B&G Is Making The Right Noises; Are You Listening?
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many food retailers are adopting inorganic ways to grow their top lines, and ultimately their business, since lackluster economic conditions have been acting as an anchor for quite some time now. Also, passing on of higher costs to customers in terms of higher prices has remained a matter of concern for the food giants.
A similar thing happened with General Mills (NYSE: GIS), which posted stellar results on account of the acquisition of the Yoplait yogurt business, which boosted its top line by 12% in its fourth quarter. Following in its footsteps is another food manufacturer, B&G Foods (NYSE: BGS), which posted blockbuster results on July 19th and met analyst expectations on the bottom line.
Delving Deep into the Quarter
Driven by the price hike, revenue for the second quarter surged 14.8%, clocking $148.6 million. The most important push to the top line came from the buyout of Culver Specialty Brands, which contributed $19.5 million for the period. The buyout was completed in November last year from Unilever N.V. (NYSE: UN) for around $325 million. Culver comprises a number of brands such as Sugar Twin sugar substitutes, Bakers Joy’s baking spray, and Mrs. Dash’s seasoning blends, and it was generating revenues of $90 million a year for Unilever, which has been divesting its non-core brands recently. Almost all of these worked well for B&G to help boost revenue.
Culver cushioned B&G’s performance, as the company had to contend with fleeing customers because of the price hikes. If we remove the cushion of acquisition we will be able to understand its importance better. Without Culver, the company did not see any growth in the top line. Its strategy of increasing prices affected consumer sentiment, keeping them away from the stores. Hence, the food retailer experienced a $4.6 million drop in volumes, which had a compensating effect on the price hike keeping sales almost unchanged. This, in particular, highlights the weak economic environment.
Impressive bottom line
However, a good company is one which can provide value to shareholders in terms of earnings power. This is where the company attracts investors’ attention. B&G registered earnings growth of a whopping 27% to $16 million, which is commendable. Moreover, both gross margin and net margin improved during the quarter, boosted largely by higher selling prices initiated both in September of last year and this February.
This food retailer is undoubtedly a star since it managed to post an impressive earnings increase in spite of volume declines. There are other peers who lost their charm because price hikes impacted their overall performance very badly. One of them is Ralcorp Holdings (NYSE: RAH), a packaged food retailer, which tried to implement similar strategies of price increases and acquisition but failed to deliver earnings growth. Its volumes declined so much so that the earnings took a hit, dropping 69% to 46 cents per share. It could manage neither acquisition related costs nor rising input costs.
The Bottom Line
B&G Foods looks really impressive from the way it handled its difficulties. It is strong enough internally to be largely unaffected by weak consumer sentiment. Apart from posting a valuable quarter, it is already planning to launch low cost products and improve its distribution system. With everything already in place and efforts underway to deliver investor value, B&G is a stock worth taking a look at.
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