Flowers Foods Analyst Day Review

By Eric Fox | September 30, 2010 AAA

Flowers Foods (NYSE:FLO) used its recent analyst meeting to review the company's growth and financial accomplishments over the last few years, and outlined the company's strategy to keep growing in the future.

IN PICTURES: 10 Ways To Cut Your Food Costs

Summary
Flowers Foods is headquartered in Georgia, and is one of the largest producers of packaged baked goods in the United States. The company has 40 bakeries across the Southwestern and Southeastern United States, and sells its products under the Nature's Own, Blue Bird, Cobblestone Mill and several other brand names.

History
Flowers Foods has been an impressive growth story the last few years. The company has grown sales by a compound annual growth rate (CAGR) of 11% since 2005. It has grown earnings per share at an even higher 21% CAGR over the same time frame.

Flowers Foods expects to grow sales at a lower rate of 2% in 2010, but keep earnings per share growth in a range between 10% and 15%.

Long Term Goals
Flowers Foods has established several long-term financial goals for the company. These include growing sales between 5% and 8% annually, and maintaining an EBITDA margin between 10% and 12%. Lastly, the company strives to earn a return on invested capital between 13% and 15%.

Industry
The retail fresh bakery market is approximately $19 billion, with fresh packaged breads the largest component at $12.7 billion. Flowers Foods has the largest dollar market share of fresh packaged breads with a 22.9% market share in the first six months of 2010, according to data from IRI.

Sara Lee (NYSE:SLE) has a dollar market share of 8.4%, and Pepperidge Farm, which is owned by Campbell Soup Company (NYSE:CPB), has a 7.2% share.

Like other food companies, Flowers Foods is seeing rising cost inflation. Flowers Foods' largest cost is for ingredients that go into the company's baked goods. This cost represented approximately 50% of the cost of goods sold in the first half of 2010. These ingredients include sugar, wheat and corn.

Kellogg (NYSE:K) also experienced cost inflation on some inputs in its most recent quarter. The company reported higher commodity costs in many areas and mentioned sugar costs as one of the most affected.

Strategy
The company's strategy to keep growth going over the long term includes strengthening its brands. Flowers Foods owns Nature's Own, which is the number one selling fresh bread brand. Sales for this brand totaled $434.9 million in the 52 weeks ending September 5, 2010.

Another component of the company's strategy is to grow sales through the introduction of new products. Flowers Foods has introduced several new products in 2010, extending the Nature's Own brand.

Flowers Foods is also looking to acquire other bakery companies that might extend the company into new markets or add capacity. The company has a history of acquisitions and has acquired $401 million in sales since 2004.

Bottom Line
Flowers Foods has been on a growth tear the last five years and has outlined a strategy that the company will use to grow earnings and sales in the future. (To learn more, check out Prepare Your Portfolio For Higher Food Costs.)

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