US: Flowers sales, earnings rise but share price hit
Flowers shares see near-10% drop
Flowers Foods has booked an increase in sales and earnings during the first nine months of the year, but shares sank today (7 November) when the group failed to hit analyst forecasts.
The US baker said that sales in the first nine months of the year rose to US$2.91bn in the period, up from $2.29bn last year. Gains were driven by higher volumes and the contribution from acquisitions. Net income rose to $192m, up from $97.5m in the comparable period of last year.
However, Flowers share price was down almost 10% at 12.30 (EST), declining to $22.48. The drop was prompted by a lower than expected third-quarter profit. Flowers reported Q3 EPS of $0.18, missing consensus expectations of $0.21 a share. Third-quarter net sales rose 22.5%, below expectations of 23.5%.
Janney analyst Jonathan Feeney said that the profit drop was driven by "higher costs to support this year's accelerated business expansion" and "unexpected margin degradation in certain warehouse frozen foodservice business".
"Margins were the source of the disappointment," Feeney concluded.
|Flowers Foods Reports Third Quarter 2013 Results And Updates Full-Year Guidance|
|Dollar sales and volume increases across all channels drive a 22.5% increase in sales and a 5.9% increase in diluted earnings per share, excluding acquisition costs
THOMASVILLE, Ga., Nov. 7, 2013 /PRNewswire/ -- Flowers Foods, Inc. (NYSE: FLO), the second-largest producer and marketer of fresh packaged bakery foods in the United States, today reported results for its 12-week third quarter ended October 5, 2013. Sales increased 22.5% to $878.5 million. Including acquisition-related costs of $0.02 per diluted share, diluted earnings per share (EPS) was $0.16. Excluding acquisition-related costs, diluted EPS rose 5.9% to $0.18 over last year's third quarter. Strong performance in the company's direct-store-delivery (DSD) segment was offset by higher marketing expense, margin pressure in the warehouse segment, and added infrastructure to support sales growth. In summary, during the quarter:
Commenting on third quarter results, President and CEO Allen Shiver said, "We achieved another quarter of robust sales growth as our team capitalized on opportunities presented by the marketplace and our recent acquisitions. The DSD segment achieved exceptional sales growth for our fresh breads, buns, rolls, and snack cakes and delivered operating earnings in line with our expectations. In the warehouse segment, our cake business fell slightly short of expectations. Overall earnings were impacted primarily by the warehouse frozen foodservice business, which experienced margin erosion. We are taking action to improve margins in that portion of our business.
"The integration of Lepage Bakeries, Sara Lee/California, and Hostess bread assets, all of which were acquired in the last 18 months, is ongoing. Our team is leveraging the strength of our brands and operations to grow in new markets and with new customers. Late in the quarter, we began reintroducing our newly acquired brands--Wonder, Merita, Home Pride,and Butternut." Shiver said the company expects the acquired brands to gain momentum as the reintroduction continues.
Commenting on 2013 guidance, Shiver said, "This is a remarkable year for Flowers Foods and our top line guidance reflects the success of our growth strategies as we make acquisitions, enter new markets, and take advantage of changes in the marketplace. Our revised earnings guidance takes into consideration the margin decline in the warehouse segment, higher-than-planned marketing expense in the second half, and added infrastructure for the significant increase in volume.
"Flowers Foods is well positioned with the brands, products, bakeries, strategies, and experienced team to achieve further sales and earnings growth as we continue to build long-term value for shareholders," Shiver concluded.
Third Quarter 2013 Results
Net income for the quarter was $33.9 million, or $0.16 per diluted share. Excluding acquisition-related costs in both years, net income for the quarter was $38.4 million, or $0.18 per diluted share compared to $35.2 million, or $0.17 per diluted share in the third quarter of fiscal 2012. During the third quarter this year, the company incurred acquisition-related costs of $4.5 million, net of tax, or $0.02 per diluted share. During the third quarter of last year, the company incurred acquisition-related costs of $4.0 million, net of tax, or $.02 per diluted share. Including these items, net income was $31.2 million, or $0.15 per diluted share.
Gross margin (excluding depreciation and amortization) as a percent of sales was 46.7%, or flat compared to the third quarter of 2012. Increased outside purchases as a percent of sales, decreased manufacturing efficiencies, and carrying costs related to the acquired Hostess assets were offset by higher sales volumes and decreased ingredient and workforce-related costs as a percent of sales. Although ingredient costs as a percent of sales decreased, prices for ingredients rose.
Selling, distribution, and administrative (SD&A) costs as a percent of sales for the quarter were 37.3%, up 140 basis points from 35.9% of sales in the third quarter of fiscal 2012. Acquisition-related costs negatively impacted SD&A costs by $7.0 million, or 80 basis points as a percent of sales in the third quarter of 2013. In last year's third quarter, acquisition-related costs negatively impacted SD&A by $5.1 million, or 70 basis points as a percent of sales. Increased workforce-related costs and marketing costs were the main drivers of the increase as a percent of sales.
Depreciation and amortization expenses for the quarter remained relatively stable as a percent of sales compared to last year's third quarter. Net interest expense decreased slightly in this year's third quarter compared to last year's third quarter primarily because of increased interest income associated with an increase in distributor notes receivable outstanding. The effective tax rate for the quarter was 32.4% compared to 36.4% in last year's third quarter, due primarily to a discrete benefit recorded by the company. The full-year tax rate is expected to be approximately 35.5% to 36.0%, excluding the effect of discrete items and the bargain purchase accounting gain recorded in the first quarter this year.
Income from operations (EBIT), adjusted for acquisition-related costs (adjusted EBIT), was $60.3 million, or 6.9% of sales, compared to adjusted EBIT of $57.8 million, or 8.1% of sales, in last year's third quarter. Including the acquisition-related costs, EBIT was $53.3 million, or 6.1% of sales in the third quarter this year, compared to $52.7 million, or 7.3% of sales in the third quarter last year. Carrying costs related to the acquired Hostess assets negatively affected EBIT margin 60 basis points in the third quarter this year.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) adjusted for acquisition-related costs (adjusted EBITDA) for the third quarter was $90.2 million, or 10.3% of sales, compared to adjusted EBITDA of $82.5 million, or 11.5% of sales in last year's third quarter. Including the costs, EBITDA was $83.2 million, or 9.5% of sales in the third quarter this year, compared to $77.4 million, or 10.8% of sales in the third quarter last year. Carrying costs related to the acquired Hostess assets negatively affected EBITDA margin 30 basis points in the third quarter this year.
Income from operations for the DSD segment was $63.6 million, or 8.7% of sales for the third quarter compared to $58.6 million, or 9.9% of sales in last year's third quarter. Increased sales volumes were the primary drivers of the increase. Carrying costs related to the acquired Hostess assets negatively affected income from operations 70 basis points in the third quarter this year. Decreased manufacturing efficiencies also had a negative effect on income from operations.
Warehouse (17% of sales): Sales through warehouse delivery increased 18.9%, reflecting volume increases of 34.4%, partially offset by negative net price/mix of 15.5%. Dollar sales and volume increased across all channels. Branded cake (primarily single-serve items), foodservice, and vending were the primary drivers of the volume increases. The foodservice category was the primary driver of the unfavorable net price/mix.
Income from operations for the warehouse segment was $7.1 million, or 4.8% of sales for the third quarter compared to $7.6 million, or 6.1% of sales in last year's third quarter. This decrease was due primarily to increased outside purchases and lower manufacturing efficiencies, partially offset by increased sales volumes.
Other Matters of Importance
Outlook for 2013
Original source: Flowers Foods
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