Flowers Foods (FLO) Q4 2006 earnings summary

Executive summary

• FY06 sales rose 10.1% to $1.889B; net income increased 32.4% to $81.0M and diluted EPS was $1.31, up from $0.96.

• Growth reflected pricing, acquisitions, market expansion and share gains in markets where competitors exited; management expected sales to keep growing but cautioned FY06 growth drivers may not recur.

Financial highlights

• Sales increased 10.1%; price increases contributed 6.5% and mix/volume 3.6%, including 2.5% from Derst and 0.5% from Royal.

• Gross margin was $939.0M, up 9.9%; as a share of sales it was 49.7% versus 49.8% in FY05.

• Operating income rose to $118.5M from $99.3M; income from continuing operations before tax, minority interest and accounting change reached $123.4M, up from $105.6M.

• Net income was $81.0M versus $61.2M; FY06 included $6.7M net income from discontinued operations and a $0.6M after-tax cumulative accounting-change charge.

Outlook and guidance

• Sales were expected to continue growing, though management cautioned that the FY06 growth rate may not persist because some drivers, including competitors' market exits, were outside its control.

• FY07 capital expenditures were estimated at $63M–$64M, following $61.8M in FY06.

• FY07 pension income was expected to be $5.7M; no minimum ERISA pension contribution was required, and discretionary contributions remained under review.

• Pay-by-scan sales were estimated at $525M by FY07-end, versus $477.3M in FY06.