B&G Foods, Inc. (NYSE:BGS) is a leading manufacturer, seller, and distributor of a diverse portfolio of high-quality shelf-stable and frozen foods across the United States, Canada, and Puerto Rico. The company has a rich history of growth through strategic acquisitions, having successfully integrated over 50 brands into its portfolio since 1996. However, in recent years, B&G Foods has faced a series of challenges that have impacted its financial performance.

Financials

In fiscal 2023, the company reported annual net income of -$66.2 million and annual revenue of $2.06 billion. Despite the negative net income, B&G Foods generated annual operating cash flow of $247.8 million and annual free cash flow of $222.1 million, showcasing the resilience of its business model.

The first quarter of fiscal 2024 saw B&G Foods generate net sales of $475.2 million, a decrease of 7.1% compared to the same period in the prior year. This decline was primarily attributable to the divestiture of the Green Giant U.S. shelf-stable product line, a decrease in net pricing, the impact of product mix, and a decrease in unit volume. Base business net sales, which exclude the impact of the Green Giant U.S. shelf-stable divestiture, decreased by 4.4% to $475.3 million.

Gross profit for the first quarter of fiscal 2024 was $108.9 million, or 22.9% of net sales. Adjusted gross profit, which excludes the negative impact of $1.0 million of acquisition/divestiture-related expenses and non-recurring expenses included in cost of goods sold, was $109.9 million, or 23.1% of net sales. This represents an improvement compared to the first quarter of fiscal 2023, when gross profit was $114.2 million, or 22.3% of net sales.

The company's selling, general, and administrative (SG&A) expenses increased by 4.0% to $48.6 million in the first quarter of fiscal 2024, primarily due to higher general and administrative expenses, consumer marketing costs, and acquisition/divestiture-related expenses. As a percentage of net sales, SG&A expenses increased by 1.1 percentage points to 10.2%.

B&G Foods' operating performance was significantly impacted by a $70.6 million pre-tax, non-cash goodwill impairment charge related to its Frozen & Vegetables reporting segment. This charge was a result of the company's transition from a single reporting segment to four reporting segments, which required a reassignment of assets and liabilities, including goodwill, and a subsequent goodwill impairment test.

Net interest expense decreased by 4.1% to $37.8 million in the first quarter of fiscal 2024, primarily due to a reduction in average long-term debt outstanding and the accelerated amortization of deferred debt financing costs related to long-term debt prepayments during the first quarter of fiscal 2023, partially offset by higher interest rates on the company's long-term debt.

The company's effective tax rate for the first quarter of fiscal 2024 was 23.1%, compared to 85.6% in the first quarter of fiscal 2023. The significant decrease in the effective tax rate was primarily due to the deferred tax benefit recorded in connection with the goodwill impairment charge.

B&G Foods' net loss for the first quarter of fiscal 2024 was $40.2 million, or $0.51 per diluted share, compared to net income of $3.4 million, or $0.05 per diluted share, in the first quarter of fiscal 2023. Adjusted net income, which excludes the impact of the goodwill impairment charge and other non-recurring items, was $14.4 million, or $0.18 per diluted share, in the first quarter of fiscal 2024, compared to $19.1 million, or $0.27 per diluted share, in the first quarter of fiscal 2023.

Business Overview

Effective in the first quarter of fiscal 2024, B&G Foods reorganized its reporting structure from a single operating segment to four reportable business segments: Specialty, Meals, Frozen & Vegetables, and Spices & Flavor Solutions. This change reflects the company's recent structural changes and the evolution of its four business units.

Specialty Segment

The Specialty segment, which represents approximately 33% of consolidated net sales, reported a 4.9% decrease in net sales to $154.7 million in the first quarter of fiscal 2024, primarily due to lower Crisco pricing and declines in foodservice and industrial sales. Segment adjusted EBITDA for Specialty increased by 1.9% to $37.2 million.

Meals Segment

The Meals segment, which accounts for approximately 25% of consolidated net sales, reported a 1.6% decrease in net sales to $120.0 million, primarily due to lower foodservice sales. Segment adjusted EBITDA for Meals decreased by 2.3% to $25.6 million.

Frozen & Vegetables Segment

The Frozen & Vegetables segment, which represents approximately 22% of consolidated net sales, reported a 16.9% decrease in net sales to $104.9 million, primarily due to the divestiture of the Green Giant U.S. shelf-stable product line, a decrease in volume, increased promotional trade spend, and the impact of product mix in frozen. Segment adjusted EBITDA for Frozen & Vegetables decreased by 25.1% to $7.8 million.

Spices & Flavor Solutions Segment

The Spices & Flavor Solutions segment, which accounts for approximately 20% of consolidated net sales, reported a 5.4% decrease in net sales to $95.6 million, primarily due to lower foodservice sales. Segment adjusted EBITDA for Spices & Flavor Solutions decreased by 6.6% to $28.7 million.

Liquidity

B&G Foods generated $35.1 million in net cash from operating activities in the first quarter of fiscal 2024, compared to $69.5 million in the first quarter of fiscal 2023. The decrease was primarily due to the decline in operating income and deferred income taxes, as well as unfavorable working capital changes. The company reduced debt by over $10 million during the first quarter of fiscal 2024 and has now reduced net debt by approximately $250 million since the end of the first quarter of fiscal 2023.

Outlook

Looking ahead, B&G Foods has revised its fiscal 2024 guidance. The company now expects net sales to be between $1.955 billion and $1.985 billion, down from $2.06 billion in fiscal 2023. Adjusted EBITDA is expected to be in the range of $300 million to $320 million, and adjusted diluted earnings per share is expected to be between $0.75 and $0.95, compared to $0.99 in fiscal 2023.

The revised guidance reflects the emerging challenges in the foodservice business and a more gradual recovery in net sales to retail customers, with improvement expected in the second half of fiscal 2024. The company also expects continued volume improvement throughout the year in its sales to retail customers and less of a drag on net pricing as it laps increased trade promotional spending efforts beginning in the third quarter of fiscal 2024.

Recent Developments

To address these challenges, B&G Foods is accelerating its efforts to reshape and clarify its portfolio through the reporting of business unit segments and the strategic evaluation of the remaining Green Giant frozen and canned vegetable business in the U.S. and Canada. The company believes that this portfolio reshaping will have a positive impact, as it focuses on its core shelf-stable businesses and optimizes future value generation.

Conclusion

B&G Foods is navigating a challenging environment, marked by softness in the foodservice business and increased promotional activity. The company's transition to a four-segment reporting structure and its ongoing portfolio reshaping efforts are aimed at improving its operational efficiency, enhancing margins, and positioning the business for long-term growth. While the near-term outlook remains cautious, B&G Foods' focus on its core competencies and strategic initiatives could pave the way for a stronger performance in the future.