Flower Foods Q1 2013 net earnings surge on acquisition related gain

US-based baking company Flower Foods has reported that its net earnings for the first quarter of 2013 increased to $113.2m, compared with $37.9m for the same period in 2012, driven by acquisition related gain.

The increase in net income was also driven by improved margins and strong double-digit sales growth as well as dollar sales and volume increases across all channels.

For the period ended 20 April 2013, net sales increased 25.8% to $1.13bn, compared with $898.2m for the corresponding period a year ago driven by increased volumes of 19.3% and contributions from the Lepage Bakeries and Sara Lee/California acquisitions of 7.7%, partially offset by unfavourable net price/mix of 1.1%.

Flower Foods stated that the results for Q1 primarily include a benefit of $0.37 per share related to a bargain purchase accounting gain on the Sara Lee/California acquisition, which was completed in February.

Flower Foods chairman and CEO George Deese said that during the quarter, the company achieved substantial sales increases in both segments, across all channels, and in its primary product categories.

"Our investments in our bakeries and our distribution systems over several decades, combined with the strength and determination of our team, allowed us to take on new business and meet the needs of existing and new customers."

"Looking ahead, we expect to have growth opportunities in our newer markets as customers and consumers gain confidence in Nature’s Own, Tastykake, and our other strong brands," Deese added.

Currently, the company is focusing on integrating Lepage Bakeries in the north-east and Sara Lee in California, while maintaining the gains it has achieved in markets throughout the country in recent months.

In February, Flower Foods completed its acquisition of the Sara Lee and Earthgrains brands for sliced breads, buns, and rolls in California from BBU.

The new business in California is being added in phases through early summer.

In April, the company entered into a term loan facility with a commitment of up to $300m to fund the pending Hostess transactions, and to pay certain acquisition-related costs and expenses.

On 11 January, Flower Foods signed two asset purchase agreements with Hostess Brands, as the ‘stalking horse bidder’ for certain Hostess assets.

The first agreement included the purchase of the Wonder, Nature’s Pride, Merita, Home Pride, and Butternut bread brands, 20 bakeries, and approximately 38 depots in a deal worth $360m.

The second agreement provided for the purchase by Flowers of the Beefsteak brand for $30m; however, the company was outbidded by Bimbo Bakeries USA.

On 23 February, Flower Foods completed the acquisition of certain assets and trademark licences from BBU, a subsidiary of Grupo Bimbo, in a deal worth $50m.

For the second quarter of 2013, the company expects strong sales and operating profits although it is experiencing start-up costs related to the integration of the Sara Lee business in California.

While the Hostess transaction is currently under regulatory review, Flower Foods has delayed its full-year guidance until the review is completed.