NEW YORK — The recent acquisitions of the Green Giant and ACH businesses have created a platform for growth for B&G Foods, Inc., but the Parsippany, N.J.-based company’s core business remains a question mark, according to Credit Suisse.
|Robert Moskow, research analyst with Credit Suisse|
“Our meeting with B&G management increased our confidence that the company has sufficient cushion in its business model to deliver its EBITDA guidance for the year even if sales only reach the low end of 2017 guidance,” Robert Moskow, a research analyst with Credit Suisse, wrote in a June 6 report. Mr. Moskow said the ratings agency is keeping its sales forecast at the low end of B&G Foods management’s range of $1.64 billion to $1.68 billion and keeping its EBITDA estimate at the mid-point of the $360 million to $375 million guidance.
During its meeting with company management, Credit Suisse said B&G Foods leadership sang the praises of the ACH spice and seasonings business that was acquired during the fourth quarter of fiscal 2016 for $365 million. Specifically, B&G Foods management has been “pleasantly surprised” by Sam’s Club’s strong demand for ACH products as it expands its Member’s Mark private label program, Mr. Moskow said. Spice and seasonings is the second biggest category for Member’s Mark at Sam’s Club, and Mr. Moskow noted that one potential threat to the business would be if McCormick & Co., Inc. one day decided to bid for the Sam’s Club business and try to displace ACH.
Mr. Moskow also indicated that private label incursion could become a bigger challenge in the future.
“Up to now, Sam’s Club’s expansion of its Member’s Mark program has helped, not hurt, B&G because B&G has willingly converted its ACH spices to the Member’s Mark label,” he said. “But going forward, we see more examples in B&G’s categories where private label will represent a threat. Management cited kidney beans and maple syrup as categories where a major customer has introduced competitive products, and both with organic raw materials. As this trend continues, we think B&G will have to consider introducing organic products of its own or acting as a private label supplier to satisfy customer needs.”
Green Giant, meanwhile, is on track to deliver mid-single digit growth, boosted by the launch of three new platforms of innovation that are delivering $75 million in sales. A fourth platform — roasted vegetables — is set to debut this fall.
“Gains from these products more than offset the $40 million or so of distribution losses it experienced soon after taking ownership in 2015,” Mr. Moskow said. “It is getting some traction regaining shelf space by targeting smaller regional players in the freezer case more so than their biggest competitor Birds Eye. Management reinforced the importance of shelf space for the franchise, even if it is on lower margin commodity bags of peas. It needs to have 100% of the space within a freezer door to catch the eye of the consumer and give it some leverage in category management discussions.”
Two areas of concern mentioned by Mr. Moskow were the progression of B&G Foods’ search for a new chief financial officer and the company’s efforts to adapt to changing consumer shopping patterns.
Robert C. Cantwell, president and chief executive officer of B&G Foods, said the company’s board of directors is looking for an individual who can bring “big company” experience to B&G Foods but also fit culturally with the company’s low-cost, “roll up your sleeves” operating model.
“It sounds like B&G came close with a couple of people, but did not get across the finish line,” Mr. Moskow said. “We think hiring a talented outsider would help ease investors’ concerns about the ‘growing pains’ on Green Giant that management cited last year and the sudden departure of former c.f.o. Tom Crimmins in March.”
Mr. Moskow also said B&G Foods management admittedly has been slow to invest in the business to improve its marketing acumen with on-line retailers or to develop new packaging and shipping formats that a retailer like Amazon might require.“Just like all vendors, B&G expects that this will require additional costs that might pressure margins,” he said.