Zacks Investment Research downgraded Flowers Foods, Inc. (FLO) to a Zacks Rank #5 (Strong Sell) on Sep 23, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.
Why the Downgrade?
Market sentiments have recently been damp for Flowers Foods. Since Aug 12, when the company reported lower-than-expected results for second-quarter 2014, its share price has fallen 3.3%, while earnings estimates have been revised downward. A brief discussion on the quarter’s results is provided below:
Flowers Foods’ earnings came in at 21 cents per share, down 12.5% year over year and below the Zacks Consensus Estimate of 24 cents. Revenues decreased 2.3% year over year due to 2.9% volume decline, although partially offset by 0.6% positive price/mix impact. Operating margin edged down 100 basis points (bps) to 8%.
For 2014, Flowers Foods has revised down its revenue guidance to a range of $3.88−$3.94 billion from $3.976−$4.126 billion expected earlier. Adjusted earnings are anticipated to be 92−98 cents per share, down from the previous forecast of $0.98−$1.05.
Over the last 60 days, the Zacks Consensus Estimate for Flowers Foods had decreased 6.9% to 94 cents per share for 2014 and 7.6% to $1.10 for 2015. Lackluster results and weak outlook as well as a negative average earnings surprise of 13.4% have made us dubious about Flowers Foods’ performance in the quarters ahead.
Other Stocks to Consider
Flowers Foods, Inc. presently has a market capitalization of $3.6 billion. Some better-ranked stocks in the industry include Aramark (ARMK), The Hain Celestial Group, Inc. (HAIN) and J&J Snack Foods Corp. (JJSF). While Aramark sports a Zacks Rank #1 (Strong Buy), both The Hain Celestial Group and J&J Snack Foods hold a Zacks Rank #2 (Buy).
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