FLO - Earnings call transcript Q1 2022

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Operator

Good day and thank you for standing by. Welcome to the Flowers Foods First Quarter 2022 Results Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference over to your speaker today, J.T. Rieck, Senior Vice President of Finance and Investor Relations. Please go ahead.

J.T. Rieck

good and Shannon you, morning. Thank posted had I earnings slide to our all our opportunity listen hope presentation Relations to were the everyone release, view our review and on the prepared website. evening yesterday that Investor remarks we today’s an audio also replay After will post this of session, call. Q&A Q&A we make that statements forward-looking note Please session, about in this may the performance. company’s

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

you these filings. detailed remarks, what relating hear Flowers Foods fully factors to are to in addition In in important business SEC our

We for at are the reconciliations non-GAAP on also release the provided of provide presentation slide financial which disclosures end earnings our measures, in the website. and

Steve you. CFO. over me turn it I’ll Kinsey, our Joining Ryals CEO are today to Ryals, McMullian, President and and

Ryals McMullian

in J.T. Their everybody. morning, call. a am very our appreciate performance drove of joining perseverance tough record and I you in Good Thanks, team’s results adjusted our EPS. sales proud environment. first quarter I quarterly

leading disruptions Our that supply that. not gain and from are we all Inflation growth. to and chain implementing immune share strategies impacting and successfully we further virtually companies are continue are brands to

offset $X.XX Our to results, have line environment, financial and diligently been And optimistic working prospects. with more fundamentals the to callout I The long-term than strong in of never is delivering better our team targets. our the the a resolved pressures. business be focused team results no or are we do matter about our on And in expect impact is we ‘XX our headwinds to those but those third quarter.

start with that, to the please. Q&A, Shannon, So are we ready

Operator

Edge question Instructions] Ryan comes [Operator Bell with Our Research. Consumer from Thank first you.

Your line is open.

Ryan Bell

of would looking And coming price/mix market are are as what’s then mix? do we consumer you from pressured some any pretty at waves of more pricing hitting up our have, the a about When able well, seem a to what’s pricing, consumers. from to elasticities, of morning. coming thinking potentially and be are you next the cost that bit you they have held Good

So Thanks. any offer to if on be great. would you would that? be That able perspective

Ryals McMullian

for price/mix. to will the then take Ryan. for over Steve turn and the Thanks it Yes. elasticities question, I part

So, so by encouraged what been year, have we have this far really we seen.

have than elasticities lower anticipated. Our been we even

we think most amount remarks I significant fact Own, is of with January, our out Nature’s brands, in Canyon. price we with in increases called our the grew that prepared Dave’s that actually as and encouraging well top units the

see forward. I good So, that going a as sign really

another reacts know all and round is though, there pressure, we we how that a the say price somewhat implementing that June is of see conflicting. of the Now quite information consumer out wait the is a increase to so a bit as under in are will pricing. a of second see said, there of lot consumer I bit to and We there

some things that to the bargain, a consumer read decisions. bit is You little or different perhaps more hunt making some suggest that starting

of know we get there a until with know and we like be shift we won’t inflationary pricing, nevertheless, we in next could environment – the certainly this that this seemed retailers’ read to as be limited and not a of though to and saw bit few everybody think I little merchandise the releases But more that general a to of food. week what behavior just round there. is but applicable

a we healthy to pretty The want Steve, thing is you price/mix? that have thus seen consumer. important far, take

Steve Kinsey

our as from majority pricing. vast as we in the you line Sure. majority said of reporting. our or significant came the in comments, price/mix prepared price/mix that increase we Ryan, split don’t typically, know, on But actually

the price. vast to be would So I assume it safe that is majority think

Ryan Bell

supply in little And bit, the pressures, given understandably a chain inflationary down Thanks. coming all then EPS guidance the disruptions. terms of

bit little that? more You was were a provide talking color if XQ to would heavily impact versus able any XQ. wondering on be I into about you the falling

Ryals McMullian

that implementing we Ryan. X, have disruption increase that we the Sure, are packaging effective already and The won’t the we be experiencing price until are mentioned. costs Yes. June higher we but

greater is additional due due packaging and remainder part X, to June impact But less the the the the Now, lag have benefit for of we quarter, effect. the of pricing the the of come to that will pricing.

mentioned. really of due combination packaging we to the a disruption So, price and lag it’s

Ryan Bell

incrementality of can from anything you service last from been or to the Thanks. lunch home, now bigger with respect work in is work done And your understanding to what terms one understand have in is the of for there much me, how products? of breakfast occasion survey kind there has you terms that

Ryals McMullian

Yes.

we the we driven by within what is think a products calls, this have loaf and to And and there buns strong large breakfast, have a home we from sort enrolled still that on Own. segment work XX-ounce more lot items shift category. some still also type away I to we with witnessed, traditional specialty are a So of of to premium prior mentioned from there, quite obviously, though that Ryan, Nature’s shift are

category in seen those held have the at far so that differentiated out challenging And is We least news good a premium, this up more items. has even shift to more is, in the environment.

Ryan Bell

me. lot. That’s it a Thanks Great. for

Ryals McMullian

Ryan. Thanks,

Operator

Bank. comes Steve Powers question Deutsche Our next from with

is open. line Your

Steve Powers

Hey, good Thanks. Alright. morning.

and maybe And increases price across to you question, first against round commentary a only your trends this just and backdrop first you everyone adverse give if that momentum but what further forward of more concerns? you loop of opposition what pushback and and there So confidence new than wanted into seen just Target private of far? in kind that been that has the guidance those elevated focus of of double to contemplates just think has we week, a on future? the and kind on to pricing I the pricing recognizing ton my the your gives people may next confirm alluded on And right some feel retailer across feels, your that through going past just of following results, categories. can – question increasing then confirm not prioritization really also can perspective as eroding embedded number reaction to just board, that a about around label forward the of this up kind increasingly have down ride to, stand So kind in a been premiumization assortment much wake of maybe I of concerns round quarter, to you of Ryals, so demand is Walmart you kind on uncertain that of back can concerns up more on ask, accepted – as just elasticity, a

Ryals McMullian

Sure. Steve the thanks question. for

issues as far plan there. we of is as have in and had Most June not goes, acceptance that So any our – was planned pricing the pricing X. for

our issue from So there no is standpoint. really there

get confident it in. all we’re we So can

two, not severe number a level label And you that’s been are it’s our our still that of declining points goes, a to has time as saw in on I at than differentiation keep some in label our category much has declines from a to the a right there is prior very the to from a to generally been Private are some range ‘XX I going long conversations, broader seeing you right. we we of we been anyway in of recessionary back the prepared of Though if as range was as in down. of a less enter XXXX lot private XXXX last basic range one. our for during back as I point won’t in that as price something that we far our back that items. than like a have really will there am Number greatly top just not But So are know, of that, label past in period, back private we that it different differentiated of of or say didn’t recession still I label. coming remarks, declining. industry to our it food, trade-down. in period, are or suggesting quarters, seen see look now. category. has We within items that, growth channels private little but label that our category. but bit of recognize category offer be happen and private

You lot did Own Nature’s innovation industry. a have the been We category. back of There and we now have much then. has consolidated got etcetera a more in not have that and Canyon Perfectly Dave’s Crafted,

than was it higher then. back is market Our share much

in a ability item there is some kind in confident we trade-down, even of purchase Remember, environment. staple our category. to a weather many if This level very for many, stable consumers. and weekly I typically feel demand So, any are is of

we that trends home from work continued seeing. the that to add You are

I think nice performance. backdrop we continued got have good for a

suggest brands not prioritizing doing As private that. we it. the they seen thankfully, commentary category seen fill space. I got retailers we still have far have as branded that again, and to be to are some There that. a that seen And certainly haven’t retailers on focus seems items not in we label, from that have good

Steve Powers

I what you Can from of helpful. of, confirm then prepared guess guidance? your guess, you left degree your just worsening is – Very frame for or remarks. And environment Okay. in maybe embedded I kind us just – I can

$X.XX rising you inflationary pricing disruption of have to the it issues in that’s XQ where to chain clear margin rising. by You to perspective. presumably expect are dynamics, that guess as sort you likely keep rolling the really not am impact. am to the But in costs I I I that guess as pretty were quarter Because leading and around gross a the I XQ, headwinds, and supply clear while pricing supply full year chain from place end. resolved, fourth about thinking

should of exiting guess the I business about profile So the margin how ‘XX? we think

Steve Kinsey

This of from look maybe I’ll it is the you of Steve. Sure, cadence talk Steve. kind – about When guidance.

said have a now – be and be third in although they to it the by somewhat, our will but back up, forecast, time through – the comp coverage and will higher Then it’s comps in we QX. you year the year. easier a escalate costs rise stabilized and when early an of ramped embedded to our they perspective, get because the have our at primarily continue the level really quarter year back then from levels As in

the on That pressure believe year as about that then we a quarters some with the the to likely offset begin margin. out see will really much around initiatives are also layer that and the half couple we back QX. of that And progresses, lot perspective. will talked have cost to not up And us abate then have inflationary But of of than A So as specifically, we allows initiatives said, somewhat on now. the see you priced some we in should seeing. pressure said, packaging we of as you ramp and of from nickel possible. mitigate are Ryals come those we offset until to pricing as as packaging, more that so a you for

place we As QX, we we move good feel have to into mitigate that. a plan like in

seeing look and plan we still that like we need in so better, a far, are perspective, issue. so given to action that we from beginning somewhat are ourselves we And work have through to things guidance what –

all the So, of the ramp, about hands and going a forecast we guidance. prices on feel to thought way kind built the have and challenge like we planned to all we this way elasticities continue deck, the our way reality we as is but kind into year is full be have that do of we

Steve Powers

Thanks. very Thank I Okay. on. pass much. it will you

Ryals McMullian

Thanks, Steve.

Operator

comes question with next Company. & Strudivant from Pinheiro Our Mitch

open. Your is line

Mitch Pinheiro

Hey, morning. good

Ryals McMullian

Mitch. Hey,

Mitch Pinheiro

So on realize are have things. first and you issues bags plastic inefficiencies? what on you talked pressure I or the supply But chain are disruptions creating issues, and the seeing specific about

Ryals McMullian

us, it’s Mitch, for packaging. primarily been

impact. be quarter. of it primarily third working But reason again, material We on cake. that obviously and again, callout terribly type confidence been the for a – significant. items being I a have out in then but the that. are I our we hence, call But bags that through It’s few through had for raw as couple in will nickel issues, the really we bread we would items have complete nothing the

Mitch Pinheiro

suppliers? the I with And is I short? situation – – is it your there are where is this bags suppliers bag, how obviously at your mean, mean why a problems

Ryals McMullian

moving I But there capacity, in to combination identified sort It we plenty of inventory is Yes. it or of the factors. suffice that a of are say, and have system should say, was to.

So, risk more we spreading it before. our than actually be was will even around

things a we shape the up. taking, standpoint, to It of I from that one. was So, be than were we come supplier variety will will much But better will much a – that – it. into in we better are be single a this actually we went out factors will actions a again, be we diversification one can’t of backed situation with in we we prior. point than

Mitch Pinheiro

then your best pricing, Flowers? you we – end elasticity. that perhaps lot it list list environment of stable because or you would for we as be when And environment drive talked promotional your modest to Okay. end and all here can the and your with of have know a can more prefer – do a price here – and that holds – to promotional expect see go what’s period of pricing of other for volume, a so we get discussions taken you rather would pressure But sort – little you promotions of and would activity, inflation accelerated sort we as the this about you I

Ryals McMullian

me for a Look, great question, – Mitch. Yes. it’s

I we our me, remains a business environment stable. needed the long well to rather have for in you margins For promotional this would know. time, And as increase

would rational. business. That increase, the that And price that so increase be promotional the our certainly are remains the able my that to and would the consumers the best accept environment hope price holds for be

Mitch Pinheiro

Is Okay. your differences brands? in And then am coming curious I that’s from brand still gaining are regional it gains? is Is are there share and from. impressive – any to there that store where see noteworthy your coming share,

Ryals McMullian

out. Northeast. I am exceptionally to we really I of that one I continue perform proud the is There in performance. call well that Yes. will mean

of zero as it’s before. – know, you because, X% look I you have kind is depending we too XX%, And categories. seen all commercials, mentioned – whereas national I a our XX.X%, long think you Northeast, put quarter put our or not at, think. are our you lot that As the lot of X% share a But we we in continue you of now, about across what XX% behind was have share on increase And know, ago. we that investment it of to

Nature’s Canyon, the as all So, about Killer – Bread, really talking we the mentioned, price to increase. items continue And me to particularly unit it’s to gain along investment Crafted, those see And paying Perfectly encouraging they off. share. is are I Dave’s Own, with that premium growth here.

Mitch Pinheiro

ago carry? more, deals. one or in quarter foodservice how side, thresholds Okay. setting that and you the I about new spoke, not a of pricing sort And line then holding And foodservice margin just the on strategy guess and two quarters on unfavorable accepting does

Ryals McMullian

it’s bit It’s under coming foodservice our volume is I said project along well. also of long-term of some contract. a a because

work to improve in where contractual it fully the have want so where to And those areas have, get we to But action, we able we have been to terms to take be. to starting we through is and things.

you the because Now, in sometimes little contracted pricing inflation bit because a a business, of lag the contract. cloud does foodservice, of the more follow even is the situation there cadence

until doesn’t so experiencing contract may be inflation, increase price comes. says you the come it the but And

So, there not to on. of contract, to aligned working going But have little set we have able we take a fully that margin on action been the been it’s is is that team thresholds where are under beneficial very where those towards. bit

margins again. I up those So, foodservice to expect over time, start to come see

Mitch Pinheiro

you Alright. much. Great. Thank very

Ryals McMullian

you. thank Mitch, Okay.

Operator

with Bienvenu Ben is next Stephens. Our from question

Your line is open.

Ben Bienvenu

Hey. Thanks. Good morning.

Ryals McMullian

Good morning.

Ben Bienvenu

ask about to about whittling lower-margin and optimization away portfolio talk your strategy want your I at SKUs. you

looking some versus that think do the the are mass? think demand strategically all of you from where SKUs? of you As strategy, the balance low-margin and portfolio, demand or between critical your your about are you SKUs removing margin lower-margin you that retaining How about purely higher at those

Ryals McMullian

question. Yes, good

lower-margin of we brand as example, in our that’s sense brands, So, store for some there retailers products of space more strategic are some with in that the describe case. would our the business, that us where preferential gives partnership for our not that having

that’s get the whether have etcetera. we methods, pricing, margins threshold, on to are get those correct the end, exit the to which to to Our on been that we intent up our not and convert branded option But if thoughtfully a have then our is higher-margin we beneficial as combination of been business doing improved, efficiencies to for through distribution several years. last us. business, that I mentioned calls, for really It’s previous capacity, that have then able

Ben Bienvenu

Got it.

Okay. Makes your sense. a respect And to then came with little CapEx bit. down guidance,

And seeing You production are talked are your extent about you pipeline? raw To CapEx that what project material product [ph] to navigating cargo you that environment? platform. how in

Steve Kinsey

bit? you up Can part broke of first repeat that little The a that?

Ben Bienvenu

Sure.

production has revision material lower challenges that Just to of timing CapEx labor how guidance differences? just with do of much or challenges, versus the your

Steve Kinsey

the of mean timing. the needs we probably the When somewhat we couple that that majority about to for been have vast the timing. of now is as bakery a where reality continue those happen, is some to pushed talking at years, projects, optimization more on I we have look we evaluate

next into this So, it year. us take – out of year probably into will

do it’s mostly much going on the about now are in are So, project really thought. around coming ERP It’s of we it nothing a track with right push largest availability timing It’s optimization. I on from to just timing-related. of around a to the plus really digital. mean pretty kind the But supply. of we more of it really where comes some perspective. when has Those

Ben Bienvenu

then Okay. opportunities, a there. DKB feedback early channels last you opportunity Fair my stores gains as new an the the gain question. share distribution Is for it’s promising in you market I is enough. that days, but trends or think there mostly Bars, do about know And otherwise? talked or well

Ryals McMullian

I has it It now healthy good our right. it, into And expectations. they is the results excited the did jumping in are in it’s proven note some retail move across yes, then moved Consumers rare do breakfast we it’s the early to it. distribution the opportunities And were really, and are exceed it. our can wonderful out excited test can And breakfast was there category. are it’s and be look, about think and of a but and segments. Dave’s really buns, markets careful brand to position snacking that really bread the into that absolutely because really Yes. We about loaf days, And there. partners

that. As I things mentioned, of coming have got pipeline we a behind

incumbent it’s segment, sort revenue know So, there. upon the We it’s bit low the mainline of that tough find business. new dynamics us to for all a but category early, this in streams are little

that We performed as growth know segments. to Over their time, also rates are expect start to DKB well a in little Canyon have going as to down come and those bit. you core got

And so what new upon incumbent doing with great revenue we it’s identify we us these and that’s brands that have. streams, are to

it because out called about I we are So, specifically optimistic so it.

Ben Bienvenu

Yes.

Very of Best good. Thanks. Okay. Great. luck.

Ryals McMullian

you. Thank

Operator

with Truist comes next Our question Securities. Chappell Bill from

line open. Your is

Bill Chappell

Thanks. morning. Good

Ryals McMullian

Hey Bill.

Bill Chappell

go of look to you recession? your down it more would within expect you nine all greater Sorry, the this as not you little if – point down, so bit do I asked. the you so to label kind I it’s it or mean if of call, of having you might opening to just are at not And as much kind or trade but out, do – price expect would brands? in got we a you private be on a across looking not been any, some as months expect six months, go late have trade particular, the But today,

Ryals McMullian

Yes. a We some it. but repeating earlier, about don’t little talked of mind this bit I

lot not period, the actually you back to label. trade to last whole private look saw recessionary of If a down we

the of we that the mentioned between, variety in to private a everything from super past across and all price also points, premium way right. up have that We in label play

you label, have You have have Own, have got Wonder, got private have Nature’s you got Dave’s, Canyon. you got you got

is also to guide, are that The now of a more label. – not last different there during I private industry I a consolidated. expect So, than But there. Bill, everybody quite something that mentioned, for we industry was is it is recessionary period. the tremendous trade history if is amount down would

company is stronger. Our

we to a We significantly brands much did label. much that for portfolio a during have stronger consumers continue those differentiated we and got And products. have than show last preference period, market stronger share are from a that of private

be down So, that entered my only see for outlook that trade natural to we we may some private would while recession, a particularly example. would be label, if

well I up hold environment. is positioned in very think Flowers to well that that

Bill Chappell

And again, cheese, might But low. they been it. that this Got kind keep other prices to guess milk, Walmart of things yesterday really wanted I have bread, asked. highlighted

that it’s customers. mean price your you know some other increases kind food? incremental I bit took because business incremental to on be back be off might like a retail? price it’s not do But Any pushing thought think from – different scan-based individual start talk people great? just are feel different and going vendor-managed the tougher they away going I to packaged pass you that here. to than with more prices it’s about of I inventory Is some little would such there color getting

Ryals McMullian

it now. a are number in four you just retailer, to DSD. we strength I that again, that think I provide have a where got do we mean brand helps, want that it I you the think – I given levels to service I don’t being also it’s right a be mention brands. position little the bit of think the will Yes. obviously the different

tell a issue of having is I X, for us. can so been And the retailers increase, there has one future. the June that don’t in for know you number certainly What help. I does what our brands do there no portfolio price will

Bill Chappell

Okay. No, me. then that one And for helps. last

you is just the time? especially It you takes in little longer, projects, else use bit forward kind pull of has do I it out is forward you cash there – of other at kind of way this at – M&A? Just the do pushed looking of look Do CapEx since the of terms some projects some in pull can been out, a CapEx is on works. or anything as construction this

Steve Kinsey

the say an pullback capital the process really have about from allocation talk Ryals would thought heard you a Sure. slight I perspective, overall with changes in from I perspective. nothing mean capital is our Obviously, reality M&A.

that have to pipeline a pretty just timing. continue and It’s We of perspective. matter a from valuation strong

that’s a or pretty And pretty are we I stock it’s consideration. other at cash, repurchases, to we use – to always whether would sticking look our true philosophical So, are we our views ways as dividends then say there.

don’t I changing. that So, anticipate

So, really the pull perspective timing. back is capital from a

like So, we eliminated It’s shift of maybe it’s projects. years. more not have a between

So, see than do I will don’t think have anything dramatically different you in seen us what you the past.

Bill Chappell

Got it. I building you foodservice in am is to to was it or sorry, we Would that? one last business where XXXX, question. are back back of say kind still

Ryals McMullian

disruptions Bill, little we we a us. also below are it. bit, too. during improving, still impacted still building But for some the to volume have It’s the would quarter remember had that back that of but pre-pandemic that

So, both. it’s of mix a

Bill Chappell

Got it. Thanks so much.

Ryals McMullian

you. Thank

Operator

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

Ryals McMullian

again quarter, for everybody, much, We interest in very hope forward to care. with weekend. a everybody next you great company. our Take you look Thank Shannon. and your speaking you, Thank has

Operator

This conference you concludes participating. call. today’s for Thank

disconnect. now may You

Flowers Foods (FLO) 20 May 222022 Q1 Earnings call transcript