THIRD QUARTER 2018 REVIEW & INVESTOR OVERVIEW …€¦ · including those strategies the company...

THIRD QUARTER 2018 REVIEW& INVESTOR OVERVIEW N OVEMBER 8 , 2018

REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this press release 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 release 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, including as a result of product recalls or safety concerns related to our products, (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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THIRD QUARTER 2018 REVIEW

4

HIGHLIGHTS:

• Announced acquisition of Canyon Bakehouse, a leading producer of gluten-free bakery products

• Achieved record market share – ninth straight quarter

• Top 3 brands – Nature’s Own, Dave’s Killer Bread, Wonder – gained share

• Began operation of a high-speed bun line in Pennsylvania, announced closure of an inefficient bakery in Vermont

• Despite progress on strategic priorities, challenging environment impacted third quarter financial results and outlook

5

CANYON BAKEHOUSE ACQUISITION

An Innovative Leader in Growing Gluten-Free Category • 21 gluten-free breads, buns, bagels, English muffins, and specialty items

• Top gluten-free loaf brand in natural and specialty food stores1

• #2 brand in overall gluten-free loaf category2

• Fastest-growing gluten-free bread loaf brand in the U.S.2

Provides Entrance to New Category, Advances Strategic Plans• Creates value with addition of fast-growing brand in growing category

• Leverages Flowers’ powerful distribution network and retail partnerships to bring Canyon Bakehouse products to more consumers across the country

Transaction Details• $205M, or $175M

net future tax benefits of ~$30M

• Funded with cash on-hand and existing credit facilities

• Expected to be accretive to fiscal 2020 earnings

• Expected to close later in 4Q 2018, subject to regulatory approval and customary closing conditions

(1) SPINS Natural and Specialty Outlet Gluten Free Loaf Bread for 52 Weeks Ending 10-07-18(2) IRI Custom Database MultiOutlet + SPINS Natural and Specialty Gluten Free Loaf Bread for 12 Weeks Ending 10-07-18(3) IRI Custom Database MultiOutlet Gluten Free Fresh Packaged Bread for Fiscal Year 2015 vs 52 Week Ending 10-07-18 and SPINS Database for Fiscal Year 2015 vs 52 Week Ending 10-07-18

BY THE NUMBERS

206 Employees

165,625 sq. ft.Recently constructed bakery with two production lines

~$70M - $80MExpected FY2019 sales

~45% Generated CAGR since 2014

6.6% CAGR per year of gluten-free bread market since 2015, outperforming broader retail baked goods market3

Q3 2018 FINANCIAL REVIEW

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NET SALES $923.4M (1.0)%• Price/Mix 2.5%; Volume (3.5)%

• Volume declines from cycling prior-year hurricane activity, lower cake and foodservice; partially offset by DKB growth, new products, expansion markets, and pricing

CASH FLOWS• Cash from Ops = $83.4 million

• Capex = $25.5 million

• Dividends = $38.0 million

ADJ. EBITDA1 $97.5M• Decreased 13.2%

• 10.6% of sales, down 140bps

• Margin impacted by lower volumes and elevated input and transportation costs

DILUTED EPS $0.19ADJ. DILUTED EPS2 $0.23

• Reduced adj. EBITDA offset by lower tax rate and lower net interest expense

(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.

REVISED FY 2018 OUTLOOK ( A S O F N O V E M B E R 7 , 2 0 1 8 )

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REVENUE CHGOTHER

ADJ EPS1

Flat to +1.6%

$0.90 to $0.95

Depreciation & Amortization $145 to $150 million

Net interest expense $7 to $8 million

Effective tax rate 25.0% to 26.0%

Diluted shares outstanding ~211.0 million

Capital expenditures $95 to $105 million

GAAP EPS $0.76 to $0.81

(1) Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.

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OBJECTIVES FOR 2019 & BEYOND

• Deliver organic sales growth above categories

• Pursue accretive M&A opportunities

• Target long-term sales growth of 3% to 4%

• Execute on initiatives to realize 250bps of EBITDA margin expansion by fiscal 2021

• Achieve long-term diluted EPS CAGR of 8%-10%

• Dividend yield of 2%-3%

Taking Decisive Action to Reduce Costs, Drive Growth, and Create Shareholder Value

KEY TAKEAWAYS

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• Strong brands and a team committed to transforming the company

• Clear objectives to grow sales, expand margins, and deliver shareholder value

• Executing today with urgency on initiatives to reinvigorate the core, reduce costs to generate fuel for growth, and improve financial performance

• Positioning Flowers to deliver sustainable long-term value

INVESTOR OVERVIEW

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LEADING FRESH BAKERY BRANDS DRIVE OUR BUSINESS

Non-retail & other24%

Branded breads

49%

Branded snack cakes12%

Branded retail59%

TTM* Sales $3.9 billion

Sales Overview Brand Portfolio Highlights

* 52 weeks ended Q3 2018Source: SDW DSD + WD 52 Weeks Ending October 6, 2018

Store branded

retail15%

#1 loaf bread brand

#1 organic bread brand

98% consumer awareness

Iconic snack cakes since 1914

12

OPERATIONS OVERVIEW

47Operating Bakeries

of the U.S. population

Warehouse distribution NATIONWIDE

Channels served• Grocery / Mass• Natural & Organic• Club & Dollar, C-store• E-commerce• Foodservice & Vending

9,800 employees

5,500independent distributors

85%

Direct-store-distribution access to

Information as of year-end fiscal 2017

13

FLOWERS LONG-TERM OPPORTUNITY

1. Well-positioned in a huge category that is relevant to consumers and profitable for retailers

2. Flowers has built strong competitive advantages and has a strong platform for continued growth

3. Recognize that to drive shareholder value, Flowers must adapt to an ever-changing marketplace

Clear Strategic Priorities to Create Shareholder Value

Well-positioned to Deliver Top-tier Shareholder Returns

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COMPETITIVE POSITION

IRI Flowers custom data base Total US Multi Outlet + Convenience – 12 weeks ending October 7, 2018

#2 Baker and Growing Share

FLOWERS, 16.3

BBU, 30.1

PEPPERIDGE FARM, 6.0

INDEPENDENT BAKERS, 24.2

STORE BRAND, 23.4

FRESH PACKAGED BREADS $ SHARE

14.7

15.2

15.5

16.016.2

Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018

FLOWERS-FRESH PACKAGED BREADS

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BROAD CAPABILITIES

Strong DSD Network

• 39 bakeries serving approximately 5,500 independent distributor partners (IDPs)

• Access to approximately 85% of the U.S. population

• Ability to serve the market across fresh, frozen and refrigerated products and make products available in multiple channels

• 85% of Flowers sales

National Warehouse Platform

• Important future resource as business grows to include new sales channels and product types

Increasing Investments in Innovation, Marketing and Bakeries Can Further Differentiate Flowers’ Products and Strengthen Relationships With IDPs, Consumers, and Customers

DSD Footprint Bakeries

Information as of year-end fiscal 2017

MARKET SHARE OPPORTUNITIES BEYOND LOAF BREADS

IRI Flowers custom data base Total US Multi Outlet + Convenience – 52 weeks ending October 7, 2018

Brand extensions and M&A in adjacent segments #1 in

Traditional Loaf

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$4.0

$2.0 $1.9

$3.1

$1.6

$0.3 $0.3 $0.1

TRADITIONAL LOAF SPECIALTY/PREMIUM LOAF SANDWICH BUNS/ROLLS BREAKFAST/DINNER/OTHER

TOTAL BRANDED FLOWERS

BILL

ION

S

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UNDERDEVELOPED GEOGRAPHIES ALSO A STRATEGIC FOCUS

Mid South, South Central & Southeast

Northeast

Great Lakes & PlainsCalifornia & West

IRI Flowers custom data base 12 weeks ending October 7, 2018

Bolt-on acquisitions are a key part of our growth strategy

14.4

36.9

24.7

24.0

4.9

28.241.7

25.2

27.9

26.3

22.5

23.2

7.4

33.637.5

21.5

OTHER BRAND

STORE BRAND

BBU

FLOWERS

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FRESH BAKERY OVERVIEW

$32 Billion Fresh Bakery Market

$24.1B Retail Breads, Snack Cakes, and Tortillas(1)

$22.5 $23.2 $23.8 $24.0 $24.1

13FY 14FY 15FY 16FY 17FY

US Fresh Bakery - Retail Outlets(in billions)

(1) Data for Retail Outlets sourced from IRI. FY 2017.(2) Data for Foodservice sourced from Techonomic 2017

Large and stable market

$7.6BFoodservice(2)

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CATEGORY REVIEW

FRESH PACKAGED BREADS

Source: IRI Custom Database Total US Multi Outlet + Convenience.

1.0% 1.0%1.3%

1.0%

0.6%

-0.1% -0.2%

0.8%

-1.1%

0.8%0.6% 0.6%

1.6%1.3%

-0.5%-0.2%

-1.0%

-0.1%

-1.4%-1.2% -1.2%

-1.0%

0.2%

-1.3% -1.3%-1.1%

-0.9% -0.9%-1.2%

-3.4%

Q1 2015 Q2 2015 Q3 2 01 5 Q4 2 01 5 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018

Dollar % Sales Change Unit % Sales Change

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CATEGORY REVIEW

TOTAL CATEGORY: COMMERCIAL CAKE


6.6%7.0%

3.6% 3.6%

1.0%

1.8%

0.7%

2.0%

0.0%

0.4%

1.8% 1.9%1.7%

-0.3%-0.7%

5.6%5.2%

2.0% 2.0%

-0.3%

0.8%

-0.5%

0.5%

-1.0%-1.5%

-0.5% -0.5%-0.2%

-1.5%-1.9%

Q1 2015 Q2 2015 Q3 2 01 5 Q4 2 01 5 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018

Dollar % Sales Change Unit % Sales Change

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FLOWERS’ MARKET SHARE


15.4 15.8 16.015.2

15.9 15.9 16.2

8.3 8.1 8.0 7.8 8.1 8.0 7.8

Q1 2017 Q2 2 01 7 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018

FLO Bread $ Share FLO Cake $ Share

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ORGANICS GENERATING GROWTH

DKB IS DRIVING FLOWERS’ MARKET SHARE GAINS IN THE KEY GROWTH SEGMENT OF THE CATEGORY

TOTAL ORGANIC FRESH PACKAGED BREADS FLO DOLLAR SHARE OF TOTAL ORGANICS


$179.8 $221.1

$274.1 $356.0

$488.7 $584.6

13 FY 14 FY 15 FY 16 FY 17 FY 52 WE10/07/18

35.3 34.7 38.5 43.9

53.5 60.1

13 FY 14 FY 15 FY 16 FY 17 FY 52 WE 10/07/18

$179.8 $221.1

$274.1

$356.0

$488.7

$584.6

13 FY 14 FY 15 FY 16 FY 17 FY 52 WE10/07/18

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POSITIVE UNDERLYING CONSUMER TRENDS


Strong demand for differentiated products

Flowers organic bread share:

60.1

Organic Fresh Packaged Bread Market26.8

26.3

25.6

24.5 24.1 23.9

13 FY 14 FY 15 FY 16 FY 17 FY 52 WE10/07/18

Store Brand Fresh Packaged Breads Share

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PROJECT CENTENNIAL

IMPROVE PROFITABILITY• Generate Fuel for Growth• Develop Leading Capabilities• Promote Accountability

DRIVE GROWTH• Reinvigorate the Core• Capitalize on Adjacencies

GROW SALES

EXPAND MARGINS

DELIVER SHAREHOLDER VALUE

Strategic Priorities:

Focused on Improving Margins and Profitably Growing the Top-line

Reinvigorate core business

Capitalize on product adjacencies

Invest in capabilities

25

PROJECT CENTENNIAL VALUE CREATION PLAN

Taking Decisive Action and Working With Urgency to Drive Improvements

Reduce costs to fuel growth

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KEY SAVINGS INITIATIVES UNDERWAY

• Increased cost discipline

• Continuous improvement and network optimization programs

• Centralized purchasing to ensure best value

• Policy and specifications

Purchased Goods & Services Initiatives

Supply Chain Optimization• Initiatives to drive ongoing productivity gains

• Reduce operational complexity

• Capitalize on scale

Operate with Efficiency

Centralize Where

Appropriate

Leverage Scale Effectively

27

ENHANCED ORGANIZATIONAL STRUCTURE

• Align company to overall strategy

o Propel growth of the core business, focusing on brand investment, local relationships and reliance on fresh products delivered via DSD

• Drive accountability and responsibility

• Increase standardization and centralization

• Voluntary Separation Incentive Program enabled meaningful headcount reduction

With a Less Complex and More Focused Organizational Structure, Flowers Intends to Lower Costs and Grow a Business that is Now Operating on a National Level

Elevating the Capabilities of Our Team

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NEW STRUCTURE SUMMARY

• Two BUs: Fresh Packaged Bread and Snacking/Specialtyo Fresh Packaged Bread: Optimize profitability and support growth of core bread productso Snacking/Specialty: Drive growth in products outside the retail bread aisle

• Supported by distinct Sales, Marketing, Supply Chain and Administrative/Strategic functions

• Transition to the new structure with full implementation expected to be completed at the beginning of fiscal 2019, will use DSD and Warehouse Delivery financial reporting segments until all systems fully transitioned

• Chief Operating Officer recently appointed to drive cross-functional alignment and accountability

New Company Structure Designed to Enhance Individual Accountability and Operational Efficiency

Transition Underway to Revised Organizational Structure

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FY 2017 & 2018 SAVINGS TARGETS & CONSIDERATIONS

17FY-Act 18FY-Est

$32M

$38-48M

Offsets to 2018 Gross Savings Estimates:

• Anticipating 2018 input cost inflation of ~$40 million

• Incremental brand investments

• Inflationary pressures in commodities, labor, and freight costs

Gross Savings from PG&S, SCO, Organization Initiatives

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PROJECT CENTENNIAL ROADMAP

Targeting at least 250bps net overall EBITDA margin improvement by FY21

FY 2017-2018 FY 2019 & Beyond

FUND & DESIGNTHE FUTURE

TRANSFORM TO THE FUTURE

Focus• Generate savings• Design future organization

• Invest in growth• Leverage capabilities

Targets • Sales growth: flat to +1.6%• EBITDA margins: ~12%+

• Sales growth: 3% to 4%• EBITDA margins: ~13% to 14%

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REINVIGORATE CORE BUSINESS

Invest In Brands• Align brands to consumers

• ROI-focused investments in brand growth and innovation

Improve Execution• Streamline assortment - Fewer SKUs

o Reduced complexity• Enable Partners

o Improve business intelligence

o PartnerUp program helps independent distributor partners grow their businesses

Investing in Brands and Improving Execution to Drive Growth

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BRAND INVESTMENT FRAMEWORK

High-Potential Brands Focus on innovation and growth

• Strong consumer appeal

• Differentiated products

• Strong market potential

• High ROI from innovation and marketing investments

Innovation and marketing investments to drive growth of differentiated brands

Generating Strong Returns Through Brand Investment

Established BrandsFocus on margin and cash flow

• Provide scale

• Strengthen competitive position in the category

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OPTIMIZE ASSORTMENT

SKUs

20% of SKUs driving 80%+ of sales

• Better focus marketing investments

• Longer run times, improved efficiencies

• Enhanced margins

• Reducing the complexity of the assortment

• Closed our Winston-Salem snack cake facility in 17Q4

• Closing our Brattleboro bakery in 18Q4

Focusing on Higher-margin, Faster-turning Items

Sales by SKU

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DSD ENABLEMENT

Voluntary Feedback Program• Weekly discussions of best practices

and opportunities for business growth

Increasing Ordering Efficiency & Sales Potential• Providing IDPs with better information

and tools to improve order quality and identify sales opportunities

Strengthening Our Business Relationship with IDPs Through New PartnerUp Program

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CAPITALIZE ON PRODUCT ADJACENCIES

Diversify business into growing segments of the

bakery category

Expanding Position In High-Growth Categories

BUILD ON LEADING FOODSERVICE POSITION• Expanding share of growing specialty products

o Moving beyond loaf and buno Breakfast items and dinner rolls are opportunities

to increase share

GROW IN-STORE DELI/BAKERY• Grow specialty brands on the store perimeter

GROW IN BAKED SNACKS• Evolve cake strategy to leverage dual-brand capabilities

• Further diversify into snacking occasions

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FINANCIAL TRENDS & COST COMPONENTS

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

EBIT

DA %

of S

alesBi

llion

s

Sales Adj EBITDA Mgn**

Operating Results

* 53-week year;** Adjusted for items affecting comparability. See non-GAAP reconciliations at the end of the slide presentation.*** Includes direct labor and indirect manufacturing expenses.

Ing & Pkg28.7%

Conversion***

22.5%

Shipping/ Distribution

22.7%

SG&A and Other14.6%

Adj. EBITDA**

11.5%

Components of Adj EBITDA**% of 17FY Sales

37

CONSISTENT CASH FLOW

$217

$270

$315 $336

$357

$297

$67 $99 $84 $91 $102

$75

12FY 13FY 14FY* 15FY 16FY 17FY

Operating Cash Flow Capital Expenditures

Cash Flows, millions

Consistent Cash Flow Supports Balanced Capital Allocation Strategy

*53-week year

38

BALANCED CAPITAL ALLOCATION

$86 $93 $102 $120 $131 $141 $19 $9 $39

$7 $126 $3

$318

$416 $395

12FY 13FY 14FY* 15FY 16FY 17FY

Dividends Share Repurchases Cash for AcquisitionsCapital Allocation Principles:

• Support core business growth

• Strong dividend

• Investment grade credit rating

• Accretive acquisitions

• Opportunistic share repurchases

Capital Allocation

Focused On Consistent, Prudent Capital Allocation

*53-week year

(Amounts in millions)

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CONSERVATIVE FINANCIAL POSITION

$919

$759

$1,005 $958 $832 $825

13FY 14FY 15FY 16FY 17FY 18Q3

Since end of fiscal 2015:Reduced Total Debt &

Capital Lease Obligations by $180M

$2 $11 $7 $4

$402 $406

18FY 19FY 20FY 21FY 22FY 23FY+

Total Debt & Capital Leases

At 18Q3:Leverage ratio of 1.8X,

~$686M available liquidity on undrawn borrowing

arrangements

Total Debt & Capital Leases Aggregate Maturities, at 18Q2

Maintaining a Conservative Financial Profile(Amounts in millions)

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 maypresent 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 operating income by segment, adjusted EBIT by segment, 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 attachedprovide 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-GAAPmeasures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial informationprepared in accordance with GAAP. The company defines EBITDA as earnings from continuing operations before interest, income taxes, depreciation, amortization and incomeattributable to non-controlling interest. 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 incurand 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 EBITDAmeasures are commonly reported and widely used by investors and other interested parties as measures of a company's operating performance and debt servicing ability becauseEBITDA measures assist in comparing performance on a consistent basis without regard to depreciation or amortization, which can vary significantly depending upon accounting methodsand non-operating factors (such as historical cost). EBITDA is also a widely-accepted financial indicator of a company's ability to incur and service indebtedness. EBITDA should not beconsidered 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 financingactivities (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 beendetermined in accordance with GAAP. The company defines adjusted EBITDA, adjusted EBIT, EBITDA margin, adjusted EBITDA margin, adjusted net income, adjusted operating income,adjusted operating income by segment, adjusted EBIT by segment, adjusted EPS, adjusted income tax expense, adjusted selling, distribution and administrative expenses (SD&A),respectively, excluding the impact of asset impairment charges, Project Centennial consulting costs, lease terminations and legal settlements, acquisition-related costs, and pension plansettlements. 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. Netdebt 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 provideadditional transparent information regarding our results of operations on a consolidated and segment basis. Changes in depreciation and amortization are separately discussed andinclude depreciation and amortization for materials, supplies, labor and other production costs and operating activities. Presentation of gross margin includes depreciation andamortization in the materials, supplies, labor and other production costs according to GAAP. Our method of presenting gross margin excludes the depreciation and amortizationcomponents, as discussed above. The reconciliations attached provide reconciliations of the non-GAAP measures used in this presentation or release to the most comparable GAAPfinancial measure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

17FY 16FY 15FY 14FY 13FY 12FY 11FY 10FY 09FY 08FY 07FY 06FY 05FY 04FY

Net Income attributable to Flowers Foods, Inc. 150,120$ 163,776$ 189,191$ 175,739$ 230,894$ 136,121$ 123,428$ 137,047$ 130,297$ 119,233$ 94,615$ 81,043$ 61,231$ 50,774$ (Income)/loss from discontinued operations, net of tax - - - - - - - - - - - (6,731) 1,627 3,486 Cumulative effect of a change in accounting principle - - - - - - - - - - - 568 - - Net income attributable to noncontrolling interest - - - - - - - - 3,415 3,074 3,500 3,255 2,904 1,769 Income tax expense (benefit) (827) 85,761 103,840 92,315 91,479 72,651 68,538 73,333 74,047 67,744 54,970 45,304 39,861 35,071 Interest income, net 13,619 14,353 4,848 7,341 12,860 9,739 (2,940) (4,518) (1,426) (7,349) (8,404) (4,946) (6,337) (8,826) Depreciation and amortization 146,719 140,869 132,175 128,961 118,491 102,690 94,638 85,118 80,928 73,312 66,094 64,250 59,344 56,702

EBITDA from Continuing Operations 309,631 404,759 430,054 404,356 453,724 321,201 283,664 290,980 287,261 256,014 210,775 182,743 158,630 138,976 Asset impairment and facility closure costs/divestiture - 24,877 4,507 9,301 - - 4,414 - - - - - - - Lease termination depreciation impact (1,844) - - - - - - - - - - - - - Multi-employer pension plan withdrawal costs 18,268 - - - - - - - - - - - - - Pension plan settlement loss 4,649 6,646 - 15,387 - - - - - - - - - - Legal settlement 6,543 10,500 - - - - - - - - - - - - Project Centennial consulting costs 37,306 6,324 - - - - - - - - - - - - Restructuring and related impairment charges 104,130 - - - - - - - - - - - - - Acquisition-related costs - - 6,187 - 17,776 9,560 6,240 - - - - - - - Divestiture/Bargain purchase gain (28,875) - - - (50,071) - - - - - - - - -

Adjusted EBITDA 449,808$ 453,106$ 440,748$ 429,044$ 421,429$ 330,761$ 294,318$ 290,980$ 287,261$ 256,014$ 210,775$ 182,743$ 158,630$ 138,976$

Net Sales 3,920,733$ 3,926,885$ 3,778,505$ 3,748,973$ 3,732,616$ 3,031,124$ 2,759,367$ 2,560,787$ 2,600,849$ 2,414,892$ 2,036,674$ 1,888,654$ 1,715,869$ 1,551,308$

Adjusted EBITDA Margin 11.5% 11.5% 11.7% 11.4% 11.3% 10.9% 10.7% 11.4% 11.0% 10.6% 10.3% 9.7% 9.2% 9.0%

Flowers FoodsReconciliation of Net Income to Adjusted EBITDA

(000's omitted)

42


For the 12 Week Period Ended


October 6, 2018 October 7, 2017

Net income (loss) per diluted common share 0.19$ (0.16)$ Loss (recovery) on inferior ingredients (0.01) - Restructuring and related impairment charges NM 0.29 Project Centennial consulting costs NM 0.02 Legal settlements and lease terminations 0.04 0.01 Pension plan settlement loss NM 0.01 Adjusted net income per diluted common share 0.23$ 0.23$ NM - not meaningful.Certain amounts may not add due to rounding.

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

Reconciliation of Earnings per Share

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October 6, 2018 October 7, 2017923,449$ 932,822$ 485,680 476,264

Gross Margin excluding depreciation and amortization 437,769 456,558 Less depreciation and amortization for production activities 18,610 19,553 Gross Margin 419,159$ 437,005$

Depreciation and amortization for production activities 18,610$ 19,553$ 14,052 13,419

Total depreciation and amortization 32,662$ 32,972$


(000's omitted)

Depreciation and amortization for selling, distribution and

Materials, supplies, labor and other production costs (exclusive Sales

Reconciliation of Gross Margin

44





Net income (loss) 39,630$ (33,571)$ Income tax expense (benefit) 11,496 (22,925) Interest expense, net 1,565 2,730 Other pension cost (benefit) (171) (1,321) Pension plan settlement loss 930 3,030 Earnings before interest and income taxes 53,450 (52,057) Loss (recovery) on inferior ingredients (1,891) - Restructuring charges 497 100,549 Project Centennial consulting costs 729 7,050 Legal settlements and lease terminations 11,921 4,253 Multi-employer pension plan withdrawal costs - 18,268 Adjusted EBIT 64,706 78,063 Other pension cost (benefit) 171 1,321 Depreciation and amortization 32,662 32,972 Adjusted EBITDA 97,539$ 112,356$

Sales 923,449$ 932,822$ Adjusted EBITDA margin 10.6% 12.0%

Reconciliation of Net Income (Loss) to Adjusted EBIT and Adjusted EBITDA


(000's omitted)


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Income tax expense (benefit) 11,496$ (22,925)$ Tax impact of:

Loss (recovery) on inferior ingredients (477) - Restructuring charges 125 38,711 Project Centennial consulting costs 184 2,714

Legal settlements and lease terminations 3,010 1,638 Pension plan settlement loss 235 1,167 Multi-employer pension plan withdrawal costs - 7,033

Adjusted income tax expense 14,573$ 28,338$


Reconciliation of Income Tax Expense (Benefit) to Adjusted Income Tax Expense

(000's omitted)

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(000's omitted)




Earnings (loss) before interest and income taxes 58,819$ (20,338)$ Loss (recovery) on inferior ingredients (2,986) - Restructuring charges 289 76,625 Legal settlements and lease terminations 10,827 4,253 Multi-employer pension plan withdrawal costs - 18,268 Adjusted EBIT 66,949 78,808 Depreciation and amortization 27,676 28,286 Other pension cost (benefit) 97 99 Adjusted EBITDA 94,722$ 107,193$


Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - DSD




Earnings (loss) before interest and income taxes 5,866$ (9,082)$ Loss on inferior ingredients 1,095 - Legal settlements and lease terminations 1,094 - Restructuring charges 175 20,091 Adjusted EBIT 8,230 11,009 Depreciation and amortization 4,916 4,769 Adjusted EBITDA 13,146$ 15,778$


Reconciliation of EBIT to Adjusted EBIT and Adjusted EBITDA - Warehouse Delivery

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Trailing 52 Week Period Ended

December 30, 2017 April 21, 2018 July 14, 2018 October 6, 2018 October 6, 2018

Net income 78,533$ 51,247$ 45,442$ 39,630$ 214,852$ Income tax expense (benefit) (34,709) 18,534 4,337 11,496 (342) Interest expense, net 2,563 2,901 1,748 1,565 8,777 Depreciation and amortization 32,431 44,189 35,098 32,662 144,380 EBITDA 78,818 116,871 86,625 85,353 367,667 Project Centennial consulting costs 5,461 6,432 2,215 729 14,837 Restructuring and related impairment charges 3,581 1,259 801 497 6,138 Multi-employer pension plan withdrawal costs - 2,322 - - 2,322 Pension plan settlement loss 1,619 4,668 1,035 930 8,252 Legal settlements 1,475 1,350 8,345 11,921 23,091 Loss (recovery) on inferior ingredients - - 3,884 (1,891) 1,993 Adjusted EBITDA 90,954$ 132,902$ 102,905$ 97,539$ 424,300$


(000's omitted)

Reconciliation of Net Income to Adjusted EBITDA

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As ofOctober 6, 2018

Current maturities of long-term debt and capital lease obligations 11,286$ Long-term debt and capital lease obligations 814,090 Total debt and capital lease obligations 825,376 Less: Cash and cash equivalents 49,727 Net Debt 775,649$

Adjusted EBITDA for the Trailing Twelve Months Ended October 6, 2018 424,300$ Ratio of Net Debt to Trailing Twelve Month EBITDA 1.8

Reconciliation of Debt to Net Debt and Calculation of Net Debt to Trailing Twelve Month Adjusted EBITDA Ratio


(000's omitted)

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353,051$ 356,826$ Project Centennial consulting costs (729) (7,050) Legal settlements (11,921) (4,253)

340,401$ 345,523$

Sales 923,449$ 932,822$ Adjusted SD&A as a percent of sales 36.9% 37.0%

Adjusted selling, distribution and administrative expenses


(000's omitted)

Reconciliation of Selling, Distribution and Administrative Expenses to Adjusted SD&A

Selling, distribution and administrative expenses

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51,126$ (56,496)$ Project Centennial consulting costs 729 7,050 Loss (recovery) on inferior ingredients (1,891) -

- 18,268 Restructuring and related impairment charges 497 100,549 Pension plan settlement loss 930 3,030 Legal settlements 11,921 4,253

63,312$ 76,654$

Reconciliation of Income (Loss) Before Income Taxes to Adjusted EBT


(000's omitted)

Income (loss) before income taxes

Multi-employer pension plan withdrawal costs

Adjusted income before income taxes

THIRD QUARTER 2018 REVIEW & INVESTOR OVERVIEW …€¦ · including those strategies the company...

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