Bread is a key staple for many American families, and Flowers Foods (NYSE:FLO) plays a vital role in getting many well-known bread and bakery products to supermarkets across the country. With its well-known Wonder Bread and Tastykake brands, Flowers Foods has a strong position in a fragmented market, and coming into Wednesday afternoon's fiscal second-quarter financial report, Flowers Foods investors were hoping to see modest gains in its key fundamental benchmarks to prove that the company was still on its growth trajectory. Flowers Foods' results actually were slightly better than most had expected, although its pace of growth still reflected the relative stability of the industry. Let's look more closely at how Flowers Foods did and what might be ahead for the company.
How Flowers Foods got tastier this quarter
Flowers' fiscal second-quarter results bounced back from weakness in previous quarters. Sales climbed 1.8% to $889 million, just inching above the $887.5 million that most investors had expected to see. Adjusted net income rose a much more impressive 18% to $53 million, and that produced adjusted earnings of $0.25 per share, up 19% from the year-ago quarter and well above the $0.22 per share consensus forecast among investors.
Looking at Flowers Foods' segments shows disparate performance across its two major segments. The direct store delivery unit provided the bulk of Flowers' growth, with segment revenue rising 2.1% on particular strength in branded retail products as well as non-retail and other sales. Store-brand weakness held back the unit's growth, but operating margins for the division climbed by more than a percentage point and a half as adjusted pre-tax earnings before depreciation and amortization jumped 15%.
By contrast, the warehouse segment didn't perform nearly as well, with a revenue gain of just 0.3%. Interestingly, store-branded warehouse sales were strong, climbing nearly 6%. But non-retail and other revenue fell enough to offset most of those gains. Operating margins improved by nearly half a percentage point even though the warehouse unit still lags its direct-to-store on that measure.
Flowers Foods CEO Allen Shiver thought the company posted outstanding results. "In our core markets," Shiver said, "new products combined with our enhanced brand strategy brought consumers to our brands." Meanwhile, Flowers continued to gain traction in both the cake and bread markets, and Shiver noted that "we realized improved manufacturing efficiencies which, when combined with reduced input prices, drove margin expansion."
Can Flowers Foods keep the good times coming?
Some of those efficiencies have come from smart strategic decisions. For instance, Flowers decided to stop making non-retail tortillas late last year, and that has helped boost margins despite hitting warehouse revenues. Similarly, new products in the Tastykake and Mrs. Freshley's cake lines helped drive interest and lead to expanded distribution.
Even with slightly better results than expected, Flowers didn't feel the need to make changes to its guidance for the full fiscal year. The baker still thinks that revenue will come in between $3.786 billion and $3.861 billion, and adjusted earnings will be in a range of $0.96 to $1.01 per share. Those projections are favorable compared to the current consensus forecasts, and they reflect the relatively strong environment in the bakery industry right now.
One question Flowers Foods investors should keep in mind this time next quarter is how the company's promotional efforts work out. A partnership involving the latest Fantastic Four movie started back in July, with limited edition cake packages tied to the characters and plot of the film. Yet with Fantastic Four having opened to less-than-stellar box-office performance, it'll be interesting to see if Flowers' sales reflect any kind of movement from the promotion.
In the long run, though, Flowers Foods appears to be on track in its overall strategy of making smart acquisitions and finding ways to boost efficiency and market share. As long as the baker can produce solid results quarter after quarter, long-term shareholders should find themselves satisfied with their investment in time.