Flowers Foods, Inc. FLO S
February 10, 2023 - 11:25am EST by
2023 2024
Price: 27.40 EPS 1.33 1.38
Shares Out. (in M): 213 P/E 21 20
Market Cap (in $M): 5,880 P/FCF 23 23
Net Debt (in $M): 727 EBIT 383 393
TEV (in $M): 6,607 TEV/EBIT 17 17
Borrow Cost: General Collateral

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Flowers Foods, Inc. (FLO)


  • This idea will not light the world on fire, but I think it is an opportunity for fairly safe 20-25% return without a lot of downside risk
  • Flowers Foods, Inc. (“Flowers” or “FLO”), the #2 packaged foods bakery in the US, is poorly positioned for the current inflationary environment
  • Heavy branded focus leaves company highly vulnerable to pressured consumers
  • Recent growth has been driven solely by price/mix, as unit volumes have been declining consistently across both primary product categories

  • Market share losses have accelerated into the end of 2022

  • Industry trends are not working in the company’s favor
    • Company’s products skew towards branded, with a 67/33 split between branded and non-branded (i.e. store brand and institutional)
    • Company has been moving focus towards branded in recent years, with branded share of total revenue going from 60% in 2019 to 67% in 2021
    • This has worked in the company’s favor until recently, as branded has been consistently gaining share from private label for the past few years
      • From 2017 to 2021, private label gained 490bp of industry share
    • However, as inflation began to bite in 2022 this reversed, and private label took share (20bp) for the first time in recent memory
    • This trend has accelerated throughout 2022, with private label taking 90bp of share in 4Q; we expect the shift to continue into 2023 and possibly beyond
    • Specialty premium bread, a sweet spot for the company, lost 50bp of unit share in 4Q which was more than any other category of fresh packaged bread
  • Cost trends are unfavorable, raising earnings risk
    • Input costs have been an obvious headwind, and the company has limited ability to pass these on given its branded skew and the evolving demand environment
    • GMs have compressed by >200bp over the past two years; EBITDA margins have compressed by 150bp over the same time period
    • Management expects “significant” continuing input cost inflation in 2023
  • The company is in the midst of a multi-year ERP implementation, which is always a risk factor; it just upped its total cost for the implementation from $275mm prior to $350mm current estimate
  • Valuation remains generous for a company that is poorly positioned for the current consumer environment with ongoing margin pressures
    • Healthy absolute levels given limited expected earnings or FCF growth over the next few years
    • Business currently trades for 12.5x EBITDA and 21x EPS
      • Both levels are at a premium to longer-term averages; roughly 1x turn premium on EV/EBITDA and 4x turn premium on P/E
      • We expect that given the current challenging environment the business could/should trade down to levels commensurate with the outlook; on numerous prior occasions the business has traded at a discount to market multiples
        • Assuming 85% of S&P levels implies ~9.5x EBITDA and 15x EPS, yielding ~25% downside



  • 2nd largest US producer and marketer of packaged bakery foods; 2021 US market share of breads/buns/rolls 22%
  • Products include breads, buns, rolls, snack cakes, and tortillas
  • Company identifies its brands’ strategic positioning as follows
    • Mainstream: Nature’s Own, Wonder, Tastykake
    • Organic: Dave’s Killer Bread
    • Gluten Free: Canyon Bakehouse
  • 2/3 branded, 1/3 non-branded (store brand + foodservice/restaurant/institutional)
    • Fresh packaged breads roughly 80/20 split between branded/non-branded
  • Walmart/Sam’s = 21% of sales


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


 Continued market share losses, ongoing margin pressure, reduced earnings expectations

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