There are an endless number of possible reasons a company’s earnings may fall shy of expectations in any given quarter. The trigger for a shortfall in the latest quarter of Flowers Foods, Inc. is especially unsettling. While Flowers maintained (even built) market share during the quarter and largely maintained pricing discipline, the company’s sales and earnings fell far short of its goal. The culprit was weakness in overall bread category sales, down 1.8% versus the fourth quarter of 2014. As recently as mid-November, executives of Thomasville, Ga.-based Flowers didn’t see this weakness coming.
For as long as anyone reading this column can remember, the qualities of the commercial bread industry have not included flashy growth rates or wide profit margins. One attribute valued by the industry has been reasonable marketplace predictability. For a business as labor intensive as baking and a product that is semi-perishable like bread, this consistency is a crucial prerequisite to sound operations management.
Trends in baking volumes have been confounding now for several years. Declines across a multitude of food categories year after year seem at odds with the past and with what could be expected several years into an economic recovery. Bread was not the only category to experience an unexpected twist at the end of 2015. Ready-to-eat cereal sales scored a gain in December, the category’s first in several years. Whether these developments represent short-term anomalies or the start of a more fundamental market shift is a question demanding close attention in the weeks and months ahead.