Sovos Brands, Inc. (SOVO) Q4 2021 Earnings Call Transcript

Sovos Brands, Inc. (SOVO)
Q4 2021 Earnings Call
Mar 15, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Sovos Brands fourth quarter 2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today.

Chris Mandeville, managing director of investor relations. Please go ahead.

Chris Mandeville -- Managing Director, Investor Relations

Good morning, and thank you for joining us on Sovos Brands' fourth quarter and fiscal year 2021 earnings conference call. On the call today are Todd Lachman, president and chief executive officer; and Chris Hall, chief financial officer. By now, everyone should have access to the earnings release for the fiscal year ended December 25th, 2021 that went out this morning at approximately 7:00 AM Eastern Time. Press release, as well as supplemental slides, can be found on the company's website at ir.sovosbrands.com.

and shortly after the conclusion of today's call, a webcast will be archived and available for replay. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it. And as such, does include risks and uncertainties. If you refer to the company's earnings release, as well as its most recent SEC filings, you will see a discussion of factors that could cause Sovos Brands' actual results to differ materially from these forward-looking statements.

Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe these measures provide investors with a useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. Lastly, please note that all consumption data cited on today's call will refer to dollar consumption as of the 13-week period ended December 26th, 2021, and growth versus the prior year, unless otherwise noted.

With that, I'd now like to turn the call over to Todd.

Todd Lachman -- President and Chief Executive Officer

Thanks, Chris, and good morning, everyone. 2021 proved to be an exceptional year for Sovos Brands. And I want to thank the entire Sovos team and all of our partners for working tirelessly during this landmark year. Notably, our frontline heroes who come to work every day to produce our absolutely delicious Sovos products.

We achieved many important milestones, such as becoming the number two brand in the pasta and pizza sauce category, and successfully completing our IPO last fall. We also delivered a record financial performance and exceeded our full-year guidance, generating over $719 million in net sales and $115 million in adjusted EBITDA. This represents 25% plus annual growth and marks all-time highs for both metrics. We also had a very strong finish to the year, highlighted by double-digit growth for the top and bottom line in Q4.

These results reflect our team's unwavering commitment to profitable long-term growth even in the face of today's very dynamic environment. We are very pleased with the continued volume growth across our portfolio, as distribution and household penetration continue to expand for our disruptive high-growth one-of-a-kind brands. For today's call, I'd like to begin with a few fourth-quarter highlights to underscore the ongoing strength of our business as well as offer some thoughts on our advantaged positioning heading into 2022. I will then turn it over to Chris Hall to discuss our financial results and outlook in greater detail before opening it up to your questions.

Beginning with our largest brand, Rao's was the fastest-growing center store brand of scale over the past two years. The strength and momentum of this brand continues behind further distribution and velocity increases. As we exited the fourth quarter. I am tremendously proud to announce that Rao's became the number two pasta and pizza sauce brand in dollar consumption marking a new all-time high of 15.4% share as of the four-week period ended 1226, we have gained share in every four-week period since our acquisition in 2017.

And these results represent a 220-basis-point share improvement over the last 12 months, as dollar growth was up over 28%, compared to down nearly 7% for the category. I'm particularly proud of the fact that not only were our gains broad-based across our entire sauce portfolio, all channels, and all regions, but they were also driven on the back of double-digit unit, dollar, PDP, and velocity gains, which is in stark contrast to the category, where units are down mid-single-digits and price has been the driving force behind dollar growth. Our household penetration gains are equally impressive as we've increased penetration of our source to 10.9% up over 260 basis points versus the same time last year. This has been achieved despite Rao's Sauce having less than half the distribution and awareness of its top competitors, highlighting the considerable multiyear one way we still have to support further share and household penetration gains.

To offer additional context to our future distribution opportunity, I'd like to point you to Slide 9 of our earnings deck, where we highlight just how under-penetrated we are relative to our rate of productivity. As we can see, we still only have 11 pasta and pizza sauce items on shelf versus 17 to 22 for our top two branded competitors. These 11 items represent only an 8% share of average shelf, compared to our dollar share of over 15%. No other sauce brand of scale has as big of a delta.

When you have 18 sauce items consistently in the top two quintiles on velocity like we do, this represents a compelling argument for why retailers should continue to allocate more shelf space to the Rao's brand going forward. As an additional leg to our long-term growth of the Rao's pasta and pizza sauce offering, we're commencing a new ventures program in 2022 under the leadership of Risa Cretella, our executive vice president of the dinners and sauces segment. Amongst many growth levers that we look forward to unveiling in the coming year, this program will be inclusive of international, where we plan to begin with expansion into neighboring North American markets, such as Mexico and Puerto Rico, as well as optimizing our route-to-market in Canada. Panning out to the broader Rao's offering, our efforts to extend Rao's strong brand equity of authentic Italian cuisine into new categories and drive household penetration have proven to be successful.

Healthy consumption trends didn't stop with our sauce business, as soups and pasta continue to see growth across all metrics. Sales dollars, dollar share, units, TDPs, and velocities, even after roughly three years in market. Our total frozen entree portfolio, which includes Rao's and Michael Angelo's, also demonstrated considerable out-performance, also growing dollar sales, share, units, TDPs, and velocities. Both brands contributed nicely to our 20% plus growth in dollars and units versus 11% and 1% respectively for the category, yielding further evidence that the two brands are proving to be complementary on shelf and incremental to growth.

Collectively, we have grown household penetration for the total Rao's franchise by 300 basis points to over 13% since the prior-year period with our frozen entree offering, which is less than 15 months old, already the second greatest driver to these gains. Turning to our second-largest brand, Noosa. Consumption trends in the quarter were once again strong. Our dollar sales grew at over 2.5 times the spoonable yogurt category, while our unit velocities remained category-leading up over six times faster versus the category.

These results are a testament to our continued investment to grow the core as well as our marketing efforts that are strongly weighted to digital, along with their highly differentiated taste-led yogurt. It's also worth noting that Noosa is delivering such out-performance against the yogurt category that is experiencing low to mid-single digit dollar growth that is in contrast to years prior. Importantly, Noosa has grown in excess of this for the last 14 four-week periods. These gains are absent of any pricing, which we expect to begin realizing by the end of Q2.

Against this backdrop and because of the renewed focus which we have on our core news offering, we have a strong foundation to build from and are excited about our process for continued growth in 2022. This will also include our entry into the ice cream category with frozen yogurt gelato, which I will touch upon shortly. Before I do so, I want to emphasize the strength of our overall Sovos brands portfolio at a time where most of the center store is lacking unit growth. And our three largest categories of sauce, yogurt, and frozen, which represents over 90% of our portfolio, we saw positive dollar and unit growth that meaningfully outperformed our respective categories in the quarter.

Specifically, on dollar consumption, sauce. Represented by the Rao's brand grew by 30% in the fourth quarter versus 3% for the category. Yogurt, represented by the Noosa brand, grew by 13%, compared to 7% for the category. And finally, frozen, which includes Rao's and Michael Angelo's entrees as well as Birch Benders waffles, grew by a combined 27%, compared to 10% for the combined categories.

To help bring us out-performance to life, the combination of sauce, yogurt, and frozen for Sovos Brands grew dollar consumption by over 25% versus 8% for the categories in aggregate. Yet we have not even come close to fully realizing price across our portfolio when compared to the majority of our packaged food peers. Consumers across all regions of the country and income groups are clearly voting with their wallets, as well as their preference for great-tasting, clean-label products. As society settles into a new norm, we believe this will benefit at-home consumption in light of a permanent shift to working from home for many within the labor pool, while trying to maintain a high quality of light, consumers are seeking value.

And this is exactly where our Sovos portfolio of one-of-a-kind brands delivers. As consumers have reduced away-from-home eating occasions, they have sought out premium in-home replacements. In this context, we are well-positioned to continue to deliver robust growth given our runway for distribution and potential to increase brand awareness. As part of our growth playbook, we take our one-of-a-kind brands and selectively extend them into new categories in order to grow our TAM.

The successes we have seen in soups, pasta, and now frozen for Rao's are a clear example of our playbook at work. And because all of our brands share similar key attributes, we are confident in our ability to take the Sovos playbook to the rest of our portfolio. In Q1 2022, alone, we will expand our addressable market by nearly $7 billion to $33 billion with the entree into the ice cream category with Noosa. With a strong momentum in our core yogurt business, we are very excited by our recent launch of Noosa frozen yogurt gelato into the $7 billion ice cream category with a truly unique and absolutely delicious product.

While still early, we can share that we're running ahead of our initial sell-in expectations. Beyond this introduction, we have a very strong pipeline of innovation for not only additional adjacent categories, but also to continually bolster our core that will support profitable growth for years to come. In addition to our organic growth, we are continuing to evaluate acquisition targets that complement our portfolio and are accretive to our growth and margins. We have a proven track record of growing through M&A and we'll continue to leverage our scalable platform to further unlock growth opportunities and synergies that create value for our shareholders over the long term.

To lead our efforts on this front, we've recently announced that Tom Lee will be joining Sovos Brands as senior vice president of M&A and strategy. Tom comes to us from JPMorgan, where he was a senior investment banker advising companies in the consumer packaged food sector over the last 10 years and has led numerous M&A in capital markets transactions, including our own IPO last fall. He is already very familiar with us, our ethos, and our strategy. And we are excited to work alongside him as he joins us later this month following the completion of his garden leave.

Before I conclude, I'd like to touch upon the current operating environment as well as provide an update on the start-up of our Alma facility. As has been widely discussed and similar to our peers across the industry, we are facing a confluence of supply chain and inflationary headwinds, several of which have intensified in recent months. Specifically, in the last 90 days, we have the omicron variant enter the picture, producing elevated supply chain disruption and near-term cost and operating pressures related to raw materials, particularly dairy and proteins, logistics, and labor. And now the Russian-Ukraine crisis brings with it heightened uncertainty to the operating environment, as well as incremental costs.

As a result, in addition to the pricing and productivity initiatives that we discussed on our Q3 call, we will be taking further pricing on a new set of products effective by the end of Q2. In the past 90 days, we have also worked tirelessly to identify additional cost savings opportunities. As we sit here today, and with what we currently know, we believe these actions will be sufficient to manage inflation this year. However, we are actively monitoring what continues to be a challenging and evolving operating environment.

And we will remain nimble to any adverse impacts to our business that may warrant additional actions. As a means to fortifying and domesticating our Rao's Sauce supply chain, I am pleased to announce that we are beginning production of Rao's Sauce in our Alamo, Georgia facility this month with expectations of ramping to full production during Q2. Alamo will serve as a key source of supply for Rao's Sauce, providing ample capacity and flexibility to support our rapid growth and reducing our exposure to the volatile ocean freight markets, while retaining the unique attributes that makes Rao's of one-of-a-kind sauce. In summary, that strength of our underlying business is evident.

We had a record year financially. We made major gains and market share and household penetration for our core offerings, and I'm very proud of all that we have accomplished in 2021. While the operating environment remains highly fluid and supply chain pressures will persist into 2022, we will continue to execute on our plan to relentlessly pursue outsized top-line growth, leveraging our growth-oriented capabilities and organization, while protecting our margins through pricing actions and productivity initiatives. In addition to our expectations for continued strong growth in volume, we are confident that we are taking the actions needed to support another year of strong profitable growth in 2022.

With that, let me hand it over to Chris for more details on the quarter and our fiscal year 2022 outlook.

Chris Hall -- Chief Financial Officer

Thank you, Todd, and good morning to everyone on today's call. I am very pleased to report strong fourth-quarter results as well as our beat to our full-year guidance for both net sales and adjusted EBITDA, capping off a milestone year for Sovos Brands as we moved into the public domain. Fourth-quarter total net sales of $189.2 million increased by $27.5 million or 17% compared to the same period last year. Led by strong volume growth across core categories: sauce, yogurt, and frozen.

At the brand level, Rao's net sales increased by 25% this quarter on top of 93% growth realized in Q4 2020. This robust growth was driven by strong consumption and continued market share gains across the Rao's portfolio of sauce, soup, pasta, and frozen entrees. Adding to Rao's success in frozen entrees, Michael Angelo's increased roughly 10%, modestly trailing 15.5% consumption growth, which we take as a healthy indicator that our tiered premium approach in frozen entrees is working well. Noosa net sales grew nearly 2% in the quarter with consumption up 13%, which was the brand's fastest-growing quarter since acquisition.

The delta and net sales to consumption as due to a non-repeat of a key customer event performed in Q4 2020. Unit velocity trends continue to be category-leading at a rate of 3.5 times faster than the total category as we focus on assortment optimization on shelf and building brand awareness. Finally, Birch Benders contributed $10 million to net sales this quarter. Unit consumption of Birch Benders Frozen waffles was up 13% and baking mixes was up 7.8%, both of which continued to outpace their respective categories on unit sales in Q4 behind distribution growth and as consumers adopt our brand.

Pancake mix unit consumption at negative 6.6% continued to be down, but ahead of the category at negative 7.4%. As expected regarding our Q3 call, gross margin realized a notable sequential improvement to 31.4% of net sales versus Q3 2021 versus the prior-year period, margins were down 220 basis points due largely to continued industrywide challenges, including higher logistics costs, inflation, and increased promotional support, particularly when compared to abnormally lower spending levels in Q4, 2020. These headwinds were partially offset by favorable mix, as well as productivity realized during the quarter. Adjusted operating expenses of $42.5 million increased by $2.9 million or 7% over the prior-year period, primarily due to $1.6 million in variable sales expense in light of our strong top-line growth, as well as public company costs which were $1.3 million in the quarter and not recognized in the prior-year period, as we were private at that time.

Adjusted EBITDA for the quarter increased approximately 10% to $26.5 million or 14% of net sales versus $24.2 million or 14.9% in the prior-year period. However, results for the quarter include 1.3 million in public company costs, which did not exist in the prior-year period. As we look at this on a comparative basis in burden Q4 2020 results with a similar level of public company costs, last year's fourth-quarter adjusted EBITDA margin would have been 80 basis points lower. This apples-to-apples comparison would imply only a 10-basis-point reduction in adjusted EBITDA margin for Q4, 2021.

Q4 income tax expense was a $4.5 million benefit, compared to income tax costs at $2 million in the prior-year period. The decrease in our income tax expense is primarily attributable to an increase in deductible expenses for tax purposes. Net loss for the quarter was $3.8 million or $0.04 per diluted share, compared to a loss of $0.5 million or a $0.01 per diluted share in the prior-year period. Adjusted net income came in at $13 million and adjusted EPS was $0.13 per diluted share, compared to $10.8 million and $0.14 million per diluted share in the prior-year period.

Please note that our Q4 2021 adjusted EPS is based on a fully diluted share count of 100.3 million shares, while in Q4 2020, we only used 74.1 million shares. This difference reflects the timing of our September 2021 IPO, as well as the subsequent exercise of our green shoe. Now turning to our balance sheet. At the end of the quarter, we had a cash balance of $66.2 million and total debt was $481.5 million, bringing our net leverage down to 3.6 times adjusted EBITDA, as the primary use of our IPO in green shoe proceeds were used to reduce debt by roughly $300 million in Q4.

This flexibility on our balance sheet, as well as our robust cash generation, put us in a good position to potentially accelerate growth and unlock incremental shareholder value through accretive high-growth M&A that makes business and financial sense. Turning to our fiscal year 2022 guidance, we expect net sales of $800 million to $815 million, which represents approximately 11% to 13% growth and is expected to be fairly balanced between volume and price mix. Adjusted EBITDA of $116 million to $122 million or approximately 1% to 6% growth versus the prior year, net interest expense of $23 million to $25 million, an adjusted effective tax rate of approximately 25%, and capital expenditures of approximately 2.5% of net sales primarily focused on automation and other productivity projects at our manufacturing facilities, as well as growth-enabling initiatives. Two items worth noting for comparability's sake are, one, 2022 will be a 53-week period versus 52 weeks observed in 2021.

Embedded in our guidance, we expect this additional week to contribute roughly $15 million or 2% to the top line while we plan to reinvest any variable profit generated from this extra week to support future growth. And two, as we were a public company for only three months out of fiscal year 2021, public company costs will weigh more heavily on our adjusted EBITDA growth in 2022. If one were to fully burden fiscal 2021 results within equivalent $6 million of public company costs expected in 2022, our adjusted EBITDA growth will be approximately 5% to 10% versus the 1% to 6% previously mentioned. Excluding the impact of a 53rd week in Q4, we anticipate total Sovos Brands quarterly net sales growth to be fairly consistent and in line with our long-term algorithm in the high single-digit range.

Underpinning this outlook, our core sauce, yogurt, and frozen businesses will continue to serve as the primary drivers representing approximately 80% of our growth in 2022. While volume will serve as the basis of our net sales growth. Pricing, as we view it warranted in the current environment, will play an increasing role in the coming year. Since our Q3 call in early November, we have seen a continuation of higher costs for certain input costs, such as milk, chicken, and packaging.

While the combination of robust demand for our products and recent disruption from omicron, as well as the Russia-Ukraine crisis, have further exacerbated near-term distribution and supply chain pressures. To combat what we now anticipate will be high single-digit inflation for the year versus mid-single digit. Previously, we're taking more aggressive net revenue management actions. Having already informed you of list price increases on nearly two-thirds of our portfolio.

New pricing actions recently announced have us touching all brands with list price increases by the end of Q2. We also continued to work diligently to eliminate our least efficient promotions while keeping a maniacal focus on velocities and unit growth. In addition to our deep pipeline of productivity initiatives that include automation in our manufacturing facilities, optimization of our co-manufacturing network, packaging value engineering, and further competitive procurement actions, we have identified a number of incremental cost-saving activities to help mitigate expected inflationary pressures in 2022. Due to our expectation that supply chain pressures will remain for the foreseeable future and given the timing of our net revenue management actions, productivity, and incremental cost savings efforts, we expect gross and adjusted EBITDA margin to be down in the first half of 2022 versus the prior-year period.

While we expect to grow Q1 net sales by high single-digit against the 40% plus year-ago comparison, we are not immune to the inflationary environment, and pressures to our margins will be most impacted in Q1 by the following. Increase input costs, such as dairy, chicken, and packaging, continued supply chain costs and logistical constraints, and a full quarter of public company costs that were not realized in the comparable prior-year period. Our projections assume pricing on the majority of our input costs consistent with current levels throughout the course of the year while we actually anticipate further increases in certain oil-based materials. As we progress into the second half, the benefits from our various pricing actions and productivity initiatives should ramp allowing for margin improvement in Q3 and Q4.

That said, if circumstances worsen relative to our forecast, we are fully prepared to take additional actions as warranted. Additionally, let me emphasize that we will continue to prioritize securing supply in order to meet our strong demand and maintain momentum on driving household penetration and awareness. From a balance sheet perspective, given our cash on hand, strong fundamentals, and expectations for solid operating cash flow, we are confident that we will continue to deliver in the coming year. Barring any M&A, we expect our leverage will approach three times by year-end.

Let me now turn the call back over to Todd for some final remarks.

Todd Lachman -- President and Chief Executive Officer

Thanks, Chris. 2021 was truly an extraordinary year for Sovos Brands, both operationally and financially. I want to thank all of our associates and team members for managing through these challenging times and their contributions to the company's success to date. As we move into 2022, we are energized and excited by what lies ahead.

The operating environment will remain demanding, and we don't discount the potential for further actions being needed if conditions are justified. However, we are highly confident in our ability to rise to the occasion. We have the right brands, one of a kind, authentic, and absolutely delicious. High-growth brands that consumers love.

Yet they are still relatively underdeveloped with a considerable runway for growth in distribution, awareness, and household penetration. We have the right strategy. The proven and repeatable Sovos playbook is capable of accelerating growth and expanding brand whitespace. We have the right platform, one that is scalable and well-suited for future accretive M&A.

And most importantly, we have the right people, who are excited, committed, and motivated by what we're creating, a different type of food company. One that is growing faster than any other food company of scale in the U.S. With that, Chris and I are now available to take your questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Please stand by while we compile the Q&A roster. Our first question is from Brian Holland with Cowen. Your line is open.

Brian Holland -- Cowen and Company -- Analyst

Yeah. Thanks. Good morning. I was curious if you could help us think about the top-line guide for 2022.

As I look at my forecast and dimensionalize this, I'm thinking about consumption, I'm thinking about price, I'm thinking about the selling. If we think about since you've come public, what -- where have you been most positively impacted? I mean, is it just the -- I guess I'm thinking about where that Delta is. Is it just the price or is it maybe the selling for something like Noosa frozen yogurt that may have exceeded expectations?

Todd Lachman -- President and Chief Executive Officer

Hey, Brian. How are you doing? It's Todd Lachman. Good morning. So just getting to your question.

I mean, the headline answer, it's volume., and I'll highlight now sort of getting into the Q&A is, I mean, honestly in stark contrast to our peers, we are driving volume growth. And as we look at growth in 2021 is we're looking at 2022, the majority of our growth is coming from our core businesses, that would be sauce, then yogurt, and then frozen. But as I've been highlighting, again, we are driving volume growth. If we just look at Q4, Rao's volume growth up 29%, this is Rao's Sauce in a category down five, our soup business in Q4, up 28% in volume down 2% for the category.

And if you look at just our pasta -- dry pasta business up 53% in volume, down 5% from a volume standpoint. And then even if you look at our yogurt business up about 7% in units in Q4 down 1%, and that's continuing. Brian, as we look at just the most recent data that we have, 13 weeks ended 227 Rao's Sauce, 31% in volume down 4% in the category. Soup up 34%.

We don't talk a lot about soup. But in 2021, Rao's soup was the only brand to grow volume in the category of all the top ten brands. And importantly, there is so much more meat on the bone for lack of a better expression. You look at Rao's and we massively increased household penetration this year, up to 10.9%.

You can see in the data on sauce 13% for total Rao's, we've been increasing household penetration by 60 to 70 basis points per quarter. Another sub talking about, we just need to increase at 70 to 80 basis points per year. We're blowing that away. We've more than doubled our household penetration over the last several years.

you saw that in regards to just our average number of items, 11 versus 17 to 22 for the top two competitors, awareness is very, very low. So we're very, very confident in the high end of our sales growth range. We will prioritize growth and feeling very positive. And then there is pricing to come on our business as we've talked about, you've got Rao's Sauce pricing being reflected now as we've talked about, we've taken pricing now across all brands and all portfolios.

But really the headline here, again and start contrast to our peers is volume growth, and we see that volume growth continuing through this year and well into next year and beyond. And, Chris, any additional Perspective on the pricing side, price volume?

Chris Hall -- Chief Financial Officer

Yeah. No. Absolutely. As we -- we spoke on our Q3 earnings call that we had announced pricing across a portion of our business, roughly two-thirds of the business.

Since that time, given the surging inflation that we've all experienced industrywide over the last several months, we have announced additional pricing and at this point, have touched or will touch here over the next couple of months all of our brands and really across basically all of our categories. So we see pricing as we continue to progress across really late Q1 and Q2 by the end of Q2 we will see pricing across all brands. Our combination of our pricing actions coupled with the productivity actions we talked about last call and incremental initiatives that we now have in flight, we believe we will be covering the majority of the inflation certainly across the year. There will be a lag across H1 as we implement these programs.

So we will see higher margins in the back half of the year than were in the first half of the year. And we have factored all that into the guidance that we have provided here today.

Brian Holland -- Cowen and Company -- Analyst

Thanks, Todd, and Chris, appreciate all that color. And then maybe just kind of a bigger picture question, as we move forward. I get asked about the premiumized portfolio that you own and how that might fare in an increasingly inflationary environment, sort of interesting that private label remains under pressure. I think that's supply constraints to some extent.

But with higher gas prices, I wonder how you think about, and if you looked at historically, how brands such as those you own, perform in those types of environments. And I'm thinking about the trade between sort of eating out and eating at home. And so two questions there. How do you think those brands have performed in those instances? And also, how you plan to market that value proposition to consumers?

Todd Lachman -- President and Chief Executive Officer

Brian, so one point really quickly in the categories in which we compete, sauce yogurt, frozen entrees, private-label has a very low dollar share of category versus going to the average for center store. So that's point number one. Private label is not large player in those categories, but then getting to your broader question, I know we've talked about this previously. These are brands that fare well and it down economy in a broader economic slowdown, consumers cut back on travel and leisure spending, including restaurants, and they look to sub the restaurant meals with high-quality replacements.

As we've looked over time over the last -- even when we acquired the Rao's Brand, we look back at the previous 10 years, almost a perfect correlation of the economy's doubt Rao's goes up, etc. Now Rao's has been going up regardless, I think as you saw the fastest-growing brand in the center store any brand above a $100 million in sales over the last two years. But consumers are looking for restaurant-quality products like ours that are perfectly suited to capture that occasion. You just dinner at home with Rao's pasta or you got a sauce about $12, $14 depending on where you at, where you live, where you shop versus going out to an Italian restaurant that can cost a lot, lot more of that, same with the -- whether it's breakfast with Birch Benders, pancakes, or [Inaudible], etc.

So what we're seeing is our products which are cleaner label, absolutely delicious. They're highly substitutable with restaurant occasions. I've been a few would take Rao's or even -- Rao's is a great example. We were growing robustly before COVID, we grew even faster during the COVID surge and we're lapping the COVID surge in the 30% to 40% range.

So we see cooking at home is here to stay as habits or practices have changed, and then that recessionary environment. We have confidence that our products are exactly what the consumers would want. And lastly, as I've talked about before, our products are highly differentiated. They're not meet too mainstream brands that are easily substitutable.

There is no sauce like Rao's in regards to its taste and quality. You -- Noosa yogurt taste led. Everybody else is playing the game. How much taste can we take out of yogurt? We're looking to put taste into the yogurt and that's behind the strong growth of new businesses as well.

So, anyway, I think that would hit that one.

Brian Holland -- Cowen and Company -- Analyst

Great. Thanks a lot.

Todd Lachman -- President and Chief Executive Officer

You've got [Inaudible].

Operator

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

Jason English -- Goldman Sachs -- Analyst

Hey. Good morning, folks. Thanks for taking me in. Let's see.

Congrats on the continued demand in sales success. It's impressive that's great to see. Obviously, your results and outlook highlight that you're not immune to problems in the cost pressures out there. I want to dig in a little bit more on that.

You said fiscal '22 guidance predicated on high single-digit inflation. Is that as a percentage of your input costs or is that a percentage of cost overall?

Chris Hall -- Chief Financial Officer

This is Chris. That is a percent of our total cost of sales structure. So including our raw material packaging, Coman internal manufacturing, which would include our plant overheads, as well as our labor costs. So that's an all-in rate, our actual inflation on pure commodities would be higher than that high single digit.

But as you absorb it across the total base, you're at that high single digit.

Jason English -- Goldman Sachs -- Analyst

Thank you. That's a surprisingly large number, given what we've viewed as a relatively fixed cost structure on Rao's. What is happening with Rao's? Are you making concessions to your partner there to help them out in this situation? And is that contributing to that inflation rate?

Chris Hall -- Chief Financial Officer

As we've discussed before, we have a fabulous relationship with La Regina. The quality of the product both was produced in Italy or soon the U.S. is obviously a key driver of the Rao's growth that we've been experienced. As we continue to work with La Regina, we do support in various ways to ensure we get the product supply we need to meet this 30 plus -- 30% plus growth that we've been experiencing.

In doing so, we have and we'll continue to pay for accelerated lanes, shipping lanes across Atlantic lanes. We will lean it as we did much though in Q3 of last, last year or less in Q4, again, to ensure that product supply that we have. As you well know, the operating environment remains volatile. We have incorporated into our projections of current levels that we're seeing in the marketplace across our commodities in a fact have included a potential uptick in oil base, oil derivative things like resin, or packaging.

So that's in our guidance factored in today. So why we're not opening up as much in before the contract, we do have in place of La Regina, we will lead in support went in as needed, and that is factored into our guidance.

Jason English -- Goldman Sachs -- Analyst

You mentioned the FreightLanes, that you're leaning in and help you went there in some sort of contemplation of oil derivatives. You didn't mention tomato costs. The California Tomato Growers Association have negotiated 20% increase for fall delivery of tomatoes here in the U.S. I'm guessing that they can renegotiate today, in light of where fertilizer and the fuel for their tractors is going to be running.

That would probably be closer to 30% or 40%. I'm imagining the -- your partners over there at La Regina are going to face similar pressure. Is it prudent for us to assume that you're going to have to absorb higher tomato prices into next year, even though I appreciate the fixed cost made to your contract?

Chris Hall -- Chief Financial Officer

The majority of our tomatoes, certainly those used for Rao's that are procured over in Italy, very much advantaged with our co-packer as he has a very large tomato business and that tomatoes that we use are grown right there locally very near our plant. So we don't anticipate any increase in our tomatoes that are used for our Rao's production. We do buy tomatoes domestically as well for things like our frozen entrees, our Italian frozen entrees. We are 100% covered on our tomato purchases across 2022.

So we think we're in good shape that there is additional tomato inflation.

Jason English -- Goldman Sachs -- Analyst

Got it. OK. Thanks. I'll pass it on.

Chris Hall -- Chief Financial Officer

Thank you.

Todd Lachman -- President and Chief Executive Officer

Thanks, Jason.

Operator

Our next question comes from Andrew Lazar with Barclays. Your line is open.

Andrew Lazar -- Barclays -- Analyst

Hi. Good morning.

Chris Hall -- Chief Financial Officer

Good morning.

Todd Lachman -- President and Chief Executive Officer

Good morning, Andrew.

Andrew Lazar -- Barclays -- Analyst

I think like most of your peers, obviously, you expect a back-half-weighted EBITDA year as it will take some time for pricing and productivity to catch up. In trying to get a better sense of how much flexibility you're building into the plan, how would you see gross margin playing out for the full year? And to the extent you can provide some waiting between the first half and second-half EBITDA, that'd be helpful.

Chris Hall -- Chief Financial Officer

Very good. As I mentioned, we have factored into our projections for the year commodity packaging costs as we're seeing in the marketplace today. So we're not assuming that we're going to see improvement across the back half of the year. Now, our year-over-year comparisons are more favorable as you work across 2022 as we really saw the inflationary pressures really tick up somewhat in Q2 of last year but really into Q3 and Q4.

So as we move into Q1, we will see a rate of decline on our margins fairly similar to what we saw in Q3 on the gross margin line. That will then improve sequentially across the year as our overlaps do get easier and more importantly, as our pricing actions, many of which hit in Q2, and our productivity initiatives, again, many that hit in Q2 and beyond, we spoke -- a lot of those actions were taken primarily in our internal manufacturing plants, for instance, the automation we're putting in down in our Austin plant, those will hit more aggressively in Q3 and Q4 as well. So as we think about the year, as you mentioned, Andrew, is very much back-half weighted, and we will see margin decline year over year in the first half, and then we'll see that improvement over the second half.

Andrew Lazar -- Barclays -- Analyst

And then I guess lastly, obviously you talked about how strong volumes have been across the portfolio. As more of the pricing flows through, what type of assumptions are you building in for into the plan for elasticity, I guess would you -- were your assumptions call for volume growth to just sort of slow a bit sequentially from obviously pretty heavy numbers. As more pricing flows through, how do you build that in? Thank you.

Chris Hall -- Chief Financial Officer

You bet. So as we put Rao's Sauce pricing in LPI late Q4 into Q1 there are very, very good news there as we're seeing very minimal impact elasticities. Todd mentioned volume growth, volumes still hanging very much in line with what we saw before the pricing. So we have very positive response so far on the pricing gets in the marketplace.

We have modeled elasticity at more traditional rates into -- we've factored into our guidance. We are seeing the marketplace not just for us for the Rao's but across the industry. We have seen favorable activities that we do know there is -- there has been some more softness more recently that there was initially so we were fairly conservative or elasticity assumptions. We felt we factored in accurately into the projection that we provided.

Again, the great news is we continue to see tremendous volume growth on the Rao's Sauce that we took the pricing on initially.

Todd Lachman -- President and Chief Executive Officer

Yeah. Andrew, just to build on that. So the full impact of the fullness price increase on Rao's is not fully reflected, but ARPs are going up, and as Chris said, we've not any statistically significant fluctuation Rao's elasticity through a recent study since implementing the LPI. And well I know there's a lot of other noise in the data that I'll share right now.

If you just look at the four weeks ending to 227 unit growth on Rao's, 25% less four weeks, 31% last 13 weeks. So that's over the time period that the LPI has been reflected. And if you look at the -- it's basically equal to or slightly above our unit sales growth on sauce in the 13 weeks ended 1,226. I f I look at unit velocity in Q4 versus Q1 this year for the most recent data, as of two weeks ago, it's roughly flat.

It's about 13% for both of those periods. So we were tracking this closely, but we haven't seen a drop-off on unit growth or unit velocity to date.

Andrew Lazar -- Barclays -- Analyst

Thank you so much.

Todd Lachman -- President and Chief Executive Officer

Yeah.

Operator

Our next question comes from Chris Growe with Stifel. Your line is open.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi. Good morning.

Todd Lachman -- President and Chief Executive Officer

Hey, Chris.

Chris Hall -- Chief Financial Officer

Good morning, Chris.

Chris Growe -- Stifel Financial Corp. -- Analyst

Hi. I just had a quick question, a bit of a follow-on to Andrew's question in relation to your first half, second half phasing. You have some really incredible momentum right now in the business on the top line. So it would seem like the first half of the year would have some of your strongest revenue growth as well.

I just want to get a sense of as we think about that coming into the year, is that first half of the year stronger revenue growth period? And then related to that, how much of the EBITDA margin pressure you see in the first half of the year, is that all driven by gross margin? Was there anything on the SG&A side affecting that as well?

Chris Hall -- Chief Financial Officer

Yes. So thank you. Thank you, Chris. Yes.

We operate across the year -- also of importance to us is maintaining the investments that we're making to continue to topline growth. So we will invest behind marketing R&D, even flooding costs to make sure we're getting the distribution gains both on our core, as well as the new product launches such as gelato, which is actually launching right now, and onto a very good start. So we will maintain those investments across the year. We see the top line fairly consistent quarter to quarter with the guidance provided high single digit across the year where the consumption that you're seeing year-to-date would be very consistent with that outlook for us.

On the productivity front, it will be more back-half that's loaded as we continue to implement our -- not just our capex enabled capital projects primarily within our own internal plans. But as we start-up Alma here, as Todd mentioned previously, as we have value engineering ideas in our packaging such as reduced the weights of resins, things like that. So we do see a ramp up on productivity in the back half of the year. And then finally, I will mention this year, we are incorporating public company costs that we did not experience back in 2021 until Q4.

So there will be higher opex expenses across the first three quarters as we incorporate those costs into our P&L.

Chris Growe -- Stifel Financial Corp. -- Analyst

OK. Thank you for that. And just one other quick question on the new products, you obviously launched Gelato, have not tried it yet, but I do look forward to that. Just a couple of the other new products, there's some you've said before at least initially, sort of promoted this year.

Are these still on track? Are there -- can you talk about maybe the ones you accept should come later this year?

Todd Lachman -- President and Chief Executive Officer

Sure. Hi, Chris. This is Todd, first I would say starting with Noosa Gelato, is that that's off to a very strong start. Sort of mentioned it in the opening remarks, selling stronger than expected, kind of half-joke that rumor has it, it was the hit of Expo West last week in regards to sampling line going around the whole Expo.

The selling has just started. It's very early. But as of what we know today, and as I said, we're very excited about that launch. The second one that was out for this year that we've launched into limited customers is Birch Benders cookies into the cookie category.

So with some of our launches, we launched them into limited distribution, which is what we've done with Birch Benders cookies, which similarly, we start launches with a smaller core retailer group. The second area that I would talk about, I think you're referring to is we've talked about several times, Rao's into the frozen pizza section, we're looking at that '23, '24, so we are on track to launch into that next new category, but we're being judicious about when that timing might be. And the last area that I would say, Chris, is just the focus on the core. You will continue to see innovation from us on our sauce business.

whether it's limited reserve line on line with a collaborating chili sauce or white truffle sauce or basically a new pizza sauce items, etc., you're going to continue to see innovation in the sauce category. We're now the No. 2 brand and it's important that we continue to bring innovation across pack sizes across our flavorings as well as Noosa yogurt, as well as frozen. So yes, we have TAM expansion, but honestly, just as if not more importantly, we've got massive opportunity within the core categories that we play in.

And I want to double-click on that one point because I know we just talked about elasticity. And one, again, very unique element to Sovos that does help counter the potential effects of elasticity is the massive penetration upside on all of our businesses. So while, yes, there might be an effect of higher pricing at some point in time, what we have it as very unique is a brand like Rao's growing 30% to 40% with distribution gains is the fact that we are only in 11% of households and we're gaining households in chunks. So that's a -- it's a very nice counter and upside to us as we continue throughout and into future years.

Chris Growe -- Stifel Financial Corp. -- Analyst

Thank you for that.

Todd Lachman -- President and Chief Executive Officer

Thanks, Chris.

Operator

Our next question comes from [Inaudible] with J.P. Morgan. Your line is open.

Unknown speaker

Hi. Good morning. Thanks for the question. I was curious if you could help us with some color on how we should be thinking about your annual sales either by brand or by category.

What are your expectations for growth, would be helpful. Thank you.

Todd Lachman -- President and Chief Executive Officer

Sure. Hey, [Inaudible]. If you -- good to talk to you. I think what we can -- we don't provide guidance per brand per se, but I would just say 80% of our growth this year will come from sauce, frozen entrees, and core yogurt.

So again, 80% of our growth will come from sauce, then frozen, and then yogurt. What I will also say is it's very clear as you can see in the consumption data, we have Rao's growing robustly just from -- you saw that -- like I think, we've mentioned Rao's $420 million of net sales in 2021, up 34%. That's total Rao's brand by just look at Rao's Sauce to the most recent period, we've got last 13 weeks Rao's Sauce dollars going 36%, Rao's Soup going 33%, Rao's Pasta going 28%, and Rao's Frozen up 63% all over those periods. So clearly, we're driving the Rao's business hardness, not just by distribution, it's by marketing support, it's by innovation across the portfolio.

Doing the same with Noosa Yogurt. Again, driving distribution, driving marketing gains, etc., and on the frozen portfolio. And we've talked Noosa gelato, which is not included in that 80%. So that's -- those are the highlights that I would provide there, [Inaudible].

Unknown speaker

Great. Thank you. And then as a follow-up, I just -- I wanted to get some more color on your international expansion plan. Why now is the right time to the expanding outside of the U.S.? And then what's the timeline on this and how much is it expected to add to top line in 2022?

Todd Lachman -- President and Chief Executive Officer

Sure. Yes. I don't think the highlight for 2022, not much. I mean, it is very slow.

We're -- what we've highlighted here, I think we discussed previously is we are putting the foundation in this year for international expansion in sort of building the foundation to their house in framing them, over using a house analogy, framing the house, doing whatever next year in 2023 to really begin to pay dividends. But really a neighboring North American markets, we should have a larger share in Canada. We've had successes there with selected customers. We're putting in the infrastructure there to really drive Rao's more robustly in Canada, in Mexico, in Puerto Rico.

We've had success with some selected customers distributing in certain markets. There has been pull as we've talked about Rao's brand is pretty much known now around the world, and there's been a lot of asked for us to supply Rao's, but we're being selective because right now, the number one opportunity for us in the U.S. market. First and foremost, on sauce, then on yogurt then unfrozen, but in the other areas of Rao's as well.

But really little to know incremental benefit this year, but we're putting the foundation in this year so we can really drive some strong growth in 2023 and beyond.

Unknown speaker

Helpful. Thank you.

Operator

Thank you. Our next question comes from [Inaudible] with Credit Suisse. Your line is open.

Unknown speaker

I think that's me. Just maybe a couple of things here. Can you quantify how much do you think the Alma savings are going to be for the back half of the year when that gets started? And then also, I think you said that you budgeted further premiums for shipping lanes from overseas for 2022. Can you give us a sense of is it going to be higher than it was in '21? Is that related to the high ocean freight you have to pay or is it related to volume? How much of an increase do you expect in that bucket?

Chris Hall -- Chief Financial Officer

Yes. Very good. Once we're almost up and running, there are a few different advantages that we're going to get from that. I think first and foremost is a positive impact to cash flow, as we will have local production, we will not need to hold onto as much safety stock.

We think we can take a couple of weeks out of our system there, and we can react to immediate demand opportunities with that production here out of Atlanta, Georgia. So that's the first benefit of it, cash flow. Secondly, we do procure some of our sauces, our Rao's Sauce, domestically today. Things such as meat, meat-based items.

We will have cost reduction versus that balance of production that's in the U.S. today. And Alma can produce 20% to 30% of our requirements as we cross 2022, once up fully running. So we'll see productivity on that front and we'll see the balance sheet improvement again from that inventory management that will improve, that is factored into our numbers as we shared with you today.

And then on the freight lane that were taken that on a week by week, month-by-month basis. We're seeing the pressure right now, so we are leaning in and we, as I mentioned, we'll continue to do so whether it's more or less than we did last year, is yet to be determined. Given the volatility that we're seeing with first omicron earlier in the year and now some of the global tensions that we're experiencing, but we will just manage that as we progress across the year. That will react accordingly just to ensure that we have the supply that we need.

And then an advantage again of having the Alma plant up and running is we've been much more selective on the rates we pay whether to expedite shipments or not. We won't need to as much as we may have had to in the past because we'll have that local production. So that's going to be another benefit that were realized through our P&L.

Todd Lachman -- President and Chief Executive Officer

Just one other comment there. Hey, Rob. Good morning. Good to hear from you.

Just look, on Alma, we are absolutely thrilled that we're going to have a state of the art, I call it a mirror facility to what we have in Italy. The same kettles, the same equipment. I mean, under the leadership of our supply chain team from Kirk Jensen and Felice Romano of La Regina. I mean, we're just -- we're thrilled about what we've created in Alma.

It will be running sauce this March full production as we head into Q2. And it will just be a real benefit for us to have a, again, a mirror facility of that beautiful facility over and over in Italy operating here in Alba Georgia. So very, very exciting. I want to move into closing remarks.

Honestly, thanks again for your participation and interest in Sovos. Great talking to everybody this morning. Incredibly proud of what we've accomplished in 2021, and we're excited to continue the strong execution against our priorities as we drive growth and increase shareholder value in 2022 and beyond. Have a great week, and speak to all of you soon.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Chris Mandeville -- Managing Director, Investor Relations

Todd Lachman -- President and Chief Executive Officer

Chris Hall -- Chief Financial Officer

Brian Holland -- Cowen and Company -- Analyst

Jason English -- Goldman Sachs -- Analyst

Andrew Lazar -- Barclays -- Analyst

Chris Growe -- Stifel Financial Corp. -- Analyst

Unknown speaker

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