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Flowers Foods (FLO) Down 8.2% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for Flowers Foods (FLO). Shares have lost about 8.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Flowers Foods due for a breakout? 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 catalysts.

Flowers Foods Ups View on Q3 Earnings & Sales Beat

Flowers Foods posted better-than-expected third-quarter fiscal 2020 results, wherein the top and bottom lines increased year over year. The company benefited from the rising trend of stay-at-home eating. Going ahead, management remains optimistic about stay-at-home food demand. Also, the company’s supply-chain initiatives, product optimization and restructuring actions are likely to help it stay afloat amid this crisis. Encouragingly, Flower Foods lifted its 2020 view.

Q3 in Detail

Adjusted EPS of 29 cents came ahead of the Zacks Consensus Estimate of 25 cents. Moreover, the bottom line increased 32% year over year.

Sales grew 2.4% to $989.7 million, which beat the Zacks Consensus Estimate of $977 million. Notably, increased demand owing to the coronavirus pandemic contributed to this growth. Higher branded retail sales helped offset the decline in store-branded retail sales, and non-retail and other sales. While pricing/mix increased 8.1%, volumes dropped 5.7%.

Costs & Margins

Materials, labor, supplies and other production expenses (net of depreciation and amortization), as a percentage of sales, contracted 240 basis points (bps) year over year to 50.3%. This can be attributed to favorable shifts in mix from non-retail and store-branded retail products to branded retail products.

Adjusted selling, distribution and administrative expenses (as a percentage of sales) rose 50 bps to 38%, courtesy of increased distribution fees and escalated employee-incentive costs. These were partly offset by reduced logistics expenses, a decline in fuel expenses and supply-chain optimization.

Adjusted EBITDA rose 22.4% to $116.4 million, whereas adjusted EBITDA margin expanded 200 bps to 11.8%.

Category Performance

Branded retail sales rose 12.2% to $657.1 million in the quarter under review. Meanwhile, store-branded retail sales fell 9.5% to $136.6 million, whereas non-retail and other sales declined 14.7% to $196 million.

More Financial Aspects

The company ended the quarter with cash and cash equivalents of $325.8 million and long-term debt of $1,009.8 million. Further, stockholders’ equity amounted to $1,351.5 million.

In the nine months ending Oct 3, 2020, the company’s cash flow from operating activities amounted to $364.4 million, while it incurred capital expenditures of $68.3 million. Capital expenditures are still projected in the range of $85-$95 million for 2020.

Flowers Foods paid out dividends worth $124.9 million in the aforementioned period and has 6.2 million shares remaining under the ongoing repurchase program.

Guidance

Notably, the company intends to stay committed to enhancing its portfolio and supply chain that are anticipated to deliver more than $20 million in savings in 2020.

Management now projects sales of roughly $4.35-$4.37 billion for 2020, suggesting growth of about 5.5-6% year over year. Earlier, it expected sales in the band of $4.29-$4.33 billion, which indicated 4-5% growth from the year-ago period’s reported figure.

Adjusted EPS is now envisioned to be $1.23-$1.28, indicating growth of about 28.1-33.3% from the year-ago period. This guidance is above the earlier-projected range of $1.15-$1.25 per share, which suggested an improvement of 19.8-30.2% year over year. Moreover, the Zacks Consensus Estimate for 2020 earnings is currently pegged at $1.22, which is below the currently guided range.

The company expects net interest expenses of about $11 million and an effective tax rate of nearly 24-24.5% for the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Flowers Foods has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Flowers Foods has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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