Flowers Foods anticipates more unpredictability.
Flowers Foods, Inc. has increased its forecast for its financial performance in 2021 but has also issued a warning about increased uncertainty going forward due to the COVID-19 Delta variant’s spread.
Concerns on the possibility that the variation would postpone the formation of a “new normal” added a cloud of uncertainty to an otherwise positive financial report and prognosis. The company reported solid profit margins and gains in market share during the second quarter, along with strengthening guidance and stating that it was well-positioned to handle high inflation.
Flowers Foods’ net income for the 12 weeks ending July 17 was $56.36 million, or 26¢ per share on the common stock, a 2.7% decrease from the company’s second-quarter earnings of $57.92 million, or 27¢ per share, in 2017. Net sales decreased to $1.02 billion from $1.03 billion in the previous year.
The company has increased its earnings per share guidance from $1.10 to $1.17 to $1.17 to $1.22 for the entire year. The company has revised its revenue projections for 2021 from $4.23 billion to $4.3 billion to $4.26 billion to $4.3 billion, a slight rise on the low side.
Chief financial officer and chief administrative officer R. Steve Kinsey stated that the guidance indicates a 2% to 4% drop in sales.3% versus 2020 and sales growth of 3.2% to 4.3% from 2019.
“The biggest swing factor in determining our results for the second half of 2021 will be the back-to-school season,” he said Aug. 13 in prepared remarks for financial analysts. “As kids go back to school and parents have more flexibility to return to the office, we should get a better sense for what the new normal demand environment could look like. On the other hand, the COVID-19 pandemic may last longer because to the increase in cases brought on by the Delta form. We are thus closely monitoring those developments.
When asked about the back-to-school season by an analyst, President and CEO A. Ryals McMullian stated that the company’s outlook has “changed markedly” since the release of its first guidance for 2021. At first, the business was concentrated on the pace of the vaccine rollout and its effects on market dynamics.
“We are currently in the midst of the back-to-school season,” he remarked. “We have a Delta variation that is rapidly expanding throughout the nation. As a result, as external dynamics have changed, so too has our perspective. Of course, it’s difficult to say. Originally, we thought that the return to school season would provide us with a pretty decent idea of what a more stable future condition of the new normal may entail. I believe that the emergence of the Delta variant has raised some questions about it and moved that timescale forward.
Speaking about the second quarter’s performance, Mr. Kinsey stated that revenues were up 4.3% from 2019 but down 0.8% from 2020. Although volumes decreased by 3.9% during the quarter, price and mixa 3.1% positive offset, “more heavily weighted to price than mix, driven by promotional efficiency.”
Also compared with 2019, EBITDA has climbed 15.4%, and EBITDA margins have widened to 12%, Mr. McMullian said.”We’re working hard to maximize our internal efficiencies, but the mix shift to more branded retail products is the key driver of that margin expansion,” he stated. “We are on track to save between $30 and $40 million this year with our portfolio optimization project.”
According to Mr. Kinsey, the strongest brands for flowers stood out during the quarter. Overall branded sales decreased by 2%, while the company’s market share increased by 30 basis points thanks to increases of 9.4% and 16.9% at Dave’s Killer Bread and Canyon Bakehouse, respectively.
Branded retail sales rose 15.2% in comparison to the second quarter of 2019, which he pointed out was a higher growth rate in comparison to 2019 than the 13.7% the company posted in the first quarter.
Sales of private labels fell by 9%.on a quarterly basis, reaching $131 million. The corporation overcame 2020 declines associated with the pandemic as nonretail and other sales increased 10% to $212 million. The foodservice recovery was deemed “particularly noteworthy” by Mr. Kinsey.
In response to questions about the decline in sales of private labels, Mr. McMullian stated, “One reason for this dynamic is that the bread category is going through a premiumization process, driven by brands like Nature’s Own Perfectly Crafted, Dave’s Killer Bread, and Canyon Bakehouse, where consumers are actively looking for products and brands with improved health and indulgence attributes. We think this trend will continue and that it is positive for our top-tier, distinctive brands.
He claimed the company’s quarterly performance was greatly influenced by new items, such as Nature’s Own Perfectly Crafted buns.Increasing expenses were described by Mr. McMullian as “a slight headwind in 2021.”
He said, “And as we mentioned last quarter, we would expect more meaningful inflation in 2022 should commodity prices remain at current level.” “By attempting to lock in commodity prices six to nine months ahead of time, we are able to mitigate potential cost increases and gain insight into the future inflationary environment.” Thus far, we’ve been able to get the increased pricing required to counteract inflation in the current year. We also believe that, in conjunction with other internal measures, pricing will allow us to, if needed, reduce the impact of inflation through 2022. We think that the power of our leadership
Customers are more willing to spend a little bit more to enjoy the unique qualities of our products because of our brands and growing market share, which facilitates price talks with them.
He pointed out that more than a decade ago, Flowers was able to use pricing to offset growing costs despite experiencing inflation both before and after the Great Recession. He claimed that compared to the 2007–09 era, the corporation is now better positioned to counter inflation because of its stronger, more distinctive brands. The company’s market share is currently roughly 18%, he continued, up from 8% in 2009.
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On the other hand, Mr. McMullian claimed that the labor market currently faced “unique challenges,” such as turnover and availability.Like many other businesses, hiring new employees can be challenging in some places.
employees, and it can be challenging to keep them on board,” he stated. “We are taking steps to mitigate the impact of these headwinds, including reviewing compensation and instituting quality of life initiatives like improved work schedules,” the company said. “Operating in such an environment increases recruiting, training, and overtime expenses.”
Flowers’ net income increased by 45% to $128.01 million, or 60¢ per share, for the six months that ended on July 17, from $52.15 million, or 25¢, for the same period in 2020. Sales decreased 2.4% to $2.32 billion from $2.38 billion.Early on August 13, shares of Flowers were up $1.41, or 6.2%, at $24.28 on the New York Stock Exchange.