EC Flowers Foods: Irrational Selloff After Fourth Quarter Earnings

Yesterday, February 14, Flowers Foods (FLO) reported earnings for the fourth quarter and fiscal year of 2016. Despite it being Valentine’s Day, investors did not love the stock after the company’s earnings announcement. Flowers Foods stock dropped 8.8% that day.

FLO Stock Price - Calendar 2017

Source: Yahoo! Finance

However, this is not necessarily a bad thing for the long-term investor. When companies experience (or are perceived to experience) short-term trouble, it can be a great opportunity to pick up shares at a discounted price.

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
– Warren Buffett

This article will discuss why Flowers Foods current stock price presents a buying opportunity rather than a reason to be fearful.

Business Overview

The predecessor Flowers Foods was founded in 1919 by two brothers in Thomasville, Georgia. The company became known for its high production volumes, state-of-the-art technology, and great sanitary standards.

The company first went public in 1968 as Flowers Industries, and introduced their famous Nature’s Own bread in 1977. The company was renamed Flowers Foods in 2001 and has gone by that name ever since.

Flowers Foods is now the second largest bakery business in the United States. With four product mixes, two distribution networks, and three sales channels, Flowers Foods has become a force to be reckoned with in the bread industry.

FLO Business Overview

Source: Flowers Foods Investor Presentation, slide 5

Flowers Foods has a distinct competitive advantage that comes from their many brands of popular bread. Most notably, Flowers Foods owns Nature’s Own, Dave’s Killer Bread, and Wonder, among others.

FLO Market Share Summary - Retail Outlets

Source: Flowers Foods Investor Presentation, slide 8

Financial Performance Overview

Flowers Foods reported earnings for the fourth year and fiscal year of 2016 on February 14, 2017.

In their press release, Flowers Foods announced the following financial results for full-year fiscal 2016, with comparisons being made to fiscal 2015:

  • Sales increased 3.9% to $3.927 billion. The acquisitions of Dave’s Killer Bread and Alpine Valley Bread contributed 4.0% to the sales increase.
  • Diluted GAAP earnings-per-share decreased 12.4% to $0.78
  • Adjusted earnings-per-share decreased 1.1% to $0.91
  • Costs associated with Project Centennial were $6.3 million, which translates to $0.02 per share
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