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Why Is B&G Foods (BGS) Down 5.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for B&G Foods (BGS). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is B&G Foods due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

B&G Foods Q2 Earnings Beat Estimates, Sales Remain Soft

B&G Foods, Inc. posted second-quarter 2019 results, wherein the bottom line snapped its four-quarter negative surprise trend. However, the company has been posting soft sales for a while now, and the trend continued in the quarter under review. The Pirates Brands’ divestiture to Hershey continued to negatively impact sales, which was somewhat compensated by the McCann and Clabber Girl acquisitions.

Prospects from buyouts, efficient pricing and other initiatives keep management encouraged about 2019. Hence, the company raised its net sales outlook for 2019, while retaining the other forecasts. This, along with B&G Foods’ better-than-expected earnings, seems to have boosted investors’ confidence.

Q2 Highlights

Adjusted earnings of 38 cents per share beat the Zacks Consensus Estimate of 35 cents. The bottom line remained flat year over year. While interest expenses reduced, results were hampered by lower sales and contraction in gross margin.

B&G Foods’ net sales of $371.2 million missed the Zacks Consensus Estimate of $372 million and declined 4.4% year over year. The top line was hurt by the sale of Pirate Brands, which was partly made up by sales from McCann’s (acquired in July 2018) and Clabber Girl (acquired in May 2019). McCann’s and Clabber Girl contributed $2.2 million and $8.4 million, respectively, to B&G Foods’ net sales in the second quarter of 2019.

Net sales from the company’s base business dipped 0.5% to $360.6 million, owing to $4 million increase in net pricing, negated by $5.5-million fall in unit volumes and currency headwinds impact of about $0.2 million.

Net sales from Green Giant products (including Le Sueur) grew 7.9%, courtesy of increased sales of frozen and shelf-stable products. Green Giant frozen net sales advanced 4.1% and Green Giant shelf-stable net sales were up 23.5%.

Adjusted gross margin was 26%, down 10 basis points (bps) year over year. SG&A expenses escalated 6.9% to $39.9 million, due to rise in general and administrative expenses along with increased non-recurring costs and costs related to acquisitions/divestitures. This was partly compensated by a fall in warehousing, selling and consumer marketing costs. As a percentage of sales, SG&A expenses were up 1.1% to 10.7%.

Adjusted EBITDA fell 4.7% to $71 million in the reported quarter on account of Pirate Brands’ divestiture, partially cushioned by improved operating performance and the buyouts of McCann’s and Clabber Girl. Adjusted EBITDA margin dropped 10 bps to 19.1%.

Other Financial Updates

The company concluded the quarter with cash and cash equivalents of $19.9 million, long-term debt of $1,802.6 million and shareholders’ equity of roughly $868.4 million.

Outlook

B&G Foods is on track with its solid pricing initiatives, which somewhat drove sales in the second quarter. The company expects product innovation, prudent acquisitions, efficient pricing and cost of goods sold efforts to help it battle cost inflation in 2019. However, the sale of Pirate Brands is expected to continue to affect results in the third and fourth quarters.

Management now expects 2019 net sales in the range of $1.665-$1.700 billion compared with the previous forecast of $1.635-$1.665 billion.

Adjusted EBITDA is still anticipated to be $305.0-$320.0 million. Further, the company projects adjusted earnings per share between $1.85 and $2.00, which stands well above the Zacks Consensus Estimate of $1.80.
 

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -10% due to these changes.

VGM Scores

Currently, B&G Foods has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

B&G Foods has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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