B&G Foods Inc CL A (BGS)

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Peter Maa

B&G Foods, Inc. manufactures and distributes shelf-stable foods in the United States, Canada, and Puerto Rico. The company owns the Ortega, Cream of Wheat, Polaner, and other brands dating back to 1880.^[1] B&G Foods distributes its products through a network of independent brokers and distributors to supermarket chains, food service outlets, mass merchants, warehouse clubs, nonfood outlets, military commissaries, and specialty food distributors. The company has managed to insulate itself against price increases for 2011 and anticipates only 2.2% cost inflation in 2011^[2], while the price of corn has risen 126% as of June 2011.^[3]

Company Overview

B&G Foods, Inc. was founded in 1996 and is headquartered in Parsippany, New Jersey. The company had its IPO in 2009 and currently operates as one business segment.^[4]

The company’s products include:

• Shelf-stable Mexican food (taco shells, seasonings, dinner kits, taco sauces, peppers, refried beans, salsas), gourmet salad dressings, sugar free syrups, marinades, fruit syrups, confections, and pancake mixes.
• Fruit-based spreads and jarred wet spices, such as chopped garlic and oregano, enchilada sauce, chili sauce, and various pepper products, baked beans and brown bread; meat spreads, including deviled ham, white-meat chicken, white-meat turkey, roast beef, pasta sauces, seasonings
• Molasses products including vinegars and cooking wines, salad dressings, including sauces, marinades, and soups and maple-flavored syrup

Trends and Forces

Food Price Inflation to Lower Bottom Line

Although B&G has managed to hedge against most food price increases in 2011, the company still stands to lose as costs rise if it can’t pass on increased costs to consumers. B&G has already announced price increases for many products ranging from 1-8%, averaging 2.5% in the aggregate. Comparable companies are facing inflation at “high single digits.”^[5] Prices of corn and wheat are up 96% and 126% year-over-year as of June 2011. ^[6] Sustained increases in food prices would damage B&G’s bottom line.

Private Label Products Threaten Branded Market Share

With the launch of private label products by supermarkets and retailers, branded products have lost market share. Private label products often are sold at lesser price points, and in economic downturns consumers often substitute private label foods for branded products. Maintaining strong brand equity even in downturns is critical to B&G’s success.

Competition

B&G’s competitors include:

• ConAgra operates as a food company in North America and internationally. It operates in two segments, Consumer Foods and Commercial Foods.
• General Mills engages in the manufacture and marketing of branded consumer foods worldwide.
• J.M. Smucker Company (SJM) engages in the manufacture and marketing of branded food products in the United States and internationally. Its main products include coffee, peanut butter, shortening and oils, and fruit spreads
• Quaker Oats offers oat meals, oat snack bars, ready-to-eat oat cereals, grits, and tortilla mixes.

References

1. ↑ BGS 10-K 2010 p. 2
2. ↑ Credit Suisse analyst report “B&G” 26 April 2011
3. ↑ JP Morgan food industry analyst report, 28 June 2011
4. ↑ BGS 10-K 2010 p. 2
5. ↑ Barclays Capital analyst report BGS, 27 Apr 2011
6. ↑ JP Morgan food industry analyst report, 28 June 2011