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B&G Foods Gains 23% Following Earnings & Yield Still In Double Digits - Part 1

Mar. 01, 2020 3:41 PM ETB&G Foods, Inc. (BGS)48 Comments
Crunching Numbers profile picture
Crunching Numbers


  • B&G Foods has a dividend yield in the low to mid-teens.
  • Management once again reiterated commitment to the dividend.
  • 2020 cash generation guidance supports the current dividend.


It has been years since I have written a multi-part article, and I had not planned on this being one. However, the volatility of both the shares of B&G Foods (NYSE:BGS) and the entire market had started to make this particular article much too long - the word count quickly went above 2000 - and I have decided the reader would be better served to break it down into two parts. The first will focus on my disclosures, the price of B&G, the safety of its dividend and a high level look at the company guidance for 2020. The second will focus much more on the 2019 results and some of the interesting plans for the individual products.

For those less familiar with the company, it manufactures and sells many well-known packaged food brands, including Green Giant, Ortega, Cream of Wheat, Mrs. Dash and Back to Nature. Its strategy has been to acquire "orphan" brands with high EBITDA margins from other companies, tweak the products by adding flavors, refreshing the packaging and introducing smaller sizes to sell into dollar stores. Originally, everything was "center of the store" shelf-stable food items, although in the past seven years it has added non-food items like Static Guard, a refrigerated margarine product and Green Giant frozen foods. In late 2018 it sold its Pirates Booty brand to Hershey (HSY), it's only divestiture since going public.

Since late 2007 B&G has been a core component of my income portfolio. I was initially attracted to the blended security (comprised of one share of stock with an $0.85 annual dividend and one 12% Note) by its above average yield, but it was the repeated statements by management and the board about its commitment to the dividend that were the major contributing factors to my initial purchase decision. The Note was subsequently called for

This article was written by

Crunching Numbers profile picture
As of May 13, 2022, ranked #95 out of 10,688 Bloggers (top 1%) by TipRanks and #392 out of 18,543 (top 2%) overall experts by TipRanks.com.https://www.tipranks.com/bloggers/crunching-numbersFocus is mostly on Sirius XM Holdings and income investing,  I have 30 years (through 2000) experience working for basic manufacturing and high tech industries in both the US and Europe. Company sizes ranged from start-ups to Fortune top 10. Experience as manager and/or grunt in fields of financial analysis, revenue forecasting, business planning, budgeting, pricing analysis, compensation planning, contracts, marketing and product management. Have been investing in stocks nearly 50 years, options for 30 years and on and off in real estate since 1981. Laid off when the dot-com bubble burst, and began investing full time.BS in engineering from Boston U, MBA in finance from Rutgers.

Analyst’s Disclosure: I am/we are long BGS, PEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

In addition to my B&G disclosures detailed in the article, I also am long a significant position in PEP, with covered calls written against 85% of that position. I also regularly re-invest the dividends on both stocks.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (48)

Crunchin' Numbers

Thank you again for your efforts to post your thoughts and analysis
regarding BG Foods after their recent Q4 results release.

I like your idea of splinting your analysis into two parts.
Part 1 is clear and concise. Easy for me to understand.

I look forward to part 2. I hope you go over brand performance.

During our current market volatility, its nice to see BGS perform
relatively strong, since the Q4.

BGS is approx 2 % of my equity exposure.

Crunching Numbers profile picture
@jackmaster20 -

Your welcome and thanks for the feedback. Last week I sold ~40% of the shares I had bought on margin, and today I sold March $17.50 calls for $0.30 on the rest of those shares. If those calls are exercised (along with 2 sets of $15 calls in IRA accounts), I should be trending back to a more normal 5%-7% position.
I know. very bad typing. Sorry ☺️
Continued to payout 12% with approximately 3% interest cost. The long term hope is major positive change to de lever. Short term & intermediate OK
Crunching Numbers profile picture
@woofferina -

"The long term hope is major positive change to de lever. "

I agree, and one focus of the company is to bring the leverage under 6x this year and back towards 5x after that...
I think BGS is a mediocre Okish company i’m assuming the working capital issue relates to over inventorying with good merchandise to reduce purchase needs in this fiscal year I believe the company doesn’t really have a strong long-term plan are the normal continued operations. Therefore I don’t see any real value in owning the company if not for the dividend the truth is either taking on more debt to buy shares we’re just not paying back debt in order to not redeem shares gives the company your ability
You're very knowledgeable about BGS that's for sure. Thanks for the mention! Put another way the dividend looks risky based on the payout ratio which is too high to be healthy, especially in its space, plus leverage is high. Add to that lack of growth and that facts are alot has to go right for this to work. The shorts are basing their thesis on something and are likely distorting the price. So much fretting and talk about the dividend makes it seem like that is too big a focus of management and the market. If they acted like PEP, and HSY and PG they could innovate and create long term shareholder value instead of trying to spit out cash at the expense of growth via product development or category expansion.

Yes companies are punished when they abandon a stated dividend policy, but in many cases where fundamentals no longer just the payout, a prudent pruning is often in order. If this were a REIT, BDC, or CEF a huge focus on yield would be sensible and logical, but I think ultimately the point I was making is that in this sector it's an anomaly. Even with this bounce and the compression and all that holds true.
Crunching Numbers profile picture
@myiowahome -

You're welcome, and thanks for reading and commenting.

"facts are alot has to go right for this to work. "

True, but it's less than many shorts think. In 2019 a lot of things went wrong, but there were also some things that went right, and it was enough for the company to keep paying the dividend, and from the projections, it appears as though there will be some additional things that go right in 2020.

"So much fretting and talk about the dividend makes it seem like that is too big a focus of management and the market. "

Perhaps, but the company has always put a priority on paying out a lot of EBITDA in dividends and it has always believed in leverage. That dividend has been a key to raising new cash through secondary offerings.

The previous CEO screwed up badly in late 2017 by over-reaching to buy the Back to Nature and Snackwell brands. That's when leverage went well above their target level and the expected EBITDA was never delivered because the expected revenue never materialized. And, it is likely to be a slow grind to get the company back to the point where the shorts will go searching for another target.

"If they acted like PEP, and HSY and PG they could innovate and create long term shareholder value"

The comparisons to these others just aren't reasonable. I love my PEP and bought PG for other family members, but these are $60-plus billion companies. PEP has more than 20 brands that each generate more than $1 billion in annual sales, but it should be remembered that a lot of those brands were the result of major acquisitions and/or mergers. They merged with Frito Lay, bought Quaker for Gatorade, paid billions for Tropicana, etc.

Both PG and PEP have powerful marketing departments and enormous advertising budgets. I know a bit less about HSY, but it's 5 times the size of BGS, also spends a lot on advertising and it's puzzling to me why they paid so much for Pirates. They each are also more focused in their product portfolios. And, for that matter, I'm not sure how much "innovation" I've seen from PEP or HSY.

"...ultimately the point I was making is that in this sector it's an anomaly."

This is a company that has always been an anomaly. It came out of private equity about 16 years ago, and it has a history of paying a higher yield and looking to buy orphan brands where half the EBITDA would turn into FCF and half that cash would go to dividends. The model should still be able to work, provided that they can bring the leverage back down. That means smaller bolt-on acquisitions like Clabber Girl or Victoria or Ned's where the revenue is under $100 million (more than $100 million tends to drive up the purchase price/EBITDA multiple). Once the share price gets to a reasonable valuation, look for the company to float a secondary and use part of the proceeds to reduce debt and the rest to make a purchase. To paraphrase Mark Twain, the death of the dividend has been greatly exaggerated.
2/25 52wk low$12.78 2/26 $15.75 2/28 $14.80 1/27 $16.53 Caveat Emptor!!
Crunching Numbers profile picture
@bionic1 -

I assume this is somehow chart related, but since I have never been able to use charts as a consistently accurate forecasting, it's pretty much meaningless to me.
AvgWeirdo profile picture
Those numbers could come in handy for options trading I suppose. I do glance over the history of short term highs and lows when considering entry and exit points.
Crunching Numbers profile picture
@AvgWeirdo -

"Those numbers could come in handy for options trading I suppose."

Perhaps. In my case, I tend not to worry too much about the recent activity and calculate the potential total return based on my adjusted cost basis and dividends. I like to see APRs in the mid-teens and am happy to see the positions liquidated.
Steve Rasher profile picture
@Crunching Numbers Thanks for the article. At present the dividend looks well covered by cash flows, even with room to use a bit to reduce debt some. I am being patient but constantly vigilant. I am cautiously optimistic that Romanzi and Wacha will bring operational improvements, stability, and market confidence. Steve
Crunching Numbers profile picture
@Steve Rasher -

You're welcome and thanks for the comment. I pretty much agree with everything you wrote, although I would have left out the word "well".
Steve and Crunchin'

IMO paying down additional debt will not help the
BG Foods Leverage Ratio materially in 2020.
A extra $100-200 million debt payment does not
really impact the balance sheet.

For 2020, I feel the big story for BG Foods is
generate that $315 million of EBITDA......and
convert at least $123 million of that into free
cash flow. Accomplish that and the market will
stop trashing the stock and might allow for a
price move steadily higher....

If Romanzi finds he has extra FCF above $123
million, I would rather he invest back into the
company.....to increase future EBITDA margins
than to spend it upon debt.

Crunching Numbers profile picture
@jackmaster20 -

"IMO paying down additional debt will not help the
BG Foods Leverage Ratio..."

I disagree (you just knew that I would, didn't you?). They really need to show that they can deliver and there is a psychological benefit to getting it back below 6x. It's more important that they eventually get it back below the historic level of 5x.

I still think that they also need to get to the point where they can get back to their more traditional cycle of acquisition, hike dividend, float secondary and reduce debt to load up for the next acquisition.
RJCogburn profile picture
Nice job as always. Thanks.
A couple of comments. So far as cash generation for the dividend and such, on the cc they said, "We also expect to see an additional $35 million to $45 million cash benefit from an anticipated reduction in working capital"
I just don't understand that part of the business enough but that sort of sounds like just moving numbers from one column to another rather than generating actual $$$.
Then later Wacha replied to the Barclays analyst, "And as I’m thinking about working capital, I’m literally thinking accounts receivable, accounts payable, inventory. We did a great job 2018 bringing inventory down. It came up a little bit again in 2019. Some of that is the acquisition of Clabber Girl. And then payables went the wrong way on us. And so both of those will be a big focus in 2020. We think that there’s an opportunity to generate some excess cash by bringing those back down to the right levels."

I didn't see the UBS guy on the call, the guy who keeps putting a "sell" on BGS. He predicted lower sales based on scanner data. I guess he was not quite correct....Romanzi said, "Well, first of all, Green – that’s U.S. Green Giant has had – we had a terrific year in Canada, plus there are some unmeasured channels."
Looking forward to Part II
Crunching Numbers profile picture
@RJCogburn -

You're welcome and thanks for the compliment and comment. As far as working capital goes, you are partly - perhaps mostly - correct that it is about generating cash by moving amounts from Column A to Column B. Although, since we are talking about the Balance Sheet, it is more about moving it from Line A to Line B.

Companies can use cash in a variety of ways, and poor planning does have consequences. Wacha's comments are right on target and I discussed these items in a comment elsewhere on SA. The first year they launched the Green Giant frozen innovation products, they failed to spend enough money on building inventory prior to the launch. They were unable to meet demand and lost sales.

This year saw a large increase in Inventory (a use of cash) of ~$71 million (or up 18%). That seems like it's a lot more than Clabber Girl (noted by Wacha) since CG sales were less than $54 million for the year. Keeping inventory at a lower level frees up working capital (or cash), although not having enough inventory can cost a company lost sales.

Paying for purchases early (a use of cash) can sometimes get a company a discount, but if none are offered there is no real reason to pay early. There were times I would see invoices referred to as 2/10 net 30. It meant one could get a 2% discount by paying within 10 days and had to pay the total within 30 days. Often customers would drag their feet making payments, and it was rare for the seller to pursue interest collection against the customer for failing to pay the full amount within 30 days. B&G saw their accounts payable drop by $25 million despite the addition of CG and an increase in sales during Q4, so on the surface it looks like they may have been paying for stuff much earlier.

There could be various reasons for some of the changes. Anyway, Wacha stated that they were out of line and getting them back to more appropriate levels would provide additional cash to cover the dividend. I didn't see much wrong with that statement.
CN and RJ Cogburn

Hopefully the new management IT system employed
will help with real time sales and inventory support

Optimize inventories to actual sales performance
plus try to take 30 days to pay A/P and perhaps
Wacha can deliver ''much'' improved/reduced
working capital and provide additional FCF in 2020.

Cut A/P, optimize ad spends to high margin products
while reducing support to low margin brands and
BG Foods could increase its EBITDA production.

BG Foods was in weak condition when Romanzi
took over he and wacha have several levers to
pull to make more EBITD and FCFs in 2020....
.....if they don't make any big/ill-advised mistakes.
Capital Alligator profile picture
Good article. I have enjoyed following your analysis of this stock. It seems the dividend is safe for 2020, barring some kind of disaster. Hopefully management can find some creative ways back to growth in 2021. I think anyone who bought in below $15 will be very happy by the end of the year.
Crunching Numbers profile picture
@ValueTrap.net -

Thanks for the compliment and the comment. I agree about the $15, and obviously believe that the dividend is safe. However, unless you and I have very different definitions of a disaster... I don't think it would take more than a couple of small negatives in key areas to trigger a cut.
Capital Alligator profile picture
Do you think? They'd have to miss EBITDA guidance by around 60mil to not be able to cover this years dividend from operating income alone. And they've already shown a willingness to issue debt to cover capex/accuasitions/dividend. I think it would take a big event for them to cut the dividend at this point.

IMO opinion the dividend is a red herring anyway. A cut seems to be baked into the share price at the moment. If they cut it and de-leveraged then investors would likely get the same value in capital gains.
Crunching Numbers profile picture
@ValueTrap.net -

This starts to get into Part 2.

"And they've already shown a willingness to issue debt to cover capex/accuasitions/dividend. ..."

True. They have also shown errors in judgement and overextended at times. Leverage got WAY too high and they still have to get it down a full turn. They were able to sell Pirates, reduce debt a bit, buy back some shares and make a decent acquisition in CG. But leverage is back over 6x and historically they liked to keep it below 5. One of the ways that they lowered leverage in the past (to prepare for the next acquisition) was to issue more equity. That makes no sense with share prices this low, and they only had one Pirates.

"I think it would take a big event for them to cut the dividend at this point. "

Where we disagree is whether it's only a big event that investors have to be concerned about. It could be several smaller ones. A number of years ago it was a spike in wheat prices that contributed to the dividend cut. Then there was a short almond crop, a glut of maple syrup, a bungled transition in the manufacturing of GG frozen innovation, Walmart dropping GG canned goods. This past year a shortage of corn contributed to a revenue shortfall and higher than expected fuel prices squeezed operating margins from the other side. Should we think of all of these as big events?

"IMO opinion the dividend is a red herring anyway. A cut seems to be baked into the share price at the moment. If they cut it and de-leveraged then investors would likely get the same value in capital gains."

Over time I would agree, but it's also possible that the immediate reaction could prove to be painful.

Thanks for the thoughtful reply.
MisterJ profile picture
C.N. thanks for your articles keeping me honest and in this stock. On further weakness, I'll buy more.
Crunching Numbers profile picture
@MisterJ -

You're welcome and thanks for the comment. However, I'm reluctant to wish you good luck with your potential purchase since that would have me rooting for a price decrease. ;-)
Nice write up. You have me thinking again about the stock. Always loved the Green Giant brand. Will be interested in part 2.
Crunching Numbers profile picture

Thanks and good luck with your decision about BGS.
Thanks for your timely and thoughtful analysis and commentary, CN.

Looking forward to reading Part 2.
Crunching Numbers profile picture
@wysockiman -

You're welcome, and thanks for considering it thoughtful.
This coronavirus scare should result in a good 1Q for BGS. People will buy a lot of shelf-stable and refrigerated food.
Crunching Numbers profile picture
@MaxMaz -

I was wondering about the impact it would have on the first half of the year.

For those interested in anecdotal evidence, here are quick illustrations of the positive and negative implications:
The restaurant we went to Friday night (it's a very large restaurant) was packed, so apparently folks weren't too scared about being in an enclosed space, at least not yet.
On Saturday my wife decided to stock up on some groceries, including Ortega Salsa and cans of Sclafani crushed tomatoes. Not all of it was shelf stable stuff. Some was heading for the freezer. Then again, the store was packed, so folks weren't overly concerned about being with people, at least not to the extent that they would pay a slight premium to have their shopping done for them.

Thanks for the comment.
I think coronavirus will almost have to be a tailwind for the first half of the year. This is similar to a snow storm in the south or a hurricane. Grocery stores experience a material sales bump, yet future sales generally remain stable. They did mention expected softness in the 1Q on the conference call. I too am hoping they are being conservative.

What are your thoughts on not announcing addition share repurchases? If they bought in the $20’s and high teens, I would think they would retire another 1-2% of the stock. I know cash is tight, but the stock is undervalued. Nonetheless, I very much appreciate your analysis and find you to be the most knowledge individual on this company - period. I generally appreciate the historical context that you bring to the discussion having owned this equity for so long. Keep it up!
Crunching Numbers profile picture
@Hamilton Brutus -

Thanks for the kind words and commenting. Regarding the virus, one of the more imediate benefits could be a reduction in fuel costs, an expense that hurt them last year. As to the rest of the impact, I don't have a good feel for it and could probably make a case either way.

"What are your thoughts on not announcing addition share repurchases?"

I did not expect an announcement about a third buyback last week. Their first two $50 million one-year buybacks were both announced in mid-March, so it would have been a bit too early, and the current one still had a few weeks to run. While I would like to see a third one, I don't expect them to announce one in the next two weeks.
There were valid concerns about senior management effectiveness; particularly their capital allocation. The short ratio was another concern. However, the valuation was attractive as well as the brand strength of their portfolio. This aligns with my thesis (or bias...). I appreciate the article and look forward to the next installment.
Crunching Numbers profile picture
@panamerican -

I agree, and thanks for the comment.
AvgWeirdo profile picture
I've been looking forward to this article. Thank you @Crunching Numbers for posting it.
Crunching Numbers profile picture
@AvgWeirdo -

You're welcome. I started part 2, but before doing too much with it, I first wanted to be sure that they would accept Part 1 as written.
hawk007 profile picture
....if management is telling the truth then this seems like a good buy.
Crunching Numbers profile picture
@hawk007 -

I agree, although I absolutely believe that management is "telling the truth". Whether they can deliver on their forecast is a different matter, and in this instance I believe that Romanzi has put in a conservative plan that he feels he can deliver.

Thanks for the comment.
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