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Flowers Foods, Inc. Reports Third Quarter 2018 Results

THOMASVILLE, Ga., Nov. 7, 2018 /PRNewswire/ -- Flowers Foods, Inc. (FLO), producer of Nature's Own, Wonder, Tastykake, Dave's Killer Bread, and other bakery foods, today reported financial results for the company's 12-week third quarter ended October 6, 2018.

Summary:
Compared to the prior year third quarter where applicable

  • Sales decreased 1.0% to $923.4 million.
  • Diluted EPS increased to $0.19 from a loss of $0.16.
  • Adjusted diluted EPS (1) was unchanged at $0.23.
  • Revised earnings guidance for fiscal 2018: The company now expects adjusted diluted EPS in the range of $0.90 to $0.95.

(1)   See reconciliations of non-GAAP measures in the financial statements following this release.

CEO's Remarks
"In the third quarter, our strong brand portfolio achieved record market share. We also made additional organizational changes designed to enhance performance and increase accountability," said Allen Shiver, Flowers Foods' president and CEO. "We are continuing to take steps to optimize our supply chain, including the start-up of a high-speed production bun line in Oxford, Pa., and the closing of an inefficient bakery in Brattleboro, Vt. Extending our portfolio into adjacent product segments is a strategic priority, and today, we announced the acquisition of Canyon Bakehouse, a leading producer of gluten-free bakery products. Gluten-free is a growing segment of the category, and one where we believe we can leverage our powerful distribution network to grow enterprise value."

"Despite progress on our strategic priorities, we are not satisfied with our performance this quarter. We continue to face a challenging operating environment that impacted our third quarter financial results and our full-year outlook. Sales in the quarter were down, compared to the prior year, due to expected losses of low-margin foodservice business, lower hurricane-related volumes, and disruptions related to inferior yeast. We expect these headwinds to be transitory. Also impacting results in the quarter were inflationary cost pressures from commodities and transportation. We are working to address these higher costs through pricing actions and our ongoing savings initiatives."

Mr. Shiver continued, "Flowers' competitive advantages lie in our leading brands, efficient bakeries, and flexible distribution platform. Through our multi-year transformational plan, we intend to maximize these advantages to improve margins, reinvigorate core brands, and grow profitably in adjacent product segments. We are on track to achieve the upper end of our gross savings targets for 2018, and are confident that our plan will enable Flowers to achieve long-term success and deliver sustainable, top-tier shareholder returns."

Revised Outlook for Fiscal 2018:

  • Expected sales in the range of approximately $3.921 billion to $3.982 billion, representing growth of approximately 0.0% to 1.6%.
  • Expected adjusted diluted EPS in the range of approximately $0.90 to $0.95, representing growth of approximately 1.1% to 6.7%. Previously the company had expected adjusted diluted EPS in the range of $1.00 to $1.07.
  • Adjusted EPS guidance excludes consulting and restructuring costs associated with Project Centennial, the company's multi-year transformational plan, which are expected to be in the range of $13 million to $15 million, and costs associated with matters affecting comparability that cannot be practicably estimated. See reconciliations of non-GAAP measures in the financial statements following this release.

Announced Acquisition of Canyon Bakehouse
In a separate press release issued today, the company announced that it has entered into an agreement to acquire Canyon Bakehouse LLC in a transaction valued at $205 million, or $175 million net of the present value of future tax benefits. With the fastest-growing gluten-free bread loaf brand in the U.S., Canyon Bakehouse provides Flowers an entrance to the growing and under penetrated gluten-free bakery market. Flowers intends to leverage its national distribution network to drive growth of Canyon Bakehouse products and create enhanced value. The acquisition, which is subject to regulatory approval and customary closing conditions, is expected to be completed later in the fourth quarter of 2018.

Update on Project Centennial and Strategic Priorities
The company is executing on its strategic priorities under Project Centennial and implementing several initiatives to reinvigorate the core business, capitalize on product adjacencies, reduce costs to fuel growth, and develop leading capabilities. Launched in 2016, Project Centennial is an enterprise-wide, multi-year effort to streamline operations, drive efficiencies, and invest in strategic capabilities strengthening Flowers' competitive position, drive profitable revenue growth, and create shareholder value.

Highlights of the company's progress in 2018 to date include:

  • On track to realize total gross savings at the upper end of the $38 million to $48 million target, primarily from a more efficient organizational structure and reduced spending on purchased goods and services.
  • Entered into an agreement to acquire Canyon Bakehouse, a leading producer of gluten-free bakery products.
  • Began operating a high-speed bun line in Pennsylvania and announced closure of an inefficient bakery in Vermont.
  • Continued to refine its organizational structure to better align operating functions, enhance execution, and improve accountability.
  • Realized a significant decrease in selling, distribution, and administrative (SD&A) workforce-related expenses due to organizational restructuring.
  • Grew the recently launched Nature's Own Perfectly Crafted, a line of artisan-inspired, thick-sliced bakery breads, and Dave's Killer Bread Boomin' Berry bagels.
  • Implemented enhanced working capital policies that improved the cash conversion cycle and generated incremental cash flow.

Matters Affecting Comparability:

 




Reconciliation of Earnings per Share to Adjusted Earnings per Share










For the 12 Weeks Ended




Oct. 6, 2018


Oct. 7, 2017








Net income (loss) per diluted common share

$         0.19


$        (0.16)


Project Centennial consulting costs

 NM 


0.02


Restructuring and related impairment charges

 NM 


0.29


Pension plan settlement loss


 NM 


0.01


Legal settlements


0.04


0.01


Recovery of loss on inferior ingredients

(0.01)


-


Multi-employer pension plan withdrawal costs

-


0.05


Adjusted net income per diluted common share

$         0.23


$         0.23








NM - Not Meaningful






Certain amounts may not compute due to rounding.



 Consolidated Third Quarter 2018 Summary
Compared to the prior year third quarter where applicable

  • Sales decreased 1.0% to $923.4 million.
  • Percentage point change in sales attributed to:
  • Net income for the current quarter was $39.6 million compared to a net loss of $33.6 million in the prior year quarter. Excluding matters affecting comparability, net income increased $0.4 million, or 0.9%, to $48.7 million.
  • Operating income for the current quarter was $53.5 million compared to a net loss of $52.1 million in the prior year quarter. Excluding matters affecting comparability, operating income decreased $13.4 million, or 17.1%, to $64.7 million.
  • Adjusted EBITDA decreased 13.2% to $97.5 million, or 10.6% of sales, a 140-basis point decline.
  • Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) were 52.6% of sales, a 150-basis-point increase. These costs were higher as a percent of sales due to increased commodity prices, softer production volumes, increased outside purchases of product (primarily DKB branded breakfast items), and decreased manufacturing efficiencies.
  • SD&A expenses were 38.2% of sales, a 10-basis point-decrease. Lower workforce-related costs, as a percentage of sales, were partially offset by higher distributor distribution fees due to a larger portion of sales being sold via independent distributors. Higher legal settlements were mostly offset by lower Project Centennial-related consulting costs. Additionally, higher transportation costs in the current quarter partially offset the decrease in SD&A expenses.
  • Depreciation and Amortization (D&A) expenses were $32.7 million, 3.5% of sales, flat with the prior year third quarter.

On a consolidated basis, branded retail sales decreased 0.7% to $547.4 million, store branded retail sales increased 1.7% to $141.0 million, while non-retail and other sales decreased 3.2% to $235.1 million. Volume declines drove the decrease in branded retail sales as the company cycled hurricanes in the prior year quarter. Partially offsetting the decline was continued sales growth from DKB organic products, growth in our expansion markets, the contribution from Nature's Own Perfectly Crafted breads, and more favorable price/mix. Store branded retail sales increased primarily due to positive price/mix. Volume declines in foodservice and vending items drove the decrease in non-retail and other sales, partially offset by positive price/mix.

DSD Segment Summary
Compared to the prior year third quarter where applicable

  • Sales decreased 0.9% to $780.3 million.
  • Percentage point change in sales attributed to:
  • Operating income for the current quarter was $58.8 million compared to an operating loss of $20.3 million in the prior year quarter. In the prior year quarter, the company recognized restructuring and related impairment charges, multi-employer pension plan withdrawal costs, and costs related to legal settlements totaling $99.1 million.
  • Adjusted EBITDA decreased 11.6% to $94.7 million.

DSD Segment branded retail sales were unchanged at $514.4 million, store branded retail sales increased 3.4% to $114.6 million, while non-retail and other sales decreased 6.7% to $151.3 million. Branded retail sales were consistent with the prior year quarter as positive price/mix was offset by volume declines. In the prior year quarter, hurricanes positively impacted volume. Sales of DKB products continued to increase along with Nature's Own Perfectly Crafted breads introduced in the second quarter of fiscal 2018, and in expansion markets. These gains were more than offset by volume declines for other branded products. Store branded retail sales increased quarter over quarter due to positive price/mix and volume growth. Significant volume declines in foodservice primarily resulted in the decrease in non-retail and other sales. Foodservice sales were impacted by inferior yeast and the shift of certain foodservice business from the DSD Segment to the Warehouse Segment.

The significant favorable change in DSD Segment operating income primarily resulted from $76.6 million of restructuring and related impairment charges and $18.3 million of multi-employer pension plan withdrawal costs incurred in the prior year quarter, as well as the benefit of the voluntary separation incentive program and other restructuring activities, lower employee compensation costs and the recovery of a portion of the loss on inferior ingredients in the current quarter. Increased product costs, increased distributor distribution fees, higher legal settlements of $6.5 million, and increased marketing investments partially offset the overall improvement in operating income.

Warehouse Segment Summary
Compared to the prior year third quarter where applicable

  • Sales decreased 1.6% to $143.2 million.
  • Percentage point change in sales attributed to:
  • Operating income for the current quarter was $5.9 million compared to an operating loss of $9.1 million in the prior year quarter. In the prior year quarter, the company recognized restructuring and related impairment charges totaling $20.1 million.
  • Adjusted EBITDA decreased 16.7% to $13.1 million.

Warehouse Segment branded retail sales decreased 10.9% to $32.9 million, store branded retail sales decreased 5.0% to $26.4 million, while non-retail and other sales increased 3.8% to $83.8 million. Branded retail sales decreased mostly due to volume declines in branded cake and to a lesser extent in warehouse-delivered branded organic bread. Sales of store branded retail items decreased primarily due to volume decreases in store branded cake. Non-retail and other sales, which include contract manufacturing, vending and foodservice, increased primarily from significant volume growth in foodservice sales and to a lesser extent the shift of certain foodservice business from the DSD Segment to the Warehouse Segment in the current year period and increased contract manufacturing, partially offset by declines in vending sales.

The significant favorable change in the Warehouse Segment operating income was primarily due to prior year restructuring costs of $20.1 million and lower workforce-related costs in the current year quarter, partially offset by sales declines, higher product and distribution costs, a $1.1 million legal settlement and $1.1 million of loss on inferior ingredients in the current year quarter.

Unallocated Corporate Expense Summary
Note: Comparisons are to consolidated sales

  • Unallocated corporate expenses decreased 120 basis points to 1.2% of consolidated sales, primarily due to the $6.3 million decrease in Project Centennial consulting costs, prior year period restructuring charges of $3.8 million, and to a lesser extent, reduced workforce-related expenses.

Cash Flow, Dividends, Share Repurchases, and Capital Allocation
In the third quarter of fiscal 2018, cash flow from operating activities was $83.4 million, capital expenditures were $25.5 million, and dividends paid were $38.0 million.

There are 6.6 million shares remaining on the company's current share repurchase authorization. As in the past, the company expects to continue to make opportunistic share repurchases from time to time under this authorization.

Conference Call
Flowers Foods will hold a conference call to discuss its third quarter 2018 earnings at 8:30 a.m. (Eastern) on November 8, 2018. The call can be accessed by clicking on the webcast link on flowersfoods.com/investors. The call also will be archived on the company's website.

About Flowers Foods
Headquartered in Thomasville, Ga., Flowers Foods, Inc. (FLO) is one of the largest producers of fresh packaged bakery foods in the United States with 2017 sales of $3.9 billion. Flowers operates bakeries across the country that produce a wide range of bakery products. Among the company's top brands are Nature's Own, Wonder, Dave's Killer Bread, and Tastykake. Learn more at www.flowersfoods.com.

FLO-IR    FLO-CORP

Forward-Looking Statements
Statements contained in this press release that are not historical facts are forward-looking statements. Forward-looking statements relate to current expectations regarding our future financial condition, performance and results of operations, planned capital expenditures, long-term objectives of management, supply and demand, pricing trends and market forces, and integration plans and expected benefits of transactions and are often identified by the use of words and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should," "will," "would," "is likely to," "is expected to" or "will continue," or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those projected. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the company's prospects in general include, but are not limited to, (a) general economic and business conditions and the competitive conditions in the baked foods industry, including promotional and price competition, (b) changes in consumer demand for our products, including changes in consumer behavior, trends and preferences, including health and whole grain trends, and the movement toward more inexpensive store-branded products, (c) the success of productivity improvements and new product introductions, (d) a significant reduction in business with any of our major customers including a reduction from adverse developments in any of our customer's business, including as a result of product recalls or safety concerns related to our products, (e) fluctuations in commodity pricing, (f) energy and raw material costs and availability and hedging and counterparty risk, (g) our ability to fully integrate recent acquisitions into our business, (h) our ability to achieve cash flow from capital expenditures and acquisitions and the availability of new acquisitions that build shareholder value, (i) our ability to successfully implement our business strategies, including those strategies the company has initiated under Project Centennial, which may involve, among other things, the integration of recent acquisitions or the acquisition or disposition of assets at presently targeted values, the deployment of new systems and technology and an enhanced organizational structure, (j) consolidation within the baking industry and related industries, (k) disruptions in our direct-store delivery system, including litigation or an adverse ruling from a court or regulatory or government body that could affect the independent contractor classification of our independent distributors, (l) increasing legal complexity and legal proceedings that we are or may become subject to, (m) product recalls or safety concerns related to our products, and (n) the failure of our information technology systems to perform adequately, including any interruptions, intrusions or security breaches of such systems. The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other public disclosures made by the company, including the risk factors included in our most recently filed Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and disclosures made in other filings with the SEC and company press releases, for other factors that may cause actual results to differ materially from those projected by the company. We caution you not to place undue reliance on forward-looking statements, as they speak only as of the date made and are inherently uncertain. The company undertakes no obligation to publicly revise or update such statements, except as required by law.

Information Regarding Non-GAAP Financial Measures
The company prepares its consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). However, from time to time, the company may present in its public statements, press releases and SEC filings, non-GAAP financial measures such as, EBITDA, adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted operating income by segment, adjusted EBIT by segment, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A), gross margin excluding depreciation and amortization and the ratio of net debt to adjusted EBITDA. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure. The company's definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.

The company defines EBITDA as earnings from continuing operations before interest, income taxes, depreciation, amortization and income attributable to non-controlling interest. The company believes that EBITDA is a useful tool for managing the operations of its business and is an indicator of the company's ability to incur and service indebtedness and generate free cash flow. EBITDA is used as the primary performance measure in the company's 2014 Omnibus Equity and Incentive Compensation Plan. Furthermore, pursuant to the terms of our credit facility, EBITDA is used to determine the company's compliance with certain financial covenants. The company also believes that EBITDA measures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability because EBITDA measures assist in comparing performance on a consistent basis without regard to depreciation or amortization, which can vary significantly depending upon accounting methods and non-operating factors (such as historical cost). EBITDA is also a widely-accepted financial indicator of a company's ability to incur and service indebtedness.

EBITDA should not be considered an alternative to (a) income from operations or net income (loss) as a measure of operating performance; (b) cash flows provided by operating, investing and financing activities (as determined in accordance with GAAP) as a measure of the company's ability to meet its cash needs; or (c) any other indicator of performance or liquidity that has been determined in accordance with GAAP.

The company defines adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted operating income by segment, adjusted EBIT by segment, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A), respectively, excluding the impact of asset impairment charges, Project Centennial consulting costs, lease terminations and legal settlements, acquisition-related costs, and pension plan settlements. Adjusted income tax expense also excludes the impact of tax reform. The company believes that these measures, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges.

Net debt to EBITDA is used as a measure of financial leverage employed by the company. Gross margin excluding depreciation and amortization is used as a performance measure to provide additional transparent information regarding our results of operations on a consolidated and segment basis. Changes in depreciation and amortization are separately discussed and include depreciation and amortization for materials, supplies, labor and other production costs and operating activities.

Presentation of gross margin includes depreciation and amortization in the materials, supplies, labor and other production costs according to GAAP. Our method of presenting gross margin excludes the depreciation and amortization components, as discussed above.

The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure.

 

Flowers Foods, Inc.

Consolidated Statement of Operations

(000's omitted, except per share data)





























For the 12 Week
Period Ended


For the 12 Week
Period Ended



For the 40 Week
Period Ended


For the 40 Week
Period Ended





October 6, 2018


October 7, 2017



October 6, 2018


October 7, 2017

Sales

$

923,449

$

932,822


$

3,071,185

$

3,047,110

Materials, supplies, labor and other production costs (exclusive of depreciation and amortization shown separately below)


485,680


476,264



1,599,673


1,552,578

Selling, distribution and administrative expenses


353,051


356,826



1,167,879


1,175,434

Gain on divestiture


-


-



-


(28,875)

Loss (recovery) on inferior ingredients


(1,891)


-



1,993


-

Restructuring and related impairment charges


497


100,549



2,557


100,549

Impairment of assets 


-


-



2,483


-

Multi-employer pension plan withdrawal costs


-


18,268



2,322


18,268

Depreciation and amortization expense


32,662


32,972



111,949


114,288

Income (loss) from operations 


53,450


(52,057)



182,329


114,868

Other pension cost (benefit)


(171)


(1,321)



(1,204)


(4,687)

Pension plan settlement loss


930


3,030



6,633


3,030

Interest expense, net


1,565


2,730



6,214


11,056

Income (loss) before income taxes 


51,126


(56,496)



170,686


105,469

Income tax expense (benefit)


11,496


(22,925)



34,367


33,882

Net income (loss)

$

39,630

$

(33,571)


$

136,319

$

71,587













Net income (loss) per diluted common share

$

0.19

$

(0.16)


$

0.64

$

0.34













Diluted weighted average shares outstanding


211,564


209,606



211,452


210,231













 

Flowers Foods, Inc.

Segment Reporting

(000's omitted)























For the 12 Week
Period Ended


For the 12 Week
Period Ended



For the 40 Week
Period Ended


For the 40 Week
Period Ended



October 6, 2018


October 7, 2017



October 6, 2018


October 7, 2017

Sales:










   Direct-Store-Delivery

$

780,253

$

787,255


$

2,592,363

$

2,580,007

   Warehouse Delivery


143,196


145,567



478,822


467,103


$

923,449

$

932,822


$

3,071,185

$

3,047,110











Gain on divestiture:










   Warehouse Delivery

$

-

$

-


$

-

$

(28,875)


$

-

$

-


$

-

$

(28,875)











Loss (recovery) on inferior ingredients










   Direct-Store-Delivery

$

(2,986)

$

-


$

898

$

-

   Warehouse Delivery 


1,095


-



1,095


-


$

(1,891)

$

-


$

1,993

$

-











Restructuring and impairment related charges:










   Direct-Store-Delivery

$

289

$

76,625


$

2,187

$

76,625

   Warehouse Delivery 


175


20,091



251


20,091

   Unallocated Corporate 


33


3,833



119


3,833


$

497

$

100,549


$

2,557

$

100,549











Impairment of assets:










   Direct-Store-Delivery

$

-

$

-


$

2,483

$

-


$

-

$

-


$

2,483

$

-











Multi-employer pension plan withdrawal costs:










   Direct-Store-Delivery

$

-

$

18,268


$

2,322

$

18,268


$

-

$

18,268


$

2,322

$

18,268











Depreciation and amortization expense:










   Direct-Store-Delivery

$

27,676

$

28,286


$

95,273

$

98,703

   Warehouse Delivery


4,916


4,769



16,443


15,841

   Unallocated Corporate


70


(83)



233


(256)


$

32,662

$

32,972


$

111,949

$

114,288











EBIT income (loss):










   Direct-Store-Delivery 

$

58,819

$

(20,338)


$

197,725

$

146,388

   Warehouse Delivery 


5,866


(9,082)



31,563


47,202

   Unallocated Corporate 


(11,235)


(22,637)



(46,959)


(78,722)


$

53,450

$

(52,057)


$

182,329

$

114,868











Pension plan settlement loss:










   Unallocated Corporate 

$

930

$

3,030


$

6,633

$

3,030


$

930

$

3,030


$

6,633

$

3,030











EBITDA income (loss):










   Direct-Store-Delivery

$

86,592

$

8,047


$

293,321

$

245,422

   Warehouse Delivery 


10,782


(4,313)



48,006


63,043

   Unallocated Corporate 


(12,021)


(24,528)



(52,478)


(77,652)


$

85,353

$

(20,794)


$

288,849

$

230,813





















 

Flowers Foods, Inc.

Condensed Consolidated Balance Sheet

(000's omitted)
















October 6, 2018

Assets




     Cash and Cash Equivalents


$

49,727





     Other Current Assets



494,104





     Property, Plant & Equipment, net



720,197





     Distributor Notes Receivable (includes $25,804 current portion)



229,380





     Other Assets



12,428





     Cost in Excess of Net Tangible Assets, net



1,187,301





     Total Assets


$

2,693,137





Liabilities and Stockholders' Equity




     Current Liabilities


$

390,125





     Long-term Debt and Capital Leases (includes $11,286 current portion)


825,376





     Other Liabilities



200,068





     Stockholders' Equity



1,277,568





     Total Liabilities and Stockholders' Equity


$

2,693,137





 

Flowers Foods, Inc.

Condensed Consolidated Statement of Cash Flows

(000's omitted)


























For the 12 Week
Period Ended


For the 12 Week
Period Ended



For the 40 Week
Period Ended


For the 40 Week
Period Ended




October 6, 2018


October 7, 2017



October 6, 2018


October 7, 2017

Cash flows from operating activities:










Net income 

$

39,630

$

(33,571)


$

136,319

$

71,587

Adjustments to reconcile net income to net cash










  from operating activities:











Total non-cash adjustments


34,592


87,977



149,978


150,151


Changes in assets and liabilities and pension contributions


9,214


(3,347)



(54,238)


2,288

Net cash provided by operating activities


83,436


51,059



232,059


224,026

Cash flows from investing activities:











Purchase of property, plant and equipment 


(25,458)


(19,294)



(74,992)


(51,213)


Divestiture of assets


-


-



-


41,230


Proceeds from sale of property, plant and equipment 


76


382



1,366


1,694


Other


1,015


(1,674)



214


(4,515)

Net cash disbursed for investing activities


(24,367)


(20,586)



(73,412)


(12,804)

Cash flows from financing activities:











Dividends paid


(37,959)


(35,606)



(112,247)


(105,207)


Exercise of stock options


-


2,880



791


9,296


Stock repurchases


-


-



(2,489)


(2,671)


Net change in debt borrowings


(1,250)


6,850



(3,750)


(101,250)


Other


313


(4,702)



3,646


(10,726)

Net cash disbursed for financing activities


(38,896)


(30,578)



(114,049)


(210,558)

Net increase (decrease) in cash and cash equivalents


20,173


(105)



44,598


664

Cash and cash equivalents at beginning of period


29,554


7,179



5,129


6,410

Cash and cash equivalents at end of period

$

49,727

$

7,074


$

49,727

$

7,074












 

Flowers Foods, Inc.

Reconciliation of GAAP to Non-GAAP Measures

(000's omitted, except per share data)














Reconciliation of Earnings per Share to Adjusted Earnings per Share




For the 12 Week Period
Ended


For the 12 Week Period
Ended


For the 40 Week Period
Ended


For the 40 Week Period
Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Net income (loss) per diluted common share


$                           0.19


$                         (0.16)


$                           0.64


$                           0.34

Gain on divestiture


-


-


-


(0.09)

Loss (recovery) on inferior ingredients


(0.01)


-


0.01


-

Restructuring and related impairment charges


 NM 


0.29


0.01


0.29

Project Centennial consulting costs


 NM 


0.02


0.03


0.09

Legal settlements and lease terminations 


0.04


0.01


0.08


0.02

Pension plan settlement loss


 NM 


0.01


0.02


0.01

Multi-employer pension plan withdrawal costs


-


0.05


0.01


0.05

Adjustment to prior year provisional tax reform benefit


-


-


(0.03)


-

Adjusted net income per diluted common share


$                           0.23


$                           0.23


$                           0.78


$                           0.72

NM - not meaningful.









Certain amounts may not add due to rounding.






















Reconciliation of Gross Margin




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017

Sales


$                    923,449


$                    932,822


$                3,071,185


$                3,047,110

Materials, supplies, labor and other production costs (exclusive of depreciation and amortization)


485,680


476,264


1,599,673


1,552,578

Gross Margin excluding depreciation and amortization


437,769


456,558


1,471,512


1,494,532

Less depreciation and amortization for production activities


18,610


19,553


62,798


67,168

Gross Margin


$                    419,159


$                    437,005


$                1,408,714


$                1,427,364











Depreciation and amortization for production activities


$                      18,610


$                      19,553


$                      62,798


$                      67,168

Depreciation and amortization for selling, distribution and administrative activities


14,052


13,419


49,151


47,120

Total depreciation and amortization


$                      32,662


$                      32,972


$                    111,949


$                    114,288














Reconciliation of Net Income (Loss) to Adjusted EBIT and Adjusted EBITDA




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Net income (loss)


$                      39,630


$                    (33,571)


$                    136,319


$                      71,587

Income tax expense (benefit)


11,496


(22,925)


34,367


33,882

Interest expense, net


1,565


2,730


6,214


11,056

Other pension cost (benefit)


(171)


(1,321)


(1,204)


(4,687)

Pension plan settlement loss


930


3,030


6,633


3,030

Earnings before interest and income taxes


53,450


(52,057)


182,329


114,868

Gain on divestiture


-


-


-


(28,875)

Loss (recovery) on inferior ingredients


(1,891)


-


1,993


-

Restructuring and related impairment charges


497


100,549


2,557


100,549

Project Centennial consulting costs


729


7,050


9,376


31,845

Legal settlements and lease terminations 


11,921


4,253


21,616


5,068

Multi-employer pension plan withdrawal costs


-


18,268


2,322


18,268

Adjusted EBIT


64,706


78,063


220,193


241,723

Other pension cost (benefit)


171


1,321


1,204


4,687

Depreciation and amortization


32,662


32,972


111,949


114,288

Lease termination depreciation impact


-


-


-


(1,844)

Adjusted EBITDA


$                      97,539


$                    112,356


$                    333,346


$                    358,854











Sales


$                    923,449


$                    932,822


$                3,071,185


$                3,047,110

Adjusted EBITDA margin


10.6%


12.0%


10.9%


11.8%














Reconciliation of Income Tax Expense (Benefit) to Adjusted Income Tax Expense




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Income tax expense (benefit)


$                      11,496


$                    (22,925)


$                      34,367


$                      33,882

Tax impact of:









Gain on divestiture


-


-


-


(11,117)

Loss (recovery) on inferior ingredients


(477)


-


503


-

  Restructuring and related impairment charges


125


38,711


646


38,711

Project Centennial consulting costs


184


2,714


2,367


12,260

   Legal settlements and lease terminations 


3,010


1,638


5,458


1,952

Pension plan settlement loss


235


1,167


1,675


1,167

Multi-employer pension plan withdrawal costs


-


7,033


586


7,033

  Adjustment to prior year provisional tax reform benefit


-


-


5,575


-

Adjusted income tax expense


$                      14,573


$                      28,338


$                      51,177


$                      83,888














Reconciliation of Net Income (Loss) to Adjusted Net Income




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Net income (loss)


$                      39,630


$                    (33,571)


$                    136,319


$                      71,587

Gain on divestiture


-


-


-


(17,758)

Loss (recovery) on inferior ingredients


(1,414)


-


1,490


-

Restructuring and related impairment charges


372


61,838


1,911


61,838

Project Centennial consulting costs


545


4,336


7,009


19,585

Legal settlements and lease terminations 


8,911


2,615


16,158


3,116

Pension plan settlement loss


695


1,863


4,958


1,863

Multi-employer pension plan withdrawal costs


-


11,235


1,736


11,235

Adjustment to prior year provisional tax reform benefit


-


-


(5,575)


-

Adjusted net income


$                      48,739


$                      48,316


$                    164,006


$                    151,466














Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - DSD




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Earnings (loss) before interest and income taxes


$                      58,819


$                    (20,338)


$                    197,725


$                    146,388

Loss (recovery) on inferior ingredients


(2,986)


-


898


-

Restructuring and related impairment charges


289


76,625


2,187


76,625

Legal settlements and lease terminations 


10,827


4,253


20,522


5,068

Multi-employer pension plan withdrawal costs


-


18,268


2,322


18,268

Adjusted EBIT


66,949


78,808


223,654


246,349

Depreciation and amortization


27,676


28,286


95,273


98,703

Depreciation on lease terminations


-


-


-


(1,844)

Other pension cost (benefit)


97


99


323


331

Adjusted EBITDA


$                      94,722


$                    107,193


$                    319,250


$                    343,539











Sales


$                    780,253


$                    787,255


$                2,592,363


$                2,580,007

Adjusted EBITDA margin


12.1%


13.6%


12.3%


13.3%














Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - Warehouse Delivery




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Earnings (loss) before interest and income taxes


$                         5,866


$                      (9,082)


$                      31,563


$                      47,202

Gain on divestiture


-


-


-


(28,875)

Loss on inferior ingredients


1,095


-


1,095


-

Legal settlements and lease terminations 


1,094


-


1,094


-

Restructuring and related impairment charges


175


20,091


251


20,091

Adjusted EBIT


8,230


11,009


34,003


38,418

Depreciation and amortization


4,916


4,769


16,443


15,841

Adjusted EBITDA


$                      13,146


$                      15,778


$                      50,446


$                      54,259











Sales


$                    143,196


$                    145,567


$                    478,822


$                    467,103

Adjusted EBITDA margin


9.2%


10.8%


10.5%


11.6%














Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - Corporate




For the 12 Week Period Ended


For the 12 Week Period Ended


For the 40 Week Period Ended


For the 40 Week Period Ended




October 6, 2018


October 7, 2017


October 6, 2018


October 7, 2017











Earnings (loss) before interest and income taxes


$                    (11,235)


$                    (22,637)


$                    (46,959)


$                    (78,722)

Restructuring and related impairment charges


33


3,833


119


3,833

Project Centennial consulting costs


729


7,050


9,376


31,845

Adjusted EBIT


$                    (10,473)


$                    (11,754)


$                    (37,464)


$                    (43,044)

Depreciation and amortization


70


(83)


233


(256)

Other pension cost (benefit)


74


1,222


881


4,356

Adjusted EBITDA


$                    (10,329)


$                    (10,615)


$                    (36,350)


$                    (38,944)














Reconciliation of Earnings per Share - Full Year Fiscal 2018 Guidance








Range Estimate















Net income per diluted common share


$                           0.76

to

$                           0.81





Project Centennial reorganization and consulting costs


0.05


0.05





Loss (recovery) on inferior ingredients


0.01


0.01





Legal settlements


0.08


0.08





Pension plan settlement loss


0.02


0.02





Multi-employer pension plan withdrawal costs


0.01


0.01





Adjustment to prior year provisional tax reform benefit


(0.03)


(0.03)





Adjusted net income per diluted common share


$                           0.90

to

$                           0.95

























 


Flowers Foods, Inc.


Sales Bridge


































Net


Total Sales



For the 12 Week Period Ended October 6, 2018

Volume

Price/Mix

Divestiture

Change










Direct-Store-Delivery

-3.0%

2.1%

0.0%

-0.9%










Warehouse Delivery

-4.9%

3.3%

0.0%

-1.6%










Total Flowers Foods

-3.5%

2.5%

0.0%

-1.0%








































Net


Total Sales



For the 40 Week Period Ended October 6, 2018

Volume

Price/Mix

Divestiture

Change










Direct-Store-Delivery

-2.0%

2.5%

0.0%

0.5%










Warehouse Delivery

3.2%

-0.5%

-0.2%

2.5%










Total Flowers Foods

-0.8%

1.6%

0.0%

0.8%
















 

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