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FLO Faces Gross Margin Pressure: Can Productivity Drive Recovery?
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Key Takeaways
FLO's Q2 gross margin fell 40 basis points to 48.4% as lower volumes reduced operating leverage.
FLO's total volume fell 5.8%, while Branded Retail volume dropped 7.6%, pressuring fixed-cost absorption.
FLO expects about $9 million in 2026 savings and roughly $20 million in annualized run-rate savings.
Flowers Foods, Inc. (FLO - Free Report) is contending with gross margin pressure as softer volumes reduce operating leverage across its bakery network. With manufacturing carrying a meaningful fixed-cost base, lower production levels make it harder to absorb expenses efficiently. This has increased the importance of productivity, restructuring and network-efficiency initiatives in helping the company manage cost pressure.
Gross margin, excluding depreciation and amortization, was 48.4% of sales in the second quarter of 2026, down 40 basis points year over year. The decline was due to lower operating leverage from reduced volumes and increased outside purchases, partly offset by lower ingredient costs related to Simple Mills. Materials, supplies, labor and other production costs represented 51.6% of sales, also reflecting a 40-basis-point deterioration.
Volume trends remain a key part of the margin challenge. Total company volume declined 5.8% during the quarter, while Branded Retail volume fell 7.6%. Lower throughput weighed on fixed-cost absorption, although pricing, restructuring actions and productivity improvements within the bakery network provided some offset.
Image Source: Zacks Investment Research
Flowers Foods continues to pursue efficiency opportunities across its bakeries and broader network. Actions taken following first-quarter sales softness are expected to provide a benefit as the company exits 2026 and moves into 2027. Separately, cost-structure initiatives are expected to generate about $9 million of savings during the remainder of 2026 and roughly $20 million of annualized run-rate savings once fully implemented, including certain reinvestments.
The key question is whether these efficiency gains can offset the pressure from lower production volumes. Productivity has helped reduce some of the impact, but further savings become harder to achieve as volumes remain weak. For Flowers Foods, easing gross margin pressure will depend on how effectively it can improve efficiency across its bakeries and network.
The Zacks Rank #5 (Strong Sell) stock has tumbled 48.5% year to date compared with the industry’s decline of 6.3%.
The Zacks Consensus Estimate for Mondelez’s current fiscal-year sales and earnings per share (EPS) implies growth of 3.7% and 4.5%, respectively, from the year-ago figures.
Mama's Creations, Inc. (MAMA - Free Report) , a prepared-foods company focused on fresh, ready-to-eat and deli products, currently carries a Zacks Rank of 2. MAMA delivered a trailing four-quarter surprise of 121.7%, on average.
The Zacks Consensus Estimate for Mama's Creations’ current fiscal-year sales and EPS indicates respective increases of 30.3% and 66.7% from the year-ago period.
Laird Superfood, Inc. (LSF - Free Report) , a consumer product company that develops, manufactures and markets plant-based, natural and functional food and beverage products, currently carries a Zacks Rank #2. LSF delivered an earnings surprise of 100% in the last reported quarter.
The Zacks Consensus Estimate for Laird Superfood’s current fiscal-year sales and EPS calls for growth of 188.2% and 104%, respectively, from the year-ago figures.
View the Zacks #1 Rank List
Image: Bigstock
FLO Faces Gross Margin Pressure: Can Productivity Drive Recovery?
Key Takeaways
Flowers Foods, Inc. (FLO - Free Report) is contending with gross margin pressure as softer volumes reduce operating leverage across its bakery network. With manufacturing carrying a meaningful fixed-cost base, lower production levels make it harder to absorb expenses efficiently. This has increased the importance of productivity, restructuring and network-efficiency initiatives in helping the company manage cost pressure.
Gross margin, excluding depreciation and amortization, was 48.4% of sales in the second quarter of 2026, down 40 basis points year over year. The decline was due to lower operating leverage from reduced volumes and increased outside purchases, partly offset by lower ingredient costs related to Simple Mills. Materials, supplies, labor and other production costs represented 51.6% of sales, also reflecting a 40-basis-point deterioration.
Volume trends remain a key part of the margin challenge. Total company volume declined 5.8% during the quarter, while Branded Retail volume fell 7.6%. Lower throughput weighed on fixed-cost absorption, although pricing, restructuring actions and productivity improvements within the bakery network provided some offset.
Image Source: Zacks Investment Research
Flowers Foods continues to pursue efficiency opportunities across its bakeries and broader network. Actions taken following first-quarter sales softness are expected to provide a benefit as the company exits 2026 and moves into 2027. Separately, cost-structure initiatives are expected to generate about $9 million of savings during the remainder of 2026 and roughly $20 million of annualized run-rate savings once fully implemented, including certain reinvestments.
The key question is whether these efficiency gains can offset the pressure from lower production volumes. Productivity has helped reduce some of the impact, but further savings become harder to achieve as volumes remain weak. For Flowers Foods, easing gross margin pressure will depend on how effectively it can improve efficiency across its bakeries and network.
The Zacks Rank #5 (Strong Sell) stock has tumbled 48.5% year to date compared with the industry’s decline of 6.3%.
Stocks to Consider
Mondelez International, Inc. (MDLZ - Free Report) , a global snacking company, currently carries a Zacks Rank #2 (Buy). MDLZ delivered a trailing four-quarter earnings surprise of 5.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Mondelez’s current fiscal-year sales and earnings per share (EPS) implies growth of 3.7% and 4.5%, respectively, from the year-ago figures.
Mama's Creations, Inc. (MAMA - Free Report) , a prepared-foods company focused on fresh, ready-to-eat and deli products, currently carries a Zacks Rank of 2. MAMA delivered a trailing four-quarter surprise of 121.7%, on average.
The Zacks Consensus Estimate for Mama's Creations’ current fiscal-year sales and EPS indicates respective increases of 30.3% and 66.7% from the year-ago period.
Laird Superfood, Inc. (LSF - Free Report) , a consumer product company that develops, manufactures and markets plant-based, natural and functional food and beverage products, currently carries a Zacks Rank #2. LSF delivered an earnings surprise of 100% in the last reported quarter.
The Zacks Consensus Estimate for Laird Superfood’s current fiscal-year sales and EPS calls for growth of 188.2% and 104%, respectively, from the year-ago figures.