The CEO of Flowers Foods expects an improvement in consumer behavior.
GA — Thomasville According to A. Ryals McMullian, chairman, president, and CEO of Flowers Foods, Inc., there are early indications that consumers are “acclimating” and “reverting toward prior purchasing behavior” as the shock of increased costs is wearing off.
The remarks were made by Mr. McMullian in relation to the company’s second quarter fiscal 2023 profits and sales growth announcement. The management raised the financial guidance for the entire year in response to the performance.
Flowers Foods’ net income for the 12 weeks ending July 15, 2022, was $63.77 million, or 30¢ per share on the common stock, a 19% increase from $53.68 million, or 25¢ per share, in the same period the previous year. Compared to $1.13 billion in the second quarter of previous year, net sales increased by 9% to $1.23 billion.
In the second quarter, adjusted EBITDA increased by 11% and adjusted net income increased by 9%. EBITDA margins improved by 20 basis points from the second quarter of the previous year to 10.8%.
Investors expressed admiration. When findings were released early on August 11, the price of Flowers’ shares increased to $26.31, a 6% increase, on the New York Stock Exchange.
For the quarter, earnings were up 90 basis points, or 51% of sales.
According to Flowers, lower manufacturing volumes, more product returns, greater maintenance costs, and inflation-driven pricing increases have more than countered these factors.
Although sales volume decreased by 6.1% in the second quarter, overall sales increased as a result of 1.6% from the Papa Pita purchase and 13.3% from pricing and mix.
Retail sales of brands increased 7.1% to $787.8 million, while volume decreased 1.5%, pricing and mix increased 7.1%, and Papa Pita contributed 1.5%.
The fluctuations in “other sales,” which increased 11.9% to $440.3 million, were more extreme. The increase was due to a price increase that took place prior to the quarter. Papa Pita added 1.8%, pricing mix increased by 20.6%, and volume decreased by 10.5%.
Mr. McMullian expressed his satisfaction with the company’s recovery from a challenging first quarter in prepared remarks that were released on August 11 in conjunction with the earnings announcement.
“Despite a still somewhat uncertain macro environment, we recovered nicely in the second quarter and delivered strong results following an unexpectedly slow start to the year, which we detailed on our first-quarter call,” he said.
A noteworthy development was the branded retail bread volume trends’ improvement over the previous quarter’s experiences. According to Mr. McMullian, Flowers’ brands fared well in spite of price hikes and a shift to private label.
“For the fresh packaged bread category, we successfully maintained our branded retail unit share in tracked channels,” he stated. “We gained 20 basis points of unit share in the grocery channel, where our performance was even stronger.”
According to Mr. McMullian, the company’s breakfast, speciality loaf, and organic categories all performed exceptionally well, with increases of 290, 160, and 60 basis points of unit share, respectively. Flowers’ share reached all-time highs in the specialty loaf and breakfast categories.
He stated that the source of the increase in organic bread sales gave the company hope.
“We discovered that compared to the previous year, sales metrics for Dave’s Killer Bread among middle-class and lower-class consumers improved, with increases in unit sales per buyer, product trips, and repeat rates,” he stated. “Furthermore, considering the brand’s premium positioning, we believe DKB’s 7% overall unit growth in tracked channels is a decent barometer for consumer health.”
Flowers will closely examine how buying trends play out “before concluding that consumer health is on a sustainable upward trajectory,” Mr. McMullian said, expressing optimism based on the second-quarter results.
When an analyst inquired about private label trends during Q&A, Mr. McMullian replied that while private label share growth remained steady in the second quarter, it was doing so more slowly.
“This private label phenomenon is playing out more in mass than in grocery, and in fact, it lost share in grocery,” he added. “We’ve talked about this all year.” Its mass is still increasing. As we’ve discussed, there has been a slight shift in the channels that consumers use to shop for deals in bulk, club, dollar, and similar stores. It’s also crucial to remember, in my opinion, that private label share increases are typically limited to the traditional product category. Stated differently, the least differentiated. In almost every other category where there is greater differentiation, such as breakfast sandwich buns and rolls, private label lost market share. There is undoubtedly still a premiumization trend. Although it’s evident that shoppers are still on the lookout for deals, we believe this trend is going in the right direction as we work to establish our brand.
Mr. McMullian stated that the sharp fall in Flowers’ Other category was “aligned with our portfolio strategy,” which aims to move the company’s focus to higher-margin, branded retail goods. However, he stated that the second half of the year should see a slowdown in the volume declines.
Giving an update on Flowers’ strategic initiatives, which include building the team, Mr. McMullian said that the company’s sales team has experienced better success as a result of a reorganization of operational duties at bakeries that prioritizes supply chain above sales.
He predicted more gains from the restructuring, saying, “The sales team delivered outstanding execution over the Memorial Day and Fourth of July holidays, resulting in a company record for bun unit share, a key part of our portfolio strategy.”
According to Mr. McMullian, the company’s introduction of Nature’s Own Keto Net One loaf, Nature’s Own Perfectly Crafted Everything buns, and Wonder Hawaiian buns demonstrated its dedication to innovation, another strategic pillar. The launch of DKB snack bars continued, with distribution currently reaching 12,000 outlets.
“Through a multifaceted marketing campaign, our team is working hard to drive trial and repeat sales,” he said.
Flowers’ DKB bar pipeline is still being developed. DKB Amped-Up Protein Bars will go on sale nationally in 2024 after testing in select markets. There are test markets for DKB Crunchy Snack Bites.
Flowers’ Canyon Bakehouse brand was a weak point in the second quarter, losing 230 basis points of its gluten-free unit share.
Two factors contributed to Canyon’s recent unexpected weakness in tracked channels, according to Mr. McMullian. “First, a change in mix to channels that syndicated data does not track thoroughly. Furthermore, a deficiency in gluten-free inventory hindered our ability to satisfy customer demand.
In the second half of this year, additional capacity is anticipated to come online, and we have ambitious intentions to pick up speed again. We continue to have high hopes for Canyon, which is firmly holding the top market share position.
Mr. McMullian stated that there had been a slight increase in promotional activities during the Q&A period.
However, he noted, “it is still far below historic or even pre-pandemic levels.” “There have been no notable changes there. What’s interesting to note is that the incremental units aren’t very appealing even when we do promote. Therefore, in order to make sure we’re receiving a decent return on our promotions, we have to be quite cautious about when we run them.
Flowers Foods increased its earnings per share guidance for the entire year from $1.15 to $1.25 to $1.18 to $1.25. In contrast to the prior expectation of $494 million to $528 million, adjusted EBITDA was increased to $503 million to $528 million. Sales for 2023 are now predicted to be between $5.095 and $5.141 billion, up from previous guidance of $5.086 billion to $5.141 billion and up between 6% and 7% from the previous year.
You may also like:
Food security in emerging nations: issues and remedies
Are drinks the secret to increasing cannabis use among consumers?
Managing the lack of labour for mushroom picking
R. Steve Kinsey, chief financial officer, stated during a review of the business’s finances that Flowers’ enterprise resource planning system went online in the second quarter and is still on schedule to be finished in accordance with the financial projections. In 2023, the estimated cost of the improvement is between $95 million and $105 million.
He claimed that currently, 93% of Flowers’ essential raw materials are covered.
“Our guidance takes into account a moderate decrease in commodity costs in the second half of 2023 compared to our initial projections, based on current coverage,” he stated. “But inflation is still a problem, and we anticipate inflationary pressures to persist through 2024.”
Flowers Foods has revised its estimate to include a slightly lower effective tax rate and higher interest expenses. The estimated range for capital expenditures is $140 million to $155 million, an increase of $5 million on each side from the previous forecast.
In the first half of 2022, Flowers Foods’ net income was $139.27 million, or 65¢ per share, up 3.4% from $134.47 million, or 63¢ per share, year to date. Net sales increased by 8% to $2.76 billion.