Flowers Foods: Reports Third Quarter Results

Thomasville / GA. (ffi) Flowers Foods Inc. reported results for its twelve and 40 weeks ended October 04, 2008. The company also updated its earnings guidance for 2008 and gave preliminary guidance for 2009. Third quarter 2008 summary:

• Sales in the quarter were 575,9 million USD, a 21,2 percent increase over the third quarter of 2007.
• Net income for the quarter was 27,4 million USD, or 0,29 USD per diluted share, a 21,8 percent increase over the 2007 third quarter.
• Gross margin declined 50 basis points due to higher input costs, which were only partially offset by increased efficiencies and pricing.
• Selling, marketing and administrative costs improved 50 basis points as a percent of sales.
• EBITDA was 59,8 million USD, or 10,4 percent of sales.
• Branded retail sales were up 20,0 percent in the quarter, driven by Nature´s Own soft variety and premium breads, Nature´s Own Whitewheat breads, and regional white bread brands. Recent acquisitions contributed 3,8 percent of the branded retail sales increase.
• Guidance for fiscal 2008 was updated to sales of 2,420 billion USD to 2,430 billion USD and net income of 113,6 million USD to 117,3 million USD, or 1,22 USD per share to 1,26 USD per share with 93,1 million USD average shares outstanding.
• Preliminary guidance for fiscal 2009 anticipates a 12,2 percent to 14,0 percent sales increase and a 9,2 percent to 15,3 percent increase in net income.

«Sales across all categories remain strong, and we are on track to continue expanding our geographic footprint, deliver profitable growth, and drive product innovation», said George E. Deese, Chairman of the Board, Chief Executive Officer, and President. «Our performance in the quarter again demonstrates the strength of our brands and our team´s ability to execute well in the marketplace. During the quarter, our team achieved a 3,0 percent improvement in manufacturing efficiencies. Unfortunately, the improvements and our pricing actions were not enough to offset our higher input costs, and, as a result, our gross margin declined. However, we achieved a 50-basis-point improvement in selling, marketing, and administrative costs partially through our strategy to move production closer to the market and reduce logistics costs. Those improvements offset our lower gross margin and allowed us to deliver good results for the quarter».

Commenting on recent acquisitions, Deese said: «During the quarter, we made good progress integrating our newest acquisitions-Holsum Bakery and ButterKrust Bakery-into Flowers Foods. We are working to take advantage of synergies and growth opportunities related to these businesses. Looking forward, the determination of our team, our continued focus on our growth strategies, and our continued improvements in efficiency and cost structure, give me confidence that we will meet our goals and deliver increased value for our shareholders over the long term», he said.

Updated Guidance for Fiscal 2008

Taking into consideration the company´s performance year-to-date and the impact of recent acquisitions, the company now expects sales growth in 2008 of 18,8 percent to 19,3 percent. Therefore, sales for fiscal 2008 are expected to be 2,420 billion USD to 2,430 billion USD. Fiscal 2008 is a 53-week year and approximately 1,8 percent of estimated fiscal 2008 sales are expected from the 53rd week. The company expects net income will be 4,7 percent to 4,8 percent of sales or 113,6 million USD to 117,3 million USD. With approximately 93,1 million USD average shares outstanding, which reflects shares issued for the Holsum merger and share repurchase activity, earnings per share are expected to be 1,22 USD to 1,26 USD, an increase of 19,6 percent to 23,5 percent over 2007. Previously, the company´s guidance for 2008 had been for sales of 2,400 billion USD to 2,425 billion USD, net income of 109,2 million USD to 114,7 million USD, and earnings per share of 1,17 USD to 1,23 USD on 93,4 million USD average shares outstanding.

Preliminary Guidance for Fiscal 2009

Offering preliminary guidance for 2009, Deese said the company expects sales growth of 12,2 percent to 14,0 percent in the year ahead, with recent acquisitions accounting for 7,0 percent to 7,5 percent of the increase. Therefore, sales for fiscal 2009 are expected to be 2,720 billion USD to 2,765 billion USD. The company´s fiscal year 2009 will be a 52-week year compared to 53 weeks in fiscal 2008. For 2009, net income is expected to be 4,6 percent to 4,9 percent of sales, or 124,1 million USD to 135,3 million USD. With approximately 93,3 million USD average shares outstanding, earnings per share are expected to be 1,33 USD to 1,45 USD, an increase of 9,0 percent to 15,1 percent over the fiscal 2008 guidance. Capital spending in fiscal 2009 is expected to be 75,0 million USD to 85,0 million USD, an amount that includes costs for construction of new production capacity as well as maintaining and improving efficiencies in the company´s 39 existing bakeries.

«Our team´s ability to deliver good results this year and our confidence in our preliminary guidance for 2009 are possible because of the underlying strengths of our company», Deese said. «As 2009 brings continued volatility in commodities and economic uncertainty that could influence consumer buying trends, our plan is to continue working to be the most efficient and cost effective operator in our industry and to offer products and service that meet the needs of our customers and consumers. Our 2009 expectations are based on our ability to perform well in the marketplace, to maintain our volume, and to further improve our efficiencies and reduce our costs. We will continue to manage our business well and further implement the strategies that have created competitive advantages for us in the marketplace», Deese said. «Doing so will help us maximize shareholder value over the long term and we remain focused on achieving that goal» (complete press release).