BellRing Brands Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 19, 2024

There are 13 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to Bellring Brands 4th Quarter Fiscal Year 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for Bellring. Please go ahead.

Speaker 1

Good morning, and thank you for joining us today for Bellring Brands' 4th quarter fiscal 2024 earnings call. With me today are Darcy Davenport, our President and CEO and Paul Rhodes, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question and answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC filings sections at bellring.com. In addition, the release and slides are available on the SEC's website.

Speaker 1

Before we continue, I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And 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.

Speaker 1

With that, I will turn the call over to Darcy.

Speaker 2

Thanks, Jennifer, and thank you all for joining us this morning. Last evening, we reported our Q4 and fiscal 2024 results and posted a supplemental presentation to our website. Fiscal 2024 was a great year for Bellring Brands. Our net sales grew 20% with adjusted EBITDA of 30%. Our full year results for the 2nd year in a row meaningfully exceeded our long term algorithm as we added shake capacity and began to layer in demand drivers.

Speaker 2

The end of the year is an important time for us to reflect on the past and reassess the future opportunity. There were 3 things that stood out to me. The first is the expanding growth potential of the convenient nutrition category, specifically the segments that we compete in, ready to drink shakes and ready to mix powders. Ready to drink is the category standout delivering double digit growth in each of the last 4 years. Despite all of this growth, it still has low household penetration at 48% compared to most mature categories that are close to double that.

Speaker 2

This combined with strong macro trends like the mainstreaming of protein, growing popularity of functional foods and beverages and the continued rise in healthy convenient foods highlights a long path of future growth. The second thing that stood out to me is the power and incredible future potential of our brands. This year was a pivotal year for our largest brand Premier Protein because we steadily increased our supply and we demonstrated that the demand is there and will continue to grow as we layer in demand drivers. Premier Protein reached new highs across many key metrics including household penetration, market share, distribution and buy rate. What is truly unique is that we did this without significant advertising or promotion at many retailers further illustrating the brand strength and future potential.

Speaker 2

The third thing that struck me is about our organization. Our team has been working hard to prepare for the moment when shake production would be unconstrained. We have fantastic advertising campaigns prepared, compelling category story that will unlock shelf space for the future for the category as well as our brands and we developed delicious new products with a promising pipeline of innovation. At our core, we are a growth company and we have been preparing for this moment and we are ready for a strong 25. Now let's get to Q4 category and brand highlights.

Speaker 2

The convenient nutrition category grew 6% in Q4. It is rapidly transforming into an everyday and sports nutrition category. These segments make up 75% of it and are growing approximately 10% in Q4, which better reflects the category momentum. From a form perspective, ready to drink growth accelerated and continued to lead the category, up 13% driven by household penetration and buy rate, a fairly rare combination CPG. Mainstream, everyday and sports nutrition RTV brands continue to drive most of that growth and are up 25% versus year ago.

Speaker 2

Ready to mix grew 4%, slowing from Q3, which was boosted by incremental feature and display activity. We continue to be excited about the tailwinds that protein provides consumers and its high relevance in broad with the broad swath of individuals. Turning to our brands. Premier shake consumption growth accelerated this quarter, up 14%. Growth was strong in mass, food and e commerce channels driven by accelerated velocities, feature and display activity along with distribution expansion in mass and food.

Speaker 2

Club grew despite lapping a longer promotional period promotional event in the prior year. October's overall consumption accelerated up 28% lifted by distribution gains and pumpkin spice, our fall seasonal flavor. Pumpkin spice has demonstrated impressive incrementality to the brand and was the number one pumpkin item at a major mass retailer this fall. As I mentioned earlier, our brand metrics remain strong with premier protein reaching all time highs in TDPs and household penetration. Shaked TDPs grew 21% versus Q3 and we improved in stocks and expanded both forms and pack sizes.

Speaker 2

Household penetration added just over 3 percentage points reaching 19.4% surpassing our goal for the year. Impressively, we saw growth in repeat and buy rates with repeat rate increase increasing to 52% demonstrating our category leading consumer loyalty. Premier Protein with RTD market share of 23% maintained its position as the number one brand in the RTD segment as well as the number one brand in the broader convenient nutrition category. All of this is especially encouraging because in a high growth category with low household penetration, we see plenty of room to continue to grow our brand and expand the overall category. Premier Protein Powder continued its strong trajectory in Q4 with consumption growing 43% beyond strong velocities and distribution gains.

Speaker 2

In fact, at a major mass customer, it was the fastest growing brand across the entire powder category in the quarter. We remain encouraged by the growth potential of Premier Protein brand in this format as it reached over $75,000,000 in net sales. We expect another year of robust growth in 2025 as we invest more marketing dollars to drive awareness. We continue to believe the brand will be a contributor to mainstreaming the powder category in the same way Premier did to ready to drink. Turning to Dymatize.

Speaker 2

The brand remains one of the strongest in the powder category with velocities in the top third as key customers. Household penetration and overall distribution levels remain stable. U. S. Consumption which covers about 2 thirds of the global brand was relatively flat versus last quarter, but down compared to a year ago as a result of the ongoing softness in the specialty channel and a tougher comparable at food and club.

Speaker 2

Encouragingly, Dymatized international business continues to be strong with net sales up 30% this quarter. As a result, global Dymatized net sales delivered growth for the quarter. Our national marketing campaign with San Francisco All Pro running back Christian McCaffrey launched on November 14 during NFL Thursday Night Football. In addition to new advertising, we have new product platforms launching in the first half of fiscal twenty twenty five. Overall, we continue to be bullish on the sports nutrition category opportunity.

Speaker 2

Now to our outlook. As you saw in yesterday's press release, we are anticipating another above algorithm year. We expect fiscal 2025 net sales to grow between 12% 16% and adjusted EBITDA to grow between 5% and 11%. As a reminder, our algorithm in net sales growth of between 10% to 12% with EBITDA margins of between 18% 20%. Our plan reflects strong volume growth for Premier Protein and a pivot from supply focus to demand driving.

Speaker 2

We are eager to have all of our demand drivers in place this year and are stepping up our marketing dollars on Premier Protein. We are excited to see our national marketing campaign on Premier hit screens late in the Q1 ahead of New Year, New You season. EBITDA growth in fiscal 2025 is expected to lag net sales growth as we experienced input cost inflation across our portfolio, most notably on our powder business and our increased marketing activities. Paul will provide further details on our fiscal 2025 outlook. In closing, I'm thrilled with our performance this year.

Speaker 2

Our confidence in the long term outlook of Bellring remains high. Strong macro tailwinds around protein are driving robust long term growth in our category with ready to drink and powder segments in the early stages of growth. Premier Protein and Dymatize are leading mainstream brands with low household penetration and strong loyalty with Premier Protein maintaining the number one share position in the category. Our innovation pipeline is rich, enabling us to bring excitement to consumers and our retail partners for years to come. Last, we have a scalable, regionally diverse supply chain able to support our long term growth projections.

Speaker 2

Finally, I would like to thank all of our employees, customers and operations partners for an incredible year and I look forward to a fantastic fiscal 2025. We will provide updates on our progress next quarter. I will now turn the call over to Paul.

Speaker 3

Thanks Darcy. Good morning, everyone. I'm pleased to share our 4th quarter results came at the high end of our expectations. Net sales for the quarter were $556,000,000 and adjusted EBITDA was 117,000,000 dollars Net sales and adjusted EBITDA both grew 18% over the prior year with adjusted EBITDA margin of 21%. Starting with brand performance, Premier Protein net sales grew 20%, primarily driven by strong volume growth for both RTD shakes and powders.

Speaker 3

RTD shake sales grew 21% boosted by organic growth and distribution gains as well as a 1% benefit from our price increase taken late in Q4. Shipment dollar growth outpaced consumption dollar growth with shipments benefiting from load ends of new distribution in Q1 promotions as well as replenishment of food channel shelf gaps. Diamatized net sales increased 4% this quarter on 7% higher volume. Strength in the international business continued in Q4 with double digit sales growth. This was partially offset by domestic headwinds with softness and distribution losses primarily in specialty and food weighing down overall brand growth.

Speaker 3

Gross profit of $205,000,000 grew 32 percent with an increase in margin of 400 basis points to 36.9%. Gross profit included higher unrealized mark to market gains on our commodity hedges versus prior year and production attainment fees received from Shake co manufacturers. Excluding these impacts, gross margins increased 250 basis points compared to a year ago primarily from net input cost deflation as we lap elevated protein costs in the prior year. Excluding one time costs in the prior year period, SG and A expenses as a percentage of net sales increased 3 20 basis points, more than half of which was driven by higher marketing spend as expected. Advertising promotion spend rose to 4.5 percent of net sales as we increased marketing support across our portfolio.

Speaker 3

Operating profit of $112,000,000 grew 44% and was positively impacted by lapping $7,000,000 of accelerated amortization recorded in the prior year. Turning to full year fiscal 2024 results. Net sales were just shy of $2,000,000,000 up 20% over the prior year. Gross profit of $707,000,000 grew 33% with margins up 3 60 basis points over 2023. This growth was driven by input cost inflation partly offset by higher promotional activity.

Speaker 3

SG and A expenses were $285,000,000 and when excluding one time items increased 160 basis points as a percentage of net sales. Marketing spend increased 60 basis points versus prior year and was 3.1 percent of net sales this year. Adjusted EBITDA grew 30% to $440,000,000 with a margin of 22.1%, an increase of 180 basis points. Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $40,000,000 in cash flow from operations in the Q4 and $200,000,000 for the year.

Speaker 3

As expected, shake inventory levels increased in the 4th quarter driven by incremental production volumes, putting us in a strong inventory position at the end of the year. In fiscal 2025, we expect to further build Shake Weeks supply at optimal levels, most notably in Q1. As a result, our cash flow in fiscal 2025 is expected to be similar to fiscal 2024. As of September 30, net debt was $769,000,000 and net leverage was 1.7 times. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below 2 times in fiscal 2025.

Speaker 3

With respect to our share repurchases this quarter, we bought roughly 700,000 shares at an average price of $55.97 per share or $41,000,000 in total. For the fiscal year, we repurchased 2,600,000 shares at an average price of $56.12 or $147,000,000 in total. Our remaining share repurchase authorization is $175,000,000 Turning to our outlook. We expect fiscal 2025 net sales of $2,240,000,000 to 2,320,000,000 dollars and adjusted EBITDA of $460,000,000 to $490,000,000 Our guidance implies strong top line growth of 12% to 16% and adjusted EBITDA growth of 5% to 11% with healthy adjusted EBITDA margins of 20.8% at the midpoint. We expect dollar and percentage sales growth to be weighted to the first half of the year, while adjusted EBITDA growth will be weighted to the second half.

Speaker 3

From a brand perspective, we expect mid teensalesgrowth for Premier Protein driven by volume gains, shake list price increase benefits and continued category tailwinds. Key drivers of premier protein's volume growth include distribution gains on new and existing products, increased promotional activity and organic growth. Expanded formats and pack sizes along with innovation drive new distribution growth this year. Net sales growth in the first half of fiscal twenty twenty five benefits from lapping low shake supply in the prior year, while the second half faces a modest headwind as we lap trade inventory loads in the prior year. We expect low to mid single digit sales growth to diamatize in fiscal 2025 driven by volume.

Speaker 3

Fiscal 2025 adjusted EBITDA margins are expected to decline 130 basis points at the midpoint, but at 20.8% still above our long term algorithm of 18.8%. Gross margins are expected to be moderately pressured by higher protein and other input costs. Significant inflation will weigh on our powder margins in fiscal 2025 after experiencing very favorable protein rates in 2024. On shakes, our price increase taken in Q4 of 2024 is expected to largely offset inflation, which gradually increases throughout the year. SG and A as a percentage of net sales is also expected to be a modest headwind to margins as we increase marketing for Premier Protein, particularly in the first half compared to a year ago.

Speaker 3

Turning to our Q1 forecast, we expect net sales growth north of 20% with Premier Protein the main driver. Diamatize and all is expected to grow low to mid single digits. Premier Protein growth is lifted by distribution gains, promotions and organic growth as well as our shake price increase. We expect shipment dollar growth for Premier Shakes to be relatively in line with consumption growth. 1st quarter adjusted EBITDA margins are expected to be meaningfully lower than prior year as higher SG and A expenses partially offset by a modest increase in gross margins.

Speaker 3

On SG and A, we're expecting a significant step up in advertising promotion spend from very low levels a year ago as we kick off our premier protein nationwide campaign late in the quarter. Gross margins compared to prior year benefit from our recent pricing action on shakes offset partially by input cost inflation. In closing, we are encouraged with our strong performance in fiscal 2024. Our long term outlook remains bright and we look forward to delivering another above algorithm year in fiscal 2025. I will now turn it over to the operator for questions.

Operator

Thank you. Our first question comes from the line of Andrew Lazar from Barclays.

Speaker 4

Great, thanks. Good morning, Darcy and Paul.

Speaker 2

Good morning.

Speaker 4

Hi. I guess first off, Darcy, I think you have done some trial runs in isolated geographies around increased marketing spend behind Premier and that you would sort of use those learnings to kind of inform how you want to go about this, the broader national campaign this year. If I have that right, maybe what are some of the key takeaways or learnings from those trials as it relates to sort of the approach you're taking this coming year around the increase in advertising and consumer spend?

Speaker 2

Perfect. Thanks for the question. You're right. We did a couple of things this quarter to prepare for our national campaign. We had 3 in market tests and then we also just did some additional creative testing.

Speaker 2

We're still waiting for the full results, but the early results would say that the in market test met or exceeded our lift expectations, so that's great. And then the second piece is on the creative testing. We saw some areas, it was they performed very well, but we saw some opportunities to improve the creative which is kind of in my mind the best case scenario is the existing what we have the existing creative performed at or above our expectations in market, but we also have some areas to tweak it and improve. So all in feeling really good, we have the time to tweak the creative a little bit, and then we'll hit the market later in Q1.

Speaker 4

Great. Thank you for that. And then, I guess, what is your sort of current view on what the increase in capacity will look like in fiscal 2025? I think as of last quarter, it was kind of a mid teen increase that was expected. I don't know if that's changed or not.

Speaker 4

And then are you closer to having to start to add maybe additional lines in either or both of the greenfield production facilities? Because I know that takes some time to get those up and running. Thank you.

Speaker 3

Yes, Andrew. For fiscal 2025, the production volumes that we're expecting are in the mid to high teens. Some of that is because we have as we touched on last quarter, we did get some incremental production, which obviously benefited Q4 into Q1 and we expect that to continue on into the future. And so we really expect that our current network can support our growth really later into fiscal 'twenty six to 'twenty seven. So it's a little bit perhaps further out than we discussed previously on when we think we may need to look at additional lines.

Speaker 3

So we believe we can continue to get additional volumes from our existing network, which obviously for us is better because it's lower risk. It's easier for us to do so. So a little change from last time, but not dramatic.

Speaker 4

Thank you so much.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Ken Goldman from JPMorgan.

Speaker 6

Hi, good morning everybody. Thank you. I wanted to ask Darcy, previously you had indicated that this year's revenue growth 2025s might be near the top end of the longer term algo, so maybe around 12%. Now 12% is at the bottom of the range. Can you maybe walk us through what changed in the last few months that gave you incremental optimism that allowed you to feel a little more comfortable with the higher range at this time?

Speaker 6

Or was it previously just a case of, hey, maybe you were it was still a little too early to be precise and now you have a little more clarity into how the year is going to unfold?

Speaker 2

Yes, I think it's just the latter. Our full plan wasn't finalized in August when we had our last call. And so we knew that it was rolling up strong and felt comfortable with the top end of our algorithm. But just as this planning process kind of developed, we obviously saw more opportunity.

Speaker 6

Makes sense. And then for my follow-up, Paul, I mean, you gave some helpful information on the Q1. I may have missed it, but I don't think we kind of had enough puzzle pieces to kind of get exactly to where you're thinking about for EBITDA dollars. Understanding that sales will be up 20% or more, but that the margin will be meaningfully lower, any more clarity that you can give us on sort of where you'd like us to kind of net out on that bottom line in terms of dollars or bottom line growth would be helpful, I think, just because of those kind of major puts and takes there?

Speaker 3

Yes. So yes, we expect our Q1 EBITDA margins to be meaningfully lower than a year ago. The biggest driver is on the SG and A line, which we expect a significant step up for our marketing. So our A and P, you may recall last year, our A and P was relatively on the low side at about 1.4%. So it was very low last year.

Speaker 3

We're expecting it to step up very meaningfully this year as we are marketing behind our brands, but also starting to do premier national marketing towards the latter part of the quarter. So it's a very significant step up on the SG and A line and we expect some additional headwinds on G and A. So it's a very significant step up for SG and A. And then our gross margins, we actually expect those to be moderately favorable as pricing for shakes does offset some of the inflation. But net net, a pretty meaningfully lower EBITDA margin in Q1 versus a year ago.

Speaker 6

Thanks so much.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from the

Operator

line of Matthew Smith from Stifel.

Speaker 7

Hi, good morning. Thank you for the question. Marketing stepped up in the Q4 and you called out higher marketing spend for the upcoming fiscal 2025. Should we think of the 4.5% of sales from the Q4 as a goalpost for the full year or maybe even higher than that with the rollout of the marketing campaign being more targeted in the Q4?

Speaker 3

No. If we think about fiscal 25%, I would not expect 4.5% to be the full year. I think it should be a little bit less than that. Again, Q4, we have a number of things going on that including the test marketing we had for our Premier Shakes. I will say that as you look at fiscal 2025, marketing will be a bigger headwind to margins and EBITDA in the first half than it is the second half because we did step up marketing in the second half of twenty twenty four.

Speaker 3

So as you look at 2025, fairly sizable step ups in both Q1 and Q2 of 25% versus a year ago and then it more moderates in the second half. But net net, it should be somewhere in the high-3s to low to mid-4s for the year.

Speaker 7

Thank you, Paul. I'll pass it on.

Operator

Thank you. One moment for our next question. Our next question comes from the line of David Palmer from Evercore ISI.

Speaker 8

Thanks. Maybe make this a super general question about convenience channel. I know there's a lot of curiosity about strategies to improve your penetration in that channel and growth rate in that. I would suspect there's some synergies with expanding plastic bottle capacity as well there. Could you maybe talk about that?

Speaker 2

Sure. Yes. So the convenience channel, just I'll give a broader perspective. So we it only represents about 10% of the category. So it's actually a pretty small part of the category.

Speaker 2

And so that is not it just is not our immediate focus. And we see that actually the bigger opportunity for us is expanding distribution where we already are distributed. So TDPs, incremental displays in food, I mean, we think there's an opportunity to double our business in food. That is that and we also see a very big opportunity in mass. So those are the big expansion opportunities.

Speaker 2

Now I want to separate I want to separate out the convenience channel and the single serve opportunity because we actually think the single serve opportunity is a very big one. It's just not it just doesn't have to be in the convenience channel. And so that is something that we are absolutely we're expanding our bottle production and we'll be and we are focused internally as an organization to expand our single bottles and that would be in the channels that we already are being distributed.

Speaker 8

That's great color. I just wanted to ask one more on advertising. If you get to the 4s, as Paul was just talking about in terms of advertising mix, where does that place you in terms of your share of voice in the category? It feels like this category might be under advertised right now versus your 20% market share. How much of the heavy lifting will you be doing in terms of advertising voice?

Speaker 8

And I'll pass it on.

Speaker 2

Yes. So just from a share of voice, it gets close on Premier Protein. And same way and we are also advertising Dymatize but I think you're more asking about premier protein. It's during so what's unique about this category is just a little bit of a seasonality. So Paul mentioned that we will start advertising kind of at the end on Premier at the end of Q1 just to kind of prime the pump for the big season which is our Q2 or January, February, March that is when most people most new people enter into the category during so kind of I'm air quoting diet season.

Speaker 2

But so during the period when brands are advertising, so think it mostly Q2, Q3, Q4, we will have a competitive share of voice.

Speaker 8

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jim Solera from Stephens Inc.

Speaker 8

Hey, Paul. Hey, Darcy. Good morning. Good morning. I

Speaker 3

wanted to ask a question just about maybe the composition of growth. And I appreciate Paul gave

Speaker 9

a lot of good detail in your prepared remarks. But what

Speaker 3

are you guys expecting for kind of RTD shaped category growth? And then when you talk about some of the distribution gains, is that distribution for the whole category? And obviously, you have a prominent place there? Or is it you're finding Premier is getting

Speaker 9

distribution where other competitors are kind of being left out of that incremental shelf placement?

Speaker 2

Okay. So first there are a couple of questions in there. The first one was what do we expect for the RTD category? We expect the RTD category to grow at low double digits. So I think that we will continue to see expansion of RTDs.

Speaker 2

Couple the mainstream brands and Premier kind of leading that are the ones driving the category growth and we'll continue to see that. As far as the our distribution gains and when you look at our growth for the year, we expect about 75% of our premier growth to come from new distribution and new products. So that is definitely going to be driving most of our growth. And we will because we are the ones driving the growth, we should get most of the shelf space. So again, I think that we are having incredibly constructive conversations with our retailers.

Speaker 2

They realize that convenient nutrition is under spaced. Actually when you look at our category compared to other categories in the store with much lower growth rates, I mean, we should have 2 to 3 convenient nutrition should have 2 to 3 times the category space as it does today. So I think that the retailers see that opportunity. Unfortunately to date there's just been a lot of capacity constraints. And so now that at least we are out there, I talked about in my prepared remarks that we have an incredible category kind of selling deck which walks retailers through the opportunity and the opportunity is twofold.

Speaker 2

1 is just incremental space and why the category deserves it. But the other piece is if you've been in any kind of food account, you'll see the opportunity of just organization and merchandising of the category. The category generally is kind of misunderstood and confusing to many consumers and it needs to be cleaned up and so we have a lot of recommendations around that backed by research etcetera. So those were some of the pieces that I was referencing when I was saying kind of we the organization is ready for this moment when we are unconstrained where we can actually go on the kind of offensive.

Speaker 9

Great. Appreciate all the thoughts. That's it.

Operator

Thank you. One moment for our next question. Our next question comes from the line of John Baumgartner from Mizuho Securities.

Speaker 10

Good morning. Thanks for the question.

Speaker 3

Good morning.

Speaker 10

Darcy, there were some high level comments around innovation for 2025. At this point, are you at liberty to speak more in detail about those? And maybe just conceptually, when you speak about new platforms, what's your expectation for these platforms in terms of offering new ingredients or benefits that can attract new users, new age groups, so on?

Speaker 2

I'm probably not at liberty to talk as much as you'd like me to. It's still early, but here, I'll talk in maybe a little more specifics. Okay. So Premier on I'll talk first Premier then Dymatize. Premier, we will continue to have close innovation.

Speaker 2

I've in the past called it little I innovation that's flavors pack size format. So we will continue to expand the offerings there. We think there's a ton of opportunity low risk and not only do you increase household penetration through these offerings, but you also increase buy rate. So that will happen probably a little less sexy than the Big Eye Innovation. But I think what's exciting around next year we will have 2 new launches under Premier and that's what we would call more big eye innovation one launching in Q2 the other in Q4 and once they're on the shelf I'll tell you more about them.

Speaker 2

And then Dymatize we have 2 lines launching in kind of the first half and these are platform ideas and in the first half one and they're both I'll have a little teaser is they're both outside of the typical protein powder. So to get at and the idea around the Bigeye Innovation for both businesses is it has

Speaker 9

to

Speaker 2

check the box for incremental household incremental consumers or incremental occasions. So that is that's what that is what needs to be true. Does that give you a little?

Speaker 10

Yes, I'll sit tight. And maybe just a follow-up there. Coming back to the household penetration and shakes, like the category level, the rate of increase accelerated this year relative to what we've seen post COVID, which was already strong. In terms of the underlying drivers and penetration, is it possible to isolate how much of the recent growth in shakes has come from substitution of other formats, whether it's bars or powders relative to absolute new users into the nutrition category. And has that balance is it changing at all?

Speaker 10

Do you expect it to change in 2025 and beyond? How do we think about that from a penetration perspective?

Speaker 2

Most of the growth is coming from incremental to the category. So very little coming from well, first of all, only 10% of our growth is coming from brand switching, so start there. And most and then the so the 90% is coming from new users or our own users buying more. So, and there's actually, there's not that much interaction. We're not sourcing a lot of volume from bars and powders, a little from powders, but not not that much most of it is coming from out like new consumers or our own consumers buying more and those those our own consumers buying more are usually if you think of kind of the consumer progression those are ones that have recently come into the category and now are becoming you know with because for with us we have 50% repeat.

Speaker 2

So with those consumers just continuing to maybe they came in a year ago, 2 years ago and now they're just they're becoming everyday users.

Speaker 8

Thanks, Arcee.

Operator

Thank you. Thank you. One moment for our next question. Our next question comes from the line of Bill Chappell from Truist Securities.

Speaker 11

Thanks. Good morning. Darcy, talk a little bit more about just the decision on stepping up marketing in 2025 and kind of why now and what level and because it seems like it's a step change. I mean, you've kind of grown exceptionally well over the past few years despite not doing any national marketing, despite not kind of flooding the airwaves. And it seems like at least this quarter and probably for the next few quarters, you are deciding to step up.

Speaker 11

So maybe give us an inside look of what the thought process was from the company or from the management team of like why now, where do we go with this, how far is too far, how little is too little, any kind of color around that would be great.

Speaker 2

Sure. I think that we have always seen advertising as an important demand driver. We the last time we were on air was 2021. And the and it is it really is if you think of the only demand driver that is able to lift your entire business, it's advertising, especially national advertising. And so, that is the reason, we've always we've just had to we needed to wait until we were confident in our supply.

Speaker 2

And so now we're confident in our supply. What I will say around levels, I mean Paul talked about just percentage of sales. But I think that just maybe a little more qualitatively, I think we are being cautious, meaning that we are starting to press the accelerator of advertising and but we're not kind of pedal to the metal at the very beginning. We did the test markets this last quarter. So we have a sense of what the lift should be when rolled out nationally.

Speaker 2

We feel great about that. We also will be ready. We have some upside on production if the results end up to be higher than we expected. But overall, I mean, we are the big opportunity for premier and the category is household penetration. And there is nothing better to expand household penetration of the entire business than advertising.

Speaker 11

Okay. And then maybe kind of tying into that, when you talk about things like you believe you can double the food channel sales over a certain amount of time, like what are those consumers consuming right now? I mean that's always the you have good household penetration. I think you've said that 80% of your consumption is for breakfast. Do you is this different meals, different occasions of the similar user or these new consumers that are coming in and going for meal replacement or going for active nutrition where they haven't over the past few years?

Speaker 11

What's the driver of that?

Speaker 2

Yes, you're right. So about 60% of our consumption is a meal replacement. So think of those people, they're not in the category now. They may not be they're either having an unhealthy breakfast. And I'm sure you've heard me say, you know, they're stopping and having an Egg McMuffin, they're stopping and having a Dunkin' Donut.

Speaker 2

So they're having an and they want to make a healthier change in their lifestyle and they start with breakfast or they're not having breakfast at all. And so this is incremental but they have been told by their doctor or their trainer or their or someone that they need to either lose weight or they need to just improve their health and they start with the improving their first meal of the day. So that is where we our research shows where most of the people are entering, the biggest reason is because they want to improve their health and lose weight. And it usually is around breakfast. Now that is the main one.

Speaker 2

However, as we begin to expand kind of big eye innovation, then you start going at new occasions, on top of outside of kind of just breakfast because yes breakfast is the biggest one, the next one is midmorningmidafternoon snacks. And then the next occasion is a replacement for lunch. So based on each one of those occasions, you replace a different food.

Speaker 11

Got it. So your thought is just more occasions than necessarily. The occasions is driving it more probably a little bit more than the new users?

Speaker 2

No, new users is number 1. New users is number 1, occasion number 2.

Speaker 11

Great. Thanks so much.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Thomas Palmer from Citi.

Speaker 8

Hi, good morning and thanks for the question. I just hope to get a quick refresher on your pricing plans. It sounds like you instituted the price increase in the Q4 for Premier and then it did not sound like there were plans last time around on diamatized. Is that still the case? And then just any magnitude of kind of thinking through the price increase this year and I guess confirming that it's just that one round on Premier?

Speaker 8

Thank you.

Speaker 3

Yes. The current thinking is it's really confirming what you said. So we took a pricing a mid single digit price increase on Premier shakes in late in Q4. So we'll get the benefit of that throughout most of fiscal 2025. We are seeing significant inflation on our powder business, which we price for back.

Speaker 3

If you go back in time, we took significant pricing on our Dymatized business and Premier business powders back in late or in the first half of fiscal twenty twenty two. We're seeing protein costs really go back to about those same levels that we saw in late 2022 into 2023. So we price for that. And so right now, we're not contemplating initially pricing per se on our powders, but it is something we're evaluating. What we will look at is perhaps promo rates promotional rates could come down a bit.

Speaker 3

But it's something we're evaluating, but as of now, it's primarily the premier price increase that we're that's it's complete in our guidance.

Speaker 8

Okay. Thank you. And maybe I'll just follow-up quickly on the inflation side. Any help on the magnitude of the inflation that you're facing? And then I just want to make sure I have it right.

Speaker 8

The Premier shakes pricing is covering the magnitude inflation that you're seeing on that piece of the business. So the pressure would be the powder side?

Speaker 3

Correct. Yes. So we expect our price increase to on shakes to cover inflation on powders. What I would say is again, we took significant pricing back in 2022 on this business. In 2024 as protein costs came down, it did drive really strong margins for our powder business in 2024.

Speaker 3

So that's part of the reason you see our EBITDA margins are really strong in fiscal 2024 is a lot of that is just the Powder really favorable protein rates and those are flipping on us as we move into 2024 or into 2025. And I feel like I missed the first part of your last question. What did I miss?

Speaker 8

Sorry, just any help on magnitude of inflation to be thinking about?

Speaker 3

Yes. Thank you. Sorry about that. Yes. So overall, I would say inflation is in the mid single digit range.

Speaker 3

It's more impactful again, as I mentioned on our powder business. Powder, as an example, so in the we're looking at cost of on our protein for our powder. So that's again, whey protein is up about 50%. That's our expectation for fiscal 2025 and it's almost double in Q1. So we're talking about significant inflation.

Speaker 3

So on powders, it's much more significant on our shake business. Obviously, it's less than that, but still inflation on not only the protein, which we expect to continue to increase as we go through the year, but we're also continuing to see inflation on things like manufacturing costs, the bid on packaging. So much more modest increases and slower to build inflation increases on our shake business around powders, it's much more impactful, especially in the first half. It moderates as we go through the year, but it's still a headwind throughout the year for powders.

Speaker 8

Okay. Thank you. Thanks for the detail.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Robert Moskow from TD Cowen.

Speaker 7

Hey, good morning. This is Jacob Henry on for Rob Moskow. Thanks for the question. I think just one from me. I know it's still early, but how have the elasticities been versus your expectations on the shakes following the price increase?

Speaker 2

It is early, but they're largely as we expected, I would say modest elasticity. One interesting piece is we are seeing a trade up from the 4 count to the 12 count and that's a little higher than we would have expected. Again we saw that in powders over the last year where consumers would trade up to larger sizes within Dymatize. So not unexpected but a bit higher. Honestly I think it's good news in that they're moving to there's some pantry loading once you get a bigger pack you end up consuming more which I think is great.

Speaker 2

But that's really the only piece but otherwise largely as expected.

Speaker 7

Great. Thank you. Appreciate that color. I'll leave it there.

Operator

Thank you. One moment for our next question.

Speaker 5

Our next question comes from

Operator

the line of Steve Powers from Deutsche Bank.

Speaker 12

Great. Thank you and good morning. First, just potentially a rudimentary question, but Paul, production attainment fees, could you just give us a little tutorial as to what those are and whether they are expected to recur at all or if it was just isolated to the Q4?

Speaker 3

Yes. So the latter question, we're not expecting those things to continue. So production attainment fee is basically we have our co manufacturers have volume commitments to us. And if they do not meet those volume commitments, there is a fee to be paid for the missed volume. And so that's what that was in the 4th.

Speaker 3

So it's something we recognized in our Q4 related to volume in fiscal 2024 that was not delivered.

Speaker 9

Yes. Okay. That's what I thought.

Speaker 12

Okay. Thank you. And then Darcy, on the incremental innovation, you talked about sort of thresholds for new innovation to drive incremental households or more occasion. I guess, are there any thresholds we should or that you think about in terms of the profitability, the incrementality from a profitability perspective? They have to be margin neutral, margin accretive.

Speaker 12

And how do you kind of balance the complexity that new innovation, new platforms represent relative to, just trying to keep

Speaker 4

simplicity and efficiency in the business?

Speaker 2

Yes. Our goal is to have all innovation margin accretive. Over time, I think that obviously when you launch new innovation, you sometimes need to support it at the beginning, but in the long term, we want it to be margin accretive. And just from a complexity standpoint, I mean, we have a fairly simple business. So I think we know that when we do launch innovation there will be some complexity brought in but honestly it's nothing it's still a pretty simple business.

Speaker 2

So again margin accretive is

Speaker 9

the

Speaker 2

goal and our and then just our innovation plan is that we would launch over time we would launch a new platform on the premier side every 18 months obviously we've been we haven't launched a lot of big eye innovation over the last few years. So, we've got a lot in the hopper. So, that's why we have 2 this year, but over time we'll get back to every 18 months.

Speaker 12

Okay, very good. Thank you so much.

Operator

Thank you. Thank you. At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating.

Operator

You may now disconnect.

Powered by Quartr

Key Takeaways

  • FY24 net sales up 20% and adjusted EBITDA up 30%, surpassing the company’s long-term algorithm for the second straight year.
  • The convenient nutrition category grew 6% in Q4, with ready-to-drink shakes leading at 13% growth despite only 48% household penetration, indicating a long runway.
  • Premier Protein reached a record 19.4% household penetration, held a 23% RTD market share, and saw Q4 consumption growth of 14% for shakes and 43% for powders.
  • Bellring has expanded shake production capacity and is pivoting to demand-generation, launching a stepped-up national marketing campaign for Premier Protein in Q1.
  • For FY25, the company forecasts net sales up 12%–16% and EBITDA up 5%–11%, with margins pressured by powder input-cost inflation and higher marketing spend.
AI Generated. May Contain Errors.
Earnings Conference Call
BellRing Brands Q4 2024
00:00 / 00:00