Today, and thank you for standing by. Welcome to the Flowers Foods' second quarter 2025 results conference call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, JT Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead. Thank you, and good morning, everyone. I hope you all had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted earlier on our Investor Relations website. After today's Q&A session, we will also post 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 at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO, and Steve Kinsey, our CFO. Ryals, I'll turn it over to you. Okay, thanks, JT. Good morning, everybody, and welcome to the second quarter call. Before we move to questions, I would like to address one thing right out of the gate. We are in the midst of a transition. The category is transitioning, and by extension, Flowers is transitioning. The continued challenging economic environment and shifting consumer trends have pressured our end markets and hampered our recent results. However, we are aggressively responding to that pressure, transitioning our portfolio to better align with current consumer demand. This transition is going to take time to fully implement, and patience will be necessary, but we expect further benefits as we execute our portfolio strategy and continue to develop our deep pipeline of innovation. Our strategy and our sound, and the early progress we've made in repositioning our portfolio give me great confidence that we're on the right path to drive consistent long-term growth. I would like to thank the entire Flowers team for their tireless dedication to this process and our shareholders for their partnership and support. With that, Gigi, we'll take questions. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Steve Powers from Deutsche Bank. Hey, great, and good morning, everybody. Ryals, first for you. On the branded side, you mentioned in the prepared remarks greater competitive intensity and also cited new lower priced bread products as creating challenges in the current environment. Maybe just a little bit more detail there as to what you're seeing and what's incremental versus last quarter. Also, versus us, and I think versus sequential trends, maybe the bigger change in trend came on the other side, not on branded. Maybe also what you're seeing on that. If I could, I got a follow up for Steve. Okay, sure. In terms of the competitive environment, as we said, Steve, the promotional environment is elevated, but relatively stable. You've seen us promote a little bit more, particularly around our differentiated products continuing to drive trial awareness, household penetration, et cetera. That's definitely paying some dividends, as you could see with DKB's performance in the quarter. Yes, there have been some lower priced entrants into the markets that are pressuring results somewhat. I would say that's particularly affecting the traditional loaf area, which we're, as you know, particularly exposed to. We are addressing that. We have our own line of small loaves now, and we have more coming to address that value shopper. I think, Steve, it's a continuation of the trend that we've seen in the sense that the market remains bifurcated. Certainly on the premium differentiated side of things, you see good performance, but you also see good performance on the value end, particularly in mass and club channels. It's there, we're aware of it, and we're proactively addressing it. In terms of the other category, there was a lot of the private label businesses, it's bid business. It's not unusual for it to come and go. A lot of that on the private label side was driven by lost business that eventually gets replaced by something else. We're also seeing continued weakness in the away-from-home food service business as well. That's what's driving that. Okay, very clear. Steve, if I could, on the, I guess, two questions for you. One is just on the updated tariff outlook. I wasn't clear from your remarks if your previous tariff costs have just been delayed because of, just because of volume dynamics, or if you've updated kind of structurally to a lower tariff cost run rate, number one. Number two, from a, I guess, from a capital allocation standpoint, you know, with this reduction in EPS guidance, you know, the gap between your dividend commitments and your current EPS run rate is increasingly narrow. Just how you're thinking about that. I know the board just raised the dividend, and you say you feel kind of good about overall, you know, kind of cash and capital positioning, but just how you're thinking about that and as you pay down debt, just the, you know, the relative constraint that the dividend may place on M&A aspirations. Thank you. Yeah. Thank you, Steve. With regard to the tariffs, actually, it's just structurally, it's an update. With things becoming, I guess, maybe more final, for lack of a better term, we just continue to follow the various countries and the changes from an overall rate. It's not really a delay. We expect tariffs to pull back quite a bit based on what we're seeing currently. Overall, with regard to kind of the capital allocation structure, we've always tried to take a balanced approach. You're right. The board evaluates this quarter to quarter, and they'll take into consideration performance, cash flow, liquidity, and this will be no different. They'll continue to have those conversations, and we'll continue to make decisions as things progress. Okay. Remind me, is there a target payout ratio? I'm assuming you're running now quite, quite higher than ideal. What's the, is there a stated long-term target? No, we currently do not have a stated targeted payout ratio. Yeah, I think. Yeah. Okay, you can go. Sorry, Ryals. I didn't mean to cut you off. I just think. In terms of the payout ratio, one thing that we like to remind people is that if you look at that on a cash basis, it's quite different than it is on a GAAP basis just due to DNA being significantly above our CapEx. Just wanted to remind you of that as well. Yeah, understood. Thank you so much. Sure. Thank you. One moment for our next question. Our next question comes from the line of Bill Chappell from Truist Securities. Thanks. Good morning. Morning, Bill. I guess back to the competitive question, you know, I guess 10 years ago, maybe not that long ago, it was supposed to be a duopoly between you and Bimbo, and you know, the thought would be, hey, everybody play well in the sandbox and on the pricing, but instead, all the players kind of competed for market share, competed for capacity utilization, and gave that up for profits. Gross margin never really improved. We've had a kind of a six, seven-year period where it's been pretty benign. Are we going back to the, you know, five, six, seven, eight years ago where it's buy one, get one free, and more competitive and figuring out more ways where it's kind of a race to the bottom on profitability, or is it not that bad? Yeah, I don't think it's that bad. I think that, you know, what you're seeing more than anything else, Bill, as I said at the opening, is a pretty significant transition in the category, primarily driven by significantly shifting consumer trends. We can spread that over a lot of different things, right? We can spread it over health and wellness, MAHA movement, GLP-1s, whatever it is, ultra-processed foods, all that sort of stuff. It is really changing the dynamics in food and particularly in baked foods. For whatever reason, they tend to get called out quite a bit when the ultra-processed argument comes up. I think we're seeing a lot of that now. We are committed to aggressively innovating to work our way through this transition. Most of, you know, we can have a conversation about food service, but that's more macroeconomic driven. On the retail side of things, what is being most affected is traditional loaf. Those less differentiated white and wheat breads are what are being affected the most. That is why we are innovating so aggressively to work our way through that. We've seen tremendous success with things like Dave's Killer Bread, Canyon Bakehouse, across different subsegments of the category too, not just breads, but sandwich, sponge, and rolls, breakfast, et cetera. We're winning in those areas. Keto is another example that I would give you. Our keto products were up, I think, 37% in the quarter. That segment of the category continues to grow. We have a wonderful slate of innovation coming out in Q3 to further address the softness in these categories. That's really the solve for us, Bill, is just working our way through this de-emphasis by the consumer, if you will, on traditional loaf as it stands today and towards more innovative and differentiated products in addition to value offerings. Now, having said that, with regard to traditional loaf, we do have plans to address that even more directly. I'm not going to get into it today for competitive reasons, but we do have plans to address the relative weakness of large brands like Nature's Own. Got it. Just to follow up, I mean, I don't doubt you have plans to improve profitability, but you obviously don't work in a vacuum. How about your competitors? I mean, not just Bimbo, but think about the dozens of smaller regional competitors who are usually the bad guy when it comes to promotions and trying to drive volume. I mean, are you comfortable that everyone is working on the same goal, or could it get worse from that standpoint in terms of competitive pressures? I mean, this has always been a competitive category. You know, our competitors are going to do what they're going to do. That's not within my control. What is within my control is what Flowers is going to do. Our strength is in our brands. Our strength is in our innovation. That's what we're going to continue to focus on. Okay, thanks so much. Thank you. One moment for our next question. Our next question comes from the line of Jim Salera from Stephens. Ryals, hey, Steve. Good morning. Thanks for taking our question. I wanted to touch on something you'd mentioned in the premier remarks about Wonder, obviously helping to contribute to share gain in cake, and that that didn't see any cannibalization in TastyKake. Are you able to just give us some commentary around, is that just due to the geographies where Wonder is rolling out? Or do you have retailers where, you know, in the regions that TastyKake's a little bit more formidable, that you have Tasty and Wonder in the same set? Yeah, maybe a little bit. I mean, you know, TastyKake, as you know, is particularly strong in that, you know, Mid-Atlantic region, whereas Wonder, you know, nationally is more of a national brand. I'll admit I'm a little bit surprised that there hasn't been more cannibalization, but I'm quite pleased that there has not been. You know, Wonder, the launch of that line of products has vastly exceeded our expectations. Now even our forecasts, you know, off of early results, it's, you know, running ahead of that. Retailers continue to be excited about it. The consumer has accepted it with enthusiasm, and we're going to continue to add to that. We've got more innovation coming for Wonder too. We have been extremely pleased with the results there. Okay. Shifting gears a little bit, let's talk on Simple Mills. As you talk about innovation, and I can appreciate, you know, this kind of a broad range of stuff you guys can lean into, should we expect to see Simple Mills as, you know, kind of an outsized contributor on the innovation side, or are you really speaking to the legacy portfolio brands? As maybe a part two to that, I'm in the Midwest, and I saw Simple Mills pretty prominently as a club retailer the last time I was shopping there. That could have just been something that was there that I missed, but maybe any comments, is that something you guys are seeing more engagement with club, or do you guys have a rotation in club? Any color there would be great. Okay. On the innovation front, as I was responding to Bill's question, I was speaking more in terms of the core category, Jim. However, Simple Mills will also continue to aggressively innovate. I think I mentioned on maybe the last call that they had kind of been on an every other year innovation rotation. We're working with them to speed that up, and we have aggressive plans for them for next year. In terms of the club rotation, I'm not quite sure I understood the question, but if you were saying that you were in a club retailer and didn't see what you're used to seeing, that's probably due to rotations. Yeah, I think it's more that—oh, I'm sorry. Go ahead. No, go ahead, Jim. I had seen Simple Mills more prominently than I had traditionally seen it. I wasn't sure if you guys were on a rotation that hadn't been the case before. No, nothing's changed. They have rotations in club. I'll just add, you know, they continue to grow their distribution points and had another nice quarter of that in Q2. That business continues to perform very, very well, even though in the second quarter, they were somewhat affected by that cyber attack at UNFI. Even with that, still performed in line with our already high expectations. We expect that to continue. They're doing great. Great. I'll pass it on. Thanks, guys. Thank you. One moment for our next question. Our next question comes from the line of Mitchell Piñeiro from Sturdivant & Company. Yeah, hey, good morning. Hi, Mitchell. When you talk about the transition, you're in the midst of a transition and it's going to take time. It's going to take, you know, how fast do you see your innovation and some of your other plans that you have to address this? This is a long time to turn around an aircraft carrier. Nature's Own is a huge brand and your other loaf products, it's the bulk of your business. To transition, is this going to be, right, a five-year minimum time period to sort of get this turned around? Are there, I don't want to say quicker fixes, but are there more near-term things that you see that can speed up this transition? Yeah, fair question. I'm not going to put a time on it today. I did note that some patience is going to be required. It's not an overnight fix. I view this as a generational shift in our category, perhaps a once-in-a-lifetime shift that needs to be addressed. I do, Mitch, I do think that the category, and I'm speaking mostly about traditional loaf, I do think that the category will stabilize eventually. Now, if that, I don't know if that's next quarter or this time next year, it's hard to say, but I do think that it will stabilize. I think that we're seeing a lot of things, primarily the shift in consumer tastes and behaviors. I think part of this is kind of the final throes of the pandemic reversion that you all were asking us about every quarter, when the worst of the pandemic was over. When was that going to happen? I think that's part of it too, in addition to the health and wellness and GLP-1 issue. I do think it's going to find its footing. What's important for us is to make sure that, as it begins to stabilize, we're winning in that environment. I'm not saying that traditional loaf is going to go away. There are still tens of millions of loaves of traditional loaf sold every day. I do think it's going to be smaller perhaps than it has been in the past, and that needs to be replaced by something, hence the hyper-focus on innovation and bringing new exciting products to consumers that have the attributes that they want. That's going to be important. Even in the traditional loaf area, I do think that there are opportunities for us to further separate ourselves. We do have the number one brand. We still have the number one SKU. There's a lot of things to like about being number one in a category, even though it's declining. We will continue to invest behind brands like Nature's Own to ensure that it performs as well as it can, given the environment. That is going to take some time, and it's going to take some time for the innovative segments of the category to more than offset any declines in traditional loaf. Again, I do think that we have the ability to further mitigate any further losses, even in that soft traditional loaf category. How are you looking at your gross margin as it relates to the lower volume and the sort of the negative fixed cost leverage? Do you have levers there that you can pull to maintain your gross margin despite the volumes being under pressure? Yeah, we do. And you know, we closed a bakery earlier this year, Mitch. We've closed several in the last few years. That's not the only lever we have to pull, but it's certainly one of them. There are past-to-market efficiencies as well that we can extract. We have plans in place to address all of that. The other thing I would note is that, via our portfolio strategy, the food service business that, you know, we're a very scaled food service player. We have refilled that volume with much higher margin business. Thus, the profitability of that away-from-home business is up significantly. I've mentioned that a few times, but I think it bears repeating today in the context of what you just asked. It's not just closing bakeries or lines or whatever. There's also optimization of the portfolio, if you will, to margin up to better business to help address that overhead leakage that you referenced. I guess just the last question. This is on M&A. Obviously, M&A is a quick way, a quicker way to help transition to other products, other adjacencies. Having just acquired Simple Mills, is there an appetite for further M&A right now with the way you're, you know, the 3.2 levered, or is this something that we'll see over time? I would say, as of today, Mitch, probably a little bit more over time. Obviously, we're focused on debt paydown right now, but as always, we continue to monitor the market. I would also offer up that there are other ways to do M&A other than cash. It's always, it has been and will always be, one of our big strategic priorities. All right. Thank you for the answers. Thanks, Mitch. Thank you. One moment for our next question. Our next question comes from the line of Scott Marks from Jefferies. Hey, good morning, guys. Thanks for taking our questions. First thing I wanted to ask about is, you just touched upon, you know, still putting investment dollars behind Nature's Own, you know, in some of the more mainstream loaf parts of the portfolio. In the prepared remarks, you talked about more of the, let's say, promotional activity being in kind of the differentiated parts of the portfolio to drive trial and repeat purchase. Maybe as we think about the investments in the more mainstream, traditional loaf part of the category, how should we be thinking about those investments? Will that be behind marketing? Will that be promotional? Will that be packaging redesign? Just trying to understand how those investment dollars will be spent. Yeah, it'll be a mix of, you know, promotional support, but that's always been the case. That's not new. Like we always say, we, you know, we view promotions more as a tool to drive trial and awareness than necessarily unit share. I think, you know, if you look back at our market share performance, even through this, you know, tough transition period, our market share performance, particularly on a relative basis, has been impressive. I think that will continue, and I think that's a testament to our overall strategies and our brand support and promotional strategies. Yeah, it'll be a mix of marketing dollar support and promotions. That's, again, that's no big change there. We've been doing that. Got it. As we think about these differentiated better-for-you offerings that you're talking about, maybe some of the small loaf products that you mentioned, what part of the portfolio is that in terms of overall mix right now and relative to where you want that to be three, five, seven years out? Yeah, in terms of small loaves, it's pretty small right now, actually, but growing. I think that could ebb and flow a little bit with the economy, Scott. From a more demographic perspective, we see a lot more smaller households now. From that standpoint, I think it will continue to be a pretty big part of our portfolio and the category. In fact, some retailers are even resetting shelves with small loaf segments within the shelf. I think that's an indication of how important it is to the retailer as well. Just on maybe what you would consider, you know, the more differentiated part of your portfolio, how should we think about current mix versus where you want to get that to? That is a focus for us. Over time, you know, you'll see that continue to grow and be a bigger and bigger part of our portfolio, not only within the bread category, but within adjacent segments, you know, with our DKB Protein Bars and our DKB Snack Bites and Simple Mills on top of that. You can, you know, it's pretty obvious you're seeing us really lean into that area. We like it because we think it's the right thing to do for the consumer. We also like it because it's premium and the profits are quite robust. You know, that's also been a focus of our M&A efforts as well. Got it. Maybe if I could just squeeze one more in, you mentioned retailers resetting some shelves, focusing on smaller loaves. Maybe what other changes have you seen from retailers recently to address some of the pressures and competitive intensity that you've spoken to? Yeah, I think, other than the small loaves, you've obviously seen significant growth in organics. We, with a 75% share, have been the primary beneficiary of that. We've seen substantial space gains, particularly in mass for Dave's Killer Bread, which I think really highlights the bifurcation of the category. When you think about mass as a value shopper's paradise, the fact that they're also focusing on premium tells you a lot about the category. Other than the small loaf piece, not a whole lot more has happened yet from a retailer standpoint. I do think that is coming at some point. I think we'll see some amount of shelf reallocation that reflects these consumer trends as we go forward. Understood. I'll pass it on. Thanks so much. Thank you. At this time, I would now like to turn the conference back over to Ryals McMullian for closing remarks. Okay. Thank you, Gigi. I want to thank everybody for taking time today and joining us for questions. We appreciate your interest in our company. As always, we look forward to talking with you again next quarter. Take care. This concludes today's conference call. Thank you for participating. You may now disconnect.