Kroger 2Q17 Earnings Call Notes

Rodney McMullin

We’re doubling down on digital

“we’re doubling down on digital; and we’re leveraging new and ongoing partnerships to deepen our connection with customers and drive revenue.”

Really too soon to say any impact of the Amazon WFM purchase

“In terms of the impact, obviously, it’s way early, but there isn’t anything that would cause you to develop any point of view at all, in terms of changing trends, but it’s only been a week and a half. So, I would caveat it a million different ways.”

Private label plant is currently operating at capacity

“In terms of our plant capacity, if you asked our manufacturing team, they would probably tell you they’re at almost capacity. I’ve always found and we’ve always found that we always figure out ways to produce incremental product and do it very efficiently. So, in terms of capacity, it is one of the great things about knowing how to operate plants, we could easily expand capacity, either through process change or additional expanding plants, things like that, whether is needed.”

Customers look for total experience

“The biggest thing that the 84.51° insight shows us is the customer decides where to shop based on their total experience. And obviously that total experience is what’s the shopping environment like, so what’s how the associates treat the customer. What kind of rewards do you have, what type of personalized offers are you making, which is very hard for anybody to see that other than each one of us as a customer individually. And then, obviously from fresh product standpoint having great produce, meat, deli, dinner tonight, these kind of things. So, the thing that’s really important is the all of that together, the price, the specific price items, really each one of us would have different items that are in our biggest hot button.”

Mike Schlotman

Have product cost inflation for the first time since 2015

“Another positive sign is that we had overall product cost inflation for the first time since 2015. As you know, the change from inflation to deflation and back again is one of the toughest environments to operate in for our stores, and we’re proud of our team’s ability to manage through it.”

Kroger 1Q17 Earnings Call Notes

Rodney McMullen – Chairman and Chief Executive Officer

We think we have the scale to compete with Amazon

“From everything – from our perspective, we would have plenty of scale and certainly $115 billion revenue Company, we would have the scale. The other thing is, if you look at like our own brands, the strength of our own brands and the strength of the experience the customers enjoy, all those things obviously add to that scale as well.”

Michael Schlotman

Increase starting wages

“As Rodney outlined earlier we’ve made conscious decisions to increase starting wages in certain markets to improve associate engagement and retention that will create a better experience for our customers. We continued invest and grow our digital business. Our digital revenue more than doubled in the first quarter compared to last year. This includes revenue from ClickList, Harris Teeter’s ExpressLane and”

Deflationary environment was less severe

“The deflationary environment was less severe in the first quarter compared to the fourth quarter, coming in at 20 basis points deflationary without fuel. Grocery was essentially flat during the quarter but had fluctuations up and down during it. Meat continued its deflationary trends. And produce, while deflationary for the quarter, showed inflation in the last four weeks of the first quarter and pharmacy was inflationary.”

Transition from deflation to inflation creates challenging environment

” there is a lot of change in the retail food industry. That, coupled with the transition from deflation to inflation creates a challenging operating environment.”

We don think there could be a little more inflation than we originally thought

“We do think there could be a little more inflation by the end of the year than we originally thought”

Kroger 4Q16 Earnings Call Notes

Rodney McMullen

Competitors are running better stores, don’t think we’re losing share to online

“If you look at from a competitive environment, most of the changes that we would see is competitors running better stores. I don’t think there’s any doubt that they are, most of you and lot others have read about it. Certainly, it wouldn’t – there isn’t anything that would show that it’s going to online at all. So it would be more driven by some of the competitors running better stores versus other aspects. I don’t Mike anything you’d want to add to that.”

The next five years are more competitive than the last

“‘ve been around for 30-some years and I always would tell you that we’ve always felt that the next five years are going to be more competitive than the last five. I would definitely agree with that comment today. We definitely believe the next five will be more competitive than the last five because only the strong survive.”

Mike Schlotman

Reeturn to a slightly inflationary environment in the back half of the year

I think you’re doing what a lot of people do including this morning when I was on CNBC of mixing inflation and deflation at cost and retail. When we talk about our inflation or deflation it’s our product cost inflation or deflation. You kind of through and what’s going to happen to retail product cost inflation or deflation. And overall, we do think that we will return to a slightly inflationary environment in the back half of the year. It is interesting to note that despite the fact that we pretty much add, I think Rodney was talking before with one of the callers, nine quarters in a row of deflation, declining inflation/deflation. I’ll be there inflation coming down or actual deflation, it’s nine straight quarters now but that trend volume would be down.

Kroger 3Q16 Earnings Call Notes

The Kroger’s (KR) CEO Rodney McMullen on Q3 2016 Results

Deflation persisted and deflation is tough

“As expected, deflation persisted during the third quarter. And as we’ve said before, transition periods create a difficult operating environment. This is the third time we’ve had deflation in 30 years. And in previous instances, deflation lasted from three to five quarters in a row. We’re in the middle of the cycle right now and it’s not fun, still our tonnage continues to grow, our total market share continues to expand, and we’re focused on executing our strategy.”

Consumers telling us they expect the environment to get worse, but that was in October

“Looking at the broader economy and the customer shopping behavior, what we’re seeing is mixed. Typically, our data shows our customers economic concerns mirror what they see in the headlines. For example, healthcare cost continue to be a worry for customers. Consumer confidence retreated during the quarter, with customers telling us they expect the economy to get worse in the next three months. It’s important to remember, this survey was completed in October and it’s too early to say what the mood of our customers is since then.”

Some of the raw materials prices are trending higher, but that will take some time to affect retail pricing

“Yes, what I was going through on CNBC is where some of the raw material markets are trending over the last four weeks. A lot of those when you look at them on year-on-year, they’re still quite negative. But there’s some trend in some of those categories, the input cost over the last four weeks, but still down on the prior year. Milk and cheese looks like, it may be bottoming, but that doesn’t mean things turnaround on a dime as raw material input cost change. There’s usually a lag from that bottom and a slight blip up in those costs until you start to see any effect on retail pricing. So we would expect this to persist. ”

We’re seeing broader competition,but not every customer wants a box of stuff sitting at their door all day

“In terms of, at our Analyst Day, we increasingly see competition much broader than we would have in the past. And we’re really focused on how do we give the customer what they want, when they want it in a way they want it. And Amazon is one way of doing that, but not every customer wants to have 10 boxes of stuff setting in front of their door all day. What we find is a lot of customers love having groceries picked – picking it up, and we’re starting to test, obviously, we’re partnering with third parties to deliver. So, for us, we’re really focused on the customer and letting the customer to decide how to engage and doing it in a way that’s seamless.”

This deflation cycle is more reminiscent of 2002

“Well, the bigger picture is that, it probably looks the most like the one in 2002, that one really, it was about five quarters. And if you look at when it was the worst just in the middle of it and that’s kind of where we are. Part of it will – part of it determines why – I’m trying to think about how to word this in a way that’s helpful…If you look at 2002, it was more supply-driven, because there was a lot of supply in the market. Unless, there would just be a terrible crop year in 2017, we would expect this to look much more like 2002. Remember, once and Mike talked about it a little bit like on dairy, if you have $3 a gallon milk and it goes to $2 a gallon milk, when you cycle that to next year and if milk is still at $2 a gallon, you’re cycling $2 on $2 versus $2 on $3, and that’s the reason why the pressures decreases.”

Kroger 2Q16 Earnings Call Notes

Kroger’s (KR) CEO Rodney McMullen on Q2 2016 Results

The environment wont be deflationary forever

” While we expect continued deflation and tough year-over-year comparisons for the remainder of the year and even into early next year, as we know from past experience, the environment won’t be deflationary forever.”

The only certain thing in retail is that it is always changing

“We often say that the only certain thing in retail is that it is always changing. This is certainly true for an ever-shifting customer preferences as well as the overall competitive environment. We believe one of the reasons for our continued success, regardless of the operating conditions or competition, is our ability to generate increasingly sophisticated customer insights.”

Customers are telling us they are less confident in the economy

” Customer insights give us a big advantage in challenging environments like this one. A lot of what we are seeing suggests a gradual tightening of budgets. Our customers tell us they are less confident about the economy now than they were three months ago, and they expect the economy to get worse in the next three months. We are as committed as ever to doing what is right for the customer.”

Consumers perceive that their basket is going up in price even if it isn’t

“The other thing that’s always hard is getting your message out because – it’s fascinating. In a research, most people are saying their basket of goods cost more money, but we, in fact, know that it isn’t. So helping the customer see that is always a challenge for us and our competitors as well. Go ahead, John.”

Wouldn’t say competitors are being irrationally promotional

“I wouldn’t be quite as aggressive on saying people are being irrational because I don’t see anything that is different today than when you go back and look at it over the last year or three years or 5 years. ”

Organics is now more than 10% of our business

“if you look at natural and organics, when we started the journey, natural and organics really wasn’t a critical part of the product strategy. Today, it’s incredibly important. And I don’t know, Mike, it’s probably, what, 10% or a little over 10% of our business when you look at it in total.”

There is some correlation between deflation and promotions

“So both of those would be within the range where we’ve given for the balance of the year. We would certainly expect – typically, you do see a little bit more promotional activity early in inflation cycles just because the competitors think they’re losing share versus the it’s a fact that it’s deflation. And we would certainly include some of those elements in terms of where we expected things to be for the balance of the year. But everything that we can see, ’09 would be the most similar. And if you look at ’09, there were three quarters of deflation. If you go back and actually look at 2002, there are four quarters of deflation”

High prices solve high prices

” historically, I always like to say high prices solve high prices and low prices solve low prices, because capacity will start changing. And if you look at farmers, they’re very smart, and they’ll start producing less of the things where they don’t make money. So historically, that’s what’s caused inflations to swing. And still an awful lot of our business is driven by the commodity markets. If you look at produce, that’s just going to be driven by what’s the growing season and what’s the growing season like. We continue to see good demand.”

Weak consumer comments are based on surveys. Still seeing good growth in discretionary purchases

” If you look at the areas that we would consider discretionary like high-value wine, Boar’s Head, Starbucks, Murray’s Cheese, all of those areas, they continue to have nice growth. The comments I made are more based on the surveys that we — where we survey customers almost every day and the changes in terms of what the customers tell us they anticipate will happen.”

Deflation should cycle just because you’re lapping it

” if you look at how long it lasts, the only insight that I could provide is the comment I made a little earlier. If you go back and look at 2009, it was three quarters. If you go back to 2002, it was four quarters. We’ve had inflation every quarter other than those since the first quarter of 2002 as how far back we went. On terms of moderating, as you get toward the latter part of the year and early next year, you’re starting to cycle the deflation. So I would — certainly, we would guess that it would start to moderate just because you’re starting to cycle some of the deflation”

Mike Schlotman

Year isn’t shaping up as expected but we are well positioned for the long term

“Thanks, Rodney, and good morning, everyone. As Rodney said, we’ve been through periods like this before, and we have the leaders and the strategy to continue delivering value to our customers, associates and shareholders. While the quarter and the year aren’t shaping up the way we expected, we continue to be well positioned for the long term.”

Kroger 1Q16 Earnings Call Notes

Rodney McMullen

Strategic investment in grocery store with indoor farmers market feel

“In April, we announced a strategic investment in Lucky’s Market, a specialty grocery store chain focused on natural, organic and locally-grown products currently operating in 22 locations. We invested in Lucky’s because of their great people and unique go-to-market strategy, which includes smaller format stores that resemble an indoor farmers market, plus a culinary department that showcases amazingly restaurant-quality prepared foods. Lucky’s approach is very much aligned with our efforts to provide affordable, fresh organic and natural foods as part of our Customer 1st Strategy. We expect to learn a lot from each other.”

We had expected inflation to start picking up some but it just didn’t

“on inflation; inflation, we had expected that it would start picking up some. And when we look going forward, we just don’t see that picking up. If you look at so far this quarter, we’re inside the range, just slightly below the midpoint of the range of the 2.5% to 3.5%. ”

People are trading up but tough to say if driven by economy or price

“There is no doubt that you see people like in beef, buying more beef, things like that. So, those things are definitely happening. But some of those prices are the best prices that customers would have seen in, I want to say, almost three years, just reflecting back. So how much of it is driven because of economy and how much of it’s just driven because it is a great — it’s a good value, again, given the changes in price.”

Mike Schlotman

There’s a lot going on in the macro

I think Rodney touched, there is clearly a lot going on out there, the macro environment, there is the inflation and deflation, there is gas retails were rising during the quarter. It was an interesting quarter because there are so many unusual things out there. Our own comparisons to a lot of like Rodney said, the Super Bowl this year, then the weather, then Memorial Day moving. As Rodney said, the cadence of ID sales was really a little bit all over the board, depending on the week you’re looking at. ”

We purposely manage DB to be underfunded because interest rates will go up at some point

” So, we purposely manage that to be slightly underfunded — to be underfunded because someday rates will go up. And I don’t want to put a bunch of money in now and then wake up in five years and have the fund be overfunded because I can’t do anything with it.”

Would have expected to see inflation but haven’t

“we would have expected to start seeing a little bit more inflation right now than when we were sitting here three or four months ago thinking about it. And it just hasn’t happened. And as I sit here today, it certainly doesn’t feel like we are going to have the pickup in overall food inflation. Milk would have been projected to start having some cost increases but the federal market order on milk isn’t showing any upward trend or not any significant upward trend. So, I think we are going to wind up most of the year in a fairly low inflationary environment.”

We’re seeing price led not demand driven inflation

” everything we’re seeing is really price led deflation, not demand driven”

Kroger 4Q15 Earnings Call Notes

W. Rodney McMullen – Chairman & Chief Executive Officer

Customers continue to spend with us

“Looking at the economy and customer shopping behavior during 2015, we noticed that customer sentiment held relatively stable throughout the year versus previous years in which their attitudes were more volatile. In the past few months, we’ve seen the top economic concerns shift from rising healthcare costs to the stock market. Customers have more disposable income as a result of significantly lower fuel prices, yet economic uncertainty remains, which typically causes people to cut back on discretionary spending. That said, an interesting insight is that our customers continue to spend with us. If you look at some of our high quality offerings, such as Murray’s Cheese, Private Selection, Starbucks and Boar’s Head, or at the strength of our wine and craft beer business, it is clear that customers across all demographics want a great food experience. ”

Working on making a seamless experience for customer

“When you look at long term and if you look at several of the changes we’ve made over the last couple of years, it is really merging with people that have expertise in some of those areas so that we could bring that within Kroger. And what we’re really working hard on, and I mentioned it in my comments, is trying to create it where it’s a seamless experience for our customer. By no means do I think we have arrived, but what we’re finding is some customers like to engage with us multiple ways and we’re really striving to make sure that we have a model where we can let the customer decide how they want to engage with us versus us deciding that. So it’s an exciting time to be in the industry. There is no doubt there’s a lot of change going on and the changes that we have been making over the last couple of years we feel really good about positioning us to address where the customer is headed versus where they’ve been”

We like learning from the success of acquired companies

“One of the things that we loved about merging with Roundy’s was, as everybody knows, that we were looking at going into a new market. By merging with Roundy’s, it allowed us to go into Chicago with a business that Mariano’s has done a phenomenal job on connecting with customers, and their market share is in the low teens. And they entered that market in 2010. So, we felt like we could learn a lot, plus we started out a position of strength because of the success they have had.”

J. Michael Schlotman – Chief Financial Officer & Executive Vice President

Volumes continue to hold up well

“Our volume continues to hold up very well, Scott. When you look at even coming into this year, when you look at shipments, case shipments out of our warehouses to replenish our stores, it remains very, very strong”

The deflation isn’t bad deflation

“If you go back to the commentary I had on the meat department, some of the categories, as we say, it’s good deflation because we’re getting back to retail price points where the customers can buy a lot more of that product. And while for the time being it’s a slight headwind to sales when you just look at the top line, with the number of units we’re selling at a good gross profit dollar rate per item, we’re generating significantly more gross profit dollars.”

Meat was deflationary but produce was actually a little inflationary

“the meat department was deflationary, deli was deflationary, seafood was deflationary. Grocery was a little bit inflationary. So it’s a mixed bag overall. And as Rodney said – if you look at produce, it was actually inflationary. So, produce has been all over the map this year, deflationary in the first two quarters, about flat in the third quarter and now inflationary”

Very few weather events this year

“When you look at the quarter to date, it is – Super Bowl selling was great but almost every week or really every day when we get ID sales, it seems there’s some geography that was up against weather last year and no weather this year. That’s going to flesh itself out. Those things happen occasionally. It’s our job to manage through it. “

Kroger’s 3Q15 Earnings Call Notes

W. Rodney McMullen

Economy continues to slowly improve, but bifurcation remains

“The economy overall continues to slowly improve, and customers continue to feel more optimistic, but the bifurcation in the economy remains. Some customers are willing to spend more while others are worried about their job or next paychecks are more focused on saving. We find that all customers want quality products and a great shopping experience.”

No Superbowl in 4Q this year

“this year we will not have a Super Bowl in the fourth quarter. A year ago we had Super Bowl in the fourth quarter.”

Private label usually picks up market share when brand name raises priceInnovation has helped justify more shelf space for coffee products

“If you asked me three years ago or four years ago what I thought was going to be the future of the coffee category, I wouldn’t have been very positive. Today because of innovation by Starbucks and Keurig Green Mountain, it’s completely created a different type of growth in that category and we are continually adding spaces on what’s inside the store because the customers want it, and it’s something that is driven by innovation.”

J. Michael Schlotman

Fuel has big impact on topline growth

“Total sales in the third quarter increased 0.4% to $25.1 billion, compared to $25 billion in the same period last year. Excluding fuel, total sales increased 5.5% in the third quarter compared to the same period last year.”

Generic drug costs continue to be high, don’t see anything moderating

“Generics continue to have a good amount of inflation in them. Really don’t see anything as we look into 2016 that would necessarily cause a moderation. Part of that was driven by prices have gotten so low, some folks got out of the manufacture of those products. With good old supply and demand and just basic economic forces, if underlying costs for those continue to be high, at some point other folks will get back into the manufacture of that business and perhaps put pressure on that economic cycle.”

This is a tough industry

“I don’t think there’s a time that Rodney and I have been doing these calls together that we haven’t talked about this being a highly competitive industry. Barriers to entry are low. Our job is to go out every day with our more than 400,000 associates and deliver a better value proposition to our customers today than we did yesterday”

Even our pets are jumping onto the healthy eating bandwagon

“It clearly does seem as though there’s going to be persistence and shift to a more healthy lifestyle and maybe out of some of the traditional center-of-the-store categories into more fresh categories. But I would tell you there are plenty of center-of-the-store categories that now have natural and organic offerings in a can, whether it’s our own Simple Truth brand with spaghetti sauces and salsas and things like that.

If you go down the dog food aisle, the growth in the dog food aisle is in grain-free and natural kind of dog food, so even our pets are jumping onto the bandwagon of leading a healthier lifestyle. Everybody is laughing at me in the room by the way.”

Kroger 2Q15 Earnings Call Notes

While customers continue to feel optimistic about the economy throughout the second quarter, they also continue to tell us they want to spend less. More and more, they want retailers to help them save money with sales and coupons.

Our identical supermarket sales growth of 5.3% in the second quarter demonstrates the strength of our core business.

Another factor that we are actively managing is product costs. While inflation continued at a lower rate during the second quarter, which we estimate was approximately 1.4% without fuel, some commodities had high inflation and others had deflation.

as I said in my prepared comments the produce picture, actually, the deflation slowed. And actually if you were to look at the very end of the quarter was a slight bit of inflation in the last several weeks. Nothing to write home about. But it was deflationary for the quarter but got less and actually turned a bit towards the end of the quarter. You continue to see other categories out there that have a mixed bag. Grocery is still let’s call it just north of flat. Just a little bit of inflation and that’s a big driving factor in it. The other one to keep out, to keep in mind as you think about inflation is pharmacy is a big inflationary area that I spoke of as well. The generic costs continue to go up.

I wouldn’t say there’s been change. The thing that’s probably the biggest difference is the leadership team at 84.51 is involved in every meeting now. And it’s things when you’re trying to make a decision on what you do, the folks who are around the table and they have great insights so you really having those insights as part of the decision at the front end rather than at the back end of the conversation

The wage pressures I would say aren’t really any different than what we spoke of in the first quarter. There continues to be some out there. We’re cognizant of trying to deliver the right overall package to our associates from a solid wage, a good healthcare package and a retirement plan as well. And we’re a little different than a lot of our competitors where we’re balancing all three of those for all of our associates.

it really appears to be much different than just economy based. When you talk to customers they are definitely interested in saving money. There is no doubt about that.

when we look at competition we always assume that competition’s going get more aggressive going forward than it’s been in the past. And we always find that if that doesn’t happen then life’s easier. It’s just the way we’ve years ago learned to do our business plan.

if you talk to people in the oil industry today, oil’s only going do one thing and that’s go down. When oil prices are going up and you talk to somebody in the oil industry, they’re only going do one thing and that’s go up forever.

Kroger 1Q15 Earnings Call Notes

Establishing in house technology/data capabilities

“I wanted to mention what I think is a great example of how we’re expanding our use of technology. Our recent decision to established 84.51° which replaced our previous joint venture, dunnhumbyUSA, 84.51° is helping us to continue to use data science for the benefit of our customers and to deliver a more personalized experience both in-store and online.'”

Some commodities up some down

“Some commodities are up, some are down. We are seeing deflation in milk, produce and seafood which is driving more tonnage volume. Milk is one of our most price-elastic categories that we have. When milk prices come down, people tend to buy a lot more. We’re at an advantage because we have a vertically integrated supply chain for milk. When our dairy plants run at higher volume, we become more efficient and productive. We continue to see inflation in generic pharmaceuticals and in certain commodities in the meat department.’

“Overall, inflation continued but at a lower rate during the first quarter which is in line with what we had expected.”

Invest in people even at entry levels

“Every day we hire people who come to Kroger for a job, then decide to stay for a career. In fact, two-thirds of our store managers today started as an hourly clerk stocking shelves or bagging groceries. We continue to increase our investment in training to build skills so our associates are ready for opportunities to advance and lead others.”

5.7% comps

“We were pleased with our first quarter identical supermarket sales growth of 5.7%. This strong performance was supported by identical supermarket sales growth in every department and every supermarket division. We continue to see outstanding double-digit identical sales growth in our natural foods department. Our meat, deli and pharmacy departments also posted strong identical supermarket sales growth.”

Inflation is pretty volatile right now

“just the volatility of inflation that’s out there, while we’ve seen some categories with deflation, we know that pharmacy inflation is actually as high as it’s been over the last several years in the first quarter. It’s right at double digits. And then a little bit of concern or thought process about the avian virus with the poultry flocks and how that might affect input costs later in the year and what’s going to happen with availability of those products.”

Still expecting 1-2% inflation

“We do expect to see some potential inflation out there in the poultry flocks as the avian flu issue hits. We don’t know what’s going to happen with all of the input ingredients that go into products from liquid eggs and how that might affect a lot of products that contain as an ingredient. So we think 1% to 2% is right. So far that’s what we’re seeing.”

Our to do list is longer than our done list

“hen you look at our culture overall, we’re always very proud of what we’ve accomplished. But at the same time, we feel like we have a tremendous opportunity to get better, and a lot of times we like to use the words that our to-do list is longer than our done list. And when you look at what’s out in front of us, we are incredibly excited about the opportunities that we see to continue to get better.’

Focus your efforts on the most important things

“The hardest thing that we have to do is actually make sure that we’re trying not to improve on all things at once, but what are the things that are most important to the customer and put all our resources against that.”

Analyst comment: some companies have noted a slowdown in dry grocery organic spending

“I know you said your Natural Organic department was up double digits. Did you see any changes at all? I think there are some other retailers that have said there was a bit of a slowdown, I think, primarily in the dry grocery side, but I don’t know. It doesn’t sound like you saw anything, but did you?”

I wouldn’t say there’s a shift away from speciality grocers, may just be a little slower share gain for them

“I’m not sure I 100% agree with your thesis when you look at some of the specialty retailers just because some of them have reported lower ID sales than what their trend has been, they continue to open stores, they have a little bit of cannibalization and a lot of them continue to post ID sales above what the market would be growing at. So I wouldn’t subscribe to the theory that they’re necessarily a sudden shift in market share away from them, it may be a slower growth in market share gain, but I wouldn’t say it’s a shift away from them.”

I wouldn’t be embarrassed if I were them

“if I we’re sitting in their chairs, I wouldn’t necessarily be embarrassed by some of the recent results they’ve had.”

We believe there will be continued consolidation in our industry

“we believe there will be continued consolidation in our industry, and we have every intention of being a consolidator in that consolidation of the industry. And as you know, we participated in several mergers over the last year and the last several years.”

We keep buying power available so that we can act when the right opportunity comes up

“we wouldn’t sit back and say Harris Teeter is behind us, we’ve delevered, let’s go spend another $2.5 billion, get it back up to 2.4 and work our way back down. It’s really quite the opposite. It’s one of the reasons we try to maintain the ratio where it is. If an opportunity does come up, can we take on the leverage of that correct unique opportunity, act on it, have the rating agencies continue to have the believability in us doing what we say, and that is we told them 18 months to 24 months we’d get our leverage back down?”