Flowers Foods (FLO) Q4 2008 earnings summary

Executive summary

• FY08 sales rose 18.6% to $2.415B; net income increased 26.0% to $119.2M and diluted EPS rose 25.5% to $1.28. FY08 included 53 weeks vs. 52 weeks in FY07.

• Growth reflected favorable pricing and mix, acquisitions and higher volume; the fresh DSD business remained the main growth and earnings driver.

Financial highlights

• Operating income was $182.7M vs. $144.7M; income from continuing operations before tax, minority interest and accounting changes was $190.1M vs. $153.1M.

• EBITDA from continuing operations was $256.0M, or 10.6% of sales, vs. $210.8M, or 10.3%; the long-term EBITDA target is 10%–12% of sales.

• Gross margin was $1.151B, up 15.4%; margin declined to 47.7% from 49.0%, mainly on higher ingredient costs.

• Sales rose 18.6%: favorable pricing and mix contributed 10.6%, volume 8.0%; acquisitions added 5.0% to volume and the extra week 2.0%.

• Nature’s Own Whitewheat retail sales reached $136M, up over 22%; Mrs. Freshley’s and Blue Bird combined retail sales reached $350M.

Outlook and guidance

• FY09 sales were expected to continue growing, though FY08’s growth rate was not assured; FY09 has 52 weeks vs. 53 in FY08.

• FY09 capital expenditures were estimated at $75M–$85M, including $6.1M for the Bardstown bakery, expected to open with one line in spring 2009.

• FY09 pension costs were expected at $2.8M, with approximately $2.2M of pension contributions and $1.0M for postretirement benefits planned.

• End-of-year estimates included $730M of pay-by-scan sales for FY09, compared with $651.5M in FY08.