Flowers Foods (FLO) Q4 2013 earnings summary

Executive summary

• FY2013 sales rose 23.1% to $3.751B, driven by higher volume after Hostess ceased operations and contributions from acquisitions; net income increased 69.6% to $230.9M.

• Fresh DSD products reached more than 79% of the U.S. population, exceeding the 75% reach goal set for 2016 ahead of schedule.

Financial highlights

• Sales were $3.751B, up 23.1%; operating income was $335.2M, up 53.4%; net income was $230.9M, up 69.6%.

• Diluted EPS was $1.09 versus $0.66; reported net margin was 6.2% versus 4.5%.

• Branded retail sales increased 28.7%, store-branded retail 18.4%, and non-retail and other 16.2%; volume contributed 16.8 percentage points to total sales growth.

• Materials, supplies, labor and other production costs decreased to 52.6% of sales from 53.1%; selling, distribution and administrative expenses increased to 36.7% from 36.4%.

• Adjusted to exclude the $50.1M Sara Lee California bargain-purchase gain, operating income growth was 28.8% for DSD; acquisition-related costs were $17.8M in FY2013.

Outlook and guidance

• FY2014 will have 53 weeks; estimated capital expenditures are $95M–$100M, compared with $99.2M in FY2013.

• Commodity costs are expected to remain volatile in 2014; forward purchases and derivatives are used to manage raw-material price exposure.

• Expected FY2014 qualified pension contributions are $13.0M, with $0.4M of nonqualified pension benefits; expected pension income is $9.8M.

• The reintroduction of acquired Hostess bread brands will continue during FY2014; sales growth remains subject to the economic environment and intense industry competition.