Flowers Foods, Inc. (NYSE:FLO) Q4 2022 Earnings Call Transcript

Flowers Foods, Inc. (NYSE:FLO) Q4 2022 Earnings Call Transcript February 10, 2023

Operator: Good day and thank you for standing by. Welcome to the Flowers Foods Fourth Quarter and Fiscal Year 2022 Results Conference Call. Please be advised that today’s conference 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.

J. T. Rieck: Thank you, Tanya and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks and view the slide presentation that were all posted yesterday evening on our Investor Relations website. After today’s Q&A session, we will also 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 and at the end of the slide presentation on our website.

Photo by Mink Mingle on Unsplash

Joining me today are Ryals McMullian, President and CEO; and Steve Kinsey, our CFO. Ryals, I will turn it over to you.

Ryals McMullian: Thanks, J. T. Good morning, everybody. Thanks for joining the fourth quarter call. I am really proud of our accomplishments in 2022 and would once again like to thank our Flowers team for their hard work in making that performance possible. Despite the challenging macroeconomic environment, we generated record sales, we advanced our innovation pipeline and we made important progress with our digital and supply chain initiatives. And we expect to build on that progress this year in 2023. We will be making additional investments in digital and supply chain as well as marketing support for the DKB bar launch. Although these investments, alongside continued inflationary pressures, will impact our near-term results, I am confident by enhancing our already strong foundation we are positioning the company for future long-term success. So with that, Tanya, we are ready to take questions.

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Q&A Session

Operator: Certainly. Our first question will come from Bill Chappell of Truist. Your line is open.

Bill Chappell: Thanks. Good morning.

Ryals McMullian: Good morning, Bill.

Bill Chappell: Ryals, could you give us a little more color on this kind of stepped up marketing behind the snack bars? I guess it had been growing and been in test market has been doing well, but we didn’t really have a kind of a quantification of how big it is or how big is it expected to be this year? And maybe you could talk about what and when is being invested behind the brand kind of what kind of impact that’s having on gross margin or on earnings specifically versus just kind of overall brand spend or marketing step up? Thanks.

Ryals McMullian: Sure. So Bill, as you know, we are beginning the nationwide rollout as we speak. So it will ramp up as production builds up and as we gain shelf space and retailers throughout the year. So, it will be a build throughout the year. And most of the support behind that is going to be marketing support, digital spend, display execution, all those kinds of things you really need to activate a new product. DKB is a known quantity, but obviously, this is a new space for DKB. And so we are being very intentional about the investments we put behind the introduction of the new snack line, so mostly marketing support. And again, it will be a build throughout the year. As far as magnitude goes, we are not going to disclose that separately. But as we gain traction during the year, we can start to give you guys additional color on how the products are performing overall in the marketplace.

Bill Chappell: Got it. But I guess looking at the initial guidance, which is below kind of where we were and granted you hadn’t given guidance before, I mean, is this kind of a $0.05 headwind to earnings? Is it a $0.10 headwind to earnings? Just trying to understand how much of that versus other market dynamics going into the guidance.

Ryals McMullian: You mean the marketing support itself for the bars, what kind of headwinds is it?

Bill Chappell: Correct. Correct.

Ryals McMullian: I mean, maybe $0.02 or $0.03, probably, $0.02 to $0.03.

Bill Chappell: Okay, now that helps.

Ryals McMullian: Yes.

Bill Chappell: And then just second looking at kind of the private label trends you talked about in your prepared remarks, I mean, is there an expectation now that pricing is kind of normalized for private label at the one mass customer that it’s stable as we move through this year that it actually improves? You mean, in terms of branded share improves, what’s kind of your outlook for share as we move over these next couple of quarters?

Ryals McMullian: Yes. So the pricing dynamics have started €“ the retail pricing dynamics, I should say, for private label and mass have started to come up some, which is a good development. I think it’s too early to call the play as to what the overall private label performance will be in €˜23. Towards the end of last year, as we saw private label kind of build the second half of the year gaining share, it did sort of plateau at the end of the year. And sort of through our first period that we just completed this year, that same dynamic is at play. So, it’s kind of to be determined and of course, that’s kind of factored into our guidance range. That’s one of our watch-outs for the year as how those €“ how is the consumer overall and how does that translate into private label performance.