Flo-ing With Confidence
June 1, 2004
Flo-ing With Confidence
While many bakers are adjusting their product mix and struggling with the low-carb craze, Flowers Foods has taken the bull by the horns and introduced six better-for-you products under the Nature’s Own Healthline brand geared at carb-conscious consumers. Building on the success of its Wheat ‘n Fiber bread, which has 7 gm. of carbs per serving, the company introduced a Wheat ‘n Soy product in March. More recently, it rolled out a Double Fiber bread, a White ‘n Fiber bread, a Multigrain loaf, Wheat ‘n Fiber hamburger buns, Wheat ‘n Fiber hot dog buns and, soon to market, Healthline dinner rolls.
“We’re hopeful that consumers will react positively to these items as they did to Wheat ‘n Fiber,” Gene Lord, president and COO of Flowers Foods Bakeries Group, said at the company’s annual shareholders meeting in June.
The Thomasville, Ga.-based company is flowing with confidence at a time when many in the grain-based food industry have a bad case of the jitters. In fact, the company raised its guidance for consolidated sales for fiscal 2004 as well as for revenue.
Specifically, Flowers upped its consolidated sales guidance for the year from $1.475 billion on the low side and $1.5 billion on the high to $1.495 billion on the low side and $1.51 billion on the high. It lifted consolidated revenues from $55.3 million on the low side and $60 million on the high to $58.3 million on the low side and the same $60 million on the high.
Jimmy Woodward, senior vice president and chief financial officer, attributed the increase to a number of factors, including sales results in the first quarter, trends in the second quarter and a favorable outlook for the remainder of the year.
“We’re very comfortable now with the growth that we had in our various new product introductions that we will achieve these sales goals,” Woodward said.
In addition to raising guidance, Flowers’ board also raised its annual dividend by 25% from 40 cents to 50 cents per year.
George Deese, president and CEO, who was recently elected to the board, noted that the company was virtually free from debt, generating record cash flow, and outpacing the industry in sales and earnings growth.
“Our organization is right,” he said. “We have the right products, excellent brands, efficient bakeries and outstanding distribution system.”
In a review of the company, Deese noted that 73% of Flowers Foods’ total revenue comes from fresh bread, buns, and rolls while 19% is generated by fresh and frozen snack cakes and the remaining 8% comes from frozen bread and rolls.
Some 77% of sales is generated by Flowers’ independent distributor, direct-store-delivery (DSD) system while 23% of sales goes through customer warehouses. By channel, 48% of revenue comes from supermarkets, 26% from foodservice, 15% from mass merchandisers, 7% from convenience stores and 4% from vend.
“The important thing to remember is that we work to have our products available wherever consumers are buying or consuming food,” Deese said.
Flowers reported that sales of its Nature’s Own brand rose 9.7% in 2003 compared with 5.1% for the industry in that segment. First-quarter sales for Nature’s Own were up 12%. The company projects the brand will generate $370 million at retail this year.
Meanwhile, Cobblestone Mill, its premium specialty bread brand, experienced a 13% increase in sales in 2003 compared with 4.0% for the premium specialty bread segment. It’s rapidly approaching the $100 million market in annual sales at retail.
While many baking companies reported declines in white bread sales, Lord noted that Flowers is holding its own. In fact, the company reported dollar and volume increases in white bread over the last three years. In all, the company has 10 white bread brands. However, three brands, Sunbeam, Bunny and Butter Krust, account for 71% of white bread sales.
On the sweet goods side, its Mrs. Freshley’s brand grew 10.3% last year, generating some $170 million in annual sales at retail and making it the second largest company-owned brand behind Nature’s Own. Overall snack cake sales grew 11% last year, said Allan Shiver, president and COO of Flowers Foods Specialty Group.
In this impulse-driven category, the company is adding new sweet goods, including an 8-oz. pound cake, cookie dough bars, coconut créme fingers and a chocolate-covered strawberry créme cake called Strawberry Surprises.
This year, the company plans to spend about $45 million in capital expenditures. The company recently added a new donut line and packaging systems that produce 1,700 mini donuts per minute, or more than 100,000 per hour.
In its Goldboro, N.C., bakery, it replaced a 400 piece-per-minute manual roll line with a 650 buns-per-minute system and added a new sponge fermentation system. Flowers also upgraded its Montgomery, Ala., bakery and Jamestown, N.C., plant to improve capacity and allow for double-bagging capabilities.
Other projects include adding new sponge and dough makeup systems in its Norfolk, Va., and Jacksonville, Fla., bakeries. Flowers is also significantly upgrading its Batesville, Ark., plant, which it acquired from Ideal Baking in late 2002.
To provide much-needed capacity in Texas and support the company’s expansion into Oklahoma, the company is opening up a 200,000-sq.-ft. plant in Denton, Texas. The bun line will be operational in July, with additional bread and specialty lines to come later this year.
It’s also moving bakery equipment to its recently acquired McDonough, Ga., plant from its Suwanee, Ga. location, which was acquired by The Schwan Food Co. when the Marshall, Minn.-based company purchased Mrs. Smith’s Bakeries dessert business last year.
Flowers also reported that its geographic plan is on target. Over the last year, the company has expanded into new markets, including northern Virginia, northern Kentucky, southern Missouri, Oklahoma City and Washington, D.C.
IBC Hit by Rising Workers’ Comp Costs
Interstate Bakeries Corp. announced this month that it has increased its reserve for workers’ compensation during fiscal 2004 with a charge to pretax income of about $40 million. The amount represents about a 40% increase in total reserves for workers’ comp expenses.
The company, with its insurance advisors, found it necessary to increase its reserves primarily because of increases associated with workers comp claims, particularly in California, and rising healthcare costs nationwide.
IBC is currently reviewing whether all or part of the charge relates to its fourth quarter or prior quarters in fiscal 2003. If it chooses to take a charge prior to the fourth quarter, the company would be required to restate its financial statements for such prior quarters.
In other news, on May 27, the Kansas City, Mo.-based baking company, which produces Wonder, Hostess and other branded products, amended the leverage and interest coverage covenants in its senior secured credit facility to exclude the effect of the additional workers’ comp reserve. Otherwise, the company would not have been able to comply with these covenants at the end of its fiscal year 2004, which ended May 29. The financial covenants had previously been adjusted on May 7 to provide additional flexibility for the fourth quarter of 2004. During the first quarter of fiscal 2005 and thereafter, such covenants will revert to the levels that were applicable under the facility prior to the May 7 amendment.
IBC is exploring refinancing its debt or further amending its senior secured credit facility to provide additional flexibility during its fiscal 2005. However, there is no assurance that the company will be successful in obtaining such financing or amendment.
Kraft to Change Labels, not Portions
Instead of keeping its much-ballyhooed pledge to shrink the portion size of some of its products, Kraft Foods now says it will change its nutrition labeling instead to give consumers a clearer picture of how many calories and grams of sugar and fat they are consuming, according to published reports.
In a response to the obesity epidemic, Kraft vowed last year to reduce the portion sizes of its products as a part of a broader health program. After extensive consumer research, Kraft decided that it would provide total package consumption data as well as per-serving information on packages containing four servings or fewer. Greater servings and family-sized packages will contain only per-serving data. Essentially, the producer of Nabisco, Planters and other snacks is working out the math on the label for consumers.
Kraft Makes Splash With South Beach
Kraft Foods jumped head first into the low-carb waters by teaming up with the South Beach Diet group to use its trademark to appeal to consumers who are watching their intake of carbohydrates.
The Northfield, Ill.-based company said it would use the trademark on select items, but it declined to say which products would specifically carry the new label “South Beach Diet Recommended.” Terms of the deal were not disclosed.
Many industry observers believe that South Beach diet may have more staying power than the rigid Atkins regimen because it takes a more reasonable approach to cutting carbs. Although it suggests that dieters avoid white bread and processed flour, the diet, developed by cardiologist Arthur Agatston, urges consumption of whole grains. Instead of fatty steaks and bacon, it also recommends consumption of lean meats, fish, vegetables and low-fat cheeses.
At the recent Food Marketing Institute show, Kraft displayed some 70 new products, many of them aimed at cutting carbs and at other factors in the health and wellness segment. Others, like new Oreo varieties, contained no trans fats.
A spokesperson for Kraft said the company approached Agatston in its effort to find innovative new ways to make weight management easier and more enjoyable.
According to published reports, the South Beach Diet book has been on the New York Times bestseller list for more than a year. Agatston’s also published The South Beach Diet Cookbook.