Flowers Foods, Inc. Reports Sales Decline In Fourth Quarter

Net income for the quarter was up 2.6 percent to $31.4 million from $30.6 million in the fourth quarter of fiscal 2009. For the quarter, diluted earnings per share were $.34, up slightly from $.33 in last year's fourth quarter.

Gross margin as a percentage of sales for the quarter was 48.1 percent, up 100 basis points as compared to 47.1 percent in the fourth quarter of 2009. This increase was due primarily to decreased ingredient costs as a percent of sales. The decrease in ingredient costs was partially offset by increased workforce-related and packaging costs as a percent of sales.

Selling, distribution, and administrative costs as a percentage of sales for the quarter were 36.7 percent compared to 35.6 percent in the same quarter last year. This increase was primarily the result of increased workforce-related costs as a percent of sales.

Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to last year's fourth quarter. Net interest income for the quarter was approximately $600,000 higher than last year's fourth quarter due to less borrowings outstanding. The effective tax rate for the quarter was 33.3 percent as compared to 33.6 percent last year.

Operating margin as a percent of sales for the quarter was 8.0 percent compared to 8.2 percent in last year's fourth quarter. EBITDA as a percent of sales for the fourth quarter was 11.4 percent, compared to 11.5 percent for the fourth quarter of 2009.

During the quarter, the company invested $24.2 million in capital improvements and paid dividends of $18.2 million to shareholders. The company also acquired 639,300 shares of its common stock under its share repurchase plan for $16.4 million, an average of $25.69 per share.

Sales for fiscal 2010 decreased 1.0 percent to $2.57 billion from the $2.60 billion reported for fiscal 2009. This 1.0 percent decrease consisted of negative pricing/mix of 1.7 percent and 0.5 percent due to the deconsolidation of the VIE. Partially offsetting these decreases were 1.0 percent contribution from acquisitions and increased volume of 0.2 percent. The increase in volume was primarily driven by soft variety bread and sandwich rounds in the branded retail channel and the cake category in the store-brand retail channel. These increases were partially offset by decreased sales in branded white bread and the vending and fast food categories of the foodservice channel. Throughout the year, the company experienced significant pricing pressure and substantial promotional activity within the baking industry.

For the year, the company's DSD sales decreased 3.0 percent. This decrease consisted of negative pricing/mix of 2.0 percent, lower volume of 0.4 percent and a 0.6 percent decline resulting from the deconsolidation of the VIE. The DSD segment experienced increases in branded soft variety and branded sandwich rounds, which were more than offset by decreases in branded white bread, store-brand white and variety breads, fast food, and foodservice.

During fiscal 2010, sales through warehouse delivery increased 7.9 percent, reflecting a 5.8 percent contribution from acquisitions, volume increases of 1.2 percent, and positive pricing and mix of 0.9 percent. The volume growth was the result of increases in snack cake, contract manufacturing, and foodservice businesses, partially offset by decreases in the vending category.

Net income for the year increased 5.2 percent to $137.0 million from $130.3 million for fiscal 2009. Diluted earnings per share were $1.49 for fiscal 2010, up 5.7 percent from the $1.41 reported for fiscal 2009.  Last year's results included a gain on acquisition of $.02 per diluted share relating to a May 2009 acquisition.

Gross margin as a percentage of sales for the full year was 47.7 percent compared to 46.5 percent in the prior year. The increase in margin was the result of decreased ingredient costs as a percent of sales, partially offset by increases in workforce-related and packaging costs as a percent of sales, and start-up costs associated with new production lines at several of our bakeries.