Pandemic-Led Demand Aids B&G Foods (BGS), Higher Costs Hurt
B&G Foods, Inc. BGS has been benefiting from burgeoning demand amid pandemic-led higher at-home consumption. Moreover, the company’s focus on strategic acquisitions and growth in e-commerce business are yielding. However, B&G Foods is troubled by escalated SG&A expenses. Additionally, high costs associated with COVID-19 as well as input cost inflation are concerns for the company. Let’s discuss further.
What’s Working in B&G Foods’ Favor?
B&G Foods’ retail business has been seeing continued momentum since last summer as more Americans are embracing cooking and seasoning meals at home amid the pandemic. Moreover, the foodservice business is showing signs of rebound lately. Notably, the away-from-home channel is improving as shelter at home measures are easing. These were reflected in first-quarter fiscal 2021, with earnings and sales increasing on a year-over-year basis. Moreover, management expects to keep witnessing solid consumer demand for its products for the rest of fiscal 2021.
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Well, the company is actively pursuing strategic acquisitions to boost growth. In this regard, B&G Foods, acquired Crisco brand from The J. M. Smucker Company SJM in December 2020. Notably, the company’s net sales in fiscal first quarter reflect gains worth $58.1 million from the Crisco acquisition. In 2021, Crisco is expected to make favorable contributions to B&G Foods’ top line. Prior to this, the company acquired Farmwise (in February 2020). The company also acquired and integrated retail baking powder maker, Clabber Girl (in May 2019). Apart from this, it has acquired notable brands such as Back to Nature, Green Giants, Victoria, Mama Mary, TrueNorth, McCann’s and Ortega. The company is committed toward product innovation and other brand enhancement investments.
Apart from these, B&G Foods is benefiting from higher online sales, thanks to increased social-distancing trends. During the quarter, retail sales of the company’s brands through e-commerce platforms surged more than 60% to reach $50 million. In its last earnings call, management highlighted that it expects e-commerce retail sales for fiscal 2021 to keep growing at this rate and come in at $275 million. E-commerce sales are accelerating with pace, mainly attributable to efficient delivery services of the company’s retail customers. The company expects to continue seeing solid online trends in 2021 and is making investments to strengthen its online presence and market with several retailers on their websites.
Hurdles on the Way
B&G Foods’ SG&A expenses have been rising year over year for quite some time now. During first-quarter fiscal 2021, B&G Foods’ SG&A expenses increased 26% to $50.4 million, thanks to rise in consumer marketing costs, acquisition/divestiture-induced and non-recurring expenses, warehousing costs as well as general and administrative expenses. As a percentage of sales, SG&A expenses increased 1.1 percentage points to 10%. During the quarter, B&G Foods incurred nearly $2.9 million in additional pandemic-led costs at its production facilities including temporary enhanced competition for manufacturing employees, compensation to manufacturing employees in quarantine as well as costs associated with take precautionary health and safety measures.
Apart from this, the company has been battling cost inflation for a while now. During fiscal first quarter, the company saw low to mid single-digit inflation on a blended basis in basket of goods with notable spike in agricultural products and commodity-associated input costs. Also, inflation in corrugated steel and aluminum led to the downside. Further, management expects to keep seeing input cost inflation for ingredients, packaging and transportation in fiscal 2021.
That being said, the company is focused on undertaking cost-cutting efforts coupled with revenue-enhancing actions across many brands. Let’s see if such cost-saving efforts coupled with the aforementioned upsides can help B&G Foods counter these headwinds.
Markedly, this Zacks Rank #3 (Hold) company’s stock has inched up 1.3% in the past three months compared with the industry’s growth of 5%.
Some Solid Food Bets
Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Medifast, Inc. MED, currently sporting a Zacks Rank #1, has a trailing four-quarter earnings surprise of 12.7%, on average.
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