All righty. Welcome back, everybody, to our fireside chat with Flowers Foods. With me today are Chairman, CEO, and President, Ryals McMullian, and CFO and Chief Accounting Officer, Steve Kinsey. Good to be back with you both. Thanks for being here. Thanks, Andrew. Thank you. Sure. Maybe, a good way to kick it off with, sort of a broader industry question first, Ryals. We've heard a lot about different perspectives throughout the week, about, you know, state of the consumer. You obviously play in somewhat different categories than most others, that we've talked to, so I'd be interested to hear your perspective about health of the consumer, maybe what assumptions around consumer behavior are currently incorporated into your guidance. Sure. I mean, broadly speaking, consumer definitely still, you know, under some pressure. You know, the good news for us is in, you know, a fairly steady category, just down slightly in the Q2. You know, we've been able to find ways to grow, and primarily through innovation and differentiation in our category. There has been, over the last, you know, couple years since the inflationary wave started, some trade down to private label, which we do have exposure to. And that typically happens. You know, when we get in these types of economic situations, you'll see some trade down in our category. But, over the long term, private label's been on a downward trend, and we certainly expect that to continue. And as a matter of fact, private label lost share in our category in the Q2. What we've been able to do with our more premium brands, Dave's Killer Bread, Canyon Bakehouse on the gluten-free side, and Wonder kind of in that mainline segment, we've been able to find ways to grow, even in this environment. We've been growing our share and frankly, our units as well. In Q2, our branded bread retail units were actually up 1.5%. The category was down just slightly. Dave's Killer Bread has, you know, continues to be a shining star for us. We grew Dave's units 7% in the Q2, 10% in the Q1, which is pretty remarkable, considering the situation we find ourselves in. So, you know, in terms of the consumer and the category, what we're seeing is, you hear the word bifurcation a lot. We're not seeing anything different. The bottom end of the category is doing very well. The top end of the category, Dave's, Canyon, et cetera, is doing very well. The middle, Nature's Own, our largest brand, is the area where it's getting squeezed a little bit. Arguably, that's a less differentiated segment of the category for us, but that's why we're, you know, looking at ways to even further differentiate that brand, because we found that that works and resonates with consumers. It's also important to note, you hear a lot of competing, you know, data points out there. Walmart had a great quarter. The dollar stores had an abysmal quarter. That doesn't really seem to add up, given that they, you know, they're value players. But even with Dave's Killer Bread, the fastest growing income segment for Dave's Killer Bread is low-income households. So just another data point to show that innovation and differentiation matter, which is why we're so focused on those things. Yep, makes sense. You've got, obviously, a large presence in the bread category. Perhaps you can share some insight into how the bread category is performing, maybe relative to sort of overall food- Yeah. and what you think has been driving that? Yeah. The bread category has actually been outperforming broader food for the last several quarters, frankly. And I think a lot of reason for that is just simply the fact that bread is generally a weekly purchase. You know, the velocities are pretty high. It's a staple in the American diet, despite, you know, some of the trends that might say otherwise. So, I think that primarily is what has led it to be a bit more stable in broader food. Makes sense. A lot of chatter this week, obviously, about the promotional environment picking up. Yeah. And in certain categories, we certainly see the data sort of bearing that out. How is that impacting Flowers at this point, and what sort of an impact is that having on sales, if any? Yeah, so I mean, we are seeing, just like a lot of others, you know, somewhat higher promotional levels. I do think it's important to note that, you know, we're still far below pre-pandemic levels when it comes to promotion. We tend to not lead in that regard. We tend to, you know, watch the category and react where we see fit. In this particular case, you know, we have seen fit to do a bit more promotion than we had last year, but we're also being a lot more efficient and effective with our promotions than we have in the past, and some of that's due to some new capabilities and technology that we've brought in, in terms of our TPM systems. So while we may have more units on promotion, we're doing so with less trade spend. As an example, in the Q2, despite the higher promotional levels, our average price was up a little less than 1%. Got it. Yep. And despite the, you know, sort of the more challenging operating environment, your brands, as you've mentioned, have actually held up quite well, particularly in the premium category. Maybe we can get into that a little bit more, and to what do you sort of attribute that success on the premium side? Yeah, I mean, I think, again, it shows that, you know, consumers are still willing to pay for quality, for differentiation, certainly. And, you know, we've got brands and products that certainly fit that bill. So as I said earlier, you know, even though you have, you know, this pressured consumer, we're still seeing the top end of our portfolio perform, you know, extremely well. We're very focused on bringing innovation in the category and helping our retail partners grow this category. You know, there's no running away from the fact that it is a slow growth category, but we've demonstrated an ability to grow our share, grow our units, grow our sales, through innovation. The last two years running, we've had the number one new item in the category. We've introduced some keto products under the Nature's Own label that have done extraordinarily well in that segment of the category. We grew our share 710 basis points. Despite having, you know, just introduced the product last year, we're very close to being number one in that sub-segment. So, you know, once we achieve that, you're number one in keto, you're number one in gluten-free, and you're far and away number one in organic breads. Great. Thank you for that. Much like a bunch of other companies in this space, right, gross margin has been benefiting from moderating input costs. How do we think about that going forward, and should we expect that tailwind to accelerate or moderate? Sure. I mean, obviously, you know, you've seen the underlying commodities for us, you know, pull back, you know, fairly significantly. I'd say there's still a little bit of volatility there. You know, we did see margins improve very nicely in the first half of the year. It's really our easier comp period because last year, we began to see some of this moderation. So for the back half, while we expect, you know, to see some benefit, probably not to the magnitude that you saw in the first half. And then when you think about the overall input basket in total, obviously, you know, things like flour, our oils, you know, the underlying commodities have pulled back, but then there's other areas like cocoa, sugar, raisin, that we continue to see, you know, some inflation and higher costs. It's, you know, balanced out pretty well, but overall, you know, it has moderated some, and, you know, we've seen a nice read-through, you know, on the gross margin line. Yeah, right. And you've made some progress on SD&A as well in the Q2. How do we think about the cadence and magnitude of SD&A moving forward? Yeah, I mean, when you look at SD&A cost, actually, you know, you've seen obviously over the past year or two, you know, we've experienced some increase there. Coming into the year, you know, we realized we needed to really kind of get it back in check. Mm-hmm. So we came out, you know, with guidance around a $30-$40 million savings initiative. Coming out of Q1, after doing some, you know, deeper dive, we were able to raise that guidance from $40-$50 million. You know, we've been very pleased with the fact we've been able to hit on that. You know, it is driving, you know, some significant cost out of the business. You know, it's kind of a multitude of different areas. There's some, you know, selected labor decreases in there. You know, there's some cost buckets like T&E. You know, we did something around, you know, more efficiency around our marketing spend. Mm-hmm. So we do think, you know, for the back half, we should stay on target there. Everything's in place as far as, you know, the key actions to make sure it happens. So we're very confident that for the rest of the year, that will play out, and we will be, you know, on target for that. Then actually, since most of that started kind of late Q1, you know, there will be some of that rolls into Q1 of twenty twenty-five. Got it. And along with that, EBITDA margin improved really nicely on a sequential basis as well in the most recent quarter. What drove that increase? Yeah, from an EBITDA perspective- Mm-hmm ... you know, basically, you know, it's kind of the gross margin things we just talked about. Mm-hmm. You know, the input cost bucket kind of moderating, you know, very nicely. Mm-hmm. And then, you know, the projects that we just talked about around our key, you know, cost takeouts. Yeah. You know, it's definitely pushing to the bottom line, so it's good to see that. I think the other thing worth mentioning, too, Andrew, is, you know, it's one thing to take out costs, it's another thing to keep them out. Mm-hmm. They have a sneaky way of coming back in. So we're also working on some new controls and budgeting processes for next year to make sure that we, you know, preserve those savings and find, you know, annual productivity targets. Because, you know, again, slow growth category, you know, it's incumbent that we, that we continue to manage our costs well going forward, not just on a one-time basis. You know, despite the company having sort of bested consensus EPS by about $0.03 in the Q2, you opted to essentially reaffirm full year guidance. Yeah. What was the logic behind the decision to reaffirm rather than flow that through? Yeah, I think it's just... you know, I think it's just a little bit of caution. Mm-hmm. You know, we get asked, everybody gets asked about, you know, the state of consumer, the promotional environment. And I said, as I said earlier, we've seen in the past, the category get, you know, a little bit too promotional. That hasn't happened yet, but we've kind of called that caution out throughout the year, and so far, the year has turned out basically, you know, as we anticipated, but we still think it prudent to remain cautious given the environment that we're in. So, you know, we're very comfortable with the middle of the guidance range, as we said on the Q2 call. You know, we think that, given the fact that we're going to be lapping a lot of the strategic exits that we've done over the last year or so to help, you know, margin up and bring in, and bring in new business, we'll lap that at the end of the Q3, and then the new business will come on in the Q4. So, you know, we expect, you know, year over year, the Q4 to be a bit stronger than the third, and that all that adds up to being comfortable with the, with the middle of the range. Got it. You talked a bit about some of the differences you're seeing within the bread portfolio, but perhaps you could talk a little bit broadly across the broader portfolio, some of the differences you're seeing in performance, right? Whether it be in, you know, bread versus the sweet, you know, baked good piece. Yeah. Yeah. So, we've already really touched on the branded retail- Mm-hmm ... piece, which is kind of a highlight for us. Away from home, as you know, you've heard from a lot of the big QSR people- Mm-hmm ... is under a bit of pressure, just given all the inflation. That's somewhat benefiting branded retail because it's, you know, kind of shifted some back into to in-home eating. But, you know, we have a pretty large QSR business within our broader food service business, so that's been a bit soft. And, of course, the sweet side of the business, really, kind of all of snacking really- Mm-hmm ... has been under some pressure, and we're no different on the sweet baked- Yeah ... side of things. With the bread category, as you mentioned, experiencing a little bit of growth, but it's- Mm-hmm ... pretty stable. What can Flowers do to continue to outpace, which you've been doing- Yeah ... but outpace the growth of the category? Yeah, so we have been doing that. Our plan to continue to do that is obviously our marketing efforts. You know, we've increased our marketing budget substantially over the last several years. We have a lot of geographic expansion ahead of us. Mm-hmm. You know, we were born in the South, and that's where we're most penetrated. But, you know, in places like the Northeast, you know, we've only got a 10% share- Mm-hmm. in the Northeast, 18% nationally. So just, you know, getting that 8 points at $35 million or so at retail per share point is substantial. And then, in the Upper Midwest, you know, some major metro markets there, like Chicago, Detroit, Minneapolis, et cetera, we only have roughly a 5% share, and we're just now starting to move up in that area. So we don't... You know, there is no fresh Dave's Killer Bread in Chicago. There is no fresh Nature's Own in Chicago. Mm-hmm. So, you know, we think it's a nice part of our growth story, that not only are we being able to show organic growth across the portfolio in our core territories, but also being able to grow in those under-penetrated markets and under-penetrated segments of the category, like like sandwich buns and rolls and breakfast. So we've been really chipping away and growing our share in breakfast under the Dave's Killer Bread label, which has been huge for us. And Wonder, as a national brand, has been a really smashing success in the bun segment, where we were never very strong before. Got it. And how do we think about growth in your other business? I mean, I presume private label should be fairly strong in this sort of environment, while obviously, away from home segment facing some headwinds. Yeah as you know, consumers shift a bit more. Is that, is that sort of the right way to think about it? Yeah. I mean, you know, private label certainly has been growing, though I mentioned that is slowing down now. You know, another reason you will see it grow a little bit more, because some of the new business that we're taking on is private label. You know, some of you that are familiar with our portfolio strategy may initially find that kind of odd, that we're growing in private label. But it's important to remember that, you know, in order to build in this category strategic relationships with our key retail partners, it's important. Their private label is important to them. And I'm fine with that. Mm-hmm. You know, so long as we get a fair margin at our internal thresholds, and that we get brand concessions along with it. If it's strategic in nature, we're fine doing it, and that's, you know, that's part of the, some of the new, the new businesses coming on in the fourth quarter. Got it. Yep. You mentioned you recently made some progress in winning some new business. Can you give us a little more color on what that could ultimately amount to, and maybe what categories those wins have come in? Yeah, we haven't quantified it but, you know, it's not insignificant. Mm-hmm. The other important thing to remember from a strategic standpoint is, you know, we exited a lot of capacity that was very, very low and sometimes even negative variable margin. So, you know, to the extent we weren't able to margin that up, in some cases we were up to our internal thresholds. But where we weren't able to do it, we were very intent and very serious about exiting, which we have now done. And we're replacing that volume with new volume- Mm-hmm ... that meets our margin threshold. So not only is there a good growth component to it, 'cause we'll grow brand on top of that new business, but even the private label business that we're taking on is at much higher margins than what we had before. Got it. And you mentioned some of the business exits. You know, as those slowly start to wind down. Yeah I guess, how much are those business exits expected to impact the remainder of the year? So, we're all of the exits themselves have already been done. Mm-hmm. We were pretty much done with that at the end of last year. All we're doing now is just lapping it, and so we're almost fully lapped at the end of the third quarter. There's just a de minimis amount left in the fourth quarter, and then you'll have that new business come on on top of it. So that's why kind of sequentially, we see the fourth quarter stronger year over year. Perfect. You recently ventured into, you know, the more competitive snacking category with the Dave's Killer Bread snack products. Can you share a bit of an update around those, how those products are doing, and maybe what gives you confidence you can capture share in what's clearly a, you know, a crowded category? Yeah. No, it is competitive, but we're in a competitive category right now, so we're, Mm-hmm ... we're used to crowded and competitive categories, and we're very confident in the brand equity that Dave's carries. I mean, we've moved it across different products in the bread aisle, which with our other brands, we have not been able to do. That gave us confidence to take it one step further and actually step outside of the category. You know, as I say often, we're treating this like a new business, like a startup. Mm-hmm. Basically starting from scratch. It's going very well, but we're barely a year into full distribution on the first three SKUs. Got it. So we're really just getting started. Our retail partners are excited about it, great feedback from consumers. Our velocities, you know, with many of our retail partners is in excess of the category average already, even though we're brand new. And I think most importantly, we're bringing new consumers to Dave's Killer Bread. Obviously, DKB, you know, current DKB bread buyers are natural consumers for this product, but as we all know, there's plenty of people out there that don't eat bread at all. Yep. Bringing a whole new population of consumers to the brand is pretty exciting. Yep, nice. Taking a bit of a step back, your long-term revenue growth target is 1%-2%. Is your expectation that that will be price, volume or mix driven or a combination? And as a follow-up, I guess, how much of a contribution would you expect from branded retail versus other- Yeah ... to that one to two? I mean, you know, given the environment that we're just coming out of, you can expect it to be mostly mix and volume. Mm-hmm. On the branded retail side of things, you know, for the time being, probably not much more price. We're right at some pretty important price thresholds, kind of across the portfolio. You know, any price that we would take, you know, opportunistically as needed, would primarily be in the private label and away from home side of the business. Got it. I think in a recent call, you mentioned that you're looking at restructuring your retail team. Maybe you can expand on some of the motivations behind that change, and maybe what some of the expected benefits are that this could ultimately yield. Yeah, absolutely. I mean, it's really just a part, really a continuation of what we've been doing over the last several years in terms of, you know, adding new capabilities and upgrading our, not only our team, but our board of directors as well. You know, we, you know, recognize the need, not only to develop talent internally, but given where we want to go, to make sure that we've got capabilities, that match our strategic priorities. And in some cases, we did not have those, you know, internally, that we could promote, and so we went outside, which is somewhat new for us. You know, we've been primarily a company that promotes from within, but, you know, circumstances change, and your approach needs to change with it. So, you know, over the last several years, we've brought in some really highly experienced and capable folks from, you know, some very large CPG companies, and that's true on the board of directors as well. And I personally think that's a testament to the buy-in of the strategy, if you will, because I'm not sure we could have attracted that kind of talent, you know, five or six years ago. I'll also say that, you know, in some sense, the pandemic really helped us, because we've always been a very Thomasville, Georgia-centric. You know, particularly if you're in the senior ranks, you gotta live in Thomasville. If you don't know Thomasville, it's a very small town of about 25,000 people. Lovely place, but it's not for everybody. So it's really, you know, the openness to hybrid or remote work has really expanded our talent pool because we're not located in Atlanta or New York or Nashville, you know, places like that. So it's really expanded our talent pool, and we've been able to attract some really high-quality candidates. Thanks. Another thing we've been tracking more recently has been your ongoing California distribution transition. Mm-hmm. Yep. Mm-hmm. Yep. How's that progressing, and have you experienced any disruptions as a result? And when do you expect the transition to be completed? So, first of all, no, no disruptions. You know, unfortunate situation. For those of you who are not familiar with it, California passed a law a few years ago that imposed a very, very strict test for what it takes to constitute an independent contractor. And most of our routes are run by independent business owners. And so in California, it made it virtually impossible for us to pass that test. So as part of a settlement, we agreed to buy all of those routes back. So we're in the process of converting them from, you know, independently owned businesses to routes that we will own. So we'll own the trucks, we'll own the route, the people who runs them will be company employees. That may sound daunting, but it's also important to remember that we run company routes all over the country. We're primarily independent contractors, but we're very accustomed to running company routes. So from that standpoint, you know, it's not that big of a deal. And when we'll be done? The settlement gives us twelve months. That's roughly late April, early May of next year. Got it. So far, everything's gone as expected. Given that the ERP rollout has been paused to focus on the California transition, how does that impact your scheduled completion date and total cost estimate, if at all? Sure. I mean, as you may recall, we went live last May on our new S/4HANA platform. Primarily, the back office functions, we actually went to two bakeries. I'd say the back office functions, things went, you know, pretty much as planned, and we've- we're able to stabilize most of that within the next, you know, four or five months. Both bakeries, one was a DSD bakery, one was a warehouse bakery. You know, we had a few complications, so we decided to pause it, you know, go back and, you know, clean some things up, understand a little better about, you know, what we needed to do, you know, with regard to the ERP system to make it- the next bakeries go smoother. In that process during that time, the California situation came up, so you know, the same folks working on both projects, so it was critical to hit the time, the deadlines with regard to California. So we did pause the bakery rollouts, you know, for the California situation, as well as to give us the opportunity to go back and reassess. Most of that is now behind us. We're getting close to having a finalized plan to start back up the implementation of the bakery. So my guess is it'll be late this year or early next year. Depending on how the first couple of those go, I think we'll have a better picture about timeline. But right now, you know, we feel like if we're successful, we may do more bakeries at a given point in time, but we should still be able to hit, you know, the overall timeline from that perspective. From an overall cost perspective, I think we're pretty comfortable that, you know, we should stay within the cost guidance we've given, which is, you know, to me, it's just critical. You know, the timeline, you know, making sure we don't do things to impede the business or, you know, bring, you know, a location down is very critical. So we're being very measured about, you know, how we approach this. Got it. You've also sounded pretty excited about the M&A environment on recent calls. Yeah. I guess, where's your focus, and, and what makes you optimistic on that front, and, you know, are you looking more so at bolt-ons or, or potentially more transformational deals or, or both? Yeah, so you know, nothing transformational. Some smaller things can become transformational over time, but we don't really have our eye on anything, you know, massive at this point. I mean, look, we're really focused on, you know, expanding our branded portfolio. You know, a few core acquisitions that would help. I mentioned the geographic expansion earlier, that could, you know, certainly help you get a faster toehold. Mm-hmm. in some of those geographic areas. And, you know, the good news there is that typically, first of all, we know all of them. Yep. You know, these are relationships that go back sometimes 50 or 60 years in this industry. So, and we're typically the buyer of choice because, you know, one, typically, private equity doesn't do fresh packaged bread just 'cause of perishable and DSD- Mm-hmm ... and all that sort of stuff, the network you have to have, and you know, the other major player in the category is so penetrated that from a regulatory standpoint, they're kind of done at this point. So, we're typically the buyer of choice there. So that's the core, but you know, what you'll see us do more of, you know, over the next several years is outside of our core business. So we're typically focused on branded products that really resonate with consumers, that would be, you know, both growth and margin accretive for us, but that also have healthier attributes to them. Yeah ... or at least, you know, a better-for-you health halo over them. We are pretty bullish- Mm. -on the M&A market. You know, we believe that there are some things that could be coming to market over the next twelve to eighteen months that would be a great fit for us- Mm-hmm ... and really help to advance our business. We are very proactive about developing relationships with these primarily founder-led businesses, sometimes private equity, too, but a lot of times, founder-led businesses, and these are relationships we've been cultivating for, you know, five, six, seven, eight years, and you know, we think that that does give us an advantage. Obviously, valuation matters- Yep ... but so do these relationships, 'cause the founders are typically very passionate about these businesses. Mm-hmm. They're passionate about the go-forward stewardship of the business, and we bring a lot to the table in that regard. Yeah. Maybe in the final couple minutes, what does success look like if we're thinking out over the course of the next year? Mm-hmm. Right, what does success look like for Flowers Foods as everyone here tries to sort of assess- Yeah ... you know, the progress against that? Yeah, I mean, obviously there's the long-term algorithm that we have published. I mean, so that's one marker of success. But to, you know, to be a little bit more granular, we've touched on all of it. You know, continuing to innovate, continuing to find ways to grow in the category, continuing to find ways to grow organically- Mm-hmm ... in adjacent categories like we are with the snack bars and the bites that'll be coming out next year. We have, you know, very heady aspirations for what we'd wanna do from an innovation standpoint in terms of, you know, dollar sales contribution per year. It's not something that we specifically disclosed yet, but you know we continue. Each year, we get better, we learn more, we learn how to become more effective and efficient, and we continue to kind of raise the bar on how much innovation is gonna contribute to the total over time. Obviously, executing well on M&A when those opportunities come up. Look, valuations are high. It's just. That's just a fact. Mm-hmm. Those of you who know us well, also know that we're very disciplined with how we approach M&A. We do very rigorous work. Mm-hmm. and we are happy to pay a premium, but we've got to have significant conviction- Yeah ... commercially, operationally, financially, before we'll pull the trigger, but you know, the fact of the matter is, you know, some of the assets we're looking at, you know, we won't have the luxury of being timid- Mm-hmm ... about price, but we will be reasonable, and we'll be very diligent in that regard. And then finally, I would mention just ongoing cost management that we covered earlier. Yep. Did a good job this year. Very proud of the team. Difficult task to remove as much cost as we did. The key now is to keep it out with those new governance controls. Great. Good. Well, I think that's a great place to cut it off here and take it over to the breakout. Thank you very much, Ryals and Steve, and Kraft Heinz up here next. Thank you. All right. Thanks, Andy.