Flowers Foods (FLO, Financial) released mixed results for the third quarter. Although it reported solid growth in earnings, but it failed to impress on revenue. In addition, Flowers Foods also lowered its guidance for the future. The company is, however, working on improving its performance in the coming quarters. To achieve this, it is undertaking some key strategic initiatives that we will discuss in detail. Let us take a detailed look at how Flower Foods might perform in the future on the back of its growth strategies.
Analyzing the performance
In the recently reported third quarter, its top line declined to $849.3 million from $878.5 million in the same quarter last year. But, Flowers Foods delivered a robust improvement in its earnings. It posted earnings of $0.21 per share as compared to $0.16 per share it posted in the same quarter last year.
However, the company is focused on improving its sales and drive profitability. It is adopting strategies to gain market share and strengthen its position. As a result, it is refining its services, and is targeting both existing and new customers. Moreover, Flowers has acquired brands such as Brands Wonder, Home Pride, Butternut, and Merita, and all of these are expected to deliver volume gains going forward. Seeing the growth in brand volume, Flowers Foods is optimistic about a better showing going forward.
Acquisitions will drive growth
As a result of its acquisitions, Flowers Foods will have to focus less on promotional activities as it has lesser number of competitors. On the other hand, rivals will be pressurized into spending more on promotional activities to attract more customers. On the other hand, after creating a strong position with its acquired brands, Flowers Foods is now focusing on its core brands such as Nature’s Own. It is focusing on improving its fundamentals and also its relationship with other companies. Also, it is improving its services to deliver better customer satisfaction.
Flowers Foods is counting on its cake sales. It is confident of its ability to leverage its DSD network and grow its Tastykake Brand. To further attract customers, Flowers Foods' cake marketing team is bringing in new products, new flavors, and new packaging. The company is expecting this initiative to attract a wide range of customers to the brand, driving its sales higher and helping it gain market share.
Flowers Foods is also expanding its line of single serve items. It is also using seasonal packaging to drive traction for its cake brands. In addition, Flowers Foods is working directly with store managers to drive effective merchandising to attract traffic for snack cakes. Looking ahead, the company will remain focused on delivering quality and fresh snack cakes, and this will help it drive more customers to the brand.
Moving ahead, Flowers Foods is expecting a lot from the new markets where it has opened stores, and success in these markets will support its long-term growth strategy. Under its growth strategy, Flowers Foods will be looking for more opportunities for acquisitions, as acquisitions have always helped the company achieve growth. In addition, management is engaged in improving operational efficiencies. It is working on strategies to drive cost effective advances to keep its margins high.
Conclusion
Moving on to fundamentals, with a trailing P/E of 21.46, Flowers Foods looks like a reasonable stock. Its forward P/E of 18.67 indicates solid earnings growth. Further, for the next five years, its earnings are expected to grow at a CAGR of 12.30%, which is very close to the 13.33% average of the industry. Considering all these points, it can be said that Flowers Foods is a good pick.
