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 second quarter ended July 11, 2020. Second Quarter Summary compared to the prior year second quarter where applicable:
- Sales increased 5.1 percent to USD 1.026 billion, reflecting the continued impact of the Covid-19 pandemic.
- Diluted EPS increased by USD 0.02 to USD 0.27.
- Adjusted diluted EPS increased by USD 0.08 to USD 0.33.
Chief Executive’s Remarks
«I am pleased to report a record quarter in which we executed well and capitalized on the strong demand for our leading brands,» said Ryals McMullian, Flowers Foods’ president and CEO. «Our team continued to perform admirably in challenging circumstances, and I am grateful for their dedication and commitment. Their hard work combined with the flexibility of our bakery network have enabled us to continue serving our markets uninterrupted throughout the Covid-19 pandemic.»
McMullian added, «A key driver of our strong performance was the mix shift to branded retail products, which allowed us to leverage costs and increase margins. The Covid-19 pandemic was a significant driver of that shift this quarter, and we are actively working to maintain and expand that favorable mix going forward through our portfolio optimization initiatives.»
McMullian continued, «Looking to the second half of 2020, we are balancing the higher demand and positive mix shift with the increased costs and uncertainty caused by this new environment. We remain committed to our portfolio and supply chain optimization initiatives and our expectation to deliver approximately USD 10 million to USD 20 million of savings this year. As part of our ongoing efforts to streamline operations, and to ensure we have the right resources in place to sustain long-term growth, we announced an organizational restructuring in July to further reduce the complexity of our business, improve margins, and ultimately unleash the full potential of our brands and innovation efforts. By continuing to strengthen our powerful brands, we expect to expand their market leading share positions and better-utilize our supply chain network with the goal of driving strong shareholder returns over the long-term.»
Revised Guidance
For the 53-week fiscal 2020 the company expects:
- Sales in the range of approximately USD 4.290 billion to USD 4.330 billion, representing growth of approximately 4.0 percent to 5.0 percent.
- Diluted EPS in the range of approximately USD 0.66 to USD 0.76.
- Adjusted diluted EPS in the range of approximately USD 1.15 to USD 1.25, adjusted for items affecting comparability, representing growth of approximately 19.8 percent to 30.2 percent.
The company’s outlook includes the following assumptions:
- Portfolio and supply chain optimization benefit of USD 10 million to USD 20 million
- Depreciation and amortization in the range of USD 145 million to USD 150 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 EPS to Adjusted EPS | For the 12 Weeks Ended… | ||
| 2020-07-11 | 2019-07-13 | ||
| Net income per diluted common share | USD 0.27 | USD 0.25 | |
| Restructuring and related impairment charges | USD 0.04 | USD 0.01 | |
| Project Centennial consulting costs | USD 0.02 | – | |
| Legal settlements (recovery) | – | USD (0.01) | |
| Executive retirement agreement | – | Not Meaningful | |
| Adjusted net income per diluted common share | USD 0.33 | USD 0.25 | |
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Consolidated Second Quarter 2020 Results
Compared to the prior year second quarter where applicable
- Sales increased 5.1 percent to USD 1.026 billion.
- Percentage point change in sales attributed to:
- Pricing/mix: 8.4 percent
- Volume: -3.3 percent
- Branded retail sales increased USD 103.6 million, or 17.7 percent, to USD 689.5 million, store branded retail sales decreased USD 17.7 million, or 10.9 percent, to USD 145.2 million, while non-retail and other sales decreased USD 35.8 million, or 15.8 percent, to USD 191.2 million.
- Branded retail sales increased due to the impact of the Covid-19 pandemic, new product introductions, reduced promotional activity, and a reduction in product returns.
- Store branded retail sales decreased primarily due to lost breakfast bread business and volume declines for other store branded products as consumer purchasing shifted to more branded retail products.
- Non-retail and other sales declined primarily due to the impact of the pandemic on foodservice customers.
- Net income increased 9.1 percent to USD 57.9 million. Adjusted net income increased 31.5 percent to USD 70.0 million.
- Adjusted Ebitda increased 21.4 percent to USD 128.5 million, representing 12.5 percent of sales, a 170-basis point increase.
- Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 49.3 percent of sales, a 280-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. Partially offsetting the lower costs were USD 1.5 million of start-up costs incurred with the ongoing conversion of our Lynchburg, Virginia facility to an organic bakery, which were largely workforce related.
- Selling, distribution and administrative (SD+A) expenses were 38.7 percent of sales, a 190-basis point increase. Excluding matters affecting comparability, adjusted SD+A expenses were 38.1 percent of sales, a 110-basis point increase. Higher employee incentive costs, an increase in distributor distribution fees due to a shift in product mix, and consulting costs related to Project Centennial were the primary drivers of the increased costs. Partially offsetting the higher costs were lower logistics expenses related to the product mix shift.
- Depreciation and amortization (D+A) expenses were USD 33.2 million, 3.2 percent of sales, a 20-basis point decrease.
Cash Flow, Capital Allocation, and Capital Return
Year-to-date through the second quarter of fiscal 2020, cash flow from operating activities increased by USD 67.7 million to USD 275.8 million, capital expenditures decreased by USD 0.8 million to USD 46.6 million, and dividends paid increased by USD 3.0 million to USD 82.6 million. To ensure liquidity, out of an abundance of caution, total indebtedness increased by USD 142.5 million year-to-date through the second quarter. There remain 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.
