B&G Foods, Inc.

Welcome to the B&G Foods third 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 risk 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 earnings release. Ken Romanzi, the company's President and Chief Executive Officer, will begin the call with opening remarks and discuss various factors that affected the company's results and selected business highlights. Then Bruce Walker, the company's Chief Financial Officer, We'll discuss the financial results for the third quarter as well as expectations for the remainder of 2020. Ken will then wrap up with his thoughts regarding the priorities for the remainder of 2020 and beyond. I would now like to turn the call over to Ken.

Thank you, Operator. Good afternoon, everyone. Thank you for joining us today for our third quarter earnings call. With a portfolio of brands and products, it's very well suited for the stay-at-home, work-from-home, cook-from-home, and eat-at-home world, B&G Foods delivered another strong quarter of sales and earnings. Our portfolio of green giant vegetables, spices and seasonings, condiments, baking products, and other brands for all day parts really delivered when consumers needed to feed their families at home, out of necessity at first, then out of their rediscovery of their love for cooking and baking. This resulted in another great quarter for our business. with net sales increasing 22% and adjusted EBITDA growing 21.3% as compared to the third quarter of last year. These results drove reported adjusted dividend earnings per share of 74 cents for the quarter, an increase of 37% compared to last year. We experienced tremendous strength in almost all of our brands with nearly 80% of our brands growing net sales versus last year and nearly 60% of those at a double-digit pace. Throughout this pandemic, we have remained focused on our three major priorities, protecting the health and safety of our employees, continuing to meet the unprecedented customer and consumer demand, and making the investments necessary to ensure the long-term financial health and success of B&G Foods. Our operations team continues to do an incredible job ensuring that our supply chain meets the unprecedented increase in demand for our products by keeping our manufacturing facilities operating efficiently, while at the same time ensuring the health and safety of all of our employees. I'm pleased to report we have been very successful keeping our employees safe. Keeping them safe is not only the right thing to do, but we believe it has been a competitive advantage as it has allowed us to keep our supply chain humming without disruption to meet this unprecedented surge in demand. Our supply chain has been a clear contributor to our growth among the best in the industry. And while we have seen some supply shortages in about half a dozen of our product lines, we've maintained excellent customer service levels on the vast majority of our 50-plus brands throughout the pandemic. I cannot thank our frontline workers enough for working tirelessly around the clock for many months to meet our customer and consumer needs during this time. They continue to be our true heroes. Our impressive growth in net sales across our portfolio was driven by a continuation of strong, sustained consumption growth throughout the quarter. For the 13 weeks ending October 3rd, as reported by Nielsen, the total B&G Foods portfolio consumption grew 18% versus last year. This was nearly 50% greater than the total packaged food growth rate of 12.4% for the same time period, keeping B&G Foods consistently among the fastest-growing publicly-traded packed-packaged food companies in the U.S., both for the quarter and the entire period since the beginning of the pandemic. In addition, we continue to gain or hold market share in nearly two-thirds of our brands and categories. Our largest brand, Green Giant, grew 31.5% in net sales, driven by strong meals and consumption growth of 46.6% in shelf-stable vegetables, where we gained 2.1 share points in the canned vegetable category and more than 13% consumption growth in frozen vegetables, where we gained share in the frozen vegetable category that grew 10.6%. Our spices and seasonings grew net sales 30% despite a material exposure to the food service channel. Strong retail consumption growth of 29% for the quarter drove strong net sales growth. Many of our other brands also had a strong third quarter. For example, Metzels of Victoria increased 55.9%, and Metzels of Cream of Wheat increased 17.2%. And our baking products really boomed amongst the consumers' newfound love for baking, powered by our clobberer line of baking products, which increased 23.2% versus last year. And speaking of baking, before turning the call over to Bruce, I want to talk about our most recent exciting announcement. As you all likely have seen, we recently entered into an agreement to acquire the iconic Crisco brand of oils and sugar from the J.M. Smucker Company. This acquisition is the second largest in B&G Foods company history, and one about which we are absolutely thrilled. Crisco is an excellent complement to our existing portfolio of baking brands, including Carbogirl, Davis, Rumford, Grandma's Molasses, and our Pure Maple Syrup brands. The acquisition of Crisco is consistent with our longstanding acquisition strategy of targeting well-established brands with leading market positions and strong cash flow profiles at reasonable purchase price multiples. Crisco has a strong heritage as the original all-vegetable shortening that transformed the way people baked and cooked over 100 years ago. Crisco is the number one brand of shortening, the number one brand of vegetable oil, and it also holds leadership positions in other cooking oils and sprays Consistent with our acquisition strategy, we expect the acquisition to be immediately accrued to our earnings per share and free cash flow. I'll come back later to share more about how we plan to continue to capture the many opportunities we have with Crystal and all of our brands after Bruce provides you with more details on our third quarter financial performance. Bruce?

Thank you, Ken. Good afternoon, everyone. As Ken just outlined, we continue to see the same elevated business trends during the third quarter that we saw during the first two quarters of the year, largely as a result of the ongoing COVID-19 pandemic and its impact on consumers. Our Q3 2020 results include net sales of $495.8 million, adjusted EBITDA of $104.6 million, and adjusted diluted earnings per share of 74 cents. Adjusted EBITDA as a percentage of net sales was 21.1% for the quarter. Our net sales increased by $89.5 million, or 22%, in the third quarter of 2020 when compared to last year's third quarter. The increase in net sales was almost entirely driven by increased volumes, while the impacts of M&A, pricing, and foreign exchange were negligible. Similarly, Base business net sales increased by $89.1 million, or 21.9%. Our volumes increased by $89.8 million, primarily driven by the elevated trends resulting from COVID-19. In addition, the third quarter also benefited from an extra week due to the occurrence of the 53rd week during our fiscal year. Our average weekly sales in the third quarter of 2020 were approximately $35 million. Third quarter net sales included strong performance across the majority of the brands within our portfolio, with nearly 60% of the brands in our portfolio generating double-digit percentage growth in the third quarter of 2020 when compared to last year. Among our larger brands, net sales of Green Giant, including LeSore, increased by $37.9 million, or 31.5%. Net sales of our spices and seasonings increased by $24.3 million, or 29.5%. Net sales of Victoria increased by $6.3 million, or 55.9%. Net sales of Maple Grove Farms increased by $3.2 million, or 18.2%. Net sales of Cream of Wheat increased by $2.4 million, or 17.2%. Net sales of Ortega increased by $1 million, or 3%. Net sales of all other brands in the aggregate increased by $14 million, or 11.1%. Gross profit was $136 million for the third quarter of 2020, or 27.4% of net sales. Excluding the negative impact of $0.1 million of acquisition, divestiture-related, and non-recurring expenses during the third quarter of 2020, our gross profit would have been $136.1 million or 27.5% of net sales. First profit was $108.8 million for the third quarter of 2019 or 26.8% of net sales. Excluding the negative impact of $1.5 million of acquisition divestiture related and non-recurring charges during the third quarter of 2019, our gross profit would have been $110.3 million, or 27.2% of net sales. While we have continued to see significant operating leverage within our gross profits as a result of our increased sales, these benefits were offset in part during the third quarter by COVID-19 preventative costs, enhanced compensation during the pandemic for employees at our manufacturing facilities, and approximately 100 basis points of freight rate inflation. Our COVID-19 costs, including the enhanced compensation for our manufacturing employees, continue to run about $1.5 million per month, or approximately $4.5 million in the third quarter. Meanwhile, on a rate basis, increased freight rates cost us about $5.5 million in the quarter. Selling general and administrative expenses were $43.4 million in the third quarter of 2020, which was an increase in dollar terms but favorable by about 60 basis points as a percentage of net sales. SG&A costs increased by $5.3 million compared to the year-ago third quarter. The dollar increase was composed of increases in consumer marketing, including investments in e-commerce, of $3.8 million, general and administrative expenses of $2.7 million, selling expenses of $1.8 million, and warehouse expenses of $0.3 million, partially offset by a decrease in acquisition divestiture related and non-recurring expenses of $3.3 million. Expressed as a percentage of net sales, selling general and administrative expenses were 8.8% for the third quarter of 2020 compared to 9.4% for the third quarter of 2019. We generated $104.6 million in adjusted EBITDA in the third quarter of 2020 compared to $86.2 million in the prior year quarter, which represents an increase of approximately $18.4 million, or 21.3%. The increase in adjusted EBITDA was primarily driven by an increase in net sales volume. Adjusted EBITDA as a percentage of net sales was 21.1%. which was in line with adjusted EBITDA as a percentage of net sales in the prior year third quarter of 21.2%. Year to date, adjusted EBITDA as a percentage of net sales is now 19.8%, approximately 20 basis points higher than the prior year period. We generated adjusted net income of $47.9 million or 74 cents per adjusted diluted share. in the third quarter of 2020 compared to $34.9 million or $0.54 for adjusted diluted share in the third quarter of 2019. Earlier this year, like many in our peer group, we suspended our annual guidance at the onset of the COVID-19 or coronavirus pandemic. While we noted that the world had changed and that forecasting our business would be challenging due to the many factors outside of our control, We expressed our belief that we would materially exceed the financial forecasts that we had made earlier in the year of $1.66 to $1.68 billion in net sales and $302.5 to $312.5 of adjusted EBITDA, and we certainly have. While life has not returned to normal yet, given where we are in the year, we believe we are in a position to provide guidance for the remainder of fiscal 2020. and we certainly expect to see continued elevated performance throughout the remainder of the year. When factoring in our guidance, however, please keep in mind that while we are very excited about the announced acquisition of Crisco from Smucker, this transaction has not yet closed, and therefore our guidance excludes the expected impact of the pending acquisition. So here it goes. Through the first nine months of 2020, we generated $1.458 billion in net sales, compared to $1.19 billion in the year-ago period, an increase of $267.5 million, or 22.5%. Similarly, through the first nine months of 2020, we generated $287.9 million in adjusted EBITDA, compared to $233 million in the year-ago period, an increase of $54.9 million, or 23.5%. While we don't expect to remain at the same torrid plus 20% area growth rate into perpetuity, we do anticipate growth in the fourth quarter to remain elevated or up as much as 10% or more for net sales, which will drive the rest of our model. Based on our first nine months of performance and our outlook for the fourth quarter, we expect this strong performance that we are seeing to continue throughout the remainder of the year, and we expect to generate between 1.95% and $1.97 billion in net sales for 2020. We expect to generate between $360 and $370 million in adjusted EBITDA. We expect slight improvements in our adjusted EBITDA as a percentage of net sales as operating leverage from increased volume is expected to continue to boost margins. However, similar to prior quarters, we expect some of these margin benefits to be offset by increased costs relating to the pandemic as well as a continued uptick in freight inflation. We are also providing adjusted diluted earnings per share guidance for the full year fiscal 2020 in the range of $2.30 to $2.40. We expect to spend approximately $40 to $45 million for the year in capex. Based on our latest estimates and our continued pay down efforts, we are trending toward a net debt to adjusted EBITDA before share-based compensation of approximately 4.5 times before the acquisition of Crisco. Performa for the pending acquisition of Crisco, we expect to remain well within our target net leverage ratio of 4.5 to 5.5 times. Based on our latest forecasts and our estimates for the acquisition, we now expect to finish the year at approximately 5 to 5.1 times net debt to adjusted EBITDA per former for the acquisition. Ken discussed some of the highlights earlier, explaining why we are so very excited about the acquisition. I would also like to provide some additional financial information. Similar to many other brands in our portfolio, Crisco has seen elevated performance throughout the pandemic, boosted by strong double-digit increases in consumption as Americans are re-embracing their kitchens, and rediscovering the joys of baking. As previously announced, we expect CRISCO will generate approximately $270 million of net sales and approximately $65 to $70 million of adjusted EBITDA in 2021. We expect CRISCO will be accretive to our adjusted diluted earnings per share by approximately 45 to 50 cents. We also expect CRISCO to add approximately $7 million to our annual CapEx needs. We are also very excited about the free cash flow generation profile of this business and expect it to help accelerate our deleveraging goals. We expect the acquisition to close during the fourth quarter, and we expect to finance it initially through a combination of cash on hand and revolver draw. I would now like to turn the call back over to Ken to highlight our plans going forward. Ken?