Flowers Foods seeks "smart investments" for Tastykake

Flowers Foods seeks "smart investments" for Tastykake

Flowers Foods, the US-based bakery business, has identified three areas for improvement after raising its sales guidance.

The owner of the Nature's Own and Tastykake brands is to review its portfolio and supply chain under an optimisation initiative launched by newly-installed chief executive Ryals McMullian, who moved up from the position of chief operating officer in May.

McMullian is also looking at two other areas: improving Flowers Foods' under-performing cake business and spurring growth in its foodservice operations, which could also include acquisitions, the CEO told analysts on a conference call yesterday (7 November) following the release of its third-quarter results.

New York-listed Flowers Foods, which counts Dave's Killer Bread and Wonder in its product line-up, now expects 2019 sales growth of 4-4.5%, compared to a previous forecast of 2%-4%, meaning a top-line sales outlook of US$4.11bn to $4.13bn. Adjusted earnings per share are still predicted in a range of $0.94 to $0.99.

Finance chief Steve Kinsey said the guidance includes a 2% contribution from Canyon Bakehouse, which the company bought in 2018, and anticipates sales from that business of $75-80m this year. "We are pleased that Canyon Bakehouse is performing at the upper-end of our plan, and we now see it being slightly accretive to full-year EPS," he said.

McMullian said the three areas identified are the primary means to drive "meaningful" margin improvement. 

"We need to identify the optimal mix of products for Flowers Foods so we can drive out complexity and determine the most efficient bakery logistics footprint," he said, adding that the five-year Project Centennial programme launched in 2016 to improve efficiency and profitability is now moving to the second stage looking at the supply chain, from the primary focus on indirect costs and organisational structure. 

"And so we're asking ourselves two fundamental strategic questions: one, what's the optimal portfolio for Flowers Foods that can promote margin accretive growth? And, two, what's the correct network and resources required to support and grow that portfolio going forward," McMullian explained.

He continued: "To answer these questions, we're undertaking a complete portfolio profitability review, along with the development of tools and capabilities that will allow us to make more informed strategic choices around things like assortment, pricing, distribution and innovation. It'll also help us more efficiently read our unprofitable products or unprofitable accounts that contribute nothing but added cost and complexity. And it will generate opportunities for supply chain and overhead optimisation."

The CEO said Flowers Foods had under-invested in its cake business for some time, and so will be looking at "smart investments" to drive growth in the Tastykake brand, including a renewed focus on innovation, quality, service and distribution. "I believe that with the right level of focus on our cake brands, plus investments and automation, we can turn this business and bring it to more attractive levels of margin contribution," he said. 

McMullian added M&A will feature in efforts to get the foodservice operations growing at pace in the last three years of Project Centennial.

"It's an important and scaled part of our business," he said. "I think that working to grow it smartly by winning good margin business and seeking out attractive M&A candidates that offer a margin-accretive premium will be beneficial. We'll focus on these three years with intensity and I believe that over time, execution against all three [improvement areas] will improve our bottom-line performance."

He also alluded to growing Flowers Foods outside of its key bread business through M&A and will "proactively seek strategic opportunities". 

"So M&A is expected to be a key driver to grow our business and pivot to higher margin and faster-growing categories within baked foods," McMullian said.

Expanding Flowers Foods capabilities in e-commerce was also identified by the CEO as an important and "critical" area to drive growth online. Sales of fresh packets, breads, buns and rolls have almost doubled in the last year through that channel, he said, while branded sales have increased 55%.

"Establishing a presence for our brands on the digital shelf is critical for growth in the future as more households buy groceries online and home delivery expands," he said. "Having said that, we recognise there's room for improvement and we still have work to do to improve our margin performance."