Dexter Congbalay - VP, IR Tom Werner - President and Chief Executive Officer Rob McNutt - Chief Financial Officer.

Bryan Spillane - Bank of America Andrew Lazar - Barclays Adam Samuelson - Goldman Sachs Akshay Jagdale - Jefferies Andrew Carter - Stifel Michael Gallo - C.L. King Carla Casella - J.P. Morgan.

Welcome to the Lamb Weston First Quarter 2019 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Dexter Congbalay, Vice President of Investor Relations for Lamb Weston. Please go ahead..

Good morning and thank you for joining us for Lamb Weston’s first quarter earnings call. This morning, we issued our earnings press release which is available on our website, lambweston.com. Please note that during our remarks, we’ll make some forward-looking statements about the Company’s performance.

These statements are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our filings with the SEC for more details on our forward-looking statements. Some of today’s remarks include non-GAAP financial measures.

These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release. With me today are Tom Werner, our President and Chief Executive Officer; and Rob McNutt, our Chief Financial Officer.

Tom will provide an overview of our overall performance and the operating environments in North America and Europe. Rob will then provide the details on our first quarter results and our fiscal 2019 outlook. With that, let me now turn the call over to Tom..

Thank you, Dexter. Good morning everyone and thank you for joining our call today. We delivered a strong start to the year reflecting our continued focus on execution, as well as our commitment to invest in supporting our customers and our growth over the long-term.

Our performance in the quarter also provides us with the solid foundation to deliver on our full year commitments. Let me take you through some of the highlights. Sales increased 12% with strong growth in each of our core segments.

Adjusted EBITDA including unconsolidated joint ventures increased 11% to $213 million driven by sales and gross profit growth, and we generated nearly $230 million of cash flow from operations driven by strong earnings growth and working capital management.

These results reflect how well our commercial and supply chain teams continue to execute on our strategic and operational objectives. For example, in our Global segment, we drove strong volume growth by capitalizing on some limited time offering opportunities in both the U.S. and internationally.

The team also continued to drive growth by supporting our chain restaurant customers in North America and increasing exports. In our Foodservice segment, customer response to our shift to a direct sales model has been positive.

We will continue to strengthen these relationships and we believe we are well-positioned to begin to drive incremental volume. In Retail, our Grown in Idaho, Alexia, and licensed brand products performed well as we continued to build distribution and gain share.

And finally, our supply chain team again drove cost savings and operated our assets effectively while maintaining customer service rates. In addition, the team continued to make great progress on the construction of our new 300 million pound french fry line in Hermiston Oregon. That line remains on track to be operational in May of 2019.

Our results also reflect continued overall favorable operating environment in North America, including solid demand growth for frozen potato products and tight manufacturing capacity. We anticipate that these operating conditions will remain generally favorable through fiscal 2019.

Our expectations for the cost environment also remain the same with steady inflation in each of our major cost categories including potatoes. With respect to the potato harvest on a preliminary basis, we believe the potato crops in our growing areas in North America are consistent with historical averages both in terms of yield and quality.

As a result, we do not expect any significant issues with this year’s potato crop based on what we’ve seen today.

However, we need to see how the potatoes perform in our production facilities in the coming weeks and get a sense for how the potatoes are going to take to storage before we can make a final assessment on the crop’s overall quality, as well as the financial impact versus our expectations.

In contrast to North America, the operating environment in Europe will be more volatile through fiscal 2019 as a result of poor potato crop in the region. Unlike the crop in the Columbia Basin, less than half of the European potato crop is irrigated and therefore it’s dependent on rainfall.

In July and August, extreme heat and drought conditions in Europe had a significantly negative impact on crop yield and quality resulting in potato price futures more than doubling versus year earlier in the year. As a result, we expect raw prices for Lamb Weston/Meijer and for the industry to sharply increase in the second half of our fiscal 2019.

This will also impact the first half of fiscal 2020 as Lamb Weston/Meijer finishes our processing this year’s short crop. It’s important to remember that crop issues tend to be one-year advance, and it’s not the first time that our Lamb Weston/Meijer team has faced such challenges.

Most recently, Europe had a relatively poor crop that pressured Lamb Weston/Meijer’s fiscal 2017 results. However, the team mitigated the impact that year with pricing and cost reduction actions which continued to benefit their performance through fiscal 2018.

I am confident that our highly experienced team in Europe will work through the challenges with the plans that they’ve developed including, raising prices which we’ll be phasing in over the next couple of quarters, working closely with customers to adjust production schedules and product specification requirements, and driving productivity and other cost-saving initiatives across the organization.

In addition, we are leveraging Lamb Weston’s global manufacturing footprint by stretching our U.S. production capacity to support Lamb Weston/Meijer’s customers as needed. We will also leverage our U.S. assets to serve other potential customers as opportunities arise in export markets, especially in Asia and the Middle East.

Our teams in Europe and the U.S. have already begun to take actions to mitigate the crop impact and we are continuing to work through some additional operational details as more information about the yield and quality of the crop becomes available.

The bottom line is that while Lamb Weston/Meijer’s earnings will be pressured in fiscal 2019 because of the actions we are taking in Europe and North America, we remain on track to deliver on our earnings commitments for the full year.

Severally, while the imposition of additional tariffs or other trade barriers remains a risk, we believe the current tariff structures as well as the recent increase by China are manageable and we’ve incorporated their estimated effect into our outlook.

So, as you can see, we’ve had a strong start to the year, we are strategically investing to support growth and drive efficiencies over the long-term, and we are leveraging the capabilities of our global business to remain on track to deliver our financial targets.

Now, let me turn the call over to Rob to provide the details on our results and our outlook. .

Thanks, Tom and good morning everyone. As Tom noted, we are pleased with our first quarter results and remain confident in our full year outlook. Specifically in the quarter, net sales increased 12% to $915 million.

Price mix was up 8% as we continue to benefit from pricing structures in our Global segment contracts renewed last year, as well as from carryover pricing and mix improvement actions in our Foodservice and Retail segments. Volume increased 4% led by growth in our Global and Retail segments. Gross profit increased 17% to $231 million.

Higher price mix, volume growth, and supply chain efficiency savings drove the increase more than offsetting the impact of higher transportation and warehousing costs, input and manufacturing cost inflation, and higher depreciation expense, primarily associated with our new production line in Richland, which started up in the second quarter of fiscal 2018.

In addition, gross profit includes about $6 million loss related to unrealized mark-to-market adjustments and realized settlements associated with commodity hedging contracts in the current quarter as opposed to a $3 million gain related to the contracts in the prior-year period. Our gross margin percentage expanded 120 basis points to more than 25%.

SG&A expense excluding items impacting comparability increased $22 million to $78 million. About $15 million of that increase was driven by a few items. First, about $7 million was due to unfavorable foreign exchange while some of that was transaction related, most was translation related to normal revaluation of intercompany balances.

Second, about $5 million was due to higher incentive compensation cost, the majority of this relates to share-based compensation expense reflecting the increase in our stock price, as well as the absolute number of share-based awards outstanding related to post-spin equity grants.

And third, while we increased advertising and promotional support by about $3 million, most of that was in our Retail segment behind Grown in Idaho branded products. We continue to expect total A&P spending for all of fiscal 2019 to be essentially the same as last year, but we are spending more evenly distributed over the year.

In fiscal 2018, much of the spending was in the fourth quarter as Grown in Idaho achieved some key distribution milestones. The remainder of the increase in SG&A was largely due to inflation and incremental labor benefits and infrastructure cost related to operating and standalone public company.

This includes higher expenses for information technology services and infrastructure, as well as investments in our sales, marketing, and operating capabilities. Adjusted operating income was up 9% to $153 million in the quarter driven by the increase in sales and gross profit.

Equity method investment earnings from our unconsolidated joint ventures, which include Lamb Weston/Meijer in Europe and Lamb Weston/RDO in Minnesota were $20 million. That’s essentially the same as last year.

However these amounts include a $700,000 unrealized gain related to mark-to-market adjustment associated with currency and commodity hedging contracts in the current quarter and a nearly $4 million gain in the prior year quarter. Excluding these adjustments, equity earnings increased $3 million.

This was driven by solid operating results in Europe reflecting volume growth and lower production costs, partially offset by lower price mix.

So putting it all together, adjusted EBITDA, including the proportional EBITDA from our two unconsolidated joint ventures increased 11% to $213 million, essentially all of the increase was driven by earnings growth in our base business.

Moving down the income statement, interest expense was about $27 million and our effective tax rate, excluding the impact of comparability items was about 23.5%. Turning to earnings per share. Adjusted diluted EPS was $0.73 up $0.16 or about 28%.

About $0.10 of that increase was a benefit from applying a lower tax rate as a result of recently enacted tax reform. The remaining increase was driven by operating gains in our base business. Now let's review the results for each of our business segments. Sales for our Global segment, which includes the Top-100 U.S.

based chains, as well as all other sales outside of North America were up 13%. Price mix rose 8% as we continue to benefit from contract pricing structures put in place in the middle of last year. We also continued to improve customer and product mix.

Volume grew 5%, more than half of that was driven by the benefit of limited time product offerings in both the U.S. and internationally. The remainder was driven by growth in sales to strategic customers in the U.S. and international markets.

Global's product contribution margin, which is gross profit, less advertising and promotional expense increased $20 million or 27%. Its product contribution margin percentage expanded by 220 basis points.

The increases were driven by favorable price mix and volume and were partially offset by higher transportation, warehousing, input and manufacturing cost inflation, as well as higher depreciation expense, primarily associated with the new Richland line.

Sales for our Foodservice segment which services North American foodservice distributors and restaurant chains outside the top-100 North American restaurant customers increased 7%. Price mix increased 7% reflecting the carryover impact of pricing actions taken last year and continued improvement in the customer and product mix.

Volume declined nominally as increased shipments of higher margin Lamb Weston branded and operator label products largely offset the continued effect of exiting some lower margin distributor labeled volume in the middle of fiscal 2018. The loss of this volume will continue to be a headwind through the early part of the third quarter.

Foodservice’s product contribution margin increased $11 million or 12% and its contribution margin percentage expanded by 180 basis points. The increases were driven by favorable price mix, which more than offset higher transportation, warehousing, input and manufacturing costs and the Richland depreciation. Sales in our Retail segment grew 26%.

Price mix increased 13% driven by higher prices across our branded and private-label portfolio and improved mix. Trade expense was also lower as we began to lapse some of the higher spending associated with the launch of Grown in Idaho in early fiscal 2018. Volume was up 13% driven by distribution gains in Grown in Idaho and other branded products.

Retail’s product contribution margins increased $6 million or 38% due to higher price mix and volume. This more than offset increased investments in advertising and promotional support behind Grown in Idaho as well as transportation, warehousing, input and manufacturing cost inflation.

Product contribution margin percentage expanded by 160 basis points. Moving to our balance sheet and cash flow, our total debt at the end of the year was about $2.4 billion, while cash on hand increased to about $150 million. This puts our net debt-to-adjusted EBITDA ratio at 3 times, which is below our target range of 3.5 to 4.

We expect our net debt will rise as we increase working capital consistent with our typical seasonal needs and as we complete the acquisition of our partner’s of the BSW joint venture. We continue to expect the BSW purchase to be about $65 million subject to negotiation of final terms, as well as the closing date.

With respect to cash flow, we generated nearly $230 million of cash from operations driven by strong earnings growth and normal seasonal working capital release. We invested about $90 million in capital expenditures, which included the ongoing construction of our new production line in Hermiston, Oregon.

We also paid $28 million in dividends to our shareholders. Turning to our fiscal 2019 outlook, as Tom mentioned, despite our European joint venture’s earnings being pressured, we remain on track to deliver on our earnings commitments for the year, because of actions we are taking both in Europe and North America.

We continue to expect sales to grow in the mid-single-digit range with stronger growth in the first half as a result of the carryover benefit of pricing actions in each of our core segments benefit of incremental volume availability from our new Richland capacity and more difficult year-over-year comparisons as the year progresses, especially in our Global and Retail segments.

In addition, as Tom noted, while the imposition of new tariffs remains a risk, we’ve accounted for all known changes in our outlook. We continue to anticipate adjusted EBITDA including unconsolidated joint ventures to be in the range of $860 million to $870 million with sales and gross profit growth driving the increase.

We are still targeting gross profit growing at least in line with sales with favorable price mix and productivity more than offsetting higher transportation, warehousing, input and manufacturing cost inflation, as well as higher depreciation expense.

We continue to expect our total production cost per pound including potatoes to increase in the mid-single-digit range. We’ll provide our updated view of North America’s crop quality and how we expect the crop will hold up in storage when we report our second quarter results in early January.

Regarding SG&A, as we mentioned in prior calls, and as you saw in our first quarter results, we’re targeting SG&A to increase significantly as we make investments in our IT systems, and other capabilities to support growth and drive operating efficiencies over the long-term.

As we’ve discussed today, we expect equity method earnings will likely decline because of the European crop issues. We initially had targeted to be essentially flat versus last year.

So altogether, we anticipate that operating gains in our base business will offset weakness in equity earnings and that will drive the majority of our growth in adjusted EBITDA including unconsolidated joint ventures.

The remainder of our EBITDA growth will be from acquiring the 50% of our consolidated joint venture Lamb Weston BSW that we currently don’t own.

The other financial targets remain the same including total interest expense of around $110 million, an effective tax rate of about 24%, capital expenditures of about $360 million and total depreciation and amortization expense of approximately $150 million. Let me now turn the call back over to Tom for some closing comments. .

Thanks, Rob. Let me quickly sum up by saying that, we are pleased with our strong financial results in the quarter.

We are committed to strategically investing in our capacity, infrastructure and capabilities to support our customers, as well as our future growth and operating efficiencies and despite some near-term volatility in Europe, we’ve remained well positioned to deliver our fiscal 2019 targets as we continue to execute on our strategic and financial objectives and create value for all our stakeholders.

I want to thank you for your interest in Lamb Weston and now we are happy to take your questions. .

[Operator Instructions] And we’ll go first to Bryan Spillane with Bank of America. .

Hey, good morning everyone. .

Good morning. .

Good morning, Bryan. .

Couple questions, I guess first, just in terms of sort of the situation in Europe, can you give us a sense of kind of, where you stand versus, maybe some of your larger competitors in terms of being able to cope with this? I guess, what I was trying to drive that was, do you have less fewer potatoes in storage versus some of your competitors or some other sort of mitigating factor that might either enable you to gain share or lose share in this situation?.

Thanks, Bryan. It’s Tom.

I think, as we continue to evaluate the situation in Europe, the way we are handling it is, as I stated earlier, we are working across our network to make sure, first and foremost that we are servicing our customers and in terms of how the industry is going to be impacted, it’s going to be very different within our competitive set.

The good news is, for us, with our global networks, we have more flexibility to service our customers.

The team in Europe is doing a terrific job making sure that as we look at the crop and understand how the quality and the yield is going to play out, we’ve taken actions to make sure that we have potatoes available to service our customers, and again where we can we are shipping some of that production to the U.S.

to make sure that we are servicing our customers. So, we are running our playbook. The other folks, the other competitors, they are taking actions too. So, it’s really just a wait and see and make sure we understand how this is going to play out. .

All right. Thank you.

And then, just, one other one, related to the market in North America, if you kind of look at the Global segment and then in Foodservice, the independent restaurants, I think one of the things that – one of the questions we have fielded quite a bit over the course of this quarter was this concern in general that maybe things were slowing, especially among some of the big QSRs.

So, could you just give us a sense of, if you kind of think about that collective universe, just kind of what’s happening from a demand perspective and any color maybe that you might have, maybe QSR versus casual dining versus independents would be helpful. Thank you. .

Yes, Bryan, I would tell you, based on the data we look at, June, July, August was one of the best industry traffic quarters that we’ve seen in long time across the entire restaurant industry. So, it was a good quarter and in terms of people going out to eat across most all the segments and that’s certainly reflective in our results for this quarter.

.

Okay, thank you. .

We’ll go next to Andrew Lazar with Barclays. .

Good morning everybody. .

Good morning, Andrew. .

Tom, you referenced some of the issues in fiscal 2017, I think in discussing the lag between higher costs and pricing actions. I guess, with that mind, I think in 2017, you mentioned the equity method earnings were flat year-over-year and then in 2018, this line item obviously increased dramatically, I think up over like 50% to $82 million or so.

So, I guess, just based on your experience, then and what you know now and some of the remedial actions that you are obviously aggressively taking to deal with things in Europe, I guess, are there any key reasons that are maybe very different structurally that would prevent Lamb from seeing, not exactly that type of recovery, but a sizable recovery in magnitude in fiscal 2020 like we saw in 2018 versus 2017 in the equity income method line..

Andrew, I would say, it’s going to be pretty similar and the key thing here again is, we still have to get the potatoes out of the ground, see what the quality of the yield is, but the lag and how this all is going to play out is, we are taking actions that are going to remediate some of the difficulties we are having with the potato crop and the timing of our pricing actions versus the cost, there is always a little bit of a lag, but typically, it should be very similar to how 2017, 2018 played out in terms of cost and then recovery.

.

Got it. That’s helpful. Thank you. And then, just as we think about the industry maybe doing its best to shift to source some of the supply to Europe from North America to help service those customers.

If that does become the case, I assume that always well for even tighter supply with respect to the incremental capacity coming online and therefore, maybe continuing to sort of support, I guess, this supply – this tight sort of supply/demand environment.

Would that – do you think that’s an accurate way to think about it?.

Andrew, I think it is. But this is the beauty of this business, when you have a situation like this, you work through it this year and you start over.

So, it’s going to be a bit of a one year situation we are dealing with and there will be some movement like I said earlier, with some production we are going to move within North America that help supplement the European situation. But, once we get through this crop, we start all over. So, all bets are off so to speak as we start the 2019 crop year..

Yes, understood. Thanks very much, Tom..

Yes..

We’ll go next to Adam Samuelson with Goldman Sachs.

Yes, thanks. Good morning everyone. .

Yes, good morning, Adam..

Good morning, Adam. .

Maybe just kind of following up on Andrew’s question in kind of a different light, just clear that the pressure in Europe this year, the base business in North America is offsetting as well as some of the actions you are taking in Europe to mitigate the cost pressures.

But is there anyway just to dimensionalize kind of what incremental pressure you’ve kind of absorbed in Europe in the guidance that you gave you, you said flat now down.

Just want to make sure we are thinking about the magnitude properly because as you kind of alluded to as we move past this crop into the next crop, next year assuming more normal conditions the business is in a better position, just want to make sure we understand kind of that magnitude..

Yes, Adam, we don’t – a couple of pieces. One, as Tom mentioned, the crop is still coming out of the ground in Europe, so we have to fully assess that. Secondly, the actions that we are taking, especially related to pricing are in flight today and so we will see how that plays out over time.

And frankly, I don’t want to get into detailed forecasting throughout the income statement. I don’t think that that makes sense for us. So, again, the overall focus is that, continue to deliver that 860 to 870 guidance. .

Okay. All right. That’s helpful and then, maybe just going back to the base business in the Global segment. You alluded to limited time offers kind of – half of the volume growth in the quarter and also a contributor to the price mix.

Can you talk what the visibility that you have looking into the balance of the year on LTO activity with some of your major partners there both domestically and overseas and I mean, from a margin perspective, that seems like it’s been a nice tailwind and kind of visibility that could continue?.

Yes, certainly, Adam, we are working hand-in-hand with our customers. I am not going to get into specifics. But we do have line of sight to what their plans are for the balance of the year and we’ve reflected that into our outlook. .

Is the activity level that you saw in the fiscal first quarter kind of, is that, abnormally higher that – kind of thinking about that kind of runrate prospectively reasonable?.

Hey, it’s Dexter. We don’t want to get into specifics on basically how much we do on LTOs every single quarter. We do have LTOs almost every single quarter when we report. So I just don’t want to get into that type of detail.

Just a little bit on the back half of this year as you know that, we did talk about this a little bit in our prepared remarks, but starting Q3, we had a very strong quarter both in our Global segment and in our Retail segment, in our Global in particular had some strong activity in LTOs. So, just keep that in mind in terms from a modeling standpoint.

.

Understood. I appreciate. Thanks. .

We’ll go next to Akshay Jagdale with Jefferies. .

Hey, good morning. I just wanted to ask about the top-line guidance, right. So, you are to get to 5% mid-single-digits, the rest of the year, would that could be like 2.6%. I know you – there is a lot of moving parts right now and it’s still early.

But, how are we going to get there? Because the next quarter seems to be one where you should have similar price mix of this quarter just because of the way you are going to be lapping timing-wise some of the initiatives in Global.

So can you help me understand your guidance and how much of this is conservatism given its early stages so?.

Yes, Akshay, Rob. In terms of the outlook, again, as Dexter just mentioned, we had some tailwinds in the back half of the year on both top-line and bottom-line last year. So, the comps are little tougher.

And again, as you say, it’s – this is Q1 and so we think it’s best at this point in the year to be prudent in terms of our outlook and guidance and so, that’s why we elected to keep it as we had initially indicated..

Sounds good. And then, just, I know you don’t want to be specific for a number of reasons on various items, but just high level if you could give some qualitative commentary? It seems to me that your guidance today obviously accounts for some negative impacts from the European JV.

But I am not sure if it takes into account any positive impacts related to that as it relates to your export business or incremental pricing as a result of what’s happening in Europe.

Is that fair? I mean, are you accounting for any gains in your guidance related to Europe in North America right now?.

Akshay, it’s Tom. I would say, we certainly have a point of view on all the moving pieces right now which is we’ve taken our estimate in our guidance and I think, the important thing here to remember is, in sixty days, we are going to have a pretty clear understanding of what we are dealing with in Europe.

And when we have our January call, we will give clear guidance as to the impacts pluses and minuses, both in Europe and potential opportunities that could be realized in our North American business in some of these international markets where the European competitors may have a problem servicing those markets.

So, the bottom-line is, it’s just going to take 30 to 60 days to understand what we are dealing with. We have reflected our best estimate in our outlook today and we’ll update our investors in January as this thing starts to become more clear. .

Got it. One last one, it’s probably for Rob. The information systems investments typically when companies go through that, there is some disruptions. Can you give us a sense of what the plan is and how you are accounting for the uncertainty that comes with that kind of change? Thank you. .

Yes. Sure, Akshay. And again, the planning related to this, I mean, I have done a few of these over the course of my career in different companies and our CIO, Don Barber has done a few of these in the course of his career.

And so, I think we’ve seen those potential disruptions and so, it’s a matter of good deliberate planning and just working through the process. And so, again, these things are never perfect, but the objectives that we have in mind and we’ve successfully been able to do this in the past is, do not disrupt the business, so. .

Perfect. I’ll pass it on. Thank you..

We’ll go next to Andrew Carter with Stifel. .

Good morning guys. .

Good morning, Andrew. .

Hey guys.

Could you all give us an update on your capacity utilization kind of your estimate for the industry and in particular just if you had the capacity out there to take advantage of any shortfalls from your European competitors caused by the adverse conditions in Europe?.

Andrew, I would say, our capacity utilization has been similar to what it’s been the last couple of years. We were running at a high utilization rates. The industry we believe continues to operate at high utilization rates.

That’s – the biggest priority right now is get our Hermiston line up and running and that’s on track to come online in May of 2019. But we have not – there is nothing that’s changed from a capacity utilization significantly in the last two years.

So, everybody is running wide open and we are doing some things from a maintenance standpoint, moving some things around to support our customers. So, we continue to operate at a high level.

The industry continues to operate at high levels and that’s going to – with this situation in Europe, that’s going to pressure some areas in the industry in terms of capacity. .

Got it. It’s helpful. Second question, does your guidance contemplate any incremental pricing actions particularly on smaller foodservice customers? I know, you are not going to talk about prospective pricing.

But we just want to understand how another round of contract negotiations could affect your pricing for the year and have any incremental pricing actions had been announced?.

Andrew, I would say, our outlook, we certainly have contemplated the things that we can do in the market in terms of pricing and some pricing actions we’ve taken. We are in the middle of some few contract negotiations right now. So, we have folded that into our outlook.

So, right now, our best estimate, again is, has taken all that into consideration when we are guiding for the full year and any additional things we may do to offset any pressures of the business, that’s just normal course of business going forward. .

Thanks. I’ll pass it on. .

Yes..

We’ll go next to Michael Gallo with C.L. King. .

Hi, good morning. .

Hi. .

I wanted to just delve in on - again on Europe and speak to whether you see perhaps some M&A opportunities emerging in this. I would think that there will be a number of distressed producers and obviously you have an opportunity to certainly grow your share that way.

So, is that something you are kind of stepping up focus? Is that’s something you are focused on and how should we expect to pursue that? Thanks. .

Yes, Michael, it was always been a focus. As I have stated in the past, we are certainly interested in opportunities in Europe from an M&A perspective. This is going to pressure some of the competitors and as you can imagine, we are as active as we can be. But those things are hard to – it’s always hard to predict when that’s going to happen.

But this, who knows, it may give us an opportunity with the situation that’s going on and if some shakes loose, we are going to be active in it. .

Thank you..

We’ll go next to Carla Casella with J.P. Morgan. .

Hi, on that same front on the retail side of the business, can you just talk about your strategy there inside of your business where you consider selling to invest more heavily in the Foodservice and Global business?.

Carla, I am a 100% committed to our Retail business. It plays an important part within our network in terms of balancing out the overall potato crop based on some of the retail products we make. So I have no interest in divesting any retail business. We are committed to it. We launched Grown in Idaho.

It’s been an awesome launch and we are gaining share and right now, based on how we look at the category with all of our private-label license brands, Grown in Idaho, we are the share leader in the category and it’s growing. So I am committed to it. Team does a great job and I have no interest in divesting that. .

Okay, great and I wasn’t suggesting that that – this does more than that frozen category is hot right now. I know there is probably a lot of demand.

Just one clarification on the CapEx for the new facility that will all be spent by May, but will it be lumpy to the year or give a sense for the timing of that CapEx?.

Yes, we – that – just to clarify, the cash spend won’t all done by the year end necessarily. The line will be up and running by May, but there is typically some carryover on that because of payment terms and needing to hit performance milestones and so forth.

But in terms of the timing of that, we haven’t talked about how lumpy that’s going to be on capital spending we have forecasted quarter-by-quarter on that, so. .

Okay, but that’s all – that was the forecast that was included in the guidance for 2019 or was that the total 200 spend over the period - over the restructuring?.

Yes, 250 is the total cost. 360 is our total program for this year. .

Okay..

So, part of that 250 or a big chunk of that 250 is going to be spent in this fiscal year. .

200 of it, yes, it’s 200 – with the 250. .

And the SG&A, the SG&A increase that you talked about, you have significant increase in SG&A. We saw that this quarter.

Is that something that would be that is lumpy through the year or it looks like, it maybe front-end loaded? Am I reading that correctly? Or could we see similar increases as we go into the back half?.

Yes, we had indicated that we were going to have increases over the year related to one, the standalone company issues and then, some of the investments we are making specifically in IT, infrastructure and systems and so forth. So we anticipate that SG&A is going to be higher for the full year and that was included in those guidance numbers.

As I mentioned, there are some lumpy things that flows through SG&A including FX, including things like equity compensation when stock price moves around that so forth. So there is lumpiness from things like that. But we expect SG&A to be elevated over the course of the year. .

Okay, great. Thank you. .

And that concludes today’s question and answer session. I would like to turn the call back over to Mr. Congbalay for any additional or closing remarks. .

Hi, it’s Dexter. Any questions or follow-ups, just send me an email probably be the best way to get me and we can schedule a quick call. Other than that, thanks to everybody for joining us for our call today. .

And that concludes today’s presentation. Thank you for your participation. You may now disconnect..