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Risk-Reward With B&G Foods

- By Jonathan Poland

While many of its brands like Ortega, Cream of Wheat, Weber and Green Giant are known by most shoppers, the company's other brands are second-tier grocery-list items that could be displaced as chains seek to bring in their own highly profitable off-label items. Of course, that hasn't slowed the growth at B&G Foods (BGS) in the last decade. In that time, the company has increased sales from $501 million to over $1.7 billion without a down year. Its operating income has doubled and its net income is up from $17 million to over $172 million this past year. Again, thank you, corporate tax cuts.

B&G makes its food here in the U.S. and sells it across North America and Puerto Rico through supermarkets, wholesalers, mass merchants, warehouse clubs and foodservice distributors. It has more than 50 brands (check them out).

While there seems to be a back-to-the-farm attitude about food sweeping the developed world, as a civilization we are not that far removed from drought and famine when having processed food would have been a godsend. I'd like to think that a doomsday scenario isn't possible, but the pragmatist inside says that storing cans of food that last for years is a good idea.

B&G Foods engages in a fair amount of mergers and aquisitions work as well. In the second half of 2018, it acquired McCann's Irish Oatmeal and sold off Pirate Brands for $420 million to The Hershey Company, booking a 100% profit in five years. Management turned around and pre-paid the entire principal, some $500 million, of the term loans under its credit facility, which led ValueLine to raise its earnings-per-share estimates for 2019 to $2.20 per share.


That was in January, before B&G's fourth-quarter numbers fell well short and the company issued soft guidance for the rest of the year. Not the best start to the new year, with its stock off 15% since January 1. However, the drop in price doesn't mean the company's value dropped, or that it will need to cut its dividend, which is currently yielding over 7%.

In fact, B&G Foods is still on track to book higher sales this year and even with the revised $1.85 to $2.00 earnings-per-share figures, the stock is trading well below its five-year historical price multiples. Just getting back to those averages would mean the stock prices in the $45 to $55 range. And, while this isn't a high growth story with a lot of sex appeal, it's a solid business to own with a healthy dividend.

Disclosure: I am not long or short B&G Foods.

This article first appeared on GuruFocus.