B&G Foods, Inc.

Good day, and welcome to the B&G Foods second quarter 2020 earnings 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 investor relations section of bgfoods.com. Before the company begins its formal remarks, I need to remind everyone 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 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. Reconciliations of these financial measures to the most directly comparable GAAP financial measures are provided in today's earning release. Ken Romanze, the company's vice president and chief executive officer, will begin the call with opening remarks and discuss various factors that affected the company's results, selected business highlights, and his thoughts concerning the outlook for the remainder of fiscal 2020. Bruce Walker, the company's chief financial officer, will then discuss the company's financial results for the second quarter, as well as expectations for the remainder of 2020. I would now like to turn the conference over to Ken. Sir, please go ahead.

Thank you, operator. Good afternoon, everyone. Thank you for joining us today for our second quarter earnings call. I hope that everyone is staying safe and healthy during these very difficult times. While the last few months have been unprecedented and highly unpredictable, our amazing team at B&G Foods maintained a steadfast commitment to our core values and strategic imperatives to ensure the short-term and long-term success of our company. Before I highlight our second quarter results, I want to acknowledge and thank the entire B&G Foods team of almost 3,000 people for their tireless efforts to produce the results we will share today, all while taking care of one another to stay safe and healthy, yet remaining extremely productive to do our part to keep our nation's food supply flowing. Our frontline employees, have truly shown they are the true heroes throughout this pandemic, and I cannot thank them enough for their heroic efforts. Some of you may have noticed the small gesture we made to recognize our heroes back in June when two of our Terre Haute, Indiana manufacturing team members rang the closing bell of the New York Stock Exchange virtually. What a proud moment to have our team members represent the entire B&G Foods organization on the world's financial stage. Throughout the pandemic, we remain steadfast and increasingly focused on our major priorities to deliver the results I will highlight for you today. They are to, one, protect the health and safety of our employees, two, meet unprecedented customer and consumer demand, and three, make the investments necessary to ensure the long-term financial health and success of B&G Foods. Thanks to the tremendous efforts of our employees, we had an outstanding second quarter with net sales increasing 38.1% and adjusted EBITDA growing 44.6% ahead of the second quarter of last year. We reported adjusted diluted earnings per share of 71 cents for the quarter, an increase of nearly 87% compared to last year. Our sales performance was driven by very strong base business volume growth, pricing, and some M&A benefit. Our adjusted EBITDA as a percentage of net sales was 20%. 90 basis points above a year ago, as we began to see some nice operating leverage from increased volumes. As Bruce will share, we actually saw more operating leverage, but some of the benefit was offset by increased COVID costs. These operating results, coupled with excellent working capital management, allowed us to generate very strong net cash flow from operating activities of $188.8 million for the quarter, bringing a cumulative year-to-date net cash from operations to an astounding $246.4 million. We have always maintained that B&G Foods is a cash flow generating machine, and this quarter certainly proved that. We used a portion of this strong cash flow to repay revolver borrowings, and our net debt to pro forma adjusted EBITDA has been reduced by more than one turn since the start of the year to 4.99. Furthermore, on Tuesday of this week, Our board of directors declared our 64th consecutive quarterly dividend since going public in 2004. The B&G Foods team accomplished this while remaining committed to the health and safety of all of our employees and to do our part to keep our nation supplied with food during this difficult time. We continue to take a wide range of precautionary measures at our manufacturing facilities and other work locations in response to COVID-19. And although we're operating in a very challenging environment, our operations team has done a fantastic job ensuring that our supply chain has been able to meet an unprecedented increase in demand for our products by keeping our manufacturing facilities operating while at the same time ensuring the health and safety of our employees. The other heroes in this pandemic are the brands of the B&G Foods portfolio that consumers turned to when they found themselves having to provide great-tasting, comforting, and highly trusted brands, products, and meal solutions for their families when required to cook and eat at home more than ever before. We have a portfolio of products perfect for these troubling times with brands in very attractive categories across frozen and shelf-stable vegetables, spices and seasonings, breakfast foods, snacks, meal solutions, and baking. With at least one of our brands in approximately 80% of U.S. households and found in nearly every aisle of a grocery store, we have brands and products for each meal of the day and for all age groups. During the second quarter, we experienced tremendous strength in almost all of our brands, with 85% of our brands growing in net sales versus a year ago, including Green Giant, Ortega, Clobber Girl, Cream of Wheat, McCann's, Grandma's Molasses, and Victoria, to name a few. And as Bruce will share a bit later, the list goes on and on. Incredibly, a number of our brands doubled in net sales versus a year ago for the quarter, including Bear Creek, Joan of Arc, and Mama Mary's. For the most part, our brands with more food service exposure did not grow at high rates, but those same brands did have very strong retail consumptions. The oppressive growth in net sales across our portfolio was driven by strong, sustained consumption throughout the quarter. For the 13 weeks ending June 27th, as reported by Nielsen, the total B&G Foods portfolio grew 34.5% versus a year ago in consumption through retailer checkout lanes. About two times the total food and beverage growth rate and among the fastest growing publicly traded food companies in the U.S. since the beginning of the pandemic. Importantly, we gained or held share in nearly three quarters of our brands and categories. Our largest brand, Green Giant, grew 45% in net sales, driven by strong consumption growth of nearly 58% in shelf-stable vegetables, where we gained one and a half share points in the frozen vegetable category, and more than 22% consumption growth in frozen vegetables, where we maintained share versus last year for the quarter, but grew share in May and June, exiting the quarter with strong momentum. Frozen vegetables as a category, while growing nicely, didn't quite keep up with the center store shelf stable categories due to less space for consumers to stock up. But the category did increase a healthy 22% in consumption versus last year. While we don't expect these outsized growth numbers to continue forever, we do believe our sales trends will remain elevated as long as people are going to be sheltering or working a bit more from home, eating out a little less, and eating at home a little more. And quite candidly, we believe these trends will remain elevated for quite some time even after the pandemic eventually moves on. Consumers are learning about and enjoying cooking at home, and our brands are categories are a perfect fit for them. We believe this because we're seeing a significant increase in volume from new buyers of our brands. As measured by Nielsen, 2.6 million new households purchased our brand since COVID struck, a 3% increase across our portfolio, with some brands like Underwood increasing new households by as much as 18%. Encouragingly, these new buyers appear to have a strong appetite to continue buying our brands as the repurchase intent or the percent of new buyers who plan to buy again remains high with Catalina reporting a 26 repeat rate for new buyers of our brands led by Green Giant at 34.4%. Retaining these new households will be a key driver of elevated sales levels beyond the pandemic. But our existing households are also driving significant growth as they have increased consumption of their favorite trusted brands. We also saw a large increase in people shopping online, and our business certainly benefited from that. We estimate that e-commerce sales represent approximately 3% to 5% of our total net sales and are growing rapidly, inclusive of click and deliver and click and collect across our retail customer base. Our Amazon business alone grew 340% versus a year ago for the quarter and more than 330% year to date versus last year. In summary, our brands, products, and most importantly, our people stepped up to deliver outstanding results during an unprecedented period of time. I couldn't be more proud of our people or more excited about our future based on our performance over the past quarter. I'll share some thoughts on how we plan to capture future opportunity after Bruce provides you with more details on our second quarter performance. Bruce?

Thank you, Ken. Good afternoon, everyone. I hope you and your families are staying safe and healthy. As Ken mentioned, we had a really incredible performance in the second quarter despite the many challenges that we faced as consumers flocked to our products and those of other packaged food manufacturers during this time of crisis. This has driven a slowdown in away-from-home or restaurant-oriented consumption while contributing to a dramatic increase in food-at-home consumption that we expect will continue at elevated levels for some time. And we certainly would not be able to achieve this performance without the efforts of our team of dedicated employees across all of B&G Foods who continue to work very hard in the face of this pandemic. Separately, we are very thankful for the loyalty of our consumers who are gravitating towards our brands in this time of uncertainty. We believe that our portfolio of products and our channel mix is well-suited for the current situation that we find ourselves in today, and we believe that this environment will benefit our net sales well after the pandemic recedes. In the second quarter of 2020, we generated net sales of $512.5 million, adjusted EBITDA of $102.6 million, and adjusted diluted earnings per share of 71 cents. results that were all far in excess of the prior year and, in fact, represented record second quarter performance for the company. Our net sales increased by an astounding $141.3 million, or 38.1%. Increased volumes contributed to the majority of the growth in net sales that we have seen in the quarter, including approximately $111.7 million in increased benefit from base business net sales $15.6 million of increased benefit from volumes due to M&A, and $15.3 million from net pricing. The impact of foreign exchange resulted in an approximately $1.3 million drag on net sales for the quarter. The net pricing benefit of $15.3 million was primarily driven by the impact of our 2019 list price increases the trade spend optimization program that we initiated in 2019, and a temporarily lower trade spend environment. The trade spend environment has already begun to normalize, and we expect less pricing benefits in the third and fourth quarters of this year. Increases in our net sales to supermarkets, mass merchants, warehouse, clubs, wholesalers, and e-commerce customers have more than offset declines at food service customers which for fiscal 2019 represented only approximately 13% of our overall net sales. As we disclosed on the first quarter call, our net sales in April increased by more than $70 million or more than 60% ahead of last year. Net sales for May increased by more than $50 million, an increase of approximately 50%. And for June, Net sales increased more than $15 million, or 10% year over year. While our second quarter was very strong, we saw what appears to be an emerging theme in this pandemic. While typically we see a strong build ahead of the holidays that encourage large gatherings like 4th of July, we did not see that build this year and actually saw a decrease in sales in the final week leading up to the holiday when compared to the prior year period, which did benefit from that traditional holiday build. Interestingly, this would be one of the few times since the beginning of the pandemic that we did not see a weekly year-over-year increase in net sales versus the prior year. July, however, started off with a bang and looks to have had growth rates in net sales versus July of last year of some 30% to 35% based on preliminary results. When looking at June and July combined, our net sales growth was approximately 20%, which is more similar to what we are currently seeing and the consumption scanner data. Green Giant continues to be the leader in our portfolio with net sales, including net sales of the LeSore brand, of approximately $164.1 million, an increase of approximately $51.2 million, or 45.4% in the quarter. Over the last 12 months, Green Giant, including LeSore, has generated just over $600 million in net sales. We saw outsized growth in net sales for both our shelf-stable and frozen Green Giant products in the second quarter, with shelf-stable adding $33.6 million in net sales, or an increase of over 130%, and frozen adding $17.6 million in net sales, or an increase of 20.1%. Frozen growth was driven by core legacy frozen bag and frozen bag-in-a-box lines, as well as innovation products such as Green Giant rice veggies, Green Giant veggie spirals, and Green Giant veggie tots. Shelf-stable Green Giant continues to benefit from a renaissance demand for canned vegetables. Flabbergirl, which we acquired on May 15, 2019, and thus was not in our April and first half of May 2019 results, was also a major contributor in the second quarter growth. Net sales of Clabber Girl were approximately $26.5 million for the second quarter of this year, in what is ordinarily a slow period for the category, compared to approximately $8.4 million during the portion of the second quarter last year that we owned Clabber Girl, plus an additional $8 million or so under prior ownership. Among our other large brands, we had exponential growth from Cream of Wheat, which increased net sales by approximately $6.3 million, or 54%. Victoria, which was up approximately $3.8 million, or 37.7%. And Ortega, which was up approximately $12.8 million, or 37.4%. Our spices and seasonings in the aggregate increased net sales by $17.4 million or 21.4% with an acceleration in the second half of the quarter despite continued softness in food service. We have seen a strong build developing in traditional grocery throughout the course of the quarter as well as more recently increased demand in food service. Net sales of Maple Grove Farms were up $0.2 million or 1.5% in the second quarter with strong retail performance offset by softness at some key food service customers. Similarly, New York style was down $0.7 million or 6.9% due to a combination of food service exposure as well as more muted performance that we are seeing in the deli aisle relative to the center of store and frozen aisles. And we also saw strong performance across the rest of our portfolio. In fact, Outside of our seven large brands and our spices and seasonings, net sales of the rest of our portfolio increased by $35.3 million, or 38.2%. And as Ken mentioned earlier, approximately 85% of our brands increased net sales during the quarter, with approximately 80%, including B&M, B&G, Grandma's, Las Palmas, Mama Mary's, McCann's, Polliner, and Underwood, increasing net sales by double digits in the quarter. Gross profit was $134.1 million for the second quarter of 2020, or 26.2% of net sales. Excluding the negative impact of approximately $0.5 million of acquisition, divestiture-related, and non-recurring expenses during the second quarter of 2020, gross profit would have been approximately $134.6 million, or 26.3% of sales. 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 other non-recurring expenses during the second quarter of 2019, gross profit would have been $96.8 million, or 26 points of net sales. Selling general and administrative expenses were $44.3 million in the second quarter of 2020, or 8.7% of the quarter's net sales, up slightly in dollar terms, but a decrease of approximately 200 basis points as a percentage of net sales. Selling general and administrative expenses were $39.9 million in the prior year quarter, which was 10.7% of net sales. The dollar increase was composed of increases in selling expenses of $2.7 million and general and administrative expenses of $4.7 million, partially offset by a decrease in M&A and non-recurring expenses of $2.7 million, warehousing expenses of $0.2 million, and consumer marketing of $0.1 million. We generated $102.6 million in adjusted EBITDA in the second quarter of 2020 compared to $71 million in the prior year period. The increase of $31.6 million in adjusted EBITDA represents our third consecutive quarterly increase in adjusted EBITDA as compared to the comparable prior year quarter following our lapping of the one-year anniversary of the divestiture of Pirate Brands in the fourth quarter of last year. Strong base business performance that has been enhanced by the increased sales resulting from the onset of COVID-19 pandemic and the resulting shelter-at-home and work-from-home policies. Adjusted EBITDA as a percentage of net sales was 20% for the second quarter of 2020, an increase of approximately 90 basis points over the 19.1% generated during last year's second quarter. Adjusted EBITDA as a percentage of net sales was negatively impacted by approximately 90 basis points, or approximately $4.7 million, in COVID-19 expenses related to health and safety precautions, including enhanced sanitations and employee screenings, and increased compensation paid to our manufacturing employees in the form of temporary wage increases, special bonuses, and continued pay during quarantines. Adjusted EBITDA was also negatively impacted by an additional $3 million, or 60 basis points, due to the impact of foreign exchange. Net interest expense was $24.8 million in the second quarter of 2020, an increase of about $1.6 million compared to the prior year period. We generated 71 cents in adjusted diluted earnings per share in the second quarter of 2020, compared to 38 cents in adjusted diluted earnings per share in the prior year period, driven by our strong operating performance and a reduction in our share count. B&G Foods has historically been a strong cash flow generator, but our second quarter results were unprecedented for us. We generated $188.8 million in net cash provided by operating activities in the second quarter of 2020, and we have now generated $246.4 million in net cash provided by operating activities through the first six months of the year. As you may recall, we highlighted our intention to reduce working capital this year and generate outsized net cash provided by operating activities. Our planned reduction in working capital has been accelerated by the impact of COVID-19. This, combined with the substantial increase in our net sales for the first six months of the year, have dramatically improved our net cash from operating activities. The other aspect to think about with regards to our strong cash flows is our balance sheet and how our performance this year has impacted our net leverage and accelerated our deleveraging goals. During the first six months of the year, we have reduced our net debt by approximately $170 million to $1.7 billion at the end of the second quarter. We have reduced our net debt to pro forma adjusted EBITDA from 6.1 at the start of the year to just under five times today. We are now well within our stated target range of 4.5 to 5.5 times net debt to pro forma adjusted EBITDA, and we expect continued strong financial performance throughout the back half of the year to further reduce our net leverage in 2020. While we have suspended giving guidance for fiscal 2020 due to the unpredictable macro environment, every day we are learning a lot more about the world that we are currently living in. Based on the current environment, with still elevated incidences of confirmed coronavirus cases, we expect continued shelter at home and work from home activity. Unfortunately, we also expect a soft economy and higher than normal levels of unemployment. As a result, we believe that we will remain in an environment where people are eating more meals at home than in the prior year, boosting our traditional grocery sales while putting pressure on our food service sales. Based on what we know today, we expect to see continued elevated levels of net sales, adjusted EBITDA, and growth in net sales and adjusted EBITDA throughout the remainder of the year. Ultimately, we expect our retail shipments to eventually tie fairly closely over time to our retail consumption trends. And this is effectively where we have found ourselves when we look back at our June and July periods. Our factories are running full steam to keep up with this demand, which is helping to generate positive operating leverages. But we also expect that these benefits will continue to be offset in part by the incremental costs of the precautions that we feel are necessary to operate safely in this environment. As a result, we believe that our margins will generally remain in line with, perhaps with a small upside to, the prior year and quarterly levels. However, it is very hard to predict timing or the full impact of COVID-19 pandemic will have on our business or to provide financial guidance in this environment. And as a result, we are continuing to suspend giving guidance. The ultimate impact of the COVID-19 pandemic on our business will depend on many factors, including... among others the duration of social distancing and stay-at-home mandates and whether a second or third wave of COVID-19 will affect the United States and the rest of North America, our ability to continue to operate our manufacturing facilities and maintain our supply chain without material disruption, and the extent to which macroeconomic conditions resulting from the pandemic and the pace of the subsequent recovery may impact consumer eating habits. I would now like to turn the call back over to Ken to highlight our plans for the rest of the year. Ken?