Welcome to the Flowers Foods' Second Quarter 2014 Earnings Call and Webcast. My name is Ellen, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Ms. Marta Jones Turner. You may begin.

Thank you, Ellen, and good morning, everyone. Our second quarter 2014 results were released and the 10-Q was filed earlier this morning. The release and the link to the filing on our website, and a PowerPoint presentation to support our discussion also can be found on the conference call webpage. Before we begin 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 actual results to differ materially. In addition to the matters that we will discuss during the call, important factors relating to Flowers Foods business are detailed fully in our SEC filings. Participating on our call today are Allen Shiver, Flowers Foods' President and Chief Executive Officer; and Steve Kinsey, our Executive Vice President and Chief Financial Officer. Following our prepared remarks, we’ll open the call for your questions. And now, I’ll turn the call over to Allen Shiver, our President and Chief Executive Officer. Allen?

Thank you, Marta, and good morning, everyone. Our results this quarter were below our target, primarily resulting from growing pains associated with our expansion plans, combined with a very competitive marketplace. Given all of the activities this past quarter, it’s important to keep perspective. Over the past two years, we have substantially increased our market share by acquiring brands of bakeries that allow us to expand in the new territories, as well as build our share in existing markets. As we pursue these opportunities, we will continue to experience cost headwinds that will abate as we establish our sales in our new markets and optimize the operation of our new facilities. Our team has done a great job over the two year timeframe, taking advantage of accelerated growth opportunities brought by the Hostess liquidation. As we work to establish a strong foundation for our continued growth, we have confidence in our team’s ability to face challenges and shape solutions that will keep us on track to meet our long-term goals. Let’s talk about more about the quarter’s results. Clearly, we experienced pressure on the topline, which was impacted by promotional activity, Hostess cake return to the market and lower store brand and foodservice sales. But before I discuss those factors, I will say, we are encourage that sales of our acquired brands, Wonder, Home Pride, Butternut and Merita were up about 35% from first quarter. In our new markets, sales doubled from last year’s second quarter up $21.4 million. The contribution to sales of our new products was solid. Our DSD branded bread, buns and rolls business was up 3.1%. These successes show that while marketplace dynamics are pressuring our topline, we have fundamental brand and operational strengths that will continue to drive our growth. Now let’s discuss the factors…

Thank you, Allen, and good morning, everyone. As you can see from result and as Allen discussed, the quarter was a challenge. Our overall margins were impacted by pressure on the topline and added costs. We did have non-recurring items in the quarter as well and asset impairment related to our Fort Worth tortilla operations, which I will discuss more fully in a moment. On the positive side, as Allen said, we are encouraged by the improvements we have made at our Lepage operation during the quarter. Turning to the quarter’s results, sales in the quarter were down 2.3%, a positive net product mix of 0.6% was offset by decrease volume of 2.9%. The slightly positive price mix was driven primarily by positive mix shift. Overall, pricing was down due to promotional activity. Volume declines resulted from branded and store branded cake, as well as declines in store branded bread, buns and rolls. Despite encouraging results in our expansion market, our core market sales were pressured by the reintroduction of Hostess cake and a strong promotional environment. Our DSD branded retail business had mix performance, growth in our branded bread, buns and rolls do not offset declines in branded cake and promotional core market. Our expansion market representing 5.9% of total DSD sales performed well and contributed growth of 2.9% to the overall DSD business. Our Warehouse business had a 13.3% quarter-over-quarter decline in sales, driven primary by decreases in snack cake and foodservice. The Warehouse branded cake business and the store brand business both continue to be negatively impacted by Hostess cake brands. Also during the quarter, we exited less profitable foodservice business, which contributed to the decline in sales for the Warehouse segment. In total our cake business was down 12%. Our DSD cake business was down approximately…

Thank you, Steve. Before we take your questions, I want focus your attention on five key reasons, why our team has conference in the future growth of our company. First, we have the brands that consumers are looking for. Our Nature’s Own brand is the number one brand in the category with three of the top five SKUs nationally. Strong regional brands like Sunbeam and Bunny continue to support our business in the class white bread sales. Brands like Tastykake open up new opportunities for us to continue to grow in the snacks cake arena and the acquisition of the acquired brands, Wonder, Butternut, Merita and Home Pride, all those provide us with added brands strength, especially as we move into new markets. The second key factor I would like to live you with is our bakeries. Due to our long-term commitment to capital expenditures, our bakeries set the standard for the industry for manufacturing efficiencies and the highest level of product quality. The third item is distribution. Flowers independent distributor program is a competitive advantage that can changes to strengthen, especially as we work together to build our branded sales in new markets. Customers, our trade customers both retail and foodservice, they are very much aware of consolidation is taking place in the bakery category. Customers know how important fresh bakery is for their success and more than never they are showing consistent support for Flowers Foods. And finally, the most important factor and the one factor that I want you all to remember is the Flowers’ team. Our people make the difference. We are blessed with individuals that understand the business and worked tirelessly together to achieve our goals. These are just five of the many reasons why we’re confident that we will achieve our long-term goals. We remain enthusiastic about Flowers Foods opportunities to grow in the package bread and the cake categories. Thank you for your attention and we’ll now open the line for your questions.

Thank you. (Operator Instructions) The first question is from Farha Aslam with Stephens. Please go ahead.

Hi. Good morning.

Good morning, Farha.

Starting with promotions, given the promotional cadence in the category what gives you confidence in your statement to pull back on the depth and frequency of promotions in the second half and particularly in the fourth quarter?

Farha, I think the category has had a good example of -- all this promotional activity really is not driving the category growth. I think our trade customer realize that better than ever. Lot of activity is taking place within our retail customers from a category management standpoint and are -- they're focused on how can they maximize sales and profitability in the bakery department. So based on the experience of the past, let’s say, about the past 12 to 24 months we are optimistic that from a timing standpoint, not only from the baker’s side but also from the customer’s side, the trade customer side, they will see the benefits of the less promotions.

Great. And can you just give us a quick update on the sale of the nine facilities, where they stand?

Farha, this is Steve. When you look at -- we currently have contracts on three or four of those. We anticipate we may be able to close one or two by the end of the year that could roll into the beginning of the next year. But we are working to continue to build a facility. We have some roughly 11 or so warehouses for net proceeds of just between about $5.5 million this year. Basically no gain related to that because of accounting -- purchase price accounting, you basically set the basis at the purchase price. So we are encouraged that we have the contract on the three or four facilities.

Great. And then my final question relates to both Lepage and the tortilla facility. Steve, you were really good to highlight kind of what the costs of each were in the quarter. Could you just give us a read on what the costs are anticipated to be for each for 2014? And then would we not see those costs in 2015 because these issues will be fixed?

Yes, when we look at the negative impact of Leo’s has been in 2015…

Yeah.

Yeah, if you look at the quarter, there are roughly $3.3 million negative impact. We’ll continue to see some cost in the back half as we -- until we sell that facility. And then we have some cost related to moving -- we are moving two of the Flower lines to Flower’s legacy facilities. So there will be some cost with that. Hopefully as we work through the issues, that cost will come out next year but we do anticipate some cost in the back half of this year.

Sure. But what would be the total cost for 2014 roughly?

Roughly, in 2014 -- it’s going to be roughly about $5 million to $6 million.

Great. And then for Lepage you highlighted it cost you about $4.7 million in the quarter. What would you expect it to be for the full year impact?

You look for the four years, we are -- hopefully all the issues are behind us. Coming into the first half, it was roughly $6 million or so total cost and then in the back half, it will be neutral with the back half and hopefully positive as we make improvements. So overall --part of the cost at Lepage is we have entered a new market as well. So there is not quite comparisons of apples-to-apples, so we are continuing to incur some costs there related to the new markets. So that is why it has taken also more time to bring it back up to what you saw at the acquisition.

So between the tortilla and Lepage you expect roughly you could have a $12 million swing in profitability in 2015 versus 2014?

Right, you’re right, 2015 versus ‘14. Yeah, that’s a good point.

Great. That’s helpful. Thank you.

Thanks Farha.

The next question is from Eric Katzman with Deutsche Bank. Please go ahead.

Hi. Good morning.

Good morning Eric.

Let me just start off with kind of the balance sheet cash flow side of things. After a great performance after Hostess' bankruptcy, the company has struggled a bit over the last let's say nine months, the stock has been really weak. And yet despite a leverage ratio that’s very reasonable and strong free cash flow based on how the Hostess acquisition was done, you only increased the dividend by, what was it, 6%, 7%. So why shouldn't investors look to the company to be more aggressive with the free cash flow to reward them when the income statement side of things is very disappointing?

Hi Eric. This is Steve. We have had strong cash flow for the first half of the year. We did see cash flow drop off some in the second quarter. But philosophically we have always been fairly conservative from a cash flow perspective. Given the debt leverage, I think the focus has been on paying down debt. You are right. We are comfortable with the leverage ratio where it is today. And from a dividend perspective, specifically as we look at future cash flows and -- the Board will make decisions about the appropriate level of the dividend. We believe cash flow continue to be strong. And our forecasts are that it continues to be strong. At the right time, the Board will raise the dividend appropriately.

Okay. Second, I mean I guess it is hindsight is a little 20-20 of course but was it a mistake not to go after the Hostess brands, the snack cake side, when it was in bankruptcy and you could have bid on it? Because that seems to be -- correct me, if I'm wrong, kind of, more of the fly in the ointment versus the bread side of things?

Eric, we are very excited about the growth of Tastykake. As we’ve mentioned in our last call, our focus is building our Tastykake brand. Monday morning quarterback, you can look back it would have a good movement about Hostess cake. I’m very comfortable with the decision that we made. In long term, our DSD structure will help us build Tastykake into a very strong national brand. So looking back on it, I have no regrets here. Anytime you have a major competitor come back in the market like Hostess Cake, there’s going to be an impact. I think in our deck we have a nice comparison, a three-year comparison of where we were prior to the Hostess’ reintroduction. And it also reminds us that Hostess Cake built their brand through Direct-Store-Delivery over many, many years. And that’s exactly what we’re doing with that Tastykake, building our brand on our DSD route. So we’re very optimistic about the future of Tastykake.

Okay. Last question, obviously what we're seeing today with the promotion is pretty broad based across the industry. You mentioned it is pretty ineffective. So a lot of other companies are taking that reality and announcing restructuring to cut cost to have more firepower to deal with the promotion. I guess the history of this category is that when things go bad in promotion they have lasted a lot longer than you have hoped for in forecast. So kind of following up on Farha's comments, it seems like investors are doubting that the promotion is going to turn around for the better. So what are you doing to reduce cost to give you the firepower in the market to compete unfortunately on a price basis?

Eric, we’re looking at all elements of cost. And if you go back and look at the amount of growth we’ve had over the past three year, obviously we’ve added cost in many different areas. Now, as the time, we’ve got our team focused on simplifying our offense, making sure, we look at every part of the operation to eliminate excess of cost. At the same time, we’ve got to take significant actions where there are problems. And the manufacturing efficiencies presented the problems at Leo’s. We required action and we’ve taken action there. The issues that have been -- that were evident at Lepage, required action, we’ve taken action there as well. But the team is very much focused on making sure that our cost stay in line and that we -- at the same time we have the foundation to continue building this company for the future. So there is a very much of a short-term need to tighten our belt but at the same time, we’re extremely optimistic about growth in the future.

Okay. Thanks. I’ll pass it on.

Thank you.

The next question is from Sarah Burns with Findlay Park. Please go ahead.

Good afternoon.

Good morning Sarah.

Good morning.

Hello, Sarah.

Just a couple of questions. Firstly, the promotional environment, is it in your existing markets or is it predominantly in the new markets that you are taking share that you are seeing the most aggressive stances?

The promotional activity that I mentioned is really company wide. Some markets are little harder than others. But overall, the level of promotional activity is harder than we’d like to see.

Okay. And secondly, I am surprised it’s so intense given the sort of industry consolidation we've seen over the last couple of years. Back to Farha's question, what gives you the confidence that people are going to step away from the brink in the back half?

You’re exactly right. Consolidation in the industry, the category should become irrational. But eventually we feel that we will see that. We are hopeful that it happens I the back half. We are focused on making sure that we don’t have excessive promotional activity and the promotions that we are running are effective. One of the -- I think one of the learnings in this category and I mentioned our retail customers early. With the perishable product that has a six or seven day shelf line, pantry loading really isn’t an option. So if you’re from a supermarket standpoint, if you have excessive promotional activities, consumers are not going to load the pantry with loads of fresh breads. So this is a category that has some unique characteristic. And I’m really optimistic as retailers focus more on category management. They have a better understanding that price promotion to an excessive degree is not good for any one here.

Actually the shift from store to branded was actually promising on that front during the quarter?

There really -- there were two elements that impacted our private label sales. Number one, the excessive brand equity on promotions pull some volume from private label and also we elected to walk away from some unprofitable private label during the quarter as well.

Okay. And any chance of you quantifying what you walked away from on the sales line?

Steve, I don’t think….

Sarah, I don't think we would disclose that publicly.

Okay, fine. And back to a follow-on from Farha's questions. Given the fact that you probably absorbed close to $12 million this year on Lepage and tortilla -- and Dallas Fort Worth tortilla plant. I am surprised that you sort of -- as we look into early 2015 that you haven't got greater visibility, that you still have to be cutting guidance which I thought was pretty achievable for the full 2014. But at the same time you are actually saying that the promotion -- we think the promotional outlook will get better. It just seems to be a conflicting statement?

When you look at the outlook for ‘14, I think the impact on the first half we didn’t miss our internal projections on the second quarter. And it will take some time, as Allen said, to get -- to change the promotional cadence for Flowers coming into fourth quarter. So, the impact of that is still to be seen in the third quarter. And quite honestly, the impact of that in the fourth quarter once we change that cadence does it affect our volumes. But we don’t think it will significantly impact that but there is a risk there as well. So that’s really driving a lot of the change in the outlook for 2014.

And finally one last question, I think it was in the last quarter you expected your sort of productivity measures to sort of normalize in the fourth quarter of this year, sort of 93, 94. Is that now being pushed back by a couple of quarters?

We're still seeing good progress from an efficiency standpoint. And we’re actually up this quarter compared to last quarter about 100 basis point or so.

So you feel you are still on track to achieve your sort of -- that metric for the end of the year?

Yes I think, yeah, when you look at the efficiency ratio there is really five or six plants that are affecting that. Leo's was one of those and now we believe we are taking care of that situation. And now we’re working on the other three or four from trying to raise their overall efficiency, which we think will be achievable by the back half.

Okay. I will jump back in. Thanks for your time, guys.

Thank you.

Thank you.

The next question is from Bill Chappell with SunTrust. Please go ahead

Good morning.

Good morning, Bill.

Can we go back to the cake business? I'm just trying to understand your optimism and what happened intra quarter. Because I understand you still have the 6.7% share, but if we are doing the math right it sounds like you lost 25% of your share over the past -- over the first half of the year which is pretty meaningful especially going against a fragmented industry. So trying to understand like what gets you back on track. Did you actually get kicked out of certain relationships by Hostess or is it just consumer take away due to promotions is what’s hurting the share?

Bill, the cake category is very much of an impulse driven category. And with the news of Hostess’ reintroductions to the market places, they have done a good job getting off right displays and most of the cake is sold on off right displays, certainly incremental cake. And most of the supermarket, there’s only going to be one, possibly two off right displays of cake. So with the Hostess reintroduction, our Tastykake brand and also our Mrs. Freshley’s, was really not included on displays as often as we would have liked. From a pricing stand point, there really is not a pricing problem in the cake category. It’s really a function of the news of Hostess’ reintroductions to the market place and how that affects displays and presence in the supermarkets. We are very confident. Our independent distributors, they are excited about selling the Tastykake brand. We’ve got several new items that we continue to introduce new items under Tastykake to keep the brand alive and well. And we’re working very hard to regain the offright displays that are very important in this category. So it’s really a function of the news of Hostess coming back that did a good job getting the distributions. And now I think strength -- our DSD strength over the long term will prove out.

I'm sorry, I'm missing something. Hostess, the launch happened a year ago. But something happened -- seemed to happen this quarter that did make it worse than your expectations. So I'm just trying to -- help me understand near term what happened and then along the same lines, I mean, do you need to turn on advertising? Do you need to step up something to make it more of a national brand like Hostess is?

The real change this past quarter is that they expanded distributions and probably more channel then what we’ve seen in the past. So in addition to supermarket, the mass merchandiser and also there is some expansion from Hostess into the convenience store channel. So more than anything else, looking back at the last quarter was more of a increase in distributions from that standpoint.

And just on the subject, does that mean Hostess is going DSD now if they are going to the convenience store channel?

Nom they are going to market through warehouse distribution. In the convenience store channel, they have various different structures in place depending on the geography and the accounts. But again, to my knowledge they are not expanding with the traditional DSD as we have.

Okay. And then switching to just the bread business, I mean should we look at the branded versus store brand as simply -- Wonder is back on the shelf and it's just taking share for cannibalizing your existing share on the white and then store brands or is there something incremental in your kind of, I guess, legacy markets?

The excessive promotional activity that we mentioned a great deal of that was in the white bread category. Private label is dominated by white bread more so than soft variety and buns. During the quarter, there is again a lot of activity in the promotional area on the branded side and also there were some profit private-label bits came up and that we decided that were not profitable for us. And we made the decisions to walk away from the existing private-label business. So it was kind of the combination of the amount of branded promotion impacted private label. And then also our decisions to walk away from several private-label accounts because there we profitable also impacted our private-label number

Okay. And then the last one for me, going back to Eric's question. I think I'm right in saying that typically the annual dividend payout is only addressed each May. So Steve, are you saying we are waiting -- the Board is basically taking a pass and waiting until next year before they do anything with the cash, both dividend and share repurchase or would you look to take advantage of what will be a more depressed stock this morning?

We meet -- each quarter we do discuss the dividend. Traditionally, we’ve raised it in May. So the Board will meet in the next weak or so on our regularly scheduled meeting. And at that meeting, they will address it and do whatever they think is appropriate.

Okay, I will turn it over.

Thank you.

The next question is from Akshay Jagdale with KeyBanc. Please go ahead.

Good morning. So Steve, my question is about the guidance. So can you just talk about the sales guidance specifically? Based on my math it implies that the back half organic growth overall for the company needs to be around 3% to 5%, which would be an acceleration from down 1% so far this year. So one, is that correct? And secondly, if that's correct what are the factors that are driving the acceleration? And then secondly, maybe another way to approach it is can you talk a little bit about the reduction in the guidance on the top line? How much of that has to do with what's actually already happened versus your expectations for the back half?

Sure, when you look at the back half, I mean 3% to5% is right, but you need to remember that week 53 adds about 1.8% or 2% to the total.

Well, I am excluding that, if I exclude that it’s still 3% to 5%?

We’re assuming some accelerations in back half. As Allen said, if we hit the promotional activity under control over the fourth quarter, which you see a lift there as well. So I would say your calculations are in line with how we are looking at the back half.

So how much of the -- can you talk about how much of the -- how are we going to go from negative 1 organic growth to plus 4, which is in the middle of your guidance. I mean what are the driving factors? Because I think most people are not going to assume that the promotional activity is going to abate and all of a sudden be successful. So can you give us sort of a bridge from where we are today to this back half guidance? I mean, how much of that is promotions in your numbers, how much is sort of base business picking up, however you want to help us there?

I mean, on e thing is we have cycled a cake relaunch. So we do -- that comps have come back in line hopefully and we should not see as much law from the cake business in the back half. And then from the new brand perspective, as Allen mentioned, we are seeing a pretty strong cadence in expansion markets with new brand. So we’re expecting more lift in the back half from the Hostess brand. And as I said earlier, week 53 so -- and then hopefully the promotional cadence will improve. So that kind of -- that was kind of the bucket that we look at where we are expecting to lift in the back half.

Okay. And then just if you take a step back, I mean you guys have been focused on obviously growing the top line quite a bit. Prior to the Hostess acquisition obviously the operational performance had been very good and more recently you've had a lot of growing pains. So wouldn't you say this is the time to maybe to take a step back and deliver on the margins and get that part of the equation right before you start to step back on the pedal? I mean your SG&A leverage, which had been a hallmark of the company for decades is -- we are not seeing that because you're investing in future growth. But perhaps we should -- have you considered taking a step back on those investments to get the margins back on track and then start to reinvest?

Akshay, the terms, -- I’m not sure the term step back is accurate but we’re very focused on really settling the operation. You are exactly right the last 2.5 or 3 years, we’ve been extremely busy with category consolidations. We feel that we have made right decisions in the past to grow the company. And now we’re focused on really settling down the operation building our market share, especially in new markets and continuing to build our business over the long term. We’re focused on every area of cost to make sure that as we’ve gone through this growth period, we’re not carrying any cost that we don’t need to. And at the same time we’re focused on building on our strength, which is our address to delivery system. So stepping back is not the right description but we are settling down the right of growth that we’ve had over the last three years. We’re very optimistic that our continued growth is right in front of us for all the reasons that I’ve mentioned earlier.

And Steve, can you give us an update on the gross margin guidance? So where, I believe previously -- correct me if I am wrong, but you had said you were going to expect a level of gross margin expansion. Where are with your expectations on gross margins for the year?

If you look at the full year, we’re still forecasting gross margin to be up slightly, roughly probably 40 to 60 basis points.

Okay. And just one last one, when I look at your business, your DST business specifically, I mean this quarter, I think you had like pretty much negative incremental gross margin. Can you just talk maybe broadly of the weakness you are seeing generally relative to your guidance on margins, how much of it is controllable do you think internally versus industry issues such as category weakness or promotional pressures?

Akshay, when you look at the quarter and actually look at the year, and what we’ve been seeing and we’ve talked about this quite a bit at the ramp up and stale or returned product. And there is significant cost associated with that product. And through our thrift store system, the recovery is not sufficient to offset that. So even -- just Q2 alone and that with a couple of million dollars over the last years second quarter. So that’s a significant bucket of cost that we are very focused on and we have an opportunity to improve. Now what’s been driving that increase has been the accelerated expansion in new market because our brands are not -- we’re still trying to get traction in the new markets. The promotional activity causes a mix shift among brand because the people are really shifting based on price sometimes. And as Allen said, hasn’t been very efficient, so that’s driving the sale increase. And the new products, we had the relaunch -- we have the new product Cobblestone Bread Company that we introduced in the second quarter. That’s getting traction. We’re seeing a high stale rate or returned product costs there. So that one item alone, it could be a significant driver on margin over time. We didn’t get there over night and we won’t fix it in a quarter or two. It is a longer term fix but it is definitely one of the major items that could drive the improvement from the margin perspective. And in the quarter, we had extra costs related to the startup. And as we’re bringing these plants back online, we will have that costs over the next two or three years. But again, we will try to manage that as best as possible. And then the extra -- cost related to ex-promotions in the quarter were significant compared to last year. And then now that we’ve hopefully ironed out the tortilla issue and we’ve really made great progress on Lepage and begin to see that turn. Getting that one operation back in line with where it was when we acquired it, will again be another huge bucket that goes a long way to improve the margin.

So maybe is this a good characterization to think of sort of the base business? Margins are suffering from some industry issues, which include higher promotional activity. But more importantly your expansion margins are much lower than the base business today because it is a different type of expansion than you've had in the past, right. So can you -- if that’s correct can you give us a sense of sort of in these expansion markets how much lower are your margins today and I am guessing that’s something you can control and bring back to your company average over time or relatively quickly?

Akshay, each expansion market is different. But you are correct, as you enter in new market with new cost, it takes a period of time for your few brands to grow. And each of our expansion markets are -- we look at individual expansion markets on a weekly basis and measure our improvement week-over-week. But its all about making sure that the cost structure is inline with our sales and that we’re growing the top line sales in each one of these expansion markets. The good news is that with the acquisition of the acquired brands like Wonder and Butternut and others, it helps us to accelerate that improvement timeline in new markets. But you are right, we expect margins to be lower as you enter new market so each market is different.

I think your characterization of kind of issue is right on. And we look at expansion market, some markets that could be as much as half of our normal margin. So it is pretty significant.

Okay, great. I will pass it on.

Thank you.

The next question is from Brett Hundley with BB&T Capital Markets. Please go ahead.

Good morning, guys. This is actually [Umar] (ph) filling in for Brett.

Good morning.

Actually, most of my questions have been answered by now but I just had a quick one on warehouse margins, they were stronger than expected? Do you guys think that anything has structurally changed within the segment, given the improvement going forward, is it actually sustainable. Can you guys provide a little bit of color over that?

I mean, overall when you look at the warehouse margin, we did exit some very unprofitable business and that really was the main driver margin improvement there.

Okay. So mostly was from the exit and the reduced cost from those operations?

Probably on the foodservice side of the business.

Okay. And overall on the bread category conditions, do they worry you guys? I just want to just get a little bit of -- if you guys could talk a little bit about the difference that you’re seeing across retail and foodservice s from a big picture standpoint?

The category is actually flat to upside with. We mentioned earlier, there are many food categories that are trending down significantly. So I think that the overall category is flat to slightly up as positive. We’re very optimistic. Again, it’s a $31 billion category. The rate of a consolidation as we’ve seen continues to accelerate and we feel that Flowers is on a very good position as a strong number too to continue to grow. So there are also segments of the category that offer opportunity to Flowers and our Cobblestone Bread Company is a new brand that has been developed to help us grow our business in those underdeveloped segments of the market. So the promotional activity of that we’ve mentioned this past quarter and really past year to 18 months. We do feel that overtime that the promotional activity is going to be reduced and that is probably going to be driven as much by the retail trade as anything. So very optimistic about the health of the category and we’re excited about the opportunity for our company as consolidation continues.

That’s very helpful guys. Thanks for taking the call.

Thank you.

Thank you, [Umar] (ph).

(Operator Instructions) Our next question is from Amit Sharma with BMO Capital Markets. Please go ahead.

Hi. Good morning, everyone.

Good morning, Amit.

Steve, $4.7 million EBIT impact from Lepage, do you have a sales number as well, what kind of sales downfall do you have in that business or have you fully recovered sales now?

Yeah. From a sales perspective, I think they’re tracking about in line where they were. But that’s the total region we have entered some new markets, I would say the base business is probably off slightly, yeah.

Okay. Okay. So, not a whole lot of delta between where we are in ‘14 versus ‘15 on the sales line from that business other than the first…

Yeah. There is not much change there.

Okay. And then the Hostess expansion into Wal-Mart, can you talk about that a little bit? Now that you have a little bit more time to look at trends, are we fully in all Wal-Marts, are sales tracking in line with expectations?

Yes. We are -- the brands that we acquired, Wonder, Merita, Home Pride and others. We do have -- now have distribution in Wal-Mart. We are in the malls on rack within their bakery department and we are getting a quite a bit of support from a display standpoint. So even though that was a -- we were slow putting that together, we’ve now completed and have full distribution on the acquired brands.

And, Allen, how do you in the main bread aisles yet or is that shelf reset still to happen later in the year?

Yeah. Amit, that we don’t.

That’s correct. That we are inline on the bread rack in the bakery department, so we have overcome that hurdle.

Okay. Quickly on Cobblestone, what should we model for in terms of expectations or contribution to the topline in ‘15 or thereafter?

Steve, really haven’t projected that number publicly at this point. We are very early in the process. We ran about a three-month test period and we’re currently in the process of expanding this brand into really across our DSD footprint. And we’re excited because many of the categories that Cobblestone Bread Company addresses are categories where we are underdeveloped. And we’ll be probably on our next call we will develop more insight into what we expect out of Cobblestone Bread Company.

That would be helpful. Just two more quick ones for me and as you think about the promotional, one more question on that. You expect it to moderate in the fourth quarter, but if your competitors do not follow your logic and go back, are you prepared to go solo on that and scale back your promotion even if the category continues to be promotional or would you stay at these levels to protect share in that case?

Obviously, we have no idea what the market reaction is going to be to our actions and what we are going to do is focus on our business and growing our topline and hitting our earnings number. We feel that we can do that with less promotional activity than we have today. If the marketplace follows, that’s fine, if don’t fund, we’re going to continue with the direction that we’ve laid out. We’re focused on strong brands, making sure we have the best product quality in the marketplace and our independent distributors are extremely aggressive in making sure that we have off rack display to drive that topline is very important. So, really can't predict what the marketplace reaction will be to our reduction and promotional activity. But there is our plan and we’re very confident that we can make it work.

Got it. And then one final one on M&A and you talked about open to being more -- in doing more acquisition, at this point looking what is happening in the snack cake aisle and looking how Tasty has sort of slowed down a little bit from really strong growth last year or earlier this year. Is that an area where you will look the bulk of the portfolio a little bit or is it still focused mainly on consolidation in the fresh bread category?

Your question is about acquisitions in the cake category.

Yeah. Whether it makes sense to bulk up that portfolio or are you still going to continue to focus on consolidating the fresh bread side of the business?

We will look at opportunities as they are represented. Obviously, we have a lot of growth opportunity and we’ve said it in multiple situations. The Hostess acquisition is a multi-year rollout. We have bakeries that are idle today that we own, that can be re-commissioned as we continue to grow in new markets. If the right cake opportunities come along, we’ll certainly take a look, but I would say, that’s not our top priority right now.

Got it. Thank you.

Thank you.

We have no further questions at this time. I would like to turn the call back to Mr. Allen Shiver for closing remarks.

Thank you so much for your attention. Thank you. Hopefully you hear a voice of confidence from our team and looking forward, we are confident. We have the brands, we have the bakeries and most importantly, we have the most experience team in the industry to get the job done. Thank you for your attention this morning. This will conclude our call.