Flowers Foods Inc (FLO) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the flowers food 2002 conference. At this time all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. It is now my pleasure to hand you over to your host, Ms. Marta Turner, vice president of communication and investor relations.

Thank you, Mandy. Good morning everyone. Thank you for calling in to our call today. Today, Jimmy Woodward, our vice president and chief financial officer, will deliver prepared remarks about first quarter results. Jimmy and Amos McMullian, flowers food chairman of the board and chief executive officer will respond to your questions. Before we get started, our lawyers instructed that I must remind you our presentation today may contain predictions, estimates, or other forward looking statements. Management's use of the words expect, estimate, believe, or such expressions will identify those forward looking statements. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause actual results to differ materially. In addition to the factors we'll discuss during the call, important factors relating to our business are described in flowers S.E.C. filings. Now I am pleased to turn the meeting to Jimmy Woodward.

Thank you, Marta. Thank you for participating in our call today. Note that our first quarter results reported are for a 16 week period and our remaining three reported periods will be 12-week periods. On a consult dated basis, this quarter 6 cents per share of net income slightly exceeded 3 to 5-cent expectations we had announced in our March 31 press release. This is due to above planned performance by flowers bakery. Flowers bakeries branded sales have a one percent increase on essentially flat unit and the nature's own brand itself variety bread and our branded eight-pack buns led to sales gains in dollars and units. During the quarter, nature's own was supported by increased advertising and we are also expanding our nature's own potato bread offering. The gains in these categories were I don't have set by some softness in our spernlt break and multipack cake items, we are taking action by introducing new items such as cobblestone swirl breakfast bread and various holiday theme snack cake items. Food service sales for flowers bakeries were slightly down on a flat unit volume, primarily related to product and customer mix changes and the sale of store brands decreased slightly in dollars in unit. Flowers bakeries continues to deploy scan based trading technology by partnering with customers such as Wal-Mart, Kroger and farm fresh and we are in fact in the planning stages with customers such as Winn-Dixie and U. crops [Phonetic]. Last year we processed approximately if about million in sales with these trading partners using this technology and this year to date in the first quarter, we are already at 25 million in sales processed under this technology. The implementation of the technology is a win-win situation, but it does initially depress our reported sales. During this quarter, approximately one million dollars of sales were deferred into quarter two as we transition to scan based trading. Those stores at quarter end, the inventory in the store is on our balance sheet at cost. Flowers bakeries gross margin impress a full percentage point in the quarter as we had increased cost, utilities, packaging and ingredients. The selling, distribution and admin cost stayed essentially flat year over year as we had increased advertising costs, but that was off he set by decreases in contract services and labor costs. The net result of this was a $38.8 million EBITDA, which is 15.5 percent year over year increase for flowers bakeries and we're really pleased with the quarter that we've had at flowers bakeries and the continued trend we see in that business. Turning now to Mrs. Smith, net sales were down year over year, as a result of higher customer incentives and a product and channel mix change. The food service and in-store bakery channels did achieve increased dollars in units sales and the bakery snack sales were higher in dollars on flat units, as we had a favorable mix. Retail sales were lower in units than dollars, but in the retail channel, we are encouraged by the demand for our recently introduced soda chop premium cream pies, as well as demand for various new varieties of deep dish fruit pies. During the quarter, our sales results were adversely impacted by product cuts made to customer orders, as we experienced production equipment, startup issues at our Spartanburg desert facility. We cut approximately 235 thousands cases of product from customer orders, about 1/2 the cuts were in food service and the other half was in retail. Although we had build finished goods inventory in the process of Pembroke and moving that production to Spartanburg, we obviously did not have sufficient inventory of the right product at the right time to fill all the orders. Those 235,000 case cuts were in the pie, pie shells and cake product categories and represented about 7 percent of this quarter's sales in those particular categories. The closing of Pembroke and the startup of Spartanburg, while it was a difficult process over the past few months, however, with the closing of Pembroke, we have now completed the consolidation of six dessert plants into two automated efficient pie, cake, and cobble plants, being steel well and Spartanburg. Mrs. Smith's gross margin declined 1 and 3/4 points. We had improvements as we increased production in the Swanee [phonetic] frozen bread facility and we had favorable variances in various overhead expenses, but those improvements were I don't have set by startup costs to Spartanburg and in addition we had the lower net selling price in the mix shift that adversely affected the margin. Selling, delivery and add minimum expenses increased about a 1.5 percent in sales year over year and Mrs. Smith is aggressively undertaking a revival of these categories and will take the appropriate action to reduce costs. The net result of this was a $2 million loss for Mrs. Smith's, before interest, taxes, and amortization. Bearing in mind, this is Mrs. Smith's seasonally weak period of the year. With respect to the two previously announced manners at Mrs. Smith, we have approximately $10 million in accrued liability on the balance sheet from an adverse arbitration award related to an alleged improper cancellation of a sales brokerage agreement in 1999. You will recall the charge for that award was recorded in the fourth quarter of last year. We are continuing to pursue the proper course of legal action in an effort to reverse or reduce the amount of the award and to date we have nod mate -- not made any cash payments on that award, although we have incurred some legal costs. Also, the matter of the nonconforming ingredients received during the first quarter by one of Mrs. Smith's plants has been favorably resolved. Prior to the end of the quarter, our supplier agreed to reimburse us for the cost of approximately $4 million that we had incurred and the quarter end balance sheet reflects that amount as a receivable and we have subsequent to quarter end received the cash payment from the supplier. The change in depreciation and amortization reflects the effect of completed capital projects and the adoption of FAS 142. Under that FAS 142, our analysis is in progress. The analysis of the trademarks on our balance sheet, the most significant being Mrs. Smith, is completed, indicates the fair value exceeds the carrying value, so there will be no adjustment required. With respect to good will, no adjustment is expected for flowers bakeries, and we're in the process of reviewing the Mrs. Smith's goodwill carrying value of $27 million under FAS 142 and when we complete that analysis, we will record any adjustments inappropriate. The year over year $2.2 million decrease in cost reflected at flowers foods is due to the commodity contract losses we reported last year that were not incurred in this year's first quarter. The tax rate is still expected to be 38.5 percent rate, effective rate for the year. Again, we are not paying cash taxes at this time because of loss carry forwards. And our shares outstanding are expected to remain stable. Although our sales in the first quarter did not meet our growth targets of 2 to 4 percent for flowers bakery and 5 to 7 percent for Mrs. Smiths, we expect the next three quarters to be closer to these target growth levels and our EBITDA targets for the remaining three quarters also remain unchanged from our March 31 announcement. We do see flowers bakeries with positive trends continuing and we expect Mrs. Smith's will recover from the Spartanburg production and startup issues and that there will begin to show sales increases and take action to reduce costs. Our balance sheet year over year comparisons will show that we've lowered our inventory level and we have focused on account receivable collection. Our day sales outstanding has significantly improved. Our long-term debt and capital lease obligations are about $50 million lower than the same period a year ago. And we had capital spending in the quarter of about 16 million, against the plan for the year of some 45 million. So with that, Amos and I will be glad to answer any questions that you might have.

Thank you. The floor is now open for your questions. If you have a question, ladies and gentlemen, we ask you to please press 1, followed by 4 on your touch tone telephone at this time. We do ask all parties to please pick up their hand sets while posing their question to ensure optimum sound quality. Again, ladies and gentlemen, for your questions, please press 1, followed by 4 on your touch tone telephone at this time. Thank you. Our first question is Congress from Mitch Penaro [Phonetic] of Jennary [phonetic] Montgomery Scott. Please state your question.

Good morning.

Good morning, Mitch.

Jimmy, I'm a bit confused on the Mrs. Smith's side, a lot of the numbers you gave me in the case cuts, et cetera. The case cuts were due to what reasons?

The case cuts were incurred, Spartanburg, which is our cream and meringue pie facility and our cake facility, not snack cakes, but actual cakes, there again, we had closed Pembroke and transitioned production to Spartanburg. We actually had to put in some new equipment and we had startup problems at Spartanburg and that resulted in some case cuts in the product that Spartanburg would have produced.

And you said that you built some inventory, anticipating the transition, but it was in the -- it wasn't in the right product categories or --

Well, obviously, when you've built an inventory of your various cream and meringue pie skews and cakes inspect tags of the transition, that production startup took longer and was more difficult than expected, and obviously when you had to cut, you know, actually cuss customer orders, we obviously did not have the right inventory on hand.

Okay.

At the time of the order. Early in the quarter.

So, I mean, -- so how do your customers react to that? And what do you have to do, I mean, is there going to be --

Well, I think, there again, you're looking at roughly 100,000 cases in retail and 100 in food service. I mean, no customer is happy when you have to could you tell their orders, but again, we are -- I don't think we have any fundamental customer problems or relationship problems. It's just unfortunate that we weren't able to completely fill all the orders. If an -- it's an order fill rate situation that we had, you know, because of the Spartanburg equation.

Do you make up these -- so the dollar amounts of the 235,000 cases is approximately what.

It would be somewhere around 3.5 million.

Is that something that's just sort of recovered, I mean, do you -- did the back orders, does that get filled in the second quarter.

Well, we hope we will see improvement in the second quarter. I can't really say, you know, whether those, you know, those products will definitely be reordered, but certainly we would expect for those orders, now that Spartanburg, the production transition is complete, Spartanburg is running, we would expect, you know, to be able to fill the orders and not have these kinds of problems in the second quarter.

Okay. With the -- I noticed two things, one, the bakery snack part of Mrs. Smith, I -- I guess your snack was up but in the flowers bakery side, your flesh snack cakes were down. Are we talking in the Mrs. Smith's side primarily the orders to the in-store bakery of Wal-Mart and things like that 70 is that what this is --

I think so, Mitch. I think, there again, flowers bakery would be the snack cakes direct off the routes under our blue bird brand and then Mrs. Smith's would do, you know, various multipack formats for customers such as Wal-Mart in the in-store bakery.

Plus, bending and copacking arrangements and direct to -- convenience stores and super markets.

In the Mrs. Smith's side.

Right.

And you said -- so right now it's Spartanburg, is it running or operating --

Spartanburg is doing fine now. The startup issues are behind us.

Can you quantify, what do you think that costs you as a sort of startup.

It costs in the neighborhood of 3 million in sales loss and you can do the math on that to see what it costs in margins and then you have adjustments you can make because you have to be sure you're taking care of the customer and that means extra runs and double transportation and lots of added costs, but we work hard to be sure that our problems are not the customers problems, and we have done a great job of building our relationship with our customers at Mrs. Smith and we're in good shape there.

Okay. So when you look, food service, obviously, that's -- that was a little bit of a drag or -- I don't know how you'd phrase that for the fourth quarter, so it seemed like that picked up in the first quarter.

It's a strange phenomenon and I can't really explain it except food service seemed to rebound at Mrs. Smith, but it was down at flowers bakeries, it's sort of an interesting thing. January and February, food service at flowers bakeries was really off. Now that's catching back up finally.

That's mostly a quick serve, isn't it?

Correct.

CALLER:: Okay. So just looking forward at Mrs. Smith's, you had mentioned 5 to 7 percent sales growth for the year, so having had, you know, this first quarter performance, you're going to have to have fairly strong back next three quarters. Is that -- are we going to see that just pick right up in the second quarter, or is this going to be sort of a slow, more back end loaded type of sales growth?

Well, I think you'll see some of it in the second quarter, but obviously we all know that the third and fourth quarters are the big quarters for Mrs. Smith. I would expect to see more of it in the second half of the year than in the second quarter, but I expect to see some in the second quarter.

And then on the cost side, you had mentioned -- obviously you're looking at costs in the Mrs. Smith. Are they back office costs, or manufacturing, both, and how significant of sort of a number is that?

We are -- first thing you have to do is get the job done. We're doing that at Mrs. Smith now. We're turning out -- plants are running well, we're turning out quality product, we've got great relationship with our customers, we're doing a good job. The next thing you have to do is get the job done financially, to get it done in a most cost efficient manner, so that we can generate some margin for us. Now when you've had the problems we've had and we've been through adversity before, you can't focus as much on cost as getting the job done for our customers. We finished that phase and moved into the second phase. We're going to get the job done in a cost efficient manner that generates some margin, so we're not only taking care of our customers, but we're also taking care of our shareholders and that will be in all areas in logistics, manufacturing, distribution, administrative, but I expect a large part of it will be in the administrative.

Okay. Just one last question. In your -- on the balance sheet, of the -- the 203 million of senior secured credit facility, what portion of that relates to your, you know, loans to your independent operators?

Well, there again, Mitch, our balance sheet, the notes receivable from the distributor grew -- is the 79 471 in assets, and we don't have specific debt associated with those notes. You know, so there's no specific piece of the senior secured credit facility associated with the notes receivable.

Okay.

But if our notes had not come back on the balance sheet, we'd about 80 million less debt.

Got you. Just wanted to make sure of that. Thank you.

Thank you. The next question is coming from Leonard Teitlebaum [Phonetic] of Merrill Lynch.

Good morning. On the risk of asking something that I'm going to be sorry about, is there anything else that can go wrong at Mrs. Smith's or have we virtually soon the end of it?

Well, that's a good question.

I look back thank you my notes, it's hard to see any error that, you know, anything that hasn't befallen the company.

We've had difficulty at Mrs. Smith and we've not tried to hide those. We've been as open and as straightforward and forthcoming with it as we can be. Building a company is not easy. Building management team is not easy. There's sometimes bumps in the road. I think all of us agree that Mrs. Smith has had its fair share of bumps in the road and from that standpoint, but we are making progress there. We are getting the job done operationally now and I am pleased from that standpoint. None of us are pleased from the financial side, but now we are -- because we are getting the job done operationally, we can now focus on that, so we can be more cost efficient and improve the financial performance of.

You're going to make money this year, right Amos?

We're going to make money this year and we're going to make more money next year. We have to all be happy with the trim line, last year, this year, next year.

Now Jimmy, is the $10 million that you've recorded, I presume, on the balance sheet for the potential problem in Europe, I presume that that's under "other liabilities".

Yes, that's correct.

Have you done any escrowing of funds or you just recorded the the liability.

Just recorded the liability. There's been no cash paid at all.

Where was the debit, where did you book it.

In the fourth quarter, it hit the P and L. The income statement.

Burr you haven't made any escrow payments, correct.

None have been made.

[Unidentified speaker]. Hi. Amos and Jimmy. You guys share your increasing your scan base trading operations. Could you share with us why you think it's a win-win for both you and the retailer and what risks there are to scan based trading?

Well, the benefit to the customer is they don't have all of the administrative process of handling all those tickets because when you've got all the direct store door delivery people from milk and beer to soft drinks, bread, potato chips, that's a huge volume of invoices every day going into those stores and getting them from the stores to the divisions and getting them process and paid is a large administrative chore. That is all eliminated for the customer. So it's a big win situation for the customer. From our per -- perspective, it is also a win situation because our route man is not having to stand in line in the pack of the store to get checked in by the back room manager. He's not having to wait until the beer man and the coke man and potato chip man gets checked in. He can go right into the store, put his bread in there. It doesn't matter how much he puts in or doesn't put in because the store is not going to pay him based on what he says he's put in. The store is going to put in based on what they sell. So it's a win situation for us. Our route man does not have so much nonproductive time. He can spend his time more efficiently serving his customers and calling back on his customers to merchandise the product so that customer is better off, we're better off. The risk is shrinkage. Now, you don't have as much shrinkage on bread as you would cigarettes or beer probably, but there is some shrink, but that's worked out where that's shared by the customer and by us and our experience over several years now has been that is a very small factor, insignificant.

CALLER:: Okay. Great. Thank you.

Thank you. Our next question is coming from Bill Leech [Phonetic] of bank of America securities. Please state your questions.

Good morning, Jimmy and Amos. I have a couple of questions. First, Jimry, did you adopt FAS 142 or not?

Yes.

So what was the gain in eliminating amortization in the quarter.

Bill, that was -- let me get you the exact number, the decrease in amortization. Was about 30 cents per share, bill.

So on you would have made six --

Right.

What's the estimate for the gain for the year, I had 11 cents in my notes; is that right.

I'm sorry the estimate for what.

For the full year gain from adopting FAS 142?

Yes. That would be it. If you said the 11, 12 cents, something like that.

Can you give us some guidance for interest expense for the year?

I still think the guidance would be a net interest expense and when I say net, you know, we have interest income from the distributor, notes receivable, that I would expect to be somewhere around $5.5 million, an then we would have interest expense of around $24 million.

So the other number would be about 19 million?

Right. On the net. Net interest basis.

Do you have any short term debt in current liabilities?

No. I think that current liabilities on this balance sheet is purely -- purely, because the senior secured credit facility includes that 20 thee million, includes the current portion of the debt there.

CALLER:: Okay. And how about your corporate expense number, that was a little bit bigger than I expected. What do you think that will be for the year?

It will be, you know, under $20 million. Again, that is corporate, and any unallocated costs that we incur.

Where did the reduction in goodwill show up, in the operating division or in the corporate.

In the divisions, and that depreciation and amortization category.

So what was the pretax dollar gain there?

For the quarter?

Yes.

A little over a million dollars.

Do you know how that was divided up between the two divisions?

I think -- it was about $1.2 million. And I want to say it was -- let's see. It was about -- I think it was about half to each division.

Okay. And capital spending, you said about 50 million?

For the year, should be around 45, and there again, we spent in the first quarter, right at 16.

Okay. And depreciation and amortization, I had around 70 million for the year, does that sound right?

Yeah, that still sounds right. It would be 70, 71-ish, something like that.

CALLER:: Okay. And do you expect Mrs. Smith's to be profitable on an ebit basis in the second quarter.

On an EBIT basis in the second quarter, I would expect it to be probably about break even on an EBIT basis. It will be positive on an EBITDA basis.

For the full year, you think it will be positive on the EBIT basis?

Yes.

Thanks very much.

Thank you. The next question is coming from bob Cummins of shields and company. Please state your question.

Thank you very much. Sara Lee on the recent conference call commented on what they see as a heating up of price competition in the bread business. They discussed the fact that demand was strong at the high end and the premium products and also at the low end in private label, but in the mid range bread products, there was weak demand and they were seeing increased pricing pressures that were affecting their margins. Can you comment at all on what you've seen along those lines?

Well, the Sarah Lee has a lot of territory outside the southeastern United States, whereas we are basically south east and southwest company. Pricing is -- there are always some squirmishes going on, but pricing is not an issue in our part of the world.

What about the demand side, does your experience reflect what they're seeing?

Not precisely. Our branded bread business was good. As I said earlier, we had pour difficulty with our food service side on our bread routes, particularly the quick serve restaurants, but then they don't have a lot of that business, so we're not exactly hand in a glove match.

Okay. Thank you.

The next question is coming from David Lebowitz of Burnham [Phonetic]

Two brief questions. One, the statements on the news ticker says management expects to expect 2002E.P.S. of 96 cents to $1.06. Is that before or after the 12-cent gain from the change in goodwill accounting?

That would be after.

Okay. And the second question, you indicated, Jimmy, in your response -- in your comments, if I heard this right, that the first quarter revenue was not up to original forecast and that the second, third, and fourth quarter should be closer to the mark. Does that mean that the full year revenue will be down by at least the amount of the first quarter shortfall?

I would expect, yes.

Okay. Thank you very much.

Thank you, our next question is coming from John McMillan of Prudential securities.

Good morning, everyone. I had 17 cents in my notes as the F.A.S.142 benefit. Did you tell me that or did I kind of make it up or is this some number change as we've gone down to 11 or 12 cents.

I'm not sure, John. I think, there again, we had to -- some of the intangibles we've actually continued to amortize under the F.A.S. we have to break out the indefinitely intangibles from the others and so through that analysis, we've actually continued to amortize some of the intangibles, so that may be the reason as well. As we've refined our analysis.

Okay. So your estimates have gone down from 17 to this 11 or 12?

Yeah.

Amos, you talk about the brand, but I'm looking at I.R.I. numbers which admittedly exclude Wal-Mart and on the retail side, you know, you've -- just looking at 52 weeks, you know, your volumes are down as measured by I.R.I. down 6.1% and the bread category is down 1.7 and in frozen pies, it seems like Edwards and American pie have been aggressive and you've lost about a half a share point as measured by I.R.I. I understand the production issues, but your response to bob Cummins in terms of brand strength and everything is fine is really not supported at least by the numbers we're looking at.

Well, that's why I've said over the years so many times, if it's really counter productive to answer questions about I.R.I. us because I.R.I. data does not include convenience stores, independents, restaurants, and doesn't seen include Wal-Mart as you say. Our business is a lot more than just on the retail side. All I can tell you, John, is go by my sales report. It's a lot more reliable, and our branded business is up.

Okay. Can we just get volume numbers for the quarter? You said it earlier on, I didn't hear it. If sales for flowers, bakeries was down 0.3 percent, what was volume, what was price?

I don't have that information. Do you have it.

Yeah, there again, we had --

I thought you have get the sales invoices?

I get a sales report.

They don't give volumes?

It gives volumes.

Yeah. John, in total, at flowers bakery, the -- when you look, the branded in the branded category, you know, we had increases in both dollars and units. And where we -- where we lost was in the specialty and then in some of the multipack cake items.

And in food service.

The units in total at flowers bakeries were slightly up, as were the -- you know --

So there was some negative price realization?

Well, it's a mix change as well. You always have to look at what's going -- trying to look at what's going on with mix as well.

Because, you know, you look at these I.R.I. numbers, they show like 3.5 percent pricing in the category. And pretty much every one in the category from Campbell, who is gaining share, it doesn't matter -- it seems to me they're gaining share, Sarah Lee has been on the offensive. Everyone is getting price realization or has gotten price realization and basically what you're telling me is even though your sales were down 0.3%, your units were up in the quarter.

You're units on branded is what I had said. Our units on food service were down. Our units on some of the sweet items were down. But that's why I say, this argument winds up in a mow ras in the wilderness because I.R.I. data covers a small portion of what our business is, or a portion of it.

All I know is I follow 20 food companies, everyone gives me volume numbers on the quarter, so I just don't understand why we can't get a volume number for the division.

What volume number would you like to have.

For flowers bakeries and for the company for the quarter. Including everything.

We've told you volume with Mrs. Smith was down and we told you it was down. We told you the volume on branded items at flowers bakeries was up slightly. And that food service and some sweet items were down. They were not significant moves in any of those directions.

I see your point, but if we can get actual numbers, I would appreciate it.

Okay.

Thank you.

Thank you. We would like to remind participants for any further questions, to please press 1, followed by 4 on your touch tone telephone at this time.

Thank you, our next question is comes from Thomas Egenschwiller [Phonetic] of Alladin capital.

I'm a little confused on the comments you made on your [inaudible] number. I thought I heard you say that all the current portion relates to the term debt. However, on the other side, as of the end of December, you reported a senior secured credit facility number of 189. What explains the increase between fourth quarter and first quarter?

Well, what i said was that in the press release, we show 203 million of senior secured credit facility of which 29,865,000 is current. Now that entire 200 million -- 203 million of senior secured credit facilities, part of that is a revolver and the rest is term debt, so we've not increased our term debt, it's drawing on the revolver in the first quarter.

How much have you drawn on the revolver?

I think it's around -- well, it's the difference in the 180 and the 200, a little over 20 from the year end balance. To this 203, is basically drawing on the revolver in overnight borrowing under the senior secured credit facility.

At the he year end, the revolver was zero?

Yes.

Okay. Thank you.

Thank you. Our next question is a followup coming from Leonard Teitlebaum of Merrill Lynch.

Amos, I think it was Publix that pulled out of Georgia and some other areas. Maybe you could fill us in on that and what that does to your business. If I've got the company right, isn't that a private label customer of yours?

Publix is not a private label customer of ours. They are a good customer of ours, but they are not a private label customer of ours, but they have not pulled out of Georgia. They're a big factory in Georgia and they're still here.

Well, there were two states that they pulled out of, I thought, and closed 50 stores.

You mean Winn-Dixie.

I'm sorry. Winn-Dixie.

We yes. Winn-Dixie pulled out or announced they were going to selling or close their stores in Dallas and Oklahoma.

Oh, sorry. Aren't they a private label customer of yours.

They are a private label of ours.

How does that affect you going forward? I'm sorry, I meant Winn-Dixie.

I was -- I was thrown off by the --

I'm trying to find out how it's going to affect you guys going forward.

If we'll have them back to us, they are a customer of ours, and it will change. We're doing well in the Texas area, and I don't think it will be significant, but we'll -- that business, somebody will take over those stores, and we'll continue to do business with them, probably some of it will be with private label and some of it might not be. Some stores may be closed and nobody will take them over, but that business will go somewhere else. You have know, total amount of bread will be consumed in the Texas market, so we'll have to get it out of some other stores, but overall, it probably will mean a reduction in your private label sales.

I thought that I had read that they were also looking at the Georgia market. Is that incorrect as far as you know?

Well, they have made some change in the Georgia market and some of their units they've changed from marketplace stores to save right stores, which is a different for mat. Save-Right [phonetic] has less parishbles, they don't have seafood sections or florist, that sort of thing, they're more price competitive arena, and that's going very well for them at this point, and they -- so well in fact that they have some of the stores that they had closed and some of the marketplace stores that they had closed and still had the lease on, they're reopening under the Save-Right [phonetic] format, which is good news for them, and good news for us.

Okay. Thank you.

Thank you. There are no further questions for today. I will now turn the conference back to Mr. Woodward for his closing comments.

Thank you. This is Amos. And in summary, let me say that we are doing very well in the company at flowers bakeries. Flowers bakeries had a record first quarter on top of a record year last year. I have expect continued improvements in their performance. The fresh snack side of Mrs. Smith is doing very well at record levels. We have had our difficulties on the frozen side at plz Smith as we are all aware of, but we are now getting the job done operationally there from mechanically, the plants, the quality, the efficiencies are running well. Logistics and customer relationship, all of that is fine. What Mrs. Smith will be focusing on in their frozen area going forward is getting the job done more cost efficiently so that we can generate margins for us and we'll be working on that going forward. Our focus this year is going to be continue to get our EBITDA up and our debt down so that we can take this cash flow coming out of flowers bakeries and use it to create value for our shareholders and I expect our debt reduction this year to be somewhere in the neighborhood of like it was, last year. Thank you very much for your interest in our company, and I expect us to continue to make the progress that trim lines have shown for the last couple of quarters. Thank you.

Thank you for your participation, ladies and gentlemen. This does conclude today's teleconference.