Flowers Foods, Inc. (FLO) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the Flowers Foods Fourth Quarter and Fiscal 2014 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 Paula and good morning, everyone. We realized that today is a very busy day with multiple earnings releases and calls. So we really appreciate you're 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 page. Before we begin I must remind you that our 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 filing. Before we get started with our discussion of the quarter and the year's results, I want to alert you that Flowers Foods will host Meet the Management luncheon at the New York Stock Exchange on Tuesday, April 14. Of course we'll send you more information later but we thought you'd want to note that day April 14th on your calendar. Now let's get started; participating on our call today, we have Allen Shiver, Flowers Foods President and Chief Executive Officer; and Steve Kinsey, our Executive Vice President and Chief Financial Officer. We'll open the call for your questions following our prepared remarks. Now Allen, I'll turn the call to you.

Thank you, Marta, and thank you for joining our call today. In fiscal 2014, our Flowers team made great strides integrating the new business that we've earned over the past two years. We've 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 precious 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 accessed over 80% of U.S. 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 experience continued growth in markets such as Boston and Kansas City. Helped by our acquired brands expansions in these and other markets contributed nicely to our growth last year. On previous calls I mentioned that 2014 was a year of bedding down the new business that we have gained over the past two years. Our team work hard and did an excellent job reinforcing our strong foundation and positioning us for future growth. During the quarter we added a bun line in our bakery in Henderson, Nevada and added new capacity at our Modesto California bakery, giving us new capacity in the west coast market. We also opened a bakery in Knoxville, Tennessee that allowed to reduce transportation cost and improve product freshness in certain expansion markets. As part of our exit from the food service tortilla business we moved to our San Antonio bakery two of the Flower tortilla loans for 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 we increase our focus on this important category. A major initiative in fiscal 2014 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’ 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 margin. 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 pressure product supply in the stores, increased sales of our branded breads and importantly a reduction in sales or waste from product returns. Consumers are increasingly more conscious of the foods that they are eating. Flowers was on the of 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 multigrain 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 rapid pace and innovative new products are critical to drive growth now and in the future. In mid-2014 we launched the Cobblestone Bready Company brand which is targeted primarily to the growing millennial demographic that desire to create restaurant quality sandwiches at home. Although we are still early in the introduction process we’re 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 increase competition in 2014 as Hostess Cake continued their return to the market. While our overall branded snack cakes were down due to competitive environment, our TastyKake brand posted slight growth excluding the extra week. On the cake innovation front we’ve been pleased with the consumer response to our seasonal TastyKake items such as Salted Caramel and Red Velvet Donuts. We continue to introduce TastyKake new markets in 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, though our current share in branded cake remains above where we were in 2012. We remain confident that our cake strategy will win share against the competition and we’re keenly focused on executing in the marketplace to further build this important part of our business. Looking at the total U.S. market share of the fresh packaged breads category we grew slightly over the prior year. Based on fourth quarter IRi data we have a 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’ll now ask our CFO, Steve Kinsey to give us a financial report on the quarter. Steve?

Thank you, Allen. Good morning, everyone. Before I get into the operation results, I would like to address several items that we highlighted in the release. First during the quarter we revised sales for certain discount from cash sales that were historically reported as selling distribution and administrative to a counter [ph] revenue account. After review of the character of these discounts we determined they were better classified as a counter revenues and selling expense. To facilitate comparability between periods we have revised sales for all periods presented. We get 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 no effect on earnings. The revision does slightly impact overall margins as a percent of sales but not in a significant way. Second, as we disclosed in our third quarter call as part of our pension de-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 in 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 affect 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 are close to sale of these two properties we will have sold seven bakeries and 17 depots acquired in the Hostess acquisition. Now turning to the fourth quarter operating results. As a reminder 2014 was a 53rd 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 quarters and years 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 activities. 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 continue to see strength in our expansion markets. However our core markets 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 the DSD business was generally affected by lower volume from the exit of certain store brand business. Overall, store brand DSD sales were down approximately 10.6% in dollars compared to prior year fourth quarter, excluding the extra week. In general branded volumes were up in bread and cake while overall pricing continued to be pressured by promotional activity. White bread continued to perform well of the strength of the acquired brand within the expansion markets. A positive mix shift was offset by negative pricing and the extra week added 7.6% to DSD's reported sales. Excluding the extra week our warehouse business sales declined 9.4% as compared to a year ago driven primarily by decreases in our warehouse cake and food service businesses. Declines in our warehouse cake business were driven by negative volume and store brand cakes. Branded cake in 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 decline 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 Alan 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 margin were up 20 basis points year-over-year to 7.1% of sales. The overall improvement in EBIT was driven by stronger gross margin offset by an increase in selling distribution and administrative expenses as a percent of sales. During the fourth quarter, carrying cost for the acquired facility of $4.7 million negatively impacted EBIT margins by approximately 50 basis points. Also during the fourth quarter last year carrying cost 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 about $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 facility were approximately $19.5 million or $0.06 per share in fiscal 2014 compared to $10.6 million or $0.03 per share in fiscal 2013. This increase was the result of 2014 supporting [indiscernible] for a full year versus roughly six months in 2013. We expect the full year fiscal 2015 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 administrative [ph] cost and lower outside purchases as a percent of sales. These improvements were partially offset by reduced volumes. The carrying cost related to the acquired Hostess facilities reduced gross margin by approximately 30 basis point this quarter and last year's fourth quarter. Selling distribution and administrative cost in the quarter were 37.7% of sales compared to adjusted 36.4% of sales in last year’s fourth quarter. This 130 basis points increase was driven by increased distributor discounts and higher workforce related cost. The decreased volume of those segments of the business also negatively impacted SG&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 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 common stock. For the full year fiscal 2014 we repaid approximately $167.9 million in debt ending the year with roughly $763 million in debt. At 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 a $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 five 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 past 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, investments in our facilities and strategic opportunities as they present themselves. Turning to our outlook for fiscal 2015, for the 52 weeks fiscal 2015 we expect sales of $3.786 billion to $3.861 billion and expect earnings per share of $0.96 to a $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 increase 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 improved price mix as we work to more effectively manage promotional activity. Earnings improvements should be driven by improved efficiencies, better input costs, continued reduction of our overall operating cost as we drive margin expansion. 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 fiscal 2015 we will focus on executing our initiatives to grow on our core and expansion markets and continue to work on improving margins. We’ll also be actively monitoring the M&A environment considering opportunities that complement our core competencies. Now 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'm confident on 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’ve earned in our core markets. We will continue to grow from our retail branded business Cobblestone and TastyKake we 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 will be driven by the additional sales volume that I just discussed, as well as the benefits rollout from our efforts to improve operations at Lepage, reduce sale [ph] overall, exit low margin business and sell our 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'll now open the call for your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Farha Aslam from Stephens. Please go ahead.

Hi, good morning.

Good morning Farha.

Two questions, the first is could you just talk about the promotional cadence in the quarter and what's 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 but overall the marketplace remains competitive and really there is no dramatic change from last quarter.

That's helpful and then could you 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 further type [ph] of corn syrup and sugar et cetera.

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

That's very helpful. Thank you so much.

Thank you Farha.

Thanks Farha.

Our next question comes from Eric Katzman from Deutsche Bank. Please go ahead.

Hi. Good morning everybody.

Good morning Eric.

It seems like you may have turn the cost - may have turn 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 a promotional environment we really have not made any assumptions, dramatic assumptions looking forward for improvement. If there is improvement in the pricing in the marketplace there would be some upside there.

Okay, all right. And then I don't recall in all the years I have followed you, I don't recall where you've been I guess maybe or similarly as vocal about the M&A landscape and 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's occurred in the category? Are you talking more in snack cakes, other baked goods type of products and are the - I guess the multiples that these sellers are looking for, do they, from your perspective at this point appear fairly reasonable?

Eric, on the fresh bread bun or roll 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're excited about our progress with TastyKake brand and feel we've got some momentum going into next year to continue building our cake business. But once again we look at offered - all opportunities and we'll do a thorough valuation of each one and the good news with the strength of our balance sheet if we see right opportunity we can take advantage of it. But really nothing significant in terms of the companies that are available, I think you are probably looking at the same list that we have there.

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

Our next question comes from Akshay Jagdale from KeyBanc. Please go ahead.

Good morning.

Good morning Akshay.

I jumped on few minutes late but the gross margin performance is really what I wanted to focus on first, it came in my estimate. I mean it was one of the best gross margin performance that you had in quite a while. Would you agree with that characterization and 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 characterize from your perspective the gross margin performance this quarter?

Sure Akshay this is Steve. Some of the driver on the gross margin actually the fact that we were able to exit some low margin business in both warehouse and DSD. If you recall we did exit some store branded sales at DSD and then we had existed certain tortilla business in our food service warehouse group. So that was the driver. Another big driver in the quarter or one of the bigger driver, I think one of the primary drivers was efficiency improvements. Efficiency for the quarter came out about 93.5%. So that’s up dramatically over last year where it was about 91.5%. So it’s about 200 basis points improvements from a efficiency standpoint. So just overall that improved production cost less, so we were able to more efficiently produce product at a better cost. So I would say if I had to point to one big driver I would say would be the efficiency gain in the quarter and we also had fewer purchases and that meant we were shifting productions into our home plants so the quality and overall cost of production was down from that perspective as well.

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

Efficiencies were probably 50 to 60 basis points of that.

Okay and so again the way I view that is what’s in your control, you finally start to hit on like you have been for so many years. The other part it is as you talk about rightsizing the business and your SG&A, the sales have been somewhat choppy and hard to model. So can you give us a sense of when you say rightsizing the business, how much of those efforts are focused on at the plant level gross margin and how much of it is SG&A and when should we start to see some of that pull through and is it in your guidance basically?

Yeah, actually in our guidance we do have some of the right sizing of the business. We started those efforts in the fourth quarter and most of those I would say most of the bigger efforts, the actions are completed so we will begin to pick up some of that benefit in the first quarter of 2015. Generally speaking SG&A, two things are going on there. One we have sold more routes so distributor discounts are up because of the we are continuing to enter expansion you are not typically seeing the full benefit you get as you began to operate under independent distributors. So we are still maintaining some employee related cost with respect to distribution. So you will continue to see I think a slightly elevated SG&A as we develop these new market and what we are 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 and that will also begin to help work on SG&A as a percent of sales. So we do expect that to come down as a percent of sales in 2015. It is 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 bought back in dollar terms in quite a while. Should we read into that march or can you help us understand how you are thinking about buybacks as it relates to ’15?

Sure, I think when you look at the year in the quarter cash flow was great. I mean it was extremely strong. We feel very confident about debt repayment our debt levels then where we were they gave us great opportunity to go into the market in past years. Looking into 2015 I think we will stay with our strategy for the most part of buying in - shares are dilutive from our stock based comp program but as always continues to be strong we are able to continue to focus on the dividend and other shareholders initiatives. And our share repurchases are still the top way that we see to deliver value to our shareholders. So I think again our forecast are for cash flow to continue to be there so the cash flow will continue to be there. So I think share repurchases will continue to be a big part of cash allocation strategy.

Okay. And just one last one on promotions. I think you have mentioned in the past that what’s 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? I mean is that pretty much what again happened this quarter and aren’t the retailers seeing that net-net that’s negative for the profit pool of the industry and if they are seeing it, why aren’t they - why are 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 from last quarter. As far as how the retailers is looking at mix and their profitability, selling more branded product is certainly the right move for them as well as for the baker. So I anticipate some level of promotional activity is going to continue and we are planning for that as we look at it, better pricing began to improve on the branded side. There is also room for pricing to move up on the private label side as well and that would be very helpful and healthy for the entire category.

And our next question comes from Brett M. Hundley from BB&T Capital Markets. Please go ahead.

Good morning Allen.

Good morning.

My first question it sounds to me that things are less competitive in your expansionary markets then they are in your core markets is that a fair characterization or am I off with that statement?

Well I think you are off with that and it is a competitive marketplace whether we are dealing in our core markets or whether we are looking at expansion markets but I think the message that’s not news, that has not changed. It is the same environment we have dealing with for over a year now.

Yes. And so has that, just given what has been happening for over a year now what’s in the competitive landscape has that changed your strategy at all, 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 do you still believe that the strategy that you had in place for multiple years now that is the one that can work?

Brett, as far as our pricing strategy I think you can look at IRi data and see that in most cases Flower is the price leader whether it is core market or whether it is in expansion market. So 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 and really the pricing environment in this new market is not a determine 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 wouldn’t say any better or any worse.

Okay, and then I want to lead into cake. One of the things we’ve 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 looks like it’s taken some space away from either fresh bread or even breakfast type offerings. And I’m just curious if you’ve seen that continue here into Q1 as far as just a bigger exposure to cake and maybe some room taken away from fresh bread?

Yeah, there was a lot of excitement in the cake category, that’s reflected an outright displays and I mentioned some of our seasonal tasty cake items. Our team’s done a great job of taking advantage of the impulse nature of cake. And 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. I mean is an add on incremental sales and especially when it comes to outright displays. But I think you are right there is some excitement in the cake category and that 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. And it’s good to see the cake - it was good to see your cake shares moderating some and I’m wondering if you can just maybe give an example or two moves that you guys have been taking to kind of stem any share losses or any share losses in cake going forward?

No. Again cake is a very much impulse and we’ve got some really exciting new products that - 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 to settle down and bed down those new individuals in their territories, taking advantage of add-on sales with cake is an opportunity. So even though there’s is activity in the category from competition, we’re faring well with focus on our TastyKake brand.

Okay. I appreciate the comments. Thank you.

Thank you.

Our next question comes from Tim Ramey from Pivotal Research Group. Please go ahead.

Thanks so much, good morning.

Good morning, Tim.

I just wanted to focus for a second on the sale outlook for ’15. It’s been my observation that private label is often times done on a pass-through basis in terms of costs. 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 ‘15 and kind of what effect do you think private label will have on ’15, you did point out that it was a small decline in terms of share in ’14?

I think with category management, our retailers are probably doing a better job today, identifying the profitability of this whole fresh bakery category. And I think there is better information with our retailers about how private label can enhance their margin. And there’s 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, we mentioned earlier there is some independent bakers that are still there. But a better understanding by the retailers of the profit contribution of those private label and brand to their business I think is growing. So I don't anticipate a decline in private label prices as we go into next year.

And if you think about your impact, I mean I agree that the gross margin was the upside surprise in the quarter. Does that mean that we should model gross margin higher in '15 versus '14 or would we continue to see some cross currents there.

Yeah I think coming in to '15 if you look at the guidance and the range you could see gross margin flat to up another 30 or 40 basis points. So we anticipate - we do have modeled into our guidance range some movement and improvement in gross margin.

Okay terrific thanks.

Yes thank you.

Our next question comes from Amit Sharma from BMO. Please go ahead. Amit, your line is now open. And we move onto the next question. Our next question comes from Stephanie Benjamin from SunTrust. Please go ahead.

Hi this is actually Stephanie on for Bill Chappell. My first question has to deal with your expansion into some of the east markets. And have you seen any kind of just impact from the recent snow and bad weather? And then my second question just have to do with just a little more color on your share performance in cake 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've gotten accolades from many of our trade customers, that Flowers’ distributor was the only distributors taking care of our 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'm encouraged with the way that we've 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 significant opportunity for our company to grow share and we're very focused on that with not just 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 going our cake market. And if you again it's 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'll do that on the strength of our independent distributors.

Now that's very helpful. Thanks so much.

Yes, thank you.

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

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 the 14th in New York City. Thank you for your attention and we will adjourn.