US: Flowers delays guidance on M&A outcome

By Katy Askew | 7 February 2013

  • 2012 sales up 9.8%
  • Income rises
  • 2013 guidance delayed on outcome of M&A
Flowers awaiting outcome of acquisition drive

Flowers awaiting outcome of acquisition drive

US baker Flowers Foods has delayed issuing guidance for 2013 until the outcome of its attempt to buy various assets, including bread operations from Hostess Brands, is clear.

The company has been named the "stalking horse" bidder for various Hostess brands and it is also attempting to push through the proposed acquisition of Sara Lee's Earthgrains brand in California from Bimbo USA.

"The marketplace remains in flux as the industry awaits the outcome of Hostess' bankruptcy proceedings and the resulting auctions of assets. We are delaying offering specific guidance for 2013 until we have more clarity regarding the Hostess situation as well as our pending transaction for the Sara Lee and Earthgrains brands in California," Flowers chairman and CEO George Deese said.

However, Flowers added it expects results to meet or exceed its long-term guidance.

Sales for fiscal 2012 increased 9.8% to US$3.05bn, boosted by higher volumes, and improved mix and the contribution of acquisitions during 2011.

Net income for the year was $136.1m, compared to $123.4m in 2011. EBIT for the year was $218.5m, or 7.2% of sales compared to $189m, or 6.8% of sales last year. The company said the bottom line was negatively impacted by $6.2m in acquisition-related costs.

Show the press release

Flowers Foods Reports Fourth Quarter And Fiscal 2012 Results

THOMASVILLE, Ga., Feb. 7, 2013 /PRNewswire/ -- Flowers Foods, Inc. (NYSE: FLO), today reported results for its 12 and 52 weeks ended December 29, 2012. Sales for the quarter increased 14.7% to $749.4 million and for the year sales increased 9.8% to $3.05 billion. Diluted EPS for the quarter was $0.28, up 64.7%. For the year, diluted EPS was up 8.9% to $0.98; adjusted for one-time charges in both years, 2012 diluted EPS was $1.03, up 7.3% compared to $0.96 in 2011. Other highlights include:


-- EBITDA margin, excluding one-time charges, was 11.5% for the quarter and
10.9% for the year;
-- Operating margin (EBIT), excluding one-time charges, improved to 8.0% in
the quarter and was up slightly for the year;
-- Gross margin for the quarter and year were 47.9% and 46.9%,
respectively;
-- Volume increased 10.3% in the quarter and 2.1% for the year;
-- Net price/mix for the quarter was negative 2.0% and positive 1.5% for
the year;
-- Acquisitions contributed 6.4% of the quarter's sales and 6.2% of 2012
total sales;
-- The Lepage Bakeries acquisition met expectations for sales and earnings;
-- Nature's Own brand reached approximately $974 million in annual retail
sales and became the nation's best-selling bread brand; and
-- Specific guidance for 2013 is delayed pending the outcome of possible
acquisitions. However, the company said results for 2013 are expected
to meet or exceed long-term goals, excluding one-time charges.
(Logo: http://photos.prnewswire.com/prnh/20080530/CLF007LOGO )

George E. Deese, Flowers Foods' chairman and chief executive officer, said, "The year 2012 was eventful for Flowers Foods and for our industry. We cycled our acquisition of Tasty Baking in the second quarter, acquired Lepage Bakeries in the third quarter, and announced an agreement to acquire the rights to Sara Lee and Earthgrains brands in California in the fourth quarter. In mid-November, our industry experienced another major change when Hostess Brands exited the marketplace. Our team rallied to meet the needs of new and existing customers as they felt the impact of Hostess' sudden departure. Our fourth quarter results show the benefit to sales and earnings that resulted from our team's outstanding efforts to serve our customers.

"The marketplace remains in flux as the industry awaits the outcome of Hostess' bankruptcy proceedings and the resulting auctions of assets. We are delaying offering specific guidance for 2013 until we have more clarity regarding the Hostess situation as well as our pending transaction for the Sara Lee and Earthgrains brands in California," he continued.

"Our team continues to execute well on our operating strategies and we do anticipate that sales and earnings for 2013 will meet or exceed our long-term objectives for 5% to 10% sales growth and double-digit earnings per share growth, excluding one-time charges," Deese said.

On January 11, 2013, the company announced an agreement with Hostess to be the stalking horse bidder in the bankruptcy process for certain Hostess bread bakeries and bread brands. A competitive auction is scheduled for February 28, 2013, followed by a sale order hearing on March 5, 2013. If Flowers' bids are ultimately approved by the court, the transactions will remain subject to regulatory clearance.

In November 2012, Flowers and Grupo Bimbo, S.A.B. de C.V. announced the U. S. Department of Justice had approved an agreement whereby Flowers would acquire certain assets and trademarks from BBU, Bimbo's American subsidiary, primarily the SaraLee and Earthgrains brands for sliced breads, buns, and rolls in the state of California. The transaction is set for completion on February 23, 2013 with respect to Southern California followed by a staged roll-out of the acquired brands in the remainder of the state. On January 29, 2013, Grupo Bimbo filed a motion with the U. S. District Court for the District of Columbia seeking to temporarily suspend the transaction. A hearing on this matter is scheduled for February 13, 2013.

Fourth Quarter 2012 Results
Fourth quarter sales increased 14.7% to $749.4 million from $653.6 million in last year's fourth quarter. This increase was attributable to volume increases of 10.3%, partially offset by unfavorable net price/mix of 2.0%. Additionally, the Lepage Bakeries acquisition contributed 6.4% to sales. Dollar sales and volume increased across all channels. The largest volume increases were in the branded soft variety, branded white bread, branded buns and rolls, and foodservice categories.

Net income for the quarter was $38.6 million compared to $23.0 million in the fourth quarter of fiscal 2011. For the quarter, diluted earnings per share were $0.28, an increase of 64.7%, compared to $0.17 in last year's fourth quarter.

Gross margin as a percentage of sales for the quarter was 47.9%, up 200 basis points compared to 45.9% in the fourth quarter of 2011. This increase was due primarily to higher sales volumes and improved manufacturing efficiencies.

For the quarter, selling, distribution, and administrative costs as a percent of sales were 36.5%, compared to 36.8% in the prior year. This decrease as a percent of sales was primarily attributable to our ability to leverage costs on increased sales.

Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to last year's fourth quarter. Net interest expense was incurred during the quarter due to higher interest expense resulting from the issuance in the first quarter of this year of $400.0 million of senior notes. The majority of the proceeds from the notes were used for the Lepage transaction. The effective tax rate for the quarter was 31.1% compared to 37.7% in last year's fourth quarter. This decrease was primarily due to positive discrete items in this year's fourth quarter.

Operating income, also referred to as earnings before interest and taxes (EBIT), for the fourth quarter was $59.2 million, or 7.9% of sales compared to $36.6 million, or 5.6% of sales in last year's fourth quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) for the fourth quarter was $85.1 million, or 11.4% of sales compared $59.6 million, or 9.1% of sales for the fourth quarter of 2011. One-time costs related to acquisitions affected EBIT and EBITDA by $1.1 million, or 10 basis points as a percent of sales in the fourth quarter.

Segment Results

DSD (82% of Sales): During the quarter, the company's direct store delivery (DSD) sales increased 13.9%, reflecting volume increases of 6.2% as well as a contribution of 7.7% from the Lepage acquisition. Net price/mix was relatively flat, quarter over quarter. Dollar sales and volume increased across all channels. The volume increases were primarily in the branded soft variety, branded white bread, branded buns and rolls, and fast food categories.

Operating income for the DSD segment was $59.2 million, or 9.6% of sales for the fourth quarter compared to $40.7 million, or 7.5% of sales in last year's fourth quarter. This increase was due to the Lepage acquisition, increased sales volumes, and improved manufacturing efficiencies.

Warehouse (18% of Sales): Sales through warehouse delivery increased 18.5%, reflecting increased volume of 22.6% and negative net price/mix of 4.1%. The increased volume was primarily the result of increases in branded cake, foodservice, and vending.

Operating income for the warehouse segment was $12.8 million, or 9.5% of sales for the fourth quarter compared to $3.6 million, or 3.2% of sales in last year's fourth quarter. This increase was due primarily to increased sales volume.

Cash Flow
During the fourth quarter, cash flow from operating activities was $34.7 million. The company invested $18.1 million in capital improvements and paid dividends of $22.1 million to shareholders during the quarter. The company also acquired 265,000 shares of its common stock under its share repurchase plan for $5.1 million.

Fiscal 2012 Results
Sales for fiscal 2012 increased 9.8% to $3.05 billion from the $2.77 billion reported for fiscal 2011. This increase consisted of increased volume of 2.1% and positive net price/mix of 1.5%. Additionally, the Tasty and Lepage acquisitions contributed 6.2% to sales. Price/mix and volume increased across all channels. The volume increase was driven by branded soft variety bread, branded cake, store brand bread, buns and rolls, and foodservice. These increases were partially offset by volume decreases in store brand cake.

Net income for the year was $136.1 million, compared to $123.4 million for fiscal 2011. Diluted earnings per share were $0.98 for fiscal 2012, compared to $0.90 reported for fiscal 2011. Excluding one-time costs of $6.2 million, net of tax, during fiscal 2012, diluted earnings per share were $1.03. This compares to diluted earnings per share of $0.96 in fiscal 2011, excluding one-time costs of $7.5 million, net of tax.

Gross margin as a percent of sales for the full year was 46.9%, relatively flat compared to last year. Higher ingredient costs as a percent of sales were offset by lower workforce-related costs as a percent of sales, production volume increases, and increased manufacturing efficiencies.

For the year, selling, distribution, and administrative costs as a percent of sales were 36.4%, compared to 36.7% in the prior year. One-time acquisition-related costs of $9.6 million negatively impacted selling, distribution and administrative costs 30 basis points as a percent of sales during 2012. During 2011, selling, distribution and administrative costs were negatively affected by one-time plant closure and acquisition-related costs of $8.3 million, or 30 basis points as a percent of sales. The company continues to effectively leverage its costs on increased sales volume.

Depreciation and amortization expenses for the year remained relatively stable as a percent of sales compared to last year. We incurred net interest expense for the year of $9.7 million, compared to net interest income of $2.9 million last year due to interest expense incurred on the $400.0 million senior notes. The effective tax rate for the year was 34.8%, compared to 35.7% last year. This decrease was due primarily to favorable discrete items in 2012.

EBIT for the year was $218.5 million, or 7.2% of sales compared to $189.0 million, or 6.8% of sales last year. During 2012, EBIT was negatively affected by one-time costs related to acquisitions of $9.6 million, or 30 basis points as a percent of sales. During 2011, EBIT was negatively affected by one-time plant closure and acquisition-related costs of $11.2 million, or 40 basis points as a percent of sales.

EBITDA for the year was $321.2 million, or 10.5% of sales as compared to $283.7 million, or 10.2% of sales last year. During 2012, EBITDA was negatively affected by one-time costs related to acquisitions of $9.6 million, or 30 basis points as a percent of sales. During 2011, EBITDA was negatively affected by one-time plant closure and acquisition-related costs of $10.6 million, or 40 basis points as a percent of sales.

 

Original source: Flowers Foods

Sectors: Bakery, Financials

Companies: Hostess Brands, Sara Lee, Flowers Foods

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