Earnings call transcript Q3 2022

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Operator

Good day and thank you for standing by. Welcome to the Flowers Foods Third Quarter 2022 Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, J.T. Rieck, SVP of Finance and Investor Relations. ahead. go Please

J.T. Rieck

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

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

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

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

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

Ryals McMullian

Thanks, everybody. J.T., call. third I joining our and appreciate quarter you good morning,

country have started our freedom. on of like the recognize your we’d to this you and to Day, you our We Veterans contributions for service our get both sacrifices thank and the front. made women, servicemen for we past and Before

Moving sales quarter, we to on to executed quarter our the driving record third results, well in levels.

I future have a and Our about brands to performance including express on capability. in have the with in new the of momentum ongoing for effectiveness marketing, the never resiliency our business am we agile our this growth. more demonstrates of drive Consumers initiatives and about our I investments environment place we our been maintaining excited in focused our optimistic challenging our prospects and to preference and innovation consumer innovation differentiated of are strategy. continued the leading attributes

our better As always, with in committed targets. than team to is results financial long-term or delivering line our

open And up please. questions, can for so with that, it Gigi, we

Operator

from from Truist comes Bill the Securities. question line Chappell of first Our Instructions] [Operator

Bill Chappell

Thanks. Good morning.

Ryals McMullian

Good morning, Bill.

Bill Chappell

the to you the that your I Hey, I pricing about dynamics? acceleration store think continued October understand or one, the allowing part, retailer trade-down, you you store that’s bit retailer are in as general? had into branded guess, wanted pricing branded growth that’s really to see of moved we in or a brand trying talk why little us understand more store I think case, an November come to one was am not you just just to that some was And so up. And a understand the continuing quarter. of if how mentioned manufacture help trend it in to in for just to I trying that versus and the allowing to I two, remarks because brand prepared not then was and Thanks. and maybe

Ryals McMullian

Sure, Bill.

lower. of held the to the that, has see to channel. label all would mass the in challenging quarter. the in last looking you that deeper been channel, as share But In generally, have held And is a little XXX mass economic we mentioned down concentrated the across little is digging private off, into trade-down label. environment you points some quarter, down private some very prices this in a a what of on Just start year gained label unit this, we retail bit to see market, as have expect Private been basis true. that like saying

bit If different. story looks and quite look a grocery, you at the flip

in points we unit gained XX XX of gained share basis in accelerated share fact, grocery. then and QX grocery In quarter points that actually of in later the basis we in and

label saw that slow also the a to question, did in private quarter, of got answer too but it trend, call we end of So we slowdown your as trend some. now we see that – bit, the early actually to and growth then a towards rate

where not margin of improve results go, furiously frankly back trying significant our needed a in strategy, business private as have those more mix margin see lower we increases sales. to our label, As you large of only are that are price in far branded harking but did been other to we But working own retail, to we parts in shift our anyway items. we lower remember, which increase private to portfolio the also margin, took label the

So price part that’s of increases, our etcetera, rationalization, between all strategic SKU strategy. businesses,

dollar the little show nuanced. overall, So bit story a strength but market a has shown strength, Flowers, is more label of unit wise, certainly in private yes, bit

Bill Chappell

with you pricing. of hedges I cost be helpful. lower then, know I higher look thinking about with but are imagine bit it? that will of point a hedging guidance program, some giving margin, out on maybe off for to Steve, little your you gross ‘XX, the some or I how on and this you That’s And covered not at the are have rolling as

You make, lower you then right is also label, now. margin have program, which do which maybe which cost is certainly that the But private have helps. savings faster you growing

a for So margin be gross still strong to expansion going next more challenging? is it is opportunity year there or

Steve Kinsey

the to seeing I we from hearing But are next things guidance said, are are mean, for give as prepared you same we companies. you other not year.

of this strategies of reverting be to some volatility our expect hedge significant no of of and at we to although inflation still of at true to and continue any weeks pretty continue strong. to all that particularly remaining transportation, inflation point. input costs, our lot show And really in those look labor, We signs a

expect XXXX, gross without seeing continue with year specific could of this say you would some margins. the regard same for into to to set you’re pressures I So getting

Bill Chappell

Okay, I over. will turn so much. it Thanks

Ryals McMullian

Thank you, Bill.

Operator

from Our from line Consumer Instructions] [Operator you. Rattigan Thank Edge. next comes the of Connor question

Connor Rattigan

Good morning, for Thanks question. guys. the

Ryals McMullian

Hi, Connor.

Connor Rattigan

margin of protecting to start pricing you balancing inflation gross while on we share. largely the is up, recovering can thoughts share as and of catching So lap any market sort act

recapture retailers shared pricing. on horizon to pass XXXX? while open that So a Are margin to over to trains unwilling to maybe are guess if lost that you even more if promotions, I longer maybe introducing certain slow start time means

Ryals McMullian

Yes. Look, I tricky share. the we’ve good inflationary market between a I pretty And of your covering shares you so remain midst say, is done always And a holding our obviously, mean, steady far, this in at. costs balance, and think these environment. there even pretty as

remained So far, pretty has environment the competitive rational.

are We promotions. doing some

– a unit we’ve As might DKB. bit expect, bit a DKB of had item, you share share little unit loss being of in little a super-premium

the why consumers. that it’s campaigns these some going front reach center, advertising, that’s front in social digital, up we folks, our some also And And done targeted those so media But keep brands, promotions, to to short-term. keep we’ve that’s make for sure of important we hold out obviously, of those and consumers. in on to right, to and be

got report So, least yesterday, continues. trend hopefully, better that when inflation thankfully, and that relief we a at does come

As the come back does that relief come, brand. they to

We’re the we We number we’ve – hold XXXX. certainly But as very to to deal attuned to households. a you of those there gained with say, want households on balance that that daily. is since there

Connor Rattigan

the impact ask also, I And from was Ian about any maybe to quarter. helpful. That then Hurricane in wanted Great.

empty Did pantry had loading think stocks with bit bakeries while bakeries you was maybe for out the of there those shelves a time period or you a located for any Florida. I before or shutdown maybe in a a storm? of few of see

Ryals McMullian

Yes.

four storms. well to we were year, as perform third during share you there typically, you the the quarter, in tend one. and typically frankly, only we the And it look And in last quarter, brought our these So hurricanes. remember we up in named had outperformed year, glad really competition I’m at because performance this that storms,

So share. have But – an does it overemphasize thankfully, we want on didn’t any our some much, it effect. but didn’t to have does it effect we have don’t I shutdowns. have too any

of All safe. people were our

served. did so keeping usual, outstanding an And market the as job team the

Connor Rattigan

Alright. Great, guys. thanks,

Ryals McMullian

Okay, thank you.

Operator

question comes of Thank you. Instructions] Pinheiro & Sturdivant Mitchell the from Our [Operator Company. line from next

Mitchell Pinheiro

Good morning.

Ryals McMullian

Good morning, Mitch.

Mitchell Pinheiro

So curious, surprisingly any there or of were in terms the below strong expectations I’m in quarter? that areas geography, were

Ryals McMullian

perform you well even. Northeast No. I of really overall, pretty give us. for I’d couple say, would the Mitch, continues is A to highlights

a that’s area growth for us. know You

And so that research what’s done kind for Rent most story figure tougher to And there. background really particularly got very, going has it’s it’s California. west, a you’ve lately, in again of share the has better out Northeast. escalations, out on state very California. still a performed already the but quarter else. Mitch, exactly high standpoint, high we, really, of a some country cost. been Fuel nicely very We’ve in from out a been this little everything

I think we what see pressured is bit other the California more the consumer of perhaps just country. in than parts a in

the now. weakness West share, we’re so see we our looking there as a out And right Coast on little bit more at

Mitchell Pinheiro

have – we to bakery or your at do thank And future ample it you. your in you’re I still system? maybe on to capacity then? looking bakery going current to then you start needs. money capacity you are Or think mean, XXXX as when some some within new spend and Okay, about capacity, need do

Ryals McMullian

Good Yes. Mitch. question,

are. we’re to we in you we line pockets out I There are one saw of overall, call new comfortable where the with for organic already So that needs Henderson. that would with

days there there. shape we tight really while, for were but of out care because good takes we’re that in So a

on is very capacity story. you that very a I pleased progressing, to still other high, Canyon news for one It’s The would Canyon. at we’re how is Demand super Canyon. but good out business tight call is very, with

So looking that a solution. we’re short-term actively to with solution long-term and solve a

Mitchell Pinheiro

unusual we’re spend? What’s but XXXX yet, not anything of your in for I CapEx is spending? talking capital terms know XXXX

Ryals McMullian

it No. comment have is I ERP. Pretty typical. short mean to on to going answer time. yes, not we’re But in factor this Mitch, no. the you

than implementation. this little the So probably but a higher that’s of be a it will year, normal, just lot like ERP bit

Mitchell Pinheiro

question improve, the in saw, your and the fourth units measured volumes And down, is and is were in cake there? Had just what’s down cake, terms And curious margins What’s strategy into the X%. I in and the maybe to outlook of what there XX% trends? early Okay. like? to the ‘XX, foodservice, think, going were channels. I look here tracked quarter last begun part then the for I in sales I’m cake guess,

Ryals McMullian

Sure.

cake that with overall remember volume So X%. that of now decline

start the it is. of is and that okay, cake there. Most Let’s food share lion’s service, of

cake below rationalization of and the for that for strategic lion’s share range the and were normal For has the the levels. of elasticities business, SKU But decline, within the a well of are it frankly, that we food rest exits. lot business year service, volume been specifically and historical expecting

getting purpose on complexity, reducing of of we about. that talking portfolio that of keep kind business, the So lowest margin stuff, out part strategy all

as business. pick-up all cake tracked channels far As the our of go, traction

your And So is question, up well. profitability sales as substantially. internally, to up were answer also

the pricing of new actual of that start things has to at need A We stabilization to that to for that get your that growth. And been improvement margin will are out items, we there, turning of see and that starting lot in up years. mesh reintroducing we’ve on products particular, several growth obviously, in the we start the because used see so achieved, because to Yard far. seasonal we’ve our back So Navy you that innovating, working been way. some sales, attention

Mitchell Pinheiro

Okay. much questions. for Thank the you very

Ryals McMullian

Mitch. Okay. Thanks

Operator

Stephen [Operator next comes from of Deutsche Powers from Bank. Instructions] Our question the line

Stephen Powers

Hey. questions Good me, for everybody. actually. Two morning

The on you have some am consumer your about. pressures and as other the guess size just innovation agenda. one first you I of amidst is the curious, talked inflation I up

your I Just am product the as size you few up rollout you think ahead? emphasis new of have just into months of does up points your all the consumer if ahead? the in about impact as the changed size curious at year again – over past terms year plans that

Ryals McMullian

I bit. mean we focused are little obviously, a on Yes, snacking.

rather could a we in a it’s But DKB are nationally got to standpoint launched pass. about that But recessionary should say all. your a products things, side renovation I our core that wouldn’t that little architecture Maybe excited are within items that. it’s some bars looking innovation some at have it’s to actual price-back pipeline things ‘XX, I in that affected environment come we point, the say in at more outside being overall, very new So, January categories. the also changed that of from meaningfully, doing of agile innovation the talk affected the particularly would of we about core business. are we type when bit that help

Stephen Powers

implications changes second look are as Labor that. at Standards for proposed my at any Act, you just of is of independent business Thank rule your terms the Fair I in question your definition administration’s Okay. you in Biden under as distribution? the guess employee versus it workers to all relates there contractors And

Ryals McMullian

Yes.

just the right period the we December. administration. is is reversing what under which in this out that now, monitoring back was obviously, changed the sometime to is Trump in But – rule This It’s too, So, role. are doing we that. are effect I comment remember, going that. Obama think in Remember, that basically the runs

to obviously, able were and back rule, fine Obama to in Going environment as that we the operate well.

Stephen Powers

Yes.

Thanks Appreciate it. lot. Okay. a

Ryals McMullian

Steve. Thanks Yes.

Operator

moment One our for you. next Thank question.

Our of Stephens. next line Jim question the Salera from comes from

Jim Salera

morning. guys. Hi Good

Ryals McMullian

Good morning Jim.

Jim Salera

I ask of game had pricing label bout you before where driving the of compared – update the catch-up now Can branded. versus maybe on wanted in strength type stands of an to pricing gap past talked this sales the and dollar kind on in of we private this give about some have play that’s us you inflation. with

that to normalize has little still So, take kind should of was private expect inflation? pretty more bit to price they it what a before we gap label

Ryals McMullian

have it but They depend gaps narrowed from what would retailer retail a as to of depends going standpoint, it are may I branded say that the me, what to you also it have look taken but front does. a on obviously, look on at don’t we channel bit, specifically. it’s probably pricing actually in because at too. I have the I would have Yes.

Jim Salera

much think people about get price because trade attractive branded makes $X attractive that think the But you $X.XX? you less that stay maybe down up to trade I the than just points. could as in you the label down – comes and label dollar to actually price private is know some talking the category are that entry that private Do less Okay. as it we do low

Ryals McMullian

that, the be that higher case. want to that expect gaps to that if Yes. seeing be to lot again, for are I this think in right better. and wait are happens. to a are But relative But there a you and proof the performance in case. your maybe is would gaps would would mean the what grocery and I in going see the actually certainly be What much question, you been has now grocery tighter in mass. point you seeing grocery, are brand you

Jim Salera

Great. Do and think Okay. portfolio core kind business. the of the now, that you expanding the brands about guys have DKB you talked you the that script, in Canyon, In beyond right specifically of to an that use to that you or category? think you maybe portfolio into do jump reputation another brands add existing new do you can categories, those to kind something need has in

Ryals McMullian

answer I January said, been direct have absolutely to have is yes. that markets like to the introducing bars DKB The are Well, in mean, question the loyalty, And had me. is we astounding remarkable. in DKB we the your nationally. I just interest in test The results brand, that

the And to so out, we snacking brand arena. that continue particularly in further push will

the We behind have a whole pipeline DKB bars. coming of products

mean Canyon, It’s I should $X We billion Dave’s select retail are with It’s right. is now of in I in high-protein market, a testing as of this year. a around Dave’s. business bars And same couple markets. for not test think true Canyon. right sales as a the big smaller just reach

goes to are scale think in we right we we point far as now other play right a categories. to So, the where have as

absolutely question, strengthen where The our portfolio. brands play we is second our portfolio part further for your to can M&A continue to we that can opportunities of of that though, add that look business core will outside branded likely will

it will a be combination… So,

Jim Salera

get kind environment? you getting faced that one more you had that too in the deal just know challenges through details a on have detail an I and guys specifically. mentioned the And in about fall you of current in don’t of But Yes. done just that some to you broader maybe acquisition much

Ryals McMullian

conversation slowed just outlier, was they that would all the say in actually. so rates really spike yes, interest I environment, to But honestly, relevant pipeline the mean bit, way That Yes. the that one a I has had. it’s not an economic the given

I down has think but We slowed. overall in slowed activity our have a have plenty things flow deal still pipeline, of the bit.

with the your sure any it’s got there. commercial this, you that right. to and mean struggles conviction financial, operational make I to prior Now, normal have deal, is

that’s space. we our have make story, pretty will a proactive and an and But to up And of in we right to part have have may sure price until now, that responsible seller robust, and been seller is got believe have intend growth also that willing. You remained the that the moderate, see. It’s being continue important always will to I continue. expectations,

Jim Salera

Understood. it Thanks on. pass will guys. I

Ryals McMullian

Thank you.

Operator

CEO, Thank you. I to for now conference like closing would McMullian, President to and Ryals the remarks. turn back

Ryals McMullian

for next much in we certainly safe hope Take you season. wonderful and you very thank Flowers. with everybody We your and everybody look interest And holiday again care. to has Gigi, forward quarter. you, speaking a Thank

Operator

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

may now disconnect. You

Flowers Foods (FLO) 11 Nov 222022 Q3 Earnings call transcript