Flowers Foods Inc. Reports 13 Percent Sales Increase In Third Quarter

Flowers Foods, Inc. reported sales and earnings for its 12 and 40 weeks ended Oct. 8, 2011. In summary, Flowers Foods:

• Reported diluted earnings per share of $0.23, equal to last year's third quarter; year-to-date, diluted earnings per share of $0.73 ($0.79 excluding one-time charges relating to the Tasty Baking acquisition and the closing of a facility in the first quarter), compared to $0.76 for the first nine months of 2010;
• Achieved sales increase of 13.0 percent compared to last year's third quarter, with price/mix contributing 4.9 percent and Tasty acquired sales contributing 8.7 percent, offset by a volume decline of 0.6 percent; increased sales year-to-date 6.0 percent, with price mix of 3.7 percent, acquisitions contribution of 3.6 percent, offset by a volume decline of 1.3 percent;
• Continued to experience pressure on margins from higher input costs;
• Introduced the Tastykake brand in Flowers' core markets in the Southeast; continued integration of Tastykake;
• Announced 2011 sales growth expected to be in line with guidance of 7 percent to 11 percent; 2011 earnings expected to be at low end of guidance; and
• Offered outlook for 2012 — sales within long-term growth targets of 5 percent to 10 percent; input costs projected up 4 percent to 8 percent.

George E. Deese, Flowers Foods' chairman and chief executive officer, said in a prepared statement, "Flowers Foods achieved strong sales growth in the quarter and delivered solid earnings despite the challenges presented by ongoing economic uncertainty. Our sales growth was driven by a combination of pricing/mix and the contribution from the Tasty acquisition. Earnings were driven by continued strong performance in the DSD segment, although cost increases and sales mix pressured gross margin. In the warehouse segment, margins were negatively impacted as significantly higher ingredient costs were not fully offset by pricing and by the previously announced shift in certain planned volume to the fourth quarter.

"I am pleased that our integration of Tasty is progressing as scheduled and meeting our expectations. During the quarter, we rolled out Tastykake products in our DSD markets across the Southeast and we will continue moving the brand into other Flowers markets.

"The weak economy and high unemployment continued to pressure the markets and impact consumer buying patterns during the quarter. However, we remain confident in our team's ability to manage through those challenges and leverage our long history of taking care of customers' needs, outperforming in the marketplace, and creating long-term value for shareholders," Deese said.

For the 12-week third quarter of 2011, sales increased 13.0 percent to $675.4 million compared to the $597.9 million reported for last year's third quarter. The sales increase was attributable to net favorable pricing/mix of 4.9 percent, contributions from the Tasty acquisition of 8.7 percent, partially offset by decreased volume of 0.6 percent.  Price/mix and dollar sales increased across all major channels. The volume decline was primarily the result of lower volume in the branded retail channel, particularly in the white bread and snack cake categories, partially offset by increases in the store brand, foodservice and contract manufacturing channels.

Net income for the quarter was $31.0 million compared to the $31.2 million reported for the third quarter of fiscal 2010. Net income was negatively impacted $.5 million, net of tax, due to one-time acquisition costs. Diluted earnings per share were $.23 compared to $.23 reported in the third quarter last year.

Gross margin as a percent of sales for the quarter was 45.9 percent compared to 47.1 percent in last year's third quarter, a decline of 120 basis points. This decrease was due primarily to an increase in ingredient and packaging costs as a percent of sales, partially offset by price increases and decreases in workforce-related costs as a percent of sales. The increase in ingredient costs was primarily attributable to flour, sweeteners, shortening, and cocoa.