Good day, and thank you for standing by. Welcome to the Flowers Foods Third Quarter 2023 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your speaker today, J.T. Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead. Thank you, Liz, and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted yesterday evening on our investor relations website. After today's Q&A session, we will also host an audio replay of this call. Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods' business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman, CEO, and President, and Steve Kinsey, our CFO. Ryals, I'll turn it over to you. All right, great. Thanks, J.T. Good morning, everybody. Appreciate you joining our third quarter call. We are, we're very pleased with our strong third quarter results. We generated record quarterly revenues and maintained our unit share despite inflationary pressures. Sales benefited from strategic pricing initiatives that are designed to mitigate inflation and improve volume trends. Our leading brands continue to perform well, and we're investing in innovation and marketing to maintain that momentum. We also continue to make progress in our digital and cost savings initiatives, which are helping to improve our efficiencies. Despite the strong results, revenues did come in a little bit less than expected due to business rationalizations that materialized sooner than we expected and a lower than normal amount of storm activity. It's important to note that although the timing can be unpredictable, these business exits are an integral part of our portfolio strategy as we aim to improve the profitability of our food service business. We've made great progress in that regard, and we expect continued improvement moving forward. I remain extremely confident in our prospects, and I've never been more confident in our ability to grow shareholder value over time. Before we move to questions, I also want to acknowledge that today is Veterans Day, and so we would like to express our heartfelt gratitude to all the men and women in service, that have chosen to risk their lives to protect our freedoms here at home. So thank you very much for your service. With that, Liz, we're ready to take questions. If you'd like to ask a question at this time, please press star one, one on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star one, one again. Please stand by while we compile the Q&A roster. Our first question will come from the line of Bill Chappell with Truist Securities. Thanks. Good morning. Hey, Bill. Hey, just maybe summarizing your comments, and I just want to make sure I'm looking at this right, is: Is it fair to say kind of you feel like the turbulence of the business post-pandemic kind of bottomed out over the summer, and you're, while you're not meaningfully changed, from in the third quarter, things are starting to at least temper back up, and the only real change was just that the exit of some of your businesses happened a little bit faster than you expected? Is that the best way to summarize kind of the quarter? Yeah, I think it's a great way to summarize. I mean, frankly, we're really pleased with the results in the quarter. Yes, you know, the loss of the food service business that we mentioned, you know, did impact the quarter and, you know, impacted the guidance, but I mean, that was gonna come anyway. You know, these are planned exits. This is low margin business, highly complex business. In this particular case, actually, you know, we're actually getting some benefit from, you know, some reduced transportation costs because this was a bit of a difficult customer to serve. But then the strength of the underlying business is where the focus should be, you know, at least in our minds. And in that regard, we're really pleased. I mean, you look at, Bill, you look at mix in the quarter, you know, actually ticked up a little bit from a branded mix standpoint, so that's good. You know, the volume sequentially on the branded retail side continues to improve, and then, of course, the share performance on top of that. So, I think the way you framed it is accurate. You know, we're starting to see things stabilize, and I think we also mentioned, you know, even looking into the first few weeks of the fourth quarter, though, it's early, you know, we continue to see that strong unit share performance continue. Great. No, that helps. And then just maybe a little bit more color on the settlement in California, not necessarily the legals, but that you're converting into an employee model. I guess I don't remember or if you've disclosed how big California is anyways, but does that alter the margins going forward? And is there a chance that other states have to go to an employee model down the road? Yeah, so just remember that, you know, California is a unique legal environment, unfortunately. So we're kind of in this position due to that legal environment. So it is unique. This is not something I would extrapolate across the country. We did have one other settlement in Maine. Now this was on a much smaller scale, but we also converted to a company-owned model in that state as well. You know, with regards to California, you're right, we will be, you know, over the next year or so, whenever the settlement comes through, kind of expecting that early next year, we'll, in phases, convert the independent model to a company-owned model. So it does, and Steve can speak to this a little more if you like, but it will shift some costs around a little bit. And, you know, generally speaking, you know, obviously, we're not, you know, providing any guidance in 2024. We can put a little finer point on this probably in February. But generally speaking, it's a little bit more expensive to run the company-owned model than it is an independent distributor model. However, you know, there are some advantages to having, you know, for lack of a better word, having some control back when you think about, you know, store-level service, display execution, days of service, et cetera. You know, we actually see a little bit of upside as well that we would expect to offset those incremental costs. Got it. Thanks so much. Thank you, Bill. Our next question will come from the line of Steve Powers with Deutsche Bank. Hey, good morning. Can you hear me? Yes, Steve, good morning. Okay, great. Sorry. Operator cut out there for a second. Two questions. The first one is on the ERP program and progress there, and how things have gone since the rollout started. If I'm not mistaken, 2023 projected costs dropped from about $100 million at the midpoint to $75 million this quarter. Capitalized costs from, you know, you know, also dropped, and the amount embedded in Adjusted EBITDA went from $26 million to $17 million quarter-over-quarter. So is that does. First of all, hopefully, those numbers are right. Tell me if they're not. But if they are, does that constitute savings that you're finding, or is that early delays in the rollout, and how should we think about that as we look forward? Thank you. Yeah, Steve, it's really more of a shift in cadence. You know, overall, the total cost of the project is still estimated in the range we've disclosed in the Q, which I think is around $350 million or so on average. And, you know, completion of the project is still scheduled for 2026. So total costs remain the same, but you're right, we did shift that. You know, part of that was driven by the fact, if you recall, we rolled out ERP to two bakeries. We're pretty close to, you know, working out all the, kind of the bugs, if you will, on the rollout, and we'll pick back up with other bakeries starting next year. We did have some scheduled for the back half of this year, but we decided to change the cadence slightly in that regard. And then also, you know, back to Bill's question on California, we're having to shift a few resources, within IT and the business to working through the, you know, the model we'll be employing, in California so that we thought it was more prudent, to shift the cadence of ERP, given that focus. That way, hopefully, we can do, you know, both projects well. Okay. Okay, that makes sense. Thank you for that. And then the second question I had was actually on Terry Thomas's appointment as Chief Growth Officer back in August. You know, I know Terry reports to you, Riles, but I'd love a little bit more, you know, perspective on what his team looks like and how he's integrated himself and his broader role or how the company has just within broader business operations. You know, what how does the chief growth officer sort of interface with the rest of the business, and how does that change planning and just day-to-day, you know, execution as the company goes forward? Yeah, good, good question. So we're really excited about this role. This was a, you know, a direction that I had wanted to head eventually, and frankly, fortunately for us, the opportunity came along a little sooner than I even thought it did. So the makeup of Terry's team, essentially, you know, he's over all of the brand teams, marketing, consumer insights, innovation, revenue growth management. So really, all of the, you know, all of the growth levers that we have are under Terry's purview. And then, of course, he, as President, Chief Operating Officer, you know, has all the operations of the business firmly under his umbrella. And so those two gentlemen will, you know, obviously be working very, very closely together. Yeah, you mentioned, you know, planning processes. I don't think anything is gonna change immediately, but we are working on improved processes relative to planning that I think are, you know, only gonna help us just, you know, overall from a sales execution standpoint as well as a demand planning standpoint. And then finally, of course, Terry will be working closely with me on, you know, finding new revenue streams, both organically and via M&A. He's a very accomplished executive, as you can see from his CV, and we couldn't be more thrilled to have him on board. Okay. Thanks, Ryals, and thanks, Steve, as well. Yep. Take care, Steve. Our next question will come from the line of Mitchell Pinheiro with Sturdivant & Company. Hey, good morning. Hey, Mitch. So a couple questions. First, why do you think the promo activity is below average with the consumer kinda getting pressured? I think grocery, you know, and retail would be a little more interested in seeing some volume, you know, turn positive in the category. So what why do you think it's sort of down or below average, and wouldn't you anticipate down the road here in a quarter or two to see a little more heightened activity? So Mitch, you know, it is up a little bit. You know, and I think in the prepared remarks, we indicated that, you know, while it was up, you know, for the category, that it still remains below pre-pandemic levels. So your comment about it sort of being below average, you know, certainly rings true. The primary reason that we're seeing for that in our research is there's just not much lift to be had. The category, you know, has historically been mainly driven by base sales. But there, you know, there was also historically some incrementality available via promotion. What we're seeing now is that you're really not getting much lift when you do promote. I've said before, I think that kind of to your point, that does somewhat indicate a pressured consumer to the extent that, you know, the opportunity for expandable consumption is not really there right now. Consumers are buying what they need, and that's it. Now, going forward, you know, would I expect to see some higher promotions maybe as we look into next year? We'll have to see. It's a very tough thing to predict. You know, just looking at the overall macro environment and the consumer, I would have thought that we might have already seen a little bit more of an uptick, but we really haven't. And I think that's largely due to the fact that there's just not a lot of return available right now on promotion. Then what's driving the higher stale rates that you mentioned in the as it related to margins? Yeah, so a lot of that is, you know, retailers are very keen on, minimizing out-of-stocks due to the growth of e-commerce. And so, you know, keeping a little bit more on shelf can obviously, you know, impact your, impact your stale, a bit. Okay. And is that across, is that in all categories or meaning, you know, is it, is it just in traditional loaf, or are you seeing it broadly into the organic and, and, and other, you know, subcategories? No, I would say it's more centered in traditional loaf. I mean, the stale rates for DKB and things like that are, you know, trending about where they were. Okay. And then, you know, sort of final, sort of bigger picture question is, you know, your market share in bread, you know, is relatively it's been relatively stable, you know, up and down, you know, a couple basis points, you know, for over the last couple of years. And so I'm curious, like, what it's gonna take... I mean, at 17% share of the category, 18% share, that's still relatively modest, especially for being No. two player in the, in the category. And I'm curious what it's gonna take to get that from 17 to 19 to 21. Yeah, it's a great question. I mean, obviously, you know, one element that we're dealing with right now, of course, is, you know, the, the sort of resurgence of private label while the consumer is under pressure, though, I do think it's important to note that continues to moderate as we go forward. So that's, that's one factor. You know, the other thing that's going to impact our growth is, is further penetration into underdeveloped territories. You know, we continue to grow very nicely in the Northeast, but we, you know, Mitch, we also have a, you know, a decent chunk of the country that we don't cover in that Upper Midwest area. So, you know, you know, gaining access to that market at the right point in time, will also be nicely accretive to overall share. Look, we, you know, we continue to innovate as well. You know, we've proven that consumers will pay a premium price for differentiated items that really lean in heavily on quality and, and taste, right? And, you know, our innovation and other efforts, whether that's in our, in our core category or now moving outside the category with snacks, is focused on that, and that should also help us drive share going forward. I'd also call out breakfast. You know, until we brought forth, you know, Dave's Killer Bread into the breakfast category, we virtually had no presence there. And we're experiencing some nice growth there. Now, we have, we've got Papa Pete online out West. You know, we're able to deliver fresher muffins to that part of the territory and are picking up some distribution that we had lost due to quality issues, shipping it across the country. So, you know, all these things are important and ultimately add up to improved share over time. Okay. Well, yeah, thanks for the answers. I'll pass it along. Thank you. Our next question comes from the line of Connor Rattigan with Consumer Edge. Hey, guys. Good morning. Thanks for the question. Morning, Conor. Yeah. So I guess first things first on the business exits that you mentioned. I guess I'm still a little bit confused as to why these were ahead with the full year guidance. I mean, were these not scheduled to occur until 2024, or was this maybe more of an opportunistic cost savings decision in 2023? Yeah. So it, this one would have occurred probably either right towards the end of the year in phases or into 2024. So the fact that it occurred when it did, you know, accounts for the impact that it had in the third quarter and for the rest of the year. But again, you know, I just want to reiterate that, you know, wherever it fell, you know, this was planned. It's a smart exit, believe me, and we'll be a lot better off for it. You know, if you think about our portfolio strategy and what we're trying to do, just to reiterate, is to, you know, either margin up to our targets or exit this low-margin food service business. And the good news is, it's working. You know, we've been able to increase the profitability of our food service business, even though, even though we've made it smaller, and, and those efforts, efforts will continue. Now, if we can, if we can, through price or distribution or otherwise, get this business up to our target, then fine, we're more than happy to keep it and grow with the customers. If not, then we're also more than happy to exit and, and help them transition to a, to a new supplier. Got it. Makes sense. And then also, as far as the call-out on the storm activity as a headwind in 3Qs. So, as a Floridian, I can say I'm very thankful for the limited storm activity this year. But as far as it relates to the business, you know, I guess I've more so typically thought of hurricane activity as more of like a demand pull forward rather than like the structural increase in demand in like any given year. I mean, like, just kind of the line of thinking, right? Like, if you buy bread for a storm, you're probably not eating all of it, you know, in like a one to three day span. I guess, am I thinking about that correctly? Yeah, you are. Look, it's a factor, you know, certainly not the factor. Obviously, storms are very hard to plan for. But, you know, just for, you know, in terms of year-over-year comparisons, there was a lot of... I think there were like 13 main storms or something last year. I don't think that many made landfall, but, you know, this year, significantly less activity than even the historical average would suggest. So it was unusual to have this little storm activity in the third quarter. But again, you know, that's a very difficult thing to try to plan for, but it was a factor. Got it. 13 storms, too many. Thanks, thanks, Ryals, as always. Okay. Thanks, guys. Our next question will come from the line of Jim Salera with Stephens. Hi, guys. Good morning. Thanks for taking our question. Thank you. Maybe as a quick follow-up to the last question on the storm activity, is there any way you can size up the impact? I don't know if you guys had, like, an internal estimate based on what you might have thought, or just to kind of give us a sense for how much of an impact that was in the quarter. Yeah, I mean, we can internally, and it's not something that we typically disclose. You know, I would just say that, you know, if we hadn't had the, you know, the unexpected food service exit, and if we'd had a more normal amount of storm activity, you know, at least that would have affected reasonably populated areas, we would have been a lot closer to where we guided. Okay, that's fair. When you talked about unit share in the prepared remarks, you know, I don't think- Yeah. the DKB share gain is surprising, just given the strength that that brand has. But I was a little bit surprised that Wonder gained while Nature's Own lost. If anything, I, I probably would have thought it would be the inverse. Yeah. Can you just offer some color around the divergence between Wonder and Nature? Yeah. We've actually talked a little bit about this before, but I'm glad you asked, so we can put a finer point on it. So, you know, the Wonder share gains are largely gonna be in the sandwich buns and roll segment, where we've actually hit some unit share highs with our focus on and execution with our Wonder Bread program. You still call it a, you know, another holiday in that quarter with Labor Day, our partnership with the USO, et cetera. So that accounts for a lot of the Wonder share increase, which we're really happy to see, because, you know, before we bought the Wonder brand, we didn't have a national sandwich bun and roll brand, you know, that we could compete with across the country, right? But we do now, we've really made some nice progress there from a share standpoint. On the Nature's Own side, as we said before, remember, the segment of the portfolio that is most susceptible to Private Label trade down is that traditional loaf category that Nature's Own is a big player in. You know, while we're number one and we have the number one SKU and all that, which is great, it is the least differentiated piece of the portfolio, and therefore, more susceptible, excuse me, to Private Label trade down. So that accounts for the drop there. Having said that, you know, the relative performance of Nature's Own has been quite good on a relative basis. I know it's been down and pressured. But on a relative basis, we're pretty pleased with where we are, and we expect, you know, the trends to continue to improve as we kind of come out of this pressured consumer cycle. Great. That's all very helpful. Maybe one more question on kind of the share dynamics. I know we will see when consumers trade channels from grocery to mass, that they'll also trade down to private label as kind of a manifestation of that value-seeking behavior. Do you anticipate, and I know this is a little bit harder to call, but just kind of hydraulically, when the consumer comes back to grocery from mass, that they'll also shift back up to branded? Or is it a slower transition where they come back to grocery but still buy private label? No, I think you're spot on. As a matter of fact, if you look at private label in grocery, so ex mass channel, private label is still losing share. And that's been a trend, I think, pretty much all year. Trying to remember back, but I'm pretty sure that's been the case all year. The private label trends have really been centered in the mass channel. So to the extent that consumers that are still shopping in grocery are still shopping more premium, they're still shopping more differentiated, et cetera, and less private label. Those that have shifted channels to mass, you're correct, are looking more at private label, but I'll also tell you that the private label share gains in mass are also coming down. I mean, they're still up, but the, you know, the gains are starting to moderate. And furthermore, our overall share in mass has been improving all year. I mean, we were down 80 basis points in the first quarter, 30 in the second, and only 10 in the most recent. So again, another indicator, these trends are starting to reverse themselves and get better, which is, you know, very encouraging. Great. Thanks for the color, guys. I'll pass it on. Okay, thanks. I'm showing no further questions in queue at this time. I'd like to turn the call back to Ryals McMullian for closing remarks. All right. Thanks, Liz. Just want to thank everybody for taking time today and joining us for questions. As always, we appreciate your interest in our company, and we look forward to speaking with you in February. Take care. This concludes today's conference call. Thank you for participating. You may now disconnect.