Welcome to the TreeHouse Foods' Fourth Quarter 2021 Conference Call. All participants will be in 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 presentation 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..

Thank you P.I. and good morning everyone. We appreciate you joining us today and I hope everyone has had a good start to the New Year. Before I get into the details of the results and our outlook, I want to update you on the strategic review process that we announced last quarter.

We are actively engaged in that process including a possible sale of the company or a transaction that would enable us to focus on our higher growth Snacking & Beverage businesses through the sale of a significant portion of our Meal Prep segment.

We do not have more detail to share today, but we will keep you informed when we have new information to provide. Our strategic review follows a great deal of effort over the last several years to stabilize and strengthen our business and position us for long-term sustainable growth.

We're delivering on our commitment to drive operational and commercial excellence, optimize our portfolio, and invest in our people and talent. Building on that progress, the reorganization into our Snacking & Beverage and Meal Prep divisions nearly two years ago, better positioned each business for success.

Our strategy remains critically important in not only how we operate in today's environment, but also how we are positioning ourselves for the future. As we strive to be focused category leaders driving depth and investing in consumer advantaged higher growth categories, we are fueling our strategy through our cash engine businesses.

And as we position TreeHouse for the future, all of these efforts have been critical in helping us navigate the current operating environment. With that said, let me now turn to our fourth quarter results. On Slide 3, we've summarize the points we'd like you to take away today.

We continue to be encouraged by the strengthening demand across our categories, which reaffirms the strong underlying fundamentals for private label. As we told you last quarter, we remain focused on investing to serve our customers through this difficult period, as we believe that's the right decision for the long-term.

Next, we continue to implement pricing actions to recover inflation across our supply chain. In the quarter, pricing realization was strong, which is a good sign of that progress. Although we don't believe we have seen inflation peak, I'm proud of the way our commercial teams have worked with our customers throughout this period.

We continue to provide a high level of detail and transparency around pricing, which is supporting a much greater level of collaboration with our customers than we've seen during prior inflationary periods. Pricing across our various categories is incredibly dynamic.

As I mentioned on our last call, we worked with our customers to effect additional pricing this past December. We have also completed virtually all communications of a pricing action that will be effective at the end of March.

And should we see further inflation beyond our current expectations our teams will be prepared to take the appropriate pricing. As you all know, today's macro challenges and I'll cover the operating environment in a minute, have impacted the entire landscape and are expected to continue into 2022.

Importantly, we're working very hard on everything, but we're most focused on controlling those things that we can control. We think our action steps to improve service, recover inflation through pricing, and address labor and supply chain disruption will lead to improve profitability, particularly in the back half of 2022.

Bill will give you more color on our thoughts on how we expect 2022 to play out. Importantly, we believe we have a path for profitability to approach pre-pandemic levels by the end of 2022 and return to more normalized levels of profit in 2023.

Turning to Slide 4, I'll draw your attention to the two charts on the right, related to labor and the supply chain. You've heard other companies talk about this, but let me give you a sense for how the broader macro disruption has been impacting us. Like other manufacturers planned attendance has been inconsistent.

We're working hard to address these issues by implementing new recruiting strategies, and being creative about how we attract and retain talent. We've increased schedule flexibility, and are offering greater benefits.

We are encouraged by the improvements we are seeing in some of our facilities, but it will take time for things to get back to a new normal. Challenges across our supply networks range from product availability to scheduling issues caused by product not showing up on the right day or at the right time.

The result is production scheduling, difficulties, downtime and inefficiency. These labor and supply chain issues are dictating not only how much we can produce, but how efficiently we can produce it.

Finally, like others in the packaged food industry, we are managing through ongoing freight challenges, including both cost escalation and shipping delays. From a financial perspective, the macro environment has had a twofold impact.

First, on the top line, it's limiting our ability to service all of our demand and second, it's costing us significantly more in the near term, to operate our plants and to deliver our products to the customer.

That said, we continue to believe that investing to service the customer and build those relationships are the right things to do for the long-term. Let me now take you through the key metrics for the fourth quarter on Slide 5. Revenue of $1.17 billion was just above the high end of our guidance range.

This was a decline of 1% versus last year and down 3.8% on an organic basis limited by our ability to meet our customers demand. Adjusted EBITDA margin of 7% declined to 610 basis points versus the prior year, due to the challenges discussed across our labor force and supply chain.

Adjusted diluted EPS of $0.11 in the fourth quarter was in line with our latest guidance revision. Before I turn it over to Bill, I want to make sure I express my gratitude to the TreeHouse team for their ongoing dedication, focus and agility. Thank you for your hard work and effort, particularly in this challenging operating environment.

I want to let you know how much we appreciate everything you're doing to help us serve our customer, day in and day out. With that, let me turn it over to Bill to cover our results in more detail, as well as give you our outlook and guidance for the year. I'll come back afterwards with a few closing comments before we open the call to your questions.

Bill?.

Thank you, Steve. Good morning, everyone. Thanks for joining us today. Let me start by echoing Steve's comments as a thank you to our TreeHouse employees. We appreciate the hard work and dedication you could continue to put forth every day. I'll start on Slide 6 with our scorecard. As Steve noted, our top line revenue is $1.17 billion.

This compares favorably to our latest guidance range of $1.04 billion to $1.16 billion. Because the fourth quarter is our seasonal peak, and the macro environment remains challenging, we again had significantly higher demand than we could accept and service. Fourth quarter adjusted EPS was $0.11, just above the midpoint of our guidance.

Slide 7 details our revenue drivers by division. Meal Prep fourth quarter organic sales declined 3.9%. Volume and mix declined 11% driven by production constraints with pasta and refrigerated dough having most meaningful impacts. Pricing was strong and contributed 7.1 points, reflecting increases in oils, durum, coffee and packaging.

The branded pasta acquisition which we closed in December 2020, contributed an incremental 4.3 points of volume year-over-year. Like much of Meal Prep, our branded pasta business has also been on allocation due to labor and supply constraints.

However, we continue to be pleased with how well the integration has gone and the contributions from the branded pasta business over the past year. Snacking and beverages organic sales was down 3.9% with categories like crackers and frozen waffles on allocation. Volume and mix declined 7.1%.

Pricing of 3.2% was driven by the rise in oils, wheat and packaging. On Slide 8, we provided revenue drivers by channel. Each bar represents the change in net sales dollars year-over-year.

Our retail sales to measured channels, which is tracked with the private label syndicated data, declined $26 million, as labor and supply chain headwinds constrained our ability to service improving demand. We continue to see better performance within the unmeasured channels, which includes major value, club, specialty and e-commerce retailers.

Unmeasured channel sales were down only slightly on a year-over-year basis. The food-away-from-home channel continues to improve as revenue was up $12 million or 21%. Finally, co-manufacturing and other grew 4% in the fourth quarter. Slide 9 provides our profit drivers.

Volume and mix, including absorption, was a negative $0.52 versus last year, and service levels after allocations for most of the quarter were in the low 90s. Although pricing net of commodity costs, or PNOC was a negative $0.45 in the quarter, where we're now seeing an improvement.

Our commercial teams pricing efforts to recover inflation continues to flow through the P&L. Operations of negative $0.18 was more than explained by labor shortages and supply chain challenges, which has created a higher cost manufacturing environment. Fourth quarter SG&A was favorable by $0.14, as we continued our focus on controlling spending.

Finally, interest and taxes together contributed about $0.05 versus the prior year. Slide 10 demonstrates the strong progress we've made on our balance sheet. In 2021 we generated free cash flow of $260 million and have improved utilizing that cash flow to reduce debt.

Last year, we paid down more than $3 million in debt, finishing the year with $1.9 billion in total. Liquidity at yearend was more than $1 billion between cash and our revolver. Turning to Slide 11, we shared this slide with you back in November, which now reflects our actual results.

The plan of this slide was to give you in broad strokes a sense of how 2021's challenges impacted a more normalized level of profitability. We do not believe these factors to be structural, but rather episodic in nature.

We continue to believe that the underlying earnings power for our business is about $300 million in EBIT or just over $500 million on an adjusted EBITDA basis. With that as a backdrop and before I lay out our 2022 guidance, let me first share how we're thinking about the macro environment on Slide 12.

We anticipate that we'll see demand for private label continue to strengthen giving us confidence that we have opportunity to gain share. We also expect that labor and supply chain will remain difficult through at least the first half of the year. This will continue to pressure our service levels and our ability to meet all of the demand.

Today, well about half of our 29 categories are on allocation. We do anticipate improvement as the year progresses. Inflation is also expected to continue in 2022, but we are now seeing the benefit of our price recovery efforts reflected in the P&L. As we discussed earlier, our next pricing action will be affected in late March.

Should commodity and freight inflation escalate beyond our current expectations, we are prepared to communicate and implement further pricing to recover those costs. On Slide 13, we've provided our annual guidance. We expect net sales growth of at least 11% in 2022. Adjusted EBITDA is projected to be between $385 million to $415 million.

CapEx is estimated to be approximately $135 million for the year. This year we provide a more abbreviated set of guidance metrics. In addition, our chart is not intended to imply quarterly guidance, but rather give you more of a roadmap to help think about how the year will unfold and profitability will improve.

Let me start by talking about the drivers of our top line growth of at least 11% this year. In terms of pricing, we continue to do an excellent job working collaboratively with our customers as we do all we can to serve consumers. Those pricing efforts will drive top line growth in the low double digits as we start the year.

We have taken a digital pricing that was largely communicated and will be effective at the end of March. We expect pricing to build as the year goes on. In terms of our view on volume, the impact of labor and supply chain disruption is expected to put continued pressure on service levels through at least the first half of the year.

Because of this, we anticipate that volumes will continue to be down, most likely muting the impact of pricing early in the year. Our labor, supply chain and operations initiatives are expected to release some of the pressure in the back half and we anticipate a gradual improvement in both service levels and volumes.

Turning to profitability and our adjusted EBITDA guidance, let me give you some thoughts on the gains [ph] of the year and how to think about the adjusted EBITDA margin progression. I'll start by reminding you that the first quarter of each year is typically our smallest from an earnings perspective.

In 2022, first quarter profitability will be impacted further by two issues; one, the ongoing disruption from the current labor and supply chain environment; and two, in the first quarter, we will sell and recognize the impact of significantly higher costs inventory that was produced at the end of 2021 during the peak of this extraordinary disruption.

As a result, our first quarter performance is expected to be well below historical levels, and EBITDA margins will compress further. In Q1, we expect that EBITDA margins could be as low as one fourth that of the prior year. As a reminder, our adjusted EBITDA margin in the first quarter of 2021 was 9.6%.

I am confident we will work our way out of this higher cost environment. While I can't predict when the macro environment normalizes, I'm confident that the actions and initiatives that Steve shared earlier, will address the disruption and we are doing what we can to control the controllables.

As I noted earlier, we anticipate pricing to build and servicing volumes to improve. These factors support our belief that adjusted EBITDA margins will expand throughout 2022. In the back half of the year I believe that EBITDA margins will begin to approach pre-pandemic levels, which on average were in the 11% to 12% range.

Importantly, we believe the long-term earnings power of our business is intact, and the fundamentals of private label remain healthy.

As we exit 2022 and enter 2023, and demand continues to strengthen, as inflation abates and as we better mitigate the impact of labor and supply chain disruption, we believe that we have an opportunity to return to more normalized levels of profit of around $500 million in adjusted EBITDA.

With that, I'd like to turn it back to Steve, for closing comments.

Steve?.

Thanks, Bill. I opened my remarks today, commenting on the strengthening demand we're seeing across our categories. I'd like to close today by talking about how important and frankly encouraging that is. We are on a transformational journey. It's difficult for you to see the impact of that work given the COVID disruptions.

We are confident that we are improving our operations. We've built a world-class commercial organization. We've reorganized to better align our businesses with our retail customers and we continue to prioritize the health and safety of our employees.

In 2021, we successfully executed pricing to recover inflation that far exceeded prior periods within the company's history. We also invested in service for the customer at the expense of our near term profitability.

We've done all this because fundamentally private label remains a key strategy for our retail customers and an attractive long-term growth opportunity. We are the private label supply chain for our customers' brands and we are uniquely positioned to participate in that growth as things normalize.

Private Label growth is driven by both consumer demand and retail customers who are focused on growing their private label presence and strengthening their own brands. We've included a few of their recent comments on Slide 14.

From a consumer demand perspective, on the right side of slide 14, we've included a chart that we've shared with you in the past, indicating how private label share has changed versus two years ago. The green line represents households earning above $100,000 a year, while the orange line represents households below that threshold.

The dotted line is the total. As you can see, in December, both moved up, which is an encouraging sign. Pre-pandemic, no one could have predicted the ups and downs over the last two years. This is why the strength we've been seeing in demand and our order flow indicates the progress we've been making on our transformation.

While we are focused on transitioning to a point where we no longer have categories on allocation, we're encouraged by the potential that demand represents for TreeHouse. So as we look ahead, we are executing on strategies and actions that we believe will enable us to improve service and meet this growing demand.

In the end, our 2022 results will be driven by our ability to meet our customers demand and maintain a disciplined focus on our cost profile. By doing so, we believe we have a path to return our business to normalize profitability as we exit the year and move into 2023.

Our investments in our customer are supporting our ability to service their demand, providing a platform for us to drive long-term sustainable growth for TreeHouse. With that, let's open the call up for your questions.

Operator?.

[Operator Instructions] And your first question comes from a line of Chris Growe from Stifel. Your line is open..

Thank you. Good morning..

Good morning, Chris..

Good morning, Chris..

Hi, hi. I just -- I had a question if I could, just to get a better sense of that kind of EBITDA margin progression you expect through the year. So I was surprised by the degree of EBITDA margin decline you expect in the first quarter.

I'm just trying to get a better sense of what's dragging on that? So you mentioned Bill, some higher cost inventory, I thought it'd be helpful for us to understand how that volume pricing balance in the first quarter, because price seems to be should be accelerating.

It sounds like you're looking for a decent kind of price elasticity overall for the year.

Is that a factor in the first quarter as well or is it all about that inventory effect on the EBITDA margin?.

Chris, maybe I'll put a little more color on Bill's comments, and then we'll let Bill comment on the progression here. So you know what, if you remember from Bill's comments, historically first quarter is a very small quarter for us.

Right? The demand signal for our first quarter as we talked about again in the prepared remarks remains incredibly strong for the quarter.

But with that as a backdrop, we've got to remember that Omicron hit North America's supply chain system, across the entire system incredibly hard in December and January and that's exactly when we produce the inventory for first quarter.

So that first quarter inventory, and then those sales will carry the burden of all of that disruptive cost, that macro disruption. You know, things like overtime, planning efficiencies, spot freight, there were times in the quarter where we bought ingredients off of our contracts.

Right? We do all of that, because we think keeping the customers shelves stocked and then their consumers pantry stocked is the best thing for private label in the long-term, but it was incredibly expensive over the quarter.

So maybe Bill you want to talk about the build on pricing?.

Yes, sure, thanks Steve. Chris, thanks for your question. Just to just to add additional color, the pricing wraps nicely into the first quarter and into the first half of the year, but the constraints as Steve just talked about a lot with that higher cost inventory is going to mute that impact and you won't see that come through.

As far as we think of the year as it unfolds, we think service will improve. We'll get labor back online, and the supplier will benefit from all of our initiatives that we're taking.

So we do anticipate a challenging environment, but the pricing is going to be helpful and the volume is muted and that's what forms our expectations for the first quarter and essentially the first half..

Okay, and then just to maybe to followup a little bit, the level of pricing you're going to have in place, let's call it by the end of March, roughly with this next round of pricing, would that be sufficient to offset inflation as you see it today such as like going forward from that point, you should be able to offset inflation, so call it roughly 2Q, three Q, and four Q?.

That's what's in our in our guidance, Chris and obviously, we're not anticipating, we're not certain that inflation won't increase, obviously and so there could be more actions that need to be taken. But to your point, the pricing that we have in the market that will be effective in March will be enough to offset our inflation as we go forward..

Okay, Thank you for all that color. I appreciate it..

Thanks, Chris..

Your next question comes from the line of Andrew Lazar from Barclays. Your line is open..

Great, thanks. Good morning, everybody..

Good morning, Andrew..

Hi Andrew..

Hi there. I guess first off, Steve, I think on the last call, you talked about how you were starting to sort of win new business and customers and such, given the company's decision to continue to invest in servicing the customer, even if it meant, higher cost in the near term.

I think in the release, it might and I think I read that you talked about some distribution losses being greater than distribution gains.

And I just want to make sure I understand that a little bit, it that sort of a new phenomenon or is it simply related to just supply constraints or something else? Because I'm trying to get a sense of how that corresponds to the earlier comments about picking up business based on all the investment that you've been doing?.

Yes, certainly, I think that's simply two things. I think it's just timing for when things start when things ended, and I think it just rattled into what came through in the fourth quarter, and what didn't. Our book of business going into this year, into 2022 is larger than our book of business in 2021.

Now, the challenge is not achieving business or the order flow, it's really us fulfilling that demand. Now the key for us this year would be putting the right resources in place so that we can fulfill it and fulfill those new businesses.

We are really cautious right now not to disappoint the customer and so there's probably more new business available to us today, but we're being cautious not to take that and disappoint them..

And how do you see sort of market share playing out in terms of TreeHouse versus your direct sort of competitors? I mean, I'm assuming others are having similar if not worse issues within the private label universe because it is harder for us to track your share specifically..

That is the challenge, right? So when we talk about the macro share wallet, you've all seen private label improved sequentially over the last few months. If you look at the last eight weeks, four of the last eight weeks credibly will actually gain share, something we haven't done in a long time during the pandemic.

Right? So we see a very steady return for private label in the macro sense. I do think that our industry, the complexity that's inherent in our industry, has affected our ability to fulfill all of that demand and I think that's reflected in the overall sheer number.

Now, specifically with TreeHouse, the fact that the opportunities that are coming to us in the categories that we want, the core categories of the business, the growth businesses are coming to us. Whether we can accept them right now or not is dependent on that individual category and do we have the capacity.

But the fact that they're coming to us is a sign for me that we continue to win share.

Does that make sense?.

Yes, absolutely. And the very last thing, Bill, maybe a number to arrange the type of inflation that you're looking for this year, at least as it stands today? Thanks so much..

Yes, thanks, Andrew. Our range of inflation is mid to high teens is what we're expecting. Obviously, if that's higher, we will take further actions, pricing included, along with some initiatives that we're managing internally.

And just before you leave the other comment on just the -- on service revenue, if you quantify that for us in the quarter, that would have really taken our reported revenue that was down 1% up to almost 5% or just over 5%. So it was a significant drag on us in the quarter, but revenue was pretty strong..

That's if you could have serviced all the demand you're saying?.

That's right. That's correct..

Thank you..

Your next question comes from the line of Bill Chappell from Truist Securities, Your line is open..

Hey, good morning, everyone. This is Stephen Lang on for Bill Chappell. Thank you for kind of taking….

Good morning..

Good morning.

And I guess kind of following up on Andrew's question regarding the freight [ph], can you kind of provide and give us a better sense of kind of where your supply chain issues are greatest in like the magnitude sense, and then kind of how do you see those improving throughout 2022 and 2023? Is that kind of similar to the pace of the EBITDA margin improvement and how are you thinking about that? Thank you..

Yes that's exactly right, thank you. Thank you for your question. I'll take this one. As I said, we expect mid- to high-teens and that will continue to 2022. Some of that is going to be driven by commodities. Coffee, durum wheat, oats, those are all up a bit, and we have to account for that. We do have packaging.

That's going to continue to increase as well and be a bit volatile. Think about pet resins and cartons. And then finally, I would just say two things. Freight continues to be a market that's impacted by labor and then we obviously have our labor in that sense we're making that will continue to help service improve throughout the year..

And Bill touched on it, I think, in his comments, but we're trying to be more creative with how we support our plant associates, right? We've got roughly 8,500 people across 40 facilities, and that's going to require a different approach than it has in the past. We're going to have more flexibility in our scheduling.

We're going to have part-time people in our plants, et cetera. So our teams are gearing up and we've got pilots and tests going on in different parts of the system.

That they quite frankly are encouraging, but they're early and so I think the hourly workforce will be different going forward, and we're trying to position ourselves to be that attractive employer for that workforce..

Thank you so much for the color..

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

Hi, my question is on the, you mentioned the covenant amendment on your bank facility.

Can you just tell us where it stands today and if it's a net leverage covenant and where you're thinking that may go?.

Hi Carla, this is Bill Kelley. Yes, we are in the final stages of finalizing that amendment. We expect to file our 10-K in the next day or so, and that will include the details in the amendment.

I would just say given the challenges that we have with EBITDA as we go through the first half of the year, we thought it was just prudent, obviously, to get maximum flexibility, but we feel very comfortable with our liquidity. We ended the year with just over $1 billion in liquidity if you add in the cash and over the $700 million in the revolver.

So we feel pretty strong about that, but we do want to take that additional step and add the flexibility we need to manage through the challenging times that we have..

Yes. To put a little more color to that, we didn't want there to be in a situation that we can't predict today that would cause us to have to make decisions that wouldn't help us serve the customer, which might be investing in the inventory, et cetera. So we wanted just to have that in case that happens.

We're not sure it will, but we wanted that flexibility..

Okay, that's great.

And the current covenant that you're changing is about the 4.5 times or am I -- is my number stale?.

No, that's correct. It's 4.5 times..

And is the total net leverage or is it secured net?.

It's defined as in our current agreement, so there are adjustments there..

Okay, great. Thank you..

And the last question today comes from the line of Robert Moskow from Credit Suisse. Your line is open..

Hi, a few questions here. I thought that the guidance for free cash flow last quarter was to be greater than $100 million and I think you finished well over $200 million.

So what caused the improvement there? Did you change your receivables program? Did you extend that? Because I thought you were bumping up against the limit on it?.

Hi, Rob. Thanks for the question. We did expand our AR facility. We did expand it by including more customers and actually more banks as well. And then obviously, inventory was manageable in the quarter given some of the labor constraints and trading [ph] strength that we had and the in-service demand that we've shown through.

We were just try to be careful in our guidance to make sure we could account for all of those pieces, and we were stronger than we anticipated..

Yes, if you remember, when we guided, we were one month into the quarter. We were just starting to see Omicron hit us, and we knew that it was going to be a turbulent time.

Quite frankly, I wish we'd put a little more of that cash into inventory, right? So it's great to build cash, but I'd rather have some of that in my warehouses right now if I could..

Okay.

So what -- how much should you extend the receivables program, Bill?.

It was $78 million higher than Q3 and $73 million higher than prior year..

Okay.

So that means like $350 million now instead of -- because it was $300 million was the limit before, so now you're at $350 million?.

$350 million almost..

Okay.

And then another question, I think there's a write-down of the bars assets, is that snack bars? And is that considered one of the aspects of the growth business?.

Thanks again for the question. We recognized about $9 million related to the write-down of bars. It was related to the PPE in that business. Obviously, that's a category that had been in our revitalized bucket. It is considered a challenging business for us.

As you can imagine and in the whole COVID environment, it was one of those categories that was impacted as the on-the-go eating occasion kind of was restricted and then obviously, 2020 had a huge impact. And our current projections don't show a great recovery.

And so that's why we did the prudent thing and ended the impairment write-down as the accounting rules imply. We're still working in that business. We still think the recovery will be in a straight vertical line..

Yes, and Rob, to your point, yes. We think the bars category is a great category. We happen to have some legacy assets in there that are in some of the bar segments that are not those future growth assets, and those are the assets that were impaired here. So, as you know, it's a much bigger business than that.

The $9 million impairment reflects the particular situation there. So not a focus on the total category, but there are assets within that structure that we think will be great long-term..

Okay.

But like you're expecting a recovery in bars, like how much of a recovery? Like I noticed that the snack bar brands that other branded companies have are growing pretty rapidly off the bottom, so what's holding you back? And maybe size the business for us, is it a $100 million business or is it less?.

No. Here's what I would tell you, Rob. If you go to the bar shelf, you'll look there's a variety of different bars, right? There's everything from fruit and grain bars to crunchy bars to all of the new healthy bars. And the capabilities to make those bars are fundamentally different.

And so we have some assets and some things in our business that may be reflect those earlier generations of the bar business that are less healthy and that we have lower projections going forward. We also have some assets that are in that more contemporary part of the bar business. So the bar business is a complicated one.

The accounting rules and the forecasts we have for parts of that business are not as healthy as they are for the other parts, and that required a $9 million write-off. We can get into the details for you if we need to, but I don't think it's a macro bar issue.

It's just the micro that TreeHouse has some legacy assets in some segments of the bar business that are less healthy than others..

And Rob, it's about a $130 million business for us..

Oh, thanks for that.

Last question, the pricing that you're taking is designed to offset the inflation, but it's not designed to offset the supply chain disruption costs, is that right? Because those are considered transitory?.

I would say with many other things, I would say, yes, but we have a cost-to-serve component of our pricing. And the things that we think like labor, things that we think are going to be ongoing and that we think are necessary in order to position us for the long term are included in pricing. Spot freight, for example, is not.

Things that are transitory are not, the things that we believe are permanent are, so there is a cost-to-serve component in our pricing..

Okay.

well, because if we're doing the math on -- you're showing some bars showing how much the incremental costs are for supply chain disruption, how much is commodity inflation, should we assume that the pricing is all of the commodity inflation bar and then a portion of the supply chain disruption bar?.

I think that's about right. I mean we quantified it in terms of just the percent you see in pricing, so that 11% that you see for the full year and those double digits going into Q1, I think that's about right.

The only other comment just on transitory versus structural, the labor piece is going to be a step-up, and it's going to show up in our hourly charges as well as in the freight component as well.

We will continue, obviously, to have savings from our improvement programs and we're taking some dramatic steps there to continue to lean out the organization and the operations to make sure we can offset what will be in a bit of normalized inflation..

Okay, don't lean it out too far. You've got to make a lot of food. So that's it from me. All right, thank you..

Thanks, Rob..

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

Well, I'd just like to again say thank you to everybody for being with us today. We know it's a turbulent environment, and we hope you all stay safe, and we look forward to talking to you soon. Have a great day..

This concludes today's conference call. You may now disconnect..