FLO - Earnings call transcript Q2 2018

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Operator

Welcome to the Flowers Foods Second Quarter 2018 Earnings Conference Call. My name is Paulette, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. the to turn now will call J.T. over I of Treasurer and Relations. President Vice Rieck, Investor

begin. may You

J.T. Rieck

Paulette, you, morning, Thank good and everyone.

is Investors Our second website. and presentation release evening. The in quarter results were our released updated Flowers of the section yesterday earnings posted Foods the investor

XX-Q SEC evening. with the filed was Our yesterday

today performance. we Before presentation please statements forward-looking aware be include begin, about our that may our company's

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

discuss the filings. detailed call, we'll relating matters Flowers Foods fully factors to are to in addition In during important business SEC our

Now, the Steve the to you. Allen Kinsey, have: started. Officer. Ryals let's Officer; Financial call Shiver, over Chief Operating get turn and Officer; Participating call today, I'll our Executive McMullian, on our Chief Chief we Allen,

Allen L. Shiver

transformation Good And he the for accelerate thank Project financial the on then remainder and questions. an Ryals with joining Thank you our the for this Steve us with for up your everyone, year. update share get sees a of call opportunities you, and results for our will quarter. started the and J.T. then outlook I'll us. wrap morning the open review to will our under operations morning, We'll Centennial.

line to the grew business in Let's sales turn quarter review. performance solid. second Total Top was the X.X%.

from share Our Bread, branded retail business Wonder contributed of this Dave's Killer gains Nature's more driven by than growth, half and Own.

the fact these price preference market packaged row, for increased, category, sales. with growth a white branded the products encouraging. the showing by encouraging. organic our consumer our breads. share points Overall, share are is Branded growing bread eighth indulgent higher fresh in gain quarter a in to For within continue base carry products and that The consumers in driven category products trends healthy

has cake of slightly, with category in our Killer snack quarters. The Crafted recent past the are consumer Own Our stable Perfectly these but cake for was remained Nature's four Bread line down share products and Dave's trends. introduction right commercial

on team continues focus cake Our to improved profitability.

SKU through allowing capacity Our utilization. product to improve rationalization, manufacturing streamlined is assortment being

are pleased gross results, reduced were because as this line this the performance several that we of year. pressured we quarter. for satisfied we margins While top them, down. And our financial are with There with factors not margins our were the gross quarter, outlook have

like Bread First, planned special marketing key Buns. of point-of-sale Own consumer our sales Killer the quarter, consumer trial A are promotion Nature's new And Bread Dave's the investments, drove accelerate Company during these expected products. and Wonder activities, to Perfectly promotions, couponing did. Crafted, and also Cobblestone brands. drove They of Bread and they growth of

Once alternative procurement. are operations with and This sales to from distribution, proud an manufacturing, I determined I significant caused Another back retail response the a quarter was inferior to of extraordinary the being and financial yeast. year. as each and margins the drives problem from with foodservice disruption business supplier. the regards for normal. situation, holiday, resolve replaced our supplier. our from are team made product this removed we again the possible. to how required thank the want the to with this occurred evaluate managed a That of disruption team am issue of X to with clock quickly holiday the made impact product our factor sales was team their by an options whole by which right ingredient, our Affected efforts. said, before event and bun worked accounts and around as received a ingredient we continuing July tireless the yeast impacting yeast effort our This portion

are seen To by on can This the our cost, and a aggressively pressures, Operating be volatile transportation tight capture labor commodity working focus companies, food like markets. we to Finally, efficiencies business. were operations increasingly our Chief and pressures cost within in market, reductions these as higher of other inflationary increased McMullian appointment impacted Officer. margins from greater inflationary address Ryals

business our Ryals. supply chain sales under have units, and We functions aligned

is more important effective company make and to He Ryals and strategic against Flowers, all our tenure shaping has of a his delivering areas in Project played of XX-year accountable Throughout objective understanding developed Our deep at our our for Centennial. operations. priorities. an business role

him the uniquely the operations will you we the our perspective two opportunities objectives operations? your company's growth lead this our please initiative. This last direct Ryals has transformation helped as execute qualified initiatives. cost years, share Over on under important on in Ryals, to and savings makes

A. Ryals McMullian

Good lot call of to word us, have a time ahead of talented are together Flowers. great and going And we the Centennial at eager we opportunity really this Thank We things. work few team a achieve do under not that to lightly. use morning, you We a make comments We've appreciate you, Allen. transformation to a morning. got everybody. brief a I to really transformation.

We XX-year-old of have changes massive with ways culture established rooted made and a a company deeply to working.

operating we from worked a get has team hard we ourselves Moving of us not value only promise time, extremely were keenly and future, to overall, yet monumental all that quite today about We've to it's XXXX for our but, how and org we've positioned are have us aware for I Centennial. same progress here. the realized seven Project undertaking, at been structure made of in tremendously our under are where the And proud worked we've months. new where well. the full am been the we have of members

product deliver business our a units innovations. as helped Just few new have exciting examples,

Our into sales. translated more higher innovations has those focused sales organization

pipeline place. because group we actively has the products our improvement team opportunities, so truly marketing it's leadership brands, are vital our innovation and But right us, promising structure new monitoring PG&S still because is to have differentiate and of for meaningful constantly developing a help delivered savings. new to relatively Our to us it's the in

an reporting a lines in more make few way a operational that, effective standpoint. will tweaked expect, recently we've fact, we In from us

are headwinds some disruptions, goals savings have are we to But those of that sure, to mentioned performance. which more yet overall also on Allen into operational ago, target, savings bottom-line translated cost. work improved to do and partly not additional a blame. we reduce despite moment To be our However, have cost

generating Look, that a our to standpoint is efficiency savings, with changes. be immediate have and those So, ensure And further addressing supply we to otherwise, the primarily will my action leadership from closely decisive additional inefficiencies improve have business supply our and and by on Working answer right intend we the capabilities, for to Allen profitability. changing. cost focus in to team, our we chain. take chain

plant that optimized we're business today's certain realities plant, and tomorrow's. are by for making working We

our and As to and ownership I we challenges comfortable KPIs. do responsibility, be business ways of take areas track capitalizing about our solving our our to challenging and Project new thinking. creative transparency leading while did full for Centennial, of I be to on opportunities. each accountability am increased push And there intend and how I We'll results will team old around

I bear As hope energized, the are where expect never we're approach tracking about Flowers, internally this our navigating too. fact, we're headed. Despite that you already And, importantly, a fully rigor matter of team challenges, some to we is disciplined more energized efforts am before I I at with near-term tell fruit. and how fact can seen a our

from robust ourselves. the can that do. we I'll today. already brands together, I'm confident knows Opportunities deliver have potential. much to margin We you team Thank for what abound working additional And a Flowers, results achieve expect much to so our do us to back in pipeline expect growth from our strong of accretive your and that adjacent for turn We understand team the and certainly it M&A growth urgency categories. very to our shareholders untapped help our that Allen. time most

Allen L. Shiver

Thank our we savings you, Accelerating Ryals. is that place, initiatives top in cost priority. the have that

that accountability and the on With our been has to operations, focus efficiencies fresh margins Ryals brings and greater. never perspective

Now, I'll outlook year. rest for the to and Steve our of the review the Steve? ask financials provide

R. Steve Kinsey

morning, you, thank everyone. good Allen Well, and

amounted items Project and Centennial-relating total to with share. items million. quarter, the costs consulting comparability The affecting restructuring significant were: of start approximately $X.XX Let's in most per which $X to the

$X to and identified and We also A the charge of million. on $X.X million, recorded settlements pension $X.X on the of relating comments its yeast currently approximately impact issue yeast inferior million, legal additional a costs the few settlement of quarter.

we Allen as our were just bun were the As for important season. significantly July X preparing disrupted mentioned, operations

volume were pursue brands, sales measurable Results customers but we We were and recovery. and have year-over-year. price/mix all captured monitor contributing on as in and mixed. performance up X.X% with X.X%, Top performance available avenues X.X%. the Consolidated declined currently what assess strong, for second we believe up to was to cost margin and quarter line in consumers, be but impact the continue to plan quarter, the identifiable the

than in As Allen performance, other branded have stated, to softness solid DKB more continued segments. continued offsetting

well. also snack cake warehouse Our as had gains business nice year-over-year

of This to related percent a promotions part out XXX to sales, points see margins continues gross related activity the brand net to brand a Perfectly significant elevated primarily Own Crafted. the store the by was of of So, QX margin store sales point-of-sale declines factors reduced gross as gains and gross impacted had several declined decline. and to overall well of had performance, Top buns, promotional heightened cake. Consolidated product decline. basis category as line launch breakfast contributing in was margin. this the launch as that Nature's We revenue. in margin, We

As issue. activity new I from for elevated promotional yeast mentioned, launches product disruptions there was the and

and lower manufacturing very challenging. labor higher environment also costs ingredient purchases outside We remains and The had efficiencies.

which wages increased are workforce-related We higher turnover, seeing cost. contributed higher both and to has manufacturing

these higher of to SD&A Lower inflationary percent territories as initiatives were to from discounts higher remains percentage changes made Distributor the as activity due partially costs new due strong. but launches. recent cost. sales SD&A product higher organizational were so a also expenses issues, increased of sales due promotional economy address a by marketing higher underway have XX will these distributor points we we distribution and of expenses long offset basis to declined the as were and discounts. cost continue We Adjusted sales. to company-operated workforce-related expect pressures

Higher call, on last sales, marketing decreased drove and EBITDA percentage was be production the higher as we marketing share to and quarter. to $XX.X expect of the XX.X%. and the for majority lower SD&A cost per increased QX quarter in GAAP a $X.XX. decrease. spend EBITDA XXX margin to points earnings net of compared below-the-line was down of Reflecting adjusted the the said production year-ago we basis elevated Adjusted the in QX. million, cost $XXX.X million quarter As the costs

EPS Excluding $X.XX the of comparability the increase new the was the mentioned up $X.XX tax of earlier, prior-year for adjusted effect compared in quarter. quarter items approximately to the in The adjusted accounted affecting $X.XX, law EPS.

sales strong lower of up DSD items. mostly was to traditional Turning second offset X% of quarter, decreased X.X% driven by DKB, by increased bakery Segment Price/mix while segments, the revenue volume in X.X%. primarily sales

a driven Most X.X% retail manufacturing. Warehouse higher-margin first basis Our of vending percent pricing the by shift as mix sales partially was business higher margin down of Also, labor operating quarter and sales the we offset a XX.X%. lower to continue by was primarily as of items Segment caused implemented versus the inflation. disruptions activity XXX the Price/mix related and up These organic in in well XXX of higher were to Adjusted address items product costs. prior revenue the cost offset in cake somewhat by the percent in promotional from quarter. as foodservice, driven lower inferior year. by to down SD&A decreased branded by a the to driver and experience increased input points points we lower actions lower store input growth Segment costs. cost by and operating efficiencies, were Adjusted issue. sales, DSD was this in Again, was margin the branded of price/mix our mix higher warehouse quarter and manufacturing launches increased inflation. while X% foodservice this sales, contract margin was as distribution bread biggest impacted our and sales this new DKB basis our increase Warehouse and volume yeast and

of MEPP $XX.X flow cash by including: year-to-date uses, contributions of decrease strategy; working be million to flow, $XX.X withdrawal capital. our year. Operating cash rate. the a cash ago. year-to-date. and continues million prior from Centennial $XX.X million expenditures driven Turning meaningfully and VSIP-related of were uses million cash to tax year-to-date Dividends flow as management initiative significant paid with of ended the a under down our driven debt. generated was year-to-date cash in of a $XX.X quarter to total Capital million net offset over payment We year-to-date last from by with first $XXX.X This these with to increase of to able year. compared $XX.X were de-risking pension We X.X% voluntary was the and million; number adjusted lower discrete net $X.X Centennial settle million payments EBITDA legal of extension Project end, Project a improved terms quarters effective year X.X million, associated XX-month million was net strong, $XX.X payments debt $XX cash payments; pension two $XXX.X million, At our quarter the trailing times.

Our financial position strong. is

end, approximately available liquidity credit of on had we facilities. million As $XXX of quarter our

Now, let's take at guidance. a look

expect in continue up XXXX, For sales range be X.X%. to to we to the flat of

primarily This as transportation. driven to Though reduction by in QX adjusted full-year to that expecting of EPS workforce margin earlier, mix see per is sales described now is factors be the margins. guidance impact to the that range being also expectations overall are we to in share. we'll $X inflation We and forecast do well as will continue our strong, in overall expect $X.XX continue

back weather year-to-date, trends core in lapping repeat current because below markets primarily expecting are may half, events the prior-year to not we our that the sales in For be year. slightly growth are we

offsetting We incremental by line expect core the volumes primarily for be which to softer from continue is DKB, to driven volumes branded our top items.

the manufacturing in contributes approximately cost of input not expect and lower on through the tightness did $XX which continues which addressed of labor efficiencies. pricing We at increased and bakeries anticipate in market, What is partially have level the manufacturing continued we efficiencies. focus cause to turnover we million improving action inflation XXXX, to

from costs. increasing with investments the the In along addition, savings $XX planned, have this to offset also logistics are gross targeted we $XX brand driver effects Centennial of in million million the shortage the These, Project year. we

product from continue to guidance the range the rising We The believe marketplace a the our issue, inflationary the our of a marketplace, full-year balances to Project Centennial. of core competitive upper we cost incorporates steady the approximately EPS the XX% to the tax seeing of environment, end new introductions and performance The from year. expect continued rational, XXXX, are DKB, solid assumes For end revised pressures. progression and related XX% rate in for appropriately the brands, we softness growth in lower competitive factors remainder a one-time cost. before disruptions yeast of range and

Now, I'll the call Allen. pass to back

Allen L. Shiver

Thank of you, second with encouraged in Steve. results performance I'm our the the brand our sales quarter and marketplace. strength in the

and had underway, strong our the well in aspect team, our more is every and hardworking is built a magnitude culture have aggressive. business. essential. of We've transformation and history of this This more impacting change is Our proactive degree never this to we The of evolving we're become change.

quarter, at As on Thank we'll the are third began reduction throughout of we have line we and the do said the questions. of with head-on. of At we attention the we range are I the your you now the margins, balance on cost call, And focused start addressing work execute challenges the additional our urgency on to start to today. working year. open these And actions. for of for a

Operator

Thank you.

will Aslam begin from the now our comes Stephens. ahead. session. We go question Please question-and-answer Farha from first And

Farha Aslam

morning. Good Hi.

Allen L. Shiver

Good morning, Farha.

Farha Aslam

to million already the us that into in could much Centennial, and Project on question half, just with much $XX is $XX XXXX much expect? of how how realized, we you've savings how you share should A million second

R. Steve Kinsey

where but million. that's we the hit on I to year. to track million our projections $XX to-date, wouldn't full we disclose for mean, $XX We the are are

Farha Aslam

XXXX for And savings? your anticipation

R. Steve Kinsey

XXXX. Farha, margin XXXX. I this we I mean, point, XXX-basis-point in believe by still to improvement the talk mean, about we're think ready don't I at

on that perspective. So, we're that focused the hit sure still we targets laid making we've out from

Farha Aslam

total And inflation you're input about inflation? $XX seeing? inflation you just and highlighted, that talk the million basket could Steve, is Okay. just total that then, your you Was or cost pricing that

R. Steve Kinsey

inflation. cost input total was million $XX The

there pressures, well around costs. transportation So, labor, other primarily have been as as inflationary

Farha Aslam

just put pricing of much sold, how of as percentage you a offset about provide inflation? And be you then, can seeing can goods that there? So, any X% are to cost in color inflation,

R. Steve Kinsey

the data, to – cost somewhat the in when margin remainder in the of I pricing basically place so a input this areas. you be at it driven mean, majority look has can and IRI basically is in inflation, of you offsetting by savings cost see other

Farha Aslam

you Thank very Okay. much.

Allen L. Shiver

Thank you, Farha.

Operator

next Our Amit Sharma from Capital question comes ahead. Please go BMO from Markets.

Amit Sharma

Hi. morning, everyone. Good

Allen L. Shiver

Good morning, Amit.

Amit Sharma

it. disruption to comments impact your expect to appreciate versus I recall, the that yeast related maybe? of QX evaluating you still be in and bigger the Allen, you're a impact demand Would QX about

Allen L. Shiver

the the majority current majority impact like the the in of was that Amit, of the disruption, quarter. I feel cost

this continued overall, our impacted about going the cost our continue may be here there evaluating the during the were is as also that we're But road. that to down some some of today. brands concerns we further talking be is period bulk get to addressed monitor within foodservice be business. but, are we'll time costs being quarter But that And there, still and all may identify like We we we forward feel carry out the quarter. of about within the which that of of and

Amit Sharma

that elevated have Got more something do made than spending. just driven did it. year? it, that internally, you wanted you the you increase or then, it into going promotional to little like you about largely you Was in planned And might a talk the see bit marketplace

Allen L. Shiver

was product that our it's of A was though is lot was doing it's in increase the on consumer new to line, Nature's did generated brand, now lot marketplace. on Crafted. a of that that our in Yeah, the excitement even introducing the Own well. It of our new and a the product it's bulk extremely We've really focused was about Own and new reason quarter. unique we a activity It trial so behind and Nature's it really, item. of that really the Perfectly promotional to introducing the good new item job

Amit Sharma

expect in So, spend to that it goes trend you down QX? would which from

Allen L. Shiver

absolutely. Yes,

Amit Sharma

did guidance still inflation up all I down all Okay. look, half, final for the performance can XX-plus for I then, see with half? gross to make grow given right? you me, revise now way one a back the What we in percent. in much even back full to just margin conversation that you Steve, And ton this have I the mean, about looking the year, that you gives and factor, confidence the a by the expansion that that grow to first-half EPS still mean,

R. Steve Kinsey

you look our have currently, number we're supply when overall place. Yeah, on a chain in line initiatives we production still need to I with our Amit, tonnage. and initiative. Obviously, we of footprint our working volume get mean, in

continues half. We of should a there some to around in begin to expect back work So to come that that. be seeing of fruition the lot

spend to the Crafted Perfectly As XX end now, expenses stronger the And behind gross QX probably margin, that is of to netted said, elevated QX it's against XXX will us. is reality primarily we hit was fact QX. basis up a marketing the a lot QX point top as are promotion behind line. basically that being well, is because, than and margin, The actually the

headwind, So in half necessarily, well. we will as not that have the that back

half. the we some top there initiatives us a of know strong there to of the combination in are begin that on implement because savings help So headwinds savings. initiatives driving Project like the some initiatives the all headwinds in the fourth line. We We identified quarter Centennial know feel focus cost are will But on overcome the just did we back and have QX. some some of we

Amit Sharma

Got it. so much. you Thank

Allen L. Shiver

Thank Amit. you,

Operator

Akshay Jagdale Our Jefferies. from next ahead. question from Please go comes

Akshay Jagdale

Can hear Hi. Sorry. me? you

Allen L. Shiver

can, we Yeah. Akshay. Yes,

Akshay Jagdale

you. Okay. the Thank for question. Thanks

a follow just wanted on bit. question up So, I Amit's to

second expansion. margin a So, half, specifically point the my implies XX math, basis on or so

EBIT so the year, a had point you've And far in decline in XX basis margin.

be versus aren't perspective? is that us, so issue behind the on factor allow and half factors different we second to had the looks So, it's main to So, something the materially going change, or first a be right? materially margin big turnaround looks line clearly, performance pretty like it's that would other trends a from from that's the that half this cost materially there yeast top like half are have side different, but to the different will it first

R. Steve Kinsey

the XX the promotional I elevated mean, biggest XXX activity, was in gross items basis about were which, two points. again, QX, the again, to impacting margin

issue points. We could basis some to yeast. also be from was disruption labor had which efficiencies, of the XX lower fallout around the Also, roughly the XX

So, flat if alone, you two you had QX. have not that, margins basically had in would those can you see roughly items had

marketing of with I activity. the we half. it against So, back that place the regard to you the overall what And down the materially was realistically, the impact also, on in in initiatives issues believe couponing see sales. it should gross we the a efficiency back have address That margin. mean, then come netted to was, lot in half impact gets

half. that So in gross back in your production impacted subsiding cost that saw line will the be top margin, overall net so somewhat the

Akshay Jagdale

And on it. one piece. Got operations the question then overall just

appreciate new local have be but made, created we guys operators and a best-in-class the the known comments with been So you the model. to position

to bakeries to structurally of are just changing being you. I Centennial? model, So, mean, a you are Project position? how this the enabler Thank going what's is main I know goal the an operated this more sort new but of you're or consolidated

Allen L. Shiver

And levels. down is the that organization, team really, industry. Akshay, eight months in company. into it's And, of lowest organizational excited an ago. seven far the our more have Operating naming structure It we the the got because really Officer. more level. that responsibility, organizational initiated is putting mean, I authority strength to the Chief at to decision-making goes structure the the not as enhancement we've accountability providing adjustments I'm that it as just we and pushing a made down more the really or lowest best of it's the

Ryals earlier lower that naming the excited our we list gross cost responsibility push Chief have the levels. of and first in reductions we're position, capture from where Operating adjustments to projected. the margin. organizational making making to from cost is down about is we we sure a as impact very Ryals' have Again, cost Centennial. is we're reductions first of make the that responsibilities, some going in accountability structure but that to achieve like lot comments to that the Officer. an the also And of we said we not top Ryals sure we'd be will And standpoint on identified Project have on a that

I Ryals, are very excited in So, the made about to well to really the the are that next to as take am changes that being field, and level. going as important have been made changes be the us

Akshay Jagdale

programs it's And on promotional, just issue the Can manage going pricing where Thank on promotional and were role more you tools, one forward? better promotional you a you et strategy you in but to some in implementing cetera, sense question. I execution you. might how new better. the us play a of are that know give a of Great. the last that that with broader process had, one

Allen L. Shiver

TPM a is manner. in Our very positive developing project

Looking individual And than honest, back the approach be higher utilizing Own never introduced rate what to done was we the the quarter, Crafted we Nature's coupon on that that projected. before. redemption had Perfectly way with had very we retailer, this extremely an

a loaf line. new is that we The to generated bread participated we of that type of product consumers the is first with have in of is good trial this introduction. news our time again, a with an unique So, lot

loyalty with we've we our is of activity. Nature's trigger consider to everyday that that in Own Perfectly will So, But over, consumer again generated gotten activity be very the promotional careful type Crafted We've in of what that price. a lot the process. promotional now we same pulling will back

A. Ryals McMullian

specifically, to Akshay, the software to and TPM it is implemented continue customers add to with regard we tool.

So, our are we spend. beginning trade promotion manage to overall use we as that

Akshay Jagdale

Thank Okay. on. you. I'll pass it

Allen L. Shiver

you. Thank

Operator

comes from ahead. Chappell next Please go SunTrust. from Our question Bill

William B. Chappell

Hi. morning. Good

Allen L. Shiver

Good morning, Bill.

William B. Chappell

rational think we you you just, environment? be into that of, market year. doesn't on the I guess, we are it guess, a will next I seeing space gets expect Steve, mean as say right as half, back to Hey, rational more change kind give go anytime little less promotional that Allen time to soon? go look way your where I kind And of this we especially and commodities competitors, me would promotional or costs into more affecting the the it Is that and at levels with in and just especially explanation I I the little rising probably a could and and the

Allen L. Shiver

you at conditions, Yeah. next. is it Bill, from if marketplace different again, very market look the to one the

every whether category that products Perfectly point way in price that compete That's IRI You're improve in you we're entire commodity as can't platform the are is Again, the go There Dave's the category. forward. you leader pricing, where take many But interest general, always showing can quarter. at or it's of difference pricing. in provides pricing about you that strategy, will with with the data, would well. that approached if Crafted, the basically the with is I products unique in increases, happening a aware And that also having in. Nature's market total category, increases, do see a everyday Killer other but look that pricing we doing for that look feel the provide just Bread took that to in what situations the the Own current you we're on markets, continue. earlier we transportation future, those increases price. we've the of our cost In to again, the isolated we a at guesstimate expect improved are impacting difference, and, nice in point

day. focus encouraged where we we're continue are and again, development to from standpoint, with we So, product pricing a on every

William B. Chappell

do But to not this understand anything from has sound seeing going looks more right competitive levels. just, you're trying like you're pricing it promotion, doesn't taking in the and point. back rational landscape the competitors that but again, promotional the I things, to at the of changed terms

Allen L. Shiver

Bill, it's very story. a of market-by-market much

William B. Chappell

business, in others there's heard costs there if the just know didn't transportation if incremental because Okay. costs Warehouse – – and especially of the of we've just from some there or that terms And are transportation trucks availability few pressured? understand to refrigerated more makes it anything that a the the you're of or expecting trying of next months. from inflation kind over little standpoint trucks Just for

R. Steve Kinsey

I the are in Warehouse Segment. the DSD Sure. Bill, and actually, cost increases seeing mean, we both

As a what driver spot segment. Segment are But of within buy the little is that to we to we our you Segment a system. know, carriers starting the actually the more impact call typically closed-loop DSD The on shortage see Warehouse has market. more

going So, cost they are forward also as well. being impacted by increases the transportation

William B. Chappell

right. Thanks so much. it. Got All

Allen L. Shiver

you, Thank Bill.

from Our from ahead. [Trading] Brett Hundley next Vertical Please go question comes Group.

Brett Hundley

Hey, you good guys. so much. morning, Thank

Allen L. Shiver

morning. Good

Brett Hundley

as respond clarification, Just say cost in chain guys are program or to of your you you're point challenges did as hear after marketplace, correctly additional savings? Allen, that I cost you going you accelerating supply the savings a that

Allen L. Shiver

manufacturing Centennial. profitability. Centennial, accelerating new now. The cost cost organization of individual critical savings our to urgency those savings there's capture savings Yeah. of initiatives that have looking to we've are be leadership entire team that initiatives looking contributed Project at markets Again, identified at that generate is markets And tremendous the with cost commitment in our we're other situations, our cost savings to throughout our that the parts Project may not

again, the organization the identified But at cost entire cost Project we've urgency on commitment there. there's what terms in looking savings Centennial. additional are that of an in So, savings specifically

of both. So, it's a little bit

Brett Hundley

standpoint. up the guys, now you're your what's here expert you just at resident And happening sense. ask just ask market hedges, what from wheat usually to Steve, wanted looks that wanted your pretty about the That into to like, hedges, on I wanted I this get you on world a but given Can we're right into your for makes your that. continue across the ability this. thoughts to talk Okay. then, your just supply another expectations cost setting I XXXX, wheat point, you and material XXXX? to feels headwind at It like to offset about market just

R. Steve Kinsey

hedge mean, to we on that I just generally, for four We we're low the most are time. Sure. seven the covered. of XXXX, and of typically end months

we and about XXXX, the are that we for good there. So costs feel said

and U.S. happening higher appear, does across acres. we're prices the will what's XXXX. world, Looking really based planting the higher out on bring anticipating for XXXX, generally more Typically, in in prices it

in So now, our for well. higher see are XXXX, will that to you right U.S. as overall that prices. remain seen But wheat will be expectations the (XX:XX).

Brett Hundley

would had for he's the maybe Project in think It up that I your year-to-year. then I the And can this, about given Ryals XX% brought headroom Centennial question, And targets, I Ryals year, question margin that last point margin XX% just margin a to up, and how kick targets shaping important to of for factors had extraneous my shy EBITDA management but arise some that have when itself, on going XXXX you've appears XXXX Okay. to on in and challenges XXXX. been come program is just in just there would that that that of the leave fall there's team this expect targets again, some target. also but your been

XX% to about, cetera? and margin or of And Thank out some of so, wheat, targets your for talked challenges, just that raw labor given beyond, there you materials can leaving EBITDA et XXXX you. just about XX% the in transport, just talk we fiscal confidence comfort

R. Steve Kinsey

perspective, Sure. at Brett, when this you a mean, time from look is a was And project, I in year only two. five-year project. it we Steve. are the

pretty had And changes is we've M&A businesses structure next is expect stay years here, EBITDA. to still the well. XX% to as where M&A. four of and M&A with We Also on do to see run time perspective. built an the organic XXXX another three need feel to in the into to exception basically that to, dry from like hit the target $XXX track a So, we million to margin there's of our we of overall mitigate make to XX%, target which cost

with the we still comfortable So, that perspective. out there target feel we have that from

A. Ryals McMullian

just chain. initial last Brett, cadence of a I to follow planned this think under we that the was mentioned Centennial. And, supply is and Ryals, to SD&A yeah, initiatives were And on focus now savings largely always there's turns up, quarter,

way are as good need expect to where we savings The as efforts we feel said, Allen have in us. we And, know yield well. initiatives supply incremental are. actually opportunities chain, we those really about that accelerating We do. what we to for we under So,

those confidence still us So, things long-term we reach can that all give combined targets. of our

Brett Hundley

Thank you.

Operator

Group. Pivotal Please Research Our next Ramey from go comes from question Tim ahead.

Timothy S. Ramey

question. for Good morning. Thanks the

Allen L. Shiver

Hello, Tim.

R. Steve Kinsey

Good morning.

Timothy S. Ramey

of bit hear the Centennial. about And a Ryals, And be heard macro strategy I expect basically to little you things delivery, into back right that I warehouse talk changes, like think we've I'd you've structural think or the more and call shifting still more DSD that. this you Project is really profound got about of some now guess set love the mind my your we maybe do of the more first change? shape go-to-market kind savings. should welcome. cost To-date, of would some incremental out there volume had I in

A. Ryals McMullian

resulted we're look, market at our look in organizational and I the of mean, that is the lot to has focus a some were brand-oriented, project on some targeted some marketing things, starting more and to those get efficiently. to from at more a our consumer-focused, those of those under significant you're testament innovation most the initiatives up if capabilities best itself. in products to the mean, way our now, you standpoint, fruit a of Centennial. I always has structure. to From bear and were company Yeah. Tim. that, be itself, we've changes pivoting And see Thanks, in been to looking stood macro

we we something we try that longer-term, we products that to and look optimize. the to to how continue operating make to is those Over model, at market, products, as look at continue where get our

Timothy S. Ramey

expectation something like a are that three look changes incremental out So, would reasonable that. those revolutionary? years, or it perhaps be more Let's

Allen L. Shiver

ahead, Steve. Go Yeah, Tim.

R. Steve Kinsey

really is of mean, obviously turns. I way, when would majority vast the our still you Tim. more the this business and the freshness believe, the DSD business, at our category, best I is mean, it's say We of DSD. number with I incremental, today, look to Yeah. due

see fresh products be that fit that perspective. fit very still the our products don't warehouse, strategy but to go-to-market could DSD. DSD from more regard a traditional I may come in online There us So, with changing a nicely from

A. Ryals McMullian

And, talk investing about adjacent a Tim, talk categories. we think about adjacent when M&A We in about you categories, lot.

that a to merchandising going Some part retailers is and fresh DSD business the of fit we regard the of or perishability high things enjoys that may may support to retailers core of DSD our We it, will vital the and a and bread brand But to not those that the forward. packaged be provide continue with model. for turn believe segment. the that in our brands within

Allen L. Shiver

urgency is a Tim, Those hearing you're accelerated. very is do. commitments And in of to a cost we to it's team this that structure. organizational that is structure, that what Project really components be commitments today The are valuation committed the to solid overall and are made confident the our have costs Centennial. reduce we've that

Timothy S. Ramey

share you've anything, aggressive Thanks I repurchase much, holding that XQ, year-to-date, pretty for cash maybe historically not process? wouldn't that. on Is Steve, didn't have cash like allocation the back flow, there not back. to is there. if was been look capital Certainly think. something in think you I And or

R. Steve Kinsey

I flow to strong. be again, cash mean, continues No,

cash. other there more Our opportunistic, philosophy on that share repurchases of unless were uses has to do been

believe Project from you be a then can of CapEx slightly see again, So may out heightened there's we Centennial. there opportunities and coming other a investment perspective,

how changed done we not that just on typically we've share It's it's at opportunistically. it's repurchase. look more So, philosophically

Timothy S. Ramey

your for Perfect. help. Thanks

Allen L. Shiver

you. Thank

Operator

question go comes ahead. Please from Holland Brian Research. Consumer next Our from Edge

Brian P. Holland

I morning. the wanted a to Good revision guidance try bit little Thanks. I Yeah. unpack to could. more, if

and looks understood catalysts. a to lot just that pressures you in we're how react this, so learning, out guidance. are correct to you've price sure behind that's I into as non-GAAP referenced I quarter you QX. promotion then should would and headwind. guys become can doesn't maybe yeast that last new the promotion, and steer did the an about that operating headwind, and or that, extent you an guys Flowers. you've incremental component, the pulled you cetera guess factor said are of QX it said, yeast like have the and feel But again, be that certainly, but – And like of increasing the product guess, yeast having number me issue how results, also you me And operating talked to well issue of certainly You The inflation launches and et to earnings not folks not as a this also, specific cost mentioned season, that fairly

or that become did it's into were how for other So, impact inflationary a trying they they just anticipating? I'm parts, get impacting pressures guidance? I the to if are this you is your guess play a the how cost than largely sense And did come bigger the

R. Steve Kinsey

lot and when the mean, we and But that of you able were DSD obviously, the costs this the disruption is a kind Sure. across specific of talked part impacting I hard transportation our costs yeast what identified was at that DSD our event, actually cost the you the call we to but about. the bakery could we've big look to majority bakeries. tie were workforce of it a there inflation of network, issue,

to assess also in that, customers have and the opportunity we'll was forward. there said earlier, from that our brands on perspective. some that we our continue or So, quarter monitor missed as may And the going impact

X a impact and season, we perspective, part us. of miss significant that from bun did that July did So, the

So couldn't there we are some capture. soft costs that

or impact four but not did for were those to five we add So, back, the that operations able currently weeks.

missed So, time during there period. was some that opportunity

feel impact we from So, a us like do perspective. that guidance does

Brian P. Holland

the Okay. of should a That's certainly, around helpful. the If you that, that impact. checks, the channel pretty my that Xth meaningful weather-related soft suggested typically it pretty Memorial July, right Thank and you. you Memorial know, holiday be about issues with a Interesting was given Day Day. point know, I'm

you that the of to around experienced, new or presume I QX? actually volume to talked So, in you Xth that is about strength that get from an reaction the back, strong it in particularly a was that's cetera, do Memorial guys the you launches offset soft offset July, promotion et what was product to think Day,

R. Steve Kinsey

of our launches. product The majority did from buns activity Day, the most Day. have we because and of July X promotional of activity new also related came specifically Labor I Memorial impact mean, to or because the promotional

us a impact subside typically But in the that product you biggest new see So, standpoint once tends you from for Day the Labor that the quarter launches. was holiday. promotion to and get that within through segment,

Brian P. Holland

How curious you've obviously, Okay. is parts moving the But for the laid cost lot talked price in Because about of far. and And which there offset mix, there biggest I'm me, the the And that just then to last one to one of about is you pricing. to cost promotion, up inflation a pure all being that standpoint. take underlying any that's the thus of tools been price up clearly, away your you've volume out. and of able list pricing with the all the or flow Is stuff promotion promotion to Thanks. of from having tied other is a that promote getting see to through? is price so support is able holding any that pressures list far? price holding against us in just mix other just and to

Allen L. Shiver

discussed the morning, as the took holding. point, we increases with look within promotion be to Again, at that pricing to But in forward standpoint, price, to in quarter that be pricing selected earlier markets continue the that holding we the always evaluate aggressive this markets, the And and we're just do. that encouraged we'll majority the took the are more cost of holding. we we had with this the we've in pricing encouraged quarter as in overall, is there competitive. pricing But where general we've from terms, Again, overall simply that a is is I'm that market.

Operator

remarks. I'll That call Q&A back closing Shiver Allen for concludes to turn now the the session.

Allen L. Shiver

on thank drive Great, for more This joining look for work ends you as cost your as organization, our we're next forward becoming today. taking time. to Thank the doing We call. out update of our you efficient. call the well to our growth,

Operator

and for Thank disconnect. you you and now Thank This you, may concludes conference. ladies participating today's gentlemen.

Flowers Foods (FLO) 9 Aug 182018 Q2 Earnings call transcript