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Flowers Foods Inc (FLO) Q1 2019 Earnings Call Transcript

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Flowers Foods Inc (NYSE: FLO)
Q1 2019 Earnings Call
May 16, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Flowers Foods' First Quarter 2019 Earnings Conference Call and Webcast. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to J.T. Rieck, Treasurer and Vice President of Investor Relations. You may begin.

J.T. Rieck -- Vice President, Investor Relations and Treasurer

Thank you, and good morning, everyone. Our first quarter results were released yesterday evening. The earnings release and our updated investor presentation is posted in the Investors section of the Flowers Foods website. Our 10-Q was filed with the SEC yesterday evening.

Before we begin, please be aware that our presentation today may include forward-looking statements about our Company's performance. Although we believe those statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to matters, we'll discuss during the call, important factors relating to Flowers Foods' business are fully detailed in our SEC filings.

With that, I'll make some introductions. Participating on the call today we have Allen Shiver, Flower Foods' President and Chief Executive Officer; Steve Kinsey, our Executive Vice President and Chief Financial Officer; and Ryals McMullian, our Chief Operating Officer.

Allen, I will turn the call over to you.

Allen L. Shiver -- President and Chief Executive Officer

Thanks, J.T. and good morning. Before getting into the quarterly review, I want to comment about our CEO transition that is set to occur at our shareholder meeting next week. As announced in February, I'm retiring after 41 years with the Company and Ryals McMullian will become Flowers' next CEO.

Over the past four decades, I have come to deeply appreciate the talent and the dedication of the Flowers' team, and it has been a great honor to work with them. Our team has grown this Company from original baker to a national powerhouse with leading brands, strong customer relationships and a valuable partnership with our independent distributors. I believe Flowers has never been in a better position for the future.

Since launching Project Centennial in 2017, our Company has restructured into a more brand and consumer-focused organization, and we continue to take actions to improve efficiencies and enhance profitability. With our transformation well under way and solid momentum in our business, it's the right time for this leadership transition. Ryals and I have worked closely together for many years, and I know that, I'm leaving the Company in very capable hands.

Ryals has been a driving force behind the efforts to extend the Company into growing segments within our category. As Chief Operating Officer, he has done an outstanding job aligning the team behind our strategic goals and in driving operational improvements. Ryals has been working closely with me to prepare for this transition. I am confident, he is the right choice to take the helm at this exciting and important time in our Company's history.

I will now turn the call over to Ryals, so he can share his thoughts and his observations. Ryals?

A. Ryals McMullian -- Chief Operating Officer

Thanks, Allen and good morning, everybody. Appreciate you joining the call. First off, I just want to say that I am deeply honored to accept this new responsibility. I want to thank the Board of Directors, our team and our customers for their support during this transition, which takes place next week. But in particular, I want to thank Allen, I want to thank him for having the courage to set us on the course we found ourselves on today.

It took a lot of conviction to embark on what ultimately became Project Centennial and I have got long-standing notions of what success looks like in our Company and in our industry. He has created a really solid foundation for us to build on and for that we owe him a debt of gratitude. The transformation under way here at Flowers is a major undertaking, but it's also absolutely necessary, if we are going to compete effectively in a complex 21st century marketplace.

Good progress has been made over the last two years. Our savings initiatives and our old restructuring have generated cost savings, then along with improved price realization have helped us to offset some of the inflationary pressures we've seen more recently. But these savings also enabled us to make brand investments to drive above category growth and increase our market share actually achieving record market share this quarter.

And our realigned organizations just clarified accountability and driven our team to be hyper-focused on building powerful brands, connecting meaningfully with our consumers and improving our profitability. And we're gaining new insights from enhanced analytical capabilities that help to provide heightened transparency in our business, but also inform better strategic decision making. So across the company and across functions, we're taking fresh approaches to solving business challenges.

So I'm really optimistic about what's ahead for us. We -- we've set very simple, very clear priorities to achieve our goals. Number one, we're focused on profitably growing our brands. Our focus is on our brands. Two, we are aggressively managing costs to drive cash flow and improve our margins. Three, we're proactively exploring opportunities to grow in attractive adjacencies with smart M&A. And four, and most important of all, we're developing the capabilities of our team.

So we're building upon evolving the culture of the care just through the first 100 (ph) years by drawing forth greater accountability and achievement. I think it's important to call attention to the fact that since the beginning of -- the beginning of the -- the project a couple years ago, there has been a clear shift of the collective mindset at Flowers from one that was really more operationally and technically focused to one that's now deeply strategic, forward-looking and accountable for executing with excellence. It's truly exciting and very satisfying to be a part of the shift and to see it start generate -- see it start to generate meaningful results.

Now, to be sure, we still have a lot of work to do to fully realize our goals and in particular, we've got to continue to work aggressively to optimize our cost structure and we've got a variety of initiatives under way to achieve that goal. They will update you on as we go through -- go through the year. And furthermore, we're still not finished installing new capabilities to support our business. These things will take -- take some time to fully achieve, but for now, I'm very pleased with the overall trajectory and the building momentum, we're experiencing in the business. So thanks for allowing me to take a few minutes to speak with you, and I look forward to updating you in the coming quarters. Allen?

Allen L. Shiver -- President and Chief Executive Officer

Thank you, Ryals. Now, turning to the quarter. Our first quarter results are encouraging especially on the top line, which increased 4.8% overall. In the base business, excluding Canyon Bakehouse sales, our base business increased 3%. Our brands performed very well with base business volumes down only slightly, even as we took pricing to address the inflationary cost pressures, we mentioned on prior calls. For comparison, the fresh packaged bread category is measured by IRR (ph) was down approximately 3% in units and was flat in dollars. Store brands continue to be the biggest driver of category decline on both a dollar and unit basis.

Flowers' market share increased from 16.1 to a record 17 share. Approximately one-third of our share gains in the quarter came from newly added Canyon Bakehouse and Sun-Maid products. The balance was driven by innovation and growth in our core national brands, Dave's Killer Bread, Nature's Own and Wonder.

New marketing capabilities and a more brand focused organization have generated a robust innovation pipeline, and we're excited about the recent introduction of new brand and snack cake items. These include a Brio style variety of Nature's Own Perfectly Crafted, Wonder hamburger buns with a touch of honey and Tastykake, scoop shop, ice cream inspired sweet snacks. We believe that our brand portfolio has never been stronger especially with the addition of Canyon Bakehouse. The category segments posting the strongest growth in dollars and units are organic and gluten-free especially loaf breads. With DKB and now Canyon Bakehouse Flowers has top brands in both of these attractive segments. Furthermore, with Nature's Own and Wonder, we have a strong and growing position in the traditional loaf segment, which is the categories largest in both dollars and units.

For our snack cake team, the priority is improving profitability. We are seeing the top line stabilize. Cake sales in the quarter were flat compared to a year ago. We also have made considerable progress streamlining our product assortment and improving pricing. In addition, the team is bringing new products to market, as well as continuing to lower product cost and improve efficiencies.

Foodservice sales decline did negatively impact the top line in this quarter by approximately 50 basis points. This result -- these results were driven by exiting lower margin accounts, as well as business lost because of inferior yeast that we received last year. As pleased as we are with our first quarter sales performance, margins continue to be impacted by inflationary pressures from commodities, labor and transportation. While pricing is an important tool to address these pressures, we're also very focused on manufacturing efficiencies. Recently, we clarified roles and adjusted incentive programs. This additional level of accountability is designed to drive execution and accelerate the impact of our cost savings initiatives.

Reducing fixed operating costs through our multi-year supply chain optimization initiative remains a top priority, and we are making good progress in several areas. For example, we recently started production of DKB at one of our bakeries in Lewiston, Maine. This will not only significantly reduce transportation cost, but will also enable additional sales through better service, fresher product and improved availability to the important Northeast market. Overall, we are pleased with the solid start to the year. We delivered strong earnings growth in line with our plan and continue to grow market share. We're also encouraged that our revenue management and cost savings initiatives are starting to mitigate inflationary headwinds.

Now, I'll ask Steve to review the financials and provide our outlook for the rest of the year. Steve?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Thank you, Allen, and good morning, everyone. Before I turn to the quarter results, as you might have seen in our press release and 10-Q effective this quarter, Flowers' reorganized our segments to include our results under one operating segment on a go-forward basis. As always, our goal is to provide meaningful and relevant information that allows investors to make an informed decision about Flowers Foods. We believe this reporting structure is a better and more accurate reflection of our operations and our business, following our organizational restructuring and other internal changes over the past several quarters. The shift from a distribution focus to a brand-centric Company and interrelated nature of our manufacturing and distribution capabilities leads us to one consolidated segment.

Now, turning to the results. As Allen detailed, the top line performance was solid, and we delivered adjusted EPS in line with our plan. Excluding the 1.8% top line contribution for the acquisition, price mix contributed 3.2% of sales or $38.6 million. Most of this increase came from pricing actions taken to mitigate the inflationary headwinds, we have experienced the past few quarters. In addition, mix was positive driven by growth from DKB, the Nature's Own Perfectly Crafted product line launched last year, as well as sales from Sun-Maid products, we began selling at the end of last year's third quarter.

Volume decline slightly impacted the top line by 20 basis points, primarily because of declines in the foodservice and vending channels. We continue to focus on improving margins in this channels and being more selective about taking on low-margin, high-volume business. In addition, foodservice volumes were impacted by lost business because of the inferior yeast we received last year. Volumes in our core national brands were better than expected given the pricing actions implemented during the quarter.

Turning to gross margin. Consolidated gross margin improved 20 basis points, as a percentage of sales. This was primarily due to increased production volume and pricing that mostly offset inflation in commodities and labor. Excluding the items affecting comparability detailed in the press release, adjusted SD&A expenses increased 50 basis points, as a percentage of sales. This was primarily due to a higher percentage of sales through independent distributors, as well as higher selling and marketing costs.

GAAP diluted EPS for the quarter was $0.31 per share. Excluding the items affecting comparability detailed in the release, adjusted diluted EPS in the quarter increased by $0.02 per share to $0.32 per share, driven primarily by higher sales. The Canyon Bakehouse was accretive to EBITDA and neutral to EPS in the quarter.

A few comments on leverage and cash flow for the quarter. Discretionary cash flow remained solid, and as a result we made debt repayment of approximately $41 million in the quarter. At quarter end, our net debt to trailing 12 month adjusted EBITDA stood at approximately 2.2 times.

Looking ahead to 2019 guidance and the forecast. For 2019, we continue to target sales growth in the range of 2% to 4%. This includes Canyon Bakehouse sales, which are anticipated to be in the range of $70 million to $80 million, accounting for approximately 1.8% to 2% of the total sales growth. We expect base business growth to be driven by improvements in price mix, partially offset by conservative view on volumes due to the broader category softness that Allen mentioned in his remarks. We continue to target adjusted EPS in the range of $0.94 to $1.02 per share.

Inflationary pressures from commodities, labor and transportation are expected to be approximately 150 basis points, as a percentage of sales. To mitigate these costs, we are working on a broad set of cost saving and productivity initiatives, as well as continuing to evaluate pricing and promotional strategies market by market. We continue to expect Canyon Bakehouse has to be accretive to EBITDA and neutral to slightly dilutive to full year EPS.

I do want to call your attention to a couple of items that bear keeping in mind when thinking about the cadence of earnings through the remainder of 2019 and comparability to last year. First, in the second quarter of 2018, we did a major promotional event to launch Nature's Own Perfectly Crafted. As we noted at that time, this event did pressure price realizations and overall profitability.

Additionally, in the second and third quarter of 2018, we experienced significant disruption due to the receipt of inferior yeast from a supplier. This impacted many of our bakeries and resulted not only in reduced sales, but also higher costs and efficiencies, while corrective actions were being taken. And it's also important to note that this came in the -- in the height of our traditional bun season throughout the summer. While we are not capable -- and while we do not able to quantify the financial impact this had (ph) for you today, our forecast does anticipate more favorable comparisons in the second and third quarters of 2019, as a result of these events.

Thank you. And now, let me turn the call back to Allen, before we open up for questions.

Allen L. Shiver -- President and Chief Executive Officer

Thank you, Steve. Here are the three most important things that you should take away from today's call. First our strong brands are driving growth. They're outperforming our category. Second, we are taking actions to mitigate the impact of inflationary headwinds on our profitability. And third, Flowers is stronger than it has ever been. Ryals is the right choice to be the next CEO and I'm confident he and the team will capitalize on opportunities and build value for shareholders. Finally, this is of course my last earnings call. It's been a privilege to host these calls and work with the investment community throughout the years.

With that, let's open the floor for Q&A.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Amit Sharma from BMO Capital Markets. Please go ahead.

Drew Levine -- BMO Capital Markets -- Analyst

Hi. Good morning, everyone. This is Drew Levine on for Amit. Thanks for taking the questions. I wanted to start off on the strong price mix in the quarter. Obviously, really nice outcome with pretty minimal volume declines there. So just curious as that relates to kind of Project Centennial and as we're thinking about gross margins and inflation, maybe if the Project Centennial costs are coming through as expected because I think we probably would have expected to see a little bit more gross margin expansion with that strong price mix?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah, Drew. Well, this is Steve. So when you look at the overall gross margin for the quarter, I would say, it is in line with our expectations, as we continue to build off of a decline last year. We continue to see inflationary pressures within the marketplace. And obviously, the pricing actions we've taken have helped somewhat mitigate those, but they have not fully offset 100% of the cost inflation. So we are also focused on other areas around efficiencies and cost reduction, as we continue to rebuild the -- the overall gross margins.

And there's also a mix component of that. When you look -- it's kind of the heart that the new products are really driving sales. Their gross margin has been slightly lower, as we've been ramping up those brands. You may recall DKB, we rolled out a couple of years ago, but still continuing to see good improvement in overall margins from that brand. And as we ramp Canyon up and take it across the whole network, we should begin to see improvements from that perspective. So I'd say we're not -- we're not surprised, where we ended up. We feel like we're in line and we're focused on rebuilding and I'd say from a cadence perspective is what we anticipated.

Drew Levine -- BMO Capital Markets -- Analyst

Thanks. And just on that point from inflation perspective still targeting 150 bps of sales as the expectation. Is -- is that really front half loaded and any sort of other comments on commodity inflation?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

I mean overall, I'd say, from a coverage perspective, the markets is well aware that we try to cover well in advance of our -- of our (inaudible) cost of usage that way we know how we need to react in the marketplace. So when you look at the full year, I'd say it's fairly evenly spread. Overall, I'd say, I wouldn't say anything significant stands out quarter-to-quarter from a cost perspective.

Drew Levine -- BMO Capital Markets -- Analyst

Thanks. And then just last one from me. It looks like on your slides, you took down the -- the low -- the low end of the longer term sales guidance to 2% to 4% from 3% to 4% previously. Just any comments on what's driving that would be helpful? Thank you.

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

So the 2% to 4% is 2019 and the longer term sales growth through 2021, it would be within our five year Project Centennial plan. So really -- so it's really nothing -- nothing out of the line or unexpected there as well.

Drew Levine -- BMO Capital Markets -- Analyst

Great. Thank you.

Operator

Our next question comes from Bill Chappell from SunTrust. Please go ahead.

Bill Chappell -- SunTrust -- Analyst

Thanks. Good morning.

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. Good morning, Bill.

Bill Chappell -- SunTrust -- Analyst

Yeah, and Allen congratulations, I enjoyed working with you.

Allen L. Shiver -- President and Chief Executive Officer

Thanks.

Bill Chappell -- SunTrust -- Analyst

Couple of questions. I guess, first, I think you'd said on the Project Centennial margin goals, there -- there is no real question internally that you can get to them as to more of this year was going to be a pivotal year when you can get to them. So is that still the case, do you feel like you still can get the pricing needed this year to -- to hit those goals or is it too early in the year to really figure that out. Just -- I guess more of a question of is there more layers of pricing to come this year? And is that kind of necessary, if we're looking toward those 2021 goals?

Allen L. Shiver -- President and Chief Executive Officer

Yeah. Bill there -- as I mentioned, a lot of pricing is already is in place. We're really focused looking at the remainder of the year on cost savings initiatives and all those will all combine to help us to achieve the margin targets, we've laid out. But -- but really, we are very confident in the -- in the numbers that we presented today tell you for the remainder of the year.

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

And Bill, this is Steve. I mean, again, I think you -- you said it -- when we have said 2019 is going to be a pivotal year to hitting the -- the targets within the timeframe we'll do that. Coming out of the first quarter, I'd say, we're still early in the year, but we're pleased with what we've seen in the first quarter, and we want to forecast on forward pricing. But what I'd like to say is, we're pleased with what's happened in the -- in Q1. Overall, our volumes held up, and we'll continue to watch that as the year progresses.

Bill Chappell -- SunTrust -- Analyst

And did first quarter reflect the full pricing effect? Or was there some pricing within the quarter, where you maybe got a half or two-thirds of the effect and you'll get the full effect in the second quarter?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

I mean, again for competitive reasons, obviously, we can't answer that directly. But I'd say as Allen said, we took -- we took significant pricing in the first quarter.

Bill Chappell -- SunTrust -- Analyst

Okay. And then just going to DKB and Canyon. On DKB, is there any way to break out how much of it now is just velocity versus distribution gains? Are there still meaningful areas, where you can get distribution for DKB or is it really just back filling with more products and driving that velocity?

A. Ryals McMullian -- Chief Operating Officer

Bill, hey, it's Ryals. Just commenting on that, we still feel like we've got a lot of runway for growth with DKB. If you look kind of around the -- around the country, particularly outside of the West Coast and the -- and the South, where we are most heavily penetrated. The Northeast and the upper Midwest still represent a really big opportunity for distribution gains along with days (ph). Now, obviously the organic category continues to grow the brand, continues to grow, but there still also ample runway for growth from a distribution standpoint as well.

Bill Chappell -- SunTrust -- Analyst

Got it. And then on Canyon, any learnings now that you've owned it for a full quarter in terms of -- should we expect a similar trajectory in terms of distribution and growth that we saw at DKB?

A. Ryals McMullian -- Chief Operating Officer

It's probably a little bit -- this is Ryals again. It's probably a little bit different with Canyon just -- just the nature of the products, as you know, we go to -- we go to shelf with Canyon in a modified atmosphere, packaging, which is a little different from a -- from a shelf life standpoint. The phasings are -- we don't have as many phasings with Canyon smaller category that -- that are organic. So it's a little bit different. The rollout it looks very similar, but the cadence of the sales ramp up and growth will be a little bit different just because it's a smaller -- it's a smaller category.

Bill Chappell -- SunTrust -- Analyst

Got it. Right. Thanks so much.

Allen L. Shiver -- President and Chief Executive Officer

Thank you, Bill.

Operator

Our next question comes from Rob Dickerson from Deutsche Bank. Please go ahead.

Matt O'Connor -- Deutsche Bank -- Analyst

Hey, good morning. It's Matt (ph) on for Rob. Thanks for the question and congratulations, Allen.

Allen L. Shiver -- President and Chief Executive Officer

Great. Thank you, Matt.

Matt O'Connor -- Deutsche Bank -- Analyst

Given we don't have a DSP (ph) or branded volume price breakdown this time around, can you elaborate on the drivers behind the volume out performance? I think you said it was relative to your expectations, and I think this quarter was a bit better than we were expecting given the price increase, the comps get easier throughout the year and two year stacked organic growth accelerated significantly this quarter from the end of last year.

And I know, you guys have done a ton of work improving velocities at retail and that's apparent, no matter how we cut the data, so you deserve a ton of credit for that. But in short, is organic growth in Q1 sustainable? Or is there any one last (ph) factor supporting Q1 that maybe I'm not thinking about correctly like Easter shipment timing or the longer Easter selling period, I don't think that should affect you. But the EPS cadence -- commentary was helpful. So just trying to reconcile Q1 to your full year organic sales? Thanks.

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. This is Steve, Matt. When you look at the overall volume in the quarter, we were pleased to see that our retail business had nice volume gains, continuing to see as Ryals said nice growth from Dave's Killer Bread. And we also -- our private label business was up, as you can see in the 10-Q and that is driven primarily by some new business wins and some new regions of the country, as well as Canyon delta have some private label business. So -- so from a overall volume perspective, I'd say those were the big drivers.

I'd day -- as I said in my comments, there are couple of factors affecting the quarter, and as Ryals said, we do expect continued good organic growth from a distribution standpoint, but we will be lapping a couple of product introductions in Q2, so I just from a cautionary standpoint, I'd want to point that out. But -- but again, we still feel like we're going to fall well within the line with the guidance we have for 2019.

Matt O'Connor -- Deutsche Bank -- Analyst

Cool. Okay. Thank you for that. And on Project Centennial, just wanted to know, if there's maybe any other updates you can share on the supply chain optimization piece. I definitely appreciate the Dave's Killer Bread example in Maine. I know there hasn't really been much you can say from a quantitative perspective over the last few quarters and that's perfectly fair. But given a lot of the margin expansion opportunity hinges on it, are there any ideas or tracking its milestones, you can point to that give us a little bit more confidence in the timeline and magnitude you've laid out and because I have to, I feel like, when -- when should we expect the DKB production in Maine to have any type of impact on the P&L? Thanks.

A. Ryals McMullian -- Chief Operating Officer

Matt, this is Ryals, and thanks -- thanks for the question. So the DKB production in Maine has started. So we'll start to see the benefits from that fairly soon. The broader supply chain initiatives, we're still internally in the data gathering and modeling phase right now. We'll have some more details on that hopefully little bit later this year. So not a lot to share yet except to say that it's a major initiative here to help us get our fixed costs more in line and to raise our margin profile. We got the team highly focused on it. And it is one of the -- one of the key initiatives, as we go through the -- the CEO transition. It's a -- it's a primary initiative for me. But unfortunately not a lot to share today, but certainly will be as we go toward the back half of the year.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay. And just as a follow-up, this could be helpful, too. If we think about the margin expansion opportunity at Flowers over the next few years the -- the supply chain optimization piece, it sounds like it's -- the bulk of a gap between where you are now and where you want to be. But am I thinking about that wrong? Maybe there is now more weight given to profitable growth through higher -- higher ROI brand investments and product mix. Can you give us any color on that?

Allen L. Shiver -- President and Chief Executive Officer

Yeah. I mean certainly supply chain will be a major piece of it, but you -- actually, you said it all. It's everything put together. It's execution in the marketplace. It's investing in our brands. It's investing in our people. Hopefully, it's additional good M&As we go down the road. It's not just -- it's not just one thing that's going to be the keystone to this. It's all put together.

Matt O'Connor -- Deutsche Bank -- Analyst

Okay. Thank you.

Allen L. Shiver -- President and Chief Executive Officer

Sure.

Operator

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

Tim Ramey -- Pivotal Research -- Analyst

Thanks so much. Just trying to kind of think through your new presentation of sales and since we haven't seen it the things in exactly this way before. I'm assuming that there was a -- maybe market like decline in volume and branded retail, given the -- the significant increase in store-branded retail. And should we -- is this a -- these rate of change numbers year-over-year, is this going to be similar to what we should expect for the full year? Or any commentary on how we ought to model this now?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. Tim, I think when you look at the Q, I think we are breaking out sales the way we have historically between branded retail, non-branded retail and foodservice. Within the branded retail line again, we had strong performance across -- primarily the bread category driven by DKB and then also with the acquisition of Canyon from a brand perspective. And then the private label business is both pricing, volume gains from new business and also Canyon. So I'd say it would be -- it would be pretty similar provided things hold across the year from a quarter-to-quarter perspective.

Tim Ramey -- Pivotal Research -- Analyst

Good. And Steve, I think you mentioned in response to another question that perhaps pricing didn't offset all of the input cost inflation, should we -- but you did, you were up 20 basis points at the gross margin line. Should we think about that as being Project Centennial savings? And will there be kind of a similar mix moving forward, where pricing maybe isn't everything, but -- but you're getting some cost saves on the -- on the overheads?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

I mean, a big part of the quarter was reduced promotional activity. We talked about coming out of the fourth quarter, promotional activity have been down as well. So there was some benefit there. Lot of the Project Centennial savings are down in SD&A currently. But as Ryals talked about it we focus on network optimization over the next 12 months to 18 months, you should see more running through the gross margin line. And then, we are always focused on efficiencies. Efficiency were -- were slightly down for the quarter. It wasn't significant impact. But we have been -- we have been down year-over-year from an efficiency perspective. So there is a focus to ramp back up efficiencies.

Tim Ramey -- Pivotal Research -- Analyst

Okay. And it looks like uses of cash were mainly about debt reduction in the quarter. Is there anything we should take away from that? I don't -- I don't see if you actually bought any shares back, but it didn't look like you did if there -- if you did there wasn't much?

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. I mean, generally our capital allocation strategy is pretty consistent and we'll continue to focus on investing in the business and then also in the shareholder -- long term shareholder returns and balance that.

Tim Ramey -- Pivotal Research -- Analyst

Okay. Thank you.

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Thank you.

Operator

Our next question comes from Chase West from Consumer Edge Research. Please go ahead.

Chase West -- Consumer Edge Research -- Analyst

Hey, thanks for the question. Allen, congrats on retirement. I definitely enjoyed covering the story under your leadership.

Allen L. Shiver -- President and Chief Executive Officer

Great. Thank you, Chase.

Chase West -- Consumer Edge Research -- Analyst

So, yeah -- so most of my questions have been answered here. But I want to touch on the answer that you just gave previously on the rev -- the revenue management initiatives that you also called out in your prepared remarks and pruning kind of promotional activity in Q4 and Q1. How should we expect that going forward?

Allen L. Shiver -- President and Chief Executive Officer

Again, it's hard to speculate on a go forward basis. One thing we always watch when you take pricing actions or promotional actions is the volume impact. Again, we were pleased in Q1 with the overall volume implication and we'll just continue to watch that as the year progresses. And just -- hopefully if things continue to hold and there is no pricing or promotional impact, but it's hard to speculate on that.

Chase West -- Consumer Edge Research -- Analyst

Okay. That's helpful. Thanks. And then just changing gears to snack cakes. It looks like scanner sales still appear to be a little under pressure. Just wondering when we could start to see some progress on the initiatives you've talked about in the past with respect to maybe SKU optimization? And maybe when do you think there could be an inflection in that segment?

A. Ryals McMullian -- Chief Operating Officer

And Chase, it's Ryals. So the -- on the cake side of the portfolio, it is steady progress, slow, but steady progress. The environment kind of still remains challenging there, but we're on the right -- we're on the right track. Internally, we are seeing some things improve. I think sales were relatively fat -- flat for the quarter, but we're focused on the profitability of that piece of the portfolio. Efficiency and the plans, new product introductions, which some of already come out and more to come there for sure. So it's a slow ramp, but we're pleased with the progress that we're seeing so far.

Chase West -- Consumer Edge Research -- Analyst

Got it. Thanks -- thanks for the questions. I'll pass it on.

Operator

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

Allen L. Shiver -- President and Chief Executive Officer

Thank you very much, and thank you for joining the call today. We appreciate your interest in Flowers Foods, and this concludes our call.

Operator

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

Duration: 37 minutes

Call participants:

J.T. Rieck -- Vice President, Investor Relations and Treasurer

Allen L. Shiver -- President and Chief Executive Officer

A. Ryals McMullian -- Chief Operating Officer

R. Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Drew Levine -- BMO Capital Markets -- Analyst

Bill Chappell -- SunTrust -- Analyst

Matt O'Connor -- Deutsche Bank -- Analyst

Tim Ramey -- Pivotal Research -- Analyst

Chase West -- Consumer Edge Research -- Analyst

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