Flowers Foods (FLO, Financial) is a producer of bakery products in the U.S. and has been doing well for quite some time now. Its focus on expanding its business through acquisitions seems to be bearing fruit. However, its shares have fallen by 12.4% in the last year. But the company's strategic efforts are expected to bring a change in its performance, resulting in a better future.
Flowers Foods reported its third quarter results very recently, which was beyond the Street's estimates. However, a dull outlook for the year forced its share price to fall. Let's discuss.
Snapshot of the quarter
Revenue for the quarter dropped 3.3% to $849.4 million, as compared to the last year. This was lower than the analysts' estimate of $883 million. Reasons for the decline were a drop in volumes of 4.4%. But the price mix added 1% to the top line, offsetting the decrease in volume. However, there were a number of brands which did well and should be looked forward to.
For instance, the branded bread and rolls category increased 1.4% as consumers shifted to more branded products from the store-branded ones. Also, the acquired brands such as Merita, Wonder, Butternut and Home Pride, grew a decent 7.8%. These acquired brands are instrumental in expanding into new regions as well as in expanding its presence in the existing markets. The bread business too performed well with an expansion of 3.1%.
However, the existing brands were a matter of concern. The company has undertaken various initiatives to take care of this segment, including measures such as the re-launch of existing brands.
The food company relaunched the Hostess cake in July 2013. Also, it brought Wonder bread back, which boosted the bread category. Furthermore, it launched the Cobblestone Bread Company. These efforts helped the retailer strengthen its bread segment.
Delving deeper
The two most popular brands of Flowers are Tastykake and Nature's Own. Tastykake was acquired in 2011, and its products resonate well with the customers. Nature's Own, on the other hand, specializes in food made of natural ingredients and is much in vogue. This is mainly because of customers' preference towards organic and healthy food habits.
The gross margin of the company expanded 110 basis points to 47.8%. This was driven by lower input costs and manufacturing efficiencies, which resulted in the gains. Also, the bottom line surged 16% to $0.21 per share, over last year. Earnings were higher than the estimate of $0.20 per share.
Although the bottom line was impressive, the outlook for the year was lowered. The revenue outlook was now between $3.75 billion to $3.77 billion. Earnings are estimated to be in the range of $0.86 per share to $0.90 per share. This disheartened the investors.
To end upÂ
Flowers Foods has had a mixed quarter. However, it has been trying to improve its product portfolio and make it better for the customers. Also, it looks for geographic expansion as well as business expansion through acquisitions. These efforts should help the company grow. However, a dull outlook and a lower top line make Flowers Foods unattractive. Thus, investors should stay on the sidelines until the company shows clear signs of a turnaround.
