What happened
Shares of B&G Foods (BGS -0.18%) slid 18.9% in November, according to data from S&P Global Market Intelligence, after the packaged food company reported third-quarter earnings that missed Wall Street expectations, but also slashed its dividend 60% from its previous payout rate.
Although management says the new lower dividend is sustainable and is its 73rd consecutive payment since the company went public in 2004, it's never a good sign when a business cuts its dividend. The company has been hit hard by inflation and rising interest rates, which left its dividend consuming all of its excess cash and leaving little left for paying down debt or other business needs.
The quarterly dividend was cut from $0.475 per share to just $0.19 per share.
Image source: Getty Images.
So what
B&G Foods, which owns well-known brands like Cream of Wheat, Crisco, and Dash, reported net sales in the third quarter rose 2.6% to $528.4 million, but the increases were almost completely the result of big price hikes it took to offset the impact of inflation, while sales volumes fell.
The pricing actions did help improve the profit margin for the period, covering 80% of rising commodity costs and inflation, and P&G says it has put the business on track for a solid fourth quarter. However, over the last 12 months, B&G has paid out $133.4 million in dividends even as is it's had to pay higher interest rates on its variable debt.
In the third quarter B&G paid almost $32 million in interest expense, up 20% from last year, while year to date it has paid over $88 million, a 10% increase from the same point last year. It reflects the impact of the Federal Reserve's record interest hikes on B&G's debt levels, which totaled $2.4 billion. The packaged food company has $60 million in cash.
B&G Foods reported an adjusted profit of $0.31 per share, down from $0.55 per share a year ago.
Now what
President and CEO Casey Keller said cutting the dividend was "consistent with the company's desire to provide stockholders with an attractive and reliable return on their investment, and consistent with our commitment to reduce our leverage." Even with the dividend cut, the consumer staples stock still yields 5.8% annually.
