Flowers Foods set to cut costs with 'Project Centennial' business review

By Vince Bamford contact

- Last updated on GMT

Nature's Own has been impacted by pricing pressure this year
Nature's Own has been impacted by pricing pressure this year

Related tags: Bread

Flowers Foods has launched a wide-ranging business review designed to cut costs and boost sales – and revealed its Nature’s Own brand has been hit by intense price competition.

Through the project, Flowers said it is “evaluating opportunities to enhance revenue growth, streamline operations, drive efficiencies, and make investments that strengthen its competitive position and improve margins over the long term​”.

The company is to work with consultants Accenture on the review, which is named Project Centennial to reflect the upcoming 100th​ anniversary of the founding of the business in 1919.

Announcing the company’s second-quarter financial results, Flowers Foods president and CEO Allen Shiver stated Project Centennial would focus on ways Flowers could grow sales and simplify its business.

'Significant cost savings'

We expect that there will be significant cost savings from Project Centennial​,” he said, adding he expected some improvements in the business by late this year or in the first quarter of 2017.

News of the review came as the company lowered its outlook for sales and earnings per share for fiscal 2016, citing increased competitive activity and weak category volumes.

It also follows the announcement that the business has been scheduled for a compliance review​ under the Fair Labor Standards Act by the US Department of Labor.

Organic brands drive growth

Flowers reported that overall sales rose 5.2% year on year in the second quarter to $935m, with growth driven by recently acquired organic brands Dave’s Killer Bread and Alpine. Flowers said price hikes on its core brands had failed to offset volume losses due to increased promotional activity and softer consumer demand.

Citing IRI data, Flowers said overall category unit sales of fresh packaged bread fell 1.5% year on year in Q2, with dollar sales down 0.4%. The company described the pricing pressure on traditional loaves as “acute​” over the period.

Nature’s Own - the biggest bread brand in the US - had been the Flowers brand most under attack from marketplace pricing, said Shiver.

Flowers Foods Q2 consolidated results

Sales:​ +5.2% to $935m.

Net income:​ -1.2% to $51.2m

Diluted EPS:​ unchanged at $0.24.

Adjusted EBITDA:​ + 5.2% to $118.7m

We are making sure we have competitive marketplace pricing going forward​,” he added. “We have experienced periods of heightened promotional and, as we've done in the past, are already taking action to protect our position​.”

Shiver said he was “very optimistic​” about volumes in the second half of this year, adding that the business had already started to see results of being more competitive with pricing.

Growing top-line sales

During a conference call with analysts, Shiver responded to question about a lack of growth in the business in recent years by saying Flowers would now be focusing on growing top-line sales and making margin improvement following a period of acquisition.

Project Centennial gives time to look at the overall business structure,” ​he added. “We’ve got all the components for continuing to grow in this category​.”

Shivers said the business would also have Nature’s Own “back on track shortly​”.

This category has always been very active from a pricing standpoint – and we know how to deal with that. We’ve been here before​,” he said. “It’s a very positive story until you get to Nature’s Own and we are taking the necessary action​.”

Flowers Foods: Segment performance

Dave-s-Killer-Bread-and-Alpine-grow-Flowers-Foods-in-Q1-results_strict_xxl

Direct-store-delivery segment

In the company’s direct-store-delivery segment, overall volume fell 1.8%, with branded soft variety and specialty loaf bread experiencing the largest declines. This was partially offset by growth in branded cake, buns and rolls.

Segment sales rose 4.5% to $785.8m, with Dave’s Killer Bread contributing 5.4%.

Operating income from the segment was $80.1m, an increase of 2.6% year on year. The company said declines in input costs and distribution fees were more than offset by higher workforce-related costs, purchases of co-manufactured product and legal costs. Going forward, said Flowers, purchases of co-manufactured product are expected to decline as a percentage of sales, as additional internal capacity comes online.

Warehouse segment

Sales in the warehouse segment – which distributes frozen bread and cakes - rose 9.1% year on year to $149.3m, with the recently acquired Alpine brand contributing 6.6%.

Warehouse segment operating income rose 12.4% to $15.7m, with increases in workforce-related costs and input costs more than offset by increased sales volumes.

Flowers Foods president and CEO Allen Shiver said a key focus for the business would be growing Alpine, and that it had product innovation planned to grow the brand.

Related topics: Bread, Cakes & Pastries, Manufacturers

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1 comment

Mr

Posted by Harold bridgman,

The pricing on your top brands are to me are on the high side, there is cheaper brands that are as compatable in taste and texture as the honey wheat brand that I like. Also there's so many different brands on the shelf I'm wondering if adding other brands aren't cannibalizing your other brands.

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