Item 1A. Risk Factors
You should carefully consider the risks described below, together with the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. These risk factors are not listed in any order of significance. Additional risks and uncertainties not presently known to us, or that we currently deem insignificant, may also impair our business operations. The occurrence of any of the following risks could harm our business, financial condition, liquidity, or results of operations.
Operational Risks
Economic conditions may negatively impact demand for our products, which could adversely impact our sales and operating profit.
The willingness of our customers and consumers to purchase our products may depend in part on economic conditions. Worsening economic conditions or future challenges to economic growth could have a negative impact on consumer demand, which could adversely affect our business. Deterioration of national and global economic conditions could cause consumers to shift purchases to more generic, lower-priced, or other value offerings, or consumers may forego certain purchases altogether during economic downturns and could result in decreased demand in the foodservice business. This economic uncertainty may increase pressure to reduce the prices of some of our products, limit our ability to increase or maintain prices, and reduce sales of higher margin products or shift our product mix to low-margin products.
In addition, changes in tax or interest rates, whether due to recession, efforts to combat inflation, financial and credit market disruptions or other reasons, could negatively impact us.
A disruption or change in the operation of our DSD distribution system could materially and/or negatively affect our results of operations, financial condition and cash flows.
A material negative change in our relationship with the independent distributor partners could negatively affect our business. Such changes could result from litigation or one or more adverse rulings by courts or regulatory or governmental bodies in any of the jurisdictions in which we operate regarding our independent distributorship model, including actions or decisions that could affect the independent contractor classifications of the independent distributor partners, or an adverse judgment against the company for actions taken by the independent distributor partners. These changes could also result from regulatory developments based on the manner in which the U.S. Department of Labor applies the Fair Labor Standards Act. In addition, as a result of California distributor-related litigation, we converted our independent distributor partners distribution model in California to an employment model. Any of these developments could materially and/or negatively affect our financial condition, results of operations and cash flows.
We may not be able to attract or retain the highly skilled people we need for our business.
We depend on the skills and continued service of key personnel, including our experienced management team. In addition, our ability to achieve our strategic and operating goals depends on our ability to attract, recruit, hire, develop, and retain qualified individuals, including individuals with e-commerce, digital marketing, and data analytics capabilities. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, recruit, hire, develop, and retain other talented personnel. Any such loss, failure or negative perception with respect to these individuals may adversely affect our business or financial results or our ability to meet regulatory reporting requirements. In addition, activities related to identifying, recruiting, hiring, and integrating qualified individuals may require significant time and expense. We may not be able to locate suitable replacements for any key employees who terminate their employment or offer employment to potential replacements on reasonable terms, each of which may adversely affect our business and financial results.
Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
A number of factors may adversely affect the labor force available to us, including high employment levels, federal unemployment subsidies and benefits offered, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices, and immigration. A labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and could negatively affect our ability to efficiently operate our bakeries and bread lines or otherwise operate at full capacity. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation could have a material adverse impact on the company’s operations, results of operations, liquidity or cash flows.
Additionally, health care and workers’ compensation are increasing and will likely continue to do so. Any substantial increase in these costs may have an adverse impact on our profitability. The company records the liabilities related to its benefit plans based on actuarial valuations, which include key assumptions determined by management. Material changes in benefit plan liabilities may occur
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in the future due to changes in these assumptions. Future annual amounts could be impacted by various factors, such as changes in the number of plan participants, changes in the discount rate, changes in the expected long-term rate of return, changes in the level of contributions to the plan, and other factors. In addition, legislation or regulations involving labor and employment and employee benefit plans (including employee health care benefits and costs) may impact our operational results.
The costs of maintaining and enhancing the value and awareness of our brands are increasing, which could have an adverse impact on our revenues and profitability.
We rely on the success of our well-recognized brand names and we intend to maintain our strong brand recognition by continuing to devote resources to advertising, marketing and other brand building efforts. Brand value could diminish significantly due to several factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. The growing use of social and digital media platforms by consumers and third parties increases the speed and extent that information or misinformation and opinions can be shared. Brand recognition and loyalty can be impacted by the effectiveness of our advertising campaigns, marketing programs and sponsorships, as well as our use of social media. In addition, failure to comply with local or other laws and regulations could also hurt our reputation. Our marketing investments may not prove successful in maintaining or increasing our market share. If we are not able to successfully maintain our brand recognition or were to suffer damage to our reputation or loss of consumer confidence in our products for any of these reasons, our revenues and profitability could be adversely affected. Additionally, a company determination that any brand is no longer expected to contribute to the company's future results or to be utilized in a limited capacity could lead to an impairment of an intangible asset, or an acceleration of amortization due to a reduction in the useful life, and could adversely affect our business, financial condition or results of operations.
Our inability to execute our business strategy could adversely affect our business.
We employ various operating strategies to maintain our position as one of the nation’s leading producers and marketers of bakery products available to customers through multiple channels of distribution. In particular, these operating strategies include, among other things, (i) the integration of acquisitions or the acquisition or disposition of assets at presently targeted values, (ii) the deployment of new systems and technology, and (iii) an enhanced organizational structure. Our focus on our long-term goals of being consumer-focused and committed to growing our most profitable brands is dependent on our success in achieving our strategic priorities: (i) develop our team; (ii) focus on brands; (iii) prioritize margins; and (iv) pursue smart M&A. These and related demands on our resources may divert the organization’s attention from other business issues. Our success is partly dependent upon properly executing, and realizing cost savings or other benefits from, these often-complex initiatives. Any delay in, or failure to implement, our strategic initiatives could adversely affect our ability to grow margins. If we are unsuccessful in implementing or executing one or more of our business strategies, our business could be adversely affected.
We may be adversely impacted by the failure to successfully realize the expected benefits of acquisitions, divestitures or joint ventures.
From time to time, we undertake acquisitions, divestitures, joint ventures and co-investments. The success of any acquisition, divestiture or joint venture depends on the company’s ability to identify opportunities that help us meet our strategic objectives, consummate a transaction on favorable contractual terms, and achieve expected returns and other financial benefits.
Acquisitions, including future acquisitions, require us to efficiently integrate the acquired business or businesses, which involves a significant degree of difficulty, including the following:
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integrating the operations and business cultures of the acquired businesses while carrying on the ongoing operations of the businesses we operated prior to the acquisitions;
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managing a significantly larger company than before consummation of the acquisitions;
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the possibility of faulty assumptions underlying our expectations regarding the prospects of the acquired businesses;
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coordinating a greater number of diverse businesses and businesses located in a greater number of geographic locations;
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attracting and retaining the necessary personnel associated with the acquisitions;
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creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and
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expectations about the performance of acquired trademarks and brands and the fair value of such trademarks and brands.
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Divestitures have operational risks that may include impairment charges. Divestitures also present unique financial and operational risks, including diverting management attention from the existing core business, separating personnel and financial data and other systems, and adversely affecting existing business relationships with suppliers and customers.
Co-investments with third parties through partnership, joint ventures, or other entities may involve non-controlling, illiquid interests and limited decision-making authority. Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks not present were a third-party not involved, including the possibility that our joint venture partners might become bankrupt, fail to fund their share of required capital contributions, make poor business decisions, or block or delay necessary decisions which can lead to potential impairment recognition. Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses. In addition, we may in certain circumstances be liable for the actions of our joint venture partners.
We have had, and may have in the future, situations where acquisitions, divestitures or joint ventures are not successfully implemented or completed, or the expected benefits of such acquisitions or divestitures are not otherwise realized, which has, and may in the future, negatively impacted the company’s business, results of operations or financial condition.
Disruption in our supply chain or distribution capabilities from political instability, armed hostilities, incidents of terrorism, natural disasters, weather, inferior product or ingredient supply, or labor strikes could have an adverse effect on our business, financial condition and results of operations.
Our ability to make, move and sell products is critical to our success. Damage or disruption to our manufacturing or distribution capabilities, or the manufacturing or distribution capabilities of our suppliers, due to weather, including any potential effects of climate change, natural disaster, fire or explosion, terrorism, pandemics, inferior product or ingredient supply, labor strikes or work stoppages, or adverse outcomes in litigation involving our independent distributor model, could impair our ability to make, move or sell our products. Moreover, terrorist activity, armed conflict or political instability, including any escalation of hostility arising out of the conflict between Russia and the Ukraine and the current instability in the Middle East, or natural disasters that may occur within or outside the U.S. may disrupt manufacturing, labor, and other business operations. Failure to take adequate steps to mitigate the likelihood or potential impact of such events and disruption to our manufacturing or distribution capabilities, or to effectively manage such events if they occur, could adversely affect our business, financial conditions and results of operations.
The third-party vendor management processes may not be appropriately designed to reduce risks related to the delivery of goods, supplies and services.
As part of a concerted effort to achieve cost savings and efficiencies, we have entered into agreements with third-party vendors for the delivery of goods, supplies and services, including IT services. If we do not select quality vendors, appropriately review vendor contracts and monitor these vendors’ performance (including their ability to protect our customer, consumer or other confidential data), or if any of these third-parties do not perform according to the terms of the agreements, we may not be able to achieve the expected cost savings, we may have to incur additional costs to correct errors made by such third-party vendors or our reputation could be harmed by any failure to perform.
Loss of one or more of our independent contract manufacturers could adversely affect our business.
We periodically enter into arrangements with independent contract manufacturers, or co-manufacturers, of products. In some cases, a co-manufacturer may produce all of our requirements for a particular product or brand. Our future ability to enter into co-manufacturing arrangements is not guaranteed. If we lose or need to change one or more co-manufacturers or fail to retain co-manufacturers for newly acquired or developed products or brands, production of our products may be delayed or postponed and/or the availability of some of our products may be reduced or eliminated, which could adversely affect our business, financial condition or results of operations.
Changes in tariffs and other trade disruptions may impact our business, results of operations and financial condition, depending on future developments, which are highly uncertain and are difficult to predict.
The extent to which recently announced tariffs (including retaliatory tariffs) and other trade disruptions (such as embargoes, sanctions and export controls) may impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict. Such tariffs, trade disruptions and future developments may impact the consumer, our workforce and operations, as well as the workforce, operations and financial prospects of our customers, vendors and suppliers. There is considerable uncertainty regarding the extent to which tariffs and/or other trade disruptions (such as embargoes, sanctions and export controls) will be enacted and the duration for which enacted tariffs and/or other trade disruptions will be in place and such developments could adversely impact our production costs, customer demand and our relationships with customers and
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suppliers. Some of the impacts our business may experience as a result of tariffs and other trade disruptions include, but are not limited to, increases of the costs of the ingredients, packaging and other materials necessary to produce, distribute and sell our products, and an unfavorable shift in sales mix away from our Branded Retail products, due to a change in consumer buying patterns as a result of increased prices in the economy as a whole. In addition, our compliance with any such newly enacted tariffs and/or other trade disruptions could increase our cost of doing business, restrict our ability to operate our business or execute our strategies, and could result in fines and penalties or reputational harm if we are found to not be in full compliance. Any of these events could exacerbate the other risks and uncertainties described herein, or in other reports filed with the SEC from time to time, and could materially adversely affect our business, results of operations and financial condition.
Technology Risks
We may be adversely impacted if our IT systems fail to perform adequately, including with respect to cybersecurity issues.
The efficient operation of our business depends on our IT systems. We rely on our IT systems to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our IT systems (including those provided to us by third-parties) to perform as we anticipate could disrupt our business and could result in billing, collecting and ordering errors, processing inefficiencies, and the loss of sales and customers, causing our business and results of operations to suffer.
In addition, our IT systems (including those provided to us by third parties), and the IT systems of our third-party business partners, may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of customer, consumer or other confidential data), and cyber incidents. Cyber-attacks and other cyber incidents are occurring more frequently in the United States and are becoming more sophisticated with a wide range of expertise and motives. Such cyber-attacks and cyber incidents can take many forms, including extortion, denial of service, employee or personnel failures, or social engineering through phishing, ransomware or malware. Cybersecurity threat actors also may attempt to exploit vulnerabilities through software including software that is commonly used by companies in cloud-based services and bundled software. In addition, the risk of cyber-attacks has increased in connection with the military conflict between Russia and Ukraine, the current instability in the Middle East, and the resulting geopolitical conflicts. In light of those and other geopolitical events, nation-state actors or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, result in data compromise, or both. These circumstances increase the likelihood of cyber-attacks and/or security breaches. In addition, the rapid evolution and increased adoption of artificial intelligence (“AI”) and machine learning technologies may intensify our cybersecurity risks and make it more difficult to anticipate and implement protective measures to recognize, detect, and prevent the occurrence of any of the cyber events described above. Further, the technology and techniques used in cyber-attacks are constantly evolving and the pace and extent of that evolution may accelerate with the use of emerging technologies including AI and machine learning.
There can be no assurance that the policies, protocols, and practices that we follow to address cybersecurity, including our controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information. We may incur significant costs in protecting or remediating cyber-attacks or other cyber incidents. If we are unable to prevent physical and electronic break-ins, cyber-attacks and other information security breaches, we may suffer financial and reputational damage, operational disruptions, be subject to litigation, civil or criminal investigations, regulatory intervention or incur costs related to remediation, payment of ransom or penalties, including as result of unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers or employees.
We may experience difficulties in deploying the upgrade of our ERP system.
We are in the midst of deploying an upgrade to our ERP system to a more robust platform. The upgrade of the ERP system is designed to accurately maintain our financial records, enhance our operational functionality and provide timely information to our management team related to the operations of the business. The design and implementation of the upgrade to the ERP system has required, and continues to require, an investment of significant personnel and financial resources, including substantial expenditures for outside consultants, system hardware and software in addition to other expenses in connection with the transformation of our financial and operating processes. During the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2027. We may not be able to deploy the ERP system upgrade successfully without experiencing delays, increased costs and other difficulties, including potential design defects, miscalculations, testing requirements, and the diversion of management’s attention from day-to-day business operations. If we are unable to deploy the ERP system upgrade as planned, the effectiveness of our internal control over financial reporting could be adversely affected, our ability to assess those controls adequately could be delayed, and our financial condition, results of operations and cash flows could be negatively impacted.
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We use, and may continue to expand our use of, AI in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our business operations.
We may leverage AI, including generative AI, in our product development, operations, and software programming. Our competitors or other third parties may incorporate AI into their operational processes more quickly or more successfully than we do, which could impair our ability to compete effectively and adversely affect our results of operations.
In addition, there are significant risks involved in developing and deploying AI and there can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business, including our efficiency or profitability. For example, our AI-related efforts, particularly those related to generative AI, subject us to risks related to accuracy, intellectual property infringement or misappropriation, data privacy, and cybersecurity, among others. It is also uncertain how various laws related to online services, intermediary liability, and other issues will apply to content generated by AI. AI also presents emerging ethical issues, and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including the regulation of AI by government or other regulatory agencies, will require significant resources to develop, test and maintain our platforms, offerings, services, and features to implement AI ethically and minimize any unintended harmful impacts.
Industry Risks
Increases in costs and/or shortages of raw materials, fuels and utilities could adversely impact our profitability.
Raw materials, such as flour, sweeteners, shortening, yeast, water, and eggs, which are used in our bakery products, are subject to price fluctuations. The cost of these inputs may fluctuate widely due to foreign and domestic government policies and regulations (including tariffs), inflation, weather conditions, domestic and international demand, availability due to supply chain conditions, livestock disease (for example, avian influenza) or other unforeseen circumstances. The global economy has been negatively impacted by the military conflict between Russia and Ukraine and the current instability in the Middle East. Both are fast-moving and uncertain. Global grain markets have exhibited increased volatility as sanctions have been imposed on Russia by the United States, the United Kingdom, the European Union, and others in response to Russia’s invasion of Ukraine. Furthermore, the current instability in the Middle East may impact oil production capacity, oil prices, and cause disruptions in global supply chains and shipping routes. While we do not expect our operations to be directly impacted by this conflict and instability at this time, changes in global grain and commodity flows and increased supply chain costs could impact the markets in which we operate, which may in turn negatively impact our business, results of operations, supply chain and financial condition. Any substantial change in the prices or availability of raw materials may have an adverse impact on our profitability. We enter into forward purchase agreements and other derivative financial instruments from time to time to manage the impact of such volatility in raw materials prices; however, these strategies may not be adequate to overcome increases in market prices or availability. Our failure to enter into hedging or fixed price arrangements or any decrease in the availability or increase in the cost of these agreements and instruments could increase the price of these raw materials and significantly affect our earnings.
In addition, we are dependent upon natural gas or propane for firing ovens. The independent distributors and third-party transportation companies are dependent upon gasoline and diesel for their vehicles. The cost of these fuels may fluctuate widely due to economic and political conditions, government policy and regulation, war or other conflicts, or other unforeseen circumstances. Substantial future increases in prices for, or shortages of, these fuels could have a material adverse effect on our profitability, financial condition or results of operations. There can be no assurance that we can cover these potential cost increases through future pricing actions. Also, as a result of these pricing actions, consumers could purchase less or move from purchasing higher-margin products to lower-margin products.
Inflation may adversely affect us by increasing our costs of production, materials, and labor. In an inflationary environment, such as the current economic environment, depending on the market conditions of the baking industry, we may be unable to raise the prices of our products enough to keep up with the rate of inflation, which would reduce our profit margins, and continued inflationary pressures could impact our business, financial condition, and results of operations.
Competition could adversely impact revenues and profitability.
The U.S. bakery industry is highly competitive. Our principal competitors in these categories all have substantial financial, marketing, and other resources. In most product categories, we compete not only with other widely advertised branded products, but also with store branded products that are generally sold at lower prices. Competition is based on product availability, product quality, price, effective promotions, and the ability to target changing consumer preferences.
Competitor and customer pressures require that we timely and effectively respond to changes in relevant markets, including changes to distribution channels and technological developments. Substantial growth in e-commerce has encouraged the entry of new competitors and business models, intensifying competition by simplifying distribution and lowering barriers to entry. The expanding
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presence of e-commerce retailers has impacted, and may continue to impact, consumer preferences and market dynamics, which in turn may negatively affect our sales or profits. Failure to effectively and timely assess new or developing trends, technological advancements (including advancements such as AI and machine learning, which may become critical in understanding consumer preferences in the future) or changes in distribution methods could negatively impact demand for our products, our operating results, achievement of our strategic and financial goals and our ability to capitalize on new revenue or value-producing opportunities.
We experience price pressure from time to time due to competitors’ promotional activity and other pricing efforts. This pricing pressure is particularly strong during adverse economic periods and periods of high inflation. Increased competition could result in reduced sales, margins, profits and market share.
Product removals, damaged product or safety concerns could adversely impact our results of operations.
We may be required to recall certain of our products should they be mislabeled, contaminated, spoiled, tampered with or damaged. We may become involved in lawsuits and legal proceedings alleging that the consumption of any of our products causes or caused injury, illness or death. Any such product removal, damaged product or an adverse result in any litigation related to such a product removal or damaged product could have a material adverse effect on our operating and financial results in future periods, depending on the costs of the product removal from the market, the destruction of product inventory, diversion of management time and attention, contractual and other claims made by customers that we supply, loss of key customers, competitive reaction and consumer attitudes. Even if a product liability, consumer fraud or other claim is unsuccessful or without merit, the negative publicity surrounding such assertions regarding our products could adversely affect our reputation and brand image. We also could be adversely affected if our customers or consumers in our principal markets lose confidence in the safety and quality of our products.
During fiscal years 2018 through 2023, we have been required, and may be required in future periods, to remove certain of our products from the market should they be mislabeled, contaminated, spoiled, tampered with or damaged, including as a result of inferior ingredients provided by any of our suppliers.
Consolidation in the retail and foodservice industries could adversely affect our sales and profitability.
We expect consolidations among our retail and foodservice customers to continue. If this trend continues and our retail and foodservice customers continue to grow larger due to consolidation in their respective industries, they may demand lower pricing and increased promotional programs. In addition, these pressures may restrict our ability to increase prices, including in response to commodity and other cost increases. Our margins and profits could decrease if a reduction in prices or increased costs are not counterbalanced with increased sales volume.
Inability to anticipate or respond to changes in consumer preferences may result in decreased demand for our products, which could have an adverse impact on our future growth and operating results.
The fresh packaged bread category has experienced volume declines in recent years reflecting, among other factors, shifts in consumer behavior and preferences. Our success depends in part on our ability to respond to current market trends and to anticipate the tastes and dietary habits of consumers, including concerns of consumers regarding nutrition, health and wellness, obesity, product attributes, ingredients, and packaging. Similarly, demand for our products could be negatively affected by consumer concerns or perceptions regarding the health effects of specific ingredients such as, but not limited to, sodium, trans fats, sugar, processed wheat, or other product ingredients or attributes. Also, certain weight loss drugs and glucagon-like peptide 1 (GLP-1) agonists, which may suppress a person's appetite, may impact demand for our products. The introduction of new products and product extensions requires significant development and marketing investment. If we fail to anticipate, identify, or react to changes in consumer preferences, or if we fail to introduce new and improved products on a timely basis, we could experience reduced demand for our products, which could cause our sales, profitability, financial condition, and operating results to suffer.
We rely on several large customers for a significant portion of sales and the loss of one of our large customers or their decision to give higher priority to other brands could adversely affect our business, financial condition or results of operations.
We have several large customers that account for a significant portion of sales, and the loss of one of our large customers could adversely affect our financial condition and results of operations. Our top ten customers accounted for 57.7% of sales during Fiscal 2025. Our largest customer, Walmart/Sam’s Club, accounted for 21.5% during this period. These customers do not typically enter long-term sales contracts, and instead make purchase decisions based on a combination of price, product quality, consumer demand, and customer service performance. At any time, there is a risk that our customers will give higher priority to their own products or to the products of our competitors, resulting in less shelf space for our products. Additionally, our customers may face financial or other difficulties that may impact their operations and their purchases from us. Disputes with significant suppliers could also adversely affect our ability to supply products to our customers. If our sales to one or more of these customers are reduced, this reduction may adversely affect our business, financial condition or results of operations.
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Our large customers may impose requirements on us that may adversely affect our results of operations.
From time to time, our large customers may re-evaluate or refine their business practices and impose new or revised requirements on us, the distributors, and the customers’ other suppliers. The growth of large mass merchandisers, supercenters and dollar stores, together with changes in consumer shopping patterns, have produced large, sophisticated customers with increased buying power and negotiating strength. Current trends among retailers and foodservice customers include fostering high levels of competition among suppliers, demanding new products or increased promotional programs, requiring suppliers to maintain or reduce product prices, reducing shelf space for our products, and requiring product delivery with shorter lead times. These business changes may involve inventory practices, logistics, or other aspects of the customer-supplier relationship. Compliance with requirements imposed by large customers may be costly and may have an adverse effect on our margins and profitability. However, if we fail to meet a large customer’s demands, we could lose that customer’s business, which also could adversely affect our sales and results of operations.
Legal and Regulatory Risks
Government regulation, including labeling or warning requirements, could adversely impact our results of operations and financial condition.
As a producer and marketer of food items, our production processes, product quality, packaging, labeling, storage, and distribution, and the safety of food products and the health and safety of our employees, are subject to regulation by various federal, state and local government entities and agencies. In addition, the marketing and labeling of food products has come under increased scrutiny in recent years, and the food industry has been subject to an increasing number of legal proceedings and claims relating to alleged false or deceptive marketing and labeling under federal, state or local laws or regulations. Uncertainty regarding labeling standards has led to customer confusion and legal challenges. The imposition or proposed imposition of additional product labeling or warning requirements could reduce overall consumption of our products, lead to negative publicity (whether based in scientific fact or not) or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs. Such factors could adversely affect our sales and results of operations.
In addition, our operations are subject to extensive and increasingly stringent regulations administered by the Environmental Protection Agency related to the discharge of materials into the environment and the handling and disposition of waste. Failure to comply with these regulations can have serious consequences, including civil and administrative penalties and negative publicity. Changes in applicable laws or regulations or evolving interpretations thereof, including increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change, may result in increased compliance costs, capital expenditures, and other financial obligations for us, which could affect our profitability or impede the production or distribution of our products, and affect our sales.
Compliance with federal, state and local laws and regulations is costly and time consuming. Failure to comply with, or violations of, applicable laws and the regulatory requirements of one or more of these entities and agencies could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, any of which could result in increased operating costs and adversely affect our results of operations and financial condition. Legal proceedings or claims related to our marketing could damage our reputation and/or adversely affect our business or financial results.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on agricultural productivity, we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products, such as corn and wheat. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce our supplies of raw materials, lower recoveries of usable raw materials, increase the prices of our raw materials, increase our cost of transporting and storing raw materials, or disrupt our production schedules.
We may also be subjected to decreased availability or less favorable pricing for water as a result of climate change, which could impact our production and distribution operations. In addition, natural disasters and extreme weather conditions may disrupt the productivity of our facilities or the operation of our supply chain. The increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we are currently undertaking to monitor our emissions and improve our energy efficiency, we may experience significant increases in our costs of operation and delivery. In particular, increasing regulation of fuel emissions could substantially increase the distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our business and operations.
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Additionally, as concerns about climate change and other environmental issues continue to increase, we may be required to comply with new laws and regulations which may result in increased/not yet identified compliance costs, the scale of which is to be evaluated. We continue to evaluate the possible impact of such new laws and regulations.
We are subject to increasing legal complexity and could be party to litigation that may adversely affect our business.
Increasing legal complexity may continue to affect our operations and results in material ways. We are or could be subject to legal proceedings that may adversely affect our business, including class actions, administrative proceedings, government investigations, securities laws, employment and personal injury claims, disputes with current or former suppliers, claims by current or former distributors, and intellectual property claims (including claims that we infringed another party’s trademarks, copyrights, or patents). Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation. Litigation involving our independent distributor model and the independent contractor classification of the independent distributors, as well as litigation related to disclosure made by us in connection therewith, if determined adversely, could increase costs, negatively impact our business prospects and the business prospects of our distributors and subject us to incremental liability for their actions. We are also subject to the legal and compliance risks associated with privacy, data collection, protection and management, in particular as it relates to information we collect when we provide products to customers.
Although we have various insurance programs in place that, subject to their terms and conditions, are intended to address certain costs associated with these events, the potential liabilities associated with these litigation matters, or those that could arise in the future, could be excluded from coverage or, if covered, could exceed the coverage provided by such programs. In addition, insurance carriers may seek to rescind or deny coverage with respect to pending or future claims or lawsuits. If we do not have sufficient coverage under our policies, or if coverage is denied, we may be required to make material payments to settle litigation or satisfy any judgment. Any of these consequences could adversely affect our financial condition, results of operations and cash flows.
Executive Offices
The address and telephone number of our principal executive offices are 1919 Flowers Circle, Thomasville, Georgia 31757, (229) 226-9110.
Information about our Executive Officers
The following table sets forth certain information regarding the persons who currently serve as the executive officers of Flowers Foods.
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EXECUTIVE OFFICERS
Name, Age and Office Business Experience
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Name, Age and Office Business Experience
Item 1B. Unresolved Staff Comments
None
Item 1C. Cybersecurity
Protecting the confidentiality, integrity, and availability of our information systems is critical to our business operations, brands, and stakeholders. We maintain an enterprise cybersecurity program with processes to assess, identify, and manage material risks from cybersecurity threats. These processes are integrated into our enterprise risk management (“ERM”) framework and address risks that could arise from our own operations as well as incidents at third‐party service providers or partners
Risk Management and Strategy. Our cybersecurity program is aligned to industry‐recognized frameworks (including the NIST Cybersecurity Framework) and is designed to evolve as threats and our business change. However, this does not mean that we will meet, or maintain, any particular technical standard, specification, framework, or requirement in the future, but rather we use the NIST Cybersecurity Framework and other standards as a guide to help us identify, assess and manage cybersecurity risks relevant to our business. Key elements include:
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Threat identification and prevention: Layered technical and administrative controls informed by internal/external threat intelligence and periodic vulnerability assessments and penetration testing conducted with qualified third parties.
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Incident preparedness: A documented Computer Security Incident Response Plan (“CSIRP”) that establishes an organizational framework and guidelines to assist the company in identifying, responding to, and recovering from computer security incidents both at the company and its third-party service providers in connection with incidents that may impact the company, including the security incident management team (the “SIM Team”), a legal team (the “Legal Team”) and the computer security incident response team (the “CSIRT”) and regular tabletop exercises involving cross‐functional stakeholders to validate readiness.
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Training and awareness: Mandatory training for employees and contractors, phishing simulations, and user‐friendly reporting tools for suspected phishing or security issues.
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Third-party risk: Risk-based due diligence and contractual requirements for selected vendors and service providers and ongoing performance monitoring proportionate to the services provided.
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We also periodically benchmark elements of our program and may engage independent experts to assess specific controls or processes as part of our continuous improvement efforts. In addition, we maintain cyber insurance coverage designed to help mitigate potential financial impacts of certain cybersecurity incidents. However, there is no guarantee that such coverage will be sufficient to address costs, liabilities and damages we may incur in connection with a cybersecurity incident or that such coverage will continue to be available on commercially reasonable terms or at all.
Governance. The company’s board of directors (the “Board” or “Board of Directors”) oversees the company’s Information Security program, which is approved annually. The audit committee is tasked with oversight of certain risk issues, including cybersecurity, and regularly reports its activities to the Board of Directors. As described in its charter, the audit committee of the Board of Directors oversees risks related to information technology security and regularly reviews and discusses with the VP of Information Security & Compliance and other members of management the company’s information technology security risk exposures, including (a) the potential impact of those exposures on the company’s business, financial results, operations and reputation, (b) the steps that management has taken to monitor and mitigate such exposures, (c) the company’s information governance policies and programs, and (d) legislative and regulatory developments that could materially impact the company’s privacy and data risk exposure.Management’s execution of the cybersecurity program is led by our Vice President of Information Security & Compliance, who reports directly to the company's chief financial officer. The VP of Information Security & Compliance has responsibility for information security strategy and operation and managing and assessing material risks from cybersecurity threats. This individual has a variety of IT security skills, experiences and professional expertise, obtained through work experience and information security certifications and education.The VP of Information Security & Compliance regularly reports to the audit committee regarding policies and processes for assessing and managing risk associated with information technology and cybersecurity, as well as material cybersecurity incidents.
In consultation with the VP of Information Security & Compliance, each of the SIM Team, the Legal Team, and the CSIRT, has a discrete set of responsibilities and obligations under the CSIRP. The CSIRT is a broad, cross-functional team of management stakeholders assigned with coordinating, developing, and managing the company’s response to computer security incidents when activated. The CSIRP provides, when activated, the CSIRT will lead all aspects of incident response, including the engagement of outside counsel and other third-party resources, such as an external incident response team, forensic resources, a crisis management or public relations firm, or notification service providers.
If the CSIRT is activated, incidents are escalated to a subcommittee of our Disclosure Committee, comprised of senior executives and leaders throughout the company, for materiality assessment and disclosure determinations consistent with applicable SEC requirements.
For incidents where the CSIRT is not activated, either the SIM Team or the Legal Team, depending on the circumstances, is expected to lead and manage the incident response.
Impacts of Cybersecurity Threats. To date, we do not believe that any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected, or are reasonably likely to materially affect, our business strategy, results of operations, or financial condition. We continue to monitor the evolving threat environment, including ransomware, third‐party incidents, and risks to operational technology systems, and we may experience cybersecurity events in the future that could have a material impact.
Cautionary Note. We do not disclose specific technical information about our security architecture, control configurations, or vulnerabilities where such detail could impede our ability to respond to threats or could be used by threat actors to cause harm. Our disclosures are designed to provide decision-useful information to investors while maintaining appropriate security.
Item 2. Properties
Our principal executive offices are company owned and located in Thomasville, Georgia. The company also leases properties that are used for shared services functions and our IT group and owns several properties for our corporate offices. The company also has an additional shared services center in Phoenix, Arizona.
We operate 44 bakeries across the continental U.S. Each of the listed bakeries is company owned except for Modesto, California and Philadelphia, Pennsylvania. We believe that our bakeries have adequate production utilization and can meet the current operational requirements for the operation of the business. As discussed in Item 1., Business, of this Form 10-K, the company has restructured its plant operation responsibilities from the sales function to the supply chain function. Additionally, across the continental U.S. in the markets we serve, we own approximately 140 warehouse/distribution centers and lease approximately 500 warehouse/distribution centers.
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The table below sets forth the production and sales operations in our bakeries:
Alabama Kansas Tennessee
Birmingham (P) Lenexa (PS) Cleveland (P)
Montgomery (P) Kentucky Crossville (PS)*
Tuscaloosa (P) Bardstown (P) Knoxville (P)
Arizona London (PS)* Texas
Mesa (PS)* Louisiana Denton (P)
Tolleson (P) Lafayette (P) El Paso (PS)
Arkansas New Orleans (PS) Houston (P)
Batesville (PS) Maine Houston (PS)
Texarkana (P) Lewiston (P) San Antonio (PS)
California Lewiston (PS) Tyler (PS)
Modesto (Leased) (P) Nevada Utah
Colorado Henderson (PS) West Jordan (P)
Johnstown (P) North Carolina Virginia
Florida Goldsboro (PS) Lynchburg (P)
Bradenton (P) Jamestown (P) Norfolk (PS)
Jacksonville (P) Newton (P)
Lakeland (P) Oregon
Miami (P) Milwaukie (PS)*
Georgia Pennsylvania
Savannah (P) Oxford (PS)
Suwanee (P) Philadelphia (Leased) (PS)
Thomasville (PS)
Tucker (P)
Villa Rica (P)
P - Production Only
PS - Production and Sales
*Only thrift store sales
We believe our facilities are well-maintained and adequate, that they are being appropriately utilized and that they have sufficient production utilization for their present intended purposes. Utilization is actual labor time as a percent of available hours of production in a week (based on 120 hours/week for three shifts). On a consolidated basis during Fiscal 2025, our average quarterly production utilization ranged from 90% to 99% across all bakeries. During heightened periods of demand, the company can improve utilization by streamlining production with longer production runs and fewer differentiated products produced. Production utilization is not materially different when a sales facility is also located at the bakery.
Item 3. Legal Proceedings
For a description of all material pending legal proceedings, See Note 23, Commitments and Contingencies, of Notes to Consolidated Financial Statements of this Form 10-K.
Item 4. Mine Safety Disclosures
Not Applicable
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PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of the company’s common stock are quoted on the New York Stock Exchange (the “NYSE”) under the symbol “FLO.”
Holders
As of February 20, 2026, there were approximately 2,982 holders of record of the company’s common stock.
Dividends
The payment of dividends is subject to the discretion of the company’s Board. For Fiscal 2025 and Fiscal 2024, we paid cash dividends on common stock totaling $0.9825 and $0.9500 per share, respectively. While we intend to continue paying dividends on our common stock, the declaration of cash dividends is at the discretion of the Board, considered in the context of, among other things, general business conditions, our financial results, contractual, legal and regulatory restrictions regarding dividend payments and any other factors the Board may consider relevant.
Purchases of Equity Securities by the Issuer
As originally announced on December 19, 2002, and subsequently increased, our Board of Directors had approved a plan that authorized share repurchases of up to 74.6 million shares. On May 26, 2022, the company announced that the Board of Directors increased the company's share repurchase authorization by 20.0 million shares. Under the share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated share repurchase program at such times and at such prices as determined to be in the company’s best interest. These repurchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors. The company did not purchase any shares of its common stock in the fourth quarter of Fiscal 2025. From the inception of the plan through January 3, 2026, 73.3 million shares have been repurchased, at a cost of $761.5 million. At the close of the company’s fourth quarter on January 3, 2026, 21.3 million shares remained under the existing authorization.
For information on securities authorized for issuance under the company's compensation plans, see Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
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Stock Performance Graph
The chart below is a comparison of the cumulative total return (assuming the reinvestment of all dividends paid) of our common stock, Standard & Poor’s 500 Index, Standard & Poor’s 500 Packaged Foods and Meats Index, and Standard & Poor’s MidCap 400 Index for the period January 2, 2021 through January 3, 2026, the last day of our 2025 fiscal year.
Companies in the S&P 500 Index, the S&P 500 Packaged Foods and Meats Index, and the S&P MidCap 400 Index are weighted by market capitalization and indexed to $100 at January 2, 2021. Flowers Foods’ share price is also indexed to $100 at January 2, 2021.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Item 1., Business, and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements included in this Form 10-K. The following information contains forward-looking statements which involve certain risks and uncertainties. See Forward-Looking Statements at the beginning of this Form 10-K. Any reference to sales refers to net sales inclusive of allowances and deductions against gross sales for variable consideration and consideration payable to customers.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is segregated into four sections, including:
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Executive overview — provides a summary of our operating performance and cash flows, industry trends, and our strategic initiatives.
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Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our financial condition and results of operations.
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Results of operations — an analysis of the company’s consolidated results of operations for Fiscal 2025 compared to Fiscal 2024 as presented in the Consolidated Financial Statements. Refer to the Annual Report on Form 10-K for the fiscal year ended December 28, 2024 for a discussion of the results of operations for Fiscal 2024 compared to Fiscal 2023.
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Liquidity, capital resources and financial position — analyzes cash flow, contractual obligations, and certain other matters affecting the company’s financial position.
MATTERS AFFECTING COMPARABILITY
The company operates on a 52-53 week fiscal year ending the Saturday nearest December 31. Fiscal 2025 consisted of 53 weeks and Fiscal 2024 consisted of 52 weeks. Fiscal 2026 will consist of 52 weeks. Furthermore, comparative results from quarter to quarter are impacted by the company's fiscal reporting calendar. Internal financial results and key performance indicators are reported on a weekly basis to ensure the same number of Saturdays and Sundays in comparable months to allow for consistent four-week progression analysis. This results in our first quarter consisting of sixteen weeks while the remaining three quarters have twelve weeks (except in cases where there is an extra week every five or six years in the fourth quarter). Accordingly, interim results may not be indicative of subsequent interim period results, or comparable to prior or subsequent interim period results, due to differences in the lengths of the interim periods.
Additionally, detailed below are expense items affecting comparability that will provide additional context while reading this discussion:
53 weeks 52 weeks Disclosure
(Amounts in thousands)
Business process improvement costs $ 3,368 $ 4,529 Note 2
Restructuring-related implementation costs 19,529 2,979 Note 5
Plant closure costs and impairment of assets 7,397 10,310 Note 2
Impairment of intangible assets 135,981 — Note 2, 10
Acquisition and integration-related costs 17,904 2,008 Note 6
Loss on inferior ingredient 2,657 — Note 2
Legal settlements and related costs 902 3,800 Note 23
Pension plan settlement loss — 241 Note 21
Business process improvement costs related to the transformation strategy initiatives. In the second half of Fiscal 2020, we launched initiatives to transform our business, including an upgrade to our information system, as well as investments in e-commerce, autonomous planning, and our “bakery of the future” initiatives. These initiatives are further discussed in Item 1., Business, of this Form 10-K. Implementation of the ERP upgrade is anticipated to be completed in Fiscal 2027. The expensed portion of costs incurred related to these initiatives, which was primarily consulting costs, was $3.4 million in Fiscal 2025 and $4.5 million in Fiscal 2024, and is reflected in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
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Restructuring charges and related implementation costs. During the first quarter of Fiscal 2025, we began a review of our cost-to-serve focused on improving efficiencies and identifying cost reduction opportunities. Based on this review, we announced a restructuring program in the third quarter of Fiscal 2025 and incurred costs for employee termination benefits related to a reduction-in-force ("RIF") of $5.5 million and made payments of $4.8 million during Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Consolidated Statements of Income. In the fourth quarter of Fiscal 2025, we began a comprehensive review of our brands, operations, and financial strategy. Although this review is in the early stages, as discussed in the Impairment of intangible assets section below, it resulted in the impairment of two regional brands in the fourth quarter of Fiscal 2025. This aligns with our strategy to optimize our brand portfolio and invest in our national brands and key product categories. Additionally, during Fiscal 2025, the company incurred $19.5 million of consulting costs to implement these transformative programs and these costs are included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income. We anticipate additional restructuring charges and related costs in subsequent quarters.
In April 2024, the company announced a cost savings program to improve operational performance, which included employee termination benefits associated with a reduction-in-force ("RIF") and other expense optimization initiatives. During Fiscal 2024, the company incurred RIF costs of $7.4 million and made payments of $7.3 million. The company incurred final RIF charges of $0.6 million and made the final payments of $0.7 million in the first quarter of Fiscal 2025. The company also incurred consulting costs associated with implementing the restructuring program in Fiscal 2024 which are included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
Plant closure costs and impairment of assets. On February 12, 2025, the company announced the closure of its Bailey Street Bakery located in Atlanta, Georgia. The bakery produced bread and bun products and ceased production on April 16, 2025. This bakery closure is part of our strategy to optimize capacity within our supply chain. Closure costs included equipment asset impairment charges and equipment relocation costs of $6.1 million and severance costs of $1.3 million and were recognized in the first quarter of Fiscal 2025. In the second quarter of Fiscal 2025, the company classified the bakery as held for sale. These costs and the costs below are included as a separate line item of the Consolidated Statements of Income.
On July 18, 2024, the company announced the closure of its Baton Rouge, Louisiana bakery. The bakery produced bun products and ceased production on September 19, 2024. This bakery closure is part of our strategy to optimize capacity within our supply chain. The facility continues to be used as a distribution center. The company recognized severance costs of $1.1 million and asset impairment and equipment relocation charges of $2.4 million in Fiscal 2024. Additionally, in Fiscal 2024, the company recorded charges totaling $2.7 million to fully impair certain ERP-related software and other equipment, and recognized a recovery of $1.3 million related to the sale of equipment that had been previously written off in Fiscal 2022 as part of the Phoenix, Arizona bakery closure. In Fiscal 2024, the company also recorded asset impairment charges of $1.4 million to write off certain cake distribution territories classified as held for sale that the company no longer intends to sell and $4.0 million related to its investment in an unconsolidated affiliate, Base Culture.
Impairment of intangible assets. In the fourth quarter of Fiscal 2025, concurrent with the company's annual planning process, the company performed an assessment of its finite-lived brands and determined two of its regional brands were impaired based on their current and expected future performance. As a result of this assessment, the company recorded an impairment charge of $136.0 million. The company intends to continue to use these two trademarks for the foreseeable future but on a more limited basis, including eliminating certain stock-keeping-units, as it intends to focus on growing its national brands. These costs are included as a separate line item of the Consolidated Statements of Income.
Acquisition and integration-related costs. On February 21, 2025, the company completed the acquisition of Simple Mills, maker of a premium brand of better-for-you crackers, cookies, snack bars, and baking mixes, for total consideration of approximately $848.6 million. The goodwill, taxes, and certain other assets and liabilities are still under review. The company funded the cash consideration and related acquisition fees and expenses with the net proceeds of the Notes (as defined below) offerings completed on February 14, 2025. We incurred acquisition and integration-related costs as detailed in the table above and these costs are recorded in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
Loss on inferior ingredients. In Fiscal 2025, the company recognized $2.7 million of identifiable and measurable costs associated with product losses. These product losses resulted from inferior coconut sugar and cashew flour used in certain of Simple Mills' products due to tiny fragments of metal present in the ingredients and from the presence of gluten in certain of Canyon Bakehouse's gluten-free products. We are not currently able to estimate any future anticipated losses and we continue to seek recovery of all losses through appropriate means. These costs are included as a separate line item of the Consolidated Statements of Income.
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Legal settlements and related costs. In the first and second quarters of Fiscal 2025, we reached agreements to settle certain distributor-related litigation for total settlement payments, inclusive of plaintiffs' attorney fees, of $2.1 million. In the third quarter of Fiscal 2023, we reached an agreement to settle certain distributor-related litigation for a settlement payment, inclusive of plaintiffs’ attorney fees, of $55.0 million which was paid in the second quarter of Fiscal 2024. The settlement also required a phased repurchase of approximately 350 distribution territories in California and the company previously estimated this cost, along with the cost to repurchase approximately 50 other California distribution territories that are not part of the settlement, to be approximately $80.2 million. The repurchases of the distribution rights commenced at the end of the first quarter of Fiscal 2024 and were completed early in the second quarter of Fiscal 2025 for a total cost of $79.0 million. The company recognized an adjustment to the repurchase liability of $1.2 million in the first quarter of Fiscal 2025.
In the third and fourth quarters of Fiscal 2024, we reached agreements to settle certain distributor-related litigation in the aggregate amount of $2.2 million, inclusive of plaintiffs’ attorney fees. Additionally, in the fourth quarter of Fiscal 2024, we reached an agreement to settle certain non-distributor-related litigation in the amount of $1.6 million.
All amounts related to legal settlements and related costs are recorded in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income and there were no amounts accrued as of January 3, 2026.
Pension plan settlement loss. Retired and terminated vested pension plan participants not yet receiving their benefit payments have the option to receive their benefit as a single lump sum payment. In the fourth quarter of Fiscal 2024, a settlement charge of $0.2 million was triggered as a result of lump sum distributions paid in Fiscal 2024 and this amount is included in the other components of net periodic pension and postretirement benefit plans credit line item of the Consolidated Statements of Income.
EXECUTIVE OVERVIEW
We are the second-largest producer and marketer of packaged bakery foods in the U.S. with Fiscal 2025 sales of $5.3 billion. We operate in the highly competitive fresh bakery market and the acquisition of Simple Mills, completed on February 21, 2025, expands our presence in the better-for-you snacking category. Our product offerings include a wide range of fresh breads, buns, rolls, snack items (bars, cakes, cookies, and crackers), bagels, English muffins, tortillas and baking mixes, as well as frozen breads and rolls, which we produce at 44 plants in 19 states. Our products are sold under leading brands such as Nature’s Own, DKB, Canyon Bakehouse, Simple Mills, Wonder, and Tastykake. See Item 1., Business, of this Form 10-K for additional information regarding our customers and brands, business strategies, strengths and core competencies, and competition and risks.
Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business
We continue to monitor the impact of a variety of factors on our business, including the impact of the inflationary economic environment on our costs and the buying patterns of our consumers, supply chain disruptions, including the impacts of tariffs (including retaliatory tariffs), increased labor costs, the conflict between Russia and Ukraine, and the current instability in the Middle East, as further discussed in Item 1., Business, of this Form 10-K.
Summary of Operating Results, Cash Flows and Financial Condition:
Sales increased 3.0% in Fiscal 2025 compared to Fiscal 2024 due to the acquisition contribution (excluding the 53rd week) of 4.1% and the benefit of the additional week of 1.7%, partially offset by volume declines of 2.0% and negative price/mix of 0.8%. Branded Retail sales increased 6.2% due to the acquisition contribution (excluding the 53rd week) of 6.4%. Sales in the Other sales category decreased 2.7%. Both sales categories experienced negative price/mix and softer volumes due to a challenging consumer environment which was partially offset by the benefit of the additional week. Weakness in both the fresh packaged bread and cake categories negatively impacted our sales.
Income from operations for Fiscal 2025 was $174.0 million compared to $348.3 million in Fiscal 2024. The decrease resulted primarily from the impairment of intangible assets of $136.0 million, greater outside purchases of product due to the Simple Mills acquisition, increased workforce-related costs, higher rent expenses, and greater restructuring-related implementation costs and acquisition and integration-related costs. These higher costs were partially offset by lower distributor distribution fees and ingredient costs.
Net income was $83.8 million for Fiscal 2025 compared to $248.1 million in the prior year. The decrease year over year resulted primarily from lower income from operations, as described above, increased interest expense from funding the acquisition, and a higher effective tax rate.
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In Fiscal 2025, we generated net cash flows from operations of $446.2 million, paid $791.9 million of the total consideration of approximately $848.6 million for the Simple Mills acquisition, and invested $127.1 million in capital expenditures (inclusive of$3.4 million for the ongoing ERP upgrade). Additionally, we increased our indebtedness by $739.9 million and paid $209.3 million in dividends to our shareholders. Our cash and cash equivalents balance as of January 3, 2026 was $12.1 million. In Fiscal 2025, we entered into a $500.0 million five-year senior unsecured revolving credit facility (the "new credit facility") which refinanced and replaced our existing credit facility (the "previous credit facility"). We also issued $500.0 million aggregate principal amount of 5.750% Senior Notes (the "2035 Notes") and $300.0 million aggregate principal amount of 6.200% Senior Notes (the "2055 Notes"). Furthermore, we amended the accounts receivable repurchase facility (the "repurchase facility") to, among other things, extend the scheduled facility expiration date to April 14, 2027.
In Fiscal 2024, we generated net cash flows from operations of $412.7 million and invested $132.1 million in capital expenditures (inclusive of $6.0 million for the ongoing ERP upgrade). Additionally, we made $22.7 million in stock repurchases and paid $203.0 million in dividends to our shareholders in Fiscal 2024.
Refer to the Capital Structure section below for additional information on the company's financial condition.
Critical Accounting Estimates
The company’s discussion and analysis of its results of operations and financial condition are based upon the Consolidated Financial Statements of the company, which have been prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires the company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues, expenses, and cash flows during the reporting period. On an ongoing basis, the company evaluates its estimates, including those related to customer programs and incentives, bad debts, raw materials, inventories, long-lived assets, leased assets, intangible assets, income taxes, restructuring, pensions and other post-retirement benefits, and contingencies and litigation. The company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The selection and disclosure of the company’s critical accounting estimates have been discussed with the company’s audit committee. Note 2, Summary of Significant Accounting Policies, of Notes to Consolidated Financial Statements of this Form 10-K includes a summary of the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The following table lists, in no particular order of importance, areas of critical assumptions and estimates used in the preparation of the Consolidated Financial Statements. Additional detail can be found in the following notes:
Critical Accounting Estimate Note
Revenue recognition —
Derivative financial instruments 11
Business combinations 6
Long-lived assets 10
Goodwill 10
Self-insurance reserves 23
Income tax expense and accruals 22
Postretirement plans 21
Stock-based compensation 19
Commitments and contingencies 23
Revenue Recognition. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Revenues are recognized net of variable consideration provisions such as for returns, volume discounts and sales promotion expenses that result in uncertainty about the company’s ability to collect the amount. The company estimates the amount of variable consideration to be included in the transaction price at contract inception based on one of two approaches: the expected value approach (the “EV” approach) or the most-likely amount (the “MLA”) approach. The EV approach identifies possible outcomes of the contract and the probabilities of those outcomes. The MLA approach is used in cases when the company expects to be entitled to only one of the two possible outcomes. The company applies the approach consistently for similar types of contracts and updates the estimated transaction price at each reporting date. Consideration payable to a customer is recognized at the time control transfers and is a reduction to revenue. Estimates are made based on historical experience and other factors.
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Derivative Financial Instruments. The company’s cost of certain raw materials is highly correlated to underlying commodities markets. Raw materials, such as our baking ingredients, experience price fluctuations. If actual market conditions become significantly different than those anticipated, raw material prices could increase significantly, adversely affecting our results of operations. We enter into forward purchase agreements and other derivative financial instruments qualifying for hedge accounting to manage the impact of volatility in raw material prices. The company measures the fair value of its derivative portfolio using fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market for that asset or liability. When quoted market prices for identical assets or liabilities are not available, the company bases fair value on internally developed models that use current market observable inputs, such as exchange-quoted futures prices and yield curves. Refer to Item 7A., Quantitative and Qualitative Disclosures About Market Risk, of this Form 10-K for additional information about our derivative financial instruments, including sensitivity analyses of the company’s potential exposure to commodity price risk.
Business Combinations. The company’s acquisitions of businesses are accounted for in accordance with ASC 805, “Business Combinations.” The company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquired business at their fair values as of the date of acquisition. Goodwill is measured as the excess of the consideration transferred, also measured at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, property, plant, and equipment, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration, and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.
Significant estimates and assumptions in estimating the fair value of customer relationships, trademarks, non-compete agreements, distributor relationships, and other identifiable intangible assets include future cash flows that the company expects to generate from the acquired assets, discount rate, customer attrition rate, and long-term revenue growth projections. Projecting discounted future cash flows requires the company to make significant estimates regarding projected revenues, projected earnings before interest, taxes, depreciation, and amortization margins, discount rates, royalty rate and customer attrition rates. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, the company could record impairment charges. In addition, the company has estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation on property, plant, and equipment and amortization expense on definite-lived intangible assets. If the estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could become impaired.
For leases acquired in a business combination, the company measures the lease liability at the present value of the remaining lease payments, as if the acquired lease were a new lease of the company at the acquisition date. When the implicit rate in the acquired lease is not readily determinable, the company calculates the lease liabilities using discount rates based upon the company’s applicable incremental borrowing rate. An assessment of the certainty associated with the exercise of any lease renewal, termination, and purchase options included in the acquired lease contracts is also performed. The company measures the right-of-use asset at the same amount as the lease liability as adjusted to reflect favorable or unfavorable terms of the lease when compared with market terms.
Impairment of Long-Lived, Intangible, and Other Assets. Assumptions and estimates used in the evaluation of potential impairment can result in adjustments affecting the carrying values of long-lived, intangible, and other assets and the recognition of impairment expense in the company’s consolidated financial statements. The company evaluates its long-lived assets (property, plant and equipment), definite-lived intangible assets, and other assets (including right-of-use lease assets, notes receivable, and equity) for impairment whenever indicators of impairment exist, or when it commits to sell the asset. If the sum of the undiscounted expected future cash flows from a long-lived asset or definite-lived intangible asset group is less than the carrying value of that asset group, an asset impairment charge is recognized. Key assumptions and estimates used in the projection of expected future cash flows generally include price levels, sales growth, profit margins and asset life. Future adverse changes, such as decisions to discontinue or significantly reduce the use of certain brands, in market conditions or poor operating results of these underlying assets could result in losses or an inability to recover the carrying value of the asset that may not be reflected in the asset’s current carrying value, thereby possibly requiring impairment charges in the future. The amount of an impairment charge, if any, is calculated as the excess of the asset’s carrying value over its fair value, generally represented by the discounted future cash flows from that asset or, in the case of assets the company evaluates for sale, estimated sale proceeds less costs to sell. The company takes into consideration historical data and experience together with all other relevant information available when estimating the fair values of its assets. However, fair values that could be realized in actual transactions may differ from the estimates used to evaluate impairment. In addition, changes in the assumptions and estimates may result in a different conclusion regarding impairment. Impairment charges recorded in Fiscal 2025 and Fiscal 2024 are discussed above in the “Matters Affecting Comparability” section.
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Impairment of Goodwill. The company assesses goodwill for impairment annually during the fourth quarter, or from time to time when warranted by the facts and circumstances surrounding individual reporting units or the company as a whole. The company completed its most recent annual goodwill impairment testing during the fourth quarter of Fiscal 2025 and analyzed certain qualitative and quantitative factors in determining whether a goodwill impairment existed. Flowers has concluded it has two operating segments and two reporting units, legacy Flowers Foods and Simple Mills. As Simple Mills shares similar economic characteristics with legacy Flowers Foods, we aggregate Simple Mills and legacy Flowers Foods as one operating segment for the purpose of determining our one reportable segment. We have elected not to perform the qualitative approach, but instead perform a quantitative analysis by comparing the fair value of each of the reporting units with which the goodwill is associated to the carrying amount of the respective reporting unit. If the fair value is less than the carrying value, the goodwill is written down to the extent the carrying amount exceeds the fair value.
When performing a quantitative analysis, the company estimates the fair value of its reporting units using a weighted average of the income and market approaches. Under the income approach, the company uses a discounted cash flow model based on projections of future years’ operating results and associated cash flows. The company’s assessments reflected a number of significant management assumptions and estimates including the: (a) weighted average cost of capital; (b) forecasted sales growth rates; (c) forecasted EBITDA margins; and (d) market multiples (not applicable to the income approach). Changes in these assumptions could materially impact the company’s conclusions. Based on its assessments, the company concluded that there was no impairment of goodwill for either of its reporting units.
The company’s assessments, whether qualitative or quantitative, incorporate management’s expectations for the future, including forecasted growth rates and/or margin improvements. Therefore, should there be changes in the relevant facts and circumstances and/or expectations, management’s conclusions regarding goodwill impairment may change as well.
In considering the level of uncertainty regarding the potential for goodwill impairment, management has concluded that any such impairment would, in most cases, likely be the result of adverse changes in more than one assumption. Management considers the assumptions used to be its best estimates across a range of possible outcomes based on available evidence at the time of the assessment. Other than in the Simple Mills reporting unit there is no specific singular event or single change in circumstances management has identified that it believes could reasonably result in a change to the expected future results in the legacy Flowers Foods reporting unit that would be significant enough to result in goodwill impairment. In the case of Simple Mills, the lower differential between the fair value and carrying value of the reporting unit is due to the acquisition (in February 2025), at which time the majority of assets and liabilities acquired were recorded at fair value. In management’s opinion, a change of such magnitude would more likely be the result of changes to some combination of the factors identified above, a general deterioration in competitive position, significant unexpected changes in customer preferences, an inability to pass through significant raw material cost increases, and other such items as identified in “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
Although no reporting units failed the annual impairment test, in management’s opinion, the goodwill balance of the Simple Mills reporting unit is at risk of impairment in the near term if the reporting unit’s operation does not perform in line with management’s expectations, or if there is a negative change in the long-term financial outlook for the reporting unit or in other factors such as the particular discount rates used. Total goodwill associated with the Simple Mills reporting units was $367.9 million at January 3, 2026.
Leases. The company’s leases consist of the following types of assets: bakeries, corporate office space, warehouses, bakery equipment, office equipment, transportation, and IT equipment. The company uses the applicable incremental borrowing rate at lease commencement to perform the lease classification tests on lease components and to measure the lease liabilities and right-of-use assets in situations when discount rates implicit in leases cannot be readily determined.
Self-Insurance Reserves. We are self-insured for various levels of general liability, auto liability, workers’ compensation, and employee medical and dental coverage. Insurance reserves are calculated on a combination of an undiscounted basis based on actual claims data and estimates of incurred but not reported claims developed utilizing historical claims trends. Projected settlements of incurred but not reported claims are estimated based on pending claims, historical trends, industry trends related to expected losses and actual reported losses, and key assumptions, including loss development factors and expected loss rates. Though the company does not expect them to do so, actual settlements and claims could differ materially from those estimated. Material differences in actual settlements and claims could have an adverse effect on our financial condition and results of operations.
Income Tax Expense and Accruals. The annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Changes in statutory rates and tax laws in jurisdictions in which we operate may have a material effect on the annual tax rate. The effect of these changes, if any, would be recognized as a discrete item upon enactment.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenues and expenses. Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.
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Our income tax expense, deferred tax assets and liabilities, and reserve for uncertain tax benefits reflect our best assessment of future taxes to be paid in the jurisdictions in which we operate. The company records a valuation allowance to reduce its deferred tax assets if we believe it is more likely than not that some or all of the deferred assets will not be realized. While the company considers future taxable income and ongoing prudent and feasible tax strategies in assessing the need for a valuation allowance, when and if these estimates and assumptions change, the company has and may be required in the future to adjust its valuation allowance, which could result in a charge to, or an increase in, income in the period such determination is made.
Periodically, we face audits from federal and state tax authorities, which can result in challenges regarding the timing and amount of income or deductions. We provide reserves for potential exposures when we consider it more likely than not that a taxing authority may take a sustainable position on a matter contrary to our position. We evaluate these reserves on a quarterly basis to ensure that they have been appropriately adjusted for events, including audit settlements that may impact the ultimate payment of such potential exposures. While the ultimate outcome of audits cannot be predicted with certainty, we do not currently believe that current or future audits will have a material adverse effect on our consolidated financial condition or results of operations. The company is no longer subject to federal examination for years prior to Fiscal 2022, and with limited exceptions, for years prior to 2021 in state jurisdictions.
Postretirement Plans. The company sponsors a defined benefit pension plan for union employees, the Flowers Foods, Inc. Retirement Plan No. 2 ("Plan No. 2"), and a frozen nonqualified plan covering former Tasty executives. The company records pension costs and benefit obligations related to its defined benefit plans based on actuarial valuations. These valuations reflect key assumptions determined by management, including the discount rate, expected long-term rate of return on plan assets and mortality.
We use a spot rate approach (granular method) to estimate the service cost and interest cost components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this provides the best estimate of service and interest costs.
The pension plan’s investment committee, which consists of certain members of management, establishes investment guidelines and regularly monitors the performance of the plan’s assets. The investment committee is responsible for executing these strategies and investing the pension assets in accordance with ERISA and fiduciary standards. The investment objective of the pension plan is to preserve the plan’s capital and maximize investment earnings within acceptable levels of risk and volatility. The investment committee meets on a regular basis with its investment advisors to review the performance of the plan’s assets. Based upon performance and other measures and recommendations from its investment advisors, the investment committee rebalances the plan’s assets to the targeted allocation when considered appropriate. For the details of our pension plan assets, see Note 21, Postretirement Plans, of Notes to Consolidated Financial Statements of this Form 10-K.
In developing the expected long-term rate of return on plan assets at each measurement date, the company considers the plan assets’ historical actual returns, targeted asset allocations, and the anticipated future economic environment and long-term performance of the individual asset classes, based on the company’s investment strategy. While appropriate consideration is given to recent and historical investment performance, the assumption represents management’s best estimate of the long-term prospective return. Further, pension costs do not include an explicit expense assumption, and therefore the return on assets rate reflects the long-term expected return, net of expenses. Based on these factors, the long-term rate of return assumption for Plan No. 2 is set at 5.3% for Fiscal 2026.
The company utilizes the Society of Actuaries’ (“SOA”) published mortality tables and improvement scales in developing their best estimates of mortality. In October 2019, the SOA published its final report on their “standard” mortality table (“Pri-2012”). For purposes of measuring pension benefit obligations of Plan No. 2, the company used the Pri-2012 base table with blue collar adjustment, and 117.1% multiplier, and a projection scale of MP-2021. No other collar adjustments are applied for any other plans. In addition, contingent annuitant mortality rates are applied for surviving spouses after the death of the original retiree.
The company determines the fair value of substantially all of its plans’ assets utilizing market quotes rather than developing “smoothed” values, “market related” values, or other modeling techniques. Plan asset gains or losses in a given year are included with other actuarial gains and losses due to remeasurement of the plans’ projected benefit obligations (“PBO”). If the total unrecognized gain or loss exceeds 10% of the larger of (i) the PBO or (ii) the market value of plan assets, the excess of the total unrecognized gain or loss is amortized over the expected average remaining service period of active covered employees (or average future lifetime of participants if the plan is inactive or frozen). Prior service cost or credit, which represents the effect on plan liabilities due to plan amendments, is amortized over the average remaining service period of active covered employees (or average future lifetime if the plan is inactive or frozen).
In Fiscal 2026, the company does not expect to make any cash contributions to Plan No. 2 and expects to pay $0.2 million in pension benefits from corporate assets to its nonqualified plan.
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Stock-based compensation. Stock-based compensation expense for all share-based payment awards granted is determined based on the grant date fair value. The company recognizes these compensation costs net of an estimated forfeiture rate, and recognizes compensation cost only for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based payment award.
We grant performance stock awards that separately have a market and performance condition. The expense computed for the total shareholder return shares (“TSR”) is fixed and recognized on a straight-line basis over the vesting period. The expense computed for the return on invested capital (“ROIC”) shares can change depending on the expected attainment of performance condition goals. The expense for the ROIC shares can be within a range of 0% to 125% of the target for awards granted in Fiscal 2023 and earlier and 0% to 150% for awards granted subsequent to Fiscal 2023. There is a possibility that this expense component will change in subsequent quarters depending on how the company performs relative to the ROIC target. Additionally, there are time-based stock awards that generally vest over a period of three years using the straight-line attribution method. See Note 19, Stock-Based Compensation, of Notes to Consolidated Financial Statements of this Form 10-K for additional information. In early Fiscal 2026, the company granted stock awards to certain employees. The company expects stock-based compensation expense for Fiscal 2026 will be approximately $4.0 million to $6.0 million higher than Fiscal 2025. This estimate is inclusive of an additional $2.5 million to $3.0 million of expense anticipated to be recognized in the first quarter of Fiscal 2026 due to the payout for the Fiscal 2024 grant currently trending at 150% of target since the grant date. Additionally, the company anticipates a shortfall of approximately $5.0 million to $7.0 million on the vesting of stock-based compensation awards that will vest in Fiscal 2026.
Commitments and contingencies. The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings, including personal injury, commercial, contract, environmental, antitrust, product liability, health and safety and employment matters, including lawsuits related to the independent distributors, which are being handled and defended in the ordinary course of business. Loss contingencies are recorded at the time it is probable an asset is impaired or a liability has been incurred and the amount can be reasonably estimated. For litigation claims, the company considers the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the loss. Losses are recorded in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
Results of Operations
Consolidated Results - Fiscal 2025 compared to Fiscal 2024
The company’s results of operations, expressed as a percentage of sales, are set forth below for Fiscal 2025 and Fiscal 2024:
Percentage of Sales Increase (Decrease)
(Amounts in thousands, except percentages)
Percentages may not add due to rounding.
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Sales
$ % $ % % Change
(Amounts in thousands) (Amounts in thousands)
(The table above presents certain sales by category that have been reclassified from amounts previously reported to conform to the current period presentation.)
The change in sales was attributable to the following:
Percentage point change in sales attributed to: Branded Retail Other Total
Favorable (Unfavorable)
Pricing/Mix^* (0.5 ) (1.7 ) (0.8 )
Acquisition (excluding the impact of Week 53) 6.4 — 4.1
Total percentage point change in net sales 6.2 (2.7 ) 3.0
Price/Mix $ = Current fiscal year units x change in price per unit
Price/Mix % = Price/Mix $ ÷ Prior fiscal year Net Sales $
Volume $ = Prior fiscal year price per unit x change in units
Volume % = Volume $ ÷ Prior fiscal year Net Sales $
The company disaggregates its sales into two categories, Branded Retail and Other. These categories align with our brand-focused strategy to drive above-market growth via innovation and focusing on higher margin products. The Other category includes store branded retail and non-retail sales (foodservice, restaurant, institutional, vending, thrift stores, and contract manufacturing).
Sales increased year over year due to the Simple Mills acquisition contribution and the benefit of the extra week in Fiscal 2025 partially offset by softer volumes and negative price/mix in both sales categories. Weakness in the fresh packaged bread category, particularly for traditional loaf breads, and, to a lesser extent, in the away-from-home market largely resulted in the volume declines. Lower store branded sales also contributed to the volume declines. The overall negative price/mix was partially offset by improvements in our foodservice price/mix from executing our portfolio optimization strategies beginning in the second quarter of the prior year. Additionally, we implemented price increases on certain branded retail products in the fourth quarter of Fiscal 2025. Due to the challenging consumer environment, our promotional activity increased year over year, targeting differentiated products.
We anticipate our Fiscal 2026 sales will be lower than Fiscal 2025 due to the additional week in Fiscal 2025 and continued weakness in the fresh packaged bread category. The sales benefit from the Simple Mills acquisition contribution (acquired on February 21, 2025), growth in more differentiated products, including Simple Mills' products, and the benefit of price increases implemented in the fourth quarter of Fiscal 2025 are anticipated to partially offset the sales decrease.
Branded Retail Sales
Branded Retail sales increased 6.2% compared to the prior year due to the Simple Mills acquisition contribution and the benefit of the additional week, partially offset by volume declines and unfavorable price/mix. Volumes were negatively impacted by weakness in the fresh packaged bread category with the largest declines in sales of traditional loaf products. Volume growth in organic, Keto, and cake items partially offset the decrease. The company introduced Wonder cake in the first quarter of Fiscal 2025. Other recent product introductions include Nature's Own protein loaf, small loaves, and Keto buns and multi-grain loaf as well as, DKB sandwich rolls and snack bites, and Wonder bagels and English muffins. Price/mix was unfavorable primarily due to increased targeted promotional activity and, to a lesser extent, a shift in mix to greater branded retail cake sales and the addition of smaller loaf sizes.
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The Simple Mills acquisition has increased our investment in the better-for-you category and their branded snack items, combined with the DKB organic snack bars and bites, further diversifies our exposure beyond the fresh packaged breads and buns category. The DKB snack bites were rolled out nationally during Fiscal 2025, and at the end of Fiscal 2025, we introduced three varieties of DKB organic breakfast bars and expanded our line of protein bars, snack bars, and snack bites.
Other Sales
Sales in the Other category decreased 2.7% due to softer volumes for both store branded retail and non-retail sales and unfavorable price/mix, partially offset by the benefit of the additional week. Store branded retail sales decreased due to softer volumes, most notably for cake items, and to a lesser extent negative price/mix, net of the benefit of the additional week. Our non-retail sales experienced softer volumes for foodservice and institutional sales, partly offset by growth in contract manufacturing. Foodservice price/mix improved from optimization of that business subsequent to the first quarter of Fiscal 2024, but was offset by negative price mix for other non-retail sales.
Materials, Supplies, Labor, and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)
Ingredients and packaging 28.0 29.4 (1.4 )
The increase in materials, supplies, labor and other production costs as a percent of sales year over year primarily resulted from greater outside purchases of product (sales with no associated ingredient costs) and lower sales price/mix, partially offset by lower ingredient costs. Lower production volumes also contributed to the increase and we expect this trend to continue due to weakness in the fresh packaged bread category. Outside purchases of product, which are included in the Other line item in the table above, largely relate to purchases of Simple Millsproducts, all of which are co-manufactured, and to a lesser extent certain DKB and other products. We expect a continued increase in outside purchases of product due to anticipated growth in sales of Simple Mills' products combined with the acquisition impact. Ingredient costs decreased as a percent of sales due to higher outside purchases of product and lower pricing for commodities, mainly flour and organic ingredients. The benefit was partially offset by higher costs for other ingredients such as cocoa and eggs, the impact of tariffs, and lower sales price/mix. Tariffs are expected to impact our costs more in Fiscal 2026 due to the timing of implementation in Fiscal 2025. We continue to monitor all trade agreements and impacts that might affect the costs of our raw materials.
Prices of ingredient and packaging materials fluctuate due to various factors including, but not limited to, government policy and regulation (including tariffs), weather conditions, domestic and international demand, availability due to supply conditions, including livestock disease, or other unforeseen circumstances, and we monitor these markets closely. Ingredient and packaging costs experienced less volatility in Fiscal 2025 as compared to Fiscal 2024 but are anticipated to remain volatile in Fiscal 2026. We use eggs in several of our products and have been, and could continue to be, adversely impacted by increased costs and/or reduced availability of supply as a result of the avian influenza. We enter into forward purchase agreements and other financial instruments to manage the impact of volatility in certain raw material prices. Any decrease in the availability of these agreements and instruments could increase the cost of these raw materials and significantly affect our earnings.
Selling, Distribution, and Administrative Expenses (as a percent of sales)
Distributor distribution fees 11.8 13.3 (1.5 )
Workforce-related costs increased as a percent of sales year over year primarily due to a shift away from distributor distribution fees and wage inflation on lower sales price/mix. The benefits of cost savings programs and reduced incentive compensation costs partially offset the increase. Distributor distribution fees decreased as a percent of sales primarily from a smaller portion of our sales being made through IDPs mostly resulting from the company converting to an employee-based model in California and due to
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distributing Simple Mills' products via a warehouse-delivery system. The California conversion was completed early in the second quarter of Fiscal 2025. The increase in the Other line item in the table above mostly relates to higher acquisition and integration-related expenses, greater restructuring-related implementation costs, and increased vehicle rent expenses associated with the California conversion. See the “Matters Affecting Comparability” section above for a discussion of the acquisition and integration-related expenses and restructuring-related implementation costs.
Restructuring Charges, Plant Closure Costs and Impairment of Assets, Impairment of Intangible Assets, and Loss on Inferior Ingredients
Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.
Depreciation and Amortization Expense
Depreciation and amortization expense increased in dollars and as a percent of sales year over year primarily due to amortization expense associated with the finite-lived intangible assets acquired in the Simple Mills acquisition.
Income from Operations
Income from operations decreased as a percent of sales compared to the prior year primarily due to the impairment of intangible assets and, to a lesser extent, unfavorable sales price/mix, greater outside purchases of product, higher selling, distribution, and administrative costs, as described above, and lower production volumes. Lower ingredient costs partially offset the decrease.
Net Interest Expense
Net interest expense increased in dollars and as a percent of sales as compared to the prior year due to the issuance of the Notes (as defined below) on February 14, 2025 to fund the Simple Mills acquisition and related fees and expenses. The company anticipates interest expense will increase in Fiscal 2026 as compared to Fiscal 2025 due to the Notes issued in the first quarter of Fiscal 2025.
Income Tax Expense
The effective tax rate for Fiscal 2025 was 27.2% compared to 24.6% in the prior year. The increase in the rate was primarily due to a shortfall tax expense on stock-based compensation. For the periods presented, the primary differences in the effective rate relate to state income taxes, shortfalls in the current year period on the vesting of stock-based compensation awards, impacts in the current year period for non-deductible acquisition costs, and benefits recognized from tax credits.
During Fiscal 2025, new tax legislation was enacted under the One Big Beautiful Bill Act (the “Act”). The Act did not have a material impact on the effective tax rate for Fiscal 2025 and there is no anticipated material impact on the effective tax rate in future periods.
Comprehensive Income
The decrease in comprehensive income year over year resulted primarily from decreased net income, and to a much lesser extent, changes in the fair value of derivatives.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL POSITION
Strategy
We believe our ability to consistently generate cash flows from operating activities to meet our liquidity needs is one of our key financial strengths. Furthermore, we strive to maintain a conservative financial position as we believe it allows us flexibility to make investments and acquisitions and is a strategic competitive advantage. Currently, our liquidity needs arise primarily from working capital requirements, capital expenditures, and obligated debt repayments. We believe we currently have access to available funds and financing sources to meet our short and long-term capital requirements. The company’s strategy for use of its excess cash flows includes:
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implementing our strategic priorities, including our transformation strategy initiatives;
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paying dividends to our shareholders;
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maintaining a conservative financial position;
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making strategic acquisitions; and
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repurchasing shares of our common stock.
Although there has been no material adverse impact on the company’s results of operations, liquidity or cash flows in Fiscal 2025, volatility in global and U.S. economic environments, including as a result of, among other things, the inflationary economic environment, supply chain disruptions, tariffs (including retaliatory tariffs), increased labor shortages, the conflict between Russia and Ukraine, and the current instability in the Middle East, could significantly impact our ability to generate future cash flows. We continue to evaluate these various potential business risks, which include the possibility of future economic downturns that could shift consumer demand away from our Branded Retail products to store branded products, supply chain disruptions that have impacted, and could continue to impact, the procurement and cost of raw materials and packaging items (including the impacts of tariffs and retaliatory tariffs), the workforce available to us, among other risks.
The macroeconomic-related factors discussed above remain fluid and the future impact on our business, results of operations, liquidity or capital resources cannot be reasonably estimated with any degree of certainty. In the event of a significant reduction in revenues, we would have additional alternatives to maintain liquidity, including the availability on our debt facilities, capital expenditure reductions, adjustments to our capital allocation policy, and cost reductions. Although we do not currently anticipate a need, we also believe that we could access the capital markets to raise additional funds. We believe that we have sufficient liquidity on hand to continue business operations during the volatile global and U.S. economic environments. As of January 3, 2026, we had total available liquidity of $633.7 million, consisting of cash on hand and the available balances under the new credit facility and the repurchase facility. Although the Act does not impact the company's effective federal tax rate, we anticipate reduced federal tax payments to continue into Fiscal 2026 due to the impact of the Act. As of January 3, 2026, the company has a $25.7 million federal income tax receivable.
We expect the transformation strategy initiatives will require significant capital investment and expense over the next two years. We currently anticipate the upgrade of our ERP system will cost approximately $325 million (of which approximately 35% has been or is anticipated to be capitalized) and anticipate the upgrade to be completed in Fiscal 2027. Previously, these costs were estimated to be $350 million. The decrease in the estimated cost is a result of anticipated greater reliance on internal resources for the bakery deployments. As of January 3, 2026, we have incurred costs related to the project of approximately $265 million. In Fiscal 2026, we expect costs for the upgrade of our ERP system (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) to be approximately $30 million to $37 million. The estimate is higher than costs incurred in Fiscal 2025 due to a significant increase in the number of planned deployments. See Item 1A., Risk Factors, “We may experience difficulties in deploying the upgrade of our ERP system.”
The company leases certain property and equipment under various financing and operating lease arrangements. Most of the operating leases provide the company with the option, after the initial lease term, to purchase the property at the then fair value, renew the lease at the then fair value, or return the property. The financing leases provide the company with the option to purchase the property at a fixed price at the end of the lease term. The company believes the use of leases as a financing alternative places the company in a more favorable position to fulfill its long-term strategy for the use of its cash flow. See Note 14, Leases, of Notes to Consolidated Financial Statements of this Form 10-K for detailed financial information regarding the company’s lease arrangements.
Key items impacting our liquidity, capital resources and financial position in Fiscal 2025 and Fiscal 2024:
Fiscal 2025:
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Generated $446.2 million of net cash from operating activities.
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Completed the Simple Mills acquisition on February 21, 2025 and paid $791.9 million, which is net of cash acquired, of the total consideration of approximately $848.6 million in Fiscal 2025.
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Paid dividends to our shareholders of $209.3 million.
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Invested in our business through capital expenditures of $127.1 million (inclusive of $3.4 million of capital expenditures, including amounts recognized in accounts payable at year end, for the ERP upgrade).
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Repurchased $5.5 million of our common stock.
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Incurred business process improvement costs of $3.4 million related to the ongoing transformation strategy initiatives (exclusive of capitalized or deferred costs).
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Fiscal 2024:
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Generated $412.7 million of net cash from operating activities.
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Paid dividends to our shareholders of $203.0 million.
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Invested in our business through capital expenditures of $132.1 million (inclusive of $6.0 million of capital expenditures, including amounts recognized in accounts payable at year end, for the ERP upgrade).
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Repurchased $22.7 million of our common stock.
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Incurred business process improvement costs of $4.5 million related to the ongoing transformation strategy initiatives (exclusive of capitalized or deferred costs).
Liquidity Discussion
Flowers Foods’ cash and cash equivalents were $12.1 million at January 3, 2026 and $5.0 million at December 28, 2024. The cash and cash equivalents were derived from the activities presented in the table below (amounts in thousands):
Cash flow component Fiscal 2025 Fiscal 2024
Cash flows provided by operating activities $ 446,203 $ 412,664
Cash disbursed for investing activities (943,155 ) (172,669 )
Cash provided by (disbursed for) financing activities 504,047 (257,517 )
Cash Flows Provided by Operating Activities. Net cash provided by operating activities included the following items for non-cash adjustments to net income (amounts in thousands):
Allowances for accounts receivable 7,429 8,304
Loss reclassified from accumulated comprehensive income to net income 816 1,457
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Refer to the Plant closure costs and impairment of assets and Impairment of intangible assets discussions in the “Matters Affecting Comparability” section above regarding the impairment of assets.
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For Fiscal 2025, the deferred income tax activity reflects the impact of the federal tax legislation enacted in July 2025 under the Act allowing initial year 100% bonus depreciation and the partial deduction of research and development expenses previously capitalized under Internal Revenue Code Section 174. Other deferred income tax activity during Fiscal 2025 includes the impact of Federal net operating loss utilization and the impact of trademark impairments. Additionally, for both fiscal years, the deferred income tax activity was composed of changes in temporary differences year over year, including the impact of the vesting of stock equity awards, the impact of payments for a previously accrued legal settlement for the repurchase of distribution rights, and activity related to the capitalization of research and development expenses as defined under Internal Revenue Code Section 174.
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Other non-cash items include non-cash interest expense for the amortization of debt discounts and deferred financing costs, activity in the allowances for inventory obsolescence, and gains or losses on the sale of assets.
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Net cash for working capital requirements included the following items (amounts in thousands):
Changes in accounts receivable $ (4,954 ) $ (4,515 )
Changes in hedging activities, net 3,209 (639 )
Changes in other assets and accrued liabilities (31,479 ) (24,873 )
Net changes in working capital $ (8,443 ) $ (81,444 )
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Changes in accounts receivable were mainly attributable to changes in sales period over period. Changes in inventories resulted primarily from volatility in input costs. Changes in accounts payable for the current year were mainly attributable to optimizing vendor payment terms and volatility in input prices, and changes for the prior year were mainly due to volatility in input prices.
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Hedging activities change due to market movements that affect the fair value and the associated required collateral of positions and the timing and recognition of deferred gains or losses. We expect these changes will continue to occur as part of our hedging program, though the degree and financial impact cannot be currently estimated.
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The change in other assets primarily resulted from changes in income tax receivable balances in each respective period. Changes in accruals for legal settlements, employee compensation, interest, and insurance primarily resulted in the change in other accrued liabilities. In Fiscal 2025, the company accrued $2.1 million in legal settlements and made payments of $3.8 million, of which $1.7 million had been accrued for in the prior year. In Fiscal 2024, we accrued $3.8 million of legal settlements and paid $57.1 million of legal settlements, of which $55.0 million had been accrued for in Fiscal 2023. We anticipate making payments of approximately $31.2 million, including our share of employment taxes, in performance-based cash awards under our cash incentive plans in the first quarter of Fiscal 2026. During Fiscal 2025 and Fiscal 2024, we paid $53.8 million and $31.9 million, respectively, including our share of employment taxes, in performance-based cash awards under our bonus plans. An additional $1.4 million and $1.9 million were paid in Fiscal 2025 and Fiscal 2024, respectively, for our share of employment taxes on the vesting of employee restricted stock awards in each respective year.
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The company did not make any cash contributions to its defined benefit pension plans in Fiscal 2025 or Fiscal 2024 and at this time, we do not expect to make any voluntary cash contributions to our pension plans in Fiscal 2026. We expect to pay $0.2 million in nonqualified pension benefits from corporate assets in Fiscal 2026. The company believes its cash flow and balance sheet will allow it to fund future pension needs without adversely affecting the business strategy of the company.
Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities (amounts in thousands):
Purchase of property, plant, and equipment $ (127,113 ) $ (132,088 )
Acquisition of business (791,928 ) —
Proceeds from insurance settlement 1,389 —
Proceeds from sale of property, plant and equipment 616 2,140
Net cash disbursed for investing activities $ (943,155 ) $ (172,669 )
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The repurchases of the California distribution rights contributed to most of the change in the repurchases of distribution rights, net of principal payments from notes receivable. The company completed the California repurchases early in the second quarter of Fiscal 2025.
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As discussed in the "Executive Overview" section above, on February 21, 2025, we completed the Simple Mills acquisition for total cash consideration of approximately $848.6 million of which $791.9 million, which is net of cash acquired, was paid in Fiscal 2025. The determination of the final purchase price is pending post-close purchase price adjustments.
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Cash Flows Provided by (Disbursed for) Financing Activities. The table below presents net cash provided by (disbursed for) financing activities (amounts in thousands):
Payment of financing fees (10,120 ) (190 )
Payments on financing leases (84 ) (70 )
Net cash provided by (disbursed for) financing activities $ 504,047 $ (257,517 )
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Our annual dividend rate increased from $0.96 per share in Fiscal 2024 to $0.99 per share in Fiscal 2025. While there are no requirements to increase our dividend rate, we have shown a historical trend to do so.
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In the Fiscal 2025, we paid financing fees associated with issuing the Notes (as defined below), refinancing and replacing the previous credit facility with the new credit facility, and amending the repurchase facility. In the prior year, we paid financing costs associated with amending the repurchase facility.
•
Stock repurchase decisions are made based on our stock price, our belief of relative value, and our cash projections at any given time. See Note 18, Stockholders’ Equity, of Notes to Consolidated Financial Statements of this Form 10-K for additional information. A portion of these shares were acquired to satisfy employees’ tax withholding and payment obligations in connection with the vesting of restricted stock awards, which are repurchased by the company based on the fair market value on the vesting date.
•
Changes in debt obligations primarily related to issuing the Notes to fund the Simple Mills acquisition in the first quarter of Fiscal 2025. See the discussion below under the “Capital Structure” section for additional details regarding changes in debt obligations.
Capital Structure
Long-term debt and right-of-use lease obligations and stockholders’ equity were as follows as of January 3, 2026 and December 28, 2024. For a detailed description of our debt and right-of-use lease obligations and information regarding our distributor arrangements, deferred compensation, and guarantees and indemnification obligations, see Note 14, Leases, and Note 15, Debt and Other Commitments, of Notes to Consolidated Financial Statements of this Form 10-K:
Interest Rate at Final Balance at Fixed or
(Amounts in thousands)
Previous credit facility — 2,200 Variable Rate
Long-term debt and right-of-use lease obligations $ 1,606,854 $ 1,276,109
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Total stockholders’ equity was as follows at January 3, 2026 and December 28, 2024:
Balance at
(Amounts in thousands)
As of January 3, 2026, the 2026 notes are classified within the current maturities of long-term debt and will mature during the third quarter of Fiscal 2026 on October 1, 2026. As detailed in the table below, the company currently has sufficient availability under the repurchase facility and new credit facility to repay the 2026 notes upon maturity. Amounts available for withdrawal under the repurchase facility are determined as the lesser of the total facility limit and a formula derived amount based on qualifying trade receivables. If the company were to draw down amounts in excess of paying off the 2026 notes, we may have a different amount available for withdrawal than is presented in the table below.
The repurchase facility and the credit facility are generally used for short-term liquidity needs. The interest rate for the new credit facility shown in the table above reflects a swingline borrowing. Swingline borrowings are typically repaid or converted to a SOFR loan within five business days. At January 3, 2026, the interest rate on a SOFR loan would have been 4.825%.
The following table details the amounts available under the repurchase facility, new credit facility, and previous credit facility as of January 3, 2026 and the highest and lowest balances outstanding under these arrangements during Fiscal 2025:
Amount Available Highest Lowest
for Withdrawal at Balance in Balance in
(Amounts in thousands)
Previous credit facility — * 2,200 —
* The previous credit facility was refinanced and replaced by the new credit facility on February 5, 2025.
(1)
Amount excludes a provision in the repurchase facility agreement which allows the company to request up to $50.0 million in additional commitment.
(2)
Amount excludes a provision in the credit facility agreement which allows the company to request an additional $200.0 million in additional revolving commitments.
Amounts outstanding under the credit facility can vary daily. Changes in the gross borrowings and repayments can be caused by cash flow activity from operations, capital expenditures, acquisitions, dividends, share repurchases, and tax payments, as well as derivative transactions which are part of the company’s overall risk management strategy as discussed in Note 11, Derivative Financial Instruments, of Notes to Consolidated Financial Statements of this Form 10-K. During Fiscal 2025, the company borrowed $69.1 million in revolving borrowings under the new credit facility and previous credit facility combined and repaid $66.3 million in revolving borrowings. The amount available under the new credit facility is reduced by $8.4 million for letters of credit.
The repurchase facility and the new credit facility are variable rate debt and provide us the greatest direct exposure to changing interest rates. In periods of rising interest rates, the cost of using these facilities increases, resulting in greater interest expense.
Restrictive financial covenants for our borrowings include such ratios as a minimum interest coverage ratio and a maximum leverage ratio. Our debt may also contain certain customary representations and warranties, affirmative and negative covenants, and events of default. The company believes that, given its current cash position, its cash flow from operating activities and its available credit capacity, it can comply with the current terms of the debt agreements and can meet its presently foreseeable financial requirements. As of January 3, 2026 and December 28, 2024, the company was in compliance with all restrictive covenants under our debt agreements.
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In connection with entering into the Agreement and Plan of Merger to acquire Simple Mills, the company entered into a commitment letter, pursuant to which, among other things, Royal Bank of Canada committed to provide debt financing for the consummation of the Simple Mills acquisition, consisting of a $795.0 million 364-day term loan facility (the "Term Loan Facility"), on the terms and subject to the conditions set forth in the commitment letter. In lieu of borrowing under the Term Loan Facility, the company issued the 2035 Notes and the 2055 Notes, on February 14, 2025, and terminated the outstanding commitments in respect of the Term Loan Facility. The company recognized costs of $3.6 million associated with the Term Loan Facility in the first quarter of Fiscal 2025 and these costs are included in the selling, distribution, and administrative expenses line item of the Consolidated Statements of Income.
On February 5, 2025, we entered into the new credit facility, a $500.0 million senior unsecured revolving credit facility pursuant to a Credit Agreement (the “2025 Revolving Credit Agreement”), dated as of February 5, 2025, with certain financial institutions party thereto as lenders and Wells Fargo Bank, National Association, as administrative agent. The new credit facility refinances and replaces the previous credit facility entered into pursuant to the amended and restated credit agreement, dated as of October 24, 2003, with the lenders party thereto and Deutsche Bank Trust Company Americas, as administrative agent (as amended, restated, modified or supplemented from time to time). The maturity date of the previous credit agreement was July 30, 2026. No borrowings were outstanding under the amended and restated credit agreement upon its termination.
The new credit facility has an initial maturity date of February 5, 2030. Under the new credit facility, up to $50.0 million of availability may be drawn in the form of letters of credit and up to $50.0 million of availability may be drawn in the form of swingline loans. The new credit facility also includes an incremental facility whereby the Company may increase the commitments to up to $700.0 million if certain conditions are met.
Borrowings under the new credit facility bear interest, at the option of the company, based on the Secured Overnight Financing Rate (“SOFR”) or the “base rate” plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid set forth in the 2025 Revolving Credit Agreement based on the company’s leverage and debt rating, ranging from a maximum of 1.525% in the case of SOFR-based loans and 0.525% in the case of base rate loans to a minimum of 0.815% in the case of SOFR-based loans and 0.00% in the case of base rate loans, based upon the company’s then applicable leverage ratio and debt rating. In addition, the new credit facility bears an additional facility fee on the full amount of the commitments, also determined by reference to the pricing grid, and ranging from a maximum of 0.225% to a minimum of 0.06%, based upon the company’s then applicable leverage ratio and debt rating.
On February 14, 2025, the company issued the 2035 Notes and the 2055 Notes (together, the “Notes”), pursuant to the Indenture, dated as of April 3, 2012 (the “Base Indenture”), by and between the company, as issuer, and Computershare Trust Company, N.A. (as successor to Wells Fargo Bank, National Association), as trustee, as amended and supplemented from time to time, including without limitation, pursuant to an Officer’s Certificate, dated February 14, 2025 (together with the Base Indenture, the “Indenture”), establishing the specific terms and forms of the Notes, each as a new series of securities under the Indenture, and appointing Regions Bank to serve as series trustee with respect to the Notes. The company used the net proceeds of the offering, together with cash on hand, (i) to fund the cash consideration for the Simple Mills acquisition, (ii) to pay fees and expenses related to the Simple Mills acquisition and the offering, and (iii) for general corporate purposes.
On April 14, 2025, the company amended the repurchase facility to, among other things, extend the scheduled facility expiration date to from April 14, 2026 to April 14, 2027 and add a provision that permits the company to request up to $50.0 million in additional commitment, for a total of up to $250.0 million, subject to the satisfaction of certain customary conditions of the facility.
The company intends to maintain its balanced capital deployment model, along with a commitment to its investment grade debt rating.
Special Purpose Entities. At January 3, 2026 and December 28, 2024, the company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.
Guarantees. In the event the company ceases to utilize the independent distribution form of doing business or exits a geographic market, the company is contractually required to purchase the distribution rights from the independent distributors.
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Stock Repurchase Plan. Previously, our Board had approved a plan that authorized share repurchases of up to 74.6 million shares of the company’s common stock. On May 26, 2022, the company announced that the Board increased the company's share repurchase authorization by 20.0 million shares. At the close of the company’s fourth quarter on January 3, 2026, 21.3 million shares remained under the existing authorization. Under the share repurchase plan, the company may repurchase its common stock in open market or privately negotiated transactions or under an accelerated repurchase program at such times and at such prices as determined to be in the company’s best interest. These purchases may be commenced or suspended without prior notice depending on then-existing business or market conditions and other factors.
During Fiscal 2025, 286,980 shares of the company’s common stock were repurchased under the plan at a cost of $5.5 million and during Fiscal 2024, 992,233 shares were repurchased under the plan at a cost of $22.7 million. From the inception of the plan through January 3, 2026, 73.3 million shares have been repurchased, at a cost of $761.5 million. No repurchases of the company’s common stock were made during the fourth quarter of Fiscal 2025.
New Accounting Pronouncements Not Yet Adopted
See Note 3, Recent Accounting Pronouncements, of Notes to Consolidated Financial Statements of this Form 10-K regarding this information.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forwards, futures, swaps, and option contracts to hedge existing or future exposure to changes in interest rates and commodity prices. The company does not enter into these derivative financial instruments for trading or speculative purposes. If actual market conditions are less favorable than those anticipated, interest rates and commodity prices could increase significantly, adversely affecting our interest costs and the margins from the sale of our products.
Commodity Price Risk
The company enters into commodity forward, futures, option, and swap contracts for wheat and, to a lesser extent, other commodities in an effort to provide a predictable and consistent commodity price and thereby reduce the impact of market volatility in its raw material and packaging prices. As of January 3, 2026, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of $(0.5) million and is based on quoted market prices, all of which relates to instruments that will be utilized in Fiscal 2026.
A sensitivity analysis has been prepared to quantify the company’s potential exposure to commodity price risk with respect to its derivative portfolio. Based on the company’s derivative portfolio as of January 3, 2026, a hypothetical ten percent change in commodity prices would increase or decrease the fair value of the derivative portfolio by $2.5 million. The analysis disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase or decrease in the fair value of the portfolio would be substantially offset by increases or decreases in raw material and packaging prices.
Item 8. Financial Statements and Supplementary Data
Refer to the Index to Consolidated Financial Statements and the Financial Statement Schedule for the required information.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures:
We have established and maintain a system of disclosure controls and procedures that are designed to ensure that material information relating to the company, which is required to be timely disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”), is accumulated and communicated to management in a timely fashion and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) was performed as of the end of the period covered by this annual report. This evaluation was performed under the supervision and with the participation of management, including both our CEO and our CFO.
Based upon that evaluation, both our CEO and our CFO have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our CEO and our CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation our management concluded that our internal control over financial reporting was effective as of January 3, 2026.
Management has excluded Simple Mills from its assessment of internal control over financial reporting as of January 3, 2026 because it was acquired by the company in a purchase business combination during Fiscal 2025. Simple Mills is a wholly-owned subsidiary whose total assets and revenues excluded from management's assessment and our audit of internal control over financial reporting represent 22.7% and 4.7%, respectively, of the related consolidated financial statement amounts as of and for the year ended January 3, 2026. The effectiveness of our internal control over financial reporting as of January 3, 2026 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which is included herein.
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Changes in Internal Control Over Financial Reporting:
There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None of the company's directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K, during the company's fiscal quarter ended January 3, 2026.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item with respect to directors of the company set forth under the caption “Corporate Governance and Board Matters — Director-Nominees” and the information set forth under the captions “Corporate Governance and Board Matters — The Board and Its Committees,” “Corporate Governance and Board Matters — Relationships Among Certain Directors,” “Audit Committee Matters — Audit Committee Report,” and “Share Ownership — Delinquent Section 16(a) Reports” in the company’s definitive proxy statement for the 2026 Annual Meeting of Shareholders expected to be filed with the SEC in April 2026 (the “proxy”) are incorporated herein by reference. The information required by this item with respect to executive officers of the company is set forth in Part I of this Form 10-K.
We have adopted the Flowers Foods, Inc. Code of Conduct (the “Code of Conduct”), which includes the code previously referred to as the Flowers Foods, Inc. Code of Business Conduct and Ethics for Officers and Members of the Board of Directors (collectively, "Code of Conduct"), and which applies to all of our employees, directors and officers. The Code of Conduct is publicly available on our website at www.flowersfoods.com in the “CORPORATE GOVERNANCE” section of the “INVESTORS” tab. If we make any substantive amendments to our Code of Conduct or we grant any waiver, including any implicit waiver, from a provision of the Code of Conduct, we intend to disclose the nature of the amendment or waiver on our website at the same location. Alternatively, we may elect to disclose the amendment or waiver in a current report on Form 8-K filed with the SEC.
We have adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of company securities by directors, officers and employees - and in certain instances, by the company itself - that we believe are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards. The foregoing summary of our insider trading policies and procedures is qualified by reference to the Flowers Foods, Inc. Insider Trading Policy filed as Exhibit 19.1 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2024 and incorporated herein by reference.
Our Chairman and CEO certified to the NYSE on June 3, 2025 pursuant to Section 303A.12 of the NYSE’s listing standards, that he was not aware of any violation by Flowers Foods of the NYSE’s corporate governance listing standards as of that date.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to the information set forth under the captions “Corporate Governance and Board Matters — Director Compensation” and “Executive Compensation” in the proxy.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following chart sets forth the amounts of securities authorized for issuance under the company’s compensation plans as of January 3, 2026.
Plan Category (a) (b) (c)
Equity compensation plans approved by security holders 4,722,178 $ — 6,181,894
Equity compensation plans not approved by security holders — — —
(1)
Includes 1,792,584 outstanding time-based restricted stock units and 2,929,594 outstanding performance-based awards. The performance-based awards assume outstanding awards vest at the maximum potential number of shares issuable and may overstate potential dilution.
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(2)
Time-based restricted stock units and performance-based awards are not considered in the weighted average exercise price as these awards have no exercise price.
(3)
Assumes all unvested awards are issuable at the maximum potential number of shares issuable and may overstate potential dilution.
Under the company’s 2014 Omnibus Equity and Incentive Compensation Plan (the “Omnibus Plan”), the Board is authorized to grant a variety of stock-based awards, including stock options, restricted stock and deferred stock, to its directors and certain of its employees. The number of securities set forth in column (c) above reflects securities available for issuance as stock options, restricted stock and deferred stock under the company’s compensation plans. The number of shares originally available under the Omnibus Plan was 8,000,000 shares. On May 25, 2023, the company amended and restated the Omnibus Plan to register an additional 9,340,000 shares of common stock. The Omnibus Plan replaced the Flowers Foods’ 2001 Equity and Performance Incentive Plan, as amended and restated as of April 1, 2009 (“EPIP”), the Stock Appreciation Rights Plan, and the Annual Executive Bonus Plan. As a result, no additional shares will be issued under the EPIP. There are 50,597 deferred shares outstanding under the EPIP that will be issued at the end of the deferral period. See Note 19, Stock-Based Compensation, of Notes to Consolidated Financial Statements of this Form 10-K for additional information on equity compensation plans.
The remaining information required by this item is incorporated herein by reference to the information set forth under the caption “Share Ownership — Security Ownership of Certain Beneficial Owners and Management” in the proxy.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the information set forth under the captions “Corporate Governance and Board Matters — Transactions with Management and Others” and “Corporate Governance and Board Matters — Director Independence” in the proxy.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the information set forth under the caption “Audit Committee Matters — Proposal 3 Ratification of the Appointment of PricewaterhouseCoopers LLP as the Company's Independent Registered Public Accounting Firm — Fiscal 2025 and Fiscal 2024 Audit Firm Fee Summary” in the proxy.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
List of documents filed as part of this report.
1.
Financial Statements of the Registrant
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets at January 3, 2026 and December 28, 2024.
Consolidated Statements of Income for Fiscal 2025, Fiscal 2024, and Fiscal 2023.
Consolidated Statements of Comprehensive Income for Fiscal 2025, Fiscal 2024, and Fiscal 2023.
Consolidated Statements of Changes in Stockholders’ Equity for Fiscal 2025, Fiscal 2024, and Fiscal 2023.
Consolidated Statements of Cash Flows for Fiscal 2025, Fiscal 2024, and Fiscal 2023.
Notes to Consolidated Financial Statements.
2.
Exhibits. The following documents are filed as exhibits hereto:
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EXHIBIT INDEX
Exhibit
No Name of Exhibit
50
Exhibit
No Name of Exhibit
51
Exhibit
No Name of Exhibit
52
Exhibit
No Name of Exhibit
10.46 +* — Form of Performance Stock Agreement.
10.47 +* — Form of Time Based Restricted Stock Agreement.
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Exhibit
No Name of Exhibit
21.1 * — Subsidiaries of Flowers Foods, Inc.
101.INS * — Inline XBRL Instance Document.
101.SCH * — Inline XBRL Taxonomy Extension Schema Linkbase.
* Filed herewith
+ Management contract or compensatory plan or arrangement
Item 16. Form 10-K Summary
The company has elected not to provide summary information.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Flowers Foods, Inc. has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 25th day of February, 2026.
FLOWERS FOODS, INC.
/s/ A. RYALS MCMULLIAN
A. Ryals McMullian
Chairman and
Chief Executive Officer
(Principal Executive Officer)
/s/ D. ANTHONY SCAGLIONE
D. Anthony Scaglione
Chief Financial Officer
(Principal Financial Officer andPrincipal Accounting Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of Flowers Foods, Inc. and in the capacities and on the dates indicated.
Signature Title Date
A. Ryals McMullian
D. Anthony Scaglione
/s/ EDWARD J. CASEY, JR Director February 25, 2026
Edward J. Casey, Jr.
/s/ THOMAS C. CHUBB III Director February 25, 2026
Thomas C. Chubb III
/s/ GEORGE E. DEESE Director February 25, 2026
George E. Deese
/s/ RHONDA O. GASS Director February 25, 2026
Rhonda O. Gass
/s/ BRIGITTE H. KING Director February 25, 2026
Brigitte H. King
/s/ MARGARET G. LEWIS Director February 25, 2026
Margaret G. Lewis
/s/ W. JAMESON MCFADDEN Director February 25, 2026
W. Jameson McFadden
/s/ JOANNE D. SMITH Director February 25, 2026
Joanne D. Smith
/s/ STERLING A. SPAINHOUR Director February 25, 2026
Sterling A. Spainhour
/s/ JAMES T. SPEAR Director February 25, 2026
James T. Spear
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FLOWERS FOODS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page