Flowers Foods’ new positioning in better-for-you snacks helped soften first-quarter volume pressures as the traditional bread category in the US continues to crumble.
US-based biscuits and snack bars maker Simple Mills, which Flowers acquired last year, saw its sales rise 2.3% in the 16-week first quarter to 25 April, the US bakery giant said yesterday (21 May).
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However, Flowers’ group volumes declined 3.3%, the Nature’s Own brand owner said. First-quarter sales revenue edged up 1.1% to $1.57bn.
Adjusted EBITDA was down 1.8%, while the business reported a 20.6% slump in net profit to $42.1m as chairman and CEO Ryals McMullian said “near-term conditions remain pressured”. Diluted EPS lost a marginal $0.05 to $0.20. Shares in New York-listed Flowers Foods fell 3.2%.
A review of Flowers’ operations, portfolio, supply chain and “financial strategy” announced in February is still ongoing as McMullian said increasing “the mix of higher-margin branded retail products is a critical driver of long-term growth and margin expansion”.
Flowers’ gross margin dipped 50 basis points to 49.4%, partially linked to lower volumes, while the adjusted EBITDA margin slipped to 10.1% from 10.4%.
“Our comprehensive review affirms our opportunity within snacks, where building out our better-for-you snacking platform – anchored by Simple Mills and Dave’s Killer Bread – remains a strategic priority,” McMullian said.
“While we remain optimistic in the power of our brands and the innovative products we are bringing to market, the overall demand environment for the traditional loaf segment, which is approximately 38% of our branded portfolio, remains soft.”
Finance chief Anthony Scaglione said Flowers’ falling volumes were largely due to “pressures in branded traditional loaf and store branded cake and loaf” but with an uplift from snacking, keto products and vending.
Further comments from Scaglione suggested disposals could be on the cards as part of the review process, although no specific candidates were identified.
“Last quarter, we made the decision to de-prioritise two regional brands to focus on higher-value opportunities and our review is ongoing as we continue to actively evaluate and optimise our portfolio to support long-term value creation,” he said.
Flowers maintained its guidance for the full financial year amid what McMullian called “challenging market dynamics”.
Sales for Flowers’ fiscal year are expected in a range of down 1.8% to up 0.2% to deliver an end print of $5.16bn to $5.26bn.
Adjusted EBITDA is forecast at $465-495m and adjusted diluted EPS $0.80 to $0.90.
“While we are pleased with our execution across the P&L this quarter, top-line trends remain under pressure, and we are approaching the near term with an appropriate level of caution,” McMullian explained. “That said, we continue to see areas of resilience and growth within our portfolio.”
He added: “Performance remains relatively strong in snacking and other adjacent categories, as well as in products with clear points of differentiation. These trends reinforce our strategy to pivot toward faster-growing segments while continuing to support our core business.”
To embrace the trend in health and better-for-you, Flowers relaunched the Nature’s Own brand in the first quarter with “fewer, simpler ingredients” and “sharpened price points within our Wonder Bread portfolio to help narrow price gaps”, McMullian said.
Flowers lost volumes and market share in the traditional bread loaf segment in an “intensely promotional pricing environment”, which McMullian said drove “increased trade-down behaviour toward lower-priced offerings and value brands”.
Suggesting the way forward for innovation within the Flowers portfolio he added “consumers are gravitating toward products with simpler ingredients and perceived functional benefits, while moderating consumption in certain traditional center-store categories”.
