Welcome, everyone, and good morning. Thank you for joining our investor update. Today our CEO, Ryals McMullian, and other members of the leadership team will discuss our second quarter 2020 performance and outline our strategic priorities and long-term growth targets. At any time, you may submit questions using the Q&A function in the Zoom platform. After the prepared remarks, we'll go through the Q&A. Also, this webcast is being recorded and will be available in the Investor Relations section of flowersfoods.com. We'll also post the slides. Finally, please note that as part of this presentation, we will make some forward-looking statements about our future performance. While we believe these statements to be reasonable, actual results may differ materially due to the risks and uncertainties. These and other important factors relating to our business are fully detailed in our SEC filings. Thank you for your attention, and now I'll turn it over to Ryals.

Good morning, everybody, and welcome to our first-ever virtual Investor Day. I hope everybody is doing well. It's been one heck of a year. I was just thinking on the drive up from Florida this morning, it seems like just a few days ago, we were all starting to watch the news, initial news coming out of China and then following the spread of the virus from Washington State and California all across the country, but it's been quite a challenging time. And I certainly hope that you and your families are doing well in the midst of all this. Last night, we issued our second quarter earnings release. And this morning, we issued a release outlining our strategic focus and our updated long-term targets. We originally intended to hold our July Investor Day in New York, but obviously COVID intervened and made that a little bit difficult. But I've been CEO for a little bit over a year now. And while we couldn't host an in-person event, we nevertheless felt it was important for you to have a chance to get to know me better and also some of the management team better as well. So very happy that you're able to join us today. So today, we're happy to address any questions you have about the quarter or the year, certainly. But the primary goal today is to share with you our path forward in the future. Our aim is to provide you with a very clear understanding of who we are as a company, our culture and the plans we have underway for the future. So to summarize the agenda, we'll discuss why Flowers offers an attractive investment opportunity. We'll provide you with an update on our long-term targets. And most importantly, we'll detail for you how…

Thanks, Ryals, and good morning. Today, I'm going to discuss 3 key priorities: first, the margin benefit potential offered by our work in optimizing the portfolio and our supply chain. Next, our focus on building our brands. And third, how our portfolio strategy informs our supply chain optimization work to reduce fixed costs and drive operating leverage. Ryals mentioned our initiatives related to the portfolio strategy, which focuses on value-added, branded retail products that we expect to drive top line and improve our margins. Those initiatives are in the early stages. But the current environment offers a glimpse into the effect our initiatives have on our long-term results. In the second quarter, we saw greater demand for our brands as increased at-home eating and a consumer shift to trusted brands drove a favorable mix shift for us. As a result, margins increased significantly despite a decline in volume, as our more profitable branded retail products grew to a larger percent of our sales. Combining the right portfolio mix with an optimal bakery network can drive meaningful and margin improvement. These results have strengthened our team's resolve to accelerate work in this area and position ourselves to deliver improved margin performance over time. Two of our key operational priorities are: focusing on brands and improving our margins. Many of our brands have strong and growing market shares, and we are focused on continuing that share growth by remaining relevant with the changing consumer. An important part of improving relevance is innovation that creates products that are meaningful to our consumers and marketing those products to the appropriate segments. In a few minutes, Debo is going to address some of our efforts in that regard. After Debo, Mark will discuss brand presence and our efforts to make our brands available to the…

Thank you, Brad. So building on Brad's discussion, we're going to turn it over to Debo Mukherjee now, who's going to give you some more detail on our marketing and innovation efforts. Debo?

Good morning, everyone. Ryals, thank you so much. As Brad mentioned, we look at our growth underpinnings in 2 clear buckets: one is brand relevance and the other one being brand presence. I'll focus on brand relevance. And my partner, Mark Courtney, will take you through the brand presence component. So what are we talking about when we talk about brand relevance? It starts with having a category that's vibrant, and I'll take you through some dynamics there. But within that vibrant category, we need to make sure that our brands relate to our consumers and that they are relevant in their promise as well as in their vision. I'll take you through how we develop that. And not only how do we develop it, but the fact that we center it on consumer insights. And our core principle here being honoring the consumer in all their facets, their stated and unstated needs in terms of deriving not only our brand promise, but also our innovation, as Ryals mentioned a bit earlier. And last but not least, we need to take continued look at consumers' evolving behaviors and habits. And the COVID-related e-commerce digitization has certainly spawned a new activity set for us as well. So why don't we get started? We are going to take a look at the bread category. The bread category is one of the most vibrant categories in the entire grocery store, certainly among the largest. So it's at $24 billion and continuing to grow. What you may or may not realize is that 98% of households, American households, so that's roughly 128 million to 130 million households, purchase bread. And what's interesting about that is that they buy bread every 12 days. So you're talking about a very large category, very dynamic, reaches a…

Thanks, Debo. A lot of exciting efforts underway in both marketing and innovation. Hopefully, that read through with Debo's presentation. So now we're going to move to Mark Courtney, our Chief Brand Officer. And he's going to talk to you about our portfolio and growth strategies. Mark?

Thank you, Ryals, and good morning. Today, I'll highlight our portfolio strategy and how we will use it to profitably grow our business by expanding our brand presence in underdeveloped markets, underdeveloped segments and by staying closely aligned with our retail partners. The fresh packaged bread category has certainly seen a sales lift since the pandemic began. This channel-shifting from foodservice to retail has been significant, fueling category growth of 14%. I'm pleased to say that we have outpaced category growth by 420 basis points and introduced our brands to 3.5 million additional households in just this last quarter. Our challenge now is to drive engagement with these consumers by increasing our brand presence, wherever and however they shop. To that end, we have clarified the roles for each of our brands and businesses, that we can now leverage to drive branded growth and meaningful margin expansion. Our portfolio includes some of the strongest brands in the category, that collectively appeal to a very broad percentage of the population. It includes strong regional brands that allow us to win locally. And our national brand portfolio is comprised of the Who's Who of mainstream bread brands. Starting with Wonder, which gives consumers an opportunity to trade up from store brand and into the most iconic bread brand. And Nature's Own, the #1 loaf bread in the United States, which offers premium products at mainstream prices. And our super premium entries, Dave's Killer Bread has been driving category growth for the last 5 years with the best bread in the universe. And our newest entry, Canyon Bakehouse, has quickly become the number one gluten-free bread by giving consumers a reason to love bread again. We've developed growth maps for our brand portfolio to drive optimal revenue and margin growth and serve as…

Thanks, Mark. I hope you can see, our marketing efforts, our innovation efforts and our portfolio strategies going forward are really the backbone of everything that we're going to be doing going forward. And hopefully, it read through, and you can see why we're so excited about it. M&A, turning our attention to M&A. I'd like to introduce Mark Gerrish. Mark is the new Vice President of Corporate Development and runs all of our M&A now, taking over my old job. And trust me, it's an upgrade. So Mark, why don't you take us through?

All right. Thank you, Ryals. Good morning, everyone. I'm excited to be here. I'm going to spend the next few minutes talking about our corporate development program. Earlier, Debo discussed how we use consumer insights to leverage opportunities for our core business. Equally important to the future of Flowers is taking that same information and using it for M&A. We have growth ambitions through M&A. We are positioned for this growth, and we will take a structured approach, partnering with our newly formed innovation team to identify opportunities, both in our core and within grain-based adjacencies. As Ryals discussed earlier, M&A is 1 of our 4 strategic priorities that will enable long-term growth. With a strong balance sheet, free cash flows, we are poised to invest for this growth. But we're not just standing here telling you that we have cash and capacity. We have the experience, we have the capabilities and we have the commitment, coupled with a long history of delivering on M&A. As you can see by the chart on the screen, our 2 recent deals, Dave's Killer Bread and Canyon Bakehouse, have produced incredible profitable growth. And even more importantly, and that, that slide doesn't show, is these brands have a long runway, and we expect many years of continued growth from these brands. A structured M&A approach is critical to ensuring Flowers' long-term success. Again, we have the track record of M&A, and we will continue that success by developing a clearly defined, repeatable process with a clear set of acquisition criteria. We view -- here at Flowers, we view M&A as a capability. This is not a one-off project focused on a discrete target. We are developing a capability to provide a steady stream of potential growth drivers. Demonstrating on that commitment, I was…

Great. Thank you, Mark. As we've said many times on this call and prior calls, M&A has always played a vital part of our growth story. And it's going to continue to do so in the future. It might look a little bit different. You heard from that, that we're really trying to open the aperture, not only just for the types of companies that we're interested in, but with regard to the types of deal structures that we're interested in going forward, willing to make smaller minority investments to help fuel innovation from an outside perspective. So we've talked a lot about supply chain optimization. We've talked about our portfolio strategy. We've talked about our marketing and innovation efforts. And now I'd like to call on our Chief Financial Officer, Steve Kinsey, who's going to tie it all together for us and talk about our financial progress and the long-term algorithm. Steve?

Thank you, Ryals, and good morning, everyone. While -- I need to admit, while I'm very excited about the fact we have the technology that we can all be together today virtually, I'm definitely looking forward to the day that we have the ability to meet again in person. So hopefully, that day comes soon. Today, I plan to cover several key topics. First, our business is performing well. Based on our first half performance and our back half outlook, we have a positive view on 2020. Second, the business continues to generate strong free cash flow. And our capital allocation policies are aligned with supporting the priorities you've heard about today. And finally, I will provide you some color to our updated long-term targets and our road map to reaching them. Turning to the second quarter results. As Ryals stated, we released earnings late yesterday and filed our 10-Q with the SEC as well. You can see from that release, we had another strong quarter with great performance, from both the sales and margin perspective. Results were driven overall by solid brand performance. We continue to experience elevated in-home eating, which bodes well for our brands. The top line grew 5.1%, with adjusted EBITDA growth of 21.4%. Adjusted EBITDA margins expanded 170 basis points to 12.5% of sales. Adjusted earnings per share grew 32% to $0.33 per share, a record second quarter for adjusted EPS. I'd like to also highlight briefly a few items excluded from the adjusted results, that were driven primarily by our continued focus on brands and overall optimization work. First, we did have 2 significant impairment charges: a $4.6 million charge relating to surplus property and equipment we are in the process of selling, and a $4.6 million charge due to the discontinuance of the…

Great. Thank you, Steve. Before we wrap up, I want to highlight the strength and longevity of Flowers as a company. We've been in business for over 100 years now. And in fact, the original Thomasville Bakery that sits just right down the street from where we are now is still in operation, and is really a great illustration of why we think Flowers is such a good long-term investment. Over the years, if we've done anything, we've certainly cultivated a tremendously important asset, and that's a passionate team that's committed to delivering shareholder value. Another key attribute, it's the emotional connection of our core products. It's fresh bread. It's a nutritious staple. It's a foundation of many, many everyday meals and frankly, very economical on a per slice basis. It's unique among staple foods. Consumers have their individual preferences across a wide variety of tastes and textures, and we play across a wide variety of those same tastes and textures. This provides innovative brands like the ones that we have; the opportunity to connect powerfully with consumers, as you heard from Debo this morning. And it's that consumer loyalty in the end that builds valuable brands over time. Third, as evidenced by the Thomasville Bakery, there are significant competitive advantages to leading operators like Flowers. The combination of really strong brands and the logistical scale that we have, provided by our network of many bakeries across the country, supports the consistent cash flows that Steve spoke to and also offers very attractive returns on capital. Finally, we have an opportunity to grow through product adjacencies, innovation and with smart acquisitions, as you heard from Mark, and Mark, and Debo. And with our new organizational structure in place, our vision has never been clearer. I'm really excited about the opportunity to truly unleash the power of our brands and bring our customers and consumers more new and exciting products for years to come. So in summary, I certainly believe in what we're doing. And hopefully, today's presentation has made you a believer as well. So thank you for joining. And I think now we will open it up for questions.

Very good. Let's begin the Q&A session. [Operator Instructions] Our first question is from Bill Chappell with Truist Securities. Bill, are you on the line?

Yes, can you hear me?

Yes.

Fantastic. A few quick questions. I guess -- well, not quick. But first, Ryals, just help us understand on the long-term growth of kind of 1% to 2%. What are you expecting out of the category? And when I say that, I mean, can you do that? What are you expecting beyond Dave's Killer Bread and Canyon and kind of the specialty side for the core business to grow? And do you need pricing to do this? Or is this all really volume-driven?

Yes. It's a great question. Bill, as you know, I mean, the category overall, let's take COVID out for a minute. The category overall has been pretty flat over the last several years. But we have been able to achieve above-category growth, both with our -- obviously, the acquisitions have helped, but also with some of our core products. And that's why I'm so focused in on innovation because that's really going to be key to bring those new and differentiated items to the consumer to help continue to drive that above-category growth. As far as pricing, what we've assumed as we built our models and released the guidance, is that we will take pricing when we can to offset inflationary headwinds. And then you also heard about the ability to grow in the additional geographies as well. We still have pretty low market share in some very important areas of the country like the Northeast. We've talked about our 30 share in the South, which is great. A little tougher to grow that outside of innovation, right? But if you think about the Northeast, where we only have an 8 share and we're really just getting started up there, you can see the potential future opportunity.

And I guess a follow-on to that, I mean, what are you expecting for -- from your largest competitor? Because, I mean, part of the issue as we look to like Project Centennial, and the benefits never really fell to the bottom line, was because your competitor remained and -- or the competitive environment remained fairly aggressive on promotions and pricing and stuff like that. And so it was -- we were unable to see that kind of those benefits. So are you expecting from here forward, a more rational environment?

I think it's hard to say. I mean we all know the promotional environment has been way down for a lot of food companies during this situation, just due to the high demand. So I would expect as things normalize that maybe that comes back some, but Bill, I can't control what competitors do. I can control what we do and how we react and how we run our business. And we're confident over time that, pulling all the levers that we've discussed today, that we can grow the top line at that rate, understanding that embedded underneath that top line growth rate is some anticipated pullback on lower-margin business.

Got it. And just 2 more for me. Since you were part of the -- I think you spearheaded the Project Centennial move. Why are a lot of these changes happening today? Why weren't they part of Project Centennial or done 4, 5 years ago?

Yes. I think I've talked about this before. It's another good question. First of all, the supply chain piece was always planned. When we started Centennial, really started executing against it back in 2017, we were more focused on the SD&A line there, understanding we would get to the supply chain piece over time. One of the -- looking back, one of the faults with Centennial overall is, honestly, we probably tried to do too much at once. So you lost focus in a couple of areas, whereas now, coming back around making some of the organizational tweaks after we sat with that and learned from it some. And hopefully, it came across today being much more focused around our portfolio strategy, supply chain optimization strategies, marketing investments and innovation. Hopefully, that read through today. So it's -- we're trying to be targeted in the areas that we think will have the most impact on the business.

Got it. And last one, just any more color on what you mean by grain-based acquisitions? I mean, in terms of your willingness to look at, it seems like a broader scope. Does that include snacks? Does that include cookies and crackers? Does that include pasta? I can go up with other grain-based type products like, off the top of my head. What does that mean?

Well, largely, what we said, it's a -- when you look at it -- when you open up the lens, so to speak, and you look at the industry from a wider perspective than just fresh slice bread, you obviously have a much larger sample set of opportunities. It's -- honestly, Bill, it's a little bit of a tough question to answer just because I don't want to give away too much. But suffice it to say that we're looking beyond fresh bread.

Our second question is from Ryan with Consumer Edge. Ryan, are there?

As you have increased frequency and household penetration over recent periods due to COVID, could you dial in a bit on your efforts to retain increased households? And can you also speak a bit more about the specific niches within bread and baked goods that you want to target for innovations and future M&A?

Yes. And I'll probably have Debo come up and weigh in on this as well. But yes, we have reached a lot more households. And of course, the key to that opportunity is retaining those households going forward. So let me let Debo give you some details on some of the specific things that we're doing going forward, even as this thing begins to die down, to retain those new consumers.

Great question on your part. The consumers' habits are certainly changing, and they're situational. The objective that we have is that before those habits became -- become behaviors, we need to understand what the consumer practices are going to be, what they're turning to for their sources of information and make sure that we're relevant and present in those environments. So we're studying the consumers' behavior pretty hard and looking at their -- the impressions that they're creating and what websites they're going to; for example, where are they turning to for some of their recipe ideas and usage ideas. And we're seizing on those as part of our media mix, and we're staying very nimble in that regard. I hope that answers your question.

Yes. That was pretty helpful. And then with the niches within bread and baked goods in general, that you potentially want to target for innovations and future M&A. Would you be able to provide any more details on that?

Yes. I mean, look, we've -- I think we've already demonstrated some of the things that we've done, particularly in the gluten-free category. I mean it's -- look, it's a much smaller category, but despite calls for its demise for the last 10 years, it just continues to grow, whether for dietary reasons or out of absolute necessity. And so we've been able to build on that. We've introduced the breakfast items. As you heard Mark Courtney talked about a little bit earlier under Dave's Killer Bread, which -- I mean, we've tried countless things in the breakfast segment over the years with a variety of brands, but the Dave's breakfast items have really taken off for us. We're still small relative to some of the competition. But the trajectory is certainly really good. And look, there's a -- it was sort of similar to the question Bill asked because we've talked about innovation, both organically, inside of Flowers and outsourcing some of that innovation. And we'll be looking at some of these smaller players. Now right now, in the situation that we're in now, we've all been reading about how big brands are winning again, and is that here to stay? And probably to some extent it is. I hope it is, because we have some big brands. But I also think that over time, when things settle down, I think people will continue to look for smaller brands, for truly innovative, differentiated items, and we need to be a part of that.

That's helpful. And with your efforts to improve the profitability of the portfolio, what should we expect regarding SKU rationalizations? Maybe describe the general depth of SKU rationalization potential. And how much low-hanging fruit there might be there in terms of the mix of profitability between your most profitable SKUs and your least profitable SKUs?

Yes. And I'll probably ask Brad to weigh in a little bit on this, too. I mean we've -- SKU rationalization is really a continual effort. I mean you heard Mark Courtney earlier talk about the SKU rat we did, the some 20% of products that we deleted. So over time, you take pieces of the portfolio that aren't doing as well or are creating too much complexity in the network, and you take them out. And honestly, that's one of the challenges with innovation, really, is you got to be careful that you don't end up just putting out a bunch of SKUs, but the ones that don't do well, you end up not taking them off. So it's a bit more of a continual process, in my view. But the idea, the central thesis behind all this is to shift our mix. I mean, we've seen it in the current results. We've seen what it's done from a margin improvement standpoint, which has only served to steel our resolve, because we were already working on this pre-COVID, but this situation, albeit an extreme example, has really proved out the thesis. Branded business is way up, and yet we still have pretty significant declines in foodservice and private label, and yet the margins are up significantly. So you can really start to see what the potential is there. When I talk about a potential low no-margin exits over time, that will be methodical. That will be structured. It's not all going to happen at once, because pretty much everything contributes something. And so as we grow the branded business over time, if we can't get the lower-margin business to an acceptable margin threshold -- I'd rather do that -- but if we can't, then we'll pull back on that and rationalize that capacity. Brad, anything you want to add?

Yes, just to -- I would say the biggest change probably for us is, we've got a more structured approach to SKU rationalization now. And what we realized and we knew, but we've accelerated is, the amount of reducing the complexity in the bakeries, reducing changeovers has really meant a lot of free production time for our plant. So we are doing SKU rationalization. We're looking at everything about twice a year now. So more will come, but we've done a lot already, and it's proving benefits for us.

Our next question will come from Brian Holland, and -- Brian Holland from D.A. Davidson.

Can you hear me?

Yes, loud and clear.

Great. Thank you so much. Maybe if we start just kind of on the second quarter results. Just kind of curious, given the backdrop of COVID-19, how grilling season sort of played out? Obviously, we could see how the results were quite strong overall. But just curious how grilling season evolved versus your expectation. And then kind of applying any of those learnings, how should we think about playing out over the rest of the summer, both with respect to consumer behavior and your promotional stance?

We -- honestly, we had a great grilling season despite everything going on. I mean, going into it, we were all a little unsure about how it would go, with people having to social distance. But at the same time, I guess, they were stuck at home. So I went to Home Depot not too long ago. They didn't have any grills left. So clearly, people are still doing that. But we had a great season. Mark Courtney talked a little bit about this. We had great success with Wonder over the holidays. And as you all know, the sandwich bun and roll segment is very important, and yet it's one that we've underperformed in for a few years now. So it was great to see that trajectory for the summer. Brian, going forward, I wish I was smarter than everybody else, but I'm not. I really don't know. My best prognostication is that we'll continue to see some level of elevated in-home eating even as we move into the school cycle and the fall. Because I just don't -- I don't know how anxious people are going to be en masse to go back into restaurants. I think the foodservice side of things is a pretty, pretty long road to recovery. It -- some of the drive-thru, QSR stuff may do a little bit better because you don't have to go in. But because of that, I think there will continue to be a bit more elevated in-home eating. How long that lasts is anybody's guess. I think it's largely dependent on, when schools go back, do they stay in? What happens in late fall when flu season comes back around? How long does this last before a vaccine is available? So a bit of uncertainty there. You can see a little bit of that uncertainty, as Steve talked about, reflected in the guidance. I know it's kind of a wide range for halfway through the year, but that's the reason for it. But so far, so good. I mean, even just the few weeks we're into the third quarter, certainly off the peak, but we're still seeing good retail sales.

I appreciate the color and certainly agree with your view re at-home consumption. If we could switch back to the long term now. I think you spent a bit of time talking about some of the components. And Bill, you addressed with those question, some of the things that maybe didn't come along as you expected originally with Centennial, and maybe why some of these targets, therefore, are pushbacks. So I won't dwell too much on that. But just kind of curious, you spent a lot of time talking about the brand importance. And I think that's something you've talked about for the last few years. If we think about this category historically, the largest branded players have also been very relevant as -- with respect to producing private-label products, which have been important to retailers. And I think intuitively, the thought was, private-label production is kind of the point of entry into maybe preferred shelf space, et cetera. Clearly, branded share is growing in packaged bread over the past several years and continues to do so. But it still seems like private label should be important. So I guess what I'm curious is, how do you balance these 2 components going forward? Is private label less important to the retailers in this category than maybe it was 5 years ago? And then also, with respect to price points, et cetera, keeping private label at price points that retailers want, but you have more premiumized products. So the price gaps are wider, which in theory creates an issue, although the data would suggest that, that hasn't gotten in the way. So I apologize that's a vast question with a lot of parts, but really just want to get into the importance of private label, how you manage the 2 as you continue to increase your focus on branded products.

Absolutely. And I'll let Brad comment as well. He's so close to it. But yes, look, private label has always been an important part of the business. I mean for -- it's still important to the retailer, to answer that question. And frankly, it's important to us, too, because when you have some excess capacity, it helps us, because we're able to cover some overhead by making it for our retailers. And I consider our retailers strategic partners. And that's why it will continue to be important to us. Having said that, we do have some elements of our portfolio that just don't carry enough margin for whatever reason, because of the method of distribution that's required, or pricing or whatever. And Brian, at the end of the day, we're not in business to generate a sales dollar. We're in business to make money for our shareholders. And so we're approaching it as much more of a strategic partnership for our retailers, but I also think that the retailers are responding to the consumer. Certainly, there's a place for private label. We play across, as we've talked about today, a lot of different price points from private label to Wonder to regional brands to Nature's Own to Dave's and Canyon. So kind of all across the spectrum. And there are consumers that want items in each of those areas. So we've got to be there for the consumers, just like the retailers have to be there for consumers. Brad, any additional color you want to add?

The only thing I would add is, I think the branded companies have done a good job of differentiating their brands and coming up with new innovation. And that's, I think, got a big interest in the consumer. So -- and it varies, like Ryals said, customer by customer on what their strategy is with private label. And we have to be in sync with what they want and decide if we want to play with them or not in private label, so.

Very good. Well, let's move to our next question from Matt Fishbein with Jefferies. Matt, are you on the line? Matt, you might be on mute.

Sorry about that, didn't know I had to click there. It's Matt on for Rob Dickerson. Just one question for me. First of all, great presentation. Definitely the best webinar setup, I think, we've probably ever seen. So thank you for that.

Wow. Thank you.

Well, I wanted to follow-up on 1 of Bill's questions regarding Project Centennial and the supply chain optimization plan. Totally appreciate that the top line growth is clearly a big driver. It sounds like the biggest driver of fixed cost leverage increase and the go-forward margin expansion potential of the business. But in addition to the increased focus that you have now, what are the key differences between the list of levers, call it, identified to drive supply chain optimization over the last few years in the Centennial plan, versus the levers in the current plan today? And maybe as a follow-up to that, what is the magnitude of the supply chain optimizations improvement to margins, relative to that top line growth that you need? And has that changed versus the Centennial plan?

Yes, sure. Great question, Matt. Thanks. First of all, as I mentioned a little bit earlier, the first phase of Centennial, if you will, was focused much more on the SD&A line. And we've made a lot of progress there. We always knew that we would move to Phase 2, which focuses much more on supply chain. Now having said that, in some way, shape or form we've always done this. The company has always moved capacity to where the people are, where it can be the most profitable to optimize our transportation miles, that kind of thing. What I would say is all of the supply chain optimization efforts now are being done under the halo of the portfolio strategy. The portfolio strategy really drives everything underneath it, right? So you heard me say, we want to make sure that we've got the right plan assets and the right locations supporting the right products. So that means as we shift our mix to branded retail, that we can either repurpose capacity -- Brian talked about the Lynchburg bakery that will come online in the fall, producing DKB. I mean, essentially, that was a sort of a mainline, white bread bakery before. And now it's moving up to Dave's Killer Bread in the premium segment. We had done the same thing with the Tuscaloosa, Alabama bakery. We'll continue to do things like that as we need capacity and great brands like Dave's keep growing. So it's important to note that it's really part of the overall portfolio strategy comes right underneath it. As far as magnitude goes, without being too specific, they're both critical, right? I mean you've got to have the right brand strategy to drive growth, but you better have the right cost base, too. And you better have the right network to support that growth, not too big, not too small, just right, but flexible enough to move up as you grow. Hopefully, that helps a little bit.

We'll go to our next question with Faiza Alwy with Deutsche Bank. Faiza, are you there?

Yes. Can you hear me?

Yes.

Okay. Great. So I wanted to talk a little bit more about the expansion markets and the focus there. I know you've talked about that historically. But it seems like there's more of a focus now than before. And I was wondering if you're doing something different and if you're devoting maybe more investments to those markets, and what that entails?

Yes, yes and yes. But I will turn that to Brad and let him give you more color.

Thanks, Ryals. We are. The nice thing is we're starting to gain some traction. We've only been in New York about 5 or 6 years, and we started with a 0, and we now have a 8 to 9 share. So once you get some momentum going, it is easier to grow in those areas. But we are excited. We are putting additional efforts in those markets. We're putting additional marketing prowess in that market. We are focused on it. We've got good targets. The nice thing is, we've had strong single and low double-digit growth in those newer markets, and we want to continue that and push that along even more.

Very good. And we now have -- we will now go to Mitch Pinheiro with Sturdivant. Mitch, are you there? You might be on mute.

I got you, yes. You there?

Yes.

So first question, just is on snack cake. Why -- obviously, it's a priority here to get it back to a more optimal level. But I don't understand, I mean, is this -- snack cake always seems to be an issue. And not -- long before Tastykake's an issue, Hostess has been an issue. It's not a great category or at least it doesn't seem to be. Why not just divest it? Why struggle through trying to make Tastykake and Mrs. Freshly's and everything else work?

Mitch, I've said many times. First of all, cake has been a part of our company for a very, very long time in one form or another. But it has been tough. I mean, you're right. I mean -- and for us, we've got a brand that's not 1 of the top ones outside of the core Philly market. But we do have some really great products, some great quality products. That's why I keep saying that the first 3 priorities for our cake business is operational improvement, operational improvement and operational improvement. Because we've got a tremendous opportunity if we can get the Navy Yard bakery back to where it needs to be, back to operational excellence, the incremental profit opportunity is quite large. It's also great support for our routes. The independent distributors like having cake on their trucks. And frankly, Tastykake is a big brand. We've got to fix operational pieces first, but we think that Tasty has got good potential down the road, too. I don't really mean to deemphasize it. It's just really first things first. And I might ask if Mark Courtney maybe wants to talk a little bit more about Tastykake as well.

Yes, Ryals. Mitch, the only other thing that I would add is, as you well know, Tastykake is extremely strong in the mid-Atlantic area, where our shares are high 30s, 40. So in our portfolio strategy, it falls under the strong regional brands for that reason. We do sell it nationally. But in contrast to the Mid-Atlantic region, where we have dedicated cake routes that are really focused on selling cake every day, the balance of our cake in the rest of the country is sold on our combination routes. And it does provide incremental sales opportunities, profit opportunities for our distributors and serve a very tactical role from that respect.

And just look, actually, also in the second quarter, I mean, how was -- I know you don't break it out by brand, but how was the Snack Cake business in the quarter?

Tastykake had a good -- they had a good quarter. They did very well.

Okay. When you look beyond, I think at some point -- hopefully, at some point, we get beyond this COVID issue. And things get back to normal, maybe it's in 5 years. But when you go 5 years from now, aren't we still going to be in the same spot in terms of, we'll be more foodservice sales, which is a lower margin. I'm not sure about private label, that might stay where it is. But aren't we going to start to see -- won't we have a little bit of a negative mix as COVID disappears? Or how should we think about that?

Yes. No, it's -- I get what you're saying, Mitch. In a way, yes, because if you think -- if we're unable to grow branded retail and foodservice and private label comes back up, obviously, you have that shift there. But if we can keep growing our branded retail business at a faster rate than the foodservice and private label business grows, and of course, there's 2 ways to do that, you can not take business or you can take business down in those less attractive areas, then we should still continue to see the positive mix that we're looking for. I need to emphasize, I mean, we like the foodservice business, frankly. We don't like all of it, but we like a lot of it. We have some really good foodservice business that we would like to stay in. The idea here, though, is, again, just like the question related to private label, we want to be in strategic partnerships with our customers. And we're -- as I said before, we're in business to make money. And so we need a framework with which to do so. If we can work with a particular customer that may be underperforming on pricing or method of distribution, doesn't all have to be priced. It might be method of distribution, for example, or formulation or things like that, where we can improve our cost structure to an acceptable margin. I don't mind keeping some foodservice business on, because it does provide us a lot of overhead coverage as we continue to grow the branded side of the business.

Okay. And then last, just on -- you talked about M&A deal structure. I mean, what would it take? Why would you have an unusual or modified deal structure in an acquisition? I mean, are we talking about a large acquisition that would require that? Are we just talking, just trying to get in the door in a very small company and willing to take a minority, some sort of minority stake. Can you talk about that a little bit?

Yes, sure. A great question. I'd say, mostly on the smaller end of things, right, almost from a venture capital type standpoint, not really formally that, but that's the general idea. Probably less so on the large acquisition side, although Mitch, you remember as well as anybody, the Keebler transaction that we did back in the late '90s, which started off as a minority investment. So certainly not ruling that out, but most likely on the smaller end of things.

Very good. That concludes our Q&A session and our investor update. Thank you for your interest in our company, and we look forward to sharing our third quarter results in November. Be well, and goodbye.