Legacy Portfolios Will Falter Amid Sustained Food Industry Headwinds

Key Takeaways

• Shifting consumer preferences and increased competition from private label brands weaken demand and erode pricing power, putting pressure on margins and growth prospects.
  
• High debt levels and cost inflation limit investment flexibility, further endangering profitability and exposing the company to ongoing operational and financial risks.
  
• Focused divestitures, cost savings, and pricing power are expected to boost profitability, strengthen the balance sheet, and drive long-term margin improvement.

Catalysts

Manufactures, sells, and distributes a portfolio of shelf-stable and frozen foods, and household products in the United States, Canada, and Puerto Rico.

• B&G Foods faces long-term revenue headwinds as consumer preferences continue to shift away from processed, shelf-stable brands toward fresh, organic, and less processed foods, eroding demand for the company's legacy portfolio and limiting top-line growth opportunities.
  
• Ongoing growth of private label and cost-conscious shopping-especially within core categories like frozen vegetables, spices, and oils-will undermine pricing power, reduce brand loyalty, and compress net margins as retailers push for lower prices and consumers increasingly trade down.
  
• Persistent underinvestment in brand modernization and slow adaptation to health and wellness trends threaten the company's ability to capture the growing segment of health-conscious consumers, ultimately risking long-term market share erosion and stagnant or declining revenue.
  
• Elevated leverage and substantial debt servicing requirements will restrict the company's ability to reinvest in innovation, marketing, and operations, increasing the likelihood of further divestitures, reduced earning stability, and heightened vulnerability to cost shocks, which could pressure net margins and earnings over the long term.
  
• Ongoing cost inflation in raw materials, transportation, and labor-coupled with greater exposure to tariffs and supply chain disruptions, particularly in spices and vegetables-will continue to squeeze profitability, as B&G Foods has limited ability to offset these challenges through price increases or sourcing alternatives, thus putting sustained pressure on gross profit and EBITDA.

B&G Foods Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on B&G Foods compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming B&G Foods's revenue will decrease by 1.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -12.0% today to 5.2% in 3 years time.
• The bearish analysts expect earnings to reach $93.5 million (and earnings per share of $1.18) by about August 2028, up from $-223.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.7x on those 2028 earnings, up from -1.6x today. This future PE is lower than the current PE for the US Food industry at 21.1x.
• Analysts expect the number of shares outstanding to grow by 1.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.58%, as per the Simply Wall St company report.

B&G Foods Future Earnings Per Share Growth

Risks

• B&G Foods' ongoing portfolio optimization, with divestitures of non-core or underperforming brands and a sharpened focus on the core business, is expected to improve operating margins and cash flow, supporting stronger net margins and the potential for multiple expansion.
  
• The company is actively executing cost-saving initiatives, including productivity improvements in cost of goods sold, trade and marketing spending efficiencies, and accelerated SG&A savings, which are projected to add $10 million in adjusted EBITDA growth in the second half and produce an annual run rate of $15 million to $20 million, raising long-term profitability.
  
• Stabilization and near-term improvement in net sales trends, combined with a more profitable U.S. frozen vegetables segment due to favorable crop costs, currency benefits, and strong plant productivity, are expected to drive positive earnings momentum and support higher revenue and EBITDA in coming periods.
  
• B&G Foods is committed to deleveraging the balance sheet by using proceeds from divestitures and excess cash generation to lower net debt and leverage ratio toward 6x within a year, which, if achieved, will lower interest expense and enhance future earnings stability.
  
• The company is positioned to recover input cost inflation and tariff impacts through targeted pricing actions and productivity gains, indicating resilient pricing power and the ability to maintain or improve gross and operating margins over the long term.

Valuation

• The assumed bearish price target for B&G Foods is $3.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of B&G Foods's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $93.5 million, and it would be trading on a PE ratio of 3.7x, assuming you use a discount rate of 11.6%.
  
• Given the current share price of $4.45, the bearish analyst price target of $3.0 is 48.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.