Milling & Baking News - November 16, 2010 - 14

Financial Results



Flowers earnings, sales flat in
quarter, but margins improve
due to continued pricing pressures
and substantial promotional activity.
Helping offset the declines were increased volume and 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 storebrand retail channel," Flowers said.
"These volume increases were partially offset by declines in white bread,
specialty bread and
breakfast breads in
the branded retail
channel. 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."
Direct-store delivery sales decreased 2.5% during the quarter.
In a Nov. 11 conference call with
investor analysts,
Start-up costs at Flowers Foods plants, including a second line for the Allen Shiver, presiproduction of sandwich rounds, reduced quarterly earnings by about 1c dent of Flowers
Foods, said the
per share.
company's prodin which the stock market overall was ucts outperformed competitors during
weak, Flowers shares Nov. 11 (when the quarter. Branded unit sales were
financial results were announced) on up 4.3%, versus a 0.6% gain for the inthe New York Stock Exchange edged dustry overall. The dollar increase was
upward to a close of $26.17, the high- 2.3%, versus 0.7%.
Meanwhile, despite the difficult
est daily close for the company since
economy, Mr. Shiver said that store
mid-May.
George E. Deese, chairman and brand sales were down 50 basis points
chief executive officer of Flowers, was in dollar terms and 90 basis points in
guarded in his assessment of the fi- units.
Using SymphonyIRI data, he said
nancial results.
"This quarter proved to be another the company has a 44.7% share of
challenging one," he said. "As the the soft variety bread category in the
economy continued under pressure South, led by the Nature's Own brand.
"This past quarter, new products
from high unemployment, consumers
shopped in different patterns and pro- contributed about 5% to our sales,"
motional levels for fresh bread prod- Mr. Shiver said. "Our Nature's Own
ucts increased. These marketplace sandwich rounds continue to be one
dynamics, coupled with higher-than- of our most successful new items."
Both Mr. Deese and Mr. Shiver acanticipated costs for starting up new
manufacturing lines and introducing knowledged the negative short-term
new products, resulted in flat sales effects of new production line start-up
and earnings compared to last year's costs, but both were upbeat on how the
new lines were operating. Mr. Deese
third quarter."
Flowers attributed the sales decline estimated the costs reduced quarterly
in large part to negative pricing/mix earnings by about 1c per share.
THOMASVILLE, GA. - Net income
of Flowers Foods, Inc. in the third
quarter ended Oct. 9 was $31,166,000,
equal to 34c per share on the common stock, down narrowly from
$31,926,000, or 34c per share, in the
same quarter of fiscal 2009. Net sales
were $597,894,000, down 1% from
$602,570,000.
The quarter was not without significant positives for Flowers, though,
including a 60 basis point improvement in operating margins. On a day

14 / November 16, 2010 Milling & Baking News

"As George mentioned, we have
added a second production line for
Nature's Own sandwich rounds,"
Mr. Shiver said, following up on comments by Mr. Deese earlier in the call.
"That line had a successful start-up
just last week in our Denton, Texas,
bakery. We recognize that in the short
term, marketing and distribution costs
increased with new product introduction, and yes, we incurred some of
these introductory costs in the past
quarter. However, the successful development and introduction of new
products is a core component of our
growth strategy and that will not
change as we move our company forward."
Gross margin as a percentage of
sales was 47.1% versus 46.5% in the
third quarter of 2009. Flowers said the
increase reflected decreases in ingredient costs as a per cent of sales. The decrease in ingredient costs was partially
offset by higher workforce-related and
packaging costs as a per cent of sales,
and start-up costs associated with new
production lines at several bakeries.
Updating guidance for fiscal 2010,
Flowers said it now expects sales to
be flat to slightly up. Earnings per
share are expected to grow 10% to
12%, and capital spending is expected to be approximately $95 million to
$100 million.
In his introductory remarks during
the conference call, Mr. Deese offered
his perspective on the news story of
the week, Grupo Bimbo's agreement
to acquire the fresh bakery group of
Sara Lee (see related stories, beginning
on Page 1).
"First, let me congratulate the companies on their agreement," he said.
"Consolidation of the fresh bakery
business in the United States has
been under way for several decades.
The announcement that Bimbo Bakeries plans to acquire Sara Lee's fresh
bakery business is a continuation of
that ongoing consolidation. Flowers Foods has competed successfully against much larger businesses
throughout its history. We will continue to compete effectively and grow
our business as the competitive landscape changes with the combination
of Bimbo and Sara Lee."
For the nine months ended Oct. 9,
Flowers net income was $105,609,000,
equal to $1.14 per share on the common stock, up 6% from $99,648,000,
or $1.07 per share, in the first three
quarters of fiscal 2009. Net sales
were $2,000,636,000, down 1% from
$2,024,025,000. MBN
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Milling & Baking News - November 16, 2010

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