Post Holdings Inc
NYSE:POST
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Post Holdings Inc
Earnings Call Analysis
Q1-2024 Analysis
Post Holdings Inc
The company kicked off fiscal year 2024 with an outstanding first quarter, benefiting from improvements in both manufacturing performance and pricing/cost management. This has enabled momentum from the latter half of fiscal year 2023 to continue. The company's strategy of product, channel, and price point diversification has been paying off, although there have been volume decreases in branded retail sectors. Encouragingly, their investments in the pet category have resulted in respectable volume growth and margin expansion, and the company is confident enough in its performance to raise its financial outlook.
The quarter saw strong performances from pet food and grocery divisions, with pet food volumes growing due to robust manufacturing performance. The grocery sector benefited mainly from carryover pricing and reducing costs. Despite ongoing volume challenges in the US and UK cereal markets, the company has managed to hold its dollar share and is optimizing its cereal manufacturing to adapt to changes. The Foodservice sector also outperformed expectations with volume growth and improved service levels, notably in higher-margin products like precooked egg products. The company remains cautiously optimistic about raising the run rate above the previously mentioned $95 million, given this quarter's strong results.
First-quarter consolidated net sales surpassed $2 billion, and adjusted EBITDA was $360 million, marking a 26% increase in net sales, fueled by recent acquisitions. The company generated $174 million in cash from operations, which has helped to reduce net leverage to 4.5x. To further enhance shareholder value, the company repurchased 400,000 shares and approximately $26 million of its debt at a discount. Capital expenditures of approximately $81 million were mainly driven by facility expansions. With the quarter's success, the company has significantly raised its guidance for the remainder of the year, expecting fairly balanced performance across the quarters.
The first quarter's increased profitability led to strong cash flow generation, enabling the company to engage in shareholder-friendly activities such as share repurchases and debt buybacks. A new $400 million share repurchase authorization demonstrates the Board's confidence and commitment to returning value to shareholders. These financial maneuvers, along with capital investments in production facilities, underscore the company's balanced approach to capital allocation as they enter the new fiscal year on a robust note.
The company is well-positioned to adjust to changing consumer demands across economic cycles, offering products at various price points that provide flexibility and a potential hedge against volume sensitivity. When it comes to M&A, the company has a diverse funnel and continues to evaluate transformative opportunities. However, the focus remains on executing the current business plan and integrating recent acquisitions, rather than relying on M&A to drive value. This careful approach reflects a strategic patience and a focus on internal performance, with M&A viewed as a supplemental growth avenue if conditions and valuations are favorable.
During the quarter, the company repurchased its 2031 bonds, reflecting a strategy to retire the best yield possible. This action, along with the use of a revolver to fund the Perfection Pet transaction, highlights the company's attention to capital market conditions and its efforts to optimize the balance between bank debt and bonds. Moreover, the reported net leverage includes the pro forma contributions from the acquisitions, ensuring that investors have a comprehensive picture of the company's financial leverage post-acquisition.
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Good day, and thank you for standing by. Welcome to Q1 2024 Post Holdings Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Daniel O'Rourke, Investor Relations for Post. Please go ahead.
Good morning, and thank you for joining us today for Post's First Quarter Fiscal 2024 Earnings Call. I'm joined this morning by Rob Vitale, our President and CEO; Jeff Zadoks, our COO; and Matt Mainer, our CFO and Treasurer. Rob, Jeff and Matt will make prepared remarks, and afterwards, we'll answer your questions. The press release that supports these remarks is posted on both the investors and the SEC filings sections of our website and is also available on the SEC's website. As a reminder, this call is being recorded, and an audio replay will be available on our website at postholdings.com.
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. This call will discuss certain non-GAAP measures. For 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 Rob.
Thank you, Daniel, and good morning. As Daniel mentioned, we're dividing the call a little bit differently this morning. I will make some opening comments about the state of the business. Jeff will provide more detailed overview of the segment performance. And Matt will provide his customary overview of the financial results.
The business is off to a tremendous start to fiscal '24 with an exceptional first quarter, vastly improved manufacturing performance and discipline in pricing and cost management enabled us to continue the momentum we built through the back half of fiscal '23. Our business continues to benefit from diversification in product, channel and price point.
As a result, our volume story is a bit more of a mixed bag. We saw volume decreases across our branded retail businesses, but Foodservice remain resilient, our value offering benefited from consumer trade down and we saw encouraging stabilization of our Refrigerated Retail site business.
Both the Grocery and Pet division of our Consumer Brands platform performed well. We continue to be extremely pleased with our investment in the pet category. We expected to see expanded margins. However, we have been -- we have seen decent volume growth despite a slow build in the incremental investment. We will still incur some incremental cost, but our confidence is growing with respect to our ability to sustain higher volumes and higher margins than our underwriting case. Our Grocery business is well positioned in value and is holding share in premium.
Our Foodservice business continues to drive mix and shows promise in terms of increasing its stabilized run rate. Refrigerated Retail has dramatically improved the supply chain, and Weetabix continues to perform well in a challenging environment. Suffice to say, each business contributed to exceeding expectations and each business contributes to our confidence in raising our outlook. Jeff will go into greater detail in his comments.
From a consumer standpoint, while the rate of inflation and interest rates have pulled back, there remains significant cumulative inflation and higher interest rates. Moreover, economically sensitive consumers face reduced benefit support. We continue to see shoppers be more selective with their spend. In an interesting dichotomy, we see those same shoppers prioritize convenience and on-the-go purchasing.
As far as capital allocation in the first quarter, we prioritized M&A over share or debt repurchase as we spent approximately $250 million on 2 tuck-in acquisitions.
Despite funding these transactions with debt, we reduced our net leverage to 4.5x. With the Smucker Pet acquisition and 2 tuck-in transactions, we have integration commitments as priorities. However, the broader capital markets have seen a significant reduction in long-term fixed rates. We monitor this cost closely as it underpins our allocation decisions with respect to share buybacks, debt reduction or further M&A. This trend, lower rates, in tandem with our strong operating performance and reduced leverage, results in Post having greater optionality than in almost any time in our corporate history.
With that, I will now turn the call over to Jeff.
Thanks, Rob, and good morning, everyone. Beginning with PCB, both Pet food and Grocery had a strong quarter. Pet Food exceeded our expectations as strong manufacturing performance, supported growth in our value brands, and we saw encouraging signs of stabilization in our premium brands. We began making the investments in this business that we spoke about last quarter. However, some costs ramped up slower than we expected.
For Grocery, the main profit drivers were carryover pricing and strong cost performance, which enabled us to recover some gross margin loss or inflation. U.S. Cereal category dynamics remained relatively unchanged with volumes down 5%, although the rate of category volume declined, moderated late in the quarter.
Our expectation remains that the category will return to its pre-pandemic volume trends as we lap the pullback in SNAP benefits in March.
From a dollar share perspective, we were pleased to hold share versus prior year, ending the quarter at 19.1%. From a network and supply chain perspective, we are focused on optimizing our cereal manufacturing network. Similarly, for Pet, we are working on optimization as we prepare to come off the contract manufacturing agreement with Smucker's and integrate Perfection Pet into our network.
Shifting to Foodservice. We had a very strong quarter driven by continued volume growth, especially in our higher-margin precooked egg products, and a significant improvement in our service levels. We've had no additional avian influenza outbreaks within our egg network beyond the two reported in December. We remain confident that we can mitigate any cost impact with modest pricing. This will develop over the course of the year and may contribute to some quarter-to-quarter volatility.
Lastly, we began selling RTD shakes to BellRing in January, and we continue to ramp up production.
Turning to Weetabix. Manufacturing performance improved and UFIT continued to provide a nice source of volume growth to the business. However, the operating environment continued to be challenging. Our Refrigerated Retail business entered the fiscal year poised to take advantage of the peak first quarter holiday season with stable manufacturing and improved inventory levels. This enabled us to meet customer demand with less reliance on third-party co-packers. Additionally, the cost performance within our manufacturing facilities was outstanding. The combination of these factors translated to strong profit performance for the segment.
Overall, fiscal year 2024 is off to a fast start. Although we continue to face the same retail volume challenges as most of our peers, our diversified business model continues to provide us pockets of growth. We are most encouraged by supply chain performance across the company, which is paying significant dividends.
With that, I'll turn the call over to Matt.
Thanks, Jeff, and good morning, everyone. First quarter consolidated net sales over $2 billion and adjusted EBITDA was $360 million. Net sales increased 26%, driven by our recent acquisitions. Excluding these acquisitions, retail volumes decreased driven by continued declines in U.S. and U.K. Cereal. On the other hand, Foodservice volumes continued to increase, driven by our higher-margin products and improved service levels. Across the portfolio, we saw a sequential improvement in our supply chain performance and customer order fill rates. However, we still have opportunities, especially in our Pet Food and Weetabix businesses. Inflationary pressures persisted in areas such as sugar prices and labor costs, partially offset by improved grain and freight costs.
Finally, SG&A costs increased across the business as we continue to see our targeted marketing investments in our retail businesses and incurred charges for scheduled closing of our cereal manufacturing facility in Lancaster, Ohio.
Turning to our segments and starting with Post Consumer Brands. Excluding the benefit of the Pet Food acquisitions, net sales increased 1% and volumes decreased 7%. Average net pricing, excluding pet food, increased 8%. We saw volume declines in branded and non-retail cereal and peanut butter. Segment adjusted EBITDA increased 68% versus prior year as we benefited from strong contribution of Pet Food and improved grocery performance. Weetabix net sales increased 9% year-over-year, benefited by lapping a weaker British pound, which led to a foreign currency translation tailwind of 590 basis points.
On a currency and acquisition neutral basis, net sales increased 2% attributable to list price increases, while volumes decreased 2%, driven by a decline in branded products. Segment adjusted EBITDA increased 3% versus prior year as increased net pricing and favorable FX were partially offset by lower volumes and increased manufacturing costs. While margins remain compressed, they are in line with our multiyear recovery plan. Foodservice net sales declined 6% and volumes increased 4%. Revenue reflects the elimination of avian influenza pricing premiums and the pass-through of lower grain costs. Volumes reflect strong demand and improved service levels over prior period impacted significantly by avian influenza.
Adjusted EBITDA decreased 3% as favorable volume, freight costs and a mix shift to precooked eggs were offset by the elimination of prior year [ HBAI ] price premiums. Refrigerated Retail net sales and volumes both decreased 4%. However, side dish volumes were flat in the quarter with side dish average net selling prices up 6%. Segment adjusted EBITDA increased 34%, led by improvements in plant cost performance, commodities and freight.
Turning to cash flow. In the first quarter, we generated $174 million from operations driven by increased profitability in the quarter. Our net leverage decreased 1/10 of a turn to 4.5x. In the quarter, we repurchased 400,000 shares at an average price of $84.28 per share. In addition, we purchased approximately $26 million of worth of our debt at an average discount of 13%. Our Board approved a new $400 million share repurchase authorization that begins next week.
Capital expenditures in the quarter were approximately $81 million, driven by the expansion of our Norwalk, Iowa precooked facility and new protein shake co-manufacturing facility. And then finally, given the strong start to the year, we raised our guidance significantly. Within this new guidance range, we see the remaining quarters of the year as fairly balanced to each other.
With that, I will turn the call over to the operator for Q&A. Thanks for joining us today.
[Operator Instructions] Our first question comes from the line of Andrew Lazar from Barclays.
And Rob, just really, really great to have you back.
Thank you.
My first question is just thinking through what Pet margins look like in the quarter and sort of where we go from here. Maybe just back of the envelope, if we put a mid-20s EBITDA margin on the legacy PCB business, excluding Pet, and that's kind of the high end of your -- of the company's sort of low to mid-20s normalized range to just about $140 million of EBITDA for PCB x Pet, and that would mean about $50 million EBITDA contribution from Pet or about a 12% EBITDA margins.
And I know last quarter margins were also in that 12% range, but you would kind of want it might be a bit transitory due to some benefits in the quarter. I think on a pipeline fill and you've talked about the need for some incremental investment moving forward. And so it sounded to us at least as if that would revert the margins anyway, beginning in the first quarter. So I guess, first, just wondering if my math is reasonably accurate. And then second, I guess, what drove the strong performance and with 2 quarters at this level now under your belt, is it fair to assume this sort of margin level moving forward for Pet?
I think your math is more than reasonably accurate. We can't report beyond what we do for segment purposes. And the -- as I mentioned in my comments and both Jeff and Matt reiterated, we do continue to expect to see required incremental investment, but it is pacing at a slower cadence than we expected. And meanwhile, we're seeing some benefits of expanded manufacturing capacity at a time when demand is moving in our favor. So we're seeing better volume in some of our value products. At the same time, we're putting some incremental investment into relaunching our premium brands. So the margin structure you articulated is reasonable, but should see some pressure on a percentage basis while we seek to grow the dollars by growing volumes.
And then, I guess, second, a number of food companies have talked about consumers stretching their food budget at home. But also having not seen any real benefit at least yet from the shift from away-from-home to at-home eating. I guess, with your sort of foot in both worlds, is that consistent with what you're seeing too? It sounds like it is? And I guess if so, why do you think that's the case?
If I could give you an emoji, a shoulder shrug, we're not quite sure emoji, would be what I would use. But the -- I think your reference price piece was interesting in terms of, I think consumers are still trying to find that historical reference price. And our change in behavior until they gain some familiarity with the new pricing environment. At the same time, in terms of our away-from-home business. We skew breakfast, which I think behaves a little bit differently than some of the other dayparts, and we are continuing to see some pretty good strength in that daypart even as some of the away-from-home business and other dayparts may start to soften. So it's still a bit of a head scratcher in terms of the total volume story. Jeff mentioned, SNAP, we think SNAP is a big component of it, maybe student loan resumptions are a component of it. But there's a lot of unknown still out there.
Our next question comes from the line of John Baumgartner from Mizuho Securities.
Rob, really great to hear from you. Welcome back.
Thank you.
I guess, first off, coming back to Pet Food. In your initial underwriting case, you weren't really assuming material sales growth. But looking at the premium segment struggle subsequent to the acquisition and your opening comments today about volume growth in your brands, I'm wondering to what extent you might now be reevaluating that underwriting case or maybe stronger revenue opportunities going forward or maybe your first thought given the value propositions for Nutrish and Recipe.
Well, I think to be fair, we didn't underwrite growth, but we did expect with the changing economic environment, there to be some opportunities in the value segment. It was a bit of a contrarian position at the time because all the growth had been in the premium segment at the expense of the value segment, and we somewhat anticipated that, that could be at an inflection point. So we continue to be cautious on growth just because constitutionally, we tend to be cautious on growth, and we focus on margin and cost and we'll continue to do so. But we do think that there are some opportunities to expand in some of the value offerings, there are some capacity constraints, which will inhibit some of that. Those constraints can be relieved over time. And if the demand equation continues to move in favor of value, we will do so, but we'll do so somewhat cautiously. So it's not terribly different than our underwriting case, but our underwriting case contained a considerable amount of caution.
Okay. And on Weetabix, some nice sequential margin recovery this quarter, but -- and the business is still far below that 30% normalized rate we saw prior to fiscal '23. Can you break out where the business stands at this point in terms of the drag on margin mix from private label and the extent to which either business improvements or execution can sort of restore more profit in that segment going forward?
So John, we were certainly encouraged by the performance in the first quarter. We think there's going to be choppiness along the way in terms of the margin recovery. Ultimately, the expectation is we can return, if not fully to Bright, very close to Bright, but it's going to be a multiyear process, largely driven by cost-out activities, which you can imagine are multi-quarter, sometimes multiyear activities. So what we would expect to see, even though there will be sequential perhaps choppiness along the way that the trend line will go from where we are today towards those 30% -- below 30% margins over the next couple of fiscal years.
Our next question comes from the line of Michael Lavery from Piper Sandler.
Welcome back, Rob, great to have you.
Thanks.
Just would love to understand how much of the margin strength had any onetime benefits versus being more sustainable? And I guess maybe specifically, I would love to start on Refrigerated Retail. You mentioned a better share of in-house production, but that obviously is a way that you have some flexibility. Is that something that looks pretty sticky? Is that -- how do we think about the run rate there and that as a piece of it in terms of the in-house versus outsourced volume?
The first thing to keep in mind is first quarter -- our fiscal first quarter is the seasonal peak for that business. So we get a lot of good leverage in our manufacturing costs. So I wouldn't necessarily say that first quarter is something that you should consider from a margin and certainly not from an absolute dollar perspective considered to repeat. But generally speaking, to your specific question about the manufacturing performance, we believe that portion of it is very sticky. Now it will ebb in flow with leverage in terms of the volumes that we run through the plants. And again, first quarter is going to be the high level -- high watermark for that. But the fundamental cost performance, the efficiencies in the manufacturing footprint that we have for that business. We think is -- I hesitate to use the word permanently, but we believe we've rightsized and set that up to be successful quarter after quarter.
That's helpful. And maybe just specifically on Foodservice. You've seen the sticky mix shifts that you raised your run rate thinking there to around $95 million. Obviously, you keep beating that as well. And just kind of given that update, any kind of revised thoughts on how to think about the level there? Or is this obviously just a quarter where it ran ahead of that?
Well, we're not ready to spike the football on the run rate being north of that, but we certainly have some optimism that the run rate could be north of that $95 million that we commented on last quarter, but I would like to get a few more quarters under our belt. We're absolutely encouraged by the mix shift that we saw to our precooked eggs, which helps our margin structure significantly. And then there were some things in the quarter that went against us, some things that went for us. So it certainly was a strong quarter. We don't want to yet proclaim victory on a permanent basis, but there's encouraging signs that may be the case.
Our next question comes from the line of Ken Goldman from JPMorgan.
Rob, welcome back. Just curious, there was a comment made about as we think about the remaining quarters that they are -- I think the phrase was fairly balanced. I assume this means perhaps wrongly, I assume this means in terms of EBITDA dollars. Just wanted to make sure I was understanding what the term fairly balanced meant in that context.
Yes, Ken, that's correct.
Great. And then 1Q the EBITDA beat consensus, a little less than $60 million. You raised the midpoint of guidance by $65 million or so. With the understanding that consensus is not the same as your internal expectation, I guess the question is, is it fair to say that 1Q beat your internal expectation by a similar degree, somewhere in that 60%, 65% range and that you're -- as a result, not assuming the remaining 3 quarters are better than you previously anticipated? Or am I kind of reading too much into that?
No, I think we are gaining some confidence in the balance of the year. And I think you have to put our planning and guidance in the context of we acquired the pet assets in -- I think we closed in April of last year. We've come out of 2 years, maybe 3 years of considerable volatility with Foodservice, starting with COVID and going into avian influenza. So we had entering our F '24 plan, a fairly considerable range of some uncertainties on margin structure and some of these we've talked about even this morning. So as we get further along through the year and gain information and confidence we're able to give greater precision to where the actual margin structure will land. And I think as I mentioned in my comments, we're gaining confidence on both Foodservice and Pet with respect to where that margin level will land and hence, the incremental guidance.
Our next question comes from the line of Matt Smith from Stifel.
I wanted to go back to the conversation around the retail environment as consumers start to reset index pricing. We've seen center-of-the-store and broadly the entire store volumes continue to remain weak and in decline. Do you have a view of how you think volumes in your retail business will progress through fiscal '24, either on a branded perspective or your value offerings?
Well, I think what we try to do is develop a portfolio that will match up with consumer demand throughout different economic cycles, and we feel very good about our ability to manage volumes because of the different price points we hit across the portfolio. So as I answered with Andrew, I don't think we have a greater crystal ball with respect to where the actual consumer demand is, what we may have is greater flexibility with respect to where they may go and the ability to pivot into different price points. So we may be a bit less volume sensitive than others.
I also wanted to ask, you talked about nearly unprecedented optionality for Post. One outlook for that optionality over time has been M&A. Can you talk about what you're seeing in the funnel? And if the lower rate outlook has caused valuation expectations for sellers to change?
Well, it's interesting that the discussion around reference price for consumers is not dissimilar from the way business owners think about reference price for selling. And we've talked about this in the past, when rates move up dramatically, there's an adjustment period where the sellers leave the market because they're -- they become accustomed to certain multiples. Those multiples are no longer available, so they sit on the sidelines. That occurred. But what is interesting is we've had such a dramatic shift in the opposite direction now, at least at the 10-year level before this morning. This morning spiking up a bit, that we may skip the glut of deferred sellers who were waiting for or where we may go back to sellers expecting a higher multiple because the rates have come down. I think we need more time to answer that.
Our pipeline is always pretty active we're looking at deals that are both tuck-in. And of course, we always have a couple of more transformative opportunities in our pipeline. But we've got plenty of our plate -- on our plate from an integration perspective that gives us luxury of simply executing the plan ahead of us and not needing M&A to necessarily drive value if M&A comes along and makes sense from a multiple on a cost of capital perspective. Great, we'll pursue it, but we're certainly not needing it.
Our next question comes from the line of Carla Casella from JPMorgan.
Could you say -- bonds you bought back in the quarter?
Carla, you were hard to hear. Could you say that again?
I was wondering if you could give us any color on which bonds you bought back in the quarter and then kind of what you think it between balancing bank debt versus bonds as you look to integrate the acquisitions. It looked like you do some revolver in the quarter as well.
Sure. So in terms of the repurchase during the quarter, those were all the 2031, Carla. So we are focused on just getting the best yield retired that we could. In terms of during the quarter, that's correct. We funded the Perfection Pet transaction with our revolver. And then I think, obviously, we've got our eye closely on capital markets and where rates are, and we'll look for opportunities as we think about the entire complex, but we'll see where that takes us.
Okay. And then you reported your net leverage 4.5. Can you give a sense for what that would be pro forma if you had the acquisitions for a full year for all the acquisitions.
And that is like a credit facility calculation, so it does include the pro forma contribution for Pet for the 4 months we didn't own the business and for Perfection for the 11 months we didn't own the business. So it is all in.
Our next question comes from the line of Bill Chappell from Truist Securities.
Rob, welcome back. I mean I -- should be a little concerned you're throwing out emojis and quoting the tenure so quickly, but that means you're fully back in the chair. Two questions. One, I guess just help us understand on kind of U.S. consumer volumes and even Weetabix for that matter and what -- it's not just you, obviously, it's the whole kind of packaged food industry. So what do you think changes the volume growth to actually growth again as we move through this year? And do you -- does Post need to step up advertising, marketing promotions to kind of get things going? Does the industry need to? Or will it just naturally start to stabilize?
I think we're more of the latter camp because part of it is lapping SNAP. Part of it is lapping student loan resumption. So you've got some exogenous variables that are impacting the volume trends. And then I think getting the enough time past the fairly rapid run-up in inflation to allow for that psychological resignation to the new price levels. So I don't think it's a major change in behavior from our perspective, it's more allowing time to cure some of it.
Got it. So you don't see the promotional level stepping up even from your peers, be it cereal or other packaged goods categories?
We're seeing fairly normal, what we would consider prepandemic levels of promotion. So there will be pockets of time as has been the case all through history that some of our competitors will promote more in certain periods of time than others. But as a general rule, we're not seeing in cereal, the promotional landscape being fundamentally different than what it has been historically.
That's great. And then just a follow-up, making sure I understand the profit on Pet. So is the thought that -- again and what you beat the quarter and then what you raised the guidance, it's just trying to understand, are you thinking the timing of advertising is just -- merchandising and marketing behind these brands is a little longer? Or is the actual spend maybe not as high as you thought it would need to be to kind of get the growth that you're looking for?
Well, we're not sure yet. I think the timing is certainly delayed a bit. And the spend could -- I don't mean to be glib, but it could mean anything from lower same to higher depending on the results of the spend. So we're -- we've got the luxury because of the incremental volume over our base case to make some strategic decisions about where we want to invest. Part of it is also in some manufacturing insourcing that is actually going to be in the short term margin dilutive because we're changing some contract packing, contract manufacturing relationships, bringing them in-house, and we're going to have to invest a bit behind that. Ultimately, that will be margin accretive, but it will take a little bit of time to get there.
Our next question comes from the line of Marc Torrente from Wells Fargo Securities LLC.
Rob, welcome back from our team as well. On shake manufacturing, the facility came online during the quarter with first shipments [indiscernible] in January. How is the ramp initially looking? When would you expect to get to that sort of $20 million EBITDA run rate level. Is that sort of the target exiting fiscal '24?
It is a target exiting fiscal '24, but I think we've had some start-up costs and start-up learning curve issues that push us from the full fourth quarter being a run rate to more like last month or 2 of the year being the run rate. So we're probably, call it, 60 days behind where we expected to be at this time. I think there will be some benefits to this learning curve as we have closer proximity to some of the issues with Tetra and position ourselves ready to expand going forward, but it has been a bit slower than we expected it to be.
Great. And then on Deeside, small acquisition, but I guess somewhat meaningful to the Weetabix segment, how should we think about the contribution and margin profile relative to the segment and is this the type of deal that you're looking for more near term?
The Deeside was very, very small. It basically gave us some factory capacity that we need for some specific product in the U.K., small private label business. We'll be essentially margin neutral or profit neutral in 2024 and then contribute a handful of million pounds in 2025, but very small.
Thank you. There are no further questions at this time. Thank you for joining us today. You may disconnect.