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B&G Foods (BGS) Hurt by Cost Inflation, Down 10% in 6 Months

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B&G Foods, Inc. BGS has been grappling with pandemic-induced costs for a while now. Cost inflation is putting pressure on the company’s performance. Apart from this, escalated selling, general and administration (SG&A) expenses are a hurdle for B&G Foods. The company operates in the highly-competitive food industry. Nevertheless, sustained stay-at-home food demand provides a breather.

Let’s delve deeper.

Factors Hurting B&G Foods’ Performance

B&G Foods has been encountering coronavirus-related costs for the past few quarters. During second-quarter fiscal 2021, the company incurred COVID-19 expenses of $1.2 million. These costs mainly include temporarily-enhanced compensation for manufacturing employees, compensation paid to manufacturing employees, while in quarantine as well as expenses associated with other precautionary health and safety measures. Prior to this, management incurred nearly $2.9 million in additional pandemic-led costs at its production facilities during the fiscal first quarter.

Zacks Investment Research
Zacks Investment Research

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Additionally, SG&A expenses in the fiscal second quarter increased 6.2% to $47.1 million, thanks to a rise in consumer marketing costs, acquisition/divestiture-induced and non-recurring expenses as well as warehousing costs. As a percentage of net sales, SG&A expenses expanded 1.4 percentage points to 10.1%.

The Zacks Rank #5 (Strong Sell) company is grappling with higher cost inflation, which affected gross margin performance during the fiscal second quarter.The company’s gross profit fell from $134.1 million to $111.6 million due to higher-than-anticipated input cost inflation, which includes significant rise in raw materials and transportation costs. Gross margin contracted to 24% from 26.2% reported in the year-ago quarter. Management, in its last earnings call, highlighted that it expects to keep seeing significant cost inflation for ingredients, packaging and transportation. Although the company is undertaking various revenue-enhancing and cost-control measures, it is yet to be seen if these initiatives can mitigate such cost-related headwinds.

Wrapping Up

B&G Foods is seeing more consumers cooking, baking and eating at home compared with the pre-pandemic levels. The company is also benefiting from foodservice recovery as restaurants and eating establishments are reopening. B&G Foods is witnessing improved online sales thanks to high digital shipping penetration. Apart from this, it is actively pursuing strategic acquisitions to boost growth.

That being said, let’s see if these upsides can help the company counter the aforementioned hurdles. Shares of B&G Foods have lost 10.4% in the past six months compared with the industry’s 4.3% decline.

Better-Ranked Food Bets

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 39.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 16%, on average.

Sysco Corporation SYY, currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 13.3%, on average.

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B&G Foods, Inc. (BGS) : Free Stock Analysis Report

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