Flowers to shift California distribution model in wake of settlement

Last Updated on February 13, 2024 by Admin


THOMASVILLE, GA. — Flower Foods, Inc. is poised to begin repurchasing about 350 distribution rights, perhaps beginning in the first quarter of this year, executives of the company said.

An update on the impending process was shared by Flowers executives in connection with financial results for the fourth quarter of 2023 and guidance for 2024.

In August, Flowers agreed to settle distributor-related class action litigation in California. The settlement, described when the company announced its third quarter results, provided for $55 million to pay about 475 plaintiffs and to cover legal costs and other expenses. Litigants alleged drivers were misclassified as independent contractors, depriving them of benefits and protections under the Fair Labor Standards Act, such as minimum wage and overtime pay.

A. Ryals McMullian, chairman and chief executive officer, on Feb. 8 said court approval of the settlement is not expected before March 1.

“Once the settlement receives final court approval, we will proceed with the repurchase of the California distribution rights, a process expected to be completed by the first quarter of fiscal 2025,” he said.

Asked by an investment analyst about the California transition a day later, Mr. McMullian sketched out what may transpire once the settlement is approved.

“We will then set about converting all of the distributors in California to an employee-based model,” he said. “That is at least out the gate, likely to be somewhat dilutive to our results out in California at least in the short term until we can get everybody trained up, etcetera, bring all the employees on. The good news there is, though, it will be a phased-in approach. So, we have 12 months from the date of the settlement to get that done.”

In November, Flowers estimated that the cost of the repurchases would be about $65 million, up $15 million from earlier estimates. The costs were recorded in the third quarter of 2023, but R. Steve Kinsey, chief financial officer and chief accounting officer said the California transition could be a drag on earnings in 2024.


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