Milling & Baking News - March 3, 2015 - 16

Financial Results

Flowers Foods in 2014: Won on
the road, struggled at home
THOMASVILLE, GA. - While overall sales of Flowers Foods, Inc. were
flat in 2014, the company performed
well during the year in new markets
and faced strong competitive pressures in core markets, a top company
executive said.
Details of the company's 2014
full year and fourth-quarter results
which were previously reported (see
Milling & Baking News of Feb. 17,
Page 15.) were shared in a conference
call with investment
analysts Feb. 12.
R. Steve Kinsey, executive vice-president
and chief financial officer, said overall volumes were down during the year, largely Kinsey
because of areas of
business from which the company
stepped back, including store brand
bread and cake business and food
service tortilla business. He also noted disparate geographic results.
"We continued to see strength in
our expansion markets," Mr. Kinsey said. "However, our core market
sales remained pressured by a strong
competitive environment. Our expansion markets, representing about
6.3% of direct-store delivery sales,
performed well and contributed
growth of approximately 1.7% in the
overall D.S.D. business, excluding
the extra week."
Similarly, Allen L. Shiver, president and chief executive officer,
highlighted success Flowers has experienced in new markets and steps
the company is taking to build on
those achievements.
"Currently our distribution network has access to over 80% of the
U.S. population, and we have substantial opportunity to grow share
in our expansion markets," he said.
"For example, this past summer
we expanded into northern Ohio,
where the strength of the Wonder
brand allowed us to increase sales
of Nature's Own, Cobblestone Bread
Company and Tastykake brands in
those markets.
"Additionally, we have increased
distribution on the East and on the
West coast, where sales growth we
expect in those large markets will
be supported by the capacity that
we have recently added in those regions. During 2014 we experienced
16 / March 3, 2015

Milling & Baking News

continued growth in markets such as
Boston and Kansas City. Helped by
our acquired brands, expansion in
these and other markets contributed
nicely to our growth last year."
Overall fourth-quarter sales in the
company's Direct-Store Delivery segment were $742,275,000, up 6% from
the fourth quarter of 2013. Adjusted
for the extra week, sales were down
1.8%. The largest driver, though, was
the exit from store-brand business,
with sales down 11% from the year
before, excluding the extra week, Mr.
Kinsey said.
"In general, branded volumes
were up in bread and cake, while
overall pricing continued to be pressured by promotional activity," he
said. "White breads continue to
perform well on the strength of the
acquired brands in the expansion
markets."
While fourth-quarter cake sales
were down 4.4% quarter to quarter,
Mr. Kinsey noted a continued slowing of the erosion.
"These are slightly better results
than we have seen over the past
several quarters," he said. "For the
full year in 2014, excluding the extra
week, cake sales were
down approximately
8.7%."
In his remarks during the call, Mr. Shiver
also highlighted positives of the company's
cake business.
Shiver
"While our overall
branded snack cakes were down
due to the competitive environment,
our Tastykake brand posted slight
growth, excluding the extra week,"
he said. "On the cake innovation
front, we have been pleased with the
consumer response to our seasonal
Tastykake items, such as salted caramel and red velvet donuts."
Similarly, he said that amid the
push and pull of the overall U.S.
bread market, Flowers continues
to gain share. At 13.7%, the company's share in the fourth quarter
was slightly improved from a year
earlier.
"Through organic growth and future acquisitions, we intend to build
our market share in fresh packaged
breads," he said.
Numerous times over the course
of the call, Mr. Shiver hinted that

additional acquisitions, likely of
regional independent baking companies, could be forthcoming.
"On the fresh bread, buns and rolls
side, there are some independent
bakers that would fit very nicely
with our company," he said. "As always, we continue to maintain good
relationships and contact with those
companies."
While Flowers has exited some
store-brand business, Mr. Shiver had
some positive remarks about trends
in private label and bread overall at
the retail level.
"I think with category management, our retailers are probably doing a better job today identifying the
profitability of this whole fresh bakery category," he said responding
to a question. "I think that there is
better information with our retailers
about how private label can enhance
their margin. There is learning that
consumers are not going to change
where they purchase groceries based
on the price of private label bread. So
I'm actually encouraged... A better
understanding by the retailers of the
contribution, the profit contribution
of those private label brands to their
business I think is growing. I don't
anticipate a decline in private label
price as we go into next year."
Asked about the competitive environment in the fourth quarter of 2014
and prospects for 2015, Mr. Shiver
was guarded in his response.
"The promotional environment really has not changed from our last
call," he said. "Again, it continues
to be a market-by-market situation.
Overall, the marketplace remains
competitive."
He went on to say that Flowers, in
generating earnings guidance for the
new year, made no assumptions that
the situation would improve.
"If there is improvement in pricing
in the marketplace, there would be
some upside there," Mr. Shiver said.
In November, Mr. Kinsey was cautious about the prospective competitive environment in 2015 but said
the company would benefit from
Flowers' plans tor reduce promotional activity at the end of 2014 and
into 2015.
Mr. Shiver made similar remarks.
"Competitors are relying heavily
on price promotion to drive volume
to their brands," he said in November. "Last quarter we discussed our
intent to realize the more normalized
level of promotions by quarter 4 of
this year." MBN
bakingbusiness.com / world-grain.com

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

Milling & Baking News - March 3, 2015

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