Inorganic Growth Is Yielding Results for This Company
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B&G Foods (NYSE: BGS) is a packaged and processed foods company with a number of brands and an impressive range of food products. Its strategy of growing through acquisitions has always helped it in increasing its customer base in its various markets in the U.S., Canada and Puerto Rico.
A look at the company's product portfolio reveals over 30 established brands like Mrs Dash, Cream Of Wheat, Ortega, New York Style, Old London, and other products from various retail stores spread across different countries. It is also engaged in sales and distribution of household products primarily used for cleaning solutions such as “Static Guard” and “Kleen Guard.”
So the company has a diversified portfolio, and a look at its recent results will show us that it has been putting that diversity to good use.
Looking at the numbers
Its revenue in its recent quarter amounted to $160.9 million, courtesy of the gamut of products in its portfolio. This was a considerable growth of 8.3% from last year's second quarter. A few acquisitions since then also had a positive impact on revenue growth.
As compared to the first two quarters of fiscal 2012, we further notice a growth of 8.5% in revenue in the six months this year to $332.1 million against $306 million last year. EPS was reported as $0.33 per share, missing the analyst estimate of $0.35 per share.
The policy that drives growth
Using the wheel is always more sensible than creating a wheel. So it is not surprising that B&G Foods eyes various small brands and buys them to keep growth intact. Investments made by the company in such brands should help it generate cash and ensure a sustained dividend in the long run.
In July, B&G Foods completed the acquisition of Robert's American Gourmet Food, otherwise known as Pirate Brands. This acquisition will again increase the number of products the company sells by adding natural snacks like Pirate's Booty, Smart Puffs and Original Tings brands apart from other products. This acquisition is expected to contribute to B&G's earnings and cash flow immediately.
In the past, B&G Foods has regularly acquired various brands such as Truenorth in May. In October 2012, it acquired New York Style Bagel Crisps and Old London. TrueNorth contributed $3.2 million to revenue in the latest quarter while New York Style and Old London brands contributed $10.9 million. So we see that the company has a good track record of buying out smaller players, and then integrating them into its business well. I believe that the latest acquisition of Pirate Brands for $195 million will also lead to more revenue growth in the future.
A good dividend
A good dividend is always welcome, and B&G Foods has a good track record of paying dividends. On July 25, the company announced a 10.3% increase in quarterly dividend to $0.32 per share for an annual dividend yield of 3.6%. This was the 36th consecutive quarterly dividend announced by the company’s board, ever since it went public in October 2004. This is another good reason to hold shares of the company.
Fighting with the big fish
General Mills (NYSE: GIS), one of the top ten producers in the world of packaged foods and among the top five in the U.S., might give strong competition to B&G Foods. The company has a huge marketing budget with its prime focus on TV advertisement, amounting to $835 million in 2012. It also plans to launch around 200 new food products in 2013. General Mills is huge with a market capitalization of $33 billion and commands great financial muscle to outwit the likes of B&G. It had revenue of almost $18 billion in the previous fiscal year, so it can afford to spend big on marketing.
General Mills is looking to increase revenue further in the future and is expecting revenue to cross $18 billion in the current fiscal year, driven by its acquisitions. B&G in comparison is a way smaller company with a market capitalization of not even $2 billion and it might find it difficult to compete against General Mills, as it does not have a well-trained financial muscle.
Apart from General Mills, B&G will also face competition from another big player in the form of J.M. Smucker (NYSE: SJM), which is another player that is involved in branded food products. Smucker has been strengthening its supply chain of late and will also be investing aggressively into its coffee and fruit spreads business. The company has outlined a $220 million investment on these initiatives in the next three years apart from investing in a food manufacturing facility in Orrville, Ohio.
This investment should help Smucker to improve its sales. The company pays a solid dividend that yields 2.1%, and a payout ratio of 41% means that there is room for the dividend to grow. Smucker is also a lot cheaper than B&G with a P/E ratio of just 23, while B&G has a rich valuation at 40 times earnings. So from an investment perspective, Smucker, with its bigger size and lower valuation is a safer bet.
B&G Foods has performed well and has gained 26% this year apart from paying a good dividend. The company, although a small fish as compared to the huge General Mills, follows a well defined acquisition strategy to grow its business and this has yielded results so far. I am optimistic about the company's latest acquisitions and believe that they will drive further revenue growth.
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