It has been about a month since the last earnings report for Flowers Foods (FLO - Free Report) . Shares have added about 2.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Flowers Foods due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Flowers Foods Beats on Q2 Earnings, Raises 2020 View
Flowers Foods posted sturdy second-quarter 2020 results and raised earnings per share and sales view for the year.
Adjusted EPS of 33 cents came ahead of the Zacks Consensus Estimate of 31 cents. Moreover, the bottom line increased 32% year over year.
Sales increased 5.1% to $1,025.9 million, which beat the Zacks Consensus Estimate of $1,016 million. Notably, increased demand owing to the coronavirus pandemic contributed to this growth. Higher branded retail sales helped offset decline in store branded retail sales and non-retail and other sales. While pricing/mix increased 8.4%, volume dipped 3.3%.
Costs & Margins
Materials, labor, supplies and other production expenses (net of depreciation and amortization), as a percentage of sales, contracted 280 basis points (bps) year over year to 49.3%. This can be attributed to favorable shifts in mix from non-retail and store-branded retail products to branded retail products, which were somewhat offset by start-up expenses in relation to the ongoing conversion of its Lynchburg, VA, facility to an organic bakery.
Adjusted selling, distribution and administrative expenses (as a percentage of sales) rose 110 bps, courtesy of increased distribution fees, escalated employee-incentive costs and consulting costs with respect to Project Centennial. These were partly offset by reduced logistics expenses.
Adjusted EBITDA rose 21.4% to $128.5 million, whereas adjusted EBITDA margin expanded 170 bps to 12.5%.
Branded retail sales rose 17.7% to $689.5 million. The upside can be attributed to the favorable impact of COVID-19 along with product introductions, lower promotional activity and a fall in product returns.
Store-branded retail sales fell 10.9% to $145.2 million, thanks to lost breakfast-bread business as well as reduced volumes in other store-branded products owing to consumer shift to more branded retail products.
Non-retail and other sales dropped 15.8% to $191.2 million mainly due to adverse impact of COVID-19 on food-service customers.
More Financial Aspects
The company ended the quarter with cash and cash equivalents of $299.6 million and long-term debt of $1,009.6 million. Further, stockholders’ equity amounted to $1,336.5 million.
Year to date through the second quarter, the company’s cash flow from operating activities amounted to $275.8 million, while it incurred capital expenditure of $46.6 million. Capital expenditure is now projected in the range of $85-$95 million for 2020. Flowers Foods paid out dividends worth $82.6 million in the first half of 2020 and has 6.2 million shares remaining under the ongoing repurchase program. To maintain financial liquidity amid the coronavirus crisis, total indebtedness rose $142.5 million through the second quarter.
Notably, the company intends to stay committed toward enhancing its portfolio and supply chain. Management now projects sales of roughly $4.290-$4.330 billion for 2020, suggesting growth of about 4-5% year over year. Earlier, it expected sales in the band of $4.206 -$4.289 billion, which indicates 2-4% growth from the year-ago period’s reported figure.
Adjusted EPS is now envisioned to be $1.15-$1.25, indicating growth of about 19.8-30.2% from the year-ago period. This guidance is above the earlier-projected range of $1.00-$1.08 that suggested an improvement of 4.2-12.5% year over year. Moreover, the Zacks Consensus Estimate for 2020 earnings is now pegged at the low end of the current guided range and is likely to witness upward revisions in the coming days.
Further, depreciation and amortization is estimated in the band of $145-$150 million. The company expects net interest expense of about $11 million and an effective tax rate of nearly 24-24.5% for the year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 13.43% due to these changes.
Currently, Flowers Foods has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Flowers Foods has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.