Dave's Killer Bread varieties - Powerseed, Seed Honey Wheat, Good Seed, Flowers Foods
Flowers' acquisition of Dave’s Killer Bread boosted sales by 1.2%.

THOMASVILLE, GA. — Sales growth at Flowers Foods, Inc. in the third quarter ended Oct. 10 was driven principally by volume gains, and the company also benefited from slightly improved EBITDA margins during the quarter.

At the same time, the company’s financial results were adversely affected by acquisition related costs, the effects of a divestiture and facility closing costs. Additionally, Flowers lowered its earnings and adjusted sales guidance for 2015.

In the opening minutes of trading Nov. 12 on the New York Stock Exchange, Flowers’ common stock traded as low as $23.65 per share, down 12%, from the Nov. 11 close.

Flowers Foods net income in the third quarter was $43,796,000, equal to 21c per share on the common stock, down 1.8% from $44,599,000, or 21c per share, in the third quarter of 2014. Sales were $885,302,000, up 4.7% from $844,932,000 in the same period a year earlier. The sales growth represents a significant acceleration from the 0.4% gain in the first half of 2015 versus the same period in 2014.

Detailing the sales gain during the quarter, Flowers sale volume growth (neutral to price or product mix) lifted sales by 3.6% and the acquisition of Dave’s Killer Bread boosted sales by 1.2%. Expansion markets boosted sales by 1.2%, driven by Hostess bread brands and the entrance to new markets, the company said.

EBITDA adjusted for special charges in the third quarter was $105 million, up 6% from the third quarter last year, while net income was $48 million, up 8%. Adjusted earnings per share were 23c, up 10%.

Adjusted EBITDA margins were strong in the company’s direct-store delivery business (13.3% in the quarter, versus 13.1% a year earlier), boosted by attractive ingredient costs and cost-savings initiatives. Dragging on margins were higher labor-related costs and the outside purchase of products, principally reflecting capacity constraints at D.K.B. Warehouse segment margins tightened significantly (10.7%, versus 11.7%) because of higher employee incentive costs and reduced efficiencies.

The company was more guarded than a quarter earlier in its forecast for 2015 earnings and sales. The company projected earnings per share for the year of 96c to 98c, versus 96c to $1.01 as Flowers was projecting at the end of the second quarter. Excluding acquisitions, the company’s sales forecast of $3,768 million to $3,787 million for 2015 was down from $3,786 million to $3,842 million. The company is projecting $50 million to $55 million in sales in 2015 from acquisitions.

Allen L. Shiver, president and chief executive officer at Flowers, offered an upbeat picture in detailing recent developments at the company.

Allen Shiver, Flowers Foods
Allen L. Shiver, president and c.e.o. of Flowers

“It is an exciting time at Flowers,” he said. “The team is working hard to capture the potential of our strong brands and geographic reach. Our recently acquired organic bread brands — Dave’s Killer Bread and Alpine Valley Bread — are on-trend with changing consumer preferences and provide Flowers with additional growth opportunities through expanded distribution. We recognize the quality and values these brands represent, and a key focus as we bring the Flowers, D.K.B., and Alpine Valley teams together will be to maintain the integrity of their great brands.

“Sales growth this quarter, excluding the impact of D.K.B., was driven by continued gains in our expansion markets, strong performance from our branded bread and rolls, and food service volume gains. Continuing a trend from the second quarter, our branded cake sales also posted year-over-year growth. Leveraging our consolidated sales growth, we grew adjusted EBITDA 6.1%.

“This year, we’ve opened a new bakery in Lenexa, Kas., introduced new products under our existing brands, and completed acquisitions to support future growth. Considering all factors, it was necessary to narrow our outlook for 2015. Even so, as we look ahead to 2016, we are committed to capitalizing on the opportunities provided by our strategic acquisitions and building on our strong foundation.”

In the 40 weeks ended Oct. 10, Flowers net income was $156,945,000, or 74c per share, up 6% from $147,729,000, or 69c. Sales were $2,920,142,000, up 1.7%.