Flowers Foods, Inc. · NYSE:FLO
Flowers Foods — Investor Presentation (June 2014)
53 slides from Flowers Foods's investor presentation, June 2014
Slide 1: Investor Presentation June 2014
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Slide 2: Flowers Foods Today
FLOWERS FOODS TODAY • Sales $3.75 billion (2013) • Second-largest baker in U.S. • 47 bakeries • DSD access to 79% of the U.S. population • Market cap of $4.4 billion est. 2
Slide 3: New Markets Outside South Offer Growth Potential
NEW MARKETS OUTSIDE SOUTH OFFER GROWTH POTENTIAL FLO share of Total US Fresh Bread/Rolls is 14.1 Flowers share in IRi South is 28.6 Source: IRi MultiOutlet YTD ending 4/13/14 3
Slide 4: U.S. Fresh Bakery Category: Total $32.5 Billion
U.S. FRESH BAKERY CATEGORY: TOTAL $32.5 BILLION Retail outlets total sales Foodservice breads/rolls IRi MultiOutlet plus Convenience $7.0 billion $25.7 billion White bread Soft variety bread Cake Specialty bread $9.2 billion Buns & rolls Fresh packaged breads Breakfast breads $14.5 billion
Slide 5: Category – Fresh Breads and Rolls at Retail
CATEGORY – FRESH BREADS AND ROLLS AT RETAIL Unit Share - Latest 52-weeks ending April 13, 2014 3.2% Other Sales of 12.0% Dinner $14.5 billion* bread/rolls 21.8% White loaf 10.8% Breakfast items 18.9% Soft variety 23.4% loaf Sandwich buns /rolls 9.9% Specialty premium loaf Source: IRi MulitOutlet for
Slide 6: Fresh Packaged Breads Total U.S. Multi Outlet
FRESH PACKAGED BREADS TOTAL U.S. MULTI OUTLET PRE-HOSTESS EXIT TODAY $14.0 Billion $14.4 Billion Flowers Flowers Independents 10.7 14.1 Independents +3.4% 19.0 22.5 +3.5% BBU/SLE 31.7 BBU/SLE Store brands Store brands 26.7 31.1 23.1% 26.9 -0.6% -0.3% Sandwich Buns & Rolls Hostess 6.9 Pepperidge Farm
Slide 7: Sweet Baked Goods Total US Multi Outlet Plus Convenience
SWEET BAKED GOODS TOTAL US MULTI OUTLET PLUS CONVENIENCE PRE-HOSTESS EXIT TODAY $8.97 Billion $9.22 Billion Flowers Flowers, 5.2 7.1 All Others McKee All others 21.7 17.7 22.0 McKee 22.0 Hostess Store Brand Store Brand 16.0 Hostess 27.8 28.2 8.4 BBU BBU 11.2 12.7 Source: IRi for Total US MultiOutlet
Slide 8: Fresh Packaged Breads — Recent Trends
FRESH PACKAGED BREADS — RECENT TRENDS The bread category grew dollar sales each quarter in 2013. Q1 of 2014 was positive in both dollars and units in the total US. 8 Source: IRi Custom Scan Data 8
Slide 9: Fresh Packaged Breads — Store Brand Trend
FRESH PACKAGED BREADS — STORE BRAND TREND Store Brand Share Bread Category IRi US Total—Multi Outlet 2011 2012 2013 Q1 2014 Dollar Share 26.5 26.4 27.4 26.3 Volume Share 37.2 37.0 38.4 36.6 Store brand share remains within historical average of 26 to 28 dollar share and 37 to 40 volume share. Source
Slide 10: Growing Market Share
GROWING MARKET SHARE FLO Share of Total US Market Breads, buns, rolls Cake 2009 7.7* --- 2010 7.9* --- 2011 7.9* --- 2012 10.9 5.4 2013 13.3 7.8 2014 Q1 14.1 7.1 *Company historical data Source: Flowers IRi custom database; Total US MultiOutlet plus C-Store 10 10
Slide 11: A Look Back
A LOOK BACK Long-term goals announced in 2011 • Sales growth of 5% to 10% FLO DELIVERS ON • EBITDA margin of 11% to 13% LONG-TERM GOALS • Double-digit EPS growth 2011-2013 achieved • Sales CAGR of 13.38% • Adjusted EBITDA margin improves to 10.9%* • Adjusted EPS CAGR of 11.30%* Goal: Reach 75% • Acc
Slide 12: Growth Drivers: 2011 – 2013
GROWTH DRIVERS: 2011 – 2013 Acquisitions 2011 Tasty Baking 2012 Lepage Bakeries 2013 Sara Lee/CA 2013 Modesto bakery 2013 Hostess bread assets Market Expansion Northern CA, Indianapolis, Cincinnati, Columbus, Pittsburgh, Philadelphia, New York * New Production Capacity Oxford, Henderson, Modesto 12
Slide 13: Flowers Foods: 2013
FLOWERS FOODS: 2013 2013 sales $3.75 billion EBITDA margin 11.2%* Market cap $4.4 billion Access to 79% of the U.S. population FLO brand share of total U.S: 14.1 * Excluding acquisition-related cost and bargain purchase accounting gain. See reconciliation of non-GAAP measures at the end of this slid
Slide 14: New Long-Term Objectives
NEW LONG-TERM OBJECTIVES • Annual sales growth of 5% to 10% • DSD access to 90% of U.S. population • 20 share of breads, buns, rolls (total U.S.) • 12 share of cake (total U.S.) • Strategic acquisitions • EBITDA margin of 11% to 13% • Double-digit EPS growth 14
Slide 15: Growth Drivers
GROWTH DRIVERS • Operational strengths • Acquisitions • New markets • New products 15
Slide 16: Acquisition — Hostess Bread Assets
ACQUISITION — HOSTESS BREAD ASSETS July 2013 • Acquired iconic brands with power in the marketplace • 20 closed bakeries • 36 distribution centers 16
Slide 17: Acquired Assets — Longer Term Plan
ACQUIRED ASSETS — LONGER TERM PLAN 2013 – 2014 Open bakeries as consumer demand increases • Open Henderson, NV and Knoxville, TN Knoxville, TN • 9 bakeries/21 depots currently offered Henderson, NV Opened May 2014 for sale Opened 11/13 2015 – 2016 • Intend to open 2-3 bakeries to support sales growt
Slide 18: Sara Lee/CA Acquisition — Update
SARA LEE/CA ACQUISITION — UPDATE 2013 • Acquired distribution rights in CA Driving growth in California • FLO expands DSD system into all CA Structure, bakeries, brands are in place • Nature’s Own introduced in northern CA 2014 • FLO exits supply agreement with BBU FLO SHARE IN CA 2012 2013 2014 YTD
Slide 19: FLO New Markets Offer Strong Growth Potential
FLO NEW MARKETS OFFER STRONG GROWTH POTENTIAL GOAL: Increase FLO share of bread/roll from current 14.1 share to 20 share in 2018 Each share point adds approximately $100 million in wholesale sales FLO share in the IRi South is 28.6 46.6% of FLO population served is in the IRi South Market 53.4% of F
Slide 20: Expansion Markets Growth 2009 – 2014
EXPANSION MARKETS GROWTH 2009 – 2014 Growth driven by strength of Nature’s Own and exceptional customer service Source: IRi MultiOutlet 20
Slide 21: Future DSD Markets
FUTURE DSD MARKETS FUTURE DSD MARKETS • Population centers in Midwest • Open select acquired bakeries to support growth LONG-TERM GOALS: 36.7 million new consumers added 90% total US population served 21
Slide 22: Brand Portfolio
BRAND PORTFOLIO National Brands Regional Brands California Distribution Rights (bread, buns, rolls)* *Licensed brand in California only 22
Slide 23: Brand Growth 2012 to 2013
BRAND GROWTH 2012 TO 2013 + 17.2% to $1.1 billion retail value FLO White Breads +28.8% to $563 million retail value 23
Slide 24: Current Top 10 UPCs — Total U.S. MultiOutlet
CURRENT TOP 10 UPCs — TOTAL U.S. MULTIOUTLET Flowers has 4 of the top 10 UPCs in the fresh bakery category In Millions ACV Wtd Item Dollar Sales Unit Sales Distribution 1 NATURES OWN HONEY WHEAT SOFT VARIETY LOAF 20OZ $ 306.2 113.2 64.2 2 THOMAS ORIGINAL ENGLISH MUFFINS 12OZ $ 213.8 87.1 87.6 3 NATU
Slide 25: Brand Strength
BRAND STRENGTH Sales at retail value $1.14 billion $343 million 2003 2013 Sales estimated using internal sales data. All dollars shown as retail; includes Whitewheat 25
Slide 26: Enhancing Flowers' Brand Portfolio
ENHANCING FLOWERS’ BRAND PORTFOLIO • 96% brand awareness • 57% have purchased within the last year • 66% feel Wonder bread is not just for kids • 74% feel Wonder bread is a legendary part of the American diet Source: 2012 Zimmerman/Hostess Pulse Research 26
Slide 27: Cake Growth Strategy
CAKE GROWTH STRATEGY OPPORTUNITY IN FLO DSD MARKETS GOAL: Increase share of cake from 7.1 to 12 Tastykake core market Flowers DSD Each share point adds Territory $65 million in sales Source: Goal Current Share = YTD Ending 4/13/14 27
Slide 28: Cake DSD & Warehouse — Brand Strength
CAKE DSD & WAREHOUSE — BRAND STRENGTH 28
Slide 29: Cake DSD & Warehouse — Brand Strength
CAKE DSD & WAREHOUSE — BRAND STRENGTH RETAIL BRAND $750 VALUE GROWTH In millions • 18.9% CAGR $508 $425 $446 $455 • Tastykake is Flowers’ #2 largest brand $227 $291 $260 • Mrs. Freshley’s is Flowers’ #3 largest $325 $219 $195 $217 brand 2010 2011 2012 2013 Tastykake Acquisition 29
Slide 30: New Products Drive Growth
NEW PRODUCTS DRIVE GROWTH 30
Slide 31: Financial Update
FINANCIAL UPDATE Sales EBITDA* 10-year CAGR: 9.95% 10-year CAGR: 12.32% In billions In millions $3.75 $421.4 $1.45 $131.8 2003 2013 2003 2013 (1) (1)Adjusted EBITDA excluding acquisition-related charges and bargain purchase accounting gain. *Earnings before interest, taxes, depreciation, and amortiz
Slide 32: Financial Update
FINANCIAL UPDATE Net Income EPS 10-year CAGR: 13.80% 10-year CAGR: 14.74% In millions $.91 $192.3 $52.8 $.23 2003 2013 (1) 2003 2013 (1) (1)Adjusted net income and EPS excluding one-time acquisition-related charges and bargain purchase accounting gain. See reconciliation of non-GAAP measures at the
Slide 33: Free Cash Flow
FREE CASH FLOW* $748 million Uses of Cash • Debt Repayment • Dividends • Capital Expenditures • Share Repurchases 5 Years $171 million One Year 2009 – 2013 2013 *Cash provided by operating activities less capital expenditures. See reconciliation of non-GAAP measures at the end of this slide presenta
Slide 34: Cash Allocation History
CASH ALLOCATION HISTORY $631.4 $509.1 (In $ millions) $361.6 $199.8 $209.4 2009 2010 2011 2012 2013 Capital Expenditures Dividends Share Repurchases Pension Acquisitions 5-year totals: $416.4 million $391.4 million $133.8 million $46.4 million $923.3 million 34 34
Slide 35: Capital Expenditures
CAPITAL EXPENDITURES 2009 New bakery in Bardstown, KY In millions $116.7 2009 to date $112.0 Shipping automation at 27 bakeries $13.5 $17.5 2010 $86.9 6 new production lines $79.2 $14.7 $67.3 2012 Construction of new bread line in Oxford, PA. Opened May 2013. $72.2 $98.5 $79.2 $67.3 $99.2 2013 Opene
Slide 36: Dividends and Share Repurchases
DIVIDENDS AND SHARE REPURCHASES 2009 to 1Q2014 (millions) Dividends $414.9 Share Repurchases $143.3 Total $558.2 36
Slide 37: Debt
DEBT 12 months (000 omitted) 2009 2010 2011 2012 2013 ended 4/19/2014 Debt $251,668 $127,302 $326,174 $607,012 $923,750 $841,725 Interest Expense $11,587 $8,164 $10,172 $23,411 $ 28,875 $29,180 Leverage** 0.9X 0.4X 1.1X 1.9X 2.3X 2.1X Interest Coverage*** 24.8X 35.6X 27.9X 13.7X 14.0X 14.0X Debt Mat
Slide 38: Long-Term Growth Objectives
LONG-TERM GROWTH OBJECTIVES Sales growth of 5% to 10% EBITDA Margin – 11% to 13% EPS double digits ROI – 13% to 15% 38
Slide 39: Long Term Outlook
LONG TERM* OUTLOOK TOP LINE DRIVERS • Increased penetration/market share existing markets • Geographic expansion • Brand expansion/mix improvements • Regional tuck-ins MAJOR • Production rationalization GROWTH MARGIN IMPROVEMENT • Stale improvement (Order management) DRIVERS • Efficiency gains • Red
Slide 40: Gross Margin Improvement
GROSS MARGIN IMPROVEMENT 1 (As a percent of sales) Historical Gross Margin Cost 49.6% Initiatives 49.0% – 49.5% Revenue Growth 47.4% 04, 05, 06, 07* 2013 2018 *Avg. Estimated (1) Sales less materials, supplies, labor, and other production costs, excluding depreciation and amortization. See reconcili
Slide 41: Committed to Creating Shareholder Value
COMMITTED TO CREATING SHAREHOLDER VALUE Market Capitalization in billions 5-year CAGR: 15.00% $4.449 $4.443 $2.212 2008 2013 5/29/2014 41
Slide 42: 1Q 2014 Sales, EBITDA, EBIT
1Q 2014 (in thousands, except for share data) % increase $ <decrease> % of sales Sales $1,159,760 2.6% 1 EBITDA $137,493 <0.8>% 11.9% 1 EBIT $98,201 <6.0>% 8.5% 1 EPS $0.29 <6.5>% (1)Compared to 1Q 2013 excluding bargain purchase accounting gain and acquisition-related costs. See reconciliation of n
Slide 43: Factors Supporting Growth
FACTORS SUPPORTING GROWTH STRONG Brand Portfolio Proven strategies deliver above norm growth Business model = exceptional customer service Continuous improvement drives margin expansion INCREASE share in new markets Technology advantage FLO share of total U.S. is 14 Flowers’ culture – a distinct adv
Slide 44: The Flowers Way
Growing THE FLOWERS WAY 44
Slide 45: Forward-Looking Statement
FORWARD-LOOKING STATEMENT 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, planned capital expenditures, l
Slide 46: Information Regarding Non-GAAP Financial Measures
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 st
Slide 47: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures EBITDA Margin 2011 - 2013 2011 2012 2013 Total Sales $2,773,356 $3,046,491 $3,751,005 $9,570,852 Net Income to Adjusted EBITDA Net income $123,428 $136,121 $230,894 $490,443 Income tax expense $68,538 $72,651 $91,479 $232,668 Interest (income) expense, n
Slide 48: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Diluted EPS 2013 Reported EPS $1.09 Acquisition-related costs $0.06 Bargain purchase accounting gain <$0.24> EPS excluding one-time events $0.91 Net Income to Adjusted EBITDA (in thousands) 2003 2013 Net income $52,804 $230,894 Income tax expense $33,063
Slide 49: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Net Income to Adjusted Net Income (in thousands) 2013 Reported net income $230,894 Acquisition-related costs, net of tax $11,465 Bargain purchase accounting gain <$50,071> Net income excluding one-time events $192,288 Free Cash Flow (in thousands) 2013 2
Slide 50: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Net Income to EBITDA and Adjusted EBITDA Excluding Bargain Purchase Accounting Gain Only (in thousands) 12 months 2009 2010 2011 2012 2013 ended 4/19/2014 Net income $130,297 $137,047 $123,428 $136,121 $230,894 $179,934 Net income attributable to non-con
Slide 51: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Gross Margin Reconciliation Consolidated Gross Margin Reconciliation 2004 2005 2006 2007 Avg. % of Sales 2013 Sales $1,551,308 $1,715,869 $1,888,654 $2,036,674 - $3,751,005 Materials, supplies, labor and other production costs exclusive of depreciation a
Slide 52: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures 52
Slide 53: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures 53