Rising Costs And Consumer Shift Will Crush Core Bakery Business

Key Takeaways

• Shifting consumer preferences and rising private label competition are reducing demand, eroding market share, and undermining Flowers Foods' brand relevance.
  
• Escalating costs and overreliance on declining bread segments are compressing margins and threatening long-term profitability and growth prospects.
  
• Innovation in health-focused products, operational efficiencies, and expanded distribution position Flowers Foods for enhanced margins, resilience, and growth in the evolving baked goods market.

Catalysts

Produces and markets packaged bakery food products in the United States.

• The accelerating consumer shift toward low-carb, gluten-free, and ketogenic eating habits continues to erode demand for traditional packaged bread and bakery items, directly shrinking Flowers Foods’ core addressable market and placing long-term pressure on both revenue and market share.
  
• Escalating input costs—including tariffs on key ingredients like sugar, wheat gluten, and palm oil—combined with persistent labor shortages are leading to ongoing gross margin compression and deteriorating long-term profitability, as reflected in management's weaker margin guidance and future outlook.
  
• The persistent rise of private label and discount retailers is steadily eating away at branded product volumes, creating intensified pricing pressure and reducing the likelihood that Flowers Foods will see sustained revenue or pricing power improvement in coming years.
  
• Flowers Foods’ continued overexposure to legacy white and soft variety bread segments, which face both category decline and a consumer pivot to premium or health-oriented options, increases the risk of stagnating or declining top-line sales, outweighing gains from modest innovation efforts and new product launches.
  
• As younger consumers increasingly migrate toward local, specialty, and direct-to-consumer bakery solutions, Flowers Foods is likely to see further erosion in both retail shelf presence and brand relevance, driving further market share loss and threatening the long-term growth trajectory that supports current valuation levels.

Flowers Foods Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Flowers Foods compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Flowers Foods's revenue will grow by 2.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 4.5% today to 3.8% in 3 years time.
• The bearish analysts expect earnings to reach $204.4 million (and earnings per share of $0.97) by about July 2028, down from $228.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, up from 15.2x today. This future PE is lower than the current PE for the US Food industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.26% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Flowers Foods Future Earnings Per Share Growth

Risks

• Continued innovation in health and wellness offerings, such as expanding Dave’s Killer Bread, Canyon Bakehouse, Keto products, and integrating Simple Mills, positions Flowers Foods to capture share from the growing better-for-you, clean label, and specialty segments, potentially leading to sustained revenue growth.
  
• Strategic investments in product differentiation, premiumization, and expansion into faster-growing categories and adjacencies could allow Flowers Foods to defend and enhance net margins over time, particularly as consumer health rebounds.
  
• Ongoing supply chain optimization, such as automation and closing underperforming plants, demonstrates an ability to lower production costs and improve operational efficiency, which could drive net margin improvement and bolster earnings resilience.
  
• The company’s ability to win additional shelf space and distribution gains, as evidenced by new retailer product launches and successful innovation like Wonder cake and smaller loaf SKUs, may contribute to expanded market reach and increased topline revenues.
  
• Improved profitability in the restructured foodservice segment and careful management of promotional spending with advanced trade promotion analytics could support margin stability and earnings growth, even amid near-term category weakness.

Valuation

• The assumed bearish price target for Flowers Foods is $14.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Flowers Foods's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.4 billion, earnings will come to $204.4 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 6.4%.
• Given the current share price of $16.43, the bearish analyst price target of $14.0 is 17.4% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.