THOMASVILLE, GA. — Third-quarter sales exceeded expectations and rose to all-time highs at Flowers Foods, Inc., Thomasville. In the wake of the strong top-line performance, Flowers adjusted its full-year sales guidance to or slightly above the high side of its earlier projections.
Net income during the third quarter ended Oct. 5 was $43,358,000, equal to 20c per share on the common stock, up 9% from $39,630,000, or 19c per share, in the same period a year ago. Sales were $966,561,000, up 4.7% from $923,449,000.
Adjusted net income was down 1c from 21c. Restructuring and related impairment charges in the third quarter equaled $3,277,000, versus $497,000 in the third quarter last year. The previous year included $11,921,000 in legal settlement costs.
“Our third-quarter results reflect the continued execution against our key strategic priorities: focusing on brands, managing costs, pursuing smart acquisitions, and developing our team,” said A. Ryals McMullian, president and chief executive officer. “During the quarter, we gained market share and delivered record third-quarter sales ahead of expectations, driven by both growth and core brands.”
The strong quarterly sales were driven by branded business, which totaled $586.1 million, up 7% from the third quarter last year.
On a percentage basis, store brand sales grew even faster, up 9%, to $150.8 million in the quarter. By contrast, other sales, including food service and vending, were $229.6 million, down 2.4%. The company experienced growth in Dave’s Killer Bread, Wonder and the Nature’s Own Perfectly Crafted lines. Canyon Bakehouse gluten-free bread also contributed as did the company’s Sun-Maid breakfast bread, introduced late in the third quarter of 2018.
The growth in store brand sales was attributed to strong sales of private label gluten-free bread made by Canyon.
During a conference call Nov. 7 open to investment analysts, Mr. McMullian described the acquisitions of Dave’s Killer Bread and Canyon Bakehouse as “resounding successes.”
He said D.K.B. has grown to become the nation’s second largest specialty brand in retail dollar sales and that Canyon has become the top selling gluten-free bread brand and “continues to grow in distribution and velocity.” The brand ranked No. 3 when Flowers acquired it and has exceeded profitability targets.
R. Steve Kinsey, chief financial officer and chief administrative officer, said Canyon accounted for 2.2 percentage points of the 4.7% growth during the quarter.
“We are pleased that Canyon Bakehouse is performing at the upper end of our plan, and we now see it being slightly accretive to full-year e.p.s.,” he said.
Mr. McMullian said Flowers is seeing rapid growth in the e-commerce market for fresh-packaged bread, buns and rolls, a market he said nearly doubled over the past year.
“That’s still a relatively small base, but establishing a presence for our brands on the digital shelf is critical for growth in the future as more households buy groceries online and home delivery expands,” he said.
For the full year, Flowers expects sales of $4,110 million to $4,130 million, up 4% to 4.5% for the year and compared with its previous guidance of sales up 2% to 4%.
Earnings guidance of 93c to 98c per share and adjusted e.p.s. of 94 to 99c were left unchanged.
Pressuring earnings during the quarter were higher materials, supplies, labor and other costs, equating to 42.7% of sales, up 10 basis points from last year.
Rising workforce-related costs and decreasing manufacturing efficiencies pressured margins, though improved pricing mix and lower ingredient costs were a partial offset.
“More effectively managing costs is imperative as we work to mitigate the effects of a tight labor market, which has pressured manufacturing efficiencies and profitability,” Mr. McMullian said. “To that end, we have recently launched a focused initiative to optimize our portfolio and supply chain network with the aim of enhancing the underlying margin profile of our products, reducing complexity in our supply chain, and lowering fixed costs. We are confident that executing on our strategic initiatives will enable us to drive earnings growth and create shareholder value.”
Year-to-date net income was $163,319,000, or 77c per share, up 20% from $136,319,000, or 64c, in the first three quarters of 2018. Net sales were $3,206,215,000, up 4.4% from $3,071,185,000.