Flowers Foods (FLO) Banks on Core Priorities Amid Cost Woes
Flowers Foods, Inc. FLO is navigating challenges effectively and positioning itself for growth. This leading packaged bakery product company has been gaining from its polished core priorities and the benefits of pricing strategies and strategic acquisitions.
Core Priorities
Flowers Foods has been committed to its core priorities, focusing on team development, brand concentration, margin enhancement, and strategic mergers and acquisitions. The company's transformation into a more brand-centric organization has shown progress, and its optimized product portfolio is set to drive market share expansion through innovation.
Flowers Foods has been actively innovating in its flagship brands, demonstrated by the nationwide launch of Dave's Killer Bread Snack Bars.
In the realm of margins, Flowers Foods is meticulously implementing pricing strategies and cost-saving measures to enhance business efficiency. The company is successfully shifting a significant portion of its sales to higher-margin branded retail products, which constituted 64.1% of its sales in the second quarter of 2023. Digital transformation and supply-chain initiatives are also progressing well, with FLO targeting savings of $20 to $30 million in 2023.
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Buyouts Solidify Portfolio
Flowers Foods has strategically pursued acquisitions to reinforce its product portfolio and expand into untapped markets. The acquisition of Papa Pita Bakery in February 2023 contributed to a 1.6% sales increase in the second quarter of 2023.
In addition, the acquisition of Dave's Killer Bread and Alpine Valley Bread Company in 2015 provided the company with access to the Pacific Northwest market. The 2018 acquisition of Canyon Bakehouse opened doors for Flowers Foods in the growing gluten-free bakery segment.
Gains From Pricing Aid Amid Cost Challenges
While grappling with cost inflation challenges, Flowers Foods has effectively utilized pricing strategies to support its margins. Pricing/mix increased 13.3% in the second quarter and boosted sales in branded retail and other channels. For fiscal 2023, the Zacks Rank #3 (Hold) company expects sales in the range of $5.095-5.141 billion, suggesting a 6-7% increase year over year.
However, materials, supplies, labor and other production costs (excluding depreciation and amortization) were impacted by input cost inflation, reduced production volumes, higher product returns and elevated maintenance costs in the second quarter. Also, Flowers Foods witnessed a rise in marketing expenses in the quarter. The company’s increased focus on marketing and innovation behind brands is likely to increase its cost burden in the near term, though it is expected to drive long-term growth.
For fiscal 2023, Flowers Foods’ adjusted EPS is envisioned in the band of $1.18-$1.25 compared with $1.27 recorded in fiscal 2022. The company’s shares have tumbled 13.6% in the past three months compared with the industry’s decline of 15.7%.
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The Kraft Heinz Company KHC, a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
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The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings suggests growth of 8.9% from the corresponding year-ago reported figure.
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