Flowers Foods, Inc. (FLO - Free Report) is one of the several consumer staples companies, which appears to be poised amid an otherwise jeopardized economic landscape. The company, which has been gaining from solid demand amid the pandemic, has otherwise been benefiting from the focus on strategic priorities.
Markedly, this Zacks Rank #2 (Buy) stock has gained 7% year to date against the industry’s decline of 3.8%. Also, the company has comfortably outdone the S&P 500 and the Zacks Consumer Staples sector. While the S&P 500 registered 5% growth, the broader sector declined 5.5% in the same time frame. Let’s delve deeper into the factors, which make this packaged bakery products provider an appetizing pick. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Rising Demand & Strong View
Flowers Foods has been gaining from burgeoning demand amid coronavirus-led pantry loading and increased at-home consumption. In second-quarter 2020, higher branded retail sales helped offset the decline in store branded retail sales and non-retail and other sales. The increased mix of branded retail sales also boosted margins and the bottom line. Incidentally, 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.
Nature’s Own, DKB, Canyon Bakehouse and Wonder brands continued to deliver strong performances. Management in its last earnings call raised its 2020 view and now projects sales of roughly $4.290-$4.330 billion for the year, suggesting growth of about 4-5% year over year. Adjusted EPS is now envisioned to be $1.15-$1.25, indicating growth of about 19.8-30.2% from the year-ago period. Encouragingly, the consensus mark for 2020 has improved from $1.09 to $1.22 over the past 60 days.
Strategic Priorities Underway
Management is on track with its core priorities, which include developing its team, concentrating on brands, prioritizing margins and looking out for prudent buyouts. To this end, the company intends to shift focus toward value-added branded retail products, which are anticipated to aid top-line growth and enhance margins. Also, the company expects its optimized portfolio to drive market share gains through innovation.
Further, Flowers Foods remains focused on optimizing the supply chain (which it had started under the Project Centennial program) while enhancing efficiency and reducing costs. The company’s brand-building efforts, such as plans to shift a larger proportion of sales mix to branded retail, are likely to aid margin performance. Finally, management intends to remain committed to making marketing investments, undertaking innovation and go for smart M&A activities in line with its portfolio strategy.
Buyouts a Major Driver
Flowers Foods has been focusing on acquisitions to strengthen its product portfolio and expand in untapped markets. The company bought Dave’s Killer Bread (DKB) in 2015, which has been yielding solid results. In December 2018, it completed the acquisition of Canyon Bakehouse, which has helped Flowers Foods foray into the growing gluten-free bakery space. Additionally, Nature's Own and Wonder brands continue to perform well. Notably, Nature's Own is the top soft variety brand in the United States, with estimated retail sales of nearly $1.2 billion in 2020. DKB, which is the top organic loaf brand, is expected to deliver retail sales of roughly $760 million in 2020. Further, Canyon Bakehouse has emerged as the number one gluten-free brand. Wonder white loaf brand also enjoys an iconic status.
Robust Cost Management Efforts
The company expects cost-management efforts and improved efficiency to fuel margins. Flowers Foods expects business improvements from its supply chain and portfolio optimization plans to generate greater savings now. The company now expects savings in 2020 to surpass the upper end of its previously guided range of $10-20 million. In fact, it anticipates some savings from these initiatives to be realized in 2021 as well. Over the long term, the company anticipates organic sales growth of 1-2%, EBITDA growth of 4-6% and earnings per share increase of 7-9%.
Without a doubt, Flowers Foods is set to sustain its impressive performance.
3 More Delicacies to Binge on
Medifast (MED - Free Report) , which currently carries a Zacks Rank #1, has a trailing four-quarter earnings surprise of 15.8%, on average.
B&G Foods (BGS - Free Report) , with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 6.9%, on average.
TreeHouse Foods (THS - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 7.7%.
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