Flowers Foods: Announces First Quarter Results

Thomasville / GA. (ff) Flowers Foods Inc. reported sales and earnings for its 16-week first quarter ended April 23, 2011. Flowers Foods achieved 0,45 USD diluted earnings per share compared to 0,44 USD in the first quarter last year. Excluding charges related to a bakery closure and a pending merger, earnings per share increased 13,6 percent to 0,50 USD. Reported a sales increase of 0,9 percent compared to first quarter last year. Generated cash flow from operations of 72,6 million USD. Outlined long-term growth goals at a March analyst event. Announced an all cash merger agreement with Tasty Baking Company.

«The first quarter of 2011 was eventful for Flowers Foods», said George E. Deese, Chairman of the Board and Chief Executive Officer. «We achieved a modest sales increase and solid growth in earnings per share, excluding one-time charges. At our analyst event in March, we reset our growth targets, anticipating that ongoing industry consolidation will bring greater opportunity for mergers and acquisitions. In April, we announced the merger agreement with Tasty Baking, which will strengthen our snack cake business and extend the geographic reach of our Nature´s Own brand and other fresh bakery foods.

«As the year unfolds, we expect to grow sales as we reach new customers, new markets, and take advantage of opportunities presented with the Tasty merger. Our focus is on improving operations and increasing prices to offset higher costs, managing our core business to maintain share and volume, completing the Tasty merger and planning for a smooth integration, and exploring growth opportunities«», Deese said.

First Quarter 2011 Results

For the 16-week first quarter of 2011, sales increased 0,9 percent to 801,8 million USD compared to 795,0 million USD in last year´s first quarter. The sales increase was attributable to favourable net pricing/mix of 2,1 percent, partially offset by decreased volume of 1,2 percent. The price/mix increase was driven primarily by price across all categories. Volume was impacted by lower-than-planned sales in the branded retail and foodservice channels.

DSD Segment: During the quarter, the company´s direct-store-delivery (DSD) sales increased 0,1 percent. This increase consisted of positive net pricing/mix of 1,9 percent, partially offset by a volume decline of 1,8 percent. As a result of the positive price/mix, Dollar sales in the branded retail channel increased quarter over quarter. The volume decline was primarily the result of decreases in the branded retail and foodservice channels, partially offset by increases in the store brand channel. Volume declines in white bread and soft variety bread resulted in lower branded volume, while declines in quick-serve and other restaurants primarily caused lower foodservice volume.

Warehouse Delivery Segment: Sales in the warehouse delivery segment increased 4,1 percent due to positive net pricing /mix, with volume being flat quarter over quarter. This increase was driven mainly by increases in store brand cake and, to a lesser extent, higher foodservice sales.

Net income for the quarter was 41,2 million USD, an increase of 1,2 percent over the 40,7 million USD reported for the first quarter of fiscal 2010. Diluted earnings per share was 0,45 USD, a 2,3 percent increase over the 0,44 USD diluted earnings per share reported for last year´s first quarter. We incurred costs, net of operational savings, of 4,2 million USD, net of tax, or 0,05 USD per diluted share relating to the closure of a bakery and the impending merger with Tasty Baking. We expect the effect of the bakery closure on the full year to be neutral to slightly dilutive.

Gross margin as a percent of sales for the quarter increased 80 basis points to 48,6 percent compared to 47,8 percent in the prior year´s first quarter. This increase was due primarily to a decrease in ingredient costs as a percent of sales, partially offset by increases in packaging and workforce-related costs as a percent of sales. Net of operational savings, costs associated with the bakery closure negatively impacted gross margin 2,8 million USD or 30 basis points as a percent of sales.

Selling, distribution, and administrative costs as a percent of sales for the quarter were 37,4 percent compared to 36,8 percent in the same quarter last year. Costs associated with the closed bakery, net of operational savings, and the pending merger negatively impacted selling, distribution, and administrative costs 3,1 million USD, or 40 basis points as a percent of sales.

Depreciation and amortization expenses for the quarter increased 30 basis points as a percent of sales compared to last year´s first quarter due to equipment placed in service during the second half of 2010 and accelerated depreciation of 0,6 million USD on certain equipment related to the plant closure. Net interest income for the quarter was 0,6 million USD higher than last year´s first quarter due to lower interest expense as a result of less debt outstanding. The effective tax rate for the quarter was 35,0 percent as compared to 35,6 percent in the first quarter last year. The full-year tax rate is expected to be approximately 35,0 to 35,5 percent.

Operating margin as a percent of sales for the quarter was 7,7 percent compared to 7,8 percent in last year´s first quarter. The bakery closure costs, net of operational savings, and merger-related costs negatively affected operating margin 6,5 million USD or 80 basis points as a percent of sales. Ebitda as a percent of sales for the first quarter was 11,2 percent compared to 11,0 percent for the same quarter last year. The bakery closure, net of operational savings, and merger-related costs negatively affected Ebitda 5,9 million USD or 70 basis points as a percent of sales.

During the quarter, the company invested 22,1 million USD in capital improvements and paid dividends of 18,1 million USD to shareholders. The company also acquired 695’403 shares of its common stock under its share repurchase plan for 18,0 million USD, an average of 25,93 USD per share. Since the inception of the share repurchase plan, the company has acquired 24,9 million shares of its common stock for 422,2 million USD, an average of 16,96 USD per share. The plan authorizes the company to repurchase up to 30,0 million shares of common stock.

Fiscal 2011 Guidance

Regarding guidance for fiscal 2011, Deese said the company continues to expect sales growth of 3,0 to 6,0 percent, excluding future acquisitions or mergers, and diluted earnings per share growth of 5,0 to 10,0 percent. Capital expenditures for fiscal 2011 still are expected to be 90 to 100 million USD. This guidance excludes the impact of the Tasty merger.

Long-Term Goals

At an analyst event in March, the company reset its long-term goals, anticipating annual sales growth of five percent to ten percent (including acquisitions), including three percent to five percent organic growth and two percent to five percent growth through acquisitions. Over the long term, the company projects double-digit earnings per share growth and Ebitda margin of eleven percent to 13 percent.

Flowers/Tasty Merger

The company said it expects to complete its merger with Tasty Baking in the second quarter. In April, Flowers Foods and Tasty Baking announced a definitive merger agreement whereby Flowers will acquire all of the outstanding shares of Tasty Baking common stock for 4,00 USD per share in cash for a total purchase price of approximately 165 million USD, including Tasty Baking existing indebtedness. The transaction is expected to strengthen Flowers´ snack cake business through the addition of the iconic Tastykake snack cake brand and expand Flowers´ geographic reach, immediately adding more than 24 million consumers who are contiguous to Flowers´ current footprint. Tasty Baking is expected to add approximately 115 to 125 million USD to Flowers´ 2011 sales, contribute approximately ten to twelve million USD to 2011 Ebitda, and be neutral to slightly accretive to 2011 earnings per share, excluding one-time costs of the transaction. Flowers expects Tasty Baking to add approximately 210 to 225 million USD to Flowers´ 2012 sales, contribute approximately 25 to 30 million USD to 2012 Ebitda, and contribute approximately 0,06 to 0,09 USD per diluted share.

Flowers Foods: announces first quarter results

Thomasville / GA. (ff) Flowers Foods Inc. reported sales and earnings for its 16-week first quarter ended April 24, 2010. In summary, the company …

  • Increased net income 8,8 percent over last year´s first quarter.
  • Achieved 0,44 USD diluted earnings per share, a 10,0 percent increase over last year´s first quarter.
  • Reported a sales decline of 1,5 percent compared to first quarter last year.
  • Increased branded retail sales 2,0 percent in the first quarter.

George E. Deese, chairman and chief executive officer: «We are pleased with our overall market share performance and earnings results for the first quarter. Our core Nature´s Own branded breads and rolls and our newly introduced products demonstrated solid growth in the quarter, and we gained market share on a Dollars and units basis in our retail business. Strong branded performance was offset by softness in our foodservice business and lower store brand sales, which drove the overall sales decline. We saw sales trends improve throughout the quarter and that gives us encouragement. We achieved improved efficiencies and had lower input costs, which are reflected in both our margin and bottom line improvement. Looking ahead, even though the marketplace remains competitive and promotional activity high, we are encouraged by a slight improvement in our foodservice business and in overall sales compared to the beginning of the year. We also expect good earnings growth for the full year».

First Quarter 2010 Results

For the 16-week first quarter of 2010, sales decreased 1,5 percent to 795 million USD compared to 807 million USD reported for last year´s 16-week first quarter. This sales decrease was attributable to unfavorable pricing/mix of 2,4 percent and decreased volume of 0,7 percent. Volume decreases in the foodservice and store branded retail channels were the primary drivers of the volume decline. These declines were somewhat offset by volume increases in the branded retail channel, particularly in the soft variety bread category. The introduction of Nature´s Own Sandwich Rounds also contributed to the increased volume in this channel. The deconsolidation of a variable interest entity (VIE) negatively impacted sales 0,2 percent. This deconsolidation was the result of a new accounting rule that went into effect in January 2010. Partially offsetting these declines was a 1,8 percent contribution from acquisitions.

During the quarter, the company´s direct store delivery (DSD) sales decreased 3,3 percent. This decrease consisted of negative pricing/mix of 2,4 percent, volume decreases of 0,7 percent, and a decrease of 0,2 percent resulting from the deconsolidation of the VIE. Although the DSD segment continued to be affected by heavy promotional activity within the retail channel, sales of the branded retail products increased. These increases were negatively impacted by lower store brand and foodservice sales in the DSD segment. Sales in the warehouse delivery segment increased 7,3 percent, reflecting a 10,4 percent contribution from acquisitions, partially offset by negative pricing/mix of 2,9 percent and volume decreases of 0,2 percent. The warehouse delivery segment continues to be negatively impacted by soft foodservice sales.

Net income for the quarter was 40,7 million USD, an increase of 8,8 percent over the 37,4 million USD reported for the first quarter of fiscal 2009. Diluted earnings per share was 0,44 USD, a 10,0 percent increase over the 0,40 USD diluted earnings per share reported for last year´s first quarter.

Gross margin as a percent of sales for the quarter increased 100 basis points to 47,8 percent compared to 46,8 percent in the prior year´s first quarter. The increase in margin was due primarily to a decrease in ingredient costs, particularly flour, and lower packaging costs as a percent of sales. Improved manufacturing efficiencies also contributed to the increase. These positive items were partially offset by higher employee-related costs as a percent of sales.

Selling, distribution, and administrative costs as a percent of sales for the first quarter were 36,8 percent compared to 36,4 percent in the same quarter last year. Higher employee-related and advertising costs as a percent of sales contributed to this increase. The advertising costs were incurred to support new product introductions. These increases were partially offset by lower pension and bad debt expenses as a percent of sales.

Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to the prior year quarter. Net interest income for the quarter was 0,7 million USD higher than last year´s first quarter due to lower interest expense as a result of less debt outstanding. The effective tax rate for the quarter was 35,6 percent as compared to 36,6 percent in the first quarter last year. The full-year tax rate is expected to be approximately 35,5 percent to 36,0 percent.

Operating margin as a percent of sales for the quarter improved to 7,8 percent from 7,3 percent in the first quarter of 2009. Ebitda as a percent of sales for the first quarter was 11,0 percent compared to 10,3 percent for the same quarter last year.

During the quarter, the company invested 29,1 million USD in capital improvements and paid dividends of 16,0 million USD to shareholders. The company also acquired 87’271 shares of its common stock under its share repurchase plan for 2,1 million USD, an average of 24,24 USD per share. Since the inception of the share repurchase plan, the company has acquired 22,7 million USD shares of its common stock for 367,1 million USD, an average of 16,15 USD per share. The plan authorizes the company to repurchase up to 30 million USD shares of common stock.

Fiscal 2010 Guidance

As reported in February, for fiscal 2010, the company expects sales growth of 2,5 percent to 4,5 percent, excluding future acquisitions, and diluted earnings per share growth of ten percent to 15 percent. Capital expenditures for fiscal 2010 are expected to be 85 million USD to 95 million USD.

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