Early signs of consumers adjusting to higher prices and returning to previous buying habits have been observed, according to A. Ryals McMullian, CEO of Flowers Foods, Inc. These comments were made alongside the company’s announcement of sales and earnings growth for the second quarter of fiscal 2023. In response to these positive results, the company’s full-year financial guidance was revised upwards.
During the 12-week period ending on July 15, Flowers Foods reported a net income of $63.77 million, or 30¢ per share, marking a 19% increase from $53.68 million, or 25¢ per share, in the second quarter of the previous year. Net sales reached $1.23 billion, reflecting a 9% rise from $1.13 billion in the same period last year.
Adjusted net income in the second quarter rose by 9%, and adjusted EBITDA experienced an 11% increase. EBITDA margins improved to 10.8%, a 20-basis point enhancement from the same quarter in the previous year.
Investors responded positively, with Flowers’ stock price on the New York Stock Exchange rising as high as $26.31, a 6% increase, upon the announcement of these results.
Earnings during the quarter were buoyed by a 90-basis point reduction in production costs, which decreased to 51% of sales. Flowers attributed the increase in prices due to inflation as more than offsetting the inflation of input costs, lower production volumes, increased product returns, and higher maintenance expenses.
Although sales volume decreased by 6.1% in the second quarter, overall sales increased due to a 13.3% rise from pricing and mix, as well as a 1.6% contribution from the acquisition of Papa Pita.
Branded retail sales reached $787.8 million, marking a 7.1% increase, with volume declining by 1.5%, pricing and mix rising by 7.1%, and Papa Pita adding a 1.5% boost.
More pronounced were the shifts in “other sales,” which saw an 11.9% increase, reaching $440.3 million. This surge resulted from a price increase implemented before the quarter, while volume decreased by 10.5%, pricing mix surged by 20.6%, and Papa Pita contributed an additional 1.8%.
Mr. McMullian, in his prepared remarks, expressed satisfaction with the company’s recovery from a challenging first quarter. He noted an improvement in volume trends for branded retail bread, despite competition from private labels and price increases.
Flowers’ strategic priorities, including team development and innovation, have contributed to these results. The company launched several products, such as Nature’s Own Keto Net One loaf, Nature’s Own Perfectly Crafted Everything buns, and Wonder Hawaiian buns. The rollout of DKB snack bars continued, with plans to introduce DKB Amped-Up Protein Bars and DKB Crunchy Snack Bites in the near future.
Although private label trends gained momentum, Mr. McMullian highlighted that the shift towards premium products was evident, especially in categories with higher differentiation, such as specialty loaves and breakfast items.
However, not all segments performed as well. The Canyon Bakehouse brand experienced a decline in gluten-free unit share. Mr. McMullian attributed this decline to a mix shift and a shortage of gluten-free capacity.
Despite positive indicators, Mr. McMullian emphasised the need to closely monitor buying trends before drawing conclusions about sustained consumer health improvements.
Flowers Foods revised its full-year financial guidance, with higher earnings per share, adjusted EBITDA, and sales expectations. The company’s commitment to innovation and efficiency will continue to play a crucial role in its growth strategy.