Flowers Foods (FLO) Q4 2023 Prepared Remarks earnings summary

Executive summary

• FY23 sales rose 5.9% to a record $5.091B; adjusted net income fell 5.4% to $256.3M, while GAAP net income declined 46.0% to $123.4M, primarily due to higher legal settlement expense.

• Q4 sales reached a record $1.129B, up 4.3%; dollar and unit share gains returned for the first time since early 2022.

• Dave’s Killer Bread surpassed $1B in estimated 2023 retail sales; portfolio strategy improved margins in cake, foodservice, and private label.

• Volume trends improved sequentially as private-label momentum faded; FY24 guidance anticipates solid relative performance weighted to H1.

Financial highlights

• FY23 diluted EPS was $0.58 versus $1.07; adjusted diluted EPS was $1.20 versus $1.27.

• Q4 net income was $35.7M, down 26.6%; adjusted net income was $42.7M, down 11.2%. GAAP diluted EPS was $0.17 versus $0.23; adjusted diluted EPS was $0.20 versus $0.23.

• Q4 price/mix contributed 5.6% and Papa Pita added 1.1% to sales; volume reduced sales 2.4%.

• FY23 operating income was $172.9M versus $303.2M; Q4 operating income was $49.9M versus $64.1M.

• Q4 adjusted EBITDA was $96.3M, up 0.1%; its 8.5% margin declined 40 bps, with higher gross margin and sales partly offset by higher SD&A.

Outlook and guidance

• FY24 sales guidance is $5.091B–$5.172B, or 0.0%–1.6% growth; adjusted EBITDA is $524M–$553M and adjusted diluted EPS is $1.20–$1.30.

• FY24 assumptions include D&A of $160M–$165M, net interest expense of $22M–$26M, an effective tax rate of ~25%, and ~213M diluted shares.

• FY24 capital expenditures are forecast at $120M–$130M, including $3M–$6M for the ERP upgrade.

• Expected tailwinds include moderating commodity costs, positive pricing actions, and savings initiatives; innovation, marketing, and the California distribution conversion may weigh near term.

• Directional FY24 growth rates from the FY19 base: sales 4.5%, adjusted EBITDA 5.0%, and adjusted diluted EPS 5.4%.