Flowers Foods: Reports Q4 And Full Year 2019 Results

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 12-week fourth quarter ended December 28, 2019.

Fiscal 2019 Summary

Compared to the prior year where applicable

  • Sales increased 4.4 percent to USD 4.124 billion; excluding the acquisition of Canyon Bakehouse, net sales increased 2.2 percent.
  • Diluted EPS increased USD 0.04 to USD 0.78.
  • Adjusted diluted EPS(1) increased USD 0.02 to USD 0.96.

Fourth Quarter Summary

Compared to the prior year fourth quarter where applicable

  • Sales increased 4.2 percent to USD 917.8 million; excluding the acquisition of Canyon Bakehouse, net sales increased 1.2 percent.
  • Diluted EPS decreased USD 0.09 to USD 0.01.
  • Adjusted diluted EPS(1) increased USD 0.02 to USD 0.18.

(1) Adjusted for items affecting comparability.

CEO’s Remarks

Ryals McMullian, Flowers Foods’ president and CEO, said, «We are pleased to report solid fourth quarter performance and record sales and operating cash flow for the full year. In the quarter, results were better than expected, driven by continued top-line momentum and improved profitability. During the quarter, we saw growth from our key brands, made important progress in our portfolio and supply chain optimization efforts, and continued to invest in our team’s capabilities. As a result, we ended the year on the right trajectory, demonstrating clear progress against our dual imperatives of sales growth and margin expansion.»

McMullian continued, «Looking ahead, our 2020 plans engage the core value creation strategies we have put in place to focus on brands, manage costs, pursue smart acquisitions, and develop our team. We expect fiscal 2020 sales growth in-line with our long-term targets driven by the strength of our national brands and the expected stabilization and growth of our foodservice and cake businesses. We intend to drive earnings growth by executing against our initiatives to improve manufacturing efficiencies, optimize our portfolio and supply chain network, and reduce fixed costs. We made great strides in 2019 and are now moving aggressively to capture the opportunities we see in 2020 that we believe can enhance shareholder value.»

Fiscal 2020 Outlook

For the 53-week fiscal 2020 the company expects

  • Sales in the range of approximately USD 4.206 billion to USD 4.289 billion, representing growth of approximately 2.0 percent to 4.0 percent.
  • Diluted EPS in the range of approximately USD 0.50 to USD 0.64, including charges related to the termination of a defined benefit pension plan in the range of USD 125 million to USD 143 million.
  • Adjusted diluted EPS(1) in the range of approximately USD 1.00 to USD 1.08, representing growth of approximately 4.2 percent to 12.5 percent.

(1) Adjusted for items affecting comparability.

The company’s outlook assumes the following:

  • Depreciation and amortization in the range of USD 140 million to USD 145 million
  • Other pension expense of approximately USD 2 million
  • Net interest expense in the range of USD 8 million to USD 10 million
  • An effective tax rate of approximately 24 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 105 million to USD 115 million

Consolidated Fourth Quarter 2019 Operating Highlights

Compared to the prior year fourth quarter where applicable

  • Sales increased 4.2 percent to USD 917.8 million.
  • Percentage point change in sales attributed to:
    • Pricing/mix: 2.1 percent
    • Volume: -0.9 percent
    • Acquisition: 3.0 percent
  • Branded retail sales increased USD 29.0 million, or 5.5 percent, to USD 551.7 million, store branded retail sales increased USD 9.8 million, or 7.5 percent to USD 140.3 million, while non-retail and other sales decreased USD 1.7 million, or 0.8 percent, to USD 225.8 million.
  • Branded retail sales increased due primarily to the Canyon acquisition, continued growth of Dave’s Killer Bread and Nature’s Own Perfectly Crafted branded products and more favorable price/mix, partially offset by lower volumes for traditional loaf breads, bakery deli items, and cake products.
  • Store branded retail sales increased primarily due to gluten-free, store-branded items produced by Canyon, volume growth from additional distribution, and positive price/mix, partially offset by volume declines in store branded cake and breakfast breads.
  • Volume declines in foodservice, vending, and institutional products drove the decrease in non-retail and other sales.
  • Net income decreased 89.4 percent to USD 2.2 million. Adjusted net income increased 11.6 percent to USD 38.1 million.
  • Adjusted Ebitda increased 7.3 percent to USD 84.5 million, representing 9.2 percent of sales, a 30-basis point increase.
  • Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 53.0 percent of sales, flat compared to the prior year. Higher workforce-related costs and decreased manufacturing efficiencies, were offset by improved pricing/mix and lower ingredient costs as a percent of sales.
  • Selling, distribution and administrative (SD+A) expenses were 41.1 percent of sales, a 260-basis point increase. Excluding items affecting comparability, the largest of which being a USD 29.2 million legal settlement in the quarter, SD+A expenses decreased by 20-basis points. Higher workforce-related costs and marketing expenses were offset by lower distributor distribution fees as a percentage of sales due to a shift in product mix, and lower transportation costs.
  • Depreciation and amortization (D+A) expenses were USD 32.9 million, 3.6 percent of sales, a 10-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return

For fiscal 2019, cash flow from operating activities increased by USD 71.1 million to USD 367.0 million, capital expenditures increased by USD 4.3 million to USD 103.7 million, and dividends paid increased by USD 9.8 million to USD 160.0 million. During fiscal 2019, the company made cash debt repayments of USD 114.3 million.

The company has 6.2 million remaining 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.