The Nature’s Own and Wonder owner – the second-largest bread business in the US after Grupo Bimbo - recently lowered outlooks for its sales and earnings per share for fiscal 2016, citing increased competitive activity and weak category volumes. Flowers also faces a compliance review by the US Department of Labor and legal challenges from truck drivers (see box-out below).
These issues have contributed to the business’s share price falling from $21.49 in January to $15.06 this week (September 8).
Echoing a comment he made last year about the company’s Q4 2015 results, Flowers president and CEO Allen L Shiver this week told the Barclays Global Consumer Staples Conference that, although the business had delivered solid total shareholder returns over time, he was not satisfied with its recent performance.
“It has not been in line with our long-term track record,” he said.
“Let me be clear. Nobody on our team is happy or satisfied with our recent performance. We are taking a hard look at every aspect of our business so we can successfully execute our strategy and continue to deliver long-term growth to our shareholders.”
Corrective action
Shiver added that the company was taking corrective action, and was confident that “through these efforts we can improve our results going forward”.
Although Flowers recently reported overall sales up 5.2% year on year in Q2 2016, growth had been driven by organic brands Dave’s Killer Bread (DKB) and Alpine, and Flowers said price increases on its core brands had failed to offset volume losses due to increased promotional activity and softer consumer demand.
The business this week said it had identified specific opportunities to reduce cost and improve productivity.
It has also recently announced a wide-ranging business review called Project Centennial, which it described as still in the ‘diagnostic stage’.
Legal challenge from truck drivers
Flowers Foods president and CEO Allen L Shiver told the conference that the business was “vigorously defending” itself against lawsuits brought by truck drivers.
The business faces legal challenges from drivers who claim the company improperly classified them as independent contractors.
“I want to emphasise that we are confident in our direct store delivery model and our legal position,” Shiver said.
He also reiterated that the business was co-operating with the US Department of Labor in a compliance review last month brought under the Fair Labor Standards Act.
Strategic acquisitions were also a key part of Flower’s long-term plans, but were not a primary focus in the near-term, it stated.
Acquisition targets
“There are segments of interest where we can add strong brands,” said Shiver, adding this would be similar to its acquisitions of DKB and Alpine last year.
The business had also identified independent bakers that it believes could add value the company, as did the acquisition of Maine-based Lepage Bakeries in 2012.
“For the past three years the fresh packaged bread category has been flat and that has dampered our top line growth,” Shiver told the conference.
“Recognising this, we are refocusing on our core markets and product lines and carefully evaluating opportunities to gain share and improve results.”
Organic share gains
One category where the business is already gaining share is organic bread. Driven by DKB and Alpine, Flowers brands accounted for 40.7% of US dollar sales in the first half of this year, versus 36.7% in the first half of 2015 [IRI].
“We are increasing share in faster-growing segment as well as growing our presence in underdeveloped markets,” added Shiver. “By these actions we are working to make our business more diversified and predictable.”