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Bull of the Day: Flowers Foods (FLO)

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About the Company

Headquartered in Thomasville, GA, Flowers Foods is a leading producer and marketer of packaged bakery foods in the country. Founded in 1919, the company has grown tremendously through acquisitions and organic growth to become nation’s second largest baking company.

The company now operates 44 bakeries that produce breads, buns, rolls, snack cakes, and pastries, which are distributed fresh to foodservice and retail customers in the Southeastern, Southwestern, mid-Atlantic states and frozen to national foodservice and retail customers.

Flowers' top brands include Nature's Own, Whitewheat, Cobblestone Mill, Tastykake, Mrs. Freshley's, European Bakers, BlueBird, and Mi Casa. Additionally they have a number of regional brands.

Flowers Foods operates though two segments—the Direct Store Delivery Segment handles fresh breads, buns, rolls, and snack cakes that are sold regionally through a system of regional distributors and the Warehouse Segment that is responsible for nationwide distribution.

Impressive Fourth Quarter Results

The company reported its fourth quarter 2012 results on February 7, 2013. Sales for the quarter increased 14.7% to $749.4 million and the sales for the year increased 9.8% to $3.05 billion. Diluted earnings for the quarter were $0.28 per share, up 64.7%.

For the year, diluted operating earnings were $1.03 per share, up 7.3% compared to $0.96 per share in 2011. Gross margin as a percentage of sales for the quarter was 47.9%, up 2% from 45.9% in the prior-year quarter. This increase was due primarily to higher sales volumes and improved manufacturing efficiencies. The results also benefitted from the liquidation of Hostess brand as the company gained market share.

Bid for the Hostess Brands

On February 28, 2013, the company announced that its stalking horse bid for Hostess brands was declared the highest and the best bid. However, on March 4, 2013, it was reported that the government has objected to Hostess’s planned sales of most of its bread business as currently structured because the buyers would be improperly released from liabilities and obligations to comply with environmental laws.

Estimates Revisions

As a result of strong results, three analysts have revised the earnings estimates upwards. Zacks consensus estimate for the current quarter now stands at $0.38 per share, up from $0.34 per share, 60 days ago. The consensus estimate for the current year is also up to $1.26 per share from $1.16 per share earlier.

The Bottom Line

Though there is some uncertainty now related to the acquisition of the Hostess Brand, I believe that Flower Foods will be able to maintain its strong growth going forward resulting from margin expansion and gain in market share. Further, the company continues to be one of the lowest cost producers in the industry.

FLO is a Zacks Rank#1 (Strong Buy) stock. It also has a longer-term Zacks recommendation of “Outperform”. 

With a juicy dividend yield of 2.3% and excellent growth potential, I believe that this stock will be a nice addition to any portfolio.

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