Flowers Foods: Announces Results for Q3/2015

Thomasville / GA. (ff) Flowers Foods Inc., the United States’s second-largest producer and marketer of fresh packaged bakery foods, announced its financial results for the company’s twelve-week third quarter ended October 10, 2015.

Third Quarter 2015 Summary Financial Results

Compared to prior year third quarter

  • Sales increased 4.8 percent to 885 million USD
  • Adjusted Ebitda increased 6.1 percent to 105 million USD, adjusted net income increased 8.3 percent to 48 million USD, and adjusted net income per diluted common share increased 9.5 percent to 0.23 USD
  • Including acquisition-related costs, facility closing costs, and the effect of the tortilla facility divestiture during the prior year third quarter, Ebitda decreased 0.7 percent to 99 million USD, net income decreased 1.8 percent to 44 million USD, and net income per diluted common share was unchanged at 0.21 USD
  • Dividends paid increased 20.8 percent to 0.1450 USD per share

Third Quarter Highlights

  • During the third quarter, acquired Dave’s Killer Bread (DKB), the leading brand of organic packaged bread in the United States. Early in the fourth quarter, acquired Alpine Valley Bread Company (Alpine Valley), further strengthening Flowers’ organic brand portfolio and production capacity.
  • For the 12-week third quarter of fiscal 2015, the increase in consolidated sales reflects a volume increase of 3.6 percent, neutral price/mix, and an increase of 1.2 percent attributable to the acquisition of DKB.
  • Sales in expansion markets contributed 1.2 percent to the overall sales increase during the quarter, driven by the acquired Hostess bread brands and entrance into new markets. Flowers now reaches 83 percent of the U.S. population through direct-store delivery (DSD) distribution.
  • The company generated 64.6 million USD of cash flow from operations during the third quarter.

Fiscal 2015 Outlook – Updated

  • Including acquisitions, the company now anticipates 52-week fiscal 2015 sales of 3.818 USD billion to 3.842 billion USD and adjusted net income per diluted common share of 0.96 USD to 0.98 USD. Acquisitions are anticipated to contribute approximately 50 million USD to 55 million USD to fiscal 2015 sales and be neutral to net income per diluted common share. The company continues to expect capital expenditures in the range of 85.0 USD to 95.0 million USD.

Executive Commentary:

Allen L. Shiver, president and chief executive officer, said, «It is an exciting time at Flowers. The team is working hard to capture the potential of our strong brands and geographic reach. Our recently acquired organic bread brands – Dave’s Killer Bread and Alpine Valley Bread – are on-trend with changing consumer preferences and provide Flowers with additional growth opportunities through expanded distribution. We recognize the quality and values these brands represent, and a key focus as we bring the Flowers, DKB, and Alpine Valley teams together will be to maintain the integrity of their great brands».

«Sales growth this quarter, excluding the impact of DKB, was driven by continued gains in our expansion markets, strong performance from our branded bread and rolls, and foodservice volume gains. Continuing a trend from the second quarter, our branded cake sales also posted year-over-year growth. Leveraging our consolidated sales growth, we grew adjusted Ebitda 6.1 percent».

Shiver continued, «This year, we’ve opened a new bakery in Lenexa, Kan., introduced new products under our existing brands, and completed acquisitions to support future growth. Considering all factors, it was necessary to narrow our outlook for 2015. Even so, as we look ahead to 2016, we are committed to capitalizing on the opportunities provided by our strategic acquisitions and building on our strong foundation».

DSD Segment Commentary

Of the total DSD segment sales increase, pricing/mix increased 0.2 percent, volume increased 2.9 percent, and the acquisition of Dave’s Killer Bread contributed an additional 1.4 percent. Branded retail sales were strong, primarily due to volume increases in white and soft variety breads and the DKB acquisition contribution. New product introductions and further expansion in our DSD markets drove increased sales of Tastykake products. Driven primarily by the foodservice business, the non-retail and other category posted solid growth.

Adjusted Ebitda margin for the DSD segment increased as a percentage of sales due to lower ingredient costs and cost-saving initiatives, partially offset by higher workforce-related costs and increases in outside purchases of product, primarily due to capacity constraints at DKB.

Warehouse Segment Commentary

Of the Warehouse segment’s sales increase, pricing/mix increased 0.6 percent, and volume increased 5.5 percent. The increase in branded retail sales was primarily due to volume gains in bakery deli and mix shift within branded snack cake. The improvement in store branded retail sales was primarily the result of higher store branded cake sales. The increase in non-retail and other sales was driven by new foodservice products.

Ebitda margin for the Warehouse segment decreased as a percentage of sales, primarily due to higher employee incentive costs and reduced efficiencies.

Consolidated Results Commentary

As compared to the prior year third quarter, consolidated adjusted Ebitda increased by 6.1 percent. Adjusted unallocated corporate expenses were elevated during the quarter, primarily due to higher consulting and legal expenses, and lower pension income – partially offset by lower stock-based compensation expense.

Interest expense declined due to lower average outstanding debt balances, while a higher average notes receivable balance drove an increase in interest income. Income tax expense as a percentage of pre-tax income increased primarily as a result of certain non-deductible acquisition-related costs.

Cash Flow

During the quarter, cash flow from operating activities was 64.6 million USD, capital expenditures were 20.7 million USD, cash paid for DKB, net of cash acquired, was 280.8 million USD, and dividends paid were 30.5 million USD (Image: