Flowers Foods (FLO) Q3 2024 Prepared Remarks earnings summary

Executive summary

• Achieved strong margin improvement and bottom-line growth despite top-line pressure from external factors and shifting consumer spending patterns; all primary bread brands grew in tracked channels, gaining 20 basis points in both unit and dollar share, the largest increases in the category.

• Net income for Q3 2024 was $65.0 million, a significant improvement from a net loss of $46.7 million in the prior year quarter, driven by lower legal settlement costs and moderating input costs.

• Significant progress made in profitability of the Other category and successful transition of the California distribution model is over halfway complete.

• Maintained share in the cake business despite a 5% decline in unit sales, in line with the category.

• No serious injuries or loss of life reported from recent hurricanes; company supported affected communities.

Financial highlights

• Net sales for Q3 2024 decreased 0.7% year-over-year to $1.191 billion, with price/mix up 1.7% and volume down 2.4%; branded retail net sales fell 1.5% to $760.6 million, while other net sales rose 0.7% to $430.0 million.

• Net income for the quarter was $65.0 million; adjusted EBITDA increased 10.0% year-over-year to $133.3 million, with margin up 110 basis points to 11.2%.

• GAAP diluted EPS was $0.31, up $0.53 year-over-year; adjusted diluted EPS rose $0.04 to $0.33.

• Cash flow from operations increased $25 million to $282 million year-to-date; capital expenditures decreased $10 million to $87 million.

• Dividends paid year-to-date increased to $153 million; net debt to trailing 12-month adjusted EBITDA at approximately 2x.

Outlook and guidance

• Fiscal 2024 net sales expected between $5.116 billion and $5.147 billion, up 0.5%–1.1% year-over-year; adjusted EBITDA forecasted at $530–$542 million; adjusted EPS guidance narrowed to $1.24–$1.28.

• Capital expenditures for 2024 reduced to $130–$140 million, including $5–$7 million for ERP upgrades.

• Key factors influencing results include consumer environment, promotional activity, new business ramp-up, California distribution transition, and savings initiatives.

• Ingredient costs are largely hedged for 2024, with cost moderation expected to lessen in Q4.

• Effective tax rate estimated at approximately 25%.