Group 1 - Flowers Foods, Inc. (FLO) has been added to the Zacks Rank 5 (Strong Sell) List due to a 3.6% downward revision in the consensus estimate for its current year earnings over the last 60 days [1] - Fomento Economico Mexicano (FMX) is also on the Zacks Rank 5 (Strong Sell) List, with a significant 24.8% downward revision in the consensus estimate for its current year earnings over the last 60 days [1] - J.Jill, Inc. (JILL) has been included in the Zacks Rank 5 (Strong Sell) List, reflecting a 6.1% downward revision in the consensus estimate for its current year earnings over the last 60 days [2]

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Group 1 - The consumer is currently facing pressures related to inflation and the job market, which is consistent with broader market trends [1] - The company's category is unique due to the presence of private label products, which have been in long-term decline but typically see a rise during economic uncertainty [1]

Financial Data and Key Metrics Changes - The overall bread category has declined by approximately 2.5% to 3% [11] - Traditional loaf segment, including honey wheats and white breads, has seen a decline of 5% to 6% [12] - The company has lowered its underlying guidance for both top and bottom lines for 2025 due to challenges in the first half of the year [36][38] Business Line Data and Key Metrics Changes - The company is innovating around its product portfolio, particularly in keto products and brands like Dave's Killer Bread, which continue to perform well [12][34] - Small loaves are gaining traction, with an increase from three SKUs to six, catering to consumer preferences for reduced consumption [46] Market Data and Key Metrics Changes - The company is experiencing pressure from economic uncertainty and inflation, impacting consumer behavior [4][6] - The competitive landscape has seen new low-price competitors entering the market, prompting the company to address this with value offerings [23][24] Company Strategy and Development Direction - The company aims to innovate and reposition its product offerings to counteract the decline in traditional bread categories [14][18] - There is a focus on expanding distribution in underpenetrated markets, particularly in the Midwest and Northeast [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current challenges but expresses confidence in the company's ability to navigate through them, citing strong brand positions [79][80] - The company is committed to maintaining margins while being mindful of consumer price sensitivity in the current economic climate [32][66] Other Important Information - The integration of Simple Mills has gone smoothly, with expectations for growth driven by innovation and distribution expansion [33][35] - The company is undergoing an ERP transition, with plans to ramp up rollouts in the second half of the year [60][63] Q&A Session Summary Question: What are the long-term expectations for the bread category? - Management believes the bread category will evolve, with a shift towards more differentiated items and a decline in traditional soft varieties [15][18] Question: How is the company addressing new low-price competitors? - The company is responding with value offerings and believes that as the economic environment improves, the situation will stabilize [24][25] Question: What is the outlook for brand support and advertising? - The company plans to continue increasing brand support to drive awareness and household penetration, balancing advertising and promotional efforts [65][66] Question: What are the capital allocation priorities post-Simple Mills acquisition? - The focus is on deleveraging while maintaining a strong cash flow position, with the board evaluating the dividend on a quarterly basis [68][71]

Financial Data and Key Metrics Changes - The overall bread category has declined by approximately 2.5% to 3% [12] - Traditional loaf segment, including honey wheats and white breads, has seen a decline of 5% to 6% [12] - The company has lowered its underlying 2025 guidance for both top and bottom lines due to challenges in the category and a less robust performance than expected in the first half [37][39] Business Line Data and Key Metrics Changes - The company is experiencing growth in its keto product line and brands like Dave's Killer Bread and Canyon [12] - The integration of Simple Mills has gone smoothly, with the brand performing in line with expectations despite tariff impacts [34][36] - Small loaves are performing well, with an increase in SKUs from three to six, catering to consumer preferences for reduced carb consumption and less waste [46][47] Market Data and Key Metrics Changes - The company is focusing on expanding distribution in the Midwest and Northeast, which are identified as growth markets [28] - The competitive landscape has seen new low-price competitors entering the market, prompting the company to address this with value offerings [25][26] Company Strategy and Development Direction - The company aims to innovate around the declining traditional bread segment by introducing differentiated products that meet consumer demands [15][19] - There is a strategic focus on better-for-you snacks and products, with significant innovation planned for 2026 [35][40] - The company is also exploring new shelf set tests with retailers to better organize product offerings [20][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current economic pressures on consumers, including inflation and job market concerns, which are impacting sales [4][6] - The company believes that while the bread category is challenged, it has historically navigated through such challenges and remains optimistic about future growth [80][81] - Management emphasizes the importance of brand strength and innovation to adapt to changing consumer preferences [83][84] Other Important Information - The company is undergoing an ERP transition, with plans to ramp up rollouts in the second half of the year [63][66] - Input costs are expected to rise in the second half, particularly for palm oil, eggs, and cocoa, which will impact margins [61][62] - The company is focused on deleveraging following the Simple Mills acquisition, with a high payout ratio being evaluated on a quarterly basis [72][75] Q&A Session Summary Question: What are the long-term expectations for the bread category? - Management expects the bread category to evolve, with a shift towards more differentiated items and a decline in traditional soft varieties [15][19] Question: How is the integration of Simple Mills progressing? - The integration has been smooth, with the brand performing well and expected to drive growth through innovation and distribution expansion [34][36] Question: What is the company's strategy regarding new low-price competitors? - The company is addressing the entry of low-price competitors by enhancing value offerings and leveraging brand strength [25][26] Question: How does the company plan to manage rising input costs? - The company will explore various strategies, including pricing adjustments, to maintain margins amid rising costs [33][61] Question: What is the outlook for advertising and marketing support? - The company plans to continue increasing brand support to drive awareness and household penetration, balancing advertising and promotional efforts [68][71]

Business Overview and Strategy - Flowers Foods operates as the 1 loaf, organic, and gluten-free bread brands in the U S [9] - The company's branded retail sales accounted for 40% of the sales mix in 2024 [11] - The estimated U S market for fresh and frozen bakery at retail is $55 6 billion [15] - The U S Fresh Bakery category has sales of $31 9B+ [22] Financial Performance and Guidance - In Q2 2025, Flowers Foods reported net sales of $1 243 billion, a 1 5% increase year-over-year [100] - Net income for Q2 2025 was $58 4 million, a 12 8% decrease year-over-year [100] - Adjusted EBITDA for Q2 2025 was $137 7 million, a 4 0% decrease year-over-year [100] - The company's fiscal 2025 guidance projects net sales between $5 239 billion and $5 308 billion, and adjusted EBITDA between $512 million and $538 million [103] Market Share and Trends - Branded dollar share was 73 9% as of L52 WE 07-13-25 [137] - Flowers Bread dollar share was 15 9% in Q2 2025 [140] - Flowers Cake dollar share was 5 4% in Q2 2025 [140]

Core Viewpoint - Flowers Foods, Inc. reported weaker-than-expected second-quarter sales and issued its second consecutive guidance cut, leading analysts to lower forecasts and highlight ongoing challenges in the category [1][3] Financial Performance - The company reported an adjusted EPS of 30 cents, meeting consensus, but sales of $1.242 billion fell short of Wall Street estimates. Net income decreased nearly 13%, and adjusted EBITDA declined by 4% [5] - Flowers Foods cut its full-year EPS outlook to $1.00–$1.10 and lowered its sales guidance to $5.021–$5.083 billion, both below market expectations [6] Analyst Insights - Truist Securities analyst Bill Chappell reduced his 12-month price forecast to $15 from $20, reiterating a Hold rating, and lowered sales and earnings estimates through fiscal year 2027 due to inconsistent execution and increasing private label competition [1][2] - DA Davidson analyst Brian Holland expressed caution, noting that the back-to-back guidance cuts reflect rising consumer and competitive pressures that have not been mitigated by innovation or acquisitions [3][4] - Holland projected fiscal year 2025 EBITDA of $512–$538 million and sales of $5.239–$5.308 billion, both reduced from previous forecasts, highlighting execution risks and reliance on packaged bakery products [4]

Core Insights - Flowers Foods, Inc. reported second-quarter fiscal 2025 results with year-over-year sales growth but missed the Zacks Consensus Estimate, while earnings per share (EPS) declined year over year but exceeded consensus expectations [1][2][10] Financial Performance - Adjusted EPS for the quarter was 30 cents, beating the Zacks Consensus Estimate of 29 cents, but down from 36 cents in the same quarter last year [2] - Total sales reached $1,242.8 million, missing the Zacks Consensus Estimate of $1,269 million, representing a 1.5% increase year over year [3] - Branded retail sales increased by 5% to $826.7 million, driven by the Simple Mills acquisition, although offset by unfavorable price/mix and lower volumes [4] - Other sales decreased by 4.9% to $416.1 million, impacted by softer volumes in store-branded retail and non-retail sales [5] Cost and Margin Analysis - Production costs increased by 110 basis points to 51.2% of net sales, influenced by higher outside product purchases and lower production volumes [6] - Selling, distribution, and administrative (SD&A) expenses were 38.1% of sales, down 40 basis points due to lower distribution fees, despite higher workforce-related expenses [7] - Adjusted EBITDA decreased by 4% to $137.7 million, with an adjusted EBITDA margin of 11.1%, down 60 basis points [8] Financial Snapshot - As of the end of the fiscal second quarter, cash and cash equivalents were nearly $11 million, with long-term debt at $1,749.2 million and stockholders' equity at $1,427.8 million [9] - Cash flow from operating activities totaled $130.8 million, with capital expenditures of $30.8 million and dividends paid amounting to $52.4 million [9] Outlook - For fiscal 2025, management revised net sales expectations to a range of $5.239-$5.308 billion, indicating a 2.7% to 4% year-over-year increase, down from previous guidance [10] - Adjusted EBITDA is projected to be between $512-$538 million, revised from earlier estimates of $534-$562 million [11] - Adjusted EPS is now expected to be in the range of $1.00-$1.10, down from the previous forecast of $1.05-$1.15 [11]

Financial Data and Key Metrics Changes - The company is experiencing a transition due to a challenging economic environment and shifting consumer trends, which have pressured end markets and hampered recent results [6][7] - Management expects benefits from executing their portfolio strategy and developing a pipeline of innovation, indicating confidence in long-term growth [7] Business Line Data and Key Metrics Changes - The competitive environment has intensified, particularly in the traditional loaf area, with lower-priced entrants affecting results [12][13] - The company is addressing the value shopper segment with new product lines and has seen good performance in premium differentiated products [12][13] - The foodservice business has been refilled with higher-margin products, significantly improving profitability [58] Market Data and Key Metrics Changes - The market remains bifurcated, with strong performance in both premium differentiated products and value offerings, particularly in mass and club channels [12][13] - The company has noted continued weakness in the away-from-home foodservice business [14] Company Strategy and Development Direction - The company is committed to innovation to navigate the transition in consumer preferences, particularly moving away from traditional loaf products [30][31] - Management emphasizes the importance of maintaining brand strength and innovation as key strategies to address competitive pressures [36][72] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that the transition will take time and requires patience, viewing it as a generational shift in the category [51][53] - There is optimism that the category will eventually stabilize, although the timeline is uncertain [52][53] Other Important Information - The company is focused on debt paydown and is cautious about M&A activities in the near term, although it remains a strategic priority [61] - The company has plans to address the weakness in large brands like Nature's Own while continuing to invest in its leading brands [55] Q&A Session Summary Question: Competitive intensity and pricing pressures - Management noted that the promotional environment is elevated but stable, with a focus on differentiated products to drive trial and awareness [12][13] Question: Tariff outlook and capital allocation - Management expects tariffs to decrease significantly and will continue to evaluate capital allocation based on performance and cash flow [18][19] Question: Nature's Own brand performance - Management confirmed that they are committed to investing in Nature's Own and other mainstream loaf products, using a mix of promotional support and marketing [65][66] Question: Innovation and Simple Mills - Management indicated that Simple Mills will continue to innovate aggressively and is performing well despite challenges [43][48] Question: Transition timeline and gross margin management - Management stated that the transition will take time, but there are levers to maintain gross margins despite volume pressures [57] Question: M&A appetite - Management indicated a cautious approach to M&A in the near term, focusing on debt reduction while monitoring market opportunities [61] Question: Retailer changes and shelf space allocation - Management observed that retailers are increasingly focusing on organic products and small loaf segments, reflecting changing consumer trends [73][74]

Financial Data and Key Metrics Changes - The company is experiencing a transition due to a challenging economic environment and shifting consumer trends, which have pressured end markets and hampered recent results [4] - Management expects further benefits from executing their portfolio strategy and developing a pipeline of innovation, indicating confidence in long-term growth [5] Business Line Data and Key Metrics Changes - The branded side is facing greater competitive intensity, particularly from lower-priced bread products, affecting results in the traditional loaf area [10][11] - The company is seeing good performance in premium differentiated products, while value offerings are also performing well in mass and club channels [11] - The keto product segment grew by 37% in the quarter, highlighting success in innovative product offerings [30] Market Data and Key Metrics Changes - The competitive environment remains elevated but stable, with promotional activities increasing around differentiated products to drive trial and awareness [10] - The private label business is experiencing fluctuations, driven by lost business that is eventually replaced [12] Company Strategy and Development Direction - The company is committed to aggressively innovating to navigate the transition in consumer preferences, particularly moving away from traditional loaf products [28] - Management emphasizes the importance of innovation and brand strength to maintain competitiveness in a challenging market [34] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that the transition will take time and requires patience, viewing it as a generational shift in the category [53][56] - There is optimism that the category will eventually stabilize, although the timeline for this is uncertain [54] - The company plans to continue investing in brands like Nature's Own to ensure performance despite market challenges [57] Other Important Information - The company is focused on debt paydown and is monitoring the market for potential M&A opportunities, although immediate acquisitions are not prioritized [63] Q&A Session Summary Question: Competitive intensity and pricing strategies - Management noted that the promotional environment is elevated but stable, with increased promotions around differentiated products [10][11] Question: Tariff outlook and capital allocation - Management expects tariffs to decrease based on current observations and will continue to evaluate capital allocation decisions based on performance and cash flow [16][17] Question: Transition timeline for traditional loaf products - Management indicated that the transition will take time and is viewed as a significant shift, with no specific timeline provided [53][56] Question: Innovation contributions from Simple Mills - Management confirmed that Simple Mills will continue to innovate aggressively, with plans to speed up their innovation cycle [43] Question: Retailer changes in response to competitive pressures - Management observed that retailers are focusing on smaller loaf segments and organic products, indicating a shift in consumer preferences [76]