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B&G Foods Extends Buyback Plan: Can Efforts Revive the Stock?

Zacks Equity Research

Despite headwinds like rising costs and adverse impacts from divestitures, B&G Foods, Inc BGS is striving to boost investors’ sentiments through strategic growth initiatives as well as shareholder-friendly moves. To this end, the company recently announced the extension of share repurchase program from March 2019 to March 2020.

Moreover, management has sanctioned repurchasing authority of up to $50 million. Accordingly, the company may carry out share repurchases in privately held transactions or in the open market, in compliance with applicable regulatory policies.

B&G Foods has a good history of returning excess cash to shareholders in the form of share buybacks and timely dividend payments. Notably, the company completed repurchase of 1,397,148 shares from Mar 15, 2018 to Mar 15, 2019 for an aggregate price of $36.9 million. Additionally, in 2018, the company provided dividends worth almost $125 million. Markedly, the company’s current dividend rate of $1.90 per share indicates a yield of 7.8%.


 

Apart from share repurchases and dividend distributions, the company strives to enhance shareholder wealth on the back of prudent strategies such as acquisitions. We note that the company is gaining from strong performance of acquired brands such as Back to Nature and Green Giant. Also, the company engages in strategic pricing and cost-saving efforts to strengthen performance. Further, management is on track with inventory reduction plans.

While such efforts look promising, we note that B&G Foods is reeling under pressures stemming from rising input and freight costs. In fact, high freight charges have been weighing on the Zacks Rank #4 (Sell) company’s margins for a while. During the fourth quarter of 2018, gross margin contracted 110 basis points (bps), following 260, 280 and 170 bps declines in the third, the second and the first quarter of 2018, respectively. The company expects freight costs to remain a headwind in 2019.

The company’s performance is also being hurt by the divesture of Pirates Brands’ to Hershey HSY. This led to lower sales volumes as witnessed in the fourth quarter. Moreover, the company’s debt-to-equity ratio, which represents the proportion of debt and equity it is deploying to finance assets, has been high for quite some time. Such headwinds have caused shares of the company to plunge roughly 22% in the past six months compared with the industry’s 4.3% fall.

Despite such roadblocks, B&G Foods has not withdrawn from boosting shareholders’ value. Going ahead, we expect such endeavors to revive investors, optimism in the stock.

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