Flowers Foods Announces First Quarter Results

THOMASVILLE, Ga., May 19, 2011 /PRNewswire/ -- Flowers Foods, Inc. (NYSE: FLO), today reported sales and earnings for its 16-week first quarter ended April 23, 2011. In summary, Flowers Foods:

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• Achieved $.45 diluted earnings per share compared to $.44 in the first quarter last year. Excluding charges related to a bakery closure and a pending merger, earnings per share increased 13.6% to $.50.  
• Reported a sales increase of .9% compared to first quarter last year.
• Generated cash flow from operations of $72.6 million.
• Outlined long-term growth goals at a March analyst event.
• Announced an all cash merger agreement with Tasty Baking Company.

"The first quarter of 2011 was eventful for Flowers Foods," said George E. Deese, Chairman of the Board and Chief Executive Officer. "We achieved a modest sales increase and solid growth in earnings per share, excluding one-time charges.  At our analyst event in March, we reset our growth targets, anticipating that ongoing industry consolidation will bring greater opportunity for mergers and acquisitions.  In April, we announced the merger agreement with Tasty Baking, which will strengthen our snack cake business and extend the geographic reach of our Nature's Own brand and other fresh bakery foods.

"As the year unfolds, we expect to grow sales as we reach new customers, new markets, and take advantage of opportunities presented with the Tasty merger.  Our focus is on improving operations and increasing prices to offset higher costs, managing our core business to maintain share and volume, completing the Tasty merger and planning for a smooth integration, and exploring growth opportunities," Deese said.  

First Quarter 2011 Results

For the 16-week first quarter of 2011, sales increased .9% to $801.8 million compared to $795.0 million  in last year's first quarter. The sales increase was attributable to favorable net pricing/mix of 2.1%, partially offset by decreased volume of 1.2%.  The price/mix increase was driven primarily by price across all categories. Volume was impacted by lower-than-planned sales in the branded retail and foodservice channels.

DSD Segment: During the quarter, the company's direct-store-delivery (DSD) sales increased .1%. This increase consisted of positive net pricing/mix of 1.9%, partially offset by a volume decline of 1.8%. As a result of the positive price/mix, dollar sales in the branded retail channel increased quarter over quarter. The volume decline was primarily the result of decreases in the branded retail and foodservice channels, partially offset by increases in the store brand channel.  Volume declines in white bread and soft variety bread resulted in lower branded volume, while declines in quick-serve and other restaurants primarily caused lower foodservice volume.

Warehouse Delivery Segment: Sales in the warehouse delivery segment increased 4.1% due to positive net pricing /mix, with volume being flat quarter over quarter. This increase was driven mainly by increases in store brand cake and, to a lesser extent, higher foodservice sales.

Net income for the quarter was $41.2 million, an increase of 1.2% over the $40.7 million reported for the first quarter of fiscal 2010. Diluted earnings per share was $.45, a 2.3% increase over the $.44 diluted earnings per share reported for last year's first quarter.  We incurred costs, net of operational savings, of $4.2 million, net of tax, or $.05 per diluted share relating to the closure of a bakery and the impending merger with Tasty Baking. We expect the effect of the bakery closure on the full year to be neutral to slightly dilutive.

Gross margin as a percent of sales for the quarter increased 80 basis points to 48.6% compared to 47.8% in the prior year's first quarter. This increase was due primarily to a decrease in ingredient costs as a percent of sales, partially offset by increases in packaging and workforce-related costs as a percent of sales. Net of operational savings, costs associated with the bakery closure negatively impacted gross margin $2.8 million, or 30 basis points as a percent of sales.

Selling, distribution, and administrative costs as a percent of sales for the quarter were 37.4% compared to 36.8% in the same quarter last year. Costs associated with the closed bakery, net of operational savings, and the pending merger negatively impacted selling, distribution, and administrative costs $3.1 million, or 40 basis points as a percent of sales.

Depreciation and amortization expenses for the quarter increased 30 basis points as a percent of sales compared to last year's first quarter due to equipment placed in service during the second half of 2010 and accelerated depreciation of $.6 million on certain equipment related to the plant closure. Net interest income for the quarter was $.6 million higher than last year's first quarter due to lower interest expense as a result of less debt outstanding. The effective tax rate for the quarter was 35.0% as compared to 35.6% in the first quarter last year. The full-year tax rate is expected to be approximately 35.0% to 35.5%.

Operating margin as a percent of sales for the quarter was 7.7% compared to 7.8% in last year's first quarter. The bakery closure costs, net of operational savings, and merger-related costs negatively affected operating margin $6.5 million, or 80 basis points as a percent of sales. EBITDA as a percent of sales for the first quarter was 11.2% compared to 11.0% for the same quarter last year. The bakery closure, net of operational savings, and merger-related costs negatively affected EBITDA $5.9 million, or 70 basis points as a percent of sales.

During the quarter, the company invested $22.1 million in capital improvements and paid dividends of $18.1 million to shareholders. The company also acquired 695,403 shares of its common stock under its share repurchase plan for $18.0 million, an average of $25.93 per share. Since the inception of the share repurchase plan, the company has acquired 24.9 million shares of its common stock for $422.2 million, an average of $16.96 per share. The plan authorizes the company to repurchase up to 30.0 million shares of common stock.

Fiscal 2011 Guidance  

Regarding guidance for fiscal 2011, Deese said the company continues to expect sales growth of 3.0% to 6.0%, excluding future acquisitions or mergers, and diluted earnings per share growth of 5.0% to 10.0%.  Capital expenditures for fiscal 2011 still are expected to be $90 million to $100 million.  This guidance excludes the impact of the Tasty merger.

Long-Term Goals

At an analyst event in March, the company reset its long-term goals, anticipating annual sales growth of 5% to 10% (including acquisitions), including 3% to 5% organic growth and 2% to 5% growth through acquisitions. Over the long term, the company projects double-digit earnings per share growth and EBITDA margin of 11% to 13%.

Flowers/Tasty Merger

The company said it expects to complete its merger with Tasty Baking in the second quarter. In April, Flowers Foods and Tasty Baking announced a definitive merger agreement whereby Flowers will acquire all of the outstanding shares of Tasty Baking common stock for $4.00 per share in cash for a total purchase price of approximately $165 million, including Tasty Baking existing indebtedness. The transaction is expected to strengthen Flowers' snack cake business through the addition of the iconic Tastykake snack cake brand and expand Flowers' geographic reach, immediately adding more than 24 million consumers who are contiguous to Flowers' current footprint. Tasty Baking is expected to add approximately $115 million to $125 million to Flowers' 2011 sales, contribute approximately $10 million to $12 million to 2011 EBITDA, and be neutral to slightly accretive to 2011 earnings per share, excluding one-time costs of the transaction.  Flowers expects Tasty Baking to add approximately $210 million to $225 million to Flowers' 2012 sales, contribute approximately $25 million to $30 million to 2012 EBITDA, and contribute approximately $.06 to $.09 per diluted share.

Dividend

The board of directors will consider the dividend at its regularly scheduled meeting. Any action taken will be announced following that meeting.

Conference Call

Flowers Foods will broadcast its first quarter 2011 conference call over the Internet at 8:30 a.m. (Eastern) on May 19, 2011. The call will be broadcast live on Flowers' Web site, www.flowersfoods.com, and can be accessed by clicking on the webcast link on the home page. The call also will be archived on the company's Web site.

Company Information

Headquartered in Thomasville, Ga., Flowers Foods is one of the nation's leading producers and marketers of packaged bakery foods for retail and foodservice customers. Among the company's top brands are Nature's Own, Whitewheat, Cobblestone Mill, Blue Bird, and Mrs. Freshley's. Flowers operates 39 bakeries that are among the most efficient in the baking industry. Flowers Foods produces, markets, and distributes fresh bakery products that are delivered to customers daily through a direct-store-delivery system serving the Southeast, Mid-Atlantic, and Southwest as well as select markets in California and Nevada. The company also produces and distributes fresh snack cakes and frozen breads and rolls nationally through warehouse distribution. For more information, visit www.flowersfoods.com.

Statements contained in this press release that are not historical facts are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the company's prospects in general include, but are not limited to, (a) competitive conditions in the baked foods industry, including promotional and price competition, (b) changes in consumer demand for our products, (c) the success of productivity improvements and new product introductions, (d) a significant reduction in business with any of our major customers including a reduction from adverse developments in any of our customer's business, (e) fluctuations in commodity pricing, (f) our ability to fully integrate recent acquisitions into our business,  and (g) our ability to achieve cash flow from capital expenditures and acquisitions and the availability of new acquisitions that build shareholder value.  In addition, our results may also be affected by general factors such as economic and business conditions (including the baked foods markets), interest and inflation rates and such other factors as are described in the company's filings with the Securities and Exchange Commission.

SOURCE Flowers Foods, Inc.