Q4 2023 TreeHouse Foods Inc Earnings Call
Participants
Matt Siler; VP, IR; TreeHouse Foods Inc
Steve Oakland; Chairman of the Board, President, & CEO; TreeHouse Foods Inc
Patrick O'Donnell; CFO & EVP; TreeHouse Foods Inc
Andrew Lazar; Analyst; Barclays Capital
Matt Smith; Analyst; Stifel, Nicolaus & Company, Inc.
James Salera; Analyst; Stephens Inc.
Rob Moskow; Analyst; TD Cowen
Rob Dickerson; Analyst; Jefferies Group LLC
William Reuter; Analyst; Bank of America
Carla Casella; Analyst; JPMorgan Chase & Co.
Jon Andersen; Analyst; William Blair & Company
Presentation
Operator
Welcome to the TreeHouse Foods Fourth Quarter 2023 conference call. (Operator Instructions) Please note this event is being recorded.
At this time, I would like to turn the call over to TreeHouse Foods for the reading of the Safe Harbor statements.
Matt Siler
Good morning, and thank you for joining us today. Earlier this morning, we issued our earnings release and posted our earnings deck, both of which are available within the Investor Relations section of our website at TreeHouseFoods.com. Before we begin, we 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 1995.
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 and information concerning those risks is contained in the Company's filings with the SEC. 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.
Steve Oakland
Thank you, Matt, and good morning, everyone. Please join me in welcoming Matt as our new Investor Relations Officer. Today, I will share with you our fourth quarter and full year 2023 financial results. As well as provide a highlight of our 2024 guidance.
On slide 3, you can see key takeaways for the quarter, but I want to start by discussing some highlights from the year, fiscal 2023 represented our first full year operating as a more simplified private brands, Snacking & Beverages Company. With this sharpened focus, we successfully executed on our strategic priorities, including initiatives to build depth in our higher growth, higher-margin categories, better optimize our supply chain and improve our service levels. As a result, we finished the year with a stronger portfolio, enhanced capabilities and depth, all while investing in our supply chain to better align it with these priorities, we delivered annual net sales growth of 4% and adjusted EBITDA growth of 25%.
We are also executing on our capital allocation strategy, which is balanced across investments in the business, maintaining a strong balance sheet and returning capital to shareholders. We used our balance sheet strength to return $100 million of capital to our shareholders via share repurchase in 2023. This is in addition to and did not impede the capital allocated to strategically invest across the businesses. Importantly, our reshaped portfolio and enhanced strategic focus will enable us to gain share and increase our competitive relevance across an industry with strong consumer talent. Specifically, the private brand market outperformed relative to national brands again this quarter, which we will discuss in further detail shortly. We remain confident we are well positioned to capture the opportunities ahead for private brands with our focus on delivering growth. That being said, we realize that execution across the businesses remains paramount in the near term, both for our customers and for our shareholders, we are investing in our supply chain to drive consistency and predictability. And I believe these capabilities provide significant opportunity to achieve even better performance for TreeHouse in the coming year.
Turning now to a brief summary of our fourth quarter results on Slide 4. As a reminder, late in the third quarter, we were impacted by a broad recall and some discrete supply chain disruption that occurred in our pretzels and cookies businesses, which will extend into our fourth quarter results.
In the fourth quarter, we spent significant dollars to restore our broth facility, and we will provide more detail later on how we plan to restart that business in the first half of 2024.
With all of this considered net sales came in at nearly $911 million, which while down year over year was in line with our expectations, given the supply chain issues I just mentioned, adjusted EBITDA of $108.4 million, which was just above the midpoint of the guidance range reflects our continued progress against supply chain savings initiatives across the business Pat will provide greater detail on our outlook for the full year of 2024, we expect net sales in the range of $3.43 billion to $3.5 billion, representing flat to 2% year-over-year growth. This top line guidance reflects the impact from the current restart of our broth facility, which we expect to continue to pressure results in the first half of the year, we are laser focused on restoring our broth business to full production, and we are currently executing a turnaround plan that when complete will result in a world-class facility, much like our other broth operations in Richmond Hill, Ontario. Given this backdrop, we expect our volume growth to be stronger in the second half of the year. Additionally, we expect adjusted EBITDA in the range of $360 million to $390 million.
Again, Pat will provide more detail with that, I'll dive into our strategic update throughout the year, Triaz continued to advance our portfolio strategy in an effort to focus on higher growth, higher margin categories. As detailed on slide 5, we are in an advantaged position today across most of our categories. In 2023, we invested capital with a focus on enhancing our competitive positioning, driving consistency of execution in our supply chain, building our capabilities where we see significant growth opportunities. We also furthered our portfolio strategy by making investments in seasoned pretzels, coffee and pickles, which are all growth categories. This is in addition to the divestiture of a noncore snack bars business, which we completed earlier this year.
Now moving on to our supply chain initiatives. We have continued to invest directly into our supply chain. As you can see on Slide 6, which we believe strengthens our competitive positioning and partnerships with our customers, we remain diligent on implementing our team, our strategy and other supply chain initiatives. These efforts have contributed to improved execution and margin performance, including 130 basis points of adjusted gross margin expansion this year and continued progress on the supply chain initiatives in the coming years should allow us to further expand margin. I'm happy to share that in 2023, our team of initiatives resulted in a five point increase of our overall equipment effectiveness for OE. compared to the prior year and in 2024, we are off to a strong start with even more cost savings projects in place. Additionally, we are in the early stages of our procurement savings exercise, which continues to progress according to plan. Importantly, our scale enables us to build strategic relationships with our suppliers in this environment. With total category volumes, lower and private brands growing, we are finding our current and potential supply base eager to do business with TreeHouse. Additionally, we are making progress in our network optimization plans. These plans are designed to drive future margin improvements. We are currently migrating a portion of our single-serve coffee operations to our new coffee Center of Excellence in Northlake, Texas, which will simplify our network and deliver planned synergies by eliminating one facility. We are pleased with the progress we're making on these initiatives, which are designed to drive margin improvement in future quarters. We are on track to achieve gross supply chain savings of approximately $250 million through 2027, which will support our long-term growth next, I would like to provide some context on the broader trends surrounding the industry and private brands. As you have heard from other CPG companies, the macro environment continues to be challenged by inflationary pressure and general economic concerns among consumers. The net effect of these has resulted in overall lower category volumes, while overall food and beverage unit consumption declined year over year, the broader private brand market remained nearly flat, continuing to outperform relative to national brands. These dynamics weighed on our sales volumes, similar to what you've seen across the CPG industry if we look at our full year performance, excluding price, we outpaced the measured retail market and four of our top five categories and believe the investments we're making in our portfolio and capabilities improve our competitive positioning heading into 2024.
Turning to Slide 7. Similar to the past few quarters, we want to emphasize that retailers increased shelf prices in the fourth quarter to reflect inflation, especially in the categories in which TreeHouse operates. You will see that in December, shelf prices reached a high for the year, which illustrates the meaningful absolute dollar savings that a basket of private brand goods delivers for consumers. Specifically within our categories this past quarter, a shopper would have saved approximately $18 on a basket of our goods relative to a basket of branded goods.
On slide 8, private brand unit share continues to remain at a quarterly all-time high above 20% and was most pronounced during the holiday season is also worth noting that private brands have gained unit share for over 100 consecutive weeks. Again, these trends reiterate the important role private brands play for retailers and consumers. Additionally, we've heard many of our branded peers discuss their plans to make greater investments in marketing and promotion to drive volume recovery across the industry. We believe that will be beneficial in bringing the consumer back to the shelf or the private brand value proposition as most parents.
On Slide 9, we've provided a look at price gaps in our categories, which remain elevated when compared to historic levels. We believe these price gaps are a key contributor. So the continued share growth of private brands.
Additionally, I wanted to briefly touch upon private brand promotions as we hear retailers continue to voice their support for private brands and a desire to return to merchandise.
On the right side of slide 9, we've included promotional data for national brands and private label in our categories. What we found historically is that while national brands tend to get a higher level of promotion, overall, private brand promotion generates a higher return on investment. We believe this performance illustrates the importance of private brands to retailers as a means to drive shopper traffic and loyalty.
As it relates to the fourth quarter specifically, the promotional activity increased among national brands, but remained relatively low for private brands. Importantly, we still performed well. Despite this heavier level of promotion. We believe we are well positioned should increase promotional activity return to private brands.
Before I turn the call over to Pat for more detail on our financial performance and our outlook, I'd like to reinforce some of our achievements for the past year. Despite the ongoing economic uncertainty, our company is in a strong financial position with our current balance sheet and capital structure. We've also made significant investments in our categories and our supply chain to drive growth with our strong net sales pipeline and the right team of people in place to execute on our strategy. I am energized as we begin 2024 and look forward to keeping you updated on our continued progress throughout the year.
Now I'll turn the call over to Pat.
Patrick O'Donnell
Thanks, Steve, and good morning, everyone. I'd like to start by also expressing my appreciation to the entire TreeHouse team for a strong close to the year. I am proud of everything we accomplished in 2023 and remain confident in our ability to execute in 2024.
I'll start with the summary of our fourth quarter results on Slide 10. Net sales of $910.8 million and adjusted EBITDA of $108.4 million, both declined versus the prior year, which was in line with our expectation. We delivered net sales at the low end of our guidance range and adjusted EBITDA at the midpoint, adjusted gross margin performance drove improvement in adjusted EBITDA margin, which returned to almost 12% Let me walk through this in greater detail on slide 11, we provided a look at our year-over-year net sales drivers. Our net sales decline was primarily driven by challenges at our broad facility as well as discrete supply chain disruptions within our pretzel and cookie business that we discussed last quarter. The remaining decline was primarily due to planned exits of lower margin These items were partially offset by the volume from our coffee and season pretzel acquisition. Our pricing was roughly flat because we've now lapped the pricing actions that we've taken over the last couple of years, primarily to recover from inflationary pressures.
Moving to slide 12, I'll walk you through our profit drivers. Volume and mix, including absorption was a headwind of $33 million in the quarter. Peanut pricing net of commodities contributed $38 million. While we have seen some commodities move lower relative to recent all-time highs, many of our ingredients and packaging inputs still remain elevated compared to historical levels. As you would expect, our procurement and logistics teams are hard at work executing initiatives throughout our network to drive profitability improvement given the current environment.
Next, supply chain and operations were a $9 million drag year over year, primarily due to investments in labor, mainly to attract and retain workers in our plants where we plan to drive growth in 2024.
Lastly, SG&A and other negatively impacted profit by $7 million year over year. This was largely a result of temporary operating expenses associated with the exit of the transition services agreement. I'm pleased with our team's work and efficiently winding down those services, which represented a significant milestone in finalizing that divestiture and our transformation moving on to the balance sheet on slide 13, we continued to be in a position of strength in the quarter.
We repaid approximately $155 million of borrowings under our revolving credit facility and received repayment of the seller note receivable, coupled with our improved adjusted EBITDA performance, we ended the year with our leverage ratio at approximately two times Turning to Slide 14. To recap, in 2023, we deployed capital consistent with our three priorities. We invested in the business to strengthen our depth and capabilities in the categories where we operate, including $140 million of CapEx investment and deployed $105 million in coffee and pretzels. We improved our balance sheet, building our cash position reducing leverage, and we returned $100 million of capital to shareholders through share repurchase.
Moving into 2024, we will continue to be disciplined and execute against our capital allocation strategy. Much of our near-term spend will remain focused on gaining further category leadership and depth of offerings and increasing our supply chain efficiency to fuel our growth.
Now turning to our guidance and outlook for 2024. I'd like to spend a few moments framing how we are thinking about the year on Slide 15. From a macro perspective, we've seen weakness in overall food and beverage consumption volumes over the last year. Recently, while national brand volume has been down, private brands volume has been flat in our categories. We believe it is prudent to assume no significant changes to the consumption environment in the near term. Therefore, we are not assuming a return to historical consumption trends in 2024. Having said that we see a number of opportunities to grow our top line organically, particularly in the businesses where we strengthened our capabilities last year, including coffee, pretzels and pickles, our enhanced depth and capabilities are quickly enabling new bid opportunities. And we continue to hear interest from retailers in partnering up innovation, including seasonal items, which is another opportunity for TreeHouse to drive profitable volume growth for both our company and our retail grocery parks. In addition to these organic growth opportunities, we have the benefit of volume from our recent coffee and pretzel acquisitions during the first half of the year, as well as the annual volume from the fixed pickle business that we acquired in January. While we continue to believe our business is well positioned to grow in line with the annual targets that we've previously outlined. And our ability to grow sales in 2024 will be temporarily constrained by the efforts to restart our broth facility. With this in mind, Slide 16 reflects that we expect net sales in the range of $3.43 billion to $3.5 billion, which represents flat to 2% year-over-year growth. We expect the net sales impact due to our Frost facility will be approximately $60 million, which partially mutes the growth contribution from the rest of the business particularly in the first half of the year. We expect our overall volume and mix to be slightly positive for the year. From a pricing perspective, we are planning for a modest decline year over year.
Moving to profitability, we expect adjusted EBITDA in a range of $360 million to $390 million. We are confident in the progress that we've made in implementing our supply chain savings initiatives and believe we are on track to deliver significant gross savings in 2024, whatever, as is the case with top line guidance. We expect the investments we have already made in our broad facility and the related volume impact to constrain our profit growth. We estimate the adjusted EBITDA impact from the restart of our broth facility will be approximately $20 million for the year. Additionally, we expect free cash flow of at least 100,000.
Finally, we anticipate net interest expense of $56 million to 62 million, capital expenditures of approximately $145 million. With regard to the first quarter, we are expecting net sales of $780 million to $810 million, which represents a year-over-year decline of approximately 7% at the midpoint. So the decline will be driven primarily by the impact of the broad facility, which will also adversely impact our business.
Also, I'll remind you that we are now lapping historically strong net sales performance in Q1 2023, which saw a significant benefit from our cumulative pricing actions to recover inflation and the pipeline build that we discussed last year. Based on these factors, we would expect our organic sales to be down high single digits, partially offset by the low single digit contribution from the acquisition volume in coffee, pretzels and pickles.
In terms of profitability, we expect adjusted EBITDA to be in the range of $45 million to $55 million. The unfavorable volume and related absorption impact from our broad facility will be a significant driver of the Q1 year-over-year decline. Additionally, we expect higher operating expenses due to the temporary cost associated with the nix exited TSA agreement and selective investments we are making in labor to attract and retain talent. Certainly, I'd also like to provide some additional context on the general net sales and adjusted EBITDA cadence of our business as a result of our reshaped portfolio and what you can expect in 2024. We have included slide 20 in the appendix, which outlines our historical cadence. As it relates to sales, we typically experience lower sales in the first half of the year with the second quarter being our seasonally lowest quarter from a volume standpoint and higher sales in the second half of the year, which is driven by our seasonally strongest fourth quarter period split, it's slightly more pronounced on adjusted EBITDA, driven by stronger demand and higher utilization, which is also most pronounced in the fourth quarter. Given the constraints impacting us in the first half due to our broad facility, we would expect our 2024 sales and adjusted EBITDA performance to be more second half weighted than our historical cadence.
With that, I'll turn it back over to Steve for closing remarks. Steve?
Steve Oakland
Thanks, Pat. I'd like to reiterate that our performance this year is a testament to the dedication of our entire TreeHouse team. We delivered annual net sales growth of approximately 4% and adjusted EBITDA growth of 25%. I believe this past year provides a proof point of our ability to deliver on our long-term growth algorithm that we outlined at our Investor Day last year. Our transformation has allowed TreeHouse to become more profitable on our smaller net sales base. As you can see on slide 16, but for the impact of our broad facilities, we are on the path to $400 million in adjusted EBITDA. We have outlined what we believe is a prudent outlook. Current consumption trends remain challenged and while private brands are outperforming, the current growth trend remains flat, impacting our ability to drive top line growth in the near term.
Over the long term, we still believe our categories provide the opportunity for strong growth given that the second half of the year is key to delivering on our outlook, I'd like to reiterate a few factors that give me confidence in our ability to achieve our goals. First, we've won new business that starts shipping in the second half of the year. The investments that we've made to strengthen our capabilities are enabling these new business wins, particularly in categories like coffee, refrigerated, auto and pickles.
Second, we have a robust sales pipeline for the business is the strongest the Company has had since I joined in 2018, which is a testament to our commercial teams, the strength of their customer relationships and our operations. And third we are starting the year with more supply chain cost savings projects in place than we've ever had and expect our continued rollout of demos to drive additional savings throughout 2024. And finally, keep in mind that as we move into the second half of 2024, the investments we've made in broth, pretzels and cookies should enable us to fully service these categories during their seasonal peak.
As we look ahead, I'm confident that the transformative actions that we've taken to sharpen our portfolio focus and strengthen our capabilities as a company well positioned to deliver the growth and profitability that we've outlined.
With that, I'll turn the call over to the operator to open the line up to your questions.
Question and Answer Session
Operator
[Jonny Sameer], Barclays. Your line is open.
Andrew Lazar
As Steve and Pat, I'd say it's Andrew.
Steve Oakland
Yes, good morning, Andrew.
Andrew Lazar
Good morning. I guess first off, if we exclude the $20 million impact in the first quarter from restarting the broad facility plant, EBITDA is still expected to be lower year over year in the first quarter in a pretty material way. And I know part of that is also that the difficult year ago comp that you mentioned. I guess what's driving this, how does that play into your confidence in the EBITDA growth, obviously that you see for the remainder of the year?
Patrick O'Donnell
Like are there other things going on in the first quarter that we should be aware of since it is Pat, I don't think there's other things going on that need to be aware of. I would say we tried to make some of the comments when we talked about the historical cadence of the business. And if you went back to what we had guided in Q1, it was a 65 to 80. And so something in that range, I think is what you would think of in that normalized range from a Q1 perspective. So we actually think that the Q1 we're describing ex that brought the impact is a reasonable number for Q1. So I think it's really just lapping some of the pricing and then some of the volume pull-forward that we did in Q1 of 2023.
Andrew Lazar
I mean, I think you mentioned them maybe in the press release, some potential deflationary pricing actions in certain categories is that primarily more in pass-through categories, maybe such as like coffee or where do you see it is more widespread? And if so, is it is it just tough sort of manage price gaps as branded players kind of ramp back up their promotional levels to maybe more normal levels and maybe you can get into that a little bit. Thanks so much.
Steve Oakland
Yes, sure, Andrew, I'll take that. Yes, most of the pricing that we pass through our contractual price throughs on commodity up-and-down rate deflation and inflation, they go through automatically. Coffee is a great example of that. You know, it's so volatile that most of those contracts have a have a deflation have an escalator de-escalator clauses from, you know, it's interesting when you when you mentioned promotion in the U.S., we all know that the fourth quarter was a much more promoted quarter for CPG on almost net almost back to pre-pandemic levels, not quite, but you still saw private label gain share in the quarter?
Right. And I think we talked about on this call, we talked about the basket being about $18, right? The peak last year was $20, right? So even in the most promoted category or promoted quarter of the year, there's still a pretty substantial gap between private label and the in branded I was disappointed quite frankly that we didn't see more private label promotion during the quarter. We had the inventory to do it, but I think quite frankly, the performance of it relative to brand gave the retailers confidence that they could deliver their numbers without doing it. So we actually would look forward to a little more promotion on our side.
Andrew Lazar
Thanks. So much.
Operator
Matt Smith, Stifel.
Matt Smith
Hi, good morning, Pat and Steve, wondering about you called out investments you've made to improve the portfolio in the broadly favorable environment for private label and Triaz in particular. But if we if we look at the 2024 outlook, the underlying volumes, excluding acquisition and the impact of the broth business are still well below that 2% to 3% growth target. Can you talk about the factors keeping you below that outlook? You talked about the, you know, assumption an improvement in consumption, but that should be partially offset or offset by the new business wins that you've talked about.
Steve Oakland
Sure, sure. Let's let's talk about that. We we guided to a midpoint of 1% growth for next year or for this year. I guess it is now for 24. And if you think about a macro environment where units are flat and we've guided deflation. That means we've got to have a couple of percent unit growth unit growth to make that happen, right? And so we just think guiding stronger than that with the uncertain consumer environment is imprudent at this time. But in order to meet the guidance that we have and we wouldn't do that if we didn't see the strength of our both our underlying business and our new businesses.
We think you've got to grow about 2% to make that happen.
Matt Smith
I'm thinking about it, Stephen, if I could ask a follow-up question relating to the broth business. Private-label volumes actually returned to growth at the category level in January. Are you seeing market share gains by other private label manufacturers, and that is the case. What are your expectations in the rebuild of the broth business? Is there a period of time where you're contending with contract losses even after the facilities back up and running.
Steve Oakland
It's interesting. Private label is a broad private label is a great category for us. And we have we've had to allocate to our customers given that we're producing significantly less. I'd remind you that we have two broad facilities, though, right. We have ramped our Richmond Hill, Ontario plant up to its maximum capacity. And so where we are losing some sales. I think the customer recognizes both the quality and the service they've had from us up into this point. So there will be some customers that probably have to source product somewhere else. But I think we've built enough reputation that we'll work our way through this, and our broth business will be significant going forward.
Matt Smith
Thank you, Steve, I'll pass it on.
Operator
James Salera, Stephens.
James Salera
Yes, thanks for taking my question. If we could drill down a little bit more on the broad piece. I know you guys have talked about it before and obviously you have and you're underway in fixing that. Is there any risk that means that situation changes as we move into 2024? Or do you guys feel confident on the number you provided around it that you have really good visibility into that?
Steve Oakland
I think just because of the risk we have been cautious in what we've guided here, right? I think we've guided very cautiously here. We do run a world-class broad facility. So we know where this one was and where it needs to be. And I think we have the right resources. We've not spent a penny them to make that happen, right? We bought this business 10 years ago, right? Treehouse bought it 10 years ago. It has been a drag on the results since then. I think we recognized in the third quarter when we when we faced look, we should really recall some of this product we stepped in and did a full recall, I mean a full rebuild of this business and its capital, its people its process. So it will be a world-class. It will be a driver for TreeHouse when we're done with this, it has historically been a drag as we address three of our worst facilities in 2023, right?
We started with the cookies. We talked about that early in the year. We addressed some some legacy capital needs in our Dell business and cookies. Endo were drivers in last year and unfortunately didn't see that because of this broad piece. But I think we'll we will have the three riskiest parts of our business addressed when we finish this. And we think our ongoing maintenance programs will be sufficient to make us a much more reliable and consistent vendor going forward.
James Salera
Great. And then I think you mentioned this is in the prepared remarks or in the press release, but you guys talked a little about labor inflation and that's actually something that we've seen come up with a couple of other companies that have reported. And I guess, given during COVID, obviously, there's a lot of competition around like warehouse labor and that same labor pool, but I would think some of that has rolled back.
And so I guess I'm surprised that there's still the same level of labor inflation. If you could just give any color around that and some of the challenges you're seeing there?
Patrick O'Donnell
Yes, I don't know if it's the same level of labor inflation, but we still see labor being relatively elevated and the availability of the workforce on the market and so will be competitive market wise. I don't think it's not the major driver that we worry about, but it is something that we're focused on to ensure we're being an employer of choice in the markets in which we operate, and some geographies are more challenging than others.
Steve Oakland
Yes. And I would also say there's probably a few facilities that are that are unionized, and those tend the labor impact of those tends to happen when new contracts are renewed, right? So it does a little bit of a lag in the expense until the contracts are renewed. And I would expect those contracts to be renewed it at more favorable labor rates for them. So I think we'll have a little bit of labor inflation going forward. But but as Pat said, it's not a it's not our it's not what we think of when we think of the risks in our business.
James Salera
Got it. That's helpful. Thanks, guys. I'll hop back in the queue.
Operator
Rob Moskow, TD Cowen.
Rob Moskow
Hi. I had a couple of questions. Steve. The first was I just want to understand the prepared remarks about branded activity that you've seen from branded players. I think you said that you've taken a look at those plans and you're encouraged that it will help category growth. But when I look at those plans, it does look like you intend to be more promotional. And I think that this slide that you showed on slide 9 showing that the price gaps getting more and more narrow, it would seem to me that they will continue to get more narrow. So did I understand I understand your comments correctly that this is more of a positive than the negative and what does it mean for price gaps?
Steve Oakland
Sure, sure. So remember, price gaps are now returning to historic levels where private label grew, okay. And those are percentage price gaps, not penny price gaps. So 20% of you know, a product that now costs $4 that used to cost $3, right? So the moment of truth, I think the old A.G. Lafley comment about the moment of truth right in front of shelf when the consumer walks up to the shelf and looks at both private label and branded. So we think even in the promotional environment, the absolute penny gap is so significant along with the better quality assortment that our retailers have in front of the consumer. Right now, we need eyes in front of the shelf, right, private label price decisions are made at the shelf. So if you drive traffic to the shelf, we hope categories grow and we're confident that private label will get its share of that category growth given the absolute penny gaps that are in front of us now.
Rob Moskow
Okay. And then my follow-up. I think you said that OE. improved five points from a year ago, how does that take into account the broader issues? And then I think you had some some issues in pretzels and cookies in Q3 as well. And to what extent did those those issues hurt those numbers if at all?
Patrick O'Donnell
Yes. I think you know, we've got investment and demos across our whole network, so we have multiple plants. And so obviously, we're talking about one prep plant and the impact there. And we have invested in other plants within a week. We talked a bit about though that was a plant where we've got a network where we didn't operate as effectively and we put some maintenance in the middle of the year and then that allowed us to service the season. So I think you're seeing where we've made the investments earlier on that starting to pay off with those with those efficiencies and really look at our broad facility is the last one where we can go drive further improvement from a service standpoint. We think in most other places where there and there continues to be opportunity in 2024, we think we can continue to be more efficient and eliminate waste throughout our network. And we've got a lot of cost savings plans in place, things that we plan for in 2023. That will be executed or are being executed at 24.
Steve Oakland
That gives us confidence around how we think about margin next year who will enroll just so, you know, we do aggregate all of our 26 facilities. So the broad plan is one of them. And so it did probably tamp that number down just a bit. Right, but it will tamper down in the first two quarters, but that gives you a sense even with that last year, we grew 5% in oh eight right now to be fair. Treehouse was not at the top of the OE. Hill, right? We have some room to grow and we have that's why there's the kind of cost savings in our network that there is right there is substantial opportunity in our network. And we're the good news is we're making progress at it attacking it.
Rob Moskow
Great. Thank you.
Operator
Rob Dickerson, Jefferies.
Rob Moskow
Great. Thanks so much.
Steve Oakland
Good morning, Rob.
Rob Dickerson
Of course, I just wanted to ask a little bit more about, I guess the pricing cadence of the year rates. I mean, it seems like you've kind of given that guidance for Q1 with vol mix down some, let's say, mid-single digits, just to kind of right-size it back to net. I mean, it sounds like pricing might be down there, but for maybe three to four. But then the comment for the year is down modestly and just to kind of get to the full year year-over-year guide, it would seem like maybe there's a little bit more price investment in Q1. But then at the same time, back to Andy's question on the pass-through dynamic, it would seem like, given its contractual that there's not like a tremendous amount of flex. So to say any color you can kind of give us to kind of how you see that, that year-over-year pricing dynamic playing out as we move through the year?
Patrick O'Donnell
Yes. Maybe I'll start with the full year. And what we're really anticipating is sort of low single digit impact of pricing. And that's that's the pass-through that Steve just described, where we have lower cost than some of our commodities. And those types of things are true Pastor. So we think from a profit that will be consistent through the year. So I don't think we're seeing much difference in in Q1 in terms of that, that low single digit. I think you'll have the broad impact of that. I think you'll have some of the same consumption trends that we saw in Q4 carry into Q1, and that's really how we thought about Q1.
Okay, got it.
Rob Moskow
And then I guess just in terms of the the innovation pipeline that we were able fortunate enough to see some of it come back at your Investor Day. Clearly, it seems like retailers are very proactive in trying to remerchandise private label. Some have you had certain conversations with retailers that just giving you the conviction that clearly that innovation can get on the shelf and drive velocity?
Steve Oakland
Yes, Rob, I mean, the reason we're so confident to guide what we've done is there is new business in pretzels, coffee pickles up, we actually have visibility into contracts that will start January of 25, right? We've got some awards that go that that's how far out some of this stuff works. So when we saw you at the Investor Day, we were we were presenting those things. They are now in the pipeline, and we'll see those on the shelf over the course of this year and into next year or so. So yes, we have we have great visibility into that right now. Now sometimes the date pushes a month or two, we've been conservative so that we won't be impacted if that happens, right. But but there, Rob, the visibility is pretty good on that right now.
Rob Dickerson
It's super. And then just to sneak a quick one in DNA guide for the year. I don't think you provided sometimes you do not know if you have that net debt.
Patrick O'Donnell
Yes, we can give you that give you that offline and we announced significant changes.
Rob Dickerson
Thank you.
Operator
William Reuter, Bank of America.
William Reuter
Hi, good morning. I have two. The first is in your non pass-through categories. What's your outlook for input costs for the year?
Patrick O'Donnell
Yes, I think we continue to see relatively elevated commodity overall. And so we're not seeing significant deflation, perhaps some modest disinflation, um, you know, in a couple of key commodity in a couple of commodities. But overall, we're seeing things that still remain relatively elevated history. And so, you know, really kind of relatively smaller to the similar to last year.
Okay. And then on last year, you completed a couple of acquisitions, they were what you know, some of those are modest in size and some are a little bigger on what's your outlook for M&A in 2024 and beyond your leverage is clearly low after you received the proceeds from the meal prep divestiture, I guess, interest in increasing that leverage trying to expand into new categories or build out our existing ones further?
Steve Oakland
Well, I think you I think you just articulated it right? We don't see the need given the cash flow. We'll have this year to increase our leverage significantly. We think we can execute our capital allocation strategy. It will be invest in businesses to drive depth in the categories, right, make us more attractive and better operators. It will be invest in our plants so that we don't have events like what we had in the third quarter, right? It's to fortify that supply chain through CapEx and maintenance. There'll be some automation expense, right? There will be some investments to make us more efficient and let us supply labor at those places that are high value and then it will be maintaining that balance sheet and returning capital to shareholders, right? So we really feel like the transaction and now the pay down of the note allows us to do all three of those things.
Rob Dickerson
Perfect. Right. That's all for me. Thank you.
Operator
(Operator Instructions) Carla Casella, JPMorgan.
Carla Casella
I am somewhat following on Bill's question and you're sitting on a large cash balance now after after on recouping that debt that accrued. And I'm just wondering you're netting that out to get to your 2.1 times leverage, but do you anticipate using any more of your excess cash to pay down debt.
Patrick O'Donnell
I think we laid out our priorities. We want to maintain the solid balance sheet. The goal is not to go return to the historical levels of leverage that we've had and TreeHouse. And so I think our first priority is to go invest back in the business. And so that's that's clearly where we see the greatest opportunity for TreeHouse. And we'll continue to do it in a very disciplined way, like you saw us do last year and so on it, if we need to stay at relatively lower levels of leverage and we'll do that. We're not in a hurry to go spend the cash in one way or the other. And I think we'll maintain a very balanced approach across all of those Carla.
Steve Oakland
The other thing I would say is we're really proud of our current debt structure, right? Are our 4% bonds and with the swaps are the rest of our debt is incredibly price to the market today. And so we think that investing some of that those funds in our business and return to shareholders makes a lot of sense right now so I think it should that change. We'll look at it differently. But but given the fact that overnight deposits, I think people are more than what our our debt structure is there's no real reason for us to pay a lot of it down in a hurry that makes complete sense.
Carla Casella
And you're still targeting your comfort level with leverage three to three point?
Patrick O'Donnell
That's right.
Carla Casella
Okay. And then just one follow-up question on on the costs. Can you give us a little bit more color in terms of how much of the freight, the lower freight impacted, it benefited the quarter. And then what are the biggest drivers within freight? Is it is it gas, labor other?
Patrick O'Donnell
Yes, I think we've seen freight market somewhat stabilize. I think that's happened over the last couple of quarters. I don't know that it's you know, it's a lot of that is on the kind of distribution expense. You know within our P&L, I don't know that it's the largest driver. I think our outlook is, you know that that will continue to be consistent in terms of how we think about that in a lot of it is, you know, shipment to our our distribution centers or to our customers.
Steve Oakland
So think about that too, in freight availability, I mean the key is as the economy slowed down a bit, Brutal Fruit is much more available. And so it will be interesting over time if that capacity drives carrier rates down, right. I think we've seen a little bit of that. The spot rate has come down, but we'll see what happens as we go forward. The best thing is we've got great availability. We're able to be on-time in full because of carrier shows up on time so that that was not the case, as you know, a year or so ago. But it is the case today.
Carla Casella
Okay, that's great. And just one clarification on your EBITDA adjustment, your guidance for 2024. So with and without the $20 million impact from the broad facilities and will that be one of those $20 million of one-time items that you'll call out in EBITDA? Or is that $20 million on top of are there one-time items that might be adjusted in your EBITDA?
Patrick O'Donnell
No, I would look at that slightly different. I think that the $20 million is really lost sales and profits of what we can't deliver while we do the ramp up. And so we've done the majority of the investment that we need to do in the fourth quarter. And now we're on a very calm, disciplined sort of ramp up of that facility and getting all of our lines up and running. And so that's really the guide, as you know. That's I wouldn't say that those are adjustments. We're just trying to show what the impact of that is and then what does the rest of the business doing.
Carla Casella
Okay. Great. That's helpful. Thank you. That's all I had.
Operator
Jon Andersen, William Blair.
Jon Andersen
Hi, good morning, everybody. I'm on slide 5 in the presentation, there are three categories. I think that you've kind of call out is categories where you see that or better competitive positioning of the teams, in-store bakery, liquid beverages and tea. Just wondering if you can talk about those a little bit from where you sit, you need to be competition, what the opportunity is and what the action plan is to to improve that?
Steve Oakland
Sure. If you would have gone back a year, you'd put you'd have seen coffee there, right? And so I think what we're doing is we're showing you the categories that we feel are good consumer categories that we need that we need to make some investments to give us the kind of depth and capability to make us that preferred vendor with a customer. So the Northlake topics we called our copy center of excellence. But the north the Northlake copy acquisition has had an enormous impact very, very quickly on the coffee business. We would like to do that in the tea business, our aseptic business, we think we're doing the right thing, right? And we think we were there. We will be back there.
And then if you think about things like liquid beverages. That's a very small business for us. That's our ready to drink, mostly coffee beverages. And we just think we're subscale there, right? We do a lot of niche producing there, but it's subscale and small. So it's those kinds of things. And in-store bakery, which we think is a great category.
We're a cookie provider, right? So we participate. We're the largest scale provider, but in only one category on that table when you walk in a in a grocery store and you see that big in-store bakery table. So is there an opportunity for us to maybe use that, that connection with the customer and that infrastructure too, to have more placements on that table.
Right. It's that simple, right. We we simply make the best for us to trigger cookies on the table, but we really don't participate in the rest of it. And so we would look at capabilities and maybe that's a foreshadowing of places where we do at least one for capabilities, whether they be build or buy.
Jon Andersen
Okay. That's helpful. Thanks. You mentioned the three facilities that you've invested in cookies, though and broth, which is, I guess in process. Are there any are there some I don't know if I should call your problem plants like this that fit that you need to do remediation work in? Or is it more kind of routine investments you get beyond this point?
And then just second part on the $250 million in gross cost savings through 2027. Can you just update us on the cadence of those savings if it's changed at all from what you presented at Investor Day, middle of last year.
Steve Oakland
I'll take the first and Pat, maybe you take second one. I think look, we had thought that our cookie plants and our auto plants were underinvested in for a number of years. They were run incredibly hard during the COVID period when you couldn't do that kind of maintenance. And so we knew those weak areas we needed to invest. We caught those last year. We had funds planned in 24, quite frankly, for broad and the broad plans as needed pull forward. But I feel like the autonomous maintenance work we're doing. We have we have invested in our engineering organization and our maintenance teams. I think our ongoing efforts will will keep us from having the same kind of problems in the future. So I think we're addressing maybe the last real real real risk that was in our system and quite frankly, drag on our financials.
Right? Profit should be a driver. This Cambridge facility should be a driver. And that's what our goal is. It has for 10 years been a drag.
Patrick O'Donnell
And then regarding cost savings. So if I take demos. First, you know that that has the most maturity in terms of launch. And so we will enter this year with a number of projects in place. And so think of team office relatively ratable over that, that three year period from a procurement. We're really pleased with the reaction and the response we're getting across our base. But that work is happening here in the first part of the year where we're renegotiating contracts. And so I would think of that as starting to ramp up into the back half of this year, there's a few low-hanging fruit things that will pay off a little bit earlier, but think of the bulk of the savings that's happening in the second half of this year and into 2025 and then similar for logistics in. And we reached a major milestone in the fourth quarter where we separated our logistics network from the business that we sold in the meal prep business. And so we're going about the work now to go optimize our network. And so think of that as ramping up over the course of this year and really starting to pay off into late 2014 into 25.
Steve Oakland
What I did I did guide, though, that some that given the maturity, especially of demos and the progress on the on a procurement exercise. We have more projects in place and more run model savings in this plan. And so I think it sort of de-risks the plan so far this year.
Jon Andersen
Okay. Thanks very much.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Steve Oakland for closing remarks.
Steve Oakland
So I'd just like to thank you all for being with us today, and we look forward to sharing our progress as we go on this year. So have a great day, and we'll talk to you all soon.
Operator
This concludes today's conference call. You may now disconnect.
