FLOWERS FOODS INC [FLO] Filings

10-Q 1 flo-20231007.htm 10-Q 10-Q

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 October 7, 2023


☐	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 November 3, 2023, the registrant had 211,120,226 shares of common stock, $0.01 par value per share, outstanding.

FLOWERS FOODS, INC.

INDEX


			PAGE NUMBER
PART I. Financial Information			4
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets as of October 7, 2023 and December 31, 2022	4
		Condensed Consolidated Statements of Income (Loss) for the Twelve and Forty Weeks Ended October 7, 2023 and October 8, 2022	5
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Twelve and Forty Weeks Ended October 7, 2023 and October 8, 2022	6
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Twelve and Forty Weeks Ended October 7, 2023 and October 8, 2022	7
		Condensed Consolidated Statements of Cash Flows for the Forty Weeks Ended October 7, 2023 and October 8, 2022	9
		Notes to Condensed Consolidated Financial Statements (unaudited)	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	53
PART II. Other Information			54
	Item 1.	Legal Proceedings	54
	Item 1A.	Risk Factors	54
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	54
	Item 3.	Defaults Upon Senior Securities	54
	Item 4.	Mine Safety Disclosures	54
	Item 5.	Other Information	54
	Item 6.	Exhibits	55
Signatures			56

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:

•

unexpected changes in any of the following: (i) general economic and business conditions; (ii) the competitive setting in which we operate, including advertising or promotional strategies by us or our competitors, as well as changes in consumer demand; (iii) interest rates and other terms available to us on our borrowings; (iv) supply chain conditions and any related impact on energy and raw materials costs and availability and hedging counter-party risks; (v) relationships with or increased costs related to our employees and third-party service providers; (vi) laws and regulations (including environmental and health-related issues); and (vii) accounting standards or tax rates in the markets in which we operate;

•

the loss or financial instability of any significant customer(s), including as a result of product recalls or safety concerns related to our products;

•

changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward less expensive store branded products;

•

the level of success we achieve in developing and introducing new products and entering new markets;

•

our ability to implement new technology and customer requirements as required;

•

our ability to operate existing, and any new, manufacturing lines according to schedule;

•

our ability to implement and achieve our environmental, social, and governance goals in accordance with regulatory requirements and expectations of stakeholders, suppliers, and customers;

•

our ability to execute our business strategies which may involve, among other things, (i) the ability to realize the intended benefits of completed, planned or contemplated acquisitions, dispositions or joint ventures, (ii) the deployment of new systems (e.g., our enterprise resource planning ("ERP") system), distribution channels and technology, and (iii) an enhanced organizational structure (e.g., our sales and supply chain reorganization);

•

consolidation within the baking industry and related industries;

•

changes in pricing, customer and consumer reaction to pricing actions (including decreased volumes), and the pricing environment among competitors within the industry;

•

our ability to adjust pricing to offset, or partially offset, inflationary pressure on the cost of our products, including ingredient and packaging costs;

•

disruptions in our direct-store-delivery distribution model, including litigation or an adverse ruling by a court or regulatory or governmental body that could affect the independent contractor classifications of the independent distributor partners, and changes to our direct-store-delivery distribution model in California;

•

increasing legal complexity and legal proceedings that we are or may become subject to;

•

labor shortages and turnover or increases in employee and employee-related costs;

•

the credit, business, and legal risks associated with independent distributor partners and customers, which operate in the highly competitive retail food and foodservice industries;

•

any business disruptions due to political instability, pandemics, armed hostilities (including the ongoing conflict between Russia and Ukraine and the conflict in Israel and Gaza), incidents of terrorism, natural disasters, labor strikes or work stoppages, technological breakdowns, product contamination, product recalls or safety concerns related to our products, or the responses to or repercussions from any of these or similar events or conditions and our ability to insure against such events;

•

the failure of our information technology (“IT”) systems to perform adequately, including any interruptions, intrusions, cyber-attacks or security breaches of such systems or risks associated with the implementation of the upgrade of our ERP system; and

•

the potential impact of climate change on the company, including physical and transition risks, availability or restriction of resources, higher regulatory and compliance costs, reputational risks, and availability of capital on attractive terms.

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 31, 2022 (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.

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

(Unaudited)


	October 7, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	14,561		$	165,134
Accounts and notes receivable, net of allowances of $25,321 and $18,754, respectively		364,539			349,477
Inventories, net:
Raw materials		70,831			71,058
Packaging materials		29,536			28,202
Finished goods		82,510			69,437
Inventories, net		182,877			168,697
Spare parts and supplies		83,273			73,614
Other		69,329			48,018
Total current assets		714,579			804,940
Property, plant and equipment:
Property, plant and equipment		2,489,518			2,296,721
Less: accumulated depreciation		(1,527,859	)		(1,447,396	)
Property, plant and equipment, net		961,659			849,325
Financing lease right-of-use assets		494			1,778
Operating lease right-of-use assets		262,652			273,436
Notes receivable from independent distributor partners		114,492			136,882
Assets held for sale		14,550			12,493
Other assets		23,349			24,515
Goodwill		677,796			545,244
Other intangible assets, net		665,068			664,381
Total assets	$	3,434,639		$	3,312,994
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	—		$	—
Current maturities of financing leases		381			1,779
Current maturities of operating leases		49,346			43,990
Accounts payable		328,614			343,380
Other accrued liabilities		291,518			175,276
Total current liabilities		669,859			564,425

Noncurrent long-term debt		1,037,843			891,842
Noncurrent financing lease obligations		34			116
Noncurrent operating lease obligations		221,853			236,977
Total long-term debt and right-of-use lease liabilities		1,259,730			1,128,935
Other liabilities:
Postretirement/post-employment obligations		5,504			5,814
Deferred taxes		90,528			134,832
Other long-term liabilities		34,367			35,698
Total other long-term liabilities		130,399			176,344
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 — 17,609,359 shares and 17,595,619 shares, respectively		(266,408	)		(252,613	)
Capital in excess of par value		694,245			689,959
Retained earnings		945,285			1,004,271
Accumulated other comprehensive income		1,330			1,474
Total stockholders’ equity		1,374,651			1,443,290
Total liabilities and stockholders’ equity	$	3,434,639		$	3,312,994

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Amounts in thousands, except per share data)

(Unaudited)


	For the Twelve Weeks Ended						For the Forty Weeks Ended
	October 7, 2023			October 8, 2022			October 7, 2023			October 8, 2022
Sales	$	1,199,260		$	1,158,169		$	3,961,803		$	3,723,152
Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below)		617,468			615,621			2,044,417			1,926,297
Selling, distribution and administrative expenses		603,954			447,363			1,671,813			1,440,665
Depreciation and amortization		35,974			32,899			114,693			109,244
Plant closure costs and impairment of assets		1,034			6,835			1,034			7,825
Restructuring charges		179			—			6,873			—
(Loss) income from operations		(59,349	)		55,451			122,973			239,121
Interest expense		8,552			6,801			28,398			22,239
Interest income		(4,542	)		(5,459	)		(16,251	)		(17,292	)
Other components of net periodic pension and postretirement benefit plans credit		(62	)		(178	)		(207	)		(594	)
(Loss) income before income taxes		(63,297	)		54,287			111,033			234,768
Income tax (benefit) expense		(16,567	)		13,759			23,293			54,971
Net (loss) income	$	(46,730	)	$	40,528		$	87,740		$	179,797
Net (loss) income per common share:
Basic:
Net (loss) income per common share	$	(0.22	)	$	0.19		$	0.41		$	0.85
Weighted average shares outstanding		211,522			212,016			211,773			212,060
Diluted:
Net (loss) income per common share	$	(0.22	)	$	0.19		$	0.41		$	0.84
Weighted average shares outstanding		211,522			213,326			213,455			213,317
Cash dividends paid per common share	$	0.2300		$	0.2200		$	0.6800		$	0.6500

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)


	For the Twelve Weeks Ended						For the Forty Weeks Ended
	October 7, 2023			October 8, 2022			October 7, 2023			October 8, 2022
Net (loss) income	$	(46,730	)	$	40,528		$	87,740		$	179,797
Other comprehensive (loss) income, net of tax:
Pension and postretirement plans:
Amortization of prior service credit included in net (loss) income		(30	)		(32	)		(102	)		(104	)
Amortization of actuarial (gain) loss included in net (loss) income		(14	)		50			(43	)		165
Pension and postretirement plans, net of tax		(44	)		18			(145	)		61
Derivative instruments:
Net change in fair value of derivatives		(1,579	)		7,851			(1,531	)		2,654
Loss (gain) reclassified to net (loss) income		297			(1,908	)		1,532			(4,507	)
Derivative instruments, net of tax		(1,282	)		5,943			1			(1,853	)
Other comprehensive (loss) income, net of tax		(1,326	)		5,961			(144	)		(1,792	)
Comprehensive (loss) income	$	(48,056	)	$	46,489		$	87,596		$	178,005

(See Accompanying Notes to Condensed Consolidated Financial Statements)

FLOWERS FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Amounts in thousands, except share data)

(Unaudited)


	For the Twelve Weeks Ended October 7, 2023
	Common Stock				Capital in						Accumulated
	Number of				Excess						Other			Treasury Stock
	Shares Issued		Par Value		of Par Value			Retained Earnings			Comprehensive Income (Loss)			Number of Shares			Cost			Total
Balances at July 15, 2023		228,729,585	$	199	$	688,281		$	1,040,618		$	2,656			(17,409,777	)	$	(261,680	)	$	1,470,074
Net loss									(46,730	)											(46,730	)
Derivative instruments, net of tax												(1,282	)								(1,282	)
Pension and postretirement plans, net of tax												(44	)								(44	)
Amortization of stock-based compensation awards						5,883															5,883
Issuance of deferred compensation						(6	)								418			6			—
Share repurchases															(200,000	)		(4,647	)		(4,647	)
Issuance of deferred stock awards						87												(87	)		—
Dividends paid — $0.2300 per common share									(48,603	)											(48,603	)
Balances at October 7, 2023		228,729,585	$	199	$	694,245		$	945,285		$	1,330			(17,609,359	)	$	(266,408	)	$	1,374,651


	For the Forty Weeks Ended October 7, 2023
	Common Stock				Capital in					Accumulated
	Number of				Excess					Other			Treasury Stock
	Shares Issued		Par Value		of Par Value			Retained Earnings		Comprehensive Income (Loss)			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									87,740											87,740
Derivative instruments, net of tax											1									1
Pension and postretirement plans, net of tax											(145	)								(145	)
Amortization of stock-based compensation awards						21,382														21,382
Issuance of deferred compensation						(38	)							2,557			38			—
Time-based restricted stock units issued (Note 17)						(3,623	)							251,222			3,623			—
Performance-contingent restricted stock awards issued (Note 17)						(12,508	)							867,944