On the money: Flowers confident on cakes ahead of Hostess return
Flower said its Tastykake and Mrs Freshley’s cake brands performed “very well” in the quarter
Flowers Foods has seen its cake sales jump in the wake of the collapse of Hostess Brands. However, Flowers is preparing to see the new Hostess Brands relaunch products including Twinkies.
Flowers this week recorded an increase in earnings in the first quarter driven by gains from acquisitions. In the 16 weeks ended 20 April, the bread maker booked earnings of US$113.3m. This compared to a profit of $37.9m last year.
President Allen Shiver, who is set to succeed outgoing CEO George Deese next week, told analysts on the firm's earnings call yesterday its Tastykake and Mrs Freshley's cake brands performed "very well" in the quarter, despite a decline in the cake category of 4.9% in units and 1.9% in dollars.
"Our cake business was up double digits. All segments of our cake business increased, but the strongest growth was our single-serve snack cakes."
D.A. Davidson & Co analyst Timothy Ramey Asked suggested the surge in snack cake sales, however, might reverse once Hostess products are back on the market this summer.
In March, private-equity firms Apollo Global Management and Metropoulos & Co. paid $410m for the majority of the former Hostess Brands' snack cake business, including the Twinkies brand, after the company went out of business. They have set up a new company, Hostess Brands LLC, which has re-started production.
Despite the potential for increased competition, Shiver said Flowers was intent upon holding its gains wherever possible.
"We really don't think of them as windfall sales," he told analysts, reflecting on the gains Flowers has made while brands like Twinkies have been off shelves.
"Our team has done a great job of being in position to take advantage of the opportunity when it presented itself. Again, that being said, we're working very hard to make sure the business we've gained is secure. But again, whenever you have a new competitor re-entering the marketplace there's always a threat, and our job is to do everything that we can to hold onto the business we gained and also grow from that base. So we are putting our plans together and I feel confident that we'll be successful."
Shiver said Flowers had taken advantage of the space in the market created by the Hostess liquidation, along with its acquisitions, including a deal last October to acquire the licence to the Earthgrains and Sara Lee brands in California from Grupo Bimbo.
As a result, the CEO said Flowers is serving 20,000 stores that it was not serving a year ago, an increase of over 20%.
Shiver said the wholesale bakery department remains "one of the most important" product categories in the supermarket, contributing "significantly" to both sales and profits for its retail customers.
In particular, looking at Flowers' branded share, he noted that Flowers total US share had climbed to 13.1% of dollar sales and 11.5% of unit sales.
"Looking at recent weeks, our share continues to grow, reflecting growth in our core markets, as well as the Northeast, California, and other expansion markets," he said. "As we've told you before, each share point in the total US fresh bakery category equals about $103m at wholesale."
CFO Steve Kinsey reiterated that the company continues to be "very optimistic" about the group outlook for fiscal 2013 and, in the second quarter, is continuing to see "very good" sales growth.
However, Flowers has said it is delaying publishing its full-year 2013 guidance as its acquisition of Hostess Brands' bread brands is under regulatory review.
Earlier this year, Flowers won through in its bid to acquire the majority of Hostess Brands' bread units, including Wonder, Nature's Pride and Merita. The Department of Justice, however, is said to be looking into the deal.
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