A month has gone by since the last earnings report for B&G Foods (BGS). Shares have added about 2.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is B&G Foods due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
B&G Foods Q4 Earnings & Sales Lag Estimates
B&G Foods posted disappointing fourth-quarter 2018 results, wherein both the top and bottom line missed the Zacks Consensus Estimate and decreased year over year. Rising input and freight costs remained hurdles. Also, results were impacted by Pirates Brands’ divestiture to Hershey, which was completed during the beginning of the fourth quarter.
For 2019, the company projects adjusted earnings per share between $1.85 and $2.00, which stands way below the current Zacks Consensus Estimate of $2.11.
Adjusted earnings came in at 34 cents per share, which missed the Zacks Consensus Estimate of 52 cents and slumped 40.4% year over year. This downside can be accountable to lower gross margin, which was hurt by elevated input costs and adverse mix. Apart from B&G Foods, many players in the Food – Miscellaneous industry are grappling with rising input costs.
B&G Foods’ net sales of $458.1 million lagged the Zacks Consensus Estimate of $467.8 million in the fourth quarter. Further, the figure dipped 1.8% year over year due to lower volumes, which were somewhat compensated by improved pricing. Volumes were hurt by Pirate Brands’ divestiture, which was partly made up by sales from McCann’s that was acquired in July 2018.
Net sales from the company’s base business inched up by 1.6% to $452.6 million owing to $5.2 million rise in unit volumes and $2.0 million in net pricing.
Net sales from Green Giant products (including Le Sueur) jumped 4.9% on the back of increased sales of both frozen and shelf stable products. Green Giant frozen net sales advanced 7.3% backed by favorable consumer response to innovations. Green Giant shelf stable net sales rose 0.7%.
Adjusted gross margin was 19%, which contracted 110 basis points year over year on account of unfavorable mix, and higher input costs due to elevated freight, warehouse and procurement expenses. This was partially offset by increase in net pricing.
SG&A expenses dropped 8.4% to $47.6 million, thanks to decline in costs associated with acquisition/divestitures, consumer marketing, warehousing and non-recurring. As a percentage of sales, SG&A expenses went down from 11.1% to 10.4%.
Adjusted EBITDA fell 15.2% to $58.5 million in the reported quarter. Adjusted EBITDA margin contracted 200 bps to 12.8%.
Other Financial Updates
B&G Foods concluded the quarter with cash and cash equivalents of $11.6 million, long-term debt of $1,635.9 million and shareholders’ equity of roughly $900 million. Net cash from operating activities grew to $209.5 million in 2018.
In a separate press release, management announced a quarterly dividend of 47.5 cents per share, which is payable Apr 30, 2019, to its shareholders of record as on Mar 29.
B&G Foods is pleased with its 2018 performance, which reflects record sales and EBITDA. The company is on track to achieve its $2-billion net sales target. Also, B&G Foods met the high end of its inventory reduction goal for 2018, wherein it curtailed inventory by nearly $100 million. However, the company continued to battle freight and input cost headwinds, which could not be completely negated by efficient cost-containment and pricing efforts.
Nevertheless, the company is focused on enhancing cost-saving endeavors, which are expected to yield in 2019. Also, management is on track with its solid pricing initiatives. These factors along with B&G Foods’ concentration on high-margin brands and acquisitions bode well.
All said, management expects net sales of $1.635-$1.665 billion for 2019. Adjusted EBITDA is anticipated to be $305-$320 million.
For the first quarter of 2019, management projects net sales of $400-$412 million. Adjusted EBITDA is anticipated to be $78-$82 million. Further, management envisions adjusted earnings of 47-52 cents per share, down from the current consensus mark of 54 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.48% due to these changes.
Currently, B&G Foods has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise B&G Foods has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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