Flowers Foods, Inc. · NYSE:FLO
Flowers Foods — Investor Presentation (November 2017)
48 slides from Flowers Foods's investor presentation, November 2017
Slide 1: Company Overview
COMPANY OVERVIEW N OV E M B E R 2 0 1 7
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: Business Overview
BUSINESS OVERVIEW Sales Overview Brand Portfolio Highlights 17Q3TTM Sales $3.9 billion Branded • Nature’s Own is the #1 loaf bread brand Store breads branded 48% retail 15% • Wonder has 98% consumer awareness Branded Retail Non-retail 58% & other • Dave’s Killer Bread is #1 organic bread brand 27% B
Slide 4: Nationwide Operations Overview
OPERATIONS OVERVIEW 48 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. population 10,400 5,400 Warehouse employees independent distribution NATIONWIDE distributor
Slide 5: Long-Term Track Record
LONG-TERM TRACK RECORD 10-year Shareholder Results: TTM Dividends per Share Cumulative Total Shareholder Return $1.00 TSR-FLO TSR-SPY* $0.90 $300 $0.80 $250 $0.70 $0.60 $200 $0.50 $150 $0.40 $0.30 $100 $0.20 $50 $0.10 $- $- Source: Capital-IQ, data as of Sep 23, 2017, Cumulative Total Shareholder re
Slide 6: 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 7: Competitive Position
COMPETITIVE POSITION #2 Baker and Growing Share Fresh Packaged Breads Share Flowers Market Share – Fresh Pkg Breads 15.1 15.6 14.4 14.8 15.6% 13.9 Flowers 24.7% Store 11.2 brands 30.4% 23.4% BBU/Sara Lee Independent bakers 5.9% Pepperidge Farm 12Q3 13Q3 14Q3 15Q3 16Q3 17Q3 IRI Flowers custom data ba
Slide 8: Broad Capabilities
BROAD CAPABILITIES Strong DSD Network National Warehouse Platform • 39 bakeries serving approximately • Important future resource as business 5,400 independent distributor partners grows to include new sales channels and product types • Access to approximately 85% of the U.S. population • Ability to
Slide 9: Fresh Bakery Overview
FRESH BAKERY OVERVIEW Large and stable market $31 Billion Fresh Bakery Market US Fresh Bakery - Retail Outlets (in billions) $23.2 $23.8 $24.0 $24.0 $7.4B $22.5 Foodservice(2) $24.0B Retail Breads, Snack Cakes, and Tortillas(1) 13FY 14FY 15FY 16FY 17Q3-TTM (1) Data for Retail Outlets sourced from IR
Slide 10: Category Review: Fresh Packaged Breads
CATEGORY REVIEW FRESH PACKAGED BREADS Dollar Sales % Chg Unit Sales % Chg 1.5% 1.3% 1.1% 1.1% 1.1% 0.9% 0.6% 0.6% 0.6% 0.6% 0.5% 0.4% 0.1% -0.1% -0.2% -0.3% -0.4% -0.5% -0.6% -0.7% -0.8% -0.9% -0.9% -1.1% -1.1% -1.2% Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1
Slide 11: Category Review: Commercial Cake
CATEGORY REVIEW TOTAL CATEGORY: COMMERCIAL CAKE Dollar Sales % Chg Unit Sales % Chg 6.9% 6.5% 5.9% 5.1% 5.0% 4.4% 4.1% 4.0% 3.4% 3.4% 2.4% 2.0% 1.8% 1.7% 1.1% 1.2% 1.1% 1.2% 1.0% 0.0% 0.0% 0.1% -0.1% -0.6% -0.9% -2.5% Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1
Slide 12: Flowers' Market Share
FLOWERS’ MARKET SHARE FLO Bread Share FLO Cake Share 15.8 15.3 15.0 14.6 14.1 10.8 9.0 8.9 8.2 7.9 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Source: Flowers Custom Database – IRi Total US Mulo + C Store 12
Slide 13: Brand Strength
BRAND STRENGTH Strong demand for differentiated products Fresh Packaged Breads Store Brand Share Organic Fresh Packaged Breads Flowers organic $456.3 26.9% bread share: 26.6% 26.1% 48.0 $357.8 $275.5 $220.9 25.0% $179.8 24.7% 13FY 14FY 15FY 16FY 17Q3-TTM 13FY 14FY 15FY 16FY 17Q3-TTM (1) Source: IRI
Slide 14: Organics Generating Growth
ORGANICS GENERATING GROWTH TOTAL ORGANIC FRESH PACKAGED BREADS FLO DOLLAR SHARE OF TOTAL ORGANICS $456.3 $357.6 48.0 43.6 $275.4 38.2 35.3 34.6 $220.8 $179.8 FY 2013 FY 2014 FY 2015 FY 2016 TTM 2017 FY 2013 FY 2014 FY 2015 FY 2016 TTM 2017 DKB IS DRIVING FLOWERS’ MARKET SHARE GAINS IN THE KEY GROWTH
Slide 15: 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 16: 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 16
Slide 17: 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 18: 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 19: 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 20: FY 2017 & 2018 Savings Targets & Considerations
FY 2017 & 2018 SAVINGS TARGETS & CONSIDERATIONS Cumulative Gross Savings vs 16FY: PG&S, SCO, Organization Initiatives Offsets to 2018 Gross Savings Estimates: $70-80M • Anticipating 2018 input cost inflation of $30-$40 million • Incremental brand investments • Planning process underway for 2018, wil
Slide 21: 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 +2% • Sales growth: 3% to 4% Targets • EBITDA margins: ~12% to 13% • EBIT
Slide 22: 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 SKU’s Reduced complexity • Enable Partners Improve business intelligence PartnerUp program helps independent distri
Slide 23: 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 24: 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 • Closing of our Winston-Salem snack cake facility in 17Q4 SKU’s Focusing on Higher-margin
Slide 25: 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 26: Underdeveloped Product Segments
UNDERDEVELOPED PRODUCT SEGMENTS Focusing On Growing Share In Underdeveloped Markets Category Flowers 41.3% Segment Units % of Total Category 32.4% 81.3% of Flowers’ sales are in segments that account for 24.1% 24.0% only 48.2% of Total Category Dollars 14.2% 15.3% 13.9% 9.9% 11.1% 7.5% 1.4% 1.7% 2.0
Slide 27: Underdeveloped Geographies
UNDERDEVELOPED GEOGRAPHIES West Plains 3.2 Midwest 10.3 5.7 Northeast 30.4 30.8 24.6 5.9 31.4 35.0 47.6 27.9 28.4 24.6 36.4 34.3 23.4 South California 14.6 18.8 22.1 27.8 FLOWERS 23.2 BBU 43.4 24.5 25.7 STORE BRAND OTHER BRAND Bolt-on Acquisitions Remain Key Part of Our Growth Strategy Source: IRI C
Slide 28: 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 29: Financial Trends & Cost Components
FINANCIAL TRENDS & COST COMPONENTS Components of Adj EBITDA** Operating Results % of FY16 Sales Sales Adj EBITDA Mgn** Adj. 4.5 14.0% EBITDA** Billions 4.0 11.4% 12.0% Ing & Pkg EBITDA % of Sales 3.5 SG&A and 28.9% 10.0% 3.0 Other 2.5 8.0% 15.2% 2.0 6.0% 1.5 4.0% Shipping/ 1.0 Conversion*** Distribu
Slide 30: Consistent Cash Flow
CONSISTENT CASH FLOW Cash Flows, millions Operating Cash Flow Capital Expenditures $346 $315 $318 $270 $271 $217 $99 $91 $102 $84 $86 $67 12FY 13FY 14FY* 15FY 16FY 17Q3-TTM Consistent Cash Flow Supports Balanced Capital Allocation Strategy *53-week year 30
Slide 31: 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 $7 $126 $3 • Accretive acquisitions $19 $9 $39 $102 $120 $131 $138 • Opport
Slide 32: Conservative Financial Position
CONSERVATIVE FINANCIAL POSITION Total Debt & Capital Leases Aggregate Maturities, at 17Q3 Total Debt & Capital Leases $808 $1,005 $919 $958 $856 $759 At 17Q3: Leverage ratio of 1.9X, $603 ~$670M available liquidity on undrawn borrowing Since end of fiscal 2015: arrangements Reduced Total Debt & Capi
Slide 33: Objectives for 2019 & Beyond
OBJECTIVES FOR 2019 & BEYOND • Deliver organic sales growth above categories • Pursue accretive M&A opportunities • Targeting 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 yiel
Slide 34: Q3 2017 Business Performance
Q3 2017 BUSINESS PERFORMANCE • Sales growth of 2.1%, excluding divestiture • Record third quarter market share of 15.8 in packaged bread • Brand portfolio is outperforming the category • Improved sales and manufacturing efficiencies • Improved cost discipline across organization 34
Slide 35: Q3 2017 Financial Review
Q3 2017 FINANCIAL REVIEW NET SALES $932.8M +1.5% CASH FLOWS • Cash from Ops = $50.4 million, decreased due Divestiture decreased sales by 60bps to changes in hedge margin and taxes receivable • Price/Mix -0.6%; Volume +2.7% Capex = $19.3 million • • Growth driven primarily by organic breads, offset
Slide 36: FY 2017 Updated Outlook
FY 2017 UPDATED OUTLOOK REVENUE -1% to flat OTHER Depreciation & Amortization $145 to $150 million GAAP EPS $0.47 to $0.51 Net interest expense $14 to $16 million Effective GAAP tax rate Approximately 33.0% ADJ EPS1 $0.85 to $0.90 Diluted shares outstanding ~210.5 million Adj EPS excludes: Mix plant
Slide 37: 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 38: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Flowers Foods Reconciliation of Net Income to Adjusted EBITDA (000's omitted) Fiscal 2016 Fiscal 2015 Fiscal 2014 Fiscal 2013 Fiscal 2012 Fiscal 2011 Fiscal 2010 Fiscal 2009 Fiscal 2008 Fiscal 2007 Fiscal 2006 Fiscal 2005 Fiscal 2004 Net Income attributa
Slide 39: 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 Earnings (Loss) per Share to Adjusted Earnings per Share For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 Oc
Slide 40: 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 (Loss) to Adjusted EBIT and Adjusted EBITDA For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 Octo
Slide 41: 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 16 Week For the 12 Week For the 12 Week Trailing 52 Week Period Ended Period Ended Period Ended
Slide 42: 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 October 7, 2017 Current maturities of long-term debt and c
Slide 43: 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 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 October 8, 2016 Sales $ 932,822 $ 918,791 Materials, supplies, labor
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) Reconciliation of Selling, Distribution and Administrative Expenses to Adjusted SD&A For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 October 8, 2016
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, except per share data) Reconciliation of Adjusted EBITDA to Cash Flow from Operations For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 October 8, 201
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, except per share data) Reconciliation of Income Tax Expense (Benefit) to Adjusted Income Tax Expense For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017
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, except per share data) Reconciliation of Net Income (Loss) to Adjusted Net Income For the 12 Week For the 12 Week Period Ended Period Ended October 7, 2017 October 8, 2016 Ne
Slide 48: Reconciliation of Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Reconciliation of Earnings per Share - Full Year Fiscal 2017 Guidance Range Estimate Net income per diluted common share $ 0.47 to $ 0.51 Gain on sale of Specialty Blending (0.09) (0.09) Project Centennial consulting costs 0.11 0.12 Restructuring and rel
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