Deese sees a record year for Flowers in prospect
by Josh Sosland
THOMASVILLE, GA. — Even as Flowers Foods, Inc. continued to delay issuing full-year earnings guidance because of a lack of clarity over when it will complete an acquisition of 20 Hostess Brands baking plants, George E. Deese, chairman and chief executive officer, was unbridled in his enthusiasm about the company’s financial prospects.
“I can tell you that I believe it will be a record year, and that it will meet or exceed our long-term objectives,” he said. “With the Hostess transaction still under regulatory review, we are unable to give you full-year guidance. We expect that process to be completed in the second half.”
Mr. Deese offered his analysis at the outset of a May 16 conference call with investment analysts. The call, in connection with first-quarter financial results, will be Mr. Deese’s last as chief executive officer. In February, Flowers announced that, in keeping with its succession plan, he will be succeeded at the company’s May 22 annual meeting as c.e.o. by Allen L. Shiver, Flowers’ president. Mr. Deese will assume the role of executive chairman at that time.
Commenting on the quarter, Mr. Deese noted the completion by Flowers of its acquisition of the Sara Lee fresh baked foods brands in California, progress in the 2012 acquisition of Lepage Bakeries in New England, the closing of a new term loan and amended credit agreement in anticipation of pending acquisitions.
In a discussion of macro baking industry issues, Mr. Shiver said Flowers has been performing well in a very difficult snack cake market.
“I.R.I. data show that in the quarter, the cake category declined 4.9% in units and 1.9% in dollars,” he said. “We were pleased that our Tastykake and Mrs. Freshley’s brands performed very well in the quarter. In fact, our cake business was up double digits. All segments of our cake business increased, but the strongest growth was our single-serve snack cakes.”
Asked whether the surge in snack cake sales would reverse once Hostess products are back on the market this summer, Mr. Shiver said Flowers was intent upon holding its gains wherever possible.
“We really don’t think of them as windfall sales,” he said of the gains. “Our team has done a great job of being in position to take advantage of the opportunity when it presented itself. Again, that being said, we’re working very hard to make sure the business we’ve gained is secure. But again, whenever you have a new competitor re-entering the marketplace there’s always a threat, and our job is to do everything that we can to hold onto the business we gained and also grow from that base. So we are putting our plans together and I feel confident that we’ll be successful.”
With the vacuum created by the Hostess liquidation and with acquisitions, Flowers is serving 20,000 stores that it was not serving a year ago, an increase of over 20%, Mr. Shiver said.
Amid dramatic marketplace changes, the overall trends in the fresh packaged bread category have changed only at the margins, Mr. Shiver said. Scanner data indicate a 0.8% drop in unit sales and a 0.7% gain in dollar sales. He characterized these figures as a “slight improvement” from the last quarter. Flowers during this period was able to achieve major gains in market share.
“You probably won’t be surprised to know that I.R.I. shows our sales volume increase translated into very good growth in our branded products,” he said. “Our brands increased 20.4% in units, and 21% in dollars.”
With the gains, Mr. Shiver said Flowers total U.S. share has climbed to 13.1% of dollar sales and 11.5% of unit sales.
“Looking at recent weeks, our share continues to grow, reflecting growth in our core markets, as well as the Northeast, California, and other expansion markets,” he said. “As we’ve told you before, each share point in the total U.S. fresh bakery category equals about $103 million at wholesale.”
Commenting on the market for private label bread, Mr. Shiver emphasized that while the category is large (25% dollar share and 35% unit share), it has remained fairly steady over the past several years. That said, he noted a “slight uptick” in the share commanded by store brands during the past quarter, attributing the gain to “competitive changes taking place in the industry.”
Introducing and expressing confidence in his successor, Mr. Deese said the handing off of leadership at Flowers is handled thoughtfully at the company.
“We take management succession very seriously at Flowers Foods, not just at the top level but throughout the company,” he said. “Each of our managers realizes it is their responsibility to plan for the future. Having experienced leaders who understand our strategies and our culture has contributed to our company’s success through several generations. Since Flowers was founded in 1919, which is 94 years ago, we have only had five individuals in the c.e.o. position. Next week, the sixth Flowers c.e.o. will take that responsibility. At Flowers Foods, we strongly believe in continuity of leadership and continuity of philosophy, which we think has been a real competitive advantage for Flowers Foods through the years. Allen Shiver has been with the company his entire career, 34 years, and a few more years counting his work part time while in school. He gained a broad base of experience and knowledge about our business through many assignments in operations, sales, marketing and other areas. I, along with the board of directors, have full confidence in Allen’s ability to provide insightful leadership, and guide our company for the future.
“I also know the quality and experience of the executive team and of our leadership team throughout our organization. That gives me confidence that as Allen takes on his new role, you will see the Flowers way continue as we focus on opportunities to grow and build value for our shareholders.”