Why Flowers Foods Can Make a Comeback in the Future

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Oct 30, 2014

Flowers Foods (FLO, Financial) recently announced a 2.3% decline in its second quarter sales to $877.4 million, down from $898.2 million during the same period last year. It also reduced the full-year guidance of sales for 2014 in the $3.88-3.94 billion range.

Earnings Analysis

Flowers Foods reported net income for second quarter 2014 of $42.1 million, or $0.20 per diluted share, compared to previous year's second quarter of $46.5 million, or $0.22 per diluted share. The non-GAAP net income per diluted share for the quarter was $0.21, as compared to $0.24 during the same period last year.

Outlook

Over the past two years, Flower Foods has considerably increased its market share by acquiring brands of bakeries that allow us to expand in the new territories, as well as build our share in existing markets.

The sales of the Flower Foods acquired brands such as Merita, Butternut, Home Pride and Wonder increased nearly 35% since first quarter. The sales for the new markets doubled during the quarter compared to previous year’s second quarter, rising nearly $21.4 million.

New products contributed significantly to the entire sales of the company. Flower Foods DSD branded rolls, buns and bread business expanded 3.1%.

Flower Foods is focused on the distribution basics crucial in enhancing topline growth, whereas expanding its earnings potential with the flourishing launch of its acquired brands.

Overall, the company’s store brand business declined 7.8% with store brand cake declining 19% and bread and buns store brand declining 4.6% as well.

Flowers Foods gained considerable amount of the fresh cake business with the re-launch of Hostess cake in July 2013, expanding the market share to 8.6 from 5.7.

Flowers Foods cake sales increased considerably since the acquisition of Tastykake in 2011. The retail sales of Tastykake are adding to $460 million, an increase of $35 million since last year. Flowers Foods plans to grow its Tastykake brand by utilizing the distribution power of its DSD route structure coupled with providing exceptional customer service and outstanding product quality.

According to IRI data, Flowers Foods share of packaged breads is increasing continuously. It has expanded by 0.7 share points to a 14 share till date over the second quarter last year. Similarly, its share of rolls, buns and bread increased 3.3 points over the equivalent quarter in 2012.

Flowers Foods penetrated the Kansas City market last year. In just one year, it has achieved the 10 share of rolls and bread enabled by the re-launch of Wonder bread and the power of its Nature’s Own brand.

Flowers Foods is gaining significant share in the expanding market of Kansas City, California, New York, Pittsburg and Cincinnati and highlights its potential to grow the company by adding DSD routes upon leveraging its autonomous distributor model enabled by key brands such as Tastykake, Wonder and Nature’s Own.

Flowers Foods is keen on reopening its acquired bakeries as per the requirements for supporting its growth in rising markets. The reopening of its Knoxville, Nevada and Henderson bakeries coupled with the penetration at the California and Modesto bakeries signifies its obligation towards growth.

Flowers Foods has also signed an agreement to sell its Fort Worth tortilla facility, which is believed to be running under loss and negatively impacting its production facilities and production efficiencies. Also, the ongoing relocation of its Fort Worth Flowers tortilla lines into core Flowers bakeries is under progress.

The launch of Cobblestone Bread Company highlights the company’s significant investment efforts for the future.

Established regional brands such as Bunny and Sunbeam are continuously supporting its business in the category of white bread sales. However, the quarterly sales of Flowers Foods were pulled down considerably by weak cake volume, regardless of the jump in sales for rolls and bread, forcing the company to contract its full-year guidance.

Conclusion

Flowers Foods is experiencing weakness, but the company is working hard to make a strong comeback in the future. As such, it will be a good idea to keep a close eye on the stock just in case it makes a comeback going forward.