Welcome to the Q2 2013 Flowers Foods Second Quarter Earnings Call. My name is Donna, and I will be the 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. Ms. Marta Jones Turner, you may begin.

Thank you, Donna. Good morning, everyone. Our second quarter results were released this morning and the 10-Q also was filed. You'll find that release and a link to the filing on the website in case you need that. You know that before we get started this morning, I must remind you that our presentation 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 the 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 to our presentation. Participating on the call this morning, we have Allen Shiver, Flowers Foods' President and Chief Executive Officer; and Steve Kinsey, our Executive Vice President and Chief Financial Officer. George Deese, our Executive Chairman, is also with us. We have a lot to cover, so we put our -- the IRI data, that typically we go over in our comments, back in the footnotes of the presentation. Let me give you the order of how we're going to talk about the matters that we need to cover. First, Allen and Steve will comment on our second quarter performance. Next, they'll discuss the Hostess acquisition, and then Steve will talk about our guidance for 2013. And of course, then we'll open the call for your questions. Now I'm very happy to turn the call over to our President and Chief Executive Officer, Allen Shiver.

Thank you, Marta. Good morning, and welcome to our second quarter 2013 conference call. We appreciate your interest in Flowers Foods. From any perspective, our second quarter results were outstanding. Once again, our team did an incredible job of taking advantage of opportunities to serve our customers. We achieved a 31.8% increase in sales, another record performance for our team, and significantly above our goal for 5% to 10% annual growth. Adjusted earnings per share growth of 71.4% for the quarter shows our strong performance in these exceptional times for our industry. Our adjusted EBITDA margin was 11.8%, which is in line with our goal of between 11% and 13%. No matter how you look at it, the second quarter was another eventful quarter for Flowers Foods. We continued integrating acquisitions, opened a new bread line in Pennsylvania and entered into new markets in Central and Northern California. After the quarter ended, we completed the Hostess acquisition, and we also acquired a bun bakery in Modesto, California. We have a lot to cover on the call today. And we know you want us to get to questions as quickly as possible. So Steve, please give us the financial highlights for the quarter.

Thank you, Allen, and good morning, everyone. As Allen mentioned, our second quarter were very strong. Sales increased during the second quarter to $898.2 million, an increase of 31.8% compared to the second quarter last year. Volume was strong in the quarter, up 21.8%, primarily the result of gains in the marketplace as a result of Hostess Brands exiting the market back in November 2012. Price/mix in the quarter was down quarter-over-quarter, 0.9%, with pricing gains being offset by mix shift, primarily in our cakes business. The Lepage and Sara Lee acquisitions contributed 10.9% to the second quarter sales growth. Just a reminder that we did cycle the Lepage acquisition 1 week into the third quarter. Operating earnings in the quarter, excluding the acquisition-related costs, was up approximately 62.2% this quarter over last year's second quarter on an adjusted basis. Overall, the increase in operating earnings was driven primarily by the impact of stronger volume and the contribution from the Lepage acquisition. During the quarter, we also experienced significant costs related to our market expansion in California. Interest expense was $6.2 million in the quarter, which was relatively flat quarter-over-quarter. I will update you on full year interest expense in just a moment when we discuss 2013 guidance. Now the effective tax rate in the quarter was 35.6%. GAAP earnings per share were $0.22 for the quarter. We incurred acquisition-related costs in the quarter of approximately $0.02 per share. Earnings per share adjusted for these costs were $0.24. This compares to $0.14 per share in the second quarter last year or, as Allen said, an approximately 71% increase. As expected, on a split-adjusted basis, the Lepage acquisition contributed slightly above $0.01 to the quarter's earnings per share. Gross margin in the quarter, as a percent of sales, increased 120 basis points to 47.5%. This overall improvement, as a percent of sales, was driven primarily by stronger sales volume. Selling, distribution and administrative expenses, as a percent of sales, were 36.3% this quarter versus 36.1% in last year's second quarter. This increase, as a percent of sales, is primarily attributable to distribution costs related to our market expansion and workforce-related costs. Turning to the balance sheet. Cash provided by operations was a positive $89 million in the second quarter. We ended the quarter with approximately $582 million of debt on the balance sheet. During the second quarter, we paid down $56 million in debt. Cash flow remains strong, and we will continue to focus on paying down debt as we move forward. I will talk about -- I will talk more about the debt capital structure in just a moment when we discuss the Hostess transaction. Now I'll turn the call back to Allen to discuss operations.

To recap sales and operations, we had good results across all categories in the quarter as our team focused on meeting consumer needs. Steve mentioned the volume increases we achieved since Hostess exited last November. Let's look at how that volume contributed to our sales categories. Branded sales increased more than 35% and branded accounted for about 55% of our total sales in the quarter. Nature's Own and Tastykake was the primary drivers of that growth, with acquired brands also performing well. Our share of store brand remained relatively stable at about 18% of our total sales. As Marta mentioned, we won't go over details from the IRI data, but that information is provided at the end of our presentation materials. As you would expect, the IRI data is very positive, reflecting our strong sales growth in the quarter. Our foodservice business was good in both our DSD and Warehouse segments. Foodservice accounted for about 19% of sales in the quarter, reflecting a 23% increase over last year's second quarter. Expansion markets, which are markets we've entered in the last 5 years, exceeded our goal of contributing between 0.5% to 1% of sales. We continued to add to our customer base. In the quarter, we added over 800 store locations, bringing our new stops [ph] for 2013 to over 29,000. Turning now to operations. Our strategy over time has been to continuously invest in our existing and our new bakeries, improve our product quality and enhance our brands. That strategy positioned us to be able to take on significant new volume in our existing bakeries when Hostess exited the market. I'm extremely proud of our team for their performance as we added new volume throughout the company. With the volume we've added, it isn't surprising that our production utilization for…

Sure. Thank you, Allen. Turning to the financial aspects of the transaction. As you know, the purchase price was $355 million. It was a purchase of assets only. We funded $300 million of the transaction using a new 5-year term loan and the balance was funded through an AR securitization. Overall, with the AR securitization, we drew $100 million and used -- and funded the balance of $55 million using the securitization. Within this, the remaining proceeds of that draw were used to pay down other debt. After closing the Hostess transaction, the material component of our debt structure now includes the $400 million senior notes; a $300 million unsecured term loan; $150 million AR securitization, and as I've just stated, it has grown $100 million; and our $500 unsecured credit facility. This should provide us with the capital liquidity necessary as we continue to expand and complete the integration of our most recent acquisition. Cash flow has been strong for the first half. And as of August 8, our debt-to-EBITDA leverage ratio, as based on the trailing 12 months of EBITDA to the end of the quarter, is 2.3x. At this level, we are tracking ahead of our initial projections for debt following the closing of the transaction. Allen did mention that we have enjoyed the benefit of our share expansion without the majority of the cost. As we look at the back half, we will begin to have incremental interest expense, roughly an additional $3 million, as a result of the new debt. We will also experience some plant carrying costs, which include utilities, property taxes, maintenance and security for the additional 20 bakeries and 36 depots of approximately $8 million to $9 million. And the forecasted depreciation and amortization for the U.S. asset is approximately $5.5 million to $6 million in the back half. We also have onetime costs related to the deal and estimate those to be approximately $5 million to $6 million, and these should all occur in the third quarter. This leads us to the 2013 guidance. Sales are forecasted to be $3.79 billion to $3.82 billion for the year and earnings per share of $0.92 to $0.98, excluding the onetime accounting gain and the onetime acquisition-related costs. The full year gross margin is forecasted to be 47.5% to 48% of sales. Due to the fact that we have taken on several pieces of debt throughout the year, I thought it would be helpful to provide the full year interest expense. We are forecasting a full year interest expense of $29 million to $31 million. Additionally, we expect full year interest income to be approximately $15 million to $16 million. Capital expenditures are forecasted to be approximately $90 million to $100 million of 2013. Again, thank you for your interest in Flowers Foods, and I'll turn the call back to Allen.

Thank you, Steve. 2013 is a remarkable year for Flowers Foods. It's important to mention that our ability to take advantage of opportunities did not happen by chance. We have invested over time to create a dynamic business model, very productive bakeries and the best team in the food industry. That has allowed us, along with a good deal of hard work on the part of our team members across the company, to deliver what we believe would be our best year ever in both sales and earnings growth. It's also very important to point out that we still have significant growth opportunities ahead as we steadily increase our sales in newly-acquired and expansion markets. Our growth strategy in new markets is proven and, looking ahead, we expect to continue to meet or exceed our long-term goals. Our mission is to deliver value for our shareholders, team members, partners, customers and consumers. To do that, we realize that we must constantly keep our products and brands relevant to consumer needs and our service levels the very best in the industry. That's the Flowers Way. Thank you for participating in our call this morning. In a moment, we'll open the call for your questions. But before we do that, I want to answer one of the questions that we've heard from many of you. That question is what about the reintroduction of Hostess snack cake and how is that affecting Flowers' snack cake sales? The short answer is we are very confident in the strength of our cake business, and let me tell you why. Since we acquired the Tastykake brand in 2011, we have increased sales significantly, almost doubling our cake sales. Consumers across the South, the Southwest and, more recently, New England, are responding well to the Tastykake brand. We believe that direct-store-delivery, or DSD, is the most effective distribution system for fresh snack cakes as it is for fresh breads and rolls. Tastykake is distributed throughout our DSD system, which serves about 3/4 of the U.S. population. Our distributors are in the stores daily and providing the best possible service to our customers. Since Hostess left the market in November, Tastykake sales have grown at a good pace. Our brands, our broad product offering, the freshness and the quality of our products and our customer service have helped us gain new business. We realize that Hostess cake may have a place in the market, but we have confidence that our cake business will weather that reintroduction very well. In the first 2 weeks since Hostess reentered with cake, IRI data shows that our cake brands have maintained their share. Interestingly, the cake category as a whole increased, as Hostess came back into the market. So again, I will say that we have confidence in our cake business. Now let's open the line for questions. Donna, if you could open the lines, please?

[Operator Instructions] Our first question comes from Farha Aslam from Stephens.

And kind of going forward, as you look at how you're integrating California, when do you anticipate bringing California onto your own production systems?

Farha, we mentioned earlier in the call that having our own production for supplying California is very important. We are in the process of putting that plan together. Modesto is one step in that direction. But our overall production solution in California continues to be underdeveloped, but we're very confident in our future growth from a sales standpoint. We're also very confident that we'll have the right production solution in place relatively soon.

And do you anticipate exiting that agreement with Bimbo early? Because I know there's about a $10 million agreement if you start producing the product yourself early. So I just wanted to make sure, how do you anticipate that changeover to occur?

Well, we're aware of the time line with Bimbo and the supply agreement. But at this point, we've got some loose ends to put together and some questions to be answer before we can really detail the timeline.

Farha, this is Steve. I think when you look at the balance sheet, we have a little [ph] receivable out there of $7.5 million, which anticipates meeting, at least, the February deadline. So we did take that in consideration when we did our purchase price back in the first quarter.

Okay, great. And then if you look at gross profit and commodity costs, there's -- when do you hit the highest commodity costs in your P&L? And how do you anticipate that lower commodity cost to flow through your numbers?

If you recall, we do hedge and our strategy is to be 4 to 7 months, could be longer, if we perceive the need to do so. For 2013, our highest costs really have come in the second quarter, and we'll see some relief in the back half that won't be dramatic, but that should begin to see some easing in the back half as we move through the rest of the year.

Fantastic. And my last question is your sales guidance was significantly ahead of my expectation. Does that anticipate entry into new markets that you hadn't been in before with Hostess? Can you just give us some color on the composition of your sales guidance?

Well, I would say the sales guidance for this year doesn't reflect any real significant new markets. It does reflect the reintroduction of the brands that we acquired, and we're looking for significant help in many of our newer markets that we're currently serving as we reintroduce the acquired brands.

Okay. And then long-term, once you're over sort of these transitional costs in terms of distribution and carrying costs for the additional plants, where do you anticipate EBITDA margins could go long-term?

Yes. We set our goal at the level of 13%. When you look at other CPG companies, a lot of those are well north of that. Although we are DSD, and it's a more costly way of distributing product, although it's more appropriate for our category. But I think -- George had said many times that once we hit that 13%, we should be able to move that another 100 or 200 basis points and work toward that goal. So I do believe, over time, we can exceed the current 13% that we have established. From a timing perspective, I would hate to commit myself today, but we do believe it is achievable.

Our next question comes from Brett Hundley from BB&T Capital Markets. Brett M. Hundley - BB&T Capital Markets, Research Division: I wanted to stay on Farha's last question there for a minute and just think about your long-term growth expectations. And I'm thinking about 2014 and some acquired brand coming online, market expansion possibly being better than expected, lower inputs possibly, and is it -- is there a potential to exceed that long-term target in 2014 or is it really something that you just feel more comfortable about, Steve, talking to over time?

Yes, Brett. I would say we're not prepared to give any 2014 guidance today. But when you look at '13 and the costs that we are experiencing, whether it's in margin expansion, where we are seeing a little bit of efficiency drop as we're meeting the need in the marketplace with production. Again, the commodity cost seem to be -- the price of wheat and some of the major commodity seem to be easing. But there are some things that seem to be working in our favor. But to get into 2014, at this point, may be a little premature.

Brett, and also I'd like to add that the reintroduction of our Hostess Brands, we will be reintroducing in most markets in the fall. But again, that's a long-term process and we just don't generate those incremental sales overnight, so both the reintroduction of the brands and, also, as we bring individual plants on speed to handle that additional volume, it will be a very methodical, organized process that won't happen overnight. Brett M. Hundley - BB&T Capital Markets, Research Division: And to that point, on the reintroduction of Hostess Brands, it sounds like it's more of a Q4 event as opposed to kind of equal reintroduction in Q3 and Q4. Is that fair to characterize it like that?

I would say yes. There will be more activity in Q4. Brett M. Hundley - BB&T Capital Markets, Research Division: Okay. And I think, Allen, you made the comment that you can provide for consumer demand with existing capacity that you have. Is -- would you take that comment that given previous demand levels for those brands, you could supply those levels from existing production lines. Is it fair to say?

I would say -- I think what we said is, currently, that we're able to take care of existing production needs, but also as we reintroduce the brands that we've acquired, then we will be opening new bakeries and -- but I think, it's important to point out that, again, that will be done in a very organized and methodical method. It will be on a market-by-market situation and a it'll really be driven by the growth of our sales and our brands with the consumer in the marketplace.

Brett, this is Steve. And one other point, since November, we replaced a lot of that space with our current brands, so there will probably be some brand cannibalization just depending on the consumer acceptance. So as we roll those brands out, we'll rationalize SKUs and we'll look at our space and try to make sure we have the right mix of product on the shelf. Brett M. Hundley - BB&T Capital Markets, Research Division: Great. And then, Allen, thanks for your comment at the end of prepared remarks. It sounds like your cake business is holding up well. I know there's been a lot of questions on that. And so I wanted to dig somewhat deeper and just characterize Tasty so far, during Q3, and it sounds like growth has continued to be maybe stronger than expected given some of the events that occurred, thus far, in Q3. And so, again, I just wanted to -- do you believe that Tasty growth has held up better than expected during this time or had you always expected gains to continue into Q3?

Now Brett, we -- when you have a competitor reenter the marketplace, you're always kind of playing on your toes. But I will say that we were confident that we'd be able to hold on to our Tastykake business as Hostess reenter the marketplace. And again, the primary reason for that is the strength of our DSD network. Our independent distributors are excited about the Tastykake brand. You've got a brand with some very unique items. We're putting a tremendous amount of focus on constantly improving our product quality, shelf space. And holding on to the shelf space that we've gained with our retailers is very important. And we're doing a lot of great work on product freshness to make sure that our products are the freshest in the market. So I don't want to say that it was a complete surprise that we hold on to our business but, again, we're very early in the game, and I'm confident that our team will hold the cake business that we've gained and we'll continue to grow Tastykake for the long haul.

Our next question comes from Bill Chappell from SunTrust.

I guess first, just trying to understand, on the quarter, there was kind of some margin compression from last quarter to this quarter. So is there any way to kind of quantify the expenses in terms of ramping up Sara Lee of California or is it just with the Bimbo agreement just a lower margin business?

Bill, really coming out of the first quarter into the second, we had a ramp up in production coming into our summer season which, historically, has put some pressure on our facility. We did see some efficiency drop, and that is primarily part of the reason for the margin compression, really nothing that we're concerned about. But as we do bring on new production, we're able to rationalize the new production into the right markets. I think you will see that, you'll see the efficiency gains come back. This happened in the -- if you may recall, this happened several years ago, we're in a situation where we had tight production and it's just the time and need to get maintenance into the plant.

Okay. And then as I look to, Allen, on the comments of the acquired facilities, I guess, 2 questions there. One, I mean I don't understand how you can move into new markets kind of with your 500-mile radius unless you do open some of these. So is the thought that this is a postponement until next year to move into the kind of the upper Midwest or some of the Northeast, and you really want to backfill your existing markets first? And then the second with that is, all of those facilities, is there a way to reduce carrying costs? Can you sell some of the real estate or if you're just planning to never reopen them?

Bill, I think, if you look to the past of how we've expanded territory, we've entered new markets and we've been transporting products from probably a distance further than we would like. The point that we had -- we've built our business in new markets and we can support reopening a plant or building a new bakery, that's what we've done in the past, so that model has worked really well. And as we look at the acquired bakeries that we've recently picked up, we'll approach it the same way. We'll probably enter new markets and be transporting products from our current bakeries further than we would like. And then at the point that we're established in the marketplace and our sales support the reopening of the bakery, we'll look at those one at a time. So I want to give you the impression we will continue to enter new markets. And as we do that, we'll build our sales volume from existing clients. When sales volumes are acceptable, then we'll reopen the bakeries in those markets.

With -- and then just a follow-up, I mean, for example, can you service all the needs of Milwaukee from your plant in Kansas City? I mean is that the kind of stretch you're talking about?

Bill, it's a market-by-market decision. And so that I don't give away anything to competition, I'd rather not comment on the individual markets, so -- but it's obvious that we're going to continue to grow the company. There are some very attractive markets that we're not currently serving today. And to do that adequately, at some point, we'll need to reopen bakeries.

And -- but within the existing plants and, again, I don't know where all of them are located, some are in the South or in the Southern half of the country, is there a way to take off some of the carrying costs of those that might be close to your existing facilities that you just don't need?

Bill, again, we're -- at this point we have not reintroduced the brands and it really depends on sales volume and the capacity that's going to be needed. Some of the plants in our existing territories may be needed, some of the plants may not. But again, we'll make decisions on a market-by-market basis. If there is a plant that we don't need and we determined that, then I would -- we would be able to lower some carrying costs there. But again, we're not at that point yet.

And there's nothing to prohibit you from disposings from assets?

No.

No. Okay. One last question. You kind of highlighted 3 brands of -- Nature's Own and Wonder and Tastykake. Is it a thought that, over the next few years, you'd go to kind of a 3-brand strategy? Does it make more sense from a marketing and advertising just to focus around 3 brands versus dozens of regional brands in different categories?

Bill, I will say with the -- the Nature's Own brand is, certainly, a national brand with over -- I think, we'll annualized it at about $1.1 billion in retail sales this year. So I will say that Nature's Own will be in all of our markets. Tastykake, much like Nature's Own, really has the potential to be a national brand with the same rate of growth, and we're decided about Tastykake. Wonder has the potential to be a national brand of white bread. But I will say that we'll be very careful in how we roll out the Wonder brand, in the white bread segment especially. Consumers are very loyal to the white bread brand that they grew up with and we have a lot of examples of that from Bunny in Louisiana to Dandee bread in Miami. A lot of good examples where regional white bread brands are important. And so I will say that if there is a brand of regional white bread that we need in an individual market, yes, we potentially could market both. Wonder and the regional brand. But we will be careful on how we roll out our brand strategy on a market-by-market basis.

Okay. I had actually one last one. Are you still planning on doing pricing in October?

All of our costing is under evaluation. We mentioned commodities earlier but, as we all know , there are a lot of other components of cost and we are evaluating our pricing for the back half. And if you look historically, we've taken pricing in the back half that carries us into the new year, and we're currently evaluating our increased cost so that we can get that in place.

Our next question comes from Akshay Jagdale from KeyBanc.

So I just wanted to follow up on those questions on gross margins. So that was useful, the context you gave us on the efficiency issue. Can you just -- order of magnitude, like how much of an impact was that efficiency issue this quarter? And how long is it going to last?

Akshay, actually, if you look historically, we've had that happen during the summer months, efficiencies were pulled down, so it's not significant overall. It's around 50 basis points or so that typically the pressure it puts [ph]. And then the other factor I didn't mention also, Q2 was actually our highest quarter of commodity costs for the year, so there was a slight pressure from that as well coming out of Q1.

That's helpful. And then the other factor that I noticed and, again, I appreciate the extra detail on gross margins in your Q. The Sara Lee expansion and the BBU contract, obviously, also depressed margins, it looks like at least by 50 basis points, right? I mean what would you -- is that correct? And...

Yes. I mean the outside purchases did the pressure on the margin as well. But I don't think we would talk about the exact percentage, but it -- it's one of the contributing factors to the quarter price.

And what was the commodity inflation this quarter?

If you just look at volume-to-volume, certainly, on a price -- from a price perspective, it's probably between 3% and 4%, slightly up from what we saw in the first quarter.

And your guidance for the year for commodity is still the same?

Yes, it's still that 3% to 5%.

And are you locked in fully now for the year?

Yes. Coming into the back half and looking at how we view with our philosophy on what our period time we take coverage, we are pretty confident about our cost structures in the back half.

Right. And so when I look at your gross margin guidance, it implies that gross margin in the back half are going to be better, certainly, than what we saw this quarter. That's correct, right?

It could be flat to slightly improved, yes.

Yes. And these costs -- just in terms of the EPS guidance, I just want to make sure, were the -- what costs related to Hostess are included in there? Clearly, the interest seems to be included. Are you stripping out the onetime cost? I mean, just help me understand what parts of the cost component that you mentioned related to Hostess are actually included in your guidance?

Yes. Everything on that slide is included in our guidance except for the onetime acquisition costs in the third quarter of roughly $5 million to $6 million. Everything else is included.

Okay, great. And then just longer-term, and this -- we've talked in the past about getting to historical margins -- I mean, gross margins. And when I think of that, I think of 56% or so margins in DSD back in '04. Operating conditions are as ideal as they should be or would be or have been in the last 10, 20 years, is the expectation still that we can get to those type of margins eventually? Or is there anything that's structurally different in your business today that would preclude you from getting to historical or better gross margins in this operating environment?

Akshay, I'll comment, and let Steve add, too. But I would say from our team standpoint, we are very focused on improving margins as we go forward. I don't want to give you a specific commitment to a number on a given day, but I will say that the category continues to be in transition. There remained a lot of moving parts. But I do feel confident that the changes that are taking place should enhance margins over the long-term. But being able to pin that to a given quarter or 2 quarters is difficult. But I do feel good about the direction the overall category is headed.

Okay. And just to follow up on that topic a little bit. So what would be the driver? What would be the main driver of incremental margin expansion from here? I mean, the way we've thought about it is Hostess, under its previous management, was spending 2 to 3 times what a normal bread company spends on promotion, so we think as you -- as the shop normalizes and you reset some of these shops later this year, perhaps the mix and realized price points will continue to move up even as commodities come down. That, to me, seems like the biggest lever, but am I -- can you help me understand, from your perspective, what the biggest lever is for incremental margin expansion longer term?

Yes. I think your view is probably correct. When we look at margin and we look at what we think the biggest drivers have been the efficiency gains that we've experienced over the last few years. As we continue to ramp up sales and we get production rationalized and we get that closer to the market, that also helps drive better margins. And then one other thing to point out is some of the cost we just talked about for Hostess can also be in COGS, so that will put some pressure on it in the near-term until we get -- until we grow the sales and get the sales base where it need to be. So looking over -- looking out in the next 1 or 2 years, there are a lot of things that are happening in '13 that, as we grow the market, should provide some relief, whether it's the commodity costs pulling back and, hopefully, that continues to be a trend, getting back -- getting the efficiency back where they need to be once we have the production kind of rationalized it will be the main drivers of the margin space.

And Allen, how would you characterize the competitive environment, specifically, from a promotional and pricing standpoint? I mean I think some of your competitors have said it's equally competitive. So since Hostess liquidation and you buying it, there really hasn't been a change. I mean, should -- I would expect there to be a change at some point. But one is do you expect a change over time, meaning better, more rationale pricing and less promotions for the category? And two is are you seeing any of that or the opposite right now?

Akshay, I would say it's still a market-by-market business, but overall, I would say -- I'm actually seeing a slight improvement in overall pricing and a slight reduction in promotional activity. Our hope that those trends would continue but, again, it's very much a market-by-market situation and it's hard to make a general statement that applies to the overall. But I am encouraged that we're seeing directional movement in both, what I'll call, everyday pricing in the category and then a slight reduction in promotional activity.

That's helpful. One last one, just more long-term strategic related to Hostess. I can appreciate why you're not giving accretion guidance, but just, Allen, maybe help us think strategically, more quantitatively. So the way I've thought about it is there's roughly $900 million in bread sales that Hostess had. I think the run rate of share gains that you're showing are somewhere in the $350 million range. So roughly 35% to 40% of what was available, you guys have gained in terms of share gains. Is the goal -- as you introduce Hostess back on, is the goal to incrementally add to that sales gain and improve the overall margin profile and then look at that in terms of returns relative to what you're investing? Or how else do you think about it in terms of how it will evolve?

Akshay, as far as quantifying our sales plans, I think that is the guidance that Steve gave you earlier. That's our best estimate of the impact on sales in this year. Though I would say, more strategically, that we build in -- we can generate incremental sales in our core markets with the reintroduction of brands like Merita, Home Pride and other. We also feel like that there is significant growth in new markets with the addition of the Wonder brand. There are many new markets that we're currently serving today, Nature's Own is doing very well in that market, but we don't have a strong brand of white bread. So the Wonder brand in many of those new markets will help us generate incremental sales there. But I will say that it's represented in the -- our best estimates are represented in the guidance that we gave you today.

Is there -- at some point, will you be providing accretion guidance for Hostess itself?

Since it was not an ongoing business, I would say we, probably, will not provide accretion guidance. It really gets back to the market expansion and hitting the markets for those brands where we're strong. So as we plan to reintroduce brands and we look at annual guidance on a going-forward basis, we will include what we expect to do on those markets. But it's really hard to get accretion since we didn't buy a business that was in place.

Our next question comes from Timothy Ramey from Davidson. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Just a follow-up, I think, on Akshay's question. I mean as I look at the numbers on Slide 17, it looks to me like you're telling us there's roughly $35 million of ongoing annual costs related to interest expense, plant carrying costs, depreciation and amortization. If we tax effect that -- I mean it looks like sort of $0.11 of earnings dilution before you get your first dollar of sales. Obviously, I know there's going to be a dollar of sales somewhere along the way. Is that kind of the right way to think about it?

Well, if you look at the -- if you take the onetime acquisition costs... Timothy S. Ramey - D.A. Davidson & Co., Research Division: Yes, I did.

Yes. I think you're looking at it right. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Okay. And the -- for me, I mean it was a spectacular quarter, obviously, but the big surprise was warehouse delivery being as strong as it was which, I have to assume, some of that is that's Mrs. Freshley's is it not? And you made comments that you thought Tastykake would be able to defend its position because of DSD. Can you talk a little bit more about your outlook for the warehouse delivery side of things?

Yes, Tim, obviously, the Tastykake brand is doing very well. Our warehouse distributor brand, Mrs. Freshley's, is so far is holding up. They're -- many of the qualities, from a product assortment standpoint, customer relationships were helping us hold on to that business. But obviously, as Hostess reintroduces, that is a direct competitor to our Mrs. Freshley's business, and we're doing everything that we should be doing to hold on to the gains that we've generated. But that business is important to us, and we intend to hold on to it just like Tastykake. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Is there anything else in there that we should be aware of that would account for the year-over-year gain or is that largely Mrs. Freshley's?

Tim, I would say our foodservice business, as we mentioned earlier, is up substantially. Our foodservice is growing both in new markets and then our core markets. So when you look at that consolidated Warehouse segment number, it represents growth in both foodservice and in Freshley's. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Got you, okay. I -- and just to be clear, the $3.4 million -- congratulations on the cost of the incremental interest expense, that's spectacular. So if we kind of think about this for '14 -- I understand you're not giving us guidance, but is that an annualizable number for '14 or do you think that, with cash flow, it might be a little bit less than that?

Yes. Obviously, the markets are very stable from a rate perspective that we're very pleased with where we landed on our debt. But I think, looking ahead, unless something happen dramatically to the interest rate environment, I think we could use that as a good proxy going forward.

[Operator Instructions] Our next question comes from Amit Sharma from BMO Capital Markets.

Allen, when we look at -- and this is also just a follow-up to what Steve said earlier about when you reintroduce Hostess Brands, you do expect a level of cannibalization. And as we look at relative share mislocation since Hostess, independents have gained, in our calculation, more than their fair share of market share. Is that -- how do you see that? Is that an opportunity or is that indication that you don't necessarily need a strong brand, independents are strong in some markets and they will continue to be a fierce competitor in those markets?

Well, I think you mentioned we're expecting cannibalization. And our focus is on generating incremental sales when we reintroduce the Wonder brand and other regional brands. So it's all about generating incremental sales, and that's exactly what we'll do. We'll minimize cannibalization. On the -- I would comment on -- there are individual independent bakeries that have done a good job capitalizing on the opportunity. Like Flowers, many of the regional bakeries, they have strong white bread brands in their individual markets, and there was a void in the marketplace and they stepped in and fill that void. So I look at their growth similar to what has happened in many of our markets just on a smaller geographic scale. But again, at the end of the day, it's all about building brands, and that's exactly what we're doing, and you've got some independents that are doing the same thing.

Would you characterize as competing against independents a little bit more favorable versus competing against a national competitor? So that incremental share gains, as you start to relaunch Hostess brands, are easier or more difficult to come against these competition.

I really -- the way I think about it is more from our point of view in how well these brands fit into our brand portfolio, what is our individual need and especially in new markets. So it really doesn't -- it's not -- whether we're competing against an independent or whether we're competing against a larger competitor, it really depends on what's our position in the marketplace? What's our brand strategy? And at the end of the day, that's the deciding factor on how we did it.

Got it. And 1 long-term question, clearly, consolidation in the bakery aisle. But if we look at some of the other categories and see consolidation, ready-to-eat cereal comes to mind as well, very consolidated. That category hasn't seen sort of margin improvement despite the consolidation. Is that a fear that despite being consolidated, there is going to be enough competitive activity in this category to minimize future market gains?

Yes. Really, it's hard to compare against other categories. But I can say what we are doing is we're focusing on manufacturing efficiencies. Steve mentioned earlier that we're really focused on being able to handle the additional volume that is in our plant today. We will be opening additional plants to help provide more capacity. So step 1 is really making sure that our bakeries continue with our strategy of being the low-cost producer, that's the starting point. And we feel like that our model positions us, over the long haul, to improve margins. Our independent distributor model on the sale side, complementing of our DSD business with our Warehouse segment, also fits very well. So we're optimistic about growing the top line and, at the same time, keeping the focus on lowering our cost to make sure we continue to be a low-cost producer.

Got it. And if I may ask just 1 more. When you do decide to bring some of those bakeries online, Steve, can you give us some estimate of what our capital or other operational cost involved with it on a per bakery basis?

Today we're not prepared to do that, really for -- obviously, there will be some facilities that need -- would need more capital than others. But as we begin to look at the rollout, we'll give guidance as appropriate. But today, we don't really have any guidance to give on CapEx related to those bakeries.

Thank you. I will now turn the call back to Allen Shiver for closing comments.

Again, thank you for your interest in our company. This is an exciting time for Flowers foods. I'd like to close, again, with a very special thank you to the Flowers team and for the wonderful job that everyone continues to do. Thank you very much and this will end our call.

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