Why Is B&G Foods (BGS) Up 13.6% Since Last Earnings Report?
A month has gone by since the last earnings report for B&G Foods (BGS). Shares have added about 13.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is B&G Foods due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
B&G Foods Q2 Earnings Top Estimates on Robust Demand
B&G Foods posted strong second-quarter 2020 results, which benefited from the rising demand amid the pandemic and contributions from buyouts, especially Clabber Girl. Adjusted earnings of 71 cents per share beat the Zacks Consensus Estimate of 62 cents. Moreover, the bottom line increased a solid 86.8% year over year. The upside can be attributed to increased sales.
B&G Foods’ net sales of $512.5 million surged 38.1% year over year and surpassed the Zacks Consensus Estimate of $510 million. The top line was buoyed by contributions from the buyouts of Farmwise (February 2020) and Clabber Girl (May 2019) to the tune of $0.6 million and $15 million, respectively.
Net sales from the company’s base business rallied 33.9% to $496.9 million on a $111.7-million increase in unit volumes along with improved net pricing to the tune of $15.3 million. This was partly countered by currency headwinds of $1.3 million. Net sales from one of the company’s leading brands, Green Giant products (including Le Sueur), soared 45.4% in the quarter.
Apart from this, B&G Foods’ spices & seasonings, Ortega, Cream of Wheat and Maple Grove Farms businesses registered sales increases of 21.4%, 37.4%, 54% and 1.5%, respectively. Net sales from all other brands grew 33.3%.
Adjusted gross profit jumped 39% to $134.6 million and the adjusted gross margin was 26.3%, up 30 basis points (bps) year over year. SG&A expenses increased 11.3% to $44.3 million, thanks to a rise in general and administrative expenses as well as escalated selling costs. This was partially offset by lower warehousing and consumer marketing costs along with a decline in certain non-recurring costs and costs related to acquisitions/divestitures. As a percentage of sales, SG&A expenses dropped 2 percentage points to 8.7%.
Adjusted EBITDA increased 44.6% to $102.6 million, driven by the impact of higher volumes on sales owing to COVID-19-related demand and contributions from Clabber Girl. Adjusted EBITDA margin expanded 90 bps to 20%.
Other Financial Updates & Outlook
The company concluded the quarter with cash and cash equivalents of $181.2 million, long-term debt of $1,874.4 million and shareholders’ equity of $817.1 million.
In the second half of 2020, B&G Foods will remain focused on working with its supply-chain allies and customers to ensure prompt services and continue catering to the burgeoning coronavirus-led demand, stemming from higher at-home consumption. Also, the company will remain committed to product innovation and other brand-enhancement efforts.
While management did not offer any guidance for 2020 due to uncertainties surrounding the pandemic, it still anticipates net sales and adjusted EBITDA for the year to significantly exceed the guidance offered in February 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, B&G Foods has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, B&G Foods has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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