Flowers Foods Inc., producer of Nature's Own, Dave's Killer Bread, Wonder, Canyon Bakehouse, Tastykake, and other bakery foods, reported financial results for the company's 12-week third quarter ending October 8, 2022.
- Sales increased 12.7% to a quarter-record $1.158 billion.
- Net income increased 4.3% to $40.5 million. Adjusted net income decreased 0.4% to $64.6 million.
- Adjusted EBITDA increased 1.6% to $120.4 million, representing 10.4% of sales, a 110-basis point decrease.
- Diluted EPS increased $0.01 to $0.19. Adjusted diluted EPS was consistent with the prior year period at $0.30.
Ryals McMullian, president and CEO of Flowers Foods, said in the announcement: "Flowers' record results in a challenging environment underscore the resiliency of our business and the ongoing effectiveness of our strategy. Our performance reflects strong results from our number one brands, which continue to resonate with consumers despite the impact of inflation on purchasing decisions. And we are successfully mitigating this inflationary impact with initiatives to enhance sales and margins.
"Looking forward, we are focused on maintaining our momentum through increased investments in innovation and marketing. By leveraging our leading brands, we believe that our agile innovation initiative will expand our revenue streams beyond the traditional bread aisle. The nationwide launch of Dave's Killer Bread snack bars in 2023 is just the first step in this process. Our strong balance sheet and ample cash flow enable us to take a long-term perspective, and we have a hundred-plus year history of driving profitable growth in a variety of market conditions. As always, we remain focused on creating shareholder value and achieving results in line with our long-term financial targets."
For the 52-week fiscal 2022, the company expects:
- Sales in the range of approximately $4.807 billion to $4.850 billion, representing an increase of approximately 11.0% to 12.0% compared to the prior year period. Prior guidance called for sales of $4.764 billion to $4.850 billion, representing an increase of approximately 10% to 12%.
- Adjusted EPS in the range of approximately $1.25 to $1.30.
The company's outlook is based on the following assumptions:
- Depreciation and amortization in the range of $140 million to $145 million.
- Net interest expense of approximately $7 million.
- An effective tax rate in the range of 24.0% to 24.5%.
- Weighted average diluted share count for the year of approximately 213.5 million shares.
- Capital expenditures in the range of $150 million to $160 million, with $60 million to $70 million related to the ERP upgrade.
Consolidated third-quarter operating highlights
Sales increased 12.7% to $1.158 billion, a third quarter record.
Percentage point change in sales attributed to:
- Pricing/mix(2): 17.8%
- Volume(3): -5.1%
Branded retail sales increased $59.4 million or 8.6% to $748.4 million, store branded retail sales increased $39.3 million or 31.5% to $163.9 million, while non-retail and other sales increased $31.7 million or 14.8% to $245.8 million.
Branded retail sales increased due to higher prices intended to offset inflationary pressures and improved promotional efficiency, partially offset by volume declines.
Store branded retail sales increased primarily due to higher prices intended to offset inflationary pressures and volume growth net of targeted sales rationalization.
Non-retail and other sales increased primarily due to higher prices intended to offset inflationary pressures, partially offset by volume declines in foodservice. Targeted sales rationalization, including exiting certain low margin business, and production constraints from supply chain disruptions, contributed to the lower volumes.
Materials, supplies, labor, and other production costs (exclusive of depreciation and amortization) were 53.2% of sales, a 310-basis point increase. These costs increased as a percentage of sales due to input cost inflation, partially offset by inflation-driven pricing actions.
Selling, distribution and administrative (SD&A) expenses were 38.6% of sales, a 290-basis point decrease, benefitting from price increases in excess of wage inflation, lower employee fringe costs and distributor distribution fees as a percent of sales, and decreased legal settlement and consulting costs, partly offset by acquisition-related costs. Excluding matters affecting comparability, adjusted SD&A expenses were 36.4% of sales, a 200-basis point decrease from the prior year period.
Depreciation and amortization (D&A) expenses were $32.9 million, or 2.8% of sales, a 30-basis point decrease.
Net income increased 4.3% to $40.5 million due to all the factors mentioned above, net of a higher tax rate from larger net favorable discrete items related to tax credits in the prior year quarter. Adjusted net income decreased 0.4% to $64.6 million.
Adjusted EBITDA increased 1.6% to $120.4 million, representing 10.4% of sales, a 110-basis point decrease.