Flowers Foods Reports First Quarter Results; Updates 2008 Guidance

THOMASVILLE, Ga., May 22 /PRNewswire-FirstCall/ -- Flowers Foods today reported results for its 16-week first quarter ended April 19, 2008. The company also updated its earnings guidance for the year.

  -- Sales increased 10.9% to $676.7 million in the first quarter of 2008
     over the first quarter of 2007. The increase was driven by higher
     pricing, increased volume, and positive mix shifts.
  -- Net income in the quarter increased 25.6% to $35.8 million, or $.39 per
     diluted share, over the prior year's first quarter.
  -- EBITDA was $75.1 million, or 11.1% of sales, an increase of 15.4% over
     the same period in 2007.
  -- Branded retail sales were up 13.8% in the quarter, driven by Nature's
     Own soft variety and premium breads and Nature's Own Whitewheat breads
     as well as by regional white bread brands.
  -- Sales and earnings guidance for 2008 was updated, increasing expected
     sales to a new range of $2.220 billion to $2.271 billion and net income
     to a new range of $106.6 million to $113.6 million, or $1.15 per share
     to $1.23 per share.

George E. Deese, Flowers Foods' Chairman, CEO, and President said, "Our results in the first quarter once again prove the strength of our brands, our team, and our operating strategies. Sales of our branded products were robust and our internal data shows unit growth of 2.6%. Increased sales to fast food restaurants partially offset lower unit sales to casual dining providers.

"Investments over the long term in bakery technology, distribution systems, and information technology have helped make Flowers Foods one of the most efficient operators in our industry. We continue to face the most dramatic cost increases the baking industry has ever experienced, but our team remains focused on executing our strategies, further improving our efficiencies, taking costs out of our business wherever possible, and maintaining the quality and value of our products. These efforts, along with pricing actions, helped offset our higher input costs in the quarter and allowed us to achieve another good quarter."

In keeping with the company's separate announcement today concerning several key executive appointments and operating alignment, financial information presented in this first quarter earnings release shows segment data for direct-store-delivery or DSD, which was previously reported as Bakeries Group, and warehouse delivery, which was previously reported as Specialty Group.

First Quarter Results

For the first quarter, sales increased 10.9% to $676.7 million over the $609.9 million reported for last year's first quarter. Net income was $35.8 million, or $.39 per diluted share, an increase of 25.6% over the $28.5 million, or $.31 per diluted share, reported for the 2007 first quarter. The quarter's sales increase of 10.9% was achieved through a favorable pricing/mix of 9.5% and volume increase of 1.4%. During the quarter, the company's direct- store-delivery sales grew at 13.3% due to a favorable pricing/mix of 10.4% and unit volume increase of 2.9%. Sales through warehouse delivery increased 1.5%, reflecting positive pricing/mix of 2.8% partially offset by a volume decline of 1.3%.

For the quarter, gross margin as a percent of sales was 48.3% compared to 49.7% in the first quarter of 2007. The decrease in margin as a percent of sales was due to higher ingredient costs, partially offset by sales gains, better stales control, improved manufacturing efficiencies, and lower labor costs as a percent of sales.

Selling, marketing, and administrative costs as a percent of sales for the quarter were 37.2% compared to 39.0% in the prior year. The improvement as a percent of sales was due primarily to increased sales and lower employee- related and advertising costs as a percent of sales. Logistic costs as a percent of sales also decreased despite higher energy costs due to the company's continued efforts to minimize miles traveled and to locate production closer to markets served.

Depreciation and amortization expenses for the first quarter remained relatively stable as compared to the prior quarter. Net interest income for the quarter was $1.6 million higher than the prior year first quarter due to higher interest income related to the sale of new territories to independent distributors and a decrease in interest expense due to lower average debt outstanding under the company's credit facility. The effective tax rate for the quarter was 35.7% and the full-year tax rate is expected to be approximately 36.0%.

Operating margin for the first quarter also was strong at 8.0% as compared to 7.4% for the same period last year. EBITDA for the quarter was $75.1 million, or 11.1% of sales, an increase of 15.4% over EBITDA for the first quarter of 2007.

For the quarter, net cash provided by operating activities remained strong at $61.4 million. The company invested $23.3 million in capital improvements and paid dividends totaling $11.5 million to shareholders during the quarter. Under the share repurchase plan, the company acquired 256,248 shares of its common stock for $5.8 million, an average of $22.75 per share. Since the inception of the share repurchase plan, the company has acquired 19.4 million shares of its common stock for $286.2 million, an average of $14.76 per share. The plan authorizes the company to repurchase up to 30.0 million shares of common stock.