Steven Oakland; Chairman of the Board, President, Chief Executive Officer; TreeHouse Foods Inc
Patrick O'donnell; Chief Financial Officer, Executive Vice President; TreeHouse Foods Inc
Welcome to the Treehouse Foods third quarter, 2024 conference call. (Operator Instructions ) Please note this event is being recorded at this time. I would like to turn the call over to Matt Siler of Treehouse Goods for the reading of the Safe Harbor statement.
Good morning and thank you for joining us today. Earlier this morning, we issued our third quarter earnings release and posted our earnings deck. These items are available within the investor relations section of our website at treehousefoods.com. Before we begin, I would like to advise you that all forward-looking statements made on today's call are intended to fall within the safe harbor provisions of the Private Securities Litigation Reform Act of 1,995.
These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company's filings with the SEC on September 29, 2023 we completed the divestiture of our snack bars business consistent with prior quarters, we will discuss our results on an adjusted continuing operations basis.
A reconciliation of Non-GAAP measures to their most direct comparable GAAP measures can be found in the release and the appendix tables of today's earnings deck with that. Let me now turn the call over to our Chairman CEO and President Mr. Steve Oakland.
Thank you, Matt and good morning, everyone. Today, I will discuss our third quarter financial results and provide an update on our operations and our outlook for the remainder of the year.
Before we get to the results. I would like to update you on the voluntary recall of frozen griddle products which we announced last month. As you can see on slide, four Treehouse Foods initiated the recall of products made in our Branford Ontario facility out of a commitment to food safety and quality. The recall was initiated as a result of routine quality assurance testing of our products made at the facility.
We have temporarily closed the facility to conduct a deep cleaning, sanitation, and hygienic restoration. Our entire organization is committed to food safety, and we are extremely disappointed to have this event occur in our system, but it recommits all of us to be relentless when it comes to food safety. We expect the facility to resume manufacturing in the first quarter of 2025.
Moving to our third quarter results outlined on slide, five, our organic net sales trend improved, we delivered adjusted net sales of $854 million which was just below our guidance range. Our performance was impacted by weakening consumer trends across our industry and specifically our categories as the third quarter progressed.
Additionally, hurricane Helene caused some delays in shipping volume out of our North Carolina Distribution Centre in the final days of the quarter, which we estimate was an impact of between $5 million and $10 million of our top line. Despite these sales results, we still recorded adjusted EBITDA of $103 million which was at the midpoint of our guidance range. This was driven by our strong adjusted gross profit. A result of the savings associated with our supply chain initiatives. We executed well against the savings initiatives in our supply chain, securing anticipated procurement savings which provided the benefits expected this quarter.
Importantly, the progress we are making on these initiatives should lead to positive momentum for next year.
Let's take a closer look at the consumer trends that we experienced during the third quarter in the categories in which we operate, which are detailed on slide 6. While private brand unit sales were positive in the quarter, we did see a significant deceleration as the quarter progressed, which you can see on the right side of the page. This slowdown was a result of continued pressure on the consumer that impacted the broader market. This trend persisted through October, and we assume that it likely continues in the near term.
But that said overall private brand industry dynamics remain favourable when compared to historic levels. As you can see on slide, seven specifically, price gaps are healthy and private brands continue to take share. But given the lower consumption environment, the share gains are coming from a smaller pie.
Finally, as it relates to promotional levels, we have seen a traditional pattern of gradual increases as the calendar year has progressed. While we do expect the typical seasonal ramp in the fourth quarter, we would note that promotions are still below the historic levels seen prior to the pandemic. As you can see on slide, eight private brands have been consistently gaining share over the last two decades which we believe will continue over the long term treehouse remains attractively positioned at the intersection of two incredibly powerful long term consumer trends, the growth of private brand groceries in North America and a consumer shift towards snacking.
Continuing with the discussion of the long term opportunity on slide 9, it's clear that many grocery retailers also see further runway for growth in private brands and are making their own strategic investments accordingly. Wal Mart and Albertsons both launched new private brands recently. Costco's Kirkland brand is well established globally, and Aldi continues its store-based expansion across the US with an assortment that is focused almost exclusively on private brands. This emphasis underscores the opportunity available to treehouse to partner with our retail customers gain share and create value.
Over the long term, I would like to conclude by providing some additional perspective on how we plan to manage the business in the near term, which incorporates both challenging consumer trends and slower category growth. Given these trends, we continue to focus on the things we can control. As an organization primarily in our supply chain. We have made significant progress on a number of areas but we still have the opportunity to improve our execution and consistency.
The foundation we've built with our supply chain initiatives remains strong and we are focusing on executing what you see outlined on slide 10, we have visibility to delivering our commitment of $250 million of gross supply chain savings through 2027. The building blocks of these initiatives include driving manufacturing efficiencies through tomes, our treehouse management, operating system, procurement savings opportunities and improving the efficiency of our network.
Additionally, I believe we've positioned the company in the right categories and we capitalize on opportunities to invest in those categories to improve our competitive positioning, depth capabilities and execution in this environment.
We think it's prudent to focus on profitability and cash flow. We are building a strong margin management function which should allow us to enhance our profitability by allocating our capacity to the most attractive mix of businesses that drives profitability for both treehouse and our customers. Additionally, we have the opportunity to develop a more efficient pricing architecture.
I'm confident in our ability to drive improved profitability as a result of the progress on these initiatives. Despite a slower growth environment with that, I will now turn the call over to pat for further detail on our third quarter results and our updated outlook pat.
Patrick O’Donnell
Thanks Steve and good morning, everyone. I'd like to start by thanking the entire treehouse team for their hard work this quarter. You can see a summary of our third quarter results on slide 11, our adjusted net sales were down just over 1% year over year. Importantly, we delivered solid adjusted EBITDA of approximately $103 million which was up 14% year over year. Our adjusted EBITDA margin was 12% which was up 160 basis points compared to last year.
On slide 12, we have provided further detail on our year over year. Net sales drivers. Our third quarter adjusted net sales were down just over 1% which reflects a sequential improvement in our trend compared to the past couple of quarters. Some of our recent business wins were offset by headwinds from slowing consumption in our categories. And the impact of hurricane Helene which disrupted distribution in the final days of the quarter.
Pricing was a headwind of about 50 basis points due to targeted commodity driven pricing adjustments as we expected. Additionally, net sales were negatively impacted by the voluntary recall of griddle products which provided a drag of over 1%. Moving on to slide. 13, I'll take you through our adjusted EBITDA drivers’ volume and mix including absorption was down $1 million driven by lower volume in the quarter.
PNO pricing net of commodities was down $3 million year over year and was driven by higher commodity costs and targeted pricing investments. Operations and supply chain were a net $20 million benefit versus the prior year driven by supply chain cost savings primarily related to our procurement initiatives. Lastly, SGA and other was a $3 million drag versus last year, primarily due to less TSA income as we expected.
Moving on to our capital allocation strategy, which is outlined on slide 14, the board and management continue to be focused on deploying capital in a manner that enhances returns for shareholders. Our first priority remains investing in our business which we do organically through Capex and inorganically by strategically adding depth and capabilities.
We will also continue to maintain our balance sheet strength and execute on our share repurchase program. When we feel our stock price is dislocated, we will continue to be disciplined and look at all capital deployment decisions by evaluating risk adjusted returns.
Moving to our outlook on slide 15, we are updating our full year adjusted net sales to negative 2% to negative 1% year over year or $3.37 billion to $3.4 billion, which reflects our expectations that consumer trends will remain below recent quarters as well as the impact of our recent recall. Additionally, we have updated our adjusted EBITDA guidance range to $335million to $345 million.
This update reflects our expectations that slowing consumption and consumer driven mix trends we've experienced throughout the year, continue in the fourth quarter, creating further deleveraging of our supply base during peak season. \It also reflects the impact related to our critical recall.
Additionally, we are revising our free cash flow expectations to at least $120 million. Our guidance for net interest expense of $56million to $62 million and capital expenditures of approximately $145 million remain unchanged as it relates to the fourth quarter. We expect adjusted net sales to be in the range of $900million to $930 million representing approximately negative 1 to 2% year over year growth.
Importantly, we expect volume to drive our fourth quarter net sales with a very modest track from pricing. Our fourth quarter adjusted EBITDA is expected to be in the range of 116 to 126 million. Finally given the recall in our griddle business and our revised expectations for 2024. I thought it would be helpful to provide some initial perspectives on how we are planning fiscal 2025 which are outlined on slide 16.
As Steve noted in his remarks, we see a current macro environment exhibiting challenging consumer trends and slowing category growth as it relates to our top line. Our current expectation is that the growth from new business wins and strengthen our broth business will likely be offset by the impact of our grid recall and softness in recent consumption trends that are likely to persist as a result, we will focus on our supply chain and margin management initiatives to improve efficiency and optimize costs to drive year over year even to growth that is not dependent on top line performance.
Some of which Steve discussed earlier, I look forward to providing further context once we report Q4 2024 in February of next year. With that, I'll turn it back over to Steve for closing remarks.
Steven Oakland
Thanks Pat. Before we open the call up to your questions, I'd like to reiterate that we are focused on closing out the year as we are on track to deliver organic volume growth in the fourth quarter. And while we are disappointed with the recall event, we are committed to improving our execution and consistency.
Looking ahead, I believe we have positioned the company well to capitalize on the opportunities in front of us.
We are focused on the things that we control, including new business opportunities, strengthening the foundation of our supply chain and margin management initiatives and restoring production after the recalls. This should drive improved profitability and cash flow. Despite the macro headwinds with that, I'll turn the call over to the operator to open the line for your questions.
Operator
We will now begin the question-and-answer session.(Operator Instructions ) the first question comes from Andrew Lazar of Barclays Capital. Your line is open.
Andrew Lazar
Great. Thanks so much. Good morning, Stephen Pat morning, I guess even excluding the recall, you know, you still paint a, you know, a somewhat weaker outlook, right? For '25 despite private label, outperforming brands and trio having the benefit of the new distribution wins and recovering raw business. And you went through some of the things that are, that are expected to be offset to that on the top line.
I guess my question is like, what do you think changed so dramatically just from last quarter? And maybe this is a little bit of an also a broader industry question. Obviously, you've been in the industry a long time. I'm still, I think a lot of people are a little puzzled right on like where some of this volume is going. You know, if private label isn't outperforming more than it is relative to brands in sort of this kind of environment, it just begs the question where is it going?
I don't know, if you have any better perspective than what we see out there. But I'd love your thoughts on that because clearly something changed pretty dramatically even just than what you guys were thinking about from an industry standpoint last quarter.
Steven Oakland
You know, Andrew. Thank you. And, and yes, it did. I mean, if, if you look at just unit volume, right? If, if I look at, where was that coming from? For the first half of '24 for example, the mass channel, right? Mass channel was leading that charge in the third quarter, we saw the mass channel get negative. And as we look at October, the mass channels even more dramatically negative, right?
The largest grocers in the country have been having a tough time, right? The traditional grocers, I'm looking at their data and I see a steep downward trend in private label when you look at August, September, and October. So, you know, we're now looking at a private label in our categories anyways, that's maybe just 200 basis points above flat for the year, right?
So a big change from what we saw, you know, at the beginning of the first six months of the year, right? When we were at the top end of our guidance range on a sales standpoint, I would love to say that it's, you know, the election uncertainty. I'd love to say that it's that it's the timing of Thanksgiving all of those things. But I think we just have to plan for something different and we can't continue to disappoint you on the top line. Right. So, we're going to plan for that number to be flat.
The fact that we have wins in the fourth quarter allows us to give a guidance range with a positive number, at least in the, in the bottom or the top end of it anyways. Right. So, we think we can scratch out a little bit of positive because we got some new business wins in the fourth quarter. So, we're going to plan on that if the consumer is better will be better. But we think that takes pressure off our growth capital. It takes pressure off our organization lets us focus on getting these recalls behind us on driving our team off savings, driving our procurement savings.
So we just think it's one of those moments when we should look inward, we should drive savings, drive cash flow and then as the consumer comes back, we'll be prepared to do it. But your guess is as good as mine because I saw spending data that suggests some of the other categories were okay. But I don't think this is inconsistent from what you saw from a lot of the other large cap food companies. They've seen the total categories volumes down. So
Andrew Lazar
That's for sure.
Steven Oakland
Yeah, I don't know where it's going. Andrew. I wish, I had a better reflection on it.
Andrew Lazar
Got it. And then the follow up would be in the vein of sort of controlling, you know, what you can control. I think last quarter, you talked about expecting to at least within your own categories starting to gain share within private label in your categories as you went through the third quarter.
Even if we exclude sort of a griddle recall. Do you think that started to happen more broadly in some of your categories? Or are there still share losses even within privately.
Steven Oakland
You know? No, I think we saw some real glimmers of hope there, right. We lapped the losses that came out of all the COVID, you know, bidding and everything we went through post COVID, you know, four of our top five categories, right? Cookies, dough, pretzels, and coffee really performed well in the quarter that the fifth of that is broth, right? And it's on its way back. It's right on where we thought it would be. But, you know, we guided, it won't be 100% back until the first quarter of '25. So, yes, I see us growing in a number of those places.
I think our instore baked cookie business did a really nice job. It's going to drive some fourth quarter grove; our dough business is driving some of that. But you know, and then of course, the return of broth is going, is going to drive some of that but we have to do all of those things to scratch out one or 2% right? And so, I just think that's unusual, you know, private label has grown share for, for what the last couple of decades we're just growing share of a negative pie right now.
Andrew Lazar
Okay, thanks. I'll leave it there. Appreciate it.
Operator
Your next question comes from Jim Salera with Stephens Inc, your line is open.
Jim Salera
Yes. Good morning. Thanks for taking our questions. Maybe as a follow up there to some of the commentary on the category. You know, we still see promotional activity is below historical levels. And if I think about, you know, the incentive for some of the branded players to try to drive volume back to their respective categories, if they increase that promotional activity, kind of back to historical levels.
Should we think about that as having an overall positive or negative impact for you guys? Because on one hand, I could see a scenario where, you know, it brings volume back overall. And so, you know, you're competing for a share of a bigger pie. But on the other hand, I could see that it compresses the value GAAP and maybe it makes private label less attractive. So just any thoughts on kind of where you would Land on that dynamic.
Steven Oakland
Sure, you know, historically gaps have been smaller than they are today. So, we have historically seen brands promote really aggressively in the fourth quarter and we've, and we've done okay, even with smaller price gaps. So, in today's, we have a larger price GAAP. And by the way, those price caps are percentages, they are percentages of larger numbers.
So the Penny GAAP is pretty, is pretty large right now, the largest it's ever been. So, you've got large penny gaps. So, I think to your point drive traffic to the shelf overall will be good for the categories and private label should hold share, right?
So we'd love to see more traffic at the shelf. I think that's the challenge. Traffic numbers are down. We've seen that from some of the largest retailer. Now, there's some exceptions, you know, club and there's a couple of places.
Unfortunately, those places where traffic is up, don't have enough assortment and don't have enough, you know, volume in core food to drive the industry. So, I think a little bit of promotion, I'd love advertising because we got to get the consumer engaged in the categories again and back in the grocery store.
Jim Salera
Okay. And then, you know, we've seen a lot of large retailers either adding new private label brands or kind of expanding the offering with existing ones. How do you think about the composition of the shelf moving forward?
Just as you know, particularly if consumers are more value seeking, is there an opportunity for you to just gain outside share as, private label just expands, you know, kind of the, the percentage of the overall, shelf facings.
Steven Oakland
You know, I think our retail partners know their consumers really well. And I think you saw Albertson's launch a new private label brand in this last, you know, what, six months and then, and then we obviously saw better goods at Walmart.
So I think they understand exactly that target and they're doing it for exactly the reasons you said. Right. They recognize that new consumer today is looking for both value and has a lot of loyalty to the store. So, we think there's going to be new avenues for us to grow. We participate by the way in both of those new brands. So, you know, we'll be supporting those retailers. So yes, I do think so.
And I think they recognize private label is gaining share regardless of where the pie is going. So, they're trying to skate where the puck is going, right? They're going to private label. So, we see opportunities going forward. It's just really frustrating that we can't deliver a more consistent set of topline results in this environment, right? But we need the consumer to come to us.
Jim Salera
Okay, great. And I appreciate. All the thoughts back in you. Thank you.
Operator
Your next question comes from Jon Andersen with William Blair. Your line is open.
Jon Andersen
Good morning. Thanks for the questions. Everybody. First question I had is I'm still kind of trying to square the commentary on, you know, the kind of consistent private label, unit share games and your kind of advantaged position and snacking with kind of the ongoing kind of volume mix declines.
And I'm wondering Steve, if are you, are you seeing a tougher sliding in in your particular private label categories right now, in other words, is the unit performance in in the categories that, that you're levered to softer than a private labelled more broadly across the store. And kind of if so why or are you just kind of seeing the overall performance of private label across the store? You kind of talk that, President? Thanks.
Steven Oakland
Yeah, Jon, you know, I do think there is some variability by category, right? We have a couple of categories that are having a really tough time, hot cereal, for example, is having a tough time. But in general, I would say it's an overall comment, right? I think we've seen, and I think we've seen traditional grocery, the largest traditional grocery retailers that have had those strong big deep assortment on, on private label.
They maybe are having some of the toughest times. We've got some, you know, we've got some data that would suggest in October, they're down nearly double digits, right? And so that's, that's a tough environment for, for our categories. But for all the centre store private label categories, I'm sure there are outliers, right? In dairy and those kinds of things, we don't watch those categories very closely. So, I apologize for that. You know, I stayed much closer to what's going on in centre Store.
Jon Andersen
Okay. You know, just, just pivoting to the focus around, you know, supply chain initiatives, cost savings margin improvement, cash flow. You know, could you provide us with an update on the progress overall against your gross cost out target of $250 million, you know, where you sit say, you know, exiting 2024 on that objective and, and how to think about the incremental savings in 2025 surrounding that program.
And, also are you kind of are any of the savings associated with that initiative, you know, volume dependent or are these things that, you know, you've kind of got top line outlook out there and however that kind of comes in, you know, you're going to be able to kind of deliver on the saving, so kind of the cadence where you are at the end of this year, incremental savings in '25 and if there's any volume dependence on that. Thank.
Steven Oakland
Yeah. Sure.
Patrick O’Donnell
Yeah, tell this Pat I can, start, you know, I think we're pleased if you, if you saw our chart, you know, in this quarter's material, you know, we did see $20 million positive of supply chain, which I don't think we've seen over the last several quarters. And that is the flowthrough of some of the initiatives that we've started. So, we're pleased to see that.
And I'd say, you know, one of the ones we were able to start quickly was the procurement cost savings initiative. And so, I think you're seeing the benefit of treehouse scale and that of having the conversations with our vendors and ingredients and packaging and places like that. And, you know, we've done the first few projects, and we've got that partway through the year.
So we'll lap some savings into next year. We've got other projects we'll start. So, we feel good about procurement cost savings as being one of the one of the main levers. You know, we think about tomes as one of the ways that we can just drive service and efficiency in our plants and drive out waste. And so, I think that's one that over that time frame will be relatively consistent annually and you'll see procurement kind of deliver back after this year into next year and then start to trial off the following year.
And then the last part that we focused on would be our distribution network. And so, we have the chance to do some work around driving out how many miles we travel, putting inventory closer to customers and being able to deliver service and take some cost out that way. You know, that's work that is ongoing right now. And so, you know, we've not yet realized those.
So I think those will start to come I think we've done a really good job of being efficient in the current freight environment. So, we've had favourable sort of annual RP results in that space that have helped us. And we've been doing really good work to drive full truckloads and those types of things to be efficient within what we do.
And I think we'll continue to do those things and then we'll look at our distribution network over time. So, I feel like we're making the progress on those gross savings that we had hoped to make, and we continue to drive those forward.
Jon Andersen
Thank you.
Operator
Your next question comes from Rob Dickerson with Jefferies. Your line is open.
Rob Dickerson
Great. Thanks so much. Just kind of wanted to touch on some of the drivers, revenue growth kind of near term and maybe as we kind of get into early part of next year. You know, I kind of, let's just say, I guess for argument's sake, like Q4 sales are at the midpoint, at least are, you know, around flattish net. So, but volume still growing in the fourth quarter, you know, we haven't dimensionalize the actual dollar impact necessarily exactly for what, you know, frozen could be in Q4.
Nor do I know exactly what, you know, the kind of that dollar recovery piece could be on the broth side. So maybe I just kind of ask it to like, you know, we have the frozen waffle had one in Q4. Does that fully offset the broth recovery kind of year over year given, you know, last year's Q4 or that, you know, could the, none of the two be positive? That's the first question.
Patrick O'donnell
Yeah, I brought this pat. I think those are, those are largely offsetting. I think, you know, we're making the progress we'd hope to make on, bro.
And then you've got some new business wins. I'd say, you know, the other headwind we sort of described was, you know, some of the consumption softness as well is just probably a headwind relative to, you know, maybe some of the distribution we won. It's just that lower volumes than we had hoped given, given the softer consumption.
Rob Dickerson
Okay. Okay. Cool. That makes sense. And then I guess just, you know, kind of a broad question. You were kind of focused on your categories relative to the store, you know, over the past few months, at least, you know, we've, we have seen shoppers maybe buying a little bit more kind of meal related items, right? Like pasta check what have you and kind of snacks more broadly.
I mean, not every, you know, specific area of snacks is, you know, been a little pressured or, you know, underperforming a bit but kind of broadly, you know, snacks, there's been a lot of news on snacks so you can't kind of miss it. So, you know, I'm, curious like, you know, when you think about your portfolio, you know, within snacks, like are there, are there specific areas where, you know, you are trying to maybe push a little bit harder because it's working?
I go back to the Investor Day when you, you had the pretzel twist that, you know, on a branded side are growing really well. Just trying to kind of gauge kind of, you know how you're viewing kind of, you know, broader snacks relative to the store. And then, you know, are there areas where you say, hey, this is working. Yes, we're totally leaning into that area right now, maybe relative to other parts of the portfolio. That's all. Thank you so much.
Steven Oakland
Sure, Rob, you know, I think you touched on one of them, which is Pretzels and, and that salty snack business for us is, is doing really well and our, our pretzels business was a highlight for the third quarter and that momentum will continue both in the fourth and in the first quarter with new business wins in Pretzels, the other place that's strong pre cookies. We're not a big, we're not a big manufacturer there. So, it's a, it's a large growth rate on a small number.
But our instore baked cookie business is really good as well. You know, the things that are sold in the in the in-store bakery section. So, we see, we see cookies as strong. We see Pretzels as strong. We think there's some other opportunities, you know, in our hot beverage business, et cetera that we think will give us some growth. But we're going to lean into those two in particular.
So that's probably consistent with what you've seen in other, other segments of the store. But we do think the consumer is buying different, they're buying a different assortment in the grocery store to deal with the pressure on, on their, on their wallet.
Rob Dickerson
Okay, great. Thanks so much, Steven.
Operator
The next question comes from Matthew Smith with Stifel Nicolaus.
Matthew Smith
Hi, good morning, Steven. Thanks for taking my question. I wanted to come back to the frozen griddle recall and just get a sense from you that the confidence and visibility you have into the restart of that facility. You mentioned, you expect it to, to kind of comeback online for production in the first quarter. Just your level of conviction behind that based on how you've seen the issue unfold so far.
Steven Oakland
Sure, I, you know, I, I think these are, these are obviously very disappointing. I go back to the fact that we ask our supply chain to do three things, right? We ask it to provide quality, and you know, quality first, which was where we put food safety to do cost and then do service. And you've seen us talk a lot externally about the work that tomes have driven on cost and service. Okay. This, this recall is a result of our own diligence inside our own facilities.
And so we've made equal investments this year, incremental investments in our food safety teams to drive food safety through our organization. And we identified gaps in that facility. Right. And the fact that I think we've identified those gaps, we have the resources behind it to make it right. I think we'll be in good shape to get it started in the first quarter. So, I don't think there's, there's, I mean, there's obviously always risk, but I don't, I feel really good about that given the fact that we have the resources on it and that we drove this decision.
And I think it's also given us learnings across our system, right? The technology today is so much greater when it comes to how you test and the resources available to all of us as food companies. I think the increase in, in recalls that you've seen as a result of that commitment. And I mean, I think we're learning a lot, we're fortifying our system, and I think this will be, this will make us stronger as a business long term. So, I feel like we have our arms around it and we're doing the right things. So, I feel good about the first quarter.
Matthew Smith
Thanks, Steve .
Steven Oakland
Thank you.
Operator
Your next question comes from Bill Reuter with Bank of America. Your line is open.
Hi. I just have two. The first you know, clearly, you've, you've been doing this a long time, and your partners are, you know, partnerships are strong, you're important to all of them. I was just wondering if you've gotten any sense that given there have been a couple of challenging, issues with regard to the broth and the waffles. If there has been any sort of, changes to the relationships that could impact the business longer term.
Steven Oakland
You know, I would say, and I think you've heard us talk about this, I think we've taken the customer on this journey with us, right? And the facility that makes frozen griddle had had, you know, half a dozen audits by our customers and outside, outside facilities in the last 12 months. Right?
And those audits came back positive. So, I think our customer realizes that we've gone that step farther to guarantee food safety and our commitment to it. And so, I think those journeys have actually strengthened our relationships. Everybody's frustrated when these things happen.
But our broth business as we recover will be bigger than our broth business was before. And I think our waffle business will, will recover similarly. So, it's a little early to give that exact number. But I think our, our Waffle business looks like it's going to be in really good shape.
Good, all, all good to hear. And then secondarily when you were discussing a capital allocation, you did reference that you're going to look opportunistically at share repurchases, you're still pretty much near your leverage target.
I guess I'm wondering if M&A is something which you're currently evaluating. I have heard that there are increasing numbers of targets that might be, might be more willing to move a little bit on price. So just what the outlook is there.
Steven Oakland
Sure. Sure. I think the first thing is our capital allocation strategy, you know, and priorities remain unchanged, right. It's going to be to invest in our business number one and, and we, when it comes to M&A in our business, we look at build versus buy, right? We think there's we have a couple of categories that have great opportunity in them.
And we would like to increase our capabilities. If we can buy those capabilities cheaper than we can build them, then we'll buy them. We did that in coffee, for example, other places we've invested like crackers to build the capability. So, I think in the near term you'll see M&A simply be that build versus buy decision, we'll maintain that balance strength that you talked about.
We love our leverage ratio in the zone that it's in today. And then our stock price as you know, over this year has been somewhat dislocated and, and we've announced those things, we'll continue to announce those things as, as appropriate. But when our stock price is dislocated, we will, we'll look to buy shares.
Great. That's all for me. Thank you.
Steven Oakland
Thank you.
Operator
The last question today comes from Carla Castella with JP Morgan. Your line is open.
Hi, thank you. I'm just curious if we look at your sales by channel grocery versus command versus away from home. It looks like, you know, as away from home has grown. Is that any of the driver of your margin improvement? Your margins have been coming in better than we've expected, but even on software sales, I'm just curious if, any of that is just the channel mix.
Patrick O'donnell
Hey, Carl, no, I would say the margin improvement really comes from our supply chain productivity initiatives. And so, you know, in this quarter, in particular, we think that we're starting to see the benefits of the procurement. So, I don't think that the channel mix is necessarily driving any change in margin there.
Steven Oakland
Yeah, and food service is relatively small. We have a couple of categories, pickles, et cetera where we, you know, food service is really a relevant segment, but you know, we're mostly a retail grocery business and, and I think we expect that to continue.
Okay. And I'm sorry, did you give the dollar impact of the supply chain savings expected for fourth quarter?
Patrick O'donnell
No, I don't think we specifically quantified that, but I think as we've looked out, you know, we, felt like there was a gross of $50 million and you know, we got net of 20 this quarter. When you look at our bridge. So, I think we feel like we're on track to do what we needed to do on that basis.
Okay, great. Thanks. The rest of my questions have been answered.
Operator
This concludes our question-and-answer session. I would now like to turn the conference back over to Steve Oakland for closing remarks.
Steven Oakland
Well, I'd like to thank you all for being with us today. I'd like to thank you for your questions and hopefully we'll, we'll be back together in person soon. Have a great day.
Operator
This concludes today's conference call. You may now disconnect.
