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Pandemic-Led Demand Aids B&G Foods (BGS), High Costs Persist

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  • BGS

B&G Foods, Inc. BGS is benefiting from sustained shift to consumers’ at-home consumption, which is above pre-pandemic levels. Impressive recovery in foodservice business is also yielding. Focus on strategic acquisitions and growing e-commerce business are upsides for the company. However, high costs associated with COVID-19 and input cost inflation are headwinds.

Pandemic-Led Demand Fuels Growth

B&G Foods is witnessing more consumers cooking, baking and eating at home compared with pre-pandemic levels. It is also benefiting from foodservice recovery as restaurants and eating establishments are reopening. Net sales performance during second-quarter fiscal 2021 was better than 2019 levels (pre-pandemic period). On a two-year compound annual growth basis, compared with pre-pandemic levels, net sales improved 11.8%. Further, base business net sales moved up 3.5% on a two-year compound annual growth basis compared with pre-pandemic levels.

Zacks Investment Research
Zacks Investment Research

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What Else is Working for B&G Foods?

B&G Foods has a successful track record of acquisition-led growth as it has integrated over 50 brands into the portfolio since its establishment in 1996. The company is actively pursuing strategic acquisitions to boost growth. B&G Foods acquired Crisco brand from The J. M. Smucker Company SJM in December 2020. The company’s net sales in second-quarter fiscal 2021 reflect gains worth $58.4 million from the Crisco acquisition. In fiscal 2021, Crisco is expected to make favorable contributions to B&G Foods’ top line.

Prior to this, the company acquired Farmwise (in February 2020) as well as integrated retail baking powder maker, Clabber Girl (acquired in May 2019). Apart from this, the company acquired notable brands such as Back to Nature, Green Giants, Victoria, Mama Mary, TrueNorth, McCann’s and Ortega. The company is committed toward product innovation and other brand-enhancement investments.

B&G Foods is benefiting from higher online sales, especially thanks to increased social-distancing trends. Management had earlier highlighted that it expects e-commerce retail sales for fiscal 2021 to keep growing at this rate and come in at $275 million. E-commerce sales are accelerating with pace, mainly attributable to efficient delivery services of the company’s retail customers. The company had stated that it expects to continue seeing solid online trends in 2021 and is making investments to strengthen its online presence and market with several retailers on their websites.

Hurdles on Way

B&G Foods is grappling with pandemic-induced costs for a while now. During fiscal second-quarter, the company incurred COVID-19 expenses of $1.2 million. These costs mainly include temporary-enhanced compensation for manufacturing employees, compensation paid to manufacturing employees, while in quarantine as well as expenses associated with other precautionary health and safety measures.

Management, in its last earnings call, highlighted that it expects to keep seeing significant cost inflation for ingredients, packaging and transportation. Although the company is undertaking various revenue-enhancing and cost-control measures, it is yet to be seen if the same can mitigate such cost-related headwinds.

The Zacks Rank #3 (Hold) stock has inched up 0.9% in the past three months against the industry’s decline of 7.4%.

Top 2 Picks

Pilgrim’s Pride Corporation PPC, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 34%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sanderson Farms, Inc. SAFM, currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 36%.

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