Milling & Baking News - August 25, 2009 - 27

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Boosted by gain, Flowers earnings
up 27%; sales forecast trimmed
Continued from Page 1

results in the face of a challenging
marketplace," said George E. Deese,
chairman, president and chief executive officer. "We increased our overall
sales by 13.6%, driven by the impressive expansion of our branded sales
and sales from last year's acquisitions.
The success of our strategic acquisitions, combined with our efforts
to improve costs and increase efficiencies, drove our earnings and
helped us deliver improved operating margins."
Elaborating on the gain from
the acquisition, Flowers said the
fair value of the identifiable assets acquired in the transaction
and liabilities assumed exceeded the price the company paid.
"In accordance with the new
accounting standard on business combinations, the resulting gain is recorded to the income statement as part of operations," Flowers said.
Updating the company's sales guidance for 2009, Mr. Deese said Flowers
now expects sales growth of 9.7% to
11%, or $2,650 million to $2,680 million, down from earlier guidance of
12.6% to 14.5%, or $2,720 million to
$2,765 million. The lower sales figure
takes into consideration the impact the
economy has had on consumer spending and certain competitive dynamics
in the marketplace, Mr. Deese said.
Mr. Deese said Flowers earnings
guidance for the year, excluding the 2c
gain on acquisition, will remain 4.8%
to 5.1% of sales, or $127.1 million to
$137.3 million, down from the firstquarter estimate of $127.8 million to
$138.3 million.
"Going forward, we will continue to
seek sustainable growth, manage our
resources and operations wisely, and
invest prudently to create shareholder
value over the long term," he said.
"Our business strategies have served
us well for many years in all economic
environments and we remain committed to those strategies."
In an Aug. 19 conference call, Mr.
Deese offered detail into the assessment about the strength of the company's branded business while describing other parts of the business not
faring as well.
He said branded market share has
continued to grow, with a 30 basis
point gain to 24.7% share from 24.3%
bakingbusiness.com / world-grain.com

share for Flowers brands in key markets.
Conditions were tougher in the
company's warehouse business than
in the direct-store delivery unit.
"Volume in the quarter was down
4.5% primarily the result of the economic impact of the food service category and the vending business on our

Mrs. Freshley's is now the top selling
brand for Flowers Foods, Inc. and is "outperforming the market," said George E.
Deese, chairman, president and chief executive officer at Flowers.

cake business," Mr. Deese said. "Our
food service sales continue to perform
in line with the market but below our
expected sales volume."
He said the company was positioned to benefit from economic improvement when that occurs. A positive note in the warehouse business,
Mr. Deese said the Mrs. Freshley's
brand performed well and is now the
company's top selling brand.
Gross margin in the second quarter was 45.7% of sales, which was flat
compared with the second quarter of
2008. The company said higher ingredient costs were offset by declines in
packaging and labor costs as a per
cent of sales and improved manufacturing efficiencies.
Flowers said capital spending in
fiscal 2009 is expected to be around
$75 million, including the completion of a bread line at the company's
new bakery in Kentucky, as well as
costs for capital maintenance and
efficiency improvements in the company's other bakeries.
In a breakdown of results by segment, second-quarter EBIT (earnings

Financial Results

before interest and taxes) was
$45,693,000 in the Direct-Store-Delivery segment, up 26% from $36,387,000
in the same period a year ago. Sales
were $507,475,000, up 15%.
In the company's Warehouse Delivery segment, EBIT in the quarter was
$12,108,000, up 87% from $6,461,000.
Sales were $106,973,000, up 7%.
For the first six months of fiscal
2009, net income at Flowers Foods
was $67,722,000, or 73c per share, up
13% from $59,732,000, or 65c
per share, in the first half of
fiscal 2008. Net sales were
$1,421,455,000, up from
$1,217,363,000.
While sales growth will
not meet earlier expectations, Mr. Deese said there
is good cause to expect
earnings to hold up well.
"In the third and fourth
quarters we will have tail
winds as our input costs
improve, and we should
continue to benefit from
those tail winds as we
enter 2010," he said.
Asked about Flowers'
current level of interest in acquisitions,
Mr. Deese said it was keen but unrequited, to date.
"We have our line in the water and
are fishing real hard," he said. "I feel,
though, that a lot of companies are
waiting for the economy to pick back
up before they might want to sell because this been a difficult situation,
and earnings may not be as strong."
Asked about the impact of promotions in the second quarter, Mr. Deese
said the activity was in line with what
could be expected given the economic
weakness.
"Historically, when the recessions
do come, having been in the business
for 45 years, I've seen a few, when recessions come, a lot of times commodities do go down during recession," he
said. "A lot of times not only bakers
but other food makers will promote
their product because they are afraid
they are going to lose volume during
that recession. So I think this time is no
different. In the next recession you'll
probably see the same thing, but the
first quarter, we did see white bread
being promoted. We did see soft variety bread being promoted and the
breakfast category being promoted,
different companies, different times.
I did see a little heavier activity, maybe a little different deeper price cuts,
heavier promotions at the end of the
second quarter." MBN
Milling & Baking News August 25, 2009 / 27

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Milling & Baking News - August 25, 2009

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