Fitch affirms Flowers ratings, outlook

by Eric Schroeder
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NEW YORK — Fitch Ratings has affirmed the ratings of Thomasville, Ga.-based Flowers Foods Inc., including the company’s issuer default rating (I.D.R.) at “BBB,” $500 million revolving credit facility at “BBB,” and $108 million term loan A at “BBB.” Additionally, Fitch maintained its “stable” outlook for the company.

“Flowers’ ratings reflect its leading position in baked goods in the U.S. and its No.1 market share in the southern U.S. — the primary market in which it competes,” Fitch said. The ratings service added that Flowers has had “consistent and considerable credit protection measures,” and leverage has been 2.3 times or less in each of the past five years.

“Flowers generated over $100 million of free cash flow over the past two fiscal years,” the ratings service said. “However, there is likely to be some pressure on margins due to increased commodity costs resulting in moderately lower free cash flow this year.”

Fitch indicated that while there is currently significant cushion within the rating “it could dissipate.”

“Flowers will be accelerating its growth strategy to serve 75% of the U.S. population by 2016 with annual revenue growth targets in the 5% to 10% range,” Fitch said. “Acquisitions are expected to account for approximately half of the growth and began with the $165 million Tasty Baking Co. acquisition in May 2011. Debt levels are expected to increase to fund acquisitions. Flowers filed a shelf registration and recently doubled the size of its revolver to $500 million.”

If Flowers were to pay $325 million or more for an acquisition it would need to demonstrate pro forma compliance with its leverage and interest coverage covenants as if the acquisition had been consummated four quarters previously, Fitch said.

For the first quarter ended April 23, revenues rose 0.9%%, paced by net pricing/mix of 2.1% partially offset by volume losses of 1.2%. Fitch expects ample liquidity to fund on-going operations from internally generated cash flow.

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