A month has gone by since the last earnings report for Flowers Foods (FLO). Shares have added about 0.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flowers Foods due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Flowers Foods Q2 Earnings Miss Estimates, Sales Up
Flowers Foods posted second-quarter 2019 results. The company’s adjusted earnings per share (EPS) of 25 cents lagged the Zacks Consensus Estimate by a penny. The bottom line remained flat year over year.
Net sales advanced 3.7% year over year to $975.8 million, which beat the Zacks Consensus Estimate of $965 million. Excluding the Canyon Bakehouse buyout, net sales grew 1.8%. Sales were backed by increased branded retail and store-branded retail sales, somewhat offset by lower non-retail and other sales.
Costs & Margins
Materials, labor, supplies and other production expenses (net of depreciation and amortization) as a percentage of sales escalated 20 basis points (bps) to 52.1%. This can be blamed on lower production volume, reduced manufacturing efficiencies and increased workforce-related costs. Better pricing/mix and reduced ingredient expenses offered some respite.
Adjusted selling, distribution and administrative expenses improved 20 bps to 37% of sales, courtesy of better product mix.
Adjusted EBITDA grew 3.2% to $105.9 million, whereas adjusted EBITDA margin contracted 10 bps to 10.8%.
Branded retail sales rose 4.6% to almost $586 million, backed by constant gains from DKB organic products and Sun-Maid breakfast bread, contributions from the Canyon Bakehouse buyout and improved price/mix. These were offset by soft sales of branded cake, owing to stiff competition and product rationalization.
Store branded retail sales rose 10.5% to $162.9 million, owing to contributions from the Canyon Bakehouse buyout, gains from store-branded buns and bread, increased distributions and better price/mix. This was somewhat countered by weakness in store-branded cake.
Non-retail and other sales dropped 2.9% to $226.9 million due to lower foodservice and vending volumes, partly on business losses related to the yeast disruption in the last year.
More Financial Aspects
Flowers Foods ended the quarter with cash and cash equivalents of $9.8 million, and long-term debt and capital leases (including current portion) of $893.5 million. Further, stockholders’ equity amounted to $1,294.3 million.
Until the second quarter of 2019, the company’s cash flow from operating activities amounted to $208.1 million while it incurred capital expenditure of $47.4 million. Capital expenditure is envisioned around $110-$120 million for 2019.
After Flowers Foods paid out dividends worth $79.6 million in the second quarter, it had 6.2 million shares remaining under the ongoing repurchase program.
Management remains impressed with its performance, marked by solid sales. The company is pleased with the success of its growth efforts like undertaking efficient pricing, product innovation and effective marketing endeavors. It remains focused on these initiatives, which should help it battle commodity, labor and transportation cost inflations.
All said, Flowers Foods still expects 2019 sales to be $4.030-$4.109 billion, reflecting 2-4% growth. This is likely to include sales of nearly $70-$80 million from Canyon Bakehouse.
Adjusted EPS is now projected to be 94-99 cents compared with previously mentioned 94 cents to $1.02.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -9.8% due to these changes.
At this time, Flowers Foods has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Flowers Foods has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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