Just because the Twinkie vanished off of store shelves doesn't
mean that people don't want their snack cakes.
Flower Foods Inc.
) has been one of the direct beneficiaries of Hostess' demise. This
Zacks Rank #1 (Strong Buy) has seen huge profits over the last 9
Flower Foods operates 44 bakeries that produce breads, buns, rolls,
snack cakes and pastries to stores in the Southeast, Southwest and
Flower Foods has been on an acquisition streak. It had good timing
when it bought the struggling Tastykake brand of snack cakes in
2011 for $175 million. Headquartered in Philadelphia, and founded
in 1914, the brand is a direct competitor of Hostess snack cakes.
When Hostess vanished off the store shelves, what was a snack cake
fan supposed to do? If you could no longer get your ding-dong, you
could buy the Tastykake cupcake or Kreamies instead.
Hostess products disappeared off of shelves in November of 2012 but
are expected to return on July 15. In the meantime, Flower Foods
has seen a surge in business. Total sales were up 29.5% in the
first quarter on the back of a 19.3% volume increase due to the
absence of Hostess from the market, in both breads and snack cakes.
But will it last? Analysts are encouraged that Flower has had shelf
time when Hostess has not. How much of that will endure after
Hostess comes back this month is unclear. But some consumers who
tried Flower Foods' brands after Hostess disappeared may end up
sticking with it.
Buying Hostess' Bread Business
On July 8, Flower Foods confirmed that it had received regulatory
approval from the Department of Justice to acquire 20 bakeries and
36 depots from Hostess Brands for $360 million. Flowers is buying
the bread business, however, and not the Twinkies and other brands.
The breads include Wonder, Nature's Pride, Merita, Home Pride and
the Butternut brand.
The transaction should close in a few weeks and then Flower Foods
is expected to slowly roll out the re-openings.
Double Digit Earnings Growth
With Hostess out of action, it's not surprising that 2013 is
expected to be a very good year for Flower Foods. Earnings are
expected to jump 41%.
But while business is expected to cool in 2014, earnings are still
forecast to rise another 12.1%.
Flower Foods is scheduled to report second quarter results on Aug
13. It has recently turned around its earnings track record and has
beaten the Zacks Consensus the last 2 quarters.
Shares have only recently taken off after being dormant for the
previous 5 years.
Flower Foods is taking advantage of the demise of a competitor to
boost its own market position. For investors looking for one of the
"winners" in the bread and snack cake wars, Flower Foods would be
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FLOWERS FOODS (FLO): Free Stock Analysis Report
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