pricing trends and market forces, and integration plans and expected benefits of ... reduction in business with any of our major customers including a reduction from ... Q1 2016. Q1 2017. FLO Bread Share. FLO Cake Share. Source: Flowers ...
BARCLAYS GLOBAL CONSUMER STAPLES CONFERENCE
SEPTEMBER 2017
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) 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, (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) any existing or additional disruptions to the business due to weather or other circumstances; 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
TODAY’S AGENDA •
Business & Category Overview
•
Project Centennial
•
Financial Review & Outlook
•
Q&A
3
Today Nature’s Own: #1 bread in U.S. Leading white bread brands Strong cake brand; growing organic brands
History of success and navigating changing markets…for 95+ years
1968 to 2015 1919
One family-owned bakery in Thomasville, GA
49 operating bakeries 2nd-largest baked foods company in U.S.
1968
FLO
Listed publicly as “FLO”
More than 100 acquisitions
Proven business model Efficient bakeries & distribution Experienced team
4
BUSINESS OVERVIEW Product Mix Frozen (1) Breads, Rolls 1% Mixes 6% Fresh 17% Snack Cakes 76% Fresh Breads, Buns, Rolls, Tortillas
Distribution Warehouse Delivery
Sales Channels
16%
27% 84% Direct Store Delivery (DSD)
Non-retail & Other
58% Branded Retail
15% Store Branded Retail
Note: Data for FY 2016 (1) Mix business was sold January 2017
5
U.S. FRESH BAKERY MARKET
• Fresh Packaged Breads • Commercial Cake • Tortillas
Foodservice = $7.4
Billions
Retail Outlets = $23.9 billion(1)
US Fresh Bakery - Retail Outlets(1)
billion(2)
$25.0
$22.5
$23.2
$23.8
$23.9
2013
2014
2015
2016
$20.0 $15.0 $10.0 $5.0 $0.0
$31 billion fresh bakery market is large and stable (1) Data for Retail Outlets sourced from IRI, FY ended 1-Jan-2017 (2) Data for Foodservice sourced from Techonomic 2016
6
MARKET SHARE SUMMARY – RETAIL OUTLETS Fresh Packaged Breads
Commercial Cake
• $14.8 billion category • FLO share = 15.2
• $6.7 billion category • FLO share = 8.3
Leveraging brand strength to grow in new geographies, gain share in underdeveloped category segments
Focused on growing Tastykake throughout DSD network
Source: Retail Outlets = IRI (52 weeks ended 13-Aug-2017)
7
ORGANICS GENERATING GROWTH TOTAL ORGANIC FRESH PACKAGED BREADS
DKB & ALPINE DOLLAR SHARE OF TOTAL ORGANICS
$423.3 $357.6 $275.4 $220.8
35.3
34.6
FY 2013
FY 2014
38.2
43.6
48.5
$179.8
FY 2013
FY 2014
FY 2015
FY 2016
TTM 2017
FY 2015
FY 2016
TTM 2017
DKB IS DRIVING FLOWERS’ MARKET SHARE GAINS IN THE KEY GROWTH SEGMENT OF THE CATEGORY Source: IRI Custom Database Total US + Convenience, calendar year ending 1-Jan-2017. 52 weeks ended 23-Jul-2017.
8
CATEGORY REVIEW FRESH PACKAGED BREADS Dollar Sales % Chg
2.8%
2.6%
Unit Sales % Chg
2.8%
1.5% 1.1% 0.4%
0.3%
0.3%
0.4%
1.0%
0.8%
0.6%
0.6%
0.1%
-0.5% -0.9%
1.1% 0.6%
0.5%
-0.1% -0.9%
1.4%
1.2%
-0.1%
-0.3%
-0.3%
-0.7%
-0.7% -0.7% -1.3%
-1.2%
-1.2%
-1.0%
-1.0% -1.3%
-2.5%
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 Q4 2016 Q1 2017 Q2 2017
Source: Flowers Custom Database – IRi Total US Mulo + C Store
9
PROJECT CENTENNIAL VALUE CREATION PLAN STRATEGIC PRIORITIES: 1. Reinvigorate core business
GROW SALES
2. Capitalize on product adjacencies
EXPAND MARGINS
3. Reduce costs to fuel growth
DISCIPLINED CAPITAL ALLOCATION
4. Invest in capabilities
DELIVER SHAREHOLDER VALUE
10
1. REINVIGORATE CORE BUSINESS REFOCUSING ON CORE BRANDS, CAPABILITIES
INVEST IN BRANDS • Align brands to consumers; invest in brand growth and innovation SIMPLIFY BRAND ASSORTMENT • Fewer SKUs, improved manufacturing efficiencies SUPPORT PARTNERS • Improve business intelligence and execution support
Realize 2-4% topline CAGR from existing brands by FY2021
11
2. CAPITALIZE ON PRODUCT ADJACENCIES EXPANDING POSITION IN HIGH-GROWTH CATEGORIES BUILD ON LEADING FOODSERVICE POSITION • Flowers is the #1 provider of foodservice bakery products; consumers are eating out more •
Expand share of growing specialty products
GROW IN-STORE DELI/BAKERY • Grow specialty brands on the store perimeter
Diversify business into growing segments of the bakery category
REACH POTENTIAL IN CAKE • Evolve cake strategy to leverage dual-brand capabilities
12
3. REDUCE COSTS TO FUEL GROWTH EXECUTING ON OPPORTUNITIES TO DRIVE EFFICIENCIES, ENHANCE OPERATIONS LEVERAGE SCALE • Implement smart spending and strategic sourcing programs to close spending gaps with peers REMOVE COMPLEXITY • Standardize processes and centralize common functions to reduce overhead • Modernize network and engineer a platform to grow national brands ENHANCE DISCIPLINE • Structure a continuous improvement process • Formalize performance management systems
Targeting
at least 250bps net overall EBITDA margin improvement by FY2021 Identified at least
$45+ million
of run-rate indirect cost reductions to be achieved by FY2018 13
4. INVEST IN CAPABILITIES & GROWTH DEVELOPING LEADING CAPABILITIES TO DIVERSIFY AND GROW UPGRADE TECHNOLOGY • Support an increased focus on data and analytics ENHANCE FP&A • Drive operations with centralized and standardized analytical support PERFORMANCE MANAGEMENT • Better align company with overall strategy and drive accountability and responsibility
Installing capabilities to grow shareholder value and deliver sustainable EBITDA margin expansion
14
PROJECT CENTENNIAL ROADMAP FY 2017-2018
FY 2019 & Beyond
FUND & DESIGN THE FUTURE
Focus
•
Targets
•
•
•
TRANSFORM TO THE FUTURE
Generate savings Design future organization
•
Sales growth: flat to +2% EBITDA margins: ~12% to 13%
•
•
•
Invest in growth Leverage capabilities Sales growth: 3% to 4% EBITDA margins: ~13% to 14%
TARGETING AT LEAST 250BPS NET OVERALL EBITDA MARGIN IMPROVEMENT BY FY21 15
SOLID CASH FLOWS & FINANCIAL POSITION Cash Flows $270
$346
$318
$315
Total Debt & Capital Leases $312
$759
$217
Operating Cash Flow $67
12FY
$1,005 $958
$919
$99
13FY
$84
14FY*
$91
15FY
$102
16FY
$92
$847
$603
Capital Expenditures
17Q2-TTM
12FY
Capital Allocation
13FY
14FY
15FY
16FY
17Q2
Aggregate Maturities, at 17Q2 $806.0
$395
$416 $318
Cash for Acquisitions $3
$19
$9
$39
$7
$126
$86
$93
$102
$120
$131
$136
12FY
13FY
14FY*
15FY
16FY
17Q2-TTM
Amounts in millions * 53 week year
$5.2
$21.8 $10.3
$8.4
$3.3
Share Repurchases Dividends Total Debt & Capital Leases
16
Q2 2017 FINANCIAL REVIEW NET SALES
$926.6M -0.9%
•
Divestiture decreased sales by 50bps
•
Price/Mix +1.9%; Volume -2.3%
•
Lower sales of branded conventional breads, buns and cake, offset by organic bread growth
ADJ. EBITDA1
$113.7M
•
Decreased 5.2%
•
12.3% of sales, down 50bps
•
Lower production costs offset by higher distributor fees as a percentage of sales
(1) Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
CASH FLOWS •
Cash from Ops = $84.9 million, changes in hedge margin activity partially offset Centennial costs
•
Capex = $14.5 million
•
Dividends = $35.7 million
•
Net debt payments of $44.2 million
$0.21 ADJ. DILUTED EPS2 $0.24 DILUTED EPS
•
Lower adj. EBITDA and higher D&A, partially offset by lower tax rate.
(2) Adjusted for matters affecting comparability. See nonGAAP reconciliations at the end of this slide presentation.
17
FY 2017 UPDATED OUTLOOK REVENUE GAAP EPS ADJ
EPS1
-1% to flat $0.82 to $0.85 $0.85 to $0.90
Adj EPS excludes: Mix plant gain on sale of $0.09, Project Centennial costs of $0.11 to $0.12, plant closure costs of $0.01 to $0.02
OTHER Depreciation & Amortization Net interest expense Effective tax rate Diluted shares outstanding Capital expenditures
$145 to $150 million $17 to $18 million Approximately 35.0% ~210.5 million $95 to $105 million
(1) Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
18
KEY TAKEAWAYS •
Strong brands and a team committed to transforming the company
•
Clear objectives to grow sales, expand margins, and deliver shareholder value
•
Executing today on initiatives to reinvigorate the core, obtain fuel for growth, and improve financial performance
•
Designing a company and operating model to deliver sustainable long-term value
19
Q&A
20
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 EBITDA margin, adjusted net income, adjusted net income per diluted common share, adjusted selling, distribution and administrative expenses (SD&A), gross margin excluding depreciation and amortization, adjusted income tax expense and the ratio of net debt to adjusted EBITDA. EBITDA is used as the primary performance measure in the company's 2014 Omnibus Equity and Incentive Compensation Plan. 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 are an indicator of the company's ability to incur and service indebtedness and generate free cash flow. 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. Our method of calculating EBITDA may differ from the methods used by other companies, and, accordingly, may not be comparable to similarly titled measures used by other companies. Net debt to EBITDA is used as a measure of financial leverage employed by the company. Our method of calculating net debt to EBITDA may differ from the methods used by other companies, and, accordingly, may not be comparable to similarly titled measures used by other companies. 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. This presentation may differ from the methods used by other companies and may not be comparable to similarly titled measures used by other companies. The company may from time-to-time discuss SD&A adjusted for items that are not continuing in nature. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure.
21
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 per Share to Adjusted Earnings per Share
Net income per diluted common share Project Centennial consulting costs Pension plan settlement loss Adjusted net income per diluted common share
For the 12 Week Period Ended July 15, 2017
For the 12 Week Period Ended July 16, 2016
$
$
$
0.21 0.03 0.24
$
0.24 0.02 0.26
22
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 to Adjusted EBIT and Adjusted EBITDA For the 12 Week For the 12 Week Period Ended Period Ended July 15, 2017 July 16, 2016 Net income Income tax expense Interest expense, net EBIT Project Centennial consulting costs Pension plan settlement loss Adjusted EBIT Depreciation and amortization Adjusted EBITDA
$
Sales Adjusted EBITDA margin
$
$
44,740 22,148 3,278 70,166 9,389 79,555 34,128 113,683
$
926,639 12.3%
$
$
51,155 27,270 3,010 81,435 1,256 4,641 87,332 32,598 119,930 935,025 12.8% 23
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 to Adjusted EBITDA
Net income Income tax expense Interest expense, net Depreciation and amortization EBITDA Gain on divestiture Project Centennial consulting costs Lease terminations Asset impairment Pension plan settlement loss Legal settlement Adjusted EBITDA
For the 12 Week Period Ended October 8, 2016
For the 12 Week Period Ended December 31, 2016
For the 16 Week Period Ended April 22, 2017
For the 12 Week Period Ended July 15, 2017
Trailing 52 Week Period Ended July 15, 2017
$
$
$
$
$
$
40,216 21,232 4,683 32,530 98,661 1,218 1,832 1,250 102,961
$
13,042 4,244 3,882 32,274 53,442 3,849 24,877 173 9,250 91,591
$
60,418 34,659 5,048 47,188 147,313 (28,875) 15,406 (1,279) 250 132,815
$
44,740 22,148 3,278 34,128 104,294 9,389 113,683
$
158,416 82,283 16,891 146,120 403,710 (28,875) 29,862 (1,279) 24,877 2,005 10,750 441,050
24
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 Debt to Net Debt and Calculation of Net Debt to Trailing Twelve Month Adjusted EBITDA Ratio
Current maturities of long-term debt and capital lease obligations Long-term debt and capital lease obligations Total debt and capital lease obligations Less: Cash and cash equivalents Net Debt Adjusted EBITDA for the Trailing Twelve Months Ended July 15, 2017 Ratio of Net Debt to Trailing Twelve Month EBITDA
As of July 15, 2017 $ 12,140 834,865 847,005 7,179 $ 839,826 $
441,050 1.9
25
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Reconciliation of Earnings per Share Full Year Fiscal 2017 Guidance Range Estimate Net income per diluted common share Gain on sale of Specialty Blending Project Centennial consulting costs Plant closure costs Adjusted net income per diluted common share
$
$
0.82 to (0.09) 0.11 0.01 0.85 to
$
$
0.85 (0.09) 0.12 0.02 0.90
26
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 July 15, 2017 July 16, 2016 Adjusted EBITDA Adjustments to reconcile net income to net cash provided by operating activities Changes in assets and liabilities Income taxes Interest expense, net Project Centennial consulting costs Pension plan settlement loss Cash Flow From Operations
$
113,683
$
1,826 4,208 (22,148) (3,278) (9,389) 84,902
$
119,930
$
9,119 (16,320) (27,270) (3,010) (1,256) (4,641) 76,552
27
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Reconciliation of Net Income to Adjusted EBITDA
(000's omitted)
52 Week Period Ended Jan 1, 2011
52 Week Period Ended Dec 31, 2011
52 Week Period Ended Dec 29, 2012
52 Week Period Ended Dec 28, 2013
53 Week Period Ended Jan 3, 2015
52 Week Period Ended Jan 2, 2016
52 Week Period Ended Dec 31, 2016
Net income Income tax expense Interest (income) expense, net Depreciation & amortization EBITDA
137,047 73,333 (4,518) 85,118 290,980
123,428 68,538 (2,940) 94,638 283,664
136,121 72,651 9,739 102,690 321,201
230,894 91,479 12,860 118,491 453,724
175,739 92,315 7,341 128,961 404,356
189,191 103,840 4,848 132,175 430,054
163,776 85,761 14,353 140,869 404,759
Asset impairment/Divistiture/ Facility closure costs Pension plan settlement loss Legal settlement Gain on acquisition Acquisition-related costs Adjusted EBITDA
290,980
4,414 6,240 294,318
9,560 330,761
(50,071) 17,776 421,429
9,301 15,387 429,044
4,507 6,187 440,748
24,877 6,646 10,500 446,782
2,560,787 11.4%
2,759,367 10.7%
3,031,124 10.9%
3,748,973 11.4%
3,778,505 11.7%
3,926,885 11.4%
Sales Adjusted EBITDA margin
3,732,616 11.3%
28
