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Why Is Flowers Foods (FLO) Down 2.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Flowers Foods (FLO - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Flowers Foods due for a breakout? 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 drivers.

Flowers Foods Q1 Earnings & Sales Top Estimates, Up Y/Y

Flowers Foods posted first-quarter 2020 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate. Moreover, management is impressed with the company’s quarterly performance, marked by record high sales and earnings.

Adjusted earnings per share (EPS) of 41 cents came ahead of the Zacks Consensus Estimate of 34 cents. Moreover, the bottom line increased 28.1% year over year.

Net sales increased 6.8% to $1,349.4 million, which beat the Zacks Consensus Estimate of $1,329 million. Notably, increased demand owing to the coronavirus pandemic contributed to this growth in the range of 6.5-7.5%. Sales were backed by increased branded retail, which more than offset lower store-branded retail sales along with non-retail and other sales.

Costs & Margins

Materials, labor, supplies and other production expenses (net of depreciation and amortization), as a percentage of sales,contracted 190 basis points (bps) year over year to 49.7%.The upside can be attributed to better product mix, which more than offset increased workforce-related costs as well as higher start-up expenses.

Selling, distribution and administrative expenses (as a percentage of sales) expanded 100 bps, courtesy of increased distribution fees and workforce-related costs. Adjusted EBITDA rose 19% to $163.3 million, whereas adjusted EBITDA margin expanded 120 bps to 12.1%.

Category Performance

Branded retail sales rose 17.7% to $891.5 million. The upside can be attributed to a favorable shift in the product mix from non-retail and other to branded retail segment owing to the coronavirus pandemic.

Store branded retail sales inched down 0.5% to $190.2 million, thanks to softness in store branded breakfast bread business as well as reduced volumes in store branded cake. This was somewhat offset by increased sales in store branded gluten-free products manufactured by Canyon Bakehouse.

Non-retail and other sales dropped 15% to $267.8 million due to lower business for majority of the company’s non-retail customers amid the COVID-19 outbreak.

More Financial Aspects & Guidance

The company ended the quarter with cash and cash equivalents of $252.7 million and long-term debt of $1,070.6 million. Further, stockholders’ equity amounted to $1,320.6 million.

At the end of the first quarter, the company’s cash flow from operating activities amounted to $106.2 million, while it incurred capital expenditure of $21.7 million. Capital expenditure is projected in the range of $95-$105 million for 2020. Flowers Foods paid out dividends worth $40.3 million in the quarter and has 6.2 million shares remaining under the ongoing repurchase program. To maintain financial liquidity amid the coronavirus crisis, the company has drawn down $200 million from its credit facility.

In 2020, the company intends to stay committed toward enhancing its portfolio and supply chain that are anticipated to deliver nearly $10-$20 million in savings during 2020.

The company reaffirmed its previously provided 2020 view. Management expects sales of $4.206 -$4.289 billion for 2020, suggesting 2-4% growth from the year-ago period’s reported figure. Adjusted EPS is projected to be $1.00-$1.08, indicating growth of 4.2-12.5% from the year-ago period’s reported figure.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Flowers Foods has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. 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.


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