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Flowers Foods Matches Estimate

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Georgia-based Flowers Foods Inc. (FLO - Free Report) recently reported first-quarter 2012 adjusted earnings of 28 cents per share, in line with the Zacks Consensus Estimate but down 15.2% from the year-ago level of 33 cents. The year-over-year decline in earnings was due to input cost pressure.

Total revenue perked up 12.0% year over year to $898.2 million, thanks to higher volume, favorable net/price mix and positive contribution from the acquisition of Tasty Baking Co. completed last year.

Quarter Highlights

The company operates under two segments Direct Store Delivery (DSD) and Warehouse and drives 80% of its revenue from the DSD segment. During the quarter, sales of the DSD segment increased 14.0% year over year to $737.3 million. Warehouse revenue jumped 3.8% to $160.9 million.

Gross margin plunged 190 bps year over year to 46.7%, due to higher ingredient and packaging costs. Selling, distribution and administrative expenses as a percentage of sales dipped 60 bps to 36.8%, benefiting from higher sales prices and lesser workforce-related costs. However, operating margin contracted 100 bps to 6.6% due to non-recurring expenses associated with the bakery closure and the Tasty acquisition.

Operating margin of the DSD segment fell 120 bps to 8.7% and the same at Warehouse segment dipped 130 bps to 6.0%.

During the quarter, Flowers Foods also unveiled its plans to expand itsOxford, Pennsylvania, bakery for bread production.

Financial Position

The company ended the quarter with cash flow from operations of $60.1 million, cash and cash equivalent of $186.1 million and share holders’ equity of $781.6 million. During the quarter, the company repurchased approximately 70,742 shares for $1.4 million.

In April, Packaged bakery Foods Company also issued senior notes, worth $400 million that will carry interest of 4.375% and are due to mature in 2022.


The company has trimmed its earnings outlook for 2012 due to higher costs and interest expense. U.S. baker Flower Foods now expects earnings to rise 3.5% to 8%, less than its earlier growth projection of 7% to 12%.

Our Take

The company remains focused on expansion by acquisition, adding new bakeries and entering new markets. Additionally, continuous enhancement of shareholder value also augurs well. In a faltering economy, the company is streamlining operations and cutting less productive overhead in order to realize cost savings. However, input cost inflation and stiff competition continues to remain headwinds.

Flowers Foods, which competes with Campbell Soup Co. (CPB - Free Report) , carries a Zacks #3 Rank, implying a short-term Hold rating. Besides, we are also maintaining our long-term Neutral recommendation on the stock.

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