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Flowers Foods (FLO) Stock Dips on Q2 Earnings Miss, Sales Up

Zacks Equity Research

Flowers Foods, Inc.’s FLO shares tumbled 9.2% during yesterday’s after-market trading session, following its second-quarter 2019 results, wherein the bottom line missed the Zacks Consensus Estimate. The company continues to witness commodity, labor and transportation cost inflation. Further, management pulled down the upper end of its earnings outlook for 2019, which along with the earnings miss seems to have hurt investors’ sentiment.

Nevertheless, Flowers Foods’ top line improved year over year and surpassed the consensus mark, benefiting from continued improvements at the Dave's Killer Bread, Nature's Own and Wonder brands. Further, contributions from the Canyon Bakehouse’s buyout aided top-line growth.

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

Earnings & Sales

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%.

Category Performance

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.

Guidance

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. The updated guidance stands below the current Zacks Consensus Estimate of $1.00.

Price Performance

This Zacks Rank #3 (Hold) stock has gained 20.3% in the past six months, outperforming the industry’s growth of 2.9%.

Check These Better-Ranked Food Stocks

General Mills GIS, with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McCormick MKC, also with a Zacks Rank #2, has a long-term EPS growth rate of 8%.

Mondelez International MDLZ, with a Zacks Rank #2, has a long-term EPS growth rate of 7.7%.

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