Flowers Foods Faces Margin Pressure: Can Profitability Recover?

Flowers Foods, Inc. FLO reported third-quarter fiscal 2025 results that reflected continued pressure on profitability despite modest revenue growth. Net sales increased 3% year over year to $1.227 billion, driven by contributions from the Simple Mills acquisition, but margins declined across several key profitability measures.

Adjusted EBITDA decreased 11.4% to $118.1 million, and the adjusted EBITDA margin contracted 160 basis points to 9.6%. Adjusted net income declined 29.8% to $48.7 million, and adjusted diluted earnings per share fell 30.3% year over year to 23 cents.

Gross margin performance weakened during the quarter. Excluding depreciation and amortization, gross margin declined 190 basis points year over year to 47.9%. Management attributed the decline primarily to lower sales price mix, reduced production volumes and increased outside purchases of product related to the Simple Mills acquisition. These factors were partially offset by lower ingredient costs as a percentage of sales.

Selling, distribution and administrative expenses increased to 38.8% of net sales, up 10 basis points from the prior year. The increase was driven by higher workforce-related costs associated with the transition to an employee-based distribution model in California, wage inflation resulting from a lower sales price mix and restructuring-related implementation costs. Excluding items affecting comparability, adjusted SD&A improved to 38.3% of net sales, a decrease of 30 basis points.

On its third-quarter earnings call, Flowers Foods highlighted several ongoing actions aimed at addressing margin pressure, including aligning the supply chain with changing demand. The company has closed several bakeries in recent years and converted others to higher-margin organic production. FLO also noted that investments in innovation are expected to put pressure on margins in the near term.

Overall, Flowers Foods’ third-quarter results underscored the extent of margin pressure facing the business, driven by mix-related headwinds, lower volumes, higher operating costs and acquisition-related impacts. While several operational actions are underway (including supply-chain realignment, bakery rationalization and continued investment in innovation), recovery depends on the execution and timing of these actions in a tough operating environment.

FLO’s Share Price Performance & Valuation

Shares of this Zacks Rank #5 (Strong Sell) company have tumbled 49.9% in the past year compared with the industry’s decline of 19.4%, as well as the Zacks Consumer Staples sector’s dip of 1.6%.

Flowers Foods currently trades at a forward 12-month P/E ratio of 9.96, which is below the industry average of 14.11 and the sector average of 16.02. This valuation places the stock at a discount relative to comparable peers and the sector overall.

Better-Ranked Stocks

Mama's Creations, Inc. MAMA manufactures and markets fresh deli-prepared foods in the United States. At present, MAMA sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for Mama's Creations’ current fiscal-year sales and earnings implies growth of 39.9% and 44.4%, respectively, from the year-ago figures. MAMA delivered a trailing four-quarter earnings surprise of 133.3%, on average.

McCormick & Company, Incorporated MKC manufactures, markets, and distributes spices, seasoning mixes, condiments and other flavorful products to the food industry. It carries a Zacks Rank #2 (Buy) at present. MKC delivered a trailing four-quarter earnings surprise of 2.2%, on average. 

The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings implies growth of 1.6% and 2.4%, respectively, from the year-ago figures. 

US Foods Holding Corp. USFD engages in marketing, selling and distributing fresh, frozen, and dry food and non-food products to foodservice customers in the United States. USFD currently carries a Zacks Rank #2. USFD delivered a trailing four-quarter earnings surprise of 2.5%, on average.

The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings implies growth of 4.4% and 25.1%, respectively, from the year-ago figures.

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This article originally published on Zacks Investment Research (zacks.com).

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