Flowers Foods, Inc., which owns Mrs. Freshley’s, reported results for its 16-week first quarter ended April 21, 2012.
George E. Deese, Flowers Foods’ chairman and chief executive officer, said in a prepared statement, “While input costs presented headwinds in the first quarter, we were relatively pleased with our results. We achieved a 12 percent sales increase driven by the Tasty acquisition, expansion markets for Nature’s Own and Tastykake, new products, and added foodservice business. Sales increases for our Nature’s Own soft variety breads were partially offset by decreased sales of branded white breads. Our experienced team is focused on opportunities brought on by changes in consumer trends impacting the fresh baked foods business at retail and foodservice. As our earnings and margins experienced pressure in the quarter, we tightened administrative and operational expenses and continued to improve productivity levels. We expect to maintain these improved productivity levels and cost structure as the year unfolds.
“Looking ahead, our growth strategies continue to serve us well. We are achieving increases in our core business and our expansion markets. We also expect to take advantage of opportunities as the baking industry further consolidates. We are positioned to add new bakeries as needed, enter new geographic territories, and make acquisitions as we work to build shareholder value over the long term.”
For the 16-week first quarter of 2012, sales increased 12.0 percent to $898.2 million from $801.8 million in last year’s first quarter. This increase was attributable to favorable net price/mix of 2.4 percent, contributions from the Tasty acquisition (completed May 2011) of 7.9 percent and volume increases of 1.7 percent.
Dollar sales increased across all channels, while volume increases in the non-retail channel, more than offset volume declines in the branded retail channel. Volume increases in the non-retail channel were primarily the result of increases in the foodservice and contract manufacturing categories, while the decreased volume in the branded retail channel was primarily due to decreases in the white bread and buns and rolls categories, partially offset by increases in the soft variety category.
Net income for the quarter was $37.9 million compared to $41.2 million in the first quarter of fiscal 2011. For the quarter, diluted earnings per share were $0.28, compared to $0.30 in last year’s first quarter. Tasty was slightly accretive to net income for the quarter. During the first quarter last year, we incurred onetime costs of $4.2 million, net of tax, or $0.03 per diluted share relating to the closure of a bakery and the Tasty acquisition.
Gross margin as a percentage of sales for the quarter was 46.7 percent, down 190 basis points from 48.6 percent in the first quarter of 2011. This decrease was due primarily to increased ingredient and packaging costs as a percent of sales. The increase in ingredient costs was primarily attributable to double-digit increases in flour, as well as smaller increases in shortening/oil and sugar. 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. One-time costs associated with the bakery closure negatively impacted gross margin $2.8 million, or 30 basis points as a percent of sales, in the first quarter last year.
Selling, distribution, and administrative costs as a percent of sales for the quarter were 36.8 percent, down 60 basis points from 37.4 percent of sales in the first quarter of fiscal 2011. Higher sales prices and lower\ workforce-related costs as a percent of sales were the main drivers of the decrease. One-time costs associated with the bakery closure and the Tasty acquisition negatively impacted selling, distribution, and administrative costs $3.1 million, or 40 basis points as a percent of sales, in the first quarter last year.