Many food retailers are adopting inorganic ways to grow their top line and ultimately their business since lackluster economic conditions have been acting as an anchor for quite some time now. Also, passing on of higher costs to customers in terms of higher prices has remained a matter of concern for the food giants.
A similar thing happened with General Mills (GIS, Financial), which posted stellar results on account of acquisition of Yoplait yogurt business, which boosted its top line in its recent quarter. Following its footsteps is another food manufacturer, B&G Foods (BGS, Financial), which posted strong results recently and met analyst expectations on the bottom line.
A closer look
Driven by the price hike, revenue for the quarter increased year over year. The most important push to the top line came from the buyout of Culver Specialty Brands. Culver comprises of a number of brands such as Sugar Twin sugar substitutes; Bakers Joy’s baking spray and Mrs. Dash’s seasoning blends. Almost all of these worked well for B&G to help push revenue.
If we exclude the effect of acquisition we will be able to understand its importance better. Albeit Culver, the company did not see any growth in the top line. Its strategy of increasing prices affected consumer sentiments keeping them away from the stores. Hence, the food retailer experienced a $4.6 million drop in volumes which had a compensating effect on the price hike keeping sales almost unchanged. This particularly highlights the weak economic environment.
Impressive bottom line
However, a good company is one which can provide value to shareholders in terms of earnings power. This is where the company attracts investors’ attention. B&G registered strong earnings growth. Moreover, both gross margin and net margin improved during the quarter boosted largely by higher selling prices initiated both in September and February. Also, the company encouraged more of high margin products which did the needful.
This food retailer is undoubtedly a star since it managed to post an impressive earnings increase in spite of volume declines. There are other peers who lost their charm because price hikes impacted their overall performance very badly.
Conclusion
B&G Foods looks really impressive by the way it handled the difficulties which wasn’t unique and was reining in the overall industry. It is strong enough internally to get least affected by weak consumer sentiments. Apart from posting a valuable quarter, it is already planning to launch low cost products and improve its distribution system. With everything already in place and efforts underway to deliver investor value, B&G is a stock worth taking a look at.
