B & G Foods - A Look Ahead To First Quarter Earnings

| About: B&G Foods, (BGS)

B & G Foods (BGS) was one of the best performing stocks in 2011 and is off to a rocky start in 2012. While the S&P 500 was posting its best first quarter in more than a decade, B&G gave back 6.5% and it's off to a dismal start in the second quarter, currently trading at $21.25, down nearly 12% from the year end close of $24.07. The company's $1.08 annual dividend now generates a yield of more than 5%.

By comparison, its much larger competitors in the food sector are all yielding significantly less. These competitors include J. M. Smucker (SJM) at 2.4%, Kraft (KFT) 3.0%, Kellogg (K) 3.2%, General Mills (GIS) 3.1% and PepsiCo (PEP) 3.1%. Could the market be making a statement with the dividend yield, suggesting a potential problem at B&G?

B&G should be reporting first quarter results in about two weeks. It will be its first "full" quarter since the acquisition of Culver Specialty Products (CSP) from Unilever has been completed. (One of the smaller products - Sugar Twin - that is predominantly sold in Canada finished transitioning during the first quarter). Will there be any surprises?

B&G presented at the Barclays Capital High Yield Bond and Syndicated Loan Conference on March 26, 2012. With the quarter nearly complete at that point, the company gave no indications that there were any problems. Even when it was pointed out that some competitors had seen weak sales, CEO David Wenner did not seem concerned.

Potential Issues

The high cost of fuel could impact the company, but its largest commodity cost - wheat - is hedged and rumors about maple sap running slowly due to the mild winter may be an issue for the future. B&G has had some small price increases late last year and early this year that should defray these potential cost increases.


Is it possible the company will surprise investors? It does not seem likely. The company has a history of integrating new products smoothly, and the CSP acquisition should be no different. Over the past year the stock has run up in price too quickly at times and then declined. The pullback in the price so far this year gives investors an attractive entry point.

The dividend is well covered and no debt is due before 2016. Nevertheless, the leverage in excess of 4x may represent an unacceptable level of risk for some conservative investors.

Disclosure: I am long BGS, PEP.

Additional disclosure: I have no positions in any of the other stocks mentioned, and no intention of initiating a new position in any of the stocks mentioned over the next 72 hours.