NEW YORK — While wary of the stock market outlook for food companies, Flowers Foods, Inc. holds promise going into 2014, said Eric Katzman, an equity research analyst at Deutsche Bank, New York.
“It is the second-largest bread company in the United States with an opportunity to gain significant market share in the next couple of years as they leverage liquidated Hostess assets,” he said (the full feature, including additional comments about Flowers by Mr. Katzman, will be published in the Jan. 21 issue of Milling & Baking News).
In July, Flowers Foods completed the acquisition of most of the assets of Hostess Brands, Inc., including 20 baking plants sprinkled across large swaths of the United States. Flowers shares gained 39% in trading in 2013 on the New York Stock Exchange.
“I would say that strategically, they managed the Hostess bankruptcy perfectly,” Mr. Katzman said. “Think about it. They had the opportunity to buy Hostess during many, many years. They waited until liquidation to pick off assets at the prices they wanted… They gained significant market share as Hostess ceased to be on the shelf. They have picked up the assets in a position where they can almost guarantee growth in the future.”
While earnings estimates for 2013 were lowered late in the year, Mr. Katzman said he isn’t concerned about Flowers’ ability to execute. He noted Flowers had been hesitant to issue earnings guidance much of the year because of uncertainty in the face of all the changes going on in baking.
“I think they have proven their ability in fresh bread and rolls to be one of the best managed businesses, and their integration of these assets I believe will go very smoothly,” he said. “They basically have bought assets and will reopen assets when they want. It’s all under their control. Retailers want them to be a competitor to Bimbo Bakeries USA.”
The positives stand in contrast to Mr. Katzman’s overall take on stock market prospects for packaged foods companies.“We are neutral on the group relative to the market,” he said. “I think you will need to be very selective.”