Bear of the Day: Flowers Foods (FLO)

Sometimes the market gives you a gentle nudge… and sometimes it smacks you upside the head with a loaf of bread. Unfortunately for shareholders of Flowers Foods (FLO), maker of Nature’s Own, Wonder Bread, Dave’s Killer Bread, and other pantry staples, the bakery aisle has gotten a little stale. And when earnings trends start going flat, the Zacks Rank doesn’t sugarcoat it.

Today’s Bear of the Day is Flowers Foods (FLO), currently carrying a Zacks Rank #5 (Strong Sell). You’d think a bread company would be steady as they come. I mean, Americans don’t just stop eating sandwiches. But that’s the trap. When demand is predictable, cost pressures hit harder, and margin compression becomes a recurring theme. That’s exactly what analysts are reacting to right now.

Over the last 60 days, we’ve seen multiple downward revisions to both current-year and next-year earnings estimates. That’s the kiss of death in the Zacks Rank model. When analysts pull back, the rank follows suit, and FLO has slipped all the way to the bottom. The bearish moves have dropped our Zacks Consensus Estimate for the current year by a penny while next year’s number is off from $1.08 to $1.01.

The real issue here is, there is no growth catalyst. Investors are willing to forgive short-term hiccups if there’s a growth story behind the scenes. But FLO is facing lackluster top-line growth, pricing power that’s starting to wane, consumer trade-down toward cheaper private labels, as well as rising promotional intensity across grocery aisles

When your product competes primarily on price and convenience, inflation becomes your worst enemy. Retailers push back. Consumers shop around. And branded bread gets squeezed from both sides. That’s why analysts aren’t just neutral, they’re actively lowering expectations.

The Food – Miscellaneous industry is in the Bottom 19% of our Zacks Industry Rank. There are other stocks within the industry that are in the good graces of our Zacks Rank. These include Zacks Rank #1 (Strong Buy) stocks J&J Snack Foods (JJSF) and United Natural Foods (UNFI).

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This article originally published on Zacks Investment Research (zacks.com).

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