Flowers Foods, Inc. reported sales and earnings for its 16-week first quarter ended April 23, 2011. In summary, Flowers Foods:
- Achieved $.45 diluted earnings per share compared to $.44 in the first quarter last year. Excluding charges related to a bakery closure and a pending merger, earnings per share increased 13.6 percent to $.50.
- Reported a sales increase of 0.9 percent compared to first quarter last year.
- Generated cash flow from operations of $72.6 million.
- Outlined long-term growth goals at a March analyst event.
- Announced an all cash merger agreement with Tasty Baking Company.
"The first quarter of 2011 was eventful for Flowers Foods," said George E. Deese, chairman of the board and chief executive officer in a prepared statement. "We achieved a modest sales increase and solid growth in earnings per share, excluding one-time charges. At our analyst event in March, we reset our growth targets, anticipating that ongoing industry consolidation will bring greater opportunity for mergers and acquisitions. In April, we announced the merger agreement with Tasty Baking, which will strengthen our snack cake business and extend the geographic reach of our Nature's Own brand and other fresh bakery foods.
"As the year unfolds, we expect to grow sales as we reach new customers, new markets, and take advantage of opportunities presented with the Tasty merger. Our focus is on improving operations and increasing prices to offset higher costs, managing our core business to maintain share and volume, completing the Tasty merger and planning for a smooth integration, and exploring growth opportunities," Deese said.
For the 16-week first quarter of 2011, sales increased 0.9 percent to $801.8 million compared to $795.0 million in last year's first quarter. The sales increase was attributable to favorable net pricing/mix of 2.1 percent, partially offset by decreased volume of 1.2 percent. The price/mix increase was driven primarily by price across all categories. Volume was impacted by lower-than-planned sales in the branded retail and foodservice channels.
During the quarter, the company's direct-store-delivery (DSD) sales increased 0.1 percent. This increase consisted of positive net pricing/mix of 1.9 percent, partially offset by a volume decline of 1.8 percent. As a result of the positive price/mix, dollar sales in the branded retail channel increased quarter over quarter. The volume decline was primarily the result of decreases in the branded retail and foodservice channels, partially offset by increases in the store brand channel. Volume declines in white bread and soft variety bread resulted in lower branded volume, while declines in quick-serve and other restaurants primarily caused lower foodservice volume.
Sales in the warehouse delivery segment increased 4.1 percent due to positive net pricing /mix, with volume being flat quarter over quarter. This increase was driven mainly by increases in store brand cake and, to a lesser extent, higher foodservice sales.
Net income for the quarter was $41.2 million, an increase of 1.2 percent over the $40.7 million reported for the first quarter of fiscal 2010. Diluted earnings per share was $.45, a 2.3 percent increase over the $.44 diluted earnings per share reported for last year's first quarter. We incurred costs, net of operational savings, of $4.2 million, net of tax, or $.05 per diluted share relating to the closure of a bakery and the impending merger with Tasty Baking. We expect the effect of the bakery closure on the full year to be neutral to slightly dilutive.
Gross margin as a percent of sales for the quarter increased 80 basis points to 48.6 percent compared to 47.8 percent in the prior year's first quarter. This increase was due primarily to a decrease in ingredient costs as a percent of sales, partially offset by increases in packaging and workforce-related costs as a percent of sales. Net of operational savings, costs associated with the bakery closure negatively impacted gross margin $2.8 million, or 30 basis points as a percent of sales.
Selling, distribution, and administrative costs as a percent of sales for the quarter were 37.4 percent compared to 36.8 percent in the same quarter last year. Costs associated with the closed bakery, net of operational savings, and the pending merger negatively impacted selling, distribution, and administrative costs $3.1 million, or 40 basis points as a percent of sales.
Depreciation and amortization expenses for the quarter increased 30 basis points as a percent of sales compared to last year's first quarter due to equipment placed in service during the second half of 2010 and accelerated depreciation of $0.6 million on certain equipment related to the plant closure. Net interest income for the quarter was $0.6 million higher than last year's first quarter due to lower interest expense as a result of less debt outstanding. The effective tax rate for the quarter was 35.0 percent as compared to 35.6 percent in the first quarter last year. The full-year tax rate is expected to be approximately 35.0 percent to 35.5 percent.
Operating margin as a percent of sales for the quarter was 7.7 percent compared to 7.8 percent in last year's first quarter. The bakery closure costs, net of operational savings, and merger-related costs negatively affected operating margin $6.5 million, or 80 basis points as a percent of sales. EBITDA as a percent of sales for the first quarter was 11.2 percent compared to 11.0 percent for the same quarter last year. The bakery closure, net of operational savings, and merger-related costs negatively affected EBITDA $5.9 million, or 70 basis points as a percent of sales.
During the quarter, the company invested $22.1 million in capital improvements and paid dividends of $18.1 million to shareholders. The company also acquired 695,403 shares of its common stock under its share repurchase plan for $18.0 million, an average of $25.93 per share. Since the inception of the share repurchase plan, the company has acquired 24.9 million shares of its common stock for $422.2 million, an average of $16.96 per share. The plan authorizes the company to repurchase up to 30.0 million shares of common stock.
