B&G Foods’ (NYSE:BGS) recent financial struggles, including net losses and high debt, have resulted in a significant decline of more than 65% in its stock over the past three years. Despite a diverse portfolio of well-known products, the company suffers from increased costs and product cannibalism. To alleviate these issues, BGS is adopting a new strategy, reshaping its portfolio, and prioritizing debt reduction.
Although the company’s valuation appears attractive compared to its industry peers, and it offers an 8.01% dividend yield, caution is advised due to the poor earnings coverage of this dividend. Investors may want to hold off until the company demonstrates improved profitability and reduced debt.
B&G Reshaping its Portfolio
B&G Foods, known for its more than 50 brands catering to the North American market, has made big announcements regarding its strategic plans. The company has reshaped its portfolio to improve margins and cash flow while maximizing future value creation. This could involve divesting 10% to 15% of the company’s consolidated net sales.
The company already started this reshaping process by divesting the Green Giant U.S. canned vegetable business in November 2023 and the Back to Nature brand in January 2023. The latest update revealed that the company is placing its frozen and remaining canned vegetable businesses under strategic review. Based on this review, B&G Foods is considering divesting some or all assets in its Frozen & vegetable business unit, which may transpire through single or multiple transactions.
B&G currently carries a substantial long-term debt of $2.3 billion on its balance sheet, with a net leverage ratio of approximately 6.35 times at the end of the first quarter of 2024. While this is an improvement from the 7.2 times at the end of the previous year’s quarter, it still exceeds the company’s long-term target of 4.5 to 5.5 times. Consequently, as the company continues to pay off its debt with interest, its cash flow will decrease until a resolution is reached.
Recent Financial Results and B&G’s Outlook
B&G recently announced financial results for Q1, 2024. Revenue of $475.22 million was down 7.1% year-on-year and missed analyst expectations by $6.88 million. In addition, the firm suffered a net loss of $40.2 million, or $0.51 per share, in stark contrast to a net income of $3.4 million, or $0.05 per share, for the same period in 2023.
This dramatic shift can be attributed to non-cash impairment charges of $70.6 million relating to goodwill within the Frozen & Vegetables reporting segment, the reduction in net sales, and the impact of the Green Giant U.S. shelf-stable divestiture.
Adjusted net income was $14.4 million, or $0.18 per share, marking a decrease from the $19.1 million, or $0.27 per share, reported in Q1 2023. Non-GAAP earnings per share (EPS) of $0.18 fell short of expectations by $0.03.
B&G announced a quarterly cash dividend of $0.19 per share, payable on July 30, 2024, for shareholders on record as of June 28, 2024. The company projects an annual yield of 7.9%, which marks the 79th consecutive quarterly dividend since its IPO in 2004.
Management has revised guidance downward for the full fiscal year of 2024. Net sales are projected to range from $1.955 billion to $1.985 billion, with consensus expectations of $1.98 billion. Earnings per share revised to $0.75 to $0.95, with consensus estimates of $0.86.
What Is the Price Target for BGS Stock?
Analysts following the company have taken a cautious approach to the stock. For example, Piper Sandler analyst Michael Lavery recently upgraded B&G Foods from an Underweight rating to Neutral while maintaining a price target of $9. He noted that after a slide in the share price, the stock reflects better the firm’s downside risks.
B&G Foods is rated a Hold overall, based on the ratings and price targets of four analysts issued over the past three months. The average price target for BGS stock is $10.25, representing an 9.63% upside from current levels.
The stock has been trending downward overall for the past few years but experienced a sharp decline after the most recent earnings announcement, dropping roughly 15%. It trades at the lower end of its 52-week price range of $7.20-$15.15 and continues to show negative price momentum, trading below its 20-day (9.61) and 50-day (10.01) moving averages. The shares trade at a relative discount, with a P/S ratio of 0.35x, well below the Packaged Foods industry average of 1.0x.
Bottom Line on BGS
B&G Foods is currently reshaping its portfolio, divesting non-core products, and focusing on debt reduction. Results for Q1 2024 show a decrease in revenue and a net loss, mainly attributable to strategic divestitures and goodwill impairment charges. The company’s downward revision of its full fiscal year guidance for 2024 suggests more pain to come. Despite trading at a discount, the stock’s negative momentum suggests investors should hold off until B&G demonstrates improved profitability and reduced debt.
