Flowers Foods, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Net sales decreased 4.7% year-over-year to $1.169 billion for the 12-week period ended October 10, 2026, driven by a 7.0% volume decline partially offset by a 2.3% favorable price/mix.
• Net income decreased 63.6% to $14.4 million (1.2% of sales), a 200-basis point margin decrease, primarily due to lower volume, increased marketing, higher logistics costs, and greater outside purchases.
• Adjusted net income decreased 56.0% to $21.4 million.
• Adjusted EBITDA decreased 33.2% to $78.9 million, representing a 6.8% margin, a 280-basis point decrease.
• Diluted EPS decreased $0.12 to $0.07; adjusted diluted EPS decreased $0.13 to $0.10.
• Materials, supplies, labor, and other production costs (excluding D&A) increased to 53.3% of net sales (120-basis point increase).
• Selling, distribution, and administrative (SD&A) expenses increased to 40.2% of net sales (140-basis point increase); adjusted SD&A was 39.9% of net sales.
• Depreciation and amortization expenses were $38.3 million (3.3% of sales), approximately flat year-over-year.
• Net interest expense decreased approximately $1.0 million.
• Year-to-date cash flow from operating activities decreased $0.9 million to $319.9 million.
• Year-to-date capital expenditures decreased $15.8 million to $64.5 million.
• Year-to-date dividends paid decreased $49.4 million to $107.6 million.
• Cash and cash equivalents were $72.2 million at quarter end.
• Long-term debt was $1.675 billion at October 10, 2026, down from $1.755 billion at January 3, 2026.

Guidance and Future Outlook:

• Revised 52-week Fiscal 2026 net sales guidance lowered to $5.016 billion–$5.063 billion (previously $5.070 billion–$5.142 billion), representing a -4.6% to -3.7% change versus prior year.
• Revised 52-week Fiscal 2026 adjusted EBITDA guidance lowered to $415 million–$430 million (previously $453 million–$481 million).
• Revised 52-week Fiscal 2026 adjusted diluted EPS guidance lowered to $0.63–$0.68 (previously $0.75–$0.85).
• Full-year 2026 assumptions include: D&A of $165 million–$170 million; net interest expense of $60 million–$65 million; effective tax rate of approximately 27%; weighted average diluted share count of 213.5 million; and capital expenditures of $115 million–$125 million.
• Management expects the operating environment to remain challenging in the near term but remains confident in long-term potential.

Business Segments and Product Lines:

• Branded Retail net sales decreased 5.1% to $772.1 million; pricing/mix increased 3.5% while volume declined 8.6%.
• Other net sales decreased 4.0% to $397.0 million; pricing/mix increased 0.9% while volume declined 4.9%, driven by lower store branded sales (partially due to discontinued business) offset by foodservice growth.
• Nature's Own relaunch with fewer, simpler ingredients is showing encouraging signs with improving sequential trends and growing awareness, though improvement pace is slower than anticipated, particularly in the loaf category.
• Company participates in fresh packaged bread, cake, better-for-you snacking, and foodservice markets.

Market and Competitive Landscape:

• Operating environment characterized by pressure on household budgets, evolving consumer behavior, and heightened promotional activity.
• Category trends in fresh packaged bread remain challenging.
• Market includes competition from store-branded products and competitors' pricing/promotional strategies.

Risks and Challenges:

• Risks include unexpected changes in economic conditions, competitive setting, consumer demand, supply chain conditions, raw material costs, labor costs, and regulatory changes.
• Specific risks involve potential litigation regarding independent distributor partner classifications, credit rating downgrades, and financial covenant compliance.
• Risks related to product recalls, safety concerns, and the success of new product introductions and technology implementations (e.g., ERP system).

Management Commentary and Tone:

• Chairman and CEO Ryals McMullian described the third quarter as reflecting a "continued challenging operating environment."
• Management noted that earlier pricing actions and the Nature's Own relaunch were expected to stabilize performance but acknowledged the pace of improvement has been slower than anticipated.
• Management stated they are accelerating actions to strengthen customer execution, close innovation gaps, and align the portfolio with evolving consumer preferences.
• Management expressed confidence that initiatives are putting the company on a "stronger path forward" despite near-term challenges.

Other Key Points:

• Restructuring charges, impairment of assets, and recovery on inferior ingredients totaled $5.4 million for the quarter, approximately flat with the prior-year period's $5.5 million.
• Recovery on inferior ingredients was $0.632 million for the quarter and $2.595 million year-to-date.
• The company acquired Simple Mills previously, with acquisition-related costs noted in prior periods.
• Stock repurchases were $105,000 for the quarter and $3.929 million year-to-date.
• Net cash disbursed for investing activities was $23.588 million for the quarter and $68.348 million year-to-date.
• Net cash disbursed for financing activities was $35.279 million for the quarter and $191.398 million year-to-date.