Flowers Foods Inc Announces Results For The Second Quarter

PRESS RELEASE

THOMASVILLE, GA -- Aug. 12 --Flowers Foods Inc. (NYSE: FLO), producer of Nature's Own, Wonder, Tastykake, and other bakery foods, today reported financial results for the company's 12-week second quarter ended July 18, 2015.

Second Quarter 2015 Summary Financial Results compared to prior year second quarter

Sales (1) increased 1.8% to $889 million

EBITDA (2) increased 16.0% to $111 million; adjusted EBITDA (3) increased 13.0% to $113 million

Net income increased 23.1% to $52 million; adjusted net income increased 18.4% to $53 million

Diluted EPS increased 20.0% to $0.24; adjusted diluted EPS increased 19.0% to $0.25

Dividends paid increased 20.8% to $0.1450 per share

Prior period sales have been revised. See explanation in Form 10-Q which will be filed August 13, 2015 and Form 10-K filed February 25, 2015.

Earnings before Interest, Taxes, Depreciation & Amortization; see reconciliation of non-GAAP measures in the financial statements following this release.

Adjusted Earnings before Interest, Taxes, Depreciation & Amortization; see reconciliation of non-GAAP measures in the financial statements following this release.

See reconciliation of non-GAAP measures in the financial statements following this release.

Second Quarter Highlights

EBITDA and EPS are the highest ever recorded during the company's second quarter.

For the 12-week second quarter of fiscal 2015, the increase in consolidated sales reflects a volume increase of 0.9% and a positive price/mix of 0.9%.

Sales in expansion markets contributed 1.1% to the overall sales increase during the quarter; driven by the acquired Hostess bread brands -- Wonder, Home Pride, Merita, and Butternut.

The company generated $97.5 million of cash flow from operations and paid down $11.3 million of debt.

Fiscal 2015 Outlook

The company continues to expect 52-week fiscal 2015 sales of $3.786 billion to $3.861 billion and adjusted diluted earnings per share of $0.96 to $1.01. Capital expenditures are anticipated to be in the range of $85.0 to $95.0 million.

(1) Includes foodservice, vending, and contract manufacturing.

(2) See reconciliations of non-GAAP measures in the financial statements following this release.

(3) Represents the company's corporate head office amounts.

Executive Commentary:

Allen L. Shiver, president and chief executive officer, said, "Our team delivered an outstanding second quarter, with both of our operating segments posting top- and bottom-line growth. In our core markets, new products combined with our enhanced brand strategy brought consumers to our brands and improved margins. In our expansion markets, we continue to gain share with Wonder, Nature's Own, and our other proven brands. Retail sales of our two largest cake brands, Tastykake and Mrs. Freshley's, both posted growth, driven by the appeal of new products and expanded distribution.

"During the quarter, we also saw the benefit of our operational initiatives. Across a majority of our bakeries we realized improved manufacturing efficiencies, which, when combined with reduced input prices, drove margin expansion this quarter. This quarter, profitability at Lepage returned to more normalized levels, which also contributed to the strong margins in our DSD segment.

"Bringing a new bakery online can be challenging, but because of our experienced team's hard work, the start up at our Lenexa, Kansas DSD segment bakery went very smoothly. Kansas City and other Midwestern expansion markets are key to our growth strategy, and with capacity closer to these markets we can better serve our independent distributors and consumers.

Shiver continued, "The record results we report today are the result of hard work from the entire Flowers team to deliver value to shareholders. Looking ahead, we have significant momentum as we continue to execute our strategy. To grow sales and attract consumers, we intend to innovate our product portfolio and leverage our strong brands. To increase margins, we will improve efficiencies and reduce our costs. And finally, we continue to seek out strategic acquisition opportunities in order to expand our brand portfolio and geographic footprint."

DSD Segment Commentary

Of the total DSD segment sales increase, pricing/mix increased 0.7% and volume increased 1.4%. Branded retail sales were strong, primarily due to volume increases in white and soft variety breads. The increase in branded retail sales was partially offset by decreases in store branded retail due to exiting certain store branded business in the second half of fiscal 2014. The non-retail and other category posted solid volume growth, driven primarily by foodservice.

EBITDA and adjusted EBITDA margin for the DSD segment increased as a percentage of sales due to lower ingredient costs, improved manufacturing efficiencies, and cost-saving initiatives; partially offset by higher distribution costs.

Warehouse Segment Commentary

Of the Warehouse segment's sales increase, pricing/mix increased 1.4%, while volume decreased 1.1%. Improved price/mix drove the increase in branded retail sales, and the improvement in store brand retail sales was primarily the result of higher store brand cake sales. The decision to exit the lower-margin, non-retail tortilla business in the second half of 2014 drove the decrease in the non-retail and other category.

Indicating the improved mix of business, EBITDA margin for the Warehouse segment increased as a percentage of sales primarily due to the exit from the non-retail tortilla business in the second half of fiscal 2014 and lower ingredient costs, partially offset by higher workforce-related and packaging costs.

Consolidated Results Commentary

As compared to the prior year second quarter, consolidated EBITDA and adjusted EBITDA increased. Unallocated corporate expenses were elevated during the quarter primarily due to higher consulting and legal expenses, and lower pension income; partially offset by lower stock-based compensation expense.

Interest expense declined due to lower outstanding debt balances, while a higher notes receivable balance drove an increase in interest income. Income tax expense as a percentage of pre-tax income increased slightly.

During the quarter, the company adjusted its estimate of the fair value of certain properties held for sale and identified a production line to be closed in the third quarter. As a result of these actions, the company recognized asset impairment charges during the quarter totaling $2.3 million.

Cash Flow

During the quarter, cash flow from operating activities was $97.5 million, capital expenditures were $20.6 million, and dividends paid were $30.5 million. During the quarter, the company paid down debt by $11.3 million.

Dividend

The board of directors will review the dividend at its next regularly scheduled meeting. Any action taken will be announced following that meeting.

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 2014 sales of $3.75 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, and Tastykake.

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