Flowers Foods, Inc. · NYSE:FLO
Flowers Foods — Investor Day (August 2020)
70 slides from Flowers Foods's investor day presentation, Aug 7, 2020
Slide 1: Investor Update
Investor Update August 7, 2020
Slide 2: Welcome
Welcome Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Marketing & Innovation Strategy J.T. Rieck Brand Portfolio Strategy Acquisition Strategy Senior Vice President, Financial Review & Capital Allocation Finance & Investor Relations Question & Answer Session
Slide 3: Regarding Forward-Looking Statements
Regarding Forward-Looking Statements Statements contained in this presentation 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 and the ultimate impa
Slide 4: Strategic Priorities
Welcome Strategic Strategic Priorities Growth Imperatives & Supply Chain Optimization Priorities Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Ryals Financial Review & Capital Allocation Question & Answer Session McMullian President & Chief Executive Officer
Slide 5: Today's Agenda
Today’s AGENDAAgenda Strategic Priorities Ryals McMullian | President & Chief Executive Officer Growth Imperatives & Supply Chain Optimization Brad Alexander | Chief Operating Officer Driving Brand Relevance Debo Mukherjee | Chief Marketing Officer Brand Portfolio Strategy Mark Courtney | Chief Bran
Slide 6: Flowers Team – Meeting Unprecedented Challenges
Flowers Team – Meeting Unprecedented Challenges 6
Slide 7: Q2 2020 Financial Highlights
Q2 2020 Financial Highlights • Sales increase reflecting the continued impact of the COVID-19 pandemic • Mix shift to branded retail products drove cost leverage and margin increase COMPONENTS OF Q2’20 SALES GROWTH (MILLIONS) ADJUSTED EBITDA (MILLIONS)1 $129 +5.1% $14 0 $12 0 $106 +21% GROWTH $10 0
Slide 8: Strong Foundation and Clear Path Forward
Strong Foundation and Clear Path Forward Leader in Large and Attractive Categories Operate the #1 loaf, organic, and gluten-free bread brands; gaining share in stable categories throughout the economic cycle Leading Brands to Drive Growth Brand-focused portfolio strategy drives above-market growth v
Slide 9: Strategic Priorities Aligned to Long-term Growth Targets
Strategic Priorities Aligned to Long-term Growth Targets DEVELOP TEAM FOCUS ON BRANDS Capabilities to build brands Enhance relevancy and create value and expand presence PRIORITIZE MARGINS SMART M&A Optimize portfolio Proactive M&A in the and supply chain grain-based foods arena 9
Slide 10: Enhanced Organizational Structure
Enhanced Organizational Structure Better prioritizing • Chief Brand Officer responsible for managing the brand portfolio brand building, cake turnaround, and prioritizing brand-building investments and foodservice profitability • Chief Marketing Officer to lead stand-alone innovation function • Pres
Slide 11: Growing Sales with Iconic Brands
Growing Sales with Iconic Brands • Build brands through insights, innovation, and marketing • Capitalize on portfolio opportunities FLOWERS’ BRANDED PRODUCTS DRIVING TOP LINE CAGR CAGR 5.3% $2.7B FY - 15 5.7% 18 LTM - 20 ¹ $2.2B 14 $1.6B $ 1.6B Branded Sales Non-branded Sales Flowers' Share ² (1) 52
Slide 12: Portfolio Strategy Drives Margins
Portfolio Strategy Drives Margins Recent results SALES MIX1 demonstrate • Clarified brand strategy Total sales up 5.3% y/y; branded retail up 12.5% y/y impact of shift to drive margin to branded retail expansion Non-Retail & Other $915M • Prioritizing a more Store profitable product mix Branded Reta
Slide 13: Prioritizing Margins with Supply Chain Optimization
Prioritizing Margins with Supply Chain Optimization Reducing fixed costs, enhancing DISTRIBUTION BAKERY OVERHEAD operating leverage AND NETWORK OPERATIONS PROCUREMENT EXPENSES • Backhaul utilization • SKU rationalization • Leverage scale with • Staffing optimization centralized buying • Cube optimiz
Slide 14: Smart M&A
Smart M&A $68B GRAIN-BASED FOOD UNIVERSE Track record of strategic growth investments Fresh Packaged Breads $15B • Pursuing disciplined and highly strategic M&A • Seeking out innovative platform brands in grain-based foods beyond fresh packaged bread Other Grain-Based • Accelerating geographic Categ
Slide 15: Strategic Priorities Drive Long-term Growth
Strategic Priorities Drive Long-term Growth Long-term Growth Targets1 +1-2 % +4-6 % +7-9 % SALES ADJ. EBITDA2 ADJ. EPS3 DEVELOP TEAM FOCUS ON BRANDS PRIORITIZE MARGINS SMART M&A (1) Sales and adjusted EBITDA targets reflect organic business growth; adjusted EPS target includes the potential impact o
Slide 16: Growth Imperatives & Supply Chain Optimization
Growth Imperatives Welcome Strategic Priorities & Supply Chain Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Optimization Brand Portfolio Strategy Acquisition Strategy Brad Financial Review & Capital Allocation Question & Answer Session Alexander Chief Operating Officer
Slide 17: Key Takeaways
Key Takeaways Potential of optimized Organization is aligned Portfolio strategy portfolio, supply chain around the fundamentals informs supply chain of building brands optimization initiatives 17
Slide 18: Q2 Illustrates Potential of Optimized Portfolio, Supply Chain
Q2 Illustrates Potential of Optimized Portfolio, Supply Chain Strong Q2 results Significant margin increase as Combining right portfolio mix Accelerating optimization branded retail business grew with improved bakery network to deliver margin expansion show effect to a larger percentage of sales enh
Slide 19: Executing Against Operational Priorities
Executing Against Operational Priorities FOCUS PRIORITIZE ON BRANDS MARGINS Enhance relevancy Optimize portfolio and expand presence and supply chain • Marketing team focused on targeted • Portfolio strategy underpins supply innovation and marketing to generate chain optimization initiatives awarene
Slide 20: Leveraging Flexibility
Leveraging Flexibility Flexible fixed asset HOW WE GO TO MARKET base can produce and distribute product for BAKERY DEPOT IDP MARKETPLACE any market VERSATILITY TO MEET CHANGING DEMAND Branded retail Store branded retail Foodservice 20
Slide 21: Optimizing Network to Prioritize Margins
Optimizing Network to Prioritize Margins Portfolio strategy determines targeted brands and segments • Pivot capacity to most powerful brands • Maximize revenue and margin potential Optimize and reallocate capacity to increase network utilization • Closed three bakeries since start of Project Centenn
Slide 22: Network Consolidation
Network Consolidation Lower cost Fewer Additional BENEFITS to serve market transport miles network capacity PREVIOUS TODAY BAKERY DEPOT MARKET 22
Slide 23: Increasing Product Profitability
Increasing Product Profitability STALE REDUCTION Realized • SKU rationalization ~130 hours • Improved ordering per week in additional • Lowering costs and capacity, increasing realized capacity equivalent to an additional bakery 23
Slide 24: Shifting Mix to Enhance Profitability
Shifting Mix to Enhance Profitability Increasing production of branded retail means we can … Be more selective about type and quality of other business we accept & Reduce percentage of store branded and foodservice products: Allows us to negotiate better pricing terms on the business we keep … Resul
Slide 25: Driving Brand Relevance
Welcome Driving Brand Strategic Priorities Growth Imperatives & Supply Chain Optimization Relevance Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Debo Financial Review & Capital Allocation Question & Answer Session Mukherjee Chief Marketing Officer
Slide 26: Key Takeaways
Key Takeaways RELEVANCE PRESENCE GROWTH Attractive category Relevance ensures Foundational consumer Digital with high our brands research informs capabilities / penetration resonate with marketing and digital shelf and frequency consumers innovation strategy 26
Slide 27: Fundamentals Stand Out Among Grocery Categories
Fundamentals Stand Out Among Grocery Categories • Large, stable category with sales of $24B+ ATTRACTIVE BRAND ECONOMICS • Present in 98% of households; buy the category every 12 days $6.0 $5.26 $5.87 • Consumers willing to pay premium for brands $4.0 $2.91 • Most profitable category for retailers1 $
Slide 28: Creating Brand Relevance
Creating Brand Relevance Targeting brand ANNUALIZED OPPORTUNITY benefits to meet consumer desires >$350M Brand Positioning & Messaging Relevance Delivering advertising via media mix • Generate awareness to create awareness • Drive trial Aided and Unaided Awareness Converting awareness • Convert to r
Slide 29: Consumer Insight-Driven Messaging to Create Brand Relevance
Consumer Insight-Driven Messaging to Create Brand Relevance Developing relevant brand positioning INSPIRING BAKING HAPPY AND HEALTHY Consumer through a deep CHILDLIKE INTO EVERY HOME Messaging understanding WONDER of consumers’ minds and needs Brand Strategy Reaching the consumer though relevance Me
Slide 30: Focus on Consumer Needs
Focus on Consumer Needs At the intersection of each Consumer Segment and Need State: ACTIVE BUSY BREAD HEALTH FUNCTIONAL • Defining the size of the opportunity INFLUENCERS BUDGETERS AVOIDERS ESTABLISHED EATERS and the brand’s share of occasions. TRADITIONAL CONNECTION • Assessing the fit of every br
Slide 31: Building Awareness Is Vital
Building Awareness Is Vital AIDED 70% AIDED 29% AIDED 85% UNAIDED 15% UNAIDED 10% UNAIDED 35% DRIVING AWARENESS: MESSAGING AND POSITIONING FOR THE CORE CONSUMER1 900 Impressions (millions) 2019 2020 AIDED 75% AIDED 71% UNAIDED 29% UNAIDED 29% 600 PEER 1 PEER 2 300 0 Video Print YouTube Display Socia
Slide 32: Flowers' Brands Have Strong Upside Opportunity For Growth
Flowers’ Brands Have Strong Upside Opportunity For Growth Driving growth through DRIVE HOUSEHOLD PENETRATION DRIVE HIGHER CONSUMPTION brand relevance FOR FLO BRANDS (REDUCE PURCHASE CYCLE) • Increase household penetration 100 50 40 • Increase consumer loyalty 80 (% repeat) 60 30 40 20 • Drive consum
Slide 33: Engaging the Changing Consumer with E-Commerce
Engaging the Changing Consumer with E-Commerce Driving to win digital E-COMMERCE AS % OF BREAD consideration and shelf OMNICHANNEL SALES1 15% • Forced adoption of e-commerce due to COVID-19 12.5% driving large shift in retail channel 10% • Expect increased trial to drive meaningful growth in endurin
Slide 34: Consumer Acquisition and Retention Through Marketing
Consumer Acquisition and Retention Through Marketing Nature’s Own drives home the Unique Selling Seizing on consumers’ Proposition: “Scratch to Shelf in about 48 hours” desires for Freshness 34
Slide 35: Brand Portfolio Strategy
Welcome Brand Portfolio Strategic Priorities Growth Imperatives & Supply Chain Optimization Strategy Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Mark Financial Review & Capital Allocation Question & Answer Session Courtney Chief Brand Officer
Slide 36: Key Takeaways
Key Takeaways RELEVANCE PRESENCE GROWTH Clarified Expand brand presence in Leverage innovation to Drive brand presence portfolio underdeveloped geographies create brand presence with our retail partners strategy through distribution in underdeveloped in a changing and penetration segments marketplac
Slide 37: Capitalizing on Recent Trends
Capitalizing on Recent Trends Increased household DOLLAR SALES, % CHANGE VS YA VOLUME SALES, % CHANGE VS YA penetration and increased consumption are DEPT-GENERAL FOOD FRESH PACKAGED BREADS FLOWERS BREAD driving category growth 18.2% 14.0% 15.0% 13.2% Household penetration 7.9% 8.5% for FLO brands u
Slide 38: Driving Brand Presence with a Clear Portfolio Strategy
Driving Brand Presence with a Clear Portfolio Strategy Clarified roles for our PREMIUM Drive premiumization brands, channels, GROWTH of category BRANDS and categories • Expand premium growth brands, win with Drive premium end of mainstream consumption mainstream brands, and MAINSTREAM compete locall
Slide 39: Expanding Brand Presence Geographically
Expanding Brand Presence Geographically Capitalizing Under-developed FLOWERS DOLLAR SHARE OF FRESH PACKAGED on brand growth markets offer huge BREAD CATEGORY1 potential by growth potential increasing presence • Focused approach • Expand breadth and depth of distribution • Drive awareness, trial, and
Slide 40: Leveraging Innovation to Create Presence in Adjacent Segments
Leveraging Innovation to Create Presence in Adjacent Segments Consumers expect FLOWERS DOLLAR SHARE1 our brands to offer 30.4 TTM, 3 Years Ago TTM solutions beyond loaf 26.7 9.9 10.7 7.1 2.9 LOAF SANDWICH BUNS/ROLLS BREAKFAST ITEMS LOAF SANDWICH BUNS/ROLLS BREAKFAST ITEMS Segment Size (Annual) $7.7
Slide 41: Driving Brand Presence with Retail Partners
Driving Brand Presence with Retail Partners • Consumer-relevant brands appeal to a broad range of consumer demographics • Brand portfolio delivers incremental category sales and margin growth • Provide best-in-class category leadership as we navigate uncertain times BRAND LOYALTY − % OF BUYER CATEGO
Slide 42: Acquisition Strategy
Welcome Acquisition Strategic Priorities Growth Imperatives & Supply Chain Optimization Strategy Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Mark Financial Review & Capital Allocation Question & Answer Session Gerrish Vice President, Corporate Development
Slide 43: Key Takeaways
Key Takeaways Positioned for growth Structured Partner with innovation Explore opportunities with strong free cash approach drives team to identify in core and grain- flow, balance sheet, and repeatable process opportunities based adjacencies M&A track record 43
Slide 44: Positioned for Growth Through M&A
Positioned for Growth Through M&A Proven track record of DAVE'S KILLER BREAD CANYON BAKEHOUSE acquiring and growing TRACKED RETAIL SALES ($M) TRACKED RETAIL SALES ($M) differentiated bakery brands #1 Organic Loaf $60 0 $570 $70 #1 Gluten-free Loaf $64 Strong balance sheet $50 0 $60 and cash flow gen
Slide 45: Structured Approach to M&A
Structured Approach to M&A Clearly defined, repeatable process Link between corporate development, strategy, Steady stream and innovation of opportunities Deep industry Integration relationships is crucial Explicit strategic criteria M&A is a capability Monitoring and post-mortems 45
Slide 46: Role of Smart M&A
Role of Smart M&A Partner with SOLIDIFY THE CORE INNOVATIVE ADJACENCIES innovation team to Infrastructure and • • Gain exposure to growing, identify opportunities distribution growth underdeveloped segments and beyond our core in underdeveloped markets innovative brands • Leverage existing brands •
Slide 47: Financial Review & Capital Allocation
Welcome Financial Review Strategic Priorities Growth Imperatives & Supply Chain Optimization & Capital Allocation Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Steve Financial Review & Capital Allocation Question & Answer Session Kinsey Chief Financial Officer & Chief Account
Slide 48: Key Takeaways
Key Takeaways Long-term targets Solid Q2 results, Strong free cash Growth roadmap supported by leading positive 2020 flow, consistent highlights long- brands and growth outlook capital allocation term opportunity strategy 48
Slide 49: Q2 2020 Financial Review
Q2 2020 Financial Review NET SALES CASH FLOWS − YTD $1.026B +5.1% v PY Cash from Ops Dividends • Price/Mix +8.4%; Volume -3.3% $275.8M $82.6M • Growth from branded retail more than offsetting lower store-branded retail Capex and foodservice sales $46.6M ADJ. EBITDA1 GAAP DILUTED EPS $128.5M +21.4% v
Slide 50: Fiscal 2020 Guidance (Updated Aug 6, 2020)
Fiscal 2020 Guidance (Updated Aug 6, 2020) Fiscal 2020 H2 SALES GROWTH1 ADJ. EPS2 Considerations • Food at home +4.0% to +5.0% $1.15 to $1.25 consumption remains elevated, not as high as Q1 levels OTHER • Foodservice stabilizing and beginning to recover, still well below normal Depreciation & amorti
Slide 51: Steady Free Cash Flow
Steady Free Cash Flow Strong free cash flow Cash Flow Drivers FREE CASH FLOW1 TO FUEL ACCRETIVE growth supports • Growing sales INVESTMENTS (MILLIONS) investments $30 0 • Focus on cash margins $263 $332 in the business, $245 $255 M&A strategy, and • Predictable capex $25 0 $222 capital returns $20 0
Slide 52: Consistent Capital Allocation
Consistent Capital Allocation Capital Allocation CAPITAL ALLOCATION (MILLIONS) Principles: $60 0 • Capex to support core business growth $50 0 $395 Dividends Share Repurchases • Maintain investment grade Cash for Acquisitions credit rating $40 0 • Support strong dividend $200 $30 0 • Smart, discipli
Slide 53: Track Record of De-Leveraging Post-M&A
Track Record of De-Leveraging Post-M&A TOTAL DEBT1 (MILLIONS) Maintaining flexibility to capitalize on value-creating opportunities 1968 to 2020: MORE THAN 100 ACQUISITIONS $984 $980 $928 $867 $805 FY-15 FY-16 FY-17 FY-18 FY-19 (1) Excludes lease liabilities 53
Slide 54: Long Track Record of Growth
Long Track Record of Growth SALES GROWTH COMPONENTS1 (MILLIONS) TOTAL SHAREHOLDER RETURNS $25 .00 $20 .00 $15 .00 10yr CAGR +5.2% $10 .00 10yr TSR2 $5.0 0 +11.4% $- Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug Aug 3 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 1. Source: Company filings. 2. Total Sharehol
Slide 55: Key Drivers to Achieving our Long-term Growth Targets
Key Drivers to Achieving our Long-term Growth Targets LONG-TERM GROWTH +1-2% +4-6% +7-9% TARGETS1 SALES ADJ. EBITDA2 ADJ. EPS3 Focus on leading, iconic brands to grow share Portfolio strategy prioritizes higher-priced, higher-profit products and customers Supply chain optimization enhances operating
Slide 56: Roadmap to Delivering Long-term Targets
Roadmap to Delivering Long-term Targets FY2020 FY2021 FY2022 • Favorable mix shift • Adjust to the • Brands driving new-normal above-category • Accelerate sales growth optimization • Deliver operational initiatives improvements • Performance in-line with long-term • Performance above • Headwinds as
Slide 57: Our Vision Has Never Been Clearer
OUR VISION HAS NEVER BEEN CLEARER Right structure with a passionate team committed to continued success Emotional connection of fresh bread offers innovative brands the opportunity to appeal powerfully to consumers Competitive, leading operator with combination of strong brands and scale Opportunity
Slide 58: Question & Answer Session
Strategic Priorities Question Growth Imperatives & Supply Chain Optimization Driving Brand Relevance & Answer Brand Portfolio Strategy Acquisition Strategy Session Financial Review & Capital Allocation Question & Answer Session
Slide 59: Information Regarding Non-GAAP Financial Measures
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
Slide 60: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Earnings per Share to Adjusted Earnings per Share For the 12 For the 12 Week Period Week Period Ended Ended July 11, 2020 July 13, 2019 Net income per diluted common share $ 0.27 $ 0.25 Restructuring and related impairment charges 0.04
Slide 61: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Gross Margin For the 12 Week For the 12 Week Period Ended Period Ended July 11, 2020 July 13, 2019 Sales $ 1,025,861 $ 975,759 Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) 506,033 50
Slide 62: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Selling, Distribution and Administrative Expenses to Adjusted SD&A For the 12 For the 12 Week Period Week Period Ended Ended July 11, 2020 July 13, 2019 Selling, distribution and administrative expenses (SD&A) $ 396,904 $ 359,497 Projec
Slide 63: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Net Income to EBITDA and Adjusted EBITDA For the 12 For the 12 Week Period Week Period Ended Ended July 11, 2020 July 13, 2019 Net income $ 57,919 $ 53,095 Income tax expense 18,493 15,951 Interest expense, net 2,869 2,769 Depreciation
Slide 64: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Income from Operations to Adjusted Income from Operations For the 12 Week For the 12 Week Period Ended Period Ended July 11, 2020 July 13, 2019 Income from operations $ 79,209 $ 72,334 Restructuring and related impairment charges 10,535
Slide 65: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Income Tax Expense to Adjusted Income Tax Expense For the 12 Week For the 12 Week Period Ended Period Ended July 11, 2020 July 13, 2019 Income tax expense $ 18,493 $ 15,951 Tax impact of: Restructuring and related impairment charges 2,6
Slide 66: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Net Income to Adjusted Net Income For the 12 Week For the 12 Week Period Ended Period Ended July 11, 2020 July 13, 2019 Net income $ 57,919 $ 53,095 Restructuring and related impairment charges 7,901 1,530 Project Centennial consulting
Slide 67: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Earnings per Share - Full Year Fiscal 2020 Guidance Range Estimate Net income per diluted common share $ 0.66 to $ 0.76 Restructuring and related impairment charges 0.04 0.04 Project Centennial consulting costs 0.03 0.03 Legal settlemen
Slide 68: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Cash Provided by Operating Activities to Free Cash Flow* Cash Provided by Purchase of Plant, Operating Property and Time Period Activities Equipment Free Cash Flow 2Q20 TTM $ 434,689 $ 102,867 $ 331,822 FY19 366,952 103,685 263,267 FY18
Slide 69: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Net Income to EBITDA and Adjusted EBITDA For the 12 For the 16 For the 12 Trailing 52 Week Period For the 12 Week Week Period Week Period Week Period Ended Period Ended Ended Ended Ended October 5, 2019 December 28, 2019 April 18, 2020
Slide 70: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Reconciliation of Debt to Net Debt and Calculation of Net Debt to Trailing Twelve Month Adjusted EBITDA Ratio As of July 11, 2020 Current maturities of long-term debt $ - Long-term debt 1,009,596 Total debt 1,009,596 Less: Cash and cash equivalents 299,5