Core Laboratories N.V. (CLB), B&G Foods, Inc. (BGS): Free Cash Flow Means High Returns

Although consumer packaged goods is a vastly different sector than oil services, B&G Foods, Inc. (NYSE:BGS) is more-or-less following the same tenets as Core Laboratories N.V. (NYSE:CLB). Last year, B&G Foods, Inc. (NYSE:BGS)’s free cash flow as a percentage of net sales dwarfed the most well known store brands.

B&G Foods, Inc. (NYSE:BGS) focuses on “shelf stable” goods (no commodity products made of corn, wheat, beef or the like) from iconic, but small brands. Often times, it doesn’t need large advertisement campaigns. This is what keeps its CapEx at only 10.8% of operating cash flow (the rest is FCF).

And lo’ and behold, B&G Foods, Inc. (NYSE:BGS)’s EBITDA margins greatly exceed that of its peers. Not incidently, so too do dividends and total return over the last five years. B&G Foods, Inc. (NYSE:BGS)’s strategy has lead to acquiring top brands in niche fields, and as a result it has avoided costly and competitive dogfights. B&G Foods, Inc. (NYSE:BGS) has built a free cash flow machine that has enriched its shareholders. It has that in common with Core Labs.

My final example is in the REIT space, Public Storage (NYSE:PSA) . You may know Public Storage (NYSE:PSA). It owns and operate self-storage facilities across the US and Europe.

Its annual report really says it all: “Our goal is to grow free cash flow per share (…) It represents the cash available to pay common dividends, invest in additional (…) properties or retain for future use. I refer to this as ‘grocery money.”

A brief comparison of profitability metrics shows that its free cash flow strategy has paid off: ROIC, margins and FCF/revenue ratios are all well higher than its competitors.

Since 2007, it has tripled earnings, more than doubled dividends and grown funds from operations by 27%. Public Storage (NYSE:PSA)’s free cash flow maximizing strategy has set it apart from its storage competitors. Its consistency truly makes it “the Coca-Cola of real estate.”

Conclusion

Free cash flow is closely related to return on invested capital. And those companies which can say no to “growth for growth’s sake” are often superior in both metrics. In the long-run, I believe companies like the three I have highlighted here will provide superior returns.

Casey Hoerth has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Casey is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Free Cash Flow Means High Returns originally appeared on Fool.com is written by Casey Hoerth.

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