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Prudent Acquisitions Aid B&G Foods (BGS), High Costs Persist

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·3 min read
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B&G Foods, Inc. BGS is benefiting from strategic acquisitions and growing e-commerce business. The company is also benefiting from continued demand for its products, as consumers are cooking and baking at home amid the pandemic. That being said, B&G Foods is encountering input cost inflation. In addition, higher SG&A is a headwind.

Let’s discuss further.

What’s Favoring 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 the Crisco brand from J.M. Smucker in December 2020. The company’s net sales in third-quarter fiscal 2021 reflect gains worth $71.2 million from the Crisco acquisition. Prior to this, the company acquired Farmwise (in February 2020). BGS also acquired an integrated retail baking powder maker Clabber Girl (acquired in May 2019).

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Zacks Investment Research

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Several other companies in the food space like Post Holdings, Inc. POST, Hormel Foods Corporation HRL and McCormick & Company, Incorporated MKC are benefiting from acquisitions.

In fourth-quarter fiscal 2021, Post Holdings’ top line included $99.8 million in net sales from the acquisitions made in fiscal 2021. The buyouts include private label ready-to-eat cereal business Egg Beaters liquid egg brand, Almark Foods business and related assets and Peter Pan nut butter brand.

In June, Hormel Foods acquired the Planters snacking portfolio. Prior to this, the company acquired Texas-based pit-smoked meats company Sadler’s Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.

McCormick has strategically increased its presence through acquisitions, strengthening its portfolio. In December 2020, McCormick bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick acquired the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.

Meanwhile, B&G Foods is gaining from higher online sales, thanks to social-distancing trends. E-commerce sales are accelerating mainly owing to efficient delivery services. The company expects to continue seeing solid online trends and is making investments to strengthen its online presence.

Higher Costs: A Hurdle

B&G Foods has been grappling with higher SG&A in the past few quarters. The company’s SG&A expenses in third-quarter fiscal 2021 increased 6.9% to $46.4 million, thanks to a rise in acquisition/divestiture-induced and non-recurring expenses as well as warehousing costs. As a percentage of net sales, SG&A expenses expanded 0.2 percentage points to 9%.

During the quarter, B&G Foods’ gross profit fell from $136 million to $105.7 million, thanks to higher-than-anticipated input cost inflation. This includes escalated raw materials and transportation expenses. Management anticipates facing industry-wide cost inflation during fiscal 2022. Nonetheless, the company is on track to mitigate the impact of inflation by undertaking cost-saving initiatives, increasing list prices and locking in prices via short-term supply contracts and advance commodities purchase agreements. That being said, B&G Foods does not expect to offset the additional cost headwinds.

Shares of the Zacks Rank #3 (Hold) company have increased 7.1% in the past three months compared with the industry’s growth of 0.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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