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Will Escalated Costs Mar B&G Foods' (BGS) Earnings in Q4?

Zacks Equity Research

B&G Foods, Inc. BGS is scheduled to release fourth-quarter 2018 results on Feb 26. We note that earnings of this New Jersey-based company missed the Zacks Consensus Estimate in three of the trailing four quarters, the average negative surprise being 2.1%. In the last reported quarter, the company witnessed a negative earnings surprise of 3.4%. Let’s see what’s in store for the company this time around.

How are Estimates Faring?

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 52 cents, reflecting an 8.8% decline from 57 cents per share registered in the year-ago quarter. Notably, the consensus mark has remained stable over the past 30 days. For revenues, the consensus estimate stands at $467.8 million, depicting a 1.2% decrease from the year-ago quarter’s figure.

B&G Foods, Inc. Price, Consensus and EPS Surprise

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

Will Freight Costs & High Debt Level Remain Impediments?

Rising freight expenses has been a worry for B&G Foods for a while. Industry-wide freight costs are expected to remain high throughout the year, which is likely to put pressure on margins. This raises concerns for the company’s upcoming performance. For 2018, management had projected adjusted EBITDA to come in the range of $338-$343 million compared with $345-$355 million guided earlier.

Further, the company is exposed to headwinds stemming from a high debt level, which have led to higher interest burden. This, combined with the divestiture of Pirate Brands induced management to curtail sales and earnings outlook for 2018, making us apprehensive about the quarter to be reported results.

Currently, the company expects net sales of $1.71-$1.72 billion, down from $1.73-$1.75 billion projected earlier. Also, it projects adjusted earnings per share between $1.98 and $2.05 compared with $2.05-$2.15 forecasted earlier.

Buyouts & Pricing Strategy on Track

B&G Foods is gaining from solid performances by the acquired brands such as Back to Nature and Green Giant, which should also act as a key catalyst for sales during the impending quarter. Also, contributions from McCann’s Irish oatmeal business, acquired from TreeHouse Foods, are providing a boost to B&G Foods’ top line. Other notable brands acquired by the company are Victoria, Cream of Wheat, Mama Mary, Specialty Brands from affiliates of American Capital, Rickland Orchards and TrueNorth.

These apart, the company’s strategic pricing initiatives have strengthened sales and profitability. Notably, management expects pricing initiatives to boost sales by almost $8-$10 million in the fourth quarter.

Though these factors act as top-line drivers, it remains to be seen whether these can fully offset the aforementioned hurdles.

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.

Though B&G Foods has a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

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

Turning Point Brands, Inc. TPB has an Earnings ESP of +11.11% and a Zacks Rank #2.

Blue Apron Holdings, Inc. APRN has an Earnings ESP of +6.34% and a Zacks Rank #3.

US Foods Holding Corp. USFD has an Earnings ESP of +0.24% and a Zacks Rank #3.

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