Flowers Foods, Inc., whose holdings include Mrs. Freshleys, reported results for its fourth quarter and fiscal year ended Dec. 31, 2011 and provided guidance for 2012.
George E. Deese, Flowers Foods’ chairman and chief executive officer, said in a prepared statement, “Given ongoing challenges in the marketplace, we are pleased to report strong sales growth driven by the Tasty acquisition and our direct-store-delivery (DSD) segment. For the fourth consecutive quarter, the DSD segment achieved improved volume trends, reflecting the strength of the “Nature’s Own” brand and continued growth in new markets, which offset lower sales of regional white breads. Tasty exceeded our sales and earnings expectations. In the warehouse segment, higher input costs that were not offset by pricing, lighter-than-expected volumes, and sales mix significantly impacted results. For the quarter and year, higher input costs and sales mix changes in both the DSD and warehouse segments put pressure on earnings and gross margin.
“We remain cautious about the near-term given the input cost pressures we face in the first half of 2012, the ongoing marketplace competitiveness, and relatively weak consumer demand. However, the confidence we have in our core business is reflected in our 2012 guidance and we expect further opportunities as the industry continues to consolidate.”
Fourth quarter sales increased 14.0 percent to $653.6 million from $573.1 million in last year’s fourth quarter. This increase was attributable to favorable net price/mix of 3.8 percent, contributions from the Tasty acquisition of 9.6 percent and volume increases of 0.6 percent. Net price/mix and dollar sales increased across all major channels. The volume increases were primarily related to increases in the store brand and foodservice channels, partially offset by decreases in the branded retail channel, mainly in the white bread category.
Net income for the quarter was $23.0 million compared to $31.4 million in the fourth quarter of fiscal 2010. For the quarter, diluted earnings per share were $.17, compared to $.23 in last year’s fourth quarter.
Gross margin as a percentage of sales for the quarter was 45.9 percent, down 220 basis points as compared to 48.1 percent in the fourth quarter of 2010. This decrease was due primarily to increased ingredient and packaging costs as a percent of sales. The increase in ingredient costs was attributable to double-digit increases in flour, sugar, shortening/oil, and cocoa. The increase in ingredients and packaging costs were partially offset by price increases and lower workforce-related costs as a percent of sales. Improved manufacturing efficiencies also had a positive effect on gross margin.
Selling, distribution, and administrative costs as a percent of sales for the quarter were 36.8 percent, relatively flat as compared to 36.7 percent of sales in the fourth quarter of fiscal 2010. Higher sales prices and lower workforce-related costs as a percent of sales were mostly offset by higher distribution and advertising 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 $1.0 million lower than last year’s fourth quarter due to increased borrowings related to the Tasty acquisition. The effective tax rate for the quarter was 37.7 percent as compared to 33.3 percent in last year’s fourth quarter. This increase was primarily due to a lower benefit from discrete items in this year’s fourth quarter as compared to last year’s fourth quarter.
Operating margin as a percent of sales for the quarter was 5.6 percent compared to 8.0 percent in last year’s fourth quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) as a percent of sales for the fourth quarter was 9.1%, compared to 11.4% for the fourth quarter of 2010.