Hello, thank you for standing by. Welcome to BellRing Brands' Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jennifer Meyer of Investor Relations for BellRing Brands. You may begin.

Good morning, and thank you for joining us today for BellRing Brands' third quarter fiscal 2024 earnings call. With me today are Darcy Davenport, our President and CEO, and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC filings section at bellring.com. In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.

Thanks, Jennifer, and thank you all for joining us this morning. I have four key messages today that I want you all to walk away with. The first, I'm happy to share that we have a strong quarter. The business continues to perform as we bring on new shape capacity and begin to drive demand. Net sales grew 16% over prior year and adjusted EBITDA, up 38%. We saw strength in Premier Protein with net sales up 20%. Our EBITDA margins were above our expectations as we benefited from favorable gross margins. I'm proud of our year-to-date performance with each quarter delivering above our long-term algorithm. My second message, Premier shake demand remains strong. The RTD shake category continues to grow with Premier Protein bringing in new consumers. Our consumption grew 10% in Q3 and accelerated to 20% in July. Premier Protein hit an all-time high in household penetration and remains the highest in the RTD category, outpacing its nearest competitor by six percentage points. We have the number one velocity SKU across entire RTD category and 80% of our products ranked in the top third. We continue to believe that the brand has a ton of untapped potential given we haven't meaningful marketing or innovation. My third message. Our production delivered to plan and our outlook has improved. Our diversified co-man network has consistently delivered to expectations every quarter this year, and I'm happy to share that we have secured incremental capacity in Q4. This additional production enables us to fill remaining customer inventory gaps and allows us to rebuild our internal inventories to our target safety stock levels, setting us up for a strong fiscal 2025. I would be remiss, if I didn't give a huge shout out or as we say ring the bell for our entire…

Thanks Darcy and good morning everyone. Net sales for the quarter were $515 million, up 16% over prior year, modestly above our expectations. Adjusted EBITDA was $120 million, an increase of 38%. Adjusted EBITDA margins were 23.2%, meaningfully exceeding our expectations and lifted primarily by favorable gross margins. Starting with brand performance. Premier Protein net sales grew 20% behind strong volume growth for RTD shakes and powders. RTD shake growth of 19% was driven by organic growth, distribution gains, and to a lesser extent, higher trade inventory levels. Shipment growth outpaced consumption dollar growth as a result of late Q3 trade inventory builds and lower net retail pricing. Entering the fourth quarter, trade inventory levels are improved in nearly to target levels with the remaining gaps to be filled in Q4. Dymatize net sales decreased 3% this quarter on 4% higher volumes with double-digit growth for international more than offset by declines domestically. For domestic, recall we are lapping a challenging comparable period that included heavy display activity and changes in club distribution. Promotional activity on unfavorable mix were also a headwind to growth this quarter. Gross profit of $190 million grew 40% with an increase in margin of 630 basis points to 36.8%. The margin increase resulted primarily from net input cost deflation as we lap elevated protein costs in the prior year. Gross profit in the quarter also included an unrealized mark-to-market gain on our commodity hedges, which drove 80 basis points of the year-over-year increase. Compared to our expectations gross margins benefited from more favorable whey protein costs than expected and to a lesser extent, non-recurring cost favorability. SG&A expenses as a percentage of net sales were 14.4%, relatively in line with the second quarter with advertising promotion spend 2.9% of net sales. Before reviewing our outlook,…

Thank you. [Operator Instructions]. Our first question comes from the line of Andrew Lazar with Barclays. Your line is open.

Great. Good morning everybody.

Good morning.

Darcy and Paul I think last quarter you mentioned you were planning for a price increase to start hitting in the fourth quarter on Premier ready-to-drink shakes. Is that still the plan given that you had much more favorability in input costs this quarter than you thought?

Yes. We are still moving forward with the price increase. Keep in mind that a lot of the favorability in this particular quarter was related to whey protein powders, which is the input cost for our powder business not our shakes. So a lot of the favorability was on whey protein. And that is -- as you may recall from last quarter we talked about there was a very sharp rise expected in the third quarter on whey protein cost. For us we were just a bit conservative on how quickly that flowed into our P&L. And so we saw some favorability because of -- primarily because the whey protein was not as much related to shakes. Shakes were pretty much largely on track on calls.

Great. And then Darcy you mentioned securing some incremental capacity that will help you in the fourth quarter to get back to your -- all the way to your target sort of inventory or safety stock levels was that incremental capacity that was or in the pipeline that's just now sort of coming online? Or was it incremental to sort of what you had planned for this year? And then as part of that have you formally committed to increasing the number of lines beyond the initial four at each of your two greenfield facilities yet? I know you've been considering it for some time, but I'm just wondering how that looks as you think through potential supply needs for 2026 and 2027? Thanks a lot.

Yes. The incremental capacity was incremental to what we originally thought at the beginning of the year. So very good news. We have been pushing our existing co-mans for more capacity for the last couple of years. And this is really the first time that we've been able to secure some. So I think it's good news. I think it's good news that our co-mans have fully stabilized and are now actually having some efficiencies that they're able to pass on. So all around very good news. As for the expansion of our co-mans with new lines, we have not -- we're in the process of evaluating who we're going to expand with. But generally the time line is the same. We expect to need new capacity in 2026.

Thanks so much.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Ken Goldman with JPMorgan. Your line is open.

Hi. Thanks so much. I appreciate the early look into the top-line next year with the understanding that the year hasn't even started yet. I was just curious are there any early reads on just as we think about the flow-through of the top-line to the bottom-line any particular tailwinds or headwinds we should think about in terms of costs that might lead EBITDA growth to Vir more than usual or positively or negatively from where sales growth is?

Yes. Good morning, Ken. So a couple of things I would say for thoughts for fiscal 2025. First, we're talking -- we've obviously highlighted that we expect to that fiscal 2025 for our Shake business will be driving demand which would suggest obviously incremental marketing spend potentially promotional spend. So as we look from 2024 to 2025 I would expect to see some step-up on the marketing line and the promotion perhaps. And obviously we may toggle between those two as we make decisions on driving demand on promotion versus marketing. The other one is we are expecting inflation to continue into -- to increase in 2025 versus 2024. It's more impactful on our Powder business. We're expecting a pretty sizable step-up starting really in Q4 and then into the first half of next year. But on powder on our shake business we still expect some inflation throughout the year. But obviously we've taken a price increase there. So I think we can largely offset with our price increase on shakes. But going forward I expect some headwinds on inflation perhaps some headwinds on marketing and promotion.

Thank you. And then for a follow-up we started to see your biggest Shakes competitor or at least what we would see as your biggest one gaining shelf space in the mainstream beverage aisle and a couple of sort of traditional supermarkets. I'm just curious is this something that's getting more widespread? Is it more anecdotal? And I'm just curious if it sort of accelerates your desire to migrate the Premier Shake brand a little bit more into the more mainstream part of stores as well or if it's not really a consideration at this point. Thank you.

So yes, we've absolutely been tracking it and it's true. There's been some expansion and it's really through DFD. Not surprising that that competitor has expanded into the beverage aisle. As you remember, getting out of the aisle, so it's kind of – I think I would separate our strategies into two pieces. One is more the near-term of getting out of the aisle, right? So getting out of the aisle has always been a key part of our strategy. That can show up in a couple of different ways. One is end aisle display. The other is displays in other part of the store. And we have been actively pursuing that both of those strategies, especially with – that is a key part of our single strategy, you actually go out to – we saw a lot of – this quarter and we'll see it next quarter a fair amount of bottled displays and you'll see it everywhere from right adjacent to the pharmacy section where we are to a checkout you'll see them in coolers and you'll even see them in other areas of the store like near the deli [ph]. So absolutely a key part of our strategy. Then if you look more long-term, which is I think what you're more asking which is around the movements of us into a more mainstream aisle. And that – and I would say that we are still actively evaluating. And we actually think that we can get a lot of the bump of eyeballs of awareness and therefore trial by the first two strategies, which is just end-aisle display and multiple placements around the store versus the actually picking up the category and moving but we're absolutely evaluating.

Got it. Thank you so much.

Thanks.

Please stand-by for our next question. Our next question comes from the line of Thomas Palmer with Citi. Your line is open

Good morning and thanks for the question. You noted in the prepared remarks, how innovation for Premier Protein has maybe not been as big of a focus in part due to some constraints. Is there a point as we look out towards next year that this starts to ramp up and become a bigger focus? And then just any examples to highlight on this front.

Yes. So I would put innovation into two buckets. The first bucket is what I call little eye innovation, which is basically pack size, format, expansion. So that can be a combination of like we have bottles. It can be bigger packs, smaller packs. It can be different sizes, which will get at different macro levels of protein. So that in my mind is kind of little eye innovation. Flavor also is put into that segment. We see just a ton of opportunity in – with little eye innovation. When you talk about big-eye innovation and that is really going for incremental consumers and incremental occasions. Yes. So that we have kind of put on the back burner because of capacity. But you'll see us an increasing focus and increasing launches of new lines in 2025. Obviously, I'm not going to get into what that innovation is on a public call but you'll see a couple of new lines come out on Premier Protein next year.

Great. Thank you. And then on Dymatize what's the messaging I guess in this new marketing campaign? And what's the target? Is it more customer awareness for the brand? Is it trying to differentiate the brand and what seems to be maybe a little bit more of a competitive segment right now? Just any help on the – as we move into the back half of this campaign launches.

Yes. So the focus is and yes, it actually hits the air this week. So you should hopefully see it. The focus is really around awareness. I mean our household pen is 1%. So it's around awareness of the brand. The Dymatize is a premium product. And so which consumers are expected to pay more for. And so we want to explain why it's worth it and why people should really kind of graduate to Dymatize. And we're doing it with borrowed equity of Christian McCaffrey. What's amazing about him is it is a super authentic connection because he already uses Dymatize in his kind of nutrition and workout regimen. And it is a key part of his success. So it is not by coincidence that we're launching the campaign, right as football season is starting. And so that is -- and obviously, he is a big name. So that is -- that's the focus. It is an awareness campaign and it's focused around the Dymatize equity. In addition to that equity campaign, we also have a couple of other spots that will focus on flavor. So if you think of kind of upper funnel lower funnel of a marketing campaign, upper funnel is we have both going on within the campaign starting in Q4 and then it will continue into 2025.

Thanks for all the detail.

Thank you. Please standby for our next question. Our next question comes from the line of Brian Holland with D.A. Davidson. Your line is open.

Yeah. Thanks. Good morning. Maybe just referring back to Paul's earlier response and question about pricing mindful of when commodities are flowing through the P&L? And also more broadly, just kind of the volume -- the challenging volume backdrop across CPG. Just any sense you can provide or share with respect to customer response to the pricing that you announced last quarter?

Paul, do you want me to answer that?

Yeah please.

Yeah. So I mean pricing is never easy. What I will say is it is helpful that other competitors have taken pricing recently. And again, it is it is because of the rising cost of specifically, manufacturing, labor, freight et cetera. So we're seeing some increases and other people are passing it on to and they did it before us which always helps. And then -- but no major pushback I would say and it's -- all of them are over the line.

Perfect. Thanks. And then I wanted to ask about -- we're getting asked about private label competitive dynamics with some rollouts particularly in whey powder. So Darcy, I was hoping maybe you could just provide a little bit of perspective on what private label looks like in this -- in the categories you compete in more broadly? And maybe any historical perspective to help sort of frame, what private label has done in this category and maybe the limits to its ability to take share if that makes sense?

Yeah. Yeah. So private label in -- it's definitely less and I guess mature in this category than in others. It RTD, it's about 9%, powders is about 4.5%. Just realize that more and not in tracked channels. So just remember that most of the powder category -- there's just less in track channels for Powder. So I mean our estimates are actually for powders, it's probably closer to where RTDs is so call it 9% to 10% if you kind of look at the whole marketplace. And same thing for bars. So what has -- what is interesting is for the most part it's maintaining share. So it's not growing faster in our category than the branded players. So it's just maintaining share. And that has been the case for the last few years. This just happens to be -- now there are -- as you know there are stronger private labels and less strong private labels. So I think the success depends on the retailer. However, I would generally say that in this category people look for trusted brands. And they -- and so -- and that has been the case. I think where we saw it first go was I think it has to do bars, I would say, had a bigger -- I would say -- went private label first. Then powder and I think RTDs will be last. And part of that has to do with the just dynamic in the category meaning that there just isn't a lot of capacity in RTDs. It's very complicated to produce the private label within RTDs at least are concentrated in a couple of retailers. And others have tried and have not been successful. And so I think are a little scared of it. So does that give you some reference and context?

Yes. No that's extremely helpful Darcy. I can leave it there. Thank you.

Right.

Please standby for our next question. Our next question comes from the line of Yasmin Deswanhai [ph] with Bank of America. Your line is open.

Hey, guys. Good morning. Thanks for the question. So I just had a quick one on Premier. So you said you had strong consumption growth in all key channels with Club being the exception. Are you able to quantify the impact of the temporary changes in assortment? And also you mentioned that club consumption began to accelerate in June and into July. So is there any way to quantify that? And do you expect that acceleration to hold in 4Q or even accelerate further from there?

Okay. Sorry, there were a lot of questions in there Yasmin. Can you just give me a -- can you just say the question one more time?

Sorry. Yes. So just the first question of all of that is just are you able to quantify the impact of the temporary changes in assortment in 4Q just as it relates to club kind of being weaker than the rest of the channels in Premier?

And you said Q4...

Yes. Paul, do you want to get that.

Well, I just want to clarify. Are you seeing the temporary changes in Q3? Or you said Q4? I just want to make sure.

Yes.

Okay. Yes. So we did have some changes in club assortment in the third quarter primarily with one of our largest club customers, which did start to ship in late in the quarter and early in the fourth quarter. So we should see the year-over-year headwind of that change in Q4 as we move forward. I don't know if I have a precise number of what we think that impact was, but certainly it had an impact to the club growth in the quarter, as well as just some of the out-of-stocks and some of our other club customers, which vastly improved as we got later into Q3 and you're seeing that in the growth as we hit late Q3 and Q4.

And Yasmin if you're thinking about headwinds to consumption I think that -- I mean, our Q3 consumption was lower than what we expected. And we would say that we would have expected about four percentage points higher than what we saw. So the combination of the -- and basically that was due to some delayed shipments that went out. And so part of about three points of that was replenishment for out of stock and about one point of that was due to new products being shipped in. So hopefully that helps with around four points of consumption.

Okay. Great. That's really helpful. And just a quick follow-up and it's a more higher-level question. I just had a quick one on your target consumer base as it relates to growing household penetration. I know you said previously that this is a more adult brand, but I saw recently that there was an activation in New York and these pop-ups tend to skew towards younger audiences. So could you just talk a little bit about the consumers that you plan to address from here and how you expect that to drive continued household penetration growth.

Yes. So you saw the ice-cream pop up.

Yes. I saw that.

Yes. That's very successful. So, yes, so low household penetration category low-house -- household penetration brand. So currently our average age is right call it early 40s, but ranges. And so we -- our marketing campaign will really focus on that we're trying to get to kind of younger, the younger population where we can bring them into the category early and then keep them throughout. So, as you can tell that was one kind of -- that was one test activation but you'll start seeing it. As we build out our marketing campaign for next year for Premier, you're going to see that come through in the creative of who we show as well as if you can see it through just the targeting efforts.

Okay. Great. Thanks so much, guys.

We standby for our next question. Our next question comes from the line of Robert Moskow with TD Cowen. Your line is open.

Hi. Thanks for the question. Just to clarify, I think you said consumption was about 400 basis points lower than what you thought for various factors. Was that for all channels? Or is that just for club? I didn't catch it.

All channels but it was majority -- the most of the effect was club as well as some food.

Okay. And the reason I ask is if you just look -- eyeballing slide 8, if you look at the consumption trends for Premier, Protein, RTD, it's your biggest segment, the comps get really difficult in October, and then fourth quarter in general, growth up 36%. And do you need some kind of major acceleration and are you expecting a major acceleration in kind of this tracked consumption pattern in 4Q? And do you think that would be -- how would that relate to shipments, because I know you're still filling inventory gaps. Do you think shipments could be even higher than that?

Yes. I'll take -- I'll took the latter.

Yes, you can do that.

Yes. So as I mentioned in my prepared remarks that we do expect shipments to modestly outpace consumption growth or shipment growth slightly outpaced consumption growth in the fourth quarter, and that's because we're continuing to replenish the remaining out of stocks and getting our retailers' inventories pool, but also shipping new distributions. Darcy touched on some of this before. So we've had some bottles going in and some other distribution. So yes, expect a modest increase or shipments ahead of consumption in the fourth quarter. As far as the chart you're referencing, I think you're looking at the October time frame. So last year we did in August have club event. We called it a small club event in August. And so that's what you're seeing kind of in the 13-week rolling as it gets to October. It's mainly the impact of that August promotion. We are lapping that this year. We're doing less days on promotion so it is a bit of a headwind for us in the fourth quarter but that is all contemplated in our guidance and our thinking around shipments versus consumption.

Okay.

And Rob just to...

Go ahead Darcy. I’m sorry.

I know that there is -- we both are focused. Go ahead.

Darcy, you go first. You are CEO. So please. Go ahead.

Well, I know that everybody is focused a lot on consumption, which I understand why. So I thought it might help a little bit to give you some of the monthly dynamics that we expect in Q4. Obviously, July was really strong at 20%. And then -- but that will -- we expect overall Q4 consumption to be kind of like low-teens. So we'll see -- and that was some of the dynamics that Paul was just talking about. In August, you should expect -- especially late August, you should expect a consumption dip and it's mainly because we're lapping that club promotion that is in untracked channels but is captured in mil or plus and then you'll see an acceleration into September. So you see strong July come down a bit in August because of the lapping of the Vis Club promotion and then increase again in September.

That’s very helpful. Thank you very much.

Yes.

Thank you. Please standby for our next question. Our next question comes from the line of David Palmer with Evercore ISI. Your line is open.

Thanks, and thanks also for that last point. Just a follow-up on that. If we were to broaden out and just think about volatility as we're seeing in the data or maybe we can do a retrospective and look at how the sales have been volatile in the past, how much of that volatility do you think it's related to not only an ebb and flow in your capacity constraints? But also a key competitor's capacity constraints maybe being different than yours, maybe they had a different points in the past, making for easy comparisons competitively. And then you perhaps had some constraints in addition to the assortment reset that you talked about in this last quarter. Just any comments on that and even how that governs the comparisons that we'll be seeing in the coming quarters?

Yeah. So I'll start with, yes, our -- I hate to use the word volatility, but the changes within our consumption patterns are absolutely a reflection or exacerbated by or lack of safety stock and lack of trade inventory. So I'm going to give you -- so I've mentioned that consumption was below what we expected in Q3. The reason was timing, and what happened was we had some shipments that were planning to go out in May. They didn't go out. They were delayed until June and the associated consumption got pushed to July. Well, this happens all the time. We have changes of releases based on what we expect. But you don't see it or consumption doesn't reflect it because the retailer has enough trade inventory, we have enough safety stock to basically blunt those kind of changes. And because we do not, some of these show up in the consumption. So when we get back to -- which we are close, when we get back to adequate safety stock as well as adequate trade inventory, we just will not see these types of kind of, I guess, volatility as you put it. The second piece is this is completely having to do with our safety stock and our trade and the retailers trade inventory, less about competition. Interestingly enough, I mean, I talked about the category being that is really, the growth is driven by the mainstream brands well, the mainstream brands, us as well as our biggest competitor, all of our growth, almost all of our growth is coming from outside of the category. So there really is not very much brand shifting between the two brands.

Thank you for that. And just by judging on your EBITDA margins for this year. It looks like you'll finish above the 18% to 20% long-term guidance. How are you thinking about your long-term margin now? Is that something that could be in the low 20s longer term?

Yes. We -- obviously, yes, as you mentioned, we're having a strong margin year keeping in mind that it's still not a full demand driving year on -- especially on our biggest business, Premier Protein. So I wouldn't think -- I don't think that 20% is our new normal. But yes, it's something we're certainly evaluating it. We like our long-term algorithm, gives us flexibility on spend. But we've always said that our target was to be on the upper part of that, and we've been consistently on the upper part of that, but we'll continue to reevaluate it. And obviously, when we come to November, we'll give our thoughts on how it plays out in fiscal 2025.

Okay. Thank you.

Thank you. Pleas standby for our next question. Our next question comes from the line of Jim Salera with Stephens. Your line is open.

Yes. Thank you for taking our question. Darcy, I wanted to drill down a little bit in club in my area in the Midwest, I've seen a pretty significant increase in promotion from, albeit smaller competitors, but other competitors that have RTD shake offerings. I guess, first question is, is that something that you see more broadly or maybe that's more concentrated in my area? And two, as you think about maybe the promotional cadence moving forward and maybe the ability for the category to take price, should we think about kind of alternating promotions between brands as putting a ceiling on pricing power for the category?

Let me answer your first question, and then I might need a little bit of clarity on the second one. So in club, yes, promotional intensity has increased a little bit and it's really -- it's actually been not the top two brands, but all the rest of them as you said. I will say -- and that is not a new trend that is really over the last call it year-ish. And there seems to always be somebody brand on promotion MVM. So that is I would say more of a long-term trend. The second, and as is that indicative of the rest of the marketplace, definitely in powder there and I talked about it on the last call and this trend continued where there has been an increase in discounting, and promotional intensity on powders for sure across the marketplace. RTD it hasn't been as extreme, but there's definitely been an uptick in promotion on RTDs. And I think it really has to do with capacity coming on. I think that we have a little bit more capacity. And so people are able to get back to driving demand. And sorry what was the second question?

Yes. The second part was really just if there's this always on promotional calendar for the space, does that limit pricing power just given the value gaps if there's always somebody in the category that has a promo on even as your promos roll on and off to that limit, how much price you can take, because you need to keep kind of a relative gap levers on promo at that time?

No. I mean, I think that we -- I'll just talk for our brand. I feel very good about our pricing power and we're -- we have an incredibly strong brand with high loyalty and I think we've shown that consistently over the course of the last few years given the performance of the business despite capacity constraints, really consumers have stayed with us. So I think that for us we are not going to go -- we do not need to go deep on promotion. I have said this before, the key for promotion for us is getting display. So we will do as little TPR as we need to, to get the display. Because of the displays where we get the eyeballs, the eyeballs are where we get the trial, the trial is where we get the repeat in there it goes from there. So that will be our focus. And we see -- we have two major drive periods. Everybody enters into the category really in our Q2 Jan, Feb, March. So that's a big drive period and we started -- we got back to promotion this year during Q2. We will expect to do it again next year. And then we will also have kind of a second drive period in the Q4 period, and it will be a little bit lighter because again I think we've learned that we don't have to go deep or really as frequent.

Okay, great. I appreciate the color. I’ll get back in the queue.

Thank you. Please standby for our next question. Our next question comes from the line of Jon Andersen with William Blair. Your line is open.

Hi. Thanks for the question. I was wondering if you could talk a little bit about fall shelf resets, and how your expectations are there perhaps relative to last year. And is that kind of factored into your expectations for shipments to run ahead of consumption in the fourth quarter? And then the second follow-up question is just on capacity. You've had your base plan for capacity and now secured some incremental capacity on top of that. I'm just wondering where that maybe puts you in terms of supporting sales growth in 2025. Thanks.

TDPs for Q4, we do expect some increases. There will be a combination of -- so if you -- actually if you look at the supplemental presentation Page 10 is a great graph to show the increases. We did get a fairly big increase last year and that was around a mass retailer that we expanded shelf space a fair amount. We will see some increase in Q4 not as dramatic as we did last year, but we got some nice space in that retailer. And then we'll also see a little more favorability from just filling the gap of trade inventory that we didn't fill in Q3. So part of the increases will be out of filling the trade inventory for the ones that are left and then partially it's going to be shipping in for new distribution. So yes, we do expect and Paul said this in his prepared remarks, we do expect to have shipments a little bit ahead of consumption in Q4. The second piece is capacity. And yes, the incremental production that we secured this quarter really sets us up nicely. It allows us to not only deliver our guidance and actually raise it, but also bill are -- get to our target weeks of safety stock which is eight weeks that going into 2025. So we're in a great place to really hit the ground running and get back to demand driving.

Thanks, so much.

Thank you. [Operator Instructions] Our next question comes from the line of Bill Chappell with Truist Securities. Your line is open.

Thanks. Good morning. Just two questions. One, I didn't fully understand when you talked about the consumption 400 basis points below your expectations and a lot of that coming from the club channel. I'm just trying to understand, why it was below your expectations as you just seem to have a good handle on obviously club channel on shipments and products and stuff like that. So, was there something that surprised you intra-quarter? Or just help us understand that.

Yes. So -- oh go ahead. Why don't you go?

Yes. No. I think Darcy touched on it a little bit earlier. So, it really comes down to the timing of shipments. So we did have some shipments into club and to other customers to refill some of the out-of-stocks as well as to ship some of the new distribution in bottles and other -- in some of our other flavors. It just happened later in the quarter than we expected. And so that was a direct -- had a direct impact on our consumption growth in the fourth quarter which as Darcy mentioned a moment ago it was about a 40 basis point headwind to our consumption growth. So we were around 10% if you had that that would put our consumption growth at about 14% if that was shipped on time. We have shipment timing changes from time to time. It's not uncommon. It's just when you're not at full safety stock internally those things sometimes fall out and that's what we saw in the quarter.

Got it. And I have a follow-up and then I have another follow-up. But did that then impact your July sales, is why you got a boost because of the timing of shipments?

I would not say it necessarily -- well some backup. So you saw consumption start to accelerate in June and more into July and that is largely because of us getting that -- those out-of-stocks filled as well as getting that distribution into the trade. So, that did have a direct impact on consumption which is why you saw it accelerate in June and further into July.

Got it. Okay. And then my real follow-up just back on pricing and especially as we move forward I mean I'm just trying to couple the commentary of everyone in your category is playing well in the sandbox on pricing but you're sourcing most of your new customers outside the category. And so as we hear of CSDs and energy drinks and others talking about more promotional levels just to kind of revive their categories. Does that come into your thought process as you think about pricing and promotion as we move into fiscal 2025?

I think -- Bill I think this comes to what are they trading what are they giving up to buy -- so the people outside of the category what are they giving up to buy a shake. So, for instance most of our -- most of our occasions are breakfast replacements. So, in essence what consumers are trading out is an engagement muffin a bagel and cream cheese, et cetera. And so those things are for the most part more expensive than a $2 shake. And so I think that is where I think we see we have and so not only is it less expensive, but it's also a much more healthy breakfast. And so I think that's where you're seeing and that's why we feel like all of our data would say that we have pricing power.

Got it. No, that helps a lot. Thank you.

Thank you. Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open.

Hi, good morning. Thanks for the question.

Good morning.

First off, Darcy, I wanted to ask about innovation and long-term development of active nutrition. And you touched on it a bit with your comment on big eye innovation. But more broadly as we see the high-protein low-sugar formulations becoming standardized to what extent do you think this category can evolve? I guess similarly the energy drinks where you're now including ingredients and functions in combination with caffeine. I mean how do you assess protein's ability to evolve similarly between liquids and powder? And I'm thinking here three, five, seven years not a fiscal 2025 comment.

Well, I think the first piece and it goes back to what I talked about in my prepared remarks just about kind of how amazing the nutrient of protein is and just how the more we learn that the wide variety of people it is beneficial to which obviously, has innovation ramifications as well as the benefit it provides, which also has innovation ramifications. So, I think there is I think there is such a huge opportunity which actually -- I know you asked about big-eye innovation but actually that is the reason why we are so encouraged by the little eye innovation because there is so much upside just by putting our existing formula or something close to it in different packages in different kind of pack sizes in different formats. So, there's that because there's a ton more kind of household penetration potential. Then, you go to the big eye innovation. And if you look five, seven, 10 years out, I think what you'll see is protein as a part in complement, with other functional ingredients. I mean I think that the specialty, if you walk into a -- the mainstream gets influenced by kind of two places. One is, sports nutrition. In kind of the specialty world, you walk into a vitamin shop with GMC and you see where that part that side is going or from like natural, right? So those are the two places that influence it the most. And when you go into those places, you see a combination of real food. So that has an influence. But then you also see, really leaning into function. And so I think that's where the category will go. Q – John Baumgartner: Great. Thanks. And then as a follow-up, in terms of competition in RTD. Tetra's supply has been the standard and tightness has been a major barrier to entry. But we're seeing some of the newer entrants adopting bottles. And I'm curious, your take on industry bottle capacity, the extent it can be a means for newer players to sort of circumvent the tetra tightness and the extent to which bottles complaint channels such as mass and club as opposed to just more of a single-serve opportunity.

So, bottles is also constrained. And it really is -- I think that, what is constrained is the upstream aseptic processing. So whether you put it in a bottle or a tetra, it is the aseptic processing upstream capacity that is constrained. But I think that in general, in the same time that the tetra capacity is opening up, so is the bottle capacity and that is what you're seeing. And yes, I think we see the opportunity for bottles for us, because it's a smaller part of our business, we actually see the potential for -- the growth potential of bottles actually the growth being bigger for us not numbers of shakes, but we see that there is a -- and that's when I talk about format, that is one of the formats that we see potential with. Q – John Baumgartner: Thank you, Darcy.

Yes.

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