Flowers Foods, Inc. (FLO) Q2 2019 Earnings Report, Transcript and Summary

Welcome to the Flowers Foods Second Quarter 2019 Earnings Conference Call and Webcast. 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 J.T. Rieck Treasurer and Vice President of Investor Relations. You may begin.

Thank you, and good morning, everyone. Our second quarter results were released yesterday evening. The earnings release and our updated investor presentation is posted in the Investors section of the Flowers Foods website. Our 10-Q was filed with the SEC yesterday evening as well. 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. Participating on the call today we have; Ryals McMullian, Flowers Foods President and Chief Executive Officer; and Steve Kinsey, our Executive Vice President and Chief Financial Officer. Ryals, I will turn the call over to you.

Thank you, J.T. Good morning everybody and thanks for joining our second quarter call. So, as we approach the 90 day since I took over CEO, I have been spending a great deal of time, visiting with and listening to our team and our customers. Now more than ever, building good relationships with our customers is critical. It's really important to me that I fully understand where our customers intend to take their business and that Flowers stands ready to support their strategic ambitions with our outstanding brands, our quality and our service. But I think it's equally important for them to hear about where we're headed so that we can work better together towards mutually beneficial outcomes. Visiting with our team members has given me the opportunity to hear about what's most important to them, where they think our challenges and opportunities lie, and how they'd like to see the company develop going forward. It's also given me the chance to reinforce our strategic priorities with them and helped ensure that we're all moving together in the same direction. So I've visited several plants and markets. I've conducted a couple of town hall meetings so far with more to come in the next few months. And I'm very pleased to say that our team is energized and they're eager for what the future holds. They believe in our strategic direction and they're anxious to contribute their part towards that mission. So in short, this intentional and heightened level of engagement with our team has been very positively received. One of the key messages I've tried to consistently communicate is that it's crucial for all of us to constantly seek out opportunities to improve our business and to execute daily on our strategic priorities. That means not only relying on our team's years of experience, but also asking different questions in the search for creative new answers. It also means that although we're focused on the long-term earnings power of the company, we must always keep our current results front and center so we have a clear understanding of progress toward our goals. So, in the spirit of that message we're going to shake things up a little bit this morning and start by having our CFO Steve Kinsey reviewed this quarter's results and share our outlook for the balance of the year. Hopefully, that'll help to better set the context for my commentary about our operations and strategic priorities and of course, after our remarks we'll look forward to answering your questions. Steve?

Thank you Ryals, and good morning everyone. During Q2 we continue to experience solid performance on the top line driven primarily about sale in the retail channel. In the second quarter consolidated sales increased $34.5 million or 3.7% year-over-year. Canyon Bakehouse, our recent acquisition, contributed 1.9% and the base business improved price mix drove 1.9% of the sales increase while slightly lower volumes impacted the top line by 10 basis points. Price realizations improved across most of our channels and product classes, which has helped us to partially offset the commodity labor and transportation costs increases we've highlighted in recent quarters. Volumes were primarily impacted in our food service and cake businesses. Looking at sales by channel, right and retail sales increased $25.8 million or 4.6%. The contribution of Canyon Bakehouse right into product accounted for approximately half of these incremental sales dollars. The balance was largely driven by continued growth from Dave's Killer Bread, Nature's Own and Wonder Products and the introduction of some made breakfast bread in the third quarter last year. This growth was partially offset by thought volumes that are branded cake items. Store-branded retail sales increased $15.4 million or 10.5%. Store-branded items produced by Canyon accounted for about a third of this increase. The balance of the growth was split between improved pricing and volume growth due to increase distribution. Store brand and the category continues to post volume declines. Food service and other non-regional sales decreased by $6.8 million or 2.9%. Lower volumes drove most of the decline due in part to lost business from the inferior east disruption we experienced last year in volume losses in the vending channel of our non-retail cake business. In the quarter gross margin decreased 20 basis points to 47.9%. Improved price realization did address the cost inflation to some extent, but pricing actions were offset by higher workforce costs and lower manufacturing efficiencies. Excluding the items affecting compatibility, details of the press release, adjusted SG&A expenses decreased 20 basis points as a percentage of sale, primarily due to lower distribution fees and legal fees as a percent of sales offset by higher workforce calls in our shipping department and bad debt expense. GAAP diluted EPS for the quarter was $0.25 per share excluding the items affecting comparability detailing the release, adjusted detailed EPS in the quarter was flat compared to the prior year. Our sales were largely offset by elevated labor costs and reduced manufacturing efficiency. Canyon Bakehouse was acreative to EBITDA and neutral to EPS in the quarter. A few comments on leveraging cashflow. Year to date, we've generated operating cash flows of $208.1 million and a capital expenditure was $47.4 million. Accordingly, free cash flows were solid and we paid $79.6 million in dividends to shareholders and reduced our total indebtedness by $86.8 million. At quarter end, our net debt, a trailing 12 month adjusted EBITDA stood at approximately 2.1 times. Now turning to guidance. For 2019 we continue to target sales growth in the range of two to 4%. This includes Canyon Bakehouse sales which are anticipated to be in the range of $70 million to 80 million accounting for approximately 1.8% to 2% of the total sales growth. We expect based business growth to be driven by improvements in price mix, partially offset by conservative view on volumes due to broader category softness. We now expect adjusted EPS in the range of $0.94 to $0.99 per share. Inflationary pressures from commodities, labor and transportation are expected to be approximately 150 basis points as a percentage of sales. To mitigate these costs, we are working on a broad set of cost-saving and productivity initiatives as well as continuing to elevate, evaluate pricing and promotional strategies market by market. We expect Canyon Bakehouse to be accretive to EBITDA and neutral to slightly diluted to full year EPS. Now, I'll turn the call back to Ryals.

Thank you, Steve. I want to put my comments this morning on the quarter into the context of our four strategic priorities to create shareholder value. So as a reminder, they are very simply focusing on our brands, managing our costs, making smart discipline, acquisitions and developing the capabilities of our team. I believe our results this quarter demonstrate that the focus we're putting on our brands is working. Our dollar share of the fresh-type as Red [ph] category increased by nearly a full sharepoint driven by our key national brands, new product introductions and incremental share from Canyon. Our units share also increased as well about 50 basis points. And in fact, we gained dollar share in every segment except there are [indiscernible] which as many of you know is a small part of our total business. And importantly, we were able to achieve these results despite higher prices and less promotional activity. So I believe that these results are a great testament to our new strategies, our capabilities, our brands, and of course our team. We're hyper-focused on taking what's already a strong brand portfolio and making it even more powerful. Our new org structure has been a key enabler in this regard and our marketing, consumer insights and brand teams are working with our new ad agency to connect more meaningfully with consumers. We're also gaining greater insight into how our consumers perceive our brands and how to keep them relevant not only today but going forward in the future. So as a result, we're thrilled with our marketing and innovation pipeline and we believe we're taking the right steps to build strong national brands. In other parts of the portfolio, the refocus on profitability is well underway. In our cake business, lower sales were the result of a very competitive landscape but also from planned portfolio optimization. And the good news here is that we're beginning to see some margin improvement in parts of the cake business. And while we certainly have more to do to improve profitability, we are encouraged by the progress we've made and we're optimistic about the new product introductions that we have slated for the back half of '19 and beyond to reignite the top line. Our food service business is being pressured by both difficult year-over-year comparisons as certain food service customers discontinue limited time product offerings and, of course, the business loss to last year's yeast issues. But food service remains a vitally important part of our business despite the focus on brands. So we're taking this opportunity to prioritize those customers and product lines that value are high product quality, our broad scale and our unique distribution capabilities. Now, despite the good top line performance, the inflationary pressures we continue to experience do underlie the need for us to aggressively manage costs. And that's why it's one of our four strategic pillars. I don't view managing costs as a tactical exercise designed to manage quarterly results. Rather, I believe it should be embedded into our strategic framework to ensure that we're correctly positioned to achieve our goals and free up resources for growth. The pricing and promotional accents we've taken so far this year have helped to address a portion of these inflationary headwinds without checking the good momentum we're seeing on the top line. So that's the startup process Centennial and we've had our operation under the microscope looking for ways to remove complexity and generate cost savings. Furthermore, enhanced analytical capabilities have given us greater transparency into our business and are informing better strategic decision making. So we've had good success with this effort and we've reduced costs in many areas of our operations and we've been able to reinvest some of those savings into building the new capabilities I mentioned earlier, which are essential for enhancing our growth profile. But make no mistake, we have invested in the business and this does come with a near-term cost. Many of you will remember originally the plan was to reinvest a portion of our Centennial savings back into the business and then let the remainder fall to the bottom line. However, greater than anticipated cost increases have all set some of those remaining savings and so we've not yet been able to fully realize our earnings potential. So in short, one could argue that we're a little heavy on costs due to those investments. Now, the easy course of action would be to cut costs in those areas, but that would amount to cutting capabilities, which in turn would come at the expense of future growth. We believe firmly this is a temporary imbalance and that it will write itself over time as we grow our top performing brands and achieve greater efficiency. But in the meantime we are working the current opportunities we've identified to drive down costs and other areas. Specifically, we're focused on improving workforce productivity and manufacturing efficiencies, which has been impacted by the tight labor market and increased turnover. Now, for this sort of situation, there's no quick fix, but we know the steps that need to be taken to address the root causes and enable our team to reach their full potential. In addition, our team is intensely focused on removing complexities from our supply chain by optimizing the portfolio, shifting production missions, and rationalizing capacity. A recent example of this is the conversion of the conventional bread line in the northeast to produce Dave's Killer Bread products. This not only improves service and availability to the northeast market, but also significantly reduces transportation costs and complexity and we intend to take similar network optimizing accents as we go forward. Now, given the relatively high fixed cost nature of our supply chain and the innate complexity that comes along with the perishability of our DSD products, we are taking a prudent data-driven approach to these initiatives. We believe the impact of this work can be significant, but because we're taking a cautious approach, it will take some time to see the effect of these efforts in our financial results. Acquisitions. Acquisitions have always played a large role in our growth story and the same will be true going forward. As we said for a while now we're looking into areas of the store outside the traditional bread aisle as well as different products segments where we believe we have the right to win and you've seen us do that recently with the acquisition of Dave's and Canyon Bakehouse. We've got an attractive pipeline of potential opportunities and we are being proactive in the M&A market. Importantly, I am pleased to announce that we recently hired a new VP of corporate development who will be taking over from me and continuing to drive our M&A efforts. This gentleman brings more than 18 years of experience in M&A, 13 of which were spent with another large CPG food company. He's set the start in September and I'm really looking forward to the value he can bring to Flowers. Finally, and I think most importantly, it's imperative that we continue to develop the capabilities of our team to bring forth that heightened level of engagement and greater achievement. Our goal is to build a team that can bring a fresh perspective to our business challenges and pursue creative solutions. So we'll do this by investing in the tools and information they need to do their job better, whether that's faster, more efficient or deeper insight. We're also working to monetize our benefits packages to be more competitive. If you think about it, not only has the business landscape radically changed, but so has the workforce both in composition and what they seek in their careers. Today, it's not just the paycheck they receive that's important, but also the quality of life that comes with it. So in short, we're moving ourselves closer to the desires and needs of today's workforce to make Flowers an even better place to build a career. And so with that, we will turn it over to your questions.

[Operator Instructions] And our first question comes from Amit Sharma from BMO Capital Markets. Please go ahead.

Good morning, everyone. Ryals, these are very interesting changes that you outlined. Can you dig into that a little bit? Like what prompted -- I don't want to call this a retain but what prompted this deeper dive into it and how quickly you think it can lead to maybe at least the restatement of how you think about the growth outlook on a longer term.

Are you speaking specifically about supply chain or...

Supply chain and the way you think about how Flowers positioned as you think about your cost structure or investment ynkee brands?

Absolutely. I appreciate the question. I mean, obviously focusing our brands is a key priority. We have some of the top performing brands in the country. And that's where the margin of the business comes from, the more resources and talent we can put behind those brands, whether it's through our new bu structure and our brand teams that are intentionally focused on those brands. That's what gives us good confidence in our growth. And then supplementing that with smart M&A, you think about the additions of Dave's Killer Bread and Canyon really being able to enhance our growth profile, also gives us confidence. On the core side of the equation, it really comes down to a couple of things. It comes down to labor. Certainly there's some transportation costs in there too. But let's primarily talk about labor here. Not only is the cost of labor up, but with the tight labor market that frankly everyone's experiencing, that manifests itself into higher turnover, which in turn manifest itself into lower efficiencies. You're constantly turning over people at the bakeries. You tend to have higher scrap costs, that kind of thing. So getting control of that and doing it both from a quantitative standpoint, but also from a qualitative standpoint, that's why I talked a lot about the workforce and how can we improve scheduling and working conditions. And it's not just all about pay, it's benefit packages and quality of life. Those are the types of things that if this tight labor market is going to continue, we're going to have to do to make our operations more efficient.

And then a little bit tactical, one of the largest competitors they talk about being maybe a little bit more focused on pricing to stem the volume losses or the shared losses. Can you talk about that a little bit in terms of how or what are you expecting in the marketplace and how are you positioned if you do see pricing environment get a little bit more promotional?

Well, first of all, I think that's where some of our new analytical capabilities really come into play. Because we're in a position now where we can analyze where we are from a pricing standpoint market by market. Nothing's really changed there in the sense that this still tends to be a bit of a market by market business. But I think we're better positioned now to make the correct decisions as we go forward as far as flowers specifically goes. We've been very pleased, we took some pricing actions last year. We've been very pleased with how our volumes have held up. We did a little less promotion on branded buns during the holidays. And again, we're very pleased with how our volumes held up. So far, things have gone pretty well in that regard.

And just one very quick for Steve. Steve, can you remind us of your hedging positions on the recourse and then recently there's some chatter that the protein quality of the red venter may not be quite as good. Can you think about -- can you just talk about how it impacts your costs going forward?

Yes, sure. If you recall, we basically used the hedging strategy to mitigate wheat flour costs. So we are well within our strategy of having four to seven months and we typically are all in the long end of that. So for 2018, we pretty much have our call structure in place. So we feel pretty confident about knowing our calls for 2019. You are right there, the new profits coming in, there is some protein concerns. Just like last year you had a lower protein quality crop, which means eventually you have to blend that with higher spring wheat, which typically runs a little higher. But we'll begin to talk about 2020 guidance later in the year, but for 2019 we feel pretty good about where we are from a cost perspective.

Our next question comes from Bill Chappell from SunTrust.

Thanks. Good morning. Kind of following up on his questions, Ryals, are you pleased with kind of where the cost structure is at this point with where product Centennial is at this point and kind of what it's doing to quarterly numbers? Just say that of I think some of us as we've now three, four years into the program would have expected a little more upside both to the quarter into the year on the cost structure. And I know that's been kind of a key thing you've been working on prior to taking over the CEO role. So maybe kind of help us understand, do you feel like you're going fast enough? Do you feel like things need to accelerate or are you just -- is this kind of where you expected to be?

Well, I mean, it's kind of a tricky question to answer in the sense that as far as Centennial goes, yes, I am pleased. I think we've made tremendous progress with Centennial. What I'm not pleased about is the fact that we haven't been able to drop as much as we originally anticipated to the bottom line. I mean, Centennial fundamentally changed how we operate the company, how we look at the business. And I think those things put us in good stead for the longer term. But the frustrating piece is some of this cost inflation that we're having to deal with now that kind of offset, if you will, some of the savings that we were able to generate. As to whether things are going fast enough, things never go fast as fast as you want them to. You always wish that you could do things quicker. I said earlier that with regard to the supply chain optimization piece in particular, we are being intentionally cautious there. We have a high fixed cost network. We've gotta be very careful about how we make choices around our network and what types of business we want to be and what types we don't want to be in. But overall, Centennial itself, I am pleased. But again, the frustrating part is the lack of read through to the bottom line that we're trying to address now.

Does there need to be another Centennial plus just because I guess this is now the second year where costs have more than mass the Centennial benefits?

Yes. We have very structured formal initiatives around our labor costs, around supply chain optimization. Now, we're not laden with consultants like we were when we were undergoing Centennial, but we learned a lot from going through that process as to how to structure, discipline initiatives around discrete topics. So that's how we're handling those pieces going forward.

And last one for me. Does on canyon, any kind of update on where you are on the fresh or the flat out version of the product and kind of ACV there?

So, Canyon overall is doing great. I mean they've got a fantastic team out there, totally engaged, they're excited. The business is performing extremely well. For the frozen side of the business is actually exceeding our expectations. The stay fresh piece is slightly behind our expectations. And Bill, most of that has to do with consumer awareness. A lot of gluten free shoppers aren't necessarily accustomed to shopping gluten-free breads in the bread aisle. And so it's taking us a little bit longer than we expected to draw them down. But having said that, we are growing this day fresh business and not only is our ACV growing, but so our terms in the store.

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

Thanks so much. First is sort of more a comment than a question because I know you can't answer it, but your payout ratio is 78%, 79% right now. Which I hear what you're saying about wanting to refocus the company on growth, but that's a super high payout ratio for a company that would like to grow and do acquisitions as you mentioned. So just to comment that it seems like that's something that ought to be addressed by the board. Where do you want to be? Do you want to -- do you want to be a yield stock or do you want to be a growth stock? And then to throw a question on that, since I know you can't comment, the cost issues that you're discussing are not that unusual, I don't think. And we've seen this pattern several years in a row where you'll raise prices early in the year and then not get the volume and become sort of a negative spiral in second half of the year. How is this different from what we've seen in the last two or three years?

Thank you, Tim. Well, first of all, as I said earlier, maybe one of the things that makes it different is I said we did take some pricing action in the back half of last year and we've been very pleased with how our volumes have held up. Our brands have continued to perform well. Dave's, Canyon, Nature's Own, Wonder, they're all performing very nicely and so I think that differentiates it for us from years past.

Does that mean you feel okay about taking further pricing in the second half? Because I thought I sense some hesitancy on that.

I'm not going to comment on future pricing.

Our next question comes from Mitch Penn Yarrow with Sturtevant Company. Please go ahead.

Good morning. So, Ryals, I'm just curious. So you talked about visiting customers and your own employees. What are your customers saying about the category and Flowers? Anything you can share with us?

Yes, I can. I had several good visits with some key retail partners. I think the one constant among them is they're really looking for innovation in the fresh bread aisle. I mean, you see the cat at the same category trends that we do, the sort of the softness in that traditional soft variety category. I think their hunger is really around new innovations and we've certainly given them some of that between days and Canyon and perfectly crafted, but I think they'd like to see more of that. There's quite a few consumers that have turned to the perimeter of the store, they're seeking pitas and Don's and sort of nontraditional type flatbreads, that sort of thing. I think they'd like to see Flowers bring more of that their way.

You've mentioned the cost inflation throughout the call and it's pretty evident, I mean, your margins are nice, but there's certainly room for improvement here with all your competitors facing the same exact challenges. And here's a chance for the supermarket, the grocery industry to raise the value of the category. I don't see what the pressure is on pricing. I mean, it just seems to me with a consumer that is seemingly in okay shape from what we hear, I just don't understand why pricing isn't a little more robust across the entire category. Can you talk about that?

Well, I mean, again, I'm not going to comment on future pricing. But I think for us, ensuring that we are bringing consumers good value, good brands, good quality, and the retailers good service is primarily our focus. We'll worry about the rest as it comes along. That's really our focus, Mitch. We believe we've got the best quality. We think we have the best brands and we think we have the best service. And we've got to continue to be that way to protect our brand, the brand equity that we have.

And then just a couple of others. Regarding your store-branded sales, they were up in the quarter. I was surprised that there's gluten-free store-brand items. Usually, the innovation is left to the brands and private label store brands ticked up the more commodity piece of the category. Is there a change here?

No, not at all. As a matter of fact, that's with one particular retailer for Canyon and it came with the acquisition, so to speak. They had had that business for quite a long time. It's primarily just one retailer.

Okay. Got it. And then when it comes to private label, any change in pricing on the private label side?

We took some pricing last year, Mitch. So, yes.

And then last question on tasty cake, you don't really break out brands in that area and how they're doing, but I obviously, I see that cake sales have been pressured. Is it in the Mrs. freshly side? Is it tasty cake? Is it both? And when do we start seeing, I know it seems like things were getting better in this quarter, but when should we start anticipating some upside there?

It's really in both. And again, some of that is due to the competitive nature of that category and frankly, our relative brand positioning there. But some of it's also intentional. We've gotten rid of some really low margin business to turn our attention back to where we can make better margin. And as I said up front, we've started to see some progress on the margin side of the equation. And then over the top of that we have some innovation and new product offering slated for the back half and then forward that we think will help reignite that top line.

I just want one more for this follow up to Tim's question about the dividends versus growth. When I calculate your free cash flow, it's fairly robust. Even that's after dividends. I'm not sure why investors would think that Flowers couldn't be a growth company while paying a dividend. Can you speak to that?

This is Steve, Mitch. I would agree with your assessment. When you look at our overall capital allocation and you look at free cash flow, it continues to be a business that just drives very strong free cash flow. So we believe with the right balance we can continue to pay a nice dividend as well as fund future growth within the company.

Our next question comes from Brian Holland from D.A. Davidson. Please go ahead.

Thanks. Good morning, gentlemen. First question and forgive me. I hopped on a little bit late, so apologies if you addressed this at all, but just curious buns and rolls selling keys in around the 4 July whether it seems that a little bit not in your favor but just curious if there is any callouts there and if there was any -- in consideration of where you came in on revenue -- was there a little upside left on the table if indeed whether it was a callout at all?

Brian, it's Ryals. Both of the holidays, I would describe as good, but not great. Some of that was certainly due to the weather. But the good part about it is our sales execution this year was outstanding, particularly compared to last year. I mean, the sales team did a great job. Our sales were way down, so that sales performance was way up. Our partnership with the USO on the Wonder Bug promotion was fantastic. And so overall, it was a success.

That's helpful. Thank you. And then on the margin side, it's been my experience that with your business it's fairly easy, all things being equal, for pricing to flow right through the model, clearly that didn't happen this time around. And I understand about the brand investment, but I feel like that was part of the -- that was in the plan. So, if I've got this right, I'm thinking that higher labor particularly was the incremental. So I guess what I'm asking is did labor get sequentially worse, and was that the primary call out for why the pricing didn't flow through? Or is there another piece of this equation that I'm leaving out here?

Hello. I think that's the primary issue. And it's the pure labor costs, but then it's also the high turnover. And that tends to come out in manufacturing efficiencies, which were lower for the quarter and that has impact as well.

Understood. And then do I have that right that that has gotten sequentially worse like Q1 to Q2?

Yes. I mean Q2 was slightly down compared to Q1. Typically, you'll see pretty strong efficiency performance in Q1, but it did fall off more than usual in Q2 this year.

Understood. So, then if we play this forward, obviously, gross savings through 2018 had come in ahead of plan. You couldn't have calculated the magnitude of labor impact, obviously, freight was another issue since you instituted Centennial. I'm just curious, is there -- I mean, the next part that's out there and it seems to be around supply chain optimization, I understand that you can't quantify this, but do you have something, do you have something still left in the bag that you feel like is a significant sort of catalyst for the trajectory of what we're seeing on margins in excess of what you've already gotten thus far?

I do. And think about it kind of in three buckets. One, obviously maintaining the top line is paramount, right? That means, making sure that we're supporting our brands properly and we'll keep that good brand and growth that we're focusing on the right type of sales, which means the higher margin type products. And then that then brings in number two, portfolio optimization, right? Making sure that our mix is correct. And then three, maximizing that plant level efficiency. And that's primarily the labor issue. And then extending that a little bit into broader supply chain optimization, that's a little bit longer term, as I said, that'll take us a little while to do. We've got to be very careful there. But those are the things that give me confidence that we can reach our longterm margin targets.

And then last question for me, just kind of on the M&A front. You've done a really good job with this Killer Bread. Obviously, Canyon seems like another great opportunity, maybe potentially smaller magnitude, but still same really exciting opportunity, share growth, etc. And you're doing a great job of identifying these niches. I guess two questions. One, when you start thinking about particular niches, is there one that stands out as attractive to you that's a hole in your portfolio, not speaking to any specific assets that may or may not be available. And then second, kind of the quality of assets, high level that are within the parameters of where you'd be looking, valuation, availability, attractiveness. Just general thoughts on what that pipeline looks like today and maybe your readiness -- and maybe put another way, I mean, obviously, you made the Canyon Bakehouse acquisition late last year. What is the appetite and what is your ability to digest something else in the near-term while you integrate Canyon, get it on DSD, and also think about continuing to attack the supply chain pressures.

So, I don't really want to comment on specific niches or categories that we're looking at just because I really don't want to tip my hand there, but suffice it to say that we have a really good pipeline. As I said, in the opener, we are continuing to be really proactive in the M&A market. So what I mean by that is we're reaching out instead of just relying on inbounds as we used to be able to do when we were just looking inside the core business. So, I'm really happy with our pipeline. I think you said you joined late out. If you heard me say that we've hired a new VP of corporate development who's going to continue to drive this. I'm really happy about that as well. As far as our ability to digest, I mean, I don't want to intimate that any integration is easy. But Canyon is one plan. It's in Colorado. We've basically integrated that already. Our sales team knows how to roll out items DSD. So we are positioned when the right opportunity comes along.

That concludes the Q&A session. I will now turn the call over to Ryals McMullian for closing comments.

Thank you. So, in summary from this morning, while we definitely have some opportunity in front of us, overall, I'm pleased with the actions we've taken so far to improve our performance. With a focus on brands, we're working to maintain our solid top line momentum. And then coupled with that, we're zeroed in on a few specific areas of cost containment, where if we can execute well, should put us on a solid path to continue bottom line improvement and enhance shareholder value. So, thank you for joining us this morning, and thank you for your interest in Flowers Foods.

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