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Flowers Foods' Latest Buyout to Enhance Gluten-Free Offerings

Flowers Foods, Inc. FLO concluded the buyout of gluten-free baking firm Canyon Bakehouse LLC, which was announced in November. The inclusion of this Johnstown-based company is likely to expand Flowers Foods’ presence in the gluten-free foods category, which is gaining traction from consumers’ rising demand for the same.

Canyon Bakehouse is one of the leading gluten-free loaf brands in natural and specialty food stores. It is also strongly renowned in the overall gluten-free loaf category. In fact, the company is one of the fastest-growing gluten-free bread loaf brands nationwide, with majority of its sales channelized through natural, grocery, specialty and mass retailers.

With a wide range of gluten-free breads, English muffins and buns, among other items in its kitty, Canyon Bakehouse has produced a compound annual net sales growth rate of nearly 45% since 2014. Further, Canyon Bakehouse expects net sales to range between $70 million and $80 million in 2019. Flowers Foods is likely to benefit from the deal, and the company’s robust distribution channels and alliances will help it offer Canyon Bakehouse products to a larger customer base. Markedly, Flowers Foods expects this acquisition to augment its earnings in fiscal 2020.

Flowers Foods has been focused on acquisitions to strengthen its product portfolio and expand in untapped markets. Notably, the company has acquired more than 100 companies since 1968 and 16 companies since 2003. In 2015, the company bought Dave’s Killer Bread (DKB) and Alpine Valley Bread Company. With the acquisition of DKB, the company got access to the Pacific Northwest market.

These efforts are likely to continue enhancing Flowers Foods’ portfolio, which, in turn, will help the company gain market share. Notably, strength in DKB, Nature's Own and Wonder brands drove Flowers Foods’ market share in the third quarter of 2018, which marked the company’s ninth consecutive quarter of market share improvement.



Such upsides are likely to lift investors’ confidence in this Zacks Rank #4 (Sell) stock that has dipped 0.4% in a year’s time compared with the industry’s decline of 13.4%. Flowers Foods has been witnessing a year-over-year decline in EBITDA for the past four quarters. In third-quarter 2018, adjusted EBITDA margin contracted 140 basis points (bps) to 10.6% due to increased costs of marketing inputs, manufacturing, workforce and freight. However, we note that freight costs have been posing hurdles to many food companies like Campbell Soup CPB, General Mills GIS and Sanderson Farms SAFM, among others.

Coming back to Flowers Foods, we expect the company’s growth endeavors and expansion efforts like the aforementioned buyout to help it combat these headwinds.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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