Dive Brief:
- Flowers Foods reported a 2.2% decline in sales for the fourth quarter to $858.4 million but a 0.8% uptick in total sales for the fiscal year. Last quarter, the company's revenue grew 4.8%.
- Earnings per share, adjusted for items impacting comparability, fell 20% to $0.16. The company incurred costs in the quarter that were originally intended for first quarter 2016, which impacted earnings.
- The company has a bright outlook for 2016, projecting a 5.5% to 8.0% sales increase and 6.5% to 13.% boost to EPS above fiscal 2015.
Dive Insight:
The Motley Fool compared the company's positioning to mega manufacturers like Coca-Cola and PepsiCo due to its brand portfolio and distribution network. From 2009 to 2014, Flowers increased its EPS by 44% while competitors like Grupo Bimbo saw earnings decline and Hostess was liquidated in 2012. This enabled Flowers to buy the company's bread assets in 2013.
Growth for Flowers has come primarily from operations expansion and strategic acquisitions in key sectors. In 2015, the company acquired Dave's Killer Bread and Alpine Valley Bread, both of which solidified Flowers' presence in the organic and all-natural segment of the premium bread category. The organic bread segment is a crucial entry point for Flowers, as the market has expanded 27% over the past four years, which has outpaced growth for U.S. retail baked goods overall, according to IRI. The company anticipates these recently completed acquisitions to contribute between 5.2% and 5.7% to sales growth this year. Flowers opened a new bakery in Lenexa, KA, to better serve its Midwest customers.
Flowers has also developed new products, such as Cobblestone Bread Company "Right Sized" breads, which is a smaller package of bread that appeals to millennials.
The company has been plagued in recent years by class-action lawsuits — now totaling 18, 15 filed since last May — over Flowers' independent distribution model, which classifies drivers on its delivery routes as contractors. The lawsuits allege that this was in violation of the federal Fair Labor Standards Act, and employees are seeking overtime, employee benefits, and other compensation. Competitors like Campbell's Pepperidge Farm and Grupo also employ this independent driver model, but they haven't seen the legal issues that Flowers has.