Milling & Baking News - February 8, 2022 - 24

TUES | 02 08 2022
decline - as low as $6.11 in recent weeks.
While wary of the sector overall, Mr.
Moskow was upbeat about a few companies
within the food business. Several
months after initiating coverage of Hostess
Brands, Inc., Kansas City, with a rating
of " outperform, " Mr. Moskow remains
optimistic about prospects for Hostess
during the coming year. The stock finished
2020 on a strong note, hitting an
all-time high in December. Hostess was
among the best-performing companies
in the Grain-Based Foods Share Index in
2021, surging 39% for the year.
" I'm very positive on Hostess, " he said.
" They're generating growth now, benefiting
from the recovery of the convenience
channel and more on-the-go consumption
while also continuing to grow in grocery
stores for at-home consumption. I think
that's a testament to the strong execution
internally, on product quality, increased
availability, better leveraging their directto-warehouse
model. They also have
shown they can create value with tack-on
acquisitions like Voortman, after putting
that into the direct-to-warehouse model,
they've been able to accelerate the distribution
and also it's really a perfect acquisition.
They are able to increase distribution
use of Voortman while also using Voortman's
manufacturing capacity to extend
the Hostess brand into new products. "
He cited Hostess Crispy Minis as an
example of utilizing Voortman's capacity
to sell the miniature wafer cookies.
" Heading into 2022, I feel confident
there is more momentum here, " he said.
" They have only a 20% market share of the
snack cakes category, and I think they are
bringing stronger innovation into the category
than their peers, more marketing
expertise and even introducing direct-toconsumer
advertising for the first time.
So the category is fine, and there is more
share to be taken. "
Much larger food companies have
looked to enter the snack cake space, but
GRAIN-BASED FOODS SHARE PRICE CHARTS
CONAGRA BRANDS, INC.
$24
$28
$32
$36
$40
2021
2020
Jan. March
May
July Sept.
Nov.
GENERAL MILLS, INC.
$48
$55
$62
$69
2021
2020
$41
Jan. March
Data ended Dec. 31, 2021
24 MILLING & BAKING NEWS
bakingbusiness.com
May
July Sept.
Nov.
$17
Jan. March
May
July Sept.
Nov.
$29
2021
2020
$25
$21
$38
$42
$46
$50
$54
CAMPBELL SOUP CO.
2021
2020
the degree to which the entrants pose a
threat to Hostess remains to be seen.
" Hershey and Mondelez factually either
have made an acquisition or introduced
product innovation to put a toe into the
category, " he said. " To me it is unclear how
aggressively either one will be in the US.
So far, it hasn't slowed Hostess' momentum
in the least. "
Among grain-based foods companies
Mr. Pinheiro favors, he is highly positive
about Flowers Foods, Inc., Thomasville,
Ga. As an analyst, he has covered Flowers
since 1991. In 2021, the company was the
eighth best performer among 58 consumer
staple companies Mr. Pinheiro tracks.
" Bread remains broadly dismissed
Jan. March
May
July Sept.
Nov.
FLOWERS FOODS, INC.
among investors as being in a slow growth
category with low margins and not exciting
to talk about, " Mr. Pinheiro said. " It's
also confounding to me that the expectations
for Flowers, the consensus is 1% sales
growth and 1% EPS growth. I'm sort of
shocked at that. The 1% implies there won't
be much pricing or if they do, there will be
a significant decline in volume, unit sales.
On the EBITDA side, there is a thought cost
of goods will continue to exert pressure
over the course of the year. Neither looks
to me like a valid outlook. We think analysts
are underestimating sales and earnings
growth next year. I think Flowers as
a result will continue to be a nice stock to
own. At some point Flowers' margins are
going to have to go up. They've been trying
to work on these margins forever. Long
before Project Centennial they were trying.
Margins just haven't gone up. Investors
say call me when the margins start to
expand. We may be at that moment. "
His expectations for better top-line
performance are fueled by the continuing
shift in the bread market toward branded
versus private label sales. Additionally,
Mr. Pinheiro expects Flowers will be successful
in its efforts to raise prices.
" They also are looking at their fixed
asset utilization, " he said. " We are going
to see new bakery configurations. We are
going to see more innovation in the bakery.
We haven't even begun to see any of those
efforts they've been planning the last few
years. I think this is the year we are going
to see some of that come to fruition. I'm
very positive on Flowers. I happen to be
per share
per share
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NEW YORK STOCK EXCHANGE
http://www.bakingbusiness.com
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