Flowers Foods: Reports Third Quarter 2019 Results

Thomasville / GA. (ff) Flowers Foods Inc., producer of Nature’s Own, Wonder, Tastykake, Dave’s Killer Bread, and other bakery foods, reported financial results for the company’s 12-week third quarter ended October 05, 2019.

Third Quarter Summary

Compared to the prior year third quarter where applicable

• Sales increased 4.7 percent to USD 966.6 million; net sales increased 2.5 percent excluding the acquisition of Canyon Bakehouse.
• Diluted EPS increased USD 0.01 to USD 0.20.
• Adjusted diluted EPS(1) decreased USD 0.01 to USD 0.22.

(1) Adjusted for items affecting comparability.

Chief Executive’s Remarks

«Our third quarter results reflect the continued execution against our key strategic priorities: focusing on brands, managing costs, pursuing smart acquisitions, and developing our team,» said Ryals McMullian, Flowers Foods’ president and CEO. «During the quarter, we gained market share and delivered record third quarter sales ahead of expectations, driven by both growth and core brands.»

McMullian continued, «More effectively managing costs is imperative as we work to mitigate the effects of a tight labor market, which has pressured manufacturing efficiencies and profitability. To that end, we have recently launched a focused initiative to optimize our portfolio and supply chain network with the aim of enhancing the underlying margin profile of our products, reducing complexity in our supply chain, and lowering fixed costs. We are confident that executing on our strategic initiatives will enable us to drive earnings growth and create shareholder value.»

Current Outlook

For the 52-week fiscal 2019 the company expects

• Sales now to be in the range of approximately USD 4.110 billion to USD 4.130 billion, representing growth of approximately 4.0 percent to 4.5 percent. Previously, the company had expected sales growth of approximately 2.0 percent to 4.0 percent.
• GAAP diluted EPS in the range of approximately USD 0.93 to USD 0.98.
• Adjusted diluted EPS(1) to continue to be in the range of approximately USD 0.94 to USD 0.99, adjusted for items affecting comparability.

(1) Adjusted for items affecting comparability.

The company’s outlook includes the following assumptions:

• Canyon Bakehouse sales of approximately USD 75 million to USD 80 million
• Depreciation and amortization in the range of USD 145 million to USD 150 million
• Other pension expense in the range of USD 2.5 million to USD 3.0 million
• Net interest expense of approximately USD 11 million to USD 12 million
• An effective tax rate of approximately 23.0 percent to 23.5 percent
• Weighted average diluted share count for the year of approximately 212 million shares
• Capital expenditures for the year in the range of USD 100 million to USD 110 million

Consolidated Third Quarter 2019 Results

Compared to the prior year third quarter where applicable

• Sales increased 4.7 percent to USD 966.6 million.
• Percentage point change in sales attributed to:
  • Pricing/mix: 2.1 percent
  • Volume: 0.4 percent
  • Acquisition: 2.2 percent
• Branded retail sales increased USD 36.7 million, or 6.7 percent, to USD 586.1 million, store branded retail sales increased USD 12.1 million, or 8.7 percent to USD 150.8 million, while non-retail and other sales decreased USD 5.7 million, or 2.4 percent, to USD 229.6 million.
• Branded retail sales increased due to the Canyon acquisition, continued growth of Dave’s Killer Bread, Wonder, and Nature’s Own Perfectly Crafted branded products, as well as the introduction of Sun-Maid breakfast bread late in the third quarter of fiscal 2018, and more favorable price/mix.
• Store branded retail sales increased primarily due to gluten-free store-branded items produced by Canyon, volume growth from additional distribution, and positive price/mix, partially offset by volume declines in store branded cake and breakfast breads.
• Foodservice negative price/mix combined with volume declines in vending and institutional products drove the decrease in non-retail and other sales.
• Adjusted Ebitda decreased 2.3 percent to USD 95.1 million, representing 9.8 percent of sales, a 70-basis point decrease.
• Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 52.7 percent of sales, a 10-basis point increase. These costs were higher as a percentage of sales due to rising workforce-related costs and decreased manufacturing efficiencies, partially offset by improved pricing/mix and lower ingredient costs as a percent of sales.
• Selling, distribution and administrative (SD+A) expenses were 37.5 percent of sales, a 70-basis point decrease. Higher workforce-related costs and marketing expenses were offset by lower distributor distribution fees as a percentage of sales due to a shift in product mix, and lower transportation costs. In the prior year, SD+A included legal settlements of USD 11.9 million. Excluding prior year items affecting comparability, SD+A expenses increased by 60-basis points.
• Depreciation and amortization (D+A) expenses were USD 33.2 million, 3.4 percent of sales, a 10-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return

Year-to-date through the third quarter of fiscal 2019, cash flow from operating activities increased by USD 46.0 million to USD 278.1 million, capital expenditures decreased by USD 4.4 million to USD 70.6 million, and dividends paid increased by USD 7.6 million to USD 119.8 million. Year-to-date through the third quarter, the company has made cash debt repayments of USD 102.5 million.

The company has 6.2 million remaining shares authorized for repurchase under the company’s current share repurchase plan. The company expects to continue to make opportunistic share repurchases from time to time under this plan.