Image source: The Motley Fool.
What happened
Shares of Flowers Foods, Inc. (FLO -0.56%) tumbled last month, falling 19% according to data from S&P Global Market Intelligence. As the chart below shows, the stock got hit Aug. 10 when it provided weak guidance in its second-quarter earnings report.
So what
Like other legacy food makers, Flowers Foods has tried to adjust to the growing demand for organic products through acquisitions, picking up companies like Dave's Killer Bread and Alpine Valley Bread. However, its traditional brands, such as Wonder Bread and Tastykake, have shown disappointing results, as revenue declined in core markets in its recent quarter. Overall sales increased 5.2%, but that was driven by its recent acquisitions. Adjusted EPS ticked up a penny in the quarter to $0.26.
In response to slowing growth and competitive challenges, the company launched Project Centennial, a comprehensive review of business operations that will focus on ways to drive efficiency and profitability.
Now what
Flowers also lowered its guidance for the year, citing "competitive activity and weak category volumes." It now sees sales growth of 4% to 5.5% for the year and adjusted EPS growth between -2.2% and 3.3%. CEO Allen Shiver noted "soft consumer demand in the bakery category and heightened promotional activity in the industry."
The flat EPS projection has to be disappointing considering the two recent acquisitions, but that has become the norm for many legacy food companies. Still, Flowers is solidly profitable and offers a dividend yield of more than 4%. I'd expect some cost-cutting and other potential changes to emerge from Project Centennial.
