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Flowers Foods (FLO) Misses on Q3 Earnings & Sales, Stock Dips

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Flowers Foods, Inc. (FLO - Free Report) reported dismal results for third-quarter 2018, wherein both top and bottom lines fell short of the Zacks Consensus Estimate and the former also declined year over year. Moreover, management trimmed its earnings outlook for 2018. Consequently, shares of the company lost 6.2% during yesterday’s after-market trading session.

In fact, the company has declined 13.9% in the past six months, against the industry’s growth of 2.8%.

Adjusted earnings per share of 23 cents remained flat year over year, though it fell short of the Zacks Consensus Estimate of 26 cents. Results were hurt by soft sales as well as inflated transportation and commodity costs.

Flowers Foods, Inc. Price, Consensus and EPS Surprise

Flowers Foods, Inc. Price, Consensus and EPS Surprise | Flowers Foods, Inc. Quote

Net sales dipped 1% to $923.4 million, lagging the Zacks Consensus Estimate of $929 million. Sales were marred by weakness in foodservice business and lower volumes, owing to hurricanes and disruptions stemming from inferior yeast.

Costs & Margins

Adjusted EBITDA declined 13.2% to $97.5 million, whereas the adjusted EBITDA margin contracted 140 basis points (bps) to 10.6%.

Materials, labor, supplies and other production expenses (net of depreciation and amortization) as a percentage of sales expanded 150 bps to 52.6%. This was mainly associated with elevated commodity costs, lower production volumes, greater purchases of outside products (mainly DKB breakfast items) and lower manufacturing efficiencies.

SG&A costs improved 10 bps to 38.2% of sales owing to reduced workforce-related expenses and lower Project Centennial consulting expenses. This was somewhat countered by increased distributor fees, greater legal settlement costs and higher transportation costs.

Category Performance

Consolidated branded retail sales fell 0.7% to $547.4 million, driven by soft volumes, somewhat cushioned by solid sales of DKB organic products, growth in the company’s expansion markets, gains from Nature's Own Perfectly Crafted breads and improved price/mix.

Store branded retail sales inched up 1.7% to $141 million on account of better price/mix.

Non-retail and other sales dropped 3.2% to $235.1 million, owing to lower foodservice and vending volumes, somewhat made up by favorable price/mix.

Segments

DSD segment witnessed a dip of 0.9% year over year to $780.3 million as a decline in non-retail and other sales more than offset higher store branded retail sales. Branded retail sales remained flat in the quarter. Adjusted EBITDA tumbled 11.6% to $94.7 million.

Warehouse segment sales slipped 1.6% from the year-ago quarter to $143.2 million due to softness in most categories. Adjusted EBITDA declined 16.7% to $13.1 million.

More Financial Aspects

Flowers Foods ended the quarter with cash and cash equivalents of $49.7 million, and long-term debt and capital leases (including current portion) of $825.4 million. Further, stockholders’ equity amounted to $1,277.6 million.

During the third quarter, the company’s cash flow from operating activities amounted to $83.4 million, while it incurred capital expenditures of $25.5 million. Also, Flowers Foods paid dividends worth $38 million during the quarter at the end of which, the company had 6.6 million shares remaining under its ongoing repurchase program.

Other Developments

Flowers Foods inked a deal to buy Canyon Bakehouse LLC for nearly $205 million (or $175 million considering the expected tax gains). This buyout will help Flowers Foods foray into the growing gluten-free bakery space. The deal is expected to close toward the end of fourth-quarter 2018. 

Guidance

Flowers Foods’ year-to-date financial performance was not satisfactory. A tough operating landscape weighed on the company’s third-quarter results as well as its guidance for 2018. However, management is focused on alleviating the hurdles through its cost-saving and pricing initiatives. Notably, Flowers Foods is progressing well with Project Centennial, and is also undertaking several efforts to revive its core business, lower costs, make use of product advances and develop leading capacities.

Management continues to expect sales of $3.921-$3.982 billion, reflecting flat to 1.6% growth.

Adjusted earnings per share is now projected to be 90-95 cents, marking growth of nearly 1.1-6.7%. Earlier, management forecasted the bottom line to range between $1.00 and $1.07.

Check These Solid Food Stocks

Chefs’ Warehouse (CHEF - Free Report) , with long-term earnings per share growth rate of 19%, carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McCormick & Company, Incorporated (MKC - Free Report) has long-term earnings per share growth rate of 9% and a Zacks Rank #2 (Buy).

Lamb Weston (LW - Free Report) , with a Zacks Rank #2, has long-term earnings per share growth rate of 11%.

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