Flowers Foods: Reports First Quarter 2021 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 16-week first quarter ended April 24, 2021.

First Quarter Summary

Compared to the prior year first quarter where applicable

  • Sales decreased 3.5 percent to USD 1.302 billion compared to record results in the prior year period driven by the pandemic.
  • Net income increased USD 77.4 million to USD 71.7 million due primarily to a USD 116.2 million charge in the prior year period related to the termination of one of our pension plans. Adjusted net income increased 1.3 percent to USD 87.6 million.
  • Adjusted Ebitda(1) decreased 1.0 percent to USD 161.6 million. Adjusted Ebitda represented 12.4 percent of sales, a 30-basis point increase.
  • Diluted EPS increased USD 0.37 to USD 0.34. Adjusted diluted EPS(1) was consistent with the prior year period at USD 0.41.

(1) Adjusted for items affecting comparability.

CEO’s Remarks

«Flowers delivered impressive results to start 2021,» said Ryals McMullian, Flowers Foods’ president and CEO. «Our leading brands are thriving, and that strong performance would not be possible without the dedication and perseverance of our team members. I want to extend my sincere thanks for their efforts.

«As the economy reopened in most of the country, our branded retail mix moderated somewhat toward the end of the quarter and foodservice began to recover,» he continued. «However, it is important to note that branded retail demand remains elevated over pre-pandemic levels. To maintain our momentum and sustain the growth of our brands, we are continuing to invest in innovation and marketing. We believe those investments benefited our results in the first quarter, and we expect them, together with our portfolio strategy, digital initiative, and efficiency programs, to drive our future performance. We have performed exceptionally well over the last year and are confident these actions we are taking today, guided by our strategic priorities, are positioning Flowers to deliver results consistent with our long-term financial targets.»

For the 52-week Fiscal 2021, the Company Expects

  • Sales in the range of approximately USD 4.234 billion to USD 4.300 billion, representing a change of approximately -3.5 percent to -2.0 percent. This change includes a 1.8 percent reduction in sales due to one fewer week in fiscal 2021.
  • Diluted EPS in the range of approximately USD 1.10 to USD 1.17. The effect of one fewer week in fiscal 2021 impacts EPS by approximately USD 0.02.

The company’s outlook includes the following assumptions

  • Depreciation and amortization in the range of USD 135 million to USD 140 million
  • Net interest expense of approximately USD 10 million
  • An effective tax rate of approximately 24.5 percent
  • Weighted average diluted share count for the year of approximately 213 million shares
  • Capital expenditures for the year in the range of USD 140 million to USD 150 million

Matters Affecting Comparability

Reconciliation of Earnings per Share to Adjusted Earnings per Share

Q1-2021
Q1-2020
Net income (loss) per diluted common share USD 0.34 USD (0.03)
Loss on inferior ingredients NM
Project Centennial consulting costs 0.01
Business process improvement consulting costs 0.02
Legal settlements 0.01
Pension plan settlement and curtailment loss 0.41
Loss on extinguishment of debt 0.06
Other pension plan termination costs NM
Adjusted net income per diluted common share USD 0.41 USD 0.41

NM – not meaningful. Certain amounts may not add due to rounding.

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Consolidated First Quarter Operating Highlights

Compared to the prior year first quarter where applicable

  • Sales decreased 3.5 percent to USD 1.302 billion compared to record results in the prior year period driven by the pandemic.
  • Percentage point change in sales attributed to:
    • Pricing/mix: 3.4 percent
    • Volume: -6.9 percent
  • Branded retail sales decreased USD 29.1 million or 3.3 percent to USD 861.4 million, store branded retail sales decreased USD 27.9 million or 14.6 percent to USD 162.9 million, while non-retail and other sales increased USD 9.8 million or 3.6 percent to USD 277.9 million.
    • Branded retail sales decreased primarily due to volume declines in white and soft variety bread, as well as cake, partially offset by volume growth in organic and gluten-free products and favorable price/mix.
    • Store branded retail sales decreased primarily due to volume declines as consumer purchasing shifted to branded retail products.
    • Non-retail and other sales increased compared to weak sales in the prior year period caused by the onset of the pandemic. Favorable price/mix was partially offset by lower volume.
  • Net income increased USD 77.4 million to USD 71.7 million due primarily to a USD 116.2 million charge in the prior year period related to the termination of a pension plan, net of sales declines and the loss on extinguishment of debt in the current quarter. Adjusted net income increased 1.3 percent to USD 87.6 million.
  • Adjusted Ebitda decreased 1.0 percent to USD 161.6 million, representing 12.4 percent of sales, a 30-basis point increase.
  • Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 49.4 percent of sales, a 30-basis point decrease. These costs declined as a percentage of sales due to lower short-term compensation and better overall plant efficiencies, partially offset by increased ingredient and packaging expenses as a percentage of revenue. The prior year quarter also included USD 1.7 million of start-up costs related to the conversion of our Lynchburg, Virginia facility to an organic bakery.
  • Selling, distribution and administrative (SD+A) expenses were 38.5 percent of sales, a 20-basis point decrease. Excluding matters affecting comparability, adjusted SD+A expenses were 38.2 percent of sales, unchanged from the prior year period. Lower bad debt expense and distributor distribution fees were partly offset by higher e-commerce marketing expenses.
  • Depreciation and amortization (D+A) expenses were USD 41.4 million, or 3.2 percent of sales, a 10-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return

For the first quarter of fiscal 2021, cash flow from operating activities decreased by USD 8.2 million to USD 98.0 million, capital expenditures increased USD 5.6 million to USD 27.3 million, and dividends paid increased USD 2.2 million to USD 42.5 million. Cash and cash equivalents were USD 250.6 million at the end of the first quarter of fiscal 2021 and were impacted by the issuance of USD 500 million in 2031 notes, the proceeds of which were partly used to redeem our USD 400 million notes that would have matured in 2022. We were pleased with the pricing of the notes, particularly given their long maturity.

There are 6.1 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.