B&G Foods (BGS)

Packaged foods company B&G Foods (NYSE:BGS) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 10.5% year on year to $425.4 million. Its non-GAAP profit of $0.04 per share was 72.1% below analysts’ consensus estimates.

Company Overview

Started as a small grocery store in New York City, B&G Foods (NYSE:BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors in the packaged foods industry include Conagra (NYSE:CAG), General Mills (NYSE:GIS), Hormel Foods (NYSE:HRL), Kraft Heinz (NASDAQ:KHC), and McCormick (NYSE:MKC).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.88 billion in revenue over the past 12 months, B&G Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, B&G Foods’s demand was weak over the last three years. Its sales fell by 3.3% annually despite consumers buying more of its products. We’ll explore what this means in the "Volume Growth" section.

This quarter, B&G Foods missed Wall Street’s estimates and reported a rather uninspiring 10.5% year-on-year revenue decline, generating $425.4 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 1.8% over the next 12 months. While this projection implies its newer products will fuel better top-line performance, it is still below the sector average.

At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.

B&G Foods has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 22.1% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $77.94 went towards paying for raw materials, production of goods, transportation, and distribution.

This quarter, B&G Foods’s gross profit margin was 21.2%, down 2.1 percentage points year on year and missing analysts’ estimates by 4.2%. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Although B&G Foods was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 3.2% over the last two years. Unprofitable public companies are rare in the defensive consumer staples industry, so this performance certainly caught our eye.

Looking at the trend in its profitability, B&G Foods’s operating margin decreased by 6.8 percentage points over the last year. B&G Foods’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, B&G Foods generated an operating profit margin of 8.4%, up 11.7 percentage points year on year. The increase was solid, and because its revenue and gross margin actually decreased, we can assume it was more efficient because it trimmed its operating expenses like marketing, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for B&G Foods, its EPS declined by 30.7% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, B&G Foods reported EPS at $0.04, down from $0.18 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects B&G Foods’s full-year EPS of $0.57 to grow 24%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

B&G Foods has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.7% over the last two years, better than the broader consumer staples sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that B&G Foods’s margin dropped by 2.8 percentage points over the last year. Continued declines could signal it is in the middle of an investment cycle.

B&G Foods’s free cash flow clocked in at $42.36 million in Q1, equivalent to a 10% margin. This result was good as its margin was 4.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

B&G Foods historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

B&G Foods’s $2.01 billion of debt exceeds the $61.24 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $279.5 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. B&G Foods could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope B&G Foods can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We struggled to find many positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $4.72 immediately after reporting.

Updated: May 22, 2025 at 10:46 PM EDT

Before making an investment decision, investors should account for B&G Foods’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of B&G Foods, we’re out. To begin with, its revenue has declined over the last three years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last three years makes it a less attractive asset to the public markets. On top of that, its declining operating margin shows the business has become less efficient.

B&G Foods’s P/E ratio based on the next 12 months is 5.8x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $5.50 on the company (compared to the current share price of $4.10).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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