Flowers Foods, Inc. (FLO) Earnings Call Transcript & Summary

Hi, everyone. I'm J.T. Rieck, EVP of Finance and Investor Relations. Thanks for joining us to discuss Flowers Foods' 2024 fourth quarter and full year results. Before we begin, please remember that what's presented here may contain forward-looking statements regarding the company's performance. While we consider these statements reasonable, they carry risks and uncertainties that might make actual results differ materially. Beyond what you hear in these remarks, important factors about Flowers Foods' business are described in full in our SEC filings. Speaking today are Ryals McMullian, Chairman and CEO, and Steve Kinsey, our CFO. Ryals, over to you.

Thanks, J.T. It's great to have everyone with us today. I'm proud of how the team performed in Q4 and across all of 2024, though the financial results were mixed. Sales came in below what we expected due to softness in the category, but margin expansion more than offset that pressure, aided by efficiency programs and input costs that eased. For context, it's worth pointing out that during 2024 we increased both dollars and units in tracked channels throughout our branded bread portfolio. We've noted for several quarters now a consumer migration away from the traditional loaf toward items that are more differentiated and premium. I'm happy to share that our investments in brands, along with growth in organics, keto, buns and rolls, and gluten-free, outweighed the softness we saw in the more traditional segments. Also, although our foodservice volumes declined—largely because of deliberate exits and partly because of category weakness—we still delivered respectable dollar growth. And thanks to our portfolio strategy, our foodservice business posted substantially better profits. The largest challenge we're up against, in terms of both revenue and volume growth, is considerable weakness in the sweet baked goods category. Still, we're confronting that challenge directly with the launch of Wonder snack cakes, and retailer enthusiasm has been tremendous, given the iconic Wonder brand and our superior quality. We think our portfolio is set up well to take advantage of what look like long-term shifts in the category toward more premium and better-for-you products; now, on the softness in bread. It's difficult to identify the exact causes, though some point to several factors, such as an economic slowdown, GLP-1s, and healthier eating trends. As I said, a lot of the pressure has been concentrated in sweet baked goods and traditional loaf items such as white and wheat bread. To get past retail headwinds, we are putting investment behind our brands to address what an evolving consumer needs, locating pockets of growth within a bread category that is slowing. Although the overall segment has weakened, breakfast items, premium offerings, and buns and rolls performed better than the rest. Our innovation efforts are therefore focused on those stronger areas. Those investments are delivering results, since every one of our top bread brands either increased or maintained both unit and dollar share during Q4. The away-from-home segment has faced comparable difficulties, yet putting profitability ahead of volume has led to better outcomes; we are filling capacity that opened up with business carrying higher margins, and we believe there is considerable room to fuel growth going forward. As we focus on strengthening short-term performance, we remain committed to building long-term value for shareholders. This review covers our brand portfolio, our route to market, our distribution approach, and our supply chain. I want to give you more specifics on a few of these efforts and the concrete steps we're taking to lift results. In the end, what we're after is turning Flowers into a business that grows more quickly and earns better margins, one that compounds shareholder value as time goes on. M&A will help enable part of that, like the Simple Mills deal we've announced. That said, we also have to get the most out of the assets we already hold—by, for example, launching the Wonder cake products I mentioned a moment ago. Up next, I'll take you through our Q4 results and the full year, organized around our four strategic priorities: building our team, focusing on our brands, prioritizing margins, and pursuing smart M&A. After that, Steve will go over the financial results and guidance, and I'll wrap up by discussing the key themes ahead. Our people—our number one strategic priority—have had to deal with a string of weather events that have hit them both personally and on the job. During the prior quarter, we talked about the hurricanes that struck much of the southeast, where recovery work is still going on right now. More lately, the fires in California brought devastation on a wide scale that affected many people's lives. Fortunately, every member of our team is safe, and none of our warehouse sites were damaged. To assist those who haven't been as lucky, our people are partnering with disaster relief organizations to help neighbors in need. We're also coordinating closely with customers so that consumers can get the products they need to feed their families. We've talked about shifting how we operate in California—away from working with independent distributors toward an in-house sales team. That effort is still underway, and even with the fires, we anticipate finishing it as planned. The California change is one move we're making to generate better results over the long run. A further step is a focused investment in our customer team. To build even tighter ties with our customers and line up our strategic growth plans so sales are maximized, we restructured the organization last year and brought in top-tier talent from outside. That investment is helping drive strong uptake of our product innovation, better and broader shelf positioning, and more product displays. As time goes on, we believe these gains will sharpen the market edge of our leading brands. And that emphasis on our brands is our number two strategic priority. Unlike the softer category numbers—where a squeezed consumer pushed volumes down 1.8% for the quarter—our leading brands keep beating the category. In Q4, tracked channel volume rose 2.9% for DKB, 0.5% for Wonder, and a striking 17.8% for Canyon. Nature's Own, which is concentrated in traditional loaf—the segment of the market hardest hit by today's conditions—outperformed the category, with volume down only 1.6%. Units for Nature's Own's more premium Perfectly Crafted lineup climbed 8.5%. That showed up in solid unit share performance: DKB, Wonder, and Canyon each gained 10 basis points, while Nature's Own held its share. Particularly notable was DKB's ability to deliver positive unit growth across every income cohort, confirming growing preference for differentiated better-for-you products. For the full year, unit sales rose most among lower-income consumers, although that pattern appeared to flip during the fourth quarter. The strength of DKB shows that consumers, even when under pressure, will still pay for premium items delivering meaningful perceived value. That favorable consumer perception also let DKB reach record household penetration in 2024, surpassing even the pandemic-affected 2020 results. Canyon is delivering outstanding results as well. With earlier capacity constraints removed, the brand is picking up new distribution and generating growth, supported by new marketing and promotional efforts. To sustain that momentum and build on Canyon's strong consumer loyalty, we are likewise looking into adding innovative new products to the brand's lineup. In today's soft environment, our focus stays on making the most of our present and future growth opportunities. Ongoing investment in innovation has been a major factor behind our relatively strong performance. A prime illustration is our Nature's Own keto line, which picked up 410 basis points of unit share and became the #1 player in the subcategory; we plan to extend that momentum through a strong slate of on-trend innovation aimed at shifting consumer demand. As shoppers move toward healthier eating choices, we are expanding our Nature's Own keto offerings with hotdog buns and a multigrain loaf.

DKB snack bars and protein bars continue to broaden their reach, and buyers are full of praise—Good Housekeeping honored us with the Best Protein Bars of 2024 award, and Delicious Living chose them as its Favorite Nutrition Bar Product. Keeping pace with the healthier eating movement, we're introducing our most distinctive item yet, DKB snack bites; these poppable, ideal-for-snacking bites pack fantastic flavor together with whole grain nutrition. Retailers are reacting enthusiastically, and we're hopeful that consumers will embrace them as well. We're also tackling what shoppers need regarding affordability. Given today's tough economic climate, customers have been requesting cheaper choices, and our new small loaves suit that need ideally. Weighing just 12 ounces, our small loaves come at a lower price, making them ideal for smaller households or for shoppers who like having several bread types on hand without fretting over wasted slices. Margins represent our third strategic priority, and here we keep achieving meaningful gains. Versus the same quarter last year, adjusted EBITDA margins grew 70 basis points, thanks to solid execution of our portfolio strategy along with our savings programs. To push margins even higher, we are concentrating on refining our supply chain so customers receive top-tier service at the lowest possible cost. The efforts span cutting production scrap, boosting manufacturing efficiency, fine-tuning our transportation network, and right-sizing the fleet of transportation equipment we own. In the same way, our procurement group has launched multiple strategic sourcing efforts aimed at cutting costs. One of these involves shifting purchases of key commodities to new suppliers that offer lower prices. Another leverages our ERP system so that every spare part order goes to whichever supplier has the lowest total cost of ownership. A third initiative has cut lease labor expenses considerably by securing reduced fees from suppliers we already work with, as well as by bringing on new suppliers with lower costs; these are only a handful of the many efficiency-boosting efforts happening across our company. Smart M&A is our fourth priority. During January, we announced that we had signed a definitive agreement to acquire Simple Mills. With this purchase, we gain more exposure to better-for-you and appealing snacking categories, broaden the mix of categories we operate in, and improve our prospects for growth and margin. The deal fits squarely with our well-established M&A approach: pursuing strong brands that add to what we already own and lean toward better-for-you offerings. It also draws on our proven capacity to expand acquired brands in the better-for-you space. Simple Mills enjoys a devoted customer base, and we see a substantial chance to build on the brand's solid history of growth by widening distribution, creating new innovative products, and lifting velocities. Some of these opportunities are laid out on Slide 11. Because household penetration lags rivals by a wide margin, Simple Mills has plenty of room to grow by closing the gap with legacy players on total distribution points and average items per store. Such opportunities are plentiful even within Simple Mills' most mature categories. After that transaction closes, reducing debt becomes our foremost capital allocation priority—which is precisely what we have achieved with prior acquisitions like DKB and Canyon. We regard our M&A capabilities as a key engine for future growth, since they move a larger portion of our business toward a nutritional profile that is growthier and better-for-you. Returning swiftly to a more normalized leverage ratio will allow us to chase further opportunities. We'll keep being disciplined in how we run things, as always, and focus on growing shareholder value through a appealing mix of risk and reward. Right now I'll pass it to Steve to walk through the quarter's specifics, and then I'll finish with our view of the current business environment. Steve?

Thanks, Ryals, and good morning to everybody. I'm happy to take you through what we delivered in Q4 and for all of 2024. Net sales finished 1.6% down from the prior-year period. Price/mix contributed 0.9% growth, helped by optimization efforts in our non-retail segment, especially foodservice, but volume losses of 2.5% — concentrated in cake and branded traditional loaf bread — more than wiped out that benefit. Gross margin as a share of sales, before depreciation and amortization, climbed 90 basis points to 48.8% compared with the same quarter last year. That improvement was driven largely by ingredient costs easing and optimization in our non-retail business. Partly working against the overall gain were softer production volumes and increased workforce-related costs. Selling, distribution, and administrative costs represented 40% of sales, which is a 30 basis point rise compared with the same period last year. The growth was driven by increased expenses tied to our workforce, rent, and bad debt. These were partially offset by reduced distributor distribution fees as well as lower marketing and insurance costs. When we set aside items that affect comparability, adjusted SD&A expenses stood at 39.6% of sales, which is 20 basis points above the prior period. For the quarter, GAAP diluted EPS reached $0.20 per share, an increase of $0.03 over the same period a year earlier. If you exclude the comparability-affecting items laid out in the release, adjusted diluted EPS for the quarter climbed $0.02 year over year to $0.22. Let's now turn to our balance sheet, liquidity, and cash flow. During fiscal 2024, our operating cash flow increased by $63 million, reaching $413 million. Capital expenditures went up by $3 million to $132 million, which included $6 million allocated to the ERP upgrade that is currently underway. Dividend payments rose by $8 million, totaling $203 million. We consider our financial standing to be solid. As of quarter end, net debt relative to trailing 12-month adjusted EBITDA stood at roughly 1.9x. Cash and cash equivalents on hand were $5 million, and we had $564 million still available through our credit facilities. In order to complete the Simple Mills transaction, we signed a binding commitment letter for a 364-day term loan of $795 million. Our plan is to substitute this facility with permanent debt financing during the first quarter. Moving on to how we see 2025 shaping up, and that view bakes in some near-term pressure tied to the tough conditions in the economy right now, along with possible effects from fresh tariffs, plus the steps we're taking to lift performance over the longer haul. Counting a partial year of Simple Mills, our sales outlook is $5.403 billion to $5.487 billion, adjusted EBITDA of $560 million to $591 million, and adjusted EPS between $1.11 and $1.24. If you set Simple Mills aside, we're looking at sales of $5.180 billion to $5.257 billion, adjusted EBITDA of $526 million to $554 million, and adjusted EPS between $1.18 and $1.28. Compared with last year, we expect better results in the earlier part of the year, supported by new business wins carrying over, savings and pricing initiatives, and commodity costs that are easing. In the back half, our forecast reflects those benefits falling away, tougher commodity cost headwinds, and category trends that stay challenging. The biggest variable in our guidance is how the overall category performs. Recent weeks have brought considerable category volatility, which drove sales beneath our expectations and makes forecasting the full year difficult. We are modeling several scenarios in which bread and cake stay soft. A few other factors could shift where we land inside our guidance range: the promotional climate, potential new business gains, the California distribution changeover, and the rollout of our ERP program. At present, roughly 70% of our main raw materials are secured for 2025. Factoring in that coverage, our guidance accounts for inflationary pressure compared with last year, with a first-quarter gain turning into a headwind over the remainder of 2025. To hold volatility down and provide sufficient cost visibility, we have maintained our longstanding hedging approach, through which we seek greater certainty on key ingredient costs 6 to 12 months ahead. As we have said before, during fiscal year 2023 we finalized a settlement of class action litigation involving distributors in California. Per Ryals's earlier remarks, buyback of the distribution rights is moving forward and should wrap up in April, as the settlement agreement stipulates. During Q1, we are restarting the ERP system's bakery rollout, which had been halted so that resources could be focused on the California distribution transition. To keep operational disruption risk low, we are moving carefully and feel confident the transition can be carried out without problems. Thanks — I'll now hand things back to Ryals.

Thank you, Steve. I'd now like to talk about a few of the trends affecting how we're performing right now and what we're doing to make the most of both current and future opportunities. First I'll cover consumer trends, and after that I'll speak to the competitive environment. Our 2025 financial outlook builds in ongoing caution around the consumer and around the promotional environment, and both are fairly in line with what we've seen recently. Shoppers are still feeling financial strain as inflation keeps climbing, even if the pace has moderated; in response, they've found various ways to economize, including in what they purchase and where they purchase it. Once those steps still left a shortfall against the increased expenses, people began relying on credit cards to make up the difference. Delinquencies on card balances are climbing, a sign that household finances are weakening. Private label items continue to see steady interest, though their unit share gains have turned negative over recent quarters, because private label prices have climbed faster than those of branded goods. Consumers keep shifting toward meals at home, partly because away-from-home prices have risen and stretched the gap between eating out and eating in. A bigger portion of at-home spending is also flowing to value-oriented outlets, including mass merchants and club stores. Low-income shoppers started gravitating toward eating at home a few years back, and lately we've seen higher-income buyers do much the same. Despite that trend, tracked-channel data shows the center store bread category has been squeezed. Shoppers are drifting to the perimeter of the store, chasing experiences that feel restaurant-like and choices they consider healthier. The role GLP-1s play in this movement remains uncertain. What research seems to show is that people using GLP-1s purchase fewer groceries and steer more of their spending to nutrient-dense products located around the store's perimeter. That impact tends to diminish over time, though. And when it comes to shoppers who take GLP-1s specifically to lose weight, studies indicate that the early change in buying behavior flips, and in the end those shoppers spend more on center store products than they did prior to starting the medication. With GLP-1s becoming more common, there's also growing enthusiasm for eating healthfully, and the Make America Healthy Again movement is the clearest example. Since it stresses cleaner food labels, we think we're in a strong position to benefit from that shift. If you look back to when Nature's Own launched in 1977, it was notable for its clean label — no artificial preservatives, colors or flavors. Nature's Own has preserved that edge, and over the past few years we've brought in labels such as DKB and Canyon, providing organic and gluten-free advantages that address evolving consumer preferences. With our announced plan to purchase Simple Mills, we're advancing this transformation even further, bringing aboard a frontrunner in the better-for-you segment known for clean labels and an emphasis on regenerative agriculture. We're strongly positioned to benefit from the movement toward healthier eating, and we anticipate that a meaningful share of our upcoming growth will come from better-for-you offerings. Now shifting to the competitive landscape, where patterns have held steady relative to recent quarters. The absence of growth in category volume has sparked concerns about higher promotional activity; and although data from tracked channels indicate a step-up in promotions, the average price for the category actually rose slightly during the fourth quarter. As we mentioned last quarter, one part of the reason behind that trend is a mix shift toward premium products, but some of it is probably also because a greater percentage of products were sold on promotion, albeit with less promotional intensity. It isn't clear that ramping up promotional intensity would solve the volume pressure in the bread category. Where promotional activity increased more sharply within parts of the category, the resulting volume gains don't seem to have scaled in line with the money put behind them. Thanks to stronger trade promotion tools, we've kept our promotional outlays disciplined and watched ROI closely; the effectiveness of what we've run has left us pleased, and it remains far under where it stood before the pandemic. Even as we continually strive to keep our brands within reach on price, we're equally intent on giving consumers more value through distinctive, high-quality offerings from names they recognize and rely on. Lately, the people on our innovation team have brought several new items to market — the Nature's Own keto line, brioche rolls, small loaves, and our DKB stacking portfolio, to name a few. Beyond those, we have a promising lineup of further products that we believe will continue to satisfy consumers' changing needs. In closing, although our team's dedication and execution make me happy, nobody at Flowers is content with how we performed financially. We know our guidance comes across as conservative, and that reflects the unpredictable conditions we expect to last through at least the first half of 2025. What shapes that conservative view is the chance of tariffs, swings in commodities, heavier promotional activity, and consumer demand that stays soft. Even so, we remain broadly positive about the longer term. That view rests on how strong our brands are and how they perform in the market, on our history of bringing successful innovations to market, and on Simple Mills joining the Flowers portfolio. So to counter these negative effects and to drive growth and profitability, we have taken the following steps and will keep taking them. First, we innovate aggressively with unique, premium products to offset a declining category, a strategy that has proved itself and is reflected in our market share results. Second, we use the strength of our leading brands to enter other faster-growing segments, as we did with our DKB snack line. Third, we pursue M&A aimed at new growing product segments that improve our growth and margin profile, and Simple Mills is the most recent example. Fourth, we work to stabilize the cake business by drawing on the strength of the Wonder brand. And fifth, we optimize our supply chain and route to market so we deliver industry-leading operations and service. To put it briefly, we think our position is strong for seizing our opportunities, especially once consumer demand conditions finally settle. We are confident these actions will enable us to increase shareholder value and grow steadily in line with the long-term financial targets we have established. Our team accomplished a great deal in 2024. Sales dollars and units increased across the branded bread portfolio within tracked channels, backed by innovation and strong market execution. In addition, continued implementation of our portfolio strategy delivered improved sales and margins in the away-from-home segment, despite the impact of those deliberate business exits. Acting against that outcome was persistent weakness in the category, which pushed sales under our expectations. Sweet baked goods being so weak is the biggest thing holding back both revenue and volume growth. Even so, we've got specific initiatives underway to push back against that weakness, and we believe our portfolio is set up really well to benefit from current trends and those over the longer term. Looking toward 2025, the financial guidance we're providing is cautious and mirrors the volatile environment. Possible tariffs, commodity fluctuations, heavier promotional activity and persistently soft consumer demand all feed into that cautious outlook; even with all that, we're pretty optimistic that the strength of our brands, our demonstrated innovation track record and the innovation from Simple Mills, our standout brand portfolio, will enable strong performance over the longer term. With that said, Gigi, let's begin taking questions.

Can you hear me all right?

Yep. Coming through loud and clear.

All right, apologies. First, could I ask about Dave's? It's obviously performed well for quite a while, but in the consumption data we've seen core bread within that franchise beginning to turn negative for roughly the past 12 weeks — I believe it was down nearly 3% over the last 4 weeks. That's Nielsen data I'm citing. Could you speak to what you're observing there and how you'd expect the DKB franchise to do in 2025, both core bread and the full lineup?

Certainly. Let me begin with core bread alone, Steve, so I'm clear on this. To start, we've laid out where our difficulties sit in sweet baked goods and somewhat in soft variety white bread. DKB isn't among those difficulties. DKB is a strong brand and will remain one. Those numbers contain a bit of noise. A couple of underperforming SKUs were deleted, which had an effect. Looking at the fourth quarter, seasonal noise is always present. Sandwich bread is typically fairly weak in Q4, but even so, we still saw very, very strong growth in certain breakfast items, sandwich buns and rolls. On top of that, new products are arriving this year to replace the deleted SKUs. Additionally, we're securing very significant space gains this year for Dave's, which really matters. One of those is in the mass channel and over 2,000 stores where DKB has been underpenetrated; and I guess the last thing I'd note on household penetration is that DKB set a record this year, surpassing even the pandemic year of 2020. So all of that signals continued consumer interest in Dave's, We'll, of course, keep innovating with Dave's and we have no worries there at all; so hopefully that gives you some color. And then, of course, with snacks added on top, the bars keep performing very well. We're really excited about the snack bite launch, which is underway as we speak. So when you view it more as a mega brand, we're even more confident.

All right, that's quite useful, and I appreciate it. If I may, perhaps a two-part follow-up, and after that I'll hand things over. The first part is directed at Steve. Could you do a better job of breaking down the first-half versus second-half dynamics you mentioned during the prepared remarks? You pointed to certain dynamics that will certainly be a help during the early portion of the year. Yet as you move ahead, the underlying comparisons get easier, Simple Mills comes into the fold, and you have the extra week. So I might have anticipated a somewhat different cadence, perhaps some additional color there; and then Ryals, for the second part, you brought up some external research regarding GLP-1 drugs and associated consumer behavior. I'm just wondering whether you could say more about what that research consists of and what you're observing there, and how you plan to address it?

Sure. In the first half, the main thing we're focused on is that we'll start to lap a portion of our new business as well as some of our pricing and some of our savings gains from last year's back half. Certain pricing carries over into the back half, mainly private label and foodservice, though much of the branded pricing gets lapped during the first half. Then the other significant item for the first half concerns commodity costs and input. Given how we take coverage, we are seeing a bit of benefit in the first half of 2025; but with some of the firmness observed in the markets recently, at present we're projecting additional inflation on input costs in the back half.

Alright, Steve, regarding your question about GLP-1s — sure, that's a really interesting subject, isn't it? Everyone's still attempting to work out what the effect is, how large that effect is, and how big it will be moving forward. And if you — we're looking through all the studies, just as I'm sure lots of you are, and some of them contradict each other. So it's difficult to get a solid grasp of it, but we certainly want to keep it in mind. A portion of the work we referenced in the prepared remarks comes from additional research we conducted with Circana, so that's the source of it. But what I'd say is that if GLP-1s do turn into a significant factor and influence overall food consumption, we believe we're positioned very strongly for that. You can see where we're steering the portfolio; it's clearly beginning to lean much more toward better-for-you products, cleaning up labels, the dominance of DKB, having Canyon and then, naturally, bringing Simple Mills into that mix as well, because many of these individuals who are on GLP-1s are going to be looking for items exactly like Simple Mills. So with all those considerations in mind, we're shaping our portfolio to serve — to sort of serve that new consumer who is using those medications.

Just a bit more detail, I suppose, on your caution regarding the category and what you're observing. And I guess it ties to — do you believe you have pricing power, or has the consumer weakened? Is it simply a change in behavior? Because clearly, some — more people are returning to work and perhaps that means — having this much bread at home. Are there any macro factors behind that caution? Or is it just trends you've been noticing that carried into the fourth quarter? And do you expect that to persist as we head into early next year?

Yes, Bill, it's mainly the latter. So broadly speaking, pressure on the demand environment overall. But I'd add to that, specifically for our category, it's the consumer moving away from soft variety and white breads, which I believe we're very well positioned for. We discussed it during the prepared remarks. I mean, soft variety and white bread performed poorly. I'm referring to the entire year, not only the fourth quarter. That said, the investments we've made in innovation around keto and gluten-free and organics and our sandwich bun and roll business, especially under the national Wonder label, were more than sufficient to offset that. So if you remove the cake piece from branded retail, we were positive in units and dollars for the year in branded retail; cake is truly where the weakness has been. So on the outlook, we've seen some of those trends from last year carry over already into the small portion of this year that we've already gone through, though it's obviously very early. I do have some confidence that QSR will begin to recover; we're starting to see more positive comments around that; so perhaps in the second half of this year, some of that volume will return to our food service business, helping overall volumes. But from a branded retail standpoint, we feel very good about where we stand on branded bun and roll with the brands we have, the innovation we have. And then regarding the cake business, the introduction of the Wonder brand is — I mean, the intent behind that is to help stabilize that business; it has been weak. The category has been weak overall, as all of you know. But the reception we've received from our Wonder snack lineup has been tremendous, honestly. And if the retailers follow through on that, this will be more of a second quarter item because it doesn't launch until week 17. So it won't have any bearing on the first quarter; but we're very optimistic that, that will help stabilize that piece of the business; and obviously, that has a profound effect on — just given the weakness in the — on the cake side of things, that has a profound effect on our outlook for the year. So as we begin the year, we're definitely taking a cautious view, for all the reasons I just listed. The promotional environment has stayed somewhat elevated. I wouldn't call it ridiculous, but it is elevated, though the lifts we're seeing aren't what you'd normally expect when speaking about the total category. Our promotional behavior has been much more nuanced, but the category as a whole has been somewhat elevated. So that's another thing we're keeping our eye on. Really — honestly, it's a continuation of the trends we discussed on last quarter's call. There hasn't really been any marked change to that yet. Certainly we're looking to see whether there's some improvement in consumer demand in the back half. So that, overall, is what's driving the cautious outlook at least as we start the year.

Understood. And as a quick follow-up, I suppose what I'm really trying to get at is this: if you have theories about why people are moving away from white bread, it still looks like a fairly inexpensive option for shoppers with lower incomes; they aren't sure what they'd be upgrading to from a $1 loaf of private label white bread to Dave's Killer Bread at $4. So I'm just trying to figure out whether you see this as — a temporary thing or part of a trend, and whether you know the kinds of factors that are really behind it?

Yes, we do. And that's exactly the point I'm making. My view is that this is more of a secular shift away from those categories. I think it's — for several years now we've discussed the move toward more differentiated premium items. So some of that, obviously, is coming to us, and the terms are perfectly crafted and Dave's Killer Bread. Other portions of it are heading to the perimeter of the store. Still other portions are going to tortillas and flat breads. So consumers want something different. Yes, there's still value, and there are still value consumers who purchase private label or Wonder or Nature's Own, Wonder Bread, but there — it seems clear to me that taste and preferences have definitely shifted away from those mainline items. So we've stayed ahead of this, as I mentioned; and with our keto lineup and everything else I discussed, we're serving that new consumer demand and, so far, offsetting the softness in those traditional categories.

Just a couple of quick things. First, I suppose, as we think about how the year plays out in terms of cadence — and maybe this ties back to what Mr. Power asked too. I mean, should we be expecting a bit more category softness, let's say, during the first half, perhaps until you lap that category softness? So if we're looking at the top line and organic volumes broadly, and maybe pairing that with some of the innovation coming later in the year — perhaps a somewhat softer top line in the first half, and then hopefully a little momentum building as we move through the back half — that's the simple version of the question.

Yes. Yes. So from a top line standpoint, I think that's roughly right. I don't really see any shift in the consumer demand environment happening anytime soon on the whole; but we do have — as we mentioned, the Wonder launch will land right at the start of the second quarter. We actually have a lot of new business wins — significant business wins. Most of those arrive after the first quarter ends; so I think as you think about cadence through the year in terms of our efforts to win new business, geographic expansion, new items innovation. That's mostly at least a post first quarter item; and then, as I mentioned, QSR demand, that coming back would certainly be helpful for the foodservice side of things, but I'm not sure we see that until the second half either.

Yeah. Alright. That's reasonable. And then Ryals, perhaps just circling back to the discussion about the traditional white loaf, and so on. I mean, I really feel like — I mean, if we look back about a decade, right? I'm not sure whether we think about some of your main rivals in bread and we think about, like, just how the shelf appears, right? if I myself walk into a grocery store. Right now we've got 18, 27, 32 grains, right? We've got Country White, Hearty White, Hawaiian, I mean there are so many options in bread these days, right? I mean we're simplifying somewhat, there's a bit more premium or, shall we say, better for you? I mean I could argue that depends on how you define better, but anyway. Is there perhaps just a segment of the market where, within bread and let's set Dave's aside for a moment, where you clearly could or should or perhaps you do right have a chance to compete more effectively, let's say, with the, I guess we could call it the harder loaf, right? I mean you're calling it soft loaf. Because it does seem like there's perhaps a bit more traction on that side and maybe that's just seen as more premium even though perhaps the health attributes aren't better. I don't know if that makes sense.

So Rob, are you referring to like more Artisan crusty bread?

No, what I mean is, say I walk into a grocery store and check out Arnold and Pepperidge Farm — they've got those harder, more substantial offerings like Country White and Hearty White. It seems to me folks might be buying those somewhat more often compared with the softer-loaf trends. So I'm just sorting the various subcategories in a different way.

Yes. And I think that's a terrific illustration of where the market is moving; take white breads, for instance, and what we've accomplished with Perfectly Crafted. So although the traditional Nature's Own loaf has declined, Perfectly Crafted rose 8.5% in units during the fourth quarter, which is usually a soft quarter. So there's one illustration, and we also offer a white bread under Dave's. So that gives consumers somewhere to turn that's more premium and more differentiated than those mainline items, as you were saying.

So then — if we step back and look at the whole supply chain, does it really make sense to slowly start filling in shelf space in some brands with the kinds of examples you just mentioned? I'm not sure whether there's a ceiling on the TAM, but the market certainly seems to be heading in that direction, and maybe it takes a while for you to get there, yet it does feel like you've got the ability to reach that point.

Yeah, I'd agree with that. What I mean is — like you said, it's something that evolves gradually. Sure, it's down, but don't be mistaken: a great deal of Nature's Own Honey Wheat still sells; so in terms of volume, that's still an enormous piece, and the same goes for Wonder Bread and the other mainline Nature's Own items. That said, Rob, as you'll remember, our plants are quite flexible; so going forward, as consumer preferences change, we're able to produce these items on the very lines we already use for Nature's Own. A great deal of Perfectly Crafted is made at the Miami bakery, for instance, which we've operated for 50 years and which produces Nature's Own Wonder Bread, and it turns out Perfectly Crafted too. Dave's is somewhat different, clearly, because of the organic side, and gluten-free is obviously even more different given the segregation that's needed; but yes — our network is built to stay flexible on that front as those preferences change.

Yeah, yeah. All right. All right. Great. That clears it up. So then, perhaps just a single thing from me regarding the Wonder Snack introduction. I mean, in the prepared remarks, right, I suppose, the wording or the language about healthy eating, Better For You, and so on, does keep coming up, and we're all conscious of what's happening in the perimeter compared with parts of the store. I mean, I suppose someone could make the case either way — perhaps a Wonder cream-filled confetti cake is more premium, or perhaps it counts as Better For You for some people; but it feels like this might simply be a nice chance to take some of the capacity you already have, right, in sweet baked snacks and try to stir things up a bit, right? I mean, obviously, Wonder has extremely strong consumer awareness. It's likely among the highest across all of baked goods; so, as you talk with the retailers, is the thinking, hey, here's a category that's plainly under some pressure. And it's been like that for a while. And there really haven't been many new entrants, right? So perhaps this is something that could genuinely succeed because consumers want something new and want to try it, not necessarily because it's premium or better for you?

Yeah, I believe you — I believe you put it really well. I mean Wonder is an iconic brand; it has 98% awareness; so it ranks among the highest in food. And we've discussed at length the fact that one of our competitive problems in the cake business is simply the absence of a brand to compete against the bigger players with. We're somewhat disadvantaged in that respect. I mean, Tasty is a wonderful brand, if you're from Philadelphia or the surrounding area. But if you're from Cairo, Georgia, perhaps not so much. Yet Wonder truly resonates. I would add that quality is another factor, and we believe our quality is better, and our retail partners have told us our quality is better; so we think that gives us a good competitive edge too.

And just to be quick, is there a chance that line of products could roll out across the country relative to Tasty? Or would it more likely be a regional Tastykake kind of play?

No. We can take Wonder nationwide — a, it's a national brand, and b, all of this is warehouse distribution. So the DSD no longer limits us.

Thanks for the detail on 2025. I'd like to break down part of the legacy business. If my rough math holds up — taking the midpoint, removing the 53rd week and the Simply Mills — sorry, the Simple Mills acquisition — that leaves just under 1% growth for the core 52-on-52-week legacy business? How should we think about expectations for the pieces there? It looks like food service is still down slightly, the core bread offering might be up a bit, and sweet baked goods are somewhat variable. So could you give us a sense of the legacy business components for '25?

Yes. I think your thinking is right on that, first of all. That said, I'd note much of the 1% growth will come from mix. As Ryals has mentioned, our premium brands keep performing very strongly, so from that angle we're projecting solid results for 2025 too. As Ryals said, we believe Wonder Cake should help on the cake side. But again, that really only begins in the second quarter. And we expect some recovery from quick serve food service over the course of the year as well. So looking at that 1% growth, a big portion will be mix driven from a pricing standpoint. We've implemented fairly substantial pricing across the past couple of years. There could be a pocket here or there, something quite selective. But mostly, it will be mix driven.

That's useful. Then perhaps a follow-up on innovation and formatting. Ryals, during your prepared comments, you said there's a chance to give shoppers smaller loaves, which might make the product somewhat more accessible when viewed from an absolute price standpoint? And on top of that, they avoid concerns about spoilage and possibly tossing out those extra couple of slices. Could you share a bit more detail — does that span the entire portfolio? Or only specific brands? Is there a chance, particularly when considering the GLP-1 effect, to broaden that throughout the portfolio so it's more accessible and cuts down on waste?

Yes. I'd say we'll see at this point, Jim. At present, the small loaves are available only beneath the Nature's Own brand. We're also examining it for Wonder. And then, naturally, this isn't perfectly comparable, but for quite a while DKB has offered the thin slice, a far smaller loaf compared with that large super premium wide pan bread; and we do observe that it carries a lower price point, obviously, margins remain solid for us, and that's a consumer need we're attempting to satisfy. Other players exist out there. We aren't always first to market. We weren't first to market with Keto, and yet we're #1 in that subsegment now. And other companies have been earlier to market with the small loaf, and we've been monitoring it. It's performed well; it's clearly a need for certain households and — so we chose to meet that demand.