Flowers Foods, Inc. (NYSE:FLO) Q2 2023 Earnings Call Transcript

Flowers Foods, Inc. (NYSE:FLO) Q2 2023 Earnings Call Transcript August 11, 2023

Operator: Good day, and thank you for standing by, and welcome to the Flowers Foods Second 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, sir.

J.T. Rieck: Thank you, Norma, and good morning, everyone. I hope you all have 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 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 will also provide non-GAAP financial measures for which disclosures 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.

Ryals McMullian: Great. Thanks, J.T. Good morning, everybody. Thanks for joining the call today. I’m very pleased with the strong quarterly results. Our performance recovered after a slow start to the year, helped by the competitive strength of our leading brands, despite strategic pricing initiatives designed to mitigate inflationary pressures. Volume trends in our branded retail business did improve, and that may be an early indication that consumer demand is migrating back to pre-inflationary levels. That top-line strength translated into improved margins and earnings, which is reflected in our updated 2023 guidance. Private label products gained share, but that growth appears to be moderating. So, we remain confident that the trend towards premiumization, driven by our investments in innovation and marketing, will win out over the longer term.

I’m excited about our prospects, and I’ve really never been more confident in our ability to grow shareholder value over time. So, Norma, with that, we are ready to open up for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question will come from the line of Bill Chappell with Truist Securities. Your line is now open.

Bill Chappell: Thanks. Good morning.

Ryals McMullian: Hi, Bill.

Bill Chappell: I guess, can we start a little bit more commentary on Canyon? I didn’t fully understand kind of what happened to have the deterioration of, I guess, market share and margins over the past few months. I’m just trying to understand how that improves going forward. It seemed like Canyon had a pretty strong trajectory for the past few years. And I just didn’t know if that’s more of a sign of we’re hitting a plateau or if there’s something else that I don’t fully understand.

Ryals McMullian: Yes, sure. I’d be happy to. I would describe it as temporary, Bill. I mean, a lot of it has to do with capacity. It’s, in some ways, a good problem to have, because as you know, Canyon has been on a really nice trajectory, but we got a little bit tight. We’ve had to do some things to restructure Canyon’s portfolio, and made some more investments at the Canyon Bakery to help free up additional capacity. So, we’ve got that solved. That’s coming online in the second half, and we’ve got plans to reinvigorate the growth. There is a little bit of channel shift as well that’s happening that’s not picked up by the syndicated data. So, what you’re seeing is a little different than reality. But again, I put that in the temporary category. We’ll get that back on track. Canyon has got a — still got a great future ahead of it.

Bill Chappell: Got it. Thank you. And then this is the second or third time you put in your commentary kind of a thought of moving into tangential categories through M&A. And at the same point, I think you’ve talked about rolling out Dave’s Killer Bread bars sometime in ’24. I didn’t know if those kind of coupled if you’d like to have greater expertise in the snack bar or tangential category before expanding that kind of nationwide, or any kind of update on how that’s going would be great. Thanks.

Ryals McMullian: The rollout is going really well. So, those initial three SKUs of bars build are in the middle of a nationwide rollout right now. So, I think we noted in the pre-recorded commentary that we’re in about 12,000 stores. We’ll be in more than 13,000 by year-end, and we’ll actually slightly be slightly ahead of our own expectations for that rollout. For 2024, there are three new SKUs of bars coming out that are higher protein based. They’re the amped-up protein bars. Really great product. They’ve been in test market for a while. They’ve done extremely well in test market. And I think most promising is they’re proving to be incremental to the original free SKUs. So, I think we’re touching a different consumer segment with that higher protein offering.

And then of course, behind that, we’ve got the snack bites, those are still in tests. Those will be coming a little bit later. And then a whole pipeline of innovation even behind that. So, we’re really excited about what we’re building from an innovation standpoint with Dave’s.

Bill Chappell: And I guess from an M&A standpoint, does that make the bars category more attractive from a non — getting out of just straight bread, as you’re building expertise and building kind of a national following up behind a brand?