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Investor PresentationNovember 2019
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, 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 presentation and that may affect the company's prospects in general include, but are not limited to, (a) general economic and business conditions and the 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) product recalls or safety concerns related to our products, 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
Information Regarding Forward-Looking Statements
Flowers Investment Highlights
3
Priorities to Drive Margins
Leading Brands in a Large and Stable
Market
Focus on Shareholder
Returns
Executing on strategies designed to manage costs, leverage data-driven insights, and reposition our company for success
Operate the #1 organic bread and loaf bread brands in Dave’s Killer Breadand Nature’s Own, respectively, and recently-acquired Canyon Bakehouse, the #1 and fastest growing gluten-free bread brand in the U.S.
Dividend paid in 69 consecutive quarters and a management team that is aligned with shareholder interests
Growth in Underdeveloped
Markets
Strategy developed to capitalize on underdeveloped regions and build share in $32-billion fresh bakery market
BusinessOverview
Business Overview
Value Creation Strategy
Financial Review & Outlook
#1 loaf bread brand
#1 organic bread brand
#1 and FASTEST GROWING gluten-free
bread brand in U.S.
98% consumer awareness
Iconic snack cakes since 1914
5
Leading Fresh Bakery Brands Drive Our Business
Non-retail & other25%
Branded Breads50%
Branded Snack Cakes10%
Branded retail59%
SALES OVERVIEW BRAND PORTFOLIO HIGHLIGHTS
* 52 weeks ended Q3 2019Source: Internal Sales Data Warehouse 52 Weeks Ending Oct 5, 2019
Store branded
retail16%
TTM* Sales
$4.1B
6
Fresh Bakery Market Overview
$23.1 $23.7 $23.9 $24.0 $24.2
$-
$5.0
$10 .0
$15 .0
$20 .0
$25 .0
$30 .0
2014 2015 2016 2017 2018
$ in Billions
Large and stable market
$32B FRESH BAKERY MARKETRETAIL & FOODSERVICE US FRESH BAKERY - RETAIL OUTLETS
$7.4BFoodservice1
1. Data for Retail Outlets sourced from IRI. FY 2018.2. Data for Foodservice sourced from Techonomic 2018
$24.2BRetail Breads,
Snack Cakes, Tortillas2
7
Improving Competitive Position
17.2% Flowers
29.3% BBU/
Sara Lee
6.1% Pepperidge
Farm
24.5% Independent
bakers
22.9% Store brands
0.5
0.4
0.6
0.5
0.4
0.9 0.9 0.9
0.8
17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2 19Q3
IRI Flowers custom data base Total US MultiOutlet – 12 weeks ended 6-Oct-2019
#2 Baker and Growing Share
FRESH PACKAGED BREADS SHARE FLOWERS MARKET SHARE CHANGE
$232.1 $257.3 $267.3
$294.1 $314.7
FY 2015 FY 2016 FY 2017 FY 2018 TTM 19Q3
8
Smart, Disciplined M&A Driving Share Gains
Organic Segment Source: Flowers Custom Database – IRi Total US Multi Outlet + C StoreGluten-free Segment Source: IRI Custom Scan Data Total US Multi Outlet + C Store combined with SPINS Total US Natural & Specialty Gourmet Channel
Capturing growth by anticipating shifting consumer preferences
TOTAL ORGANIC FRESH PACKAGED BREADS
TOTAL GLUTEN-FREE FRESH PACKAGED BREADS
$283.2
$365.0
$497.5
$613.0 $677.0
FY 2015 FY 2016 FY 2017 FY 2018 TTM 19Q3
FLO Share
63.8%FLO
Share 23.2%
$ in Millions
Underdeveloped Markets Provide Upside
9 IRI Flowers custom data base Total US Multi Outlet + Convenience – 12 weeks ending Oct 6, 2019
15.2
35.4
25.7
23.7
5.3
27.842.4
24.5
29.2
25.1
23.1
22.6
8.8
32.0
37.2
22.0
FRESH PACKAGED BREADS CATEGORY DOLLAR SHARE IN THE US
■ Flowers
■ Bimbo USA
■ Store Brands
■ Independents
Substantial room to grow share
CALIFORNIA & WEST
MID SOUTH, SOUTH CENTRAL, & SOUTHEAST
NORTHEASTGREAT LAKES & PLAINS
10
Well Positioned as E-Commerce Accelerates
$242
$365
$538
$0
$10 0
$20 0
$30 0
$40 0
$50 0
$60 0
TTM 10/8/17 TTM 10/7/18 TTM 10/6/19
Fresh Bakery E-Commerce Channel Facts:
• $538M channel, +47% YOY growth1
• E-commerce is ~4% of total fresh bread & rolls category2
• Flowers’ leading brands provide a competitive advantage in the E-commerce channel
FRESH BREAD & ROLLS E-COMMERCE CHANNEL
1. IRI Syndicated E Market Highlights, 52 weeks ended Oct 6, 20192. IRI Syndicated E Market Highlights, FLO dollar share for 13 weeks ended Oct 6, 2019
$ in Millions
Broad Scale Is a Platform for Profitable Growth
47Operating bakeries
of the U.S. population
Warehouse distribution NATIONWIDE
Channels servedGrocery / Mass
Natural & Organic
Club & Dollar, C-store
E-commerce
Foodservice & Vending
9,200 employees
5,900IDP* territories
85%
Direct-store-distribution access to
11Information as of year-end fiscal 2018* “IDP” – Independent Distributor Partners
Value CreationStrategy
Business Overview
Value Creation Strategy
Financial Review & Outlook
PRIORITIZE MARGINS
• Reduce organizational and indirect costs
• Strategic pricing
• Optimize portfolio and network
DEVELOP TEAM
• Restructure around priorities, drive execution
• Add critical capabilities to build brands, manage costs, and deliver insights
SMART M&A
• Proactive M&A in product and geographic adjacencies in the baked foods category
• Pivot portfolio to growing bakery segments
Project Centennial Defined our Strategic Priorities
13
FOCUS ON BRANDS
• Prioritize national brands
• Invest in brand growth and innovation
• Streamline product assortment
We're Delivering on the Playbook
14
HIGHLIGHTS
2017 2018 2019
TEAMDesigned new organization
and hired CMO
Stood up business units and created PG&S*,
FP&A* teams
Updated incentive compensation framework
BRANDSLaunched DKB breakfast
lineLaunched Nature’s Own
Perfectly Crafted lineNew ads for Nature’s
Own, Wonder
MARGINS~$32M gross savings primarily from lower
indirect spend
~$48M gross savings primarily from headcount
reductionStrategic pricing
M&A Created S&V* teamAcquired Canyon
BakehouseHired VP Corp Dev
* PG&S: Purchased Goods & Services, FP&A: Financial Planning & Analysis, S&V: Strategy & Ventures
New Org Structure Enables Execution on Strategic Priorities
15
Aligned with Strategy
National
Clarified Portfolio Roles
Centralized
Metrics that Matter
Predictive Analytics
Regional
LEGACY ORGANIZATION NEW WAYS OF WORKING
Locally Managed
Duplicated
Overlapping
Inconsistent
Historical Reporting
Perspective
Brand Strategies
Cost Management
Responsibilities
KPIs
Insights
Providing a foundation for the company we want to become
Innovation and Marketing Investments in Key Brands
16
Wonder Honey Buns drive in-store
displays
New media campaigns for Nature’s Own and Wonder
Power of strategic partnerships: USO/Wonder/Tastykake
Nature’s Own Perfectly Crafted driving brand share growth
Tastykake Scoop Shop innovation driving
brand growth
Dave’s Killer Bread national launch of
organic English Muffins
Canyon Bakehouse #lovebreadagain campaign encourages fans to look for
new Stay Fresh items
Prioritizing Margin with Portfolio, Network Review
17
Drive profitability with…
Orient the Portfolio to… Optimize Network for…
• High-potential brands
• Disruptive innovation
• Value-over-volume
• Strategic customers
• Underdeveloped segments
• Today’s customer trends
• National scale
• Omni-channel
• Reduced complexity
• Workforce productivity
✓ Higher brand value
✓ Improved marketing ROI
✓ Profitable volume growth
✓ Capacity utilization
✓ Distribution efficiencies
✓ More scalable cost structure
18
Pursue Smart M&A in Adjacencies
Disciplined approach to M&A to expand position and diversify in high-growth bakery categories GROW IN-STORE
BAKERY/DELI
• Grow specialty brands on the store perimeter
• Focus on platform assets that bring new capabilities
BUILD ON LEADING FOODSERVICE POSITION
• Expanding share of growing specialty products
• Leverage scale to be a strategic partner with foodservice customers
GROW BAKED SNACKS
• Evolve cake strategy to leverage dual-brand capabilities
• Further diversify into snacking
Financial Review & Outlook
Business Overview
Value Creation Strategy
Financial Review & Outlook
Project Centennial Roadmap
FY 2017 – 2018 FY 2019 & Beyond
Focus• Generate savings
• Design future organization
• Invest in growth
• Leverage capabilities
Targets• Sales growth: flat to +2%
• EBITDA margins: ~12% to 13%
• Sales growth: 3% to 4%
• EBITDA margins: ~13% to 14%
ProgressUpdate/Commentary
✓ Gross savings of $80M
✓ New org structure in place
✓ Sales growth on-target
× Margins impacted byinflationary headwinds
• Sales growth from DKB, Canyon, strategic pricing
• Margin targets pressured by product mix, soft volumes, inflation, competitive environment
• Margin target timeline extended beyond 2021, enabled by multi-year portfolio and network optimization initiatives
20
Financial Progress Impacted by Inflationary Pressures
21
Taking action to:
• Rationalize pricing
• Reduce stales & scrap
• Improve efficiencies
• Build a career-focused team
• Prioritize value over volume
• Address network complexity
% CHANGE: YE16 THROUGH 19Q3-TTM
4.1%
6.2%
8.3%
11.0%
2.4%
-3.3%
-6.8%-7.0%
-5.0%
-3.0%
-1.0%
1.0 %
3.0 %
5.0 %
7.0 %
9.0 %
11. 0%
13. 0%
✓ Delivered topline target ✓ Leveraged
indirect costs
* Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
22
Track Record of Growing Free Cash Flow & Dividends
* Cash provided by operating activities less purchase of plant, property, and equipment. See non-GAAP reconciliations at the end of this slide presentation.Note: FY03, FY08, FY14 were 53 weeks.
$-
$50
$100
$150
$200
$250
$300
Free Cash Flow* Dividends Paid
Strong free cash flow growth supports investments in the business, M&A strategy and capital returns
$ in Millions
FREE CASH FLOW AND DIVIDEND GROWTH
Top Line Drivers
• Market share gains
• Strategic acquisitions
Cash Flow Drivers
• Growing sales
• Focus on cash margins
• Predictable capex
Balanced Capital Allocation
23 *53-week year
Capital Allocation Principles:
• Capex to support core business growth
• Maintain investment grade credit rating
• Support strong dividend
• Smart, disciplined acquisitions
• Opportunistic share repurchases
$102 $120 $131 $141 $150 $158
$39 $7 $126 $3 $2 $7
$395
$200 $200
14FY* 15FY 16FY 17FY 18FY TTM 19Q3
Dividends Share Repurchases Cash for Acquisitions
$ in Millions
CAPITAL ALLOCATION
24
Investment-Grade Credit Rating Commitment
MAINTAINING FLEXIBILITY TO CAPITALIZE ON VALUE-CREATING OPPORTUNITIES
$984 $928
$805
$980 $878
15FY 16FY 17FY 18FY 19Q3
Total Debt (ex-lease liabilities)
Track-record of debt reduction following acquisitions
Aggregate Maturities* at 19Q3
At 19Q3, leverage ratio of 2.1X, ~$610M available liquidity on undrawn borrowing arrangements
*Maturities exclude unamortized debt discount and issuance costs
$- $4
$70
$410
$-
$400
Rem/19FY 20FY 21FY 22FY 23FY 24FY+
(Amounts in millions)
Q3 2019 Financial Review
25
NET SALES $966.6M +4.7% v PY
• Canyon acquisition +2.2%
• Price/Mix +2.1%; Volume +0.4%
• Growth from DKB, new products and pricing, offset by volume declines in non-retail & cake
CASH FLOWS - YTD
• Cash from Ops = $278.1 million
• Capex = $70.6 million
• Dividends = $119.8 million
• Debt paydown = $102.5 million
NET INCOME $43.4M +9.4% v PY
ADJ. EBITDA1 $95.1M -2.3% v PY
• Adj. EBITDA was 9.8% of sales, down 70 bps
• Adj. EBITDA decreased primarily due to higher workforce-related costs and marketing expenses
GAAP DILUTED EPS $0.20 +$0.01 v PY
ADJ. DILUTED EPS2 $0.22 -$0.01 v PY• GAAP EPS increased primarily due to lower
legal settlements, adj. EPS decreased primarily due to lower adj. EBITDA
(1) Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
(2) Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
FY 2019 Outlook (Revised November 6, 2019)
261. Canyon Bakehouse expected to contribute 1.8% to 2.0% of overall sales growth.2. Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Factors Affecting Outlook:
• Category volume elasticities
• Commodity market volatility may affect promotional environment
• Labor markets remain tight with higher wages
• Higher bakery workforce turnover is driving reduced manufacturing efficiencies
• Freight costs remain elevated
REVENUE CHG(1) GAAP EPS: $0.93 to $0.98
ADJ(2) EPS: $0.94 to $0.99
OTHER
+4.0% to +4.5%
Depreciation & amortization —$145 to $150 million
Other pension expense —$2.5 to $3.0 million
Net interest expense —$11 to $12 million
Effective tax rate —23.0% to 23.5%
Diluted shares outstanding —Approx. 212.0 million
Capital expenditures —$100 to $110 million
27
Our VisionAs America’s premier baker, we craft foods that make people smile. We are driven by a passion to boldly grow our business through inspiring leadership, teamwork, and creativity.
Today
1919
1968
1968 to 2018
One family-owned bakery in Thomasville, GA
More than 100 acquisitions
Listed publicly as FLO
Proudly Celebrating 100 Years!
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 statements, press releases and SEC filings, non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A), gross margin excluding depreciation and amortization and the ratio of net debt to adjusted EBITDA. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure. The company’s definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP. The company defines EBIT as earnings before interest and taxes and EBITDA as earnings before interest, taxes, depreciation and amortization. The company believes that EBITDA is a useful tool for managing the operations of its business and is an indicator of the company's ability to incur and service indebtedness and generate free cash flow. EBITDA is used as the primary performance measure in the company's 2014 Omnibus Equity and Incentive Compensation Plan. 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. 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. The company defines adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income, adjusted EPS, adjusted income tax expense, adjusted SD&A expenses, respectively, excluding the impact of asset impairment charges, Project Centennial consulting costs, lease terminations and legal settlements, acquisition-related costs, and pension plan settlements. Adjusted EBIT and adjusted EBITDA also exclude other components of net periodic pension and postretirement benefits expense (credit). Adjusted income tax expense also excludes the impact of tax reform. The company believes that these measures, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of certain charges. The ratio of debt to EBITDA is used as a measure of financial leverage employed by the company. 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 in accordance with GAAP. Our method of presenting gross margin excludes the depreciation and amortization components, as discussed above. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAP financial measure.
28
Reconciliation of Non-GAAP Financial Measures
29
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
52 Week Period
Ended
December 29, 2018 April 20, 2019 July 13, 2019 October 5, 2019 October 5, 2019 December 31, 2016
Net income 20,841$ 65,866$ 53,095$ 43,358$ 183,160$ 163,776$
Income tax expense 5,634 20,199 15,951 12,442 54,226 85,761
Interest expense, net 1,717 3,824 2,769 2,334 10,644 14,353
Depreciation and amortization 32,175 44,819 33,329 33,196 143,519 140,869
EBITDA 60,367 134,708 105,144 91,330 391,549 404,759
Other pension cost (benefit) 675 692 519 518 2,404 (5,638)
Pension plan settlement loss 1,148 - - - 1,148 6,646
Project Centennial consulting costs 347 - - - 347 6,324
Acquisition-related costs 4,476 22 - - 4,498 -
Restructuring and related impairment charges 7,210 718 2,047 3,277 13,252 -
Impairment of assets 3,516 - - - 3,516 24,877
Legal settlements (recovery) (164) 150 (1,286) - (1,300) 10,500
Executive retirement agreement - 1,331 (568) - 763 -
Loss (recovery) on inferior ingredients 1,219 (413) - - 806 -
Adjusted EBITDA 78,794$ 137,208$ 105,856$ 95,125$ 416,983$ 447,468$
Adjusted EBITDA % change 52 weeks ended
10/5/2019 vs. 52 weeks ended 12/31/2016 -6.8%
Reconciliation of Net Income to Adjusted EBITDA
Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(000's omitted)
Reconciliation of Non-GAAP Financial Measures
30
Net income per diluted common share 0.93$ to 0.98$
(Recovery) loss on inferior ingredients NM NM
Restructuring and related impairment charges 0.02 0.02
Legal settlements (recovery) NM NM
Executive retirement agreement NM NM
Canyon acquisition costs NM NM
Adjusted net income per diluted common share 0.94$ to 0.99$
NM - not meaningful.
Certain amounts may not add due to rounding.
Range Estimate
Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
Reconciliation of Earnings per Share - Full Year Fiscal 2019 Guidance
As of
October 5, 2019
Current maturities of long-term debt 3,714$
Long-term debt 874,284
Total debt 877,998
Less: Cash and cash equivalents 6,968
Net Debt 871,030$
Adjusted EBITDA for the Trailing Twelve Months Ended Oct 5, 2019 416,983$
Ratio of Net Debt to Trailing Twelve Month EBITDA 2.1
Reconciliation of Debt to Net Debt and Calculation of Net
Debt to Trailing Twelve Month Adjusted EBITDA Ratio
Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(000's omitted)
Reconciliation of Non-GAAP Financial Measures
31
Time Period
Cash Provided by
Operating
Activities
Purchase of Plant,
Property and
Equipment Free Cash Flow
3Q19 TTM 341,934$ 95,040$ 246,894$
FY18 295,893 99,422 196,471
FY17 297,389 75,232 222,157
FY16 356,562 101,727 254,835
FY15 335,674 90,773 244,901
FY14 315,183 83,778 231,405
FY13 270,484 99,181 171,303
FY12 216,880 67,259 149,621
FY11 134,290 79,162 55,128
FY10 306,050 98,404 207,646
FY09 236,009 72,093 163,916
FY08 94,872 86,861 8,011
FY07 214,598 88,125 126,473
FY06 151,276 61,792 89,484
FY05 113,979 58,846 55,133
FY04 123,068 46,029 77,039
FY03 87,989$ 43,618$ 44,371$
* Cash provided by operating activities less purchase of plant, property and equipment.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow*
Flowers Foods, Inc.
Reconciliation of GAAP to Non-GAAP Measures
(000's omitted)