Flowers Foods Q1 2026 Earnings Call: Complete Transcript

Flowers Foods (NYSE:FLO) reported first-quarter financial results on Friday. The transcript from the company's first-quarter earnings call has been provided below. This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/. Access the full call at https://edge.media-server.com/mmc/p/aj8keue7/ Summary Flowers Foods reported bottom-line results ahead of expectations despite softer top-line trends and challenges in the traditional loaf category. The company is focusing on core brands, including a nationwide relaunch of Nature Zone, and is strengthening its position in the premium bread and cake segments. Inflation concerns, particularly in commodities and packaging, are being managed through productivity measures and hedging, with most core commodities fully hedged for 2026. The company reaffirmed its guidance for 2026, supported by productivity gains and strategic initiatives like the Nature Zone relaunch. Management expressed confidence in stabilizing the traditional loaf category and highlighted ongoing efforts to improve supply chain efficiencies and financial flexibility. Full Transcript OPERATOR Good day and thank you for standing by. Welcome to The Flower Foods First Quarter 2026 Results Conference Call. At this time all participants are listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear automated messages by your hand is raised, to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand conference over to your first speaker today, J.T. Riggin, the second vice president of Investment Relations. Please go ahead. J.T. Riggin (Second Vice President of Investment Relations) Good morning. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks and view the slide presentation that were all posted earlier on Investor Relations website. After today's Q and A session, we will also post an audio replay of this call. Please note that in this Q and A session we may make forward looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website. Joining me today are Ryals McMullen, chairman and CEO and Anthony Scaglione, our CFO. Ryles, I'll turn it over to you. Ryals McMullen Okay, thanks J.T. good morning everybody. Our team continued to execute against the challenging backdrop and softer top line trends in the quarter, delivering bottom line results ahead of expectations. We advanced the comprehensive review of our brand portfolio, supply chain and financial strategy and I'm very encouraged by the progress we're making there. We sharpened our focus on our core brands including our nationwide relaunch of Nature's Own, while continuing to strengthen our position in Better-for-you segments. We also saw positive trends in premium bread and cake categories, helping us offset some of the ongoing softness in the traditional loaf category where we underperformed in the quarter. In addition, we took initiatives to drive efficiencies across our supply chain while further strengthening our balance sheet and our financial flexibility. Together, these efforts are positioning us to deliver more consistent and sustainable growth and profitability over the long term. Looking ahead, we'll remain focused on executing this strategy and positioning the business to drive value for shareholders and I want to thank our team for their continued focus and commitment. And so with that Marvin, we can open it up for questions. thank you. OPERATOR At this time, we'll conduct the question and answer session. As a reminder to ask a question, you need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, Please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Jim Solera-Stevens. Your line is now open. Jim Solera-Stevens Anthony, good morning. Thanks for taking our question. I wanted to start off with your view on inflation, given how much commodities have moved since the start of the Ukraine conflict. Anthony Scaglione (Chief Financial Officer) Could you just walk us through your outlook outlook on inflation, how that's changed since the beginning of the year and any details you can share around your hedging program and maybe internal inflation expectations for the remainder of the year? Sure, I'll take that. First off, recall that our hedging program really builds the cadence as we progress through the year. So we're virtually fully hedged for the balance of the year on the commodities in the program. So as we look forward, we see pressure primarily in other commodities and the impact that the price of oil has had on our distribution and resin, which has significantly impacted our packaging costs. And that's an area we didn't see as a cost concern when we started the year. That being said, the teams are looking at ways to mitigate that increase, including packaging configurations, alternatives, along with other productivity measures. So overall, I would say we're assuming a level of increase stays elevated, and that's built into our outlook. But if they should further increase, we'll probably look at other productivity measures to counter that, Jim Solera-Stevens particularly if we think about on the productivity side. Are you talking about cost that can come out of SG&A? Is that pulling back on promotional spend or maybe some other efficiencies you can find in the gross margin line? Can you kind of walk us through how you think the offsets would, where they would come in the model? Anthony Scaglione (Chief Financial Officer) I think it would mostly come out of SG&A. And to the extent that we make progress on some of the packaging, as I mentioned, clearly that would be productivity as it relates to the cost going into COGS. OPERATOR Great. I'll pass it on. Thanks. Thank you. One moment for our next question. Our next question comes from the line of Steve Powers of Deutsche Bank. Line is now open. Steve Powers (Equity Analyst at Deutsche Bank) Great. Thank you very much. Maybe just to follow up on Jim's question, is there a way to, you know, size or dimension the higher diesel and packaging costs that you're now seeing for the balance of 2026 versus before, and I guess also should costs remain high? Is there a way to think about how much carryover inflation we're now accruing into 2027 versus before. Anthony Scaglione (Chief Financial Officer) Yeah. So we haven't started our planning process. We're just in the process of kicking that off for 2027, so I can't provide further color on that in isolation. Clearly, there's a lot of puts and takes as it relates to what we would address as we look into 2027 for 2026. As I mentioned, most of our core commodities that could have the highest impact are fully hedged. So we feel pretty good about the outlook as it relates to our position going into the back half. But as I mentioned, as it relates to oil, it's really a tale of two cities. There's the impact of oil on the consumer and that we'll have from a consumer sentiment, which we are obviously looking at providing value at price points, making sure that we're meeting the consumer demand. On the input side, it's primarily impacting resin, which is not a direct corollary to oil. It's a downstream impact. And in that, as I mentioned earlier, we're looking at ways through productivity to drive some of that headwind out in the back half. And that's all baked into our reaffirmation of guidance. Steve Powers (Equity Analyst at Deutsche Bank) Okay. Okay, thank you. And then, Anthony, while you have you on the dividend reset,, you're freeing up around about $100 million of cash, which I think could reduce leverage by about 0.2 turns if fully directed there. Is that the right way to frame it or how should we think about the split between deleveraging versus other reinvestment priorities of that incremental cash? Anthony Scaglione (Chief Financial Officer) I think you nailed it. In terms of the split, clearly, our first priority is to deleverage, and the goal is to be below three times by the end of fiscal 27. So we're looking at that as the primary lever with the reset of the dividend, but continuing to invest in the brands, similar to what we did with the relaunch of our Nature's Own this quarter. Steve Powers (Equity Analyst at Deutsche Bank) Yeah, yeah. And actually, if I could squeeze one more on that relaunch. Ryals, it very much makes sense relative to your strategy, broadly speaking, in terms of where the consumer is, simpler ingredients, non-GMO, big marketing push. Behind all that, I guess, what are your expectations and what would success look like over the next two to three quarters, whether in terms of velocity or household penetration. Just how you're thinking about the impact of this relaunch and how it may help bend the organic growth trajectory at all? Ryals McMullen Yeah, sure. Good question. Well, first of all, I just want to say we're tremendously excited about this. This was a huge pivot that the team took a lot of work to get this done. Reformulating, taking out another third of the ingredients, essentially being the cleanest label traditional loaf bread at scale in the country and non GMO verified. So it's a big deal for us. It took a lot of investment and of course, as we said, we've got the 360 degree marketing campaign behind it. Leveraging John Cena's celebrity, we just actually launched that yesterday. Some of you may have seen it in terms of what success looks like. I mean, obviously the traditional loaf category has been the soft spot for us. We've been talking about this for a number of quarters now. The rest of the business essentially is doing quite well on the premium and the value end. But traditional loaf is approximately 38% of our branded retail. So it's a big segment for us. And, you know, getting that, getting that part of the category stabilized, Steve, is how I would describe success. So at a minimum, you know, getting our volume stabilized in traditional loaf will do more for the business than any other lever that we can pull. Now, there is a lag. I don't necessarily expect this to have an immediate impact. You know, when you start a marketing campaign like this, you've got to get six months a year down the road before you can then look back and see how effective it was. But I do think between the increased marketing spend, so higher visibility, remembering that Nature's Own has the highest loyalty rate in the category and it's the number one brand and we have the number one SKU, getting consumers attention and bringing them back to that segment by, by delivering value in the sense of attributes that resonate with consumers. To me, that's what will drive ultimately our success. But to directly answer your question, success to me is stabilizing volumes in traditional loaf. Steve Powers (Equity Analyst at Deutsche Bank) Yeah, perfect. Thanks for the perspective. Very helpful. Appreciate it. OPERATOR Thank you. One moment for our next question. And our next question comes from the line of Scott Marks of Jefferies. Your line is now open. Scott Marks (Equity Analyst at Jefferies) Hey, good morning, guys. Thanks very much for taking our questions. First thing I wanted to ask about, in the prepared remarks, you noted a number of times about some of the consumer pressures and expectations for kind of headwinds to the top line to persist a bit. So just wondering if you can help us understand within your guidance for the year, what are you embedding in terms of assumptions for volume versus pricing and how should we be thinking about maybe cadence as we move through the year? Anthony Scaglione (Chief Financial Officer) So we don't. Great question. We don't guide to volume, but our guidance assumes easier volume comps as we progress through the year. We do see some back half increased costs related to some of the input costs I mentioned in both of my prepared remarks and on the last call, I mean the last question. But we expect to continue to have good overhead and other cost management to help mitigate some of that risk, which is not hedged on the input side. So I would look at it as, you know, we don't expect a recovery necessarily from a volume perspective, but we do have easier comps as we progress throughout the year. Scott Marks (Equity Analyst at Jefferies) Understood, appreciate that. And then another question would be just on the promotional environment; you made a number of references in the prepared remarks, talked about a little bit more of an intense promotional environment that you believe is unsustainable. And I think you called out some improving trends in certain markets where that has eased a bit. Just wondering if you can dive a little bit deeper into that and help us understand, you know, maybe what supports your view that competitors will pull back on promotions and how long should we be thinking about this irrational environment to persist? Ryals McMullen Right. Well, first of all, I would say this. I mean, we've been through periods like this before. I mean, this is, it's not our first rodeo, as they say. We've seen this happen before. It typically has not been sustainable in the past. I think we're all familiar with the affordability issues that the country seems to be going through right now, particularly with the recent spike in gas prices. You know, some commentary yesterday from a large retailer on softening consumer sentiment. We saw the Michigan's consumer sentiment report come out at a record low. And so it is a concern and it's, it's something that we're just going to have to navigate our way through. Having said that, we're taking a long term view. This company is about building strong brands that deliver significant value to consumers. And when I say value, I don't mean heavily leaning into price. I mean delivering quality, great service, innovation and differentiation to the consumer. That's our play. We'll continue to run it. Having said that, I know you all have been watching the share and volume dynamics in the syndicated data. I would just remind everyone we did take pricing late last year and the pricing gaps have remained a bit wider than we would like in the short term and that has somewhat affected our volume performance, particularly as you look in the traditional loaf category. However, we did pull back some on promotions and marketing spend in the first quarter because we were saving our dry powder for this big relaunch of Nature Zone. So our calendar will start to heat up to a more normal level as we move through the remainder of the year. And I would expect some of those share trends to begin to improve and in fact where we have seen in a few channels, where we have seen the price gap start to narrow to a more normalized level where we're already beginning to see those share improvements. Scott Marks (Equity Analyst at Jefferies) Appreciate the caller. I'll pass it on. OPERATOR Thank you. One moment for our next question. Our next question comes the line of maximum part of BNV Paris review line is now open. Maximilian Part Thanks. Appreciate the question. You mentioned you're largely covered for quantities that you hedge for in 2026. I'm not sure that would include diesel fuel. I don't think it would include transportation. So can you talk about the rising impact there of those rising costs on your P and L and what's embedded in your outlook for 26 on that front? Anthony Scaglione (Chief Financial Officer) So it's fully embedded in our outlook. And as I mentioned, you're correct, the diesel does have an impact primarily for our fleet. But recall from a DSD network that cost that's actually in our partners, not that we don't, we ignore it, but it's not something that's going to show up necessarily on our P and L as it relates to the hedging programs we are looking at, you know, potentially hedging that on a go forward basis is not included in our guide. So everything right now as it relates to the oil impact and again it's twofold, it's both on the distribution side as well as on the resin side fully captured in the guide that we provided. Maximilian Part Okay. And any way to just help provide investors with some context in terms of the magnitude we're talking about, in terms of how much incremental costs you are now working to mitigate given everything that's changed since your fourth quarter results where you first gave us 26 outlook, Anthony Scaglione (Chief Financial Officer) I would say, I mean there's a lot of puts and takes and as I mentioned we have productivity measures as it relates to the packaging, which is an area that entering the year we didn't expect cost increases. And as you can imagine, we have inventory that we're burning through at a much lower cost. I would say it's roughly about 2 or 3 cents of headwind in the back half of the year associated with generally speaking, oil and derivatives of oil. Maximilian Part Okay, got it. And then similar line of thinking. But I just want to finish out this line of thinking which would be since you gave guidance, the top line environment has gotten much more challenging, as you've noted. We just talked about how these key commodity costs are rising. It feels like you're saying you're covered for a lot of it. There's some incremental costs coming in the back half, but that you are reaffirming the outlook. And I'm just trying to get a sense for what's allowing you to. It sounds like it's maybe a little bit more visibility on productivity, but anything else I'm missing there? Anthony Scaglione (Chief Financial Officer) Yes, I would and I'll pass it to Rawls. I think our confidence in reaffirming is anchored on a couple things. The Nature's Own relaunch, expansion of half loaves with varieties that are becoming out in the back half of the year., which is an area that we've seen good growth, continued growth in our snack and better for you options. The pricing, to Ralph's point, the pricing promotional environment stabilizing. So there's a lot of things that we have in the back half assumed within our guidance. But we are also looking at the margin pressure as it relates to the commodity increase. We also recognize there's going to be near term margin pressure and we were very clear at ERN with our marketing investments. So we have captured what we feel are all the relevant inputs as well as the relevant tailwinds as it relates to the balance of the year. Maximilian Part Okay, thanks very much. I can leave it there. OPERATOR Thank you. One moment for our next question. Again, as a reminder to ask a question, you will need to press Star one one on your telephone. Our next question comes from the line of Mitchell Pinera of Sterbian and Co. Your line is now open. Mitchell Pinera (Equity Analyst at Sterbian and Co.) Yeah. Good morning. On the cost management side, you know, and you know, your supply chain savings, is that the extent of your cost efforts or you know, are there also, you know, maybe some fixed asset, you know, or capacity changes that are you looking at? So anything more substantial sort of to your sort of baking Ryals McMullen platform? Yeah. Mitch Mitch,, good morning. I think Anthony covered it well. There's cost opportunities in SG&A, obviously there's productivity gains that we expect to deliver this year. And I would just first of all like to commend the team for their cost management efforts. Frankly, over the last two or three years. I think they've done a remarkable job of managing our costs in a difficult environment in terms of the overall supply chain optimization work.. Not anticipating anything major this year, Mitch, but that is as we've discussed in the past, that is in our longer term plans. Mitchell Pinera (Equity Analyst at Sterbian and Co.) Okay. And then on the CapEx, you know, 115 to 125 million. Could you break that down in the buckets of how that's going to be used this year? Sure. Anthony Scaglione (Chief Financial Officer) I think I mentioned it on the last call. So the way to think about it is roughly plus or minus around $$2 million per bakery on maintenance. So that should be viewed on a consistent basis as we continue to provide productivity measures within our bakery maintenance measures, around $$2 million. The remaining CapEx is going to be dedicated to growth and we see opportunities around product line extensions where we can drive additional value to the customer as well as productivity measures. So that's the way I would break out the bucket of the guide as it relates to CapEx. Mitchell Pinera (Equity Analyst at Sterbian and Co.) Okay, and then I guess this final question on food service. Can you just talk about what's going on in your food service business? Sure. Ryals McMullen You know, I think just like everything else, Mitch, consumers pressured. And so there's, you know, there's certainly some traffic pressure. As you know, we've done a lot of work over the last several years to improve the profitability of our food service business. And that continues. So it continues to do well, I would say, you know, more recently it has done a bit better from an overall top line standpoint. So we believe we've got a very solid, as you know, it's a scaled business for us. We think we've got a very solid food service away from home business and we'll continue to work to grow it. Mitchell Pinera (Equity Analyst at Sterbian and Co.) Are you seeing any. So are you seeing any improvement there or is it just sort of same pressure and maybe anticipate. Would you anticipate, you know, potential improvement sort of coinciding with what you see on the branded retail side? Ryals McMullen Yeah, I mean, like I said, I think, you know, more recently from a top line standpoint, it has improved a little bit. And again, the profitability work that we've done over the last several years has definitely paid some dividends because profitability is quite a bit better than it was. I think what we'll be watching overall is overall restaurant traffic and where the trends are headed that way, just given the overall inflationary pressures that the consumer is feeling today. Mitchell Pinera (Equity Analyst at Sterbian and Co.) Okay, all right, that's all for me. Thank you very much. OPERATOR Thanks. Thank you. Thank you. I'm sure. No further questions at this time. I'll now turn it Back to Ryals McMullen, chairman and CEO, for closing remarks. Ryals McMullen Okay, great. Thanks everybody for taking time today and joining us for questions. And we very much appreciate your interest in our company. And as always, we'll look forward to talking to you again next quarter. Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.