Milling & Baking News - May 22, 2018 - 18

Financial Results

Adjusted quarterly earnings up
at Flowers, but shares slump
THOMASVILLE, GA. - Strong sales
of Dave's Killer Bread and increased
efficiencies from Project Centennial,
including benefits from a voluntary
separation incentive plan, helped
boost first-quarter profitability at
Flowers Foods, Inc. While adjusted
earnings were solidly higher, the
results failed to meet Wall Street expectations.
Flowers Foods net income in the
first quarter ended April 21 was
$51,247,000, equal to 24c per share
on the common stock, down 15%
from $60,418,000, or 29c per share,
in the first quarter last year. Sales
were $1,206,453,000, up 1.6% from
$1,187,649,000.
Results in 2017 included a
$28,875,000 gain from a divestiture. In
the current year, special items included charges of $2,322,000 in multi-employer pension plan withdrawal costs,
$2,483,000 in impairment of assets and
$1,259,000 in restructuring charges.
Adjusted net income was $63.2 million, up 20% from the first quarter last
year.
In trading May 17 on the New York
Stock Exchange, shares of Flowers
were down as much as 10%, slumping in the morning to $19.43 per
share. While Flowers reaffirmed its
guidance for fiscal 2018 financial results, investors apparently were skeptical. The company's forecasts for
the year were for sales ranging from
$3,921 million to $3,982 million, and
earnings per share of $1.04 to $1.16.
Flowers has had trouble hitting its
guidance at times in recent years.
"We are pleased with the solid start
to the year," said Allen L. Shiver,
president and chief executive officer of Flowers Foods. "We achieved
record sales in the first quarter and
made important progress on our
strategic priorities, giving us confidence in our ability to meet the objectives we've set for the year. Sales
growth for the quarter was ahead of
expectations, driven by the continued
strength of Dave's Killer Bread and
the solid performance of our Nature's
Own and Wonder brands. In April,
we introduced new, artisan-style
products under Nature's Own, and
initial consumer response has been
encouraging."
In a May 17 conference call with
securities analysts, Mr. Shiver said
Flowers' bread line outperformed the
18 / May 22, 2018

Milling & Baking News

brand sales were up 0.2%. Non-retail
and other sales were up 0.6%.
"Branded retail sales increased
due to continued sales growth from
overall market even after the compa- branded organic products and in our
ny raised prices in the first quarter in expansion markets, as well as from a
more favorable price/mix, partially
response to cost inflation.
He said the company introduced offset by declines in branded buns
Boomin' Berry bagels during April, and rolls and branded cake," the
company said. "Sales of D.K.B. prodextending its breakfast line.
"Since launching the D.K.B. break- ucts continued to increase, driven by
fast line, we've doubled our market continued volume gains and the inshare in the $2 billion breakfast seg- troduction of breakfast items during
the second quarter of fiscal 2017."
ment," he said.
Over the last few years, Flowers
Asked by an analyst whether sales
executives frequently have emphaof D.K.B. have risen by 2 to 2.5 times
sized the importance of protectsince the acquisition three
ing market share in discussyears ago, Mr. Shiver said
ing the snack cake market.
the numbers were not
In the May 17 call, Mr.
out of line.
Shiver's focus principally
In addition to an artiwas on making the busisan-style bread named Naness more profitable.
ture's Own Perfectly Crafted,
"This team is streamlining
Flowers also recently introthe assortment, rationalizing
duced Non-GMO Project
price points, prioritizing inverified Nature's Own in
novation, rightsizing capaccertain markets. The comity and identifying investpany moved to standardments to drive manufacturize sizes and formulas for
ing efficiency," he said.
Wonder bread and buns
Earnings before interest
and updated packaging,
and taxes for the Directall to "strengthen the conStore-Delivery
segment
sistency, quality and store
were $84,425,000, down
presence."
3.3% from $87,261,000.
Also during the quarSales were $1,015,484,000,
ter, Flowers launched its
up 1.6% from $999,860,000.
Camo for the Cause marDAVE'S KILLER BREAD
D.S.D. volume during the
keting promotion in support of the United Service Organiza- quarter was down 1.8%, but pricing/
mix added 3.4 percentage points to
tion (U.S.O.).
Efforts to enhance efficiency includ- the quarterly sales totals.
The profit drop was attributed by
ed the creation of business unit field
marketing teams "dedicated to cap- Flowers to special charges plus the efturing consumer insights in markets fects of "outside purchases and higher
nationwide and sharing feedback on ingredient and workforce-related costs."
Outside purchases referred princibrand performance and campaigns,"
Flowers said. Working more closely pally to the D.K.B. breakfast line, Mr.
with independent distributors, order Shiver said.
"Partially offsetting these items
quality was improved and stale product returns reduced. Supply chain op- were higher sales on improved pricing and reduced stales, the benefit of
timization initiatives were launched.
The steps are expected to generate the voluntary separation incentive
gross savings of $38 million to $48 plan and other restructuring initiatives, and decreased depreciation and
million in 2018.
"A portion of these savings are be- amortization expense," Flowers said.
Warehouse Delivery EBIT was
ing invested into incremental mardown
67%
from
keting and innovation programs to $14,562,000,
drive brand growth," said R. Steve $44,695,000. Sales were $190,969,000,
Kinsey, chief financial officer and up 1.7% from $187,789,000.
The change in profitability reflected
chief administrative officer. "These
incremental costs will primarily im- the $28.9 million divestiture gain last
pact margins in the second and third year and "a shift in mix from higher
margin branded bread items to lower
quarters."
Drilling deeper into the first-quarter margin cake and food service items,
sales figures, Flowers said branded partially offset by lower workforce
retail sales rose 2.4% while store related costs," Flowers said. MBN
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Milling & Baking News - May 22, 2018

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