B&G Foods, Inc.

Good day and welcome to the B&G Foods Incorporate second quarter 2019 financial results conference call. Today's call is being recorded. You can access detailed financial information on the quarter in the company's earnings release issued today, which is available at the investors relations sections of bgfoods.com. Before the company begins its formal remarks, I need to remind everyone that 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 conditions. 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 also be making references on today's call to the non-GAAP financial measures, adjusted EBITDA, adjusted net income, adjusted diluted earnings per share, and base business net sales. Recounts of these financial measures to the most directly comparable GAAP financial measures are provided in today's earnings release. Ken Romanzi, the company's president and chief executive officer, will begin the call with opening remarks and discuss the various factors that affected the company's results, selected business highlights, and his thoughts concerning the outlook for the remainder of 2019 and beyond. Bruce Walker. The company's chief financial officer will then discuss the company's financial results for the quarter as well as its guidance for 2019. I would now like to turn our conference over to Ken.

Thank you. Good afternoon. Thank you all for joining us today for our second quarter earnings call. And with a special thanks to the dedicated team at B&G Foods for working so hard in a challenging operating environment to generate our results. This afternoon, I'd like to provide you a perspective on our second quarter results before I turn the call over to Bruce to provide the details of our financial performance. I'm pleased to report that we had a solid second quarter with results that were ahead of our internal plans, which got us back with our internal operating plan through the first six months of the year. And we believe puts us on track to deliver our full year plan to achieve our 2019 financial targets. And most importantly, they are more reflective of the performance that I expect from B&Z Foods. Net sales for the quarter were $371.2 million, a 4.4% decline versus last year, but a 2.2% increase, excluding the divestiture of Pirate's Booty. Adjusted EBITDA was $71 million, down 4.7% versus a year ago, but up 5.3%, excluding Pirate's Booty. Adjusted EBITDA as a percentage of net sales was 19.1%, more in line with what we're used to at B&G Foods and ahead of our full-year target. As we shared with you at the beginning of the year, our 2019 plan, and in fact our longer-term strategic plan, is based on a stable-based business, pricing to help offset inflation in all forms, such as list pricing, waitouts, trade spending optimization, and innovation. Cost savings initiatives targeting to take $50 million of cost out of our cost of goods sold over a two- to three-year timeframe, and of course, always on the lookout for accretive acquisitions. I'm pleased to report that all of these initiatives gained traction in the second quarter, and we expect them to continue to gain momentum throughout the remainder of the year. our base business performance was powered by our largest brand, Green Giant. For the third consecutive quarter, both Shell Stable and Frozen Green Giant drove growth. Shell Stable grew with new distribution and improved pricing, while Green Giant Frozen continues its strong momentum behind our vision of making Green Giant the plant-based vegetable food brand of the future, fueled by continued success of our new product introductions. Our vision is to not only introduce new vegetable products in the traditional frozen vegetable category, but to help people get more vegetables in their diet by introducing new products made with vegetables, expanding the giant's reach across the frozen food case. We are very encouraged by the successful launch of the latest generation of innovation, such as green giant cauliflower pizza crust, green giant protein bowls, and little green sprouts organics. We are very much looking forward to announcing our next wave of green giant frozen innovation later this year, as we continue to facilitate America's healthier eating habits. And a little bit further into the future, our plans include expanding green giants present throughout the entire grocery store. We have some other winners across the portfolio this quarter. Following a challenging first quarter performance, we're happy to report that Victoria was up in net sales by about 1.5%, and we continue to believe that this is a brand with solid growth opportunity as we continue to expand distribution across the country in the growing premium pasta sauce category. Maple Grove Farms had a strong second quarter, with net sales up more than 4% on the back of strong retail consumption, coupled with excellent performance within the food service channel. And New York Style had another good quarter, up nearly 4%, benefiting from our merchandising efforts in the attractive deli perimeter of the store. And last but not least, the addition of Clabber Girl midway through the quarter helped add to our net sales growth by over $8 million, on track with our expectations. Without Clabber Girl and excluding Pirate's Booty, net sales were roughly even with last year. Our net sales growth was supported by solid consumer takeaway. Total B&G Foods consumer consumption, as measured by Nielsen, grew 1.4% for the second quarter and 1.2% for the first half of 2019. Sales growth and adjusted EBITDA benefited from the pricing we implemented. We saw benefits of approximately $4 million in pricing during the quarter, inclusive of our list price increase in May of this year, the wraparound benefit of last year's list price increase from June of last year, and from trade spend optimization. Through two quarters, we now have benefited from approximately $11.3 million in improved pricing, well on our way to achieve the $15 to $20 million in our 2019 plan. You can see this price realization in the Nielsen data, where the average per unit price across the B&G Foods portfolio increased 2.8% versus a year ago for the 26 weeks ending June 29th. Encouragingly, Our price per equivalent unit increased 4.5% versus last year as our waitout initiatives began to flow into the marketplace. We also continue to be on track with our cost savings plan. We have now fully implemented our dry and frozen distribution realignments as we successfully moved our West Coast distribution center from Texas to California, making a significant dent in our customer delivery spend while also allowing us to reach the benefits in our internal freight transfers. All told, we have reduced mileage by approximately 17%, taking out nearly 8 million miles out of our dry distribution network through June of this year. Likewise, we have also completed the realignment of a portion of our frozen distribution network, moving from a center in Tennessee to one in Texas. The new Fort Worth, Texas location is closer to both our customers and our green giant manufacturing facility in Iroquato, Mexico, saving miles and money on both customer and inbound replenishment freight to the rapidly growing Southwest market. Furthermore, our procurement group continues to do a great job reducing the impact of raw material pricing despite the inflationary pressures in the industry. and we continue to take cost out of production of our products through waitouts and packaging without sacrificing the quality of these products in the eyes of our consumers. All in, we're on track to deliver our 2019 plan of $15 to $20 million in cost savings throughout our procurement, logistics, manufacturing, packaging, and SG&A spending, which we expect will deliver another $20 to $25 million in the year 2020. Now, before I turn the call over to Bruce, I'd like to highlight a few other important accomplishments we have achieved at B&G Foods with a little bit larger timeframe to consider. Over the past 18 months, B&G has reduced our outstanding long-term debt by approximately $415 million. We repurchased 1.4 million shares of our common stock, completed the sale of Pirate Brands at more than double the price we paid for the business, and made two small but accretive acquisitions in McCann's Irish Oatmeal and Claver Girl. We also continue to maintain our longstanding commitment to our dividend policy. Earlier this week, our board of directors demonstrated this by declaring our 60th consecutive quarterly dividend since our 2004 IPO. Since the IPO, we have returned to our stockholders almost $900 million in the form of dividends. And while we do miss our beloved pirate on occasion, our financial results this quarter are beginning to reflect the positive benefits of our reduction in long-term debt and share repurchases, as well as investments that we made in a pair of acquisitions. Our debt repayments over the past 18 months have resulted in interest savings of almost $4.5 million in this year's second quarter compared to last year. we're benefiting from the reduction in share count in our earnings per share calculation. As a reminder, after we repurchased almost $37 million of our common stock between mid-March 2018 through mid-March 2019, our board of directors extended our stock repurchase authorization for another year through mid-March 2020 and reset the purchase authority to up to $50 million. We certainly recognize the price at which our shares are trading today, and we'll take that into consideration as we consider capital investment alternatives. Lastly, we're very pleased with our most recent acquisitions. McCann's, which just completed its one-year anniversary under our ownership, is performing as well as we expected, and we continue to see upside for this leader in the premium oatmeal category. We're excited about the potential to drive new distribution growth as we fill in the still sizable distribution gaps to take this on-trend, better-for-you brand national over time. We're also very happy with the acquisition of Clabergirl. As you know, we acquired this business about two and a half months ago. Clabergirl holds the leadership position in retail baking powder, which is a growing category with more than a 90% market share position across several brands, including Claver Girl, Davis, and Rumford Baking Powder, as well as a relatively small amount of private label. In addition to baking powder, Claver also maintains number two positions in retail baking soda and cornstarch. We love this business and are very happy it's now part of the B&G Foods family. I'd like to now turn the call over to Bruce to discuss the details of our second quarter financial performance.

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we had solid results in the second quarter as we reported net sales of $371.2 million, adjusted EBITDA of $71 million, and adjusted diluted earnings per share of 38 cents. Adjusted EBITDA as a percentage of net sales was 19.1% for the quarter. Through six months, we have net sales of $783.9 million and adjusted EBITDA of $146.8 million, both of which are ahead of our internal plan and supportive of our full-year guidance. After adjusting for approximately $25.2 million in net sales for Pirate Brands in the second quarter of 2018, Second quarter 2019 net sales of $371.2 million represents an increase of $8 million or 2.2% more than last year. Net sales benefited in the quarter by $10.6 million resulting from the acquisitions of Clabergirl in May 2019 and McCann in July 2018. Second quarter net sales benefited from approximately $4 million in benefits from price increases which were largely driven by our list price increase, as well as improvements in trade spending efficiencies. Volumes exclusive of the sale of pirate brands and including our acquisitions of McCann's and Clapper Girl increased by $5.1 million. Green Giant continues to be a primary driver of growth within the portfolio, with net sales of all Green Giant products up $8.3 million or 7.9%. Net sales of Green Giant frozen products were up $3.5 million or 4.1% for the quarter. Net sales of Green Giant frozen products benefited from the successful adoption of innovation products. Frozen growth was slower than we have been used to due to the overlap of innovation pipeline fill last year and from reducing trade promotion activity, which tampered volume growth. But frozen consumption is strong. and we remain very bullish about Green Giant growth going forward. Separately, our Green Giant shelf-stable products, including LeSore, are seeing the benefits of increased pricing and new distribution wins, and we're up sharply, up 23.5% in the second quarter. Among our other large brands, net sales of Maple Grove Farms increased by approximately $0.7 million, or 4.1%, Net sales of New York Style increased by $0.4 million, or 3.8%. Net sales of Victoria increased by $0.1 million, or 1.4%. And net sales of Ortega and Cream of Wheat were relatively flat for the quarter. Net sales of the company's spices and seasonings business decreased by $3.6 million, largely driven by price reductions that resulted from lower input costs, certain raw materials, as well as timings. Gross profit was $91.9 million for the second quarter of 2019, or 24.7% of net sales. Excluding the negative impact of $4.9 million of acquisition, divestiture-related, and non-recurring expenses during the second quarter of 2019, the company's gross profit would have been $96.8 million, or 26% of net sales. Gross profit was $81.2 million for the second quarter of 2018, or 20.9% of sales. Excluding the negative impact of $20.1 million of acquisition-related and non-recurring charges during the second quarter of 2018, the gross profit would have been $101.3 million, or 26.1%. Our plan this year was to increase pricing and implement cross-state initiatives to offset inflation and to maintain gross profit margins. And that is exactly what is happening. For the second quarter of 2019, gross profit benefited from increasing net pricing of $4 million, bringing year-to-date pricing benefit to $11.3 million.

Next slide, please.

are also benefiting margins as our cost-cutting initiatives have helped to offset the inflationary pressures that we are seeing across the industry, which include the distribution realignment of our dry and frozen networks, improved procurement, and our G&A rationalization from earlier this year. These initiatives, in addition to the Pirate Brand Sylvester, help lower our COGS, or cost of goods sold, inclusive of the cost of materials, labor, overhead, freight, and warehousing, from $307.2 million in the second quarter of 2018 to $279.3 million in this year's second quarter. Cost of goods sold as a percentage of net sales from 79.1% in the second quarter of 2018 to 75.3% in this year's second quarter. Selling general and administrative expenses increased by $2.6 million or 6.9% to $39.9 million for the second quarter of 2019 from $37.3 million for the second quarter of 2018. The increase was composed of increases in general and administrative expenses of $1.9 million and an increase in acquisition, investor-related and non-recurring expenses of $1.5 million, which were offset in part by decreases in warehousing of $.4 million, consumer marketing expense of $.3 million, and selling expenses of $.1 million. Expressed as a percentage of net sales, selling general and administrative expenses increased by 1.1 percentage points to 10.7% for the second quarter of 2019 compared to 9.6% for the second quarter of 2018. After adjusting for the impact of acquisition divestiture related and non-recurring expenses, selling general and administrative expenses expressed as percent sales increased by .7 percentage points to 9.8% in the second quarter of 2019 compared to 9.1% for the second quarter of 2018. We generated $71 million in adjusted EBITDA for the second quarter of 2019. compared to $74.4 million in the prior year quarter. This was driven by the benefits of our pricing and cost savings initiatives, coupled with two small acquisitions offset by the negative drag of cost inflation and approximately $7 million of lost contribution following last year's divestiture of pirate brands. Adjusted EBITDA as a percentage of net sales was 19.1%, in line with 18.2% in the year-ago quarter and ahead of our full-year target of 18.5%. We generated $0.08 in adjusted diluted earnings per share in the second quarter of 2019 compared to $0.38 per share in the second quarter of 2018. This was driven by increased profitability coupled with the operating leverage from the reduction in long-term debt resulting in interest expense savings and the reduction in shares outstanding as a result of share repurchases, more than offsetting the reduction of product contribution that resulted from the development of Pirate Brands. We're updating our full-year guidance for 2019 following the acquisition of Clavergirl earlier this year. We expect the acquisition of Clavergirl to contribute approximately $30 to $35 million in net sales throughout the remainder of 2019. And while we expect Collaborgirl to ultimately generate adjusted EBITDAs or percentage of sales that is generally in line with our base business today, we have limited expectations for EBITDA contribution this year as we continue to integrate the business. And as a reminder, our 2018 results include almost $30 million in net sales and $10 million in product contribution from pirate brands during the last two quarters of the year. For 2019, we have increased our net sales guidance to a range of $1.665 to $1.7 billion. We can expect adjusted EBITDA of $305 to $120 million, adjusted earnings per share of $1.85 to $2, net interest expense of $85.5, $87.5 to $91.5 million, including cash interest expense of $84 to $88 million, and interest amortization expense of $3.5 million. Depreciation expense of approximately $41 million.

Amortization expense of approximately $18.5 million.

An effective tax rate of approximately 25% to 25%. Cash taxes, excluding the tax effects from the gain on sale of Pirates, $5 million or less for the year. And finally, we expect CapEx to be approximately $45 to $50 million for 2019 in line with last year. Based on the midpoint of our adjusted EBITDA guidance range, we expect that our adjusted EBITDA less CapEx, cash taxes, excluding the tax effect from the gains of Atlas Pirates, and cash interest will be approximately $175 to $180 million. The Pirate Brands divestiture resulted in a pre-tax gain on sale of approximately $176.4 million during the fourth quarter of 2018. The gain on sale negatively impacted our income taxes for 2019 by approximately $71.8 million, which includes a tax payment we made during the second quarter of 2019 of $43.2 million and a cash tax refund we otherwise would have expected to receive approximately $28.6 million. Excluding the negative tax impact of the gain on sale, our net cash provided by operating activities for the second quarter and the first two quarters of 2019 would have been approximately $38.3 million and $88.6 million, respectively. During the remainder of 2019, we expect to make cash tax payments of less than $10 million. From a quarterly modeling perspective, I would remind folks that the third quarter of this year have a similar drag from the divestiture of higher brands as the first two quarters, and we expect about $7 to $8 million or so of loss contribution in the third quarter and at approximately $2 to $3 million impact from the fourth, given that we only own the business for a portion of the fourth quarter of 2018. And while we expect input costs to remain elevated as inflation appears to be here to stay, we also expect to see more benefits from our pricing initiatives throughout the remainder of the year. These benefits will be coupled with continued activity on the cost-cutting front. And finally, based on the midpoint of our adjusted EBITDA guidance and pro forma for a full-year benefit of the acquisition of the platform, we expect net debt to adjusted EBITDA of approximately 5.4 times at the end of the year. And now I will turn the call back over to Cassidy.

Thank you, Bruce. Our second quarter financial performance reflects the momentum beginning to take hold at B&G Foods. Our base business is stable and is performing as expected. Our pricing and cost initiatives are beginning to deliver. Our two most recent acquisitions, McCann's and Clavagirl, are performing in line with our expectations. And our new leaner leadership structure is fully operational and working extremely well together. In summary, we believe the B&G Food Business Plan remains intact and very attractive as we continue to run a lean but nimble organization that can react quickly to various industry challenges such as widespread inflationary pressures, while we also create value through accretive M&A, while simultaneously returning excess cash to our investors through a healthy dividend, and share repurchases from time to time. This concludes our remarks. And now we'd like to begin the Q&A portion of our call.

Operator? Yes.

One moment. Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 to ask a question. We have our first question from Brian Hunt of Wells Fargo. Please go ahead.

Good afternoon, Ken and Bruce. Hi. My first question is, you talked about your pricing benefits and then you're on track to hit those as well as cost savings. Can you discuss where freight inflation and input cost inflation, I think you mapped those out at about $18 and $10 million, respectively. kind of at the midpoint, what are those tracking relative to your original budget?

So we continue to expect inflation this year in cost inputs and in freight, and our plans to combat that inflation are tracking within our guidance.

Very good. And then next year – Bruce, you talked about 5.4 times leverage by the end of the year. I think in the last call, you mentioned 5.2. Can you discuss what that relative change is? I imagine it's the acquisition of Cloud for Girl.

Yeah, it's acquisition of Cloud for Girl.

Okay. And then lastly, you all sound pretty positive about the pricing environment. Is there anywhere within your categories or within your channels where that you're seeing heightened competitive activity. I mean, I know you have biggest push to club.

I'm sorry, you asked about, would you mention club in the last piece?

Yeah, yeah, I was just wondering, are you seeing any incremental competitive activity from your peers, you know, whether it's in traditional channels or in club, particularly with regards to private level?

Not anything in particular. I mean, the business is always competitive, and so we're not seeing any – we haven't seen the recent quarters any more competitive, more or less than what we're used to.

All right.

I will hand it off to somebody else. Thank you for your time. Thank you.

Thank you. Our next question comes from Karu Martinson of Jefferies. Please go ahead.

Good afternoon. Just on the Collaborgirl acquisition, how much work has to be done to integrate the business to see some of that sales start to drop down to the bottom line?

Sure. I think the key thing to remember with Collaborgirl is we bought a full standalone business that had all sorts of corporate and family-owned costs embedded into it. We're very excited about the transaction. It's performing as expected. but our view was to largely run it as it was being run before, which includes some of the burden of those costs for a period of time as we work through the key banking season. And so that's the game plan and things are proceeding as planned. Okay.

We're also taking time with that acquisition because we just implemented our own ERP system, so we want to make sure that is absolutely free and clear before we now integrate another business into it. And so all green, you know, everything's a green light for pretty much the first of next year to be just about fully integrated.

Okay. And now with three quarters under your belt of canned distribution gains, I mean, are we going to call this a trend now? And where are you taking that distribution from?

The biggest distribution gains we received was through the dollar channel. But it's important to note that when we were overlapping our sales, negative sales, because of the overlap of the loss distribution, outside of the major customer that we lost distribution, consumption was up like 1%, which is pretty promising in that category. So, you know, this recent growth is certainly not going to be the future trend. We'll overlap that distribution. But before this occurred, our business was actually up very low single digits you know, absent of distribution gains.

Okay. And then just when we look at your target here at leverage, now how should we think about M&A working itself into that 5.4 target?

So we're always actively looking for M&A opportunities, and nothing really changed in that perspective. For us, the map always has to work, whether big or small. from a price and evaluation in a business that we want. And so we'll continue to evaluate things. We're certainly aware of where our leverage is. We're certainly aware of where our stock price is. And all things included, the math has to work.

Okay. Thank you very much, guys. Appreciate it.

Thank you.

Thank you. Our next question comes from Robert Moscow of Credit Suisse. Please go ahead.

Hi. Thank you, Rob, for the question. Hi. Hey, Ken, one of the concerns that I've articulated, and I think others have too, is that reinvestment needs might have to go up at B&G. Customers are more aggressive, and they've invested more in data analytics and their supply chains and e-commerce. And B&G has been operating with a game plan of kind of running a stable business and a I guess brands that have been around for a long time. Have you been able to – obviously, you know, the business stabilized this quarter. That's all good news. Are you seeing that you're able to run the business with the current level of investment pretty well, or do you think that there's more capabilities that you might have to build in future years that might require more resources given the environment? Thanks. Thanks.

When you say investment, I mean, there's two types of investment in my line. One's a P&L investment in terms of marketing spend and shopper marketing spend and getting ready for e-commerce and things of that nature. And the other is capital spending. So, I believe we do have enough capital spending to do what we need to do. At $45 to $50 million a year, we're going to be and we're coming off a major IT infrastructure investment with our ERP system. we're going to be turning a lot of those capital investments into further investment to drive cost savings, not just maintenance spend, but investments to drive cost savings on the cost of goods line. And then in terms, and one of those investments is a trade management system that's going to allow us to get at our largest expenditure on the P&L, besides cost of goods, is is trade spending, and trade spending gets used in a lot of different ways, and we're hoping to take that and do more with those dollars, like shopper marketing, like participating in all those retail programs. So I believe we have enough in our P&L to be able to take part in that. It's just how we allocate that spending is going to be the most important thing going forward.

Okay. And then a follow-up. I think you mentioned that your sales growth in Frozen started to slow in second quarter. Are you saying that in the back half the pipeline starts building up again with more new products, or do you think the competitive intensity is going to become a challenge in the back half? Thanks.

No, we did less. We had two innovation pipelines last year, spring and fall, and this year we're only doing one. So, we overlap the pipeline fill, so that doesn't concern us. That's just we didn't have a second shot at it in spring of this year. In addition to on the non-innovation, we had less trade promotion activity, which reduced volumes, but that was planned and intended. So, that's why Bruce mentioned, while it appears to be a slowdown, it was planned and not indicative of our expectations going forward.

Okay, thank you.

Thank you. Our next question comes from Carla Casella of JPMorgan. Please go ahead.

Hi, did you ever get the cash payment you made for the Clobber Girl acquisition?

Yeah, so we had a tax payment. obligation of approximately $71 million. No, no. What did we pay for? Oh, the purchase price.

Yes.

Sorry, did you mean the purchase price of fiber? $80 million. Okay.

And that was all this quarter?

Correct.

Okay. And what was the tax payment?

Gain on sale of pirates. So when we sold the business, there was a tax payment. We effectively were able to delay that payment for about six months. until that flows through our cash operation this quarter.

It's important to note that that tax payment this quarter was, as a result of the sale of a Pirate's Booty, which allowed us to pay a large amount of debt back last year.

Exactly. That actually goes to my next question. Do you give the ABL how much is drawn and what's the availability on that at the end of the quarter?

So, yeah, our revolver, all of that information is in the press release.

Oh, I'm sorry, I missed it. Okay, great. And then just one last one. You mentioned on the last question, one of the last questions on investment and talked a bit about how you want to redirect some of the spending out of trade. Are you seeing much, are you seeing others do the same? Are you getting pushback from retailers as you try and redirect trade spending?

Well, there's a lot of – we see a lot of dollars going into things like shopper marketing and stuff like that. So it's not like we're trying to take anything away. We're really trying to just redirect into all the new programs and initiatives that retailers have. So it's really about how we spend the same amount of money with the retailers.

Okay. Great. Thank you. Thanks, Carla. Mm-hmm.

Thank you. And our next question comes from William Roger of Bank of America. Merrill Lynch, please go ahead.

Good afternoon. It sounds like you pretty successfully pushed through your price increases with your customers. Have you gotten some data or can you talk to me about how the POS was of those items after the price increases were pushed through to the final customer?

Well, it's all there in Nielsen. Our consumption was up actually a little bit more in the second quarter than it was for total B&G, up a smidgen more than it even was in the first quarter. So 1.5% growth of consumer consumption, and that's varied by brand. So we haven't seen any elasticity beyond what we expected so far. It is early in terms of when that actually happened. we only have Nielsen results through the end of June. So retail prices were only affected by our price increase. It only took place in May. So you're not seeing a lot yet in terms of any changes in consumption patterns.

Yeah, no, you guys had given the commentary about Nielsen. I was just, you know, that was obviously for across all of your products. And obviously, I'm sure there was a range of price increases. So I was just trying to get an early indication of what you might have seen, if there was anything different for those products that you had higher price increases on.

Yeah, and we haven't seen anything unexpected.

Okay. And then one thing, you mentioned to an earlier question that you continue to see freight costs up. We have heard some indications recently that freight costs are coming down. You haven't seen anything – This is a couple journal articles that we had seen. You haven't seen anything around that recently?

We certainly hope those articles are correct. But we're not experiencing down versus last year. Right. In terms of rate.

Yeah, where we are getting savings is our activities in terms of relying both our dry and frozen.

Right. Okay. And then last time we had heard from you, your leverage target was four and a half to five and a half times. Is that still the number that you guys would stick with?

It is. That's very much our long-term leverage target.

Okay. I'll pass to others. Thank you.

Thank you.

Thank you. And our next question comes from David Palmer of Evercol ISI. Please go ahead.

Hey, Dave. Hi, David. Hey, Bruce. Hey, Ken. A question on Green Giant Frozen. Just a follow-up to Rob's question. You mentioned that there was slowing consumption, but that you have back-weighted your marketing and promotions in that part of your business. Do you believe that we will see that consumer takeaway growth for Green Giant Frozen perhaps re-accelerating in the coming months in the back half of this year?

Yes, mainly because of the launch of innovation in the fourth quarter.

Got it. And just on the distribution, we can see in the scanner data, frozen vegetables, you have ACV up there this quarter, but we're seeing some ACV losses across many other brands like Ortega and Maple Grove and Spices. Could you talk about what's going on with regard to distribution and perhaps SKU rationalization and, you know, how much of that is your own volition versus retailers?

Sure.

I mean, there's always ebbs and flows on distribution. So some of it is self-inflicted. Some of it we're cleaning up our product line on lower margin products. Some of it's retailers being more redlining of SKUs that may not turn as fast. And our whole approach is that particularly when we're launching new products, we're always looking at our own portfolio to make sure that we're justified to have incremental skews on shelf versus just keep adding. Because we understand the pressures that our customers are under in terms of limited real estate on the shelf. So there's always puts and takes on the distribution line.

And then just one last one on canned vegetables. Obviously, you're getting that good growth out of the dollar channel, as you mentioned. Is that, are you going to lap that? And should we just expect a more moderate growth or more stable performance from cans in a quarter or so when you lap that?

Yeah, absolutely. We would not model 25% growth. That's distribution growth. So we wouldn't even, you know, that's been a category declining in years, but we've actually done, other than one big distribution loss for a big customer, our business has actually been pretty good. For instance, we're growing it in Canada. Green Giant's a very, very strong brand in Canada. So, they're actually up growing very, very nicely. So, but we wouldn't expect, you know, a lot of growth from cans post the overlap and new distribution.

Thank you very much. Thank you.

Thank you. Our next question comes from Eric Lawson. of Buckingham Research Group. Please go ahead.

Hi, Ken. Hi, Bruce. Hi, Eric. How are you? I'm well, thanks. Hope things are well on your end, too. Just a quick, and maybe I don't have all the numbers correct here, but it goes to your sales guidance. You brought it up, obviously, the increase is about $30 to $45 million. So, If you just kind of break down the components of that, I'm just trying to make sure I understand what's in that increase in guide. You'll have $40 to $50 million of probably incremental revenue from Clapper Girl. You'll have some offset, obviously, from Pirates. You're going to have the benefit of a price increase. Now, it'll take a little while for most of that to kick in. My calculation shows that that puts a base – sales assumption on your base brands of about 2%. Is that anywhere close to the ballpark? And I might have some of the divestiture revenues, you know, uh, incorrect as well. I'm just trying to see if that is in the ballpark.

Yeah. So, so to make it real simple, prior guidance was a billion, 635, a billion, 665. And we increased that by between 30 and $35 million for the addition of clobber girl for the, uh, for the year.

Okay. All right. And then everything else was net of all that. So that is just CollabraGirl as the reason for your guide up? Correct. Tracking the plan with a nice edition of CollabraGirl. Got it. Okay. And then, you know, now you're kind of halfway through the year and, you know, now your cost you know, starting to kick in, you'll have better cost saves, and you actually beat a bit on your EBITDA, your adjusted EBITDA guide in the quarter. So, you know, is there a potential upside to your guide in adjusted EBITDA for, you know, for the next several quarters?

I think we would keep it right exactly where it was, and that's where we're comfortable with.

And that guide also includes Collaborate Girl.

Correct, although not a lot of incremental benefit from Clever Girl in 2019, just given, like we said earlier on the call, it came with a full corporate infrastructure for a relatively small business. And so we're running it mostly as is today. And like I said, don't expect a major impact there.

So that could be potential EBITDA upside, you know, maybe in 2020 as you get through your ERP systems, get those up. You could see that as maybe upside in the next calendar year. Correct.

Okay. Thank you. Yep, thank you.

Thank you. Our next question comes from Andrew Lazar of Barclays. Please go ahead.

Hi, everybody.

Hey, Andrew. Hi.

Just a couple quick things. One would be if we think about just volume and price as we go through the back half of the year, can you talk a little bit about would you expect the impact of pricing to accelerate from here? Because it doesn't sound like you're at full run rate yet. And then would you anticipate volume to be likely down in the back half around what it had been, let's say, in the first half? Or Can there be some adjustment, consumers adjusted to higher prices and maybe volume kicks in a little bit or isn't down quite as much in response to the pricing?

So from a pricing standpoint, we laid out a plan that talked about $15 to $20 million with increased price and through two quarters we're tracking to the plan and we're happy with that.

Does the $15 to $20 include the benefit that you had in the first quarter from some of the trade optimization? Yes. Or does it suffer from that?

We're not changing our guidance on the pricing. We're keeping it at $15 to $20 million. I feel comfortable with that.

Okay. EBIT.cadence in the back half of the year. Maybe you could just remind us of a couple of the – if there are a couple of discrete items between 3Q and 4Q that you'd want to kind of call out just as we think through that.

Yeah, the primary things that I'd call out and mentioned a little bit earlier on the call when we were talking through the guidance is Last year benefited from about seven, $8 million from pirates in the third quarter. And we obviously don't have the pirate today. And so I would say that's your base plan in terms of, are you up or down or flat for that? And then fourth quarter, it's a smaller, we had it for a shorter period of time. So maybe a couple million dollars drag there before you get into performance of this year.

And then lastly, I guess a broader question. I'm just trying to get a sense of how you would sort of characterize your full year EBITDA guidance at this point. And I ask that because, and what I mean by that is, you know, conservative, giving yourself some room, somewhat flexible, because there's been, I think it's safe to say, a little bit more volatility, right, in sort of forecasting versus kind of what's been reported both up and down between first quarter and second quarter, and even going back to a little bit last year. So I'm trying to get a sense whether, you know, when you think about a range, do you generally sort of think about, hey, midpoint gives us some room on both ends, or are you just trying to get ultimately be happy to get to the low end? Is there some flexibility there? You get the sense of what I'm going after.

Yeah, and we gave a guidance number. We're tracking to our plan, and, you know, I don't see anything that would suggest folks should be altering their of forecasts or estimates for the company. I think we're tracking it where people were and where we were and very pleased to report that.

Okay, thank you.

Thank you. Our next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Hey, good afternoon, everybody.

Hey, Ken. Hi.

If I didn't ask this question, I think you guys would be insulted, so I'll start there. Can you walk us through the dividend opportunity? I'm assuming it's still in safe regards, but could you just tell us a little bit through the cash flow and making sure that through the end of the year we're in good shape there and there won't be any need for any capital raise or anything like that? Just that would be where I'd start.

Sure. So familiar question, and thank you for asking it. Dividend, we're still committed to the dividend. Ken referenced on the call. The long-standing commitment to the dividend, as people saw yesterday, our board reauthorized the dividend at the same level, and so pretty, you know, pretty comfortable with that. And as far as the dividend coverage, based on the range of $305 to $320 million for adjusted EBITDA, you're getting to $175, $180-plus million of EBITDA, less cash interest, cash taxes, and CapEx to cover a dividend of about $125 million.

And in that regard, there is no reason that you would even need – outside of an acquisition, there would be no need for you to raise equity of any sort, right? Is that fair?

Outside of an acquisition, I don't see the compelling need to it, and we're certainly aware of what our stock price is today. I think people could see board authorization for additional share buyback of $50 million and the buybacks that we did over the last 18 months. in terms of what our view is on stock price.

And just on the business, can you give us an update on the spices and what the outlook for that is? I might have missed it, so I just would greatly appreciate that, and I'll leave it there.

Sure. We don't obviously guide to specific brand performance, but we love the spice business. It's performing, you know, in line with expectations. We outperformed in the first quarter. of this year. And so there is a little bit of a timing. And then we also have an issue there. It's somewhat of a pass-through business. And so we had some lower raw material costs and that impacted pricing. And so sales down a little bit for the quarter. Profits very healthy. And on a year-to-date basis, tracking in line with plan. So a little bit of timing.

Is there still opportunity for margin expansion within this business given the the infrastructure setup, or is that past us by now? And I will actually leave it there.

Thank you. Margin expansion in spices or in total business?

Yeah, in the spices business. I recall there was some opportunity in terms of distribution opportunities and just consolidating certain plants or something like that, and I just didn't know where you were on that and if there was any opportunity there.

Right now, in total margin expansion, as we've said, we're looking at the balance pricing and cost savings to offset inflation. Longer term, we'd like to return to margin expansion, but in the near term, margin maintenance is what the plan is.

Perfect. Thank you very much.

Thanks.

Thank you, ladies and gentlemen. That's all the time we have for questions for today. I would like to turn the conference back over to Mr. Ken Romanzi for any additional or closing remarks. Thank you.

We just appreciate everybody being on the call, good questions, and look forward to our next third quarter call. Thank you very much.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.