Continued Challenges Affected Flowers Foods (FLO) in Q3

Palm Valley Capital Management, an investment management firm, has released the “Palm Valley Capital Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter, Palm Valley Capital Fund appreciated 2.35% compared to a 9.11% gain for the S&P SmallCap 600 and a 7.99% rise in the Morningstar Small Cap Total Return Index. At the start of the quarter, the Fund invested 73.5% in cash equivalents, increasing slightly to 74.1% by the end of the quarter. Small-cap stocks performed ahead of large caps during the period, with the anticipation of Fed easing and reduced concerns about the impact of tariffs on corporate profits. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its third-quarter 2025 investor letter, Palm Valley Capital Fund highlighted stocks such as Flowers Foods, Inc. (NYSE:FLO). Flowers Foods, Inc. (NYSE:FLO) is a U.S.-based producer of packaged bakery food products. The one-month return of Flowers Foods, Inc. (NYSE:FLO) was -10.89%, and its shares lost 43.74% of their value over the last 52 weeks. On October 7, 2025, Flowers Foods, Inc. (NYSE:FLO) stock closed at $12.77 per share, with a market capitalization of $2.691 billion.

Palm Valley Capital Fund stated the following regarding Flowers Foods, Inc. (NYSE:FLO) in its third quarter 2025 investor letter:

“The Fund had two positions negatively impacting performance by more than 10 basis points in Q3, Flowers Foods, Inc. (NYSE:FLO) and Amdocs (ticker: DOX). Flowers Foods, a market leader in bread and snacks in the U.S., came under pressure during the quarter due to continued challenges in the branded bread category. As the rising cost of living weighs on middle to lower-income consumers, there has been a shift from branded to more affordable private-label breads. Additionally, broader health and wellness trends have softened demand across the traditional bread category. In response, Flowers is transitioning its portfolio through innovation and recently acquired brands, such as Simple Mills. The company is expanding into higher-growth “better-for-you” segments, where results have been encouraging for organic breads and snacks. While operating performance is likely to remain under pressure through the remainder of 2025, we believe a stabilization in core branded bread volumes—combined with continued growth in its health oriented category—should support a return to more normalized profit margins in 2026. Flowers’ stock is currently trading at 13x our estimated 2025 EPS. Despite being out of favor, Flowers has maintained its market-leading brands, generates meaningful cash flow, and has a long history of navigating through industry headwinds.”

In another article, we covered Flowers Foods, Inc. (NYSE:FLO) and shared the list of best dividend stocks for passive income. Palm Valley Capital Fund initiated a position in Flowers Foods, Inc. (NYSE:FLO) during Q1 2025. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.