B&G Foods (BGS) Banks on Pricing to Battle Cost Inflation
B&G Foods BGS has been battling cost inflation, which was weighing on its gross margin. However, the company’s pricing actions caught up with escalated costs in the second half of fiscal 2022.
Let’s discuss this in detail.
Pricing Action Aids Growth
B&G food is using pricing as the primary tool to help combat inflation. The results of the same were seen in the fourth quarter of fiscal 2022. In the said quarter, its performance demonstrated a strong recovery from inflationary costs, backed by cumulative pricing actions. Also, the quarter’s total pricing realization contributed $99.2 million, up from $75.5 million reported in the third quarter, fully recovering from higher input cost inflation in the period. Sales in the quarter remained unaffected against the significant price increases to sustain inflation.
The company anticipates fiscal 2023 to show continued margin improvement, as already implemented pricing actions balance inflationary trends, especially in the first half. It expects adjusted net sales to grow 1-2%, driven by pricing benefits, partially offset by volume elasticities.
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What Else is Driving Growth?
The Zacks Rank #3 (Hold) company is benefiting from its focus on reshaping the food portfolio. To accelerate growth, the company ops for strategic acquisition to strengthen its portfolio. In 2020, it acquired Crisco, which witnessed a sales increase of 26.8% in fiscal 2022 to $370 million. Apart from this, other previously acquired brands helped the company drive its growth.
Prudent divestitures are other indications of the company's focus on reshaping its portfolio. In order to achieve this, B&G Foods sold the Back to Nature brand in January 2023 in an effort to exit the market for low-margin, small-batch snacks. Management is analyzing other divestiture possibilities in order to enhance portfolio focus and reduce debt.
Hurdles on the Way
B&G foods has been witnessing cost inflation and a dynamic supply-chain environment. However, management stated that the company is getting more benefits from previous price hikes as the pace of inflation moderated. For fiscal 2023, management anticipates inflation at a reduced rate of 5-6%. Management expects increased pressure on prices of tomatoes and glass, among others. Management also stated that key commodities like soybean oil, corn and wheat have not seen any significant decline from average cost levels in fiscal 2022.
The upsides mentioned above will likely offer some respite to the company amid such hurdles.
B&G Foods’s shares have gained 20% in the past three months against the industry’s 6.4% decline.
3 Solid Picks
Some better-ranked stocks are Inter Parfums IPAR, The Kroger Co. KR and Post Holdings, Inc. POST.
Inter Parfums currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 15%. IPAR has a trailing four-quarter earnings surprise of 36.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales suggests growth of 10.8% from the year-ago reported number.
Kroger, which operates as a supermarket operator, currently carries a Zacks Rank 2. The expected EPS growth rate for three to five years is 6%.
The Zacks Consensus Estimate for Kroger’s current financial-year revenues and EPS suggests growth of 2.5% and 6.2%, respectively, from the year-ago reported figure. Kroger has a trailing four-quarter earnings surprise of 9.8%, on average.
Post Holdings, operating as a consumer-packaged goods holding company, currently sports a Zacks Rank of 1. POST has a trailing four-quarter earnings surprise of 34.8%, on average.
The Zacks Consensus Estimate for Post Holdings’ current-financial-year sales and earnings suggests growth of 1.6% and 111.3%, respectively, from the year-ago reported figures.
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