Q2 2024 Bellring Brands Inc Earnings Call

Participants

Jennifer Meyer; IR; Bellring Brands Inc

Darcy Davenport; President, Chief Executive Officer, Director; Bellring Brands Inc

Paul Rode; Chief Financial Officer; Bellring Brands Inc

Ken Goldman; Analyst; JPMorgan

David Palmer; Analyst; Evercore ISI

Thomas Palmer; Analyst; Citi

Bryan Spillane; Analyst; Bank of America

Robert Moskow; Analyst; TD Cowen

Kaumil Gajrawala; Analyst; Jefferies

Jim Salera; Analyst; Stephens

Matt Smith; Analyst; Stifel

Matt McGinley; Analyst; Needham

Jon Andersen; Analyst; William Blair

John Baumgartner; Analyst; Mizuho Securities

Bill Chappell; Analyst; Truist Securities

Presentation

Operator

Good day, and thank you for standing by. Welcome to BellRing Brands quarter fiscal year 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Jennifer Meyer, Investor Relations for BellRing Brands. Please go ahead.

Jennifer Meyer

Good morning, and thank you for joining us today for BellRing Brands second-quarter fiscal 2024 earnings call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks. And afterwards, we'll have a brief question-and-answer session.
The press release and supplemental slide presentation that supports the remarks are posted on our website in both the Investor Relations and the SEC Filings section of bellring.com. In addition, the release and slides are available on the SEC's website.
Before we continue, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties and should be carefully considered by investors, as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements.
As a reminder, this call is being recorded, and an audio replay will be available on our website.
And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website.
With that, I will turn the call over to Darcy.

Darcy Davenport

Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our second-quarter results and posted a supplemental presentation to our website.
I'm happy to share that we had an excellent first half, with Q2 results above our expectations. The business continues to accelerate as we bring a new shake capacity and begin to drive demand.
For the first time since 2021, we executed two successful club promotions in one quarter, which marked a ton of consumer and retailer excitement. Net sales grew 28% over prior year, and adjusted EBITDA was up 53%. Greater-than-expected shake demand, specifically non-promoted, drove the net sales and adjusted EBITDA margin outperformance.
As on yesterday's press release, we raised our outlook for the year. We now expect net sales to grow 16% to 19% over fiscal '23 and adjusted EBITDA to grow 18% to 24% -- online, with based on better-than-expected work performance, strong consumption trends, confidence in our capacity expansion, and our decision to execute a price increase on shakes late in Q4.
Moving to shake production, we have made remarkable progress in our plan to grow and diversify our shake supply. We are making more shakes every quarter, with Q2 production coming in as expected and up significantly versus the year ago quarter. We remain on track to grow production north of 20% this year, enabling strong net sales growth in '24 and increased weeks of supply by year-end.
Now to the category and brand updates, the convenient nutrition category grew 5% in Q2 as tailwinds around health and wellness and fitness continue to drive growth. Consumer interest and functional beverages and sports nutrition products continues to be high, with mainstream ready-to-drink brands driving most of the growth and bringing new households into the category.
RTD led the category of 10% drive, driven by promotions and distribution gains. Ready-to-mix grew 3%, slowing this quarter as consumers traded down to value brands and switched to other high-protein products, including RTDs. Despite this change in consumer behavior, our powder brands still outperformed the track category.
Premier Protein shake consumption growth remained strong this quarter at 29%. Growth was robust across all channels in Q2, driven by promotions, strong velocities, and distribution expansion. The highest growth was in mass and e-commerce. Mass benefited from display activity and distribution gains, while e-commerce saw strong growth behind promotional events. The club channel, boosted by successful promotions at both of the major club retailers, drove healthy volume lift and household penetration. April consumption remained strong at 16% despite some out-of-stocks in track channels.
Flavors continue to drive retailer and consumer excitement. Our newest 30-gram flavor Cookie Dough is performing well with top 10% velocities in mass. Our seasonal flavor Salted Caramel Popcorn -- solid success.
Our brand metrics remain healthy. Premier Protein with RTD market share of 21% remained at -- maintained its top position as the number one brand in the RTD segment, as well as the number one in the broader convenient nutrition category. TDPs grew 33% over the prior year quarter but saw a slight sequential decline, with shakes live quarter we experience some temporary out-of-stocks in the quarter and into April. Retailer inventory levels are starting to improve, with TDPs stabilizing, and we expect further improvement throughout the second half.
I'm pleased to see the brand reach another all-time high in household penetration this quarter, reaching over 18% of households. -- for point of household penetration versus Q1 and grew 26% over prior year. As of Q1, the brand was a significant contributor to the overall RTD category growth. Premier Protein's household penetration continues to be the highest in the category, and we expect modest growth in the remainder of fiscal '24.
With the RTD segment household penetration below categories such as nutrition bars and energy drinks, we still see tremendous opportunity to grow in our existing channels. Premier Protein powder continued its strong trajectory, growing 52% in Q2 behind brand investments, distribution gains, and strong velocities. We remain encouraged by the growth potential of the Premier Protein brand in this format.
Premier powders continue to bring mainstream consumers into the category, with 80% of its growth coming from outside the category. Its household penetration reached 1.7% this quarter, and we continue to believe that the brand will be a contributor to mainstreaming the powder category in the same way Premier did for the ready-to-drink category.
Our licensing strategy continued to perform well with cereal and frozen pancakes, attracting new consumers to the brand. Although not a significant revenue driver, these two products boost Premier's overall household penetration to 19% or nearly one in five households.
Turning to Dymatize, US consumption remains strong in mainstream FDM channels. But overall consumption declined 8%, weighed down by ongoing softness in specialty channel and increased competitive activity in e-commerce. Despite these headwinds, I'm encouraged to see the brand maintain its record high household penetration, with TDPs and share holding steady.
Looking forward, we are increasing our investment behind the brand, both marketing and promotion. We are excited to expand our national marketing campaign with San Francisco All Pro running back Christian McCaffrey. We are eager to see impact that enhanced digital marketing and a top-tier influencer will have on the brand awareness and household penetration. Last, we are putting the final touches on innovation that will expand Dymatize's product line. Overall, we continue to be bullish on the mainstream powder opportunity with two complementary brands.
In closing, our excellent first half results position us well for an above algorithm fiscal year. Our confidence in the long-term outlook for BellRing remains strong. Our brands are leaders in the highest growth areas of an on-trend category. Ready-to-drink and powder segments are in the early stages of growth with major (inaudible). Premier Protein and Dymatize are leading mainstream brands with low household penetration and strong loyalty.
Our momentum continues to grow on shakes as we layer -- start to layer in promotion. Our shake capacity can plan is on track to support many years of future of robust growth. I'm excited to see the momentum continue into 2025 as we layer in more innovation and national marketing.
Thank you for your interest in our company. We look forward to sharing our progress next quarter.
I'll now to turn the call over to Paul.

Paul Rode

Thanks, Darcy, and good morning, everyone.
Net sales for the quarter were $495 million, up 28% over prior year, and above our expectations with strong demand for Premier Protein shakes as the biggest driver of the outperformance. Adjusted EBITDA was $104 million, an increase of 53%. Adjusted EBITDA margins were 21% and also exceeded our expectations, benefiting from favorable gross margins and leverage on higher product sales.
Starting with brand performance, Premier Protein net sales grew 34% behind strong volume growth for RTD shakes and powders. Promotional activity, distribution gains, and organic growth drove the increase in net sales. Shake consumption dollars grew 29%, compared to shipment growth of [34%] by the lapping of a prior year trade inventory (inaudiible).
Dymatize net sales increased 5% this quarter as the brand benefited from increased distribution and promotional activity in domestic mainstream channels, along with international strength. These gains were partially offset by continued weakness in the specialty channel and increased e-commerce competitive activity.
Gross profit of $164 million grew 40%, with an increase of gross profit margin of 280 basis points to 33.2%. The margin increase resulted from net input cost deflation, partially offset by incremental promotional activity. Compared to our expectations, gross margins benefited from greater-than-expected non-promoted volume and non-recurring cost favorability.
SG&A expenses as a percentage of net sales were 14%, roughly flat to prior year, advertising of a percentage of net cash and cash flow from operations in the second quarter and 90 million in the first half. We expect net working capital growth of fiscal 24 to modestly exceed our net sales growth rate as we had weeks of supply in the second half. As of March 31st, net debt was seven of 61 million in net leverage was 1.9 times. With our EBITDA growth, strong cash flow generation. We anticipate that leverage will remain below two times in fiscal 24.
With respect to our share repurchases, this quarter, we bought 4,000 shares at an average price of $56.46 per share or 23 billion in total. Our remaining share repurchase authorization of EUR209 billion. Turning to our outlook, we raised our fiscal 24 guidance for net sales to be 1.93 to $1.99 billion in adjusted EBITDA of 400 to 4 and $20 million.
Our guidance implies strong top line growth of 16% to 19% and adjusted EBITDA growth of 18% to 24%, with healthy adjusted EBITDA margins of 20.9% at the midpoint. The updated guidance reflects our better-than-expected first half results and strong consumption trends in the second half of fiscal 24.
Product logistics costs are expected to increase compared to the first half with pricing actions Onshape planned late in the fourth quarter at the midpoint or talking about net sales are expected to grow 13%, with adjusted EBITDA margins of approximately 20%. As we entered the second half, we have largely lapped the relaunch of flavors and expect sales growth to be driven by continued organic momentum and distribution gains compared to the second half of fiscal 23. We expect EBITDA margins to be similar.
Turning to the third quarter, our net sales growth is expected to largely tracker second half growth rate. Premier Protein drives this growth as volumes are expected to increase in the mid to high 10s. Donatos partially offsets from our strong growth with the brand facing a tough prior year comparable in Q3 other labs, a club loaded in FDM display activity. Adjusted EBITDA margins are expected to improve modestly from a year ago quarter was significantly higher gross margins as we lap peak protein prices. This increase was mostly offset by incremental marketing spend in SG&A as a percentage of net sales.
In closing, we're pleased with our first half momentum for strong first half results give us greater confidence in our full-year outlook of long-term growth prospects.
I will now turn it over to the operator for questions.

Question and Answer Session

Operator

(Operator Instructions) Ken Goldman, JPMorgan.

Ken Goldman

Hi, thank you and good morning. Um, I wanted to get a sense a little bit of ARM. I think you mentioned that non-promoted sales of Premier did quite well this quarter to. And I'm just curious if I heard you right there. What do you attribute the acceleration kind of in those based products to in light of how well the promoted products did at the same time as their natural correlation between the two, just in terms of new generation? Or am I play that up too much of my head?

Darcy Davenport

Good morning, Ken. And so what's still what has been true in what continues to be true is about 80% of our growth comes from outside of the category. So we continue to get a ton of and new households into the category showed on our all-time high of household penetration this quarter. And the one point jump up. I mean, in general, the more we ship, the more we sell and we really haven't had healthy accelerates and FDM. yet. And so honestly, this quarter was we saw strong promotions in our two club customers, pretty much what we expected to see. But what was higher was actually the non-promoted in in pretty much all channels outside of those promotional periods.

Ken Goldman

Understood. Thank you. And then as we think about the guidance raise, we look ahead for the upper end of that range. Is there potential and electronic fish for even higher guidance than what you've already look, but I'm just trying to get a sense of if there is demand there, how much above sort of the high end of your sales guys, could you potentially get to just given some of the capacity constraints that have been mentioned so far? We have production that can absolutely satisfy and yet.

Darcy Davenport

And as I said on past calls and we needed we do not have enough internal inventory. We need to build safety stock. However, towards the end of the year, we plan to get up to, you know, our target of six to eight weeks. If demand continues to be robust, then we have the flexibility to toggle between building more inventory versus going out and satisfying sales.
And so I think we've always said that we're going to be nimble this year. And because of that, we are enormous building and safety stats, internal inventory and But rest assured that we have the production to satisfy the high end and in our full guidance. And then we're going to have to just assess the situation in Q4 to see if we we're going to build inventory or set, you know, satisfied if there's if there's more demand than expected.

Ken Goldman

Great. Thank you. Darcy.

Operator

David Palmer, Evercore ISI.

David Palmer

Thanks. Good morning. It's obviously pretty dynamic quarter with some of the ramp-ups and promotion mix with the two club promotions. But at the same time, you had the strong gross margins. So I wanted to kind of double-click on those two things. What were some of the learnings of both in and out of expectation from the increase in merchandising from the quarter? And I know this what you mentioned the two, I was wondering if that meant that that was on unusual or this is pretty close to the norm that you would expect in terms of the impact of price mix from promotional activity and in the upcoming quarters?

Darcy Davenport

Hey, Paul, I'll start with learnings and then you've got hit on any price mix. You have different things. So the learnings from the person. So remember, we haven't really any significant club promotions or promotions at all since 2021. So it's been awhile, so you weren't exactly sure what to expect. And honestly, there was a ton of excitement.
And when I talked about this before, the key to for our success on promotion is display and get out of the IO, get new people to see our product. And and that is where we increased household penetration. We get the bump in step for the brand. It has been true for the entire time. This brand has been around. So Sharon app, that is exactly what happened. And we got great displays and and at time of retailer support for the events and that that flowed straight into strong risk salt.
So I would say I don't think it's a lot of new learnings, but more confidence that the fundamentals of the brand are very much intact. And there's a ton of excitement from consumers and retailers. And then on pricing, we always expected the second quarter to be the most significant headwind on pricing because of the significant promotional activity that we are doing on shakes will be in the second half. We still expect some white promotion in Q4 on shakes.
But really from a pricing perspective, it's pretty balanced in the US and the rest of the year. We aren't expecting major headwinds or tailwinds on any given quarter on pricing. And then as we did late in Q4, we are modeling of life benefit in the fourth quarter on pricing. But again, it's late in the quarter, sort of pretty modest benefit. It's more about 25, but not a lot of at least I'm sure it's not a lot of pricing of really in particular.

David Palmer

And then just on the gross margin, thanks for that. The 300 or so basis points expansion there. How would you describe that maybe, you know, build up to the 300 in the quarter? And how should we think about that going forward?

Paul Rode

And your questions further here to grow around gross margins. I think if you added I know it's hard to break out specifically how many basis points are due to each thing.

David Palmer

But could you just talk about commodity price mix and volume leverage on net of promotions? How would you think about the gross margin expansion this quarter? And then how does that apply to the second half?

Paul Rode

Thanks to our so some of those margin perspective, significant expansion was from lower protein costs. So as you may recall, last year, we had very high protein costs, especially or powder business in Q2 and into Q3. So if you think about last year's of leisure by quarter to second and third quarter and by far the highest protein cost. And then in the two in the fourth quarter, we started to pull back, which is what you see stronger gross margins on our fourth quarter a year ago.
So if you look to Q2 specifically signal expansion, that the gross margin line, that's partially offset by significant promotion. Offsetting that, we also saw about 50 basis points of favorability from what I would call just some non-recurring items. So your comment on true ups payments for missing on minimum volumes at about 50 basis points. But most expansion is just protein costs. So about by promotion.

David Palmer

That's great. Thank you.

Operator

Thomas Palmer, Citi.

Thomas Palmer

Good morning and thanks for the question. I wanted to maybe start off from back on the input cost environment. It sounded like you're expecting less favorability as we move through the year. But you also noted three Q a year ago was a bit elevated along with with the second quarter. So is it kind of less deflation as we move into 3Q? And then is there a point we kind of return to inflation? Or is that more of our fiscal 25 consideration?

Darcy Davenport

Yes. So if you look at the second half, we are expecting costs to go up from the second quarter, mostly on our powder, which go up significantly. It's about a 50% increase from Q2 to Q3, saw significant check start to moderate quarter audience. So from a sequential basis increases versus a year ago, we still see fairly fairly significant favorability on proteins in the third quarter, but it does start to significantly moderate in the fourth quarter. So there is a very little benefit in the fourth quarter, but still pretty significant favorable in the third quarter.
And again, that's just the dynamics of lapping last year's high and kind of kicks it Q2 to three last year. And we're seeing kind of the whole of the floor in the current the current the protein environment here in the second quarter than it starts to heat up again. So that's that's the dynamics. Are they still we still should see some favorable in the second the motion of per quarter on our proteins.

Thomas Palmer

Okay. Thanks for that. And then just on marketing, I think one thing you talked about in recent quarters, just kind of some flexibility to pull back on marketing if demand is running particularly strong. And I realize some of that you're talking about with marketing is a shift maybe between brands, but it does seem like Premier, you've got kind of limited safety stock, very robust demand in the quarter. To what extent are we seeing kind of a shift there with a pullback in Premier versus a ramp-up in diamond ties? And how does that kind of net out as we think about the second half versus what you'd planned on initially?

Paul Rode

Yes, we have decided to of I'll start and then you can add, Paul, that I am we decided to pull back and two, we moved the than major equity campaign to from Q4 this year to 25. And but we pivoted and some of those dollars to both Premier powder Premier, Bob of and Diamond ties. So and think of and that Tetris side of our business on Premier has been the constraint constrained side.
And but so we're still spending, but on the other parts of our business, but not just dimensionalize So and definitely spending on Premier powder and bottle. And just to kick in, I mean, we could be called previously for Neil low threes kind of 3% and 3.5% for the year. We're still in the ballpark. As Darcy said, we have talked a little bit between brands and pulled back slightly for maybe from our prior expectation, but it's a modest, modest change.

Thomas Palmer

Thank you for the color.

Operator

Bryan Spillane, Bank of America.

Bryan Spillane

Thanks, operator. Good morning, cable. Just on just following the discussion around gross margins in the back half of the year. So will gross margins on the up a little bit more in the third quarter versus last year than they will be in the fourth quarter? And it sounded it sounded to me like 3Q 4Q should be roughly similar, maybe 3Q a little better because you won't have as much promo and then 4Q, a little less gross margin expansion. But just I want to make sure I was hearing that correctly.

Paul Rode

Yes, you've got to correct. So we don't see it Q3, Q4 ought to be pretty similar from a margin perspective, have a gross margin. And you're correct that you will see from a year ago perspective, much more favorability in the third quarter than the fourth. And that's the protein dynamics as protein start to step up in our second half where they started to step down in last year's Q4. So that's why the favorability is less in Q4, but still favorable.

Bryan Spillane

All right. Thank you. And then Dorsey, can you talk a little bit about on would be a rather than household penetration? Just kind of how that sort of a consumer basis is changing if it has. So I guess what I'm what I'm what I'm asking is just are you recruiting more kids on, you know, male versus female age cohorts?

Darcy Davenport

You know, initially, you know, this was a pretty the relatively narrow consumer base, but I'm just curious if it's expanding and I asked that I guess in the context of, you know, I think we would fare life and core power on either definitely seeing a pretty wide age cohort, especially young, are drinking it. So I'm just curious with Premier shake specifically, right, if you're beginning to kind of widen the consumer base.
We definitely are and now kids that this is definitely adult brand image, high-protein sale and but it is more of an adult brand. And But absolutely, as we see, honestly, like both the coke side of the business and our side, and we are the ones driving the category growth and with these new households. So we are bringing in, yes, we're bringing in younger people. But honestly, like with such a low household penetration operation brand, we're bringing in just a really diverse set of age and gender, et cetera.
So what's unique about Premier and I know I talk to you guys about this is our ability to to really source volume from all age is kind of and people looking for different things. So number one reason why people enter a premier is to lose weight. And but we also source volume from the adult nutrition side of that business from sports nutrition, we range what are our range of consumers is very, very wide. And it and we actually more than many other brands out there. We actually have a pretty even split of gender. So what is magical and the hub this brand is just how broad it is and that you can see that in our consumer and the consumers that we're bringing into the brands.

Bryan Spillane

Thanks, Darcy.

Operator

Robert Moskow, TD Cowen.

Robert Moskow

Hi, thanks for the question. I think in your prepared remarks, you said that TD points are showing signs of stabilization in most recent periods. And how soon do you think it will be before you can get those from ramping higher again, like is it in the next few weeks?

Darcy Davenport

We should expect TDP.s to start recovering higher or not. And we'll see we'll see improvements kind of every every month. And so we'll see improvement throughout Q2 three. And then we'll get back to, you know, kind of all-time highs in going forward.

Robert Moskow

Okay, great. And then a quick follow-up. These club promotion Good. We're obviously very successful on. Do you think your competitors are going to conduct similar promotions in the second half of the year? And if so, does that does that present any like risk of a shock to your demand in that channel or not?

Darcy Davenport

So from that club promotion standpoint, I mean, most competitors are already doing promotion and there's an exception and that the and fair life hasn't been doing and promotions, but and I expect them to win. They get in a good supply and the supply situation that they will as well. But we are pretty complementary. I mean, I always go back to I would go back to that. There is room for two strong brands in a low household penetration and high-growth category. And and we have both been very successful in every single channel, but specifically in the club channel.

Robert Moskow

Great. Thank you.

Operator

Kaumil Gajrawala, Jefferies.

Kaumil Gajrawala

Hey, guys, good morning to all and well done. Can you talk a bit about our position and I think are quite some time was about using the products to other parts of the of the store and with the business still being so sort of linked to feature and display and pulling them out of the aisles, are you able to shift where in the store you or increase the number of places you over to Mr?

Darcy Davenport

And our so our focus right now, our focus right now is just a really good at it in stock heavy within the pharmacy. And we are, you know, as I said earlier, at display is a huge driver for us. So we still think that there is a lot of upside within the pharmacy. Just getting display is kind of outside of the pharmacy. And longer term, we do see. So think of it just as incremental incremental display was that could include some incremental placement we already are.
So for us since and in some mass retailers and food retailers, we have singles up in the cooler. So as more for like a grab-and-go, so were aggressively going after those kind of opportunities. So to answer your question, yes, we are absolutely looking for the more places we can be in the store to kind of to introduce our brand to more people, the better.
I think that eventually more in kind of the medium longer term, we do think it's interesting to actually change of. But for now, we think that there's a ton of upside just through building our base business within the pharmacy section and then getting incremental paced placement and display drug store.

Kaumil Gajrawala

Okay, great. And on the price increase on maybe just some more details on on both on buys is linked to our costs are because it looks like it's coming through just as capacity is going to kick up again. And so just any more details on the thought process behind the price increase carry out?

Darcy Davenport

We have seen some we have seen cost increases in Permian costs, logistics, packaging on. And so and actually, you know, many of our competitors have taken price. And so we are in our biggest competitor to price in Q. one on. So this is on and mainly it's because the entire category is really seeing rising costs, honestly, outside of kind of dairy inputs.
However, our dairy inputs are also supposed, as Paul talked about, to start rising again and so on. It's late in the year. We talked about late in Q4 on and I think that we feel comfortable with our price difference versus competition after the price increase.

Kaumil Gajrawala

Okay, great. Thank you.

Operator

Jim Salera, Stephens.

Jim Salera

Hi, guys. Good morning. Thanks for taking our questions. Tertio. I wanted to drill down a little bit on the TDP.s that you mentioned from the out-of-stocks. You a sense for what retailers did with those shelf placements as there was some out-of-stocks, they flex bars and they move the competitor in. Just any color there would be helpful.

Darcy Davenport

So what we know is no space. We didn't lose any space. And so that is where we knew that it was going to be temporary and and honestly genetics and they're sporadic. So they're so for what happens is that we have certain flavor of for count going out for a period of time, then 12 count on. And so this base retailers honestly, there holes in their homes and on the shelf, Ralph and occasionally not about that a maybe they expand the products on the shelf, that kind of fill in holes. But the idea is that it is for a relatively short period of time, and it's never so broad that the US tire brand is off the shelf.

Jim Salera

Okay. That's helpful. And then I guess as a follow-up to that, do you have the ability to see, for example, if if my favorite flavor is on-shelf desired just then reach for chocolate, which is below two slots down? Or does that typically end up and just kind of a lost sale?

Paul Rode

Yes, you're describing the challenge with forecasting. I do because what we're finding is that, yes, there's for the most part there, especially because our biggest Hanno consumers will just change to a different most of the time to a different flavor. And every once in awhile now also changed to a different pack types. So enough counts, not spoken chocolates, not available. They'll go to 12 count chocolate.
For instance, there's even some channel shifting. So they might go to a different channel because it might be available on their. So that is the challenge of forecasting accurately because there's so much interplay between the flavors and the pack sizes for the most part, they're staying with in brand and three. Once you know, they're there are no times. And I would say it's more of the minority that somebody has a flavor of favor flavored. They will just kind of wait to purchase for that and that cycle. And then I'll see if it's back on the shelf the next time they shop.

Jim Salera

Great. I appreciate the color. Paul, back into queue.

Operator

Matt Smith, Stifel.

Matt Smith

Good morning. I wanted to ask a question about the third quarter guidance. You said it was tracking to the implied second half growth rates for revenue then place fairly even phasing of growth in the second half of the year with a tougher comparison fourth quarter. Do you have the right. And can you talk about the phasing of from social activity for the rest of the year than the large incremental events year over year that we should be aware of?

Darcy Davenport

Yes, you are tracking it correctly that you expect growth to be pretty pretty similar in Q3 and Q4 compared to a year ago. In the fourth quarter, we have some white promotion, but it's not it's nothing that we had a we also had some promotion, low promotional checks in the fourth quarter of last year. So I think that overall there's not a dramatic change and promotion of proactively pioneers.

Matt Smith

Then just one more follow-up for me and I'll pass it on a for shipments were in line with consumption in the current quarter. Do you expect that to persist through the second half of the year? Is there potential for retailers to start to increase their inventory levels exiting the year?

Darcy Davenport

Our expectation is a shipments and consumption will largely truck. It would likely modestly swing towards of shipments, feels a little bit of a inventory load and nothing we're not expecting anything dramatic in the spec. And so again, we're trying to replenish itself as well as keep up the demand. So we expect a little bit of shipments of consumption sector.

Matt Smith

Thank you.

Operator

Matt McGinley, Needham.

Matt McGinley

Thank you. To be increased e-commerce competition for Donatos this quarter. Can you expand on what you saw there competitively? And is that something you expect to persist? Or is that something that is more unique to this quarter? And yet the new one.

Darcy Davenport

And so obviously, Q2 new year new you we always see increases in promotion and marketing because it's the time when the most most new people enter into the category. But this year was much more extreme than in the past, meaning a ton of more of the emerging brands and the smaller brands doing very deep discounting and and and really leaning into marketing.
So I'm highly competitive and I would say not very much the entire powder category. And we also saw some and consumers seeking value. So not only buying brands on deal that I just referenced, but also some trading down and value brands. And then even staying what we saw, what in diabetes is actually buying looking for value, but actually the upsizing. So going from a 23, for instance, to a £5 because it was a better value. So a lot of deal shopping in general, just value-seeking, um, and from week, we do we expect it to continue on a continued in April.
So I think in general, we expect that it will continue through on through Q2 three. I think the big question is when commodities decrease for the most part, competitors invest that money into promotion. Well, now prices and commodities are going to start increasing again. So we do believe that there will be less deep discounting because of that.
But I sense that one quick follow up on the revenue trend in the back half on it's a little bit difficult to tease out your seasonal trends, given all the volatility of the supply chain for the past few years that you expect the third quarter to generate more revenue than you did in the second, or where does that step down? We would expect to modestly increase from the second quarter sequentially.

Matt McGinley

Thank you.

Operator

Jon Andersen, William Blair.

Jon Andersen

Good morning. Thank you for the questions. two quick ones. Just hoping you could give us an update on your kind of capacity plans not for the balance of 24, but looking out to 25 and supporting growth in 2025, what your expectation is there in terms of capacity additions?
And then the second question is just on powders. Looks like Premier Protein powder was up, consumption was up very nicely in the quarter. Diamond Touch a bit softer. Are you seeing anything in the market that it would have you maybe thinking about balancing your resources against those to equities differently going forward? In the Powder segment. Thank you.

Darcy Davenport

The production first and 25 production at we feel good about that, that production increases. So just I know you were asking about 24 on back on track for 20% plus on production increasing. Remember, that was always back and loaded. And so we are expected to see strong production. We saw strong production in Q2, and that will continue into Q3 and Q4 of this year.
When we go into 25, that will continue into 25. So and without specific numbers, we are have enough production to support high end of our algo plus back for capacity plus any so that needed production to rebuild internal inventory. If we do not get back to target levels by the end of 24. So I feel really good about the production ramp-up and just know that we are still scaling up our two greenfield facilities. And so those start every quarter are becoming more and more important. So that's one piece.
And secondly, around powder, one thing I didn't say when I was talking about e-com and the dynamic of on consumers seeking value, Premier has been a big beneficiary of that. So and think of Diamond ties as being kind of a super premium athletes, brand Premier is very much and mainstream powder brand, and that is a good value. And so we've actually seen one of the reasons why Premier's doing so well is because of the dynamic going on.
So yes. And to answer your question, I think it's less about diverting resources from Donna ties to Premier powder. But we have that we have the ability to support both businesses and we will continue to increase the support on Premier powder and or read highly encouraged by that format. And I mean, I said in my prepared remarks, but we believe with 80% of the growth coming from outside of the category, we really think that Premier can help main stream that powder category very much like the brain landed for RTB. So we're really bullish on the opportunity with Premier powder.

Jon Andersen

Great. Thanks so much.

Operator

John Baumgartner, Mizuho Securities.

John Baumgartner

Good morning. Thanks for the question. So maybe first off, just wanted to follow-up on promo, Darcy and getting more display outside of the aisle right now, this categories brands stand out for growth and retailer interest follows, but that also takes you into greater, I guess, coffee to overlap for space with other food and beverage that's maybe higher margin for the retail or I guess even general merchandise of how do you see that sustaining outside the IO emerge over the longer term? I mean, is this placement mostly content engine on retailers maintaining their interest in health and wellness shelf sets, the cost of display go up is outside the oncologist destined to be more of a seasonal phenomenon? How do you think about that over time?

Darcy Davenport

It's an interesting question. So I can tell you that every single one of our conversations with retailers and they are they see the trends within health and wellness. They see the growth coming from this category and specifically our TDRs and and it is stronger than the store. So so it has the attention it has the support. They also know that it's a low household penetration category. So the growth should continue.
And so I think it's less about it. I think it's less concern around thus the retailer support and borrowing from other categories. I think it's there right now. Our conversations are really and we're seeing it is that and space is increasing and spaces increasing, not only for our TD.s, but within, you know, and taking space from other parts of the business are the other segments and but also increasing the overall space for convenient nutrition.
So if you're talking about displays and obviously it's more competitive. And but the retailer say, as you know, appear to be there very excited about the opportunity. And I've never heard the margin pushback as to giving it display space versus other categories perfect place for that.

John Baumgartner

And then is from the Diamond ties and the e-commerce pressure, they're distressed pricing as a big factor. But I'm curious with with the vintage diameters has over these emerging brands, bricks and mortar and marketing resources, is there anything you can do in physical channels to drive more engagement, more ingredients awareness and sampling purchases that then converts back to the strong e-com sales even at the higher price points?

Darcy Davenport

Yes. I think there's a lot Diamond has can do. I mean, I think that and we learned we learned a fair amount this last quarter. I think it caught us a little the kind of a little off guard the at that how aggressive allies emerging brand were on e-com. And we had a we have marketing campaign and but we were a little conservative on the weight. So our share of voice was lower than it needed to be. So I think Inc. kind of learning and we're going to be aggressive on the back half and not only with and marketing campaign across all channels. But really supporting e-com.
We're going to be, you know, looking at maybe a little more into promotion and just to be competitive. And then also just from a campaign standpoint, I'm really excited about Christian McCaffrey and being able to that is just the time same thing of when we signed and then when we can actually get assets out there. So and that's going to be really exciting to be able to lean into his celebrity and and and push that out.
So, you know, Diamond has an amazing brand, its second second biggest whey protein in brand on and on e-com. So I feel great about the business and, you know, a little bit of learning in Q2 and that we had nothing that I don't think we can now will be able to write it in the back half to get back to growth.

John Baumgartner

Thank you.

Operator

Bill Chappell, Truist Securities.

Bill Chappell

Thanks. Thanks for squeezing me in. Don't you just maybe a follow-up on Brian's question in terms of new consumers and it needs to know if there's a way to quantify like the percentage that are known meal, the repeat rates, stuff like that that you might have?
And the reason I ask is just and this is not specific to you a tough time with the household penetration of kind of metric because it would you say that you have low household penetration, but then also being at 18, 19% seems like one in five households is pretty good at household penetration for this for this stage of the category or even have to say one and five households have a beverage category, seems like you should be a lot bigger revenue.
So I'm just trying to to understand what does that mean, you know, or how do you look at the opportunities beyond household penetration or even how do you quantify also penetration to kind of gets you excited? Because it seems like the repeat rate or no, you know, quantifying new consumers into the category would be helpful, at least to us to better understand the metrics. Okay. So when do you align their estimate now?

Darcy Davenport

I know it was a it's a great question, but also. Okay, first of all, men at male female Sportsbet. So I think, again, what's unique about Premier, it's a pretty even split a little more male than female. So call it, call it six the 40 55 45 a.m., but no good split between male and female.
Now that is unique. So you think of the diet brands, more women than men, sports nutrition, more men and women category, trying to have a specific lane and a defined consumer. And really it's hard because of the brand to get out of that. So that is one of the things that's really unique about Premier. So first of all, just hit that one on the on the household penetration and repeat rate.
So here's the way I look at it. And first of all, strong category leading repeat rate, about 15% and on the household penetration. So we're right around, call it, 18% on the RTD shakes category, about 45%, convenient nutrition overall, about 25%. So overall, I think that like there is a lot of a room when I go to a you know, another category which is relatively new, but more mature are relatively kind of conflicting, I guess about there about the same age, so to speak, but bigger on his energy energy drinks.
And when I look at that energy drink category above at the same household penetration as convenient nutrition, so call it 70, 75, but the number one market share and number two market share players are at 50%. So I look at that and I'm like, okay, so there's a ton of room to grow here. I am knowing that the top two brands are bringing in a lot of new consumers. 80 of our growth is coming from outside of that category and that into and it's already coming from outside of the category. And we really haven't started marketing. That tells me there's a ton of room to grow both the brand as well as the category.
Does that help though? You definitely as I can probably keep going, but I will call short just then go to a diamond.

Bill Chappell

Does one follow up. Do you think the the growth of Premier butter is leading to some trade downs that are affecting damages? Or is it mainly discounting from other brands and they're very different consumers.

Darcy Davenport

There is not a lot of interaction. So and definitely other brands. And like I said, so the beauty again, same dynamics between Premier RTD. and premier powder, over 80% of the growth on both businesses are coming from outside of the category. So it's less switching and trading down. But actually consumers are entering the pass powder category through Premier.

Bill Chappell

Got it. Thanks so much for the color. Thank you.

Operator

Thank you. At this time, I'm showing no further questions. This concludes today's conference call. Thank you for participating. You may now all disconnect.