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B&G Foods (BGS) Stock Down on Input Cost Inflation & More

Zacks Equity Research

B&G Foods, Inc. BGS is losing sheen due to cost-related hurdles. Elevated costs are weighing on the company’s margins. This along with a dismal earnings surprise history has caused this Zacks Rank #4 (Sell) stock to decline almost 24% in the past six months against the industry’s growth of 3.7%.

Let’s delve deeper and see if the company’s efforts can offer any respite.

Hurdles in B&G Foods’ Path

B&G Foods is persistently being affected by increased freight expenses. The metric negatively impacted the company’s performance in the first quarter of 2019 as well. Adjusted gross margin was 24.5%, down 320 basis points (bps) year over year on account of inventory reduction initiatives, unfavorable mix and higher input costs stemming from elevated freight, warehouse and procurement expenses. During the fourth quarter of 2018, gross margin contracted 110 bps, following declines of 260 bps, 280 bps and 170 bps in the third, second and first quarters of 2018, respectively.

B&G Foods posted dismal first-quarter 2019 results, wherein both top and the bottom lines registered year-over-year decline. Also, earnings missed estimates for the fourth consecutive quarter. While earnings were hurt by lower sales and soft margins, sales were hit by Pirates Brands’ divestiture to Hershey HSY.

Also, adjusted EBITDA margin slumped on account of the same factors that hurt the gross margin. Unfortunately, input cost inflation is likely to persist in 2019, thereby keeping margins under pressure.

Will the Woes Continue?

B&G Foods’ buyouts are delivering impressive results. Markedly, Green Giants has emerged as one of the leading brands of the company, delivering sales growth for eight consecutive quarters now. In the first quarter of 2019, net sales from Green Giant products (including Le Sueur) increased 5.4% on higher sales of frozen and shelf stable products. Green Giant frozen net sales advanced 6.3%, backed by favorable consumer response to innovations. Green Giant shelf stable net sales increased 2.8%.

Also, the company is on track with its pricing and cost-saving efforts. These are expected to help B&G Foods fight input cost inflation in 2019. However, it is yet to be seen if these can completely offset the barriers.

Unsure of B&G Foods? Check These Food Stocks

General Mills GIS, with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Flowers Foods FLO, also with a Zacks Rank #2, delivered back-to-back surprises in the last two quarters.

J&J Snack Foods JJSF, with a Zacks Rank #2, also delivered back-to-back surprises in the last two quarters.

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