Hormel Foods Corp (HRL) — Q3 2018 Earnings Call Transcript

Good morning. Welcome to the Hormel Foods conference call for the third quarter of fiscal 2018. We released our results this morning before the market opened around 6:00 am Eastern. If you did not receive a copy of the release, you can find it on our website at hormelfoods.com under the Investor section. On our call today is Jim Snee, Chairman of the Board, President and Chief Executive Officer, and Jim Sheehan, Senior Vice President and Chief Financial Officer. Jim Snee will provide a review of each segment’s performance for the quarter and our outlook for the remainder of 2018. Jim Sheehan will provide detailed financial results for the quarter and further assumptions relating to our 2018 outlook. The line will be open for questions following Jim Sheehan’s remarks. As a courtesy to the other analysts, please limit yourself to one question with one follow-up. If you have additional questions, you are welcome to get back into the queue. An audio replay of this call will be available beginning at 11:00 am today Central Standard time. The dial-in number is 888-220-8451 and the access code is 8905023. It will also be posted to our website and archived for one year. Before we get started, I need to reference the Safe Harbor statement. Some of the comments made today will be forward-looking and actual results may differ materially from those expressed in or implied by the statements we will be making. Please refer to pages 34 through 40 in the company’s Form 10-Q for the quarter ended April 29, 2018 for more details. It can be accessed on our website. Additionally, please note the company uses non-GAAP results to provide investors with a better understanding of the company’s third quarter operating performance by excluding the sales and volume impact of the acquisitions of Ceratti, Columbus Craft Meats, and Fontanini. Discussion on non-GAAP information is detailed in our press release located on our corporate website. Please note during our call today, we will refer to these non-GAAP results as organic net sales and organic volume.

Thank you, Nathan. Good morning everyone. We are pleased to report our team delivered record sales and earnings in the third quarter. Our company’s long-term growth formula is anchored in building brands, innovation, strategic acquisitions, and achieving balance across our portfolio. We take a consistent, long-term approach to our business decisions and strategy. Over the years, we have increased marketing investments in support of our brands. I am pleased to report those investments are paying off with growth both from established brands such as Spam and Skippy, and with emerging brands such as Natural Choice, Applegate, Jennie-O, Holy Guacamole, and Herdez. We are also delivering innovation to the marketplace at a faster cadence than ever before. Food service innovations such as Bacon 1, Fire Braised Meats, and Austin Blues continue to generate growth. Retail innovations like Skippy PB Bites, Herdez Guacamole Salsa, and Natural Choice snacks are also making meaningful contributions to our results. Our recent disciplined and strategic acquisitions expand our presence in areas where we are a market leader, such as deli and food service. While it is early, I’m happy to report the Fontanini, Columbus, and Ceratti acquisitions are meeting our expectations. The final component of our long-term formula is balance. This is why we made the decision last week to divest the Fremont harvest facility, which when complete will decrease our earnings volatility. Our long-term strategy is sound and our experienced leadership team is executing this strategy. We achieved record sales and earnings in the third quarter as we managed through foreign trade uncertainty, increased freight costs, and commodity market volatility. We generated record earnings per share of $0.39, up 15% from last year. The benefit from tax reform also contributed to our record results. Record third quarter sales were up 7% on a 5% volume increase. The increases were driven by the recent strategic additions of Ceratti, Columbus Craft Meats, and Fontanini, as well as growth from many of our brands across our entire organization. On an organic basis, volume was up 1% while sales were flat. Strength in key brands across our portfolio were offset by lower pork and turkey markets, which drove decreased pricing for the quarter. Third-party consumption data continues to show growth across our portfolio in both center store and the perimeter of the store. We are pleased to see growth in household penetration this quarter from emerging brands such as Herdez, Natural Choice, and Jennie-O, and also from established brands such as Spam, Skippy, and Dinty Moore. Grocery products had a solid quarter. We are pleased with the continued growth from our core grocery products portfolio as that team grew sales mid-single digits. Brands such as Skippy, Hormel chili, Holy Guacamole, and Herdez all delivered excellent sales growth this quarter. Total grocery product sales were flat due to declines in CytoSport and our contract manufacturing business. Earnings grew 4% as our core grocery products portfolio continued to deliver excellent results and were able to offset declines in contract manufacturing, increased advertising investments, and increased freight costs. The team at CytoSport continues to work on improving their business results. While volume and sales declined, earnings grew for the quarter due to lower selling, general and administrative expenses. Our international segment delivered sales growth of 11% on a volume increase of 9%. Sales increased on stronger exports of Spam luncheon meat and Skippy peanut butter, favorable results in China, and the addition of the Ceratti business in Brazil. We continue to gain momentum in China as we grow distribution for our Spam family of products. International segment profit increased 9% despite lower fresh pork export earnings, higher advertising investments, and increased freight costs. Refrigerated foods grew volume 5% and sales 10%. In addition to strong value-added sales growth, the inclusion of the Fontanini and Columbus acquisitions also contributed to improved sales. A reduction in hog harvest volume of 4% drove an organic volume decline of 2% and an organic sales decline of 3%. Pricing declined due to lower pork markets year over year. We continue to grow our branded value-added volume and sales in the retail, food service, and deli channels. Brands such as Austin Blues, Fire Braised Meats, Café H, and Natural Choice all showed strong sales growth in the food service channel. We have also successfully launched the Applegate brand into the food service channel as we work to introduce this leading brand to operators around the country. The Natural Choice and Applegate brands also generated excellent sales growth in the retail channel as consumers continue to search for brands that align with their lifestyles. On a segment profit basis, refrigerated foods value-added increases were able to offset a dramatic decline in commodity pork profits, higher freight costs, and higher advertising investments. Commodity profits were down 88% to near breakeven levels. This accomplishment speaks to the team’s ability to deliver results and to the long-term strategy of moving the portfolio away from commodity business toward branded value-added products. Jennie-O Turkey Store delivered strong volume growth of 14% and sales growth of 8%. Our three value-added businesses all grew volume and sales this quarter. Value-added sales growth was led by Jennie-O lean ground turkey, Jennie-O premium deli items, and the Jennie-O oven-ready products. Sales also increased due to earlier shipments of whole birds to minimize cold storage expenses. Segment profit declined 23% due to lower whole bird and commodity prices. As we look to our fourth quarter, we expect to remain on track with our previous earnings guidance. We expect a strong finish to the year from refrigerated foods as they continue to grow value-added sales and profits while managing through commodity volatility. We anticipate the international segment to generate earnings growth in the fourth quarter given the positive momentum that team has with branded exports and improving business results in China. We do see risk from tariffs which could negatively impact fresh pork exports and the segment’s results. We anticipate a slight decline in earnings for grocery products. We expect to generate ongoing growth in the core center store portfolio while managing through continued declines in contract manufacturing. For Jennie-O Turkey Store, we still expect earnings to decline in the fourth quarter compared to last year. We see fundamentals slowly improving and are encouraged by trends in the turkey breast meat market. We will not lap the declines in the whole bird business until calendar 2019 but expect our successful Make the Switch campaign to drive branded sales growth, including our lean ground turkey product line. We continue to see double-digit increases in per-unit freight costs. Our efforts to find mutually agreeable solutions with our customers are helping to offset a portion of this increase. Taking all these factors into account, we are reaffirming our earnings guidance of $1.81 to $1.95 per share. We have lowered our sales guidance to $9.4 billion to $9.6 billion from $9.7 billion to $10.1 billion due to lower pork commodity markets. Last week, we announced an agreement to sell the Fremont processing facility to WholeStone Farms. This was not an easy decision. The Fremont facility has been an important part of our company for decades and we are pleased to have found a home for this team and facility with WholeStone Farms. Fremont is a single shift operation. Given the changes in the pork industry, the facility will need additional investments to keep it competitive. I’m pleased to see that WholeStone Farms has committed to modernize the facility. This strategic decision right-sizes our pork supply chain, reduces our earnings volatility, and is aligned with our vision as a global branded food company. At this time, I will turn the call over to Jim Sheehan to discuss our financial information relating to the quarter, key assumptions for the remainder of fiscal 2018, and financial and operational details of the Fremont transaction.

Thank you, Jim. Good morning everyone. In the third quarter, we increased our investment into our business in the form of advertising, capital expenditures for our value-added products, and a universal stock option grant for 20,000 employees. The third quarter marked the completion of 90 consecutive years of quarterly dividends. Our financial strategy and capital allocation decisions support the long-term growth strategy that Jim discussed. Volume for the third quarter was 1.2 billion pounds, a 5% increase compared to last year. We generated record sales for the third quarter of $2.4 billion, a 7% increase. Net earnings were $210 million, up 15% compared to last year. For the quarter, SG&A expenses excluding advertising were 7.2% of sales compared to 6.9% last year. The impact of acquisitions drove the increase. Advertising investment was $40 million compared to $44 million last year. We are currently advertising key growth brands, including Skippy, Spam, Jennie-O, and Natural Choice. General corporate expenses increased primarily due to higher employee-related expenses, including the $4 million expense related to universal stock options. Expenses also increased $2 million due to tax-related services. Operating margins were 11.1%, a 160 basis point decrease compared to last year. The decline is primarily a result of lower margins at Jennie-O and higher freight across the entire business. Our effective tax rate was 18.4% compared to 34.3% last year. We engaged a third party to review our deferred tax liabilities in light of changes from tax reform. As a result of this study, the quarter reflects reduced taxes of $8 million. A $2 million expense was recorded in general corporate to complete this study. Considering this event, we now estimate our full-year effective tax rate will be between 15% and 16%. This implies a fourth quarter tax rate between 21% and 24%. Year-to-date, we have generated operating cash flows of $743 million, up 40%. The increase was related to higher earnings and improved working capital. Capital expenditures for the quarter totaled $103 million compared to $42 million last year as we continued to invest in new production facilities and manufacturing capacity for our value-added businesses. We expect capital expenditures to be approximately $400 million in 2018. In the quarter, we paid $99 million of dividends at the annual rate of $0.75 per share. This marked our 360th consecutive quarterly dividend. Total debt is $720 million. This is split between long-term and short-term debt. We remain in a strong financial position to fund other investments. We did not repurchase any stock this quarter. We continue to focus on three factors in the hog industry: export demand, domestic demand, and industry capacity utilization. Exports remain uncertain, impacted by multiple rounds of tariffs and recent animal health issues in China. The USDA forecasts export volume to be up 6% in 2018. Domestic consumption remains very high; however, pork pricing has come down since last year as the USDA Composite value was 16% below year-ago levels in the third quarter. We expect hog supplies to increase 3% to 4% this year and expect continued hog supply growth into 2019. The sale of the Fremont facility is the culmination of a multi-year assessment of the pork industry as well as a detailed review of the capital required to modernize the Fremont facility. We concluded that running Fremont as a single shift operation was not a viable option and we would have to either spend the capital to modernize the facility, find a long-term supply partner, or close the facility over time. We began discussions with WholeStone Farms after learning of their interest to enter the hog processing business. Our discussions resulted in the sale of the facility at terms that provide benefits to both parties. The purchase price of the transaction is $30 million and includes the Fremont processing facility and a multi-year agreement to provide pork and raw materials from the first shift of production at market-based prices. The sale of the Fremont facility allows us to do a number of things. First, this transaction allows us to contractually secure a source of raw material for our value-added business at competitive market prices. Second, this deal reduces the number of hogs we purchase and related exposure to volatility in the hog markets. Finally, the sale of the plant allows us to avoid significant capital to modernize the facility. For example, we recently invested $80 million to modernize the Austin facility. A similar investment would be required for Fremont in addition to investments to double shift the facility. We expect approximately $15 million to $20 million of expenses associated with this sale in fiscal 2019. These expenses include the cost to move value-added equipment out of the facility and various pension-related expenses. Fremont Harvest’s 10,500 hogs per day currently represents one-third of our harvest volume and less than one-third of refrigerated foods commodity pork earnings. We will provide further guidance on the impact to fiscal 2019 on our fourth quarter earnings call. Input costs for the third quarter were generally lower. Hog prices were 10% lower than last year. We expect hog prices to be lower than last in the fourth quarter. Belly prices were 20% lower than last year. We expect belly prices to remain volatile and below year-ago levels. Seventy-two percent pork trim prices were 22% below last year. We expect trim markets to be modestly lower than 2017 levels. As we look into the first half of fiscal 2019, we see flat to lower hog, belly and trim prices. We do expect volatility as new harvest plants and hog supplies come online. Fifty percent beef trim was 43% lower compared to last year. We expect beef trim prices to be similar to 2017 levels. Market costs for feed were higher compared to last year. We expect feed costs to be higher year-over-year in the fourth quarter. We continue to see signs of a slow recovery in the turkey industry. Full placements have shown low single-digit declines in recent months, which indicates lower harvest levels in the coming quarters. Turkey pressed meat and whole birds in cold storage are still well above long-term average levels. Breast meat prices increased during the quarter. Breast meat averaged $1.88 per pound compared to $1.53 last year. We expect moderate increases in the coming quarters. Whole bird prices are 17% lower than 2017 levels, and we do not expect a material change in pricing until the first quarter of fiscal 2019. Various market factors, including tariffs, freight, supply levels and demand, have all created market volatility, yet we have demonstrated an ability to manage through this volatility and deliver long-term value for our shareholders. At this time, I will turn the call over to the operator for the question and answer portion of the call.

Hi, good morning. I wanted to get a sense on Jennie-O turkey profitability and how you see it. What’s the long-term bridge to a more sustainable and higher level? If we have low breast meat prices which seem to be moving off a bottom and then you’ve got a bunch of higher costs, maybe you can help us just think through high level, long-term how we’re going to regain profitability levels that we’ve seen in this business historically. Thank you.

Good morning. The JOTS business, we still remain very pleased with that business, very pleased with the value-added growth that we’re seeing, just like we did this most recent quarter. Over time certainly we need to make sure that the supply comes in balance in the marketplace. We’ve talked a lot about lower poult placements, we’ve talked a lot about the need for reduced inventory in cold storage, and although we’re seeing those trends, they’re happening slower than we have expected. You’re correct - we are seeing higher breast meat pricing, we’re seeing a stabilized whole bird market which are very positive for the fundamentals of the business, but over the long term for us, it’s really about our ability to continue to grow the value-added business, and we believe the results that we’ve delivered in the third quarter are a very good indication that the business is healthy and will return to growth in 2019.

That’s helpful. One follow-up, I guess, would be on the refrigerated foods business. Obviously the value-added business is doing exceptionally well in offsetting some of the weakness in the commodity markets. I know you gave a lot of information so we’ll have some time to digest it afterwards, but can you help us understand where you think the commodity margins are? Have they bottomed out, or do you think things might get a little bit worse before they get better as it relates to industry capacity utilization rates? Thank you.

That’s a number that’s very, very hard to predict. Clearly we’re dealing with a lot of projections that remain uncertain and volatile. There have been a number of announcements in terms of increased hog processing capacity, but in terms of what happens with the timing of that, that will feed into projections and into that volatility, so at this point it’s really hard to say.

Good morning everyone.

Morning Ken.

Two questions. Will you be able to grow EBITDA in 2019?

We’re in the midst of a planning process for '19, and our early look into fiscal '19 shows pre-tax growth. Obviously we’ll have more precise guidance for everyone on our November call, but as we think about all the different businesses, with refrigerated foods we expect to see continued value-added growth, we’ll have our deli division fully up and running, impact of the recent acquisitions, and clearly we’ll have the impact of the Fremont sale that we’ll talk to you more about on the fourth quarter call as well. Our GP business, the core business remains very, very strong. We’re seeing growth from Mega Mix, steady growth from Nutbutters on the core business but also on the innovation front, the pipeline is very robust. We have work to do to continue to stabilize CytoSport and contract manufacturing in that portfolio, but we think the outlook is very positive. We’ve talked a lot about the JOTS business, the slowly improving fundamentals, the growth in value-added, especially lean ground; and in our international business, we’re pleased with what we’re seeing in China. We know that we have some volatility in the fresh pork exports due to tariffs. So our early look into ’19, Ken, shows pre-tax growth and we know that there are certainly headwinds out there and unknowns in terms of the tariffs, and we’re going to battle through that; but yes, we do think we can grow pre-tax earnings in 2019.

Great, and my follow-up question, just as a nuance, is in the quarter, how much was freight and the higher hog, higher deli prices relative to lower pork packing margins? Can you give some sort of relative so we can understand the importance of different factors in the quarter? I’ll leave it there.

Sure. On a freight basis, it’s still been a headwind in the quarter, and we expect it to be a headwind in 2019. We’ve said again we’re focused on finding the most mutually agreeable solutions in terms of minimizing miles, maximizing weight, less internal freight, and we’ve seen that we’ve offset a majority of the cost increase on a go-forward basis. Nathan, you can have a follow-up conversation perhaps on the quarter, but really of the full year, our freight costs are expected to be up $0.06 to $0.08 on an EPS basis for the full year.

Good morning everyone. Thank you for taking my question. I would like to ask about Fremont. Are you required to take all of the output from Fremont moving forward, or just what you need? In other words, are you stepping away from some of the commodity products typically produced, meaning you won't have an obligation to sell those?

Eric, in the short term, it’s going to be essentially business as usual. We’re contracted to take all of the meat just like we do today for the first three years, and then over time we’ll have the opportunity to evaluate the business and make those decisions. But in that first three years, we are taking all of the meat off of the first shift just like we do today.

Yes, okay, and that makes sense. I assumed that that probably was the case. Maybe this is for Jim Sheehan. Jim, I probably should know the answer to this because it’s been a big delta for the whole year, but your general corporate expenses were up, it was a big delta in the quarter year-over-year. Can you explain what that is? You didn’t highlight any one-time items that were in there. Can you just refresh us why your corporate expense is up so much in the quarter and for the full year?

Certainly. First of all, we talked about the universal stock options. The universal stock options were issued in the third quarter, and that created a $4 million corporate expense. The other issue that we referenced was the tax study that we did. The tax study reduced our taxes in the third quarter by $8 million. There was a $2 million fee that exists within the corporate expense for that, and then we had generally higher employee expenses in the quarter.

Good morning. Thanks for taking my questions. On your EPS guidance for the full year, it’s still a pretty big range, so I was curious what are the key factors driving that larger range. Any sense at this point whether you’re trending towards a bottom or higher end of that range?

Good morning, Rupesh. Given what’s happening in the marketplace, we’re talking a lot obviously about the volatility, whether it’s tariffs, market conditions. We felt it was appropriate to keep the range intact for the full year, obviously reaffirming that guidance. As we think about some of the things that could take you either way, on the high end if we see continued declines in input costs, if there is a sudden end to tariffs, if there is a rapid recovery in turkey. On the lower end, the flipside or the inverse would be true - if we see a spike in input costs when you think about hogs, bellies, trim, grain, or if the tariff situation worsens. But we believe that the midpoint is still very reasonable, and we thought it was very appropriate to keep the range where it is.

Okay, great, and then my follow-up question on tariffs. I know there is a lot of different tariffs out there and, I think, some proposals out there, so I was curious if you can just help us understand the dynamics currently, and then what is assumed in your current guidance?

Sure. Obviously it’s difficult since we’re dealing with markets. For the back half of the year, it’s about $0.01 to $0.02, primarily coming from our export business, our fresh pork exports. As we think about it on an annual basis, probably about $0.04 to $0.06, but clearly there is a lot of uncertainty. As you think across our business, the impact would be pork, steel, aluminum, but the majority of that really is being export related.

Thanks, good morning. Could you just give an update on some of your supply chain reconfiguration? I don’t remember you mentioning that as a driver of ’19 earnings growth. What do you expect for some of the savings opportunity, what’s some of the timing? Can you just give us some more color on where that all stands?

Sure, good morning. We’ve put our supply chain in place earlier this year, led by Glenn Leitch, and we have kept Glenn and his team incredibly busy since that time, obviously dealing with all of the freight issues in the industry, evaluating our total supply chain. He was really the point person for the Fremont transaction, and we have got a lot accomplished in 2018, doing a lot of work around in-sourcing production, asset utilization, some automation, efficiency projects, and then we can’t forget the fact that we’re in the midst of building a new facility in Melrose for our Jennie-O Turkey Store business, and then a significant expansion for our value-added capacity down in Dold. We have kept that team busy. We are working for a perspective on 2019 and we’ll be able to provide you more detail on that in our fourth quarter call.

Is it correct to assume that some of the freight efficiencies you're seeking are connected to that work? Specifically regarding freight, when you mention that some of those challenges will persist into next year, is that related solely to rates, and are you still observing those rates increasing?

I think it's a combination of factors. We can't predict what will happen with fuel prices, and the driver shortage can certainly affect rates. Our main focus is on what we can control, which includes minimizing miles and maximizing freight. We need to ensure we're taking the right internal steps to offset these challenges as much as possible. Overall, we are very pleased with the efforts made so far.

Hey, good morning. Just want to talk a little bit about the Fremont sale. I guess it’s one third of processing, less than one third of commodity sales, so that would imply that the value-add mix is somewhat higher than Austin. Maybe you can elaborate on what you meant by that. Then on the multi-purchase agreement, just the answer to the prior question on taking all the meat, so it sounds like your overall volume is not going to be impacted because you said it’s business as usual; however I guess I’m a little bit confused as to what the margin structure on that looks like. Presumably there’s commodity product that you’re going to be buying and then reselling without a value-add component, is that right?

That is correct. If you think about the transaction, what we are losing is the spread between the hog cost and the USDA composite value. That’s how I would look at it.

Okay, so that’s a pretty good margin today, but if you were to buy ham and then resell ham, that margin would effectively go to zero, is that correct?

Well, you’re correct that the margin is pretty good today, and what we’ve talked about is that historically, it’s less than 5% of refrigerated foods earnings, and in the current year, far less than that. We talked about a significant drop last quarter, about 25%, significant drop this quarter of 88%, and then really what the future holds in terms of how much comes online, what the timing is, it’s all projections and it remains very uncertain and volatile.

Yes, so as we’ve talked, we’re giving up that spread, but the margins in retail, the margins in food service we’ll still retain. We’re taking out the volatility, and we still believe that this creates the right mix of internally sourced primals and outside purchased primals. It also allows us to avoid a very significant capital allocation. If you think about the Austin plant, that was over $80 million and did not include the cost to double shift this plant, so the capital investment into Fremont would have been very extensive.

The $30 million sale price, that’s a good amount lower than what you were able to gain from Farmer John. I know it’s an older plant and it needs some capital work, but would that imply a lower normalized margin than Farmer John, or is there something in the multi-year purchase agreement with WholeStone that we need to consider going forward, or is it just you said you’re going to take the market price plus? What do we need to consider going forward as we’re mapping this out?

I think the first thing is that you can’t look at the purchase price in a vacuum. The first thing is Fremont was not a full business like Farmer John, and then the price does not include any of the value-added assets. We’ve talked about some of the expenses that we’ll have in 2019 as we relocate those assets, but the price does not include any of that because we will retain that. As Jim mentioned, the facility really is in need of significant investment to remain competitive, and in fact it couldn’t support both a double shift and value-added capacity, and so it does have the supply agreement at market-based prices, which we believe is a mutually beneficial agreement, and it’s consistent with our long-term strategy and we’re excited. We really look forward to a long, successful partnership with WholeStone.

Yes, thanks. Good morning everyone. Maybe first question on refrigerated and the value-added side. The organic volumes in the quarter were down 2, you talked about harvest levels down 4, so can you talk about what the Ceratti and Columbus, or I guess Fontanini and Columbus organic volume growth were in the period? I know they’re still in M&A, but just trying to think about what that organic volume growth looks like prospectively as you get those lapped into the base and you start comping some of those declines in harvest values that you’ve seen in the last few quarters.

Adam, I believe it's clear that the value-added growth we experienced in the quarter was substantial. Being able to counteract an 88% decline in commodity profits certainly highlights our value-added growth. Regarding Columbus, we are integrating the deli sales division to effectively utilize the organization's strengths. The Columbus business remains robust and will be crucial to the deli division's foundation. The Fontanini business is also performing well, allowing us to fully implement our acquisition strategy by merging our food service portfolio with Fontanini's and vice versa. We are confident that, over time, we will witness a consistent increase in our food service business. We are optimistic about the contributions of both businesses, as they are essential to enhancing our value-added operations in the future.

I would add that we completed the integration of both Columbus and Fontanini. The other thing that we’ve talked about is that volatility of the market can create some noise between quarters, and if you take a look at the belly market, the belly market’s increased all during the third quarter and our pricing trails that increase. You saw a steep decline at the end of the third quarter in belly pricing, so that’s one of the reasons why we feel that there will be a strong finish to refrigerated foods in Q4.

Good morning. Thanks for taking my questions. On your EPS guidance for the full year, it’s still a pretty big range, so I was curious what are the key factors driving that larger range. Any sense at this point whether you’re trending towards a bottom or higher end of that range?

The commodity profits were down 88% in the third quarter, and we discussed that they were near breakeven levels. The fact that Fremont is a single shift plant, it’s not as efficient as the Austin plant, which is a highly efficient double shift plant, that’s why the profits are less than the volume at the plant. I would say that it’s closer to $10 million a year than the numbers that you’re throwing out.

Thank you all for joining us today, and a special thanks to all of our team members for their efforts as we wrap up our fiscal year and successfully deliver on our key results. Thank you.