B&G Foods Quietly Builds A Top-Tier Portfolio
B&G Foods (NYSE:BGS) is perhaps the highest-yielding consumer staple you don’t own. The stock is paying out more than 6.5% and trades at a deep value despite its top-tier portfolio of brands. If you don’t know, B&G Foods is the parent company to dozens of well-known consumer brands including Cream Of Wheat, Durkee, Green Giant, and Sclafani. In addition, it is also the parent of several celebrity brands including Emeril’s, Skinny Girl, and Weber so it is a major player in the market. The problem with share prices, down more than 6% in early premarket trading, is that COVID-induced growth is slowing. Not that growth is evaporating or trends are changing, only that is slowing and that is a heavy load for any stock price to bear.
B&G Foods Misses On The Top And Bottom Line
B&G Foods reported a great quarter, don’t get us wrong, but one in which market expectations were not met. On the top line, the 8.5% YOY growth looks excellent but misses the mark by roughly 500 basis points and is a marked slowdown from +38% in the 2nd quarter and +22% in the 3rd. Within that, most of the gains are due to the Crisco acquisition which was completed in December 2020.
At the core level, the business grew by 2.5% with solid positive momentum among most brands. Cream of Wheat lead the charge with a gain of 16.1% with Maple Grove Farms in second at 12.2% and Ortega close behind at 7.3%. Unit pricing, volume, and mix were all cited as reasons for strength. Moving down the bottom line, the company reported strong gains in earnings that also missed the analyst’s consensus. The GAAP EPS grew by 18% to $0.19 per share but missed by a quarter while adjusted earnings, excluding the impact of acquisitions and divestitures, grew by 25% to miss by a dime.
As for guidance, the company is guiding the coming year favorably but not enough to sway sentiment. The $2.05 to $2.10 billion in revenue is above the consensus $2.05 but too little too late for those already holding the stock. The caveat we want to express is that this guidance assumes 4% growth at the low end of the range, nearly 7% at the high end, and is on top of the +18.7% produced in 2020. The growth may be slowing but trends sparked by the pandemic are sticky.
B&G Foods Pays A Big Dividend
B&G pays a very nice-looking 6.5% yield but there is some risk. The company is carrying quite a bit of debt and it is pinching the cash flow. The silver lining is that debt is largely related to acquisitions and is being managed but it will take some time to come down. In the interim, the payout ratio of 78% earnings is a bit high but one the company seems committed to maintaining. The most recent payout was declared in early March with an ex-dividend date of 3/30 and we don’t expect a cut, at least not yet, and net cash from operations is on the rise so there is hope.
The Technical Outlook: B&G Foods Moves Lower, Is The Bottom In Sight?
Shares of BGS took a big hit when the Q4 news was released and it may be about more than just slowing growth. Weaker than expected results puts more pressure on the already-tight dividend payment and may have led the market to price in a cut. Until we know for sure this will continue to be a risk for this stock but it does look like a bottom might be near. There is solid support in the range of $25.85 that will probably hold up the price if it is even reached. Before that are potential support targets at $28.30 and $26.60 that could produce a bounce. We like this stock and think it could be a buy but the consensus here is that it’s better to wait. Either the market will find a bottom and throw off a good buy signal or BGS will start trading at an even deeper discount than it already does.
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