Flowers Foods, Inc. (FLO Quick QuoteFLO - Free Report) reported fourth-quarter fiscal 2023 results, wherein the bottom line matched the Zacks Consensus Estimate while declining year over year. Sales increased from the year-ago period level.

The resilience of the company’s flagship brands in the fourth quarter and fiscal 2023 despite challenging market conditions has been an upside. Dave's Killer Bread continues to stand out, surpassing $1 billion in retail sales in 2023. Apart from this, Flowers Foods’ portfolio strategy helped it witness margin improvements across the cake, foodservice and private-label segments.

For fiscal 2024, management remains confident about being able to successfully navigate a competitive landscape. Results are likely to gain from moderating commodity costs, favorable pricing adjustments and ongoing saving measures. Promotional activity remains below pre-pandemic levels. Flowers Foods remains focused on innovation and marketing actions, alongside converting its distribution model in California. These initiatives are likely to drive long-term value, although posing hurdles in the near term.

Q4 Highlights

Adjusted earnings per share (EPS) of 20 cents came in line with the Zacks Consensus Estimate. The bottom line declined by 3 cents year over year.

Sales increased 4.3% year over year to $1,129 million compared with the Zacks Consensus Estimate of $1,218 million. The pricing/mix remained favorable by 5.6%, while volumes fell by 2.4%. The Papa Pita acquisition contributed to sales growth by 1.1%. We had estimated the price/mix to be up 5.4% and volumes to decline 2.2% in the fourth quarter.

Branded Retail sales rose 3.6% to $724.6 million due to improved prices undertaken to offset inflationary pressures, a favorable mix from more branded organic product sales and gains from the acquisition. These were somewhat offset by volume declines.

Other sales increased 5.6% to $404.4 million due to improved prices undertaken to counter inflationary pressures and gains from acquisitions, somewhat countered by lower volumes.

Our model suggested Branded Retail sales growth of 3.7% and Other sales increase of 5.2% for the quarter under review.

Costs & Margins

Materials, supplies, labor and other production costs (exclusive of depreciation and amortization) contracted 110 basis points (bps) to 52.1% of sales on moderating input cost inflation and lower outside purchases (courtesy of the acquisition). This was partly negated by a rise in maintenance and labor costs.

Selling, distribution and administrative (SD&A) expenses came in at 39.7% of sales, up 180 bps. Adjusted SD&A expenses expanded 150 bps to 39.4% of sales. This can be mainly attributed to higher labor, insurance, marketing and technology expenses. Nevertheless, reduced distributor distribution fees as a percentage of sales offered some respite.

Adjusted EBITDA climbed 0.1% to $96.3 million. The adjusted EBITDA margin was 8.5%, contracting 40 bps.

Financial Aspects

Flowers Foods ended fiscal 2023 with cash and cash equivalents of $22.5 million and long-term debt of $1,048.1 million. Stockholders’ equity amounted to $1,351.8 million.

For fiscal 2023, cash flow from operating activities amounted to $349.4 million, and capital expenditures were $129.1 million. The company paid dividends worth $195.2 million.

Fiscal 2024 Guidance

The company expects sales in the range of $5.091-5.172 billion, suggesting flat to a 1.6% increase year over year.

Adjusted EBITDA is likely to be in the range of $524-$553 million compared with the $501.7 million recorded in fiscal 2023. For fiscal 2024, the adjusted EPS is envisioned in the range of $1.20-$1.30 compared with $1.20 delivered in fiscal 2023.

Management expects depreciation and amortization in the range of $160-$165 million, while net interest expenses are likely to be $22-$26 million. For fiscal 2024, capital expenditures are projected in the range of $120-$130 million.

This Zacks Rank #3 (Hold) stock has rallied 13.4% in the past three months compared with the industry’s growth of 7.3%.

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