Flowers Foods: Reports First Quarter 2022 Results

Thomasville / GA. (ff) Flowers Foods Inc., producer of Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse, Tastykake, and other bakery foods, reported financial results for the company’s 16-week first quarter ended April 23, 2022.

First Quarter Summary

Compared to the prior year first quarter where applicable

• Sales increased 10.3 percent to a quarter-record USD 1.436 billion.
• Net income increased 19.4 percent to USD 85.6 million. Adjusted net income increased 6.3 percent to USD 93.1 million.
• Adjusted Ebitda(1) increased 2.4 percent to a quarter-record USD 165.5 million, representing 11.5 percent of sales, a 90-basis point decrease.
• Diluted EPS increased USD 0.06 to USD 0.40. Adjusted diluted EPS(1) increased USD 0.03 to a quarter-record USD 0.44.

(1) Adjusted for items affecting comparability.

CEO’s Remarks

«We delivered another quarter of record results, reflecting outstanding top line growth and disciplined execution on costs,» said Ryals McMullian, president and CEO of Flowers Foods. «Focused implementation of our portfolio strategy drove market share gains for our leading brands, as consumers continued to gravitate to these differentiated products despite widespread inflation. To sustain this robust momentum, we intend to invest in marketing and advertising, introduce new and innovative products, and expand production capacity.»

«We are adjusting our outlook for fiscal 2022 to account for improved pricing, higher-than-expected inflation, and supply chain disruptions,” he continued. “To mitigate resource shortages and volatile commodity prices, which increased beyond our initial expectations, we continue to execute on efficiency initiatives and we have implemented a price increase that will become effective in the second quarter. The resulting price lag, combined with the supply chain disruptions, is expected to impact EPS by a total of five cents in the second and third quarters. We are encouraged by the strong underlying fundamentals of our business, and our industry-leading team remains dedicated to enhancing long-term shareholder value.»

For the 52-week Fiscal 2021, the Company Expects

• Sales in the range of approximately USD 4.764 billion to USD 4.850 billion, representing an increase of approximately 10.0 percent to 12.0 percent compared to the prior year period. Prior guidance called for sales of USD 4.660 billion to USD 4.695 billion, representing an increase of approximately 7.6 percent to 8.4 percent compared to the prior year period.
• Adjusted EPS(1) in the range of approximately USD 1.20 to USD 1.30, compared to prior guidance of USD 1.25 to USD 1.35.

The company’s outlook is based on the following assumptions:

• Depreciation and amortization in the range of USD 135 million to USD 145 million
• Net interest expense of approximately USD 7 million
• An effective tax rate in the range of 24.0 percent to 24.5 percent
• Weighted average diluted share count for the year of approximately 213.5 million shares
• Capital expenditures in the range of USD 150 million to USD 160 million, with USD 60 million to USD 70 million related to our ERP upgrade

Matters Affecting Comparability

Reconciliation of Earnings per Share to Adjusted Earnings per Share

		Q1-2022			Q1-2021
Net income per diluted common share		USD	0.40		USD	0.34
Loss on inferior ingredients		–			NM
Business process improvement consulting costs			0.03			0.02
Impairment of assets		NM			–
Loss on extinguishment of debt		–				0.06
Adjusted net income per diluted common share		USD	0.44		USD	0.41

NM – not meaningful. Certain amounts may not add due to rounding.

Consolidated First Quarter Operating Highlights

Compared to the prior year first quarter where applicable

• Sales increased 10.3 percent to USD 1.436 billion, surpassing the previous record first quarter results in 2020 that were influenced by the pandemic.
• Percentage point change in sales attributed to:
  • Pricing/mix: 13.5 percent
  • Volume: -3.2 percent
• Branded retail sales increased USD 94.4 million or 11.0 percent to USD 956.1 million, store branded retail sales increased USD 11.1 million or 6.9 percent to USD 173.6 million, while non-retail and other sales increased USD 28.2 million or 10.2 percent to USD 306.2 million.
  • Branded retail sales increased primarily due to higher prices intended to offset inflationary pressures, and improved promotional efficiency, partially offset by volume declines in branded cake items partly due to supply constraints.
  • Store branded retail sales increased primarily due to higher prices intended to offset inflationary pressures, partially offset by volume declines as consumer purchasing continued to shift to branded retail products.
  • Non-retail and other sales increased primarily due to higher prices intended to offset inflationary pressures, partially offset by volume declines in fast food and co-manufactured items, supply chain disruptions, and targeted sales rationalization to improve profitability.
• Materials, supplies, labor, and other production costs (exclusive of depreciation and amortization) were 50.5 percent of sales, a 110-basis point increase. These costs increased as a percentage of sales due to higher ingredient and packaging costs, partly offset by higher sales and reduced outside purchases.
• Selling, distribution and administrative (SD+A) expenses were 38.6 percent of sales, a 10-basis point increase, impacted by incremental consulting costs and transportation cost inflation, largely offset by favorable price/mix, lower workforce-related costs, and increased scrap dough income. Excluding matters affecting comparability, adjusted SD+A expenses were 38.0 percent of sales, a 20-basis point decrease from the prior year period.
• Depreciation and amortization (D+A) expenses were USD 43.4 million, or 3.0 percent of sales, a 20-basis point decrease.
• Net income increased 19.4 percent to USD 85.6 million. Adjusted net income increased 6.3 percent to USD 93.1 million, helped by a discrete tax benefit and lower interest expense.
• Adjusted EBITDA increased 2.4 percent to a quarter-record USD 165.5 million, representing 11.5 percent of sales, a 90-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return

For the first quarter of fiscal 2022, cash flow from operating activities increased by USD 26.2 million to USD 124.2 million, capital expenditures increased USD 23.2 million to USD 50.5 million, and dividends paid to shareholders increased USD 4.2 million to USD 46.7 million. Cash and cash equivalents were USD 205.1 million at the end of the first quarter of fiscal 2022. There are 5.4 million shares that remain authorized for repurchase under the company’s current share repurchase plan. The company expects to continue to execute share repurchases from time to time under this plan.