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B&G Foods Loses 12% Since Q1 Results: Will the Stock Rebound?

Zacks Equity Research

B&G Foods, Inc. BGS has seen its shares decline as much as 13% in the past three months against the industry’s growth of 7.5%. The company continues to battle input cost inflation, which along with other factors weighed on the recently reported first-quarter 2019 results. In fact, we note that this Zacks Rank #4 (Sell) stock has lost nearly 12% since its earnings release on May 2.  

Moreover, the Zacks Consensus Estimate for the second quarter and 2019 has moved south from 43 cents to 38 cents and from $1.88 to $1.85, respectively, over the past 30 days. Let’s delve deeper and see if B&G Foods’ growth efforts can offer some respite to the dwindling stock.

Murky Q1 & Cost Inflation

Both top and bottom lines of the company registered year-over-year decline in the first quarter of 2019. 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. Margins were affected by inventory reduction initiatives, unfavorable mix and higher input costs stemming from elevated freight, warehouse and procurement expenses. These factors also led to a decline in adjusted EBITDA margin.

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

In fact, B&G Foods is persistently being affected by increased freight expenses. During the first quarter, adjusted gross margin contracted 320 basis points (bps) to 24.5%. 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. Input cost inflation is likely to persist in 2019, thereby keeping margins under pressure.

Will Strategies Help?

B&G Foods’ prudent buyouts are clearly yielding 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’s strategic pricing initiatives have been playing an important role in strengthening revenues and profitability for a while now. During the first quarter, the company’s net sales gained $7.3 million from rise in net pricing. Management expects pricing initiatives to drive sales by $15-$20 million in 2019. Efficient pricing and the ongoing cost-saving efforts are also expected to help B&G Foods counter input cost inflation this year.

Unsure of B&G Foods? Check These Food Stocks

General Mills GIS, with a Zacks Rank #2 (Buy), has long-term earnings per share growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lamb Weston LW, with long-term earnings per share growth rate of 12.4%, also carries a Zacks Rank #2.

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