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Flowers Foods Inc. (FLO)

Q1 2012 Earnings Call

May 24, 2012 8:30 am ET


George Deese – Chairman, Chief Executive Officer

Allen Shiver – President

Steve Kinsey – Chief Financial Officer

Marta Turner – Vice President, Corporate Relations


Farha Aslam – Stephens

Eric Katzman – Deutsche Bank

Mitchell Pinheiro – Janney Capital Markets

Tim Ramey – DA Davidson

Heather Jones – BB&T Capital Markets

Akshay Jagdale – Keybanc

Amit Sharma – BMO Capital Markets

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Good day ladies and gentlemen and welcome to the Q1 2012 Flower Foods Earnings conference call. My name is Andrea and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session toward the end of the conference. [Operator instructions] As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Ms. Marta Turner, Vice President of Corporate Relations.

Marta Turner

Thank you, Andrea, and good morning everyone. Our first quarter results were of course released this morning and the 10-Q was also filed, so you’ll find those if you need a copy. During the call we’re going to be using a PowerPoint presentation, and of course you can access those on the speaker, the webcast listen page of our website.

Before we get started, I must remind you that our presentation today may include forward-looking statements about our Company’s performance. While we believe our statements to be reasonable, those statements are subject to risks and uncertainties that could cause actual results to differ materially. In addition to the matters we’ll discuss during the call, important factors about Flowers Foods’ business are detailed more fully in our SEC filings.

Now turning to the call, with us today we have George Deese, Flower Foods’ Chairman and Chief Executive Officer; Allen Shiver, President; and Steve Kinsey, Executive Vice President and Chief Financial Officer.

To get started, Mr. Deese.

George Deese

Thank you, Marta. Good morning to each of you and welcome to our first quarter conference call. As always, we thank you for your continued interest in Flowers Foods.

I’m pleased to report we delivered sales growth of 12% for the quarter which shows the strength of our DSD business, the Nature’s Own and Tastykake brands, and our ability to grow in new markets through acquisitions. As we discussed at our analyst day in Philadelphia in March, the marketplace continues to be challenging and promotional activity robust as volume remains under pressure in the baked foods category. Even so, our expansion markets across all regions delivered growth with a goal for half to 1% of sales each year. New products also performed and they are expected to reach 5% of sales growth. In addition, our DSD business achieved our third consecutive quarter of positive volume growth.

On the earnings side, we delivered in line with the Street expectations of $0.28 per share, but as we had told you to expect, headwinds from our input costs were a significant factor that impacted the bottom line and put pressure on our margins. We continued our efforts to improve operations and productivity levels, which will contribute to the bottom line and as move forward as our costs improve later in the year.

Now I’ll take time to give the highlights for the quarter as I see them, and Allen and Steve will fill in the details. We completed a $400 million bond offering which will be used for our future acquisitions, general corporate purposes, and working capital. We announced an expansion in our Oxford, Pennsylvania bakery that will add bread and bun capacity to help us extend our geographic reach further into that region. We introduced Nature’s Own and other Flowers bread, bun and rolls to the Philadelphia market which adds another 3 million consumers to the population base we serve; and the integration and synergies of our Tasty acquisition are right on track and sales and earnings also are tracking in line with our expectations.

Now I will turn the call to Steve Kinsey for more information on the financial details. Steve?

Steve Kinsey

Thank you, George, and good morning everyone. Just a quick reminder that the results of Tasty Baking are reported in the direct store delivery, our DSD segment of the business.

As George said, we did meet consensus expectations from an earnings perspective in the quarter. Earnings for the quarter were also roughly in line with our internal forecasts. Input costs in the quarter, excluding the effect of the Tasty acquisition, were up approximately 12% with all major categories of cost, with the exception of natural gas being up quarter-over-quarter. The category continues to be very competitive, as Allen will discuss in a moment, and in the quarter we did absorb approximately $700,000 of unplanned interest expense related to the issuance of the 400 million 10-year senior notes, which I will discuss more fully in a moment.

Our integration of Tasty is going well and results are tracking within the ranges that we announced at the time of the acquisition. For the quarter, the Tasty EBITDA contribution was in line and they contributed approximately $0.01 to the quarter earnings. Full-year earnings are tracking on target with our full-year expectation of earnings per share of $0.04 to $0.06 that we provided earlier, and we are scheduled to have Tasty fully integrated into our ERP systems by the end of the second quarter.

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