Flowers Foods Looks Poised on Solid Demand & Core Strategies

While the novel coronavirus has derailed a number of economic activities, there are players in the consumer staple universe that appear to be on firm grounds. In fact, many of these companies are benefiting from the burgeoning demand for essential items amid the pandemic-led increased at-home consumption and pantry-loading trends. One such name gaining on these trends is Flowers Foods, Inc. FLO, which recently raised its guidance alongside posting robust second-quarter 2020 results.

Incidentally, analysts remain optimistic regarding the stock’s future performance, as evident from the uptrend in the Zacks Consensus Estimate. Well, the consensus marks for the third quarter and 2020 have moved up 13.6% to 25 cents and 10.9% to $1.22, respectively, in the past 30 days.

Markedly, shares of this packaged bakery products provider have rallied 13.8% in the past six months, outpacing with the industry’s growth of 6.8%. Also, this Zacks Rank #2 (Buy) stock has comfortably outperformed the S&P 500’s gain of 10%. Meanwhile, the Zacks Consumer Staples sector dipped 0.5% in the same time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pandemic-Led Demand Aids Results & View

In second-quarter 2020, adjusted EPS of 33 cents came ahead of the consensus mark of 31 cents. Moreover, the bottom line increased 32% year over year. Sales grew 5.1% to $1,025.9 million, which beat the Zacks Consensus Estimate of $1,016 million. Notably, increased demand owing to the coronavirus pandemic contributed to this growth. Higher branded retail sales helped offset the decline in store-branded retail sales and non-retail and other sales. The increased mix of branded retail sales also boosted margins and the bottom line. Incidentally, branded retail sales rose 17.7% to $689.5 million.

The upside can be attributed to the favorable impact of COVID-19 along with product introductions, lower promotional activity and a fall in product returns. Apart from Flowers Foods, other food stocks gaining from the increased demand trends include General Mills GIS, B&G Foods BGS and Kellogg K, to name a few.

Meanwhile, Flowers Foods now projects sales of roughly $4.290-$4.330 billion for 2020, suggesting growth of 4-5% year over year. Earlier, it expected sales in a band of $4.206-$4.289 billion, which indicates 2-4% growth from the year-ago period’s reported figure. Adjusted EPS is now envisioned to be $1.15-$1.25, indicating growth of 19.8-30.2% from the year-ago period. This guidance is above the earlier-projected range of $1.00-$1.08 per share that suggested an improvement of 4.2-12.5% year over year.

Strategic Priorities on Track

Flowers Foods is on track with its core priorities, which include developing the team, concentrating on brands, prioritizing margins and looking out for prudent buyouts. The company intends to shift focus toward value-added branded retail products, which are anticipated to aid top-line growth and enhance margins. In this regard, the company’s Nature’s Own, DKB, Canyon Bakehouse and Wonder brands have been doing well, in particular.

Flowers Foods expects its optimized portfolio to drive market share gains through innovation. Further, the company remains focused on optimizing supply chain (which it had started under the Project Centennial program) while enhancing efficiency and reducing costs. The company’s brand-building efforts such as plans to shift a larger proportion of sales mix to branded retail are likely to aid the margin performance. Finally, management intends to remain committed toward making marketing investments, undertaking innovation and opting for smart M&A activities in line with its portfolio strategy.
Apart from this, the company expects cost-management efforts and improved efficiency to fuel margins. Flowers Foods expects business improvements from its supply chain and portfolio optimization plans to generate greater savings now. The company now expects savings in 2020 to surpass the upper end of its previously guided range of $10-20 million. In fact, it anticipates realizing some savings from these initiatives in 2021 as well. Over the long term, the company anticipates organic sales growth of 1-2%, EBITDA growth of 4-6% and earnings per share increase of 7-9%.

Without a doubt, Flowers Foods is set to keep its splendid show on.

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