Flowers Foods (NYSE:FLO) executives told investors the company finished fiscal 2025 at the high end of its guidance range, while cautioning that the outlook for 2026 reflects continued pressure in the bread category, a one-week headwind, inflationary costs, and increased spending behind key brands.
On the company’s fourth-quarter and full-year 2025 earnings call, Chairman and CEO Ryals McMullian said Flowers is making progress on a business transformation “led by the strong performance of our leading brands and disciplined execution of efficiency initiatives.” However, he added that management is responding to current headwinds with a “comprehensive review of our operations,” including the brand portfolio, supply chain, and financial strategy, aimed at strengthening execution and positioning the company to restore top-line growth and expand margins over time.
Comprehensive review: portfolio, supply chain, and multi-year planning
Scaglione characterized the effort as a “measured approach” and said it is “not intended to be just for this year,” calling it a multi-year process. Management indicated it expects to provide more updates as work progresses.
When asked specifically about optimizing the brand portfolio, McMullian said the company is “looking at everything,” including options such as additional investment, SKU rationalization, and potential divestitures, though he noted there was “nothing concrete on the table at the moment.”
Traditional loaf pressure and renewed focus on Nature’s Own
McMullian repeatedly pointed to traditional loaf bread as the company’s central challenge. While he said other parts of the portfolio—such as cake, innovation platforms, and premium—are performing well, he said traditional loaf is where Flowers “underindex” and where performance has been below the category. He emphasized that the issue has “downstream effects” including operating deleverage.
McMullian identified Nature’s Own—Flowers’ largest brand and the top brand in the category—as a primary focus area for reinvigorating demand in traditional loaf. In response to a question about what will be different about Flowers’ 2026 reinvestment plans given prior innovation in small loaves, protein offerings, and “better for you” products, McMullian said the incremental emphasis is now more directly aimed at “reigniting demand for traditional loaf and for Nature’s Own.”
Discussing category dynamics, McMullian said the market continues to show a shift toward both premium/differentiated offerings and value. He noted that unlike prior cycles when consumers moved toward private label, the current environment has featured a shift toward “lower priced branded offerings” priced at parity or slightly above private label, while private label has been down.
He also pointed to small loaves as a structural opportunity, describing drivers beyond value, including demographic shifts such as smaller households, people getting married later, and consumers seeking to reduce food waste. Over time, he said, the shelf is likely to continue evolving, and Flowers wants to be positioned to move with that change.
Guidance drivers: category decline, fewer week, and share/rate expectations
In discussing 2026 expectations, Scaglione broke down key elements embedded in the company’s outlook. He said the company is assuming the category will be down 4%—a headwind he described as uncertain but approached conservatively. He also said the extra week comparison creates roughly 150 basis points of pressure, with the remaining performance expected to come from the ramp of Simple Mills, along with growth from “share and rate” across the year.
McMullian also addressed the competitive environment, saying he did not see anything “major” such as broad bakery consolidation among competitors. He described fourth-quarter competition as “pretty normal,” and said category price per unit was up slightly in the quarter, which he attributed largely to mix shifting toward premium products.
Management also discussed promotions. McMullian said Flowers pulled back strategically on promotions in the fourth quarter, arguing that the category has “limited expandable consumption” and that aggressive fourth-quarter promotions often do not generate an attractive return. He said the company plans to return to a more normalized promotional cadence moving into the new year and will use enhanced trade promotion management capabilities to evaluate returns, employing promotions primarily for trial and repeat purchases rather than volume-driven gains.
Capital allocation and dividend: under review amid refinancing and covenant considerations
Analysts pressed management on capital allocation and the dividend, particularly given the company’s 2026 outlook relative to its dividend commitments. Scaglione said the company understands the dividend is “top of mind” for investors and emphasized that capital allocation and capital structure are being evaluated with the board. He said management needs to make progress on the broader strategic evaluation before determining “if, what, and how much” to change capital allocation decisions.
In response to a question on why the company did not cut the dividend immediately, Scaglione said he could not discuss the dividend “in detail at this point,” but confirmed it is part of the holistic review, including consideration of capital structure and bank covenants. He added that Flowers is in compliance with all covenants and has strong relationships with its lenders.
Regarding debt, Scaglione said the company expects to refinance an upcoming maturity and make progress on debt paydown. He acknowledged that rates are likely to be “slightly higher” than the bond being refinanced but said the company is “highly confident” a refinancing will occur as part of its broader capital structure process.
On capital spending, Scaglione provided a reference point for maintenance capital expenditures, saying maintenance CapEx typically runs around $2 million “plus or minus” per bakery per year. He also noted the company still needs to complete the remaining portion of its ERP project in 2026 and early 2027. However, he said the company is still working through growth CapEx priorities as part of the broader review, which is why it has not yet provided a full range.
Simple Mills: Q4 timing disruptions, innovation plans, and margin pressure
Management said it remains positive on Simple Mills, though it acknowledged fourth-quarter sales timing issues. McMullian said sales were affected by inventory deloading at a distributor, which disrupted timing, and by an issue involving coconut sugar. He said the affected inventory was under the company’s control and there was no recall, but the issue contributed to disruption in fourth-quarter sales timing. Despite that, he said the company expects Simple Mills to deliver double-digit top-line growth in 2026 and highlighted “lots of innovation” ahead.
When asked about Simple Mills margins, McMullian attributed pressure primarily to almond flour costs and tariffs, along with additional brand investments expected to continue into 2026. Scaglione also pointed to innovation as a driver of confidence in share gains, stating that Simple Mills is coming off a “record year for innovation,” including 13 new items, alongside new products from DKB snack brands and continued innovation in the core portfolio.
Separately, Scaglione addressed incentive compensation, noting an $0.08 EPS impact and explaining that accruals are adjusted quarterly, with most of the adjustment occurring in the first three quarters rather than in the fourth quarter.
Management closed the call by reiterating its focus on navigating near-term category and cost pressures while working through the comprehensive review intended to improve execution, strengthen the portfolio, and enhance operating efficiency over time.
About Flowers Foods (NYSE:FLO)
Flowers Foods, Inc is one of the largest producers of packaged bakery foods in the United States, offering a variety of fresh bread, buns, rolls, snack cakes and tortillas. Headquartered in Thomasville, Georgia, the company operates an extensive network of bakeries and distribution centers that serve retail grocery chains, convenience stores, mass merchandisers and foodservice customers nationwide. Flowers Foods markets its products under well-known brands such as Nature’s Own, Wonder, Dave’s Killer Bread, Mrs.
