Flowers Foods Inc (FLO US), the producer of packaged bakery foods including well-known brands Wonder and Nature’s Own, has shown a meteoric rise in short interest year-to-date. Current short interest is now estimated to be as high as $600million in exposure, almost 4x more than it was at the start of 2016, when short exposure was $160million. Looking back over the past 5 years of data, short exposure has never eclipsed $200million until April of this year.
According to the S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, all three trend lines (7, 30 and 90-day) have displayed noticeably steep slopes following the company reporting Q2 results on 8/10. The increase in borrow demand can most likely be attributed to the revised fiscal guidance in sales and diluted EPS for the remainder of the year, with the company lowering outlooks of both metrics due to increased competition and the challenges facing food companies in light of diminishing margins.
With the next earnings announcement set for 11/9, shorts have been positioning themselves aggressively for a disappointment in Q3 results. One must “wonder” if there is much less meat between the bread now, and for the foreseeable future for Flowers Foods.
For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC
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