FLO - Earnings call transcript Q4 2018

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Operator

Welcome to the Flowers Foods Fourth Quarter and Full Year 2018 Results Earnings Conference Call and Webcast. My name is Elin, 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. [Operator Instructions] Please note that this conference is being recorded. the to turn now will call J.T. over I and Vice President, Relations Investor Rieck, Treasurer. Mr. begin. you Rieck, may

J.T. Rieck

and you, everyone. Thank morning, good

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

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

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

related during addition With Foods Steve to Allen the matters and some Kinsey, CEO; factors over will the call, In have: you. in that, filings. today, Flowers on call turn make Flowers call to discuss are SEC the Flowers' detailed to will fully introductions. CFO. business Participating Foods' I'll Shiver, we important we our I Allen,

Allen Shiver

good Thank morning. you, J.T., and

five we XXXX will I as disruptions. want their against unexpected take our value. a and reposition Flowers even drive made this team year command progress is positioned quarter navigated was hard priorities two team journey to to past for a Substantial food. Foods well the begin, Before Flowers’ shareholder as our to our confident year moment strategic work. year, I was Flowers I’m focused review consumer national in

have large a We leading national category. and a and stable brands footprint in

growth. strategically relevancy our to to and differentiated add to drive platform retail with distribution products profitable scale portfolio leverage Our partners enables our us our and

Overall, our the quarter quarter. with turning Now expectations. was to fourth performance consistent our

the breakfast In top brands, We activities record I Dave's share is Nature's brand our point top-line. share for pleased quarter have well. Wonder achieved this with and I'm three of the that performing Killer promotional the compared quarter. segments. gains share the their we Bread buzz with market the with and Own, portfolio ago. want less increased year gained market to category. accomplished the out and of bread Once we again, each share Our loaf

remains cost past a growth headwinds team. and our transportation over earnings the years. major two Commodity still been margin However, have for focus to

We initiatives more to XXXX. $XX costs mitigate have headwinds these offset these million have since our of savings been than partially able to which

In addition we appropriate. pricing have taken cost, where to attacking our

we We on to goals will necessary. to review see XXXX, and made year, market-by-market continue on playbook. when on progress and priorities. continue last we our our continue pricing In will adjust main three us will strategic to execute drive focus sentential We you

our capitalizing invigorating First, are core margins. and drive chain adjacencies improving we profitably on supply improve to share, productivity to brands

consumer market number leading of strength the bread is brand strong category the one brands the Today, our in important. lope Own our the brand. in growth Nature's Nature's is recently for entire introduced the share Perfectly DKD the market incremental innovation Crafted the by category. brand core potential a to to on have continuing The on put our we led profitably has us landscape brands space core focus retail believe we reinvigorate share helping execution. improved We share shelf renewed sales highest growing First, our through and as focus to that driving and response one reputation in have only additional serving will become omnichannel for position. increases, markets. a and grow well in as and Own evolves gain driving is segment markets the organic and has and that more number the shopping expansion This marketplace national is is

marketing. innovation be continue brand DKD's be and investment Wonder's our the help increased items breakfast continues We We share market powerful to we recognition must driver a leaders, to and pleased have ensure our brands significantly growth. rollout of been market that with know to of in in have

drive market innovation unique consumer is consumer demand service with combined our intend profitable efforts in is on and marketing focused brand the continued to excellence These translating team and insights to Our into how growth. loyalty. we

Our substantial over for category ample XX capitalizing strategic will opportunities billion is The next provide the adjacencies. growth. of on size large focus

to continue look with prospects competitive in value product creation our strategic our M&A and We strategies. geographies underdeveloped for advantages align segments that leverage and

has breads. our focus extending portfolio beyond been traditional recent Our loaf

very pleased with move been segment. breakfast the have We DKD's into

We segment across the we XXXX. the rollout been will since to growing going DSD also underway ramp and only is and our up Canyon during X license. Sun-Maid are It's share week well. this The in the is close acquisition already network of for continue integration brand

brand leverage Canyon priority to we capitalize execution Bakery. As demonstrates and our against banking and allows productivity more is chain to incremental the to network on distribution and growth to Canyon improve final the our Bakehouse earnings. We expertise retail equity. reach Canyon important partnerships provides drive increased in and strategic increasing our margins supply increased through adjacencies. And focus us capacity consumers and believe strategic

years, has savings Over significant Centennial. job initiatives realizing from Project the a past great two our team done under various

processes identify new opportunities savings core now productivity As progress. that ongoing track part help we our to have This methods capability our and developed of drive are programs. will a this, better

chain contribution to margin are to working our structure. fixed and enhancing capital targets This returns investments. achieving cost on a address multi-year long-term initiative our project We One of optimization also of of aspect a on supply important at is our is essential production store line branded many variety branded, a and for segments. project lines. bakeries, products this across taking single product our sharper non-retail different margins In and a produce can look channels

to and at Our high-speed One close and a value for bakery the bakery efficient example this bakery. to to this, installed Brattleboro, flexibility Pennsylvania of Oxford advantage of utilize production in less objective is the allowed in our higher Oxford, line, the visions. Vermont. we bun infrastructure is optimize take us better This

our we is will we we improve bakeries improvements. adding supply market, production chain significant organic summary, taking, is believe Northeast opportunity Northeast. optimization costs. this In of steps major the can drive for productivity the and Company in the lowering that capabilities our Another one is for are to service example while we project also project the transportation When completed, a are

work this to continue do towards targets. margin I be on initiative cake you a give our major a will we update XXXX brief business want to in business. XXXX. our snack As Improving

already We progress, improving and significant price low mix assortment, business. margin making streamlining product the are exiting

about it's growth. driving Now

We to results solid new company the products we laying of a made forward in To for are in foundation pipeline look improved profitable have we recap, have sustainable, XXXX. we reinvigorated have we cake and progress growth. XXXX, important and the

mitigate and reduced inflationary capabilities have helped cost We that pressures. added have partially new

our continues deliver value. Our work team to goals shareholder long-term and towards

to brands Own, continued loaf the improving our is fresh leverage right capabilities, the business. manufacturing in our fixed business our scale believe segments and cost our the bread from to of With U.S. we bedrock number our and by and flow, As shareholder XXXX, we XXXth we cash By growing growth. grow year, our have headlined our drive in is flow enter Nature's cash The team retail earnings one confidence of distribution in our free relationships leading Foods’ bakeries, bakery in Flowers we and productivity can this taking steps reducing invest portfolio value.

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

Steve Kinsey

and Allen morning Thank you everyone. good

from results margin in transportation. Good line pressure Canyon the quarter and volumes to stated, quarter was by As immateriality and primarily will Lower fourth commodity from expectations. inflation, core performance manufacturing with excluded in on XXXX. our reported for to the product continues our first fiscal Due top-line the quarter December acquisition efficiencies. continued We Allen Bakehouse in-line of offset in recent pressure last were close Canyon's quarter the be was did XXth. cost our

X.X% our of details the was X.X%. down performance. sales fourth basis to Turning XX were increased Consolidated quarter price while mix up points, volume financial

in of cake the continue experience vending food We in We volumes the DKB across primarily quarter drove and service, in businesses. and in increase price strong to markets. mix. sales DKB actions our experience volume our Pricing growth lines growing product did many and lower growth in expansion

primarily higher working I business. price to basis realizations and last improve As and gross was This so lower due and purchases declined selective Consolidated percentage margins quarter, of a more are areas, high approach taking margin low in these cost efficiencies. sales. volume outside points we we are with a XX mentioned manufacturing ingredient as to

sales higher adjusted Earnings decreasing as per discount Company distributor a XXX a territories. the to percentage as production adjusted resulted to quarter increased detailed percentage the of share. press to SD&A a higher increased $X.XX SD&A due were basis lower margin in of and organizational and percent workforce per quarter distributed sales items points owned compensation. shipping by for costs These cost discounts, related and The cost. in marketing than affecting lower as expenses the points basis changes Overall the variability sales. cost is incentive for X.X%. Excluding the offset generally attributable decrease share and EBITDA Higher more was XX sales of the Adjusted release were holding of

the the share. in EPS items influence our release detailed quarter the Excluding below adjusted lines operating Few items press did the forecast. adjusted affecting to diluted EPS was relative per comparability $X.XX in

First, we than was $X.XX our lower EPS. effective forecasted. added This rate tax approximately to

started of the past $X.XX plan conservative asset de-risking had process, quarter the approximately effective pension with benefit the part in lower a EPS reduced from to we This in-line rate. more as termination. offsetting our Second, allocation our and adjusted tax by

segment while fourth Now the turning X.X%. up volume Price financial X%, to revenue segment decreased mix DSD was increased results. level in quarter. X.X%

costs growth basis implemented pricing of during year mix food this the by address down price input our was impacted volumes. segment Our the we prior in the versus a inflation. Volumes operator DSD margin of points were year. as driven percent the Adjusted to sales quarter lower by service was DKB actions and XXX

as mix distribution Warehouse to in manufacturing Volume basis experience actions. was mix. of well businesses. warehouse efficiencies, sales, price our segment volume as X.X%, while driven was improved operating pricing increased We points Price and primarily vending revenue price the higher Adjusted X.X%. primarily continue margin improved and XX down by occurred mix lower decreased due to input in as a X.X% costs costs. quarter, declines cake percent

initiatives. paid offset payment extension compared were XXX.X was adjusted a generated X.X in our XXXX. trailing totaled times. by million months increased XX Dividends for net We continued debt. million. terms several were with a At the debt as totals over XX.X record was tax flow year, cash million, the Capital depreciation. cash for XXX.X with ended EBITDA and there as strong. from the XXX rate in XX.X lower mind, in effective the XXX to mostly XXXX us risk to Keep Operating Turning Company million, in uses associated to cash Cash cash our were for flow be million flow investments to XXX liabilities compared These allow workforce, in These growth. were in our reduce year. discrete year to year-over-year. year. position the the year bonus million and streamline X.X% quarter XXXX the a the cash during prior expenditures million A our pension continues end, uses,

Our financial solid. position remain

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

the turning Now guidance.

expect we total sales to driven The of expected the of in for conservative sales XXXX, by to This of yield sales of XX top-line X%. mix, accounting million, Canyon’s range offset by the to partially X% includes the For outlook growth is X% X.X% million to our approximately range in be growth. balance price XX volumes.

in tracking costs a improved being commodities, to targeting and XXXX, sales. inflationary supported transportation range For EPS savings and points share. in initiatives. in mitigate and these accountability. to $X.XX pressures In intend basis per by We of as productivity XXXX, labor are expect adjusted cost comprehensive are initiatives approximately enhanced we XXX new percentage that capability $X.XX These of we enable through continue of the

price As Allen offset used be inflation. pressures will cost mentioned, improving to also from

overall but will expect XXXX, in be We EPS. continue slightly to accretive Canyon to be dilutive it EBITDA to to

expect the $XXX interest $XXX and we net expense in approximately of million. to $XX to $X.X official million, depreciation Other amortization stated million. As million release, million $X was expense of

to to We and of approximately million items million. expect be before are be also discrete $XXX to we XX% $XXX million. our average outstanding expenditures the XX% range shares are between rate tax effective and forecasting expected of $XXX weighted Capital in

cash in expect XXXX. free We robust flow generation

on capital focus capital and Our remains on growing consistent priorities our shareholders long-term return maximizing value. invested with allocation

enhance invest bakeries and of on and brands also our team. the We our profitability priority. that way will Strategic the our in well be to diversify portfolio the acquisitions strengthen capabilities our continue of will as to

and position to dividends while and grade values We shareholders investment return financial maintaining repurchases. through this will do to continue opportunistic share an

open line the let's for questions. Now

Operator

Thank you.

now will We session. question-and-answer the begin

from BMO. Sharma Our first question from is Amit go ahead. Please

Unidentified Analyst

you know have This for is pricing within as for with is start that this the there. taking the that your you [indiscernible] the pricing incremental inflation. Can you seen - expectations. just questions. from I Hi to Amit. out about incremental from want commodity Thanks those talk first hard is and

Allen Shiver

with taken we been but again and consumer encouraging. that by has are varies we that in pricing and taken reaction. product market, the varies market brand overall the pricing encouraged If it it is by have The line, pricing overall its the

meaningful real have understands think I key the so a far. pricing the difference up are see point the we that taken. and that reaction is It's here costs consumer have of product and the to that the encouraging going having

will As look we opportunity continue up. issues to as for again forward, cost continue be address pricing to a us an run

it So a will very a continue will pricing be past much priority as for - in to the of us.

Unidentified Analyst

before guidance last hear done you anything this kind the in guidance. then talk that. plan. you had calls have the two of year transitioning to to wanted Can year, that And Thanks. to regards about differently We

just different year? in that you talk any controls place for maybe this are can So about

Allen Shiver

implemented You other Project selling an have early that made being encouraged the have changes down the Centennial, we structure, of from and standpoint. made of Steve phases may know leadership organizational I that think the is are progress have I'm organizational structure kind very with we overall as comments. really

Steve Kinsey

of category see, a at would mix mean, at do XXXX. also did for And conservative say QX is say top-line driver mentioned volume. four flat we the on low-single-digits, are I XXXX, little as big you volumes, couple we things guidance I Even a out did a view down to has in impact look when your down overall pricing Alan price Sure. could I been though, slightly. looking you some are you of of the taking on differently. coming take look we that. When guidance somewhat the we actions, at would

within So coming conservative Project on to of X% I like being top-line, target guidance the have to our approach, taken out while hit long-term the feel still Centennial. a X% able of we

to and to when way growth. You was overall say an here you may did thought we the the back we a respect I place perspective. from initiative begin earnings perspective on see at XXXX would and cadence from recall from capabilities a we overall that enhance perspective, cadence XXXX XXXX accountability and perspective, tracking top-line an still believe an throughout along was are with When cost we we things together our I perspective, in we bakeries, XXXX. is pushed from down that as And the all in granularity went way and guidance from pull capabilities the through accountability by those put would the strengthened look

with put the feel confident we it. have So range that for fairly we

Unidentified Analyst

Great thanks just from one and last me.

You commodity is which kind relative labor. for bucket Thanks. just Can those any the of XXX bps kind inflation you of or us maybe talked those? transportation about bigger on from commentary buckets of

Allen Shiver

inflation high-single-digit the seen continue XXXX. to again you first commodity basket, fairly When expect that inflationary it’s in or was at although Sure. look do near-term. don't significant really inflation turning we the XXXX see had year the we for commodity We costs sometimes in input inflation and

from we XXXX inflation input in cost or looking at more commodity a are So perspective perspective. low-single-digit

continues buckets You that SD&A, be would when you would know to overall encompass look at that low-single-digits transportation broader as as a and include challenge, well again labor. its transportation the

Operator

Our go next ahead. with Holland question Please is Edge. from Brian Consumer

Brian Holland

thanks Yes good morning.

targets I you XXXX? you had this me, specific laid out and any savings touched guys if Forgive missed for Centennial gross it. But on to

Allen Shiver

in to and period million press for we exceed $XX two when the $XX and had So look to laid at we targets said out the slightly what of XXXX. $XX the you of in million for we million achieve actually did $XX XXXX the year million coming release, out

those savings. kind and XXXX network we cost the an absolute stool plan feel within be of continue are next the still dollar The the to the optimization Alan on will again, that But projects on leg XX% of margin targets we quantify EBITDA inside will like to of We have still have several We didn't based the XX% currently perspective. and we that as mentioned, going amount. reach. from still focus those on

Brian Holland

thanks. Okay,

margin expansion looks And guidance so some XXXX. in imply would like it the

curious off between We Steve that you and maybe if maybe us margin gross help gross can SD&A. margin of a tough for this majority how So comments still balanced is cost it expansion year tack you some the And last the Allen's does understand through that, based I'm a sounds little year savings or do gross SD&A, just of on margin base. flow maybe about Dave’s like I’m it capacity on some on issue to more as you lapse through year. for wondering the Freight year the puts at sounds Bread had of external labor, some this days which addressed XXXX least these you of first think the as through you constraints go like just an maybe factors. cadence headwinds half earlier in the maybe probably we you takes some we if in the Killer of and call. then

Steve Kinsey

Sure, the around lot when off quarter by points. XXX driven. you We the are at cost down basis are about efficiency. we look initiatives, full-year efficiency There the majority basis initiatives our them points. margin ratios the operating gross see did of for were about of And in a fall of XXX the kind

margin fairly perspective. is an this So from significant overall

we Some efficiency pretty talked are XXXX are are overall the continuing into same in - XXXX you looking in initiatives and XXXX of efficiency looking significantly. about know volume that have we at we sales, impact

are that as that perspective, well. margin So of And top-line the we network and that initiatives on. gross that rolls a are into from going the at kind looking the projects then optimization into roll

say great are we any in not planning done we job, in So a would I SD&A. have SD&A efforts XXXX

over the the million From would margin-line. made cadence can little protected savings was factor of perspective, in is was XXXX say the more years. with see $XX $XX We external our system. last the on or all two saved But with significant were gross the we expect increases to million our that now transportation. big a in the I an kind are significant be overall We most with improvement experienced at to looking the we most close did building loop somewhat that

in So they did begin to half. back the pick up

kind but So you cost in year the probably half the transportation forecasting stronger the the of transportation of back still in flattish year, XXXX. with are first changes will for we half see of

Brian Holland

then thanks Okay And helpful. me. for last that is one

cake of is the the an that sharp that the segment. just Obviously in you starting scanner you see decline. negative segment we some see with just talked some lapping on is think part the are you less sharper inflection update a to optimization inflection was in thing of about to sales. wondering inflection Maybe Sort I some progressing guys there et to in that an when initiatives respect of for skew we some maybe just progress and - how could on cetera. extent if about

Allen Shiver

look think business I exactly we you're cake at I our right. today, think

have is our and retail the our are that some are impulse all products new retailers Tastykake encouraging category with is to an Freshley’s new and the know as We trends the looking environment the We well. brand news with bringing well seeing that cake products that introduced. for as we something as

items mentioned working is sure SKU that introducing I'm making are with us, as business. excitement that gone and our So, category. And other some on And push to sales. with in focus through our we retailers bring all I back practice have cake close items rationalization significant new earlier, the into the now

So we our growing on focused cake business. are

Steve Kinsey

Okay thanks, best of luck.

Brian Holland

you. Thank

Operator

Chappell Robinson. question next SunTrust is The with from go Please ahead. Bill

Bill Chappell

pricing. questions, good Two one morning. Thanks on

this are assume year? pricing throughout pricing you with there actions Or for are So year? actions the forecasts additional your the does done

Allen Shiver

constant last will something additional assumes evaluate did really market, to priority I again we by pricing But and as is pricing be it by continue top mentioned week-out. And varies week-in, year. pricing we Again, a opportunity. very throughout brands forecasts again pricing it quarter. earlier, Our varies the take that the much

Bill Chappell

favorable. for for down are - that are actually with expectations of Is year? pricing being And in total you terms volumes assuming this modest the volumes

Allen Shiver

The down, low-single-digit. flat to mid to guidance is

William Chappell

seems the of the outlook. reason Okay. model and replicate of a momentum. distribution And having really have business. believe, bimbo of four, hostess But now, past that business almost overall or then quarters the like is, pushing your And it And or that kind really Tastykake historically Do I share drive past back. and you then you your that you this identical you and been year? category outstanding I Freshley’s different and and with kind back just model Can an can growth to with with an few five can right taking with guess system? in grow business cake years, the the the ask brands

Allen Shiver

We are can. confident we that

much look brand you Tastykake high is obviously history, If awareness with consumers. very unaided our at our

point earlier, difference, outright I items a that is growing As the that I sure this are retailers to understand that developing mentioned mean, on displays of focus our key our in making new exciting have segments.

their category. are distributors opportunity there, pipeline introduced. really the in that focused impulse will on And cake the the we be independent Our an items of about new got nature of the of segment. because some is have excited And growing again, that there I'm

So cake building business. we our focused are on

Bill Chappell

And can grow year? the thought this it

Allen Shiver

some Net sales have depending introducing. that the SKU that rationalization on offsetting taken we are of the items new maybe we

sure an cake important But part to I of tremendous We remains growth business. you make projecting in want it are product understand mix. not our overall

Bill Chappell

you. Thank it. Got

Operator

like no the And I closing questions call back Shiver further to would remarks. at time. have turn to Allen for we this

Allen Shiver

your for you time the morning. Thanks this Thank for call. joining

and we share that our will to forward you results May quarter time look that update Thank our in call. your our concludes first for will at next and We time.

Operator

you. may Thank for Thank And this participating. and today's you now gentlemen conference. you Ladies disconnect. concludes

Flowers Foods (FLO) 7 Feb 192018 Q4 Earnings call transcript