Professional Documents
Culture Documents
1
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 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.
2
PRESENTERS AND AGENDA
3
LEADING FRESH BAKERY BRANDS DRIVE OUR BUSINESS
Branded snack
cakes
11%
Iconic snack cakes since 1914
47 Channels served
• Grocery / Mass / Club
Operating bakeries • Natural & Organic
• Discount / C-store
• Foodservice & Vending
Direct-store-distribution access to
• E-commerce
5,500
9,800
population
PROJECT CENTENNIAL
STRATEGIC PRIORITIES FY17
• Attacked indirect spend
• Clarified brand roles
DRIVE • Reinvigorate the Core
GROWTH • Capitalize on Adjacencies FY18
• Streamlining organization
• Investing in capabilities and brands
6
FRESH BAKERY MARKET IS LARGE AND GROWING
Billions
$23.7 $23.9 $24.1
$25 .0
$22.5 $23.1
• Fresh packaged breads $20 .0
• Commercial cake
Tortillas
$15 .0
•
$10 .0
FLOWERS, 15.9
15.9
STORE BRAND,
24.5 15.4
15.1 15.1
BBU, 29.6
INDEPENDENT 14.7
BAKERS, 24.2
IRI Flowers custom data base Total US Multi Outlet + Convenience – 12 weeks ending July 15, 2018 8
POSITIVE UNDERLYING CONSUMER TRENDS
13 FY 14 FY 15 FY 16 FY 17 FY 52 WE 13 FY 14 FY 15 FY 16 FY 17 FY 52 WE 07/15/18
07/15/18
10
STRATEGIC PRIORITIES TO CREATE VALUE
11
REINVIGORATING THE CORE BUSINESS
12
DKB GROWTH CONTINUES
+45.8%
$56.9
17Q2 18Q2
Source: IRI Custom Database Total US Multi Outlet + Convenience, 12 weeks ended July 15, 2018 13
MARKET SHARE OPPORTUNITIES BEYOND LOAF BREADS
#1 in
Traditional Loaf Brand extensions and M&A in adjacent segments
$4.0
$4. 5
Billions
$4. 0
$3. 5
$3.4
$3. 0
$2. 5
$1.9 $1.9
$1.6
$2. 0
$1. 5
$1. 0
$0.3 $0.3
$0.1
$0. 5
$0. 0
IRI Flowers custom data base Total US Multi Outlet + Convenience – 52 weeks ending July 15, 2018 14
UNDERDEVELOPED GEOGRAPHIES ALSO A STRATEGIC FOCUS
Bolt-on acquisitions are a key part of our growth strategy
22.1 FLOWERS
28.2
Mid South, South Central, BBU
& Southeast STORE BRAND
24.1 25.6 OTHER BRAND
IRI Flowers custom data base Total US Multi Outlet + Convenience – 12 weeks ending July 15, 2018 15
CAPITALIZE ON PRODUCT ADJACENCIES
16
STRATEGIC PRIORITIES TO CREATE VALUE
17
FOCUSED ON REDUCING COSTS AND BUILDING CAPABILITIES
Gross Savings from Tracked Initiatives • Anticipating 2018 input cost inflation
of ~$40 million
$38M-$48M
• Incremental brand investments
$32M
• Inflationary pressures in
commodities, wages, and freight
• Taking action to address inflationary
pressures
17FY-Act 18FY-Est
19
WORKING CAPITAL IMPROVEMENT ENHANCING CASH FLOW
• Appointed COO to better align operations and enhance execution and accountability
21
FY 2018 OUTLOOK
$145 to $150 million • Labor markets remain tight with higher wages.
Depreciation & Amortization
Net interest expense $11 to $12 million • Higher bakery workforce turnover is driving
reduced manufacturing efficiencies.
Effective tax rate 25.0% to 26.0%
• Freight and commodity inflation continues.
Diluted shares outstanding ~211.0 million
Capital expenditures $95 to $105 million
(1) Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation. 22
LONG-TERM TRENDS & COST COMPONENTS
11.5%
4.0 Ing & Pkg
12.0%
28.7%
EBITDA % of Sales
3.5 SG&A and
10.0% Other
3.0
14.6%
2.5 8.0%
2.0 6.0%
Shipping/
1.5 Conversion***
4.0% Distribution
1.0 22.7% 22.5%
2.0%
0.5
- 0.0%
04FY 05FY 06FY 07FY 08FY* 09FY 10FY 11FY 12FY 13FY 14FY* 15FY 16FY 17FY
* 53-week year;
** Adjusted for items affecting comparability. See non-GAAP reconciliations at the end of the slide presentation. 23
*** Includes direct labor and indirect manufacturing expenses.
BALANCED CAPITAL ALLOCATION
$3 • Accretive acquisitions
$7 $126
$19 $9 $39
$131 $141
• Opportunistic share repurchases
$86 $93 $102 $120
*53-week year 24
INVESTMENT-GRADE FINANCIAL POSITION
$5 $11 $5 $4
13FY 14FY 15FY 16FY 17FY 18Q2 18FY 19FY 20FY 21FY 22FY 23FY+
(Amounts in millions)
25
OBJECTIVES FOR 2019 & BEYOND
26
FLOWERS LONG-TERM OPPORTUNITY
27
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.
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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 $ 123,428 $ 137,047 $ 130,297 $ 119,233 $ 94,615 $ 81,043 $ 61,231 $ 50,774
(Income)/loss from discontinued operations, net of tax - - - - - - - - - - - (6,731) 1,627 3,486
Cumulative effect of a change in accounting principle - - - - - - - - - - - 568 - -
Net income attributable to noncontrolling interest - - - - - - - - 3,415 3,074 3,500 3,255 2,904 1,769
Income tax expense (benefit) (827) 85,761 103,840 92,315 91,479 72,651 68,538 73,333 74,047 67,744 54,970 45,304 39,861 35,071
Interest income, net 13,619 14,353 4,848 7,341 12,860 9,739 (2,940) (4,518) (1,426) (7,349) (8,404) (4,946) (6,337) (8,826)
Depreciation and amortization 146,719 140,869 132,175 128,961 118,491 102,690 94,638 85,118 80,928 73,312 66,094 64,250 59,344 56,702
EBITDA from Continuing Operations 309,631 404,759 430,054 404,356 453,724 321,201 283,664 290,980 287,261 256,014 210,775 182,743 158,630 138,976
Asset impairment and facility closure costs/divestiture - 24,877 4,507 9,301 - - 4,414 - - - - - - -
Lease termination depreciation impact (1,844) - - - - - - - - - - - - -
Multi-employer pension plan withdrawal costs 18,268 - - - - - - - - - - - - -
Pension plan settlement loss 4,649 6,646 - 15,387 - - - - - - - - - -
Legal settlement 6,543 10,500 - - - - - - - - - - - -
Project Centennial consulting costs 37,306 6,324 - - - - - - - - - - - -
Restructuring and related impairment charges 104,130 - - - - - - - - - - - - -
Acquisition-related costs - - 6,187 - 17,776 9,560 6,240 - - - - - - -
Divestiture/Bargain purchase gain (28,875) - - - (50,071) - - - - - - - - -
Adjusted EBITDA $ 449,808 $ 453,106 $ 440,748 $ 429,044 $ 421,429 $ 330,761 $ 294,318 $ 290,980 $ 287,261 $ 256,014 $ 210,775 $ 182,743 $ 158,630 $ 138,976
Net Sales $ 3,920,733 $ 3,926,885 $ 3,778,505 $ 3,748,973 $ 3,732,616 $ 3,031,124 $ 2,759,367 $ 2,560,787 $ 2,600,849 $ 2,414,892 $ 2,036,674 $ 1,888,654 $ 1,715,869 $ 1,551,308
Adjusted EBITDA Margin 11.5% 11.5% 11.7% 11.4% 11.3% 10.9% 10.7% 11.4% 11.0% 10.6% 10.3% 9.7% 9.2% 9.0%
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(000's omitted)
For the 12 Week For the 12 Week For the 16 Week For the 12 Week Trailing 52 Week
Period Ended Period Ended Period Ended Period Ended Period Ended
October 7, 2017 December 30, 2017 April 21, 2018 July 14, 2018 July 14, 2018
30
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
As of
July 14, 2018
Current maturities of long-term debt and capital lease obligations $ 9,706
Long-term debt and capital lease obligations 816,126
Total debt and capital lease obligations 825,832
Less: Cash and cash equivalents 29,554
Net Debt $ 796,278
Adjusted EBITDA for the Trailing Twelve Months Ended July 14, 2018 $ 439,117
Ratio of Net Debt to Trailing Twelve Month EBITDA 1.8
31
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
32