Flowers Foods: A Tasty Oven Treat

As one of the nations leading producers of bakery goods, Flowers Foods (FLO - commentary - Cramer's Take) operates popular brands such as Nature's Own, Cobblestone Mill, Blue Bird and Bunny. In addition, Flowers is a leading consolidator in a defensive industry, and as such it offers investors a combination of revenue safety and growing profitability -- attractive qualities in tough economic times.

Founded in 1919 by the Flowers brothers in Thomasville, Georgia, the company went public in 1968 and was listed on the NYSE in 1982. The current entity came into being in 2001 when Flowers Industries sold its Keebler investment to Kellogg (K - commentary - Cramer's Take) and spun the remaining divisions into a new company.

Flowers currently has 39 bakeries and sells products in 25 states. Its product mix includes breads, buns and tortillas (76%); fresh snack cakes and pastries (15%) and frozen breads and rolls (9%). In addition, Flowers has multiple channels of distribution, with nearly 90% of sales going through three channels; supermarket/drugstores, food services and mass merchandisers. The company's top 10 customers represent about 43% of sales, with WalMart (WMT - commentary - Cramer's Take) being just under half of that total.

The consumer baking industry is a competitive one that includes large companies such as Interstate Bakeries, Sara Lee (SLE - commentary - Cramer's Take) and George Weston, as well as smaller regional players.

However, Flowers stands out for several reasons. First, the company has built out a highly efficient operation, which gives it a leg up on smaller competitors. The company has pursued a strategy of plant upgrades, acquisitions and brand extensions to new markets. This has resulted in a highly profitable organization in a business that requires increasing operating efficiency and size to obtain pricing power and gross margins.

Also, the company operates in the southeast, southwest and mid-Atlantic states, which includes some of the strongest areas in terms of demographic growth.

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At the time of publication, Gear had no positions in the stocks mentioned, although positions can change at any time.

Steve Gear was director of capital markets at Stockhouse.