Here's How Flowers Foods (FLO) Looks as We Approach 2024
Flowers Foods, Inc.’s FLO strategic priorities and long-term goals position it for growth and market leadership. With a focused approach to team development, brand concentration, margin improvement, and prudent mergers and acquisitions, Flowers Foods is responding well to industry trends and consumer preferences.
Factors Carving FLO’s Growth Picture
One of the company's strengths lies in its commitment to innovation, demonstrated by the successful rollout of Dave’s Killer Bread Snack Bars and the upcoming launches of DKB protein bars and DKB snack bites. These initiatives are expected to drive market share gains and contribute to the success of Flowers Foods’ renowned brand, DKB.
Acquisitions have played a crucial role in Flowers Foods' growth trajectory. The recent acquisition of Papa Pita Bakery contributed to a 1.3% sales increase in the third quarter of 2023. With a history of more than 100 acquisitions since 1968, Flowers Foods continues to explore opportunities for mergers and acquisitions to strengthen its product portfolio and expand into new markets.
As a matter of fact, Flowers Foods is strategically transitioning its sales toward higher-margin branded retail products, which constituted 64.3% of sales in the third quarter of 2023. The pricing strategy has been another major driver, with a 6.3% increase in the pricing/mix in the third quarter of 2023. This, combined with efficient portfolio strategies, has allowed the company to navigate inflationary pressures and achieve better margins.
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Navigating Cost Challenges
Flowers Foods is grappling with cost inflation. Volatility in commodity costs and elevated production expenses are areas of concern. The company’s selling, distribution, and administrative (SD&A) expenses have been expanding as a percentage of sales on a year-over-year basis.
In the third quarter, SD&A expenses were 50.4% of sales, up 1,180 bps. This can mainly be attributed to increased legal settlement expenses. In addition, higher workforce-related costs, marketing investments and amortization of technology were hurdles. Adjusted SD&A expenses expanded 200 bps to 38.4% of sales. Flowers Foods’ 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.
Nonetheless, Flowers Foods is ahead of track with its savings plan and expects to achieve savings of $30-$35 million in 2023. This, along with strategic initiatives and brand strength, keeps this Zacks Rank #3 (Hold) company well-placed for 2024.
Shares of FLO have advanced 2.4% in the past three months compared with the industry’s growth of 4.2%.
3 Delectable Choices
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 9.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1% and 6.5%, respectively, from the year-ago reported numbers.
Ingredion Incorporated INGR, which produces and sells sweeteners, starches, nutrition ingredients, and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29.4% from the year-ago reported figure.
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