Q1 2024 Flowers Foods Inc Earnings Call - Q&A

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Operator: Good evening, and thank you for standing by. Welcome to the Flowers Foods first quarter 2024 results conference call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead.

Speaker Change: Good evening and thank you for standing by welcome to the flowers Foods first quarter 2024 results conference call. Please be advised that today's event is being recorded.

Speaker Change: I would now like to hand, the conference over to your opening speaker today J T Rieck Executive Vice President of Finance and Investor Relations. Please go ahead.

J.T. Rieck: Thank you, Carmen, and good evening. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted earlier 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. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker Change: Thank you Carmen and good evening I hope everyone had the opportunity to review our earnings release and listen to our prepared remarks, and the slide presentation. There were all posted earlier on our Investor Relations website. After today's Q&A session. We will also post an audio replay of this call.

Speaker Change: Please note that in the 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.

J.T. Rieck: In addition to what you hear in these remarks, important factors relating to Flowers Foods' business are fully detailed in our SEC filing. 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 me today are Riles McIlwain, Chairman and CEO, and Steve Kinsey.

Speaker Change: In addition to what you hear in these remarks important factors relating to flowers foods' business are fully detailed in our SEC filings.

Speaker Change: 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.

Ralph: Joining me today are rising long, chairman and CEO and Steve Kinsey, our CFO, Ralph I'll turn it over to you. Okay. Thanks, J T and good evening everybody. Thanks for joining our first quarter call and we also appreciate everybody's flexibility in accommodating the change in timing for our Q&A session today.

Unknown Executive: Kenzie or CFO. Ronald, an alternative to

Riles McIlwain: Okay, thanks J.T., and good evening everybody. Thanks for joining our first quarter call, and we also appreciate everybody's flexibility in accommodating the change in timing for our Q&A session today. Our solid first quarter results reflect the increasing effectiveness of our portfolio strategy. Driven by investments in marketing and innovation, our brands gain share despite the challenging consumer environment. Additionally, we also grew branded retail volumes for the first time since 2020. Day's Kilo Bread led the way with its second consecutive quarter of 10% unit growth.

Ralph: Our solid first quarter results reflect the increasing effectiveness of our portfolio strategy driven by investments in marketing and innovation our brands gained share despite the challenging consumer environment.

Ralph: Significantly we also grew branded retail volumes for the first time since 2020.

Speaker Change: <unk> led the way with its second consecutive quarter up 10% unit growth.

Riles McIlwain: But we saw encouraging signs across the brand portfolio, and we continue to expand our margins in our away-from-home and private-label business. We are maintaining our financial outlook for the year, which incorporates continued volume improvement while acknowledging the ongoing economic uncertainty and its potential impact on consumer behavior and the promotional environment. As I mentioned in my prepared remarks, if there's one thing I'd like for you to take away from this call, it's that we're doing exactly what we said we would.

Speaker Change: But we saw encouraging signs across the brand portfolio and we continue to expand our margins in our away from home and private label businesses.

Speaker Change: We are maintaining our financial outlook for the year, which incorporates continued volume improvement while acknowledging the ongoing economic uncertainty and its potential impact on consumer behavior and the promotional environment as.

Speaker Change: As I mentioned in the prepared remarks that there's one thing I'd like for you to take away from this call is that we're doing exactly what we said we would do.

Riles McIlwain: Although progress is not linear, we'll continue to execute our portfolio strategy with the expectation of achieving our long-term financial targets. And I'm extremely confident in our growth potential, and I look forward to continuing our progress throughout 2020. So with that, Carmen, we'll open it up to questions.

Speaker Change: Although progress is not linear we will continue to execute our portfolio strategy with the expectation of achieving our long term financial targets and I'm extremely confident in our growth potential and I look forward to continuing our progress throughout 2024.

Carmen: Carmen we will open it up for questions. Thank you so much and as a reminder, if you do have a question press star one to get into queue and wait for your name to be announced please standby while we compile our first question comes from Steve powers from Deutsche Bank. Please proceed.

Operator: Thank you so much. And as a reminder, if you do have a question, press star 11 to get in the queue and wait for your name to be announced. Please stand by while we compile our first question. It comes from Steve Powers from Deutsche Bank.

Stephen Robert R. Powers: Hey guys, good evening. Thanks for the question. I was actually hoping we could talk a start on just the operating expenses in the quarter and SD&A run rate spending. You call that a couple of things in the prepared remarks, you know, higher labor costs, higher technology costs. You also separately call that stranded overheads. I was wondering if those two things are related or if they are separate. And really, what I'm focused on is just how we think about the cadence of those operating expense expenditures over the course of the year.

Hey, guys. Good good evening, thanks for the question.

Stephen Robert R. Powers: I was actually hoping we could talk a start on just the operating expenses in the quarter.

Speaker Change: SG&A run rate spending.

Call. It a couple of things in the prepared remarks higher labor costs higher technology costs. You also separately called out threat overheads I was wondering if those two things are related or if those if that's if those are separate and really what I'm. What I'm focused on is just sort of how do we think about the cadence of.

Speaker Change: Este Lauder operating expense.

Stephen Robert R. Powers: You know, do we expect some relief on stranded overheads? Do we expect transition costs in California to replace that? Just some direction on the cadence of SD&A expenditures over the course of the year would be great.

Speaker Change: <unk> over the course of the year.

Speaker Change: Do we expect some relief on stranded overheads do you expect.

Speaker Change: Transition costs in California to replace that just some just some direction on the cadence of SG&A expenditures over the course of the year would be great. Thank you.

Riles McIlwain: Sure, happy to do that. I'll start and I'm sure Steve will want to chime in here too, but yeah, it's a little it's a little bit of both. You know, there's some labor expense in there. There's, you know, higher marketing expense in there, which we've, you know, we've talked about before the rationale for that investment. And, you know, you, you've got the stranded overhead too that we've, we've talked about in the, in the past. The good news is, is twofold. One.

Speaker Change: Sure happy to I'll start and I'm sure, Steve will want to chime in here too, but yes, it's a little it's a little bit of both.

Speaker Change: Yes, there is some labor expense in there there is higher marketing expense center, which we've talked about before the rationale for that investment.

Speaker Change: And you've got the stranded overhead to that we've talked about in the past the good news is twofold.

Riles McIlwain: You may have noticed that we raised our savings range from $30 to $40 million to $40 to $50 million, and some of that will help us improve SD&A. As I noted in my prepared remarks, we do recognize our cost structure is a bit too high, and we're taking actions to pull some of that back and get more back in line. I mentioned labor costs and marketing as well play a role in that, so I would expect over time for us to improve STA, particularly as a percentage of net sales, and better leverage our cost structure going forward. Steve, do you want to add to that at all? Yeah, I mean, I think Rob's been on it. Obviously, the first quarter is 16 weeks.

Speaker Change: You may have noticed that we raised our savings range from 30 to 40 million to $40 million to $50 million and some of that will help us improve SG&A as I noted in the prepared remarks, we do recognize our cost structure is a bit too high and we're taking actions to pull some of that back and get get more back backend.

Speaker Change: In line.

Speaker Change: I mentioned, the labor cost and marketing as well play out play a role in that so.

Speaker Change: I would expect over time for us to improve.

Speaker Change: SG&A, particularly as a percentage of net sales.

Speaker Change: And better leverage our cost structure going forward, Steve you want to add to that at all.

Speaker Change: Yes.

Hey, Ralph had on it obviously, the first quarter of 16 weeks.

Stephen Robert R. Powers: We did see some elevated costs from that perspective, but... We have good visibility into our call takeout initiative going forward. That's a percent of sales we do expect. SDA to pull back some and then kind of stabilize. So we do feel like we'll be able to get some of that under control as the year progresses. Yeah, the only other thing I'd add, Steve, relative to the stranded overhead is that, you know, this goes to the volume story as well, is that we're adding new business back at a bit of a faster clip than we originally anticipated at the beginning of the year. And, of course, that'll help cover that stranded cost.

Steve: We did see some elevated cost from that perspective, but yes.

Speaker Change: We have good visibility to our cost takeout initiatives.

Speaker Change: And going forward as a percent of sales we do expect.

Speaker Change: SG&A to pullback.

Speaker Change: It kind of stabilized so we do feel like we'll be able to get permanent under control as the year progresses.

Speaker Change: The only other thing I would add Steve relative to the stranded overhead is that and this goes to the this actually goes to the volume story as well is that we are adding new business back at a bit of a faster clip than we originally anticipated at the beginning of the year and of course that will help cover that that stranded cost.

Stephen Robert R. Powers: Okay, very good. And then in terms of just... The use of cash, I noticed that obviously the capital expenditure outlook went up, maybe a little bit more detail around what those supply chain investments are targeted at. And then you also sounded a little bit more forward-looking with respect to an improved M&A environment, so maybe just some more color there as well.

Speaker Change: Okay very good and then in terms of.

Speaker Change: Use of cash.

Speaker Change: Obviously, the capital expenditure expenditure outlook went up maybe a little bit more detail around what those supply chain investments are are targeted at and then you also sounded a little bit more front footed.

Speaker Change: With respect to an improved M&A environment. So maybe just some more color there as well.

Riles McIlwain: Yeah, I mean, the capital investments really are just ongoing improvements, primarily at the bakeries, you know, increasing automation, updating equipment. It's pretty standard stuff, Steve, not out of the ordinary, but just a little bit more spin than we originally thought at the beginning of the year.

Speaker Change: Yes, I mean, the capital investments really are just ongoing improvements primarily at the bakeries.

Speaker Change: Increasing automation.

Speaker Change: Updating equipment.

Speaker Change: Normal course stuff stays out of the ordinary but just a little bit more spend than we originally thought at the beginning at the beginning of the year and then yes, the M&A environment I am a little bit more bullish on that now.

Riles McIlwain: And then, yeah, the M&A environment. I am a little bit more bullish on that now, because activity has really started to pick up. That really started a couple quarters ago, and it's continued. So, you know, the conversations that we're having out there with targets are increasing in frequency, which is a good sign. It's been a little slow the last couple of years, and you're very familiar with our ballot sheets. You know, we're poised to do a transaction when we find the right one.

Speaker Change: Activity is really starting to pick up that really started a couple of quarters ago.

Speaker Change: And has continued so the conversations that we're having out there with with targets are increasing in frequency, which.

Speaker Change: Which is a good side, it's been a little slow in the last couple of years.

Speaker Change: You are very familiar with our balance sheet and see that we're poised to do a transaction when we found the right one.

Unknown Executive: Very good. One last thing, if I could, just on the ERP pause in the bakeries, I thought that was on track to be lifted in the second half. Just don't know if that's still the case or if that's been recalibrated.

Speaker Change: Okay very good.

Speaker Change: One last thing if I could just on the.

Speaker Change: The ERP pause.

Speaker Change: In the bakeries.

Speaker Change: Thought that was on track to be lifted in the second half just don't know if that's still the case or if that's been recalibrated.

Unknown Executive: Yes, we're still planning to go back to the bakery rollout starting sometime in the back.

Speaker Change: Yes, no we are still planning to go back to the bakery rollouts starting sometime in the back half right.

Speaker Change: Great.

Stephen Robert R. Powers: All right, thanks to all of you. Thank you.

Speaker Change: Alright, Thanks, Paul Thank you.

Operator: Thank you. One moment for our next question, and this comes from the line of Bill Chappell with Tourist Securities. Please proceed.

Speaker Change: Thank you Steve. Thank you one moment for our next question.

Speaker Change: He comes from the line of Bill Chapell with tourists Securities. Please proceed.

William Bates Chappell: Thanks. Good afternoon.

William Bates Chappell: Thanks, Good afternoon.

Riles McIlwain: Hey, Bill, just maybe a little bit more about private label and branded growth and just trying to give a little more color there. You know, if there's any real weakness in the economy, we hear it at the lower end. Obviously, private label has kind of receded over the past few quarters, but I didn't know if you're surprised by brands holding up, if Dave's Killer Bread is really accelerating I mean, you said it was broader, but 10% growth for Dave's Killer Bread sounds pretty strong. So just maybe give us some more color thoughts beyond Dave's Killer Bread, kind of how brands are doing versus private label, and kind of how the consumer environment is working out.

William Bates Chappell: Hey, Bill just.

Maybe a little bit more about private label and the branded growth and just trying to a little more color there.

Speaker Change: If anything if there is any real weakness in the economy, we hear it at the lower end, obviously private label is kind of receded over the past few quarters, but yes. It.

Didn't know if you're surprised by brands holding up.

Speaker Change: Really dave's killer bread accelerating I mean, you said it was broader but 10% growth for data to the red sounds pretty strong. So just maybe you could give us some more color thoughts around beyond Dave's killer bread.

Brands are doing versus private label and kind of how the consumer environment is working out.

Riles McIlwain: Sure, yeah, obviously, you know, Dave's been sort of the star of the show from a volume growth standpoint, but I know you're asking questions about the broader portfolio, but I will say just to start, one of the interesting things that we saw in the quarter was low-income shoppers coming back today. So we had mentioned to you all quite a while back that around 20% of Dave's shoppers, and we're defining that as 30,000 or less in annual income, 20% of Dave's shoppers were low-income shoppers. In an inflationary environment, that dropped off a little bit to about 16%, and we recovered almost back to 20% again.

Speaker Change: Sure, Yes, I mean, obviously days, it's been sort of the star of the show from a from a volume growth standpoint, but I know you are asking.

Speaker Change: Questions about the broader portfolio, but I will say just to start one of the interesting things that we saw in the quarter was low income shoppers coming back to days.

Speaker Change: So we had mentioned to you all quite a while back that around 20% of Dave shoppers and we're defining that is $30 or less than annual income, 20% of Dave shoppers more low income shoppers.

With the.

Speaker Change: With the inflationary environment that dropped off a little bit to about 16%.

Speaker Change: Recovered almost back to 20% again so.

Riles McIlwain: So that tells me that perhaps the consumer is getting a bit healthier. Either that, or they're tired of the lack of differentiation in cheaper products and are coming back to this. I see that as a good macro sign that lower-income households are starting to come back. Beyond that, you know, we are seeing some strength in other parts of the portfolio. Wonder is a good example.

Speaker Change: That tells me that perhaps that the consumer is getting a bit healthier.

Speaker Change: Either that or they are tired of lack of differentiation and cheaper products and are coming back because I see that as a good macro sign that lower income households are starting to come back beyond that we are seeing some strength in other parts of the portfolio Wonder is a good example that has a lower price point item for us but.

Speaker Change: Wander across sandwich, buns, and rolls Antelope has been doing quite well.

Riles McIlwain: That is a lower price point item for us, but Wonder across sandwich buns, rolls, and a loaf has been doing quite well. Nature's Own Perfectly Crafted continues to do well, with positive unit growth in the quarter. I think, you know, the one weak spot that we still have that we talked about in prior quarters is sort of the broader basic Nature's Own product, whether that's honeyweed or 100% whole wheat. You know, that is the area of the category that has experienced the most weakness during this era of private label trade down.

Speaker Change: Nature's own perfectly crafted continues to do well with positive unit growth in the quarter.

Speaker Change: I think the one weak spot that we still have that we've talked about in prior quarters.

Speaker Change: The broader basic nature zone product, whether that's honey wheat or 100% whole wheat.

Speaker Change: That is the area of the category that has experienced the most weakness during this era of private label trade down.

Riles McIlwain: I think some of that is starting to come back out of private label into brands like Wonder, and if things continue to improve, I'd expect it to continue to come back to brands like Nature's Own as well.

I think some of that is starting to come back up out of private label and the brands like wondering if things continue to improve.

Speaker Change: Unexpected to continue to come back to brands like Nature's out as well.

William Bates Chappell: Got it. Now that helps. And then, you know, a question we haven't really talked about in a long time is just kind of DSD network expansion. Where does that stand?

Speaker Change: Got it that helps and then.

Speaker Change: A question.

Speaker Change: We haven't really talked about it a long time is just kind of DSD network expansion, but where does that stand and do you are you still adding routes be it in California or elsewhere. Today is it more about velocity and more products through the existing routes or are you actually shrinking or are there areas, where it doesn't make as much sense.

Riles McIlwain: Are you still adding routes, be it in California or elsewhere today? Is it more about velocity and more products through the existing routes? Are you actually shrinking? Are there areas where it doesn't make as much sense as you're trying to be more efficient? You know, any kind of thoughts on the DSD network as it stands today would be helpful.

Speaker Change: As you are trying to be more efficient.

Speaker Change: Any any kind of thoughts on kind of the DSD network as it stands today would be helpful.

Riles McIlwain: Sure. Yeah, it's a little bit of a mixed bag. Now, California is its own thing because, you know, we're converting to company routes there. But, you know, in some areas where we have higher growth, we're adding routes because routes are starting to get full. When that happens, it's usually quite a nice lift to sales to break up those routes and better serve the stores in that area. So in some places, we're adding. In some places on the fringe, we're not.

Speaker Change: Sure, Yes, it's a little bit of a mixed bag now, California has its own thing because we're converting to accompany routes there.

Speaker Change: But in some areas, but we had higher around it we're adding routes because browser starting to get full when that happens, it's usually a quite a nice lift to sales to break up those routes.

Speaker Change: And better service to the stores in that area. So in some places we're adding in.

Speaker Change: In some places on the on the on the fringe where not.

Riles McIlwain: And in other areas, you know, as we move into geographic territories, we're adding routes as well. So it kind of depends on where you are, what the growth trajectory is, and how new the territory is. I think the key takeaway is that we are, what we're really trying to do is make our DSD network as efficient as it possibly can be. So, for example, if you're in an area where you've got, you know, lower household penetration, lower market share, and those independent routes may be struggling, we might convert them to company routes for a while until we get, you know, enough sales. In other areas where we're growing, we'll split them up and actually add routes. So it really just kind of depends. The key word is diversity, and that's what we're looking for.

And in other areas as we move into new geographic territories, we are adding routes as well so it kind of depends on where you are what the growth trajectory is how new the territory is I think the key takeaway is that we are what we're really trying to do is make our DSD network and as efficient as it possibly can be.

William Bates Chappell: Got it. Thanks so much.

Speaker Change: So for example, if you're in an area where you've got.

Speaker Change: Lower household penetration lower market share and those independent routes that maybe struggling we might convert them the company routes for a while.

Speaker Change: Until we get on our sales in other areas, where we're growing.

Speaker Change: We'll split them up and actually add route so it really just kind of depends.

Speaker Change: The key word about it and that's what we're looking.

Speaker Change: Got it thanks, so much.

Kim: Thank you Kim.

Operator: One moment for our next question, please. And it comes from James Salera with Stephens. Please proceed.

Speaker Change: For our next question please.

Speaker Change: And he comes from James <unk> with Stephens. Please proceed.

Speaker Change: Yeah.

James Ronald Salera: Hi, guys. Good afternoon. Thanks for taking our question. To add on the volume side, in the preparers' remarks, Riles, you mentioned

James: Hey, guys. Good afternoon, thanks for taking our question.

Speaker Change: Sure.

Speaker Change: On the on the volume side.

Speaker Change: Parents remark you mentioned the.

Unknown Executive: That's obviously contributed some headwinds on the volume side, and absent that, total company volume would have been positive.

Speaker Change: Planned business, that's obviously contributed some headwinds on the volume side absent that.

Speaker Change: <unk> company volume would've been positive.

Unknown Executive: It's possible. Can you tell us what it would have been like with the actual?

Speaker Change: If possible can you tell us what it would have been like what the actual volume number would have been absent that.

Riles McIlwain: www.youtube.com or the link in the description below. Yeah, sure. So, yeah, we did say, Jim, if you took the intentional strategic exits, and we didn't quantify it, but if you took the intentional strategic exits out, total company volumes would have been positive. The reason we're saying it that way is because we did this on purpose, as we talked about. We had a low-margin business that was never going to be a big contributor, and we made the strategic decision to free that capacity up to move into higher-margin business.

Speaker Change: And beyond that is the weakness in the other category, primarily coming from some of the restaurant customers could you called out some weakness in fast food so any color around that would be helpful.

Speaker Change: Yes, sure. So yes, we did say Jeremy if you took the intentional strategic exits and we didn't quantify it but if you took the intentional strategic exits out total company volumes would have been positive. The reason, we're saying it that way is because we did this on purpose as we as we talked about we had low margin business that was never going to be a big contributor.

Speaker Change: Peter.

Peter: And we made the strategic decision to free that capacity up to move into higher margin business. The good news and I think one of larger stories of the quarter is that's exactly what we're doing we're beginning to lap all those strategic exits so youll see those.

Riles McIlwain: The good news, and I think one of the larger stories of the quarter, is that's exactly what we're doing. We're beginning to lap all those strategic exits, so you'll see those continue to go down as we move through the year. We pretty much lap all of them in the third quarter, with only very minor strategic exits in the back half, and we're replacing that volume with business that meets or exceeds our variable margin targets, depending on what category of business we're talking about, whether it's branded or whether it's other. So, that's really the key takeaway there.

Peter: <unk> to go down as we move through the year, we pretty much lap all of them in the third quarter will be very minor strategic exits in the back half and were replacing that volume with business that meets or exceeds our variable margin targets, depending on what category business, we're talking about whether it's branded or whether it's other.

Peter: So that's that's really the key takeaway there.

Unknown Executive: Okay, great. And maybe if I could dig in on Dave's for a second, you know, continues

Speaker Change: Okay, great and maybe if I could dig in on aged for a second.

Unknown Executive: grow ahead of the category, which is great, obviously a very differentiated offering. Can you just give us a sense for where it continues to source volume from?

Speaker Change: To grow ahead of the category, which is great obviously, a very differentiated offering.

Riles McIlwain: And is it other larger branded players? Is it bringing people from outside of the category? Just so we can kind of size up how long it can continue to run ahead of the broader category growth. Yeah, as we've looked at that, it's, you know, it has taken some share from other players and especially premium, and it's, you know, we look at days against the especially premium category because we really don't have anything else to compare it to.

Speaker Change: Can you just give us a sense for where it continues to source volume from it.

Speaker Change: Other larger.

Speaker Change: Branded players is bringing people from outside of the category. Just so we can kind of size up how long. It can continue to run ahead of the broader category growth.

Speaker Change: Yes, as we've looked at that.

Speaker Change: It has its taken some share from other players and especially premium minutes.

Speaker Change: We look at days against the specialty premium category, because we really don't have anything else to compare it to.

Riles McIlwain: But it kind of stands apart even from the especially premium category because the special premium segment of the category is really, really, and Dave's is at a price point quite a bit higher than the rest of the especially premium category. So it's really kind of hard to compare it to that.

Speaker Change: But it kind of stands apart evens from specialty premium because the special premium segment of the category is really really weak right now.

Dave: And Dave's.

Dave: Price point quite a bit higher than the rest of the specialty premium category. So it's really kind of hard to compare it to that.

Riles McIlwain: And it drives the category, you know, it pretty much is the organic brand category. But to answer your question, yes, it brings new people back into the category just because of its quality and differentiation. But Jim, also remember, it's also household penetration. The household penetration rate from days is roughly half of what nature's own. And so through our marketing investments, as we grow geographically, etc., we're growing that household penetration. So that's a big contributor as well. Okay, great. Thanks, guys.

Dave: And it drives the.

Dave: It pretty much is the organic brand category.

Dave: But to answer your question, yes, it brings new people back into the category just because of its quality and differentiation, but you'll also remember its also household penetration.

Dave: Household penetration from days is roughly half of what nature does and so through our marketing investments as we grow geographically et cetera, we're growing that household penetration. So that's a big contributor as well.

Speaker Change: Okay, great. Thanks, guys I'll hop back in the queue.

Operator: One moment for our next question. And it's from Mitchell Pinheiro with Sturdevant and Company. Please proceed.

Jim: Thanks, Jim.

Speaker Change: And for our next question.

Speaker Change: And he's from mid <unk> opinion in Europe.

Speaker Change: <unk> company. Please proceed.

Mitchell Brad Pinheiro: Yeah, hey, good afternoon. I'm curious. You said you elevated the away from home part of the business to balanced growth as part of your strategy mix and your portfolio mix. And I thought, I thought that was interesting.

Speaker Change: Hey.

Speaker Change: Good afternoon.

Speaker Change: I'm curious I'm curious.

Speaker Change: You said you elevated the away from home.

Speaker Change: Part of the business to the balanced growth.

Speaker Change: As part of your strategy.

Speaker Change: And the portfolio mix I thought.

Speaker Change: Thought that was interesting.

Mitchell Brad Pinheiro: Do you know, and that balanced growth means you're gonna grow above the category? So what's driving that? I mean, you've exited from some unproductive accounts. Are the accounts that you're in now growing in excess of the category, and that's sort of why, or is there the ability to gain share but at a strong margin? I'd love to hear your thoughts on that move.

Speaker Change: Does that.

Speaker Change: Balanced growth means youre going to grow above the category.

So what's driving that I mean, you've exited from.

So unproductive accounts.

Speaker Change: Does are the accounts that you're in now growing in excess of the category and that's sort of why or is there ability to gain share but at a strong margin.

Speaker Change: I'd love to hear your thoughts on that move.

Riles McIlwain: Well, first of all, I'm glad you noticed that. It's an important point tonight. Yeah, so now that we've freed up our capacity to pursue better business, you know, we felt that it made sense to move it into that category because we're gonna place more focus on it. But that does not mean that we're going to over-allocate resources to it. To the detriment of the brand and business, the strategy remains the same.

Speaker Change: Sure well first of all I'm glad you noticed that.

Speaker Change: It's an important point Tonight.

Speaker Change: Yeah. So now that we freed our capacity up to pursue better business.

Speaker Change: We felt that it made sense to.

To move it into that category, because we're going to.

Speaker Change: We will focus on it now that does not mean that we're going to over allocate resources to it.

Speaker Change: To the detriment of the branded business. The strategy remains the same we are moving to be consumer focused brand oriented company, but when you look at the broader bank foods category. There is tremendous opportunity in away from home that we can capture with limited investment we don't have to do a whole lot in terms of capacity.

Riles McIlwain: We're moving to be a consumer-focused, brand-oriented company. But when you look at the broader baked foods category, there is tremendous opportunity in a way from home that we can capture with limited investment. We don't have to do a whole lot in terms of capacity or automation, et cetera, to capture some of that volume. And there are opportunities out there and customers who want us to serve them who are willing to deliver much fairer margins than we may have had in the past.

Sure.

Speaker Change: <unk> et cetera to capture some of that volume and there are opportunities out there and customers who want us to serve them.

Speaker Change: That are willing to deliver much fairer margins. Then we may have had in the past so we've always talked about.

Riles McIlwain: So, you know, we've always talked about our away from home business being an important contributor to the company, and this makes sense because the more profitable that we can make that business, the more resources we're going to have to allocate towards innovation and marketing and all the fun stuff we like to talk to you guys about every quarter.

Speaker Change: Our away from home business being an important contributor to the company.

Speaker Change: And this makes us because the more profitable that we can make that business. The more resources, we're going to have to allocate towards innovation and marketing and all the fun stuff, we like to talk to you guys about every quarter.

Speaker Change: That's the rationale.

Mitchell Brad Pinheiro: Okay, thank you. And then You know, you're launching a lot of new products. You know, I thought I read 11 new products. How do you think about that? First of all, in terms of priority of those new products, which ones are going to be at the top? And as, you know, these new products obviously would complicate, certainly, you know, in the bakeries as you're transitioning, you know, to things, is that, how do you think about, like, the new products? Is it going to be positive out of the gate as a margin contributor? In addition to sales, and I'd love to hear your comments on that.

Speaker Change: Okay. Thank you and then.

Speaker Change: You're launching a lot of new products.

Speaker Change: I thought I read 11, new products.

Speaker Change: Right.

Speaker Change: How do you think about that first of all in terms of priority of those new products, which ones are going to be at the top and as you.

Speaker Change: These new products obviously.

Speaker Change: Complicate.

Speaker Change: Certainly.

Speaker Change: In the bakeries as you're as you're transitioning.

Speaker Change: Two things is that how do you think about like the new products is it going to be positive out of the gate as a margin contributor.

Speaker Change: In addition to sales and love to hear your comments on that.

Riles McIlwain: Sure, great question. I mean, we go through a very rigorous process that covers every single one of the points you just made.

Speaker Change: Sure Great question I mean, we go through a very rigorous process that covers every single one of the points. You just made we start with the consumer number one does the consumer even want this Brian is the answer to that is yes, then we start looking at.

Riles McIlwain: We start with the consumer number one. Does the consumer even want that? If the answer to that is yes, then we start looking at commercialization and financials, and how does this fit operationally? Is it going to create complexity in the plant? If so, how much?

Speaker Change: Commercialization in financials and how does this been operationally is it going to create complexity. If so how much and we don't launch anything that doesn't make sense for the consumer.

Riles McIlwain: And we don't launch anything that doesn't make sense to the consumer, or does it make sense from a financial standpoint, or does it make sense from an operational standpoint? We have to check all of those boxes before we launch anything. But it's a great question because we go through that entire, that entire sort of funneling process, if you will, before we launch anything.

Speaker Change: Or does it make sense from a financial standpoint or does it make sense from an operational standpoint, we have to check all of those boxes.

Speaker Change: Before we will launch anything.

But it's a great question, because we go through that entire.

Speaker Change: That entire sort of funneling process. If you will before we launch any of these new items.

Speaker Change: And then just go off line.

Speaker Change: Sure.

Speaker Change: Yeah.

Mitchell Brad Pinheiro: Go ahead. I'm sorry, are these soft launches, or are they going to be a more substantial rollout?

Speaker Change: Go ahead.

Ivy: I'm, sorry, Ivy soft launches or are there going to be more substantial rollouts.

Riles McIlwain: Yeah, there are some of them that are more regional. But you know, a lot of times, you know, because we can make this stuff in so many bakeries Mitch, most of them will be throughout the network.

Speaker Change: Yes.

There are some of them that are more regional but a lot of times because we can make this stop and so many bakeries Mitch.

Speaker Change: Most of them will be throughout the network.

Mitchell Brad Pinheiro: I had one more question on gross margin; it was a sizable expansion in the quarter. And, you know, you talked about pricing contributing, but pricing's been contributing about that rate for the last several quarters. So it seems like... You know, it's more than just that, and you call it out some other things, but if you had to, you know, order them, I mean, I'd love to know which were the largest contributors, and then, you know, is it price, or is it the mix?

Speaker Change: One more question on gross margin.

Speaker Change: It was.

Speaker Change: It was a sizable <unk>.

Speaker Change: <unk> in the quarter.

Speaker Change: And you talked about pricing contributing but pricing has been contributing about that rate for the last several quarters. So it seems like.

Speaker Change: It's more than just that you called out some other things but.

Speaker Change: If you had it.

Speaker Change: Order them I mean, I'd love to know which were the largest contributors.

Speaker Change: Then.

Speaker Change: Yeah.

Speaker Change: Is it price is the mix.

Mitchell Brad Pinheiro: um, really helping there at all or not, and then you see. I know it's a large, long quarter, and you generally get some nice, you know, you get some volume, you know, some leverage there. Does that, are we going to see a drop off in gross margin in the second quarter?

Speaker Change: Really helping there at all or not and then.

Speaker Change: Hum.

Speaker Change: Do you see.

Speaker Change: I noticed the large long quarter, you generally get some nice you get some volume some leverage there does that are we going to see a drop off in gross margin in the second quarter.

Unknown Executive: I mean, obviously, you know, we've had to, you know, we've taken. [inaudible] Obviously, we have some nice commodity tailwinds coming into the year, that do continue primarily through the first half, some into the third quarter, and they start to wane from Q3 and Q4, so that would be the second, I'd say, primary driver outside of the top line from an overall gross margin perspective.

Speaker Change: Yes.

Speaker Change: I mean, obviously, we've had to we've taken considerable pricing to help mitigate some of the inflationary pressures. So that continues to really help from a topline and gross margin perspective, and the mix talking about Dave on the growth there continuing to see really nice contribution overall comprise mix. So.

Speaker Change: I'd say that I would read that number one and then.

Speaker Change: Obviously, we had some nice commodity tailwind coming into the year.

Speaker Change: And that does continue primarily through the first half some into the third quarter and they started to wane.

Speaker Change: Q3, and Q4, so that's that would be the.

Speaker Change: The second I'd say primary driver.

Speaker Change: Out of the top line from a overall gross margin perspective.

Unknown Executive: Mitch, also, you know, as we talk about the savings initiatives, some of those are going to benefit gross margin, not just S&A but gross margin as well. And we also pointed out that, in the quarter, we had a couple of discrete operational issues that we were working on that definitely impacted gross margin. If we had, you know, hit closer to plan, we would have outperformed even the number we turned down on the bottom line.

Speaker Change: Mitch also.

Speaker Change: As we talk about the savings initiatives some of those are going to benefit.

Speaker Change: Gross margin not just SG&A, but gross margin as well.

Speaker Change: And we also pointed to in the quarter.

Speaker Change: Had a couple of discrete operational issues that we were working on it definitely impacted gross margin.

Speaker Change: But if we had hit closer to plan. We would have we would have outperformed even the number we turned that on the bottom line. So as we get as we get those things.

Unknown Executive: So, you know, as we get those things squared away, it's just two bakeries, it's not the end of the world, but it did have a bit of an impact on the quarter. As we bring that more back in line, that'll benefit gross margin. It'll benefit the whole company, but particularly gross margin.

Speaker Change: Two two bakeries, if not the end of the world, but it did have a bit of an impact on the quarter because we bring that more back in line. That's also going to benefit gross margin will benefit hoping.

Speaker Change: Particularly gross margin forecast that expectation is.

Mitchell Brad Pinheiro: I mean, the forecast beyond that expectation is good, to increase gross margin year over year. But obviously, you know, we're expecting a gross margin quarter by quarter, just different.

Speaker Change: To increase gross margin year over year, but obviously.

Speaker Change: Expecting that gross margin quarter by quarter just different magnitudes.

Speaker Change: Okay.

Mitchell Brad Pinheiro: All right, that's all for me. Thank you.

Alright, Thats all from me. Thank you.

Operator: Thank you, and as a reminder to our TV audience, if you do have a question, simply press star 1 1 to get in the queue. One moment for our next question, and it comes from the line of Connor Rattigan with Consumer Edge. Please proceed.

Speaker Change: Thank you and I'm.

Speaker Change: As a reminder to our tenant audience. If you do have a question simply press star one one ticketing makiya.

Speaker Change: One moment for our next question.

Speaker Change: And it comes from the line of Conor Rat again with consumer edge. Please proceed.

Speaker Change: Good afternoon, thanks for taking our question.

Connor Rattigan: Good afternoon. Thanks for taking our question. Hey, Connor.

Speaker Change: Okay got it.

Connor Rattigan: So, in your prior remarks, Riles, you noted that you guys remain well below pre-pandemic promo levels, and that doesn't really seem like there's been a real big, notable lift on promo, but it does sound like your digital initiatives are really impacting your promo strategy. So, I guess what learnings have you guys gleaned so far on the promotion front from those initiatives? And also, if you're not seeing as strong of a lift as you would like, should we maybe interpret that that may inform your spending decisions as you kind of debate the balance between using more promotion versus marketing spend?

Speaker Change: So.

Speaker Change: Landmark trial.

Speaker Change: That you guys remain well below pre pandemic promo levels and that doesn't really seem like theirs.

Speaker Change: No real big notable lift on promo, but it does sound like your digital initiatives are really impacting your promo strategy. So I guess, what learnings have you guys clean so far on the promo front.

Speaker Change: And also if youre not seeing as strong of a lift as you as you would like.

Speaker Change: Should we maybe interpret that.

Speaker Change: Inform your I guess your spending decisions as you kind of debate the balance between using more promo versus marketing expense.

Speaker Change: Okay.

Riles McIlwain: Yes, absolutely. And, you know, I will say, it seems like the lifts have gotten a little bit better, but certainly not where we were, you know, in the pre-inflationary period, let's say. We did promote a little bit more in the quarter, pre-targeted, but we did. And we're spending a whole lot less money on trades than in order to do it. And, you know, the digital tools that you mentioned are really helping us achieve that.

Speaker Change: Yes, absolutely.

Speaker Change: We'll say it seems like the lifts have gotten a little bit better, but certainly not where we were.

Speaker Change: Pre inflationary period, let's say.

Speaker Change: We did promote a little bit more in.

Speaker Change: In the quarter pretty targeted but we did.

Riles McIlwain: And we get better insights, we get better sort of postmortems, if you will, on promotions, so that when we do them, we're generally doing them with a good positive return. It's been tremendously helpful, because you can see how much our trade spend has come down over the last three or four years, and a lot of that has been enabled by these digital tools we have now via TPM.

Speaker Change: And but we're spending a whole lot less traits them in order to do it.

Speaker Change: The digital tools that you mentioned are really helping us achieve that and we get better insights, we get better sort of Postmortems. If you will on on promotions.

Speaker Change: When we do them, we're generally doing them with a good a good positive return.

Speaker Change: It's been tremendously helpful. Because I mean, you can see how much are our trade spend has come down over the last three or four years and a lot of that has been enabled by these by these digital tools, we have now via TPN.

Connor Rattigan: Got it. Very helpful. And then just one quick follow-up for me. So you guys also called out the expectation for profitable business wins and increased cost savings initiatives to flow through in the second half. Is this a change from any prior expectations, or was there maybe some sort of a shift of expected cost savings out of 1Q into the back half, or just no change there?

Speaker Change: Got it very helpful. And then just one quick follow up for me.

Speaker Change: Also called out the expectation for a profitable business wins.

Speaker Change: Increased cost savings initiatives to flow through in the second half.

Speaker Change: Is this a change from any prior expectations or was there maybe some sort of a shift of expected cost savings out of <unk> into the back half or just no change there.

Riles McIlwain: So, no, we were able to identify, when we came out of the year, we publicly remarked that we had a target of $30 to $40 million, and as we really got into that, we uncovered further opportunities, and we've been able to raise that, pretty confidently, actually, to $40 to $50 million. And we're already enjoying some of those savings now. And in the prepared remarks, I've listed out a few categories I got it. Thank you so much.

Speaker Change #100: So no we were able to identify when we came out of the year we had a.

Speaker Change #100: Publicly remarked that we had a target of $30 million to $40 million and as we really got into that we uncovered further opportunities and we've been able to raise that pretty confidently actually.

Speaker Change #100: $40 million to $50 million and we are already enjoying some of those savings now and in the prepared remarks I'll just to add a few categories, where we were where we were looking to bring our cost back in line.

Speaker Change #101: Got it thank you very much.

Speaker Change #100: Scott.

Riles McIlwain: Oh, yeah, sorry about the new business, Connor. Let me touch on that, too. So again, similarly, when we started out the year, we had expectations for certain new business wins that we had really good line of sight on. And as we moved through the quarter and continued to work on refilling this strategically exited capacity, we ended up finding more than we thought we were going to, and so our expectations for that have increased somewhat.

Speaker Change #102: Oh, the new but yes, sorry, the new business kind of let.

Speaker Change #103: Let me touch on that too so again similarly, when we started out the year.

Speaker Change #103: We had expectations for.

Speaker Change #103: Certain new business wins that we have really good line of sight too.

Speaker Change #103: And as we move through the year and continue to move through the quarter, rather and continue to work on refilling. The strategically exited capacity. We ended up finding more than we thought we were going to and so our expectations for that.

Speaker Change #104: <unk> increased somewhat nobody's asked this yet sort of about how the cadence of the quarter wet. So this is a good time.

Riles McIlwain: Nobody's asked us yet about how the cadence of the quarter went, so this is a good time as any to address it. The quarter did start off a little weaker than we anticipated that it would. I know originally we had kind of signaled a first-half weighted cadence for the year, but that sort of unexpected weakness early in the quarter got us a little off pace. However, now that we have these increased savings targets and we have line of sight to higher new business wins, we think that that's going to be able to offset that early weakness, thus maintaining guidance for the year. So that's how all that sort of shook out.

Speaker Change #104: To address it.

Speaker Change #104: Quarter did start off a little weaker than we anticipated that it would I know originally we had kind of signaled a first half weighted.

Cadence to the year.

Speaker Change #104: That sort of unexpected weakness early in the quarter got us a little off.

Speaker Change #104: Little off cadence. However, now that we have these increased savings targets and we have.

Speaker Change #104: We have line of sight to hire new business wins.

Speaker Change #104: We think that that's going to be able to offset that early weakness thus.

Speaker Change #104: Maintaining guidance for the year, so that's how all that sort of shook out.

Speaker Change #105: Thank you Anna as I see no further questions in the queue I will hand, it back to Ross Macmillan for final remarks.

Operator: Thank you. And as I see no further questions in the queue, I will hand it back to Riles McMillan for final remarks.

Riles McIlwain: Okay, thank you, Carmen. I'd just like to thank everybody for taking the time today and joining us for questions. We very much appreciate your interest in our company, and, as always, we look forward to seeing you again next quarter. Everybody take care. Thank you, and thank you to everyone. This concludes the conference, and you may now disconnect. Galbo, Mitchell Pinheiro, William Chappell, James Salera, Robert Dickerson, Stephen Powers, James Salera, James Salera, Connor Rattigan, Flowers Foods Inc., Flowers Foods Inc., Flowers Foods Inc., Flowers Foods Inc., Flowers Foods Inc.,

Ross Macmillan: Alright. Thank you Carmen just like to thank everybody for taking the time today and joining us for questions. We very much appreciate your interest in our company and as always we look forward to seeing you get seeing you again next quarter everybody take care. Thank you.

Operator: And thank you, everyone. This concludes the conference, and you may now disconnect.

Speaker Change #107: And thank you everyone. This concludes the conference and you may now disconnect.

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Speaker Change #107: Yes.

Speaker Change #107: Okay.

Speaker Change #107: Okay.

Speaker Change #107: [music].

Speaker Change #107: Okay.

Speaker Change #107: Okay.

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Speaker Change #107: Yeah.

Speaker Change #107: Yes.

Speaker Change #107: [music].

unknown: 5. Farming on the Farm 1. The Cows 2. The Donkeys 3. The Brains 4.

unknown: The Crows 5. The Goats 6. The Peas 7.

unknown: The Cows 8. The Horses 9. The Dogs 10.

unknown: The Horses 11. The Horses 12. The Cows 13. The Donkeys 14. The Horses 15. The Donkeys 16. The Cows 17. The Horses 18. The Donkeys 19. The Dogs 20. The Horses 21. The Goats 22. The Cows 23. The Horses 24. The Cows 25. The Donkeys 26. The Horses 27. The Horses 28. The Cows ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? [inaudible] ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?

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Speaker Change #107: [music].

Speaker Change #107: [music].