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Bear of the Day: B&G Foods (BGS)

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  • BGS

B&G Foods, Inc. BGS is battling extreme inflation in the food industry in 2021. This Zacks Rank #5 (Strong Sell) is expected to see a decline in earnings in 2021.

B&G Foods manufactures and sells branded shelf-stable and frozen foods across the United States, Canada and Puerto. It owns more than 50 brands, including Cream of Wheat, Crisco, Dash, Las Palmas, Spice Islands and Green Giant, to name a few.

Third Miss in a Row in the Second Quarter

On Aug 5, B&G Foods reported its second quarter results and missed on the Zacks Consensus Estimate for the third straight quarter.

Earnings were $0.41 versus the consensus of $0.47.

B&G Foods was a big beneficiary of the "eat at home" trend that occurred when the pandemic hit in 2020.

Sales soared as consumers rushed to fill up their freezers.

The second quarter comparables from 2020 were always going to be difficult to beat.

Net sales fell 9.4% to $464.4 million and base business net sales decreased 20.8% due to the comparisons to the extraordinary demand and pantry loading at the height of the COVID-19 pandemic last year. It was partially offset by the Crisco acquisition.

Compared to 2019, or pre-pandemic, however, net sales and base business net sales for the second quarter of 2021 were 25.1% and 7.1% higher.

Consumer trends of cooking and baking at home which began during the pandemic, are expected to continue.

Food Inflation is Real

In August, the company didn't mince words about the inflation in the economy, calling it "unprecedented."

"We identified the risks of inflation early and have initiated price increases and cost savings initiatives to offset these costs," said CEO Casey Keller.

"While the impact of pricing and cost savings may lag behind the rising input costs, we expect our margins to remain fairly stable in the long term,” he added.

However, B&G Foods expects to see further cost inflation in 2022.

Analysts Cut Earnings Estimates for 2021 and 2022

Analysts are bearish about the future even though the company says it expects stable margins this year.

2 estimates have been lowered over the last 2 months for 2021.

That has pushed the Zacks Consensus Estimate down to $1.96 from $2.08.

That is an earnings decline of 13.3% as the company made $2.26 during 2020.

2 estimates have also been lowered for 2022 over the last 60 days. The 2022 Zacks Consensus Estimate has fallen to $2.17 from $2.34, but that's earnings growth of 11%.

Looking for a Big Dividend Payout?

B&G Foods is a popular stock among those investors looking for income because it is dedicated to returning money to its shareholders.

It has paid a quarterly dividend every quarter since its initial public offering in Oct 2004, or 68 consecutive quarters.

That dividend is currently yielding a juicy 6.5% yield.

The dividend was not cut during the pandemic.

Shares Tread Water

Like many companies that pay out a large income to shareholders, share appreciation isn't much of a concern.

B&G Foods, however, has gained 6.5% year-to-date.

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Zacks Investment Research

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It's still cheap, with a forward P/E of 15.

Margins are likely to be challenged into next year due to inflationary pressures but investors looking for income may want to keep it on their watch list for when those earnings estimates start to turn around.

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