or is there just that much momentum in food service? Maybe help us reconcile just how strong the numbers look versus some of the very logical color about consumer shifting back to more at homes.
Michael, you're right in the sense that it is logical to assume that the you know food service would move in a different direction than would our retail business, given the trend at home consumption. There are two things playing into this for the quarter and one thing playing over it more generally. In the quarter, remember, we have a lot of index pricing on bakery flour, which really you know inflates the sales number on our food service business. I mean, the accounting is right, but it just makes it look higher than it would be otherwise. That really all of our growth this quarter in food service is a result of that index pricing. That's the first thing I would tell you.
The second is that even given that though, our food service business doesn't move in perfect correlation, inverse correlation with our retail business because we have a really big school business. We're not only servicing restaurants, we have a significant part that we sell cereal and yogurt and other baked goods through our education, and we're really, really good at that. That demand tends to be a little bit more inelastic. You know, even though it may seem logical on the face of it to have food service move inversely with retail, and in point of fact, ours doesn't move perfectly that way for that reason. Even if we take out of consideration the index pricing.
Okay, that's helpful. Could I just follow up on you called out higher SG&A in pet as one of the margin drivers or having an impact on margin. What maybe is behind that? I guess I'm just curious because if there's capacity constraints on two of the biggest pieces of that business, it wouldn't seem like it's higher marketing. Is it just a sort of a step-up in the G&A or what's behind the SG&A growth there?
No, we’ve had, along with most of our retail businesses, modest increases in our spending behind data and analytics. That would be a big chunk, as you think about what’s driving SG&A growth in the comp, that would be more of it. You know, obviously, we’ve maintained modest levels of increases in media as we step through and we’re trying to manage through the supply pressure on this business.
Michael, the one other thing is you've got now a full quarter of the Tyson business that we acquired last year. So there's a bit of step up in SG&A just by the math of adding an incremental business there.
Okay, great. Thanks for all that.
You bet.
Okay. I think we're gonna go ahead and wrap up there. Appreciate everyone's time and good questions. Please feel free to follow up over the course of the day with the IR team, and we look forward to being in touch next quarter.
That does conclude the conference call for today. We thank you for your participation, and we ask that you please disconnect your line.