BellRing Brands, Inc. (BRBR) Q1 2022 Earnings Call Transcript

BellRing Brands, Inc. (BRBR)
Q1 2022 Earnings Call
Feb 04, 2022, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the BellRing Brands first quarter 2022 earnings conference call and webcast. Hosting the call today from BellRing Brands are Darcy Davenport, president and chief executive officer; and Paul Rode, chief financial officer. [Operator instructions] It is now my pleasure to turn the floor over to Jennifer Meyer, investor relations of BellRing Brands, for introductions. You may begin. 

Jennifer Meyer -- Investor Relations

Good morning, and thank you for joining us today for BellRing Brands first quarter fiscal '22 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 support these remarks are posted on our website in both the investor relations and the SEC filings sections at 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 that should be carefully considered by investors as actual results could differ materially from these statements. Additional information regarding these risks and uncertainties is discussed under the forward-looking statements section in the press release we issued yesterday and other press releases we have issued was -- post proposed distribution of its interest in BellRing Brands which was posted on our website. We also urge you to read both registration statements, the proxy statements, and prospectuses, the related amendments of this filings and other documents related to the proposed distribution of post interest in BellRing Brands that has been and will be filed with the SEC when they become available because they will contain important information.

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 reconciliation of these GAAP measures to the nearest GAAP measure. See our press release issued yesterday posted on our website.

With that, I will turn the call over to Darcy.

Darcy Davenport -- President and Chief Executive Officer

Thanks, Jennifer, and thank you all for joining us. Last evening, we reported our first quarter results, and posted a supplemental presentation to our website. This presentation is designed to provide more insight into our business consumption and key metrics, and now includes both premier protein and dimatized. Our first quarter came in slightly ahead of expectations with sales of $307 million, and adjusted EBITDA of $60 million.

Net sales grew 9% over prior year, led by dimatized, which was up 41%. Premier protein grew 5%, with both brands benefiting from pricing actions. The single digit growth for premier protein was expected as we lap prior year promotions that aren't repeating. Our adjusted EBITDA margins were healthy despite significant cost headwinds.

As you saw in yesterday's press release, we reaffirmed our fiscal '22 guidance for both net sales and adjusted EBITDA to grow between 9% and 13%. Other than a slight shift in dimatized sales from second quarter into first, we don't expect major deviations to the cadence we communicated last quarter. Not surprisingly, inflation ramped up across freight and dairy proteins this quarter. As a result, we announced further price increases on shakes and powders, which will mainly benefit the second half of the year.

We expect Q2 sales to be similar to Q1, and to sequentially grow, reflecting the incremental pricing actions and new capacity. We will experience margin pressure in Q2 until the price increases are implemented. Overall, we believe the balance of the year leans toward upside. However, we have seen how quickly circumstances can change in this environment.

While our confidence in the year has grown, at this point, we are reaffirming our guidance. The key drivers that would add opportunity or risk to the year are our ability to deliver our expected production elasticity relating to upcoming pricing actions, and additional inflation. Now turning to our category brand highlights and updates on capacity expansion. We continue to see robust growth in the convenient nutrition category, ready to drink beverages, and ready to mix powders both grew 17% versus year ago.

Strong consumer tailwinds around wellness and healthier food solutions are driving this growth. RTD beverages added 2.3 points to household penetration, and saw growth in purchase size and volume. Ready to mix powders continue to be fueled by an increased interest in proactive health and fitness. Our brands are growing, despite supply chain challenges.

Premier protein shake consumption grew 10% across tracked and untracked channels with e-commerce and mass leading the way.  Brand metrics remain strong, demonstrating our high consumer loyalty. Household penetration, and repeat rates are holding steady, and velocities are at 45% versus year ago. Our TDPs have started to rebound. As we have increased trade inventory levels this quarter's.

Despite these encouraging signs, we expect Premier protein RTD shake consumption in Q2 to lag prior year because we were lapping significant promotional periods. Moving to dimatized. Dimatized had a fantastic quarter with consumption in the US at 48% across tracked and untracked channels. All key channels contributed with double digit growth, and brand velocities remain strong.

Dimatized ISO-100 launched 2 exciting new flavors this quarter; dunkin, cappuccino, and mocha latte. Both flavors, which were co-developed with dunkin, are off to a great start. Our operating environment remains challenging, supply chain disruptions, largely around labor availability at our existing co-manufacturers are impacting our ability to rebuild inventory as fast as we want. First quarter production came in slightly below our expectations, mainly due to COVID driven labor shortages.

However, we are encouraged with the improvement in January. Our capacity expansions are progressing well, and remain on track. As you may remember, we have capacity coming online each quarter starting Q2. We are comfortable with our ramp-up assumptions despite COVID related challenges.

We also made significant progress identifying and vetting additional growth partners, who are expected to bring on capacity in fiscal '23 and '24. Finally, I would like to share a brief update on post distribution of its interest in BellRing. Overall, the transaction remains on track. We have scheduled a special meeting of BellRing's stockholders' on March 8th to vote on the transaction.

Post will announce additional details about the spin off in coming weeks. We believe upon completion of the transaction, BellRing will have increased strategic flexibility to manage our capital structure, and should benefit from more liquidity in our shares. In closing, we all have been tested over the last two years, I've been impressed by how our employees manufacturing and logistics partners, and customers have navigated this period. I believe we'll look back on '22 as a [Inaudible] year for our brands, and our company.

One where we solidify the foundation of the business so we can really see what our brands are capable of in the future. I continue to believe that we are in the early innings of our category and brands growth. Premier protein and dimatized are perfectly positioned to attract new households into the category, and improve consumer's health along the way. Thank you, and I look forward to updating you on our progress throughout the year.

I will now turn the call over to Paul

Paul Rode -- Chief Financial Officer

Thanks, Darcy, and good morning, everyone. Net sales for the quarter were $306.5 million, up 8.5%. Adjusted EBITDA was $59.8 million, the slight decline to prior year, and even a margin was 19.5%. Premier protein net sales grew 4.5%, driven by higher average average prices reflecting reduced promotional activity and price increases.

Recall, while we face capacity constraints, we have temporarily reduced tetra shake SKUs and promotional marketing. This resulted in expected volume declines for premier protein in the quarter. Despite this decline, shipments exceeded consumption in the quarter, and resulted in increased retailer inventory. Dimatized net sales grew 41% with volumes up 8%.

Net sales outpaced volume growth benefiting from higher average selling prices which reflect a price increase, and a favorable mix. Strong velocities and distribution gains drove volume growth. Gross profit of $92 million was flat last year, with a decrease in gross profit margin to 31.1%. The gross margin decline results from higher dairy protein costs, as well as increased freight, which was mitigated by higher net selling prices.

SG&A expenses are $37 million included $2 million of separation cost. Prior year SG&A expenses included $4.6 million of restructuring and facility closure cost. Both items were treated as adjustments for non-GAAP measures. Excluding these items, SG&A increased $1 million, it was favorable 50 basis points as a percentage of sales.

Our cash flow in the first quarter was unfavorably impacted by higher working capital, a decrease in payables, and an increase in power inventories dropped as a result. We expect further working capital increases throughout the year as we rebuild our RTD shake inventory levels. During the quarter, we saw an attractive entry point and repurchased 8,000 shares of our class A common stock at an average price of $23.34 per share. Our remaining share repurchase authorization is $42 million.

As of December 31, net debt was born in $489 million, and that leverage was 2.1 times. During the first quarter, we repaid debt of $90 million using cash on hand. Turning to our outlook, we are maintaining our guidance for net sales $1.36 billion to $1.41 billion in adjusted EBITDA of $255 million to $265 million. As Darcy highlighted, the years progressing slightly ahead of expectations with net sales, and adjusted EBITDA growth weighted to the second half.

Inflation has outpaced our initial estimates so we expect additional cost headwinds for both shakes and powders. However, we're executing a price increase to help offset these impacts, which will benefit gross margins in the second half. During the second quarter, we expect high-single digit net sales growth as higher net pricing and volume growth for our powder portfolio is partially offset by volume declines on RTD shakes as we lack promotional activity. We expect adjusted EBITDA to grow significantly from prior year, benefiting from the pullback of promotions and marketing.

Second quarter adjusted EBITDA expected to decline sequentially, driven by inflation head of pricing, as well as modestly higher SG&A. Finally, as Darcy mentioned, post's distribution of its interest in BellRing remains on track. We expect approximately $4 million of cash will be distributed to BellRings stockholders' including post. As a result, we expect net debt of BellRing will increase to an amount not to exceed four times adjusted EBITDA.

More details will be provided over the coming weeks. In closing, we are encouraged by the solid start to the fiscal year. While, we in our industry are facing short-term challenges, and historical inflation, our optimism and outlook for our business has never been brighter. I will now turn it over to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] We will take our first question today from Andrew Lazar with Barclays. Your line is open.

Andrew Lazar -- Barclays -- Analyst

Good morning, everybody. First, thanks for the question. I guess first off, I know that Darcy, you've referred to 2021 as kind of a year where BellRing's had almost two years of growth, compressed into one year. And a lot of that had a lot to do with having the capacity but also a lot of the incremental shelf space gains in a lot of key sort of key customers that you benefited from.

I'm curious if you could maybe characterize how that looks as we as we go through this year? Are there major shelf reset windows where you think there can still be incremental progress made? And then obviously, how has the capacity situation play into your ability to sort of take advantage of those windows? But I'm assuming others are having sort of similar issues as you are. And then I've just got a follow up.

Darcy Davenport -- President and Chief Executive Officer

[Inaudible] right now, as you know, we reduced our tetra SKUs this year because of our capacity constraints. We've been able to hold, for the most part, about 90% of our space. Basically, customers are spreading out our facing on our core items because it's they're one of the most productive SKUs on the shelf. So, we're not in this in the place right now that for the next year, we're going to be expanding our shelf space on our tetra SKUs.

What's I think encouraging is we do have some innovation coming on outside of the 30 gram line toward the end of the year. But for the most part this year, as is a catch up year for the 30 gram shake line. And so we're not going to be expanding shelf space considerably.

Andrew Lazar -- Barclays -- Analyst

And then I think when you take some of the initial price increases heading into this year, at least for planning purposes, you had assumed that competitors would not necessarily follow. So it was a kind of a prudent conservative stance heading in, I guess. Are you making a similar assumption with some of the incremental pricing that you're taking? and how do you think about your elasticity assumptions for this next round of pricing, at least from from how you're forecasting and modeling it internally? Thanks so much.

Darcy Davenport -- President and Chief Executive Officer

We are assuming that we included some modest elasticity in our assumptions, so staying on the conservative side in our first round, we tended to be the first to move on pricing in the category and then most competitors followed fairly soon afterwards. But we have an approach to when we take pricing, we assume elasticity and when we see what happens in the marketplace, we adjust those assumptions. 

Andrew Lazar -- Barclays -- Analyst

Thank you. 

Darcy Davenport -- President and Chief Executive Officer

Thank you. 

Operator

The next question comes from Pamela Kaufman with Morgan Stanley. Your line is open.

Pamela Kaufman -- Morgan Stanley -- Analyst

Good morning. You mentioned that production in the first quarter was slightly below expectations. Can you talk about how much of your fiscal '22 top line outlook is dependent on additional capacity coming online over the next few quarters? And it seems like the balance has shifted more toward pricing now, given the incremental pricing you've taken in the quarter? So is that the right way to think about the composition of your top line outlook for the year? 

Darcy Davenport -- President and Chief Executive Officer

So I'll hit the first the production question first. The production below expectations in Q1 was related to it was mostly in our existing co-manufacturers. So, the new capacity that is coming online starts in Q2, and then your question around hw much is associated with existing versus new? The vast majority of our production this coming year is from existing co-manufacturers. I think what's encouraging is that we are seeing an improvement in January with our existing co-manufacturers.

It really was related to omicron variant and having absences, we are still seeing some absences, but what's encouraging in January is despite the fact that we are seeing absences, and in kind of labor shortages, we're still getting the production. So that tells me that we're being prioritized over other customers. So that was the first one. The second piece is just the composition of our growth.

It depends on which brand we're talking about. From a premier standpoint, the growth was was predominantly coming from pricing originally, and that will obviously be the case. With our upcoming incremental pricing that we took, that we announced this quarter, but from dimatized, it's a mix. It's a mix between volume and pricing.

Paul, anything else you wanted to add?

Paul Rode -- Chief Financial Officer

Obviously with the price increase that does obviously push a bit more toward pricing, but as Darcy talked about in her prepared remarks, the increases obviously gives us confidence in the year before we're waiting to see how things play out with elasticity and those kinds of things. But it gives us obviously a lot of confidence. 

Pamela Kaufman -- Morgan Stanley -- Analyst

Thanks. And given the some of the supply challenges in tetra packs, have you explored other options for packaging? I know you also sell bottled RTDs. Can you more meaningfully shift your mix to that format? 

Darcy Davenport -- President and Chief Executive Officer

We do have bottles but bottles are constrained, too. Across the -- because of the dramatic demand increase that happened last year, both bottles and tetras are constrained, so it's not as easy, and our tetra business is so large that the idea of just shifting to another package size is just it's just not feasible. I think we're making some command ships on our bottle business, which will dramatically increase our ability to satisfy the increasing demand for our bottles. So again, it's not as easy as just shifting, but I am confident in our increase that we have planned from a tetra standpoint.

It's later in the year and then into '23 like I said, bottles are also increasing. 

Pamela Kaufman -- Morgan Stanley -- Analyst

Thank you.

Operator

Our next question comes from Jason English with Goldman Sachs. Your line is open.

Jason English -- Goldman Sachs -- Analyst

Hey, folks, good morning. Thanks for stepping me in. 

Darcy Davenport -- President and Chief Executive Officer

Good morning. 

Jason English -- Goldman Sachs -- Analyst

I've got -- a couple of questions. First, you all confused me on some of the comments and guidance. It's probably my fault as I'm distracted over here and trying to juggle too many balls. But can you go back? I think you said sales similar Q1 to Q2, but sequentially growing which seemed like they can co-exist.

And then there was also some comments on EBITDA which sounded upbeat but then you commented sequentially lower on price, cost likes, etc. Do you come back, revisit, and clarify those for me, please? 

Darcy Davenport -- President and Chief Executive Officer

Sure. I'll hit the net sales, and I'm going to let Paul hit the EBITDA. Net sales [Inaudible] Q2 similar to Q1, and then sequentially growing. And then, Paul, you want to talk about EBITDA?

Paul Rode -- Chief Financial Officer

Yeah. So we're comments on EBITDA that the second quarter, we expect to be sequentially down from the first quarter, which is consistent with our initial expectation going into the year. And that is because there is incremental inflation on our proteins primarily told to step up from Q1 to Q2 ahead of our pricing. And then, we do expect a modest increase in SG&A or the comment was that EBITDA will be sequentially down from from Q1. 

Jason English -- Goldman Sachs -- Analyst

Yeah. It's always kind of is with seasonality. But, was there a year in your comment in there, though, that I missed too?

Paul Rode -- Chief Financial Officer

There was not year-over-year, obviously, there's it's a different dynamic because in last year, in the second quarter, for example, the second quarter we promote heavily in a second quarter. Typically, that is not the case this year, so there's a benefit on pricing, both from a reduce in the promotion spend as well as with price increases that we took on powders in October and back on shakes back in April. So we have the benefit of pricing, but we also have significantly higher inflation in the second quarter versus last year. Particularly, whey protein was at its low point, which is our powder product in the second quarter of last year, and it's significantly higher this year.

So that's the dynamics going on with EBITDA -- lower because of marketing spend that's the one piece I did miss to mention is that, we're typically spend pretty heavily in marketing in the second quarter because we do TV advertising, and we're not planning to do that this year. So that's another element of what the EBITDA increase from last year, but again, sequentially, down from Q1. 

Jason English -- Goldman Sachs -- Analyst

Understood. And bigger picture question for you, Darcy. I remember around the time of separation, you talked about your aspirations to have premier reach your thinking certain [Inaudible] from your reach a 10% of penetration level. The penetration growth I'm looking at for the brand has been phenomenal.

I think, it's actually accelerated during COVID and you're now north of 8%. So are we approaching an upward governing limit of where do you think this can go? Or is there now more scope for penetration growth is being perhaps you were envisioning just a few years ago?

Darcy Davenport -- President and Chief Executive Officer

Yeah. I think this brand continually surprises. I think that not only do I think that there's more upside from a category standpoint, but we are increasing household penetration faster than I would have predicted. So yes, I think that, we're going to I believe that we can get some of the comparisons I have used are some of the mainstream brands like clif and kind in the nutrition bar space, and they are right above 10, 11, 12.

And so I use that as a barometer, and I still use that as a barometer of where we can get to, and know the medium term.

Jason English -- Goldman Sachs -- Analyst

OK. Thank you. I'll pass along. 

Darcy Davenport -- President and Chief Executive Officer

Thanks. 

Operator

We'll go now to Ben Bienvenu with Stephens. Your line is open.

Jim Salera -- Stephens Inc. -- Analyst

Hey, guys, good morning. Jim Salera on for Ben. I wanted to ask a little bit on the production side and inflation. How long of a lead time will there be to get fill rates and service levels back to normal, assuming the omicron production kind of shakes out in the second quarter? So, it connects normally at the end of the second quarter to fill rates, get back to normal levels in the third quarter, fourth quarter.

That's still looking into next year.

Darcy Davenport -- President and Chief Executive Officer

Yeah. Our fill rates and service levels will continue to increase. We are already seeing kind of month-on-month small increases, and we'll continue to see that throughout the year. I think we'll be in a much this quarter.

Our trade inventory levels improved, and again, beginning of Q3, they're going to be looking a lot better. 

Jim Salera -- Stephens Inc. -- Analyst

OK. If I could ask one more. You guys have any visibility in the freight costs in the back half of the year? whether it's you anticipated the works, and for the first [Audio gap] it going to go off maybe a little bit of relieve there. 

Paul Rode -- Chief Financial Officer

Yeah. We do expect that freight will go up into the third quarter and then based on the evidence we've seen it flatten out at that point, and so from year-over-year perspective, we have more of a headwind in the first half than we have in the second half. So that's our current thinking. 

Jim Salera -- Stephens Inc. -- Analyst

Thank you. I'll pass along.

Darcy Davenport -- President and Chief Executive Officer

Thank you. 

Operator

The next question comes from Bill Chappell with Truist Securities. Your line is open.

Bill Chappell -- Truist Securities -- Analyst

Thanks. Good morning.

Darcy Davenport -- President and Chief Executive Officer

Good morning. 

Paul Rode -- Chief Financial Officer

Good morning.

Bill Chappell -- Truist Securities -- Analyst

Hey, Darcy. I guess this goes on premier protein. What do you envision elasticity looks like in that category as you raise prices because it mean you have a highly loyal base and a pretty high market share within the drink side? Are people just buying less in general? If there's less elasticity. Are they switching to lower priced brands? Or they're switching to some other form? To try to understand, it doesn't seem like there'd be a whole lot of elasticity, especially with your base, but I assume you're factoring some in one way or the other with higher prices. 

Darcy Davenport -- President and Chief Executive Officer

To date, we have seen no elasticity. We have been watching it. Basically, we increased price and volume went up. However, we are not assuming that's going to continue, so we are assuming some modest elasticity until we see it in marketplace and the facts and circumstances that we see in the marketplace based on what competitors do, etc., how much the retailer reflects that shelf.

Then, we will make any adjustments to our assumptions.

Bill Chappell -- Truist Securities -- Analyst

OK. Thanks. And then on the cost front, they're trying to understand for lack of better terms, how much of this short-term in nature but certainly everything from labor to freight but when it's coming from the comment, how much do you think rolls off as it commodities get better in six months? Or conversely labors here to stay at a higher rate. Any thoughts there in terms of as you're thinking about profitability going forward?

Paul Rode -- Chief Financial Officer

Yes. I would break into two pieces, so from a commodity front, what we're seeing is whey protein and even milk proteins are at historical highs. Whey protein has been pretty tight, the supply, and demand dynamic. And so that's got to get better but it doesn't look like it's likely until fiscal '23 or early like I said that's the kind of the current thinking.

So I do think there's [Inaudible] obviously, as we get on the other side because we're talking about protein rates on our powder business that are too lax or plus what they were just a year ago. So that's got to come back down. So obviously, that's one element. No proteins, but steadily going up besides our shakes.

[Inaudible] that one, we'll have to keep an eye on. It seems like both those markets should come back down. So it seems like there should be a transitory piece of that. On our comments, your relationships there, typically long-term contracts and I don't want to get into specifics because it varies by customer, but we're a  little bit insulated from that.

But if labor costs obviously stay high, it will obviously get absorbed at some point as it's passed along to us. But that's, toll on the production cost of somewhere 15% 20% of our overall cost which really the commodities that are driving the profitability.

Bill Chappell -- Truist Securities -- Analyst

Right. Thanks so much for the color. 

Operator

We'll go now to Chris Growe with Stifel. Your line is open.

Chris Growe -- Stifel Financial Corp. -- Analyst

Thank you. Good morning.

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Paul Rode -- Chief Financial Officer

Morning.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi. I just had a quick question for you and sorry if I missed this, but have you said just to get an order of magnitude on the size of the price increases you have in place the new ones for shakes and for powders? 

Darcy Davenport -- President and Chief Executive Officer

Price increase --

Paul Rode -- Chief Financial Officer

Go ahead, Darcy. Go ahead, sorry. 

Darcy Davenport -- President and Chief Executive Officer

You can tell we're not together. So the second round of pricing is slightly higher than the ones we took before, we didn't specif -- It's just an order of magnitude. The first one was single digits on premier protein, double digits on dimatized and this round is slightly higher than that.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. And that's mostly going to kick in the third quarter going in place during the second quarter. Is that right? 

Darcy Davenport -- President and Chief Executive Officer

Correct. 

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. And then, I was just curious, you have a chart in your the slide deck around showing TDPs, and how they've started to increase. So I just to get a sense, it sounds like the supply of product was a little below what you thought doesn't mean it didn't grow, obviously, it did grows the more available. Does that line keep going up to? Do you keep can you just see an increase in TDPs as you get more and more supply availability? I guess that's what's going to determine that rebuild there.

Darcy Davenport -- President and Chief Executive Officer

Yes. I mean, generally, I think there will be. So you'll see a slight increase as our fill rates and service levels increase. However, we do expect TDPs to be down versus year ago because of that temporary reduction of SKUs.

Chris Growe -- Stifel Financial Corp. -- Analyst

Yes. OK. And I guess just to be clear on that, I'm thinking for the second quarter, if you're promoting less, that presumably would negatively affect TDPs? Again, not that it can't grow but it would certainly have a year-over-year effect on a TDPs. Is that right?

Darcy Davenport -- President and Chief Executive Officer

The promotion won't have anything to do with the TDPs. If I'm understanding your question, but just the number of SKUs on the shelf so that is really what's affecting the TDPs.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. I got it. Thank you. 

Darcy Davenport -- President and Chief Executive Officer

Thanks.

Operator

We'll go now to Rob Dickerson with Jefferies. Your line is open.

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks. I just have a quick question on the inventory side. So you're saying it sounds like, basically, maybe, all production this year from existing suppliers sounds like maybe some of them are getting a little bit better.

You get to consumption still, obviously up decently, volumes are down [Inaudible] that's the gap. So just curious in terms of the inventory situation you have with retailers, what we compare that with the reduction in SKU, it's like you feel like you're in a pretty good place as you look forward through the year, like you've reduced the SKUs. Maybe the retailers are burning through a little bit of inventory, but you're [Inaudible] excuse relative to your capacities like this shouldn't be further decline, right? just given the lower capacity relative to consumption demand, if that catches up, if you know what it is. 

Darcy Davenport -- President and Chief Executive Officer

So, Rob, are you asking about? Our strategy is sound. Meaning, that we do not expect any change to the number of SKUs that we're going to have and we believe that the fill rate and service levels will continuously increase throughout the year. We will also gradually increase our safety stock throughout the year. Is that what you're asking?

Rob Dickerson -- Jefferies -- Analyst

Yeah. I just want to make sure that if you reduce the SKUs, right, if you've looked in, you've forecasted yourself that the amount of capacity you have should be able to continue to fill those SKUs that you put that shelf this year. 

Darcy Davenport -- President and Chief Executive Officer

Yeah. Absolutely. That's correct. The one thing I will just note is that when you're looking at consumption, we have some high highs and we've increases when we have promotions.

And so when you're looking at consumption, you just have to factor in that you're going to see some negatives on premiere when we're lapping promotions. And that is expected. And so I think that it's good to have that in the back of your mind when you're looking at the kind of track channel consumption on a week-to-week basis.

Rob Dickerson -- Jefferies -- Analyst

OK. Fair enough. And then, I guess back to Jason's question quickly, there was a lot in there, EBITDA sequentially, what have you? if we're thinking about Q2 just in absolute [Inaudible] dollars, would you say that maybe kind of similar to sales sequentially from Q1 to Q2, that maybe EBITDA would see like a similar absolute dollar number? I know you're not specifically guiding to that number, but obviously with just kind of where the full year EBITDA guide is, it does imply material back half improvement. 

Paul Rode -- Chief Financial Officer

So, no. I would not quite [Inaudible] it that way, so we just to be clear, we expect EBITDA decline, sequentially from Q1 to Q2. We expect it to be higher than last year because we're lapping a lot of marketing, but we do expect it to decline and that is again because of higher inflation. So that is the primary piece, but no, we expect it to be down.

Keep in mind that we've said that we expect that sales and EBITDA growth will be weighted to the second half of the fiscal year. But we do expect it to be switchly down.

Rob Dickerson -- Jefferies -- Analyst

Right. I mean, kind of [Inaudible] here, where you committing to wanting to, despite all the moving pieces of volatility. It seems like the business is still tracking as you expected, coming out of Q4. \

Darcy Davenport -- President and Chief Executive Officer

Yeah. I mean --

Paul Rode -- Chief Financial Officer

Yes, the first half of tracking like we expected with the slight shift of dimatized sales into Q1 from Q2. But yes, the first half is tracking, as we expect.

Darcy Davenport -- President and Chief Executive Officer

Rob, I would just say big picture. This year is going much like we expected slight movement of sales from Q2 to Q1. That just really nothing, It's just a little sales phasing. And then we saw inflation kick up higher than we expected, although we saw that coming on the last call and therefore, we took price and that affects the back half.

But all other than the inflation and the pricing action, the cadence is largely what we expected.

Rob Dickerson -- Jefferies -- Analyst

Perfect. Thank you.

Darcy Davenport -- President and Chief Executive Officer

Thanks.

Operator

We'll go now to Ken Zaslow with Bank of Montreal. Your line is open. 

Ken Zaslow -- BMO Capital Markets -- Analyst

Hey, good morning, guys. 

Darcy Davenport -- President and Chief Executive Officer

Good morning.

Ken Zaslow -- BMO Capital Markets -- Analyst

Two questions. One is, can you walk us through the capacity build over the next 18 to 24 months of how it works, exactly? how much incremental capacity is coming online through the next quarter-by-quarter basis? 

Darcy Davenport -- President and Chief Executive Officer

Yeah. So basically, we have increased capacity every quarter for through '23. And so we see increased and that mostly comes from the existing commands are pretty stable. So, the increases come from new commands they start [Inaudible] in Q2 of this year.

There is not a huge benefit this year in '22, still call it 90% of our production is coming from existing for '22. But then those new commands start increasing and become contributors, real contributors in '23. Then we also bring on additional commands in '23. So we basically add three new ones in '22 and we add two more in '23.

And, the big ones which are new facilities like MFI, we talk to, sorry, Michael Foods would come on in later '23. They start out later in the year and so become kind of smaller contributors in '23 but bigger contributors in '24.

Ken Zaslow -- BMO Capital Markets -- Analyst

Would you say that 2023 additional capacity is 5%, 10%, 15%? And then when you get to '24, how would you do that? 

Darcy Davenport -- President and Chief Executive Officer

Hold on. I'm calculating. 

Ken Zaslow -- BMO Capital Markets -- Analyst

Take your time. 

Darcy Davenport -- President and Chief Executive Officer

So call it less in '22, new capacity is less than 10%, it becomes, yeah 20%-25% of the '23, and then it ramps up from there. And remember, we can still affect. So because some of the new capacity in '23, there actually new greenfield facilities, that timeline, is basically twenty four months.  We are still talking to partners for late '23 and '24.

Ken Zaslow -- BMO Capital Markets -- Analyst

OK. My second question is, if you believe this capacity coming online. You answered an earlier question that you think household penetration, you look to certain brands and 10%, 100 basis points from where you are right now, 25% more capacity coming online. You obviously don't really believe that 10% is your high watermark? You obviously believe that you're building capacity because there's demand, and that demand is going to take you above that 10% household penetration, I'm assuming.

So again, why would you even know that there is a limit to the demand of what it is it? Why limit yourself to a household penetration? It seems like you've hit a tipping point, and I'm not trying to be, it just seems odd to come up with some arbitrary 10%. I don't know, it's just a thought. 

Darcy Davenport -- President and Chief Executive Officer

I totally agree -- I completely agree. And by the way, I don't see it as a limit. I think it is a step along the way. And I truly believe that and this brand has I think the category in general is just, I said, early innings, but it has so much more upside.

And I've used this analogy before, but even within our category, nutrition bars have mainstreamed much faster than any other forms within the category. And they're at close to 50%. So 45% household penetration where RTD shakes are only at 25%, powders or even lower. So there's no reason why shakes can't get close to nutrition bars.

And so I think that the upside is immense, and I think premier protein is perfectly positioned to take advantage of that because it's a mainstream approachable brand that shows that it appeals to every needs state and every consumer within the category. So I do not believe that 10% is the limit at all. I think it's a step along the way. 

Ken Zaslow -- BMO Capital Markets -- Analyst

Great. Appreciate it. 

Darcy Davenport -- President and Chief Executive Officer

Thank you. 

Operator

We'll go now to Kaumil Gajrawala with Credit Suisse. Your line is open.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Hey, everybody, good morning. First one, a very quick one when you talk about these capacity additions for '23 '24 fiscal or calendar?

Darcy Davenport -- President and Chief Executive Officer

Fiscal. 

Kaumil Gajrawala -- Credit Suisse -- Analyst

Fiscal? Got it. And then one of the things that we didn't talk about as it relates to capacity is if there were any key ingredients or inputs or materials packaging that have created bottlenecks. I know in the past they have. I think you mentioned those little foil wrappers, things like that.

Is that all resolved now? or is it still some areas of things to watch out for?

Paul Rode -- Chief Financial Officer

Yeah, That's problematic at the moment. We extended lead times early on to try to prevent those things from happening. We haven't seen any impacts. 

Kaumil Gajrawala -- Credit Suisse -- Analyst

OK. Great. That's all. Thank you. 

Paul Rode -- Chief Financial Officer

Thank you.

Operator

Our next question comes from John Baumgartner with Mizuho. Your line is open.

John Baumgartner -- Mizuho Securities -- Analyst

Good morning. Thanks for the question.

Darcy Davenport -- President and Chief Executive Officer

Hi, John.

John Baumgartner -- Mizuho Securities -- Analyst

First off, Darcy, congrats about [Inaudible]. I'd like to ask about powders against the broader evolution of the category. Maybe you're moving beyond COVID volatility into the new normal with work from home and such. And how do you think about the role for powder within the category? Have you seen the core consumer for powder change at all pre versus post-COVID? How do you see powders and RTD co-existing as powders grow from here and then for BellRing, how can you best, I guess, make powder products complementary to the RTD business? 

Darcy Davenport -- President and Chief Executive Officer

That's a great question, so I'm going to pick up where I was talking about the potential of our RTDs versus nutrition bars. Powders have even lower household penetration than RTDs, so I think that is and where are premier helped mainstream or has started to help mainstream RTDs. I also believe that powders are earlier stage of that mainstream trajectory. So it's very different than all of the different forms are have kind of unique occasions.

So, if you think of bars are more snacking, RTDs are more meal replacement, although can be used kind of in between meals, but more meal replacement. Well, powders are mostly used with food, with smoothies after workouts where they're consumed RTDs and nutrition bars mostly on the go, powders at home. So they're very complementary. And so we have been very successful on premier protein with powders obviously, dimatized as our number one powder brand.

Both of them go after unique and complementary consumers. And then, of course, as I was saying before, they have kind of unique and complementary occasions as well.

John Baumgartner -- Mizuho Securities -- Analyst

OK. Great. And I guess from a supply chain perspective, there's a lot of focus now, understandably on the month-to-month and quarter-to-quarter. But aside from just, I guess, simply increasing volume availability, are there opportunities underway here with the changes in supplier base now, I guess through F '23  F'24 that place you in a better position, either format wise or profit wise to come out of this recalibration with new channels for growth, whether it's at home, see stores instant consumption.

Is there opportunity to stock the change in the composition of your capabilities, and channels for the longer term coming out of this this year? 

Darcy Davenport -- President and Chief Executive Officer

Absolutely. So I think that, I said this in my prepared remarks just about how I think we're going to look back at '21 as the really pivotal year because I think that's what we're going to look back on is really laying the foundation, laying the table for kind of outsized growth in the future. Building at where we currently from a production standpoint, for instance, we have five locations now in four ish years, we'll be doubling that. We're expanding our bottle capacity dramatically, which will allow us to go.

We can really sell bottles or tetras within convenience and up and down the street, etc. But we start being able to match products to different places and then expanding our distribution from there. So yes, I believe this year is more about capability building. So then we could take advantage of that in the future.

John Baumgartner -- Mizuho Securities -- Analyst

Great. Thanks for your time, appreciate it. 

Darcy Davenport -- President and Chief Executive Officer

Thank you.

Operator

We'll go now to Bryan Spillane with Bank of America. Your line is open.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks, operator. Good morning. I just had one question and if we look at the current fiscal year, and just the amount of consumer facing spend, that you're anticipating this year.

I guess so, both promotions, and advertising, and marketing. What is that relative to normal? And I guess what I'm trying to get at as we move past the supply constraints. How much more marketing would we have to add back as we go forward? 

Paul Rode -- Chief Financial Officer

And so on the marketing side, I think in '21, we spent around 3% of net sales on what we call appetizing promotion. This year we're pulling back on that around 2%. Going forward obviously, we would want that, but we also think that'll drive top line growth as well as we've seen from our recent past our products are very receptive to marketing. And so we think it would drive obviously top line.

But yeah, we would expect over the longer term to at least spend back to the 3% level and perhaps look to increase that over time as our supply comes on. 

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

It is the order of magnitude I remember this correctly at the time of the separation, right? You had been through a supply chain where supply constraints prior to the separation and then in that next fiscal year, the margin stepped back because there was more marketing spend that went in. So just like order of magnitude, will it look like that? 

Paul Rode -- Chief Financial Officer

No. So the situation was a little bit different back then. So we did see a fiscal year, I think it's fiscal '18 that had a stepped up margin. But part of that was too was because protein costs had come down, so we benefited from a price increase as well as from favorable protein costs.

But no, I don't I think our margin structure should be impacted. Obviously, some of it depends on what commodities do, and we'll have to make sure we're right sizing that at these historical high prices, it gets harder to get back to the gross margins that we've experienced in the past. But I do think over long term, things will be evened out and we should see gross margins back where they've been historically coming at 33% 34% range, which allows us to spend marketing at the higher levels and promotions.

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

All right. Thank you. 

Operator

[Operator signoff]

Duration: 25 minutes

Call participants:

Jennifer Meyer -- Investor Relations

Darcy Davenport -- President and Chief Executive Officer

Paul Rode -- Chief Financial Officer

Andrew Lazar -- Barclays -- Analyst

Pamela Kaufman -- Morgan Stanley -- Analyst

Jason English -- Goldman Sachs -- Analyst

Jim Salera -- Stephens Inc. -- Analyst

Bill Chappell -- Truist Securities -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

Rob Dickerson -- Jefferies -- Analyst

Ken Zaslow -- BMO Capital Markets -- Analyst

Kaumil Gajrawala -- Credit Suisse -- Analyst

John Baumgartner -- Mizuho Securities -- Analyst

Bryan Spillane -- Bank of America Merrill Lynch -- Analyst

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