SEC Form 10-Q filed by Flowers Foods Inc.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 20, 2024

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-16247

 

FLOWERS FOODS, INC.

(Exact name of registrant as specified in its charter)

 

 

Georgia		58-2582379
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

1919 FLOWERS CIRCLE, THOMASVILLE, Georgia

(Address of principal executive offices)

31757

(Zip Code)

(229)-226-9110

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value		FLO		NYSE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 10, 2024, the registrant had 211,141,599 shares of common stock, $0.01 par value per share, outstanding.

 

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FLOWERS FOODS, INC.

INDEX

 

			PAGE NUMBER
PART I. Financial Information			4
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets as of April 20, 2024 and December 30, 2023	4
		Condensed Consolidated Statements of Income for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023	5
		Condensed Consolidated Statements of Comprehensive Income for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023	6
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023	7
		Condensed Consolidated Statements of Cash Flows for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023	8
		Notes to Condensed Consolidated Financial Statements (unaudited)	9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
	Item 4.	Controls and Procedures	45
PART II. Other Information			47
	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	47
	Item 3.	Defaults Upon Senior Securities	47
	Item 4.	Mine Safety Disclosures	47
	Item 5.	Other Information	47
	Item 6.	Exhibits	48
Signatures			49

 

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Forward-Looking Statements

Statements contained in this filing and certain other written or oral statements made from time to time by Flowers Foods, Inc. (the “company”, “Flowers Foods”, “Flowers”, “us”, “we”, or “our”) and its representatives that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to current expectations regarding our business and our future financial condition and results of operations and are often identified by the use of words and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would,” “is likely to,” “is expected to” or “will continue,” or the negative of these terms or other comparable terminology. These forward-looking statements are based upon assumptions we believe are reasonable.

Forward-looking statements are based on current information and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected. Certain factors that may cause actual results, performance, liquidity, and achievements to differ materially from those projected are discussed in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and may include, but are not limited to:

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The foregoing list of important factors does not include all such factors, nor does it necessarily present them in order of importance. In addition, you should consult other disclosures made by the company (such as in our other filings with the Securities and Exchange Commission (“SEC”) or in company press releases) for other factors that may cause actual results to differ materially from those projected by the company. Refer to Part I, Item 1A., Risk Factors, of our Annual Report on Form 10-K for the year ended December 30, 2023 (the “Form 10-K”) for additional information regarding factors that could affect the company’s results of operations, financial condition and liquidity.

We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law. You are advised, however, to consult any further public disclosures by the company (such as in our filings with the SEC or in company press releases) on related subjects.

We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. Solely for convenience, some of the trademarks, trade names and copyrights referred to in this Form 10-Q are listed without the © , ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, trade names and copyrights.

 

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)

 

		April 20, 2024				December 30, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	15,818			$	22,527
Accounts and notes receivable, net of allowances of $32,810 and $33,386, respectively			359,481				328,246
Inventories, net:
Raw materials			63,610				72,941
Packaging materials			27,518				28,743
Finished goods			84,875				82,813
Inventories, net			176,003				184,497
Spare parts and supplies			88,579				86,386
Other			48,523				66,057
Total current assets			688,404				687,713
Property, plant and equipment:
Property, plant and equipment			2,531,910				2,500,531
Less: accumulated depreciation			(1,572,814	)			(1,537,550	)
Property, plant and equipment, net			959,096				962,981
Financing lease right-of-use assets			336				130
Operating lease right-of-use assets			294,203				276,734
Notes receivable from independent distributor partners			118,191				123,571
Assets held for sale			26,769				21,799
Other assets			14,245				18,487
Goodwill			679,896				677,796
Other intangible assets, net			648,026				657,742
Total assets		$	3,429,166			$	3,426,953
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt		$	—			$	—
Current maturities of financing leases			153				99
Current maturities of operating leases			57,610				47,507
Accounts payable			303,583				318,600
Other accrued liabilities			261,048				292,946
Total current liabilities			622,394				659,152
Noncurrent long-term debt			1,043,543				1,048,144
Noncurrent financing lease obligations			40				23
Noncurrent operating lease obligations			247,387				236,872
Total long-term debt and right-of-use lease liabilities			1,290,970				1,285,039
Other liabilities:
Postretirement/post-employment obligations			5,700				5,798
Deferred taxes			98,373				91,245
Other long-term liabilities			35,849				33,937
Total other long-term liabilities			139,922				130,980
Commitments and Contingencies
Stockholders’ equity:
Preferred stock — $100 stated par value, 200,000 authorized shares and none issued			—				—
Preferred stock — $.01 stated par value, 800,000 authorized shares and none issued			—				—
Common stock — $.01 stated par value and $.001 current par value, 500,000,000    authorized shares and 228,729,585 shares issued			199				199
Treasury stock — 17,587,986 shares and 18,309,359 shares, respectively			(273,115	)			(281,318	)
Capital in excess of par value			693,855				699,808
Retained earnings			954,409				932,472
Accumulated other comprehensive income			532				621
Total stockholders’ equity			1,375,880				1,351,782
Total liabilities and stockholders’ equity		$	3,429,166			$	3,426,953

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

(Unaudited)

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023
Sales		$	1,576,818			$	1,534,493
Materials, supplies, labor and other production costs (exclusive    of depreciation and amortization shown separately below)			797,186				800,852
Selling, distribution and administrative expenses			625,251				591,943
Depreciation and amortization			48,235				43,735
Impairment of assets			4,000				—
Restructuring charges			598				4,195
Income from operations			101,548				93,768
Interest expense			11,301				10,837
Interest income			(5,690	)			(6,951	)
Other components of net periodic pension and postretirement    benefit plans credit			(158	)			(83	)
Income before income taxes			96,095				89,965
Income tax expense			23,052				19,255
Net income		$	73,043			$	70,710
Net income per common share:
Basic:
Net income per common share		$	0.35			$	0.33
Weighted average shares outstanding			211,078				211,769
Diluted:
Net income per common share		$	0.34			$	0.33
Weighted average shares outstanding			212,114				213,397
Cash dividends paid per common share		$	0.2300			$	0.2200

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

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FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023
Net income		$	73,043			$	70,710
Other comprehensive loss, net of tax:
Pension and postretirement plans:
Amortization of prior service credit included in net income			(41	)			(42	)
Amortization of actuarial gain included in net income			(32	)			(17	)
Pension and postretirement plans, net of tax			(73	)			(59	)
Derivative instruments:
Net change in fair value of derivatives			(566	)			(3,044	)
Loss reclassified to net income			550				940
Derivative instruments, net of tax			(16	)			(2,104	)
Other comprehensive loss, net of tax			(89	)			(2,163	)
Comprehensive income		$	72,954			$	68,547

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)

 

		For the Sixteen Weeks Ended April 20, 2024
		Common Stock								Capital in								Accumulated
		Number of								Excess								Other				Treasury Stock
		Shares Issued				Par Value				of Par Value				Retained Earnings				Comprehensive Income				Number of Shares				Cost				Total
Balances at December 30, 2023			228,729,585			$	199			$	699,808			$	932,472			$	621				(18,309,359	)		$	(281,318	)		$	1,351,782
Net income															73,043																73,043
Derivative instruments, net of tax																			(16	)											(16	)
Pension and postretirement    plans, net of tax																			(73	)											(73	)
Amortization of stock-based    compensation awards											11,129																				11,129
Issuance of deferred compensation											(19	)											1,259				19				—
Time-based restricted stock units issued    (Note 17)											(3,849	)											250,501				3,849				—
Performance-contingent restricted stock    awards issued (Note 17)											(12,884	)											836,621				12,884				—
Issuance of deferred stock awards											(330	)											21,283				330				—
Share repurchases																							(388,291	)			(8,879	)			(8,879	)
Dividends paid on vested    stock-based payment awards															(2,546	)															(2,546	)
Dividends paid — $0.2300 per    common share															(48,560	)															(48,560	)
Balances at April 20, 2024			228,729,585			$	199			$	693,855			$	954,409			$	532				(17,587,986	)		$	(273,115	)		$	1,375,880

 

 

 

		For the Sixteen Weeks Ended April 22, 2023
		Common Stock								Capital in								Accumulated
		Number of								Excess								Other				Treasury Stock
		Shares Issued				Par Value				of Par Value				Retained Earnings				Comprehensive Income				Number of Shares				Cost				Total
Balances at December 31, 2022			228,729,585			$	199			$	689,959			$	1,004,271			$	1,474				(17,595,619	)		$	(252,613	)		$	1,443,290
Net income															70,710																70,710
Derivative instruments, net of tax																			(2,104	)											(2,104	)
Pension and postretirement    plans, net of tax																			(59	)											(59	)
Amortization of stock-based    compensation awards											9,836																				9,836
Issuance of deferred compensation											(13	)											852				13				—
Time-based restricted stock awards issued    (Note 17)											(2,986	)											207,892				2,986
Performance-contingent restricted stock    awards issued (Note 17)											(12,508	)											867,944				12,508				—
Issuance of deferred stock awards											(134	)											9,324				134				—
Share repurchases																							(385,882	)			(10,981	)			(10,981	)
Dividends paid on vested share-based    payment awards															(2,498	)															(2,498	)
Dividends paid — $0.2200 per    common share															(46,602	)															(46,602	)
Balances at April 22, 2023			228,729,585			$	199			$	684,154			$	1,025,881			$	(689	)			(16,895,489	)		$	(247,953	)		$	1,461,592

 

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

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FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023
CASH FLOWS PROVIDED BY (DISBURSED FOR) OPERATING ACTIVITIES:
Net income		$	73,043			$	70,710
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation			11,129				9,836
Loss reclassified from accumulated other comprehensive income to net income			886				1,407
Depreciation and amortization			48,235				43,735
Deferred income taxes			6,951				1,868
Impairment of assets			4,000				—
Provision for inventory obsolescence			3,971				921
Allowances for accounts receivable			2,445				4,341
Pension and postretirement plans cost			123				182
Other			481				685
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(32,833	)			(18,201	)
Inventories			4,523				(14,552	)
Hedging activities			(1,202	)			(2,334	)
Accounts payable			(16,499	)			(9,285	)
Other assets and accrued liabilities			(104	)			(31,361	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			105,149				57,952
CASH FLOWS PROVIDED BY (DISBURSED FOR) INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(33,332	)			(33,958	)
Proceeds from sale of property, plant and equipment			60				96
Repurchase of independent distribution rights			(5,524	)			(2,150	)
Cash paid at issuance of notes receivable			(5,071	)			(6,887	)
Principal payments from notes receivable			7,932				12,113
Acquisition of business			—				(270,451	)
Other investing activities			8				30
NET CASH DISBURSED FOR INVESTING ACTIVITIES			(35,927	)			(301,207	)
CASH FLOWS PROVIDED BY (DISBURSED FOR) FINANCING ACTIVITIES:
Dividends paid, including dividends on stock-based payment awards			(51,106	)			(49,100	)
Stock repurchases			(8,879	)			(10,981	)
Change in bank overdrafts			(10,701	)			(4,261	)
Proceeds from debt borrowings			117,500				487,900
Debt obligation payments			(122,500	)			(316,900	)
Payments on financing leases			(95	)			(599	)
Payments for financing fees			(150	)			(218	)
NET CASH (DISBURSED FOR) PROVIDED BY FINANCING ACTIVITIES			(75,931	)			105,841
Net decrease in cash and cash equivalents			(6,709	)			(137,414	)
Cash and cash equivalents at beginning of period			22,527				165,134
Cash and cash equivalents at end of period		$	15,818			$	27,720

 

(See Accompanying Notes to Condensed Consolidated Financial Statements)

 

 

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FLOWERS FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the company as of and for the sixteen weeks ended April 20, 2024 should be read in conjunction with the Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is segregated into four sections, including:

Matters Affecting Comparability

Comparative results from quarter to quarter are impacted by the company's fiscal reporting calendar. Internal financial results and key performance indicators are reported on a weekly basis to ensure the same number of Saturdays and Sundays in comparable months to allow for consistent four-week progression analysis. This structure results in our first quarter consisting of sixteen weeks while the remaining three quarters have twelve weeks (except in cases where there is an extra week every five or six years). Accordingly, interim results may not be indicative of subsequent interim period results, or comparable to prior or subsequent interim period results, due to differences in the lengths of the interim periods.

Additionally, detailed below are expense items affecting comparability that will provide greater context while reading this discussion:

 

	For the Sixteen Weeks Ended								Footnote
	April 20, 2024				April 22, 2023				Disclosure
	(Amounts in thousands)
Business process improvement costs	$	3,683			$	6,219			Note 1
Restructuring charges		598				4,195			Note 3
Restructuring-related implementation costs		1,344				—			Note 3
Impairment of assets		4,000				—			Note 1
Acquisition-related costs		—				3,223			Note 4
	$	9,625			$	13,637

In February 2023, to improve operational effectiveness, increase profitable sales, and better meet customer requirements, the company announced a restructuring of plant operation responsibilities from the sales function to the supply chain

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function. As part of that restructuring, we incurred costs for employee termination benefits and other cash charges, which were primarily related to the voluntary employee separation incentive plan (the "VSIP"), RIF, and employee relocation costs. During the first quarter of Fiscal 2023, we recorded VSIP-related charges of $3.9 million and made VSIP-related payments of $0.5 million. Relocation costs incurred and paid during the first quarter of Fiscal 2023 were $0.3 million. These costs are recorded in the restructuring charges line item of the Condensed Consolidated Statements of Income. In the first quarter of Fiscal 2024, we paid the remaining VSIP payments of $1.4 million.

Executive Overview

Business

Flowers is the second-largest producer and marketer of packaged bakery foods in the U.S. Our 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. Our brands are among the best known in the U.S. baking industry. Many of our brands have a major presence in the product categories in which they compete. We manage our business as one operating segment. The company defines EBITDA as earnings before interest, taxes, depreciation and amortization.

Flowers’ strategic priorities include developing our team, focusing on our brands, prioritizing our margins, and proactively seeking smart, disciplined acquisitions in the grain-based foods category. We believe executing on our strategic priorities will drive future growth and margin expansion and deliver meaningful shareholder value over time allowing us to achieve our long-term financial targets of 1% to 2% sales growth, 4% to 6% EBITDA growth, and 7% to 9% EPS growth.

Optimization initiatives in our procurement, distribution, operations, and administrative functions are projected to save $40 million to $50 million in Fiscal 2024. In the second quarter of Fiscal 2023, we completed the build phase of our ERP upgrade project and began the deployment, which is anticipated to be completed in Fiscal 2026. Additionally, we continue to implement our digital strategy initiatives as discussed further in the “Transformation Strategy Initiatives” section below.

Highlights

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Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business

We continue to monitor the impact of a variety of factors on our business, including the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results through the first quarter of Fiscal 2024 have continued to benefit from a more optimized sales mix of branded retail products as compared to pre-pandemic periods. However, we experienced significant input cost inflation during the previous two fiscal years which has partially offset the improved sales mix. We implemented price increases to mitigate these cost pressures during the first quarter of Fiscal 2023 and midway through the second quarter of Fiscal 2023. Commodity cost inflation began to moderate in the latter half of Fiscal 2023, though it remains above pre-pandemic levels, and we expect that trend to continue throughout the remainder of Fiscal 2024.

Additionally, in the prior year period, capacity constraints, largely for gluten-free production, resulted in lower production volumes and sales. These supply chain and other disruptions could continue to negatively impact production volumes as the global and U.S. supply chain remains uncertain. Although the conflict between Russia and Ukraine and the conflict in the Middle East have not impacted our operations directly, we are closely monitoring the impact of these conflicts on the broader economy, including on the availability and price of commodities used in or for the production of our products. Disruptions in our operations, related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and available workforce, have negatively impacted, and could continue to negatively impact, our operations, results of operations, cash flows, and liquidity.

Labor shortages and turnover at some bakeries has negatively impacted our results in the current and prior year periods. These and other factors, including, but not limited to, high employment rates and additional government regulations, may continue to adversely affect labor availability and labor costs. These challenges may negatively impact the efficiency of our production lines and our ability to operate at, or near, full capacity, and could result in increased labor costs, including additional overtime to meet demand, and higher wage rates to attract and retain workers. An overall labor shortage, lack of skilled labor, or increased turnover has and could continue to have a negative impact on the company’s operations, results of operations, liquidity, or cash flows.

We believe we have sufficient liquidity to satisfy our cash needs and we continue to execute on our strategic priorities, including our transformation strategy initiatives, as further discussed in the “Liquidity and Capital Resources” section below.

Summary of Operating Results, Cash Flows and Financial Condition

Sales increased 2.8% for the sixteen weeks ended April 20, 2024 compared to the same quarter in the prior year, with price/mix contributing 3.1% and the Papa Pita acquisition contributing 0.5% (cycled on February 17, 2024), partially offset by volume declines of 0.8%. The benefits of inflation-driven pricing actions implemented in the prior year were partially offset by softer volumes. Volume declines were concentrated in our Other sales category, where we exited certain lower margin foodservice business in the second half of Fiscal 2023. Those declines were partially offset by volume increases in Branded Retail sales from execution in the marketplace. Sales of DKB continued to grow on higher volumes and sales of Nature's Own improved on positive price/mix, partially offset by lower volumes.

For the sixteen weeks ended April 20, 2024, income from operations was $101.5 million compared to $93.8 million in the prior year quarter. The improvement resulted from moderating input costs, sales price increases implemented in the prior year, and the prior year acquisition costs, partially offset by increased workforce-related, repairs and maintenance, and depreciation expenses and lower production volumes (excluding the acquisition impact) quarter over quarter.

Net income for the sixteen weeks ended April 20, 2024 was $73.0 million compared to $70.7 million in the prior year period. The increase resulted primarily from the increase in income from operations, as described above, net of increased interest expense and a higher effective tax rate quarter over quarter.

During the sixteen weeks ended April 20, 2024, we generated net cash flows from operations of $105.1 million, invested $33.3 million in capital expenditures, decreased our indebtedness by $5.0 million, and paid $51.1 million in dividends to our shareholders. On April 15, 2024, we amended the two-year $200.0 million accounts receivable repurchase facility (the "repurchase facility") to extend the scheduled facility expiration date to April 14, 2026. During the sixteen weeks ended April 22, 2023, we generated net cash flows from operations of $58.0 million, paid $270.5 million for the Papa Pita acquisition (an additional $4.3 million net working capital purchase price adjustment was paid in the second quarter of Fiscal 2023), invested $34.0 million in capital expenditures, increased our indebtedness $171.0 million, and paid $49.1 million in dividends to our shareholders.

Transformation Strategy Initiatives

In the second half of Fiscal 2020, we launched initiatives to transform our business operations. The primary goals of these initiatives are: (1) enable a more agile business model, empowering the organization by fundamentally redesigning core business

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processes; (2) embed digital capabilities and transform the way we engage with our consumers, customers and employees; and (3) modernize and simplify our application and technology infrastructure landscape, inclusive of the upgrade of our ERP system.

As discussed above, in February 2023, we announced a restructuring of plant operation responsibilities from the sales function to the supply chain function to improve operational effectiveness, increase profitable sales, and better meet customer requirements. This restructuring has transitioned to digitally enabling these key functions, driving accountability, and improving operational performance and sales execution.

Digital Strategy Initiatives

Our digital strategy initiatives include investments in digital domains of e-commerce, autonomous planning, bakery of the future, digital logistics, and digital sales. In e-commerce, we strive to become a category and market share leader, engage with the consumer through digital platforms and marketplaces, and support our retail partners’ omnichannel strategies. The autonomous planning domain encompasses predictive ordering, cost-to-serve modeling, integrated business planning, and supply and demand forecasting, among other areas. Bakery of the future involves transforming our current manufacturing processes and operational visibility to apply industry-leading digital manufacturing tools, such as real-time performance management and visibility, automation of repetitive processes, standardization of processes and procedures, and sensor-based quality monitoring tools to improve consistency and quality. Digital logistics includes real-time operational visibility, improving our routing efficiency, and automating the freight bill pay audit process. Finally, digital sales is focused on improving our sales execution through improved visibility to in-store activities, streamlined reporting, focusing in-store priorities, and improved collaboration tools across our sales ecosystem.

These digital domains are expected to improve data visibility and efficiencies while automating many of our processes. When fully implemented, we expect this work will further our brand efforts, bring us closer to the consumer, increase operational efficiencies, and deliver higher-quality, real-time insights, which will in turn enable more predictive business decision-making. We transitioned into the implementation phase for the e-commerce, autonomous planning, and bakery of the future domains and selected two bakeries for the pilot program for bakery of the future and autonomous planning in Fiscal 2021. To date, we have rolled out bakery of the future to 35 bakeries, digital logistics to all bakery locations, and autonomous planning and our digital sales tools across our entire sales organization. Costs related to the digital initiatives are fluid and cannot be currently estimated.

 

ERP Upgrade

Our ERP initiative, which includes upgrading our information system platform, is expected to improve data management and efficiencies while automating many of our processes. We completed the initial planning and road mapping phase of the ERP upgrade at the end of Fiscal 2020. In the first quarter of Fiscal 2021, we transitioned into the design phase and engaged a leading, global consulting firm to assist us in designing and implementing the upgrade of our ERP platform and to serve as the system integrator for the project. We transitioned into the build phase at the beginning of Fiscal 2022 and during the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2026. We currently estimate total costs for the upgrade of our ERP system will be approximately $350 million (of which approximately 34% has been or is anticipated to be capitalized). As of April 20, 2024, we have incurred costs related to the project of approximately $223 million.

CRITICAL ACCOUNTING POLICIES:

Our financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). These principles are numerous and complex. Our significant accounting policies are summarized in the Form 10-K. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. Refer to the Form 10-K for a discussion of the areas where we believe that the estimates, judgments or interpretations that we have made, if different, could yield the most significant differences in our financial statements. There have been no significant changes to our critical accounting policies from those disclosed in the Form 10-K.

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RESULTS OF OPERATIONS:

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively, are set forth in the table below (dollars in thousands):

 

		For the Sixteen Weeks Ended
										Percentage of Sales								Increase (Decrease)
		April 20, 2024				April 22, 2023				April 20, 2024				April 22, 2023				Dollars				%
Sales		$	1,576,818			$	1,534,493				100.0				100.0			$	42,325				2.8
Materials, supplies, labor and other production costs    (exclusive of depreciation and amortization shown    separately below)			797,186				800,852				50.6				52.2				(3,666	)			(0.5	)
Selling, distribution and administrative expenses			625,251				591,943				39.7				38.6				33,308				5.6
Restructuring charges			598				4,195				0.0				0.3				(3,597	)		NM
Impairment of assets			4,000				—				0.3				—				4,000			NM
Depreciation and amortization			48,235				43,735				3.1				2.9				4,500				10.3
Income from operations			101,548				93,768				6.4				6.1				7,780				8.3
Other components of net periodic pension and    postretirement benefit plans credit			(158	)			(83	)			(0.0	)			(0.0	)			(75	)		NM
Interest expense, net			5,611				3,886				0.4				0.3				1,725				44.4
Income before income taxes			96,095				89,965				6.1				5.9				6,130				6.8
Income tax expense			23,052				19,255				1.5				1.3				3,797				19.7
Net income		$	73,043			$	70,710				4.6				4.6			$	2,333				3.3
Comprehensive income		$	72,954			$	68,547				4.6				4.5			$	4,407				6.4

NM - the computation is not meaningful.

Percentages may not add due to rounding.

SIXTEEN WEEKS ENDED APRIL 20, 2024 COMPARED TO SIXTEEN WEEKS ENDED APRIL 22, 2023

Sales (dollars in thousands)

 

		For the Sixteen Weeks Ended
										Percentage of Sales								Increase (Decrease)
		April 20, 2024				April 22, 2023				April 20, 2024				April 22, 2023				Dollars				%
Branded Retail		$	1,014,901			$	980,479				64.4				63.9			$	34,422				3.5
Other			561,917				554,014				35.6				36.1				7,903				1.4
Total		$	1,576,818			$	1,534,493				100.0				100.0			$	42,325				2.8

(The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.)

The change in sales was generally attributable to the following:

 

Percentage Point Change in Sales Attributed to:		Branded Retail				Other				Total
		Favorable (Unfavorable)
Pricing/Mix*			2.6				3.3				3.1
Volume*			0.3				(2.2	)			(0.8	)
Acquisition until cycled on February 17, 2024			0.6				0.3				0.5
Total percentage change in sales			3.5				1.4				2.8
* Computations above are calculated as follows (the Total column is consolidated and is not adding the Branded Retail and Other columns):
Price/Mix $ = Current year period units x change in price per unit
Price/Mix % = Price/Mix $ ÷ Prior year period Sales $
Volume $ = Prior year period price per unit x change in units
Volume % = Volume $ ÷ Prior year period Sales $

 

The company disaggregates its sales into two categories, Branded Retail and Other. These categories align with our brand-focused strategy to drive above-market growth via innovation and focusing on higher-margin products. The Other category includes store branded retail and non-retail sales (foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing).

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Sales increased quarter over quarter due to positive pricing actions implemented in the first and second quarters of the prior year to mitigate considerable cost inflation, and, to a lesser extent, the Papa Pita acquisition contribution. These increases were partially offset by volume declines, largely for non-retail items and, to a lesser extent, for branded retail traditional loaf breads. Our promotional activity increased quarter over quarter largely due to inflationary pressure on consumer spending but remained lower than pre-pandemic levels.

Branded Retail Sales

Branded retail sales grew 3.5% quarter over quarter due to favorable price/mix, the acquisition contribution, and volume growth. Price/mix benefitted from inflation-driven pricing actions taken in the second quarter of the prior year and improved mix from greater branded organic product sales. Volumes improved mainly as a result of efficient sales execution in a competitive marketplace. Volume growth in branded organic products, branded buns and rolls, and branded Keto bread was partially offset by softer volumes primarily for branded traditional loaf breads. Our Nature's Own and DKB brands continued to perform well benefiting from inflation-driven price increases and growth from more recently introduced products, such as Nature's Own Keto bread and Hawaiian and Everything bun varieties, all introduced in the second quarter of Fiscal 2023, and DKB snack bars and bites. Nature's Own did experience volume declines quarter over quarter largely due to inflationary pressure on consumer spending.

Other Sales

Sales in the Other category increased 1.4% due to positive price/mix from price increases implemented in the prior year, and the acquisition contribution, partially offset by volume declines. Store branded retail sales increased largely due to volume growth in store branded traditional loaf breads, partially offset by negative price/mix. Non-retail sales increased quarter over quarter due to inflation-driven pricing actions in the prior year and the acquisition contribution, offset mostly by volume declines. Foodservice drove most of the volume decrease as we exited certain lower margin business in the second half of Fiscal 2023. Declines in vending also contributed to lower volumes, partially offset by increased contract manufacturing volume.

We anticipate our Fiscal 2024 sales will be flat to higher than Fiscal 2023 sales due to price increases implemented in Fiscal 2023, however, this benefit could be offset by changes in consumer buying patterns, changes in promotional activity, and the impact of cycling certain exits of lower margin business that occurred in Fiscal 2023.

Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

 

		For the Sixteen Weeks Ended								Increase
Line Item Component		April 20, 2024 % of Sales				April 22, 2023 % of Sales				(Decrease) as a % of Sales
Ingredients and packaging			30.0				32.7				(2.7	)
Workforce-related costs			14.3				13.5				0.8
Other			6.3				6.0				0.3
Total			50.6				52.2				(1.6	)

 

Materials, supplies, labor and other production costs as a percent of sales decreased quarter over quarter due to the benefit of prior year inflation-driven pricing actions, moderating ingredient and packaging costs, and decreased product returns. Lower production volumes (excluding the acquisition impact) and higher workforce-related and bakery maintenance costs, reflected in the Other line item, partially offset the overall improvement. The decrease in ingredient and packaging costs was mostly attributed to lower pricing for commodities such as flour, fats and oils, and eggs, and packaging items including bags and corrugated containers. Wage inflation, higher employee compensation costs, and lower production volumes resulted in the increase in workforce-related costs as a percent of sales. We expect the impact of lower production volumes (excluding the acquisition impact) and the competitive labor market to continue to negatively impact our operations.

Prices of ingredient and packaging materials fluctuate due to government policy and regulation, weather conditions, domestic and international demand, or other unforeseen circumstances, and we monitor these markets closely. Ingredient and packaging costs continued to experience volatility in the current quarter and are expected to remain volatile for the remainder of Fiscal 2024. We enter into forward purchase agreements and other financial instruments to manage the impact of volatility in certain raw material prices. Any decrease in the availability of these agreements and instruments could increase the cost of these raw materials and significantly affect our earnings.

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Selling, Distribution and Administrative Expenses (as a percent of sales)

 

		For the Sixteen Weeks Ended								Increase
Line Item Component		April 20, 2024 % of Sales				April 22, 2023 % of Sales				(Decrease) as a % of Sales
Workforce-related costs			11.9				10.8				1.1
Distributor distribution fees			13.8				14.1				(0.3	)
Other			14.0				13.7				0.3
Total			39.7				38.6				1.1

 

Workforce-related costs increased as a percent of sales due to higher employee compensation costs quarter over quarter, a shift from distributor distribution fees, and a competitive labor market. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs. We anticipate a continued shift from distributor distribution fees to workforce-related costs and territory-related logistics costs, among others, as the company completes a phased repurchase of the California distribution rights and converts to an employee-based model in that state. The repurchases began at the end of the first quarter of Fiscal 2024 and are anticipated to be completed by the end of the first quarter of Fiscal 2025. The increase in the Other line item mostly reflects increased amortization of cloud-based applications, increased rent expense, and lower scrap dough income, partially offset by reduced transportation costs and the prior year quarter acquisition costs. See the “Matters Affecting Comparability” section above for a discussion of the acquisition-related costs.

Restructuring Charges and Impairment of Assets

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

Depreciation and Amortization Expense

Depreciation and amortization expense for the first quarter of Fiscal 2024 increased in dollars and as a percent of sales as compared to the prior year period primarily due to ERP assets being placed in service in the second quarter of Fiscal 2023 and, to a lesser extent, the Papa Pita assets acquired midway through the first quarter of Fiscal 2023, partially offset by assets becoming fully depreciated.

Income from Operations

Income from operations for the sixteen weeks ended April 20, 2024 increased as a percent of sales compared to the prior year quarter due primarily to moderating input costs, partially offset by lower production volumes (excluding the acquisition impact), increased selling, distribution, and administrative expenses, and increased depreciation and amortization expense, as discussed above.

Net Interest Expense

Net interest expense increased in dollars and as a percent of sales as compared to the prior year quarter largely due to higher average amounts outstanding under our borrowing arrangements primarily from funding the Papa Pita acquisition in the first quarter of Fiscal 2023 and increased interest rates on our variable rate debt. Decreased interest income also contributed to the overall increase in net interest expense. We anticipate higher net interest expense year over year due to funding payments associated with the legal settlement and related costs, all accrued for in Fiscal 2023, and lower interest income resulting from decreases in distributor notes receivable outstanding.

Income Tax Expense

The effective tax rate for the sixteen weeks ended April 20, 2024 was 24.0% compared to 21.4% in the prior year quarter. The increase in the rate quarter over quarter was primarily due to a decrease in windfall tax benefits on stock-based compensation. For both periods presented, the primary differences in the effective rate and statutory rate were state income taxes and windfall/shortfall tax impacts related to stock-based compensation.

Comprehensive Income

The increase in comprehensive income quarter over quarter resulted primarily from increased net earnings and changes in the fair value of derivatives.

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LIQUIDITY AND CAPITAL RESOURCES:

Strategy and Update on Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business

We believe that our ability to consistently generate cash flows from operating activities to meet our liquidity needs is one of our key financial strengths. Furthermore, we strive to maintain a conservative financial position as we believe it allows us flexibility to make investments and acquisitions and is a strategic competitive advantage. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and obligated debt repayments. We believe that we currently have access to available funds and financing sources to meet our short and long-term capital requirements. The company’s strategy for use of its excess cash flows includes:

Although there has been no material adverse impact on our results of operations, liquidity or cash flows for the sixteen weeks ended April 20, 2024, volatility in global and U.S. economic environments, as a result of, among other things, the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East, could significantly impact our ability to generate future cash flows and we continue to evaluate these various potential business risks. Potential risks include the possibility of future economic downturns that could shift consumer demand away from our branded retail products to store branded products, supply chain disruptions that have impacted, and could continue to impact, the procurement of raw materials and packaging items, the available workforce, and our ability to implement additional pricing actions to offset inflation.

The macroeconomic-related factors discussed above remain fluid and the future impact on our business, results of operations, liquidity or capital resources cannot be reasonably estimated with any degree of certainty. In the event of a significant reduction in revenues, we would have additional alternatives to maintain liquidity, including the availability on our debt facilities, capital expenditure reductions, adjustments to our capital allocation policy, and cost reductions. Although we do not currently anticipate a need, we also believe that we could access the capital markets to raise additional funds. During the first quarter of Fiscal 2024, we amended the two-year $200.0 million trade receivable repurchase facility (the "repurchase facility") to extend the maturity date to April 14, 2026. We believe that we have sufficient liquidity on hand to continue business operations during this time of volatility in the global and U.S. economic environments. As of April 20, 2024, we had total available liquidity of $557.4 million, consisting of cash on hand and the available balances under the senior unsecured revolving credit facility (the "credit facility") and repurchase facility.

Liquidity Discussion for the Sixteen Weeks Ended April 20, 2024 and April 22, 2023

Cash and cash equivalents were $15.8 million at April 20, 2024 and $22.5 million at December 30, 2023. The cash and cash equivalents were derived from the activities presented in the tables below (amounts in thousands):

		For the Sixteen Weeks Ended
Cash Flow Component		April 20, 2024				April 22, 2023				Change
Cash provided by operating activities		$	105,149			$	57,952			$	47,197
Cash disbursed for investing activities			(35,927	)			(301,207	)			265,280
Cash (disbursed for) provided by financing activities			(75,931	)			105,841				(181,772	)
Total change in cash		$	(6,709	)		$	(137,414	)		$	130,705

 

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Cash Flows Provided by Operating Activities. Net cash provided by operating activities consisted of the following items for non-cash adjustments to net income (amounts in thousands):

 

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023				Change
Depreciation and amortization		$	48,235			$	43,735			$	4,500
Impairment of assets			4,000				—				4,000
Loss reclassified from accumulated other comprehensive    income to net income			886				1,407				(521	)
Allowances for accounts receivable			2,445				4,341				(1,896	)
Stock-based compensation			11,129				9,836				1,293
Deferred income taxes			6,951				1,868				5,083
Other non-cash items			4,575				1,788				2,787
Net non-cash adjustment to net income		$	78,221			$	62,975			$	15,246

 

Net changes in working capital consisted of the following items (amounts in thousands):

 

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023				Change
Changes in accounts receivable		$	(32,833	)		$	(18,201	)		$	(14,632	)
Changes in inventories			4,523				(14,552	)			19,075
Changes in hedging activities			(1,202	)			(2,334	)			1,132
Changes in accounts payable			(16,499	)			(9,285	)			(7,214	)
Changes in other assets and accrued liabilities			(104	)			(31,361	)			31,257
Net changes in working capital		$	(46,115	)		$	(75,733	)		$	29,618

 

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Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively (amounts in thousands):

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023				Change
Purchases of property, plant, and equipment		$	(33,332	)		$	(33,958	)		$	626
Principal payments from notes receivable, net of repurchases of    independent distribution rights			(2,655	)			3,106				(5,761	)
Proceeds from sale of property, plant and equipment			60				96				(36	)
Acquisition of business			—				(270,451	)			270,451
Net cash disbursed for investing activities		$	(35,927	)		$	(301,207	)		$	265,280

 

Cash Flows Disbursed for Financing Activities. The table below presents net cash disbursed for financing activities for the sixteen weeks ended April 20, 2024 and April 22, 2023, respectively (amounts in thousands):

 

		For the Sixteen Weeks Ended
		April 20, 2024				April 22, 2023				Change
Dividends paid, including dividends on stock-based    payment awards		$	(51,106	)		$	(49,100	)		$	(2,006	)
Payments for financing fees			(150	)			(218	)			68
Stock repurchases			(8,879	)			(10,981	)			2,102
Change in bank overdrafts			(10,701	)			(4,261	)			(6,440	)
Net change in debt obligations			(5,000	)			171,000				(176,000	)
Payments on financing leases			(95	)			(599	)			504
Net cash (disbursed for) provided by financing activities		$	(75,931	)		$	105,841			$	(181,772	)

 

 

Date Declared

Record Date

Payment Date

Dividend per Common Share

Dividends Paid

February 16, 2024

March 1, 2024

March 15, 2024

$

0.2300

$

48,560

 

Additionally, we paid dividends of $2.5 million at the time of vesting of certain restricted stock awards. The increase in dividends paid resulted from an increase in the dividend rate compared to the prior year. While there are no requirements to increase our dividend rate, we have shown a recent historical trend to do so. We anticipate funding future dividend payments from cash flows from operations.

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Capital Structure

Long-term debt and right-of-use lease obligations and stockholders’ equity were as follows at April 20, 2024 and December 30, 2023, respectively. For additional information regarding our debt and right-of-use lease obligations, see Note 5, Leases, and Note 13, Debt and Other Obligations, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

 

		Balance at								Fixed or		Final
		April 20, 2024				December 30, 2023				Variable Rate		Maturity
Long-term debt and right-of-use lease obligations		(Amounts in thousands)
2031 notes		$	494,947			$	494,723			Fixed Rate		2031
2026 notes			398,596				398,421			Fixed Rate		2026
Unsecured credit facility			—				—			Variable Rate		2026
Accounts receivable repurchase facility			150,000				155,000			Variable Rate		2026
Right-of-use lease obligations			305,190				284,501					2036
			1,348,733				1,332,645
Less: Current maturities of long-term debt and right-    of-use lease obligations			(57,763	)			(47,606	)
Long-term debt and right-of-use lease obligations		$	1,290,970			$	1,285,039
Total stockholders' equity
Total stockholders' equity		$	1,375,880			$	1,351,782

The repurchase facility and the credit facility are generally used for short-term liquidity needs. On April 15, 2024, we amended the repurchase facility to extend the scheduled facility expiration date to April 14, 2026. See Note 13, Debt and Other Obligations, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to closely monitor our liquidity in light of the continued economic uncertainty in the U.S. and throughout the world due to, among other things, the impact of the inflationary economic environment, supply chain disruptions, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East on our business. There is no current portion payable over the next year for our debt obligations. Amounts available for withdrawal under the repurchase facility are determined as the lesser of the total facility limit and a formula derived amount based on qualifying trade receivables.

The following table details the amounts available under the repurchase facility and the credit facility and the highest and lowest balances outstanding under these arrangements during the sixteen weeks ended April 20, 2024:

 

		Amount Available				For the Sixteen Weeks Ended April 20, 2024
		for Withdrawal at				Highest				Lowest
Facility		April 20, 2024				Balance				Balance
		(Amounts in thousands)
Accounts receivable repurchase facility		$	50,000			$	175,000			$	105,000
Unsecured credit facility (1)			491,600				17,500				—
		$	541,600

 

Amounts outstanding under the credit facility can vary daily. Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions which are part of the company’s overall risk management strategy as discussed in Note 9, Derivative Financial Instruments, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q. During the sixteen weeks ended April 20, 2024, the company made $37.5 million in revolving borrowings and $37.5 million in payments on revolving borrowings under the credit facility. The amount available under the credit facility is reduced by $8.4 million for letters of credit.

The repurchase facility and the credit facility are variable rate debt and provide us the greatest direct exposure to changing interest rates. In periods of rising interest rates, like we experienced in Fiscal 2023 and Fiscal 2022, the cost of using these facilities becomes more expensive and results in increased interest expense.

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Restrictive financial covenants for our borrowings can include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. Our debt may also contain certain customary representations and warranties, affirmative and negative covenants, and events of default. The company believes that, given its current cash position, its cash flow from operating activities, and its available credit capacity, it can comply with the current terms of the debt agreements and can meet presently foreseeable financial requirements. As of April 20, 2024, the company was in compliance with all restrictive covenants under our debt agreements.

At April 20, 2024, the company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.

Under our share repurchase plan, the company may repurchase its common stock in the open market or privately negotiated transactions at such times and at such prices as determined to be in the company’s best interest. These repurchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. During the sixteen weeks ended April 20, 2024, 388,291 shares, at a cost of $8.9 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through April 20, 2024, 72.4 million shares, at a cost of $742.2 million, have been repurchased.

Accounting Pronouncements Recently Adopted and Not Yet Adopted

See Note 2, Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding recently adopted accounting pronouncements and accounting pronouncements not yet adopted.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forward, futures, swap and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices. The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions are less favorable than those anticipated, raw material prices could increase significantly, adversely affecting the margins from the sale of our products.

Commodity Price Risk

The company enters into commodity forward, futures and option contracts and swap agreements for wheat and, to a lesser extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of market volatility in its raw material and packaging prices. As of April 20, 2024, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of $(1.7) million, based on quoted market prices. All of this amount relates to instruments that will be utilized in Fiscal 2024 except for an immaterial amount that will be utilized in Fiscal 2025.

A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to the derivative portfolio. Based on the company’s derivative portfolio as of April 20, 2024, a hypothetical ten percent increase (decrease) in commodity prices would increase (decrease) the fair value of the derivative portfolio by $2.2 million. The analysis disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase (decrease) in fair value of the portfolio would be substantially offset by increases (decreases) in raw material and packaging prices.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to ensure that material information relating to the company, which is required to be timely disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is accumulated and communicated to management in a timely fashion and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer and Chief Accounting Officer ("CFO and CAO”), we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the CEO and the CFO and CAO concluded that the company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the company files or submits to the SEC under the Exchange Act.

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Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended April 20, 2024 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of all material pending legal proceedings, see Note 15, Commitments and Contingencies, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

ITEM 1A. RISK FACTORS

Refer to Part I, Item 1A., Risk Factors, in the Form 10-K for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

As originally announced on December 19, 2002, and subsequently increased, our Board of Directors had approved a plan that authorized share repurchases of up to 74.6 million shares. On May 26, 2022, the company announced that the Board of Directors increased the company's share repurchase authorization by 20.0 million shares. Under the share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated share repurchase program at such times and at such prices as determined to be in the company’s best interest. These repurchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors.

During the sixteen weeks ended April 20, 2024, 388,291 million shares, at a cost of $8.9 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through April 20, 2024, 72.4 million shares, at a cost of $742.2 million, have been repurchased. The company currently has 22.1 million shares remaining available for repurchase under the share repurchase plan. The table below sets forth the common stock repurchased by the company during the sixteen weeks ended April 20, 2024 (amounts in thousands, except share price data):

Period		Total Number of Shares Purchased				Weighted Average Price Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
December 31, 2023 — January 27, 2024			78		*	$	22.80				78		*		22,451
January 28, 2024 — February 24, 2024			310		*	$	22.88				310		*		22,141
February 25, 2024 — March 23, 2024			—			$	—				—				22,141
March 24, 2024 — April 20, 2024			—			$	—				—				22,141
Total			388			$	22.87				388

* These shares were acquired to satisfy employees' tax withholding and payment obligations in connection with the vesting of restricted stock awards, which are repurchased by the company based on the fair market value on the vesting date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None of the company's directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K, during the company's fiscal quarter ended April 20, 2024.

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ITEM 6. EXHIBITS

The following documents are filed as exhibits hereto:

 

Exhibit
No				Name of Exhibit
3.1		—		Amended and Restated Articles of Incorporation of Flowers Foods, Inc., as amended through May 21, 2020 (Incorporated by reference to Exhibit 3.1 to Flowers Foods’ Current Report on Form 8-K, dated May 28, 2020, File No. 1-16247).
3.2		—		Amended and Restated Bylaws of Flowers Foods, Inc., as amended through August 18, 2023 (Incorporated by reference to Exhibit 3.1 to Flowers Foods’ Current Report on Form 8-K, dated August 21, 2023, File No. 1-16247).
10.1	*	—		First Omnibus Amendment, dated as of April 15, 2024, including Amendment No. 1 to the Master Framework Agreement, by and among Coöperatieve Rabobank U.A., New York Branch, and the other financial institutions listed on the signature pages thereof as “Buyer Funding Parties,” Coöperatieve Rabobank U.A., New York Branch, as repo counterparty, on behalf of itself and the other Buyer Funding Parties, the subsidiaries of Flowers Foods, Inc. listed on the signature pages thereof, as Originators, and Flowers Foods, Inc., as repo seller, and Amendment No. 1 to the Master Repurchase Agreement, between Coöperatieve Rabobank U.A., New York Branch and Flowers Foods, Inc.
31.1	*	—		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	—		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	*	—		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by A. Ryals McMullian, Chairman and Chief Executive Officer, and R. Steve Kinsey, Chief Financial Officer and Chief Accounting Officer, for the quarter ended April 20, 2024.
101.INS	*	—		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	*	—		Inline XBRL Taxonomy Extension Schema Linkbase.
101.CAL	*	—		Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	*	—		Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB	*	—		Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE	*	—		Inline XBRL Taxonomy Extension Presentation Linkbase.
104		—		The cover page from Flowers Foods' Quarterly Report on Form 10-Q for the quarter ended April 20, 2024 has been formatted in Inline XBRL.

 

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	FLOWERS FOODS, INC.
	By:		/s/ A. RYALS MCMULLIAN
	Name:		A. Ryals McMullian
	Title:		Chairman and Chief Executive Officer

 

	By:		/s/ R. STEVE KINSEY
	Name:		R. Steve Kinsey
	Title:		Chief Financial Officer and Chief Accounting Officer

 

 

Date: May 16, 2024

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