Flowers Foods (FLO) shares drop on cautious FY24 outlook
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In a leap towards adjusting to market demands, Flowers Foods, a prominent player in the bakery sector, unveiled its Q4 earnings for December, narrowly missing the mark by $0.01 per share when excluding one-off items. The period saw a revenue uptick of 4.3% year-over-year, reaching $1.13 billion, aligning with market projections. Despite this, the adjusted EBITDA saw a marginal rise of 0.1% to $96.3 million, which translates to 8.5% of sales, marking a 40-basis point decline.
Projected figures for FY24 suggest EPS ranging between $1.20 and $1.30, excluding non-recurring items, closely matching the consensus of $1.29. Yet, the forecast for FY24 revenue slightly lags behind expectations, with predictions ranging from $5.091 billion to $5.172 billion, against a backdrop of anticipated revenues of $5.21 billion. The adjusted EBITDA is poised to hover between approximately $524 million and $553 million.
Ryals McMullian, CEO of Flowers Foods, commented on the quarterly performance, attributing the success to strategic pricing and a resurgence in sales growth. However, he also conveyed a cautious outlook for FY24, citing unpredictable consumer behaviors and promotional dynamics as potential revenue growth impediments. Despite these challenges, McMullian affirmed the company's dedication to its strategic goals and confidence in future performance.
The company's minor miss in Q4 earnings, coupled with a conservative FY24 revenue outlook, has tempered market enthusiasm. The initial half of FY24 is expected to be less daunting than the latter, with volume pressures anticipated as Flowers Foods prioritizes profitability over market share expansion, thus maintaining elevated prices to safeguard margins. The company also anticipates facing adverse impacts from specific business exits.
Looking towards the latter half of FY24, Flowers Foods is bracing for an unpredictable consumer and promotional climate, factors that could cap revenue growth. Although the company has yet to observe significant shifts in consumer behavior or promotional strategies, it deems it prudent to prepare for a potentially volatile end to the year.
Hence, Flowers Foods' FY24 guidance may appear overly conservative but could pave the way for notable outperformance, contingent on the alleviation of inflationary pressures and a deceleration in the trend of trading down to private-label offerings.