Flowers Foods Q2 Earnings Call Highlights

Flowers Foods reported lower second-quarter results as pressure on household budgets, changing consumer purchasing patterns and heightened competition weighed on demand in the fresh packaged bread category.

The company said net sales declined 4% from the prior-year period, while volume fell 5.8%.

Chairman and CEO Ryals McMullian said the operating environment became more difficult than the company anticipated during the quarter. He pointed to greater consumer price sensitivity and trade-down activity, as well as demand shifting toward formats, package sizes and product attributes where Flowers is still building scale.

“Together, these factors pressured volume and contributed to a 4% decline in sales,” McMullian said.

The company said competitive pricing and promotional intensity also affected its performance.

CFO Anthony Scaglione said branded retail sales decreased 3.8%, driven by lower volume that was partly offset by favorable price mix. Other net sales fell 4.4%, reflecting lower volume and store-branded retail sales.

Gross margin, excluding depreciation and amortization, was 48.4% of sales, down 40 basis points year over year. Scaglione attributed the decline to lower operating leverage from reduced volumes and increased outside purchases, partly offset by lower ingredient costs related to Simple Mills.

Adjusted selling, distribution and administrative expenses rose 140 basis points as a percentage of sales, primarily due to lower sales combined with relatively higher marketing, labor and logistics costs. Flowers said lower distributor discounts and continued cost discipline partially offset those pressures.

Adjusted EBITDA declined 19% to $111 million, or 9.3% of net sales. GAAP diluted earnings per share were $0.19, down $0.09 from the prior-year quarter. Adjusted diluted earnings per share were $0.21, compared with $0.30 a year earlier.

Flowers generated $242 million in year-to-date operating cash flow, invested $44 million in capital expenditures and returned $81 million to shareholders through dividends. The company also said it paid down approximately $70 million in debt year to date and secured a new $400 million delayed-draw facility to fund bonds maturing in October 2026.

McMullian said Flowers saw pockets of strength in premium and specialty loaves, buns and rolls, breakfast, cake and better-for-you snacking, though those areas did not fully offset continued weakness in traditional loaf products. Nature’s Own Perfectly Crafted increased sales by more than 8% and gained dollar and unit share, aided by sourdough and Italian herb varieties. In sandwich buns and ro...