B&G Foods, Inc.
Q2 2018 Earnings Call Transcript

Published: 3 Aug 2018

[Operator:]

Good day everyone and welcome to the B&G Foods Second Quarter 2018 Earnings Call. Today's call is being recorded. You can access detailed financial information on the quarter and the full year in the company's earnings release issued today which is available at Investor Relations section of bgfoods.com. Before the company begins its formal remarks, I need to remind everybody that part of the discussion today includes forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer you to the company's most recent annual report on Form 10-K and subsequent SEC filings for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The company will be making references on today's call to the non-GAAP financial adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, and base business net sales. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Bruce Wacha, the company's CFO, will start the call by discussing the company's financial results for the quarter. After that, Bob Cantwell, the company's Chief Executive Officer, will discuss various factors that affected the company's results, select businesses highlights and his thoughts concerning the outlook for 2018 and beyond, and Ken Romanzi, the company's Chief Operating Officer will make some remarks. I would like to now turn the call over to Bruce.

[Bruce C. Wacha:]

Good afternoon. Thank you for joining us for our second quarter 2018 earnings call. Our second quarter results benefited from very strong sales growth of 7.4% [Technical Difficulty] (00

[Robert C. Cantwell:]

Thank you, Bruce and thank you to the audience for joining our call today. As a reminder, when we laid out our vision for 2018 earlier this year, we suggested the year would be a typical B&G Foods year with modest topline growth, stable margins and the strong key free cash flow generation the investment community expects from [Technical Difficulty] (00

[Kenneth G. Romanzi:]

Thank you, Bob. As Bob and Bruce have mentioned, we had a strong quarter of net sales growth led by our key brands and some early benefits from our pricing initiative. We expect our base business net sales growth in the back half of the year to be approximately 3%, which includes $12 million to $15 million of pricing benefit. On the cost side, Bob already walked you through some of the factors that were [Technical Difficulty] (00

[Robert C. Cantwell:]

Thanks, Ken, and thanks to the audience for joining us. We clearly have more work to do on the cost side, but it is a pleasure to report that our successful [Technical Difficulty] (00

[Operator:]

We will take our first question from Ken Zaslow from Bank of Montreal.

[Ken Zaslow:]

Hey, good afternoon, everyone.

[Robert C. Cantwell:]

Good afternoon.

[Bruce C. Wacha:]

Hey Ken.

[Ken Zaslow:]

So just two questions. One is, when I think about (00

[Robert C. Cantwell:]

Could you just repeat the back half of the question, it was actually very hard hearing.

[Ken Zaslow:]

Yeah, [Technical Difficulty] (00

[Robert C. Cantwell:]

No, I apologize too. It is...

[Ken Zaslow:]

So would the benefit of the pricing [Technical Difficulty] (00

[Robert C. Cantwell:]

Well, absolutely, so again, (00

[Ken Zaslow:]

So, you will (00

[Robert C. Cantwell:]

Absolutely.

[Ken Zaslow:]

And the second thing is what type of [Technical Difficulty] (00

[Robert C. Cantwell:]

Well, I think what you saw and we're very pleased, so it's early in the game, but a lot of that pricing generation in the first half and certainly through most of the second quarter was [Technical Difficulty] (00

[Ken Zaslow:]

Thank you very much.

[Operator:]

Our next question comes from Cornell Burnette of Citi Research.

[Cornell R. Burnette:]

Good evening, guys.

[Robert C. Cantwell:]

Hi.

[Cornell R. Burnette:]

Just a couple of questions. In the quarter, your sales team did a little bit better than [Technical Difficulty] (00

[Robert C. Cantwell:]

So actually, less surprises on the cost side, so we expect it to be short of what we did last year $78 million in EBITDA, certainly, like have come in a little bit better here. So certainly, we knew we still had freight cost increases heading through the second quarter and we're going to see, as Bruce said, another. So we've experienced [Technical Difficulty] (00

[Cornell R. Burnette:]

And when thinking about the cash and the full year guidance total, just [Technical Difficulty] (00

[Robert C. Cantwell:]

Well, I think we just wanted to – certainly where we are today, we just kind of where, as Bruce walked you through [Technical Difficulty] (00

[Cornell R. Burnette:]

And [Technical Difficulty] (00

[Robert C. Cantwell:]

Well, nothing is ever locked in. So our contracts rates are locked in. The spot rates can move, but we kind of have good outside help understanding that kind of nowhere that is. We don't expect unless there's major hurricanes again that's changing dramatically. And we feel real comfortable. We were inefficient in the fourth quarter last year that what we're doing this year and because we're moving around the lot less inventory, as our inventories down, that helps us whole bunch too. So we're really lapping a terrible fourth quarter last year, I mean that's probably the biggest piece. Fourth quarter of last year, one of the reasons we took the hit on EBITDA last year hit [Technical Difficulty] (00

[Cornell R. Burnette:]

I guess...

[Robert C. Cantwell:]

Yeah.

[Cornell R. Burnette:]

I'm going to say just the last one (00

[Robert C. Cantwell:]

So we're contracting. So it's just a matter of – we are contracting, if trucks are fully available, they go out at contract rates. It's going to be – it's a tough trucking environment. So we're hoping that the larger percentage goes out of the contractor rates in for (39

[Bruce C. Wacha:]

Yeah. Like 20% – almost 27%.

[Robert C. Cantwell:]

27% spot.

[Bruce C. Wacha:]

(00

[Robert C. Cantwell:]

Yeah.

[Bruce C. Wacha:]

So we're going to be in the spot market, but we're going to be down significantly.

[Robert C. Cantwell:]

Yeah.

[Bruce C. Wacha:]

So less spot and more intermodal and that average freight rate will come down even though each individual rate is higher than it was a year ago.

[Cornell R. Burnette:]

Okay. Thank you.

[Operator:]

Our next question comes from Karru Martinson of Jefferies.

[Karru Martinson:]

Good afternoon.

[Robert C. Cantwell:]

Hey, Karru.

[Karru Martinson:]

Just in terms of – can you remind us where we are today on business [Technical Difficulty] (00

[Robert C. Cantwell:]

So the good news is the decline on that business has actually been a lot less than expected. I mean, it is down in the first-half, but it's really down [Technical Difficulty] (00

[Karru Martinson:]

Okay. Okay. You guys mentioned three new category launches, (00

[Kenneth G. Romanzi:]

Yeah. This is Ken. The benefit would really be well spread for both the years. So we – this is actually innovation that we had slotted [Technical Difficulty] (00

[Karru Martinson:]

Okay. And then, lastly, when we look at the tuck-in acquisitions on McCann's, are there additional opportunities on the horizon of that or how [Technical Difficulty] (00

[Robert C. Cantwell:]

Well, I think as we always say, we're always out looking certainly opportune – I mean, I think we've proven [Technical Difficulty] (00

[Karru Martinson:]

Thank you very much guys. Appreciate it.

[Operator:]

Our next question comes from Bryan Hunt from Wells Fargo Securities.

[Bryan C. Hunt:]

Thank you. I'd like to [Technical Difficulty] (00

[Robert C. Cantwell:]

So – and Ken can jump in [Technical Difficulty] (00

[Bryan C. Hunt:]

[Technical Difficulty] (00

[Robert C. Cantwell:]

About $20 million, right around $20 million in the fourth quarter of last year. So...

[Bryan C. Hunt:]

Next on the McCann's oatmeal, can you talk about what retailers have said about your (00

[Robert C. Cantwell:]

Well certainly, this is an oatmeal business. This is still kind of Irish oatmeal, so the product line is cook on stove, instant formats et cetera but it is a steel cut Irish oatmeal business. This has certainly spotty distribution. This is a business that is a branded business in a private label company. We think the power of our sales and distribution network, can move ACV in a big way over time. So again, this is a small brand today. Very profitable as a percentage of sales, which also excited. We see that this is the better-for-you concept the opportunity, a great brand, great name. And certainly in certain parts of this country in the northeast for example, people know this brand. So there's a lot parts of the country that people don't know and Ken and his team are looking at plan to really roll-out (00

[Bryan C. Hunt:]

And then the last question is given where (00

[Bruce C. Wacha:]

So our goal is to still bring leverage down to that 4.5 times, 5.5 times net debt-to-EBITDA range that we've lived in for the past few years and [Technical Difficulty] (00

[Bryan C. Hunt:]

Fantastic. That's it all (00

[Operator:]

Our next question comes from Farha Aslam with Stephens.

[Farha Aslam:]

Hi. Good evening.

[Robert C. Cantwell:]

Hi.

[Farha Aslam:]

Given you're seeing [Technical Difficulty] (00

[Robert C. Cantwell:]

No, so we know today, based on the best of our ability what tariffs have done to some of our packagings, specifically cans for example. So between Green Giant [Technical Difficulty] (00

[Farha Aslam:]

Understand. Clearly, just sales in the quarter were very strong, but since [Technical Difficulty] (00

[Robert C. Cantwell:]

So are you asking about quarter? Well, our consumption trends in general across a number of our product lines have been very strong and we don't – with what we have in place, anything can happen but we don't see that changing.

[Ken Zaslow:]

Yeah. So we have forecasted on our list price increases. Again, [Technical Difficulty] (00

[Farha Aslam:]

Helpful. Thank you.

[Operator:]

At this time we're going to go over some e-mail questions.

[Bruce C. Wacha:]

So the first question I have is just on the visibility on pricing and the confidence on the top-line and you've mentioned some of the margins [Technical Difficulty] (00

[Robert C. Cantwell:]

And I think the important – other [Technical Difficulty] (00

[Operator:]

Our next question does come from Eric from Buckingham Research.

[Robert C. Cantwell:]

Hey, Eric. How are you?

[Eric J. Larson:]

[Technical Difficulty] (00

[Robert C. Cantwell:]

Okay. So we expect because I have that, we expect can sales to be somewhere between $135 million to $140 million this year. We expect can sales to be down between $15 million and $20 million for the year.

[Bruce C. Wacha:]

Eric, just as a reminder that is can U.S. and Canada, as well as Green Giant and Le Sueur.

[Eric J. Larson:]

Right. [Technical Difficulty] (00

[Robert C. Cantwell:]

Okay.

[Operator:]

Our last question comes from Brian from Consumer Edge Research.

[Brian P. Holland:]

Yes, thanks. Given the issues I tried to keep it very short. First question, could you just clarity whether Q2 was in line with your plan internally?

[Robert C. Cantwell:]

Yes it was. We knew is on (00

[Brian P. Holland:]

Okay. And then last one from me. It sounds like in the cadence that you offered on freight, I guess $14 million or so in Q1, $5 million in Q2. I think you said $6 million or something in the back half, which sounds like maybe doubled out (01

[Robert C. Cantwell:]

Yeah. [Technical Difficulty] (01

[Operator:]

At this time there are no additional questions.

[Robert C. Cantwell:]

Okay. Great. Thank you. Thank you everyone for joining the call.