Flowers Foods, Inc. Reports First Quarter 2019 Results

THOMASVILLE, Ga., May 15, 2019 /PRNewswire/ -- Flowers Foods, Inc. (NYSE: FLO), producer of Nature's Own, Wonder, Tastykake, Dave's Killer Bread, and other bakery foods, today reported financial results for the company's 16-week first quarter ended April 20, 2019.

First Quarter Summary:

Compared to the prior year first quarter where applicable

• Sales increased 4.8% to $1.264 billion; net sales increased 3.0% excluding the acquisition of Canyon Bakehouse.
• Diluted EPS increased $0.07 to $0.31.
• Adjusted diluted EPS⁽¹⁾ increased $0.02 to $0.32.

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

CEO's Remarks:

"We achieved record sales in the first quarter and are proud of the solid start to the year," said Allen Shiver, Flowers Foods president and CEO. "In our core business, we benefited from pricing actions taken to mitigate inflationary headwinds as well as continued growth from key brands including Dave's Killer Bread, Nature's Own, and Wonder. The recently acquired Canyon Bakehouse also drove top-line growth, and we remain on-track with the rollout of the brand across our distribution network."

Mr. Shiver continued, "While we are pleased with the results of our growth initiatives and pricing actions to date, inflationary headwinds from commodities, labor, and transportation continue to pressure margins. Therefore, in addition to improving price realizations, the team is focused on our supply chain optimization initiatives, which are intended to drive productivity and reduce fixed costs."

Mr. Shiver added, "As announced in February, after 41 years with the company, I will be retiring next week and Ryals McMullian will become Flowers' next CEO. Flowers has never been better positioned for growth and continued success. It has been a privilege to lead this company and work alongside the best team in the industry. I am confident in Ryals and the entire Flowers team, and I know they will continue to execute on our strategic priorities and build shareholder value."

For the 52-week Fiscal 2019, the Company Reaffirms:

• 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 $1.02, 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:

Consolidated First Quarter 2019 Summary

Compared to the prior year first quarter where applicable

• Sales increased 4.8% to $1.264 billion.
• Percentage point change in sales attributed to:
• Pricing/mix: 3.2%
• Volume: -0.2%
• Acquisition: 1.8%
• On a consolidated basis, branded retail sales increased $43.8 million, or 6.2% to $755.6 million, store branded retail sales increased $21.3 million, or 12.4% to $193.1 million, while non-retail and other sales decreased $7.7 million, or 2.4% to $315.1 million.
• Branded retail sales were driven by continued sales growth from DKB organic products, growth in our expansion markets and store branded breads and buns, the introduction of Nature's Own Perfectly Crafted breads in the second quarter of 2018 and Sun-Maid breakfast bread late in the third quarter of 2018, pricing actions, and the acquisition of Canyon Bakehouse in the fourth quarter of 2018. Partially offsetting the increase were volume declines in white breads and miscellaneous specialty breads.
• Store branded retail sales increased primarily due to store-branded items produced by Canyon Bakehouse, positive price/mix, and volume growth in store branded breads and buns, partially offset by volume declines in store branded cake.
• Foodservice and vending volume declines primarily drove the decrease in non-retail and other sales, partly because of lost business due to the receipt of inferior ingredients in 2018.
• Operating income increased 18.2% to $90.6 million. Excluding matters affecting comparability, adjusted operating income increased 5.0% to $92.4 million.
• Adjusted EBITDA increased 3.8% to $137.2 million, representing 10.9% of sales, a 10-basis point decrease.
• Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 51.6% of sales, a 20-basis point decrease. These costs were lower as a percentage of sales due to improved sales and increased production volumes, partially offset by increases in outside purchases of product. Rising commodity prices, and higher labor costs were mostly offset by improved pricing/mix.
• Selling, distribution and administrative (SD&A) expenses were 37.7% of sales, unchanged to the prior year. A larger portion of sales through independent distributors and a shift in product mix resulted in higher distributor distribution fees. These fees, combined with higher selling costs and increased marketing investments offset prior year Project Centennial-related consulting costs and lower legal fees and litigation settlements.
• Depreciation and amortization (D&A) expenses were $44.8 million, 3.5% of sales, a 20-basis point decrease.

Following the organizational restructuring under Project Centennial, the company has consolidated its operations into one operating segment. Beginning with the first quarter of 2019, the comparative periods are presented on a consolidated basis due to this change.

Cash Flow, Capital Allocation, and Capital Return
In the first quarter of fiscal 2019, cash flow from operating activities was $96.2 million, capital expenditures were $20.8 million, and dividends paid were $39.3 million. During the quarter, the company made cash debt repayments of $40.5 million.

There are 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 first quarter 2019 results at 8:30 a.m. (Eastern) on May 16, 2019. The call can be accessed by following the webcast link on flowersfoods.com. 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, Wonder, Tastykake, and Dave's Killer Bread. Learn more at www.flowersfoods.com.

FLO-IR   FLO-CORP

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 income tax expense also excludes the impact of tax reform. The company believes that these measures, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.

Net debt to EBITDA is used as a measure of financial leverage employed by the company. Gross margin excluding depreciation and amortization is used as a performance measure to provide additional transparent information regarding our results of operations on a consolidated and segment basis. Changes in depreciation and amortization are separately discussed and include depreciation and amortization for materials, supplies, labor and other production costs and operating activities.

Presentation of gross margin includes depreciation and amortization in the materials, supplies, labor and other production costs according to GAAP. Our method of presenting gross margin excludes the depreciation and amortization components, as discussed above.

The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure.

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SOURCE Flowers Foods, Inc.