Zacks' Bear Of The Day: B&G Foods

B&G Foods Inc. BGS is a small, but widely-followed food company that manufactures, sells, and distributes high-quality branded shelf-stable and frozen foods across the U.S., Canada, and Puerto Rico.

Its diverse portfolio includes brands like B&G, B&M, Cream of Wheat, Green Giant, Las Palmas, Mrs. Dash, Pirate's Booty, Spice Islands, Back to Nature, and SnackWell's, among many others.

B&G currently sits at a #5 (Strong Sell) on the Zacks Rank after a disappointing fourth quarter and some hard-hitting analyst downgrades that sent estimates in the wrong direction. What's next for BGS?

Q4 Results

Even though earnings and revenues missed the Zacks Consensus—the bottom line came in at 57 cents versus 59 cents, while the top line hit $473.3 million versus $490.4 million—both metrics managed to increase year-over-year. Earnings increased 96.6%, while revenues grew 14.5% from the prior-year period.

Net sales at B&G's Base business totaled $380.9 million, declining just 0.3% year-over-year. Sales in the company's Green Giant frozen products segment increased 23.4%, and its Pirate Brands grew 11.4% thanks to efficient promotional events and distribution gains.

But, growth seen in these brands was somewhat offset by weak consumption trends in shelf-stable and maple syrup products; heightened competition also hurt B&G's revenues last quarter.

Additionally, gross profit margin declined 440 basis points year-over-year to 21.4% due to increased expenses in warehousing and distribution.

2018 Guidance

B&G expects net sales to be in the range of $1.72 billion to $1.755 billion, with adjusted EPS in the range of $2.05 and $2.25 per share. Adjusted EBITDA is projected to fall between $347.5 million and $365 million.

Credit Suisse Downgrade

Soon after the company reported its results, Credit Suisse analyst Robert Moskow downgraded the food stock to ‘Underperform' from ‘Neutral' on expectations that the company's management will issue more downward guidance revisions.

"The EBITDA guidance for 2018 relies too heavily, in our view, the core business's ability to increase pricing to offset freight inflation and the distribution losses in Green Giant's canned vegetables. As has been the case historically, we expect a highly elastic response to volume when these brands raise prices," he writes.

Moskow also noted that B&G's recent acquisitions of complex businesses like Back to Nature Foods and Victoria Fine Foods is adding a risk to its stock, especially as the company competes with larger firms who already have an advantage in the market.

Earnings Estimates Lowered

For the current quarter, one analyst cut their outlook in the last 30 days, and the consensus has dipped from $0.56 to $0.51. Earnings are expected to decline about 12% for this time period.

Three analysts have revised their estimates downward for the current fiscal year, and earnings are expected to remain flat as of right now.

Looking at the next fiscal year, earnings could grow 7.5%, and the current consensus sits at $2.28 per share.

Can B&G Get Back on Track?

Shares of B&G are down about 23% so far this year and have declined 34% in the past one year.

While it remains to be seen if B&G's management team can oversee the broad portfolio of brands they have now acquired, the company still offers its investors a strong dividend yield of 6.75%.

For investors wanting a food stock with more near-term potential, they should consider Post Holdings (POST), a company that makes popular branded cereals like Pebbles and Honey Bunches of Oats. It's a #1 (Strong Buy) on the Zacks Rank right now and anticipates over 69% earnings growth for the current year.

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