BellRing Brands(BRBR)2024-08-06 17:10Financial Data and Key Metrics - Net sales for Q3 2024 were 120 million, a 38% increase YoY [14] - Adjusted EBITDA margins were 23.2%, exceeding expectations due to favorable gross margins [14] - Gross profit grew 40% to 69 million in Q3 and 776 million, with net leverage at 1.8x, expected to remain below 2x in fiscal 2024 [17] Business Line Performance - Premier Protein net sales grew 20%, driven by strong volume growth in RTD shakes (19%) and powders [14] - Dymatize net sales decreased 3% domestically but saw 18% growth internationally [15] - Premier Protein RTD shake consumption grew 10% in Q3, accelerating to 20% in July, with household penetration reaching an all-time high of 19% [5][9] - Premier Protein Powder grew 44% in Q3, driven by distribution gains and strong velocities [10] Market Performance - The convenient nutrition category grew 7% in Q3, with RTD leading at 11% growth [8] - Premier Protein maintained a 21% market share in the RTD segment and is the number one brand in the broader convenient nutrition category [9] - Dymatize's international business grew 18% in Q3, representing 30% of the brand's total sales [12] Strategic Direction and Industry Competition - The company raised its fiscal 2024 guidance, expecting net sales growth of 18%-20% and adjusted EBITDA growth of 27%-30% [7][18] - Premier Protein is focusing on driving demand with increased marketing and promotional spend, particularly in Q4 [12][18] - The company is evaluating long-term strategies, including potential expansion into mainstream beverage aisles [27][29] - Innovation is a key focus, with plans for new product launches in 2025, particularly in the powder category [32] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in demand and increased production capacity, setting the stage for strong fiscal 2025 performance [6][7] - The company highlighted the strong tailwinds for the protein category, with broad consumer relevance across age groups and health goals [8] - Management noted the importance of maintaining safety stock levels to reduce volatility in consumption patterns [60] Other Important Information - The company repurchased 1.3 million shares at an average price of 74 million, with $216 million remaining in the share repurchase authorization [17] - Incremental production capacity secured in Q4 will help fill customer inventory gaps and rebuild internal inventories to target safety stock levels [6][22] Q&A Session Summary Question: Impact of price increases on Premier RTD shakes [19] - The company confirmed plans to proceed with price increases, noting that favorability in input costs was primarily related to whey protein powders, not shakes [20] Question: Incremental capacity and future supply needs [21] - The incremental capacity secured was beyond original plans, with new capacity expected to be needed by 2026 [22] Question: Tailwinds and headwinds for fiscal 2025 [24] - Management expects increased marketing and promotional spend in 2025, along with inflationary pressures, particularly in the powder business [25] Question: Competitor shelf space expansion and Premier's strategy [26] - The company is actively pursuing strategies to increase visibility, including end-aisle displays and multiple store placements, while evaluating long-term moves into mainstream aisles [27][29] Question: Innovation plans for Premier Protein [31] - Innovation will focus on both "little eye" (pack size, format, flavor) and "big eye" (new product lines) innovations, with new launches expected in 2025 [32] Question: Dymatize marketing campaign [33] - The campaign focuses on brand awareness, leveraging NFL player Christian McCaffrey to highlight the premium nature of the product [34][35] Question: Customer response to pricing [38] - Pricing has been well-received, with no major pushback, as competitors have also taken price increases [39] Question: Private label competition [40] - Private label penetration is lower in the RTD and powder categories compared to other CPG categories, with branded players maintaining share [41] Question: Club channel performance and consumption trends [44] - Temporary changes in assortment and out-of-stocks impacted club channel performance, but consumption rebounded in July [46][47] Question: Target consumer base and household penetration [48] - The company is targeting younger consumers to drive household penetration growth, with marketing campaigns tailored to this demographic [50] Question: Volatility in consumption data [59] - Volatility is largely due to low safety stock and trade inventory levels, which will stabilize as inventory levels improve [60] Question: Long-term EBITDA margin outlook [62] - Management expects margins to remain strong but does not view the current high margins as the new normal, with further evaluation planned for fiscal 2025 [62] Question: Promotional intensity in the club channel [65] - Promotional activity has increased, particularly among smaller competitors, but the company remains confident in its pricing power [66][67] Question: Fall shelf resets and capacity for 2025 [71] - The company expects TDP growth in Q4, driven by new distribution and filling inventory gaps, with incremental capacity supporting 2025 growth [72] Question: Impact of shipment timing on consumption [74] - Delayed shipments in Q3 impacted consumption growth, with a 400 basis point headwind, but this rebounded in July [75][76] Question: Pricing power and competitive dynamics [77] - The company believes it has strong pricing power, as consumers are trading more expensive breakfast items for Premier Protein shakes [78] Question: Long-term innovation in active nutrition [80] - The company sees significant potential for protein-based innovation, particularly in combining protein with other functional ingredients [81] Question: Bottle capacity and competition [83] - Bottle capacity is also constrained, but the company sees growth potential in this format, particularly for expanding distribution [84]