Flowers earnings up 27%; trims sales forecasts

by Eric Schroeder
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THOMASVILLE, GA. — Success of strategic acquisitions combined with improved efficiencies helped drive a 27% gain in earnings at Flowers Foods, Inc. in the second quarter ended July 18. The company lowered its sales growth guidance for 2009 but held its earnings forecast steady.

Net income in the second quarter was $30,341,000, equal to 33c per share on the common stock, up from $23,949,000, or 26c per share, in the same period a year ago. The most recent quarter included a $3,013,000 gain on acquisition related to the Cedar Rapids, Iowa, bread mix plant acquired from General Mills, Inc. in May.

Net sales were $614,448,000, up 14% from $540,656,000 in the second quarter of fiscal 2008. The jump in sales was attributed to a 10.6 percentage point gain from acquisitions and a 4.7 point boost from favorable pricing/mix, partially offset by a 1.7 point decline in volume. Flowers said the strong sales reflected strength in its branded retail business, which grew 10.7% in the quarter.

"Our team continues to deliver good results in the face of a challenging marketplace," said George E. Deese, chairman, president and chief executive officer. "We increased our overall sales by 13.6%, driven by the impressive expansion of our branded sales and sales from last year's acquisitions. The success of our strategic acquisitions, combined with our efforts to improve costs and increase efficiencies, drove our earnings and helped us deliver improved operating margins."

Elaborating on the gain from the acquisition, Flowers said the fair value of the identifiable assets acquired in the transaction and liabilities assumed exceeded the price the company paid. "In accordance with the new accounting standard on business combinations, the resulting gain is recorded to the income statement as part of operations," Flowers said.

Updating the company’s sales guidance for 2009, Mr. Deese said Flowers now expects sales growth of 9.7% to 11%, or $2,650 million to $2,680 million, down from earlier guidance of 12.6% to 14.5%, or $2,720 million to $2,765 million. The lower sales figure takes into consideration the impact the economy has had on consumer spending and certain competitive dynamics in the marketplace, Mr. Deese said.

Mr. Deese said Flowers earnings guidance for the year, excluding the 2c gain on acquisition, will remain 4.8% to 5.1% of sales, or $127.1 million to $137.3 million, down from the first-quarter estimate of $127.8 million to $138.3 million.

"Going forward, we will continue to seek sustainable growth, manage our resources and operations wisely, and invest prudently to create shareholder value over the long term," he said. "Our business strategies have served us well for many years in all economic environments and we remain committed to those strategies."

Gross margin in the second quarter was 45.7% of sales, which was flat compared with the second quarter of 2008. The company said higher ingredient costs were offset by declines in packaging and labor costs as a per cent of sales and improved manufacturing efficiencies.

Flowers said capital spending in fiscal 2009 is expected to be around $75 million, including the completion of a bread line at the company’s new bakery in Kentucky, as well as costs for capital maintenance and efficiency improvements in the company’s other bakeries.

In a breakdown of results by segment, second-quarter EBIT (earnings before interest and taxes) was $45,693,000 in the Direct-Store-Delivery segment, up 26% from $36,387,000 in the same period a year ago. Sales were $507,475,000, up 15%.

In the company’s Warehouse Delivery segment, EBIT in the quarter was $12,108,000, up 87% from $6,461,000. Sales were $106,973,000, up 7%.

For the first six months of fiscal 2009, net income at Flowers Foods was $67,722,000, or 73c per share, up 13% from $59,732,000, or 65c per share, in the first half of fiscal 2008. Net sales were $1,421,455,000, up from $1,217,363,000.

The company’s stock was down 3% per share in early morning trading on the New York Stock Exchange.

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