Flowers Foods Inc (FLO) 2007 Q2 法說會逐字稿

Good morning. My name is Henry, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Flowers Foods second quarter 2007 earnings call. Thank you.

It is now my pleasure to turn the floor over to your host, Ms. Marta Turner, Senior Vice President of Corporate Relations. Ma'am, you may begin your conference.

Thank you. Good morning, everyone, and welcome to our call today. Participating with us this morning will be George Deese, Flowers Foods Chairman, Chief Executive Officer, and President, and Jimmy Woodward, our Senior Vice President and Chief Financial Officer. Jimmy and George will discuss our second quarter results and then open the call for your questions. Before we begin, though, I do want to remind you that we are having an analyst day on October 4 at our bakery in Newton, North Carolina. If you need information about that event, please do contact me.

Of course, I'd like to also remind you that our presentation today may contain forward-looking statements. We may use words such as expect or believe to identify those forward-looking statements. While we believe our statements to be reasonable, they are subject to risks and uncertainty that could cause actual results to differ materially. In addition to matters we will discuss during the call, important factors relating to solid food business are detailed fully in our filings with the SEC. Now I'm pleased to turn the call over to Flowers Foods' Chairman, CEO, and President, George Deese.

Thank you, Marta. Good morning. Thank you for joining our call today and for your continued interest in Flowers Foods. We are pleased to report good results for the second quarter and first half of 2007. We continue to believe that our operating strategy, which our team has been refining for many years, helps us deliver to our shareholders. Our strategies include thinking smart by keeping our plants efficient and effective, listening to consumers and offering products that meet their needs, growing through new products, new markets, and through acquisitions, delivering exceptional service to our customers, through our highly effective DSD network, using our information technology platform to partner with our customers and to improve our business, and recognizing the value of our team, which we believe is the best and the most experienced in our industry.

Looking at our second quarter results, net sales increased by 7.2%, which is in line with our guidance for the year. You will remember that we cycled the Derst acquisition early in the first quarter, so our sales increase for the second quarter reflects strong growth from our ongoing business. Net income increased 12.5% and earnings per diluted share increased 14.3% over last year's second quarter. Let me now review with you the results of our two operating groups.

For the quarter, sales for our Bakers group increased 7.8% and EBITDA increased 2.6%. You will recall that second quarter of '06 had $1.7 million of insurance recovery from Hurricane Katrina. Looking more closely at sales for the bakeries group, branded retail sales were up 7.6% in the quarter. Our brands outperformed the category, which grew roughly at 6%. Our white bread brands, lead by Whitewheat and local white bread brands grew by 4.4%, which was ahead of the category. Sales of Nature's Own variety breads continue to be very strong, well ahead of the soft variety bread category. Nature's Own remains the best selling soft variety bread in the country. Our newest brand extension, Nature's Own All Natural Premium Breads, continue to experience strong growth. In the quarter, sales grew in strong double digits. Our branded buns and rolls were up 5% for the quarter. Our solid growth across our branded bread, buns and rolls is evidence of the strength of our breads and of our execution in the marketplace.

Once again, according to IRI, our brands gained share in both dollars and units. In addition at retail, our stond brand or private label breads, buns and rolls grew by double digits. Just to comment on that for a second, I know there's always a lot of concern with what's going on the for the total private label category. Just to comment, nationwide, private label kept pace with the overall category. No huge increase, no huge decrease, just about along with the category.

Our DSD food services group grew nicely, with fast food business driving much of that increase. I am proud of the progress we are making at our specialty group. Sales grew by 4.8%, and a tremendously nice increase on earnings. Also have to report that margin was 10.67% of sales from EBITDA. We continue to stay focused on growing our [mid sprigs for the cake brand] as we rationalize our manufacturing capacity to more profitable customers and products. Our [Frexta] brand grew by 8% for the quarter.

Our frozen food business continues to grow its business and customer base. The focus here is on value-added breads, buns and rolls. During the quarter, we continued to see the benefit of our newest bakery in Newton, North Carolina, and our new bread line in Villa Rica, Georgia being strategically located near both markets, as well as our new distribution center for our cake group. That benefit is certainly evident in our sales and delivery expansion that Jimmy will talk about in a few minutes. We're pleased with the progress of our new market exchanges. Our Nature's Own products are well known and accepted by our new customers and consumers. In addition, I feel that we bring a new level of customer service to these new markets.

Before turning the call over to Jimmy, I would like to repeat how proud I am of our team and the outstanding execution in the quarter and for the first half of the year. Now, Jimmy will review in more detail our financial performance. Jimmy?

Okay, thank you. You will note that all of the per share data has been adjusted to reflect the company's three for two stock split that was effective in June of this year. As George mentioned, the sales of $477.8 million, and this is a 12-week quarter, by the way, that represented a 7.2% increase over last year, with net income of $22.2 million, or $0.24 per share, up 12.5% versus the $0.21 per share last year, and last year's quarter did include some insurance recovery from Hurricane Katrina, both in gross margin and SG&A and we spelled that out in the press release. If you look at the sales increase, pricing was a benefit of 5.6% and staple mix shift of 1.8%. We continue to state that unit volume is slightly down and the unit of sales volume is primarily shifting in the snack cake business from single-serve type items to multi-pack format.

Gross margin as a percentage of sales, you note is down for the quarter, a decrease from 48, or to 48.7% from 49.7%. We have mentioned the pricing action that has been taken that offset much of the higher ingredient production costs. You had the increases in flour, gluten and sweeteners, as well as other items. Then in the pricing area, we also did have some higher sales due to new product introduced, the Nature's Own [Opals], for example, and some promotional price allowances. The benefit in the selling, marketing and admin, offset that pressure on the gross margin. The selling expenses were 38.4% versus 39.5, improving, again, due to pricing actions and benefits of getting distribution located in the right geographic area, things such as the new production line in the Newton facility helped reduce primarily distribution costs between plants to serve the market. The other items, depreciation, interest both basically stayed stable. The effective tax rate you see is 35.8%. We reiterate we expect the rate for the year to be approximately 36%.

Strong cash quarter again, with $53.7 million, and you note we have not purchased any shares during the first half of the year. We did update the guidance for the full year. We expect sales to be 2.02 to $2.04 billion, which is a 7 to 8% increase for the year. We expect our income from continuing operations to be somewhere between 4.2 and 4.6% of sales, and assuming 92 million shares outstanding, that gives you the range of the $0.92 to $1.02 per share, which is up nicely from the $0.81 we report last year. And again, Q3 and Q4 of last year also had some insurance recovery. If you look at our filings with the SEC, I believe they are detailed in there, if you want to make that calculation for comparability.

So with that, George, I'll turn it back to you.

Thank you, Jimmy. Given the year to date performance of our team and the plans we have in place for the remainder of '07, we have full confidence in our updated guidance. These plans include building our brands and products. We will be introducing additional varieties of Nature's Own All Natural Bread products. We will introduce additional better for you snack products and 100-calorie per serving offerings. We will continue to gain new food service customers with innovative bakery products.

I know you do, and we certainly see head winds on the commodity front for the foreseeable future. We continue to look for ways to improve our efficiencies and reduce our operating costs. The greatest example I can give is the reduction in SG&A for the year. As I mentioned to you on our last call, our commodity costs of third and fourth quarters are higher than originally expected. We have taken additional pricing this month to help offset these costs. Looking ahead to 2008, we have taken some coverage under our hedging program for next year, but in fact, we expect cost increases in 2008 will be similar to -- up slightly compared to 2007. Because of these unprecedented costs, we will be taking additional pricing in January of 2008.

Our cash flow remains strong. We invest our cash to build value for shareholders over the long-term. Those investments include making capital investments to improve our efficiencies, paying dividends to our shareholders, making strategic acquisitions, and buying in stock under our share repurchase plan. During the second quarter, we'll announce the 50% increase in the dividends and a three for two stock split that was effective June 29. With that accomplished, we expect to once again buy in stock under our share repurchase plan as opportunities arise.

So going forward, we expect the key drivers of our sales growth will be new markets, as we grow our DFD business, new products under our Nature's Own and other strong brands, core markets where population growth continues to be strong, and acquisitions that will bring us new markets, new products, and new customers. As always, our team is focused on growing our sales, on improving our efficiencies, on improving our margins and on doing what we do best, creating value for our shareholders over the long-term.

Now, Jimmy and I will take your questions. Henry, we'll turn it back to you, please.

Thank you. (OPERATOR INSTRUCTIONS). Our first question is coming from Farha Aslam with Stephens, Inc. Please go ahead.

Good morning, Farha.

Good morning. One question on pricing, how much pricing did you take this month?

-- I can say confidently looks like probably in the 3% range.

Okay.

Let me say it this way. By the time we get to October 1, we'll be in that 3% range.

Okay. And that was across branded and private label?

It was across several channels and several product lines.

Okay, and George, could you just share with us the competitive environment that you're seeing in bread with the increased wheat costs, are your competitors generally following your price increases, how quickly are they following?

Farha, I can't say specifically because I'm not seeing that much -- you'd have to think with the tremendous commodity headwinds that we're all facing that none of us have any choice. None of us ever like to pass on pricing. We -- when we can -- try to take out all the costs we can and once you do that, that's along a fair and reasonable price to the customers and consumers is only natural, and I would think they would be doing the same thing that we're doing. I don't have any evidence to say they are or are not at this point.

Okay, and you're largely hedged for your wheat needs for this year?

That is correct.

Okay, and then my final question, Jimmy, is there a reason that you didn't purchase shares, despite the fact that you've had some opportunities, especially in this market, to purchase them at some pretty good pricing?

No, Farha we took the first half of the year and worked with the Board and discussed the strategy of the stock split and increasing the dividend substantially, and looked at numerous alternatives and that was the decision of the board. And then, it seems that the price most often has dipped during the blackout period, so, sometimes it appears we may not have taken advantage of opportunities when in fact we were not able to because of the blackout.

Okay, that makes sense. Thank you very much.

Thanks, Farha.

Thank you. Our next question is coming from Diane Geissler of Merrill Lynch. Please go ahead.

Good morning.

Good morning, Diane.

Good morning.

Just a question on your comment about your coverage for 2008. Do you have any -- can you give us any color on when that coverage was taken? I know on your last call you were 90% covered for 2007, but just curious about when you started, when you started covering on '08.

We're always looking on the and trying to find opportunities when we should do that. Jimmy, I don't remember when we specifically started that purchase. When we did, we thought it would be a fair price based on what was going on on the head winds with the commodities.

Well, I mean, it's just interesting because, I think I asked this question on the last call, which was kind of where do you see wheat trading out and at that time we were, I think it was like $4.50 to $5.00 and now of course we're at $6.73, which is -- I just am curious about how much coverage you were able to lay in before we saw this latest spike up.

We did begin, begin to take coverage, weeks, numerous weeks ago. The challenge in the market is always the liquidity, as you turn into '08 and into new crop years, there are limits on the amount of coverage that you can take. Certainly we've done what we thought was appropriate and what was available and we'll continue to assess that. And when we provide guidance for '08 we'll give you -- we'll have better visibility. You know, our expectation now, as George mentioned, is for our '08 costs to be up as much and potentially slightly more versus '07, as opposed to '07 was to '06. So certainly the markets have continued to go up in the commodity area.

What are you using internally for cost increases, '07 versus '06?

Well, I think we, we talked about our major ingredients, packaging, and natural gas, being up some $50 million or so.

Okay.

Year-over-year. And so, you know, we fully expect at this point that to be the case again, '08 versus '07.

Okay. Well, that certainly helps. Obviously, I don't know if at this point you've gotten to the, come to the conclusion that, okay, if it stays at $6.73, it's obviously probably not going to stay there very long because we'll get better acreage next year, so how much do you really want to cover '08 if we're going to get a better crop next year?

Diane, I hopeyou're right.

I hope so, too.

What we do know is it's a very volatile market.

Sure. I guess your comments about the higher scales for the new product introduction, were they in line with kind of what you see when you normally introduced a new product?

Yes, that's -- any time you introduce a new product until a consumer knows about it and begins to have trial on it, you do have higher sale. It's not abnormal at all.

Was this cycle of new product development, was it any different, than, say the last cycle of new products that you brought to market? In other words, was it higher or lower, or was it right in line with kind of what you expected?

It's a more premium product, so it has been priced accordingly, it is not priced with soft variety bread, but it is in line with our competitor's price on similar products.

I guess what you mean, the percentage sales.

The percentage I think, Diane is in line and nothing unusual, , as George mentioned, the Nature's Own, the premium Opal product, given ingredient prices are so high and that is a premium product, the dollar amount was higher.

Okay. Then I guess just my last question, you don't carry a very high debt balance, but I guess kind of what's going on in the market right now, is there anything that we should know about in terms of your revolver, your credit lines, your cost of borrowing, et cetera, on that piece, even though it's not your total debt to cap certainly is isn't that--

Yes.

Is there anything there we should know about?

There again, I think it's very straightforward. We've maintained flexibility and I believe very good pricing in the structure, gives us flexibility as needed to execute, be it acquisition, stock repurchases, et cetera. So ample liquidity and flexibility.

Okay. Well, I appreciate that. Thanks very much.

Thank you, Diane.

Thank you.

Our next question is coming from Heather Jones of BB&T Capital Markets. Please go ahead.

Good morning. Congratulations.

Hi, Heather.

Thank you, Heather.

Had a few questions. If you addressed this and I missed it, I apologize, but I was wondering, what factors underpinning your increased bullishness for the outlook for the year? I didn't know if -- are you implementing pricing quicker than you thought, or has the volume impact been less? Just wondering if you can comment on that?

Well, I think if you remember, we're further along in the year -- in our first quarter, 16 weeks, second quarter being 12 weeks. We're now four weeks into the third period, third quarter, I mean. So -- and with the information systems that we have, we feel very comfortable with, and confidence, so we can update the guidance and feel good about it. And back to your question on, on the pricing, I think I did mention we have taken roughly, will be taking roughly 3%, during the month of August up until October.

Yes.

And the economy is staying strong. We're not seeing any big shift into private label as people thought might happen, so we are, we're, we're optimistic about where we are. Execution is excellent, and as we said before, as we have put on these new lines, the tremendous savings that we're getting on the selling and delivery, admin side of that is really paying off. So coupled with good, strong sales and the lean operations that we have, we, we just feel comfortable about the earnings projection as we put out.

Now, back on the Q1 call, if I remember correctly, you made some comments about seeing a slight pickup and more promotions by your competitors, et cetera. Can you update us on that?

I did make a comment. I thought it was wise to, and it proven out when we look back at the second quarter results, sales were strong, but as Jimmy indicated, gross margin was not quite what we expected originally. And that was part of the reason we did promote more the second quarter than we did the first.

Okay.

And strictly to stay competitive, we thought it was time to -- we will not stay uncompetitive forever, and we just felt like it's time to get our product out before the people and it's paying off for us. So we feel good about that. Back from the competitor's standpoint, I did say before most the time you'll see that when companies introduce new product lines, it's not that abnormal and people always try to gain market share on occasions and we just have to respond accordingly, but it's nothing abnormal. We just decided second quarter would be a good time to promote some of our lines.

Okay, and the unbelievable improvement in specialty. Is that -- should we expect to see that magnitude of improvement going forward, or was this just -- was Q2 an easy comp, or if you could elaborate on that?

It was an easy comp. Last year was not -- if you remember last year the first couple of quarters we had pretty tough time with the new distribution center and, in South Carolina, the changes going on in our cake group with that. No, I would not predict that we will have the same increases in comp going forward. As I said in my comments, I do feel better about overall specialty group. Execution is improving. New products coming on board, both on the snack cake side and the good news on our frozen bread, rolls group is that we're always working with special customers and they want special items and that yields best opportunity, and I mentioned before innovative new product development center in Thomasville, and working hand in and what that, along with this group, along with our customers, I think we'll continue to see improvement in this group.

Looked like it did really well. My final question is, when you said 3% pricing by October 1, is that a blended increase in the entire company, or 3% on select product, select channels?

It is blended and it's not across the board on every product. Naturally what you try and do, on your lower margin items, you are trying to improve those first.

So some items you're raising pricing more than 3%, but it's averaging out for 3% for the entire company?

That's a correct statement.

Okay. Thank you very much, and congratulations, again.

Thank you.

Thank you. Our next question is coming from Alton Stump of Longbow Research. Please go ahead.

Yes, thank you, good morning.

Hey, Alton.

You know, I guess I just have two quick questions. First off, in terms of the competitive environment, I believe you've already talked about the fact that once again [FLO] share in Q2, just wanted to sort of get your opinion looking out over the next 6 to 12 months if you think there's additional share gains you could garner or if we're reaching a point of saturation.

You never hope you're saturated. They are, given markets where we have lot stronger share than others, the mature markets we've been in for years are mature. You have great space in the marketplace, access to the market, brands well accepted, and then there are those markets where we might have been in those markets five years or less, which there's a lot of room left in those markets. So as you look out next 6 to 12 months, blended, you would expect to make a slight increase in share gain, but I would not say huge by any -- I would say very slight. It takes time to change people's habits, and get them to switch brands.

Okay, great. Thanks. And just another question quickly, the overall category volume front, are you starting to see any impact now from pricing? I know you talked in the past on calls that -- it looked like there wasn't much of a negative hit to demand from the category pricing going through in the last 24 or so months. Are you seeing anything now -- is it starting to hurt overall demand at all?

I do not see that yet. I mentioned in my prepared remarks, I know there's always a lot of concern about, as prices increase, people are, would start trading down to private label, but looking at last quarter and for the full year, I see looking at ROI, I see no evidence that that is taking place. Private label is growing right along with, with the total category, and looking at total category units, our volume, just about even with this time last year. Dollars are up 6, 6.5%, and it's basically flat.

Okay, great. Thank you.

Yes.

Thank you. Our next question is coming from Eric Katzman of Deutsche Bank. Please go ahead.

Hi, good morning, everybody.

Good morning, Eric.

Few questions left here. One, I thought during the last call that you had mentioned more of a September time for the price increase and more along the lines of 4 to 5%, so I'm kind of wondering what's changed there.

Eric, what changed, the volatility of the market was more than we thought for and that's why we jumped on out quicker than anticipated, and normally what we've been doing is whatever price we felt like we would need to start off the new year, come January, we try to do it roughly in October, September, October timeframe. What I did say this year, though, we have taken about 3% and feel like we will have to come back in January because you will see new -- if this volatility stays like it is on the wheat side, additional pricing then in January. This gets us through, this 3% gets us through this calendar year in good shape and will help us get started on the new year, but if the volatility in the wheat market really stays up, the food industry, not just Flowers Foods, but the food industry will continue to have to adjust the prices in the marketplace. I think all of us can see that inflation at the supermarket and eating out. Inflation is out there.

Everywhere, except the Fed, right?

Back to the original question, we'll need two smaller type increases instead of just one.

I got you. Okay, and then kind of switching over to wheat versus corn, I mean I wonder internally you're buying group and experts, I mean do they feel that the farmer, given the price of wheat, may chase wheat acreage and kind of give up on corn, given the relative prices of the two now?

I'd say they probably feel that way if it stays true. Historically, corn and wheat is maybe a dollar spread, so, with the price of wheat, it's $6.50 to $7 today, you would expect corn to be $5 or so, and we have not seen that. You would think the farmer probably would turn more of those acres into wheat and we will -- we truly will not see that till probably January. I think we'll get some indications probably in late October, but I know the feds really look out to do their market research first of January or so to get real acres.

Okay. Then my last question has to do with your comment in your press release you kind of said 5 to 8 -- I'm sorry. 7 to 8% sales growth, but you also mentioned ex acquisition. Does that mean, or should we read into that, that given this tough environment, or for yourselves and even probably more so for the smaller guys, that you're more likely to make some acquisitions in coming months?

Eric, we are certainly -- we would hope so. We're working hard to do that. I think tough times do bring opportunities. Nothing to report, though. Historically always been, we're always out there trying to grow the company through acquisition and we'll just continue to until we find the right one, or the right several, that will really make our company strong in the marketplace and give shareholders a great return on it.

Okay. Great. Thank you.

Thank you, Eric.

Thank you. Our next question is coming from Mitch Pinheiro of Janney. Please go ahead.

Good morning. I apologize for shaky cell phone service in advance. So I'll be quick. Couple things is white bread category flat?

Why is it flat?

Yes, in units, units.

Did you say white bread category is flat?

Yes, I mean, well, it looks like you're getting mostly pricing looking at your -- looks like the bread category in units is flat. You were down overall in volume, if I understand some of the snack cake.

I would say from Flowers Foods standpoint, I did mention that if you look at the total category on dollar volume, total category was up like 5.5%.

-- 5.5 in dollars?

In dollars, and we were up 6.7%, when you look at units, we outperformed the category slightly. Units was flat to down 0.5%, but we outperformed that.

Okay. I mean why is the category just not growing? Is it just a price effect? Is, you know, or is it, why wouldn't we see -- I mean the category had been growing last several years, I think low single digits. Is there any -- I mean at 1 or 2%, is the price killing the volume?

Mitch, I don't think so. There's been a lot of mix shift going on, grain products. You do shield in the different type products that are being sold, which is probably a good thing, but overall, we've been in this whole climate of down 0.5%, up 0.5%, maybe 1% up. I think we've said over the past year, this is a little different this year. I think it's too early to say it because of pricing. I don't have a clear answer, but that's -- have to wait a little while before we jump to that conclusion.

Okay. Let me ask you this. Are you seeing any impact in your business, or maybe in the category, maybe not your business first, but in the category, from casual dining, so your casual dining customers take in frozen rolls, are they having any impact there as a category, or are you gaining customers?

We are gaining customers. I think if you -- and that type information seemed like casual dining is probably down. Fast food for us seemed to be up more this past quarter.

Right. So is your business in casual dining, how has that been doing?

I would say overall we sense the some of the pressure of casual dining, along with the rest of the industry.

Okay. Last question is just in guidance. For you guys to hit the lower end of the guidance range, what has to happen, for you guys to hit the high end of the guidance range, what has to happen?

The high end, management executes. Low end, management does not execute. No, not trying to be facetious. We feel comfortable on the sales side and the earnings. It's hard to believe, though, as I said earlier, with -- we only have 20 weeks left in the year, literally, for our fiscal year, have been 16 and 12, now through 4 in the third quarter. So we pretty well see where we think we'll end up. There's always things that could happen, that things do not work out the way we planned, but we don't see that coming.

Okay. I mean so, so, I mean, the lower end of the range, are commodities the single biggest -- I mean you're pretty much covered unless some shock to spot markets. Commodities really wouldn't be your reason--

No, we will not blame commodities for the rest of the year for lack of results.

Okay, got you. Okay. Thank you very much.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is coming from David Leibowitz of Burnham. Please go ahead.

Good morning.

Good morning, David.

Few questions, if you were unsuccessful in your acquisition search over the next three to five months, would that entice you to expand existing facilities?

Manufacturing facilities, David?

Yes.

Oh, yes. As I've said, we know that we need, based on our sales and volume increases, we would need additional plant every year to 18 months for the next three or four years, and we have plans in place. We will be announcing those plans in the near future, either those new plant locations or new acquisitions in those prospective markets. So plans are in place, to answer your question. They will happen one way or the other to stretch out our territory and fill in those markets.

And what about existing facilities, are you planning any additional production lines as you grow your route sales within them?

In our present territory, and it's too early to announce, but we will probably add a line or a bakery already in a geographic market that we've been serving for quite some time that we're running out of capacity. But the other two we're looking at locations that would expand our territory outside of presently where we are.

Okay. Also, following up on raw material costs, what about packaging. Is there any way you can control your costs there?

David, we do, you know, we have used hedge positions in resin to try to help specifically with the bags, and then we just have done forward buying, like corrugated and that type stuff, primarily gauging in the resin.

And last question, looking out to '08, as we sit here today, what are your major concerns, leaving aside raw material costs?

Inside or outside, David?

Either way.

Well, obviously on the commodities side, biggest concern is anything to do with the grain issue, soybeans and oil are really high. Flour, wheat, really high. And until -- how that shakes out is a major concern, even though it was a concern this time last year, we found a way to manage through it. As we look at our fiscal year of '07, Jimmy mentioned earlier in his remarks that costs this year over '06 were up some $50-plus million, '08 over '07. If the commodity stays as it is today, we would be looking at same number, plus a little. It's up to management to find a way to manage around that, either through a combination of more efficiencies and reducing costs, and getting the right price for your merchandise. That's always, always a struggle, but it's always doable if we manage properly, most cases. So that's the biggest concern inside, inside the whole commodity issue, I guess.

And on the outside, on competitive pressures from other companies, or whatever else you see that has you watching over your shoulder as you were?

Always worried about competitors. We never underestimate a competitor and how well they can do. All of our major competitors have some good brands and while we stay focused on those, how do we out execute, how do we gain competitive advantages and I think we've proven we do have some competitive advantages through our business model. I think competitors, you know, try to copy some of those and we try to copy some of the things they do sometimes. I'm always concerned about our competitive, the competitive effects of the marketplace. Sometimes they can do more damage to you than you do to yourself. But we do not expect that. Everybody has the same issue and I guess most of the -- well, all of our major competitors are in the public arena and they try to do the same things for their shareholders that we do for ours. So we're striving to do a great job in the marketplace and reward shareholders.

Thank you very much.

Thank you, David.

Thank you. Our next question is coming from Eric Katzman of Deutsche Bank. Please go ahead.

Thanks for taking the follow-up. I guess I wanted to ask about the specialty business and one thing I didn't understand is that you have a, what I assume is kind of a negative mix shift on the top line with multipacks growing faster than single-serve and yet the profit was up quite a bit. Can you, Jimmy, maybe explain that a little bit more?

Yes, Eric. I think a lot of it, again, goes back to the comparables to last year. You'll recall we, we relocated our cake distribution from a free-standing crawl stocking situation to one of our plant facilities, and we didn't, we did not execute well in making that transition last year in terms of order fulfillment and cost to serve. So, part of it is that we are just basically returning to a better execution in terms of order fulfillment and distribution on the snack cake business and then continuing to try to work on the mix of, as we shift to multipack, continuing to focus on Mrs. Freshley's and grow those sales versus simply filling capacity with, contract production, and then the frozen bread and roll business has continued to do well in gaining customers and so that kind of all gets, gets mixed into the specialty division.

Got you, okay. I think I understand it more now. Okay. Thank you.

Thank you.

Thank you. I'll turn the call back over to Mr. Deese for his closing comments.

Thank you, Henry. Let me again thank all of you for joining our call today. We feel wonderful about our company and the prospects for the remainder of the year and planning on having a good year again next year. We hope to see you on the analyst day, on October 4 in Newton, North Carolina. Thank you for calling, and have a good day.

Thank you. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.