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3 Reasons Why Flowers Foods Appears to be a Lucrative Pick

Zacks Equity Research
·4 min read

Flowers Foods, Inc. FLO appears to be a delectable pick, courtesy of its strategic endeavors, including impressive price/mix, prudent buyouts and robust saving efforts. Also, the company has been lately gaining from burgeoning demand amid the coronavirus-led stockpiling as well as increased at-home consumption.

That said, let’s delve deeper into the factors shaping the growth story of this Zacks Rank #2 (Buy) company, which also flaunts a VGM Score of A.

Buyout Gains & Pricing

Flowers Foods has been focusing on acquisitions to strengthen its product portfolio and expand in untapped markets. In December 2018, the company completed the acquisition of Canyon Bakehouse, which has helped Flowers Foods foray into the growing gluten-free bakery space. Well, the company has successfully integrated Canyon Bakehouse, which is yielding results. Additionally, brands like DKB, Nature's Own and Wonder brands continue to perform well, with DKB having emerged as the company’s second-largest brand. Further, Flowers Foods’ efficient pricing strategy helped it counter inflation in the fourth quarter of 2019. Price mix contributed 6.2% to the sales increase in the first quarter of 2020. This can be mainly attributable to the shift toward branded retail items. Continuation of such trends is likely to aid the top line.

Saving Initiatives

Flowers Foods is progressing well with Project Centennial and also undertaking several efforts to revive its core business, lower costs, make use of product advances and develop leading capacities. Project Centennial is aimed at streamlining operations, fueling efficiencies, improving margins by curtailing cost, optimizing supply chain and making prudent investments to solidify Flowers Foods’ competitive position. In fact, based on the restructuring endeavors related to Project Centennial, the company has consolidated all operations under a single segment. Apart from this, the company expects business improvements from its supply chain and portfolio optimization plans. It continues to expect savings of $10-20 million for 2020, even amid the pandemic-related hurdles.

Flowers Foods, Inc. Price, Consensus and EPS Surprise

Flowers Foods, Inc. Price, Consensus and EPS Surprise
Flowers Foods, Inc. Price, Consensus and EPS Surprise

Flowers Foods, Inc. price-consensus-eps-surprise-chart | Flowers Foods, Inc. Quote

Increased Coronavirus-Led Demand & 2020 View

In first-quarter 2020, Flowers Foods’ top and the bottom lines increased year over year and beat the Zacks Consensus Estimate. Net sales increased 6.8% to $1,349.4 million, which beat the Zacks Consensus Estimate of $1,329 million. Notably, increased demand owing to the pandemic-led lockdown contributed to growth by 6.5-7.5%. Strength in branded retail aided sales, which rose 17.7% to $891.5 million. The upside can be attributed to a favorable shift in the product mix from non-retail and other to branded retail segment owing to the coronavirus pandemic. The company’s Nature's Own, Canyon Bakehouse, Dave's Killer Bread and Wonder brands remained strong, in particular.

Further, in the second quarter (as of May 14), the company’s branded retail sales remained strong, reflecting year-over-year growth of 20%. In 2020, management continues to expect sales of $4.206-$4.289 billion for 2020, suggesting 2-4% growth from the year-ago period’s reported figure. Adjusted EPS is projected to be $1.00-$1.08, indicating growth of 4.2-12.5% from the year-ago period’s reported figure.

All said, we expect Flowers Foods to keep up its impressive show. Markedly, shares of the company have gained 5.3% in the past six months against the industry’s decline of 9.2%.

3 More Solid Food Stocks

B&G Foods BGS, with a Zacks Rank #1 (Strong Buy), outperformed the Zacks Consensus Estimate by 5.4%, on average, in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast MED, also with a Zacks Rank #1, has a trailing four-quarter positive earnings surprise of 14.8%, on average.

McCormick MKC has a Zacks Rank #2 and a trailing four-quarter positive earnings surprise of 10.9%, on average.

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