Dave's Killer Bread, Flowers Foods
Flowers Foods was boosted by the recent acquisition of Dave’s Killer Bread.

THOMASVILLE, GA. — Boosted by the recent acquisitions of Dave’s Killer Bread and Alpine Valley Bread, net sales at Flowers Foods, Inc. jumped 5% while earnings held mostly steady during the second quarter.

Net income of Flowers Foods in the second quarter ended July 16 was $51,155,000, equal to 24c per share on the common stock, down narrowly from $51,760,000, or 24c per share, in the same period a year ago. Sales were $935,025,000, up from $888,795,000.

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

“Benefiting from strong consumer demand for organic breads, our two recent acquisitions, DKB and Alpine, along with expansion markets, drove sales growth in the second quarter, offsetting sales declines in our core markets due to competitive pressures,” said Allen Shiver, president and chief executive officer. “Over the past five years, we have built a strong competitive position in the marketplace, as we made strategic acquisitions to extend our geographic reach and enhance our portfolio of brands. I am confident that with Project Centennial, an in-depth review of our operations, we can enhance shareholder value by identifying new avenues for growth, as well as focusing on ways to become a more efficient and profitable organization better able to deliver long-term value for shareholders.”

Project Centennial is an enterprise-wide business and operational review that Flowers has undertaken in collaboration with Accenture, a global professional services company that provides strategy, consulting, digital, technology and operations services. Through the project, Flowers said it will evaluate opportunities to enhance revenue growth, streamline operations, drive efficiencies, and make investments that strengthen its competitive position and improve margins over the long term. The project is in its early stages, and the company expects to provide additional information and details later in the year.

EBITDA as a percentage of sales in Flowers’ largest D.S.D. segment narrowed to 13.8% in the second quarter of 2016, down from 14.3% in the same period last year. Warehouse Segment EBITDA margins widened to 13.6% from 12.8%.

The company attributed the tighter D.S.D. segment margins to higher workforce-related costs, purchases of co-manufactured product and legal costs, while lower input costs and reduced independent distributor distribution fees represented tailwinds.

Alpine Valley Bread, Flowers Foods
Flowers benefited from strong consumer demand for organic breads, such as the recently acquired Alpine Valley Bread line.

D.S.D. segment sales during the quarter totaled $785.8 million, up 4.5% from a year ago. Flowers said the acquisition of DKB contributed 5.4 percentage points, while volume decreased 1.8 points and pricing/mix increased 0.9 point. The company said branded soft variety and specialty loaf bread experienced the largest volume declines during the second quarter, partially offset by growth in branded cake and buns and rolls.

Flowers lowered its earnings per share guidance for 2016 to 88c to 93c, which compared with 2015 e.p.s. of 89c. The company also lowered its 2016 sales guidance to $3,930 million to $3,986 million, down from $3,986 million to $4,080 million projected in the first quarter. The sales total, if realized, still would represent growth of approximately 4% to 5.5% over fiscal 2015 sales of $3,779 million.

“Our revised guidance takes into consideration soft consumer demand in the bakery category, as well as heightened promotional activity in our industry,” Mr. Shiver said. “The Flowers team has significant experience successfully navigating periods of heightened promotional activity like we are currently seeing, and we have already taken steps to address underperforming markets and improve profitability. Those markets have begun steady improvement, and as sales grow, the company expects to leverage costs and realize efficiencies.

“As always, we continue to manage Flowers for the long term, and so far this year, we’ve made good strides building share in growing market segments, extending our geographic reach, and investing in bakeries to support our growth. Even though these activities required time and investment, we are confident they are the right things to do in order to build sustainable value.”

During the quarter, Flowers settled the accelerated stock repurchase program completed in the first quarter. Year-to-date, the company repurchased approximately 6.9 million shares. The company said 6.8 million shares remain under the current share repurchase authorization.