Milling & Baking News - August 19, 2014 - 16

Financial Results 

Flowers snack cake share gains
rapidly dissipating; profits down
Continued from Page 1

the full year - to a range of 1.1%
to 7.7%. Three months earlier, the
company had forecast full-year
growth of 7.7% to 15.4%. Sales
growth for the year was tightened
to a range of 3.5% to 5%, from 6%
to 10%.
Investors were disappointed by the
results. In New York Stock Exchange
trading Aug. 12, Flowers Foods

new markets since last year, Mr.
Shiver said in an Aug. 12 conference
call with investment analysts that
sales of the acquired Wonder, Home
Pride, Butternut and Merita brands
were up about 35% from the first
quarter of 2013.
"Also, with the successful reintroduction of our acquired brands behind us, we are focused on the distribution fundamentals necessary
to improve top-line growth while

maximizing our earnings opportunity," he said.
Consumer spending remained
under pressure during the second
quarter, Mr. Shiver said. As a result,
promotional spending is significantly elevated across all food categories, including bread.
"Promotional activity in fresh
bread was high in the quarter," Mr.
Shiver said. "Our percentage of
products sold on promotion was
higher than normal, reducing our average price per unit. In recent weeks
we have made progress reducing the

shares slumped as much as 7.5% in
early trading, before settling for the
day at $19.10, down 91c, or 4.6%.
Results in the second quarter
were adversely affected by a charge
of $4,489,000 in connection with the
pending sale of the company's Leo's
tortilla plant in Texas. The company
is moving its tortilla production to
other Flowers plants.
Many other baking market dynamics, positive and negative, factored
into the Flowers results,
including
aggressive
promotional activity in
Dimming outlook for 2014
bread and across the
Flowers' guidance for year ending Dec. 31
entire packaged foods
industry, Flowers said.
Projected growth rates
Additionally, the compaAs of Aug. 12
As of May 15
ny's results were helped
Sales
3.5% to 5%
6% to 10%
by impressive growth in
sales of newly acquired
Earnings per share 1.1% to 7.7%
7.7% to 15.4%
brands and in new geographic markets.
"We are particularly
encouraged by the traction we are number and depth of our promocontinuing to see in our new mar- tions. Our goal is to return to a more
kets, where sales doubled since last normalized level of promotional acyear," said Allen L. Shiver, presi- tivity by quarter four of this year."
Also down during the quarter
dent and chief executive officer.
"We also are seeing strong sequen- were Flowers' sales of store brand
tial growth in our acquired bread and food service bread. Mr. Shiver
brands. As a team, we are working observed that the decline in prito control those issues within our vate label sales was related to the
reach while maintaining a strong, stepped-up promotional activity.
"I.R.I. shows that store brand lost
flexible, financial position to weathunit and dollar shares in the quarer near-term storms."
In addition to doubling sales in ter," he said. "That category shift
16 / August 19, 2014 Milling & Baking News

accounts for part of the decline
in our store brand business. And
we also gave up some unprofitable store brand volume during the
quarter and exited some low margin
food service business."
Longer term the decline of private
label and the exit from less profitable business should help Flowers
results, Mr. Shiver said.
"However, these events are painful in the near term," he added.
The company's share of packaged
bread continues to grow, Mr. Shiver
said. At 14%, the company's market
share is up from 13.3% in the second
quarter of 2013 and 10.7% in the second quarter of 2012.
New markets accounted for 5.9%
of total direct-store delivery bread
sales during the quarter, a figure
described as "strong" by Mr. Shiver.
He noted the company has garnered
a 10% market share in Kansas City
in just a year and has had good results in Cincinnati, Pittsburgh, New
York and California.
Mr. Shiver attributed weak snack
cake sales to "Hostess cake and
their growing penetration in the
market."
At the time of the reintroduction
of Hostess cakes in July 2013, following an absence of about eight
months, Mr. Shiver was hopeful
Flowers would retain a large part of
the business captured by Tastykake
and Mrs. Freshley's.
"We realize that Hostess cakes
may have a place in the market, but
we have confidence
that our cake business
will weather that reintroduction very well,"
he said in August
2013.
Commenting on the
second quarter, Steve
Kinsey, Flowers' executive vice-president
and chief financial
officer, said Flowers cake sales overall
were down 12%, including a drop of
about 11% in the company's D.S.D.
business and 13% in warehouse
business.
Net-net, Flowers is still ahead,
even after the tough second quarter,
Mr. Shiver said.
"As a reminder, our market share
of the cake category increased from
5.7% to 8.6% when Hostess exited
the market," he said. "Although we
have maintained a good portion of
our cake sales, in the second quarter
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Milling & Baking News - August 19, 2014

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