Flowers Foods cuts its outlook again. Why is it talking to lenders?

Flowers Foods cut its profit outlook again after another weak quarter for bread sales. Its new financial report also discloses a request for changes to future borrowing conditions, bringing its lenders into the recovery story.

The maker of Nature's Own and Dave's Killer Bread now expects adjusted earnings of 63–68 cents a share this year, down from 75–85 cents in August. Its sales forecast fell too.

A new request in the loan disclosures

Research by Ticker Byline shows that November's quarterly report adds a request for covenant relief that was absent from August's report. Flowers is seeking an amendment or waiver of financial tests covering leverage and interest payments for the period ending April 24, 2027 and later periods.

These loan conditions compare debt and interest costs with earnings calculated under the credit agreements. Weaker earnings can reduce the room available under those limits.

Flowers was complying with its covenants at the October 10 quarter-end. It describes lender discussions as constructive and believes it can obtain the change before filing its annual report. It also says it has contingency plans intended to preserve compliance if no amendment is obtained.

The bread recovery is taking longer

Management had expected earlier pricing changes and a relaunch of Nature's Own with simpler ingredients to help stabilize performance. It now says improvement has been slower than anticipated, particularly in loaf bread, despite encouraging recent trends at Nature's Own.

Quarterly sales fell 4.7% to $1.17 billion. Lower volume took 7 percentage points off sales, while pricing and product mix added 2.3 points. The negative volume contribution was larger than the 5.8 points reported in the previous quarter.

Adjusted EBITDA fell by one-third to $78.9 million. That measure excludes interest, taxes, depreciation, amortization and selected other costs. Even on that adjusted basis, the decline was much steeper than the sales drop. Net income under U.S. accounting rules fell to $14.4 million from $39.5 million.

Cash flow has held up better than profit

Operating cash flow for the first 40 weeks was $319.9 million, almost unchanged from a year earlier. Capital spending and dividend payments were lower. Flowers ended the quarter with $72.2 million in cash and $1.68 billion of debt at its balance-sheet carrying value.

That cash generation is an important counterweight to the earnings decline. The next results will show whether the bread recovery is strong enough to improve the profit outlook as the company works on its borrowing terms. Our Flowers Foods company profile follows the forecast history, debt and completed Simple Mills acquisition.