B&G Foods Poised on Retail Demand Amid Foodservice Declines
Coronavirus has altered consumers’ eating habits to a great deal, leading to elevated at-home consumption. Apart from being safe and healthy, eating at home is less expensive compared to eating outside. Moreover, people working from home or those with children are going heavy on convenient and comfort foods, such as snacking items, packaged and frozen foods. Certainly, greater at-home consumption is driving demand for companies like B&G Foods, Inc. BGS and helping them offset declines in the foodservice business.
Notably, B&G Foods looks well-poised on the back of its strong brand portfolio and efficient pricing strategy. Also, the pandemic-led social distancing is boosting sales of B&G Foods on the e-commerce platform. Such upsides are likely to help this Zacks Rank #3 (Hold) company counter escalated cost concerns.
Factors Narrating B&G Foods’ Growth Tale
B&G Foods’ second-quarter 2020 gained from rising demand. Both top and bottom lines surged year over year backed by solid pricing and gains from buyouts along with increased demand led by the COVID-19 outbreak. Notably, the company’s 85% of brands witnessed sales growth, including Green Giant, Cream of Wheat, Ortega, McCann’s, Victoria and Clabber Girl, among others. Notably, Green Giant has emerged as the company’s largest brand and management is particularly focused on making innovation and other brand enhancement investments in it.
Apart from this, second-quarter results were backed by contributions from Farmwise (acquired in February 2020). Well, B&G Foods has been witnessing a rapid increase in demand for its products since the second half of March 2020, thanks to the coronavirus-led stockpiling and higher at-home consumption. In this regard, B&G Foods’ higher net sales to mass merchants, warehouse clubs, supermarkets, wholesalers and e-commerce consumers have more than offset lower demand from foodservice clients.
During the second quarter, the company also saw a number of online customers, thanks to the social-distancing trends. E-commerce sales form about 3-5% of the company’s sales and are accelerating with pace, mainly attributable to efficient delivery services of its retail customers like Amazon AMZN. The company expects solid e-commerce trends to continue and is also making investments to enhance its e-commerce capacity. The company expects to be fully e-commerce capable by fourth-quarter beginning.
B&G Foods Likely to Overcome Roadblocks
B&G Foods’ SG&A expenses increased 11.3% to $44.3 million in the second quarter of 2020, thanks to a rise in general and administrative expenses as well as escalated selling costs. The metric has been rising for quite some time now. Additionally, the company continued to incur high costs associated with COVID-19, which had a 90 bps or roughly $4.7-million adverse impact on adjusted EBITDA. These costs are related to better sanitization, employee screenings and elevated employee compensations such as temporary wage hikes, special bonuses and continued payments during the quarantine. Management expects costs associated with operating amid the pandemic to remain high, which may exert pressure on margins.
Nonetheless, B&G Foods’ efficient pricing strategy along with the aforementioned upsides is likely to help it tackle such challenges. Strong retail demand is also likely to help offset the expected pressure on foodservice sales stemming from reduced away-from-home consumption. Encouragingly, B&G Foods anticipates total net sales and adjusted EBITDA for fiscal 2020 to significantly exceed the guidance provided in February. Markedly, the company’s shares have rallied 12.6% in the past three months compared with the industry’s growth of 5.3%.
2 Stock Delicacies to Binge On
United Natural UNFI has a Zacks Rank #1 (Strong Buy) and a trailing four-quarter earnings surprise of 4.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
General Mills GIS, with a Zacks Rank #2 (Buy), has a long-term earnings per share growth rate of 7.5%.
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