Speaking to analysts about Flowers Foods’ first quarter results yesterday, chief executive George Deese noted that a decade ago, there were eight major baking companies in the US, while today there are “roughly three [Bimbo, Flowers and Hostess] plus Pepperidge Farm”.
The consolidation of the baking industry will continue
And Georgia-based Flowers - which has just completed a $400m bond offering to raise funds for “future acquisitions, general corporate purposes and working capital” - is on the acquisition trail, he said.
“The industry will continue consolidating, and I don’t know anybody in a better position to take advantage of these opportunities than Flowers today. So we are optimistic.”
His comments came as bankrupt Twinkie maker Hostess Brands told reporters it was in "active negotiations with our unions and bidders".
While Deese did not respond to questions on Hostess during the call, analysts believe Flowers, Grupo Bimbo (which some observers say still has its hands full integrating Sara Lee’s fresh bakery business) and private equity firms are all potential suitors.
Margins at historical lows
Bakers are facing significant challenges at the moment, acknowledged Deese, with punishing rises in input costs coupled with weak consumer confidence pushing margins to “historical lows”.
But he added: “I don’t believe we’ll stay there forever.”
Flowers, which posted a 12% rise in sales to $898.2m in the 16 weeks to April 21 driven by the Tasty acquisition, higher prices and volume gains in foodservice and contract manufacturing, blamed higher input costs for an 8% drop in net income over the same period to $37.9m.
Headwinds from our input costs
Deese added: “Headwinds from our input costs [mainly flour, shortening, oil, sugar] were a significant factor that impacted the bottom line and put pressure on our margins.”
Consumers, meanwhile, were “still under pressure”, he said.
“They’re not making probably the impulse purchases that maybe they did in the past; but on the other side, we’re seeing those expensive retailers that are targeting an upper end consumer, we’re seeing those retailers doing very well.”
Flowers has snapped up more than 100 companies since going public in 1968, most recently acquiring snack cake maker Tasty Baking Co in a $165m deal struck last year.
The firm operates 41 bakeries supplying fresh products to foodservice and retail customers in the Southeastern, Southwestern, and mid-Atlantic states, and frozen products to national foodservice and retail customers.
Its top brands include Nature's Own, Whitewheat, Cobblestone Mill, Tastykake, Mrs. Freshley's, European Bakers, BlueBird, and Mi Casa.