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#Yes, <UNK>; I'm not going to speculate on what Walmart may or may not do.
I think the thing that we've got to stay focused on is what drives Dean Foods.
They have announced that they are going to build the plant in Fort Wayne, Indiana; and the last time we checked, they have not broke ground on that yet.
But assuming that they go through with that, we're very confident that we're going to be able to take the costs out, that it will have minimal to no impact to our financials for Dean Foods.
And if they decide that they want to go further, we're putting contingency plans together that we believe will continue to minimize the impact of that to our portfolio.
What they do from a retail perspective and if they started pricing war, I just ---+ I think everybody learned a lot from 2010; and our margin over milk would tell us that that's probably not something that many retailers would be interested in doing again.
History, I think, has suggested that when milk prices are low, there is a higher likelihood that the retail trade is going to heat up the retail price.
Over the last several quarters we've obviously been in a very, very low milk price environment for raw milk costs, so it would've been a great opportunity had retailers wanted to go back and revisit that 2010/2011 period of time when there was a retail price war going on.
And as you saw from margin over milk over the last several quarters, there's really been no evidence of that.
So we certainly don't see retailers headed in that direction, and that's during a period of time when it would have been conducive for them, perhaps, to consider that.
Well, I'll start with, first and foremost, I worry less about the contract of what we do with shrink as I do about the actual shrink itself.
Our focus has been on: How do we reduce the amount of shrink that we have in our system.
And I can tell you that the supply chain is doing a really nice job of getting at shrink and reducing the amount of shrink that we have in our system.
So I feel much better in this environment than I would have two or three years ago.
Secondly, much of our private-label business is all based on the contracts, and shrink is built into those contracts.
But I think from a brand perspective we would expect to maintain our premium pricing, and shrink should not have an impact on that.
So, is there anything you'd add to that, <UNK>.
I guess, <UNK>, the only other thing I'd add is just the perspective around our expectations for the cost of the raw milk.
I mean, <UNK>, last time, we really spent a lot of time talking about the headwind that shrink caused in some of those private-label contracts.
Raw milk costs were also around $24 a hundredweight.
So while we do see some inflationary pressures in the back half of this year, certainly our milk forecasts wouldn't dare go to those kinds of levels again in the relatively short term.
So while there could be some shrink headwind, just the absolute magnitude of the raw milk costs would suggest it will be dramatically less than what we experienced in 2014.
Sure.
Well, I think you're seeing it now.
I think you are starting to see ---+ with the 144 assets that have come off the road in the first half of this year, and 240-some-odd assets since last year at this time.
So I think the work that the logistics team is doing around frequency, the work that they are doing around route optimization, and I am extremely proud of the work that the logistics team is putting forward right now, and I would expect that to continue through the rest of this year.
So I'm very happy with the cost reductions right now.
And I think we're still in the early innings of our logistics cost reductions, so there's still a lot of room to go.
But that team is doing a great job of getting at it.
Well, third inning.
I'll go between the two, yes.
I think it's still early.
Great.
Thanks, <UNK>.
When I think about the category as a whole, I think you're just seeing the same turnaround that we saw in butter to some degree, as the saturated fats became less of an issue.
We're seeing it in our whole milk volume versus skim milk volume.
So we're seeing whole milk ---+ and I'm going to quote some numbers that may not be totally accurate ---+ but last quarter was up 5% whole milk and skim milk was down about 11%.
So I think we're seeing a lot of the good work that we've been doing on the DairyPure brand and the messaging behind that, the 8 grams of proteins and all the nutrition that comes with milk, and then the work that MilkPEP is doing I think is truly helping the category.
So is it going to flatten out.
I hope not.
I hope it continues to go.
The flavored milk category has continued to improve every quarter for the last four or five quarters.
So I'm hoping we see that on conventional milk as well, and so I'm hoping that we'll actually see a category that may see some growth here over the next few quarters.
As far as how long will the DairyPure message last, boy, that's a wide-open question.
We're going to continue to go to the consumer, talking about the health benefits, the localness of our product, the freshness of our product.
I don't think there's anybody else that can replicate that on a national basis, only because we're the only national footprint out there.
But I'm sure there's others who will follow that as time goes.
But as far as when that happens, I would hate to speculate on when that will be.
And <UNK>, I think the really positive part about volume as well as that even if the category does flatten out ---+ and look, the trajectory would suggest something better than flat.
We've gone from down 360 basis points in the dark days of Q14 ---+ I think that was that was Q3 of 2014 it was down 3.6% to plus 10 bps now.
So pretty dramatic improvement over a short period of time.
But to your point, even if it does flatten out, remember that we've done a lot of heavy lifting to create an algorithm here that works, even if the category is down 1% or 1.5%.
So I'm sort of treating where we are today, without any further progress, as very good news and potential upside; and then if it does continue to extrapolate forward from there, then the benefits only continue to accrue.
Well, I think as you look at the main reasoning behind is ---+ it's all margin related.
So when we get into RFPs and the margins get below what we consider to be below our expectations, we'll exit the RFP or we'll let the business go.
So I think as we look forward, as we said in our prepared remarks, we expect that to get a lot better in the third quarter.
We expect to be down somewhere around 1%, which is a dramatic improvement from where we've been in the past.
And then as we enter the fourth quarter we actually expect to possibly see some growth.
So that I think is the best thing I can tell you.
We don't plan on losing additional RFPs, but I think at the same time if they don't meet our expectations we will step away from it so we don't get degradation of our margin.
The bulk of what we've lost, that we've talked about on this call and for the past couple of calls, we've actually lost in Q4 last year.
So there haven't been ---+ there may be some churn, but the material losses we will overlap here in Q4 of this year.
That's one the contributing factors, too, when <UNK> talked in the prepared remarks on the forward outlook, about volume growth becoming positive in Q4.
One of the drivers of that is the fact that it will be lapping some of the more material losses in private-label from 2014.
Well, I think it goes back to ---+ I would expect the trends that we've seen on our G&A to continue.
And that's still in an environment where we're investing in additional research and development activities.
We're investing more in our consumer research group.
We've invested in much of our sales organization and starting to build some capabilities around our warehouse and ESL capabilities.
So I'm very pleased with where we're at from a G&A perspective in an environment where we're continuing to invest in the business and build capabilities.
Of course, we don't break our guidance down into the specific pieces of cost elements.
But rest assured that productivity across all elements of cost remain a key focus in the third quarter and beyond.
Yes.
I think that's a great question, <UNK>.
Our work says that, other than a couple of quarters in 2014 ---+ I'll say Q2 and Q3 2014 ---+ finding a correlation between the health of a category and the price of raw milk or the retail price of milk ---+ and fairly close relationship between those two ---+ it's really not there.
Which intuitively kind of makes sense, right.
It's such a staple product that mom or dad is going to get a gallon of milk even if milk prices are a little higher than they are used to.
They are still going to buy milk.
And if milk prices are pretty cheap, they are probably not going to get two and put one in the pantry.
The exception to that was Q2 and Q3 2014, when we finally broke through a price barrier where the category became elastic, and you saw dramatic demand destruction and downward pressure on the category.
So to your point, if ---+ when ---+ maybe sometime out in the very distant future, we get back to $24 per hundredweight raw milk costs, we've got to adapt our model for that probably relatively short episodic period to adapt to what would be pressure on the category.
But that's certainly not our forecast for raw milk prices over the balance of 2016.
I think the more modest increases that we're expecting to see will keep us within a band where you see limited increases on shelf and probably no discernible impact on the category.
I think the positive tailwinds blowing behind the category right now ---+ <UNK> mentioned a few of them: birthrates and cereal growth and a few other things, plus the work that <UNK> talked about that we're doing through DairyPure and the work that MilkPEP is doing.
I think those positive tailwinds far outweigh will be a very, very modest increase in prices.
We have not broken out that at the profit line, no.
A think we're going to continue to see it improve.
I think the one thing that I often caution people around is being careful on any given quarter as to what that price gap is.
Because ultimately the retailer will decide what that price gap is.
Many retailers, depending on whatever they are running promotionally or marketing-wise may take that number up or down.
But our expectation is that we're going to continue to expand that.
We'll continue to work towards somewhere in the 30% range over time.
I think it's the same thing that we've done in the past.
So I think it's a continuation of the work that's being done currently in logistics, where any routes that were dedicated and were set up to go to those ---+ to Walmart will be taken off the road and the asset will be eliminated.
I think the production assets that currently produce the 95 million gallons, at some point we will have to look at our asset base and figure out what we have to do to shut down some of the capacity that supported that.
We will also look at the G&A around that and what supported that volume, and we'll reduce accordingly.
So that's why in my mind I'm very confident that our plants will be able to offset that without an issue, other than the issue of the people within our organization who will be impacted by that, which I don't take lightly by any stretch.
I'll touch on it and then let <UNK> take it from there.
But if you look at the normal seasonality of premiums on cream, they are always higher during the summer.
So we will see higher cream costs during the summer, when there's obviously more demand for cream, and around the holidays.
So, I think it's one where it doesn't always go directly in line.
But if you look at the fundamentals of the market and you see butter at 90% more than the international market, I just struggle with the fundamentals of why we're seeing the increases that we are.
But we are seeing it, and it's real, and we have to react to it accordingly.
But the Class II cream and butter fat is one that we'll continue to deal with as cheese and butter prices stay high.
We included it in today's remarks just to remind everyone.
I think Class I of course has been a tailwind, has been down year-over-year now for 18 months, give or take.
We just wanted to remind folks that Class I isn't the ---+ it's a main, the main cost input driver for us; but Class II is important and even more important in the summertime when ice cream volume picks up.
So the fact that it's up year-over-year in the second and third quarter, we thought was worth highlighting for folks, to make sure that that headwind is captured in people's modeling purposes as well.
We haven't broken it down.
I think it's about 1%, 1.5% maybe.
About 1% I think.
A little lower in the fourth quarter as ice cream volume drops off toward the end of the year.
Well, it's in line with where we want it currently.
We have ---+ as we talked during the prepared remarks, there's certain promotions and different things that we're doing currently in the marketplace.
But it is not where we want it to be.
We want to continue to expand.
I would like to see that closer to 30% as we go forward.
But again, part of that will be determined by the retailer and what they decide they want the gap within their cost structure to be.
So I would hope that we'll see it continue to expand.
I think we'll continue to support it in a way that will hopefully help retailers understand and decide that they can do that as well.
It's kind of a complicated algorithm with more inputs than just the cost of Class I milk.
We're also measuring the gap against ACV gains and against velocity.
So we're trying to engineer that performance over time and not take it in too big of chunks.
I wouldn't expect to see a lot more spend.
I think we'll continue to support it at the levels that we have.
Then when we introduce new extensions to DairyPure, we may up it a little bit during those periods of time just to introduce it to the marketplace.
But I think the current spending is probably the spending that we would expect going forward.
We continue to be pleased with the Friendly's acquisition.
I think any time you can pick up such a valuable asset as we have and be able to do it at the multiples that we talked about on the call, I'm very, very pleased.
I think we don't see any change to what we had originally projected, so I think the number that we gave before is still a solid number.
It may work around that $0.06 a little bit, higher or lower, but we haven't seen anything within the business that would tell us that that change was wrong or needed to be changed.
As far as the synergies, it's all the things that you would expect, right.
There's distribution opportunities, there are sourcing opportunities, there are revenue opportunities, there are back-office opportunities.
All of those will be included in the overall synergies as we start to execute against that.
The thing I would remind you, Ken, is that really our focus for the rest of this year is integrating that business and trying not to do anything until we get through the season that may disrupt it at all.
So really focusing on integrating, getting the IT systems in, getting them into our IT systems, getting out of some of the contracts and service contracts that they are providing to us through the transition.
And then the synergies will really begin in 2017.
Yes, let me first correct that there were no non-competes with WhiteWave.
So we didn't have any non-competes.
The non-competes that we had were really on the Morningstar business or the Saputo business, and that was really around manufacturing, ESL, and some of the other things that we did with Morningstar.
Are those categories attractive.
Yes, there are some of those categories that are very attractive.
I think for us it's a matter of prioritization of our innovation pipeline and which of those choices in sequencing did we want to take on, and how much do we want to throw at the organization at any point in time.
So as we look to our pipeline of innovation, there's a lot of things that we can do within the portfolio we have today that doesn't get us as far out as plant-based.
But we are definitely looking at plant-based as an alternative for our pipeline.
Great.
Thank you, Karen, and thank you all again for joining us on the call this morning.
We appreciate your continued interest in Dean Foods, and everybody have a great day.
Thank you.
