We recently published a list of 7 Best Confectionery, Cookie and Snack Stocks To Buy. In this article, we are going to take a look at where Flowers Foods, Inc. (NYSE:FLO) stands against other confectionery, cookie and snack stocks to buy.
Snacks Market
Just like the rest of the global economy, the snacks market is also undergoing the effects of inflation. The average price of potato chips in June 2024 was $6.56, compared to $5.09 in June 2020, according to Federal Reserve data.
Thus, major players in this sector are reporting revenue drops in their snack segment, due to price increases following years of inflation. Tightened household budgets have made consumers more value-conscious, reducing demand for snacks. This shift has led major players to consider cost-cutting measures and increase promotions for brands like Lay’s and Doritos.
Although inflation has slowed, American customers have yet to recover from higher everyday prices, leading to trends like ‘shrinkflation’ (cutting down products’ sizes for cost-savings) and more consumers opting for private-label brands or buying fewer snacks. In recent months, several major retailers have announced price cuts, a trend that could continue as consumers become more cautious, according to CNN.
Moreover, bigger market players are focusing on offering a broader range of price options, promoting cheaper products through a variety of multipacks, and increasing in-store marketing. Thus, macro factors, such as inflation and consumer restraint, continue to shape the snack industry, pushing companies to offer better value to retain brand loyalty.
Confectionery Sector
In contrast, the confectionery sector saw a modest 2.66% year-to-date (YTD) increase compared to the broader market’s 17.22% rise. Rising input costs, particularly for cocoa, have driven up prices, with cocoa tripling in the past 12 months due to crop diseases in West Africa, according to a report by Food & Drink Digital.
Similar to the snack market, the confectionery sector, which includes chocolates, candied fruits and nuts, sugar candies, and chewing gum, has also experienced a shift toward private-label brands and smaller pack sizes, as price-sensitive consumers, especially in lower-income groups, adjust their buying habits. Broader economic challenges, including persistent inflation, high interest rates, and reduced consumer confidence continue to affect both the snack and confectionery markets.
Market Outlook
Nevertheless, the snack industry is experiencing significant growth, driven by consumer demand for convenience and healthier eating options. According to Information Resources, Inc. (IRI), snacking has increased by 27% over the past five years, contributing $6 billion to the overall food industry.
Moreover, the snack food market is seeing a growing demand for vegan and allergen-free snacks, driven by health-conscious consumers, especially millennials and Gen Z, who are snacking more than three times a day and replacing meals with snacks. Spicy and complex flavors like ghost pepper and sweet flavors are trending, along with global flavors from Latin America, Asia, and the Middle East. In the U.S., popular snack options include Rice Krispies, Doritos, and Fritos.
On the other hand, the U.S. confectionery sector, which remains a global trendsetter, saw its market value rise to $48 billion over the past year, largely due to inflationary pressures, according to a recent report by Confectionery Production.
Manufacturers are using unique ingredients like tropical fruits and organic herbs to stand out, while innovations like Barry Callebaut’s ruby chocolate are gaining traction. Millennials are driving demand for premium and organic confectionery, with products like YumEarth’s Organic Candy Corn. Pistachio-based treats are also gaining popularity, with brands like Lindt and Ritter Sport introducing new products.
Also, the global cookie market stood at $28.36 billion in 2023, and is projected to grow at a CAGR of 6.82% till 2028, according to technavio. Furthermore, the study highlighted that North America is going to account for 34% of this growth. Oreo, which is marketed in more than 100 countries, is the best-seller globally.
Thus, many investors today are looking to cash in on major companies operating within confectionery, cookie, and snack markets. In light of this, we have compiled a list of the best confectionary, cookie, and snack stock to buy today.
Methodology:
For this list, we scanned Insider Monkey’s Q2 2024 database and selected companies involved in the snacking, confectionery, and cookies industry, focusing on areas relevant to snack and confectionery production and distribution. From that group, we picked 7 companies with strong balance sheets and solid financials and ranked them in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A female baker in a spotless kitchen carefully decorating a cake.
Flowers Foods, Inc. (NYSE:FLO)
Number of Hedge Fund Holders: 26
Flowers Foods, Inc. (NYSE:FLO) is one of the leading producers of packaged bakery goods in the United States, generating $5.1 billion in sales in 2023. Some of its top brands include Nature’s Own, Dave’s Killer Bread, Wonder, Canyon Bakehouse, and Tastykake. The Tastykake brand is well-known for its extensive lineup of snack cakes, pies, and donuts, featuring iconic favorites like Krimpets, Kandy Kakes, and Juniors.
In Q2 2024, net sales for Flowers Foods, Inc. (NYSE:FLO) decreased by 0.2% to $1.225 billion, driven by a 1.2% decline in volume. The sales were partially offset by a 1.0% increase in pricing/mix. Branded retail sales grew by $2.3 million, primarily driven by snacking category, especially DKB snack bars.
Other sales dropped $5.4 million due to the exit from lower-margin foodservice. However, profit margin saw an uptick, rising to 5.5% from 5.2% last year, due to improved production efficiencies.
Furthermore, Flowers Foods, Inc. (NYSE:FLO) demonstrated improved liquidity as the company held $6.9 million in cash and cash equivalents by the end of the quarter. Dividends paid to shareholders rose by $3.8 million, totaling $101.9 million.
In terms of price movement, Flowers Foods’ stock rose 3.39% in the past month and 4.78% YTD, boosted by a 4.3% dividend increase in May 2024, which marked its 88th consecutive quarterly dividend. Consistent dividend growth reflects the company’s financial stability and boosts its investors’ confidence.
In a recent earnings call, Flowers Foods, Inc. (NYSE:FLO) highlighted plans to expand its branded retail business, focusing on Dave’s Killer Bread and Canyon Bakehouse. It also aims to tap into underpenetrated markets, particularly in the Northeast and Midwest.
At the end of Q2 2024, 26 hedge funds have invested $269 million in the company, as per Insider Monkey’s database, earning Flowers Foods, Inc. a spot on our list of the best food stocks.
Overall, FLO ranks 7th on our list of the best confectionery, cookie, and snack stocks to buy based on hedge fund sentiment. While we acknowledge the potential of FLO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FLO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.