Flowers Foods, Inc. (NYSE:FLO)
2013 Annual Shareholder Meeting
May 22, 2013 11:00 am ET
George E. Deese - Executive Chairman
Stephen R. Avera - Executive Vice President, General Counsel and Secretary
Benjamin H. Griswold - Lead Director, Member of Nominating/Corporate Governance Committee and Member of Compensation Committee
Allen L. Shiver - Chief Executive Officer, President and Director
Bradley K. Alexander - President
R. Steve Kinsey - Chief Financial Officer and Executive Vice President
Gene D. Lord - Chief Operating Officer and Executive Vice President
Marta Jones Turner - Executive Vice President of Corporate Relations
Ladies and gentlemen, please welcome, George E. Deese, Executive Chairman of the Board of Flowers Foods.
George E. Deese
Well, good morning and welcome. Welcome here to Thomasville. I do notice we got several people from out of town, and thank you for taking the time to drive to Thomasville. It is my pleasure to call to order the Annual Meeting of Flowers Foods Shareholders. We're happy -- all of you can see that we are very happy to have a record number of shareholders with us today, and we thank you for your confidence in Flowers Foods. Whether you're an audience here in Thomasville or listening over the Internet, we thank you for joining us. I have to say this is a very exciting time to be a part of Flowers Foods as a shareholder and as team member or as an associate. Flowers Foods is growing, delivering great earnings. Our fresh baked products are available to more than 75% of American consumers. Even more importantly, the value of our shareholders' investment, our market capitalization recently hit our record high of $4.7 billion. This morning, after the business portion of the meeting, we will tell you over our growth strategies, our products and brands, and how our bakeries are performing. You'll hear from members of our executive leadership, as well as team members from around the company. We hope that at the end of the meeting, you'll have a better understanding of this company called Flowers Foods.
As a first order of business, I want to introduce our Board of Directors. Joe Beverly, Chairman of the Board of Commercial Bank; Manny Fernandez, Chairman of Sysco Corporation; Benjamin Griswold, partner and Chairman of Brown Advisories; Amos McMullian, Chairman Emeritus and retired Chief Executive Officer of Flowers Foods; Jerry Shields, Chairman of Wellington Shields & Co.; Allen Shiver, President and Chief Executive Officer of Flowers Foods, and newly elected member of the Board; David Singer, former Chief Executive Officer of Snyder's-Lance, Inc.; Dr. Melvin Stith, Dean of the Whitman School of Management at Syracuse University; Jackie Ward, retired Chief Executive Officer and Chairman of Computer Generation Incorporated; and Marty Wood, retired Senior Vice President and Chief Financial Officer of Flowers Industries. I would like to recognize our board for its ongoing contributions to our company. Our directors live in accountability, responsibility and ethical behavior. We are fortunate to have such a wonderful group giving oversight to the management team and all that's going on with our company. Please join me in thanking them for the job they do.
I would also like to introduce our Section 16 officers. Would you please stand and remain standing until we go through the group please. Steve Kinsey, Executive Vice President and Chief Financial Officer; Steve Avera, Executive Vice President, Secretary and General Counsel; Gene Lord, Executive Vice President and Chief Operating Officer; Mike Beaty, Executive Vice President of our Supply Chain; Marta Jones Turner, Executive Vice President of Corporate Relations; Brad Alexander, President of our Bakeries group; Bob Hysell, President of our Cake -- President of our Foodservice for our Warehouse segment; Joe Tashie, President of Cake for our Warehouse segment; Mark Courtney, Senior Vice President of Sales; Karyl Lauder, Senior Vice President and Chief Accounting Officer; Don Thriffiley, Senior Vice President of Human Resources; and Dave Hubbard, Senior Vice President and Chief Information Officer. There is no doubt in my mind as I look at these individuals that this is the Flowers' strongest team that's ever been assembled in Flowers Foods and in the baking industry. The long years of service, if you went to look at each one of them on the screen, you could see long service of all these team members. This points to the success of retaining and developing talented and dedicated individuals. Let's thank them for the job they do as well. Thank you.
We have another group who wanted to come to Thomasville today and they perform so admirably each and every day for the company. We have David Scott, our Senior Vice President for the South region and his team from bakeries in Georgia, Florida and Louisiana. David is here with the group, will you please stand? Let's thank them. Team members, of course, from here in Thomasville and our home office also attended, and many more Flowers team members are listening through the Internet.
I'd like to take this a moment to thank each and every Flowers team member, associate and distributor for the great job they do day to day to make sure that we achieve our goals and [indiscernible] for you, our shareholders. Our success would not be possible without them. Please join me in a round of applause for the entire Flowers team.
Also with us today are outside advisors to the Board of Directors. From Jones Day, our legal advisor, Sterling Spainhour; from PricewaterhouseCoopers, who is our outside auditors, Mr. Mike Morrow, Mark Volker, Douglas Grant, and Erin Weis. By the way, Mike Morrow is retiring after some 7.5 years taking care of Flowers Foods. Let's thank him for a good job. Will you all stand up, as well, too, please. TowersWatson is our compensation, retirement and pension advisor. Lori Swope, Mary Shah and David Wathen are here from TowersWatson. And from Meridian, the board's compensation consultant, are Jane Romweber and Virginia Rhodes. Thank you for being here today.
We also welcome the elected officials, community leaders, educators who are with us today. I would like to call out special note to our retirees and the retirees passes is amazing, the road that we're on today and that road was created by all of your service for so many years with this company. Would you please stand and let us recognize you, the retirees? Let's thank them.
I do have news for you this morning that was announced to the press release just a few minutes ago. I am pleased to report that at its meeting this morning, you're Board of Directors declared a 3-for-2 split of the company stock by means of a 50% stock dividend and also increased the annual cash dividend by $0.35. This equates to a 5.5% increase over the previous dividend rate, both the stocks split and the dividend are payable on June 19, 2013, to shareholders of record on June 5, 2013. Following the split, Flowers shareholders will own 3 shares for every 2 they held on the record date and the quarterly dividend rate will be $0.1125 per share or $0.45 per share on an annualized basis. We have a lot of confidence to what's going on. Therefore, we are able to split the stock and show this nice dividend. So thank you for your ownership. Now I will turn the business part of our session to Steve Avera. Steve?
Stephen R. Avera
Thank you, George, and good morning. As Secretary of the company, I have submitted the following documents for this meeting: The Notice of this Meeting, which was mailed out to all shareholders of record as of the closed of business on March 20, 2013; an affidavit of the mailing of that notice, which also -- which began on April 10, 2013; and a certified list of the shareholders of record as of March 20, 2013.
Computershare is our official transfer agent. And Lisa Hay, our manager of shareholder relations, will be serving as inspector of the election today. Lisa, would you stand and be recognized? Thank you. The inspector has reported to me that we do in fact have a quorum. It is recommended that the minutes of the 2012 Shareholders Meeting be waived and that such minutes stand as approved. May we have a motion to that effect?
I so move.
Secretary, I second it.
Stephen R. Avera
Thank you. All in favor, please signify by saying aye.
Stephen R. Avera
All opposed? The motion carries. Before proceeding with the business of this meeting, I would like to point out that ballots are available that shareholders may use to vote on proposals to be presented at this meeting today. If you have voted by proxy, it is not necessary to vote again today. If however, you wish to vote today, you may do so and the ballot use -- that ballot will supersede the proxy you previously returned. Is there anyone who has not turned in a proxy card who wishes to do so now or wishes to vote in person? And sometimes it's hard to see up here. All right, seeing none, we will proceed.
There are 3 proposals duly submitted to be voted upon today. The first one is the election of 1 director nominee to serve in Class I for a term of 1 year and the election of 4 director nominees to serve in Class III for a term of 3 years. The second is an advisory vote on executive compensation. And the last one, the third one is ratification of PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal 2013 year.
The first order of business is the election of the director nominees to serve in Class I and Class III. The nominating and governance committee and the Board of Directors have nominated the following persons for election as directors of the company. For election in Class I to serve until 2014, Allen L. Shiver. For election in the Class III to serve until 2016, Franklin L. Burke, George E. Deese; Manuel A. Fernandez; and Melvin T. Stith. May we have a motion on these nominations please?
I move that the slate of director nominees as submitted in the proxy statement be nominated for election.
Stephen R. Avera
Are there any other nominations from the nominating and governance committee? Seeing none, will the inspector of the election please report the results on this particular proposal?
Mr. Secretary, each director nominee has received a favorable vote of not less than 115,697,650 shares, which represents 97.1% of the votes cast on this proposal.
Stephen R. Avera
Great. Thank you, Lisa. I hereby declare that the slate of director nominees has been duly elected. The next order of business is as an advisory vote on executive compensation. The compensation committee and the Board of Directors evaluate both performance and compensation to ensure that the company maintains its ability to attract and retain the most qualified representatives while motivating high company performance. This year's advisory say-on-pay vote, as required by the Dodd-Frank Act, gives shareholders the opportunity to express their views on the compensation of the company's named executives. Although this vote is advisory and will not be binding, the board values the opinion of the company shareholders and will take them into account and that the outcome of the -- take into account the outcome of the vote when considering the future compensation programs and arrangements by the company. May we have a motion regarding the advisory vote on executive compensation?
Mr. Secretary, I move that the composition of the company's named executives as disclosed in the proxy statement be approved.
I second it.
Stephen R. Avera
Thank you. Will the inspector again please report the results of advisory vote?
Mr. Secretary, the proposal to approve the compensation of the company's named executive has received a favorable vote of 116,694,383 shares, which represents 97.9% of the votes cast on this proposal.
Stephen R. Avera
Great. Thank you, Lisa. I hereby declare that the compensation of the company's named executives is approved. The final order of business today is the ratification of the appointment of PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending on December 28, 2013. The audit committee and the Board of Directors have appointed PricewaterhouseCoopers as the company's independent registered public accounting firm for the fiscal 2013 year. The board recommends this appointment be ratified. May we have a motion regarding the ratification of the appointment of the company's independent public accountants?
Mr. Secretary, I move that the appointment of PricewaterhouseCoopers be ratified.
I second the motion.
Stephen R. Avera
Will the inspector please report the results of the election?
Mr. Secretary, the proposal to ratify the appointment of PricewaterhouseCoopers as the company's independent registered public accounting firm for the 2013 fiscal year has received a favorable vote of 129,928,982 shares, which represents 99.4% of the votes cast on this proposal.
Stephen R. Avera
Great. Thank you, Lisa. Again, I hereby declare that the appointment of PricewaterhouseCoopers has been ratified. This concludes the business portion of the meeting. And before our Board of Directors moves offstage, Ben Griswold, our presiding Director has some remarks.
Benjamin H. Griswold
Thank you, Steve. As this is George Deese's last meeting as Chief Executive Officer, my fellow directors have asked me to ask all of us to rise and give George a wonderful round of applause and thanks for his sensational term as CEO.
George E. Deese
Thank you. I will advise my Board of Directors, they can move offstage. As that such nice being -- I was shocked this morning to find out that was going to happen. I try to stay modest, stay humble, but thank you for that. I really do appreciate it more than you'll ever know, thank you.
Steve, thank you, and Lisa for queuing out the order of business on the vote. And we're so pleased for the outstanding vote towards the directors for the compensation and, of course, for Pricewaterhouse. Thank you for your confidence. That's what it really means. As we turned our report on your company, it is an understatement to say that it is an amazing time for Flowers Foods and for the baking industry. Last week, we reported sales for the quarter were $1.31 billion, up 26%. Adjusted net income for the quarter was $64.9 million. Earnings per share increased 64%. This was the best quarter in Flowers Foods history. I want to thank our team members across the country who have worked tirelessly to serve our customers since Hostess exited the market on November 16 of last year. From that day until now, we are seeing our folks at all locations rarely to do what might seem impossible to some. Our long-term commitment to investing in our bakeries, improving efficiencies, delivering quality and having the best customer service is paying outstanding dividends for us in the marketplace today. We're adding new customers, serving new locations and doing our best to capture the opportunities available to us. The outlook for Flowers Foods is exciting. We have strong brands and new products and the team determined to deliver for our customers. You'll recognize this chart from past presentation. It shows how our industry has been consolidating over time. We've talked about this many times. Hostess brands announced in November, they would liquidate. That created new playing field for our industry. Bimbo Bakeries, a Mexico-based company is the largest baked food company in the U.S. but make no mistake, Flowers Foods is a strong #2 and growing. Campbell's Soup, Pepperidge Farms rounds out the top 3. In addition, about 80 independent bakers across the country compete in the fresh bread aisle. And store brands, of course, command a very strong position in the category. So without a doubt, there is still plenty of competition in the category.
How did Flowers become the nation's second-largest baker? By staying true to the Flowers Way and executing our proven strategies. Acquisitions are an important part of our growth strategy. In the last decade, we acquired 11 companies that added some $871 million to our annual sales. Those acquisitions have expanded the geographic footprint of our fresh bread and cake brands, and we have growth potential for decades to come as we build consumer acceptance across our near markets. You will notice that we lift the Hostess acquisition is still pending. Our hope is that the regulatory review will be completed in the second half of 2013.
In addition to making acquisitions, our growth strategy includes the market expansions. These maps show how Flowers growth strategies have helped achieve our long-term goal of reaching more of the U.S. population with our fresh baked foods, from 35% of the population in 2000 to more than 70% at the end of 2012 and we're still growing and expanding. By mid-2013, just a couple of months away, more than 77% of the U.S. population will have access to Flowers Foods' fresh bakery brands. By the way, this is 3 years ahead of the goal to reach at least 75% of the U.S. population by 2016. Of course, for our shareholders, it is good to know that Flowers Foods is growing and reaching more consumers. You're pleased to know our sales and earnings growth continue to meet or exceed our goals, but the most important measure for you is how your investment has performed.
This chart shows that since our spinoff in 2001, the market cap of our company has grown from $400 million to just under $4.7 billion to date. In addition, shareholders have received just over $500 million in dividends over those 13 years. We believe that significant value creation for shareholders was possible because of our careful adherence to our unique operating strategies and culture, which we call the Flowers Way.
Our leaders, through many decades not just the spinoff but since our founders started Flowers baking company in 1919 right here in Thomasville, Georgia, has consistently held true to our strategies and visions for the company. Through 94 years of business, we have been guided by only 5 CEOs. To date, the sixth Flowers CEO takes on that responsibility. For the past 9.5 years, it has been my pleasure and honor to lead our team as the CEO. We take management succession very seriously at Flowers Foods, not just at the top level but throughout the company. Each of our managers realize their responsibility to plan for the future, having experienced leaders who understand our strategies and our culture has contributed to our company's success through several generations. Allen Shiver has been with the company his entire career, 34 years and a few years more counting in his part time work while he was still in school. Allen gained a broad base of experience and knowledge about our business through many assignments in operations, sales, marketing and other areas. The Board and I have complete confidence in Allen's ability to provide insightful leadership and to guide our company for the future. We also know that the quality and experience of his executive teams and our -- the entire team throughout our organization. That gives me confidence that as Allen takes on his new role, you will see the Flowers Way continue as we focus on opportunities to grow and be of value for you, our shareholders.
Now I'm happy to introduce our new CEO, new board member, Allen Shiver.
Allen L. Shiver
Thank you, George. I also want to thank all of our shareholders for being here today. We really appreciate your interest in Flowers Foods. Before I start off, I'm going to say that what an honor it is for me to serve this wonderful company. Flowers has incredible people, not just here in Thomasville but in every one of our bakeries across of the country. As I take on new duties as CEO, I'm confident because I know the level of talent and dedication that we have in our team members throughout the company. I also appreciate that George Deese will continue in an active role as executive Chairman. George has been the guiding force for our company for the past 10 years and a key member of our leadership team for several decades. His ongoing input on our strategic direction, our growth opportunities and on staying true to our culture will help ensure that our company's success in the future is solid. We're all working towards a common goal of creating value for you, our shareholders. We do that by delivering delicious bakery foods that consumers love. It takes an amazing amount of experience, energy, resources, hard work and determination to succeed in this business. Our team has all of those and much more.
Today, we're going to share a few examples of how our team delivers results. These examples are repeated every day throughout the company as we work to achieve success and deliver for our shareholders. Flowers has been focused on the baked foods business since the Flowers family opened our first bakery in 1919 right here in Thomasville, Georgia. Our team today is the most experienced in the industry. Among our almost 10,000 team members, 1,700 individuals have more than 20 years experience. 665 team members have 30 years or more with our company. With our position today as the second largest player in the industry, we have great opportunities to serve existing and new customers. And we have the team to get that job done.
My confidence in our future is also strong because of the Flowers Way. Our vision is to be a truly exceptional company focused on grain-based foods. Flowers' mission is to enhance values for our shareholders, team members, customers and consumers. We are guided by the principles of integrity, service, quality and commitment. But you know any company executive could say that. To really know about our company and what it stands for, you need to hear it from employees at all levels. How do they really feel about the company and about the way it operates. I'd like you to hear how our team members in Denton, Texas views our culture and how they define the Flowers Way. If we could roll the Denton video, please.
Allen L. Shiver
Those comments were even more impressive when you consider that the Denton bakery is one of our newer operations. It actually opened in 2003. Even so, in Denton, our team reflects the talent experience, determination and understanding of our strategies that you will find in all Flowers locations. It's also important to know that our team members at every Flowers bakery take seriously our responsibility to be good corporate citizens in the communities where we operate. Our corporate responsibility program focuses on providing our team members fair wages and opportunities for advancement. We also focus on using our resources wisely and by abiding by all regulatory and environmental laws.
As part of our corporate responsibility program, we also focused on 3 key areas in our home office and also our bakery communities. First, our charitable giving is centered on organizations that positively impact the lives of children in need. We also help families that are in difficult circumstances. In 2012, we gave almost $4 million to help feed the hungry through local food banks and Feeding America. Third, we offer employment opportunities to veterans. We recently have renewed our recruiting efforts to reach retired military personnel, and I am pleased to report that we now have 400 non-team members around the company who proudly probably serve our country in the military.
Now managing the Flowers Way means doing what is right with our team members, customers, consumers, partners, suppliers and communities. You can rest assured that we recognize our responsibilities in that regard. The Flowers Way focuses our team on operating strategies that help us manage the business. Those strategies are: to grow sales; invest wisely; go beyond the expected to serve our customers; to bake smart; and most important than anything else, to appreciate our team.
In today's presentation, you'll see how those strategies are put to work within Flowers Foods. First though, I want to tell you by the fresh bakery category in the United States, which is where Flowers Foods competes. First of all, it is a large category with $21.2 billion at retail and another $6.3 million at foodservice, for a combined total of $27.5 billion. That's a lot of bread, rolls and snack cakes. Fresh bread and snack cakes are important to retail and to our foodservice customers. The category is the third largest in the supermarket. Only carbonated beverages and milk sells more units than the fresh bakery aisle.
Let's look at the Flowers Foods' position within the category. This chart shows Flowers' position in the most recent market data from IRI. You can see in red that in the total U.S., Flowers Foods' branded share is at 13.1%. We're up more than 2 percentage points from last year. Our portion of store brand in the total U.S. is about 4.4%.
To help you understand how Flowers Foods goes to market, our fresh baked foods business, through our direct store delivery system, accounts for 82% of sales. Our warehouse business, which deliveries frozen baked foods and fresh snack cake through customer warehouses, makes up 18% of sales. Retail customers account for 74% of our business and foodservice customers make up the remaining 26%.
Flowers has strengths that help us achieve success. Our growth strategy is proven. Our brands are well established and consumers know they can -- they deliver consistent quality and taste. Our investments over several decades have resulted in Flowers bakeries being among the most efficient in the country. Our distribution networks for our DSD and our warehouse segment are effective in delivering our products that customers want.
Flowers' team is simply the best in the industry. They are experienced and believe me, they are determined to win every day. Our culture fosters a team spirit and respects every individual's contribution. We promote from within when possible, and that gives us continuity of philosophy throughout the company.
Our brands are well positioned to meet the needs of consumers across the entire spectrum of the fresh bakery category. From Nature's Own soft variety breads to Sunbeam, Bunny, Holsum and other regional brands to Tastykake and Mrs. Freshley's snack cakes, our brands stand for quality, freshness and great test.
Without a doubt, Nature's Own is our top brand. This year, Nature's Own will reach more than $1.1 billion at retail. Nature's Own has been an important growth vehicle for Flowers since we've developed the brand in 1977 as a healthier choice for consumers. In the last decade, the brand has achieved a compound average growth rates of over 11%.
Today's consumers get their information from a wide range of sources, many of those through social media. Our marketing team uses a combination of print and online advertising and local PR efforts to keep Nature's Own in front of consumers. Let's see a few examples.
Allen L. Shiver
We've expanded the reach of Nature's Own from its core southern markets to much of the U.S. We're doing the same thing with our Tastykake brand. You'll remember that we acquired Tastykake in 2011. The majority of their sales were in the Mid-Atlantic where Tastykake has been a favorite snack cake brand since 1914. We told you last year that we were adding Tastykake throughout Flowers' DSD territory, and you can see on the map, Tastykakes are now available to consumers throughout much of the country. The result is that Tastykake sales at retail value have grown from about $241 million at the time of our acquisition to a projected $400 million for 2013.
As consumers continued to discover what Tastykake offers, sales will continue to grow. Because of its iconic status as a Philadelphia brand, much loved by our consumers for a decade, Tastykake is also often in the news. Our marketing and PR efforts have met with success and we've -- as we have expanded Tastykake into new markets. Let's roll the Tastykake video now.
Allen L. Shiver
Before I turn the program over to Brad Alexander, I'd just like to say one personal note. Thank you so much to my immediate family for the confidence that they've put in me. My wife Robin and daughter Brooke and Robert are here today, daughter-in-law Lindsay is at home with the new grandbabies. But this is an exciting time. I've never felt more confident in the future of our company than I do here today. Thank you very much, and I'd like to turn the program over to Brad Alexander.
Bradley K. Alexander
Thanks, Allen. We'll start with an update of our recent acquisitions. Lepage Bakeries became part of our company last year. At the time of the acquisition, Lepage's sales were $171 million. Since then, we've been achieving double-digit sales growth at Lepage. Historically, Lepage focused on breads and rolls and only offered doughnuts in the snack cake category. In October, we introduced the Tastykake brand in their market. Today, we have Tastykakes in more than 2,700 stores across New England. In November, we introduced Nature's Own to Lepage's markets and are very pleased with the way consumers are responding to our top brand. Nature's Own breads are on shelves on more than 1,900 stores throughout New England. Our timing for the Tastykake and Nature's Own introductions was perfect since those brands helped fill the void when Hostess exited the market in the fall.
Let's move now from the Northeast to the Far West and talk about our California business. You may remember that we entered Southern California with a very small presence when we bought the Holsum Phoenix operation in 2008. Since then, we have grown our business steadily.
In February 2013, Flowers acquired the rights to the Sara Lee bread, bun and roll business and the Earthgrains brand in California as part of BBU's divestiture following the acquisition of the Sara Lee bread business. A rollout of these brands started in February. When the rollout is complete this summer, our DSD segment will serve the entire state of California and will have added 15 million to our population that Flowers serves, bringing our total to more than 77% of the U.S. population with access to our brands.
Looking at our overall marketplace, it's important to tell you more about how our team responded after Hostess Brands exited the market in November. Hostess' departure left significant open space on consumer shelves on the bread aisle throughout much of our country. George mentioned it earlier, but I could not be any prouder of how our team members around the country rallied to serve customers and fill that void.
I thought you'd find it interesting to look back at March 2012 and compare the number of store locations Flowers Foods serves in March of this year. We've increased service from 114,000 to more than 135,000 locations today, an increase of 19%. Now adding 21,500 accounts in a short period of time took a lot of work, took teamwork of sales, production, purchasing and our shared service department. That's another example of how our team makes the extra effort to make sure that we succeed. Our ability to take on such an amount of sales to serve thousands of new customers did not help happen by chance. Our strategy has been to invest in our bakeries and to be innovative throughout our company. Now let's watch a short video.
Bradley K. Alexander
At Flowers Foods, it's all about our continuous improvement across the board. One of the keys to our success has been our long-term commitment to investing capital back into our operations. Since 2001, Flowers Foods has invested more than $879 million back into our business through capital expenditures. These investments have kept our bakeries efficient, fast and flexible and ensure that our products meet the highest standards of quality and consistency. At the same time, we've committed to producing our products in a way that makes a minimal impact on the environment.
Working more efficiently means we use fewer resources such as ingredients, water, electricity and natural gas. We call this baking smart and it's part of who we are as a company. I can say, without a doubt, Flowers Bakeries were among the best in our industry. Most important, our ongoing investments provide us with a distinctive competitive advantage over our competition. Investments made in 2012 and over the years put us in a position to be able to respond to our customers' needs after Hostess left the market.
If you've ever listened to any of our investor presentations, you've probably noticed that we talk often about efficiency. We work hard every day to enhance our overall efficiencies on our bakeries, and the results of the efforts speak for themselves. Over the past 5 years, our operation teams have improved our bakery efficiencies from 87.9% in 2008 to 93.2% [93.3%] in 2012, setting an all-time high for Flowers Foods.
Why is this important? That 5.4% increase is equivalent to the production capacity of 2.5 of our most productive bakeries. In other words, greater efficiency means we're getting the most of our production capacity and staying a least cost producer. And in simple terms, that's the equivalent of the output of 2.5 bakeries that we didn't have to build, freeing up $150 million in capital that can be used for other business opportunities.
In 2012, we invested $67 million back into our company. That money helped increase production capacity, enhanced efficiency across our company. In our Oxford, Pennsylvania plant, we added 90,000 square feet to the existing bakery and added a high-speed bread line. Last week, the bread line became operational. This line is one of the most technologically advanced lines in the company and will support our growth in Philadelphia and Pittsburgh. Besides new lines, we also made investments to retooling slower lines, allowing us to be faster and more efficient. We also invested in bringing back idle lines to support our growth. We brought 3 bun lines over the past few months back online in Jamestown, North Carolina; Brattleburg, Vermont; and Moorestown, Tennessee.
To improve efficiencies and shipping, we continue to roll out a shipping automation project in 2012. We added the new system to 6 bakeries. To date, 22 Flowers bakeries have been updated with our shipping automation. In California, shipping automation played a key role as we took over the Sara Lee and the Earthgrains breads businesses.
As you can see, our 2012 improvements allow us to continue baking the right product at the right bakery to maximize efficiency and freshness. Our industry is going through a period of historic change. As we move forward with our ambitious growth plan, operational improvements and increased efficiency become even more critical than ever before. Our manufacturing teams have done an outstanding job of filling our sales orders with high-quality products that consumers know and love, and these are produced at a low cost in some of the most efficient bakeries in the industry. Our intense focus on operational excellence provides Flowers Foods with a strong competitive advantage and it helps us deliver value to you, our shareholders.
It's now my pleasure to turn the podium over to Steve Kinsey, who will review our financial picture and discuss some of the steps we're taking to support our future growth year.
R. Steve Kinsey
Thank you, Brad, and good morning. One quick housekeeping matter before I begin. Just a quick reminder that today's presentation does contain comments and statements about our business as we know it today. Some of those statements are forward-looking and since they're forward-looking, our results could differ materially from what you may hear today. Our Safe Harbor statement with regard to forward-looking statements can be found on the company's website. Thank you.
There has been a lot of discussion today about the heritage of Flowers Foods. Strong financial performance is a significant part of our heritage. As we think about our future, I think it's important to look at past performance. We believe we have a proven strategy as evidenced by strong historical performance.
Our sales growth over the past 10 years has compounded just below 9%. This growth came from 5% pricing mix, 1% core volume and 3% through acquisitions. Leveraging this revenue growth, we have also been able to grow our EBITDA and improve EBITDA as a percent of sales. We've accomplished this through disciplined cost management, staying focused on the most efficient and effective ways to produce and market our products.
We've seen strong growth in our net income and earnings per share as well over the past 10 years, growing at a compound annual rate of 12% and 13.5%, respectively. As a percent of sales, we've seen net income increase from 3.4% in 2002 to 4.5% in 2012. We believe that as we move in the new markets and integrate our recent acquisitions, our growth will continue -- will allow us to continue to improve upon net income margin as a percent of sales. Our improvements in earnings and margin drive stronger net cash flow, and we have historically generated strong cash flows. Leveraging our revenue gains and margin improvement, we believe we will continue to generate the operating cash necessary to grow our business and pay down debt over time.
Over the last 5 years, we generated $584 million in free cash flow. The first quarter of 2013 was another quarter of strong cash generation for Flowers Foods. Fundamentally, we have a long history of balance in managing our cash flow, investing cash back into our business and returning cash to you, our shareholders. This is a board-level decision and there is a strong commitment to remain true to these strategies.
The strength of our cash flow is evident in the return to our shareholders. Over the past 5 years, we have returned approximately $521 million to our shareholders through dividends and share repurchases. At the same time, we have invested just over $1 billion in acquisitions and our bakeries. Looking ahead, our financial priorities are to manage growth by generating strong returns while maintaining a conservative view towards a strong balance sheet.
Since 2008, we have invested $404 million in capital expenditures. As Brad alluded during his time, we had a greenfield production in Bardstown, Kentucky to support growth in this section of the country. We've added production capacity to existing facilities and expansion regions and more recently, we added bread capacity in our Oxford, Pennsylvania facility to support growth in the Northeast. Our expected capital spend for 2013 is $90 million to $100 million.
Our strong performance and our ability to deliver cash to our shareholders, coupled with the growth we've discussed today, have all been drivers of our stock price performance. Our shareholders have been rewarded through a strong dividend policy and with significant share price appreciation. In fact, on May 16, 2013, or last week, Flowers Foods hit almost $4.7 billion in market capitalization. This is more than double the market capitalization since December 2007.
This slide kind of reminds me of Aesop's Fable as a kid. You may recall the Tortoise and the Hare, slow and steady wins the race. Though things have probably been slow these days, a steady and determined focus on philosophy, strategy and execution means that, if you, as a shareholder, had invested just over $2,000 and 100 shares of Flowers Foods stock and are spin out in 2001, and you reinvested your dividends, coupled with 5-stock split prior to today, over that time, on May 16, you would have had 757 shares worth slightly more than $28,000. This is a phenomenal return no matter how you measure it and with today's announced stock split, you now have shares of 1,135.
As George said, we just completed our first quarter and reported the strongest quarterly results in the history of Flowers Foods. Sales were up almost 26% and earnings per share increased some 64%. Building on the first quarter, we are expecting a strong performance in the first half of 2013. Though we've not given any specific guidance for the full year, we are anticipating the year will finish well within or exceed our long-term targets.
I'd like to say we are focused on executing what we believe is a clearly defined growth strategy, growth from core markets and growth from acquisitions. The growth provides us with strong cash flow that in turn, gives us the confidence to continue to move forward with our strategies.
In closing, I'd like to say thank you as equity holders and investors in Flowers Foods. And I'd also like to say thank you to another very important group, and this would be our debt investors, which is our bank group and our bondholders. Thank you so much for your confidence and support to this growth period. I know many of our bank members are with us today in the audience. So again, a big thank you and thanks to the bondholders, who I know are listening to the webcast.
Now, I'll turn the program to Gene Lord.
Gene D. Lord
Thank you, Steve, and good morning. As we've already said many times before, having the best equipment and the latest technology mean nothing if we don't have the right people in our organization. We believe the Flowers Foods has the finest team in the baking industry. They are the heart of our operation.
Baking is a tough business, and quality and service are key factors. Our team understands that and gets the job done. They know what it means to work the Flowers Way. Our team members embody what we call the Flowers Spirit, an attitude of leadership, teamwork and caring, which is evident on the job and in the communities in which they live. Because this Spirit is so important, we honor and celebrate it every year with our Flowers Spirit Awards.
In 2012, team members at each Flowers location selected a coworker, who best demonstrates the Flowers Spirit of motivation, leadership, caring and integrity. From these worthy honorees, one person was chosen to receive our company's highest employee honor, the Langdon S. Flowers Spirit Award. The recipient for 2012 is Becky Simpson, receptionist at our Texarkana, Arkansas bakery and a Flowers employee for more than 26 years. Let's learn more about Becky, if you please roll the video.
Gene D. Lord
As you saw on the video, Becky Simpson is a great example of the L.S. Flowers Spirit because of her support of people in our company, in our community and her family. Becky is in the audience today, along with her husband Duane, who also happens to be a team member at the Texarkana bakery. Becky, would you please do us the honor now to stand and be recognized? Becky, thank you for what you do for our company every day and for the difference that you make in our community. Your generosity and your actions set a positive example for all of us, Becky. Thank you.
And this time, I'd like to turn the program back over to George Deese.
George E. Deese
Thank you Gene, and thank you all team members for those great presentations. And Becky, my congratulations. Thank you so much for who you are. Well, we've seen it and hopefully you can see as we see that Flowers Foods is an exceptional company that has embarked on one of the most important growth phases in our history. We continue to remain true to our passion of building value for you, our shareholders, through growth opportunities in grain-based foods by growing sales, giving the best service, baking smart, investing wisely, appreciating an outstanding team. This is how we build value. This is how we grow the Flowers Way.
Before we take questions, I need to make a few announcements. And I know we stand between lunch and in this meeting, so lunch will be served in the power station right behind us. Barbecue from Granddaddy's, does that suit you? I know you like it. Be sure to pick up your bag of Flowers products at one of the bread trucks outside, I think it will be easy to find. By the way, you will need your name tags, so keep it with you to claim your bag. Marta Turner did mention that we would be doing questions different today and Marta Turner will be assisting by asking questions. And I'm asking Allen Shiver to join me on the far left to handle the questions. So Marta, first question please?
Marta Jones Turner
Okay. We do have several questions from our shareholders, George. The first comes from local shareholder, Scott Rich. And Scott's question is addressed to you. George, why are you giving up the CEO position while you're in the midst of the most aggressive growth period this company has ever seen?
George E. Deese
Well, Scott, after 49 years, I think I deserve it. No. Scott, all of us is in this business. Following Flowers forward, everybody I know that's been in the leadership position of this company really never leaves. We've been around 33 plants, bakeries in the last few weeks and I made the statement, if you keep cutting my wrist, you would see blood, but you'd also see the Flowers Way coming out. So I love this company. I have a passion for it, so I will never, never forget what this company has done for my family, what it has done for so many shareholders. But one of my biggest reward is seeing people get ahead in the company, being promoted to take on greater responsibilities. So the original question, I'm not leaving. I will stay on as Executive Chair and that means I go from 7 days a week to 6 days a week. But no, quite candidly, there's still a lot to be done. Allen is going be a great CEO. I will be there to help guide until I think I don't need to any longer but more importantly, continuing to set strategies so that we can continue this growth that's been created over time for the company.
Marta Jones Turner
Thank you, George. Homer Pankey, a shareholder, asked, "Now that Flowers has reached the goal that it set for 75% coverage of the U.S. population, what happens now and when will Nature's Own be considered a national brand?"
George E. Deese
I'm going to tell you, I'm going to switch that to Allen. He's in charge of growth now.
Allen L. Shiver
That's a really good question. We did reach the 77% of the country and DSD coverage. But I think when you think about growth going forward, even though we're in 77% of the country, if you look at many of those markets, our market share is very low. We recently entered the market. Our brands are not as mature in new markets as they are in many of our core markets. So if you look at growth opportunity going forward, I think a good thing to remember is that in the new markets, our market share is very low today and but we are growing that share with every day that passes and we have a lot of green grass in front of the company. And I think that the next years and certainly, the next 5 to 10 years are going to be really exciting from a growth standpoint. I looked the other day at some of the major states in the country. And if you look at the size of the bakery category by state, many of the largest states with the largest bakery category are states that we recently moved into. So again, just another good example of the growth opportunity ahead.
Marta Jones Turner
Thanks, Allen. George, during the reception, a number of people approached me and others who were there, and we had a couple of questions submitted too, asking what's the status of Hostess and what really should shareholders be thinking about that acquisition that is -- in some form.
George E. Deese
Well, I think I did say in my prepared remarks. That's a great question. I know as a shareholder, you're vitally interested in that outcome. It is under regulatory process and we feel like that process will be completed in the back half of the year. So as soon as we know, shareholders, you'll be the first to know after that. So we do hope that process will be completed sometimes the latter part of the year.
Marta Jones Turner
Thank you, George. And the last question that I have comes from Louie Porter, a shareholder who asked, wheat -- the price of wheat has been a factor, quite a different -- fluctuating the last several years and Louie asked, what about this year? What are the crops looking like? What about other commodities and just that situation? And what will it do to earnings? Should we be expecting something different with earnings relative to that issue?
George E. Deese
Good. Louie, thank you for that question. I'm going to throw that question to Steve Kinsey. He's our resident [ph] expert.
R. Steve Kinsey
Well, it would be best at the time [ph]. No, just real quick. When we look at wheat, we're still pretty good about where we are today. We don't discuss specifically about how we're covered. As you know, we do hedge and try to mitigate risk and try to make sure that the effect of kind of the volatility and the commodity markets doesn't affect earnings on a quarter-to-quarter basis. But overall, I'd say, from a wheat perspective, we did the global crop. Globally, it looks pretty good. We hear a lot more about domestic wheat and there's a news, the big [indiscernible] weather, as we're coming up to the harvest, especially with corn, because corn is a grain that affects the price of wheat. But I would say, today, with our -- with the coverage we have in place, we feel very good about where we are from a wheat perspective. With regard to other commodities, again, we also take kind of a near- to longer-term view and we will cover those either through hedges or we'll also buy forward 6 to 12 months. Again, most of our commodity basket, we feel really good about where we are today and the shape we're in. So for 2013, we're pretty confident about earnings and the affect that commodities will have. And then looking forward, we haven't really given any guidance, but we don't see anything in the near future that we have tremendous concern about. So we'll stick to our strategies, continue to hedge and try to maintain in our -- try to mitigate the volatility in the commodity market. And as always, we always look at other cost of the business and try to take those out before we move to pricing action, so I don't see anything changing from that perspective. Thank you.
George E. Deese
Thank you, Steve. Marta, this concludes our questions? Well, thank you -- as we close, let me again thank you, our shareholders, for the confidence you have in this team. I do congratulate Allen as he takes on his new role and his new responsibilities. I did see some friends from Dothan, Alabama and some family from Dothan, Alabama. Thank you so much for attending, Glenda. 13 moves later, we're going to have Thomasville and it's a great place to live and we love being here. And again, thank you team members for going over and beyond the call of duty to make this company what it is. Without you, we will not happen. We thank you for everything that you do and we look forward to next year. Those who can, please rise as we honor America.
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