Q4 2025 Flowers Foods Inc Earnings Call

February 13, 2026

Speaker #1: Good morning, and thank you for standing by. Welcome to the Flowers Foods Q4 and Full Year 2025 Results Conference Call. Please be advised that today's event is being recorded.

Operator: Good morning, and thank you for standing by. Welcome to the Flowers Foods Q4 and Full Year 2025 Results Conference Call. Please be advised that today's event is being recorded. I would now like to hand the conference over to your opening speaker today, JT Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead.

Speaker #1: I would now like to hand the conference over to your opening speaker today, James Rieck, Executive Vice President of Finance and Investor Relations. Please go ahead.

Speaker #2: Thank you, Tanya. And good morning, everyone. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that we're all posted earlier on our investor relations website.

J.T. Rieck: Thank you, Tonya, and good morning, everyone. I hope everyone had the opportunity to review our earnings release, listen to our prepared remarks, and view the slide presentation that were all posted earlier on our investor relations website. After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make 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. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.

Speaker #2: After today's Q&A session, we will also post an audio replay of this call. Please note that in this Q&A session, we may make 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.

Speaker #2: In addition to what you hear in these remarks, important factors relating to Flowers Foods' business are fully detailed in our SEC filings. We also provide non-GAAP financial measures, for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.

Speaker #2: Joining me today are Riles McMullian, Chairman and CEO, and Anthony Scaglione, our CFO. Riles, I'll turn it over to you.

J.T. Rieck: Joining me today are Ryals McMullian, Chairman and CEO, and Anthony Scaglione, our CFO. Ryals, I'll turn it over to you.

Speaker #3: Okay. Thanks, J. T. Good morning, everybody. Welcome to the Q4 call. I'm pleased with the progress that we're making to transform our business led by the strong performance of our leading brands and disciplined execution of efficiency initiatives.

Ryals McMullian: Okay, thanks, JT. Good morning, everybody. Welcome to the Q4 call. I'm pleased with the progress that we're making to transform our business, led by the strong performance of our leading brands and disciplined execution of efficiency initiatives. We produce results at the high end of our 2025 guidance range. Now, as we look to 2026, our guidance does reflect ongoing category challenges, one fewer week, inflationary pressures, but also additional investments in our leading brands. In response to the headwinds that we are facing, we're conducting a comprehensive review of our operations, including our brand portfolio, supply chain, and financial strategy, to strengthen execution and position our business to reignite top-line growth and expand margins over time. I want to thank our dedicated Flowers team for their hard work and resilience during this period of change, and our shareholders for their ongoing support.

Speaker #3: We produced results at the high end of our 2025 guidance range. Now, as we look to 2026, our guidance does reflect ongoing category challenges, one fewer week, inflationary pressures, but also additional investments in our leading brands.

Speaker #3: In response to the headwinds that we are facing, we're conducting a comprehensive review of our operations, including our brand portfolio, supply chain, and financial strategy.

Speaker #3: To strengthen execution and position our business to reignite top-line growth and expand margins over time. I want to thank our dedicated Flowers team for their hard work and resilience during this period of change.

Speaker #3: And our shareholders for their ongoing support. We remain focused on navigating near-term challenges while also laying the foundation for sustainable long-term growth. And with that, Tanya, we are ready for questions.

Ryals McMullian: We remain focused on navigating near-term challenges while also laying the foundation for sustainable long-term growth. With that, Tonya, we are ready for questions.

Speaker #4: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Operator: Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile our Q&A roster. And our first question will be coming from the line of Steve Powers of Deutsche Bank. Your line is open.

Speaker #4: Please stand by while we compile our Q&A roster. And our first question will be coming from the line of Steve Powers of Dochi Bank.

Speaker #4: Your line is open.

Speaker #5: Great. Good morning, everybody. Thanks for taking my questions. Great. So, Riles and Anthony, you both spoke to the comprehensive review that you've begun on brands, on operations, etc.

Steve Powers: Great. Good morning, everybody. Thanks for taking my questions. Great. So, Ryals and Anthony, you, you both spoke to the, the comprehensive review that you've begun, you know, on, on brands, on operations, et cetera. I guess maybe just if you could, I know Anthony talked about it being the first inning of that process, but maybe talk a little bit more about how you scoped that exercise, what the, what the project plan is, kinda what things are in or, or, or out of consideration. Just any, any more meat on those bones, would be helpful. And Anthony, if you, if you have any estimate of how long the game lasts, that also would be, would be helpful.

Speaker #5: I guess maybe just, if you could—I know Anthony talked about it being the first inning of that process—but maybe talk a little bit more about how you've scoped that exercise?

Speaker #5: What the project plan is? Kind of what things are in or out of consideration? Just any more meat on those bones would be helpful.

Speaker #5: And Anthony, if you have any estimate of how long the game lasts, that also would be helpful.

Speaker #2: Sure, Steve. I'll start and let Anthony fill in. And I certainly appreciate the thirst for more details on this. We are in the early innings of the review.

Ryals McMullian: Sure, Steve. I'll start and let Anthony fill in. I certainly appreciate the thirst for more details on this. We are, you know, in the early innings of the review, but at a high level, you know, we're conducting a complete review of our brand portfolio, the manner and magnitude with which we're supporting that brand portfolio. We're evaluating other areas that are in additional need of investment. I think we're all aware that, you know, by and large, the portfolio is performing very well, you know, across cake and our innovative platform and premium. The real issue for us is traditional loaf, where we under indexed, and that has been, you know, underperforming the category. And, you know, that has downstream effects in terms of operating deleverage, et cetera.

Speaker #2: But at a high level, we're conducting a complete review of our brand portfolio, the manner and magnitude with which we're supporting that brand portfolio, and we're evaluating other areas that are in additional need of investment.

Speaker #2: I think we're all aware that, by and large, the portfolio is performing very well across cake and our innovative platform and premium. The real issue for us is traditional loaf, where we under-index, and that has been underperforming the category.

Speaker #2: And that has downstream effects in terms of operating deleverage, etc. So one of the key focus areas, Steve, is how do we reinvigorate Nature's Own?

Ryals McMullian: So, you know, one of the key focus areas, Steve, is how do we reinvigorate Nature's Own? You know, reigniting growth for that brand, generating demand for that brand is gonna be a key focus area for us. In addition, taking a look at supply chain, inclusive of the distribution network to ensure that we are squeezing as much efficiency out of our operations as possible, is another key area of focus. So as we move through the year, obviously, we will continue to provide you all more and more detail as we go through the year. We're just in the early stretches right now.

Speaker #2: Reigniting growth in that brand, generating demand for that brand, is going to be a key focus area for us. In addition, taking a look at supply chain, inclusive of the distribution network, to ensure that we are squeezing as much efficiency out of our operations as possible, is another key area of focus.

Speaker #2: So, as we move through the year, obviously we will continue to provide you all more and more detail as we go through the year.

Speaker #2: We're just in the early stretches right now.

Speaker #3: Yeah. And I would just add, I would characterize the review as a measured approach working with Riles and the rest of the management team on the evaluation around the portfolio.

Anthony Scaglione: ... Yeah, and I would just add, I would characterize the review as a measured approach, working with Ralph and the rest of the management team on the evaluation around the portfolio, where it makes sense to invest, and this really leads to the CapEx conversation as well, where we're going to make those investments. It's a thoughtful and broad review, and really not intended to be just for this year, but it's a multiyear process. I don't know when we're going to get to the top of the seventh, but we'll, to Ralph's point, we'll continue to make progress, and provide that update along the way.

Speaker #3: Where it makes sense to invest in this really leads to the CapEx conversation as well—where we're going to make those investments. It's a thoughtful and broad review.

Speaker #3: I really had not intended this to be just for this year, but it's a multi-year process to get to the top of the seventh. But to Riles' point, we'll continue to make progress and provide that update along the way.

Speaker #5: Okay, great. And I guess as part of that, Anthony, you spoke in the prepared remarks about a review of capital allocation. And some of that will be a review of the capital expenditures that you just spoke to.

Steve Powers: Okay, great. And I guess, as part of that, Anthony, you spoke in the prepared remarks about a review of capital allocation, and some of that will be, you know, a review of the capital expenditures that you just spoke to. But maybe you could, if you could speak a little bit more broadly to capital allocation. We've spoken on this call in general about, you know, the dividend run rate of Flowers, and obviously, cash flow has exceeded, you know, GAAP income. But at the same time, you know, the call for 2026 EPS is obviously below the dividend commitment. So just how you're thinking about capital allocation more broadly inclusive of that dividend. Thank you.

Speaker #5: But maybe you could, if you could speak a little bit more broadly to capital allocation. We've spoken on this call in general about the dividend run rate of Flowers, and obviously, cash flow has exceeded GAAP income.

Speaker #5: But at the same time, the call for 2060 EPS is obviously below the dividend commitment. So just how you're thinking about capital allocation more broadly, inclusive of that dividend.

Speaker #5: Thank you.

Speaker #2: Yeah. I appreciate the question. It's a great question. And we understand that the dividend is top of mind for investors. And our focus has always been driving shareholder value and we want to convey the importance that we place on the evaluation of our capital structure and our capital allocation.

Anthony Scaglione: Yeah, I appreciate the question. It's a great question. We understand that the dividend is top of mind for our investors, and our focus has always been driving shareholder value. We want to convey the importance that we place on the evaluation of our capital structure and our capital allocation, and that's obviously a conversation we have with our board. I think we need to make progress on the overall strategic evaluation to determine if, what, and how much we alter that capital allocation and direction. But I'd also like to say, we, you know, we remain committed, and I think we mentioned this in the prepared remarks as well, to our strong balance sheet, and we recognize the benefit of the investment-grade rating.

Speaker #2: And that's obviously a conversation we have with our board. I think we need to make progress on the overall strategic evaluation to determine if what and how much we alter that capital allocation and direction.

Speaker #2: But I'd also like to say we remain committed—and I think we mentioned this in the prepared remarks as well—to our strong balance sheet, and we recognize the benefit of the investment-grade rating.

Speaker #5: Very good. Thanks. I'll pass it on. Thank you.

Steve Powers: Very good. Thanks. I'll pass it on. Thank you.

Speaker #6: Thanks, Steve.

Ryals McMullian: Thanks, Steve.

Speaker #4: And our next question will be coming from Jim Solera of Stevens. Your line is open.

Operator: Our next question will be coming from Jim Salera of Stephens. Your line is open.

Speaker #5: Hey, Riles. Anthony. Good morning. Thanks for taking our question.

Jim Salera: Hey, Ryals, Anthony, good morning. Thanks for taking our question.

Speaker #6: Hey, Jim.

Ryals McMullian: Hey, Jim.

Speaker #5: Riles, I was hoping you could offer us just kind of a high-level thought, given your experience in the industry. What do you think the industry—both yourselves and other prominent players—can do to really stabilize this kind of traditional loaf piece of the category?

Jim Salera: Ralph, I was hoping you could offer us, just kind of a high-level thought, given your experience in the industry. What do you think the industry, both yourselves and other, you know, prominent players, can do to really stabilize, you know, this kind of traditional loaf piece of the category? You know, often in your remarks, you call out the pockets of growth for DKB and a lot of the specialized, you know, offerings that you have, but it seems like the traditional loaf is kind of the thorn in the side, and it's been that way for, you know, quarter after quarter. Is there a point where, you know, the marginal household is just finally washed out of the category and we can get to a stabilization point?

Speaker #5: Often in your remarks, you call out the pockets of growth for DKB and a lot of the specialized offerings that you have. But it seems like the traditional loaf is kind of the thorn in the side, and it's been that way for quarter after quarter.

Speaker #5: Is there a point where the marginal household is just finally washed out of the category and we can get to a stabilization point? Or do you see the frequency of consumption even for households that stay in the category continue to decline?

Jim Salera: Or do you see the frequency of consumption, even for households that stay in the category, continue to decline? Just, you try to size up, you know, what we should be looking for to, to kind of get a glide path back to, you know, some semblance of kind of flat to then hopefully positive in the future.

Speaker #5: Just trying to size up what we should be looking for to kind of get a glide path back to some semblance of kind of flat to then hopefully positive in the future.

Speaker #2: Yeah. Great question, Jim. And as I said, that's the key. To everything for us, really. Because we do have so much strength in the other parts of the portfolio where we've heavily invested.

Ryals McMullian: Yeah, great question, Jim. As I said, that's the key to everything for us, really. Because we do have so much strength in the other parts of the portfolio where, you know, we've heavily invested, we've been extremely innovative in those other parts of the portfolio. We've talked a lot about, you know, not only the shift to value, you know, in this most recent conversation about affordability, but also the shift to premium differentiated. And we've been, you know, a key player there, and our efforts have certainly paid off. You can see that in the numbers and in the share data. You're absolutely right, traditional loaf is the key for us. You know, it's our largest brand in Nature's Own. It's also the number one brand.

Speaker #2: We've been extremely innovative in those other parts of the portfolio. We've talked a lot about not only the shift to value in this most recent conversation about affordability, but also the shift to premium differentiated.

Speaker #2: And we've been a key player there, and our efforts have certainly paid off. You can see that in the numbers and in the share data.

Speaker #2: You're absolutely right. Traditional loaf is the key for us. It's our largest brand. And Nature's Own, it's also the number one brand. I think the soft variety will continue or traditional loaf, rather, will continue to be an important part of the category.

Ryals McMullian: I think the soft variety will continue, or traditional loaf rather, will continue to be an important part of the category. But, you know, if the trends that we see continue, whether that's a shift to premium, whether it's a shift to value, inclusive of small loaves, because I do think, you know, a portion of the current value play, if you will, is driven by, you know, macroeconomic factors that we see all the time, in the bread category. I think the difference now, whereas traditionally you would have seen a shift to private label, you're seeing a shift to, you know, lower-priced branded offerings that are priced, you know, at parity or slightly above private label. You know, in the same environment, private label is down.

Speaker #2: But if the trends that we see continue, whether that's a shift to premium, whether it's a shift to value, inclusive of small loaves, because I do think a portion of the current value play, if you will, is driven by macroeconomic factors that we see all the time.

Speaker #2: In the bread category, I think the difference now—whereas traditionally you would have seen a shift to private label—you're seeing a shift to lower-priced branded offerings that are priced at parity or slightly above private label.

Speaker #2: And in the same environment, private label is down. So it's different this time around. But I think that the pure value play is cyclical.

Ryals McMullian: So it's different this time around, but I think that the pure value play is cyclical. I think small loaves, however, offer something different. Not only is it value, it certainly addresses that area of the market, but it's also demographic shifts, Jim. Smaller households, people getting married later, and a desire not to waste product, in addition to, in the current environment, you know, it being more of a value offering. So my point in saying all this is, over time, I do think you're going to see the shelf evolve and change overall. So it's very important for us to be prepared to shift with that.

Speaker #2: I think small loaves, however, offer something different. Not only is it value—it certainly addresses that area of the market—but it's also demographic shifts, Jim.

Speaker #2: Smaller households, people getting married later, a desire not to waste product—in addition to, in the current environment, it being more of a value offering.

Speaker #2: So my point in saying all this is, over time, I do think you're going to see the shelf evolve and change overall. And so it's very important for us to be prepared to shift with that.

Speaker #2: And we believe there are things that we can do with Nature's Own, given its high loyalty rate, given its awareness, given that it's the number one brand, to bring additional attributes to consumers that they will value.

Ryals McMullian: And we believe there are things that we can do with Nature's Own, given its high loyalty rate, given its awareness, given that it's the number one brand, to, you know, bring additional attributes to consumers that they will value. So I do, I do think that there is a path there, and we're excited about the changes that we have upcoming for that segment of the portfolio. If we're successful in doing that, Jim, that goes a long way to, you know, getting us back at least to a stable state in traditional loaf, which will be very meaningful for the business, if not slight growth and recapture some of that operating leverage. It's also important, though, to say at the same time, as Anthony and I both noted, you know, our supply chain review is involved in this too.

Speaker #2: So, I do think that there is a path there, and we're excited about the changes that we have upcoming for that segment of the portfolio.

Speaker #2: If we're successful in doing that, Jim, that goes a long way to getting us back at least to a stable state in traditional loaf, which will be very meaningful for the business, if not slight growth, and recapture some of that upper-end deal leverage.

Speaker #2: It's also important, though, to say at the same time, as Anthony and I both noted, our supply chain review is involved in this, too.

Speaker #2: So it's important to do both, to both address the demand for traditional loaf primarily, but also address our fixed cost base and ensure that we are operating as efficiently as possible.

Ryals McMullian: So it's important to do both, to both address the demand for traditional loaf primarily, but also address our fixed cost base and ensure that we are operating as efficiently as possible.

Speaker #5: Thank you. I appreciate all the detail on that. Maybe, tying that to 2026, we just think about the kind of interplay between the ramp and Simple Mills, and then the legacy portfolio.

Jim Salera: Thank you. I appreciate all the detail on that. Maybe tying that to 2026, if we just think about the kind of interplay between the ramp and Simple Mills and then the legacy portfolio, can you just give us a sense on the cadence on the top line? I mean, obviously, Q4 has the 53rd week lap, but just, should we expect a lot of the Simple Mills to kind of hit at the beginning of the year? Is it more of a gradual rollout, just kind of the cadence of the top line growth as we roll through the year?

Speaker #5: Could you just give us a sense on the cadence on the top line? I mean, obviously, 4Q has the 53rd week lap, but just should we expect a lot of the simple mills to kind of hit at the beginning of the year?

Speaker #5: Is it more of a gradual rollout, just kind of the cadence of the top-line growth as we roll through the year?

Speaker #2: Yeah. So, if you think about the guide, the range is down roughly about 180 basis points to slightly up—effectively flat. And from that, we said we expect the category to be down 4% from a headwind, which is anyone's guess at this point, but we felt taking a rational approach and conservative approach looking at that from that lens.

Anthony Scaglione: Yeah. So if you think about the guide, the range is down roughly about 180 basis points to slightly up, effectively flat. And from that, we said the category, we expect the category to be down 4% from a headwind, which is anyone's guess at this point, but we felt taking a rational approach and conservative approach, looking at that from that lens. The extra week adds about 150 basis points of pressure, and then the rest is gonna be a combination of the Simple Mills wrap, and, and the growth being from share and rate, as we plan out the year.

Speaker #2: The extra week adds about 150 basis points of pressure, and then the rest is going to be a combination of the Simple Mills wrap and the growth being from share and rate as we plan out the year.

Speaker #5: Okay, great. Thank you. I'll hop back into Q.

Jim Salera: Okay, great. Thank you. I'll hop back in this queue.

Speaker #4: Thanks, Jim.

Ryals McMullian: Thanks, Jim.

Speaker #6: And our next question will be coming from Max Gumpert of PNB I'm sorry, BNP Paribas. Your line is open.

Operator: And our next question will be coming from Max Gumport of BNP - I'm sorry, BNP Paribas. Your line is open.

Speaker #4: Hey, thanks for the question. I wanted to come back to the dividend conversation and just get more clarity on why not cut the dividend today, with your payout ratio going to well above 100% of your guidance for EPS and your leverage being in a difficult place.

Max Gumport: Hey, thanks for the question. I wanted to come back to the dividend conversation and just get more clarity on why not cut the dividend today. With your payout ratio going to well above 100% of your guidance for EPS, your leverage being in a difficult place, it looks like your current net debt represents anywhere from 3.5 to 3.75 times your outlook for adjusted EBITDA this year, which puts you at risk of tripping your 3.75 times covenant. And then clearly, you're in a difficult place right now in determining how to finance the business going forward as you've come to the market with your outlook for 2026, but with no CapEx plans for the year. So wouldn't it have been simpler just to cut the dividend now and get back to focusing on operations?

Speaker #4: It looks like your current net debt represents anywhere from 3.5 to 3.75 times your outlook for adjusted EBITDA this year, which puts you at risk of tripping your 3.75-times covenant.

Speaker #4: And then clearly, you're in a difficult place right now in determining how to finance the business going forward as you've come to the market with your outlook for '26.

Speaker #4: But with no capex plans for the year. So wouldn't it have been simpler just to cut the dividend now and get back to focusing on operations?

Speaker #4: Just looking for more clarity there. Thanks very much.

Max Gumport: Just looking for more clarity there. Thanks very much.

Speaker #2: Thank you. I'll take it and then pass it to Ralph. I think the team has stated this before. Dividend is a function of our discussion clearly with our board, our capital structure, and overall we address that holistically in light of both our strategy and overall capital structure.

Anthony Scaglione: Thank you. I'll take it and then pass it to Ryals. I think the team has stated this before, you know, dividend is a function of our discussion, clearly with our board, our capital structure, overall allocations, and we recognize the need to address that holistically, in light of both our strategy and overall capital structure. You know, our intent is to plan to provide that detail in the upcoming quarters. But I wanna reiterate what Ryals just said. You know, we're in the early days of this comprehensive review. You know, I can't necessarily discuss the dividend in detail at this point, but it is something that we are reviewing in light of our capital structure, in light of the bank covenant.

Speaker #2: And our intent is to plan to provide that detail in the upcoming quarters. But I want to reiterate what Ralph just said: we're in the early days of this comprehensive review.

Speaker #2: I can't necessarily discuss the dividend in detail at this point, but it is something that we are reviewing in light of our capital structure, in light of the bank covenant, what I would say.

Anthony Scaglione: What I would say, you know, we're in compliance with all the covenants, and we have a strong relationship with our syndicates, and we expect to refinance the upcoming maturity and also make some progress on debt pay down. So it is part of our overall review, and hopefully, that's helpful.

Speaker #2: We're in compliance with all the covenants, and we have a strong relationship with our syndicates. We expect to refinance the upcoming maturity and also make some progress on debt paydown.

Speaker #2: So, it is part of our overall review, and hopefully that's helpful.

Speaker #4: Great. And then, as a follow-up, I’m just looking for a bit more clarity on a few factors with regards to what’s embedded in your outlook.

Max Gumport: Great. And then as a follow-up, I'm just looking for a bit more clarity on a few factors with regards to what's embedded in your outlook for 2026. So really, it's on four factors. So I apologize for the long question, but the first is: what are you factoring in with regards to the reduced SNAP budgets this year? The second is: what potential impacts are you assuming from the Supreme Court case you have in March? The third would be on that debt refinancing, the $400 million in October that's coming due. Are you assuming a refinancing at higher rates occurs in your outlook for 2026? And then the fourth would just be, it seems like your guidance is embedding very large market share gains.

Speaker #1: For for 2026 . So really it's on . It's on for factors . So I apologize for the long question , but the first is what are you factoring in with regards to the reduced snap budgets .

Speaker #1: This year The second is what potential impacts are you assuming from the Supreme Court case ? You have in March The third would be on that debt refinancing the 400 million in October that's coming due .

Speaker #1: Are you assuming a refinancing at higher rates occurs in your outlook for 26 ? And then the fourth would just be it seems like your guidance is embedding very large market share gains .

Speaker #1: So you're saying the categories down 4% , but it sounds like organic is closer to just below flat . So just what's what's behind that large market share gain assumption .

Max Gumport: So you're saying the category is down 4%, but it sounds like organic is closer to just below flat. So just what's behind that large market share gain assumption? Apologies for the long question, but thanks very much.

Speaker #1: Apologies for the long question , but thanks very much

Speaker #2: So, I'll start with the SNAP. And we recognize the reduction in EBT purchases and the pressure on the lower income households, which is why I think our diverse portfolio of brands and products are structured to appeal to all household demographics.

Anthony Scaglione: So, I'll start with the SNAP. And we recognize the reduction in EBT purchases and the pressure on the lower-income households, which is why I think our diverse portfolio of brands and products are structured to appeal at all household demographics. We don't break that out, specifically, but we are monitoring that channel, ensuring that we are providing value at those price points as well.

Speaker #2: We don't break that out specifically , but we are monitoring that channel , ensuring that we are providing value at those price points as well

Speaker #3: The Supreme Court

Max Gumport: The Supreme Court.

Speaker #4: You. And our next question will be coming from the line of

Operator: Yeah. And our next question will be coming from the line of-

Speaker #2: I wanted to talk about the the other question . So the debt refi , as I mentioned , we're working with our syndicates as well as looking at the most efficient way to refinance .

Anthony Scaglione: I wanted to talk about the other question. So the debt refi, as I mentioned, you know, we're working with our syndicates as well as looking at the most efficient way to refinance. We're highly confident that refinancing work would occur. Obviously, rates are gonna be, you know, slightly higher than the rate of the bond that we're taking out, but we feel confident that's going to be part of our process as we look at the overall capital structure going forward. And then the last two questions were the market share gain. Could you repeat that question?

Speaker #2: We were highly confident that that refinancing work would occur . Obviously , rates are going to be slightly higher than the rate of the bond taking out , but we feel confident that that's going to be part of our process as we look at the overall capital structure going forward .

Speaker #2: And then the last two questions were the market share gain . Can you repeat that question ?

Speaker #4: Sure, I'll open the line back up. One moment.

Operator: Sure. I'll open the line back up. One moment.

Speaker #5: Yeah , I'll take that one . Anyway , on the market share gains Max , if you're if you're still listening , you know , as we've talked about , you know , we we anticipate making incremental investments in our , in our brands .

Ryals McMullian: Yeah, I'll take that one anyway, on the market share gains. Max, if you're still listening. You know, as we've talked about, you know, we anticipate making, you know, incremental investments in our brands. Also, the innovation that we have coming forth, you know, across the portfolio, inclusive of Simple Mills, having a record year for innovation, introducing 13 new items... the DKB snack brands coming forth with new items and then obviously further innovation in the core. We also have our, you know, increased marketing investment that we're making this year. So all of those would give us confidence that we can continue to gain share in the marketplace. As for the Supreme Court ruling, there's nothing embedded in guidance, so I don't think we would. That's more of an operating issue.

Speaker #5: Also the innovation that we have coming forth , you know , across the portfolio , inclusive of simple meals , having a record year for innovation , introducing 13 new items , the the Dxb snack brands coming forth with new items and then obviously further innovation in the core .

Speaker #5: We also have our , you know , increased marketing investment that we're making this year . So all of those would would give us confidence that we can continue to gain share in the marketplace .

Speaker #5: As for the Supreme Court ruling , there's there's nothing embedded in guidance . So I don't think we would . That's more of an operating issue .

Speaker #5: We wouldn't expect any material financial impact from a decision one way or the other.

Ryals McMullian: We wouldn't expect any material financial impact from the decision one way or the other.

Speaker #4: And our next question will be coming from Mitchell Pinheiro of Sturdevant and Company. Your line is open.

Operator: Our next question will be coming from Mitchell Pinheiro of Sturdivant and Company. Your line is open.

Speaker #6: Okay . Good morning .

Mitchell Pinheiro: Hey, good morning.

Speaker #2: Good morning

Ryals McMullian: Good morning.

Speaker #6: Hey , so as it relates to the supply chain review , is I mean , as as you look at . The traditional load market and obviously that's getting , you know , a little smaller , we should we anticipate perhaps some either bakery consolidation or is that part of the review

Mitchell Pinheiro: Hey, so, as it relates to the supply chain review, I mean, as you look at the traditional load market, and obviously that's getting, you know, a little smaller, should we anticipate perhaps some either bakery consolidation or is that part of the review?

Speaker #5: Yeah . That's that's part of the review . But I would say yeah that's that's an ongoing process . I mean , you know , you're aware you know , we've closed several bakeries over the last few years , most recently a bakery in Atlanta , one in Louisiana , one out in Arizona .

Ryals McMullian: Yeah, Mitch, that's part of the review, but I would say, yeah, that's an ongoing process. I mean, you know, you're aware, you know, we've closed several bakeries over the last few years, most recently a bakery in Atlanta, one in Louisiana, one out in Arizona. So, you know, this has been sort of normal course for us as we, you know, continually review operations. I think, you know, when we talk about supplier chain reinvention in terms of this review, it's a bit more global in terms of, you know, how can we better leverage digital, AI, automation, in addition to network optimization. So it's more fully encompassing and looking at the whole picture and inclusive of the distribution network as well. You know, how we get to market, where we place our DCs, etc.

Speaker #5: So , you know , this has been sort of normal course for us as we , you know , continually review operations . I think , you know , talk about supply chain reinvention in terms of this review , it's a bit more global in terms of , you know , how can we better leverage digital AI automation .

Speaker #5: In addition to network optimization, so it's more fully encompassing and looking at the whole picture, and inclusive of the distribution network as well.

Speaker #5: You know , how how we get to market , where we place our DCS , etc. .

Speaker #6: Okay . And you know , I saw that you you're moving your , your DSD , you know , the PNL responsibility to a regional back to the regional level .

Mitchell Pinheiro: Okay. And, you know, I saw that you are moving your DSD, you know, the P&L responsibility to a regional, back to the regional level. And this, you know, obviously, is a return, I guess, to the past a little bit. Is that-- Where do you see, and how do you see that benefiting, Flowers going forward?

Speaker #6: And this , you know , obviously it's a return , I guess , to the past a little bit . Is that where do you see and how do you see that benefiting flowers going forward

Speaker #5: Yeah . So it's not a early return to the past . I mean , maybe as you said , a little bit , but you know , as we as we took a look at our operations and how we're operating our business , I mean , you know , there are regional differences , you know , in terms of consumer preferences , you know , things like that .

Ryals McMullian: Yeah. So it's not really a return to the past. I mean, maybe, as you said, a little bit. But, you know, as we took a look at our operations and how we're operating our business, I mean, there, you know, there are regional differences, you know, in terms of consumer preferences, you know, things like that. We also, you know, felt that there was a need for greater accountability closer to the individual markets. And, you know, by moving... And this is for DSD, you know, which is 85% of the business, doesn't really apply to the balance of the business.

Speaker #5: We we also , you know , felt that there was a need for greater accountability , closer to the individual markets . And , you know , by moving and this is for DSD , you know , which is 85% of the business doesn't really apply to the the balance of the business .

Speaker #5: But for DSD , you know , having that higher degree of PNL accountability a bit closer to the market . And , you know , in some cases having more local decisions , we thought was a prudent move to make in the in the current environment we're operating .

Ryals McMullian: But for DSD, you know, having that higher degree of P&L accountability a bit closer to the market and, you know, in some cases having more local decisions, we thought was a prudent move to make in the current environment we're operating. I mean, obviously, you know, this is a very challenging time for the company and for the industry, and so making sure we have accountability in the right place, the right people in the right place, is of paramount importance.

Speaker #5: I mean , you know , this is a very challenging time for the company and for the industry . And so making sure we have accountability in the right place , the right people in the right places of paramount importance .

Speaker #6: Okay. And then I guess just last question is, and there's also this optimizing your brand portfolio. Does that mean potentially selling brands?

Mitchell Pinheiro: Okay. And then I guess just last question: And there's also, does optimizing your brand portfolio, does that mean potentially selling brands?

Speaker #5: mean , we're looking at everything . I mean , I certainly can't comment specifically on any , you know , contemplated divestitures , but it really is focused on , you know , optimizing the portfolio in a way that sets us up best for success .

Ryals McMullian: I mean, we're looking at everything. I mean, I certainly can't comment specifically on any, you know, contemplated divestitures, but it really is focused on, you know, optimizing the portfolio in a way that sets us up best for success. So, you know, that can mean anything from, you know, additional investment in brands to SKU rationalization to, yes, potential divestitures, but there's nothing, you know, concrete on the table at the moment.

Speaker #5: So , you know , that can mean anything from , you know , additional investment in brands to , to skew rat to , yes , potential divestitures .

Speaker #5: But there's nothing , you know , concrete on , on the table at the moment .

Speaker #6: Okay . All right . Thank you .

Mitchell Pinheiro: Okay. All right. Thank you.

Speaker #5: Thanks , Mitch . Thank you

Ryals McMullian: Thanks, Mitch.

Mitchell Pinheiro: Thank you.

Speaker #4: And as a reminder , if you would like to ask a question , please press star one one on your phone And our next question is a follow up from Max Gumpert of BNP Paribas .

Operator: And as a reminder, if you would like to ask a question, please press star one one on your phone. And our next question is a follow-up from Max Gumport of BNP Paribas. Your line is open.

Speaker #4: Your line is open

Speaker #1: Hey , thanks . Just a couple housekeeping ones . So first would be , is there a level of maintenance CapEx you could speak to ?

Max Gumport: Hey, thanks. Just a couple of housekeeping ones. So first would be, is there a level of maintenance CapEx you could speak to, just as we're, you know, thinking through our models and the lowest level of CapEx we, you know, could potentially be putting in the model for 26?

Speaker #1: Just as we're thinking through our models and the lowest level of CapEx , we could potentially be putting in the model for for 26 .

Speaker #2: Yeah , yeah . Let me let me qualify that . So maintenance CapEx for us is just as you can imagine , the normalized CapEx that we look at across our bakery and real estate network and that usually runs around $2 million plus or minus per bakery per year .

Anthony Scaglione: Yeah. Yeah, let me qualify that. So maintenance CapEx for us is just as you can imagine, the normalized CapEx that we look at across our bakery and real estate network, and that usually runs around $2 million, ±, per bakery per year. And then looking at that from a historical, you know, there's always gonna be a special project or an initiative that's gonna require CapEx. And clearly, we have the rest of the ERP project that we need to complete in 2026 and early part of 2027. So that hopefully gives you a little bit of a range of, you know, looking at it from the overall picture. There's an amount that we intend to deploy as part of that maintenance.

Speaker #2: And looking at that from a historical , you know , there's always going to be a special project or an initiative that's going to require CapEx .

Speaker #2: And clearly we have the rest of the ERP project that we need to complete in 2026 and early part of 2027 . So that hopefully gives you a little bit of a range of looking at it from the overall picture .

Speaker #2: There's a there's an amount that we intend to deploy as part of that maintenance . It's really looking at that growth CapEx and really efforts and being laser focused on that .

Anthony Scaglione: It's really looking at that growth CapEx and really focusing our efforts and being laser-focused on that, and that's what's inhibiting us at this point from providing that range. But as I mentioned in my prepared remarks, you know, most likely that outcome is gonna be the continued prudent approach that we've had in the past.

Speaker #2: And that's what's inhibiting us at this point from providing that range . But as I mentioned in my prepared remarks . You know , most likely that outcome is going to be the continued prudent approach that we've had in the past

Speaker #1: Great . And then on the on the $0.08 impact to EPs from incentive compensation . Any color on the cadence in which that that wind down occurred in 25 , I imagine that a large chunk came in for you , but partly came in to queue and three queue as well .

Max Gumport: Great. And then on the $0.08 impact to EPS from incentive compensation, any color on the cadence in which that wind down occurred in 2025? I imagine that a large chunk came in Q4, but that partly came in Q2 and Q3 as well. So any more explicit help on cadence you could give us with regard to the $0.08?

Speaker #1: So, any more explicit help on cadence you could give us regarding the $0.08?

Speaker #2: Yeah , we actually adjust our our accrual quarterly and most of that adjustment occurred in the first three quarters of last year . Just given the revised estimates .

Anthony Scaglione: ... Yeah, we actually adjust our accrual quarterly, and most of that adjustment occurred in the first three quarters of last year, just given the revised estimate. So when you look at the cadence, it's more for three quarters versus Q4.

Speaker #2: So, when you look at the cadence, it's more first three quarters versus Q4.

Speaker #1: Okay . And then on simple mills sales , it looks like in for Q or I mean , you ended the year a bit below the the full year guidance , which I believe was 221 to 223 .

Max Gumport: Okay. And then on Simple Mills sales, it looks like in Q4, or I mean, you ended the year a bit below the full year guidance, which I believe was $221 to 223. You reported closer to $14. So it seems like Q4 came in a bit light of expectations. But at the same time, your commentary still sounds pretty good on Simple Mills. So anything went off that held back Simple Mills sales in Q4 2025?

Speaker #1: You reported close to $214 million. So it seems like Q4 came in a bit light of expectations, but at the same time, your commentary still sounds pretty good on Simple Mills.

Speaker #1: So, anything went off that held back Simple Mills sales in for Q2 '25?

Speaker #5: Yeah . Max , it's Reinhardt's a couple of things . One , there were some inventory Deloading related to to one distributor that kind of disrupted the timing of sales during that period .

Ryals McMullian: Yeah, Max, it's Giles. A couple of things. One, there were some inventory deloading related to one distributor that kind of disrupted the timing of sales during that period. And they, Simple Mills also had an issue with some coconut sugar that came in. All the affected inventory was in our control, so there was, you know, no recall or anything like that. But that contributed to a little bit of a disruption in terms of sales timing in Q4. But to your point, we still feel great about Simple Mills. We expect them to be top line up double digits next year. Lots of innovation coming, so we're still quite bullish on the business. They're doing fine.

Speaker #5: And they Supplementals also had an issue with some some coconut sugar that came in all the affected inventory was in our control . So there was , you know , no recall or anything like that , but that , that , that contributed to a little bit of a disruption in terms of sales timing in the fourth quarter .

Speaker #5: But to your point, we still feel great about Simple Mills. We expect them to be top-line, up double digits next year.

Speaker #5: Lots of innovation coming . So we're still quite bullish on the business . They're doing fine

Speaker #1: Great . And last one for me and I'll leave it there . It's just on margins for simple mills . So it looks like it dipped to 11% EBITDA margin in four Q versus 16% in the first three quarters .

Max Gumport: Great. And last one from me, and I'll leave it there. It's just on margins for Simple Mills. It looks like it dipped to 11% EBITDA margin in Q4 versus 16% in the first three quarters.

Speaker #1: I think also , that was roughly in line with your plan . So I guess one , is it really just all about tariffs coming on and then maybe some input cost running a bit higher too .

Ryals McMullian: Yeah.

Max Gumport: I think also that was roughly in line with your plan. So I guess, one, is it, is it really just all about tariffs coming on and then maybe some input costs, running a bit higher, too?

Speaker #1: And then can you give a bit more color on how we should think about input costs for '26, particularly given what we're seeing with almonds and inflation there?

Ryals McMullian: Yeah.

Max Gumport: And then could you give-

Ryals McMullian: Yeah

Max Gumport: ... a bit more color on how we should think about input costs for 2026, particularly given what we're seeing with almonds and inflation there? Thanks very much.

Speaker #1: Thanks very much .

Speaker #5: Yeah , Max , you're spot on . It's almond flour and tariffs . And you know , in addition to , you know , additional brand investments in the in the brand , I think you should expect that to continue in the 26 .

Ryals McMullian: Yeah. Max, you're, you're spot on. It's almond flour and tariffs. And, you know, in addition to, you know, additional brand investments in the, in the brand, I think you should expect that to continue into 2026. But yeah, it's, it's primarily the almond flour and tariff impact for Simple Mills.

Speaker #5: But yeah, it's primarily the almond flour and tariff impact for Simple Mills.

Speaker #1: Okay . Thanks very much . Appreciate all the questions . I'll pass it on .

Max Gumport: Okay. Thanks very much. Appreciate all the questions. I'll pass it on.

Speaker #5: Okay. Thanks, Max.

Speaker #1: Thank you .

Ryals McMullian: Okay, thanks, Max. Thank you.

Speaker #4: And our next question will be coming from the line of Scott Marx of Jefferies. Your line is open, Scott.

Operator: Our next question will be coming from the line of Scott Marks of Jefferies. Your line is open, Scott.

Speaker #7: Hey . Good morning all . Thanks for taking our questions First one for me . You know , you're talking about kind of heightened reinvestment in the business .

Scott Marks: Hey, good morning, all. Thanks for taking our questions. First one from me, you know, you're talking about kind of heightened reinvestment in the business and some brands for 2026, but it seems like you've also already been on this journey since the summer in terms of small loaves and some protein offerings and better for you. So just wondering if you can help us understand maybe what's changing and what's going to be different from what you've already been enacting in the portfolio?

Speaker #7: And some brands for 2026 . But it seems like you've also already been on this journey since the summer . In terms of small loaves and some protein offerings and better for you .

Speaker #7: So, just wondering if you can help us understand maybe what's changing, and what's going to be different from what you've already been enacting in the portfolio, right?

Speaker #5: Yeah , exactly . Scott . Good question . So , you know , as I was alluding to earlier , you know , over the last several years , we have , ramped up our brand investment , not just in marketing , but but also in our innovation efforts .

Ryals McMullian: Right. Yeah, exactly, Scott. Good question. So, you know, as I was alluding to earlier, you know, over the last several years, we have, you know, ramped up our brand investment, not just in marketing, but also in our innovation efforts, you know, around DKB, DKB snacks, obviously, the addition of Simple Mills, but also Keto, Protein Loaves, and Perfectly Crafted. Just kind of, you know, I won't go on and list them all, but, you know, we believe that we're, you know, one of the most innovative producers in the category. What's different this time, as I said earlier, is, you know, when you look at our portfolio, when you look at our market share performance, you know, the clear issue is in traditional loaf, and that primarily means Nature's Own.

Speaker #5: You know , around Dxb , dxb snacks . Obviously , the addition of simple mills , but also keto and protein loaves and perfectly craft is just kind of , you know , on go on and list them all .

Speaker #5: But , you know , we believe that we're , you know , one of the most innovative producers in the category . What's different this time ?

Speaker #5: As I said earlier , is , you know , when you when you look at our portfolio , when you look at our market share performance , you know , the clear issue is in traditional loaf and that primarily means nature's own .

Speaker #5: And so, you know, a lot of the additional investment and innovation that we're speaking to today is around reigniting demand for traditional loaf and for Nature's Own.

Ryals McMullian: So, you know, a lot of the additional investment and innovation that we're speaking to today is around reigniting demand for traditional loaf and for Nature's Own.

Speaker #7: Understood . Thanks for the clarity on that . And then second one for me is , you know , you're talking obviously about some of the category pressures .

Scott Marks: Understood. Thanks for the clarity on that. And then second one for me is, you know, you're talking obviously about some of the category pressures. You also spoke a bit about some heightened competition within the category. So wondering if you can just kind of share maybe, you know, how you're thinking about the competition. Have you seen competitors do anything like rationalize some of their own production capabilities? Just wondering, you know, how competitors are kind of handling the current environment.

Speaker #7: You also spoke a bit about some heightened competition within the category. So, wondering if you can just kind of share maybe, you know, how you're thinking about the competition.

Speaker #7: Have you seen competitors do anything like rationalize some of their own, their own production capabilities? Just wondering how competitors are kind of handling the current environment?

Speaker #5: Yeah , nothing . Nothing major that I would report in terms of , you know , bakery consolidation or anything like that . I think , you know , the competitive environment in the fourth quarter was pretty normal .

Ryals McMullian: Yeah, nothing major that I would report in terms of, you know, bakery consolidation or anything like that. I think, you know, the competitive environment in the fourth quarter was, you know, pretty normal. No major uptick. In fact, for the category, price per unit was actually up a bit in the quarter. And, you know, that a lot of that is likely mix shift to premium products. You know, obviously, like the rest of the food industry, you know, everybody's trying to figure this out. You know, the rise of GLP-1s, the fact that it's coming out, you know, in a pill, the overall macroeconomic environment, you know, while inflation has certainly come down, prices remain elevated, and some consumers are struggling with that.

Speaker #5: No major uptick . In fact , the for the category for the category price per unit was actually up a bit in the quarter .

Speaker #5: And , you know , that a lot of that is likely mix shift to premium products . You know , obviously , like the rest of the food industry , you know , everybody's trying to figure this out .

Speaker #5: You know , the the , the the rise of GLP one , it's coming out , you know , in a pill , the , you know , the the overall macroeconomic environment , you know , while inflation has certainly come down , prices remain elevated .

Speaker #5: And some consumers are struggling with that . You know . So you see you know a lot of move to value not not just in terms of product but also in terms of channel , you know , moving more to club stores and mass etc.

Ryals McMullian: You know, so you see, you know, a lot of move to value, not just in terms of product, but also in terms of channel, you know, moving more to club stores and mass, et cetera. So, you know, I think we're going to continue to see a consumer continue to see a pressured consumer for a bit longer, and we'll see how all that shakes out. In the meantime, you know, what's important to us is that we're delivering products to consumers that have attributes that they want – definitely with a better-for-you bet, but also across the price spectrum. That's how we're looking at it. You know, in terms of promotional levers, obviously, we have that at our disposal.

Speaker #5: . So , you know , I think we're going to continue to see a consumer continue to see a pressured consumer for a bit longer , and we'll see how all that shakes out in the meantime , you know , what's important to us is , is that we're delivering products to consumers that have attributes that they want .

Speaker #5: Definitely with a with a better for you bet . But also across the price spectrum . That's how we're looking at it . You know , in terms of promotional levers , obviously we we have that at our disposal .

Speaker #5: We tend to use that prudently and use it more for driving trial and repurchase rather than driving volume gains . You have to you have to remember that this is a this is a category with limited , expandable consumption .

Ryals McMullian: We tend to use that prudently and use it more for driving trial and repurchase rather than driving volume gains. You have to, you have to remember that this is a, this is a category with limited expandable consumption, and so we are very disciplined in our use of promotional activity. But where we need to do so to protect share, you know, we, we will, but we will, you know, use our enhanced TPM capabilities to guide us in that process and make sure that we are, you know, achieving the desired return on investment. Scott, as an example of that, in Q4, we pulled back strategically on promotions.

Speaker #5: And so we are very disciplined in our use of promotional activity . But where we need to do so to protect , share , you know , we will but we will , you know , use our enhanced TPM capabilities to guide us in that process and make sure that we are achieving the desired return on investment .

Speaker #5: Scott , as an example of that , in the fourth quarter , we pulled back strategically on promotions . As I said , you know , there's limited , expandable consumption in this category .

Ryals McMullian: As I said, you know, there's limited expandable consumption in this category, and typically, when we, you know, get aggressive with promotions in Q4, we don't get a good return on that investment. And so if you look at the share data, you will see that we pulled back pretty substantially in Q4, and as we move into the new year, get back to a more normalized cadence.

Speaker #5: And typically when we , you know , get aggressive with promotions in the fourth quarter , we don't get a good return on that investment .

Speaker #5: And so if you if you look at the at the share data , you will see that we that we pulled back pretty substantially in the fourth quarter .

Speaker #5: And as we move into the new year, get back to a more normalized cadence.

Speaker #7: Appreciate the color . We'll leave it there .

Scott Marks: Appreciate the color. We'll leave it there.

Speaker #5: Thanks , Scott .

Ryals McMullian: Thanks, Scott.

Speaker #4: I'm showing no further questions . I would now like to turn the conference back to Rose McMullen , chairman and CEO , for closing remarks .

Operator: I'm showing no further questions. I would now like to turn the conference back to Ryals McMullian, Chairman and CEO, for closing remarks.

Speaker #5: Okay, Tanya, thank you. I just want to thank everybody for taking the time today and joining us for questions. We very much appreciate your interest in our company.

Ryals McMullian: Okay, Tanya, thank you. I just want to thank everybody for taking time today and joining us for questions. We very much appreciate your interest in our company, and as always, we'll look forward to speaking to you again next quarter. Take care.

Speaker #5: And as always , we'll look forward to speaking to you again next quarter . Take care . .

Operator: This concludes today's program. Thank you for participating. You may now disconnect.

Q4 2025 Flowers Foods Inc Earnings Call

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