Flowers Reports on Wednesday

Flowers has been one of my favorite companies for the last several years. The more I learn, the more I become a believer. Management is good and they don't get confused by "high finance" in Thomasville, GA. They consistently grow sale, earnings, and the dividend. A very nice dividend.

On Wednesday they report quarterly earnings. I have no idea if they will exceed analysts' expectations or not, but I'm confident that they won't miss their guidance. Part of my confidence comes from Sara Lee, the bread division, and Tasty. Both reported last week and grew sales and gross profits, benefiting from price increases and ingredient cost decreases. I would expect FLO to benefit from those same trends.

Flowers isn't a home run stock, but it is the kind to own in crummy times. They pay a nice dividend and there is room to move upward in share price, and, the downside, if the market craters, isn't huge. It's a company that allows you to get a return through not only share price appreciation, but a conservative dividend, and a small covered call premium. Now I'm going to eat a donut and contribut to sales revenue.

Specialty Food Producers Have Been Tasty So Far In 2009

January hasn't been kind to the buy and hold investor. Short selling, put buying, call writing, and, maybe, some savvy trading would have goosed performance.

Besides the For Profit Education stocks that I've written about before and believe to be overvalued, there is another small industry subset that has done well. Specialty Food has done nicely so far this year. I'm not talking the likes of Kellogg, ConAgra, or Pepsi, but their smaller, niche brethren.

Flowers Foods, Diamond Foods, and Smart Balance all have staked out corners of the food industry and dominate their niche. FLO reported today and beat by 3 cents and had a promising outlook. DMND had a similar report about a week ago. SMBL hasn't reported earnings yet, but they haven't pre-announced either. I own all three and wish I owned more at my entry basis. Adding to a position in this market is always dangerous since many brilliant ideas turn into falling knives. If I add more it will probably be FLO as they have the most conservative balance sheet.

It will be interesting to see how these companies perform in a bear market rally. they've done well by me since January and I remain hopeful that they will continue to

be tasty. 

Flowers Foods: A Holsum Buy

On February 5th Flowers Foods [FLO] will announce their latest quarterly results. I expect the results to be good as the company updated 2008 guidance as recent as early December and the company has a good record of managing Wall Street's expectations. In our current environment of lower results and cloudier forecasts, I expect Flowers to be relatively upbeat about their 2009 results.

In the interest of full disclosure, and humility, I first became interested in FLO last Spring during the rampant increases in commodity prices. Food costs were skyrocketing along with diesel prices and Flowers' competitors were reporting terrible results as input costs were far exceeding the ability to raise prices. Flowers was still selling at an all time high and hadn't seen any impact of the stock market pull back. I expected that increased costs would affect their earnings as they had their competitors and net income would drop below expectations. I bet against Flowers. The company announced record sales, earnings, and raised the quarterly dividend. I lost money. But I was impressed by a management that could outperform an entire industry. I decided to keep watching and waiting for an opportunity to buy FLO and recoup some of my losses.

Several quarters have elapsed and the results have been the same. Management has continued to deliver the results in an economy that has grown more difficult. Forbes Magazine recognized the same and named Flowers the best food company of 2008. 

The company is forecasting net income, for 2008, of between $1.22 and $1.26 and 2009 net of between $1.33 and $1.45. Earnings will grow at an estimated 12% rate and the company's forward P/E is only 15. FLO's ROE is 16%, debt-to-equity isn't excessive at .43, and they pay a dividend that yields 2.5%.

Best of all, Flowers can be purchased now for $21.50. It sold not too many weeks ago around $30. Yes, most stocks are not selling for anywhere near all time highs, but, also, most companies are not increasing earnings and forecasting continued growth. Flowers' management has proved, through performance in tough times, that they are a company worth investing in. The recent stock price decline has given investors an opportunity. FLO isn't cheap, nor is it expensive. It remains a growth stock that is now selling for a very reasonable price. It, the price, could decrease from its present level, but people will continue to eat bread and this management knows how to bake it into profits.