THOMASVILLE, Ga. — Flowers Foods, Inc. (NYSE: FLO), today reported sales and earnings for its 16-week first quarter ended April 24, 2010. In summary, Flowers Foods:
•Increased net income 8.8% over last year's first quarter.
•Achieved $.44 diluted earnings per share, a 10.0% increase over last year's first quarter.
•Reported a sales decline of 1.5% compared to first quarter last year.
•Increased branded retail sales 2.0% in the first quarter.
"We are pleased with our overall market share performance and earnings results for the first quarter. Our core Nature's Own branded breads and rolls and our newly introduced products demonstrated solid growth in the quarter, and we gained market share on a dollars and units basis in our retail business. Strong branded performance was offset by softness in our foodservice business and lower store brand sales, which drove the overall sales decline. We saw sales trends improve throughout the quarter and that gives us encouragement," George E. Deese, chairman and chief executive officer, commented. "We achieved improved efficiencies and had lower input costs, which are reflected in both our margin and bottom line improvement.
"Looking ahead, even though the marketplace remains competitive and promotional activity high, we are encouraged by a slight improvement in our foodservice business and in overall sales compared to the beginning of the year. We also expect good earnings growth for the full year," Deese said.
First Quarter 2010 Results
For the 16-week first quarter of 2010, sales decreased 1.5% to $795.0 million compared to $807.0 million reported for last year's 16-week first quarter. This sales decrease was attributable to unfavorable pricing/mix of 2.4% and decreased volume of .7%. Volume decreases in the foodservice and store branded retail channels were the primary drivers of the volume decline. These declines were somewhat offset by volume increases in the branded retail channel, particularly in the soft variety bread category. The introduction of Nature's Own Sandwich Rounds also contributed to the increased volume in this channel. The deconsolidation of a variable interest entity (VIE) negatively impacted sales .2%. This deconsolidation was the result of a new accounting rule that went into effect in January 2010. Partially offsetting these declines was a 1.8% contribution from acquisitions.
During the quarter, the company's direct store delivery (DSD) sales decreased 3.3%. This decrease consisted of negative pricing/mix of 2.4%, volume decreases of .7%, and a decrease of .2% resulting from the deconsolidation of the VIE. Although the DSD segment continued to be affected by heavy promotional activity within the retail channel, sales of our branded retail products increased. These increases were negatively impacted by lower store brand and foodservice sales in the DSD segment. Sales in the warehouse delivery segment increased 7.3%, reflecting a 10.4% contribution from acquisitions, partially offset by negative pricing/mix of 2.9% and volume decreases of .2%. The warehouse delivery segment continues to be negatively impacted by soft foodservice sales.
Net income for the quarter was $40.7 million, an increase of 8.8% over the $37.4 million reported for the first quarter of fiscal 2009. Diluted earnings per share was $.44, a 10.0% increase over the $.40 diluted earnings per share reported for last year's first quarter.
Gross margin as a percent of sales for the quarter increased 100 basis points to 47.8% compared to 46.8% in the prior year's first quarter. The increase in margin was due primarily to a decrease in ingredient costs, particularly flour, and lower packaging costs as a percent of sales. Improved manufacturing efficiencies also contributed to the increase. These positive items were partially offset by higher employee-related costs as a percent of sales.
Selling, distribution, and administrative costs as a percent of sales for the first quarter were 36.8% compared to 36.4% in the same quarter last year. Higher employee-related and advertising costs as a percent of sales contributed to this increase. The advertising costs were incurred to support new product introductions. These increases were partially offset by lower pension and bad debt expenses as a percent of sales.
Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to the prior year quarter. Net interest income for the quarter was $.7 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 35.6% as compared to 36.6% in the first quarter last year. The full-year tax rate is expected to be approximately 35.5% to 36.0%.
Operating margin as a percent of sales for the quarter improved to 7.8% from 7.3% in the first quarter of 2009. EBITDA as a percent of sales for the first quarter was 11.0% compared to 10.3% for the same quarter last year.
During the quarter, the company invested $29.1 million in capital improvements and paid dividends of $16.0 million to shareholders. The company also acquired 87,271 shares of its common stock under its share repurchase plan for $2.1 million, an average of $24.24 per share. Since the inception of the share repurchase plan, the company has acquired 22.7 million shares of its common stock for $367.1 million, an average of $16.15 per share. The plan authorizes the company to repurchase up to 30.0 million shares of common stock.
Fiscal 2010 Guidance
As reported in February, for fiscal 2010, the company expects sales growth of 2.5% to 4.5%, excluding future acquisitions, and diluted earnings per share growth of 10% to 15%. Capital expenditures for fiscal 2010 are expected to be $85.0 million to $95.0 million.
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 2010 conference call over the Internet at 9:30 a.m. (Eastern) on May 25, 2010. 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 40 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.
