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Welcome to the TreeHouse Foods' First Quarter 2023 Conference Call. This call is being recorded. At this time, I will turn the call over to TreeHouse Foods for the reading of the Safe Harbor statements.

Good morning, and thanks for joining us today. Our press release and earnings deck, both issued this morning are available in the Investor Relations section of our website at treehousefoods.com. Before we begin, we would 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. On October 3, 2022 we completed the divestiture of a significant portion of our Meal Preparation business. Consistent with the prior two quarters, we will discuss our results on an adjusted continuing operations basis. A reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in today's press release and the appendix tables of today's earnings deck. With that, let me turn the call over to our Chairman, CEO and President Mr. Steve Oakland for his opening remarks.

Thank you, P.I., and good morning, everyone. I'm pleased to be here today to share our strong first quarter results and reaffirm our guidance for 2023. Over the last year, we have optimized our portfolio, strengthened our balance sheet and simplified our business. Today, TreeHouse Foods is a higher growth, higher margin business focused on private label snacking and beverages. Our strategic ambition is profitable growth driven by leadership in consumer trending categories. I'm excited about all we've accomplished so far in our journey and the direction we're heading. We continue to see a macro environment that supports private label growth, which coupled with our improved supply chain and our investments in our business, support our guidance and our algorithm. We had a strong start to the year and I'm very pleased with our performance. Importantly, I want to express my gratitude to our teams for their hard work as we continue to execute on our strategy. Looking at our deck, slides three and four cover key takeaways and a summary of our first quarter results versus guidance. First, we outperform a high-end of our revenue and EBITDA guidance by $30 million and $11 million, respectively. It's clear that we are benefiting from the actions we took last year to transform the company and sharpen our focus. We are driving better execution and as a result improved financial performance. Second, supply chain improvement and service recovery were both ahead of our expectations in the quarter. As a result, we fulfilled customer demand that was originally planned for shipment in the second quarter. Third, on a year-over-year basis, our profitability has improved significantly as pricing to recover inflation continues to be reflected in our financials. And fourth, looking at our first quarter performance and our second quarter expectations, we are on track for a solid first-half and are positioned well for the year. As a result, we are reaffirming our full-year 2023 guidance. And finally, we are selectively investing in opportunities to drive organic growth and build capabilities across our supply chain. The next two slides, slide five and six provide some context on the current macro environment and private label. Let me take you through those and then I'll turn the call over to Pat to discuss the financials in more detail. On the left hand side of slide five, you can see that retailers are passing along inflation in the form of higher shelf prices. While inflation is persistent, it is slowing in comparison to last year. We've seen a couple of items like natural gas and wheat, retreat from their peaks. However, input costs remain at historically high levels. On the right, the absolute dollar savings of a basket of private label goods versus national brands is holding steady at about $20. This is significant as it makes the private label value proposition for consumers very attractive. On slide six, on the left, you'll see that the average price gaps remain above historic levels. At the same time, private label units share shown on the right continues to grow. In fact, private label has now gained unit share for 66 consecutive weeks. The data not only supports a return to the long-term trend of private label share growth, something that we saw for many years pre pandemic. But it also is reflective of the importance retailers are placing on private label and the investments they're making to drive trial and loyalty. Our ability to leverage these trends with our more focused portfolio, improved execution, higher service levels and investments in capacity, give us confidence in our long-term growth prospects across our attractive snacking and beverage categories. Before I turn the call over to Pat, I wanted to take a moment to recognize his recent appointment to the CFO role in a permanent capacity. During the last six years, since he joined TreeHouse, Pat has proven himself as a results-driven leader and he has made it clear to me since stepping into the role on an interim basis last year, that he's the right CFO for TreeHouse. Pat has a deep understanding of our business and our industry and we greatly value his expertise. I'm looking forward to continuing our partnership as we drive sustainable growth in the years to come. With that, I'll turn the call over to Pat.

Thanks, Steve, and good morning. I'm honored to have transitioned to the permanent CFO role at such an important inflection point in our strategic journey. In my time at the company and in particular over the last year, I've deepened my understanding for how we'll drive growth into the future and developed a greater appreciation for the opportunities that lie ahead. We expect to continue to deliver on our financial commitments, build credibility and drive long-term shareholder value, I'm enthusiastic to say the least and I look forward to connecting with you all in the coming months. Earlier, Steve covered our first quarter results in comparison to our guidance. Slide seven takes you through the financials on a Q1 year-over-year basis. Our progress is clear. Sales grew 16%, adjusted EBITDA improved nearly 150% and adjusted EBITDA margin rose 530 basis points. Before I get into the drivers of revenue in the quarter, I wanted to build on Steve's comments earlier around our top line. We attribute the beat to a few factors: first, our vendor fill rates improved and we saw some easing in the supply chain earlier than we anticipated, which drove better execution in our operations. This enabled us to increase capacity in certain categories that have previously been more constrained and improved service allowing us to fulfill certain customer orders in the first quarter that we had originally planned for shipment in the second quarter. Our service in the first quarter averaged 95% an improvement of about 100 basis points sequentially. While we still have some work to do to get back to target, we're making great progress. Turning now to slide eight to cover our revenue drivers. As anticipated, pricing drove the top line as it reflects our cumulative efforts over the past year to recover inflation. Volume and mix were flattish in total, down 60 basis points versus the prior year and FX contributed negative 30 basis points. On the right, we've provided a unit volume comparison for the industry and TreeHouse using measured channel data. Total edible consumption on a unit basis declined about 4%. Within the categories in which we operate, national brands also declined 4%, total private label outperformed and was flattish and TreeHouse was similar performing in line with private label. The message here is that TreeHouse continues to gain unit share. I'll take you through slide nine on our adjusted EBITDA drivers. Recall that last year's first quarter profitability was abnormally low due to the significant level of labor and supply chain disruption, as well as continued escalation and input costs. Volume and mix, including absorption, improved $6 million in the quarter. PNOC, pricing net of commodities was positive once again as we continue to recover inflation contributing $64 million versus last year. The change in operations was a headwind of $16 million versus last year. We continue to make investments in labor, retention and engagement, as well as around continuous improvement as we better position ourselves for future growth. While supply chain improvement was better than we anticipated in the first quarter, we don't yet believe we’ve seen the last of macro disruption. We still have a couple of categories where we have room to improve service, and anticipate that it will take a couple more quarters to fully bring them back to target levels. Turning now to our guidance on slide 10. We expect Q2 revenue to be in the range of $%810 million to $840 million with pricing continuing to drive the top line. It is worth noting that in the second quarter, we will be lapping last year's initial pricing actions to recover inflation. I'll also point out that the second quarter represents our seasonally lowest volume quarter of the year for our new portfolio. As I noted earlier, our first quarter revenue outperformance was largely due to our ability to fulfill orders that were originally planned for shipment in Q2. So as you consider our first-half revenue, we are tracking in line with expectations and profitability continues to improve against last year. Today, we are reaffirming our full-year 2023 guidance. We continue to expect revenue to grow 6% to 8% and adjusted EBITDA of $345 million to $365 million. We continue to anticipate net interest expense in the $20 million to $25 million range and CapEx of $130 million. In closing, I'd be remiss if I didn't thank our TreeHouse team. Our strong start to the year demonstrates better execution and a testament to the hard work everyone is putting in to service our customers. With that, let me now turn it back over to Steve.

Thanks, Pat. Beyond the 2023 guidance Pat just discussed, we remain confident that over the next three plus years, we can deliver annual growth of 3% to 5% in revenue and 8% to 10% in adjusted EBITDA. With free cash flow of at least $200 million. Our confidence is supported by our clear purpose and ambition and a focus on our strategic growth pillars, building a world-class supply chain, outperforming in categories where we have competitive advantage, defined by category leadership and depth. And further developing strategic customer partnerships and finally striving to be a talent leader. As I've said before, we're at a pivot point in our journey. Our balance sheet is strong. We generate healthy free cash flow allowing us to capture near and long-term opportunities to build capabilities, drive growth, and deliver attractive financial returns. Our first priority for capital allocation is to invest in our business. As Pat mentioned, we'll spend approximately $130 million in CapEx this year to strengthen our operations and leverage our network. We are also in a position to selectively pursue organic and inorganic opportunities that drive category growth are highly synergistic and have attractive financial returns. That discipline led us to complete a $14 million acquisition to add seasoned pretzel capabilities to our portfolio in April. The season pretzel subcategory is growing rapidly, more than 15% last year and it's underdeveloped in private label. Importantly, customers have been coming to us looking for season pretzels. The season pretzel acquisition accelerates our ability to serve customer demand in a leadership category for TreeHouse. We plan to have plenty of our new season pretzel flavors for you to try at our upcoming Investor Day on Tuesday, June 13 in New York City. Our goal of this event is threefold. To give the financial community a better understanding of how our portfolio work has better positioned us across faster growing, higher margin, private label snacking and beverage categories. To showcase our management team, and to share how we've been making the right investments across the business and maintaining focus on the right priorities to drive sustainable revenue and profit growth and ultimately value creation for all of our stakeholders. I hope you can join us next month. With that, let's open the call up to your questions.

[Operator Instructions] Your first question comes from a line of Andrew Lazar from Barclays. Your line is open.

Great. Thanks. Good morning and congratulations, Pat.

Thank you.

Good morning.

Good morning. I guess some -- when [Indiscernible] provided full-year ‘23 EBITDA guidance, I mean, you called out two main buckets, right, that have sort of accounted for the difference between what was reported in ‘22 and what you see as sort of normalized EBITDA ultimately at around $400 million? And I think these two things were PNOC and then supply chain costs? And we now have PNOC right that's been positive I think for three quarters in a row now and supply chain disruption costs are obviously dwindling quickly, which is nice to see? So I guess, I was hoping you could maybe square these dynamics with the difference between the $400 million and your current guidance for this year of $345 million to $365 million. Just, you know, kind of, what's left accounting for that difference given those two buckets are kind of really moving in the right direction. I guess another way of asking it is, do you see this year has potentially somewhat conservative knowing that it's only 1Q and you've got a seasonally important fourth quarter?

Yes, Andrew, thank you. Hi, this is Steve. I will -- I'll touch on it and I'll let Pat follow-up. We are off to a great start, right? And it's early in our year. We have the smallest sequential quarter coming up next. So we look forward to these updates as we go forward, but you did touch on the two areas that are key to our recovery. And we got out to a great start on it. So I don't know that I would necessarily call it conservative, but I think it's the right guidance at the right moment, right? So Pat do you want to?

Yes. And if I add, I do think you're thinking about those rights. So from a PNOC perspective, we sort of expected inflation to be mid-single-digit, and I think that's what we're seeing across our portfolio. So I think that squares in line with what we expected and reflects the pricing that we have. So I think that's in line with what we had expected for the year. And I think from a supply chain perspective that's largely -- if we improved a little bit better here in Q1, then we thought which allowed us to accelerate some orders. But I think as we look for the rest of the year, it's largely playing out how we had hoped with maybe a little bit of acceleration just in the first quarter.

Yes. Got it. Thank you. And then just last thing would be given the supply chain is improving. I guess is there a chance that you're able to continue to pull forward some volume shipments to customers, let's say in 2Q that you might have initially planned for 3Q or is that not really how it works?

I would rather call it. We probably filled the pipeline back up in Q1, right? There were some places that we had categories that we weren't getting the retailer completely full. And so they're happy obviously with that, right? They've got their full assortment of value items at a time when the consumer is really looking for value. So I think that's really what happened in the first -- at the end of the first quarter, right? We refilled those pipelines. I actually think the more important thing is we now can have conversations about merchandising in the back half of the year that we weren't able to have before. And so I think that's going to be the interesting conversation and those are starting now. So I think we're given the retailer confidence that we can support what they would like to do in the back half as they try to drive. They all want to have a value image right now, right? And private label is a big part of that. So that I think is the opportunity and we'll know more about that as the year unfolds.

Great. Thank you so much.

And your next question comes from a line of Bill Chappell from Truist Securities. Your line is open.

Thanks. Good morning.

Good morning, Bill.

Just -- still on the pricing front, both what you're seeing and what you're seeing at retail. We've heard over the past few months both a commentary that retailers were, kind of, over price increases from here and they were pushing back hard. But also that they were delaying some of the passing through some of the price increases to consumers to, kind of, drive volume a little bit faster or drive put traffic a little bit faster. Didn't know if you continue to see either of those the commentary from the retailers on pricing or the whole back of that pricing pass through as we moved into the first quarter?

You know, Bill, I think it varies a lot by retailer. We are seeing private label pricing going up a little bit slower than what we've seen before. So I think it's fair to say that they're still passing it through. The good news is when we talk about that in the prepared remarks is that our gaps remain above historic levels, right? So gaps are really solid, we tend to get our pricing quicker. And so we're on the front end of that curve just given the nature of our margin structure of our contracts and the fact that we don't have the other levers of trade and advertising. So I think we're very fortunate to have done the pricing when we did it and have that behind us, right?

Got it. And then the secondly just on, kind of, market share and again it's hard for us to see across your various categories. But trying to understand with the improvements over the past 66-weeks, are we well above, kind of, 2019 levels, because as you remember, I mean, private label, kind of, across the board lost a lot of share during the pandemic. I know we had made a long way back to it, but I'm just trying to understand if we're now at new highs or working toward new highs?

You know, yes, we are. And we are at that 20% number now, right, which is pre-pandemic, we were just below that. So private label is in good shape now. And right, we had nice share growth for private label for years pre-pandemic. It was only the pre-pandemic and the consumer behavior changed a little bit with all the stimulus that was poured on them during that period of time. But we're seeing it return to the normal growth rates, so we're just slightly above where we were in ‘19.

Perfect. Thank you so much.

Your next question comes from the line of Matt Smith from Stifel. Your line is open.

Hi, good morning. Thank you.

Good morning, Matt.

I had a question about the margin performance in the quarter. It was stronger than expected in part due to the higher volume absorption, which benefited from the timing of shipments. But there was still an incremental drag from higher supply chain cost and that's an area that was very elevated in 2022. So I'm surprised they're higher -- incrementally higher here in the first quarter. Those costs -- the incremental headwind from those costs get much more substantial when we look at the second quarter through the fourth quarter of 2022. So do you expect to -- those costs to go lower year-over-year as we move through the year?

Yes, I think we -- this is Pat, I think we've benefited from some positive mix in there too. So when I think you think about the types of categories, we talked a little bit of early last year or late last year around exiting some, sort of, lower margin type of business in particular. And so I think you're seeing a more positive mix. We do have some in the quarter what I would call a little bit inefficient of maybe more over time and things than we would have liked that probably push them -- or some of those inefficiencies that we saw. And I think we still are seeing the benefits of some of our investments and continuous improvement and some of the other things we're doing from a supply chain or slowly starting to pay off and we've got ramp curves around how we expect those to play out through the year. And we're really pleased with the progress so far and we feel like we're on the glide path that we had expected to see.

Okay. Thank you for that. And as a -- I had a follow-up question on the guidance with a stronger first-half, the second-half EBITDA guidance now looks like it's just modestly lower on a year-over-year basis. So could you talk about what's weighing on EBITDA growth in the second-half? I know there's some really tough PNOC comparisons there, but it would seem like your pricing is still going to positively offset inflation in the second-half of 2023?

Yes, maybe I'll start and I'll let Pat follow-up, I don't think we look at it that way. I think we look at we had a really great start. We've guided a solid first-half as we have better visibility into it. We'll obviously report to you what we think the back half looks like. I don't think we want anything to reflect that we think the back half is weaker.

Okay.

And if we lost him, do we lose him?

Operator, we can go to the next question.

Operator?

Hello, can you hear me?

Yes. Got it.

Sorry, we had some technical issues. Sorry about that. Your next question comes from William Reuter from Bank of America. Your line is open.

Good morning. I just have two, so you mentioned that you've now lapsed or you're lapping the price increases in the second quarter. And then there was another question that addressed the fact that retailers are pushing back a little bit. Do you feel like at this point you've pushed through all the price increases that you need or is there opportunity for further price increases here to come?

I think there will be some very selective price increases the rest of this year and their individual commodity or cost structure. We've done all of the big macro stuff we needed to do. We actually hope there'll be some price relief, right, that things like wheat and some of those other things we could bring down. So that won't affect our margins, if we did that because that would just simply be passing on that cost. So we think we have the pricing in the place where we need it for the year.

Okay. And then secondarily for me, you did the seasoned pretzel acquisition, which was pretty modest in size. You've mentioned that you're still on a position to complete further ones. Is there any way to talk about what size of acquisition you could take on at this point? And then related to that, how will you balance that with reductions in leverage?

Sure, sure. I can -- I'll take the first part of that and I'll have Pat talk about leverage. But look, $14 million in an acquisition that's really mostly capital equipment isn't something we normally talk about. But we really wanted to frame this for investors right, that's how different the strategy is today than what it used to be, right? It's about driving depth in the categories that we are in today. And so when we get opportunities to bolster our supply chain to add a capability, right, pretzels is a key category for us where we are leaders, and that's a key segment that's growing really quickly. So we actually -- we have that equipment on order and it's going to take us 18-months to get it. We were able to buy it by buying a small vendor, right? And so there's opportunities for us to now again fortify that supply chain and drive growth and protect that algorithm out a year or two. And that's really what we're trying to do. And that -- so we only use that example to help the financial community understand how different our strategy is than what it used to be. So I don't know, Pat, if you want to talk about horsepower -- firepower, but…

Yes, we've talked about we have a target leverage range of 3 times to 3.5 times and so we continue to be at, sort of, the low-end of that target range. So we're very comfortable with the leverage level that we have now?

Yes. And I would just say there are opportunities for us to do exactly what we did here in season pretzels that are so close in that we'll have great synergistic returns and are great returns on capital. But I don't think those are the larger ones that seen us in the past. They'll come a day when that will be right for us and we'll talk a lot about capital allocation at our Investor Day.

Very helpful commentary. Thank you.

Your next question comes from the line of Carla Casella from JPMorgan. Your line is open.

Hi, good morning. This is Mike on for Carla. Just two questions from us. The first one being that you mentioned that sales are typically slowest in the second quarter and that there was some pull forward this quarter? Is it safe to assume that the magnitude of the beat for this quarter versus what you guys guided to for 1Q earlier? Was that all due to the sales pull forward or there's like other areas that might have been surprised at the upside whether it's pricing or volume or anything else like that?

Yes, I think that's the way to think about it. The majority of that beat was related to the pull forward. When we think about H1 or what we had expected to see from H1 revenue. We're falling right in line with what we thought that that would look like, so…

Great. Thank you. And then the second one was did you guys -- what was the magnitude of the low margin pickle business that you guys exited? And when do you guys expect to anniversary that?

Yes. I don't think we've talked about the totality of it, but we will lap that here in the second quarter from that perspective, so that will be less of an issue for us in the back half of the year.

Okay, all right. Great, that's all from us. Thank you.

Your next question comes from the line of Hale Holden from Barclays. Your line is open.

Hi, good morning. If we view the season pickles acquisition more like a CapEx spend, I guess, than a traditional M&A. I was wondering if you could sort of tell us how the rest of the network was looking or if you had capacity constraints in any areas given some of the growth you've seen snap back in the last six months?

It really wasn’t basically a CapEx, but it really extended us into it's the capability to season pretzels and we look forward to trying them because they really are and there's a reason they're growing so fast, right? They're great. But yes, I mean there's areas in our baked goods that we'd like to increase capacity, there's areas, there's things we'd like to add in our coffee business, there's things we'd like to add in a couple of our other businesses, right? I don't want to speak to any individual one specifically. But I think if there's opportunities for us to bolster that supply chain or to increase capacity in those tight areas like that, we would obviously look at those things. But they have great returns and all of those have way over our cost of capital returns, right?

And the second question I had was on the wheat potentially lower wheat costs or natural gas, how quickly do you now pass those through to your customers? As I flow through your P&L?

Sure. We have a 60 day or 90 day agreement with most of our customers. And so on the way up, you saw the lag hit us on the way down, we would benefit from that lag. So those would be on 60 days to 90 days. And some that's for a number of customers, some customers are annual bids, right? And prices are locked for 12-months, so we'll enjoy that for that period of time. But again, we try not to make money on the commodity swing, right? We try to make money on our whole value proposition. So I think if those things come down and we pass them on, our margins will improve, but they won't affect the penny profit per case.

Great. Thank you so much. I appreciate it.

And there are no further questions at this time. I would turn the call over to Steve Oakland for some final closing comments.

Yes, I just want to say thank you to everyone today. And we hope we will all have a chance to see you at our Investor Day coming up in New York City. Have a great day. Take care.