Good afternoon, and thank you for joining Landak's Fiscal 2022 First Quarter Earnings Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, I will provide instructions on how to ask a question. Now, I would like to turn the call over to Jeff Sonnak, Investor Relations at ICR.
Good afternoon, and thank you for joining us today to discuss Landec Corporation's Q1 fiscal 2022 earnings results. On the call today from the company are Doctor. Albert Boles, President and Chief Executive Officer John Morberg, Chief Financial Officer and Jim Hall, President of Lifecore. By now, everyone should have access to the press release, which went out today just after 1 pm Pacific or 4 Eastern. If you've not received the release, it's available on the Investor Relations portion of Landec's website at ir.
Landec.com. Before we begin today, I'd like to remind everyone of the Safe Harbor statement. Certain statements made in the course of this conference call contain forward looking statements. It's important to note that the company's actual results could differ materially from those projected in such forward looking statements. Additional information concerning risk factors that could cause actual results to differ materially from those in the forward looking statements This is contained from time to time in the company's filings with the SEC, including, but not limited to, the company's Form 10 ks for fiscal year 2021.
Copies of these filings may be obtained from the company's website. With that, I'd now like to turn the call over to Al.
Thanks, Jess. Good afternoon, everyone, and thank you for joining us today. On today's call, I will provide highlights from our fiscal 2022 Q1 results. Jim Hall will then review recent developments at Lifecore. I'll cover our operational progress at Curation Foods, and John Muirberg will discuss our financial results We had a strong start to fiscal 2022 with our Q1 performance where we generated consolidated revenues of $129,000,000 and consolidated adjusted EBITDA of $4,400,000 As we anticipated, the drivers were margin related, with a 7% increase in consolidated gross profit and a 42% increase in adjusted EBITDA, both of which were achieved despite a 5% decrease in our revenue, which is explained by the planned contraction within our Curation Foods segment.
Moreover, I'm pleased with our ability to drive adjusted EBITDA growth at both of our operating segments in our fiscal Q1. Lifecore grew revenue by a modest 1%, but drove adjusted EBITDA growth of 57% based on some mix related benefits. And at Curation Foods, we were pleased to generate segment gross profit margin of 11% and grow adjusted EBITDA by 25%, despite the ongoing strategic contraction of revenue as we continue to rationalize SKUs and simplify that business. We are on plan through the Q1 and continue to feel good about our fiscal 2022 outlook. As a result, we are reiterating those objectives here today, which will call for our full year consolidated revenues of $545,000,000 to $554,000,000 and consolidated adjusted EBITDA of $33,300,000 to $35,500,000 We have the benefit of a nimbler organization, which as I hope you can see is translating to improving margins.
We have more work to do, but we are on the right track. We have a solid foundation at both our businesses and expect to drive more consistent results going forward as we work towards delivering enhanced shareholder value. With that, I'll turn the call over to Jim.
Thank you, Al. Building on our fiscal Q4 update, we continue to make headway with our operating initiatives, including the $1,600,000 investment in sales and marketing that are planned for fiscal 2022 that we discussed last quarter. I'm pleased to report that we're on track with the build out of our development pipeline as we prepare for the future. In the fiscal Q1, we signed development agreements with 2 additional companies and started work on one new project. This brings our development pipeline to 23 projects, which are spread across early phase clinical development with 5 customers, Phase 1 and 2 clinical development with 8 customers and Phase 3 clinical development and scale up commercial validation activity with 10 customers.
We have also completed one development project, which received FDA regulatory approval and have transitioned that product into commercial production. In addition, as we continue to build and prepare the organization to advance and expand our development pipeline, Activity remains strong and we remain in active discussions with many potential new project candidates To continue to build on our pipeline moving forward, we operate in the amazing CDMO industry with strong fundamentals And Lifecore is perfectly positioned to take advantage of the growing CDMO opportunities to deliver attractive financial returns to all of our stakeholders. We are a beneficiary of the significant trends towards outsourcing of new drug development and our syringe and bio filling capabilities Align perfectly with the powerful trends and new injectable drug applications that are utilizing those modalities. Limited injectable drug manufacturing capacity creates an opportunity for Lifecore to grow and also extend our reach through investments And new capabilities to meet the industry's ever growing needs. Our expertise in viscous materials And our world class quality system that supports drugs, biologics, medical devices and combination products Enables us to stand out as a specialized leader in the CDMO industry.
We are preparing for the future through operational and capital With the $1,600,000 investment in the P and L this fiscal year through sales and marketing And development resource expenses to expand our reach with new customers and to increase our development service capabilities, which ultimately allow us to continue to expand our development pipeline and open new sales channels that complement our existing capabilities. From an operational perspective, we are intensely focused on enhancing our organization To ensure that we remain prepared to meet our growth objectives, this really comes down to attracting and retaining great people with the pertinent technical capabilities to help Lifecore grow. In response, we recently established Lifecore University To educate and train our next generation of technical professionals in the critical operations of aseptic filling processes. In August, we graduated our 1st class, who will now use their knowledge to make an impact on our sales growth and lean culture. On the capital side of the house, we are focused on maximizing the revenue generating capacity within our current infrastructure and looking to the future to source and qualify the necessary equipment to keep up with growth and expected capacity needs.
We continue to expect capital investment in fiscal year 2022 of approximately $32,000,000 Towards expanding our filling capacity beyond our current 10,000,000 units to reach approximately 37,000,000 units over the next 5 years. This investment will support future capacity needs and nearly double Lifecore's revenue generating capacity of our aseptic fill finish business. Finally, a brief update on the channel inventory that we spoke about last quarter. As a reminder, in the Q4 of fiscal 2021, we learned that many of our commercial customers carried larger inventories of finished products during COVID due to the temporary deceleration and procedure volume. In the fiscal 2022 Q1, this dynamic explains a flattish year over year revenue growth and we continue to expect A similar situation in fiscal second quarter.
Expectations for inventory to rebalance remain focused on mid fiscal year based on the latest communication with our customers, but could change based on market forces and procedure volumes. Now, I would like to turn the call back to Al.
Thanks, Jim. Curation Foods started fiscal 2022 strong and perhaps most importantly, we are hitting the gross margin targets that we've been working towards as a result of Project Swift. We delivered on our steady state target of 11% to 14% In fiscal 2021 Q4, which was a significant milestone for the business. And in fiscal 2022 Q1, We achieved 11%. We are standing by our commitment to deliver that same range of 11% to 14% for the full fiscal year, which speaks to the massive operational enhancements that we've made over the past 2 years Our focus this year has evolved to drive efficiencies and our operational performance through maturing Our operational excellence program, which we refer to as Zest, 0 Waste, Employee engagement, standardization and training.
This is an approach based on the lean principles that are well recognized for improving operational performance. Zest is only possible now We have done the work to simplify the business through strategic moves to reduce organizational complexity, divest non core assets, broaden leadership accountabilities and flatten our management structure. Of course, inflation is having a significant impact across a variety of industries and here at Curation Foods as well. While we'll continue to believe that we are in a relatively better position given all the operational enhancements we've made over The past 2 years of Project Swift, categories such as packaging, freight and supplier related costs are things that we are dealing with daily. We have a focused program to drive continuous productivity Through the supply chain with a concerted effort to offset cost increase, where we are unable to offset cost increases, We are also working with our sales teams to implement price increases as we are committed to maintain gross margin in the 11% to 14% steady state range that I have previously discussed.
Many supply chains remain dysfunctional post COVID as well, and we are seeing issues with some suppliers The salad dressings and other inputs that are complicating our operation and to a limited extent, subduing our ability to meet demand. As expected, our fresh packaged salads and vegetable business declined 7% in the Q1 for fiscal 2022 due to veggie trays being discontinued from club stores as a result of COVID and fewer people We are now just starting to see retailer interest in bringing back trays We see an opportunity for the business to pick up as fiscal year 2022 progresses. Our avocado products business was essentially flat in Q1 of fiscal 2022, partly due to SKU rationalization with certain customers and a timing delay in our promotional activity as our Guacamole Now or Squeeze product test was delayed from Q1 into Q2. We remain excited about our growth in the Squeeze product. We continue to pick up additional customers and we are now capable of bidding on private label guacamole opportunities as our HPP line is now in production.
On the commercial front, our retailing and merchandising efforts related to resets The new items are continuing to build as we hold additional top level customer meetings. As planned, We are now seeing introductions of our new products starting to hit the shelves. These products have been delayed for as long as a year Due to COVID and include our Buffalo Cauliflower, Spicy Sweet Kale Salad and Ready TO Walk Kits. We also introduced a unique packaging design, a Saddle Bag into one of our large club store customers, and it is outperforming expectations. The Saddle Bag replaces a 28 ounce salad with 2 14 ounce salad that are in separate bags, but fused at the top.
This allows consumers to open 1 salad at a time with a smaller portion We see the packaging format rolling out beyond the test and improving our overall sales in the salad category later in the year. So on the whole, I'm feeling like we are in a good spot. We have the innovations ready to go. We have distribution accelerating across North America, and we expect to see momentum with resets as we move through fiscal second quarter and into the second half of the year. Now, I will turn the call over to John.
Thank you, Al. I'm pleased to share with you our financial results for the Q1 Fiscal 2022. I will begin with a summary review of each segment before concluding with a consolidated financial review. Starting with our Lifecore segment, 1st quarter revenues ended at $22,000,000 a 0.7% increase over the same period of the prior year. CDMO revenues posted an increase of 8% The $17,800,000 from the prior year primarily due to the timing of aseptic commercial shipments.
Fermentation revenues decreased 22 percent to $4,200,000 primarily due to the channel inventory rebalancing That Jim discussed as well as difficult growth comparison in the prior year where this revenue category was up 6 20%. Gross profit margin improved by approximately 3.30 basis points versus the prior year to 26.3%, largely due to improved product mix. Segment adjusted EBITDA totaled $2,300,000 for quarter, a 57.2% increase over the prior year and adjusted EBITDA margin was 10.4%, marking 375 basis points of improvement versus the prior year. Let's turn to our Curation Foods segment results for the fiscal Q1. Revenues totaled $106,800,000 A 6.2% decline from the prior year Q1.
Fresh packaged salads and vegetables declined 7%, which was primarily due to the planned reduction in the lower margin legacy vegetable and tray business. Avocado Products Revenues were approximately flat versus the prior year. Gross profit margin improved by 100 basis points versus the prior year to 11%, which is consistent with our expectations to achieve Steady state segment gross margins in the range of 11% to 14% for full year fiscal 2022. Adjusted EBITDA for the quarter totaled $3,000,000 with a corresponding margin of 2.8%. Briefly turning to our consolidated financial performance.
Fiscal 1st quarter revenues declined 5.1 percent to $128,800,000 Selling, general and administrative expenses decreased $2,000,000 versus The prior year to $15,900,000 in the Q1 and consolidated adjusted EBITDA grew 42% to $4,400,000 for the Q1 as compared to $3,100,000 in the prior year period. Let's now turn to our cash flow performance. Cash provided by operations was $800,000 for the first Fiscal quarter ended August 29, 2021 compared to cash provided by operations of $17,000,000 in the prior year period. Cash from investing activities improved by $38,000,000 compared to the prior year, driven primarily by proceeds from the sale of the $45,100,000 At the end of the Q1, our net debt was 155,800,000 We continue to work toward improving our financial position and create greater financial flexibility To ensure that we can execute our strategic plans as we similarly and strategically review each and every aspect of our businesses to ultimately enhance shareholder value. With that, I'll transition to our outlook for fiscal 2022, which we are reiterating today across the board.
We continue to estimate consolidated revenues In the range of $545,000,000 to $554,000,000 representing a range of flat to plus 2% And consolidated adjusted EBITDA remains in the range of $33,300,000 to $35,500,000 representing an increase of 6% to 13%. At the segment level, we are guiding Lifecore revenues to a range of $105,000,000 to $108,000,000 representing growth of approximately 7% to 10% And an adjusted EBITDA in the range of $26,000,000 to $27,000,000 representing an increase of approximately 6% to 10%. Creation Foods revenues are expected in the range of $440,000,000 to $446,000,000 representing a slight year over year decrease of flat to down 1.4% and adjusted EBITDA is expected in the range of $12,000,000 to $13,000,000 representing an increase of approximately 9% to 18%. And as you think about the segment level guidance and how it builds into our consolidated outlook, we think it is helpful to share some framework To inform your modeling and judgment of our future performance. 1st, starting with Lifecore.
As discussed last quarter, Lifecore's top line growth in fiscal 2022 is hindered by approximately 500 basis points due to customer inventory, as a result of the delay in elective procedures, the expectation is that this We'll rebalance at the end of our fiscal second quarter, which results in flattish expectations for growth in the first half, Then transitioning to substantial second half growth to meet the plan we are putting forth today for growth of 7% to 10%. Layering on the 500 basis points inventory headwind, we bridge back to Lifecore's long term expectations for compound annual revenue growth in the lowtomidteens. From an adjusted EBITDA perspective, we now expect the first half to approximate Less than the 30% of the full year guidance that we anticipated previously due to shifts in expected sales mix. For the fiscal second half, growth should recover in a very material fashion to meet our guidance for the fiscal year, which implies an increase of approximately 6% to 10%. From a gross margin perspective, for the First half of the fiscal year 'twenty two as compared to the prior year first half, we anticipate a lower gross margin rate due to product mix.
And as Jim discussed, please keep in mind that the business is investing in sales, marketing and development activities to drive Longer term development revenues and to enhance some capabilities in anticipation of future growth. So adjusted EBITDA margin expansion on the higher revenues is temporarily muted, but expected to resume over the intermediate and long term. Shifting over to the Curation Foods segment, We continue to expect a fairly consistent year of flat to modest quarterly revenue growth in the next three quarters. Gross margin has been an important KPI for Curation since embarking on Project Swift, And we expect to drive additional gains in fiscal year 2022 as a result of those operational enhancement and simplification efforts that Al spoke to. We ended the fiscal Q1 with a segment gross margin of 11% And we believe that we will meet our steady state goals 11% to 14% on a full year basis for fiscal year 2022.
The inflationary pressures we are now seeing in our business, like so many other companies, will negatively impact our 2nd quarter. However, we anticipate that these headwinds will be offset by future price increases and cost saving initiatives in the second half of fiscal twenty twenty two. From an adjusted EBITDA perspective, we Expect to realize a decrease in Q2 as a result of the near term inflationary impacts. However, As we look out to the fiscal second half, adjusted EBITDA growth is expected to resume to achieve the full year segment guidance we are reiterating today. And finally, from a CapEx perspective, in addition to the $32,000,000 at Lifecore, we plan to spend more modestly in curation with up to $7,000,000 on projects primarily related to maintenance CapEx and some minor automation enhancements.
And with that, operator, please open the call for Q and A.
Thank you. We will now be conducting a question and answer session. Our first question is from Mark Smith with Lake Street Capital Markets. Please proceed with your question.
Hi, guys. First couple of questions on curation. Just wanted to check, you guys talked last quarter a little bit about grocery store shelf reset. What are you seeing here? What are you seeing being pushed out, and kind of your expectations as we move through the next couple of months?
Yes. Hi, Mark. How are you today?
I'm well. Thanks.
Yes. The resets are starting to happen. I think you noticed that We our guacamole now test, the reset was pushed out a couple of months, which delayed our testing, but that's now happening. And we're getting our new products now into many customers. We're excited about our Buffalo Cauliflower product that's off to a great start.
Ready to Watch It is off to a good start. And our spicy sweet kale resets happened in Canada, we're now national in Canada with that product and have begun to ship to other customers here in the U. S. So It's really good, Mark, to see that the resets are happening and we're kind of getting back to normal here on those the timing of those things.
Okay. And then similar questions just as we look at foodservice. We're hearing a little bit more negative kind of chatter coming out of foodservice here over the last maybe 2 months. Any update on kind of as you've got Good fingers on the pulse of that business on what you're seeing within foodservice.
Yes, we're actually doing a while in foodservice. We picked up some new distribution with our green beans, some other salads. So We're not seeing a slowdown in foodservice. It's nicely ramping for us. We also see the Away From Home, like the HelloFresh products.
Demand is very strong on that. And we're also off to a very good start in our e commerce business with Amazon.
Okay, great. And then just turning to Lifecore a little bit. Can you just walk through a little bit the gross margin there and some of that delta? Was this Product mix, was this driven primarily by the inventory stocking? Walk us through any additional insight you can give us on the gross margin there.
Yes, sure. We can do that. John, do you want to take Mark through that?
Yes, sure. I mean, it's primarily just product mix, right? So The combination of the products within the CDMO side with the aseptic filling, the manufacturing, Principally describing the gross margin story there.
Okay. So not as much an impact from the Inventory stocking or is that have maybe some of the impact just as that then impacts the product mix?
Yes. No, it's just really just on the sales side, on the aseptic filling side, just Really strong demand there, really driving and assisting with the margins for the quarter itself. Okay. Great. We're really pleased to see that strong performance of the gross margin for the quarter.
Okay. Great. Thank you.
Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question. Thanks. Yes, I just wanted to check on the logistics contract Castellini, I think
it is where is that because I know you're outsourcing that, but where is that in terms of being completely rolled out? Is it partially rolled out? And then when it is completely rolled out, what type of savings either on
We just started to roll it out in Q1. So we are fully rolled out and beginning to ramp it up. We are seeing already with a couple of customers, One of the big reasons we wanted to do this was to get to not only be more efficient, but more effective. We're shipping to several customers 5, 6 days a week now, or before we were only doing 3. So that's having A positive impact for us.
And I am really pleased that we got that partnership done because I think you know The impact of freight costs these days and I can't imagine where we would be if we would not have done That project having a really strong partner with Castellini. I've been at Cincinnati twice, met with their CEO. We're getting our teams integrated. So we're rolling it out and we're really happy to see that. We're expecting Somewhere in the neighborhood of around $1,000,000 of improvement this year.
And That's where we are.
Okay, great. So overall, it should save you $1,000,000 but It's not just the savings, it's the efficiency, the benefits to the customer, beyond time delivery, all that
It's critical, right, going forward?
Yes. Anthony, absolutely right. That's the real reason why we did it. I mean, obviously, we don't want to save costs. Obviously, they're professionals at this.
We were not they're able to hedge their fuel. We weren't we've never had the scale to do that. But the real opportunity is to get more fresh product on the shelf, It's to decrease our shrinkage on the shelf, which we're starting to see that happen. A couple of customers where we are getting the 5, 6 day delivery per week program in. And we are now just Talking about white space, because I think as I've mentioned before, Anthony, if you drew a circle from Minnesota to Texas, There's a lot of white space that we were not able to get to before.
And now with Castellini, we're able to I'll start talking about with our sales force, how can we get after that white space, particularly on the eSmart side and really begin to get growth and it's growth that I call news without SKUs. We don't have to invent anything new. It's just to get the customers that we couldn't get to before.
Okay. Lastly, On the cost side, are there any other costs that you're looking at or that you've identified That, you can take out of the system
in general, not just logistics, to offset some
of the inflationary prices that you're seeing?
We're taking a look at on the Procurement side, opportunities that we're looking at to partner stronger with our key growers To work closer with them on our growth contracts, that's an opportunity. We spend $150,000,000 a year there And we are beginning to work a whole lot closer with them. And I know John is doing some work In the space of our inventories. So John, anything you want to add there?
Yes. I mean, I think
the other big We've spent so much of the year in integrating other facilities as well, and that just takes a lot Our current facilities and our teams are really focused on trying to sweat the assets that we have and trying to get more efficiencies. And with our Project Zest and the continuous improvement, we think there's still great opportunities for us. And we've got several business initiatives that we're tracking that are in place that are a big part of I'm really trying to offset these inflationary pressures going forward. So we're really excited about those.
Yes, Anthony, our Chinook facility in Mexico is operating extremely well. We got Zest really up and going in The second half of last year, you saw the impact in Q4. We have a really highly engaged workforce in Guadalupe. And we just, in the Q1 of this year, got it institutionalized in our Bowling Green facility, which is starting to pay dividends for us as well. It's exciting to see The engagement in the workforce, inside our 4 walls, we're not having labor issues like you may hear from other companies.
So it's exciting to see us being able to roll that out, get it moving and get it institutionalized and really begin
Okay, excellent guys. Thanks. I appreciate it. I'll hop back in the queue. Thank you.
Thank you. Our next question is from Mitch Panera with Sturtevant and Company, please proceed with your question.
Yes. Hey, good evening. So a couple of things here. First, just some housekeeping for a second. In the press release, the restructuring charges and non recurring, as part of the adjusted EBITDA was 3 point $3,000,000 and I realize there's some tax benefit, but in the footnote it says $4,900,000 What's the difference between those 2?
4.9 of restructuring charges and the 3.357 that I'm seeing in the table.
Yes. Hey, Mitch. You know what, I probably need to look at that and get back to you. I have an answer to that.
Okay. That's fine. And then that's fine. As far as I'm bouncing around here. Debt, so the debt ended at 155,000,000 You're spending obviously some capital.
Is it fair to assume that debt will be at 100 and $55,000,000 or maybe slightly higher at fiscal year end 2022?
No. With CapEx and everything, we still see debt, as we discussed last quarter end, Somewhere around $180,000,000 of net debt by the end of the year.
$180,000,000 of net debt. Okay.
Yes. And that would put us just under 5 times leverage. That's considering we're doing around $32,000,000 of CapEx for Lifecore, up to $7,000,000 for curation. It assumes some operating cash flow on the GAAP statement of probably $6,000,000 to $8,000,000 $15,000,000 or so of free cash flow after the Win Obviously, the WinSet investment helps us by doing and allowing us to do that type of investment.
Okay. That's fine. And then you may have mentioned this, I might have missed. In the Yucatan business, whole guacamole business, where how has margins what were margins in that business like year over year?
Yes. Well, we don't actually give Margins out individually for those, the gross margins itself, but they substantially improved for sure. I think what we said in previous Conversations and Al took that over, that business over, we were essentially didn't hardly have margins And that was a big part of the Project Swift was really operating and fixing that facility. And now we're having that's been a big part of fixing the whole Curation story.
Is that still a high 20%, 30% kind of gross margin business?
Well, we have we don't give guidance out. It's not that high To that level, we haven't given guidance out on gross profit at the segment level. It's not that high though, but it's a good margin.
Okay. I thought that's what the target margin was. My memory may be a little off. Okay. And then One for Jim.
Any color on the ZimmerliFe rollout?
I mean, it has Going smoothly, any feedback from Heron on Feedback they're getting, any color would be helpful.
Yes. From our perspective, things are going according to plan. Production is It's right in line with what we projected. I'll refer you to Heron's recent releases and Barry's comments. I think they're happy with the way things are going and getting good feedback, but I really can't provide much more than that.
But from our perspective, it's right on track And nothing out of the ordinary for us.
And then I guess the last question, Going back to curation, what also you may have talked about this, but As you look at pricing and your cost savings combined that will help offset the inflationary pressures, What's like the mix there? Is it fifty-fifty? Do you need more pricing than cost savings? Is it going to be more cost savings and price?
Well, for the fiscal year, I would say It's double on our productivity through our Zest program and then over what we're going to take for pricing during this fiscal year. I'm sorry.
I didn't understand that.
So you asked for the mix. So Our productivity would be 2x of savings versus operating income.
I didn't hear that. I got it. Okay.
Yes. Got it. Okay. I didn't hear the X. And then I guess last question is, is it I guess we should finally see, and it's been a long time, revenue growth in the Q3.
Is that when things is that when As a company, on a consolidated basis, the 3rd quarter is We're back in the black on growth. Is that a good assumption?
Yes. I mean, we have confidence in our guidance for the year. By the time we get our productivity plans start to Come to fruition, pricing taking hold. And then as I said, we are very excited and we're off To a good start with our innovation, we're picking up new customers That we haven't had before, in the Midwest, as well as some other channels. And we have a Big focus on foodservice this year and we expect those things to start to really pay off for us to see Better profits and better top line growth in the second half of the year.
Yes. Mitch, from an overall perspective, yes, definitely, there's definitely a meaningful growth with the Life For side 2 from the top line to hit the overall 7% to 10%. So we definitely start seeing Overall consolidated revenue growth in the 3rd quarter.
Okay. Yes, that'll be nice. You need to get the revenue growing again. And it's been quite a year, year and a half, but It's sort of closer than it's ever been, I suppose. So thank you for your time.
Thank you.
Thank you. Our next question is from Mike Petusky with Barrington Research. Please proceed with your question.
Yes. This is John. Yes. It should be somewhat flattish.
Okay.
Really the year over year, the first half is somewhat flattish basically.
Okay. So if you then sort of proceed with the math, to get to the lower end of the yearly guide in top line growth Lifecore Lifecore has to be clicking off sort of mid teens growth in the second half. And I guess my Question is why should that occur?
Yes. We're very comfortable with what's in the pipeline And what our customers are forecasting to have a very strong second half, As well as remember, we're also investing in the P and L, and we're already starting to see With our investment in the sales and marketing side, including starting to add The pipeline that we're seeing, the opportunity there that will then translate into the top line sales.
Yes, Mike, this is Jim. Basically, things are back to full speed ahead in the second half of the year. We're seeing Inventories work through like we projected and project that to be done in the second half. That includes Uptick in production in the second half, which is an uptick in and we have a lot of activity In our pipeline, on the development revenue front in the second half of the year. So you are right, the 2nd half of the year growth is high, but it's as we projected the first half of the year is playing out exactly Like we had expected, Q1, we're happy with where that finished.
Looking at what we See from our customers, barring any COVID surprises, things are back on track. So the 2nd half of the year is going to be a big growth year growth half for us that brings us into our guidance.
So Al, the price increases that you're going to put through, I guess, on the Food side, has any of that been done or is that to be done?
The majority of it It's being done now. It takes a little time at the retail sector to get The prices end, so most of the dollars will be realized in the second half of the year. But we are taking some surcharges on freight to where we can. For instance, in The food service side, we are taking these those as we speak now, but the majority will be We'll hit in the January timeframe.
Okay. And when you guys sort of model out, hey, we've got to offset these inflationary pressures and you talk about cost savings and you talk about price increases. I heard the 2x on the cost savings versus Pricing, but can you give us a sort of and I may have missed it if you gave this, forgive me, but what is the dollar figure we're in terms of your estimated inflationary pressures for fiscal 2022.
Yes, John.
Yes, what we're saying Mike is, we think it's a couple of 100 basis points in the second quarter It is really what we're saying and that we're basically trying to cover that And we will cover it really through the balance of the year with pricing and with some cost savings. And we really feel like the pricing itself On an annualized basis, we cover all of the inflation.
Okay. So 200 basis points is what I should hear or what I should take away?
Yes, in the Q2. Yes.
All right. And then on avocado, what's your current Outlook for top line growth in that business in this fiscal year?
Yes. Right now, we think it's Okay. Right now, we think it's around the low single digit growth. It's still growing. Right.
Okay. So like 2% or 3% for the year?
Yes. We were saying it's probably mid single digits, just a little bit of delay With the test here?
But we did mention, I don't know if you caught it, we've Invested in the high pressure line in Tanuk and that enables our sales force now to go after private label, which is the fastest growing part of avocado products. So we are actively bidding private label business as well, most of which would not probably hit until later in the year, just by how they do their bidding. But we're excited about the opportunity now that we can go after private label where we were blocked before because we did not have high pressure.
Expectation for gross margin in Q2, do you expect that to be better than gross margin in Q2 a year ago? Or do you expect that to be Flattish or worse?
Yes. Now, we still think it's going to have some impact this year, but we Still believe it's going to be better than last year in the curation side. No, I'm talking
about consolidated gross margin.
Yes. I think it's going to be Still a little bit better than last year, but we're a little bit, because of on the Croatian side, we'll be a little bit better Last year and not quite as strong on the Lifecore side. So In summary, or in total, it should still be a little bit better than last year.
Okay. Very good. Thanks, guys. I appreciate it.
Thank you.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Doctor. Boles
Thank you again for your interest in Landec Corporation and your participation on the call today. We look forward to talking to you once again when we release our fiscal second quarter results. Thank you very much.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.