Flowers Foods NYSE: FLO said it delivered first-quarter bottom-line results ahead of expectations despite softer sales trends and continued pressure in the traditional bread category, as management pointed to brand investment, cost controls and balance sheet priorities as key themes for the rest of fiscal 2026.
Chairman and CEO Ryals McMullian said the company “continued to execute against a challenging backdrop,” citing progress on a comprehensive review of Flowers Foods’ brand portfolio, supply chain and financial strategy. He said the company is sharpening its focus on core brands, including a nationwide relaunch of Nature’s Own, while continuing to build its 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 bread category, where we underperformed in the quarter,” McMullian said.
Inflation Pressures Shift Toward Oil-Related Costs
Management said Flowers Foods is largely protected on the commodities it hedges for the balance of 2026. CFO Anthony Scaglione said the company is “virtually fully hedged” for the rest of the year on commodities included in its hedging program.
However, Scaglione said the company is now seeing pressure in areas tied to oil, including distribution and resin, which has affected packaging costs. He said packaging was not viewed as a cost concern when the year began, but the company is now looking at mitigation efforts such as packaging configuration changes, alternative materials and other productivity measures.
Scaglione said the impact of oil is twofold: it affects consumers through fuel prices and sentiment, while also creating input pressure through distribution and resin costs. He said the updated cost assumptions are already reflected in the company’s reaffirmed guidance. Asked to size the incremental pressure, he said oil and oil-derived costs represent roughly $0.02 to $0.03 of headwind in the back half of the year.
Nature’s Own Relaunch Aims to Stabilize Traditional Bread
McMullian highlighted the nationwide relaunch of Nature’s Own as one of the company’s most important initiatives. He said the relaunch involved reformulating the brand’s traditional loaf bread, removing roughly another third of the ingredients and making it non-GMO verified.
McMullian described the product as “the cleanest label traditional loaf bread at scale in the country” and said the company is backing the relaunch with a broad marketing campaign featuring John Cena. The campaign launched shortly before the call.
The effort is aimed at addressing weakness in traditional loaf bread, which McMullian said accounts for about 38% of the company’s branded retail business. He said stabilizing volumes in that category would be the most important measure of success.
“At a minimum, getting our volume stabilized in traditional loaf will do more for the business than any other lever that we can pull,” McMullian said. He cautioned, however, that the marketing campaign may not have an immediate impact and said the company will need several months to assess its effectiveness.
Promotional Environment Remains Challenging
Management also addressed a more intense promotional environment, particularly as consumers face affordability pressures. McMullian said Flowers Foods has seen similar competitive periods before and that such levels of promotion have typically not been sustainable.
He said recent pressure on consumer sentiment, including higher gas prices and weaker sentiment data, remains a concern. Still, McMullian said the company is taking a long-term approach centered on brand strength, product quality, service, innovation and differentiation rather than relying heavily on price.
McMullian noted that Flowers Foods took pricing late last year, and said price gaps have remained wider than the company would prefer in the near term. That has affected volume performance, particularly in traditional loaf bread. He added that Flowers Foods pulled back on promotions and marketing spending in the first quarter ahead of the Nature’s Own relaunch, but expects its promotional calendar to return to a more normal level as the year progresses.
In channels where price gaps have started to narrow, McMullian said the company is already seeing share improvements.
Guidance Reaffirmed as Cost Controls and Growth Initiatives Continue
Flowers Foods reaffirmed its outlook for fiscal 2026. Scaglione said the guidance assumes easier volume comparisons as the year progresses, but does not assume a broad volume recovery. He cited several factors supporting management’s confidence, including the Nature’s Own relaunch, expansion of half-loaf offerings, continued growth in snack and better-for-you products, and expectations for some stabilization in pricing and promotions.
The company is also looking for cost savings. Scaglione said potential offsets to inflation could come mostly from SG&A, while packaging-related improvements could benefit cost of goods sold. McMullian said the company is not anticipating major supply chain changes this year, though broader supply chain optimization remains part of its longer-term plans.
On capital spending, Scaglione said the company’s 2026 capital expenditure outlook of $115 million to $125 million includes roughly $2 million per bakery for maintenance, with the remaining spending directed toward growth, product line extensions and productivity initiatives.
Dividend Reset Prioritizes Deleveraging
Scaglione said cash freed up by the company’s dividend reset will primarily be directed toward reducing leverage. In response to an analyst’s estimate that the move could free up about $100 million in cash and reduce leverage by roughly 0.2 turns if fully applied to debt reduction, Scaglione said that was the right way to frame it.
He said the company’s first priority is to deleverage, with a goal of getting below three times leverage by the end of fiscal 2027. Flowers Foods also plans to continue investing in its brands, including initiatives such as the Nature’s Own relaunch.
In foodservice, McMullian said consumer pressure and restaurant traffic trends remain factors to watch, but noted that the business has improved recently on the top line and is more profitable than it was several years ago following prior efforts to improve returns.
About Flowers Foods NYSE: FLO
Flowers Foods, Inc is one of the largest producers of packaged bakery foods in the United States, offering a variety of fresh bread, buns, rolls, snack cakes and tortillas. Headquartered in Thomasville, Georgia, the company operates an extensive network of bakeries and distribution centers that serve retail grocery chains, convenience stores, mass merchandisers and foodservice customers nationwide. Flowers Foods markets its products under well-known brands such as Nature's Own, Wonder, Dave's Killer Bread, Mrs.
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