Flowers Foods Bucks Economy: Under the Radar

Flowers Foods remained profitable even when consumers reduced spending.

Author:: Jake Lynch
Publish date:: Sep 23, 2009 1:00 AM EDT

THOMASVILLE, Ga. (

) -- If you're shifting to stocks that can resist economic swings, here's a food company that has boosted revenue 21% during the past year.

Thomasville, Ga.-based

Flowers Foods

(FLO) - Get Report

sells bakery products in the South and Mid-Atlantic. Its store delivery business sells bread, rolls and snack cakes, while its warehouse division sells frozen baked goods.

Second-quarter profit rose 27% to $30 million, or 33 cents a share, as revenue grew 14% to $614 million. Its gross margin remained steady at 46%, but its operating margin rose from 6% to 7%. A quick ratio of 0.8 indicates less-than-ideal liquidity. But a debt-to-equity ratio of 0.4 demonstrates a conservative capital structure.

Flowers Foods owns 39 bakeries. Each operates as a subsidiary with its own president and controller. A niche focus on baked goods and a commitment to cost efficiency have helped the company stay profitable even as consumers cut spending.

The company offset an increase in ingredient costs by reducing packaging and labor costs, and improving manufacturing processes. Selling, marketing and administrative expenses cut out 36% of sales in the second quarter, compared to 37% in the year-earlier period.

Flowers shares have advanced 7% this year, less than the

Dow Jones Industrial Average

and

S&P 500 Index

. But the stock has more than doubled in the past five years and has gained 533% during the past 10 years, trouncing major U.S. benchmarks.

The company's shares offer a 2.7% dividend yield, less than the S&P 500 average. But a payout ratio of 50% suggests the dividend has room to grow. Flowers Foods has increased its payout every year since 2003. And the stock's 0.2 beta means it doesn't follow the broader market closely.

At a price-to-earnings ratio 19 and a forward price-to-earnings ratio of 16, the shares aren't cheap. But Flowers' rising dividend, consistent growth and low volatility make it an attractive, risk-adjusted investment. We rate Flowers Foods "buy."

-- Reported by Jake Lynch in Boston.