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Will Strategic Initiatives Relieve B&G Foods of Cost Woes?

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Will Strategic Initiatives Relieve B&G Foods of Cost Woes?

B&G Foods (BGS) gains from well-chalked buyouts. However, rising fright expenses and debt levels are concerns.

While B&G Foods, Inc. BGS gains from acquisitions and well-chalked inventory management efforts, underlying concerns regarding freight costs and high levels of debt have been marring prospects. Let’s take a closer look.

Buyouts to Boost the Top Line

Acquisitions have been a prudent strategy for B&G Foods for strengthening brand and generating higher revenues. In 2017, the company acquired Back to Nature Foods Company, which contributed approximately $17.6 million to the top line in the second quarter of 2018. The company has acquired few other notable brands like Green Giants, Victoria, Mama Mary and Specialty Brands. Markedly, Green Giants has emerged as one of the leading brands of the company, which has been delivering double-digit sales growth for five consecutive quarters now.

Such strong performances by acquired brands have aided the company in delivering year-on-year top-line growth for quite some. Moreover, the company concluded the takeover of McCann’s brand of premium Irish oatmeal from TreeHouse Foods THS at the beginning of the third quarter, which is likely to boost sales.

Encouragingly, management is optimistic about the company’s sales growth, which is fueled by contributions from acquired brands as well strength in the base business. This is also evident from management’s encouraging top-line view for 2018.

Will Efforts Offset Freight & Debt-Related Headwinds?

Although gains from buyouts have driven the company’s top line, things appear somewhat blurred on the profitability front due to high freight expenses. In fact, higher charges have been weighing on B&G Foods’ margins for a while. Gross margin contracted 280 basis points (bps) in the second quarter, following a 170-bps decline in the first quarter. The rise in freight costs along with unfavorable timing of price increases also weighed on the company’s EBITDA margin during the said period. Industry-wide freight costs are expected to escalate throughout the year, which is likely to keep margins under pressure.

To top this, the bottom line has been eclipsed lately by high proportion of debt and interest expenses. Such factors seem to have weighed on investors’ optimism. Well, shares of the company have declined 6.8% in the past three months, against the industry’s rise of 1%.

Nevertheless, well-chalked strategies to boost brand performances are expected to cushion the aforementioned hurdles and revive the performance of this Zacks Rank #3 (Hold) stock. Moreover, to reduce debt load, the company recently inked a deal to divest Private brands to The Hershey Company HSY. Such moves combined with efforts to reduce inventory are expected to be lucrative and boost profitability.

Medifast MED is another consumer staples stock you might consider taking a look at. The company, sporting a Zacks Rank #1 (Strong Buy), has delivered positive earnings surprise in the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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