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

Flowers Foods, Inc. (FLO)

Q4 2011 Earnings Call

February 10, 2012 8:00 AM ET

Executives

Marta Jones Turner – Executive Vice President, Corporate Relations

George Deese – Chairman and CEO

Allen Shiver – President

Steve Kinsey – Executive Vice President and CFO

Analysts

Farha Aslam – Stephens Incorporated

Mitch Pinheiro – Janney Montgomery Scott

Eric Katzman – Deutsche Bank

Heather Jones – BB&T Capital Markets

Tim Ramey – D.A. Davidson

Akshay Jagdale – KeyBanc Capital Markets

Amit Sharma – BMO Capital Markets

David Leibowitz – Horizon Kinetics

Presentation

Operator

Greetings. And welcome to the Flowers Foods’ Fourth Quarter and Fiscal 2011 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Marta Jones Turner, Executive Vice President, Corporate Relations for Flowers Foods. Thank you, Ms. Jones Turner. You may begin.

Marta Jones Turner

Thanks Rob, and good morning, everyone. Thanks for joining our call today. Our fourth quarter and 2012 results were released late yesterday and of course, you’ll found the release posted on our website in case you need a copy.

We do expect to file the 10-K on February the 24th and as a reminder, during the call today, we’ll be using a PowerPoint presentation to support our comments, and you can find that presentation on the webcast listen page.

Of course, as we begin I must remind you that our presentation today may include forward-looking statements about our company’s performance. Although, we believe our segments to be reasonable, those segments are subject to risks and uncertainties that could cause actual results to differ materially. In addition to the matters we will discuss during the call, important factors relating to Flowers Foods business are detailed fully in our SEC filing.

Before I turn it to George and the team I do want to announce to you that we’ve going to be hosting our Analyst Day in Philadelphia on Tuesday, March 20th and we’ll send more information about that next week, but I wanted to upfront ask you to mark that on your calendar.

With us on the call today, we have George Deese, Flowers Foods’ Chairman and Chief Executive Officer; Allen Shiver, President; Steve Kinsey, Executive Vice President and Chief Financial Officer. As you know, we’ll answer -- we’ll open the call for your questions after our prepared remarks.

Now, I’ll turn the call to Flowers Foods’ Chairman and CEO, George Deese.

George Deese

Thank you, Marta. Good morning to each of you and welcome to Flowers Foods’ fourth quarter conference call. As always, thank you for your continued interest. I’m pleased that we’ve delivered sales growth of 14% for the quarter and 7.8% for the full year. That is solid growth in light of marketplace and economic pressures, and it shows the strength of our DSD business, the Nature’s Own brand and our ability to grow in new markets and through acquisitions.

On the earnings side, we did not clearly overcome the challenges of high input cost, commodity markets and consumers’ reaction to the weaker economy and food inflation. Our margins also impacted. Our team is managing through those difficult challenges to deliver future results in line with our long-term goals.

You have heard me say it before that in business there are ups and downs quarter-to-quarter and sometimes year-to-year. However, over the long-term Flowers Foods has constantly consistently delivered growth in line with our goals. I have great confidence in our team’s ability to continue that trend.

Flowers Foods’ future is promising. We are focused on our operations, the marketplace and on opportunities for growth. I will tell you more about that in a few minutes but I want you to know upfront that I have never been more confident in our company and the opportunities ahead.

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.

In the DSD segment, which is 82% of our total sales, I’m pleased to report that sales growth was above our long-term target. Though margins were pressured by high input cost, the fundamental strengths of our DSD business have not changed.

On this morning’s call, we will address the questions we think are most important to investors. First, what is the outlook for commodity cost and will we take the additional pricing to offset the cost. Next, our higher price is causing a shift to store brand or is there price elasticity in the category.

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