Q1 2025 Flowers Foods Inc Earnings Call
Yeah.
Unknown Executive: Good morning and thank you for standing by.
Speaker Change: Good morning, and thank you for standing by welcome to the flowers Foods first quarter 2025 results conference call. Please be advised that today's event is being recorded.
Unknown Executive: Welcome to the Flowers Foods first quarter 2025 results conference call. Please be advised that today's event is being recorded.
Unknown Executive: I would now like to hand the conference over to your opening speaker today, J.T.
J.T. Rick: Now ill turn the conference over to your opening speaker today, J T. Rick Executive Vice President of Finance and Investor Relations. Please go ahead.
J.T. Rick: Rick, Executive Vice President of Finance and Investor Relations. Please go ahead. Thank you and good morning. 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 risk and uncertainties that could cause actual results to differ materially.
J.T. Rick: Thank you and good morning, I hope everyone had the opportunity to review our earnings release listen to our prepared remarks, and we use a slide presentation that we're all posted earlier on our Investor Relations website.
J.T. Rick: After today's Q&A session. We will also pursue an audio replay of this call.
J.T. Rick: Please note that in this Q&A session. We may make forward looking statements about the company's performance.
J.T. Rick: We believe these statements to be reasonable they are subject to risks and uncertainties that could cause actual results to differ materially.
J.T. Rick: 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.
J.T. Rick: In addition to what you hear in these remarks important factors relating to flowers Spirit's business are fully detailed in our SEC filings.
J.T. Rick: 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 join.
Riles McMullin: Joining me today are Riles McMullin, Chairman and CEO, and Steve Kinsey, our CFO. Riles, I'll turn it over to you. Okay, thanks, JT. Good morning, everybody. While none of us here are satisfied with our absolute performance in the quarter, We did hold unit share in a category that faced greater than expected decline. Those results in an uncertain economic environment do highlight the importance of our portfolio strategy and the strength of our brand. To mitigate this category weakness, we're continuing to invest in on-trend innovation and targeting significant opportunities in faster-growing categories and adjacent sectors. by aligning our portfolio with evolving consumer tastes and targeting new white space for growth.
Ross Macmillan: Joining me today at Ross, Macmillan, Chairman, and CEO, and Steve Kinsey, our CFO I'll turn it over to you. Okay. Thanks, Jay and good morning, everybody.
Speaker Change: While none of US here are satisfied with our absolute performance in the quarter.
Speaker Change: We did hold share in a category that face greater than expected declines.
Speaker Change: Those results in an uncertain economic environment do highlight the importance of our portfolio strategy and the strength of our brands.
Speaker Change: To mitigate this category weakness, we're continuing to invest in on trend innovation and targeting significant opportunities and faster growing categories and adjacencies.
Speaker Change: By aligning our portfolio with evolving consumer taste and targeting new white space for growth.
Riles McMullin: We aim to maximize near-term performance while developing our brands and capabilities to drive sustainable growth over the long term. I remain confident that the initiatives we have in place now will enable us to enhance shareholder value and grow in line with our long-term financial target.
Speaker Change: We aim to maximize near term performance, while developing our brands and capabilities to drive sustainable growth over the long term I remain confident that the initiatives. We have in place now will enable us to enhance shareholder value and grow in line with our long term financial targets.
Riles McMullin: Michelle, with that, we're ready to take questions. Thank you.
Speaker Change: Michelle with that we're ready to take questions.
Michelle: Thank you if you'd like to ask a question. Please press star one one.
Unknown Executive: If you would like to ask a question, please press star 1 1.
Unknown Executive: If your question has been answered and you would like to remove yourself from the queue, please press star 1 1 again.
Speaker Change: If your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Jim Salera: Our first question comes from Jim Salera with Stevens, your line is open. Good morning. Thanks for taking our question.
Speaker Change: Our first question comes from Jim Soliris Soliris with Stephens. Your line is open.
Speaker Change: Hey, guys. Good morning, Thanks for taking my question.
Jim Salera: I wanted to start off and maybe just ask on the core package bread category. You know, I can appreciate some of the shareholds you guys highlighted and strength of some of the better for you, Dave's Killer and Keto, obviously. But if we think about what it takes to drive, whether your brands in particular or the category, back to kind of even just a stabilization point, what should we be looking for to see, you know, unit share kind of stabilize and ideally get back to positive? Is that something that we think can happen this year? Or are we looking more towards, you know, 26 already?
Speaker Change: I wanted to start off maybe just ask on the core packaged bread category can appreciate.
Speaker Change: Some of the share holds that you guys highlighted some strength of some of the better view Dave's killer in Quito, obviously, but if we think about what it takes to drive whether your brands in particular or the category back to kind of even yourself stabilization point, what should we be.
Speaker Change: Looking forward to see you.
Speaker Change: Unit share kind of stabilize them ideally get back to the deposits is that something that we think could happen. This year or are we looking more towards 26 already at this point.
Riles McMullin: Yeah, Jim, thanks for the question. So there's a lot going on. You know, things remain quite dynamic and fluid, you know, from consumer health to, you know, economic uncertainty, you know, the whole situation with tariffs, etc. And, you know, it makes it very, very difficult to forecast. I was asked a similar question, I think back in February, you know, when I thought things might improve. And at that time, I said, you know, probably no sooner than the second half.
Jim Soliris: Yes, Jim Thanks for the question. So there is a lot going on.
Speaker Change: Yes, things remain quite dynamic and fluid.
Speaker Change: From consumer health to economic uncertainty.
Speaker Change: Yes, the whole situation with tariffs et cetera.
Speaker Change: And it makes it very very difficult to forecast.
Speaker Change: When you're in an environment like that.
Speaker Change: I was asked a similar question I think back in February when I thought things might improve and at that time I said.
Speaker Change: No sooner than the second half.
Riles McMullin: But frankly, given the trends that we saw in the first quarter where things actually weakened further than we had anticipated, my mind's already moving to 26, so I don't know that we see a tremendous amount of improvement this year. Now, certainly for our business specifically with the new business wins that we're getting that are just now coming online, significant space gains that we've won in the spring, resets that are just now coming online. We think we have things there to mitigate some of those headwinds, but I think the biggest positive influence on our results going forward are going to be better consumer health.
Speaker Change: But frankly, given the trends that we saw in the first quarter, where things actually weakened further than we had anticipated my mind is already moving to 26. So I don't know that we see a tremendous amount of improvement this year.
Speaker Change: Certainly for our business, specifically with the new business wins that we're getting they're just now coming online.
Speaker Change: Significant space gains that we've won in the spring resets that are just now coming online.
Speaker Change: We have.
Speaker Change: With that we have things there too to mitigate some of those headwinds.
Speaker Change: But I think that the biggest.
Speaker Change: Positive influence on our results going forward are going to be better consumer health.
Riles McMullin: If you look at what's going on in the category, there's definitely a premiumization versus a value play going on here. What's getting squeezed is the middle. And the middle, unfortunately, is where we have the most exposure. So that traditional loaf and white bread, those traditional loaf and white bread segments of the category. We believe that the key to reinvigorating that part of the business is further differentiation. And we have plans in regard that we're putting in place. That's a huge segment for us. We need to address it and further differentiate ourselves from the competition.
Speaker Change: If you look at the if you look at what's going on in the category.
Speaker Change: There's definitely a premium position versus a value play going on here whats getting squeezed as the middle and the middle Unfortunately is where we have the most exposure so that traditional open whitebread those traditional open whitebread segments of the category.
Speaker Change: We believe that the key to reinvigorating that part of the businesses further differentiation and we have we have plans in that regard that we're that we're putting in place that's a huge segment for us.
Speaker Change: We need to address it and further differentiate ourselves from the competition.
Riles McMullin: Our philosophy is You know, when we're in economic situations like this, you know, the way out of it is not to try to promote your way out of it. We believe in using promotion primarily to drive trial, particularly as we bring out new innovative products and brands, and not necessarily to drive volumes because that can devalue our business and the category. So we're focused on, you know, smart promotion certainly, but heavily focused on brand investment and innovation. When we get that improved consumer health. The way we've positioned ourselves with our brands, I think we're going to be in a great position to benefit when consumer health returns, and it eventually will.
Speaker Change: Our philosophy is.
Speaker Change: When we're in such an economic situations like this.
Speaker Change: Out of it is not to try to promote your way out of it.
Speaker Change: We believe in using promotion primarily to drive trial, particularly as we bring out new innovative products and brands.
Speaker Change: Not necessarily to drive volumes, because that can devalue our business in the category.
Speaker Change: So we're focused on smart smart promotions certainly.
Speaker Change: But heavily focused on brand investment and innovation when we get that.
Speaker Change: Improved consumer health.
Speaker Change: The way, we positioned ourselves with our brands I think we are going to be in a great position to benefit when.
Speaker Change: When consumer health returns and it eventually will.
Jim Salera: So long answer, Jim, but that's... That's how we're thinking about it. No, no, I appreciate all the detail.
Speaker Change: So long answer John but that's.
Speaker Change: That's how we're thinking about it.
Speaker Change: Alright, I appreciate all the detail.
Jim Salera: And maybe a follow up question drilling down a little bit on the Wonder Cake innovation. I believe in the prepared remarks, you said, you know, that spacing ahead of your expectations on the distribution front and actually contributed to the unit share gain. In the retailers that are adding that lineup onto shelves, do you find that it's it's incremental to your other offerings? Or is that kind of a swap for your legacy cake business? And the one or just performs better? So net net, it gains unit share, any details you can offer there? Yeah, it's a little early to call.
Speaker Change: Maybe a follow up question drilling down a little bit on the wonder take innovation I believe in the prepared remarks. He said that is pacing ahead of your expectations on the distribution front it actually contributed to the unit share gain.
Speaker Change: In the retailers that are adding that lineup and on the shelves do you find that it's incremental to your other offerings are of that kind of a swap for your legacy business and the wonder just performed better. So net net it gained unit share any details you can offer there would be helpful.
Speaker Change: Yes, it's a little early to call.
Riles McMullin: You know, right now, it's it, it's sort of more than all set the other part of the cake mess. But again, it's it, you know, it just launched.
Speaker Change: Right now it's.
Speaker Change: It sort of more than offset the other part of the calculus, but again.
Speaker Change: It just launched.
Speaker Change: <unk>.
Riles McMullin: One retailer went a little bit early, but it's it's only been in that retailer for a few weeks So I think we need a little more time to see how that all shakes out So hopefully by next quarter, I think we'll have a probably a bit of a clearer picture on what that trade-off looks like All great.
Speaker Change: One retailer went a little bit early but it's only been in that retailer for a few weeks. So I think we need a little more time to see how that all shakes out. So hopefully by next quarter I think we'll have a probably a bit of a clearer picture on what that tradeoff looks like.
Speaker Change: Okay, Great I appreciate it I'll hop back in the queue.
Jim Salera: I appreciate it.
Jim Salera: I'll be back in a few.
Unknown Executive: Thank you.
Speaker Change: Thank you. Our next question comes from Max <unk> Port with BNP Paribas. Your line is open.
Max Gumport: Our next question comes from Max Gumport with BNP Paribus. Your line is open. Hey, thanks for the question. It sounds like there's been a change in your stance on promotions a bit, particularly in the prepared remarks where it sounds like You're seeing higher lefts more recently. and and that's led to you maybe to lean in on promotions a bit heavier than you would have previously anticipated. I think particularly for Dave's Killer Bread and some of your other differentiated offerings. Can you talk a bit about what you're seeing from the consumer? and how that's getting you to maybe lean into promotions a bit more and then what that could mean for a price mix, particularly in branded retail this year.
Speaker Change: Okay.
Speaker Change: Question It sounds like Theres been a change in your stance on promotion, particularly in the prepared remarks, where it sounds like.
Speaker Change: Youre seeing higher less more recently.
Speaker Change: And that team.
Speaker Change: Maybe to lean in on <unk>.
Speaker Change: Sure.
Speaker Change: Heavier than you would have previously anticipated I think particularly for Dave's killer bread and some of your either differentiate offerings can you talk a bit about what youre seeing from the consumer and how that's getting you to maybe lean empty promotions a bit more and then that could mean for pricing, particularly in branded retail this year. Thanks very much.
Riles McMullin: Thanks very much. So most of that increase in promotional activity was around our more differentiated offerings like Dave's Killer Bread, and a lot of that came towards the towards the end of the quarter and in period four. You know, as I just responded to Jim, you know, we've never been the the most highly promoted player in the Fresh Packaged Bread category. We like to use it collectively, and we primarily use it to drive trial. You know, certainly there are sometimes opportunities to to get some volume lift from promotions. But when you look at this category and understand that 93% of the sales are base sales, there's not a lot of opportunity for incrementality from a volume standpoint on top of that.
Speaker Change: Sure.
Speaker Change: So most of that.
Speaker Change: Increase in promotional activity was around our more differentiated offerings like daves killer bread.
Speaker Change: A lot of that came towards the towards the end of the quarter and period for.
Speaker Change: As I just responded to to Jim.
Speaker Change: We've never been there.
Speaker Change: Most highly promoted.
Speaker Change: Player in the fresh packaged bread category, we like to use it selectively and we primarily use it to drive trial.
Speaker Change: Certainly there are sometimes opportunities too.
Speaker Change: To give some volume lift from promotions, but when you look at this category and understand that 93% of the sales of our base sales.
Speaker Change: Not a lot of there's not a lot of opportunity for incrementals from a volume standpoint on top of that.
Riles McMullin: So, you know, you know, promoting at very high levels, from our perspective, our philosophy has always been, you know, that's just going to get you, you know, lower volumes and lower sales over time, and devalue your brand.
Speaker Change: And so.
Speaker Change: Promoting at very high levels from our perspective.
Speaker Change: Our philosophy has always been that's just going to get you lower volumes and lower sales over time.
Speaker Change: Devalue your brands, So we talk a lot about our.
Riles McMullin: So, you know, we talk a lot about our trade promotion system capabilities that have enhanced our understanding of how promotions work and their effectiveness so that we can be, you know, a lot more granular in how we think about our promotional strategy to ensure that we're getting a good return on that investment. Got it. Thank you. And then going back to Jim's question on the bread category, I realize a lot of what we're seeing is due to the consumer health leading to value seeking behavior, which is weighing on the category, which, as you said, should improve at some point.
Speaker Change: Trade promotion system capabilities that have enhanced our understanding of how promotions work and their effectiveness.
Speaker Change: So that we can be a lot more granular.
Speaker Change: How we think about our promotional strategy to ensure that we're getting a good return on that investment.
Speaker Change: Got it. Thank you and then going back to Jim's question on.
Speaker Change: The bread category I realize a lot of what we're seeing is David to that consumer health, leading to value seeking behavior, which is weighing on the category, which as you said should improve at some point.
Riles McMullin: But you're also attributing the weakness to this broader shift to healthier eating. I'd imagine GLP-1 rise in penetration is a factor as well. So, curious on that piece, how do you see the bread category getting out of its current slump with those headwinds likely to be more structural in nature. Thanks very much. Yes, that's part of what I was alluding to in answer to Jim's question. I can't say too much about it right now, but we have plans to directly address that. You know, we're already doing a lot of things from a health and wellness standpoint.
Speaker Change: Youre also attributing the weakness to this broader shift to healthier eating and imagine DLP, one ryzen penetration as a factor as well so curious on that piece, how would you see the bread category.
Speaker Change: Out of its current pump with.
Speaker Change: Those headwinds are likely to be more structural in nature. Thanks very much.
Jim Soliris: Yes, Thats part of what I was alluding to and answered in answer to Jim's question I can't say too much about it right now, but we have plans to have directly to directly address that.
Jim Soliris: We're already doing a lot of things from a health and wellness standpoint, when you think about our offerings under Dk be Canyon Bakehouse, obviously are keto offerings and now with the supplemental as acquisition coming on those are outstanding choices.
Riles McMullin: When you think about our offerings under DKB, Canyon Bakehouse, obviously, our keto offerings, and now, you know, with the Supple Mills acquisition coming on, you know, those are outstanding choices for, you know, people who are interested in health and wellness. The largest part of the category, soft variety and white breads, are less oriented that way. And we see ourselves as an innovation leader in the category. We intend to continue to be an innovation leader in the category and address those consumer needs as we go forward. Great, thanks very much. Thank you.
Jim Soliris: For people, who are interested in health and wellness.
Jim Soliris: The largest part of the category soft variety and and white breads are less oriented that way.
Jim Soliris: We.
Jim Soliris: We see ourselves as an innovation leader in the category, we intend to continue to be an innovation leader in the category and address those consumer needs as we go forward.
Jim Soliris: Great. Thanks very much.
Speaker Change: Thank you. Our next question comes from Mitchell Pinheiro with Sturtevant <unk> Company. Your line is open.
Mitchell Pinheiro: Our next question comes from Mitchell Pinheiro with Sturdivant & Company. Your line is open. Yeah, good morning. So, um, you know what, I'm just looking at your EBITDA margin guidance, um, it's down about 30 or 40 basis points, um, from the prior, where's that, where, how do you think that's going to be, um... Distributed between that gross margin and SDM I mean, when you look at kind of what's impacting that, obviously. You know, we said category trends are big. You know, a big consideration when we pull together our guidance chain. So, obviously, that's going to impact the gross margin line tariffs, obviously impact the input costs.
Mitchell Pinheiro: Yes, good morning.
Speaker Change: Thanks.
Speaker Change: So.
Speaker Change: And I'm just looking at your EBIT.
Speaker Change: EBIT.
Speaker Change: Margin guidance.
Speaker Change: About 30, or 40 basis points from the prior where is that where how do you think thats going to be.
Speaker Change: Distributed between that gross margin and SG&A.
Speaker Change: I mean, when you look at kind of the <unk>.
Speaker Change: Impacting that obviously.
Speaker Change: We said category trends are big.
Speaker Change: Big.
Consideration when we pulled together our guidance changed so.
Speaker Change: Obviously, that's going to impact the gross margin line tariffs, obviously impact the input costs. So thats primarily gross margin.
Mitchell Pinheiro: So, that's primarily gross margin. You know, we're doing some things from a cost-saving perspective. primarily in sDNA to try to offset some of the and mitigate some of the impact of of the top line challenge, as well as the tariff. So I'd say that the majority of that we would expect to see flow through the gross margin line versus the... Gotcha. And then and then so You know, as you look, you know, your long-term targets, you know, between 12 and 14 percent EBITDA margin. You know, we're going to be in the. Low Tens. You know, Riles, how's your confidence?
Speaker Change: We're doing some things from a cost saving.
Speaker Change: <unk>.
Speaker Change: Primarily in S. DNA to try to offset some of the and mitigate some of the impact of.
Speaker Change: The top line.
Speaker Change: Challenge as well as the tariffs so I'd say the majority of that we would expect to see flow through the gross margin line versus us versus them.
Dana: As Dana.
Speaker Change: And then and then.
Dana: So.
Dana: As you look your long term targets between 12, and 14% EBITDA margin and we're going to be in the.
Dana: Low tens.
Speaker Change: Ralph how is your confidence in getting there.
Riles McMullin: getting there and you know, any changes. to how you're going to get there, you know, i.e. fixed cost leverage. more branded, etc.
Dana: And.
Dana: Any changes to how you're going to get there.
Dana: E fixed cost leverage more branded et cetera, I mean any change in your view of your long term EBITDA margin.
Riles McMullin: Any change in your view of your long term EBITDA margin? Oh, Mitch, there's no there's no change in the longer term outlook, you know, but we have to acknowledge that, you know, the environment that we find ourselves in is a bit of a setback, right? So, you know, it may take us a little longer as as we all together, you know, as a country work our way out of this out of this current situation, but, you know, the the building blocks of that strategy and our and our path to get there remain remain the same.
Dana: Mitch There is no there is no change in the longer term out term outlook, but we have to acknowledge that the environment that we find ourselves in as a bit of a setback right.
Dana: So it may take us a little longer as we altogether as a country work our way out of this out of this current situation, but yes.
Dana: The building blocks of that strategy and our path to get there remain remain the same.
Dana: Okay, and then I guess just back.
Mitchell Pinheiro: And then, and I guess, you know, just back, you know, again, not to harp on healthy eating or those trends, but you know, as, as, as you look, you know, at the bifurcated consumer, you know, Bread, you know, and sandwiches and the portability, convenience aspect of fresh bread, you know, has always leaned, you know, it's always been sort of a benefit and growth to the, to the, let's say the lower income cohorts. And I think Why wouldn't you be seeing that now? Is there really a healthy eating switch? Is that, you know, in the lower, even in the lower income to...
Dana: Yes.
Dana: Again.
Dana: On healthy eating or are they are those trends but.
Dana: As as you look.
Dana: The bifurcated consumer.
Dana: Brad.
Speaker Change: <unk> sandwiches in the portability convenience aspect of of <unk>.
Speaker Change: Fresh bread.
Speaker Change: These lean it's always been.
Speaker Change: Sort of.
Speaker Change: A benefit in growth.
Speaker Change: Let's say the lower income cohorts and I think.
Speaker Change:
Speaker Change: Why wouldn't you be seeing that now is there really a healthy eating switch is that in the.
Speaker Change: Even in the lower income too.
Speaker Change: <unk>.
Speaker Change: Yes.
Riles McMullin: with traditional I guess would be higher higher cost items. So just curious, any more color that you could add there? Yeah, I certainly think I mean, if we're focused on the lower income summer, I certainly think there is some of that. But I also think that given the environment. I mean, we have seen an overall pullback in consumption, you know, across across income groups. And so I think that's playing a role as well. Alright, that's all I have.
Speaker Change: Traditionally I guess would be higher higher cost items. So I was just curious.
Speaker Change: Any more color that you could add there.
Speaker Change: Yes, I certainly think we're focused on the lower income. So I certainly think there is some of that but I also think that.
Speaker Change: Given the environment I mean, we have seen an overall pullback in consumption.
Speaker Change: Across across income groups.
Speaker Change: And so I think thats, playing a role as well.
Speaker Change: Okay.
Speaker Change: Okay Alright.
Speaker Change: That's all I have thank you.
Unknown Executive: Thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.
Steve Powers: Our next question comes from Steve Powers with Deutsche Bank. Your line is open. Okay, great. Thank you. Hey, Ryle, so it sounds like an overall initiatives like DKB Snacking and Simple Mills overall are, you know, trending more in line with your expectations, despite everything we've, you know, been talking about in terms of where the consumer is and in value seeking behavior. And I'm setting aside the accounting change, obviously, on Simple Mills. You know, first off, is that is that is that the correct read? And then secondly, if it is, you know, is there? How do you assess the risk that that maybe those initiatives as well kind of fall victim to some of these, some of these macro pressures as the year progresses?
Steve Powers: Great. Thank you.
Speaker Change: So it sounds like.
Steve Powers: Overall initiatives like.
Steve Powers: <unk> snacking and simple meals overall are trending more in line with your expectations. Despite everything we've been talking about in terms of where the consumer is in value seeking behavior and I'm setting aside the accounting change obviously in simple meals.
Steve Powers: First of all is that is that is that the correct read and then secondly, if it is is there.
Steve Powers: How do you assess the risk that that maybe those initiatives as well kind of fall victim to some of these some of these macro pressures as the year progresses and does that is that sort of encapsulated in the new guidance range.
Steve Powers: And is that is that sort of encapsulated in in the new guidance range?
Riles McMullin: Yeah, thanks for the question, Steve. Well, first of all, let's remember that, you know, both Simple Mills and our new snacking business are just that. They're very new. And so you're still picking up a lot of distribution gains, ACV gains, velocities, picking up, that kind of thing. They're helping to drive growth. Having said that, both are performing very, very well. But we've also incorporated, you know, some of the caution around the consumer into the outlooks for both of those businesses. And all of that is reflected in the numbers you've already seen.
Steve Powers: Yeah. Thanks, Thanks for the question Steve.
Steve Powers: Well first of all let's remember that both simple mills and our new snacking business are just that they're very new and so you're still picking up a lot of a lot of distribution gains ACB gains velocity is picking up that kind of thing that are helping to drive growth.
Steve Powers: Having said that both are performing very very well, but we've also incorporated.
Steve Powers: Some of the caution around the consumer into the outlooks for both of those businesses and all of that is reflected in the numbers you've already seen.
Steve Kinsey: Okay, very good. Thank you for that. And then, Steve, you know, you quantify the incremental tariff impact, I guess, you know, beyond obviously kind of layering in the impacts on Simple Mills. Can you just give a little bit more color as to, you know, where that incrementality is coming from? That would help. That'd be helpful. Thank you. Yeah, I mean, obviously, when we gave guidance back in February, you know, the focus was on Canada and Mexico, there really wasn't much focus beyond that from a tariff perspective. And then things changed, and obviously, Canada and Mexico are exempt.
Steve Powers: Okay very good thank you for that and then Steve you.
Steve Powers: Can you quantify the incremental tariff impact I guess beyond obviously kind of layering in the.
Steve Powers: The impact on simple mills could you just give a little bit more color as to where.
Steve Powers: Where that incremental if he was coming from that.
Steve Powers: That would help that'd be helpful. Thank you.
Steve Powers: Sure.
Steve Powers: Honestly, when we gave guidance back in February.
Steve Powers: The focus was on Canada, Mexico, there really wasn't much focus beyond that from a tariff perspective.
Steve Powers: And then things changed and obviously, Canada, and Mexico are exempt and we move to two.
Steve Kinsey: And we moved to other countries, kind of in the supply chain. So that's really where the big impact is coming in. If you set aside, you set aside China, I mean, you know, there's a variety of ingredients that come from outside the US, even though we're wholly domestic. And those are pretty impactful overall, you know, within our products, a lot of it's, you know, sugar, wheat, gluten, palm oil, cocoa. So, you know, those are coming from countries with a decent Tariff Percentage. So those are really the impacts that are driving the change from back in February.
Steve Powers: Other countries.
Steve Powers: And the supply chain.
Steve Powers: So that's really what the big impact is coming in and if you set aside you set aside China I mean, we either there's a variety of ingredients to come from outside the U S. Even though we're only domestic.
Steve Powers: And.
Steve Powers: Those are pretty <unk>.
Steve Powers: Impactful overall.
Steve Powers: Our products a lot of us, but sugar, we gluten palm oil co.
Steve Powers: So those are coming from countries.
Steve Powers: With the diesel.
Steve Powers: Tariff percentage.
Steve Powers: So those are really the impacts that are driving the change from back in February what I would say when you look at the.
Steve Kinsey: What I would say when you look at our guidance and forecast, you know... We're taking a fairly conservative view in that tariffs began, you know, at the end of April for 10% until, for 90 days, roughly August 1st, setting China aside. And then, you know, they go to 100% of the forecasted rate, and that's how we, that's how we built, you know, the tariff impact into our model. If there's any change to that, you know, there will be some benefit, but, you know, not knowing what's going to happen until we get closer to that date, we just thought it was, you know, more prudent to just go ahead and lay out what we thought the worst case scenario could be.
Steve Powers: Our guidance and forecast.
Awesome.
Steve Powers: Uh huh.
Steve Powers: We're taking a fairly conservative view of that tariffs began.
Steve Powers: At the end of April are 10% until for 90 days roughly August 1st setting China side, and then they go to 100% of the forecasted rate and that's how we that's how we built the.
Steve Powers: Tariff impact into our model if there is any change to that.
Steve Powers: There will be some benefit but not knowing what's going to happen until we get closer to that date. We just thought it was more prudent to just go ahead and lay out what we thought the worst case scenario could be yeah. That's helpful and just.
Steve Kinsey: Yeah, that's helpful. And just, you know, on, do you have much exposure to imports or, you know, inputs from China specifically, or are you just using that as an example? No, we do we do get some things from China. There are some ingredients that are specific actually to China. Obviously, we're working on other sources, but right now they're primarily come from China. And I would say when I look at the overall impact, they're probably in the top four or five countries. Yeah.
Steve Powers: Do you have much exposure to imports or inputs from from China, specifically or you're just using that as an example.
Steve Powers: Now we do we do get some things from China. There are some ingredients that are specific actually to China.
Steve Powers: Sure.
Steve Powers: Obviously, we're working on other sources, but right now, they're primarily coming from China, and I would say when I look at the overall impact there are probably in the top four or five countries, yes. Okay.
Scott Marks: Okay. Okay, that's good, Keller. Thank you so much. Appreciate it. Thank you.
Steve Powers: Okay. That's good color. Thank you so much I appreciate it.
Steve Powers: Thanks.
Speaker Change: Thank you. Our next question comes from Scott Mark <unk> with Jefferies. Your line is open.
Riles McMullin: Our next question comes from Scott Marks with Jeffries. Your line is open. Hey, good morning. Thanks for taking our questions. Wanted to ask quickly about the kind of the private label and away from home business. I think you mentioned some some weakness in both of those segments in the prepared remarks. So just wondering if you can kind of share some color on what you're seeing there and how that's impacting the business.
Speaker Change: Hey, good morning, Thanks for taking our questions.
Wanted to ask quickly about <unk>.
Speaker Change: The private label and away from home business I think you mentioned some weakness in both of those segments in the prepared remarks. So just wondering if you can kind of share some color on what youre seeing there.
Speaker Change: And how that's impacting the business.
Riles McMullin: Sure, I'll start with away from home. It's sort of a continuation of the story from the last couple of quarters, you know, there, there has been continued weakness in in overall food service, food service sales, and we're, you know, we're experiencing that just like everyone else. So that's just, you know, an overall theme for the food service business. I will continue to point out, though, that with the restructuring that we've done in our food service business, our profitability continues to improve and margins were up. Yet again, in the first quarter. So that's the good news on that front.
Speaker Change: Sure I'll start with the away from home.
Speaker Change: Sort of a continuation of the story from the last couple of quarters.
Speaker Change: Has been continued weakness in overall foodservice.
Speaker Change: Foodservice sales.
Speaker Change: We're experiencing that just like everyone else so.
Speaker Change: That's just an overall theme for the foodservice business, we will continue to point out, though that with the restructuring that we've done in our foodservice business. Our profitability continues to improve and margins were up yet again in the first quarter. So thats the good news on that front.
Riles McMullin: And we continue to work to refill some of the exited business that we've talked about the last couple of years that were now passed with with higher margin food service business. So we, we've been very pleased with the progress on that front. For for private label, you know, private label has from a market share standpoint, has, you know, marginally reversed its downward trends over the last couple quarters, I think it was up 10 basis points or so in the last quarter, units, total units and private label are still down just not as much as the category was down the pickup and unit share.
Speaker Change: And we continue to work to refill some of the exited business that we've talked about the last couple of years that we're now past.
Speaker Change: With with higher margin foodservice business. So we've been very pleased with the progress on that front.
Speaker Change: For private label.
Speaker Change: Private label has from a market share standpoint, as marginally reverse its downward trends over the last couple of quarters I think it was up 10 basis points or so.
Speaker Change: In the last quarter.
Speaker Change: That's total units in private label are still down just not as much as the category was down does the pickup in unit share.
Riles McMullin: And for us, remember that a lot of our private label businesses bid business, and it comes in and out from time to time. And, you know, a lot of our a lot of our decline was was that lost business and a little bit of price mix. However, as I mentioned earlier, a lot of the new business that we're that we're pulling on is good private label business at good margins that'll help that'll help refill that volume as we move through the year. Understood.
Speaker Change: And for US remember that a lot of our private label business is bid business and it comes in and out from time to time and a lot of our a lot of our decline was was that loss business had a little bit of price mix.
Speaker Change: However, as I mentioned earlier, a lot of the new business that we're that we're pulling on his good private label business at good margins that will help it'll help refill that volume as we move through the year.
Riles McMullin: And then I think also during the prepared remarks, if I'm not mistaken, I saw a call out that your team closed one of your bakeries. Was that related to the food service business or was that on the branded side? That's well, I mean, a lot of our bakeries do both, but it was a it was a fresh bread bun and roll plant, an old one. And, you know, we've been, you know, undergoing the supply chain optimization work for a number of years now. So that's just part of that part of that program. Got it.
Speaker Change: Understood and then I think also during the prepared remarks, if I'm not mistaken.
Speaker Change: I saw a call out that that Youre keen closed one of your bakeries was that related to the foodservice business or was that on the branded side.
Speaker Change: Well I mean, a lot of our bakeries do both but it was a it was a fresh bread bun and roll plant an old one.
Speaker Change: And we've been.
Speaker Change: Under growing the supply chain optimization work for a number of years now. So that's just part of that part of that program.
Riles McMullin: And then just last one for me. I know you called out some some more push into smaller loaves. I'm wondering if you can kind of share some some color on how those have been performing thus far, relative to what you're seeing on the more traditional size product. Yeah, so I mean, this is all about addressing consumer needs, right? I mean, both from a value standpoint, but also acknowledging that, you know, households are smaller. A lot of single individuals and households, families starting later, that kind of thing. And having that smaller loaf that you can consume without, you know, half of it going stale is something that consumers want.
Speaker Change: Got it and then just last one for me.
Speaker Change: I know you called out some some more push into smaller loads.
Speaker Change: I'm wondering if you can kind of share some color on how those have been performing thus far relative to what youre seeing on the more traditional sized products.
Speaker Change: Yeah. So I mean this is all about addressing consumer needs right I mean, both from a value standpoint, but also acknowledging that households are smaller lots.
Speaker Change: A lot of single individuals and households family, starting later that kind of thing and having that smaller loaf.
Speaker Change: But you can consume without half of it going scale is something that consumers want. So we've had two skus out for a while we just added three new skus, which is going to be great for us obviously.
Riles McMullin: So we've had two SKUs out for a while. We just added three new SKUs, which is gonna be great for us, obviously, you know, improving our shelf presence and visibility. And, you know, early returns are good. Also, we have a wonder many half loaf as well that directly addresses, you know, both the smaller household and that that value oriented consumer. Got it. We'll pass it on. Thanks so much. Thank you.
Speaker Change: Proving our shelf presence and visibility and early returns are good.
Speaker Change: Also we have a wonder many half lope as well that directly addresses both the smaller household and that value oriented consumer.
Speaker Change: Got it will pass it on thanks, so much.
Yes.
Speaker Change: Thank you I'm showing no further questions at this time I'd like to turn the call back over to Ross Macmillan, Chairman and CEO for any closing remarks.
Unknown Executive: I'm showing no further questions at this time.
Riles McMullin: I'd like to turn the call back over to Ralph McMullin, Chairman and CEO, for any closing remarks. Okay, Michelle, thanks. Thanks, everybody, for joining us for for questions. As always, we appreciate your interest in our company, and we look forward to speaking with you again next quarter.
Speaker Change: Okay. Michele thanks, Thanks, everybody for joining us for questions as always we appreciate your interest in our company and we look forward to speaking with you again next quarter take care.
Unknown Executive: Take care This does conclude the program. You may now disconnect. Everyone, have a great day.
Speaker Change: This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
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