Milling & Baking News - February 28, 2017 - 14

Financial Results X

Longer term, Flowers sees future
in snacks and specialty products
Continued from Page 1

stock, down 13% from $189,191,000,
or 89c per share, in the same period a year ago. Sales for the year
were $3,926,885,000, up 3.9% from
$3,778,505,000.
Adjusted earnings per share were
91c in 2016 and 92c in 2015. In its
initial forecast for 2017, Flowers
projected earnings per share of 85c
to 95c.
If successfully implemented, Project Centennial will
transform Flowers Foods into
a growing, national branded
food company, Mr. Shiver
said. Steps toward this objective began in the fourth quarter of 2016.
Mr. Shiver and Mr. Kinsey
said cost cutting over the next
several years will fuel this
transformation.
Every area scrutinized
Mr. Shiver said every aspect
of the business has been scrutinized, and "nothing was off
the table or out of scope," he
said.
The process led Flowers to the conclusion its
growth has been impeded
by the persistently competitive market environment, evolving
consumer preferences (weighing
down the category) and operational complexity that has pressured
margins.
"Through Project Centennial we
have a road map to address each of
these issues," Mr. Shiver said. "Our
Centennial growth plan is based
on two key takeaways from our
comprehensive diagnostics. First,
we must pivot Flowers toward the
consumer. This means shifting our
focus from growth by geographic
expansion to grow through brands.
We have an incredible portfolio of strong, trusted brands that
will form the core of our growth
platform: Nature's Own, Wonder,
Dave's Killer Bread and Tastykake.
The consumer is now our primary
focus. While we have always paid
close attention to consumer trends,
we often did not capitalize on them.
That will change. We will be investing in greater product innovation
and marketing to keep our brands
fresh and relevant to consumers.
14 / February 28, 2017 XMilling & Baking News

"Second, we must transition to a
simpler operating model that is not
only an improved margin structure,
but also the resources to support
profitable growth of our brands.
So how will we unleash the potential of our brands and deliver value? Our plan follows four strategic
initiatives: No. 1, reinvigorate our
core business; No. 2, grow product
adjacencies; No. 3, reduce cost to

fuel our growth; and No. 4, invest in
and develop leading capabilities."
Fleshing out the four initiatives,
Mr. Shiver said Flowers will reinvigorate its core business by supporting the company's brands and its
distributors. To boost its brands, he
said the company will improve the
selection of brands offered to better
align with the company's targeted
consumer base and strengthen trade
promotion capabilities. Pruning the
company's portfolio of s.k.u.s will
be part of this effort.
"A more focused brand strategy
will drive effective and relevant
product innovation and realize a
greater return on our investment
in trade promotion and advertising
dollars," Mr. Shiver said. "Decades
of bolt-on acquisitions have left
us with a complicated portfolio of
brands and s.k.u.s."
While he did not discuss which
brands would be affected by the
s.k.u. rationalization, Mr. Shiver said
the effort already has begun, helping Flowers focus on its strongest

and most promising brands.
"As an added bonus, this action
also increases runtimes and improves
manufacturing efficiencies," he said.
The company's second initiative,
capitalizing on product adjacencies,
is aimed at adapting to changes
in consumer behavior, including
where they eat and how they shop,
Mr. Shiver said.
"As a result of changing consumer
needs and wants there are growing
bakery segments that Flowers can
capitalize on such as food service,
in-store bakery, impulse items and
healthy snacking," Mr. Shiver
said. "Targeting food service
just makes sense, especially
since today's consumer is eating out more. Our company already is the No. 1 provider of
food service bakery products.
We believe we can leverage
our food service experience
toward higher-margin products with a point of difference.
Unique specialty items are just
as popular with consumers in
the grocery aisle, and we will
translate our food service innovation to the retail sector."
While Flowers has been
aware for some time of the
potential to participate in
adjacent product categories
such as healthy snacks, the
company now has developed
strategies to devote the resources necessary to allow these
products to contribute to Flowers
success, Mr. Shiver said.
Aggressive goals for 2017-18
In 2017 and 2018, Flowers will
focus on optimizing its brands, reducing costs and "creating a more
streamlined operating model," Mr.
Kinsey said. He said top-line growth
during this period will be flat to up
2%, and Flowers expects to generate
EBITDA margins of 12% to 13%.
In 2019 and beyond, Flowers will
begin investing to "reinvigorate the
core and grow project adjacencies"
that will boost sales, Mr. Kinsey said,
generating sales growth of 3% to 4%
and EBITDA margins of 13% to 14%.
"We believe that by achieving
these financial goals we can become a company that is capable of
delivering high single-digit e.p.s.,
cash to shareholders through dividends and opportunistic share repurchases, and solid total returns to
the shareholder over the long term,"
Mr. Kinsey said. MBN
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Milling & Baking News - February 28, 2017

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