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B&G Foods (BGS) Troubled by Cost Inflation, Supply-Chain Woes

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B&G Foods, Inc. (BGS - Free Report) appears to be in troubled waters. The company has been struggling with major cost headwinds, which are likely to persist. While it is undertaking saving and pricing actions to counter cost inflation, it is yet to be seen how effective these initiatives turn out. In its recently reported first-quarter results, management lowered its adjusted EBITDA and earnings per share (EPS) view for the full year due to input cost inflation and supply-chain bottlenecks.

The Zacks Consensus Estimate for 2022 EPS has gone down from $1.77 to $1.66 over the past seven days. Shares of this Zacks Rank #5 (Strong Sell) company have slumped 21.4% in the past three months against the industry’s growth of 2.3%.

Let’s delve deeper.

B&G Foods, Inc. Price, Consensus and EPS Surprise

B&G Foods, Inc. Price, Consensus and EPS Surprise

B&G Foods, Inc. price-consensus-eps-surprise-chart | B&G Foods, Inc. Quote

High Costs – a Key Concern

B&G Foods has been battling cost inflation like many other industry players. In the first quarter of 2022, BGS’ adjusted gross profit came in at $101.3 million compared with $117.8 million in the year-ago period. The adjusted gross margin of 19% contracted by 430 basis points. The gross margin was hurt by greater-than-anticipated input cost inflation.

This includes escalated raw materials (like oil, wheat, corn, fuel and other commodities) and transportation expenses. Adjusted EBITDA decreased by 16.2% to $77.9 million due to the same factors impacting the adjusted EPS. The adjusted EBITDA margin contracted by 380 bps to 14.6%. On its first-quarter earnings call, management stated that it anticipates similar levels of margin compression in the second quarter.
 
The company expects the input cost inflation to have a considerably industry-wide effect in the remainder of fiscal 2022. Management expects cost of goods sold inflation in 2022 to be 19-20%. It expects to keep seeing significant cost inflation for inputs, such as ingredients, packaging and transportation, due to factors like the pandemic, the Ukraine war, weather conditions, supply-chain hurdles and the shortage of labor. Management is on track to mitigate the impact of inflation by undertaking cost-saving initiatives, increasing list prices and locking in prices via short-term supply contracts and advance commodities purchase agreements. That said, these may not fully offset additional cost headwinds in the remaining part of fiscal 2022.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Concerns & Lowered Guidance

On its first-quarter 2022 call, management stated that apart from cost inflation, other pandemic-related factors, such as the duration of social distancing and stay-at-home trends, other waves or variants of the pandemic, the operation of manufacturing facilities, the company’s ability to procure ingredients and other raw materials and supply-chain status, among others, may impact the company’s performance.

Talking of the first quarter of 2022, the bottom line missed the Zacks Consensus Estimate and declined year over year. The bottom line tumbled 34.6% from the year-ago quarter’s adjusted earnings of 52 cents per share. The downside was a result of industry-wide inflation in input costs and supply-chain bottlenecks.

Despite raising its net sales guidance for 2022, management cuts its adjusted EBITDA and EPS forecast due to cost inflation. The company expects adjusted EBITDA for fiscal 2022 in the range of $348-$358 million compared with the $358-$368 million range forecast earlier and the $358 million recorded in fiscal 2021. The adjusted EPS in fiscal 2022 is envisioned to be nearly in the band of $1.65-$1.75 now, down from the $1.70-$1.85 band projected before. In fiscal 2021, the metric came in at $1.88.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , McCormick & Company (MKC - Free Report) and Medifast (MED - Free Report) .

Sysco, which engages in the marketing and distribution of various food and related products, sports a Zacks Rank #1 (Strong Buy) at present. Shares of Sysco have risen 1.3% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and EPS suggests growth of 31.3% and 117.4%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 9.1%, on average.

McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2 (Buy). Shares of McCormick have dipped 2.2% in the past three months.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.

Medifast, which manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2. Shares of Medifast have dropped 2.2% in the past three months.

The Zacks Consensus Estimate for Medifast’s current financial-year sales and EPS suggests growth of nearly 19% and 11.5%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 12.9%, on average.