Bear of the Day: Flower Foods (FLO)
One stock investors may want to be cautious of at the moment is Flower Foods (FLO) which has a Zacks Rank #5 (Strong Sell) and lands the Bear of the Day.
There is a cautionary tale building for companies that produce or market higher-quality foods as margins are starting to drop on lower demand. Despite broader inflation beginning to ease the inflationary environment is still challenging for these retailers and consumers continue to scale back on premium or specialty food consumption.
This leaves more downside risk ahead for Flower Foods stock as the company is a provider of high-quality baked items with brands that include Nature’s Own, Dave’s Killer Bread, and Tastykake.
United Natural Foods Warning
Investors may want to take heed of United Natural Foods' (UNFI) warning and its stocks' steep decline over the last few months.
United Natural Foods' stock has dropped -22% since June after the company stated its profitability was being impacted by a greater-than-expected decline in gross margins. This was attributed to a challenging operating and macroeconomic backdrop which contributed to lower inflationary benefits primarily related to reduced procurement gains, as well as higher shrink.
As a leading distributor of natural organic and specialty food products, United Natural Foods' earnings estimates have largely declined over the last quarter.
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Flower Foods has also warned of inflationary pressures with CEO Ryals McMullian stating this led to a slow start to the year and lower-than-expected branded retail sales due to softer category demand.
Flower Foods' earnings are now expected to be down -5% this year but rebound and rise 7% in fiscal 2024 at $1.28 per share. However, earnings estimate revisions have also trended down for Flower Foods which could be a sign of more short-term pain ahead.
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Performance Warning
Flower Foods stock hasn’t seen quite the decline as United Natural Foods stock this year but the downward trend in earnings estimate revisions is still worrisome considering the broader struggles for higher-quality food retailers.
It may not be wise to overlook Flower Foods stocks’ -14% drop this year with United Natural Foods stock dropping -48% which serves as a further warning as to where these stocks could be headed if their earnings pictures continue to weaken.
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Bottom Line
For now, investors may want to stay on the sidelines in regards to investing in Flower Foods stock. The case for selling the stock has gained steam with the notion that shares of FLO may keep falling when looking at United Natural Food’s troubling performance this year.
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Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
