Next, we have Flower Foods. It has already been rated red in the bad companies sector . We've discussed this a little more over the past few months. Dividend payouts have been cut, the price-to-earnings ratio is getting worse, and stock performance is getting worse.
We discussed this in our Food Brands Analysis video . My editor will put all the video links in the description below. And all these brands are suffering. Weight loss drugs may reduce demand slightly.
Huge supply, competition, low profit margins, and everything is declining. There was a common saying that General Mills had probably hit rock bottom. Yes, but it all depends on future earnings, the next quarter, and next year, where things could get bad.
Looking at Flower Foods, in the last quarter, net sales fell by 4%. This is horrific. Net income decreased by 17 million. They don't even put percentages, because what is that?
A decrease of 30%. This is horrific. This is a bad situation. If you look at the sales, they are bad. Even with the price increases, sales volumes are appalling. Therefore, there are major problems in this business.
They made a stupid acquisition a while ago, and incurred a lot of debt. When you incur a lot of debt, you have tangible assets that need to be devalued . Subtract at least one billion in impairment losses, and that's where shareholders' rights are lost .
Nothing remains , and the bondholders take over the company. This is the current situation. I took a quick look at the cash flows. It's still positive there. When I do the math here , they're likely to reach 200 million in annual cash flows compared to a market value of 1.5, which is interesting, but with sales declining and business slowing, the cash flows may not save you .
So, these numbers are huge, but they are declining significantly. Is it enough to pay off the debts ? If they start, I don't know, with debt payments of 100 million, it will take 8 years to get to 800 million.
By that time, given the prevailing trend, they need a miracle to recover because the market is simply like this; cash flows could already be 100 million in three years, meaning no dividends, just debt repayment.
Again , the question is, okay, what's next? One thing to keep in mind here is that this is on the rise. Therefore, there is a greater need for capital. People demand a higher return on things .
It was not the same as it was five years ago, at 2% or 1%. Now it's closer to five, and people are saying, well, I can take a risk with Flower Foods with its decreasing cash flows that look like 15% now, but could be 7% in three years, and then you compare the seven with the guaranteed four or five percent, and you say, well, it may not be that interesting .
Therefore, I will no longer follow her. It remains a gamble, but a bad gamble that may yield good results. There is nothing inherent in the business that makes me say, "Okay, this will save him no matter what."
Losing everything to gain a 50% or 100% increase is simply not smart .