Q3 2022 Flowers Foods Inc Earnings Call

November 11, 2022

Yeah.

Good day and thank you for standing by welcome to the flowers Foods third quarter 2022 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone please.

Please be advised that today's conference is being recorded.

Now I'd like to hand, the conference over to your speaker today J T. Rick as VP of Finance and Investor Relations. Please go ahead.

Thank you Gigi and good morning, everyone. I Hope you all I hope you all had the opportunity to review our earnings release listened to our prepared remarks and view the slides presentation. There were all posted yesterday evening on our Investor Relations website.

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

Please note that in this Q&A session. We may make forward looking statements about the company's performance.

Though we believe these statements to be reasonable they are subject to risks and uncertainties that could cause actual results to differ materially.

In addition to what you hear in 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 end of the slide presentation on our website joining.

Joining me today are Ross Macmillan, President and CEO , and Steve Kinsey, Our CFO Ross I'll turn it over to you. Thanks.

Thanks, Vicki and good morning, everybody appreciate you joining our third quarter call.

Before we get started on this veterans day, we'd like to recognize the contributions of our service men and women.

Past and present.

Thank you for your service to our country and the sacrifices you have made for our freedom.

Moving on to our results, we executed well in the quarter driving third quarter sales to record levels.

Our performance in this challenging consumer environment demonstrates the resiliency of our business and the ongoing effectiveness of our strategy consumers continued to express a preference for the differentiated attributes of our leading brands.

And we are focused on maintaining our momentum with investments in innovation and marketing, including our new agile innovation capability.

Ever been more optimistic about our prospects and I am excited about the initiatives we have in place.

To drive future growth.

As always our team is committed to delivering results in line with or better than our long term financial targets and so with that Judy we can open it up for questions. Please.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Bill Chapell from <unk> Securities.

Okay.

Good morning.

Morning Bill.

Hey, just wanted to.

Talk a little bit more about <unk>.

Store branded it in your prepared remarks, and just the growth in the quarter I guess.

One maybe help us understand how that.

<unk> to trend as we moved into October and November if youre continuing to see an acceleration of store branded versus brands or trade down in general and then two I think you had mentioned that it was really a one.

Retailer that was not allow.

Allowing you to or not allowing pricing to come up and I'm trying to understand why that's the case.

In part because I think you manufacture some of the.

Store brands for that retailer and so I'm, just trying to understand the pricing dynamic.

Okay.

Sure Bill just generally to start off as.

As we've been saying all year in a challenging economic environment. Like this you would expect to see some trade down to private label.

And you're looking at across the market that has held true.

Pivot label gained 100 basis points of unit share in the quarter, but digging down a little deeper into that what you see as we mentioned last quarter is that this is very concentrated in the mass channel.

In the mass channel.

Some of the retail prices on private label have been have been held out a little bit lower if you flip and look at grocery the story looks quite a bit different.

We gained 10 basis points of share in grocery and in Q3, and then later in the quarter that actually accelerating we gained 60 basis points of unit share in grocery.

So and then also as we got towards the end of the quarter and to answer your trend question.

Actually saw that that rate of growth in private label slow a bit now too early to call that a trend, but we did see it slow down some as far as our own results go.

You did see a large increase in private label sales, but remember we also took significant price increases in private label, which frankly, we needed anyway harken back to our portfolio strategy, where.

Not only are we trying to shift our mix to more branded retail but in other parts of the business that are lower margin, we've been working furiously to improve the margin of those lower mark those lower margin items. So between SKU rationalization price increase in strategic business et cetera.

That's all part of our strategy. So overall market wise, yes, private label has shown a little bit of strength.

Certainly so dollar strength flowers, but the unit story is a bit more nuanced.

That's helpful.

And then.

Maybe a little bit on.

As I look out on gross margin.

I know youre, not giving guidance at this point for 'twenty three but how are you thinking about it I imagine with your hedging program some of the higher or the lower cost hedges will be rolling off.

Yes.

And you've covered some of that with pricing.

Also have the cost savings program, which certainly helps but then you have maybe private label would you make which is lower margin.

It's growing faster right now so is there still a strong opportunity for gross margin expansion next year or is it going to be more challenging.

I mean.

As you said, we're not prepared to give guidance for <unk>.

Next year, but we're seeing the same things you are hearing from other.

Other companies, we continue to expect inflation to be strong.

And we particularly at some of our input costs still a lot of volatility in wheat.

Although we're making pretty true to our our hedge strategies and labor transportation and all of those continue.

Show significant inflation had really no no signs of.

Any of that reverting at this point so.

Without getting into specifics yet for 2023 I would say.

We continue to expect some of the same pressures youre seeing this year with regard to gross margin.

Okay, I'll turn it over thanks, so much.

Thank you Bill.

Thank you one moment for our next question.

Our next question comes from the line of Conor Rattigan from consumer edge.

Good morning, guys. Thanks for the question.

Hey, Connor.

So as you start to lap in place and in pricing, it's largely catching up can you share with thoughts on sort of the balancing act of recovering gross margin, while protecting market share. So I guess im sure <unk>, maybe start to slow while certain retailers are either willing to pass on pricing are you open to introducing more promotion, even if it will be a longer time horizons recap.

That loss margin over 2022.

Yes look I mean, obviously there is always a tricky balance as you say between.

Covering these inflationary cost and holding your market share and I think so far we've done a pretty good job of and our share has remained pretty steady and even in <unk>.

In the midst of this environment so far.

The competitive environment has remained pretty rational.

We are doing some promotions as you might expect <unk> being a super premium item, we felt a little bit of unit share.

Little bit of unit share loss of DKK and so we've done some targeted promotions right to hold on to those consumers.

But for some folks.

Obviously, that's going to be out of reach in the short term and that's why it's also important that we keep up our media and advertising digital social campaigns to make sure. We keep these brands front and center.

For those consumers so that when when relief does come and thankfully at least we got a better inflation report yesterday, hopefully that trend continues and that really does come they come back to the brand. We're very we're very attuned to the number of households that we games of 2019, we certainly want to hold on to those households, but there as you say there is a balance.

That we deal with we deal with daily.

Great that was helpful.

And then also I wanted to ask about maybe any impact from hurricane in the quarter. I think you have a few bakery located in Florida did you think maybe see any out of stocks are empty shelves for a while with both of those.

<unk> shut down for a period of time or maybe with a bit of pantry loading before the storm.

Yes, so typically we tend to perform really well during hurricanes and frankly I'm glad you brought it up because as you look at our share performance in the quarter.

Remember that last year in the third quarter, there were four named storms.

And we typically outperformed the competition and the storms.

And this year, we're going to have one so it does have some it does have some effect I don't want to overemphasize it too much but it does have an effect on our share but we.

We didn't have any thankfully, we didn't have any bakery shutdowns all of our people were safe and so as usual the team did an outstanding job keeping the market served.

Alright, great. Thanks, guys.

Okay. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Mitchell Pinheiro from Stewart event and company.

Hey, good morning.

Alright.

So.

I'm curious in terms of geography.

Were there any areas that were surprisingly strong or below expectations in the quarter.

So I'd say overall, it's pretty pretty even.

A couple of highlights I would give you is the northeast continues to perform really well for us.

That's a growth area for us.

And so we from a share standpoint, really really performed nicely again this quarter.

Northeast, which has been a little tougher out west, particularly California.

We've done kind of some background research to figure out exactly what's going on out there. It really you got to state that already has very very high cost fuel has been a better story for most of the country lately, but it's still very high in California.

Rent Escalations everything else I think the consumer in California is just a bit more pressured perhaps than what we see in other parts of the country and so as we're looking at our share we see a little bit little bit more weakness out there on the west coast right now.

Okay. Thank you and then when.

As you're looking at your bakery.

Capacity in.

And maybe future needs.

Can you still do you have ample capacity within your current system.

Sure.

Are we going to need.

Dispense some money on.

On some new bakery capacity in 2023 or.

Start to think about it then.

Yes. Good question Mitch So overall, we're comfortable with where we are.

There are pockets of need that I would call out to you one that we already saw for with the new organic line and Henderson. So that takes care of day, because we're really tight out there for a while but we're in good shape. There. The other one I would call out to use Canyon. It's a good news story demand for Canyon is still very very high very pleased with how <unk>.

That business is progressing but were super tight on capacity at Canyon. So we're actively looking to.

Solve that with a short term solution and a long term solution.

Well your cap ex spending I know, we're not talking 2023, yet but.

Anything unusual for <unk>.

<unk> 2023 in terms of capital spend.

No I mean, we're not going to comment on at this time, but yes. The short answer is no pretty typical.

Okay, but when you got it yes.

You have to factor in ERP. So just like this year, it will probably be a little bit higher than normal, but a lot of thats the ERP implementation.

Okay and then just the last question is that.

In terms of your.

Cake.

Foodservice volumes were down I think 5%.

Yes I saw.

<unk>.

I guess units were down 12% in the measured and tracked channels I'm curious.

USA.

The outlook here for the fourth quarter and maybe into the early part of 'twenty three.

It's going to look like.

Margins began to improve.

Sales trends, what's the strategy there.

Okay.

Sure So remember with remember with cake now.

<unk> override that overall volume decline of 5%, let's start there most of that is cake and foodservice.

The lion's share of it is for the rest of the business elasticities are well within the normal range that we were expecting for the year and frankly below historical levels.

But specifically for cake and foodservice a lot of that volume decline the lion's share of it has been SKU rationalization and strategic business exits.

On purpose kind of stuff, reducing complexity getting out of the lowest margin business all part of that portfolio strategy that we keep talking about.

As far as tracked channels go.

The traction.

Pick up all of our cake business.

So internally sales were up substantially and to answer. Your question profitability is also up as well. So we are starting to see that margin improvement that we've been working off for several years and because of that and because of the stabilization that we've achieved at Navy yard in particular, we'll start turning our attention back to back to actual growth a lot of that growth.

Sales, obviously its been pricing so far.

You start innovating get some new products out there, where youre, reducing the seasonal items or things that you used to see up your way.

Okay.

Thank you very much for the questions.

Okay. Thanks, so much.

Thank you one moment for our next question.

Our next question comes from the line of Stephen powers from Deutsche Bank.

Hey, good morning, everybody.

Two questions from me actually the first one is on.

Our innovation agenda, I guess I'm just curious as you.

As you size up the consumer inflation.

Inflation in some of the other pressures you've talked about.

Does that impact your points of emphasis in terms of new product rollout as you think about the year ahead I'm just curious if.

If you plan to.

It all over the past few months as you as you size up against that the consumer into the year ahead.

Yes, a little bit I mean, obviously, we're focused on snacking. So we've got the <unk> bars that are being launched nationally nationally rather than.

In January 23, very excited about that.

But also to Europe to your point, we are looking at some things from our price pack architecture standpoint that could help.

In a recessionary environment should that should that come to pass but overall.

I wouldn't say that it's changed our innovation pipeline meaningfully, particularly when we talk about the the agile innovation side of things the actual new products outside of core categories.

I would say it's affected that at all maybe it's affected a little bit more than some of the renovation type items that we're doing within the core business.

Okay. Okay. Thank you for that and then.

My second question is as you look at the <unk>.

By the administrations proposed rule changes under the fair Labor Standards Act I guess.

Are there any implications at all on your business in terms of.

Definitely sort of employee workers versus independent contractors, just as it relates to your distribution.

Yeah. So we're obviously we're monitoring that.

It's in the comment period, right now, which I think runs out sometime in December .

But remember too that what this is doing is just going back to the rule that was in effect under the Obama administration, you remember Trump changed the rule. This is basically pursing that going back to the Obama roll and obviously, we were able to to operate fine in that environment as well.

Yes, okay. Thanks for that I appreciate it.

Okay. Thanks, Steve.

Thank you one moment for our next question.

Our next question comes from the line of Jim <unk> from Stephens.

Hey, guys good morning.

Morning, John I wanted to ask.

You've talked in the past about private label, playing this catch up game on pricing that's driving some of the dollar sales strength versus branded can you maybe give us an update on kind of where the pricing gap stands now.

Paired with before we had this battle of inflation.

What should we expect private label still has kind of a little bit more price to take before they normalize that gap to what it was pre inflation.

Yes, I'd have to look at it specifically I don't have it in front of me, but I would say that the gaps are probably spent we've taken branded pricing to they may have narrowed a bit but it's also going to depend on what channel you look at.

From a retail standpoint, because obviously it depends on what the retailer actually does.

Okay.

Tom.

Do you think that.

As the private label I know, we're talking about low dollar entry price points, but do you think that as the private label price comes up it makes that trade down less attractive.

But you could actually get maybe some people that stay in the branded category just because the trade down to $3 is much less attractive than to $1 79.

Yes.

I would think that that would be the case don't want to wait and see if that if that actually happens but you.

You would certainly expect that to be the case, but again.

The gaps are going to be a lot higher right now in mass.

What youre seeing in grocery and maybe this is a proof point relative to your question what youre seeing in grocery are tighter gaps there and the performance for brand in grocery has been much better.

Okay great.

In the script you guys talked about.

Handing beyond the core business do.

Do you think that the brands that you have kind of in the portfolio right now specifically.

And Canyon do you think you can use those brands to jump into new categories or do you need it.

Add something to the portfolio that maybe kind of as an existing reputation in all the categories.

Well the direct answer your question is absolutely, yes, and I mean like I said, we're introducing the <unk> bars in January nationally.

The results that we've had in test markets have been remarkable.

The loyalty the interest in that brand <unk> is just astounding to me and and so we'll continue to push that brand further out, particularly in the snacking arena, we have a whole pipeline of products coming behind the <unk> bars, we're testing high protein bars, right now and a couple of select test markets.

And I think the same is true for Canyon is just a smaller market, but Ken you're right, it's not as not as big of a.

Business is Dave's I mean days, Dave should reach around 1 billion in retail sales this year. So.

To a point as far as scale goes right now, where we think we have the right to play in other categories.

The second part of your question, though is we will absolutely continue to look for M&A opportunities, where we can add brands to our portfolio.

That will likely play outside of our core business that can further strengthen that branded that branded portfolio.

So it will be a combination of innovation.

Yes.

I know you guys mentioned that you had an acquisition bulker and you don't have to get into too much detail on that one specifically, but maybe just more broader details about some of the challenges that you face and just getting a deal done kind of in the current environment.

Yes.

That one was an outlier.

Not really all that relevant to the conversation actually but.

Yes.

I would say that the pipeline has slowed a bit honestly, just given the economic environment interest rates spiking the way they have.

I think things have slowed down a bit we still have plenty in our pipeline, but the overall flow of deal activity has slowed now.

Prior to this it's the normal struggles with any deal right I mean, <unk> got to make sure that you are.

Our financial operational and commercial conviction is there you've got to make sure that the price is right and responsible.

And also have a seller willing and seller.

Seller expectations up until now have remained pretty robust.

May moderate we'll have to we'll have to see but yes.

We intend to continue being proactive in this space. It's always been an important part of our growth story and I believe that will continue.

Perfect. Thanks, guys I'll pass it on.

Thank you.

Thank you I would now like to turn the conference back to Ross Macmillan, President and CEO for closing remarks.

Thank you Gigi very much and thank you everybody for your interest in flowers. We certainly look forward to speaking with you again next quarter and we hope everybody has a wonderful and safe holiday season. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today J T. Rick as VP of Finance and Investor Relations. Please go ahead.

Thank you Gigi and good morning, everyone. I Hope you all I hope you all had the opportunity to review our earnings release listened to our prepared remarks and view the slide presentation. There were all posted yesterday evening on our Investor Relations website Patrick.

Patrick today's Q&A session. We will also post an audio replay of this call. Please.

Please note that in 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.

In addition to what you're hearing these remarks important factors relating to flowers foods' business are fully detailed in our SEC filings.

We provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website joined.

Joining me today are Ross Macmillan, President and CEO , and Steve Kinsey, our CFO , Ralph I'll turn it over to you. Thanks.

Thanks, Jackie and good morning, everybody appreciate you joining our third quarter call.

Before we get started on this veterans day, we'd like to recognize the contributions of our service men and women.

Past and present, we thank you for your service to our country and the sacrifices you've made for our freedom.

Moving on to our results, we executed well in the quarter driving third quarter sales to record levels.

And we are focused on maintaining our momentum with investments in innovation and marketing, including our new agile innovation capability.

Never been more optimistic about our prospects and I am excited about the initiatives we have in place.

To drive future growth.

As always our team is committed to delivering results in line with or better than our long term financial targets and so with that Judy we can open it up for questions. Please.

As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Bill Chapell from <unk> Securities.

Thanks, Good morning.

Good morning Bill.

Hey, just wanted to.

Talk a little bit more about <unk>.

Sure Randy in your prepared remarks, and just the growth in the quarter I guess.

One maybe help us understand how that.

<unk> continued to trend as we moved into October and November if youre continuing to see an acceleration of store branded versus brand or trade down in general and then two I think you had mentioned that it was really a one.

Retailer that was not allowed.

Allowing you to or not allowing pricing to come up and I'm trying to understand why that's the case.

Part because I think manufacturers some of the.

Sure Brandon for that retailer and so I'm, just trying to understand the pricing dynamic.

Okay.

Sure Phil just generally to start off as we've been saying all year in a challenging economic environment. Like this you would expect to see some trade down to private label.

And you look at across the market that has held true private label gained 100 basis points of unit share in the quarter, but digging down a little deeper into that what you see as we mentioned last quarter is that this is very concentrated in the mass channel.

In the mass channel.

Some of the retail prices on private label have been have been held out a little bit lower if you flip and look at grocery the story looks quite a bit different in fact, we gained 10 basis points of share in grocery and in Q3, and then later in the quarter that actually accelerate and we gained 60 basis points of unit share in grocery.

So and then also as we got towards the end of the quarter and to answer your trend question.

We saw that that rate of growth in private label slow a bit now too early to call that a trend, but we did see it slow down some as far as our own results go.

All part of our strategy. So overall market wise, yes, private label has shown a little bit of strength.

Certainly show of dollar strength flowers, but the unit story is a bit more nuanced.

That's helpful.

And then Steve.

Maybe a little bit on on as I look out on gross margin.

And you've covered some of that with pricing you also have the cost savings program, which certainly helps but then you have maybe private label would you do make which is lower margin that is growing faster right now so.

Is there still a strong opportunity for gross margin expansion next year or is it going to be more challenging.

I mean.

As you said, we're not prepared to give guidance for.

For next year, but we're seeing the same things youre hearing from other.

Other companies, we continue to expect inflation to be strong.

And we particularly at some of our input costs still a lot of volatility in wheat.

Although we're making pretty true to our our hedge strategies and labor transportation all of those continue.

The show.

Inflation is really no no signs of any.

Of that reverting at this point so.

Not getting into specifics yet for 2023 I would say.

We continue to expect some of the same pressures you are seeing this year with regard to gross margin.

Okay, I'll turn it over thanks, so much.

Thank you Bill.

Thank you one moment for our next question.

Our next question comes from the line of Conor Rattigan from consumer edge.

Good morning, guys. Thanks for the question.

Thanks, Andrew.

So as we start to lap inflation and pricing is largely catching a condition with thoughts and sort of the balancing act of recovering gross margin, while protecting market share. So I guess im sure <unk>, maybe start to slow while certain retailers that are willing to pass on pricing are you open to introducing more promotion, even if it will be a longer time horizon to recapture.

That loss margin over 2022.

Yes look I mean, obviously there is always a tricky balance as you say between.

Covering these inflationary cost and holding your market share and I think so far we've done a pretty good job of and our shares remained pretty steady and even in the midst of this environment. So far.

The competitive environment has remained pretty rational.

We are doing some promotions as you might expect <unk> being a super premium item, we've had a little bit of unit share.

Little bit of unit share loss of DKK and so we've done some targeted promotions right to hold on to those consumers.

Yes for some folks.

In front of those consumers so that when when relief does come and thankfully at least we got a better inflation report yesterday, hopefully that trend continues and that really does come they come back to the brand. We're very we're very attuned to the number of households that we gain since 2019, we certainly want to hold on to those households, but there as you say there was a ballot.

That we do.

Deal with we deal with daily.

Great that was helpful.

Yes, so typically we tend to perform really well during hurricanes and frankly I'm glad you brought it up because as you look at our share performance in the quarter remember that last year in the third quarter. There were four named storms.

And we typically outperformed the competition in these storms.

And this year, we only had one so it does have some it does have some effect I don't want to overemphasize it too much but it does have an effect on our share but we.

We didn't have any thankfully, we didn't have any bakery shutdowns all of our people were safe and so as usual the team did an outstanding job keeping the market served.

Alright, great. Thanks, guys.

Okay. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Mitchell Pinheiro from Stewart event and company.

Hey, good morning.

Hi, Matt.

So.

I'm curious in terms of geography.

Were there any areas that were surprisingly strong or below expectations in the quarter.

No I'd say overall, it's pretty pretty even.

A couple of highlights that would give you is the northeast continues to perform really well for us.

Thats a growth area for us.

And so we from a share standpoint, really really performed nicely again this quarter.

Northeast, which has been a little tougher out west, particularly California.

We've done kind of some background research to figure out exactly what's going on out there and really you've got to state that already has very very high cost fuel has been a better story for most of the country lately, but it's still very high in California.

Okay. Thank you and then when.

As you're looking at your bakery.

Capacity in.

And maybe future needs.

Do you still have ample capacity within your current system.

Sure.

Are we going to need.

This spend some money on.

Well, it's a new bakery capacity in 2023 or start to think about it then.

Yes. Good question Mitch So overall, we're comfortable with where we are.

There are pockets of need that I would call out to you one that we already saw for with the new organic line and Henderson. So that takes care of Dave because were really tight out there for a while but we're in good shape. There. The other one I would call out to use Canyon. It's a good news story demand for Canyon is still very very high very pleased with how the.

Business is progressing but were super tight on capacity at Canyon. So we're actively looking to.

Solve that with a short term solution and a long term solution.

Well your cap ex spending I know, we're not talking 2023, yet but.

Anything unusual for.

2023 in terms of capital spend.

No I mean, we're not going to comment at all at this time, but the short answer is no pretty typical.

Okay, but when you got it yes.

<unk> you have to factor in ERP. So just like this year it'll be it'll probably be a little bit higher than normal, but a lot of thats the ERP implementation.

Okay and then just the last question is that.

In terms of your cake.

Foodservice volumes were down I think 5%.

Yes.

Rick.

I guess units were down 12%.

The measured and tracked channels and I'm curious.

USA.

The outlook here for the fourth quarter and maybe into the early part of 'twenty three.

Nick.

It's going to look like.

Margin has begun to improve.

Sales trends, what's the strategy there.

Okay.

Sure. So remember remember with cake now.

Override that overall volume decline of 5%, let's start there most of that is cake and foodservice.

The lion's share of it is for the rest of the business elasticities are well within the normal range that we were expecting for the year and frankly below historical levels, but specifically for cake and foodservice a lot of that volume decline. The lion's share of it has been SKU rationalization and strategic business exits so on purpose kind of stuff.

Reducing complexity getting out of the lowest margin business all part of that portfolio strategy that we keep talking about.

As far as tracked channels go.

The traction pick up all of our cake business.

So internally sales were up substantially and to answer. Your question profitability is also up as well. So we are starting to see that margin improvement initiatives. We've been working off of a seven for several years and because of that and because of the stabilization that we've achieved at Navy yard in particular, we'll start turning our attention back to back to actual growth a lot of that growth.

Sales, obviously has been pricing so far.

We need to start innovating get some new products out there, where you're reducing the seasonal items or things that you used to see up your way.

Okay.

Thank you very much for the questions.

Okay. Thanks Mitch.

Thank you one moment our next question.

Our next question comes from the line of Stephen powers from Deutsche Bank.

Hey, good morning, everybody.

Two questions from me actually the first one is on your.

Innovation agenda, I guess I'm just curious as you.

As you size up the consumer inflation.

Inflation in some of the other pressures you've talked about.

Does that impact your points of emphasis in terms of new product rollout as you think about the year ahead I'm just curious if.

If your plans change.

Is it all over the past few months as you as you size up against that the consumer into the year ahead.

Yes, a little bit I mean, obviously, we're focused on snacking. So we've got the BK be bars that are being launched nationally nationally rather than in January 23, very excited about that.

Also to Europe to your point, we are looking at some things from our price pack architecture standpoint.

They can help it.

Recessionary environment should that should that come to pass but overall.

I wouldn't say that it's changed our innovation pipeline is meaningfully, particularly when we talk about the agile innovation side of things the actual new products outside of core categories.

I would say it's affected that at all maybe it's affected a little bit more than some of the renovation type items that we're doing within the core business.

Okay. Okay. Thank you for that and my son.

<unk> question is as you look at the.

The by the administration to proposed rule changes under the Fair Labor Standards Act I guess are there any implications at all on your business in terms of.

Definitely sort of employ workers versus independent contractors, just as relates to your distribution.

Yeah. So we're obviously we're monitoring that.

The comment period, right now, which I think runs out sometime in December .

But remember too that what this is doing is just going back to the rule that was in effect under the Obama administration remember Trump changed enroll this is basically the first thing that going back to the Obama roll and obviously, we were able to to operate fine in that environment as well.

Yes, okay. Thanks for that I appreciate it.

Okay. Thanks, Steve.

Thank you one moment for our next question.

Our next question comes from the line of Jim <unk> from Stephens.

Hey, guys good morning.

Good morning, John I wanted to ask.

You've talked in the past about private label kind of playing this catch up game on pricing.

Driving some of the dollar sales strength versus branded can you maybe give us an update on kind of where the pricing gap stands now compared with before we had this bout of inflation should we expect private label still has kind of a little bit more price to take before they normalize that gap to what it was pre inflation.

Yes, I'd have to look at it specifically I don't have it in front of me, but I would say that the gaps are probably has meant we've taken branded pricing to they may have narrowed a bit but it's also going to depend on what channel you look at.

From a retail standpoint, because obviously it depends on what the retailer actually does.

Okay.

Do you think that.

As the private label I know, we're talking about low dollar entry price points, but do you think that as the private label price comes up it makes that trade down less attractive you can actually get maybe some people that stay in the branded category just because the trade down to $3 is much less attractive than tier one.

79.

Yes.

You would think that that would be the case don't want to wait and see if that if that actually happens but you.

You would certainly expect that to be the case, but again.

The gaps are going to be a lot higher right now in mass.

What youre seeing in grocery and maybe this is a proof point relative to your question on what Youre seeing in grocery are tighter gaps there and the performance for brand in grocery has been much better.

Okay great.

In the script, you guys talked about expanding beyond the core business.

Do you think that the brands that you have just kind of in the portfolio right now specifically <unk> and Canyon do you think that you can use those brands to jump into new categories or do you need to add.

Add something to the portfolio that maybe kind of as an existing reputation in all the categories.

Well the direct answer your question is absolutely, yes, and I mean like I said, we're introducing the <unk> bars in January nationally.

The results that we've had in test markets have been remarkable.

The loyalty the interest in that brand Dk is just is astounding to me and and so we will continue to push that brand further out, particularly at the in the Snacking Arena, we have a whole pipeline of products coming behind the <unk> bars, we're testing high protein bars, right now and a couple of select test markets and I think the same is.

True for Canyon is just a smaller market, but Ken you're right, it's not as not as big of a of a.

Business is Dave's I mean days, they've should reach around 1 billion in retail sales this year. So.

To a point as far as scale goes right now, where we think we have the right to play in other categories.

The second part of your question, though is we will absolutely continue to look for M&A opportunities, where we can add brands to our portfolio.

That will likely play outside of our core business that can further strengthen that brand in that.

Brian and portfolio.

So it'll be a combination of innovation.

Yes.

I know you guys mentioned that you had an acquisition Volcker you don't have to get into too much detail on that one specifically, but maybe just more broader details about some of the challenges that you face and just getting a deal done kind of in the current environment.

Yes.

That one was an outlier.

Not really all that relevant to the conversation actually but.

Yes.

I would say that the pipeline has slowed a bit honestly, just given the economic environment interest rates spiking the way they have.

I think things have slowed down a bit we still have plenty in our pipeline, but the overall flow of deal activity has slowed down.

Prior to this it's the normal struggles with any deal right I mean, you've got to make sure that you are.

Our financial operational and commercial conviction is there you've got to make sure that the price is right and responsible.

And also have a seller is willing and seller.

Seller expectations up until now have remained pretty robust.

May moderate we'll have to we'll have to see but yes.

We intend to continue being proactive in this space. It's always been an important part of our growth story and I believe that will continue.

Perfect. Thanks, guys I'll pass it on.

Thank you.

Thank you I would now like to turn the conference back to Ross Macmillan, President and CEO for closing remarks.

Thank you Judy very much and thank you everybody for your interest in flowers. We certainly look forward to speaking with you again next quarter and we hope everybody has a wonderful and safe holiday season. Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

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