THOMASVILLE, GA. – Net income of Flowers Foods, Inc. in the year ended Jan. 3 was $175,739,000, equal to 82c per share on the common stock, down 24% from $230,894,000, or $1.09 per share, in 2013. Sales were $3,748,973,000, up 0.4% from $3,732,616,000 the prior year.
Adjusted for special items including charges of about $26 million in 2014 and a special gain of $50 million in 2013, the year-to-year comparison is more favorable – net income of $192.1 million, or 90c per share, in 2015 versus $192.3 million, or 91c per share, in 2013.
The adjusted earnings figure for 2014 was on the high side of the company’s most recent guidance, which ranged from 86c to 90c per share but fell well shy of the company’s initial guidance earlier in the year of 98c to $1.05. The sales figure for the year was just beneath the most recent guidance of $3,750 million to $3,770 million. As recently as May, the company was projecting sales in a range of $3,976 million to $4,126 million.
Helping Flowers reach the high side of its most recent guidance was improved profitability in the fourth quarter, adjusted for special charges.
Net income in the fourth quarter ended Jan. 3 was $28,010,000, equal to 13c per share, down 27% from $38,520,000, or 18c. Results in the 2014 quarter included a previously announced charge of $15,398,000 in connection with a pension plan settle loss, and a $5,819,000 impairment of assets charge associated with the company’s acquisition in 2013 of Hostess Brands bread baking assets. Absent the special charges, net income for the quarter was up 7%.
Sales were $877,333,000, up 4.4% from $839,989,000. Adjusted for a 13th week in the 2014 quarter, sales were down 2.8%. Volume in the quarter was down 2.5%, and the company said the year-to-year comparison reflected a negative price/mix of 0.5%.
“Overall volume declines were driven primarily by decreases in the store-branded cake business, the store-branded bread and rolls business, and food service products,” Flowers said. The company blamed a “competitive promotional environment,” for the price/mix deterioration.
On the plus side, gross margin in the fourth quarter was 48.3%, a 160 basis point improvement from 46.7% in the fourth quarter of 2013. Lower ingredient costs and improved efficiencies were the principal drivers of the widened margins.
“The gross margin expansion we’ve achieved is evidence of the effort put forth by the team to improve efficiencies throughout the company, grow sales in our expansion markets and lower input costs,” said Allen L. Shiver, president and chief executive officer. “Going forward, we remain committed to growing sales and earnings as we offer exceptional service to our customers, enhance the quality of our products and innovate to provide fresh bakery foods with the qualities today’s consumer desires.
“In our D.S.D. (direct-store-delivery) segment this quarter, excluding the effect of week 53, we saw strong results from Wonder and our other branded white breads, as well as volume growth and improved pricing in our D.S.D. foodservice business. However, overall sales declined primarily due to declines in store branded business and competitive pressure on our cake brands.
“In our Warehouse segment this quarter, excluding the effect of week 53, we experienced lower cake volume due to competition in the market. The divestiture of our Fort Worth, Texas, foodservice tortilla operation also contributed to the sales decline during the quarter.
“Adjusted earnings for the quarter grew when compared to the year ago quarter, excluding the effect of week 53. The team has worked hard this year to right-size the business and improve manufacturing efficiencies, and we are confident these efforts will drive our ability to deliver on our fiscal 2015 commitments.”
In its initial guidance for fiscal 2015, Flowers is projecting earnings per share in a range of 96c to $1.01 and sales in a range of $3,786 million to $3,861 million. Capital expenditures are forecasted to be $85 million to $95 million.“We continue to find opportunities to grow in our core and expansion markets as we leverage our brand strength, efficient bakeries, distribution networks, customer relationships, and, most importantly, our motivated and experienced team,” Mr. Shiver said. “We also continue to monitor the landscape for acquisitions that will complement and enhance our overall business. As ever, we are focused on the consumer and making certain our products continue to meet their expectations by simplifying ingredients, improving packaging and introducing new items.”