The U.S. food and beverage industry is large, complex and competitive. A great industry player is B&G Foods Inc. (BGS, Financial). The company posted excellent quarterly results including a 49.2% increase in net sales. Further, the company’s net income has increased 63.6% and has declared cash dividends of 42 cents per share.
B&G Foods manufactures, sells and distributes a diversified portfolio of high-quality, branded shelf-stable and frozen foods across the U.S., Canada and Puerto Rico. The company operates with about 2,000 employees, nine manufacturing locations and more than 50 co-packers. B&G Foods’ most recognized brands include Ac’cent, B&G, Brer Rabbit, Don Pepino, Pirate’s Booty, Grandma’s Molasses, Green Giant, Red Devil, TrueNorth and Underwood.
Strong third-quarter results
On Oct. 27, 2016 the Parsippany, New Jersey-based company reported its financial results for the third quarter ended Oct. 1. The company’s net sales increased 49.2% to $318.25 million, compared to $213.3 million for the comparable prior-year period. Base business net sales (net sales excluding the impact of acquisitions and net sales of discontinued brands) for the reported quarter decreased 3.66% to $204.47 million compared to $212.24 million in the prior-year period.
Gross profit for the reported quarter increased 61.21% to $115.43 million, compared to $71.6 million in the prior-year period. The gross profit margin increased 36.27% from 33.57% in the same period last year.
B&G Foods’ operating income increased 67.68% to $69.69 million, compared to $41.56 million in the same period last year. Operating income as a percentage of net sales increased 21.9% from 19.48% in the same period last year. Net income increased 63.6% to $32.41 million, or 50 cents per diluted share, compared to $19.81 million, or 34 cents per diluted share, for the comparable prior-year period. Net income as a percentage of net sales increased 10.18% from 9.29% in the prior-year period. The company’s adjusted net income increased 62.09% to $36.73 million, or 56 cents per diluted share, compared to $22.66 million, or 39 cents per diluted share, in the same period last year.
B&G Foods’ EBITDA increased 60.62% to $78.22 million, compared to $48.7 million for the comparable prior year period. Adjusted EBITDA increased 60.23% to $85.1 million, compared to $53.11 million in the year-ago quarter.
The company’s cost of sales increased 43.13% to $202.82 million, compared to $141.70 million. On the other hand, cost of sales as a percentage of net sales decreased to 63.73% compared to 66.43% in the prior-year period. Selling, general and administrative expenses and net interest expense for the reported quarter increased 55.74% to $42.46 million and 59.45% to $17.97 million, compared to $27.31 million and $11.27 million in the same period last year.
B&G Foods ended the quarter with cash and cash equivalents of $240.58 million, an increase of 4,482.48%, compared to $5.25 million in the year-ago quarter. Inventories increased 9.06% to $312.9 million for the comparable prior-year period. Long-term debt for the reported quarter decreased 9.41% to $1.54 billion, compared to $1.7 billion for the comparable prior-year period.
Attributes of the quarter
B&G Foods’ net sales, gross profit and selling, general and administrative expenses increased primarily due to the acquisition of Green Giant. Net sales of Green Giant contributed $113.8 million to the company’s net sales for the quarter. The company’s base business net sales decreased primarily due to a decrease in unit volume of $5.9 million, or 2.8%, and a decrease in net pricing of $1.8 million, or 0.9%. Further, sales of TrueNorth brand also contributed to the declined base business net sales. Net interest expense increased mainly due to additional indebtedness outstanding during the third quarter of 2016.
Projections
B&G Foods has updated its full-year 2016 guidance and expects its net sales in the range of $1.38 billion to $1.40 billion from the previous guidance of $1.39 billion to $1.42 billion. The company’s projected net sales by category are 25% from frozen, 10% from snacks and 65% from dry grocery.
The company expects its adjusted EBITDA in the range of $322 million to $328 million from the previous guidance of $317 million to $327 million. B&G Foods expects its adjusted diluted earnings per share in the range of $2.11 to $2.17 from the previous guidance of $2.11 to $2.21. Further, the company expects its Green Giant net sales and adjusted EBITDA in the range of $520 million to $530 million and $115 million to $120 million.
Acquisitions and strategies
A chart has been provided below to show B&G Foods’ acquisitions over prior four years.
| Companies | Year of acquisition |
| New York Style/Old London | October 2012 |
| TrueNorth | May 2013 |
| Pirate Brands | July 2013 |
| Rickland Orchards | October 2013 |
| Specialty Brands | April 2014 |
| Mama Mary’s | July 2015 |
| Green Giant | November 2015 |
B&G Foods’ net sales for the reported quarter includes $113.78 million sales from Green Giant and Mama Mary’s. The company halted the operations of the Rickland Orchards brand because of insufficient demand to warrant continued production.
On Dec. 2, 2016, B&G Foods announced the acquisition of Victoria Fine Foods Holding Co. and Victoria Fine Foods LLC for approximately $70.0 million in cash. This acquisition will help B&G Foods to strengthen its position in the field of pasta and specialty sauces, savory condiments and tasty gourmet spreads.
Further, on Nov. 21, 2016, the company announced the acquisition of the spices and seasonings business of ACH Food Co. Inc. for $365 million in cash. This acquisition will help B&G Foods to generate net sales (on an annualized basis) in the range of $220.0 million to $225.0 million.
The company’s main acquisition strategies are focussing on acquiring brands at accretive multiples and further, to generate increasing cash flow of at least 50% of the EBITDA acquired.
Growth strategy
B&G Foods’ mission is to grow its business model by 1% to 2% per year and to continue the execution of disciplined acquisition strategy. The company further aims to maintain high EBITDA margins and low cost structure followed by optimization of capital structure.
On a concluding note
Overall, B&G Foods is a rock-solid company with a strong balance sheet, proven ability of management to drive shareholder value, industry leading profitability, opportunistic post acquisition deleveraging, increasing merger and acquisition to grow shareholder value, and experienced management team.
From 2009 to second-quarter 2016, B&G Foods’ net sales and gross profit grew at a CAGR of more than 13.5% and 14.6%. Further, from 2009 to second-quarter 2016, adjusted EBITDA and free cash flow grew at a CAGR of more than 16.2% and 16.6%. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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