Flowers Foods hit by higher promotional costs, ingredient disruptions
- Flowers Foods said sales during the second quarter sales rose 1.6% to $941.3 million, according to its latest earnings report.
- The producer of Nature's Own, Wonder, Tastykake and other baked goods reported that net income rose 1.6% to $45.4 million. Operating income decreased 23.9% to $52.3 million. Flowers said it faced "significant promotional activity" tied to new product launches, operational disruptions related to "inferior yeast" and the need to purchase a replacement for it, higher ingredient costs and decreases in manufacturing efficiencies, partially offset by favorable price/mix.
- Flowers Foods lowered its earnings per share outlook to reflect these challenges. The Georgia company forecast adjusted diluted EPS in the range of $1.00 to $1.07 compared to $1.04 to $1.16 predicted in February for its 2018 fiscal year. "Although I am proud of the team's work to serve the market under difficult circumstances, we are not satisfied with our financial results so far this year," Allen Shiver, Flowers Foods president and CEO, said in a statement. 'We have successfully navigated inflationary environments before, and we are working aggressively to address these cost headwinds using a variety of tools, including increased urgency with our supply chain optimization project."
Flowers Foods experienced a series of challenges that continue to weigh on its operations from multiple sides, including higher promotional costs, ingredient challenges, more costly ingredients and decreases in manufacturing efficiencies. It appears the company is spending more to increase its market share, and that is taking its toll in the near term. It's no wonder that the bread maker revised its outlook lower, sending its shares down 3.6% in mid-morning trading Thursday.
The company said store branded retail sales increased 14.7% to $28.1 million, while warehouse segment branded retail sales rose 2.3% to $35.8 million. Flowers Foods posted solid growth in its Dave's Killer Bread, Wonder, and Nature's Own brands. For both Dave's and Nature's Own, the company is making a push to broaden their reach into categories popular with consumers.
It recently spent money to support the launch of Nature's Own Perfectly Crafted artisan-inspired, thick-sliced bakery breads and Dave's Killer Bread Boomin' Berry bagels for the on-the-go breakfast consumer. The new Nature's Own line has no artificial colors, flavors or artificial preservatives and no high fructose corn syrup. For Dave's, it expands the organic bread producer into more areas that can help boost sales and broaden its reach.
Much like other food manufacturers, Flowers saw much of its sales eaten up by operational costs. Materials, supplies, labor and other production costs took up 51.9% of sales — up 1.4% from last quarter.
As Flowers Foods deals with both internal and outside challenges, the company continues to look for ways to streamline its business. An employee buyout program of about 450 people was announced last year as part of the company's broader effort to cut costs and improve the firm's financial position.
Flowers Foods expects costs associated with the project to range between $13 and $15 million. As part of the initiative, the company appointed chief operating officer A. Ryals McMullian in June to help increase the speed of their streamlining efforts. The latest earnings report don't mention further staff reductions or the prospects of plant closures. It's evident Flowers is working to reconfigure its product line and employee rolls to better jive with consumer demand for its product.
With the success Flowers experienced from its purchase of Dave’s Killer Bread, it might be worth considering another product aimed at a similar demographic. For now, the company seems intent on growing the brand.
- Flowers Foods FLOWERS FOODS, INC. REPORTS SECOND QUARTER 2018 RESULTS