Shares of the nation's second-largest bakery, Flower Foods (FLO -1.08%), dropped on Friday after the company reported financial results for the third quarter of 2023. And painfully for shareholders, the stock is now down from where it was 10 years ago. As of 11:20 a.m. ET, Flower Foods stock was down 8%.
What happened to Flower Foods?
It's likely that everyone reading this has experienced higher prices at the grocery store. Because of these price increases, Flower Foods has noticed that consumers are trading down from brand-name baked goods to less expensive options. Overall, the company's volume of products sold dropped 4.1% year over year in Q3.
Flower Foods did still generate record Q3 sales of $1.199 billion, which was up 3.5% from the prior-year period. But this was due to raising its prices and it can't be relied upon every quarter to deliver gains.
On the bottom line, Flower Foods recorded a net loss of $46.7 million due to a class action lawsuit settlement in California. However, even adjusting for this, the company's earnings per share (EPS) still fell by about 3%.
Headwinds are still blowing
Flower Foods lowered its full-year guidance slightly in light of Q3 financial results. Previously it had guided for sales of $5.095 billion to $5.141 billion but now it's guiding for sales of $5.085 billion to $5.104 billion.
The bigger adjustment comes in Flower Foods' EPS guidance. Previously it guided for full-year diluted EPS of $1.18 to $1.25 but now it expects just $0.60 to $0.67. That's a big reduction but it's mostly due to the settlement costing more than expected.
The good news for income investors is that Flower Foods' cash flow is sufficient to cover its dividend. In the challenged Q3, the company had cash from operations of $128 million whereas it's paying out less than $50 million quarterly on its dividend. Therefore, I'd say the dividend looks safe for now even as the company struggles to find growth.
