B&G Foods Misses on Q1 Earnings, Beats Rev - Analyst Blog

B&G Foods, Inc.'s BGS first-quarter 2014 adjusted earnings per share of 34 cents per share missed the Zacks Consensus Estimate by 12.8%. Quarterly earnings also declined 8.1% year on year owing to weakness in the base business, soft margins and increase in expenses.

Revenues and Margins

Total revenue of this packaged foods company increased 15.7% year over year to $198.1 million and surpassed the Zacks Consensus Estimate of $177 million by 11.9%, as the company benefited from solid sales of some of its brands. The increase in net sales was driven by good business of Pirate Brands, the Rickland Orchards brand and the TrueNorth brand. All of these brands were acquired from other companies.

However, net sales of the company's base business declined 4.6% owing to a decline in volume and prices. The soft sales could be primarily attributed to weak business of brands including Ortega, B&M, Maple Grove Farms of Vermont, and Polaner.

Gross margin declined 180 basis points (bps) to 32.6% due to lower pricing and higher distribution cost. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 1.7% to $46.5 million during the quarter. However, adjusted EBITDA as a percentage of net sales declined 330 bps year over year to 23.4% owing to higher expenses.

Selling, general and administrative expenses as a percentage of net sales rose 180 basis points to 11.4% due to an increase in consumer marketing expenses, selling cost, acquisition expenses, and warehousing expenses.

Acquisition

B&G Foods recently entered into an agreement to acquire packaged foods company, Specialty Brands of America, Inc. from affiliates of American Capital, Ltd. ACAS for about $155 million in cash. The acquisition is expected to close by the end of April.

The deal includes acquisition of Specialty Brands' largest brand - Bear Creek Country Kitchens' hearty dry soups as well as other brands like Spring Tree, Cary's, and MacDonald's syrups and New York Flatbreads and Canoleo margarine. These brands complement the existing portfolio of B&G Foods.

B&G Foods is set to beef up its product offerings as evident from its three acquisitions in 2013, including Pirate Brands from Robert's American Gourmet Food, TrueNorth from DeMet's Candy Company and New York Style and Old London from Chipita America.

Though these acquired brands are parts of larger companies, all of them have a distinctive competitive advantage, strong margins and generate near about $100 million in sales. These acquisitions made significant contribution to the company's 2013 top line. The acquisition of Specialty Brands is expected to generate similar results.

Fiscal 2014 Outlook

The food company provided its 2014 guidance after taking into account the completion of the Specialty Brands acquisition this month. The company raised full year 2014 adjusted EBITDA guidance to a range of $209.0 million to $214.0 million compared to the prior expected range of $198.0 million to $203.0 million. Adjusted earnings per share for fiscal 2014 are expected in a range of $1.59 to $1.65, compared

B&G Foods currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the packaged goods sector include Diamond Foods, Inc. DMND and J&J Snack Foods Corp. JJSF. Both the stocks hold a Zacks Rank #2 (Buy).