Will Cost Cut, Innovation Drive B&G Foods (BGS) Q1 Earnings?

B&G Foods Inc. (NYSE:BGS) is set to report first-quarter 2018 results on May 3, after the market closes.

The company delivered a negative earnings surprise of 3.39% in the last reported quarter. However, B&G Foods surpassed expectations in two of the last four quarters, with the average being a positive 0.08%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Trends that have gathered steam in the United States in the recent years include a shift toward healthier options in the food sector (predominantly fresh foods) and high level of price consciousness. Additionally, factors such as growing awareness of "clean label" and genetically modified organism or GMOs, increasing concerns related to sugar consumption and rising demand for free-from products are also sketching the food landscape afresh.

Given this backdrop, B&G Foods has been on an acquisition spree in the recent times to bolster its healthy offerings. B&G Foods acquired snack foods manufacturer, Back to Nature Foods Company, in October 2017. The deal is likely to contribute to earnings per share (EPS) and free cash flow. The earlier buyouts, Victoria Fine Foods Holding Company and Victoria Fine Foods in December 2016, as well as spices and seasonings business of ACH Food Companies in November 2016, are likely to contribute to first-quarter results.

Green Giant frozen products are expected to drive revenues in the to-be-reported quarter. Net sales of Green Giant frozen products increased more than 11% in 2017. While its spices & seasonings acquisition generated more than $260 million in net sales, Victoria generated nearly $43 million of the same in 2017.

The company’s base business net sales in 2017 decreased 1.1%. The decrease was mostly concentrated in the first half of the year. Net sales in the third and fourth quarters of 2017 increased 1.2% compared with the same quarters of 2016.

Again, the company’s Pirate Brands had a strong rebound, delivering a 6.1% increase in net sales in 2017.

Given the weak sales trajectory, B&G Foods’ major cost-cutting initiatives are likely to support the bottom line to some extent.

Conversely, challenging conditions of the North American food industry are expected to hurt its results to some extent. These have been hurting results of major food companies like General Mills, Inc. (NYSE:GIS) , Mondelez International Inc. (NASDAQ:MDLZ) and Kellogg Company (NYSE:K) .

The Zacks Consensus Estimate for revenues is pegged at $434.7 million, reflecting an increase of 4% year over year. The consensus estimate for earnings is pegged at 51 cents, showing a decrease of 12.1% from the prior-year quarter.

Earnings Whisper

Our proven model does not show that B&G Foods is likely to beat estimates in the soon-to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: B&G Foods has Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 51 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: B&G Foods has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Ranks #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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