Research Articles

Flowers Foods: The Suit Was Settled Will the “Dough” Keep Rising?

Chuck Carnevale - Wednesday, December 28, 2016

Introduction

This article is presented as an update to an article I published on Flowers Foods (FLO) on September 22, 2016.  Later in this article I will provide a direct link to the original.  However, my primary purpose behind this updated article is to reflect on an important investment concept that my experience suggests that many investors tend to either overlook or improperly respond to.  In the long run, a company’s stock price will be driven by the operating success that the business behind the stock generates.  In contrast, in the shorter run, the company’s stock price can often be greatly affected by emotional responses often instigated by certain events.

The operating success of a business is easily measured by examining important fundamental metrics.  These include, but are not limited to, earnings, cash flows, dividend payments, balance sheet items, etc. A careful review, examination and analysis of these important fundamental metrics speak volumes about the quality and success of the business being evaluated.  In simple terms, analyzing fundamentals tells you how successful the business has been, how skilled its management team is - and has been, and whether or not it represents an enticing investment opportunity from a shareholder’s perspective.

Events, on the other hand, can often incite highly-emotionally charged reactions.  As a result, events can often have a dramatic impact on short-term price action.  But most importantly, events can have a significant impact on short-term stock prices even when they really do not have a significant impact on the long-term viability of a given business.  The secret to dealing with events, and event risk, is to determine whether it represents a temporary interruption in the business, or a permanent impairment of the business’s future prospects.

When an event represents a temporary interruption, it can often lead to an extraordinary long-term opportunity for investors.  More importantly, at least in my personal experience, most events turn out to be temporary in nature.  However, panicked investors caught up in the hype and/or hysteria will often sell instead of purchase.  Therefore, they frequently take unnecessary losses, and worse yet, turn away from extraordinary long-term opportunities.  Some typical events that elicit this kind of behavior might be a product recall, a lawsuit, an industrial mishap such as a factory explosion - to name just a few of the many possibilities.

Flowers Foods, Inc.:  Lawsuit an Event Risk

In my original article titled “Flowers Foods A High-Yield Risk Worth Taking” I suggested that the precipitous drop in Flowers Foods’ stock price since October 2015 could be attributed to two primary sources.  The first, and in my opinion, most prominent issue was a significant slowdown in earnings and revenue growth that started with fiscal 2014 results.  The second contributor to negative investor sentiment was the pending lawsuit which represents an example of an event risk as discussed above.

However, the lawsuit has been settled, which turned negative investor sentiment into positive investor sentiment - at least temporarily.  Consequently, Flowers Foods’ stock price has surged approximately 30% since the end of September when I published my original article.  But most importantly, is that my current assessment indicates that Flowers Foods has gone from being attractively undervalued in September, to being fairly valued currently.  I present my current assessment on Flowers Foods’ current valuation and future opportunity in the following F.A.S.T. Graphs fundamental video analysis:

Reasons for Optimism

When considering Flowers Foods as a long-term investment opportunity, the old adage “people got eat” comes to mind.  Bread has long been a staple that has been consumed for most every family’s breakfast, lunch and dinner.  Although consumers are currently favoring healthier food options, Flowers Foods is adjusting their product offerings accordingly.  More importantly, the company is gaining share in the growing organic category as evidenced below.

Additionally, Flowers Foods’ management team is working hard to improve long-term business results.  Time will tell how successful these endeavors will be.  However, it’s important to remember that the company does not have to grow very much to produce a solid and growing dividend income stream.  The following excerpts from their most recent financial report summarize some of management’s current initiatives.

"Allen Shiver, Flowers Foods president and CEO, said. "We remain acutely focused on driving growth and increasing efficiencies, including our Project Centennial efforts. The initial diagnostic phase is complete, and we are now finalizing our plans to implement strategies intended to grow sales and improve margins. Today, Flowers is a strong company with a team dedicated to excellence. Looking ahead, we are confident we are taking the right steps to build on our strong foundation and enhance shareholder value over the long term."

“Project Centennial Update

During the quarter, Flowers progressed towards the completion of the first phase of Project Centennial, which included a comprehensive diagnostic evaluation of opportunities to drive growth, reduce costs, and make investments intended to strengthen the company's competitive position and improve margins over the long term.

In mid-October, Flowers began the second phase which entails formulating and executing new strategies to capture growth opportunities. To fund these initiatives, the company is currently finalizing the specific actions necessary to achieve savings through identified operational improvements that include further use of the company's shared services capabilities, network optimization, and better leveraging the company's expenditures on goods and services. The company anticipates finalizing the implementation plans in early 2017, and expects to provide additional details on Project Centennial when Flowers fiscal 2016 results are released in early February."

Summary and Conclusions

Flowers Foods is a solid dividend growth stock that has produced excellent long-term operating growth.  As a result, the market has historically been willing to value the company at a relatively high P/E multiple.  However, earnings growth has been slow of late, which has instigated caution on the part of many investors.

Nevertheless, this is not the first time that growth has slowed, and the company has a management team that is known for its adaptability.  But perhaps most relevant to the dividend growth investor, is the fact that Flowers Foods has continued to provide strong dividend growth over the past few years in spite of a slowdown of earnings growth.

As previously discussed, management has a plan in place for increasing efficiencies and driving growth.  Additionally, the company is aware of changing consumer behavior relating to healthier bread options such as organic multi grain offerings.  Last year’s addition of Dave’s Killer breads provides evidence of management’s recognition of the need to provide healthier bread options.

The bottom line is that current valuation appears sound, and the current dividend is well covered and provides an above-average current yield.  Consequently, I see Flowers Foods as solid and attractive based on its above-average dividend yield.  Moreover, if management is successful in reinvigorating growth, then the company might also represent an attractive total return investment as well.  As always, I suggest you conduct your own comprehensive research and due diligence.  However, I do believe that Flowers Foods is currently worthy of making that effort.  

Disclosure:  Long FLO

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.




Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”


Recent Posts


Tags

AFAM POT RIMM long-term OZRK SON stock analysis CR ADP CSL dividend-growth R OII TNC MAN DGAS market timing MSCC ABM DMRC total return UHS WEC HGT DKS CACC US Economy stock research PSX NOG GES CBI MYL PFE Consumer discretionary V FB value-oriented TE MATW ANDE interest rates Aristocrat capital appreciation VVC DollarCostAverging RMD ECHO AGN treasury THC ARLP MSA SWK Bond,TGT,UTX ALTE DORM DLPH Utilities PNM RJF SLGN TSCO FAST Graphs AKRX stock consumer OHI,EPR,WPG,JLL PFG JKHY NFLX technology AB PCP BEN CPN CCK WMT HNZ CTCM DFS CACI fast-growing EXLS SYNA CPB CSX INT rate of return FTI,HTZ AFL,CVX,ED,JNJ,MCD,PG,SWK,T,WMT,TGT,ABM,AFL,BEN,BMS,CB,CBSH,CTBI InterestRates SIG POM FDO ABC VZ D TXT Fundamentals DTEGY CVS HON CE ATW SLW BOFI HCA GOLD SO HOG ICLR BNS. FISV AFL COL TEVA PPL PAG TAC GPI long-term investing AZO GME TIF NKE HAS CIO PRXL BMO IDA HSNI CanadianBanks KMT TMP SRCE AMT WFC UTHR AMAG long-term growth OXY BDX BNS DVA true worth InformationTech MCD JSFT ORCL SU NOC OUTR BMS CSCO VFC CASY PKG ROSE stock research tool CELG MAIN EMR EPHC LOW TUP banks LINE stockResearchTool CLR XRX CTBI CATY SHOO RDS.A marketvaluation CTAS MNK REXX KO,CLX,CELG,JCP,GT,MSI,PEP,ED dividend-paying KALU SNI dividendpaying MCHP PM stocks FRED biotechnology AMP OGE dividends SCG ZBRA EK KCAP SPLS GEOS GIS Challengers EnergySector UNH ABBV AAN ETN BBY cashflow RBC utility stocks regional banks LZB AIRM BWLD investing for income,growth and income LQDT JCOM UN POWR NROM WST AGLP BA TRV THO RS VTR VRTU GE JRN TROW fundamental stock research tool DOM GAS DOV NTES APEI OKS TU intrinsic value,stocks,earnings,fundamentals,stock research tool,due diligence EBAY CKSW DELL CVX,SWK,MCD,TGT,PG,WMT,JNJ,MDT,AFT,T,ED biotech MTW FOSL DHR Aristocrats CTL SCHW SAVE GPC ADM WY ETP TWGP RatofReturn market currents SYT WSM Dividend Ideas ENSG growth stocks AMG BAX investment PEG Materials HRS hyper growth stocks MRK CXRX HD 3NSRGY JNJ MHS Yield AZZ TEG: WEC: UNP NPM WU Valuation ACQ WASH ARRS Dividend Champions DRIP AM cyclical AMZN THFF EV BPL Utilities Sector FAF DTV MAT Macro view PortfolioDesign APH MKC GPS suvivorship basis BANF ECL TIS CAPE AVP QCOR due diligence KSS WHR SHW HSC CMI NLY SJM VRX CNSL ACM CRLI OHI EXC BKH CLF FCFS KR AAP ESI HPQ UEPS WBA MMM investing for income HE Share Buybacks LO BOBE BOKF BEAV UNM DOW GILD ASNA HCN CAM SIVB SBR EWBC SBUX SPY mid-sized RY WWW FOMC investing for total return GD utility LXU PPG ALB MHP PB XOM STMP DAN ZUMZ BCE SoundValuation LLL SUBX MIDD short ideas WVR GLT INTC dividend growth above-average BAC AEP DRC COO dividend income MTZ SNH LEN F suvivorship FAST NSC CLX BAP BH act beta RAI KMP CHE ULTA WRLD value Telecommunications MO DRI TGI HCI food service MDT FRAN CRI AMBN ENDP blue-chip economy GNTX VMI BLK GT FairValuation EAT MNTX SFG CERN LKQ SWFT ATHM PRGO DividendChampions healthcare ADT DividendAristocrats HII value investing UTX NSR WFM Industrial BG intrinsic value JAZZ COH CBU fastgraphs VCO LH DIS WIN blue chip retirement MDP TWX IBM MNR RRD HRL INWK dividends,earnings growth HBI FDX SEIC AEG TGT dividend paying P investing Overvalued ESRX long MELI PBI NVS ITW, QCOM GOOG MCK MA AMGN TNGO SNCR THRM EMC COST Champions LMT DE BHP dividend growth investing FTR ACR sell SCL FLIC NC SXL SYY CGY dividend BMTC AFSI CHS OSIS PNW PCLN SBRA Stock Research Analysis BWP KO FUL CINF AA high-yield FBHS MPW GMCR AFG IR JWN TOT URI LL CTG Market Outlook dividend paying stocks CBRL ACI DLR IBN PII growth WMT,ROST,GIS,GE,JNJ,KO highqualityR dividendGrowth value trap APD ConsumerDiscretionary AAPL RCII market macro WLP ACOM best-of-breed JCI RKT RSO JWML.Y ODFL INGR RSG,RTN FairlyValued BHB BMRC BRS DR DGX GrowthOriented MGA CFR HCP FC cash flow FF HP JPM NSRGY ACN GWW BCR CTSH DividendIncome ORI AVD ED FinancialSector M BIIB BR REITs PNR IPAR DTE CHD BF.B C long ideas fair value PowerOfCompounding XEL MSFT mid-cap fair valuation ACE ITW FL SAM ETR free cash flow CVX ROST IR, CL STE DDS MGEE Buffett machinery BCOR VAL PRAA OKE CAT COP CNC BBBY AOS TICC NA RSG TEF GPCM ED:SCG CB RTN MGRC O INFY MNST BigFive,Canadian RRC KMB Contenders HSY CLX,EMR UL SYK Ratio earnings WGL BLL TSM NEE LLY CTRX portfolio PG FLO PCL MUR AMCX TGH K DD PNRA MCY CM CAH intrinsicvalue ANTM POR EMR, MMM JOY EE HIBB PEP BRLI WAG GOOGL T PE LTM AET SHPG DNB AXP DECK HCBK DPS long-term returns X HighQuality cash flows KFT earnings growth SHR BIDU ONE SILVER ABT PDFS diversified machinery SWKS AIG ITC PE Ratio

Archive

Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”