Flowers Foods Q3 2025 Earnings Call - Strategic Brand Innovation Offsets Bread Category Weakness

JT Rick, EVP of Finance and Investor Relations, Flowers Foods: Hello, everyone. This is JT Rick, EVP of Finance and Investor Relations. Welcome to the prerecorded discussion of Flowers Foods twenty twenty five third quarter results. We will host a live q and a session Friday, November 7 at 08:30AM eastern. Further details about the live call along with our earnings release, a transcript of these recorded remarks, and a related slide presentation are posted on the Investors section of flowersfoods.com.

Before we get started, keep in mind that the information presented here may include forward looking statements about the company’s performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. Providing remarks today are Ryals McMullen, chairman and CEO, and Steve Kinsey, our CFO. Ryals, I’ll turn it over to you.

Ryals McMullen, Chairman and CEO, Flowers Foods: Thanks, JT, and thanks, everybody, for joining our call. I’m pleased to report our third quarter results, which reflect the continued strong relative performance of our leading brands. Our work to proactively transform our portfolio to better align with consumer preferences is showing promise and gives me great confidence in our longer term path forward. We continue to invest in innovation to further advance that transformation. There’s no doubt that macroeconomic uncertainty and shifting consumer demand are creating headwinds for food companies.

These headwinds are evident in the bread category, which continues to underperform, with units declining 2.9% in the third quarter compared to a 1.8% decline for the overall food category. Within bread, traditional loaf, an area to which we are particularly exposed, is under even more pressure with units declining 6.3%. The generational shift I discussed last quarter referred to that pressure on traditional loaf. Although in its current form, this segment may become a smaller portion of the category over time, we are actively working to mitigate that trend by redefining traditional loaf, incorporating more value and better for you attributes that align with shifting consumer preferences. And our leading brands uniquely position us to capitalize on this opportunity and lead the category through this transition.

Nature’s Own is the original cleaner label mainstream bread brand, and we solidified our dominant position in better for you bread products with the acquisitions of DKB and Canyon Bakehouse. More recently, the introduction of keto, protein, and sourdough bread highlights our leadership in better for you products, while small loaves target the value opportunity. We intend to continue differentiating our brands to further solidify our competitive position in the category. Despite category headwinds, I remain optimistic about our long term prospects for several reasons. First, we expect category demand normalize.

As the economy strengthens, lower end consumers may trade up from value oriented products to more differentiated branded products like Nature’s Own and Wonder. Improved consumer confidence should also boost higher margin premium products, which are outperforming even in the current environment. Second, the initiatives we are taking to align our portfolio with changing consumer demand are gaining traction and driving improvement in key parts of our business. Notably, despite the overall underperformance of the bread category, sales of our differentiated products, particularly those with better for you attributes, are encouraging. I’ll highlight some of those positive results shortly.

To mitigate the current headwinds, we remain focused on innovation to continue transforming our portfolio. This strategic approach allows us to target attractive opportunities within our existing categories while expanding into new adjacencies that promise exciting growth prospects. We’re confident that by concentrating on the factors within our control, we can maximize our near term performance while supporting more consistent long term growth. Now I’ll provide an overview of our third quarter performance in the context of our four strategic priorities: developing our team, focusing on our brands, prioritizing margins and pursuing smart M and A. Following that, Steve will review our financial results and guidance, and then I’ll close with a discussion of key themes moving forward.

As we reflect on our performance and the challenges we face, I wanna take a moment to express my heartfelt gratitude to our employees. Their hard work, dedication, and unwavering commitment have been instrumental in driving our results. It is their passion and resilience that enable us to adapt and innovate, positioning us for future success. On that note, I’d also like to recognize and celebrate Steve Kinsey, who will be retiring at the end of this year. Through many years of dedicated service to Flowers, Steve has brought a wealth of knowledge and expertise to our team and truly embodied the core values of our culture, honesty, integrity, respect, and passion.

As the longest tenured CFO in the food industry, his leadership has been instrumental in guiding our company through various stages of growth and transformation. He has committed his career to Flowers and has been a valued partner and friend to me personally as well as the broader leadership team. I am deeply grateful for the significant impact he has made on our organization and the strong foundation he leaves behind. As we bid farewell to Steve, in January, we will be welcoming Anthony Scaglione as our new CFO. Anthony joins us with a remarkable track record of success, having led significant transformations at other companies, navigating challenging situations with skill and strategic insight.

In his role as CFO, Anthony will help guide our company’s financial strategy and oversee critical functions as we navigate through today’s complex and competitive landscape. His extensive experience across a broad range of disciplines, coupled with a proven ability to lead high performing teams with a solutions oriented approach positions him well to drive our next phase of growth. Focusing on our brands is our second strategic priority, and they have never been more important to the success of Flowers Foods. Each

JT Rick, EVP of Finance and Investor Relations, Flowers Foods: of

Ryals McMullen, Chairman and CEO, Flowers Foods: our leading brands either gained or held unit share during the quarter. DKB and Canyon grew unit share by thirty and ten basis points respectively, while Nature’s Own and Wonder maintained share. Despite the challenging environment, DKB and Canyon continued to thrive with overall units increasing an astounding 106% respectively, while the bread category declined 3%. We’re leveraging our leading brands to find pockets of growth in an otherwise soft category, and that investment is paying off, driving growth even in segments that are declining. Our strong performance in specialty premium loaf, sandwich buns and rolls, breakfast and cake highlight those gains.

In the third quarter, we grew specialty premium loaf units 4%, achieving our highest share ever, while the subcategory declined 4%. DKB and Canyon drove that performance, growing 68% in the subcategory and gaining 180 and 30 basis points of unit share respectively. While sandwich buns and rolls category units declined 2%, flowers grew 7%, gaining 80 basis points of unit share. With a combination of existing differentiated products and innovation, Wonder, Nature’s Own and DKB grew by 4%, 12%, and 60%, respectively. Particularly strong contributors include Nature’s Own Perfectly Crafted Brioche, Nature’s Own Keto, and DKB Sandwich Rolls.

DKB also helped produce strong results in the breakfast segment where flours achieved an all time high in unit share, up 60 basis points to 6.9%. Units increased 6%, while the overall segment declined 4%. Shelf space gains in DKB’s premium offerings, particularly bagels, contributed the bulk of that growth. Additionally, consistent with our strategy targeting value opportunities in the bread category, Wonder’s recent entry into the breakfast space also contributed to our outstanding performance. After a successful 2024 West Coast launch for Wonder English muffins and bagels, we’re in the process of expanding distribution nationally and are excited about the possibilities as we leverage the brand’s high awareness.

Wonder also continued to drive strong performance in the cake category, where we grew one percent despite category units declining 5%. That performance was led by Wonder, which gained 80 basis points of unit share with Tasty Cake experiencing only minor cannibalization. The ability to increase sales in a declining cake category validates our decision to leverage Wonder’s leading consumer awareness. Its success also highlights our ability to find unique ways to maximize our brands and assets to drive growth even in difficult environments. Turning now to small loaves.

Demand is increasing rapidly with category units up 85% in the third quarter. Our expanded selection of Nature’s Own and Wonder Brand small loaf offerings drove exponential growth and enabled us to quickly capture the number two market share position. We gained 15 points of unit share in the quarter and remain very optimistic about the potential for these products. To continue our progress, we recently announced an exciting slate of on trend innovation with an emphasis on better for you items that target the strongest pockets of growth in our category. Our newest products build on earlier launches of Nature’s Own keto offerings and expanded selection of small loaves, wonder snack cakes, and canyon sourdough style bread.

Among the new products are a higher protein loaf from our Nature’s Own Life lineup and DKB Supreme Sourdough. We have a robust pipeline of additional innovation and expect to continue to bring fresh, differentiated options that speak directly to today’s consumers. We’re making steady progress in our better for you snacking portfolio. DKB organic snack bars are performing well in the nutritional snack bar subcategory, and our amped up protein bars are perfect for consumers gravitating to products with protein attributes. The national launch of DKB organic snack bites is progressing well.

With a mix of six sweet and savory flavors, we’re expanding distribution across the mass, grocery, and convenience channels. Retailer response to the upcoming launch of additional better for you snacking innovation has been enthusiastic. In early next year, we’re introducing 10 new SKUs featuring exciting new flavors of bars and bites along with the launch of a new DKB breakfast bars platform. Our third strategic priority is margins. Given the difficult industry volume trends combined with additional pressure from tariffs, it is incumbent upon us to adjust our cost base.

We’re focused on aligning our supply chain with changing demand, and in recent years, we’ve closed several bakeries while converting others to higher margin organic production. We will continue to make adjustments when necessary to best adapt our supply chain to current and expected future demand. Perhaps more important for long term margin growth and cost savings initiatives is the successful execution of our portfolio strategy, whereby we work to increase the percentage of sales of higher margin branded retail products. Our investments in innovation are crucial to that process and for achieving our long term financial goals. But new products generally offer lower margins than more mature ones.

The increased cadence of new product introductions will temporarily pressure our overall margins as we invest to generate consumer trial and ramp production volumes. Over the long term, we expect these investments to expand our category leadership and drive significant shareholder value.