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B&G Foods (BGS) Q3 Earnings: Factors Shaping the Outcome

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B&G Foods (BGS) Q3 Earnings: Factors Shaping the Outcome

B&G Foods' (BGS) high freight costs remain a threat to margins in Q3. However, the company's top line has been gaining from strength in its Green Giant business, which is a positive.

B&G Foods, Inc. BGS is scheduled to release third-quarter 2018 results on Oct 30. This New Jersey-based company delivered a negative earnings surprise of 9.5% in the last reported quarter, while it outperformed the Zacks Consensus Estimate by an average of 2.4% in the trailing four quarters. Consequently, investors are keeping their fingers crossed for the quarter to be reported.

How are Estimates Faring?

After registering a year-over-year bottom-line decrease of 7.4% in the second quarter of 2018, B&G Foods is likely to record year-over-year decline of 7.3% in the third quarter. This is quite evident from the Zacks Consensus Estimate for the quarter under review, which is pegged at 59 cents compared with 55 cents reported in the year-ago period. We note that the Zacks Consensus Estimate has remained stable in the past 30 days.

The Zacks Consensus Estimate for revenues of $432.8 million indicates an increase of 6% from the year-ago quarter. If all goes well, the company may witness a top-line beat in the quarter under review. We note that total revenues rose 7.4% in the last reported quarter.

Let’s delve deeper and find out the factors impacting the results.

B&G Foods, Inc. Price and EPS Surprise

B&G Foods, Inc. Price and EPS Surprise | B&G Foods, Inc. Quote

Factors at Play

B&G Foods is battling high freight charges, weighing on the company’s margins for a while now. Notably, gross margin contracted 280 basis points (bps) in the second quarter, following a 170 bps decline in the first quarter. Rising freight costs and unfavorable timing of price hikes also weighed on the company’s EBITDA margin during the quarter. Industry-wide freight costs are expected to remain high throughout the year, which is likely to keep margins under pressure.

Further, the company is exposed to headwinds stemming from a high debt level. B&G Foods ended second-quarter 2018 with net debt of $2.0 billion. Further, net interest expenses increased 25.5%, which was one of the reasons behind the 7.4% drop in the company’s bottom line.  Prior to this, interest expenses rose 44.1% in the first quarter of 2018, following increases of 2.7%, 19.4%, 30% and 23.2% in the first, second, third and fourth quarter of 2017, respectively.

Nevertheless, the company’s Green Giant frozen and Back to Nature businesses have been driving its top line. In fact, Green Giant frozen marked its fifth consecutive quarter of double-digit sales growth in the second quarter of 2018.  Management is optimistic about the company’s sales growth for 2018, which also gives out positive signals for the quarter to be reported.

What Does the Zacks Model Say?

Our proven model does not conclusively show that B&G Foods is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

B&G Foods has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, which makes us apprehensive about earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Archer Daniels Midland Company ADM has an Earnings ESP of +3.85% and a Zacks Rank #1.

Dean Foods Company DF has an Earnings ESP of +25.00% and a Zacks Rank #3.

Hormel Foods Corporation HRL has an Earnings ESP of +5.95% and a Zacks Rank #3.

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