On August 21, Flowers Foods (NYSE:FLO) held its second-quarter earnings call, and management didn’t try to spin the results. Net sales fell 4% to $1.193 billion, as a 5.8% drop in volume overwhelmed the modest gains the company squeezed out on price. Branded retail volume fell even harder, down 7.6%, and net income sank 30.3% to $40.7 million. Underneath the weak quarter, though, is a company trying to reposition itself around where bread shoppers are actually headed, even as the next few months look no easier.
Betting On Sourdough And Protein
Even with volume sliding, Flowers Foods still pushed price and mix up 1.8% company wide, a sign its earlier pricing moves found at least some traction in a brutal bread aisle. Management also said its comprehensive organizational review is finished and the company has moved into executing the resulting cost initiatives, aimed at a structure that’s been squeezed by labor and freight. CFO Anthony Scaglione pointed to $20 million in savings he expects those restructuring actions to deliver once fiscal 2027 arrives.
The bigger swing factor is where the company is putting its innovation dollars. Chairman and CEO Ryals McMullian pointed to sourdough, a $1.3 billion category where the company admits it’s still underrepresented on shelves nationally, along with protein-enriched loaves, as the two spaces where consumer tastes are actually moving. The relaunched Nature’s Own line, now carrying Non-GMO Project Verified labeling, is getting encouraging early signals from retailers and shoppers alike. Executives also expect fresh customer wins already in the pipeline to help lift results later this year, and the company still generated $241.5 million in operating cash flow year to date, giving it room to fund the turnaround while it plays out.
A Bread Aisle Getting Tougher
The near-term numbers tell a rougher story. Volume fell 5.8% across the business as the fresh packaged bread category ran into an environment where household budgets are tighter, tastes are shifting and competitors are fighting hard on price. Branded retail net sales dropped 3.8% to $794.6 million, and the company’s other segment, largely store-brand products, fell 4.4% as inflation pushed more shoppers toward cheaper private label. Profitability took the harder hit. Adjusted EBITDA dropped 19.2% to $111.3 million, just 9.3% of net sales, while adjusted diluted EPS fell nine cents to $0.21.
Management pointed to weaker output levels and rising labor costs behind a 40 basis point jump in production costs to 51.6% of sales, and higher spending on its workforce, freight and marketing pushed adjusted SD&A costs up 140 basis points to 39.1% of sales. McMullian also noted that rival bakers didn’t follow Flowers Foods’ price increases, leaving the company facing more aggressive promotions than it had planned for. Scaglione flagged oil, diesel and packaging resin costs as ongoing risks heading into next year. All of that led management to cut its full-year outlook, with net sales guidance now set at $5.070 billion to $5.142 billion, down from a range that had topped out at $5.267 billion, and adjusted EBITDA guidance trimmed to $453 million to $481 million.
Money Managers Are Already Skeptical
Hedge fund ownership of Flowers Foods slipped from 34 funds to 32 heading into the most recent quarter, a modest retreat in institutional conviction. Short interest sits at 23.45% of the float, a level that points to heavy organized skepticism rather than a handful of stray bearish bets. This suggests that the market had soured before this quarter’s guidance cut even landed, leaving little cushion if the back half disappoints again.
Where This Turnaround Needs To Prove Itself
Flowers Foods now has a defined bet: sourdough, protein and a relaunched Nature’s Own lineup are supposed to pull volume back before fiscal 2027 arrives, backed by the $20 million in savings management expects from its restructuring. For that bet to pay off, the new business wins and innovation push need to actually show up in the fourth quarter results executives are already pointing to.
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