Financial Reports are Key to Consider: B&G Foods Inc. (NYSE: BGS)

On Friday, Shares of B&G Foods Inc. (NYSE: BGS) declined -1.11% to $23.96. The stock traded total volume of 409,260 shares lower than the average volume of 920.67K shares.

B&G Foods, Inc. (BGS) recently declared financial results for the fourth quarter and full year 2018.

Financial Results for the Fourth Quarter of 2018:

Net sales reduced $8.30M, or 1.8%, to $458.10M for the fourth quarter of 2018 from $466.40M for the fourth quarter of 2017. The decrease was attributable to a decrease in unit volume of $9.80M, partially offset by a boost in net pricing of $1.50M. The decrease in unit volume was mainly attributable to the Pirate Brands divestiture, offset in part by the McCann’s acquisition. Net sales of Pirate Brands, which was sold on October 17, 2018, were $2.10M during the fourth quarter of 2018, contrast to $19.30M during the fourth quarter of 2017. Net sales of McCann’s, which was attained on July 16, 2018 and therefore not owned during the fourth quarter of 2017, contributed $3.20M to the Company’s overall net sales for the fourth quarter of 2018.

Base business net sales for the fourth quarter of 2018 increased $7.20M, or 1.6%, to $452.60M from $445.40M for the fourth quarter of 2017. The increase was attributable to a boost in unit volume for the base business of $5.20M, and a boost in net pricing for the base business of $2.00M.

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Net sales of all Green Giant products in the aggregate (counting Le Sueur) increased $7.30M, or 4.9%, in the fourth quarter of 2018, as net sales in both frozen and shelf stable products increased. Net sales of Green Giant frozen increased $7.00M, or 7.3%, in the fourth quarter of 2018 contrast to the fourth quarter of 2017, driven by strong customer and consumer acceptance of Green Giant Veggie Spirals, launched earlier in 2018, as well as continued demand for Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower. Net sales of Green Giant frozen products also benefited from the launch of Green Giant Cauliflower Pizza Crusts and Little Green Sprout’s Organics, which began shipping in September 2018. Net sales of Green Giant shelf stable (counting Le Sueur) increased $0.30M, or 0.7%, for the quarter.

Net sales of Ortega increased $2.40M, or 7.2%; Cream of Wheat increased $0.80M, or 4.3%; New York Style increased $0.80M, or 8.8%; and Maple Grove Farms increased $0.50M, or 2.8%, for the fourth quarter of 2018 contrast to the fourth quarter of 2017. Net sales of the Company’s spices & seasonings2 increased $6.50M, or 8.4%, for the quarter. Net sales of Victoria reduced $2.50M, or 20.3%, for the quarter. The decline in net sales of Victoria was mainly because of the shift of timing of a promotional event with a key customer. Net sales of all other brands in the aggregate accounted for a decrease of $8.60M, or 6.8%, for the quarter.

Gross profit was $49.90M for the fourth quarter of 2018, or 10.9% of net sales. Excluding the negative impact of non-recurring charges regarding the Company’s inventory reduction plan of $27.70M and acquisition/divestiture-related expenses of $9.20M, the Company’s gross profit would have been $86.80M, or 19.0% of net sales. This compares to gross profit of $93.90M for the fourth quarter of 2017, or 20.1% of net sales. For the fourth quarter of 2018, gross profit benefited about $1.50M in net pricing and was also negatively influenced by input cost inflation, inclusive of freight, warehousing and procurement, as well as mix.

Selling, general and administrative expenses reduced $4.40M, or 8.4%, to $47.60M for the fourth quarter of 2018 from $52.00M for the fourth quarter of 2017. The decrease was composed of a decrease in acquisition/divestiture-related and non-recurring expenses of $4.40M, reduced consumer marketing expenses of $1.80M and decreases in warehousing of $0.30M, partially offset by other increases of $2.10M. Expressed as a percentage of net sales, selling, general and administrative expenses improved 0.7 percentage points to 10.4% for the fourth quarter of 2018 contrast to 11.1% for the fourth quarter of 2017.

During the fourth quarter of 2018, the Company accomplished the sale of Pirate Brands to The Hershey Company for a purchase price of $420.00M in cash. The Company recognized a pre-tax gain on the sale of Pirate Brands of $176.40M.

Net interest expense reduced $2.30M, or 8.5%, to $24.50M for the fourth quarter of 2018 from $26.80M in the fourth quarter of 2017. The decrease was mostly attributable to a decrease in long-term debt outstanding during the fourth quarter of 2018 as contrast to the fourth quarter of 2017, mainly as a result of the use of the net proceeds from the sale of Pirate Brands, to prepay long-term debt during the fourth quarter of 2018 and earlier prepayments of long-term debt during the first and second quarters of 2018.

During the fourth quarter of 2018, the Company prepaid the entire remaining $500.10M principal amount of term loans then outstanding under the Company’s credit facility with the proceeds of the Pirate Brands sale and additional revolver borrowings. No term loans were outstanding under the Company’s credit facility as of December 29, 2018. As a result of the prepayment, the Company recognized during the fourth quarter of 2018 a loss on extinguishment of debt of $9.80M.

The Company’s net income was $111.90M, or $1.70 per diluted share, for the fourth quarter of 2018, as contrast to net income of $129.90M, or $1.95 per diluted share, for the fourth quarter of 2017. The Company’s adjusted net income1 for the fourth quarter of 2018 was $22.30M, or $0.34 per adjusted diluted share, contrast to $37.60M, or $0.57 per adjusted diluted share, for the fourth quarter of 2017.

For the fourth quarter of 2018, EBITDA was $188.60M, a boost of 283.1%, or $139.40M, contrast to $49.20M for the fourth quarter of 2017. EBITDA as a percentage of net sales was 41.2% for the fourth quarter of 2018, contrast to 10.6% for the fourth quarter of 2017.

For the fourth quarter of 2018, adjusted EBITDA was $58.50M, a decrease of 15.2%, or $10.40M, contrast to $68.90M for the fourth quarter of 2017. Adjusted EBITDA as a percentage of net sales was 12.8% for the fourth quarter of 2018, contrast to 14.8% in the fourth quarter of 2017.

As part of the Company’s inventory reduction plan, it reduced inventory from $487.40M at the end of the third quarter of 2018 to $401.40M at the end of the fourth quarter of 2018, contrast to a boost from $487.40M at the end of the third quarter of 2017 to $501.80M at the end of the fourth quarter of 2017.

Financial Results for the Full Year Fiscal 2018:

Net sales increased $54.40M, or 3.3%, to $1,700.80M for fiscal 2018 from $1,646.40M for fiscal 2017. The $54.40M increase in net sales was attributable to a boost in unit volume of $42.20M and a boost in net pricing of $12.20M. Net sales of McCann’s, which was attained on July 16, 2018 and therefore not owned during fiscal 2017, and an additional three quarters of net sales of Back to Nature, which was attained on October 2, 2017, combined to contribute $60.20M to the Company’s overall net sales for fiscal 2018. The Company’s net sales for 2018 were negatively influenced by the divestiture of Pirate Brands during the fourth quarter of 2018. Net sales of Pirate Brands were $87.70M in fiscal 2017, contrast to $74.90M in fiscal 2018 through the date of divestiture, which was October 17, 2018.

Base business net sales increased $14.00M, or 0.9%, to $1,564.20M for fiscal 2018 from $1,550.20M for fiscal 2017. The increase was attributable to a boost in unit volume for the base business of $4.00M and a boost in net pricing of $10.00M, or 0.6% of base business net sales.

Net sales of Green Giant frozen increased $42.70M, or 12.9%, to $372.70M for fiscal 2018 contrast to fiscal 2017, driven by strong customer and consumer acceptance of Green Giant Veggie Spirals, launched earlier this year, as well as continued demand for Green Giant Riced Veggies, Green Giant Veggie Tots and Green Giant Mashed Cauliflower. Net sales of Green Giant frozen products also benefited from Green Giant Cauliflower Pizza Crusts and Little Green Sprout’s Organics, which began shipping in September 2018. Net sales of all Green Giant products in the aggregate (counting Le Sueur) increased $29.70M, or 6.1%, to $518.90M in fiscal 2018, as net sales growth of frozen products was offset in part by Green Giant shelf stable (counting Le Sueur), whose net sales reduced $13.00M, or 8.2%, to $146.20M.

Net sales of Ortega increased $4.00M, or 2.9%, for fiscal 2018 contrast to fiscal 2017. Net sales of Cream of Wheat increased $1.70M, or 2.8%; New York Style increased $1.70M, or 4.7%; and Victoria increased $1.20M, or 2.8%, for fiscal 2018. Net sales of all of the Company’s spices & seasonings reduced $3.50M, or 1.0%, for fiscal 2018. Net sales of all other brands in the aggregate accounted for a decrease of $20.80M, or 4.6%, for fiscal 2018.

Gross profit was $349.50M for fiscal 2018, or 20.5% of net sales. Excluding the negative impact of non-recurring charges regarding the Company’s inventory reduction plan of $66.30M and acquisition/divestiture-related expenses of $10.00M, the Company’s gross profit would have been $425.80M, or 25.0% of net sales. This compares to gross profit of $440.60M for fiscal 2017, or 26.8% of net sales. For 2018, gross profit benefited from a boost in net pricing of $12.20M and was also negatively influenced by input cost inflation, inclusive of freight, warehousing and procurement, as well as mix.

Selling, general and administrative expenses reduced $16.00M, or 8.8%, to $167.40M for fiscal 2018 from $183.40M for fiscal 2017. The decrease was composed of a decrease in acquisition/divestiture-related and non-recurring expenses of $18.70M and reduced consumer marketing expenses of $7.90M, partially offset by increased warehousing expenses of $0.90M, increased general and administrative expenses of $8.50M (mainly consisting of compensation, professional and consulting fees, technology related expenses and real property leases) and other increases of $1.20M. Expressed as a percentage of net sales, selling, general and administrative expenses improved 1.3 percentage points to 9.8% for fiscal 2018 contrast to 11.1% for fiscal 2017.

As discussed above, during fiscal 2018 the Company recognized a pre-tax gain on the Pirate Brands sale of $176.40M. During fiscal 2017, the Company recorded a $1.60M pre-tax loss on the sale of assets.

Net interest expense increased $16.50M, or 18.0%, to $108.30M for fiscal 2018 from $91.80M in fiscal 2017. The increase was mainly attributable to additional borrowings made in the third quarter of 2018 to fund the McCann’s acquisition, in the fourth quarter of 2017 to fund the Back to Nature acquisition, and in the second and fourth quarters of 2017 in connection with the Company’s senior notes offerings, partially offset by the Company’s prepayment in full of the tranche B term loans, as described above.

As a result of the prepayment of long-term debt described above, the Company recognized a loss on extinguishment of debt of $13.10M in fiscal 2018, counting $2.80M in the first quarter of 2018, $0.50M in the second quarter of 2018 and $9.80M in the fourth quarter of 2018.

The Company’s net income for fiscal 2018 was $172.40M, or $2.60 per diluted share, contrast to net income of $217.50M, or $3.26 per diluted share, for fiscal 2017. The Company’s adjusted net income for fiscal 2018 was $122.30M, or $1.85 per adjusted diluted share, contrast to $140.50M, or $2.12 per adjusted diluted share for fiscal 2017.

For fiscal 2018, EBITDA was $397.40M, a boost of 36.9%, or $107.20M, contrast to $290.20M for fiscal 2017. EBITDA as a percentage of net sales were 23.4% for fiscal 2018, contrast to 17.6% for fiscal 2017.

For fiscal 2018, adjusted EBITDA was $314.20M, a decrease of 5.7%, or $19.00M, contrast to $333.20M for fiscal 2017. Adjusted EBITDA as a percentage of net sales was 18.5% for fiscal 2018, contrast to 20.2% for fiscal 2017.

As part of the Company’s inventory reduction plan, it reduced inventory during fiscal 2018 from $501.80M at the end of fiscal 2017 to $401.40M at the end of fiscal 2018, contrast to a boost from $356.60M at the end of fiscal 2016 to $501.80M at the end of fiscal 2017.

Full Year and First Quarter Fiscal 2019 Guidance:

For fiscal 2019, net sales are expected to be about $1.635B to $1.665B, adjusted EBITDA is expected to be about $305.00M to $320.00M and adjusted diluted earnings per share is expected to be about $1.85 to $2.00.

For fiscal 2019, net interest expense is expected to be about $87.50M to $91.50M (counting cash interest payments which are expected to be about $84.00M to $88.00M), depreciation expense is expected to be about $40.00M, amortization expense is expected to be about $18.00M, cash taxes, excluding the tax effects resulting from the gain on sale of Pirate Brands, are expected to be about $5.00M or less and capital expenditures are expected to be about $45.00M to $50.00M.

For the first quarter of 2019, net sales are expected to be about $400.00M to $412.00M, adjusted EBITDA is expected to be about $78.00M to $82.00M and adjusted diluted earnings per share is expected to be about $0.47 to $0.52.

BGS has the market capitalization of $1.55B and its EPS growth ratio for the past five years was 21.00%. The return on assets ratio of the Company was 5.20% while its return on investment ratio stands at 10.80%. Price to sales ratio was 0.91.

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