Milling & Baking News - November 20, 2007 - 16

Financial Results

Flowers profits from continuing
operations up sharply in quarter
THOMASVILLE, GA. - Income
from continuing operations at Flowers Foods, Inc. rose 32% in the third
quarter ended Oct. 6 versus the same
period a year ago, while sales were
up 8%. In updating guidance for the
year, Flowers said its earnings in
2007 would be toward the high side
of earlier guidance. In preliminary
guidance for 2008, strong sales and
earnings growth were forecast by the
company.
Net income of Flowers Foods in the
quarter ended Oct. 6 was $22,501,000,
equal to 24c per share on the common stock, versus $22,569,000, or 24c
per share, during the third quarter
last year. The fiscal 2006 results included $5,509,000 of net income from
discontinued operations. Excluding
discontinued operations, net income
was up 32% from $17.1 million last
year.
Net sales in the third quarter were
$475,225,000, up 8%.
"In the quarter, sales of our branded products, such as Nature's Own
bread, continued to achieve strong
growth, which helped drive positive
product mix shifts," said George E.
Deese, chairman, president and chief
executive officer. "Our market share
also increased during the quarter.
Our newest production lines contributed to our strong performance,
improving our overall efficiency and
reducing our delivery costs since
they are located closer to our growth
markets. Our planned exit of lower
margin businesses, such as contract
production of snack cakes, has proven to be a good strategy as we use
our production capacity for higher
margin branded items."
In a Nov. 8 conference call, Mr.
Deese said white bread brands, including Whitewheat, grew by 8.2%,

while sales of Nature's Own posted
double-digit growth. Buns and rolls
also were up double digits.
He said fears that consumers
would trade down to private label
have proven unfounded.
"Private label bread, buns and
rolls actually lost unit share and dollar share compared to the overall category," Mr. Deese said.
Commenting on the company's
snack cake business, Mr. Deese noted

that the company in October introduced several 100-calorie products
under the BlueBird and Mrs. Freshley's brands.
On the negative side, gross margins in the quarter were down about
100 basis points, to 48.6%. Steve Kinsey, the new Flowers chief financial
officer and senior vice-president,
attributed the decline primarily to
higher commodity and input costs.
Updating its guidance for the full
year, Flowers projected earnings
from continuing operations of 98c
to $1.02 per share, toward the high
end of earlier guidance of 92c to
$1.02 and compared with 81c in fiscal 2006. Its updated sales guidance
was $2,027 million to $2,034 million,
roughly at the mid-point of its previous guidance of $2,020 million to
$2,040 million.
In the nine months ended Oct. 6,
net income was $73,184,000, equal
to 79c per share, up 12% from
$65,207,000, or 70c per share, in the
first three quarters of 2006. On a more
comparable basis, earnings were up
24% year to date, the company said.
Net sales were $1,563,010,000, up 8%
from $1,450,476,000.

I.B.C. narrows loss in period
KANSAS CITY - Interstate Bakeries Corp. sustained a loss of $7,699,993 in
the four weeks ended Sept. 22, which compared with a loss of $13,388,355
in the four weeks ended Aug. 25, according to an 8-K filed Nov. 7 with the
Securities and Exchange Commission.
Sales in the four weeks ended Sept. 22 were $220,794,820, down 3% from
$227,974,432 in the previous four-week period.
I.B.C. recorded charges of $2,789,732 during the most recent period from
restructuring and reorganization. I.B.C. posted earnings before interest, taxes, depreciation and amortization of $3,750,935, down 41% from $6,404,393
in the prior period. MBN

16 / November 20, 2007

Milling & Baking News

In its first guidance for fiscal 2008,
Flowers projected sales growth from
2007 of 8.5% to 11%, excluding possible acquisitions. Earnings per share
from continuing operations were
forecast at $1.07 to $1.17, versus its
current guidance of 98c to $1.02 for
2007.
"As fiscal 2008 brings unprecedented cost increases for wheat and other
input items, our team will continue
doing what we do best - removing
costs from our business and working to be the most efficient operator
in our industry," Mr. Deese said. "As
previously discussed, we also have
taken pricing actions to help offset
higher commodity costs for 2008."
In the conference call, Mr. Kinsey
said a goal for 2008 is to minimize
and eliminate margin erosion.
Mr. Deese said the company is
planning for higher costs of $130
million in 2008 from 2007, much of
which reflects higher flour costs.
"We have coverage for flour
through much of the year," he said.
"However, our coverage is at higher
prices."
He said new Nature's Own and
cake items will be introduced in
2008.
In response to a question, Mr.
Deese said the company would announce in late November or early
December plans for a project to expand its baking capacity to meet
growing demand in existing markets
and to serve new markets.
While the company still is interested in acquisitions, the construction
of new capacity is a more viable option for Flowers than in the past.
"It's getting easier to put in green
field plants," Mr. Deese said. "Thirty
years ago you wouldn't dream of doing it because it is too expensive. But
in today's environment with the consolidation and relationships, and our
brands, especially Nature's Own, it is
easier to do by building new plants."
(See late breaking story on Page 8.)
Asked about the impact of higher
fuel costs on Flowers' independent
distributors, Mr. Deese said the key
for the drivers' economics is continuing to bolster sales.
"It works well as long as we have
very good sales increases," he said.
"Assume for a minute that sales are
growing at 8% with an average margin, say of 18% to 22%. That gives
quite a bit of income over and above
the prior year base... So the answer
to your question is that it has not
been a problem." MBN
bakingbusiness.com / world-grain.com

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Milling & Baking News - November 20, 2007

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