Flowers Foods Inc (FLO) 2011 Q1 法說會逐字稿

Greetings. Welcome to the Flowers Foods first quarter 2011 earnings conference call and webcast. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Marta Jones Turner, Executive Vice President, Corporate Relations for Flowers Foods. Thank you, Ms. Jones Turner, you may begin.

Thank you, Rob, and good morning, everyone. Our first quarter results were released earlier today. If you need a copy, of course, you'll find that release posted on our website, www.FlowersFoods.com.

During the call today, we'll be using a PowerPoint presentation to support our speaker's comments. You can access that presentation on the webcast listen page. We also filed the 10-Q this morning, so you'll find that information available with our SEC filings.

As we begin, you know that I must remind you our presentation today may include forward-looking statements about our Company's performance. Although we believe our segments to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. And in addition to the matters we will discuss during the call, important factors relating to Flower Food's business are detailed fully in our SEC filings.

A quick review of our agenda. George Deese, Flower Foods' Chairman and CEO, will give opening remarks. Steve Kinsey, our Chief Financial Officer will give you more details on the financials we filed this morning, and the look ahead. Allen Shiver, President of Flowers Foods will report on sales and operations, and then George will finish up our prepared remarks, and open the call for your questions. I'm now pleased to turn the call over to Flowers Foods' Chairman and CEO, George Deese.

Thank you, Marta. Good morning. Thank you, ladies and gentlemen, for joining our call and for your continued interest in Flowers Foods. It was an eventful quarter. I'm very pleased to report our sales increased this morning of 1%, and earnings per share was up 13.6%, excluding one-time charges for our bakery closing and the pending Tasty merger. As is our practice, we took pricing action ahead of our higher commodity costs and energy costs. This action did effect our volume and our branded retail channel.

I'm sure we're all aware food manufactures are impacted tremendously by higher input costs and rising energy costs. As a result, consumers are seeing more food inflation. And I think you can see that's well-publicized by the media. More specifically, we're seeing inflation in the bakery category.

With high unemployment and gasoline around $4.00 per gallon, we know consumers are looking for value. We will continue to make certain our products are perceived as a good value, by offering quality products at a fair price. As previously announced, we did close an old and inefficient bakery in the quarter, which will improve our cost structure going forward.

As most of you know, we reset our long term goals at our March Analyst day for sales growth of 5% to 10% annually, which includes acquisitions as well as organic growth. We believe this will translate into double digit earnings per share growth annually, and we expect to achieve an EBITDA margin as a percent of sales of 11% to 13%. As part of resetting our goals, we told you that we did expect to reach at least 75% of the US population through our DSD network by 2016.

On April 11, we announced our agreement to merge with Tasty Baking Company. Tasty brings us access in new markets in the heart of the mid-Atlantic, where we'll introduce our Nature's Own brand. We will leverage the iconic Tastykake brand across Flowers' DSD footprint. We look forward to completing the transaction so we can get started. And with that merger, we have been talking about historically, we've been serving about 38% of US population. We said at our meeting, we had 53%. Once we started serving in this market, this will give us 61%. So, as you can see we're well on our way to the 75%.

Before Steve and Allen discuss our performance for the quarter, I want to address the questions I believe are at the top of your mind. First, when will this Tasty transaction be complete? What about other acquisition opportunities? Next, what is happening with consumers, as they face higher costs for fuel, as well as food and other goods? Third, has Flowers been impacted by recent weather events; the tornadoes in late April, and the flooding in recent weeks?

Let me give you an update on acquisitions. We expect to complete the Tasty acquisition soon. Our hope is to close the transaction within the next few weeks, so we can move forwards with integration. Steve and Allen will give you more details about the Tasty merger. We continue to see heightened activity around possible acquisitions, although we cannot predict timing, we do expect mergers and acquisitions to be an important part of our growth, as we outlined in our long-term objectives in New York.

Next, what are we seeing in the marketplace? Consumers are feeling the impact of higher prices for fuel, food and other consumer goods, on top of high unemployment. The results appear to be heightened focus on value, as more consumers migrate to other channels in the food segment.

Finally, we have had a dramatic weather event, or events in recent weeks. Late in April, devastating tornadoes swept through the Southern states. Alabama had significant loss of life and property, other states also experienced losses. We have bakeries in Tuscaloosa, and Birmingham, two cities hit hard by the storm. Fortunately, our bakeries were not directly damaged, and none of our employees or distributors lost their lives. For that, we're thankful.

We did have power outages in Tuscaloosa and Birmingham, and in other bakeries in the near path of the storm. Most outages were short-term. However, our Tuscaloosa bakery was without power for several days, but now back on stream, and doing well. As you have seen in the news report, some smaller towns along the path of the storm were completely destroyed. That does cause disruptions, as some store locations are simply not there to serve.

The strength of the Flowers way was evident, as our other bakers in Alabama, Georgia rallied to supply the Alabama market and other areas affected. We were able to serve our customers, but it took extra effort on the part of our team members and distributors. I want to take this opportunity to thank our team members, our distributors, our vendors, and others who truly made the impossible happen after the storms, as we serve the market, and offer help to the thousands who were directly impacted by the storm.

In addition, as you know, we now have flooding all along the Mississippi River. None of our three bakeries in Louisiana have been impacted at this point, but with the same spirit that I mentioned as our response to the tornado damage in April, our people are producing profit and our distributors are doing a great job of serving the marketplace. Now, I'm happy to turn the call over to Steve Kinsey for the financial report. Steve?

Thank you, George, and good morning, everyone. As Marta said, this morning, I'll provide you a brief review of the financial information, but first I wanted to let you know that we filed our first quarter Form 10-Q with the SEC this morning, simultaneous with our earnings release.

Now, turning to the financial information. First quarter sales were up approximately 1%. As discussed in the press release, sales were driven by an increase in net price mix of 2.1%. Strong pricing actions were somewhat offset by negative mix in the quarter. Volume in the quarter was down 1.2%. The negative mix and decline in volume reflect the pressure the consumer is experiencing, as they continue to shop for that value.

As George mentioned in keeping with our strategy, we took pricing actions leading into our 2011 cost increases. This action affected volume as well, as the overall category lagged our pricing initiatives.

GAAP EBIT of $61.5 million was down approximately 0.8% compared to the same quarter last year. However, excluding the one-time costs with the Bluefield plant closure, and costs associated with the pending Tasty merger, EBIT on an adjusted basis was up 9.7%, and increased to 8.5% of sales on an adjusted basis. GAAP EPS was $0.45 per share, up 2.3% over the same quarter last year. And as George mentioned, excluding the one-time cost of the plant closure and the pending merger, EPS was up 13.6% on an adjusted basis. So, overall, we're very pleased with the quarter, and the strong performance in the first quarter.

Gross margin improved in absolute dollars, as well as a percentage of sales, in the quarter compared to same quarter last year. As a percent of sales, gross margin improved 80 basis points, compared to the same quarter last year. The decline in cost was driven by reduction in input costs, offset somewhat by higher workforce-related costs. Overall, input costs which we define as ingredients, packaging, and natural gas were down approximately 3% for the quarter, driven by pricing and volume declines. As a reminder, input costs will be up 8% to 10% for the full-year.

Also included in the gross margin is cost of approximately $2.8 million or 30 basis points net of the operational savings related to the Bluefield plant closure. And as discussed at our March New York meeting, the overall effect of the Bluefield plant closure is expected to be neutral to slightly dilutive on the full-year. We are pleased that in a challenging environment, EBITDA improved to 11.2% of sales in the quarter, compared to 11% in the same quarter last year. The improvements in the EBITDA dollars and percentage was driven by the sales increase and gross margin improvements.

Negatively impacting the EBITDA margin was an increase in selling, distribution and administrative expenses, to 37.4% of sales, compared to 36.8% of sales in the same quarter last year. This increase was driven primarily by costs associated with the Bluefield plant closure, and costs associated with the pending merger of Tasty Baking Company. Excluding the effect of these items, selling, distribution and admin costs as a percent of sales would have been relatively flat quarter-over-quarter. On an adjusted basis, excluding the one-time costs, the EBITDA margin as a percent of sales would have been 11.9%.

Briefly commenting on the balance sheet and cash flow. Cash flow from operations during the quarter was strong, even though it declined slightly. The decrease of roughly $10 million in cash flows from operations quarter-over-quarter, was primarily a result of hedging activity. As you can see, we continue to execute on our strategies for uses of cash. During the quarter, we spent roughly $22 million on capital expenditures, paid $18 million in dividends to our shareholders, and also repurchased approximately $18 million of Flowers Foods shares. We believe the strength of our balance sheet continues to offer us the flexibility to continue to execute on our cash strategies, as well as provide for future growth potential.

Looking ahead in 2011. Our guidance is still in line with that presented at the New York meeting. Sales growth of roughly 3% to 6%, forecasted down gross margins, full-year tax rate of 35% to 35.5%, and EPS growth of 5% to 10%. As a reminder, this guidance does not include the effect of the one-time cost associated with the Tasty merger, or the operations impact of the pending Tasty Baking merger. Guidance on the operation effects of the merger is included in the press release. As George said, we do anticipate the transaction to close soon. We will update guidance once the transaction is closed. Now, I'll turn the call to Allen to update you on sales and operations. Thank you.

Thank you, Steve, and good morning. Just a few weeks ago, at our Analyst day in New York, we shared detailed information about the category and how our brands are positioned. We also talked in depth about our growth strategies and our operations. For that reason, my comments today are brief, and simply intended to bring you up-to-date since our Analyst day.

In the quarter, IRI reports the fresh packaged bread category in the total US was down 3% in units, and up 0.3% in dollars. In IRI South, the fresh bakery category at retail was down 4.1% in units, and down 1.2% in dollars. In IRI South, lower sales of white bread drove the category's dollar sales decline. In the total US market, IRI shows that Flowers was down 5.6% in units and 0.1% in dollars. And IRI South shows that Flowers' branded sales in reported channels were down 6.4% in units and 0.9% in dollars. Again, you will remember that we took pricing in October, for our higher input cost in 201, that impacted our units.

I am pleased to report that IRI shows that our market share held steady in the South market. We have 22.8% share of dollars and 18.7% share of units. For the total US, Flowers dollar share is 7.9% and unit share is 7%. You might think with consumers seeking value, that store brands would be experiencing growth. That is not the case in this category. IRI shows that store brands declined 60 basis points in dollar share, 40 basis points in unit share of fresh packaged breads in IRI South.

Flowers overall store brand business increased as a result of a snack cake agreement with a key customer, and also some new store brand business in the DSC segment. Our internal sales data shows growth in channels not reported by IRI. As a reminder, IRI data only captures 48% of our retail sales, and only 24% of Flowers Foods total sales. With consumers responding to a difficult economy, we are seeing growth in alternative distribution channels, such as dollar stores, drug stores, and other limited assortment small format retailers.

In branded retail, our total soft variety business was up in dollars, and Nature's Own continues to grow. As I mentioned, our pricing action did impact units, but that is a short-term situation that we expect to improve as we go forward. We are pleased with the performance of our Sandwich Rounds, our Bagel Thins, and our other new products. We continue to refine our product mix, to be certain that we are offering the varieties that consumers want.

Our total food service sales were down, driven by softer sales to our quick serve customers. Industry predictions are that food service category sales will improve this year, and we are poised to grow as our food service customers grow. In the second half of the year, we have new business coming online with several new food service customers. We also will be adding additional business through expanded distribution with several of our current existing food service customers.

Our new markets are also performing well. In the first quarter, new markets contributed 3% of our total DSC sales. Growth in our new markets was in line with our goal of 0.5% to 1%. As George and Steve mentioned, we look forward to getting started on the Tasty/Flowers integration. We are developing plans for how and when we will introduce the Tastykake brand through Flowers DSC territory. At the same time, we are exploring possibilities for Nature's Own in Tasty's DSC markets, as we also evaluate options to add bread and roll production capacity.

With the strength of the Tastykake brand, we will have the opportunity to gain a greater share of the $4.1 billion fresh cake category. Tastykake is a 100 year old brand with loyal consumers who buy the product because of specific taste and texture characteristics. We understand this important point, and we do not plan to change the Tastykake recipes or product characteristics. We do plan to leverage Tasty's positive customer relationships, and their distribution strengths to provide a solid platform for the introduction of our Nature's Own brand in the key markets in the Northeast.

In short, with our operational strengths, Flowers Foods is well-positioned in the marketplace, both for today, and more importantly for tomorrow. Thank you for your attention, and I'll now turn the call back over to George.

Thank you, Steve and Allen. I want to get to your questions now -- excuse me -- but before we open the line, I do want to say our team is very confident in the five-year growth plan we presented in March. As a reminder, our sales goal is for 5% to 10% annual growth, including acquisitions and mergers and organic growth. We expect that to equate to double digit earnings per share growth, and an EBITDA margin as a percent of sales of 11% to 13%. By 2016, we expect 75% of the US population to have access to Flowers Foods fresh bakery brands.

I'm sure you're asking, what makes us confident in our growth plan. I'd say that we have opportunities to grow through acquisitions. The first step is Tasty Baking, and we believe more will follow. New markets offer growth opportunities as well. In our new markets, we have room to grow, and strength of our brands. Our product quality and our distribution network will make growth happen in those markets. And as Allen mentioned, we have new business coming on later in the year, which helps us to grow in our core markets, as well as in the new markets.

We are focused on our cost, on implementing pricing to help cover higher commodities, and on completing the Tasty merger so we can get to work on the integration, and take advantage of opportunities. I am so proud of Flowers' team. And when we face challenges brought on by natural disasters or other crisis, the Flowers spirit is a great advantage, as we work together to serve our customers, to protect our Company, and to help our fellow team members and our communities. We are determined to grow Flowers Foods, and by doing so, create value for Flowers Foods shareholders.

Rob, we will now open the lines for questions, please.

Thank you. (Operator Instructions) Thank you. Our first question is coming from the line of Farha Aslam with Stephens. Please state your question.

Hi, good morning.

Good morning, Farha.

George, could you comment on how the competitive dynamics are developing in the baking category as the quarter progressed?

I will, and I'll let Allen follow up as well. I would say, and I think that either Steve or Allen did mention in their prepared remarks, that we were ahead of the curve from a pricing standpoint. But I would report to you, that in fact two or three weeks, and I'm just -- I've got IRI report before me, I do see that in the fresh bakery category as described by IRI, in total US, that the average price per unit from prior year was up 6.1%.

So I think it took a while for the inflation to come around. But as I did say in my prepared remarks, this is true with anybody that's dealing with oil and energy and grains and healthcare, and whatever the tremendous costs continue to be coming into the arena. And we are absorbing those costs, and we're doing our best to leverage that the best we can, to make sure that we recover, and try to keep our margins the best we can. So summing up that, I'd say again, based on IRI that category has seen quite a bit of inflation in just the past few weeks.

So competitors are now following, and are also increasing pricing cost at commodities?

As evidenced by IRI.

Okay. Thank you. And Allen, you had mentioned a couple of different new business wins that you had in both retail and foodservice. Could you just help put some numbers around those, so that we can model that better?

Farha, the -- we have had success in picking up some new business, both on the foodservice side, and in some other areas. But I think it probably is not appropriate on this call to be able to give you the specifics on the numbers or the details. I will tell you -- say that the overall customer opinion of the consolidation in the category I think is favorable for Flowers Foods. And a lot of the business that we have picked up, is based on the positive reputation that Flowers has built through many, many years. So we're encouraged about progress in that area.

Thank you very much.

Thank you. Our next question is from the line of Heather Jones of BB&T Capital Markets. Please state your question.

Hi, good morning. This is Brett Hundley, standing in for Heather this morning. How is everyone doing?

Fine, Brett. Thank you.

I guess -- I wanted to go to the comment that you made, George, about increasing prices to offset higher costs going forward. And I just want you to address whether that was taking further price increases, or just getting better realization of the price increases that you've already taken?

Well, I think I would say both. Obviously, we did take pricing, as we stated back in October. As you know, commodities was at one price and they're at another price today. So therefore, we will be looking for future price realization.

And again, as we look out even beyond 2011, we see there's very much volatility in the overall grain and energy market. We see more volatility in one day than we'd see in a whole year, just as an example. So it is volatile, but I think in the long-term because of weather patterns, because of more usage of grains, because of more corn going to ethanol -- in that 40% -- 38% 40% of that crop is going to ethanol, there's tremendous pressure in the overall grain markets. And therefore, we're seeing tremendous inflation on commodities. And we'll have to see more food inflation as we go down the road.

Okay. And then I wanted to look at gross margin progression, specifically as it relates to your DSD segment. Just using some of the numbers from the Q, I can back into a DSD margin of around -- over 10.5%. And clearly, pricing more than offset costs here, possibly due to favorable hedges as well. And so, I guess is it a fair assumption then, to assume as we go forward through the year again, specifically to DSD, that input costs are going to continue to rise, and thus you'll see that gross margin decrease year-on-year as we go forward?

That's correct, Brett. I think if you look at -- there is a slot on gross margin in the presentation. And as you can tell, the first quarter was down somewhat -- slightly -- but as far as input costs. And the margin had improved in the quarter, but the overall full-year margin, we're forecasting to be under pressure and down, as we've said earlier. So as the year progresses, the costs do continue to increase at DSD and warehouse. So both those divisions will be under some pressure.

All right, thank you. And then I guess, just my last one, George. I'd just like to get your opinion. We get a lot of questions on new market growth, and you talked a little bit about new markets for the Company. And I guess I would just like to hear your view on gaining shelf space in the mid-Atlantic northeast markets? And I'd like to get a better idea of how Tasty positions you there? And ask the question of, if quicker turns offset the need for equivalent shelf space there?

Yes, thank you. Number one, Tasty brings a wonderful reputation and relationship advantage to Flowers Foods. I think that's transferable. They will be having us develop the Flowers brands in the mid-Atlantic market. But I'd give evidence to shelf space, if you look back four or five years ago to northern Virginia. If you looked at Washington and Baltimore, we were basically zero.

And we've -- we went in with -- based on our reputation of great service and great quality in those markets, and the customers did give us a fair shot at ample space going in, which is not a lot going in. You have to prove yourself. But we're just real pleased with what we've been able to accomplish in northern Virginia, and beginning to in the Baltimore, and the Maryland market. So we feel like with that reputation of great quality and great execution, great service, that we will have the same acceptance, as we move into the Pennsylvania and the adjoining markets in the future.

Thanks, George.

Thank you.

Thank you. Our next question is from the line of Akshay Jagdale with KeyBanc. Please state your question.

Good morning, thanks.

Good morning, Akshay.

Hi, I just wanted to ask on the sales guidance for the year, what was your -- did the quarter come in better or worse than expected on sales? And why do you still have confidence in sales growth accelerating meaningfully over the remainder of the year, which is what is implied by your guidance? And then I have a follow-up for Allen.

I'll take a stab at it maybe first, and Steve can follow up if he'd like -- he or Allen, either one.

I think we all know, as you can -- that we have discussed, that inflation did not go in total bakery category the first quarter. We do see total inflation, and that has hit. And we do see some differences now, that every -- the category has gone up. We had depended on new business as part of that growth. And as Allen said, we can't discuss that any further because of competitive reasons, but we have confidence in that. And as we've said, we also know there's probably some more inflation coming, as a result of higher input costs.

And as our footprint changes somewhat from our adjoining markets, and as we continue to get stronger day by day in those new markets that we have just been serving for less than a year or 18 months, those gain speed as we go along. So we still feel confident about the sales guidance that we've given, and longer term of the 5% to 10%, we feel comfortable with, based on all of the above.

Okay. And then just a follow-up for Allen. I mean, I would love to know what your guidance for sales implies for volume and pricing, but I'm assuming you're not going to go there today. But just what are you modeling, or what are you thinking of the white bread category, because the volumes have been pretty weak? Volumes generally have been pretty weak, so as pricing accelerates, you'd think volumes would get weaker. Is that included in your guidance? And what specifically are your thoughts, Allen, on the white bread category, and why it's so weak from a volume standpoint?

Akshay, that is a good question. We have been watching the white bread category decline for several years now. And there may be, it's probably a combination of reasons, but certainly the consumer who -- the demographics of the consumer who is a heavy white bread user is usually a middle to lower income individual that may be impacted more by the tough economy, than perhaps some other demographic groups.

But I think the reason we have confidence, is that we do have extremely good visibility on the markets, and the areas that where we're down in our white bread category. And we plan to add some promotional activity back in those areas, so that we can make sure our volume stabilizes. But I think the overall trend we're seeing in the total white bread category will probably continue, until we see a turnaround in the overall economy situation.

Thank you. I'll get back in line.

Thanks, Akshay.

Thank you. Our next question is from the line of Alton Stump of Longbow Research. Please state your question.

Yes, thank you. Good morning.

Good morning.

Just on the volume front, it sounds like based on our checks, and also some of your comments this morning, that a good portion of the [support] from your competitors on the pricing front, equates to mid to maybe late part of the first quarter. So is there any opportunity here, maybe for your volume performance to get a bit better, just off of that competitor backing in the coming quarters?

Yes, we always see that. Once the category goes up completely, and again as evidenced in IRI, we're seeing that now. And we -- I think Allen mentioned, that in the past two or three weeks we can certainly see some changes in our unit change in the retail side of the market.

Okay, thanks. And then just a real quick follow-up on the cost front. Was that 3% lower input cost number for the first quarter, was that embedded in your full-year mid to high single digit cost guidance?

It was.

Okay. Thanks, guys.

Thank you. Our next question is from the line of Tim Ramey of D.A. Davidson. Please state your question.

Hi, good morning.

Good morning, Tim.

I was interested in your comments that in the IRI data, we aren't seeing a shift to private label. But it sounds like in your business, you may be a little bit -- and of course as you point out IRI only captures 48% of your sales I think you said. Do you think the shift to private label is occurring at the dollar stores, at the club stores, at the mass channel, or do you just think it's not happening?

Tim, this is Allen. I believe that it's not happening. When we looked at our business, and those other channels are not monitored by IRI, we are really focused on branded growth. And I would say the trends in those categories are not dramatically different than what we're seeing in the overall category. If you have an individual customer who decides to introduce a private label that he might not of have had in the past, that could change things temporarily. But I don't see any big consumer change in the non-monitored categories, that we're seeing in the IRI category.

And can you give us a sense of what you think the volume to price elasticity is? Traditionally, we thought that the bread category is not very elastic, but we are seeing some elasticity here. Do you have any studies on that, or thoughts on that?

Tim, each market is very different. You've got a different set of competitors, you've got a different set of trade customers. We really don't -- the uniqueness of pricing and the impact of pricing is really a market to market situation, and I don't think any overall trends or studies would really apply.

Tim, I do believe this. I believe as the lower economic people in the United States has felt with unemployment and with higher costs in general to their family, I believe there's a seriousness of zero waste. I don't believe there's any pantry loading. I don't think people buy it and put it in the freezer, and pull it out later. So I will point to that area of concern. And we hope that we'll -- the consumer will have more confidence at some point in the future, but it's hard to see at this point.

We really see -- and I think this is driven by that lower income bracket as I just mentioned, that it's amazing if you look at IRI, and look at the first of the month, and see the amount of product units sold. And you follow it week by week to the end of the month, and I've heard retailers say this as well -- and I have started saying it more -- you really see a big difference between the first of the month and last of the month. And we've always seen some difference, but it's broadening more and more. So I think that's just part of the economic cycle that we were in, and we just need to hope for better to come, but I think that's part of the issue.

Thank you.

Thank you, Tim.

Thank you. Our next question is from the line of Mike Schwartz of SunTrust Robinson. Please state your question.

Hi, good morning, everyone.

Good morning.

Could you guys just maybe quantify the impact of some of the April weather issues in the Southeast, what they had on the quarter? And was there any kind of shift effect into the second quarter, of some of that volume?

Let me say this. It's immaterial from a -- it was pretty tough from people -- not just pretty tough, it was devastating to the people in the eye of the storm, people who lost homes, people who lost roots, death. We'll never minimize the devastation that happened. But for Flowers Foods' benefit, it's minimal on -- and I'll let Steve follow it from a true financial standpoint.

And actually, Mike it came after the end of the first quarter, so there was no effect in the first quarter. It all happened in the second quarter. And other than, as George mentioned the market disruption, which we seem to have been able to manage that fairly well, I would say overall, it's fairly insignificant or immaterial, at this point on the quarter.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is from the line of Amit Sharma of BMO Capital Markets. Please state your question.

Thank you, good morning, everyone.

Good morning.

George, can you please provide us, what's your outlook on re-prices? I mean, we've seen prices kind of stabilize, and even come down a little bit from high levels in the first quarter. How do you see that? And I heard Steve saying that 8% to 10% caused inflation, you even stated that, but are you a little bit more secure in that number?

I think you said, are we secure in that number? Yes, we are secure in that number for 2011. But beyond that, I think you said it did go down for a while and stabilize, that's true. But I think the day before yesterday, for this week, we're probably up $0.60 or $0.70 just this week. Yesterday, I think it was up like $0.40. I think we're up again this morning.

So, everything we continue to read and study, and the fact that our procurement expert is in the field in Kansas as we speak, trying to get the better handle on the longer term proposition. But again, with all of the weather issues around the world, and with the ethanol issue, and with more people eating grains and protein around the world, I think that there just will be tremendous pressure for a while on the commodities.

High prices in commodities usually brings lower prices at some point. The question is when. And I can't find anybody who thinks that's going to be short-term. Short-term meaning, probably won't be there 2012, unless it could be on the new 2012 crop -- looks like it could be a boomer. But you certainly can't predict that yet. So we do expect, more of the same -- will be volatile. And we'll be 2X to 3X what it has been normally, and when I say normal, the past 35 years. So it is extremely high compared to the average of 35 years. So that I think it's a new norm. Three years ago, we talked about the new norm might be $5.00 to $6.00. With what is going on, the new norm could be quite a bit higher.

All right. Now, given your view of the higher volatility, can we expect you to increase coverage from six or nine months or a little bit longer?

We take opportunities, as we see them. If we think it's a -- if all of a sudden, we saw some cheap prices, we'll probably look at it longer. But we find out that six to nine months is probably in the sweet spot for us. And sometimes you might think it's a cheap price, and go into long-term, but then if you see more downturn, sometimes you end up being uncompetitive. But what we do try to do though is make sure that we do know our cost, so that we can make those adjustments in the marketplace, as well as continue to work on cost as always.

And just one more question. On the competitive environment, are you seeing some turbulence in the Sara Lee business, as that acquisition comes? Is the new business that you're getting, is it somehow related to what's happening at that competitor, or is it completely different or not?

Yes, I wouldn't comment on that. I don't know the Sara Lee business. And we stay focused on our business, and we're always calling on customers. And that's about as far as I would go with that.

Okay, I appreciate it. Thank you very much.

Thank you.

Thank you. (Operator Instructions) Our next question is a follow-up from the line of Akshay Jagdale with KeyBanc Capital Markets. Please state your question.

Thanks for taking the follow-up. George, I just wanted to -- you didn't answer my question directly, when I asked you if you were happy with this quarter's sales performance. If you would start with that, that would be great. I just want to know how the quarter compared to your internal expectations on sales?

Well, I'd address it this way. There's probably a reason I didn't give you at direct answer, but I will give you the direct answer this way. And to say that as you look back over the past two years, quarter-over-quarter we made improvement over the prior year. And we felt that volume as indicated was down 1%, wish it had been better. But nothing we can do about that at this point, we are just focusing on the future, and still feel comfortable at this point, with the guidance we've given.

That's helpful. And how are this year's volume gains through new business different than last year? Because you had similar commentary earlier last year, where you said there's going to be new product wins. And I'm sure you got those, but your sales came in below what you had guided for. So I'm just trying to gauge how much more -- you must be more confident this year, probably because of the magnitude and the nature of these contracts relative to last year. That's what I'm trying to gauge.

Yes, Akshay, I'd say that -- and again, I've said I can't say, about the new business coming on because of competitive reasons. We are confident though in what is coming and what we think we'll see the rest of the year.

Okay, great. And one last one, for Steve, on the cost side, can you give us some sense of how on a quarterly basis, the costs are going to trend? I mean, is it going to be very different in 2Q versus the back half? Because at least from my expectations, I didn't expect costs to be down as significantly as they were this quarter on the commodity and ingredients side. So I was surprised by that.

I just want to help -- I need your help in modeling 2Q, in terms of understanding whether we're going to see a similar trend to what we saw in 1Q, because you did have higher wheat costs I believe in 2Q 2010. But just any guidance as to how that cost is going to flow through for the remainder of the year would be very helpful.

Well, what I can say, Akshay, we have said -- early on we did say the back half would really be a lot tougher than the first half. But we -- the first quarter, we had some very favorable hedges. So now those hedges have rolled off, so progressively you'll see the cost, on input costs begin to get worse. And then in the back half, it's going to be the tougher half.

Okay. Thank you very much. I'll pass it on.

Thank you.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Mr. Deese for closing comments.

Thank you, Rob for hosting this call today. And thank you for joining our call this morning. We appreciate your interest, and look forward to our next meeting. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.