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Welcome to the TreeHouse Foods' First Quarter 2022 Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. At this time, I would like to turn the call over to TreeHouse Foods for the reading of the Safe Harbor Statement.

Good morning, and thanks for joining us today. This morning, we issued a press released, which is available, along with the slide deck in the Investor Relations section of our website at treehousefoods.com. Before we begin, we'd like to advise you that all forward-looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC. In addition, we will be discussing operating and financial results on an adjusted basis. A reconciliation of these non-GAAP measures referenced during today's discussion to their most direct comparable GAAP measures can be found in today's press release on our website. I'd now like to turn the call over to our CEO and President, Mr. Steve Oakland.

Thanks, Bill. In my opening remarks, I spoke at length about the macroeconomic environment and the evolving consumer purchasing behavior in recent months, which is translating into unit share gains for private label. For those of you who've covered TreeHouse and private label for some time, you'll recall that historically, there have been three main factors that support private label growth; the economy, demographics, and retailer support. I'd like to close my remarks today and say a few words about retailer support as seen on Slide 14. Private label is a key part of our retail customers' strategies. Our customers all have unique strategies for how they position private label for their consumers. But regardless of whether they are value retailers, traditional grocers, club stores, experiential retailers, or pure-play e-commerce businesses, the bottom line is that TreeHouse is a key partner for retailers as they look to drive loyalty, traffic, consumer experience, and ultimately higher profit margin. As you can also see, some of the latest retailer quotes here is evident that our customers are focused on private label growth as a key part of their strategy. When combined with the economic environment, the underlying fundamentals for private label growth are healthy and very much intact. I have no doubt that our customer relationships are stronger today as a result of our investments to drive commercial excellence, as we have transformed our business over the last several years. Along our journey, I'm also confident that we have made great operational strides. We believe that our work around lean and continuous improvement, coupled with our actions to mitigate the ongoing disruption, will enable us to improve service and produce more what our customers need as we head into our seasonal peak later this year. And our people, our talent, and our values are critical to what we do and how we do it. I'm encouraged that we are focusing our capabilities on restoring service and fulfilling the demand being created by the tailwinds we're seeing in private label. With our building blocks in place, I'm confident that our first quarter results position us well to be on track to achieve our full year guidance. With that, let's open the call up to your questions.

[Operator Instructions]. The first question comes from Chris Growe of Stifel. Your line is now open.

Hi, good morning.

Good morning Chris.

Yes, sure. I think, Chris, first of all, you're right, our supply chain limits have really been the inhibitor for us, not the demand piece. And so as that slowly improves, we think the absolute volume and units are going to improve. I think as the consumer having elasticity, we're starting to see private label share from a unit standpoint, pick up. I think the consumer as we talked about in the prepared remarks, is under a lot of pressure and the conversations we're having with the customers suggest they're trying to be sure they have a value offering. I mean that's not for every consumer, we know that. But the customer is really focused on having value offerings in the store, and we think that bodes well for the back half.

Okay, thanks so much for your time today.

The next question comes from the line of Jon Andersen with William Blair. Your line is now open.

Great. I appreciate that. And I guess, I'm wondering, with private label unit share improving and now above pre-pandemic levels, have you -- are you seeing any kind of changes in maybe marketplace dynamics, national brands, maybe promoting with more frequency or depth or is it kind of fairly steady as she goes, given that we're in this high inflation environment and everybody is looking to take price to kind of recover those costs?

Jon, I think it is still really disrupted. So -- and I think service levels, I think we said in the prepared comments that they're in the low 90s, right. We -- I think we as an industry, have a long way to go to get the customer back to where we need to get the customer. At the same time, we're trying to recover this inflation. So I don't think we've seen that dynamic. The biggest dynamic we've seen was in the back end of the quarter was the consumer dynamic, and that's their shift to value, right. So we -- I wouldn't say the competitive dynamic is different, I would say the consumer dynamic is different.

That's helpful. Last quick one. On the strategic review, I just want to understand the comments you made at the top. Should we think of the strategic review is kind of ongoing as opposed to kind of wound down based on what you've kind of said previously, if you could characterize that for us a little bit, particularly in the context of some of the early objectives around divestiture or sale considerations? Thank you.

Yes, I think so. I think we've talked strategically, right, about getting our portfolio right. We know that our snacking and beverage categories are growing much faster. In some cases, they're more attractive from a margin standpoint. So we will continue to invest in those. The question is do we -- if we chose to simplify our business a bit, would you do that in one large transaction or would you do it in several smaller ones? And I think that's really where the Board is focused right now is understanding those dynamics. And so we'll have more information on that, hopefully, as we go forward. And -- but I think we want to make it very clear today that we do see the opportunity to invest in our higher-growth Snacking & Beverages business. And we'll do that regardless of whether it's through one large transaction or several small ones.

Thanks so much.

Your next question comes from the line of Robert Moskow with Credit Suisse. Your line is now open.

And Rob, the only other thing I would say is we do have some visibility to our costs in the near-term. And so as long as we have the right things that are hedgeable hedged and the right things that aren't, we have visibility to those, I think we can -- we've been more diligent this year and guiding to that. And pricing -- our timing of our pricing lives within that three dimensions, right. How far out do we see our cost structure and then how do we react and make sure that we cover what we can cover before we lose visibility, right.

Okay, understood. Thanks.

The next question comes from Bill Chappell with Truist Securities. Your line is now open.

Thanks, good morning.

Good morning Bill.

Hey, just sticking on service levels. I'm just trying to understand, this has been an issue, especially going back to the two years ago, start of the pandemic. And I guess part of the problem was private label, in general, wasn't getting. And you, in particular, wasn't getting product to the stores, so brand took share. So is there something new that's really continuing to keep those service levels low over the past year or does it just take a long time to really work through these things?

Bill, I think you probably heard a number of our branded or other peers talk about the supply chain challenges. They're predominantly on do we have the right number of people in our plants to produce the total demand. That is improving, right and our strategy is there. We are focused on hiring, training and now on retention. I would say we've made great progress on the people front of this, but there still is supply chain in the materials and ingredients complex, packaging, those kinds of things. And so we're working with our vendors. We're working with our customers to give them much more visibility to exactly what we need, so we can get it there on time. But I think the last piece of this that needs to be solved is really the inbound materials and inbound packaging. And we are more complex, right. So we do ask for more variants of the same thing from our vendors than our peers and so we are making great progress there, but we have ways to go. And I think that's our biggest…

No, that helps. And then on the pricing front, just trying to understand because a lot of, I guess, the branded peers seem like they've already done pricing. And I think I'm right in saying that we will, as a consumer, see a whole lot of change in your pricing on the shelf in third quarter, the retailers go ahead and take that pricing. So I'm just trying to understand if there's -- if price gaps will shrink, and that will have an impact on your volume or the price gaps are already where they will be three months from now?

I think we're encouraged by the price gaps because it tells us that with the pricing we have in the market, we're providing value to that retailer. And the key to private label and the retailers focus right now is having that value offering in each one of the categories. And so we don't see that as an inhibitor at all. I would tell you, private label naturally will take probably more frequent, lower price increases, right, because our margins are lower. We price on actual experience and not on forward curves. We don't have the umbrella that brands have to set sort of category pricing. So I think it's natural for us to take pricing more often probably slightly less from a percentage standpoint. But the encouraging thing for us is we don't see a problem with the price gap, and the umbrella that we're operating under is providing. And I mentioned this in the prepared remarks. A lot of pricing in some of these categories is up substantially. So a 30% price gap today is a lot more pennies per unit. So it's a little bit more of an absolute penny savings than it's been historically. And so when you add those things together, we think the umbrella is going to be fine.

Great, thanks so much.

The last question today comes from Carla Casella with J.P. Morgan. Your line is now open.

Awesome, thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Oakland for closing remarks.

Yes, I'd just like to thank everyone for being with us today and wish you a great day. Look forward to talking to you soon. Thank you.