Flowers Foods, Inc. Reports Fourth Quarter And Full Year 2017 Results

THOMASVILLE, Ga., Feb. 7, 2018 /PRNewswire/ -- Flowers Foods, Inc. (NYSE: FLO), producer of Nature's Own, Wonder, Tastykake, Dave's Killer Bread, and other bakery foods, today reported financial results for the company's 12-week fourth quarter and 52-week full year ended December 30, 2017. 

Fourth Quarter Summary: 
Compared to the prior year fourth quarter where applicable 

• Sales increased 0.6% to $873.6 million. Excluding sales related to a divestiture, sales increased 1.1%. 
• Diluted EPS increased $0.31 to $0.37, including approximately $0.23 related to tax reform. 
• Adjusted diluted EPS(1) was unchanged at $0.17. 
• Net income increased $65.5 million to $78.5 million. 
• Adjusted net income(1) decreased 2.1% to $35.8 million. 
• Adjusted EBITDA(2) decreased 0.7% to $91.0 million. 
• Adjusted EBITDA(2) margin decreased 10 basis points to 10.4% of sales. 

Fiscal 2017 Summary: 
Compared to the prior year where applicable 

• Sales decreased 0.2% to $3.921 billion. Excluding sales related to a divestiture, sales increased 0.4%. 
• Diluted EPS decreased $0.07 to $0.71, including approximately $0.23 related to tax reform. 
• Adjusted diluted EPS(1) decreased $0.04 to $0.89. 
• Net income decreased 8.3% to $150.1 million. 
• Adjusted net income(1) decreased 3.8% to $187.2 million. 
• Adjusted EBITDA(2) decreased 0.7% to $449.8 million. 
• Adjusted EBITDA(2) margin was unchanged at 11.5% of sales. 

(1)   Adjusted for items affecting comparability. See reconciliations of non-GAAP measures in the financial statements following this release. 

(2)   Earnings before Interest, Taxes, Depreciation and Amortization, adjusted for certain items affecting comparability. See reconciliations of non-GAAP measures in the financial statements following this release. 

CEO's Remarks: 
"Our team delivered solid sales growth and great products and service in the fourth quarter, with consumer demand for organic Dave's Killer Bread driving top line growth and offsetting a challenging marketplace for traditional bakery items," said Allen Shiver, Flowers Foods president and CEO. "This was achieved in a quarter where we implemented new roles and responsibilities as part of our revamped organizational model. We also made headway in improving manufacturing efficiencies, lowering selling, distribution and administrative costs, while removing complexity from the business. These improvements, along with lower net interest expense and strong cash flow, enabled us to offset higher workforce-related expenses, reduce debt and support dividend growth." 

Mr. Shiver continued, "Our priority in 2018 is to create shareholder value by improving profit margins and driving sustainable sales growth, and we believe the progress we made in 2017 has us well-positioned for a promising 2018. We enter the year with strong momentum in our key initiatives. These efforts are expected to allow us to capture additional cost savings and drive brand growth in underdeveloped segments and geographies with new, innovative products and marketing investments." 

For the 52-week Fiscal 2018, the Company Expects: 

• Sales in the range of approximately $3.921 billion to $3.982 billion, representing growth of approximately 0.0% to 1.6%. 
• Adjusted diluted EPS in the range of approximately $1.04 to $1.16, representing growth of approximately 16.9% to 30.3%. Adjusted EPS guidance includes approximately $0.15 to $0.17 related to the impact of the lower effective tax rate described below, and excludes consulting and restructuring costs associated with Project Centennial expected to be in the range of $12 million to $15 million. 

The company's outlook includes the following assumptions: 

• Sales associated with incremental brand investment relative to fiscal 2017 are expected to primarily benefit results in the second-half of fiscal 2018. 
• Input cost inflation of approximately $40 million is expected to be offset through pricing actions taken in early first quarter fiscal 2018. 
• Depreciation and amortization is forecasted to be in the range of $145 million to $150 million. 
• Net interest expense is forecasted to be in the range of $11 million to $12 million. 
• For the full year, the company expects an effective tax rate of approximately 25% to 26%, reflecting the effects of the new tax law. In the first quarter the tax rate will be approximately 27% due to the expected impact at vesting of stock-based compensation awards. The effective tax rate for the remaining quarters of the year is expected to be approximately 25%. 
• Weighted average diluted share count for the year of approximately 211 million shares. 
• Capital expenditures for the year are estimated to be in the range of $95 million to $105 million. 

Update on Strategic Priorities: 
The company continues to execute on its strategic priorities established under Project Centennial. During the fourth quarter, Flowers began transitioning to the new organizational model that includes enhanced focus on brand growth and operating efficiency. The company expects the organizational model to be fully implemented in fiscal 2019. The company also finalized its fiscal 2018 brand investment plans, which includes new internal capabilities intended to deliver innovative products that offer consumers a meaningful point of difference. 

As part of Project Centennial, the company achieved gross cost savings of $32 million in fiscal 2017, primarily from reductions in spending on purchased goods and services (PG&S). The company is targeting additional gross savings in fiscal 2018 of $38 million to $48 million. This target reflects further savings through PG&S, as well as from a more efficient and productive organizational structure, continuous improvement, supply chain optimization, and improved ordering and stale reduction initiatives. 

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