Flowers Foods, Inc.

Good morning, and thank you for standing by. Welcome to the Flowers Foods second quarter 2024 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, J.T. Rick, Executive Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Shannon, 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 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 and 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 an earnings release at the end of the slide presentation on our website. Joining me today are Riles McMullen, Chairman and CEO, and Steve Kinsey, our CFO. Riles, I'll turn it over to you.

Okay. Thanks, JT. Good morning, everybody. I'm very pleased with our solid top and bottom line results in the quarter. Our leading brands are outperforming the category, growing volumes, and gaining market share. And our portfolio strategy is enhancing profitability in our private label and away-from-home businesses. At the same time, our savings initiatives have improved our cost structure, significantly boosting our margins compared to the first quarter, and enabling us to better leverage our top-line performance as we go forward. The inflationary environment is encouraging some consumers to seek value, but many are increasingly looking for differentiated products. And that desire is manifesting itself in the strong performance of our leading brands, consumers are clearly recognizing our brand's differentiation, resulting in the largest dollar and unit share gain of any company in the category. We're investing to increase that differentiation, further aligning our brand portfolio with the consumer. Our quarterly performance bolsters our confidence that we'll deliver results in line with our annual guidance. We're working to drive further improvements, and I look forward to continuing our progress throughout 2024. So with that, Shannon, we're ready to open it up for questions.

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Robert Dickerson with Jefferies.

Your line is now open.

Great. Thanks so much.

Happy Friday.

Good morning. Hey, Robert. Hey. Ralph, I guess just a question around the promotional environment. You know, the prepared remarks you did, you know, you said you have promoted a little bit more. It doesn't sound like a lot, but a little bit more. And at the same time, you know, clearly it looks like you're taking both unit and dollar share in bread. So I'm just curious, you know, I feel like since the beginning of the year, the guidance has allowed for some promotional risk, right? And maybe some increase in that promotional activity as you get through the back half of the year, you've promoted a little bit more, you're also taking share. So I'm just curious, like, you know, as we sit here today, you feel like there's maybe a little bit more risk because usually, you know, if you're taking share, then maybe others notice and they could start to promote more. Thank you.

Yeah, sure, Rob. Thanks for the question. Yeah, look, I suppose that's possible. And we indicated in our prepared remarks and even embedded in the guidance that we are accounting for that risk as we go through the year. We called it out at the beginning of the year, and I think it's still prudent to call it out now. As we noted, consumers are responding a bit more to promotions, whereas not too long ago they were not. And we all know that the consumer is, alongside a differentiation, the consumer is seeking value. I think we saw that in a large retailer report this week. We're seeing the channel shift, and we've been calling that out for several quarters now from grocery to mass, club, dollar, and that's kind of across income spectrums too. So to sum up, I think it's only prudent that we continue to watch that and be a little bit cautious as it relates to our outlook. Having said all that, while promotions are up, things still remain pretty rational and are still well below pre pandemic. So you'd have a ways to go before you got to kind of 2019 promotional levels.

Okay. Fair enough. And then, um, you know, uh, it sounds like, you know, as you got through kind of the end of the quarter, you started to see some improvement, uh, in these trends and you called out, you know, an increasing shift, maybe back to at home to seek value. um you know middle of august i mean what we've seen in the data kind of through july was that was ongoing actually even improved a little bit i don't know if there's any way to provide in color um kind of as what you've seen let's say through kind of the summer months and kind of how you're thinking about that momentum um into back to school thanks yeah so you know we have as you know we have a large food service business and a you know a significant component of that is is um quick serve

you know, fast food chains. And, you know, it's been in the news. You know, folks have seen results that some of these QSR-oriented restaurants be a little bit challenged. And I think, you know, a lot of that is inflation, obviously. But it also affects, you know, our food service volumes, since that's a, you know, a pretty significant part of the portfolio. But on the flip side, that tends to, you know, benefit the retail business. And so I do think that that's somewhat of a tailwind for our branded retail business as we move through at least the next couple of quarters. We'll kind of see how the economy does.

Okay, super. I'll pass it on.

Thanks, Russ.

Thank you. Our next question comes from the line of Bill Chappell with Truist Securities. Your line is now open.

Hey, good morning. This is Davis Holcomb on for Bill Chappell. I'm just wondering if you could help us kind of unpack the impact of the business exits on volume, if there's any way that we can kind of get a quantification where volumes kind of flattish up. What does it look like directionally, I guess, from there?

Yeah, sure. We don't break that out to that granular of a level, but when you look at volumes in the quarter, they were they were very positive overall on the branded retail side and particularly on the branded bread side. Now, that was somewhat weighed down by weakness in the cake business. You've seen that across the sweet baked goods category. And then as for the rest of the business, as we said, food service volumes have been a bit weak due to that QSR weakness. In addition to the strategic exits that we've talked about for several quarters now. However, it's important to remember that those strategic exits roll off in Q4. So they have virtually no impact on us in Q4. We're almost through them, as we mentioned last quarter. And so going forward, you'll see much less impact from that.

Excellent. Thanks. And I was just also wondering if you could kind of help us get a feel for how the distribution I guess, is going for the DKB, like the protein bar rollout and everything like that? Just a little bit more color there.

Yeah, sure. Overall, we're really pleased with how well we're doing. You know, look, it's, as I've said several times before, this is a startup business for us. It's brand new. It's a different form of merchandising. It's not, you know, distributed DSD on the bread trucks. It goes to the warehouse. You know, right now we have a limited number of SKUs, so we're working to expand our shelf presence. We've got the three snack bars, we've got the three protein bars that are coming out, so our shelf presence is getting better. And our top accounts, large retailers, where we're doing well, we're doing really well. And we've got velocities well within the top 10 in the category. However, There's been a couple of places where we've stubbed our toe from an execution standpoint, and that's part of the learning curve, and we're correcting that. But looking at it overall, we think we've got a great product under a great brand umbrella, and we're very confident about where this is going. Not to mention the additional pipeline of innovation with the snack bites coming later this year and then full distribution next year. So overall, we're pleased.

Awesome. Thanks for the call. We'll go ahead and pass it on.

Yeah, thank you.

Thank you. Our next question comes from the line of Jim Solera with Stevens. Your line is now open.

Hey, good morning, guys. Thanks for taking our question. Riles, I wanted to maybe see if we could run through puts and takes on, if we look at the exits from the business impacts, mentioned the pressure on the QSR business, but then if we think about netting those against the strong results at DKB and Canyon, plus what seems like a benefit from food at home shift. Can we take all that? Yep.

Jim, sorry to interrupt you. Can you start your question over because we had some really bad audio at the beginning of your question?

Yeah, no problem. Is that better?

Yes, it seems like it is.

Okay, perfect. Yeah, I was just asking if we could maybe net the exit from the business impacts with some of the pressure you mentioned in QSR and then thinking about that against the strong results of DKB, Canyon, benefit from a shifted food at home. If we think about all that together, could we see positive volumes in 3Q and then obviously rolling into 4Q?

Yeah, I think definitely for 4Q, that's a reasonable assumption, particularly with all the new business, Jim, that we have coming on. We talked about that last quarter. So that'll have more of an impact in Q4. And then with The roll-off of the strategic exits, if we can continue to enjoy good momentum from all the brands you mentioned, then, yeah, I think that's a distinct possibility. I mean, frankly, we were almost there in Q1. You know, the branded retail was actually pretty positive in Q1. So, yes, I think that's a reasonable possibility.

Okay, great. And then maybe if you could just give us some detail on – you mentioned in your prepared remarks – restructuring the retail team. Can you talk about how that changes some of the capabilities relative to the previous structure and maybe when slash how we might see that show up on shelf?

Yeah, I mean, I think you got to give us a little bit of time. And Meredith just started not just a few weeks ago, but, you know, we brought Terry on, Terry Thomas on as the chief growth officer. You know, he had some significant experience and insights from his time at Unilever and other places. And, you know, one of the things we lacked here, was a channel-specific approach to strategy and execution at the retail level. And I think that's one of the areas where these restructurings are going to benefit us the most. Whereas before, to shorthand it, it was a little bit of a peanut butter spread approach to all channels. Now you're looking specifically at mass, you're looking specifically at club, dollar, whatever it might be. And even as we roll out our snack items, convenience, is a tremendous opportunity for us because we're so deeply under-penetrated in that channel.

Great. Appreciate the call, guys. I'll hop back in the queue. Thank you, Jim.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 or in touchstone telephone. Our next question comes from the line of Mitchell Pinero with Sturdivant & Company. Your line is now open.

Hey, good morning.

So, curious, you know, you talk about making headway in some of your underpenetrated geographic regions, and I'm curious, like, what's driving that, and is it a sustainable growth that you can see there? Because it's a big part of your growth story is while you have, you know, you know, extraordinary strength in the South and, you know, Southwest. It's, it's, uh, there's, there's a lot of, um, sort of white space and, uh, just curious if it's sustainable.

Well, we certainly think so. Um, you know, as, as you rightly pointed out, you know, our largest share of concentration is in the South. You know, that's a pretty saturated market for us. There's still, you know, certain growth pockets and we're seeing that with, uh, the nature's own keto loaf, you know, Dave's continues to grow. And then even in the South, if you break up the geographies and look at market share gains, it's been a little bit tougher in the South, frankly. A little bit more promotional activity, basically two primary competitors, our most mature market. But what we've been able to do is find areas within the category to grow. So that's keto, that's breakfast, that's sandwich buns and rolls, even in the South. Now, more directly to your question on under-penetrated markets, I absolutely think that's sustainable. When you look at a 17-18 overall dollar share nationwide and only a 10 in the Northeast, and we haven't even really been there that long, they've been there, DKB's been there for even less time. But as you know, we don't have a national marketing campaign, at least not yet. So that's one of our focus markets for our advertising campaign. We've still got room to grow out west, back northwest, and probably most importantly in the upper Midwest, which we've already started to enter. And we'll continue to roll that out as we go forward. So not only do we have M&A to look to, innovation to look to, but we've also got these underpenetrated regions where we've got a lot of runway to grow to get our fair share of the category.

Thanks for that. Then on margins, Steve, you know, in the prepared remarks you talk about moderating ingredient and packaging costs. Is that something, you know, you obviously have a lot of visibility there with the amount, you know, you're pretty much set for the, you know, for the remainder of this year with visibility there. Is that something we're going to see not just moderating increases, but are we going to see declines?

Yeah, I mean, obviously, when you look at kind of the margin performance year-to-date, you know, we've done really well, and, you know, we're pleased with where we are. You know, we continue to hedge. I mean, our strategy hasn't changed. You know, we stay six to nine months, you know, ahead of the market, so we understand, you know, the cost structure. You know, we did see the first half is actually the largest benefit regard to the moderating cost so while we do expect benefit in the half in the back half you know that that benefit will begin to decline somewhat but you know overall we're still you know forecasting a decent margin improvement for the year and then I guess this one last question just on M&A you know you've been a little quiet is that this is do you anticipate

I'm curious what the pipeline might look like and whether or not are you sort of waiting for a lot of the ERP and California and things like that to sort of get behind you before we see M&A or are they too just unrelated and mutually exclusive?

mutually exclusive no we're we're ready to go i mean when the right opportunity comes along um you know it's it's it's time for some m&a for us um you know i'll reiterate again you know we're very proactive in the market we're out there building relationships you know we know what's um what could be coming um we know what we're interested in um in some cases we've even done some advanced you know commercial diligence work so that we're you know we're able to um We're able to execute quickly when the right opportunity comes along. And again, those opportunities can come both in the core and in adjacent categories. I do think, I mean, there's been some big deals announced over the last week and the last six months or so, but I think there's more ahead. The M&A market seems to be getting healthier, as we noted last quarter. So we're bullish on that, Mitch. Okay. All right. Thank you. Appreciate the questions.

Okay. Thanks. Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Your line is now open.

Hey, thanks, and good morning, guys. Hello, Steve. So first question, just a little bit more color on how you're thinking about the price versus – so the kind of reported price mix versus the volume outlook across branded retail as we go through the back half. Obviously, you kind of cycled a year ago pricing actions, right? Most recently in the data that we all kind of track week to week, it looks like pricing in the category of pricing for your own portfolio has dipped negative. So as we go through the back half, as you make those targeted promotional investments and you probably have some channel package mix that's negative despite the premiumization trend, is the base case that pricing – reported pricing runs negative in the back half with volume making up the difference? Or do you think you can hold price mix to kind of neutral as you flow through 24?

Yeah, so let's take it, let's break it up a little bit. I mean, you know, on the branded side, you know, all of our pricing is in. Now, when you, you know, the data that we look at, Steve, our average price was up seven cents on the quarter, not down. But that's also driven by mix. Because as we've talked about, DKB had a great quarter, Canyon had a great quarter, Nature's Own did well given the environment. So that mix is driving that a bit. And if we can continue that trend, and Steve, you should comment on this too, if we can continue that trend, I would expect mix to be a positive benefit for us as we move through the rest of the year. Yeah, right.

I mean, obviously, as Ralph said, all of our branded pricing is in. You've seen kind of the the cost environment as well, and also, you know, some slight promotions. So mix is a big part, you know, the back half. And then as Ryle said, if brands continue to perform well and things play out as we think with some of the new business, you know, by the fourth quarter, we might see some positive volume as well.

Okay. Okay. Great. And just on ERP as it relates to, you know, the bakery rollout, obviously that's on hold pending the California distribution transition. I guess as we look out through that transition, how quickly, what's the base case plan for when the bakery rollout resumes? Is that sort of middle of 25 or sooner or later? How do we think about that?

Today we're obviously trying to work through California, but The plan is to pick back up baby rollouts late this year or first quarter of next year. And then come up with a pretty strong plan to try to stay on our original targets. Obviously, if things shift, we'll let you know. But I think the good thing is right now, from an overall cost perspective, we're not anticipating anything to change. So that's critical from that standpoint as well.

Okay. So the resumption could happen before the – the distribution right purchases are fully complete. That's what I'm gleaning from what your answer was.

Yes, the goal is to pick back up no later than Q1 of next year.

Okay, perfect.

All right, thank you very much.

Thank you, Steve.

Thank you. And I'm currently showing no further questions at this time. I would now like to turn the call back over to Rouse McMillan for closing remarks.

Okay, thanks, Shannon. Thanks, everybody, for taking time today and joining us for questions. We appreciate your interest in our company. And as always, we look forward to speaking with you again next quarter. Take care.

This concludes today's conference call. Thank you for your participation.

You may now disconnect. Thank you. you Thank you. you Thank you. Thank you.

Good morning, and thank you for standing by. Welcome to the Flowers Foods second quarter 2024 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, J.T. Rick, Executive Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Shannon, 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 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 and 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 earnings release at the end of the slide presentation on our website. Joining me today are Riles Van Golen, Chairman and CEO, and Steve Kinsey, our CFO. Riles, I'll turn it over to you.

Okay. Thanks, JT. Good morning, everybody. I'm very pleased with our solid top and bottom line results in the quarter. Our leading brands are outperforming the category, growing volumes and gaining market share. And our portfolio strategy is enhancing profitability in our private label and away from home businesses. At the same time, our savings initiatives have improved our cost structure, significantly boosting our margins compared to the first quarter and enabling us to better leverage our top line performance as we go forward. The inflationary environment is encouraging some consumers to seek value, but many are increasingly looking for differentiated products. And that desire is manifesting itself in the strong performance of our leading brands. Consumers are clearly recognizing our brand's differentiation, resulting in the largest dollar and unit share gain of any company in the category. We're investing to increase that differentiation, further aligning our brand portfolio with the consumer. Our quarterly performance bolsters our confidence that we'll deliver results in line with our annual guidance. We're working to drive further improvements, and I look forward to continuing our progress throughout 2024. So with that, Shannon, we're ready to open it up for questions.

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Robert Dickerson with Jefferies.

Your line is now open.

Great. Thanks so much.

Happy Friday.

Good morning. Hey, Ralph. Hey. Ralph, I guess just a question around the promotional environment. You know, the prepared remarks you did, you know, you said you have promoted a little bit more. It doesn't sound like a lot, but a little bit more. And at the same time, you know, clearly it looks like you're taking both unit and dollar share in bread. So I'm just curious, you know, I feel like, you know, since the beginning of the year, the guidance has allowed for some promotional risk, right? And maybe some increase in that promotional activity as you get through the back half of the year, you've promoted a little bit more, you're also taking share. So I'm just curious, like, you know, as we sit here today, you feel like there's maybe a little bit more risk? Because usually, you know, if you're taking share, then maybe others notice and they could start to promote more. Thank you.

Yeah, sure, Rob. Thanks for the question. Yeah, look, I suppose that's possible. And, you know, we indicated, you know, in our prepared remarks and even embedded in the guidance that we are accounting for that risk as we go through the year. We called it out at the beginning of the year, and I think it's still prudent to call it out now. You know, as we noted, consumers are responding a bit more to promotions, whereas not too long ago they were not. And we all know that the consumer is, you know, alongside of differentiation, the consumer is seeking value. I think we saw that in, you know, a large retailer report this week. You know, we're seeing the channel shift, and we've been calling that out for several quarters now from grocery to mass, club, dollar. And that's kind of across income spectrums, too. So, you know, to sum up, I think it's only prudent that we, you know, continue to watch that and be a little bit cautious as it relates to our outlook. Having said all that, while promotions are up, things still remain pretty rational and are still well below pre-pandemic. So you'd have a ways to go before you got to kind of 2019 promotional levels.

Okay, fair enough. And then it sounds like as you got through kind of the end of the quarter, you started to see some improvement in these trends and you called out, you know, an increasing, you know, shift, maybe back to at home to seek value, you know, middle of August. I mean, what we've seen in the data kind of through July was that was ongoing, actually even improved a little bit. I don't know if there's any way to provide in color kind of as what you've seen, let's say through kind of the summer months and kind of how you're thinking about that momentum into back to school. Thanks.

Yeah. So, you know, we have, as you know, we have a large food service business and a, you know, a significant component of that is, is, um, quick serve, you know, fast food, food chains. And, um, you know, it's, it's been in the news, you know, folks have seen, um, results that some of these, um, QSR oriented, uh, restaurants be a little bit challenged. And I think, you know, a lot of that is inflation, obviously. Um, but it also affects, you know, our food service volumes, since that's a, you know, a pretty significant part of the portfolio. But on the flip side, that tends to benefit the retail business. And so I do think that that's somewhat of a tailwind for our branded retail business as we move through at least the next couple of quarters. We'll kind of see how the economy does.

Okay, super. I'll pass it on.

Thanks, Rob.

Thank you. Our next question comes from the line of Bill Chappell with Truist Securities. Your line is now open.

Hey, good morning. This is Davis Holcomb on for Bill Chappell. I'm just wondering if you could help us kind of unpack the impact of the business exits on volume, if there's any way that we can kind of get a quantification where volumes kind of flattish up. What does it look like directionally, I guess, from there?

Yeah, sure. We don't break that out to that granular of a level, but when you look at volumes in the quarter, they were they were very positive overall on the branded retail side and particularly on the branded bread side. Now, that was somewhat weighed down by weakness in the cake business. You've seen that across the sweet baked goods category. And then as for the rest of the business, as we said, food service volumes have been a bit weak due to that QSR weakness. In addition to the strategic exits that we've talked about for several quarters now. However, it's important to remember that those strategic exits roll off in Q4. So they have virtually no impact on us in Q4. We're almost through them, as we mentioned last quarter. And so going forward, you'll see much less impact from that.

Excellent. Thanks. And I was just also wondering if you could kind of help us get a feel for how the distribution I guess, is going for the DKB, like the protein bar rollout and everything like that. Just a little bit more color there.

Yeah, sure. Overall, we're really pleased with how well we're doing. You know, look, it's, as I've said several times before, this is a startup business for us. It's brand new. It's a different form of merchandising. It's not, you know, distributed DSD on the bread trucks. It goes to the warehouse. You know, right now we have you know, a limited number of SKUs. So we're working to, um, expand our shelf presence. We've got the, you know, the three snack bars, we've got the three protein bars that are, that are coming out. So our shelf presence is getting better. Um, and our top accounts, large retailers where we're doing, where we're doing well, we're doing really well. And we've got velocities, you know, well within the top 10 in the category. Um, however, there's been a couple of places where we've stubbed our toe from an execution standpoint, and that's part of the learning curve, and we're correcting that. But looking at it overall, we think we've got a great product under a great brand umbrella, and we're very confident about where this is going, not to mention the additional pipeline of innovation with the snack bites coming later this year and then full distribution next year. So overall, we're pleased.

Awesome. Thanks for the color. We'll go ahead and pass it on.

Yeah, thank you.

Thank you. Our next question comes from the line of Jim Solera with Stevens. Your line is now open.

Hey, good morning, guys. Thanks for taking our question. Riles, I wanted to maybe see if we could run through puts and takes on, if we look at the exits from the business impacts, mentioned the pressure on the QSR business, but then if we think about netting those against the strong results at DKB and Canyon, plus what seems like a benefit from food at home, shift.

We take all that and... Jim, sorry to interrupt you. Can you start your question over because we had some really bad audio at the beginning of your question?

Yeah, no problem. Is that better?

Yes, it seems like it is.

Okay, perfect.

Yeah, I was just asking if we could maybe net the exit from the business impacts with some of the pressure you mentioned in QSR and then thinking about that against the strong results of DKB, Canyon, benefit from a shift at food at home. If we think about all that together, could we see positive volumes in 3Q and then obviously rolling into 4Q?

Yeah, I think definitely for 4Q, that's a reasonable assumption, particularly with all the new business, Jim, that we have coming on. We talked about that last quarter. So that'll have more of an impact in Q4. And then with The roll-off of the strategic exits, if we can continue to enjoy good momentum from all the brands you mentioned, then, yeah, I think that's a distinct possibility. I mean, frankly, we were almost there in Q1. You know, the branded retail was actually pretty positive in Q1. So, yes, I think that's a reasonable possibility.

Okay, great.

And then maybe if you could just –

give us some detail on, you mentioned in your prepared remarks, restructuring the retail team. Can you talk about how that changes some of the capabilities relative to the previous structure and maybe when slash how we might see that show up on shelf?

Yeah, I mean, I think you got to give us a little bit of time and Meredith just started not just a few weeks ago, but, you know, we brought Terry on, Terry Thomas on as the chief growth officer. You know, he had some significant experience and insights from his time at Unilever and other places. And one of the things we lacked here was a channel-specific approach to strategy and execution at the retail level. And I think that's one of the areas where these restructurings are going to benefit us the most. Whereas before, to shorthand it, it was a little bit of a peanut butter spread approach to all channels. Now you're looking specifically at mass, you're looking specifically at club, dollar, whatever it might be. And even as we roll out Our snack items convenience is a tremendous opportunity for us because we're so deeply underpenetrated in that channel.

Great. Appreciate the call, guys. I'll hop back in the queue.

Thank you, Jim. Thank you. As a reminder, to ask a question at this time, please press star 1-1 or in touchstone telephone. Our next question comes from the line of Mitchell Pinero with Sturdivant & Company. Your line is now open.

Hey, good morning.

So, curious, you know, you talk about making headway in some of your underpenetrated geographic regions, and I'm curious, like, what's driving that, and is it a sustainable growth that you can see there? Because it's a big part of your growth story is while you have, you know, you know, extraordinary strength in the south and, you know, southwest. There's a lot of sort of white space and just curious if it's sustainable.

Well, we certainly think so. You know, as you rightly pointed out, you know, our largest share of concentration is in the south. You know, that's a pretty saturated market for us. There's still, you know, certain growth pockets and we're seeing that with the Nature's Own Keto Loaf. You know, Dave's continues to grow And then even in the South, if you break up the geographies and look at market share gains, it's been a little bit tougher in the South, frankly. A little bit more promotional activity, basically two primary competitors, our most mature market. But what we've been able to do is find areas within the category to grow. So that's keto, that's breakfast, that's sandwich buns and rolls, even in the South. Now, more directly to your question on under-penetrated markets, I absolutely think that's sustainable. You know, when you look at a 17, 18 overall dollar share nationwide and only a 10 in the Northeast, and we haven't even really been there that long, they've been there, DKB's been there for even less time. But as you know, a lot of our, we don't have a national marketing campaign, at least not yet. So that's one of our focus markets for our advertising campaign. We've still got room to grow out west, back northwest, and probably most importantly in the upper Midwest, which we've already started to enter. And we'll continue to roll that out as we go forward. So not only do we have M&A to look to, innovation to look to, but we've also got these underpenetrated regions where we've got a lot of runway to grow to get our fair share of the category.

Thanks for that. Then on margins, Steve, you know, in the prepared remarks you talk about moderating ingredient and packaging costs. Is that something, you know, you obviously have a lot of visibility there with the amount, you know, you're pretty much set for the, you know, for the remainder of this year with visibility there. Is that something we're going to see not just moderating increases, but are we going to see declines?

Yeah, I mean, obviously, when you look at kind of the margin performance year to date, you know, we've done really well and we're pleased with where we are. You know, we continue to hedge. I mean, our strategy hasn't changed. You know, we say six to nine months, you know, ahead of the market. So we understand, you know, the cost structure. You know, we did see the first half is actually the largest benefit. with regard to the moderating cost. So while we do expect benefit in the back half, that benefit will begin to decline somewhat. But overall, we're still forecasting decent margin improvement for the year.

And then I guess this one last question, just on M&A. You've been a little quiet. Do you anticipate I'm curious what the pipeline might look like and whether or not are you sort of waiting for a lot of the ERP and California and things like that to sort of get behind you before we see M&A or are they too just unrelated and mutually exclusive?

mutually exclusive no we're we're ready to go i mean when the right opportunity comes along um you know it's it's it's time for some m&a for us um you know i'll reiterate again you know we're very proactive in the market we're out there building relationships you know we know what's um what could be coming um we know what we're interested in um in some cases we've even done some advanced you know commercial diligence work so that we're you know we're able to um We're able to execute quickly when the right opportunity comes along. And again, those opportunities can come both in the core and in adjacent categories. I do think, I mean, there's been some big deals announced over the last week and the last six months or so, but I think there's more ahead. The M&A market seems to be getting healthier, as we noted last quarter. So we're bullish on that, Mitch. Okay. All right. Thank you.

Appreciate the questions.

Okay. Thanks. Thank you. Our next question comes from the line of Steve Powers with Deutsche Bank. Your line is now open.

Hey, thanks, and good morning, guys. Hello, Steve. So first question, just a little bit more color on how you're thinking about the price versus – so the kind of reported price mix versus the volume outlook across branded retail as we go through the back half. Obviously, you kind of cycled a year ago pricing actions, right? You know, most recently in the data that we all kind of track week to week, it looks like pricing in the category of pricing for your own portfolio has dipped negative. So as we go through the back half, as you make those targeted promotional investments and you probably have some channel package mix that's, you know, negative despite the reported pricing runs negative in the back half with volume making up the difference? Or do you think you can hold price mix to kind of neutral as you flow through 24?

Yeah, so let's take it, let's break it up a little bit. I mean, you know, on the branded side, you know, all of our pricing is in. Now, when you, you know, the data that we look at, Steve, our average price was up seven cents on the quarter, not down. But that's also driven by mix. Because as we've talked about, DKB had a great quarter, Canyon had a great quarter, Nature's Own did well given the environment. So that mix is driving that a bit. And if we can continue that trend, and Steve, you should comment on this too, if we can continue that trend, I would expect mix to be a positive benefit for us as we move through the rest of the year. Yeah, right.

I mean, obviously, as Ralph said, all of our branded pricing is in. You've seen kind of the the cost environment as well, and also, you know, some slight promotions. So mix is a big part, you know, the back half. And then as Ronald said, if brands continue to perform well and things play out as we think with some of the new business, you know, by the fourth quarter, we might see some positive volume as well.

Okay. Okay. Great. And just on ERP as it relates to, you know, the bakery rollout, obviously that's on hold pending the California distribution transition. I guess as we look out through that transition, how quickly, what's the base case plan for when the bakery rollout resumes? Is that sort of middle of 25 or sooner or later? How do we think about that?

Today we're obviously trying to work through California, but The plan is to pick back up baby rollouts late this year or first quarter of next year. They come with a pretty strong plan to try to stay on our original targets. Obviously, if things shift, we'll let you know. I think the good thing is right now, from an overall cost perspective, we're not anticipating anything to change. That's critical from that standpoint as well.

The resumption could happen before the the distribution right purchases are fully complete. That's what I'm gleaning from what your answer was.

Yes, the goal is to pick back up no later than Q1 of next year. Okay, perfect. All right, thank you very much.

Thank you, Steve.

Thank you. And I'm currently showing no further questions at this time. I would now like to turn the call back over to Rouse McMillan for closing remarks.

Okay, thanks, Shannon. Thanks, everybody, for taking time today and joining us for questions. We appreciate your interest in our company. And as always, we look forward to speaking with you again next quarter. Take care.

This concludes today's conference call. Thank you for your participation. You may now disconnect.