Joel Greenblatt (Trades, Portfolio), the manager of Gotham Asset Management LLC, heavily increased his stake in B&G Foods Inc (BGS) by 647.09%, becoming the second main shareholder of the company with 661,921 shares ammounting to 1.14% of BGS’ outstanding shares.
The investor is well known thanks to his description of return on capital as described in his “The Little Book That Still Beats the Market”. B&G's ROC was 52.08% in December 2014 and 68.37% in June 2015.
About the company
The company manufactures, sells and distributes a diverse portfolio of branded, high quality, shelf-stable food and household products across the United States, Canada and Puerto Rico. The company competes in the retail grocery, food service, specialty, private label, club and mass merchandiser channels of distribution. It sells and distributes its products directly and via a network of independent brokers and distributors to supermarket chains, food service outlets, mass merchants, warehouse clubs, non-food outlets and specialty distributors.
The price of the stock is flat if compared to 12 months back, and is now -6.61% from its 52-week high and +12.78% from its 52-week low.
The price to earnings ratio is getting higher each year due to the weak earnings of the company.
| Year | EPS | |
| 2010 | 0,67 | |
| 2011 | 1,04 | 55,22% |
| 2012 | 1,2 | 15,38% |
| 2013 | 0,98 | -18,33% |
| 2014 | 0,76 | -22,45% |
While the price during the last five years has risen by 173%, EPS has grown by 13%, putting the P/E ratio at 34.67.
BGS has a profitability and growth rating of 6/10 with positive returns: ROE 12.11%, ROA 2.69%.
Operating margin is strong, and since December 2015, it has bounced between the lowest value of 14.50% and the highest level of 23.51%.
The company looks overpriced at the current price of $30.35. The DCF calculator gives a fair value of $10.29.
Dividend yield
The company pays its shareholders a very high dividend yield of 4.50%. It has a very high five-year growth rate of 17%, but it also has a very high payout ratio that goes over the danger zone of 100%. The payout ratio is currently 179%.
The Board of Directors has increased the company’s quarterly cash dividend rate by 2.9% from $0.34 to $0.35 per share of common stock, and is expected to announce next quarter earnings at consensus estimate of $0.38.
Recent news and partnerships
B&G Foods is in discussions to acquire General Mills' Green Giant (GIS) frozen and canned vegetable business that would allow B&G Foods to expand into the frozen food sector. Green Giant produces around 160 frozen and canned vegetable products. In July, B&G Foods and Marvel Entertainment, LLC (DIS) launched an Action-Packed Avengers Snack, in which the collaboration also included a free Marvel’s Avengers digital comic featuring the Pirate’s Booty Pirate.
The company finished last quarter by acquiring Spartan Foods of America, Inc. (Mama Mary's) a leading brand of shelf-stable pizza crust that complements very well with their existing portfolio of products. B&G Foods projects that after being fully integrated into B&G Foods, the Mama Mary’s brand will generate on an annualized basis net sales of approximately $35 million and adjusted EBITDA of approximately $7.5 million.
They also began a partnership with DSC Logistics, a leading innovative, logistics and supply chain management company that has been in operation for over 50 years. B&G Foods has awarded DSC Logistics the logistics management of its distribution centers because of DSC’s track record of excellent service and their collaborative approach.
The transition to DSC, which is beginning in the third quarter, will be completed by the end of the second quarter of 2016, which will provide them with the operational scalability required to continue to execute their growth strategy. After the transition to DSC is completed, they expect to achieve approximately $8 million per year in cost savings.
Recent quarter performance
In the last quarter, net sales decreased 4.6%, with almost two-thirds of the decrease attributable to Rickland Orchards compared to the same quarter of a year before. Gross profit decreased 1.6%, while the company's adjusted net income was $0.34 per adjusted diluted share compared to $0.33 of the previous quarter. Also, adjusted EBITDA increased 2.8%.
During the last quarter, they saw continued growth in adjusted EBITDA which grew by 2.8% to $47.4 million in 2015 versus $46.1 million in 2014. By decreasing their promotional spending, increasing year-over-year pricing by $3.9 million, and reducing cost including delivery cost they could increase adjusted EBITDA margin by 24.5% in 2015 from 22.7% in 2014.
In the second quarter, they launched five new innovative Ortega products that have been widely accepted by retailers.
Looking forward, they expect weakness in the Canadian dollar to have a positive impact and help reduce their maple syrup cost by approximately $5 million from July 2015 through June 2016. They are seeing lower delivery cost due to better operating efficiencies and lower fuel cost while in the second quarter they experienced an 80-basis-point decease in their delivery cost and they expect to see continued lower year-over-year delivery cost in the second half.
Hedge Funds and Gurus
The main shareholderis Diamond Hill Capital (Trades, Portfolio) with 3.25% of shares outstanding. Joel Greenblatt (Trades, Portfolio) is the second guru, followed by Jim Simons (Trades, Portfolio) with an easy stake of 0.09% of outstanding shares.
During the last quarter, Paul Tudor Jones (Trades, Portfolio) and Columbia Wanger (Trades, Portfolio) sold out their stakes.
