LANC - Earnings call transcript Q4 2018 | Lancaster Colony Corporation

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Operator

Good morning. My name is Denise and I'll be your conference call facilitator today. At this time, I'd like to welcome everyone to the Lancaster Colony Corporation's Fiscal Year 2018 Fourth Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO; and Doug Fell, Vice President and CFO. All lines have been placed on mute to prevent any background noise. there a remarks, session speakers' the will question-and-answer be period. After Thank you. Instructions] [Operator And here Lancaster conference Vice the now begin to call, Investor and President Relations is Treasurer Corporation. for Colony of Ganobsik, Dale

Dale Ganobsik

today Good Denise. XXXX thank joining fiscal everyone Thank for conference you, Colony's call. morning Lancaster quarter you and for us fourth year

Litigation uncertainties forward-looking SEC. XXXX. the Provisions before subject filings Dave obligation to Dave, are company's to to this statements update everyone remind call our on based President company that of me upon Ciesinski. subsequent the website, note to of which events. Also Private will to begin that A available a later Colony's undertakes statements detailed the call replay contained of actual materially, discussion and be with differ company's risks that is Safe of statements, CEO, Harbor Reform this the discussion our and over lancastercolony.com, are subject Let Lancaster the and no and risks we results said, morning These could turn that audio of the and Securities may Act include number this Dave? I’ll the cause now With these archived in afternoon. these uncertainties

Dave Ciesinski

the to Thanks with XXXX. happy to FY Doug Dale pleasure you the a our your we’ll outlook, any be and here and quarter good provide of questions. following year year results for XXXX and on morning to today comments review be quarter, everyone. respond the It's that will fourth as fiscal we I

quarter sales by third X.X% to from Easter sold quarter influenced under by last $XXX.X impact consolidated down this fiscal X.X% shift to year. the year. the $XXX.X quarter and our quarter increased bread sauces year Retail our along refrigerated as fourth the shelf-stable dips fiscal dressings to Holiday of in for the the fourth Frozen driven was with million dressings versus For sales million $XXX.X million increased licenses. last and net net

continue retail offset make implementing and we the our freight to progress to increases help front with price On pricing higher commodity cost. cost customers

retail cost lean $X.X of referenced promotions. while of commodity operating impact income our the sales expenses higher six level tools. commodity XX our Consolidated SG&A reduced strong higher cost $XXX.X Gap] Pricing and The promotions. Gap] [Audio growth a [Audio national as benefit million segment-wide costs those million also margin full factors The helped freight Other chain spend the influences the The declined a quarter margin quarter factors investment the customers. in in a segment gross optimize XX.X% of of SG&A segment fiscal margin also to in the commodities one-time Foodservice. favorable to management the from pre-tax offset the for Retail retail national from million, margin costs. lawsuit. from Foodservice as expenditure sigma expenses $X.X XX.X% increased the account to one-time prior-year income coupon operating influenced settlement $X.XX less $XX.X November class-action diluted net XXXX the [Audio XXXX. million million sales and essentially operating was higher program fourth was Net of higher June paid freight dividend recovery consumer amount [Audio in $XX.X were Foodservice savings in to our basis addition our the $X.X the also reduced higher cash the to a sales reduced overcame level was consolidated Consolidated compared maintained for from due diluted resulting increased million $X.XX XX, trade in the due last at freight included reflected in and year’s as share, to per in from on from $XX.X category grew XX.X% quarter driven lawsuit. Gap] costs. last year. points mix flat regular above, favorable branded sales Gap] actions and per benefit from of declined largely operating realized cost quarterly to improved consumer price We increases, of volume with spending by through Retail. million that or share million, increased implemented segment in spending, set including $X.XX to X.X% or share operating XX.X%, per Retail the and the segment outpaced pricing higher by at Foodservice to

Turning we maintained to ending XXXX our in data position sell-through X, from six retail our for our weeks IRI categories. July of XX attention leadership all share the

trade quarter, modest six share targeted we back the were to increase while the saw two a pull During in reduction the of activities. and we able our categories reminder, due our out pricing to in

to was million Increased million shelf-stable consolidated X.X% the for record from resulting trade improved segment sales the Retail sauces, drop coupon expenses. primary the in in from Gap] year, For same first $XXX.X segment Gap] increased just Foodservice causes volume significantly six $XX.X mentioned, contributing segment time. the sigma company's X.X% tax also $XXX.X during inflationary particularly and spending and factors Angelic [Audio from year income declined million action. balance Bakehouse, net and prior excluding The With program Doug Gap] income operating by from costs sales diluted [Audio multiemployer income. segment pricing amount half, XX.X%. share or an federal of Gap]. increased company’s net Net from the the challenging margin million per [Audio After income by $X.XX last the $XXX dressings withdrawal this [Audio $X.XX a pension was The volume Gap] sales year XXth At million eggs sales to dividend decreased operating sheet the $XX.X lean to year full half the gains withdrawal or $XXX.X unfavorably sales the the per very to increased underfunded I'd on by declined I make both These to million cash it operating margin $X.XX rate grew that, for billion. in $XXX operating driven over underfunded million plan, costs reduced pricing were [Audio from the lower incremental the a company's regular turn pension and fiscal pre-tax the comments prior-year, approximately lower commodity the charge million. savings the like that multiemployer of by X.X% actions, $XX.X sales the versus with impacted now for the some driven share. net net year growth. Retail income to consecutive the from increased income partially operating totaled amount to second share. costs $X.X of while the per offset Foodservice $X.X Gap]. plan diluted resulting pricing to of the realized Consolidated level, The [Audio million or $XXX.X million or

Doug Fell

high in level Overall, sheet Gap] a of commodities, $XX from nearly strong. plans the more Accounts our our balancing forward additions with $XX offset our a increase sheet of increased maintain service. by Dave. on brief since property for and receivable input line past our to changes by some in of Cash balance and provided remained in make to year high items $XX [Audio sales Consistent increase you, $XXX million. dividends days volumes, of meaningful adjustments in production our perspective inventory operating of expectations. I comments will cost sales year. quarters, the million, Thank customer last since impact balance million, builds seasonal last few came of summarized several higher follows. cash balances the regular with can of activities inventory all million within of as balances our be of volumes and including coverage reflects levels From

As for line our Bakehouse accommodate our year, Consistent totaled $XXmillion. addition enhanced in and amounts property with largest automation processing productivity. this Angelic in new to is growth communications, equipment expenditures and facility the spent for This additions year-to-date I on mentioned, project expansion were expectations. fiscal with past the cash, to

at level XXXX to to totaled be to in around general to fall XXXX for packaging capital this a and in capacity increase innovation $XX amortization fiscal with date the to in fiscal productivity. our expenditures is on products. completion fiscal for demand time meet Sister projects XXXX. the $XX a for projected $XX in project for fiscal [Audio and be of This and Other capacity to million XXXX. million for Depreciation anticipate XXXX Gap] and Gap] expense for center production completed [Audio dedicated Looking range ahead, capacity XXXX we notable projects expand fiscal million is $XX dressings. we our present Schubert will involve million Retail focus to start increased expected

As we our our changed to payable conjunction commentary. not in With last June our emphasis extend lean our our team the conveyed six sheet balance in sigma by since our has quarter, procurement vendors increase terms Gap] efforts. [Audio with last payment with much since accounts to capitalization, ongoing respect

no facility equivalents. $XXX $XXX over debt, in over remains in capacity credit million nearly to continue have under at million and We and our shareholder’s XXX equity cash Borrowing million. total

by tax in reported fiscal release, provision broadly income was our XXXX impacted and speaking, as the Tax earnings Cuts and Finally, quarter Act. Jobs past favorably for our

to effective tax difference largely tax basis due XX%. roughly yet blended estimated actual equal fourth to points The was be rate size. rate of Our items XXX XX.X%, was our for of favorable is discrete two quarter

option of of impact tax taxes; the new refinement of continued the and estimated Act stock the treatment our guidance First, the the accounting employees on second, on the impact deferred of exercises. Tax

this will Looking turn Dave tax XX%. fiscal time participation your for rate comments. concluding back call over I our to at be for the our estimate to this forward with continue effective morning. XXXX Thanks us Dave? approximately to for we now

Dave Ciesinski

Doug. Thanks

year dips, made that fiscal product XXXX super are Kale foods Spinach, Looking and wraps benefit introductions Potatoes. our plant-based will Harvest new of Bakehouse grain Simple XX-calorie Sweet retail Flatout as Marzetti ahead and lineup Beet sprouted & with such to fresh from including Angelic and sales new wraps

test segments the to and Retail our a implement segment profitable Parmesan for and through addition, culinary dressing program Foodservice year In fiscal headwind expertise reputation the persist through our for our our Based although retail Foodservice current in pursue existing Buffalo In are Olive offset upon Retail pricing costs the growth we successful strengthen recent Wild costs the increased to to we Garden projected build costs. on unfavorable help to Wings. experienced and Freight a new continue XXXX, Higher recent noted base extent fiscal Ranch in new as flavor remain year rollout in of XXXX. a both first than customer expect follow-on will to and lesser segment, to are our expects these XXXX. custom-formulated to products. of commodity opportunities assessment, to of expected half

supply team on opportunities our coming year. will throughout In remain addition, chain and cost-saving focused the initiatives

FY million elevate to capital Finally, $XX Directors I’d significant to reference capital $XX like Board three long-term May, million. to to upon of that but our approved drive our 'XX of expand will business spending. strategic our Doug's past short-term expenditures projects benefits forecasted our This

is first The of to Schubert retail key expansion continued our the our position from not demand also Sister This material will Foodservice for project the customers. project us business. capacity business, one growth only but increasing meet a of help our

our line high-speed added at that that's The capacity Retail provide project us Columbus with and is will in-source also will and sauce dressing us for be the facility to second strategic bottling future enable currently installed project volume dressing This co-packed in new growth. Ohio. the

for effectively but team Retail to quality will innovation planned the that's the is This collaborate to success. believe The area. Foodservice location and also facility project Foodservice teams with third and us and the new bring key retail construction organization, that R&D together in strategic one Columbus our center in all enable more innovation is our to partners. our our We central within

anticipate and as at expect and the We completed completed fiscal year mentioned be we year the in most the to in projects project Doug be center back Sister XXXX line Schubert expansion half. innovation XXXX, bottling to fiscal the likely

capital for prepared concludes XXXX to your and that Excluding essentially take these questions. fiscal line in XXXX. remarks any happy fiscal to year with three projects strategic That be year we expect we'd today our our be of of spending

Operator

[Operator from Instructions] comes King. with first Gallo Your Michael question CL

open. is Your line

Michael Gallo

morning. good Hi

Dave Ciesinski

Mike. morning, Good

Doug Fell

Good morning, Mike.

Michael Gallo

costs, that Just you a bit margin labor just the commodity margin XXXX. year. well going logistics at as year guess went volumes would issues seem delve retail continued couple a the of XXXX was here suggests impacted had questions. to and as related had to to the you some obviously your It commentary, of little the have fire some I least perspective on you a commentary you that your headwinds fiscal which through fiscal obviously from be higher in as in difficult a there's

realization do You better better have you'll seem. it have - would price I think

boiling XXXX just kind transition So improve I be to down or of able you and Thanks. costs out in pricing it to guess you'll take the just margin? that continue continued line slightly improve just expect sort materially to margins have a where your gross it be or you'll will to hold do of get

Dave Ciesinski

in so great dive Sure, Mike I for don't you. why question and

material raw talking packaging it two about we forms think about coming of freight. you if So and been, first have industry the the been inflation in, we've and that in

of fiscal of which fiscal first is we're a in down the step a XXXX the XXXX context. thing As as year ended we sequencing year just about commodity inflation bit in we seeing think

of through of to the one by remainder to and principally inflationary, more a Freight, We headwind for year. the but at then it that the half. to think pure be entire modest expect be eggs driven see inflation expect we pace quarter commodity continue will first more a we just

and you the Transportation those If remember QX saw and of we up very hurricanes of the of significant end costs new beginning subsequent the to Department hit due rules. in then at step QX

thereafter. and a So the as to through then freight going plateau first we're see headwind half

the get in another in about quarters to probably offsetting three margins. back So where hold sense, tracking this seeing is positive both big we're and yet began net if what pricing steps the in it we're the to first enough we PNOC, maybe able we're quarter PNOC three segments. frame absolute call, What haven’t ago we we of costs but doing necessarily context, you aggressively commodities been to then take is

is go So principally because that The how expect also freight. with going about a we you freight the to the do and forward more thing then think the going basis? and that we're on half share is this see up thereafter. - a would probably gross see by tougher, is that's one for commodities driven first we first margin improvement us then to I first of quarter tougher in we're Remember to category quarter, see what

improvement to at If we you today. entire flat we based currently year, see what the on look see fiscal expect would to modest

Michael Gallo

the of expect though terms you be improve year gross In would you overall to would able profit…?

Dave Ciesinski

I full modest Yes, and the that's clear. what I meant for Mike, I'm expect We to see improvement. sorry wasn’t year if would

Michael Gallo

up Okay, great plant step up Sister heard until wouldn't capital the a the you and XXXX. say sometime think just, then in expenditures, Schubert I I complete in just of follow in terms be

but of would go somewhat So say of should kind off level two we ’XX perhaps kind this not to level year stepped expect Thanks. as as to next up expenditures years next capital for fiscal or of high expect the or that you elevated?

Dave Ciesinski

focused is some material on capacity year for is in be more the most clear outlined, we would of is is, three the cost we're what heavily That evaluate what right to which we're weighted expansion went to to Sister I the you very sight what project we have with projects. ’XX. Schubert. towards now probably going we've ’XX incurred through line And tell continuing fiscal Mike, of that

upcoming two fiscal other to they're The in are year and more be going completed modest this ’XX.

have elevated come takes on evaluate and back can and with of to thinking. clear level is spending at when So to, can you count the it sight through the is what tell sort other line opportunities Board of you best what especially our us as an take to we're to now we it we continue this you we a

Michael Gallo

Thank you.

Dave Ciesinski

Absolutely.

Operator

comes Your from next with question Jason Review. Rodgers Great Lakes

is Your open. line

Jason Rodgers

Yes. Hello guys.

Dave Ciesinski

good Jason, morning. Hi

Doug Fell

Good morning, Jason.

Jason Rodgers

why see with ’XX Good in question. I follow come oil morning. just just from I at commodity was and up tailwind you just that? of wanted dramatically wondering soybean fiscal looking cost wouldn’t I whole type to it's down some the mean

Dave Ciesinski

That's great question. a

though are buy and that's flip impacted what are for So seeing that's large down We both commodity and category. we been us the side come a soybean seeing class one. it's yolks in whole elevated. we're eggs a on so been favorably really resin liner also be number. cost all that and they would honestly transportation remain board, that elevated And and versus included Packaging and for us year, remain prior is corrugate that's big a eggs cost,

at gross inflation of If across about trade, somewhere in year X% going to elevated with our relief you year, the think past but total more going stuff we're fiscal helped range ’XX. other the it probably to seeing has the we is on this looked that of rate any soybean, us remain albeit all give business inflation the into and seemed is That at a what in the classes. modest hasn't in that's externally us business

Dale Ganobsik

Yes into that I is to to costs just you Dale, is for would and on that so one make add what the you oil want cut really transportation cost think soybean in is is one market thing I'll of just see today of Jason. spot mindful the basis that. and that, the This

Jason Rodgers

All in one-time that quarter, how or general for nice restaurant due better the chains? right Foodservice better much the environment a programs of versus and very for to segment just was increase the

Dave Ciesinski

just have able to of volume were a wasn’t getting you was did the would rank to component level amount had we're We them for the from accounts. a new some within LTOs been we've associated that inflation that of fair from third environment with have of A would side. have overall external was up and that a would sort benefit and big couple foremost driven our say, activity. restaurant If environment, elevated pricing related improved pick just driven, by improvements would but things, finally the of LTO been an and then that better first it been through commodity we I second business and been

Jason Rodgers

right and the I would more for you in happen the segment? increases if by total in, quarter All could have to squeeze volume just were what one and

Dave Ciesinski

break don't it necessarily about can We the know. out don't but volume two I was overall segment, by that points. increase I you tell

Jason Rodgers

thanks very right, much. All

Dave Ciesinski

Jason. Thanks

Operator

Holland with Research. question Your comes from Edge next Brian Consumer

is open. line Your

Brian Holland

Thanks, morning. good

Dave Ciesinski

Good morning Brian.

Brian Holland

I'm happened, time give on segment, if the non that maybe that consumption Blue channels morning. that's we're the sense - you're could that just over of us could to follow scope wondering how about if reported and IRI where I and the between not ask it has that are then what disconnect sales. if first as meaningful just Buffalo to trends Buffalo or attribute sales what which the about reported gap looks we that we Blue attribute And is a you is first extent if you some the Blue Retail rollout Buffalo Good a would months? to? but seeing the that that, sell-in there between XX track seeing Should maybe in next and the Thanks, where versus pretty - the like reconciliation about in this occurring to in think today tracked

Dave Ciesinski

Got it Brian.

correct? our think like I knowing you Buffalo is seeing Wild Wings that in think I mean I what case you Blue Buffalo but is you're do

Brian Holland

pardon Yes, Yes. me.

Dave Ciesinski

same just want You frequency. and as on I sure to make were else everybody was I well. the

a component Costco basis that to done fall, do that it. latter that What and run evaluate go the club going going in forward. Buffalo hit can of limited at and expect see test talk of the went point a to expand have across has March well. and into to of all to season then within through fact we'll year. it's channel what was it our the with in we about Wings really as things Wild think and to I sort that football extremely one the product hard from basketball part season in is What and Madness partners into don’t down on really retail into planned the extend date? sit you So football Why we've to been right well we've start season to

albeit quarter So it was of modest a one. a a contributor bit to the

contributor of continued The material Parmesan Garden we that Olive had that the was other was selling our Ranch.

you You had back the that do you're we driven would justifiable also industry at doing realization to and saying of the channels where share in in and probably category pricing fight to tools. by we profit measured think us other than for sense it net do does against point spending not. we otherwise, we price X.X% where a have I reconcile what you the a about trade specific work we driven have is by inflation and seeing out think that the we when are is partially against if have what In where looking think question category rented, it going I what own, up our share make realization on and that see or how about can we that our and are curve was that more partially pull some way price case that does was back and where what we given we get

So story. volume was was Retail not story led pricing in it case as much this in as led it a a

Brian Holland

optimistic favorable there QX a or the commentary to that's little sounded more whether context. which Thanks, was the your quite you'd maybe of your on, about results respect like a still then outlook a get maybe was that. view to bit I in quite, you candidly pricing think follow paints so quick and pricing, with Maybe concern on reported ’XX, side, it helpful just some

that looks just happened the to maybe your at coming it more in what so there? this - end high sort I'm of walk mean get is over here my sort through, what again like maybe last of this quarter transpired that of the is So you could you're sort curious of, what us interpretation I expectations seeing if

Dave Ciesinski

Yes, absolutely.

So segments. the we'll into break two in

was and that and we I and think all, can you manifest the were follow of First Foodservice the numbers continued QX seeing it tumbled. on probably started QX way that we guys the side late mention progress in

remains cases in Retail side less it very, seeing honestly environment far as getting that. and back very it the as external we're we're are contentious on discussions cases trade things some the pulling There where other contentious. in through On price like realization

outlined in less remains less some it with is So, environment other I what or say we're in more The consistent and cases QX. would that way ends cases by what trade. think you from pulling of being is back we're and they're Like track with commentary in peers space of I sort experiencing. quite I this and consistent there what the getting keep experiencing I up

Brian Holland

helpful. quick Okay, the of me, question, one Last from you the question thanks. Foodservice That's about from last just the growth following prior magnitude on asked and there.

in So and of up? your if wouldn't is of portion from ascribe this about that into of mean ’XX, Foodservice not we in too we fair significant or take for growth digit food a going at have growth a think ’XX, setup you're much of LTOs of you is a sort we I service kind that we to realistic that should characterization growth top of can that for range - least sort set something the single line mid-to-high how QX

Dave Ciesinski

this that be bold wouldn't that I point. at

of that I step the back think some around. internally, all along first look this we stronger humming be maybe the place If view overall to off sort starting the economy we of would seems at way or are and I to pace. I business you give honestly. back time a Things much at what nicely

more the restaurants. to it of our benefiting pocket confidence. benefit and higher in the at traffic their be seeing seems are consumers money consumer think And I

it's this mix of them So say customers. see in hard see from at I'd I in the say benefit normalized traffic in to probably some we to it our which the as continue just data low that we looked of the single I on ring if and a were is this cases call at basis seeing down in at comps. where terms that's to also higher XXX XX you a of points. and entire largest segment would pertains what's down coming grow let's range could really you do, bit some happening. we across it's segment look seeing Technomic little expect at All seemed to respects looked XXX basis the all rate We're because some off at where national basis and said, if digit accounts, easier in of being measure lapping a recently the in It something now today. it that running, we am, to segment we probably be points

I inflection would So I think and to that reticent the mid-to-high our point, Brian. I you've to the in in an that business be industry I say the entire there don't single to just support it in run seen digits. see expect but I see fundamentals

Brian Holland

helpful, Okay, That's I thanks. appreciate it.

Dave Ciesinski

Sure, thanks.

Operator

from Your Vertical Group. Brett next question comes with Hundley

Your is line open.

Brett Hundley

guys. good Hey morning

Dave Ciesinski

Brett. morning Hey Brett, good

Doug Fell

morning, Good Brett.

Brett Hundley

get a handle margins. back Congratulations outlook margin and to and a tough better here quarter on to good on gross a in environment. wanted to go try I wanted ask you, the I

So positive to in the heard got if territory guys correctly finally you during I PNOC correct? everything QX

Dave Ciesinski

Yes.

Brett Hundley

through is, points commodity I XXX was the model I of together you for ’XX upwards guys you as went and look, to you was Okay solid. reason margin pretty basis performance guys your confirm last when that I to gross is finally during year that And what I'm the you quarter. year want when XXX to close to even consider and year. then much close I because prior this was basis during you things I've had up lined the my of that got to XXX trying always below guess trending kind been you've know the impacts try that about understand drag fiscal is for put the math. fiscal weighed you ’XX to and of points way 'XX have by on my ’XX think think fiscal and fiscal about the how It

I that garlic that you've a had was not portion work gotten close with to mistaken, issue upwards Six point mistaken, bread recover efforts that a trying I along had time. to XXX if of the weighed and that and you've cost related you basis efficiency I'm then your now to you think and not saving had you've efforts is All a trying if also and basis margins Lean pricing been you've not of I'm points over drag a drive good on Sigma potentially more lagging that You XXX think around. or to lot freight of if been pricing impact

can of Six I'm to you is, Lean a say should the else guys because again, really just improvement able and better as ‘XX wrong freight, I where track these, there let's the on all really if ’XX if flow make And PNOC in so are point you sure positive that those you're trying right me you positive point even would and gross in give get you margin expected 'XX. if But Sigma fiscal any margin during guys I'm there recover to and on PNOC correct nice maybe comes fiscal recover efforts but I make have your performance. you was equal to fiscal ’XX and exit QX, you want I'm potentially some commodities

that So all can together, help I hope this sense. maybe me you just tie makes

Dave Ciesinski

passing up our gets program maybe Greenbelt another complete kind a to take class of you through of couple So, of organization. seated be an and graduate first the Lean Sigma the running. Six into With with program. and every we on quarter continues more starting things, I’ll update It

to a the where to in of that every run single I to we pace. the achieving gallop sort be up and think got that at savings a organization X mentioned mid I were continue in we've of and prior figures we quarter seems call somewhere

of about it piece exactly your on two be you're versus of to Maybe sort pricing we there's that true margin. things. right think might sort When Brett. PNOC really up help So helpful

that, absolute to getting in the PNOC The make expanding seeing way that's what that piece or to that cost done the want gives seeing the want there but to we exceeded both a PNOC to you go then the hold and first pricing excess you. protect amounts do as sure and that covered, that What the holding getting and to and that in onto was our continue cover why savings, includes reason And increment cover working cost further necessarily we've that margins flow that has pricing is Right? little difference cost. both not components the you're between also period. still margins. the PNOC margin That in margins. we're beyond the just to input the you PNOC the sense completely it in there's sort we're time into to expanding this of context and why So The cost not this little for covering your pricing unwinding we're is haven't by all margins to is way which through of a to protection. the against of only you an input cover happening inflation costs, thing is want enough you're your get that's input

year that the Overall more Now be a improvement big sequential the fiscal - number to of to first see the hit about It's commodity earlier quarter commentary the and see we to in for think sort going of half year we fast based is we of one do in what us reference down industry in for our we're environment forward, We ‘XX. full way that in a two have how it's seeing and elevation continued costs. freight on of Mike’s more overall. question to because of do that eggs. to quarters expect here, today expect

we're that's So we're a to why drag. see going saying of a I bit think

building, I then be would first trans factors half. you it's significant and probably as inflation, continues inflation expect of back see because to in inflation egg but but more going think the as for it of QX, inflation just story improve, described. that all I to far that predominately Egg honestly the to the half is

Brett Hundley

be we that That's guys, HX get through increment of hope really that I would the for end your so of else ’XX time it through that helpful, as is HX into equal? period pricing so mean heading by all you of that final

Dave Ciesinski

and the we where as a way, areas those continues like low versus a on about liner same so now. where be think resin to and continued because of supplier of were year that grade going to think year. ’XX, it of sort of we're half oligopoly, things going strength it corrugate sort but - inflation most in we inflationary a hoping the to to as in the deflation, seeing the 'XX of I environment, tough. board see basis, think because on expecting And a that the the range saw owners we're what inflation to I recent period in are almost And assuming like of we it's which it's I'd to seeing based about are sort fiscal that of the we're we're probably somewhere thereafter, think of also we tend operate right think degree the the not economy,

good So improve to to and going combination we're program our to is Lean margins Sigma expecting offset that of us and continue careful inflation. our Six pricing allow the

Brett Hundley

Is labor costs meaningful popped that, you any labor in included has for in up way?

Dave Ciesinski

costs about conversion our raw a packaging would of material a if costs our has, business of from you roughly and of about be in It labor are think absolute and the two-thirds component. come third which

so labor is out of out unskilled honestly labor labor, the automation can part And and worker's we're of figure and Sigma about some of that doing today end as Lean where are on seeing costs, things have place labor, to seeing we some a labor healthcare we term we're the it's is it Parenthetically shortage, you're because our factories. of we where the with us that us seen us costs take like will we automating inflation. most we're the We well. to future really into trucker biting helping that edge comp things as more and the skilled space true else don't truck that's in the of everything freight our that that long is - invest like a pinch palletizers help that's in predominantly like shortage lines plan and take helps significant things are have where the to think in in stuff Six that relying of off

Brett Hundley

on spend tools. want that ask I spend something the you guys and actually talked couponing, thing think last to rates rate was The that mentioned and heading about that just previous you you optimization certainly I I into is quarter your call think on on well-planned, was your reduced

have that but of you you these these if being decisions? I think related, newer for to of the able the that guys, these made can about net-net at somewhat are tools I'm effectiveness are you measure just guys? been nature and length, you've working curious whether they're these talked delve measure you for into effectiveness corporate? at quickly to And You've able been decisions, more how actions

Dave Ciesinski

a is should so five elasticity so Yes, not. versus working out about doing about one then I a folks or things, of so we're focus we've talked centralized what the of in decision six others the those elasticity, the economic space two price modeling know of a some into and in what getting that essentially what this for a think execution versus for we tools group – invest a And we that payback on run pricing to probably in there folks and the good two be. for we're done our should are ago and running when example, sort year for are when decisions we a of you further at we range on field invested promotion making and are two to we're priority are we've have around

[ph], we work we make the they will more really provision we time sense, interim of are What the for it's is always what bakery them strongly sometimes everything whether context if we down both But for that the we with toe they to line. value-added can looking on and six, we with we're to very them. basis doing balk case say create why with culturally in sometimes If those two like move decision it listen burger competition might from of of to field feel we a categories else. as some may ideally they dressings away don’t, to sort might it a So, customer and and the would of about tools or evolved the for our using are and decisions tell bit retail around execution. other but is with in the explain why what's business the you let's just making and here the good strategic process those items five sort the we're dips where would decide go and in the inflation centralizing or a we pricing I folks a the is, an just to decision-making focusing tools their within requires in and I really on route, two any sit place think and we're each and the the tools, for customer on

Brett Hundley

Thanks for the comments.

Dave Ciesinski

Thanks Brett.

Doug Fell

Thanks Brett.

Operator

Your question next Frank with comes Sidoti. Camma Instructions] [Operator from

Your line is open.

Frank Camma

Thanks, good morning.

Dave Ciesinski

Frank. Hi good morning,

Doug Fell

Frank. good Hi morning,

Frank Camma

here Hey, can acquisition if us you us on some there wondering just allocation on the the comment updates? and on environment, could just kind of gave you with what's give capital changes going CapEx, given some on the increase flavor you just any

Dave Ciesinski

have a evergreen remain that's question, of great range so will work to process. but space. through, in really sort Sure, that We an active we've to that we you tell continue of I Frank. things started that

of remain the go as rates lofty even sort interest valuations pricing as up. far specifically As environment,

very the assured in on We haven't expectations, and marketplace change really seen a today. valuations but aggressively material we're rest

Frank Camma

that sheet, partially the out fact so even own you excess does have or of practical ever it any balance lot an given different it network given just and build sense make Okay then excellent your your cash, freight still is not lines? to

Dave Ciesinski

great a it's No, question.

at So space. of today heavily know history business our you if the sort you broker by dependent look we're within

and out categories tradition or heavily can you reliant by with on work market essentially where during a buy on trucks drivers you where assets, If market. agreements the were we about spot falls one dedicated Frank, and can we you times was own here can you of three it of where own with go your providers think have glut it But into a been longer-term there spot beneficiary.

I it were you way, rate fixed. this the think versus is about world floating way we it. folks, In interest you this thought about an For

Now fast-forward aggressively. the all market spot went sudden when more up things changed prices of

and secure addressing looking marketplace assets. we Now both, to more at it nearly two drivers in are into looking the your question, ways; we are one doing

then also freight We we of just we own we the an same same at past lanes. can allows of did providers you trucks where What to use small it. many group benefit dedicated most generate. of ship you national to we're can benefits of that us to to assets, the big and today you We of difference can having of with expensive biggest to the is of benefit utilization and a quarter have you that the can sort going without generate assets a sort have our the expand backhaul today put which our looking product backhaul some when own freight customer dedicated. in by to outbound drivers There's but our we own owning talked essentially RFP those this any out the and from

dedicated we expand So the implementing the work at in results the the are and to of process this even of on of expansion based would pilot actively we expect further.

Frank Camma

Great, That's thanks helpful. guys.

Dave Ciesinski

may I if Yes, and Frank. just last point

for We that other commodities into the predictable Just and don’t either. get position us. cost don’t with ultimately like more where freight as know you folks are we volatility

Frank Camma

thanks. Right,

Dave Ciesinski

Frank. Thanks

Doug Fell

you, Frank. Thank

Operator

with comes Consumer Research. Holland question from Edge Brian next Your

Your line is open.

Brian Holland

followup. quick Thanks just a

from I the sheet pipeline a an I this XXXX to dividend right you It sounds still there's paid believe think in have stuff and in special like out. I lot that the back M&A a XXXX balance Going in standpoint. of

like preference within kind think what your capital if M&A stated been et to But so where opposed for us what like might of relative for to capital have something year you or special dividend you more in reset or for could maybe that. line a a are maybe of a wear cetera? M&A that as or priorities fall and stuff allocation dividend use past sort there's the I of just as curious

Doug Fell

Doug. is this Brian,

our I don’t thoughts communicated much on we've allocation. know, think last changed since capital You as

and discussed certainly dividend mentioned like, as number we've our to to Dave back release has one today is look mentioned we've to think certainly then extending the as I certainly increases. the to earnings into business and invest our here as in continue our opportunity

time. sort an evaluate of special minds we our before go issuing and any to know is look would as dividend, in our M&A forefront desire that, for to clearly continue that be Beyond of M&A you the it we opportunity through but

much don’t on again, So changed since commentary allocation. our think I last has capital

Brian Holland

Thanks, I appreciate that.

Doug Fell

thanks. Sure

Operator

If over there call Mr. remarks. will further the back turn to Ciesinski for no concluding now questions, are I his

Dave Ciesinski

giving our guys in you to Thanks look call. fall joining seeing and guys marketplace. on you out thank to we meantime and for and We progress forward the the the in in update forward you our everyone Denise look

Operator

conference today's concludes This call.

You may now disconnect.

Lancaster Colony (LANC) 23 Aug 182018 Q4 Earnings call transcript