PARSIPPANY, N.J. – Net income and net sales both increased significantly for B&G Foods, Inc. in the third quarter, thanks to the Green Giant brand, but the company reported struggles with its base business, including maple syrup and the TrueNorth and Ortega brands.
Net income of $32,410,000, or 50c per share on the common stock, in the quarter ended Oct. 1 was up 64% from $19,815,000, or 34c per share, in the previous year’s third quarter. Third-quarter net sales rose 49% to $318,247,000 from $213,300,000, thanks to a contribution of $113.8 million from the Green Giant brand, which B&G Foods acquired from General Mills, Inc. on Nov. 2, 2015.
Base business net sales fell 3.7% in the third quarter to $204.5 million from $212.2 million in the previous year’s third quarter. B&G Foods attributed the decline to a unit volume decrease of $5.9 million and a net pricing decrease of $1.8 million.
|Robert Cantwell, president, director and c.e.o. of B&G Foods|
“We are pleased with our profitability this quarter and could not be more excited about the launch of our new Green Giant products and our new marketing campaign that has begun to awaken the Green Giant across America,” said Robert Cantwell, president, director and chief executive officer of Parsippany-based B&G Foods, in an Oct. 27 earnings call. “We are, however, disappointed with our base business net sales decline of $7.7 million for the quarter, with five of our brands counting for the majority of the shortfall.”
Net sales for the TrueNorth brand declined by $2 million. Mr. Cantwell said historically high almond prices recently have driven the retail price for the TrueNorth brand to a level that consumers resisted.
“Almond prices have since returned to historical norms, and we in turn have lowered our prices,” he said. “In response our single largest customer for TrueNorth products rolled back pricing in the middle of the third quarter, but we have not experienced the uplift in sales volume that we originally anticipated. We expect that many of our customers will follow suit in Q4 and reduce their shelf prices for TrueNorth.
“We are hopeful that reduced pricing to consumers will generate increased demand. To further increase consumer demand and generate brand awareness, we have also put in place plans for increased product demos at our largest customer. Bottom line, however, is that while we believe we are on the right track to turn around sales for TrueNorth, it may take longer than we originally anticipated.”
B&G Foods expects an additional net sales decline of about $2 million in the fourth quarter for TrueNorth.
The aggregate decline for B&G Foods’ syrup brands was $2.4 million in the third quarter, primarily attributable to maple syrup price deflation because of the strength of the U.S. dollar relative to the Canadian dollar. The dollar situation resulted in increased competition in the maple syrup category and contractually mandated price reductions with certain of the company’s food service customers, according to B&G Foods.
“We believe that the maple syrup environment will remain highly competitive for the near term, and we expect to walk away from or lose some low margin or zero margin maple syrup sales,” Mr. Cantwell said.
Also within B&G Foods’ base business, competitive pressure in the Ortega business, specifically in taco shells, caused softness in the third quarter, Mr. Cantwell said.
“We recently adjusted our pricing for Ortega taco shells, and we anticipate a strong fourth quarter for the brand,” he said.
The Cream of Wheat business was soft during the third quarter, but the situation may have been related to timing as B&G Foods looks forward to a strong winter season for the brand, Mr. Cantwell said. The Pirate's Booty brand experienced soft sales for the third quarter, but net sales were up 2.5% for the year.
Turning to Green Giant, a transition services agreement with General Mills has ended, Mr. Cantwell said. With the exception of General Mills continuing to co-pack certain products for B&G Foods in Belvidere, Ill., B&G Foods assumed full responsibility of the Green Giant business at the beginning of the fourth quarter.
“We anticipate that there will be some growing pains in the early stages of post transition period as it will likely take between three to six months for us to reach a smooth operational rhythm for the business,” he said.
A frozen vegetable product line launched in September is going well, he said.
“Several retailers can't even keep the products on the shelves,” Mr. Cantwell said. “We believe the distribution gains we earned for the Green Giant through a new product innovation will help drive the brand going forward. We expect incremental net sales in the fourth quarter for the new items will be between $6 million to $8 million. Through innovation and financial support for Green Giant, we believe we can now move the needle and grow our market share, and we can move the whole category.”
For the first nine months of the fiscal year, B&G Foods had net income of $95,857,000, or $1.54 per share on the common stock, which was up 70% from $58,130,000, or $1.04 per share, in the same time period of the previous year. Nine-month net sales rose 57% to $977,601,000 from $624,067,000. The Green Giant brand contributed $351.2 million in sales, and B&G Foods expects Green Giant sales for the fiscal year to be about $520 million.B&G Foods revised its sales guidance for the full fiscal year to a range of $1.38 billion to $1.4 billion from a previous guidance of $1.39 billion to $1.42 billion. Full-year guidance for adjusted diluted earnings per share was revised to $2.11 to $2.17 from a previous guidance of $2.11 to $2.21. The revised guidance excludes the impact of the pending acquisition of the spices and seasonings business of ACH Food Companies, which is expected to close in the fourth quarter.