Flowers Foods (FLO)

Packaged bakery food company Flower Foods (NYSE:FLO) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 1.4% year on year to $1.55 billion. The company’s full-year revenue guidance of $5.35 billion at the midpoint came in 1.3% below analysts’ estimates. Its non-GAAP profit of $0.35 per share was 6.3% below analysts’ consensus estimates.

Company Overview

With Wonder Bread as its premier brand, Flower Foods (NYSE:FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.

The perishable food industry is diverse, encompassing large-scale producers and distributors to specialty and artisanal brands. These companies sell produce, dairy products, meats, and baked goods and have become integral to serving modern American consumers who prioritize freshness, quality, and nutritional value. Investing in perishable food stocks presents both opportunities and challenges. While the perishable nature of products can introduce risks related to supply chain management and shelf life, it also creates a constant demand driven by the necessity for fresh food. Companies that can efficiently manage inventory, distribution, and quality control are well-positioned to thrive in this competitive market. Navigating the perishable food industry requires adherence to strict food safety standards, regulations, and labeling requirements.

Competitors in packaged bakery goods include Grupo Bimbo (BMV:BIMBO A), Hostess Brands, acquired by J.M. Smucker (NYSE:SJM), and Pepperidge Farm, a subsidiary of Campbell Soup (NYSE:CPB).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $5.08 billion in revenue over the past 12 months, Flowers Foods carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, Flowers Foods grew its sales at a tepid 4.4% compounded annual growth rate over the last three years as consumers bought less of its products. We’ll explore what this means in the "Volume Growth" section.

This quarter, Flowers Foods missed Wall Street’s estimates and reported a rather uninspiring 1.4% year-on-year revenue decline, generating $1.55 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 7.5% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and indicates its newer products will spur better top-line performance.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

Flowers Foods’s average quarterly sales volumes have shrunk by 1.7% over the last two years. This decrease isn’t ideal because the quantity demanded for consumer staples products is typically stable.

In Flowers Foods’s Q1 2025, sales volumes dropped 2.7% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

Flowers Foods has great unit economics for a consumer staples company, giving it ample room to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an excellent 49.2% gross margin over the last two years. That means Flowers Foods only paid its suppliers $50.78 for every $100 in revenue.

Flowers Foods produced a 49.9% gross profit margin in Q1, in line with the same quarter last year and exceeding analysts’ estimates by 1.8%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Flowers Foods was profitable over the last two years but held back by its large cost base. Its average operating margin of 5.2% was weak for a consumer staples business. This result is surprising given its high gross margin as a starting point.

On the plus side, Flowers Foods’s operating margin rose by 3.4 percentage points over the last year, as its sales growth gave it operating leverage.

In Q1, Flowers Foods generated an operating profit margin of 5.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Flowers Foods’s flat EPS over the last three years was below its 4.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

In Q1, Flowers Foods reported EPS at $0.35, down from $0.38 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Flowers Foods’s full-year EPS of $1.25 to shrink by 7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Flowers Foods has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.8% over the last two years, slightly better than the broader consumer staples sector.

Taking a step back, we can see that Flowers Foods’s margin expanded by 1 percentage points over the last year. This is encouraging because it gives the company more optionality.

Flowers Foods’s free cash flow clocked in at $110.1 million in Q1, equivalent to a 7.1% margin. This result was good as its margin was 2.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Flowers Foods historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Flowers Foods reported $7.34 million of cash and $1.79 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $541.1 million of EBITDA over the last 12 months, we view Flowers Foods’s 3.3× net-debt-to-EBITDA ratio as safe. We also see its $36,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Flowers Foods beat analysts’ gross margin expectations this quarter. On the other hand, its EBITDA missed and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 5.4% to $16.13 immediately after reporting.

Updated: May 21, 2025 at 10:42 PM EDT

When considering an investment in Flowers Foods, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Flowers Foods isn’t a terrible business, but it isn’t one of our picks. To kick things off, its revenue growth was a little slower over the last three years. And while its expanding operating margin shows the business has become more efficient, the downside is its projected EPS for the next year is lacking. On top of that, its shrinking sales volumes suggest it’ll need to change its strategy to succeed.

Flowers Foods’s P/E ratio based on the next 12 months is 14.2x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $18.57 on the company (compared to the current share price of $16.51).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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