Flowers Foods, Inc. · NYSE:FLO
Flowers Foods — Q1 2018 Earnings Presentation
52 slides from Flowers Foods's earnings presentation, May 17, 2018
Slide 1: First Quarter 2018 Review & Investor Overview
FIRST QUARTER 2018 REVIEW & INVESTOR OVERVIEW M AY 1 7 , 2 0 1 8
Slide 2: Regarding Forward-Looking Statements
REGARDING 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 exp
Slide 3: First Quarter 2018 Review
FIRST QUARTER 2018 REVIEW AS FlowersHoods
Slide 4: First Quarter 2018 Highlights
FIRST QUARTER 2018 HIGHLIGHTS: • Sales grew 1.6%, achieved record first quarter sales • Portfolio of strong brands outperformed the fresh bread category • Price/mix of +1.5% reflects pricing to offset commodity inflation and sales mix shift to higher price-point organic breads • Transition to new or
Slide 5: Project Centennial: Reinvigorating the Core and Capitalizing on Efficiencies
PROJECT CENTENNIAL: REINVIGORATING THE CORE AND CAPITALIZING ON EFFICIENCIES • Flowers’ revitalized brand teams are executing on strategic brand initiatives and generating a solid innovation and marketing pipeline of new products, including: • In late April, introduced berry variety to Dave’s Killer
Slide 6: Project Centennial: Reducing Costs to Fuel Growth and Developing Leading Capabilities
PROJECT CENTENNIAL: REDUCING COSTS TO FUEL GROWTH AND DEVELOPING LEADING CAPABILITIES • Continued organizational restructuring by building teams with new capabilities • Established new business unit field marketing teams dedicated to capturing consumer insights in markets nationwide and sharing feed
Slide 7: Q1 2018 Financial Review
Q1 2018 FINANCIAL REVIEW NET SALES $1.206B +1.6% CASH FLOWS • Cash from Ops = $97.1 million • Divestiture decreased sales by 10 bps • Capex = $26.6 million • Price/Mix 1.5%; Volume 0.2% • Dividends = $36.2 million • Growth driven primarily by organic loaf and breakfast items, offset by declines in b
Slide 8: Reaffirmed FY 2018 Outlook
REAFFIRMED FY 2018 OUTLOOK REVENUE CHG Flat to +1.6% OTHER Depreciation & Amortization $145 to $150 million GAAP EPS $0.95 to $1.06 Net interest expense $11 to $12 million Effective tax rate 25.0% to 26.0% ADJ EPS1 $1.04 to $1.16 Diluted shares outstanding ~211.0 million Capital expenditures $95 to
Slide 9: Objectives for 2019 & Beyond
OBJECTIVES FOR 2019 & BEYOND • Deliver organic sales growth above categories • Pursue accretive M&A opportunities • Target long-term sales growth of 3% to 4% • Execute on initiatives to realize 250bps of EBITDA margin expansion by fiscal 2021 • Achieve long-term EPS CAGR of 8%-10% • Dividend yield o
Slide 10: Key Takeaways
KEY TAKEAWAYS • Strong brands and a team committed to transforming the company • Clear objectives to grow sales, expand margins, and deliver shareholder value • Executing today with urgency on initiatives to reinvigorate the core, obtain fuel for growth, and improve financial performance • Designing
Slide 11: Investor Overview
INVESTOR OVERVIEW AS FlowersHoods
Slide 12: Business Overview
BUSINESS OVERVIEW Sales Overview Brand Portfolio Highlights 17FY Sales $3.9 billion Branded • Nature’s Own is the #1 loaf bread brand breads Store 48% branded retail • Wonder has 98% consumer awareness 15% Branded Retail Non-retail 59% & other • Dave’s Killer Bread is #1 organic bread brand 26% Bran
Slide 13: Operations Overview
OPERATIONS OVERVIEW 47 Channels served • Grocery / Mass Operating Bakeries • Natural & Organic • Club & Dollar, C-store • E-commerce Direct-store-distribution access to • Foodservice & Vending 85% of the U.S. 5,500 9,800 population Warehouse employees independent distribution NATIONWIDE distributors
Slide 14: Flowers Long-Term Opportunity
FLOWERS LONG-TERM OPPORTUNITY 1. Well-positioned in a huge category that is relevant to consumers and profitable for retailers Clear Strategic 2. Flowers has built strong competitive advantages and has a strong platform for continued growth Priorities to Create Shareholder Value 3. Recognize that to
Slide 15: Competitive Position
COMPETITIVE POSITION #2 Baker and Growing Share Fresh Packaged Breads Share Flowers Market Share – Fresh Pkg Breads 15.8 15.8% Flowers 24.0% Store brands 15.3 30.4% 15.0 14.9 24.0% BBU/Sara Lee 14.8 Independent bakers 5.7% Pepperidge Farm 14Q1 15Q1 16Q1 17Q1 18Q1 IRI Flowers custom data base Total U
Slide 16: Broad Capabilities
BROAD CAPABILITIES Strong DSD Network National Warehouse Platform • 39 bakeries serving approximately • Important future resource as business 5,500 independent distributor partners (IDPs) grows to include new sales channels and product types • Access to approximately 85% of the U.S. population • Abi
Slide 17: Underdeveloped Product Segments
UNDERDEVELOPED PRODUCT SEGMENTS Share Opportunities in Adjacent Product Segments Category Flowers 42.8% Segment Units % of Total Category 31.9% Flowers has share opportunity in many 24.7% segments of the category 19.0% 17.5% 14.3% 10.0% 8.3% 11.5% 11.7% 3.2% 2.1% 2.0% 0.5% 0.6% 0.2% WHITE LOAF SOFT
Slide 18: Underdeveloped Geographies
UNDERDEVELOPED GEOGRAPHIES West Plains 3.3 Midwest 10.5 5.9 Northeast 30.3 30.7 24.6 6.1 31.5 35.0 47.4 27.8 28.5 24.7 36.4 34.2 23.3 South California 14.8 19.2 22.2 27.7 FLOWERS 22.9 BBU 43.2 24.4 25.7 STORE BRAND OTHER BRAND Bolt-on Acquisitions Remain Key Part of Our Growth Strategy Source: IRI C
Slide 19: Fresh Bakery Overview
FRESH BAKERY OVERVIEW Large and stable market $32 Billion Fresh Bakery Market US Fresh Bakery – Retail Outlets (in billions) $23.2 $23.8 $24.0 $24.1 $7.6B $22.5 Foodservice(2) $24.1B Retail Breads, Snack Cakes, and Tortillas(1) 13FY 14FY 15FY 16FY 17FY (1) Data for Retail Outlets sourced from IRI FY
Slide 20: Category Review: Fresh Packaged Breads
CATEGORY REVIEW FRESH PACKAGED BREADS Dollar Sales % Chg Unit Sales % Chg 1.5% 1.3% 1.1% 1.1% 1.0% 0.9% 0.8% 0.6% 0.6% 0.6% 0.5% 0.2% 0.0% -0.2% -0.3% -0.5% -0.6% -0.6% -0.8% -0.8% -0.9% -1.1% -1.1% -1.1% -1.2% -1.6% Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3
Slide 21: Category Review: Commercial Cake
CATEGORY REVIEW TOTAL CATEGORY: COMMERCIAL CAKE Dollar Sales % Chg Unit Sales % Chg 7.0% 6.6% 5.4% 5.1% 3.5% 3.4% 2.3% 1.9% 1.8% 1.9% 1.9% 1.7% 1.2% 1.3% 1.1% 0.9% 0.9% 0.0% 0.0% 0.1% -0.1% -0.6% -0.6% -0.6% -0.7% -2.6% Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
Slide 22: Flowers' Market Share
FLOWERS’ MARKET SHARE FLO Bread Share FLO Cake Share 15.8 15.8 15.3 15.4 15.1 14.8 8.3 8.3 8.3 8.1 8.0 7.8 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Flowers Custom Database – IRI Total US Mulo + C Store 22
Slide 23: Brand Strength
BRAND STRENGTH Strong demand for differentiated products Fresh Packaged Breads Store Brand Share Organic Fresh Packaged Bread Market Flowers organic 26.9% 26.5% bread share: $490.4 26.0% 53.3 $357.8 $275.5 24.9% 24.6% $220.9 $179.8 13FY 14FY 15FY 16FY 17FY 13FY 14FY 15FY 16FY 17FY Source: IRI Custom
Slide 24: Organics Generating Growth
ORGANICS GENERATING GROWTH TOTAL ORGANIC FRESH PACKAGED BREADS FLO DOLLAR SHARE OF TOTAL ORGANICS $490.4 53.3 43.6 $357.6 38.2 35.3 34.6 $275.4 $220.8 $179.8 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 DKB IS DRIVING FLOWERS’ MARKET SHARE GAINS IN THE KEY GROWTH S
Slide 25: Project Centennial
PROJECT CENTENNIAL Strategic Priorities: IMPROVE PROFITABILITY • Generate Fuel for Growth GROW SALES • Develop Leading Capabilities EXPAND MARGINS DRIVE GROWTH • Reinvigorate the Core • Capitalize on Adjacencies DELIVER SHAREHOLDER VALUE Focused on Improving Margins and Profitably Growing the Top-li
Slide 26: Project Centennial Value Creation Plan
PROJECT CENTENNIAL VALUE CREATION PLAN Reduce costs Capitalize on Invest in Reinvigorate to fuel growth product capabilities core business adjacencies Taking Decisive Action and Working With Urgency to Drive Improvements 26
Slide 27: Key Savings Initiatives Underway
KEY SAVINGS INITIATIVES UNDERWAY Operate with Purchased Goods & Services Initiatives Efficiency • Increased cost discipline • Continuous improvement and network optimization programs Centralize • Centralized purchasing to ensure best value Where • Policy and specifications Appropriate Supply Chain O
Slide 28: Enhanced Organizational Structure
ENHANCED ORGANIZATIONAL STRUCTURE Elevating the Capabilities of Our Team • Align company to overall strategy ‒ Propel growth of the core business focusing on brand investment, local relationships and reliance on fresh products delivered via DSD • Drive accountability and responsibility • Increase st
Slide 29: New Structure Summary
NEW STRUCTURE SUMMARY Transition Underway to Revised Organizational Structure • Two BUs: Fresh Packaged Bread and Snacking/Specialty ‒ Fresh Packaged Bread: Optimize profitability and support growth of core bread products ‒ Snacking/Specialty: Drive growth in products outside the retail bread aisle
Slide 30: FY 2017 & 2018 Savings Targets & Considerations
FY 2017 & 2018 SAVINGS TARGETS & CONSIDERATIONS Gross Savings from PG&S, SCO, Organization Initiatives Offsets to 2018 Gross Savings Estimates: • Anticipating 2018 input cost inflation of ~$40 million $38-48M • Incremental brand investments $32M 17FY-Act 18FY-Est 30
Slide 31: Project Centennial Roadmap
PROJECT CENTENNIAL ROADMAP FY 2017-2018 FY 2019 & Beyond FUND & DESIGN TRANSFORM TO THE FUTURE THE FUTURE • Generate savings • Invest in growth Focus • Design future organization • Leverage capabilities • Sales growth: flat to +1.6% • Sales growth: 3% to 4% Targets • EBITDA margins: ~12%+ • EBITDA m
Slide 32: Reinvigorate Core Business
REINVIGORATE CORE BUSINESS Invest In Brands • Align brands to consumers • ROI-focused investments in brand growth and innovation Improve Execution • Streamline assortment - Fewer SKUs Reduced complexity • Enable Partners Improve business intelligence PartnerUp program helps independent distrib
Slide 33: Brand Investment Framework
BRAND INVESTMENT FRAMEWORK Innovation and marketing investments to drive growth of differentiated brands High-Potential Brands Established Brands Focus on innovation and growth Focus on margin and cash flow • Strong consumer appeal • Provide scale • Differentiated products • Strengthen competitive p
Slide 34: Optimize Assortment
OPTIMIZE ASSORTMENT Sales by SKU • Better focus marketing investments 20% of SKUs driving • Longer run times 80%+ of sales • Improved efficiencies • Enhanced margins • Reducing the complexity of the assortment • Closed our Winston-Salem snack cake facility in 17Q4 SKUs Focusing on Higher-margin, Fas
Slide 35: DSD Enablement
DSD ENABLEMENT Strengthening Our Business Relationship with IDPs Through New PartnerUp Program Voluntary Feedback Program • Weekly discussions of best practices and opportunities for business growth Increasing Ordering Efficiency & Sales Potential • Providing IDPs with better information and tools t
Slide 36: Capitalize on Product Adjacencies
CAPITALIZE ON PRODUCT ADJACENCIES Expanding Position In High-Growth Categories BUILD ON LEADING FOODSERVICE POSITION • Expanding share of growing specialty products ‒ Moving beyond loaf and bun ‒ Breakfast items and dinner rolls are opportunities to increase share Diversify business into GROW IN-STO
Slide 37: Financial Trends & Cost Components
FINANCIAL TRENDS & COST COMPONENTS Components of Adj EBITDA** Operating Results % of 17FY Sales Sales Adj EBITDA Mgn** Adj. 4.5 14.0% EBITDA** Billions 4.0 11.5% 12.0% Ing & Pkg EBITDA % of Sales 3.5 SG&A and 28.7% 10.0% 3.0 Other 2.5 8.0% 14.6% 2.0 6.0% 1.5 4.0% Shipping/ 1.0 Conversion*** Distribu
Slide 38: Consistent Cash Flow
CONSISTENT CASH FLOW Cash Flows, millions Operating Cash Flow Capital Expenditures $357 $336 $315 $297 $270 $217 $99 $91 $102 $84 $75 $67 12FY 13FY 14FY* 15FY 16FY 17FY Consistent Cash Flow Supports Balanced Capital Allocation Strategy *53-week year 38
Slide 39: Balanced Capital Allocation
BALANCED CAPITAL ALLOCATION Capital Allocation Dividends Share Repurchases Cash for Acquisitions Capital Allocation Principles: $416 $395 • Support core business growth $318 • Strong dividend • Investment grade credit rating $126 $3 • Accretive acquisitions $7 $19 $9 $39 $141 $86 $93 $102 $120 $131
Slide 40: Conservative Financial Position
CONSERVATIVE FINANCIAL POSITION Total Debt & Capital Leases Aggregate Maturities, at 18Q1 Total Debt & Capital Leases $402 $406 $1,005 $919 $958 $832 $830 $759 At 18Q1: Leverage ratio of 1.8X, ~$682M available liquidity on undrawn borrowing Since end of fiscal 2015: arrangements Reduced Total Debt &
Slide 41: Regarding Non-GAAP Financial Measures
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 m
Slide 42: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods Reconciliation of Net Income to Adjusted EBITDA (000's omitted) 17FY 16FY 15FY 14FY 13FY 12FY 11FY 10FY 09FY 08FY 07FY 06FY 05FY 04FY Net Income attributable to Flowers Foods, Inc. $ 150,120 $ 163,776 $ 189,191 $ 175,739 $ 230,894 $ 136,121
Slide 43: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures Reconciliation of Earnings per Share to Adjusted Earnings per Share For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 Net income per diluted common shar
Slide 44: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted, except per share data) Reconciliation of Net Income to Adjusted EBIT and Adjusted EBITDA For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 20
Slide 45: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Net Income (Loss) to Adjusted EBITDA For the 12 Week For the 12 Week For the 12 Week For the 16 Week Trailing 52 Week Period Ended Period Ended Period Ended
Slide 46: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Debt to Net Debt and Calculation of Net Debt to Trailing Twelve Month Adjusted EBITDA Ratio As of April 21, 2018 Current maturities of long-term debt and ca
Slide 47: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Gross Margin For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 Sales $ 1,206,453 $ 1,187,649 Materials, supplies, labo
Slide 48: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Selling, Distribution and Administrative Expenses to Adjusted SD&A For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 S
Slide 49: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Income Tax Expense to Adjusted Income Tax Expense For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 Income tax expense
Slide 50: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted, except per share data) Reconciliation of Net Income to Adjusted Net Income For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 Net income
Slide 51: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures Reconciliation of Earnings per Share - Full Year Fiscal 2018 Guidance Range Estimate Net income per diluted common share $ 0.95 to $ 1.06 Project Centennial reorganization and consulting cos
Slide 52: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods, Inc. Reconciliation of GAAP to Non-GAAP Measures (000's omitted) Reconciliation of Income Before Income Taxes to Adjusted EBT For the 16 Week For the 16 Week Period Ended Period Ended April 21, 2018 April 22, 2017 Income before income taxe