With strong quarter, Flowers upbeat about 2010

by Josh Sosland
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THOMASVILLE, GA. — Net income of Flowers Foods Inc. in the third quarter ended Oct. 10 was $31,926,000, equal to 34c per share on the common stock, up 17% from $27,415,000, or 29c, in the same quarter in 2008. Net sales were $602,570,000, up 4.6% from $575,937,000.

“I am pleased with the sales, operating margins and earnings results we delivered in the face of continued pressures from the overall economy, the competitive landscape and higher promotional activity in the bakery category,” said George E. Deese, chairman, chief executive officer and president. “Our sales results were mixed as our direct-store-delivery business took action to protect our market share through promotions while our warehouse business achieved higher snack cake sales, improved pricing/mix and benefited from acquisitions.”

Acquisitions were the largest contributor to the 4.6% sales growth, accounting for 4.2 percentage points with pricing/mix reflecting another 1.4 points partly offset by a negative 1 point from volume decline.

“Overall, the volume declines occurred primarily in the non-retail channel, specifically in the food service, vending and institutional categories,” the company said. “In addition, heavy promotional activity within the retail channel negatively affected volumes in the branded white bread category. Partially offsetting these declines were increases in the branded breakfast bread, the branded multi-pack cake and the branded soft variety bread categories.”

D.S.D. volume in the quarter was down 3.7% while warehouse delivery volume was up 6.5%.

Looking forward, Mr. Deese pledged to manage the business in a fashion that will “deliver strong results over the long term while taking the necessary actions to maintain our competitive market positioning the near term.”

Gross margin as a percentage of sales was 46.5% versus 48.1% in the third quarter of 2008. Flowers said higher ingredient costs as a percentage of sales weighed on margins though lower packaging and utility costs and improved manufacturing efficiencies were mitigating factors.

Updating guidance for fiscal 2009, Flowers projected sales growth of 7.5% to 8%, versus the 9.7% to 11% growth the company had been projecting in its guidance after the second quarter and 12.6% to 14.5% guidance offered with first-quarter results.

Earnings per share growth in 2009 was projected at 7% to 9.4% versus 2008, unchanged on the low side of earlier guidance but down significantly from the 15.6% high side of possible growth that the company had offered earlier in the year as possible.

For 2010, Flowers projected sales growth of 2.5% to 4.5%, excluding future acquisitions, and earnings per share growth of 10% to 15%.

Flowers projected capital expenditures in fiscal 2010 of $85 million to $95 million, up from $70 million expected in fiscal 2009.

For the nine months ended Oct. 10, Flowers net income was $99,648,000, equal to $1.07 per share, up 14% from $87,147,000, or 94c per share, in the first three quarters of 2008. Net sales were $2,024,025,000, up 13%.

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