Shares of B&G Foods (BGS -1.28%), a food maker that specializes in buying unloved brands from larger companies and giving them the attention needed to improve performance, fell dramatically at the open of trading on Aug. 5. The obvious reason was the company's second-quarter earnings release, which hit the market after the close on Aug. 4. It appears that investors saw more negatives than positives here.
On the top line, B&G Foods' base business witnessed 3.2% year-over-year sales growth in the second quarter of 2022. That's not bad at all for a consumer staples company, with strong results from a number of key brands, including Crisco, Cream of Wheat, and Ortega. The key, however, is that price increases were a major support on the top line, offset to some degree by volume declines as customers switched to cheaper alternatives. This top-line trend is basically consistent with most of the company's peers.
The real action, however, was on the bottom line, where second-quarter 2022 adjusted earnings per share fell nearly 83% year over year. That's a rough number even though there were a lot of moving parts. For example, the company's interest costs rose because of higher interest rates and additional borrowings on a revolving credit facility. But there was also a sizable fee the company paid to amend a credit agreement so it would have more leeway on key leverage covenants (this is something worth watching). There were also some acquisition/divesture costs in the tally and stock sales to contend with (B&G Foods sold nearly 2.8 million shares in the second quarter). The issue that likely most caught the attention of investors, though, was the inflationary cost increases the company faced. Price increases are hitting just about all of the company's competitors, too, but the earnings-per-share number here was particularly weak and missed analyst estimates by a wide margin.
The bad news doesn't end there, unfortunately. The company also provided updated guidance for 2022, in which it reaffirmed its top-line expectations. However, it materially lowered its adjusted earnings outlook, dropping the range from $1.65 to $1.75 per share to a range of $1.08 to $1.28 per share. Key factors in the guidance drop include inflation and the above-noted stock sale, which appears likely to result in shareholder dilution. All in, the new guidance is a big change, so combined with the second-quarter earnings miss, it's little wonder investors were downbeat this morning.