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B&G Foods (BGS) Troubled by High SG&A Expenses & Input Costs

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B&G Foods, Inc. (BGS - Free Report) is troubled by escalated SG&A expenses. Additionally, high costs associated with COVID-19 as well as input cost inflation are key concerns for the company. Apart from these, the company is encountering supply-chain-related headwinds. Though B&G Foods’ top and bottom lines increased year over year in the fourth quarter of fiscal 2020, both metrics missed their respective Zacks Consensus Estimate.

Hurdles in B&G Foods’ Way

B&G Foods encountered major supply-chain capacity hurdles in the second and third quarters of fiscal 2020 and was unable to fully cater to the rising demand for brands offering meal solutions such as Ortega and Bear Creek. Also, spices & seasoning sales were hurt by production capacity constraints, packaging outages and absenteeism due to pandemic-led quarantine.

In the fourth-quarter beginning, management noted that on account of certain crop conditions and co-packer capacity issues, Green Giant shelf-stable products supply would not be sufficient to cater to the increased pandemic-induced demand. As a result, sales in the quarter were relatively flat for Green Giant and the company does not expect much relief in this arena until summer, when the new crop arrives. Overall, sales in the fourth quarter were up, though the rate of growth declined from the preceding quarter. The company, in fact, said that November and December sales were relatively weak.

Talking of costs, the company’s SG&A expenses have been rising year over year for quite some time now. The metric increased 31.5% to $58.5 million in the fourth quarter, thanks to the rise in consumer marketing costs, acquisition/divestiture-induced and non-recurring expenses, warehousing costs, selling expenses as well as general and administrative expenses. Additionally, the company continued to incur high costs associated with COVID-19 at its manufacturing facilities, which came in at roughly $4.3 million during the fourth quarter. In fiscal 2020, the company saw nearly $13.5 million as additional COVID-19 costs at its manufacturing facilities, mainly including temporary better compensation for manufacturing workers, compensation to manufacturing workers during their quarantine and costs associated with other precautionary health and safety methods.

Apart from these, B&G Foods began witnessing cost inflation in the late third quarter of fiscal 2020, which accelerated into the fourth quarter mainly due to freight costs, select agricultural products and other ingredient costs, along with packaging costs. Management expects these challenges to continue in fiscal 2021, wherein it expects inflation in several core input costs such as select agricultural products, packaging and freight. Like earlier, the company expects to manage these costs through its solid pricing, initiatives and cost-saving actions.

The Bright Side

B&G Foods has been benefiting from consumers’ rising demand amid coronavirus-led increased at-home consumption. Several other food stocks like Kellogg (K - Free Report) , Flowers Foods (FLO - Free Report) and TreeHouse Foods (THS - Free Report) , to name a few, are gaining on the pandemic-led demand. B&G Foods’ net sales of $510.2 million advanced 8.5% year over year in the fourth quarter, mainly backed by the Crisco acquisition, favorable net pricing and higher demand stemming from the pandemic. Also, higher online sales amid social distancing trends are aiding the company.

In fiscal 2021, the company expects increased sales in the initial months, thanks to higher consumption. However, management does not anticipate surpassing its sales levels of March, April and May 2020, wherein pantry-loading trends drove sales more than consumption growth. Nonetheless, the company expects overall fiscal 2021 sales of around $2.05-$2.10 billion. This includes a positive impact from the acquisition of the Crisco brand.

That being said, let’s see if these upsides can help B&G Foods counter the above-mentioned headwinds.

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