Flowers Foods, Inc. (FLO) Q2 2016 Earnings Report, Transcript and Summary

Welcome to the Flowers Foods' Second Quarter 2016 Earnings Conference 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 J.T. Rieck, Vice President, Investor Relations. Mr. Rieck, you may begin. J.T. Rieck - VP-Investor Relations & Financial Analysis: Thank you, Ellen, and good morning, everyone. Our second quarter results were released yesterday evening, and we filed our 10-Q then as well. You'll find the earnings release on the Flowers Foods website. You can find the slide presentation that supports our discussion for today posted on the conference call page in the Investor Center at flowersfoods.com. Before we begin, please be aware 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 filings. 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 over to you. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you, J.T., and thank you for joining us today. Before we get to our earnings results, I would like to take a moment to reflect on this week's news items and put things into perspective. Today, Flowers Foods is a strong company, with 49 bakery subsidiaries in 18 states, having grown our reach to extend to more than 85% of the U.S. population. We have strong brands, and the number one bread brand in Nature's Own and the new growth driver in the rollout of Dave's Killer Bread. We have made significant investments toward our future, completing our Tuscaloosa conversion and look forward to taking advantage at Alpine's warehouse distribution. We're also well positioned across our snack and foodservice businesses. In addition, we have a strong and experienced management team that is taking the actions necessary day-in and day-out to allow Flowers to succeed in the future. Furthermore, Flowers and its subsidiaries employ approximately 10,800 hard working and dedicated employees, who are the best in our industry. Our subsidiaries also work with approximately 5,100 independent distributors who control and operate their own businesses to provide full service bakery support to the retail and their foodservice customers. The combination of our brands and experienced team has allowed us to generate strong consistent cash flow, which we're constantly working to grow. To that end, and I'll now discuss in greater detail today, we're announcing Project Centennial, the next step in our efforts to drive additional growth and enhance value to our shareholders. With that, let's get into the quarter. In the second quarter, we grew sales by 5.2%. For the most part, our organic brands led by Dave's Killer Bread drove the increase, contributing 5.6%. Expansion markets also continued to grow in line with our expectations adding an additional 80 basis points to the top line. That said, a soft category pressured our core markets, reducing sales growth by 1.2%. Increased sales and stable margins also helped grow adjusted EBITDA by 5.2%. Adjusted EPS grew 4%, overcoming higher amortization expense and increased legal and consulting costs, which together were $0.02 per share higher than the second quarter a year ago. So now that I have provided a summary of the quarter's results, there are three topics I'd like to cover today: first, an update on the competitive environment; second, a review of our operational priorities and outlook for the year; and finally, I'll introduce Project Centennial, a comprehensive review of our business and cost structure that we began in the second quarter. Looking at the entire category, IRi shows the overall packaged breads market declined 0.4% in dollars with pricing and mix shifts offsetting unit declines. Continuing recent trends, category unit volumes have been under pressure, with store brand in particular losing dollar and unit share. Soft consumer demand in the bakery category has put pressure on volume. On slide six, the effect of these marketplace dynamics can be seen in the IRi data for traditional loaf breads which is the key category segment for Nature's Own, Sunbeam, Wonder and our other bread brands. In the second quarter, we experienced acute pricing pressure in the traditional loaf segment, where we saw high promotional activity in our core markets. As you know, traditional loaf breads are product categories that are key to our branded retail business, and as Steve will discuss in more detail, we have lowered our outlook for fiscal 2016 sales and adjusted EPS, due to continued promotional activity and weak category volumes. However, for those on the call who have followed Flowers for a long time, you'll remember that we've experienced navigating periods of heightened promotion activity. As we've successfully done in the past, we're already taking action to protect our position in the marketplace. We're confident that the strength of our brands and our high quality standards, combined with the exceptional service provided by our independent distributor partners will continue to demonstrate compelling value to consumers and grow our market share. Even as we work to strengthen the position of our leading bread and cake brands, Nature's Own, Wonder and Tastykake, we continue to focus on the substantial growth opportunities we have in organic breads, driven by Dave's Killer Bread. During the first week of the second quarter, we began delivering freshly baked DKB via our direct store delivery network, dramatically increasing distribution of the best-selling organic bread brand in the country. As a result, compared to the first quarter, DKB's average weekly sales increased by approximately 24%. And I applaud our team's efforts to rapidly expand distribution. We're meeting the ever-growing demand for organic breads, with capacity gained in the acquisition of the Alpine bakery, as well as the conversion of our Tuscaloosa, Alabama bakery for organic production. Every day, we're producing more of our organic breads in house, which lowers cost and improves quality. While Alpine sales are below our outlook, due to business coming on later than expected, the key strategic focus for the quarters ahead will be to leverage our warehouse distribution capabilities to grow Alpine. I'm confident in Alpine's future. In the back half, we will have additional distribution and product innovation planned to drive sales and growth for the brand. On slide nine, you can see that in addition to normalizing promotions on our core items and expanding distribution of organic breads, we have marketing initiatives in place to support growth in our expansion markets, allied innovative products and generate demand. To coincide with the extension of our DSD network into the Pacific Northwest, we use targeted digital advertising to drive awareness for Nature's Own. Cobblestone Right Sized bread continues to grow and recently earned industry recognition for innovation. Our cake business had a strong quarter, with both Tastykake and Mrs. Freshley's growing units and dollars, based on our internal sales data. Tastykake posted solid mid-single-digit growth driven by the marketing partnerships and seasonal items I mentioned last quarter. The sales growth delivered by our organic brands, Tastykake in expansion markets, illustrates how our recent acquisitions strengthen and diversify our brand portfolio as well as position us for continued growth in growing segments of the category like organics. I pointed out that the steps we've taken to defend our market share, I've outlined how we're supporting our growing brands, and now I will explain the progress we've made against our strategic priorities for 2016 as well as Project Centennial. As always, we continue to manage Flowers for the long-term. We've accomplished a lot this year to keep our company well positioned for continued growth. For example, we've completed the integration of DKB and Alpine, which includes extending our DSD footprint into the Pacific Northwest, as well as launching DKB nationwide. Also, we've converted Tuscaloosa organic production, and we've continued to ramp up production at our new Lenexa and Knoxville bakeries opened last year. Even though these activities required our time and investment, we're confident they are the right things to do, in order to build sustainable value. Our revised guidance reflects the combined effect of the softer than expected marketplace, and the strategic cost we made in order to support growth in expansion markets, and growing category segments. We recognize that regardless of the competitive environment or changes in consumer value, we need to always be looking for new ways to continue to take advantage of those opportunities we have to grow and create value. Not just today, but over the long-term. And that brings me to Project Centennial. First, the name of the project is a reflection of our upcoming 100-year anniversary, since Flowers founding in Thomasville, Georgia in 1919. Simply put, the project is an in-depth review of our business and operations, focusing on ways that we can grow sales, simplify our business, and improve profitability. We are still early in the process, but we are excited about the potential, and we will share additional details in the coming quarters. It's important to remember this is a long-term business, and even though things can change from quarter-to-quarter, I'm confident that just as we've done in the past, going forward, Flowers Foods will continue to excel. And that's why we are still confident in the goals we spelled out at our investor briefing in April. Over the long-term, excluding acquisitions, we expect sales to grow 2% to 4% driven by our organic brands, our expansion markets and opportunities we have in our core. Combining the top-line growth with our EBITDA margin target of 12% to 14%, we expect to deliver EPS growth of 8% to 10%, add on a strong dividend yield and that is a formula for solid total shareholder returns. I'm confident we can achieve these goals because we've built a solid foundation and now with Project Centennial, we are accelerating our plans to expand margins and drive sales growth. I'm also confident because our team is strong and with the experience to overcome challenges and reward our shareholders over the long-term, just as we've done in the past. With that, let's have Steve review the financials. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Thank you, Allen, and good morning, everyone. Second quarter sales of $935 million increased 5.2% versus last year, driven by the DKB and Alpine acquisitions, which increased sales by 5.6%. Excluding acquisitions, volume growth contributed 0.1% to the overall sales increase, driven by volume increases in the non-retail and store branded categories, more than offsetting volume declines in the branded category. On a consolidated basis, price mix declined by 0.5% due to declining price mix in the non-retail channel, partially offset by positive price mix in branded retail. EPS for the quarter was $0.24 unchanged from the year ago quarter. Adjusted for the pension de-risking settlement in the current quarter and the asset impairment last year, EPS increased 4% or $0.01 per share to $0.26 per share. Net income for the quarter decreased 1.2% to $51.2 million, while adjusted net income increased 1.5%. Consolidated adjusted EBITDA for the quarter increased 5.2% to $118.7 million or 12.7% of sales, and equal to the prior year. As a percent of sales, overall gross margin increased 30 basis points to 48.9% of sales. Lower input costs including ingredients, packaging and utilities benefited margins by approximately 130 basis points, offset by higher workforce costs and costs associated with the continued integration of organics, including outside purchases. As a percentage of revenue, SD&A costs were up 30 basis points to 36.2% of sales as higher workforce-related costs, consulting and legal costs. Cash flows from operations was $73.2 million compared to $97.5 million in the prior year quarter, the decline primarily due to changes in working capital. Capital expenditures were $17.8 million. During the second quarter, we settled the accelerated share repurchase plan entered into late Q1. Year-to-date, the company has returned approximately $126 million of cash to shareholders through repurchases. During the quarter, we also paid $33 million of cash to investors through dividends. Now quickly commenting on segment level results. DSD segment sales increased 4.5% with to date DKB acquisition contributing 5.4%. Relative to the second quarter 2015, promotional activity in the quarter was reduced, which drove overall segment price mix up 0.9%. Overall, volumes were down 1.8%, driven by lower volumes of core branded items due to fewer promotions. Operating income for the DSD segment was $80.1 million, an increase of 2.6% compared to the prior year's second quarter. Operating margins for the segment was 10.2% or down 20 basis points from a year ago. DSD segment adjusted EBITDA was slightly positive, up 0.7% to $108 million. EBITDA margin for the segment was 13.8% or down 50 basis points as a percent of sales. The decline in margin was driven by softer sales for the core business, continued cost associated with the integration of organic business, partially offset by lower input cost. Also a contributing factor to DSD margins was increased legal expense and higher corporate overhead charges. Warehouse segment sales increased 9.1% with the Alpine acquisition contributing 6.6%. We saw strong growth in volume excluding acquisitions from the non-retail category. Volume growth along with the acquisition more than offset negative price mix. Operating income for the Warehouse segment was $15.7 million, an increase of 12.4% compared to the prior year's second quarter. Operating margin for the segment was 10.5%, up 30 basis points from a year ago. Warehouse segment EBITDA increased by 15.6% to $20 million. EBITDA margin for the Warehouse segment was 13.6%, up 80 basis points, primarily due to sales increases and higher intercompany sales. Corporate SD&A costs in the quarter were $9.8 million, are down approximately $2.4 million from the prior year, primarily because last year's certain anticipated costs were not allocated to segments, but were instead absorbed at the corporate level. Carrying cost associated with the acquired Hostess bakeries continued to decrease as expected. In the second quarter, these costs were $1.9 million or down $2.7 million from a year ago. Currently, we have listed for sale three non-strategic facilities and we still have four undergoing a strategic review. Depreciation and amortization on the quarter, charges were $32.6 million, an increase of $2.1 million, primarily due to increased amortization charges associated with intangibles from the acquisitions. Net interest expense in the quarter was $3 million, and we entered the quarter with a net debt of just above a $1 billion. Our net debt to trailing 12-month EBITDA is 2.3 times. Now, turning to our guidance, as detailed in the release and on slide 12, we lowered our guidance for the full-year 2016. We now expect sales to be in the range of $3.93 billion to $3.986 billion. EPS is now forecasted to be $0.88 to $0.93. Adjusted EPS, including approximately $0.02 of accretion from the accelerated share repurchase, is now anticipated to be in the range of $0.90 per share to $0.95 per share. As Allen mentioned, the primary reason for the downward revision in our 2016 guidance reflects the challenges in the marketplace, with respect to consumer demand and the promotional activity, as well as the continued expectation of higher SD&A costs in the back half. Thank you for your interest in Flowers, and now, I'll turn the call back to Allen. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you, Steve. Let me briefly comment on the filings we made yesterday with the SEC. As you may have seen, we disclosed that we received notification on August 9, from the Department of Labor, regarding a compliance review. As we stated in the filings, we are cooperating with the DOL, but beyond that, we cannot comment as the review process is confidential. That said, today's call is about our second quarter earnings results, and we ask that you please limit your questions to that topic. Before we go to the Q&A, I want to be sure to recognize the team's continued hard work, as they serve the marketplace, improving operations, and remain committed to delivering value for shareholders by executing on our long-term goals. Our board and management team recognizes the challenges presented by the marketplace today. And we are taking affirmative action to streamline our core business, identify new avenues of growth and shape the successful future of Flowers Foods. Thank you and we'll now open the line for questions.

Thank you. We will now begin the question-and-answer session Our first question is from Farha Aslam with Stephens.

Hi, good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Farha.

A question on your new sales guidance. Could you give us some color about how you are thinking about core volumes going forward. And in terms of pricing and promotion, how we should think about that going forward for this year and perhaps going into next year as well. Allen L. Shiver - President, Chief Executive Officer & Director: Farha, as far as core volumes, we're very optimistic about the back half of the year. As you know it takes some time to get adjusted pricing into the marketplace and really the past several weeks, we started to see the results of being more competitive with marketplace pricing, so we should see improvements in our core market really going forward for the rest of this year and then continuing ahead.

Okay, and then as a follow-up, could you share with us kind of brand level performance. Is your Nature's Own, Wonder, how you think those are performing and what challenges and opportunities are ahead? And perhaps if you're seeing particular competition in that non-branded foodservice channel? Allen L. Shiver - President, Chief Executive Officer & Director: Well, really, all elements of our business are encouraging. But I would say that our Nature's Own brand is probably the brand that has been under attack the greatest from a marketplace pricing. And from, as far as the activity and the adjustments that we have made, they're primarily with our Nature's Own soft variety brand and making sure that we have competitive price, promotional pricing going forward. But if you look at the other components of the business, our cake business is strong. Mrs. Freshley's and also Tastykake doing extremely well. Cobblestone Bread Company doing very well with the new items that we've introduced there. And the acquired brands such as Wonder and Home Pride, doing really well in our white bread segment. So, if you look at our overall business, I mean, it's really a very positive story until you get to our Nature's Own brand, which is our lead brand, and we're taking the necessary actions to make sure that brand continues to grow as well.

That's helpful. Thank you. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you.

The next question is from Akshay Jagdale with Jefferies.

Good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Akshay.

My first question is – good morning. My first question is for Steve. I just want to better understand the guidance cut here. I mean, you don't give quarterly guidance, so we don't have a sense of how the first half turned out relative to your expectation. So, all we know is you have reduced the back half guidance it looks like because, as far as we can tell, the first half was in line with generally our expectations, especially on EBIT. So, what's really odd to me is the back half sales guidance was reduced by $64 million or 4% it looks like to us. But the EBIT guidance was reduced by almost 21% or $34 million. So, it looks like there is a fixed cost component in this business that I was significantly under-estimating such that changes in revenue are having a much bigger impact on the bottom line in the short-term. So, can you help me just understand that dynamic? Like why there is such a huge change in EBIT or the change in your sales guidance? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Sure. When you look at the top line first, I'd say, and then you can see from the pressure we've seen on volume, with our first half we were off of our targets from the sales perspective primarily because of the volume declines in reaction to our pricing actions. But going into the back half, the fact we have to be more promotional than we were in the first half to drive the share gain that will impact the top line from that perspective. And then in this business, there is a big fixed cost component and the margins go as top line goes. So for every incremental dollar of revenue you get, a pretty decent percentage goes to the bottom line. So in the back half now, the fact that we have to promote more, the fact too in SG&A our costs have been elevated and we're forecasting that will remain elevated that's impacting the back half margin as well. Coming out of the first half, we were not where we wanted to be obviously, but the big impact on the back half really is projecting flattish EBITDA margin or in line with where we were last year just because of the pricing actions we're having to take and then also the continued elevated SG&A cost.

Okay. And then just a couple longer-term questions here, and I'm going to be pretty blunt here, but obviously since 2012 the organic sales growth has been flattish, well below even your downwardly revised targets. EPS growth has been flat. And it seems that the competitive activity is getting worse, not better, despite consolidation. So I know over a 10-year period, the company has performed really well, but the last three years have not been good, right. So why should investors have confidence today that the next year or two years, three years are not going to be similar to the last three years where there's really been no growth and now competition's heating up even more. And then obviously, there are some legal issues with your business model. So help me with a more longer-term view from here. Allen L. Shiver - President, Chief Executive Officer & Director: Yes. Akshay, if you really look back at the last five years, this company has been going through a dramatic amount of growth from an acquisition standpoint. We've added almost 1,000 DSD routes in the last three to four years. So we've got a lot of opportunities from an acquisitions standpoint bringing new bakeries into the fold and so forth. Now the focus is on really settling down the business, looking at our business model and making sure that we're focused on not only growing the top line but also on margin improvement. And, again, one of the reasons why we're excited about the Project Centennial because now we have time to take a look at the overall business structure. So we've got a lot of positive things that are happening. If you look at our product lines, I mentioned earlier, the brands that we've acquired in the white bread segment continue to do extremely well. We're going to have our Nature's Own brand back on track shortly. Cobblestone Bread Company, Mrs. Freshley's, our Tastykake business, we've got all of the components of continuing to grow in this category, which is one of the largest categories in the food business. So another point, we have so much opportunity to grow in our expansion markets. I had mentioned earlier that if you look at our core markets, our share is in the 30%s, 28% to 32%. If you look at many of our expansion markets, our share is much lower than that, which really underlines the opportunity to continue to grow, and the consolidation in the category just fuels that. So the pricing environment, I don't think we need to overreact on the pricing environment. I mean this category has always been very active from a pricing standpoint, and we know exactly how to deal with that. So I wouldn't overreact to the comments relative to pricing. I think what gives me confidence is that we've been here before and we have the – from an acquisition standpoint, Dave's Killer Bread and Alpine, those brands are positioned in the fastest growing segment of the category. So we have so many good things going. I think the message here is let's not get distracted by pricing bubbles or legal matters that we'll deal with, so...

And just one last one on... Allen L. Shiver - President, Chief Executive Officer & Director: Steve, you want to...

Go ahead. Sorry, Steve. Allen L. Shiver - President, Chief Executive Officer & Director: Steve, anything you want to... R. Steve Kinsey - Chief Financial Officer & Executive Vice President: No, I think Allen said it correctly. The last five years, tremendous top line growth through acquisitions, our expansion markets. Now we're focused on trying to get our margin growth back in line. So very excited about the opportunity to accelerate some of the opportunities we've talked about now for a couple years, whether it's stale reduction, whether it's production efficiencies. Primarily the reason for launching this project is to be able to accelerate some of that, since we've not been able to deliver on it while we've been focused on acquisition integrations. So I think it's great opportunity over the next 18 months to 24 months to really turn things here.

And just on Project Centennial in light of the stock performance. Basically what we've seen from other cost-cutting initiatives in recent years in the food industry is that it can dramatically change a company's cost structure and margins in a short period of time a la 3G (32:09). So is that what we should be expecting here? I mean, is that the goal? Can you give us some early reads into what the opportunity could be from a margin standpoint? And are you considering things like going warehouse with your cake business? That seems to have been a model that has been well executed by a competitor of yours where they had a 30-point increase in their margins as a result. So can you just give us some read as to what the opportunity is here? Allen L. Shiver - President, Chief Executive Officer & Director: Yes. I think several things here. First of all, the Project Centennial is initiated by our management team. This is not something that is coming from anywhere else. This is a project initiated by our leadership team and everyone is excited about taking a step back and looking at the business model in general, but you make a good point as far as cost savings. We expect that there will be significant cost savings that will come out of Project Centennial. But I think equally important is growth opportunities connected to sales and adjacent product categories. So we'll also be looking at how do we grow the top line. At the same time, how do we make our business model more efficient, and the outside help that we'll be receiving from Accenture will help accelerate both of those initiatives. So, again, we don't have any numbers to give you today, but we're about four weeks, five weeks into the project and we'll keep you posted at future quarterly calls. But I really believe that this project can help accelerate a lot of the initiatives that management is working on already as well as bring some new ideas that we'll evaluate, and if it's a right decision for the long-term health and growth of our company, we'll take action. But we've never been a short-term quarter-to-quarter company. And anything that we do connected to Project Centennial will be good for the long-term health of our company.

Thank you. I'll pass it on. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you.

The next question is from Brian Holland with Consumer Edge Research.

Thanks. Good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Brian. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Hey, Brian.

So a quick housekeeping. Can I just confirm, and I apologize if you said this on the call. I didn't see it in the release. Dave's and Alpine, did they perform in line with plan in Q2? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Yes. Dave's is actually doing extremely well in line with plan. Alpine was a little behind to what we have projected, but our confidence level is extremely high. Warehouse distribution in some of the new business and space authorizations were a little slower coming on Alpine. But, again, I feel very good about both of those brands. So Dave's is on plan; Alpine is behind plan.

Thank you. Asking about the Hostess, and I appreciate that maybe you don't want to comment on what a competitor is saying or competitors' targets. But obviously, they're out there with pretty aggressive growth targets in high-single digits, implying maybe 2x, almost 3x the category over the next two years; maybe some of that's from their fresh bread, which is off of a below base. But one thing that I've noticed in the scanner data is they really haven't pulled the promotional lever. A lot of this growth as it's come back to market is about distribution and placement, but they still have that promotional lever maybe relative to historical and the category that they've yet to pull. So maybe with that as context, can you talk about the snack cake category, what you're seeing? What your level of confidence is and the stability of that and the opportunity or the potential that somebody could be maybe upset the underlying dynamics there? Allen L. Shiver - President, Chief Executive Officer & Director: Yes. I mentioned earlier that we're up in our cake business, both Tastykake and Mrs. Freshley's. And Hostess has done a good job of bringing that brand back into the marketplace. And, again, I think it shows the power of brands in this particular category, but we are still very bullish about growing our cake business. Tastykake is a brand that our independent distributor partners are excited about, and we have a very active marketing team that is constantly introducing both new items and then in and out items from a seasonal standpoint. So, so much of cake is driven by impulse, which means that you have to have it on display, you have to be in the right stores at the right time and really provide great service. So, I think, Hostess will continue to be a factor in the category, like they always have been, but we're very excited about the growth in both Tastykake and our Mrs. Freshley's brand as well. So we feel that we're well positioned in our cake business to keep growing.

Thanks for the color. Last question, if I could. Just asking about the balance sheet and cash and thinking about uses of cash, you've had an accelerated share repurchase earlier this year at levels that are certainly higher than where the stock is indicating now. and you indicated in the press release that that was still a possibility. But you've also got this overhang from the litigation and the DOL. You've also got obviously some competitive dynamics in the category. You're looking to invest back into that. Can you just give us a little more color behind how you're thinking about the uses of cash and mindful of some of, maybe, the uncertainties that are out there with respect to your business? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Sure. When you look at the capital allocation, I would say, over time we've done a great job balancing that. I think our strategies on capital allocation have been well grounded and have allowed us to drive a lot of growth in this company. Looking ahead, we are levered up 2.3x, so we're well aware that our leverage is higher than it has been historically. For the most part, our share repurchases have been opportunistic, and it's been part of an overall strategy, as we allocate capital when to buy in shares. So being mindful of the challenges, being mindful of the leverage, and also seeing at the stock today, I would say there is great value there, looking at the yield as well, great values from a stock perspective. We'll continue to evaluate opportunistic purchases, and if we think it's the appropriate thing to do, we'll make those share repurchases.

Thanks. I appreciate it. Best of luck. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Thank you.

The next question is from Tim Ramey with Pivotal Research Group.

Hi, Steve. Thanks. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Good morning, Tim.

I wanted to just follow-up on that conversation, because I'm concerned about liquidity and I'm concerned about capital allocation. You are a higher levered than you've historically been. And I think, I'm right, Steve, in saying that there is about $450 million of availability under the short-term line. Is that correct? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: That's correct.

Yeah. So, I mean, last quarter, you generated $22 million of free cash, you only have $11 million of cash. Leaving aside the, what or if, you don't really have the ability to pay a big number out, and I'm concerned that you didn't rule out share repurchase in your most recent comments. Can you talk about capital allocation from a risk management perspective? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: No, again, I would just go back to say over time, I think we've done a good job, balancing overall allocation. From a risk perspective, we've typically been a fairly risk adverse company. So, again looking at our debt levels, looking at our cash flow, which is still relatively strong, this is a strong cash generating business. We'll be very mindful of our cash positions as we make decisions about how to allocate the capital going forward.

But you're paying out two-thirds of your cash flow in dividends. So, you're not building the fortress of how do we deal with the big challenge, whatever that maybe, DOL, lawsuits or whatever. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: I mean, again, I think, when you look at our liquidity position today, we're comfortable where we are and through management team and board decisions, you will make I think the right decisions about the capital allocation in the future.

Okay. Well, I would hope that you would take share repurchase off the table and accelerating your share repurchase last April was inexplicable from my perspective. Thanks. R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Thank you.

The next question is from Amit Sharma with BMO Capital Markets.

Hi, good morning everyone. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Amit.

Allen, couple of questions on the operation. So, DKB is growing pretty rapidly and good to see that. Could you comment on what's the sale rate on that? Is it in-line with your normal DSD business or is it higher or lower? Allen L. Shiver - President, Chief Executive Officer & Director: Well, Amit, anytime you introduce a new brand, you're going to have higher sales on the front end, but our sale rates on DKB are very acceptable. I think also we've been very excited about the support we've gotten from our retail customers. And the excitement we have from our distributors. This is a great brand and it is in a segment that we currently don't have a strong base in, which we consider specialty breads. So, DKB is doing well and so sale rates are very much in-line with what we had projected.

Got it. And then Steve you mentioned lower distribution fees in the release. Can you talk about that a little bit? And I just want to make sure that it doesn't say anything about the change in demand for your sales route given all the noise from these issues? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: I missed the last part of that, Amit?

So, I just want to make sure that, it doesn't say anything about the change in underlying demand for your sales route given all the noise that we have on that issue? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Yeah. I mean, two things contributed to the lower distributor fees. One would be the pressure on the branded sales. We talked about the pressure on Nature's Own. And then secondly, as we worked through enhancements to our program, we had pulled back on the number of routes that were being held for sale. We have opened that back up. So, I think Q2 over Q1 you should see some progress in that direction. And then as we move forward, we'll continue to sale territory. So, we should still see progress. To-date I'm not aware of any demand issues as we try to sell those routes, So, I don't anticipate that either going forward.

Got it. And then last one from me, Allen, certainly appreciate your response to Akshay's question about the changes in historical. I suspect that I would see it in a different way, is that since the Hostess acquisition, I think your pricing has not been in sync with the overall category and competition, right? And at the very least it appears that you are reacting rather than leading the category in pricing, can you talk about that. If there is anything that has changed, maybe you are entering newer markets more than what you had historically and that's impacting how your pricing is. And more importantly, do you see a path back where Flowers is setting the pricing agenda and not responding to other competitors? Allen L. Shiver - President, Chief Executive Officer & Director: Amit, I think we need to start with, at the end of the day, the consumer sets price. And it's what the consumer is willing to pay for your products, and we're very conscious of that. In markets and also in our core markets, from a price promotion standpoint, we may have gotten a little ahead of the marketplace. That is where we're making adjustments on price points that are ahead of the marketplace. Pricing continues to be a market-by-market decision. In new markets where our brands are relatively new to the consumer, we want to make sure that our pricing is competitive with the market leader in those new markets. But if you look at our history, we've always led the category and the categories where we're strong, which is primarily White Bread, our Nature's Own brand and then our buns and rolls, and categories where we're strong. In our core markets, we've always been the price leader. And I think that will continue. The changes that we're talking about today are more fine-tuning adjustments that we need to make to make sure that we continue to get the support from the retailers and that our brands continue to grow. But again, there's really been no dramatic change in category pricing. I mean, the facts are that we got ahead of the marketplace in certain areas and now we're making adjustments to correct that.

Okay. Okay, that's good enough. Thank you. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you.

Your next question is from Bill Chappell with SunTrust.

Thanks. Good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Bill.

Hey Steve, first, just to make sure I understand, on the back half changes, it's largely just the core business, is there additional expectations for Alpine to be kind of below where you originally thought or is it all really going back to the core? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: I mean on the full year, Alpine is now tracking below expectations. So it is part of the sales drop in the back half.

Is Alpine still growing double-digits kind of on a pro forma basis? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Bill, it actually, it is. We're excited about Alpine. Some of the retail authorizations in the freezer case were a little slower than we had expected, but Alpine is a great brand, it will continue to grow and we feel like that, it will be one of our primary brands in the future, but still very bullish about Alpine as more – the sales growth is more of a function of timing.

Okay. And then Allen, just kind of bigger picture and echoing what others have said, I mean, I guess, I'm struck by as we listen to this call, you and Steve have said, excited and encouraged multiple times, I don't think I've heard disappointed at all, but your stock is one of the worst performing year-to-date, earnings are down three straight years and it seems, if Project Centennial is or the Centennial year that that's a three-year program. So is there is no sense of urgency to maybe get costs down or in control sooner than later, I mean, is there something that can change in the near-term or it is just, this is just going to happen, this is the way the market works and we're going to have these ups and downs? Allen L. Shiver - President, Chief Executive Officer & Director: No, Bill, don't be mislead by the project name. We're expecting to start to see improvements coming out of the project as early as by the end of this year possibly into the first quarter of next year, so just because the name is Project Centennial, we'll start to see benefits way ahead of that. And on the overall results comment, there is no one here that's satisfied with the results we've been reporting. And we've got the best brands and the best management team, some of the most efficient bakeries in the category. And it's our job to make sure that we grow in line with our expectation. So, our team is not happy with where we're at and we're doing everything that is possible to get back on track, and we're still very confident that's going to take place. We feel urgency is, you mentioned the word urgency, and I would say that this team feels the urgency to generate those results.

Okay. I'll turn it over. Thanks.

The next question is from Brett Andress with KeyBanc Capital Markets.

Hey. Good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Brett.

I wanted to start on Project Centennial. I know it's early and I think you said something about the fourth quarter, but can you just give us a sense of how much you maybe have factored into the revised guide at this point? And maybe what timeline you expect the whole project to really play out, to really help us frame up 2017 if possible? Allen L. Shiver - President, Chief Executive Officer & Director: Sure. That project is in a diagnostic phase, Brett. It started mid to late June. So, we've worked through about six weeks of it. In the back half, there is cost associated with it, but it's not a significant amount for the back half. It is part of the downward term, but it's not a material amount.

Okay. And then, and looking at the futures curves, I think particularly in wheat, I guess I was a little surprised to see that you expect input costs to increase, and you said that in the press release. I mean is this a function of where you're hedged at? And I mean, if so, when would you expect to realize some of the lower prices that I think are out there right now? Allen L. Shiver - President, Chief Executive Officer & Director: I mean, the back half, we still have cost declines in the back half. It's just the magnitude is not as great as it was in the first. So we're still forecasting back half down on input cost, it's just that it would not be as great a benefit as you saw in the first half.

Okay. Got it. And lastly, I mean, I respect you guys, I don't want to get into detail or off-topic. But with the Department of Labor review, is it something that you expect to last for weeks, months or several quarters, I think it'd just be helpful to get a sense of what investors should expect on that front? Allen L. Shiver - President, Chief Executive Officer & Director: It's not a surprise that the DOL, as we've seen in other categories, they have heightened attention in this whole topic. And again, if you look at our past over the years, we've had other government agencies that will conduct different evaluations and our plan is to work with them and cooperate. And again, as far as how long this could last, I mean, we'd be speculating there. But this is not a surprise and we plan to work with them as you would expect.

Okay. Thank you. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you.

Your next question is from Mario Contreras with Deutsche Bank.

Hi. Good morning. Allen L. Shiver - President, Chief Executive Officer & Director: Good morning, Mario.

Just one additional quick question on Project Centennial. Is there any way you can give us a rough idea of the total cash cost or total investment that you're looking at for this project? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Again, this is Steve, Mario. I mean, the initial phase or the diagnostics phase is not material. Obviously, we can't disclose the exact amount. And then, going forward, depending on the opportunities that are identified, we'll be able to identify the net, the net potential opportunity and discuss that at the appropriate time. But right now the diagnostics space, the full year is not necessarily material.

Okay. Fair enough. And then I wanted to ask how the progress is going on the ramp-up of the Tuscaloosa facility, are there any efficiency or capacity utilization metrics you can give us? And then maybe from a longer term perspective, what's the margin impact from bringing additional external production in-house? Thanks. Allen L. Shiver - President, Chief Executive Officer & Director: We're really excited about the progress we've made in Tuscaloosa. The team has really done a great job there, not only are we seeing efficiencies in terms of product cost, but the quality coming out of Tuscaloosa is excellent. Steve, you want to comment on margin? R. Steve Kinsey - Chief Financial Officer & Executive Vice President: Yeah. When you look – what we've always said is, as we bring more production in-house, we do anticipate margin expansion from the organic products. In the second quarter, obviously we've not reached the efficiency levels to drive the margin expansion at Tuscaloosa, but as we add production and product to that plant, we anticipate our overall efficiency to improve, which should also help enhance margins as well.

Okay. Thank you very much. Allen L. Shiver - President, Chief Executive Officer & Director: Thank you.

This concludes the question-and-answer session for today. I'd like to turn the call back over to Allen Shiver for closing remarks. Allen L. Shiver - President, Chief Executive Officer & Director: Good. We appreciate your interest this morning. We're excited about the plans we have for the remainder of the year. And our management team is focused on in doing the right things for long-term benefit of this company, just like we've done in the past and that's exactly what we're working hard to do. Thank you very much. And have a good day.

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