What's the recipe for making tasty acquisitions?
B&G Foods (
) CEO David Wenner can tell you all about it.
Over the past 15 years, the maker of shelf-stable foods like
jellies, hot sauces and seasonings has bulked up its business
with 12 buys that have brought to the table well-known brands
such as Cream of Wheat cereal, Ortega salsa and Mrs. Dash
B&G goes in for small, high-margin brands typically with
sales of less than $100 million that are owned by large
companies. Wenner calls these "orphan" brands because they're too
small for their larger parents to give them the attention they
need to adequately grow. Enter B&G, which has a knack for
taking these typically underperforming brands, breathing new life
into them and turning them into moneymakers.
"We're very good at acquiring things and integrating them into
our company and making them accretive as soon as they get here,"
Wenner told IBD.
A steady stream of winning buys has helped B&G rack up a
solid track record. Profits have climbed by at least 22% the past
15 quarters. Watchers expect B&G to continue to serve up
savory results when it issues its fourth-quarter report Thursday
after the close. Analysts polled by Thomson Reuters see earnings
rising 30% to 39 cents a share. They estimate sales will grow 20%
to $180.3 million. They forecast full-year earnings to be up 30%
to $1.42 a share.
Prospects for a solid fourth quarter follow a strong showing
in the third quarter. Earnings leapt 40% to 35 cents a share.
Sales popped 16% to $154.2 million. Gross profit rose 37.7% to
$42.8 million before extinguishing debt and EBITDA, earnings
before interest, taxes, depreciation and amortization.
B&G's November 2011 acquisition of the Culver Specialty
Brands division from Dutch consumer giantUnilever (
) was a major contributor to B&G's strong performance in
2012. The $325 million deal brought six brands to the mix,
including Mrs. Dash, Molly McButter, and Baker's Joy, with
combined annual sales of $90 million.
The Culver brands had "wonderful margins," says Wenner, and
they've contributed very good growth to sales and the bottom line
In the third quarter, the Culver business drove most of the
sales, EBITDA and net income gains, Wenner says.
Piper Jaffray analyst Sean Naughton says with acquisitions
such as the Culver brands, B&G has added to its sales volume
and improved the margin of its business.
Its EBITDA margin, he says, increased to 27% in 2012 from 24%
in 2011 and 16.8% in 2008.
"The very strong shift toward higher-margin businesses has led
to strong earnings growth," he said.
B&G's latest buy came in October with the purchase of the
New York Style and Old London brands from Chipita America for
$62.5 million in cash. The buy marked B&G's entry into the
fast-growing snack category with products like New York Style
Bagel Crisps and Old London's Melba Toasts and Melba Rounds. The
acquisition includes a state-of-the-art manufacturing
Consistent with its prior buys, B&G Foods expects the
acquisition to be immediately accretive to earnings per share and
free cash flow, Wenner said in a press release at the time of the
B&G estimates the brands will generate sales of $45
million to $50 million and EBITDA of $8 million to $9 million in
The buy brings B&G a stable grocery snack business with
the Old London brand and an exciting prospect in snacks in the
deli section of the supermarket with the New York Style brand,
Wenner said on the third-quarter conference call.
"We are still in the early innings with that acquisition,"
said Naughton. "Both brands have the opportunity to be
successful, but probably more so for the New York Style business
where there's more room for top-line growth." Naughton sees more
buys in the offing.
Given where interest rates are now, he says, it's a good time
for strategic acquirers like B&G to be looking to buy other
brands because they can use relatively low-cost capital to fund
acquisitions. He sees continued opportunities for B&G to
acquire niche brands with $80 million to $120 million in
Wenner believes there's a lot of opportunities for
"We know what we want to buy," Wenner said. "And we diligently
talk to people about selling."
Wenner says it takes a lot of discipline to do acquisitions
because it's tempting to do a deal for the sake of doing deals.
That's why B&G sticks to a clear strategy when making
The brands it buys, like B&G, consist of shelf-stable
products. They also fit into B&G's business model in terms of
sales and distribution so B&G can bring synergies with its
sales force and distribution centers. The brands it acquires also
have strong margins and generate significant excess cash
B&G returns cash to shareholders via dividends. Its
current dividend yield is 4.1%, the highest among its midcap
packaged food peers, according to the company.
Once under its wing, B&G aims to nurse the acquired brands
and make them more relevant to consumers. In keeping with that
strategy, in the Culver line B&G is launching over 30
products in five brands, including 10 new Mrs. Dash items aimed
at a different use and form than its traditional Mrs. Dash
Meanwhile, the climate for B&G's business is a bit tepid.
The volume across the packaged food channel has been relatively
flat, says Naughton.
"That's not to say B&G can't perform well," he said.
"They're going to continue with their strong operating expansion
and they're positioned well to meet expectations for 2012."
In terms of commodity costs, Naughton says B&G will be in
a "more favorable position" in 2013, given the way it buys
commodities, and it's looking for its commodity prices to be
relatively flat year over year.
"We stated at Q3 earnings that our outlook in terms of costs
for B&G for 2013 continues to be an expectation of flat costs
throughout most of the year, pending the outcome of the fall's
crops," said Wenner. "B&G has taken commodity positions well
into 2013, and in some commodities such as corn, throughout the
entire year at costs that are typically favorable to 2012 costs.
We remain committed to our approach of covering commodity costs
by maintaining a 12-month window on a large majority of our
purchases, and even extending beyond that, when we see favorable
Analysts polled by Thomson Reuters see 2013 earnings rising 8%
to $1.53 a share.