Flowers Foods' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Flowers Foods, Inc. (FLO)

Q2 2012 Earnings Conference Call

August 14, 2012 08:30 AM ET

Executives

Marta Turner - Executive Vice President of Corporate Relations

George Deese - Chairman and Chief Executive Officer

Allen Shiver - President

Steve Kinsey - Executive Vice President and Chief Financial Officer

Analysts

Farha Aslam - Stephens, Inc.

Mitch Pinheiro - Janney Capital Markets

Eric Katzman - Deutsche Bank

Heather Jones - BB&T Capital Markets

Timothy Ramey - D.A. Davidson & Co.

John Morgan - KeyBanc Capital Markets

Ann Gurkin - Davenport & Co.

Amit Sharma - BMO Capital Markets

Bill Chappell – SunTrust

Douglas Thomas - JET Investment Research

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q2 2012 Flowers Foods Earnings Conference Call. My name is Grant 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 towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

Now, I would like to hand the call over to Marta Turner, please proceed.

Marta Turner

Thank you, Grant. Let me apologize for the slight delay. We had a little bit of a problem with our service provider and our phone numbers, so we apologize for the late start. Our second quarter results as you know were released this morning and the 10-Q was also filed as well. If you need copies of those you will both the documents are posted on the Flowers Foods website. During the call we will use the PowerPoint and you will find that on the webcast listen page.

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

Participating on our call today, we have George Deese, Flowers Foods’ Chairman and Chief Executive Officer; Allen Shiver, our President; and Steve Kinsey, Executive Vice President and Chief Financial Officer.

Now, I am happy to turn the call over to George Deese, Chairman and CEO. George?

George Deese

Thank you, Marta. Good morning to each of you and welcome to our second quarter conference call. As always, we appreciate your continued interest in Flowers Foods. In spite of challenges in the marketplace we were pleased with operating results for the quarter. Before Steve and Allen discuss the second quarter’s results, I want to comment on how I view Flowers Foods from my perspective. First, as I look at how we are tracking relative to the new vision for the company we announced in March of 2011, we are delivering the topline growth we told you to expect. Our long term goal for sales, including acquisitions is 5% to 10% annual growth and we are achieving that with last year’s acquisition of Tasty Baking Company and our recent acquisition of Lepage Bakeries, along with growth in our expansion and co-markets.

We also told you that our goal was to have at least 75% of the US population with access to our fresh breads, buns, rolls and snack cakes by the year 2016. With Lepage bringing access to New England and other key markets in the north east, 70% of the US population now has access to our fresh baked products. We see more opportunities here with the acquisitions and market expansions that would help us reach or exceed our goal of 75%. It also important to realize the growth potential of the newer markets we have added in the past five years. Just as we have done for decades, our team will steadily grow our market presence in those markets by offering great customer service, outstanding quality, and products and brands that consumer’s want. That’s just to remind that when we do reach 75% of US population base, Flowers Foods will still have a tremendous growth potential within our newer markets.

When we reset our visions of the future last year, we told you that we expect to deliver double-digit earnings growth over the long term. In the short term, our earnings remain under pressure from volatile commodity costs, volume is under pressure as consumers remain constraint by the weak economy, and the resulting higher competitive marketplace has also been a factor. Once the shorter term challenges are behind us, I believe Flowers Foods will achieve our long term earnings growth by leveraging our operational strengths, experiencing and proven strategies.

When I look back to the decades of steady earnings growth Flowers has achieved, that gives me confidence that our team will achieve similar performance in the decades ahead. As I see it, the major issues we face today are commodities, industry consolidation, and competitive dynamics in the marketplace. The volatile swings in the commodities continue and that continues to challenge at us as we manage through highs and lows that are more dramatic than I have ever seen in my four decades in the business. Our team is focused on minimizing the impact bringing strategies that have been developed and continue to be developed. The industry consolidation continues and we believe that will additional growth opportunities for our company. Consolidation will bring change but we are confident in our ability to continue.

While the industry is consolidating, it is and we will probably continue to be highly competitive in the near term. Looking longer term, our industry will need better margins for investments in bakeries, in products, brands, technology, and our people. As we think about the baked food industry, it is important when you realize that Flowers Foods feels very confident in our position as a strong number two player in the category. We don’t necessarily want to be the biggest; we will certainly want to be the best. From the strong number two position we have solid growth potential on our new markets, with acquisitions, opportunities to partner with key retail and food service customers, core market growth potential as we gained sales in our underdeveloped categories and the list goes on.

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