Regarding Forward-looking statements/media/Files/F/Flowers... · 2019-09-04 · Statements contained in this presentation that are not historical facts are forward-looking statements

Investor BriefingBARCLAYS GLOBAL CONSUMER STAPLES CONFERENCESEPTEMBER 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.

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Regarding Forward-Looking Statements

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Presenters and Agenda

Ryals McMullianPresident & Chief Executive Officer

Steve KinseyChief Financial Officer & Chief Administrative Officer

Business Overview & Strategic Priorities

Financial Review & Outlook

Flowers Investment Highlights

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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 and recently-acquired Canyon Bakehouse, the fastest growing gluten-free bread brand in the U.S.

Dividend paid in 68 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


#1 loaf bread brand

#1 organic bread brand

#2 and FASTEST GROWING gluten-free bread brand in U.S.

98% consumer awareness

Iconic snack cakes since 1914

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Leading Fresh Bakery Brands Drive Our Business

Non-retail & other25%

Branded Breads49%

Branded Snack Cakes10%

Branded retail59%

SALES OVERVIEW BRAND PORTFOLIO HIGHLIGHTS

* 52 weeks ended Q2 2019Source: Internal Sales Data Warehouse 52 Weeks Ending July 13, 2019

Store branded

retail16%

TTM* Sales

$4.0B

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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

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Improving Competitive Position

17.0% Flowers

28.8% BBU/

Sara Lee

6.0% Pepperidge

Farm

24.6% Independent

bakers

23.6% Store brands

0.3

0.5

0.4

0.6

0.5

0.4

0.8

0.9 0.9

17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 19Q1 19Q2

IRI Flowers custom data base Total US MultiOutlet – 12 weeks ended 14-Jul-2019

#2 Baker and Growing Share

FRESH PACKAGED BREADS SHARE FLOWERS MARKET SHARE CHANGE

$232.1 $257.3 $267.3

$294.1 $307.3

FY 2015 FY 2016 FY 2017 FY 2018 TTM 19Q2

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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

$274.3

$355.5

$488.0

$604.1 $651.2

FY 2015 FY 2016 FY 2017 FY 2018 TTM 19Q2

FLO Share 63.6% FLO

Share 20.9%

$ in Millions

Underdeveloped Markets Provide Upside

10 IRI Flowers custom data base Total US Multi Outlet + Convenience – 12 weeks ending July 14, 2019

13.7

37.0

24.5

24.8

4.7

27.141.8

26.4

28.2

25.6

22.1

24.1

7.2

32.3

37.8

22.7

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

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Well Positioned as E-Commerce Accelerates

$211.4 $246.6

$326.8

$518.9

$-

$10 0.0

$20 0.0

$30 0.0

$40 0.0

$50 0.0

$60 0.0

TTM 7/3/16 TTM 7/2/17 TTM 7/1/18 TTM 6/30/19

Fresh Bakery E-Commerce Channel Facts:

• $518.9M channel, +59% 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 6/30/20192. IRI Syndicated E Market Highlights, FLO dollar share for 13 weeks ended 6/30/2019

$ in Millions

Broad Scale Is a Platform for Profitable Growth

47Operating bakeries

of the U.S. population

Warehouse distribution NATIONWIDE

Channels servedGrocery / MassNatural & OrganicClub & Dollar, C-storeE-commerceFoodservice & Vending

9,200 employees

5,900IDP* territories

85%

Direct-store-distribution access to

12Information as of year-end fiscal 2018* “IDP” – Independent Distributor Partners

Value CreationStrategy

Business Overview



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

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FOCUS ON BRANDS• Prioritize national brands

• Invest in brand growth and innovation

• Streamline product assortment

We're Delivering on the Playbook

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HIGHLIGHTS2017 2018 2019

TEAM Designed new organization and hired CMO

Stood up business units and created PG&S*,

FP&A* teams

Updated incentive comp framework

BRANDS Launched DKB breakfast line

Launched Nature’s Own Perfectly Crafted line

New 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* team Acquired Canyon Bakehouse Hired 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

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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

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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

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Nature’s Own & Wonder Creative Campaigns

Prioritizing Margin with Portfolio, Network Review

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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

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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


Business Overview



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

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Financial Progress Impacted by Inflationary Pressures

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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 19Q2TTM

3.0%

5.3%6.7%

11.0%

0.5%

-6.3%-7.0%

-5.0%

-3.0%

-1.0%

1.0 %

3.0 %

5.0 %

7.0 %

9.0 %

11. 0%

13. 0%

Sales Ingredients &Packaging

ProductionLabor

Shipping &Transportation

Indirect &Other

Adj EBITDA*

Delivered topline target Leveraged

indirect costs

* Income from operations adjusted for depreciation, amortization, and matters affecting comparability. See non-GAAP reconciliations in the appendix.

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Track Record of Growing Free Cash Flow & Dividends

* Operating Cash flow minus Capital Expenditures, see non-GAAP reconciliations in the appendix.Note: FY03, FY08, FY14 were 53 weeks.

$-

$50

$100

$150

$200

$250

$300Free Cash Flow* Dividends Paid

Strong free cash flow growth supports investments in the business, M&A strategy and capital returns

$ in Millions

FREE CASH FLOWS 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

25 *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 $156

$39 $7 $126 $3 $2 $7

$395

$200 $200

14FY* 15FY 16FY 17FY 18FY TTM 19Q2

Dividends Share Repurchases Cash for Acquisitions

$ in Millions

CAPITAL ALLOCATION

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Investment-Grade Credit Rating Commitment

MAINTAINING FLEXIBILITY TO CAPITALIZE ON VALUE-CREATING OPPORTUNITIES

$984 $928

$805

$980 $893

15FY 16FY 17FY 18FY 19Q2

Total Debt (ex-lease liabilities)

Track-record of debt reduction following acquisitions

Aggregate Maturities at 19Q2 (Maturities)*

At 19Q2, leverage ratio of 2.1X, ~$587M available liquidity on undrawn borrowing arrangements

*Maturities exclude unamortized debt discount and issuance costs

$1 $38

$-

$460

$-

$400

Rem/19FY 20FY 21FY 22FY 23FY 24FY+

(Amounts in millions)

FY 2019 Outlook (Revised August 7, 2019)

271. Canyon Bakehouse expected to contribute 1.8% to 2.0% of overall sales growth.2. Adjusted for matters affecting comparability. See non-GAAP reconciliations in the appendix.

Back-Half Considerations:

• 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) ADJ EPS(2)

OTHER

+2.0% to +4.0% $0.94 to $0.99

Depreciation & amortization —$150 to $155 million

Other pension expense —Approx. $3 million

Net interest expense —Approx. $12 million

Effective tax rate —24.0% to 25.0%

Diluted shares outstanding —Approx. 212.0 million

Capital expenditures —$110 to $120 million

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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!

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, but not limited to: EBITDA; EBITDA margin; gross margin excluding depreciation and amortization; adjusted EBITDA; adjusted EBITDA margin; adjusted net income; adjusted operating income (or adjusted EBIT); adjusted earnings per share; adjusted income tax expense; adjusted selling, distribution and administrative expenses (SD&A); and ratio of net debt to adjusted EBITDA. The reconciliations attached provide reconciliations of the non-GAAP financial measures used in this presentation to the most comparable GAAP financial measure. The company’s definitions of these non-GAAP financial measures may differ from similarly titled measures used by others. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP. The company defines EBITDA as income from operations adjusted for 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 the company’s credit facility, EBITDA is used to determine the company's compliance with certain financial covenants. The company also believes that EBITDA is commonly reported and widely used by investors and other interested parties as a measure of a company's operating performance and debt servicing ability because EBITDA assists 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 should not be considered an alternative to (a) income from operations or net income (loss) as a measure of the company’s operating performance, (b) cash flows provided by (disbursed for) 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’s non-GAAP financial measures generally exclude the impact of certain matters affecting comparability. The company believes that these non-GAAP financial measures, when considered together with its GAAP financial results, provide management, investors and other interested parties with a more complete understanding of its business, financial condition and results of operations, including underlying trends, by excluding the impact of certain matters affecting comparability.

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Reconciliation of Non-GAAP Financial Measures

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For the 12 Week Period Ended




Trailing 52 Week Period Ended

52 Week Period Ended

October 6, 2018 December 29, 2018 April 20, 2019 July 13, 2019 July 13, 2019 December 31, 2016

Net income 39,630$ 20,841$ 65,866$ 53,095$ 179,432$ 163,776$ Income tax expense 11,496 5,634 20,199 15,951 53,280 85,761 Interest expense, net 1,565 1,717 3,824 2,769 9,875 14,353 Other pension cost (benefit) (171) 675 692 519 1,715 (5,638) Pension plan settlement loss 930 1,148 - - 2,078 6,646 Project Centennial consulting costs 729 347 - - 1,076 6,324 Acquisition-related costs - 4,476 22 - 4,498 - Restructuring and related impairment charges 497 7,210 718 2,047 10,472 - Impairment of assets - 3,516 - - 3,516 24,877 Depreciation and amortization 32,662 32,175 44,819 33,329 142,985 140,869 Legal settlements (recovery) 11,921 (164) 150 (1,286) 10,621 10,500 Executive retirement agreement - - 1,331 (568) 763 - Loss (recovery) on inferior ingredients (1,891) 1,219 (413) - (1,085) - Adjusted EBITDA 97,368$ 78,794$ 137,208$ 105,856$ 419,226$ 447,468$

Adjusted EBITDA % change 52 weeks ended 7/13/2019 vs. 52 weeks ended 12/31/2016 -6.3%

Reconciliation of Net Income to Adjusted EBITDA

Flowers Foods, Inc.Reconciliation of GAAP to Non-GAAP Measures

(000's omitted)


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As ofJuly 13, 2019

Current maturities of long-term debt 4,942$ Long-term debt 888,541 Total debt 893,483 Less: Cash and cash equivalents 9,769 Net Debt 883,714$

Adjusted EBITDA for the Trailing Twelve Months Ended July 13, 2019 419,226$ 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)


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Documents

Regarding Forward-looking statements/media/Files/F/Flowers... · 2019-09-04 · Statements contained in this presentation that are not historical facts are forward-looking statements