B&G Foods (BGS) Refines Portfolio With Back to Nature Sale
B&G Foods, Inc. BGS is keen on refining its portfolio to increase its focus on growth areas. The company concluded the previously-announced (Dec 15, 2022) sale of the Back to Nature brand to BA Brussels, LLC — a subsidiary of Barilla America, Inc.
Management expects to use the sale proceeds for general corporate purposes like the repayment of long-term debt and buying useful assets for B&G Foods’ business, pay taxes, fees and costs associated with the sale.
What’s More?
B&G Foods is focused on its main priorities, including managing the company efficiently amid the ongoing inflationary pricing and supply scenario. This implies undertaking quick pricing efforts to recover escalated input costs and raising production and critical supply to enhance service levels by more than 95%. It intends to improve organic growth beyond the pandemic recovery to above 1-2% — by making the most of remote/work-from-home trends and renewed cooking interests. Moving on, B&G Foods is focused on brands and categories wherein it has more capability. Next, it is focused on undertaking prudent buyouts that are accretive to the company’s portfolio and cash flows. Management is committed to speeding up cost savings and productivity initiatives to improve margins in the long term.
We note that B&G Foods has a successful track record of acquisition-led growth. B&G Foods recently acquired the frozen vegetable manufacturing operations of Growers Express, LLC, which works well for the operations of the company’s Green Giant brand. B&G Foods acquired the Crisco brand in December 2020.
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Cost Hurdles on the Way
B&G Foods has been battling cost inflation like many other industry players. In the third quarter of 2022, the adjusted gross profit of $108 million declined 11.9% year over year from $122.6 million in the year-ago period. The adjusted gross margin contracted 340 basis points (bps) to 20.4%. The gross margin was hurt by greater-than-anticipated input cost inflation. This includes escalated raw materials and transportation expenses.
The Zacks Rank #5 (Strong Sell) company expects the input cost inflation to bear a significant impact industry-wide for the remainder of fiscal 2022 and in fiscal 2023. It anticipates significant cost inflation for inputs, such as ingredients, packaging, labor and transportation, to continue based on factors like the pandemic, the Ukraine war, weather conditions, supply-chain hurdles and the shortage of labor. In fiscal 2023, the company expects inflation of 4-5%.
That said, B&G Foods is on track to mitigate the impacts of inflation on the gross margin by undertaking cost-saving initiatives, increasing list prices and locking in prices via short-term supply contracts and advance commodities purchase agreements. Management has been undertaking pricing initiatives and cost-containment measures (like locking in costs through forward buying, downsizing and other productivity efforts) to protect margins.
Shares of the company have declined 28.6% in the past three months against the industry’s growth of 10.5%.
3 Solid Food Picks
Some better-ranked stocks are Conagra Brands CAG, Campbell Soup CPB and General Mills GIS.
Conagra Brands, operating as a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Conagra Brands’ current financial year sales and earnings suggests growth of 5.8% and 3.8%, respectively, from the corresponding year-ago reported figures.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2. CPB has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.2% and 4.9%, respectively, from the corresponding year-ago reported figures.
General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank #2. GIS has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for General Mills’ current financial year’s sales and earnings per share suggests growth of 4.5% and 4.6%, respectively, from the year-ago reported figures.
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