UPDATE 2-Baker Flowers Foods eyes new markets, shares rise

Thu May 24, 2012 2:34pm EDT

* Q1 EPS $0.28 in-line with analysts' estimates

* Q1 rev $898.2 mln vs est $889.7 mln

* Gross margin 46.7 pct vs 48.6 pct last year

* Shares rise as much as 7 pct

May 24 (Reuters) - U.S. baker Flower Foods Inc said it is targeting acquisitions in new markets, after reporting strong quarterly sales, helped by its takeover of Tastykakes maker Tasty Baking Co.

The strong sales results, driven by a rise in overall volumes, sent the company's shares up as much as 7 percent to $21 on Thursday.

The maker of Nature's Own and Whitewheat breads has traditionally targeted acquisitions to beef up its branded snack cake business and expand into the Northeast. Flower Foods bought Tasty Baking last year as part of this strategy.

"Our strategy for expanding our geographic footprint is to grow into new markets with high population densities, that are adjacent to our existing direct store delivery territory," A l len Shiver, the company's president, sa i d on a call with analysts.

The Thomasville, Georgia company operates in the Southeast, Mid-Atlantic, and Southwest markets along with some select markets in the Northeast, California and Nevada.

There have been a number of deals in the food sector, especially in the baking industry, including Ralcorp Holdings Inc's takeover of private-brand cookie maker Petri Baking Product earlier this month.

Mexico's Grupo Bimbo, one of the world's biggest bakers, also bought Sara Lee Corp's fresh bakery units in the United States last year.

Flowers Foods -- which traces its roots to 1919 when two brothers William and Joseph Flowers set up a bakery in Thomasville -- said it is looking to take advantage of consolidation in the baking industry.

HIGHER COSTS CRIMP MARGINS

Flowers Foods cut its full-year earnings forecast as it faces higher ingredient and packaging costs.

Rising input costs are eating into gross margins at food companies such as Flowers Foods and rivals Ralcorp, TreeHouse Foods and ConAgra Foods.

Flowers Foods now expects full-year earnings to rise 3.5 to 8 percent, lower than its prior expectation of a 7 to 12 percent rise.

ConAgra Foods on Thursday reaffirmed its earnings target for the current quarter. It had lowered its outlook in March, as higher prices for packaged food curbed demand.

An increase in ingredient costs at Flowers Foods was driven by double-digit rises in flour, as well as slightly higher costs of oil and sugar.

Total volumes, however, rose by 1.7 percent, while most analysts had expected flat volumes. This drove revenue up 12 percent to $898.2 million, which beat Wall Street expectations of $889.7 million, according to Thomson Reuters I/B/E/S.

Flowers Foods earned $37.9 million, or 28 cents per share, compared with $41.2 million, or 30 cents per share, last year.

The results were in line with analysts' estimates of 28 cents per share. Gross margin fell to 46.7 percent from 48.6 percent last year.

Flowers Foods' shares were up nearly 6 percent at $20.67 on Thursday afternoon on the New York Stock Exchange.

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