Dive Brief:
-
Flowers Foods reported first-quarter sales rose 1.6% to $1.20 billion from $1.18 billion during the year-ago period. Net income during the quarter fell 15.2% to $51.1 million from $60.4 million during the same period in 2017.
- As the producer of Wonder, Dave's Killer Bread, Nature's Own, Tastykake and other brands continues its Project Centennial cost-cutting initiative, it projects total gross savings this year of $38 million to $48 million. This would be mainly through a more efficient and productive organizational structure, less spending on goods and services, improved ordering and fewer stale returns from independent distributors.
-
The company revised its guidance, now expecting full-year sales of $3.92B to $3.98B. The previous consensus estimate was $3.96B.
Dive Insight:
Once again, Flowers' growth was buoyed by its Dave's Killer Bread organic products, acquired in 2015. Declines came from most other segments — branded buns, rolls and cake, with private label white bread posting the largest sales drop. Sales at Flowers' bakery outlet stores also fell.
The baker has been working to get more of its products on trend so it does not have to continue relying on Dave's Killer Bread to boost profits. It debuted a new Nature's Own line, Perfectly Crafted, which is Non-GMO Projected Verified thick-sliced bakery breads with no artificial colors, flavors or artificial preservatives and no high fructose corn syrup. The company also introduced other Nature's Own Non-GMO Projected Verified items in several markets. These new products take advantage of the expertise, equipment and ingredients of Dave's Killer Bread, potentially expanding the consumer base of the more natural niche bread.
Like other food manufacturers, Flowers saw much of its sales eaten up by operational costs. Materials, supplies, labor and other production costs took up 51.8% of sales — up 0.6%. These came because of increases in outside product purchases to meet strong demand for Dave's Killer Bread breakfast items, hikes in ingredient costs and drops in manufacturing efficiencies. More favorable price/mix only partially offset these increases, the company said.
An employee buyout program of about 450 people announced last summer may have helped cut costs, but it also takes money to put more effective operations in place. The latest earnings report says nothing about further staff reductions, but it doesn't mean that more are not on the way.
In the meantime, Flowers' restructuring costs continue to pile up. While it's bringing some products in line with consumer trends, lagging sales in its branded non-bread products, store-branded white bread and bakery outlet stores are dragging it down. It may be time for the baker to take a hard look at its offerings and consumer preferences before it can get back to more stable footing.