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Flowers Foods (FLO) Hurt by High Costs, Down 10% in 3 Months
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Flowers Foods, Inc. (FLO - Free Report) is battling hurdles related to cost inflation. The increased cost of inputs and higher marketing and innovation-related expenses have been weighing on the company’s margins. On its first-quarter fiscal 2023 earnings call, Flowers Foods lowered its guidance for fiscal 2023. Let’s delve deeper.
A Glimpse of Q1 & Ahead
First-quarter adjusted earnings per share (EPS) of 38 cents declined from 44 cents reported in the year-ago quarter. Sales increased 6.9% year over year to $1,534.5 million, though it missed the Zacks Consensus Estimate of $1,566 million.
Due to a sluggish start to 2023 and lower-than-expected branded retail sales, management lowered its guidance for fiscal 2023. The company expects sales in the range of $5.086-$5.141 billion, suggesting a rise of 5.8-7.0% year over year. FLO earlier projected sales in the band of $5.176-$5.242 billion, implying a rise of 7.7-9.1% year over year.
Adjusted EBITDA is likely to be in the range of $494-$528 million compared with the earlier view of around $513-$543 million. For fiscal 2023, the adjusted EPS is envisioned in the range of $1.15-$1.25 compared with the $1.20-$1.30 band projected earlier.
Image Source: Zacks Investment Research
Cost & Margin Pressure
In the first quarter of fiscal 2023, materials, supplies, labor and other production costs (excluding depreciation and amortization) escalated by 170 basis points (bps) to 52.2% of sales on rising input cost inflation. The gross margin contracted 170 bps to 47.8% due to input cost inflation.
Flowers Foods also witnessed a rise in marketing expenses and acquisition-related costs. Adjusted EBITDA declined 8.7% to $151.1 million. The adjusted EBITDA margin was 9.8%, which contracted 170 bps.
Flowers Foods also witnessed a rise in marketing expenses and acquisition-related costs during the first quarter of 2023. The company’s adjusted EBITDA declined 8.7% to $151.1 million in the first quarter. The adjusted EBITDA margin was 9.8%, which contracted 170 bps. The company’s increased focus on marketing and innovation behind brands is likely to increase its cost burden in 2023, though it is expected to drive long-term growth.
Flowers Foods expects costs related to upgrading its ERP system to be nearly in the $95-$105 million band in 2023. Digital and ERP investments are likely to result in near-term hurdles, though these are likely to aid growth and enhance efficiency in the long run.
Wrapping Up
A focus on core priorities has been working well for Flowers Foods. These include developing its team, concentrating on brands, prioritizing margins and looking out for prudent mergers and acquisitions. The company has also been focused on countering the inflationary environment by implementing price increases
This Zacks Rank #4 (Sell) stock has tumbled 9% in the past three months against the industry’s growth of 5.5%.
Solid Staple Stocks
Some better-ranked consumer staple stocks are The Kraft Heinz Company (KHC - Free Report) , McCormick & Company, Incorporated (MKC - Free Report) and Conagra Brands (CAG - Free Report) .
The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
McCormick, which operates as a manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2. MKC has a trailing four-quarter negative earnings surprise of 3.7%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings suggests growth of 6.4% and 3.6%, respectively, from the year-ago reported numbers.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.
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Flowers Foods (FLO) Hurt by High Costs, Down 10% in 3 Months
Flowers Foods, Inc. (FLO - Free Report) is battling hurdles related to cost inflation. The increased cost of inputs and higher marketing and innovation-related expenses have been weighing on the company’s margins. On its first-quarter fiscal 2023 earnings call, Flowers Foods lowered its guidance for fiscal 2023. Let’s delve deeper.
A Glimpse of Q1 & Ahead
First-quarter adjusted earnings per share (EPS) of 38 cents declined from 44 cents reported in the year-ago quarter. Sales increased 6.9% year over year to $1,534.5 million, though it missed the Zacks Consensus Estimate of $1,566 million.
Due to a sluggish start to 2023 and lower-than-expected branded retail sales, management lowered its guidance for fiscal 2023. The company expects sales in the range of $5.086-$5.141 billion, suggesting a rise of 5.8-7.0% year over year. FLO earlier projected sales in the band of $5.176-$5.242 billion, implying a rise of 7.7-9.1% year over year.
Adjusted EBITDA is likely to be in the range of $494-$528 million compared with the earlier view of around $513-$543 million. For fiscal 2023, the adjusted EPS is envisioned in the range of $1.15-$1.25 compared with the $1.20-$1.30 band projected earlier.
Image Source: Zacks Investment Research
Cost & Margin Pressure
In the first quarter of fiscal 2023, materials, supplies, labor and other production costs (excluding depreciation and amortization) escalated by 170 basis points (bps) to 52.2% of sales on rising input cost inflation. The gross margin contracted 170 bps to 47.8% due to input cost inflation.
Flowers Foods also witnessed a rise in marketing expenses and acquisition-related costs. Adjusted EBITDA declined 8.7% to $151.1 million. The adjusted EBITDA margin was 9.8%, which contracted 170 bps.
Flowers Foods also witnessed a rise in marketing expenses and acquisition-related costs during the first quarter of 2023. The company’s adjusted EBITDA declined 8.7% to $151.1 million in the first quarter. The adjusted EBITDA margin was 9.8%, which contracted 170 bps. The company’s increased focus on marketing and innovation behind brands is likely to increase its cost burden in 2023, though it is expected to drive long-term growth.
Flowers Foods expects costs related to upgrading its ERP system to be nearly in the $95-$105 million band in 2023. Digital and ERP investments are likely to result in near-term hurdles, though these are likely to aid growth and enhance efficiency in the long run.
Wrapping Up
A focus on core priorities has been working well for Flowers Foods. These include developing its team, concentrating on brands, prioritizing margins and looking out for prudent mergers and acquisitions. The company has also been focused on countering the inflationary environment by implementing price increases
This Zacks Rank #4 (Sell) stock has tumbled 9% in the past three months against the industry’s growth of 5.5%.
Solid Staple Stocks
Some better-ranked consumer staple stocks are The Kraft Heinz Company (KHC - Free Report) , McCormick & Company, Incorporated (MKC - Free Report) and Conagra Brands (CAG - Free Report) .
The Kraft Heinz Company, a food and beverage product company, currently has a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 10.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
McCormick, which operates as a manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2. MKC has a trailing four-quarter negative earnings surprise of 3.7%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings suggests growth of 6.4% and 3.6%, respectively, from the year-ago reported numbers.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.