Flowers Foods(FLO) - 2024 Q1 - Quarterly Results

Executive Summary First Quarter 2024 Highlights Flowers Foods, Inc. reported solid first-quarter 2024 results, with record sales and increased net income, driven by effective portfolio strategy and investments, despite challenging market conditions | Metric | Q1 2024 (16-weeks) | | :-------------------------------- | :------------------ | | Sales | $1.577 billion (+2.8%) | | Net Income | $73.0 million (+3.3%) | | Adjusted Net Income | $80.3 million (-0.8%) | | Adjusted EBITDA | $159.4 million (+5.5%) | | Diluted EPS | $0.34 (+$0.01) | | Adjusted Diluted EPS | $0.38 (consistent) | Chairman and CEO Remarks Chairman and CEO Ryals McMullian highlighted the increasing effectiveness of the company's portfolio strategy and investments, leading to market share gains and the first quarterly branded retail volume growth since 2020. Profitability in away-from-home and private label businesses also significantly expanded - Brands gained market share, outperforming the fresh packaged bread category[3] - Grew quarterly branded retail volumes for the first time since 2020[3] - Initiatives improved profitability and expanded margins in away-from-home and private label businesses[3] Fiscal Year 2024 Outlook The company maintained its 2024 outlook, anticipating continued volume improvement, benefits from expanded savings initiatives and new business wins, while acknowledging ongoing economic uncertainty | Metric | Fiscal 2024 Outlook Range | | :-------------------------------- | :-------------------------------- | | Sales | $5.091 billion to $5.172 billion (0.0% to 1.6% growth) | | Adjusted EBITDA | $524 million to $553 million | | Adjusted Diluted EPS | $1.20 to $1.30 | | Depreciation and Amortization | $160 million to $165 million | | Net Interest Expense | $22 million to $26 million | | Effective Tax Rate | Approximately 25% | | Weighted Average Diluted Share Count | Approximately 213 million shares | | Capital Expenditures | $145 million to $155 million (including $3 million to $6 million for ERP upgrade) | Consolidated First Quarter Operating Highlights Sales Performance Total sales increased by 2.8% to a first-quarter record of $1.577 billion, primarily driven by pricing/mix and acquisition contributions, with branded retail volumes showing positive growth | Sales Class | Q1 2024 Sales ($ thousands) | % Change YoY | | :---------------- | :-------------- | :----------- | | Branded Retail | $1,014,901 | 3.5% | | Other | $561,917 | 1.4% | | Total Sales | $1,576,818 | 2.8% | | Sales Driver | Branded Retail | Other | Total | | :------------- | :------------- | :---- | :---- | | Pricing/mix | 2.6% | 3.3% | 3.1% | | Volume | 0.3% | (2.2)% | (0.8)% | | Acquisition | 0.6% | 0.3% | 0.5% | | Total % Change | 3.5% | 1.4% | 2.8% | Cost and Expense Analysis The company experienced a decrease in materials, supplies, labor, and other production costs as a percentage of sales due to prior year pricing actions and moderating ingredient costs, while selling, distribution, and administrative (SD&A) expenses increased - Materials, supplies, labor, and other production costs decreased by 160 basis points to 50.6% of sales, primarily due to prior year pricing actions and moderating ingredient/packaging costs, partly offset by higher labor costs[10] - Selling, distribution, and administrative (SD&A) expenses increased by 110 basis points to 39.7% of sales, driven by higher labor and technology expenses[10] | Expense Category | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | Change ($ thousands) | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | :----- | | Restructuring charges | $598 | $4,195 | -$3,597 | | Impairment of assets | $4,000 | — | +$4,000 | | Depreciation and amortization expense | $48,235 | $43,735 | +$4,500 | | Net interest expense | $5,611 | $3,886 | +$1,725 | Profitability Metrics Net income increased by 3.3%, while adjusted net income saw a slight decrease. Adjusted EBITDA grew by 5.5%, improving the adjusted EBITDA margin by 30 basis points | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | % Change YoY | | :------------------ | :-------------- | :-------------- | :----------- | | Net Income | $73,043 | $70,710 | +3.3% | | Adjusted Net Income | $80,261 | $80,937 | -0.8% | | Adjusted EBITDA | $159,408 | $151,140 | +5.5% | | Adjusted EBITDA Margin | 10.1% | 9.8% | +0.3 percentage points | Cash Flow and Capital Allocation Cash flow from operating activities significantly increased, while capital expenditures slightly decreased. Dividends paid to shareholders also increased | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | Change ($ thousands) | | :-------------------------------- | :-------------- | :-------------- | :----- | | Cash flow from operating activities | $105,149 | $57,952 | +$47,197 | | Capital expenditures | $33,332 | $33,958 | -$626 | | Dividends paid | $51,106 | $49,100 | +$2,006 | | Cash and cash equivalents (period end) | $15,818 | $27,720 | -$11,902 | Company Information About Flowers Foods Flowers Foods, Inc. is a leading producer of packaged bakery foods in the U.S., with 2023 sales of $5.1 billion, operating numerous bakeries and owning popular brands such as Nature's Own and Dave's Killer Bread - One of the largest producers of packaged bakery foods in the United States[13] - Reported $5.1 billion in sales for 2023[13] - Key brands include Nature's Own, Dave's Killer Bread, Wonder, Canyon Bakehouse, and Tastykake[13] Investor Relations The company will host a live question and answer webcast on May 16, 2024, following the release of pre-recorded management remarks and a supporting slide presentation - Pre-recorded management remarks and a supporting slide presentation are available on the Flowers Foods website[12] - A live question and answer webcast was scheduled for 5:00 p.m. (Eastern) on May 16, 2024[12] Non-GAAP Financial Measures Definition and Use of Non-GAAP Measures Flowers Foods uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted net income to provide investors with a more complete understanding of its core operations by excluding certain non-recurring or non-operating costs - Non-GAAP measures are supplemental to GAAP and not a substitute[15] - EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, used as an indicator of operating performance and debt servicing ability[16] - Adjusted non-GAAP measures exclude costs like plant closures, acquisitions, restructuring, impairments, and business process improvement costs to provide insight into core operations[17] Reconciliation of GAAP to Non-GAAP Measures The report provides detailed reconciliations for various non-GAAP measures, including adjusted EPS, gross margin, adjusted SD&A, EBITDA, adjusted EBITDA, adjusted income tax expense, and adjusted net income, for both the current quarter and full-year guidance Reconciliation of Earnings per Share to Adjusted Earnings per Share | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Net income per diluted common share | $0.34 | $0.33 | | Business process improvement costs | 0.01 | 0.02 | | Impairment of assets | 0.01 | — | | Restructuring charges | NM | 0.01 | | Acquisition-related costs | — | 0.01 | | Adjusted net income per diluted common share | $0.38 | $0.38 | Reconciliation of Gross Margin | Metric ($ thousands) | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :-------------------------------------------------------------------------------- | :-------------- | :-------------- | | Sales | $1,576,818 | $1,534,493 | | Materials, supplies, labor and other production costs (exclusive of D&A) | $797,186 | $800,852 | | Gross margin excluding depreciation and amortization | $779,632 | $733,641 | | Less depreciation and amortization for production activities | $26,353 | $24,448 | | Gross margin | $753,279 | $709,193 | Reconciliation of Net Income to EBITDA and Adjusted EBITDA | Metric ($ thousands) | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :-------------------------------- | :-------------- | :-------------- | | Net income | $73,043 | $70,710 | | Income tax expense | $23,052 | $19,255 | | Interest expense, net | $5,611 | $3,886 | | Depreciation and amortization | $48,235 | $43,735 | | EBITDA | $149,941 | $137,586 | | Other pension benefit | ($158) | ($83) | | Business process improvement costs | $3,683 | $6,219 | | Impairment of assets | $4,000 | — | | Restructuring charges | $598 | $4,195 | | Restructuring-related implementation costs | $1,344 | — | | Acquisition-related costs | — | $3,223 | | Adjusted EBITDA | $159,408 | $151,140 | Financial Statements Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets and stockholders' equity from December 30, 2023, to April 20, 2024, with minor changes in current assets and liabilities | Metric ($ thousands) | April 20, 2024 | December 30, 2023 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $15,818 | $22,527 | | Total assets | $3,429,166 | $3,426,953 | | Current liabilities | $564,631 | $611,546 | | Long-term debt | $1,043,543 | $1,048,144 | | Stockholders' equity | $1,375,880 | $1,351,782 | Consolidated Statement of Operations The statement of operations for the 16-week period shows an increase in sales, income from operations, and net income compared to the prior year period | Metric ($ thousands) | Q1 2024 (16-weeks) | Q1 2023 (16-weeks) | | :-------------------------------------------------------------------------------- | :----------------- | :----------------- | | Sales | $1,576,818 | $1,534,493 | | Materials, supplies, labor and other production costs (exclusive of D&A) | $797,186 | $800,852 | | Selling, distribution, and administrative expenses | $625,251 | $591,943 | | Income from operations | $101,548 | $93,768 | | Net income | $73,043 | $70,710 | | Net income per diluted common share | $0.34 | $0.33 | Condensed Consolidated Statement of Cash Flows Cash flows from operating activities significantly increased, while investing activities saw a much smaller disbursement compared to the prior year due to a large acquisition in 2023. Financing activities resulted in a net disbursement | Cash Flow Activity ($ thousands) | Q1 2024 (16-weeks) | Q1 2023 (16-weeks) | | :-------------------------------- | :----------------- | :----------------- | | Net cash provided by operating activities | $105,149 | $57,952 | | Net cash disbursed for investing activities | ($35,927) | ($301,207) | | Net cash (disbursed for) provided by financing activities | ($75,931) | $105,841 | | Net decrease in cash and cash equivalents | ($6,709) | ($137,414) | | Cash and cash equivalents at end of period | $15,818 | $27,720 | Sales by Sales Class and Sales Bridge Sales are categorized into Branded Retail and Other, with a detailed bridge illustrating the percentage point changes attributed to pricing/mix, volume, and acquisitions for each segment and total sales Sales by Sales Class | Sales Class ($ thousands) | Q1 2024 | Q1 2023 | $ Change | % Change | | :------------------ | :------ | :------ | :------- | :------- | | Branded Retail | $1,014,901 | $980,479 | $34,422 | 3.5% | | Other | $561,917 | $554,014 | $7,903 | 1.4% | | Total Sales | $1,576,818 | $1,534,493 | $42,325 | 2.8% | Sales Bridge (Percentage Point Change) | Sales Driver | Branded Retail | Other | Total | | :------------- | :------------- | :---- | :---- | | Pricing/mix | 2.6% | 3.3% | 3.1% | | Volume | 0.3% | (2.2)% | (0.8)% | | Acquisition | 0.6% | 0.3% | 0.5% | | Total % Change | 3.5% | 1.4% | 2.8% | Forward-Looking Statements Forward-Looking Statements Disclaimer This section serves as a disclaimer, indicating that statements regarding future expectations are forward-looking and subject to various risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are based on current expectations and are inherently uncertain[14] - Risks and uncertainties include general economic conditions, competitive environment, interest rates, supply chain, consumer demand, and regulatory changes[14] - The company undertakes no obligation to publicly revise or update such statements, except as required by law[14]