Flowers Foods Inc (FLO) 2007 Q4 法說會逐字稿

Good morning. At this time I would like to welcome everyone to the Flowers Foods fourth quarter and fiscal year 2007 earnings conference call. Thank you.

It is now my pleasure to turn the call over to your host, Ms. Marta Turner. Ma'am, you may begin your conference.

Thanks, Sheryl. And good morning, everyone. Thank you for joining us. With me today are George Deese, Flowers Foods Chairman of the Board, Chief Executive Officer and President, and Steve Kinsey, our Senior Vice President and Chief Financial Officer. During our call today, George and Steve will discuss our 2007 performance, talk about our strategies as well as the outlook for 2008. And then we'll open our calls to your questions.

First, we must point out that our presentation today may include forward-looking statements about our company's performance. These may include discussion about a number of factors regarding future performance such as earnings per share, net sales, margins, interest expense, cash flow and other such items. The statements are based on our view of things today, but they may contain some degree of uncertainty. While we believe our statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially.

In addition to the matters we'll discuss during the call, important factors relating to Flowers Foods business are detailed fully in our SEC filings.

Now it's my pleasure to turn our 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 achieved outstanding results for the quarter and full year even as we faced higher input cost. Before we read our results in more detail, I want to mention higher commodity costs and how we're addressing that issue. Our strategy is to use our hedging and forward bind programs to know our costs well ahead. Sometimes as much as a year out. Our first help is to make operational improvements to control our costs and to improve, increase our efficiencies. Then, as a last resort, we take pricing, so that we can maintain our margins even as our costs go up. Our good results for 2007 were achieved as our team executed well on that strategy.

As we enter 2008, flour and other ingredient costs are at [distort] levels. As part of our planning process, our team determined what our costs would be, identified operation improvements and took pricing action only as needed. I'm confident in our strategists and in our ability to achieve the good results we're forecasting for 2008.

Now, looking at the results we reported this morning, we're pleased to report sales were up 8.1% for the quarter and 7.8% for the full year. Income from continuing operations was up 35.3% for the quarter, and 26.4% for the year. Earnings per share came in at the top of our guidance. $.023 for the quarter and $1.02 for the year. EBITDA for the quarter was 9.8% of sales. For the year, we achieved EBITDA of 10.3%.

As you will recall, our long-term goal was 10 to 12% EBITDA to sales. This is the first time we passed the 10% mark. I want to congratulate our entire team for that outstanding achievement.

Now, let's look more closely at our operating groups. Sales for the bakers group increased 9% for the year and 10.7% for the quarter. EBITDA margin for bakers was 12.1% for the year and 11.9% for the quarter.

Turning to our specialty foods group, sales increased 3.1% for the year, but were down 2.4% for the fourth quarter as we experienced softer sales, depending customers and some food service customers. EBITDA for the specialty group was 10.1% for the year and 9.9% for the fourth quarter. We're pleased to see the improvements being made on margins in the specialty group as we continue our strategies to transition from low or no margin business to higher margins branded products. We are pleased to report that sales of our branded products continue to experience strong growth. In fact, 10.6% of the quarter and 8.8% for the full year. Well, ahead of the category growth of some 6%.

Sales of branded products continue to grow. Branded sales represent a higher percentage of our total sales. That indicates that consumers are not trading down. It also demonstrates the power of our Nature's Own, Whitewheat and other brands. Many of today's consumers want the healthier varieties, the flavor choices, and the assured quality that our branded products offer.

Now, let's look at our sales by category. Our black bread brands lay about Whitewheat and local white bread brands grew by 9.2% in the quarter and 8% in the year, which is well ahead of the category. Sales of Nature's Own variety breads in the quarter and for the full year continued very strong with double digit growth ahead of the soft variety 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. Sales grew in strong double digits in the quarter and the year well ahead of the category. Our branded buns and rolls also were up double digits for the quarter and high single digits for the year. Our continued sales growth across all the categories of branded breads, buns, and rolls in which we compete is evidence of the strength of our brand and of our execution in the marketplace. Once again, according to IRI, our brands gained share in both dollars and units in the quarter and for the full year.

Our private label sales are also up in the quarter and for the year. Our non-retail business, which includes food service and institutions increased 3.3% in the quarter and 5.2% for the year, driven by sales to quick serve customers. Our snack cakes brands, Mrs. Freshley and BlueBird have lower sales in the quarter and the year. We continue to shift our focus on branded snack cakes and exit contracts production and we had less promotion activity in the fourth quarter as we continued to strengthen our margins. In October, we introduced several 100 calorie BlueBird and Mrs. Freshley snack cakes. We are pleased with the consumer acceptance of these 100 calorie snacks.

Let me mention a few highlights from 2007. We opened the top at production line at our new bakery in Newton, North Carolina. We benefited from investments we have made over the past several years to add production capacity closer to our growth markets and to improve our distribution systems. Our improved selling, delivery and administrative expense for the quarter and the year indicates that strategy is sound.

In the fourth quarter, we announced our plans to build a new bakery in Bardstown, Kentucky. The new bakery should start up with a production line late in 2008. Late in 2007, we purchased the Swan bakery which we had been leasing from Swan since the mixed diverse year in 2003. We also bought a small bakery mixed business in Maryland that had been supplying some of our cake mixes. We consider this a supply-chain move to help improve the quality and cost of our bakery mixes.

Now, Steve Kinsey will give you more details of our financial report. Steve?

Thank you, George and good morning.

As George commented, we finished the year with a strong performance in the fourth quarter making 2007's full year performance outstanding on both measures despite the commodity and count head winds we faced and continue to face. Net income from continuing operations for the quarter improved 35% to $21.4 million and fiscal 2007 net income for continuing operations grew 26% to $94.6 million. Our operating margin for the quarter improved 6.6% as a percent of sales and the full year margin as a percent of sales was 7.1% up 80 basis points from the 6.3% a year-ago. This growth is attributed to the strength of our brands, improved efficiencies, costs management and processing strategy, as well as great execution throughout the company.

Earnings per share from continuing operations for the quarter grew 35% year-over-year to $0.23 per share from the $0.17 per share in the prior year. The fiscal 2007 earnings per share from continuing operations of $1.02 is an improvement over the prior year's $0.81per share. I would like to remind you that 2006 net income did include two non-operating items that contributed approximately $0.07 per share in the prior year. Taking these into account, earnings per share year-over-year was still up a healthy 16%. Both the quarter and full year earnings per share results were in line with the guidance last provided in our third quarter call. Sales growth for the quarter was 8.1%. Pricing contributed 4.7% of the growth coupled with the positive mix shift of 2.2%.

As George mentioned, we did continue to see our brand perform well in the marketplace. Volume in the quarter was up 1.2% compared to a year-ago. Looking at fiscal 2007, sales grew 7.8% year-over-year with prices contributing 5.6%, a positive mix shift of 1.9% with volumes being up slightly year-over-year and based on George's earlier comment by category and by segment, you can see our Nature's Own brand continues to build on its strength in the marketplace.

Our expansion markets in the year did contribute approximately 1.5 to 2% of sales as we guided in the past. The gross margin in the fourth quarter held up relatively well, down only 30 basis points at 48.7% compared to the fourth quarter a year-ago. The full year fiscal 2007 margin was down approximately 70 basis points at 49% compared to 49.7% last year. We think this is the phenomenal, - - the margin has held up phenomenally well considering all the price pressures we faced throughout the quarter and throughout the year. This pressures were driven primarily by higher commodity costs with increases in flower, [inaudible] and sweeteners. Overall interest cost, including packaging and natural gas were up approximately 11% year-over-year.

Looking at selling, delivery and expenses as a percent of sales, the quarter decreased to approximately 39%, almost 100 basis point improvement over the same period last year. For fiscal 2007 full year, SG&A as a percent of sales was 38.7%, compared to 40.2% in fiscal '06. The quarterly improvement, as well as the full year improvement was driven by distribution rationalization in both segments of our business as well as improvement and managing administrative costs throughout the year.

Depreciation and amortization as a percent of sales remain relatively stable for the quarter and year-over-year. You will notice, net increase and interest income in the fourth quarter, and fiscal 2007 over 2006. This is due to lower debt service on our lower borrowings throughout the year and an increase in interest income on distributor notes as a result of our sales of the [first] territories earlier in the year and also the sale of northern Virginia expansion territories in 2007.

The full year tax rate was 35.9% down from the 36.7% reported in 2006. This is primarily due to the planned statutory reduction resulting from [approximately] 199 manufacturing deduction. The fourth quarter rate of 38% was higher than planned due to the effect variable interest entity earnings on the quarter. The full year rate, however, remained in line with expectations and guidance.

Looking at our balance sheet, it continues to remain strong. At the end of 2007, we had no borrowings on our credit facility. Throughout the year we funded $88 million in capital expenditures, $42 million in dividends and repurchased just over $33 million of the company's stock. All indications are our cash flow remains strong providing us with liquidity and leverage to pursue acquisition, opportunistically and also continue on our cash allocation strategies as we move into 2008.

Looking at the 2008 guidance, as George mentioned, 2008 will provide no less of a challenge than 2007. Commodity costs are unprecedented high and have escalated rapidly over the past months with no near term relief anticipated. Ingredients, packaging and natural gas are estimated to be up approximately 22% fiscal 2008 over 2007. We have, however, continued to execute on our strategy the hedging and forward buying. We have covered our 2008 [inaudible] costs and where possible, other ingredients and packaging costs based on current volumes.

Our 2008 sales and earnings guidance was basically unchanged from the preliminary guidance provided in November. You will note, however, a slight increase in the lower end of the range, as well as a change in the growth percentages as the base moved from projected 2007 results in November to the actual 2007 results presented today. As a reminder, 2008 is the 53-week fiscal year compared to 52 weeks in 2007. Our sales growth in 2008 is anticipated to be 8.5 to 11% excluding acquisitions or sales of just over $2.210 billion to $2.258 billion. We anticipate that pricing and mix will contribute about 7 to 8% of this growth. Volume should be in the range of 1 to 1.5% and the extra week will provide sales growth of approximately 2%.

Again, our goal in 2008 is to minimize or eliminate margin erosion despite the cost pressures. We estimate net income to be $99.5 million to 100, just over $108 million or 4.5% to 4.8% of sales. We project 2008 earnings per share to be $1.07 to $1.17, an increase of approximately 5% to 14.7% over fiscal '07. We are focused on driving out controllable costs in 2008 throughout the company, making our products a good value for the consumer with respect to both quality and price. The 2008 capital extend is estimated to be $95 to $100 million. This does include our normal maintenance spend as well as construction of recently announced Kentucky facility. However, this is not including equipment that maybe acquired existing new facilities.

To sum up the financial results, the fourth quarter and fiscal 2007 results were outstanding by all measures. Though we are facing tremendous cost head wins in 2008, we believe there are still opportunities to deliver growth in sales and profitability in 2008 as we move forward.

With that, I'll turn the call back to George.

Thanks, Steve.

As you can tell our team was real proud of the accomplishments on the quarter and for the full year. As we say, that's history. Now we're focused on doing the same thing for 2008. This year, Steve indicated we are facing higher input costs of some $130 million. This reflects 22% increase over last year.

Our guidance for 2008 takes the higher cost into consideration. Through our programs we have taken flyer coverage for all of 2008. We expect pricing and mix to be up about 7 to 8% and we're working to reduce our operating costs at every location in every department. We can, and will, continue to improve our efficiencies even further. Along with our efficiency gains, the recent price in action we took will help offset costs. We will offset the need for future further pricing as the year unfolds. This spring we'll introduce new Nature's Own items to take advantage of the power house brand.

We also will introduce new varieties of snack cakes and we will continue to partner with our food service customers to develop innovative bakery items that suit their needs. Our new bakery in Bardstown, Kentucky will help relieve capacity restraints brought on by our sales growth and to help serve our expansion markets. Later this year, we will announce details to add a bakery in our core market. Our sales growth brings on the need to add production capacity and we will continue to do just that.

To sum up our guidance for next year. We expect to continue making improvements in our selling, delivery and administrative costs and expect to achieve another percentage point reduction this year. Pricing and positive mix shifts should add 7 to 8%. We expect 1 to 1.5% in growth and as Steve indicated, the 53rd week will add roughly 2% to our sales.

We're in great shape. Our cash flow remains strong. We will continue investing to build value for shareholders over the long-term. That includes making capital investments to add capacity and improve our efficiencies. Paying dividends to our shareholders, making strategic acquisitions and repurchase Flowers Foods stock. We have virtually no main debt, our strong cash flow and our credit facilities will allow us to take advantage of opportunities that may arise, whether those are acquisitions, stock repurchases or other strategic moves.

While the economic environment seems uncertain, we are managing through the difficult times by keeping focused on our operating strategies. We are fortunate that consumers buy baker products in good economic times, as well as in more difficult times. Our products are a good value. Our brands deliver the flavor, the variety that the consumers have become accustomed to. We believe we are well positioned to deliver good results in 2008 and beyond. Our team is experienced and focused as we work to build value over the long term for our shareholders. Now, Steve and I will be happy to take your questions. Sheryl, I'll turn it back to you, please.

Thank you. (OPERATOR INSTRUCTIONS). We'll pause for just a moment to compile the Q&A roster. Your first question is coming from Tim Ramey of D.A. Davidson.

Good morning. Boy, congratulations, George, what an amazing quarter.

Good morning, Tim. Thank you.

Good morning, Tim.

Steve, question for you. Unless I missed it, I didn't really understand the positive number and the variable interest entity. Was there a loss book there or was there an overaccrual earlier or how does that come about?

In the fourth quarter the variable interest entity had a loss. So, there's a positive add back to eliminate up - - we actually eliminate 100% of the earnings, so the net effect on our consolidation from [DIY] really is neutral, but the way the accounting works and when you go through the income statement it does look like we're adding back income.

Okay. And then on the hedging, George, you said you were covered entirely on flour. Did you say where you were on energy or how you're planning that?

No, I didn't, Tim. But I'd be happy to address it. We - - if I'm not badly mistaken looking out over the year, we probably cover - - most of the year we can cover roughly 75 to 80% of our needs. And we feel like, we're well positioned especially on the natural gas part of that.

Perfect. Thank you.

Thank you, Tim.

Thank you. Your next question is coming from Farha Aslam of Stephens Incorporated.

Hi, good morning.

Good morning, Farha.

Hi. Congratulations, as well.

Thank you.

Looking at your Swaney facility, do you plan to increase production this year in that facility?

Farha, that's a great question. What we're looking at, as I indicated we built that facility originally and sold it to Swan, since we've sold and [inaudible] to Swan we have been leasing the facility ever since. What we wanted was certainty of our future and this does give us certainty. At this point in time, the capital budgets for '08, there's nothing anticipated. We have two great production lines there presently and as customers come on, we could have production due to that, but not need capital investment for our new production line in this year. But, we do have space available that in the future we would anticipate adding another production line. That would probably come '09 or beyond.

Okay. And just going a little bit more into detail for 2008, you're tax rates, Steve what are you thinking your tax rate is going to be next year?

The rates should be in line with what we reported this year, Farha with 36%.

Okay. And when you look at share repurchase, your share count in the quarter actually was up versus your third quarter, could you share with us your share repurchase plans and kind of what's causing the movements in your share counts?

Yeah the dilutive shares that are reported on the - - base on statement would include the affect of any stock, outstanding stock awards and -so that number will vary depending on the stock price throughout the year and of the quarter. And then also, the effect of the share repurchase, depending on the timing of the repurchase had some effect on the number of shares to get reported for the quarter.

So was that share repurchases later in the quarter?

Yes.

Okay, so we could put that into first quarter numbers. Great. And my final question is, when you look at M&A landscape in the industry, could you share with us some color, if you could?

Well, that's a [flirty] question. What I would say, you know we don't comment on M&A activity for the company, what I, - - except strategy and philosophy, and that would be that we - - I've said repeatedly we're looking always in the market, looking for both on acquisitions as they bottom available, but that can anticipate in giving a color to what could happen in the future. We're always out looking and trying to grow the company with those both on top acquisitions.

That's all I had to ask. Thank you.

Thank you.

Thank you. Your next question is from Heather Jones of BB&T Capital Markets.

Good morning, congratulations.

Good morning, Heather.

Good morning, Heather.

I wanted to follow up on Farha's question as far as the acquisition landscape and I was personally anticipating that in this difficult of a cost environment, that you may see a pick-up in availability of acquisition targets as less sophisticated companies are not able to handle this as well. I guess I was just wondering, not speaking to your specific situation, but have you seen an increase in the availability of businesses for sale?

No. I can't say that it's picking up that much from what I can see. Of course we just do not comment on speculation or something that might be going on. We try not to get into that, but as on the [inaudible] is the market changes and the higher commodity costs do have further consolidation in the industry. It's also we have consolidation, and I will predict we'll continue to see consolidation as we go forward.

Okay, and I believe I'm correct in this. It seems like you had an sequential pick-up in your volume growth in the core bakeries business as far as year-over-year volume increase, and just wondering what drove that?

Well, at certain point growth was a 1 to 1.5% and I would point to our strong brands, particularly Nature's Own, the soft variety had a wonderful year. And in addition to that, we introduced at the tail end of '06, the All Natural Nature's Own product line, which we had good results for the year. So, volume was good and we were proud that our consumers in the marketplace recognized that Nature's Own does fit, not only last year, but this year and next year and the years to come. A wonderful product line that addresses the needs of our consumers. With All Natural, no artificial flavors, colors, preservatives, I think this matches up perfectly with today's consumer.

Right. I was speaking specifically to the bread division. You had been looking at volume increases on the order anywhere from 1 to 2% and this quarter was up almost 4%. And, I mean, just, was it better execution, did you have a new customer come online? Did you gain - -Just wondering, specifically with your - - 'cause it was a very significant acceleration.

I would point, again, back to the strength of the Nature's Own brand.

Okay.

Of course, with that would be Whitewheat, and we continue to see growth there. And I repeat again, our soft variety and the All Natural Nature's Own line, we're just seeing very good growth.

Okay. Now, going back to a comment you made about needing to assess further price increases later in the year, given where soybean oil prices are, the natural gas et cetera, if those stay at current levels, do you need to raise, do you need to raise pricing or will you only have to assess further price increases if costs accelerate further from here?

Well, we would - - we will continue to assess, later in the year, I feel comfortable where we are, we did take pricing as you know, in December. And we'll just have to see how the year unfolds and you know, I can't say that we anticipate, but I did say in our comments, it could be possible at the latter part of the year, third, fourth quarter, we'll have to take another look.

Okay. And then my final question, on the snack cakes side, the unit declined, but I was wondering, it's on what [inaudible] basis volume down? I think it was 4.5% roughly or is this a situation of - - where you're counting the unit as one package, so a multipack has more cakes in it, but is only still just one unit?

There is a conversion in baking industry, Flowers Foods included. You're seeing more multipacks being sold in general. And that includes Flowers we're selling. Most of our growth is coming on the family pack and a lot less on the snack side, so what we, and I did say in my comments earlier, this has been a low-margin business, lower than we want, and we've been working toward growing the brands and I did comment that the fourth quarter we did not promote a lot. We saw commodities coming and was focusing on last year, trying to get these margins where they should be and we just say, look forward to growing this business.

Okay. Well, thanks and you all are doing a great job of doing it.

Thank you, Heather.

Thanks, Heather.

Thank you next question from Diane Geissler of Merrill Lynch.

Good morning.

Good morning, Diane.

Good morning, Diane.

Congratulations on your quarter.

Thanks, so much.

I have a sort of philosophical question, you guys, you've been ahead of the game in terms of getting your hedging in place early, so that you can understand what your cost structure will look like, as you said, George, up to a year in advance. I have to believe, you know, you're very kind of out there early with pricing, et cetera, and I have to believe that some of your competitors are probably not as well positioned as you are, as they look through 2008. So my question is really, given that you seem to be in pretty good position with where your pricing is, et cetera, do you see that there might be some opportunities for maybe market share gain later in the year if your competitors, who are trying to sort of catch up to ever accelerating commodity spikes here have to maybe take price a little ahead of you now. Maybe you can pick up customers et cetera, given that you know what your cost structure is.

Heather, I heard just the other day that Wayne Gretzky, the great hockey player said he wanted any bigger or any faster than anyone else, but he always anticipated where the puck was going, not where it had been. And we stay focused in looking to our commodities way ahead and try and anticipate where they're going. So, we strap stick with it. Inspite what competitors assumed at the end of the year, I cannot assess that at all. I couldn't speculate. I couldn't comment on it. But I would say, that we will stay focused on our business and making sure we're doing the right thing daily through execution.

Well, maybe the question is this; if your competitors have to raise prices again because they are grappling with higher and higher wheat costs would you, given the choice of A, raising prices with them and having margin expansion or B, keeping your pricing where it is and maybe picking up market share, is there - - do you have a preference between those two if it plays out that way?

No, I wouldn't want to comment on that. And we stay focused on our business and you know, I think quality wins out every day over price and execution. We always try to be competitive in the marketplace, whatever that is. But we're more focused on, instead of price only, really about quality and daily execution in the marketplace. And to me, that's how we grow in share. It's not about who is higher, who is lower, it's about daily execution that really counts in this bread business.

Okay. All right, I appreciate that and then, I may have missed this in your commentary, the total shares repurchase in the quarter, I have about $900,000, is that correct?

That's correct.

Okay. All right, those are my questions. Thank you.

Thank you, Diane

Next question is coming from Mitchell Pinheiro of Janney Montgomery Scott.

Hey, good morning, everybody.

Good morning, Mitch.

Hello. Sort of an accounting question, maybe Steve, the Swaney transaction, so you know, leasing versus owning, how's that going to flow through on the income statement? And is it earnings neutral for this upcoming year?

We're leasing this facility, so obviously the expense will move from a lease expense to depreciation.

Okay.

And going into 2008, the step would probably be somewhere between $.5 million to a $1million on a year.

I'm sorry, what looks like a half a million?

Half a million to a million of expense.

Of expense, of added expense relative to where you were?

It will be as a positive. It will be a pick-up.

It's a pick-up. Okay. And then, is there any, and I don't know if you said this, but is there any capital additions you're making, not major capital additions, but is there any minor capital additions you need at Swaney?

No, Mitch. We - - eventhough we lease in that facility, we keep our equipment up in good shape. So normal, when we say normal, a lot of times we look at 750 to $1 million dollar per plan expense each year for minor equipment. But nothing major will be planned for '08. I did comment earlier that '09 and beyond, we'll look at an additional production line probably, because we have the space available.

Okay, I wanted to make sure I heard this correctly, you mentioned $130 million of higher costs, I guess, is that just flour or is that all ingredients?

That's all ingredients and anticipation.

All ingredients.

That will also include packaging and natural gas.

So it does include some energy and - - okay. In terms of your snack cake business, in terms of the actual, let's say volumes on your routes as opposed, to separated from the contract packing and other, how did the route snack cake business do?

Mitch, we were flat to down for the year.

Okay, and in the quarter?

Same.

Okay. Is yes, and you do see the margins in that business not as strong as your fresh bread margins, and I'm curious because, you know, on a price per pound basis, you would think that snack cake is higher and I know there's a little more complexity to the manufacturing but with the stale rates, they ought to be lower than bread, why aren't the margins improving like you would have thought a year or two ago?

We are seeing improvement, Mitch. Of course number one we do not break out snack from our - -

Right.

- - frozen foods or as all included,but if you look back on the trend basis, we are making improvement year-over-year now for, gosh, I'm going to say three or four years in this segment, but I would point to say that producing manufacturing snack cake is a lot more labor intensive, particularly in packaging and wrapping and we have been saying for a couple of years we invested in packaging and wrapping this past year and we have two $2 or $3 million investment this year in packaging. So, most of the year we had to get distribution right to get brands right, get our strategy right, now we're invest ting in the whole packaging and wrapping area to take cost out.

Do you anticipate, I mean, snack cake margins should be equal or better than fresh bread margins, would you agree with that?

Well historically maybe in the old days that was true, but I'm not pretty sure if anybody's doing that today.

Is it a function of the pricing? I mean is it like, so you just can't quite get enough pricing relative to other snack alternatives? Is that where we stand?

I think [inaudible] cake has been competitively priced. I think there's so many new offerings, if you walk into a convenience store or supermarket years ago there was not as many alternatives, but you think about all the bars in the marketplace from, not traditional bakers, but from General Mills, or Kellogg or whoever. Competition is a lot different, and people look for alternatives. And people are looking for healthier lifestyles in these product lines and just like the bread business, years ago it was all about black bread and eight pack flat buns and we saw that trend coming that people were looking for flavor, better new top bread and that's why Nature's Own was developed. Now, I would point to, we have developed and are continuing to roll out more better for you type snack cakes. And hopefully this will help our margins as we go down the road. Again, also investing in the business to take out cost.

Okay. And just two more. One, the - - in your food service channel.

Yes.

Is quick serve is driving the growth there? Is that correct?

True.

Helps cash or billings?

From our reports I see in our business and reading data through other periodicals, it looks to me like cash are down and years down.

Okay.

But I would like for - - Mitch to this, I think we have a competitive advantage and we go [inaudible] and depending on what the customer wants, and I think we do have a nice portfolio of rest for business. We do have X amount of cash, we have X amount of fast and some up-scale, so as the consumer flows, we feel like we're in great position to take advantage of it.

Last question, so are you advertising on the Super Bowl this year?

If you'll send us some money, we will. No not this year.

Okay. Well, thank you very much.

Thank you, Mitch.

[OPERATOR INSTRUCTIONS]. Your next question is coming from Eric Katzman of Deutsche Bank.

Good morning everybody.

Good morning, Eric.

Good morning, Eric.

I guess a few last questions. I think you mentioned that private label was up, but obviously your branded product is doing much better. Could you make a comment more about, let's say the industry and kind of what you see there? I mean, is it your brand equity that's able to offset any consumer demand elasticity?

Mitch I would say, Nature's Own being able to - - Eric, I mean, I'm sorry, that Nature's Own does fit yesterday and today as in the future consumer better, I think, than any brand out there. We have been able to price the product accordingly. Looking at private label, in general, when you look at, and we look at it periodally and quarterly, dollars are up from IRI, looks like 3 to 4%. Units been flat to down though. So, I know the big worry. Of course we raise prices December 1st, so we've got roughly two months behind us.

So we're not seeing this mad rush to drop brands and go to private label. I know the economy is tough, I know gasoline prices have been up considerably and all the problems with the money markets, et cetera, but I really believe people today are looking for that healthy product, they are looking for flavor and a good quality product and that does just fit Nature's Own.

Okay, and then, as a kind of a different question, I think at the analyst meeting in North Carolina, that was just around the time that the judges were going to try to make some ruling on interstate and then we had that kind of private equity bid come in and that's disappeared. What are you hearing from the courts in terms of kind of bankruptcy judge decisions on where IBC goes?

Gosh, I just read in the Kansas City paper, I guess, the same information that you probably saw. Yes, there's much information comes out on that that you can read publicly. I'm not sure where it goes. I can't speculate at all. I really, honestly, do not know. I don't know, the truth. I wish I knew more. I don't know more than you do, I'm sure.

I guess the kind of, with the surging wheat cost and their, you know, let's say difficulty with brand equity, you kind of wonder given that they have a few billion in sales, I mean, if they have to cease production or something like that, that's going to be a pretty mad scramble for the retailers to try to fill that space.

Yeah, I don't disagree with that statement.

Okay, I think that does it for me. Thank you.

Thank you, Eric

Thank you your next question is from David Liebowitz of Vernon.

Good morning.

Good morning, David.

A few things with new product introductions have you seen much of an increase in your slotting fees versus a year-ago?

David, we do not participate in slotting fees. That not an issue with the Flowers.

Good. Second of all, you made reference to the fact that you would be adding a facility in a core market earlier in your talk. When do you expect the announcement to come and it's a multipart question, so let's start with that, if we may?

I anticipate some announcement within the next three months.

Okay, is this going to be a new build or are you acquiring?

Acquiring an existing building or --?

Acquiring an existing baking facility.

No, that discussion had to do with a new facility. It could be from ground up or it could be a building that already exists. Not a bakery that we could convert. Similar to what we did in Denton, Texas. Requirements just then fill and then got any quicker, faster than we otherwise would have.

Understood. And can you give some idea what the budget would be for land building and getting it mechanized?

Yes, our last bakery in Newton, we talked around numbers of $50 to $53 million, as Steve indicated, part of it is capital and part of it is operating leases of equipment, and whichever one looks most favorable to our shareholders.

And what would the capacity of the facility be?

Well, our Newton plant is roughly 12,000 pound bread line, 13,000 pound bread line with a very high speed bun line and we're looking at 1100 type of bun lines in the future. Real fast. And by the way, let me point to that. I probably didn't comment on that enough or make comment on that during my presentation. The efficiency, and this is not a new strategy, it's been in our company for years, to make those investments, to keep our manufacturing costs in good shape. And those efficiencies, looking at Newton, a new bread line in Villa Rica, new bakery in Newton, North Carolina, with these fees and quality of product is doing wonders for the quality of our efficiency. And that's how we continue to drive out costs on the manufacturing side and getting these facilities in the location which are close to the people, the major population areas, it's helping tremendously on the selling and delivery expense for the company. So we've been focused on driving out costs through efficiency and manufacturing and getting these plants in the right place where major population areas are.

And my last question, if I may, over the current year, the balance of the year, do we expect to enter any major new markets without acquisitions?

David, I would say that we have, since our announcement some four years ago, we ran new markets each year. Some major and some you would say not major, but I anticipate again, and this year that we will expand our markets. But I can't say much more than that because of competitive reasons.

Very well, and I say thank you.

David, thank you.

Thank you.

Thank you our final question is coming from Pablo Zuanic of J.P. Morgan. Morgan.

Good morning everyone.

Good morning, Pablo.

Just understanding based on the guidance, 5 to 15% EPS growth, so given that according your costs are pretty much offset for the year, the main variable I guess, is going to be pricing. So correct me if I'm wrong, with the December price increase and no other price increases in 08 you can do 5% EPS growth and you will get to 15% if you take another price increase in 08? Is that how what we should be thinking or how everything you think about guidance?

Let me come back to our guidance. We said, pricing mix should be in the 7 to 8% neighborhood. We said volume, 1 to 1.5%, maybe 2. We're saying 2% for the extra week, so 8 to 11% we could have comfortable with. I did say early on, I didn't know about the back half of the year, will depend, everything is not covered with the 130 anticipates what some other coverages might be. I did say we're covered on flour and those items, we could hedge out on. But there's still some more things to go, but not, - - I just can't comment much more than that on that.

Okay, I understand. I guess, just you know, it sounds like [inaudible] little contradiction and we have a 7 to 8% price increase guidance. But your EPS goes just 5 to 15. So, I guess, obviously I guess you've answered on the core side it's not really 100%, just get a little variability on the [inaudible] effect, right?

Yes, that is true.

And can you comment in terms of the December price increase. Maybe you mentioned this earlier. What was the percentage amount and has it been followed so far by your rest of the industry. The December price increase.

We did say publicly in our third quarter we were shooting for 7% neighborhood in December.

That's what you achieved in the rest of the industry? Do you thinks it's followed or have have you seen them follow, so far?

I can speak to what we've done. And that is - - we feel very comfortable with the 7%.

Okay, and just a couple of follow-ups on different questions. The new plant in Kentucky, I mean, that's not [inaudible] by end of '08. I understand you don't want to comment about new markets, but just looking at them up, when some of the areas nearby, you are there, and some you are not but that plan would not allow you to enter Chicago, right? I mean, it's just too far or should I think that Chicago is a potential market and you can serve from that plan.

I cannot comment on that.

Okay. And then a different question. When I try to quantify the opportunity you had with the premium bread side, if I'm not wrong, you've talked about in your core business about 35% market share. Remind us, what would be, what's your share in your territories in what I would call nonpremium mainstream and in your share in the premium segment and in those markets, how big in each category, nonpremium and premium? i mean that would help to try understand the size of opportunity of premium. Pablo, we might need to do that offline. Not that - - I don't have those numbers right here before me. Okay.

I'd be happy to do it though. I don't mind going through it.

Pablo, we'll talk later.

Okay.

Keep these and some of that in the past, so you can look back and tell me and then we can update all that information [inaudible] look at .

Okay, that's great and one last one. Understand the argument that there's not been, - - has not penetrate on you push to private label, but in your territories where you compete with the [inaudible] release of the world and [Pepperidge Farms] of the world, do you think you are benefiting from a trade on from those branch to your branch, given that you forward from that [inaudible] you seem to have lower price points in sort of the [Pepperidge Farms].

That's hard to say, Pablo. We stay focused on quality and execution. I point back to those two things, I think that's what's driving our business.

All right, that's fine. Thank you

Thank you.

Thank you. I will turn the call back to Mr. Deese for any closing comments.

Thanks, Sheryl. And let me again thank you for joining our call today. And I'd like to thank our team for the outstanding job they are doing. And 2007 was a wonderful year and we look forward to doing the same thing in '08. Thank you very much.

Thank you. This concludes today's Flowers Foods fourth quarter and fiscal year 2007 earnings conference call. You may now disconnect.