November 10, 2016/media/Files/F/... · law. INFORMATION REGARDING FORWARD LOOKING STATEMENTS 2. Q3...

November 10, 2016

Third Quarter 2016

Statements contained in this press release that arenot historical facts are forward-lookingstatements. Forward-looking statements relate tocurrent expectations regarding our future financialcondition, performance and results of operations,planned capital expenditures, long-term objectivesof management, supply and demand, pricingtrends and market forces, and integration plansand expected benefits of transactions and areoften identified by the use of words and phrasessuch as "anticipate," "believe," "continue,""could," "estimate," "expect," "intend," "may,""plan," "predict," "project," "should," "will,""would," "is likely to," "is expected to" or "willcontinue," or the negative of these terms or othercomparable terminology. All forward-lookingstatements are subject to risks and uncertaintiesthat could cause actual results to differ from thoseprojected. Other factors that may cause actualresults to differ from the forward-lookingstatements contained in this release and that mayaffect the company's prospects in general include,but are not limited to (a) competitive conditions inthe baked foods industry, including promotional

and price competition; (b) changes in consumerdemand for our products, including changes inconsumer behavior, trends and preferences,including health and whole grain trends, and themovement toward more inexpensive store-branded products; (c) the success of productivityimprovements and new product introductions; (d)a significant reduction in business with any of ourmajor customers including a reduction fromadverse developments in any of our customer'sbusiness; (e) fluctuations in commodity pricing; (f)energy and raw material costs and availability andhedging and counterparty risk; (g) our ability tofully integrate recent acquisitions into ourbusiness; (h) our ability to achieve cash flow fromcapital expenditures and acquisitions and theavailability of new acquisitions that buildshareholder value; (i) consolidation within thebaking industry and related industries; (j)disruptions in our direct-store delivery system,including litigation or an adverse ruling from acourt or regulatory or government body that couldaffect the independent contractor classification ofour independent distributors; (k) increasing legal

complexity and legal proceedings that we are ormay become subject to; and (l) the failure of ourinformation technology systems to performadequately, including any interruptions, intrusionsor security breaches of such systems. Theforegoing list of important factors does not includeall such factors, nor necessarily present them inorder of importance. In addition, you shouldconsult other disclosures made by the company,including the risk factors included in our mostrecently filed Annual Report on Form 10-K andQuarterly Reports on Form 10-Q filed with theSecurities and Exchange Commission ("SEC") anddisclosures made in other filings with the SEC andcompany press releases, for other factors that maycause actual results to differ materially from thoseprojected by the company. We caution you not toplace undue reliance on forward-lookingstatements, as they speak only as of the datemade and are inherently uncertain. The companyundertakes no obligation to publicly revise orupdate such statements, except as required bylaw.

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

2

Q3 2016 SUMMARY RESULTS

Sales

Prior Year Comparisons:

• Successful organic brands rollout drove growth; core business remains pressured by soft category

• Lower input costs offset by higher marketing and legal costs

• Diluted EPS and Adj. Diluted EPS were impacted by lower tax rate, fewer shares, and higher amortization

(1) Earnings before interest, taxes, depreciation and amortization. See non-GAAP reconciliations at the end of the slide presentation.(2) See non-GAAP reconciliations at the end of the slide presentation. 3

+3.8%

Adj. EBITDA(1) -3.0%

Diluted EPS

Adj. Dil. EPS(2) -8.7%

Net Income -8.2%

-9.5%

CATEGORY REVIEW

-3.1%

-0.1%

-0.9%

1.1%

2.8%

1.5%

2.6%

-0.1%

0.4%

-0.5%

1.0% 0.9%1.2%

0.8%0.6%

-0.2%-0.5%

-2.6%

-0.6%

-2.6%

-0.9%

0.4%0.2%

2.8%

0.3%0.6%

-0.4%

0.0%

-1.2%

-0.4%

-1.8%

-1.2% -1.3% -1.2%

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016

Total Category – Fresh Packaged Breads

Dollar Sales % Chg Unit Sales % Chg

Source: Flowers Custom Database – IRi Total US Mulo + C Store 4

ORGANICS GENERATING GROWTH

Source: IRI Custom Database Total US + Convenience, latest 52 weeks ending Oct 9, 2016.5

$169.9 $209.0

$262.0

$333.7

2013 2014 2015 2016

Total Organic Fresh Packaged Breads

34.4 35.0 37.3 42.4

2013 2014 2015 2016

FLO Dollar Share of Total Organics

DKB is driving Flowers’ market share gains in the key growth

segment of the category

PROJECT CENTENNIAL UPDATE

Progress Report:

Current Focus:

6

• Enterprise-wide diagnostic complete• Identified meaningful opportunities

to grow revenues, streamline operations, and enhance productivity

• Finalizing implementation plan• Expect to provide additional

details at next earnings report in early February 2017

FINANCIAL REVIEW

Note: See non-GAAP reconciliations at the end of the slide presentation.(1) Until cycled. The DKB acquisition was cycled September 12, 2016.

Net Sales = $918.8 million, +3.8%• Strong growth from acquisitions(1), +4.4 %• Price/Mix +0.3%; Volume -0.9%• Soft volumes on core items due to category

softness and competitive environment, partially offset by improved price/mix

Adj. EBITDA = $101.7 million• Decreased 3.0%• 11.1% of sales, down 70bps versus prior year• Soft volumes and increased marketing and legal

costs offset lower input pricing

Strong Cash Generation:• Cash from Ops = $91.2 million, up versus prior

year due to changes in hedge margin activity• Capex = $25.7 million• Dividends = $33.2 million• Net debt payments of $46.6 million

Diluted EPS = $0.19

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Adj. Diluted EPS = $0.21• Decreased 8.7%• Higher amortization, marketing and legal costs

impacted EPS

SEGMENT DETAILS

3.0%

1.1%

-2.1%

4.0%

Total Change Pricing/Mix Volume Acquisition

DSD Segment Sales Change

Contribution to Sales Change

7.8%

-1.3%

2.8%

6.3%

Total Change Pricing/Mix Volume Acquisition

Warehouse Segment Sales Change

Contribution to Sales Change

8

2016 GUIDANCE

Sales Guidance = $3.930 billion to $3.986 billion

• Continue to expect soft consumer demand and competitive environment

EPS Guidance = $0.88 to $0.93 per shareAdj. Diluted EPS Guidance = $0.90 to $0.95 per share

• Guidance includes Project Centennial costs

Additional Color:

• Depreciation & amortization = $145 million to $150 million

• Net interest expense = $10 million to $12 million, excluding write-off of loan costs due to early extinguishment of debt

• Tax rate forecast = approximately 35.5%

• Capital expenditures = $90 million to $100 million

9Note: See non-GAAP reconciliations at the end of the slide presentation

KEY TAKEAWAYS

Protecting Market Share

Project Centennial:

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• Realizing benefits from normalized feature activity

• DKB rollout generating growth• Expanding margins with capacity

additions and process enhancements

• Diagnostic phase complete• Developing implementation plan to

drive efficiencies and fund growth

Growing Organic Breads

Q&A

11

INFORMATION REGARDING NON-GAAP FINANCIAL MEASURESThe company prepares its consolidated financialstatements in accordance with U.S. GenerallyAccepted Accounting Principles (GAAP). However,from time to time, the company may present in itspublic statements, press releases and SEC filings,non-GAAP financial measures such as, EBITDA,adjusted EBITDA, adjusted EBITDA margin, adjustednet income, adjusted net income per dilutedcommon share, adjusted selling, distribution andadministrative expenses (SD&A), gross marginexcluding depreciation and amortization and theratio of net debt to adjusted EBITDA. EBITDA is usedas the primary performance measure in thecompany's 2014 Omnibus Equity and IncentiveCompensation Plan. The company defines EBITDA asearnings from continuing operations before interest,income taxes, depreciation, amortization and incomeattributable to non-controlling interest. The companybelieves that EBITDA is a useful tool for managing theoperations of its business and are an indicator of thecompany's ability to incur and service indebtednessand generate free cash flow. Furthermore, pursuantto the terms of our credit facility, EBITDA is used todetermine the company's compliance with certainfinancial covenants. The company also believes thatEBITDA measures are commonly reported and widely

used by investors and other interested parties asmeasures of a company's operating performance anddebt servicing ability because EBITDA measuresassist in comparing performance on a consistentbasis without regard to depreciation or amortization,which can vary significantly depending uponaccounting methods and non-operating factors (suchas historical cost). EBITDA is also a widely-acceptedfinancial indicator of a company's ability to incur andservice indebtedness. EBITDA should not beconsidered an alternative to (a) income fromoperations or net income (loss) as a measure ofoperating performance; (b) cash flows provided byoperating, investing and financing activities (asdetermined in accordance with GAAP) as a measureof the company's ability to meet its cash needs; or (c)any other indicator of performance or liquidity thathas been determined in accordance with GAAP. Ourmethod of calculating EBITDA may differ from themethods used by other companies, and, accordingly,may not be comparable to similarly titled measuresused by other companies. Net debt to EBITDA is usedas a measure of financial leverage employed by thecompany. Our method of calculating net debt toEBITDA may differ from the methods used by othercompanies, and, accordingly, may not be comparable

to similarly titled measures used by othercompanies. Gross margin excluding depreciation andamortization is used as a performance measure toprovide additional transparent information regardingour results of operations on a consolidated andsegment basis. Changes in depreciation andamortization are separately discussed and includedepreciation and amortization for materials,supplies, labor and other production costs andoperating activities. Presentation of gross marginincludes depreciation and amortization in thematerials, supplies, labor and other production costsaccording to GAAP. Our method of presenting grossmargin excludes the depreciation and amortizationcomponents, as discussed above. This presentationmay differ from the methods used by othercompanies and may not be comparable to similarlytitled measures used by other companies. Thecompany may from time-to-time discuss SD&Aadjusted for items that are not continuing in nature.The reconciliations attached provide reconciliationsof the non-GAAP measures used in this presentationor release to the most comparable GAAP financialmeasure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

13

Dollars in thousands

For the 12

Week Period

Ended

For the 16

Week Period

Ended

For the 12

Week Period

Ended

For the 12

Week Period

Ended

Trailing 52

Week Period

Ended

January 2, 2016 April 23,2016 July 16, 2016 October 8, 2016 October 8, 2016

Net income 32,246$ 59,363$ 51,155$ 40,216$ 182,980$

Income tax expense 17,775 33,015 27,270 21,232 99,292

Interest expense, net 1,528 2,778 3,010 4,683 11,999

Depreciation and amortization 32,471 43,467 32,598 32,530 141,066

EBITDA 84,020 138,623 114,033 98,661 435,337

Asset impairment 1,496 - - - 1,496

Pension plan settlement loss - - 4,641 1,832 6,473

Legal settlement - - - 1,250 1,250

Acquisition-related costs 1,196 - - - 1,196

Adjusted EBITDA 86,712$ 138,623$ 118,674$ 101,743$ 445,752$

Reconciliation of Net Income to Adjusted EBITDA


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As of

October 8, 2016

Current maturities of long-term debt and capital lease obligations 11,654$

Long-term debt and capital lease obligations 980,177

Total debt and capital lease obligations 991,831

Less: Cash and cash equivalents 7,535

Net Debt 984,296$

Adjusted EBITDA for the Trailing Twelve Months Ended October 8, 2016 445,752$

Ratio of Net Debt to Trailing Twelve Month EBITDA 2.2

Reconciliation of Debt to Net Debt and Calculation of Net

Debt to Trailing Twelve Month Adjusted EBITDA Ratio


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For the 12 Week

Period Ended

For the 12 Week

Period Ended

October 8, 2016 October 10, 2015

918,791$ 885,302$

476,760 464,045

Gross Margin excluding depreciation and amortization 442,031 421,257

Less depreciation and amortization for production activities 19,807 20,495

Gross Margin 422,224$ 400,762$

Depreciation and amortization for production activities 19,807$ 20,495$

12,723 8,924

Total depreciation and amortization 32,530$ 29,419$

SalesMaterials, supplies, labor and other production costs

(exclusive of depreciation and amortization)

Depreciation and amortization for selling, distribution and

administrative activities

Reconciliation of Gross Margin


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For the 12 Week

Period Ended

For the 12 Week

Period Ended


EBIT 12,311$ 11,393$

Depreciation and amortization 4,585 3,549

EBITDA 16,896$ 14,942$

Sales 149,871$ 139,035$

EBITDA margin 11.3% 10.7%

Reconciliation of EBIT to EBITDA - Warehouse Delivery

For the 12 Week

Period Ended

For the 12 Week

Period Ended


EBIT 66,331$ 73,803$

Facility closure costs - 736

Legal settlement 1,250 -

Adjusted EBIT 67,581 74,539


Adjusted EBITDA 95,433$ 100,467$

Sales 768,920$ 746,267$

Adjusted EBITDA margin 12.4% 13.5%

Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - DSD


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For the 12 Week

Period Ended

For the 12 Week

Period Ended


EBIT (12,511)$ (15,445)$

Pension plan settlement loss 1,832 -

Acquisition-related costs - 4,991

Adjusted EBIT (10,679)$ (10,454)$

Depreciation and amortization 93 (58)

Adjusted EBITDA (10,586)$ (10,512)$

Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - Corporate



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For the 12 Week

Period Ended

For the 12 Week

Period Ended


Net income 40,216$ 43,796$

Income tax expense 21,232 25,077

Interest expense, net 4,683 878


EBITDA 98,661 99,170

Facility closure costs - 736

Pension plan settlement loss 1,832 -

Legal settlement 1,250 -

Acquisition-related costs - 4,991

Adjusted EBITDA 101,743$ 104,897$

Sales 918,791$ 885,302$

Adjusted EBITDA margin 11.1% 11.8%

Reconciliation of Net Income to Adjusted EBITDA


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For the 12 Week

Period Ended

For the 12 Week

Period Ended


Net income per diluted common share 0.19$ 0.21$

Pension settlement/debt extinguishment/legal settlement 0.02 -

Acquisition-related costs - 0.02

Adjusted net income per diluted common share 0.21$ 0.23$

Reconciliation of Earnings per Share to Adjusted Earnings per Share

Net income per diluted common share 0.88$ to 0.93$

Pension settlement/debt extinguishment/legal settlement 0.02 0.02

Adjusted net income per diluted common share 0.90$ to 0.95$

Range Estimate

Reconciliation of Earnings per Share -

Full Year Fiscal 2016 Guidance

November 10, 2016/media/Files/F/... · law. INFORMATION REGARDING FORWARD LOOKING STATEMENTS 2. Q3...

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