B&G Foods, Inc.

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

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 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 subsequent SEC filings for a more detailed discussion of the risks that could impact our company's future operating results and financial conditions. 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 affect our results, collective business highlights, and his thoughts concerning the outlook for the remainder of fiscal 2022 and beyond. Bruce will then discuss our financial results for the third quarter of 2022 and our guidance for full year 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 third quarter earnings call. Third quarter performance improved sequentially as pricing actions covered more of the inflationary costs. Net sales increased 2.6% versus last year, with adjusted EBITDA margin at 15.2% compared to 11.3% in Q2. Adjusted gross profit margin improved to 20.4%, down 340 basis points versus last year, compared to Q2 at 16.5%, which was down 760 basis points versus last year. Some key perspectives on the results. Inflation. Total fiscal year 22 input cost inflation impact remains at plus 20%. This is the first quarter in fiscal year 22 that has not worsened. In addition, freight, transportation, and weary housing costs have moderated from last summer, although still significantly higher than last year. Pricing. In total, pricing realization contributed $75.5 million in Q3, compared to only $20.5 million in Q2. Net pricing actions recovered in excess of 80% of inflation in the quarter, with full recovery expected in Q4, behind final fiscal year 22 price increases implemented in August and on October 3rd. Volume. Sales results were slightly below our expectations and impacted by volume declines on Green Giant canned vegetables and spices and seasonings. Green Giant declines were driven by the exit of a low-to-no-profit business in the dollar channel and higher elasticity following summer price increases. We are seeing some recovery during the fall promotion season. On spices and seasonings, trends reflected distribution losses from supply and service issues in Q1 and Q2, and a general slowdown of category trends post-pandemic. We are now recovering distribution in key accounts behind improved service with very strong spice and seasoning sales in October. Supply. Customer service and fill rates improved during the third quarter, reaching over 93% by the quarter's end. we are on track to deliver between 94% to 95% customer fill rates in Q4. Some supply issues still remain behind materials availability, but those are becoming more isolated situations. Looking forward, we are on track for stronger Q4 delivery, expecting net sales to grow mid-single digits with adjusted EBITDA at or above last year. Q4 projections are based on full pricing actions moderating costs, and comparisons to the COVID Omicron service and shipping disruptions last December across several production and distribution facilities. As discussed, we have been implementing pricing actions to recover inflationary input costs as fast as possible during fiscal year 22. By October, all current year pricing increases were sold through an effective catching up to known costs for the remainder of the year. For fiscal year 23, we expect inflation to continue, but at a much lower rate, currently estimated at plus 4% to 5%, with the biggest pressures on tomatoes, glass, et cetera. So far, we have not seen significant declines on key commodities, for example, soybean oil, corn, wheat, et cetera, from average cost levels in fiscal year 22. Again, we expect to raise prices to recover higher input costs, but with a more surgical approach against key commodity categories versus the broader actions required in fiscal year 22. In terms of elasticies, we project that price elasticies will increase modestly as the economy tightens next year, and some consumers trade down on the margin to cheaper alternatives. Further, we will be taking additional steps to manage cash flow and reduce debt in the near term. Although our leverage ratio will improve with stronger EBITDA flow in Q4 and early fiscal year 23, the debt level at $2.4 billion is too high in a rising interest rate environment, with interest expenses on short-term debt increasing significantly. Working capital needs have also increased over the past year with higher inventory valuations as a result of cost inflation. At this point, we are taking actions to manage the capital structure that Bruce will address in more detail later, but at a high level include revising our dividend payout rate to return a substantial portion of free cash flow to shareholders, but directing a significant remainder to reduce debt obligations. Completing divestitures of non-core businesses to generate proceeds to pay down debt and reduce leverage, we are actively seeking to sell the Back to Nature brand and have initiated a strategic review to identify other potential divestitors that will shape the B&G Foods portfolio for future focus and strength. Finally, I am encouraged by the startup of the four business units, spices and seasonings, meals, frozen and vegetables, and specialty. As discussed, these units are intended to clarify portfolio focus and future platforms and push accountability down to improve management and decision-making. Although early days, we are already building stronger plans, identifying margin improvement opportunities, making faster decisions, and more closely integrating demand and supply. I am confident this structure will sharpen our focus build critical capabilities, and deliver improved sales and margin performance over time. Thank you, and I will now turn the call over to Bruce for more detail on the quarterly performance and outlook for the remainder of the year. Thank you, Casey.