After reading Flowers Foods Inc’s (NYSE:FLO) most recent earnings announcement (07 October 2017), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways. Check out our latest analysis for Flowers Foods
Did FLO perform worse than its track record and industry?
I look at data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This technique enables me to analyze different stocks on a similar basis, using the latest information. Flowers Foods’s most recent twelve-month earnings is $84.6M, which, relative to the previous year’s figure, has declined by a large -53.76%. Since these figures may be relatively myopic, I’ve created an annualized five-year value for FLO’s net income, which stands at $165.8M. This doesn’t look much better, since earnings seem to have gradually been falling over the longer term.
Why could this be happening? Well, let’s take a look at what’s occurring with margins and if the whole industry is experiencing the hit as well. Revenue growth over the past couple of years, has been positive, however, earnings growth has not been able to catch up, meaning Flowers Foods has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Viewing growth from a sector-level, the US food industry has been growing, albeit, at a muted single-digit rate of 5.42% in the prior year, and 7.52% over the previous five years. This shows that whatever tailwind the industry is benefiting from, Flowers Foods has not been able to gain as much as its industry peers.
What does this mean?
Flowers Foods’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Generally companies that experience a prolonged period of decline in earnings are undergoing some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and growth. You should continue to research Flowers Foods to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FLO’s future growth? Take a look at our free research report of analyst consensus for FLO’s outlook.