1 Exceptional Food Company for Every Portfolio

Flowers Foods has several strong brands and is in a good position to further reward shareholders.

Mar 30, 2014 at 7:00AM

As long-term investors, we love stable and growing companies trading at fairly attractive valuations. Flowers Foods (NYSE:FLO) may pass all of our stringent investment qualifications. The company recently held an analyst event in which it gave good guidance; investors reacted by sending shares up 3.4% on March 24.

Analyst event
Flowers gave long-term guidance of 5%-10% sales growth, earnings before interest, taxes, depreciation, and amortization margins of 11%-13%, and earnings-per-share growth in the double digits. These expectations are on par with the company's performance over the last five years; Flowers has grown annual sales 7.6%, EPS 11.6%, and had EBITDA margins 11.7%.

Flowers' growth over the past five years and future goals compare very favorably to much larger packaged-food companies General Mills (NYSE:GIS) and Kellogg (NYSE:K). General Mills has grown sales and earnings per share by 3.9% and 8%, respectively, over the last five years. Over the same time frame, Kellogg has grown sales and earnings per share by 3.3% and 9.4%, respectively, each year. 

Flowers' strengths
Flowers Foods has a strong competitive advantage surrounding its brands and size. The company is relatively consolidated in product scope compared to General Mills and Kellogg, which produce almost anything. Flowers sticks to baked goods such as bread and snack cakes. In the bread category, it owns several major brands such as Merita, Wonder, Sunbeam, and U.S. leading brand Nature's Own.

Competition eats away at many packaged-food companies' margins, and Flowers Foods is certainly not exempt. Flowers faces many competitors with strong branding of their own in the bread category, as well as store brands that typically cost much less. This risk could be a headwind for Flowers, but I believe the size and quality of brands in its stable will help the company to weather most storms.

Flowers has also been on the acquisition trail lately. In 2013 the company bought the rights to several bread brands and assets from the financially troubled Hostess, as well as the Sara Lee bread brand from BBU.

Looking ahead
Over the last decade, Flowers Foods has grown from selling in regions covering 38% of the U.S. population to 79% in 2013; it grew its market cap tenfold in the same period. The company has primarily used acquisitions as a means to enter new geographic regions, so clearly the same amount of regional growth is not possible over the next 10 years. However there is still some ground to cover. And as Flowers improves efficiencies and makes new product acquisitions, you can still expect the company to experience sizable growth.

I believe that the 5%-10% sales growth the company is aiming for, along with increased efficiencies as acquisition assets are integrated, should be more than enough to push this stock much higher for years to come. Flowers is currently priced at 19.6 times earnings, which is slightly higher than General Mills' 18.7 times earnings and quite a bit more than Kellogg's 12.4 times earnings multiple.

Foolish investor's bottom line
Flowers Foods may be more expensive relative to earnings than its larger counterparts in the packaged-food industry, but it is poised for higher growth as well.

The company has a strong history over the last 10 years of growing its business and enriching shareholders in the process. Management is expecting a 3%-5% increase in sales per year ahead due to organic growth and another 2%-5% growth from acquisitions. Strong estimates for top-line growth combined with the defensive nature of the bread category should help keep us investors happy for years to come.

Though the company may be somewhat pricey now, it is an excellent company to keep your eye on. If you can get a piece of this company now and more later for a price that is cheap relative to earnings, you won't be disappointed.

The dead simple "Tax-Skipping" strategy
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jacob Meredith has no position in any stocks mentioned. The Motley Fool recommends Flowers Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers