Robust sales spur earnings gain at Flowers

by Eric Schroeder
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THOMASVILLE, GA. — Net income of Flowers Foods, Inc. in the 12 weeks ended Oct. 5 was $33,888,000, equal to 16c per share on the common stock, up nearly 9% from $31,231,000, or 15c per share, in the same period a year ago. Sales were $878,492,000, up 22% from $717,282,000.

Excluding acquisition-related costs in both years, net income for the quarter was $38.4 million, or 18c per share, which compared with $35.2 million, or 17c per share, in the same quarter a year ago.

Allen Shiver, president and chief executive officer, said the strong results reflected Flowers’ ability to capitalize on opportunities presented by the marketplace and recent acquisitions.

“The D.S.D. (direct-store delivery) segment achieved exceptional sales growth for our fresh bread, buns, rolls, and snack cakes and delivered operating earnings in line with our expectations,” he said. “In the warehouse segment, our cake business fell slightly short of expectations. Overall earnings were impacted primarily by the warehouse frozen food service business, which experienced margin erosion. We are taking action to improve margins in that portion of our business.”

Elsewhere, the company’s integration of Lepage Bakeries, Sara Lee/California, and Hostess bread assets is ongoing. All of the assets were acquired in the past 18 months, and Flowers just recently began the reintroduction of the former Hostess brands.

“Our team is leveraging the strength of our brands and operations to grow in new markets and with new customers,” Mr. Shiver said. “Late in the quarter, we began reintroducing our newly acquired brands — Wonder, Merita, Home Pride and Butternut.”

Mr. Shiver said the company expects the acquired brands to gain momentum as the reintroduction continues.

With one quarter remaining, Flowers lowered its full-year earnings-per-share guidance to 90c to 93c, down from 92c to 98c. No change was made in the sales guidance, still up 24.5% to 25.5% from 2012. The Lepage and Sara Lee/California acquisitions are expected to contribute approximately 7% of the sales increase, Flowers said.

The 22.5% increase in total sales during the third quarter was attributable to increased volume of 20.1% and contributions from the Sara Lee/California acquisition of 3.6%, partially offset by unfavorable net price/mix of 1.2%.

“The company cycled the Lepage Bakeries acquisition in the first week of the third quarter,” Flowers said. “Dollar sales and volume increased across all channels. Increases in the soft variety, white bread, buns and rolls, and single-serve cake categories primarily drove volume increases in the branded retail channel. 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 food service, vending, and restaurant categories. The unfavorable net price/mix was driven primarily by a mix shift in the cake business to more single-serve snack cakes and negative price/mix in the food service category.”

Gross margin in the quarter was 46.7%, unchanged from the third quarter of fiscal 2012. Flowers said increased outside purchases as a per cent of sales, decreased manufacturing efficiencies, and carrying costs related to the acquired Hostess assets were offset by higher sales volumes and decreased ingredient and workforce-related costs as a per cent of sales.

The Flowers Direct-Store-Delivery segment had third-quarter EBIT of $63,550,000, up 8.5% from $58,571,000 in the third quarter last year. Credit for the earnings jump goes to higher volumes, Flowers said.

Quarterly sales for the division were $729,831,000, up 23.2% from $592,250,000. Volume jumped 15.9%, while contributions from the Sara Lee/California acquisition were 4.3%, and price/mix lifted sales 3%.

Year-to-date EBIT for the D.S.D. division was $291,231,000, up 67% from $173,962,000. Sales in the first nine months of the year were $2,392,705,000, up 26% from $1,893,957,000.

The Warehouse Delivery segment of Flowers had third-quarter EBIT of $7,074,000, down from $7,566,000. Sales were $148,661,000, up 19% from $125,032,000.

Year to date, Warehouse Delivery EBIT was $40,892,000, up 74% from $23,480,000. Sales were $514,750,000, up 28% from $403,092,000 in the first nine months of 2012.
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