After charge, Flowers net nearly unchanged in quarter
THOMASVILLE, GA. — In a quarter that featured the completion of one acquisition and ended just before another was announced, net income of Flowers Foods, Inc. in the 12 weeks ended Oct. 6 was $31,231,000, equal to 22c per share on the common stock. Earnings were nearly unchanged from $31,019,000, or 23c, during the third quarter of 2011. Sales were $717,282,000, up 6% from $675,369,000.
Net income was adversely affected by a one-time acquisition-related charge of $4 million, net of tax. Excluding the charge, quarterly earnings would have been up about 14% from the year before.
George E. Deese, chairman and chief executive officer of Flowers, identified a number of positives in a quarter that he also acknowledged was challenging by a number of measures.
“We delivered solid sales growth in the quarter in spite of a highly competitive marketplace and continued economic pressure on consumers,” Mr. Deese said. “Margins were impacted by higher promotional activity and soft volumes. However, the Lepage acquisition contributed nicely to our sales increase. We also achieved positive price/mix that is encouraging. Nature’s Own again drove our internal growth, helping to offset lower sales of white breads, buns, and rolls.”
Mr. Deese said the Lepage integration is “going well” with profitability in line with expectations.
“We are introducing Nature’s Own and Tastykake in the Lepage market during the fourth quarter and are pleased with trade customers’ reaction to those brands as an add-on to Lepage’s product offerings,” he said.
Discussing the recent announcement Flowers was acquiring from Bimbo Bakeries USA the Sara Lee and Earthgrains brands in certain California markets, Mr. Deese said the move gives Flowers “a growth platform in that high population market for years to come.”
Importantly, he said the transaction will put Flowers “over the top” of the company’s goal to expand geographic penetration to 75% of the U.S. population by 2015.
With one quarter remaining, Flowers tightened its full-year guidance for 2012 to an increase of 3.5% to 5% for earnings per share versus 2011, excluding one-time costs. The guidance was unchanged on the low side but down from an 8% increase on the high side. No change was made in the sales guidance, still up 7% to 9% from 2011.
“As previously discussed, (full year) earnings per share are expected to be flat to slightly up, excluding the contribution from the Lepage acquisition, which was completed early in the third quarter,” Flowers said.
The 6% increase in total sales was attributable to a 2.7% net from price/mix and 5.8% from the Lepage acquisition, offset by volume declines of 2.3%.
“The favorable net price/mix was driven by the branded retail and non-retail channels,” Flowers said. “The volume decline was a result of declines across all channels. In the branded retail channel, cake and white bread volume declines were partially offset by an increase in soft variety volume. Store brand cake declines led the volume decrease in that channel. The non-retail channel volume declines were primarily related to the institutional and contract manufacturing categories, partially offset by increases in the food service category.”
Gross margin widened in the quarter to 46.7%, an 80 basis point improvement from the same quarter last year. Flowers said the Lepage acquisition was the largest contributor to the improved margins, with higher sales and improved manufacturing efficiencies also contributing. Higher promotions in the quarter had a negative effect.
The Flowers Direct-Store-Delivery segment had third-quarter EBIT of $58,571,000, up 25% from $46,955,000 in the third quarter last year. Credit for the earnings jump goes to the Lepage acquisition, lower ingredient costs and manufacturing efficiencies, Flowers said.
Quarterly sales for the division were $592,250,000, up 7% from $553,768,000. Volume slipped 0.8%, but price/mix lifted sales 0.7% and Lepage boosted sales 7%.
Year-to-date EBIT for the D.S.D. division was $173,962,000, up 7% from $162,513,000. Sales in the first nine months of the year were $1,893,957,000, up 10% from $1,725,198,000.
The Warehouse Delivery segment of Flowers had third-quarter EBIT of $7,566,000, up 4% from $7,305,000. Sales were $125,032,000, up 2.8% from $121,601,000.
Year to date, Warehouse Delivery EBIT was $23,480,000, down 1.1% from $23,753,000.
Sales were $403,092,000, up 2.1% from $394,592,000 in the first nine months of 2011.