Thomasville / GA. (ff) Flowers Foods Inc., producer of Nature’s Own, Wonder, Tastykake, Dave’s Killer Bread, and other bakery foods, reported financial results for the company’s 16-week first quarter ended April 20, 2019.
First Quarter Summary
Compared to the prior year first quarter where applicable
- Sales increased 4.8 percent to USD 1.264 billion; net sales increased 3.0 percent excluding the acquisition of Canyon Bakehouse.
- Diluted EPS increased USD 0.07 to USD 0.31.
- Adjusted diluted EPS increased USD 0.02 to USD 0.32.
Chief Executive’s Remarks
«We achieved record sales in the first quarter and are proud of the solid start to the year,» said Allen Shiver, Flowers Foods president and CEO. «In our core business, we benefited from pricing actions taken to mitigate inflationary headwinds as well as continued growth from key brands including Dave’s Killer Bread, Nature’s Own, and Wonder. The recently acquired Canyon Bakehouse also drove top-line growth, and we remain on-track with the rollout of the brand across our distribution network.»
Shiver continued, «While we are pleased with the results of our growth initiatives and pricing actions to date, inflationary headwinds from commodities, labor, and transportation continue to pressure margins. Therefore, in addition to improving price realizations, the team is focused on our supply chain optimization initiatives, which are intended to drive productivity and reduce fixed costs.»
Shiver added, «As announced in February, after 41 years with the company, I will be retiring next week and Ryals McMullian will become Flowers’ next CEO. Flowers has never been better positioned for growth and continued success. It has been a privilege to lead this company and work alongside the best team in the industry. I am confident in Ryals and the entire Flowers team, and I know they will continue to execute on our strategic priorities and build shareholder value.»
For the 52-week Fiscal 2019, the Company Reaffirms:
- Sales in the range of approximately USD 4.030 billion to USD 4.109 billion, representing growth of approximately 2.0 percent to 4.0 percent.
- Adjusted diluted EPS in the range of approximately USD 0.94 to USD 1.02, adjusted for items affecting comparability.
The company’s outlook includes the following assumptions:
- Canyon Bakehouse sales of approximately USD 70 million to USD 80 million
- Depreciation and amortization in the range of USD 150 million to USD 155 million
- Other pension expense in the range of USD 2.5 million to USD 3.0 million
- Net interest expense of approximately USD 12 million
- An effective tax rate of approximately 24 percent to 25 percent
- Weighted average diluted share count for the year of approximately 212 million shares
- Capital expenditures for the year in the range of USD 110 to USD 120 million
Consolidated First Quarter 2019 Summary
Compared to the prior year first quarter where applicable
- Sales increased 4.8 percent to USD 1.264 billion.
- Percentage point change in sales attributed to:
- Pricing/mix: 3.2 percent
- Volume: -0.2 percent
- Acquisition: 1.8 percent
- On a consolidated basis, branded retail sales increased USD 43.8 million, or 6.2 percent to USD 755.6 million, store branded retail sales increased USD 21.3 million, or 12.4 percent to USD 193.1 million, while non-retail and other sales decreased USD 7.7 million, or 2.4 percent to USD 315.1 million.
- Branded retail sales were driven by continued sales growth from DKB organic products, growth in our expansion markets and store branded breads and buns, the introduction of Nature’s Own Perfectly Crafted breads in the second quarter of 2018 and Sun-Maid breakfast bread late in the third quarter of 2018, pricing actions, and the acquisition of Canyon Bakehouse in the fourth quarter of 2018. Partially offsetting the increase were volume declines in white breads and miscellaneous specialty breads.
- Store branded retail sales increased primarily due to store-branded items produced by Canyon Bakehouse, positive price/mix, and volume growth in store branded breads and buns, partially offset by volume declines in store branded cake.
- Foodservice and vending volume declines primarily drove the decrease in non-retail and other sales, partly because of lost business due to the receipt of inferior ingredients in 2018.
- Operating income increased 18.2 percent to USD 90.6 million. Excluding matters affecting comparability, adjusted operating income increased 5.0 percent to USD 92.4 million.
- Adjusted EBITDA increased 3.8 percent to USD 137.2 million, representing 10.9 percent of sales, a 10-basis point decrease.
- Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 51.6 percent of sales, a 20-basis point decrease. These costs were lower as a percentage of sales due to improved sales and increased production volumes, partially offset by increases in outside purchases of product. Rising commodity prices, and higher labor costs were mostly offset by improved pricing/mix.
- Selling, distribution and administrative (SD+A) expenses were 37.7 percent of sales, unchanged to the prior year. A larger portion of sales through independent distributors and a shift in product mix resulted in higher distributor distribution fees. These fees, combined with higher selling costs and increased marketing investments offset prior year Project Centennial-related consulting costs and lower legal fees and litigation settlements.
- Depreciation and amortization (D+A) expenses were USD 44.8 million, 3.5 percent of sales, a 20-basis point decrease.
Following the organizational restructuring under Project Centennial, the company has consolidated its operations into one operating segment. Beginning with the first quarter of 2019, the comparative periods are presented on a consolidated basis due to this change.
Cash Flow, Capital Allocation, and Capital Return
In the first quarter of fiscal 2019, cash flow from operating activities was USD 96.2 million, capital expenditures were USD 20.8 million, and dividends paid were USD 39.3 million. During the quarter, the company made cash debt repayments of USD 40.5 million.
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.