B&G Foods, Inc. (BGS - Free Report) are among those U.S. food companies whose brand strength and well-woven strategic efforts have helped cushion the negative impacts stemming from high freight costs. Such aspects have boosted investors’ optimism in the stock that gained 8% in the past three months, against the industry’s decline of 12.2%. Let’s take a closer look at the factors impacting the company’s performance.
Relishing on Strong Brands
B&G Foods is gaining from strong performance of acquired brands such as Back to Nature and Green Giant. In fact, Green Giant frozen posted sixth consecutive quarter of double-digit sales growth in the third quarter of 2018. Moreover, contributions from McCann’s Irish oatmeal business, acquired from TreeHouse Foods (THS - Free Report) , are boosting B&G Foods’ top line. Other notable brands acquired by the company are Victoria, Cream of Wheat, Mama Mary, Specialty Brands from affiliates of American Capital, Rickland Orchards and TrueNorth.
Other Notable Efforts
In addition to strong brands, the company’s strategic pricing initiatives have strengthened revenues and profitability. During the third quarter, the company gained as much as $5.2 million in net pricing. Moreover, management expects pricing initiatives to aid sales by almost $8-$10 million in the fourth quarter.
Additionally, B&G Foods is on track with inventory reduction plans. The company expects inventories to favorably impact cash by $75-$100 million for 2018. Apart from this, the company remains dedicated to returning excess cash to shareholders in the form of share repurchases and timely dividend payments.
Can Efforts Counter Headwinds?
Rising freight expenses has been a worry for B&G Foods for a while. Due to such charges, gross margin contracted 260 basis points (bps) in the third quarter, following declines of 280 bps and 170 bps in the second and the first quarter respectively. Industry-wide freight costs are expected to stay high throughout the year, which is likely to put pressure on margins. Other food companies like United Natural Foods (UNFI - Free Report) and McCormick & Company (MKC - Free Report) are also grappling with higher freight and transportation costs.
Coming back to B&G Foods, high debt levels are weighing on the company’s performance. Notably, high debt levels have led to higher interest burden. This combined with the divestiture of Pirate Brands led management to curtail sales and earnings outlook for 2018.
Nevertheless, we expect that the company’s strategic initiatives will continue to cushion the aforementioned hurdles. In fact, management plans to undertake initiatives to generate savings and optimize operations to counter hurdles emerging from high costs. Such efforts are likely to raise investors’ optimism in this Zacks Rank #3 (Hold) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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