Wall Street Eats Up B&G Foods' Steady Financial Growth


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It's not easy to grab Wall Street's attention when you earn a living selling vinegar, tomato sauce, fruit spreads and other pantry staples.

These aren't the kinds of products that quicken the heartbeat of investors looking to ride a stock into early retirement.

But they are the kinds of products people need. And they can produce solid profits and steady revenue growth if you sell the right goods into the right market.

B&G Foods ( BGS ) is a case in point. The manufacturer of shelf-stable foods such as Cream of Wheat, Ortega salsa and Grandma's Molasses has averaged 28% earnings growth and 4% sales growth over the past five years.

Through the first two quarters of 2012, it has grown profit at least 27% and sales at least 15%. It pays a quarterly dividend of 27 cents a share.

These numbers won't blow anybody's doors off. But they do bring comfort to investors who want a little stability when joblessness is high, Europe is choking on debt, the global economy is uncertain and the markets are wobbly.

Judging from B&G's recent stock performance, there are plenty of those kinds of investors around. The company's shares have set new highs nearly every week for three months. The stock hit an all-time high of 29.47 on Tuesday. It has risen more than 20% since the beginning of the year.

Familiar Brands

The name B&G might not ring a bell with many consumers, but the company's products will. In addition to the Cream of Wheat and Ortega brands, its lineup includes Mrs. Dash seasonings, Regina vinegars, Underwood Deviled Ham, Don Pepino pizza sauce, Emeril's Organic Cooking Stocks and Vermont Maid syrup.

B&G also makes Crock-Pot Seasoning Mixes through a partnership with Jarden Consumer Solutions, maker of the Crock-Pot. The mixes were introduced in April, the same month B&G and Jarden announced their partnership.

"We believe this relationship has potential over time to expand into Jarden's other consumer products," Gary Albanese, an analyst at Auriga USA, noted in a report earlier this year.

But most of the recent attention has been on B&G's ongoing integration of Culver Specialty Brands, which it bought less than a year ago from Unilever. That $325 million deal brought aboard the Mrs. Dash, Baker's Joy and Molly McButter brands.

The current focus is on expanding the customer base for Culver products, watchers say.

"While distribution gains for the Culver business have yet to materialize in a meaningful way, management is confident in the prospects for near-term distribution gains in that business," RBC Capital Markets analyst Edward Aaron noted in a report following B&G's second-quarter earnings release.

The Culver product suite has been a major contributor to B&G's revenue growth this year. The strength of those products, combined with price increases instituted late last year, helped offset a decline in sales volume for other products during the second quarter.

B&G Chief Executive David Wenner addressed that decline during a Q2 conference call, saying that the volume loss "shows that we have not been totally immune to the general weakness in the food business, though our percent decline is meaningfully lower than many of our competitors.

"We have no good answers to the two key questions: Where are the consumers, and what are they eating?" Wenner continued. "But we most certainly see that price increases have influenced their behavior."

B&G's price increases were implemented to help cover higher costs, especially for goods such as sweeteners and fruit.

But the company has locked in favorable prices on certain other commodities.

"The company is hedged well into next year on both wheat and corn at 'pre-spike' levels," analyst Aaron noted. "While we do not pretend to know the future direction of grain prices, this has positive implications for 2013 at this point, given that wheat is up 58% and corn is up 47% from recent lows in late May."

Manageable Costs

Although B&G's higher prices have caused some customers to cut back on orders, analysts expect the strategy to pay dividends over the long haul.

"We are confident (B&G) will experience solid EBITDA growth amidst a manageable cost/pricing environment in coming quarters," noted Alton Stump, analyst at Longbow Research. "In that vein, the company's recent late 2011 price increase should help mitigate cost pressures over the next couple of quarters."

B&G reported EBITDA of $39.6 million during the second quarter, which was slightly below consensus estimates. But earnings per share, which grew 27% to 33 cents, beat Wall Street views by 2 cents.

Revenue grew 15% to $148.6 million, in line with most estimates.

B&G management said the company secured increased distribution for several brands, including Ortega and Cream of Wheat, during the second quarter. This should lead to flat volumes this quarter and positive volumes during the fourth quarter, analysts say.

Analysts polled by Thomson Reuters expect B&G to grow annual earnings 28% this year and 6% in 2013.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Investing Ideas
Referenced Stocks: BGS

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