Release Date: February 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Flowers Foods Inc (NYSE:FLO) reported growth in dollars and units across its branded retail portfolio, driven by innovation and strong market execution.
• The company is optimistic about the long-term performance due to the strength of its brands and successful history of innovation.
• Dave's Killer Bread (DKB) continues to be a strong brand with significant space gains in over 2,000 stores, indicating potential for further growth.
• The introduction of Wonder snack cakes is expected to stabilize the sweet baked goods category, which has been a weak spot.
• Flowers Foods Inc (NYSE:FLO) is well-positioned to adapt to consumer trends, including the potential impact of GLP-1 drugs, by focusing on better-for-you products and cleaning up labels.

Negative Points

• Persistent category weakness, particularly in sweet baked goods, led to lower-than-expected sales results.
• The financial guidance for 2025 is cautious due to a volatile environment, including potential tariffs, commodities volatility, and weak consumer demand.
• The promotional environment remains elevated, which could impact margins if competitors continue aggressive promotions.
• The transition to a company-owned model in California is more expensive than the independent distributor model, potentially affecting costs.
• There is uncertainty regarding the impact of GLP-1 drugs on consumer behavior, which could affect overall food consumption patterns.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Sign with FLO.

Q: Can you discuss the recent performance of Dave's Killer Bread (DKB) and expectations for 2025? A: DKB remains a strong brand despite some noise in recent consumption data. We had SKU rationalization affecting numbers, but we saw strong growth in breakfast items, buns, and rolls. New products and significant space gains in underpenetrated markets are expected to drive continued consumer interest and performance in 2025. - Ryals McMullian, CEO

Q: Could you elaborate on the first half versus second half dynamics for 2025? A: In the first half, we will lap new business and pricing gains from last year. We expect some commodity cost benefits early in the year, but anticipate continued inflation in the second half. - Steve Kinsey, CFO

Q: What are your thoughts on the consumer shift away from white bread and soft variety breads? A: There is a secular shift towards more differentiated, premium items. Our investments in innovation, such as keto and gluten-free products, are offsetting softness in traditional categories. We are well-prepared to meet changing consumer preferences. - Ryals McMullian, CEO

Q: How do you plan to address the weakness in the sweet baked goods category? A: We are launching Wonder snack cakes to stabilize the business. The Wonder brand has high consumer awareness, and we believe our quality is superior. This launch is expected to help offset category weakness. - Ryals McMullian, CEO

Q: Can you provide more details on the impact of tariffs and how you plan to mitigate them? A: Tariffs are primarily ingredient-driven, with most exposure from Canada and Mexico. We have factored potential tariffs into our guidance and are exploring ways to mitigate their impact. - Steve Kinsey, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.