Flowers Foods (FLO) Q4 Earnings & Sales Top Estimates, Up Y/Y

Flowers Foods, Inc. (NYSE:FLO) posted fourth-quarter 2019 results, wherein both top and bottom lines improved year over year and came ahead of the Zacks Consensus Estimate. Results were backed by improvements in core brands along with significant progress in portfolio and supply-chain optimization.

Adjusted earnings per share (EPS) of 18 cents came a penny ahead of the Zacks Consensus Estimate. Moreover, the bottom line increased 12.5% year over year.

Net sales advanced 4.2% to $917.8 million, which beat the Zacks Consensus Estimate of $910 million. Excluding the Canyon Bakehouse buyout, net sales grew 1.2%. Sales were backed by increased branded retail and store-branded retail sales, somewhat offset by lower non-retail and other sales.

Costs & Margins

Materials, labor, supplies and other production expenses (net of depreciation and amortization) as a percentage of sales remained flat year over year at 53%. Lower manufacturing efficiencies and increased workforce-related costs were negated by better pricing/mix and reduced ingredient expenses as a percentage of sales.

Adjusted selling, distribution and administrative expenses (as a percentage of sales) declined 20 bps, courtesy of lower distribution fees, which were somewhat countered by an increase in workforce-related costs and marketing costs. Meanwhile, the metric rose 260 bps to 41.1% on a reported basis.

Adjusted EBITDA rose 7.3% to $84.5 million, whereas adjusted EBITDA margin expanded 30 bps to 9.2%.

Category Performance

Branded retail sales rose 5.5% to $551.7 million, backed by contributions from the Canyon Bakehouse buyout, constant gains from DKB and Nature's Own Perfectly Crafted products, and improved price/mix. This was partly countered by soft volumes for traditional loaf bread, cake products and bakery deli items.

Store branded retail sales rose 7.5% to $140.3 million, owing to contributions from the Canyon Bakehouse buyout, increased distributions and better price/mix. This was somewhat countered by weak volumes in store-branded cake and breakfast bread.

Non-retail and other sales dropped 0.8% to $225.8 million, thanks to lower institutional products, and foodservice and vending volumes.

More Financial Aspects

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of roughly $11 million, and long-term debt and capital leases (including current portion) of $866.5 million. Further, stockholders’ equity amounted to $1,263.4 million.

In 2019, the company’s cash flow from operating activities amounted to $367 million, while it incurred capital expenditure of $103.7 million. Capital expenditure is envisioned at $105-$115 million for 2020.

Flowers Foods paid out dividends worth $160 million in 2019 and has 6.2 million shares remaining under the ongoing repurchase program.

Guidance

Management is impressed with the company’s performance, marked by solid sales and record cash flows. In 2020, the company intends to remain committed toward its value-creation strategies, which focus on brand enhancement, cost management and prudent buyouts. The company expects sales growth in 2020 to be backed by national brands’ strength along with the anticipated growth in foodservice and cake businesses. Further, Flowers Foods expects earnings per share growth in 2020, backed by initiatives to fuel manufacturing efficiencies, optimize portfolio and supply-chain network, and curtail fixed costs.

All said, the company 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. The mid-point of $1.04 is higher than the current Zacks Consensus Estimate of $1.01.

The stock has gained 4% in the past three months compared with the industry’s growth of 1.9%.

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