Flowers Foods: Reports Q3-2020 Results

Thomasville / GA. (ff) Flowers Foods Inc., producer of Nature’s Own, Wonder, Tastykake, Dave’s Killer Bread, reported financial results for the company’s 12-week third quarter ended October 03, 2020.

Third Quarter Summary

Compared to the prior year third quarter where applicable

  • Sales increased 2.4 percent to USD 989.7 million.
  • Net income increased 2.3 percent to USD 44.3 million. Adjusted net income increased 36.3 percent to USD 62.4 million.
  • Adjusted Ebitda(1) increased 22.4 percent to USD 116.4 million, representing 11.8 percent of sales, a 200-basis point increase.
  • Diluted EPS increased USD 0.01 to USD 0.21. Adjusted diluted EPS(1) increased USD 0.07 to USD 0.29.

(1)Adjusted for items affecting comparability.

CEO’s Remarks

«Our record third quarter reflects a favorable operating environment for our branded retail business and our continued focus on achieving our strategic priorities,» said Ryals McMullian, Flowers Foods’ president and CEO. «The impact of the Covid-19 pandemic persisted in the third quarter, though at more moderate levels than in the second quarter. Our team continues to perform exceptionally well in this unprecedented environment and I am proud of their resiliency as they continue to serve our markets.»

«We are capitalizing on the increased frequency of in-home eating, which has driven elevated trial of our market-leading products, by executing on our portfolio strategy and supply chain optimization initiatives,» he continued. «We expect the demand environment to continue to moderate, but we believe our focus on product quality, innovation, and marketing will allow us to retain many of these new consumers and drive improved sales growth and margin expansion in support of our long-term growth targets.»

McMullian added, «We remain confident in our ability to deliver at least USD 20 million of cost savings this year and are working tirelessly to drive even more efficiencies. With our organizational restructuring and portfolio and supply chain optimization initiatives, we are becoming a more branded-focused company, which will ultimately boost our ability to drive shareholder value.»

For the 53-week Fiscal 2020, the Company Expects

  • Sales in the range of approximately USD 4.350 billion to USD 4.370 billion, representing growth of approximately 5.5 percent to 6.0 percent.
  • Diluted EPS in the range of approximately USD 0.65 to USD 0.70.
  • Adjusted diluted EPS in the range of approximately USD 1.23 to USD 1.28, adjusted for items affecting comparability, representing annual growth of approximately 28.1 percent to 33.3 percent.

The company’s outlook includes the following assumptions:

  • Portfolio and supply chain optimization benefit in excess of USD 20 million
  • Depreciation and amortization in the range of USD 140 million to USD 145 million
  • Net interest expense of approximately USD 11 million
  • An effective tax rate of approximately 24.0 percent to 24.5 percent
  • Weighted average diluted share count for the year of approximately 212.5 million shares
  • Capital expenditures for the year in the range of USD 85 million to USD 95 million

Matters Affecting Comparability

Reconciliation of Earnings per Share to Adjusted Earnings per Share

For the 12 Weeks Ended … 2020-10-03 2019-10-05
Net income per diluted common share USD 0.21 USD 0.20
Restructuring and related impairment charges 0.07 0.01
Project Centennial consulting costs 0.02
ERP road mapping consulting costs 0.01
Legal settlements 0.01
Pension plan settlement gain (0.03)
Adjusted net income per diluted common share USD 0.29 USD 0.22

Certain amounts may not compute due to rounding.

Consolidated Third Quarter Operating Highlights

Compared to the prior year third quarter where applicable

  • Sales increased 2.4 percent to USD 989.7 million.
  • Percentage point change in sales attributed to:
    • Pricing/mix: 8.1 percent, primarily driven by mix
    • Volume: -5.7 percent
  • Branded retail sales increased USD 71.2 million or 12.2 percent to USD 657.1 million, store branded retail sales decreased USD 14.4 million or 9.5 percent to USD 136.6 million, while non-retail and other sales decreased USD 33.7 million or 14.7 percent to USD 196.0 million.
    • Branded retail sales increased due to the impact of the Covid-19 pandemic, new product introductions, lower promotional activity, and a reduction in product returns.
    • Store branded retail sales decreased primarily due to volume declines as consumer purchasing shifted to branded retail products, partly offset by improved price/mix.
    • Non-retail and other sales declined primarily due to the impact of the pandemic on foodservice customers.
  • Net income increased 2.3 percent to USD 44.3 million. Adjusted net income increased 36.3 percent to USD 62.4 million.
  • Adjusted Ebitda increased 22.4 percent to USD 116.4 million, representing 11.8 percent of sales, a 200-basis point increase.
  • Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 50.3 percent of sales, a 240-basis point decrease. These costs were lower as a percentage of sales due to positive shifts in mix from non-retail and store branded retail products to branded retail products. Ingredient and packaging costs declined due to the mix shift and lower product returns.
  • Selling, distribution and administrative (SD+A) expenses were 39.1 percent of sales, a 160-basis point increase. Excluding matters affecting comparability, adjusted SD+A expenses were 38.0 percent of sales, a 50-basis point increase. Higher employee incentive costs and an increase in distributor distribution fees due to a shift in product mix were the primary drivers of the increased costs. Partially offsetting the higher costs were lower logistics expenses related to the product mix shift, lower fuel costs, and the benefit of supply chain optimization projects.
  • Depreciation and amortization (D+A) expenses were USD 32.2 million, or 3.2 percent of sales, a 20-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return

Year-to-date, through the third quarter of fiscal 2020, cash flow from operating activities increased by USD 86.3 million to USD 364.4 million, capital expenditures decreased USD 2.3 million to USD 68.3 million, and dividends paid increased USD 5.1 million to USD 124.9 million. There were no debt borrowings or repayments in the quarter. Cash and cash equivalents were USD 325.8 million at quarter-end. There are 6.2 million shares authorized for repurchase under the company’s current share repurchase plan. The company expects to continue to make opportunistic share repurchases from time to time under this plan.

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