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Flowers Foods (FLO) Stock Rises on Q1 Earnings & Sales Beat

Zacks

Flowers Foods, Inc. FLO released first-quarter 2019 results, wherein the top and the bottom lines improved year over year and surpassed the Zacks Consensus Estimate for the second time in a row. Shares of the company gained 2.5% during the after-market trading session on May 15.

Well, Flowers Foods’ core business gained from solid pricing actions, which were undertaken to battle cost inflation. Results also benefited from continued improvements at the Dave's Killer Bread, Nature's Own and Wonder brands. Further, contributions from the Canyon Bakehouse’s buyout contributed to top-line growth.

Management stated that following Project Centennial’s organizational restructuring, Flowers Foods has consolidated all its operations under a single segment, which is reflected in the current release.

Earnings & Sales

Adjusted earnings per share (EPS) of 32 cents came ahead of the year-ago period’s figure and the Zacks Consensus Estimate of 30 cents. The year-over-year upside can be attributed to higher sales and improved margins.

Flowers Foods, Inc. Price, Consensus and EPS Surprise

Flowers Foods, Inc. Price, Consensus and EPS Surprise

Flowers Foods, Inc. price-consensus-eps-surprise-chart | Flowers Foods, Inc. Quote

Net sales advanced 4.8% year over year to $1,263,9 million, which beat the Zacks Consensus Estimate of $1,230 million. Sales were backed by increased branded retail and store branded retail sales, somewhat offset by lower non-retail and other sales.

Costs & Margins

Materials, labor, supplies and other production expenses (net of depreciation and amortization) as percentage of sales improved 20 basis points (bps) to 51.6%. This can be attributed to enhanced sales and production volumes, partly negated by higher purchase of outside products. Further, commodity and labor cost inflations were deterrents, though better pricing/mix offered considerable respite.

Selling, distribution and administrative expenses remained flat at 37.7% of sales, as higher distributor fees were compensated by reduced legal fees and litigation settlements. Additionally, absence of high Project Centennial consulting expenses this year was a positive.

Adjusted EBITDA grew 3.8% to $137.2 million whereas adjusted EBITDA margin contracted 10 bps to 10.9%.

Category Performance

Consolidated branded retail sales increased 6.2% to $755.6 million, backed by gains from DKB organic products, Nature's Own Perfectly Crafted breads, Sun-Maid breakfast bread, contributions from the Canyon Bakehouse buyout, better pricing and growth in expansion markets. These were offset by soft volumes in several specialty breads and white breads.

Store branded retail sales increased 12.4% to $193.1 million, owing to contributions from the Canyon Bakehouse buyout, and better price/mix and volumes. Volumes were led by strength in store branded breads and buns, somewhat countered by weakness in store branded cake.

Non-retail and other sales dropped 2.4% to $315.1 million due to lower foodservice and vending volumes, stemming from business losses related to inferior ingredients received in 2018.

More Financial Aspects

Flowers Foods ended the quarter with cash and cash equivalents of $11.6 million and long-term debt and capital leases (including current portion) of $939.5 million. Further, stockholders’ equity amounted to $1,267.9 million.

During the reported quarter, the company’s cash flow from operating activities amounted to $96.2 million, while it incurred capital expenditures of $20.8 million. Capital expenditures are envisioned around $110-$120 million for 2019.

Also, Flowers Foods paid dividends worth $39.3 million during the quarter, at the end of which the company had 6.2 million shares remaining under the ongoing repurchase program.

Guidance

Management remains impressed with the strong start to 2019, marked by solid sales. The company is pleased with the success of its growth efforts, though margins were under pressure owing to commodity, labor and transportation cost inflations. Markedly, management is on track with efficient pricing initiatives and supply-chain optimization to reduce costs and enhance productivity. Such efforts to boost performance are likely to further aid this Zacks Rank #3 (Hold) stock that has gained 8.1% in the past six months against the industry’s decline of 1.6%.

All said, Flowers Foods reiterated its outlook for 2019. The company still expects sales in the range of $4.030-$4.109 billion, indicating 2-4% growth. This is likely to include sales of nearly $70-$80 million from Canyon Bakehouse.

Adjusted EPS is projected between 94 cents and $1.02. The mid-point of 98 cents is a notch below the current Zacks Consensus Estimate.

Don’t Miss These Food Stocks

General Mills GIS, with a Zacks Rank #2 (Buy), has long-term earnings per share growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medifast MED, with an impressive earnings surprise history, also sports a Zacks Rank #2.

Lamb Weston LW, with long-term earnings per share growth rate of 12.4%, carries a Zacks Rank #2.

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