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.