BellRing Brands Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 14 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to Bellring Brands 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 Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for Bellring Brands.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining us today for Bellring Brands' Q2 fiscal 2024 earnings call. With me today are Darcy Davenport, our President and CEO and Paul Rhode, 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 supports these remarks are posted on our website in both the Investor Relations and the SEC filings sections atbellring.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. Last evening, we reported our Q2 results and posted a supplemental presentation to our website. I'm happy to share that we had an excellent first half with Q2 results above our expectations. The business continues to accelerate as we bring on new shake capacity and begin to drive demand. For the first time since 2021, we executed 2 successful club promotions in 1 quarter, which sparked a ton of consumer and retailer excitement.

Speaker 2

Net sales grew 28% over prior year and adjusted EBITDA was up 53%. Our greater than expected shake demand specifically non promoted drove the net sales and adjusted EBITDA margin outperformance. As you saw in yesterday's press release, we raised our outlook for the year. We now expect net sales to grow 16% to 19% over fiscal 2023 and adjusted EBITDA to grow 18% to 24%. This raise at the top and the bottom line was based on better than expected first half performance, strong consumption trends, confidence in our capacity expansion and our decision to execute a price increase on shakes late in Q4.

Speaker 2

Moving to shake production. We have made remarkable progress in our plan to grow and diversify our shake supply. We are making more shakes every quarter with Q2 production coming in as expected and up significantly versus the year ago quarter. We remain on track to grow production north of 20% this year, enabling strong net sales growth in 2024 and increased weeks of supply by year end. Now to the category and brand updates.

Speaker 2

The convenient nutrition category grew 5% in Q2 as tailwinds around health and wellness and fitness continued to drive growth. Consumer interest in functional beverages and sports nutrition products continue to be high with mainstream ready to drink brands driving most of the growth and bringing new households into the category. RTD led the category of 10% driven by promotions and distribution gains. Ready to mix grew 3%, slowing this quarter as consumers traded down to value brands and switched to other high protein products including our TVs. Despite this change in consumer behavior, our powder brand still outperformed the tracked category.

Speaker 2

Premier Protein shake consumption growth remained strong this quarter at 29%. Growth was robust across all channels in Q2 driven by promotions, strong velocities and distribution expansion. The highest growth was in mass and e commerce. Mass benefited from display activity and distribution gains while e commerce saw strong growth behind promotional events. The club channel boosted by successful promotions at both of the major club retailers drove healthy volume lift and household penetration.

Speaker 2

April consumption remained strong up 16% despite some out of stocks in tracked channels. Flavors continue to drive retailer and consumer excitement. Our newest 30 gram flavor cookie dough is performing well with top 10% velocities in mass. Our seasonal flavor salted caramel popcorn saw solid success. Our brand metrics remain healthy.

Speaker 2

Premier Protein with RTD market share of 21% remained its top maintained its top position as the number one brand in the RTD segment as well as the number one in the broader convenient nutrition category. TDPs grew 33% over the prior year quarter, but saw a slight sequential decline. With shake supply remaining tight and demand greater than expected this quarter, we experienced some temporary out of stocks late in the quarter and into April. Retailer inventory levels are starting to improve with TDPs stabilizing and we expect further improvement throughout the second half. I'm pleased to see the brand reach another all time high in household penetration this quarter, reaching over 18% of households.

Speaker 2

Premier Protein added 1 percentage point of household penetration versus Q1 and grew 26% over prior year. As of Q1, the brand was a significant contributor to the overall RTD category growth. Premier Protein's household penetration continues to be the highest in the category and we expect modest growth in the remainder of fiscal 2024. With the RTD segment's household penetration below categories such as nutrition bars and energy drinks, we still see tremendous opportunity to grow in our existing channels. Premier Protein Powder continued its strong trajectory growing 52% in Q2 behind brand investments, distribution gains and strong velocities.

Speaker 2

We remain encouraged by the growth potential of the Premier Protein brand in this format. Premier Powders continue to bring mainstream consumers into the category with 80% of its growth coming from outside the category. Its household penetration reached 1.7% this quarter and we continue to believe the brand will be a contributor to mainstreaming the powder category in the same way Premier did for the ready to drink category. Our licensing strategy continues to perform well with cereal and frozen pancakes, attracting new consumers to the brand. Although not a significant revenue driver, these two products boost Premier's overall household penetration to 19% or nearly 1 in 5 households.

Speaker 2

Turning to Dymatize, U. S. Consumption remains strong in mainstream FDM channels, but overall consumption declined 8% weighed down by ongoing softness in specialty channel and increased competitive activity in e commerce. Despite these headwinds, I'm encouraged to see the brand maintain its record high household penetration with TVPs and share holding steady. Looking forward, we're increasing our investment behind the brand both in marketing and promotion.

Speaker 2

We are excited to expand our national marketing campaign with San Francisco All Pro running back Christian McCaffrey. We are eager to see the impact that enhanced digital marketing and a top tier influencer will have on the brand awareness and household penetration. Last, we are putting the final touches on innovation that will expand Dymatize's product line. Overall, we continue to be bullish on the mainstream powder opportunity with 2 complementary brands. In closing, our excellent first half results position us well for an above algorithm fiscal year.

Speaker 2

Our confidence in the long term outlook for Bellring remains strong. Our brands are leaders in the highest growth areas of an on trend category. Ready to drink and powder segments are in the early stages of growth with major tailwinds. Premier Protein and Diamatize are leading mainstream brands with low household penetration and strong loyalty. Our momentum continues to grow on shakes as we layer start to layer in promotion.

Speaker 2

Our shake capacity plan is on track to support many years of robust growth. I'm excited to see the momentum continue into 2025 as we layer in more innovation and national marketing. Thank you for your interest in our company. We look forward to sharing our progress next quarter. I'll now turn the call over to Paul.

Speaker 3

Thanks Darcy and good morning everyone. Net sales for the quarter were 495,000,000 dollars up 28% over prior year above our expectations with strong demand for premier protein shakes the biggest driver of the outperformance. Adjusted EBITDA was $104,000,000 an increase of 53%. Adjusted EBITDA margins were 21% and also exceeded our expectations benefiting from favorable gross margins and leverage on higher net sales. Starting with brand performance.

Speaker 3

Premier Protein net sales grew 34% behind strong volume growth for RTD shakes and powders. Promotional activity, distribution gains and organic growth drove the increase in net sales. Shade consumption dollars grew 29% compared to shipment growth of 34% with the difference driven primarily by the lapping of a prior year trade inventory deload. Diamondized net sales increased 5% this quarter as the brand benefited from increased distribution and promotional activity in domestic mainstream channels along with international strength. These gains were partially offset by continued weakness in the specialty channel and increased e commerce competitive activity.

Speaker 3

Gross profit of $164,000,000 grew 40% with an increase in gross profit margin of 2 80 basis points to 33.2%. The margin increase resulted from net input cost deflation, partially offset by incremental promotional activity. Compared to our expectations, gross margins benefited from greater than expected non promoted volume and non recurring cost favorability. SG and A expenses as a percentage of net sales were 14% and roughly flat to prior year. Advertising and promotion spend increased $3,000,000 but was flat as a percentage of net sales at 3.1%.

Speaker 3

Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We generated $16,000,000 in cash flow from operations in the 2nd quarter and $90,000,000 in the first half. We expect net working capital growth in fiscal 2024 to modestly exceed our net sales growth rate as we add weeks of shake supply in the second half. As of March 31, net debt was $761,000,000 and net leverage was 1.9 times. With our EBITDA growth and strong cash flow generation, we anticipate net leverage will remain below 2 times in fiscal 2024.

Speaker 3

With respect to our share repurchases this quarter, we bought 400,000 shares at an average price of $56.46 per share or $23,000,000 in total. Our remaining share repurchase authorization is $289,000,000 Turning to our outlook. We raised our fiscal 2024 guidance for net sales to $1,930,000,000 to $1,990,000,000 and adjusted EBITDA of $400,000,000 to $420,000,000 Our guidance implies strong top line growth of 16% to 19% and adjusted EBITDA growth of 18% to 24% with healthy adjusted EBITDA margins of 20.9 percent

Speaker 4

at the midpoint.

Speaker 3

The updated guidance reflects our better than expected first half results and strong consumption trends. In the second half of fiscal twenty twenty four, product and logistics costs are expected to increase compared to the first half with pricing actions on shake plan late in the 4th quarter. At the midpoint, our second half net sales are expected to grow 13% with adjusted EBITDA margins of approximately 20%. As we enter the second half, we have largely lapped the relaunch shake flavors and expect sales growth to be driven by continued organic momentum and distribution gains. Compared to the second half of fiscal twenty twenty three, we expect EBITDA margins to be similar.

Speaker 3

Turning to the 3rd quarter, our net sales growth is expected to largely track our second half growth rate. Premier Protein drives this growth as volumes are expected to increase in the mid to high teens. Dymatize partially offsets Premier's strong growth with the brand facing a tough prior year comparable in Q3 as it lapsed a club load in and FDM display activity. Adjusted EBITDA margins are expected to improve modestly from the year ago quarter with significantly higher gross margins as we lap peak protein prices. This increase is mostly offset by incremental marketing spend and SG and A as a percentage of net sales.

Speaker 3

In closing, we're pleased with our first half momentum. Our strong first half results give us greater confidence in our full year outlook and long term growth prospects. I will now turn it over to the operator for questions.

Operator

Thank Our first question comes from the line of Ken Goldman from JPMorgan.

Speaker 4

Hi, thank you and good morning. I wanted to get a sense a little bit of I think you mentioned that non promoted sales of Premier did quite well this quarter too. And I'm just curious if I heard you right there, what do you attribute the acceleration kind of in those base products to in light of how well the promoted products did at the same time? Is there a natural correlation between the 2 just in terms of new generation? Or am I playing that up too much in my head?

Speaker 2

Good morning, Ken. So what still what has been true and what continues to be true is about 80% of our growth comes from outside of the category. So we continue to get a ton of new households into the category showed on our all time high of household penetration this quarter and the one point jump up. I mean in general, the more we ship, the more we sell. And we really haven't had healthy fill rates in FDM yet.

Speaker 2

And so honestly this quarter was we thought strong promotions in our 2 club customers. Pretty much what we expected to see, but what was higher was actually the non promoted in pretty much all channels outside of those promotional periods.

Speaker 4

Understood. Thank you. And then as we think about the guidance raise, and we look ahead toward the upper end of that range, is there potential and I'm not trying to fish for even higher guidance than what you've already looked at.

Speaker 5

But I'm just trying

Speaker 4

to get a sense of it. If there is demand there, how much above sort of the high end of your sales guide could you potentially get to, just given some of capacity constraints that have been mentioned so far?

Speaker 2

We have production that can absolutely satisfy the full range of our guidance obviously. As I said on past calls, we need to we do not have enough internal inventory. We need to build safety stock. However, toward the end of the year, we plan to get up to our target of 6 to 8 weeks. If demand continues to be robust, then we have the flexibility to toggle between building more inventory versus going and satisfying sales.

Speaker 2

So I think we've always said that we're going to be nimble this year just because of that we are building safety sets internal inventory. But rest assured that we have the production to satisfy the high end, our full guidance. And then we're going to have to just assess the situation in Q4 to see if we're going to build inventory or satisfied if there's more demand than expected.

Speaker 6

Great. Thank you, Darcy.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question.

Speaker 7

Our next question comes from

Operator

the line of David Palmer from Evercore ISI.

Speaker 8

Thanks. Good morning. It was obviously a pretty dynamic quarter with some of the ramp up in promotion mix with the 2 club promotions. And but at the same time, you had the strong gross margins. So I wanted to kind of double click on those two things.

Speaker 8

What were some of the learnings both in and out of expectation from the increase in merchandising from the quarter? And I know this you mentioned the 2. I was wondering if that meant that that was unusual or if this is pretty close to the norm that you would expect in terms of the impact to price mix from promotional activity in the upcoming quarters?

Speaker 2

Hey, Paul, I'll start with learnings and then you can hit on any price mix, different things. So, the learnings from the promotion. So remember, we haven't done really any significant club promotions or promotions at all since 2021. So it's been a while. So we weren't exactly sure what to expect.

Speaker 2

Honestly, there was a ton of excitement. I've talked about this before. The key to for our success on promotion is display. Get out of the aisle, get new people to see our product and that is where we increase household penetration. We get the bump and stick for the brand.

Speaker 2

It has been true for the entire time this brand has been around. So sure enough that is exactly what happened. We got great displays and a ton of retailer support for the events and that flowed straight into strong results. So I would say I don't think it's a lot of new learnings but more confidence that the fundamentals of the brand are very much intact and there's a ton of excitement from consumers and retailers.

Speaker 3

And then on pricing, we always expected the Q2 to be the most significant headwind on pricing because of the significant promotional activity that we are doing on shakes. As we entered in the second half, we still expect some light promotion in Q4 on shakes. But really from a pricing perspective, it's pretty balanced in the rest of the year. We aren't expecting major headwinds or tailwinds in any given quarter on pricing. And then as we get late in Q4, we are modeling a light benefit in the Q4 on pricing.

Speaker 3

But again, it's late in the quarter, so it's a pretty modest benefit. It's more about 25%. But net net, not a lot of at least on the shakes, not a lot of pricing really impact there.

Speaker 8

And then just on the gross margin, thanks for that. The 300 or so basis points expansion there, how would you describe that maybe build up to the $300,000,000 in the quarter and how should we think about that going forward?

Speaker 3

And your question is compared to a year ago?

Speaker 8

Around gross margins, I think if you had to I know it's hard to break out specifically how many basis points are due to each thing, but if you had to talk about commodity, price mix and then volume leverage net of promotions, how would you think about the gross margin expansion this quarter? And then how does that apply to the second half? Thanks.

Speaker 3

Sure. So from a gross margin perspective, significant expansion was from lower protein costs. So as you may recall last year, we had very high protein cost especially on our powder business in Q2 and into Q3. So if you think about last year's last year by quarter, the second and third quarter were by far the highest protein cost. And then in the Q4, they started to pull back, which is why you see stronger gross margins in our Q4 a year ago.

Speaker 3

So as you look at Q2 specifically, significant expansion at the gross margin line, that's partially offset by significant promotion offsetting that. We also saw about 50 basis points of favorability from what I would call just some non recurring items. So co man true ups, payments for missing on minimum volumes, that's about 50 basis points, but most expansion is just protein costs offset by promotion.

Speaker 8

That's great. Thank you.

Operator

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

Speaker 5

Good morning and thanks for the question. I wanted to maybe start off back on the input cost environment. It sounded like you're expecting less favorability as we move through the year, but you also noted 3Q a year ago was a bit elevated along with that Q2. So is it kind of less deflation as we move into 3Q? And then is there a point we kind of return to inflation?

Speaker 5

Or is that more a fiscal 2025 consideration?

Speaker 3

Yes. So if you look at the second half, we are expecting cost to go up from the second quarter, mostly on our powders, which go up significantly. It's about a 50% increase from Q2 to Q3, so it's significant. Shakes start to modestly head up higher in the 3rd Q4 on proteins. So from a sequential basis increases

Speaker 9

versus a

Speaker 3

year ago, we still see fairly significant favorability on proteins in the Q3, but it does start to significantly moderate in the Q4. So there's a very little benefit in the Q4, but still pretty significant favorable in the Q3. And again, that's just the dynamics of lapping last year's high kind of peaks at Q2, Q3 last year. And we're seeing kind of the, I'll call it the floor in the current protein environment here in the Q2, then it starts to head up again. So that's the dynamic.

Speaker 3

So we still should see some favorability in the second half and mostly in the Q3 on our proteins.

Speaker 5

Okay. Thanks for that. And then just on marketing, I think one thing you've talked about in recent quarters is kind of some flexibility to pull back on marketing if demand is running particularly strong. And I realize some of this is that you're talking about with marketing is a shift maybe between brands, but it does seem like Premier, you've got kind of limited safety stock, very robust demand in the quarter. To what extent are we seeing kind of a shift there with a pullback in Premier versus a ramp up in DYMTIZE?

Speaker 5

And how does that kind of net out as we think about the second half versus what you'd planned on initially?

Speaker 2

Yes. We have decided to I'll start and then you can add, Paul. We decided to pull back and move the major equity campaign to from Q4 this year to 25. But we pivoted some of those dollars to both premier powder premier bottles and Dymatize. So think of kind of the Tetra side of our business on premier as being the constrained side.

Speaker 2

But so we're still spending, but on the other parts of our business, but not just Dymatize. So definitely spending on premier powder and bottles.

Speaker 3

And just to expand, yes, I mean, we've called previously for low 3s, kind of 3% to 3.5% for the year. We're still in that ballpark. As Darcy said, we have toggled a little bit between brands and pulled back slightly from maybe from our prior expectation, but it's a modest, modest change.

Speaker 5

Great. Thank you for the color.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Bryan Spillane from Bank of America.

Speaker 10

Thanks, operator. Good morning, everyone. So just 2, one clarification Paul, just following the discussion around gross margins in the back half of the year. So will gross margins be up a little bit more in the Q3 versus last year than they will be in the Q4? I mean, it sounded to me like 3Q, 4Q should be roughly similar, maybe 3Q a little better because you won't have as much promo and then 4Q a little less gross margin expansion, but just want to make sure I was hearing that correctly.

Speaker 3

Yes, you've got it correct. So we don't see Q3, Q4 ought to be pretty similar from a margin perspective at gross margin. And you're correct that you will see from a year ago perspective much more favorability in the Q3 than the 4th and that's the protein dynamics as proteins start to step up in our second half where they started to step down in last year's Q4. So that's why the favorability is less in Q4, but still favorable.

Speaker 10

All right. Thank you. And then Darcy, can you talk a little bit about the rather than household penetration, just kind of how the sort of consumer basis is changing if it has? So I guess what I'm asking is just are you recruiting more kids, male versus female, age cohorts? Initially, this was a pretty relatively narrow consumer base, but I'm just curious if it's expanding.

Speaker 10

And I ask that, I guess, in the context of, I think, with Fairlife and CorePower, they're definitely seeing a pretty wide age cohort, especially young drinking it. So I'm just curious with Premier Shakes specifically, right, if you're beginning to kind of widen the consumer base?

Speaker 2

We definitely are. Not kids though. This is definitely adult brand. I mean it's high protein. So, but it is more of an adult brand.

Speaker 2

But absolutely as we honestly like both the Coke side of the business and our side, we're the ones driving the category growth, with these new households. So we are bringing in yes, we're bringing in younger people, but, honestly, like with such a low household penetration brand, we're bringing in just a really diverse set of age and gender etcetera. So what's unique about Premier and I know I've talked to you guys about this is our ability to really source volume from all ages kind of people looking for different things. So number one reason why people enter Premier is to lose weight. But we also source volume from the adult nutrition side of that business.

Speaker 2

From sports nutrition, we range our range of pretty even split of gender. So what is magical about this brand is just how broad it is and that you can see that in our consumer, the consumers that we're bringing into the brand.

Speaker 10

Okay. Thanks Darcy.

Operator

Thank you. One moment for our next question.

Speaker 7

Our next question comes from

Operator

the line of Robert Moskow from TD Cowen.

Speaker 6

Hi, thanks for the question. I think in your prepared remarks, you said that TD points are showing signs of stabilization in most recent periods and that the out of stocks have stabilized. How soon do you think it will be before you can get those ramping higher again? Like is it in the next few weeks, we should expect TDPs to start recovering higher or not? Thanks.

Speaker 2

Yes, we'll see improvement kind of every month. So we'll see improvement throughout Q3 and then we'll get back to kind of all time highs in Q4.

Speaker 6

Okay, great. And then a quick follow-up. These club promos you did were obviously very successful. Do you think your competitors are going to conduct similar promotions in the second half of the year? And if so, does that present any like risk of a shock to your demand in that channel or not?

Speaker 2

So from a club promotion standpoint, I mean most competitors are already doing promotion. So there's an exception of the Fairlife hasn't been doing promotions, but I expect them to when they get in a good supply in a supply situation that they will as well. But we're pretty complementary. I mean, I always go back to that there is room for 2 strong brands in a low household penetration, high growth category. And we have both been very successful in every single channel, but specifically in the club channel.

Speaker 6

Great. All right. Thank you.

Speaker 2

Thanks.

Operator

Thank you. One moment for our next question.

Speaker 7

Our next question comes from the

Operator

line of Kamil Gajrawala from Jefferies.

Speaker 11

Hey, guys. Good morning and well done. Can you talk a bit about aisle placement? I think for quite some time, it was about moving the products to other parts of the store. And with the business still being so sort of linked to feature and pulling them out of the aisles, are you able to shift where in the store you are or increase the number of places you are within the store?

Speaker 2

So our focus right now is just really good at in stocks within the pharmacy. We are as I said earlier display is a huge driver for us. So we still think that there is a lot of upside within the pharmacy just getting displays kind of outside of the pharmacy. Longer term we do see so think of it just as incremental display that could include some incremental placement. We already are so for instance, in some mass retailers and food retailers we have singles up in the cooler.

Speaker 2

So it's more for like a grab and go. So we're aggressively going after those kind of opportunities. So to answer your question yes we are absolutely looking for the more places we can be in the store to kind of to introduce our brand to more people the better. I think that eventually more in kind of the medium longer term, we do think it's interesting to actually change aisles. But for now, we think that there's a ton of upside just through building our base business within the pharmacy section and then getting incremental pace placement and display throughout the store.

Speaker 11

Okay, great. And on the price increase, maybe just some more details on why is it linked to where costs are Because it looks like it's coming through just as capacity is going to kick up again. So just any more details on the thought process behind price increase?

Speaker 2

Sure. Yes, we have seen some we've seen cost increases in command costs, logistics, packaging. And so and actually many of our competitors have taken price. So we are our biggest competitor took price in Q1. So this is and mainly it's because the entire category is really seeing rising costs.

Speaker 2

Honestly, outside of kind of dairy inputs. However, dairy inputs are also supposed to, as Paul talked about, to start rising again. So, it's late in the year. We talked about late in Q4. And I think that we feel comfortable with our price difference versus competition after the price increase.

Speaker 11

Okay, great. Thank you.

Operator

Thank you. One moment for our next question.

Speaker 7

Our next question comes from

Operator

the line of Jim Solera from Stephens.

Speaker 9

Hi, guys. Good morning. Thanks for taking our question. Darcy, I wanted to drill down a little bit on the TDPs that you mentioned from the out of stocks. Do you have any sense for what retailers did with those shelf placements as there were some out of stocks?

Speaker 9

They flex bars in? Did they move a competitor in? Just any color there would be helpful.

Speaker 2

So what we know is no space. We didn't lose any space. So that is where we knew that it was going to be temporary. And honestly Jim it's they're sporadic. So they're so for what happens is that we have certain flavors of 4 count going out for a period time then 12 count.

Speaker 2

And so the space retailers honestly there are holes in that there are holes on the shelf occasionally. So it's not about that maybe they expand the products on the shelf to kind of fill in the holes. But the idea is that it is for a relatively short period of time and it's never so broad that the entire brand is off the shelf.

Speaker 4

Okay. That's helpful. And then

Speaker 9

I guess as a follow-up to that, do you have the ability to see, for example, if my favorite flavor is on shelf, did I just then reach for chocolate, which is 2 slots down? Or does that typically end up in just kind of a loss sale?

Speaker 2

Yes. You're describing the challenge with forecasting because what we're finding is that yes there's for the most part there especially because our biggest capacity constraints has been on forecast. So consumers will just change to a different most of the time to a different flavor. Every once in a while they'll also change to a different pack type. So, you know, 4 counts not 4 count chocolates not available, they'll go to to 12 count chocolate for instance.

Speaker 2

There's even some channel shifting so they might go to a different channel because it might be available there. So that is the challenge of forecasting accurately because there's so much interplay between the flavors and the pack sizes. For the most part they are staying within the brand. Every once there are times and I would say it's more the minority that if somebody has a flavor flavor they will just kind of wait to purchase for that that cycle and then they'll see if it's back on the shelf the next time they shop.

Speaker 9

Great. I appreciate the color. I'll hop back in the queue.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matt Smith from Stifel.

Speaker 12

Hi, good morning. I wanted to ask Paul a follow-up question about the Q3 guidance. You said it was tracking to the implied second half growth rates for revenue. That implies fairly even phasing of growth in the second half of the year with a tougher comparison in the Q4. Do I have that right?

Speaker 12

And can you talk about the phasing of promotional activity for the rest of the year? Are there any large incremental events year over year that we should be aware of?

Speaker 3

Yes. You were tracking it correctly that we would expect growth to be pretty similar in Q3 and Q4 compared to a year ago. In the 4th quarter, we have some light promotion, but it's nothing we also had some promotion, light promotion on shakes in the Q4 of last year. So I think overall there's not a dramatic change in promotion activity between

Speaker 12

the years. Thank you. And just one more follow-up for me and I'll pass it on after. Shipments were in line with consumption in the current quarter. Do you expect that to persist through the second half of the year?

Speaker 12

Or is there a potential for retailers to start to increase their inventory levels exiting the year?

Speaker 3

Our expectation is that shipments and consumption will largely track. It would likely modestly swing towards the shipments. It's a little bit of an inventory load, but nothing we're not expecting anything dramatic in the second half. So again, we're trying to replenish shelves as well as keep up with the demand. So we would expect a little bit of shipments above consumption in the second half.

Speaker 12

Great. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Matt McGinley from Needham.

Speaker 9

Thank you. You noted the increased e commerce competition for Dynatize this quarter. Can you expand on what you saw there competitively? And is that something you expect to persist? Or is that something that is more unique to this quarter?

Speaker 2

Yes. This one was a new one. So obviously Q2 new year new you we always see increases in promotion and marketing because it's the time when the most most new people enter into the category. But this year was much more extreme than in the past meaning a ton of more of the emerging brands, so the smaller brands doing very deep discounting and really leaning into marketing. So highly competitive and I would say and that's very much the entire powder category.

Speaker 2

We also saw some consumers seeking value, so not only buying brands on deal that I just referenced, but also some trading down to value brands. And then even staying what we saw what in Dymatize is actually buying looking for value but actually upsizing. So going from a 20 serve for instance to a £5 because it was a better value. So a lot of deal shopping in general just value seeking. And from if we do we expect it to continue?

Speaker 2

It continued in April. So I think in general, we expect that it will continue through Q3. I think the big question is in the powder category when commodities decrease for the most part competitors invest that money into promotion. Well, now prices, commodities are going to start increasing again. So we do believe that there will be less deep discounting because of that.

Speaker 9

That makes sense. And one quick follow-up on the revenue trend in the back half. It's a little bit difficult to tease out your seasonal trends given all the volatility you've had in the supply chain for the past few years. Do you expect the Q3 to generate more revenue than you did the second? Or does that step down?

Speaker 3

We would expect it to modestly increase from the Q2 sequentially.

Speaker 8

Okay, great. Thank

Speaker 1

you. Thanks.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jon Andersen from William Blair.

Speaker 9

Hi, good morning. Thank you for the questions. Two quick ones. I was just hoping you could give us an update on your kind of capacity plans, not for the balance of 'twenty four, but looking out to 'twenty five and supporting growth in 2025, what your expectation is there in terms of shake capacity additions? And then the second question is just on powders.

Speaker 9

It looks like premier protein powder was up, consumption was up very nicely in the quarter, dimethy is a bit softer. Are you seeing anything in the market that would have you maybe thinking about balancing your resources against those 2 equities differently going forward in the Powder segment? Thank you.

Speaker 2

The production first. So 25 production, we feel good about the production increases. So just I know you weren't asking about 24, but on track for 20% plus production increase. And remember, that was always back end loaded. So we are expected to see strong production.

Speaker 2

We saw strong production in Q2 and that will continue into Q3 and Q4 of this year. When we go into 2025 that will continue into 2025. So, without specific numbers, we have enough production to support high end of our algo plus buffer capacity plus any so the needed production to rebuild internal inventory if we do not get back to target levels by the end of 2024. So I feel really good about the production ramp up. Just know that we are still scaling up our 2 greenfield facilities and so those start every quarter becoming more and more important.

Speaker 2

So that's one piece. Secondly, around powder, the one thing I didn't say when I was talking about e com and the dynamic of consumer seeking value, Premier has been a big beneficiary of that. So, think of Dymatize as being kind of a super premium athlete's brand, while Premier is very much a mainstream powder brand, that is a good value. And so, we've actually seen one of the reasons why Premier is doing so well is because of the dynamic going on. So yes, to answer your question, I think it's less about diverting resources from Dymatize to Premier Powder.

Speaker 2

But we have the ability to support both businesses. And we will continue to increase the support on Premier Powder because we're really encouraged by that format. And I mean, I said in my prepared remarks, but we believe with 80% of the growth coming from outside of the category, we really think that Premier can help mainstream the powder category very much like the brand did for RTB. So we're really bullish on the opportunity with Premier Powder.

Speaker 9

Great. Thanks so much.

Operator

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

Speaker 9

Good morning. Thanks for the question. Maybe first off, just wanted to follow-up on promo and Darcy and getting more display outside of the aisle. Right now, this category and brand stand out for growth and retailer interest follows. But also takes you into greater, I guess, conflict or overlap for space with other food and beverage that's maybe higher margin for the retailer or I guess even general merchandise.

Speaker 9

How do you think about sustaining outside the aisle merch over the longer term? I mean, is placement mostly contingent on retailers maintaining their interest in health and wellness shelf sets? Does the cost of display go up? Is outside the aisle just destined to be more of a seasonal phenomenon? How do you think about that over time?

Speaker 2

It's an interesting question. So I can tell you that every single one of our conversations with retailers, they are they see the trends within health and wellness. They see the growth coming from this category and specifically RTDs. And it is stronger than almost any other category in the store. So it has the attention, it has the support.

Speaker 2

They also know that it's a low household penetration category. So the growth should continue. So I think it's less about I think it's less concern around the retailer support and borrowing from other categories. I think it's there. Right now our conversations are really and we're seeing it is that space is increasing.

Speaker 2

Space is increasing not only for RTDs but within and taking space from the other parts of the business or the other segments but also increasing the overall space for convenient nutrition. So if you're talking about displays obviously it's more competitive. But the retailers appear to be very excited about the opportunity and I've never heard the margin pushback as to giving display space versus other categories.

Speaker 9

Okay. Thanks for that. And then in terms of Dymatize and the e commerce pressure there, you stress pricing as a big factor. But I'm curious with the advantage Dymatize has over these emerging brands and bricks and mortar and marketing resources, is there anything you can do in physical channel to drive more engagement, more ingredients awareness and sampling purchases that then converts back to stronger e comm sales even at the higher price points?

Speaker 2

Yes, I think there's a lot Diamondize can do. I mean, I think that we learned a fair amount this last quarter. I think it caught us a little off guard that how aggressive a lot of these emerging brands were on ecom. And we had a marketing campaign, but we were a little conservative on the weight. So our share of voice was lower than it needed to be.

Speaker 2

So I think ton of learning. We're going to be aggressive on the back half, not only with marketing campaign across all channels but really supporting ecom. We're going to be looking at maybe a little more into promotion just to be competitive. And then also just from a campaign standpoint, really excited about Christian McCaffrey and being able to that is just a timing thing of when we signed him and when we can actually get access out there. So that's going to be really exciting to be able to lean into his celebrity and push that out.

Speaker 2

So Dymatize is an amazing brand. It's 2nd biggest whey protein brand on ecom. So I feel great about the business. A little bit of learning in Q2, but nothing that I don't think we can we'll be able to write it in the back half to get back to growth.

Speaker 9

Thanks, Darcy.

Operator

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

Speaker 13

Thanks for squeezing me in. Darcy, just maybe a follow-up on Brian's question in terms of new consumers and I just didn't know if there's a way to quantify like the percentage that are now mailed, the repeat rates, stuff like that that you might have? And the reason I ask is, I just and this is not specific to you, I just have a tough time with the household penetration, kind of metric because it would you cited you have low household penetration, but then also being at 18%, 19%, it seems like 1 in 5 households is pretty good household penetration for this stage of the category or even if it to say 1 in 5 households of a beverage category, it seems like you should be a lot bigger in revenue. So I'm just trying to understand what does that mean or how do you look at the opportunity beyond household penetration or even how do you quantify household penetration to kind of get you excited because it seems like repeat rate or quantifying new consumers into the category would be helpful at least to us to better understand the metric.

Speaker 2

Okay. So let me

Speaker 9

start with a lot

Speaker 6

in there.

Speaker 2

No, I know. It's a great question, Val. So okay, first of all, men, male female split. So I think, again, what's unique about Premier is it's a pretty even split, little more male than female. So call it, call it 60, 40, 50 5, 45.

Speaker 2

But you know good split between male and female. That is unique. So you think of the diet brands more women than men, sports nutrition more men than women. Most of the other brands in the category kind of have a specific lane and a defined consumer and really it's hard because of the brand to get out of that. So that is one of the things that's really unique about Premier.

Speaker 2

So first of all just hit that one. On the household penetration and repeat rate, so here's the way I look at it. 1st of all, strong category leading repeat rate, about 50%. And on the household penetration, so we're right around, call it 18%. The RTD shake category about 45%, convenient nutrition overall about 75%.

Speaker 2

So overall I think that like there is a lot of room. When I go to a another category which is relatively new but more mature or relatively those are kind of conflicting. I guess about they're about the same age, so to speak, but bigger, is energy, energy drinks. And when I look at that the energy drink category about the same household penetration as convenient nutrition so call it 70, 75 but the number one market share and number 2 market share players are at 50%. So I look at that and I'm like okay so there is a ton of room to grow here.

Speaker 2

Knowing that the top two brands are bringing in a lot of new consumers 80% of our growth is coming from outside of the category and that and it's already coming from outside the category and we really haven't started marketing that just tells me there is a ton of room to grow both the brand as well as the category.

Operator

Does that help though?

Speaker 13

Yes, yes, definitely. I'm sorry, I could probably keep going, but I will keep the call short. Just then go to Dymatize, one follow-up. Do you think the growth of Premier Powder is leading to some trade down that's affecting Dymataz or is it mainly discounting from other brands?

Speaker 2

They're very different consumers. There is not a lot of interaction. So definitely other brands. And like I said, so the beauty again, same dynamics between Premier RTD and Premier Powder. Over 80% of the growth on both businesses are coming from outside of the category.

Speaker 2

So it's less switching and trading down, but actually consumers are entering the powder category through Premier.

Speaker 13

Got it. Thanks so much for the color.

Operator

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

Operator

You may now all disconnect.

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Key Takeaways

  • BellRing delivered Q2 net sales of $495 million (+28% YOY) and adjusted EBITDA of $104 million (+53%), surpassing expectations and lifting FY24 guidance to net sales growth of 16–19% and adjusted EBITDA growth of 18–24% over fiscal 2023.
  • Shake production capacity is on track to expand >20% this year, with two club promotions in Q2 sparking strong non-promoted demand; temporary out-of-stocks late in the quarter have since stabilized as third-party distributor inventory improves.
  • Premier Protein RTD shakes posted 29% consumption growth, maintained a 21% RTD market share, and hit a record 18% household penetration, driven by mass, e-commerce and club channel display initiatives.
  • Premier Protein powders accelerated 52% in Q2, with 80% of growth coming from new category users and household penetration climbing to 1.7%, highlighting significant mainstream expansion potential.
  • Dymatize net sales rose 5% despite specialty channel softness and heightened e-commerce discounting; the brand plans increased marketing investment and a national campaign featuring NFL star Christian McCaffrey to drive awareness and share gains.
AI Generated. May Contain Errors.
Earnings Conference Call
BellRing Brands Q2 2024
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