Release Date: May 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flowers Foods Inc (FLO, Financial) reported solid first quarter results, reflecting the effectiveness of its portfolio strategy and investments in marketing and innovation.
- The company experienced branded retail volume growth for the first time since 2020, led by Dave's Killer Bread, which saw a 10% unit growth for the second consecutive quarter.
- Flowers Foods Inc (FLO) has raised its savings target from $30 million to $40 million to $40 million to $50 million, which is expected to improve SG&A efficiency.
- The company is maintaining its financial outlook for the year, incorporating continued volume improvement despite ongoing economic uncertainties.
- Flowers Foods Inc (FLO) is seeing increased M&A activity and remains well-positioned for strategic acquisitions with a strong balance sheet.
Negative Points
- The company acknowledged challenges in the consumer environment and the promotional landscape, which could impact future performance.
- Higher labor and technology costs were reported, contributing to increased operating expenses in the quarter.
- Flowers Foods Inc (FLO) is experiencing some stranded overhead costs, although efforts are underway to mitigate these through volume increases and cost-saving initiatives.
- There are ongoing operational issues at two bakeries that impacted gross margin, although these are being addressed.
- The company noted some weakness in the broader basic Nature's Own product line, which has been affected by consumers trading down to private label products.
Q & A Highlights
Q: Can you discuss the operating expenses and SG&A run rate spending for the quarter?
A: Ryals McMullian, CEO & Chairman of the Board, explained that the operating expenses included labor and marketing costs, as well as stranded overheads. He highlighted that the company has raised its savings target, which should help improve SG&A over time. Steve Kinsey, CFO, added that they expect SG&A to decrease as a percentage of sales throughout the year.
Q: What are the details around the increased capital expenditure outlook and the M&A environment?
A: McMullian noted that the capital investments are mainly for ongoing improvements at bakeries, such as increasing automation and updating equipment. Regarding M&A, he mentioned that activity has picked up, and the company is in more frequent discussions with potential targets.
Q: Could you provide more insight into the branded growth and private label dynamics?
A: McMullian shared that Dave's Killer Bread has been a significant growth driver, with low-income shoppers returning to the brand. He also mentioned growth in other parts of the portfolio like Wonder and Nature’s Own Perfectly Crafted, although the basic Nature's Own products have seen some weakness.
Q: What is the status of the DSD network expansion?
A: McMullian explained that the DSD network expansion varies by region, with some areas adding routes due to growth and others maintaining current levels for efficiency. The focus is on making the DSD network as efficient as possible.
Q: Can you comment on the volume impacts from the planned business strategy and the performance of the away-from-home segment?
A: McMullian clarified that excluding strategic exits, total company volumes would have been positive. He also highlighted the shift of the away-from-home segment to a balanced growth strategy, aiming for growth above the category with better margins.
Q: What are the expectations for new product launches and their impact on operations?
A: McMullian stated that new products undergo a rigorous evaluation process to ensure they meet consumer demand, financial goals, and operational feasibility. The company aims to launch products that can be produced efficiently across its network.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
