Earnings Transcript for LW - Q3 Fiscal Year 2024

Operator: Good day and welcome to the Lamb Weston Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Dexter Congbalay. Please go ahead.

Dexter Congbalay: Good morning and thank you for joining us for Lamb Weston's third quarter 2024 earnings call. This morning, we issued our earnings press release which is available on our website, lambweston.com. Please note that during our remarks, we'll make some forward-looking statements about the company's expected performance that are based on how we see things today. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release. With me today are Tom Werner, our President and Chief Executive Officer; Bernadette Madarieta, our Chief Financial Officer. Tom will provide an overview of the ERP transition, the current demand environment and the status of this year's potato crop. Bernadette will then provide details on our third quarter results as well as our updated outlook for the remainder of fiscal 2024. With that, let me now turn the call over to Tom.

Tom Werner: Thank you, Dexter. Good morning and thank you for joining our call today. This was a challenging quarter as we transition certain central systems and functions in North America from a decades-old legacy enterprise resource planning system to SAP. The transition is the first step towards a multiyear global rollout. Among other areas, the scope of this transition affected receiving and processing customer orders, trade pricing and promotion management, managing inventories and warehousing, scheduling, transportation and shipments, invoicing customers and treasury and cash management. While the transition went well in many areas, it proved more difficult than we expected despite the countless hours we spent planning, testing and preparing for the transition. Specifically, we experienced significant challenges with inventory visibility at distribution centers which led to shipment delays, canceled orders and ultimately, lower-than-expected volumes in the quarter. In particular, we had more difficulty filling shipments of mixed product loads which are generally higher margin than shipments of single product loads. This pressured margins in the quarter. We partnered closely with our third-party and company-owned distribution centers to minimize the impact of these challenges. This included co-locating Lamb Weston team members at our distribution centers to resolve data errors and processing issues in real time and adjusting systems and processes for balancing inventory between distribution centers and SAP. We also work closely with our customers to limit the impact on their operations and I want to thank them for their patience and commitment as we manage through the transition. Importantly, I also want to thank our Lamb Weston team members who worked around the clock to help restore customer shipments and service back to pre-transition levels. As Bernadette will cover in more detail later, we estimate that the ERP transition reduced net sales by about $135 million and volume growth by approximately 8 percentage points in the third quarter. We also estimate that adjusted EBITDA was negatively impacted by approximately $95 million, with more than half of that due to lower sales and unfulfilled customer orders and the remainder due to incremental costs and expenses directly related to the transition. As with any transition, our teams are still adapting to the new system. I'm pleased that we have contained the effect of the inventory visibility issues to our fiscal third quarter and restored customer order fulfillment rates to pre-transition levels. We understand that some customers effected by either delayed or canceled shipments may have temporarily secured supply from alternative sources until they gain confidence in our service levels. With healthy warehouse inventory levels and flows throughout the system, we're actively engaging customers with our direct sales force to earn their trust and their business. Turning now to the demand environment, overall, global French fry demand remains resilient but we believe it's currently at or below the historical annual growth rate of about 2% to 4%. According to restaurant industry data providers, restaurant traffic trends in the U.S. have been generally flat to slightly down during the past 6 to 9 months as consumers continue to adjust to the cumulative effect of inflation on menus. QSR traffic during the third quarter was flat versus the prior year after growing modestly during the first half of fiscal 2024. Several QSRs have attributed this to less visits by lower-income consumers as their disposable income has been more affected by the overall inflationary environment. Meanwhile, traffic at full-service restaurants has declined each quarter during fiscal 2024. Outside the U.S., restaurant traffic continued to increase versus the prior year in most of our key markets. But growth has also slowed sequentially from our fiscal second quarter. Similar to the U.S., we believe traffic in these markets is also affected by consumers adjusting to the cumulative effect of inflation as well as other macro headwinds. Restaurant traffic growth in our larger markets in Europe in the third quarter was mixed. Traffic was up in France, Germany and Italy but at notably slower rates than during the first half of fiscal 2024. Traffic was down in the U.K. and Spain. In Asia, traffic growth in both China and Japan was solid, while in the Middle East, traffic was down. While global restaurant traffic has slowed, the fry attachment rates in North America and in our key international markets have been generally stable. So on the one hand, fries remain as popular as ever with consumers. But on the other hand, consumers are going out to eat less often. Because of these recent trends, we're taking a more cautious view of the consumer. In our previous financial outlook, we expect the restaurant traffic and demand would pick up in the fourth quarter. As Bernadette will cover in more detail, we're now taking a more prudent approach to our expected sales and volume performance in the near term. We currently anticipate volume will decline mid-single digits as opposed to our previous expectation of modest volume growth in the fourth quarter. Despite this near-term caution, we believe the pressure on restaurant traffic and demand is temporary and we remain confident that the global fry category will return to its historical growth rates as consumers continue to adjust to higher menu prices. Turning now to the upcoming potato crop. In North America, we've agreed to a 3% decline in the aggregate and contract prices for the 2024 potato crop and have largely secured the targeted number of acres to be planted across our primary growing regions. Planting is on schedule for the early potato varieties and we expect planning for the main harvest to be completed by the end of April. Although we expect our potato costs in North America to decline somewhat during the second half of fiscal 2025, assuming an average crop, they will likely be offset by a rise in our other input costs. In Europe, prices governed under fixed price contracts are up mid- to high single digits and we've contracted for our targeted amount of acres. We'll provide our typical update on the outlook for potato crops in North America and Europe when we issue our fourth quarter earnings in late July. So in summary, we believe the impact of the order fulfillment issues has been contained in the third quarter as service levels have been restored to pre-transition levels. Overall, global fry demand remains resilient, although restaurant traffic trends continue to be challenged as consumers adjust to higher menu prices. We have reduced our fiscal 2024 financial targets to reflect these softer traffic trends and the higher-than-expected financial impact of the ERP transition. And finally, we have largely locked in the pricing and acreage needed for this year's crop in North America and Europe. Let me now turn the call over to Bernadette for a more detailed discussion on our third quarter results and updated outlook.

Bernadette Madarieta: Thanks, Tom and good morning, everyone. As Tom noted, we're not happy with the magnitude of the impact to the ERP transition on our customers, our business and our P&L. However, I do want to take a moment and say how proud I am of our Lamb Weston team members who did work tirelessly to remedy the issues we experienced and bring our customer order fulfillment rates back to pre-transition levels within the quarter. I also want to thank our sales team members who stayed close to our customers to limit the impact as much as possible on their businesses. Let's review our third quarter results. Sales increased $205 million or 16% to $1.46 billion. The entire increase was driven by $357 million of incremental sales from the acquisition of the EMEA business. This is the last quarter that we'll receive the incremental benefit from the EMEA consolidation since we began to consolidate EMEA sales beginning in the fourth quarter of fiscal 2023. If we exclude the incremental sales from the EMEA acquisition, net sales declined $152 million or 12%. We estimate that the majority of the decline or approximately $135 million was due to unfilled orders attributable to the ERP transition. Price/mix was up 4% as we continued to benefit from the inflation-driven pricing actions taken in fiscal 2023 and pricing actions taken this year in both our North America and international segments. However, unfavorable mix related to the type of orders we were able to fill during the ERP transition partially offset the benefit of the pricing actions. In addition, lower freight charges to customers were nearly a 5-point headwind which was driven by lower volume shipped and the pass-through of lower freight rates when shipping products to customers. Total sales volumes declined 16%, with about 8 points of the decline associated with unfilled customer orders due to the ERP system transition. The other 8 points of the decline was primarily driven by 2 factors

Tom Werner: Thanks, Bernadette. With the impact of the order fulfillment issues behind us, we remain focused on serving our customers as we close out fiscal 2024. While near-term demand trends may be soft, we remain confident in the long-term growth outlook and the health of the category. And by continuing to execute our strategies, we believe that we will remain well positioned to deliver sustainable, profitable growth and create value for our shareholders over the long term. Thank you for joining us today and now we're ready to take your questions.

Operator: [Operator Instructions] We'll go first to Andrew Lazar with Barclays.

Andrew Lazar: I think one of the questions I'm getting probably most this morning, frankly, separate from all things sort of ERP related, really has to do much more with your comments around slowing restaurant traffic all the time when sort of industry capacity is set to start building once again and what that could portend for pricing going forward, particularly with cost pressure not being anywhere near what it was in the last couple of years. So I guess, as a starting point, I'd really be curious to get your perspective on how you would address sort of that concern at this point.

Tom Werner: Yes Andrew, thank you for the question. Certainly, the restaurant traffic trends have been soft as we stated in our comments and everybody knows we've got capacity coming on in the industry. And the thing to remember is as the capacity comes on, it's not all created equal. So the capabilities of the capacity are different. And as we have in the past, when we've had capacity coming online, we're going to be very -- we're going to manage it very closely and be -- and look at the opportunities we have in the different markets based on the capacity coming online as we have in the past. And so the difference is, obviously, the trends in the restaurant traffic are softer. We expect that to be a temporary outlier at this point. Time will tell but we'll manage the capacity coming online like we have in the past with ourselves and competitors and the category has been resilient and we remain confident and the long-term trajectory of this category which we expect to get back to 2% to 4% growth at a minimum.

Andrew Lazar: And then I know there are a number of costs, right, that Lamb Weston absorbed in fiscal '24, that I don't think you would expect to necessarily repeat next year. So some of the inventory write-offs, the costs associated with, obviously, this ERP disruption and such. I mean, just back of the envelope, it would seem like, again, if it weren't for those things, maybe EBITDA would be closer to -- even closer to like $1.7 billion this year as sort of a base. And I'm just trying to get a sense if we exclude those costs, would that kind of be -- how we think about a baseline for EBITDA for '24 off of which you would expect to grow EBITDA hopefully closer to your algorithm, let's say, in fiscal '25? Or am I missing something in that sort of math?

Bernadette Madarieta: Andrew, this is Bernadette. You're absolutely thinking about it correctly. We did absorb those costs and I think you would add those back as you look to fiscal '25. I think what's going to be key is we'll need to take a look at the restaurant traffic trends and impact on volume as we move forward and how that translates to fiscal '25. And we're in the process of rolling that up right now and we'll have more information when we give our outlook in July.

Operator: We'll go next to Peter Galbo with Bank of America.

Peter Galbo: I wanted to unpack maybe just the underlying volume comment that you made, Bernadette. So I mean at the total company level, right, if we strip out the 8 points from ERP and there's obviously a piece that was walkaway business it seems like underlying volumes would have been down, I don't know, 4% or 5%. And that's kind of what you're extrapolating into 4Q. Just want to understand if that's kind of the logic as to how you're applying whatever the 3Q rate was forward?

Bernadette Madarieta: Yes. So you're exactly right. It was a 16% decline in the quarter, 8 points related to the ERP transition and then the underlying volume we had expected it to improve sequentially but that the softer traffic trends that we did see, we do expect those to remain soft in Q4 of this year and that's what we're updating in our outlook. That continued softness.

Peter Galbo: Okay. Got it. And I think what's implied again in the fourth quarter guidance, again just thinking about this as it starts rolling forward into next year, is that price/mix kind of steps back up at least sequentially or the contribution rate based on kind of the updated guidance? And I wasn't sure how much of that is just mix as you get back to fulfillment versus anything else that we might be considering.

Bernadette Madarieta: Yes, you're going to see a couple of things. Mix will be part of it. As we said, in the third quarter, we weren't able to fill a lot of those orders that are more higher margin, just given the more mixed loads and the order fulfillment issues we were having. So you will see that impact then into the fourth quarter. But there's generally a sequential change between third and fourth quarter and you'll continue to see that as you have in previous periods.

Operator: We'll go next to Adam Samuelson with Goldman Sachs.

Adam Samuelson: So I guess, first, kind of continuing on Peter's line of questioning. I want to think about the volume impact of customers who are seeking alternative sources of supply and where -- I mean, definitionally, that's market share. Now one could say that, that is temporary. But just get your perspective on your ability to get that volume and that share back? And on a related point, kind of we've talked about the headwinds from foregone volumes, from business you walked away from, kind at the time, the explanation was that you were going to be trying to backfill that with higher margin and higher mix products, does it seem like we're getting that incremental uplift on the back end? And I'm just trying to get a update on where you are with those targeted volumes and targeted customers and categories.

Tom Werner: Yes, this is Tom. So a couple of things. We're getting ready to go through our contracting season as we do every year at this time. We're on the front end of it. So we have a robust plan on how we're going to work through that. And so I'm confident the team and our direct sales force and Mike Smith and his commercial leaders are focused on that. So more to come on that but it's going to take some time. It's not perfectly matched as we've stated in the past in terms of the volume, we've exited versus what we're targeting in the marketplace and we're going to do it at the right margin levels. So that's number one. Number two, this is a tough transition. There's no question about it. And it materially impacted the company and we're not happy about it. And so we have to win back the trust of a lot of -- some of our smaller customers and we're working hard to do that with our direct sales force. But it's going to take some time and that's an unfortunate thing that has happened but I'm confident we have a plan. We've got everybody activated our direct sales force, 300 salespeople on the street but it's going to take some time. And your question about -- your point about market share is absolutely true. And so we're going to have to work hard to get it back and we will. We have a resilient sales force but it's going to take some time and I'm confident that the team, we got a great plan in place but it will take some time and we're going to get there.

Adam Samuelson: Okay. That's helpful. And then a second question I had on capital allocation and CapEx. I guess I'm just trying to get a sense for higher -- at the high end of the range on capital spend this year and that's just the timing of payments on projects. Has there been a -- with a slower demand environment in the near term, is there any thoughts about timing of capital spend in '25 and '26 as it relate to the Netherlands and Argentina facilities and how quickly those need to be brought on or how quickly upgrading of other facilities needs to happen? And should we still be thinking about CapEx in -- how should we think about CapEx in '25 given slightly higher spend this year?

Tom Werner: Yes. So Adam, as we communicated in our Investor Day in October, we're going to have an elevated level this year, next year. The projects that you mentioned, those are baked and we're committed to it. And so we expect '25 will be elevated as we stated. And as we continue to evaluate the market and what's happening we'll evaluate all of our capital expenditures going forward in terms of base capital levels that are needed.

Bernadette Madarieta: Yes, the guidance would be consistent with what we shared at Investor Day, 12% to 13% of sales in fiscal '25.

Operator: We'll go next to Tom Palmer with Citi.

Tom Palmer: I wanted to follow up, I guess, a little on Peter and Adam's question, just on some of these customers. When might you have clarity whether these customers have kind of dropped you on a more sustained basis or whether you're starting to kind of win them back. Is this -- it's really going to play out over 4Q and by next quarter, we'll have real visibility over that trajectory? Or could it take even longer?

Tom Werner: No. Right now, as we sit, my belief is over the next 3 to 5 months, we'll have some clarity on it. That's going to be in conjunction to a lot of the contracting that we go through with the customers this cycle. So Tom, I think we'll have good visibility by the time we get to our next call in July and we'll get some more color on it by then.

Tom Palmer: Okay. And then just the mid-single-digit volume decline in 4Q. If we were to kind of break that down between industry and then versus Lamb Weston specific, I mean just any help here, I mean is it industry is a smaller piece to consider and the Lamb Weston piece is more meaningful?

Bernadette Madarieta: Yes. No, I would say that it's more industry is where you're going to be seeing that with the softer traffic trends. And then the other piece will be any hangover that we have from the ERP transition but definitely more traffic trends softening that's impacting that.

Operator: We'll go next to Robert Moskow with TD Cowen.

Robert Moskow: A few small ones. I don't know, maybe you wait a few months before you tell us this. But you said you've contracted with growers already for potatoes. I would imagine you have a volume assumption like internally related to that in terms of demand for fiscal '25. Is there anything or you can give us on how much volume you're contracting with those growers? And then secondly, you say that the ERP project is a multiyear and I guess I need to know more about it. But are there any other steps along the way that you think will possibly impact your execution with customers.

Bernadette Madarieta: Thanks, Robert. First, I'll take your last question first in terms of the ERP. The next phase of the ERP will be in North America and that will be at our plants. We will do a pilot plant first where we will test all of its capabilities before we earn the right to move to the other plants and we'll do that in waves. So we're right now in the middle of completing design build for the plants and then we'll roll that out in phases but it will have much less of an impact given our deployment strategy. Whereas this one was much larger in scope. And then as it relates to the potato crop that we contracted for 2024, yes, we do use volume estimates just like we do every year. We have taken down the number of acres that we did contract this year just given the elevated level of inventories that we're going to have at the end of this year with the excess crop. But we don't share any of the information in terms of number of acres but have taken into consideration what we're seeing from restaurant traffic trends.

Robert Moskow: Okay. And maybe a follow-up to that. Just mathematically, I think you said traffic is kind of flattish at restaurants and attachment rates are still pretty good. How does that translate to a mid-single-digit volume decline? If I just qualitatively put those two numbers together, I would think volume would have held up a little bit better.

Bernadette Madarieta: Yes. I think from a volume perspective, our QSRs, we are seeing sequential declines in volume and that's what's driving a lot of the volume decreases that you're seeing.

Robert Moskow: Sequential declines?

Bernadette Madarieta: Yes.

Robert Moskow: Yes. Is that a year-over-year decline also? Or is it kind of...

Bernadette Madarieta: Yes, it is. Absolutely, it's a year-over-year as well as sequential. We've continued to see QSR traffic decline. When we were saying about flat that was more in the Foodservice space.

Robert Moskow: Foodservice. Okay, separate. Got it.

Operator: We'll go next to Rob Dickerson with Jefferies.

Rob Dickerson: Great. Just a couple of quick ones for me. I guess, kind of more broadly speaking, kind of given the, I guess, shift in, let's say, at least the near-term traffic outlook. Is there anything broadly speaking, the kind of changes kind of everything you walked through at the Investor Day in October just regarding kind of the long-term outlook, like long-term outlook like based with 2% to 4%, you are saying, you think temporary -- I'm not sure kind of how temporary that is. But then there was also an implied margin uptick each year over the next few years. Just trying to gauge kind of all the moving pieces as we think longer term.

Tom Werner: Yes, Rob, as I sit here right now, yes, we've been talking about softer traffic and that's been in the market for a while. I don't have any -- as I sit here right now, our long-term algorithm, I'm confident in. And if this is prolonged, we have certain things that we can activate to adjust the company and the footprint. But right now, we've made some investment decisions 2 years ago based on what we believe the category is going to continue to do. I believe it's going to continue to grow, even though -- we've got a softer period. And so I don't have any reason to believe that over the long term, we need to adjust our algorithm at this point.

Rob Dickerson: Got it. Super. That's clear. And then just very quickly, I also think you had stated back in October, right, increasing the dividend over time but then potentially some incremental repurchase activity outside of employee option exercises. So I'm just curious, I mean we can all see clearly, stock looks a little pressured today. I'm trying to gauge your appetite on buyback potential as you think forward to the next 12 months.

Tom Werner: Yes. So we're committed to the dividend. And as we evaluate our CapEx, we'll certainly take a look at our share buyback as we always do. And we'll stay committed to our dividend over time. And so yes, absolutely, based on what's going on today with our equity price, we're going to evaluate that.

Operator: We'll go next to Matt Smith with Stifel.

Matt Smith: When you look at the slowdown in restaurant traffic, one of the factors have been the level of pricing. We've continued to see away from home inflation moving higher. So a couple of questions here. Any thoughts on what's needed to firm traffic up? Is that consumers adjusting to inflation? Or would you expect operators to lean more heavily into value offerings and promotions related to that? One of the considerations in the past, you've talked about in periods of economic softness and pressure on QSRs, fry performance has been fairly resilient benefiting from value menus featuring fries heavily. Are you seeing that level of activity today?

Tom Werner: As we sit here today, I think there's 2 things. I think the consumers has to adjust to the menu pricing in terms of the inflation. I believe we're going to start seeing more menu value meal offerings going forward to drive traffic trends. That's been typically the case in the past when things have slowed down a bit. So I think it's a combination of both going forward but it's going to take some time.

Matt Smith: And then just a follow-up question on potato cost. It sounds like they're expected to be down low single digits in North America for the 2024 crop. That's one of the few instances where potato costs are actually down year-over-year. Is the pressure from the potential of lower pricing to your customers, is that offset by higher input costs across the rest of your basket? Or would you expect some pressure on your pricing going forward from lower potato costs?

Tom Werner: Yes. So just to reset, even though it's down like we stated 2% to 3%. If you go back and stack it up the last 2 years, it's been up significantly. And when -- we're in the middle of rolling up our entire input basket right now for '25, as we've stated, there are commodity inflationary pressures in other areas of our input basket. So while our inflation, we don't expect it to be double digits like it has been in the last 2 to 3 years. We're still going to be dealing with some inflation at this point. I'm not going to give you a specific number, we'll talk about that in July because we're in the middle of kind of rolling up our '25 operating plan right now.

Operator: we'll move next to Marc Torrente with Wells Fargo Securities.

Marc Torrente: You touched on sort of the net -- on the ERP process. The recent implementation was a heavy lift. It sounds as though you are more confident in ability to limit the transition impact for the next steps. Maybe how are those next steps different and some of the learnings you have gained from the recent transition?

Bernadette Madarieta: Yes, sure. So some of the next steps are different in that we're able to go live at one plant and isolate and therefore, limiting the impact, whereas with all of the central systems that were affecting customer ordering, inventory management and others this time that was more difficult. I think that as we've shared from an inventory visibility perspective and lessons learned, there's always more things that you're going to be able to do in terms of change management and other things. And those are the things that we will continue to focus on as we move forward into our plant phases.

Marc Torrente: Okay. And then in the third quarter due to the transition, as fulfillment normalizes, how should we think about, I guess, price/mix trends flowing through the next several quarters, considering both wraparound pricing, potentially more muted new pricing and then actual underlying mix? And how much of a contributor will be that underlying mix going forward?

Bernadette Madarieta: Yes. So as it relates to mix, we talked about the impact in fourth quarter and coming off of the ERP transition. As we go to fiscal '25, we will continue to see more favorable mix impact as we bring on our new capacity in American Falls, for example, where we are able to offer more premium products. So those are some of the things that you'll see by way of changes in mix. And then next year, we won't be lapping some of those lower-margin exits that we had made in fiscal '23.

Operator: We'll go next to Max Gumport with BNP Paribas.

Max Gumport: Turning back to the comments on slower restaurant traffic trends and your expectation that they'll be temporary in nature. I'm just curious what type of visibility you have right now that's giving you the confidence in seeing some improvement in restaurant trends in the horizon. I know you talked about the impact of the higher menu prices and how consumers will adjust to that eventually. But just curious what's impacting that confidence? And any sort of sense of time line for how we can see it play out?

Tom Werner: Yes. So number one, we got the fry attachment rate has stayed pretty consistent. It's been above historical levels for the past 2, 3 years. So that's one thing. The other thing that we monitor continually is restaurant traffic every month that we look at and while it's been slowing recently, as we've discussed on the call, we believe based on kind of how we model some things that we expect that to -- the consumer to get adjusted to the inflationary menu pricing and we expect that to return here going forward. So it's not a perfect, linear assumption that we're making but overtime we think it's going to return back to in-store restaurant business.

Bernadette Madarieta: Yes. And the only other thing that I'd comment on that, we've talked a lot about in the past is related to French fries and the fact that they are one of the highest margin items on restaurant menus. And we will likely then continue to see pushing towards those types of products by the restaurants.

Max Gumport: Got it. And then turning back to the sort of the backfilling of the contracts that you exit in '23, it feels like it's been pushed off a bit, right, given the ERP transition. But I'm just curious because right now, I feel like you're going to be trying to maintain relationships with customers that were impacted by the ERP transition. So how far that has your ability to start to make progress on backfilling some of those contracts you exited with higher margin business has been pushed, is that more of a middle of '25-type event now? I'll leave it there.

Tom Werner: Yes. So we're on the front end of a lot of our contracting with customers right now, as I stated earlier and we've got a plan put together as we start thinking about FY '25 and targeted customers and rebuilding the relationships with some of the customers that we impacted, unfortunately, with our ERP situation. And it's going to take the next several months to work through all that. But I expect as our team will recapture that business will be targeted in our approach to that. And so it's going to take some time to rebuild those relationships. And we're going to be mindful as we always are at this time of year as we talk to our customers that we're contracting with on the opportunities that we feel we need to target and go after.

Operator: We'll go next to William Reuter with Bank of America.

William Reuter: I just have two. The first is, at this point, are there any orders that continue to be delayed? I just wanted to put a finer point on that.

Bernadette Madarieta: We're back to our previous order fulfillment rates.

William Reuter: Okay. Good to hear. And then the second, given your early conversations with customers and the fact that you are in the midst of contract negotiations, have you gotten any sense that customers are leaning on you more than they would have in the past based upon the recent challenges that existed?

Tom Werner: No, I don't -- we don't have any -- from a customer standpoint, we were communicating well with them. With the challenges we had, a lot of our bigger customers, we made sure they understood all the things we're going through. So generally, they didn't like it but they understood. But there's no fallout from a lot of our bigger customers as we went through this. And we did our best to protect everybody as we could.

William Reuter: Got it. And actually, I have one more. I think the ERP implementation that's going on right now is just in North America and that you'll be doing it in international regions in the future. Is that right?

Bernadette Madarieta: That's correct. So we did the central systems in North America. The next phase will be plant in North America. And then after that, we will go international.

Operator: We'll go next to Carla Casella with JPMorgan.

Carla Casella: In the past, you've talked about M&A and internationally. Is that all kind of off the table for now until you get the ERP system done? Or are you still looking at opportunities? And can you just talk about what you're seeing in the market?

Tom Werner: Yes, it's not off the table. And I've been pretty clear on this that we're always continuing to evaluate international acquisition opportunities, certainly, the timing of those depends on -- it depends on the other side of the table, so to speak. So you can't always time these perfectly and we'll continue to evaluate it. And if something presents itself, based on what's going on today, we're going to continue to move forward. But we've got to be mindful about what's going on in the organization. But you can't predict when these things are going to happen, we have a sense of it but we're absolutely going to continue to pursue those.

Carla Casella: And has the market -- I mean, given the kind of softness in the QSR today internationally, is the market opening up more? Are there more -- are you getting more looks in the past? Anything you can give us on the market?

Tom Werner: Yes. I mean I'm not going to get into a lot of specifics on that question obviously. But the thing to remember is, we have a belief in the long-term resilience of this category and have. And yes, we're dealing with some softness right now, we believe the category is going to return globally. And we're seeing some pockets of international markets that are performing well, as I stated in my prepared remarks. So over the long term, if something presents itself, we're absolutely going to evaluate it.

Operator: With no additional questions in queue. At this time, I'd like to turn the call back over to our speakers for any additional or closing remarks.

Dexter Congbalay: Hi, this is Dexter. If you have any follow-up questions or like to schedule a call, please send me an e-mail and we can do so. Other than that, have a good day and thanks for joining the call.

Operator: That will conclude today's call. We appreciate your participation.