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Bull of the Day: Flower Foods (FLO)

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Flower Foods again delivered outstanding quarterly results and seems to be on track to achieving its long-term objective of double-digit earnings growth.  

As a result, estimates have been on the uptrend and the company has maintained its Zacks rank #1 (Strong Buy) since March this year.

About the Company

Headquartered in Thomasville, GA, Flowers Foods is the second largest producer and marketer of packaged bakery foods in the country. The company 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.

Excellent First Quarter Results

The company reported its first quarter results on May 16, 2013. Sales for the quarter increased by 25.9% to $1.13 billion—mainly a result of increased volumes and contributions from the acquisitions.

Diluted EPS for the quarter was $0.46, up 64.3% from the prior-year quarter, and ahead of the Zacks consensus estimate of $0.43 per share. The company has either met or exceeded expectations during the last four quarters, with an average positive surprise of 9.49%.

Bid for the Hostess Brands

During the first quarter, the company announced that its stalking horse bid for Hostess brands was declared the highest and the best bid. The bid was approved by the bankruptcy court and is currently under regulatory review. The company expects the process to be completed in the second half of fiscal 2013.

Estimates Revisions

As a result of strong results, four analysts have revised the earnings estimates upwards in the last 30 days. Zacks consensus estimate for the current quarter now stand at $0.34 per share up from $0.31 per share, 30 days ago. Estimates for the current year are also up to $1.43 per share from $1.35 per share earlier.

Stock Split and Hike in Dividend

Yesterday, the company announced a three-for-two stock split by means of a 50% stock dividend and also increased the annual cash dividend by $.035 or 5.5% to $0.45 per share.

The Bottom Line

With its excellent history of integrating acquisitions, I believe that Flower Foods will be able to maintain its strong growth going forward, resulting from margin expansion and gain in market share, with Hostess’ acquisition.

Further, the company continues to be one of the lowest cost producers in the industry and currently appears to be well ahead of schedule on its goal to make its products available to at least 75% of US population by 2016.

FLO is a Zacks Rank#1 (Strong Buy) stock. It also has a Zacks recommendation of “Outperform”.  Additionally with a dividend yield of ~2.0%, I believe that this stock will be an excellent long-term addition to any portfolio.

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