Market Overview

Flowers Foods, Inc. Reports Second Quarter 2019 Results


THOMASVILLE, Ga., Aug. 7, 2019 /PRNewswire/ -- Flowers Foods, Inc. (NYSE:FLO), producer of Nature's Own, Dave's Killer Bread, Wonder, Tastykake, and other bakery foods, today reported financial results for the company's 12-week second quarter ended July 13, 2019.

Second Quarter Summary:
Compared to the prior year second quarter where applicable

  • Sales increased 3.7% to $975.8 million; net sales increased 1.8% excluding the acquisition of Canyon Bakehouse.
  • Diluted EPS increased $0.04 to $0.25.
  • Adjusted diluted EPS(1) was unchanged at $0.25.

(1)  Adjusted for items affecting comparability. See reconciliations of non-GAAP measures in the financial statements following this release.

CEO's Remarks:
"This quarter's results reflect our strategic priorities to focus on brands, manage costs, make smart acquisitions, and develop the team. You can see this in our continued top-line momentum and market share gains, which illustrate the benefits of our pivot to a more brand-focused organization," said Ryals McMullian, Flowers Foods' president and CEO. "In the quarter, we continued to successfully rollout Canyon Bakehouse across our distribution network, implemented pricing to help mitigate inflationary pressures, and delivered product innovation and marketing programs that supported the growth of Dave's Killer Bread, Nature's Own, and Wonder. Growth in bread brands more than offset reduced sales of cake and foodservice products, as we continue to evolve those portfolios to a more attractive margin profile."

Mr. McMullian continued, "Improving profitability is a priority. We remain focused on the significant opportunities we see to attack complexities, improve operational efficiencies, and address inflationary pressures from commodities, labor, and transportation. By focusing on sustainable, profitable growth in our core business, and investing strategically in growing adjacencies, we intend to drive free cash flow and deliver shareholder value."

Revised Guidance:
For the 52-week fiscal 2019 the company expects

  • Sales in the range of approximately $4.030 billion to $4.109 billion, representing growth of approximately 2.0% to 4.0%.
  • Adjusted diluted EPS in the range of approximately $0.94 to $0.99, adjusted for items affecting comparability.

The company's outlook includes the following assumptions:

  • Canyon Bakehouse sales of approximately $70 million to $80 million
  • Depreciation and amortization in the range of $150 million to $155 million
  • Other pension expense in the range of $2.5 million to $3.0 million
  • Net interest expense of approximately $12 million
  • An effective tax rate of approximately 24% to 25%
  • Weighted average diluted share count for the year of approximately 212 million shares
  • Capital expenditures for the year in the range of $110 to $120 million

Matters Affecting Comparability:


 Reconciliation of Earnings per Share to Adjusted Earnings per Share 

 For the 12 Weeks Ended 

 Jul. 13, 2019 

 Jul. 14, 2018 

Net income per diluted common share

$            0.25

$            0.21

Loss on inferior ingredients



Restructuring and related impairment charges



Project Centennial consulting costs



Legal settlements (recovery)



Executive retirement agreement



Pension plan settlement loss



Adjustment to prior year provisional tax reform benefit



Adjusted net income per diluted common share

$            0.25

$            0.25

NM - Not Meaningful

Certain amounts may not compute due to rounding.


Consolidated Second Quarter 2019 Results
Compared to the prior year second quarter where applicable

  • Sales increased 3.7% to $975.8 million.
  • Percentage point change in sales attributed to:
    • Pricing/mix: 1.9%
    • Volume: -0.1%
    • Acquisition: 1.9%
  • Branded retail sales increased $25.8 million, or 4.6%, to $586.0 million, store branded retail sales increased $15.4 million, or 10.5% to $162.9 million, while non-retail and other sales decreased $6.8 million, or 2.9%, to $226.9 million.
  • Branded retail sales increased due to the Canyon acquisition, continued growth of Dave's Killer Bread branded products, as well as the introduction of Sun-Maid breakfast bread late in the third quarter of fiscal 2018, and more favorable price/mix. Sales of branded cake decreased quarter over quarter mainly due to softer volume resulting from product rationalization and a competitive environment.
  • Store branded retail sales increased primarily due to gluten-free store-branded items produced by Canyon, volume growth from additional distribution, other store branded breads and buns, and positive price/mix, partially offset by volume declines in store branded cake.
  • Foodservice and vending volume declines drove the decrease in non-retail and other sales, partly because of lost business due to the yeast disruption in fiscal 2018.
  • Operating income increased 38.4% to $72.3 million. Excluding matters affecting comparability, adjusted operating income increased 7.4% to $72.5 million.
  • Adjusted EBITDA increased 3.2% to $105.9 million, representing 10.8% of sales, a 10-basis point decrease.
  • Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 52.1% of sales, a 20-basis point increase. These costs were higher as a percentage of sales due to rising workforce-related costs, lower production volumes and decreased manufacturing efficiencies, partially offset by improved pricing/mix and lower ingredient costs as a percent of sales.
  • Selling, distribution and administrative (SD&A) expenses were 36.8% of sales, a 150-basis point decrease. Excluding matters affecting comparability, adjusted SD&A expenses were 37.0% of sales, a 20-basis point decrease. A shift in product mix resulted in lower distributor distribution fees as a percentage of sales, partially offset by higher workforce-related costs and bad debt expense.
  • Depreciation and amortization (D&A) expenses were $33.3 million, 3.4% of sales, a 30-basis point decrease.

Cash Flow, Capital Allocation, and Capital Return
Year-to-date through the second quarter of fiscal 2019, cash flow from operating activities increased by $59.4 million to $208.1 million, capital expenditures decreased by $2.1 million to $47.4 million, and dividends paid increased by $5.3 million to $79.6 million. Year-to-date through the second quarter, the company has made cash debt repayments of $86.8 million.

There remain 6.2 million shares authorized for repurchase under the company's current share repurchase plan. The company expects to continue to make opportunistic share repurchases from time to time under this plan.

Conference Call
Flowers Foods will hold a conference call to discuss its second quarter 2019 results at 8:30 a.m. (Eastern) on August 8, 2019. The call can be accessed by following the webcast link on The call also will be archived on the company's website.

About Flowers Foods
Headquartered in Thomasville, Ga., Flowers Foods, Inc. (NYSE:FLO) is one of the largest producers of fresh packaged bakery foods in the United States with 2018 sales of $4.0 billion. Flowers operates bakeries across the country that produce a wide range of bakery products. Among the company's top brands are Nature's Own, Dave's Killer Bread, Wonder, and Tastykake. Learn more at


Forward-Looking Statements
Statements contained in this press release that are not historical facts are forward-looking statements. Forward-looking statements relate to current expectations regarding our future financial condition, performance and results of operations, planned capital expenditures, long-term objectives of management, supply and demand, pricing trends and market forces, and integration plans and expected benefits of transactions and are often identified by the use of words and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will," "would," "is likely to," "is expected to" or "will continue," or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the company's prospects in general include, but are not limited to, (a) general economic and business conditions and the competitive conditions in the baked foods industry, including promotional and price competition, (b) changes in consumer demand for our products, including changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products, (c) the success of productivity improvements and new product introductions, (d) a significant reduction in business with any of our major customers including a reduction from adverse developments in any of our customer's business, (e) fluctuations in commodity pricing, (f) energy and raw material costs and availability and hedging and counterparty risk, (g) our ability to fully integrate recent acquisitions into our business, (h) our ability to achieve cash flow from capital expenditures and acquisitions and the availability of new acquisitions that build shareholder value, (i) our ability to successfully implement our business strategies, including those strategies the company has initiated under Project Centennial, which may involve, among other things, the integration of recent acquisitions or the acquisition or disposition of assets at presently targeted values, the deployment of new systems and technology and an enhanced organizational structure, (j) consolidation within the baking industry and related industries, (k) disruptions in our direct-store delivery system, including litigation or an adverse ruling from a court or regulatory or government body that could affect the independent contractor classification of our independent distributors, (l) increasing legal complexity and legal proceedings that we are or may become subject to, (m) product recalls or safety concerns related to our products, and (n) the failure of our information technology systems to perform adequately, including any interruptions, intrusions or security breaches of such systems. The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other public disclosures made by the company, including the risk factors included in our most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and disclosures made in other filings with the SEC and company press releases, for other factors that may cause actual results to differ materially from those projected by the company. We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law.

Information Regarding Non-GAAP Financial Measures
The company prepares its consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). However, from time to time, the company may present in its public statements, press releases and SEC filings, non-GAAP financial measures such as, EBITDA, adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A), gross margin excluding depreciation and amortization and the ratio of net debt to adjusted EBITDA. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure. The company's definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.

The company defines EBITDA as income from operations adjusted for depreciation and amortization. The company believes that EBITDA is a useful tool for managing the operations of its business and is an indicator of the company's ability to incur and service indebtedness and generate free cash flow. EBITDA is used as the primary performance measure in the company's 2014 Omnibus Equity and Incentive Compensation Plan. Furthermore, pursuant to the terms of our credit facility, EBITDA is used to determine the company's compliance with certain financial covenants. The company also believes that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability because EBITDA measures assist in comparing performance on a consistent basis without regard to depreciation or amortization, which can vary significantly depending upon accounting methods and non-operating factors (such as historical cost). EBITDA is also a widely-accepted financial indicator of a company's ability to incur and service indebtedness.

EBITDA should not be considered an alternative to (a) income from operations or net income (loss) as a measure of operating performance; (b) cash flows provided by operating, investing and financing activities (as determined in accordance with GAAP) as a measure of the company's ability to meet its cash needs; or (c) any other indicator of performance or liquidity that has been determined in accordance with GAAP.

The company defines adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A), respectively, excluding the impact of asset impairment charges, Project Centennial consulting costs, lease terminations and legal settlements, acquisition-related costs, and pension plan settlements. Adjusted in

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