Drip Portfolio Report

Drip Portfolio Report
Tuesday, November 11, 1997
by Randy Befumo ([email protected])

ALEXANDRIA, VA (Nov. 11, 1997) --

Company: Flowers Industries
Ticker: FLO

Recent Price: $20 1/16

Trailing 12-month sales: $1,432.4 million
Trailing 12-month oper. earnings: $93.2 million
Trailing 12-month EPS: $0.66 EPS

Fiscal '98 EPS estimates: $0.88 EPS
Fiscal '99 EPS estimates: $1.10 EPS

Shares outstanding: 87.6 million
Annual dividend: $0.45

Website: http://www2.flowersindustries.com/flowers/

Check Out: http://www.naturesownbread.com/. This site was established for the company's flagship bread brand and has fitness tips and QuickTime movies of recent commercials.

Description: Flowers is a food maker that concentrates on the bakery segment. Whereas yesterday's victim, CPC International, is really a bread spread company, Flowers is a bread and baked goods concern. International Bakeries and CPC International are Flowers' major competitors.

Shares have done well over the past five years, rising an average of 19.8% assuming dividend reinvestment. (Here at the Drip Portfolio, folks, we always assume dividend reinvestment.) Management has invested heavily in automating the bakeries to improve margins as well as making smart acquisitions. Buying the Mrs. Smith's line of frozen pies and piecrusts in 1996 was a bit of coup. The company's investment in privately held Keebler has started to pay off recently as well.

Major brands: Nature's Own, Cobblestone Mill, Whitewheat, and BlueBird fresh breads, rolls, and snack cakes; Mrs. Smith's, Mrs. Freshley's, Stilwell, and Oregon Farms fresh and frozen specialty baked goods; co-owner of Keebler, the second-largest cookie and cracker company in the country.

Company Value: Flowers' current market capitalization, the value of all of its outstanding shares, is $1,757.5 million (87.6 million * $20 1/16).

The company has $5 million in cash and $292 million in long-term liabilities according to the recent 10-Q filing, available at www.sec.gov. If we subtract the cash and add the debt to the market capitalization, this gives us the current value of the entire company, or the enterprise value. This is $2,044.5 million.

The reason we want to use enterprise value instead of just market capitalization is simple. When we buy a company's stock, one of the tricks we use here at the Drip Portfolio is to pretend we are buying the whole company. If you were to buy the company, you would assume the debt, which effectively increases your purchase price. For instance, no one who pays $5,000 for a house with a $95,000 mortgage says the house cost $5,000. The same logic holds for buying a company with $200-some million in long-term debt.

However, you would get the cash, which goes right back into your pocket. Also, you get any marketable securities or investments the company has. So, if you found $10,000 in your house after buying it, you would probably smile and say the house cost you $10,000 less than the cash and debt you paid to buy it.

Valuations: To get the valuation relative to sales, we take enterprise value and divide by the trailing sales to get 1.43 ($2,044.5 million / $1,432.4 million).

Flowers trades at 30.4 times trailing earnings ($20 1/16 / $0.66 EPS), 22.8 times 1998 estimates ($20 1/16 / $0.88 EPS), and 18.2 times 1999 estimates ($20 1/16 / $1.10 EPS).

Margins: Operating earnings divided by revenues are the operating margins, or 6.5% ($93.2 million/ $1,432.4 million).

Leverage: Long-term debt divided by revenues is one of my favorite ways to think above leverage. With $292 million in long-term liabilities and $1,432.4 million in sales, Flowers has a 20.4% debt-to-sales ratio.

Capital allocation: The company pays a 2.2% dividend. Management has been using the rest of its capital to invest in plant, property and equipment. In fact, over the last year they have invested $30 million more than their combined depreciation and amortization benefit to automate their factories and improve operating margins. Management has also been acquisitive, buying brands over the past few years that fit into their overall portfolio. This means that they have not had money to buy back stock. Whether or not this investment in the company and in other companies will pay off is something left to the future, but there has not been a lot of stock buying going on at Flowers.

The numbers: For more info on how to figure out these simple ratios check Friday's report on ConAgra. If you have any questions, please e-mail me at [email protected].

TODAY'S NUMBERS

  
              Stock   Close    Change
               Intel  $76 1/4   +1 1/8

            Day   Month Year  History
        Drip:    +0.00%   0.00%  0.00% 0.00%
        S&P:     +0.00%   0.00%  0.00% 0.00%
        NASDAQ:  +0.00%   0.00%  0.00% 0.00%


        Rec'd   #    Security         In At 
       9/8/97   1      Intel         $94.69

                          
                        Base: $800.00
                    Expenses: $ 70.50 (Moneypaper)
                   Purchases: See above and below
                        Cash: $634.89**
                 Total Value: $710.00 apprx.


GOAL: The portfolio began with $500 on July 28, 1997, 
adds $100 on the 15th of every month, and the goal 
is to grow the port to $150,000 by August of the year 2017. 

**Transactions in progress:
1. $81.00 sent on 10/17/97 to buy one share of JNJ and
   enroll in its DRIP.
2. $300.00 sent on 10/23/97 to buy more shares of INTC.