Investor Update August 7, 2020 We Welcome Welcome Strategic - - PowerPoint PPT Presentation
Investor Update August 7, 2020 We Welcome Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Marketing & Innovation Strategy Brand Portfolio Strategy J.T. Rieck Acquisition Strategy Senior Vice President,
August 7, 2020
We Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Marketing & Innovation Strategy Brand Portfolio Strategy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
Senior Vice President, Finance & Investor Relations
3
Regarding Forward-Looking Statements
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 and the ultimate impact of the novel strain of coronavirus (COVID-19) pandemic on our business, results of operations and financial condition, 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) the ultimate impact of the COVID-19 pandemic and measures taken in response thereto, including, among other things, temporary or ongoing bakery closures, on our business, results of operations and financial condition, which are highly uncertain and are difficult to predict, (b) general economic and business conditions and the competitive conditions in the baked foods industry, including promotional and price competition, (c) 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, (d) the success of productivity improvements and new product introductions, (e) a significant reduction in business with any of our major customers including a reduction from adverse developments in any of our customer's business, (f) fluctuations in commodity pricing, (g) energy and raw material costs and availability and hedging and counterparty risk, (h) our ability to fully integrate recent acquisitions into our business, (i) our ability to achieve cash flow from capital expenditures and acquisitions and the availability of new acquisitions that build shareholder value, (j) 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
ruling from a court or regulatory or government body that could affect the independent contractor classification of our independent distributors, (m) increasing legal complexity and legal proceedings that we are or may become subject to, (n) product recalls or safety concerns related to our products, and (o) 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
Welcome Strateg egic ic P Prio iorit itie ies Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
President & Chief Executive Officer
5
Today’s Agenda
Strategic Priorities
Ryals McMullian | President & Chief Executive Officer
Growth Imperatives & Supply Chain Optimization
Brad Alexander | Chief Operating Officer
Driving Brand Relevance
Debo Mukherjee | Chief Marketing Officer
Brand Portfolio Strategy
Mark Courtney | Chief Brand Officer
Acquisition Strategy
Mark Gerrish | Vice President, Corporate Development
Financial Review & Capital Allocation
Steve Kinsey | Chief Financial Officer & Chief Accounting Officer
Question & Answer Session
Executive Management Team
AGENDA
Flowers Team – Meeting Unprecedented Challenges
6
Q2 2020 Financial Highlights
7
$106 $129
$0 $20 $40 $60 $80 $100 $120 $140Q2'19 Q2'20
12.5% Margin 10.8% Margin
+2 +21%
GROWTH
+5 +5.1%
GROWTH
COMPONENT NTS OF Q2’20 S SALES G GROWTH ( (MILLIONS) ADJUSTED TED E EBITD TDA ( (MILLIONS) S)1
(1) Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Strong Foundation and Clear Path Forward
8
Leader in Large and Attractive Categories
Operate the #1 loaf, organic, and gluten-free bread brands; gaining share in stable categories throughout the economic cycle
Leading Brands to Drive Growth
Brand-focused portfolio strategy drives above-market growth via innovation, improved brand presence and relevance, and M&A
Significant Margin Expansion Opportunity
Portfolio and supply chain optimization targeting improved price realization, cost containment, and data-driven insights to expand margins
Consistent Capital Allocation Maximizes Returns
Dividend paid in 71 consecutive quarters, opportunistic share repurchases, strong track record of generating value through M&A
Strategic Priorities Aligned to Long-term Growth Targets
9
DEVEL ELOP T P TEAM AM
Capabilities to build brands and create value
PRIOR ORITIZE M MARGINS
Optimize portfolio and supply chain
SMA MART M& M&A
Proactive M&A in the grain-based foods arena
FOCUS O ON BRAN ANDS
Enhance relevancy and expand presence
Enhanced Organizational Structure
10
and prioritizing brand-building investments
and prioritize a more profitable product mix
Better prioritizing brand building, cake turnaround, and foodservice profitability
Growing Sales with Iconic Brands
11
and marketing
FL FLOWERS’ BRA RANDED PR PRODUCTS D DRI RIVIN ING T TOP P LINE
CAGR
5.7%
$2.2B $1.6B $2.7B
$1.6B
Branded Sales Non-branded Sales
FY - 15 LTM - 20 ¹
CAGR
5.3%
(1) 52 weeks ended Q2 2020 (2) Internal Sales Data Warehouse 52 Weeks Ending July 11, 2020
14 18
Flowers' Share ²
Portfolio Strategy Drives Margins
12
Branded Retail
$2.718B
Store Branded Retail
$627M
Non-Retail & Other
$915M
Recent results demonstrate impact of shift to branded retail
SALES MIX1
to drive margin expansion
profitable product mix
to grow branded retail business
(1) 52 weeks ended Q2 2020
Total sales up 5.3% y/y; branded retail up 12.5% y/y
Prioritizing Margins with Supply Chain Optimization
13
DISTRIBUTION AND NETWORK BAKERY OPERATIONS PROCUREMENT OVERHEAD EXPENSES
to four-day delivery
bakery
run times
site line machines
centralized buying
strategically
implementing maintenance and measurement processes
procedures
Reducing fixed costs, enhancing
Smart M&A
14
and highly strategic M&A
brands in grain-based foods beyond fresh packaged bread
expansion of growth and core brands
IRI Flowers custom data base Total US MultiOutlet – 52 weeks ended 19-Apr-2020
Track record of strategic growth investments
Fresh Packaged Breads $15B
Other Grain-Based Categories $53B
$68B GRAIN-BASED FOOD UNIVERSE
Long-term Growth Targets1
Strategic Priorities Drive Long-term Growth
15
DEVEL ELOP T P TEAM AM PRIOR ORITIZE M MARGINS SMA MART M& M&A FOCUS O ON BRAN ANDS
SALES
(1) Sales and adjusted EBITDA targets reflect organic business growth; adjusted EPS target includes the potential impact of future M&A and share repurchases. (2) Earnings before interest, taxes, depreciation & amortization (EBITDA), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation. (3) Earnings per share (EPS), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Welcome Strategic Priorities Growth I Impe perativ ives & & Supply pply C Cha hain in Opt ptim imiz izatio ion Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
Chief Operating Officer
17
Potential of optimized portfolio, supply chain Organization is aligned around the fundamentals
Portfolio strategy informs supply chain
Key Takeaways
Q2 Illustrates Potential of Optimized Portfolio, Supply Chain
67%
14% 19% Significant margin increase as branded retail business grew to a larger percentage of sales Combining right portfolio mix with improved bakery network enhances margins Accelerating optimization to deliver margin expansion
Strong Q2 results show effect initiatives could have on our longer-term results
SALES MIX 60%
17% 23%
Branded Retail Store-branded Retail Non-retail & Other
Q2 2020 Q2 2019
Q2 2019 ADJUSTED EBITDA MARGIN1
10.8%
Q2 2020 ADJUSTED EBITDA MARGIN1
12.5%
18
(1) Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Executing Against Operational Priorities
19
FOCUS ON BRANDS
Enhance relevancy and expand presence
innovation and marketing to generate awareness, drive trial and repeat
strategy designed to opportunistically grow share TAR ARGET S T SALES G GROWTH TH = 1-2% 2%
PRIORITIZE MARGINS
Optimize portfolio and supply chain
chain optimization initiatives
margin products, reducing network complexity, enhancing product profitability TARG RGET A
EBITDA1 GROWT OWTH = = 4-6% 6%
(1) Earnings before interest, taxes, depreciation & amortization, adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Leveraging Flexibility
20
DEPOT OT MARK RKETPL PLACE Branded retail Foodservice
Flexible fixed asset base can produce and distribute product for any market
IDP DP BAKE KERY
HOW WE GO TO MARKET VERSATILITY TO MEET CHANGING DEMAND
Store branded retail
Optimizing Network to Prioritize Margins
21
Portfolio strategy determines targeted brands and segments
Optimize and reallocate capacity to increase network utilization
Repurposed two bakeries to meet growing DKB demand
Network Consolidation
22
Lower cost to serve market Fewer transport miles Additional network capacity BEN ENEFIT ITS
BAKER KERY DEPOT OT MARKET ET
PRE PREVIO IOUS TODAY AY
Increasing Product Profitability
23
increasing realized capacity
Realiz lized ~13 130 h hours s per er w week eek
in additional capacity, equivalent to an additional bakery
STALE RE REDU DUCTION
Shifting Mix to Enhance Profitability
24
Resulting i g in
higher mix of branded retail products and mor
more p prof
itab able le mi mix of store
branded and foodservice business
Be more s e selec ecti tive e about type and quality
we a accep ept Reduce p percen entage o e of s store b e branded ed
and foodservice products: Allows us to negotiate better pricing terms on the business we keep …
Increa easing p g producti tion of branded
retail means we can …
&
Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Driv iving ing B Brand R d Rele levanc nce Brand Portfolio Strategy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
Chief Marketing Officer
Key Takeaways
26
Attractive category with high penetration and frequency Relevance ensures
resonate with consumers Foundational consumer research informs marketing and innovation strategy Digital capabilities / digital shelf
RELE LEVANCE CE PRESENCE GROW OWTH
Fundamentals Stand Out Among Grocery Categories
27
11.2 11.4 11.6 11.8 12.0 12.2 12.4
40.0 60.0 80.0 100.0 7/16/17 11/5/17 2/25/18 6/17/18 10/7/18 1/27/19 5/19/19 9/8/19 12/29/19 % HH Buying Purchase Cycle - Xactions Avg
(1) Willard Bishop SuperStudy 2019 (2) Total US: IRI Panel Data 3/1/20, Rolling 13-week periods (3) Total US: IRI Multi Outlet, Quarterly Results
BR BRANDED CA CATEGORY S SHA HARE3
$1.38 $2.91 $5.26 $5.87 $- $2.0 $4.0 $6.0 Store Brand Nature's Own DKB Canyon
TOTAL U US BR BREAD CA CATEGORY HO HOUSEHOLD LD P PENE NETRATI TION & PURCHA HASE CYCLE F FREQUENCY CY ( (DA DAYS)2 ATTR TRACTI CTIVE BR BRAND E ECONO NOMICS
75.3% 75.6% 76.3% 79.9%
2Q17 2Q18 2Q19 2Q20
Creating Brand Relevance
28
ANNUALIZED OPPORTUNITY
>$350M
Releva vance
Repeat (loyalists) Trial Aided and Unaided Awareness Brand Positioning & Messaging
Targeting brand benefits to meet consumer desires Delivering advertising via media mix to create awareness Converting awareness to trial and repeat
Consumer Insight-Driven Messaging to Create Brand Relevance
29
INSPIRING CHILDLIKE WONDER BAKING HAPPY AND HEALTHY INTO EVERY HOME
Developing relevant brand positioning through a deep understanding
and needs Messaging reflects the consumers’ desire for functional and emotional benefits
Consumer Messaging Brand Strategy
Reaching the consumer though relevance
Brand Architecture
Vision, positioning, personality
Foundational Research
Unlocking the consumers’ minds and needs
Focus on Consumer Needs
30
At the he i intersectio ion o
h Consumer Seg egment a and Need Need S State:
and the brand’s share of occasions.
for the need and balancing the portfolio approach
Size Share Fit Portfolio
ACTIV TIVE INFLUENCERS BUSY SY BUDGETERS RS BREAD AVOIDERS RS HEA EALTH ESTABLISHE HED FUNCTIO TIONAL EATERS RS
TRADIT ITION IONAL CON ONNECTION ION HEA EALTHIER ER CHOIC OICES QUIC ICK A K AND SIMPLE LE HUNGER ER RELIEF EF CO COMF MFORT AND ND B BOND NDING NG PERSONAL L INDU DULGE GENCE BITE TES O S OF ADVENT NTURE
Building Awareness Is Vital
31
300 600 900
Audio / OOH Display Print Shopper Social Spot Radio Video YouTube
2019 2020
Source: IRI Panel Measures, Total US – 52 Week Ending 3/22/20
DRI RIVING A AWARE RENESS: MESSAGIN ING A AND PO POSIT ITIO IONIN ING FOR T R THE CORE RE C CONSUMER1
AIDED 70% UNAIDED 15% AIDED 85% UNAIDED 35% AIDED 29% UNAIDED 10% AIDED 75% UNAIDED 29% AIDED 71% UNAIDED 29% PEER 1 PEER 2 Impressions (millions)
Flowers’ Brands Have Strong Upside Opportunity For Growth
32
Source: IRI Panel Measures, Total US – 52 Weeks Ending 3/22/20
20 40 60 80 100 % Hhld Penetration 20 40 60 80 100 % Repeaters 10 20 30 40 50 Purchase Cycle (Days)
Drivi ving ng g growth h throug ugh h brand r nd relevanc nce
(% repeat)
(lower # of days in purchase cycle)
50 100 % Hhld Penetration NATURE’S OWN PENETRATION Total US
31. 31.9%
South Region
52. 52.8%
DRIVE H HOUSEHOL OLD P PENET ETRATION ON FOR F FLO B BRAN ANDS DRIV IVE HI HIGH GHER C CONSUMPTIO ION (REDUCE CE P PURCH CHASE SE CYCLE) INCREA EASE L LOY OYALTY RATE SOUTHER ERN IRI RI REG EGION: P PENETRATION FLO BRAN ANDS
Bread Category Nature’s Own Wonder Dave’s Killer Bread Peer 1 Peer 2
Engaging the Changing Consumer with E-Commerce
33
(1) IRI E-Commerce and Instacart data (2) IRI Period 2, 2020
4.4% 6.2% 12.5% 0% 5% 10% 15%
2Q’19 2Q’20 Pre-Covid ‘202
E-COM OMMERCE A AS % OF OF BREAD OMNICH CHANNEL NNEL S SALES1
driving large shift in retail channel
in enduring users
and search are key elements of online shopping
Digitization to leverage shift in consumer habits
Driving to win digital consideration and shelf
Consumer Acquisition and Retention Through Marketing
34
Seizing on consumers’ desires for Fres eshnes ess Nature’s Own drives home the Unique S e Selling g Prop
ition ion: “Scratch to Shelf in about 48 hours”
Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Brand P d Portfolio lio S Strategy gy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
Chief Brand Officer
Key Takeaways
36
Leverage innovation to create brand presence in underdeveloped segments Clarified portfolio strategy Expand brand presence in underdeveloped geographies through distribution and penetration Drive brand presence with our retail partners in a changing marketplace
RELE LEVANCE CE PRESENCE GROW OWTH
Capitalizing on Recent Trends
37
Increased household penetration and increased consumption are driving category growth Household penetration for FLO brands up 250 BPS
13.2% 7.9% 14.0% 8.5% 18.2% 15.0% DEPT-GENERAL FOOD FRESH PACKAGED BREADS FLOWERS BREAD
Source: IRI Scan and Panel Data - Flowers Custom Database 12 Weeks Ending 7-12-2020
DOLLAR SALES, % % CHANGE VS VS Y YA VOLUME S SALES, % % CHANGE VS VS YA
92.8 35.5 93.7 38.0
Fresh Packaged Breads Category Flowers Bread YA CY
% O OF H HOUSEHO HOLDS BUYI YING
PREMI MIUM M GROWT OWTH BRAND NDS
Drive premiumization
MAINSTR TREAM AM BRAND NDS
Drive premium end of mainstream consumption Drive value end of mainstream consumption
STRO RONG REGIONA NAL BRAND NDS
Win locally with strong regional brands
Driving Brand Presence with a Clear Portfolio Strategy
38
Clarified roles for our brands, channels, and categories
brands, win with mainstream brands, and compete locally with strong regional brands
and brand strategies with network
and SKUs
Expanding Brand Presence Geographically
39
Under-developed markets offer huge growth potential
repeat with increased advertising and shopper marketing
(1) IRI MULO, Calendar Year 2019
FLOWERS DOLLAR S SHARE O OF FRESH P H PACK CKAGED D BREA EAD C CATEG EGORY1
Capitalizing
potential by increasing presence
27.9 – 49.7 17.1 – 27.8 9.5 – 17.0 5.8 – 9.4 0.0 – 5.8
Leveraging Innovation to Create Presence in Adjacent Segments
40
Consumers expect
solutions beyond loaf
26.7 9.9 2.9 30.4 10.7 7.1
LOAF SANDWICH BUNS/ROLLS BREAKFAST ITEMS TTM, 3 Years Ago TTM LOAF SANDWICH BUNS/ROLLS BREAKFAST ITEMS Segment Size (Annual)
$7.7 B $3.5 B $2.2 B
Flowers 3 Year $ Sales CAGR
+ 6.6% + 2.8% + 62.5%
(1) IRI Scan Data - Flowers Custom Database 12 Weeks Ending 7-12-2020, 52 Weeks Ending 7-12-2020 for annual numbers
FLOWE OWERS DOLLAR S SHARE1
Driving Brand Presence with Retail Partners
41
range of consumer demographics
sales and margin growth
as we navigate uncertain times
(1) IRI Panel Data Total US Category % Share of Requirements, 52 WE 7/12/2020. Peers are leading competitive national bread brands
BRAND LOYALTY − % OF BUYER CATEGORY DOLLARS SPENT WITHIN BRAND1
18.3 8.2 21.0 25.5 15.0 14.3 15.8 12.3
Nature's Own Wonder Dave's Killer Bread Canyon Bakehouse Peer 1 Peer 2 Peer 3 Peer 4
Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Brand Portfolio Strategy Acqu quis isit itio ion S Strategy gy Financial Review & Capital Allocation Question & Answer Session
Vice President, Corporate Development
Key Takeaways
43
Partner with innovation team to identify
Positioned for growth with strong free cash flow, balance sheet, and M&A track record Structured approach drives repeatable process Explore opportunities in core and grain- based adjacencies
Positioned for Growth Through M&A
44
$90 $570
$- $100 $200 $300 $400 $500 $600TTM-Q2'15 TTM-Q2'20 $26 $64
$- $10 $20 $30 $40 $50 $60 $70TTM-Q2'18 TTM-Q2'20
#1 Gluten-free Loaf
Proven track record of acquiring and growing differentiated bakery brands Strong balance sheet and cash flow generation enable investment in further growth
DA DAVE'S K KILLER BREAD D TRACKE KED R RETAIL SALES ( ($M) CANYON BA BAKEHOUSE TRACKE KED R RETAIL SALES ( ($M)
#1 Organic Loaf
5YR CAGR
+45%
2YR CAGR
+58%
Source: IRI Scan Data - Flowers Custom Database
Structured Approach to M&A
45
Clearly defined, repeatable process
Link between corporate development, strategy, and innovation Explicit strategic criteria Steady stream
M&A is a capability
Integration is crucial Monitoring and post-mortems Deep industry relationships
46
Role of Smart M&A
Partner with innovation team to identify opportunities beyond our core SOLIDIFY THE CORE
distribution growth in underdeveloped markets
INNOVATIVE ADJACENCIES
underdeveloped segments and innovative brands
that bring new capabilities
GEOGRAPHIC EXPANSION
ALTERNATIVE DEAL STRUCTURES
Welcome Strategic Priorities Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Fina nanc ncia ial l Rev evie iew & & Capit pital l Allo locatio ion Question & Answer Session
Chief Financial Officer & Chief Accounting Officer
Key Takeaways
48
Solid Q2 results, positive 2020
Strong free cash flow, consistent capital allocation Long-term targets supported by leading brands and growth strategy Growth roadmap highlights long- term opportunity
NET SALES
$1.026B +5.1% v PY
and foodservice sales
Q2 2020 Financial Review
49
$128.5M +21.4% v PY
mix, partially offset by higher employee incentive costs and IDP fees on lower transportation costs
CASH FLOWS − YTD
Dividends
$82.6M
Cash from Ops
$275.8M
Capex
$46.6M
GAAP DILUTED EPS
$0.27 +$0.02 v PY
$0.33 +$0.08 v PY
Increased adj. EBITDA partially offset by higher tax rate
(1) Earnings before interest, taxes, depreciation & amortization (EBITDA), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation. (2) Earnings per share (EPS), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Fiscal 2020 Guidance (Updated Aug 6, 2020)
50
(1) Week 53 expected to contribute 1.5% of overall sales growth. (2) Adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this presentation.
Fiscal 2020 H2 Considerations
consumption remains elevated, not as high as Q1 levels
and beginning to recover, still well below normal
and back-to-school
impact on bakery
SALES GROWTH1
OTHER
+4.0% to +5.0% $1.15 to $1.25
Depr eprec ecia iatio ion & n & amortiz izatio ion — $145 to $150 million Net i inter eres est ex expen ense — $11 million Effective tax ra rate —
Dilut luted s shares es o
ding —
Capit pital e l expe pendit ditur ures — $85 to $95 million
51
Steady Free Cash Flow
(1) Operating Cash flow minus Capital Expenditures. See non-GAAP reconciliations at the end of this presentation.
$245 $255 $222 $196 $263 $332
$- $50 $100 $150 $200 $250 $300FY-15 FY-16 FY-17 FY-18 FY-19 LTM-20
Strong free cash flow growth supports investments in the business, M&A strategy, and capital returns
FRE FREE C CASH FL FLOW1 TO FUEL ACCRETI ETIVE E INVE NVESTMENTS ( (MILLIONS NS)
Cash Flow Drivers
Consistent Capital Allocation
52
Capital Allocation Principles:
business growth
credit rating
acquisitions
repurchases
$120 $131 $141 $150 $160 $163 $7 $126 $3 $2 $7 $1 $395 $200
$- $100 $200 $300 $400 $500 $600FY-15 FY-16 FY-17 FY-18 FY-19 LTM-20 Dividends Share Repurchases Cash for Acquisitions
CAP APITAL AL L ALLOCATION ( (MILLI LLIONS)
Track Record of De-Leveraging Post-M&A
53
(1) Excludes lease liabilities
TOTA TAL D DEBT1 (MILLI LLIONS)
Maintaining flexibility to capitalize
$984 $928 $805 $980 $867
FY-15 FY-16 FY-17 FY-18 FY-19
1968 1968 to 2020: 2020: M MORE TH THAN 100 100 ACQUISITIONS
Long Track Record of Growth
54
SALES G GROWTH CO H COMPONENTS1 (MILLI LIONS) 10yr CAGR +5.2%
$- $5.00 $10.00 $15.00 $20.00 $25.00Aug '10 Aug '11 Aug '12 Aug '13 Aug '14 Aug '15 Aug '16 Aug '17 Aug '18 Aug '19 Aug '20
TOTAL SHAREHO HOLDE DER R RETURNS
10yr TSR2 +11.4%
3 Key Drivers to Achieving our Long-term Growth Targets
55
LONG-TERM GROWTH TARGETS1
+1-2%
SALES
+4-6%
+7-9%
Focus on leading, iconic brands to grow share Portfolio strategy prioritizes higher-priced, higher-profit products and customers Supply chain optimization enhances operating leverage, streamlines fixed cost structure Strong free cash flow generation provides fuel for accretive M&A,
(1) Sales and adjusted EBITDA targets reflect organic business growth; adjusted EPS target includes the potential impact of future M&A and share repurchases. (2) Earnings before interest, taxes, depreciation & amortization (EBITDA), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation. (3) Earnings per share (EPS), adjusted for matters affecting comparability. See non-GAAP reconciliations at the end of this slide presentation.
Roadmap to Delivering Long-term Targets
FY2020 FY2021 FY2022
mix s ix shift
eler erate e
imiz izatio ion init itiatives
long-term targets
ust t to the new ew-norma mal
perational improve vements
consumer behavior normalizes
nds d driving ng above ve-cat ategory sales es g growth
with long-term targets
56
57
OUR VISION HAS NEVER BEEN CLEARER
Right structure with a passionate team committed to continued success Emotional connection of fresh bread
to appeal powerfully to consumers Competitive, leading operator with combination of strong brands and scale Opportunity to grow through product adjacencies, innovation, and M&A
Strategic Priorities Growth Imperatives & Supply Chain Optimization Driving Brand Relevance Brand Portfolio Strategy Acquisition Strategy Financial Review & Capital Allocation Question & Answer Session
Information Regarding Non-GAAP Financial Measures
59
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, free cash flow, 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 EBITDA earnings before interest, taxes, depreciation and amortization. The company defines free cash flow as operating cash flow minus capital expenditures. The company believes that free cash flow provides investors a better understanding of the company’s liquidity position. 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 depending upon accounting methods and 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 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, 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 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 company defines net debt as total debt less cash and cash equivalents. Net debt to EBITDA is used as a measure of financial leverage employed by the company. The company defines free cash flow as
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 according to 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.
Reconciliation of Non-GAAP Financial Measures
60
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Net income per diluted common share 0.27 $ 0.25 $ Restructuring and related impairment charges 0.04 0.01 Project Centennial consulting costs 0.02
Executive retirement agreement
Adjusted net income per diluted common share 0.33 $ 0.25 $
NM - not meaningful. Certain amounts may not add due to rounding.
Reconciliation of Earnings per Share to Adjusted Earnings per Share
61
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 1,025,861 $ 975,759 $ 506,033 508,552 Gross Margin excluding depreciation and amortization 519,828 467,207 Less depreciation and amortization for production activities 18,113 18,590 Gross Margin 501,715 $ 448,617 $ Depreciation and amortization for production activities 18,113 $ 18,590 $ 15,067 14,739 Total depreciation and amortization 33,180 $ 33,329 $ (000's omitted) Sales Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) Depreciation and amortization for selling, distribution and administrative activities Reconciliation of Gross Margin
62
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Selling, distribution and administrative expenses (SD&A) 396,904 $ 359,497 $ Project Centennial consulting costs (5,584)
Executive retirement agreement
Adjusted SD&A 391,320 $ 361,351 $ Reconciliation of Selling, Distribution and Administrative Expenses to Adjusted SD&A
63
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Net income 57,919 $ 53,095 $ Income tax expense 18,493 15,951 Interest expense, net 2,869 2,769 Depreciation and amortization 33,180 33,329 EBITDA 112,461 105,144 Other pension cost (72) 519 Restructuring and related impairment charges 10,535 2,047 Project Centennial consulting costs 5,584
Executive retirement agreement
Adjusted EBITDA 128,508 $ 105,856 $ Sales 1,025,861 $ 975,759 $ Adjusted EBITDA margin 12.5% 10.8% Reconciliation of Net Income to EBITDA and Adjusted EBITDA
64
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Income from operations 79,209 $ 72,334 $ Restructuring and related impairment charges 10,535 2,047 Project Centennial consulting costs 5,584
Executive retirement agreement
Adjusted income from operations 95,328 $ 72,527 $ Reconciliation of Income from Operations to Adjusted Income from Operations
65
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Income tax expense 18,493 $ 15,951 $ Tax impact of: Restructuring and related impairment charges 2,634 517 Project Centennial consulting costs 1,396
Executive retirement agreement
Adjusted income tax expense 22,523 $ 16,000 $ Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
66
Reconciliation of Non-GAAP Financial Measures
For the 12 Week Period Ended For the 12 Week Period Ended July 11, 2020 July 13, 2019 Net income 57,919 $ 53,095 $ Restructuring and related impairment charges 7,901 1,530 Project Centennial consulting costs 4,188
Executive retirement agreement
Adjusted net income 70,008 $ 53,239 $ Reconciliation of Net Income to Adjusted Net Income
67
Reconciliation of Non-GAAP Financial Measures
Net income per diluted common share 0.66 $ to 0.76 $ Restructuring and related impairment charges 0.04 0.04 Project Centennial consulting costs 0.03 0.03 Legal settlements 0.01 0.01 Pension plan settlement and curtailment loss 0.41 0.41 Other pension plan termination costs NM NM Adjusted net income per diluted common share 1.15 $ to 1.25 $
Certain amounts may not add due to rounding.
Reconciliation of Earnings per Share - Full Year Fiscal 2020 Guidance Range Estimate
Reconciliation of Non-GAAP Financial Measures
68
Time Period Cash Provided by Operating Activities Purchase of Plant, Property and Equipment Free Cash Flow 2Q20 TTM 434,689 $ 102,867 $ 331,822 $ FY19 366,952 103,685 263,267 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
* Cash provided by operating activities less purchase of plant, property and equipment.
Reconciliation of Cash Provided by Operating Activities to Free Cash Flow*
Reconciliation of Non-GAAP Financial Measures
69
For the 12 Week Period Ended For the 12 Week Period Ended For the 16 Week Period Ended For the 12 Week Period Ended Trailing 52 Week Period Ended October 5, 2019 December 28, 2019 April 18, 2020 July 11, 2020 July 11, 2020 Net income (loss) 43,358 $ 2,219 $ (5,772) $ 57,919 $ 97,724 $ Income tax expense (benefit) 12,442 (1,047) (2,019) 18,493 27,869 Interest expense, net 2,334 2,170 3,314 2,869 10,687 Depreciation and amortization 33,196 32,884 44,663 33,180 143,923 EBITDA 91,330 36,226 40,186 112,461 280,203 Other pension cost 518 519 143 (72) 1,108 Project Centennial consulting costs
3,392 5,584 9,760 Restructuring and related impairment charges 3,277 17,482
31,294 Other pension plan termination costs
Pension plan settlement and curtailment loss
Legal settlements (recovery)
3,220 32,370 Executive retirement agreement
Adjusted EBITDA 95,125 $ 84,537 $ 163,281 $ 128,508 $ 471,451 $ Reconciliation of Net Income to EBITDA and Adjusted EBITDA
70
Reconciliation of Non-GAAP Financial Measures
As of July 11, 2020 Current maturities of long-term debt
Long-term debt 1,009,596 Total debt 1,009,596 Less: Cash and cash equivalents 299,562 Net Debt 710,034 $ Adjusted EBITDA for the Trailing Twelve Months Ended July 11, 2020 471,451 $ Ratio of Net Debt to Trailing Twelve Month Adjusted EBITDA 1.5 Reconciliation of Debt to Net Debt and Calculation of Net Debt to Trailing Twelve Month Adjusted EBITDA Ratio