Scoring earnings growth, Flowers raises guidance

by Josh Sosland
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THOMASVILLE, GA. — With fiscal 2007 at the halfway point, Flowers Foods, Inc. has raised earnings guidance for the full year to a range of $85 million to $94 million, up from previous guidance of $81 million to $87 million and up 13% to 25% from $75 million in 2006.

Net income of Flowers Foods in the second quarter ended July 14 was $22,190,000, equal to 24c per share on the common stock, up 13% from $19,724,000, or 21c, during the second quarter last year. Net sales were $477,838,000, up 7%.

"In our core D.S.D. (direct-store delivery) territory, our market share increased in both dollars and units, an indication of the strength of our brands and of our execution in the marketplace," said George E. Deese, chairman, president and chief executive officer. "Sales in our expansion markets continued to grow steadily. Pricing helped offset higher ingredient costs, and we are working to improve efficiencies to recover gross margin."

Mr. Deese said the company benefited from new production lines located near the company’s growth markets, noting that the new production capacity helped Flowers reduce selling and distribution expenses.

Drilling deeper into the company’s sales for the second quarter, results were mostly but not completely positive.

Generating a 7.2% increase in second-quarter sales were 5.6 points from higher pricing and 1.8 points from a positive mix shift.

"Unit volume was down slightly year over year as the decline in single unit snack cakes offset gains in loaf bread units and multi-pack snack cake units," Flowers said.

Gross margin during the second quarter declined by one percentage point to 48.7%. The positive effects of higher prices were offset by higher stale cost from new product introductions and promotional price allowances. Margins also were hurt by higher production costs that included the effects of price increases for flour, gluten and sweeteners. Margins a year earlier were bolstered by a $1 million insurance payment in connection with damage caused by Hurricane Katrina.

Conversely, selling, marketing and administrative costs as a percentage of sales fell 1.1 percentage points to 38.4%, reflecting higher prices for the company’s products and the effects of distribution rationalization that helped move production capacity "closer to the market," the company said.

Flowers Bakeries Group income before interest and taxes in the second quarter was $33,354,000 on sales of $386,298,000, up 3.8% and 8%, respectively, from the second quarter last year. In the first six months of 2007, the division’s EBIT was $78,471,000 on sales of $875,310,000, up 11% and 8%, respectively in the same period last year.

Flowers Specialty Group EBIT in the second quarter was $6,882,000 on sales of $91,540,000, up 84% and 4.8%, respectively, from the second quarter last year. In the six months ended July 14, the group’s EBIT was $15,013,000 on sales of $212,475,000, up 72% and 6%, respectively, from last year.

Year-to-date net income at Flowers Foods was $50,683,000, equal to 55c per share on the common stock, up 19% from $42,638,000, or 45c per share. Net sales were $1,087,785,000, up 8%.

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