Flowers Foods Inc (FLO) 2014 Q4 法說會逐字稿

Welcome to the Flowers Foods fourth-quarter and FY14 earnings conference call. My name is Paulette and I will be your operator for today's call.

(Operator instructions)

Please note that this conference is being recorded. I will now turn the call over to Marta Jones Turner. You may begin.

Thank you, Paulette, and good morning everyone. We realize that today's a very busy day, with multiple earnings releases and calls, so we really appreciate your taking the time to join our call. Our fourth-quarter and full-year 2014 results were released earlier today and we expect to file the 10-K before the end of this month. You'll find the earnings release and our updated two-page fact sheet on the Flowers Foods website. A PowerPoint presentation that supports our discussion for today is posted on the conference call webpage -- the conference call page.

Before we begin, I must remind you that are presentation today may include forward-looking statements about our Company's performance. Although we believe those statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to matters we'll discuss during the call, important factors relating to Flowers Foods business are fully detailed in our SEC filings. Before we get started with our discussion of the quarter and year's results, I want to alert you that Flowers Foods will host its Meet the Management luncheon at the New York Stock Exchange on Tuesday, April 14. Of course we will send you more information later, but we thought you would want to note that date, April 14, on your calendar.

Now let's get started. Participating on our call today we have Allen Shiver, Flowers Foods President and Chief Executive Officer, Steve Kinsey, our Executive Vice President and Flowers -- and Chief Financial Officer. We will open the call for your questions following our prepared remarks. Now, Allen, I will turn the call to you.

Thank you, Marta, and thank you for joining our call today. In FY14 our Flowers team made great strides, integrating the new business that we have earned over the past two years. We have taken a number of steps to better manage our operating expenses and position the Company for continued profitable growth. In 2014 we improved our manufacturing efficiencies, further developed our expansion markets, paid down debt, increased our dividend, and repurchased shares.

Looking ahead, we're focused on growing our branded business, while consistently improving the quality of our sales. Also, we see further opportunities to improve profitability and to drive earnings growth. We recognize that consumers expect innovation from our brands. In addition to an exciting assortment of new products that will be introduced throughout 2015, we're always working to enhance our current products by improving quality, freshness, and consumer appeal. We know that having the right assortment of the freshest products on the shelf is a key driver of market-share growth. To that end, we are investing in technology that will enable us to better anticipate consumer demand and support our network of over 5,700 DSD territories.

Currently our distribution network has access to over 80% of the US population and we have substantial opportunity to grow share in our expansion markets. For example, this past summer we expanded into northern Ohio, where the strength of the Wonder brand allowed us to increase sales of Nature's Own, Cobblestone Bread Company and Tastykake brands in those markets. Additionally, we have increased distribution on the East and on the West Coast, where sales growth we expect in those large markets will be supported by the capacity that we have recently added in those regions. During 2014 we experienced continued growth in markets such as Boston and Kansas City. Helped by our acquired brands, expansion in these and other markets contributed nicely to our growth last year.

On previous calls, I mentioned that 2014 was a year of betting down the new business that we had gained over the past two years. Our team worked hard and did an excellent job reinforcing our strong foundation and positioning us for future growth. During the year, we added a bun line in our bakery in Henderson, Nevada, and added new capacity at our Modesto, California bakery, giving us needed capacity in the West Coast market. We also opened a bakery in Knoxville, Tennessee, that allowed us to reduce transportation costs and improve product freshness in certain expansion markets.

As part of our exit from the food service tortilla business, we have moved, to our San Antonio bakery, two of the Flower tortilla lines from the Fort Worth, Texas, facility that we sold in the third quarter of 2014. We see a greater opportunity to develop our existing retail Flower tortilla business and the San Antonio tortilla lines will help supply our DSD markets as increase our focus on this important category. A major initiative in FY14 was further integrating our Lepage acquisition and transitioning their operations to our independent distributor model. Our team's hard work throughout the year is paying off. In the fourth quarter we saw year-over-year improvement at Lepage and 2015 is off to a good start.

Over the past two years, we have benefited from the substantial market share shifts that occurred after Hostess's exit from the market. During 2014, our team focused on improving manufacturing efficiencies, such as reducing downtime and improving throughput. I am pleased to report that production metrics improved over prior-year and combined with lower input cost, translated to improve gross margins. Freshness is key to driving sales of bakery products and ensuring our consumers receive the freshest products possible was a big priority for us in 2014. We continue to work with our independent distributors to identify changes in buying patterns and how these changes impact order forecasting. The results of our team's efforts have been a fresher products supply in the stores, increased sales of our branded breads, and importantly, a reduction in stales or waste from product returns.

Consumers are increasingly more conscious of the foods that they're eating. Flowers was on the forefront of the Better For You movement, introducing our Nature's Own brand of soft variety breads, with no artificial preservatives, colors or flavors, in 1977. Since then we have introduced many other varieties with healthier attributes such as higher fiber, reduced sugar and multi-grain breads. We will continue to invest in market research to keep Nature's Own, and all of our brands, relevant with the changing needs of the consumer.

The American consumer is changing at a rapid pace and innovative new products are critical to drive growth now and in the future. In mid-2014 we launched the Cobblestone Bread Company brand, which is targeted primarily to the growing millennial demographic, their desire to create restaurant-quality sandwiches at home. Although we are still early in the introduction process, we are pleased with the response from retailers and consumers so far and plan to introduce more products under the CBC brand this year.

Our snack cake business faced increased competition in 2014 as Hostess Cake continued their return to the market. While our overall branded snack cakes were down due to the competitive environment, our Tastykake brand posted slight growth, excluding the extra week. On the cake innovation front, we have been pleased with the consumer response to our seasonal Tastykake items, such as Salted Caramel and Red Velvet Donuts. We continue to introduce Tastykake to new markets via our DSD network and our distributors are excited about the growth they are experiencing with this iconic brand.

As I mentioned, the reintroduction of the Hostess Cake brands did put pressure on our market share when compared to 2013, but our current share in a branded cake remains above were we were in 2012. We remain confident that our cake strategy will win share against the competition and we are keenly focused on executing in the marketplace to further build this important part of our business.

Looking at the total US market share of the fresh packaged breads category, we grew slightly over the prior-year. Based on fourth-quarter ROI data, we have 13.7 share, a slight increase over fourth quarter 2013. Through organic growth and future acquisitions, we intend to build our market share in fresh packaged breads. We are seeing increased M&A activity in the food category and we continue to monitor the landscape for opportunities that will extend our geographic reach, enhance our product offerings, and strengthen our Company overall.

I will now ask our CFO, Steve Kinsey, to give us a financial report on the quarter. Steve?

Thank you, Allen, and good morning, everyone. Before I get into the operational results, I would like to address several items that were highlighted in the release.

First, during the quarter we revised sales for certain discounts on cash sales that were historically reported as selling, distribution and administrative to a contra revenue account. After review of the character of these discounts, we determined that there were more appropriately classified as a contra revenue than a selling expense. To facilitate comparability between periods, we have revised sales for all periods presented. We did include with the press release a schedule that reconciles the impact of this revision for all periods impacted. The overall impact on net sales is immaterial and there was is no affect to earnings. The revision does slightly impact overall margins as a percent of sales, but not in a significant way.

Second, as we disclosed in the third quarter call, as part of our pension risking strategy we offered a lump sum payment to certain eligible former employees. This was a limited-time offer and during the fourth quarter we completed this phase of the strategy. As a result, we did take a non-cash pension settlement accounting charge of approximately $15.4 million, or $0.05 per share. This charge is in line with the amount provided to you on the third-quarter call. Based on the overall acceptance of the offer, the pension plan distributed approximately $50.4 million in lump sum payments from existing plan assets in December. These payments did not materially effect the Company's required contributions for 2014 or 2015.

Finally, during the fourth quarter we recognized an asset impairment of approximately $5.8 million, or $0.02 per share, relating to the sale of certain assets acquired in the Hostess acquisition. The impairment is the result of the offer price on certain assets being less than the book value. Once we have closed the sale of these two properties, we will have sold 7 bakeries and 17 depots acquired in the Hostess acquisition.

Now turning to the fourth-quarter operating results, as a reminder, 2014 was a 53-week fiscal year compared to 2013, which was a 52-week year. I will discuss the impact of the extra week as we move through the discussion of the quarter's and year's results. Sales in the quarter were up 4.4%. The extra week in the quarter increased sales by 7.5%. This increase was offset by a negative price mix of 0.5% and decreased volume of 2.6%. The negative price mix was driven primarily by a positive mix shift offset somewhat by continued promotional activity. The positive mix was driven by increased branded volume.

Volume declines were driven primarily by declines in our store brand bread and cake businesses and food service, primarily our tortilla business. We continued to see strength in our expansion markets. However, our core market sales remained pressured by a strong competitive environment. Our expansion markets, representing about 6.3% of total DSD sales, performed well and contributed growth of approximately 1.7% in the overall DSD business, excluding the extra week.

In our DSD business, excluding the extra week, sales were challenged by lower volume and lower net pricing. Volume in that DSD business was generally affected by lower volume from the exit of certain store-brand businesses. Overall, store brand DSD sales were down approximately 10.6% in dollars compared to the prior year's fourth quarter, excluding the extra week. In general, branded volumes were up in bread and cake, while overall pricing continue to be pressured by promotional activity. White breads continue to perform well on the strength of the acquired brands in the expansion markets. A positive mix it was offset by negative pricing and the extra week added 7.6% to DSD quarter sales.

Excluding the extra week, our warehouse business sales declined 9.4% as compared to a year ago, driven [barely] by decreases in our warehouse, cake and food service businesses. Declines in our warehouse cake business were driven by negative volume in store-brand cake. Branded cake and warehouse was relatively flat in dollar terms quarter over quarter, though volume was affected. Our exit from the food service tortilla business primarily contributed to the declines in the warehouse food service segment. The extra week added 7.1% to the quarter sales for warehouse.

In total, excluding the extra week, our cake business was down about 4.4% quarter over quarter. These are slightly better results than we have seen over the past several quarters. For the full year 2014, excluding the extra week, cake sales were down approximately 8.7%. As a Allen stated, we have seen cake comps improve throughout the year.

Adjusted operating earnings, or EBIT, were up 8.8% this quarter compared to last year's fourth quarter. Adjusted EBIT margins were up 20 basis points year over year to 7.1% of sales. The overall improvement in EBIT was driven by a stronger gross margin, offset by an increase in selling, distribution and administrative expenses as a percent of sales. During the fourth quarter, carrying costs for the acquired facilities of $4.7 million negatively impacted EBIT margins by approximately 50 basis points. Also during the fourth quarter of last year, carrying costs were approximately $5.3 million, negatively impacting EBIT margins by about 60 basis points. Adjusted earnings per share for the quarter were $0.20, up 11.1% compared to last year's fourth-quarter adjusted earnings per share of $0.18.

The extra week added approximately $0.01 per share to the quarter. The acquired facilities carrying cost negatively impacted the quarter's earnings per share by $0.01 this quarter, compared to $0.02 in the prior quarter last -- in the prior-year fourth quarter. Full-year carrying costs related to the acquired Hostess facilities were approximately $19.5 million, or $0.06 per share, in FY14 compared to $10.6 million, or $0.03 per share in FY13. This increase was the result of 2014 supporting these costs for a full year versus roughly six months in 2013. We expect the full-year FY15 cost to be approximately $14 million to $16 million.

We did see gross margin improvement quarter over quarter. Gross margin was 48.3% compared to 46.7% in last year's fourth quarter. This 160 basis point improvement in gross margin as a percent of sales was driven primarily by improved efficiencies, lower ingredient costs and lower outside purchases as a percent of sales. These improvements were partially offset by reduced volumes. Carrying costs related to the acquired Hostess facilities reduced gross margin by approximately 30 basis points this quarter and last year's fourth quarter.

Selling, distribution and administrative costs in the quarter were 37.7% of sales, compared to adjusted 36.4% of sales in last year's fourth quarter. This 130 basis point increase was driven by increased distributor discounts and higher workforce related costs. Decreased volume in both segments of the business also negatively impacted SD&A as a percent of sales. Cash flow continued to be strong in the quarter. Cash flow provided by operations was a positive $93.7 million during the quarter. During the quarter we did pay down approximately $51 million in debt and at the same time we funded approximately $28 million in dividends, $25 million in capital expenditures and repurchased approximately $19 million -- or 1 million shares of our common stock.

For the full year FY14 we repaid approximately $167.9 million of debt and end the year with roughly $763 million in debt. The end of the year, our debt-to-EBITDA ratio based on the trailing 12-month EBITDA was 1.8 times. We also paid dividends of approximately $102 million. We funded roughly $84 million in capital expenditures. And for the full-year, we repurchased approximately $39 million, or just over 2 million shares of our common stock.

During the quarter we did complete the sale of additional non-strategic Hostess facilities. Year to date we have sold 5 bakeries and 17 warehouses for net cash proceeds of approximately $24 million. So as you can see, strong cash flow allowed us to execute on our overall cash allocation strategies. Our balance sheet remains strong and that gives us great flexibility to continue to focus on delivering value to our shareholders through dividends and share repurchases, debt repayment, investment in our facilities, and strategic opportunities as they percent themselves.

Turning to our outlook for FY15, for the 52-week FY15 we expect sales of $3.786 billion to $3.861 billion. We expect earnings per share of $0.96 to $1.01 per share. This represents an increase of 1% to 3% year-over-year from a sales perspective. We expect to drive the forecasted sales increased through strong performance in our expansion markets, flat to moderate growth in our core markets through new business in both DSD and warehouse and a slightly approved price mix as we work to more effectively manage promotional activity. Earnings improvement should be driven by improved efficiencies, better input costs, continued reduction of our overall operating costs as we drive margin expansion.

A few other factors for the year. Net interest expense is expected to be approximately $7 million to $8 million in 2015. Our depreciation and amortization is forecasted to be within historical range of 3% to 3.4% of sales and our forecasted tax rate for 2015, excluding any special or discrete items, is approximately 35.5%. For FY15, we will focus on executing our initiatives to grow in our core and expansion markets and continue to work on improving margins. We will also be actively monitoring the M&A environment, considering opportunities that complement our core competencies.

Thank you for your interest in Flowers Foods and I'll turn the call back to Allen.

Thank you, Steve. Before we take your questions I want to take time to thank our entire Flowers team for the hard work from this past year. We improved operations, which allowed us to reward shareholders by paying down debt, increasing our dividend and repurchasing shares. Looking forward, I am confident in our 2015 guidance. We expect our sales growth to be driven by continued development of our expansion markets and the benefit of new business we have earned in our core markets.

To continue the growth of our retail branded business, Cobblestone and Tastykake will be rolling out new items that will drive sales. We expect our expansion markets to post strong growth as Nature's Own, Wonder and the other acquired brands gain share in the large markets that we recently entered on both the East and the West Coast. We anticipate that our earnings growth with be driven by the additional sales volume that I just discussed, as well as the benefits realized from our efforts to improve operations at Lepage, reduce stale overall, exit low margin business, and sell non-strategic assets.

As always, we remain focused on the long-term, looking for opportunities to grow sales and reward our shareholders by leveraging the national awareness of our brands and fully developing our DSD and our warehouse distribution platforms. Thank you. We will now open the call for your questions.

(Operator Instructions)

Farha Aslam, Stephens.

Good morning. Two questions. The first is, could you just talk about the promotional cadence in the quarter? And what is your outlook for 2015 in terms of price promotions in the category overall?

Farha, the promotional environment really has not changed from our last call. Again, it continues to be a market-by-market situation. Overall, the marketplace remains competitive and really there is no dramatic change from last quarter.

Okay. That's helpful. And then could you just go through your commodity outlook in terms of overall how significant the benefit in terms of the decline in wheat will be for you guys, as well as some declines in high fructose corn syrup and sugar, et cetera?

Sure. When you look -- next year's commodity outlook, generally, Farha, we're looking at a low-single digit today, based on how we are covered. Obviously, we are not fully covered for the year. If wheat continues, or other commodities continue to move down, we do have the opportunity to benefit more. Generally speaking, we are down across most ingredient categories. Packaging is one that will be up for us. We do anticipate some relief in plastic bags due to the pull back in crude from a resin perspective. But overall, I would say the whole input basket will be down low-single digits.

That is very helpful. Thank you so much.

Thank you, Farha.

Eric Katzman, Deutsche Bank.

Good morning, everybody. Seems like you may have turned the corner on your costs, so that's good. I think you kind of mentioned, and this is kind of a follow-up to Farha's question, but I think you mentioned that you were hoping for a better promotional environment in 2015. Is that kind of built into your forecast? Or does the margin expansion that you have implied in the guidance, is that really based just on internal stuff?

Eric, as far as the promotional environment, we really have not made any assumptions, dramatic assumptions, looking forward for improvement. If there is improvement in pricing in the marketplace, there would be some upside there.

Okay. All right. And then, I don't recall in all of the years I have followed you, I don't recall where you have been, I guess, seemingly as vocal about the M&A landscape. Allen, maybe you could touch on that a bit more? Is this more local and regional bread suppliers who are feeling the pressure of the consolidation that has occurred in the category? Are you talking more in snack cakes, other baked goods type of products? And are the multiples that the sellers are looking for, do they, from your perspective at this point, appear fairly reasonable?

Eric, on the fresh bread, buns and rolls side, there are some independent bakers that would fit very nicely with our Company. As always, we continue to maintain good relationships and contact with those companies. On the cake side, we are excited about our progress with our Tastykake brand and I feel like we have got some momentum going into next year to continue building our cake business. But once again, we look at all opportunities and we will do a thorough evaluation of each one. The good news, with the strength of our balance sheet, if we see the right opportunity, we can take advantage of it. But really nothing significant in terms of companies that are available. I think you're probably looking at the same list that we have here.

Okay. All right, I will pass it on. Thank you.

Akshay Jagdale, KeyBanc.

Good morning. I jumped on a few minutes late, but the gross margin performance is really what I wanted to focus on first. It came in, in my estimates, was one of the best gross margin performances that you have had in quite a while. Would you agree with that characterization? Can you help me understand the drivers of that? I know usually when you put out your 10-Q we have the segment disclosure, so can you give us some color at the segment level? What drove the gross margin and just help me to characterize, from your perspective, the gross margin performance this quarter.

Surely, Akshay. This is Steve. Some of the driver on the gross margin, actually, looks like we were able to exit some low margin business in both warehouse and DSD. As you recall, we did exit some store-branded sales in DSD an then we had exited certain tortilla business in our food service warehouse groups, so that was a driver.

Another big driver in the quarter, one of the bigger driver -- I think one of the primary drivers was efficiency improvements. Efficiency for the quarter came out about 93.5%. That is up dramatically over last year, where was about 91.5%, so that's about 200 basis point improvement, from an efficiency standpoint. So just overall, that improved -- that's improved production costs, less scrap, so we were able to more effectively, or more efficiently, produce product to a better cost. I would say if I had to point to one big driver, I would say would have to be the efficiency gain in the quarter. And then we also had fewer outside purchases and that meant we were shifting production into our own plants so the quality and overall cost of production was down from that perspective as well.

So how much of that year-over-year gross margin pre-DNA improvement was related to efficiencies? Was it -- I think your gross margin were up 133 basis points. How much roughly was that, was efficiency driven?

Efficiencies are probably 50 to 60 basis points of that.

Okay. Again, the way I view that is what's in your control, you have finally started head-on like you have been for so many years. The other part of it as you had talked about right-sizing the business. And your SD&A to sales have been somewhat choppy and hard to model, so can you give us a sense of, when you say right-sizing the business, how much of those efforts are focused on at the plant level gross margin and how much of it is SG&A? When should we start to see some of that flow-through? Is it in your numbers? Is it in your guidance, basically?

Actually, in our guidance we do have some of the right-sizing of the business. We started those efforts in the fourth quarter. Most of those, I'd say most of the bigger efforts, the actions here have been completed so we will begin to pick up some of that benefit in the first quarter of 2015. Generally speaking, SD&A, two things going on there.

One, we have sold more routes so distributor discounts are up. But because of the fact that we are continuing to enter expansion routes, you are not typically seeing the full benefit you get as you begin to operate under independent distributors. So we are still maintaining some employee-related costs that with respect to distribution. You will continue to see, I think, a slightly elevated SD&A as we develop these new markets.

We're not willing to share today, but at our April Analyst Day we will talk about the next facility that we plan to open in one of our expansion markets. That will also begin to help to work on the SD&A as a percent of sales. So we do expect that to come down as a percent of sales in 2015. It's not necessarily hugely significant, but there should be some improvement in 2015.

Okay, great. And then the last one on -- you were pretty aggressive on share buybacks. I think the most you have bought back in dollar terms in quite a while. Should we read into that much? Can you help us to understand how you are thinking about buybacks as it relates to 2015?

Sure. I think when you look at the year and the quarter, cash flow is great. Is extremely strong. We felt very confident about debt repayment, our debt levels and where we were. So that gave us great opportunity to go into the market and buy shares. Looking into 2015, I think that we will stay with our strategy for the most part of buying in shares that are dilutive for my stock-based comp programs.

But as long as cash flows continues to be strong and were able to continue to focus on the dividend and other shareholder initiatives, share repurchases are still one of the top ways that we see to deliver value to our shareholders. I think, again, all forecasts are for cash flow to continue to be there, the cash flow to continue to be there. So I think share repurchases will continue to be a big part of our cash allocation strategy.

Just one last one on promotions. I think you have mentioned in the past that what is happening with private label and branded mix is the brands are promoting too much and so people are shifting from private label to branded and that's not really effective. Can you expand on that? Is that pretty much what again happen this quarter? Aren't the retailers seeing that net-net, that is negative for the profit pool of the industry? If they are seeing it, why aren't they are -- why are we still seeing those trends play out?

Akshay, the private label actually was down slightly for the total year. We continue to see the promotional activity on the branded side, but as I mentioned earlier, no real change for last quarter. As far as how the retailer is looking at the mix and their profitability, selling more branded product is certainly the right move for them as well as for the baker. I anticipate some level of promotional activity that is going to continue we're planning for that as we look ahead. But if pricing begins to improve on the branded side, there's also room for pricing to move up on the private label site as well. And that would be very helpful and healthy for the entire category.

Brett Hundley, BB&T Capital Markets.

Good morning, everyone. My first question, it sounds to me that things are less competitive in your expansion area markets than they are in your core markets. Is that a fair characterization, or am I off with that statement?

Brett, I think you are off with that. It is a competitive marketplace, whether we're dealing in our core markets or whether we're looking in expansion markets. But I think the message is that is not news. That has not changed. It's the same environment we have been dealing with for over a year now.

Yes. And so, has that -- just given what has been happening for over a year now within the competitive landscape, has that changed your strategy at all? Maybe where -- maybe you have become more selective about where you want to expand? Maybe you are thinking that you are not going to expand as fully as you would have before? Has that made you any more tactical, or do you still believe that the strategy that you have had in place for multiple years now is the one that can work?

Brett, as far as our pricing strategy, I think you can look at that IRI data and see that in most cases, Flowers is the price leader, whether it's a core market or whether it's an expansion market. Our strategy really has not changed on price. In terms of expanding and growing the Company, there is -- we continue to be focused on the population centers where our brands have opportunity. Really, the pricing environment in these new markets is not a deterrent to our expansion. The pricing environment is pretty much represented in the category in most markets that we're in today and the new markets are, I would not say any better or any worse.

Okay. And then I want to lead into cake. One of the things we certainly noticed in our market here is retailers putting a lot more cake on the floor, putting a lot more cake on shelf display. And it looks like it has taken some space away from either fresh bread or even breakfast type offerings. I'm just curious if you have seen that continue here into Q1 as far as just a bigger exposure to cake and maybe some room taken away from fresh bread?

There is a lot of excitement in the cake category that is reflected in off-rack displays and I mentioned some of our seasonal Tastykake items. Our teams is doing a great job of taking advantage of the impulse nature of cake. It's really an incremental sale for the retailer. I don't see cake, I don't see focusing on cake really taking away from the bread category at all. It is an add-on incremental sales, especially when it comes to off-rack displays. I think you are right. There is some excitement in the cake category and that is certainly is resonant with our independent distributors with our Tastykake brand. But that is incremental. It's not taking away from bread or buns.

Okay. It's good to see your cake shares moderating some and I'm wondering if you can just maybe give an example or two of moves that you guys have been taking to kind of stem any share losses in cake going forward.

Again, cake is very much of an impulse item and we have got some real exciting new products. Some have already been introduced and some are in the queue for 2015. But cake is all about excitement, emphasis and focus. And now that our distributors, we have expanded a significant number of new independent distributors over the past two years and now as we kind of settle down and bed down those new individuals in the territories, taking advantage of add-on sales with cake is an opportunity. Even though there is activity in the category from competition, we are faring well with focus on our Tastykake brand.

Okay. I appreciate the comments. Thank you.

Thank you.

Tim Ramey, Pivotal Research Group.

Thanks so much. Good morning. I just wanted to focus for a second on the sales outlook for 2015. It has been my observation that private label is oftentimes done on a pass-through basis in terms of cost, so in a declining input price environment, they can bring their prices down a little faster than the branded players, given your hedging position and sort of longer-term commitments that you have. Is that a fair observation for 2015? What affect do you think that private label will have on 2015? You did point out that it was a small decline in terms of share in 2014.

I think with category management, our retailers are probably doing a better job today identifying the profitability of this whole fresh bakery category. I think that there is better information with our retailers about how private label can enhance their margin. There is learning that consumers are not going to change where they purchase groceries based on the price of private-label bread. So I'm actually encouraged that with consolidation which, quite frankly, the bulk of the consolidation has taken place in the industry. As we mentioned earlier, there are some independent bakers that are still there, but a better understanding by the retailers of the contribution, the profit contribution of those private label in brand to their business I think is growing. I don't anticipate a decline in private label price as we go into next year.

And if you think about your impact, I agree that the gross margin was the upside surprise in the quarter. Does that mean that we should model gross margin higher in 2015 versus 2014? Or will we continue to see some cross currents there?

Tim, I think coming into 2015, if you look at the guidance and the range, you can see gross margins flat to up another 30 or 40 basis points. So we do have modeled into our guidance range some movement and improvement in gross margin.

Okay. Terrific. Thanks.

Thank you.

Amit Sharma, BMO. Stephanie Benjamin, SunTrust.

This is actually Stephanie on for Bill Chappell. The first question has to do with their expansion into some of the East markets. Have you seen any kind of impact from the recent snow and bad weather? And then my second question just has to do with just a little more color on your share performance in cakes and where you are in relation to your 12% goal by 2018. Thanks.

Stephanie, our team has done a great job, especially in the past month, of dealing with the weather issues in the Northeast. We have gotten accolades from many of our trade customers that the Flowers distributor was the only distributor taking care of my business during the bad weather. When bad weather occurs, we do see a bump in sales because our team is out there taking care of business. So I am encouraged with the way that we have started the year in spite of some difficult weather conditions in the Northeast.

We're also encouraged with our expansion -- I mentioned the New York market, but really the entire Northeast represents a significant opportunity for our Company to grow share. We're very focused on that with not just the Nature's Own brand but also with our Wonder brand, which was a very strong brand in that market. So very bullish about continued growth in the Northeast.

On your question concerning our cake commitment to getting to our share levels, we remain very bullish about growing our cake market. Again, if you look at year over year, it's not really a completely fair comparison on cake. If you look back to 2012, I think you'll see a significant growth in our overall cake business. So we're bullish about growing the cake business and we will do that on the strength of our independent distributors.

No, that's very helpful. Thanks so much.

Thank you.

I will now turn the call back over to Allen Shiver for closing remarks.

Okay. Thank you very much for your attention today. Thank you very much for your support. Again, we hope to see all of you at our Analyst Day, which is April 14 in New York City. Thank you for your attention and we are adjourned.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.