Thursday, February 18, 2016

Recent Buy: Flowers Foods



On February 18, 2016, I bought 64 shares of Flowers Foods (FLO) at 16.15 per share for a total of $1040.6. This will add $37.12 to my forward dividends. 

Rationale: 


  • To be honest I wasn't looking to make a buy in February. This was the month that I save up cash and then wait for opportunities to come. Surprise opportunity knocked. I research this stock a while back. It looked really good but I was waiting for the right price. Surprise 20% dip.

  • Earnings
    • FLO had a really really bad quarter (not really). It had a strong first three quarter but in the 4Q consumer grocery buying went down. At first I though this was BS but then WMT reported the same thing this morning as of many other companies. 
      • FLO grew its eps yoy in 2015 marginally. Forward in 2016 has 2% growth in EPS and revenue
      • FLO had good sales in the 4Q but low bread rolls and buns (hot dog and hamburger buns. No seriously)
      • FLO is still a growing company. It is using co-packers since there isn't enough bakers for all their distributions. 
      • Three bakery plants are about to open. One at the end of Q1 and the other two by the end of the year.
        • One of them is in Lenexa, KS at the old Hostess Bakery. I actually know the place from my years of roaming the midwest. It was really sad when those people were fired when Hostess declared bankruptcy. I'm glad some of those people got their jobs back. 
    • Integration of the Airpline and Dave's killer bread is taking some time to accomplish. I can wait.

  • Valuation 
    • FLO normally trades at a 22x+ P/E. I bought it at 17.5x P/E. 
    • FLO normally trades below 3% dividend. I got it at 3.69%.
    • Beta is less than 1.

  • Voodoo Logic
    • FLO is trying to become the #1 gluten free, non-GMO, Organic, whatever hipsters want.
      • Kidding aside this is the fastest growing product in the bread business. 
      • I'm not into the organic thing. I love me some white bread with peanut butter but I can appreciate a company trying to fulfill a growing niche.
      • I didn't know this but bake goods is the 3rd largest grocery money maker after meat and fresh produce.
Risk 
  • People stop eating bread and their pastry products.
  • Payout is 61.7%. 
  • Margins are low. 5% 
  • Stiff competition. FLO is the #2 Baker in the US. Bimbo is #1. Campbells and Panera both have bigger caps than FLO.
  • There is a lawsuit if their delivery drivers are employees or contractors 
    • Basically to deliver FLO breads you need to buy a region (100K). Then you have sole rights to deliver in that area. You can deliver other products if you want but the question is whether FLO controlled their drivers to the extent you can call them employees. 
    • Last year 5-6 million were used for litigation. the same for this year which knocks off .01 eps.
  • Integration of acquisitions is always a hard thing to figure out. 

Taking all this into account I believe the price of $16.15 is a good time as any to make a solid move into the bread business. After all the downgrades and upgrades, it looks like everyone is saying the 1 year estimate is between $18-19. FLO's strongest quarter is the first so we should see a nice gain after Q1 earnings in 3 months. I would like to make this into at least 100 shares ASAP but my budget is getting wrecked this month. DAMN YOU MEDICARE PART B, SUPPLEMENT, AND RX!

With the Trow, WMT, and KO dividend increase I currently stand at $2,307.54 + FCISX+SCHD distributions.

yay me. As a side note this is the most expensive bread I have ever bought. 

4 comments:

  1. Good to see were on the same page. I just averaged down today as well at $16.10 right near the open. If FLO hits their numbers for the year we should be in good shape.

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    Replies
    1. hey captain. I hear you. I might just buy another 60 shares on my next paycheck if this price holds. The last time FLO traded this cheaply was during the recession, the interest rate scare of 2014, and now.

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  2. Looks like you got in at a great price. Nice purchase and thanks for sharing.

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    Replies
    1. hey IH, I agree this is a rare opportunity to load up. I expect 1Q to bring it back up above 20. good hunting to you sir

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