B&G Foods, Inc.

Good day and welcome to B&G Foods first quarter 2022 earnings conference call. Today's call, which is being recorded, is scheduled to last about one hour, including remarks by B&G Foods management and a question and answer session. I would now like to turn the call over to your host, Sarah Jerolem, Senior Director of Corporate Strategy and Business Development for B&G Foods. Sarah?

Good afternoon, and thank you for joining us. With me today are Casey Keller, our Chief Executive Officer, and Bruce Wacca, our Chief Financial Officer. You can access detailed financial information on the quarter in the earnings release we issued today, which is available at the investor relations section of BGfoods.com. Before we begin our 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 B&G Foods' annual report on Form 10-K and SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial condition. B&G Foods undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. We 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. Casey will begin the call with opening remarks and discuss various factors that affected our results, selected business highlights, and his thoughts concerning the outlook of fiscal 2022 and beyond. Bruce will then discuss our financial results for the first quarter of 2022 and our guidance for fiscal 2022. I would now like to turn the call over to Casey.

Good afternoon. Thank you, Sarah, and thank you all for joining us today for our first quarter earnings call. The first quarter of 2022 continued to be challenged by inflation and supply recovery. Net sales increased by 5.4% versus the first quarter of 2021, ahead of our expectations. Sales were driven by continued elevated demand compared to pre-COVID levels and higher pricing with relatively low elasticities. However, first quarter adjusted EBITDA declined 16.2% versus last year behind higher than expected inflationary cost pressures accelerated by the war in Ukraine, particularly in oil, wheat, corn, fuel, and other commodities. We expect that our latest pricing initiatives will recover these higher costs in the back half of 2022. there is a lag between higher cost of goods sold and pricing during the first half of 2022. New pricing actions will take effect in late Q2 and early Q3 with a two to three month notification and implementation period required by our retail partners. Bruce will talk more specifics on the quarter, including financial and portfolio highlights, But let me address the key factors driving 2022 first quarter results in more detail. Inflation. Total cost of goods sold inflation in 2022 is projected between 19 to 20 percent following the impact of the war in Ukraine and global supply issues. We plan for inflation in the low to mid teens, but now have line of sight to significantly higher costs. In particular, soybean oil, the primary input to Crisco, is now over 80 cents per pound relative to our projections in January of less than 60 cents. Wheat and corn have reached historical highs because of the Ukraine-Russia disruption, and vegetable costs for Green Giant have risen as farmers shifted crop planting. Trade and delivery costs have also increased sharply behind higher oil prices. Second, pricing. B&G has executed several rounds of pricing actions, trade spend efficiencies, as well as weight reduction initiatives to offset higher input costs. Pricing in Q1 delivered $36.2 million in additional revenue from 2021 increases and additional pricing implemented in late February. More pricing actions have been fielded in March and April that will be implemented between May and early July. Pricing elasticities are generally lower than projected on price increases already reflected on shelf. Third, supply. During Q1, we also experienced supply issues at B&G facilities and co-manufacturers related to Omicron infections and labor and material shortages. Production output and service levels steadily recovered through February and March, but customer fill rates during Q1 were below 90%. And finally, demand. Most P&G categories and product lines experienced reasonably strong demand relative to prior year and pre-COVID levels. We continued to see consumers eating and preparing more meals at home, partially driven by hybrid work models with some days during the week spent working remotely in the home. Looking forward, we expect that pricing will catch up to recent inflationary cost spikes in late Q2 and the back half of 2022. Customer fill rates are expected to steadily improve, barring any further disruptions, to enable growth and improve margins. The outlook for fiscal year 2022 is for net sales to increase more than previous guidance, with pricing elasticity increasing somewhat from current levels. On the bottom line, adjusted EBITDA is projected lower than previous guidance, driven by the lag between new higher costs and pricing actions moving into the market. Overall, we remain consistent on our major priorities. Foremost, managing B&G Foods effectively through the concurrent inflationary pricing and supply environment, which means pricing as quickly as possible to recover higher input costs and increasing production and critical supply to improve service levels above 95%. Second, improving organic growth performance beyond COVID recovery to plus one to 2%. capitalizing on the post-pandemic trends of remote working from home and a renewed interest in cooking. Third, focusing on brands and categories where we have the capability, scale, and right to win in terms of resources, investment, and structure. Fourth, making discipline acquisitions that are creative to our portfolio and cash flows and fit with our core expertise and center store dry distribution. And finally, accelerating cost savings and productivity efforts to eliminate non-valuated costs, offset inflation, and strengthen margins longer term. To deliver on these priorities and goals, we are working to reorganize the company operations into four business units, establishing clear focus and expectations within the B&G portfolio. As discussed, these units will define the categories and brands that we will resource and grow, the platforms for future acquisitions, the brands that will run for efficiency and cash flow, and the businesses we may exit over time. The business unit structure will also push accountability and multifunctional responsibility down to more closely managed parts of the complex B&G portfolio, improving the speed and clarity of decision-making to deliver growth and financial performance. The timeline to complete these organization changes is the next three to four months, and I expect to provide specifics on composition structure and performance expectations in late summer or early fall. Finally, before turning the call back to Bruce, I'd like to mention two additional items. First, as we announced in a press release shortly after our earnings release, today we acquired the frozen vegetable manufacturing operations of Growers Express. Growers Express has been our long-term manufacturing partner for our Green Giant riced veggies and our Green Giant veggie spirals, two of our important frozen vegetable innovation products that we launched shortly after acquiring the Green Giant brand. This relatively small acquisition, which closed today, allows us to take greater control of our supply chain, which we expect to improve access to product, help to protect our margins, and also enhance our innovation efforts for the Green Giant brand. Second, earlier this quarter, we closed on the previously announced sale of our Portland, Maine manufacturing facility. Thank you, and I will now turn the call over to Bruce.