Baker Flowers Foods (NYSE:FLO) has produced impressive results for longtime shareholders, working to put together a growing network of nationally known baked-goods brands. Flowers isn't the only player in the industry, but it and Campbell Soup (NYSE:CPB) brand Pepperidge Farm have generally squared off against local competition and store brands for years. Yet recently, Flowers has seen its share price fall back from its previous highs, and coming into Wednesday's fourth-quarter financial report, Flowers Foods investors were hoping that the baker would be able to eke out at least minimal growth on the top and bottom line. Flowers wasn't able to deliver on that promise, raising the specter of a tough 2016. Let's look more closely at what Flowers Foods said in its report and what we can learn from its outlook going forward.
A spoiled quarter for Flowers Foods
Flowers' fourth-quarter results didn't live up to what investors had expected to see from the bakery company. Revenue slumped 2.2% to $858.4 million, dramatically missing the $907.8 million consensus forecast among investors. Net income climbed 15% to $32.2 million, but after adjusting for one-time charges that the company took in the year-ago quarter, adjusted earnings fell 20% to $0.16 per share, missing expectations by $0.05 per share.
A closer look at the numbers reveals several things. Flowers Foods' fourth quarter was only 12 weeks long, as opposed to last year's 13-week quarter. Those following the stock should have known that, but it's at least possible that consensus forecasts were assuming a comparable-length quarter. Nevertheless, some of the trends within Flowers Foods had different impacts on its various segments. The branded retail side of the business did well, posting a minimal 1.2% sales drop in the direct store delivery segment and climbing almost 32% in the warehouse segment. By contrast, store-branded retail sales plunged almost 11% in direct store delivery and 6% in warehouse. Non-retail and other sales performed slightly worse than the company's overall totals.
Once again, the warehouse segment turned out to be more profitable. Adjusted operating earnings dropped 10% in the direct store delivery segment, but they rose 18% in the warehouse division. Unfortunately, with only a fifth of overall revenue coming from warehouse, its positive move wasn't enough to offset the drop in direct store delivery.
CEO Allen Shiver accepted responsibility for the poor results. "We are not satisfied with our performance in the fourth quarter," Shiver said. The CEO cited the reversal of favorable trends from earlier in the year as holding back Flowers Foods' ability to turn its strategic initiatives into greater growth.
Can Flowers Foods bounce back?
Flowers nevertheless sees good things ahead for 2016. The company believes that its recent acquisitions should add 5.2% to 5.7% to sales growth for the year, and Flowers is working hard to expand its market share against Campbell Soup's Pepperidge Farm and other competitors in rapidly expanding market areas.
Looking ahead to fiscal 2016, Flowers Foods' guidance for the full year was less promising than most investors had hoped to see. Revenue guidance in a range of $3.986 billion to $4.08 billion covers the current investor estimate of $4.06 billion, albeit leaving more room for underperformance than outperformance. But earnings guidance for $0.98 to $1.04 per share is squarely below the consensus estimate of $1.10 per share, and growth rates of 6.5% to 13% on the bottom line weren't enough to give shareholders much confidence in Flowers' future.
Some investors are also worried about litigation that Flowers faces. In January, Flowers Foods' drivers sued the company, arguing that the company should treat them as employees rather than independent contractors. Although Flowers asserts that courts have upheld its independent contractor model in past disputes, the threat of a labor disruption could hurt Flowers' already-fragile business.
Flowers Foods' shares quickly reflected investors' dissatisfaction with its results, as the stock fell 14% in the first 30 minutes of after-hours trading following the announcement. Without further moves to support growth going forward, Flowers could have trouble getting itself back on an upward trajectory.