Flowers Foods Inc: Form 10-Q for the period ended Apr 19, 2025

The following discussion of the financial condition and results of operations of the company as of and for the sixteen weeks ended April 19, 2025 should be read in conjunction with the Form 10-K and Part II., Item 1A., Risk Factors, of this Form 10-Q. 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 is segregated into four sections, including:

• Executive overview — provides a summary of our business, operating performance and cash flows, and strategic initiatives.
• Critical accounting estimates — describes the accounting areas where management makes critical estimates to report our financial condition and results of operations. There have been no changes to this section from the Form 10-K.
• Results of operations — analyzes the company’s consolidated results of operations for the comparative period presented in our Condensed Consolidated Financial Statements.
• Liquidity and capital resources — analyzes cash flow, contractual obligations, and certain other matters affecting the company’s financial position.

Matters Affecting Comparability

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 structure 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). Fiscal 2025 is a 53-week year with the extra week 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 greater context while reading this discussion. For more information regarding these items, see the reference to the Notes to Condensed Consolidated Financial Statements of this Form 10-Q as indicated in the table:

(Amounts in thousands)

• 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. Implementation of the ERP upgrade is anticipated to be completed in Fiscal 2026. The ERP upgrade is discussed in the “Transformation Strategy Initiatives” section below. The expensed portion of costs incurred related to these initiatives, which was primarily consulting costs, are detailed in the table above and are reflected in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income. We currently expect costs (a portion of which may be expensed as incurred, capitalized, recognized as a cloud computing arrangement, or recognized as a prepaid service contract) related to the upgrade of our ERP system to be approximately $30.0 million to $35.0 million for Fiscal 2025.
• 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. We expect this analysis to continue in subsequent quarters of Fiscal 2025. The company incurred $4.3 million of consulting costs associated with this review and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

In April 2024, the company announced a cost savings program to improve operational performance, which includes employee termination benefits associated with a reduction-in-force ("RIF") and other expense optimization initiatives. In the first quarter of Fiscal 2024, the company incurred $0.6 million of RIF costs and made payments of $0.2 million. The company incurred final RIF charges totaling $0.6 million and made payments of $0.7 million in the first quarter of Fiscal 2025. The RIF charges are included in the restructuring charges line item of the Condensed Consolidated Statements of Income. The company also incurred consulting costs associated with implementing the restructuring program of $1.3 million in the first quarter of Fiscal 2024 and these costs are included in the selling, distribution, and administrative expenses line item of the Condensed 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 asset impairment charges and equipment relocation costs of $6.1 million and severance costs of $1.3 million and are recorded in the first quarter of Fiscal 2025.

In the first quarter of Fiscal 2024, we recognized an impairment loss of $4.0 million related to our investment in Base Culture, a Clearwater, Florida-based company with one manufacturing facility. This investment is being accounted for at cost, less any impairment, as we do not control, nor do we have the ability to significantly influence Base Culture. The company recorded impairment losses on this investment in previous years and the current carrying value is approximately $1.5 million.

• Legal settlements and related costs In the first quarter of Fiscal 2025, we reached an agreement to settle certain distributor-related litigation for a settlement payment, inclusive of plaintiffs' attorney fees, of $1.9 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 selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.
• Acquisition-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 $848.5 million. The goodwill, identifiable intangible assets, taxes, and certain other assets and liabilities and post-close purchase price adjustments 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. In the first quarter of Fiscal 2025, we incurred acquisition-related costs of $13.8 million and these costs are recorded in the selling, distribution, and administrative expenses line item of the Condensed Consolidated Statements of Income.

Executive Overview

Business

Flowers is the second-largest producer and marketer of packaged bakery foods in the U.S. Our principal products include breads, buns, rolls, snack items (bars, cakes, cookies, and crackers), bagels, English muffins, tortillas, and baking mixes and are sold under a variety of brand names, including Nature’s Own, Dave's Killer Bread ("DKB"), Canyon Bakehouse, Simple Mills, Wonder, Tastykake, and Mrs. Freshley’s. Our brands are among the best known in the U.S. baking industry. Many of our brands have a major presence in the product categories in which they compete. We manage our business as two operating segments and one reportable segment.

Flowers’ strategic priorities include developing our team, focusing on our brands, prioritizing our margins, and proactively seeking smart, disciplined acquisitions. We believe that executing on our strategic priorities will drive future growth and margin expansion and deliver meaningful shareholder value over time allowing us to achieve our long-term financial targets of 1% to 2% sales growth, 4% to 6% EBITDA growth, and 7% to 9% EPS growth. The company defines EBITDA as earnings before interest, taxes, depreciation and amortization.

Simple Mills Acquisition

As discussed above, on February 21, 2025, the company completed the acquisition of Simple Mills expanding the company’s presence in the better-for-you snacking category, diversifying our category exposure, and enhancing the company's growth and margin prospects. Founded in 2012, Simple Mills is a market-leading natural brand offering premium better-for-you crackers, cookies, snack bars, and baking mixes. Built upon the belief that food has the power to spark impactful change, Simple Mills’ mission is to revolutionize the way food is made to positively impact people and the planet. The brand’s stunningly simple ingredients, pioneering use of nutrient-dense nut, seed, and vegetable flours, and exceptional taste have cultivated unmatched brand love and loyalty among natural and mainstream consumers alike. Simple Mills' products are produced by co-manufacturers and distributed via warehouse distribution, and are available nationwide across more than 30,000 natural and conventional stores.

Highlights

• Nature’s Own is the best-selling loaf bread in the U.S., DKB is the #1 selling organic brand in the U.S., and Canyon Bakehouse is the #1 selling gluten-free bread brand in the U.S. (Source: Circana Total US MultiOutlet+ w/ Conv 16 Weeks Ended 4/20/25).
• We acquired Simple Mills on February 21, 2025 with its brand of better-for-you snacks and baking mixes which contributed $24.3 million of sales in the first quarter of Fiscal 2025.
• We introduced Wonder snack cakes at the end of the first quarter of Fiscal 2025.
• Our Branded Retail sales comprised 65.1% of total sales for the sixteen weeks ended April 19, 2025 as compared to 64.4% for the sixteen weeks ended April 20, 2024.
• As of April 19, 2025, we operated 44 bakeries, which produce fresh and frozen breads, buns, and rolls, as well as snack items, bagels, English muffins, and tortillas.
• We distribute our fresh bakery foods through a DSD distribution system, whereby product is primarily sold by a network of IDPs to retail and foodservice customers. In certain markets, we utilize a sales employee model to facilitate the distribution of product through our DSD distribution system.
• We offer nationwide distribution of certain fresh snack items and frozen breads and rolls via contract carriers.

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 any impact from the imposition of tariffs, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. Our results for the first quarter of Fiscal 2025 were negatively impacted by softer sales due to increased weakness in the fresh packaged bread category, most notably for branded traditional loaf breads, and in the cake category. However, sales of our more premium, better-for-you branded products, such as organic, Keto, and gluten-free, increased quarter over quarter. Additionally, sales attributed to the Simple Mills acquisition, which diversifies our category exposure, partially offset the overall sales decline. We introduced Wonder snack cakes in the first quarter of Fiscal 2025 to improve our sales in the cake category.

Supply chain and other disruptions could negatively impact production volumes as the global and U.S. supply chain remains uncertain. Although the conflict between Russia and Ukraine, the conflict in the Middle East, and the imposition of tariffs (including retaliatory tariffs) have not impacted our operations directly, we are closely monitoring the impact on the broader economy including on the availability and price of commodities used in or for the production of our products. Disruptions in our operations, related to factors including, but not limited to, the procurement of raw materials and packaging items, transport of our products, and workforce availability, could negatively impact, our operations, results of operations, cash flows, and liquidity.

Labor shortages and turnover could negatively impact our results. These and other factors, including, but not limited to, high employment rates and additional government regulations, may continue to adversely affect labor availability and labor costs. These challenges may negatively impact the efficiency of our production lines and our ability to operate at, or near, full capacity, and could result in increased labor costs, including additional overtime to meet demand, and higher wage rates to attract and retain workers. An overall labor shortage, lack of skilled labor, or increased turnover has and could continue to have a negative impact on the company’s operations, results of operations, liquidity, or cash flows.

We believe we have sufficient liquidity to satisfy our cash needs and we continue to execute on our strategic priorities, including our transformation strategy initiatives, as further discussed in the “Liquidity and Capital Resources” section below.

Summary of Operating Results, Cash Flows and Financial Condition

Sales decreased 1.4% for the sixteen weeks ended April 19, 2025 compared to the same quarter in the prior year due to volume declines of 2.7% and negative price/mix of 0.3%, partially offset by the acquisition contribution of 1.6%. Branded Retail sales declined 0.4% and sales in the Other sales category decreased 3.3%. Negative price/mix in Branded Retail resulted from competitive marketplace dynamics, partially offset by positive price/mix in the Other sales category from optimizing our foodservice business. Both sales categories experienced softer volumes with the largest decline in sales of branded traditional loaf breads.

For the sixteen weeks ended April 19, 2025, income from operations was $85.1 million compared to $101.5 million in the prior year period. The decrease resulted mostly from softer sales, greater outside purchases of product, increased expenses for labor, rent, and acquisition-related costs, and lower production volumes. Moderating input costs and, to a lesser extent, benefits from optimizing our foodservice business and lower distributor distribution fees partially offset the decrease quarter over quarter.

Net income for the sixteen weeks ended April 19, 2025 was $53.0 million compared to $73.0 million in the prior year quarter. The decrease quarter over quarter resulted primarily from the decrease in income from operations, as described above, combined with increased interest expense from funding the acquisition and the impact of a higher effective tax rate in the current year quarter.

During the sixteen weeks ended April 19, 2025, we generated net cash flows from operations of $135.6 million, paid $791.9 million of the total consideration of approximately $848.5 million for the Simple Mills acquisition, invested $25.6 million in capital expenditures, and increased our indebtedness by $776.6 million primarily to fund the acquisition. Additionally, we paid $52.3 million in dividends to our shareholders. On February 5, 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"). On February 14, 2025, we 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"). On April 14, 2025, we amended the accounts receivable repurchase facility (the "repurchase facility") to, among other things, extend the scheduled facility expiration date to April 14, 2027.

During the sixteen weeks ended April 20, 2024, we generated net cash flows from operations of $105.1 million, invested $33.3 million in capital expenditures, and decreased our indebtedness $5.0 million. Also, in the prior year period, we paid $51.1 million in dividends to our shareholders and repurchased $8.9 million of company stock.

Transformation Strategy Initiatives

In the second half of Fiscal 2020, we launched initiatives to transform our business operations. The primary goals of these initiatives are: (1) enable a more agile business model, empowering the organization by fundamentally redesigning core business processes; (2) embed digital capabilities and transform the way we engage with our consumers, customers and employees; and (3) modernize and simplify our application and technology infrastructure landscape, inclusive of the upgrade of our ERP system.

ERP Upgrade

Our ERP initiative includes upgrading our information system platform and is expected to improve data management and efficiencies while automating many of our processes. We completed the initial planning and road mapping phase of the ERP upgrade at the end of Fiscal 2020. In the first quarter of Fiscal 2021, we transitioned into the design phase and engaged a leading, global consulting firm to assist us in designing and implementing the upgrade of our ERP platform and to serve as the system integrator for the project. We transitioned into the build phase at the beginning of Fiscal 2022 and during the second quarter of Fiscal 2023, we began deploying the ERP upgrade. The deployment is anticipated to be completed in Fiscal 2026. We currently estimate total costs for the upgrade of our ERP system will be approximately $350 million (of which approximately 34% has been or is anticipated to be capitalized). As of April 19, 2025, we have incurred costs related to the project of approximately $247 million.

CRITICAL ACCOUNTING POLICIES:

Our financial statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). These principles are numerous and complex. Our significant accounting policies are summarized in the Form 10-K. In many instances, the application of GAAP requires management to make estimates or to apply subjective principles to particular facts and circumstances. A variance in the estimates used or a variance in the application or interpretation of GAAP could yield a materially different accounting result. Refer to the Form 10-K for a discussion of the areas where we believe that the estimates, judgments or interpretations that we have made, if different, could yield the most significant differences in our financial statements. There have been no significant changes to our critical accounting policies from those disclosed in the Form 10-K.

RESULTS OF OPERATIONS:

Results of operations, expressed as a percentage of sales and the dollar and percentage change from period to period, for the sixteen weeks ended April 19, 2025 and April 20, 2024, respectively, are set forth in the tables below (dollars in thousands):

Percentages may not add due to rounding.

SIXTEEN WEEKS ENDED APRIL 19, 2025 COMPARED TO SIXTEEN WEEKS ENDED APRIL 20, 2024

Sales (dollars 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 generally attributable to the following:

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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 decreased quarter over quarter due to softer volumes in both sales categories and overall negative price/mix, partially offset by the Simple Mills acquisition contribution. Volumes continue to be pressured by weakness in the fresh packaged bread and cake categories. Negative price/mix for Branded Retail sales and store branded retail sales was partially offset by improved price/mix for our foodservice business from executing our portfolio optimization strategies beginning in the second quarter of the prior year. To remain competitive in a promotional environment, we increased our promotional activity quarter over quarter.

We anticipate our Fiscal 2025 sales will be higher than Fiscal 2024 sales due to the acquisition contribution, optimizing our non-retail business, new product innovation, and the additional week in Fiscal 2025. However, category headwinds, changes in consumer buying patterns, and increases in promotional activity could partially offset that improvement.

Branded Retail Sales

Branded Retail sales decreased 0.4% quarter over quarter due to volume declines and unfavorable price/mix resulting from increased promotional activity, partially offset by the acquisition contribution. Further weakening in the fresh packaged bread and cake categories from changes in consumer buying patterns and inflationary pressure on consumer spending also negatively impacted sales year over year. Declines for branded traditional loaf products drove the volume decrease. Volume growth in more-premium branded products such as DKB organic, Nature's Own Keto, and Canyon Bakehouse gluten-free, partially offset the decrease.

We continue to invest in these more-premium and better-for-you products and the Simple Mills acquisition increases our investment in the better-for-you category. Simple Mills' branded snack items, combined with the DKB organic snack bars and bites, further diversifies our category exposure beyond fresh packaged breads and buns. The nationwide roll out of DKB snack bites is in progress during Fiscal 2025.

To grow our cake sales, we introduced our Wonder branded cake products towards the end of the first quarter of Fiscal 2025. Additionally, sales from newer product introductions, such as Nature's Own small loaves and Keto buns and Wonder bagels and English muffins, all introduced subsequent to the first quarter of Fiscal 2024, partially offset the Branded Retail sales decrease.

Other Sales

Sales in the Other category decreased 3.3% due to softer volumes for both store branded retail and non-retail sales due to inflationary pressure on consumer spending and from executing our non-retail margin optimization strategies. Store branded retail sales declined due to negative price/mix and lower volumes. Our non-retail sales experienced softer volumes in all categories except contract manufacturing. This was partially offset by favorable price/mix from optimizing our foodservice business subsequent to the first quarter of Fiscal 2024.

Materials, Supplies, Labor and Other Production Costs (exclusive of depreciation and amortization shown separately; as a percent of sales)

Materials, supplies, labor and other production costs as a percent of sales decreased quarter over quarter primarily due to moderating ingredient costs. Lower production volumes, higher workforce-related costs, and increased outside purchases of product (sales with no associated ingredient costs) partially offset the overall improvement. The decrease in ingredient costs was mostly attributed to lower pricing for commodities such as flour, fats, and oils and increased outside purchases of product. Higher costs for other ingredients such as sweeteners, eggs, and cocoa partially offset the decrease. Wage inflation and lower production volumes resulted in increased workforce-related costs as a percent of sales. We expect the impact of lower production volumes to continue to negatively impact our operations. Outside purchases of product are included in the Other line item in the table above and largely relate to purchases of Simple Mills products, all of which are co-manufactured, and certain DKB products. We expect greater outside purchases of product to continue due to the Simple Mills acquisition.

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. We use eggs in several of our products and have and could continue to be adversely impacted from increased costs and/or reduced availability of supply as a result of the avian influenza that has been detected in egg-laying flocks. 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)

Workforce-related costs increased as a percent of sales quarter over quarter primarily due to a shift from distributor distribution fees and wage inflation on lower sales, partially offset by benefits of cost savings programs implemented subsequent to the first quarter of the prior year and lower incentive compensation costs. Distributor distribution fees decreased as a percent of sales primarily due to a smaller portion of our sales being made through IDPs, mostly due to the company converting to an employee-based model in California, and sales declines. The 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 the acquisition-related costs and, to a lesser extent, increased vehicle rent expenses related to the California conversion. See the “Matters Affecting Comparability” section above for a discussion of the acquisition-related expenses.

Restructuring Charges and Plant Closure Costs and Impairment of Assets

Refer to the discussion in the “Matters Affecting Comparability” section above regarding these items.

Depreciation and Amortization Expense

Depreciation and amortization expense for the first quarter of Fiscal 2025 increased in dollars and as a percent of sales primarily due to amortization expense associated with the intangible assets acquired in the Simple Mills acquisition and we expect this trend to continue for the remainder of Fiscal 2025.

Income from Operations

Income from operations for the sixteen weeks ended April 19, 2025 decreased as a percent of sales compared to the prior year quarter primarily due to sales declines, higher selling, distribution, and administrative costs, as described above, lower production volumes, and greater outside purchases of product. Moderating ingredient costs and benefits from optimizing our foodservice business 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 quarter 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. We expect net interest expense to be elevated for the remainder of Fiscal 2025.

Income Tax Expense

The effective tax rate for the sixteen weeks ended April 19, 2025 was 25.6% compared to 24.0% in the prior year quarter. The increase in the rate quarter over quarter 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 period and windfalls in the prior year period on the vesting of stock-based compensation awards, and benefits recognized from tax credits.

Comprehensive Income

Comprehensive income changed primarily due to the decrease in net income quarter over quarter.

LIQUIDITY AND CAPITAL RESOURCES:

Strategy and Update on Impact of the Inflationary Economic Environment and Other Macroeconomic Factors on Our Business

We believe that 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 that 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:

• implementing our strategic priorities, including our transformation strategy initiatives;
• paying dividends to our shareholders;
• maintaining a conservative financial position;
• making strategic acquisitions; and
• repurchasing shares of our common stock.

Although there has been no material adverse impact on our results of operations, liquidity or cash flows for the sixteen weeks ended April 19, 2025, volatility in global and U.S. economic environments, as a result of, among other things, the inflationary economic environment, supply chain disruptions, including any impact from the imposition of tariffs, labor shortages, the conflict between Russia and Ukraine, and the conflict in the Middle East, could significantly impact our ability to generate future cash flows and we continue to evaluate these various potential business risks. Those potential risks 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 expense of raw materials and packaging items, 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 April 19, 2025, we had total available liquidity of $592.2 million, consisting of cash on hand and the available balances under the new credit facility and the repurchase facility.

Liquidity Discussion for the Sixteen Weeks Ended April 19, 2025 and April 20, 2024

Cash and cash equivalents were $7.3 million at April 19, 2025 and $5.0 million at December 28, 2024. The cash and cash equivalents were derived from the activities presented in the tables below (amounts in thousands):

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Cash Flows Provided by Operating Activities. Net cash provided by operating activities consisted of the following items for non-cash adjustments to net income (amounts in thousands):

• Refer to the Plant closure costs and impairment of assets discussion in the “Matters Affecting Comparability” section above for additional information regarding the impairment of assets.
• For the sixteen weeks ended April 19, 2025 and April 20, 2024, respectively, 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.
• Other non-cash items include non-cash interest expense for the amortization of debt discounts and deferred financing costs and gains or losses on the sale of assets.

Net changes in working capital consisted of the following items (amounts in thousands):

• Changes in accounts receivable were mainly attributable to changes in sales quarter over quarter. Changes in inventories resulted primarily from volatility in input costs and timing of sell-through of inventories. Changes in accounts payable for the first quarter of Fiscal 2025 were mainly attributable to extending payment terms, and changes for the first quarter of Fiscal 2024 were mainly due to volatility in input prices.
• 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.
• The change in other assets primarily resulted from changes in prepaid assets in each respective period and income tax receivables in the prior year period. Changes in employee compensation, interest, and insurance liability accruals primarily resulted in the change in other accrued liabilities. During the first quarter of 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 was paid during the first quarter of Fiscal 2025 and Fiscal 2024, respectively, for our share of employment taxes on the vesting of employee restricted stock awards in each respective year. During the sixteen weeks ended April 19, 2025, the company accrued $1.9 million in legal settlements and paid $1.7 million that had been accrued for in the prior year.

Cash Flows Disbursed for Investing Activities. The table below presents net cash disbursed for investing activities for the sixteen weeks ended April 19, 2025 and April 20, 2024, respectively (amounts in thousands):

• We currently anticipate capital expenditures of $140.0 million to $150.0 million for Fiscal 2025 (inclusive of expenditures for the ERP upgrade of $4.0 million to $6.0 million).
• The repurchases of the California distribution rights contributed to most of the change in the repurchases of distribution rights, net of principal payments on notes receivable. The company completed the California repurchases early in the second quarter of Fiscal 2025.
• As discussed in the "Executive Overview" section above, on February 21, 2025, we completed the Simple Mills acquisition for total cash consideration of approximately $848.5 million of which $791.9 million, which is net of cash acquired, was paid in the first quarter of Fiscal 2025. The determination of the final purchase price is pending post-close purchase price adjustments.

Cash Flows Provided by (Disbursed for) Financing Activities. The table below presents net cash provided by (disbursed for) financing activities for the sixteen weeks ended April 19, 2025 and April 20, 2024, respectively (amounts in thousands):

• Our Board of Directors declared the following quarterly dividends during the sixteen weeks ended April 19, 2025 (amounts in thousands, except per share data):

• Additionally, we paid dividends of $1.7 million at the time of vesting of certain restricted stock awards. The increase in dividends paid resulted from an increase in the dividend rate compared to the prior year. While there are no requirements to increase our dividend rate, we have shown a recent historical trend to do so. We anticipate funding future dividend payments from cash flows from operations.
• In the first quarter of 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 first quarter of Fiscal 2024, we paid financing 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. During the sixteen weeks ended April 19, 2025 and April 20, 2024, we repurchased 286,980 and 388,291 shares of our common stock for $5.5 million and $8.9 million, respectively, under a share repurchase plan approved by our Board of Directors. All of the shares acquired in the first quarter of Fiscal 2025 and a portion of the prior period share repurchases 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 at April 19, 2025 and December 28, 2024, respectively. For additional information regarding our debt and right-of-use lease obligations, see Note 6, Leases, and Note 14, Debt and Other Obligations, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

(Amounts in thousands)

The repurchase facility and the credit facilities are generally used for short-term liquidity needs. Changes to the new credit facility and previous credit facility are detailed below. See Note 14, Debt and Other Obligations, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for additional information.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to closely monitor our liquidity in light of the continued economic uncertainty in the U.S. and throughout the world due to, among other things, the impact of the inflationary economic environment, supply chain disruptions, including any impact from the imposition of tariffs, increased labor costs, the conflict between Russia and Ukraine, and the conflict in the Middle East. There is no current portion payable over the next year for our debt obligations as of April 19, 2025. 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.

The following table details the amounts available under the repurchase facility and the credit facility and the highest and lowest balances outstanding under these arrangements during the sixteen weeks ended April 19, 2025:

(Amounts in thousands)

(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 10, Derivative Financial Instruments, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q. During the sixteen weeks ended April 19, 2025, the company made $1.7 million in revolving borrowings and $2.2 million in payments on revolving borrowings under the credit facility. 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 becomes more expensive and results in increased interest expense.

Restrictive financial covenants for our borrowings can 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 presently foreseeable financial requirements. As of April 19, 2025, the company was in compliance with all restrictive covenants under our debt agreements.

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 Condensed 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 facility was July 30, 2026. No borrowings were outstanding under the previous credit facility 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. The company intends to maintain its balanced capital deployment model, along with a commitment to its investment grade debt rating.

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.

At April 19, 2025, 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.

Under our share repurchase plan, the company may repurchase its common stock in the open market or privately negotiated transactions 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. During the sixteen weeks ended April 19, 2025, 286,980 shares, at a cost of $5.5 million, of the company’s common stock were repurchased under the share repurchase plan. From the inception of the share repurchase plan through April 19, 2025, 73.3 million shares, at a cost of $761.5 million, have been repurchased.

Accounting Pronouncements Recently Adopted and Not Yet Adopted

See Note 2, Recent Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information regarding recently adopted accounting pronouncements and accounting pronouncements not yet adopted.

The company uses derivative financial instruments as part of an overall strategy to manage market risk. The company uses forward, futures, swap 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, raw material prices could increase significantly, adversely affecting the margins from the sale of our products.

Commodity Price Risk

The company enters into commodity forward, futures and option contracts and swap agreements 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 April 19, 2025, the company’s hedge portfolio contained commodity derivatives with a fair value (liability) of $1.1 million, based on quoted market prices. All of this amount relates to instruments that will be utilized in Fiscal 2025 except for an immaterial amount 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 the derivative portfolio. Based on the company’s derivative portfolio as of April 19, 2025, a hypothetical ten percent increase (decrease) in commodity prices would increase (decrease) the fair value of the derivative portfolio by $1.6 million. The analysis disregards changes in the exposures inherent in the underlying hedged items; however, the company expects that any increase (decrease) in fair value of the portfolio would be substantially offset by increases (decreases) in raw material and packaging prices.

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, as amended (the "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.

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer ("CFO"), we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the CEO and the CFO concluded that the company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the company files or submits to the SEC under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended April 19, 2025 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

The information presented below supplements the risk factors set forth in the Form 10-K. In addition to the risk factors set forth below, refer to Part I, Item 1A., Risk Factors, in the Form 10-K for information regarding factors that could affect the company’s results of operations, financial condition and liquidity. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may affect us. The occurrence of any of these known or unknown risks could have a material adverse ultimate impact on our business, financial condition, or results of operations.

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 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.