Dive Brief:
- Flowers Foods reported first quarter earnings Wednesday after market close, including EPS of $0.28, which missed analysts' estimates by a penny. The stock tumbled 7.2% in after hours trading after the earnings announcement.
- Revenue jumped 5.1% to about $1.2 billion, driven primarily by sales of its organic bread acquisitions, Dave's Killer Bread (DKB) and Alpine Valley, which made up 5.3% to the overall increase.
- Softer volumes in the direct store delivery (DSD) segment were attributed to "decreased promotional activity, fewer number of winter storms in the quarter as compared to the prior year, and a competitive marketplace," according to the news release. Costs from the conversion of the company's Tuscaloosa, AL, bakery into an organic facility also drove down quarterly EPS.
Dive Insight:
Flowers Foods made its strategic entrance into the organic bread category at just the right time. DKB accounted for 4.5% of the 5.1% revenue increase for the DSD segment, and Alpine contributed 9.8% of the Warehouse segment's 14.2% sales increase. Without revenue from these acquisitions, the quarterly sales total would have been down year over year.
Flowers has made changes to its existing portfolio of brands to boost organic (non-acquisition) sales, such as simplifying ingredients for select products under Nature's Own, its largest brand. Flowers also kicked off a new marketing campaign that highlights the brand's "Good & Simple" positioning. By emphasizing simple ingredients in brands like Nature's Own, Flowers could — and must — entice consumers.
That would explain the company's reinvigorated focus on margin expansion, which will be needed to keep stockholders happy if sales for organic (non-acquisition) brands continue to taper off.
Flowers is still finding the right balance of promotional activity that drives sales without sacrificing bottom line. Last month during a presentation at the New York Stock Exchange, the company promised to implement a more strategic trade promotion architecture to expand its profit margin and improve earnings. However, a decrease in promotional activity was one factor to which the company attributed softer volumes in its DSD segment this past quarter.