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Flowers Foods' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Stocks in this article: FLO

As we look back at 2011, it is important to note what we’ve accomplished. We invested $79 million to improve our production efficiencies, product quality and shipping logistics. We discontinued less efficient production, closing one bakery and several individual lines.

As a result, we ended 2011 with our bakeries operating near-record levels of efficiency. In May, we acquired Tasty Baking and the iconic Tastykake brand. For the year, Tasty surpassed our sales expectations and also contributed slightly to earnings, not including acquisition cost.

In September, we began introducing the Tastykake brand to Flowers’ core markets through our independent distributor system. Consumers are responding well to this introduction.

Our DSD business achieved four consecutive quarters of improved volume trends in a tough marketplace. Our expansion markets continued to deliver growth within our goal of 0.5% to 1% of sales each year. New products also performed within our expected 3% to 5% of sales growth. Nature’s Own reached $935 million in retail sales, achieving its 34th consecutive year growth.

Turning to the most challenging factors of 2011, I would first move onto volatile commodities and how that impacted our cost. Like many other food companies, we were hit with very high cost. We successfully implemented pricing in our DSD segment and volumes performed largely as expected given the ongoing price increases across the category.

Still, the marketplace remains competitive, even though overall pricing has improved, promotional activities is at higher price points but still a factor, so consumers’ reaction to food inflation which has softened unit growth in the category.

From a segment standpoint, our warehouse business which is 18% of our total sales had a tough year. It faced very high cost of flour, sugar, cocoa, shortening. We did not achieve the pricing we needed to offset those significant higher prices. We are keenly focused on this part of our business and we believe these margins can return to the levels warehouse has achieved in the past. Allen will talk more specifically about our plans.

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