Flower Foods Inc. (FLO, Financial), one of the largest producers of a full line of frozen and non-frozen bakery and dessert products, reported fourth-quarter and full-year results. Sales during the fourth quarter and full year increased by 1.21% and 3.97%, respectively. Acquisitions of Dave's Killer Bread and Alpine Valley Bread contributed to the sales increase.
Fourth quarter performance
The company’s net sales increased 1.21% to $868.72 million, compared to $858.36 million for the comparable prior-year period. Sales for the Direct-Store-Delivery segment increased 2.17% to $730.49 million, compared to $714.95 million for the same period last year. Sales of the Warehouse Delivery segment decreased 3.61% to $138.23 million from $143.41 million for the comparable prior-year period.
Gross profit for the reported quarter increased 3.94% to $418.26 million, compared to $402.42 million in the prior-year period. The gross profit margin increased 48.15% from 46.88% in the same period last year.
Flower Foods’ operating income decreased 58.93% to $21.17 million, compared to $51.55 million in the year-ago quarter. Operating income as a percentage of net sales decreased to 2.44% from 6% in the same period last year. Net income decreased 59.56% to $13.04 million, or 6 cents per diluted share, compared to $32.25 million or 15 cents per diluted share for the comparable prior year period. But, adjusted net income increased 0.47% to $34.14 million, or 16 cents per diluted share. Net income as a percentage of net sales decreased to 1.5% from 3.76% in the prior-year period.
The company’s EBITDA decreased 36.4% to $53.44 million, compared to $84.02 million for the comparable prior-year period. On the other hand, adjusted EBITDA increased 1.19% to $87.74 million compared to $86.71 million in the year-ago quarter.
Flower Foods’ cost of sales, excluding depreciation and amortization decreased 1.2% to $450.46 million compared to $455.94 million. Cost of sales as a percentage of net sales decreased to 51.85% compared to 53.12% in the prior-year period. Selling, distribution and administrative expenses increased 7.21% to $339.76 million compared to $316.91 million in the same period last year. Net interest expense for the reported quarter increased 153.59% to $3.88 million compared to $1.53 million.
Flower Foods ended the quarter with cash and cash equivalents of $6.41 million. Net cash flow from operating activities and long-term debt for the reported quarter was $62.79 million and $958.16 million.
Full-year performance
The following chart shows Flower Foods’ financial results for fiscal 2016.
| Metrics | Fiscal 2016 | Fiscal 2015 | % change |
| Net sales | $3.93 billion | $3.78 billion | 3.97% |
| Direct-Store-Delivery sales | $3.28 billion | $3.18 billion | 3.14% |
| Warehouse Delivery sales | $642.71 million | $599.16 million | 7.27% |
| Gross profit | $1.9 billion | $1.82 billion | 4.39% |
| Operating income | $263.89 million | $297.88 million | (11.41)% |
| Net income | $163.78 million | $189.19 million | (13.43)% |
| Adjusted net income | $190.79 million | $196.71 million | (3.01)% |
| EBITDA | $404.76 million | $430.05 million | (5.88)% |
| Adjusted EBITDA | $446.78 million | $440.75 million | 1.37% |
| Cost of sales, excluding depreciation and amortization | $2.03 billion | $1.96 billion | 3.57% |
| Selling, distribution and administrative expenses | $1.46 billion | $1.38 billion | 5.8% |
| Net interest expense | $14.35 million | $4.85 million | 195.88% |
| Net cash flow from operating activities | $346.04 million | --- | --- |
Dividends
The company declared a quarterly dividend of 16 cents per share, which marked an increase of 10.3% from the prior year quarter.
Share repurchases
During the year 2016, the company repurchased 6.9 million shares.
Expectations for 2017
| Metrics | Range |
| Sales | To be between $3.927 billion and $4.006 billion (representing growth of approximately 0.0%-2.0%) |
| Adjusted diluted EPS | To be between $0.85 and $0.95 |
| GAAP EPS | To be between $0.87 and $0.96 |
Focus
- Strengthening its core business.
- Cost curtailment.
- Building capabilities to efficiently grow the brands.
- Improving trade promotion management.
Conclusion
Headquartered in Thomasville, Ga., the flagship brands of the company include Nature's Own, Wonder, Tastykake, and Dave's Killer Bread. The U.S. market for fresh and frozen bakery products is estimated at a whopping $35 billion at retail. Based on market share, the company ranks second in the U.S. fresh baking industry. This company has carved a niche in the bakery industry.
In the year 2016, the company returned $257.4 million to the shareholders. Dave's Killer Bread’s solid performance and Wonder brand’s increased sales are driving the company forward. Nature's Own is witnessing volume improvement. It is constantly investing in growth and innovation of the core brands, and streamlining product portfolio. The company is targeting at least 250 basis points of net EBITDA margin improvement by fiscal 2021. By the end of 2018, it aims to achieve $45 million cost reductions. By 2019, it plans to achieve sales growth of around 3-4% and EBITDA margins to be between 13-14%. For the 58th consecutive quarters, the company has been paying dividends.
The project Centennial is something that one may look forward to. This project targets cost curtailment as a whole. The company is driving growth to deliver long-term shareholder value while making strategic acquisitions in rapidly growing markets. It is well-positioned for the future with strong brands to boast of and covering around 85% of the U.S. population. It is constantly expanding in both new segments and in new markets. Through strategic acquisitions, debt reduction, share repurchases, and dividend increases, the company is poised to grow. Adding this company may reap shareholder returns.
Disclosure: I do not hold any position in the company
