Dave's Killer Bread, Flowers Foods
Dave’s Killer Bread is now available in more than 9,000 new stores through Flowers' direct-store delivery network.

THOMASVILLE, GA. — A competitive marketplace, unusual weather, and a major capital project pressured first-quarter earnings at Flowers Foods, Inc. Still, the company raised its guidance for profits modestly for the full year.

Net income of Flowers Foods in the first period ended April 23 was $59,363,000, equal to 28c per share on the common stock, down 3.3% from $61,389,000, or 29c per share. Sales were $1,204,352,000, up 5% from $1,146,045,000.

Allen Shiver, Flowers Foods
Allen L. Shiver, president and c.e.o. of Flowers

“During the first quarter, the team delivered on our priorities as we continued to execute on our strategic plans to drive profitable growth,” said Allen L. Shiver, president and chief executive officer of Flowers. “We realized higher prices for our core white loaf and soft variety bread brands, and added production and distribution support to drive growth of our organic brands, Dave's Killer Bread and Alpine Valley. While a competitive marketplace, unseasonable weather, and costs associated with the Tuscaloosa conversion pressured our earnings this quarter, we are confident we are taking the right steps to position Flowers for continued long-term success. For example, with Nature’s Own, our largest brand, we simplified the ingredients in key items, and launched a new marketing campaign emphasizing the brand’s ‘Good & Simple’ positioning.”

Completed during the quarter was conversion of the Flowers’ Tuscaloosa, Ala., plant to accommodate production there of Dave’s Killer Bread, an organic brand acquired by Flowers in 2015. Mr. Shiver said D.K.B. is available in more than 9,000 new stores through the company’s direct-store delivery network.

“With this introduction and less reliance on co-manufacturing, we expect to begin realizing improved profitability on sales of organic bread while capitalizing on strong consumer demand for organic bakery foods,” Mr. Shiver said.

At an investment analyst event in April, Mr. Shiver said Flowers is focused on widening margins and driving earnings growth.

“To that end, we are aggressively improving our promotional effectiveness and increasing consumer awareness of our brands,” he said.

Progress toward margin improvement was mixed in the first quarter. EBITDA as a percentage of sales in Flowers’ largest D.S.D. segment narrowed by 1 percentage point, to 12.9% in the first quarter of 2016, from 13.9% in the same period last year. Warehouse Segment EBITDA margins widened to 12.2% from 11.7%.

The company attributed the tighter D.S.D. segment margins to higher workforce-related costs, the Tuscaloosa project and outside purchases of products weighed on margins while lower input costs and reduced independent distributor distribution fees represented tailwinds. Costs associated with the Tuscaloosa project were $2.5 million, shaving 1c per share off quarterly earnings.

The lower input costs and lower workforce-related costs helped lift Warehouse segment margins.

Pressuring D.S.D. segment sales during the quarter was a smaller number of winter storms than during the same quarter in 2015. Competitive market conditions and decreased promotional activities also cut into quarterly sales. The drags on sales all were offset by sales of newly acquired brands, which totaled about $43 million in the segment.

Flowers raised its earnings per share guidance for 2016 to $1 to $1.06, which would be up 9% to 15% from adjusted 2015 e.p.s. of 92c. The 2016 earnings guidance was up 2c from 98c to $1.04 as initially projected by the company. Flowers kept unchanged its 2016 sales guidance at $3,986 million to $4,080 million, up from $3,779 million in 2015.

During the quarter, Flowers made $126.3 million of share repurchases, including shares bought under a previously announced accelerated share repurchase program. The moves reduced the number of shares outstanding by 6 million shares. The company said 7.7 million shares remain under the current share repurchase authorization.

“Flowers’ competitive position remains strong,” Mr. Shiver said. “We are benefitting from leading brands, efficient bakeries, and a conservative financial position that allows us to navigate challenges while investing in growth and returning capital to shareholders through dividends and share repurchases. Most importantly, our experienced team understands the marketplace and has a proven track record of consistently growing sales and earnings over the long term.”