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) achieved a 2.8% increase in total sales for the first quarter compared to the prior year.
- Branded retail volumes increased by 0.3%, indicating strong performance in their core product lines.
- Gross margin as a percentage of sales increased by 160 basis points to 49.4%, benefiting from prior pricing actions and lower ingredient costs.
- The company introduced 11 new products, including successful launches like Keto Soft White Buns and Nature's Own Perfectly Crafted flatbreads.
- Flowers Foods Inc (FLO) increased its savings initiatives target from $30-$40 million to $40-$50 million, reflecting confidence in cost-saving measures.
Negative Points
- Volume decreased by 0.8% due to targeted sales rationalizations and away-from-home business exits.
- Selling, distribution, and administrative expenses as a percentage of sales increased by 110 basis points to 39.7%, driven by higher labor and technology expenses.
- The economic environment remains uncertain, impacting consumer behavior and promotional effectiveness.
- The company is cautious about the uncertain consumer and promotional environment, which could affect future performance.
- Flowers Foods Inc (FLO) faces increased capital spending related to supply chain optimization, which may impact short-term financial results.
Q & A Highlights
Q: Can you elaborate on the volume trends and the performance of branded retail products?
A: (A. Ryals McMullian, CEO & Chairman of Board) Our branded retail units in tracked channels grew, outperforming the fresh packaged bread category. Branded products continued to gain share, and company-wide volumes turned positive in the last four weeks of the quarter. Excluding deliberate exits in our away-from-home business, company-wide volumes grew in the first quarter.
Q: What were the key drivers behind the financial results for the first quarter?
A: (R. Steve Kinsey, CFO & CAO) Improved price/mix drove the year-over-year increase in sales, primarily due to pricing actions taken in the prior year to mitigate inflationary pressures. Margins benefited from moderating commodity costs, partially offset by investments in growth initiatives and higher labor expenses.
Q: How is the company addressing the shift in consumer demand towards private label products?
A: (A. Ryals McMullian, CEO & Chairman of Board) Although the economic environment has shifted demand toward private label products, this trend has moderated. Our brands continue to thrive, maintaining unit share and gaining dollar share in tracked channels. We performed particularly well in specialty premium sandwich buns, rolls, and breakfast channels.
Q: What are the expectations for capital spending and savings initiatives for the year?
A: (R. Steve Kinsey, CFO & CAO) We are increasing our expectations for savings initiatives from $30 million to $40 million to $40 million to $50 million. This reflects our confidence in the effectiveness of our initial cost savings programs and the addition of new programs. We also have increased expectations for capital spending related to supply chain optimization initiatives.
Q: Can you provide more details on the company's innovation pipeline and new product launches?
A: (A. Ryals McMullian, CEO & Chairman of Board) Our innovation pipeline has been increasingly productive with the recent introduction of 11 new products, including Keto Soft White Buns, Nature's Own Perfectly Crafted flatbreads, DKB Organic Rock 'N' Rolls, Wonder bagels and English Muffins, and Canyon Cinnamon Raisin Bread. We are also launching DKB Amped-Up Protein Bars and DKB snack bites nationally.
Q: How is the company managing its cost structure and improving profitability?
A: (A. Ryals McMullian, CEO & Chairman of Board) We are taking actions to optimize bakery operations, including digital initiatives, and improving profitability in our away-from-home and private label businesses. We are also implementing select workforce reductions, reducing third-party spend, enhancing marketing investments, and improving efficiency in our DSD network.
Q: What is the company's approach to M&A and potential opportunities?
A: (A. Ryals McMullian, CEO & Chairman of Board) M&A has been a key contributor to our growth, expanding our geographic coverage and supplementing our brand lineup. We are focused on finding new revenue streams across the baked foods category and see compelling brands that complement our existing portfolio. Our strong balance sheet positions us well to act on potential opportunities.
Q: How is the company addressing the competitive environment and consumer behavior trends?
A: (A. Ryals McMullian, CEO & Chairman of Board) The competitive environment remains rational, and we are leveraging our enhanced internal digital tools to drive greater efficiencies in promotions. We are also focused on bringing greater perceived value to consumers through innovation and highlighting that value in our marketing.
Q: What are the key factors that could impact the company's full-year results?
A: (R. Steve Kinsey, CFO & CAO) Key factors include the consumer and promotional environment, the transition of our California distribution, and the implementation of our savings initiatives. Other factors include a higher tax rate, increased net interest expense, and costs related to the ERP project.
Q: Can you provide an update on the ERP rollout and its impact on the company?
A: (R. Steve Kinsey, CFO & CAO) Our ERP rollout went live in the second quarter of 2023, and we continue to make progress. We have paused the bakery rollout to concentrate resources on our California distribution transition. In fiscal 2024, we expect costs for the ERP upgrade to be approximately $25 million to $35 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
