FLO - Earnings call transcript Q2 2022

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Operator

Good day and welcome to the Flowers Foods Second Quarter 2022 Results Call. [Operator Instructions] As a reminder, this call maybe recorded. I would like to turn the call over to J.T. Rieck, Senior Vice President of Finance and IR.

You may begin.

J.T. Rieck

good and Michelle 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 and are at reconciliations non-GAAP presentation also release of provided end website. provide slide the financial which disclosure the earnings on measures in the our and

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

Ryals McMullian

Thanks, morning, Okay. quarter joining call. the for second Thanks Good everybody. J.T.

record execute We sales quarter continue the to second to quarter, driving well levels. in

challenging and the of resiliency we this pressure outstanding the efforts mitigated consumer our demonstrates of in last discussed we Due chain the brands. of much strength performance leading successfully the Our to environment category supply team, the quarter. of our

we team the with our result, and EPS our by never line more to bottom made has been to than financial environment, possible. end our focused results have No are I fundamentals long-term raised of performance guidance of their our like matter strong better business Flowers our The optimistic about on or prospects. targets. thank in and $X.XX. is XXXX I’d team delivering exceptional which dedication, the $X.XX our for a work As hard this strong

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

Operator

first from Our Truist. with Bill Instructions] Chappell comes question [Operator

open. is line Your

Bill Chappell

Thanks. Good morning.

Ryals McMullian

Good morning.

Bill Chappell

pricing remarks you? to terms timing any part, prices. was had the for I of you the little or to just that And I also in competitive most peak and kind maybe competitor up slower I great? being issue start Hey, Thanks. looking mentioned about, commodities are So moving of prepared more discuss changes and a as And raise kind of in had don’t you your be is with Ryals, inflation you color little if then bit and what have there everybody, little know thought would at? bit in that by October a of what landscape of guess, terms thought input one a maybe would costs think

Ryals McMullian

inflation that, raising wasn’t little the Happy pricing, Sure. do let Bill question. just that. than to much to Steve normal. the price. went with It’s so in we I late were competitors it regard earlier will a handle But other bit

So in prices that time in industry a the I say the typical on as the relatively as earlier. bit little rest we times would far June industry. was of to But of most went raise

have. so And and gaps in think commented up which little most to followed on inflation? do has of impacted were touch a industry bit historical quarter. then, ended little that we bit that price you with larger And prices the Steve, than our I we were share we raised since a as unit But the that gaps. want

Steve Kinsey

Yes, Bill. Sure.

slightly. be it So inflationary happens again, It that back in starts standpoint. of we we the will have said see peak moderate somewhat and overall in still our QX, that cost from to will it highest QX, pull will QX but an then in but QX, elevated

Bill Chappell

innovation? of the acquisition/innovation, made I a you others color and Got with I just can what company is would small in give the And to name will the I it let little that then so kind business businesses, have of escaping a questions sorry, partnering type on – then the at those leave And of other on quarter. the and outright you buy investment to separately, brings the guess more you that and normally of it. us portfolio? ask expected

Ryals McMullian

Culture. and is Thanks, of company the are There name gluten-free the grain-free Bill. baked Yes, Sure. Base foods company.

our we So, to efforts. much type of minority are that in to keto took where we Culture agile of been venture-type offering really to this more this some and that it’s don’t a our even Paleo, very trend. far innovation doing XXXX. an and which nicely earlier like back like Killer on is Bread their start is looking on-trend we bolster a just healthier Dave’s as all And cycle The now. venture approach as reason Base internal much trying have keto to Paleo-certified we in go with much, in own very portfolio much fit for one than eating, have attributes was investments and time growth And right

are Small are – we about investment, quite we excited So the prospects. small and excited about but but it. quite company,

Bill Chappell

start to own we should is products? road? the outright to see, distribution an there option when company And the wider of then And I down guess their

Ryals McMullian

They mean I production, be we and and there small is with and their them will they not very obviously a but opportunities. set distribution organization, Yes. skill are don’t. sales helping only because that have we also

already regard. are we in working that So

Bill Chappell

would I of that quick? is the next in too So everywhere see couple products quarters the or

Ryals McMullian

be that need bit a production are capacity, their can little grow will way that It they eventually small, be than they longer probably to we Again, with absorb for really to expanded. will everywhere. take but which in them a it will

Bill Chappell

over. Thanks it. I much. it so turn will Got

Ryals McMullian

Bill. you, Thank

Operator

Dickerson Jefferies. comes Our next Robert with question from

Your line is open.

Robert Dickerson

QX the still just year remarks, prepared fully ingredients, in essentially in you, I for hedged a assuming. high Thanks have like so almost think first, am QX, Maybe much. you I Steve, seems you think the are I it question just in said, peaked Great. may and for QX, cost

have sounds like I actually it’s a Is a in there it for half? if I – So the just about implied second grow weighted? we kind of I that this QX half. follow-up. mix of guess be expectation EBITDA more that’s margin there to then explain cadence, little think quick maybe of in the back – should bit guess, kind And then And if inclusive

Steve Kinsey

remain be We continues just Yes. highest mean most back quick in the quarter. part, to the pull I quite said and It of our lot cost – initiatives into level would for QX. – as elevated one correction Cost into QX will was come in but will some not QX QX, a coming have just said there. are to back QX well, we be right, you as the half, our play.

are mitigate those a the a have cadence We QX. perspective, initiatives QX, flight. And do several pricing we well that come to cost in as of inflation, but initiatives have lot as in from productivity said will we savings the

a the in half. be will big driver that EBITDA of So back

Ryals McMullian

million, just of we a $XX which in the back half. are Rob, range is number put And to that to on $XX of million that, all still

Robert Dickerson

second Yes. you really that I the got remarks great. through started prepared EBITDA said because you Okay, to asked I just think And the see improve. as in actually is there line quarter, a

So it sounds maybe kind the of more like a fair? maybe that productivity some part of the of latter of Is also coming and that pricing the of function some of through quarter. was the in the

Ryals McMullian

the rolling clear is primarily in, quarter. continue know And there Yes. I still is through but third it that don’t include there to remarks, Most service. Steve, prepared will roughly but too, if pricing from this of still was the more in, in, more come remember is

Rob. too, will also that help So

Robert Dickerson

sounds there constraint new And a that’s of bit obviously, Okay, in quickly seems DKB, then fixed super. like essentially the just like is also Coast little facility. been there then West the And on you quarter, supply now. have

on are the thinking there. if this picture, we kind back it bigger forward So, go of from of half kind then of and really through year

You my rest would the view on you an be is the assumption maybe going is outside with that see business. mean, you still of – kind quantify in to of but say, opportunity West driver what well, the the are DKB, Coast I of ongoing the let’s of not business, what

will great? incremental any there So be color

Ryals McMullian

No to constraints, now Rob. packaging much don’t a resolved. all. Those capacity and bit We promote the about DKB, so for I but that we able Yes. mean growth those second in constraints, the we we prospects. DKB but which had weren’t were capacity do much, were its constrained we are quarter by also at that are so issues we hampered still DKB question confident in it,

so units bit. hurt And a that the

from was focus pressured in we’re not, slightly though quarter segment the breakfast for unit And go in DKB was out of we that’s and prepared underpenetrated area been up I since you outstanding for do running, remarks a standpoint, there. what that know, a as Henderson have growth the historically I want out, in this Even though, and can to we back still, have we Now West. the key you been DKB the don’t if driving the DKB mentioned quarter. point but of to us know or doing even

quarter highlight for So I call that want the was to that out. one in DKB

Robert Dickerson

Thanks so will Alright. much. on. it I pass

Ryals McMullian

it. Appreciate Rob. Thanks,

Operator

Ben comes Our Stephens. from next Bienvenu question with

is line Your open.

Unidentified Analyst

guys. on Hey, Good morning. for Jim there Ben.

Ryals McMullian

Good morning.

Unidentified Analyst

what to of then kind had their with higher that think lower products. wanted they shifts on parallel drill talk would had on expect. in increasing expectations your you I par down with that say, down which were purchases you is driving premium consumers prepared Because the Ryals everyone Can consumers, for the of would that? I seeing countercyclical little about mentioned income are you is, fact you see just what’s – just was a maybe comments, to kind to ask, actually and expensive, bit what but would shift trade down income to to that they increasing been we

Ryals McMullian

you points talk elasticity, a so one is out the to they share, I there quite There private questions it. to of they units X is in a few be a quarter. need basis bit to gain Yes. data there of talk units, that as unit of were know about lot sort this the price a There XX at. competing down unit we’re a share. is at looking really. about But time lot we million look as label of if level is almost On there little overall saw about going points hand, good

what being in in private creates seen have seen. down, held of bit lot of which a retail a being mass. growth was kind more you we’ve historically is So mass prices gap that might label of than share driven a And

much channel, price in averages the with private you lost ex-mass were at more than in mass. And channel, line sort quarter. historical that in the seeing the what gaps again of If in look label grocery we’re share

in value mass among channel. to among Turning that from among and caveat in Northeast the higher you But a you club they are as income out, But the DKB more income to declines unit the also product expect nationwide and lower-income specifically, and work they even units more seek pointed households, were then concentrated were trips both which share DKB’s and is DKB higher increased grew might primarily And California middle those mass nationwide and a higher-income we channels. households. households and bit households. seeing

and a in the doing up. news environment. were line So units we grocery volumes at you and very expectations. yet is the SKU were environment we’re yin well data here XXXX. our with saw the is see but and volume and Canyon it’s down, units in performed Nature’s right that optimization XX.X%, own think given declines at little can rationalization but still still Own yang that portfolio a we’re is were that looking when Yes, everybody bit the very, highest days, there because our of early there up our is our the quite were up. I takeaway yesterday, price And bit

the there of very the So our out some conflicting brands the there, and at company data we overall, when though with picture, is quarter. total very, points even pleased in how you were performed look sort

Unidentified Analyst

it, item a $XX $X lower you obviously XX% point than that I item. If purchase if consumer to go a on a think a lot Is just $X terms on maybe? in and on change make the it else $XX there or price one than so XX% still indulgent is so do everything change just a to nowhere for because easy is up, follow-up a is dollar can the it’s accessible that it’s a is

Ryals McMullian

choice it. Certainly, Yes. an the We’ve it’s just said many many, given environment, inflationary part servings mean, think is of you economical think have all price still of bread I Dave’s private loaf, play Bread a Killer though we From furthermore, way Premium, points. prices in all the down even Canyon we And and across right? the Super to label. when very number a I about times. very, – increased,

something is there for budget. So is something there household income, simply for everybody There there. put, every every is household

Unidentified Analyst

Maybe the better – Okay, more great. if maybe Bars consumer we’re briefly just channels that? or worse? could And you And a the mentioned have little commentary in that test. the of that, real AB guys reception worked rollout about give in could how on just then prepared of us you us thinking remarks you give

Ryals McMullian

Yes.

it’s days early for that. So still

we’re SKUs. and about behind still first and seen the And working distribution said what wildly so excited quality the We’re in as the three in It’s test the market, national it results we’re and testament far. we the but brand just we’ve further the for prepared DKB story that towards on etcetera. stands to it, remarks,

markets So we’re very launched putting add were the that news, as high further about protein are about to it. three not test we’re remarks, that, that which prepared recently quite and original the the well. additional And excited SKUs not in excited it three we’ve in to also

of reasons continue our with growth going prospects continue to walls, forward. we DKB its one the about excited and on resting So not innovate be to we

Unidentified Analyst

should great. handful see the SKUs across of to of – first expect the Okay, out When in we country? when kind we stores do

Steve Kinsey

Yes, early next year.

Unidentified Analyst

Thanks. it Okay, pass will perfect. on. I

Ryals McMullian

you. Thank

Operator

[Operator comes question Our with Instructions] from Edge next Research. Consumer Rattigan Connor

Your line is open.

Connor Rattigan

the morning, guys. Thanks question. Good for

Ryals McMullian

Good morning.

Connor Rattigan

Good the can in implications if the I label of guess quarter, wondering shift. more address just towards on the margin that I morning, mix private thanks. shift you was

point Just following also on the towards guess, question. shift? that to more versus mix XXX of next guess few XXXX? the I label sort remains much how it just maybe assumption basis I oriented of quarters, the portfolio up was be decline private attributable And reasonable a slightly in Would that Ben’s

Ryals McMullian

in remember, million And that’s that good But already the mentioned units units. the all in up label down quarter. a virtually were definitely I’ve went private price. category, So, the X thing. that’s

margin taken mitigate improve both And to mentioned business, our in lower prior those headwinds of the is these to price speaking, generally we’ve label businesses. on service we’ve As private margin been food calls, and diligently we’ve working the businesses. significant profile inflationary which

margin certainly, freight, Now we’re But pressures feeling lower still line. packaging, gross Steve margin there and certainly comment the than it, the on name on you us eggs, margin can is branded impacting further. retail ingredients, from gross

good come We that’s think, leveraging a down a have done I pre-sales. and job, as SG&A

Steve Kinsey

say, margin because we more the pressure this at though not mean shift the point. probably inflationary the I Right. would it’s meaningful I not even pressures said – of than it’s drive it’s still still overall, happening, mix it’s

that. monitor We continue to

transportation, the the is pressure a So on the labor, mix lot inflation than margin more really itself. of from coming input cost,

Ryals McMullian

maintain this because brands marketing not, even thing it from would But a Killer that’s to said other heard when are surprising lower there support Connor, continuing marketing it’s you’ve Dave’s add XX% got households. than I to units, we down, that. and ever be kind to exactly it those investments through income I expect mean, mean, lower-income to particularly eventually. first why of one keeping important quarter, The want that, consumers said, Bread among continuing or more of for get of I last some support But amount our as they we obviously the trade the us brand believe to and front I brands environment, in to standpoint, to kind out me of households, love. this come we when do, And will back we those center brands we to

Connor Rattigan

I That to Thanks. a then And follow-up guess that, too. was just helpful.

now? or the just long-running is close private given plan saw the increased you remarks, I mean, that guys why I it’s bakery products. Phoenix about private prepared you I demand older, like mean, more to Just guess decision lower margin an I guess, commented was this a quarter? I closure, the the in just the in it bakery label label guess so question a that services

Ryals McMullian

over Phoenix and is exit fund older, to yes, optimization bakery. is we that, foodservice much all future to capacity And of of alongside efficient talking private and take lower capacity less that plans part we’ve margin growth. This there. business did been network now. plenty So years about our several remains an some label And we have out ample what for

have can Phoenix. But it execute portfolio well, optimization So, it of what all with you our saw we as implications – can of remaining care take business. network strategy, and will our we that’s as

Connor Rattigan

will you. Great. Okay. it on. Thank I pass

Ryals McMullian

you. Thank

Operator

Our with Deutsche next Bank. question comes Powers Steve from

open. is line Your

Steve Powers

Good guys. morning. Hey

Ryals McMullian

morning. Good

Steve Powers

dynamic I seeing in terms what wanted or of were higher back private label what have different of to go the of How thinking some evolution? of because category. to or terms lower grocery. think you prices demands seeing we been mass creating picture about risk you move competitive Do on the sort mass versus have you tactics it, in how grocery pricing move the that evolves? to and And you prices ultimately the downward kind with cost does compete are mass pressure where that then this

Ryals McMullian

close And doing. and haven’t can’t that that Obviously, seen on they they speak doing execute do retailers certainly is of up gaps we Well, are me to some do. bit, again, going plans. certain what in mentioned, we can are far, hope to All label I come and lost this will yet. they to why again, our we in predict those seen are so certainly as for will But private haven’t hard what share it’s but a grocery we grocery. we

Steve Powers

from Yes. not altered that have as – not seeing you to And has or terms you are your in. of own price and It’s nothing in still some pricing a – said, you expectations come pricing your it’s set own realization. standpoint strategy really

Steve Kinsey

not. It has

Steve Powers

Thank Okay. you Very very you. good. Thank much.

Ryals McMullian

Thanks Steve.

Operator

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

Your line open. is

Mitch Pinheiro

morning. Hi. Yes. Good

Ryals McMullian

Mitch. morning Good

Mitch Pinheiro

a question. had I

this products, maybe going of price is much. increase ahead it merely – I of of the large volume seems why a a it competition, it’s of the pricing, weeks competition, quarter. or very affect is competition commodity-type – volume relative certainly to it increase to the it couple a in suggest about trim bit which a And increases if Why little to be mean is dramatic? ahead was that is talked that that would that and a or You to month price a seem price

Ryals McMullian

Yes.

So, price larger, this and That’s environment, when in thing of it’s affected talked etcetera. was increases. increases not was you somewhat. a that the getting in price competitors’ can certainly our the we chain of only not behavior issues, gaps in It versus just factor. that units affect that quarter it supply magnitude much about start terms But that

which hurricane, we We we also yet, well. and haven’t mentioned perform a comped very typically

were effect had in it than normalized But other more quarter. some the there all point. certainly at other this that, So, least at but things that’s much

Mitch Pinheiro

Okay. And how have quarter? foodservice do in the

Ryals McMullian

top standpoint, really, really a From well. line

So, look recovered, of has it pre-pandemic. at sales still dollars, pre-pandemic in if you but from are the business standpoint a units the foodservice year-to-date terms below

Mitch Pinheiro

that the like is fast below one or casual? across And in – or board QSR are units particular segment

Ryals McMullian

would to say I look was little a in I lower – quick want to it have serve. bit

Steve Kinsey

challenged. QSR more was

Ryals McMullian

Yes.

Mitch Pinheiro

just it Okay. or QSR And reason going is Is there for on that? underneath there in the anything traffic a customers, that? is

Ryals McMullian

No, – it’s I it’s a the pandemic. of coming think think out bit just more just Mitch, normalization I

actually more just those are now shift. but also quick because that’s segments. pretty going comfortable less good that are serve our you people us remember, because the for are restaurants, contact, that during seeing You of margins other did that’s I in think well pandemic higher back to why But

Mitch Pinheiro

results? have stop? would rationalization going And you slowdown little I When volume that don’t you see does on about if as that had growth, quarters then when to – talk are lower seems we it be could know, an your it like impact about helpful. SKU bit, And a six of Right.

Ryals McMullian

Yes.

to process. matter SKU to, our have items continual wanted what done generally bulk that simplify we cleaned I get kind I growing I obviously, out for underperforming a in are speaking, think want execution But mean have think of the of do we business operations, to that simplify rats So, we now. the sales we of measure, most the and large to for volumes. of

remains I innovation that. for key think

only over our and grow our obviously, dollars, continue but And well. growing so units to is goal not unit our as share time

that. are So, focused on we

Mitch Pinheiro

in look at third year-over-year some mean going business we if see So, we are volume here? I declines the the still overall quarter, to

Ryals McMullian

Yes.

an is where running So, Mitch, would far embedded we mainly and elasticities year-to-date, we I as said be. have the assumption in around EPS guidance about thought so right are we

continue year. that assume I it’s reasonable So, think the to trend through to

Mitch Pinheiro

to savings And and Okay. specifically that second are programs flow half? talk some then the the – you through initiating you some of cost about how could currently are about they going

Ryals McMullian

Yes.

$XX million the baker We also digital about a it’s sense. our So, separate that’s benefits are a which the improvement There mix to $XX and bit half. have so initiatives digital also future. little investments bakery that’s made, of in – expect that underway bakery procurement. are then from projects, that and And we back improvement in million we in the talked

big savings So, areas sort the come three of those will are that the from.

Mitch Pinheiro

look carry any into through you next as ‘XX? that And year, does of

Steve Kinsey

it Yes, does.

yet, We yes, does. have but not quantified that it

Mitch Pinheiro

then I were just comes regions best-performing were the the – which in any finally, worst-performing your Okay. And regional it when is to business, guess geographically? which variations there and region

Ryals McMullian

out Northeast to a call us. be continues the So, for

to As pay couple there regions it sales you performance have a continues of but know, top and would submit a performance more was us. did line We I it operational our underperformed that by you was driven we driven. of have standards, that focus to than for lot dividends put up

Mitch Pinheiro

time. I for Thank your That’s have. Okay. you all

Ryals McMullian

Mitch. you, Thank Alright.

Operator

the are any further turn to would back closing There remarks. like McMullian questions. for no call to I Ryals over

Ryals McMullian

everybody thank again you in interest you very much care. Flowers. with Everybody, your We forward next speaking look Okay. quarter. to Michelle, for take

Operator

the Thank you. concludes This program.

day. now disconnect. Everyone, may great a have You

Flowers Foods (FLO) 12 Aug 222022 Q2 Earnings call transcript