Moody's Downgrades Flowers Foods to Speculative Grade on Slower Deleveraging

Moody's Ratings has downgraded the senior unsecured rating of Flowers Foods, Inc. to Ba2 from Baa3, a move that pushes the packaged baked goods company's debt into speculative-grade, or "junk," territory. The ratings agency also assigned a Ba1 Corporate Family Rating and changed the company's outlook to stable from negative.

The downgrade reflects the slower-than-anticipated pace of deleveraging following its February 2025 acquisition of Simple Mills. Moody's noted that Flowers Foods' gross debt-to-EBITDA leverage stood at 3.6x for the 12 months ending July 18, 2026, and is expected to remain in the mid-3x range for the next 12 to 18 months.

Earnings Pressure and Market Headwinds

According to Moody's, the company's earnings remain under pressure due to continued weakness in the fresh packaged bread category. This segment is facing significant headwinds, including changing consumer preferences, elevated competition, and a trend of value-conscious shoppers trading down to cheaper alternatives.

These challenges were evident in the company's second-quarter results, which highlighted a 4.0% year-over-year decline in net sales on a 5.8% drop in volume. Adjusted EBITDA fell 19.2% during the same period. In response, Flowers Foods' management has reduced its full-year sales and EBITDA guidance, signaling that operating pressures are likely to persist through the end of 2026.

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Financial Outlook and Liquidity

Despite the downgrade, Moody's noted some positive financial measures. In May 2026, Flowers Foods reduced its dividend by approximately 50%, a move expected to improve annual free cash flow by roughly $100 million to support debt repayment. Moody's projects the company will generate between $100 million and $125 million in free cash flow in both 2026 and 2027.

The company's liquidity position was assessed as good, earning an SGL-2 Speculative Grade Liquidity Rating. This is supported by:

• $53 million in cash as of July 18, 2026.
• A $500 million senior unsecured revolving credit facility.
• A $200 million accounts receivable repurchase facility.