Flowers Foods (NYSE:FLO) is seeking additional financial flexibility as it confronts weaker bread demand, pressure on branded volumes and higher commodity costs expected to extend into the first half of 2027, executives said during the company’s third-quarter earnings call.
Chairman and CEO Ryals McMullian said the company has seen sequential improvement in some business trends and growing awareness of its Nature’s Own brand, but the pace of progress has been slower than expected. Flowers is accelerating product innovation, seeking new business and investing in its brands to address the pressures, he said.
CFO Anthony Scaglione said Flowers remains in compliance with its debt covenants and is working with its lead banks to secure additional flexibility. The company expects an update before year-end.
Debt flexibility and dividend under review
Scaglione said he was “highly confident” that Flowers could secure additional covenant relief to address potential concerns in 2027, based on discussions with its banks. The company is also examining capital expenditures, business investments and its dividend as it considers how to reduce leverage while continuing to support its brands.
The board reviews the dividend each quarter, taking into account factors including cash generation, leverage and capital investment, Scaglione said. He said the company expects to announce any board decision in its normal cadence after the following week’s board meeting.
Scaglione argued that Flowers must balance debt reduction with continued investment. Pulling back entirely on brand and growth spending in the short term would overlook what he described as a multi-quarter, multi-year effort to recover market share and growth.
Nature’s Own relaunch and category pressures
McMullian said the bread category remained weak, with unit volume down almost 3% in the quarter. Traditional 20-ounce loaves were the weakest part of the category, he said, and Flowers has significant exposure to that segment.
Stabilizing the business remains a priority. The company has relaunched Nature’s Own with a clean-label, non-GMO positioning and recently brought back its small loaves. McMullian said the small-loaf relaunch had produced promising early results, although it had been in the market for only a few weeks.
Nature’s Own has shown sequentially improving share trends since its relaunch, according to McMullian. The traditional loaf continues to lag the broader franchise but has also improved sequentially, he said.
McMullian described unit pressure on DKB as a more recent development. He cited price sensitivity and consumption changes, and suggested that use of GLP-1 drugs among higher-income consumers could be contributing to the pressure. The company is pursuing protein-focused products and looking to expand its sourdough offering; DKB sourdough is currently sold only in California, where McMullian said it is growing well.
Costs, pricing and new business
Flowers estimates it will remove roughly $20 million in costs this year, McMullian said. Opportunities include procurement, bakery productivity and reducing stale product. He said the company is also pursuing food-service and private-label business to help offset operating deleverage while it rebuilds branded volumes.
Food-service growth has been driven in large part by new business wins, along with expanded business from existing customers, McMullian said. He credited a reorganized sales force that is now mostly internal.
On pricing, McMullian said Flowers is examining prices and promotional effectiveness in an intense competitive environment, but that changing consumer preferences, package sizes and product differentiation are also important. He described the effectiveness of third-quarter promotions as uneven, with activity in the mass channel less successful than at traditional grocers.
Scaglione declined to provide a 2027 price-mix outlook. He said organic and conventional wheat are experiencing different cost trends that will factor into portfolio decisions.
The CFO said hedging and inventory protected Flowers from elevated commodity markets in the third quarter. Higher raw-material inflation was already included in the company’s fourth-quarter outlook as coverage began to lapse, he said. While some commodity indicators suggest potential relief, Scaglione said that relief is more likely in the second half of 2027, given the company’s hedging programs and current pricing.
About Flowers Foods (NYSE:FLO)
Flowers Foods, Inc. is a U.S. bakery company that produces and markets packaged breads, buns, rolls, snack cakes and other baked goods. Its products are sold under brands including Nature’s Own, Dave’s Killer Bread, Wonder, Tastykake, Canyon Bakehouse and Mrs. Freshley’s. Founded in 1919 in Thomasville, Georgia, the company has grown from a local bakery into a national producer of baked goods. Flowers Foods serves consumers across the United States through grocery stores and other retail channels, using a mix of direct-store delivery and warehouse distribution.
