Milling & Baking News - April 2, 2013 - 11


than 80 independent and specialty
bakeries across the country compete
in the fresh bread aisle, offering customers a wide variety of fresh bread,
buns, rolls and snack cakes. Also, store
brand commands a very strong position in the category, as it has for many
years — 25% to 27% of sales and 40%
to 50% of units.”
Calling baking a “large and vibrant”
category, Mr. Shiver said that as of February 2012, Flowers held a 15% market
share on a dollar basis, versus 33.8%
for Bimbo Bakeries USA, 5.8% for Pepperidge Farm, 21.9% for independent
and specialty bakers and 23.5% for
other store brands (besides Flowers’).
Both Mr. Deese and Mr. Shiver also
noted Flowers is well ahead of its geographic expansion targets. In 2011, the
company said it would try to reach
75% of the U.S. population by directstore delivery by 2016.
“We have achieved the goal three
years ahead of schedule,” Mr. Deese
said, noting that a combination of
capital building and acquisitions always had been part of Flowers’ plans
to meet the objective.
Sustaining Flowers’ profitability
along the way always was part of the
plan, Mr. Deese said. While at many
companies aggressive expansion occurs at the cost of earnings, he noted
that has not been the case at Flowers,
with earnings growing 13.5% annually from 2003-12 against annual sales
growth of 8.5%.
While assuming higher levels of

debt has been necessary to allow
growth, Flowers continues to pursue
an investment grade credit rating, said
R. Steven Kinsey, executive vice-president and chief financial officer.
“In 2012, we did see leverage jump
as we financed our Lepage acquisition,” he said.
He said the company is in advanced
talks aimed at financing the Hostess
transaction.
While Flowers still is not yet prepared
to issue earnings guidance, Mr. Kinsey
added considerable color to the outlook
without offering specific figures.
He said that uncertainty around the

Flowers Foods, Inc.,
debt outstanding
(in $1,000)
2012

$607,012

2011

$326,174

2010

$127,302

2009
2008

$251,668
$286,417

Executives offer glimpse into
Flowers with Wonder
NEW YORK — The addition of the Wonder bread brand will lift Flowers Foods,
Inc. sales in its core markets and will give
an even greater boost in new markets,
said Allen L. Shiver, president and chief
operating officer.
Mr. Shiver and George E. Deese, chairman and chief executive officer, commented on what the Wonder bread brand
will mean to Flowers during a meeting
with financial analysts March 20 at the
New York Stock Exchange.
Their remarks were made a day after a
bankruptcy judge approved Flowers’ bid
for a majority of the Hostess Brands, Inc.
bread business.
“We do feel like in our core markets we
will see an increase in sales once we own
the brands,” Mr. Shiver said in response to
an analyst question. “Wonder being a very
strong brand in some of those markets,
bakingbusiness.com / world-grain.com

Merita and Home Pride as well. The
growth will be important in our core
markets but will be even more important in our new markets — areas
we recently expanded into where
our current market share is very
low. The addition of strong brands
like the ones I just mentioned will be
very important.”
Mr. Deese emphasized the value
of having a strong roster of bread
and cake brands as Flowers expands
into new markets.
“It’s not just the Hostess brands
like Wonder or just Merita in the
South, but what I think about is
the success we’ve had on Nature’s
Own — it’s a billion dollar market
at this point annually,” he said.
“It’s a strong Wonder brand. Tagging along will be Nature’s Own in

Business

timing of the Hostess transaction
remains a principal impediment
to offering traditional guidance.
To make up for this lack of information, Mr. Kinsey offered analysis of
factors that may “materially impact
the year.”
First among these is the 2012 Lepage
integration.
“It is going very well,” he said. “We
are on target for having the SAP integration completed during the fourth
quarter. This is very important for
managing our business.”
Both Lepage and the Sara Lee California acquisitions are meeting plans,
Mr. Kinsey said. The Lepage business
will be 8c to 12c per share accretive to
earnings in 2013, he said.
While echoing other comments
about “excitement” about the expansion in California, Mr. Kinsey said he is
expecting the acquisition to be neutral
to 2013 earnings given the prospective
cost of the integration and rollout of
the brands into the marketplace.
Tastykake was a strong contributor
to sales and EBITDA in 2012 and also
will be strong in 2013, he said.
Comparing the 2013 outlook with
long-term targets, Mr. Kinsey said
“strong double-digit” sales growth will
eclipse the 5% to 10% annual growth
target over time. Predicting that EBITDA margins will be “in line” with the
long-term target of 11% to 13%, Mr.
Kinsey was not as clear describing the
outlook for earnings per share, which
he said will be “strong” in 2013. MBN
these new markets as well as well as other
brands like Tastykake going along also.
So, Hostess is one set of factors, but
you also need to consider Nature’s
Own and Tastykake in these new
markets we do not serve today.”
Both executives said they would
not yet be able to quantify prospective share gains once the Wonder
transaction is completed. In formal
comments, they noted the judge’s
approval hardly represents the
completion of the transaction.
“We are pleased with the outcome of the bankruptcy court review in which the court approved
the sale this week, subject to the
finalizing of the sales order, which
we expect to occur shortly,” Mr.
Deese said. “However, this process is not over. Now, the transaction must continue through the
regulatory process. We anticipate
completing the transaction in the
second half of the year.” MBN
Milling & Baking News April 2, 2013 / 11

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - April 2, 2013

Table of Contents for the Digital Edition of Milling & Baking News - April 2, 2013