Words are hard to eat, even when you're talking about a bread and bakery products company. Last quarter, when covering the strong results at Flowers Foods
Ah, there is no way to sugarcoat it: The stock is hitting a new all-time high today on news the company had an excellent second quarter and increased its guidance for the remainder of 2005. Nor is there an easy way to ignore that the stock is up a split-adjusted 15% since I wrote about it a quarter ago. Oh, and let's not forget to add that this company is a 5-bagger over the past 5 years. Now that's hot -- piping hot, right out of the oven!
Flower's performance is really special. While Campbell Soup
So, let's look at what sent revenue higher by 12.4%, compared with the second quarter of last year, and what pushed net income up by 18%.
The revenue increase was driven by strong 5.8% volume growth, 3.7% by a favorable product-mix shift (fancy words that simply mean customers are buying the higher-priced items), and 2.8% by price increases. That strong pricing allows the company to cover increasing transportation and energy costs, and the strong volume growth is accelerating plans to add new production capacity.
Also lifting net income, besides strong pricing and better volume, was the ability to restart idle production lines in Tennessee and Florida. Gross margin in the quarter rose 0.5% year over year to a strong 50%. You might not realize just how strong that margin is until you realize diversified food giants like General Mills
Since the end of last year, the company has raised revenue guidance from a range of $1.60 billion to $1.624 billion to today's $1.675 billion to $1.70 billion. Earnings guidance has remained unchanged at 3.75% to 4% of sales. Capital spending has been boosted $10 million to allow for additional production capacity to be built.
The fact is, net income, compared with the comparable year-ago quarters, increased 16% last quarter and 18% this quarter. That far exceeds the 11% annual per-share earnings growth that analysts are projecting for the next five years. Note that I used net income, not earnings per share, because the company's aggressive share repurchase program has sent per-share earnings even higher on a percentage basis.
The stock is selling for 25.9 times this year's estimated earnings and 23.2 times calendar-year 2006 earnings. That's reasonable for a company growing so rapidly within the packaged foods industry, where quarterly revenue growth is 8.6% and gross margins are 25.5%, almost half of what Flowers makes.
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