Welcome to Post Holdings fourth quarter 2021 earnings conference call and webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 P.M. Eastern Time. The dial-in number is 800-938-2490. 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 Post Holdings for introductions. You may begin.
Good morning and thank you for joining us today for Post fourth quarter fiscal 2021 earnings call. With me today are Rob Vitale, our President and CEO, and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks and afterwards we'll have a brief question and answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filing sections at postholdings.com. In addition, the release is available on the SEC's website. Before we begin, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. Additional information regarding these risks and uncertainties is discussed under the forward-looking statement section in the press release we issued yesterday and posted on our website.
We also urge you to read both registration statements, the proxy statement, and prospectuses and other documents related to the proposed distribution of our interest in BellRing Brands that will be filed with the SEC when they become available, because they will contain important information. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. Finally, this call will discuss certain non-GAAP measures. For a reconciliation of these 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 Rob Vitale.
Thank you, Jennifer. Good morning, and thank you for joining us. Our fiscal year ended in quite a disappointing manner as cost inflation ran ahead of pricing and supply chain inefficiencies caused us to miss our estimates. We ended fiscal 2021 with Adjusted EBITDA of $1.12 billion, down 1.5% to last year as COVID affected rebounds in food service and declines in retail channel segments roughly offset each other. This morning, I will share with you the sources of the miss and frame our expectations for the upcoming year. I want to start with the detail on our shortfall from guidance. Sales were largely in line with our expectations. The miss was entirely the result of cost escalation.
The two biggest drivers versus expectations were unfavorable manufacturing costs of nearly $18 million resulting from plant inefficiencies and poor fixed cost absorption and transportation costs, which were $12 million above forecast. In addition, capacity constraints, largely resulting from labor and material shortages and contract manufacturing under shipments, inhibited our ability to service demand. The capacity limitation resulted in customer allocations across food service, refrigerated retail, and BellRing. Stepping back from supply chain, there is plenty of cause for optimism. Our demand remains quite strong in Post and Weetabix branded cereal, Bob Evans branded products, most of our food service categories, and especially in Premier Protein shakes. We have pockets of softer demand in our value cereal segments, notably Malt-O-Meal brands and private labels. Our Post branded cereals performed well this year, gaining half a share point on the strength of the Pebbles franchise.
This was offset by weakness in our value portfolio. We expect consumers to return to value price points as consumer liquidity normalizes. Weetabix had a modest share gain this year, lifted by innovation. Compared to two years ago, however, the business has gained 1.5 share points. Our Bob Evans brand continues to gain new households, with penetration up 3% over the prior year. This gain was achieved despite capacity constraints and out of stocks limiting its growth. We plan to fully support this brand with marketing and promotion investment in the back half of the year. BellRing's flagship product, Premier Protein shakes, continued its impressive consumption, up 30% this summer. As with Bob Evans, capacity constraints are limiting brand metrics. I continue to believe we remain in the early stages of category adoption, and I'm quite bullish on BellRing's future.
Finally, food service demand recovery continues to progress with the exception of travel and lodging and business cafeterias. For fiscal 2022, we expect Adjusted EBITDA in the range of $1.6 billion-$1.2 billion, or a growth rate of 3%-7%. Two key assumptions supporting this range are that by the end of our second fiscal quarter, ingredient, packaging, and freight inflation will have peaked and that labor markets will normalize. To the extent those assumptions prove optimistic, there could be pressure on our outlook. Specifically, with respect to inflation, the risk is primarily the timing as we expect to continue to price inflation, albeit with a potential lag. Regardless, that level of Adjusted EBITDA does not reflect our expectation of the company's baseline earnings potential. There are three specific drivers.
First, we do expect some of these cost pressures and capacity constraints to continue during the first half, easing throughout the fiscal year as pricing laps cost increases and supply chains normalize. Second, we continue to expect that full profit recovery in food service will not occur until fiscal 2023. Finally, synergy realization of prior year acquisitions will largely occur in fiscal 2022, with 2023 being its first full year in the P&L. As we expect each identified issue to improve sequentially, likewise, we expect each quarter to improve sequentially through the year, exiting the year on a more normalized run rate. To drill further into quarterly cadence, the continuation of fourth quarter 2021 is of course particularly acute during the first quarter.
More specifically, during the first quarter, we expect our food service platform to underperform the fourth quarter as a result of persistent labor shortages inhibiting volume demand growth and non-pass through inflation that accelerated after year-end. That inflation is being priced but will not be effective until the second quarter and will be perhaps a $15 million hit to the first quarter. In refrigerated retail, we will see significant sequential improvement. We are now largely staffed in this segment and it is improving rapidly. However, capacity constraints in the fourth quarter limited our ability to build inventory ahead of the holiday demand spike. Meanwhile, recall the balance of the businesses tend to have a seasonal sequential decline in the first fiscal quarter. With respect to capital allocation, we remained an active buyer of our own shares this quarter.
Since July 1, we have acquired 1.5 million shares at an average price of $108.02. Recent M&A is performing to plan with the exception of Almark. Almark is performing to volume plan, but has experienced the cost acceleration I mentioned and will need to take incremental pricing. All others are performing to both volume and profit expectations. Recall that the private label business we acquired from TreeHouse is slightly negative EBITDA and is expected to remain so until the second half of the year. Likewise, I mentioned that synergy realization will largely occur in fiscal 2022, with 2023 being its first full year in the P&L. We continue a strong M&A pipeline for Post, and Post Holdings Partnering Corp has numerous potential counterparties.
However, for core Post, executing pricing and improving supply chain performance, including synergy delivery, remain a greater priority than near term M&A. Hopefully, you saw our release describing the BellRing Brands distribution. Recall the transaction has three steps. First, we will execute a debt for debt exchange, which will generate cash to be distributed to BellRing stockholders at closing. Second, we will distribute at least 78 million shares of BellRing in either a pro rata spin or via an exchange offer for Post shares. Finally, roughly six months after the initial two steps, we will monetize our remaining stake. We believe this transaction will benefit both companies by enabling BellRing to trade on a more liquid, fully distributed basis. It will also result in reduced leverage and complexity around the remaining Post franchise. There is no question this is a challenging environment and will remain one for a bit longer.
I am grateful for the effort and the commitment of our teams. While the consequences of COVID had far-reaching impact than expected, the experience is making us better as we identify and cure supply chain weaknesses and become ever more crisp on pricing and revenue management. With that, I will turn the call over to Jeff.
Thanks, Rob, and good morning, everyone. Fourth quarter consolidated net sales were $1.7 billion, and Adjusted EBITDA was $272.5 million. Net sales increased 20% and benefited from approximately $100 million from recent acquisitions, as well as volume demand recovery in the Foodservice segment, strong growth at BellRing, and pricing actions. As Rob discussed, higher manufacturing and freight costs were significant burdens on results this quarter, and internal and external labor shortages disrupted our supply chains. As a result, throughput declined and per unit product costs increased. Additionally, our customer order fulfillment rates suffered. Moving to our segments and starting with Post Consumer Brands, net sales and volumes increased 11% and 7% respectively.
Excluding the benefit from the private label cereal and Peter Pan acquisitions, net sales and volumes declined 3% and 5% respectively, primarily from continuing softness across value and private label cereal products and our exits of certain low margin business. Our Pebbles brand continues to show great growth with volumes up 7%. Cereal average net pricing improved 2%, driven by favorable product mix and pricing actions. Adjusted EBITDA decreased 13% versus prior year. Supply chain disruptions, including planned and unplanned maintenance downtime, drove declines in throughput and fixed cost absorption, causing significantly higher manufacturing costs per pound of production. This was exacerbated by input costs and freight inflation. Weetabix net sales and Adjusted EBITDA increased 12% and 13% respectively. This growth was driven primarily by a stronger British pound to US dollar exchange rate. Total segment volumes were flat.
Branded and private label biscuit volumes declined as we lapped COVID-related increases in at-home consumption in the prior year. Offsetting these declines was growth in new product introductions, other private label cereal, and drink products. Lower trade spending drove a modest increase in average net pricing. Supply chain disruptions, most notably packaging and transportation availability, were offsets to this otherwise strong result. Foodservice business saw net sales and volume growth of 43% and 23% respectively, and were lifted by significantly higher away-from-home demand. As with the third quarter, revenue growth outpaced volume growth as revenue reflects the impact of our commodity cost pass-through pricing model as we catch up with grain cost inflation. Although we saw year-over-year and sequential growth this quarter, total segment volumes remain below pre-pandemic levels.
Adjusted EBITDA improved to $56 million, benefiting from volume recovery, improvements in average net pricing, and better fixed cost absorption. Higher freight costs have partially offset these benefits. Fixed cost absorption, like volumes, remains below pre-pandemic levels as labor availability and other supply chain disruptions weigh on throughput, driving higher per unit product costs and suppressing volume growth. Refrigerated retail net sales and volumes increased 12% and 10% respectively. The volume growth included an 810 basis point benefit from acquisitions, as well as organic growth in side dish and egg products. Pricing actions drove increases in average net pricing for side dish, sausage, and cheese products. Adjusted EBITDA decreased to $24 million and was pressured by significantly higher sow, cheese, and egg input costs, increased freight, and higher manufacturing costs.
Similar to our food service business, labor availability and other supply chain disruptions drove higher product costs and constrained volume growth, primarily in side dishes and sausage. BellRing net sales and Adjusted EBITDA increased 20% and 7% respectively. Top line performance was strong for both Premier Protein and Dymatize. Premier Protein sales increased 18%, benefiting from distribution gains, strong velocities, and shake price increases. Dymatize net sales increased 41% driven by distribution gains, lapping COVID impacts, strong velocities, and higher net selling prices. Higher freight and raw material costs drove a decline in segment gross margins. You can hear further detail about BellRing's results on their conference call later this morning. Turning to cash flow, we had a strong quarter generating $193 million from operations. Reduced working capital was a key contributor to this quarter's performance.
For the full year, cash flow from operations was $588 million. After deducting capital expenditures, free cash flow was $396 million, essentially flat to prior year. Lower capital expenditures offset by higher working capital were the primary contributors for the year. Our net leverage at the end of the fourth quarter, as measured by our credit facility and excluding BellRing, was approximately 6.2x . On this basis, we expect to deleverage between three quarters and a full turn once we have completed all of the steps in our announced separation of BellRing. With that, I'll turn the call back to the operator for questions. Operator?
At this time, if you would like to ask a question, please press star and one on your touchtone phone. That is star and one. We'll pause a moment to allow any questions to queue. We'll go first to Chris Growe with Stifel. Your line is open.
Hi, good morning. Thanks for the time. I just had a question for you, if I could first. Obviously, Rob, a lot of companies are struggling with and battling through this environment of pricing to cost inflation, which has skyrocketed and, you know, supply chain issues, and obviously those worked against Post this quarter. I guess I just wanna get a sense of, you know, kind of each of those elements, if I could. It sounds like from a pricing standpoint, while there's obviously a lag in some areas, food service as an example, you are pushing through pricing that will, it sounds like, offset cost inflation.
Is that a reasonable assumption for fiscal 2022, or do you expect to kind of achieve a rate of pricing through the year that will ultimately offset inflation in fiscal 2022?
The latter. I think we will lag in Q1, and then we should achieve parity, you know, in the middle of Q2 with the uncertainty, of course, being inflation from here.
Okay. Right. The other thing on the supply chain, again, like a lot of companies are having these issues as well. I guess I sensed a bit of a you know hopeful view of the supply chain. You had your challenges obviously this quarter, but I'm thinking like, for example, in refrigerated retail, that seems to be improving a bit. Am I reading that the right way or hearing that the right way? Are we starting to see some improvement here in the supply chain that gives you a little more confidence in your outlook for fiscal 2022?
No, you're reading that the right way. I think if you have to almost go market by market because the labor market is such a local issue. We've had at the peak six factories that we had what I would characterize as severe labor shortages in the timeframe late August, early September. Of those, three are now largely cured and three still have some fairly severe shortages that we're working through. It's not just a lack of hiring, the turnover is elevated right now as well. You know, if you look at the leading indicators, first leading indicator is applications, and those have moved significantly in the right direction.
We now need to make sure that we've got the right applicants, and then once we're hired and trained, we do a good job of retaining. I don't think we're any different than anybody else in this particular issue, but it remains challenging as we work through
You know, the egg and the snack as we swallow the impact of this labor shortage through the first quarter. I would say labor is the most significant aspect of this that is improving with freight still a challenge and some ingredients still a challenge.
Okay. I know we'll have a chance to speak to Darcy about BellRing, but in terms of their supply chain, this is a disappointing quarter. You have such great retail growth or gross consumption growth, I should say, and then weaker shipments. I know that Post has committed some capital here to try to help BellRing along. Is that a like a sequentially improving supply chain issue as well for them? Do they see better and better incremental supply each quarter that will allow their sales to improve as well, their shipments?
They do. There's an element of co-manufacturer execution that we are pushing. If you look back early in 2021 and really up until the latter part of the fourth quarter, our co-manufacturers were attempting to keep pace with all the incremental consumption demand. They were performing ahead of their contract minimums.
Mm-hmm.
Because of their own supply chain issues, several of our contract manufacturers have returned to minimums, which has put some of the pressure specifically on September, a bit into the first quarter, but we expect that too to ease. Same issue. There was one bespoke issue in terms of a reasonably significant COVID outbreak at one factory in our co-man network. But in general, it's the same issue facing our co-man network as it is the balance of the labor market in the country.
Okay. Just related to that, and my last question, the capacity that Post would like to build to help BellRing, when could that be ready to go, and how much, like, of the total capacity would that represent for BellRing?
It'll take about 18 months to build, and it's still a relatively modest portion, about 10%-12% initially growing. The factory is four lines with the potential to double.
Mm-hmm.
It will initially be a relatively modest piece in the entire network with the potential to grow.
Okay. Thanks for all your time this morning.
Thank you.
We will go next to Andrew Lazar with Barclays. Your line is open.
Sorry. Thank you very much.
Good morning.
Morning. Maybe to start, I wanna just explore. I know it's not the biggest aspect of things here near term, but I wanna explore this co-packing arrangement with BellRing just a little bit more for a moment. You know, I understand maybe the opportunistic nature of this. I guess it seems like it's a bit at odds with Post's plan to sort of be getting out of BellRing stock early next year. You know, the co-man arrangement seems like it's sort of getting back into BellRing in more of like a pick and shovel sort of way, but maybe without the brand ownership. I guess I'm trying to wrap my head around that a bit and better understand why maybe a current co-packer for BellRing would not be stepping up to take on this opportunity.
Well, they certainly would and are. We are not the only part of the BellRing network expansion. I would encourage you to look at it less from the BellRing side and more from the Michael Foods side. By that, I mean Michael Foods is essentially an enormous aseptic processor. That's essentially what we do in processing eggs. When you look at marginal opportunities to invest capital in our core competencies within the Michael Foods network at a relatively low risk with a decent return in excess of our cost of capital, it was an interesting tactical initiative for Michael Foods to step into that mix of contract providers for BellRing, much as we do for some other customers within our foodservice network.
We see it from a Michael Foods perspective as an expansion of our ingredient co-manufacturing business. BellRing just happens to be the customer. We obviously have a considerable amount of confidence in the BellRing demand projections. It felt like a relatively easy way to allocate capital in businesses that we have very strong capabilities, very strong knowledge of the demand side, and take advantage of that relationship.
Great. Thanks for that. In the release, I think you mentioned that in your fiscal second half of this past year, most of Post's retail channel product categories trended towards growth rates that were, you know, back to in line with their pre-pandemic levels. I guess this is a little bit incongruent with what we still see as obviously very elevated growth trends for many companies in the packaged food universe. I guess it's important, right? 'Cause it kinda gets to the debate on whether or not the packaged food players can exit the pandemic with, you know, even a slightly better growth rate moving forward, given all of the incremental trial the past two years from, you know, the shift to at-home eating.
I guess I was hoping to get a little bit more clarity on this comment and what might be making maybe trends that you're seeing somewhat different than maybe what some others are, if they are.
Yeah. Well, I think that's really a cereal comment because, you know, both Bob Evans and BellRing are reverting to a bit ahead of already very really robust pre-pandemic growth rates. You know, I think that I'm inferring your comment is more the slower growing, getting back to slower growing or shrinking.
Okay.
If you look at cereal, where I think that comment is most apt, I think it's a shift in premiumization within the category more than it is a category issue in private label. If you pull out private label, I think the category is up 3%-4%. I believe what we're seeing is more of an issue with private label, specifically within that category. Strip it out, you see growth rates very consistent with some of the other center store categories. I think it's partly leading that lower income consumer.
Got it.
I don't think it's systemically different than other categories.
Got it. Thanks. Very, very quickly, just it might be too early, but any even anecdotal data points yet that sort of suggest that you're seeing consumers start to trade down a little bit, whether it be to some of your value brands or private label? Is it, is it still just too early for some of these macro conditions to have sort of forced that to happen?
No, I think we are starting to see some anecdotal. Well, it's data, but it's very recent. If you look at the last four weeks and maybe eight weeks, you've got first some bottoming in the trends. Instead of declining, they're flat. Then in the very recent weeks, we've seen some uptick in private label. You know, it's too early to call it an inflection point, but if these trends continue, it is an inflection point.
Thanks very much.
Thank you.
We will go next to Jason English with Goldman Sachs.
Hey, good morning, folks.
Your line is open.
Thanks for talking me in.
Good morning.
Hey there. Lots of questions left. Let's start with the easing of cost pressure by the end of 2Q. Can you unpack that a little bit more? What specifically do you expect to ease? Is this predicated more on like spot holding begins to lap the upward move in the cost, or are you actually underwriting sequential deflation?
No, we are certainly not underwriting deflation. I think the comment I made was net of price increases. We're assuming lapping pricing increases by the end of the second fiscal quarter, and that the rate of inflation will not dramatically accelerate. That there's not a further lag effect on taking pricing. We're certainly not.
Good
Baking in disinflation. Where we do.
Okay, good.
Where we do.
Sorry, go ahead, Rob.
Yeah. Where we do expect to see some cost improvement is on supply chain execution as we get better health in our labor situation, which is improving. The controllable aspects of supply chain are improving. The non-controllable aspects of various forms of input, transportation, inflation, we are not assuming will moderate, but that our pricing activities will lap the lag effect.
Understood. That makes sense. Two questions on food service. You have more volume flowing through this quarter. Grain prices sequentially eased, and based on your pricing mechanism, pricing should have sequentially moved higher. I would have expected under those conditions that EBITDA would have sequentially grown, not sequentially shrunk. A, am I right on those three drivers? If so, you know, B, what's the negative offset?
Yes, you're right on those drivers, and the negative offset is transportation and packaging, which are not hedged and are inflating in the quarter at double digit rates.
Okay.
That's the one.
I hear you loud and clear on fiscal 2023 being back to sort of the first normal year, but I have a question on what normal is. You know, I've always thought about that business as predominantly an egg business where consumption grows around 2% underlying eggs, food service. You're premiumizing through more processing, adding another point, and then conversion of shell to processed all in. This can be like a 4% sort of volume metric, volume mix grower that can be levered to at least 5% EBITDA. You put out a presentation in September suggesting, if you look at it quickly, that maybe it's actually only a 2%-3% EBITDA grower, full cycle. Is that right?
Like, what should I really be thinking about this only as a 2%-3%, or is there more potential full cycle growth there?
No, we have no reason to believe once recovery, and let's define recovery as profitability levels comparable to fiscal 2019, that the rate of growth in food service has changed. Now, you know, what remains a bit uncertain is the baseline because we have yet to see full recovery in some segments, you know, specifically travel. We have no reason to believe that rate has changed. I think there were some mix of category growth rates in that presentation that may have led to that conclusion. The expectation is, again, that we'll see, you know, low single digit volume growth, some shift to higher value-added product. Between the two, those will add in with what I believe we have said historically and continue to say is 3%-5% EBITDA growth rate.
Yep. Okay. Got it. Thank you. Appreciate it.
Sure.
We'll go next to David Palmer with Evercore ISI. Your line is open.
Thanks. Just to follow up, I can't help it. On the foodservice side, it feels like your customers, the food attach has been very strong within that breakfasty segment. Those coffee players are talking about a lot of breakfast sandwiches being sold. It just felt like when you look at an index of your potential customers, it would have been at least a few points higher than where the street was versus below. I'm wondering about just the shortfall of just your constraints versus what you thought would have been possible in terms of supply. But my real question was really on refrigerated retail. I'd love some anatomy of the decline versus that EBITDA margin versus 2019 levels.
When you think about pricing net of costs versus supply chain, you know, what impact do each of those have? How do those get better as we think about maybe in 2019 being an anchor year, getting back towards those high teens, actually, EBITDA margins, when can you get there? Thanks.
That was a long question, David, so I'm gonna do my best to break that down.
Sure.
If I don't get it, please come back to the specifics. On food service, your assumption is quite right. We should have sold more than we did. The specific customers that order our highest value product are doing quite well, and demand is very strong. 100% of the answer is labor availability in key markets where those products are made. I may have used this statistic in our third quarter call, but we pre-pandemic expanded that network from 17 to 22 lines, and we are currently only able to operate 18 lines. We expect that to change throughout the year. We expect to be at 19 by the third quarter and in full utilization of lines by the end of the year.
The single source of the gap between what you would expect looking at our customers and what we were able to ship is labor availability crimping our capacity. Let me stop there and see if that answers.
I wonder what happens to that business. I mean, these are big customers that want their egg sandwiches. Are other suppliers filling that in, or is there a backfill, or is there a big quarter coming to you in one or two quarters as you're potentially rebuilding their inventory?
It should be the latter. We actually believe we have gained share. There's just not a whole lot of capacity in this category. The bigger customers are not where we have demand issues. It's that we're not providing as effectively to some of the smaller customers. We will have an inventory rebuild when we have the inventory.
Got it. Then with regard to refrigerated retail, just the pricing net of commodities versus supply chain and the pace of recovery there. Thanks.
The pricing net of commodities is predominantly a sow issue. Sows have been extraordinarily volatile in the last year, going from a low of 26 to a high of 93 or so. They're about 70 now. We've been chasing that, and as we chase that, we have bracket pricing, so it's an automatic reprice, but it puts margin pressure on the up and margin benefit on the down. That will be a consistent source of margin variability as long as we have that particular line and price it accordingly. Over time, it is a nice return on its capital, but it does create some margin variability. The core potato business has priced perfectly well. It has no cost ahead of pricing, no issues there.
The issue with our side dish business is that for a while, that particular plant was our most acutely challenged plant from a labor perspective. We have demand that would be in the 15 million pounds a month or more, and we had dipped to a capacity of less than 7 million pounds. We had a glide path to get back to 12 million pounds by April, and we are now already at just shy of 12 million pounds, so well ahead of our expectation. As we cure the labor situation, that was the root cause of many first and second derivative issues that were driving incremental costs within that particular segment.
I'm most optimistic from a trajectory perspective when I look at refrigerated retail about the pace of recovery and the margin restoration, because it is largely an issue of having to pay a higher tolling charge to go to third-party manufacturers and having extremely poor throughput in the factories driving fixed absorption down.
Great. Thank you.
Thank you.
I'll go next to Michael Lavery with Piper Sandler.
Thank you. Good morning.
Hey, Michael.
You've called out labor as a headwind, and obviously we hear that all over the group. Can you give a sense in your outlook what assumptions you're making about a vaccine mandate? It's surely got a date with the Supreme Court, so it doesn't seem like it's completely settled just yet. Are you factoring in what might be a potentially reduced further labor market, or how are you thinking about factoring that in?
You know, it's a great question, Michael, and we are certainly planning it. No, we have not factored in that the vaccine mandate will further crimp the labor market. I think the impact that it could have is some incremental cost. I don't think if that rolls out as drafted, I don't know if I should say as expected, it would probably be an incremental cost of a handful of millions of dollars to us to monitor and test. But we would need to push through that in terms of paying it pretty aggressively in order to make sure that we don't further exacerbate the labor issue.
Okay, great. That's helpful. This, I touched on a little bit with one of Andrew's questions, but just coming back with the low-end consumer, you know, certainly you are looking at what may be an inflection point. Can you just maybe quantify a couple of things? Do you have a sense of how much, you know, what percentage of your cereal consumers are SNAP recipients? And obviously, we've already seen the P-EBT piece of those benefits roll off, which is significant. That seems to coincide with the timing you're looking at for bottoming and potentially turning a corner. You know, is that a substantial piece of your consumer base, and is that what might be driving, you know, giving some hope that this is really on the rebound?
100%, yes. When the changes went into effect, it was precisely when we saw the bottoming and then the start to lift in private label. I don't have the specific percentage, but it's a material portion of the cereal category.
Okay, great. Thanks so much.
Thank you.
We'll go next to Ken Zaslow with Bank of Montreal.
Hey, good morning, everyone.
Hey, Ken.
As you think about the transaction, is there any sort of thought of revisiting it given where everything is? Is it, you know, is the snowball already rolling down the hill? How do you think about that and the value creation from your aspect?
To clarify, you mean the BellRing transaction?
Yeah. I'm sorry, yes.
No, I think the notion that the two businesses ought to be separated is price-agnostic. What is not is how you do it. As we have laid out at each step along the way, we will make determinations around how to execute it as we get closer to the execution date. By that, of course, I mean, as I had in my prepared comments, do we simply distribute it to shareholders or do we use the BellRing currency as a means of shrinking Post shares, so it's obviously relative value? So that is the only piece that I would characterize as uncertain and impacted by the relative changes in the two company share prices.
Okay. The second question I have, and I'll keep it to two questions, is you did say that, you know, you're gonna be accelerating the marketing investment. I believe it was of the. Actually, I don't remember exactly which. [audio distortion]. Right. That's an interesting move given the capacity constraints. What do you see that gives you the confidence just not parallel with the commentary of saying, "Hey, look, we're still capacity constrained." Is there a timing? How do you see that playing out?
There is timing. What I commented on is that we expect towards the latter half of the year to be more fully engaged in driving demand in that category. That's specifically the reference I was making to the side dish business, which has gone from, you know, a really acute labor situation to largely a solved one in a short timeframe. It's the business we are seeing the most rapid improvement from a supply chain and output perspective. That gives us confidence that by the time we get into the second half, we would be in a position to drive incremental demand.
Okay. If that doesn't, I mean, so again, obviously, I guess your level of confidence is very high. That is just a very seemingly fairly aggressive step without making sure the inventories are rebuilt. I understand. Thank you very much.
Largely self-policing. If we are wrong by a quarter, we will know that in time not to spend the advertisement.
Okay, great. I appreciate that. Good luck.
Thank you.
This does conclude today's Q&A session in the Post Holdings Q4 2021 earnings call. You may now disconnect.
Thank you.