Flowers Foods(FLO) - 2025 Q2 - Quarterly Results

Flowers Foods, Inc. Q2 2025 Earnings Release Executive Summary & Outlook Flowers Foods reported a 1.5% increase in Q2 net sales to $1.243 billion, driven by the Simple Mills acquisition, which offset declines in volume and pricing/mix, though profitability declined with net income falling 12.8% to $58.4 million and adjusted diluted EPS decreasing to $0.30 from $0.36 Second Quarter 2025 Performance Highlights Q2 2025 net sales increased by 1.5% to $1.243 billion, while net income declined by 12.8% to $58.4 million Q2 2025 Financial Highlights vs. Q2 2024 | Metric | Q2 2025 | Change vs. Q2 2024 | | :--- | :--- | :--- | | Net Sales | $1.243 billion | +1.5% | | Net Income | $58.4 million | -12.8% | | Adjusted Net Income | $63.4 million | -16.0% | | Adjusted EBITDA | $137.7 million | -4.0% | | Diluted EPS | $0.28 | -$0.04 | | Adjusted Diluted EPS | $0.30 | -$0.06 | - The Simple Mills acquisition contributed significantly to the quarter's results, adding $61.4 million in net sales and $10.9 million to adjusted EBITDA, though it resulted in a net loss of $2.1 million and a ($0.01) impact on diluted EPS[6] Chairman and CEO Remarks The CEO highlighted macroeconomic pressures on the bread category, emphasizing strategic investments in innovation and M&A - The CEO noted that macroeconomic uncertainty and shifting consumer demand are pressuring the bread category[3] - The company is proactively investing in innovation and M&A to align its portfolio with consumer demand for 'better-for-you' and value-oriented products[3] - The revised 2025 guidance is a result of lower-than-expected Q2 revenues from softness in traditional loaf sales and a more intense competitive environment, which is expected to persist[4] Revised Fiscal 2025 Guidance The company revised its full-year 2025 guidance downwards for net sales, adjusted EBITDA, and adjusted diluted EPS Revised Full-Year 2025 Guidance | Metric | Revised 2025 Guidance | Prior 2025 Guidance | | :--- | :--- | :--- | | Net Sales | $5.239 billion - $5.308 billion | $5.297 billion - $5.395 billion | | Adjusted EBITDA | $512 million - $538 million | $534 million - $562 million | | Adjusted Diluted EPS | $1.00 - $1.10 | $1.05 - $1.15 | - Excluding the Simple Mills acquisition, net sales are now expected to decline between -1.6% and -0.4% year-over-year, a downward revision from the prior guidance of -0.5% to +1.3%[7] - The 53rd week in fiscal 2025 is expected to contribute $70 million to $80 million to net sales and approximately $0.02 to adjusted diluted EPS[7] Detailed Financial Performance The 1.5% sales growth was driven entirely by a 5.1% contribution from the Simple Mills acquisition, which offset a 1.2% decline in pricing/mix and a 2.4% drop in volume, while profitability was impacted by increased outside product purchases and higher workforce-related costs, partially offset by lower distributor distribution fees Operating Highlights Production costs increased to 51.2% of net sales, while SD&A expenses decreased, and net interest expense rose by $10.1 million - Production costs (materials, supplies, labor) increased by 110 basis points to 51.2% of net sales, mainly due to increased outside purchases of product and lower production volumes[11] - Selling, distribution, and administrative (SD&A) expenses decreased by 40 basis points to 38.1% of net sales, primarily due to lower distributor distribution fees[11] - Net interest expense increased by $10.1 million, driven by higher debt used to fund the Simple Mills acquisition[11] Sales Performance Analysis Sales growth was driven by the Simple Mills acquisition, offsetting declines in pricing/mix and volume across segments Q2 2025 Net Sales Bridge (% Change vs. Prior Year) | Category | Pricing/Mix | Volume | Acquisition | Total Change | | :--- | :--- | :--- | :--- | :--- | | Branded Retail | (1.5)% | (1.3)% | 7.8% | 5.0% | | Other | (1.2)% | (3.7)% | 0.0% | (4.9)% | | Total Company | (1.2)% | (2.4)% | 5.1% | 1.5% | - Branded Retail net sales increased by $39.2 million (5.0%) to $826.7 million, with the Simple Mills acquisition contribution offsetting volume declines and unfavorable price/mix[11][30] - Other net sales decreased by $21.4 million (4.9%) to $416.1 million, attributed to softer volumes in store branded retail and non-retail sales[11][30] Cash Flow and Capital Allocation Year-to-date operating cash flow increased to $266.5 million, with capital expenditures decreasing and dividends paid rising - Year-to-date cash flow from operating activities increased by $98.0 million to $266.5 million[10] - Year-to-date capital expenditures were $56.4 million, a decrease of $4.9 million from the prior year[10] - Dividends paid to shareholders year-to-date increased by $2.8 million to $104.8 million[10] Consolidated Financial Statements The company's balance sheet expanded significantly, with total assets reaching $4.34 billion from $3.40 billion at year-end 2024, primarily due to the Simple Mills acquisition increasing goodwill and a corresponding rise in long-term debt to $1.75 billion, while for the 28-week period, net income was $111.4 million, down from $140.0 million year-over-year, on relatively flat sales, and operating cash flow for the period improved to $266.5 million Statement of Operations For the 12-week period, net sales reached $1.243 billion, with net income at $58.4 million and diluted EPS of $0.28 Consolidated Statement of Operations (12-Week Period Ended July 12, 2025) | (in thousands) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Sales | $1,242,835 | $1,224,983 | | Income from Operations | $93,412 | $95,212 | | Net Income | $58,365 | $66,967 | | Diluted EPS | $0.28 | $0.32 | Balance Sheet Total assets significantly increased to $4.34 billion, primarily due to the Simple Mills acquisition and a rise in long-term debt to $1.75 billion Condensed Balance Sheet Highlights (in thousands) | Account | July 12, 2025 | Dec 28, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,045 | $5,005 | | Total Assets | $4,344,622 | $3,400,447 | | Long-term debt | $1,749,154 | $1,021,644 | | Stockholders' equity | $1,427,756 | $1,410,114 | Statement of Cash Flows Year-to-date operating cash flow was $266.5 million, with significant cash disbursed for investing and provided by financing activities Condensed Statement of Cash Flows (28-Week Period Ended July 12, 2025) | (in thousands) | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $266,463 | $168,421 | | Net cash disbursed for investing activities | ($871,387) | ($76,505) | | Net cash provided by (disbursed for) financing activities | $610,964 | ($107,577) | Reconciliation of GAAP to Non-GAAP Measures The company provides detailed reconciliations for key non-GAAP metrics to offer investors greater insight into core operations, with Q2 2025 adjusted diluted EPS at $0.30, reconciled from GAAP EPS of $0.28 by excluding costs related to restructuring implementation and acquisitions, and adjusted EBITDA at $137.7 million, down from $143.5 million in the prior year, after adjusting for items like business process improvements, restructuring, and acquisition costs Reconciliation of Net Income and EPS Adjusted diluted EPS for Q2 2025 was $0.30, reconciled from GAAP EPS by excluding restructuring and acquisition costs Q2 2025 EPS Reconciliation | Description | Per Diluted Share | | :--- | :--- | | Net income per diluted common share (GAAP) | $0.28 | | Restructuring-related implementation costs | $0.01 | | Acquisition-related costs | $0.01 | | Adjusted net income per diluted common share (Non-GAAP) | $0.30 | Q2 2025 Net Income Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | Net income (GAAP) | $58,365 | | Adjustments (Business process, restructuring, acquisition costs, etc.) | $5,059 | | Adjusted net income (Non-GAAP) | $63,424 | Reconciliation of EBITDA Adjusted EBITDA for Q2 2025 was $137.7 million, with an Adjusted EBITDA margin of 11.1% Q2 2025 EBITDA Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | Net income (GAAP) | $58,365 | | Income tax, Interest, D&A | $74,961 | | EBITDA | $133,326 | | Adjustments (Pension, restructuring, acquisition costs, etc.) | $4,355 | | Adjusted EBITDA (Non-GAAP) | $137,681 | - The Adjusted EBITDA margin for Q2 2025 was 11.1%, a decrease from 11.7% in the prior year period[37] Company Information and Disclosures This section contains standard corporate information, including details about an upcoming investor webcast, a brief company overview, and extensive forward-looking statement and non-GAAP measure disclaimers, outlining potential risks and explaining the company's rationale for using non-GAAP metrics to provide investors with a clearer view of core operations - Flowers Foods is one of the largest producers of packaged bakery foods in the U.S., with top brands including Nature's Own, Dave's Killer Bread, and Simple Mills[13] - The report contains forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties that could cause actual results to differ materially[14] - The company uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted net income to supplement GAAP results, believing they provide a more complete understanding of business operating results and underlying trends[17][20]