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Flowers Foods Inc  (NYSE:FLO)
Q3 2018 Earnings Conference Call
Nov. 08, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Flowers Foods' Third Quarter 2018 Earnings Conference Call and Webcast. My name is Ellen 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, Vice President, Investor Relations and Treasurer. You may begin.

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

Thank you, Ellen and good morning everyone. Our third 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.

Now, let's get started. Participating on the call today we have Allen L. Shiver, Flowers Foods' CEO and Steve Kinsey, Flowers' CFO.

Allen, I'll turn the call over to you.

Allen Shiver -- President and Chief Executive Officer

Thank you, J.T. and good morning everyone. Thank you for joining us. I'll get it started this morning with an update on our operations and results for the quarter. I'll also discuss the exciting acquisition of Canyon Bakehouse, which we announced yesterday afternoon. Next, Steve will provide the financial review and our outlook for the remainder of the year. Then we'll open it up for your questions.

It was a challenging third quarter, primarily due to inflationary pressures and lower than expected sales. This difficult operating environment underscores the importance of our four areas of focus through Project Centennial. First, reinvigorating our core brands through innovation and marketplace execution. Second, extending our portfolio and a growing adjacencies in the bakery category through organic growth and acquisitions. Third, working to improve margins by reducing cost and optimizing our supply chain, and finally, making strategic investments in new capabilities. This multi-year transformation is well under way. We are on track to hit the top end of our gross savings target for this year. The entire company is dedicated to delivering on our long-term targets.

In finalizing our 2019 plan, we will be conservative about consumption trends. So that we can right size our cost structure accordingly. In addition, we are taking pricing market-by-market as we manage rising production and distribution costs.

Now for a closer look at our top line. Consolidated sales were down 1%. Approximately 80% of this decline was driven by the non-retail category,specifically vending and food service accounts. We continue to see strong performance from Dave's Killer Bread. Also we realized better pricing on our core bread brands and added store brand. However, we did see branded retail sales decline in the quarter. This was driven by lower cake sales and difficult comparisons in our core bread business.

As we said on the second quarter call, volume comparisons were difficult due to multiple hurricanes in the third quarter last year. Our competitive position remains strong. According to IRI, we gained share in the ninth quarter in a row -- for the ninth quarter in a row in the Fresh Packaged Breads category. In the third quarter, Flowers achieved a record market share of 16.3 in each of our top three brands, Nature's Own, Dave's Killer Bread and Wonder gained share.

I'd like to circle back on how we are reinvigorating core brands through innovation and marketplace execution. Our recent innovation example is Nature's Own Perfectly Crafted, a line of artisan-style breads launched in the second quarter. Perfectly Crafted has performed very well, reinvigorating the growth of our Nature's Own brand. Our marketplace execution is improving as well. Retailers are allocating more space to the strongest national brands. The streamlined assortment we put in place last year is helping Flowers gain additional space and distribution.

Given the inflationary pressures in commodities, wages and freight, we are working to optimize our pricing architecture market-by-market using new tools to guide trade promotion decisions and better allocate trade dollars. We also are capitalizing on adjacencies by extending our portfolio into growing segments outside of our core product lines, including breakfast items and now Canyon's gluten-free products. In the breakfast segment, we are pleased with the performance of DKB organic bagels and breakfast breads and we are further extending our reach into breakfast with our recent licensing agreement to produce and market sun-maid raisin bread.

Disciplined M&A is an important part of our strategy to grow in product adjacencies. To that end, we are excited about our pending acquisition of Canyon Bakehouse. Let me take a moment to introduce Canyon and provide some additional color on the pending acquisition. With Canyon, we are well positioned to gain share in the important and growing gluten-free segment. Canyon brings to Flowers a great line of 21 gluten-free products, a very talented team and a state-of-the-art gluten-free bakery, along with the brand with an enthusiastic consumer base.

The Canyon Bakehouse brand is a top gluten-free loaf brand in natural and specialty food stores. It is the fastest growing gluten-free loaf brand in the U.S. and Canyon recently became the number two brand in the overall gluten-free loaf category. We believe Flowers is uniquely positioned to create value and accelerate profitable growth of the Canyon Bakehouse brand. By leveraging our banking expertise, distribution network and retail partnerships, we aim to bring Canyon's products to more consumers across the country. Co-founder Josh and Christi Skow and the Canyon team have passionately build a wonderful brand and we are excited to welcome them to Flowers Foods.

Turning to our other initiatives. We continue to work on unlocking the profitability and growth of our cake business. We are going back to the basics in taking actions to rightsize this business. This year, the focus has been on product assortment, pricing and quality. To be sure, we are offering items with clear consumer feel. With this work as a foundation, our plan is to build new innovation in packaging platform, starting next year.

While we're pleased with the progress being made to reinvigorate and diversify our brand portfolio, we recognize the challenges in the marketplace and we understand the importance of reducing cost and optimizing the supply chain to maximize profitability. To drive bottom line improvement, we are aggressively reducing cost and holding our leadership team accountable for those results. Driving execution at the local level is key. That is why, early in the fourth quarter, we adjusted leadership roles at our bakeries to amplify our P&L accountability and allow for quicker response to market conditions. This adjustment is intended to improve operational efficiencies and assure actions are being taken both regionally and locally to fit with our strategic goals.

To control costs, we have been taking actions to reduce purchase goods and services and streamline our organizational structure. We are making substantial progress and now expect these initiatives to deliver gross savings at the upper end of our targets. The goal is to deliver these savings to the bottom line.

We are working aggressively to counter the inflationary pressures we are experiencing and improve productivity. One way that we are doing this is through supply chain optimization. We began this effort last year with the closing of the Winston-Salem facility. This week we announced the closing of a bakery in Brattleboro, Vermont and the start up of a new high-speed bun line in our Oxford, Pennsylvania bakery. We have plans in place to continue optimizing across the supply chain in 2019 and 2020. Thanks to new data capabilities, we are gaining enhanced insights into profitability of both the customer and the product level. These new insights give us the ability to better take advantage of margin opportunities where possible. In some cases to strategically exit low margin or unprofitable business is appropriate. These actions are all designed to further our strategic aim to reorient the business around the higher margin branded products.

We are not satisfied with our current results. Let me repeat that. We are not satisfied with our current results. But there is a transformation under way of Flowers Foods to enhance our shareholder returns. We recognize the challenges that are facing the food industry and we are executing on priorities that we are confident will drive sustainable profitable growth and value creation.

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

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Thank you, Allen and good morning everyone. As Allen stated, it was a challenging quarter. We continue to experience some of the trends we saw coming out of second quarter. Both top line and margins were challenged during the quarter. We believe the yeast issue that hit us in the second quarter carried over into the third quarter, impacting the marketplace as well as bakery efficiency.

Transportation, workforce and higher ingredient costs continue to negatively impact profitability. The pricing actions we took earlier did partially offset these inflationary pressures and we have taken additional pricing actions to further offset them in the back half.

Turning now to our third quarter financial performance. Consolidated sales were down 1%. Volume was down 3.5% while price mix was up 2.5%. The volume decline was partially offset by strong volume growth in Dave's Killer Bread in growth and expansion markets. Pricing actions across many product lines and growing sales of DKB, primarily drove the increase in price mix.

Several factors that contributed to the overall volume declines. First, volume was impacted by significant prior-year period hurricane activity in our core markets. Second, consumption of the roti bread and sandwich buns and roll was soft. And third, we experienced lower volume across our food service, vending and cake businesses. This was due to pricing actions and to taking a more selective approach with low-margin, high-volume business.

Consolidated margins declined 150 basis points as a percentage of sales. This was primarily due to higher outside purchases and ingredient costs and lower manufacturing efficiencies. As we noted in the second quarter, the labor environment remains very challenging. We are seeing both higher wages and increased turnover which have contributed to higher manufacturing workforce related costs.

Adjusted selling, distribution and administrative expenses declined 10 basis points as a percentage of sales. Overall workforce related costs were lower due to organizational changes and lower incentive compensation. This more than offset increased distributor discount, marketing costs and shipping and hauling costs. The higher distributor discounts as a percent of sales is generally attributable to recent sale of company-operated territories.

Reflecting the net of higher production cost and lower SD&A as a percentage of sales, adjusted EBITDA margin decreased to 140 basis points to 10.6%. Adjusted EBITDA for the quarter was $97.5 million, down $14.8 million compared to the prior year quarter. Higher input costs, manufacturing workforce cost, freight costs and increased marketing expense drove most of this decrease.

GAAP diluted earnings per share for the quarter was $0.19 per share. Excluding the items affecting comparability detailed in the press release, adjusted diluted EPS in the quarter was $0.23 per share or equal to the prior year quarter. The effect of the new tax law accounted for approximately $0.03 of the increase in adjusted diluted EPS.

Now turning to segment level financial results. The DSD segment revenue was down 90 basis points in the third quarter. Price mix increased 2.1% while volume drove -- volume decreased 3%. Our price mix in the quarter was driven by the growth of DKB and our sales mix and the pricing actions we implemented in the first quarter to address input cost inflation. Volumes were impacted by cycling prior hurricanes as well as lower food service volumes.

Adjusted operating margin in our DSD segment was down 140 basis points as a percent of sales versus the prior year. We continue to experience lower manufacturing efficiencies as well as higher input cost and labor inflation on lower sales. Warehouse segment revenue was down 1.6% in the quarter. Price mix increased 3.3% while volume decreased 4.9%. Price mix was driven by pricing actions, volume declines occurred primarily in our cake and vending businesses. Adjusted warehouse operating margin was down 190 basis points as a percent of sales, impacted by lower volumes as well as higher distribution costs. These were partially offset by lower SD&A cost.

Now turning to cash flow. Cash flow continues to be strong. Operating cash flow year-to-date was $232.1 million, up $8.1 million from the prior year. This increase was achieved even with several discrete cash uses totaling over $100 million. These include voluntary pension contributions associated with our pension derisking strategy, Project Centennial related, consulting and restructuring payments, multi-employer pension plan withdrawal liability payments and legal settlements paid. These cash uses were more than offset by cash generated from our payment terms exchange initiative under Project Centennial and a lower effective tax rate.

Capital expenditures were $75 million year-to-date as compared to $51.2 million a year ago. Dividends paid year-to-date total $112.2 million, a 6.7% increase over the first three quarters of last year. We ended the quarter with $775.6 million in net debt. At quarter end, our net debt to trailing 12 month adjusted EBITDA was 1.8 times.

Our financial position remains strong. As of quarter end, we had approximately $685.9 million of liquidity available on our credit facilities. This availability plus cash on hand allows us to comfortably fund the Canyon Bakehouse acquisition and continue to maintain a conservative financial position.

Now turning to guidance. For 2018, we continue to expect sales to be in the range of flat to up 1.6%. As noted in the second quarter call, back half sales trends are expected to be below the first half with third quarter comparisons being the most difficult due to the impact of prior year hurricanes. Sales in core markets in the snack cake business were softer than expected and we have adjusted our forecast for the remainder of the year. We are now expecting adjusted EPS to be in the range of $0.90 to $0.95 per share. In addition, we expect inflationary headwinds for commodities, wages and freight to carry through for the rest of 2018. We continue to expect approximately $40 million of input cost inflation in 2018, which we have partially addressed by taking pricing actions and are focused on cost savings initiatives.

Tight labor market continues to pressure cost as well as higher workforce related cost and lower manufacturing efficiencies. We also see increasing logistics costs due to the driver shortage. We are working to mitigate these inflationary pressures through cost reductions and we expect the targeted gross savings from Project Centennial to be in the upper end of our $38 million to $48 million range we identified earlier this year. For 2018 we expect a full year tax rate of approximately 25% to 26% before one-time costs.

Looking at the benefits of the Canyon Bakehouse announcement, we expect 2019 sales of approximately $70 million to $80 million. Canyon has generated a compound annual net sales growth of approximately 45% since 2014. We expect the transaction to be accretive to EBITDA in 2019 and accretive to EPS in 2020. We continue to expect inflationary headwinds to continue.

As Allen said, we are proactively addressing the inflationary cost environment with pricing actions and productivity initiatives. As we usually do, we'll provide a full outlook for 2019 in our fourth quarter call in February. To sum up, this has been a challenging year, a lot of greater than expected inflationary pressures in a competitive marketplace. However, as Allen noted, we are making good progress to transform Flowers and overcome near term headwinds. The strength of our brands along with our supply chain organization gives us confidence that we can expand our industry leading margins over time. In addition, with strategic investments like Canyon Bakehouse, we are diversifying our portfolio into segments with above-category growth with our competitive advantages or our competitive advantages provide opportunities for enhancing overall shareholder value.

Now, let's open the line for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from Tim Ramey with Pivotal Research Group.

Timothy Ramey -- Pivotal Research Group -- Analyst

Good morning. Thanks for that. So I hate to bring it up but this quarter looks like so many third quarters in recent years were we set expectations relatively high. It was just in May we were looking at a $1.4 to $1.16 and we're taking $0.12 to $0.14 after that -- $0.11 to $0.14 after that, six months later. I get the challenging environment you are facing but your ability to forecast really just has to be called into question. This pattern of dumping the guidance in the second half, we've seen it many times before. It looks to me like on your guidance, EBIT will be lower in 2018 than it was in 2013. Can you comment on kind of your financial projections to controls? And how you're working to refine that and get that better?

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Sure, Tim. This is Steve. As you've recalled one of the aspects of Project Centennial was working on capabilities and driving better capabilities internally. We did send up a financial planning and analytics team in 2018 as part of Project Centennial and the tools that we are implementing within that group should allow us to improve upon our forecasting ability going forward.

Timothy Ramey -- Pivotal Research Group -- Analyst

Okay. The area of concern, I guess, we've also seen pricing go up in the years past and volume fall fairly precipitously. I know you mentioned that your market share was up in the quarter, that's good. But what do we think about the ability to actually realize those prices without exacerbating the negative spiral that you're seeing on input costs from lower volume?

Allen Shiver -- President and Chief Executive Officer

Tim, this is Allen. We mentioned on the -- the overall pricing continues to be a primary focus for us. We're adjusting pricing and having on a market-by-market basis to speculate on the category and what might happen there. I don't think that would be appropriate but our -- the marketplace is all dealing with the same type of cost increases that we are. And as so you would expect the pricing in the category would continue to go up. I'm also very encouraged with our, what I would consider value added brands that can support a higher price and Dave's Killer Bread is a great example of that. So as we look forward, this category is going to be about brands that can carry the type of margin that we're going to insist takes place. In the short-term, we're in a transition mode right now.

Timothy Ramey -- Pivotal Research Group -- Analyst

Okay. Yeah. Thanks for your help.

Allen Shiver -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Amit Sharma with BMO Capital Markets.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi, good morning everyone.

Allen Shiver -- President and Chief Executive Officer

Good morning, Amit.

Amit Sharma -- BMO Capital Markets -- Analyst

Allen, I'm sorry, I missed the first part of your prepared comments. Can you talk about the Canyon Bakery? Obviously I heard about the growth. Can you talk about the margin implication as well? And then as you think about synergies, obviously we see some on the distribution side, but how do you think about the manufacturing side here?

Allen Shiver -- President and Chief Executive Officer

Yeah so we're -- again we're very excited about the addition of Canyon to our company, a very strong brand, excellent manufacturing facility, a very focused team on where the consumer is headed today and this whole gluten-free segment is growing significantly. And again Canyon is positioned really as the number two brand. When we think of Canyon and expanding from a distribution standpoint, expanding the Canyon brand onto our fresh DSD routes, again many consumers across the country are going to have an opportunity to purchase Canyon, with frozen distribution, which is what they have now, they have limited distribution there. Steve, if you want to comment on any of the financials?

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. So when you look at -- from an overall margin profile, we're expecting their EBITDA margins to be in line with or slightly above our corporate average today, coming into 2019 and to be able to grow off of that, as distribution of the brand continues to expand. I mean when you look at the opportunity compared to Organics or Dave's Killer Bread, I'd say it's probably not the size of opportunity you see with Organics but we still believe there is great growth opportunities within the gluten-free category and we believe that what you saw with DKB and the strength of DSD, we'll be able to do that as well in the gluten-free category.

Amit Sharma -- BMO Capital Markets -- Analyst

Perfect. And then both for Steve and Allen as well. Two things here from a cost perspective (ph)-- Steve, you said, you saw headwinds from third party purchases and then at the same time inefficiencies in new bakeries. Can you just unpack those like how are we facing those issues at the same time, right? Both seems exclusive to each other. And then Allen, broadly speaking the Project Centennial seems to be going well, but the focus from the very beginning has been on gross cost savings. And if, what we're seeing is that gross to net is where the disconnect seems to be. Are we doing anything to Q2 to maybe bridge that gap or maybe focus a little bit more on that savings versus gross savings?

Allen Shiver -- President and Chief Executive Officer

Again the focus on overall cost reduction, I mean it is across the entire organization and we have and as I said in my comments earlier, nothing is more important than the team implementing the cost saving strategies that is in place. And so there is tremendous urgency and there is a much more intense level of accountability than there ever has been about achieving the cost savings commitments we've made, and we've made those commitments as a team and we're going to achieve those commitments. Amit, your first part of your question was hard to hear. You might want to repeat that.

Amit Sharma -- BMO Capital Markets -- Analyst

Yeah. So Steve mentioned that third party purchases and then bakery inefficiencies were both reason for margin degradation, right? I'm just trying to reconcile, how do you face both those issues at the same time? And does that get better or structurally because the way DKB is growing, this will remain a headwind for margins for some time?

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

So when you look at outside purchases, the main thing we continue to buy is Dave's Killer Bread breakfast items. So everytime, as we add production, organic production, that should be more transitory and some of that cost should abate. When you -- as we've said, we're looking at production in the Northeast quadrant of the country for our organic business. Currently we're shipping most of that product out to Southeast. So that should drive greater efficiencies. So it also gives you fresher product in the marketplace, which typically will also drive some top line leverage as well.

So again as we look at the supply chain footprint and continue to work on optimizing that you should see some of these -- some of costs begin to abate whether it's efficiency driven or whether is outside purchases.

Allen Shiver -- President and Chief Executive Officer

Right. We also continue to accelerate our commitment SKU rationalization, again, really focusing on items that are low margin or no margin. We talked earlier about the fruit service segment. We're also very much focused on our cake category and those SKU rationalization changes will also impact our overall supply chain structure. So we're addressing that as well.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. Thank you so much.

Operator

The next question is from Bill Chappell with SunTrust.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Thanks, good morning.

Allen Shiver -- President and Chief Executive Officer

Yeah. Good morning, Bill.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Just following up on the Canyon question. So I guess, historically, I think you've even talked about the problem with going into gluten-free and having it blacked out and the fresh aisle is it doesn't turn fast enough as a category, it -- in that having high still rates and we've seen I think with Rudi's and Udi's and others going to have somewhat failed attempts to try to do that. So like what changed or what gives you confidence that you can expand Canyon through the DSD network?

Allen Shiver -- President and Chief Executive Officer

Yeah. I think you're exactly right. Number one, the category continues to grow. So the turns on any given week will be increasing. We are looking and have implemented technology that extend shelf life somewhat. Again don't want to get into details there. But both of those factors will help us as we expand Canyon to DSD. Also, I think having our independent distributors, basically in the stores five to six days a week will also be able to keep it merchandise properly and I'm excited about having more visibility to the whole gluten-free category and our Canyon will be very much in a position to grow.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Okay. And I guess just following up on that. If you look at the-- what you're saying is correct -- I know what you are saying is correct. Should have similar higher margins than the company average and that implies kind of a high-teens, to 20 multiples on EBITDA after the business. I mean are you comfortable that you can get the revenue synergies to really justify kind of a normal multiple and is that something possible over the next year or two or how long does it take to really expand something like that?

Allen Shiver -- President and Chief Executive Officer

Yeah, I mean, when you look at the overall forecast on the financial performance, as we said it will be accretive to EBITDA next year on a EBT basis, basically slightly dilutive and then become accretive to earnings beginning in 2020. So we do believe that it's a two to three year timeframe, before you start seeing it contribute to earnings for the company.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Okay. Thanks so much.

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Yeah. All I was going to add is that, we are also encouraged that the sales of Canyon should be incremental, many consumers that are gluten intolerant have exited the category and we feel like the Canyon -- greater distribution of Canyon Bakehouse will bring many of those consumers back into the category.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. But you've thought -- you could have it on the DSD network early next year?

Allen Shiver -- President and Chief Executive Officer

Yes.

Steve.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Perfect. Thank you.

Operator

The next question is from Rob Dickerson with Deutsche Bank.

Robert Dickerson -- Deutsche Bank -- Analyst

Great. Thank you. Apologies if what I ask is a bit duplicative. I just stepped down on a bit late. So in -- I guess firstly, just in terms of Canyon and this might be overly simplistic question, so again apologies, but it's frozen. So I'm just curious and maybe you've touched on this, just how that works with the DSD because obviously it's in a different aisle, different category captains, different trucks et cetera. Thanks.

Allen Shiver -- President and Chief Executive Officer

Yeah. We will continue to distribute frozen Canyon as I alluded today bu we will also be distributing fresh through our DSD system, that will be network wide at some point. It won't happen at the very beginning of the year, it will be a transition through next year, but our plan is to continue with frozen distribution but the big growth that I am looking for will be of our fresh, of our DSD routes.

Robert Dickerson -- Deutsche Bank -- Analyst

Okay. Great. Thank you. And then again, I guess on 2019 and beyond, maybe somebody touched on this already, but I'm curious to hear your thoughts in just with respect to targets. Obviously there is a bit of margin compression pressure in Q3, looks like Q4 passes similar trajectory so to speak, and just given the cost savings initiatives and kind of the top line expectations, how should we be thinking about 2019 and you might not be giving guidance, but just kind of given where the implied Q4 is? Any incremental color would be very helpful. Thank you.

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Sure, I mean, as we said we will typically give full year guidance in -- on February of 2019 on our fourth quarter call. But just looking ahead, we are expecting to see many other inflationary cost headwinds that we saw in 2018, that will continue to increase at varying percentages. But we still expect headwinds with regard to input costs, we still expect the headwinds with regard to transportation and hauling costs, and we expect to continue to see labor inflation in the tight labor market. So from a cost perspective, as Allen said, we're having to work really hard to look other areas to try to take cost out of the business to offset and mitigate as much as those cost increases as we can.

We've also initiated in the back half, additional pricing actions in the market -- and they are already beginning to hit the marketplace to be in place at the beginning of the year to offset some of the cost inflation. And then we're trying to use innovation and marketing dollars to term some of the volume trends we've seen. The third quarter was probably one of the most significant down volume quarters we've had in a long time and you continue to see the category decline as well. So we are looking in 2019 ways to try to mitigate some of those headwinds around overall volume and category decline as well.

Robert Dickerson -- Deutsche Bank -- Analyst

And just to touch quickly on the volume side. The retail takeaway data we all look at seem to be tracking a little bit better relative to what you reported. And so I'm just curious was there, was it, is it driven by tighter inventory management? Or I mean obviously there is some hurricane effect. But what would you kind of call the top two main drivers of that disconnect? Thanks.

Allen Shiver -- President and Chief Executive Officer

I think the most significant item in the quarter would have been the impact of hurricanes year-over-year. And then secondly, we had been seeing increases in our Warehouse cake business and in the third quarter, we actually had declines in overall (inaudible) especially at retail as well as in vending and vending is not measure within the IRI data or Nielsen data.

Robert Dickerson -- Deutsche Bank -- Analyst

Got it. Thank you so much.

Allen Shiver -- President and Chief Executive Officer

Thank you.

Operator

And that concludes the question-and-answer session for today. I'd like to turn the call back to Allen Shiver for closing remarks.

Allen Shiver -- President and Chief Executive Officer

Thanks to each of you for joining our call today. We'll look forward to our next update, that will be in February. We'll share with you at that point, our fourth quarter results. Thank you for joining the call today. Goodbye.

Operator

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

Duration: 39 minutes

Call participants:

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

Allen Shiver -- President and Chief Executive Officer

Steve Kinsey -- Chief Financial Officer and Chief Administrative Officer

Timothy Ramey -- Pivotal Research Group -- Analyst

Amit Sharma -- BMO Capital Markets -- Analyst

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Robert Dickerson -- Deutsche Bank -- Analyst

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