THOMASVILLE, GA. — While overall sales of Flowers Foods, Inc. were flat in 2014, the company performed well during the year in new markets and faced strong competitive pressures in core markets, a top company executive said.
Details of the company’s 2014 full year and fourth-quarter results were shared in a conference call with investment analysts Feb. 12.
R. Steve Kinsey, executive vice-president and chief financial officer, said overall volumes were down during the year, largely because of areas of business from which the company stepped back, including store brand bread and cake business and food service tortilla business. He also noted disparate geographic results.
“We continued to see strength in our expansion markets,” Mr. Kinsey said. “However, our core market sales remained pressured by a strong competitive environment. Our expansion markets, representing about 6.3% of direct-sales delivery sales, performed well and contributed growth of approximately 1.7% in the overall D.S.D. business, excluding the extra week.”
Similarly, Allen L. Shiver, president and chief executive officer, highlighted success Flowers has experienced in new markets and steps the company is taking to build on those achievements.
“Currently our distribution network has access to over 80% of the U.S. population and we have substantial opportunity to grow share in our expansion markets,” he said. “For example, this past summer we expanded into northern Ohio, where the strength of the Wonder brand allowed us to increase sales of Nature’s Own, Cobblestone Bread Company and Tastykake brands in those markets.
“Additionally, we have increased distribution on the East and on the West coast, where sales growth we expect in those large markets will be supported by the capacity that we have recently added in those regions. During 2014 we experienced continued growth in markets such as Boston and Kansas City. Helped by our acquired brands, expansion in these and other markets contributed nicely to our growth last year.”
Overall fourth-quarter sales in the company’s Direct-Store Delivery segment were $742,275,000, up 6% from the fourth quarter of 2013. Adjusted for the extra week, sales were down 1.8%. The largest driver, though, was the exit from the store-brand business, with sales down 11% from the year before, excluding the extra week, Mr. Kinsey said.
“In general, branded volumes were up in bread and cake, while overall pricing continued to be pressured by promotional activity,” he said. “White breads continue to perform well on the strength of the acquired brands in the expansion markets.”
While fourth-quarter cake sales were down 4.4% quarter to quarter, Mr. Kinsey noted a continued slowing of the erosion.
“These are slightly better results than we have seen over the past several quarters,” he said. “For the full year in 2014, excluding the extra week, cake sales were down approximately 8.7%.”
In his remarks during the call, Mr. Shiver also highlighted positives of the company’s cake business.
“While our overall branded snack cakes were down due to the competitive environment, our Tastykake brand posted slight growth, excluding the extra week,” he said. “On the cake innovation front, we have been pleased with the consumer response to our seasonal Tastykake items, such as salted caramel and red velvet donuts.”
Similarly, he said that amid the push and pull of the overall U.S. bread market, Flowers continues to gain share. At 13.7%, the company’s share in the fourth quarter was slightly improved from a year earlier.
“Through organic growth and future acquisitions, we intend to build our market share in fresh packaged breads,” he said.
Numerous times over the course of the call, Mr. Shiver hinted that additional acquisitions, likely of regional independent baking companies, could be forthcoming.
“On the fresh bread, buns and rolls side, there are some independent bakers that would fit very nicely with our company,” he said. “As always, we continue to maintain good relationships and contact with those companies.”
While Flowers has exited some store-brand business, Mr. Shiver had some positive remarks about trends in private label and bread overall at the retail level.“I think with category management, our retailers are probably doing a better job today identifying the profitability of this whole fresh bakery category,” he said responding to a question. “I think that there is better information with our retailers about how private label can enhance their margin. There is learning that consumers are not going to change where they purchase groceries based on the price of private label bread. So I’m actually encouraged… A better understanding by the retailers of the contribution, the profit contribution of those private label brands to their business I think is growing. I don’t anticipate a decline in private label price as we go into next year.”