Flowers Foods: Reports First Quarter 2020 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 16-week first quarter ended April 18, 2020.

First Quarter Summary

Compared to the prior year first quarter where applicable.

• Sales increased 6.8 percent to USD 1.349 billion, including an estimated 6.5 percent to 7.5 percent increase attributable to the impact of the Covid-19 pandemic.
• Diluted EPS decreased USD 0.34 to a loss of USD 0.03, including a non-cash settlement and curtailment charge of USD 0.41 per share related to the termination of a defined benefit pension plan.
• Adjusted diluted EPS increased USD 0.09 to USD 0.41.
• GAAP and adjusted EPS includes an estimated USD 0.09 to USD 0.10 increase attributable to the Covid-19 pandemic.

CEO’s Remarks

«First of all, there are no words to sufficiently describe how incredibly proud I am of our entire team,» said Ryals McMullian, Flowers Foods president and CEO. «Their performance, from plant operations, to sales, to distribution, to head office and support staff, has been nothing short of remarkable. They have demonstrated once again the power of shared purpose and they are the embodiment of our core values. Because of the team’s extraordinary commitment to feed America and serve our customers, consumers, and communities, we were able to deliver a record quarter in terms of both sales and earnings.»

McMullian continued, «Our top priority is ensuring the health and safety of our team members. In keeping with guidance from health authorities, we have taken measures to safeguard their wellness, including enhanced sanitation and cleaning procedures, restricted admittance to company facilities, daily wellness screening, suspension of non-essential business travel, company-provided masks, and remote work for business office team members. I am especially grateful for the hard work and dedication of our frontline workers. To recognize their extraordinary efforts, we announced USD 6.2 million in appreciation bonuses in April.»

McMullian added, «During the first quarter, our retail business benefitted from a significant increase in demand, while foodservice was pressured by the slowdown in restaurant sales. Although the unknown duration and severity of the pandemic makes forecasting results difficult for the remainder of 2020, we believe Flowers is uniquely positioned to succeed during this period of great uncertainty. We have weathered many crises during our 100 years in business. However, more important than our ability to manage through this crisis, is our ability to manage out of it. It is critical that we stay focused on the future and on our strategic priorities even as we continue to operate in what still is a fluid environment. As we look ahead to the balance of 2020, we remain committed to our portfolio and supply chain optimization initiatives, which are expected to deliver approximately USD 10 million to USD 20 million of savings this year. While there is uncertainty around the pace of recovery in our foodservice business and the duration of elevated in-home eating, we are confident that our increased digital investments and ongoing optimization projects will allow us to exit this crisis in an improved competitive position and with strong business fundamentals.»

For the 53-week Fiscal 2020, the Company Expects

• Sales in the range of approximately USD 4.206 billion to USD 4.289 billion, representing growth of approximately 2.0 percent to 4.0 percent.
• Diluted EPS in the range of approximately USD 0.57 to USD 0.65, including a USD 0.41 per share charge related to the termination of a defined benefit pension plan.
• Adjusted diluted EPS in the range of approximately USD 1.00 to USD 1.08, adjusted for items affecting comparability, representing growth of approximately 4.2 percent to 12.5 percent.

The company’s outlook includes the following assumptions:

• Portfolio and supply chain optimization benefit of USD 10 million to USD 20 million
• Depreciation and amortization in the range of USD 140 million to USD 145 million
• Other pension expense of approximately USD 2 million
• Net interest expense in the range of USD 8 million to USD 10 million
• An effective tax rate of approximately 24 percent
• Weighted average diluted share count for the year of approximately 212.5 million shares
• Capital expenditures for the year in the range of USD 95 million to USD 105 million

Matters Affecting Comparability

Reconciliation of (Loss) Earnings per Share to Adjusted Earnings per Share

For the 16 Weeks Ended	2020-04-18		2019-04-20
.
Net (loss) income per diluted common share	USD (0.03)		USD 0.31
Recovery on inferior ingredients	–		NM
Restructuring and related impairment charges	–		NM
Project Centennial consulting costs	0.01		–
Legal settlements	0.01		NM
Executive retirement agreement	–		NM
Acquisition costs	–		NM
Pension plan settlement and curtailment loss	0.41		–
Other pension plan termination costs	NM		–
Adjusted net income per diluted common share	USD 0.41		USD 0.32

.

Consolidated First Quarter Operating Highlights

Compared to the prior year first quarter where applicable

• Sales increased 6.8 percent to USD 1.349 billion with a 6.5 percent to 7.5 percent increase attributable to the Covid-19 pandemic.
• Percentage point change in sales attributed to:
  • Pricing/mix: 6.2 percent, primarily driven by mix
  • Volume: 0.6 percent
• On a consolidated basis, branded retail sales increased USD 133.8 million or 17.7 percent to USD 891.5 million, store branded retail sales decreased USD 0.9 million or 0.5 percent to USD 190.2 million, while non-retail and other sales decreased USD 47.3 million or 15.0 percent to USD 267.8 million.
• A significant increase in branded retail sales due to the Covid-19 pandemic helped drive a positive mix shift from non-retail and other to branded retail products.
• Store branded retail sales decreased modestly due primarily to lost store branded breakfast bread business and volume declines for store branded cake, partially offset by increases in store branded gluten-free products produced by Canyon Bakehouse.
• Foodservice and other non-retail sales declined significantly due to business disruptions for most of our non-retail customers caused by the Covid-19 pandemic.
• Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 49.7 percent of sales, a 190-basis point decrease. These costs were lower as a percentage of sales due to the positive mix shift from non-retail products to branded retail products. Partially offsetting the cost leverage were USD 4.1 million of appreciation bonuses paid to frontline workers and USD 1.7 million in start-up costs related to the conversion of our Lynchburg, Virginia plant to an organic bakery.
• Selling, distribution and administrative (SD+A) expenses were 38.7 percent of sales, a 100-basis point increase. Higher distributor distribution fees were driven by a shift in product mix, which resulted in a larger portion of our sales being made through independent distributor partners. Workforce-related costs increased primarily due to USD 2.1 million of appreciation bonuses paid to frontline workers as a result of the Covid-19 pandemic and higher employee incentive costs.
• Depreciation and amortization (D+A) expenses were relatively consistent quarter over quarter.
• Net income declined USD 71.6 million to a loss of USD 5.8 million due primarily to the USD 116.2 million charge related to the termination of the pension plan. Adjusted net income increased USD 19.2 million to USD 86.4 million.
• Adjusted Ebitda increased 19.0 percent to USD 163.3 million, representing 12.1 percent of sales, a 120-basis point increase compared to the prior year.
• GAAP EPS decreased USD 0.34 to a loss of USD 0.03 due primarily to the USD 0.41 per share charge related to the termination of the pension plan. Adjusted EPS was USD 0.41 compared to USD 0.32 in the prior year quarter, including a USD 0.09 to USD 0.10 increase attributable to the Covid-19 pandemic.

Cash Flow, Capital Allocation, and Capital Return

In the first quarter of fiscal 2020, cash flow from operating activities was USD 106.2 million, capital expenditures were USD 21.7 million, and dividends paid were USD 40.3 million. To ensure liquidity, out of an abundance of caution and uncertainty of the impact of the Covid-19 pandemic, the company drew an additional USD 200 million on our credit facility. Total indebtedness increased by USD 203.8 million in the quarter. Cash and cash equivalents were USD 252.7 million at quarter-end.

There are 6.2 million 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.