US Food Core Focus And 53Rd Week Will Brighten Future

Key Takeaways

• Portfolio simplification and divestitures aim to improve margins and cash flow by focusing on higher-margin core businesses.
  
• Increased productivity and cost-saving measures are expected to offset cost pressures, improving net margins and profitability.
  
• B&G Foods faces financial instability and uncertain growth prospects due to impairment charges, currency impacts, inflation, and key divestitures.

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 expects improvement in net sales for fiscal year 2025 due to adjustments in consumer purchasing behavior eventually stabilizing as the inflationary environment levels out. This is likely to positively impact revenue.
  
• The company is set to benefit from an additional 53rd week in fiscal 2025, projected to add approximately $10 million to $15 million in net sales, which will drive revenue growth.
  
• Efforts to reshape and simplify the portfolio, with potential divestitures of non-core assets like the Frozen & Vegetables business unit, are aimed at improving margins and cash flow by focusing on higher-margin core businesses.
  
• Increased productivity and cost-saving measures across business units are expected to offset modest inflation and input cost pressures, resulting in improved net margins and profitability.
  
• B&G Foods plans to reduce leverage below 5.5x through divestitures and excess cash flow, which will facilitate future strategic acquisitions, thereby driving long-term earnings growth.

B&G Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming B&G Foods's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -13.0% today to 6.2% in 3 years time.
• Analysts expect earnings to reach $121.1 million (and earnings per share of $1.72) by about May 2028, up from $-251.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, up from -2.1x today. This future PE is lower than the current PE for the US Food industry at 19.1x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.06%, as per the Simply Wall St company report.

B&G Foods Future Earnings Per Share Growth

Risks

• B&G Foods experienced a net loss of $251.3 million in fiscal 2024 due to pretax noncash impairment charges, which risks future profitability and financial stability.
  
• The company faces foreign exchange impacts, particularly with the Mexican peso, affecting gross profit margins and contributing to financial uncertainty.
  
• Net sales for fiscal 2024 decreased by 3.3% compared to fiscal 2023, indicating struggles in revenue growth and market performance.
  
• Continued inflation in raw material costs, such as black pepper, garlic, and olive oil, poses a risk to maintaining stable net margins.
  
• The divestiture of major product lines like Green Giant U.S. shelf-stable products could lead to lower future revenues and hinder B&G Foods’ ability to grow its earnings.

Valuation

• The analysts have a consensus price target of $7.286 for B&G Foods based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $6.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $121.1 million, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $6.71, the analyst price target of $7.29 is 7.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.