US baker Flowers Foods has reported a slight lift in third-quarter earnings, which were boosted by "solid" sales gains.
In a regulatory filing yesterday (8 November) the company said net income rose to US$31.2m in the three months to 6 October, up from $31m in the comparable period of last year. EPS dropped 4.3% to $0.22 after a one-time acquisition related charge of $4m.
The company booked a 6.2% increase in sales, which CEO George Deese described as a "solid" performance in the face competitive market conditions and higher promotional activity.
Flowers raised its sales guidance to a range of 7-9% and tightened its EPS outlook to a 3.5-5% range. The company said in the fourth quarter it had begun to take pricing action to offset higher costs.
Flowers management has suggested the US bakery sector is undergoing a process of consolidation that the company hopes to lead. The company has indicated it hopes to increase its geographical spread through the acquisition of regional bakers. During the period the group completed the purchase of Maine-based Lepage Bakeries.
Last month, meanwhile, Flowers acquired the licence to the Earthgrains and Sara Lee brands in California from Grupo Bimbo.
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Flowers Foods Announces Third Quarter Results; Updates Guidance
Increased net sales by 6.2% Delivered earnings per share of $0.22 as reported and $0.25 adjusted for one-time costs Increased operating income Generated $55.4 million in cash flow from operations Completed the acquisition of Lepage Bakeries in Auburn, Maine 2012 sales guidance increase of 7% to 9% confirmed; earnings per share guidance tightened to 3.5% to 5% increase On October 24, announced the acquisition of certain assets and trademark licenses for Sara Lee and Earthgrains from BBU, Inc., a subsidiary of Grupo Bimbo S.A. B. de C.V.
Flowers Foods, Inc. (NYSE: FLO) today reported results for its 12 and 40 weeks ended October 6, 2012. Sales were $717.3 million compared with$675.4 million for the third quarter of 2011. Net income was $31.2 million, or $0.22 per share-diluted, compared with $31.0 million, or $0.23 per share-diluted, in last year's third quarter. Adjusted for one-time acquisition-related costs, earnings per share were $0.25 for the quarter.
George E. Deese, Flowers Foods' chairman and chief executive officer, said, "We delivered solid sales growth in the quarter in spite of a highly competitive marketplace and continued economic pressure on consumers. Margins were impacted by higher promotional activity and soft volumes. However, the Lepage acquisition contributed nicely to our sales increase. We also achieved positive price/mix that is encouraging. Nature's Ownagain drove our internal growth, helping to offset lower sales of white breads, buns, and rolls.
"The integration of Lepage is going well with sales and earnings in line with our expectations. We are introducing Nature's Own and Tastykake in the Lepage market during the fourth quarter and are pleased with trade customers' reaction to those brands as an add-on to Lepage's product offerings. The recently announced acquisition of trademark licenses for the Sara Lee and Earthgrains brands in California strengthens our position and gives us a growth platform in that high population market for years to come. When the transaction is completed, our fresh baked foods will be available to more than 75% of the U.S. population, which puts us ahead of our previously announced goal.
"In the fourth quarter, we have begun taking pricing to offset higher input costs for 2013 and we also are reducing the frequency and depth of our promotions. We are confident in our team's ability to continue driving growth as we leverage the power of our Nature's Own and Tastykake brands while successfully integrating two highly strategic acquisitions into Flowers Foods."
Third Quarter 2012 Results
For the 12-week third quarter of 2012, sales were $717.3 million, a 6.2% increase from the $675.4 million in last year's third quarter. This increase was attributable to favorable net price/mix of 2.7%, contributions from the Lepage acquisition of 5.8%, partially offset by volume declines of 2.3%. The favorable net price/mix was driven by the branded retail and non-retail channels. The volume decline was a result of declines across all channels. In the branded retail channel, cake and white bread volume declines were partially offset by an increase in soft variety volume. Store brand cake declines led the volume decrease in that channel. The non-retail channel volume declines were primarily related to the institutional and contract manufacturing categories, partially offset by increases in the foodservice category.
Net income for the quarter was $31.2 million compared to $31.0 million in the third quarter of fiscal 2011. For the quarter, diluted earnings per share were $0.22, down 4.3% as compared to $0.23 in last year's third quarter. During the third quarter this year, we incurred one-time acquisition-related costs of $4.0 million, net of tax, or $0.03 per diluted share, and in last year's third quarter, we incurred one-time costs related to the Tasty acquisition of $0.5 million, net of tax, but this had no effect on earnings per diluted share.
Gross margin as a percentage of sales for the quarter was 46.7%, up 80 basis points from 45.9% in the third quarter of 2011. This increase was due primarily to gross margin contributed by Lepage. Higher sales and improved manufacturing efficiencies also contributed to the increase. Gross margin in the quarter was negatively impacted by higher promotions.
Selling, distribution, and administrative costs as a percent of sales for the quarter were 35.9%, up 50 basis points from 35.4% of sales in the third quarter of fiscal 2011. Increases in acquisition-related and workforce-related costs were the main drivers of the increase. The one-time acquisition-related costs were $5.1 million, or 70 basis points as a percent of sales during the third quarter this year and $0.7 million, or 10 basis points as a percent of sales in last year's third quarter.
Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to last year's third quarter. We incurred net interest expense during the quarter due to the issuance in the second quarter of this year of $400.0 million of 4.375% senior notes due 2022, with the majority of the proceeds from the notes used for the Lepage transaction. The effective tax rate for the quarter was 36.4% as compared to 35.4% in last year's third quarter. This increase was primarily due to certain temporary differences that reduced the Section 199 deduction and certain non-deductible, acquisition-related costs.
Operating income, defined as earnings before interest and taxes (EBIT), for the third quarter was $52.7 million, or 7.3% of sales as compared to$47.8 million, or 7.1% of sales in last year's third quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter was $77.4 million, or 10.8% of sales compared to $70.6 million, or 10.5% of sales for the third quarter of 2011. One-time acquisition-related costs negatively affected EBIT and EBITDA by $5.1 million, or 70 basis points as a percent of sales in this year's third quarter and by $0.7 million, or 10 basis points as a percent of sales in last year's third quarter.
Segment Results
DSD (83% of sales): During the quarter, the company's direct-store-delivery (DSD) sales increased 6.9%, reflecting positive net price/mix of 0.7%, contribution from the Lepage acquisition of 7.0%, offset by volume decreases of 0.8%. The positive net price/mix was primarily driven by the branded retail channel, primarily cake. The volume decrease was a result of declines in the branded cake, foodservice, and institutional categories, partially offset by increases in the soft variety category.
Operating income for the DSD segment was $58.6 million, or 9.9% of sales for the third quarter compared to $47.0 million, or 8.5% of sales in last year's third quarter. This increase was attributable to the Lepage acquisition, lower ingredient costs, and improved manufacturing efficiencies.
Warehouse (17% of sales): Sales through warehouse delivery increased 2.8%, reflecting positive price/mix of 9.4%, partially offset by volume decreases of 6.6%. The positive price/mix was primarily attributable to the contract manufacturing category in the non-retail channel. The volume decrease was the result of declines in store brand cake and contract manufacturing, partially offset by increased foodservice volume.
Operating income for the warehouse segment was $7.6 million, or 6.1% of sales for the third quarter compared to $7.3 million, or 6.0% of sales in last year's third quarter.
Cash Flow
During the third quarter, cash flow from operating activities was $55.4 million. The company invested $20.0 million in capital improvements and paid dividends of $22.1 million to shareholders. During the quarter, under the company's share repurchase plan, the company acquired 600,000 shares of its common stock for $12.2 million, an average price per share of $20.39. Since the inception of the plan, the company has acquired 38.5 million shares for $444.4 million, an average of $11.55 per share.
Outlook for 2012
The company continues to expect 2012 sales to increase 7.0% to 9.0% over 2011. Earnings per share are now expected to increase 3.5% to 5.0%, excluding one-time costs, over the 2011 adjusted earnings per share of $0.96. Previous guidance was for earnings per share to increase 3.5% to 8%. As previously discussed, earnings per share are expected to be flat to slightly up, excluding the contribution from the Lepage acquisition, which was completed early in the third quarter.
Original source: Flowers Foods
