Flowers Foods Q2 performance underwhelms, lowers full-year guidance
- Flowers Foods reported second quarter sales of $927 million, a 0.9% decrease compared with the same period a year ago, according to the company’s earnings report. Excluding sales related to the divestiture of a mix manufacturing facility earlier this year, sales decreased 0.4%.
- Net profit declined 12.5% in the second quarter to $44.7 million. Adjusted diluted EPS decreased 7.7% to $0.24, beating analyst expectations by $0.01.
- Flowers Foods lowered its fiscal-year guidance. The company is now expecting 2017 full-year sales in the range of $3.89 billion to $3.93 billion, which translates to anywhere from flat to a 1% decline.
Continued challenges in bread and a growing number of consumers moving toward healthy snacking hurt Flowers Foods in the second quarter. The bread and snack maker, whose brands include Nature's Own, Wonder Bread and Tastykake, remains focused on cost-cutting measures to try and improve operational efficiencies and increase its profit performance.
The company is making progress to improve its business through its "Project Centennial," which is the company’s effort to “restructure, streamline operations, and better position it for profitable growth.” At the forefront are cost-reduction initiatives, which include staff buyouts to salaried employees who meet certain defined age, length-of-service and business function criteria.
"We continue to take decisive action to focus on the consumer and become a more efficient, streamlined organization," Allen Shiver, Flowers Foods' president and CEO, said in a statement. "We're on track with our progress, but as our updated guidance reflects, we are realistic about the evolving consumer environment."
Programs to improve efficiencies in its bakeries are underway too, which includes rationalizing the firm’s manufacturing network. Earlier this year, it sold a mix manufacturing business. The company also plans to close a snack cake bakery in North Carolina in October in yet another move to improve profitability in its warehouse division, which saw a 10.4% sales drop in the second quarter.
It’s not all about cost control, however. Flowers Foods is taking steps to reinvigorate the core bread and snack cakes business and find additional growth opportunities. Some bright spots for the firm include its rising organic bread sales and the continued growth of Dave’s Killer Bread, acquired in 2015. Flowers Foods is looking to extend Dave’s Killer Bread into additional categories, including bagels and breakfast items.
The company also is exploring ways to diversify its product portfolio into “adjacent” — and hopefully, more lucrative and growing — categories. This makes a lot of sense because even though natural and organic breads are growing, the overall trend away from breads and snack cakes toward gluten-free and other “healthy” options could continue to temper category sales for the foreseeable future — hurting Flowers and other companies in its category.
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