Flowers Foods Stock

Flowers Foods, Inc. (Flowers) operates as a producer and marketer of packaged bakery foods in the United States (‘U.S.’).

The company’s principal products include breads, buns, rolls, snack items, bagels, English muffins, and tortillas; and are sold under a variety of brand names, including Nature’s Own, Dave’s Killer Bread (‘DKB’), Wonder, Canyon Bakehouse, Tastykake, and Mrs. Freshley’s. The company’s brands are among the best known in the baking industry.

Flowers’ strategic priorities include focusing on the company’s brands, prioritizing the company’s margins, and proactively seeking out smart, disciplined acquisitions.

Brands & Products

The company reports its sales as Branded Retail and Other. The Other category includes store branded retail, foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing.

The company’s brands are some of the best-known in the U.S. fresh packaged bread industry. The company’s principal products are breads, buns, rolls, snack items, bagels, English muffins, and tortillas. The major brands within the company’s diversified brand portfolio are as follows:

Mainstream: Nature's Own, Wonder, and Tastykake.

Organic: Dave's Killer Bread.

Gluten Free: Canyon Bakehouse.

In the year ended December 30, 2023 (Fiscal 2023), the company introduced Nature's Own Keto bread, Nature's Own Hawaiian and Everything hamburger buns, Tastykake Dipp'n Sticks, and Mrs. Freshley's Donut Sticks, among others. New product introductions in 2022 included Nature's Own Hawaiian loaf bread, Nature's Own Perfectly Crafted Sourdough loaf bread, DKB Organic Everything Bread, and Canyon Bakehouse Gluten-Free Brioche and Hawaiian dinner roll varieties, among other new products. Additionally, in 2022, the company introduced new varieties of DKB Organic Snack Bars, including protein bars, and began the nationwide rollout of three varieties of the DKB Organic Snack Bars in Fiscal 2023. In early Fiscal 2023, the company launched DKB Crunchy Snack Bites in test markets. The DKB snack bars and snack bites are part of an initiative to extend the company’s presence beyond the traditional bread category and into the snacking category.

The company’s brands and products are sold through various channels throughout the U.S. These channels include supermarkets, drugstores, mass merchandisers, discount stores, club stores, convenience stores, thrift outlet stores, and foodservice, among others.

Marketing

The company supports its key brands with an advertising and marketing effort that targets consumers through electronic and in-store coupons, social media (such as Facebook and X (formerly Twitter)), digital media (including e-newsletters to consumers), websites (the company’s brand sites and third-party sites), event and sports marketing, on-package promotional offers and sweepstakes, and print advertising. When appropriate, the company may join other sponsors with promotional tie-ins. The company often focuses its marketing efforts on specific products and holidays, such as hamburger and hot dog bun sales during Memorial Day, the Fourth of July, and Labor Day, and snack cakes for specific seasons. Additionally, the company has made and is continuing to make marketing investments to target e-commerce sales as consumers shift to more online shopping alternatives, such as grocery delivery sites, retailer websites and apps, among others.

Customers

During Fiscal 2023, the company’s largest customer, Walmart/Sam’s Club, represented 22.3% of the company’s sales.

Fresh baked foods’ customers include mass merchandisers, supermarkets and other retailers, restaurants, quick-serve chains, food wholesalers, institutions, dollar stores, and vending companies. The company also sells returned and surplus product through a system of thrift stores.

The company also supplies national and regional restaurants, institutions and foodservice distributors, and retail in-store bakeries with breads and rolls; sells packaged bakery products to wholesale distributors for ultimate sale to a wide variety of food outlets; and sells packaged snack cakes primarily to customers who distribute them nationwide through multiple channels of distribution, including mass merchandisers, supermarkets, vending outlets and convenience stores. In certain circumstances, the company enters into co-packing arrangements with retail customers or other food companies, some of which are competitors. Although the company services public health care, military commissaries, and prisons, among other governmental institutions, the company does not have any material government contracts.

Distribution

The company distributes its products through a direct-store-delivery (‘DSD’) distribution system and a warehouse delivery system. The DSD distribution system primarily involves aggregating order levels and delivering products from bakeries to independent distributors for sale and direct delivery to customer stores. The independent distributors are responsible for ordering products, stocking shelves, maintaining special displays, and developing and maintaining good customer relations to ensure adequate inventory and removing unsold goods. In certain markets, the company utilizes a sales employee model to facilitate the distribution of product through the company’s DSD distribution system. The warehouse delivery system involves primarily delivering the company’s products to customers’ warehouses.

The company has sold the majority of the distribution rights to market certain brands within a geographic territory to independent distributors under long-term financing arrangements. Independent distributors, highly motivated by financial incentives from their distribution rights ownership, strive to increase sales within their defined geographic territory by offering outstanding service and merchandising.

The company’s DSD distribution system is consisted of three types of territories: independent distributor-owned and operated territories (independent distributors own the rights to distribute certain brands of the company’s fresh packaged bakery foods in defined geographic markets); distribution rights that are classified as available for sale; and other company operated territories.

The company expects to repurchase approximately 400 territories in California during Fiscal 2024 and convert them to company operated territories mostly as a result of the settlement of litigation. Once repurchased, the territories will not be resold and will be classified as company operated territories.

The company’s warehouse distribution system delivers a portion of its packaged bakery snack products from a central distribution facility located near the company’s Crossville, Tennessee snack cake bakery. This centralized distribution system allows the company to achieve both production and distribution efficiencies. Products coming from different bakeries are then cross-docked and shipped directly to customers’ warehouses nationwide. The company’s frozen bread and roll products are shipped to various outside freezer facilities for distribution to the company’s customers.

Regulations

As a producer and marketer of food items, the company’s operations are subject to regulation by various federal governmental agencies, including the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the U.S. Federal Trade Commission, the U.S. Environmental Protection Agency, the U.S. Department of Commerce, and the U.S. Department of Labor (the ‘DOL’).

Advertising of the company’s brands is subject to regulation by the Federal Trade Commission, and the company is subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act.

Research and Development

The company recorded research and development costs of $5.9 million for the year ended December 30, 2023.

History

The company was founded in 1919 as a Georgia corporation. It was incorporated in 2000. The company was formerly known as Flowers Industries, Inc. and changed its name to Flowers Foods, Inc. in 2001.