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B&G Foods (BGS) Looks Poised on Rising Demand & Buyout Gains

Zacks Equity Research
·5 min read

Like several other food stocks, B&G Foods, Inc. BGS has been benefiting from burgeoning demand, courtesy of the coronavirus-induced increased at-home consumption. In fact, the company is also gaining on higher online sales amid the pandemic-led social distancing. Apart from this, the contribution from buyouts has been bolstering the company’s performance.

Such upsides were reflected in B&G Foods’ third-quarter 2020 results, wherein the top and bottom lines grew year over year and beat the Zacks Consensus Estimate. Further, management expects the robust demand trend to continue throughout the fourth quarter and in 2021. We note that the Zacks Consensus Estimate for fourth-quarter and 2020 earnings per share has increased 4.9% and 5.4% to 41 cents and $2.34, respectively, over the past 30 days.  

However, escalated costs have been a concern. Let’s delve deeper.

B&G Foods, Inc. Price, Consensus and EPS Surprise

B&G Foods, Inc. Price, Consensus and EPS Surprise
B&G Foods, Inc. Price, Consensus and EPS Surprise

B&G Foods, Inc. price-consensus-eps-surprise-chart | B&G Foods, Inc. Quote

Demand Aids Q3 Results & Outlook

The company posted adjusted earnings of 74 cents per share, which easily beat the Zacks Consensus Estimate of 64 cents in the third quarter. Moreover, the bottom line grew 37% year over year. Net revenues of $495.8 million advanced 22% year over year and surpassed the Zacks Consensus Estimate of $454 million. Revenues were backed by burgeoning demand for the company’s products amid the pandemic, along with the impact of an extra week in the quarter. Notably, the company has been witnessing a rapid increase in demand for its products since the second half of March 2020, thanks to the coronavirus-led stockpiling and higher at-home consumption.

Apart from B&G Foods, several other food players like Kellogg K and TreeHouse Foods THS, to name a few, have been seeing increased demand amid the pandemic. Meanwhile, consumption for B&G Foods’ total portfolio grew 18% for the 13-week period ended Oct 3, as reported by Nielsen.  For 2020, management anticipates net sales of around $1.95-$1.97 billion. Adjusted EBITDA is expected to be nearly $360-$370 million. Finally, the bottom line is envisioned to be roughly $2.30-$2.40 per share. Incidentally, the company’s net sales and adjusted earnings per share came in at $1,660.4 million (roughly $1.66 billion) and $1.64, respectively, in 2019.

Buyouts & E-Commerce Strength

B&G Foods has been actively pursuing strategic acquisitions to boost growth. In this regard, the company, on Oct 26, unveiled a deal to buy the Crisco brand from J.M. Smucker SJM. The acquisition is expected to conclude in the fourth quarter of 2020 and immediately start driving the company’s bottom line and free cash flow. In 2021, the acquired business is expected to keep gaining on the pandemic-induced demand. Management expects the buyout to generate annual net sales of roughly $270 million, adjusted EBITDA of $65-$70 million and adjusted earnings per share of 45-50 cents in 2021.

Prior to this, the company acquired Farmwise (in February 2020), while it also took over and integrated retail baking powder maker, Clabber Girl (acquired in May 2019). Markedly, Farmwise made contributions of $0.4 million to B&G Foods’ third-quarter top line. Apart from this, the company has acquired notable brands such as Back to Nature, Green Giants, Victoria Specialty Brands, McCann’s and Ortega, among others. Markedly, Green Giants has emerged as the company’s largest brand. During the third quarter, net sales from Green Giant products (including Le Sueur) increased 31.5%.

Additionally, B&G Foods is benefiting from higher online sales, especially thanks to increased social-distancing trends. Notably, the proportion of sales through the e-commerce channel has more than doubled this year. E-commerce sales are accelerating with pace, mainly attributable to efficient delivery services of the company’s retail customers. The company is making solid investments to enhance its e-commerce capacity. Some of the recent developments on this front include partnerships to make its brands and recipes available on important sites like delish.com and allrecipes.com. Also, the company has launched a unique online interactive kitchen.

Cost Woes to be Offset

B&G Foods’ SG&A expenses have been rising year over year for the past few quarters now. The metric rose 13.9% to $43.4 million in the third quarter of 2020 due to a rise in general and administrative expenses, marketing expenses, warehousing expenses and selling expenses. Additionally, the company continued to incur high costs associated with COVID-19, such as increased compensation to workers at manufacturing facilities and freight rate inflation. Persistence of these costs amid the pandemic is likely to exert pressure on margins.

Nonetheless, we believe that the abovementioned upsides will help B&G Foods counter such headwinds and keep its growth story going. Notably, shares of the Zacks Rank #3 (Hold) company have rallied 17.8% in the past six months compared with the industry’s growth of 13.8%.  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The J. M. Smucker Company (SJM) : Free Stock Analysis Report
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