THOMASVILLE, GA. — Margin growth translated into strong earnings gains for Flowers Foods Inc. in its 2024 fourth quarter and fiscal year, despite continued top-line sluggishness in traditional loaf breads and sweet baked foods.  

“Financial results were mixed,” said A. Ryals McMullian, chairman and chief executive officer. “Category weakness drove lower-than-expected sales, but that pressure was more than offset by margin expansion, which benefited from efficiency initiatives and moderating input costs.

“It’s important to point out for context that we grew dollars and units in tracked channels across our branded bread portfolio in 2024,” he said. “We have documented for several quarters now a consumer shift away from traditional loaf toward more differentiated and premium items. I am pleased to report that, due to our brand investments, gains in organics, keto, buns and rolls, and gluten-free more than offset softness in those more traditional segments.”

For the year ended Dec. 28, net income more than doubled to $248.1 million, equal to $1.17 per diluted share on the common stock, from $123.4 million, or 58¢ per diluted share, a year earlier. Flowers attributed the earnings jump mainly to higher operating profit, driven by decreased legal settlement and related costs, moderating ingredient costs, and optimization and cost savings initiatives, partially offset by increased workforce-related costs and a higher effective income tax rate. Adjusted net earnings grew 6% to $271.6 million, or $1.28 per diluted share, from $253.3 million, or $1.20 per diluted share, in fiscal 2023.

Fourth-quarter net earnings, covering the 12 weeks ended Dec. 28, came in at $43.1 million, or 20¢ per diluted share, up 20.9% from $35.7 million, or 17¢ per diluted share, a year ago. Flowers said the increase reflected higher operating profit that also included lower impairment of assets, partially offset by reduced sales. Adjusted net income rose 8.7% to $46.4 million, or 22¢ per diluted share, from $42.7 million, or 20¢ per diluted share, in the prior year.

Flowers’ fiscal 2024 adjusted earnings per share were just above with Wall Street’s forecast of $1.27, while fourth quarter adjusted EPS was in line with analysts’ consensus estimate.

“To further boost margins, we are focused on optimizing our supply chain to provide the highest level of service to our customers in the most cost-efficient manner,” McMullian said. “Initiatives range from reducing production scrap, improving manufacturing efficiencies, optimizing our transportation network and rightsizing our transportation equipment base.

“Similarly, our procurement team has undertaken several strategic sourcing initiatives to reduce costs. One effort includes reallocating purchases of key commodities to new suppliers at lower cost. Another uses our ERP system to route each spare part order to the supplier with the lowest total cost of ownership. And a third program has significantly reduced leased labor expenses by negotiating lower fees from existing suppliers in addition to adding new, lower-cost suppliers.”

Lower volume pulls down sales performance

Fiscal 2024 net sales were virtually flat, edging up 0.2% to $5.1 billion from $5.09 billion in 2023. Flowers said a 1.9% uptick in pricing/mix and a 0.1% lift from its February 2023 acquisition of bread products maker Papa Pita Bakery more than offset a 1.7% decrease in volume.

A larger volume decline in the final quarter contributed to the full-year result. Fourth-quarter net sales fell 1.6% to $1.11 billion from $1.13 billion a year earlier, as volume dropped 2.5% and overcame a 0.9% increase in pricing/mix.

“The biggest headwind we face from both a revenue and a volume growth standpoint is significant weakness in the sweet baked goods category,” McMullian said. “However, we are addressing that headwind straight on with the introduction of Wonder snack cakes, for which we have received tremendous retailer enthusiasm given the iconic Wonder brand and our superior quality. Overall, we believe our portfolio is well-positioned to capitalize on the seeming secular shifts in the category to more-premium and better-for-you items.”

McMullian described the causes of weakness in the bread category as “difficult to isolate.”

“Some attribute it to a variety of factors, including an economic slowdown, GLP-1s (weight-loss drugs) and healthier eating trends,” he said. “Much of the pressure has been focused in sweet baked goods and traditional loaf products like white and wheat bread. To overcome retail headwinds, we are investing in our brands to meet the needs of an evolving consumer, finding pockets of growth in a slowing bread category. While the category has softened, buns and rolls, breakfast and premium products have outperformed. And we are targeting our innovation at those more promising areas. That investment is paying off, as each of our major bread brands gained or held unit and dollar share in the fourth quarter.”

Top brands “outperform”

Flowers’ branded retail net sales dipped 0.1% to $3.26 billion in fiscal 2024 on a 0.5% decrease in volume, a 0.2% uptick in pricing/mix and a 0.2% lift from Papa Pita. Fourth-quarter branded retail sales fell 3.9% to $696.5 million on declines of 2% in volume and 1.9% in pricing/mix.

“In contrast to the weaker category results, where a pressured consumer drove volumes down 1.8% in the quarter, our leading brands continued to outperform,” according to McMullian. “DKB (Dave’s Killer Bread), Wonder and Canyon (Bakehouse) grew tracked channel volumes 2.9%, 0.5% and a staggering 17.8%, respectively, in the fourth quarter. And Nature’s Own, which is concentrated in traditional loaf, the area of the market most impacted by the current environment, outpaced the category, down only 1.6%. Nature’s Own’s more-premium Perfectly Crafted line of products increased units 8.5%. That performance translated to strong unit share performance, with DKB, Wonder and Canyon all gaining 10 basis points and Nature’s Own maintaining share.”

The performance of Dave’s Killer Bread “confirms the increasing preference for differentiated, better-for-you products,” as the premium-priced organic brand has seen volume growth in all consumer income segments, McMullian noted.  

“For the year, unit sales among lower-income consumers grew the most, though that trend seemed to reverse in the fourth quarter,” he said. “DKB’s strength demonstrates that even pressured consumers are willing to pay for premium products that offer meaningful perceived value. And that strong consumer perception enabled DKB to achieve record levels of household penetration in 2024, eclipsing even the pandemic-influenced 2020 results.”

He also pointed to “exceptional results” by the gluten-free Canyon Bakehouse bread brand.

“Freed from prior capacity limitations, the brand is successfully gaining new distribution and driving growth, helped by fresh marketing and promotion initiatives,” he said. “To continue this momentum and capitalize on Canyon’s strong consumer loyalty, we also are exploring the addition of new, innovative products to the brand lineup.”

Nature’s Own and DKB are among the brands that have benefited from ongoing investment in innovation. For example, the Nature’s Own keto product line gained 410 basis points in unit share to “take the No. 1 spot in the subcategory,” McMullian said.

“We expect to build on that momentum with a robust schedule of on-trend innovation that targets evolving consumer demand,” he said. “As consumers shift to healthier eating options, we are bolstering our Nature’s Own Keto lineup with the addition of hot dog buns and a multigrain loaf.”

DKB’s snack bars and protein bars also are growing distribution, and Flowers has high hopes for another new addition to the line.

“In keeping with the healthier eating trend, we are launching our most unique product yet, DKB Snack Bites,” McMullian said, adding, “Retailers are responding enthusiastically, and we are optimistic that consumers will love them as well.”

Flowers, too, is continuing to respond to consumer demand for more value.

“In this challenging economic environment, consumers have been asking for lower-priced options, and our new small loaves fit that bill perfectly,” said McMullian. “Coming in at only 12 oz., small loaves carry a more affordable price point and are perfect for the smaller household, or those who want multiple bread flavors or varieties without worrying about throwing any slices away.”

Non-retail sales have been “challenged,” but the company is making headway with the “prioritization of profitability over volume” in the foodservice channel, according to McMullian.

“We are refilling freed-up capacity with higher-margin business, and we see significant opportunity to drive future growth,” he said.

Fiscal 2024 non-retail sales rose 0.8% to $1.84 billion on a 3.8% increase in pricing/mix, a 1% acquisition benefit and a 3.1% volume decrease. For the fourth quarter, non-retail sales were up 0.9%, reflecting a 5.8% gain in pricing/mix and a 3.2% volume decline.

“While our foodservice volumes were down, mostly due to intentional exits and to some extent from weakness in that category, we nevertheless showed respectable dollar growth,” McMullian said. “Due to our portfolio strategy, our foodservice business turned in substantially improved profits.”

Focus on “smart M&A”

Going forward, Flowers sees acquisitions as a priority, both to spur growth and to diversify its portfolio.

“We view our M&A capability as a key driver of future growth by shifting more of our business towards a ‘growthier,’ better-for-you nutritional profile,” McMullian said.

The January purchase of Simple Mills, a maker of crackers, cookies, bars and baking mixes, reflects the way Flowers will approach acquisition opportunities, he noted.

“This acquisition increases our exposure to better-for-you and attractive snacking segments, diversifies our category exposure, and enhances our growth and margin prospects,” he said. “This transaction is consistent with our clearly defined M&A strategy of seeking compelling brands that complement our existing portfolio and that skew towards better-for-you products. It also leverages our demonstrated ability to grow acquired brands in the better-for-you space.

“With household penetration well below competitors, Simple Mills has ample growth opportunities by narrowing the gap with legacy players in total distribution points and average items per store,” he added. “Those opportunities are abundant, even in Simple Mills’ most mature categories.”

For the 53-week 2025 fiscal year, Flowers projects adjusted diluted EPS of $1.11 to $1.24 and net sales to grow 5.9% to 7.5% to between $5.4 billion and $5.49 billion.

“Ultimately, our goal is to transform Flowers into a faster-growing, higher-margin business that will compound shareholder value over time,” McMullian said. “Part of that process will be enabled through M&A, such as our announced acquisition of Simple Mills. But we must also optimize our existing business.”

The 2025 outlook reflects “an expectation for near-term headwinds from the difficult current economic environment and the potential impact of new tariffs, combined with actions we are taking to drive long-term performance improvement,” according to chief financial officer R. Steve Kinsey.

“Relative to the prior year, results are expected to be stronger earlier in the year, helped by the carryover of new business wins and savings and pricing initiatives, as well as moderating commodity costs,” he said. “Our outlook for the back half incorporates the lapping of those benefits, increased commodity cost headwinds and continued challenging category trends.”

Kinsey called overall category performance “the largest swing factor in our guidance.”