Fitch Downgrades Flowers Foods to 'BB+' on Persistent Volume Declines and Higher Leverage

Fitch Ratings has downgraded Flowers Foods, Inc.'s (NYSE: FLO) Long-Term Issuer Default Rating to 'BB+' from 'BBB-', moving the packaged bakery goods company's debt into the speculative-grade, or "junk," category. The ratings agency cited significant sales volume pressures and the expectation of sustained higher leverage as the primary drivers for the downgrade, though it assigned a Stable outlook.

Key Drivers of the Downgrade

The downgrade reflects Fitch's projection that Flowers Foods' financial metrics will remain under pressure through 2027. The agency highlighted an accelerating decline in sales volume, particularly in the company's core traditional loaf bread category.

Key figures from Fitch's analysis include:

• Accelerating Volume Decline: Unit sales fell by 9.5% in the second quarter of 2026, a significant worsening from the 6.6% decline in the first quarter and 3.7% in the fourth quarter of 2025.
• Sustained High Leverage: Fitch expects EBITDA leverage to rise to the mid-3x range in 2026 and 2027, a notable increase from 3.1x in 2025 and historical levels near 2x.
• Profitability Squeeze: EBITDA is forecast to fall to the high $400 million range in 2026, down from nearly $570 million in 2025. EBITDA margins are also expected to contract to about 9.5% in 2026 from approximately 11% in prior years.

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Fitch noted that Flowers Foods' limited diversification outside of its bread portfolio makes it particularly vulnerable to category-wide headwinds and intense competition. The ratings agency projects organic sales will decline in the low single digits in 2026 as volume erosion outpaces any benefits from pricing actions.

Company Strategy and Outlook

In response to these challenges, Flowers Foods has taken several strategic steps. In February 2026, the company announced a comprehensive review of its brand portfolio, supply chain, and financial strategy. More recently, it cut its dividend by 50%, a move Fitch expects will free up nearly $100 million in annual cash flow.

Fitch anticipates that this additional cash will be directed toward debt reduction, facilitated by a new pre-payable $400 million term loan. Despite these measures, the agency expects profitability to remain pressured by weak sales trends, increased promotions, and inflationary headwinds for commodities and fuel into 2027. The Stable outlook indicates that Fitch does not foresee another rating change in the immediate future.