Q4 2020 Flowers Foods Inc Earnings Call

February 12, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the flowers foods fourth quarter and full year 2020 results conference call. At this time all participant lines are on a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press.

Star one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today J T Rieck SVP of finance and Investor Relations. Thank you. Please go ahead Sir.

Thank you operator, and good morning hope everyone had the opportunity opportunity to review our earnings release and presentation and also listen to our prepared remarks, all of which are available on our Investor Relations website. Following the conclusion of today's Q&A session. We will also post an audio replay of this call.

Please note that and this Q&A session. We may make forward looking statements about the company's performance. Although we believe these statements to be reasonable they are subject to risks and uncertainties that could cause actual results to differ materially.

And in addition to what you hear on these remarks important factors relating to flowers foods business fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the.

And of the slide presentation on our website.

Joining me today are rising on president and CEO and Steve Kinsey our CFO.

Cindy ready to start the Q&A. Please.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

And your first question comes from Bill Chappell with Truest Securities.

Thanks, Good morning.

Morning Bill.

Okay.

And kind of struck by.

In the prepared remarks, the commentary of the growth on Wonderbread.

I mean, almost as fast as Dave's killer bread for the year.

And so I'm just trying to understand I guess, a little more color around that because I.

I would think that I guess one.

Net growing faster and the nature zone would be a negative hit to price mix, but obviously you had very good price mix for us and the quarter and the year.

So is that just taking share from private label and your store brand sales and so that's really driving it is there anything else going on other than kind of.

Consumer migration up to a branded product EBITDA more similar price points and and how sustainable is kind of the wonder strength as we go into 'twenty and 'twenty one.

Sure Bill actually we're very pleased with the wonder growth most of that is going to be on the bond and roll side not as much on the bread side, which is exactly what we wanted to accomplish I mean as we've talked about for we were somewhat behind on R. R.

Our branded bun and roll growth because traditionally we had kind of a smattering of regional brands.

And the sunbeams other world things like that we needed to get aligned behind on National brand to run national programs with national retailers and Seth what we migrate into over the last few years.

So as some of the regional businesses has has fallen off intentionally.

<unk> been able to grow wonder wonder quite nicely. So again most of it is going to be on the on the bun and roll side and Thats quite intentional.

Okay.

That's helpful and then.

Are you seeing though in terms of a general with the store brands continuing to be weak.

Do you expect this migration up to more branded products to remain or are you seeing and pulling back of that a consumer is kind of going back to their traditional buying habits.

Not yet not yet and of course, that's one of the big questions for you are right and kind of goes back to looking at a potential mixed reversion and total but the private label trends that we saw in Q4.

Actually if you exclude the 50 <unk> week private label is actually a little bit worse sequentially in Q4 than it was and in Q3. So there's been no change in the and the trend yet.

And could see some of that later in the year, but obviously our focus is on is on Brian and growth.

Support and additional support behind brands like Wonder and Nature's on Ken and Dave and the rest of him as a key strategic priority for us.

Got it and then one last one Steve.

I think we're all.

Familiar that that when you hear major ERP implementation with packaged food company, it's not always a recipe for success.

Can you just help us understand where the systems are on that process as part of the transformation office.

And and.

What kind of what you kind of expect to see coming out of that once it is done.

Sure.

I guess historically I guess when you hear ERP initiative.

Upgrade.

Investors get a little smoother for the reality is I think over the past decade, or so you've seen most of these would be fairly successful.

We implemented back in 2000 and back.

Back in 2000, and so it's been about 20 years, and we haven't had or seen any major or significant upgrades within our system.

Currently we are on track to keep our.

The overarching ERP system and they are in the midst of and upgrade.

As for Hana so.

Basically and will be following in line with that.

And.

We are and the middle of selecting and implementation partner and after that point, we'll decide which modules move into a true upgrade.

But overall, we feel like with the transformation office.

And we have laid out will be very.

Mindful and cautious with the approach. So it's not like we are changing our ERP platform, it's really an upgrade and what we have currently have and.

Bill just to just to add to that we are pretty early and the process and they were as Steve said, we're just yes, just getting the ESI selected.

It's early days, but it's also important and you saw on the prepared remarks to remember that this is not solely on it project. This is this is a part of a broader digital strategy and.

And the best way that debt.

Thank you should think about it is that.

Particularly the ERP upgrade and the rest of the digital strategy or are really going to be key enablers to.

So the execution of our broader strategic plan, whether that's brand support or network optimization of plant upgrades.

To be quite Frank from a from an overall digital standpoint flowers is behind its peer group and frankly its competitors. So.

And this is something that we've needed to do for quite a while.

Obviously coming off of a very strong year, great cash flow is very strong earnings. This was this was a great time to make the investment.

And would we.

See the benefits this year or that's more more next year in terms of some of these efforts, yes, very little and.

Immaterial benefit this year the investments will come this year, the benefits will follow and 'twenty, two and beyond and it will be more specific about that later in the year as the business case comes into clearer focus.

Great. Thanks, so much.

Sure.

Your next question comes from Brian Holland from D. A Davidson.

Thanks, Good morning, everyone. Good morning.

And so I wanted to ask about the guide for 2021, I think Ralph on your prepared remarks, you made reference that the guidance is in line with the targets.

With your long term targets, if you use 2019 as the base so.

I guess I would think that this backdrop would be net favorable obviously was hugely favorable in 2020, obviously mean reversion coming in 2021, but you still have a quarter of.

Or at least two months here.

It should be.

And less what we have seen in the past several months.

And then even if we start to revert back we still are going to have this mix of more work from home it will be a progression towards herd immunity et cetera, so kind of with that as backdrop I mean is it as simple as.

On the commodity inflation and the investments in digital are going to be the offsets that keep us in line with algorithm.

As opposed to maybe staying above algorithm for another year or if we're going to use the 19 to 21 trajectory.

Or is there something else, we should be thinking about here in the way that you're forecasting out the year.

No no I think you're I think you're pretty much spot on the only thing I would say is maybe a slight correction is the very bottom end of the guidance would be slightly below algorithm.

Also remember you've got and estimated nickel of digital investment that we're making this year that does that does burn and that we're not adjusting for that but it is a factor to be considered but that $1 seven on the bottom and would be slightly below but.

And again, making the investments to enable us to be within or above algorithm over the longer term and so I'll say that first I think that the.

The factors for the year I think you've got all of those right not sure that I would put commodities at the top of that list I think top of mind for me are two things.

When and when does the mix reversion happen and to what extent does it happen right. How deep is that mix reverted back towards let's call. It 2019 levels.

I personally don't think it will go all the way back, but I do think that there will be some and the timing of that would impact ultimately where do you fall on the range. That's number one number two would be the promotional environment right now and the fourth quarter things remained stable.

I would say the same after five weeks into the into the new year, but but as we move through the year and things revert back to normal to what extent does the category start to promote more to retain.

And the gains of 2020.

I appreciate the color Ralph and if I could just follow up on that last point so.

Historically.

And I think about this category and I think about the backdrop for flowers foods intuitively. The logic has been in place and is is a net positive for flowers because you compete against at this port disproportionate number of independent bakers.

And maybe don't use as much for buying don't have and sophisticated and sophisticated hedging practice.

And so maybe have to be responsive to higher wheat costs right away.

Which gives you either have the flexibility to take pricing time and realize the higher spread or maybe.

Kind of continued to manage given your hedging and that maybe youre going to see that inflation a little bit later, you could be a little bit more promotional and you would take more share. So so either way you sort of already and a favorable position I guess, the inverse would be a little bit.

It would be true as well when we start to see deflation, but so I guess, maybe two things one is that and outdated logic.

As as it pertains to the setup and then two if.

It's not if it's still relevant and how do you think about managing that over the next 12 months as the focus on volume or is the focus on getting the price through and flowing that through to margins.

Yes, let me start on the Asti to weigh in here too no I don't think its outdated logic.

Hi.

But I also think it's perhaps not quite as meaningful as it once was given the industry consolidation I mean, theres just not as many.

And as there used to be right. So other influence is not quite as great. Though it is still there and I think everything you said was accurate I just don't think it's perhaps as impactful as it was a decade ago.

What I would also say is debt.

And we've seen this through throughout 2020 in particular that we.

We've been able to promote at a higher base price, we're getting more dollars left from our promotions and I attribute a great deal of that.

To the capabilities that we built from a price promotion standpoint that we that we did not have before and.

In short we are just a lot smarter about how we promote where we promote when we promote.

And we're able to get a better return on that and I also think.

And that the overall branded strategy really helps there too I mean, we're working with really strong.

Brands, as you know and and I think that.

And that goes a long way as well anything you want to add to that Brian We've stayed pretty true to our philosophy and strategy. That's work I would say, it's fairly well for us for most of my career so to Robert's point.

We take coverage and that six to nine month timeframe and obviously.

Some years that worked well for some years as you say.

And area and we may be call it but for the most part for 'twenty and 'twenty. One we feel good about the coverage we have on and off we will see inflation start to ramp somewhat and the <unk>.

And the second quarter, but then it really picks up and the back half.

And that's really dependent on how the.

The other crops come out so there.

While we expect pretty significant inflation back half and there may still be a few opportunities there.

Understood and.

Again and you are.

I appreciate your prepared remarks from from last evening.

The way in which we organized a lot of the initiatives and clearly you have a number going on.

Some may take a little bit longer and some may flow through.

Quicker and one that stands out for me I don't know if its my Philadelphia routes or maybe just some conversations I've had with you all offline.

And really curious about the navy yard and.

The underperforming snack cakes segment for you if we could just kind of walk through.

How quickly we think we can enhance the performance there.

With the new leadership, and maybe a tighter focus on that and kind of what the mechanics are.

Sure happy to do it on.

I'm pleased to report that we're already making good progress.

The changes that we've made putting David up there.

To oversee these efforts, particularly at the Navy yard and frankly the team that we have there at Navy yard.

They've really done they've really done a great job getting the operation on its way to turning around and we're not there yet.

But we're really starting to see some nice progress thought towards the end of the year and that's continued into this year.

We have pretty significant target set for them. This year that they are able to achieve and I have no reason to think they will not.

And as I've said before that will be a material benefit for the company as a whole not just the navy yard.

I think we've mentioned before we've.

Upgraded some equipment and that plant.

And put some capital dollars into it automated some of the lines, particularly on the on the.

On the GAAP on the packaging and install some robotics that has helped a lot to bring.

And the scrap breaks down which was on.

A major issue there and a large source of the on.

The financial difficulty they were having.

So we are definitely on the raw and the path to recovery, we're not there yet, but we expect to see significant improvement there. This year I'd also mentioned.

Not just doing things from an operational standpoint.

Talking specifically about Navy yard and tasty now.

But we're also doing things all things on the commercial side simplify and the operations we are doing SKU rat.

We're focusing on.

Focusing on price and promotion and make sure we have all that right and we're getting the required returns. So it's a combination of that.

Combination effort on both operational improvements and commercial improvements.

And I appreciate all the color. Thank you sure.

Your next question comes from Rob Dickerson with Jefferies.

Great. Thanks, good morning.

Thank you.

Yes.

A question on M&A thoughts.

From here, obviously it sounds like you have a few moving pieces alright occurring this year.

And going through a larger optimization plan and ERP strategy Capex is up.

Like you said routes and a.

A year and a great cash position.

I think the best ever.

Leverage seems to be fairly well contained.

And then also your EPS target I think long run.

Relative to sales and EBITDA target does include some M&A.

Right. So would you say hey, given this and the deep deemed it kind of more of a transition year and kind of where the focus is internally that.

You may not be and spot right now to be aggressively pursuing.

Healthy pipeline of acquisitions.

Or.

The same time could you potentially have an orientation still yeah with.

With acquisitions, while you're implementing the other pieces of the strategy. That's just the first question.

Sure Rob and.

Short short answer I, absolutely think we can still be active there.

I think that particularly.

Now that we have the transformation office set up and with the government governance protocols that we have in place to oversee all the strategic initiatives that we're in a better position to be able to flex. So even if we have to pause something for a moment in order to I mean M&A.

M&A opportunities come and you've got to kind of strike while the iron is hot right. The timing is not necessarily always on your choosing.

But I think we would have I think we would have plenty of flexibility to.

Turning our attention to and M&A opportunity should should that arise.

Pretty excited about this year from an M&A standpoint, I mean, we are starting to see things.

Again to heat up again sort of post post crisis, if you will.

A lot of things coming to market and a lot of rumblings about things to come to come down the road. So the pipeline remains good.

We will remain pretty disciplined about how we approach this but the.

And the opportunity seemed like they're starting to pick back up again.

Okay, Great and then just quickly.

And pardon me if somebody else for that unfortunately.

Unfortunately to hop on late.

And the prepared remarks and yesterday, there's a line and there the state.

And kind of there are optimization savings of 30 to 40 million and it seems like that's kind of more front half loaded and the year.

So maybe if you would suggest yes.

And that's probably for you, Steve just kind of walk through why.

And there wouldn't be incremental optimization savings and the back half of the year. That's one and then two is can there be upside from those optimization savings to hopefully potentially partially offset some of the promotional and.

And just overall cost inflation and risk later in the year.

Sure.

Are some benefits for the back half, it's just that the majority of them are coming and the first half and Rob This is basically.

A continuation of the portfolio optimization savings, we got in the back half of last year.

All of the same initiatives on overhead and procurement and all of those all those things we talked about last year.

Just start to lap them and the second half of the year and we just want the benefit is not as great.

Sorry, and if I could just slide and real one quick last one is just on kind of where you're seeing the mix and the business go.

Throughout the past whatever 10 months.

And as it were there any kind of broad learnings that would make you rethink where you want to play.

Debt.

And we still want and have the capacity come back on some of that foodservice business and some of the private label business.

But if it all didn't come back with that necessarily be a bad thing for flowers, just given what we've seen has happened with pricing and mix and margin.

Not necessarily no.

And as we've said there is there are certainly pieces of our foodservice business that we really like.

And then there are some parts that are that are underperforming and we're working to get those up to up to snuff.

But I think the key learning from 2020 is the power of mix and Rob as we've talked about.

This was our strategy going into 2020, focusing on focusing on brands and trying to get a higher a higher mix of branded products and the portfolio, both organically and and.

And future M&A deal.

2020, just really exaggerated that and a very.

Free meaningful way, but I think for us the most powerful thing it did throughout the organization was demonstrate that power of mix to everybody for me all the way down through the organization because yes.

And were older company, you've got we've got a lot of long tenured employees and there was a certain way of thinking here.

And that kind of emphasize volume over value instead of the other way around this really proved to everybody again for me to the independent distributor partners to the folks for plants that mix matters, and and you don't need all of that volume if you're if you're.

Yes, if youre mixes is positive.

Okay perfect. Thank you.

Your next question comes from Fraser with.

With Deutsche Bank.

Hi, good morning, Thank you.

And I was wondering I guess, a little bit of for follow up for the last question on specifically on DTD and Canyon.

It strikes me that those are sort of more longer term growth drivers.

And I was wondering how you were thinking about those two brands relative to the rest of the branded portfolio and is there a scenario where maybe this year. Those two brands can continue to grow while you do see mix reversion on the rest of the portfolio. So just more color on how you were thinking about.

And the branded portfolio and the C R.

Sure.

And it shouldnt come as surprise, a surprised that <unk> and canyon are obviously.

Big Big.

Big beneficiary beneficiaries of our of our focused they do continue to grow at a rapid rate, obviously canyon's, a lot smaller being and a smaller category.

Happy to report <unk> is.

And now over $800 million brand at retail.

And we just bought them back in 2015. So the growth has just been has been extraordinary but I'll say it again.

Dk B's.

Household penetration is half of nature zones still.

So there is a tremendous amount of room for continued to grow that awareness and as we grow that awareness not only do we grow the dk rebrand with the product portfolio. We have today, but it also gives us a right to expand that product portfolio into potentially even adjacent categories.

The runway for growth for Daves is tremendous.

We think that of Canyon, though it is a smaller piece of the pie I think canyon was around $120 million and retail J D and this year.

And great growth from them too, but just on a smaller scale, but I think there's plenty of opportunity to continue to grow in the and the gluten free category as well.

Kenyans basically doubled its share of the gluten free bread category until around 30 for share I think at last look and of course, DKK 68 share of the organic bread category. So.

And we're in a.

<unk> position of strength, so it's incumbent upon us to capitalize on that.

Yeah.

And I guess as it relates to M&A focus has anything you seem pretty excited about the potential opportunities can you talk about and what would get you. Most excited I know at one point you'd laid out certain categories that you would want to be and is it sort of brands that are maybe similar to <unk>.

Candy Candy and but I'm wondering what type of opportunities would you be most excited about.

Sure.

And obviously can't comment specifically on brands, but what I will say is we would be looking for things that look one fit strategically and culturally and we're always bearing that in mind and obviously the numbers have to work. So you have to has to fit financially but beyond that.

We are looking for.

And for brands that are growing we are looking for brands that can be complementary to our existing portfolio and help us grow the overall business and obviously, we're what we're looking for assets that can be margin accretive even if they're not at the outset can they be and is there a good plan for them to be on the long term as they as they scale up and growth.

We have the ability to distribute both DSD and warehouse so were not just limited to DSD.

And though that is the bulk of our business.

Warehouse models are certainly certainly no no issue for us it's really about does it fit for nationally does it fit operationally does it fit culturally and other complement the brand portfolio.

Great and then just last question for Steve I know you.

We've talked a little bit about concentration is there a way to quantify that and how youre thinking about the inflation and the back half sort of what's embedded in your guidance and are there sort of any offsets that you are embedding beyond the portfolio optimization savings.

I mean, we would not give specifics, but when you look at kind of what's happening within the wheat market, which primarily.

No impacts flowers, which obviously is our largest input cost.

That's where we're seeing the most inflation.

And historically, when you've had inflation with commodities and <unk> seen some pricing power.

So we would we would hope to be able to mitigate continues to.

On the trajectory, we're seeing now we would hope to be able to mitigate some of that through pricing.

Also as Ralph mentioned, we still have optimization efforts going on.

And we're looking at litigation and maybe on other.

And with input costs.

But the reality is it looks right now like most of that inflation on hold and the back half.

Okay. Thank you so much thank.

Thank you.

Your next question comes from Tim <unk> with Stephens.

Good morning, Tim for the question guys. Good morning.

And so I just wanted to touch on guidance for just how are you thinking about the cadence of the return to normal how should we think about that impact on sales trends and then how should we think about the contribution of volume and price mix to your top line sales guidance.

So let me, let me start with the cadence and I'll, let Steve talk to talk to the mix.

Yes look it's a hard thing to forecast as we all know.

But generally speaking.

And what we've seen so far and the year has been fairly similar and what we saw and the fourth quarter there have not been any major changes yet.

However, as you start to approach.

Round week 11, or so for us that's when the difficult comps start against the yen.

The initial surge and demand I think the real question is at what point do you get really broad vaccination rollout.

One thing that's come out and last week, as Johnson, and Johnson and getting the.

Emergency order for their for their doses, which would take it up I think for around $600 million.

Doses, which would pretty much do it right.

But how fast is that how fast does that get rolled out and at what point do you kind of reach that herd immunity the latest things and operating suggest that Q3 Q4.

Herd immunity when you reach that.

But between now and then how quickly do things go back to normal and then the follow up question is what is normal.

Does the new normal look like as a full reversion.

Or is it something less than a full reversion. So we think that things should trend.

Around the same for the first quarter or so and then start to start to taper back and.

And the three quarters that follow so that's that's pretty much what we've built into our into our guidance model.

But obviously that's.

And Thats an educated.

<unk> forecast and not non stop and we'll just have to we'll have to see how it shakes out and I wish I wish I knew for sure, but frankly, none of US do so Steve do you want to talk to the mix.

Yes.

Basically as Ralph said from a reversion and mix perspective.

Mix has been a strong contributor in 2020.

And that starts to wane somewhat.

And we returned to more normalcy.

And that will drive and impact overall margin and.

And what are the kind of the cadence of the guidance is for all said that.

It really begins to happen in Q2 and moving into the back half but.

It's kind of a jump ball.

If we continue to see a lot of and home.

Peter and continue that.

<unk> been very very favorable to the mix, but if you see a lot of confidence and consumer to start.

About again and dining out and obviously that will drop.

Mixed reversion back to something pre 2020.

And just to add one more thing to that Tim I mean, the midpoint of our the midpoint of our guidance is above algorithm and as we've said even that midpoint is burdened by our digital investments and we're making this year. So obviously.

We're pretty confident and the plans that we have for the year out the bottom end of the guidance that wouldn't be just on.

Our mix reversion.

<unk>.

We're being a little bit perhaps cautious coming out of the gate just because of the lack of visibility.

But what would get you to the bottom end of the guidance would be.

All of these factors coming together much higher promotional environment and commodities are pretty deep mix for version, but yes. The mid to the top of the guidance, obviously reflects our continuing confidence and the strategy and business.

Okay. That's helpful and I just wanted to touch on a bigger picture question here.

And we're the biggest lessons that you've learned over the past year and do you think there is anything structural that you think might make flowers as stronger company coming out of the Covid environment.

Yeah I do.

Interesting question and I.

We've already done a lot of it I mean, we've as you know we've reorganized.

We created the Chief brand officer position, we've got a new innovation function and we have the transformation office now we've hired a new supply chain officer.

He has hired a new procurement all source I think we've done a lot of the organizational structure things that we need to do and I feel really good about the team that we have in place.

As I say all the time I think we've got the best team and the industry and I think with the changes that we've made were even stronger.

As I mentioned earlier I do think that this demonstration of the power mix and our business is one on the most powerful things that's happened for the company over the last several years.

It's been a it's been a learning opportunity for the company. It's allowed us to change the mindset of of R. R.

Not only the management team, but the broader organization that focusing on brands and following our portfolio strategy.

Is the right way to go for the long term and I think we can continue to build on that.

Alright, Thanks, guys I'll pass it along.

Your next question comes from Mitch Pinheiro with Stephens, Inc.

And Mitch.

Okay. One question just on.

For two questions perhaps.

Store brands.

Does this per berth.

In 'twenty, one are we going to see store brands take share or.

Retailers' store.

And I've learned a good lesson.

During the pandemic debt private label just devalues the cash.

Category.

Yes.

It'll be interesting to watch and how that unfolds, what I would say matches that private label was in and our category at least was in decline prior to the pandemic the pandemic and accelerate that.

But we were kind of seeing these trends even even prior to <unk>.

2020.

Yes.

Yeah.

The retailers if I were the CEO for retailer I wouldn't want to give the consumer what they want.

And consumers are obviously looking for brands.

Theyre looking forward on the shelf the physical shelf theyre looking for it on the digital shelf and that's where our focus is so.

Again, I can't speak to what the retailers might might be thinking, but but if I was running one of them I wouldn't want to give consumers what they are asking for.

Okay and.

Second question is and.

And just sort of.

You're calling off the higher promotions on where the potential for higher promotional environment in the back cash.

And now haven't seen it.

And why would it be a risk.

Good.

And especially in light of maybe higher commodity costs why would.

Is this something that you are anticipating or is it just calling out a typical risks for any packaged foods company.

Yes, I think it's more of the latter and certainly we've heard on other food companies talk about it and some even talk about how they plan to be more promotional this year to keep the share of the gain through the pandemic. So I think it's just a watch out youre right, we havent seen it yet, but but it's just a risk that we have to take into account should things very quickly revert back to normal how much more promotional does.

The category overall get.

And to retain that share.

And to what extent do we have to participate on that.

Okay.

And I can match.

Your next question comes from Ryan Bell with consumer edge research.

And Ron.

Good morning, everyone.

Probably not the core focus right now, but could you talk about.

Foodservice business and your expectations for recovery over the course of the year.

Sure I think I think that foodservice recovery largely follows the question around.

And what normalization and looks like.

And what extent our restaurants open backup New York, New York, starting to slowly open back up but at a very low occupancy level.

And so it really depends on what that trajectory and looks like.

Brian the fast foods side of the business has performed pretty well actually I mean, it's been it's been up a little bit it's really still that broad line and sit down and fast casual type business that debt remains under pressure.

If you look at the if you look at the fourth quarter again, excluding the 50 <unk> week foodservice non retail and other for us but that includes the foodservice business primarily.

And was slightly better.

But no no meaningful recovery yet.

So I think yes.

If you were to pin me down on I would say you'd probably start to see some some maybe more meaningful recovery and the foodservice business towards the back half of the year as opposed to I think the front half will tend to be.

More of the same.

Thanks, that's helpful and on the innovation front is there anything that you would have in mind to help for team from consumers I mean, if youre spending more time at home it's.

And it's easier to justify having a whole loaf bread.

Versus if youre going to be having more time at the office.

What that would mean, so I mean, maybe innovations such as like half of flow.

Any emphasis behind that or anything else that and maybe you learned.

And you might want to focus on more coming out of dependent.

Yes, it's a great question I don't want to be too specific for for obvious reasons, but suffice it to say that we have a.

Pretty significant amount of innovation coming this year.

And our innovation last year contributed some $60 million to the top line. So we've been very very pleased with those efforts I think yes.

The way that we've restructured and the resources, we put behind innovation will continue to deliver and and hopefully at a faster rate going forward.

Okay. That's helpful and I think the last one for me could you talk about your expectation.

And the labor market and workforce costs and 2021.

And some of the frontline costs that you've had debt and associated with Covid.

And does that just go away once on.

And you have the majority of the workforce vaccinated.

Should we think about that.

I'm not sure that some of the cost and safety protocols are going to go away from a long time for a long time.

Despite everyone being vaccinated you've got these other variants that are going around there is probably going to be more of them. As we go down as we go down the road. So I personally think that we're going to be living with this and one way or another for for quite a long time.

What will help though.

<unk> is free.

And at this way the biggest issue for us from a labor standpoint in 2020 was.

The number of people that were out either because they had contracted COVID-19 or because they had come in close contact and we were following our our safety protocols and obviously that debt disrupt operations and your efficiencies or lower I mean, despite our performance in 2020.

And the plants been able to operate at the efficiency levels that we're capable of it would've been a lot it would've been even better significantly better.

But you just you just had you had so many people out so I am looking for to that calming down as a matter of fact, we've already seen it called out our experience and flowers kind of follows the national trends. The case counts are coming down everything so things are already beginning to normalize we haven't really seen like pure wage inflation.

But it's been more of the resulting inefficiencies from folks being out.

Perfect. Thank you.

Good day.

Thank you for you too.

I'm showing no further questions at this time I would now like to turn the conference back to Ryans Mcmiller for closing remarks.

Thank you very much Sidney just wanted to thank everybody for their interest and flowers and we look forward to speaking with you again next quarter take care.

Ladies and gentlemen, this does conclude today's conference call you may now disconnect and thank you for your participation.

[music].

And one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today J T Rieck SVP of finance and Investor Relations. Thank you. Please go ahead Sir.

Thank you operator, and good morning hope everyone had the opportunity for <unk>.

To review our earnings release and presentation and also listened to our prepared remarks, all of which are available on our investor Relations website.

Following the conclusion of today's Q&A session. We will also post an audio replay of this call.

And in addition to what you hear on these remarks important factors relating to flowers foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the.

And on the slide presentation on our website.

Joining me today are rising on president and CEO and Steve Kinsey our CFO.

Cindy for ready to start the Q&A. Please.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

And your first question comes from Bill Chappell with Trust Securities.

Thanks, and good morning.

Morning Bill.

Okay.

And kind of struck by.

In the in the prepared remarks for the commentary of the the growth on Wonderbread.

I mean, almost as fast as Dave's killer bread for the year.

And so I'm just trying to understand I guess, a little more color around that because I.

I would think that I guess one day.

Net growing faster and the nature zone would be a negative hit to price mix, but obviously you had very good price makes us and the quarter and the year. So is that just taking share from private label and your store brand sales and so that's really driving it is there anything else going on and other than kind of a consumer migration up to eight <unk>.

And did product EBITDA more similar price points, and you know and how sustainable is kind of the wonder strength as we go into 2021.

Sure Bill and actually we're very pleased with the wonder growth most of that is going to be on the bond and roll side not as much on the Brent side, which is exactly what we want to accomplish I mean, as we've talked about before we were somewhat behind on R. R.

Our branded bun and roll growth because traditionally we had kind of a smattering of regional brands.

And the sudden names of the world things like that we needed to get aligned behind on National brand to run national programs with national retailers and so that's what we migrate into over the last few years.

And so as I read some of the regional businesses has has fallen off intentionally.

And we've been able to grow wonder wonder quite nicely. So again most of it is going to be on the on and bought and roll side and Thats quite intentional.

Okay. That's that's helpful and then.

Are you seeing though I mean and in terms of a general with the store brand continuing to be weak.

Do you expect this migration up to more branded products to remain or are you seeing any pulling back of bad of consumers kind of going back to their traditional buying habits.

Not yet not yet and of course, that's one of the big questions for the year right and kind of goes back to the sort of looking at and potential mix reversion and total but the private label trends that we saw in Q4.

Actually if you exclude the 50 <unk> week private label was actually a little bit worse sequentially in Q4 than it was and in Q3, and so there's been no change and the and the trends yet.

Could see some of that later in the year, but obviously our focus is on is on Brian and for us.

Putting support additional support behind brands, like Wonder and nature's own and Dave's and the rest of them is as a key strategic priority for us.

Got it and then one last one Steve.

I think we're all.

Familiar that the day when you hear major ERP implementation with packaged food company, it's not always a recipe for success. So I mean can you just help us understand where the systems are with that process as part of the transformation office and and what kind of what you're kind of it.

To see coming out of that once it's done.

Sure.

And I guess historically I guess when you hear ERP initiative.

Great and you invest.

<unk> got almost foods for the reality is I think over the past debt.

And so you've seen most of these would be fairly successful.

We implemented SAP and pay back and 'twenty.

Back in 2000, and so it's been about 20 years, and we haven't had or seen any major or significant upgrades within our system.

Currently we're on track to keep our own.

The overarching ERP system and they are in the midst of and upgrade.

As for our hottest so.

Basically and we will be following in line with that.

And.

Yes, we are and the middle of selecting and implementation partner and after that point, we'll decide which modules move into a true upgrade.

But overall, we feel like and what the transformation office and the plan we have laid out will be very.

Mindful and cautious with the approach so it's not like we're changing our ERP platform and it's really an upgrade and what we have currently have and.

Bill just to just to add to that we we are pretty early and the process and they were as Steve said, we're just yes, just getting the FY selected so it's early days, but it's also important and you saw on the prepared remarks to remember.

This is not solely and it project. This is this is about a part of a broader digital strategy and the best way that I think you should think about it is debt.

And particularly the ERP upgrade and the rest of the digital strategy here and really going to be key enablers to.

So the execution of our broader strategic plan for that brand support or network optimization of plant upgrades.

To be quite Frank from a from an overall digital standpoint flowers is behind its peer group and frankly its competitor. So this is something that we've needed to do for quite a while on.

Obviously coming off of a very strong year, yes, great cash flow is very strong earnings. Yes. This was this was a great time to make the investment.

No I get it and.

We see the benefits this year or that's more more next year in terms on some of these efforts.

Very little and.

Immaterial benefit this year the investments will come this year, the benefits will follow and 'twenty, two and beyond and we'll be more specific about that later in the year as the business case comes into clearer focus.

Great. Thanks, so much.

Sure.

Your next question comes from Brian Holland from D. A Davidson.

And Brian Thanks, Good morning, everyone. Good morning.

So I wanted to ask about the guide for 2021.

Zinc Rouse and your prepared remarks, you made reference that the guidance is in line with the targets.

And with your long term targets, if you use 2019 as the base so.

I guess I would think the debt. This backdrop would be net favorable obviously was hugely favorable in 2020, obviously mean reversion coming in 2021, but you still have a quarter of.

Or at least two months here of what should be a.

More or less what we've seen in the past several months.

And the commodity inflation and the investments in digital.

Are going to be the offsets that keep us in line with algorithm.

As opposed to maybe staying above algorithm for another year or if we're going to use the 19 to 21 trajectory.

Or is there something else, we should be thinking about here in the way that you're forecasting out the year.

No no I think you're I think you're pretty much spot on the only thing I would say is maybe a slight correction is the very bottom end of the guidance would be slightly below algorithm.

Also remember you've got and estimated nickel.

And we'll investment that we're making this year and that does that does burnout and we're not adjusting for that but it is a factor to be considered but that $1 seven on the bottom and would be slightly below but again, making the investments to enable us to be within or above algorithm over the longer term.

And I'll say that first I think.

The factors for the year I think you got all of those right not sure that I would put commodities at the top of that list I think top of mind for me are two things.

When and when does the mix reversion happen and to what extent does it happen right. How deep is that mix reverted back towards let's call. It 2019 levels.

I don't think it will go all the way back, but I do think that there will be some and the timing of that would impact ultimately where you fall on the range. That's number one number two would be the promotional environment right now and the fourth quarter things remained stable.

I would say the same after five weeks into the into the new year, but but as we move through the year and things revert back to normal to what extent does the category.

To promote more to retain the gains.

And the gains of 2020.

I appreciate the color Ralph and if I could just follow up on that last point so.

Historically.

When I think about this category and I think about the backdrop for flowers foods intuitively. The logic has been inflation is is a net positive for flowers because you compete against at this port a disproportionate number of independent Bakers, who maybe don't.

And use as much for buying don't have as sophisticated hedging and sophisticated hedging practice.

So maybe you have to be responsive to higher wheat costs right away.

Which gives you either have the flexibility to take pricing time and realize the higher spread or maybe.

Kind of continuing to manage given your hedging and that maybe youre going to see that inflation a little bit later, you could be a little bit more promotional and you would take more share. So so either way you sort of are and a favorable position I guess, the inverse would be a little bit.

And it would be true as well with when we start to see deflation, but so I guess, maybe two things one is that and outdated logic.

As as it pertains to the setup and then to <unk>.

And it's not if it's still relevant and how do you think about managing that over the next 12 months is to focus on volume or is the focus on getting the price through and flowing that through to margins.

Yes, let me start and I may ask each way and here too no I don't think its outdated logic.

Hi.

But I also think it's perhaps not quite as meaningful as it once was given the industry consolidation I mean, theres just not as many as there used to be right. So other influences not quite as great. Though it is still there and I think everything you said was accurate I just don't think it's perhaps as impactful as it was a decade ago.

What I would also say is debt and.

And we've seen this through throughout 2020 and in particular that we.

And we've been able to promote at a higher base price, we're getting more dollars left from our promotions and I attribute a great deal of that.

To the capabilities that we built from a price promotion standpoint that we that we did not have before and.

In short we are just a lot smarter about how we promote where we promote when we promote.

And we're able to get a better return on that and I also think.

The overall brand and strategy really helps there too I mean, we're working with really strong.

Brands as you know and and I think that that goes a long way as well anything you want to add to for that Brian We've stayed pretty true to our philosophy and strategy doesn't work I would say, it's fairly well for us for most of our career so to Robert's point, we've we take coverage and that six to nine months.

Timeframe and obviously.

Some years that works well for some years as you say be deflationary and we may be call it but for the most far for 'twenty and 'twenty. One we felt better about the coverage we have on and off we will see inflation start to ramp somewhat and the late in the second quarter, but then it really picks up and the back half.

And that's really dependent on how the how the crops come out and so they are.

While we expect pretty significant inflation and back half and there may still be a few opportunities there.

Understood and.

Again and you are.

I appreciate your prepared remarks from from last evening.

The way and what you organized a lot of the initiatives and clearly you have a number going on.

Some may take a little bit longer and some may flow through.

Quicker one that stands out for me I don't know if its my Philadelphia routes or maybe just some conversations I've had with you all offline, but really curious about the navy yard and the.

Underperforming snack cake segment for you if we could just kind of walk through.

How quickly we think we can enhance the performance there.

With the new leadership, and maybe a tighter focus on that and kind of what the mechanics are.

Sure happy to do it well and I'm pleased to report and we're already making good progress I mean the.

The changes that we've made putting David up there.

To oversee these efforts, particularly the navy yard and frankly the team we have there at Navy yard.

You've really done and they've really done a great job getting the operation on its way to turning around we're not there yet.

But we're really starting to see some nice progress on towards the end of the year and that's continued into this year.

We have pretty significant target set for them. This year that they are able to achieve and I have no reason to think they will not.

And as I've said before that will be a material benefit for the company as a whole not just 90 yard.

We've mentioned before we've.

We've upgraded some equipment and that plant.

Put some capital dollars into it automated some of the lines, particularly on the on the.

The GAAP on the packaging and installs and robotics that has helped a lot to bring.

And the scrap rates down which was.

A major issue there and a large source of the Allen.

The financial difficulty they were having.

So we're definitely on the raw and the path to recovery, we're not there yet, but we expect to see significant improvement. There. This year I'd also mentioned that we're not just doing things from an operational standpoint.

Talking specifically about navy yard and and tasty now.

But we're also doing things all things on the commercial side and simplifying the operations, we are doing SKU rat.

We're focusing on for.

And on price and promotion and make sure we have all that right and we're getting the required returns. So it's a combination of a.

A combination effort on both operational improvements and commercial improvements.

I appreciate all the color. Thank you.

Sure.

Your next question comes from Rob Dickerson with Jefferies.

Great. Thanks, and good morning, Thank you.

Yes.

Kind of.

Question on M&A and stock.

And here you know obviously it sounds like you have a few moving pieces alright occurring this year.

And going through a larger optimization plan and ERP strategy and Capex is up.

But like you said route at the end of the year and a great cash position.

I think the best ever.

Leverage seems to be fairly well contained.

And then also your EPS target I think long run.

Relative to sales and EBITDA target does include some M&A right. So would you say hey, given this evening day kind.

And a more of a transition year and kind of where the focus is internally that you.

You may not be and and at spot right now to be aggressively pursuing.

On a healthy pipeline of acquisitions.

For the <unk>.

Same time could you potentially have an organization still yeah yep.

With acquisitions, while you're implementing the other pieces of the strategy Thats just for.

First question. Thanks.

Sure Rob and.

Short short answer I, absolutely think we can still be active there.

I think that particularly.

Now that we have the transformation office set up and with the government governance protocols that we have in place to oversee all of these strategic initiatives that were and are better positioned to be able to flex. So even if we have to pause something for a moment in order to I mean M&A.

M&A opportunities come and you've got to kind of strike while the iron is hot right. The timing is not necessarily always of your choosing.

But I think we would have I think we would have plenty of flexibility to.

And on our attention to and M&A opportunity should should that arise and I'm actually pretty excited about this year from an M&A standpoint, I mean, we are starting to see things.

And the heat up again sort of post post crisis, if you will.

On a lot of things coming to market and a lot of rumblings about things to come to come down the road. So the pipeline remains good.

We will remain pretty disciplined about how we approach this but.

And the opportunity seem like they're starting to pick back up again.

Okay, Great and then.

Just quickly.

And pardon me if somebody else for that.

Fortunately to hop on late.

And the prepared remarks, and yesterday right, there's a line and there.

Kind of yes, there are optimization savings of 30 to 40 million and it seems like that's kind of more front half loaded and the year.

And so maybe if you would suggest it's probably for you Steve just kind of walk through why.

It wouldn't be incremental optimization savings and the back half of the year. That's one and then two is can there be upside from those optimization savings to hopefully potentially partially offset some of the promotional and.

And just overall cost inflation risks later on the year.

Sure.

Some benefits for the back half, it's just that the majority of them are coming and the first half and Rob This is basically.

On a continuation of the portfolio optimization savings, we got in the back half of last year.

All the same initiatives on overhead and procurement and all of those all those things we talked about last year, we just start to lap them and the second half of the year and we just want the benefit is not as great.

And so I could just slide and real one quick last one is just on kind of where you're seeing the mix for the business go.

Yeah, it's about in the past whatever 10 months.

Was it were there any kind of broad learnings that would make you rethink where you want to play.

Debt, assuming we still want and have the capacity come back on some of that foodservice business and some of the private label business.

But if it all didn't come back would that necessarily be a bad thing for flowers, just given what we've seen has happened with price and mix and margin.

Not necessarily no.

And as we've said there is there are certainly pieces of our foodservice business that we really like.

And then there are some parts that are that are underperforming and we're working to get those up to up to snuff.

But I think the key learning from 2020 is the power of mix and Rob as we've talked about.

This was our strategy going into 2020, focusing on focusing on brands and trying to get on a higher a higher mix of branded products and the portfolio, both organically and <unk> and <unk>.

Future M&A deal.

2020, just really exaggerated that.

And a very meaningful way, but I think for us the most powerful thing it did throughout the organization was demonstrate that power of mix to everybody for me all the way down through the organization because yes.

We are older company, you've got we've got a lot of long tenured employees and there was a certain way of thinking here.

That kind of emphasize volume over value instead of on the other way around this really proved to everybody and again for me to the independent distributor partners to the folks on the plants that mix matters and and you don't need all of that volume if you're if you're.

Yes, if youre mixes is positive.

Okay perfect. Thank you.

Your next question comes from Fraser alloy with.

And with Deutsche Bank.

Hi, Hi, good morning, Thank you.

And I was wondering I guess, a little bit of a follow up for the last question on.

But specifically on DTD and Canyon.

It strikes me that those are sort of more longer term growth drivers.

This isn't the branded portfolio and the C R.

Sure.

And it shouldnt come as surprise and surprised at <unk> and Canyon are obviously.

Big Big.

Big beneficiary beneficiaries of our of our focus they do continue to grow at a rapid rate, obviously canyon's, a lot smaller being and a smaller category.

Happy to report Dk and <unk>.

Now over and $800 million brand at retail.

And we just bought them back in 2015. So the growth has just been has been extraordinary but I'll say again.

Dk B's.

Household penetration is half of nature zone still.

So there is a tremendous amount of room for continued to grow that awareness and as we grow that awareness not only do we grow the dk rebrand with the product portfolio. We have today, but it also gives us the right to expand that product portfolio and to potentially even adjacent categories.

And the runway for growth for Daves is tremendous a similarly think that canyon, though and as a smaller piece of the pie I think canyon was around $120 million and retail J D and this year.

And so great growth from them too, but just on a smaller scale, but I think there is there is plenty of opportunity to continue to grow in the and the gluten free category as well.

And <unk> canyons basically doubled its share.

The gluten free bread category until around a 30 for share I think at last look and of course, DKK 68 share of the organic bread category. So.

We're in a.

A significant position of strength, so it's incumbent upon us to capitalize on that.

Yeah.

And.

I guess as it relates to M&A focus has anything you seem pretty excited about the potential opportunities can you talk about and what would get you. Most excited I know at one point you'd laid out certain categories that you would want to be and if there's other brands that are maybe.

Similar to the Candy candy and sort of what are you what type of opportunities would you be most excited about.

Sure.

And obviously can't comment specifically on brands, but what I, what I will say is we would be looking for things that look one fit strategically and culturally and we're always bearing that in mind and obviously the numbers have to work. So you have to ask the financially but beyond that yes.

We are looking for.

And for brands that are growing we are looking for brands that can be complementary to our existing portfolio and help us grow the overall business and obviously, what we're looking for assets that can be margin accretive even if they're not at the outset 10 day be and is there a good plan for them to be on the long term as they as they scale up and growth.

We have the ability to distribute both DSD and warehouse so were not just limited to DSD.

And though that is the bulk of our business.

Warehouse models are certainly certainly no no issue for us it's really about does it fit for nationally does it fit operationally does it fit culturally and other complement the brand portfolio.

Great and then just last question for Steve.

We've talked a little bit about cost inflation is there a way to quantify that and how youre thinking about the inflation and the back half sort of what's embedded in your guidance and are there sort of any offsets that you're embedding beyond the portfolio optimization savings.

I mean, we would not give specifics, but when you look at kind of what's happening within the wheat market, which primarily.

No impacts flowers, which obviously is our largest input cost.

And that's where we're seeing the most inflation.

And historically, when you've had inflation with commodities and <unk> seen some pricing power.

So we would we would hope to be able to mitigate if it continues to.

And on the trajectory, we're seeing now we would hope to be able to mitigate some of that through pricing.

Also as Ralph mentioned, we still have optimization efforts going on.

We're looking at litigation and maybe on other offsets with input costs.

But the reality is it looks right now like most of that inflation has been on hold and the back half.

Okay. Thank you so much thank.

Thank you.

Your next question comes from Tim <unk> with Stephens.

For example, the question guys.

So I just wanted to touch on guidance for just how are you thinking about the cadence of the return to normal how should we think about that impact on sales trends and then how should we think about the contribution of volume and price mix to your top line sales guidance.

So let me, let me start with the cadence and I'll, let Steve talk to talk to the mix.

Yeah look it's a hard thing and the forecast as we all know.

But generally speaking.

And what we've seen so far and the year has been fairly summer and what we saw and the fourth quarter there have not been any major changes yet.

However, as you start to approach.

Round week 11, or so for us that's when the difficult comps start against the current.

The initial surge and demand I think the real question is at what point do you get really broad vaccination rollout.

One thing that has come out and last week, as Johnson, and Johnson and get into the <unk>.

Emergency order for their for their doses, which would take it up I think to around 600 million doses, which would pretty much do it right.

And how fast is that how fast does that get rolled out and at what point do you kind of reached that herd immunity.

<unk> things and operating suggest that Q3 Q4.

Herd immunity when you reach that.

Between now and then how quickly do things go back to normal and then the follow up question is what is normal what does the new normal look like as a full reversion or is it something less than a full reversion. So we think that things should trend.

Around the same for the first quarter or so and then start to start to taper back on the.

And the and the three quarters that follow so that's that's pretty much what we built into our into our guidance model.

But obviously.

Thats an educated and.

<unk> forecast and not not set in stone and we'll just have to we'll have to see how it shakes out I wish I wish I knew for sure, but frankly, none of us do so.

Steve do you want to talk to the mix.

Yes, I mean, basically as Ralph said from a reversion and mix perspective.

And mix has been a strong contributor in 2020.

So and that starts to wane somewhat.

As for returned to more normalcy.

And will drive and impact overall margin and.

What are the kind of the cadence of the guidance.

All said that.

And when it begins to happen in Q2 and moving into the back half but.

It's kind of a jump ball.

If we continue to see a lot of and home.

BT and continue that.

<unk> been very very favorable to the mix, but if you see a lot of confidence and consumer to start.

About again and dining out and obviously that will drive.

Mixed reversion back to something free.

And 'twenty, yes.

And just to add one more thing to that.

The mid point of our the midpoint of our guidance is above algorithm and as we've said even that midpoint is burdened by our digital investments and we're making this year. So obviously.

We're pretty confident and the plans that we have for the year out the bottom end of the guidance that wouldn't be just on.

Our mix reversion that.

We're being a little bit perhaps cautious coming out of the gate just because of the lack of visibility.

But what would get you to the bottom end of the guidance would be.

All of these factors coming together much higher promotional environment for commodities are pretty deep mix for version, but yes. The mid to the top of the guidance, obviously reflects our continuing confidence and the strategy and business.

Okay. That's helpful and I just wanted to touch on a bigger picture question here.

Yeah I do.

Interesting question and I.

We've already done a lot of it I mean, we've as you know we've reorganized.

We created the Chief brand officer position, we've got a new innovation function and we have the transformation office now we've hired a new supply chain officer.

He has hired a new procurement officers I think we've done a lot of the organizational structure and things that we need to do and I feel really good about the team that we have in place.

As I say all the time I think we've got the best team and the industry and I think with the changes that we've made were even stronger.

As I mentioned earlier I do think that this demonstration of the power mix and our business is one and the most powerful things has happened to the company over the last several years.

It's been a it's been a learning opportunity for the company, it's allowed us to change the mindset of R. R.

Not only the management team, but the broader organization that focusing on brands and following our portfolio strategy.

And is the right way to go for the long term and I think we can continue to build on that.

Alright, Thanks, guys I'll pass it along.

Your next question comes from Mitch Pinheiro with Stephens, Inc.

And Mitch.

Okay.

Question just on.

For two questions perhaps.

Store brands.

Does this for burst.

In 'twenty, one and are we going to see store brands take share or.

And our retailers.

And have learned a good lesson.

During the pandemic debt private label just he values.

The category.

Yeah.

It'll be interesting to watch how that unfolds, what I would say matches that private label was in and our category at least was in decline prior to the pandemic the pandemic did accelerate that.

But we were kind of seeing these trends even even prior to.

2020.

And there.

And the retailers.

And where the CEO of a retailer and I wouldn't want to give the consumer what they want and.

And consumers are obviously looking for brands.

Theyre looking forward on the shelf and physical shelf theyre looking for it on the digital shelf and that's where our focus is so.

And again I can't speak to what the retailers might might be thinking, but but if I was running one of them I wouldn't want to give our consumers what they are asking for.

Okay.

And second question is I guess.

Sure.

You've called out the higher promotional for the potential for higher promotional environment in the back cash.

And now haven't seen it.

Why would it be a risk I mean, what would be.

And especially in light of maybe higher commodity costs why would.

Is there something that you are anticipating or is it just calling out a typical risks for any packaged foods company.

The category over all get.

And to retain that that share.

And to what extent do we have to participate on that.

Okay. That's all I have thank you.

Rich.

Your next question comes from Ryan Bell with consumer edge research.

Good morning, Ryan.

Good morning, everyone.

Probably not the core focus right now, but could you talk about.

Our foodservice business and your expectations for the recovery over the course of the year.

Sure I think I think that foodservice recovery largely follows the question around.

What normalization looks like.

And what extent our restaurants opened back up New York, New York, starting to slowly open back up and at a very low occupancy level.

So it really depends on what that trajectory and looks like.

Ryan the fast foods side of the business has performed pretty well actually I mean, it's been it's been up a little bit it's really still that broad line and sit down fast casual type business that remains under pressure.

And if you look at the if you look at the fourth quarter again, excluding the 50 <unk> week foodservice non retail and other for us but that includes the foodservice business primarily.

With slightly better.

But no no meaningful recovery yet.

So I think yes.

And if you were to pin me down on I would say you'd probably start to see some some maybe more meaningful recovery and the foodservice business towards the back half of the year as opposed to I think the front half.

And to be.

More of the same.

Thanks, that's helpful and on.

On the innovation front is there anything.

You would have in mind to help for team from consumers I mean, if youre spending more time at home.

Easier to justify having a whole loaf bread.

First and if youre going to be having more time at the office.

On what that would need and so I mean, maybe innovations such as like half of flow.

Any emphasis behind that or anything else that and maybe you want.

And you might want to focus on more coming out of dependent.

Yes, it's a great question I don't want to be too specific for for obvious reasons, but suffice it to say that we have.

A pretty significant amount of innovation coming this year.

And our innovation last year contributed some $60 million to the top line. So we've been very pleased with those efforts and I think yes.

The way that we've restructured and the resources, we put behind innovation will continue to deliver and and hopefully at a faster rate going forward.

Okay. That's helpful and I think the last one for me could you talk about your expectations.

And the labor market and workforce costs and 2021.

And some of the frontline costs that you've had that and associated with Covid.

And does that just go away once.

And you have the majority of the workforce vaccinated.

Should we think about that.

I'm not sure that some of the cost and safety protocols are going to go away from a long time for a long time.

What will help though.

<unk> is free.

This week the biggest issue for us from a labor standpoint, and 2020 was.

And the number of people that were out either because they had contracted COVID-19 or because they had come in close contact and we were following our our safety protocols and obviously that that disrupts up operations and your efficiencies or lower I mean, despite our performance in 2020.

And the plants been able to operate at the efficiency levels. They were capable of it would've been a lot it would have been even better significantly better.

But you just you just had you had so many people out so I am looking for to that calming down for a matter of fact, we've already seen it called out our experience and flowers kind of follows the national trends. The case counts are coming down everything so things are already beginning to normalize we haven't really seen.

Sure wage inflation.

But it's been more of the resulting inefficiencies from folks being out.

Perfect. Thank you have a good day.

Thank you for you too.

I'm showing no further questions at this time I would now like to turn the conference back to Ryans Mcmiller for closing remarks.

Thank you very much Sidney just wanted to thank everybody for their interest and flowers and we look forward to speaking with you again next quarter and care.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you for your participation.

Q4 2020 Flowers Foods Inc Earnings Call

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