Flowers adjusted net income up 35% in year

by Josh Sosland
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Net income of Flowers Foods, Inc., in the year ended Dec. 28, 2013, was $230,894,000, equal to $1.09 per share on the common stock, up 70% from $136,121,000, or 66c per share in 2012. Sales were $3,751,005,000, up 23% from $3,046,491.

Results for 2013 included a one-time gain for a bargain-price acquisition of $50,071,000. Adjusted for special items, net income was $192.3 million in 2013, up 35% from 2012. Adjusted net income per share of 91c in 2013 was within the company’s most recent guidance of 91c and was achieved with flat net income in the fourth quarter of the year.

During the year, gross margin as a percentage of sales expanded 50 basis points to 47.4% from 46.9% in 2012.

“Decreases in ingredient, workforce-related, and packaging costs as a per cent of sales were the primary drivers of the increase,” the company said. “Although ingredient costs decreased as a per cent of sales, ingredient pricing rose 4%. Increased outside purchases as a per cent of sales, decreased manufacturing efficiencies compared to the prior year, and carrying costs related to the acquired Hostess assets partially offset the decreased costs.”

In its initial guidance for 2014, Flowers forecast earnings per share of 98c to $1.05, up 8% to 15% from the adjusted forecast for 2013. Projected sales for the year were $3,976 million to $4,126 million, an increase of 6% to 10%.

The company forecast capital expenditures in 2014 of $95 million to $100 million, a figure in line with estimated 2013 spending.

Allen L. Shiver, president and chief executive officer, said second-half earnings were adversely affected by carrying costs, interest charges associated with acquisitions and integration costs.

“These costs will decline over time as we open bakeries, determine the optimal long-term use of the former Hostess assets and reduce debt,” he said. “The direct-store delivery (D.S.D.) segment continued to perform well in the second half as it began to roll out our acquired brands and continued to build our customer base. The warehouse segment’s results came in below expectations in the second half due to certain short-term issues that were previously discussed. However, by the end of the year, those issues were improved, and we expect continued improvement in the current quarter.”

Viewed in its entirety, Flowers’ year was one notable for the company’s achievements, Mr. Shiver said.

“2013 was a year in which Flowers Foods marked several milestones, both financial and strategic,” he said. “We achieved 23.1% sales growth in the year and delivered earnings growth of 31.9%, in line with our guidance. The company was well positioned to benefit from significant and sustainable volume increases as we served customers throughout our D.S.D. territory following Hostess’ exit from the market in mid-November 2012. We believe our February 2013 acquisition of the rights to the Sara Lee brand in California and our July 2013 acquisition of the former Hostess assets and bread brands further enhance our ability to continue to grow sales and earnings over time. Additionally, our bakeries have increased production utilization and added sales territories to accommodate the volume we gained and to support our ongoing growth.”

Net income at Flowers Foods in the fourth quarter ended Dec. 28 was $38,520,000, or 18c per share, down $47,000 from $38,567,000, or 18c, in the fourth quarter of 2012. Net sales were $843,550,000, up 13%.

“In the fourth quarter, we achieved improved production efficiencies compared to the third quarter, performed well in our new markets, and continued to integrate our recent acquisitions,” Mr. Shiver said.

The 13% increase in sales during the quarter was broken down by the company as 6.3% from increased volume; 3.6% from positive price/mix; and 2.7% in contributions from the Sara Lee/California acquisition of 2.7%.

“Dollar sales and volume increased across all channels,” the company said. “Increases in the white bread, soft variety, bakery deli, buns and rolls, and single-serve cake categories primarily drove volume increases in the branded retail channel. These increases were partially offset by decreases in the multi-pack cake category. Volume increases in the store brand channel were driven by increases in the white bread, buns and rolls, and variety bread categories. The non-retail channel volume increases were primarily in the vending, food service, and restaurant categories. The positive net price/mix was primarily driven by the branded retail channel.”

Net income during the quarter was adversely affected by carrying costs for the acquired Hostess facilities and interest expense related to funding of the acquisition cost. The cost to income from operations was $5.3 million, the company said. Flowers noted the former Hostess baking plant in Henderson, Nev., was opened during the quarter to serve the California market.

Overall EBIT in the quarter was $57.1 million, or 6.8% of sales, versus EBIT of $59.2 million, or 7.9% of sales, in the 2012 fourth quarter.
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