B&G Foods outlook revised to stable on weaker earnings: S&P Global

Investing.com -- S&P Global Ratings has revised its outlook for B&G Foods (NYSE:BGS) Inc. to stable from positive, citing lower earnings and cash flow. The U.S.-based packaged food company’s revenue and earnings guidance for fiscal 2025 fell short of expectations due to challenging macroeconomic conditions and sluggish consumer demand.

S&P Global Ratings affirmed B&G Foods’ ’B-’ issuer credit rating and also its ’B+’ issue-level rating on its senior secured credit facilities and its ’ CCC (WA:CCCP)’ issue-level rating on its senior unsecured credit facilities. The company’s recovery ratings remain at ’1’ and ’6’, respectively.

The revised outlook is based on the expectation that B&G Foods’ operating performance will align with S&P Global Ratings’ base-case forecast, resulting in an adjusted leverage of about 7x in fiscal 2025. The ratings agency’s decision was influenced by B&G Foods’ weaker-than-expected operating performance and the projection that the company’s adjusted leverage will increase to 7x in 2025.

B&G Foods’ organic revenues declined by 3.6% in fiscal 2024 due to a 2.6% drop in volumes and 1% lower pricing. The company’s EBITDA dropped more than 7% in comparison to 2023 because of lower volumes, foreign currency impact, and lower EBITDA due to the divestiture of the Green Giant U.S. shelf-stable business. As a result, leverage increased to 6.7x from 6.4x in fiscal 2023.

B&G Foods’ consumption trends have decelerated year to date, similar to many other packaged food companies, due to continued inflation sensitivity among consumers. S&P Global Ratings now expects volume challenges to persist at least through the first half of 2025 and forecasts about a 2% revenue decline in fiscal 2025.

B&G Foods’ management, under CEO Casey Keller since 2021, has focused on improving the company’s EBITDA margin to 18%-20%, increasing cash flow, and reducing leverage to 4.5x-5.5x. However, the company’s portfolio remains in slower growth categories with limited organic growth opportunities, and macroeconomic pressures and changing consumer behavior have delayed volume recovery and pressured profitability.

The company is unlikely to achieve its financial targets through organic growth and will need to divest lower-margin businesses to meaningfully improve its credit profile. S&P Global Ratings forecasts annual free operating cash flow (FOCF) of about $80 million to $90 million, lower than historical levels, due to continued high working capital requirements within the frozen and vegetables segment and Crisco business.

B&G Foods’ weak credit metrics will deplete cushion under the company’s financial covenants. The company is required to maintain consolidated leverage of 7x or less and EBITDA interest coverage of more than 1.5x at the end of each fiscal quarter under its revolving credit facility credit agreement. Given the forecast of EBITDA decline in fiscal 2025, it may need to seek a waiver or an amendment to its revolving credit facility credit agreement.

B&G Foods remains committed to reshaping its portfolio to streamline and simplify its operations and increase synergies within its business segments. The company has a track record of pruning portfolio assets to reduce its debt burden. B&G placed the Green Giant and Le Suer brands under strategic review in May 2024 as it believes these businesses do not fit strategically with the rest of its portfolio. The company has also identified additional assets for divestitures that represent about 10% of consolidated sales.

S&P Global Ratings could take a negative rating action if B&G Foods’ leverage increased due to weak operating performance or more aggressive financial policies, resulting in liquidity constraints or an unsustainable capital structure. Similarly, the ratings could be raised if operating performance improves and the company sustains adjusted leverage below 7x.

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