Flowers

Flowers Foods’ (FLO) Prudent Acquisitions & Pricing Aid Sales – March 28, 2022

Flowers Foods, Inc. (FLO Free Report) is benefiting from a focus on prudent acquisitions. The company’s robust pricing efforts look promising. Strength in its strategic priorities has also been yielding results.

While the operating landscape remains tough, the company’s early results for fiscal 2022 have been promising. Management expects the momentum to sustain. The company projects fiscal 2022 sales to be nearly $4.660-$4.695 billion, suggesting a 7.6-8.4% growth from the year-ago reported figure. Earnings per share (EPS) for 2022 are envisioned in the range of $1.25 to $1.35, up from $1.24 reported in fiscal 2021. Shares of this Zacks Rank #2 (Buy) company have appreciated 5.3% in the past six months against the industry’s decline of 0.7%.


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Let’s discuss this in detail.

Acquisitions & Pricing: Key Growth Drivers

Flowers Foods has been focusing on acquisitions to strengthen its product portfolio and expand in untapped markets. The company has acquired over 100 companies since 1968 and believes that there’s still plenty of potential with respect to mergers and acquisitions (M&A) activities. In 2015, the company bought Dave’s Killer Bread (DKB) and Alpine Valley Bread company. In December 2018, the company completed the buyout of Canyon Bakehouse, which has helped Flowers Foods foray into the growing gluten-free bakery space. Brands like DKB, Nature’s Own and Canyon Bakehouse continue to perform well. In 2021, Nature’s Own, Dave’s Killer Bread and Canyon Bakehouse increased tracked channel sales by 0.3%, 11% and 16%, respectively. These brands also gained a combined 60 basis points (bps) of market share in 2021.

Flowers Foods’ has been benefiting from its pricing efforts for a while now. During the fourth quarter of fiscal 2021, the company’s net price/mix increased 6.2%. The metric primarily gained from price increases to combat inflationary pressures and growth in more-profitable branded retail products. The company remains on track with pricing efforts to counter cost inflation.

Strategic Priorities

The company has been on track with its core priorities, which include developing its team, concentrating on brands, prioritizing margins and looking out for prudent mergers and acquisitions. To this end, management has been shifting focus toward becoming a more brand-focused company. On its last earnings call, management highlighted that its household penetration improved significantly in the past two years. Compared with 2019 levels, its household penetration and repeat rates were up 300 and 270 bps, respectively. Apart from this, the company anticipates its optimized portfolio to drive market share gains through innovation. The company is focused on undertaking innovation in its leading brands, which is likely to drive growth.

Moving to margins, the company’s brand-building efforts, such as plans to shift a larger proportion of sales mix to branded retail, have been aiding margin performance. During 2020 and 2021, the company’s portfolio optimization programs saved $60 million. The company is on track with incremental cost-saving measures, primarily across operational efficiencies and procurement for 2022. Management expects such programs to generate an additional $25-$35 million of savings during 2022. Apart from this, the company’s digital transformation initiative is an important driver for improved data and efficiencies. Finally, management remains committed to making marketing investments, undertaking innovation and going for smart M&A activities in line with its portfolio strategy.

Over the long term, the company expects sales growth of 1-2% annually, EBITDA growth of 4-6% and earnings per share increase of 7-9%. Both sales and EBITDA outlook exclude impacts of any future buyouts. Certainly, the aforementioned factors are likely to keep driving Flowers Foods’ growth.

Other Solid Food Bets

Some other top ranked stocks are Sanderson Farms, Inc. (SAFM Free Report) , Nomad Foods Limited (NOMD Free Report) and Pilgrim’s Pride (PPC Free Report).

Sanderson Farms, the producer of fresh, frozen and minimally-prepared chicken, currently sports a Zacks Rank #1 (Strong Buy). Shares of SAFM have dropped 3.4% in the past six months. you can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sanderson Farms’ current financial year sales and EPS suggests growth of 18% and 56.1%, respectively, from the year-ago reported number. SAFM has a trailing four-quarter earnings surprise of 46.8%, on average.

Nomad Foods, the provider of frozen food products, currently carries a Zacks Rank #2. Shares of NOMD have slumped 23.7% in the past six months.

The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings suggests growth of 7.5% and 6.6%, respectively, from the year-ago period’s reported figures. NOMD has a trailing four-quarter earnings surprise of 16.3%, on average.

Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen, and value-added chicken and pork products, carries a Zacks Rank #2. Shares of Pilgrim’s Pride have declined 19.2% in the past six months.

The Zacks Consensus Estimate for Pilgrim’s Pride’s current financialyear EPS suggests growth of 19.7% from the year-ago reported number. PPC has a trailing four-quarter earnings surprise of 24.9%, on average.

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