Lamb Weston Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 4, 2024

There are 10 speakers on the call.

Operator

Good day, and welcome to the Liam Weston Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Dexter Congbile. Please go ahead, sir.

Speaker 1

Good morning, and thank you for joining us for Lamb Weston's Q2 2024 Earnings Call. Conference over to 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.

Speaker 1

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 Warner, our President and Chief Executive Officer And Bernadette Madrieta, our Chief Financial Officer. Tom will provide an overview of the potato crop and the current operating environment. Bernadette will then provide details on our Q2 results as well as our updated fiscal 2024 outlook.

Speaker 1

With that, let me now turn the call over to Tom.

Speaker 2

Thank you, Dexter. Happy New Year and thank you for joining our call today. The entire Lamb Weston team delivered another solid quarter and I want to thank them for these results and continuing to execute the strategies that we outlined in our Investor Today's presentation in October. We strongly believe that our investments to expand capacity organically and through acquisitions, Improve manufacturing and system capabilities, penetrate new channels and markets around the world, strengthen product, customer and channel mix, And develop our people have generated good near term operating momentum and have us well positioned to capture our share of growth and profitability over the long term. In the Q2, we delivered record sales reflecting the consolidation of our EMEA business and solid price mix growth.

Speaker 2

Sales volumes excluding acquisitions declined primarily driven by our decision to exit lower priced and lower margin business. But as we expect the year over year trend improved sequentially. Adjusted EBITDA growth was also solid behind incremental earnings $1,000,000 charge to write off excess raw potatoes, dollars 65,000,000 of which was recorded in cost of sales and $6,000,000 in equity method investment earnings. The reason and magnitude of this charge is very unusual. So let me give you a little more color on it.

Speaker 2

In January 2023, we developed an initial sales forecast That forecast was developed based on the information available at that time. We use this initial sales forecast To determine the number of contracted acres to grow the raw potatoes needed to deliver that sales forecast. For our agreements with our growers, We're obligated to purchase all the potatoes grown on these contracted acres. However, our initial sales forecast has turned out to be more aggressive than our current estimate, Reflecting recent restaurant traffic and demand trends as consumers continue to absorb the cumulative effect of inflation. As a result, we have purchased more potatoes than we need to meet our current sales targets and have taken a charge to write off the estimated excess.

Speaker 2

Although overall demand growth is slower than we anticipated a year ago, it remains resilient. In most of our key international markets continues to grow, including double digit growth in China. We remain confident that our volume trends will continue to improve in the back half of fiscal 2024 as we begin to lap and backfill Exited volumes with higher margin business. This includes our target for year over year volume growth in the 4th quarter. In addition, we expect our volumes will continue to recover in fiscal 2025 and have planned to contract for acres accordingly.

Speaker 2

While we are disappointed with the write offs, the underlying fundamentals of the business, our operations and the category remain solid. Our volume trends are improving in line with our expectations. Global demand is resilient as consumers continue to face stiff food away from home inflation. Our new greenfield processing facility in China is now operational. Price mix trends in the U.

Speaker 2

S. And most of our key international markets remain solid, While input cost inflation is decelerating, we delivered strong adjusted EBITDA growth and gross margin expansion excluding the potato write off. And as Bernadette will explain in greater detail, we're reaffirming our fiscal 2024 adjusted EBITDA guidance range despite absorbing the write off While raising our EPS estimates. Overall, we continue to be pleased with our operating momentum and confident in our ability to deliver our full year financial targets. Let me now turn the call over to Bernadette for a more detailed discussion on our Q2 results and updated outlook.

Speaker 3

Thanks, Tom, and Happy New Year, everyone. I also want to start off by thanking the entire Lamb Weston team for the continued execution of our strategies and Thank you for delivering another quarter of strong financial results. For our Q2, sales increased about $455,000,000 or 36 percent to more than $1,700,000,000 About $375,000,000 or more than 80 percent of the increase over to 2023. Those results are included in our last year's sales baseline. Excluding the incremental sales from the EMEA acquisition, Net sales grew 6%.

Speaker 3

Price mix was up 12% as we continued to benefit from the inflation driven pricing actions taken in fiscal mix was also favorable as we continued to strategically manage our product and customer portfolio. Lower freight charges to customers We're about a 1 point headwind. Total sales volumes declined 6%, which was in line with our expectations. The decline was primarily due to the carryover impact of exiting the lower margin business during the second half of fiscal twenty twenty three. Volume elasticities or the amount of volume lost in response to inflation based pricing actions remain low.

Speaker 3

While sales volumes declined compared to the prior year period, it's a sequential improvement from the 8% decline that we delivered in our fiscal Q1. The improving trend largely reflects no further impact of the inventory destocking in Asia and North America that we experienced in the Q1 Including unrealized mark to market gains and losses related to derivatives and items impacting comparability, increased $97,000,000 Excluding this charge as well as the mark to market and comparability items, gross profit increased 100 and $2,000,000 to more than $540,000,000 About half of this increase was driven by the cumulative benefit of pricing actions, mix improvement and supply chain productivity in our legacy Lamb Weston business, which more than offset higher input and manufacturing cost per pound and the impact of lower volumes. The other half of the increase was from incremental earnings from consolidating EMEA. Input costs increased mid single digits on a per pound basis, which is a bit lower than the mid to high single digits And continued increases in the cost of ingredients for batter coatings, labor and other key inputs. The inflation was SG and A excluding comparability items increased $42,000,000 to 177,000,000 More than 2 thirds of the increase was from incremental SG and A with the consolidation of EMEA, with the remainder largely driven by higher All of this led to adjusted EBITDA increasing 15% to $377,000,000 Excluding the write off for excess raw potatoes, adjusted EBITDA increased 36% to $448,000,000 Higher sales and gross profit in the base business drove most of the growth with the remainder attributable to the incremental earnings from consolidating EMEA.

Speaker 3

Moving to our segments. Sales in our North America segment, which includes sales to customers in all channels in the U. S, Canada and Mexico, increased 10% in the quarter. Price mix was up 14%, which was driven by the carryover benefit and favorable mix as we continue to benefit from our revenue growth management and other mix improvement initiatives. Lower freight revenue partially offset the increase by about 1.5 points.

Speaker 3

Volume in North America declined 4%, Reflecting the carryover impact of exiting lower margin business during the second half of fiscal twenty twenty three, this is a sequential improvement from the 5% decline In our fiscal Q1. North America segment adjusted EBITDA increased 7% to $321,000,000 The carryover benefit of pricing actions and favorable mix more than offset a $63,000,000 charge for the write off of excess raw potatoes, higher cost per pound and the impact of lower volumes. Sales in our International segment, which includes sales to customers in all channels outside of North America, grew about $350,000,000 of which $376,000,000 were incremental sales from the EMEA acquisition. Excluding the EMEA acquisition, net sales declined 12%. Price mix was up 10%, driven primarily by the carryover benefit of pricing actions taken last year, discrete pricing actions taken this year and favorable mix.

Speaker 3

Sales volumes fell 22%, primarily reflecting the carryover impact of exiting the lower margin business during the second half of fiscal twenty twenty three. International segment adjusted EBITDA increased 66% to $100,000,000 With incremental earnings from the consolidation of EMEA's financial results driving the increase. Excluding the EMEA acquisition, Higher cost per pound along with the impact of lower volumes more than offset the favorable price mix. The higher cost per pound included an $8,000,000 charge allocated to the international segment for the write off of excess raw potatoes, Our balance sheet is strong. We ended the quarter with our net debt leverage at 2.4 times adjusted EBITDA, We also accelerated some payments to suppliers in advance of our ERP system go live at the beginning of the 3rd quarter.

Speaker 3

In the first half of the year, we generated $455,000,000 of cash from operations or nearly 100 and As we continue to expand processing capacity in Idaho, Argentina and the Netherlands. As Tom mentioned, we started up our new facility in China a couple of months ago. As we discussed during our Investor Day in October, Our first priority is investing in our business, which we are doing organically with our capacity expansion. We also remain committed to returning capital to our shareholders. During the first half of the year, we returned more than $2.30 of This includes $50,000,000 of stock repurchased in the 2nd quarter at an average price of $87.41 As we acted opportunistically based on our stock price.

Speaker 3

In addition, in October, we raised our share repurchase authorization to $500,000,000 And in December, we announced a 29% increase in our quarterly dividend to $0.36 per share. Turning now to our fiscal 2024 outlook. We reaffirmed our full year sales and EBITDA targets And raised our EPS estimate despite the charge to write off excess raw potatoes. Specifically, we reaffirmed our annual net sales target of 6 Attributable to the EMEA acquisition during the 1st 3 quarters of the year and 6.5% to 8.5% net sales growth excluding our acquisitions. For the year, we continue to target price mix to be up low double digits with price mix in the second half slowing sequentially From the 17% increase that we delivered in the first half as we lap more of last year's price actions.

Speaker 3

We continue to target our full year volume excluding acquisitions to be down mid single digits compared with the prior year As we maintain our cautious view of the consumer. That said, we expect year over year volume trends in each of our segments will continue to improve in the second half As we lap some of the significant low margin, low profit volume that we chose to exit in the second half of last year And as we gradually backfill the exited lower margin business with more profitable business. We expect volume growth to be positive in the 4th quarter. For earnings, we're reaffirming our adjusted EBITDA range to $1,540,000,000 to $1,620,000,000 We're maintaining our EBITDA range target despite absorbing a $71,000,000 charge for the write off of excess raw potatoes. We're raising our adjusted diluted EPS estimate to $5.70 to $6.15 From our previous range of $5.50 to $5.95 The increase, which also includes the impact of the raw potato write off, is largely due to 2 items.

Speaker 3

First, we're reducing our SG and A target by $20,000,000 to a range of 745 We're also updating a couple of other financial targets. We reduced our depreciation and amortization expense Before I turn the call back over to Tom, let me give you a quick update on our ERP implementation. At the beginning of our fiscal Q3, We transitioned some of our central systems in North America that manage supplier payments, inventories, warehousing, customer invoicing And customer shipments to SAP. We're experiencing the usual bumps associated with these highly challenging large scale projects, but don't expect Good warehouses in the period immediately following the cutover. As a result of the increased production downtime, our 3rd quarter gross margin, Which is typically our strongest, will be pressured by higher manufacturing costs, reflecting reduced fixed cost coverage and other cost inefficiencies.

Speaker 3

With respect to sales, we expect the inventory visibility challenges that we experienced at the 3rd party warehouses to affect shipments and temper the sequential improvement in our Q3 volume trends. But as I mentioned earlier, we continue to expect positive year over year volume growth And most importantly, I want to thank our Lamb Weston team members that have been working tirelessly on this project, including throughout the holiday season. We will provide a further update on the transition of the central systems and processes as well as the general timeline for implementing the new ERP system throughout our manufacturing Strong quarter of top and bottom line growth as we continue to execute our strategies, manage our portfolio mix and manage costs. We continue to expect volume trends to improve in the second half of the year, while remaining cautious about the effect of inflation on the consumer. And finally, we updated our earnings estimate for the year, including reaffirming our annual EBITDA range despite absorbing a write off for excess raw potatoes and raising our annual EPS estimates to reflect lower SG and A and interest expense.

Speaker 3

Let me now turn it back over to Tom for some closing comments.

Speaker 2

Thank you, Bernadette. Let me sum it up by saying we feel good about the overall health The global category and the drivers for demand growth. We also feel good about our operating momentum and are confident in our ability to deliver our updated financial targets for the year. And finally, we believe that our focus on executing our strategies will continue to have us well positioned to drive sustainable profitable growth and create value for our shareholders

Operator

We'll take our first question from Matt Smith with Stifel.

Speaker 4

Hi, good morning.

Speaker 5

Hi, Matt. I wanted to ask a question about your reiteration of guidance despite the $71,000,000 Potato Charge. If you could talk about what led to the potato charge, it sounds like your initial Contracted acres were based on your outlook from January of the past year. So have you changed your Shipment volume expectations relative to the guidance that you initially provided us in July. And then with the excess potato charge, Does that represent the full amount of excess potatoes?

Speaker 5

Or were you able to utilize some of the higher than expected yields either through Processing finished goods or holding more raw potatoes into next year and how does that impact how you go about contracting acres

Speaker 3

I think it relates to the first one and it relates to guidance. The amount of Shipments and volumes that we had in our guidance in July have not changed from what we have now. Again, that was We had to determine the number of acres to plant back in January of 2023, but the last time we gave guidance, there's been no changes. And then the second question, as we think through the crop this year, there are mitigants that we would have taken into consideration in

Speaker 5

Thank you, Bernadette. And maybe as a follow-up, could you talk about How your contract negotiations are progressing with farmers into next year, given it sounds like maybe you're going to contract for fewer acres. How does that change the pricing conversation?

Speaker 2

Matt, this is Tom. As we do every year, we're right in the middle of negotiations, so we're not going to get into We'll give you an overview of kind of where we ended up and talk about that in more detail. But right now, We're right in the middle of it, so we're going to respect that process.

Speaker 5

Thank you, Tom and Bernadette. I'll pass it on.

Operator

We'll now take our next question from Adam Samuelson with Goldman Sachs.

Speaker 6

Yes. Thank you. Good morning, everyone.

Speaker 7

Good morning. So maybe just good morning. Just so on

Speaker 6

the charge, and I want to just Otherwise, your gross profit margin in this quarter would have been 3 90 basis points to 100 basis points. And so as we think about the absence of this charge or Assuming it doesn't repeat in 2025. All else equal, your gross profit margins are tracking kind of Pretty comfortably ahead of how you framed your business outlook at the Investor Day in October or am I mischaracterizing that?

Speaker 3

Yes. No, thanks, Adam. You're correct. Our Q2 gross margins implies a 31.3% margin, excluding the write off of the potatoes. And as we've been talking about, that increase is related to the pricing actions and then catching up

Speaker 7

So those are some of

Speaker 3

the things that you're seeing. As it relates to the Q3, keep in mind that it's going to be down sequentially from that, And that's going to reflect that reduced fixed cost coverage that we're going to have as we started up our ERP and we needed to take

Speaker 6

Okay. That's helpful. And then

Speaker 7

Tom or Bernadette, can you provide a little

Speaker 6

bit more detail on the progress on integrating EMEA? And just how do we think about Where you are with that group on some of the revenue growth management tools that you've been implementing successfully in North America and How kind of that business has been performing on an organic basis will it will start to be in the year on year comparisons organically in the Q4, but Are you tracking ahead of where you thought or what inning you think those RGM tools are in terms of being deployed?

Speaker 2

Yes, Adam, this is Tom. And I'll tell you, I'm really pleased on where we're at in terms of the integration of EMEA at this point. We're towards the tail end of that and the team has done a terrific job across the organization, functionally, commercially, Really connecting up. And we've reorganized the organization to reflect The global company that we are now, so I'm pleased with where we're at. In terms of initiatives, your Specific question on RGM, that's definitely on the radar, but that's going to be down the road based A number of other initiatives we have going on in the company that we really need to keep our focus on executing specifically

Operator

We'll now take our next question from Robert Moskow with TD Cowen.

Speaker 8

Hi. Thanks for the question. In a lot of other food industries, when raw material supplies far exceed what the demand expectations were, You'd expect some impact on pricing, some negative impact on pricing, but your industry is not like A lot of those others. So Tom, maybe you could talk a little bit about your pricing power and the industry's pricing And why the excess potatoes are not a concern?

Speaker 2

Yes, Robert. The thing to remember is, the commodity in our business, potato, It's a 1 year crop. And so you have to process it. And Certainly, like Bernadette alluded to, we looked at all of the mitigating factors like we do every year. And it's just an unusual circumstances And this year is different and the crop overall is really, really good and it's just a matter of You got to make some decisions based on the demand forecast, utilizing your plants, running the crop longer, And economically, this is the best decision to move forward based on as we're going through The end of this crop and moving into the next crop in come June, July.

Speaker 2

So, It's a different commodity. It has a shelf life that's rather short than a lot of the other commodity businesses I've been around. And so It's something we manage through every year and unfortunately, how the operating environment and the environment with this The quality of the crop yields

Operator

just put

Speaker 2

a lot of pressure on availability, which There's plenty of potatoes around.

Speaker 8

I guess a follow-up. I think you said on the last call that about 20% of your North American business was still in contract discussions. Is all that done now and did you get the pricing that you expected to get in those discussions?

Speaker 3

Yes. So the contract renewal process is complete now, and we feel really good about where in the aggregate we ended on both pricing and terms. A lot of that relates to the large chain restaurants that we typically will finalize in the back half

Operator

We'll now take our next question from Rob Dickerson with Jefferies.

Speaker 4

Great. Sorry about that. Thank you. Yes, just a quick clarification question. I'm going to come back to the sequential, I guess, implied gross margin trajectory for Q3.

Speaker 4

I guess, it's more for Bernadette. I think you said there are some Maybe we're being shut down kind of temporarily by implementing some of the ERP initiatives.

Speaker 7

But at

Speaker 4

the same time, right, Q3 is usually the highest gross margin quarter. And at the same time, We're comparing it to Q2. We're inclusive of the write down, but then extra write down are like closer to 31. So it's a very basic question A long build up, but if you were saying that the gross margin would be down sequentially a little bit from the normalized gross margin in Q2 once we ex out the inventory. Is that how you were speaking to that?

Speaker 3

Yes, exactly. So I'd say it's going to be down sequentially from the 31% that's excluding that write off And that's really reflecting the reduced fixed cost coverage that we're going to have as a result of taking those plants down, while we cut over.

Speaker 4

Got it. And then in terms of the EBITDA margin, the same logic flows through? Okay, cool. And then I guess just back to the volume piece, No change there, still expected for volumes to be down mid single digit for the year. I remember coming out of the last call, Yes, there are some questions around that because getting like down and real down like mid single digits, seem kind of challenging if we're thinking Q4 You're still saying that kind of overall volume should improve year over year sequentially relative to Q2 And then Q4 is up a little bit, that still gets you down to at least a 4% decline.

Speaker 4

And I'm just asking that

Speaker 3

Yes. So the way to look at it is, first, we're really pleased The thing we've got to keep in mind is that we are having reduced shipments as a result of converting over to our new ERP. I spoke about the inventory visibility challenges that we've had with our 3rd party warehouses. I'm confident in that we're correcting those, but we are going to

Speaker 4

Okay. So kind of in theory like volumes could be down in Q3 maybe in a similar way relative to Q2, hopefully a little bit better, but There are a bunch of moving pieces that we shouldn't be expecting like a nice sequential improvement in Q3.

Speaker 3

That's right.

Speaker 4

Okay, cool. And then thirdly, I just want to touch on China quickly. Tom, I think you said China is growing double digit, kind of normalized, I guess, once we ex out some of the business exits. Maybe just kind of touch on kind of overall environment in China, kind of what you're seeing given All the news flow over the past few months. And then maybe just if you could touch on kind of your ability, let's say, to Continue to partner with McDonald's over the next couple of years, clearly as they look to really expand within the country.

Speaker 4

That's it. Thank you.

Speaker 2

Yes, Rob. So as we stated earlier that China is growing at double digits. We're well positioned. We just opened up our second factory over there. It's up and running and operating.

Speaker 2

It gives us considerable flexibility as we're thinking about the next year's contracting coming up. And so we're there's a lot of news feed on China and the economy and all that's going on. But in terms of the category, we feel good about where that's at based on the data we look at, which Just tell us it's growing double digits. We've got our plan up and coming. We've got line of sight to how we're going Look at that market and potential customers that we can support and more to come on that.

Speaker 2

But as we go through this contracting season in that International market, we're well positioned to gain some business.

Speaker 3

Yes. And just to clarify, the double digit growth has been in restaurant traffic that we're seeing in China.

Operator

We'll now take our next question from Peter Galba with Bank of America.

Speaker 7

I guess just on the pricing front, obviously, you're going through some contract negotiations. But if I remember correctly, You have some contracts, I think, with your global customers that actually kicked in a couple of days ago or I guess the start of Q3. So just Can you remind us kind of what the dynamic looks like there or that embedded price that we should be thinking about price mix that we should be thinking about in the back half of the year?

Speaker 3

Yes. So we did have some contracts where that pricing took effect in the back half of the year. I think it's key though to as you look at the back half of the year to expect to see a deceleration from the 17% that we delivered in the first half

Speaker 7

Got it. Okay. Okay. And then Tom, maybe just back to the Investor Day, I know there was a conversation around Getting back to algorithm kind of in fiscal 2025 and noting some of the volume challenges That you'll begin to lap by then and maybe into Q4. I mean is that kind of still the expectation where we sit today relative to October that As we get into 2025, the volume trends could at least get back to what you stated as kind of the long term algorithm.

Speaker 7

Thanks very much.

Speaker 2

Yes, Peter. We fully expect to continue to drive and deliver our algorithm over the long term as we stated in October. And we're working all the channels to deliver that. And as we have in the past, we've been very consistent I'll meeting those commitments and I expect and as we look forward with the category and how we're getting positioned with some of The capacity additions, I fully expect us to drive volume and meet our commitments as we talked about in October.

Speaker 7

Great. Thanks very much guys.

Operator

We'll now take our next question from Andrew Lazar with Barclays.

Speaker 5

Great. Good morning, everybody.

Speaker 9

Good morning, Andrew.

Speaker 5

I guess to start with, I was wondering if you're able to sort of help us quantify a little bit, Maybe how much sort of volume gets pushed from Q3 to Q4 based on some of the cutover dynamics that you mentioned. I'm really trying to get a sense of about what like the underlying sort of volume picture looks like for Q4, particularly as it relates to as we move into next year.

Speaker 3

Yes. Andrew, I think the way to think about that is we're not going to quantify any amounts, but Certainly, there are some shipments that would be retail and foodservice that would be lost in Q3, whereas The chain would be more of a carryover. So again, down or it's going to be tempered in terms of the Any increase as it relates to volume in the Q3, but definitely positive in the Q4 as we had originally projected.

Speaker 5

If we excluded some of the cutover dynamics, do you think volume in 4Q would have been positive anyway or maybe Closer to flattish or even down a little bit? Maybe no more.

Speaker 3

No, absolutely positive in the Q4. That's what we've been anticipating Since we gave our July guidance and it continues to remain sound.

Speaker 5

Great. Thanks for that. And then, Tom, I'm curious, you obviously walked away from some lower margin in the back half of last year that you're going to start to lap as we go into the back half of this year. And as you start to replace Where were they or have they been getting supply from before? And are you displacing others Now that you have some capacity or I'm trying to get a sense of it, because it doesn't seem like I've ever gone anywhere and not been able to get French fries.

Speaker 5

So I'm just wondering where some of these new customers were sourcing product maybe before you became a supplier to them, if that makes sense?

Speaker 2

Yes. Andrew, I understand the question. I'm not going to get into very in specifics on customers or where it's coming from. But Ideally, we have line of sight to markets, opportunities as we go through Our normal contracting season coming up. Ideally, it'd be perfect timing, but it doesn't always match When you potentially win business, but we do have a plan, we have line of sight and I'm not going to get into specifics of where and who and

Operator

We'll take our next question from Mark

Speaker 9

It sounds like trends Could you maybe reconcile some of that commentary out to some of those trends and traffic that you're seeing that gives you confidence on Volumes improving on an underlying basis.

Speaker 2

Yes. As I stated, The crop acres, potato yields, based on what we always what we plan for In the initial front end of the crop cycle, certainly was We opted in October was based on the forecast we were seeing at the time. And so Certainly, there's it was not as good as we had planned when we planted the crop. But again to Bernadette, she reiterated, we see our forecast from July in terms of sales and volume has not really changed For the balance of the year. So it's really just a crop acre yield issue that Again, we feel confident about the underlying fundamentals of the business, where we're at, our guidance from last time has not All things are pointing towards sequential improvement for the balance of the year, albeit just keep in mind that Q3 is going to Have some challenges with the ERP cut over.

Speaker 3

Yes. And Tom, if I could add to that. When we made the initial estimate and planted those acres, you guys see the data that we do and U. S. Restaurant traffic trends have slowed since that time and that was included in our updated July forecast.

Speaker 3

But the prior attachment rate continues to be above pre pandemic levels and continues to be strong as Tom mentioned.

Speaker 9

Okay, great. That makes sense. And then, you lowered the SG and A outlook for the year. A little more color here. Is that Timing around some of those special projects?

Speaker 9

Are you pulling back on any of the underlying expenses? Or is that better leverage on core?

Speaker 3

It's going to be some better leverage, but just overall cost management that we're doing as we look forward to the second half of the year.

Operator

And that does conclude our question and answer session. I'd like to the conference back over to Mr. Congolay for any additional or closing comments.

Speaker 1

Thanks everyone for joining the call today. And a follow-up discussion, Please send me an e mail, we can schedule some time. Other than that, have a great day and Happy New Year. Thank you.

Operator

And And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.

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