THOMASVILLE, GA. — Flowers Foods, Inc. has raised its guidance for 2021 financial results while also cautioning of heightened uncertainty in the future because of the spread of the COVID-19 Delta variant.

Questions about how the variant could delay the emergence of a “new normal” represented an element of doubt in an otherwise upbeat financial report and outlook. In addition to raising its guidance, the company achieved market share gains and sustained strong profit margins during its second quarter and said it was well positioned to deal with elevated inflation.

In the 12 weeks ended July 17, Flowers Foods net income was $56.36 million, equal to 26¢ per share on the common stock, down 2.7% from $57.92 million, or 27¢ per share, in the second quarter last year. Net sales were $1.02 billion, down from $1.03 billion a year earlier.

For the full year, the company is forecasting earnings per share of $1.17 to $1.22, an increase from its most recent guidance of $1.10 to $1.17. The company is forecasting 2021 sales of $4.26 billion to $4.3 billion, a modest increase on the low side from previous guidance of $4.23 billion to $4.3 billion.

R. Steve Kinsey, chief financial officer and chief administrative officer, noted that the guidance represents a sales decline of 2% to 3% versus 2020 and sales growth of 3.2% to 4.3% from 2019.

“The biggest swing factor in determining our results for the second half of 2021 will be the back-to-school season,” he said Aug. 13 in prepared remarks for investment analysts. “As kids go back to school and parents have more flexibility to return to the office, we should get a better sense for what the new normal demand environment could look like. However, the rise in COVID cases caused by the Delta variant can prolong the impact of the pandemic. So we are watching those developments carefully.”

Asked by an analyst about the back-to-school seasons, A. Ryals McMullian, president and chief executive officer, said the company’s perspective has “changed markedly” from the time its first guidance for 2021 was issued. Initially, the company was focused on the pace of the vaccine rollout and its effects on market dynamics.

“Now we find ourselves right at the beginning of back-to-school season,” he said. “We’ve got this Delta variant that's surging significantly across the country. So our perspective has changed as the dynamics out there have changed. And obviously, it’s hard to say. We had originally expected that the back-to-school season would give us a really good indication of what the new normal might look like in a more steady state going forward. I think the rise of the Delta variant has brought that somewhat in the question and pushed that timeline out a bit now.”

Discussing results in the second quarter, Mr. Kinsey said sales were down 0.8% from 2020 but up 4.3% from 2019. Volumes were down 3.9% in the quarter, but price/mix was a 3.1% positive offset, “more heavily weighted to price than mix, driven by promotional efficiency.”

Also compared with 2019, EBITDA has climbed 15.4%, and EBITDA margins have widened to 12%, Mr. McMullian said.

“The key driver of that margin expansion is the mix shift to more branded retail products, but we’re also working hard to maximize our internal efficiencies,” he said. “Our portfolio optimization project is on track to reach our target savings of $30 million to $40 million this year.”

Flowers strongest brands stood out during the quarter, Mr. Kinsey said. Branded sales overall declined 2%, but the company gained 30 basis points of market share, boosted by Dave’s Killer Bread up 9.4% and Canyon Bakehouse up 16.9%.

Compared to the second quarter of 2019, branded retail sales increased 15.2%, which he noted was a faster rate of growth relative to 2019 than the 13.7% the company reported in the first quarter.

Private label sales plunged 9% during the quarter, to $131 million. Nonretail and other sales rose 10%, to $212 million as the company lapped 2020 drops related to the pandemic. Mr. Kinsey called the foodservice recovery “particularly noteworthy.”

Commenting on the drop in private label sales, Mr. McMullian said, “Part of the reason for this dynamic is that the bread category is undergoing a premiumization process, led by brands like Dave’s Killer Bread, Canyon Bakehouse and Nature’s Own Perfectly Crafted, in which consumers are deliberately seeking out products and brands with improved health and indulgence attributes. We believe this trend will persist and that it bodes well for our leading differentiated brands.”

He said new products, including Nature’s Own Perfectly Crafted buns, were strong contributors to the company’s quarterly performance.

Delving deeper into the market share gains achieved by Flowers during the quarter, Mr. McMullian identified the Northeast as a highlight. The company gained 80 basis points of share in the second quarter there, 210 basis points over the last three years.

“And we’re investing to drive further gains in this crucial market,” he said.

Similarly, he said the company is intent on building on the success of its recently introduced new products with an “exciting pipeline of disruptive innovation” that he expects to generate further growth. He said the Nature’s Own Perfectly Crafted brioche hamburger buns rank No. 1 among new products tracked by Information Resources Inc. over the last two years.

Commenting on inflation that has generated considerable public attention in recent weeks and months, Mr. McMullian characterized higher costs as “a slight headwind in 2021.”

“And as we mentioned last quarter, should commodity prices remain at current level, we would expect more meaningful inflation in 2022,” he said. “Our hedging strategy in which we attempt to lock in commodity prices six to nine months out provides visibility into the future inflationary environment and enables us to be proactive in offsetting potential cost increases. So far, we’ve been successful in obtaining the higher prices necessary to offset inflation in the current year. And we are optimistic that combined with other internal actions, we will be able to use pricing to mitigate the impact of inflation into 2022 as well if necessary. We believe the strength of our leading brands and our improving market share make pricing conversations with customers a little easier and increases consumers' willingness to pay a bit more to enjoy the differentiated attributes of our products.”

He noted that more than 10 years ago, also facing inflation ahead of and into the Great Recession, Flowers was able to offset rising costs with pricing. With its stronger, differentiated brands today, he said the company is better positioned to offset inflation than in the 2007-09 period. He added that the company’s market share is about 18% now, versus 8% in 2009.

By contrast, Mr. McMullian said the labor market represented “unique challenges” at present, including availability and turnover.

“Like many other companies, in some locations it can be difficult to hire new employees and sometimes difficult to retain them,” he said. “Operating in such an environment increases recruiting, training and overtime expenses, so we are taking steps to mitigate the impact of these headwinds, including reviewing compensation and instituting quality of life initiatives such as improved work schedules.”

In the six months ended July 17, Flowers net income was $128.01 million, or 60¢ per share, up 45% from $52.15 million, or 25¢, in the same period in 2020. Sales were $2.32 billion, down 2.4% from $2.38 billion.

In New York Stock Exchange trading early Aug. 13, Flowers shares were up $1.41, or 6.2%, at $24.28.