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Flowers Foods (FLO) Troubled by Volatile Consumer Spending
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Flowers Foods, Inc. (FLO - Free Report) continues to be troubled, marked by fluctuating consumer-spending patterns. This includes a decline in fast-food traffic and a negative trend in at-home food and beverage sales, as witnessed toward the end of the first quarter of 2024. Additionally, increased selling, distribution and administrative (SD&A) expenses remain concerning.
FLO has been encountering difficulties in attracting customers due to economic challenges where consumers are on the lookout for greater value in their purchases. Also, promotional activities have not yet returned to pre-pandemic levels, which could impact sales volumes and consumer engagement.
The market shows a clear split, premium products are performing well as some consumers seek differentiation, while less-expensive options attract those looking for value. This environment underscores the complexity and volatility the company must navigate.
The Zacks Consensus estimate for current fiscal-year earnings per share has seen a slight downward revision, decreasing by a penny from $1.25 to $1.24 over the past 60 days. Apart from this, the Zacks Rank #4 (Sell) stock has fallen 3.1% compared with the industry’s decline of 7.1%
Image Source: Zacks Investment Research
Other Roadblocks on the Horizon
Flowers Foods is navigating cost concerns despite maintaining a largely stable financial outlook for the year. Increased capital spending on supply-chain-optimization initiatives and higher tax rates, along with rising net interest expenses and the ongoing ERP project, are expected to impact full-year results.
The company anticipates ERP system upgrade costs to be between $25 million and $35 million in fiscal 2024, with $3-$6 million of that expected to be capitalized. While investments in marketing and digital initiatives are critical for long-term growth, they are tempering near-term results.
In the first quarter of 2024, SD&A expenses totaled 39.7% of sales, marking an increase of 110 basis points (bps). Adjusted SD&A expenses rose 130 bps to 39.3% of sales. The uptick was primarily attributed to higher labor and technology expenses. Higher growth-related investments also had an impact on margins.
During first-quarter earnings release, management reiterated its outlook for 2024. The company anticipates ongoing improvements in volume but remains cautious due to economic uncertainties. These uncertainties could potentially influence consumer behavior and impact promotional activities.
Final Thoughts
Flowers Foods has been witnessing benefits from its core priorities centered around enhancing its team, strengthening its brand portfolio, prioritizing margins and pursuing strategic mergers and acquisitions. With its strong strategic initiatives, expansion plans and commitment to innovation, it may find some relief as inflationary pressures ease, allowing lower-income households to begin recovering. That being said, the above-mentioned hurdles cannot be ignored in the near term.
3 Picks You Can’t Miss
Here, we have highlighted three better-ranked stocks, namely, Vital Farms (VITL - Free Report) , Vita Coco Company (COCO - Free Report) and Ollie's Bargain Outlet (OLLI - Free Report) .
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 22.5% and 59.3%, respectively, from the year-ago reported numbers.
Vita Coco, which develops, markets and distributes coconut water products, currently flaunts a Zacks Rank #1. COCO has a trailing four-quarter earnings surprise of 25.3%, on average.
The Zacks Consensus Estimate for Vita Coco’s current financial-year sales and earnings implies an improvement of 3.5% and 40.5%, respectively, from the prior-year actuals.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 10.4%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 7.9% and 11.7%, respectively, from the year-earlier levels.
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Flowers Foods (FLO) Troubled by Volatile Consumer Spending
Flowers Foods, Inc. (FLO - Free Report) continues to be troubled, marked by fluctuating consumer-spending patterns. This includes a decline in fast-food traffic and a negative trend in at-home food and beverage sales, as witnessed toward the end of the first quarter of 2024. Additionally, increased selling, distribution and administrative (SD&A) expenses remain concerning.
FLO has been encountering difficulties in attracting customers due to economic challenges where consumers are on the lookout for greater value in their purchases. Also, promotional activities have not yet returned to pre-pandemic levels, which could impact sales volumes and consumer engagement.
The market shows a clear split, premium products are performing well as some consumers seek differentiation, while less-expensive options attract those looking for value. This environment underscores the complexity and volatility the company must navigate.
The Zacks Consensus estimate for current fiscal-year earnings per share has seen a slight downward revision, decreasing by a penny from $1.25 to $1.24 over the past 60 days. Apart from this, the Zacks Rank #4 (Sell) stock has fallen 3.1% compared with the industry’s decline of 7.1%
Image Source: Zacks Investment Research
Other Roadblocks on the Horizon
Flowers Foods is navigating cost concerns despite maintaining a largely stable financial outlook for the year. Increased capital spending on supply-chain-optimization initiatives and higher tax rates, along with rising net interest expenses and the ongoing ERP project, are expected to impact full-year results.
The company anticipates ERP system upgrade costs to be between $25 million and $35 million in fiscal 2024, with $3-$6 million of that expected to be capitalized. While investments in marketing and digital initiatives are critical for long-term growth, they are tempering near-term results.
In the first quarter of 2024, SD&A expenses totaled 39.7% of sales, marking an increase of 110 basis points (bps). Adjusted SD&A expenses rose 130 bps to 39.3% of sales. The uptick was primarily attributed to higher labor and technology expenses. Higher growth-related investments also had an impact on margins.
During first-quarter earnings release, management reiterated its outlook for 2024. The company anticipates ongoing improvements in volume but remains cautious due to economic uncertainties. These uncertainties could potentially influence consumer behavior and impact promotional activities.
Final Thoughts
Flowers Foods has been witnessing benefits from its core priorities centered around enhancing its team, strengthening its brand portfolio, prioritizing margins and pursuing strategic mergers and acquisitions. With its strong strategic initiatives, expansion plans and commitment to innovation, it may find some relief as inflationary pressures ease, allowing lower-income households to begin recovering. That being said, the above-mentioned hurdles cannot be ignored in the near term.
3 Picks You Can’t Miss
Here, we have highlighted three better-ranked stocks, namely, Vital Farms (VITL - Free Report) , Vita Coco Company (COCO - Free Report) and Ollie's Bargain Outlet (OLLI - Free Report) .
Vital Farms offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 22.5% and 59.3%, respectively, from the year-ago reported numbers.
Vita Coco, which develops, markets and distributes coconut water products, currently flaunts a Zacks Rank #1. COCO has a trailing four-quarter earnings surprise of 25.3%, on average.
The Zacks Consensus Estimate for Vita Coco’s current financial-year sales and earnings implies an improvement of 3.5% and 40.5%, respectively, from the prior-year actuals.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, currently carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 10.4%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 7.9% and 11.7%, respectively, from the year-earlier levels.