Flowers Foods buys gluten-free Canyon Bakehouse for $205M
- This quarter, Flowers Foods announced that sales decreased 1% to $923.4 million, compared to the same time last year, according to their most recent earnings report. This was mainly due to a decline in volumes sold, which the company attributed to the effects of the recent hurricanes on their supply chains.
- Once again, Dave’s Killer Bread offset the declines from core products with its continued sales growth. The resulting overall net income for the baker this quarter was $39.6 million, compared to a net loss of $33.6 million a year ago.
- In a separate announcement, Flowers Foods announced it acquired gluten-free bakery Canyon Bakehouse LLC for $205 million. “Extending our portfolio into adjacent product segments is a strategic priority," Allen Shiver, Flowers Foods' president and CEO, said in a statement. "...Gluten-free is a growing segment of the category, and one where we believe we can leverage our powerful distribution network to grow enterprise value."
For the last couple years, Flowers Foods has been battling a mixture of increased expenses and a restructuring of operations that have whittled away at earnings. Again this quarter, Flowers saw much of its sales eaten up by operational costs. Materials, supplies, labor and other production costs took up 52.6% of sales, which — although 0.7% higher than last quarter — has slowed significantly.
Similarly, although sales were slightly down overall, net income has continued to grow for the last several quarters, which can mostly be credited to the baker’s investment in gluten-free varieties of Dave’s Killer Bread. The company continues to focus on the bakery business — which includes Nature’s Own, Wonder and Dave’s Killer Bread — to allow for incremental innovation, execution and cost efficiency. To jumpstart efficiency in production and optimize supply chain, Flowers closed an inefficient bakery in Vermont and began operating a high-speed bun line in Pennsylvania this quarter.
This new choice in facilities comes on the heels of the company's second-quarter choice to expanded their good-for-you portfolio, during which they launched Nature's Own Perfectly Crafted, a line of artisan-inspired, thick-sliced bakery breads, and Dave's Killer Bread Boomin' Berry bagels, which have driven growth in the most recent quarter.
Although Dave's Killer Bread has been the consistent engine of sales growth and diversification, Flowers can't keep relying on its products to lift performance. The acquisition of Canyon Bakehouse is a smart move. The gluten-free baking company is based in Johnstown, Colorado, and has 21 gluten-free breads, buns, bagels, English muffins, and specialty items.
"Canyon Bakehouse is an innovative leader in a growing segment of the bakery category, which closely aligns this acquisition with our strategic goals," said Shiver in a statement.
While celiac disease — one of the more high-profile forms of gluten intolerance — impacts about 1% of Americans, according to the University of Chicago Medicine's Celiac Disease Center, the number of people following a gluten-free diet has tripled since 2009. According to researchers at the Mayo Clinic, about 3.1 million people avoided the ingredient in 2014 — 1.7% of Americans without celiac disease. And even though a gluten-free diet doesn't necessarily have health benefits to most consumers, the market is only going to grow. Consumers are attracted by the purported health halo of gluten-free products, and Packaged Facts has reported that U.S. sales of approximately $973 million in 2014 were projected to surpass $2 billion by 2019.
By investing in Canyon Bakehouse, Flowers is more closely aligning itself with the gluten-free segment that has consistently driven growth since its introduction into the mix. If it can grow this brand as effectively as Dave's Killer Bread, there is a good chance that Flowers will be able to find solid financial ground — and maybe even sustained sales growth — in the near future.
- Seeking Alpha Flowers Foods, Inc. Reports Third Quarter 2018 Results
- Seeking Alpha Flowers Foods To Acquire Canyon Bakehouse