Dai, and welcome to the Flowers Foods third quarter 2026 results. At this time, all participants are in listen-only mode. After this figure's presentation, we'll open up for questions. To ask a question during a session, you will need to press star 1-1 on your telephone. Thank you, and good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted earlier on our Investor Relations website.

After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to FiberSmooth's business are fully detailed in our SEC files. We also provide non-gap financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullian, Chairman and CEO, and Anthony Scaglione, our CFO.

Ryals, I'll turn it over to you.

Okay. Thanks, JT. Good morning, everyone. As you heard in our prepared remarks, our results reflected many of the challenging conditions we discussed last quarter and highlighted areas where we need to move faster and with greater emphasis on focused execution. While we're seeing encouraging signs in the business, including improving sequential trends and growing awareness in the Nature's Own franchise, the pace of improvement was slower than we anticipated. But we are not sitting still. We're accelerating initiatives already in flight to better align our value proposition where the market is going. This includes advancing innovation, pursuing new business, and investing behind our leading brands. We're excited about the progress we're making and what it means for the future of our business. While taking some time for these initiatives to lift our results, they are putting us on a stronger path forward and increasing our confidence in the long-term potential of the business. The large, attractive markets that we serve across fresh packaged bread, cake, better-for-you snacking, and food service offer compelling opportunities for future growth. And our strengths, anchored by our leading brands, extensive network, and most importantly, our people, provide a solid foundation to drive long-term shareholder value. So with that, Victor, we're ready to open up for questions.

Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Canadian roster. One moment for our first question. Our first question comes from Jim Solera from Stevens. Your line is open.

Hey guys, good morning. Thanks for taking our question. Ross, I wanted to ask you about the pricing strategy going forward, given in the prepared March you mentioned, you know, high promotional environment. Obviously, we can see kind of the divergence and the share trends. And I wonder if part of that just has to do with the net price you guys are still getting. Can you give us any thoughts on how we should think about the pricing number, you know, the back half of this year, I guess, 4Q of this year? as we, you know, kind of fine-tune our models and think about how much you'll be able to offset some of the inflation headwinds we've seen.

Yeah, sure, Jim. Thanks for the question. Yeah, certainly price is something that we're looking at. I think it's – I think it is only part of the story, though. You know, we believe that the bigger issue is some of the shifts that we're experiencing in the category in terms of consumer preferences, price pack architecture – which obviously has a price element to it, of course. Meaningful differentiation. Those are the items that are winning in the category right now. And where we currently have gaps, though, we are filling those gaps, as you know. In fact, as we speak, we're doing that. We just relaunched our majors on small load, for example. And we have more of that coming in 27. So, you know, I think, you know, we are taking a hard look at price, promotions, promotional effectiveness. You know, leveraging the tools that we have to be sure that the promotions we do run are as effective as possible. That said, the promotional environment has been pretty intense, particularly this last quarter we saw pretty intense promotional activity. So, you know, price sensitivity among consumers is certainly an issue, but it is not the only issue.

So, if we try to put some, you know, guardrails around that, I mean, do You know, a low single-digit benefit from, you know, price mix in 27? Or should we be thinking about it as more flat-ish?

Yeah, I think we're not in a position to talk about 27 right now. I think all the dynamics that Riles mentioned is obviously going to play a factor where wheat will settle out, and it's going to be a tale of two stories, organic wheat versus traditional wheat. They're exhibiting different cost inputs, so that's going to have a factor in how we look at the overall portfolio, both on traditional loaves as well as on the organic side.

Okay. And then if I could just ask one other one on the input costs. We talked to a lot of folks here this earnings season about transportation cost increase, and so we're just hoping you can help us size up what you guys are seeing in your freight contracts, maybe help quantify how we should think about that as a percentage of sales and kind of the magnitude of the increase as we move forward and look to 27. Thank you.

Yeah. Talked about a little bit of inflation and commodities overall just to give that context. So for fiscal 26, generally speaking, we benefited from our hedging programs. We saw rising commodity prices, specifically in the back half, year on year in Q3 for commodities, ingredients, packaging. They were relatively flat on a rate basis compared to a year ago. The markets, while they were elevated during the quarter versus 2025, our coverage and inventory provided us protections. and Q4. And it was already in our guide. There's nothing new. We've already factored this in. We expected higher raw material inflation as coverage began to last. And that's clearly going to be an area that we are spending a lot of time on as we look at 2027, although it may be more of a first half versus the second half headwind. As it relates to fuel, as we mentioned on the last call, our fuel and many more. Thank you. One moment for our next question. Our next question will come from Scott Marks from Jefferies. Your line is open. Hey, good morning, all.

First thing I wanted to ask about, you know, you called out some of the continuing pressures in the states and that it's, you know, the pace of improvement with nature zone is taking a little bit longer. Some of your innovation, you know, hasn't kept up with trending category and understand those are a bit of a longer term, you know, benefit. So if you think about the here and now, How are you thinking about maybe stemming some of the pressures within your own business? I know you called out, you know, expensive cost controls. Just wondering if you can give us a sense of how you plan to approach that and how we should be thinking about those levels.

Yeah, sure. So, you know, we're already pulling some of those levers. We have, you know, we're estimating roughly a $20 million cost takeout for this year to directly address that issue. There are opportunities for improvement and procurement. There are also opportunities for additional efficiencies in the bakeries. We're always working on that in terms of, you know, greater productivity out of the bakeries. Controlling our sale. I mean, these are the basic, Scott, these are the basic blocking and tackling, you know, everyday tactical items that the team, you know, works on to combat some of the headwinds we face. More importantly, though, is the focus on getting our branded volumes stabilized. So, again, back to those portfolio gaps that we're actively filling, the relaunch of the small lows, which, by the way, also benefits from the halo, if you will, of the Nature's Own advertising campaign. They're the same formulation, clean label, non-GMO. We'll get the halo effect of that. Those have just relaunched. It's only been a few weeks, but we're already seeing some very promising returns on that that that give us confidence that we can recapture our fair share of that segment. And then with regard to the broader Nature's Own franchise, since the relaunch, we have seen sequentially improving share trends across the Nature's Own franchise. The traditional loaf, which has been the weakest part of the overall segment of the category, continues to lag behind, but even it has shown some sequential improvement. So we're not getting the results as fast as we had hoped that we would, But nevertheless, we are seeing those green shoes of improvement that give us confidence that this is the right strategy, the right path forward. Our customers are excited about it. They're telling us that when we join them for meetings. And, of course, when you've got your customers behind something, that's a really good early sign that you're doing the right thing. And then DKV, you know, Jim asked the question a minute ago about price. I do think there is some price sensitivity with DKV. But it's a lot more than that, too. I mean, as recently as Q1, DKB was up in units. This is a very recent phenomenon that has occurred. And frankly, our overall share has been very stable over the last few years until very recently. And I can draw a direct line between that, what's happened with share, and the changes in consumer preferences, which we're actively working to address.

Understood. Appreciate all the color there. And then even Stephanie, for me, there was a comment in the prepared remarks about working with bank partners to ensure financial flexibility for next year. So I'm wondering if you could just give us an update on your thinking around capital allocation, including the dividend, as well as capital expenditures going forward. Thanks.

Yeah, no worries. So first of all, just wanted to reiterate, we remain in compliance with all covenants and have very strong relationships with our bank group. You know, that being said, we want to provide the company with the most flexibility as we continue to face, you know, potentially challenging environment in the year ahead from a commodity standpoint, category standpoint, consumer standpoint. So while 27 we continue to work on and shape up from a planning perspective, we're building in that flexibility ahead of any potential constraints that could arise. And we expect to have an update on that front before year end. To answer your question on the dividends in particular, you know, clearly the dividend is an important topic in shareholder consideration, and our board reviews that policy each and every quarter. We share with them the relevant items across a number of dimensions, including cash generation, our leverage profile, capital investment. They take those elements into consideration when forming the basis of their actions, and we expect to announce any decision that the board takes in our normal cadence after next week's board meeting.

Mr. Stewart, thanks for the call. I'll pass it on.

And our next question will come from the line of Steve Powers from Deutsche Bank. Your line is open.

Great. Thanks, and good morning. Hey. Hey. So, you know, I guess you've emphasized the difficult category backdrop, but obviously there's a shared component too. I guess, can you just give me just a little bit more thought or a little bit of thoughts from you as to how you're thinking about that decomposition between the category itself and, you know, what Flowers specifically controls? through better execution, better assortment, et cetera. Just trying to get a better sense of how you're seeing those two different drivers and how much control you really think you have over the structure of the business, you know, into 27 just relative to category momentum.

Yeah, good question, Steve. Thank you for that. So obviously the overall category remains weak. So we start with that. categories down almost, I think, almost 3% in units in the quarter. And then as you start to decompose that, as we have been saying, traditional loaf, 20-ounce traditional loaf remains the weakest part of the sector. And obviously, we are very concentrated in traditional loaf. So getting that stabilized, as we've been saying for several quarters now, is priority number one. has the major zone relaunch, the move to cleaner label, the move to non-GMO. We believe these are the right things to do for the consumer, our customers, and our company. And we are beginning to see some results there. As I said, DKV is a more recent phenomenon in terms of the unit pressure, several reasons for that, some of the price sensitivity, but there's also consumption issues there too. You know, DKV index is the highest among High-income consumers, they are also the ones that use GLP-1s the most. And so not terribly surprising to see a bit of pressure there. DKB continues to hold up better with the lower-income consumers than it is with the high-income consumers. I attribute a lot of that to the GLP-1 drugs. But we have actions to address that, Steve, in terms of innovation, protein items. filling the gap that we have in terms of sourdough has also been an issue for DKV. We have sourdough in DKV only in California, and it's growing very, very well in California. So we have great confidence that that is going to be a very important addition to that part of the portfolio. But back to the 20-ounce loaf, very important to get that stabilized. While we're working on that, the relaunch of the half loaves to pick up our fair share of that. and to help stabilize the overall volumes is also an important part of the picture. But also remember that we're not just a traditional loaf business. We have a very large billion-dollar food service business and we also serve private label. And so in the meantime, while we're working to rebuild this branded business, we are aggressively filling volumes with new wins in food service and private label in addition to wins for our branded business. because that will help mitigate some of the operating deleverage that we've been experiencing. Okay.

Very good. Thank you. And then, Anthony, you know, you talked about the difficult cost environment, particularly, you know, looking out to the first half of next year. And a lot of the initiatives that Ryle just spoke to, they're going to take some time to have some returns from the volume impact. I guess, you know, without asking for guidance, I'm just curious as to how you're seeing, you know, the first half relative to where you position the fourth quarter. You know, is the fourth quarter a reasonable run rate to talk about, you know, the starting point of 27, or is the fourth quarter going to be a trough and we'll start to see improvement, you know, as the new year begins? You know, just a question of trajectory of... I've been proven off what, you know, hopefully the bottom here in the back half of 26.

Yeah, that's a great question, Steve. I think from an inflationary standpoint, many of the commodities that we're exposed to, we're seeing that increase in price right now in Q4. So sequentially, assuming there's not a significant shift in geopolitical or something like that, we're expecting that pressure to continue as we think about The first half of next year and looking at it through the lens of first half versus second half. Sitting here a couple weeks ago, a couple months ago, it looked like we were really starting to rally. That has come down as we look at all the data that's out there that we can take into consideration. It looks like there's more acreage. It looks like the geopolitical, there's something there. So there's good indicators that there could be some relief from an inflationary standpoint. but I would say that's probably more of a second half just given our hedging programs, given where pricing is, more of a second half versus a first half relief. So we're expecting, you know, continued pressures in the first half of next year as it relates to the inflationary side.

Okay.

Very good. I'll leave it there. Thanks so much. Thanks, Steve.

Thank you. One moment for our next question. Our next question will come from the line of Max Comfort from BNP Powerbus. Your line is open.

Hey, thanks for the question. I wanted to turn back to the balance sheet conversation. I'm really just trying to get a sense for how you're feeling about the health of your balance sheet. So, obviously, you took decisive action earlier this year by cutting the dividend, which I think was a good step. But given your updated outlook for 26 and the operating conditions that you expect to persist, in the 27, and it feels like you've found yourself a bit stretched again from a leverage perspective. I mean, you're second-half EBITDA this year, but imply a very high leverage ratio above your government. You included commentary in your remarks about proactively working with your bank partners to ensure you have ample financial flexibility. You also, in the 10Q, had a comment about seeking an amendment on the government attached to your debt. So just trying to get a sense for how comfortable do you feel with your balance sheet, and how do you think about getting yourself out of this leverage situation.

Yeah, quick question. As I mentioned earlier, you know, we're working with our lead banks and, again, expect to have an update by year end, and we're highly confident based on the conversations and discussions to date that we will be able to put in place additional reliefs specifically addressing what we see as potentially a concern in 2027 as it relates to our covenants. And those conversations are progressing well. We also have actions we can take. We're looking at our CapEx. We're looking at the investment in the business. You mentioned the dividend. We're looking at the dividend. These are all things that we take into consideration. Recognizing the dividend is a board action with management input. So we want to make sure that as we look at 2027 and as you recognize some of the challenges from an inflationary standpoint, we're doing everything to try to look at it through the lens of how do we deleverage over time, how do we continue to have the capacity to invest in the business to support our brand, recognizing that there's going to be some cost pressures that we're going to need to deal with, and we are addressing that proactively through these conversations with our banks and proactively through some of the levers that we will pull in 27 as it relates to investments and costs.

As a follow-up on that, you did mention that you are still investing for growth. What's giving you the confidence that you can do both at once, that you can deliver while also invest to try to drive the top line, whether it's advancing innovation or pursuing new business or investing more in your leading brands? Why do you think you're capable of doing both at once? And why not just focus entirely on the balance sheet, given where you're at currently? Thanks very much.

Yeah, I think, you know, at the end of the day, we need to continue to invest in this business. You know, over time, that's going to provide the best opportunity from a top-line perspective for us to recapture share, to recapture growth. And we have to balance that investment. Thanks very much. Thank you. We'll move on for our next question.

Next question will come from Mitchell Pinero from Sturdybond. Your line is open.

Hey, good morning. Good morning. So food service sales and volume, I guess, were up in the quarter, I think I read. So how does that – how do you put that against, you know, a weak category growth, you know, that had trends like – Beyond just your traditional low-beatness and, you know, you have the GLP-1, you know, pressure. So is the food service business a function of having the right customers, or I would just love your comments around that.

Yeah, Mitch, a lot of the growth in food service is, you know, new business wins. We've reorganized our sales force with food service. We have mostly an internal sales force now, which has been a huge benefit for us. And so the team's done a great job at securing new business, expanding business with current customers as well, has also been a part of that.

And then moving to just, you know, your promotional activity was up. You didn't really move the volumes. Is that because the promotional activity is on your newer and smaller product lines, I should say.

No, no, it's not so much that, Mitch. It's really, I mean, remember that, first of all, the base sales in this category are very, very high. So, you know, getting lifts from promotional activity has always been a fairly difficult task. I would describe... The effectiveness of our promotions in the quarter as uneven. So, you know, we had some that were more effective than others is the way that I would frame it. You know, some of our activity in the mass channel, for example, was not as successful as our activity with more traditional grocers. And some of that just has to do with the overall price point so that, you know, In mass, for example, you know, the promoted price maybe isn't low enough to drive enough volume. So, again, as I was addressing one of the first questions on the call, I said we're taking a hard look at our promotional effectiveness. I think that we can do an even better job going forward. And then, of course, when you look at, you know, DKD in the quarter, obviously, you know, was a disappointment to us, but I would also call out that we were very heavy on promotion in the third quarter of last year and not as heavy this year. And so that also contributed to some of the, what I'll describe as unexpected unit declines in the quarter. So it's more uneven than, you know, across the board, you know, promotions aren't working. That's not the case.

Thank you. And this concludes the question and answer session. I want to turn it back over to Ryals McMullian, Chairman and CEO, for closing remarks.

Thanks. I just want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest in our company. And as always, we look forward to speaking with you next quarter. Take care.

Thank you for your participation in today's conference. If there's nothing for the program, you may now disconnect. Everyone have a great day.