Flowers Foods, Inc. 2026 Q2 Earnings Call

Hello, everyone. This is J.T. Rieck, EVP of Finance and Investor Relations. Welcome to the pre-recorded discussion of Flowers Foods' second quarter 2026 results. We will host a live Q&A session Friday, August 21st at 8:30 A.M. Eastern. Further details about the live call, along with our earnings release, a transcript of these recorded remarks, and a related slide presentation are posted on the investor section of flowersfoods.com. Before we get started, keep in mind that the information presented here may include forward-looking statements about the company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. In addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. Providing remarks today are Ryals McMullian, Chairman and CEO, and D. Anthony Scaglione, our CFO. Ryals, I'll turn it over to you.

Thanks, J.T., and thanks to everyone for joining us today. Our second quarter results reflect the continued challenges across the fresh packaged bread category, as ongoing pressure on household budgets, evolving consumer purchasing behavior, and continued competitive dynamics created a more difficult operating environment than anticipated. While we expected many of these headwinds to persist, their pace and magnitude intensified during the quarter, contributing to softer demand across much of our portfolio and results that fell short of our expectations. The pressure was concentrated in several identifiable areas. Continued strain on household budgets has driven greater price sensitivity and trade-down activity. At the same time, consumer purchasing shifted across formats, package sizes, and product attributes where we are still building scale. Those shifts were compounded by consistent promotional intensity and strong competition across pricing and assortment. Together, these factors pressured volume and contributed to a 4% decline in sales.

Against this backdrop, we are accelerating initiatives already underway to strengthen the business. Insights gained during the quarter and through our comprehensive review have sharpened our priorities and are helping us move faster to strengthen competitiveness, improve execution, advance innovation, and prioritize the highest value opportunities. Recognizing the continued volatility in the economic environment, those insights are translating into focused actions to help stabilize and improve our performance. Importantly, we are already seeing these efforts generate tangible commercial momentum. Recent progress includes new business wins, entry into new markets, and key wins in away from home and cake categories, which we expect to contribute meaningfully to sales as those opportunities fully ramp. To build our category leadership, we are accelerating innovation, including expanded half loaf offerings and new sourdough varieties that better align with consumer preferences.

We're strengthening in-store execution using technology and evaluating AI applications to help improve promotional effectiveness and selectively refining our price back architecture to enhance competitiveness and support profitable growth. We also continue to invest behind our leading brands, including the Nature's Own relaunch, which is currently in its early stages but is receiving positive feedback from customers and consumers. Now let me turn to our brand portfolio and the actions underway across key categories. Our strategic focus remains centered on strengthening our leading brands and investing in innovation that meets the evolving needs of consumers. While the quarter was pressured across much of the portfolio, we saw bright spots in select areas of premium and specialty loaf, buns and rolls, breakfast, cake, and better-for-you snacking. These areas helped offset some of the continued weakness in loaf, where we underperformed in both dollars and units.

Within traditional loaf, category trends remained pressured as constrained household budgets and heightened competitive activity increased trade-down behavior and weighed on overall demand. At the same time, consumers continued to shift towards smaller loaves and more differentiated products, areas where we are still building scale. These dynamics, along with lower consumption, impacted our performance at the category level in both Nature's Own and Wonder in the quarter. However, a key bright spot was Nature's Own Perfectly Crafted, which increased sales by over 8%, gaining in both dollar and unit share. This points to the value of innovation with sourdough and Italian herb helping to expand the franchise and drive incremental growth. Against this backdrop, we are taking focused actions to strengthen our position. The relaunch of Nature's Own is a key step in that process.

As we said last quarter, this is the first major launch of our flagship brand in well over a decade. While we expect it will take time to build consumer awareness and drive benefits through the business, we believe the relaunch strengthens our position as we move forward. Early feedback from customers has been very positive, and we are encouraged by the response to the brand's better-for-you positioning, fewer and simpler ingredients, and non-GMO project verified offering at national scale. The relaunch is in its early stages, and while sales gain momentum, we're focused on building awareness, securing displays, improving shelf communication, and supporting the brand across the full path to purchase. The marketing campaign, including our spokesperson John Cena, is beginning to generate stronger consumer engagement and positive social media feedback.

We are also encouraged by Nature's Own ingredient and health perception credentials, including favorable scores from third-party nutrition and product rating platforms such as the Yuka app. While the relaunch is still in its early stages, we expect it to support greater stability and improved performance as awareness builds and execution gains traction. With its scale, trust, and differentiated positioning, Nature's Own provides a strong platform to recapture share and extend our category leadership. We also see a meaningful opportunity in smaller pack sizes, including small and half loaves, which are areas we are positioned to build meaningful scale. Consumer preferences are increasingly shifting towards portion control, affordability, and reduced waste, identifying a clear opportunity to improve execution in this area. Accelerating our presence in small and half lows will be an important part of our plan to improve performance and better align the portfolio where consumer demand is moving.

Moving to sandwich funds and rolls, our Nature's Own brand performed very well. Nature's Own gained 30 basis points of dollar share and 20 basis points of unit share in the quarter. The fact that dollar share grew above the rate of unit share demonstrates continued consumer acceptance of the brand's premium positioning and pricing within the segment. Nature's Own Perfectly Crafted was the primary driver and continued to build momentum, increasing dollar sales and gaining 20 basis points of unit share in the quarter, helping offset some of the pressure on our overall performance in the category. During the July 4th holiday period, we held unit share and grew dollar share during this important seasonal window. This reinforces our belief that when supported by the right merchandising, display activity, and customer execution, our leading brands continue to resonate with consumers.

In organics, Dave's Killer Bread experienced pressure on both unit and dollar share during the quarter. Consumption declined as we pulled back on planned marketing investments, while shifts in consumer preferences, heightened competition, and consumer price sensitivity created additional pressure. DKB remains the organic segment leader, and we continue to see significant growth potential supported by its differentiated brand equity, organic positioning, and strong consumer loyalty. To capture that opportunity, we are refining our messaging to build greater awareness of DKB's better for you attributes while supporting the brand through innovation, expanded distribution, and advertising. Canyon Bakehouse, the leading gluten-free brand, gained both unit and dollar share, demonstrating the brand's important role within our broader better for you portfolio. In Nature's Own Keto, we gained dollar share, demonstrating strength in the category as consumers continue to look for products that support specific dietary and functional needs.

Despite broader category pressures, our leadership across organic, gluten-free, and other differentiated offerings remains highly relevant and provides a strong platform to meet evolving consumer needs. In breakfast, while overall share was modestly lower, we saw encouraging momentum in select areas. Wonder gained 20 basis points in both unit and dollar share, supported by expanded distribution that helped drive nearly 100% growth in both units and dollars versus the prior year. That strength was offset by softer performance in DKB. Even so, we continue to view breakfast as an attractive long-term growth opportunity supported by continued distribution gains, targeted innovation, and improved execution. The relative performance of our brands in this segment also underscores the value of having a diversified portfolio across price points, giving us multiple ways to participate as consumer preferences and spending patterns evolve.

In cake, we generally held share in the category, supported by another strong quarterly performance from our Wonder-branded offerings. Wonder Cake was a clear standout, gaining 60 basis points of unit share while also growing dollar share, underscoring the brand's strong consumer relevance and the important role our cake business can play within the broader portfolio. Wonder's continued momentum gives us a strong foundation from which to build in this category. Turning to better for you snacking, we continue to be encouraged by our platform anchored by Simple Mills and Dave's Killer Bread, with differentiated products that are well-positioned to meet consumer demand. Simple Mills delivered solid growth in the quarter, supported by broad-based momentum across the portfolio, strong underlying consumer demand, and an encouraging initial response to this year's innovation launches.

Retail sales increased 13%, driven by strength in cookies and crackers, reinforcing the resilience and appeal of the brand. Cookies grew 39% and crackers grew 8% in the quarter, both outpacing their respective categories. This performance was driven by a combination of distribution expansion, e-commerce performance, and strong velocities on core lines in the food and mass channels. Recent innovation launches have exceeded distribution goals and delivered promising early results, reinforcing our confidence that Simple Mills growth will accelerate through the balance of 2026. Suffice it to say, we are pleased with the strong performance at Simple Mills and remain confident in the brand's long-term growth opportunity. DKB bars and mini bites continue to generate strong consumer interest during the quarter. We're working to improve product availability and service levels to better meet demand and support growth through the balance of the year.

Turning to our outlook, given our first half performance and the category backdrop, we're updating our full year guidance to reflect a more conservative outlook for the balance of the year. At the same time, our comprehensive review is giving us a clearer perspective on market dynamics, portfolio opportunities, and the actions required to improve performance. We're taking targeted steps to strengthen competitiveness, sharpen execution, reduce cost, and better align resources with the opportunities that can create the greatest long-term value. Consistent with these priorities, we're executing additional cost actions designed to improve efficiency, reduce our cost base, and better align our operating structure with customer needs and current market realities. While difficult, we expect these actions to create a more agile organization and better position Flowers for profitable growth over time.

With that, I'll hand it over to our CFO, D. Anthony Scaglione, for additional details and a review of our financial results.