Go With the FLO and its Wonder-Full News
When it comes to its equally famous Wonder Bread, Nature's Pride and Merita bread brands, they've found a buyer who offered to pony up a huge amount of monetary "bread." Flower Foods (FLO) , the Thomasville, GA-based food company with some famous names of its own, bid $390 million for Hostess' prize bread names.
FLO, with a current market cap of $3.43 billion, produces and markets bakery products throughout the U.S. It operates in two segments; direct store delivery and warehouse delivery. When you look at these two divisions you'll better understand how it generated $21.68-per-share ($2.95 billion) in revenue during the trailing-12-months ending Oct.6.
The DSD segment produces fresh bakery foods, including fresh breads, buns, rolls, tortillas, snack cakes, pastries, pies, brownies, cupcakes, sandwich rounds, sandwich rolls and hot dog rolls and thin sliced bagels, as well as chocolate bells and muffins. Yet it's FLO's brand names that ring the cash registers.
These include Nature's Own, White-Wheat, Cobblestone Mill, Tastykake, Blue Bird, Butter Krust, Dandee, Mary Jane, Mary Jane and Friends, Evangeline Maid, Captain John Derst, Country Hearth, Natural Grain, Flowers Foods, Mi Casa and Frestillas brands. FLO also markets regional franchised brands such as Sunbeam, Roman Meal, Bunny, Holsum and Aunt Hattie's. Oh, the childhood memories!
Let's take a look at how the shares of FLO have performed pricewise on the following one-year chart. When we also look at the trailing year-over-year diluted quarterly earnings-per-share, one can't help but wonder if the market is anticipating big EPS gains when FLO reports on Feb. 7.
FLO data by YCharts
Flower Foods has done an impressive job of growing both organically and through well-timed, reasonably priced acquisitions. No wonder the return-on-equity (TTM) is over 14% and its operating cash flow is nearly $222 million.
OK, I can't resist the following pun: All the good news is already "baked into" the share price. FLO has a great deal of debt -- $604 million as of the last quarter -- and with the purchase of the Hostess bread brands that debt will be soar to almost $1 billion!
Yes, it has been paying a sweet dividend with a yield-to-price currently of nearly 2.39%. But that dividend equals a payout ratio of 70%, which in the food and bakery business is dauntingly high and perhaps unsustainable. Now with the news on the Hostess deal shares spiked 8% on Monday the 14th.
Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.