(Reporting by Alexei Oreskovic; Editing by Richard Chang) Stocks France. CHICAGO–(Business Wire)–Fitch Ratings has affirmed the ratings of Flowers Foods Inc. (Flowers; NYSE:FLO) as follows: –Issuer Default Rating (IDR) at ‘BBB’; –Senior unsecured credit facility at ‘BBB’ The Rating Outlook is Stable. At the quarter ended April 25, 2009, Flowers had approximately $272 million ofdebt. Flowers’ ratings reflect its quality earnings, low financial leverage andleading market position in the Southern U.S – the primary market in which itcompetes.

These strengths are balanced against the mature nature of the bakeryindustry and the company’s regional focus, which could hinder its ability tocompete against larger national competitors. Nonetheless, strong organic revenuegrowth combined with hedging and cost reductions have enabled Flowers toconsistently generate industry-leading operating margins. Furthermore, Flowerscontinues to strategically grow its direct-store-delivery (DSD) network alongcontiguous territories and in geographies experiencing above-average populationgrowth. For the first quarter ended April 25, 2009, Flowers’ revenue increased 19.3% to$807 million.

Acquisitions contributed 12%, price/mix contributed 6.8% andvolume growth added 0.5%. Earnings before interest and taxes (EBIT) increased9.4% to $59.2 million despite higher year-over-year ingredient costs andstart-up costs for a new bakery in Kentucky, but the company’s EBIT margindeclined 70 bps to 7.3%. Flowers’ operating income has grown at a 24% compound annual rate since 2004 andthe company’s cash flow has historically satisfied working capital, capitalexpenditure and dividend requirements. However, higher working capitalassociated with the recent acquisitions and hedging losses, which required theposting of additional collateral, caused the company to generate negative freecash flow (defined as cash flow from operations less capital expenditures anddividends) for the first time in fiscal 2008. Flowers’ liquidity as of April 25, 2009 consisted of $150 million availableunder its $250 million five-year revolving bank facility, which expires October2012, and $19 million of cash. Near-term maturities are limited to scheduledterm loan amortization and can be comfortably managed with existing cash flow.Fitch anticipates that Flowers will generate positive free cash flow in fiscal2009 due to operating income growth and improved working capital management. Flowers significantly increased debt levels in fiscal 2008 to fund acquisitions;however, credit statistics remain strong for the rating category.

For the latest12 month (LTM) period ended April 25, 2009, Flowers’ total debt-to-operatingearnings before interest, taxes, depreciation and amortization (EBITDA) was 1.0times (x), funds from operations (FFO) adjusted leverage was 3.0x and FFO fixedcharge coverage was 3.6x for the period. Flowers has room to incur additionaldebt to help fund acquisitions but Fitch expects the company to remainconservative in its approach Flowers Foods, Inc. is one of the nation’s leading producers and marketers ofpackaged bakery foods for retail and foodservice customers. Flowers producesbreads, buns, rolls, snack cakes and pastries that are distributed fresh in theSoutheast, Southwest and Mid-Atlantic regions and frozen to customersnationwide Approximately 21% of its sales are to Wal-Mart/Sam’s Club.

Flowers’Nature’s Own flagship brand is the country’s best-selling brand of soft varietybreads and buns. The company operates two divisions: Direct-Store-Delivery (DSD)and Warehouse Delivery. DSD represented approximately 83% of revenues and 88% ofincome from operations excluding corporate expense in fiscal 2008 whilewarehouse delivery represented 17% and 12%. Fitch’s rating definitions and the terms of use of such ratings are available onthe agency’s public site, Published ratings, criteria andmethodologies are available from this site, at all times.