Milling & Baking News - August 24, 2010 - 19

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Flowers income up 11% in second
quarter; sales off, volume up
THOMASVILLE, GA. - Net income at Flowers Foods, Inc. in the
second quarter ended July 17 rose
11% to $33,756,000, equal to 37c per
share on the common stock, up from
$30,341,000, or 33c per share, in the
same period a year ago. Last year's
second quarter included a $3,013,000
gain on acquisition related to the Cedar Rapids, Iowa, bread mix plant
acquired from General Mills, Inc. in
May 2009.
Net sales were $607,718,000, down
1% from $614,448,000 in the second
quarter of fiscal 2009. The sales decrease was attributable in part to
negative pricing/mix of 3.5 percentage points. Partially offsetting the
declines were a 1.9-percentage point
gain in volume and a 1-point contribution from acquisitions.
"The volume increase was primarily driven by Nature's Own soft
variety bread and Nature's Own
Sandwich Rounds in the branded
retail channel and the cake category
in the store-brand retail channel,"
Flowers said. "These increases in
volume were partially offset by sales
declines in white bread, specialty
bread, and food service. Overall, the
branded retail channel was down as
a result of lower white bread sales
and a shift in snack cake sales from
branded retail to store-brand retail as
several of our customers introduced
new store-brand cake programs."
Expanding on the company's results in an Aug. 19 conference call
with analysts, Allen Shiver, president
of Flowers Foods, said new products
- those products introduced during
the past two years - contributed approximately 5% of total sales during
the second quarter.
"At the beginning of the third
quarter we introduced several new
products, including Nature's Own
Whole Grain White bread, and our
new Nature's Own breads with only
35 calories per slice," he said. "We
also added a third variety, 100%
Whole Grain, to our successful Nature's Own Sandwich Rounds.
"At the same time, we also introduced three new soft textured specialty breads under our Cobblestone
Mill brand: Cobblestone Mill Italian,
Potato, and 100% Whole Wheat. You
may remember that those products
have been in test markets. Now they
are available throughout most of our
bakingbusiness.com / world-grain.com

D.S.D. footprint. New products will
continue to be an important part of
our growth, and we expect good performance from these new items in
the second half."
George E. Deese, chairman and
chief executive officer, said the company delivered strong results in the
face of a weak economy and continued higher-than-normal promotional activity in the fresh bakery
category.
"Our earnings growth would have
been even greater if you take into

consideration the $3 million, or 2c
per share, accounting gain on acquisition that was in last year's secondquarter results," Mr. Deese said.
"Even though sales for the quarter
declined, we achieved volume increases in both operating segments.
Since the beginning of the year, our
sales trend has improved steadily as
we executed our strategy to introduce new products and develop new
business. In the most recent weeks,
that trend has further improved,
giving us confidence in our revised
sales guidance.
"The underlying strength of our
business model is evident in our cash
flow, improved operating margin,
the strength of our brands and market share growth. Our team continues to focus on improving all aspects
of the business and we are poised to
take advantage of opportunities in
the marketplace."
Gross margin in the second quarter was 47.7% of sales, which compared with 45.7% of sales in the second quarter of 2009. The company

Financial Results

said the increase was due primarily
to decreases in ingredient costs, particularly flour, as a per cent of sales.
The decrease in ingredient costs was
partially offset by higher workforcerelated and packaging costs as a per
cent of sales.
In a breakdown of results by segment, second-quarter EBIT (earnings before interest and taxes) was
$47,787,000 in the Direct-Store-Delivery segment, up 5% from $45,693,000
in the same period a year ago. Sales
were $489,919,000, down 3.5% from
$507,475,000 a year earlier.
In the company's Warehouse Delivery segment, EBIT in the quarter was $11,841,000, down 2% from
$12,108,000. Sales were
$117,797,000, up 10% from
$106,973,000.
Looking ahead to the
second half of fiscal 2010,
Mr. Deese in the conference
call said new production
capacity will help drive

sales. Specifically, he mentioned two
new bun lines and one Sandwich
Rounds line that already are producing, as well as a second Sandwich
Rounds line that will start up in the
second half. Additionally, new sales
and capacity in snack cakes is expected in the second half, as is new
growth opportunities in tortillas and
wraps following the October 2009
acquisition of Leo's, Mr. Deese said.
Flowers maintained its earnings
guidance and revised sales guidance for fiscal 2010, and Mr. Deese
said the company now expects sales
growth of 1% to 2%. For 2010, the
company continues to expect growth
in diluted earnings per share of 10%
to 15%. Capital spending in fiscal
2010 is expected to be about $95 million to $100 million.
For the first six months of fiscal
2010, net income at Flowers Foods
was $74,443,000, or 81c per share,
up 10% from $67,722,000, or 73c per
share, in the first half of fiscal 2009.
Net sales were $1,402,742,000, down
1% from $1,421,455,000. MBN
Milling & Baking News August 24, 2010 / 19

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Milling & Baking News - August 24, 2010

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