Q2 2026 Flowers Foods Inc Earnings Call

August 21, 2026

Speaker #1: Good day, and thank you for standing by. Welcome to the Flowers Foods second quarter 2026 results conference call. At this time, all participants are in listen-only mode.

Operator: Good day, and thank you for standing by. Welcome to the Flowers Foods Q2 2026 results conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, J.T. Rick, Executive Vice President of Finance and Investor Relations. Please go ahead.

Speaker #2: 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.

J.T. Rieck: 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 risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.

James Thomas Rieck: 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 risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.

Speaker #2: 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.

Speaker #2: Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods' business are fully detailed in our SEC filings.

Speaker #2: 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.

Speaker #2: Joining me today are Ryals McMullian, Chairman and CEO, and Anthony Scaglione, our CFO. Ryals, I'll turn it over to you.

J.T. Rieck: Joining me today are A. Ryals McMullian, Chairman and CEO, and D. Anthony Scaglione, our CFO. Ryals, I will turn it over to you.

James Thomas Rieck: Joining me today are Ryals McMullian, Chairman and CEO, and Anthony Scaglione, our CFO. Ryals, I will turn it over to you.

Speaker #3: Okay. Good morning, everybody. As noted in our prepared remarks, our second quarter results did not meet our expectations. The fresh packaged bread category remained challenging, reflecting pressure on household budgets, shifting consumer preferences, and sustained competitive activity.

A. Ryals McMullian: Okay. Good morning, everybody. As noted in our prepared remarks, our Q2 results did not meet our expectations. The fresh packaged bread category remained challenging, reflecting pressure on household budgets, shifting consumer preferences, and sustained competitive activity. Against this backdrop, we are accelerating initiatives to better align our resources and value proposition with where the market is heading. This includes advancing innovation in smaller formats, sourdough, and protein, improving our in-store execution, pursuing new business, and continuing to invest behind our leading brands. As the Nature's Own relaunch new business wins and innovation initiatives build momentum, we expect them to support greater stability and improved performance. We have work to do, but we remain confident in our strategy, our brands, and the actions that we are taking. Shannon, we can go ahead and open up for questions.

Ryals McMullian: Okay. Good morning, everybody. As noted in our prepared remarks, our Q2 results did not meet our expectations. The fresh packaged bread category remained challenging, reflecting pressure on household budgets, shifting consumer preferences, and sustained competitive activity. Against this backdrop, we are accelerating initiatives to better align our resources and value proposition with where the market is heading. This includes advancing innovation in smaller formats, sourdough, and protein, improving our in-store execution, pursuing new business, and continuing to invest behind our leading brands. As the Nature's Own relaunch new business wins and innovation initiatives build momentum, we expect them to support greater stability and improved performance. We have work to do, but we remain confident in our strategy, our brands, and the actions that we are taking. Shannon, we can go ahead and open up for questions.

Speaker #3: Against this backdrop, we're accelerating initiatives to better align our resources and value proposition with where the market is heading. This includes advancing innovation in smaller formats, sourdough, and protein; improving our in-store execution; pursuing new business; and continuing to invest behind our leading brands.

Speaker #3: As the Nature Zone relaunch, new business wins, and innovation initiatives build momentum, we expect them to support greater stability and improve performance. We have work to do, but we remain confident in our strategy, our brands, and the actions that we are taking.

Speaker #3: Shannon, we can go ahead and open up for questions.

Speaker #1: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Stephen Powers with Deutsche Bank. Your line is now open.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Steve Powers with Deutsche Bank. Your line is now open.

Speaker #1: Our first question comes from the line of Steve Powers with Deutsche Bank. Your line is now open.

Speaker #2: Great. Everybody, good morning. Thank you. Ryles, maybe we can pick up a bit where you left off in the intro. I mean, if I think about the implied performance in your updated guidance for the back half, even at the low end, it seems to imply some acceleration and some improvement, certainly versus the exit rate of consumption that we saw coming out of Q2.

Stephen Powers: Great, everybody. Good morning. Thank you. Ryals, maybe we can pick up a bit where you left off in that intro. If I think about the implied performance in your updated guidance for the back half, even at the low end, it seems to imply some acceleration and some improvement, certainly versus the exit rate of consumption that we saw coming out of Q2. Maybe a bit more detail on the building blocks that you see to create that sequential improvement, because it does not sound like you are expecting the category to improve. It sounds like you are expecting your own standing versus the category to improve. So, which of the initiatives are expected to be the most impactful and, I guess, a little bit of how quickly we should expect them to manifest over the remainder of the year?

Steve Powers: Great, everybody. Good morning. Thank you. Ryals, maybe we can pick up a bit where you left off in that intro. If I think about the implied performance in your updated guidance for the back half, even at the low end, it seems to imply some acceleration and some improvement, certainly versus the exit rate of consumption that we saw coming out of Q2. Maybe a bit more detail on the building blocks that you see to create that sequential improvement, because it does not sound like you are expecting the category to improve. It sounds like you are expecting your own standing versus the category to improve. So, which of the initiatives are expected to be the most impactful and, I guess, a little bit of how quickly we should expect them to manifest over the remainder of the year?

Speaker #2: So maybe a bit more detail on the building blocks that you see to create that sequential improvement, because it doesn't sound like you're expecting the category to improve.

Speaker #2: It sounds like you’re expecting your own standing versus the category to improve. So, which of the initiatives are expected to be the most impactful? And, I guess, a little bit on how quickly we should expect them to manifest over the remainder of the year?

Speaker #3: Okay, yeah. Thanks, Steve. A few things—and I'll let Anthony chime in here as well in terms of guidance—but I would call out three primary factors to address the question you asked.

A. Ryals McMullian: Okay. Yeah, thanks, Steve. A few things, and I will let Anthony chime in here as well, in terms of guidance. But I would call out three primary factors to address the question you asked. One is we do have some pretty significant new business wins that are coming on in the back half. In addition to that, we took additional cost savings measures that will benefit the back half, and that is in addition to the roughly $200 million we have taken out of the business over the last several years. I would also call out innovation, which is a particularly important factor when you think about where the category is going. The speed of the shift in consumer preferences, frankly, got a little bit ahead of our innovation pipeline.

Ryals McMullian: Okay. Yeah, thanks, Steve. A few things, and I will let Anthony chime in here as well, in terms of guidance. But I would call out three primary factors to address the question you asked. One is we do have some pretty significant new business wins that are coming on in the back half. In addition to that, we took additional cost savings measures that will benefit the back half, and that is in addition to the roughly $200 million we have taken out of the business over the last several years. I would also call out innovation, which is a particularly important factor when you think about where the category is going. The speed of the shift in consumer preferences, frankly, got a little bit ahead of our innovation pipeline.

Speaker #3: One is, we do have some pretty significant new business wins—they're coming on in the back half. In addition to that, we took additional cost savings measures that will benefit the back half.

Speaker #3: And that's in addition to the roughly $200 million we've taken out of the business over the last several years. I would also call out innovation, which is a particularly important factor when you think about where the category is going. The speed of the shift in consumer preferences, frankly, got a little bit ahead of our innovation pipeline.

Speaker #3: But the good news is, we have those things coming to fill those gaps in our offerings—whether you're thinking about protein, half loaves, sourdough, etc.

A. Ryals McMullian: But the good news is we have those things coming to fill those gaps in our offerings, whether you are thinking about protein, half loaves, sourdough, et cetera. All that is coming in the back half, and then as we move into the spring of next year. Anthony, anything you want to add?

Ryals McMullian: But the good news is we have those things coming to fill those gaps in our offerings, whether you are thinking about protein, half loaves, sourdough, et cetera. All that is coming in the back half, and then as we move into the spring of next year. Anthony, anything you want to add?

Speaker #3: All that's coming in the back half, and then as we move into the spring of next year. Anthony, anything you want to add?

Speaker #2: No, I think you covered it. I would say, Steve, if you look at it for the back half, it's a little skewed. We expect some year-over-year declines in Q3, but then normalization for all the factors that Ryles mentioned.

D. Anthony Scaglione: No, I think you covered it. I would say, Steve, if you look at it for the H2, it's a little skewed. We expect some year-over-year declines in Q3, but then normalization for all the factors that Rob's mentioned, related to the new business wins, reduced elasticities as we're lapping prior year pricing in Q4, and a bit of stabilization in Nature's Own from a marketing investment continue to take hold.

Anthony Scaglione: No, I think you covered it. I would say, Steve, if you look at it for the H2, it's a little skewed. We expect some year-over-year declines in Q3, but then normalization for all the factors that Rob's mentioned, related to the new business wins, reduced elasticities as we're lapping prior year pricing in Q4, and a bit of stabilization in Nature's Own from a marketing investment continue to take hold.

Speaker #2: Related to the new business wins, we’re seeing reduced elasticities as we’re lapping prior-year pricing in Q4, and a bit of stabilization in Nature Zone from marketing investments that continue to take hold.

Speaker #2: Great. Maybe, if you could, provide a little bit more color. It sounds like you expect improvement both across the brands of the retail business and the other segment, where I would expect those new business wins to exist.

Stephen Powers: Great. Maybe a little bit, if you could, a little bit more color. It sounds like you expect improvement both across the branded retail business and the other segment where I would expect those new business wins to exist. Maybe a little bit more color as to where you see which side of the business you see more improvement. Then, I'd love a little bit more color on what you're seeing with the Nature's Own relaunch and kind of reasons for optimism with that. Thank you.

Steve Powers: Great. Maybe a little bit, if you could, a little bit more color. It sounds like you expect improvement both across the branded retail business and the other segment where I would expect those new business wins to exist. Maybe a little bit more color as to where you see which side of the business you see more improvement. Then, I'd love a little bit more color on what you're seeing with the Nature's Own relaunch and kind of reasons for optimism with that. Thank you.

Speaker #2: Maybe a little bit more color as to where you see, which side of the business you see more improvement. And then, yeah, I'd love a little bit more color on what you're seeing with the Nature's Own relaunch, and kind of reasons for optimism with that.

Speaker #2: Thank you.

Speaker #4: So, Steve, I think from the way we're looking at it, it's really split between our away-from-home business as well as our retail branded business.

D. Anthony Scaglione: Steve, I think from the way we're looking at it's really split between our away from home business as well as our retail branded business. I would say we're seeing good opportunities and realization in both those areas. The timing of which some of it's going to come in Q3 and some of it will come in Q4. It's balanced wins across the portfolio.

Anthony Scaglione: Steve, I think from the way we're looking at it's really split between our away from home business as well as our retail branded business. I would say we're seeing good opportunities and realization in both those areas. The timing of which some of it's going to come in Q3 and some of it will come in Q4. It's balanced wins across the portfolio.

Speaker #4: So I would say we're seeing good opportunities and realization in both those areas. The timing of which—some of it is going to come in Q3, and some of it will come in Q4.

Speaker #4: So it's balanced wins across the portfolio.

Speaker #3: And Steve, just to address your question on the Nature Zone relaunch—recall, we just started this a couple of months ago. I would say it's going well.

A. Ryals McMullian: Steve, just to address your question on the Nature's Own relaunch. You'll recall we just started this a couple of months ago. I would say it's going well. It's a little bit too early to see the actual results read through, but we're getting really good feedback from customers, social media, et cetera. There's some early indicators that it'll be a successful campaign, but I think we've got to give it, as I said on the last call, we're going to have to give it a little bit more time for it to read through. That said, we do feel really good about the campaign and where we're headed with it.

Ryals McMullian: Steve, just to address your question on the Nature's Own relaunch. You'll recall we just started this a couple of months ago. I would say it's going well. It's a little bit too early to see the actual results read through, but we're getting really good feedback from customers, social media, et cetera. There's some early indicators that it'll be a successful campaign, but I think we've got to give it, as I said on the last call, we're going to have to give it a little bit more time for it to read through. That said, we do feel really good about the campaign and where we're headed with it.

Speaker #3: It's a little bit too early to see the actual results read-through, but we're getting really good feedback from customers, social media, etc. So there are some early indicators that it'll be a successful campaign.

Speaker #3: But I think we've got to give it—as I said on the last call—we're going to have to give it a little bit more time for it to read through.

Speaker #3: That said, we do feel really good about the campaign and where we're headed with it.

Speaker #2: Understood. Okay, thank you both. I appreciate it. I'll pass it on.

Stephen Powers: Understood. Okay. Thank you both. Appreciate it. I will pass it on.

Steve Powers: Understood. Okay. Thank you both. Appreciate it. I will pass it on.

Speaker #4: Thanks, Steve.

A. Ryals McMullian: Thanks, Steve.

Ryals McMullian: Thanks, Steve.

Speaker #1: Thank you.

D. Anthony Scaglione: Thank you.

Anthony Scaglione: Thank you.

Speaker #2: Thank you.

Speaker #1: Our next question comes from the line of Scott Marks with Jefferies. Your line is now open.

Operator: Thank you. Our next question comes from the line of Scott Marks with Jefferies. Your line is now open.

Speaker #5: Hey, good morning everyone. Thanks very much for taking our questions. First thing I wanted to ask about—you noted in the prepared remarks rising competition, rising promotional intensity. Obviously, you guys took some pricing earlier in the year with the expectation that you might see competitors follow.

Scott Marks: Hey, good morning, everyone. Thanks very much for taking our questions. First thing I wanted to ask about, you noted in the prepared remarks, rising competition, rising promotional intensity. You guys took some price hike earlier in the year with the expectation that you might see competitors follow, and it does not sound like that has happened quite yet. Just wondering if you can kind of give us an update on your thoughts around the pricing dynamics in the category and where you are and any thoughts of changes to some of the actions you have taken to maintain maybe more competitiveness versus peers in traditional load.

Speaker #5: And it doesn't sound like that's happened quite yet. So, just wondering if you can kind of give us an update on your thoughts around the pricing dynamics in the category and where you are, and any thoughts on changes to some of the actions you've taken to maintain maybe more competitiveness versus peers in traditional loans.

Speaker #3: Sure. I'll take a stab at that first. I think it's important to remember that the dynamics in the category are about a lot more than price.

A. Ryals McMullian: Sure. I will take a stab at that first. I think it is important to remember that the dynamics in the category are about a lot more than price. I think in certain segments of the portfolio, that may be a factor. As we noted in the prepared remarks, we are taking a pretty intensive review of our pricing and promotional strategy. However, it is more than just price. I would point more to consumer preference shifts. Certainly, there has been some amount of trade down to private label and lower priced items. I think the bigger factor, at least in our performance relative to the category, has to do with those gaps in our portfolio. The under-penetration in half loaf, sourdough, protein, fiber, some of these more functional attributes that consumers are looking for. That is where our primary focus is.

Ryals McMullian: Sure. I will take a stab at that first. I think it is important to remember that the dynamics in the category are about a lot more than price. I think in certain segments of the portfolio, that may be a factor. As we noted in the prepared remarks, we are taking a pretty intensive review of our pricing and promotional strategy. However, it is more than just price. I would point more to consumer preference shifts. Certainly, there has been some amount of trade down to private label and lower priced items. I think the bigger factor, at least in our performance relative to the category, has to do with those gaps in our portfolio. The under-penetration in half loaf, sourdough, protein, fiber, some of these more functional attributes that consumers are looking for. That is where our primary focus is.

Speaker #3: I think in certain segments of the portfolio, that may be a factor. And as we noted in the prepared remarks, we're taking a pretty intensive review of our pricing and promotional strategy.

Speaker #3: However, it is more than just price. I would also point to shifts in consumer preference; certainly, there has been some amount of trade-down to private label and lower-priced items.

Speaker #3: But I think the bigger factor, at least in our performance relative to the category, has to do with those gaps in our portfolio—the underpenetration in half loaves, sourdough, protein, fiber, some of these more functional attributes that consumers are looking for.

Speaker #3: And so that's where our primary focus is. That is not to say that we're ignoring the price equation. We are taking a hard look at that.

A. Ryals McMullian: That is not to say that we are ignoring the price equation. We are taking a hard look at that, and my initial thesis is there probably are some pockets of the portfolio where that is a factor, but I do not think it is the overall driving force of our performance.

Ryals McMullian: That is not to say that we are ignoring the price equation. We are taking a hard look at that, and my initial thesis is there probably are some pockets of the portfolio where that is a factor, but I do not think it is the overall driving force of our performance.

Speaker #3: And my initial thesis is, there probably are some pockets of the portfolio where that's a factor. But I don't think it's the overall driving force of our performance.

Speaker #5: Appreciate the thoughts there. And then, maybe there are some comments in the prepared remarks, I think from Anthony, about 2027—seeing some inflationary costs potentially ticking up, notably from commodity and fuel exposure.

Scott Marks: Appreciate the thoughts there. Then maybe, there are some comments in the prepared remarks, I think from Anthony Scaglione, about 2027 seeing some inflationary costs potentially ticking up, notably from commodity and fuel exposure. Just wondering if you can give us an update on where you are seeing inflation right now, how you are thinking about the exit rate in 2026. Then maybe what you are assuming at this point for 2027, as well as any other color you can share about 2027, help us frame your thinking. Thanks.

Speaker #5: So just wondering if you can give us an update on where you're seeing inflation right now, how you're thinking about the exit rate in '26, and then maybe what you're assuming at this point for '27, as well as any other color you can share about '27 to help us frame your thinking.

Speaker #5: Thanks.

Speaker #3: Sure, Scott. Let me take that in two parts. As we mentioned in Q1, most of our commodities for the balance of this year are fully hedged.

D. Anthony Scaglione: Sure, Scott. Let me take it in two parts. As we mentioned in Q1, most of our commodities for the balance of this year are fully hedged. We had some exposure, which I alluded to, in oil and diesel and indirectly in resin, and that is primarily in our packaging area. So our current guide did not change because we saw added pressure from a commodity perspective. We assumed that pressure in Q1, and it has not really changed materially from where we were back in Q1. As I pivot to 2027, we are still in the middle of our planning process for fiscal 2027, so I cannot provide further color on that in isolation. To Ryals' point, input costs are just one of many variables that we have to factor as it relates to price mix and the architecture and new innovation. So cannot look at it in isolation.

Anthony Scaglione: Sure, Scott. Let me take it in two parts. As we mentioned in Q1, most of our commodities for the balance of this year are fully hedged. We had some exposure, which I alluded to, in oil and diesel and indirectly in resin, and that is primarily in our packaging area. So our current guide did not change because we saw added pressure from a commodity perspective. We assumed that pressure in Q1, and it has not really changed materially from where we were back in Q1. As I pivot to 2027, we are still in the middle of our planning process for fiscal 2027, so I cannot provide further color on that in isolation. To Ryals' point, input costs are just one of many variables that we have to factor as it relates to price mix and the architecture and new innovation. So cannot look at it in isolation.

Speaker #3: We had some exposure, which I alluded to, in oil and diesel, and indirectly in resin, and that's primarily in our packaging area. So, our current guide didn't change because we saw added pressure from a commodity perspective.

Speaker #3: We assumed that pressure in Q1, and it hasn't really changed materially from where we were back in Q1. As I pivot to '27, we're still in the middle of our planning process for fiscal '27.

Speaker #3: So, I can't provide further color on that in isolation. To Ryle's point, input costs are just one of many variables that we have to factor in as it relates to price mix, the architecture, and new innovation.

Speaker #3: So, you can't look at it in isolation. That being said, overall inflation has gone up in many of our categories from a pricing index perspective.

D. Anthony Scaglione: That being said, overall inflation has gone up in many of our categories from a pricing index perspective. It is something that we need to definitely address as we look at 2027, and the exit velocity, as you mentioned, coming out of 2026. It is something we are working to address going forward, and as I mentioned in my prepared remarks, more to come, but at this point, that is all we could say as it relates to 2027.

Anthony Scaglione: That being said, overall inflation has gone up in many of our categories from a pricing index perspective. It is something that we need to definitely address as we look at 2027, and the exit velocity, as you mentioned, coming out of 2026. It is something we are working to address going forward, and as I mentioned in my prepared remarks, more to come, but at this point, that is all we could say as it relates to 2027.

Speaker #3: It's something that we definitely need to address as we look at '27 and the exit velocity, as you mentioned, coming out of '26. It's something we're working to address going forward.

Speaker #3: And as I mentioned in my prepared remarks, more to come, but at this point, that's all we can say as it relates to '27.

Speaker #5: Understood. Appreciate it. I'll pass it on.

Scott Marks: Understood. Appreciate it. I will pass it on.

Speaker #1: Thank you. Our next question comes from the line of Jim Solera with Stephens. Your line is now open.

Operator: Thank you. Our next question comes from the line of Jim Salera with Stephens. Your line is now open.

Speaker #6: Hey guys, good morning. Thanks for taking our question. I wanted to follow up on your commentary to Steven Scott's questions there. If I look back to 2022, that was, I think, the last time we had kind of a significant commodity cycle.

Jim Salera: Hey, guys. Good morning. Thanks for taking our question.

D. Anthony Scaglione: Hey, Jim.

Anthony Scaglione: Hey, Jim.

Jim Salera: I wanted to follow up on your commentary to Steve and Scott's questions there. If I look back to 2022, that was, I think, the last time we had kind of a significant commodity cycle, and if my model serves me correct, net price mix across the business was up mid-teens in 2022, which was a big factor in helping to offset that. Correct me if I'm wrong, but it sounds like there's maybe not as much flexibility on a go-forward basis around pricing, given some of the competitive dynamics. If you could just walk us through what other levers you might have in the business to help offset that commodity inflation that we're seeing and kind of anticipating to continue to roll through in 2027.

Speaker #6: And if my model serves me correctly, net price/mix across the business was up kind of mid-teens in 2022, which was a big factor in helping to offset that.

Speaker #6: Correct me if I'm wrong, but it sounds like there's maybe not as much flexibility on a go-forward basis around pricing, given some of the competitive dynamics.

Speaker #6: Could you just walk us through what other levers you might have in the business to help offset that commodity inflation that we're seeing and anticipate will continue to roll through in 2027?

Speaker #4: Yeah, let me start on that, Jim. I would say, clearly we have to look at productivity measures, which are part of our annual process throughout the year.

D. Anthony Scaglione: Yeah, let me start on that, Jim. I would say, clearly, we have to look at productivity measures, which is part of our every annual process and throughout the year. We're looking at ways to be more efficient in the bakeries and the network, et cetera. We took action coming out of Q1 when we saw softness on the top line. That will accrue from a tailwind perspective as we exit 2026 into 2027. As we said on the prepared remarks, that's roughly around the $20 million tailwind we'll have going into 2027. The other area is going to be the price pack architecture. As Ryals mentioned, coming together with new products around small loaf, bring to market innovation and sourdough, areas where the consumer has headed and where the consumer is. We're probably under-penetrated on a portfolio basis.

Anthony Scaglione: Yeah, let me start on that, Jim. I would say, clearly, we have to look at productivity measures, which is part of our every annual process and throughout the year. We're looking at ways to be more efficient in the bakeries and the network, et cetera. We took action coming out of Q1 when we saw softness on the top line. That will accrue from a tailwind perspective as we exit 2026 into 2027. As we said on the prepared remarks, that's roughly around the $20 million tailwind we'll have going into 2027. The other area is going to be the price pack architecture. As Ryals mentioned, coming together with new products around small loaf, bring to market innovation and sourdough, areas where the consumer has headed and where the consumer is. We're probably under-penetrated on a portfolio basis.

Speaker #4: We're looking at ways to be more efficient in the bakeries and the network, etc. We took action coming out of Q1 when we saw softness on the top line.

Speaker #4: That will accrue from a tailwind perspective as we exit 2026 into 2027. And as we said in the prepared remarks, that's roughly around a $20 million tailwind we'll have going into 2027.

Speaker #4: The other area is going to be the price pack architecture. As Ryle's mentioned, coming together with new products around small loaf, bringing to market innovation in sourdough—areas where the consumer has headed and where the consumer is—we're probably underpenetrated on a portfolio basis.

Speaker #4: We have great products coming to market in the near term, but we're probably underpenetrated today. So, when we look at those factors, it gives us confidence that, yes, price probably is not going to be the only lever to overcome.

D. Anthony Scaglione: We have great products coming to market in the near term, but we are probably under-penetrated today. When we look at those factors, it gives us confidence that yes, price probably is not going to be the only lever to overcome the inflation. As I mentioned earlier, a lot more work to do around that as we continue the 2027 planning process.

Anthony Scaglione: We have great products coming to market in the near term, but we are probably under-penetrated today. When we look at those factors, it gives us confidence that yes, price probably is not going to be the only lever to overcome the inflation. As I mentioned earlier, a lot more work to do around that as we continue the 2027 planning process.

Speaker #4: The inflation and, as I mentioned earlier, a lot more work to do around that as we continue the Q2 '27 planning process.

Speaker #6: My follow-up question is on DKB. In the prepared remarks, you touched on the marketing pullback there. I'd love some more commentary around whether that's kind of a temporary reshift, where maybe other brands need some more support?

Jim Salera: My follow-up question is on DKB. In the prepared remarks, you guys touched on marketing pullback there. Just love some more commentary around, is that a kind of a temporary reshift where maybe other brands need some more support? Are you guys reworking the marketing plan there? Did it shift within the portfolio, maybe towards some of the innovation, versus the core fresh bread offering? Any thoughts there would be great.

Speaker #6: Are you guys reworking the marketing plan there? Did it shift within the portfolio, maybe toward some of the innovation versus the core fresh bread offering?

Speaker #6: Any thoughts there would be great.

Speaker #3: Yeah, Jim, it's temporary. I mean, it's the way we laid out the cadence of our marketing and promo spend this year. So we focused a lot at the beginning of the year with the—you may recall—the Rock Your Reset campaign that we did with DKB.

A. Ryals McMullian: Yeah, Jim, it is temporary. It is the way we laid out the cadence of our marketing and promo spend this year. We focused a lot at the beginning of the year with the, you may recall, the Rock Your Reset campaign that we did with DKB. Then also to your point, also a focus on back to school. We should see more normalized levels of promo and marketing spend with DKB for the balance of the year.

Ryals McMullian: Yeah, Jim, it is temporary. It is the way we laid out the cadence of our marketing and promo spend this year. We focused a lot at the beginning of the year with the, you may recall, the Rock Your Reset campaign that we did with DKB. Then also to your point, also a focus on back to school. We should see more normalized levels of promo and marketing spend with DKB for the balance of the year.

Speaker #3: And then also to your point, there’s a focus on back to school. So we should see more normalized levels of promo and marketing spend with DKB for the balance of the year.

Speaker #6: Great, thanks. I'll pass it on.

Jim Salera: Great. Thanks. I will pass it on.

Speaker #1: Thank you. As a reminder, to ask a question at this time, please press *11 on your touchtone telephone. Our next question comes from the line of Mitchell Piñero with Sturdivant & Co.

Operator: Thank you. As a reminder to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of Mitchell Pinheiro with Sturdivant & Company. Your line is now open.

Speaker #1: Your line is now open.

Speaker #5: Hey, good morning. I was looking at the your fresh bread volume decline, which was nine and a half percent. And that's a big number.

Mitchell Pinheiro: Hey, good morning. I was looking at your fresh bread volume decline, which was 9.5%, and that's a big number. I was surprised at how well the gross margin held up despite the unit volume decline in fresh bread. How do you manage that?

Speaker #5: But I was surprised at how well the gross margin held up, despite the unit volume decline in fresh bread. How can you manage that?

Speaker #6: Hey Mitch, this is Anthony. I mean, clearly, price had a big contribution in the price mix. From a volume decline, our pricing definitely was a positive contributor as it relates to overall.

D. Anthony Scaglione: Hey, Mitch. This is Anthony. Clearly, price had a big contributor in the price mix from a volume decline. Our pricing definitely was a positive contributor as it relates to overall. As we look forward into the earlier comments, there's other variables that we are looking towards as we think about the balance of this year in 2027, and price pack architecture is one that I mentioned earlier. Price is definitely the contributing factor to answer your question.

Anthony Scaglione: Hey, Mitch. This is Anthony. Clearly, price had a big contributor in the price mix from a volume decline. Our pricing definitely was a positive contributor as it relates to overall. As we look forward into the earlier comments, there's other variables that we are looking towards as we think about the balance of this year in 2027, and price pack architecture is one that I mentioned earlier. Price is definitely the contributing factor to answer your question.

Speaker #6: But as we look forward to the earlier comments, there are other variables that we are looking towards. As we think about the balance of this year and '27, and price-pack architectures—one that I mentioned earlier.

Speaker #6: But price was definitely the contributing factor, to answer your question.

Speaker #5: And so sort of negative fixed asset leverage you've been able to you've been able to manage that, or how should we think about that?

Mitchell Pinheiro: And so, negative fixed asset leverage, you've been able to manage that, or how should we think about that?

Speaker #4: Yeah, so from a—obviously, the restructuring had some cost out in COGS. We've had good productivity as it relates to the bakery network. But clearly, that's our highest fixed cost.

D. Anthony Scaglione: Yeah. So obviously, the restructuring had some cost out in COGS. We've had good productivity as it relates to the in-bakery network. That's our highest fixed cost. While we're looking at network optimization, that is more complicated and takes much longer to execute. We're clearly constantly looking at ways to be more efficient within the four walls of our bakery and our network, and that drove some benefit. That becomes harder and harder with the volume declines. As you can imagine, that's something that we're looking at and continue to look at as ways to optimize going forward.

Anthony Scaglione: Yeah. So obviously, the restructuring had some cost out in COGS. We've had good productivity as it relates to the in-bakery network. That's our highest fixed cost. While we're looking at network optimization, that is more complicated and takes much longer to execute. We're clearly constantly looking at ways to be more efficient within the four walls of our bakery and our network, and that drove some benefit. That becomes harder and harder with the volume declines. As you can imagine, that's something that we're looking at and continue to look at as ways to optimize going forward.

Speaker #4: And while we're looking at network optimization, that is more complicated and takes much longer to execute. But we're clearly, constantly looking at ways to be more efficient within the four walls of our bakery and our network.

Speaker #4: And that drove some benefit, but that becomes harder and harder with the volume declines. So, as you can imagine, that's something that we're looking at and continue to look at as ways to optimize going forward.

Speaker #5: Okay. And then, as you look at the third quarter, do you expect volume declines to moderate?

Mitchell Pinheiro: Okay. As you look at Q3, do you expect volume declines to moderate?

Speaker #4: Yeah, we don't break that out. As I mentioned, we expect Q3 year-on-year to be down from an overall sales perspective, so that's going to be price- and volume-based.

D. Anthony Scaglione: Yeah, we don't break that out. As I mentioned, we expect Q3 year-on-year to be down from an overall sales perspective, so that's going to be price and volume based. Q4 to have a little bit more stabilization as the new wins get more fully ramped. That's probably the most color I can give you in terms of the near term.

Anthony Scaglione: Yeah, we don't break that out. As I mentioned, we expect Q3 year-on-year to be down from an overall sales perspective, so that's going to be price and volume based. Q4 to have a little bit more stabilization as the new wins get more fully ramped. That's probably the most color I can give you in terms of the near term.

Speaker #4: And then Q4 to have a little bit more stabilization as the new winds get more fully ramped. That's probably the most color I can give you in terms of the near term.

Speaker #5: Okay. And then, I guess two more questions. One, with Dave's Killer Bread, you mentioned that consumer shifts and consumer preferences were a reason that helped pressure the unit volume decline.

Mitchell Pinheiro: Okay. I guess, two more questions, one with Dave's Killer Bread. You mentioned that consumer shifts and consumer preferences as a reason that helped pressure the unit volume decline. What are you referring to?

Speaker #5: What are you referring to?

Speaker #3: Yeah, Mitch is Ryle's. Mostly, we think that it's the growth of sourdough. It's pretty remarkable, actually. I mean, that subsegment of the category has already grown to be a $1.3 billion subcategory.

A. Ryals McMullian: Yeah. This is Ryals McMullian. Mostly, we think that it's the growth of sourdough. It's pretty remarkable, actually. That sub-segment of the category has already grown to be a $1.3 billion subcategory, so it's been pretty tremendous growth. In DKB, we only have sourdough on the West Coast currently. But as we mentioned earlier in the innovation pipeline, we have solves for all that. I would say that is certainly one area, and probably at least some amount of price sensitivity relative to Dave's. But as I said earlier, I don't think it's all price. It's a combination of price for some consumers, but also offering and product attributes that are driving some of that decline.

Ryals McMullian: Yeah. This is Ryals McMullian. Mostly, we think that it's the growth of sourdough. It's pretty remarkable, actually. That sub-segment of the category has already grown to be a $1.3 billion subcategory, so it's been pretty tremendous growth. In DKB, we only have sourdough on the West Coast currently. But as we mentioned earlier in the innovation pipeline, we have solves for all that. I would say that is certainly one area, and probably at least some amount of price sensitivity relative to Dave's. But as I said earlier, I don't think it's all price. It's a combination of price for some consumers, but also offering and product attributes that are driving some of that decline.

Speaker #3: So it's been pretty tremendous growth. And in DKB, we only have sourdough on the West Coast currently. But as we mentioned earlier in the innovation pipeline, we have solves for all that.

Speaker #3: I would say that is certainly one area, and probably at least some amount of price sensitivity relative to Dave's. But I don't—as I said earlier—I don't think it's all price.

Speaker #3: It's a combination of price for some consumers, but also offering and product attributes that are driving some of that decline.

Speaker #5: Okay, thanks for that. And then this final question is, where do we stand with the comprehensive review? Where are we in that process? Are we close to the end?

Mitchell Pinheiro: Okay, thanks for that. This final question is, just where do we stand with the comprehensive review? Where are we in that process? Are we close to the end? Is this a continuous improvement comprehensive review? Can you shed a little light on that?

Speaker #5: Is this a continuous improvement comprehensive review? Could you shed a little light on that?

Speaker #3: Yeah, well, I think we're always in the mode of continuous improvement. But in terms of the formal initiative of the comprehensive review, yeah, we're finished with that and beginning to execute on it.

A. Ryals McMullian: Well, I think we're always in the mode of continuous improvement. But in terms of the formal initiative of the comprehensive review, yeah, we're finished with that and beginning to execute on it.

Ryals McMullian: Well, I think we're always in the mode of continuous improvement. But in terms of the formal initiative of the comprehensive review, yeah, we're finished with that and beginning to execute on it.

Mitchell Pinheiro: Okay.

Speaker #3: So, a lot of the things we've talked about today—whether it's innovation, focus, or better execution—all of those are folded in and are the result of that comprehensive review.

A. Ryals McMullian: A lot of the things we've talked about today, whether it's innovation or focus or better execution, all of those are folded in and are the result of that comprehensive review.

Ryals McMullian: A lot of the things we've talked about today, whether it's innovation or focus or better execution, all of those are folded in and are the result of that comprehensive review.

Speaker #5: Okay. All right. Thank you very much.

Mitchell Pinheiro: Okay. All right. Thank you very much.

Speaker #3: Thanks, Mitch.

A. Ryals McMullian: Thanks, Lynch.

Ryals McMullian: Thanks, .

Speaker #1: Thank you. I'm currently showing no further questions at this time. I would now like to hand the call back over to Ryals McMullian for closing remarks.

Operator: Thank you. I am currently showing no further questions at this time. I would now like to hand the call back over to Ryals McMullian for closing remarks.

Speaker #3: Okay, great. Thank you, Shannon. I just want to thank everybody for taking the time today and joining us for questions. We very much appreciate your interest in and support of our company.

A. Ryals McMullian: Hey, great. Thank you, Shannon. I just want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest and support of our company. As always, we look forward to speaking with you again next quarter. Take care.

Ryals McMullian: Hey, great. Thank you, Shannon. I just want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest and support of our company. As always, we look forward to speaking with you again next quarter. Take care.

Speaker #3: And as always, we look forward to speaking with you again next quarter. Take care.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.