THOMASVILLE, Ga., Aug. 16 /PRNewswire-FirstCall/ -- Flowers Foods (NYSE: FLO - News) today reported sales of $477.8 million for its 12-week second quarter ended on July 14, 2007, a 7.2% increase over the $445.8 million reported for the second quarter last year. Net income of $22.2 million, or $.24 per diluted share, was reported, an increase of 12.5% compared to the $19.7 million, or $.21 per diluted share, reported for the second quarter of fiscal 2006.
Sales for the 28-week period ended July 14, 2007 were $1.088 billion, a 7.8% increase over the $1.009 billion reported for the comparable 28-week period last year. Net income for the 28-week period was $50.7 million, or $.55 per diluted share, an increase of 18.9% over the $42.6 million, or $.46 per diluted share, reported for the comparable period in 2006. Income from continuing operations before cumulative effect of a change in accounting principle for the 28-week period was $50.7 million, or $.55 per diluted share, an increase of 20.7% compared to the $42.0 million, or $.45 per diluted share, reported for the same period in 2006.
All per share data has been adjusted to reflect the company's 3-for-2 stock split, which was effective June 29, 2007.
"Our second quarter and first half results reflect the strength of our company," said George E. Deese, Flowers Foods' chairman, CEO, and president. "In our core DSD territory, our market share increased in both dollars and units, an indication of the strength of our brands and of our execution in the marketplace. Sales in our expansion markets continued to grow steadily. Pricing helped offset higher ingredient costs and we are working to improve efficiencies to recover gross margin. Our new production lines, which are strategically located to serve our growth markets, operated well and helped reduce our selling and distribution expenses."
Details of Second Quarter
The sales increase of 7.2% in the second quarter resulted from favorable pricing of 5.6% and positive mix shifts of 1.8%. Unit volume was down slightly year over year as the decline in single unit snack cakes offset gains in loaf bread units and multi-pack snack cake units. During the quarter, Bakeries Group sales grew at 7.8% due to favorable pricing of 5.5% and a unit volume increase of 2.3%. Specialty Group sales increased 4.8%, driven by favorable pricing of 6.5% and positive mix shifts of 4.1%. These increases were negatively impacted by a decline in unit volume of 5.8%, primarily due to the shift from single unit snack cakes to multi-pack snack cakes.
Gross margin as a percentage of sales for the second quarter of fiscal 2007 decreased to 48.7% compared to 49.7% in the second quarter of 2006. Pricing was partially offset by higher stale cost due to new products introduced and promotional price allowances. The company also incurred increases in production costs, including price increases for flour, gluten and sweeteners. Additionally, the second quarter 2006 gross margin benefited from insurance proceeds related to Hurricane Katrina of approximately $1.0 million.
Selling, marketing and administrative costs as a percentage of sales for the second quarter were 38.4% compared to 39.5% in the prior year's second quarter. The improvement as a percent of sales for the quarter was due primarily to price increases and the benefits of the company's ongoing distribution rationalization, whereby new production capacity is located closer to the market. The second quarter 2006 selling, marketing and administrative costs reflect insurance proceeds related to Hurricane Katrina of $0.7 million.
Depreciation and amortization expenses for the quarter remained relatively stable as compared to the prior year quarter. Net interest income for the second quarter was higher than the prior year second quarter due to higher interest income from independent distributor notes receivable and a decrease in interest expense due to lower average debt outstanding under the company's credit facility. The effective tax rate for the second quarter was 35.8%. The company expects a full year tax rate of approximately 36.0%.
Net cash provided by operating activities remained strong at $53.7 million for the second quarter. There were no stock purchases under the company's stock repurchase plan during the second quarter. Since the inception of the plan, the company has acquired 17.6 million shares of its common stock for $247.1 million, an average of $14.01 per share. The plan authorizes the company to repurchase up to 22.9 million shares of common stock.
Updated Guidance for Fiscal 2007
The company updated its fiscal 2007 guidance, expecting sales excluding future acquisitions to be $2.020 billion to $2.040 billion, an increase of 7.0% to 8.0%. The company anticipates net income from continuing operations of 4.2% to 4.6% of sales, or $84.8 million to $93.8 million, as compared to $74.9 million in fiscal 2006. Assuming diluted weighted average shares outstanding of 92.0 million, earnings per share from continuing operations are expected to be $.92 to $1.02, an increase of 13.6% to 25.9% over the $.81 reported for fiscal 2006.
The board of directors will consider the dividend at its regularly scheduled meeting. Any action taken will be announced following that meeting.