Sales gains across all channels spur earnings growth at Flowers

by Eric Schroeder
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THOMASVILLE, GA. — Sales growth in the soft variety, white bread, buns and rolls, and snack cake categories helped drive second-quarter earnings at Flowers Foods, Inc. Net income in the quarter ended July 13 was $46,460,000, equal to 22c per share on the common stock, up sharply from $28,380,000, or 14c per share, in the second quarter of 2012.

Adjusted for an acquisition-related cost, earnings were up 68% to $50,126,000. During the second quarter the company incurred acquisition-related costs of $3,666,000, which compared with $1,439,000 of acquisition-related costs in the same quarter a year ago.

Quarterly sales were $898,153,000, up 32% from $681,561,000.

Gross margin as a percentage of sales in the quarter was 47.5%, up 120 basis points from 46.3% in the second quarter of 2012. Flowers said the increase was due “primarily to higher sales volumes and decreased ingredient and workforce-related costs as a per cent of sales, partially offset by increased outside purchases as a per cent of sales.”

Breaking down the 32% sales increase, Flowers said the acquisitions of Lepage Bakeries and Sara Lee/California accounted for 10.9 points, while higher volumes contributed 21.8 points. An unfavorable net price/mix of 0.9 points partially offset the gains.

“Increases in the soft variety, white bread, buns and rolls, and single-serve cake categories primarily drove volume increases in the branded retail channel,” Flowers said. “Volume increases in the store brand channel were driven by increases in the buns and rolls, white bread, and variety bread categories. The non-retail channel volume increases were primarily in the food service, restaurant, and vending categories. The unfavorable net price/mix was driven primarily by a mix shift in the cake business to more single-serve snack cakes.”

Allen Shiver, president and chief executive officer, added, “Our team’s extraordinary efforts to serve customers’ needs resulted in another record quarter for Flowers Foods. Similar to the results reported last quarter, sales were up across all channels and earnings were strong. Margins improved due to higher volume and capacity utilization. It is gratifying that our long-term investments in our bakeries, distribution systems, and our team positioned us to take advantage of growth opportunities available in the marketplace. Our confidence in the current year and long-term outlook is reflected in our guidance.

“The integration of our recent acquisitions — Lepage Bakeries in New England and Sara Lee in California — remains on pace. Both of these businesses have significant growth potential as Nature’s Own, Tastykake and other Flowers brands gain more acceptance in these markets.

“We are pleased with the July 2013 acquisition of certain bread assets from Hostess Brands. Our plans to re-introduce these well-known brands across our direct-store-delivery (D.S.D.) markets later this year are taking shape. We expect to continue our methodical market expansion into new regions of the country, using the new brands along with legacy Flowers brands, such as Nature's Own.”

In the company’s Direct-Store-Delivery segment, which accounts for 82% of Flowers total sales, second-quarter EBIT was $76,442,000, up 48% from $51,569,000 in the second quarter of 2013. Sales were $740,470,000, up 31% from $564,409,000.

Warehouse Delivery EBIT was $15,158,000, up 140% from $6,320,000. Sales were $157,683,000, up 35% from $117,152,000.

For the six months ended July 13, net income was $159,735,000, or 76c per share, up 141% from $66,323,000, or 32c per share, in the same period a year ago. Adjusted for acquisition-related costs, net income was $115,025,000, up sharply from $68,491,000. Net sales in the first six months of fiscal 2013 were $2,028,963,000, up 28% from $1,579,767,000.

R. Steve Kinsey, executive vice-president and chief financial officer, said the company expects 2013 sales of $3.793 billion to $3.824 billion, an increase of 24.5% to 25.5% over 2012. The Lepage and Sara Lee/California acquisitions are expected to contribute approximately 7% of the sales increase. Including the impact of financing and carrying costs of the acquired assets, earnings per share are now forecast to be 92c to 98c, excluding acquisition-related costs, an increase of 34.2% to 43% over the 2012 adjusted earnings per share of 69c, he said. Capital expenditures for 2013 are expected to be $90 million to $100 million.

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